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Operator: Thank you for holding. Your conference will begin in five minutes. Thank you for your patience. Good morning, and welcome to the Vornado Realty Trust Fourth Quarter 2025 Earnings Call. My name is Nick, and I will be your operator for today's call. The call is being recorded for replay purposes. All lines are in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At that time, please press star then 1 on your touch-tone phone. I will now turn the call over to Mr. Steven Borenstein, Executive Vice President and Corporation Counsel. Please go ahead, sir. Steven Borenstein: Welcome to Vornado Realty Trust Fourth Quarter Earnings Call. Yesterday afternoon, we issued our fourth quarter earnings release and filed our annual report on Form 10-K with the Securities and Exchange Commission. These documents, as well as our supplemental financial information package, are available on our website, www.vornado.com, under the investor relations section. In these documents and during today's call, we will discuss certain non-GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release, Form 10-K, and financial supplement. Please be aware that statements made during this call may be deemed forward-looking statements and may differ materially from these statements due to a variety of risks, uncertainties, and other factors. Please refer to our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended 12/31/2025, for more information regarding these risks and uncertainties. The call may include time-sensitive information that may be accurate only as of today's date. The company does not undertake a duty to update any forward-looking statements. On the call today from management for our opening comments are Steven Roth, Chairman and Chief Executive Officer, and Michael Franco, President and Chief Financial Officer. Our senior team is also present and available for questions. I will now turn the call over to Steven Roth. Thank you, Steve, and good morning, everyone. Steven Roth: Here at Vornado, business is good and getting better. As you all know, Vornado is a premier Manhattan-centric office company. And I'm sure we can all agree that Manhattan is clearly far and away the best office and residential, too, by the way, real estate market in the country. Predicted on our recent calls, New York is now on the foothills of the best landlord's market in twenty years. We believe this landlord's market in Manhattan will continue to tighten and last for a long time. Fundamentals are truly outstanding and the best ever. Long and short of it, is that tenant demand from finance, tech, and most other industries is extremely robust, in the face of declining availabilities and the better building subset. Take a look at our assets. We have the Penn District, our city within the city. A roster of our other assets in the better building category where in-place rents are well under market. And market rents are rising. We have an irreplaceable portfolio of very scarce, think scarce as hen's teeth, high street retail assets on 5th Avenue, and in Times Square. We have the largest and most successful and growing large format signage business. We have in-house our wholly owned vertically integrated cleaning and security company. We have the best development program in town highlighted by 350 Park Avenue, 1015, and now 623 5th Avenue. And most importantly, we have the best management team leasing, development, finance, and operations in the business. In short, we are a very focused Manhattan-based office power specialist. And while not in Manhattan, let's not forget 555 California Street, but they're still being rapidly recovering San Francisco. Where occupancy is 95%. And rent is north of $160 per square foot in the tower. At Vornado, we had an industry-leading quarter and an industry-leading year. In almost every performance metric. And when I say industry-leading, I mean better than the other guys. Here's the scorecard. During 2025, Glen and his team leased 4,600,000 square feet of office space overall. Consisting of 3,700,000 square feet in Manhattan. 146,000 square feet in San Francisco, and 394,000 square feet in Chicago. This was our highest Manhattan leasing volume in over a decade, and our second-highest year on record. Excluding the 1,100,000 square foot master lease with NYU, our average starting rents in Manhattan were $98 per square foot. With mark-to-markets of plus 10.4% GAAP and plus 7.8% cash and with an average lease term of over eleven years. The second year in a row, Vornado was the clear leader in $100 per square foot leasing. With 46 leases totaling 2,500,000 square feet. Or two-thirds of our activity. PENN1 and PENN2 led here with a total of 23 deals comprising more than 1,000,000 square feet between both properties. In the fourth quarter, we executed 25 New York office deals totaling 960,000 square feet. At an average starting rent of $95 per square foot. Mark-to-markets for the quarter were plus 8.1% GAAP and plus 7.2% cash. At an average lease term of ten years. Half this activity was for leases with over $100 per square foot starting rents. 2025 results reflected the market's growing appreciation for our transformation of the Penn District. Tenants and brokers get it. High-quality office space, the best transportation literally on top of Penn Station, the region transportation hub, and the plethora of amenities and hangout spaces are unmatched. In 2025 at Penn at Penn two, we leased 908,000 square feet and average value went to $109 per square foot. With an average term of over seventeen years. This includes 231,000 square feet leased during the fourth quarter, average starting rent of $114 per foot. With an average term of over thirteen years. All well above our original underwriting. We have now leased over 1,400,000 square feet of PENN two since project inception, putting us at 80% occupancy, hitting the target, which we guided. To. Expect to finish the lease-up this year. Based on the leases we have executed and the activity in the remaining space, we have increased our projected incremental cash yield from 10.2% to 11.6% as you will see on page 22 of our supplement. At ten one, we leased 420,000 square feet during the year at average starting is $97 per foot. Also well above our original underwriting. Since the start of physical redevelopment at PENN1, we have leased over 1,700,000 square feet at, an average starting rent of $94 per foot. At ten two, we have just 348,000 square feet of vacancy left to lease, At PENN1, we have 177,000 square feet of vacancy left to lease. Plus half a million square feet of first-generation leases still to roll over. The good news is that this will all generate income very shortly. At 10:11, we finalized two important leases during the fourth quarter as our major tenant there expanded by another 95,000 square feet. Bringing their total footprint to 550,000 square feet and AMC Networks renewed for a 178,000 square feet. In 2025, our office occupancy rose from 88.8% to 91.2%. Pause here for a minute and dig in. There's some re there has been some recent chatter about physical occupancy call it leased occupancy, versus economic occupancy, call it GAAP occupancy. Most look at the difference on a square foot basis. I prefer to look at it on a dollars and cents basis. The former, leased occupancy, is based on signed leases, including those not yet recognized by GAAP The latter, GAAP occupancy, represents leases that are recognized as paying GAAP rent. At Vornado, the difference is over $200,000,000 which is revenue signed and committed that will be GAAP recognized over the next several years. That number represents gross rents, if the buildings are already paying full taxes at and almost full operating expenses that gross revenue number is very close to net. Income is pretty much of a sure thing. A word of caution to those who are modeling there are lots of in and outs that go into our financials, and I suggest that you not use more than a 40¢ uptick in the twenty twenty seven year. Our New York office leasing popular pipeline remains robust nearly a million square feet of leases in negotiation. At various state at various stages of proposal. Michael and Glen will talk about this in a minute. Recognizing the shortage of large blocks, in the better buildings, we can make available and are bringing to market prime space of up to 380,000 square feet at ten one, up to 350,000 square feet at PENN 2, and up to 400,000 square feet at 1290 Avenue, The Americas. We are making available to the marketplace what our clients need and want. Demand for our retail assets is robust and accelerated. Now turning to our development program. Construction will commence in April two months from now, on our 1,850,000 square foot 350 Park Avenue new build, with as our anchor tenant and Ken Griffin as our 60% father. At our 1015 site, we have been busy with responding to anchor tenant requests for proposals with substantial blocks of space. We recently acquired two very high potential development assets in unique locations which I call in the middle of everything. 623 5th Avenue is a 380 thou 80 383,000 square foot asset. That was originally built to the highest standards by Swiss Bank Corporation as The US headquarters. Our assets sits on the top of Saks 5th Avenue flagship and starts at Floor 11, up to Floor 36. We acquired acquired the property in September for $218,000,000, or $569 per foot. Here's why I think this is the best deal ever. Location is the middle of everything with unique light, air, and city views. You can reach out and touch Vacavela Center, Saint Patrick's Cathedral, JPMorgan Chase's new headquarters, and even our 350 Park Avenue. Just for the fun of it, a look at this location on Google Maps. The building is substantially vacant, which is a huge advantage to us as a redeveloper. Built in 1990, the building is modern. Our business plan is to create here the 220 Central Park Southland boutique office, I e, the best of the best. We acquired this asset for $569 a foot. The finished product all in soup to nuts, including tenant concessions, is budgeted at $1,175 per foot. We will be creating here a new soup to nuts building every bit equal to a ground up new build perhaps the price at in a premium platinum location. We will deliver to tenants by the 2027, the time of a new bill. Recognizing that sex with dad W, Now In Bankruptcy, Has An Uncertain Future, I Believe That Any Outcome To The Saks 5th Avenue bankruptcy will be good for us. And the punch line is at a 10% return on cost, with, say, a 5% exit or measure of value we will achieve a double or with leverage a four bagger or an 11¢ incremental increase to earnings. In January, we closed for a 141,000,000 on the acquisition of three years 54th Street, a development site that is between 5th Avenue and Madison Avenue. On 54th Street. Adjacent to the St. Regis Hotel and on our prime up for 5th Avenue retail property. We previously acquired the $85,000,000 mortgage on this property which accreted to a $107,000,000 that was credited toward credited towards the purchase price. The development site currently is owned 232,500 square feet as of right. And the location is excellent for hotel office, and residential uses. Are considering several options for the site and have already received interesting income. On 34th Street, Mace Avenue on 34th Street, Mace Avenue, you'll develop a 475 unit rental residential building. And expect to break ground in fall of this year. My use of the word junkie in last quarter's earnings got a lot of attention. I don't know why. Any in any event, we will replace the junkie retail on both sides of 7th Avenue along 34th Street. The gateway to our Penn District was more modern appealing, and exciting retail offerings. This will be another step forward and enhance our enhance what we have already accomplished at Penn. Our 50% owned Sunset Pier 94 with partners h and Blackstone. Manhattan's first purpose built film studio facility. Has just opened. And all six sound stages were immediately leased by Paramount and Netflix. These are short term leases but a great start. The Perch, a large glass pavilion on the rooftop of PENN 2 with indoor and outdoor food and drink. Meeting and hanging space has been so well received that we did it again on the 17th Floor setback at 1290 Avenue Of The Americas. This pavilion has just opened, and together with a 10 stall five iron golf operation, and new restaurants to come, makes 1290 the single best building on 6th Avenue. And that's in my opinion, and that's a mouthful. Invite all of you to come take a look. Just call Glen. Our tenants love these spaces, they represent our continuing leadership and innovation in the hospitality side of our business all to the delight of our tenants. Credit to credit to Glen and Barry for design and execution here. Not so long ago, $100 rents were rare. Now they are ubiquitous in the better buildings. With some rents reaching $200 and even an occasional $300. Why? It might be as I mean, I said that there is a profound shortage of quote, better close quote space. Or it might be that the cost of a new build has doubled. It now costs, say, $2,500 for foot. To build a new tower in Manhattan. Can all do the math. Even at these higher rents, it's touch and go to make a new tower pencil. which are very difficult And by the way, these new bills are multibillion dollar monsters for most to finance. Here at Vornado, we have always believed in maintaining a liquid cash heavy balance sheet. Our liquidity is $2,390,000,000.00 comprised of cash balances of $978,000,000, and our ongoing credit lines of $1,410,000,000.00. Over the last several months, we extended maturity through 02/2031. On nearly $3,500,000,000.0 of debt, and we sold $500,000,000 or five and three quarter percent seven year bonds to prefund the maturity of our $400,000,000 two point one five percent June 26 bond. Why'd we go to market six months early? We follow the golden rule that that it's wise to take the money when the markets are wide open and welcoming. And that certainly allows us to sleep at night. We are pretty good at math, and it's clear to us that there is huge disconnect between our stock price and the value of our assets. Accordingly, we have gently put our toe in the stock buyback order. Over the last few few months, we bought back 2,352,000 shares for $80,000,000 at an average price of approximately $34. Since our border authorization in 2023, we bought back a total of 4,376,000 shares for a $109,000,000 at an average price of approximately $25 per share. Think about this. For the stock is a better buy today than it was at $15 three years ago. As a believer in the predictive power of the stock market, I am certainly aware of the recent decline in our stock and in fact, the decline in all real estate stock. Our case, the decline was in the face of best fundamentals in Manhattan in the last twenty years. Well, this most likely represents a great buying opportunity we will proceed with care looking over our shoulder. There are few investments we can find that are more attractive right now than our stock. This disconnect continues, we will become more aggressive. As you can see from my opening remarks, we have a lot going on. I can tell you that the activity level in the market and in our office is double what it was. All good stuff, but it's fun. Now, Michael, your turn. Michael Franco: Thank you, Steve, and good morning, everyone. Comparable FFO was $2.32 per share for the year. As previously forecasted, this was slightly higher compared to 2024 comparable FFO and better than we had anticipated at the beginning of the year. Fourth quarter comparable FFO was $0.55 per share, compared to $0.61 per share for fourth quarter 2024. This decrease was primarily due to higher net interest expense and the lease termination income at 330 West 34th Street in the prior year's quarter. Partially offset by rent commencements, net of lease expirations, higher FFO resulting from the NYU master lease at 770 Broadway, and higher NOI from our signage business. We have provided a quarter over quarter bridge on page two of our earnings release and on page eight of our financial supplement. Overall, company same store GAAP NOI was up 5% for the quarter. While same store cash NOI was down 8.3%. As explained last quarter, GAAP is more relevant to earnings, given the cash numbers impacted by free rent from the significant amount of leasing in recent quarters. As well as the adjustment in cash rent related to the Penn one ground lease truck. Now turning to 2026. As we previously mentioned, we still expect 2026 comparable FFO to be in line with 2025. Due to the anticipation of some noncore asset sales in taking income offline in connection with our plans to redevelop 350 Park Avenue and the 34th And 7th retail at Penn. First quarter will be more impacted due to GAAP rents ramping up throughout the year. Higher interest expense from our recent bond issuance and some seasonality relating to our signage business. As we previously indicated, we expect there to be significant earnings growth in 2027 as the positive impact from PENN1 and PENN2 lease up takes effect. We had indicated on prior calls that we expected to achieve New York office occupancy in the low nineties in 2026. We got there early. New York office occupancy increased this quarter to 91.2% from 88.4% last quarter. Due to the significant volume of leasing we accomplished. Principally in the Penn District. As we execute on our strong leasing pipeline, we anticipate that our occupancy will continue to increase over the next year or so. Turning to the capital markets. The financing markets also recognize that the New York office market is back. And performing at a level superior to any other market. The financing markets for these assets are very strong and liquid. With CMBS spreads reaching their tightest levels since 2021. And banks continuing to expand lending for class a assets with solid rent rolls. The unsecured bond market also remains strong, and continues to be constructive for office credits in the right markets. With new issue spreads remaining tight. We took advantage of both these markets recently. As Steve mentioned, since last quarter, we've been very active in refinancing our near term maturities and bolstering liquidity. With nearly 3 and a half billion dollars of financings. Addition to completing several mortgage refinancings, we also refinanced our unsecured term loan upsizing the loan amount by 50,000,000 to $850,000,000, and extending the loan's maturity date from December 2027 to February 2031. We also refinanced one of our two revolving credit facilities and upsized the second facility. So now we have one $1,130,000,000 revolving credit facility that matures in February 2031. And another $1,000,000,000 revolving credit facility that matures in April 2029. We very much appreciate the strong show of commitment from our banks including a few new entrants to our facilities. We also took advantage of the strong conditions in the market and completed a $500,000,000 seven year unsecured bond offering at 5.75%. Which was significantly oversubscribed. A portion of net proceeds these notes will be used to repay our $400,000,000 senior unsecured notes to mature in June. In total, since mid 2025, we have refinanced or repaid almost half of our balance sheet. Including almost all of our unsecured debt, terming out our maturities and putting our balance sheet on even stronger footing. Our net debt to EBITDA metric has improved 7.7 times from 8.6 times at the start of the year. And our fixed charge coverage ratio, as expected, continues to steadily rise expect these ratios will continue to improve over time. As income from PENN one and PENN two comes online. Recognition of the significant improvement we've made in our balance sheet metrics, over the past eighteen months, S and P recently changed their credit outlook on our company from negative to stable and affirmed by triple e minus unsecured rating. We are hopeful Fitch and Moody's will follow suit as our balance sheet continues to improve. With that, I'll turn it over to the operator for Q and A. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touch-tone phone. If you wish to be removed from the queue, please press star, then 2. If you are using a speakerphone, you may need to pick up the headset first before pressing the number. Once again, if you have a question, please press star then 1 on your touch-tone phone. Each caller will be allowed to ask a question and a follow-up question before we move on to the next caller. And the first question will come from Dylan Burzinski with Green Street. Please go ahead. Dylan Burzinski: Hi, guys. Thanks for taking the question. Maybe just touching on the 350 Park announcement. In the release. Is there anything that's changed in the structure at all versus what was originally disclosed back in, I think, December 2022? Michael Franco: Good morning, Dylan. Thanks for joining. So you know, in terms of the agreement, you know, Ken Griffin wanted to the option exercise, which we were fine with. And, you know, in the course of that, you know, there were some amendments you know, related to the overall deal. Nothing, I would say, tremendously substantive in terms of the economics, but it gave Vornado and Ruden the flex to effectively rather than just a fixed equity percentage investing anywhere from you know, we put our percentage of 20 to to 36%. So, you know, that's the that's that's the main change A couple other minor things, but I think that was the most material thing. But it's a project, you know, we're very excited about. He's very excited about You know, obviously, in the in the filing, the clock started, but we're excited about it. And and I know there were questions about toilet or so on. You know, we we intend to be part of this project. Dylan Burzinski: Okay. That's helpful. And can you guys kinda just talk about sort of yield expectations, what that implies, and sort of required rent level. Just anything as it relates to sort of the the economics. And I guess is it still Citadel's plan to sort of take down, I think it was, like, 50% initially. Michael Franco: So, you know, we'll publish that as we go a little bit closer to that date. There's a few things still moving around, but know, as we as we indicated originally, you know, there is a formula that determines Citadel's rent. It's effectively you know, it's it's based on a premium to what permanent financing costs are with a cap and collar So that that was unchanged. You know, Citadel still finalizing their space planning. But I would tell you in general, their appetite for space has grown from the original deal. So you know, when when we finish all that over the next few months, you know, we will publish that, but I don't I don't wanna jump the gun just yet. Needless to say, think it's gonna be an extremely attractive project Economically, we think it's going to be, you know, best building in the city. And, you know, we think the space we're gonna have, Billy, is is gonna command the highest rents in the city. Operator: The next question will come from Steve Sakwa with Evercore ISI. Please go ahead. Steve Sakwa: Yes, thanks. Good morning, Glen. Could you maybe just provide a little color on just kind of your overall leasing pipeline and you know, the conversations that you're having with tenants, you know, about space in the market today? Glen Weiss: I do. So our pipeline continues to be really strong. I mean, that's even after leasing 3,700,000 feet last year. As Steve said in his remarks, we're creating opportunities of big box space within the building, namely of PENN1 and twelve ninety. To meet the market, have the inventory as we see tenants expanding and coming into New York rapidly. With immediate needs. So those are all great signs. You know, in the pipeline, more than half of the activity or tenants that that will be new to our buildings and the other 50% of renewals and expansion We're seeing financial services and the law firms expand a lot within the portfolio right now. Our first quarter leasing activity will reflect that. The tech tenants are also growing a lot. As you saw at Penn eleven last quarter, we're seeing action everywhere. New York is hitting on all cylinders. Our team is hitting on all cylinders. And coming off a huge drill like we had last year. We don't see any let up in that at all. Steve Sakwa: Okay. Thanks. And then maybe as a follow-up, Steve, you mentioned the share buybacks and the disconnect with NAV. In in other property types, we are seeing know, some of the public REITs lean more heavily into dispositions and know, paying down debt but using those excess proceeds to buy back stock. Is that something that you know, you would entertain more aggressively given where the stock is today? Steven Roth: Yes. Steve Sakwa: Any other comments beyond yes? Steven Roth: Double yes. We have a we have a few assets up for sale which will generate capital. We think our stock is stupid cheap. I think in past years, I said stupid stupid, double stupid, so that's double yes. And the stock is probably the single best investment we can make now other than six two three fifth, which is obviously I'm in love with. Operator: The next question will come from Floris van Dijkum with Ladenburg. Please go ahead. Floris van Dijkum: Hey, guys. Thanks taking my question. My question is regarding your the difference between your cash and GAAP same store NOI. And I think, Michael, you indicated that throughout the year, this is going to inflect. Do you get can you give us a sense of when that inflection point will happen and when your cash NOI will will turn positive? Michael Franco: Good morning, Floris. You know, I think I said on the last call, it remains the case that we would start to see that flip over in the second half '26, and that that remains the case. So I think you'll see it improve, you know, quarter by quarter but it won't flip until the back half of the year. You know, when when, you know, those tenants start or many of those tenants start paying rent. Steven Roth: Mean, the answer is when when the when the very ugly and painful free rent burns off, that's when the cash begins to come become positive and starts to reflect a similarity to graph. The gap. So that's coming And maybe That's coming and coming pretty soon. Floris van Dijkum: That which that's encouraging. My follow-up question is regarding your your retail, particularly your Upper 5th Avenue retail, maybe could you talk about what are what's happening to to rents there relative to in place, and maybe remind everyone what your in place rents are for your Upper 5th Avenue JV. And Then Potential Monetizations For That. And I Believe I I What's Happening With The 657 5th Avenue, I think that's a new meta. Is that a permanent lease, or is that still a pop up, lease? Steven Roth: Oh, boy. There's activity on the Middle East which will be which which really it's it's inappropriate to talk about it now. So that's step one, which involves the MediStore going long term. With respect to the leases, generally, the retail market on Upper 5th And Times Square is improving dramatically and rapidly. But it is still struggling to meet the up the the the top tick rents up four or five years ago. It's getting there, but it's struggling. Operator: The next question will come from John Kim with BMO Capital Markets. Please go ahead. John Kim: Steve, you gave some very interesting information on the difference between the gap occupancy and leased occupancy. I'm assuming that $200,000,000 difference is annualized. But I was wondering how much of that you expect to get by the end of this year and by the end of '27? Steven Roth: It's it's actually not annualized. It's an absolute number. And to be honest with you, my finance guys are sitting here right across from me shooting daggers at me. The number is higher than $30,000,000. But in a in an abundance of caution, they wanted to keep it at $2,000,000. So $200,000,000 is is is a slightly lower number. It's a one timer number, and it feeds in as as a tenant sold from go into GAAP it feeds into GAAP as as tenants even take occupancy or they meet the standards for GAAP recognition of income. So that's what that number is. It happens over the next you know, as the leases mature not mature is not the right word. The leases Right. The tenants build out their spaces. Right? Someone could start recognizing the GAAP right in here. The GAAP recognition is the tenants have to either build out the spaces or take Mhmm. That happens, you know, quickly over the next year or two. I don't have a plot as to exactly how much per month but a lot of it comes in in in in first year, a lot of it comes in the second year. And, I mean but the interesting thing about it is that is income which is in the bag. The leases are signed and it's just a matter of a small amount of time as to when they go with the GAAP recognition. Now the 40¢ that I put at the end of that paragraph is a kinda strange guidance for something that's two years out, which is something we never do, And so it's kinda like strange. I wouldn't rely upon it too much. It's not a guaranteed certified. I'll bet my life audit number. But it's sort of a number. But the $200,000,000, which is a little bit more than that, with a 100% certainty comes in income over the next number of years. Now the interesting thing about it is, which I tried to say, is is that the company is it's a simple company, but the financials are sort of a little bit complicated. There are ins and outs. So there are some tenants that'll move out. There are other things which will affect earnings positively and negatively. But that's, I think, the story. Anything to add there, Tom? Michael Franco: No. No. I think you said Thank you. John Kim: Did I do a For those of us who who like to look at percentage terms, that 91.2% leased occupancy, what is that in terms of physical or economic occupancy? Steven Roth: Well, it's it's it's it's 92 it's 90 whatever Nine places. Ninety one forty two? In New York City. In New It's ninety one forty two. Manhattan office. It's 91 and change versus 88. And change. And by the way, we expect we expect that occupancy number to go up. Operator: The next question will come from Jana Galan with Bank of America. Please go ahead. Jana Galan: Thank you. Good morning. Maybe also following up on some of the strange guidance. If we could get some more details on June and did I catch in your comments that it could add 11¢ to FFO? Steven Roth: I'm sorry. I didn't get the $6.02 cents. What about Comments on the 11¢ to it. So Well, it's just math. So you know, my guys are laughing at me, but, I mean, I I'm I'm in love with this asset. I think it's probably the best acquisition ever. So the building is basically empty. The prior Aurora was emptying the building out to convert it to residential. We think that that's not the right program. We're gonna make it Glen's assignment to me is make this thing the two twenty boutique office, meaning the best of the best of the best, which will generate the best. The best income. So we believe that the finished product will cost 1,100 and change say, $1,200 a foot rounding. And we believe that the net income on the project will generate a scan over 10% just what think we have on on the supplement 10.1%. gonna have a 10% return, If you say that the project cost $1,200 a foot and That's an interesting number. Now we think if we can if we sell that building, which I'm not saying we will or we won't, it probably would command if any building will command the 5% cap rate in the marketplace, it would be that building. Which starts on the 11th Floor on top of Saks in a spectacular location. And by the way, I was being quite sincere when I said, take a look at the location on Google Map. It's just Spanish. So if you build it to a 10 and you sell it to at a five, that is basically a doubling of your money. Or if you put 50% leverage on it, that's a quadrupling of your money. If, however, these the value is in the income stream in the company, we think that that will generate a little bit more than 11% 11¢ incremental return. How do I get that number? $50,000,000 of income. Less the cost of capital on the on the $1,200 a foot cost yields 11% or slightly more than 11%. I hope that answers your question then. What? Sounds Sense. $11.07. Did I say? Percent. 11¢. Sorry. Jana Galan: Thank you. That's very helpful. And then just in terms of the development costs, and, you know, I think there's debt on it now that you probably need to term out. What are kind of your expectations on that? Steven Roth: We're going to finance the building as we always do. The it's it's not a great deal of money, couple $100,000,000. We're gonna complete the project. We're gonna let rent it out. One of the keys to it is that we will deliver we will deliver for for tenants. Probably the '27, which is less than half the time that it takes to build a new build, at less than half the cost. So those are part of the financial metrics that's the way I'm so excited about the project. When we get done with the project, we will keep it in our portfolio because we will expect that the rents will go up and up as as time goes on. And we will finance it as we finance all of our projects. Operator: The next question will come from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander Goldfarb: Hey, good morning. Good morning, Steve. Can you guys walk through on 350 Park, just I know, Steve, you mentioned that it's part of the guidance for this year and that on a recurring FFO, it's flat. But you just walk through sort of the mechanics of the income and how that is there's a master lease, but then you'll capitalize it. So just wanna understand the net effect, especially as we think about our 27 and what the carryover is from $3.50 going because you're you said you're gonna stay in the project. So just wanna understand the full effect. You're talking you're talking about the transition from the existing 350 Park Avenue built which will be taken out of service and demolished starting next month into a capitalized interest model. Is that right? Michael Franco: Yeah. Yeah. Because I think there's a master lease right now. Right? There is. There is. So that that's going to terminate Well, it'll it'll be adjusted, I should say, when demolition starts, which will be April 1. So the answer is there's gonna be a little bit of a negative impact in '26 as we transition from demo to full capitalization. And, you know, next year, it'll be capitalized and will be basically on par with with what it was last year, but a little bit down this year. Alexander Goldfarb: Okay. And then the second question is, Steve, on the dividend, you're one of the few companies that still is know, paying a a reduced, you know, a stub dividend, if you will. You talked about, you know, your liquidity. You talked about know, improving on the balance sheet. The rent that's coming online over the next few years, and yet still a lot of capital projects that you have in terms of various development projects. So how do you see the dividend versus taxable income? And when you see a full normal quarterly restoration of it? Steven Roth: Well, first of all, we may be one of the few companies. I'm not sure of that, but there is a cue and cry in the marketplace with people that are overpaying their dividend to reduce their dividend to conserve the cash. So we're sort of aware of that. But nonetheless, you know, as a large shareholder, our management team has a and our board has a high incentive to pay a normalized dividend. A normalized dividend is in relation to two things. The the the internal revenue code requires that we pay out our taxable income. But, also, common sense says that we should pay to our shareholders something which is approximates the income stream of a normalized business. So it's not impossible that our regular income would be higher than our taxable income. So we we have an incentive to get back to a normal dividend as soon as we can. Which will not be this year, by the way. And as soon as we get back to normalcy, in terms of our income stream, getting all getting all of the renting that we have done paid for with the free rent and the at at at the DI, and get that all behind us we will then revert to a normal dividend. Operator: The next question will come from Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone: Okay. Thanks. I guess my first question, I was wondering if you could help a bit with sources and uses of funds over the next couple of years because as I'm listening to this, you've got a couple of redevelopments that that you now have teed up talked about, I think, last quarter, maybe building an apartment project. Buybacks are a priority. Sounds like you're be spending real money on 350 Park in the next couple of years as that gets underway. And just trying to add all this up and get a sense as to, like, you know, sources and uses, basically. Michael Franco: I mean, Tony, I can't hey. Good morning. I give you, you know, dollar figure by dollar figure. What I what I would say is, as you would expect, you know, we're not willy nilly frivolous. Right? We have a capital plan We know what's in front of us. You know, and we have a business plan. Right? And that business plan is a combination of you know, financings generally at the asset level. Some asset sales, you know, etcetera. So and I would say in terms of development projects, other than six two three, which will be, executed, you know, this year and next, You know, the other projects are more back ended, particularly three fifty. Where, you know, our capital to the extent we invest above the land contribution. Which we don't have to, although I think given the attractiveness of it, We will. Assume we will. We will. Right? That capital, you know, given that our partner has to true up with us first and the bank's gonna fund some of that, there's no meaningful capital on $3.50 for several years. So the answer is we have we have a we have a plan We can do all the things that we've laid out. And, you know, we've sold assets the past. We have some things in the works. And, you know, we're confident that we can execute those, and we're gonna be you know, as Steve said in his opening remarks, we're gonna be mindful on the buybacks once we have, you know, the appropriate capital and and and to deal with everything else. So, Lou, we have a lot of things that we want to do, which we think will create significant shareholder value. So one of them is buying back our stock, which is a separate thing which is has to be done with care. So that we don't screw up our balance sheet, which we will not do. Ever. So one of the uses is buying back stock. So that's sort of like a subtraction. We do that with capital as it's available. Next thing is three fifty Park. Is a very important we hope extremely successful project The principal amount that we will be contributing to that is our land, which is free you know, which is easy. And then there's about 3 or $400,000,000 above that in cash that will represent our 40% interest or 36% interest And so that's not a great deal of money in relation to a $6,000,000,000 project because we're only a 40% partner. So we have a a 850,000 and growing anchor tenant that's signed. And we have a 60% partner. So the three fifty part project is a great project which from a financial point of view is is is not as challenging as you would think. The 623 5th Avenue project is easily financeable What else The TIs the most important thing we have from a capital point of view is the TIs. To put into occupancy and and convert it to GAAP Red the tenants that we've already signed. That money is already allocated. Then the residential project is, you know, that's multifamily finances very well. We already have the land unencumbered. You know, that that comprises a chunk of the equity and then not much cash above that. So now the next part of it is so that's a little bit about the uses. Now the sources are I would remind you that we have basically income producing part of the Penn District is free and clear. With no debt on it. So and those buildings have now become more valuable as as Glen and his team have leased them up. So we have the Meta Building in one free and clear. We have two Penn free and clear. We have Penn one free and clear. We have the Pen 15 site free and clear and on and on. So we have we have significant financing available to us should we need it or choose So that's without know, giving you a piece of paper, that's a verbal description of our capital plan. Anthony Paolone: Okay. Thanks thanks for all that. And then just my my only follow-up is 354. I was wondering what the cost to to build a a a smaller building like that? I guess we're getting used to well over $2,000 a foot for the larger avenue type developments, it seems. Just wondering if there's any appreciable difference in a smaller mid block asset like that. Steven Roth: A a little bit a little bit less. A little bit less. Okay. But not a not but not appreciably less. Operator: The next question will come from Vikram Malhotra with Mizuho. Please go ahead. Vikram Malhotra: Morning. Thanks for taking the question. So two ones. One, just a follow-up I wanted to just be crystal clear on the $0.4 going to next year. That an NOI comment incremental contribution? Is that sort of an FFO comment? Just how should we think about that? And then maybe just other big picture moving pieces as we think about this massive, earnings ramp? Michael Franco: It's, it's FFO, Vikram. Vikram Malhotra: Okay. It's FFO. Okay. Helpful. Just on street retail, I think you know, the team hired Newmark in the sort of a reenvisioning of Penn Station Penn District Street retail I'm just wondering, as you've thought about, like, the the street retail portfolio there, is there like a broad range or, like, a after doing all of this, what's the NOI uplift over over the long term? Steven Roth: You know, we haven't split that out, and we're not really publishing projections on that. We will sometime in the short term future, but we haven't done that yet. But, you know, basically, the Penn District is a it's it's a district. It's office buildings. It's retail. It's events. It's a gathering place. It's it's the perch. It's the town halls. It's a it's a system of interaction and hospitality and work and workplaces, which is important. Each plays off the other and and and and increments the other and helps the other. So the retailer is very important as a as a separate business but it's extremely important as it affects our our our our demand for the office space. Operator: The next question will come from Nick Yulico with Scotiabank. Please go ahead. Nick Yulico: Thanks. Good morning. First on ten I was hoping you could just remind us about for the leases that were done so far, year and then when they're set to commence? I think MLS was assumed early this I guess, the bulk is sort of 2027 beyond, but I guess in relation to like the 80% lease number that you give for that asset, just how to think about when that will actually turn into GAAP NOI I guess, how much of that 80% actually is fully in 2027 as you're talking about that ramp next year? Steven Roth: That's actually a a quite about detailed guidance, which as you know, we don't do. The only only I'd say, Nick, is that pen two, more of it will be online in '27 and '26. Nick Yulico: Okay. And then, I mean, just in terms of the commencements this year then, what is it? Is is I think MLS was assumed, what, early this year? Is there anything else that's listed there from the tenants in the sub where their leases haven't commenced that you expect commencement this year? Michael Franco: I would I would make a suggestion, Call Tom offline, see if you can wrangle that in. That that answer out of them, which I doubt you will. I mean, you know, you can use your own judgment. I mean, these are big leases. And they will come on, you know, in the next six months. If they don't come on in the next six months, they come on in the next twelve months. From my point of view, as an investor, it really doesn't matter that much. So they're coming. Whether they come three months sooner or six three months later, you know, that's interesting, but not this positive. But call Tom, see what you can get out of Tom. He's sort of laughing, by the way. He's waiting he's anxious for your call. Steven Roth: The next question will come from Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: We're going back a minute. Going back a minute. I was really not trying to be anything other than responsive to your question for a company that really doesn't do detailed month by month guidance. So with respect, we'll talk. Next question. Matt: Hey, guys. This is Matt on for Ron. Thanks for taking the question. Just going to the New York office TI and LCs as a percentage of initial rent. I noticed that ticked up in the quarter was kinda wondering what the drivers were and how we could think about the trend for the rest of 2020. Glen Weiss: Hi. It's Glen. It's certainly not a trend It was an outlier quarter. We made a couple of deals where we stretched TI with not as much term on leases as we would have liked, but we wanted the tenants in these buildings for for reasons. We love the tenants. We love their credit profile, and they were great users for the assets. But not a trend at all. I expect we'll go back you know, to the to the you know, we've we've been around 12, 13% over the last few quarters, and I think concessions will will tighten. Going forward here this year. Free rent's already starting to come down, and TIs are really starting to squeeze So short answer, not a trend at all. Matt: Got it. And then just as a follow-up, I noticed the projected cash yield on Sunset Pier 94 declined despite what looked like solid leasing activity on the property. Could you talk about, like, what the the drivers of that were? Steven Roth: Reality. Which is our business, by the way. The streaming business is has some challenges. As you will know and read about in the papers. And, I mean, the fact that we leased a 100% of the space at the opening They're short term leases. They're they're not even a year long, so that's an interesting thing, but not indicative of the of the future. And it's just a matter of our our seeing realistic in our projection is to what the yield on the project will be. So the 10% went down to 9% as a result of reality. Operator: The next question will come from Brendan Lynch with Barclays. Please go ahead. Annabel Ehrer: Thank you. This is Annabel Ehrer on for Brendan Lynch. How should we think about the expected retention rate on the remaining twenty twenty six expirations? Especially the 600,000 square feet in the fourth quarter. And are there any larger blocks of space that you would call out? Glen Weiss: Great question, Glen. Hi. It's Glen. We feel really good about the expiration this year. We're on top of all the measures you would expect. On the larger block expirations, we expect two of them to renew So we we feel good about our expiration schedule. We we've taken care of you know, huge expirations over the past three years. So if you look forward 2627, we're in great shape. So, you know, I think we'll be we'll be more than fine as it relates to attacking other future experts. Steven Roth: Thank you. As you can tell from all of our remarks today, we're extremely constructive about the about the office market in Manhattan. We believe that it is tightening We believe that rents are going up. And by the way, rents are going up more rapidly than TIs or tenant inducements are going down. So our projection is and I don't Glen can give you his opinion. Is that free rent can go down because that's a discretionary item. TIs will probably not go down because the cost of construction of the tenant spaces is not going down. And it's in fact going up. So we believe the easiest is for the rents to go up. The second is for free rent to go down. And TIs are gonna be very, very sticky. Do you agree with that? Glen Weiss: I agree with that. Although, I will tell you on the TIs, careful now because you have to produce the results. On the TIs, we're definitely squeezing them in terms of not being as flexible as we were. So I think the first thing was they're not going up for sure. We're squeezing them, you know, at these ranges that we've been seeing in hopeful they'll come down. Although I agree with Steve generally, free rents are coming down, and that's been more more easy to manage with the with the deal making for sure. Operator: The next question will come from Seth Bergey with Citi. Please go ahead. Seth Bergey: Hi, good morning. I kind of wanted to go back to 350 Park. I think in your opening comments, you mentioned that you know, Citadel kinda had an appetite to take additional square footage. I think they were kinda set to occupy around 850,000. Just could you kinda quantify how much more they would much know, be looking to take? Or, you know, are you in any other kind of conversations about pre leasing space in that building? Steven Roth: Look. The Citadel relationship between Citadel and Vornado is a important. These are conversations that are still taking place. The Citadel team is still making up their mind as to what exactly their requirements are. And so as soon as we know and they become firm and agreed to, you will know, but not now. Glen Weiss: On on the second part of your question, the energy and excitement around the spec office space is excellent. So we're presenting this project to many tenants as small as even 50,000 feet So if you think about it, tenants who are expiring in thirty one, thirty two, thirty three, are already asking us to present the project That's how much excitement there is in the market There will be nothing like this available in New York. And people realize that They recognize that between us and Citadel and Ken Griffin this will be the best building built in this city by far. Steven Roth: And by the way, you can tell we're pretty damn proud of it. Operator: That's that's helpful. I'd like to I'd like to try and end up today. It's close to 11:00 as we can. So it's 11:00 now. So how many more questions do we have? Operator: This is it. Steven Roth: This is it? No more questions? Really? Well, anyway, thank you all very much for joining us. We're very excited about the business. We're very active The activity level, as I said, has you know, it's palpably double the what it was even as recently as a year ago. And thank you all very much for your support. We'll see you at the next quarter. Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. May now disconnect. Steven Roth: Good.
Operator: Hello, and welcome to WESCO International, Inc.'s 2025 Fourth Quarter and Full Year Earnings Call. If you would like to ask a question, please note this event is being recorded. I will now hand the call over to Scott Gaffner, Senior Vice President, Investor Relations. Please go ahead, Scott. Scott Gaffner: Thank you, and good morning, everyone. Before we get started, I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not guarantees of performance and by their nature are subject to uncertainties. Actual results may differ materially. Please see our webcast slides and the company's SEC filings for additional risk factors and disclosures. Any forward-looking information speaks only as of this date, and the company undertakes no obligation to update the information to reflect changed circumstances. Additionally, today, we will use certain non-GAAP financial measures. Required information on these measures is available on our webcast slides and in our press release, both of which are posted on our website at wesco.com. On this call, we have today John Engel, WESCO International, Inc.'s Chairman, President, and Chief Executive Officer, and David Schulz, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to John. Well, thank you, Scott. Good morning, everyone, and thanks for joining our call today. John Engel: So I'd like to open up today's call with the organization change we announced earlier this morning. WESCO's CFO, David Schulz, will be retiring from WESCO in May 2026. David will serve as Executive Vice President, Adviser to me until his retirement. David has done an absolutely excellent job since joining our company in 2016. On behalf of our board of directors and the entire WESCO team, I'd like to thank David for his outstanding and dedicated service and tremendous contributions to our WESCO success over the past ten years. I have the utmost respect for David and greatly appreciate our business partnership that we had in building out the new WESCO. We extend our very best wishes to David and his family. I'm pleased to announce the appointment of Neil Deve as Executive Vice President and CFO. David and Neil will work together to effectively transition CFO responsibilities. Neil will join WESCO later this month to support a smooth transition. For a brief introduction to Neil, he's a seasoned CFO with extensive financial, commercial, and operational experience in multiple WESCO served end markets. In his leadership roles for both public and private companies, he's demonstrated the ability to navigate complex financial environments and deliver superior growth and value creation. Neil's an excellent addition to our executive management team and will help us as we continue to accelerate our strategy, execute our growth initiatives, deliver our financial targets, and create value for our stockholders. Now moving to our WESCO results. We closed out 2025 with positive momentum and, again, outperformed the market with our leading portfolio of product services and solutions. In the fourth quarter, we delivered record sales of $6.1 billion, up 10% year over year, including 9% organic growth, and set another record in data center sales of $1.2 billion, up approximately 30% year over year. At the business unit level, communications and security solutions and electrical and electronic solutions both delivered excellent results. This all occurred while utility and broadband solutions results continued to reflect the ongoing sales and margin challenges with public power customers. However, we saw a clear inflection back to growth with our investor-owned utilities in the second quarter of last year. And that marks the first of three consecutive quarters of IOU sales growth that strengthened in the fourth quarter. Overall, we finished the year with strong momentum, continued to take share, and build a record backlog, which was up 19% year over year. Providing another proof point that WESCO is benefiting from the enduring secular growth trends of, number one, digitalization, that includes AI-driven data centers and automation. Number two, electrification, that includes increased power generation and reliability. And number three, supply chain resiliency, that includes reshoring. Looking ahead, in 2026, and into this year, we expect to continue to outperform the market and deliver mid to high single-digit organic sales growth, strong operating leverage and margin expansion, double-digit EPS growth, and improved free cash flow generation. Recall that our midterm growth targets outlined at our last Investor Day called for organic sales growth of 3% to 5%. But given our market share gains and exposure to secular trends, we have exceeded our midterm growth targets. As we've done consistently, we're maintaining a disciplined approach to capital allocation. In the near term, our priorities remain focused on debt reduction and share repurchases to offset the annual equity award dilution. And we continue to invest in our tech-enabled business transformation and manage an active M&A pipeline. I'm also pleased to announce that we plan to increase our annual common stock dividend by over 10% to $2 per share. Now I'll briefly touch on our enterprise-wide efforts in 2025, and this is an increasingly important differentiator for WESCO. We made excellent progress on our digital transformation throughout 2025. We advanced our technology and capabilities build and we've deployed our new tech stack in pilot locations in each of our three business units. The centerpiece of our new tech stack is a world-class data lake where we're working to apply AI to improve the efficiency and effectiveness of our business. Recently, we are pleased to be recognized by Fortune in their inaugural AI ranking of Fortune 500 companies with a number 10 ranking. Once our digital transformation is completed, we expect to accelerate our earnings growth through even greater cross-sell, expand our margins through improved pricing and operating cost leverage, and increase our working capital turns by leveraging our single global IT instance. In closing, as the market leader and with positive momentum building, I'm confident that WESCO will continue to outperform our markets and deliver exceptional value to our customers and shareholders in 2026 and beyond. Finally, I continue to be very proud of our talented and dedicated WESCO team whose relentless focus on serving customers, advancing our digital transformation agenda, and driving superior execution across our businesses is producing notable results. This is all occurring as we realize our vision of becoming the best tech-enabled supply chain solutions provider in the world. With that, I will now hand it over to David to take you through our fourth quarter and full year 2025 results as well as provide a more detailed outlook on our 2026 outlook. David Schulz: Thank you, John, and thank you for the kind words. Good morning, everyone. I'll turn you to Page four. Sales in the fourth quarter were in line with our expectations driven by strong performance in DES and CSS. Revenue was $6.1 billion, an increase of 10% year over year with organic sales up 9%. Growth was driven by approximately six points of volume and an estimated three points of price, including one point from commodities. CSS delivered 17% organic growth, EES grew 8%, and UBS organic sales increased by 3%. The increase in adjusted EBITDA was driven by higher sales. SG&A as a percentage of sales was essentially flat versus the prior year. Gross margin was 21.2%, in line with the prior year. Adjusted EBITDA margin was 6.7% of sales, and adjusted EBITDA was $409 million, up 10% year over year. Adjusted EPS grew 8% to $3.40. Turning to Page five. For the full year, sales were $23.5 billion, an increase of 8% with organic sales up 9%. Volume contributed approximately seven points while price provided an estimated two-point benefit, including about a point from commodities. Volume growth was strong across CSS and EES, with UBS momentum returning in the second half. Adjusted EBITDA increased 2% to $1.54 billion or 6.5% of sales. Gross margin was 21.1%, down 50 basis points versus 2024. The decline in gross margin reflects project and product mix, along with public power competitive pressures. Adjusted EBITDA margin also benefited from 10 basis points from operating leverage versus the prior year. Turning to Page six, I'll provide you the bridge on EPS versus the prior year. In the fourth quarter, adjusted EPS increased 8% to $3.40. The year-over-year improvement was driven primarily by strong operational execution as well as the benefit from the preferred stock redemption. Interest expense was higher than the prior year due to the issuance of the 2033 notes, which funded the preferred equity redemption, and a one-time adjustment to interest on taxes payable of approximately $10 million. In addition, the effective tax rate in the prior year period included several benefits from favorable adjustments creating a tougher comparison. Versus our expectations heading into the quarter, non-operating items were approximately $10 million higher due to the one-time interest expense that I just mentioned. There were also two unanticipated tax items in the quarter, but they netted to an immaterial impact. For the full year, adjusted EPS increased 6% to $12.91. The key drivers were consistent with the fourth quarter, including the absence of the preferred dividend, favorable FX impact, and a lower share count, all of which contributed positively to EPS growth. Contributions from operations were slightly negative year over year, reflecting pressure from lower gross margin. Interest and tax remained relatively stable contributors for the year. I'll walk you through our business unit results beginning with CSS on Slide seven. In the fourth quarter, CSS again delivered very strong results. With organic sales up 14% and reported sales up 16% year over year. This growth was driven by continued strength in WESCO data center solutions, where sales were up over 30% driven by strength across our hyperscale customer base. Enterprise network infrastructure also contributed to growth with sales up low single digits over the prior quarter. Security sales were up low double digits and including data center-related sales, the business grew mid-teens. Growth was driven by customers accelerating the shift from analog to digital systems with AI-enabled data center deployments, amplifying demand for our next-generation security solutions. CSS backlog increased nearly 40% ending the year at a record level and highlighting the continued strength of our data center business. Adjusted EBITDA for the CSS segment grew approximately 30% with adjusted EBITDA margin of 9.1%, up 90 basis points versus the prior year. This year-over-year expansion reflects higher gross margin and improved operating leverage on strong top-line growth. Gross margin was 21%, up 20 basis points year over year. Adjusted SG&A improved by 70 basis points to 11.9% of sales. For the full year, CSS reported sales were up 18% with organic sales up 17%. Growth was driven by exceptionally strong demand in our WESCO data center Solutions business, up over 50% for the year along with solid growth in security. Adjusted EBITDA margin expanded 50 basis points year over year, reflecting strong operating leverage on higher sales. Turning to Slide eight, I want to take a moment to discuss the continued strength we're seeing in the broader data center market and WESCO's expanding role in supporting this growth. Customers continue to rely on WESCO and our supplier partners to meet their evolving requirements and our capabilities now span an increasingly broad portion of the data center life cycle. From a total company perspective, data center sales were $4.3 billion for the full year, up approximately 50% and represented roughly 18% of WESCO International, Inc.'s 2025 sales. This growth was driven by strong performance across both gray space and white space environments, with CSS once again delivering the majority of the contribution. WESCO's capabilities now support every major phase of the data center life cycle. From power and electrical distribution infrastructure to advanced AI compute environments to on-site services that support construction, commissioning, and ongoing operations. This allows us to deliver value across the full investment cycle and to support our customers as their needs rapidly evolve. Looking ahead, we expect this momentum to continue as investment in digital infrastructure accelerates. With our comprehensive capabilities and deep customer partnerships, WESCO is well-positioned to capture additional share and support the next wave of data center growth. Turning to slide nine. This page highlights the breadth of WESCO's data center product, services, and solutions offerings. Our capabilities span both gray space and white space, enabling us to serve hyperscale, multi-tenant, colocation, and enterprise customers with a comprehensive portfolio. In the gray space, which represents roughly 20% of our total data center sales through our EES business, we provide the critical power, electrical, mechanical, automation, and MRO products required to support the construction and operation of high-performance scalable facilities. The white space, representing approximately 80% of our overall data center sales through CSS, includes our next-generation connectivity and IT infrastructure portfolio. Beyond products, our services offer spans the full life cycle of a data center. We support customers from early planning and design through installation, commissioning, and integration, all the way to ongoing operations, modernization programs, managed services, and ultimately decommissioning. This end-to-end capability allows us to help customers adapt quickly and execute at scale in a rapidly evolving environment. With our global ecosystem of suppliers and partners, WESCO provides a single coordinated source for the solutions required across the data center life cycle. We enable seamless execution across the globe to support customer timelines and project requirements. Taken together, our combination of products, services, and solutions, and deep technical expertise positions WESCO exceptionally well to continue capturing the strong secular growth in data center demand driven by cloud, AI, and edge computing. Together, these capabilities position WESCO as a trusted end-to-end partner for the world's leading data center operators. We remain well aligned to support the significant long-term growth in this market. Moving to Slide 10. For the fourth quarter, EES reported and organic sales were up 9% driven by growth across construction, industrial, and OEM, marking our third consecutive quarter of growth in these end markets. We are very pleased with the strong results in our EES segment as we exited the year. Construction sales were up low double digits in the fourth quarter, supported by strong wire and cable demand and continued infrastructure project activity. Industrial sales were up low single digits year over year with notable strength in Canada. OEM sales increased mid-teens. EES backlog was up 6% year over year, reflecting healthy underlying demand across the portfolio. EES adjusted EBITDA grew 16% versus the prior year with adjusted EBITDA margin expanding 50 basis points to 8.5%. This improvement reflects higher sales, favorable gross margin up 50 basis points year over year, and solid SG&A performance. For the full year, reported sales were up 7% with organic sales up 8% led by strong OEM and construction growth and improving industrial performance. Full year adjusted EBITDA was up 3% and adjusted EBITDA margin was down 30 basis points reflecting modest gross margin pressure driven by project activity and product mix, primarily in the first half, which was partially offset by disciplined SG&A management. Turning to slide 11. For the fourth quarter, UBS reported organic sales were up 3% year over year. Utility grew mid-single digits driven by strong double-digit growth at IOU customers, including higher sales from grid services, partially offset by continued softness with public power customers. Broadband declined high single digits versus the prior year due to a difficult prior year comparison. Growth within our IOU customer base returned in Q2 and has now continued for three straight quarters. As we've discussed throughout the year, we continue to see softness with our public power customers driven by inventory normalization and competitive pressures. Consistent with our commentary last quarter, we continue to expect public power customers will return to sales growth by the end of 2026. UBS backlog increased 23% year over year, supported by IOU project activity, and improving broadband trends providing a strong setup for 2026. Adjusted EBITDA margin was down approximately 120 basis points year over year, primarily reflecting lower gross margin driven by headwinds in Public Power. On a full-year basis, reported sales in UBS declined 5% with organic sales down 1%. Utility was down low single digits over the prior year driven primarily by lower public power activity. Broadband grew mid-single digits on continued network investments. Full-year EBITDA margin in UBS declined 90 basis points primarily reflecting competitive pressures in the public power market. We expect stronger UBS results in 2026, driven by IOU customers and grid services applications as our utility customers respond to the rising power demand curve. Turning to our Grid Services business on Slide 12. We want to provide you with additional insight on a growing part of our UBS business. Grid Services provides end-to-end execution, technical depth, and supply chain strength to help utilities and heavy power operators build, modernize, and reliably power critical grid infrastructure. This business generated over $300 million of revenue in 2025, and grew at a mid-single-digit rate. In 2026, we expect growth to accelerate to double digits. Our grid services team supports projects across distribution, medium voltage, transmission, and substation systems through a unified model that coordinates materials, logistics, and engineering services. In distribution, we supply conduit, poles, protective equipment, and other essentials needed to ensure reliable and resilient last-mile power delivery. In medium voltage, we provide power cable, connectivity, switching equipment, including pad mount cabinets and termination kits, to help customers operate medium voltage systems safely and efficiently. In transmission, we deliver the critical components required to build, harden, and modernize high voltage networks such as cable and conductor, insulators, poles, and structures. And in substations, we provide high voltage apparatus, steel structures, grounding systems, power and control cables, and other equipment that enhance grid reliability and support growing electrification demands. Behind these product offerings is a set of execution capabilities that enable us to deliver them reliably, and at scale. Our program and project execution teams coordinate planning, scheduling, and field execution, to keep critical work on track. Even amid industry-wide labor shortages and rising project complexity. Our supply chain and materials management organization helped to ensure reliable material availability through centralized sourcing, staging, kitting, and logistics to reduce scheduling risk for utilities, developers, and data center operators. Our technical and field support team provide product application and design support, qualified resources to help manage complex project portfolios, and in support of safe, efficient installation and startup across complex grid and large load projects. Collectively, we believe these capabilities give WESCO a durable, competitive edge. Reflected in four core strengths that shape how we execute for our customers. Our end-to-end model integrates program management, supply chain logistics, and technical support into a single solution reducing complexity, reducing handoffs, and accelerating power readiness and timeliness for utilities, data centers, and large load interconnects. Our scale and infrastructure provide reliable material availability, faster mobilization, and stronger security certainty advantages that materially improve project outcomes. We bring comprehensive high and medium voltage capabilities including apparatus management, prewired assemblies, and specialized advisory services, enabling us to help deliver complex grid modernization programs in large load interconnects. And we execute with exceptional speed. Leveraging dedicated partners and proven logistics and staging processes. Our grid services business plays a critical role in enabling power delivery readiness across the markets we serve including data centers and digital infrastructure, emerging markets, renewables and electrification, and utilities. In the data center market specifically, these same capabilities come together in a powerful way to our holistic power to compute model. This begins at the grid connection where our UBS team enables high capacity, utility-side power readiness. It continues through the building's gray space electrical infrastructure delivered through our EES business and it concludes inside the white space, where our CSS business provides a network infrastructure, connectivity, and compute-ready solutions that support cloud, enterprise, and hyperscale environments. Turning to page 13. Let me wrap up our discussion of 2025 with some comments on free cash flow. For the full year, we delivered $54 million of free cash. As a reminder, our distribution model naturally requires investment in working capital. Particularly in periods of elevated activity and strong sales growth. Fourth quarter results reflect higher accounts receivable, as well as a meaningful inventory build to support this growth. As shown in the waterfall chart on the left, accounts receivable and inventory increased during the year as we continue to drive organic sales growth well ahead of our midterm Investor Day target of 3% to 5%. In 2025, organic sales were up 9%. Turning to the right side of the slide, net working capital intensity remained under control. Net working capital as a percentage of sales was 20.1%, compared to 19.8% in 2024, and 21.4% in 2023. While the year-over-year comparison shows a modest increase, this movement was largely attributable to higher accounts receivable levels. Looking ahead to 2026, we expect net working capital to grow at roughly half the rate of sales which will further reduce net working capital as a percentage of sales and support stronger free cash flow conversion. Moving to Slide 14 and our 2026 outlook. Let me begin with the growth drivers by strategic business unit, and the individual operating groups. As John mentioned, we expect reported sales growth to be in the range of 5% to 8% in 2026, with organic sales between 4% to 7%. Starting with CSS, now represents approximately 39% of WESCO's revenue, we expect 2026 sales to be up high single digits plus. Data center remains the primary growth driver and as highlighted on this slide, we expect data center sales to be up mid-teens in 2026. We also expect security to contribute to growth supported by continued healthy end market demand. In enterprise network infrastructure, we expect improvement versus 2025 as market conditions stabilize and order activity continues to improve. Looking at our EES segment, we expect 2026 sales to be up mid-single digits. The improvement is expected to be broad-based across the segment with construction, industrial, and OEM each positioned for growth as demand trends continue to improve and project activity remains strong, driven by the secular growth trends. Lastly, looking at UBS, we expect 2026 sales to be up low to mid-single digits. This reflects an improvement from the headwinds we experienced in 2025 with better momentum in utility, particularly with investor-owned utilities along with double-digit growth in grid services. We expect sales to public power customers will return to growth by the end of the year. And we expect continued solid performance in broadband. And as we've discussed previously, the long-term fundamentals remain attractive. Given the significant underlying demand for grid modernization investment and increased generation, transmission, and distribution spending to support rising power needs. Moving to Page 15, let me walk you through the details of our outlook for 2026. Starting at the top of the page, as mentioned, our full-year 2026 outlook calls for reported sales growth of 5% to 8% with organic sales up 4% to 7%. We currently anticipate a one-point benefit from foreign exchange with no impact from M&A or workdays. Our outlook reflects the continued strength we are seeing in most end markets highlighted by robust data center demand and supported by improving trends across electrification, and other project-related activity. Looking at the sales drivers, our outlook includes approximately two to five points of volume, and two points of carryover pricing. As a reminder, our outlook does not include the impact of future pricing actions, including tariffs. This is consistent with our past practice given the timing lag between supplier notifications and revenue realization. Q4 price increase notifications were up over 125% in count year over year with the average increase in the mid-single-digit range. Through January, we continue to field a higher than average number of price increase notifications with the average increase in the mid-single-digit range. We expect adjusted EBITDA margin to be in the range of 6.6% to 7%. The midpoint of this range reflects progress on operating leverage and gross margin execution, balanced with ongoing investments in our technology-enabled business transformation and the mixed dynamics inherent in large project activity. We continue to see opportunities to expand margins through improved pricing discipline, better cost leverage, and the benefits of scale as volume grows. Moving down the page to EPS. Our outlook range for adjusted diluted EPS is $14.50 to $16.50, a growth rate of 20% at the midpoint driven primarily by improved operating performance. We have also provided key assumptions underlying our outlook. Consistent with historical results, cloud computing amortization and stock compensation are recognized as SG&A expense for the calculation of adjusted EPS and not included in adjusted EBITDA. Lastly, turning to free cash flow. We expect to deliver free cash flow of $500 million to $800 million in 2026. This reflects our expectation for improved cash generation versus 2025 as we continue to make progress on working capital initiatives with working capital growth at approximately half the rate of sales in 2026. Regarding capital allocation, our top priority remains investing organically in the business to drive growth and operational efficiency, including continued progress on our tech-enabled transformation. After funding these organic investments, we will focus on reducing debt. Beyond that, we will allocate remaining free cash flow to the highest return opportunities including disciplined and opportunistic share repurchases to offset annual equity dilution and selective strategic M&A that expands our capabilities in high-growth end markets. Finally, consistent with our commitment to shareholder returns, we plan to increase our annual common stock dividend by more than 10% to $2 per share or approximately $100 million on an annualized basis. Turning to slide 16. This slide shows the year-over-year monthly and quarterly sales growth comparisons over the past year. Along with our expectations for the first quarter. You can see the continued momentum in our business through 2025, with steady improvement across the year and a strong finish in the fourth quarter. As highlighted, preliminary January sales per workday are up approximately 15% reflecting continued positive demand trends across all business units with growth rates by SBU similar to what was experienced in Q4. Storm-related activity had an immaterial albeit negative impact on sales in January, which we expect to recover later in the quarter. For the first quarter, we expect reported sales to be up high single digits with growth across all three business units. Recall that January is the lowest revenue month for the quarter and the year and that March is the highest revenue month in the quarter. Organic sales are expected to be up a similar amount as there is no meaningful difference in workdays year over year and FX impacts remain modest. We expect adjusted EBITDA margin to be up versus the prior year driven by a combination of improved gross margin and operating leverage on the higher sales growth rate. In line with historical seasonality, Q1 sales are to be down low single digits sequentially. In addition, we experienced a reset in benefits costs and payroll taxes in Q1 versus Q4, which drives slightly higher costs sequentially. One last item to note is that the expected tax rate for the first quarter is approximately 25%. Historically, we see a favorable tax rate in Q1 versus the balance of the year. Moving to slide 17, we've covered a lot of material this morning, so let me briefly recap the key points before opening the call to your questions. We closed 2025 with strong top-line performance, driven by exceptional data center growth and strong results across EES, CSS, and improving trends in UBS. While free cash flow came in below expectations, we are acting decisively and we expect meaningful improvement in 2026 as working capital initiatives take hold. Looking ahead, we enter the year with record backlog, healthy demand across our most attractive end markets, and a 2026 outlook that calls for above-market growth, margin expansion, and stronger cash generation. With that operator, we can open the call to your questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone. Please limit your questions to one question and one follow-up. Our first question comes from David Manthey with Baird. Please go ahead. David Manthey: My first question is on the price that you mentioned. You've talked about this before. I'm a little unclear on why you describe it in terms of the number of increased letters, and you said the average increase is mid-single digits. But you're not including anything in the outlook here. So if you could talk us through that. But more importantly, if you should happen to get a few points of incremental price in 2026, would and this is a hypothetical, of course. But would that take you to the high end of the EBITDA margin guidance range alone just to pick up a couple points of price? Could you just walk us through that? David Schulz: Yes. Certainly. So the way that we've outlined 2026 is very consistent with how we've always provided you with our future-looking projection. Given the uncertainty of when the price increases that are issued to us by our suppliers, when they will actually hit our revenue, we don't include it. We are highlighting the number of increases just to provide you with some context around the inflationary environment that we're dealing with. Many of our suppliers have historically taken one, maybe two price increases a year. We're seeing the number of price increases announced by them accelerate and you're seeing what used to be a low single-digit announced price increase has now been trending up to mid-single digits. It's moderated a little bit here in the month of January, but we're just providing that as perspective as to what the current market environment is dealing with. From our perspective, if we are seeing those price increases continue to get pushed through from our suppliers, and you're seeing the market accept those higher prices, you would see some transitory benefit on our gross margin. So that would give us a couple of extra basis points on the gross margin line. And then as our sales increase behind those price increases, we should get better operating leverage. So there is some benefit if these price increases do come through, but I will caution everyone that last year at this time, we were talking about the same item. So we did not see the benefit of that mid to high single-digit price increase notification translate through to our results. We only saw a 2% benefit for the full year 2025 on pricing. And a point of that was commodity-driven. So that's why we don't include it in the outlook. But if it does come to fruition, we're prepared to pass it through and ensure that we get the margin capture behind it. David Manthey: That's a great explanation, David. Thank you for that. Second, as I look at contribution margins here in the fourth quarter, I know it's maybe a little bit wrong to look at just one quarter in a vacuum. But CSS and EES came in around 14.5% year over year, which looks great. But the UBS is what dragged things down overall. And so the question is, you outlined a little bit about the complexion of the year and what UBS should look like. I just want to make sure that what's going on in UBS right now is a solvable issue in that this is just a mix of business or a transitory competitive situation. Could you talk about that? Or are there bad contracts in here that you can walk away from? Could you just talk us through sort of what that looks like through '26? John Engel: Yeah. Hi, David. Good morning. The Hey, John. It's really driven exclusively in utility. The utility portion of UBS. By public power customers. So this is an extension of what's been occurring. And we've talked about the dynamics of public power, that value chain investor-owned utilities for a number of quarters in a row now. Inventory is still normalizing. So they're still running with excess inventories at the public power customer level. And pricing is very competitive. What we're seeing is this pricing challenge and which translates to a margin challenge and we did take a significant impact in utility margins due to public power. Specifically with respect to transformers, that product category, and a little bit of a wiring cable, but principally transformers. This did not affect overall kind of line construction materials. So it's a really important point. In terms of your other part of your question, how would this do we see this? Does it extend? We're very clear that our outlook for 2026 expects to return to growth in public power by year-end. So I'll highlight that IOUs are a bright spot. They have improving momentum. We have three quarters in a row now of IOU growth. And that IOU growth has been picking up. If you look at what's happened in Q2 of last year, grew low single digits Q3, high single digits Q4 was up double digits. And so we've got a nice momentum vector. With our investor-owned utilities. Grid services that we highlighted in this earnings release it's important that we did talk about it first at Investor Day. But that is an aggressively and like, growing piece of our utility business. And that was up single-digit growth in 2025, but double-digit growth in the fourth quarter. Very important point. And utility backlog was up 23% at year-end, which provides a strong setup for 2026. So here's the bottom line, David, on the second part of your question. We do expect sales growth and margin expansion for UBS in 2026, and that's built into our outlook. David Manthey: Makes sense. Thanks for the color, John. Appreciate it. Operator: Our next question comes from Sam Darkatsh with Raymond James. Please go ahead. Sam Darkatsh: Good morning, John. Good morning, David. How are you? Morning, Sam. And, David, best wishes on your next chapter. It's been absolutely terrific working with you over the past decade. Just terrific stuff. David Schulz: Thank you. Sam Darkatsh: So a couple of just clarification questions if I could. You're guiding for data center growth mid-teens. Can you give a sense of what you're anticipating first half versus second half? Or what kind of exit rate in fiscal '26 you're seeing at a data center within the guide? David Schulz: Yes, Sam. The comps were pretty tough back in 2025. So in terms of our activity levels, we see relatively consistent activity levels by quarter on a dollars basis in 2026, but against the comp that was continuing to increase throughout the year. So you know, we've got a, you know, we were up 70% in 2025. So, again, the dollars have continued to increase sequentially through 2025. We would expect that the dollars will be relatively consistent by quarter in 2026. It is a project-based business, so there's always some things that could move. You know, a week or two within a quarter. But, generally, that's how we're viewing the opportunity in '26. Sam Darkatsh: So January is, like, running that mid-teens then? David Schulz: We would comment that our results from the fourth quarter seem to have continued about the same way from a growth perspective by business unit. And so in January. In January. Be clear. In January, Sam. You know, our up 15% per workday in January. The mix of that sales growth is consistent with our fourth quarter. Sam Darkatsh: Got you. My second question, and I apologize, I clicked off of a point during the call. So if you mentioned this, I apologize. You obviously missed the fourth quarter free cash flow expectations. It sounded like it was primarily on the receivables side. You're guiding for only roughly a 100% free cash flow of net income in '26. I would have thought that with the timing of the receivables and maybe the improving vendor lead times that that free cash flow might have been above net income for '26. Can you help reconcile perhaps some of those areas, David? David Schulz: Yeah. Certainly. And so you're right. The fourth quarter free cash flow was impacted primarily by a higher receivables balance just given the trends by month within the '5. We also had a higher inventory balance than we were anticipating. As we think about the free cash flow generation, you know, we've given you a range of $500 to $800 million that does include some of that carryover benefit of the receivables that we're collecting here in Q1. But the other thing that we would highlight is that, you know, that 100% historical free cash flow generation generally occurs when you're in that, you know, 3% to 5% organic growth range. And so while we do anticipate that we will have further investments in working capital to support what we provided you as an organic sales range of 4% to 7%, we do see the opportunity to do better collecting cash in 2026. So from our perspective, this is the right view to start the year with on a free cash flow basis. Given the continued strength in organic sales and what we're anticipating in terms of sales by quarter in 2026. Sam Darkatsh: Very helpful. Thank you. Operator: Our next question comes from Guy Drummond Hardwick with Barclays. Guy Drummond Hardwick: Hi, good morning. John Engel: Morning, Guy. Guy Drummond Hardwick: It was good to see the pickup in the order book at EES. So just wondering if you could comment on just the order book trends by end markets and particularly if you excluded the data center business. John Engel: All three of the businesses grew their backlog in Q4. So that's a really important point. And so and if it you should really think about that in the backdrop of over the longer-term normal seasonality we would not have expanding backlog. Or growing backlog in the fourth quarter. So and so positive momentum vector is the answer. CSS, obviously, was the strongest of the three. With a, you know, backlog up 40% at a record level. As we said, UBS is up 23%. EES grew as well. I will say what's really encouraging with EES is just the overall momentum vector. When you're looking at opportunity pipeline, the bid activity level, plus backlog, plus the increased sales growth rate. As we as we move throughout 2025 and particularly the second half. It really kicked into gear. And so and I'll remind you, we got a new EES leader who joined in the third quarter, and so off to absolutely a terrific start as evidenced by the strong, you know, Q3 and even stronger Q4 results. And what's really encouraging is we're getting the operating cost leverage with EES plus gross margin expansion in Q4. Same with CSS. We're getting the operating cost leverage UBS, we already talked about those drivers, but plus the gross margin expansion in Q4. I'm very bullish on UBS' sales and profit expansion opportunities in 2026. Guy Drummond Hardwick: Thank you. I'll pass it on. Operator: Our next question comes from Deane Dray with RBC Capital Markets. Deane Dray: Thank you. Good morning, everyone. Also, will add my thanks to David, and congratulations. David Schulz: Thank you, Deane. Deane Dray: Maybe we can start with some further clarification on the UBS shortfall because last quarter, there was a sense that it had turned the corner. Broadly within the segment on the public power side, but it looks like that recovery is now getting pushed into year-end. And you referenced competitive pressure. So how much of a dynamic is that in? Or is it really core demand? And then just so broadly, before you answer that, just the idea is you've got IOUs doing better. So maybe just educate us if that is moving, how much confidence does that give you about the public power side? Is there a lead? Is there a lag? You know, how correlated are they? So a lot to unpack there, but maybe we could start there, please. John Engel: Yes. So, Deane, look. The public power challenges were all throughout 2025 and, in fact, in 2024 as well. And I'll just I'll just take a few seconds and just we've talked through the dynamic of what the pandemic did to the utility value chain and that IOUs benefited first. Versus public power. So I'm not gonna go back through that, but we've gone through that a few times. That's important to understand. The momentum improvement we experienced in 2025 started in the second quarter it was with the return, the growth of IOUs in that quarter. Not public power. IOUs that is we move through Q3, stepped up their growth rate. To high single digits versus prior year. But public power still remained significantly challenged. And that challenge just extended and continued throughout. And it's a combination of two things. One is Q4. There's still an excess inventory position. At the public power customer level, on specific categories principally being transformers and distribution transformers, I'll call them. And so that's coupled with the fact that they have that excess inventory position any RFPs they're putting out to kind of do some minimal stock replenishment is under extreme competitive bidding pressures. So we experienced that negative mix effect on the category of transformers principally the public power, it was and it occurred throughout the year, but was also continued in Q4. Look. I think the public power market still has these same challenges as we started this year. And as David mentioned, our January sales results were really encouraged with the plus 15%. That's a really terrific start with the year given December's close. And the mix of the businesses in terms of the all three are growing is similar to Q4. But public power has not returned to growth. We're now stating that we expect that that return to growth will be not till the end of the year. But the very good news is and this is why it's a critical point. We included grid services in this deck. I know it's a lot to unpack. And we had a lot of script commentary around grid services. I'll remind you that we did tee that up back at Investor Day in 2024. That's been an increasing part of our business. To 300 plus million dollar business that we built organically. It grew mid-single digits last year, double digits in Q4, not via acquisition. This thing's really kicking into gear. So when you start thinking about utility, and UBS in 2026, particularly, you know, if IOUs with three quarters in a row of very positive momentum, we expect IOUs to carry the day. Public powers will remain public power will remain challenged. That is our view for 2026. But grid services increasingly kicking in and providing strong growth because we've got an outlook for grid services. Of double-digit growth for 2026. So it was a lot to unpack. Hopefully, that helps kind of stitch it together. Deane Dray: John, that was really helpful. I appreciate that. And just as a follow-up question, there's been so much focus across the electrical equipment sector on these North America mega projects. There's over 800. That are over a billion dollars of spending. Just have you all looked at what that opportunity is? How many projects of the 15 that have started do you think you're engaged in? Is that part of your backlog and visibility? John Engel: Yeah. A great question, Deane. First of all, we're aware of all of them. I think we've got a rigorous process wrapped around the front end of our opportunity pipeline. We got some terrific tools in place. We scrape all public data. We obviously have the relationships with our customers that we're leveraging. That's end-user customers. Where we have particular strength because the percentage of our customer reach is end-user is disproportionately higher than any of our competitors, but also where we serve big contractors and all the way up to global EPCs. So that process I'll call the front end of the opportunity pipeline, is something we've spent a lot of time and attention on. It's robust. It's operational. We've you know, we don't size our opportunity pipeline externally, but it's been growing at a very large clip. And it's at an all-time record level. And each of the three SBUs has their piece of the opportunity pipeline. We got a rigorous process that manages those opportunities because for every opportunity, we're looking for the cross-sell and the one WESCO. Complete. And what's the total one WESCO scope for every opportunity? And, obviously, what's in that pipeline is the mega project. So you know, we've not provided further detail Deane, in terms of you know, what percent we've won thus far, but I will remind all investors that remember upon announcement of a mega project, these are longer cycle time in general. And depending on the package that we're bidding, it comes into play at different parts along the construction cycle. So that to me is that's part of my bullishness on the future growth trajectory. That we'll be able to capture and continue to deliver against for WESCO. Because it is what feeds this secular growth trend of the infrastructure build-out and it's obviously driven by heavy reshoring and nearshoring as well. So outstanding question, Deane, but it is it's really one of the key elements that gives us great confidence about the rising demand curve for our business. Deane Dray: Thank you. Operator: Our next question comes from Nigel Coe with Wolfe Research. Please go ahead. Nigel Coe: Oh, thanks. Good morning. Good morning, John. Good morning, David. So just on the SG&A, obviously, up I think, by 11% year over year in the fourth quarter. You called out a long list of factors there. So maybe just talk about what caused that and, you know, were these year-end accruals just maybe break out the 30 basis points in 2026. You called out gross margin expansion and SG&A leverage. I'd be curious how that looks between the two categories. David Schulz: Yes, certainly. So Nigel, let me start with on the SG&A front versus the prior year. The quarter, this is primarily a base period issue. Recall that we talked about as we came into 2026 or I'm sorry, 2025 that we would need to restore incentive compensation. In the fourth quarter of 2024, we had much lower spending on incentive comp just given the trajectory of our sales and EBITDA relative to our plan. In 2025, the incentive compensation expense was more typical for the quarter. So that was really the big driver of the year-over-year change in SG&A was really driven by incentive compensation. Nigel Coe: Okay. Thanks, David. And then just the January 15% growth is obviously exceptional. High single digits for the quarter. I mean, I understand January is a low contribution to the quarter. But is it more consistent? So I do think January is your toughest kind of comp month in the quarter. Is it just conservatism, or was there anything lumpy in January that you called out? David Schulz: Yeah. January is always hard for us to pull a trend out of because we have so much activity during the month of December. You know, a lot of it, you know, based on where we finished December, we thought that we would be off to a slower start in January. Then when you add on top of that the issues with the weather. So we were pleasantly surprised by the strength of the business and the sales that we saw through the month of January. You know, again, we think that we've got the right way of thinking about this. I mean, February, we generally see, you know, obviously, fewer workdays, but then March we expect to see a recovery. So there's you know, from our perspective, the right way to think about this is there could be some activity that occurred in January that was carryover from December that we didn't get out the door. But we think that thinking of a high single-digit growth rate on reported sales is the way that we're viewing the first quarter. Nigel Coe: Great. Thanks, David. And by the way, you're far too young to be retiring. But, anyway, good luck. David Schulz: Thank you. Thank you, Nigel. We by the way, we said the same thing. Nigel Coe: Thank you. Good luck. Operator: Our final question today comes from Tommy Moll with Stephens. Please go ahead. Tommy Moll: Morning, Tommy. John Engel: John, I want to start on data centers. Heck of a year you had in 2025 there, and you're now run rating well north of a billion dollars in sales a quarter. So I want to see if you can situate us on the opportunity from here because I hear David talking about relatively consistent dollars across the quarters in '26. I don't think you want the takeaway today to be that we've now peaked on run rate data center sales. But arguably, that's embedded in the guidance. So what would we need to see to drive another step change higher potentially? In data center? John Engel: Thanks, Tommy. No. Look. I'll you know, David is not saying that we peaked with data centers, not even close. I'll just I'll take you back to this is actually important. I'll take you back to remember even it wasn't a few quarters ago. It was actually two years ago. When some of our supplier partners started to see the step up in growth related to data centers, and they were seeing it, and WESCO was not yet. And remember, we had a lot of questions from a number of investors on you know, in our earnings calls and at conferences, why aren't you seeing the growth yet? And we were very clear that the limited number of suppliers that are in a public domain where you can see the results and we're no we all know who we're talking about, that this was direct ship parts of their business and those packages went in at the very early stage of the site of the total life cycle of the construction. Project for a new data center. And we said we are highly confident that we will see that growth rate but it doesn't come one or two quarters later. It's three, four, five, six quarters later. We clearly have seen that. And I would argue that the growth rates we're seeing are equal to, if not above market. So that time lag still occurs Tommy, and it's an important point. It's why I'm so bullish over the mid to long term, and I don't think we're anywhere near not even remotely close to seeing a peak in the cycle for AI-driven data centers. And with that time lag, that serves us exceptionally well. Second point I'll make is look. You know, we're engaged with our customers. We're getting feedback from them. And in some cases, we're getting longer and longer looks into future plans because we're providing kind of a single one-stop shop to manage their global deployments which is a great place to be in the value chain. But as we're driving this growth, their forecasts have been increasing. And you're all seeing that in the form of headlines. Of increased capital spending. So this is just this is I would characterize this as a great problem to have. We have a rising power demand curve driven by a rising set of capital investments around AI-driven data centers. Go back and look at the forecast for that, each and every month, it's been getting increased. Some look. Some headlines came out earlier this week in terms of total spending across the magnificent seven. And it resulted in a forecast that stepped up again. So I think we're chasing this rising power demand curve we're exceptionally well positioned. And we think we'll disproportionately benefit. With all that said, you know, it's very hard to forecast you know, multiple quarters out. When things are inflecting up. So I'd look I think we're off to a great start. You know, we managed 2025 well. We gained momentum throughout the year, and we took data center our expectation for data centers up as we move through the year. Again, the market supported that because of the rising demand curve. So we think this is an appropriate guide to start the year with. But, hopefully, that gives you a little sense. Tommy Moll: Absolutely. Thank you, John. As a follow-up, I wanted to ask about the free cash flow and specifically working capital comments. You gave for 2026. Can you just give us an example or two of some of the initiatives that are in flight to improve that working capital in the next year? David Schulz: Yes, certainly Tommy. We have continued to drive changes to digital applications that we are using to better plan inventory. Working directly through a sales and inventory and operations planning process. We also have some various incentives, which are aligned to management and management incentives on our better management of accounts receivable. So that is another initiative. So not only do we want to work it from the inventory side and how we better manage our inventory days, and you know, we did make progress on inventory days through the first March. We saw a slight pop-up in the fourth quarter on our inventory days. And we had the same issue on receivables. So, but we are incenting our team to better manage both inventory and receivables in 2026. So slight changes to the program that we had in 2025 from an incentives perspective. John Engel: Tommy, that's a very high priority for us. And we're driving that across the entire enterprise. Tommy Moll: Thank you both. And, David, best of luck writing the next chapter. David Schulz: Thank you. John Engel: Well, thank you all. I think we've addressed your questions today. I know we have a number of follow-up calls scheduled, and we look forward to engaging with you on those. So I'll bring the call to a close. Thank you all for your support. It's very much appreciated, and I'll remind you, we expect to announce our second quarter earnings on Thursday, April 30, 2026. