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Operator: Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year ended 31st December, 2025. Now, I will hand over to Mr. Ivor Chow, the CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin. Ivor Chow: Thank you. Hello, everyone. Thank you for joining our 2025 results announcement call. As usual, today, I'll give you kind of a low down as to how the second half of last year went as well as giving you some thoughts as to how I see 2026. And then I'm going to talk, obviously, a little bit about the DPU distribution and how I see it going forward. And then I'll hand over to Ivy, our CFO, to quickly cover the figures, and then we'll finally end it with Q&A, depending on where -- what you guys want to ask me about. Overall, if you kind of look at our results, you would say, I'm actually overall pretty happy with the 2025 results. It was obviously a fairly difficult year. The shipping market was particularly volatile given what's happening around the world, the geopolitical tensions, the tariff war and all the things that's happening around the world has had an impact to the stability of the shipping industry and the movement of goods overall. So despite kind of all of that, we achieved a throughput growth of about 3%, whereas most of our growth or almost all of our growth is driven by the growth in Yantian, almost 7% year-on-year growth, while Hong Kong kind of continue its decline that we have seen over the last couple of years. And I'll talk individually about them as well. But overall, if you kind of look at the individual trade, if you will, obviously, U.S. is affected significantly by the tariff imposed on China as well as other region -- other parts of the world. So if you look at the U.S. trade alone, especially export from Yantian is almost down 10%. The good thing is China export to the rest of the world, including Europe, continued to do quite well in 2025. And Europe was a bit of a surprise. It did actually increase 14% year-on-year in 2025 despite whatever is happening around the Red Sea and around the Suez Canal. So we can actually definitely see that China is actually pivoting away from relying on the U.S. market alone, but growing substantially is Europe, Middle East and Southeast Asian trade. And for Yantian, other than export, Yantian has also benefited a lot from the Gemini alliance, which I talked about last year as well. Yantian was picked as the transshipment location for South China and Yantian picked up a lot of transshipment, including some of the transshipment from Hong Kong as well. So, in some sense, you can look at -- there has been some shift of volume from our Hong Kong operation into Yantian. And overall, the Trust, it doesn't really suffer from that transition because Yantian margin is as good as Hong Kong. So overall, I think we did quite well. Obviously, we have refinancing done last year, which kind of increased our interest rates. And in 2026, we have 2 more refinancing to be done as well. And so we are definitely on the lookout on how interest cost is going to affect us going forward. But overall, as I said, we did quite well. Overall 2025 year-on-year from a profitability standpoint, we've done okay. I'll talk a little bit about DPU, obviously. We've decided on a full year distribution of HKD 0.115 per unit, which is slightly lower than what we had in 2024 of HKD 0.122. So it's about 4%, 5% decline versus last year. And there are a couple of reasons for that. Obviously, it is still within what I was hoping for. So we have done well on the profitability front. So our cash flow actually increased as a result of a higher profitability, but it is negatively impacted by 2 things. Number one of all, obviously, when we refi our average cost of borrowing increase last year, despite us paying down debt, that offset some of it, but interest cost, it has gone up, number one. Secondly, we're also impacted by the fact that Yantian starting with 2025, we've started with the making statutory reserve in our -- in Yantian operation, where previously with foreign joint venture, we were exempted from the statutory reserve. But because China changes company law, we are no longer -- Yantian is no longer exempted from making the statutory reserves. So we have to start making that 10% reserve in 2025. And that, in some sense, reduced our ability to dividend out almost close to about HKD 200 million in distribution, and that affected almost close to around HKD 0.02 of DPU right there. So in some sense, the profitability growth offset some of that statutory reserve requirement, and we ended up with a slightly lower DPU compared to last year. But looking at the upside, I suppose we have managed the interest cycle very well. Most of our borrowing were done 5 years ago when interest rates were around -- inclusive of the margin, we're paying close to around 2% interest cost on average. And with the refinancing, we're now looking at 4% to 5%. But I think with the final 2 refinancing done this year, we would have reached the -- I suppose we would have fully moved into the current interest cycle and with the expectation that Fed rates will come down, hopefully, further in 2026, I think this would be the peak of our interest cost in 2026 and maybe 2027. And if we can continue to grow on the volume and profitability front, then possibly 2025, 2026 will be kind of like the bottom year of our DPU and then we can start growing DPU again based on profitability. And looking out for 2026, so far, obviously, looking just in January alone, things are still good. Chinese New Year -- there's been a slight rush in Chinese New Year. But I think a lot remains to be seen what happens after Chinese New Year. Will U.S. pick back up again? Some of the new trade agreement that China will have with Europe, with Canada, will those pan out, meaning that will other trade continues to climb to offset some of the U.S. decline? Or will U.S. consumption kind of stabilize with interest rate coming down? All those questions will be on the lookout for in 2026 as well. But with those trade agreements that China will strike with the various countries, one of the things that we'll be on the lookout for is obviously on imports. Imports have been fairly weak for the last 2 years just because of the economic situation in China. So import has been on a decline. But I think that with these new trade agreements that China will have with Europe, with Canada, with rest of the world, I believe that China will not be forced, but they will be looking to boost up their import to honor some of these trade agreements. So we would be looking out for increases in import probably in the second half of this year. And currently, there is a large trade imbalance where our export outweighed our import almost 80-20. So there is a lot to -- room to grow in terms of the import size, and that's something to watch for both Hong Kong and Yantian. Hong Kong is actually quite suitable for import and the lower import is actually hurting Hong Kong. But if I talk about Hong Kong alone, last year, yes, volume has come down. But if I look at the silver lining of the Hong Kong volume, you would see that export and import coming into Hong Kong has actually remained stable. It has not declined any further, like what we have seen in 2023, 2024 after COVID. So the local market, import-export has actually stabilized in Hong Kong. What Hong Kong has been losing in 2025 was mostly transshipment volume as well as some intra-Asia volume, but mostly on the transshipment side. As I alluded earlier, a lot of that transshipment either shipped to Western Shenzhen or to Yantian. So whether Hong Kong 2026 will be kind of like the bottoming out of Hong Kong remains to be seen. But I think Hong Kong is -- has been in a transition over the last 2 years. And not just on the port alone, but on the whole of Hong Kong, I think the economy is starting to rebound a little bit. Property is on the rebound a little bit. And we're looking as to whether we can have Hong Kong kind of like remain stable this year and try to regrow that business together with Yantian going forward. So I'll pause here, and then I'll hand it over to Ivy to talk a little bit about the P&L, and then we'll move on to the Q&A. Thank you. Ivy Tong: Hi, everybody. Basically, if we talk about throughput, as Ivor mentioned, Trust has done well for 2025. So throughput is at 23 million, 3% better year-on-year, with Yantian growing by 7% and -- but offset by the drop in throughput in Kwai Tsing by 6%. If we look at the revenue front, total revenue is at $11.9 billion, 3% improvement year-on-year. In terms of the segment information, pretty much the split between Hong Kong and Chinese Mainland is roughly comparable to 2024 with a 2% point increase in Chinese Mainland for 2025. On total CapEx, there is $445 million, a 20% year-on-year increase or equivalent to around HKD 74 million. The increase is just largely due to operational upgrades that have been carried out both at Yantian and Hong Kong, such as tightening our QCs and just making improvement to support our conversion to using remote RTGCs, et cetera. If we move on then to just look at our financial position on -- in terms of debt, what you'll see in 2025, the short-term debt has increased, but that's largely just due to the 2 guaranteed notes that we have expiring in 