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen. And welcome to the 4Q 2025 Arch Capital Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before the company gets started with its update, management wants to first remind everyone that certain statements in yesterday's press release and discussed on this call may constitute forward-looking statements under the federal securities laws. These statements are based upon management's current assessments and assumptions and are subject to a number of risks and uncertainties. Consequently, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may affect future performance, investors should review periodic reports that are filed by the company with the SEC from time to time, including our annual report on Form 10-Ks for the 2024 fiscal year. Additionally, certain statements contained in the call that are not based on historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company intends forward-looking statements in the call to be subject to safe harbor created thereby. Management also will make reference to certain non-GAAP measures of financial performance. The reconciliations to GAAP for each non-GAAP financial measure can be found in the company's current report on Form 8-Ks furnished to the SEC yesterday which contains the company's earnings press release and is available on the company's website at www.archgroup.com and on the SEC website at www.sec.gov. I would now like to introduce your host for today's conference, Mr. Nicolas Papadopoulo and Mr. François Morin. Sirs, you may begin. Nicolas Papadopoulo: Good morning, and welcome to our fourth quarter earnings call. We concluded another exceptional year by generating $1.1 billion of after-tax operating income in the fourth quarter, up 26% from the same period in 2024. Our quarterly consolidated combined ratio of 80.6% reflects excellent underwriting results across the group. For the full year, we produced $3.7 billion of after-tax operating income, a new high, resulting in after-tax operating earnings per share of $9.84 and a 17.1% annualized operating return on average common equity for 2025. Continued strong operating cash flows and capital generation enabled the repurchase of $1.9 billion of Arch common stock in 2025. We strongly believe our stock is a good long-term investment and share buybacks represent an efficient way to return excess capital to our shareholders for the time. Since our inception, Arch's commitment to maximize long-term shareholder value has been unwavering. In 2025, book value per share, our preferred measure of value creation, increased by 22.6%. Since our start in 2001, book value per share has grown at a compound annual growth rate in excess of 15%, placing us at the top of our peer group. We remain confident in our ability to deliver strong returns throughout the underwriting cycle and to build on a legacy of disciplined execution and consistent results. We head into 2026 with measured optimism. We are starting from a position of strength, but recognize that competition is increasing in several lines of business. In an evolving market, the house playbook, which has served us well over the years, is a differentiator that remains as valid and effective as ever. Our playbook is anchored by an underwriting culture defined by deep expertise and disciplined risk selection. Combined with a diversified business model, a proven record of best-in-class cycle management, and the strengths of the Arch brand, we are well-positioned to consistently deliver superior results for our shareholders. I will now provide updates on our reporting segments. I'll begin with our insurance group, which delivered $119 million of underwriting income in the fourth quarter. Underwriting performance was solid, with an underlying ex-cat combined ratio of 90.8% in the quarter, similar to the fourth quarter last year. Gross premium return increased 2% from 2024. In North America, we continue to grow in specialty casualty lines including alternative markets, construction, and E&S casualty. As for our international units, we increased writings through our Bermuda platform and in Continental Europe. I will note that we experienced a year-over-year decline in net premium return which François will explain in his remarks. Across the insurance platform, our underwriters pivoted towards lines of business offering the most attractive margins and we grew premium volume in more than half of our business units, indicating a healthier underlying market than industry headlines would suggest. In North America, the rate environment is largely keeping pace with loss cost trends, while pricing in our international business units is tracking slightly below loss trends. Within each geography, consistent with our cycle management approach, we will adjust our business mix in response to changing market conditions and pricing dynamics. Our insurance platform has expanded significantly over the last several years, providing more opportunities to capitalize on attractive margins in many areas. Going forward, our underwriters will continue to pursue growth in those areas where risk-adjusted returns exceed or meet our long-term objectives. Moving to reinsurance, which delivered a record $1.6 billion of underwriting income for the year. The fourth quarter combined ratio ex-cat and prior year development was 74.9%, consistent with the prior year quarter, and reflective of continued underlying market profitability. Gross premium return was flat versus 2024 despite the nonrenewal of a large structured transaction. Net premium return declined primarily due to a change in the timing of certain retrocession purchases. On January 1, property cat and more generally, short-tail excess of loss renewals were highly competitive with rates down 10 to 20%. Ceding commission increased in proportional reinsurance as supply continued to outpace demand. Despite these headwinds, our underwriting teams performed well, leveraging the strengths of our platform to source a handful of new opportunities. These opportunities will reduce the negative top-line impact from the rate pressure. The mortgage segment produced $1 billion of underwriting income for the year, our fourth consecutive year exceeding the $1 billion threshold. In our USMI business, new insurance return remained modest and insurance in force was stable. The underlying credit quality of the portfolio is excellent, as illustrated by favorable cure rates on delinquent mortgages, which show favorable reserve development in the quarter. While lower mortgage rates are beginning to support increased origination activity, the current market is still constrained. The team remains focused on underwriting discipline, expense management, and perfecting its data and analytical platforms to further optimize the business. Finally, investments generated $434 million of net investment income in the quarter, while equity method investments added another $155 million to net income. We continue to look to the investment portfolio, where assets surpassed $47 billion at year-end, to provide a stable recurring earnings stream that enhances the group's overall returns. As we move past 2 PM, the PLC underwriting clock is increasingly important to focus on business that generates adequate risk-adjusted returns. For almost twenty-five years, Arch has perfected its cycle management capabilities by adhering to some foundational principles. One, leveraging a diversified specialty platform to maximize flexibility and reduce volatility. Two, embracing a business owner mindset anchored on delivering a differentiated customer experience. Three, using data and analytics to sharpen insights and enhance risk selection. And last but not least, ensuring alignment with investors by rewarding underwriters for profitability, not volume, and incentivizing our executives to grow book value per share above all else. This stage of the underwriting cycle will test underwriting discipline and acumen. Our markets are exciting for many reasons, but successfully managing the cycle is equally, if not more, rewarding. As the decisions made today will shape future returns. With our experience, focus, proven track record, and capital strength, we believe Arch is ready for the task and well-positioned to outperform the sector. This year marks Arch's twenty-fifth anniversary. Having been here since 2001, I firmly believe that Arch's culture, driven by our dedicated people, is a foundation of our success. So before I turn the call over to François, I want to thank team Arch for another outstanding year and for positioning the company for continued success in the years ahead. François? François Morin: Thank you, Nicolas. And good morning to all. Last night, we reported our fourth quarter results with after-tax operating income of $2.98 per share, and an annualized net income return on average common equity of 21.2%. Book value per share grew by 4.5% in the quarter. Our three business segments once again delivered excellent underlying results, with an overall ex-cap accident year combined ratio of 79.5%, down 100 basis points from last quarter. Our underwriting income included $118 million of favorable prior year development on a pretax basis in the fourth quarter, or 2.8 points on the overall combined ratio. We recognize favorable development across all three of our segments, and in many of our lines of business. The most significant improvements were once again seen in short-tail lines in our P&C segments, and in mortgage due to strong cure activity. Current year catastrophe losses were $164 million net of reinsurance and reinstatement premiums. Lower than our seasonally adjusted expectations, but higher than last quarter, mostly as a result of U.S. severe convective storms, hurricane Melissa, and a series of global events. The insurance segment's gross premiums written grew 2% while net premiums written declined 4% year over year. The decrease in net premiums written was due in part to the timing of ceded written premium accruals related to the M acquisition in the prior year quarter and changes in business mix resulting from different levels of net to gross retention ratios. The ex-cat accident year loss ratio improved by 80 basis points to 57.5% compared to the same quarter one year ago. The acquisition expense ratio for the current accident year increased by 150 basis points as the benefit we observed in 2024 from the write-off of deferred acquisition costs for the MC acquired business rolled off. The Reinsurance segment had another stellar quarter in terms of pretax underwriting income, at $458 million. Overall, gross premiums written were flat and net premiums written were down approximately 5.2% from the same quarter one year ago. Our net premium volume was up in casualty and property other than property catastrophe but was down in specialty due to the impact of the nonrenewal of a large transaction as Nicolas mentioned. And then property catastrophe due to changes in the timing of certain retrocession purchases. We finished 2025 with an 80.8% combined for the year, certainly an excellent result and the lowest since 2016. Once again, our mortgage segment delivered another very strong quarter with underwriting income of $250 million. Net premiums earned were down approximately $11 million from last quarter, mostly across our CRT and Australian businesses. That said, with fourth quarter new insurance written at USMI at its highest level for the year, and persistency remaining high at 81.8%, USMI insurance in force was relatively flat. The current accident year combined ratio remained low at 34%, considering the increase in new notices of default due to seasonality. The delinquency rate for our UMI business increased to 2.17% in line with our expectations. On the investment front, we earned a combined $589 million from net investment income and income from funds accounted using the equity method are $1.60 per share pretax. Strong positive cash flow from operations of $6.2 billion for the year helped us further increase the size of our investable assets which now stands at $47.4 billion. Our portfolio remains a very high quality with a short duration and remains in line with our allocation asset allocation targets. Income from operating affiliates was strong at $61 million due especially to a very good quarter at Summers REIT. As you have heard, the Bermuda government enacted in December the Tax Credits Act 2025, designed to incentivize tangible on-island economic activity. At the heart of the act are qualified refundable tax credits or QRTCs, which are available to us given our operational presence in Bermuda. This quarter, we recognized a full year effect of the 2025 QRTCs, significantly impacting your financial results, primarily through the expense ratio for our Reinsurance segment and the corporate expenses line. Nicolas Papadopoulo: Of note, included in these numbers are some one-time benefits. François Morin: Which we would not expect to recur in future years. Going forward, our view is that the impact of the QRTC should be most visible in two places. One, for the reinsurance segment, we would expect our operating expense ratio to benefit resulting in a full year 2026 operating expense ratio between 3.9-4.5%. And two, our corporate expenses should also be reduced from their run rate levels and be approximately between $80 million and $90 million in 2026. The QRTCs will also benefit other expense line items including the insurance and mortgage segment expense ratios and net investment income, but to a much lesser extent. As a reminder, our pattern of corporate expenses is typically skewed towards the first quarter of the year due to the impact of equity compensation grants. For the 2025 year, our effective tax rate on pretax operating income was 14.9% reflecting the mix of income by tax jurisdiction. It was slightly below the 16% to 18% previously guided range mostly due to a 1.4% benefit from discrete items. As we look ahead to 2026, we would expect our annualized effective tax rate to return to the 16% to 18% range for the full year. As of January 1, our peak zone natural cap probable maximum loss for a single event one and two fifty year return period on a net level basis, remained flat at $1.9 billion and now stands at 8.2% of tangible shareholders' equity. For 2026, our current estimate of the full year catastrophe losses stands within a range of 7% to 8% of overall net earned premium similar to the estimate we disclosed last year. On the capital management front, we repurchased $798 million of our shares in the fourth quarter. For the year, we repurchased $1.9 billion or 21.2 million shares representing 5.6% of the outstanding common shares of the start of the year. We have repurchased an additional $349 million in shares so far this year through last night. Operator: We closed 2025 with a balance sheet and excellent health. François Morin: With strong capitalization and low leverage. Giving us plenty of optionality as we continue to work to put to work the capital our shareholders have entrusted in us. With these introductory comments, we are now prepared to take your questions. Operator: Thank you. 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 your signal to reach our equipment. Again, please press star 1 to ask a question, and we'll pause first question comes from Elyse Greenspan at Wells Fargo. Please go ahead. Elyse Greenspan: Hi. Thanks. Good morning. I wanted to start with the comments that you guys made on property cat. I think you said that there were some, you know, opportunities at one one, like that served to offset the impact of the price declines. Can you just expand, I guess, on the opportunities that you saw and just how you expect, I guess, growth in in property cat re during 2026? Nicolas Papadopoulo: Good morning, Helene. Think the opportunities we refer to in our comments I mean, are not in property cat. I think the they come from other geographies and mostly in in specialty lines. Elyse Greenspan: Okay. And then my my second question was just on capital. You guys it sounds like there was a you know, the level of and the pace of buyback, François, based on your comments, picked up just start the year. I know you guys, right, typically buy back, so it is dependent upon capital as well as the stock price. But how should we think about the level trending from here, right, $350 million, right? And a little bit over a month, right, is is a pretty pretty big level. François Morin: Yeah. I think I mean, share buybacks are, I think, certainly, as we said, like a good way to return capital. I don't think mean we don't set a target that not like we're we're saying we're gonna return x dollars by the end of the year, but you know, the market, you know, depending on stock price and we'll we see are in our ability to deploy capital in the business, we'll we'll be active for sure. I mean, the pace will vary. It's not necessarily a say, a binary event whether we buy or we don't buy. If, you know, there's we buy different levels during different different, you know, different times during the year, but you know, I think no question that given the the market environment we're in, I think we should expect us to to be pretty active on the share buybacks throughout the year. Elyse Greenspan: And then one last one. On the MCE side, can you just remind us of the the expectations for the the reunderwriting in terms of the premium impact? And what from a seasonality perspective, is that more weighted to one quarter of the year versus another, or should we think about that being an even impact during the April '26? François Morin: Yeah. By I mean, part b, no question that the the business is is pretty well distributed throughout the year. There's not much seasonality in it You know, the the reunderwriting question, we we touched on it in prior quarters. There was definitely some business that came with the acquisition primarily in, in the form of programs that we identified that were gonna be nonrenewed. We've we've done that work that will start to really our top line in 2026. And, you know, we we hopefully, you know, depending on market conditions, can offset some of that reduction by growth in the truly the middle market business that we we have on the books. But again, very much a a function of market conditions, but that was the that that's the the current thinking on that. Elyse Greenspan: Thank you. François Morin: You're welcome. Operator: Next question will be from Tracy Benguigui at Wolfe Research. Please go ahead. Good morning. On the 10 to 20% rate decreases at one one, Tracy Benguigui: Based on prior conversations I had with Arch, understand you don't like cat business below a 16% ROE. So in terms of sensitivities, I understood going into renewal, you thought that let's say, if you got a 10% rate reduction, you could still land at 20% ROE, maybe 15% will get you between 16 to 20%. Now the 10 to 20% is a wide band, So how does this all shake out on a ROE perspective for a prop cat business? Nicolas Papadopoulo: So overall, I think we still like the the the cat business. We we we wrote at one one. I think we as you said, some areas have been more competitive than than others. We've seen Europe, you know, being very competitive. I think in The US, you know, probably less so compared to Europe, I think we we just adjust the, you know, our writings to to the the target profitability that is set by by region. So so overall, I think we we we were able to, you know, retain most of our renewals know, we we got some very favorable signing from our broker because of the you know, the the the the service we provide and the the the long standing relationship we have with our, you know, many of our selling companies. So so I think we we still we still we still like the business. I think if rates were to continue to to go down you know, in the mid teens, you know, we we we we we will have to on the case by case basis, you know, realize where it makes sense and where where where it doesn't. Tracy Benguigui: Okay. And any early thoughts on midyear reinsurance renewal pricing relative to what you're seeing in January? Nicolas Papadopoulo: So our our thought is more about the the marketing in general. I think the competition we are seeing is really a reflection of the excellent results with all benefited from, you know, in the last in the last three years. So and you know, the fact that we had only one major cat, which was the the California wildfires. I think we you know, of any other major cat that we'd expect, you know, the the the the supplies to to to to to continue to be there. So I think people should pay attention to the risk adjusted return. Know, going forward because it will be a a a it's a it's a big element of how we underwrite the business. K. Thank you. Operator: Thank you. Next question will be from Cave Mohaghegh Montazeri at Deutsche Bank. Please go ahead. Cave Mohaghegh Montazeri: Morning. Given yesterday's move in the market, I was going to ask you François Morin: About the risk of disruption to your business model from AI. And whether you're more likely to be a net beneficiary from AI. Their improved efficiencies and smaller risk selection, Cave Mohaghegh Montazeri: Rather than at risk of disruption, which I suspect is probably more limited to some distribution platforms. Or maybe to carriers from the right lines are more commoditized. Love to hear your thoughts on this topic. Nicolas Papadopoulo: Yes. I think I I agree with your your premise. I think we we think of AI as more of an opportunity for efficient efficiency and rather than a than a threat, but ultimately, the the the beneficiary of AI will be the consumers. You know, as most of the savings and efficiency will be part on to the to the insured. So but, yes, I think the you know, the the the the advantage of being in the specialty market is it's it's complex. I think it will I'm not saying it's impossible, but it will take time for models to learn to to replicate the the behavior of the of the underwriters. So I think what what we're seeing is, you know, personal lines or SME may maybe maybe maybe happening there faster. Than in the in in the space that we are playing. Cave Mohaghegh Montazeri: K. And my follow-up question is is a follow-up on capital return I guess, theory, if there is no growth, in 2026 I hope you guys see growth. But if there is no growth, you could distribute close to a 100% of the the capital you generate. Is that something you would consider If not, what's the highest payout ratio you'd consider in the no growth and no M and A scenario? François Morin: No. You're right. I mean, if we're not growing, which again, we don't know if we will or not, but depends on the market. But absolutely, if the market you know, we're not growing, you know, their their their our capital needs should remain relatively flat, and every dollar of, you know, income that we generate technically could be you know, creating more excess capital. What's our you know, do we have a, you know, do we have a set of targets? No. We don't. But we are you know, if the market, you know, points us in a certain direction and the opportunity is there to buy back you know, more than you would know, you see us saw us buyback last year, for example, we're happy to do that. Very much a function of market conditions, and you know, that's something we evaluate, you know, on a daily basis. Cave Mohaghegh Montazeri: Thanks. You're welcome. Operator: Thank you. Next question will be from Michael Zaremski at BMO. Please go ahead. Michael Zaremski: Hey, thanks. Good morning. I guess first question on the Reinsurance segment, specifically. Operator: Just, I guess, Michael Zaremski: A lot goes into the loss ratio, of course, for the segment. If we're looking at the underlying loss ratio trend, it's it's nudging a bit higher into the low to low fifties. I guess it's thinking about 26% to the extent the reinsurance market plays out the way you're you're thinking in terms of just some additional downwards rate pressure? Should we continue kind of to nudge that loss ratio underlying loss ratio trend line higher? For the cat load? Yeah. I think so. I think I think the mark on the reinsurance side, I think, Nicolas Papadopoulo: Margin are definitely under pressure. So I think I think think you're right. And it's it comes from the pricing on the excess of loss and also you know, on the expense side, you know, we we we're seeing also sitting commission François Morin: You know, going up. So Michael Zaremski: Okay. Nicolas Papadopoulo: And But we but we still but we still like the business. I think it's you know, we we have a big diversified platform. We write the business in many So I think we we we believe that we we can find ways to to continue to track attractive attractive market, but, yes, the margin mean, they were very high, but the the margins are definitely under pressure. Michael Zaremski: Okay. Great. And I'm gonna ask another capital management question just because, you know, you all, as you point out, are good cycle managers, and you're one of the few that's able or maybe willing to to shrink, in, you know, times that you're you know, making a bet that the market isn't as conducive for growth. So on capital management, is there are there any items that would other than we could see the shrinkage in top line growth that could free up more capital than we than we can kinda see at a high level, like, the mortgage segment. Is that releasing you know, a material amount of regulatory capital that we should take in potentially take into account? François Morin: On that question, Mike, I don't think so. I mean, I think we touched while we certainly have touched on it in the past, I think the the the overall capital position, you know, the fact that, maybe there's some capital that is, trapped in in the MI companies is is not hasn't really been a factor. I think we've been able to to distribute through dividends, like, meaningful amounts of capital from from our MI company to you know, to to buy back stock, to to return to shareholders, etcetera. So I don't think that should be any you know, it shouldn't be materially different going forward. The one thing that, you know, is, you know, a capital consumer is, you know, the investment portfolio. Let's you know, that's one thing that we have some some, I think, ability to influence capital requirements depending on how much capital or assets we deploy in riskier assets such as equities and or private investments. But other than that, I think and and we can also play certainly on the reinsurance side whether we buy more or less reinsurance like that's the effect you know, impacts are our net retained Nicolas Papadopoulo: Premium. But François Morin: You know, at this point, I wouldn't expect, like, drastic changes in in how we think about excess capital or how we think about returning capital. It's it's pretty much, you know, I'd say, '26 should be you know, at a high level, a a continuation of what we saw in '25. Michael Zaremski: Great. And just sneaking one quick one in. Nicolas, you said they North America rate environment largely keeping pace with trend, but international probably slightly below. I think I thought that was a bit of a provocative statement since I think that this assumption is that what the data we're seeing is that, you know, lawsuit inflation continues to be an issue in The US. So any context you could additional color you want to put on kind of you know, why you feel better about U. S. Versus international? Nicolas Papadopoulo: Yes. I think that's you know, the the the remarks that I made is pretty based on our our own portfolio for the lines of business we write. And remember, the band in North America is more about Michael Zaremski: You know, long tail. Nicolas Papadopoulo: We're more of a casualty rider. And in casualty, we we've seen you know, rates about or above above trends. So that drives and certainly in the shorter lines, we've seen you know, rates coming down. So I think, you know, that but when you take the entire portfolio and then then we we we we we see one offsetting the other at this stage in the market. Michael Zaremski: Thank you. Operator: Next question will be from Andrew Andersen at Jefferies. Please go ahead. Andrew Andersen: Hey, good morning. Could you share about a bit what the conditions are on the casual reinsurance market there? Are you still seeing rate ahead of loss cost? Nicolas Papadopoulo: So on the on the casualty side, you know, generally on the primary before we talk about the reinsurance market, I think on the primary side, feel that rates are still know, we are still getting more rate than trend. You know, it's it seems that it's they're still waiting a little bit. Of what we saw in the last quarter, but I personally believe that the the steep pain I think we still we'll still we'll see some unfavorable developments in the market for the old years and the the, you know, the prior to 2022. So I'm I'm optimistic that the the the the rates could continue to to at least meet meet trend for the foreseeable foreseeable future. So that's the background. When we look at specifically at the reinsurance, I think the we've seen, you know, there's there's there's a there's a lot of supply, a lot of willingness for the reinsurer to to write the business, and I think the thing that has been new is you know, maybe based on what I I said earlier, the the the the ability or the willingness of the the selling companies to to retain more of the business, which is which has added you know, the supply is constant. And the demand is is stable to to down. So that that that is another layer of a competition there. Michael Zaremski: Thanks. And and that demand comment on stable to down, was that just on casualty? Or perhaps you could update us on how you're thinking about property demand into midyear? Nicolas Papadopoulo: The one I talked about is about is with casualty. I think on property, we seen you know, on the on the reinsurance side and especially on the cat excess of loss side, we we we've seen retention being stable. Only a few, sedan decided to to to add, you know, sublayers to to their So I think that and and on the on the other property, yeah, we we're seeing companies based on the again, as I said earlier, the Excel result of the last three years, willing now to take on more of the business. So that's a factor there too. Michael Zaremski: Thank you. Next Operator: Question will be from David Motemaden at Evercore. David Motemaden: Hey. Thanks. Good morning. Just had a question François Morin: Encouraging to see the level of buyback continue in the first quarter. David Motemaden: But François Morin: We I'm just sort of wondering how you guys would frame David Motemaden: How we should be thinking about the current excess capital position that you guys have before we start thinking about you know, running through the puts and takes on on growth and different sources and uses. Will be great to to get a get an update on that front. François Morin: Yeah. I mean, listen. We the excess capital is a you know, it's a it's a number that changes is not static, right? And but no question that given the level of results and returns we've generated the last few years, we've we've we did end up accumulating some excess capital. You know, our our number one mission, we've said it before, is to put the capital to work in the business where we think it makes sense, where we can generate adequate returns. You know, after that, yes, we absolutely are committed to returning the capital to the shareholders but, you know, we wanna do what's right for the shareholders. And some period of time, we sometimes it may just mean that, you know, for a given, you know, we do hold on to the capital for a bit longer. The money is, you know, has been it's been said before on our calls. It's it's in our pockets. It's not it's not burning anything. It's it's just sitting there. It's maybe not the most optimal way. Right? But it's still it's not really a strong value in a meaningful way. So we're so we're we're all about what doing is right for the shareholder. And, you know, if if in an environment, again, if we don't grow materially going forward or at least for the the short term, you know, you could certainly think that, you know, you know, you should think of the the level of earnings we're gonna generate to be you know, additive to our excess capital position, and that's, you know, gives us more opportunity to return more capital to shareholders. David Motemaden: Great. And then maybe just following up on the casualty reinsurance side. You've seen decent growth there. It's offset some of the pressure on the property side as you guys have managed the cycle. I'm interested, Nicolas, you had talked about I guess, iHire seeds on proportional reinsurance. You know, I was assuming that is for property. But given you know, your answer to the you know, one of the previous questions, it sounds like know, is is I guess I'm wondering, are you seeing higher seeds on on casualty REIT just given the supply demand François Morin: Changes? And do you still view casualty re as a David Motemaden: A growth opportunity in '26 that can help offset some of the pressure on the property side? Nicolas Papadopoulo: So to answer your first question, I think it's marginal on the casualty and it works both ways. Underperforming accounts, see sitting commission going down a bit, should be more, but and, you know, external account that everybody is looking for. You may see marginal increase, but really not not a I should have clarified earlier. Not the big factor. It's mostly the the big swing has been on other on the on other property. And and to answer your second questions on appetite in the space, I think backing the right sitting company, people, like, you know, a little bit arched, have, you know, real good understanding of the business, and can navigate their way in ultimately, pretty favorable, you know, in some pockets primary casualty market. We think it's something we would like to do more So we it's hard to do based on what I explained earlier, but again, our brand in the reinsurance side is is is good, you know, we we have huge trading with our sitting companies. So so we can you know we we we we can find ways to we certainly first call when you know, new programs are set up or, you know, some reinsurers you know, decided to be moved out of the program or reduce. I think we we have a shot at at at growing going forward. David Motemaden: Awesome. Thank you. Nicolas Papadopoulo: You're welcome. Operator: Next question will be from Yaron Kinar. At Mizuho. Please go ahead. Yaron Kinar: Thank you. Good morning. François, I want to go back to your comment regarding François Morin: Looking to potentially retain more premiums in 'twenty six. Can you elaborate on that? Just given the ceding commission rates that are increasing and the supply demand imbalance, I think, pointing to more of a buyer's market. Is it that the margin on new casualty and specialty business in insurance is so much better that it's still more economic to keep it than to see that lower pricing. Yeah. I mean, the the François Morin: That's part of the equation. Right? I mean, just like you know, we have the advantage of of having both insurance and reinsurance in in our platforms. So we see both ways. But, you know, as a buyer of reinsurance, we're no different than some of the seeding companies that buy from Archery and you know, you know, Nicolas touched on it. It's like, well, yeah, sure. I mean, I I can get, you know, maybe a slightly higher receiving commission and and that's part of the the economics of the transaction. But you know, given the rate increases we've seen on the primary side in the last couple of years that have compounded and and certainly, maybe not across the board, but in Yaron Kinar: Sub François Morin: Subsegments of our book, Nicolas Papadopoulo: You know, François Morin: Primary insurers are are like the business, like the pricing a lot. As it is today. So Yaron Kinar: You have to, you know, François Morin: Compare the two. Am I better off retaining a bit more, or do I just kinda lock in my profit effectively and just kinda go for the same commission? So I think it's it's, you know, as as you can imagine, we have multiple reinsurance that we evaluate throughout the year. It's not a it's, you know, every one of them is is looked at individually depending on market conditions and what we see, you know, what the opportunities are. But I wouldn't say that we're necessarily planning to buy more or buy less at this point, but it it could happen. And, again, that's that's something that will evolve throughout the year. Nicolas Papadopoulo: Yeah. And I think the the other way the other way you can you know, retain more is by switching the structure of your insurance which is to go from a quota share insurance to an excess of loss. And traditionally, not what the reinsurers like to offer, but based on the know, competition in the marketplace, think those structures have been more common. So I think that's that's something we we look at as well. And, again, we we like the casualty you know, in in most of our markets. So it's it's true also you know, outside outside The US, I think. And both both on the insurance and and reinsurance. We have a we have a decent sized portfolio outside The US. Just I wanted to make make sure you we we mentioned that. Yaron Kinar: Yeah. That that makes sense. And and I appreciate the the thought on the restructuring of reinsurance programs. I hadn't thought about that as much. My second question, one that's been asked on prior calls as well. Can you give us an update kind of as we look at into 2026, how you rank the appetite and track of new business between the three segments in terms of capital deployment? François Morin: Yeah. I mean, no question that reinsurers has been you know, the last couple of years, definitely, you know, the you know, a very attractive market for us, and we deployed meaningful. And you saw our growth, and you saw what we you know, how we performed in in that market. As the market comes down, it's I think it's it's it's a less, you know, ahead of the others, I would say. So you know, if I had to rank them today, I'd say, yeah, reinsurance to me is still ahead, but you know, the gap has narrowed. It's come down. Reinsurance is doing still very well. Very attractive. But, you know, I think the gap between reinsurance and insurance is is not as significant as it was a year ago. And mortgage, you know, we haven't, you know, haven't had a question yet on mortgage. I mean, it's if it's a good thing, I mean, we we love it. Right? I mean, just a great business. It's it's steady. It's been a great source of earnings for us. You know, again, we we we we flapped about it. We talked about prior calls. Like, which one of your three kids do you like the most or like the late or not like as many as much as the others? We love them all. Right? We love all three of our segments, but certainly, you know, I think that the the the fact that the reinsurance market is is compressing a little bit, I think, just brings all three segments a bit closer to each other. Yaron Kinar: Thank you very much. François Morin: You're welcome. Operator: Next question will be from Matthew Hyman at Citi. Please go ahead. Matthew Hyman: Hi. Good morning. Yaron Kinar: Of questions. One was just with respect to the MCE reunderwriting, been asked about the premium consequences of that. I'd be curious about the margin consequences of that. François Morin: Well, I mean, François Morin: You'd like to think that, you know, the business that we're shedding is is the the worst performing business. So François Morin: Absent François Morin: You know, you know, absent any other event, you would think that our margins should improve. But that doesn't factor in kinda that that that comment is you know, obviously, has been has been true, but the market in front of us you know, will will will you know, may be different than what we had assumed. So on the one hand, no question that the nonrenewals will improve our margins, but maybe depending on where the market what the pricing looks like, It's still a very good market. Middle market business has been I think, in in a good place. I think rates have been holding up and have been, you know, improving, so that's been good. But you know, what's you know, margins going forward? Hard to comment on that. Nicolas Papadopoulo: Yeah. And I think some of the program we've shared are actually cat exposed. So, you know, the the the upfront the upfront result may have looked okay, but we think it's a it's a bad allocation of capital, and we can get better return by deploying that capacity elsewhere. So I think especially on the on the reinsurance side. So I think those those are the decisions we've we've made. I mean, some of them are you know, running hard, but a few of them that we decided to shed were more, you know, cost of capital you know, opportunity being better elsewhere. And I and I feel you know? But, again, if if to answer your question overall, I think we we still, you know, thinking that the business could run-in François Morin: You know, Nicolas Papadopoulo: Monday in the in the low nineties. So Matthew Hyman: Appreciate that. I guess another question I had was given the François Morin: QRTTs, Matthew Hyman: Any opportunistic investments you're thinking about making in tech or ops or accelerating existing investments? François Morin: Not as a direct result. I'd say we we will make and have made investments, you know, over time based on you know, what what we're trying to accomplish and, you know, trying to streamline operations trying to be more efficient, and whether it's, you know, improving some systems, etcetera. I think that's you know, that that nothing is different in that respect. You know, the fact that, you know, certainly reinforces, you know, the value for sure for us, and it's been there throughout the value having a presence in Bermuda. And I think it's you know, we we wanna we we we are committed, remain committed to the island. So that's that, you know, reaffirms that. But in terms of, like, making, I'd say, direct investments as a result of the QRTCs, I don't think it's the case. It's more you know, based on need and based on what we were trying to accomplish. Nicolas Papadopoulo: And I think it's it's really an offset to the the high cost of doing business in Bermuda. So I think that's smart from the the Bermuda government standpoint to make their jurisdiction more attractive to companies like Arch. Yeah. Matthew Hyman: Yeah. That's totally fair. And then I just normally went after third, but François Morin: Your comment on Matthew Hyman: The demand quotient potentially changing for casual reinsurance. François Morin: Just it made me curious whether or not you are seeing any real changes Matthew Hyman: To subject premium basis in in any of your reinsurance treaties at this point. That's informing that, or is that unrelated? Nicolas Papadopoulo: So in terms of can you can you provide them I'm just curious. Matthew Hyman: It's maybe a different way to ask it is, over the course of this year, it feels like there have been some companies that have had to adjust down their premium assumptions for their reinsurance book based on, you know, updated information from on the underlying subject premium basis. I'm just curious whether or not you're you're you're seeing any noticeable signal or information there that's worth calling out and whether or not your demand comment we should read as risk in in two subject premium basis next year. Nicolas Papadopoulo: So what you described, I think it's true on the other property, you know, companies that wanted to go aggressively into the excess and surplus property side or energy, you know, I've had to, you know, revised to the downside the the the projections. I think on casualty, what I was referencing is more sedent retaining more, but I think the the underlying business is still growing. So I've had a that's that's that's not that would not be the reason. François Morin: Yeah. But to add to that, François Morin: I think, man, just to be clear, we we you know, we do I mean, we we that's something we look at every quarter. So we we are very we've been very active internally, certainly in 2025, and and that will remain making sure that you know, yes, we get premium projections from the underwriters, from the scenes and we obviously superimposed some of our own views based on where we think the business may end up Nicolas Papadopoulo: So François Morin: Certainly don't wanna be in a position where we we have to make a massive downward kinda adjustment because we we overshot the mark. So I think we've been very careful and and making sure that we remain on top of it throughout the year as we, you know, readjust our our premium projections based on market conditions. Matthew Hyman: Okay. Thank you for that color. Appreciate it. Have a great day. Yep. Thank you. Operator: Next question will be from Meyer Shields at KBW. Please go ahead. Meyer Shields: Great. Thank you so much. Two quick thank you. François Morin: Mentioned there were a couple of Meyer Shields: Expense items in the quarter besides the tax And if somebody needs to tell us where Cannot hear you already. François Morin: I mean, the the line broke down, so I apologize. I I just I I don't know if it's our side or or it's my or it's the caller's. Assume it's me. Meyer Shields: No. It's it's probably me. You mentioned that there were a couple of favorable expense items beyond the Bermuda tax credits, and I was hoping you could tell us where those showed up. In terms of modeling for next year. François Morin: Well, I I think I touched on it. I mean, the Bermuda tax credits, I I think the the intent of the comment was that, you know, Bermuda tax credits you know, at the core, it is very much a function of, like, how much presence we have in Bermuda, and the direct, you know, payroll related kind of expenses. So, yes, we have expenses in Bermuda, in all three of our segments and also in, you know, in our investment team. So that is reflected as an investment expense. In the corporate line. So again, the the where it's noticeable, as I said, is in the reinsurance segment and in corporate. In the other places, there are I mean, we're talking, like, single millions of I mean, it it's it's not gonna be noticeable to the outside world. So in terms of modeling, I would say, yes. There's some benefits, but it's it's so Meyer Shields: Mean, it could be know, it could be very it will be buried in François Morin: As part of the overall expense base of either the insurance or the mortgage segment, for example. So that's why it's just hard for us to kinda Meyer Shields: Isolate it. Meyer Shields: No. No. I appreciate that. You were very clear. François Morin: Actually. What I'm trying to get a handle on is the favorable expense items besides the tax credits because you you said that there were a couple just didn't know where they were. François Morin: I I mean, there's nothing else really to point out. Those are I mean, sorry for the confusion, but the idea was, you know, was just that. So there's nothing else to point out that was favorable in terms of expenses that were again, that you we we we should, you know, highlight or identify. Meyer Shields: Okay. Fair enough. And then final question. Nicolas Papadopoulo: Does the Meyer Shields: The fact that we're finally seeing the, non renewed program business actually hit the income statement, is that going to have an observable impact on the acquisition expense ratio in insurance? François Morin: I would say no. I would say no. I mean, that's again, that's talking Meyer Shields: Shedding François Morin: Again, $2.3 billion of written premium that we're we're on a written premium base of $8 billion and, you know, you do the math from there. I I would not factor in any meaningful improvement in in the acquisition ratio. For the insurance segment. Meyer Shields: Okay. Very helpful. Thank you. François Morin: Bye. You're welcome. Operator: Next question will be from Roland Meyer at RBC Capital Markets. Please go ahead. Roland Meyer: Good morning. Can you give an update on the carrying value of the deferred tax asset when we expect to hear some clarification on the ability to recognize it? Nicolas Papadopoulo: Yeah. I mean, that's I mean, that that's François Morin: Been right. So we we wrapped up the first year, and, you know, we set up a an asset at the end of, you know, in the '23 that we started amortizing in '25. So the billion 2 is now, you know, roughly came down by about a $100 million. In '25 and, you know, we are gonna keep, you know, amortizing that in '26. And depending on where the law goes in Bermuda, maybe that asset followed goes away. We just don't know. I mean, it's not our decision. It's obviously yeah. We Bermuda law, but, you know, there there's there's been talk that, you know, this you know, depending on, you know, negotiations or kinda what the Bermuda government ends up doing, that this asset could be know, no longer be an asset to us. That'd be either, you know, late, you know, fourth quarter 'twenty six or maybe '27. Roland Meyer: Okay. Perfect. And then I just wanted to ask on your view of M and A. This environment. I know there's been a couple deals announced in the past month or so, and François Morin: With how your sort of debt to cap is stacking up, you're you're kinda deleveraging over time and just anything on leverage or m and a. Nicolas Papadopoulo: Yeah. So on m and a, I think our position hasn't changed. So we Nicolas Papadopoulo: We like strategic assets. So anything that can really improve our our platform or add lines of business or help us, you know, move forward into something we we we we were planning to do and buy buy versus build. I think we we we look at everything else, but you know, we we you know, at this stage, we we at especially in in in terms of where the market is, I think we we efficiencies, we we we it's it will have to be an amazing deal for us to to really, pursue it. Know, and nothing's impossible, but, you know, I think it's unlikely. Roland Meyer: Great. Thanks for the answers. François Morin: You're welcome. Operator: Thank you. I am not showing any further questions. So I would like to turn the conference over to Mr. Nicolas Papadopoulo for closing remarks. Nicolas Papadopoulo: Yes. Thank you, everyone, for spending an hour with us. And, again, another pretty damn good performance, you know, in 2025, and again, thanking all the employees for their hard work they did to get us there, and I think we pretty much ready to go for 2026. And we'll talk to you next quarter. Thank you. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Thank you for participating. You may now disconnect your lines.
Operator: Good morning, and welcome to the Principal Financial Group Fourth Quarter 2025 Financial Results and 2026 Outlook Conference Call. There will be a question and answer period after the speakers have completed their prepared remarks. To ask a question during the session, you will need to press 11 on your telephone. We would ask that you be respectful of others and limit your questions to one and a follow-up so we can get everyone in the queue. I would now like to turn the conference call over to Humphrey Lee, Vice President of Investor Relations. Thank you, and good morning. Welcome to Principal Financial Group's fourth quarter and full year 2025 earnings and 2026 outlook conference call. Humphrey Lee: As always, materials related to today's call are available on our website at investors.principal.com. Following a reading of the safe harbor provision, CEO, Deanna Strable, and CFO, Joel Pitz, will deliver prepared remarks. We will then open the call for questions. Members of senior management are also available for Q&A. Some of the comments made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events, or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company's most recent annual report on Form 10-K filed by the company with the US Securities and Exchange Commission. Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable US GAAP financial measures may be found in our earnings release financial supplement and slide presentation. Deanna, thanks, Humphrey, and welcome to everyone on the call. Deanna Strable: This morning, I'll walk through our strong full year 2025 performance, then Joel will follow with more details about our financial results, business unit performance, and our 2026 outlook. Our results in 2025 follow strong results in 2024. We delivered our enterprise financial targets in both years, demonstrating the strength and quality of our execution. This momentum and our strong diversified business mix position us well for 2026. We expect to deliver another year of performance within our target ranges for EPS growth, free capital flow conversion, and ROE. Turning to our results, which can be found on slide two, our adjusted non-GAAP earnings per share growth for full year 2025 was 12% and at the high end of our target range. Reported results were even stronger with EPS growth of nearly 20%. This growth was driven by favorable market conditions, strong underwriting performance in specialty benefits, and margin expansion with disciplined expense management across the enterprise, all while continuing to invest in the business. Our performance showcases the power of our diversified and resilient business mix. Strong, high-quality earnings and continued margin expansion reflect disciplined execution across all areas of the company. This momentum translates directly into robust capital generation, enabling us to invest in growth while continuing to deliver attractive returns to shareholders. We returned over $1.5 billion in 2025, including approximately $850 million of share repurchases and $685 million of common stock dividends, all within our targets. Our continued focus and execution against our strategic priorities is driving results. As shown on slide three, we remain focused on three attractive profit pools: the retirement ecosystem, small and mid-sized businesses, and global asset management, where growth is stronger, returns are higher, and our integrated business model creates differentiated advantages. Let me share some key highlights of our progress in each area for full year 2025. Starting with the retirement ecosystem, in which we offer a comprehensive suite of capabilities across recordkeeping, asset management, wealth management, and income solutions. Our momentum is broad-based, where total retirement transfer deposits of $35 billion grew 9% year over year, and Workplace Savings and Retirement Solutions, or WSRS, recurring deposits increased 5%. This growth reflects our ability to win new business and retain existing clients in a competitive marketplace. What really excites me is the engagement we're seeing from participants on our platform. WSRS deferring participants grew over 3%, and those who are saving are saving more, with average deferrals per member increasing over 2%. Participant roll-ins reached $6.5 billion in 2025, up 15% over 2024, as we make it easy for participants to consolidate retirement savings from previous employers onto our platform. These engagement metrics demonstrate the strength of our platform in serving participants' retirement needs. Turning to sales, we continue to see momentum across key channels. Pension risk transfer sales for the year totaled $3 billion across 70 cases at attractive returns. Importantly, nearly a quarter of PRT premiums came from existing clients, highlighting the power of our integrated retirement solutions. Our retirement investment expertise continues to gain traction. DCIO sales were nearly $8 billion in 2025, demonstrating that our investment capabilities resonate with third-party retirement platforms. Additionally, this year, we expanded and enhanced our retirement investment solutions, addressing a broader spectrum of plan sponsor needs. These connections within and across our businesses demonstrated the distinct competitive advantage as we deliver comprehensive retirement solutions. Turning to our small and mid-sized business market, our long-standing focus and differentiated capabilities in this attractive market continue to deliver results. In retirement, growth in our SMB market remains strong, WSRS recurring deposits grew 8% in 2025, and transfer deposits increased 32%. This, along with strong new business activity and retention, resulted in account value net cash flow of positive $1.5 billion. In benefits and protection, we continue to deepen customer relationships. On average, our group benefits customers now have 3.13 products with us, up nearly 3% compared to 2024. Employment growth for our block was nearly 2% on a trailing twelve-month basis. This reflects both the resilience of the small business market and the value we deliver to help employers attract and retain talent. Additionally, life business market premium and fees grew 15% in 2025, demonstrating strong demand for specialized solutions which help business owners protect their key assets. In Global Asset Management, we're generating strong new business momentum with continued focus on our competitive differentiators. Investment Management gross sales reached $127 billion in 2025, up 16% over full year 2024, with particularly strong momentum in private markets where sales increased 50%. Net cash flow in 2025 was strong in key growth areas. Our private markets capabilities generated positive net cash flow of $3.5 billion across real estate, infrastructure, and private credit. Humphrey Lee: Our ETF platform added nearly $2 billion in positive net cash flow. Deanna Strable: Reflecting increased momentum in delivering solutions that meet evolving investor needs. This contributed to strong AUM growth across our platform. Private markets AUM grew 12% year over year, and our ETF platform reached record AUM of $9 billion. In international pension, AUM grew 24% to record levels, demonstrating the strength of our diversified global platform. Looking across our three strategic growth areas, our execution in 2025 and the momentum we're seeing position us well for another strong year in 2026. Several early indicators stand out. Elevated quote volumes are materializing across distribution channels, and we're making strategic investments that are driving meaningful engagement and competitive advantage. Managed account adoption is accelerating, with participant enrollment up 51% in 2025, with account values over $9 billion. In our SMB segment, group benefits quote activity is strengthening, following our disciplined underwriting approach in dental. Additionally, new paid family medical leave markets in 2026 will contribute to growth as more states adopt mandated requirements similar to past years. In global asset management, demand for private market solutions continues to be demonstrated through increased RFP volume, up 16% over the average of the last three years. Our growth expectations in this space are driven by focused new product development and strengthened through recent mandate takeovers, which further demonstrate client confidence in our capabilities. We're also continuing to innovate in the ways we interact with customers across the enterprise, leveraging data and emerging technologies, including AI, to deepen engagement and improve customer experience. The momentum and strength we are seeing across our businesses continue to build our confidence in delivering our financial goals as we expand our customer base to over 75 million worldwide. Lastly, as part of our ongoing business portfolio optimization, we recently announced the sale of our runoff annuities business in Chile. This action reflects the continued discipline we've applied over the last several years to strategically focus on higher growth, higher return, and more capital-efficient businesses. We are confident in the strength of our current portfolio and the way it positions us for future growth. Before I turn this over to Joel, I want to share some of the important recognitions we've received. For the fourteenth consecutive year, Principal Asset Management was named a best place to work in money management by pensions and investments, earning this recognition every year since the inception of the award. We were also recognized as a 2026 military-friendly employer, receiving this recognition since 2017. In addition, we earned the Equality 100 award for 2026 by the Corporate Equality Index. These recognitions reinforce our culture and competitive advantages, help us attract and retain top talent, and differentiate us in the marketplace. We closed 2025 with momentum across our diverse portfolio of businesses. I'm incredibly proud of our results, and our success is a testament to the focus and hard work of our nearly 20,000 global employees. Their ongoing commitment to excellence and our customers enabled us to capitalize on opportunities throughout the year and has set the stage for continued growth in 2026. Joel? Joel Pitz: Thanks, Deanna. Good morning to everyone on the call. I'll walk through our financial performance for the fourth quarter and full year, provide updates on our capital position, and share details of our outlook for 2026. Our full year and fourth quarter results can be found on slides four and five. We delivered strong full-year results, meeting or exceeding our 2025 financial targets. Full-year non-GAAP operating earnings, excluding significant variances, were $1.9 billion or $8.55 per diluted share. This represents a 12% increase in EPS over 2024, at the high end of our 9% to 12% EPS target. Results for the quarter were also strong, with non-GAAP operating earnings of $499 million or $2.24 per diluted share, a 7% increase over a very strong fourth quarter in 2024. Variable investment income improved from the third quarter, with quarterly and full-year returns better than 2024, and in line with the assumptions provided during our 2025 outlook call. In addition to the OE improvement, similar to last quarter, we had a gain on a real estate transaction reflected below the line of approximately $40 million pretax. Non-GAAP operating ROE for 2025 was 15.7%, an improvement of 120 basis points compared to the year-ago period, and at the high end of our 14% to 16% target range. Margins also strengthened, expanding 80 basis points to 31% for full-year 2025. This improvement was driven by top-line growth and disciplined expense management, with compensation and other operating expenses increasing 2%. These results reflect strong business fundamentals across the enterprise, disciplined expense management while investing in the business, and favorable market conditions. Turning to capital liquidity, we ended the year in a strong position with $1.6 billion of excess available capital. Humphrey Lee: This includes Joel Pitz: $800 million at the holding company, at our targeted level, $300 million in our subsidiaries, and $480 million in excess of our targeted 375% risk-based capital ratio, which is 406% at year-end. We returned $1.5 billion to shareholders in 2025, comfortably within our target. This includes $851 million of share repurchases and $684 million of common stock dividends. In the fourth quarter alone, we returned $448 million of capital to shareholders, including $275 million in share repurchases and $172 million in dividends. Last night, we announced an $0.80 common stock dividend, payable in 2026. This is a $0.01 increase from the dividend paid in the fourth quarter and a 7% increase over 2025. This aligns with our targeted 40% dividend payout ratio and demonstrates our confidence in continued growth and strong capital generation. Moving to AUM and net cash flow, total company managed AUM was $781 billion at year-end, down $3 billion sequentially. Compared to 2024, AUM increased 10%. The modest sequential decline was primarily driven by $1 billion of disposed operations, which has no impact on our future earnings outlook. Net cash flow was negative $2 billion for the quarter, with positive private flows of $1 billion. As a reminder, our net cash flow definition excludes the $2.4 billion of dividends reinvested within our mutual fund franchise. Moving to the businesses, the following commentary excludes significant variances, which can be found on slides seventeen and eighteen. Starting with RIS, and as shown on slide six, we delivered strong results. Full-year net revenue grew 4%, comfortably within our target range, driven by growth in the business and favorable markets. Operating margin of 41% expanded 90 basis points over 2024 and was at the top end of our target range, reflecting our disciplined focus on profitable revenue growth. Pretax operating earnings grew 6% over 2025 and 3% over the prior year quarter, driven by higher net revenue and disciplined expense management. Fundamentals across the retirement business remain strong. WSRS recurring deposits grew 5% for both the full year and from the year-ago quarter. Transfer deposits totaled $35 billion for the year, up 9%, including $3 billion in pension risk transfer sales. The fourth quarter was particularly strong, with transfer deposits of $12 billion, up 35% year over year. Turning to slide seven, Principal Asset Management delivered strong earnings on revenue growth and margin expansion. Within investment management, full-year adjusted revenue growth of 4% was at the low end of our 4% to 7% target range. The divested businesses had a 150 basis point impact on net revenue growth in 2025, with no corresponding impact on earnings. Pretax operating earnings for the year were strong, increasing 5% to $610 million, driven by growth in net revenue and margin expansion. Full-year operating margin of 36% expanded 60 basis points from a year ago and is within our target range. Within international pension, we delivered strong AUM of $154 billion, an increase of 24% year over year. For the full year, while we had strong fee revenue growth in Latin America, net revenue declined 2% due to foreign currency and the Hong Kong business, which we are exiting. Operating margin of 46% for the full year expanded 170 basis points from 2024 and was within our 45% to 49% target range. Fourth-quarter results reflect typical seasonality and one-time expenses, and we expect improved earnings in the first quarter. Turning to Slide eight, Benefits and Protection delivered pretax operating earnings of $177 million for the quarter, up 7% compared to the prior year quarter, driven by life insurance, which was up 29%. Full-year pretax operating earnings increased 7%, driven by 11% growth in specialty benefits. Starting with specialty benefits, full-year premium fee growth of 3% was below our target range, driven by lower net new business. Operating margin of 16% for the full year expanded 120 basis points compared to 2024 and was at the high end of our target range of 13% to 16%. The adjusted loss ratio of 59% for the year was the best in our history, improving 130 basis points from 2024 and below our 60% to 64% target range. These results were driven by favorable experience across group life and group disability. Dental underwriting results show meaningful improvement with another quarter of year-over-year gains. These strong underwriting results underscore the effectiveness of our management actions to drive profitable growth. In life insurance, full-year premium and fees increased 3% within our 1% to 4% target range, as strong business market growth of 15% more than offset the runoff of our legacy block. Operating margin of 10% for the year was below our 12% to 16% target range, impacted by higher claim severity during the first half of the year. Long-term mortality remains within our expectations. As we close out 2025, our results reflect strong execution across the enterprise. We delivered earnings per share growth of 12% and ROE of 16%, both at the high end of our target, expanding margins in every segment, and generated strong free capital flow conversion of 92%. We maintained our disciplined approach to capital deployment, returning $1.5 billion to shareholders. This momentum, combined with our strategic focus on the retirement ecosystem, Humphrey Lee: small and midsized businesses, Joel Pitz: and global asset management, positions us well as we enter 2026. Before turning to Outlook, we want to acknowledge that consistent with past practice, supplemental investment slides have been made available on our website. Now turning to our outlook for 2026. As shown on slides ten and eleven, we are well positioned to, once again, deliver on our enterprise financial targets in 2026, with 9% to 12% growth in earnings per share, 75% to 85% free capital flow conversion, and 15% to 17% return on equity. The ROE target has increased, reflecting our strong 2025 results, competitive positioning, and the capital efficiency of our diversified business mix. These targets assume normal market conditions throughout 2026 and reinforce our confidence in the sustained delivery of our financial targets. We remain committed to returning excess capital to shareholders and are targeting $1.5 billion to $1.8 billion of capital deployments in 2026. This includes $800 million to $1.1 billion of share repurchases and an increase in common stock dividend, aligned with our targeted dividend payout ratio. Our EPS target is on an excluding significant variances basis and therefore assumes run rate variable investment income or VII. In 2026, we once again expect our reported VII results to improve year over year. We will continue to quantify the impacts on reported results from higher or lower than expected VII as a significant variance in our earnings calls throughout the year. Turning to our business units, slide 11 outlines our financial targets and 2026 outlook considerations. Notably, our strong execution and profitable growth give us confidence to revise several of our margin targets upward. In RIS, building on the strong results in 2025, we are increasing our margin target to 38% to 41% and expect to be at the upper end of the margin range in 2026. Net revenue target of 2% to 5% remains intact. The following outlook commentary for investment management international pension accounts for our previously announced divestitures, with the related impacts detailed on slide 10. In investment management, we are increasing our margin target to 35% to 39%, and we remain confident in our ability to deliver on our 4% to 7% adjusted revenue growth target, consistent with 2025. In international pension, our margin target is 46% to 50%, with 2026 expected in the upper half of that range due to growth in higher-margin businesses. We expect to be at the low end of our 47% net revenue growth target in 2026. In specialty benefits, we have updated our premium and fees target to 5% to 9% to better reflect our growth expectations, which remain above industry levels. In 2026, we expect higher growth at the low end of the revised range, with growth improving throughout the year. Our margin target is increasing to 14% to 17%, with 2026 expected in the upper half of the range. Our loss ratio target of 60% to 64% remains intact, with 2026 expected to be strong and at the low end of the range. In life, we are moving a subsidiary supporting enterprise distribution to corporate. This completes the alignment of our affiliated distribution functions within the same segment. As a result, we expect 2026 overall premium and fee growth of negative 2% to negative 4%, while the business owner market continues to grow at over 10%. Our margin target of 12% to 16% remains intact, with 2026 expected at the low end of the range. Notably, the realignment of fee revenue will have no impact on life or total company earnings. Before opening for questions, I want to remind you of a few seasonality impacts. In investment management, the first quarter is typically our lowest quarter for earnings due to seasonality of deferred compensation, elevated payroll taxes. We expect $30 million to $35 million in seasonal expenses in 2026. In specialty benefits, dental claims are typically higher in the first half of the year. Similar to the pattern in 2025, these factors will contribute to higher total company earnings in 2026 compared to 2025. We have positive momentum and are well positioned to deliver on our financial targets for a third consecutive year. This concludes our prepared remarks. Operator, please open the call for questions. At this time, I would like to remind everyone Operator: that to ask a question, please press 11 on your telephone. Humphrey Lee: The first question we have comes from Wes Carmichael with Wells Fargo. Your line is open. Hey, thank you. Good morning. First question, I had a question on investment management, but I just wanted to ask how you're thinking about the outlook for performance fees in 2026? I know they were a bit more muted in 2025, but curious if the outlook has changed at all. Deanna Strable: I'll have Kamal address that. Kamal Bhatia: Good morning, Wes. I think performance fee is, as we've always highlighted, typically in that $30 million to $40 million in an average year. At this stage, I would still expect 2026 to be very similar to the trend we saw in 2025. So there are no significant changes on that front. Deanna Strable: Thanks, Wes. Did you have a follow-up? Wes Carmichael: I did. Thank you. A question on earnings, it may be related to real estate, but one of your peers this quarter mentioned that they were redefining operating earnings related to real estate. And I know you, in principle, have a bit of a higher allocation to real estate compared to some peers. So curious if that's something that you maybe looked at as well. Deanna Strable: Yeah. I'll actually ask Joel to address that one. Thank you. Joel Pitz: Yeah. Wes, first and foremost, congrats on the new role. Hope it's going well. Yeah. As it relates to definition, we do reflect our operating earnings within our real estate properties within operating earnings. I'm sorry. The depreciation is reflected there. But what's important is for our outlook purposes, we always do an excess fee basis. And so we're going to compare run rate to run rate when we do our guidance. We do expect improvements in our VII for 2026 relative to 2025, as we have in recent history. So we are expecting some upside on that front. But if you look at what we do from a guidance perspective, it doesn't contemplate that improvement within our VII. We do think that there is some merit to doing that is what they're doing because we do think it better reflects the total return. We are contemplating doing that for the first quarter of 2026. Again, it was not contemplated in our outlook because our outlook is based on an excess fee basis. Hope that helps, Wes. Wes Carmichael: Yep. Fully understand. Thank you so much. Deanna Strable: Thank you. Next question? Humphrey Lee: Thank you. Our next question comes from Suneet Kamath with Jefferies. Your line is open. Great. Thanks. I wanted to start with some of the job headlines that we're seeing. I mean, they continue to point to challenges in the market. I appreciate the slide with the SMB employee employment growth of, I think, 1.8%. So it didn't look like it hit you in 2025. Just wondering maybe what you're seeing and what are your expectations for employment growth for 2026. Thanks. Deanna Strable: Yeah. Thanks, Suneet, for that question. Since that does impact a couple of our businesses, I'll take a stab at answering that. And if you have a follow-up, we can go deeper. So obviously, we're early in the understanding of the impact of AI on job levels, and it will likely take some time to play out and will likely also vary by client and industry. There are a few things I think that are worth mentioning that we do know. First, when you look across both RIS and specialty benefits, we are not seeing any meaningful impact. Employment growth remains positive. It remains stable from a growth perspective. And even if you go over and look at wage growth, that remains strong as well. The other thing I'd point to is we periodically field a well-being index relative to SMB employers, and we just fielded that in the last month. And our customers really aren't expecting a near-term impact. In fact, we actually asked with respect to how they expect AI to impact staffing levels, and 85% expected levels to either stay the same or increase. And then when we ask them about the impact of AI on salary levels, 95% expected wages to stay stable or increase. And the last thing I'll mention is given that we do 180,000 employer customers across the enterprise, I think we will benefit from the diversity of our block of business and how that plays out. We'll obviously continue to watch this closely, communicate any changes in what we're seeing, but sitting here today, we aren't seeing signs of impact. Suneet Kamath: Okay. Then I guess, just as we think about the institutional retirement business, we are hearing more companies talk about expanding into wealth management, and there's some costs associated with that. I know you have your own approach, but I'm just curious, how are you sort of differentiating, and how do you avoid channel conflict with perhaps the FAs that sell your 401(k) plans? Thanks. Deanna Strable: Yeah. I'll actually ask Chris to spend a little time on that. If you go back to our November 2024 Investor Day, we did talk about that being an area that we were leaning into to continue to, one, deliver outcomes to our customers, but also drive growth as we go forward. We're on that journey, and I'll ask Chris to answer your specific questions. Christopher Littlefield: Yeah. Thanks, Deanna. Thanks for the question, Suneet. So, again, we've talked about rolling out our advice model and being able to provide more advice to our participants. Our approach is different. We are just focused on those people that are already customers of Principal in their 401(k) plans, and so we're very much focused there. And we're also focused on people with less than a million or 100,000 new customers as a result of these services in the last year. We're just seeing nice momentum. So we do think we have a differentiation. We do believe we're focused on a segment of the customers that while advisers may be interested in them, they're much more interested in people with a lot more investable assets. And so we're working closely in partnership with a lot of our close advisers to make sure that we partner together and get the people the advice that they need and then figure out how to share the economics of that going forward. Hope that answers the question, Suneet. That's helpful. Thanks. Deanna Strable: Thanks, Suneet. Next question? Humphrey Lee: Thank you. Our next question comes from Wilma Burdis with Raymond James. Your line is open. Wilma Burdis: Hey, good morning. Deanna Strable: Hey. Hey. Can you guys hear me? Deanna, maybe you could give us some color on the strategy for some of the small divestitures in international. Yeah. Thanks, Wilma, for that question. And I'll maybe step back a little bit. As you know, we've had several meaningful changes to our business portfolio over the last few years. These changes were all risk-reduced and, more importantly, put us in a great position to deliver on our strategic and financial objectives as demonstrated in our strong performance since then. As I think you've proven and you mentioned it, more particularly in a few of our businesses, we will continuously assess our portfolio and make any changes as needed. And the recently announced divestitures are really just an ongoing continuation of our portfolio optimization, ensuring alignment with our growth priorities and a focus on higher growth, higher return businesses. As Joel talked about relative to the outlook and you saw on those slides, those divestitures will have some impact on some of the financial metrics, whether that be revenue, net cash flow, AUM, capital, but I am confident that all of them will enhance our strategic focus and ultimately be accretive to EPS and ROE. As I sit here today, I feel strongly we have the portfolio we need to deliver consistently on our financial aspirations. And going forward, I feel we're also in a position where we can be much more focused on growth rather than the ongoing optimization of our portfolio. Wilma Burdis: Thank you. And thanks, Melissa. Talk a little bit about Deanna Strable: oh, thank you. Could you talk a little bit about what gives you the confidence to raise the ROE target to 15% to 17%? I think the results have been pretty consistent, but maybe just go in a little bit more detail. And are there any dynamics that might support ROE even higher or at least in this pretty solid range longer term? Thanks. I'll have Joel reach into that. As we came into the year, we hadn't actually moved into the range that we had been targeting previously, which is 14% to 16%. Obviously, sitting here today, we're really proud of the increase we saw. And as we looked forward, we felt confident that that higher range made sense for the trajectory of our businesses and also contemplate some of the divestitures that I just talked to you about as well. But I'll turn it over to Joel for more input. Joel Pitz: Yeah. Wilma, just to complement that, this is it's a sign of our conviction and ability to continue to increase. Francis Matten: Our ROE. As you saw, the nice improvement that we have year over year, if you look at the 14% to 16% guidance, we're sitting here today at the very high end of that. And we expect additional improvements going forward. Again, that's just a product of our competitive positioning, our differentiated business model, our capital-light businesses. Not only allow us to invest in organic growth, but also make sure we provide plenty of capital to shareholders through share buyback and dividends, again, are both ROE accretive. So, again, it's a product of our conviction. Our ability to continue to drive top-line growth, deliver profitable growth, and to also get the ROE expansion that we're committing to. Deanna Strable: The other thing, Wilma, I'll add on that is we also want to organically grow our businesses. And so ultimately, it's the combination of our metrics that we have a lot of conviction in and also feel are attractive to our shareholders but feel that that new range more reflects what we can expect to see over the near term. Wilma Burdis: Thank you. Next question? Humphrey Lee: Thank you. Our next question comes from Joel Hurwitz with Dowling and Partners. Your line is open. First, following up on Wilma's question on shutting the noncore businesses. Appreciate the financial impacts to revenue and margins, but what were the or are the Joel Hurwitz: benefits to those sales? And then when I think about your overall businesses, sorry. Yeah. I was when I think about your overall businesses, you still have the, like, the legacy LifeBlock. Any potential to divest that? Deanna Strable: Yeah. You know, the first thing I would say on your second question is we like our portfolio of businesses that we have today. We'll obviously explore if anything makes both strategic and financial sense, but that's not on our top priority as we think about our portfolio of businesses today. And then I'll ask Joel to respond to the capital implications on our announced divestitures. Francis Matten: Joel. Thanks for the question. So as it relates to announced divestitures, we had a couple of asset management businesses in 2025. We had to run off Chile annuity business in early 2026. All those impacts were fully contemplated within our outlook. And so we have both the earnings impact, which is de minimis, we have the revenue impact, which I communicated in my opening remarks. And quantified the year-over-year impact that those revenue headwinds are going to create. Again, no meaningful impact to profitability, but does impact year-over-year revenues. And from a capital perspective, those are fully reflected within our outlook guidance. And, therefore, it's within the $1.5 billion to $1.4 billion to $1.5 billion to $1.8 billion capital deployment that we have there. From a quantification perspective, the question that we are getting is a Chile annuity runoff business. Just to frame a reference, in 2025, the revenue was about $65 million of revenue. And the earnings were about $30 million pretax. Just to give you a sense as far as what the magnitude of that business was, and as it relates to the timing of the transaction, we're contemplating we think from a regulatory approval perspective, it'll likely be the third quarter of 2026 when that transaction closes. Deanna Strable: I hope that helps. Do you have a follow-up question? Yeah. I guess I would just follow-up Joel Hurwitz: on that, right? If it's $30 million pretax, right, that's all 10% ish of international, and you said it would be EPS accretive. So just trying to think about the actual capital benefits and how that becomes EPS accretive. Is that in the '26 buyback? Or if it's closing in the back half, should we expect some accelerated buyback in '27? Francis Matten: Yes. So it'll be accretive once the transaction closes. And with the capital that's freed up because of the transaction, we are expecting elevated share buyback in 2026. That takes that into account. And so, again, we do expect to deploy the capital pretty shortly thereafter, not only for share buybacks but also to fund organic priorities as well that are going to get a higher return than what our Chile annuity business was. Deanna Strable: Thanks, Joel. Next question. Humphrey Lee: Thank you. Our next question comes from Tom Gallagher with Evercore ISI. Your line is open. Tom Gallagher: Hey, good morning. First question is on spec benefits. You had a strong dental underwriting quarter. I know it's your biggest business, at least by premium. And I know it's seasonal. You would certainly point that out. But when we think about I know you've also been getting rate, though. And I just want to understand what we should expect from a loss ratio standpoint. As we head into '26. Did you get more rate in that business in '26, or what you got in '25 was enough? And so I guess, the punch line on that is, should we still expect a low to mid-seventies loss ratio in the first half of this year? Or do you think it will be improved over that driven by pricing? Yeah. I think that's a great question. I'll have Amy address that. Amy Friedrich: Yeah. Thanks. Appreciate the question, Tom. So I do want to start back. You are absolutely right that dental is a large product for us in terms of what it takes up in terms of our total premium. But keep in mind that we really go to market with a bundled set of solutions. So we sell, we renew, we service, we price, with that bundled product in mind. So we always have Amy Friedrich: So multiple products, usually three or more, kind of at play at the same time. When I answer for dental, that's usually just part of the picture we have going on with that customer. But you noted the dental pricing changes. I do want to add one other dimension to that is that we have a nicely competitive, owned dental network as well. So we have great relationships with our providers. We have that dental network that is something that we can work to continue to optimize. So I would say the dental pricing as well as the dental network optimization efforts are the two things that are really going to pull through into the loss ratio that we see in 2026. I would say that dental pricing efforts are what we saw come through in late 2025, in terms of that improved loss ratio. More of the dental network optimization will show up in 2026. So they have been historically running at that rate that you quoted, which would be kind of in that low seventies. What I would assume is that we will continue to see that loss ratio move down in 2026. Likely, we'll actually see more improvement in 2026 than we saw in full-year 2025. Again, that's going to be driven by not just pricing, but by that network optimization. So something in the very high sixties is something that feels a little bit more like what I would think of as the longer-term performance for that dental block. Tom Gallagher: That's that is helpful. Thank you. For my follow-up, just, I guess, a broader question on free cash flow. You did 92% in 2025. That's a Humphrey Lee: certainly top Amy Friedrich: quartile. Humphrey Lee: Terms of the peers. Tom Gallagher: Curious if you kind of zoom out and say, how are you able to do such a strong level of free cash flow and what gives you confidence in the 80%? I don't even think that, at least that I'm aware of, you're using a big Bermuda strategy that a lot of your peers use. But what is it about your strategy? And, you know, if I just compare Principal to peers, that produces such a better free cash flow outcome. And I also say that through the lens of I know you're pivoting within RIS toward more general account, which, you know, is usually associated with more capital intensity, not less. Yet your free cash flow is still quite strong. So sorry for the long-winded question, but curious any comments on that. Deanna Strable: Yeah. I'll make a few comments and then add Joel to add on. You know, I think with the actual calculations, there are some nuances that make 92% a little bit higher than actual kind of what you would think on a run rate basis. But I think I come back to when we came out of the strategic review, we really focused on places where we could drive again, capital-efficient businesses, aligned with our strategic imperative, and the company is very, very focused on ensuring that organic capital deployed is going to places that are accretive to our ROE but also carry very strong value of new business as well. So I think we've really transformed the company to figuring out how to optimize EPS growth, free cash flow, and ROE, but the nature of our businesses are inherently lower capital intensive, which allows us a lot of flexibility to strategically think about how we deploy the capital to the most strategic and financially accretive. But with that, I'll turn it over to Joel. Francis Matten: Yeah, Tom. As Deanna said, we really like our mix of business. And it gives us a lot of flexibility and optionality, you know, to make sure we can deploy organic capital in the highest impact way. Just like we talked about with inorganic opportunities, we have a high bar with organic as well. And we place a lot of scrutiny on how those finite dollars are being spent and making sure that they're optimized. And so we're at a really good mix of business. And we feel really good about our ability to deploy capital for organic purposes and also free up plenty for share buybacks and dividends, etcetera. And so as it relates to that 92% that you quoted, just a technicality, and Deanna mentioned this a little bit. Least some of the nuances within the calculation. I'd say more of a run rate was high end, like 85% when you take into account things in the denominator such as actuarial assumption review and other noncash activities. But still high end, still have a lot of conviction. Our 75% to 85% free capital conversion. Again, that affords us a lot of optionality ability to drive shareholder value. Humphrey Lee: Thanks. Amy Friedrich: Next question? Thank you. Our next question comes from Humphrey Lee: Jack Patton with BMO Capital Markets. Your line is open. Jack Patton: Hey, good morning. Just a question on investment management. Can you talk about your outlook for Humphrey Lee: thousand net flows this year? Jack Patton: Any leading indicators around RFP volumes or anything else you can share regarding that outlook? Deanna Strable: Yeah. Thanks, Jack, for the question. I'll ask Kamal to address that. Kamal Bhatia: Good morning, Jack. So I think your question is around what I see in terms of future outlook from our clients. So I'll point to you a couple of data points. One, as the industry is maturing, we are continuing to pursue new avenues of growth. In asset management. First, I would highlight for you a new pipeline of committed transactions and new diligence activity. We are seeing in our European real estate business. After a while, particularly in partnership with a lot of Asia-based investors, particularly family offices. One of the things that's benefiting us is we have a lot of experience in this space. But we also have an ability to structure these transactions depending on their preferences. And we see a growing pipeline of activity in that space. And I'm quite excited about these relationships because these are incrementally new clients that will come into Principal that we have not had before. And we can increase our cross-sell opportunity with them over time as well. The second piece I would point out to you is we also continue to grow our international wealth platform. In fact, just recently, we launched a wealth a private wealth product in France. That exceeded expectations in January with respect to its initial fundraising. What we are targeting is the independent financial network in France that will help us grow that business. Particularly, a lot of that market is covered by bank and insurance products, and we certainly think we have an opportunity there. And it also elevates the brand of Principal Asset Management in Europe. And then the last thing, there has been a lot of interest around strategic partnership. We have a very high bar of selectivity around fit. I would point you to recently, we signed an exclusive partnership with the leading Islamic bank in Saudi Arabia. To design a market-leading private market solution that they seeded with significant capital, also working with the asset management arm of that entity to grow into the wealth market. You would imagine, Saudi Arabia is one of the fastest-growing markets over the next decades. And a highlight I would point to you is in 2025, we have also grown our private market substantially. Over $16 billion of our AUM now in private markets comes from our outside real estate. So it gives me great confidence that the pipeline is building both around clients and newer avenues of growth. That answers your question, Jack. Jack Patton: It does. Thank you. Follow-up? Maybe follow-ups. Jack Patton: Oh, yes. Maybe sticking with investment management, the management fee rate in the quarter was, you know, 28.4, which is a bit lower than where you had been running. I know that the comparison noise is volatile on a quarterly basis, but just any color on what drove the movement this quarter and anything on your outlook there? Kamal Bhatia: Sure. Pavel, go ahead. Yeah. Kamal Bhatia: So this quarter, there is some noise related to almost $13 billion of divestitures. That impacted that revenue growth comparison all time periods, but I would point out that it didn't have any impact on earnings. If you include the divestitures, they had roughly a 2% revenue growth impact, reducing our 2025 growth rate in IIM around 4%. There's also an underlying mix of public market strategies in an associated performance variability that had some small impact on AUM-based fee rates that you're quoting. The way I would ask you to think about this is as we continue to grow in private markets around the globe, client demand has shifted to higher return strategies, particularly development-oriented that do use some level of leverage. Because these strategies are anchored around committed or invested capital other than reported AUM, you could see the mix create some temporary mismatch on average fee rates when you compare it on a traditional basis points over AUM basis. Importantly, these strategies will incrementally generate more transaction fees and more performance fees for us, so they support stronger revenue growth and earnings over time. Also, in many of the stabilized asset mandates, particularly the takeovers we see in the US, given where we are in the real estate cycle, a lot of those mandates are anchored on net operating income, NOI, which is good for clients, and that creates opportunities for us to create value for our clients as well. I think you heard in our comments earlier that we delivered 9% growth in private market revenue this year. So what I would say is the dynamic would create higher variability in the fee rate that you are observing, but we are focused on delivering the revenue growth as we talked about in our targets. Deanna Strable: Hope that helps, Jack. Jack Patton: It does. Next question? Thank you. Our next Humphrey Lee: question comes from John Barnidge with Piper Sandler. Your line is open. John Barnidge: Good morning and appreciate the opportunity. My first question Humphrey Lee: on the investment portfolio, how do you think about exposure to software within that and how do you think about the AI impacts on the pricing dynamic from a knock-on perspective to benefits and protection? Thank you. Deanna Strable: I'll have Joel talk about the investment portfolio and then maybe Amy can add some questions regarding if any impacts she expects within her business as well. Francis Matten: Yeah. Good morning, John. As it relates to the investment portfolio, we continue to feel very good about our overall portfolio. Well-positioned, high quality, well matched to our liabilities. As it relates to your specific question on software exposure, we are underweight. At less than 1% of our GA. And, importantly, our deals are underwritten on a cash flow basis. And not just on a recurring revenue basis. And that reflects our conservative nature of underwriting. Given our quality, well-diversified portfolio, your credit risk and drift remain very manageable. Remains in line with long-term expectations. Both in the current year 2025 as well as the outlook for the future. And certainly is backed into all capital deployment expectations. Amy Friedrich: Yeah. So thanks, John. Here's how we think about it in terms of AI adoption, and we don't love to do a lot of guesswork, so we actually go out there and do some primary research on this. Deanna mentioned the well-being index. It actually gave us some really good insight. The last couple of rounds, late October last year and then the rounds that we did this year, we definitely see small and midsized businesses as saying they want to adopt more technology. They're actually seeing, though, that AI adoption as more of a growth driver for them. So, again, as you turn into larger companies, they might cite more of the efficiency play, some of the efficiency and workforce dynamics they need to get out of AI. Smaller businesses gather up a little of that, but they're seeing it as an ability to know their customers better, to design journeys better for them, and to democratize some of the pieces of technology that haven't been affordable for them in the past. So they see it as a growth driver. The data within our own block does not indicate that we're seeing impacts on this. We're seeing a pretty stable set of expectations around what happens with job growth. I will say, Deanna mentioned this before, there is an interesting dynamic on wage. Almost every single SMB that we have talked to and surveyed indicates that they think the likelihood that wages go up is very high. So wages going up tends to not only help benefits and protection but be something that can transfer over into Chris's businesses as well in the retirement business. Deanna Strable: Thanks, John. Do you have a follow-up? John Barnidge: Yeah. Thanks a lot for that opportunity. Principal Asset Management was unifying investment management and international pension. And we're now a couple of years into that. Structure of the business. And I think there was a comment earlier about continuously evaluating the portfolio. Should we think about businesses within that Francis Matten: international pension business John Barnidge: where there isn't a natural synergy for investment management within the Principal Asset Management umbrella being kind of the focus area for that? I'd love to hear more. Thank you. Deanna Strable: Yeah. I think there's a couple of things there, and I think some of Kamal's examples show that by separating and recalibrating our management business into investment management and international pension, it is allowing the investment management arm around the globe to really focus on where we can drive growth and traction with our assets or capabilities around the globe. Specifically, if you look at some of the recent international pension divestitures, they have been focused there, but I come back to that the remaining entities and assets within our international pension, we feel are strategic and can continue to drive value and growth. In some situations, also can contribute to the I'm growth picture as well by leveraging that customer base and our relationships. So, hopefully, that helps. Amy Friedrich: Thank you. Next question. Humphrey Lee: Thank you. Our final question comes from Alex Scott with Barclays. Your line is open. Alex Scott: Hi. Thanks for taking it. First one is on the international Francis Matten: pension business. You know, I just wanted to dig into the outlook a little bit. If I take the revenue guide at the lower end, and I think you the margins at the higher end, it points to over $300 million. And it is a business where it's been more flattish in terms of earnings growth for the last few years. And I think I heard you mention you're losing $30 million from the divested business. So just wanted to see, you know, what's driving this optimism around being able to grow it, you know, this year in a more meaningful way? Deanna Strable: Yeah. I'll maybe have Joel dig into that and see if we can respond to that. Francis Matten: So, Alex, if you look at where we are in 2025, about $279 million after tax or I'm sorry, pretax on an excess fee basis. And so that's the basis that we're building on and going into 2026. And then we feel certainly that we can deliver on that $300 million target in 2026. Couple things, couple data points. CLI put our assets under management, record levels, $154 billion as we sit here today. 24% increase year over year. And, importantly, from the macro perspective, there are some, finally, some FX tailwinds emerging within these businesses, those local businesses have been dealing with FX headwinds for a period of time. So even in 2025, there were FX headwinds impacting the business that mitigated the growth a little bit. But that is turning the corner, not only as of year-end 2025 with our strike price, but also you see some of those FX tailwinds emerging in January and thereafter as well. So it's going to be nice that the underlying profitability of this business is going to show through not just on a local currency basis, but also on a US-denominated basis when you translate those earnings back to US dollars. Deanna Strable: Paul, is there anything you'd like to add? Kamal Bhatia: Alex, I'll just point you to two data points that should help you. One, we do see a lot of value in many of our pension businesses. I'll point to make as an example. Just in '25, we actually delivered $300 million of positive NCF in and the Mexico pension business for six consecutive quarters has shown positive NCF and growth. So, yeah, some of these businesses are small and internal onward, and they will add earnings growth. The other piece I would point to you is the geography may not show up in pensions. But we are creating value. Chile is a perfect example where we have a strong moat and brand in the pension business, and we have really leaned into our talent and cross-selling around that brand to grow the I'm business. And Chile continues to produce for the first time positive net cash flow for us. In IIM. So you want to think about the turnaround businesses as well as the businesses where we are cross-selling and growing our I'm platform. Deanna Strable: Thanks, Alex. Do you have a follow-up? Alex Scott: Yeah. For a follow-up, I wanted to ask you about industry consolidation. I know you've gotten this question over time. I think it's maybe becoming more interesting just because of some of the advances in technology and, you know, Principal Financial Group is, I think, been, you know, well above average in terms of implementing some of this new tech. So, you know, is that an opportunity to, you know, potentially participate in consolidation and, you know, leverage your advantages, you know, maybe with somebody else's business as well. And I guess the flip side is, is it a risk from the standpoint of, you know, if the industry is consolidating and some of your peers are getting bigger, you know, do you need to think harder about it from that standpoint too? Deanna Strable: Yeah. I'll make a few opening comments and then maybe ask Chris to talk specifically within the retirement business. So the first thing I would say is that we feel good that we don't need an organic to deliver on the near-term objectives that we've laid out. I'd also say that within all of our businesses, we participate and look at any opportunities that are coming to market, but there is a unique aspect of both the benefits and protection business and the retirement business, and that there are multiple ways to play in that consolidation. Obviously, you can strike a check and get a block of business, or because those two businesses have a feature where those employers constantly check the market and decide where they want to move that, you can also still participate in inorganic opportunity on a case-by-case basis in the open market. So we are obviously very focused on that, but I think a lot of the industry discussion has been around retirement, so I'll maybe see if Chris has anything else to add. Christopher Littlefield: Yeah. Thanks, Alex. Thanks, Deanna. Yeah. You know, I think in retirement, it's been consolidating for quite some time. You know, we're still at, I think, north of 40 overall record keepers, and I do expect that to consolidate pretty significantly over the next decade. I think the great position that we're in is we're already at scale. We feel really good about the scale that we have, and we continue to grow our overall block of Humphrey Lee: business and book of block of participants that we continue to serve. You heard that we Christopher Littlefield: continue to grow that amount. And so there's two ways to do the consolidation. One is to go pay a premium for a book of business, and the other is to compete it and win it in the marketplace. And our current focus is really about competing in the marketplace and winning it as smaller subscale providers are having a more and more difficult time to meet the needs and demands of employers, of participants, and of the vast and significant regulatory changes that continue to come. So we like our position. We're going to continue to look for those opportunities. We're actually able to win in the market and feel good about our overall position as it exists today with a focus more on organic growth than any sort of Humphrey Lee: premium that we'd pay to acquire a book of business. Deanna Strable: Thanks, Alex, for those questions. Amy Friedrich: Thanks. Are there any more questions in the queue? Humphrey Lee: Thank you. I'm showing no further questions at this time. We have reached the end of our Q&A. Amy Friedrich: Ms. Strable, Humphrey Lee: closing comments, please. Deanna Strable: Thank you. As we close today's call, I want to thank all of you for joining us today and for your questions. As we tried to iterate, we ended 2025 with very strong momentum. Earnings growth and ROE at the top end of our targets, expanding margins, and robust free capital flow and capital deployment. Our performance reflects disciplined execution and the strength of our strategy. As we move into 2026, we're well positioned to deliver against our targets and continue creating sustained long-term shareholder value. Thank you again for your support, and we look forward to connecting with many of you soon. Have a great day. Humphrey Lee: Thank you. This concludes today's conference call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. Today's conference call will begin momentarily. Until that time, thank you for your patience. Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cincinnati Financial Fourth Quarter and Full Year Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to Dennis McDaniel, Investor Relations Officer. Please go ahead. Dennis McDaniel: Hello. This is Dennis McDaniel at Cincinnati Financial. Thank you for joining us for our fourth quarter and full year 2025 earnings conference call. Late yesterday, we issued a news release on our results along with our supplemental financial package, including our year-end investment portfolio. To find copies of any of these documents, please visit our investor website investors.senpen.com. The shortest route to the information is the quarterly results near the middle of the investor overview page. On this call, you'll first hear from President and Chief Executive Officer Steve Spray, and then from Executive Vice President and Chief Financial Officer Mike Sewell. After their prepared remarks, investors participating on the call may ask questions. At that time, some responses may be made by others in the room with us, including Executive Chairman Steve Johnston, Chief Investment Officer Steve Soloria, Cincinnati Insurance's Chief Claims Officer Mark Shambo, and Senior Vice President of Corporate Finance Andy Schnell. Please note that some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties. With respect to these risks and uncertainties, we direct your attention to our news release and to our various filings with the SEC. Also, a reconciliation of non-GAAP measures was provided with the news release. Statutory accounting data is prepared in accordance with statutory accounting rules and therefore is not reconciled to GAAP. Now I'll turn over the call to Steve. Steve Spray: Good morning, and thank you for joining us today to hear more about our results. We had another excellent quarter of operating performance that again demonstrated the resilience of our proven operating model and the long-term strategy that drives our insurance business. Investment results were also part of that excellent performance, including investment income growth, and another quarter with net investment gains. Operating performance was very strong for the fourth quarter and boosted full-year results enough to outperform last year in several key areas, despite starting 2025 with the largest catastrophe loss in our company's history. Net income of $2.4 billion for full year 2025 was 4% higher than 2024. Fourth quarter net income of $676 million rose 67% and included recognition of $145 million on an after-tax basis for the increase in fair value of equity securities still held. Non-GAAP operating income for the quarter increased 7% to $531 million. For full year 2025, it was up 5% from a year ago. Our fourth quarter 2025 property cash casualty combined ratio was an outstanding 85.2%. It lowered the full-year combined ratio to 94.9%, near the midpoint of our long-term average target range. The full-year ratio was 1.5 percentage points higher than last year, driven by an increase of 1.6 points in the catastrophe loss ratio. On a current accident year basis measured at twelve months before catastrophe losses, the combined ratio improved by 0.4 percentage points. The loss and loss expense portion would have improved slightly if not for the unfavorable effect of 0.3 points from reinsurance reinstatement premiums. Consolidated property casualty net written premiums continued to grow, but at a slower pace, 5% for the quarter. That reflects our pricing discipline in the insurance marketplace as our underwriters carefully consider risks on a policy-by-policy basis and use pricing precision tools to segment those risks as part of their underwriting decisions. Estimated average renewal price increases for most lines of business during the fourth quarter were lower than 2025, but still at a level we believe was healthy. Our standard and excess and surplus commercial lines business averaged increases in the mid-single-digit percentage range. Our personal lines segment included homeowner in the low double-digit range and personal auto in the high single-digit range. We believe our relationships with independent agencies are as strong as ever and that they will continue to trust us with their high-quality new business. The fourth quarter 2025 decrease in new business written was driven by our personal lines segment that had unusually large amounts the past two years. However, the $92 million for the quarter was still 62% more than the average of the three years prior to 2023. Policy retention rates in 2025 were similar to 2024. Our commercial line segment was down slightly, but still in the upper 80% range. Our personal lines segment was also down slightly but still in the low to mid-90% range. Performance by insurance segment is the next area I'll highlight. Focusing on full year 2025 results compared with 2024. But first, I'll note that all operating units had an excellent fourth quarter profitability, each with combined ratios below 90%. Commercial lines is 91.1% combined ratio for the year improved by 2.1 percentage points, including a decrease of 1.9 points in the catastrophe loss ratio. Its net written premiums grew 7%. Personal lines is 103.6% combined ratio for 2025 increased by 6.1 percentage points, including an increase of 7.1 points in the catastrophe loss ratio. Its net written premiums grew 14%. Excess and surplus lines, 88.4% combined ratio for the year improved by 5.6 percentage points including a decrease of one point in the catastrophe loss ratio. Its net written premiums grew 11%. Both Cincinnati Re and Cincinnati Global produced strong results and again demonstrated the benefits of diversifying risk to improve income stability. Cincinnati Re's combined ratio for the year was 95.9%. Its 1% decrease in net written premiums reflects changing reinsurance market conditions. Cincinnati Global's combined ratio for 2025 was 79.2% with premium growth of 10%, benefiting from product expansion. Our life insurance subsidiary increased annual net income by 16% and grew term life insurance earned premiums by 3%. Moving on to our reinsurance seeded programs. On January 1, we again renewed each of our primary property casualty treaties that transfer part of our risk to reinsurers. For our per risk treaties, terms and conditions for 2026 are fairly similar to 2025, other than an average premium rate decrease of approximately 7%. The primary objective of our property catastrophe treaty is to protect our balance sheet. The treaty's main change this year is increasing the top of the program to $2 billion, compared with $1.8 billion effective 07/01/2025. Should we experience a 2026 catastrophe event totaling $2 billion in losses, we'll retain $523 million compared with $803 million for an event of that magnitude during 2025. Ceded premiums for these treaties in total are expected to be approximately $204 million, with the increase from the actual $192 million in 2025 driven by additional coverage and subject premium growth. As usual, I'll conclude my prepared remarks with the value creation ratio. Our 18.8% full-year 2025 VCR exceeded our five-year annual average target range of 10% to 13%. On a full-year basis, net income before investment gains or losses contributed 9.1%. Higher overall valuation of our investment portfolio and other items contributed 9.7%. Now Chief Financial Officer, Mike Sewell, will highlight investment results and other important points about our financial performance. Mike Sewell: Thank you, Steve. Thanks to all of you for joining us today. Investment income was a significant contributor to higher net income and improved operating results, rising 9% for the fourth quarter and 14% for the full year 2025 compared with the same periods of last year. Bond interest income grew 10% for the fourth quarter and net purchases of fixed maturity securities totaled $1.6 billion for the full year 2025. The fourth quarter pretax average yield of 4.92% for the fixed maturity portfolio was similar to last year. The average pre-tax yield for the total of purchased taxable and tax-exempt bonds during 2025 was 5.6%. Dividend income for the quarter matched last year even without the repeat of a $6 million special dividend from December 2024. Net purchases of equity securities totaled $74 million for the year. Valuation changes in aggregate for the fourth quarter and the year were favorable for both the equity portfolio and our bond portfolio. Before tax effects, the fourth quarter net gain was $181 million for the equity portfolio, and $24 million for the bond portfolio. At the end of the fourth quarter, the total investment portfolio net appreciated value was approximately $8.4 billion. The equity portfolio was in a net gain position of $8.5 billion while the fixed maturity portfolio was in a net loss position of $181 million. Cash flow from successful insurance and investment activities continue to fuel investment income. Cash flow from operating activities for full year 2025 was $3.1 billion, up 17%. Regarding expense management, our strategy continues to seek a good balance between controlling expenses and investing in our business. Our fourth quarter 2025 property casualty underwriting expense ratio decreased by 0.2 percentage points as an increase in agency profit sharing commissions was offset by growth in earned premiums outpacing growth in other expenses. Turning to loss reserves, our approach remains consistent and aims for net amounts in the upper half of the actuarially estimated range of net loss and loss expense reserves. As we do each quarter, we consider new information such as paid losses and case reserves. Then we updated estimated ultimate losses and loss expenses by accident year and line of business. During 2025, our net addition to property casualty loss and loss expense reserves was $1.3 billion, including $1.1 billion for the IBNR portion. For current accident year loss loss expenses before catastrophe effects and measured at twelve months, several of our major lines of businesses had 2025 ratios better than 2024. The main exception was commercial casualty rising 4.2 percentage points. That reflects ongoing uncertainty including potential negative effects of legal system abuse we and others in the industry have noted in recent years. We remain confident with our pricing and risk selection for this line of business. For prior accident years, we experienced $196 million of property casualty net favorable reserve development during 2025 that benefit the combined ratio by 2.0 percentage points. On an all lines basis by accident year, net reserves developed during 2025 included a favorable $275 million for '24, favorable $8 million for '23, and an unfavorable $87 million in aggregate for accident years prior to '23. As usual, I'll conclude with capital management highlights. For the full year 2025, we returned capital to shareholders totaling $730 million including $525 million of dividends paid and $205 million of share repurchases. We repurchased approximately 1.4 million shares at an average price of $151 per share, including 651,000 shares during the fourth quarter at $157 per share. We continue to believe our financial flexibility and our financial strength are both in an excellent position. Parent company cash and marketable securities at quarter end was $5.6 billion. Debt to total capital remained under 10%. Our quarter-end book value was a record high $102.35 per share with $15.9 billion of GAAP consolidated shareholders' equity providing plenty of capacity for profitable growth of our insurance operations. Now I'll turn the call back over to Steve. Steve Spray: Thanks, Mike. Before we get to Q&A, I want to share our efforts related to intelligent automation. As most of you have heard us say before, our vision is to be the best company serving independent agents. Strategies we undertake must ladder up to improving the experience for the independent agents we serve and their clients. We are embracing intelligent automation to improve processes across our technology ecosystem. Generative AI is certainly a part of it. But it's only one aspect. Our work began with improvements to our data architecture giving us a rich understanding of our risks and how we could shape our entire insurance portfolio for the future. We use workflow tools in each insurance segment that organize data and automate certain activities in writing new business or in other transactions. That experience formed a deep pool of talented associates with the knowledge, skills, and desire to continue our journey into generative AI. Most importantly, these associates are also insurance experts. We've created an AI center of excellence which is harnessing cloud provider large language models to create internal solutions that can be then that can then be easily replicated throughout our company for fast scalability. Have a number of projects completed and even more on the roadmap. Let me share an example. Using generative AI, we created a proprietary chatbot that our commercial lines underwriters use to obtain reference information and find answers that assist with underwriting decisions. We are concentrating on using AI Gen AI to gain efficiency, that leads to meaningful productivity gains for our associates. We're optimizing their efforts, allowing them to add more value to our business, deepening relationships, sharing expertise, and focusing their energy on the most complex underwriting and claims decisions. As we continue to weave GenAI into our business, we expect to see additional impacts to our profitability and growth. As a reminder, with Mike and me today are Steve Johnston, Steve Soloria, Mark Chambeau, and Andy Snell. Jordan, please open the call for questions. Operator: As a reminder, if you'd like to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from Michael Phillips from Oppenheimer. Your line is live. Michael Phillips: Thank you. Good morning, everybody. I guess I do want to start with the commercial casualty line. Mike, I heard your comments on the uncertainty and the legal system abuse. It's, you know, I think it's been pretty common for everybody for a while. I guess, pricing seems to be getting softer for commercial casualty for the industry, maybe not necessarily for you, but at least for your peers. I guess just as we think about 2026, and your 2025 number of, I guess, 76.8 or 77%, you know, how much confidence do you have in that number not continuing to creep up from here or hopefully holding flat or maybe improving? Just, you know, confidence around that given the what is the a bit of a softer market today than it was the last couple of years. Thanks. Steve Spray: Yeah, Mike, Steve Spray. Let me I can start, and then if Mike wants to add some additional thoughts, can as well. Just to your to the softness in the pricing. I think the we did see just I'll speak to maybe overall commercial pricing there in the fourth quarter. We did see it start to get more competitive pretty you know, pretty pretty quickly in the fourth quarter. On a package basis, all lines. Now most of that was driven by commercial property, but I think, you know, again, as a package company, the auto and the and the casualty kinda got drawn into that. I I just I can understand somewhat the property softening just given the results of the industry, and you can see Cincinnati's results as well. I just think there's there's lost cost headwind particularly in casualty, as Mike mentioned on the legal system abuse. Commercial auto. So I think I think that the pricing is is going to is going to hold up. We're confident in the future. For 2026, confident that our rates, our pricing are exceeding loss costs in all lines except for workers' compensation. The only other thing I might add there, Mike, and we talked about it in prior quarters, is if you look at the average rate increase for Cincinnati, I'll just speak to Cincinnati, it just doesn't tell the entire picture. Our underwriters, both on new and renewals, have been executing now for years on you know, using sophisticated tools they had to sit have to segment their the the business, the accounts we write, risk by by risk. And when you get into market like we're in, and you have commercial results like we have, fourteen consecutive years of underwriting profit, I think it only stands to reason that the average net rate is going to be be under pressure. We have fewer accounts that are under priced or that need aggressive action. And then on the business that's most adequately priced, we're coaching our teams to make sure they do whatever they need to do keep that business. And so sometimes, the market gets a little softer, we have to give up a little rate. On that. But again, in my opening remarks, I said we're still confident in the risk selection and the overall pricing we think is very healthy. In the commercial book too. Michael Phillips: Okay. Yes, Steve. Thank you for that. That's helpful. Appreciate the comments. Second question is on your your tech investments, and you've talked to this for a while. And you know, one of the benefits that you've talked about is more accurate pricing. I guess, do do you see that those investments and the one comment of more accurate pricing, is that more applicable to you in lines versus commercial lines, or is it kind of the same? Do you do you apply that to both? Should it be applied to both? And, you know, how do you think about that from the two sides of the fence there? Thank you. Steve Spray: Yeah. We definitely apply it to both. Like I just mentioned, our overall combined ratio as a company now, fourteen consecutive years of underwriting profit. And for someone who's been here for thirty four plus years and grew up as an underwriter, I can tell you we've always had this culture of continuous improvement. We've gotten better at risk selection. We've gotten better at loss control, loss mitigation. We've got better at claims management. But from my seat, that's always been linear. And the pricing sophistication and segmentation that we instituted back roughly 2011, 2012. That has been exponential in the improvement and the results of Cincinnati Insurance. And it is in commercial lines. It's in personal lines. It runs through other areas of our business as well. It's probably been more pronounced in the improvement, in commercial lines, over the years, but the sophisticated pricing, probably even more important in middle market personal lines and specifically personal auto. So know, if you can see the ex cat accident year, continuing to improve in personal lines, and that's heading in the right direction. And we need that too. Cat has been we've had a lot of volatility, a lot of variability around cat. And we think there's still room for improvement across all lines of business, actually. But probably more importantly in personal lines. Michael Phillips: Okay. Thank you, Steve. Appreciate the help. Steve Spray: Thank you, Mike. Operator: Your next question comes from the line of Paul Newsome from Piper Sandler. Your line is live. Paul Newsome: Good good morning. Thanks for the call. Hope guys are well. I wanna a little bit on the commercial competition question that that Mike asked. And maybe some thoughts, is it is it still very much large versus small with the competition you're seeing in the fourth quarter incrementally changing towards still just the large folks or are we seeing it creep down into to smaller accounts over time. And, similarly, I I I wanna see if there's any sort of thoughts you had or observations you had related to the kind of source of that incremental competition? Is it you know, are are is it just across the board or are we seeing some emergence of some folks that maybe aren't necessarily terribly disciplined in their carriers or MGAs or whoever. Steve Spray: Yeah. Paul, I would say yes. It's still it is still, I would say, leaning towards larger accounts. And then even there, I'd be saying more specifically towards large property. But like I mentioned, you know, it's gotten more competitive in the middle market space. For sure, and I think that is what you're what you're seeing there too. But let me let me maybe let me maybe put this in perspective a little bit too and see if this if this helps. If you look over the last three or four years, we were in unprecedented hard market, so I'd say for my for my career, particularly in personal lines. And with our financial strength, we were able to really help our agents continue to write business through that that hard market and be there in a really dislocated market. Let me just give you a let me give you I hate I hate the tough comp thing because it's sounds like an excuse, so that's not what I'm driving at here. 2024, was just an extraordinary year when it comes to new business, both for personal lines and commercial lines. And if you look at if you just look at the at 2025, over 2023, commercial lines new business up 31%. '25 over '23 for personal lines new business were up 14%. 2025 over 2023 for E and S, up 30%. On a If you consolidate those three, '25 was up over 25% over 2023. So on an actual basis, we are still really pleased with the new business. We're able to write it at pricing that we feel is adequate and that we're that it's healthy and that we're happy with. So a little bit of this a little bit of this softening is just coming off I'd say a pretty extraordinary hard market. And again, we were able to grow through that because the relationships we have with our agents because of our financial strength. You know, Cincinnati Insurance Company since 2018 on an all lines basis, we doubled net written premiums since 2018 from just a little over $5 billion to now over $10 billion in net written premium. Personal lines more than doubled in the last four years. So that just kind of frames it, Paul, hopefully, the way we're looking at it, way I'm looking at it, really strong growth for the company. I think this is a natural slowdown. And we'll one thing I can promise you is we're gonna maintain discipline through all cycles when it comes to risk selection and pricing. And I I couldn't be I couldn't be more proud of the underwriters, both on the new business and on the renewal and the way they're executing with what I think are the most professional agents in the business. Paul Newsome: That that that makes a lot of sense. Second question different Where are we in the process for for derisking on the personalized side you know, you mentioned California. I think it's maybe I mean, it's just a little bit broader than that. But where are we in that process? Are we we kinda done? Are we a few quarters to go before all this works itself out? Then you can't still get out of some of those policies we need. Steve Spray: Yeah. Paul, we are we are well into the process. I wouldn't be able to give you a view on we're a quarter or two or three or four away. I can just tell you from my perspective, we're well into it. On the metrics we're using. We're exceeding the expectations that we have for ourselves at this point in the process. We had moratoriums on certain areas for new business. We're working with the state of California and we'll continue to do that as well. But as far as lessons learned, California, think it really boils down to just a new view of risk, I think both for us and for the industry. On what a really bad day can look like and aggregations. And so that's where our focus has been terms, conditions, and pricing on our E and S homeowner business in California whether it's post loss or pre loss. We still feel really good about where we are there. Paul Newsome: Great. Appreciate the help as always. Thank you, guys. Steve Spray: Thank you, Paul. Operator: Your next question comes from the line of Mike Zaremski from BMO Capital Markets. Your line is live. Mike Zaremski: Hey, great. Thanks. In terms of the new reinsurance program that you detailed, should we embed a lower top line impact the income statement, maybe specifically on personal lines? Mike Sewell: You know, on on the this is Mike, and thanks for the the question, Mike. The CAT program is really a applicable to both commercial and personal. So in 2025, you saw a huge benefit that the CAT program had on our personal line side. So, you know, it will say maybe it it matters on which one gets hit first depending on what you know, the cat is. But we still have a reinstatement, one reinstatement, generally speaking, on the overall cat program. So that would cover us for a second loss. But it's Steve mentioned, if we do have a $2 billion loss this year compared to last year, that'd be 26 compared to 25. We would have a lower amount that we would be out in the current in the current year with the improved coverage up to $2 billion. Mike, Steve Spray, the only thing I might add is that as I said in my prepared remarks too, is that the overall rate on that property cat program was down 7%, even with the additional coverage. Mike Zaremski: Okay. That's a good clarification then. Okay. So we shouldn't be I I shouldn't be kind of impacting the the premium, the cost for for that in the model. Okay? It's good to hear about the upside protection. Gonna be switching gears to, you know, workers' comp. You know, I I I the answer might just be, you know, you guys are booking really conservatively on an accident year basis, but know, if I just look at what your booking at it, it continues to increase year over year. Obviously, a lot of reserve releases. But and is anything changing on comp that we should be aware of? Mike Sewell: Yeah. I I would say let let me start in see if if you wanna say add on. But, you know, as it relates to release of reserves, you you know, it it has been consistent. And, you know, I I know, not that I'm surprised, but, you know, each year, we have been having favorable development You know, we have had the many years of favorable development. We did have $20 million of favorable development the fourth quarter with $65 million for the year. For the quarter, I would say the $20 million it was spread really throughout you know, if you look back the last ten plus years, the most favorable was 2024. 2023 accident years. That was $4 million and $3 million between those two. If you look at it on a year to date basis, the $65 million of favorable development primarily came from accident year '23, twenty two, and 2020. The other accident years were even the most recent accident year on the year to date basis for 2024, that was a favorable $2 million. Dollars of favorable development. So we continue to reserve the way we do conservatively, and, you know, we'll just you know, I I'll watch what our actuaries do. Mike, I might just add on the kind of on the day to day business underwriting and pricing of comp. We've made that's another area we've made great strides over the last fifteen years is is our expertise and then our appetite. For comp We just, right or wrong, we just felt that the rate environment wasn't where we wanted it to be, so we've been cautious. We've been careful. Conservative. In comp, you know, it's it is you can see it. I think it's now roughly 200 and little over $240 million of premium. So it has less impact on the overall commercialized book, but we stand ready to help our agents write work comp where we feel like we can get the risk adjusted return. I think the future will bode well for us on comp. Know, one of the other things is some of our biggest state well, our biggest state, Ohio, is obviously a monopolistic state. We don't write workers' compensation here, and we're not active for work comp in California. And some of our other larger states, Texas, They're they're a little more minimal as well. So that's just kind of a view from like I say, the business side. Mike Zaremski: Up for it? And can we lastly just going back to the commercial lines competitive environment. I guess if we think about your comments about casualty is still an issue for the industry in terms of inflation there. Property is well priced. I guess if if you all had a crystal ball for the industry, if you don't wanna speak to Scentsy, would you expect pricing to continue moderating just a tad from the property side? Or I don't know if you guys willing to go on record there. You know, we can we can see that you guys might might not be playing full offense right now based on the kinda agency appointments and top line growth. But just curious if you feel the competitive environment, the rate of change on price has kind of moderated and we kind of or in stable ish territory? Steve Spray: Yeah. Mike, let me let me make sure. I I'm glad you mentioned this, but make sure we are playing full offense. We always are. We've got such a winning strategy and model that's been proven over time. We're on full offense. We're adding more products whether it be on the standard side for commercial and personal, our small business platform, our E and S company continues to grow. We're adding product out of Lloyd's to help our agents write more business with us as well. We're adding agencies across the country the high quality agencies. That will continue. So we'll continue to play offense. But playing offense, winning offense is not going to be in pulling back on risk selection or probably even worse cutting rate. That's not going to be part of the equation, so we're going to have to along with, I think, the best agents in the like I said, in the country, it can always come down to a price. We've got to be able to convey value that we think we bring as a company, that I know our agents bring in their communities. And that's where we're gonna that's where we're gonna win. And if price becomes more and more of an equation, we just have to get, we're going to have to get more at bats and and kind of weed through all that. As far as looking forward on competition, I said it kind of early on here, just with the headwinds, on loss costs. Primarily around casualty, general liability, umbrella, management liability has been under pressure, commercial auto, I just don't see that market. That's my opinion. I don't see that market getting you know, continuing to have pressure on pricing. I just don't think it makes sense. Now, it may go there, and I think it'll have an impact on us. Because if it gets to a point where again, on risk by risk basis, if we don't feel we can get a risk adjusted return, we're going to turn away from those in the short term because we're playing a long we're playing a long game here. Mike Zaremski: Thank you, Steve. Thank you, Mike. Operator: As a reminder, if you'd like to ask a question, you can press star plus 1 on your telephone keypad. Your next question comes from the line of Greg Peters from Raymond James. Your line is live. Greg Peters: Hey. Good afternoon. This is Mitch on behalf of Greg. Thanks for taking my questions. So you mentioned in an earlier response that you expect commercial auto pricing to hold up. Can you give us an update on where commercial auto renewal pricing was in the quarter? And based on current claims, how much additional rate you believe might be required to to sustain underwriting margins in 2026? Thanks. Steve Spray: Yeah. Thanks, Mitch. Well, commercial auto rate for the fourth quarter was up mid single digits. We think it on a pricing is prospective, looking forward, we think that and we're confident that our commercial auto pricing is exceeding lost costs. One thing that I think is a little unique with us, Mitch, is that I mentioned earlier too, is we are a package writer. And so we do not you know, monoline auto is not a big product for Cincinnati Insurance Company. We're also not a heavy transportation rider, long haul trucking risks It's not to say we don't have one or two. In our portfolio, but that is not a focus of ours. So think our commercial auto over the last I'll say, seven, eight years has been a little more predictable and a little more you know, as of year end 2025, commercial auto even with some ads in accident year 2025, on a calendar year basis, we were slightly profitable commercial auto. So you know, for us, feel good about commercial auto. And, again, it's it's part of the package. Mitch: Great. Thank you. Turning over to the investor investment portfolio, you mentioned reinvestment yields are running about 70 basis points above the book yield. How are you guys expecting that to translate net investment income growth in 2026 considering the declining rate environment? Steve Soloria: Thanks, Mitch. This is Steve Soloria. We're thinking that the longer maturity rates are going to kind of hold steady from where they are. So we're expecting to be able to put money to work there pretty consistently. The insurance side given us a lot of cash to work with. But from a market standpoint, the Fed seems to be kind of cautious on they're gonna do on the short end. So we think on the long end, we'll continue to get yields in the ballpark of where we've been right now. So we're pretty comfortable that we'll see solid growth going into 2026 and beyond. Mitch: Thank you. Operator: That concludes our question and answer session. I'll now turn the call over to Steve Spray, CEO, for closing remarks. Steve Spray: Thank you, Jordan, and thank you all for joining us today. We look forward to speaking with you again on our first quarter 2026 call. Operator: That concludes today's meeting. You may now disconnect.
Operator: Good day. And welcome to Saia, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Matthew J. Batteh, Saia, Inc.’s Executive Vice President, Chief Financial Officer. Please go ahead. Matthew J. Batteh: Thank you, Betsy. Good morning, everyone. Welcome to Saia, Inc.’s fourth quarter 2025 conference call. With me for today's call is Saia, Inc.’s President and Chief Executive Officer Frederick J. Holzgrefe. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. Also, in 2025, we recorded $14,500,000 in net operating expense impact from a gain on real estate disposal and impairment of real estate. When we discuss adjusted operating expenses, adjusted cost per shipment, adjusted operating ratio, or adjusted diluted earnings per share for the third quarter 2025 or full year 2025 in our comments, it refers to adjusted results that exclude the gain from that sale and impairment on that property. See our press release announcing fourth quarter results for a reconciliation of non-GAAP financial measures. That press release is available on the Financial Release page of Saia, Inc.’s Investor Relations website as well. I will now turn the call over to Fritz for some opening comments. Good morning and thank you for joining us to discuss Saia, Inc.’s fourth quarter and full year results. We look back on 2025, I am proud of our team's resilience and focus. Delivering strong execution for our customers even as volume patterns shifted day to day amid constant change. Having now completed our first full year at the national network, I am more excited than ever before about the future of Saia, Inc. Throughout the year, our now national footprint provided opportunities with both new and existing customers as our expanded reach enabled us to provide our industry-leading service in more markets. Having a national presence provides us with the opportunity to solve more problems for more customers, which we believe has resulted in increased market share. Our record capital investments of more than $2,000,000,000 over the last three years have allowed us to rapidly expand our footprint in a short period of time, and I believe we are still in the early stages of capitalizing on the opportunity that national network provides. Of course, our achievements would not be possible without a best-in-class team. While the demand environment remained dynamic throughout the year, our team responded to our customers' needs every day. Our core operations performed as we expected for the fourth quarter. However, reported results were impacted by self-insurance costs late in the quarter. Our fourth quarter operating ratio of 91.9% reflects these increased self-insurance costs. The sequential deterioration from third quarter's adjusted operating ratio was impacted by unexpected adverse developments on a few cases arising from accidents that occurred in prior years, which required reserve increases in the period of approximately $4,700,000. As we well know, accident-related costs continue to rise due to increased litigation costs and settlement values as well as general inflation, and can develop sometimes unexpectedly over several years. Regrettably, this unexpected need for reserve increases was related to the accidents that happened years ago. However, we continue to invest in industry-leading training and safety technology. We are seeing positive trends in our safety statistics. During 2025, despite having the largest fleet in company history and internal miles increasing by 2.4% year over year, we saw a 21% reduction in our preventable frequency and a 10% decline in lost time injuries, reflecting the benefits of these ongoing investments in safety. Focusing on the fourth quarter, volumes continue to reflect the muted demand environment the industry experienced throughout the year. Shipments per day were down 0.5% compared to 2024, while tonnage per day was down 1.5% compared to the same period last year. As is typical, we experienced some volume shifts in the weeks after the GRI, which was implemented on October 1, and we remain extremely focused on ensuring that we are compensated appropriately for the quality and service that we provide to customers. When we analyze the results of the GRI closely, we are pleased to see customer acceptance trends slightly above historic levels. Similarly, contractual renewals remained strong in the quarter, averaging 4.9% of the book of business contracted in the quarter. We continue our efforts to ensure that we are fully compensated for quality and service we provide and have seen a 6.6% contractual renewal increase in the month of January 2026. Despite the volume decline, our fourth quarter revenue of $790,000,000 is a record for any quarter in our company's history. Mix headwinds continue to impact our results with slight decreases in weight per shipment and length of haul compared to 2024. Additionally, revenue per shipment excluding fuel surcharge decreased 0.5% compared to last year. As we have discussed in our prior quarters, the volume decline in our Southern California region continued, as volume in the region in the fourth quarter was down about 18% compared to the prior year. This region is typically our highest revenue per bill market and the volume decline caused an estimated $4,000,000 revenue reduction for the quarter. While the Southern California region continues to play a factor in our mix dynamics, we are seeing growth with customers in both legacy and ramping markets as our expanded footprints allows us to get closer to our customers and handle segments of their business that we may not have had access to prior to the network expansion. Reflecting our ability to provide industry-leading service in more geographies, we were able to drive revenue per shipment excluding fuel surcharge up 1.1% sequentially from the third quarter. Our nationwide network has now been fully operational for one year, giving us clear perspective on the impact of our generational opportunity to expand the network over a very short period of time. Over the past year, we strengthened relationships with existing customers while bringing our high-quality service to many new customers, contributing what we believe is a record level of market share gain. These customer relationships will continue to develop, reflecting the long-term value of the strategic investments we have made over the past few years. With our network expansion, we were able to achieve a cargo claims ratio of 0.47% in the fourth quarter, which is a company record for any quarter. Considering the size and scope of our national network, with newer locations still in early stages of their life cycle and employing newer Saia, Inc. employees, this customer-centric metric is a testament to the culture instilled at each location in our organic expansion and our team's ability to perform at the highest level. This level of service reflects our team's consistent effort and attention to detail, core strengths that have helped establish Saia, Inc. as a leading national LTL carrier. I will now turn the call over to Matt for more details from our fourth quarter results. Thanks, Fritz. Fourth quarter revenue was largely flat compared to the prior year, increasing by 0.1% to $790,000,000, while revenue per shipment excluding fuel surcharge decreased 0.5% to $297.57 compared to $299.17 in 2024. Fuel surcharge revenue increased by 6.1% and was 15% of total revenue compared to 14.1% a year ago. Yield, excluding fuel surcharge, increased by 0.5%, while yield increased by 1.6% including fuel surcharge. Tonnage decreased 1.5% attributable to a 0.5% shipment decline in addition to a 1% decrease in our average weight per shipment. Our length of haul decreased 0.1% to 897 miles. Shifting to the expense side for a few key items to note in the quarter. Salaries, wages, and benefits increased 6.1% compared to 2024. This increase was primarily driven by increased employee-related costs, which include a company-wide wage increase of approximately 3% on October 1, due to adverse claim development on a few accident cases late in 2025 related to accidents that happened in prior years. In 2025, we are pleased to see a decrease in the number of preventable accidents year over year. However, cost per claim continued to rise due to increased cost of litigation and increases in settlement values. Depreciation and amortization expense of $62,900,000 in the quarter was 16.4% higher year over year, primarily due to ongoing investments in revenue equipment, real estate, and technology. Compared to 2024, cost per shipment increased 6.1%, largely due to increases in self-insurance-related costs and depreciation. Group health insurance alone accounts for more than 30% of the year-over-year cost per shipment increase due to continued inflation in healthcare-related costs. We continue to believe that we provide best-in-class benefits to support our employees who drive increased customer satisfaction, and while a headwind, we have absorbed the majority of the market rate increases that we have seen over time. Total operating expenses increased by 5.6% in the quarter, and with the year-over-year revenue increase of 0.1%, our operating ratio increased to 91.9% compared to 87.1% a year ago. Our tax rate for the fourth quarter was 22% compared to 23% in the fourth quarter last year, and our diluted earnings per share were $1.77 compared to $2.84 in the fourth quarter a year ago. Moving on to our full year 2025 results. Revenue was a record for Saia, Inc., increasing 0.8% compared to 2024. Operating income was $352,200,000. Adjusting for one-time real estate transactions, our operating income was $337,700,000 for 2025. Our operating ratio for the year deteriorated by 40 basis points to 89.1%, while our adjusted operating ratio was 89.6% for 2025. Focusing on the balance sheet, we finished the year with just under $20,000,000 of cash on hand and $63,000,000 drawn on the revolving credit facility, to bring us to approximately $164,000,000 in total debt outstanding at the end of the year, which is down from $200,000,000 at the end of 2024. Looking back on 2025, I was pleased with our team's core execution, despite a challenging macroeconomic environment. We insourced more miles compared to the prior year, cost-optimally scaling and leveraging our fleet's national network and technology investments driving our optimization efforts. Further evidence of our network optimization efforts shows in our handling metrics, which improved sequentially every quarter through the year and exited the year 1.5% below their first quarter peak. From a quality standpoint, our cargo claims ratio of 0.5% for the full year was a company record and improved year over year in every quarter compared to 2024. We continue to see the benefit of our investments in safety, training, and technology. Lost time injuries in 2025 declined 10% year over year, and preventable accident frequency declined 21% year over year. While the underlying nature of self-insurance remains inflationary, our reduced incidents have helped mitigate the rising costs. Importantly, our record investments have enabled us to drive increased customer satisfaction in more markets. Our ramping terminals, or those open since 2022, operated profitably for the year, despite the relative inefficiencies that come with opening 39 terminals in such a short period of time. The 21 terminals that we opened throughout 2024 continue to mature. We estimate that those terminals increased revenue market share by approximately 80 basis points in 2025. In aggregate, our ramping terminals, while weighing on the company's operating ratio, contributed incremental operating income for the year. We are seeing tangible results with our customers through our expanded service offerings, and I believe we are just beginning to unlock the full potential of our national network and technology investment. I will now turn the call back over to Fritz for some closing comments. Thanks, Matt. Despite uncertainty surrounding volumes in the broader macroeconomic environment in 2025, I am proud of how our team adapted each day to meet our customers' needs. Every day represents new variables, and our ability to consistently deliver strong service quality metrics reflects the strength of our Saia, Inc. culture across both our legacy and ramping terminals. While the inflationary costs associated with our industry continue to be pronounced in certain areas, we are actively working to manage costs through the use of network optimization technology. We accelerated our network optimization efforts that began in 2025 and are already seeing cost savings as a result. Fueled by our ongoing investments in technology, these initiatives improve density and efficiency across our national footprint, with handles declining steadily from the first quarter peak. As our network continues to scale, adding density and enhancing our ability to service customers, our value proposition continues to become increasingly clear. These investments we have made over the past three years, more than $2,000,000,000, have strategically allocated capital toward real estate, revenue equipment, and technology to support our long-term profitable growth. In addition to the investments we have made in our network expansion, the investments in revenue equipment and fleet modernization have improved operating efficiency and safety while also positioning us to improve the customer experience. We have also invested heavily in technology to optimize network performance and drive operating leverage, including advanced analytics for operational profitability insights, customer-facing capabilities, employee training, and process automation. We believe that the combination of these investments strengthen our competitive position and supports sustainable value creation for shareholders. As we look to 2026, our focus remains on strengthening core execution by continuing to invest in both technology and our people. Our national network provides a complete LTL solution for our customers, and our success is defined by consistently meeting and exceeding customer expectations while generating an appropriate return for these significant investments. We believe strongly that our national network is poised to scale as macroeconomic conditions improve. By leveraging these investments, combined with our team's commitment to excellence, we expect to drive incremental improvements to our performance in 2026 even if the macro environment remains soft as it was in 2025. The network investment over the past few years reflects a considerable deployment of capital, which requires a return. Our emphasis through 2026 will be on an intense focus on ensuring that we see return on these investments. We expect to be fairly compensated for these investments as our customers benefit from the increasing scale and quality that we provide. Over time, we will need to continue to reinvest in the inflationary and capital-intensive network and find ways to continue to deploy technology to operate more efficiently. Ongoing investment will require that we are appropriately compensated to provide a return to our shareholders. With that said, we feel very strongly that our business has never been in a better position to drive value for our customers and return to our shareholders. With that said, we are now ready to open the line for questions. Operator? Operator: We will now begin the question and answer session. You may press star then 1 on your touchtone phone. Please, in the interest of time, we ask that you please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question comes from Jordan Robert Alliger with Goldman Sachs. Please go ahead. Jordan Robert Alliger: Yes. Hi, good morning. I was just wondering, can you perhaps in the context of how your monthly tonnage data has been going through the quarter and then October, and then January, how that may tie into your thoughts around sequential margin seasonality 4Q to 1Q? Thank you. Matthew J. Batteh: Sure. Hey, Jordan. I will give the monthly just so that everyone has that. So October shipments per day were down 3.4%, tonnage per day down 3.3%. November shipments per day up 2.6%, tonnage up 1.8%. December shipments up 0.6%, tonnage down 2.2%. And then when I look at January, obviously, we had some of the weather impacts that passed through, shipments per day down 2.1%, tonnage per day down 7%. But keep in mind, we have seen consistent weight per shipment for the past five or six months now, which is good to see that stability. We are comping some pretty heavy weighted shipment periods in the first quarter last year, so keep that in mind from a weight per shipment standpoint. If you remove the impacts of the storm or normalize them, shipments in January would have been slightly positive, which continues the trends that we have been seeing, so relatively in line there. From the margin standpoint, look, if you look at history, Q4 to Q1 sequentially is typically a degradation of about 30 to 50 basis points worse. If we get a normal February, normal March, we think we can outperform that and beat that, and if we get a stronger than normal March and see some of that come to fruition, we think we can even further outperform that and get below where we were last year, which really feels like we set up for a pretty good backdrop from that point. And I think that is a really important point, is that you know, we get through Q1, we have seen the macro data that is out there that has come up and has been positive, trends out there that would appear to be positive. I mean, I think this is our time, right? So this is the time where we have invested and positioned ourselves for this opportunity. And I think that you build off of what we could see in the first quarter, as Matt outlined, I think you are looking at a full-year kind of OR improvement 100 to 200 basis points. And if the market, if macro is kind of at the upper end of kind of the trends, then I think that is only better for us, right? So this is the scaling point. This is why we did this, this is the time we made the investments we have over the last number of years. And just one point, Jordan, to clarify the sequential margin, we are viewing that off of the normalized Q4, right, if you remove the one-off impacts that we called out. Just want to make that clear. Jordan Robert Alliger: Insurance? Matthew J. Batteh: That is right. Yes. Jordan Robert Alliger: Okay. Thanks very much. Operator: The next question comes from Jonathan B. Chappell with Evercore ISI. Please go ahead. Jonathan B. Chappell: Thank you. One super quick clarification. Fritz, that 100 to 200, that you just mentioned, just what is the tonnage backdrop behind that? I know it is like the ISM is not getting better, but is it positive? Is it right, etcetera. And then go ahead. Frederick J. Holzgrefe: Yes. I would just say that I am looking at the ISM data, so I am expecting that there will be some positive backdrop there, right? So in a positive backdrop, that is good for Saia, Inc. I think that if we have seen some other macro data out there that it would be positive, I think that would lead to a market in which we would see some potential tonnage growth. And if that is the case, then I think that is an opportunity for us. So I think it is more about if those things come together, this is why this is such a compelling opportunity for us. If those things do not come together, I think we are in a position where we could still improve OR, but clearly would be at the lower end of the range I described. But in a favorable backdrop, I like the opportunity. J. Bruce Chan: All right. And you said several times getting compensated appropriately. You mentioned the, or maybe Matt said the GRI acceptance was a little better than usual. Is this a year where if you get a little bit of volume tailwind and like the weight seems to be relatively consistent, you know, what type of range are we looking at for pricing yield? How do we want to measure rev per shipment type of growth this year? Matthew J. Batteh: Well, look, we are obviously, we have not been netting the renewals that we have been taking. Part of that is just volume shift in the period. But core inflation in this business is going up. We have got to be able to push take rate and part of that has been the ability to close the network gap and to provide more equal service in these markets with the national scale. That is how we think about it. The weight per shipment, obviously, is a headwind to year over year in Q1. But after that, you start to normalize a little bit more. Revenue per shipment improved 1.1% sequentially from Q3 to Q4. So we see it in the renewal number, we are focused on it, and we are not taking the day off from that even though the environment is a little bit light, we have got to get paid for it. I mean, it is year two of a national network, and we should expect price ahead of inflation. J. Bruce Chan: And Matthew J. Batteh: develop a margin on that. $2,000,000,000 of investments over the last three years serves a return. And we are focused on getting that return and being in a position to reinvest in the business over time. J. Bruce Chan: Got it. The next question comes from Christian F. Wetherbee with Wells Fargo. Please go ahead. Christian F. Wetherbee: Hey, thanks. Good morning, guys. Guess I want to ask about the new terminals open and kind of relative profitability. It sounds they did contribute positively to operating profit for the year. Can you give us a sense of where maybe the OR for those are? And then Fritz, in the context of the 100 to 200 basis point, how do we think about the contribution of the new terminals? Is that where you can get some incremental volume, you could see more material improvement in the OR there to drive towards the top end of that 100 to 200? Matthew J. Batteh: Yes. From the first part, Chris, obviously, they are a drag on the company-wide. So they range, right? We have got some that are sub-95%. We have got some that are higher than that. In aggregate, they are sort of mid to upper 90s, but a lot of these, if you think about it, they are still within, and when we opened them in 2024 for the biggest batch, those all opened early in the year. So throughout the course of last year, just eclipsed the year of these operationally, which is really something that we are pleased with and proud of. We have got room to go and obviously work to do, but they are in that range. I would add that the margin improvement is going to come from the new, they are not going to be a drag time. I would point you back to what we did in the Northeast expansion, right? We saw that as those developed, sort of maturity, we can drive incrementals in those. Frederick J. Holzgrefe: I think what is different this go around in the Northeast is that the incremental opportunities across the business. If you study our network cost stats that we described earlier, where we are able to insource and scale more of our linehaul network, that is all about building densities across a national network. Part of that is the contributions of the new facility. So I think that this is why this was such a compelling investment to make. And if we get the environment, we can accelerate that sort of performance. But I think it is great because it is going to come from both new and old, but it is going to benefit national network. Matthew J. Batteh: Okay, helpful. And we are seeing real opportunities with that, Chris, just in customer conversations. You do not always get turned on overnight to some of that business, but the level of discussions that we can have with customers, or even frankly customers that we did not have the opportunity to get in the door with, because they want simplicity, they want ease of doing business. When you have got a full national network, you get that opportunity. So to Fritz’s point, it is not just the scale on the new ones, but even though we covered some of these markets before, we are getting new opportunities because we can have those discussions at a better level of detail and do more for the customer. Christian F. Wetherbee: Helpful color. Thanks, guys. Appreciate it. Operator: The next question comes from Stephanie Moore with Jefferies. Please go ahead. Stephanie Moore: Great. Thank you so much. Maybe returning to the pricing commentary, maybe you could discuss a little bit on what you are seeing in the overall pricing environment. And also, as you think about your higher pricing capture, would you say this is more so customers starting to recognize the investments that you have made or maybe it is both? Are you being a bit more tactful with your own pricing actions? Thanks. Matthew J. Batteh: From the environment, I would say we continue our own initiatives. We do not ever take a day off from that, as the business is inflationary. We have to go get rates. So we are continuing those efforts and really pushing the envelope harder in a lot of instances. So no change from us there. Obviously, with capacity where it is for everybody, shippers have options, and they maybe were willing to move to a more regional carrier or something for a time being, but that is just a product of where we are. I would not say that is new. We have been seeing that for the past couple of years at this point with the capacity environment the way it is. But our view is that if you look at history, when the environment gets a little bit tighter from a capacity standpoint, there is a flight back to quality and a flight back to national carriers. So, not taking a day off from the pricing aspect of it. In terms of our higher capture rate, we track that very closely. We study the results of the GRI and all pricing actions really closely. I think it is a combination of two things. We are getting more granular than we have before, and we are using our analytical tools to focus on key opportunity areas for us. But I think importantly, the opening of these terminals has given us national scale, has made it harder for customers to change out. When you have got a better value proposition and you have got the opportunity to go and talk to them about what you can do for them in every market, which we have not always had the ability to do, you get more conversation points. So I think it is a combination of both. Frederick J. Holzgrefe: Yes. I would just add, and I would emphasize Matt's last point. National network, high-level consistent service, that makes that pricing discussion more palatable, right? If you are doing a great job, you come and say, look, this is the value we are creating for your supply chain, and this is what we need to do to be able to continue to support our customers' success and then continue to invest in our business. That is a continued opportunity for us. It only heightens now because of the success of the national network. Stephanie Moore: Thank you. No, that is important context. And maybe just a follow-up on the volume trends and the sequential improvement we have seen for the last couple of months. As you kind of look at what your customers are telling you or what you are seeing, do you think that it is generally more optimism, kind of like what we have seen maybe in some of the macro data points, or is this, you know, truckload capacity? How does this compare to maybe what we saw at the start of 2025? Any context on the overall demand environment would be helpful. Thanks. Matthew J. Batteh: I think it is a little bit of everything. I think it is a little bit of maybe a little bit more positive end of the year, which is good. I think there are maybe some structural market sort of influences here. But I think total, the tenor might be just a bit more positive, right? And I think that is good. Now, we will caution just by saying, look, we are seeing it and hearing it in a bit of customer conversations. I would like to see it more in volumes too, right? So, some of that will develop through the quarter. We think it will, but until we actually see it in the results, there is a potential that things could change. But overall, I would say year over year the factors would appear to be more positive. Stephanie Moore: Thank you. Operator: The next question comes from Scott Group with Wolfe Research. Please go ahead. Scott Group: Hey, thanks. Good morning. So Matt, you were going pretty quick. What was the comment about Q1, maybe it is going to improve, maybe it is not going to improve on a year-over-year basis? I just was not sure, like the two different sort of environments you were talking about, if you can just add a little bit more color, then I have a follow-up. Yeah. Matthew J. Batteh: Yes. So if you normalize for the Q4 item that we called out and use that as the anchor point, history says that Q4 to Q1 typically deteriorates 30 to 50 bps in that range. Different years, obviously. We think we can beat that, just thinking about if we get a normal rest of February, a normal March. But if March comes in a little bit more strong and we are starting to see some of this ISM data come through, whatever it may be, we think we can further outperform that and potentially get it below where Q1 operated last year. Obviously, a long way to go between here and there, but that is the distinction between the two, it would be more about March coming in a little bit stronger than what we would typically see in history. Scott Group: Okay. And then just, you know, just a couple of other things. When do you think we start to see, like, the yield or revenue per shipment trends catch up to the renewal trends? And then it sounds like you are talking a little bit more about insourcing linehaul. Like, when do you think we start to see, like, that purchase transportation line start to more meaningfully decline as a percentage of revenue? Thanks. Matthew J. Batteh: On the revenue per shipment side, I mean, keep in mind how weight per shipment impacts yield. Weight per shipment, you get a read from how that looks just with January numbers. So a headwind there from a revenue per shipment standpoint that helps yield, but then it starts to normalize a little bit more in Q2, Q3. Weight per shipment has been relatively steady for us over the past five or six months, which has been good to see. So once you start lapping some of the Q1 weight per shipment headwinds, I think we start to see that in the Q2, Q3 period. And obviously, if the environment tightens up a little bit more, you are going to see that run further and we are going to press the gas even harder on that. If you look at it from a PT standpoint, I mean, one of the things that we have talked about for a long time is just the ability to run more balanced when you have got a full nationwide network, selling in and out of more geographies, all of that. PT as a percent of total miles over for the full year of 2025 was 12.1%. If you go back to the 2021 period, that number was over 18% of miles. So we have reduced it pretty dramatically over time cost-optimally. We still feel really good about how we use PT. When you have a nationwide network, you are able to balance the network more, run more efficiently as you get more balance between your terminals. So it has come down a good bit over the years, but we still feel really good about how we use it as the network continues to scale, and certainly as volume comes back, we are going to have further opportunities around that, but we feel good about how we use it. Frederick J. Holzgrefe: Yes. I think, Scott, too, just to add, we look at that, we study more cost per shipment and total network cost per shipment. So it is not the PT line under itself, that certainly is one line, but our salaries, wages, and benefits also has internal costs in there. So we kind of look at those two combined. And so over time, we like that trend. And I think as the business scales, I think we will continue to see that improve meaningfully. Scott Group: Appreciate the time, guys. Thank you. Operator: The next question comes from Richa Harnain with Deutsche Bank. Please go ahead. Richa Harnain: Thanks, operator. Hello, good morning, gentlemen. So just a quick clarification on the January information that you said, that ex-weather shipments were up a little bit. Could you tell us what tonnage was doing ex-weather? Sorry if I missed that. And then, you know, my main question is, oh, go ahead. Go first, and then I will ask the second one. Matthew J. Batteh: Yes. Shipments would have been up a little bit and tonnage down about 4% to 4.5%. Richa Harnain: Got it. Okay. Thank you. And then you both have been talking about how the network is very, you know, poised to scale. I wanted to ask about, like, trends in cost per shipment. You know, ex those self-insurance costs bumping higher, you know, it still felt like it was higher than what we usually see sequentially per your ten-year average. I think cost per shipment was up 5.7%. Usually, we see a 4% increase Q3 to Q4. I know Q3 was a very solid cost-out quarter for you and that is part of it, you know, the base being lower. But how should we think about, like, cost going forward? Are you carrying just extra cost as a result of your network expansion? And it is going to take a more pronounced upturn to absorb all that? Maybe just, you know, talk about that and along those lines, can you mention, you know, how much excess capacity or slack you feel like you have in your system today to absorb extra volume should it come in? Thanks. Matthew J. Batteh: Yes. So if I look at the cost side of it, we do not typically look ten years back. Our business has changed so much over that period. If you look at a little bit more of a shorter period of time, Q3 to Q4 cost per shipment generally is up in a sort of 5% to 5.5% range. Keep in mind too, that includes historically we would have a wage increase impact both in Q3 and Q4. We did not have the wage increase in Q3 this year. We had it on October 1. So that is an automatic headwind of an increase in cost compared to what you would see in a historical number. So that is one piece of it. You have got volume that is down 4.3% Q3 to Q4 on just a calendar period. And you have got two fewer workdays in the period. So you have got fixed costs that are just over a shorter amount of days. And I would say even all those workdays are not real revenue days. The day after Christmas is a workday, but it is not a full volume day. So you just do not get that leverage. But if you think about that, just that piece is important on the wage increase where it would not have been in that historical number. So, obviously, we are going to always work on that. We have got room to improve, but we feel like we managed it pretty effectively if you look in line with some of those historical trends. We called out the headcount portion too. Year over year in Q4, excluding linehaul drivers, is down 6.4%. If you look at that sequentially from Q3, that is down about 2%. So we continue to match hours with volume and feel good about how we are managing it, but we cannot take a day off from that. We have to work through that all the time. And on the network standpoint, obviously, we have got excess capacity. Like Fritz said, we opened all these terminals for a reason. It was a generational opportunity for us to expand the network. We have, you know, it is going to vary by market, but I would say on a broad base, 20% to 25% excess capacity. We are prepared for an inflection. But important to note, capacity in LTL comes in a lot of different ways. It is terminals, certainly, but it is also doors, it is yard space, it is people. You are really the lowest common denominator of all of those pieces when you think about capacity. But this is why we did this. We expanded in what has turned out to be a prolonged freight cycle, but if we had it to do all over again, we would do the same thing because we feel really good about what the opportunity is for us over the long term of the business. But we feel really poised to scale when the environment gets a little bit of an— Operator: Thank you. The next question comes from Kenneth Scott Hoexter with Bank of America. Please go ahead. Kenneth Scott Hoexter: Hey, great. Good morning. Just want to clarify, you were down 7% in tons in January, one of your peers was flat. So I just want to understand what is going on in the market maybe a little bit. Were you more impacted by weather as a national carrier as they are? Is there a difference in end markets, SMB adds? Just want to understand somebody is being more aggressive in pricing versus that differential? And then in the past, I just want to take this another level, you have noted revenue per shipment ex-fuel is a good indicator for price. So a lot of discussion here on rev per shipment given that it was down year over year, and I get the weight, but you noted contracts were up 6.5% in January, accelerating from just shy of 5% in the fourth quarter. So is that demand picking up? And so thoughts on pricing is accelerating? Just maybe one on tonnage, on pricing if you can. Matthew J. Batteh: Yes. I would encourage you to look through. I mean, first of all, we are not seeing anybody on the pricing side act differently. So environment continues to remain rational, nothing different from what we have continued to see there. The tonnage comp for us, if you look at just where weight per shipment was the first three or four months of the year. That is the biggest component of this. Weight per shipment has been relatively steady, call it sort of May, June 2025 to where we are now. We are just lapping some weight per shipment comps that are much higher than that. So that is why the tonnage number is what it is for us. I would say from the peer set that you are talking about, I think weight per shipment is relatively consistent. I would have to go back and look, but that is really what the driver of that is, the higher weight per shipment comp, which continues to be a headwind in the March, April timeframe and then it starts to flatten out compared to where we are now. Frederick J. Holzgrefe: I think the only thing I would add, just on January discrete, but we have incorporated the impact of this in Matt's discussion around what we think about Q1 in total. But that weather system, listen, this is an outdoor sport. You have got to deal with weather every year. But when Dallas gets shut down, our Texas market is impacted, that is, from a relative, that is the biggest portion of our company. So that is going to have a relatively large impact on us versus maybe some of our peers. But our guys did a heck of a job rallying, getting us back in position. But when Dallas through Memphis is frozen and Texas is frozen and we are not operating, and we track that on our website, that is tough for us. But because of the great work by those teams, we recovered from that. We are back full-scale operation now. So we feel good about what the trends are for the full quarter. But January, there are a few days there that were pretty tough. Kenneth Scott Hoexter: Okay. And if I could just get one clarification, just because I have gotten some questions on the assumption for the first quarter, the OR commentary. I know you tried to answer this before, but I just want to get clarification. The tonnage that you are now assuming, I know you said it could get better. What is the base case, that 100, 200, maybe midpoint in your tonnage assumption? Matthew J. Batteh: I mean, obviously, the Q1 headwind from a weight per shipment standpoint, then it flattens out. But I think for the top end of that range, like Fritz talked about for the full year, a little bit of a shipments and tonnage lift would be embedded in that. But importantly, we still feel like we can drive improvements even if the macro environment does not give a lot of uplift and just stays similar to what it was last year. And we look at historic seasonality through the quarter from here, right? So January is tough, we have the weather. But February and March would look like our normal, typical seasonality. Kenneth Scott Hoexter: All right. Thanks, guys. Operator: The next question comes from Thomas Richard Wadewitz with UBS. Please go ahead. Thomas Richard Wadewitz: Yes, good morning. So I wanted to understand a little bit more your thoughts about flat market, flat freight market, just how you would think Saia, Inc. will perform if that is the case. Like, it would be great if ISM is right and you see a better backdrop. But, you know, what if you do not see that cyclical improvement? So in particular, do you think you will transition to shipment growth if that is the backdrop? Or would you say you just kind of, because it kind of seems like the December and January, it is hard to see outperformance versus the market or it is not as clear maybe versus what you have been going at. So how do you think about when you get beyond the tonnage headwind in 1Q, get beyond weather, what does shipment growth look like for Saia, Inc. against a, you know, flat freight market? Frederick J. Holzgrefe: Well, I think I would look back to last year and how we performed in the market, however you want to describe it, flat, soft, recessionary, whatever. Growth for us came in our developing new markets, ramping markets. I think that is going to continue into the year, into this year. I do not see any reason why that sort of level of customer acceptance would not continue. I think in our legacy markets, I think what you would see is sort of normalized, flatten out there compared to what we saw in 2025, and then it is a focus on core execution. In a flat market from here, you probably would see kind of us grinding out some share primarily because customers look at us and say, hey, that is a great product. This is a national network. This is working. We take share in that way. And we price accordingly to try to continue to get those returns. So I think it is the 2025 playbook in a flat market into 2026, but if the ISM develops like it would sort of indicate, I mean, I think that is what is exciting, right? That is where I think you could accelerate that. Do I look at December and January volume trends? I always comment or note that in the course of the year, I do not know if February, January, or December are the nine, ten, or ten, eleven, twelve most important months of the year. I do not know. I do not know that there is a huge trend in there. But I think the core underlying execution for us has been good, despite sort of the macro conditions. Thomas Richard Wadewitz: So, okay, well, I appreciate that. So, how do we think about the low end of that 100 to 200 basis points? Do you think that, does that assume some growth in revenue per hundredweight? Do you kind of get, I know you have had questions on it, but does that assume you get to two points of growth in revenue per hundredweight, something like that? And then also a little bit of shipment growth? Or what kind of revenue growth backdrop do you need to get to that low end of your OR comment? Frederick J. Holzgrefe: Listen, I think that if we get sort of a macro freight market that is growing a bit, I do not know, 1%, 2%, yes. That would be great. But at the end of the day, I am not necessarily interested in, we are not as interested in leading the league in shipment growth. This is more about focusing on generating returns. So, if the market were stronger than that, you might see more of us, more of our return coming from evolving or developing our revenue per shipment. That probably accelerates in that kind of an environment. And then we will get some growth in our new markets, we will continue to grow. So the combination of that would take us up, and that revenue piece is really going to drive the incrementals. So, I would say that in that range that we have given, we have assumed that when we talked last, back in the last quarter, we said 50 basis points of improvement into this year just in the steady state grind environment. If we get a little bit of growth into the year, can we get to 100? Absolutely. And if you get more growth and a little bit more pricing as well, then you are going to go to the upper end of that range. And if you are investing and looking at Saia, Inc., what you are focused on is, you say, well, these guys know how to monetize the capital that they have deployed in the business. That is where the incrementals really look good. And I would encourage you to consider that over time. And we can point to history, we know we have done it before. Thomas Richard Wadewitz: Okay. So you probably get some revenue to get to the low end of that 100 to 200. And obviously, if the market is stronger, you can do a lot more. Is that, sounds like— Frederick J. Holzgrefe: Absolutely. Operator: The next question comes from Brian Patrick Ossenbeck with J.P. Morgan. Please go ahead. Brian Patrick Ossenbeck: Hey, good morning. Thanks for taking the question. First, just to follow-up on the sourcing linehaul. It sounds like the network is helping with that from a density perspective. But I thought you also mentioned some technologies. So is there more of a structural benefit you are getting here from an investment? And then maybe just wanted to hear an update on the mix of the portfolio. You mentioned the weight per shipment rather headwind. West Coast exposure, you had one to two lane growth previously. So maybe just an update in terms of where we are in that. Is that still going to be part of a tougher comp from a mix perspective here, maybe in the first couple of quarters? Frederick J. Holzgrefe: Yes, Brian. So what I would point to, and I think one of the things that is always important when you consider our cost structure is to kind of reference us or compare us to our competitors. All the public guys are all larger than we are. And by and large, I think that if on an apples-to-apples basis, we have got a pretty good cost structure. And that is largely dependent on the deployment of technologies over the last few years around how we plan, schedule, and run our linehaul network. So we have never been necessarily concerned with using PT if it is cost-optimal, right? So as we have modeled the network over time, we have to use PT freely when it made sense to match our cost structure and importantly match customer expectations. So that same, we deploy that technology, that optimization technology, on a larger scale as we grow the business. And as you add 39 ramping points across the network, what you can do then is you take that same technology and figure out, all right, what is the better way to schedule and manage our sort of network costs, our linehaul and PT, and that is why the cost structure is, we feel like, pretty competitive. And although it is challenged in a seasonally soft fourth quarter, it is still pretty good overall compared to much larger competitors. So that is kind of a key skill set, technology-based solution that we deploy. We will continue to, like any technology, continue to invest in it because over time, you want to continue to improve whatever it is, the logic or algorithm that is driving those sort of decision points, you want to continue to refine and improve that. So that is something we will continue to focus on going forward, and I think it is a competitive skill set that we have. Matthew J. Batteh: From a mix standpoint, Brian, I mean, LA headwind, weight per shipment headwind, those late March, April-ish timeframe are when those start to lap. Obviously, we are down, but in the areas that are growing, it is typically a little bit more in those shorter haul segments right now. But I think part of that is just expansion of the network. You get opportunities with customers to solve more problems, but from a larger standpoint, really that LA, weight per shipment part, that recedes a little bit after the late Q1, early Q2 time period. But importantly, we are focused on driving returns on the investments and focusing on price. We have got to get paid for the service that we provide, and we have got more conversation points than we ever have with the wider network. But those are the key points on the mix portion of it. Alright. Thanks. So just to clarify, Fritz, the optimization, is it just more doing more with the same technology? Nothing really new incremental, just to a broader base with better density. Is that correct? Frederick J. Holzgrefe: Yes. I mean, that is. But I think, Brian, what is important to underscore here is that we continue to invest in that technology, right? So further refine the algorithms we use for that and the tools that we deploy with that around how we plan the network going forward. So it is not a static investment where we say, hey, two years ago we deployed this technology, we are now not making changes to it. We continue to invest in it. But that is really key for us. Brian Patrick Ossenbeck: Right. Matthew J. Batteh: Okay. Thanks for your time. Operator: The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead. Ravi Shanker: Great. Thanks. Good morning, guys. Just one follow-up to start. Just to confirm on this insurance, like is this, like, should we treat it as a one-time item, what happened in the fourth quarter? Or is this the new baseline going forward? And also then you have seen some volume shifts after you pushed through the GRI. Can you unpack it a little bit more, kind of who did that go to? Was it entirely price driven? Was it a new customer, an old one? Any further detail there would be great. Thank you. Frederick J. Holzgrefe: Yes. On the, I will just take the self-insurance and the accident expense. That is from a few years ago. Unfortunately, that was an unexpected adverse development. So it is appropriate to record reserve for that. I do not expect that to be the new run rate. Certainly do not want things coming from prior periods like that. But the reality of it is that underlying this business, accident expense is part of the business, right. So you have got to make sure, further explanation why you are going to focus on pricing and make sure you understand those things. But I would not consider that number as a run-rate item. We highlighted it simply because it was unexpected adverse from prior periods. Matthew J. Batteh: On the GRI aspect of it, you always see a little bit of volume move when you take the GRI. And part of that is temporary, where customers are trying to shift things around, try to save some dollars. We did it in what is typically a seasonally weaker period of the year. But there is always a little bit of movement around that. We feel pretty strongly that we are really well positioned as that starts to flow back, but that is not out of the norm. We typically talk about sort of keeping 80% to 85% of that. We are, on that segment of business, seeing a flow-through rate just in excess of 90%. So we feel like we are getting a better hang on to that and we feel like it is partly the network. We have got more opportunities where customers are saying, hey, Saia, Inc. is doing a great job for me in more locations than they ever have. But you always see a little bit of volume trend, but importantly, the acceptance rate is really where we are focused and we are going to continue to press on. Ravi Shanker: Sounds good. Thank you. Operator: The next question comes from Ariel Luis Rosa with Citigroup. Please go ahead. Eric Thomas Morgan: Hi, good morning. This is Ben Moore at Citi for Ari. Fritz, Matt, good to hear from you and thanks for taking our question. You previously noted not seeing meaningful restocking at retailers and curious to hear, as you are having your conversations with customers, what is the sense on restocking? Is it starting to happen? If not, what is your sense on kind of throughout the year when that might inflect? Frederick J. Holzgrefe: Yes. I do not know that we have got a specific call out for that, Ben. I think that it is what we would expect from here based on at least what the sentiment you see is that kind of maybe more normal, if you will. So I do not know that it is an accelerated level of restocking or just more of a normalized supply chain management. So I do not know that we are in the, how would I say, the sort of up-and-down time with that. I think it seems to be stabilizing a bit. So we do not see quite the volatility that we might have seen even six months ago, as people were addressing changes in their supply chain. We do not see as much of that now as we did then. Eric Thomas Morgan: Great. Really appreciate that. And maybe just as an add-on or clarification on your 20% to 25% excess capacity you mentioned earlier, you have in the past talked about maybe anticipating as much as 35% to 40% incremental margins on the excess capacity on an inflection, and kind of reaching gradually your sub-80 OR long-term target. What is your sense on that right now? Are those numbers still kind of what you have in mind, targeting perhaps maybe not 2026, but 2027 and beyond? Frederick J. Holzgrefe: Listen, a $2,000,000,000 capital investment like what we have deployed in this business, the returns that we are expecting are sub-80 OR, right? So now, when does that happen? I think the market is going to influence that, but I do not see any reason why we do not drive performance of the business in the low 80s and into the 70s. Parts of the network, even today, that have some level of maturity, we actually operate in the upper 70s now. We use that as a guidepost. We say, look, we ought to be able to do that everywhere. And that is why we made the investment. So I do not think there is any hesitation on our side to say that that cannot be achieved. Eric Thomas Morgan: Great. Thanks so much. Operator: The next question comes from Eric Thomas Morgan with Barclays. Please go ahead. Eric Thomas Morgan: I wanted to touch on salaries, wages, and benefits here in the fourth quarter. You talked about headcount being down, I think, above 5% year over year. Obviously, you had the wage increase here in October. But you would think that maybe, like, the headcount coming out and the wage increase on a year-over-year basis would offset each other. Can you talk about maybe, or just dig into the expenses in salaries, wages, and benefits line a little more? Is there anything in the fourth quarter that maybe will not repeat going forward? Or is there any reason that that could potentially be elevated? Or just add more color there would be helpful. Matthew J. Batteh: Yes. I mean, you have always got, we talked about the health insurance inflationary environment. We talked a little bit about that in the prescripted comments. If I look at headcount, excluding linehaul drivers, it is down 6.4% compared to Q4 last year and down about 2% sequentially from Q3 to Q4. But on a cost per shipment basis, which I think is where you are getting at, Reade, if you look sequentially, you have got two fewer workdays. So your fixed costs are spread out over fewer days, fewer shipments. You have got a shipment deterioration that you see in the sequential Q3, Q4 numbers. And then the days that you have shipments, they are not all full revenue days, but the fixed cost of headcount, of salaries, in a way some of the insurance items, those are all embedded in there. But we are pleased with the pace that we continue to match hours with volume. We are never going to be, that is just part of our business. You have got to match hours with volume. So I think more than anything, it is just you did not have the wage increase in Q3. We did it in Q4. So that is an automatic increase compared to if you were just kind of looking and modeling historically. But we feel like we managed it pretty effectively in what is a challenging period of the year plus with a more challenging environment. We knew what October shipments were on the last call, and that was a 23-workday month, which is the most important month. November was 18 days. So just some of those nuances and headwinds on how the calendar lines up, but we feel like we managed costs how we typically do on a headwind from a wage increase that was only in one period versus the combination of the two. And then if I could just follow-up on the previous question on capacity. Can you talk about the capacity difference in your new markets versus your legacy markets? I would assume you have a little a little more excess in your new markets as you try to build density in those. But I just want to get a feel for where the legacy markets are as well. Frederick J. Holzgrefe: Yes. I think Matt walked through this pretty well earlier, but I think you have to remember that capacity is measured by not only door count, it is yard space, it is drivers, it is equipment. In the new markets, we continue to have, and would expect to at this stage, ample capacity. We can, if things grew in those markets at a rate faster, you could easily add drivers or we could recruit drivers, add equipment, that sort of thing. In the legacy markets, we feel pretty well positioned there. When we say 20%, 25%, we are taking a whole range of assumptions and locations. Unlike maybe some of our larger, more established, mature peers. Our number is a whole range of variations. So there is not a lot of insight there that I can give you beyond to say, look, new markets, plenty of capacity, probably upwards of 50% in newer markets. Legacy a little bit less, probably around 20%. You have to weight how big are the new versus old. I do not spend a lot of time worrying about it, to be honest. Eric Thomas Morgan: Got it. Well, thanks for squeezing me in, guys. Operator: Next question comes from Jason H. Seidl with TD Cowen. Please go ahead. Jason H. Seidl: Thank you, operator. Hey Fritz, Matt. If we look at these 39 terminals, and by the way, it is great to see them turning profit now. How should we think about the walk to sort of an average legacy profitability? So if we assume normalized economic environment and a rational LTL pricing environment, how many years do these terminals walk up to the average? Matthew J. Batteh: Well, there is a wide range in, obviously, in that 39. You have got the Garland, Texas facility that is more meaningful than some of the smaller ones just in terms of freight environment and magnitude. Historically, we think about these on sort of a three-ish year time horizon to get towards company average. Now, the comment that you made was on a better macro. In a better macro backdrop, we want to get there faster. Yes. Normal, we think about it in a three-year time horizon. We have got some of these that are already operating below the company number. I mean, it is not all of them, it is a minority, certainly only a couple of them, but that is good to see in the scale impact of it. But typically, think about them on a three-year time horizon, and if the macro gives us a little bit of an uplift and it is a bit of a recovery scenario, you think about what Fritz just said in the previous question around excess capacity, well, you have fixed costs that are just associated with running these terminals. And, obviously, you have got variable costs in there as well. But the fixed costs are going to scale even more so in an uplift environment. That is what gets us so excited about this. In a volume uplift environment, you are not having to add costs at a one-for-one level. We can scale the investments that we have made. They are not for the results in these terminals in the next three months or six. It is three-, five-, ten-year investments that we are making in these. But that means that there are fixed costs embedded in those and inefficiencies that are not in some of the markets that have been open for much longer. So we get really excited about the opportunity to scale just because we are the only one that has opened this many new terminals in a short period of time. It is the right long-term move, but it really sets us up to take advantage in a bit of a better macro. Jason H. Seidl: Right. No. That makes sense. And just a quick follow-up on the insurance side. Given sort of the rise that we have seen in sort of the mini nuclear verdict that has been more recently, any thought given to maybe upping your self-insurance level going forward? Matthew J. Batteh: We are always looking at unique ways and conversations around our insurance tower. We factor in a lot of different things as we are going through those negotiations and the renewals. I think very important, we invest, and we have said this for a long period of time, we invest and will continue to invest in every piece of safety technology. Best-in-class equipment with all safety technology on it. So never going to take a break from that, but the environment is inflationary. I mean, you hear everybody talk about that. So the best way to prevent that is to have fewer incidences, and we are pleased with the progress we have made this year. So we have a pretty wide-ranging discussion every time on the insurance renewal side. We take it, there is no stone unturned when we are talking about those things. Frederick J. Holzgrefe: And I would challenge, we would say it likely has, if not the top safety feature set fleet, as anybody in the business. I mean, we have never cut corners on that. Driver-facing, forward-facing cameras, all the mitigation technology onboard, training to support that. That is important to us. The most important thing we can do around safety is keep our drivers safe, get them home safely. That is how you save on insurance. Get people back home safe, back to work tomorrow safe. Jason H. Seidl: Appreciate the time as always, guys. Operator: The next question comes from Eric Thomas Morgan with Barclays. Please go ahead. Eric Thomas Morgan: Hey, good morning. Thanks for taking my question. Just wanted to follow-up on the last one on insurance. I know you said we should not be including the prior period developments in the run rate. So just want to clarify if we, I mean, if we back out the $4.7 from the quarter, I think insurance costs would have come down sequentially a healthy amount to like $20,000,000. So just want to double check if that $20,000,000 or so is the run rate you are thinking going forward. And if so, what is kind of driving that sequential improvement? I know you have mentioned claims ratio improved there. So not sure if that is a factor as well. Thanks. Matthew J. Batteh: Yes. The math you did, Eric, is right on the impact of that. So that would point to us having, and what was embedded in our guide, obviously, a pretty good quarter from an experience standpoint. I think you have got to use a longer-term average, certainly, when you are thinking about it from a modeling standpoint. You will look in our history and you will see pluses and minuses and just how that moves throughout the year. The environment is going to continue to be inflationary. But I think importantly, as Fritz noted a second ago, we spent a lot of time, and will continue to, on the training, and we are seeing it in our results, and we continue to. Preventable accidents down 21% compared to the prior year, and that was embedded in some of that Q4 look. But I think you have got to use a longer-term average. These discrete ones are not part of the run rate moving forward. But that line continues to be inflationary. I think it is fair to use more of a longer-term average with some inflation on top of it. Frederick J. Holzgrefe: And then when we build in our guides, you know, we think about what our improvements are, that is assuming what we understand to be about sort of a normal case development, right? The handful that we described, that we called out here, were extraordinary in the sense that the tail on them, but when we think about the guide, appreciate that that is an inflationary line. So we try to include that in that analysis, and that would include some development of cases that have happened over time. So Matt's description around looking at that over time is important. Eric Thomas Morgan: Thanks for the time. Operator: The next question comes from Harrison Bauer with Susquehanna. Please go ahead. Harrison Bauer: Great. Thanks for taking my question and squeezing me in here. Matt, building off some of your thoughts on fixed versus variable cost, some of your peers have offered what their view is on incremental margins in the early stages of a growing tonnage environment. Considering you have similarly invested heavily into your network with ample capacity, and as you get this network running, can you share what your view is on incremental margins in your business before you would have to invest materially in more capacity? If that is drastically different from the 40% plus that your peers have described? Thank you. Matthew J. Batteh: No. I mean, look, this is, to Fritz’s earlier point, this is why we did this. And we do have these costs that are associated with opening 39 terminals over the past three or so years. But we feel really poised to scale out of that. There is no reason, I mean, we think about those same types of numbers in a slight uptick environment, and then certainly if it escalates further, a 30%, 40% incremental margin number. And you will see that probably in excess of that in some of these markets that are relatively new because you are not adding costs at the same pace as what the volume and the revenue is coming in, which is part of having a national network and part of why we scaled, and history proves that point. If you go look at the execution and the incremental margins post the Northeast expansion, that is exactly what we saw and there is nothing that stops us from getting to that point. So that is exactly how we think about it. And if the environment runs a little bit further or faster, the capacity environment tightens, we feel like we can outperform that. But that is absolutely the types of numbers that we think about. Harrison Bauer: Thanks. Operator: This concludes our question and answer session. I would like to turn the conference back over to Frederick J. Holzgrefe, Saia, Inc.’s President and Chief Executive Officer, for any closing remarks. Matthew J. Batteh: Betsy, it looks like one more person popped in the queue. Could we answer? Can we get Tyler? Operator: My apologies. The next question comes from Tyler Brown with Raymond James. Please go ahead. Tyler Brown: Hey. Thanks, guys. Thanks for squeezing me in. Just had a couple quick ones. So Fritz, I think you talked about your $2,000,000,000 investment that was obviously largely on real estate. I think you just gave CapEx guide of $350,000,000 to $400,000,000. But, Matt, where would you peg maintenance CapEx, and is this year's CapEx largely just fleet and fleet catch-up? Matthew J. Batteh: There was a lot, obviously, in real estate over that period, but there is also a big investment in equipment over the past couple of years. If you look at the past couple of years, the biggest tractor investment in company history, the biggest trailer investment in company history. A lot of that was to catch up with all the volume growth over the past several years. So it is a lot of real estate, but it is also a lot of equipment as well in that period. From a maintenance CapEx standpoint, I mean, that is really what this year is from an equipment standpoint, is maintenance CapEx. Obviously, volumes are a little bit down compared to where we expected them to be when we walked into 2025. So we feel really good about the equipment pool. That is inflationary, just like every other line of our business, but from an equipment side, it is really a maintenance issue this year for sure. Tyler Brown: Okay. So it feels that you guys will be still cash generative. You should have solid free cash. So your leverage is very manageable. M&A probably is not a story, and clearly, Fritz, you see a ton of upside. So does there come a point that you guys will contemplate additional shareholder returns? I mean, maybe through a buyback, or will you guys hold capital back for another CapEx cycle down the road? But how do you guys think about that over the next couple of years? Thanks. Frederick J. Holzgrefe: So I would say all those things are in play, right? So first of all, we understand and respect the fact we are stewards of the shareholders' capital. So as this business generates returns, we will consider buybacks, dividends, whatever that might be. But that is important, right, because this is a business that we expect to generate a return. At the same time, I think that we are going to have to balance that with opportunities that will be presented to us as the market adjusts, as terminals become available in markets that we do not necessarily service as well as we would like to. We have got 212, 213 facilities right now nationwide, and I think that that potentially goes to 230. And I think that potentially there are some markets where we may have to build. There could be other markets where I think we are going to be able to find available real estate. So we are going to have to balance the deployment of capital in that way. I think the way to think about that, though, is obviously we are going to be stewards first and foremost. To the extent the investment opportunities present themselves, those are going to be accretive from a return on invested capital as well. So that would further fund shareholder returns in future years, because I think there is a lot of growth potential in this business still. So we are excited about that opportunity. Matthew J. Batteh: I think it is important to add to that, Tyler, too, the point you made at the beginning of being free cash flow generative this year is a big deal. That is what we expect to be. Operator: This concludes our question and answer session. I would like to turn the conference back over to Frederick J. Holzgrefe, Saia, Inc.’s President and Chief Executive Officer, for any closing remarks. Frederick J. Holzgrefe: Thank you, operator, and thanks to all that have called in. At Saia, Inc., we believe that our value proposition to the customer continues to be significant. We look forward to talking about success we will achieve in the quarters and years to come. Thanks all for the time. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone, and welcome to today's Corebridge Financial Fourth Quarter 2025 Earnings Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand over to Isil Muderrisoglu to begin the call. Isil Muderrisoglu: Good morning, everyone, and welcome to Corebridge Financial's Earnings Update for the Fourth Quarter and Full Year 2025. Joining me on the call are Marc Costantini, President and Chief Executive Officer; and Elias Habayeb, Chief Financial Officer. We will begin with prepared remarks by Marc and Elias, and then we will take your questions. Today's comments may contain forward-looking statements, which are subject to risks and uncertainties. These statements are not guarantees of future performance or events and are based upon management's current expectations and assumptions. Corebridge's filings with the SEC provide details on important factors that may cause actual results or events to differ materially from those expressed or implied by such forward-looking statements. Except as required by the applicable securities laws, Corebridge is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change, and you are cautioned to not place undue reliance on any forward-looking statements. Additionally, today's remarks may refer to non-GAAP financial measures. The reconciliation of such measures to the most comparable GAAP figures is included in our earnings release, financial supplement and earnings presentation, all of which are available at our website at investors.corebridgefinancial.com. With that, I would now like to turn the call over to Marc and Elias for their prepared remarks. Marc? Marc Costantini: Good morning, and thanks for joining us. I want to begin by recognizing Kevin Hogan, who led this business for more than a decade, executed Corebridge's successful launch as a stand-alone company and established a solid foundation for future growth. His help through the transition was invaluable and demonstrated a hallmark of his leadership style. His unwavering commitment to the success of his colleagues and company. For me, it's a tremendous honor to lead this great franchise with its noble purpose. Customer needs have never been greater for financial protection, wealth accumulation and retirements with dignity and confidence. And that means our opportunity to create value for customers and shareholders alike has never been greater. In my remarks this morning, I'd like to recap the company's 2025 performance through a strategic lens and share my early impressions of the company's strengths and opportunities. Then I'll turn it over to Elias for additional color on both our fourth quarter results and the company's 2026 outlook. Corebridge had a strong year in 2025. Earnings per share were up 4% year-over-year. Return on average equity was up 20 basis points and capital returned to our shareholders was up 13%. To create long-term value for our shareholders in our industry, we must demonstrate an ability to grow profitably and generate consistent and growing cash flows from the insurance companies, while preserving balance sheet strength. Corebridge did all 3. Our growth in 2025 was strong with sales up 4% to a record $42 billion. We launched our RILA product, Market Lock in a crowded field and quickly joined the top 10 providers. In fact, we are the only company to have a top 10 position across every major annuity product category. Market Lock is now available through more than 200 distribution partners across the United States and we expect continued growth in 2026. Our diverse businesses at Corebridge give us flexibility to adjust our capital allocation between our different offerings based on where risk-adjusted returns are the highest and customer demand is the strongest. An example of that is the higher allocation to our institutional markets business in 2025. We grew institutional market sales by 24% overall led by pension risk transfers and guaranteed investment contracts to drive both current and future earnings growth. Proactively managing our balance sheet and maintaining financial flexibility are foundational to Corporate. In 2025, Corebridge executed the industry's largest variable annuity reinsurance transaction to date the final portions of which closed last month. The transaction derisked the company's most complex liabilities. And going forward, our legacy liabilities comprised approximately 1% of the balance sheet. In addition, we finished the year with a Life Fleet RBC ratio above 430% and holding company liquidity of $2.3 billion, both exceeding our targets. Finally, we continue to expand our Bermuda strategy where we have ceded approximately $20 billion of reserves to date providing critical financial optionality that help Corebridge deliver on its financial and strategic goals. Disciplined execution of these levers is essential to driving shareholder value and ensuring resilient cash flows. As promised, the company is returning the substantial majority of the proceeds from the VA reinsurance transaction to shareholders in the form of share repurchases, which helped lift our 2025 payout ratio to 110%. Excluding the VA reinsurance transaction proceeds, we grew our insurance company dividends to the parent by 6% year-over-year, in line with our guidance, reflecting our continued confidence in our financial flexibility, we are pleased to report that our Board of Directors has approved a 4% increase in our [ Cove ] common stock dividend to $0.25 per share, above the pace of inflation. As Elias will discuss further, we've also taken action to reduce our sensitivity to short-term interest rate movements down nearly 75% since mid-2024. At the 10-week mark in my tenure as CEO, I want to provide some initial thoughts on the business. The 4 strategic pillars that have guided Corebridge for the past few years remain a useful lens to view the company's prospects. Although I am adding a fifth call win with customers. As I've told the team, my focus on delivering a superior customer value proposition could not be stronger. Everything from ongoing product innovation to industry-leading service to a seamless end-to-end digital experience. As I look at our key strengths and opportunities, I'll begin with the powerful demographic tailwinds that are driving strong customer demand for retirement solutions. Corebridge is well positioned to meet these needs. I believe our vast distribution network provides us with a clear competitive advantage. The average relationship with our top 25 partners is a quarter century long and more than 40% of the annuity sales came from products that have bespoke features tailored for each specific distributor. With many partners, not only are they one of our top distributors, but we are one of their top manufacturers commanding significant shelf space. I've competed against this distribution powerhouse in the past, and I can tell you how hard it is to replicate. Furthermore, our diversified business model is a proven source of strength. Our breadth of product and service offerings helps provide more stability to our financial results, allowing us to allocate capital to where returns are the most attractive and demand is the strongest. I also believe Corebridge has an underappreciated critical differentiator that supports growth. Some companies in our space are liability-driven, designing products and then searching for assets to support them. Others are asset-driven originating attractive opportunities and then finding suitable liabilities. Corebridge excels at both. Another strength is our Bermuda strategy. It is an important lever for growth, profitability and capital efficiency, and we will continue to take full advantage of it. One area of opportunity is fee-based earnings. We plan to grow them faster to achieve better balance across our sources of earnings. In Group Retirement, for example, there is a tremendous potential to grow Wealth Management by capturing more IRA rollovers and consolidating household assets. We have a captive opportunity within and out of plan clients to further expand and deepen our relationship. We believe this alone represents a $30 billion opportunity. But we have some work to do. We are actively investing to significantly enhanced customer experience adding more advisers and upgrading our digital wealth management capabilities. Collectively, we believe these investments will improve retention levels and grow our wealth management business. I also believe we are striking the right balance between returning capital to shareholders and investing for growth. Our 60% to 65% payout ratio rewards shareholders with cash to date while our reinvestment in the business reward shareholders with cash in the future. Both are important. Since the IPO, the company has successfully reduced expenses with the Corebridge Forward program. which is a testament to the work the team has done to get ready to compete as a stand-alone entity. Going forward, I believe Corebridge must do 2 things at once: deliver continuous improvement in our operating leverage while also making strategic investments to drive faster growth. We need to invest more to accelerate the pace of digitization, which is essential to improving our productivity as well as our distribution partners and customers' experience. The easier we are to do business with the greater the share market we can capture from the demographic surge fueling growth in our industry, all of which adds up to my most important early impression. The significant opportunity Corebridge has to grow faster and more profitably. As we further differentiate our customer value proposition and more fully capitalize on our world-class distribution we will continue to create sustained shareholder value. In closing, I joined Corebridge because I believe in this franchise and believe we are capable of more than we've ever achieved before. We have a huge opportunity in front of us. We have hard to replicate competitive advantages, and we have a world-class team ready to show what they can do. Finally, as this is his last earnings call, I want to express my heartfelt thanks to Elias. He is an excellent CFO who helped me get under the hood and quickly understand all the moving parts at Corebridge. I wish him all the best in his next chapter. Elias? Elias Habayeb: Thank you, Marc. Turning to Slide 5. Corebridge delivered another quarter with strong financial performance driven by the strategic pillars we have consistently executed on since the IPO. We reported adjusted pretax operating income of $760 million or operating EPS of $1.22, representing a 15% year-over-year increase. This quarter's operating EPS included $0.10 of notable items and $0.07 from alternative investment returns driven by underperformance in real estate equity. Adjusting for these 2 items, our run rate operating EPS was $1.19, which represents a 7% year-over-year increase. Finally, our adjusted ROE was 12.5%, an increase of 140 basis points from the fourth quarter of 2024 and consistent with our goal of 12% to 14%. Turning to Slide 6. Our core sources of income, excluding notable items, were up 1% year-over-year, driven by improved spread and fee income partially offset by lower underwriting margins. Fee income, which makes up approximately 20% of our core income sources improved by 9%, driven by increased product fees and growth in assets under management and administration, benefiting primarily from favorable market conditions. Base spread income grew 4%, driven by strong sales and general account net flows robust asset origination and effective portfolio management capabilities. Lastly, underwriting margin, excluding VII and notable items, decreased 10% year-over-year due to lower mortality gains. Our broad suite of retirement and protection offerings allow for the generation of resilient and growing distributable cash flows across a variety of market conditions, which would not have been possible had we been dependent on a single product or channel. Turning to Slide 7. Full year 2025 capital return totaled $2.6 billion, including $1.2 billion in the fourth quarter alone. This brings our annual payout ratio to 110% or 75% when excluding the VA reinsurance proceeds. We concluded the year with holding company liquidity exceeding $2.3 billion, supported by $1.3 billion in distributions from our U.S. insurance subsidiaries in the fourth quarter. Next, I'll briefly review a few highlights from each of our businesses, the details of which can be found in the appendix to our earnings presentation. As a reminder, results exclude the impact of VII and notable items were applicable. In Individual Retirement, [ APTI ] increased 3% year-over-year. This was driven by an increase in both spread and fee income, partially offset by higher [ DAC ] and non-deferrable commissions due to continued growth in the business. The Fed rate cuts in 2025 contributed to the 6 basis points compression in base spreads. Excluding the impact of the rate cuts, the base spread compression in the quarter was marginal. More importantly, base spread income increased both year-over-year and sequentially, even with the earn-in of the Fed rate cuts, thanks to continued strong demand for our products. Fourth quarter sales were $4.3 billion. While this reflects some softening due to our pricing discipline and typical year-end seasonality our full year sales remained strong at $20.6 billion. Net flows for the quarter remained positive at over $600 million supported by our successful RILA launch, which generated full year sales of $1.9 billion. Surrender activity in the quarter was in line with expectations. Turning to Group Retirement. We continue to see a natural evolution of the business as we adapt to our customers nearing peak retirement age. This key demographic change is driving a purposeful mix shift from spread to fee income, which requires less capital. Accordingly, [ APTI ] decreased 1% year-over-year, reflecting lower base spread income from this demographic evolution. This is partially offset by growth in fee income, which increased 2% year-over-year. Sales were up 13% year-over-year due to the growth of our RILA products and our out-of-plan offering. Finally, expenses were slightly elevated this quarter due to a modest litigation reserve. In Life Insurance, [ APTI ] declined 30% year-over-year, primarily due to lower underwriting margins. While mortality experience was favorable this quarter, it was less pronounced than the meaningfully more favorable results we saw last year. On a run rate basis, this quarter results were consistent with our prior guidance of approximately $110 million to $120 million per quarter other than the first quarter of each year where mortality experience is the highest. Turning to Institutional Markets. Total [ APTI ] was up 8% year-over-year with full year earnings up 19% from 2024 levels. There has been significant growth across the business, where reserves grew by 23% year-over-year driven by attractive opportunities in pension risk transfer transactions and GICs. This demonstrates the strength of our business model as we opportunistically allocated capital to where we saw the highest relative risk-adjusted returns. Lastly, I want to provide additional details regarding our outlook as we enter 2026. We remain committed to delivering on our financial targets, and this reflects our confidence in the strength of the business and its financial performance for the year ahead. We expect to grow our total sources of income for the year on the strength of our favorable demographic trends, a competitive and diverse product suite and industry-leading distribution. While our retirement businesses base spread income will face some pressure from additional Fed rate cuts. That sensitivity is dramatically reduced, as Marc noted. Specifically, an additional 25 basis points reduction in SOFR will impact operating earnings by $20 million to $25 million on a go-forward basis. The impact would have been $45 million as of last September. Consistent with prior guidance, we estimate that the base spread compression in Individual Retirement should level off by the end of 2026 based on the latest market outlook assuming 2 Fed rate cuts in 2026, our current net flows projection and investment plans. We also estimate that overall base spread income for the Individual Retirement business will be in the ZIP code of $2.55 billion for 2026. In addition, we expect alternative investment returns to be more in line with our long-term expectations though we do see some softness in the first quarter from lower real estate equity returns. Next, as Marc mentioned earlier, we see the opportunity to make strategic investments to drive faster growth. Specifically, investing in digitization and broadening our internal capabilities to improve customer and distribution partner experience. Accordingly, in 2026, we expect the ratio of our operating expenses to normalize run rate revenues to remain consistent with 2025. This reflects modest growth in our operating expenses in the near term approximately 4% to 5% or $60 million in operating GOE before the full benefits of these strategic investments begin to be realized. Lastly, our disciplined and proactive balance sheet management has enabled Corebridge to pursue profitable growth while delivering on financial and capital management goals. We've been very disciplined in our buyback program, accelerating our share repurchases to take advantage of dislocations in the market. In the first half of 2026, we expect approximately $900 million worth of share repurchases associated with the VA reinsurance transaction, an amount that's above our normal 60% to 65% payout ratio. As a reminder, our 2026 EPS growth rate will be impacted as we have yet to fully deploy these proceeds. Accounting for all these varying drivers, I want to reiterate that we expect to meet our key financial targets for adjusted ROE, capital return and run rate EPS growth, though at the lower end of our targeted range of 10% to 15%. We believe the underlying fundamentals of our business remain not only strong but compelling. Looking forward, as we further differentiate our customer value proposition, and more fully capitalized on our world-class distribution, we believe we will continue to create sustained shareholder value and deliver on our key financial targets. Finally, as this is my final call as Corebridge's CFO, I want to thank my colleagues who have been great partners in this amazing journey that began for me in 2021. I'm very proud of everything that we have accomplished, and I'm equally excited for what the future holds for Corebridge under Marc's leadership as the company embarks on the next chapter of its story. And with that, I will turn the call back to Isil. Isil Muderrisoglu: Thank you, Elias. As a reminder, please limit yourselves to 1 question and 1 follow-up. Operator, we are now ready to begin the Q&A portion of the call. Operator: [Operator Instructions] The first question is from Suneet Kamath with Jefferies. Suneet Kamath: Elias best of luck in your new role. The first question is on the SOFR sensitivity. I guess, how are you able to reduce that so significantly? I would imagine there's got to be some give up somewhere. So just curious on how you're able to do that. Elias Habayeb: Suneet, it's Elias. Thank you. On the SOFR sensitivity, listen, our investment strategy is liability-driven. And we manage the ALM profile of the balance sheet very tightly. As we've disclosed in the past, we had some macro hedges. We were able, over the course to adjust the investment allocation, which gave us the flexibility to reduce these macro hedges, and that's what kind of reduced our sensitivity. So we were able to better align the ALM profile with assets and we didn't need the derivatives anymore. Suneet Kamath: Okay. Understood. And then, I guess for Marc, in your prepared remarks, you spent some time talking about investment spending. Should we view the incremental $60 million that you're talking about for 2026 as sort of the go-forward annual amount of spending that you're going to do? Or are you thinking about something that could be bigger than that? Marc Costantini: Yes. Thank you, Suneet, and thanks for your question, and it's great to be on this call, and I appreciate all the interest and attention from all of you on the call, and I know it's my first and I look forward to many. So to answer your question, when I start at the macro level and say operating leverage is very important for us. And Underlying all of our work we do here, we will continue to drive operating leverage to growth in our franchise and our business. So that will always be one of the fundamental objectives, which you'll see and as has been demonstrated by this firm over the last number of years, we are driving operating leverage. Having said so, to your point, we need to invest in our business. And I mentioned in my remarks that winning with customers is very important, right? And then that starts and stops as well with the delivery to our distribution to the end consumer, which we need to further digitize. And those investments are spread across the firm to achieve that and continue to obviously put Corebridge at the forefront of delivering customer value. So as we look at the outlook, I would say we'll continue to invest there. And the ZIP code of investment you're looking at is right now, what we're forecasting for 2026. But I would take away that the operating leverage will continue to be driven to our franchise. Operator: Next question is from John Barnidge with Piper Sandler. John Barnidge: Good morning. Thanks for the opportunity. My first question, can you talk about the PRT volume, it was a real active quarter. What's your outlook for that for the year? And how do you think about operating globally in that market? Marc Costantini: John, it's Marc. Thanks for the question. So I would say our institutional management business, as Elias gave the details, it's grown by over 24% in 2025. And obviously, that was on the back of a growing PRT franchise and a growing GIC franchise amongst other things as well as some of our balance sheet products. One of the key things that as well Elias mentioned is the judicious capital allocation around the franchise to the highest return businesses we have and that was manifested obviously results of our institutional management business. Credit to that team, we do look primarily obviously in the U.S. and in the U.K. for opportunities in the PRT business, and we came across some attractive ones in 2025. That business, by its nature, is lumpy, right? So it will go up and down, but we feel we have a value proposition that's differentiated in the market, and we continue to be quite optimistic about its future. So we do see some bright lights as we look forward in that business. Elias Habayeb: And John, if I may add, if you look at pension plans still, they're overfunded. So when we think about the opportunity, there's a meaningful opportunity for continued corporate balance sheet derisking. John Barnidge: And my follow-up question. Can you maybe talk about your exposure to software and investment portfolio. And then maybe as it relates to the real estate footprint exposure to that asset class, I don't know, software as well. Marc Costantini: Yes, I'll start, John, and then I'll pass it to Elias for some more detailed kind of -- at a high level, I would say we're not worried about our software exposure, and that's the main takeaway. And that's driven by, obviously, how we look at concentration to names, how we look at concentration to segments and how we look to concentration to industries and make sure we have a diversified balance sheet across all sectors. So our exposure there is not very big, and Elias is going to give you details here. Elias Habayeb: John. On the software side, listen, from a direct exposure side, we got $1 billion in our public credit side, and that's mostly to the likes of more Microsoft and Oracle. And then we have about $350 million within our direct lending book, which to us, when you think of a balance sheet, over $250 billion, it's de minimis. On the real estate side, to clarify, I'm assuming you're asking about data centers. John Barnidge: Yes. Elias Habayeb: Yes. On the data center side, we do invest in debt backed by data centers. We're very selective in where we invested. It's typically associated with hyperscalers, and we make sure the debt matures before the leases on those property mature. And that's kind of important from an underwriting perspective. So again, we feel very comfortable with that exposure. Operator: Our next question is from Alex Scott with Barclays. Taylor Scott: First one I had is on Group Retirement. I heard the -- a little bit more detailed outlook that you gave for spread in Individual. And I thought maybe I'd ask the same question of Group, that's a spot we're just been a fair amount of spread compression and there's some offsetting, I guess, fee growth over time. But I just wanted to understand how that dynamic will look in '26 and what to expect. Marc Costantini: Alex, it's Marc. Thanks for the question. Maybe I'll start a bit as a view of the business. Our Group Retirement business is an important segment for us. Obviously, it's a source of diversification for us. It's a first source of diversification in a few respects. One of them is distribution related. And as you'll find out as we have these discussions, distribution is very important to me and the firm. And this gives us access to different distribution, the different access to the customer to, obviously, the record-keeping platform. But more importantly, as we pivot the business, which is implicit in your question, the Wealth Management aspect, right, and we're cross-selling and off-selling into those plans. I mentioned in my remarks, we have upwards of 1.5 million plus in-force participants. We have 250,000 or so out of plan participants, and we're growing that out of plan kind of value proposition, which is fee-based, right, which is important to our future as well as we try to balance, obviously, the revenue profile of the firm. So -- but the business is in transition, right? And it's in transition from spread business to fee business and that takes some time. We think there's another 12 to 24 months in that transition while we hit the trough there in terms of overall revenue, and then we'll start to increase. So that's how we view the business, but we're still very -- an important component of our firm, and it's one that we want to see continue growing. Taylor Scott: Got it. Helpful. Second one I have to you is on the broader competitive landscape for Individual Retirement. Could you comment just on the adequacy of the IRRs and prices you're able to get right now, how you're viewing the market and willingness to kind of go bigger with growth over the next few years? Marc Costantini: Yes. So a very good question. Thank you. I'll say that I've been in this business for 35, 36 years, and you always have competitive pressures, and it's a very competitive segment. But we have tailwinds. As an industry, obviously, there's a retirement need as [indiscernible] we meet. So I think there will be growth overall, and that's what creates a competitive interest. Obviously, the interest rate cycle over the last few years and as well, obviously, the spread environment, the corporate spread and credit spread environment has tightened, and that's created some additional pressures, as you mentioned here. But we have something that very few others have to rely on, which is incredible distribution. And as I mentioned in my remarks, we're a top quartile across many firms. We've obviously introduced this RILA product over last year and very quickly became a top 10 provider. As we launched that product, we had the ambition of being a top 5 player, which is where we are across all our product lines. And as I mentioned to the prior question as well, we have this availability of kind of moving our capital around where we see the highest IRR. So while we're very responsive to the rate environment, and that causes us to obviously course correct our pricing on our fixed annuities we do obviously have the opportunity to deploy it elsewhere in the IM side. But yes, there is competition on the retail side, but we're not adverse to the competition. And we offer as well some income benefits and living benefits that perhaps not everybody else does. So we have value proposition that's differentiated on the main, on the whole, like we feel comfortable with the risk return profile of our business. Operator: Our next question is from Yaron Kinar from Mizuho. Yaron Kinar: Thank you. So I'm trying to think through the longer-term 10% to 15% EPS growth target. Is the idea that the boost from the excess capital deployment from the VA deal will be ultimately replaced by accelerating sales and deposit growth through that new fifth pillar that you introduced, Marc? And would that also mean that 2027 and '8 may actually be transition years with less EPS growth as that this pillar is still ramping up? Marc Costantini: Yes. Thank you, Yaron. I appreciate the question. I guess I want to say we provided guidance, and obviously, Elias [indiscernible] on it. And I think as we look at 2026, and we look at obviously what the interest rate cycle has done and what credit spreads have done, that's working its way through 2026. And we feel that at the end of '26 and going into '27, obviously, we'll have a turnaround there. So our guidance is obviously in the lower half for 2026 of our of our stated objectives. But as we turn to 2027, I would look at 2027 guidance to be in the upper half of our guidance as opposed to the lower half in 2026. And that's how I would see and obviously, that would bleed into 2028 and beyond. Yaron Kinar: And is that driven by that fifth pillar? Or is that more from the kind of the residual impact of the buybacks in '26? Marc Costantini: I would say it's a combination of everything we do. So it's the growth and penetration across all of our business segments and as well, obviously, our commitment to the free cash flow generation and the return to our shareholders. So it's a combination of the 2 that's going to drive that growth. Yaron Kinar: Got it. And then my second question, can you size the 2 planned departures that are expected for the second and third quarter? Elias Habayeb: Yaron, it's Elias. I don't have those exactly in front of me, but I think in total, they're in the $2 billion to $3 billion range across the board. Yaron Kinar: Got it. Good luck Elias with your transition. Operator: Our next question is from Tom Gallagher with Evercore ISI. Please go ahead. Thomas Gallagher: Good morning. Elias, good luck. Marc, welcome. The I guess, Marc, first question I had for you, I was listening to your prepared remarks and other comments you've made. And you seem to be describing Corebridge as having a competitive moat on the distribution side. And I think you referenced 40% of annuity sales having some bespoke and tailored products for specific distribution. Anyway, I think the investor perception on Corebridge is that you're selling a commodity product in an increasingly crowded field with alt managers muscling their way in. So clearly, your view, and you've been in this industry a very long time through different roles is very different than, I think, the common perception. What would you say -- what gives you the confidence that your view is the right view? I don't know if there's -- maybe which is that point you made, but is there anything you could say to demonstrate or disprove that commodity perception? Marc Costantini: Yes, Tom. Thanks for the question. And appreciate it. So I think there's 2 things we have to do to counter the effect of the competitive forces. And it's driven by winning with customers, which to me means being the easiest company to do business with. And we have to strive to be the easiest company to do business with because that will give you an avenue of growth and revenue growth that will not be completely based on that commodity pricing you're referring to. The second one is you need a distribution powerhouse to touch that ultimate customers to advisers, brokers, financial planners and the like. So -- and we feel and I feel strongly that we have that differentiated value proposition on the distribution side. And we are building the platform to be the easiest company to do business. We're on a combination of the 2 will allow you to compete effectively and print the target margins we seek to provide in our business, and that's how we're going to approach it. And as well, one of the comments I made is tied to the fact that we have liability-driven expertise, and we have assets driven expertise and not every company has that, and we feel that provides us a competitive advantage to take some thoughtful, I would say, biometric insurance grids to combine it with the asset risk. And some of our competitors, not all of them are comfortable taking all those risks, but we're comfortable and we've proven our ability to manage through those risks through time. So that's what -- that's why I feel we are different. Thomas Gallagher: Got you. And for my follow-up, Elias, just question on -- I know you raised what was a fairly expensive $500 million preferred in 4Q. And I think the proceeds are largely going to Bermuda to fund capital needs there. How do -- how should we think about cash flow capital generation for the next few years? I mean, on one hand, it looks like maybe you've paid upfront for the cost of some capital optimization strategy. And so I guess the reason I'm asking all of that is I'm just wondering because now we have to factor in the cost of that preferred, but are you going to get a benefit on that on the back end here where maybe free cash flow conversion is a bit better than the 60% to 65%. Elias Habayeb: So Tom, the way I look at it is like, listen, if you look at 2026, and 2025 and '26 given the VA deal, we've distributed a lot of capital out of our U.S. companies, and we're using most of it to return back to shareholders in the form of share repurchases. And kind of we're being mindful of the kind of what we do with the U.S. companies. What the preferred security does. And I don't look at it necessarily it's very expensive, I look at it as to what's the opportunity that we use that capital for. And if you look at the IRRs where we're selling new business at, it's accretive. And so that takes care of Bermuda for 2026 from our strategy there. We grew putting aside the proceeds from the VA deal, dividends from the insurance companies by 6% and '25 relative to '26 that's consistent with the guidance we gave you. I think that's a good guidance to think about for '26 also. And we're confident, like, listen, as we grow our business and the denominator grows, we're going to deliver on the 60% to 65% organically and with the denominator growing, that means we're returning more cash every year to shareholders. Now the one clarification is on the -- for insurance company dividend distributions for '26 you got a rebaseline 2025 for the lost distributable earnings from the VA transaction. Once you do that, our anticipation would be growing it in the 5% to 10% range. Operator: Our next question is from Joel Hurwitz with Dowling & Partners. Joel Hurwitz: Just wanted to come back to the retail annuities competitive landscape, just given right your sales were down pretty significantly quarter-over-quarter and flows were well below where they've been for several quarters now. So and we see more and more enter the market. So just curious how the competitive dynamics have been evolving there? And what exactly you saw in the fourth quarter? Marc Costantini: Yes. Thank Joel, It's Marc. I appreciate the question. So maybe some overall comments before we talk about Q4 in particular. When you look at the full year, we were in very positive net sales for -- in our Individual Retirement business. We have over $7 billion of net sales. Our assets continue growing. The business continues growing. Obviously, the interest rate cycle, I mentioned earlier in my remarks that we are responsive on a weekly basis to the interest rate cycle and to the credit cycle. So obviously, we were responsive to that in Q4, and it had some temporary effect on our sales. I'll go back to the fact that in RILA, we are going to be a top 5 player in that market. That's our ambition, and we'll get there. We are a top 5 player in every other segment. As we look towards 2026, we are looking to grow that fixed annuity business, Individual Retirement business. So we are confident going into 2026 about our portfolio and our prospects. Elias Habayeb: And to add to Marc, and part of the modeling guidance we gave, Joel, is we expect from our retail annuity business to continue to have positive net flows going into the future. The fundamentals are pretty strong, and we see demand kind of strong for needs for retirement solutions. Joel Hurwitz: Got it. That's helpful. And then, Marc, you talked about the [ wallet ] opportunity. How do you see that developing over the coming years? And can you elaborate more on some of the investments that you think you have to make to fully capture that opportunity? Marc Costantini: Yes. Thank you, Joel. Yes. It's we are very ambitious on that business, and it's the cross-sell and upsell to, obviously, our recordkeeping business. And we have a selective opportunity to go into those plans and to actually grow our relationship with those participants. And I'll give you a couple of proof points, right? If you look at our recordkeeping business, that's about $80 billion or so. I would say the average balance we have for those participants is 50,000 to 60,000 on average. If you look at our outer plan, kind of relationships where we've basically obviously have a bigger share of wallet of those families it's close to triple that level. So that's why we're thinking and that's why I mentioned in my opening remarks that we think we have a $30 billion opportunity there. So that's the upside. And how do we capture that upside? Well, we got to have a more robust offering on the wealth management side. We've got to obviously digitize. We got to hire more wealth advisers and we have to professionalize and continue to professionalize that workforce to attempt to go after those participants, and that's what we're doing, and that's where those investment dollars are going. Operator: Our next question is from Wilma Burdis with Raymond James. Wilma Jackson Burdis: Hey, good morning, GICs and similar products seem to have taken a step back in 4Q '25, not just at Corebridge, but maybe across a few different companies. I'm wondering if there's something specific to the interest rate and/or credit environment in 4Q '25 or if that's just a quarterly fluctuation? Elias Habayeb: And Wilma, just to be clear, you were asking about GICs? Wilma Jackson Burdis: Yes. Elias Habayeb: Yes. I think what you see, if you go back to fourth quarter, there is volatility in the rate environment, which kind of limited some windows out there. But I think you got to look at it we look at it on an opportunistic basis where the opportunity is, and we do both the capital markets as well as private placement. So key to us is what assets do we have, what returns can we get? And does it achieve our return hurdle. And that's kind of drives us. But if you follow -- we did one in January, which is not in the fourth quarter results. So I think the market is still there just that in the fourth quarter, there is a period of volatility. Wilma Jackson Burdis: Okay. And [indiscernible] is a while out, but should we expect benefits in '27 from the reduction in short-term interest rate sensitivity? And is there any way to quantify any cash benefit for the change in the derivatives program? Elias Habayeb: Yes. Listen, I think on the derivatives program and the sensitivity we gave you that sensitivity. Our balance sheet will continue to evolve with how the liability side evolves, and we'll kind of update you on sensitivities going forward. In terms of the derivatives when we think about it, no, I think what we've done is by getting the derivatives off the books is we've reduced the sensitivities to interest rates -- short-term interest rates. And where we stand right now with our outlook and what the market outlook is we see this kind of exposure from potential Fed easing ending in '26. And as we look into '27, we see lower exposure from that perspective. And to Marc's earlier comment, we expect to grow earnings in '27 that together with capital management puts us in the top half of our 10% to 15% range. And the earnings growth is going to come as a result of continued growth in the business and improving our operating leverage from the investments that are being made. Operator: Our next question comes from Wes Carmichael with Wells Fargo. Wesley Carmichael: First question on the modeling items for ultra turns. I think Elias for 2026, you're expecting returns to be closer to the long-term assumption of 8% to 9%, but you mentioned lower real estate equity returns in the first quarter. I just wonder if you could maybe size that for us in the first quarter. Elias Habayeb: Yes, happy to. So yes, so we think the economic environment is supportive when we look at the full year to deliver on the 8% to 9% return on our alternative. It's a little early, but we are seeing some softness in the first quarter with real estate equity. It's a recovery is lagging what we're seeing on the private equity side. I think right now, but it's very early, maybe $20 million to $30 million impact, but that's very early. Wesley Carmichael: That's helpful. And I guess my follow-up on the asset side, Marc, you mentioned that corporate spreads are very tight. We can all see that. And you've got the relationship with Blackstone and BlackRock. But I just wanted to ask, is -- are there additional opportunities to think about on the asset side, whether that's maybe expanding the Blackstone relationship. Would you look at additional partnerships with other alternative managers? I'm just curious if there's more to do where you could increase the net yield on the portfolio. Marc Costantini: Yes. Thank you, Wes. Appreciate the question. I guess, in 2025, when you look at the size of our firm and the origination, we originated upwards of $55 billion in 2025 alone. And that was done in partnership, obviously, with our own investment team that originated the 1/3 of it, BlackRock, originated another 1/3 of it, in Blackstone, as you mentioned, originated another 1/3 of it. So we feel we've got 3 world-class teams originating very choice assets with the right risk return profile, obviously, we're very prudent there and want to be thoughtful about investing for the long term. And I think we're quite happy with those 2 strategic relationships we have with Blackstone and BlackRock, and they have provided us a source of very attractive assets. Now their credit markets or the credit markets. So I think what we have to be as thoughtful about where we place our money, how we invest it and make sure we do the prudent thing over different cycles and not necessarily fall into the trap of going after the yield and regretting it in the future so but we're quite happy with those partnerships, and I think they're sourcing very good assets for us. Operator: Our next question is from Jack Matten with BMO. Francis Matten: Just one follow-up on the Individual Retirement spread outlook. I guess if you look at the longer-term kind of base spread profile over the past decade plus, it's created to be closer to the lower end of that range. I guess, do you think that's like more of a new normal now once we see spreads stabilize given where credit spreads are in competition in that space? Or is your expectation we could eventually see maybe an upward reversion over time towards the longer-term average margins in that business? Elias Habayeb: Jack, it's Elias. Listen, what's -- if you look at what's driving the compression in our base spread, it's a big driver of it is the relative margins between where new business margins are and where to enforce this. And if you look at our in-force, we have a lot of annuities that were written in a lower interest rate environment and we were successful in repositioning assets to take advantage of higher yields in the last 3 years from it. So that's one of the factors that's contributing to that compression. We see that playing out through the end of '26. When we look beyond '26, we do expect the margins will start growing from that point on, given the dynamics that's changing within our in-force portfolio relative to new business and easing of any sensitivities or pressure from what the Fed might do. Francis Matten: That's helpful. And maybe just a follow-up on the [ NAICs VM22 ] reserving changes. Just any thoughts on what this could mean for Corebridge. There could be some puts and takes across different lines of business, but I'm just curious how you kind of see that playing out given your business mix? Marc Costantini: Jack, it's Marc. Obviously, it's something that we follow closely, and we work very closely, obviously, with the industry and the NIC, and we participate actively, obviously, in testing our own balance sheet. And we're not getting into any of the details. We're quite comfortable with the impact is [ VM22 ] would have on our balance sheet when implemented. So I think you'll see some no surprises from Corebridge when it comes to that. Operator: Our next question is from Tracy Benguigui from Wolfe Research. Tracy Benguigui: When I think about RILA, there are many puts and takes, including pricing, distribution, product design. On product design. You talked about some of the benefit features. But turning to the indices, I see that you introduced the crypto-linked RILA. What is the take-up by policyholders? And should I think about relatively higher basis risk for a crypto index than, let's say, the S&P 500? And if so, how are you managing that? Marc Costantini: Tracy, it's Marc. Thank you for your question. You are correct that we did introduce a new version of our RILA product just a few weeks ago, and we're quite proud of the fact that it's differentiating and has some crypto exposure. Before we do any introduction of such new features, whatever, it goes to a judicious process on the risk management side and making sure that some of the components that you mentioned there are well managed to the cycle. It's too early to tell what the take-up rate has given us a couple of weeks in, but we're requite comfortable that we've met all of our usual approach to risk manage the portfolio. Elias Habayeb: And Tracy, what I'd add is to kind of -- this is a good example of what Marc was talking about, where we look to differentiate ourselves in the market based on product features. So we're not just competing on price. So that -- this is a good example of one where it demonstrates that. Tracy Benguigui: Well, I also had a question on the preferred raise. Marc, you said Bermuda is one of your strengths. Can you share your vision on how Corebridge could optimize capital further through sessions to our affiliated Bermuda muni entity? And what the shorter-term capital needs are? I'm just curious if you could support future capital needs through organic capital generation or since preferred as a new category for rating agency purposes would you envision any other type of hybrid debt raising? Marc Costantini: Yes. So Tracy, maybe I'll start and Elias may want to add some more detailed color. So -- and at a high level, we will -- and we always strive to deliver on our guidance, right, which includes, obviously, the free cash flow generation of 60 to 65 and obviously, the return through dividends and buybacks associated with that. So whatever kind of capital management activity we have, we do so against obviously delivering on that guidance. Obviously, Bermuda, as we and others use is a good, obviously, capital management kind of optimization approach and obviously, Elias and one of your colleagues were discussing that earlier. We will continue to look at our business and optimize it from a capital management perspective and the cash flow and economics underlying it. And that in Bermuda will be a very important component of that, and it will continue to be in the future. How we manage the overall capital profile of the business and leverage as well. We have, obviously, our stated objectives there, which we try to manage against judiciously so -- and how we go about it, I think will be something we're always thoughtful about as we move forward. So I don't know if Elias has anything to add to that. Elias Habayeb: No. I agree with everything Marc says and Tracy, I'd point you to 2024 and 2025, where we -- in each year, we hit record sales, and we've increased the dividends from the insurance companies without the financial flexibility, Bermuda provides, we would not have been able to accomplish that. The other thing I just want to clarify, Tracy, the bitcoin index that we've provided with in an index annuity that's in the [indiscernible] product. Operator: Thank you. We have no further questions in the queue. So this concludes today's Corebridge Financial Fourth Quarter 2025 Earnings Call. Thank you all very much for joining, and you may now disconnect.
Operator: Good day, and welcome to the Butterfield Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Noah Fields. Please go ahead. Noah Fields: Thank you. Good morning, everyone, and thank you for joining us. Today, we will be reviewing Butterfield's fourth quarter and full year 2025 financial results. On the call, I'm joined by Michael Collins, Butterfield's Chairman and Chief Executive Officer; Michael Schrum, President and Chief Financial Officer; and Bri Hidalgo, Chief Risk Officer. Following their prepared remarks, we will open the call up for a question-and-answer session. Yesterday afternoon, we issued a press release announcing our fourth quarter and full year 2025 results. The press release and the slide presentation that we will refer to during our remarks on this call, are available on the Investor Relations section of our website at www.butterfieldgroup.com. Before I turn the call over to Michael Collins, I would like to remind everyone that today's discussions will refer to certain non-GAAP measures, which we believe are important in evaluating the company's performance. For a reconciliation of these measures to U.S. GAAP, please refer to the earnings press release and slide presentation. Today's call and associated materials may also contain certain forward-looking statements, which are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these risks can be found in our SEC filings. I will now turn the call over to Michael Collins. Michael Collins: Thank you, Noah, and thanks to everyone joining the call today. In 2025, Butterfield delivered strong financial results through disciplined execution. Net income improved versus the prior year, with core net income per share growing 17.4% year-on-year to total $5.60 per share. Our strong relationship-led banking and trust businesses increased noninterest income while lowering deposit costs and asset redeployment boosted interest earnings. We maintained expense discipline and advance our technology platform by adding new customer functionality and improved interface. Capital management remains an important value lever, which is reflected in our quarterly dividend increase last year and share repurchases, which resulted in a total combined payout ratio of 97% in 2025. Our M&A growth strategy remains on track, and we continue to have active dialogue with potential targets. Butterfield is a leading offshore bank and wealth manager with leading competitive positions in Bermuda and the Cayman Islands and a growing retail banking business in the Channel islands. We provide a range of services, including trust and private banking, asset management and custody, which are designed to meet the needs of our clients. Beyond these core banking markets, we serve international private trust clients in the Bahamas, Switzerland and Singapore. And from our London office, we offer high net worth mortgage lending for prime Central London properties. I will now turn to the full year highlights on Page 5. Butterfield generated solid net income of $231.9 million and core net income of $237.5 million. This resulted in a core return on average tangible common equity of 24.2% for 2025. During the year, net interest margin increased 5 basis points to 2.69% from 2.64% in 2024 with the average cost of deposits falling to 150 basis points from 183 basis points in 2024. Tangible book value per common share grew 21.7% in 2025, ending the year at $26.41. Balance capital management continued to be a key driver for shareholder value. In addition to the increase in the quarterly cash dividend rate, the bank repurchased 3.5 million shares for a total value of $146.7 million in 2025. Finally, on behalf of the bank's Board of Directors, I am pleased to welcome Meroe Park back to the Board. Meroe brings more than 30 years of distinguished public service, including senior leadership roles at the Smithsonian Institution and the Central Intelligence Agency, where she oversaw governance, operations and public accountability. Her proven ability to lead in complex environments, coupled with deep expertise in human resources, operations, technology and cybersecurity will add a meaningful voice to our Board's deliberations. I will now turn the call over to Michael Schrum for details on the fourth quarter. Michael Schrum: Thank you, Michael. Good morning, everyone. In the fourth quarter, Butterfield reported net income and core net income of $63.8 million. We reported earnings per share of $1.54 with a core return on average tangible common equity of 24.6% in the fourth quarter. The net interest margin of 2.69% in the fourth quarter was a decrease of 4% from the prior quarter with the cost of deposits falling 10 basis points to 137 basis points from the prior quarter. The bank has again announced a quarterly cash dividend of $0.50 per share. During the fourth quarter, we continued to repurchase shares, acquiring and canceling 600,000 shares at a cost of $29.6 million. On December 8, the Board also approved a new share repurchase authorization for 2026 of up to 3 million common shares or $140 million. On Slide 7, we provide a summary of net interest income and net interest margin. In the fourth quarter, we reported net interest income before provision for credit losses of $92.6 million, which is in line with the prior quarter. The net interest margin decreased 4 basis points to 2.69% compared to 2.73% in the prior quarter. This decline was as a result of lower treasury and loan yields following further cuts by central banks. Average investment volumes increased as the bank deployed assets into high-yielding available-for-sale investments which helped increase average investment yield to 2.72% from 2.67% in the third quarter. Average loan balances continued to moderate compared to prior quarter predominantly due to lower originations relative to amortization on existing loans. Average interest-earning assets in the fourth quarter increased $199.4 million to $13.7 billion, with treasury and loan yields were 20 and 23 basis points lower, respectively. During the quarter, we maintained our conservative investment strategy with the reinvestment of maturities into a mix of U.S. agency MBS securities and medium-term U.S. treasuries. Slide 8 provides a summary of noninterest income, which totaled $66.3 million, an increase of $5.1 million over the last quarter. This was due to higher banking fees, which improved from seasonal growth in card volumes and incentive programs. Foreign exchange revenues also rose as volumes increased, as well as higher asset management revenues due to increased asset valuations. The fee income ratio increased to 41.7% compared to the prior quarter, continuing to compare favorably to historical peer averages. On Slide 9, we present core noninterest expenses, which increased compared to the prior quarter due to external services fees, high incentive accruals and increased event and sponsorship marketing-related costs. There were a number of costs during the quarter that we do not expect to repeat. I would anticipate that quarterly core expenses to be around $92 million over the next few quarters. I'll now turn the call over to Bri to go through the balance sheet and some risk highlights. Bri Hidalgo: Thank you, Michael. Slide 10 shows that Butterfield's balance sheet remains liquid and conservatively positioned. Period-end deposit balances were consistent with prior quarters, although actual deposit outflows of $360 million were offset by foreign exchange translation gains of $310 million when compared to the fourth quarter of 2024, as shown in the appendix on Slide 17. Butterfield's low-risk density of 28.3% continues to reflect the regulatory capital efficiency of the balance sheet. On Slide 11, we show that Butterfield's asset quality remains very strong. The investment portfolio carries low credit risk consisting entirely of AA or higher rated U.S. treasuries and government-guaranteed agency securities. Credit performance in our loan and mortgage portfolios was stable this quarter with no net charge-offs, non-accrual loans held at around 2%, and our allowance for credit losses remained at 0.6%. Our loan book remains 71% full recourse residential mortgages with nearly 80% having loan to values below 70%. We continue to take a conservative underwriting approach, focusing on high-quality residential lending across our Bermuda, the Cayman Islands and the U.K. and Channel Island segments. On Slide 12, we present the average cash and securities balances with a summary of interest rate sensitivity. Net unrealized losses in the AFS portfolio included in OCI were $89.4 million at the end of the fourth quarter, an improvement of $12.1 million over the prior quarter. Interest rate sensitivity has increased versus the prior quarter, driven by updates to deposit beta assumptions. We continue to expect OCI improvement with additional burn down over the next 12 months of 28%. Slide 13 summarizes regulatory and leverage capital levels. The Board of Directors has once again approved a quarterly dividend of $0.50 per share. TCE/TA of 7.5% continues to be conservatively above the targeted range of 6% to 6.5%. Finally, our tangible book value per share continued to improve this quarter by 5.4% to $26.41 as unrealized losses on investments improved. I will now turn the call back to Michael Collins. Michael Collins: Thank you, Bri. In 2025, Butterfield continued to produce top quartile returns relative to peers, while maintaining a comparatively low ratio of risk-weighted assets to total assets of 28.3%. Our banking jurisdictions in Bermuda came in at the Channel Islands continued to perform well and provide stable, noninterest income with solid core deposits and franchise-level market shares. We remain committed to actively pursuing trust and bank acquisitions, which should help improve the overall quality of earnings for our asset-sensitive banking franchise. Finally, I would like to thank our clients for their continued support and business. I would also like to express my gratitude to fellow directors for your guidance and governance. As we enter 2026, I look forward to continued collaboration and success across all of Butterfield. Thank you. And with that, we would be happy to take your questions. Operator? Operator: [Operator Instructions] And our first question will come from Tim Switzer with KBW. Timothy Switzer: I was looking for some clarification real quick on the expense guide you gave. I heard the $92 million, did you say $90 million to $92 million for quarterly expenses or it broke up a little bit. So just looking for clarification. Michael Schrum: Yes. No, thanks for the question. Yes. I mean, they were trending a little bit higher in quarter 4. Obviously, some of that was due to incentives, et cetera, and then there was some outside services fees. But I think, some of those will not be repeating in future quarters. So sort of thinking it's going to settle between $90 million and $92 million. Timothy Switzer: Okay. Got it. Is that a good run rate for the rest of the year? And like what's the trajectory there? Because I know there's a good amount of seasonality as we get into Q1. Michael Schrum: Yes. I mean quarter 4 is normally -- I mean, yes, depending -- quarter 4 is normally a little bit higher as you will have seen from prior years as well. Q1 tends to be sort of on the low side. So by a couple of million but nothing big expected to come through in terms of investments, et cetera, in infrastructure. So I think, yes, some of the seasonal bits in Q4 will not be repeating in the following quarters. So I think that's a pretty good run rate. Timothy Switzer: Okay. And obviously, very strong trends this quarter in your fee businesses. Can you talk about -- and I see it was pretty broad-based, but can you talk about broadly what's kind of driving that? And some of the investments you've made on the tech side, has that helped drive some of this upside? Michael Schrum: Yes. Great. Another great question. It's Michael Schrum again. So if I just close through the fee categories, so asset management fees, obviously, most -- I mean, some of those are periodic fees, but most of them are driven by underlying valuations improving significantly in the fourth quarter and throughout 2025, actually driving the asset management fee that we then build on those accounts, particularly on the discretionary side. Obviously, the money fund has also attracted. We have a AAA rate of money funds, also attracted additional volume in 2025. So that's been a positive, and hopefully, we'll continue in the future. As you know, banking is sort of seasonal in Q3 and Q4, where we get some volume incentives occurring from our card programs. So that probably will not be repeating in Q1 and Q2, so that's probably seasonally high in Q4. But underneath, the banking fees, there's also transaction volume fees, standing orders and periodic fees such as bank account fees and statementing fees, et cetera. FX has been a real source of strength this quarter and throughout 2025, actually. And so we believe we're making some good progress there. There's some new functionality that we are allowing clients to access credit lines for FX, et cetera. So I think that's helped a little bit, get our name out there and drive some volume. And then obviously, trust was particularly strong again this quarter and is primarily related to the Credit Suisse asset acquisition that we have now completely integrated, and we're starting to see good additional client volume coming through and also our standstill on that contract on fees has now expired. And so -- we're just rebalancing those fees to services provided there. So I think that probably will continue into 2026. So I think very strong performance in Q4 and throughout 2025 on the noninterest income. Timothy Switzer: Got it. That was very helpful. Appreciate all the color. One last one for me. NPAs moved a bit lower this quarter. Can you maybe talk about some of the puts and takes there? What drove that and what your outlook is for credit migration over the next year? Michael Schrum: Yes. I mean, obviously -- sorry, it's Michael Schrum again. So we're not -- we haven't put our financials out they're coming out with the 20-F when we furnish that in a little bit. But underneath the -- I mean, we're not seeing systemic shifts in NPA migration or days past due migrations. It's really related to a few commercial accounts sort of scattered throughout the throughout the network, really, mostly in Bermuda for this quarter Obviously, during '25, we saw some improvement in the credits, primarily related to the liquidation of the Elbow Beach Hotel, which completed in Q2, Q3. And then we had some commercial litigation that we successfully completed in sort of Q3 as well. So it's not really anything systemic there, but we're certainly keeping an eye on it. Operator: The next question will come from Liam Coohill with Raymond James & Associates. Liam Coohill: So you've experienced some noninterest deposit growth on the Caymans this quarter. Could you remind us if there are any seasonal elements to those flows that we should be aware of? Bri Hidalgo: Hi, Liam, this is Bri Hidalgo. Yes, we definitely saw a seasonal influx associated with reinsurance payments that drove that increase. It's nothing more than that. Liam Coohill: Okay. Great. And then to circle back to your fee businesses to take a higher level view, especially in your trust business, now that the CS business is integrated, where are you seeing the most opportunity for new clients? And how is client retention trended given the movement to your current fee structure? Michael Collins: Yes. Thanks for the question. Actually, Credit Suisse has bedded down quite well now. So our Singapore office is actually in sort of a growth mode. So that's helpful. Generally, in the trust world, you organically grow like 2% a year, and you have a natural attrition of about 2% as trust come to their natural end after 30, 40 years. So basically, there's not a lot of organic growth. So we generally focus on trust acquisitions to grow the book in our existing jurisdictions, and we're continuing to have those discussions, but we are very excited about Singapore office. It's -- we're top 5 private trust company in Singapore now and there's great growth opportunities. But generally, growth in trust is going to come through acquisitions. Liam Coohill: Great. You actually led right into my next question. It was great to hear that conversation on the M&A front have been continuing. Have you even focused on any particular geographies for those trust acquisitions and what other fee businesses interest you? Michael Collins: So we're really focused on our existing jurisdictions for trust or if we have an opportunity for bank overlap acquisitions, but we believe having trust companies in Guernsey, Bermuda, Cayman, Switzerland and Singapore, those are the best trust jurisdictions. So I don't think necessarily we would go outside of that footprint. The issue with acquisitions, obviously, is we can't always get exactly what we want. So sometimes, there'll be one or two other jurisdictions that we'll have to take on. But generally, we'll continue to focus on our existing jurisdictions because they're the best, and that's where most of the opportunities are. Operator: [Operator Instructions] And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead. Noah Fields: Thank you, and thanks to everyone for dialing in today. We look forward to speaking with you again next quarter. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the DLH Holdings Fiscal 2026 First Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead. Chris Witty: Thank you, and good morning, everyone. On the call with me today is Zach Parker, President and Chief Executive Officer; and Kathryn JohnBull, Chief Financial Officer. The company's earnings release and PowerPoint presentation are available on our website under the Investor page. I would now like to provide a brief safe harbor statement, which is also shown on Slide 3 of the presentation. This call may include forward-looking statements that relate to the company's outlook for fiscal 2026 and beyond. These statements are subject to various risks and uncertainties, which could cause actual results and events to differ materially from such statements. Please refer to the risk factors contained in the company's annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements. On today's call, we will be referencing both GAAP and non-GAAP financial measures. A reconciliation of our non-GAAP results to our reported GAAP results is included in our earnings release and in the investor presentation on DLH's website. President and CEO, Zach Parker, will speak next; followed by CFO, Kathryn JohnBull after which, we'll open it up for questions. With that, I'd now like to turn the call over to Zach. Please go ahead, Zach. Zachary C. Parker: Thank you, Chris, and good morning, everyone. Welcome to our first quarter conference call. I am pleased for the opportunity to report our financial results and provide color regarding the current environment and outlook. Now turning to Slide 4, I'll provide an overview of our achievements and outlook. The first quarter was marked by the longest government shutdown in our nation's history, followed by a short-term funding gap at the end of January. However, the recently enacted budget provides increased funding capacity and improved visibility for our clients for the remainder of the fiscal year across our markets. we expect that to be a positive impact. Notably, key federal health agencies received funding increases compared to the fiscal 2025 levels, reversing in part previously disclosed funding reductions to our current and addressable markets. We believe this improved clarity and stability meaningfully support the company's organic growth initiatives. This budget stability comes at an opportune time for DLH as we continue to see improving demand across our core markets. Defense and Intelligence customers are emphasizing rapid delivery, cost efficiency digital modernization and advanced technology integration through the application of command, control, communications, computers, cyber defense and combat systems with intelligence, surveillance and recognizant known as C6ISR expertise. At the same time, federal health agencies continue to prioritize system interoperability, cybersecurity, including 0 trust applications, cloud migration and AI adoption, which positions DLH competitively well for modernization-driven awards. These are areas that leverage our strengths, our capabilities and our innovative proprietary tools as discussed previously to enhance productivity on current work while elevating our competitive position on organic growth opportunities. While revenue was down year-over-year, largely due to our previously discussed program transitions to small business set-aside contracts, such as the [indiscernible] and head start. We are seeing improved visibility and are encouraged by the midterm outlook. More importantly, we delivered sequential improvement in adjusted EBITDA margin from the fourth quarter, as Kathryn will discuss in more detail shortly. We remain firmly focused on expanding efficiencies and margins and improving overall returns as the year progresses and award decisions are made. We also continue to execute on our commitment to deleveraging the balance sheet. As is typical in the first quarter, Debt increased modestly, driven primarily by the timing of labor and payroll tax repayments around holidays. That said, we remain on track with our debt reduction plans for fiscal 2026. We Overall, we remain well positioned to succeed over the coming years, including competing effectively for high organic value opportunities within a healthy and expensive addressable market. Our differentiated technology application capabilities, tools and workforce alignment exceptionally well position us for 3 strategic within our 3 strategic pillars that those are digital transformation and cybersecurity, science, research and development and systems engineering and integration. Importantly, the improved clarity around the fiscal '26 budget, combined with our broad portfolio of contract vehicles, bodes well for DLH's long-term growth outlook. We remain committed to continued investment in the talent, tools and technologies required to meet the evolving complex needs of our customers across each of our core markets. our customers leverage our capabilities to access leading edge processing speeds digital sandbox environments, tailored integrations with cot products and technologies, advanced data science and actionable visualizations and dashboards that support mission-critical decision making. While the government services market has experienced meaningful disruption this year, driven by delays in contract solicitations and awards and previously uncertain budget visibility. We have continued to use this period to transform DLH in a positive way. Today, we are technology, engineering and scientific solutions provider that is extremely well positioned to compete for the opportunities of the future. As we work to enhance our organic profile, we will remain disciplined in reducing our indirect costs and managing our capital deployment. The management team and I are confident that DLH is on track to exit fiscal 2026 in a much stronger position than we began, and we are encouraged by what lies ahead. Before I close, I would like to recognize the performance of our deep and highly credentialed workforce. In a challenging environment, we lean on the passion, ingenuity and expertise of our staff to succeed. This past quarter, you once again surmounted extraordinary challenges in support of our customers. As always, thank you to everyone at DLH for your commitment to excellence demonstrated each day. With that, I'd now like to turn the call over to our Chief Financial Officer, Kathryn JohnBull. Kathryn? Kathryn M. Johnbull: Thank you, Zach, and good morning, everyone. We're pleased to report our first quarter results for fiscal 2026. Turning to Slide 6. I'd first like to provide a high-level overview of some key financial metrics for the 3 months ended December 31, 2025. We reported revenue of $68.9 million in the first quarter versus $90.8 million in the prior year period, reflecting contributions from expansion on existing contracts, offset by the impact of conversion of certain programs to small business set aside contracts as discussed in the past and certain government efficiency initiatives. In total, the revenue contraction was mostly due to small business set aside conversions, primarily from CMOP and Head Start with an approximate $18 million decrease in the quarter versus fiscal 2025. We reported adjusted EBITDA of $6.5 million for the quarter compared to $9.9 million in the prior year period, with the decrease primarily driven by lower revenue levels. partially offset by effective management of indirect costs as we aligned our cost structure with reduced volume. Importantly, adjusted EBITDA margin improved sequentially to 9.5% for the quarter. Our cost scaling initiatives continue into the second quarter, including further reductions in indirect spend in anticipation of future CMOP site transitions and we expect the impact of these actions to become more evident in our second quarter results. From a free cash flow standpoint, we used approximately $4.8 million during the quarter which is typical for the first quarter, given seasonal increases in working capital requirements. Importantly, this represents a significant improvement compared to last year's use of $12.1 million of free cash flow which reflects delays which reflected delays in the collection of an unusually high level of receivables. As Zach mentioned earlier, the primary driver of cash usage this quarter was the timing of labor and payroll taxes around the public holidays at the end of the year. Now turning to Slide 7. I'll wrap up with a summary of our debt reduction efforts which remain a key area of focus for DLH. As a result of the first quarter working capital requirements I mentioned earlier, including the impact of the government shutdown, debt increased during the quarter to $136.6 million. We remain well ahead of our mandatory term repayment schedule and in full compliance with all financial covenants. Looking ahead, we expect to convert approximately 50% to 55% of EBITDA generated during fiscal 2026 to reduce debt by year-end. As our investors know, we take deleveraging very seriously and have a strong track record of execution, even though the uncertainty of the past few years related to the runoff of small business set-aside programs. We remain more than adequately capitalized to support our growth strategy and now have greater visibility into the year ahead than in prior quarters. As the year progresses, we look forward to improvement in our operating fundamentals and organic growth initiatives. With that, I would now like to turn the call over to our operator to open it for questions. Operator: [Operator Instructions] The first question today comes from Joe Gomes with Noble Capital. Joseph Gomes: So Kathryn, just you said about $18 million of the delta in the revenue decline was from CMOP and head start, and that would leave about $4 million still unaccounted for what was the other $4 million? Where did that get lost? Kathryn M. Johnbull: Yes. It's what we have referred to as the Knicks and the nibbles of the [indiscernible] initiatives that happened in the early part of fiscal '25 somewhat after December, but in Q2 of fiscal '25. Also, the wrap-up of that little that single international project that we had that completed in January of '25 yes, USAID project. So it is a sundry of smaller impacts that were not strategic and not related to the small business set aside. Zachary C. Parker: And Joe, those as Kathryn indicated, they're a little bit smaller because those were the effect of unbundling contracts, right, so that they were able to make more work available also to small businesses or other contract vehicles that have been in existence. Joseph Gomes: Okay. And on the spot, I know we, we had 4 contracts in the end of last year and 1 they had recently awarded somebody else. I think 2 more were out for bid. Any update on the 2 that were out, have they been awarded any timing as to when they might transition and anything new on the last remaining location. Zachary C. Parker: Well, we're looking at we believe we'll be, we're really in the wind-down phase across the board for the CMOP work. The VA has gotten more a little battle rhythm set for being able to do some of the transitions, complete their evaluations a little more timely fashion and to move into a transition phase we have been leading very aggressively and supportive of making those transitions, the specifics on the contract coverage. I'll turn it over to Kathryn. Kathryn M. Johnbull: Yes. No, I think that's the right way to think about it. As we indicated as early as the first quarter of we certainly expected the completion of the CMOP work to be near term. And as Zach said, the cadence now that there seems to be a pretty manageable process for making those transitions, we are looking at probably a complete ramp-up of CMOP in Q3 of this current fiscal year. Joseph Gomes: Okay. And when you talk about the cost reductions that you've taken so far. One, was there any cost to those? And where would that show up on the income statement? And two, is that inclusive of the expected losses? Or you need to do additional cost out once all 3 of those contracts transition? Zachary C. Parker: Let me kick it off and I'll let Kathryn hand on the specifics. So when we exited '24, we kind of laid out, at least internally and with our Board a game plan around this reset, right? The reset of the decline in business that we have been communicating that would result from CMOP and some of the unbundling and bundling of other contracts and small business set asides, while at the same time, we're anticipating more bid opportunities and wins throughout '25. So we had looked at what we kind of call them V curve and managing that for exiting '24 and throughout '25. The delays, obviously, as Kathryn indicated, in the opportunity bid opportunities during '25 due to all the challenges we've discussed had really necessitated that we made sure we had a plan that was flexible and would be phased for indirect reduction. We have implemented 2 major components of that indirect reduction. It's very important for us to maintain a competitive indirect cost profile to be able to compete organically, and that's been a key driver for us. While we've been managing the phaseout of these contracts, including those that still continue for CMOP. So we've had a management plan to make sure we can do those indirect reductions. At the same time, I would tell you, we've been implementing new measures to drive efficiencies of playing some of the tools we do for our customers, AI, ML and things of that nature to drive efficiencies in executing not only for our customers but also for our enterprise. And we're going to continue to look at deploying that. We've got a project or 2 that has some of that running out through this the remainder of this fiscal year where we can enhance and augment the caliber of services by our folks using some of these tools. We think those efficiencies will also help us in the long run. Kathryn, do you want to answer a couple of the specifics on the timing and G&A impact. Kathryn M. Johnbull: Yes. To your question, Joe, about whether the cost of those reductions is factored in and where does it show up? That is reflected in our Q1 results, both the impact of the reduction in cost as well as the cost of achieving those reductions is all reflected in the Q1 financials. And also then considered as part of the crosswalk from standard EBITDA to adjusted EBITDA. In other words, that adjustment reflects as if those reductions had taken place at the beginning of the quarter. I'm sure you can appreciate that those have to be thought through and take some implementation time and so, therefore, happened midway in the quarter. In terms of addressing the change in volume of CMOP specifically, that's part of the overall program, and we have scaled costs related to supporting CMOP as CMOP has made its journey downward. But we do, of course, still carry some costs for running the remaining locations, but we will scale it in the appropriate time frame, along with the changes in revenue volume, just as we do the volume of business for the entire enterprise. Joseph Gomes: Okay. And 1 more for me. I mean it sounds we might be starting to see some positivity here on the pipeline and bidding activity just wondering, Zach, we got named to a number of IDIQ contracts. Have they just not been putting anything out for bid or not stuff that DLH is bidding on or have there have been some projects out there that you've been on just have not won. I mean, is the I guess, kind of the hit rate of award for you guys, is that staying steady? Or is that decline? I mean maybe a little more insight into the market opportunity out there and how DLH is faring in that? Zachary C. Parker: You bet, Joe. And we are planning on giving a deep color as we have historically from time to time on that pipeline during our upcoming annual meeting with the shareholders. But to your point, yes, we've a little bit of each, right? So we've had in terms of the major IDIQs and the MAC IDIQs, the most recent news, of course, is [indiscernible] has been canceled. And as we have stated before, we saw that as a very attractive and viable vehicle for us with a number of opportunities that we had anticipated being able to bid in '25 that would allow us to start to generate some revenue around this time period. A number of those some of those jobs some of our customers have moved to other vehicles already anticipating that CIOS [indiscernible] was not going to be viable. And so we've had a couple of erosions to our pipeline attributed to work moving to a vehicle, which we could not prime. That's had some impact. And while at the same time, I'd have to say the biggest key has been customers given the budget uncertainty, et cetera, have continued to do kind of like some of our customers, bridge work instead of extending the existing incumbents instead of having a competition. And that's where we're thinking that now that they have stability, some visibility in their budget for some time. That they'll be able to move on with it and get some of those procurements. So we still just have not had a large volume of bid opportunities. We had 1 bid opportunity for the entire month of January. And that's just really, really trickling. And that one is a small one. So we have our needle-mover deals, which we invest a lot in, and we really push to drive a high wind profitability. And we have some of those that come from some of these MAC IDIQs. Some many of those are much smaller. But we're really feeling pretty encouraged that a number of the major needle movers for us. now we'll start to get some stability. We're still actively working to make sure that some of those that were earmarked for CIOS before and success predecessor [indiscernible], that we're well positioned on the GSA schedules and Oasis of which we think will be 2 of those where it would allow us to prime. But when they've moved a couple have moved to some vehicles where we were not prime is very disappointing. Some of the customers just had not had the influence as they thought they would have with the acquisition shop, but we're continuing to monitor that very closely. Kathryn M. Johnbull: But getting that certainty, the key takeaway, as you set it up, Joe, is we view that as positive that to get certainty even if the even if it isn't the way we would have done it, it's really distracting from a resource perspective and not cost effective to be trying to support and straddle all possible pads. So for us, just give us an answer, give us clarity, we can pivot and get ourselves organized to address that way. And so as Zach mentioned, while we're certainly majorly disappointed that CIOSP4 has gone away as a vehicle it's good to just have the clarity. It's been dangling for 3 years now, so at least 3, probably longer than that. So it's good to have the clarity. And while some things did drain off and go to vehicles, we're not prime or position to prime on the overwhelming majority of those opportunities appear headed places that we can and will compete as a prime. So it's good to have resolution of that strategy and to be able to move out on responding to it and pivoting our strategy to address the path that's going to come out on so that we can get on with it already. Zachary C. Parker: Yes. And I want to add, John, to that, Joe, is that we're seeing a major movement by a number of our customers, including Department of War to leverage more commercial best practice vehicles and approaches. We've referred to OTAs, other transaction authorities as something that has been viable and certainly, we demonstrated during COVID to be a viable means to get some of these bids out faster. What you're going to see is what we are seeing is a number of these vehicles start with a pilot that is a much smaller dollar value for the award and then you move from pilot to true execution. And so the revenue profile and the value of the awarded contract will shift a little bit but we're preparing for that. We've been well prepared for that. We've made some down select on a couple of those already. But we're going to see in the industry, a pretty heavy move towards not using our traditional RFP contracting model that just takes so long for the government to get this in place. And this administration is really, really keen to cut through those delays and to use more commercial best practices. So stay tuned on that. We'll talk a little bit around that as well during our upcoming annual meeting on the acquisition environment and our pipeline. Operator: [Operator Instructions] The next question comes from Bert Osterweis with Osterweis business consultation. Burton Osterweis: Good morning, Zach and Kathryn. I hope you're doing well. A little cold up here in Massachusetts. But all right. I was reading the annual report. And in a number of places, it states that we solve complex problems for civilian and government clients alike. But I only ever hear about the government clients. I was wondering more who those civilian clients are. And Zach, you mentioned in your what you just said, the last answer, was about a focus of more commercial type of jobs or commercial type of going after the jobs and I know Kathryn, you said it's not possible to pursue all possible paths. It's not financially viable, but it almost seems like the civilian customers are easier to go after. And so I was wondering, first, who they are? And second, is that something we can focus on more? Zachary C. Parker: Sure. No, great question. First of all, we probably should have a clarification of that because while we do work with the Defense Health Agency, the Department of War, in particularly in the C5 ISR arena, C6ISR arena, we are in the federal government space, we really referred to the civilian agencies that are still federal government, right? And those include customers like the National Institute of Health, the Center for Disease Control, ASPR would include DHS and other agencies, they're still federal clients. Now and so that's really what we're referring to on the macro for us that we have civilian agencies and then those that are aligned with defense. The other point, though, that raise is commercial work. And we do have a small book of business, a small bit of business with commercial. We're doing some of that work through partnerships with universities. And we do believe that there's an incubator area that lends itself for us to be able to work with more commercial companies. It's not going to be a major portion of our business. Kathryn and I have long stood and held the position that if we're going to try to move into that market in a meaningful way, it would be led probably with an acquisition. But we do have some adjacencies where we've been doing work, leveraging relationships with the federal government that have led us to doing some work usually grant funded with the commercial community. And within our public health and scientific research organization, we are looking to perhaps try to pull a little more of that business in-house. Burton Osterweis: I was thinking biotech firms and things like that. Zachary C. Parker: It is biotech. You're actually you're right spot on. It is in that arena that we have been doing some of that work. We've had some talent on our staff on [indiscernible] and Christian staff that have worked with the biotech and biopharma community. And we're looking to see if we can parlay that as well. We've just brought on a new resource that has tremendous reputation and experiences with FDA and as such, it also worked closely with the biotech community. So we're taking a fresh look at that as a potential account for us right now, it's just targeted opportunities, specific opportunities, but it could develop into an account by year's end. Kathryn M. Johnbull: Those commercial enterprises need to access that government approval queue and it's often an inscrutable protracted process for them, and so they're happy to opportunistically leverage our capability to help steer them through that. But as I said, that would be in the course of relationship building and opportunistic avenues, but not really something that we're going to we're prepared to invest a lot of money in pursuing commercial opportunities. Zachary C. Parker: The other part of that, to your point, Burt, is we need to make sure that even though the 99% of our book of business is with the federal government, we need to be able to operate at speed like commercial companies or truly commercial companies. We have and we believe that the administration is removing some of those barriers on allowing companies and customers that have interest and capabilities to be able to move at speed consistent with commercial companies. And so again, we're taking a look at leveraging some of these OTA type vehicles and our ability to leverage what has been our heritage, and that's to be able to be far more agile than a lot of our large tier companies to be able to be tremendously responsive and operate more like a commercially aligned company. . So please look for more of that. That often will mean our pipeline will look a little bit different with speed and smaller start-up sort of programs a little bit less 5-year booked values, but they offer the same organic growth profiles and trajectories that we have had otherwise, just a more rapid deployment and we've developed some of our tools so we can do rapid prototyping and that's going to help us in a number of areas where clients want to build a little test a little and then make a longer commitment. And we think we're well positioned with some of our digital sandbox opportunities and our cyclone platforms to demonstrate and move quickly from prototype to development and deployment. Burton Osterweis: One last question. Is there anything in our government contract, which prohibits us from going after civilian contracts? Zachary C. Parker: No, nothing that precludes it at all. It is a very different regulated environment. From time to time, you'll see things like you hear this administration talk about most favored nation kind of rates, in some cases, in our world, we have to look at where the best, best what I'm going to look for, Kathryn the rate schedules that we offered a couple but no regulatory formalized regulatory constraints. Kathryn M. Johnbull: It's really just a function more so of it. It's a distinctly different kind of sales model. And so you have to kind of weigh out your options for investing in that kind of a sales force, if you will, commercial sales force versus the model that makes sense in the government context. But there are some specific boutique opportunities that we're aware of and that we're leveraging. . Operator: At this point, there are no further questions in queue. I would like to turn the conference back to Mr. Parker for any closing remarks. Zachary C. Parker: Once again, I want to thank everyone for participating in our call today and for being good stewards of the DLH equity stakes. We are really, really committed, remain committed to giving you good visibility into the future and look forward to seeing and chatting with you all at the upcoming annual meeting. With that, everyone, have a blessed day, and we'll connect again soon. Bye for now. . Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to InMode Ltd.'s fourth quarter and full year 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to Miri Segal-Scharia, CEO of MSIR. Please go ahead. Miri Segal-Scharia: Thank you, Operator, and everyone for joining us today. Welcome to InMode Ltd.'s conference call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the Safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please visit the Investor Relations section of the company's website. Changes in business, competitive, technological, regulatory, and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them except as required by law. With that, I would like to turn the call over to Moshe Mizrahy, InMode Ltd.'s CEO. Moshe, please go ahead. Moshe Mizrahy: Thank you, Miri, and to everyone for joining us. With me today are Dr. Michael Crindel, our Co-Founder and Chief Technology Officer, Yair Malca, our Chief Financial Officer, and Rafael Liqueman, our VP Finance. Following our prepared remarks, we will be available to answer your question. The fourth quarter was slightly better than expected, even as our industry continued to face ongoing challenges driven by higher interest rates and softer customer demand in the aesthetic space. Despite this headwind, InMode Ltd. continued to benefit from its strong position and from the proven, long-lasting clinical outcomes and patient experience when using our technology and platforms. These strengths continue to position us as the leader in the market of minimally invasive aesthetic treatment, reflected in both superior patient outcomes and financial performance that remain among the best in the industry. While total revenue declined approximately 6% year over year, revenue from consumables and services increased slightly compared to last year. We believe this may represent early signs of stabilization in patient activity and usage levels across our installed base. We view 2026 as a stabilization year for the business following a prolonged period of industry softness. In 2025, we took the steps in our North American business. We appointed Michael Dennison as President of North America in October and unified our operation into a single organization spanning from Eastern U.S., Western U.S., and Canada. Given the timing of this leadership change, the impact on fourth quarter results was limited. However, we expect the new structure, leadership, and commercial initiatives to begin delivering tangible results in 2026. During 2025, we also laid the foundation for a more differentiated and focused commercial organization. Our sales force is now segmented across aesthetic and wellness with a dedicated team aligned to specific platforms. For Envision, we have established a specialized sales team with deep experience in the category, which we believe will drive increased penetration and improved sales productivity. Product innovation remains a key pillar in our strategy. In 2025, we launched our CO2 laser platforms, which are performing well and expand our portfolio. By enabling combined treatment, it further reinforces our position as a one-stop solution across core procedures. Looking ahead to 2026, we plan to keep innovating and introduce two new platforms: a Korean-made Pico laser device and a device that combines a new Morpheus technology with Erbium YAG laser. These upcoming launches are an important component of our long-term strategy. We are committed to innovation and, as part of our strategy, we launch two new platforms of all technologies per year. We see meaningful interest across our existing customer base and the new ones, and we believe these products will improve our overall value proposition. From a product mix perspective, most of our offering includes Morpheus8 or minimally invasive components. This reflects the depth of our portfolio and the comprehensive nature of the solutions we provide. From a financial standpoint, we currently expect total revenue in 2026 to be broadly in line with 2025, and we anticipate continued evolution in our product mix. More broadly, the industry has not yet fully recovered from the global economic slowdown. Demand in North America remains below historical levels. At the same time, we are encouraged by early signs of stabilization in the U.S. and gradual improvement in Europe, which we believe could provide incremental support to our performance going forward. Overall, we are focused on disciplined execution of our product roadmap, continued refinement of our sales team, and maintaining our leadership in innovative position in the aesthetic industry. Now I would like to turn the call over to Yair, our Chief Financial Officer. Yair? Yair Malca: Thanks, Moshe, and hello, everyone. Thank you for joining us. Before I begin to review our financial results, it is important to note that when comparing our year-over-year performance, 2024 included a one-time tax benefit. Therefore, we believe non-GAAP net income offers the most meaningful basis for comparing year-over-year results. Starting with total revenues, InMode Ltd. generated $103.9 million in the fourth quarter of 2025, up from $97.9 million in the same quarter last year. For full year 2025, revenue totaled $370.5 million, a 6% decrease compared to 2024. Moving to our international operations, the fourth quarter was a record revenue quarter for Europe, reflecting continued momentum across the region. Sales outside the U.S. totaled $48.5 million in Q4, representing 47% of total sales and an increase of 38% compared to Q4 of last year, driven primarily by Europe. For the full year 2025, sales outside the U.S. accounted for $171.8 million, or 46% of total sales, representing a 15% increase compared to 2024. Gross margins in 2025 were 78% on a GAAP basis compared to 79% in 2024. Non-GAAP gross margins were 79% for both the fourth quarter and the full year of 2025. In Q4 and in full year 2025, our minimally invasive technology platforms accounted for 76% and 78%, respectively, of total revenues. For the full year 2025, consumables and service accounted for 22% of revenue, an increase from 20% in 2024. To support our operations and growth, we currently have a sales team of more than 285 direct reps and 73 distributors worldwide. GAAP operating expenses in the fourth quarter were $55.3 million and $205.6 million for the full year, an 110.5% increase year over year, respectively. Sales and marketing expenses increased slightly to $48.4 million in the fourth quarter compared to $44.7 million in the same period last year. Sales and marketing expenses for the full year 2025 were $180.6 million compared to $181.4 million for 2024. The year-over-year decrease was primarily driven by lower sales commissions resulting from reduced sales as well as lower share-based compensation, partially offset by higher salaries and employee-related expenses. Next, we look at share-based compensation, which decreased to $2.5 million in the fourth quarter of 2025 and $11.0 million for the full year 2025. On a non-GAAP basis, operating expenses were $53.2 million in the fourth quarter, compared to $46.8 million in the same quarter of 2024, representing a 13.5% increase. For 2025, non-GAAP operating expenses were $195.8 million compared to $189.8 million in 2024. GAAP operating margin for Q4 and for full year 2025 was 25% and 23%, respectively. Non-GAAP operating margin for the fourth quarter of 2025 was 27% compared to 32% for the fourth quarter of 2024. Non-GAAP operating margin for full year 2025 was 26% compared to 33% in full year 2024. This decrease was primarily attributable to higher sales and marketing expenses. GAAP diluted earnings per share for the fourth quarter were $0.42 compared to $1.14 per diluted share in 2024, and $1.43 in 2025 compared to $2.25 in 2024. Non-GAAP diluted earnings per share for this quarter were $0.46 compared to $0.42 per diluted share in 2024, and $1.60 for 2025 compared to $1.76 for 2024. As of 12/31/2025, the company had cash and cash equivalents, marketable securities, and deposits of $555.3 million, and we returned $127.4 million back to the shareholders through a disciplined share repurchase program. This quarter, InMode Ltd. generated $22.7 million from operating activities. Before I turn the call back to Moshe, I would like to reiterate our guidance for 2026: revenues between $365 million and $375 million; non-GAAP gross margin between 75% and 77%; non-GAAP income from operations between $87 million and $92 million; non-GAAP earnings per diluted share between $1.43 and $1.48. I will now turn the call back to Moshe. Thank you, Yair. Operator, we are ready for the Q&A session. Operator: We will now begin the question-and-answer session. On your telephone keypad, please press star, then one to ask a question. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, press star, then two. The first question comes from Matt Miksic with Barclays. Please go ahead. Matt Miksic: Hey, thanks so much for taking the questions, and I appreciate all the color. So one on one of the comments that you made just now, and then I have one follow-up, if I may. You talked a little bit about encouraging signs of improving trends. I do not want to make too much of that. This is something we have talked about, and it has been some time now. So what, if anything, are you seeing that would suggest things are starting to perk up a little bit? And then, as I mentioned, I have one quick follow-up. Moshe Mizrahy: Well, thank you. Thank you. We see, first of all, the interest rates started to come down. That is a good sign for us, and that means that the interest rate for leasing packages for five years, which is the main vehicle for the doctors to purchase capital equipment, will probably come down as well, and we see some decline in the interest rate on lease packages as well. Second, I believe I said that in 2025, we see a slight increase in the procedures number. We see more sales in consumables, which represent the numbers of minimally invasive treatments. So between these two and the slightly increasing revenue in Europe, we believe that these are very early signs. I am not saying that we see the light at the end of the tunnel yet, but we see very, very, very, I would say, soft signs that encourage us that maybe the momentum or maybe the change is coming soon. Matt Miksic: Okay. That is super helpful. And then follow-up, I am not sure how much you are going to be willing to talk about it. So you probably already know the question is, but just comments that were in the press about strategic alternatives. You know, we view the stock as very attractively valued and has been for some time. Cash flows and margins are stable and being able to buy back shares and maneuver in a way that many companies your size cannot, just because of your margin structure, cash flows, and tax benefits, and so on. What can you tell us about the process and maybe the timing as to when we might hear something as a result coming out of it? Moshe Mizrahy: Well, you know that in the last two and a half years, we actually implemented a buyback program, and we bought back stock for almost $580 million. Following that, the Board of Directors decided to look for some other strategic alternatives to improve the value of the company, which we believe, and the Board of Directors believes, is still very low. So they are considering several types of strategic alternatives. They hired a bank in order to help them. I can say the name, Bank of America. And the process is done between the Board of Directors and the bank. The management is not fully involved in this process. I want to comment on one thing about the news that Steel Partners released to the market in the press release that they are willing to buy 51% of the company for $18 per share. So I wonder why they sent this letter to me as the CEO and to the Board of Directors. We do not have 51% of the company to sell. So the only way to buy 51% of InMode Ltd. is to do a tender offer, hire a bank, put some money in an escrow account, and offer it to the public, not to the CEO. I do not have 51% to sell and give them. But they did not do it. They just sent a letter to me and to the Board of Directors and later, one day after, they published it as a press release. Other than that, we have no contact with them whatsoever. Not myself, not the Board. We did not talk to them. We did not discuss it with them. We do not know why they put the press release out, but everything is possible in the U.S. Matt Miksic: I suppose so. Thanks so much. The next question comes from Danielle Joy Antalffy with UBS. Please go ahead. Danielle Joy Antalffy: Hey, good morning, everyone. Thanks so much for taking the question. Yair, this is just a question on the gross margin and the EBIT margin guide. It did come in a little bit lower. I appreciate revenues also coming in a little bit lower. What are the different levers you can pull there to drive a little bit more leverage? I guess, also, what I am getting at is how conservative is this guidance because you still have pretty good leverage even with revenue a little bit softer than what the Street was looking for? And then I have one follow-up. Moshe Mizrahy: Yair, do you want me to answer that? Yair Malca: No, I will take it, Moshe. First of all, learning from the past couple of years, we try to be as conservative as we can with our guidance. But to answer your specific question about the margin, Moshe mentioned in his script that one of the new products that we plan to launch is a Pico laser next year as well as the Erbium laser. Moshe Mizrahy: And lasers tend to have a lower gross margin. Yair Malca: As everyone in the industry knows very well. And we expect those two new lasers that we launch in 2026 to weigh in on our gross margins a little bit. Moshe Mizrahy: Let me add to what Yair said. The two reasons why the gross margin is going down: one, exactly what Yair said, we are getting into the laser development of new laser systems—Erbium YAG, CO2, Q-switched, maybe in the future Pico—but in the meantime, we have decided that in order to have those products in our portfolio, we need to find a reliable source to buy it from and bring it under InMode Ltd. brand name to the market. So the first product that we are buying and selling is a CO2 product. We will develop another CO2 in the future, but it is a CO2 product that we buy from an American company under their FDA clearance. We made it with some changes to comply with InMode Ltd. requirements as far as software and other elements, and we brought it to the market in 2025. In 2026, we intend to bring to the market two new products which we are going to buy from a Korean company. This is the Pico and a Q-switched lasers. Both platforms are very well known in medical aesthetics. But once we buy them and we bring them to the U.S., the cost to us is much higher than our internal manufacturing cost, and we need to take it as COGS. So the effect on the gross margin, plus the effect of the U.S. tariff—15% from all imports from Israel—will affect the gross margin to go in the neighborhood of 75%. Danielle Joy Antalffy: Okay. That is helpful. And then my next question was actually related to the laser launches. How much do you think this opens up the market to you incrementally in 2026 and 2027? I appreciate you have had products here before, but just how big is the laser portion of this market? And how much does your TAM increase by launching these products? Moshe Mizrahy: Well, you know, historically, the laser platforms are the bread and butter of medical aesthetics. We came to the market ten years ago with a new innovation using RF energy and not just laser. And we did very well because laser cannot penetrate deep, and RF penetrates as deep as you want if you are treating in a minimally invasive method and procedure. So it was a very new technology that we introduced to the market. Right now, we believe that in order to grow into the next level of product, we have to have the bread and butter as well, and this is the laser products: CO2, diode, Erbium, Pico, Q-switched—there are many of them. These are not new technologies because all of these technologies are well known in the medical aesthetic industry, I would say for at least 25 years. But we are bringing the new generation of lasers, and we come to the market, and we believe that the synergetic effect between our technology and the laser technology will create another competitive advantage. But unfortunately, the laser market is very saturated, and therefore prices of laser equipment are relatively low compared to InMode Ltd. products—compared to Ignite, compared to Optimus Max, compared to Morpheus. And therefore, the margins on them are relatively low compared to us. They are not relatively low, period. In addition to that, some of these products we are buying, we are acquiring from a Korean company or from an American company, and therefore, we have to share the margin with them. And that also will affect the margin. But basically, lasers for medical aesthetic companies long term, it is a must. It is not nice to have. Danielle Joy Antalffy: Got you. Thank you so much. Operator: The next question comes from Matt Taylor with Jefferies. Please go ahead. Michael Anthony Sarcone: Hey, good morning. This is Mike Sarcone on for Matt today. Thanks for taking the questions. I guess maybe just to start, Yair, can you help us on the quarterly phasing when we think about top line and margins through the year? Yair Malca: I think it is going to be very similar to 2025. As you see, the guidance is pretty much spot-on with our actuals for 2025, and I expect the quarterly distribution to be the same. Michael Anthony Sarcone: Okay, great. Thank you. And then just on the two new launches for this year, can you talk about what you have baked into the guide from a financial contribution standpoint? Moshe Mizrahy: Well— So I think—go ahead, Mike. I mean, the two products that we launched this year in North America are the Solaria, which is the CO2, and the APX RF, which is for increased blood circulation, and some doctors are using it for erectile dysfunction. These two products' contribution in 2025 was 35 times 60. It is about, I would say, $15 million. Michael Anthony Sarcone: Okay. And that is $15 million? Moshe Mizrahy: $15 million, yes. Michael Anthony Sarcone: Got it. Thank you. And any color on kind of new product contributions for 2026? Or are you not providing that? Moshe Mizrahy: Well, the two new products that we will bring in 2026—one of them is made by us, which is a combination platform of new technology of Morpheus. We do not want to elaborate what kind of a new technology. But for us, Morpheus is a technology, it is not a product, and we have some new ideas how to make the next generation of Morpheus, combined with Erbium YAG. Erbium YAG is a superficial treatment on the skin—200 micron, 150 micron—something for texture, and the Morpheus goes deeper. So basically, if you combine these two modalities in one platform, you give the dermatologists or the aesthetic surgeons or the aesthetic doctors the ability to combine these two treatments to get much better results. That is one product. The second product is a Pico laser we buy from a Korean company, a young and small Korean company that we identified, and we signed some kind of agreement with them, so we are exclusively selling their product in the United States. Pico is a very short pulse of laser. So Pico is used for all kinds of pigmented lesions, for tattoos, for melasma, and other skin indications that you are treating. These two products we believe will be well accepted, although we are not the first one with Pico. But with the other platform, it is unique, and we are the only one. So I do not know—I cannot give you any estimations how much we will sell from each one of them, but these are two products that we are launching, and we are launching with intensive marketing, I would say, activity. Michael Anthony Sarcone: Great. Thank you, Moshe and Yair. Operator: The next question comes from Joseph Conway with Needham. Please go ahead. Joseph Conway: Moshe, Yair, thank you very much for taking our questions. I guess maybe just a quick one. Obviously, we saw minimally invasive decline a little bit in 2025, while noninvasive more than doubled, so very strong growth there. I am just wondering if you can add some color as to whether this is mostly driven by the new product launches, the new lasers, or is there any industry shift that went on in 2025 that preferred the noninvasive treatments over the minimally invasive? Is this med spas growing faster than derm or surgeon clinics? Or, like I said earlier, is it mostly just new product launch related? Moshe Mizrahy: Well, I believe we said that before, but I will say it again. Typically, minimally invasive procedures cost much more than noninvasive. So if you want to do one Quantum treatment, it can cost you $4,000 to $7,000 per one treatment. When you want to do laser hair removal, you can buy a package of six treatments for $3,000. So it is $500 per treatment. So the basic procedures like hair removal, skin rejuvenation—these are relatively, I do not want to say cheap, relatively low-price treatments. And the costly treatments like Morpheus, like Quantum, like BodyTite are more expensive. And therefore, when you have only $2,000 for aesthetic a year, you first go to do hair removal and skin rejuvenation, and then you go to do skin or face reshaping. The procedures in 2025, although the numbers of procedures in 2025 were slightly above 2024, but taking into consideration that we added another 4,500 systems in 2025 to the market, the numbers did not grow. So we still do not see a major change in the number of procedures—the numbers of disposables, which means the numbers of procedures—that we are selling to the doctors. Joseph Conway: Okay. And another thing I once read— Moshe Mizrahy: This is something that I believe affects all the market, and that is the GLP-1. The GLP-1—35 million Americans are using GLP-1. So if they want to lose fat, instead of doing liposuction or BodyTite, they can lose fat with GLP-1. Long term, we believe it will help us because once you lose fat, you have loose skin, and you need to tighten the skin, and then minimally invasive is the best way because laser hardly tightens the skin. Joseph Conway: Yes. Okay. That makes perfect sense. And then just one more. It looks like, based off of your slides, that the number of countries that InMode Ltd. is operating in jumped by a considerable amount, I think at least 10 by my math. Just wondering there what countries did you enter in this quarter—distributors—or like 4Q? What was the split there? Are these more direct subsidiaries? I know last call you called out Argentina and Thailand as new direct subsidiaries. And then maybe if you could just expand on that a little bit more. Are you still continuing to emphasize the direct sales over the distributor sales? Is that going to be a mission in 2026, possibly to help the gross margin line? Any color on all that would be great. Much appreciated. Moshe Mizrahy: Well, you know, there is always the rule of 20/80. Twenty percent of your customers are making 80% of your revenue. So if we are adding more customers, these are relatively small because the big countries and the big markets we are covering anyway. But for example, I will give you an example. A small country like Austria—we have a subsidiary in Germany, so we opened a base in Austria as well. So this is another market. Although we do not have a distributor, it is direct from Germany. The same with Ireland and Scotland from the U.K., the same Belgium for France. The two new subsidiaries that we established in 2025—Argentina and Thailand—used to be distributors, but we were not very happy with these distributors, and this is the reason we thought it might be better if we open our own subsidiary because there is a potential in those countries. But when we add other countries in Africa that buy two, three systems, yes, there was a distributor who sold some product, but that is not adding much to our top line. Our top line will be to increase productivity and to increase market share in the big markets. And do not forget, 80% of our sales today are direct. That means that 13 subsidiaries are controlling 80% of our revenue and all other distributors only 20% of our revenue. Okay. Did I answer your question? Joseph Conway: Yes. Yes. Perfectly. Much appreciated, and that is helpful. Operator: The next question comes from Caitlin Cronin with Canaccord Genuity. Please go ahead. Caitlin Cronin: Hi, thanks so much for taking the questions. Just to start off, what are you specifically seeing in Europe that has been so encouraging? And do you continue to expect international to be a higher mix of revenues in 2026 than it has been historically? Moshe Mizrahy: Well, I do not know if I can say that. Although, adding two subsidiaries to the international and making bases in some countries with our existing subsidiaries—as I said before, Austria, Belgium, Scotland, Ireland—will increase our direct sales in those territories, and it might increase the total revenue from the international. But we also invested a lot of money and a lot of effort to—I do not want to say reorganize—but to streamline the operation in North America. We are combining the East, West, and Canada into one company. Instead of having three companies, we have now one company that is using the same product line and the same marketing under the same language, and we believe that will help the North American market as well. So to tell you whether or not the international will be higher than North America, we are not in a position. We would like both of them to grow. Caitlin Cronin: Understood. And how should we be thinking about R&D and sales and marketing spend this year? Moshe Mizrahy: What is the question? What do we think about R&D? Caitlin Cronin: R&D and sales and marketing spend this year—what levels in 2026 versus 2025? Moshe Mizrahy: Okay. On the R&D, although I do not think it needs to be measured as a percentage of revenue, and I said that several times before, we have an R&D team in Israel, which includes electronics, software, mechanical, clinical, and regulation—it is one team. The fact is that in 2026, we will increase the spending—not the spending, the investing—on R&D because we are initiating two big clinical studies for women's health, which are not just simple lasers, and that will cost money. Each one of them probably will be in the neighborhood of between $2 million to $4 million in 2026, and maybe a little bit in 2027. So that will increase the total expenditure on R&D. As far as marketing, when it is a little bit difficult to sell because of the softness of the market, and you want to keep your market share, you have to spend more on marketing—B2B, B2C, social media, conferences—which we are now planning to be in many of them all over the world. And the fact that we are bringing new products to the market also requires some more expenses—or more investing, I want to call it this way—on marketing. So, I mean, the percentages will be similar to 2025. We will not spend more, but we are more focused on specific spending and not general. Caitlin Cronin: Understood. Thanks so much. Operator: The next question comes from Sam Shimon Eiber with BTIG. Please go ahead. Sam Shimon Eiber: Hi, good morning. Thanks for taking the questions. Maybe I will ask them both upfront here. First, on capital allocation, would love an update on your priorities here in 2026, and if maybe any decisions are going to be held off until the end of this review process. Then the second question, just any update on the clinical work for the dry eye indication and FDA approval timelines? Thanks. Moshe Mizrahy: We are trying to get indication for the eye using bipolar RF, not IPL, because we believe that the IPL technology can do something, but the best results, as far as we know and we did some studies, is from RF, bipolar RF. So we initiated the process with the FDA. We met with the FDA, and the FDA has requested to do several safety tests on animals, and we did that to show the safety. We believe that sooner we will get from the FDA approval for the study that we are suggesting. We will do the study in the United States. This is not an easy study because there is no predicate, and therefore it is not a regular 510(k), it is 510(k) de novo. It takes more time. I would say that the study will last all over 2026 and maybe 2027. So sometime in 2027, I believe we will have the final clearance from the FDA. Sam Shimon Eiber: And on capital allocation? Yair Malca: Regarding capital allocation, the Board is evaluating all the capital allocation alternatives together with the strategic alternatives that we mentioned earlier on the call. As soon as we have some updates, obviously we will share. Sam Shimon Eiber: Great. Thank you. Operator: The next question comes from Dane Reinhardt with Baird. Please go ahead. Dane Reinhardt: Hey, thanks, guys, for the questions here. I think based on the slide deck that was posted, you had a really nice quarter here in system placements in the U.S. I think by our math, probably the first time that those actually grew year over year in over two years. But offsetting that, your systems revenue in the U.S. was still down double digits. So just trying to maybe parse out between the year-over-year growth in system placements and declines that we are still seeing in revenue. How much of that maybe is if some of those are just new ones that you are selling—some of those lower-priced lasers versus the RF devices—or how much of that even might be discounting just in the current environment where demand is a bit more subdued? Thanks. Moshe Mizrahy: The number of systems that we sold this year in North America—I am continuing to say North America because I want to include Canada—the number of platforms that we sold in 2025 was about 2,100 systems. It is about 100 systems below 2024. But the market is tough, the competition is strong, and therefore, the average selling price of a platform in 2025 was down 9% compared to 2024. Between these two, this is the decrease in the revenue in the U.S. And we did our best. I believe that in 2026, with what I said before—the encouraging signs, the lower interest rates, and maybe some kind of better consumer feeling—maybe we will keep it. And therefore, we said that 2026 for us is not going to be a growth year. It is going to be a stabilization year. We said that twice in the press release and also in my speech. We will be very happy if we will continue to sell $370 million with about $100 million EBITDA altogether worldwide. And therefore, it takes time to transition a company like InMode Ltd. We are not a small company. We have 660 people worldwide working, plus the manufacturing, which is another 200 people. And we have really made a lot of strategic thinking going forward to 2026, and I believe we are ready. Dane Reinhardt: And then the other question I had on the men's wellness Apex platform, I think you guys just introduced that in August at a user sales meeting. One, how is feedback from that platform going so far? And two, can you remind me, do you have a specialized sales force for that platform, or is that something that you are planning on doing in the future? Moshe Mizrahy: Which platform? Can you repeat your question? Which platform are you talking about? Dane Reinhardt: The Apex Men's Wellness. Moshe Mizrahy: Ah, the Apex. No. We do not have a special team to sell APAX. We have a special team in 2026, starting January 1, to sell the Envision. For us, it is a pilot. We did not want to go and cut the organization into pieces. So we decided that we will take one piece at a time, and Envision is important, and we are going to invest in the clinical study, and therefore Envision is the first product that we actually built a special team for, only in the United States now and also partially in Canada, that will sell Envision. The APAX is being sold with the other products with the same team under the same organization. Now, we are not pushing the APAX very much because we do not have yet the indication from the FDA. We are working on it, and we do not want to cross the line. So that is the most I can tell you now. Dane Reinhardt: Got it. And if I can squeeze one last one in there. Do you have the number of consumable units that you sold in the quarter? Moshe Mizrahy: I believe we do. Overall, 128,000. Dane Reinhardt: Got it. Thank you very much. Appreciate the questions today. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy, InMode Ltd.'s CEO, for any closing remarks. Moshe Mizrahy: Well, thank you, everybody. Thanks to all the analysts that are covering us. I want to thank all shareholders and a special thanks to InMode Ltd. employees worldwide. It was a tough year—2025 was not an easy year—for all of us, with major changes and major adjustments. And we hope to see you again in the first quarter. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to UDR's Fourth Quarter and Full Year 2025 Earnings Call. At this time, all lines are placed on mute to prevent any background noise. If you should need operator assistance during the call, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Vice President of Investor Relations, Trent Trujillo. Thank you, sir. Please go ahead. Trent Trujillo: Thank you, and welcome to UDR's quarterly financial results conference call. Press release, supplemental disclosure package, and related investor presentation were distributed yesterday afternoon and posted to the Investor Relations section of our website ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most direct comparable GAAP measure in accordance with Reg G requirements. Statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. A discussion of risks, and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. When we get to the question and answer portion, to be respectful, for everyone's time and in an attempt to complete our call within one hour, we will limit questions to one per analyst. We kindly ask that you rejoin the queue if you have a follow-up question or additional items to discuss. Management will be available after the call to address any questions that did not get answered during the Q and A session today. I will now turn the call over to UDR's Chairman, President, and CEO, Tom Toomey. Tom Toomey: Thank you, Trent, and welcome to UDR's fourth quarter 2025 Conference Call. Presenting on the call with me today are Chief Financial Officer, Dave Bragg, and Chief Operating Officer, Mike Lacey. Senior Officer, Chris Benenz, will also be available during the Q and A portion of the call. In conjunction with our earnings release, we published a presentation that highlights the value proposition of UDR, our 2025 results, and our outlook for 2026. Our prepared remarks align with the presentation and those of you participating on our webcast should see the slides on your screen. Let's begin. On Slide four, we highlight the investment case for UDR. In short, our proven track record of generating attractive shareholder return is strengthened by our culture of continual innovation and disciplined capital allocation, which are further enhanced by a variety of AI tools. This combination leads to data-driven and collaborative actions that translate into margin expansion and cash flow growth. These areas of strategic focus are supported by a strong balance sheet, that enables multiple avenues to drive value creation. To that end and turning to slide five, data is increasingly at the center of every decision we make and we have developed a heightened focus and skill set on converting data into actions that drive cash flow growth. One example is elevating our customer experience. Our approach to enhance resident satisfaction has already driven 1,000 basis points improvement in resident retention compared to historical levels, resulting in approximately $35 million of higher annualized cash flow. In addition to our focus on customer experience, we are increasingly utilizing data and form our investment and capital allocation decisions. While this effort continues to evolve, we are excited about the framework we have established that marries data-driven decisions with collaboration to drive resident, associate, and shareholder value. Next, key takeaways from our release and '26 outlook are summarized on slide six. These are first, full year 2025 FFOA per share and our same store revenue expense and NOI growth results exceeded our initial guidance at midpoint. Additionally, quarter twenty twenty five same store NOI exceeds expectations set last quarter. Second, the positive operating momentum we achieved in the final months of 2025 has continued into 2026, with further acceleration in lease rate growth coupled with high occupancy and outsized other income growth. Mike will provide additional color about operating results and recent trends in his remarks. Third, we have entered a window of less competitive supply which should bolster our growth profile. Fourth, our flexible approach to capital allocation led us to repurchase nearly $120 million of our stock during 2025. We will continue to utilize our capital allocation heat map which Dave will discuss to evaluate sources and uses. Fifth, our balance sheet is well positioned to fund our capital needs into 2026 and beyond. And sixth, ongoing investments in innovation, including advancing our customer experience project and the various ways we can integrate AI tools it would continue to drive incremental NOI in excess of market level growth. Finally, on behalf of the board and management, I would like to formally welcome Ellen Gauthier, to UDR as a newest board member. Ellen joined us a month ago and brings a wealth of accounting and corporate governance expertise. Having served on senior leadership roles at KPMG, and on several boards over the course of her career. Ellen's appointment follows Rick Clark's appointment in October, These additions were made in coordination with the departure of two long tenured board members in 2025, and reflect our continued effort to ensure the skills and perspectives of our board properly align with our strategic priorities. With that, I will turn the call over to Dave. Dave Bragg: Thank you, Tom. The topics I will cover today include first, our fourth quarter and full year 2025 results, including recent transactions, Second, the 2026 macro outlook that drives our full year guidance and third, the building blocks of our 2026 guidance. To begin, on Slide seven, with our fourth quarter and full year FFO as adjusted per share, of $0.64 and $2.54 respectively, achieved the midpoints of our previously provided guidance ranges. Additionally, our same store expense and NOI growth results beat expectations while same store revenue growth met guidance. Our operation team's impressive navigation of a choppy fourth quarter in the apartment market reflected their preparation, agility, and execution. This positions us well for 2026 as Mike will explain shortly. During the fourth quarter, we completed the following transaction and capital markets activity. We completed the acquisition of The Enclave at Potomac Club a 406 apartment home community in Northern Virginia. For $147 million. We identified this community based on insights from our predictive analytics platform our assessment of future CapEx needs, our operations team's on the ground perspective, including the efficiencies that come with owning the property directly across the street. Early operational results indicate outperformance relative to the market, as we expected. Also, we contributed four apartment communities to expand our joint venture with LaSalle by approximately $230 million. Which increased the size of the venture to roughly $850 million. And with more than $200 million in proceeds from that joint venture expansion, we repaid $128 million of consolidated secured property debt at maturity and repurchased approximately $93 million of common stock at a weighted average share price of $35.56. Reflecting a sizable discount to NAV. Turning to Slide eight. And our macro outlook, we utilize a top down and bottom up approach to set our 2026 forecasts. Our internal forecasting models are informed by our proprietary perspective on our portfolio as well as third party forecast for economic factors that drive rent growth. Among the positive factors are inflationary growth for GDP and wages as well as continued declines in homeownership in part due to challenging affordability. Importantly, after a couple of years of outsized new apartment supply, this factor is now working in our favor. On the other hand, we anticipate a more muted job growth environment relative to recent years. And we are mindful of regulatory risk not just at the market level, but at the federal level given continued uncertainty over tariffs, immigration, and more. This has affected consumer confidence, which recently hit its lowest level in a decade. Building on this, we turn to Slide nine, which dives a bit deeper key tailwinds for our business. First, at the top left, Our residents' financial health remains strong, with the average rent to income ratio below the long term average. This suggests that our residents can comfortably accept rent increases reflective of the value and exceptional living experience at a UDR apartment community. Second, at the top right, the relative affordability of apartments remains decidedly in our favor in near all time high levels of attractiveness versus homeownership due to sustained elevated home prices and mortgage rates. Then at the bottom left, we show that the largest US aged cohort remains in its prime renter years, This is supportive of demand for our apartments. And fourth, at the bottom right, supply completions have meaningfully slowed across UDR's markets to a level below the long term average, and the outlook for 2027 is even more promising. With completion 60% below that of 2025. Combining these factors, we arrive at our 2026 guidance which is summarized on Slide 10. Primary expectations include full year FFOA per share guidance of $2.47 to $2.57, and same store revenue and growth expectations that translate to point 125% year over year NOI growth at the midpoint. Our full year 2026 FFOA per share guidance at the $2.52 midpoint represents a 2p or less than 1% year over year decline from the $2.54 achieved in 2025. As a reminder, 2025 featured 2 pennies from items we do not expect to repeat in 2026. Executive severance and the collection of previously unaccrued interest on a prior debt and preferred equity investment. From there, key differences in 2026 versus 2025 FFOA per share include a 1p per share increase from accretive share repurchase executed in 2025 a 1p increase from lower G and A, which is expected to decline by approximately 5% year over year as we emphasize cost control throughout the organization. This is offset by two items, a 1p decrease related to dispositions as we expect to be net sellers in 2026, a 1p decline from debt and preferred equity activities due to a lower average balance as we expect to reduce the size of the book as investments mature and are repaid. Moving on to Slide 11. Our heat map reflects our priorities as it relates to capital. Currently, the uses of capital that we believe offer the best risk adjusted returns include investment in our operating platform, share repurchases, and NOI enhancing CapEx. Conversely, JV capital and dispositions screen as relatively attractive sources of capital. At the same time, debt is significantly more attractive than equity. As contemplated in our full year guidance, we plan to be a net seller of assets in 2026. We are actively marketing for sale numerous apartment communities and we're generally pleased with the market's reaction. We look forward to sharing details on closings in the coming months. Lastly, on Slide 12, we provide our debt maturity schedule and liquidity. 12% of our total consolidated debt matures through 2027. Thereby reducing future refinancing risk. Combined with nearly $1 billion of liquidity, at twenty twenty five's year end, minimal committed capital, and strong free cash flow, our balance sheet is in a strong position. In all, 2025 was a highly productive year for UDR. We continue to execute on our strategic priorities, with an emphasis on data driven decisions that drive long term cash flow per share accretion. And with that, I will turn the call over to Mike. Mike Lacey: Thanks, Dave. Today, I'll cover the following topics. The building blocks of our full year 2026 same store revenue growth guidance, our 2026 outlook for same store expense growth, and recent operating trends as well as our strategic positioning for 2026. Turning to slide 13. The primary building blocks of our 2026 same store revenue growth guidance include blended lease rate growth, contributions from our other income innovation, and sustained occupancy and bad debt. The largest driver is blended lease rate growth, which we forecast to be between 1.52% on average in 2026. This is approximately 100 basis points higher than we achieved in 2025, which reflects a 35% year over year reduction in supply completions coupled with a less certain employment outlook. As Dave touched on earlier. We expect first half blended lease rate growth will be similar to the second half, each at 1.5% to 2%. With the potential for upside as residual supply pressures lessen and market concessions burn off towards the end of the year. This dynamic means blended lease rate growth should contribute approximately 80 basis points for our full year 2026 same store revenue growth. And have a positive flow through impact on twenty twenty seven's earnings. The other primary driver of revenue growth is innovation. And other operating initiatives. Which are expected to add approximately 45 basis points to our 2026 same store revenue growth. This equates to approximately $10 million or nearly 5% year over year growth for this line item. The bulk of this contribution should come from the continued rollout of our property wide WiFi and the delivery of value add services to our residents. Rolling this up, our 2026 same store revenue guidance ranges from 0.25% to 2.25% with a midpoint of 1.25%. The 2.25% high end of the range is achievable through higher blended lease rate growth than our initial forecast. Improved year over year occupancy, and additional accretion from innovation. Conversely, the low end of 0.25% reflects the inverse scenario. With full year blended lease rate growth closer to flat some level of occupancy loss, and delayed income recognition from our innovation initiatives. Turning to slide 14. We expect 2026 same store expense growth of 3.75% at the midpoint. This is primarily driven by growth in three categories. First, real estate taxes. Which comprise 40% of our total property expenses, We were successful with many tax appeals in 2025, which resulted in below trend growth and created a tough year over year comparison. As such, we expect 2026 real estate tax growth will approximate the long term average in the high 3% at the midpoint. Second, repairs and maintenance. Which comprises 20% of our total property expenses, With the success of our customer experience project, and increased resident satisfaction, we dramatically reduced resident turnover in 2025 which led to less than 2% repair and maintenance growth. Well below the long term average. While this creates a difficult year over year comparison, we continue to effectuate actions that improve the UDR resident experience and lead to higher retention. Therefore, we see an opportunity for repairs and maintenance costs to be better than we currently forecast. And third, administrative and marketing expenses which comprise 8% of our total property expenses. Similar to 2024 and 2025, elevated growth of 8% would be halved if adjusting for our cost affiliated with our ongoing rollout of property wide WiFi. This initiative is NOI accretive after considering the revenue benefits. And we would expect the growth rate of this category to normalize after installations are complete. Moving on. On slide 15, we highlight our 2026 operating successes. These results are a direct reflection of our team's data driven preparation, agility, and execution. Recall that in early twenty twenty five, we prepared for a weak fourth quarter by strategically shifting approximately 25% of our fourth quarter twenty twenty five lease expirations into higher demand months in 2026. As we entered the late third quarter, demand weakened beyond typical seasonality and we pivoted towards building occupancy. Which increased to nearly 97%. Lease rate growth bottomed in October, with new lease rate growth of negative 8% and renewals of positive 2% leading to blended lease rate growth of negative 3%. Operating from a position of occupancy strength, and with fewer lease expirations than typical, we have been able to meaningfully accelerate lease rate growth over the last four months. Since the October lows, new lease rate growth has improved five fifty basis points, Renewals have increased 300 basis points and blended lease rate growth has improved by 400 basis points. To positive 1%. Sequential monthly momentum suggests first quarter blended lease rate growth should be between 1.52%. Which is nearly twice as strong as the 2025. Additionally, we're accomplishing this rate growth while occupancy remains strong in the mid to high 96% range. Other income continues to exhibit mid single digit growth and resident turnover continues to improve. I'm encouraged by these trends, are a direct result of our team's data driven preparation, agility and execution. Turning to slide 16. UDR has a strong culture of innovation that drives initiatives to enhance our growth profile. Historically, we have generated approximately 50 basis points of NOI growth per year from initiatives. Top areas of focus for innovation currently include elevating the customer experience, pricing, and enterprise effectiveness. In the effort to maximize these opportunities, we are currently piloting AI initiatives. There are dozens of incremental AI related ideas on our list to explore and execute on. And we look forward to providing updates as our journey continues. UDR is and has been an innovative company and we believe these enhanced tools will further differentiate our innovation to create a lasting advantage. To conclude, as summarized on slide 17, our full year 2025 results across FFOA per share and same store growth exceeded our initial guidance midpoints, In fourth quarter same store NOI, exceeded expectations. The operating strategies we deployed in 2025 established the foundation for positive operating momentum in 2026. With accelerating blended rate growth and occupancy in the high 96% range. This operating momentum coupled with lessening supply pressures, sets the stage for favorable fundamentals as the year progresses. We are positioned to take advantage of external growth opportunities and will continue to utilize various sources of capital to accretively grow the company while heating costs of capital signals. And we continue to innovate with the intention of increasing revenue growth, improving resident retention, and further expanding our operating margin over time. Our unique approach to converting data into actions that increase cash flow reinforces our stature as a full cycle investment that appeals to shareholders. Finally, I give special thanks to our teams across the country for your hard work and ability to drive results. In 2025, our same store revenue growth was at or above peer median across 13 of the 14 markets that we share with public peers. This is an accomplishment we have never seen before. When pairing this with constrained same store expense growth, UDR generated the second highest year over year same store NOI growth among the peer group in 2025. We set a commitment to win and execute it at the highest level to achieve an exceptional outcome. With that, I'll open it up for Q and A. Operator? Operator: Thank you. One on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. Once again, we ask that you each keep to one question. Thank you. Our first question comes from the line of Eric Wolf with Citi. Please proceed with your question. Eric Wolf: Can you just talk about your blended rate growth expectation for the full year? Coming up a lot. In the first quarter, and you talked about some of the reasons why, but then it's holding constant. It seems like for the rest of the year, maybe up a little bit and then down in the fourth quarter. It's just a bit different than that sort of normal seasonal pattern that you see. So I was hoping you could talk about why you're seeing that. Mike Lacey: Yeah. Maybe a few points on that. I think first, we're cognizant of the past few years we've actually experienced more of a downturn in the back half of the year. So that's one thing that we're looking at. In addition, we've got the teams in place. We have the systems in place. We think that if the market continues to do what it's doing today, we're gonna take advantage of it. And then the other thing I'd point to is we're off to a better start than we would have expected. So when you think about that, 1% that we just achieved in January, that's about 50 to 75 basis points. Points better than we originally thought. So we're off to a really good start. A lot of that has to do with the strategy we deployed. And so our expectations are again, that 1.5% to 2% in the first half. Should be very similar in the back half. If it happens to be better, we're going to be in a position to take advantage of it. Operator: Thank you. Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question. Jamie Feldman: Great. Thanks for taking the question. Wanted to dig a little deeper into your thoughts on occupancy. You think it's going to remain elevated what are you thinking on retention here? What gives you comfort on that level, especially given all the push for affordable housing and everything we're going to see in the headlines this year? And whether things do or do not happen, but just wanted to get your big picture thoughts on retention. Mike Lacey: Yeah. A couple things there, Jamie. Think first with occupancy, the way that we think about it is how we can be more efficient and how we can optimize it. We think in terms of vacant days, in a lot of ways, what we're trying to accomplish is being more efficient as it as it relates to the turn process. And so how can we reduce those days? And then from there, how can we move people in faster? Which typically doesn't have anything to do with touching rents. It's just being more efficient around those two items. From there, we've been doing a lot with driving our occupancy up in the fourth quarter. We were upwards of 97% around October, November time frame. So Since then, we've been really pushing the gas on our renewals. And what you're gonna see from us going forward is sending out between, call it, five and a half to 6% And our expectations are achieving somewhere close to that 5% range. At least through April. And so when we think about turnover and where it can go, we're really focused on total cash flow as well as total revenue growth. And so you're gonna see us continue to try to see what we can get on the renewals. Also, knowing that we wanna try to reduce turnover even further, but it all comes back to cash flow and how we can continue to try to drive our operating margins. Operator: Our next question comes from the line of Yana Gallen with Bank of America. Please proceed with your question. Yana Gallen: Hi. Thank you. Also a question for Mike. Following up on your comments on the sequential monthly momentum. I was wondering if you could give us some detail on the variance across your regions, kind of call out which market had kind of a stronger acceleration versus others? Mike Lacey: Yeah. Yana, good question. I think first, maybe high level, just to to walk what we experienced because it was pretty impressive. Going from October to January. So when I think about total company blends, and I mentioned it in my prepared remarks, up around 400 bps. October was our low at negative three. November saw a little bit of improvement to negative two and a half percent, and then December is when we really started to see it move, and it was closer to negative 50 bps. territory at 1%. And then you heard what I said on January or or in positive When I think about the regions, I've seen a little bit more of an inflection in the Sunbelt over the last couple of months. And I think for us, we we already had a a really start strong point on coastal. The growth is still there. It's just not seeing as much of an inflection to say places like Dallas where we've actually seen that market go positive more recently. So my expectation going forward is Sunbelt's gonna continue to improve to some degree. But, again, we haven't modeled much of an inflection in the back half of the year. We hope it happens, and we're gonna be ready to push if it does. But right now, those back half are very similar than the first half. Thank you. Operator: Please proceed with your question. Our next question comes from the line of Steve Sakwa with Evercore ISI. Steve Sakwa: Yeah. Thanks. Just maybe touching on the on the transaction mark and the buyback kind of putting those two together. You clearly are signaling being a net seller. Guess, how how much could you step on the gas on the dispositions this year without having maybe tax consequences for gains and you know, what does that mean for kind of volume of of share buybacks in '26? Dave Bragg: Steve, it's Dave. First, I'll start with some comments on the broader transaction market and then go into our experience and our plans. terms We find that debt is readily available at attractive And as we enter the new year, the GSEs with new mandates in hand for 2026 are increasingly competitive with other lenders and to do so, they've reduced spreads. And you've seen debt funds get more competitive in this space as well. Stemming from the large amount of capital that have come into the credit space lately. So that's a debt landscape. On the equity side, there's a lot of interest to explore opportunities However, investors are selective. They're methodical. And they're patient as it relates to executing. They have a heightened focus on the trajectory of rent growth and current or potential regulatory risk. So we have found a little bit of a bid ask spread in the market of late. Cap rates vary widely based on the quality of asset and location, but they generally center around a 5% cap. And buyers are really subscribing to the possibility of much stronger rent growth in 2027 and '28. And generally speaking, newer vintage assets with positive rent trends and a little competitive supplier pricing best as low at the low to mid 4% cap rate range, whereas b assets with competitive supply, less optimal submarkets, can be 6% cap or higher. So that brings us to our experience with our capital committee and our data driven approach. To selecting disposition candidates, we looked at a few criteria. First, the predictive analytics outlook for rent growth, also CapEx burden going forward. And the operation team's perspective on the potential for the assets That led us to a mix of assets to put on the market without a real specific concentration in market or age of asset. It's really an asset level decision for us. We started with about a billion dollars. We did pull one asset from that group. It was a large one in Boston. Where heightened policy concerns affected interest. So that leaves us with about 700,000,000, and we're working that group hard. And we expect to close a first slug of them in the first quarter. And then a second group in the second quarter. Generally, pricing is close to our expectations, and we look to sharing those details next quarter. And we're excited about the optionality that that creates for us. The magnitude of discount to NAV that has persisted in the space just doesn't happen very often. We are fortunate that we've taken advantage of it so far and plan to continue to do so as we execute on dispositions. At the same time, as you alluded to, Steve, we're mindful of our tax gain capacity of a couple $100,000,000. So we've put into guidance an acquisition or two at the midpoint. That would be a ten thirty one exchange when would allow us to manage that. So the midpoint of dispositions is something that we're comfortable executing on, and we'll see what the market brings us in terms of opportunities. And that could allow us to lean back into the investment market more. Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Proceed with your question. Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Following a really good 2025 contribution to same store revenue from other revenues, the 2026 contribution is also strong. So can you kind of outline what are the factors that you expect to drive that this year? Thanks. Mike Lacey: Yeah, of course. I think for us, what we're expecting is that mid single digit range after averaging about 8% over the last two years. A couple of the big ones that I'll reference right now is Wi Fi, We do expect that to contribute about 1% or $2,000,000 in 2026. And then parking as well as package lockers, we're expecting mid to high single digit growth coming out of those two initiatives. And then we have some new ones that we've been working on. And just to give you a little bit of an idea, of how we're looking at this, it's really a win win for us and our residents. One is storage. We're trying to figure out a way to optimize our storage. We're adding more lockers across our portfolio, and then we're also working with third party to try to utilize that group and try to drive a little bit more income there. And then in addition to that, we're really looking into our pet rent, which it or not, makes up about $800,000 a month at this point. And we're leveraging our CRM and our maintenance platform to identify about 2,000 pets that have not been paying rent across the portfolio. So we're leaning into that and driving that initiative. And I think what you've seen from us over the years is we typically come out with that mid single digit range growth. Our expectation is we're gonna continue to lean into our innovation and try to drive that higher. Thank you. Operator: Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question. Austin Wurschmidt: Mike, how does the 1.5% to 2% lease rate growth assumption break out between Sunbelt versus coastal markets? And then kind of curious on the same question for the 100 basis points of acceleration, just how that breaks out as well? Thanks. Mike Lacey: Yes. When we look at the acceleration I mentioned it previously, we do expect a little bit more acceleration in Sunbelt in the second half versus the 1st Half. Compared To The Coast Where It's Pretty Comparable, Maybe A Little Bit Lower Today. But When I Think About The East Coast, West Coast Sunbelt, I wanna say we're probably closer to call it, two to two and a half percent in the coast, and we're closer to call it, flat to maybe up 50 bps in the Sunbelt in terms of blends. When I think about the other income contribution, what we've seen is the Sunbelt producing closer to high single digit, maybe even low double digit growth over the last couple years. My expectation is that's gonna continue to be the case. And that's what led has led to that outperformance when you look at our our market wins over some of the peers over the last couple years. We're getting there in different ways, but my expectation is that the Sunbelt will continue to try to drive some of those initiatives to to make a difference as it relates total revenue growth. Operator: Thank you. Our next question comes from the line of Anthony Paolone with JPMorgan. Please proceed with your question. Anthony Paolone: Hey, guys. You guys have a now home on for Tony. Maybe just on the debt and preferred s investment book, looks like you guys received some partial repayment after the quarter ended. You guys maybe talk about you're expecting long term from this book How much of an earnings contributor you're expecting it to be in maybe you're targeting the book size? Dave Bragg: Tony, this is Dave. So the DPE business is one that UDR has been in for more than ten years. And we like the fact that it allows us to deploy our expertise and diversify our earnings stream, and it's one of the many uses of capital. For us. And at times, it allows us to gain to assets that we want to own. So as you know, our focus in underwriting has evolved. And we shifted the book away from a relatively higher risk, higher return focus on development to recaps of cash flowing assets with more current pay. And we've also fortified the underwriting process with a highly data driven and collaborative approach So as we consider that in the structure that works for us, such as 75% LTV top dollar, and terms without extension options, we found the market to be increasingly competitive. And our outlook for this year reflects continued successful paybacks and a range of possibilities around paybacks and deployments that gets the book to decline order of magnitude would be 10 to 25%. And we'll continue to assess opportunities, but remain mindful of potentially superior risk adjusted manners in which we can deploy capital. Thank you. Operator: Our next question comes from the line of Rich Hightower with Barclays. Please proceed with your question. Rich Hightower: Hi. Good afternoon, everybody. Question on expenses. And just hoping for maybe a little more color on the breakdown between controllable and noncontrollable for the year, you know, personnel related expenses verse versus non personnel related. And, you know, what what's what's the flex, I guess, that's kind of embedded in in some of these elevated ranges for expense growth that I see? Thanks. Mike Lacey: Yes, great question. I think probably refer back to Slide 14 within deck, and we can go through some of this in a little bit more detail. But say, first and foremost, 2025 was a very strong year for us as it relates to cost control. Our original guidance, if you recall, was 2.75 to 4.25%. With a midpoint of three and a half percent. We exceeded the low point with 2.6% growth. So the team's really leaned in, and they were able to control what they can control. This year, we faced those headwinds, and I mentioned in my prepared remarks. It really comes down to the rollout of WiFi costs as well as some of the prior year tax appeals, the success we've had around that. That's about a 50 basis point drag on our numbers. That being said, the teams are hard at work. They're looking at ways to try to exceed our plan again this year. And I'll give you an example of where we're really leaning into it. When you think about the customer experience project and where we've been able to take that over the years, And just to kinda size it a little bit, we historically would run around 50, 51% turnover. We ran at 38 and a half percent this past year. So we've improved it by about 1,200 basis points. This year in our plan, our expectations are that turnover stay relatively flat And I'll tell you, looking at our January numbers, it was down another 200 bps on a year over year basis. So from that initiative alone, if we can continue to lean into that number, drive those those initiatives, we think that there's a pickup right there. And that'll be a direct impact across r and m, across a and m, even our personnel expenses. So you're gonna see that really shine through on our controllables. Thank you. Operator: Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question. John Kim: Thank you. Your fourth quarter blends came in roughly in line with what you indicated on the last call. But it's still surprising to see some of the the large decreases in in new lease rates in the fourth quarter. You just remind us how much of that was impacted by concessions in the fourth quarter? And what your policy is on the lease rates? Mike Lacey: Yeah, John. I I appreciate that. I think for us, four q did come in kinda where we've been communicating over the last three months or so, and that led to our earning coming in where we expected. Fortunately for us, we were able to take advantage of lower expirations and drive our occupancy back up. And so that helped us a lot. I mentioned the cadence of the blends. And when you think about October was that low point, that's really when we start to experience less demand coming through the door. We saw concessions start to pick up, and so we start to drive our occupancy back up. And from there, we're able to get more aggressive on our rents, and you're seeing it really play out in our strategy as you as you look at January. And really based on what we're seeing in February, that's a good trend too. For us, I think you're gonna continue to see it play out in our renewals. And so I think I mentioned we're sending out between five and a half, 6%. We typically negotiate on about 35 to 40% of our renewals. We typically achieve between 50 to 80 bps of what we sent out and so expectations are you're gonna continue to see plus or minus 5% on a renewal growth going forward at least through April where we've priced those And so it's playing out as expected. We feel really good about our positioning today. Operator: Our next question comes from the line of Alexander Goldfarb. With Piper Sandler. Alexander Goldfarb: Hey. Morning out there. So question on the legal and advocacy costs You did mention Boston impact on one of your assets. So I guess a two parter on this. One is how have your rent you know, expectations between limitations either through rent control or utility bill backs, etcetera, How have those changed in your markets? And second, what are you guys budgeting for legal political advocacy, etcetera, for this year? It just seems like is now sort of a permanent part of the business. You know, not not something that's, every now and then. Tom Toomey: Yeah. Alex, maybe I can take a little bit of that, and Mike can chime in as well. I would say in the vast majority of our markets where we rent control, it's not overly restrictive rent control for the type of asset we have. So I don't think we've seen a big restriction on where we can raise rents You know, in a place like Montgomery County, that can be a little bit different. That would be restrictive. You mentioned Massachusetts and the ballot measure there or at least referenced it. That would be some of the most restrictive rent control in the country. So as we look at it though, the coalition is formed there. We feel good about the group. We feel good about the plan. Ultimately, we feel good about succeeding. With that. So we just don't really see those restrictions as we look across the country. And then what was the second part of your question again? Oh, advocacy. So as we think about advocacy, and Dave can jump in on this as well, I think it's too early to tell exactly what the costs are gonna be this year. There's clearly going to be some costs associated with mass Massachusetts and then for UDR more uniquely, there's some costs associated with Salinas as there's a ballot measure there to reinforce, the city council's decision to, rescind the restriction to rent control out there. I would tell you as you think about sizing though, we're not talking anything flow to what was spent in California in any of the three last ballot measures. But once again, we're we're still focusing in on exactly what those costs are gonna be, and we'll update you guys as we have more clarity going forward. Operator: Thank you. Our next question comes from the line of Wes Golladay with Baird. Please proceed with your question. Wes Golladay: Hey, good morning, guys. Just like to follow-up on the blend improvement from October to January. Was that I just want to clarify that it was maybe just you know, UDR being less aggressive, on a push to build occupancy. You aren't really seeing much in change of demand or concessions abating? Mike Lacey: We are seeing concessions abate. And so when we go back to that, October timeframe where we saw the bottoming, we were seeing closer to two weeks on average across our portfolio. Today, we're closer to one week. And so you can see concessions are are coming off pretty significantly across the portfolio. And one example I would give is a place like Dallas today. We've actually seen our blends go positive. We're just not seeing as much concession activity in a place like that, so that's helped in a lot of ways. Thank you. Operator: Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question. Haendel St. Juste: Hey, guys. Good I guess, still good morning out there. Was hoping you could talk a little bit more about your expectation for some of your key coastal markets. The near term outlook for New York and San Francisco seem very strong, but the outlook for Boston, DC, LA, less so. So maybe some incremental color on your expectation for your asset in East Coast storm. Key coastal markets and how they fit into your balance view for the coastal, markets this year. Thanks. Mike Lacey: Sure. And maybe I'll give you a little bit of color on what we're experiencing now. Think about Coast and Sunbelt. I think first and foremost, it's not a big surprise The earning across the coast is better than the Sunbelt. And I would tell you it's kind of one a, one b, but the West Coast right around a 100 bps going into the year, 50 to 70 bps. Then the Sunbelt was around negative one fifty. So that gives you a sense for how it's built and how we started the year. As we think about where we're going now, our expectations are I mentioned it earlier, blends will be in that two to two and a half percent range on the coast. Our expectations are Sunbelt will start to see an inflection and maybe see, call it, zero to 50 basis points this year. So that gives you a sense for a lot of the blocking tackling. For us, you're gonna continue to see that 96 and a half to 96.8% occupancy across the entire portfolio. And then it comes down to things like other initiatives other income growth, again, the Sunbelt. Is expected to see, call it, five to 10% growth. The coasts are probably closer to that five, six, 7% range. And really, when I think about some of these markets within the regions, we've got winners in every region. I think San Francisco is gonna continue to be probably our strongest market across the portfolio and definitely on the West Coast. On the East Coast, New York has really performed well. I'm seeing concessions come down. We're still running around 98% occupancy. So New York's still gonna be a strong one out in the East Coast. Then when we think about the Sunbelt, I've mentioned it a couple times today, starting to see a little bit more positive momentum in place like Dallas. Positive plans, occupancy back in that 96 and a half percent range. That's been a a positive surprise to start the year. And then specific to your comments around Boston, that's gonna be a decent performer for us. Maybe not one of the best markets in the portfolio, but it's still probably a top five, top six, seven market in the portfolio. And in addition to that, I'd tell you Orange County, we have a heavy weight compared to our peers, that was done surprisingly well over the last year. And my expectations it's gonna continue to do well for us as we move throughout 2026. So feel pretty good about different markets within all of our regions today. And again, I think it comes back to the strategies that we've deployed and the initiatives that we have out there. They're gonna continue to make a difference for us. Operator: Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question. John Pawlowski: Hey. Thanks for the time. I have a follow-up question about the size of the debt and preferred equity program. And just given how liquid the credit markets are, me think through, like, is there is there a significant prepayment risk I know, David, maybe you mentioned you expect the book to set decline by maybe 10% to 25%. But given the two two year weighted average maturity and 10% contractual rate of return, is there is there a decent chance we see significant prepayments that will lead to a more precipitous decline in the size of outstanding this year? Dave Bragg: Hey, John. It's Dave. We're in constant dialogue with our partners on the DPE book, and it's a thoughtful question. At this time, no. We don't see outsized prepayment risk. We see a methodical pace of successful paybacks over the course of the year, which frees up capital for us to deploy back into the DPE book. At some rate should we find those opportunities. Or we could pivot to other attractive uses of capital such as the share buyback. Thank you. Operator: Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question. Linda Tsai: Hi. Thanks for taking my question. On your employment outlook, you're expecting minimal year over year growth of 0% to 1%. Is there any distinction in terms of how you think about in the first half? Versus the second half of the year? And then are there any regions where you're seeing better or worse employment within your portfolio? Dave Bragg: This is Dave start. Our employment forecast is really calls for about 30,000 jobs created per month equally over the course of the year. That's down from roughly 80,000 per month was the run rate over the course of 2025. Chris, are there any comments you'd like to add at the market level? Chris Benenz: No. I would say, you know, we're not economists. We follow consensus viewpoints. So know, think about the employment outlook. Obviously, you know, more often than not, Sunbelt markets are going to look a little bit better. Postal markets are going to potentially look a little bit worse, from a consensus viewpoint in 2026. But that is not uniform. You do have some Sunbelt markets like a Tampa or something like that. That could you know, are expected to see a little bit of job loss going into 2026. So that's not uniform, but generally Sunbelt you know, as you would expect would be a little bit better, Coastal a little bit worse. Operator: Thank you. Our next question comes from the line of Alexander Kim with Zelman and Associates. Please proceed with your question. Alexander Kim: Hey, guys. Appreciate you taking my question. I wanted to dive into the Seattle market a bit, which you exhibited kind of strong, performance in 4Q with four point almost 4.5 revenue growth. And negative year over year expense growth. Could you talk about what's driving the strength in how do you think about the job outlook in that market when forecasting it out? Mike Lacey: I'll give you a little color on what we're experiencing. I think first, it's helpful that we don't have any exposure to Downtown Seattle. We are diversified portfolio. We're about 6% of our NOI in that market. We're 60% urban, 40% suburban. And so for us, we did experience more growth down that u district. And followed by Renton and then Bellevue. And so we have had a mixed bag there. We it is good to be diversified. What I'm experiencing today is around, call it, ninety six eight, 97% occupancy. We have seen concessions come down in Seattle, which has been great, and that's led to positive blends in January compared to that negative call it, two to 3% that we experienced during the fourth quarter. So it is good to see some positive momentum there. And then it does help that the fact that we're seeing supply come down across that market. In fact, we're seeing about 9,000 units compared to 13,000 units being delivered from a year ago. So that's helping. In terms of job growth, we're seeing positive momentum down in places like Bellevue. We do hear the news that some layoffs here and there, but we're not necessarily hearing it from our resident base, and we're not seeing it from our prospects. And, again, that's led to concessions coming down and occupancy being stable. Thank you. Operator: Our next question comes from the line of Rich Anderson. With Cantor Fitzgerald. Please proceed with your question. Rich Anderson: Thanks. Thanks, everyone. So, you know, really good good stuff, but I I have a a basic question, and that is, you have a reason why, you're having, the the experience that you're having in terms of the sequential performance Is it something systemic to the world around you? Is it a UDR sort of strategic shift of some sort that's inciting? You know, better activity. I'm I'm just curious if you can hazard a guess as to why, you're seeing the improvements that you are and if you need new lease rate growth to turn positive this year for this whole story to really truly have legs? Thanks. Mike Lacey: Yeah, Rich. I think it's a combination of a lot of things. And we've been talking a lot about it today on the call. I think it does go back to our strategy. The fact that we started about a year ago really getting in front of the fourth quarter and reducing our expirations. That put us in a strong position to get more offensive as it relates to rent growth. And so from there, what you were able see is we started driving our market rents probably a little bit faster than others. And when you're able to do that, you can start leaning into things like your renewal growth. We're typically sending out between sixty to seventy five days in advance You're seeing that play out in what we've sent. As well as what we're achieving. And so that's just a part of the equation. In addition to that, it's all the other initiatives, all the other income that we been able to produce over the last couple years. Again, that's been around 8% for two years running. Our expectations are we're still in that mid single digit range, and we're gonna try to drive that higher through a multitude of initiatives, including some of the things that we're doing on the AI front. And so we think that we have the teams. We have the systems. And we execute it at a high level. Tom Toomey: Hey, Rich. This is Tumi. You know, I might add. Ask Mike to expand a little bit more about the his AI programs because you know, you've heard us for a number of years and it's blah blah blah. I get it. With respect to we're piling on a number of initiatives overall program, related to data, etcetera. But I think the next frontier really is this enablement of data to cash flow through our AI strategy and execution and know, he's got a lot of good things. No one else asked about it. So I'm gonna take some liberty and ask him to embellish a little bit on that. Mike Lacey: I appreciate you teeing that up for me, Tom. The way we see it impacting a multitude of things right now is we see it across our customer experience. We're seeing it across human capital, and we're really leaning into how we think about CapEx. How we use it today is with our sales team. And we're using it to do a better job with screening upfront with our prospects. And I'll tell you our data teams are using it every single day. How I think about it going forward scalable ways AI can help us service our residents better reduce friction, and improve decision making. If I could just give you a few examples of the things that we're thinking about today, Again, it goes back to that customer experience and capital allocation. We're using AI. We're analyzing our risk console, and we're matching against our maintenance platform to identify opportunities to enhance our customer experience project. In addition to that, we look at it and how we we work with our reimbursements. As another example. We're using AI to analyze large recurring data processing files And we're able to identify trends in real time. This covers abnormal usage, missing invoices, and even rate changes that may require reimbursement billing changes. So that's been effective for us. And then maybe one more example is how we think about renewals, how we think about our prospects, how we think about our current residents, We're utilizing AI to analyze resident payment history and eviction trends to identify at risk leasing earlier, and this is allowing our teams to intervene more proactively as it relates to some of the eviction process going forward. So a lot of good things happen today. We've got a lot more on the list. We're gonna keep away at this. Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Toomey for any final comments. Tom Toomey: Thank you, operator, and thank you for all of your interest in the support of UDR. Certainly call anytime or email us and we would look forward to always seeing many of you at the upcoming conference events. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Unknown Executive: Good afternoon, everyone, and welcome to CIB's 4Q 2025 Earnings Call. Thank you for dialing in. This is Noor [indiscernible] from CI Capital Research team, and we are happy to be hosting today's call. From management, we have with us Mr. Hisham Ezz Al-Arab, CEO and Executive Board member; Yasmine Hemeda, Head of Investor Relations; and Nelly Zeneiny, Investor Relations Manager. As usual, we will start off with a summary of 4Q 2025 performance, and then we will open the floor for questions. I will now hand over the call to management. Nelly Zeneiny: Good morning, and good afternoon, everyone. This is our customary disclosure statement. This call is intended for investors and analysts only. As such, if any media representative has gained access to this call, kindly hang up now. Certain information disclosed during this earnings call consists of forward-looking statements reflecting the current view of the bank with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the bank to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including worldwide economic trends, the economic and political climates of Egypt, the Middle East and changes in the business strategy along with other various factors. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may materially vary from those described in such forward-looking statements. The bank undertakes no obligation to republish revised forward-looking statements to reflect changed events or circumstances. And this ends the disclaimer statement. I'll now hand it over to Mr. Yasmine Hemeda to give a brief overview of the full year 2025 results. Yasmine, please go ahead. Yasmine Hemeda: Thank you, Nelly. Let me start by saying that while everyone was expecting 2025 to be an adjustment year where we would continue to see the same trends as we had been seeing in 2024, it turned out to be a year filled with very, very positive surprises. It was a year of great economic improvement and consolidation with the easing cycle hitting its stride. Inflation dropped to 12% and cumulative rate cuts reached 725 basis points by year-end, resulting in a much more business-friendly environment. In addition, foreign currency inflows hit new heights and tourism, remittances and exports, which more than compensated for the drop in the Suez Canal revenues. CBE reserves reached EGP 50 billion. NFAs in the banking sector exceeded the EGP 20 billion mark. And consequently, the EGP strengthened against the Dollar reaching 46.47 EGP but more significantly was the constant availability of the interbank market, which was and is critical to company's operations. As a result, CIB was able to grow its loans by EGP 177 billion or 44%. 56% of this was in local currency and 50% was in the form of CapEx, which was a very, very positive surprise for all of us. Gross loans reached EGP 576 billion, and our LDR hit 52%, with the local currency portion reaching an all-time high of 71%, further confirming the long-awaited economic revival. Consequently, we're very happy to report yet another outstanding performance that is driven by genuine growth in core business activities with CIB growing its top line by 19% year-on-year and a very healthy balance sheet growth of 19%. All this was achieved while maintaining NIMs at 8.95%, which is a very contained compression that came in by 53 bps and this was mainly due to the bank's deposit base, where deposits grew by 14%, but more importantly, local currency deposits grew by 21%, and CASA now stands at 61% of the total deposit base. This helped mitigate NIM compression and supported margins and spreads despite of the aforementioned 725 basis point cuts. Credit quality remained very solid. And with the ratification of the new ECL model, the bank reversed EGP 13.1 billion of excess provisions. But what is more important to note is that moving forward, the newly calibrated ECL will more accurately reflect the bank's asset quality. NPLs recorded 1.67%, with a coverage ratio of 358%, but what is more relevant is that the performing loan coverage ratio hit 7.1%. Costs remained very much stained with a cost to income of 15%. And all of this came together to register an all-time high of net profit after tax of EGP 82.2 billion, representing 49% above 2024. And even upon normalizing for the impairment reversal, we still recorded an all-time high of EGP 70.6 billion and the 41.5% ROE. On the capital front, CAR reached 27% and given the rationalization in the macro environment and our adequate level of capital, the Board is proposing a cash dividend of EGP 6 per share, which translates to a payout ratio of 30% of the distributable portion of the 2025 profits. Moving into 2026, we remain very, very positive about the economic outlook for Egypt in general and about the ability of CIB in particular, to safeguard and create value to all its relevant stakeholders while remaining at the forefront of change, and we're very, very excited to be embarking on our 5-year journey ahead. On that note, I think we can open it up for Q&A. Thank you, Noor. Operator: [Operator Instructions] Our first question comes from Rahul Bajaj. Rahul Bajaj: This is Rahul Bajaj here. Congratulations, first of all, on the very strong set of results. I have three questions, if I may, please. The first one is on the fee income line. We've seen the fee income line, the fee line grow quite materially in the fourth quarter compared to the run rate of the previous few quarters. If I look at the last few quarters, the run rate has been around EGP 2 billion to EGP 2.2 billion every quarter, but fourth quarter was around EGP 2.8 billion, EGP 2.9 billion. So is there a one-off there? What is driving this big increase, and should this level sustain into 2026 for a quarterly modeling point of view? So that's my first question. My second question is on margins. As Yasmine kind of pointed out, very strong performance on margins despite the fact that there was some significant rate cuts. How should we think about margins going forward? I mean, first of all, there is this decoupling of the sovereign rate which helped, I think, initially on the margin point. We're talking -- you're now talking about deposits also helping. Should we expect these gains to continue? Should we expect margins to continue to be flattish into 2026? Or you expect a pressure to come in as rates continue to go down? How should we model margins going forward? So that's my first -- second question. And my third and final question is on the guidance. Any specific guidance you could provide for 2026, that would be extremely useful. Thank you. Yasmine Hemeda: Sure. I'll take the first -- the second and third question, and then I'll hand it over to Mr. Omar El-Husseiny to cover the margin bit. For the fees and commissions, I mean, yes, there was a one-off that was recorded in the fourth quarter of around EGP 1.5 billion, which was realized from the sale of an asset settled for debt and when you normalize that, growth quarter-on-quarter was around 112%. And no, you shouldn't expect one-offs of the same magnitude moving forward. Having said that, I mean, now that we're sort of expecting grow1th from genuine core commercial banking activities, and with the expected loan growth that we are sort of budgeting and expecting over the coming 5 years and specifically in 2026 as well, definitely should expect an increase in the net fees and commissions line. And the overall contribution of the fees and commissions and the noninterest income to the overall revenues, it should start inching up a bit, which is really long, long overdue. And that's all on the back of the expectations in terms of loan growth, which I'll delve into now when I'm talking about the guidance and the typical fees and commissions that are typically associated with that. I'll hand it over to Omar to cover the margins, and then I'll come back with the guidance. Omar El-Husseiny: Good morning and good evening, everyone. So for the margins, it's a bit complex because there are lots of moving variables that you need to take into consideration. One, the balance sheet mix between the local currency and the foreign currency; two, on the local currency, specifically, we have been on the asset side and the liability side. So on the asset side, we have been stretching the duration on the fixed side during the past period of time. And the composition of the liabilities, as Yasmine was mentioning, we have around more than 60% CASA to term deposits. So that is helping us whenever interest rates is coming down, the easiness of reflecting this to our customer liability pricing is much more easier and faster when it comes to our pricing; third, when we started a couple of years to shift from the sovereigns to loans because we're expecting interest rates to come down. And as soon as interest rates will be coming down, we will be more dependent on noninterest income, that's from one side. But by virtue of nature, when you shift from sovereigns to loans, that's in itself hurts the NIM because of the withholding tax. So for instance, if you're buying 1-year T-bills at 25% and you're shifting to a loan right now priced at offer corridor at 21%. So on the NIMs, you have the gross of 25% versus the loans of 21%. So whenever we're shifting from sovereigns to loans, that in itself is dragging the local currency NIM down. Yasmine Hemeda: And if I may add just one point. I mean, yes, definitely, although loans are not that NIM accretive as compared to the sovereigns, the whatever compression that we should expect on the NIMs will be more than compensated for by the growth on the ROE that would be mainly driven by the fees and commissions. If I just answer the guidance question, let me start off bottom up. So we're expecting growth of between 15% to 20% over the EGP 70.6 billion bottom line. And what's more important to note is that most of this growth will be coming from, like I said, core commercial banking activities. Thus, you see more contribution coming from the noninterest income as compared to the net interest income, which was the typical growth that we've seen over the past few years. On the deposit side, we're expecting to see between 15% to 20% growth. But what is more important to note is that at least 50% to 60% of the growth and the deposits will be coming in the form of CASA, current and saving accounts. The ROE, definitely, the 40s are somewhat behind us now, but we are very, very comfortable in maintaining ROEs above the 30% mark. And again, it's a function of how much loan growth will be coming through and specifically how much CapEx versus working capital facilities. In terms of loan growth, we're expecting between 30% to 35%. And we're expecting the trends that we've been seeing in 2025 to continue in 2026. So we're expecting to see CapEx coming through, albeit it will -- we're expecting to see more of expansion re-CapEx more towards the second half of 2026. But all in all, we're expecting very healthy demand coming through. For the -- what else, NPLs will remain pretty much under control, cost to income, I have the CEO here with me, and I'm trying to push him to pay me more, but he wouldn't. So I mean, unfortunately, it will remain well below the 25% mark. What else, you should pay me more. Hisham Ezz Al-Arab: The point which is very important when you talk about the CASA and the increase as a percentage, you have to keep in mind that the investment we made in the digital platform was the key driver for increasing the CASA account and the saving accounts because now it became easier for people to move money and became more friendly for them to be exposed to the different products that could suit their life cycle or the financial requirements. On the past, it was deposit or CDS. Now we can see I can get interest on my saving account day to day or monthly or whatever. So the -- I think personally that the more digital-friendly platforms, the more business growth we're going to see. And that is very obvious when we analyze the reason behind the increase on numbers. Yasmine Hemeda: So you won't pay me more? Hisham Ezz Al-Arab: I look after you. I look after you and the 8,000 people. It's not me, it is the Board who decides. Rahul Bajaj: This is clear. Just one quick clarification, the 15% to 20% bottom line growth. This is taking into account the big write-back you had in 2025 on the provision line. So that is in the base? Yasmine Hemeda: Yes. So this 15%, 20% is above the EGP 70.6 billion, which is basically normalized for the EGP 13.1 billion. Hisham Ezz Al-Arab: And by the way, when we spoke about the ECL model, we went through a very rigorous process that we learned a lot of things that why -- if we see change in dynamics and the assumptions, we -- most likely when we look at the numbers once more. That's an ongoing process. It's not one off. Unknown Executive: We also have another question in the Q&A box on the launch of the Digital Bank. So when can we expect the launch of the digital bank how should we think about its contribution to the group's profitability over time? And do you see any scope to scale the digital bank into other markets over the long to medium term. Hisham Ezz Al-Arab: Well, the digital bank, we just applied for the license. I think our application in my opinion and other people opinion was a solid application. The value proposition there is practically cost saving for the bank. And meanwhile, leveraging on the -- what you call it, the I wouldn't say unprofitable, but high-cost customers that we can make much more money from understanding the lifestyle in different profile, plus the Gen Z is looking for lifestyle application. They have a plan, and I think their plan, they are talking about 10 million customers within the coming 5 years. That's good. I think the number will be north of that. It will be higher. This is my personal, by the way, not the bank projection, my personal view because what I have seen in preparation for the digital bank is outstanding, to be honest with you. Plus, I had a meeting during the day of time with several people are involved in this industry. Some of them are international players without naming names. And practically, I feel very comfortable after validating our business model and technology and the go-to-market strategy. Yasmine Hemeda: In terms of the contribution of the digital bank to the overall group revenues, I think like we presented in the Strategy Day, by year 5, it should contribute to around 10% to the overall revenues of the CIB. Hisham Ezz Al-Arab: It's not only the revenues. I have to tell you something because our agreement here, we want to launch before the end of '26. And if we launch before the end of '26, most likely sometime later in '27, early '28, you're going to go for a capital increase, and you may involve other minority investors there. Your valuation will be very different. You're a small investment there. We have to look at the market valuation of this industry. It's by far higher multiple than the traditional commercial banks. And that will definitely reflect in your valuation, plus the -- what you call it, in year 3, while after kicking off and start to show results, most likely we'll look at other markets. We haven't decided yet what are the other markets. We have some idea about other markets. There are some lessons I learned from other international players when you expand in different countries, what you should look at, and this was really an eye-opener. So that will save us trial and error in deciding which is the next market. Unknown Executive: Thank you. We have another question on capitalization and dividends. So what are your thoughts on the bank's capitalization trajectory? And what is your dividend policy over the medium term? Hisham Ezz Al-Arab: Well, the dividend policy, as you can see now, the risk tolerance and the -- what you call it, the risks within the macro is by far -- and several of you when I met you about 10 months ago or so with other investment bank and road show, I said that 70% of the risks in our balance sheet are related to the monetary and exchange policy. And now there is no doubt that everyone, including yourselves, are comfortable with the exchange and monetary policy. And that's the key risk that I'm not going to go through the past and the hyperinflation and now things are very different. And because they are very different, our ability to take more risk and assess risk and capital requirements is better than before. If we have a buffer between the 20% capital to the end of year before dividends or after dividends, that buffer is practically to cover the expected very strong growth in the loan portfolio. And on top of that, I don't know how to put this. Just a second because I want to put it right, not to make the wrong statement. We are assessing potential opportunities seriously and we are close to assess, to start with certain opportunities. I need capital for that. Practically, our policy is based on projection and then excess capital is -- I don't want to have excess capital under the current circumstances, so I keep the capital that is needed to hedge the bank and keep the resilience and meanwhile, fund our operations. Unknown Executive: Thank you. We have another question on trading income. So would annualizing 4Q 2025 trading income be a reasonable estimate for 2026's trading income? Yasmine Hemeda: No. I mean, because like we said before, there was a one-off thing. So I mean you shouldn't be annualizing for that. And you should actually be modeling for more contribution from the fees and commissions line versus the trading income to the overall noninterest income. Hisham Ezz Al-Arab: Maybe I would add, Yasmine, for the transaction we did in the last quarter of the year. This was the normal -- honestly, it's normal course of business and recovering non-performing loans, okay? We did the right job, the team worked very hard on the recovery and it made good money for us. It's a part of our commercial activities. And when you have a written off loans or fully provided loans for, we don't let go and that's it. We try to use our experience in terms of investment banking for our network, how can we recover that asset? And this was an example of asset recovery profile. Unknown Executive: We also have another question on cost-to-income. So can you please confirm if the cost-to-income guidance of below 25% is administrative expenses or total operating expenses. Also, how should we think of other operating expenses or income given the volatility in the last 1 to 2 years? Hisham Ezz Al-Arab: 1 to 2 years, we have serious challenges with the exchange rate. And that was the key. I mean, for example, contracts at $100,000, nothing changed. But from the $100,000 at EGP 9 or at EGP 17 or at EGP 50, what was challenging to manage and project. Now we have a stable exchange market. I don't see those spikes anymore. As for the cost of income, this is the cost of income for the operation and administration as well. So practically, the 25% is a decent ceiling to have, taking into account the strong earnings because expenses are going up. And don't believe Yasmine, she's getting paid well. I'm not going to discuss her package on public, but the cost is going up, but the revenues touchwood are beating the cost increase. I hope that would answer your question. Unknown Executive: Thank you. We also have another question on loan growth. So what were the key drivers behind the sequential loan growth in 4Q, 2025? Hisham Ezz Al-Arab: The main driver was loan growth -- for the loan growth was the local currency loan growth. This is why our loan to deposits jumped from about -- on the middle 40s about a year ago to about 71% in the local currency balance sheet. And 50% of the loan growth was in CapEx, but that confirms our view about the economic condition. Unknown Executive: There is also another question that says, which counties rank highest in terms of potential M&A opportunities as you look to expand beyond Egypt? Will this expansion be for corporate banking or retail or digital? And can you discuss your experience thus far in Kenya and the lessons learned? Hisham Ezz Al-Arab: Don't drag me to make statements, correct? So I will be very careful again. The things we are working on are [ more than ] Egypt, but I cannot specify what we are doing is the fintech bank, retail, corporate, whole institution, whole finance company or whatever, but it's part of our own day-to-day operation. As the lessons from Kenya, now Kenya is -- we have a new CEO that took over at the beginning of -- the previous CEO did a good job in stopping the bleeding, putting the house in order, hiring the right people. Now we have a new CEO coming from the local market. He's a local guy, very well regarded. You can see his bio on their page. The lesson learned in Kenya is that you cannot buy something and let it run by itself, okay? But practically, when you buy something, you have to have the shared service and you have to help the team there, you are buying it to improve it. So I haven't seen a private equity buying a company and doesn't sit at the Board and help the management. And this maybe was our mistake, but the change happened, and we're on the right track now. Unknown Executive: Thank you. This is very clear. We also have a question on the ECL provision reversals in 3Q. So at what point in the future does the [ exit ] ECL add reserve of EGP 13 become available for potential distribution or qualify as CET1 capital? What threshold criteria needs are needed to be fulfilled before this becomes part of your core capital? And does this leave scope for any potential increase in payouts in the future? Hisham Ezz Al-Arab: Okay. That EGP 13, which is on special reserve now, we are doing certain studies. And practically, I'm confident that if we go with a good story to our regulator and we feel comfortable with what we are doing, they may allow us to release it into the capital or whatever, maybe this year and the next year, but I really don't know, but I wish I can do it within the coming 3 months, 6 months. I wish -- I hope so, but I'm not going to make promises, but the only thing I promise you, we are working very hard to prove our point that this one is in excess and should be added to our capital adequacy. Unknown Executive: [Operator Instructions] Hisham Ezz Al-Arab: I expect someone to ask me about Yasmine package. So no one has been asking about this, but you are the one who started this. That's going to be the talk of the town. Unknown Executive: We actually have a question on cost of risk. So following the new ECL model, what are the expected cost of risk levels going forward, and should we expect any further provision reversals? Yasmine Hemeda: So I mean, for a more normalized run rate for cost of risk, as we guided before, it will be somewhere between 0.5% to 0.7% per year. So this would translate into -- in terms of absolute terms between EGP 1.5 billion to EGP 2 billion in total, both direct and contingent. And like Mr. CEO has previously mentioned that we're constantly relooking at the new recalibrated model to assess its accuracy, to assess its adequacy and whether it is indeed reflective of the actual asset quality of the portfolio and the operating environment. And on a need basis, I mean if we need to do any reversals, we would do that. If not, I mean, the run rate would be between 0.4 -- 0.5% to 0.7%. But definitely, you shouldn't expect any reversals with the same magnitude as the EGP 13.1 billion. That's for sure. Unknown Executive: Thank you. There is also another question on margins. So can you please detail the latest NIM sensitivity to interest rate cuts? Yasmine Hemeda: It's very hard to give you a certain gauge as to the sensitivity of the NIMs because like Omar said, I mean, there are a lot of factors that come into play, and it's mainly driven by the management decision and I mean, basically how to manage assets and liabilities. But I mean, we can -- from where we're standing and from a cost perspective on the liability side because of the 61% CASA and because of the composition of the sovereign portfolio and how it's broken down into 50% bills and 50% bonds, with average maturity of 2.5 to 2.8 years. So this will sort of act as a cushion against any sort of steep compressions, which are typically associated with the declining interest rate environment. So I mean, the compression in the NIMs, although it will happen, but it will be more of a gradual one as opposed to steep movements. Omar El-Husseiny: I may add, on the NIMs. Our low-hanging fruit is the loan deposits and foreign currency, and that runs at about 32% with more opportunities and focus on the foreign currency lending. That means that we have a hedge coming from the foreign currency, very low NIM to more expandable ones. That is my low-hanging fruit on the balance sheet. Unknown Executive: Thank you. We also have a follow-up on the NPL coverage. So should we expect NPL coverage to be in the 300% range. Hisham Ezz Al-Arab: I will answer that. But because every time I bring it down, it goes up. Yasmine Hemeda: I mean -- and that's why -- I mean, we make it a point to always point out, and we always say what's more relevant for you to keep a track on is the coverage ratio for the performing portfolio. If you remember, at its peak, it reached 14.5%, 15%, and now it's down to 7%. If you want to position that, position it against the regional average of 4% to 5%. So I think we are in a very, very good place. Again, the coverage ratio is a function of NPLs and a lot of factors. I mean the recent increase in the 358%, it's not due to anything but because of upgrades and reclassification of NPLs from Stage 3 into Stage 2. So in essence. Hisham Ezz Al-Arab: And it is a good problem to have. Unknown Executive: That is very clear. We have another question on the CDs. So the CIB recently raised the interest rates on its 3-year fixed rate CDs offering up to 17.25% per annum in December 2025. So are these still valid? And if yes, what is the expected time frame? Hisham Ezz Al-Arab: We are targeting a certain balance there. And when we reach that point, we'll close the program. Unknown Executive: [Operator Instructions] We have another question on OpEx. So why did other operating expenses declined from EGP 4.8 billion to EGP 3.7 billion? Yasmine Hemeda: It's because of accruals, expense accruals. Unknown Executive: We would pause for a moment for more questions to come in. Since there are no further questions, would management like to make any closing remarks? Hisham Ezz Al-Arab: We'd like to thank you all for your support. And I still believe that we have a long way to go in terms of growth, market cap and maybe when I said that always my ambition is higher than what people look for. I mean a year ago, people were talking in the bank, we need to reach EGP 7.5 billion market cap. Now we are in excess of EGP 9 billion. And I think we'll carry on our market cap to be fair with you in terms of comparison to the other Africa large players like ourselves or the Middle East, our market cap should not be less than $13 billion, $14 billion, and we'll get there on time. Nelly Zeneiny: Thank you, Noor. Thank you, everyone, for dialing in. Thank you so much. Unknown Executive: Thank you, management, and thank you all for attending CIB's 4Q 2025 Earnings Call hosted by CI Cap. Have a nice day.
Operator: Good morning to those joining from the U.K. and the U.S. Good afternoon to those in Central Europe, and good evening to those listening in Asia. Welcome, ladies and gentlemen, to AstraZeneca's Full Year and Q4 2025 Results Conference Call for investors and analysts. Before I hand over to AstraZeneca, I'd like to read the safe harbor statement. The company intends to utilize the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Participants on this call may make forward-looking statements with respect to the operations and financial performance of AstraZeneca. Although we believe our expectations are based on reasonable assumptions, by their very nature, forward-looking statements involve risks and uncertainties and may be influenced by factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Any forward-looking statements made on this call reflect the knowledge and information available at the time of this call. The company undertakes no obligation to update forward-looking statements. Please also carefully review the forward-looking statements disclaimer in the slide deck that accompanies this meeting. For those joining remotely, there will be an opportunity to ask questions after today's presentations. [Operator Instructions] I must advise you that this presentation is being recorded today. And with that, I will now hand you over to the company. Andrew Barnett: All right. A warm welcome, everybody, to AstraZeneca's Full Year Fourth Quarter 2025 Presentation Conference Call and webcast for investors and analysts. I'm Andy Barnett, Head of Investor Relations. And before I hand over to Pascal and the rest of the executive team, I'd like to cover some housekeeping items. Firstly, all the materials presented today are already available on the AstraZeneca Investor Relations website. Next slide, please. This slide contains our forward-looking statements, including the safe harbor provisions, which I'd encourage you to take the time to read. We would be making comments on our performance using constant exchange rates, or CER, core financial numbers and other non-GAAP measures. A non-GAAP to GAAP reconciliation is contained within the results announcement and all numbers quoted today are in millions of U.S. dollars unless stated otherwise. Next slide, please. Here's the agenda for today's call. Following our prepared remarks, as usual, we'll open the line for questions. We will try and address as many questions as we can during the allocated time or to please limit the number of questions you ask set to allow others a fair chance to participate. We do have a hard stop today at quarter past the hour as many of us have to catch flights in order to participate in the full year roadshow. So we will need to cut it short. We'll try and get to as many people as we can. Hopefully, everybody gets a clear chance to ask a question. And with that, Pascal, great year. Over to you. Pascal Soriot: Thank you, Andy. Welcome, everyone. It's really a great pleasure to see you all again and to present our full year results. It's been a great year. A company -- if we can move to the next slide. The company delivered very strong performance, both on the financial and most importantly, the pipeline front. On the financial side, revenue grew 8% and product revenue importantly grew 10% driven by continued global demand for our innovative medicines. Our core EPS, as you can see here, grew by 11%. We had 16 blockbuster medicines in 2025, with 17 of those growing at double digits -- with 17 medicines, sorry, growing at double digit. And we have the potential to get to 25 blockbusters by 2030. Remember, when we announced our $80 billion target back in May 2024, we had 12 blockbusters at the time. We now have 16 and we hope to get 25. And many of those new ones actually are either approved or soon approved or in Phase III. So good hopes that we will indeed get to 25. At our full year results last year, we signaled that we are entering an unprecedented catalyst switch period for our company. Our R&D teams continue to deliver. We had 16 positive Phase III trial readouts in 2025. Together, they have a combined pick-year sales potential of $10 billion, as you see on this slide. In the last 12 months, we have secured 43 approvals for our medicines across major regions, helping us to sustain growth into 2026. And it's important also for me to recognize the work everybody has done in the company as far as the company to do this, in particular, our global operations colleagues, because each time we launch one product, for them it's probably 50, 60 launches, so many different SKUs around the world. So everybody has done a tremendous job across the organization. So if we move to the next slide. The strength of our portfolio is really -- was clear in 2025. And we are not taking significant steps to continue to strengthen our manufacturing and R&D footprint in both the U.S. and China. Together, our global reach and our diverse revenue streams really support our low concentration risk and ensure resilience to regional disruptions. But one to keep in mind, I know a couple of years ago, many questions we were getting where your pipeline is complicated, it's diversified. I struggled to get my head around it. I hope today, people realize better the value of this diversification. We're now talking about concentration risk. It's great to have 1 or 2 big, big products, makes you very, very profitable and make you look good. But one of those, if you lose one of those as we've seen happen to some actors in the industry lately, it really becomes very painful very quickly. So this diversification, both product-wise but also geographically, is certainly becoming more apparent as we drive growth through therapy areas, but also through regions. So if you look at this chart, we saw growth across oncology and R&I in particular, growing each 17% and 12%, respectively. CVRM, of course, was impacted by the patent expiry of Brilinta and Farxiga in the U.K. and there will be more of this, unfortunately, in 2026. Despite this, we still grew 2%. And overall, biopharmaceuticals still grow 6% and represents about 40% of our global sales. Rare disease grew 5% despite the impact of biosimilars on Soliris. I would say the transition from Soliris to Ultomiris is not totally finished, but close to being completed and Ultomiris is now growing very nicely. We continue to see increasing demand for our medicines across all our regions. Of course, growth -- strong growth in the U.S., 10%. We continue to grow in Europe. But importantly, I think I would like to highlight, attract your attention to the emerging markets outside of China. China still grew 4% despite losing Pulmicort to generics. We still grew 4%, which is quite nice, and we remain the largest pharma company in China. But outside of China, 22%. This part of the world is starting to really play an important role. As I said, Europe, we still grow 7%. Next slide, please. Importantly, our momentum through the pipeline continues. We now have more than 100 Phase III trials that are ongoing. Think about that, 100 Phase III trials. It's an enormous momentum going through the pipeline. And this year, we should have 20 Phase III readouts. And those readouts, fingers crossed, of course, if they are positive, they will collectively drive another more than $10 billion of peak revenue. And the pipeline '27 should also, again, deliver a similar number, actually slightly higher in 2027. Of course, not all, but at least the great majority of these Phase III readouts need to be positive. Importantly, you can see that there's the growing number of late-stage assets, but importantly, an increasing value per indication. As our pipeline grows, we continue to focus and prioritize. And of course, we prioritize the most valuable projects. And you can see in light pink, the average peak-year revenue per indication. That reflects the increasing individual value of projects and continuous effort we make to prioritize even though we have a lot of projects. Next slide, please. So the question is often asked of us beyond 2030. And we said back in May 2024 and we continue saying the same. We want to be a growth company until 2030, reached this $80 billion ambition, but also be a growth company post 2030. And that is why we need to continue investing in R&D. That is why we need to continue focusing on technologies, new medicines that will actually change the future of medicines and drive our growth post 2030. So you can see here the list of the 5 technologies that we prioritize and decided to invest in. And if you look at weight management, cardiovascular risk factors, we now have 2 products in Phase III, of course, are all PCSK9, for which we will get data in 2027. But we also announced that we have moved our oGLP-1 into Phase III, and we have a broad set of studies covering diabetes, weight loss in monotherapy, combination products, cardiovascular outcome studies. So we have a very ambitious plan for our oGLP-1. But beyond this, we're also investing in new products that will actually shape the future of this weight management sector, which is in the initial steps really. And the future will be made of better convenience, longer duration of action for injectables moving to weekly to monthly. And -- some of this will come from the partnership we announced with CSPC recently, but also new mechanisms. So we are waiting for data on our GLP-1/glucagon and amylin product. The GLP-1/glucagon in itself has independent value, but we also will combine it with amylin. So we should get data this year. So oral agents, long-acting injectables, new mechanisms, helping patients lose more fat and less muscle are the directions we are heading into. Now if you look at ADC and Radioconjugates, we now have 8 ADCs that are ADCs that came out of our own pipeline, our own efforts. 3 of those are in Phase III. We will get data in the first half of this year for one of those, as you can see here, sone-ve. And importantly, we have new ones, both as ADCs, but also radioconjugates that are moving through early development. We have novel linker combinations, payload combinations. We have dual payload ADC. We have radioligands. So we continue to build this, that will drive our growth post 2030. We, of course, invest in our next-generation IO bispecifics, in particular, rilvegostomig. And we combine those with our ADCs, as we've said in the past. Cell therapy, T-cell engagers, we're making good progress with AZD0120 that has good encouraging data in Phase I, but is entering Phase III this year. And we are moving as fast as we can to move it into hematology indications, but also immunology indications. And we also have very exciting data, early data for surovatamig, and it's also moving into Phase III. And on top of this, we have multiple approaches to CAR-T, not only CAR-T, but also allogeneic projects that some of them will be in the clinic this year. And we're working on the in vivo approach, as you know. And then we also have new platforms, TCE platforms. And finally, we're making progress also in our gene therapy programs. So if we move to the next one, I'll hand out to Aradhana, who will take you through the financials. Thank you. Aradhana Sarin: Thank you, Pascal, and good afternoon, everyone, and good morning to our colleagues in the U.S. who woke up very early to join us. So as usual, I'll start with our reported P&L. Next slide, please. Total revenue increased 8% in 2025. Product revenue, which consists of product sales and alliance revenue increased 10% with continued growth across all key regions. Alliance revenue increased by 38%, reflecting increased contribution from our share of profits with partnered products such as Enhertu, Tezspire and Beyfortus in regions where our partners book product sales. Next slide, please. This is our core P&L. The core gross margin landed at 82% in 2025, in line with expectations set out at the start of the year. Fourth quarter gross margin reflected the normal seasonal pattern as well as $235 million of royalty buyouts for Saphnelo and rilvegostomig, which were recorded in the cost of sales. Core R&D expenses increased by 12%, reflecting the growing number of investment opportunities in our broad and deep pipeline. At the end of 2025, we had more than 300 active trials, and as Pascal mentioned, more than 100 of these in Phase III. SG&A expenses increased by only 3% in 2025, reflecting continued cost discipline and focus on operating leverage. We continue to streamline our business, and as a proportion of total revenue, SG&A expenses decreased from 28% in 2024 to 26% in 2025. Operating profit increased by 9% with operating leverage continuing to be a key focus for the company. We manage our P&L in totality, enabling flexibility and investment decisions throughout the year. The lower tax rate seen in the fourth quarter reflected a release of certain tax provisions taken in prior years. Core EPS increased by 11%, in line with our full year guidance. Next slide, please. We continue to see strong cash flow from operating activities, which increased by 23% to $14.6 billion in 2025. We saw CapEx increasing by $1.1 billion to $3.3 billion, in line with the expectations set out at the beginning of the year. For 2026, we anticipate CapEx investment to increase by approximately 1/3 versus 2025 as we expand capacity to support future growth. This includes our recently announced U.S. and China investments and previously announced investments in our ADC facility in Singapore, all of which are multiyear projects. Total deal payments in 2025 amounted to $4.2 billion, of which around $3 billion were payments relating to past deals and the remaining were payments for deals announced in 2025 such as EsoBiotec. In 2026, we anticipate success-based milestones and sales payments relating to past deals to total around $2.5 billion. Our capital allocation priorities remain unchanged. We currently have interest-bearing debt of close to $30 billion, which is a level we're comfortable with as we continue making investments to drive future growth, expand our supply chain globally and further strengthen our R&D pipeline. Our net debt-to-EBITDA ratio currently sits at 1.2x. Today, we are pleased to confirm a second interim dividend of $2.17 per share, resulting in a full year 2025 declared dividend of $3.20 per share. In 2026, we intend to increase the annual declared dividend to $3.30 per share, in line with our progressive dividend policy. Today, we also issue our 2026 guidance. As usual, our full year guidance is at constant exchange rates. We anticipate total revenue to grow by a mid- to high single-digit percentage, driven by strong underlying momentum in the business. The growth will be delivered despite known headwinds in 2026, including VBP in China this quarter for Farxiga, Lynparza and roxadustat. Farxiga will also face loss of exclusivity in the U.S. in April. In 2025, U.S. Farxiga generated $1.7 billion or 21% of global revenues, while China represented just under half of emerging markets revenue. In Europe, which accounts for 35% of Farxiga total revenue, patent protections across EU markets extend to 2028. While the MFN deal presents a headwind in 2026, the effect is already factored in our guidance and can be absorbed given our large and growing revenue base. Despite these headwinds, we anticipate a broadly flat to slightly higher core gross margin in 2026 driven by backing out the royalty buyout and product sales mix. We expect a core tax rate between 18% and 22% in 2026 and core EPS growth of low double-digit percentage at constant exchange rates. Based on January average exchange rates, we anticipate a low single-digit positive FX impact on total revenue and neutral impact on core EPS. Next slide, please. As I mentioned earlier, we continue to make significant R&D investments in emerging areas such as ADCs, cell therapy, bispecific and late-state CVRM portfolio which have the potential to drive growth beyond 2030. As a result, we anticipate R&D expenses to be at the upper end of the low 20s percentage range of total revenue in 2026. SG&A as a percentage of total revenue has continued to decline over recent years, reflecting our disciplined approach to efficiency and operating leverage. At the same time, we're making targeted investment to support the next wave of growth with several important NME launches ahead of us, including baxdrostat, camizestrant and gefurulimab, all of which are medicines with blockbuster potential. While we continue to target a mid-30s operating margin in 2026, our priority remains to drive absolute profit growth and long-term value for our shareholders. As highlighted earlier, we remain comfortable with our current level of gross debt, we anticipate a step-up in core net finance expense for 2026 driven by higher lease expenses and lower interest income. In summary, we saw a very strong financial performance in 2025 which we anticipate to continue in 2026. Next slide, please. With that, I will hand over to Dave, who will take you through the commercial performance of our oncology business. David Fredrickson: Thank you, Aradhana. Next slide, please. In 2025, Oncology delivered total revenues of $25.6 billion, an increase of 14% on the prior year or 17% excluding the 2024 Lynparza sales milestone. Many of our key medicines have surpassed notable multi-blockbuster milestones with Tagrisso achieving over $7 billion in full year revenues, Imfinzi over $6 billion, Calquence over $3.5 billion and Enhertu over $2.5 billion in AZ revenues. This performance is a tangible demonstration of our commitment to bringing medicines with transformative potential to patients globally and is particularly notable given the headwinds from the introduction of the 20% manufacturers liability under Medicare Part D reform from last year. Turning now to our fourth quarter performance. Total revenues exceeded $7 billion for the first time, up 20% on the year, excluding the Lynparza milestone with all our key medicines in regions demonstrating double-digit growth. Tagrisso global revenues were up 10%, reflecting continued demand growth across all indications. In the first-line setting, we are now seeing a significant proportion of patients receiving a combination regimen. With FLAURA-2 being the clear preference across key markets. In earlier lines, increased adoption of ADAURA and LAURA has been another meaningful source of growth. Imfinzi and Imjudo delivered 37% and 26% growth, respectively, reflecting continued demand across tumor types. This growth is broad-based from both continued expansion of newer indications such as ADRIATIC in small cell lung cancer and NIAGARA in bladder cancer as well as increased uptake of more established indications such as HIMALAYA in liver cancer. Calquence total revenues increased 17% in the fourth quarter, driven by additional demand in frontline CLL as we maintain our class leadership position across major markets. Specifically, in the United States, we've seen our market share leadership grow over the course of the year, demonstrating our competitive positioning and differentiation. Enhertu delivered total revenue growth of 46% in the fourth quarter. Across all regions, Enhertu is seeing share gains both in HER2-positive and HER2 low metastatic breast cancer. And in China, demand continues to increase following NRDL enlistment in January of last year. Truqap revenues grew 41% in the fourth quarter with year-over-year comparisons benefiting from both inventory build in the U.S. and the reversal of pricing accruals in Europe. In the U.S., we now believe Truqap is at peak with further incremental growth to be driven by other markets. Finally, Datroway revenues of $40 million in the fourth quarter reflect our early launch momentum in late line EGFR mutated lung cancer, including an emerging leadership position in the third line. Next slide, please. The strong momentum in 2025 continues into 2026. For Imfinzi, we were pleased to see the U.S. approval for MATTERHORN in early gastric cancer at the end of November and are already seeing encouraging uptake. POTOMAC in bladder cancer will add another growth opportunity this year with the first approval expected in the first half. We expect data in 2026 for several Imfinzi combinations, including Imjudo in bladder cancer, and HCC and with Datroway in lung, with commercial launches planned in 2027, pending, of course, positive results and regulatory approvals. 2026 is set to be another landmark year for Enhertu as we further expand our position as the standard of care in HER2-positive breast cancer by bringing this transformational medicine to 3 new settings. This includes the first-line metastatic setting following the recent approval of DESTINY-Breast09, with approvals in early breast cancer for DESTINY-Breast11 and DB05 also expected this year. Looking to 2027 and beyond, we remain focused on bringing Enhertu to more patients globally, including in settings beyond breast cancer, such as lung cancer. For Calquence, we expect the imminent U.S. launch of the AMPLIFY finite therapy regimen to be an important driver of growth for the year. This complements the sustained demand in the treat to progression segment within first-line CLL, where Calquence remains the leading BTKi inhibitor. Looking ahead, we aim to leverage our broader hematology portfolio to improve outcomes through combination approaches in CLL as well as in other hematologic malignancies. Building on double-digit growth for Tagrisso in 2025, we anticipate strong performance in 2026 driven by further adoption and geographic expansion of LAURA and ADAURA in early disease and sustained leadership in first-line metastatic disease, particularly within the growing combination market. Longer term, we look forward to the results of multiple combination trials that have the potential to reinforce Tagrisso as the backbone TKI, both in later lines with SAFFRON and TROPION-Lung15 and in the front line with TROPION-Lung14. As we reflect on another strong year of growth, we continue to see sustained momentum in our oncology business heading into 2026. With a clear focus on expanding the reach of our medicines into new markets and with additional indications. With that, please advance to the next slide. I'll hand over to Susan, who will discuss our key readouts that we anticipate this year. Susan Galbraith: Thank you, Dave. So momentum continues to build across our oncology portfolio. And as we enter 2026 with a robust pipeline, we have an important opportunity to advance therapies for patients with high unmet needs. Today, I want to spotlight several key catalysts supporting our continued growth, starting with our TROP2 ADC Datroway. Last year, we saw Datroway demonstrate its profile as best-in-class TROP2 ADC with launches in HR-positive breast cancer and later line EGFR mutated lung cancer and with compelling data presented at ESMO in triple-negative breast cancer, demonstrating a 5-month improvement in overall survival versus standard of care chemotherapy. TROPION-Breast02 has now been accepted by the FDA for priority review. This year, we expect the readout for AVANZAR, a pivotal trial evaluating Datroway as the first-line lung cancer setting. AVANZAR investigates the combination of Datroway with Imfinzi and carboplatin, aiming to deepen and extend responses for this large high unmet need population. Crucially, AVANZAR will be the first trial to validate our QCS TROP2-NMR biomarker designed to identify patients most likely to respond to Datroway in this first-line lung cancer setting. Success here could enable broader application of this technology in other tumor types and across our ADC portfolio. Building on Datroway's current approval and later line EGFR mutated lung cancer, we also anticipate the readout from TROPION-Lung15, which evaluates Datroway alone or in combination with Tagrisso for patients who have progressed on a TKI. This trial aims to set new standards for second-line treatment, further reinforcing Tagrisso's role as the backbone of care in EGFR mutant lung cancer and paving the way for TROPION-Lung14 in first-line setting which can build on the success of FLAURA and FLAURA-2. Imfinzi continues to deliver transformative benefits across cancer types. And this year's key readouts in GI, lung and bladder cancer signal a third wave of Imfinzi growth highlighting the potential of combination regimens. I want to highlight 2 today. Firstly, the EMERALD-3 trial aims to bring the combination of Imfinzi and Imjudo into the local regional setting for hepatocellular carcinoma. Building on the transformative results we've already demonstrated in the later line HIMALAYA trial. Secondly, VOLGA looks to build on our existing presence in muscle invasive bladder cancer. The NIAGARA regimen established a role for Imfinzi as the first perioperative immunotherapy regimen in cisplatin eligible patients. VOLGA explores whether the combination of enfortumab vedotin and Imfinzi plus or minus Imjudo can improve outcomes for the 50% of patients that are not candidates for cisplatin. This regimen is differentiated in 2 important ways. First, enfortumab vedotin is limited to the neoadjuvant setting, aiming to optimize outcomes while balancing the overall benefit risk profile. And secondly, acknowledge in bladder cancer sensitivity to CTLA-4 blockade, VOLGA's includes an arm delivering 3 cycles of Imjudo, 2 preoperatively and 1 postoperatively with the goal of further deepening responses in this patient population. In 2026, we will also see the second pivotal readout for camizestrant, next-generation oral SERD. Last year, we shared the first Phase III data for camizestrant in patients with first-line hormone receptor positive disease with emerging ESR1 mutations. The transformational SERENA-6 results demonstrated that intervening at the earliest opportunity and switching to a more effective endocrine option ahead of progression with camizestrant ahead of progression and the switching with camizestrant offers the chance to retain control of a patient's disease for longer and thereby realizes the full potential of first-line treatment. In the second half of this year, SERENA-4 will read out, targeting a broader upfront first-line population eligible for the combination of a CDK4/6 inhibitor and an aromatase inhibitor and assessing whether camizestrant can replace the aromatase inhibitor to improve outcomes. Our confidence is driven not only by our data from the Phase II SERENA-2 and the Phase III SERENA-6 results, but also from recent readouts in the competitive space that demonstrate the value of this class in ESR1 wild type endocrine-sensitive disease. Finally, progress is accelerating across our ADC portfolio with sone-ve Claudin18.2 targeted ADC on track to deliver its first Phase III data in second-line gastric cancer in the first half of the year. These 6 trials represent only a fraction of the opportunities of our oncology portfolio, which is poised to drive continued growth. And throughout the year, we'll continue to share updates from our early pipeline, reinforcing confidence in our -- in progress on our transformative technologies and therefore, long-term growth prospects through 2030 and beyond. And with that, please advance to the next slide, and I'll pass over to Ruud to cover BioPharmaceuticals performance. Ruud Dobber: Thank you very much, Susan. Next slide, please. Our BioPharmaceuticals medicines delivered strong performance in 2025 with total revenue up 5% to $23 billion with our gross medicines substantially outpacing the impact of generic entry on a limited number of brands such as Brilinta in the United States and Europe and Farxiga in the United Kingdom. In the fourth quarter, R&I revenues were up by 10% with revenue from growth medicines having increased by 27%. CVRM revenues were 6% down on the prior year with generic competition slowing Farxiga's growth to 2% and Brilinta continuing to decline. V&I total revenue was down 33% year-on-year, largely due to the Beyfortus sales milestone booked in the fourth quarter of 2024. Next slide, please. Biologic medicines continue to gain share among severe asthma patients. Our medicines now make up more than half of the new-to-brand prescriptions for the severe asthma biologics segment in several markets. Fasenra is the leading IL-5 medicine for severe eosinophilic asthma and its product profile was recently strengthened with the launch of the EGPA indication. Overall, we expect Fasenra's positive momentum to continue in 2026, with growth in the emerging markets set to accelerate following inclusion in the national reimbursement drug list in China. Tezspire has made rapid market share gains in severe asthma since its launch and its growth potential has been enhanced by recent approvals for use in chronic rhinosinusitis with nasal polyps, where Tezspire has demonstrated that it can nearly eliminate the need for surgery. Nasal polyps are common comorbidity for asthma patients. So this approval further enhances its clinical profile. Breztri is the fastest growing medicine within the expanding COPD. We are the clear market leader in China and have been gaining share in most other major markets. Additionally, regulatory reviews are underway for asthma based on the KALOS and LOGOS trials, and we anticipate first approvals in the first half of 2026. Saphnelo, biological medicine for the treatment of SLE is continuing to grow strongly with the IV formulation having gained market leadership in several major markets. Saphnelo subcutaneous formulation was recently approved in Europe and will extend its reach to the large segment of patients who favor self-administration. We are expecting further approvals of subcutaneous Saphnelo in other regions this year including in the United States and Japan in the first half. 2026 marks a transition year for our CVRM franchise. We anticipate Lokelma's strong growth to continue into 2026 driven by market leadership within the growing potassium binder class. We have also increased additional manufacturing capacity to support our growth ambitions. In 2026, as mentioned, we anticipate Farxiga VBP implementation in China during the first quarter and the first generic competition in the United States in April. While Farxiga revenues in the United States, Japan and China are expected to decline this year. We anticipate strong demand growth to continue in Europe and the emerging markets. Looking beyond 2026, dapagliflozin fixed dose combinations have the potential to unlock new waves of medicines for patients, and we already have 3 fixed dose combinations of dapagliflozin in Phase III development with the first 2 Phase III trials due to readout in 2027. We are currently preparing for the launch of baxdrostat in uncontrolled and treatment-resistant hypertension. The U.S. approval is anticipated to broadly coincide with the entry of generic dapagliflozin in this market, allowing us to leverage our existing commercial infrastructure. While baxdrostat will not be a major contributor to revenues in 2026, the clinical data supporting its use is compelling, and the long-term potential of this medicine is substantial with peak revenues from the products -- from this product franchise expected to exceed $5 billion. I will now hand over to Sharon, who will provide further details on the upcoming developments in our pipeline, including ATTR cardiomyopathy which represents a major potential growth driver for the BioPharmaceuticals business. Sharon Barr: Thanks, Ruud. Next slide, please. We saw strong progress across our biopharma clinical pipeline in 2025 and are entering 2026 with a broad and deep pipeline across CVRM and R&I. Today, I want to highlight 2 high-value Phase III catalysts anticipated this year positioned to deliver meaningful impact for patients and AstraZeneca's growth ambition. Starting with Wainua. We expect the cardio transform readout in ATTR cardiomyopathy in the second half of this year. Wainua is an anti-sense oligonucleotide designed selectively to suppress hepatic production of transthyretin addressing the upstream driver of amyloid fibril formation. ATTR cardiomyopathy is often underdiagnosed as symptoms overlap with common cardiac issues. Leading to delayed diagnosis, poor prognosis and high morbidity. This highlights the need for better diagnostics and innovative new treatment options. CARDIO-TTRansform is the largest study ever conducted in this disease, enrolling more than 1,400 patients to receive Wainua or placebo on top of standard of care for 140 weeks. The trial's primary endpoint is a robust composite of cardiovascular mortality and recurrent cardiovascular clinical events designed to capture clinically meaningful outcomes. Importantly, Wainua can be administered once monthly as a single dose via a subcutaneous auto-injector, enabling convenient at-home dosing. That's an advantage for this largely aging population. Wainua represents just one component of our leading amyloidosis portfolio, we believe that multiple mechanisms of action will be needed to address the full spectrum of ATTR cardiomyopathy, and we look forward to initiating clinical development of Wainua in combination with our DepleTTR, cliramitug in the near future. Turning now to the Phase III program for our differentiated IL-33 biologic, tozorakimab in COPD, which we anticipate will read out in the first half of this year. We have 3 trials ongoing. OBERON, TITANIA and MIRANDA, which have the potential to redefine the management of this complex heterogeneous and progressive disease. The trials all have the same primary end point, the reduction in annualized rate of moderate-to-severe COPD exacerbations in former smokers. The program will also evaluate efficacy in a broader COPD population, irrespective of eosinophil count or smoking status and explores a range of dosing regimens to maximize the potential population that could benefit from tozorakimab. Should the results be positive, tozorakimab could be the first-in-class IL-33 biologic for COPD. I also wanted to take the opportunity to highlight advances in our weight management portfolio. We are delighted to announce today that our once-daily oral GLP-1 receptor agonist, elecoglipron formerly known as AZD5004 met its primary endpoints in both the VISTA and SOLSTICE Phase IIb trials conducted in people with obesity or type 2 diabetes, respectively. We look forward to sharing these data at the American Diabetes Association meeting in June. Based on the strength of these data, we are progressing elecoglipron into Phase III development this year. We look forward to sharing more details once these trials initiate. Our overarching goal is to create a weight management portfolio that addresses obesity and its interconnected conditions. Our diversified pipeline uniquely positions us to explore innovative novel combinations. And alongside elecoglipron, we continue to advance our broader portfolio of different mechanisms, including a selective amylin receptor agonist AZD6234 as a monotherapy and in combination with our dual GLP-1/glucagon receptor agonist, AZD9550, both of which are expected to deliver first Phase II data this year. We also continued to invest in our earlier programs, augmented by recent external innovation to further strengthen our pipeline in this space. And with that, please proceed to the next slide, and I'll pass over to Marc to cover rare disease. Marc Dunoyer: Thank you, Sharon. And can I get to the next slide, please? Rare disease delivered total revenue of $9.1 billion in 2025, up 4% over the next -- last year, driven by growth in neurology indications, increased patient demand and continued global expansion. In the quarter, Ultomiris grew 15%, driven by patient demand across indications, including the competitive gMG and PNH markets. Soliris revenues continued to decline due to the successful conversion to Ultomiris as well as biosimilar pressure. Strensiq grew 15% due to strong demand with a quarter benefiting from tender or the timing. We also saw strong underlying demand for Koselugo offset in the fourth quarter by all the timing in certain tender markets. We continue to see great momentum across the rare disease portfolio with further approvals for Koselugo and Ultomiris, expanding our geographic reach for these medicines. Five years after announcing the acquisition, I'm pleased to report that Alexion has delivered low double-digit compounded annual growth from 2020 to 2025 at constant exchange rates. We have also significantly expanded our global reach. At the time of the acquisition, Alexion medicines were available in 20 countries by leveraging AstraZeneca footprint and the outstanding efforts of our teams, our life-changing rare disease therapies are now available in more than 75 countries worldwide. Finally, we have made meaningful progress in deepening scientific collaborations between AstraZeneca and Alexion researchers, further accelerating innovation. Our work across similar disease areas, such as transthyretin cardiac amyloidosis of the development of our dual CD19/BCMA CAR-T across multiple therapeutic areas are 2 evidences of this. This integrated approach enables the seamless exchange of technologies and advancements across medicinal and process chemistry, molecular editing and library platform. We have now more than 120 collaborative initiative across AstraZeneca and Alexion which are advancing our ambition to pioneer new treatments and lead in our core therapeutic area. Please advance to the next slide. In 2026, we expect Ultomiris to grow -- to continue to grow, driven primarily by neurology indication including new-to-brand patients and those switching from Soliris as well as further market expansions. We indicated peak-year sales for Ultomiris to be above $5 billion with contribution from both existing and new indications, such as HSCT-TMA, IgAN and CSA-AKI. In the first half of the year, we anticipate high-level results in IgAN where we have guided for the first endpoint at 34 weeks assessing proteinuria. If positive, we will explore the potential for an accelerated approval in certain major markets. We also anticipate results from adult patients with HSCT-TMA. This data built on a positive finding from the single-arm pediatric study completed in 2025. For Strensiq, we expect continued adoption supported by hypophosphatasia guidelines, which have led to increased disease awareness, diagnosis rates and accelerated new patient starts. As global market expansion progresses, our priority remains advancing disease education to strengthen market readiness ahead of the readout for efzimfotase alfa which we anticipate in the first half of 2026. Patient demand and geographic expansion in pediatric patients, in addition to the recent approval in adult patients will continue to drive Koselugo's growth. We are well placed to deliver another year of strong performance, supported by global demand for rare disease medicine as well as meaningful indication expansion opportunities. Please advance to the next slide. Our antibody-based depletion portfolio for cardiac and systemic amyloidosis continue to advance with a focus on the 2 most prevalent form of amyloidosis, transthyretin and light chain. We announced the first Phase III results last year for our most advanced pipeline candidate, anselamimab. In the CARES Phase III program, anselamimab demonstrated a highly clinically meaningful improvement in both all-cause mortality and cardiovascular hospitalization in the subgroup of patients with kappa light chain amyloidosis. Global regulatory reviews and submissions are underway. We have also expanded our collaboration with Neurimmune in December '25 to include NI009, a fibril depleting antibody for the lambda light chain amyloidosis which represents 80% of the light chain population and complement anselamimab to address the broad patient population. We have accelerated development plan to move this molecule as quickly as possible into the clinic. Cliramitug, our first collaboration is Neurimmune is now in Phase III for ATTR cardiomyopathy. The DepleTTR trial completed enrollment, a full year ahead of plan with more than 1,000 patients recruited. As Sharon mentioned, we also plan to initiate a Phase IIb of our silence Wainua with our DepleTTR cliramitug and we believe the combination of these 2 medicines has the potential to deliver a new standard of care for patients with ATTR cardiomyopathy. The data generation to date reinforce our belief that targeted amyloid fibril depletion with specific antibodies can significantly reduce mortality and hospitalization transforming the course of the disease for these patients. And with that, please advance to the next slide, and I will hand back to Pascal. Pascal Soriot: Thank you, Marc. Please, next slide. As you can see here, the momentum of our pipeline continues, not just in 2026, but also through to 2027. We have a significant number of high-value Phase III trials that can read out and support our growth to 2030 and beyond. And in 2026 alone, the risk-adjusted combined figure revenue opportunities in excess of $10 billion, as I said before, and again, the same in 2027. So if we move to the next slide. In closing, we saw strong commercial momentum and great delivery across the pipeline in 2025. And our confidence in delivering the $80 billion ambition by 2030 is definitely increasing. With our broad portfolio and our deep pipeline, the meaningful progress we're making with our multiple transformation technologies, we can definitely reach this $80 billion ambition we have, but also continue to grow post 2030. So if we move to the next slide. Before we move to the Q&A, I want to thank Andy Barnett for his amazing contribution as Head of Investor Relations over the last few years. I know he has enjoyed very much interacting with you, and I'm sure you have enjoyed interacting with him. He's very knowledgeable. He's a great guy and he has a great sense of humor. So definitely a pleasure working with Andy, certainly for me and for the team, and I'm sure it was the case for you. I want to wish Andy a great success in his new role as Country President for Japan. I'm sure he will make a great contribution to our company in Japan, just like you did to the IR function. I also want to welcome Joris, who must be somewhere in the room, okay. I welcome Joris. So Joris was until recently the Country President for the U.S., Biopharma and overall President, Representative of AZ in the United States. And Joris has driven tremendous growth throughout our company in the United States, in particular, built Farxiga to what it is, Fasenra, Tezspire and really done a great job. Joris before being in the U.S. worked in Asia. And so he has really great experience across Asia, the U.S. and Europe. And since he joined the company in 2000. So I'm sure Joris will also do a great job in IR, and I'm sure you'll enjoy working with him. So if we move to the next slide, as Andy mentioned at the start of the call, please limit the number of questions you ask to allow everybody a fair chance to participate. [Operator Instructions] And with that, let's move to the first question. There are so many first questions. Over to you. Luisa Hector: Thank you, Pascal. So I've got 2 questions, please. I wanted to think a little bit about the growth beyond 2030, but it does connect to the readouts in 2026. You talked about the $10 billion risk-adjusted peak sales potential. Can you give us any more color on that, the mix of the $10 billion, the risk adjustments you've assumed any assets, in particular, dominating the $10 billion? And should we assume higher success rates now for AstraZeneca after last year's strong performance? So that's the readouts this year and the link to the growth beyond 2030. And then I'd love to hear an update from Iskra on China, 2026, a lot of moving parts but some good new launches and reimbursement going on as well. So just an update there on how we should think about '26 and perhaps some color on profitability of China versus history versus the rest of the group? Pascal Soriot: Thank you. Iskra, do you want to cover the second one? And maybe for the first one, we'll have to get input from a number of people there. But go ahead, Iskra to start. Iskra Reic: Thanks, Luisa, for the question. So let me start by saying that we are very happy to see the strong performance in China in '25 and it definitely gives us a confidence... Pascal Soriot: Can you speak in the microphone? Iskra Reic: So let me try. Is it better now? It definitely gives the confidence in the outlook of '26. Now when you think about '26 in China, I think there are 2 main components. One is obviously the headwind of the VBP for Farxiga, roxadustat and Lynparza. And as we have always seen, there is expectations from the decline post VBP that is driven by both price decrease as well as volume reduction. But when it comes specifically to Farxiga, I do believe that we can also expect the brand recovery in the midterm, and we saw the similar trend with the Betaloc and CRESTOR in the past. And it is really driven by the strong brand perception, strong brand loyalty and recovery, specifically in the retail channel. When it comes to the tailwinds in China, we feel very confident that we will continue to see the growth of the new launches, specifically driven by our success of including Fasenra, Truqap and Calquence tablets in the NRDL starting 1st of January this year. When you think about the Enhertu performance post-NRDL, they've mentioned that in his presentation, we saw very strong uptake and our ability to include Enhertu in the more than 1,000 hospital listings in the less than a quarter gives us the confidence that we will be able to see the successful launches going forward. When it comes to the profitability, profitability in China is still lower than the group. But I think you always need to think about a huge volume and huge unmet need and opportunity there and put that in the perspective of the -- a bit lower prices than in the rest of the world. Pascal Soriot: In your first question, I had like 2 sub-questions really. And then the second sub-question was about success rate. And I wish that we continue experiencing the same success rate, but I don't think we can promise this because, as you know, the risk is part of our industry, really. And we have to brace and accept the fact -- brace for the fact that we actually will experience failures. Now having said that, I'd like to ask maybe Susan to do 2 things. One is to talk about the joint venture, the project, we are working together with Tempus and using AI and multi-model model to actually help improve the probability of success in our studies and better shape them. So you can sort of give a little bit of highlights on this and then comment on what are the 2 or 3 big projects, not too many, 2 or 3 big projects you think will drive growth in oncology hematology? Susan Galbraith: Yes. Thanks, Pascal. So my reflection, if you like, of the last decade in oncology about the success rates we've had has been predicated on being able to identify the right patient population to treat. You've seen that there's been important with Lynparza, it's been important with Tagrisso. I think that continues to be something that's important. The foundation model work that we go with Tempus and Pathos as the ambition is that we'll have the largest multimodal foundation model that will take the unstructured data that's in patient records, the lab data, the genomics data, [ transit ] data were available imaging and pathology and integrate all of that into the largest foundation model for oncology because of the large data set that we have with Tempus and Pathos. The hope is, I mean what we've already been doing is using those kinds of real-world evidence data sets to both help design our Phase III trials and predict what the control arm performance is going to be, particularly when you're going in with a new biomarker, you don't necessarily have the historical literature data, but if you can benchmark that using these data, it's helpful. So the idea is that you would reduce the uncertainty in both the design and the production of outcome of Phase III trials by using these foundation models. The hope is also that you could better identify the patient populations where the biology is a little more complicated. So we're still relying, for example, on PD-L1 in the IO space as the only biomarker that has really broadly been uptaken. And everybody is aware that, that is imperfect. So I think this technology can really help in those spaces. Still to be proven, but I'm optimistic that, that can make a difference. Pascal Soriot: Dave, do you want to cover the second part of the -- and then Ruud if you could also talk about a couple of products in biopharma with [ drive growth ]? David Fredrickson: So Luisa, very specifically on the readouts that Pascal went through. EMERALD-3 is a blockbuster plus opportunity in HCC. And I think builds off of a program that has currently success with Imfinzi. Certainly, when you take a look at data across AVANZAR07, that is for just the AZ share alone, multi-blockbuster opportunity if those studies are positive, and we've got an opportunity to move forward with that. SERENA-4 is multi-blockbuster in terms of the opportunity that it represents. And then lastly, PAC-9, we don't talk a lot about PAC-9, but I think PAC-9, if that study were to come through, gives an opportunity to actually build off of our Pacific leadership where we've been able to enjoy a space without having much competition coming into the area. So those are the highlights I'd hit. Ruud Dobber: Yes. And a few highlights from a biopharma perspective, laroprovstat, our oral PCSK9. We're going to expect the first data set in the course of 2027 is, in our view, a very high potential -- potentially a $5 billion-plus potential. Clearly, baxdrostat, I'm sure many more questions about baxdrostat. It's not only the mono component but also the combination, I think, with the SGLT2, dapagliflozin is a very important one. And then the other 2 combinations, balci and dapa in kidney disease and heart failure, there's a high unmet medical need. And the combination of zibotentan and dapagliflozin has sales potential of between $3 billion and $5 billion. So there are a couple of big products. And then, of course, the bonus will be potentially those, as mentioned by Sharon, is a high unmet medical need still in the COPD space. If the product is hitting the TPP, I firmly believe that this will be a multibillion-dollar opportunity as well. Pascal Soriot: I got to stay on this table, but please, 1 question. I'll pick 1 question and give the second one. If you have a second one follow-up. Richard Vosser: Richard Vosser from JPMorgan. Maybe thoughts on the implications of the lidERA result over to the SERENA-4 trial in terms of design. Susan, you mentioned choosing the right patient population. Just thoughts on what you've done in SERENA-4 on the back of the lidERA result. And maybe if I can sneak it, thoughts on CAMBRIA-1 as well, given what lidERA just does that impact the commerciality. Pascal, ignore that if that is 2. Pascal Soriot: I will grant you the second one because it's still related to CAMBRIA anyway. So over to you, Susan. Susan Galbraith: So I mean, I think what we've now seen is proof, as we've been saying consistently that is -- because of the mechanism of action of both full antagonism and inhibition of estrogen receptor, but also degradation can have activity not just in the ESR1, but in the endocrine-sensitive is so wild type. And I think you've seen that. We've been saying it for a while. But when you look at the second-line setting, that is less endocrine sensitive and so the effect size has been smaller there. So the basis of SERENA-4's confidence is that we have try to design the study to enrich for the endocrine-sensitive components of the first-line setting. That's based on recruiting patients with recurrence of early-stage disease after at least 2 years of its standard adjuvant therapy because those that are less adequate sensitive will progress rapider than that. At least 12 months must have elapsed since the patient's last dose of the adjuvant AI. And then there's this some patients with de novo stage IV disease. So these are clinical features that are enriched -- to enrich for the endocrine-sensitive patient population. Of course, what you've also got is potentially the prevention of emergence of ESR1 mutations because you are essentially blocking that clonal selection drive because of the mechanism of action. So that's what underpins our confidence in SERENA-4. And I think having seen the fact that you've got activity in an adjuvant setting in an endocrine-sensitive population increases the confidence in that. But obviously, there still those trial design features. And of course, it's in combination with the CDK4/6 inhibitor. To your second question about CAMBRIA-1. Again, I would just point out that we're the only company that has 2 adjuvant studies with our SERD, 1 designed for the patient population after 2 to 5 years of [ CDK4/6 ], which is CAMBRIA-1 and the other from the patient population newly diagnosed, which is CAMBRIA-2. That gives us the opportunity to be able to -- if we're successful to access the largest group of patients in the adjuvant setting from those 2 different patient populations. And of course, the other difference is that we are allowing a combination with abemaciclib, which is going to be very relevant as the data continue to mature for CDK4/6 in the adjuvant setting. So I think that was the basis of the trial design that we had, and we're optimistic that those trials will read out positive given proof of principle, if you like, that this class can have a difference there. Pascal Soriot: Next we just finished this table. Matthew Weston: I think I've got the mic Pascal, if I can. It's Matthew Weston from UBS. One question, please, on elecoglipron, if I can. You've made the announcement that you're moving to Phase III, which I assume indicates confidence in the Phase II profile that you've seen. But I could read that 2 ways because you also have a unique target product profile, I think, in Phase III because you're looking about weight management in combination with other parts of your cardiovascular portfolio. So can you make some comments as to whether or not for you being confident to drive that move to Phase III means that you think you have efficacy at least as good or better than the competition or whether or not you think that it meets your target product profile of at least achieving modest weight loss which you can then use in combination with other agents? Pascal Soriot: Let me just answer this one because it's easy to answer, actually is, we would never move a product in Phase III and unleash the kind of spend we have. We are committing to if we didn't think we have a product with a competitive profile. So I think the short answer to your question is, we believe we have a very competitive profile and it doesn't rely on combinations. It actually relies on the amount of therapy itself. And of course, combination comes on top. But if monotherapy was not competitive, it would be hard to move it into Phase III and unlock so much investment. Maybe, James. Unknown Analyst: James from Barclays. One of the Phase III readouts in the first half is efzimfotase alfa which I think had been based is a $3 billion to $5 billion opportunity. But I'm aware there's 3 different trials. So is it all or nothing to get the $3 billion to $5 billion or other scenarios where some trials are more or less successful? And how would that break down? Marc Dunoyer: Yes. So thank you for asking the question there. As you are mentioning, there are 3 trials. There are 2 trials in the pediatric population, where Strensiq was originally approved. One of this trial is a switch from Strensiq to efzimfotase. There is another trial in the pediatric population in the naive -- in Strensiq-naive population against placebo. And the third trial combines both adolescent and adult. You know that the level of Strensiq, depending on the jurisdiction is usually focusing on the pediatric population. And sometimes, we have adult with pediatric onset in the label, but the intent of the efzimfotase program was to test in the totality of the population from pediatric, adolescent, adult -- and even adult of a certain age, if I may say, So this is what this program of 1850 covers, so that we would know the answer to the question. We have been asking a lot about Strensiq. And we are now expecting the results in the first half of 2026 and we'll put all this together and hopefully, we'll be able to submit for a product that is much easier another enzyme therapy product, but much easier to utilize than Strensiq, which has to be administered every day or every other day, which, of course, is very cumbersome. So this product would be provided once every other week, it would provide a great benefit. And if we demonstrate efficacy and safety in the total population, this would make efzimfotase alfa a product several times the value of Strensiq. Michael Leuchten: It's Michael Leuchten from Jefferies. I think this is for Dave and Susan. TROPION-Lung07 now has QCS in the protocol. Is that also the plan for TROPION-Lung08? And can you talk about the relative importance of AVANZAR versus TL07 or TL08? Susan Galbraith: Do you want to go first? Okay. Thanks for the question. So TROPION-Lung08 is only in the PD-L1 greater than 50% patient population, which is a smaller segment overall. So if you just look at the trial characteristics, it makes sense for the biomarker to be applied within the TL07 population. And that's what the priority has been there. Very similar to what we've seen with the AVANZAR redesign where we put it at the -- in the ITT, but also in the biomarker-positive patient population. Obviously, between AVANZAR and TL07, we'll be answering the question about the added benefit of platinum in addition as well. And I think these are all important trials that have the opportunity to really position Datroway as a key component of the first-line setting across multiple segments of that patient population. Graham Glyn Parry: Graham Parry from Citi. So it's another question follow-up to Richard's question on camizestrant in the adjuvant setting. So CAMBRIA-1 is looking at essentially switch from aromatase inhibitors, but the giredestrant and lidERA study suggest that perhaps that market opportunity might be quite small over time if giredestrant is become standard of care in naive patients in the intermediate risk setting. So is there any plans to run a lidERA-like study or would you be looking predominantly the market opportunity here coming in the high-risk population in combination with [ Verzenio ]? Susan Galbraith: So just to go over again, the CAMBRIA-2 studies in a setting that's very similar to lidERA, but it does allow for the combination with abemaciclib, which I think is going to become an increasing piece. So of course, what lidERA doesn't answer is relevance of the oral SERD in that context. And given that we think that CDK4/6 prevalence in the adjuvant setting is going to grow. I think it's very important to have the data with and without that combination and after a period of CDK4/6. That's why I'm saying, when you look at the 2 trials in totality, I think it gives us the opportunity to have the greatest segment of the patient population in the adjuvant should they both be positive. I don't know, Dave, if you want to comment? David Fredrickson: Yes. I'd simply amplify and echo some of the things that you had said previously, Susan on this, which is, if you think about CAMBRIA-1, which is in this 2- to 5-year population, that's the prevalent population. And so while it's true that over time, the upfront CAMBRIA-2 population, we would expect to grow. There is a large population of patients that are prevalent on AI and AI CDK4/6. And the program allows for looking at both AI and CDK4/6 combinations. It's the broadest program that also allows both that prevalent and incident pool, and it allows us to be in a competitive set of time lines by putting it together in the way that we have. Pascal Soriot: Thanks, Dave. Can we go here and then maybe there. Simon Baker: Simon Baker from Rothschild & Co Redburn. One if I may, please, probably for Sharon. Could you just remind us of the points of differentiation of tozorakimab both in terms of the molecule and trial design and how that underpins your confidence in the program? Sharon Barr: Sure. Thanks for the question. So the story about tozorakimab is the same one that we've been telling all along, which is that we think we have a highly differentiated IL-33 biologic. And the reason we think it's differentiated is because our molecule is able to hit both the ST2 pathway as well as the RAGE EGFR pathway and importantly, to impact signaling downstream event. And why does that matter? Because being able to inhibit signaling through RAGE EGFR is impacting mucus production and epithelial remodeling. And that's incredibly important in COPD where mucus production drives exacerbation, exacerbations drive mucus production, and it gives you a vicious cycle. So we think that's a really important component to our IL-33. Now as you know, we've designed a broad study to allow us to examine the efficacy of tozorakimab in current and former smokers. Our primary readout is in smokers, but we're looking at a broad population across eosinophil levels and across smoking status so that we have the opportunity to bring this to the broadest possible patient population. Pascal Soriot: Can we tie one more question in the room, and then we'll take Steve Scala's question online. Can we get a microphone over there? Christopher Uhde: Christopher Uhde from SEB. It's on Calquence and the room for growth. It's done a nice job beating again lately. Consensus has about 10%, give or take, growth for '26 or '25 and then another 10% from then to about 2031, so peaks $4.4 billion. So will AMPLIFY live up to its name? Or is consensus in the right ballpark? That's my question. And are there any other meaningful gating events to unlock? David Fredrickson: So thanks, Chris, for the question. AMPLIFY is very much an important part of the growth moving forward for Calquence and the fact that we've got positive study approval within Europe, and we're anticipating the U.S. approval is important. In general, the desire that we're hearing among hematologists across the multiple malignancies that they treat is to move towards more finite based therapies. That trend has already happened within Europe. And we've got, I think, a very differentiated and strong profile to be able to compete against the existing venetoclax-based options that are available there. In the U.S., remember that there is not a BCL2 and a BTKi combination finite CLL approach that's been approved. So we have an opportunity in the U.S. to really be the first to come into this space and 1 in 2 patients are receiving finite as opposed to treat progression in the U.S. So you can see how getting to growth numbers within the U.S., which is certainly the largest portion of our global Calquence sales really can be very, very meaningful. The other places in terms of opportunities, we have continued opportunity to expand Ecco in the second line MCL. And we also have DLBCL with ESCALADE which is something that will read out a little bit later on. Pascal Soriot: We need a microphone there. Justin Steven Smith: Justin Smith from Bernstein. Sharon, one for you, if that's okay, cardiac transforms. Could you just remind us on the powering with regards to monotherapy versus combo with TAF. Is the TAF combo arm big enough to prove something clinically meaningful? Sharon Barr: Right. So this question comes up a lot with Wainua. I think it really speaks to the interest in novel therapeutics for patients living with ATTR cardiomyopathy, which is a growing patient population as diagnostic rates improve. Now we have designed, as I mentioned earlier today, the largest ever cardiomyopathy study so that we would be powered to do preplanned subgroup analyses. One of those is to be able to differentiate between patients on baseline tafamidis versus those who are not. And our trial will have the largest proportion in number of patients who are on baseline tafamidis. So should we be able to proceed through the statistical hierarchy? And answer that question, we have designed a trial that allows us specifically to get at that. And we think it's important because that's going to inform treatment guidelines for patients and help to shape the way cardiomyopathy patients are treated in the clinic. So we look forward to the readout of this in the second half of this year, and we'll share the data when they are mature. Pascal Soriot: Thanks, Sharon. So we'll take Steve Scala's question online and then return to the room. I think Rajan has the microphone. Steve Scala: Pascal, a general question, but a hellaciously competitive market of undifferentiated products, which isn't growing very much despite huge awareness, doesn't strike me as the type of market AstraZeneca pursues aggressively. Obesity could be described as that, and you are not only involved but increased exposure. So what am I missing? Are you assuming that fundamentals improve that pricing stabilizes and increases, that strong growth will resume? I know that you're pursuing combos, but value-added products launched into a tough market would strike me as a high probability path to success. And if I could just tack on, can you shed light on why AstraZeneca continues to pursue an oral relaxant? Pascal Soriot: I will only take the first one, if I may. It's an easy one, Ruud for you. Ruud Dobber: No, I think it's a fair question. First of all, I think we truly believe that the market in itself is still quite immature. Yes, injectables have their place. The first oral is moving in, but there's still so much improvement possible in combination therapies and for obesity overweighted people, I think, is very crucial in order to help those patients to reduce their risk of cardiovascular events. So that's one big ticket item. Second part is that those products are still not very much used in, let's say, the international markets. If you look at the success of Farxiga, a big part of the success of Farxiga across the 3 indications is that we have a very large footprint in the international markets. So there's clearly room to maneuver. The third piece is that we are doing a lot of research and development work regarding the quality of weight loss. Yes, it's not only about the percentage of weight loss, but also are you able to preserve lean muscle, yes or no? Are you able to attach or attack the bad fat, the visceral fat. So I think there are still an enormous amount of possibilities to move to the next generation of anti-obese medicines. And I truly believe that AstraZeneca is one of those companies well equipped in order to address those questions. I think we have an excellent development and discovery team. You have seen our excitement of the deal we made last week with CSPC, which gives an opportunity to move in long-acting medicines. So I think there's still so much to win in this marketplace. And we are keen to play an important role in that. Rajan Sharma: It's Rajan Sharma from Goldman Sachs. I just wanted to focus on the growth drivers in 2026 outside of oncology. Do you think the biopharma business can grow through the Farxiga LOE? And then just thinking about the guidance for '26 at the group level, what has to go right to get to the upper end of that guidance? And when do we get visibility on those factors? Ruud Dobber: Yes. So let me take that question as a start. First of all, I think the respiratory and immunology portfolio is growing very fast. It was already $9 billion in the course of 2025. There's no reason to believe that products like Breztri potentially also with asthma or I said in my prepared remarks, product like Tezspire, Fasenra are not growing anymore double-digit moving forward. So that is, I think, a very important growth driver, not only in the United States and Europe, but also clearly in the international markets. So that's one big ticket item. The other one is clearly that hopefully, we will see the approval of baxdrostat in the course of this year as an approval that, of course, will not immediately generate substantial sales in the course of 2026. It's a highly dominated Part D population. But based on all the market research, we truly believe that this product has a multibillion-dollar opportunity as well. So if you see our internal forecast, yes, we will have a blip for sure regarding the Farxiga LOE but there are enough other growth drivers in order to compensate and potentially to exceed the growth moving forward. So we are quite bullish in our internal forecast regarding the forecast for the biopharma business. Rajesh Kumar: Rajesh Kumar from HSBC. Looking at 2026 you are sitting at 1.2x net debt to EBITDA. You got consensus, which is inching by the minute close to your $80 billion target by 2030. You've got a few patent lifts soon after that. When you think of capital allocation, people have factored in a higher R&D in their models now. Would you go the organic route to basically support growth beyond 2030 or what sort of firepower do you intend to deploy for acquisitions? The question is basically underpinned by what Steve Scala was asking earlier that you've gone to obesity at a time where almost no one is sure whether this market has the same kind of growth. And every player is going in. So if you keep going organically into different segments, you might run out of idea. So how are you thinking about that problem in terms of reallocation of capital, share buyback or future investments? Pascal Soriot: So let me make a general comment, and then Aradhana can make more specific comments about capital allocation. One thing I would add to what Ruud said about oral GLP-1 and others is cardiometabolism is going to be -- is today the biggest issue mankind is facing. So -- and we are in the early phase of this transformation and the way we can actually tackle this disease, if you want. And beyond GLP-1, you also have SGLT2, and I really believe in the oral segment, combining those 2 is going to make a huge difference to how people are treated. I think the foundation treatment of many of these people should be GLP-1 and an SGLT2, protect the kidneys, the heart, reduce weight, improve metabolic status. And then beyond that, we have other mechanisms, of course. So I think this is going to remain -- I mean, it is looking very crowded, but it is also a huge issue for medicine. And over time, I think things will settle down because not everybody will succeed in this market. We have the pipeline. We have the R&D strengths, in particular, development strengths, and we have the commercial network and the manufacturing network to manufacture those products and commercialize them around the world. So I think it will continue to -- it will be an important issue to tackle from a medical viewpoint, and it will be a driving growth for us -- a driver of growth, and we become profitable as soon as we can get to scale. In terms of a general question about capital allocation. Aradhana Sarin: Yes. So a few things to clarify. So the $80 billion ambition was on an organic basis, and that does not assume any M&A of any size and scale. And I think we're on track to achieve that. We do have substantial firepower. I think we're very comfortable at 1.2x leverage, but we have plenty of capacity. That being said, I think we remain very disciplined in terms of what type of assets we bring in because it's not about just buying assets. It's about actually creating value for shareholders from those assets that we acquire. And that requires substantial investments in R&D once we acquire those assets or license those assets, et cetera. And so again, we are very disciplined in how we do that, and we need to continue to add value. I think on your question of beyond 2030, that's why Pascal highlighted all -- I mean, if you look at our R&D expense, a substantial portion of that, I wouldn't say, the majority, but a substantial portion is going actually in assets, which won't have any substantial revenue in 2030. So that's all the investment for the beyond 2030 to continue the growth rates because we know in that time frame, there are going to be substantial LOEs. Pascal Soriot: If you look at it, I mean, we are in a good position. We don't have to go after Phase III assets that are proven in cost of fortune and you pay front which you're going to get later. We really try to focus our BD activities on earlier assets where we can add value and create shareholder value because we don't need products immediately. We need to invest for the future. And so our strategy really has been to build our pipeline, of course, and add to it, but through earlier BD investments and then add value over time. So that's really our strategy. And as you said, we have a good capacity in terms of raising debt if we wanted to. But we also have to absorb all these products in our P&L, right? So it's not only a question of cash, a question of P&L, too, and a question of focus. We have a very broad portfolio. But within this, we need to stay focused on what our key priorities are. Aradhana Sarin: There's one online. Pascal Soriot: Sorry, online, that's what you mean, I'm sorry. Over to you Peter Verdult. Peter Verdult: Peter Verdult here from BNP. Sorry, I can't be with you live. Just 2 quick ones, please, Susan and Sharon. For Susan on Alteogen. Can we have an update here and your confidence in this formulation technology significantly extending your key oncology biologic franchises? Are there any products you can call out that will be leading the charge or entering the clinic in the next 12 months? Secondly, for Sharon, sorry to do [indiscernible] But can I just try my luck. Can you sketch out in a little more detail what Astra would consider a win given existing silence data in the market? So put simply, do you think you can raise the bar further on outcomes in the silence market? Pascal Soriot: Can we focus on the first question? And if we have time, we will return to the second one later. Susan Galbraith: So obviously, I think subcutaneous formulations have the opportunity to offer convenience to patients, which I think is very attractive. And we're obviously investing in this across our immuno-oncology portfolio, the bispecifics and and Imfinzi to look at. But also we have the opportunity to look at subcutaneous formulations also with our ADC portfolio, which is perhaps slightly more surprising to people, but it is possible to do that in certain circumstances. And then, of course, across our T-cell engagers, the actual doses in the T-cell engager portfolio are often low enough that, that enables a subcutaneous formulation without necessarily requiring something like the hyaluronidase technology as well. So I would just say that this is a trend that you've seen already across multiple different settings and is one that I think will continue to grow across the biologics part of the portfolio. Sharon Barr: Sure. So going back to CARDIO-TTRansform for eplontersen. A few things to note about our clinical trial relative to competitors' clinical trial. The first is that the key objective of CARDIO-TTRansform was to have a balance of naive patients and defamitive patients. And given that CARDIO-TTRansform is the largest ever trial run in this setting, we've achieved that. So we'll be able to address that question pending positive results, which we think will be very informative to the clinical community. And the second is that CARDIO-TTRansform allows for stabilizer drop in, so acoramidis drop-ins, which speaks to the remaining unmet medical need. We know that patients who are currently on stabilizers continue to progress on therapy. If that were not true, we wouldn't be able to enroll our trial. So understanding how those patients are succeeding on a silencer on top of their standard of care, including a stabilizer is incredibly important. It's also important to note that in this larger trial, we have specific hard cardiac endpoints, including cardiovascular mortality as opposed to all-cause mortality, which really helps us understand how this drug is doing what it's doing and how it ultimately impacts those important readouts for patients who are living with ATTR cardiomyopathy. So overall, we expect to have landmark data for overall benefit and be able to demonstrate the additive benefit of a silencer on top of stabilizers. Pascal Soriot: So maybe we take the last one. Mattias Haggblom at Handelsbanken. Mattias Häggblom: I'm curious to hear how you think about the AstraZeneca's competitive advantage from an in-license or M&A point of view given you have 2 [ science ] sites in China when committing for assets with a competitor who does not have R&D on site in China. Pascal Soriot: So the first part of your question was a bit hard to understand, but I think you're asking us about our position in China from a BD viewpoint. If that's the question, let me try and I'm absolutely convinced we need to be in China to collaborate with, partner with Chinese companies but also to compete and learn -- learn to compete with them and how they compete, not only commercially, but mostly from an R&D perspective because the world has changed and they are increasingly becoming a fundamental part of innovation in our industry and some of them at some point will become global companies. So it's fundamental for us to be there. And I think we have quite a good position to do this. We have 2 R&D centers. We have a strong position, strong profile in China. A few of the deals we've made -- we were able to make because people wanted to work with us. With -- the recent deal we made, I know that someone else wanted to pay more money. But the company wanted to work with us. So I think that relationship we build with local Chinese companies over time and our reputation and our focus and the focus they know that we have on a few limited diseases have really helped us secure a number of deals over the last few years. Now what happens, though, is the cost, the price -- the price of these BD deals is going up, right? And that's -- I assume that would be the case. And that's why after COVID and when the contrary we opened, we quickly went down. We've done quite a number of deals over the last few years at reasonable prices and it's becoming more difficult because everybody is going there. But yes, I continue to think we have a good position. We can leverage our position in China, but we will have to remain disciplined because there's competition for this and the prices are going up. And of course, we have to stay focused on what we're doing. So Andy, I think we have to stop here. Some of us have to be on the road show. So thank you so much for all your interest and your great questions. Have a good rest of the day.
Manuel Stan: Good morning, good evening, everyone. Welcome to Catena Media's Q4 Interim Report. I am Manuel Stan, and today, I'm joined by our Chief Financial Officer, Mike Gerrow. Today, we will be speaking to our Q4 interim report, related financials and our strategy and outlook going forward. We will start today's presentation with a high-level summary of the most important developments in the quarter. I am pleased to see a solid quarter with growth in both revenue and earnings. Q4 amounted to EUR 15.6 million. This represents an improvement of 53% versus Q4 2024 and 34% versus Q3 2025. The adjusted EBITDA improved to EUR 4.7 million, an increase of 60% from the previous quarter as well as over 200% versus Q4 2024. The adjusted EBITDA margin improved to 30%, a 5 percentage points increase from the previous quarter and 15 percentage points stronger than Q4 2024. During the quarter, we continue to focus on operational efficiency and diversification. From revenue diversification perspective, Q4 represented another step in the right direction as our performance marketing verticals, CRM, subaffiliation and paid media continue to increase their share of group revenue. Our disciplined cost management approach continued in Q4 with year-on-year decreases as well as quarter-on-quarter decreases, when normalizing for exceptions. Direct costs increased in line with the performance marketing channels growth. From a geographical perspective, the share of revenue coming from North America increased to an all-time high of 98%, reflecting our focus on this geography. While we continue to evaluate other geographies, North America remains our core focus for the immediate future. While the quarter was overall positive for us, we recognized that regulatory uncertainties surrounding social sweepstakes casinos and the continued rise of generative search can present headwinds for future quarters. Moving on to operational developments. We have seen good results from our diversification efforts as both CRM and subaffiliation verticals recorded once more new highs during the quarter. To further accelerate the success of both CRM and subaffiliation verticals, in early January, we have launched enhancements in both areas. On January 13, we launched PlayPerks on 1 of our leading products, PlayUSA.com. This is a first-of-its-kind loyalty program in the Catena universe. The objective is to build engagement products, which lead to returning loyal users. We see high potential in this space and intend to expand the concept to other products in the coming quarters. On January 16, we launched -- we announced the launch of MRKTPLAYS+, which creates scope for deeper commercial partnerships by giving partners access to our expertise, marketing support and potentially investment capital. From tech perspective, we continue to invest in our central platform and continue the consolidation of our top-tier products. A good example of the benefits of this consolidation is the future launch of our loyalty program on other products as a single platform allows for faster rollout. The results of the Missouri launch have been soft, mostly aligned with our expectations. This was driven both by the size of the market and its neighboring already regulated states as well as our current soft sports position. In early October, we initiated the return-to-office program in our multi headquarters, which seized the minority of our workforce back in the office for at least 3 days a week. A similar return to office strategy will be implemented in our Miami hub starting in April 2026. Moving on to the organic search score. In Q4 2024, we started showcasing our average ranking score for the most important keywords across Catena Media's owned and operated products. We are pleased to see that the uplift shown after Google's June algo update has continued throughout Q4, reflecting the strength of our products and validating the team's strategy and execution. At the end of the quarter, we have registered the best average score for the full year. Towards the end of the quarter, Google launched its end of year major algo update and we are pleased to see that most of our products emerge positively from the update. We continue to see the aftershocks of the end-of-year update in Q1 with high levels of volatility. I will now hand off to Mike to give an in-depth update on our financial performance. Michael Gerrow: Thank you, Manu, and good day. Looking into our Q4 financials. Q4 was a solid quarter that built on the progress made in Q3, 2025. Revenue was EUR 15.6 million, representing a 53% year-on-year increase and a 34% quarter-on-quarter increase. Adjusted for foreign exchange rate fluctuations, year-on-year revenue was up 68%. As Manu previously stated, North America contributed to 98% of group revenue in the quarter. Adjusted EBITDA was EUR 4.7 million, an increase of 211% from the same period in the previous year and a 15 percentage point increase in margin. Adjusted EBITDA increased 60% versus Q3 2025, representing a 5 percentage point increase in margin. Operating cash flows increased to EUR 1.4 million versus a decrease of EUR 200,000 in Q4, 2024. The quarter-on-quarter and year-on-year adjusted EBITDA growth was a further step towards recovery driven by a multichannel revenue growth and disciplined cost management. NDCs increased by 56% year-on-year, driven by stronger performance contributions from our core brands and from the growth of subaffiliate partners on our Marketplace platform. Moving on to our segment performance. In Q4 2025, our Casino segment contributed 89% of revenue with sports contributing 11%. I am pleased to see that our casino revenues grew by 81% versus Q4 2024 and 41% versus Q3 2025. This growth was spread across regulated and Sweepstakes casino operators. Another positive outcome was that this growth came from improvements in our top-tier products and positive developments in our diversification efforts to grow paid media, CRM and subaffiliate channels, as noted by the increase in direct costs. Casino NDCs increased by 117% versus Q4 2024 and by 87% versus Q3 2025. Adjusted EBITDA in our Casino segment increased by 52% versus Q4 2024 and increased by 63% versus Q3 2025, reflecting profitable growth of our core brands and subaffiliates engaged through the Marketplace platform. Our sports revenue decreased 33% versus last year to EUR 1.7 million. There was a 5% decrease versus Q3 2025. This reflects continued underperformance and the divestment of our esports products in late Q2 2025. The launch of sports betting in Missouri in December 2025 had a little effect on our sports revenue in the quarter. This reflects the market dynamics in the state, but also our [ subpar ] sports product offering, which requires further time and investments turn around. New depositing customers decreased 44% versus Q4 2024, but increased by a marginal 2% versus Q3, 2025. Adjusted EBITDA in sports grew significantly versus last year's losses to a healthy 38% margin. The growth in adjusted EBITDA is primarily related to the delivery of our cost optimization measures. Please note that the Sports segment loss in Q4 2024 was partially attributed to the remaining media partnerships that were operating at a loss for part of the quarter. Continuing on to our cost development. Our cost base increased to EUR 10.9 million in Q4 2025 versus EUR 8.7 million in Q4 2024. Our direct costs increased by 227% versus Q4 2024 and by 26% versus Q3 2025. This reflects our positive momentum in diversifying our revenue to include a larger mix of performance marketing channels, including paid media, CRM and subaffiliation. Excluding the increase in revenue driving direct costs, the cost base decreased by 14% versus Q4 2024. Personnel expenses decreased by 12% versus Q4 2024 and increased by 22% versus Q3 2025. But it's important to note that we recognized EUR 1.3 million of accruals in Q4 for the unexpected but welcome achievement of annual employee performance targets. In other words, we accrued the vast majority of the annual incentive programs in Q4 as it was not looking likely that these would achieve required thresholds earlier in the year. If we normalize personnel expenses to include these accruals, personnel expenses decreased by 38% versus Q4 2024 or 22% versus Q3 2025. We have added a gray section to the chart to separate the incentive program accruals versus the continued decrease of fixed cost personnel expenses over the quarters. Other operating expenses decreased by 18% versus Q4 2024 and increased by 33% versus Q3 2025. For items affecting comparability, we recognized a EUR 400,000 noncash gain in the quarter versus a EUR 700,000 cost in the corresponding period last year. The positive effects of items affecting comparability in the quarter resulted in a year-on-year EBITDA increase of 573% and a profit after tax of EUR 2.8 million versus a loss of EUR 1.4 million in the same period last year. Moving on to our financial position. Total operating cash flow from continuing operations was EUR 1.4 million in the quarter increasing from negative $200,000 in Q4 2024. Our resulting cash and cash equivalents balance at the end of December was EUR 9.3 million. We do not have any remaining debt instruments, but our hybrid capital security with a nominal value of EUR 44 million has interest cost of approximately EUR 1 million per quarter, sorry, EUR 1.4 million per quarter. As mentioned in the press release before the Q1 2025 report, we do not intend to redeem the hybrid capital security in the short term, and we have deferred making interest payments on this instrument. We have deferred the July and October 2025 as well as the January 2026 interest payments, and the accumulated deferred interest now totals EUR 4.0 million as of January 10, 2026. We expect to continue deferring additional interest payments and a direct available capital towards technology-driven initiatives that support revenue growth and strategic priorities. This position will be regularly reviewed and evaluated. I will now hand back over to Manu to give us an update on the strategy and outlook. Manuel Stan: Thank you, Mike. After 6 quarters without any new state or province launches in North America, Q4 saw the launch of online sports betting in Missouri. For Catena, the financial impact was relatively modest, driven by both the size of the market with its neighboring states already regulated as well as our relatively soft sports current position. The overall North American market penetration remains low at approximately 50% for online sports betting and only 16% for online casino, indicating the remaining sizable future opportunity. The next significant market launch in North America is Alberta, which is expected to go live in the second half of 2026 with no concrete launch date at this time. Alberta will follow a model similar to Ontario, including both online sports betting and online casino, which represents a much more bigger significant opportunity for Catena versus Missouri. Moving on to our strategic focus areas. In 2025, our strategy was focused on 3 key pillars: people, product and profit. This will carry on to 2026 as we further refine the strategy, but remain focused on these 3 pillars. From a people perspective, the key initiatives in the recent periods included -- the launch of our hybrid working model, the return to office program initiated in early October, bringing all employees back in the office for at least 3 days a week in our multi headquarters and the similar return to office strategy, which will be implemented in our Miami hub starting in April. The continuous development of our OKR program following its implementation earlier in the year, the first company-wide bonds in several years will be awarded following the achievement of our annual performance criteria and up to 50 points, since Q2 2025, our employee Net Promoter Score now marks the year's peak, reflecting the tangible impact of our people-focused programs. From product perspective, the key initiatives included good results from our diversification efforts as our performance marketing verticals continue to grow their share -- their share of revenues for the company with CRM and subaffiliates recording once more new highs during the quarter. As mentioned earlier, after the quarter end, we have launched initiatives to further accelerate the growth in both CRM and subaffiliate areas with PlayPerks and MRKTPLAYS+ launched in January. The positive momentum recorded in SEO in Q3 continued into Q4 as during the quarter, we have registered the best average score for the full year. The tech migration work continued in the quarter, and now we have a majority of our Tier 1 products on our consolidated platform. Our third and last strategic pillar is profit. After a stronger adjusted EBITDA margin in Q3, we are very pleased to report a further improvement in Q4 up to 30%. This represents an improvement of 15 points versus Q4 2024 and 5 points versus Q3 2025. The margin improvement came as a result of both revenue growth and cost control. From a cost perspective, direct cost increased as a result of our efforts on performance marketing channels. Excluding the increase in direct costs, the cost base decreased by 14% from the same period the previous year. Personnel and other operating expenses are unlikely to see any material movement from the current baseline. Lastly, let us recap the key takeaways from our report. Q4 was our strongest quarter of the year, showing positive momentum for revenue growth as well as good cost control driven by a disciplined approach. Q4 revenue amounted to EUR 15.6 million. This represents an improvement of 53% versus Q4 2024 and 34% versus Q3 2025. The adjusted EBITDA improved to EUR 4.7 million, an increase of 60% from previous quarter as well as over 200% versus Q4 2024. The adjusted EBITDA margin improved to 30%, an improvement of 15% versus Q4 2024 and 5 percentage points versus Q3 2025. Our core search channel has seen good development during the quarter, reaching the best average score for the full year. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels, continuing the positive trajectory. We have deferred the July and October 2025 as well as January 2026 hybrid interest payments and the accumulated deferred interest now totals EUR 4.0 million. We remain cautious for the future quarters due to the potential headwinds posed by Social Sweepstakes Casino regulatory pressures and the impact of generative search trends. After the quarter end, we have launched initiatives to further accelerate the growth in both CRM and subaffiliation areas with PlayPerks and MRKTPLAYS+ launches in January. We are pleased with the Q4 performance, which was a welcome step forward. And as such, I would like to thank all our teams for their hard work and dedication. Thank you very much for listening. I will now hand over to Mike to move on to the Q&A section of our call and open up for questions. Michael Gerrow: Thank you, Manu. I'll now open it up for any questions. [Operator Instructions] All right. It looks like there's no one, who wants to do a call-in question today. So I'll go to a few that we had submitted by writing. So Manu, the first question for you is how sustainable is this level of growth is Q4 an outlier? Manuel Stan: Thank you, Mike. I think that in Q4, we benefited from a number of factors that came well together. First of all, we said that from organic search visibility perspective, we have reached the peak of the year, the highest level of the year. And equally, we talked about the diversification efforts that both CRM and subaffiliate have both reached the all-time high during the year. However, equally, we have to recognize that not every quarter will look exactly the same and reaching all highs in all different areas of the business was quite an unique position to be. However, the improvements are structural rather than one-off. And with the cost base normalized and with the diversification in the revenue mix, our products performed relatively well. I think last I would say that Q3 and Q4 grew at an accelerated rate compared to the relatively low baseline in the beginning of the year. We have reaffirmed our double-digit financial target growth for 2026, and that reflects the confidence in our trajectory, but we would probably expect to see a more normalized growth on a quarter-on-quarter basis than we have seen in the last couple of quarters. Michael Gerrow: Thanks, Manu. Another question we got is, has the positive trend from Q4 continued into Q1? Kind of related to previous one. Manuel Stan: Yes. Thank you, Mike. We're not disclosing any financial performance after the quarter end. But we did touch on a couple of things in our report. One, we touched on the search performance and we have said that after the quarter end, we have seen some aftershocks of the end-of-year Google algo update. We have seen high volatility and we haven't seen quite the same strong momentum carrying into Q1. So that's one thing to keep in mind. We will continue to see volatility. I suppose during the quarter. So we'll see how that will perform. Secondly, we said that in mid-January, we have launched PlayPerks on PlayUSA as well as MRKTPLAYS+, which obviously, we are expecting to continue to drive the growth of those 2 particular channels. So I think you see a mix of sentiments across the business. We will see where we will be in Q1, but so far, a mix, I suppose. Michael Gerrow: All right. And we have another 2 here that came in. So the first 1 is, how will the Sweepstakes casino ban in California affect you in Q1? Manuel Stan: I think we touched very briefly on it. While obviously, California is the largest states in the U.S. and will definitely have a negative impact overall in the Sweep segment. We do continue to see growth in other states in the U.S. as well as new operators coming in the market. So I do think that we will continue to see growth in the Sweepstakes segment in the near future. Obviously, there's the potential of other states regulating or changing the rules, and we'll see how that will impact the business. But so far, the interest or the growth in other states, combined with the interest from new Sweeps operators is pretty much covering for the losses in California. Secondly, I would say that there are other similar products. If we're focused on California or New York or States, where Sweeps are no longer allowed. I think we have a number of other products that are somewhat similar in emerging products. And we continue to build our database of players and try to monetize that by referring to new products. And I think the best examples include prediction markets or similar. Michael Gerrow: Thanks, Manu. And 1 more question that came in was how can we perform better than peers in Q4? Manuel Stan: Thanks, Mike. I don't think I can comment on our peers. But as we said, we're pleased with our performance in Q4, and we're even more pleased that, that performance, that growth came from both our own and operated that were driven by the SEO part by the improved rankings as well as the diversification of our business model. So -- we're pleased to see our growth. Nothing else to comment on the rest of the industry. Michael Gerrow: All right. And there's 2 questions that came in about the hybrid. So I'll answer those ones. So the first 1 was regarding the hybrid capital security. Any plans soon to resume the interest payments. And so right now, no, we don't have any plans to continue to resume the interest payments, and we obviously deferred the interest payments in January. We're planning on directing the available capital towards technology-driven investments that support revenue growth and some of our strategic priorities. However, as the performance develops, we will continue to evaluate the right capital structure for the business, including the timing of any future interest payments and any other potential changes to that. And then the other related 1 that came in was what's your forecast for the deferral of interest payments and for the potential repayment or refinancing of the hybrid capital securities. And we don't have a defined forecast for deferring the interest payments as to when they may resume or may not resume. We are right now, after 2 decent quarters, happy to see cash generation increasing and being able to deploy that in areas that hopefully can continue that growth trajectory. However, we have not agreed upon a resumption of the interest payments at this point or any potential refinancing at this point? I believe that's all the questions that came through. I'm just going to check, if anyone's waiting on the line at this stage. Does not look like there are. So Manu, I'll hand it back over to you for any closing remarks. Manuel Stan: Thank you very much, Mike. As we said, Q4 was our strongest quarter of the year, showing positive momentum for both revenue growth as well as good cost control, driven by our disciplined approach. Our search channel has seen good development during the quarter, reaching the best average score for the full year and the focus on revenue diversification paid dividends during the quarter with all our performance marketing channels continuing the positive trajectory. We remain cautious for future quarters due to the potential headwinds posed by Social Sweepstakes Casino, regulatory pressures and the impact of generative search trends. However, we are overall pleased with our Q4 performance, which was a welcome step forward. And as such, again, I would like to thank all our teams for their hard work and dedication. Thank you very much for joining today's call and look forward to hosting you for our Q1 2026 report on May 12, 2026. Thank you very much.
Operator: Welcome to Sdiptech Q4 2025 report presentation. [Operator Instructions] Now I will hand the conference over to CEO, Anders Mattson; and CFO, Bengt Lejdstrom. Please go ahead. Anders Mattson: Hello, everybody. Welcome to Sdiptech's presentation for the fourth quarter. I'm Anders Mattson, CEO of Sdiptech, and I will be presenting here today together with our CFO, Bengt Lejdstrom. A short intro to Sdiptech for any new listener on the call today. Sdiptech acquire, develop and create a long-term home in attractive infrastructure segments. Today, we consist of 31 companies in the group. And we operate in a decentralized structure and each company is responsible for the day-to-day operations. We divide the group into 4 business areas. And each business area has a clear structural underlying growth trend that we see for the future. For the full year 2025, Sdiptech as a group has SEK 4.5 billion in revenues and SEK 968 million in adjusted EBITA and an adjusted EBITA margin of 21.5%. And these are numbers for our core operation and excluding companies that are currently being divested. To start with, I would like to give you some highlights to the quarter. On a strategic level, we have made clear progress during the quarter with our divestments. Today, we have signed 8 out of the 11 companies for completion. The short- and long-term targets for return on capital employed is being implemented for each business unit. And we have done one acquisition in the quarter, which ties nicely into our growing cold-chain cluster. Financially, we are satisfied at a sales growth of 6% in the quarter, showing a good demand for our products and services in the market. I also would like to highlight the strong cash conversion of 134% in the quarter, primarily coming from reduction in working capital levels. Supply chain has [Technical Difficulty], but outlook for 2026 looks strong. Priorities going forward. Many of our companies have a strong return on capital employed, but we have a number of companies we can improve going forward. To be able to reach our growth target, we need to acquire in a high pace, which is for 2026. And we have several companies in the group with good momentum and we need to ensure that we are growing smart. And by smart, I mean being prudent with working capital and CapEx to facilitate that growth going forward. I also would like to follow up on the implementation of our 4 key strategic pillars that we presented on our Capital Markets Day during Q4 last year. The first one is around portfolio management. I already mentioned the progress of our divestment of the 11 companies have been signed for divestment with new owners. We have achieved an enterprise value of full year 2025 EBIT 6x for these companies, which then is in line with our expectations of the value. We have also been more prudent on which companies to allocate CapEx to due to discussions for 2026 and that's also according to our updated framework on how to look at CapEx investment going forward. Second pillar, as we call proactive ownership. We have defined a short- and a long-term target for each company according to the DuPont framework. We have some outliers in the group we need to focus on, but the majority of our companies have a great return on capital employed number as a base. Think we'll go through that a little bit later, but on average, 62% for the year. We have also aligned incentives towards capital efficiency in bonus plan for 2026. The third pillar is about disciplined and return-focused M&A. One example of an action here is that we have implemented a cash flow parameter in all earn-out discussions that we have in early stages for the LOIs with each and every potential acquisition. We have also [ intensifying ] throughout our existing companies. This is not a short-term fix. And this is something that's going to be very important for us going forward to be able to increase hit rate and also efficiency in our sourcing. The fourth pillar is our latest acquisition, STORR was linked to our cold-chain cluster, which is now 4 companies connected. And just for an example, the commercial due diligence was very efficient and straightforward as we already had a lot of information about the market and actually even the company in the group. So in summary, glad to report a strong momentum in implementing our key strategic initiatives. However, we all know that it's not just a short fix. And we look forward to a long-term mindset shift as well for us as a group. Then we are coming into the financial development in the quarter. We are satisfied with the net sales development in the quarter, plus 3% in total and 6% organic sales growth indicate a strong demand for our products and services in the market. The currency effect of negative 8% of course and is primarily due to our exposure to the sterling. In the quarter, we had a stable development, sorry, for 3 out of 4 business areas. We were expecting more sales from Supply Chain & Transportation as we have in the year, we have invested in some of the business units. For the full year, we achieved 6% sales growth and 3% organic growth. The year started weak, but improved during the second half of the year and reached a solid growth number for the year, a trend that we foresee continue in 2026 as well. No significant change in our geographic distribution of sales with U.K. is our largest market. Proprietary Products is at the same amount as previously with 65% -- sorry, 67% of total sales. If we then go to adjusted EBITA. In the quarter, adjusted EBITA came in at SEK 255 million. Organic growth was flat and a large negative effect from the currency of minus 7%. The flat organic growth is primarily a result of a weak quarter in the business area of Supply Chain & Transportation with 3 large companies that have invested for future growth. I will come back to that. I will give you some highlights per business area later as well. The margin of 22.4% in the quarter is strong, even lower compared to last year. For the full year, adjusted EBITA increased by 3% to SEK 968 million. This is an organic decline of 1% and mainly due to the weak first half of the year. The full year margin of 21.5% is in line going forward as a group. We expect our adjusted EBITA margin to be between 21% and 21.5%. We need to ensure sustainable growth and we need -- and also new acquisition with potentially lower margins coming in and being part of the mix. So with that said, I will now hand over to Bengt and he will continue with a more financial update. Bengt Lejdstrom: Thank you, Anders. And I will start then with some numbers for the full group. What you just described, Anders, was for our core operations. But looking then on the profit levels for the full group, as you can see on the left-hand side, for the full year this year and a couple of years back, we have had a strong average growth of 24%, even though it was then slowing off in '25, where it only increased 1% compared to last year. Of that 1% was an organic decline of 4% and another negative effect from the strong Swedish currency, especially against the British pound sterling with a minus 3% currency effect on the full year. And then for noncomparable growth, that is the companies here or the ones effect from the one we divested was plus 8%. So all in all, quite good. But of course, as Anders also said, the first half of the year was a bit sluggish. And for the quarter, for the full group, the quarter EBITA was an organic plus/minus 0. Looking then on the return on the capital employed. As you can see on the right-hand side, we have a chart showing on one hand, the actual capital employed, which has been reduced a little bit from last year. The improvement then from 12.6% to 13.5% is mainly because of an increased EBITA for the group. Looking at -- and of course, the 13.5% is much lower than the return on capital employed in our operations, where the average for our core operations, that is excluding the goodwill and material assets that we book in connection with the acquisitions continue to be strong around the 60%. We also showed the number from another popular KPI, the profit over working capital that some peers focus a lot on. We focus more on the return on capital employed. But anyhow, it has been quite steady around the 80% for a number of years, which is, of course, an important KPI as well and a sign of how we manage and get profit out of our working capital. Looking then at the cash and cash conversion. You can look on -- to the left-hand bottom, you see the cash flow generation Anders mentioned as well. It's very strong for the last quarter, exceptionally strong, I would say, perhaps at 134%, but that was mainly due to reduced inventories and also getting the money in from our customers. And we have had that focus for some time now. And of course, the activities continue to improve this even further going on, even though perhaps the cash flow generation will not be at that level consistently. And I see in the chart, a yellow marked area where we have our ambitions between 70% to 90% over the different quarters, stay there in the cash flow generation and conversion. Another important KPI is then the free cash flow. That is then not only the cash flow from our operations, but also reducing with the leasing part and any CapEx that we do in the quarter. And for the last 12 months, that free cash flow per share have been almost SEK 17 per share, up from almost SEK 13 a year ago. In that chart, you also see the earnings per share, which is somewhat lower. It's around SEK 12 per share if we exclude goodwill write-downs that we did during Q3 2025. And that is lower. And that is based on that we do some accounting when it comes to IFRS rules in connection with our acquisitions. So for example, we need to book noncash interest rates, discount rates for our provisions for contingent considerations and that hurts with about SEK 1.50 per share. So that explains to some part the gap between the free cash flow and the actual net earnings per share. But all in all, we are satisfied with the quarter from a cash flow perspective and we'll continue to work on that. Then looking at the balance sheet from a leverage perspective, one of our financial targets are now to have our total net debt leverage, the total net debt compared with the EBITDA to be below 3. And for the quarter, measured then, of course, on a 12-month basis, it was then below. It was 2.84. And you see the trend on the left-hand side of this slide. We also have another KPI for our debt and that's what we call the financial net debt, which is all debt but excluding the provisions for earnouts. And that one did also decrease to 2.12. And the main reason for this is that the net debt was reduced because of cash flow coming in both from the operations and from, for example, the divestment of one of the companies that we closed them last year. These earnout provisions is always tricky to understand fully the impact on the leverage and so on. But you see on the right-hand side that our provisions booked as a debt has decreased over the years as a share of the total net debt. So coming from almost half or even more than half of all the debt is now 25% of the net debt. And that's a number we expect to decrease as each and every acquisition become a smaller part of the total picture. And during this quarter, we did some write-downs of these provisions. And that means that the actual model works that if some companies under earnout are performing a little bit less than expected, then we don't expect to pay out the earnouts that we have booked. So we released some of that debt and that makes an income. But that's not including in our adjusted EBITA numbers. It's one-offs. And we have detailed those in the reports towards the end, if you want to dig into that in more detail. Right. So I hand over back to Anders for the business areas. Anders Mattson: Yes. Thank you, Bengt. So we have updated the presentation and a little bit more in detail each business area now. Starting with Supply Chain & Transportation, our largest business area. We had a poor performance, a relative poor performance in the quarter, an organic decline in adjusted EBITA of roughly 9%. And the result is mainly in units. Our company within transport refrigeration, GAH, they actually came out of a 4-year earnout. And we have increased investment to ensure a stable operation going forward. On top of this, 2 larger customers have throughout the year been being postponing the orders, unfortunately, postponed further into '26 as well. The other company, our company within winter road maintenance, Hilltip, have invested in an improved factory and organization in the U.S. to be able to serve the North American market locally. And the cost for this as is 2025. But we are convinced that this is the right thing to do as shipping in containers from Finland with finished goods is not a long-term solution for a market where we see great potential for our products for the future. And our company within port automation [indiscernible] large port projects to be postponed during the year and we were awaiting that to happen in Q4. And those global bigger projects, we feel it's the global uncertainty that is affecting these kind of major decisions for the larger ports in this. However, the challenges that we have in the business area are not long term as we see it. And we have a positive outlook for 2026 for the business area as a group. Within the business area, we are also happy to announce the acquisition of STORR late in the quarter. That is a company based in the Netherlands and fits well, as I already said, into our cold-chain cluster. STORR provides partition walls for refrigerated transportation. They have a product with a very high precision, which is needed to be able to separate frozen food from chilled food, for example. And the business model is interesting because the end customer, they usually don't know exactly how they would like to fit the lorry when they buy the bigger lorry. So STORR can actually come in and tailor flexible solutions depending on the needs, which also then can change over the lifetime for the lorry operator. So we look forward to continue to develop this company as part of the Sdiptech going forward. Then we're coming into Energy and Electrification, which had a very strong quarter. Net sales, SEK 281 million and adjusted EBITA of SEK 73 million. That's an organic sales growth of 14% and roughly the same adjusted EBITA growth -- organic growth as well. And also on top of that, a strong acquisition coming in, in Q1 and delivering a very strong result for the year. ForEx you can see of 49% is below the average in the group. And we have a few companies where we see improvement potential here, and that is primarily around inventory management. The demand is strong for several business units in this business area. I just would like to highlight one company that has a very strong new power, Swedish-based company from [ Alingsor ]. They offer equipment for measuring and monitoring power quality in the networks. And as we know, when renewable energy sources grow and also the network is growing itself, power quality becomes even more important to protect critical applications in a production environment or it could actually be in a hospital, for example. And even though we had a great 2025, we see the demand is still there and we see that's going to continue for the future. On other notice for this business area, we have the new leader, the new Head of the Business Area started in January. And it feels great to have recruited somebody that is actually based in the U.K. for such an important segment for us where the majority of our companies is in the U.K. If we then move to Water & Bioeconomy, they delivered a solid result in Q4, which is positive after a relative weak development in Q1 to Q3. Net sales at SEK 241 million and adjusted EBITA at SEK 56 million. Organic sales growth, 9% and adjusted EBITA growth of roughly 5%. In the business area, we see that we have [Audio Gap] and in 2025, we decided to make a number of leadership changes to the local businesses. We have the right products. The market is there. So we have said that we need to focus on more or bringing in more commercial-oriented leadership in some of the units. And we believe this will have a positive impact for the long-term development of the portfolio. Then, we go to the last business area, Safety & Security. They had a development in line with last year and kept up a high margin of 29%. Organic sales growth of 1% and organic adjusted EBITA growth of 2%. For the full year, Eagle Automation had a very strong year. I mentioned it the last quarter as well, but Eagle, they provide high security gates, bolards and rockers. And Eagle's products are certified to withstand vehicle attacks, which is then a specific certification needed. End customer segments are data center and airports, for example. And the strong development has led to further needs for expanding their assembly facility in the U.K. And just to tie back to our framework around where to allocate CapEx, this is a good example of where it makes sense to increase CapEx to expand the operations to get that market share that is out there for us to gain further. Then, we're moving into M&A. In the quarter, as we said, we finalized the latest acquisition of STORR. And total acquired growth landed at SEK 50 million in 2025. For the full year, we have been more selective, which has helped us to decrease the leverage as a group as well. And this is something we have been able to achieve to steadily increasing our ambition in 2026 for M&A. And as part of our updated strategic initiatives, we will be strict on our valuation principles and prioritize cash flow or IRR for each investment we're going into. Then I already mentioned is that we would like to intensify the local sourcing throughout our existing companies as well. So with that said, we are looking forward to more acquisitions in 2026. Yes. And just to give you a summary of the quarter, what we presented here today. We have had a solid financial result in fourth quarter with many KPIs in the right direction. Most of the business units developed a stable result in Q4, except from a few businesses in Supply Chain & Transportation, but improvement for 2026. We have had a selective M&A agenda in 2025 with -- but that's going to be a strong focus now 2026 going forward. The strategic initiatives, we are happy that we have made good progress with those. And I'm also [Audio Gap] a very strong management team in place now going into 2026 as well. And the outlook remains positive for us as a group. So that was all from the presentation here today. I think we can open up then for Q&A part. Operator: [Operator Instructions] The next question comes from Max Bacco from SEB. Max Bacco: Well done in the quarter. A couple of questions from my side, if that's all right. Perhaps starting then with the supply chain and -- Supply Chain segment. You mentioned, Anders, during the presentation that sales both in the quarter, but I guess, for 2025 as a whole has been impacted by some delays in project sales. But you mentioned on the slide as well on the outlook that you have seen some early signs of improvement here in 2026. So basically curious to hear more if you have already seen customers returning to those kind of orders already by now. Anders Mattson: Yes. It's -- we have had a lot of discussions with GAH. GAH is then, of course, one of our important companies in that segment. And exactly what you said there. They were pushing out orders and they wanted to place them in 2026 instead. So order intake for early signals is looking good for the first half of the year. They are securing those orders. It's a major decision for many of these customers as they're planning to renew a total fleet, a big, let's say, retail customer in the U.K. And yes, so from that perspective, we have received some good orders for GAH. Certus is still a little bit of a hesitation of the customers. We have not lost the projects, but major ports see issues or, let's say, hesitant to place those orders. And -- but I can also say that we are not just sitting there, of course, waiting for those bigger orders. We are having a lot of medium and smaller orders coming in all the time. So I think that's also a way of mitigating just sitting and waiting for big orders, try to be active and develop new potential customers as well then. Max Bacco: Okay, good. Sounds promising for 2026 or perhaps the latter parts. And then turning to the Energy and Electrification segment, very nice profitability here for the full year, some 26.4%, I think. And I guess, to some extent, supported by the acquisitions that have been done as of lately. Do you see this, say, 26%, is that a sustainable level for that specific segment? Anders Mattson: Maybe, Bengt, you can answer that one. Bengt Lejdstrom: And we can perhaps look at that slide since we're talking about the different business areas so we know what we're talking about. Energy and Electrification, as you see, it has had a developmental margins going up and down together with the acquisitions. We made a acquisition early '25 with Phase 3 coming in and doing these connectors for temporary connections with electricity, Phase 3 and IV working close together in many projects. But as you see, it has been quite steady around 25%, 26% EBIT margin, the different business units going a bit up and down. But I would say that it could be fair to expect around that level going forward, yes. Max Bacco: Okay. Perfect. And then a question on the opposite side for the Water & Bioeconomy segment, some 24% margin here 2025, which is, of course, a nice level, but a bit below historical levels. And I guess that has been the segment the most impacted by the salary inflation in the U.K. and so on and so forth. Do you -- with the price increases and actions that have been taken in the segment and I guess some effect is still to be seen, do you see a potential to get back to those 25%, 26% profitability perhaps in 1 or 2 years? Anders Mattson: I think from -- we have been trying to challenge a little bit in the past that we cannot change existing contracts there. We're trying to be a little bit more proactive with those kind of contracts. And there are some flexibility to step in and maybe make adjustments during the way we have seen some example of that. But still, it's hurting us, as you are saying. But I think it's going to be a challenge to come back up there. We're trying. It's depending on a little bit also with inflation in salaries going into now 2026 with so many, let's say, people business [Technical Difficulty]. But we are working hard with all the different business units here to steadily increase. We're going to work with pricing as far as possible to mitigate staying down at, let's say, lower levels then. Max Bacco: Okay. Understood. And then 2 final ones, quite short ones. With the additional 7 divestments signed here after Q4, so 8 in total then including KSS, how much of other operations are remaining in terms of sales and EBITA? If you look at the 2025 level, I guess, is the best. Bengt Lejdstrom: Yes. We reported for '25, I think, a little bit more than SEK 50 million for the company. Our run rate is rather around the SEK 65 million for all of these. And that's at least what we base our negotiations on. And so the ones we have divested are the major ones. We have 3 more, but they are a bit smaller. So I would say that perhaps they represent around 20% of that profit going further. So it's another SEK 10 million, SEK 15 million perhaps then that we looking at divesting. Max Bacco: Okay. Perfect. And then the final one. You mentioned it during the presentation, very nice cash flow here in the quarter, but also for the full year. Both supported by net working capital, but also CapEx levels coming down quite notably for the full year. Do you see more to do on, I guess, both net working capital, but also, I mean, the CapEx level relative to sales that we saw 2025, is that a good indication of where you intend to be going ahead as well? Anders Mattson: I think we have said that we will aim for not above 3% of sales in CapEx. And we will definitely if we can be below that in a specific year, that can be good. But I think we -- as a example I gave you here with Eagle, we need to support with CapEx to be able to drive that further growth in some of the business areas as well. So yes, some years can be lower. But I think we need to be up there towards the 3% to be able to have a sustainable growth going forward. On the working capital side, yes, I think we have more to do there. As I mentioned in the Energy and Electrification segment, the return on capital employed there around -- well, I think it was 49% is definitely more room to work on the inventory side there, just an example. So that's part of our incentive models as well for 2026 to try to bring that further down. Operator: The next question comes from Simon Jonsson from ABG Sundal Collier. Simon Jonsson: So I guess I just have maybe a few follow-ups on the cash flow. I think you made it clear that what you're looking for into this year in terms of CapEx and improving the working capital further. But maybe if you can just elaborate a bit more on what you have been doing more recently, specifically for the units to improve the working capital. I understand that it would be part of the incentive programs or bonus programs for units going forward here. But what more specifically have you done recently because we can see in the last 2 quarters or so that there has been a clear improvement in the trend? So yes, just wondering more specifically what you have been successful with here in recent quarters. Anders Mattson: I think from a CapEx perspective is definitely now coming into 2026 as well, we have been more prudent and selective where we would like to spend the money and for what reason. We mentioned on the Capital Markets Day, the framework with companies that are in a strengthened position. We need to make sure that you fix whatever you need to fix before we can accelerate growing the companies and also that we are being selective saying that for us, this is a harvest position. Let's try to harvest as much as possible and investing more prudent. So that framework, I think, has been quite good implemented with the company now coming into 2026. On the working capital perspective, we have started -- we have always talked about it. But we have intensified the discussion with the companies during the autumn that we need to improve working capital and showed an example of how other companies in the group have done or how they have performed. So I think that [Audio Gap] low-hanging fruit that we are seeing. Now we need to stepping into a more structured work to -- as we do it, we're looking at the DuPont framework. We see you have these kind of inventory levels. We believe you can move further down 5%. That will take you here and making sure that we are aligned on what kind of actions specifically you can do. So I would say, low-hanging fruit initially and now the real work starts to really go through each and every company to make sure we are optimizing it. Simon Jonsson: All right. Makes sense. Do you know already like how the bonus incentives will look like in terms of cash flow specifically? Will it be overall cash flow or focus on working capital? How much will that impact bonuses? Will it be different metrics or more sort of cohesive metric like return on capital for units or something like that? Anders Mattson: It's going to be, let's say, a mix. So we have some companies that we feel needs to grow more. So we have revenue targets for that. We have EBIT target as usually as our most important one or with, let's say [Audio Gap] we have, it could be then return on capital employed or it can be working capital as a percent of revenue. That's depending on how we see what the focus should be for the companies. But we tailor that depending on how we see the need for it. And we can also say that this company should then have 70% of the incentive based on the, let's say, the capital efficiency part and only 30% on EBIT part. So that's part of our, let's say, proactive model to see what we would like to incentivize from our perspective. Simon Jonsson: All right. Very good job here recently on the cash flow side, specifically. Operator: The next question comes from Carl Korsheden from DNB Carnegie. Carl Korsheden: Just -- yes, a couple of questions from my side. If just start off with a follow-up question on one of the first questions then regarding the postponed sort of deliveries in the Supply Chain & Transportation area. Is it possible to quantify that anyhow in terms of magnitude? How much do you feel you have been promised that has been postponed to the future? And how much of that could we expect will land in Q1 versus Q2? Anders Mattson: No, we have actually not quantified that. It's more that some specific orders we were talking about for a long time over the year. And yes, so it's been more about we as an organization preparing to deliver those. And we cannot actually say how much of that is actually now happening exactly in January and February. But as I said, I think 2026 looks positive. It's not only because we believe we're going to get those bigger orders. It's also in the general that we are in a good momentum with not only these 3 units in the Supply Chain & Transportation segment. Carl Korsheden: Yes. That's clear. And just -- I mean, on your Capital Markets Day, you talked a little bit about -- yes, you obviously had this new financial targets of growing 15%. And then you said that 2026 might be sort of call it slightly more of a transition year again that you will hopefully do some delevering and also complement with some additional M&A. Now it seems like your financial position has come down a little bit quicker than expected and you have seen very strong cash flows here in the quarter. Would you [ reinitiate ] sort of that view still? Or are you expecting you can do a little bit more M&A now in 2026 compared to your previous assessment? Anders Mattson: No, I would say it's important for us to work with, let's say, our plans that we have put in place. It's still quite -- as we said it as well, it's a lot that needs to be gained from the M&A perspective. So no, we are not adjusting that based on the good cash flow right now. But organic needs to show now coming into Q1, Q2 to be able to continue with that M&A growth. So it's still a lot of things to do actually to be able to accelerate the M&A to be within our financial target metrics. Operator: The next question comes from Linus Alentun from Nordea. Linus Alentun: Congratulations on the report. Just some quick questions here from me. If we continue here on the ROCE from the past question here, it improved to 13.5% from 12.6%. I mean with the divestments and your focus on disciplined M&A, what's the realistic time frame here to reach the 15% target here? Is this a '26 or '27 target? I guess when the divestments are not in the balance sheet, the ROCE will have some upside as well? Bengt Lejdstrom: Yes, that's correct. We simulated that during the fall and said perhaps 1%, 1.5% of ROCE will improve after the divestments. Still, it's a pretty complex to make a very solid forecast. But we have said that this will take perhaps a year or 2 to reach that 15%. It depends a bit also on how the M&As are lining up during the different quarters since we get the balance sheet first and the profits later. But I still would say that it's not early this year, perhaps around early next year or late this year, depending on how our expectation is really to go into next year for this. Linus Alentun: All right. All right. And just continued on the supply chain orders here. You said that they are in a good momentum. Is this something that has kicked in like now in January, like or at the end of last quarter? Can you see a significant improvement here? Or how should we see this? Anders Mattson: Yes. But I'm not talking about only about those 3 business units we mentioned had those problems. It's -- overall, it's a good momentum. Our e-l-m, our company producing attachment as well coming into -- from a very good second half of the year coming into this year and we see the same activity. JR producing different kind of doors as well to the transportation sector, having a great year and also continue to do that. And Hilltip, we talked about the U.S. facility in Europe. They are having a good development. They are expanding their product assortment and making bigger salt spreading equipment, not only to the pickup trucks, also to the tractor and to the bigger segment, the van segment. So -- and Certus is having -- they are growing their service level agreement base with every order they are taking. So I think from that perspective, those -- the mix of the companies and the good development there, that's what I -- when I see talking about the good momentum in this area. Linus Alentun: Okay. That's clear. And just a question here when we look at Q1. How has the weather conditions been here so far for the winter-dependent companies like Hilltip and HeatWork? Are you seeing the weather here is more favorable compared to last year? Anders Mattson: We've been talking a lot about that. And it's actually that what we see is that the season -- the winter season is getting shorter. So in the past, it could have been that they bought something and then they see early or December [Audio Gap] early January, they need an equipment to be able to go through the entire winter. The trend is that they do not have that kind of second wave in the winter because what they bought should be enough for the winter. But now Hilltip actually said with the condition that we have had in full Europe, it's better than last year in that kind of salt spreading equipment. And I think also HeatWork, another company dependent on the -- especially the temperature has also had a good start because of the cold climate, especially in the Nordic countries. So a little bit of positive effect because the winter is -- the feeling is it's going to be a longer period right now at least. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Bengt Lejdstrom: Yes. And we have one written question so far regarding share buybacks. And the question is if we have ever considered share buybacks instead of M&A as our stock is trading at the current low levels. And as always, through all the years, we have always been prioritizing to acquire companies and believe that in the long run, that gives the shareholders a better return. So there is no discussions going on, on that theme. That's the simple answer on that. Yes. And I think that was the only written question. So Anders -- Anders Mattson: Yes. Bengt Lejdstrom: -- any final remarks? Anders Mattson: Yes. No, I think it's good. The message we would like to send is that, yes, we are continue to do or work with our strategic priorities. We are not done, for sure not. We are working on it. We're implementing it. And it's also going to be a long-term mindset shift with this everything we talked about, the capital efficiency and everything around that. That's important to have for us for the long term. But again, we are happy with a solid quarter ending 2025 and now we are definitely looking forward to 2026. It's going to be exciting for the group to enter into this new year as well. So with that, I think, thank you, everybody, for listening and good questions as well. Bengt Lejdstrom: Thank you.
Operator: Good day, and thank you for standing by. Welcome to PrairieSky Royalty Limited Fourth Quarter and Year-End 2025 Financial Results Conference Call. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, sir Andrew Phillips, President and CEO. Please go ahead, sir. Andrew Phillips: Thank you, operator, and good morning, everyone, and thank you for dialing into the PrairieSky Year-End 2025 Conference Call. On the call from PSK are Pam Kazeil, CFO; Dan Bertram, CCO; and Mike Murphy, VP of Geosciences and Capital Markets; as well as myself, Andrew Phillips. Before we begin, there are certain forward-looking information and statements in our commentary today, so I would ask listeners and investors to review the forward-looking statements qualifier in our press release and MD&A, which can be found on our website. 2025 was a successful year for PSK on all fronts. We achieved 6% oil growth over the year, reaching a record 13,940 royalty oil barrels per day. We expect further records in 2026. Our PDP reserves grew alongside our oil production at over 7% year-over-year. Leasing activity remained robust. The company entered into 189 lease arrangements with 90 distinct counterparties. Leasing continues this year at a similar pace. On the capital allocation front, we executed on $100 million of acquisitions with excellent projected returns. In addition, we canceled 2.6% of the outstanding shares of PrairieSky while paying $243.4 million in dividends. Looking into 2026, the team will continue to focus on leasing our leading undeveloped land base to qualified counterparties across the basin. Over the year, numerous discoveries and pool extensions were found across our extensive portfolio with decades of remaining inventory on some of North America's most economic plays. With 98% operating margins and unmatched duration, we're in a position to provide strong returns to our owners in the coming years. We're pleased to announce a 2% increase to our annual dividend to $1.06 per share per year, and our first quarterly dividend will be $0.265 effective March 31, 2026. I will now turn the call over to Mike to further discuss activity on our lands. Michael Murphy: Thanks, Andrew. 2025 drilling activity was strong for PrairieSky with an estimate of $2 billion of gross third-party capital spent on our lands. This represents an estimated 8.3% of total industry conventional CapEx in the basin, and this is up from 6.9% in 2024. Activity was especially strong in our key oil growth place, including Clearwater spuds up 9% year-over-year, Mannville Stack up 11% and Duvernay up 67%. Multi-laterals continue to drive increased productivity per well with 80 multi-lad spud in Q4 and 285 spot in all 2025, representing 40% of all drilling activity on PSK lands up from 36% in 2024. We now estimate half of our Clearwater volumes are under waterflood support, providing for a highly sustainable low decline production base. Improved recovery contributed to a 42% increase in Clearwater 2P reserve volumes year-over-year. Clearwater royalty oil production has grown at a compound annual growth rate of 20% since 2022, and we expect double-digit growth from the play again in 2026. In the Duvernay, royalty production increased 90% year-over-year with growth primarily attributed to activity in the West Shale Basin with sizable third-party operator budgets in this part of the play this year, we expect the Duvernay to once again represent the fastest-growing play for PrairieSky in 2026. I'll pass it over to Pam to discuss the financials. Pamela Kazeil: Thank you, Mike. Good morning, everyone. PrairieSky's 2025 oil royalty production reached a record annual average of 13,940 barrels per day, a 6% increase over 2024 with Q4 volumes averaging 13,750 barrels per day. Growth in oil royalty production was focused in the Clearwater, Mannville Stack and Duvernay oil plays, which now represents 29% of our oil royalty production up from 25% in the prior year. We also achieved 17% growth in NGL royalty production in Q4, with production averaging 2,915 barrels per day. This growth was driven by Duvernay and Montney volumes and positively impacted our NGL realized pricing as pentanes and condensate made up approximately 35% or over 1,000 barrels per day of these volumes. With a strong fourth quarter, NGL royalty production grew 5% year-over-year. Total royalty production was 64% liquids for the year. Royalty revenue totaled $102.9 million in the quarter and $441.7 million for the year, which was 94% liquid. Other revenues added an incremental $8.8 million in the quarter and $36.5 million for the year, driven by bonus consideration of $22.6 million. During the quarter, PrairieSky settled the deferred share units for directors who retired last year of $7.2 million. Directors had until December 15, 2025, to exercise their DSUs. Funds from operations totaled $80.5 million or $0.35 per share in the quarter and $353 million or $1.50 per share for 2025. Looking forward, PrairieSky's 2026 annual pricing sensitivities, which are all net of G&A and taxes are as follows. A $5 per barrel change in U.S. dollar WTI would increase or decrease funds from operations approximately $24.5 million. A $1 U.S. change in the light or heavy oil differentials will increase or decrease funds from operations approximately $5.5 million. A $0.25 per McF change in AECO would increase or decrease funds from operations, approximately $4 million and a $0.01 change in the U.S. to Canadian FX rate would increase or decrease funds from operations of approximately $4 million. Entering 2026, we have tax pools of $1.18 billion to shelter future taxability at approximately 10% per year. This means that in 2026, the first $118 million of cash flow is tax-free with incremental cash flow tax at 23.5%. We prepared a 2025 U.S. tax information and our 2025 dividends will be a 44% return of capital for U.S. investors. This information can be found on our website. We will now turn it over to the moderator to proceed with the Q&A. Operator: [Operator Instructions] And our first question coming from the line of Michael Harvey with RBC Capital Markets. Michael Harvey: Yes, sure. Just a couple of quick ones. First on the West Hale Duvernay, volumes almost doubled this year. It looks like this year, you could be in a position where you kind of get broadly similar growth percentage-wise numbers. Just wondering if you would generally agree with that or take another view. And then second, on the return of capital program, maybe just remind us the philosophy on the buyback. How sensitive is it to your share price? Or is it just more of a sweep if there's looking to be excess cash at the end of a particular quarter? Andrew Phillips: Thanks for the questions. Yes, on the Duvernay, we don't obviously provide specific guidance for plays or guidance in general, but there will be strong growth associated with the Duvernay. I think one of the things you'll see is a little bit more volatility in terms of the actual production volumes given that like in Q3, we got substantial pad that came on and we had a big bump in our volumes. But I think overall, over the years, you'll get some significant growth out of that. I don't know that it will be just under 100% growth this year, but it will be very strong growth. And it really depends on when those volumes actually come on with whether -- how they're staggered throughout the year. And then on the return of capital, we obviously have the dividend, which we increased a couple of percent -- and then on the buyback, we will buy back stock this year. We have a buyback in place currently. And when we think about the business and we look at kind of terminal values, et cetera, we come to a share price that's a multiple of our current share price. So we believe there's good value anywhere in these ranges. So we will be occupying back shares when we come out of blackout. Operator: Our next question coming from the line of Jamie Kubik with CIBC. James Kubik: Can you just talk a little bit about the trend that we saw in the quarter with respect to oil volumes checking back a little bit and how we should think about the profile for PrairieSky in 2026. And then lastly, can you just talk a little bit about the average royalty rate being drilled in the profile right now and what that might mean for 2026 and onwards? Andrew Phillips: Yes. You bet, Jamie. On the first question on the trending again, you saw that big pad come on in Q3. So we had a substantial spike in our volumes. And so we're well ahead of our own internal estimates and analyst estimates. And then, of course, those wells come on with a very high decline. So you saw the declines in Q4. We have a number of new pads coming on throughout the year in 2026. So you will see those kind of a little more volatility, I guess, in the volumes. But I think on average, we'll see similar growth rates. So on the trending, I guess, that's just one thing to expect. In the past, if you go back 3 years, you've seen very ratable growth, mostly due to very kind of predictable pads coming on throughout the Clearwater and the Mannville Stack and very predictable volumes. And then with the Duvernay adding to that and being a big part of the growth, you get these very substantial volume spikes and then some substantial declines, of course, that come alongside with it. So I think you'll see volatility. But in the end, it's a good news story because it will smooth out over the year. And then the second question. Sorry, what was the second question? Oh, yes. Yes, on the average royalty rate is down like 0.2%, I think, on the well spud in Q4. We do expect some volatility in that as well. But as pretty usual, I think it will kind of average north of 6% throughout the year. We just don't know exactly how that will come on, and it depends on the seasonality of drilling and where those wells are drilled. But some of the longer laterals you're seeing in the Duvernay, they're slightly lower. But again, we have a high royalty rate there. So those should come on slightly higher royalties. And then the Viking, of course, in Q3 will add to that when they're mostly 17.5% royalties. But again, I think you expect a similar average royalty rates to 2025. James Kubik: Perfect. And could you also talk a little bit about the outlook perhaps that you might have for the Mannville Stack and the Basal Quartz for 2026? Obviously, good growth in Duvernay and Clearwater in 2025. Can you just talk a little bit about maybe what has you excited in the Mannville Stack and Basal Quartz? Andrew Phillips: Yes, you bet. So in the Mannville Stack, we were about 200 net royalty barrels in 2022. That's grown all the way to just under 1,000 net royalty barrels. We are seeing very robust programs throughout that area from a number of privates, including the lineup in Caltex Trilogy as well as Canadian Natural Resources has licensed a number of wells on our lands that haven't come on yet. So we are expecting pretty strong growth in the Mannville throughout the year. I don't know exactly what that number looks like, but it will be substantial And then the Basal Quartz for the first time we ended it as a segregated play in our corporate presentation. And you can see that volume has been roughly flat. We have done a number of acquisitions, just given the really high-quality operators that we're dealing with there, as well as the robust economics. And just given the gas processing plant that they've acquired throughout the area. They have a lot of access capacity now and has a very strong program coming out of breakup. So we're expecting some pretty strong growth from that play as well. It will certainly be in the double digits, but I don't know exactly what that will look like, and that's a light oil play with liquid search gas. So that's a play that we think will show growth over the next 5 years. Operator: I'm showing no further questions here at this time. I will now turn the call back over to Mr. Andrew Phillips for any closing remarks. Andrew Phillips: Thank you very much, everyone, for dialing into the PrairieSky Year-End and Conference Call. And please feel free to call Pam, Mike or myself with any questions you have, and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Annukka Angeria: Good afternoon, and welcome to Nokian Tyres Q4 and Full Year 2025 Results Webcast. I am Annukka Angeria from Nokian Tyres Investor Relations. Joining me today are Nokian Tyres President and CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, we will begin with the results presentation. And after that, we will open the line for questions. You may have noticed that interconnection with the results, we published also Nokian Tyres' updated strategy and financial targets. These topics will be discussed in detail tomorrow at our Capital Markets Day. And in today's call, we will focus on Q4 and 2025 financial performance and the key drivers behind the results. And with that, Paolo, please go ahead. Paolo Pompei: Thank you, Annukka, and good afternoon also from my side. Thank you for participating in our quarter 4 release as well as year-end release. And what we will do now in the next few minutes, moving to the agenda. We are moving to the highlights, then we will discuss about our financial performance. Jari will present the business unit performance, and we will close the presentation together with the assumptions as well as the guidance highlights, moving directly to Page #4. It was quite a good year in terms of improvement. We have been improving a lot our performance, and this was possible due to strong price and mix improvement, in particular in the passenger car tires. We've been also very active in releasing new products, mainly related to Central Europe and North American market as new growing areas for our business area. And we've been strengthening a lot our premium positioning through pricing, but also through very effective communication and through dedicated marketing and communication activities. We've also completed a major investment in Oradea. We will discuss about that later on. And we had also a strong improvement of the cash flow, supported mainly by improved working capital, but also by the reduced CapEx that are now gradually getting back to normal level. EBITDA was performing -- remained pretty soft, actually, due to the market decline, in particular in the agricultural and forest tires industry. Moving to Slide #5. We completed the first important step of our expansion in Romania with reaching 1 million pieces produced in our facility in December 2025. So this was actually an important milestone for us because now we clearly move from the investment phase to stabilizing our manufacturing platform. At the moment, our team is extremely busy implementing new sizes and developing new products for the Central European market. We also obtained, at the end of December, the first installment of EUR 32.6 million from the Romanian government as a state aid. As you may remember, we are entitled up to EUR 100 million to be supported by the Romanian government at the end of the full process. Moving to Slide #6. This is also an important highlight when we think about the 2025 development. We've been investing heavily in our brand. We've been investing heavily on our product development. We signed a different partnership. I would like to highlight the one we signed with our brand ambassador, Kimi Räikkönen, that is well reflecting our brand values. And he will be with us also in 2026, supporting our development, being with us during the launch of new products, and supporting us in the development of the new products. We also signed an important agreement with the IIHF organization to -- since we will support the World Cup of ice hockey that will take place in May in Switzerland. As I mentioned before, we were very active in delivering new products. We have developed more than 150 new products in 2025 that will support our future growth in 2026, 2028. And of course, we've been focusing a lot in releasing new products in our growing markets like Central Europe as well as North America to support the demand coming from those markets. Moving to Slide #7. We did also important progresses when we talk about our sustainability journey. We are pretty proud about that because we have clearly set a direction that is getting closer to our long-term financial target -- sorry, the long-term target. We achieved 28% renewable and recyclable material within our products, moving up from 25% that we had in 2024. So a significant improvement that is supporting us towards our target of 50% by 2030. Then we reduced by 38% our CO2 emissions. I remind you the baseline is 2022. This was possible for Scope 1 and 2 also due to the start-up of our operation on that are -- as you remember very well, reflecting CO2 emissions in the current setup. We also reduced significantly our accident frequency from 4.6 last year to 3.7% this year. There is still a lot to do. Obviously, having new operation, we are improving day by day also on the new site. But I think also when we look at this kind of KPIs, we are improving significantly compared to previous year. And now let's move to the financial performance. So moving to Slide #9. Well, we have been navigating in a pretty stable market in 2025. The passenger car tire market was pretty stable both in Europe as well as in North America. We are less exposed to the truck tire market remain stable as well. We are more exposed to the agriculture and forestry tire market that was down 5% in the replacement channel and 10% in the original equipment segment. So the market was not really supporting our journey, but we have been obviously navigating well in these market conditions. I think we will see that the quarter 4 2025 was our best quarter of the last 3 years. While sales remained pretty flat, and this is also driven by the fact that in quarter 4 2024, we were heavily pushing for higher sales. This year, we fully dedicated our attention to improve in terms of profitability. And this is quite visible when we look at our EBITDA improvement in quarter 4. We were up by 30% up to EUR 87.1 million or 20.9% in the relation to sales. Our segment operating profit also increased significantly by 43%, up to EUR 51.5 million or 12.3% of net sales. This was mainly driven by strong price repositioning in the passenger car tire. And of course, in quarter 4, we had also some support from lower raw material costs. We had also, I would say, a strong improvement in terms of operating profit, up to EUR 35.1 million. This is 128% more than previous year or 8.4% of net sales. Looking at the same numbers for the full year, moving to Slide #11. We were able to increase sales by 7.2% with comparable currency, and we were able to grow actually in all the regions. Our segment EBITDA was EUR 222.2 million, or plus 20% compared to previous year. It was 16.2% of net sales. Segment operating profit increased by 28%, up to EUR 91.3 million or 6.6% of net sales. And again, same as in quarter 4, strong price increases or price repositioning, and of course, in the full year, positive effect, obviously, coming from the sales volume. The operating profit was EUR 35.8 million at the end, a significant improvement compared to previous year or 2.6% of net sales. The Board of Directors has just proposed a dividend of EUR 25 per share -- EUR 0.25 per share to be paid in April 2026. Moving to Slide #12. As I mentioned before, we were able to grow actually in all the geographical areas where we operate. We were able to grow in the Nordics, in Central and Southern Europe, as well as in North America. I would say the growth in North America of 16.6% was really a good performance in terms of growth, in particular, when we talk about price and repositioning in the North American market. Moving to Slide #13. I would like to highlight when we talk about this slide about 2 things, very, very important development. The first one is the net debt -- the interest-bearing net debt that was EUR 664 million at the end of 2025. This was actually much better than what we were also estimating at the end of -- previously at the end of quarter 4 ourselves, but that was turning really in the right direction. As well as the capital expenditure was EUR 126.9 million, almost EUR 127 million. We need to remind you, obviously, this include EUR 32.6 million state aid from the Romanian government. So we were approximately at EUR 160 million in total. So moving significantly down from previous year. Cash flow also was improving, both in the quarter as well as year-to-date. So let's look at the cash flow in more details in the following slide in Slide #14. As you can see, we were able to improve the change in cash flow by over EUR 200 million. This was obviously driven by an improvement of the EBITDA, but also an important improvement of the working capital despite the growing sales. And of course, we were investing significantly less than previous year. Financial cost has gone up clearly by EUR 16 million. And then, of course, we paid a dividend of EUR 0.25 during 2025. And our debt has gone up compared to previous year. So I would say also in terms of cash development, we are improving significantly our position, and we see actually a better outlook for 2026. Moving to Slide #15, you can clearly see that we have now completed a strong investment phase that was approximately EUR 800 million between 2023 to 2025, and CapEx now is returning to a normal level in line with the depreciation. We are estimating and anticipating approximately EUR 130 million to be invested in 2026. And now stop here, and I would like to ask Jari to comment the business unit performance. Jari Huuhtanen: Thank you, Paolo, and good afternoon also from my side. I'm starting from Page 17. Passenger Car Tyres in the fourth quarter, we continued sales and profit growth. Our net sales was EUR 244.1 million and net sales increased by 3.9%. Average sales price with comparable currencies improved, and the share of higher than 18 inches tires increased significantly. Segment operating profit was EUR 32.3 million or 13.2% of the net sales comparing to last year, EUR 13.6 million or 5.7%. Segment operating profit improved due to price increases, favorable product mix, and lower material costs. In the next page, we can see Passenger Car Tyres net sales and segment operating profit bridges. Net sales in the last quarter increased by EUR 6 million. And again, we can see very positive improvement coming from price/mix, plus EUR 20 million. On the other hand, sales volume was down by EUR 11 million, and then some headwind, mainly from the U.S. dollar, minus EUR 3 million. In the segment operating profit bridge, the same positive price/mix, plus EUR 20 million. And now first time in 2025, we had positive contribution coming from the material costs, plus EUR 6 million. Sales volume in the operating profit was slightly down, as well as SG&A, otherwise quite neutral changes comparing to the last year. In Page 19, we have Passenger Car Tyres net sales components and quarterly changes. In price/mix, we can see that this was now third quarter in a row that we reported quite significant positive change comparing to the last year numbers. In the fourth quarter, price/mix positive impact was 8.5%. Volume change was minus 4.6% and currency minus 1.4%. Moving to Page 20, Heavy Tyres. In the last quarter, lower volume affected net sales. Net sales was EUR 60 million and the change in comparable currencies, minus 2.8%. And net sales decreased caused by lower volume of forestry tires. Segment operating profit was EUR 6 million or 10% of the sales, and profitability declined mainly due to lower volume, weaker product mix, and inventory valuation, which had a positive impact on last year numbers. And Vianor in the last quarter, operating profit was stable. Net sales was EUR 132.4 million and net sales with comparable currencies decreased by 2.7%. And sales was impacted by the mild winter in the last quarter. Segment operating profit was EUR 11.2 million or 8.5% of the net sales and segment operating profit was exactly at last year level, EUR 11.2 million. Then handing over back to you, Paolo, with assumptions and the guidance. Paolo Pompei: And before we move to the guidance, I would like to say, first of all, thank you to the whole team. This was for us an important year of transformation, moving really from managing a strong transformation to create -- start to create value -- future value for our own shareholders. This has been well managed by the team who has been working hard in multiple dimensions, and we'll be happy also tomorrow to talk about our journey and how we will be able actually to improve further our performance for the years to come. But let's move to the assumption and guidance that is also very, very important. We are expecting for 2026 net sales to grow compared to previous year and our segment operating profit as a percentage of net sales to be between 8% to 10%. So we are becoming more specific about our guidance because we want to make sure that you will be able to follow our own journey with more information and more precise information now that our journey is becoming more and more reliable and more and more easy to manage when we look at our future development. The tire demand from the Nokian tire market is expected to remain pretty flat in 2026. So we are not expecting the market to grow significantly. Of course, the development of the global economy, as well as the geopolitical situation or trade tariff is creating some uncertainty and some volatility. But obviously, the improvement is supported by new high-performing product, price mix, and, of course, efficiency improvements that will be still having a strong effect in the years to come. Before to move to the question and answer, I would like to remind you that we have appointed a new CFO. He will start latest 15th of April 2026. So we will have the opportunity with Jari to keep working together on the quarter release. Timo Koponen is the appointed new CFO. He will be -- he has an extensive experience in the financial operation. He has been in important companies such as Normet, where he is currently the CFO, Lamor Corporation, but also he had an extensive career in Wärtsilä, Hackman as well as Konecranes at the beginning of his career. So we'll be happy to present Timo as soon he will be able to join us latest, as I said, by the 15th of April. And we remind you that tomorrow, we will held our Capital Market Day. This will be done in -- actually in here in Helsinki in the Sanding Up Hotel. So you are really welcome to join, and we hope to see you tomorrow at 2:00 p.m. to discuss together our new financial targets as well as our new journey up to 2029. We can now move to the question and answer, and we look forward to your questions. Operator: [Operator Instructions] The next question comes from Akshat Kacker from JPM. Akshat Kacker: I have 3 questions, please, and I will take them one by one, if possible. The first one on end markets, and what your peers have been saying recently. So Goodyear last evening talked about global tire shipments being down 10% in the first quarter. And I understand they do have exposure to the truck business, and there are some weather-related impacts in the U.S. But could you just give us a download on how you're seeing the inventory situation in both Europe and North America? And how do you expect the start of the year in terms of sell-in volumes, please? Paolo Pompei: Thank you very much for your question. Obviously, comparing Nokian Tyres with Goodyear and other companies, I need to remind you that, obviously, we are mainly focusing on specific segment, while Goodyear obviously is exposed to a larger scope. In general, we see, I would say, a healthy development of the inventory. So we believe that from the pure dealer wholesaler point of view, the inventory were pretty stable during 2025. And we see a pretty stable also consumer demand. So this is not really affecting our own business. Of course, when we look at the quarter 4 performance of Nokian Tyres, in particular, we should not forget winter came pretty late. So in some way, we were affected by a lower, let's say, a mild winter season in quarter 4. Fortunately, since, I would say, before Christmas, then winter started to come and started to come heavily in Europe, both in the Nordics as well as in North America. So this is also making us confident about the inventory development of 2026 because obviously, a stronger winter for a company like us that is strongly exposed to the winter tire business or all-season business. It's obviously something that is helping the inventory to be released to the end user. And consequently, we can anticipate that from the inventory point of view, we don't see major issues in 2026. Akshat Kacker: And the second question I have is on your top-line assumptions. When I think about 2026, you are talking about top-line growth. Could you just help us understand that better? What kind of growth assumptions are you working with, either in the passenger car business or for the group overall? And what does that mean in terms of volume growth for the business in 2026? That's the second question, please. Paolo Pompei: Thank you also. This is a very important question. When we say growth, we are expecting 1-digit growth. This is the best visibility we have at the moment, and it's also reflecting our strong focus on profitability improvement. So what I mean is that we are not going to look for market share growth. We are not going to fight for a higher volume as far, we don't see those volume will deliver value. This was the journey, as you know very well, that we started in 2025, and we will keep carrying this journey in 2026. So when we say growth, we are, at the moment, indicating single-digit growth. Akshat Kacker: And the last question is on the definition of the segment operating profit and operating profit. The question is on the IFRS exclusions. I thought the idea was to move away from any excluded costs in the medium term. Could you just tell me your recent view on how you want to tackle these exclusions going forward? And what do you want to book in those one-off costs, please? Paolo Pompei: Yes. We have anticipated several times that we will gradually go away from the exclusions concept. Obviously, we'll do it gradually because last year, we had EUR 70 million exclusions in 2024. In 2025, we had EUR 55 million exclusion. So we will go gradually down when we are -- we will discuss tomorrow our financial targets. Obviously, our financial targets will be very close to segment operating profit equal to operating profit. This is obviously a gradual process. So you can expect a gradual reduction, obviously, will carry a gradual reduction will carry on, obviously, up to 2027, 2027-2028. Operator: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have a few questions. I'd like to start with just a follow-up on the previous question. It's very difficult for analysts to make a forecast if we don't know what your exclusions are going to be. Can we assume, as you said, that in '29, it should be almost 0 that you're going to see 2026 exclusion go down by EUR 15 million or EUR 20 million, the same way the decline between '24 or '25? Or is it not going to be a linear decline? Paolo Pompei: I think your assumptions are correct. Obviously, you will -- I mean, at the moment, we are not planning any exclusion. There are no specific projects that will come up later on. But at the moment, we are not planning any specific exclusion, for obviously, we will go down EUR 15 million, EUR 20 million year-on-year to get obviously to 0. So your calculation and your assumptions are pretty correct. Thomas Besson: Second question, I'd like you to discuss about the [indiscernible] market and how you see that developing for -- no in 2026. Of course, you have a specific exposure to forestry and ag in specific markets. Do you see these end markets showing signs of a turning point or not yet? Are you assuming in your 2026 guidance that the end markets in the [indiscernible] segment grow or not? Paolo Pompei: This is a very good question. Obviously, you know very well that the agriculture and forestry market has been cyclical since I was born, meaning that it is up and down. It's been always quite difficult to see when the market was going up and down. Clearly, this cycle is longer than usual. So I'm expecting the market to recover within 6 to 12 months. Obviously, this is my estimation based on my experience in that industry. And as I said, the last cycle has been pretty long. 2025 was a difficult year for the -- particularly for the forestry machinery producers. And as you know very well, we are strongly exposed to those guys. at this moment, I don't say in the immediate, let's say, in quarter 1, any strong improvement, but we should expect that something will improve starting already from the second half of 2026. Again, this is the best estimate we can do based mainly on the analysis of the historical cycles. Thomas Besson: I think you have a very good experience of these end markets. So that's very helpful. Could you also please discuss the timing of the Romanian state aid? I think you had about 1/3 of what was expected in 2025. Should we assume that to be 1/3, 1/3, 1/3 over '26, '27 as well? Or are you going to get the remainder of the aid so EUR 67 million, EUR 68 million in 2026? Paolo Pompei: Well, obviously, please remind that these incentives are not fixed. What I mean is up to EUR 100 million, and this will be dependent on the final total investment level. This is very important, we remember. So it can be any value close to EUR 100 million, but obviously, or lower than EUR 100 million, depending on the final calculation of the investment level. Clearly, we will apply for -- we have a routine of applying for those incentives year-on-year. So we could expect a second payment within 2026. But I will be very careful in giving you a strong estimation about this because, as you know, we are talking about, obviously, I told you up to the end of last year, we didn't know exactly when those incentives were coming. Finally, they came in December. The Romanian government was extremely reliable in respecting the deadline of 2025. But again, there is a strong bureaucratic process that we need to run to get those incentive on time. But the best estimation we can do will be that, obviously, the second part will come based on our investment level in 2026, and eventually the last part in 2027. Thomas Besson: I have last question. Could you comment on the evolution of pricing in Q4 and year-to-date, given that raw materials have become finally, as you are saying after 2 or 3 years, a support toharmakers' earnings. Do you see any signs of price erosion? Because oil prices have picked up again and some of the materials are going up again, pricing have held up very well. Paolo Pompei: Yes. I mean, obviously, we've been focusing a lot on repositioning our own product in 2025. So we are expecting this effect to roll over in 2026. The raw material, I would say, at the moment, we see the raw material trend favorable, but also because we have been doing a lot, we have been working hard and really improving our raw material cost, both in terms of negotiating new agreements with our suppliers, but also in terms of better utilization of the material in our own products as well as in our own manufacturing facilities. So at the moment, of course, it's very difficult to anticipate in February what will happen for the full year. When we talk about raw material, they can go up and down. And at the moment, we see raw material pretty stable. And we see obviously a positive rollover in 2025 of the good job done by the team in 2026, rewarding the good job done by the team in 2025. Operator: The next question comes from Artem Beletski from SEB. Artem Beletski: Still 2 questions from my side. So the first one is relating to passenger car tires and seasonality on that front. How we should think about Q1? Because looking at past years, you have been unprofitable in this business, but I think that those years are not that representative what comes to 2026 and the Q1 development. So maybe some inputs you can provide on that front? And then the second question is relating to price/mix outlook for this year. So it has been really strong also in Q4, up almost 9% year-over-year. Some pricing effects are likely to be fading away gradually, but you're also introducing new products. So what is the picture when it comes to price/mix outlook for 2026? So those are my 2 questions. Paolo Pompei: Thank you very much for your question. I start with the seasonality. Historically, even when I was not working in Nokian Tyres, I was observing Nokian Tyres from outside. Nokian Tyres has been always having, I would call it, growing seasonality, meaning that quarter 1 is normally very slow, quarter 2 is improving. Quarter 3 and quarter 4 obviously are improving further. This is mainly reason by our strong exposure to the winter tire business because in quarter 1, mainly we produce, and in quarter 2, quarter 3, and quarter 4, we start to release all the stock that we have produced to face the new season. We have obviously -- if you look at the performance of the last 2 years, we were negative both in 2024 as well as in 2025. Clearly, we are here to improve day by day and quarter-by-quarter. So this is really reflecting our long-term plan to improve quarter-by-quarter compared to previous year. But of course, there will be always some seasonality related to the fact that we want and we are, and we will be strongly exposed to the winter tire seasons. About pricing, obviously, we did -- the team made a very good job in 2025. That was my first priority since the very beginning to make sure that we were getting back to the level where we should be in terms of price positioning, in particular, in the new markets like Central Europe and North America. And I would say that we will see this carryover in 2026 because obviously, we should maintain this value within the company. New products that we are going to release, actually, we are very excited about the new product that we are going to release very soon in -- starting from March, and particularly for the Nordic market, will, of course, present an upgrade -- that is my -- I would say, so we are expecting an improvement in terms of positioning and mix. Obviously, as you can appreciate, we cannot make any comment about price development from now to the remaining part of the year for competitors' rules. Artem Beletski: Yes. That's very clear. But I have still one follow-up question relating to the start of this year. So we indeed have seen really no winter weather conditions in Nordics, in Central Europe, and in North America. Should we anticipate any tailwind from this weather picture during the season or basically in Q1? Or should it be the impact for, let's say, Q2, Q3, ahead of the season when dealers are taking in new tires? Paolo Pompei: I think the development of the winter this year is having a positive effect on the new season when we will start because obviously, this will -- at the moment, what we see is probably the inventory of our own customers are going down because obviously, the winter has been pretty strong, I would say, everywhere in Nordics, in Europe, in North America as well. So their inventory are now going down, and this will be a very -- I think, is a very good news for us for the new season that will start. So we are talking about really quarter 3 and quarter 4 of 2026. This is the way I see it at the moment. So you should not expect any effect today because now today is the time for our customer really to reduce their inventory. Operator: The next question comes from Pasi Väisänen from. Pasi Väisänen: Well, I would like to start with the regulation. And so what is the latest information regarding these possible antidumping duties against the Chinese tires? And if those will be kind of set, could it even affect Nokian Tyres offtake agreements, those tires coming from China to Europe? And secondly, what could be the realistic sales volume forecast for your Romanian factory this year, and also on next year when looking at this ramp-up schedule? Paolo Pompei: Thank you. Two very important questions. About regulation, obviously, you read the news as we read the news at the moment, the antidumping investigation is moving on. There will not be apparently any preliminary duties that are coming from the preliminary investigation. So I think the investigation will need to be completed. And then obviously, the European authority will decide based on the findings they will see during the investigation. There is no effect really now, and we don't expect any effect for the future in Nokian Tyres because obviously, we are mainly now sourcing from different countries than China. So obviously, the impact on Nokian Tyres, considering the latest news, meaning that there are no duties in the immediate future, will not have an impact on us because in the wild time, we have been obviously moving our sourcing to other countries that are not today under investigation. I said very clearly as well that with the ramp-up of Oradea, of course, we have been in-sourcing a lot of products that before we had, by definition, had to produce in partnership with other suppliers. Moving to the question about Oradea. Clearly, Oradea is set to now to increase significantly the production. This will be strongly dependent on the development of the sales in Central Europe. We should expect anyway, for Oradea to, in some way, double the production volume compared to this year. And -- but will be very difficult. We should be more precise during the year to give you an exact estimation of where we are going to land. It's all dependent on sales development, and the success of the new products that we are expecting will deliver value to the customers. Pasi Väisänen: And maybe still one detail regarding the ramp-up costs. So if I remember right, they were close to EUR 10 million in the third quarter, now roughly EUR 16 million. So which figure of these should be used as an estimate for the first quarter or the run rate for the full year? Paolo Pompei: As we mentioned before, we are expecting -- I can guide you for the full year because obviously, the ramp-up cost is directly proportional to the ramp-up of the production as well in Croman in Romania. As you know, in quarter 4, we have been moving from 5 days to 7 days, 24-hour shift. So this is an important step for us in order to get to a normal production level and to increase our production output. So obviously, in quarter 4, they were a little bit heavier than in quarter 3. We said before that you should expect year-on-year a reduction of our exclusion of the region of EUR 15 million, maximum EUR 20 million year-on-year moving forward up to 2028 up to 0. So this is more or less our best estimate at the moment. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Annukka Angeria: It seems that there are no further questions. So it is time to conclude this call. Thank you, Paolo and Jari, and everyone who joined us online. And hopefully, we will meet many of you tomorrow at our Capital Markets Day. For now, goodbye, and enjoy the rest of your day. Paolo Pompei: Thank you very much. Looking forward to meet you tomorrow. Jari Huuhtanen: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Amentum Q1 Fiscal Year 2026 Results Conference Call. [Operator Instructions] This call is being recorded on Tuesday, February 10, 2026. I would now like to turn the conference over to Nathan Rutledge. Nathan Rutledge: Thank you, and good morning, everyone. We hope you've had an opportunity to read our earnings release, which we issued yesterday afternoon and is posted on our Investor Relations website. We have also provided presentation slides to facilitate today's call. So let's move to Slide 2. Please note that this morning's discussion will contain forward-looking statements that are subject to important factors that could cause actual results to differ materially from anticipated. I refer you to our SEC filings for a discussion of these factors, including the Risk Factors section of our annual report on Form 10-K. The statements represent our views as of today, and subsequent events may cause our views to change. We may elect to update the forward-looking statements at some point in the future, but specifically disclaim any obligation to do so. In addition, we will discuss non-GAAP financial measures, which we believe provide useful information for investors. Both our earnings release and supplemental presentation slides include reconciliations to the most comparable GAAP measures. We do not provide reconciliations of forward-looking non-GAAP financial measures due to the inherent difficulty in forecasting and quantifying certain significant items. These non-GAAP financial measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP. Our safe harbor statement included on this slide should be incorporated as part of any transcript of this call. With me today to discuss our business and financial results are John Heller, Chief Executive Officer; and Travis Johnson, Chief Financial Officer. We are also joined by other members of management, including Steve Arnette, Chief Operating Officer. With that, moving to Slide 3, it's my pleasure to turn the call over to our CEO, John Heller John Heller. John Heller: Thank you, Nathan, and thank you, everyone, for joining us today. We entered the new fiscal year continuing our strong momentum, including another robust quarter of bookings that reinforce our alignment to the high-demand mission areas of nuclear energy, space and critical digital infrastructure. As a result, this morning, I'm pleased to share another quarter of results that put Amentum on track toward achieving both our near-term fiscal year 2026 outlook and our longer-term strategic growth objectives. Our differentiated business continues to perform. And as a management team, we're setting clear priorities and expectations, and we're executing. Bottom line, momentum continues to deliver. So let's jump right in with our quarterly results. While the longest government shutdown in history impacted performance in the quarter, I am especially proud of our teams around the world who remain focused, delivering exceptional outcomes for our customers and results largely in line with our expectations. Key highlights, which Travis will cover in more detail shortly, include revenue of $3.2 billion, reflecting normalized growth of 3%, adjusted EBITDA of $263 million with robust margins of 8.1% and adjusted diluted earnings per share of $0.54, up 6% year-over-year. This performance is a direct result of our agile business model, disciplined execution, consistent focus on our strategic priorities and continued demand across our end markets. Let's turn to Slide 4, where I'll highlight how Amentum's focus on growth translated into a series of strategically significant wins this quarter. We delivered $3.3 billion in net bookings, resulting in a first quarter and last 12 months book-to-bill of 1x and 1.1x, respectively. Including strategic joint venture awards, our imputed book-to-bill was 1.3x for the last 12 months. This consistent performance enabled our industry-leading backlog to grow 4%, reaching over $47 billion. And at quarter end, we had $23 billion in proposals awaiting award, the majority of which are new business to Amentum, including nearly $2 billion already won and under protest or awaiting corrective action. As I'll discuss in more detail, we continue to make meaningful progress advancing large multiyear opportunities directly aligned with our higher-margin accelerating growth markets, a point evidenced by our consistent book-to-bill performance at or above 1x. Our business development engine prioritizes scale, duration and strategic relevance, grounded in deep customer relationships, shaping solutions and building long-cycle programs where customers value trusted partners. We are particularly encouraged by our progress in nuclear energy, an accelerating growth market for Amentum, which is showing robust demand signals, both overseas and in the United States. Years of technical investment and program execution have led to tangible awards, including nearly $1 billion in the first quarter alone. reinforcing our role as a trusted partner across both existing facilities and new build programs. Leveraging our technical leadership in nuclear energy, Amentum was selected by Rolls-Royce as the global program delivery partner for its small modular reactors, including initial deployments in the U.K. and Czech Republic. Under this partnership, we will apply decades of experience in nuclear engineering and design, systems integration and program governance. Amentum was also awarded a 10-year $730 million contract by EDF Nuclear Power to support new and existing power stations in the U.K., reinforcing our role as a trusted partner to one of the world's largest nuclear utilities. And in the Netherlands, Amentum secured a 5-year $207 million contract to provide planning and engineering services supporting the future development of up to 2 gigawatt scale power plants, strengthening our position in Europe's energy transition. Beyond nuclear, we continue to win work that reflects the breadth and diversification of our portfolio across customers, geographies and contract types. Our capabilities in digital engineering, advanced sustainment and other mission-critical operations are resonating with customers, both domestically and internationally. Award highlights include the U.S. Air Force 6-year single award IDIQ with a ceiling value of up to $995 million for unmanned sustainment, modernization and training. Under this contract, Amentum will deploy specialized solutions and expertise in the U.S. and globally to reinforce readiness and training capabilities. Next, we were awarded DISA Compute-as-a-Service contract, a 5-year $120 million award to deliver scalable computing power on demand. We're excited to support our customers' mission through this unique outcome-based contract and see it as a potential model for shaping future proposals. Finally, we secured a 3-year $270 million contract from a foreign military customer to provide advanced C5ISR solutions. Our progress this quarter demonstrates consistent execution against our strategy and reinforces our confidence in our ability to continue building a high-quality backlog and delivering durable long-term growth. Before we dive into our Space Systems and Technologies market, let's turn to Slide 5 to step back and reanchor our discussion in the growth framework we introduced last quarter. We outlined 3 accelerating growth markets where Amentum is particularly well positioned, Space Systems and Technologies, critical digital infrastructure and global nuclear energy. These markets are characterized by strong demand visibility, attractive margin profiles and long-term growth potential across government and commercial customers. These markets also align with enduring macro trends and support the technological needs of a growing global economy. Please turn to Slide 6 to cover in more detail Space Systems and Technologies, which we view as a set of interconnected markets that scale together across satellites, launch, integrated systems and satellite communications. Together, they represent an approximately $90 billion market projected to grow around 9% annually over the next 5 years, driven by higher launch cadence and increasing mission demand. Starting with satellites, demand continues to shift towards proliferated low earth orbit constellations. Smaller satellites now dominate launch volumes across broadband, sensing and national security missions. These architectures enhance resilience, but also increase integration and life cycle complexity, areas where customers value experienced system integrators. Integrated systems are also changing rapidly. Infrastructure is becoming more software-defined, virtualized and cloud integrated. While this improves scalability, it also raises the importance of integration, cybersecurity, automation and end-to-end mission operations as data volumes and mission tempo increase. Launch activity is accelerating. Lower-cost commercial launch, reusable vehicles and increased competition are driving a higher cadence across government and commercial customers. As launch volumes expand, operational demands increase across mission integration, safety and sustainment. Satellite communications or SATCOM, is also expanding as a foundational layer of global connectivity. Growth in broadband constellations, mobile communications and sovereign networks is driving higher throughput and adoption of multi-orbit architectures. SATCOM underpins mission-critical defense, mobility and commercial applications worldwide. Taken together, these trends are expanding the space market and increasing demand for companies like Amentum that can integrate, operate and sustain complex systems across their full life cycle. Moving to Slide 7. Let's discuss how Amentum is uniquely positioned with robust experience and capabilities to advance the future of space. Beginning with missile defense and command and control integration and modernization, demand continues to rise for resilience-based domain awareness and integrated missile warning and tracking. These priorities are central to U.S. and allied national security strategies and are driving sustained investment. Amentum supports these national security missions today through programs such as IRES, providing advanced engineering sustainment and NIS2 supporting global surveillance, missile warning and classified communications. As hypersonic and ballistic threats evolve, demand for satellite-based tracking will only increase. Our performance and expanding capabilities positions Amentum well for space-enabled missile defense opportunities such as Golden Dome under the $151 billion SHIELD IDIQ on which Amentum was recently awarded a position. Amentum plays a critical role providing full life cycle solutions for human exploration and has numerous active programs supporting Orion, the space launch system and exploration ground systems. These programs require continuous engineering, integration, operations and sustainment across multiyear mission cycles. They are not onetime development efforts, but long-duration recurring opportunities supported by sustained demand across multiple human space flight missions. These efforts require advanced propulsion, power, autonomy and payload integration, areas where Amentum brings deep expertise and where we see growth across both national security and commercial customers. Finally, in deep space research and development, Amentum focuses on robotic exploration and early-stage systems that extend human reach beyond Earth's orbit. Our work includes missions such as space vehicles designed to operate in extreme lunar environments. We also see growing opportunities to support emerging technologies, including propulsion systems that will leverage advances in nuclear energy and in Mars-related ascent and sample return technologies, where early research and systems engineering are critical to reducing risk. We're positioned to lead mission-critical space integration today while scaling and extending our capabilities to capture long-term growth across the space economy of tomorrow. In summary, Amentum enters the remainder of the fiscal year from a position of strength. Our results, backlog and pipeline reflect disciplined execution, durable customer demand and the value of our differentiated capabilities across complex mission-critical environments. As global needs evolve across defense, energy, space and digital infrastructure, we are well positioned to support our customers' most important missions while creating long-term value for our stakeholders. We remain focused on execution, growth and delivering on the commitments we've made. With that, I'll turn it over to Travis. Travis Johnson: Thank you, John, and good morning, everyone. I'm excited to discuss with you today Amentum's solid first quarter performance, our continued trajectory to achieve net leverage less than 3x by year-end, enabling a more flexible and opportunistic capital deployment posture and our confidence in achieving full year results in line with the guidance provided in November. To echo John's sentiment, I'm particularly encouraged by the continued successful execution of our strategy, evidenced by another quarter of robust bookings and by outstanding margin performance, both of which were enabled by the relentless focus and dedication to operational excellence from our employees around the globe. With that, let's begin with an overview of our financial performance on Slide 8. Revenue in the first quarter totaled $3.24 billion, reflecting the joint venture transitions and divestitures previously discussed as well as impacts from the government shutdown. Underlying growth normalizing for these items was approximately 3%, driven by the ramp-up of new contract awards in our critical digital infrastructure and Space Systems and Technologies accelerating growth markets. Adjusted EBITDA of $263 million benefited from a 40 basis point year-over-year increase in adjusted EBITDA margins to 8.1%. Alongside continued strategic progress to prioritize higher-margin work, margin expansion was enabled by strong program performance and reduced indirect spending as a result of realized cost synergies and disciplined expense management during the shutdown. Adjusted diluted earnings per share of $0.54 was up 6% from a year ago and reflects lower interest expense driven by our debt reduction initiative. Moving to our reportable segment results on Slide 9. Digital Solutions delivered revenue of $1.34 billion, representing 4% growth on a reported basis and a robust 8% after normalizing for the items mentioned previously. The year-over-year increase was driven by the continued ramp-up of new contract awards, led by strength from commercial programs and critical digital infrastructure. Adjusted EBITDA increased to $103 million as a result of the higher revenue volume, resulting in adjusted EBITDA margins of 7.7%. Turning to Global Engineering Solutions. Revenue was $1.9 billion, reflecting the impacts from JV transitions, the divestiture and the government shutdown. Normalizing for these items, underlying revenue was consistent with the prior year as revenue from new contract awards were offset by the expected ramp down of certain historical programs. Adjusted EBITDA of $160 million reflects an 80 basis point year-over-year increase in adjusted EBITDA margins to 8.4%. The strong profitability was enabled by prioritizing higher-margin growth opportunities, disciplined program execution and delivering against cost synergy initiatives. Now turning to Slide 10 to cover our cash flow and capital structure highlights. First quarter free cash flow included an additional pay cycle compared to the prior year quarter and was impacted by temporary collections timing from the government shutdown and holiday closures, resulting in a use of $142 million. It is important to emphasize that this is only timing related. In fact, collections in the first 5 days of the second quarter more than doubled compared to the same period in the prior year. As a result, we anticipate strong free cash flow in the second quarter and remain confident in meeting our full year free cash flow guidance. From a liquidity perspective, our position remains healthy with Q1 ending cash on hand of $247 million, a fully undrawn $850 million revolver and no near-term maturities. We're also pleased with the recent Moody's credit rating upgrade, which underscores our improving financial profile, immediately reduces interest expense on our Term Loan B by 25 basis points and positions us for enhanced financial flexibility and market access moving forward. With a strong balance sheet, robust liquidity and focus on generating sustainable free cash flow, we are well positioned to deliver enduring value for our shareholders. Achieving our target net leverage of less than 3x by the end of the fiscal year remains a priority. And looking into fiscal year 2027 and beyond, we will remain disciplined in our approach, maintaining a prudent capital structure that enables flexible and opportunistic deployment. On Slide 11, let's now turn to our fiscal year 2026 full year outlook. As a result of Q1 performance, backlog of $47 billion, including $7 billion in funded backlog, up 23% from last quarter and with 95% of revenue expected to come from existing or recompete business, we remain confident in the outlook provided in November. We are reaffirming guidance for the year, including revenue in the range of $13.95 billion to $14.3 adjusted EBITDA between $1.1 billion and $1.14 billion, adjusted diluted earnings per share between $2.25 and $2.45 and free cash flow between $525 million and $575 million. All metrics reflect healthy underlying organic growth and the primary guidance assumptions remain unchanged. From a timing perspective, we continue to expect quarterly sequential increases in revenue, adjusted EBITDA and adjusted diluted earnings per share as we move beyond the government shutdown and will benefit from additional working days in the remaining quarters. To assist with modeling, we have included a breakout of working days by quarter in the appendix. And I will also note that for Q2, consensus estimates are in line with our expectations. From a free cash flow perspective, as previously shared, we have seen a rebound in collections and therefore, expect approximately 25% of our to-go free cash flow generation in the second quarter. Wrapping up on Slide 12. We are pleased with our start to the year, which reflects our ability to deliver solid results through disciplined operational execution and strategic focus. With continued robust bookings, strong market demand signals and progress towards our leverage reduction goals, we are confident in achieving our full year outlook and in positioning Amentum for sustained value creation. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Colin with Cantor. Colin Canfield: Travis, do you mind focusing on the free cash flow progression through the year and maybe talk about Cogniz, how you think about this quarter's performance, second half performance and then maybe discussing how you think about potentially selling receivables in order to kind of bolster the free cash flow that... Travis Johnson: So as stated in my prepared remarks, there were 2 primary drivers for Q1 cash performance, both of which were simply timing related and have no impact on our expectations for the full year. And so first, as noted on our last earnings call, we had an additional pay cycle relative to Q1 of last year, which obviously will normalize as we move through the rest of the fiscal year. And second, there was an unexpected government holiday closure, which you guys may be familiar with. So the administration gave government employees an additional 2 days off in addition to Christmas and New Year's at the end of December and headed into the new year. And so that pushed some collections into the first part of January due to delays in customer approvals and processing. So really, again, just timing related and perhaps to provide some more context, Collections in the first week of the second quarter were $100 million higher than they were in the first week of Q2 of last year, kind of just reemphasizing that it was just collections timing that was pushed due to delays in approvals. And so looking ahead for the rest of the year, given the rebound we've already seen in the beginning of the second quarter, we're confident in achieving results that are in line with the guidance that we reaffirmed for the full year with the midpoint being at $550 million. And roughly 25% of that to go free cash flow, we do expect in the second quarter. And then obviously, Q4, as it always has been, will be our strongest free cash flow quarter as a result of our alignment with government at fiscal year-end. And then just to touch on your comment on AR factoring. As you're aware, we do have an AR factoring program in place, and we do leverage that to manage working capital as we move throughout the year. Colin Canfield: Got it. That's great color. And then maybe following up, if you can kind of refresh how you think about the award outlook by end market, particularly focusing on unfunded awards and how you think about kind of the magnitude and timing of those funded awards. Travis Johnson: Sure. I'll start with just saying you noticed that we had an uptick in funded backlog during the quarter. It's something we've talked about really since last year, and we saw some administrative delays on the contracting side just with having funding. So we're pleased to see that bounce back up to nearly $7 billion, a 23% increase from Q4. But as we've said, we're comfortable with funded backlog in that range of $5 billion to $7 billion with what it means for the rest of our full year outlook. And in terms of kind of looking ahead, obviously, with $23 billion in pending awards and $35 billion or more of bids expected to be submitted this year. We're on track to achieve our full year book-to-bill greater than 1. And a lot of those key awards, we expect will come from the accelerating growth markets that John highlighted in his prepared remarks. In fact, just this quarter, we had over $1 billion in awards in our global nuclear energy business. So really highlighting the strength of that piece of the portfolio. And I'll just mention, I think the kind of history of our consistent book-to-bill performance speaks for itself, right? 5 straight quarters of book-to-bill 1x or greater, including imputed book-to-bill of 1.3x on an LTM basis. Operator: [Operator Instructions] Your next question comes from Tobey with Truist. Tobey Sommer: I wanted to ask a question about nuclear, where you've had a nice string of new business announcements. How do we think about how that folds into the P&L and starts to contribute to revenue and profit growth? And then I was wondering if you could comment on what nuclear bids either submitted or sort of pipeline looks like -- and is it indicative of more rapid growth there versus the overall metrics for the firm? John Heller: Well, the first thing that we highlight is, I think we highlighted in the prepared remarks just the fact in Q1 with $1 billion of awards in the nuclear space, and given the fact that nuclear of our over $14 billion business represents just over $2 billion, you can see we're making really good progress and see acceleration in that market overall as it relates to our portfolio. But of course, we're $14 billion. So it's going to take time to see the nuclear business really have a significant impact on, say, quarter-by-quarter. But on a year-by-year basis, we do expect these accelerating growth markets, including nuclear space and digital, all to have a positive impact on margins. We're still looking for margin improvement year-over-year. It's going to be driven by those 3 areas, and nuclear is certainly stepping up and contributing there with the contract awards we announced, including kind of EDF and the Netherlands contract award. And of course, we announced Rolls-Royce, but that was an award after the quarter. So we're continuing to see progress on the nuclear side, and we would expect that to be a big story for the business with the European market still robust as we've talked about a couple of big awards there this quarter. But the U.S. market is just really starting to accelerate as these bigger deals, new starts extensions for existing plants and the SMR market are all starting to get some momentum, and we have a lot of inbound demand in these areas. But that's probably going to take a few more quarters to see the money come together, those projects get green lit. But nonetheless, we are working with a lot of companies that are working to put these U.S. projects on track to begin. So that's going to really help accelerate the future. And of course, just the final point I'll make is the time line on these -- the upfront work on a nuclear project is typically in the engineering the governance, getting regulatory approvals, preparing for construction. And then the revenue on these projects accelerates quite a bit once you move into construction. And that can take anywhere from 1 to 5 years to move into those stages. So these are really 5- to 10-year projects, which then have a kind of a tail that can go decades. But in terms of getting to the peak, it usually takes 2 to 5 years to see the peak revenue opportunity on nuclear. Tobey Sommer: When you look at your bids submitted and pipeline for the whole firm, is there an embedded favorable mix shift from a margin perspective based on the complexion of those bids and pipeline? Travis Johnson: Tobey, this is Travis. I would characterize it like this. Obviously, we're starting to strategically prioritize higher-margin work, both in the accelerated growth markets that John highlighted, but also in our core markets, right? We still have $10 billion worth of the markets which we're a leader in, great work and still growth opportunity there. But we're also looking to expand margins in that part of the portfolio, which will be a big part of the story. And as we look at the bids going in, including things like contract mix, we are certainly seeing a shift over time. As we've stated, it will take time with $47 billion in backlog, right? It's a big shift this year, but we are seeing that. And you'll see in our contract mix composition in the 10-Q, you'll see we've started to progress towards a higher percentage of fixed price work. So we are starting to see that as awards and that strategic shift and prioritization unfold. Operator: Our next question comes from Seth with JPMorgan. Seth Seifman: I wanted to ask in cash flow about the investing cash flows that go into the JVs. It's a significant amount in the quarter. How do we think about those cash requirements going forward and how they should be relative to your CapEx and free cash flow? Travis Johnson: Yes, this quarter was abnormally large contributions to our equity method investments, and it's really a direct result of the big joint venture awards that we had last year. They're all kind of starting to ramp up. And at the initial phases of those joint ventures, you have initial capital contributions from partners and Amentum had our piece in that. The 2 larger ones for the quarter were in Fort Smith and our Hanford work. We don't expect that level as we move throughout the rest of the year. And then you also saw some return of contributions, which we would also expect over time as those programs ramp up and mature. Seth Seifman: Okay. Okay. Great. And then just a quick follow-up in Global Engineering Solutions. Obviously, very tight margin there historically in that mid-7% range and then nearly 100 basis points higher in this quarter. What happened there that would make us not think that this should be -- that kind of the margin that we saw in Q1 is not sustainable in Global Engineering Solutions? Travis Johnson: Yes. Certainly, the margin performance for the entire company and obviously led by Global Engineering Solutions was a highlight for the quarter. things like revenue and cash flow timing that are out of our control impacted from the government shutdown happened. Luckily, that's behind us. But the margin performance is something we're really proud of the team for delivering. And it wasn't really just one area. It was -- there's a few different areas. First, it's progress on our strategic objective to prioritize higher-margin work. And as I stated a little bit earlier, you'll see in our 10-Q that we've got a higher percentage of fixed price work that contributed to that. Also, there was some mix benefits from the government shutdown and just the work that was impacted from the shutdown with some lower-margin work and obviously, continued benefits from our cost synergy initiatives and then overall, just strong program performance. So a lot of different variables driving the positive outcome there for Global Engineering Solutions. And then as we look to the rest of the year, obviously, our implied to go margins at the enterprise level are in line with the midpoint of our full year guidance. But as you know, that contemplates a range of outcomes and the top end of that could be up to 8.2%. So we feel really good about the quarter and obviously, the path that we have to meet our full year objectives as it relates to EBITDA and EBITDA margin. Operator: Your next question comes from Kristine with Morgan Stanley. Kristine Liwag: John, we're seeing over 100 gigawatts of industrial gas turbine power capacity to enter the market by 2030. And it looks like this capacity is expected to come in sooner than nuclear projects. I mean they're a little bit of shorter duration than nuclear. I was wondering how applicable your core capabilities in nuclear is for these kinds of projects. I mean these are still fairly large builds. Is this an opportunity for you? John Heller: Yes. Thanks, Kristine. And we're very aware that to meet the power needs of the nation and frankly, the world, that you're going to have to look and there's a big article today, of course, in Wall Street Journal on coal, restarting coal plants, extending coal plants and other sources to create the bridge to where nuclear can step in. And our focus is on bringing that nuclear infrastructure online. And what you're seeing and this administration is very active in supporting using kind of the existing infrastructure and bringing that infrastructure online that is more carbon-based while we bring these SMR or gigawatt size plant projects online in parallel. So we're seeing projects being discussed and planned and the money coming together behind the overall plan to bring all this additional power online and nuclear is a huge part of that, which is going to keep us extremely busy. So our focus is on that nuclear power, which is happening absolutely in parallel. And these types of projects are not necessarily behind the scenes. I mean you're hearing about some of this with SoftBank getting involved in Japan and other large projects. And you hear about the nuclear element of that. But to get to the ability to have that nuclear power, which is 5, 6, 7 years down the road, you're going to have to have some bridge power capability brought online. And that's where you're seeing this additional capacity you're mentioning. But the nuclear projects are going to keep us very busy that they're working on to really facilitate the accelerating demand. It's going to go far beyond what these near-term fossil fuel projects can handle. Kristine Liwag: Super helpful. And also on the DISA Compute As-a-Service contract that you won in the quarter, how is this structured? Are the economics of this contract similar to a traditional contract? And providing this as a service, is this business model also repeatable for the commercial end market? John Heller: Yes. We're excited about the DISA award. I think if you take it in a larger context, it's one of the great examples of how the government is really focusing on trying to get to more outcomes-based contracting. And so it's inherently on demand to provide compute capacity and power for DISA and their clients. And so that's scalable kind of outcome-based, you can think in terms of not as an overall effort kind of fixed price, but rather a unit-based fixed price that allows us to deliver outcomes. And it's -- we think it's a great contract model, very much in line with how the government is trying to modernize procurement models. And so we think it is a structure that could replicate across other opportunities. Operator: Your next question comes from Ken with RBC Capital Markets. Kenneth Herbert: Travis, maybe I wondered if you can size the mix impact on margins in the quarter. I think you called that out as a headwind as a result of the shutdown and some of the maybe lower-margin work that wasn't booked in the quarter, wasn't billed in the quarter. How do we think about that? And how do we think about that then playing out as we think about the progression of margins through the remainder of the year? Travis Johnson: So between kind of the 4 drivers that I mentioned earlier being just overall strategic progress to prioritize higher-margin work, which means that we have lower margin work falling off and we're winning work that's coming online that's higher margin. The kind of onetime impact from the quarter of the mix from the government shutdown impact, realized cost synergies and then strong program performance, it was really, especially in Global Engineering Solutions, kind of evenly spread across those drivers. So not one kind of outsized contribution relative to those 4 things, but rather a combination of all of them. And then as we look to the rest of the year, again, the midpoint of our guidance is 7.9%, but the whole range contemplates EBITDA margins up to 8.2%. So obviously, we put out guidance that contemplates a range of different outcomes. And while we're pleased with the Q1 performance, we're obviously just being prudent in our approach to look at the variety of outcomes that could happen for the year. Kenneth Herbert: And maybe as a follow-up, John, to some of your comments on the space market in the prepared remarks. As we track your progress here, obviously, we'll see the releases. But are there 1 or 2 things, whether it be launch activity or other aspects of this market as they evolve that you'd call out as maybe better or more indicative of how you could ramp in the space market more broadly? I'm just trying to get a sense as to what you view as perhaps some of the most important indicators as we track this moving forward. John Heller: Yes. No, we're really excited to highlight that this quarter. Our teams are working across the space domain in very different areas that we outlined in the presentation. We thought that would be really good to share. I'm glad that you brought that up because we were really excited to make that a centerpiece of the quarter. And our position in the market is really built on long-standing roles and mission-critical programs, really on missile warning systems, missile defense, space domain awareness, command and control. I mentioned programs like IRES and NIS2, great examples of our advanced engineering sustainment hypersonic and ballistic missile development, another area. We recently won a contract to support the U.K.'s hypersonic program. We're real excited about that. So we see that the strength of our history positions us in these areas that we highlighted. And we think there's some real good opportunities as obviously, the U.S. government is very much focused in these areas. The space race is real with China, the opportunity to get back to the moon and Artemis II, Mission and then Artemis III. So a lot of things happening that align well with our strengths. Travis Johnson: Yes. Maybe just to add a quick a little bit of context to John's remarks, I think that we very much see that -- back to your question, it's -- for us, it's not a single opportunity or I would even say it's not a single part of the system life cycle. As John indicated, it's really kind of more of a broad approach to the opportunities across the space market. We broke it into satellites launch, SATCOM and integrated systems. And today, we're driving those critical missions with Missile Defense Agency and other parts of the Department of Defense, but even NASA. And so we're excited about really the in-house expertise that we've built across these critical missions. I think the real theme at this point in time is all of these critical missions are becoming more complex. And so a partner that can deliver agile and scalable systems, all these missions require more rapid tech insertion -- and that's really the momentum team that we've built in the space portfolio. And moving forward, there's just 3 things that give us a lot of optimism. I think, number one, if you look at where we're deploying our proven expertise today, we're deployed in areas where the spending is becoming more durable. That's something we see across the missions we're supporting. Secondly, we are excited about we are on and hold the right contract vehicles. We talked about existing DoD and NASA contracts. Of course, we picked up a position on the Shield contract where we'll have the chance to compete and win work in support of Golden Dome. Even recent months, we've had the nice new win on the COSMOS contract with NASA, where we're waiting for protest disposition. But all these things give us kind of line of sight on growth in '26 and into '27. But maybe in the biggest picture, the third point we're excited about is all the capabilities we at Amentum have developed in-house translate across these missions, whether it's national security space, whether it's deep space exploration or even some of the emerging commercial opportunities. And we've really worked on networking that expertise to be able to bring the best solution to all of these opportunities in the space market. Operator: [Operator Instructions] next quesiton comes from Trevor with Citizens. Trevor Walsh: Great. Can you maybe just bridge some of the comments, Travis and John, that you made around kind of the timing of the nuclear contribution and then just the overall new business that's coming in for '26. It sounds like that's probably not so much a factor of kind of the revenue that's beyond the visibility that you had from kind of new -- excuse me, from the existing contracts. Just how are you bridging that kind of upside or the extra? Is that coming from -- what's that coming from? And what are the puts and takes around the -- what could be the got you there as far as not kind of meeting your expectations? John Heller: Yes. I'll just make a quick comment. Maybe Travis can get into the numbers, but a quick comment that's a little tongue and cheek on the industry. But 21% of our revenue right now is non-U.S. government. In the U.S. government, we still have protests on new awards. We've mentioned we have $2 billion of new awards sitting in protest. So our BD engine is working. We're really excited with our strategy that we've outlined. Our win rates are strong and our backlog is growing, but we have protests. But what's interesting is in the non-U.S. government business, we really have no protests, right? So we're able to transition those awards, whether it's in the nuclear space or foreign government space, immediately into revenue and contribution to margin improvement. And so that's kind of another exciting part about the nuclear market is we announced $1 billion of awards. We still have the Rolls-Royce that came in after. We have other things happening in our nuclear market really excited about, and we're not seeing any protests. So we get to translate that into project work and see that contribute. But of course, in '26, as Travis said, we only have about 5% of new business to fill the gap. But if you can get the work that we're winning in our accelerated growth markets started that can have a greater impact on the fiscal year. Travis Johnson: Yes. And I'll just add. I think John covered it really well. But as we look at kind of bridging Q1 to the rest of the year run rate, there's really just a couple of mechanical things that are going to get us there. Obviously, first and foremost, there's going to be no government shutdown impact in the remaining quarters, and that was roughly $150 million. We're also going to benefit from additional working days in the remaining quarters. So in Q1, there were 60 working days. In Q2 and Q3, there will be 63 working days. And in Q4, there's 64 working days. So just kind of math on average daily run rate, right, that's an additional $150 million a quarter. And then obviously, the other net organic contributions, including things like ramp-up of new contract awards. We mentioned our Space Force Range contract previously that only had 1 month worth of revenue in the first quarter, and we'll obviously have full quarter benefit in the remaining quarters. So fairly simple bridge to kind of get you to how we see the rest of the year playing out. And then in terms of where we fall within the guidance range, I think John hit it really well. It's really just continuing to submit high-quality bids and expect to still submit over $35 billion this year. But we have $23 billion in pending awards, and we have pretty good visibility into those, but there can always be variability of timing of those and then, of course, process, as John mentioned. So I'd say if we're looking at variability within kind of our guidance ranges, it would be just that and how does that play out during the rest of the year. Operator: Your next question comes from Mariana with Bank of America. Mariana Perez Mora: So the first one is going to be about -- you mentioned the Golden Dome Shield contract that you have been down selected. We haven't seen much awards yet. How are you thinking about timing of those awards and opportunities? John Heller: Yes. We -- I think for us, the Golden Dome story begins with kind of what we're doing today. In January, General Guetlein, Pentagon's appointed leader for the whole Golden Dome system realization, he made some great comments about the priorities for the first 2 years, and he really focused on the baseline command and control capability for this integrated system of systems that is Golden Dome, incorporating interceptors into the systems. And so if you look at momentum today, we're already doing a lot of work that's I'll say, bringing that to life. We're supporting certainly the Missile Defense Agency. John mentioned our IRES contract, where we've established now the digital backbone that's going to allow those systems to be integrated into our missile defense architecture and even developing prototype systems like as has been in the media, the hypersonic tracking and ballistic space sensors, those prototype systems we're working to bring to life. And so already in conjunction with the Missile Defense Agency, Amentum is doing a lot of that work. And I would quickly mention our work also with the Space Force in their NORAD mission, where we're advancing their ability to detect and track and have missile warning capabilities. That is -- we are continuing to sustain and advance their systems to carry out those parts of the missions. And so we at Amentum are even on our current contract seeing tasking that is relevant to the future solution that is golden done. And so in parallel, as you correctly mentioned, now we, along with many other companies, have a seat on the Shield contract. We have begun just to see some of the plans for some of the procurements that will come out under Shield. We, like others, are positioning for those. And so we do expect as we progress into '26, that we'll see increased activity there. And -- but we're excited about the current work and the view ahead on the upcoming procurements. Mariana Perez Mora: And then if we can switch gears to NASA. Earlier this week, they announced the solicitation for the second iteration of like NASA engineering support contract that you guys have. And I understand you probably cannot comment on like a particular contract, but how should we think about opportunities and challenges going on for your NASA exposure going forward, especially as we think about like new leadership and a focus on more like commercial terms, the same that we're seeing at the Department of W. Like what are the opportunities and challenges there and competitive dynamics going forward? John Heller: Yes. We really pleased that we've had the chance even just within the past couple of weeks to meet with the new administrator and his team. And at the top level, let me just say we're excited to continue supporting NASA to achieve the President's National Space policy goals and maintain U.S. leadership in space exploration, and everybody is aligned around that. And even more specifically, just within the past couple of weeks, we've enjoyed interacting with the new NASA leadership at the Kennedy Space Center in Florida, where the integrated team is working to prepare for the Artemis II mission. And if you're following, it's now slated for the March launch window. And so we're very proud of our current role in supporting NASA with this historic mission, which, by the way, will take humans deeper into space than they've ever before traveled and we'll bring them home safely. So rest assured that proper preparation for Artemis II is a priority for us. Administrator Isaacman, he did recently, just as you noted, he committed to say, "Hey, NASA has got to focus on rebuilding internal talent, strengthening contractual provisions and fostering their culture of technical resilience." These are all positive objectives, and we are fully in alignment. NASA has a unique leadership role in the world and never before in history has it been more important that NASA lead in this area. So we're very excited about that. I think for us, as we've interacted with new NASA leadership, -- the administrator, we think, is focused on pushing the agency to deliver successful missions to do that in alignment with cost constraints as well as schedule imperatives. We at Amentum, we believe our proven expertise, coupled with our highly advantaged cost posture, we think we're positioned. We're a big part of those solutions today, but we can, we think, even be a bigger part of that in the future. So we're really excited about the direction of the agency under administrator Isaac and it's leadership. And I just want to close by having been at Kennedy with our team and the NASA team and seeing the preparations for ARTEMIS II. We are really thankful for that team, how they're approaching every aspect of the mission to ensure it's executed safely and well. And I know all eyes of the nation will be on tap as we undertake that historic mission in March. Operator: Your next question comes from Gavin with UBS. Gavin Parsons: You pointed out U.S. nuclear is still in early stages of acceleration. And I think I heard you say maybe a few more quarters until we see some tangible progress there. Is that the time frame we should expect for some potential award announcements? John Heller: Yes. I would say there's a lot of activity. We are extremely busy. We haven't made any announcements, but trust me, our team could not be busier given the support of this administration as well as the need, the demand that is there from the hyperscalers and the whole community, understanding that energy and meeting the energy needs of our industry is a national security issue. So it's all hands on deck, great relationship with the government and commercial business as well as foreign investment and really working together to allow this to happen in the United States, this resurgence of nuclear, call it, the second nuclear renaissance and bringing that on. And part of it is the excitement around small modular reactors, right? So SMR development is really happening. We have in the U.S., some great companies that are leading that effort. And for Amentum, we're working with these companies. And we're a key part of the supply chain to allow these projects to happen. We're doing that in Europe. We have all that expertise. We've been working in the nuclear industry going back to the Manhattan project here in the U.S. at developing next-generation energy capability here in the U.S. and now seeing the demand for electricity and bringing nuclear back on, Amentum is extremely well positioned to be a part of that success here in the U.S. So, we think '26 is going to see some real progress and that will really create momentum into '26, '27 and beyond. Gavin Parsons: Okay. That's great. And then just back to the shutdown impact briefly. The full year assumes some headwind. I think the first quarter was a little bit light of where you guys guided. Was that larger shutdown impact than you expected? And what gives you confidence that, that can be recaptured this year instead of slipping to the right? Travis Johnson: Yes. So when we issued guidance back in November, we contemplated an approximate 1% impact from the government shutdown. And that kind of played out with the majority of that occurring in the first quarter as we stated. So it was in line with kind of what our expectations were when we set the guidance range, which obviously is the reason why we reaffirmed the guidance. But we're really confident with, again, only 5% of revenues expected to come from new business, 93% is firm, only 2% recompete. And with the $23 billion in pending awards, we have good line of sight into where the revenue is going to come from for the rest of the year. Operator: Your last call is from Andre with BTIG. Andre Madrid: In much of the same way that you previously broke down the different pieces of the nuclear end market, are you willing to share just how big each of the 4 space end markets are for you now and how big they could become? Travis Johnson: I think that it's a great deeper look into the way we've laid out the space market. I'll be forthcoming. The way we are kind of omnipresent across all of those areas, it can be a little bit challenging to segregate revenue between the 4. I think that you could argue that the majority, if not all of our revenue in the space market kind of all points towards that integrated systems bubble where -- or segment of the market where we're -- whether it's front-end design all the way through development, integration and test, all of it headed toward integrated systems. But the other piece that we've got to factor in, that's really a new term in our momentum equation is the Space Force Range contract, where we are today now have just ramped up that contract and are having such an increased activity in the launch portion of the total market. And so we think as we get to a little bit of normalization moving forward, it will be a much easier task for us to quantify exactly where the revenues fall in the 4 buckets. Andre Madrid: Got it. Got it. That makes sense. And then I guess just to zoom out into just the accelerated growth markets overall. Are you able to provide a book-to-bill for those markets as a collective? And maybe just through that, talk about more of the opportunities you're seeing there? Travis Johnson: Yes. On the book-to-bill, and I'll let John elaborate on the opportunities moving forward. Obviously, Q1 was a highlight, over $1 billion or right around $1 billion of the $3.3 billion in net bookings tied to just the global nuclear energy part of the accelerating growth market. So I think it's fair to say, if you look at over the last 12 months, there's been proportionately outsized contribution from our accelerating growth markets, as you would expect with awards such as Space Force Range, a lot of the other international nuclear opportunities. So certainly, they are the leading factor in our book-to-bill performance. That said, we still are excited about what our core growth markets are contributing, and they continue to have robust bookings as well. John Heller: We're -- we don't divide the book-to-bill. And what we did this quarter did say we had $1 billion of nuclear awards. We will continue to kind of share some of the color on where these awards are coming from. We think the one highlight of what -- of momentum is that we have been delivering what we say we're going to deliver. We have been consistent. This team has developed a very solid strategy. We've used the last 2 quarters to share that strategy with the marketplace. It is working. It is delivering. We think the diversification of momentum is a key strength. And we're showing that across our core markets and across our accelerating growth markets, our ability to compete on the largest and most complex contracts in these areas. And I think as we go forward, we will continue to share more detail. Things are happening in the digital infrastructure market. We're going to talk about that next quarter. We talked about the global nuclear last quarter. We talked about Space Systems and Technologies. And we're seeing momentum in these accelerating growth markets as well as continued strength in our core markets that we've been delivering for decades. So yes, we plan to continue to share more of the details aligning to these accelerating growth markets as we go forward. And because we just see our pipeline is shaping up across these areas between core and the 3 accelerating growth markets, which is part of our strategy to continue to prioritize the higher-margin areas while still taking advantage of our leadership position in the core markets. So we're excited about how the pipeline is pulling together and our focus on new business scale are all starting to work and pay off, and we saw it in margins this quarter, something we couldn't control with respect to additional days off for the government that impacted our cash. But in things that we can control that tie to our strategy, we continue to deliver, and I'm really proud of what this team is doing every quarter to live up to the expectations we're setting in the marketplace. Operator: Thank you for joining today's call. There are no further questions at this time. Thank you for joining. You may now disconnect.
Operator: Good morning, everyone. My name is Bo and I will be your conference operator today. At this time, I would like to welcome everyone to Goodyear's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this call will be recorded. It is now my pleasure to turn the conference over to Mr. Ryan Reed, Vice President, Investor Relations. Please go ahead, sir. Ryan Reed: Thank you, and good morning, everyone. Welcome to our fourth quarter 2025 earnings call. With me today are Mark Stewart, CEO and President; and Christina Zamarro, Executive Vice President and CFO. A couple of notes before we get started. During this call, we'll make forward-looking statements and refer to non-GAAP financial measures. For more information on the most significant factors that could affect our future results and for reconciliations of non-GAAP measures, please refer to today's presentation and our SEC filings. Our earnings materials, including a replay of this call, can be found at investor.goodyear.com. With that, I'll hand the call over to Mark. Mark Stewart: Thank you, Ryan, and good morning, everyone. We appreciate you joining our call. I'll begin today with a brief overview of the financial results, then walk you through what we're seeing across each of our business segments. I'll then hand it over to Christina, who will provide a view into our fourth quarter financial results as well as fourth quarter outlook. Let's start off with quarter 4. We delivered fourth quarter revenue of $4.9 billion, and segment operating income of $416 million, which represents year-on-year organic growth of 18% and continued sequential growth in earnings and margin across each of our geographies. As I mentioned in the press release, we issued yesterday, our fourth quarter results marked the highest SOI and SOI margin the company has achieved in over 7 years. And our free cash flow was one of the strongest on record. These results cap a year of meaningful progress on multiple fronts for Goodyear. We executed relentlessly on Goodyear forward, where our P&L commitments were consistently ahead of schedule. To date, we have delivered $1.5 billion of run rate benefits under the program. We drove renewed focus on high-value segments of the market and increase the vitality of our product portfolio by launching 30% more new products than most in our company history. We increased pricing in the U.S. and Canada in response to the tariffs. We won significant share in consumer OE in both the U.S. and Europe. We refreshed our brand advertising and customer programs in key markets. And finally, we completed 3 major asset sales in 2025, returning the balance sheet to a position of health and one that is more reflective of our iconic company's leadership in our industry. Controlling the controllables. it's a theme I emphasize frequently during the year as the industry environment proved to be and remains very challenging. And while I'm encouraged by our strong fourth quarter results, it's clear that progress isn't linear in today's environment. So I'll move on quickly to what we're seeing in the businesses and how that's reading through into the first quarter. Start with the Americas. In the Americas, the consumer replacement market remained volatile in the fourth quarter. U.S. consumer sellout declined despite the vehicle miles traveled remaining positive. On the other hand, we saw increased sell-in discounting and promotional activity as we ended the year, which only exacerbated the high levels of channel inventories. As we've shared, our focus has been on price mix and higher-margin tires, which means we won't sacrifice margin for the sake of fleeting volumes. The price mix in our fourth quarter results is a testament to that strategy and the execution. What we saw in January was an industry sellout that was materially weaker than Q4, down about 5% across the industry. Part of this can be explained by the shock of the January storms and the frigid temperatures around the country but it's also true that consumers are extending the tread on their tires. All of this means that on the back of high channel inventories, dealers and distributors are taking action to reduce inventory in the first quarter. Similarly, trends in Americas commercial truck remained very challenging during the quarter. Heavy truck builds in the U.S. declined 17% during the fourth quarter as the OEMs continue to destock. In commercial replacement, industry sell-in leveled out after being artificially inflated earlier in the year with pre-tariff front-loading of the imports. Within the turbulent environment, we remain focused on building the pipeline and the discipline for sustained growth. This includes making the right changes in our product lineup and programs with our customers to drive a more resilient portfolio of products than we've had before. We are bringing greater discipline through clear matching of products to white space opportunities and high-margin profit pools with governance of our cross-functional work streams, including a fully integrated pipeline across product planning, technology, manufacturing and marketing. This combination ensures we bring the right products to market at the right time, allowing us to grow where we can generate the highest returns. I am equally focused on our manufacturing costs. We are establishing the rigor within our teams to continue driving throughput, yields and efficiencies factory by factory, so we can optimize the way we flex costs to generate the best outcomes for the future. and we are building the team. Over the past several quarters, I've updated you on strategic hires we've made that are helping to innovate Goodyear and how we approach our business. As our largest region, the Americas is foundational to Goodyear's performance. As we look ahead to the opportunities in front of us, we are refining how we lead the business to drive clear ownership, faster decisions and more consistent execution. In January, Dave Cichocki joined our team and will lead the Americas and our Americas consumer organization with a strong focus on sales execution, profitable growth and alignment with our global strategy. Dave brings more than 3 decades of senior sales leadership across well-recognized industrial and consumer companies and has a proven track record of building high-performance teams, modernizing go-to-market models and driving sustainable margin-focused growth, capabilities that align very closely with the transformation underway at Goodyear. I'm confident that this leadership evolution further positions the Americas organization for long-term value creation. Turning to EMEA. Softening sell-in trends within consumer replacement reflected anticipation of EU duties on Chinese tires. While the European Commission recently announced an anti-subsidy investigation into Chinese passenger tires, the time line for a decision on antidumping tariffs has been pushed to midyear. Our consumer OE volumes in EMEA extended their run on market share gains, growing share by roughly 3 percentage points. Q4 was the eighth consecutive quarter of market share gains in the region. Profitability for EMEA continued to sequentially increase during the fourth quarter. If I look at the underlying operations, we are making steady progress with EMEA's fourth quarter SOI margin at the highest level in over 3 years. In addition, we settled an important insurance claim during the quarter, which helped to deliver strong free cash flow for year-end. If I look at EMEA from a macro perspective, with 2 major factory restructuring actions in the region completed in '25, another underway in '26, our cost base is seeing improvement. As the industry works through elevated channel inventory from prebuy activity, we expect high utilization of our consumer capacity in the region. In Asia Pacific, our performance strengthened with meaningful growth in SOI margin, and we're seeing the benefit from strategic actions to prioritize margin performance. Following a year of prudent SKU rationalizations, our consumer replacement volumes in the region returned to growth. Consumer OE volume was a headwind for Asia Pacific in '25 as government incentives in China have been geared towards opening price point vehicles. We are committed to managing our costs to maximize margin and to generate strong returns in the region. Let's turn to Goodyear Forward. Our fourth quarter results demonstrate the broader transformation underway across the company as we've sharpened our focus on execution, made deliberate portfolio choices and prioritized sustainable margin performance. Over the past 2 years, we've made substantial progress in strengthening our execution, and I'm proud of the discipline that underpinned the Goodyear Forward plan that made this possible. While market disruption around tariffs and trade has meant we're finishing '25 short of where we need to be, the successes we drove in the fourth quarter gives me confidence in our ability to ultimately deliver on those commitments. As I mentioned on our second quarter 2025 call, these targets are not off the table, and we're still executing with discipline and a sharp commitment to achieving them. There are 2 drivers that can help us achieve these goals, market improvement that allows us to recover profitable volume and continued self-help. -- we are not waiting for the market. We've been actively building the next phase of our plan to further drive cost efficiencies while increasing the company's exposure to the most structurally attractive parts of the tire market. As market disruption clears and the visibility improves, we look forward to providing additional details on our strategy, initiatives and the medium-term financial framework. All in all, while our Goodyear Forward plan has now reached its 2-year conclusion, we will continue to work to deliver a strengthened foundation. We are integrating Goodyear Forward's efficiencies, discipline and precision to drive a more durable earnings profile. With that, I'll turn the call over to Christina. Christina Zamarro: Thank you, Mark, and good morning, everyone. Our fourth quarter results reflect the execution of targeted actions to strengthen our business over the past 2 years. Goodyear Forward has provided significant benefits and debt reduction has situated us well compared to when we began the transformation just 2 short years ago. Turning to the fourth quarter results on Slide 8. Q4 sales were $4.9 billion, down 0.6% from last year, given lower volume and the sale of the OTR and chemicals businesses. Additionally, revenue per tire increased 4% in the quarter, driven by an 8% increase in consumer replacement. Unit volume declined 3%, driven by consumer replacement. In addition, Americas commercial volume declined 14%, reflecting ongoing market weakness. Consumer OE volume increased 2%, driven by share gains in EMEA. Gross margin increased 1 full point during the fourth quarter, driven by strong execution and price/mix and Goodyear Forward. Segment operating income was $416 million, which was up about 9% versus last year and up 18% adjusting for divestitures. SOI margin was 8.5% in the quarter and up 1 point, excluding asset sales. Our segment operating income in the quarter includes $56 million related to the settlement of a business interruption insurance claim, which we have excluded from adjusted earnings per share. After adjusting for this and other significant items, our non-GAAP earnings per share was $0.39. I'll note that we also received insurance proceeds of $52 million in the fourth quarter of 2024. Turning to the segment operating income walk on Slide 9. Our 2024 earnings base was lower by $30 million due to the sales of OTR and Chemicals. After this change in scope, our 2024 segment operating income was $352 million. Lower tire unit volume and factory utilization were a headwind of $92 million. Price/mix was a benefit of $206 million, with each of our regions contributing to the strong performance versus our prior outlook. Higher revenue per tire was driven by both price and mix up, where we grew greater than 18-inch tire volume in the U.S., EU and China. Raw material costs were a slight headwind of $9 million in Q4. Inflation, tariffs and other costs were a headwind of $227 million and other SOI was a headwind of $13 million. Goodyear Forward contributed $192 million of benefit during the quarter and ahead of the outlook we shared with you on our last call. On a full year basis, benefits from Goodyear Forward were $772 million. In total, we exceeded our initial P&L targets for 2024 and 2025 by over $150 million. Turning to Slide 10. With a strong focus on our balance sheet, we generated over $1.3 billion in free cash flow during the quarter. Combined with proceeds from divestitures, our net debt declined $1.6 billion versus a year ago, which reflects the benefits of net proceeds from asset sales, partly offset by cash restructuring and currency translation on debt. Moving to the SBU results on Slide 12. Americas unit volume decreased 4%, driven by lower U.S. consumer replacement volume. Commercial volume was significantly lower than last year and sequentially, particularly in replacement. U.S. consumer replacement industry sell-in was down about 0.5 point during the fourth quarter. As part of that, U.S. TMA member shipments were essentially flat year-over-year, while low-end nonmember imports declined 3% during the quarter. Industry sell-out at retail declined 2.5% in the fourth quarter. U.S. consumer OE volume declined 3% and was driven by supply chain challenges within our OE customers. We achieved significant market share gains for the full year in consumer OE. U.S. commercial OE industry volume declined 26% as OEM production remained very depressed amid continued weakness in freight and ongoing regulatory uncertainty. Similarly, U.S. commercial replacement industry volume was lower by 5% during the quarter. Americas segment operating income was $233 million or just over 8% of sales. Turning to Slide 13. EMEA's fourth quarter unit volume decreased 2%. Consumer industry sell-in declined as imports fell 7% in anticipation of potential tariffs in 2026. With the extension of the time line for a preliminary decision on antidumping tariffs in the EU, we're cautious on near-term conditions as the delay provides further opportunity for another round of low-end imports to make their way into the region. Consumer OE was a continued area of strength where EMEA registered its eighth consecutive quarter of market share gains. Segment operating income in EMEA was $114 million or 7.5% of sales. The increase of $76 million was driven by the insurance recovery we mentioned earlier. That said, excluding the insurance, SOI increased by $20 million and margin expanded 120 basis points versus last year. Turning to Asia Pacific on Slide 14. Fourth quarter unit volume decreased 2%, driven by lower OE volume. Consumer replacement volume returned to growth following SKU rationalization actions that meaningfully contributed to volume reductions throughout 2025. Segment operating income was $69 million or 13.1% of sales. Excluding the sale of the OTR business, Asia Pacific segment operating income increased $16 million and margin expanded 330 basis points. Turning to our first quarter outlook on Slide 16. Business trends moving into 2026 still reflect many of the same headwinds we faced in 2025. Even though the overall tariff environment has broadly stabilized in the U.S. Overall weak industry conditions continue to affect our global operations in terms of top line and cost. While our fourth quarter results demonstrate meaningful progress, we anticipate continued volatility as we move into 2026. First quarter results will be particularly impacted as heavy fourth quarter promotional activity across the U.S. consumer replacement industry further inflated channel inventory. At the same time, consumer industry sell-out during the month of January was down significantly, shaped by extreme winter temperatures and weak consumer sentiment more broadly. And in Europe, the delay of the ruling on a potential tariff on consumer imports has added to this uncertainty. As a result, our first quarter SOI will be significantly affected, driven by the convergence of lower consumer replacement volume, fixed cost carryover from 2025 and a continuation of unusually weak commercial truck trends. These are temporary factors, and we're confident that we'll regain earnings and margin momentum once this turbulence subsides. We expect first quarter volume to be down approximately 10%, driven by U.S. consumer replacement. Unabsorbed overhead will be a headwind of $60 million. As we shared on our last call, we lowered production by 4 million units in Q4 to manage inventory levels. With weak volume trends in the fourth quarter and in Q1, we will see a similar impact in the second and third quarters as we align production with demand. Price/mix is expected to be a benefit of approximately $25 million given Q1 volume and as we anniversary 2025 price actions and begin to see the impact of RMI indexed agreements. Raw materials should be a benefit of approximately $85 million in Q1. Full year raw material costs are a benefit of $300 million at current spot rates. Goodyear Forward will drive benefits of approximately $100 million in the first quarter and about $300 million for the full year. Inflation will be similar to what we saw in Q4. Tariffs and other costs will be a headwind of approximately $130 million, with tariffs at approximately $65 million and other costs reflecting increases in warehousing and freight, factory inefficiencies and transitory manufacturing costs associated with previously announced facility closures. For the full year, tariffs will be a headwind of $175 million and other costs will be $120 million, both weighted to the first half. Finally, the sales of Dunlop & Chemical lowers the base of earnings by $37 million in Q1 and $185 million on a full year basis. In addition, we will amortize $55 million of deferred revenue in 2026 related to supply agreements from the 3 asset sales. This is an increase of roughly $15 million versus 2025. Other financial assumptions are shown on Slide 17. For modeling, on a year-over-year basis, we've decreased both our CapEx and interest expense. With that, we'll open the line for your questions. Operator: [Operator Instructions] We'll go first this morning to James Picariello of BNP Paribas. James Picariello: I guess I first need to ask about volumes, how you're thinking about volumes for the remainder of the year. Obviously, we have the first quarter look and you just gave the overhead absorption headwind through the third quarter. I was just thinking if volumes start to stabilize in 2Q and improve from there, is it possible that the overhead under absorption might not be by the third quarter similar to the first quarter? And then, yes, my question is just your high-level thoughts on OE versus replacement the rest of the year. Mark Stewart: James. Yes. As we discussed at the opener, we really expect the conditions to improve after Q1, right? Weather obviously being a big headwind, but also some of the destocking and the inventories feeling a little bit stuff, if you will, in terms of distribution coming into the year. So those 2 things really are a drag on Q1. Coming into that as well, right, we slowed our production in the fourth quarter because we did not stuff channels. We wanted to make sure we were maintaining that richer mix, if you will. So we made sure to be careful with that. So we have that drag in Q1, which should correct as we go into Q2 with that. So the drawdown in Q1, we think it's going to be constructive as we look at the industry and for Goodyear specifically. If we look at the sell-out as well from quarter 4, right, down 2.5 points plus that inventory going into the system with heavy promo in terms of the stuff going into sell-in from others. So as that clears, we're really focused on making sure that we're continuing our U.S. portfolio, in particular, right, with the richer mix, the larger rim sizes. As mentioned, we had 30% more new products into the market than we've ever had of the white space products in that premium size in terms of a much richer mix in terms of margin. We're going to also increase that assortment of new products throughout '26. We are driving the business in a completely different way. The governance aspects and the control towers we put in place are very important. We've not fallen back on that. We've also created across the globe on our SLT, working directly with Christina and I, Alex Depau that was internal to part of the Goodyear Forward process and the clean sheeting running our global business process with the transformation office. so that we can make sure working with each SLT member around the globe and their teams, we are driving those -- the cost and cost efficiencies around the world, James. So on that 30% new product coming into the market as those really take hold and get their shelf space, we've got another 1,700 new products coming in '26, all fitting the bill of the richer margin on more premium size, premium mix. So we're really confident that we're positioning the business to drive those earnings past Q1. Christina? Christina Zamarro: Thanks, Mark. So James, I'll just jump in on the question on unabsorbed overhead. I think embedded in the comments around Q2 and Q3 is an assumption that Q2 sell-in begins to normalize in line with sell-out. Mark mentioned a recovery in demand in Q2, but still, I think, a conservative assumption. You could argue that there's some pent-up demand there. So -- and it could be -- the unabsorbed overhead impact could be lower. So we'll see how that plays through. When you asked about OE and replacement, and I think the best way for me to talk about that is by region. And Americas second quarter, I would still say, is still lower in consumer replacement year-over-year, but significantly better than the first quarter with the expectation for slight year-over-year growth in the second half. Consumer OE should grow beginning in Q2, and that's all based on our mix of fitments. When I look at EMEA, planning for a softer first half in consumer replacement just given the delay on the tariffs. And then consumer should continue to be strong just given the share gains we've seen over the past couple of years. Commercial OEM replacement volumes in EMEA will be up but low single digits is sort of what we're thinking stable. And in comparison, in the U.S., looking at commercial replacement down in Q1, maybe stable, slightly down in Q2 and then up a little in the second half. James Picariello: Okay. That's really helpful. And then one quick clarification is for the divested Dunlop units, is that still about 6.5 million units. And that's excluded from any volume assumptions that you're sharing, right? Christina Zamarro: Yes. So the Dunlop sales in 2025 were closer to 5 million units, James. And the supply agreements that we have with SRI are a minimum of 4.5 million units. Operator: We'll go next now to Itay Michaeli at TD Cowen. Justin Barell: This is Justin on for Itay. So a quick question on the Q1 volume setup and industry assumptions kind of baked into that. I know you briefly hit on it for a bunch of the regions, but just kind of how you're thinking about it against Q4 to Q1 and the industry sell-in and industry sell-out trends that you may be modeling for Q1. Where would you expect, I guess, total channel inventory to kind of look like at the end of Q1? Just trying to get a sense of that more cleanly. Christina Zamarro: So if I look at how year-end landed, we believe across the industry that U.S. channel inventories increased about 10% on a year-over-year basis, and that was a lot driven by prebuy of imports over the course of the year and then this increased promotional activity at year-end. I think built into our assumptions is that the majority of that is declined over -- or is declining in Q1, maybe a little bit of flow-through into Q2. And so earlier, when I was mentioning that our assumption for Q2 volume in Americas consumer replacement is still beginning to improve and -- but yet below sellout, I think there's still some inventory clearing that we've assumed here in Q2. Justin Barell: Perfect. Super helpful. And then I guess maybe on the information you provided before on the volume by regions and kind of understanding the nuance and cadence throughout the year. How should we think about maybe where the 2026 full year SOI and free cash flow land maybe based on those volume assumptions as well as maybe anything else that might not be explicitly guided for within the deck? Just trying to get like a rough bridge here. Christina Zamarro: Yes. No, no problem. So I'll walk through the assumptions, and I did try and lay out quite a bit in the presentation, but I'll just take you through add some context on some of the different drivers. If you start with our 2025 SOI ex insurance, that's about $1 billion. And then we take out the impact of the divestitures, which would leave us at about $815 million for base. as we begin the year. Lost revenue on the divestitures, we noted in the presentation, is about $915 million. So Goodyear Forward, $300 million. We've increased that steadily over the past couple of quarters. We'll continue to look to add to that over the course of the year. Mark was referencing that earlier. Tariffs are a headwind of $175 million, and that's really concentrated in the first half just given the timing of tariff implementation last year. Now other costs should be about $120 million, and that includes the ramp down of a couple of our factories last year. So we'll lap a lot of those costs in the first half. raw materials are a benefit of $300 million at current spots. And I'd say 2/3 of that is going to pull through in the first half of the year. And then price/mix, we haven't spent time talking about that yet, but price/mix should continue to be positive as we move through the year, lower in Q1, obviously, on volume and some of the seasonality, but a significant step-up in Q2 and Q3 until we get to a very high comp in Q4. And so then it all comes down to what we want to assume on volume when we lay out those drivers. I think you should be able to model year-on-year organic growth on that base SOI of $815 million in the range of 10% or so. And I mentioned this earlier when we were talking to James, but we're assuming that Q2 sell-in in the U.S. begins to normalize in line with a normal level of sell-out. We're also assuming U.S. imports are stable to down slightly in 2026. And we're assuming European imports are up slightly. And so that's all embedded within our assumptions. I think that free cash flow then, as you look at all the drivers and you create a bridge we should have a significant improvement in restructuring on a year-on-year basis. We're going to drive working capital inflows this year, reductions in interest expense. So all of that takes us to a base case where we're delivering slightly positive free cash flow. Of course, we're going to look to improve on that as we move through the rest of the year. Operator: We go next now to James Mulholland of Deutsche Bank. James Mulholland: So on the commercial vehicle side, there's been some significant improvement in expected orders for Class 8 in North America since your last update. So 2 questions there, given how important it is from a margin standpoint. First, does your guidance anticipate any further improvement in the overall CV market in the U.S.? And second, do you see this improvement spreading to other geographies as well in the near term? And then I have a quick follow-up. Christina Zamarro: So in the Americas, our commercial business for OE is expected to be up, I'd say, high teens, low 20% in the second half. Of course, that's off of a very, very low base. We should see the beginnings of some volume price/mix improvements in Americas commercial in the back half. But I wouldn't say that our assumptions there are robust. In EMEA, commercial OEM replacement, we do have growth, but I'd say it's low to mid-single digits. And it's not really a relevant business for us in Asia Pac. I think on average, we should be running between 12 million and 13 million units in commercial to generate a historical level of margins for that business. In 2025, our unit sales only totaled $11 million. So there's a lot of leverage as we see this business improve. James Mulholland: Got it. Okay. That's helpful. And then I guess with Goodyear Forward's completion now and in line of sight, it sounds like there could be maybe a little bit more upside on the cost savings there. I think last year, it feels like a while ago now, but the original exit SOI margin was around 10%. That was the target anyway prior to tariffs and other issues. Do you think that's a level that you can approach over the longer term? Or are there other significant steps that you can take to get to that point? Or I guess, where do you think you could end this year and then start to leap off into '27? Mark Stewart: No, we absolutely -- we've not backed off our Goodyear Forward targets. As we've shared in earlier calls, it's been more of a bit of a pushout to get to that overarching 10% SOI. As you can see in the year ending results, right, of 2 of the 3 units, particularly on the consumer base, already at that level, as Christina just described on commercial, right? Certainly, the commercial business and the downturn in commercial as an industry really was a drag towards hitting that overarching 10. But as I mentioned, as we continue the execution of our Goodyear Forward, that's really embedded into our DNA, right, of keeping the pipeline full of projects and executing those for cost efficiency as well as continuing to drive that richer mix of products around the world with the 1,700 -- or sorry, 1,500 and 1,700 new products coming into the market, both refreshed and brand new on the consumer side and making sure that we're best-in-class service on the commercial side. We feel good that we are going to get there as we go forward. Operator: We'll go next now to John Healy of Northcoast Research. John Healy: I just pounded in a minute late, so I apologize if you maybe mentioned this a little bit. Could you talk a little bit about the down 10% volume number for Q1 and kind of the puts and takes that goes into that number? My thought process had been that maybe there was a restocking opportunity on the horizon here. So is it a function of customer or moving away from any specific parts of the market, maybe how that down 10 might look directionally by region? And do you persist that kind of down volume kind of taking place throughout the year? And kind of what's your view of just the global market probably opportunity this year, whether it's for Goodyear or for just the industry as a whole? Christina Zamarro: John, I think you're right. I mean the U.S. market theoretically could be a lot better in February and March. Having said that, I think within our assumptions is the expectation that the first quarter sees a more significant onetime destocking just based on the activity we've seen so far to date. A large part of our story, so the downturn in U.S. consumer replacement really lies in what we're seeing as far as discounting and promotional activity, and that started in Q4 but it's continuing on into January. And so we are intentionally focusing on revenue per tire and mix, which was very strong in the fourth quarter because we have a point of view that we -- that this will -- disruption will moderate, and we want to protect the returns within the business through that period. There is a small part of the down 10% that is disruption, I would say, within our own customer base, you'll recall in the second quarter of last year, we exited the relationship with ATD. And that's a part of the headwind, but not a significant part. That begins to normalize in Q3, of course. And then in EMEA, we've talked about the delay on the EU tariff implementation or the prospective tariff implementation. That we've moved from January until the summer months. So we're expecting EMEA consumer replacement volumes to be soft in the first half as well. Mark Stewart: And maybe we can tack on, right? The strength in Q4 in EMEA, we were really pleased with our new winter premium products. They performed super well. They won the ADAC test. They were a very strong first winter pool on the OE fitments that we got in the market in '24 and '25. And that really helped drive that 2-point share gain in the premium 18-plus in EMEA. So super strong demand for that product. John Healy: Got it. And then just on the cash flow benefits that you talked about, I think you called out working capital as an inflow this year. Is that first half? Is that second half? And is there anything kind of unique that's happening there? And as you look at kind of the business, I know you guys have tackled a lot of things operationally. But from a financial standpoint, in terms of managing working capital, are there any sort of big projects you could do there to maybe kind of thaw some of the cash flow aspects of the business a bit? Christina Zamarro: So John, I would say Mark was referencing a little bit earlier, shifts in the way we operate and improvements in governance. I would say working capital performance this year should be smoother and less peaks, less valleys as we're managing the business for cash, that was embedded within my prepared remarks when I talked about unabsorbed overhead impacts. And so just trying to manage cash flow very closely quarter-to-quarter. Last year, it's very clear that the factory ramps down very quickly at the end of Q3 and Q4 just on all of the tariff import prebuy, which makes it harder to flex costs. And so it has 2 benefits, right? One is the better cost management within our factories allows our teams to flex better, but the second is in working capital. And so I think we'll see a smoother profile this year than normal, even though we do have a lot of embedded seasonality. As far as projects, I mean, we do continue to evaluate all alternatives in and around working capital because it is a big source of cash or use of cash and source of cash as we think about funding the business. In 2025, we increased, for example, supply chain financing, bringing on more and more suppliers into our top-tier banks credit facilities. And it's projects and programs like those that we'll continue to look to, to help fund some initiatives and potentially push the working capital inflows that we're expecting in 2026 even beyond what we've laid out here. Mark Stewart: I would add to it just a bit, John, as well. When you look at the CapEx on the base CapEx and you see a lower number there as well. It doesn't mean we're doing less. What it means is we're doing a heck of a lot more with what we've got. And that goes to big process changes that we've had within our global engineering and manufacturing groups that was really kind of an outcome of some of the activities we had on Goodyear Forward, but together with procurement, just on the buy, right, whether it was bundling, whether it was clean sheeting, but also looking to our equipment standards, the location of sourcing, the way we project manage, we've completely changed that process in the last 2 years, and we're seeing a big efficiency gain in our CapEx that's helping that working capital as well. Operator: [Operator Instructions] We'll go next now to Emmanuel Rosner of Wolfe Research. Emmanuel Rosner: Just a couple of follow-ups on the earlier questions. So I appreciate all the color on the SOI puts and takes for 2026. Just 2 quick clarifications. The other costs of $120 million, was that a tailwind or a headwind this year? And then as you said, it ultimately comes down to volume. In order to hit sort of like that potential base case scenario of double-digit SOI growth versus the organic piece of last year. What kind of all-in global volume essentially is assumed? Christina Zamarro: Sure, Emmanuel. I guess other costs are a headwind in the first half -- mostly in the first half. driven by -- I mean, it's factory inefficiencies, ramp downs of a couple of different factories in the first half. We talked about our first involved factory in Germany. Also, we had a closure in Danville, Virginia of our commercial truck production last year, and we're going to lap some of that in the first half as we move through that initiative. As far as volume, I mean, the way I look at it, Emmanuel, is we have a significant step-up in price/mix in Q2 and Q3 -- and then in Q4, we lap a really strong comp from Q4 2025. I think the way I look at that is we balance it against the volume assumptions that we make on the top line. And so we can balance that as we move through the year based on competitive conditions. But if I had to say right now, volume would be slightly down on a year-over-year basis and price/mix would be significantly positive just given what we've talked about in protecting our revenue per tire and our margins as we move through the year. Emmanuel Rosner: Great. Yes, I appreciate the color. And then my second follow-up is on the Goodyear Forward. So you've obviously spoken about the potential for additional actions. Just curious how we should think about it? Are these going to be sort of like more incremental in nature? Or are you looking at a potential reloading of significant actions that might potentially be like more expensive from a restructuring point of view, but that could yield some larger benefits? And where would be the areas that you would be looking at for that? Mark Stewart: Yes. Thanks, Emmanuel. We are continuing to use the philosophy, the cadence of governance and the drive for execution of Goodyear Forward to keep the pipeline filled with cost efficiency projects. And whether it's manufacturing efficiency, whether it's procurement efficiency, engineering development of, again, doing 30% more with the same number of engineers around the world. And so those are the activities we're doing. So we're not rolling out a big restructuring 2.0 at this point. It really is about execution right now. Operator: We go next now to Ross MacDonald at Citi. Ross MacDonald: It's Ross at Citi. I have 3 quick questions. The first one was on the inventory situation in the U.S. Could you maybe give a little bit more color if that inventory situation is full across all of the rim sizes? Or does it skew more to, let's say, sub 18-inch, more budget type content? And Mark, on your point around the SKU offensive you're rolling out, could you maybe help us model where you see the Goodyear North America 18-inch and above share finishing this year? I think you were at about 43% in Q3. Christina Zamarro: So yes. So a couple of comments. I think inventory situation is broad-based. And that was probably just as we headed into year-end driven by promotional activity that did not seem to favor Tier 1, Tier 2 or Tier 3. It was really something that occurred more across the board. When I look at the mix of greater than 18-inch in the fourth quarter, our U.S. business was about 50% greater than 18-inch in consumer replacement. Of course, OE is almost all greater than 18-inch already. And as you Julie noted, in comparison during the same quarter earlier or same fourth quarter 2024, we were only at 42%. And since the larger rim sizes are the area of the market that has good growth, we're naturally now at a place where the portfolio is leveraged or geared towards growth. So that's good. Ross MacDonald: That's helpful. My next question is on that promotional activity. Is there any merit from your perspective here in engaging in some of that promotional activity or discounting to try and encourage consumers to move up a tier or Mark called out that consumers were sort of delaying replacement decisions. Is there anything you can do here maybe to manage price down slightly, but with a view to actually getting higher volume market share on the back of that? It seems like the consumer is quite reluctant to move up tiers at this time in the cycle. Mark Stewart: Yes. There's, as mentioned, a lot of sell-in promotional activities that went into in the channel, right, into the distribution side of it as well as some of the sell-out promo activities as well. So I mentioned that quarter 1 has this headwind with the weather situation, particularly in the U.S. marketplace, right? But we're being super disciplined about our promo activities that we're doing. for that. We feel that we've got our pricing ladders in the right spot now, our pricing power deltas versus the competition. We -- the new products that we've rolled out between MaxLife 2, WeatherReady 2, the Eagle F1 coming out right now, all of those products are absolutely on the top of our game and top of the podium. And we want to make sure that they command the right place in the marketplace. So we're continuing to monitor those things, but we want to make sure that we're providing the value of the Goodyear brand and our Cooper brands and family of brands there. Ross MacDonald: And then final question, just a quick one on the truck business or commercial activities in the U.S. I'm not sure if you've disclosed in the past factory utilization rates in the U.S., but obviously, it has been a perfect storm, some prior callers asking rightly about the order inflection that we're seeing. But could you maybe frame where we are in terms of commercial activity utilization rates in the U.S.? Is this in your opinion, trough levels versus, let's say, the last 20 years? Mark Stewart: Yes, that's not something that we have historically shared. As we look to that commercial business, it's -- our mission is to be #1 in the tires and service, both consumer and commercial. We've got a very healthy fleet business that we're servicing the premium fleets. We've got a very healthy local book business as well. And that really helps us in terms of being able to weather a bit of a perfect storm in the commercial business, right, with the emission regulation changes, a very healthy number of mothballed tractors, if you will, and a lot of fleets deciding not to do a prebuy or an early buy of those new emission vehicles from the OEs. So we are continuing to focus on our service levels and through our -- which is a differentiator for us is around our CTSC, our truck service centers around the country. But no, we don't share the information in regards to the actual output of the factories on commercial. As Christina mentioned, we did have a restructuring last year with our Gangle operations so that it can really focus on its aviation business. Operator: We'll go next now to Ryan Brinkman of JPMorgan. Ryan Brinkman: I wanted to ask first on the $300 million of Goodyear Forward savings expected for the full year. On my math, I think you should have about $260 million of full year year-over-year tailwind simply on the anniversarying of savings that were already achieved by the end of 2025, which I realize you overachieved on, but it maybe implies only about $40 million or so incremental savings sequentially from the end of 4Q '25. Firstly, is that roughly correct? And then secondly, do you maybe have any internal ambitions for more cost cutting? Has the organization roughly achieved the level of leanness that you target? Or how should we think about the level of margin improvement that might remain from cost-cutting potential? Christina Zamarro: Sure, Ryan. I mean the assumption that you're making on the run rate flow-through is, yes, correct. It's about a little more than $250 million flow through. The rest is all new actions in 2026. I think we'll obviously look to build on that. And Mark was mentioning earlier, the pipeline fill, not just for 2026, but even beyond and that being a part of our rigor and our DNA inside the company. When we took another question a little bit earlier around restructuring cash costs, is there more to do? I think our mode of operation this year is to run the assets that we have. And we look at the playing field as if we have an unusually weak period in demand right now. So not necessarily looking to add any major restructurings to generate some cost out, but there's a lot we can do still yet in SAG in manufacturing efficiencies. And so we'll continue to build on that. And our intention is to come back and lay out not just what we're doing this year, but sort of that 3-year multiyear view for you a little later this year once some of this turbulence subsides and we just have the right backdrop to talk about the company story. Ryan Brinkman: Okay. And then with regard to potential European higher tariffs, what are the various implications there might be from the pushout from -- of implementation from the early part of the year to the middle part. I recall the push out of expected tariffs in the U.S. in '25 had quite a bit of impact on prebuy activity, U.S. PMA share and volume, et cetera. This is less of a concern, right, in Europe, given the retroactive or potential retroactive nature of tariffs. Curious what your thoughts are there. And then alternatively, when we do get these tariffs, I thought your price mix comment sounded pretty good, including the step-ups in 2Q and 3Q. I know your practice is not to model anything for tariffs that haven't been officially implemented. But -- and obviously, that makes sense. I don't know what the rates are, et cetera. But just curious if within the industry, you might have any kind of early read or sense of what the potential range of magnitude of tariffs might represent and what the potential impact could be on volume share price mix when they do come... Mark Stewart: Yes. Maybe I'll kick it off, Ryan, on the -- really 2 elements, right, to the tire tariffs in the EU. First were the antidumping investigation, and that specifically was on antidumping for consumer tires originated from China, right? We had expected it in January. It's now expected in July of '26. And in terms of your question there, the anticipated range for those duties is expected to be between 41% and 104%. And we will have to wait until that time to see what range that is, but it's definitely a large amount of duties there in terms of helping the competitiveness of the local footprint. Second is on the anti-subsidy investigation. In November, the EU also launched the anti-subsidy in terms of grants, loans, tax exemptions things around land or electricity usage below market into Chinese consumer tires as well. And so that is expected to conclude by the end of this year. And so from that standpoint, exactly to your point, right, it is -- things are preserved in terms of that possible retroactive duties. We'll just have to see how it pans out there. Operator: And it appears we have no further questions this morning. Mr. Stewart, I'd like to turn things back to you, sir, for any closing comments. Mark Stewart: Okay. Thank you. So thank you all for joining us today for the earnings call. Our fourth quarter performance really reinforces the progress we've made to strengthen Goodyear's balance sheet and the financial performance for the company. The near-term environment, as we shared, definitely remains dynamic, but we are absolutely focused on continuing to execute with the greater discipline, controlling the controllables and positioning the business to capture the attractive opportunities to continue to mix up as the market conditions normalize going forward. The work that we've done over the past 2 years has definitely created a more resilient, a stronger foundation. And as the visibility improves, we are very confident in our ability to translate that foundation into sustained margin expansion, stronger free cash flow generation and long-term value creation for our shareholders. So thank you all for joining us today. I appreciate the time. Operator: Thank you, Mr. Stewart, and thank you, Ms. Zamarro. Again, ladies and gentlemen, that will conclude today's Goodyear Fourth Quarter 2025 Earnings Conference Call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.
Clodagh Moriarty: Good. So welcome to Dunelm's interim results. I know I've met many of you before, but for those who haven't, I'm Clo Moriarty, and I joined us 4 months ago, having spent 15 years with Sainsbury's and almost a decade with Bain before that. Now over the last 4 months, it has been tremendous to validate for myself all the things that I believe to be true about this business. And I've been able to do that through a deep onboarding. Now having visited almost 60 of our shops and many of our logistics sites, engaged with our dedicated partners and of course, spent time with our teams in the center. And look, this really is a beautiful business, right? We are product-centric with something for everyone, carefully crafted with our long-standing suppliers across that end-to-end supply chain. This is a business that really understands the role of the physical store, but how it can be complemented with the role of digital. And it also has something that is really difficult to build from scratch. We have colleagues who really care. And all of that is in service of our customers. Now over the course of this morning, between Karen and I, we're going to walk through our H1 results, many of which have already been well trailed. Thank you for all of your questions and some provocations post our trading statement. What we've endeavored to do is actually weave the answers to those questions through our presentation and to keep us all in check, but we have plenty of time in Q&A if there's anything that we don't cover. And then uniquely on this occasion, given that it has been a number of months I'd love to share my initial reflections on where I and we see the opportunities for now and for all the years to come. A word of warning, this is not a Capital Markets Day under cover, right? This is a data share of those insights for us to be able to bring it to life. So let's start with the half that was. We demonstrated a very solid H1 start to this financial year with 3.6% growth year-on-year. It very much was a half of 2 quarters with strong growth of 6.2% in the first quarter and softer growth of 1.6% in the second quarter from which we're now rebounding. But our strong focus on our gross margin demonstrated further margin enhancement of 60 bps, now up to 53.4%. And we have consolidated our market share position, again, up a further 0.2 percentage points, now at 7.9% market share. Now we have endeavored through this transition to ensure that we've kept all of our measures and metrics really consistent to enable you to best follow our business. But today, we are introducing one additional measure for the purpose of this session, and that's all around the customer, CSAT customer satisfaction. And from a really strong base, and I wouldn't expect to see this level of increase year-on-year given the base, we have demonstrated a 2.6 percentage point increase, which really reflects the focus that this team and this business is putting on our customers and noting that our customers are noticing. As well trailed in our trading statement, Karen will go into a lot more detail, I promise, and on our GBP 114 million outturn and particularly around the phasing of our costs. But we've also had very strong cash flow. So free cash flow of GBP 171 million, which is relatively stable year-on-year. Now in this business, we have a very clear capital allocations policy and one that I really buy into. And it is as a result of that, that we're able to share our interim dividend and also announce our special dividend for this financial year. So let's get into a bit more detail on the growth from the half. So we demonstrated 3.6% year-on-year growth over the half in what was a relatively subdued market. But worthy of note is actually the shape of our business. So as I look across our total year-on-year sales from year-to-year, that's broadly consistent, but we do see variances between the quarters. And that's driven by seasonality. It's driven by discounting and it's driven by eventing. And we do typically see a lower Q2. Some of that is external. Some of that is a choice as to how we run our business. But we do want to spend a little bit more time on Q2 this time around because it still was softer than we anticipated. We know that consumer confidence has remained very subdued, and has done so now for a number of quarters. So every single penny or pound that a customer spends is hard earned. Equally, through this period of time, we saw much deeper levels of discounting and the discounting lasting for longer. This is an area that we chose to not further engage in, and that did impact our participation. And lastly, as again, trailed in our trading statement, whereas furniture has been providing tailwinds for us over the last number of quarters, it didn't fare well in this environment. And part of that was driven by a miss on our side from an availability standpoint. We introduced a new system and it didn't forecast for the demand that we saw later in the year. Now I'm going to go pains to labor that when we introduced F&R, so our forecasting and replan tool. And we rolled it out across the different categories, it is performing exceptionally well for us. It is driving up availability and it's driving down stock holding, exactly what we wanted to do. It didn't work as effectively in furniture. Lessons learned. We've embedded those learnings and moved on. And in the spirit of moving on, we are confident for the half to come. So we've started the year with a strong sale, and it was great to see our customers buy into that event, buy into Dunelm and buy into our products. And for the record, the highest selling item yet again was Dorma Full Forever pillows. So if you haven't got one, this is basically the U.K. market telling you that you should. We equally took a good bit of time focusing on newness, right, those full price sales. And we could see our customers engage in those products. So we are bang on expectations when we look at all of those new season lines. And lastly, there was a bit of a soft launch pre-Christmas. There were 130,000 customers who managed to find our app and download it organically and have continued to do so. But at the end of this month, we will have our official customer launch of the Dunelm app. And whilst it's -- we're relatively late, we'll acknowledge that to the digital space. We are seeing really high levels of engagement with these early adopters and in particular, around the basket building and the basket size. So more on that later, but before we go into that detail, I'm going to hand over to Karen to take us through the numbers for the half. Karen? A seamless change here. Karen Witts: A seamless change here, yes. So really nice to see everyone today, nice full room here. Thank you for taking the time to join us. As usual, I'm going to start with a summary of the half year financial results and then take you through our financial performance in more detail, as Clo said. We grew the business over the 6 months and continue to take market share despite some periods of softer sales in Q2. Our gross margin was strong at 53.4%, up 60 basis points year-on-year. Our net operating costs were higher this half as previously flagged, driven by the relative balance of investment, productivities and inflation with some phasing of costs into H1 rather than H2. We expect the year-on-year increase in costs to moderate significantly in H2. Profit before tax of GBP 114 million was GBP 9 million lower than last year, primarily due to operating cost dynamics, which I will explain in more detail. Our cash generation remains strong. We're reporting a headline free cash flow of GBP 171 million and a half year net cash position of GBP 13 million. Similar to this time last year, these figures included a temporary favorable timing variance on payables of GBP 93 million, which cleared very shortly after the end of the reporting period. With healthy cash generation and confidence in our business prospects, the Board has declared an interim ordinary dividend of 17p per share, up 3% year-on-year and we're also announcing another special dividend of 25p per share. We had a solid overall first half of trading with sales up by 3.6% to GBP 926 million. Year-on-year, our digital participation increased by 2 percentage points to 41%. Quarter 1 sales were strong and grew at more than 6%, but we were disappointed with the Q2 performance of 1.6% growth with external data pointing to the end of the quarter being particularly challenging for U.K. retail. Sales growth was driven by core categories, from heritage areas like soft textiles to newer areas of specialism such as lighting. However, as Clo explained, in furniture as well as macro pressures and while several subcategories performed well, we had availability issues of some key product lines. This was caused by challenges in how we managed forecasting and ordering, where we had a lot of newness. The issue has now been resolved and availability has significantly improved. Across the half, we saw growth in average item values driven by product and category mix while volumes were broadly flat. We expanded gross margin percentage by 60 basis points year-on-year to 53.4%, with the upside mainly driven by favorable foreign exchange rates. We kept retail prices broadly stable. We were disciplined on promotional activity, and we managed input costs closely. We expect a foreign exchange tailwind to continue over the remainder of the year. It is important for me to explain how the profile of our operating costs will work across the year. In H1, net operating cost of GBP 375 million were GBP 32 million higher year-on-year. In the first half of this year, our operating cost base increased through a combination of volume-driven cost growth, inflation and investment, partly offset with productivity gains. Volume-related growth of GBP 11 million related to the variable costs associated with digital sales, so that's logistics and performance marketing costs. The pressure on costs in the retail environment is well documented. Sales, marketing and distribution costs are the most impacted by the hourly wage rate inflation to national living wage and national insurance contribution increases. Aside from this, we're tightly managing inflation in our nonlabor cost base to limit the overall impact to GBP 11 million versus this time last year or just over 3% on the total operating cost base. We're reporting an incremental GBP 9 million of investment in the business in H1. This was driven by the full impact of costs associated with the new store opened in H2 of the prior year, and that's including the cost of our store openings in Ireland. As you can see, we offset some of the cost growth in the half with productivity benefits amounting to GBP 6 million. These came from further optimization of performance marketing and from work on store and other labor costs, and the latter included some of the early benefits from the rollout of self-serve checkouts. Our other items totaling GBP 7 million contributed to the H1 year-on-year increase in costs. So we'll always have some other year-on-year cost ups and downs in any time period. And in H1, the biggest of these were year-on-year cost increases relating to share-based payments, including the CEO buyout cost and a pull forward of brand marketing from H2 into H1. We continue to balance inflationary pressures alongside our investment plans, all the while ensuring that we continue to deliver productivity gains. And now here, you can see how we expect costs to moderate significantly in the second half of the year by looking at the relative year-on-year movements in the blocks of spend that I've described for the first half of the year. So we still expect to see volume growth in costs in line with sales channel mix and inflation will continue to be driven by labor costs, but we expect this to have peaked in H1, and we expect a lower national living wage increase in April 2026, which will impact our Q4 costs. Whilst we continue to invest investment spend growth will be lower in H2, largely because we have -- we started to incur new store-related costs in H2 last year, and therefore, they've annualized. Our productivity gains will accelerate in H2 primarily as we deliver more benefits from work on our operating models, including further gains from the rollout of self-serve checkouts and also as we continue to deliver our efficiency gains in performance marketing. And in H2, we expect a reduction in other items year-on-year. And that's including the relative benefit from the phasing of the brand advertising pulled forward into the first half and a small benefit in business rates. Reflecting the softer trading in Q2 and the timing of certain costs, PBT of GBP 114 million declined by GBP 9 million year-on-year. Higher gross profit was more than offset by the cost profile that I've just explained, and this results in a reduction in EPS from 45p to 41.7p. Our effective tax rate of 25.6% was stable and within our guidance of 50 to 100 basis points above the headline rate of tax. We're confident that our plans for the second half, including those on costs will result in a PBT for the full year in line with consensus expectations. Cash generation remained strong in the half, with a 65% conversion ratio. As I explained upfront, we're reporting a headline free cash flow of GBP 171.4 million. However, the same as last year, this includes a timing difference in working capital, which created a very temporary inflow of GBP 93 million due to supplier payments in transit at the end of the period, which cleared on the second day of H2. Again, there was nothing unusual about the payments. There were normal course of business payments to suppliers and for services and the impact is neutral over the full year. Inventory was well controlled, and we ended the half with inventory levels consistent with the prior year. Total CapEx in H1 of GBP 23.2 million was materially lower than the prior year, which included a freehold store purchase. This year's first half CapEx spend primarily relates to store estate spend, including a regular program of refits, small works and decarbonization activity. CapEx also includes spend associated with self-checkout rollout and capitalized tech spend, including the app. We were pleased to reopen our Yeovil store, which had been closed since the end of August '24 due to fire damage, and we also opened our second in the London store in Wandsworth and it's trading well. Store openings have been slow this year, and 2 stores will likely now open early in FY '27, but our pipeline for FY '27 is stronger, and we see plenty of opportunity for future store openings to drive growth, and Clo will give more color on this. We ended the period with a headline net cash position of GBP 13 million, equating to an underlying net debt position of about GBP 80 million after adjusting for the payments which cleared just after the period end. We have a capital allocation methodology that states that after prioritizing investments in the business for growth, we will return surplus cash to shareholders. And in this half, we're continuing our strong track record of shareholder returns. With confidence in the prospects of the business, the Board has declared an interim ordinary dividend of 17p per share, up 3% year-on-year. Although the underlying net debt-to-EBITDA position at the end of the period was within policy range at 0.3x, the ratio was outside of the range at the end of most months in the period, and the Board has therefore declared a special dividend of 25p per share. And this morning, we also announced one of our periodic intentions to buy back up to 1.6 million shares to satisfy the requirements of employee share option schemes. So I'll finish by summarizing the outlook and guidance for FY '26. We've been encouraged with trading in the early part of quarter 3. Customers responded well to our winter sale and sales growth to date has been similar to the overall growth for H1. We're working hard on mitigating inflationary pressures, especially wage inflation with value-creating initiatives. We're therefore confident in our plans to deliver full year PBT in line with market consensus. We expect our effective tax rate to be 50 to 100 basis points above the headline rate of corporation tax. And from a cash perspective, we expect a broadly neutral working capital position at the end of the year. And we're reducing our CapEx guidance to around GBP 40 million this year down from our previous view of about GBP 50 million, and that reflects the timing of new store openings. So thank you for your attention. And I will now pass back to Clo. Clodagh Moriarty: Thank you. Okay. So this really is a brilliant business, right? And over the last period of time, as I've been meeting with some of you and others, that's what also you've been telling me, right? There is lots to like about Dunelm. And I agree, okay? So what we're going to do over the next 10 minutes is talk through 6 of the data-driven insights that we as a team are now using to build the strategic evolution over the coming weeks, months and years. And as we should, let's start with customers. So we have universal appeal. And we're not going to shy away from that. So as I look at our customer base, our customer base broadly reflects the U.K. population. Here at Dunelm, we have something for everyone. And we have really high levels of awareness. So the U.K. customer knows who we are. But when I look at the consideration to buy, that drops off. Now there's nothing massive here, right? That's totally in line with benchmarks. It's absolutely in line with averages, but as the market leader, I and we do expect more. And then secondly, when I think about where we stand out for customers and we do, there are equally opportunities for us to grow. So what you're looking at on the right-hand side, across the top are a subset our categories and our subcats. And from top to bottom, we're looking at the key buying factors, so these are the factors that customers consider when they're picking where to buy and what to buy, and they're ranked in order of importance. And as you can see, Dunelm is #1 across many of them, but not across all. So we can see a real opportunity for us to match the perception with the true reality of what we offer. And this week, we announced externally that we're bringing in some new capability into Dunelm to be able to supercharge this. So I'm thrilled that Laura Harricks will be joining us as our Chief Customer Officer. And when she joins us in a couple of weeks at the beginning of March, Her two key priorities are going to be around our brand positioning and moving the dial on that perception. We also have deeply loyal customers, right? And those loyal customers are on a growing customer base. But critically, we understand those customers better and hence, we're able to respond to their needs. So now recognizing that 1/3 of our customers make up 2/3 of our sales. But even for those most loyal customers, we still only capture 15% of their homewares wallet. So there is so much more headroom for us. And as we think about how we do that, it is about the connection. It is about the contact, and it is about the personalization. So over the last quarter, we have been trialing these omnichannel communications and incentives. And we trialed them in-store and online. And we're seeing across the board, high levels of incrementality with an opportunity given we've got relatively low redemption rates. But whether it is in-store or online, we are seeing a mix of basket build or frequency. So over the coming trading periods, we're going to take those learnings and make them even more personalized. And we all know this that our products at Dunelm are just brilliant. And in any given year, we've got over 100,000 items live for our customers. One of the things that we're really proud of is our product brand as Dunelm. So we've now got about 70% of our products going out the door under the Dunelm brand. But there's more that we can do to help our customers understand our good, better and best. Because when I look at the packaging across some of those ranges, sometimes it's hard to distinguish. So we're going to create greater clarity so our customers can always opt in to whichever tier works for them. We'll also be thoughtful of our owned brands and national brands and where they have a role to play. But where they create cost for us as a business or where they create complexity or confusion for a customer, we're going to remove them. And we've already started doing that, and we've already retired now at the start of this financial year, Elements and Edited Life to name 2. And in this last chart, on the right-hand side really caused us reflection, right, because we are a specialist. And what you should expect for us and will expect for us going forward is that we will continue to have great ranges. We will continue to bring newness to the market. But we're equally going to ensure that each and every one of those SKUs works really hard for us and really hard for customers. And right now, that half our SKUs contribute most of our sales. So we've got some work to do. But again, we're going to use that insight across our good, better and best to help inform our ranges even more. And I guess, case in point, our starter for 10 is ensuring that all of our best selling lines are in each and every one of our stores. And we're moving fast. But in our lower our smaller stores, we only have 70% of our top-selling SKUs. So we're changing that now, and we'll have that embedded before the end of the financial year. This is a digital world. We all know that. But even in that digital world and particularly in homewares, the role of the physical really matters, to be able to touch, feel and see product really matters. So we are going to double down our focus on our existing estate because candidly, they're not growing fast enough. But at the same time, in spite of us having access to customers, 15% of the U.K. population can reach us within 15-minute drive. That's high, but it's not high enough. So we're going to go again at our store expansions. We've reappraised the market, so looked at where the demand is, our presence, our competitors presence and ultimately the different formats that we're able to bring to bear. And we can see an even bigger opportunity than we've showcased before. And lastly, again, as I alluded to earlier, we have come late to digital, but now at 41% participation, we are holding our own. But interestingly for us, we benchmark really highly on many digital journeys and in particular, search engine optimization. But there are still countless opportunities for us to go after, whether that is in the social commerce space or generative engine optimization or the app that we just referred to. When we launched the app at the end of this year -- at the end of this year, at the end of this month, we will be able to bring shop the look, shop the range. We'll be able to bring find your local store, find the products within the store, find the stock within the store. And critically, we'll be able to release products fresh to that market well ahead of any other customer. So again, my call to action is if you haven't downloaded the app, I strongly recommend you download it now. This is a business that has strong customer satisfaction. Of course, there is always room for improvement. But in addition to the strong customer satisfaction, when we notice something, when we see something, this is a business that can move at pace. So let's take an example of home delivery. We have nationwide reach in home delivery. It is a large and growing part of our estate, so one we need to pay attention to. But when I look at CSAT, so our customer satisfaction, customers who rate us 5 out of 5 on their experience, you can see a meaningful difference between our home delivery 2 person, large items. And our home delivery 1 person, smaller items. And when we interrogated that further, you could see that a big driver of that CSAT was damages. And of course, everyone here will know the costs associated with damages. Not only the lost sales and the fact that, that customer may not return, but equally, you've high costs associated with the contact center, return of the product, replacement of the product, refund of the product, redelivery of the product and potentially goodwill. So we addressed that. And before Christmas, we've changed our packaging. And now we've already reduced our complaints across the board in 1 person home delivery by 20%. So for a little bit of extra cost in our packaging, we have delivered significant value across the value chain, and we'll expand from there. So my key takeaway for you on this slide is we are going to be obsessed with our customers and what our customers tell us. But we are going to as system owners and as system thinkers follow the value across the value chain, and as such, return value. And last, but definitely not least, we have great colleagues, 12,500 amazing colleagues with great capabilities. And we've been investing as of others across the front end and back end for a number of years. But you'd expect me to say this. The job is not done. The job in this space will never be done. What we are looking to do is as we make those choices on tech, we're being really thoughtful about moving from best-in-breed to best in suite. So working with fewer, bigger partners, which will make our integrations more seamless and less costly. It will ensure we have access to the biggest and best thinking and us be present on their road maps. And it will also provide more context in our business. So for every penny we're spending, we're ensuring we're getting more impact for that investment. So building capabilities for the future is a big part of the route ahead across people, processes and systems. So if you ask me, do I think there are strengths and assets in this business? Absolutely. Do I think there are significant opportunities on the back of those existing strengths and opportunities? Absolutely. We've universal appeal, but we're going to maximize that appeal through a clearer brand proposition. We already have really loyal customers, but we're going to engage and delight those customers at each and every opportunity to drive share of their wallet. We know we've got outstanding product choice. We have a big opportunity to be able to use that master brand and ensure we make our amazing ranges more shoppable. We've got physical and digital reach, but we're going to double down on the existing and ensure that we maximize each and every ounce of that white space. We got great colleagues and platforms. And as a result, we're going to stand on the shoulders of giants and ensure that we are future fit across all. And we have strong customer satisfaction, but ensuring that we unleash the best of what Dunelm has from end-to-end experience, I believe that we're going to be able to drive repeat business, repeat purchases again and again and again. So we are the market leader. We only have 7.9% market share in a highly fragmented market. There is so much more to go for. As we've discussed, we have lots of assets across customer, across brands, across products, across channels. But each and every one of those assets presents a large and growing opportunity for us. And we have a proven track record of discipline and strong cash generation. And we're not going to move away from that. But we're going to build them up with additional efficiency and productivity opportunities. You might have gathered, I'm out and about a lot. And I'm talking to customers all the time. But one reflection really stuck with me from a customer. And when I said, Dunelm, what do you think? And they said, Dunelm, it's actually very good. And I agree. We are actually very good. And the job of work for us is to remove that actually sentiment because I do believe the U.K. core opportunity remains compelling, and we are best placed as the market leader to be the home of homes. Thanks, a million. What we'll do now is hand over to some Q&A. In case you have 1 or 2 questions that you'd like to ask and we'll ensure we cover the most. Clodagh Moriarty: Apologies, I missed the point to ceremony. Do you mind mentioning for the webcast, your name and where you come from. John Stevenson: Indeed. John Stevenson from [ Munster ] and from Peel Hunt and both in fact. Two questions to get us going. You sort of mentioned undertaking a review of store. Can you give us a bit more detail on that in terms of how big the opportunity do you think is from a space point of view, the types of store and how quickly you're going to be able to get after that space? And second question, just on customer and personalization sort of use of data and the kind of customer journey. It feels like it's still very, very early. Can you talk about how early we actually are on that? And looking back in -- I appreciate the Chief Customer Officer hasn't started yet, but looking back in, say, 18 months' time, what would you hope to have achieved from a sort of personalization customer viewpoint and what that sits against best practice? Clodagh Moriarty: Brilliant. Okay. Thanks, million. So let's start with the space opportunity, right? And it's twofold. The space opportunity is in our existing estate as well as the white space. And when we think about the existing estate, this is about us looking across our multi-category authority across each of our categories and understanding the right macro and micro space for that to be able to ensure our ranges are more shoppable and more findable, right? So that is one of the big opportunities that we do see. And you can see it reinforced with the SKU efficiency numbers that we shared today. Equally, as we roll out some of those efficiency levers on the walkway and welcome and our self-checkout. We'll be able to repurpose some of the space to ensure it works really hard for us. So that's one. And we can do that on a rolling basis. The second element of new store space, again, the opportunity for me is we should be 90% of the U.K. population within a 15-minute drive, not 60% of the U.K. population. And what we'll need to do is, of course, look at the demand, and we've got -- you saw the map, right? We've got a sense of the sites that we are going after, but us being really thoughtful about the different formats that we can use that will work better in different locations. And that's kind of the pivot that we'll use for that next stage. Okay? On your second question around the use of data, yes, you're right, it is early. But actually, our data journey hasn't been -- that's not early. We've been investing in that for a number of years and got a really strong data lake, and we use Snowflake and they are really best-in-class from that perspective. So the job of work is being able to surface all of that data in the most meaningful way to reach our customers. The omnichannel communications was the first sense of it. The next stage will be ensuring that, that drives hyper-personalization and the next best message. But even in the early stages of that data, we saw the incremental behavior. So what does great look like over the next kind of 18 months and beyond, we should see a growing loyalty base in our total customer base. David Hughes: David Hughes from Shore Capital. First of all, I think coming back to your final point on actually quite good. Obviously a clear difference between awareness and consideration, what do you view as the key factors in terms of bridging that gap? Is it the brand marketing to get people to try them once? Is it the product and the proposition? Where do you think the kind of opportunity is there? And then secondly, just on a technical point, in terms of the CapEx being GBP 10 million lower for this year, would you imagine that, that kind of flows through into next year with those 2 store openings coming at the start of next year? Clodagh Moriarty: Thanks, million, David. Well, why don't I take the first 2, and then I'll defer to my learned friend on the right on the third one. So in terms of the first question, this is about brand positioning. It is really important to know who you are and what you stand for. And us acknowledging that we have universal appeal and being really proud of that and ensuring that our journeys reflect it is going to be the next stage of the journey. And we're right. Laura doesn't start for a number of weeks, but we equally have a very strong team in place that is already starting on that work. In terms of moving the dial, we can see across our kind of customer base, where we have an element of spearfishing, right, very prevalent in the digital world. And our opportunity there is as we see that spearfishing and we delight a customer, using our communications to be able to ensure the repeat purchase. That's the job of work that we've got to work on with that part of our customer base. And when I look at our highly loyal customers who do shop very frequently across most of our ranges, it's continued to improve their repertoire by basket building. So they are the elements that we'll focus on first and foremost. On the CapEx? Karen Witts: On the CapEx. So some of it will flow through to next year, but we're not giving any guidance on what our CapEx in total is going to be for next year, and it's usually a combination of property-related CapEx and then tech-related CapEx, whether that's kind of the hardware or the capitalized labor. We're not changing our medium-term guidance for store rollouts. So even if the pipeline is stronger than we've seen this year, we're still sticking with 5 to 10 openings for next year. But clearly, our guidance for this year started off at 5 to 10, and we've opened 2. So there will be some CapEx that will roll over into next year, primarily related to the 2 that are just on the cusp of this year and next. Georgina Johanan: It's Georgina Johanan from JPMorgan. Just 3 quick ones from me, please. First of all, just following on from the CapEx question. Clo, given what you were saying about sort of reworking some of the ranges in store and maybe store layouts and so on, is that something where we should actually expect maybe a short-term sort of step-up in CapEx to be able to support that? Or is it actually -- is it quite minimal in terms of execution to do that? Second, just on the OpEx side. I think in terms of the kind of volume-related costs, you called out that, that was exacerbated by the channel shift. Given the launch in the app and the marketing that's going to go behind that within your guidance, have you accounted for like an incremental or step change in the second half, please? And then finally, you mentioned about considering changes to Q2 trading and how you're going to trade the business. Presumably, you kind of need to start thinking about that fairly soon. So just any color on what you're thinking about sort of discounting activity or catalyzing the customer in that quarter would be interesting to hear. Clodagh Moriarty: Perfect. Thanks a million, George. How about I top and tail and you can do those in the middle. Karen Witts: Yes. Clodagh Moriarty: Okay. So from a CapEx and ranges perspective, we already have an opportunity to look at the existing range and within the current master range, make some changes within the good, better and best. Those are things that we can roll in relatively easily. We've got -- I say high -- we have a strong level of churn because we do want to be bringing in newness. So we have very clear windows across our state to be able to make those changes. So I think that's probably the -- in terms of disruption and impact, that's probably the first one. Shall I cover off the Q2 question, and then we can talk about OpEx. So from -- as we look at Q2, you're right, it has historically been consistently a lower level of growth. Now we have 2 very strong sale windows at Dunelm. Our customers understand those windows and they trade into them. The question that we are asking ourselves is whether they are sufficient or whether we do want to go deeper into Black Friday. If and as we do, we will do it our way with the continued discipline that we manage over the full financial year. So we'll update in due course. But of course, we're considering the trading pattern for next year. Karen Witts: Yes. And just in terms of your OpEx questions, Georgi, in the schematic that we've drawn, the waterfall for the second half of the year, OpEx, we've clearly not put any numbers against the different blocks of costs, but we've tried to sort of shape them in the way that we think that they will come through. And therefore, any incremental spend that we might need on the app, for instance, will be included in the volume-related box there. And we are reiterating or confirming a commitment to a PBT in line with consensus. So that's all factored in. Clearly, at the end of the day, it actually is a function of channel mix and also the number of products that actually go through our logistics operation. Anne Critchlow: It's Anne Critchlow from Berenberg. I've got two questions, please. The first is on the location opportunities. So I noticed lots of green dots over Central London, for example. And just wondered what do you think of the small urban concept format in terms of the potential to roll it out? And how easy is it to find those sort of smaller stores, which I think are around sort of 5,000 to 7,000 square feet. And then the second one was just an update on the Designers Guild acquisition that you made last year. So just wondering how you might use the design assets in the business in the future? Clodagh Moriarty: Brilliant, thanks, a million, Anne. So on the smaller formats, and you'll know we have 2 of our kind of our micro both in Westfield and Wandsworth. They're trading well for us, right, with a very strong trading intensity. And you'll also have seen that we did move on from our Westfield store to our Wandsworth where we actually increased more seasonality and more newness, which did drive further enhancement in sales. So we quite like these and our customers quite like these. So we'll be going after more of them. So the green dots, that's exactly what it's about. And then on Designers Guild, as we look about the ranges, and we're looking at the range architecture, it has a clear role to play for us when we think about best, right? It is something that does stand out. And while we're embedding that into our thinking, it does, in the meantime, continue to contribute royalties to our business on an ongoing basis. Do you have any? Karen Witts: No, I think that's perfect. Timothy Ramskill: It's Tim Ramskill from Bank of America. I've got 3 questions, please. We've already spent a little bit of time talking about the space opportunity, but Karen was very keen to point out it's 5% to 10%, it's not changing. So but just help us out a little bit, kind of give us a sense for -- Clo, you talked about it's not being quick enough. So what would quick enough look like perhaps with the number to go alongside that. Second question around gross margin, where clearly the FX dynamics have been helpful. I think that's looking set to continue. But maybe just some early sense as to -- I also think that might well continue into 2027. So kind of maybe give you the chance to dissuade me from that perspective. And then the third question was, again, an extension of the conversation around Black Friday and discounting. Maybe just interested to hear your thoughts on which categories in particular that seems to be sort of sharpest in, in terms of what your competitors are doing. And then I guess just on the same topic, it's fair to observe that discounting has definitely moved away from being a twice a year type event to an almost ever present. So is this just about Black Friday? Or is it about -- are there other things to think about through the course of the calendar year? Clodagh Moriarty: Brilliant. Thanks a million, Tim. I'll take the first. Karen will take the second, and then we'll tag team on the third, okay? So in terms of the space, we're not moving away from the 5% to 10% guidance. However, we will explore as many opportunities that come our way in the disciplined way that we always have done. It's not -- on the quick enough point there are going to be stronger years and they're going to be slower years, right? So I think the way I would think about this is balancing it over time. What we are seeing though is the opportunity that we would have shared at kind of the IPO and beyond. It would be 50 plus. And I think our message today is and then some. That's probably the key message. On gross margin? Karen Witts: On gross margin, yes, we flagged in the half that we've reported on, the upside is largely driven by foreign exchange tailwind. And Tim, I'm not going to try to dissuade you that some of this will continue into 2027 because we hedge out over quite a long period, and we're already hedged for some, but not all of 2027. We'd just emphasize that FX is only one element of what goes into cost of sales, and we need to think about the cost of raw materials, the cost of freight, how much factory capacity there is. Things like the inflation rate in the U.K. where we're buying from U.K. suppliers. And then also, actually, we like to have the flexibility to do the right kind of eventing to appeal to our customers. So you kind of put all of that in a package, and I'm saying, yes, on the FX. And we'll see how the other things play out over time. Clodagh Moriarty: And then on Black Friday. So areas where we definitely saw a deep discounting. It was across all categories, right? We saw a deep discounting in furniture, right? You saw deep discounting in electricals, right? We could see that across the board. But when we think about how we respond to that, we do have those 2 sales windows that are actively participated in. All the time we are using our walkway to be able to showcase the best of deals while still having our zones to be able to give the best of the entire selection. And I think that is one of our advantages, having moved from market stall to market leader, never lose the market stall element, right? So our customers know that when they come into our shops, they will always be able to find some deals. Karen Witts: We want to make sure that we are not buying sales. Our sales have to be profitable and you saw the rather garish detail with some of the discounting that Clo showed that had been going on through that Black Friday period. And some of that, frankly, we just didn't want to indulge in. It's not right for the long-term profitability of the business. Clodagh Moriarty: Yes. We're not buying share. I think that's fair -- balance and everything. Unknown Analyst: I'm not sure if this microphone is working? Karen Witts: Yes, working Ben. Yes. Unknown Analyst: You've obviously held guidance today. And it seems to me that you've got some pretty significant reduction of that second half OpEx to hit that guidance, assuming your sales growth trends in line with, as you say, that H1. I suppose my question is you've had a lot of productivity over the last 2, 3 years anyway. Is there a worry here that we're beginning to cut into the muscle? You've also sort of mentioned there's some marketing spend brought forward. To what extent is this going to start to maybe impact the top line if we carry on having to take some of that cost down? Karen Witts: Okay. So just the first point is that the second half is about moderating the rate of increase in the cost base. We're not saying that we're going to reduce and it's really important to look at these buckets one by one because they all have different dynamics attached to them, including the fact that we expect to get more productivity in the second half of the year than we got in the first half of the year, and that's due to the timing of some of the productivity rollout plans, for instance, the self-serve checkouts, where by the end of this year, we'll have self-serve checkouts in more than 100 stores. Absolutely, we do not intend to cut into the muscle of the business. You'll have heard me speak before about the fact that when it comes to investment, I don't like putting my foot sharply on the accelerator and then slamming on the brake. We like a nice rhythm of investment and the same thing about productivity. So when we think about productivities, we almost have 2 streams of productivity going. We've got what we call continuous improvement, which every responsible manager in the business has a responsibility to deliver by really being focused on their cost base. And if they do need to invest a bit in continuous improvement, that has a fast return. And then more recently, we started to take a more programmatic approach. So investing things that might take a little bit longer to deliver a return on. I'd say we've got lots of opportunity still to go for, which is healthy opportunity and will be sustainable in terms of the productivity that it's delivering. Close example about changing the way that we're wrapping products so that you reduce damages is just one of the things that we can do. And on that particular example, it's important to take a holistic approach to what you're seeing. So if we just looked at the cost of packaging, we might not have taken this move. You've got to look at the cost of packaging relative to the other costs that you incur, if you create customer dissatisfaction. I think we've also spoken about the fact that our business isn't very automated. Now that comes from the customer touching parts of the business or engaging parts of the business, that's why we decided that we would roll out self-service checkouts. The business case for that became really clear when the cost of labor got so high. We don't have a lot of automation in our supply chain. We've got things like auto bagging but we've not gone much further than that. And I also think about automation when I'm thinking about processes, and we've still got a lot of processes that we can bring to system. So again, automation, more efficient -- more effective use of data. So I could go on for a while, probably best to stop there. Clodagh Moriarty: But what I think you can take away is we don't believe we're anywhere near cutting into muscle. We're honing the muscle. That's what we're at now and shifting away from this way of thinking to system-wide thinking. Richard Chamberlain: Richard Chamberlain, RBC. Just 3 quick ones from me, if that's okay. So you talked at the beginning of the presentation about your lessons learned from the furniture availability issues. And what are you referring to specifically there? Is that around [indiscernible]? And then the second one is, maybe you can just touch on how you created the efficiency performance marketing under the terms [indiscernible]? And then finally maybe give some update on Ireland on the stores there and your plans to upsize and just general on international -- thoughts on international growth? Clodagh Moriarty: All right. Thanks a million, Richard. So in terms of lessons learned, so with furniture, we rolled out a new system. We rolled it out systematically across each of our categories. When there was a high level of newness, the system that we have learns from previous data. When you don't have previous data, it pulls on some lookie-likies to be able to define what the demand should be. Those input signals weren't good enough. The second chance to catch it was to use all of our internal expertise to sense check, does that look and feel right? And we moved in the system of trust the system and the rest will follow rather than challenging what the outputs were. So our 2 big learnings were check the inputs to make sure we're really confident. Check the outputs to make sure we're really confident. And if you're confident on those two things, then absolutely let the system fly. And that's what we've embedded now going forward. And you can see with furniture, we've already seen a recovery. We're now north of kind of 95% availability. So we've got that in place, okay? On performance marketing... Karen Witts: Efficiency in performance marketing. We've been improving efficiency of performance marketing for a few years now, that kind of started off by developing capability in the organization. So investing in people. And then as these people become more confident and competent working within some quite strict guidelines around returns on performance marketing expenditure that's where you get the efficiency. So when we talk about efficiency, we don't say we're trying to reduce the overall quantum of the performance marketing spend because we will spend it where we think we're going to get the best return. Clodagh Moriarty: Okay. And do you want to start on Ireland? Karen Witts: On Ireland, Yes, I was just jotting down the things that we've done so far on Ireland, still in a relatively short space of time. So we've rebranded. We've refitted some of our stores. We are successively bringing more Dunelm branded product into those stores, and we're getting a nice response from customers. Still a lot to do because it is early days. And one of the nice things about Ireland is that it's going to inform the learning that we will take to some of these green dots on the map because the Irish stores are actually quite small compared with the rest of our portfolio. So getting them really humming is important so that then we can just take that and do it in other places. Clodagh Moriarty: There are many nice things about Ireland. Karen Witts: I don't know why you gave that question to me. Unknown Analyst: Just a few questions for me because quite a few of them were already taken. But just a little bit -- maybe a little bit of color around the competitive landscape and anything that you've noticed since taking on the role 4 months ago. Obviously, there's a [indiscernible] looking at some of the SKUs as well. If there are certain SKUs that maybe they're shopping over here, but you could take a few -- had a few more available over Dunelm, would that be more helpful. What have you noticed? Clodagh Moriarty: Yes. Look, I mean I think the big thing about the competitive landscape is because we have universal appeal and because we are a market leader, every other entity is a competitor, and that's how we're treating them. So with a double-down of focus on the physical and complementing it with the digital, we believe we're going to be able to address all parts of the market. Karen Witts: And I think Clo gave some examples that show that we can respond in what is quite a challenging competitive environment, not by -- not just by taking from others, but by helping ourselves. So the example of having our best sellers in all of our stores is an example where people will come to us if we got the best sellers in the store. Charles Allen: Charles Allen from Bloomberg Intelligence. The percentage of sales that are digital keeps on going up. Do you see a limit to that number? And obviously, also it means that the amount of cash gross profit you're generating just from in-store sales is either flat or going down unless you can improve the rate of sales growth there. So what does -- does that mean that you have to constantly improve gross margin to keep the store operating profit moving ahead? Clodagh Moriarty: Okay. So I am very happy for the digital percentage to keep growing, but I'm much happier if the total pie grows bigger, right? So we are an omnichannel business, and therefore, the role of walk-in, the role of Click & Collect and the role of home delivery play different roles for different customer bases. When we report and when we report in our sales, we typically talk about walk-in. But Click & Collect is a huge footfall driver for us into our stores. And as that continues to increase, it continues to bring more and more customers in. And we've got a very clear halo impact of every customer who's coming in, the impact it has on what else they pick up because you can't help with the inspired, right, when you walk around our shops. So you do see that halo impact as a result of the digital meeting the physical. So we'll continue with an overall omnichannel approach, because that's going to give us the best returns across the full channels. Karen Witts: And with omnichannel approach, we're not compromising profitability because both channels are profitable. We're quite agnostic as to where and how our shoppers want to shop. Charles Allen: Follow up is what's the relative cost base in each of the channels? Karen Witts: Well, we haven't actually disclosed what the relative cost base is. They've got different dynamics, which was one of the reasons why when we were talking about the cost profile for H2, I was pulling out some costs that sit below the gross margin, but which are costs that will vary more with digital sales than they will with store sales. So we've clearly got -- about 40% of our cost is labor cost, and that primarily comes from our stores -- the cost of our store colleagues and the cost of colleagues in distribution centers. There's much less labor that's attached to a digital sale, but it gets logistics costs and it gets performance marketing costs. Clodagh Moriarty: I'm getting a very clear signal from the back, which says there's time for one more question. Did I read that right, James. Richard Taylor: Richard Taylor from Barclays. Just interested to hear if you're seeing the way in which consumers are searching for Dunelm or the homewares market in general, whether it started to change. I hear your comments about SEO performing well, but social less so in generative engine sort of watch this space. But yes, keen to hear thoughts about how quickly you can prepare Dunelm for changes and how consumers may search and purchase and whether you feel you are currently losing out to many others who are more advanced in those areas? Clodagh Moriarty: Yes, super question. So firstly, on social, I don't think it's underperforming. I just think we haven't pushed it yet, but yet being the operative word because that's where we'll go, that's where we'll go next. It's really critical that we show up where customers are rather than expecting them to come to us. And that's a big shift. But specifically on SEO, the brilliant thing about SEO is we are benchmarking very highly on search engine optimization. To do that, your data integrity and how you surface that data has to be exceptional. And those are the ground routes for every form of GEO-type shopping. If you have your data right, then whoever or whatever is searching or browsing your site, we'll be able to find the best of what's there. So we actually believe, whilst we're not exploiting generative engine optimization yet, we've got all the foundations in place to be able to do that rapid fire. Well, thank you very much. I appreciate all the questions, all the energy and looking forward to seeing you all again very soon. Take care. Thank you. Karen Witts: Thank you.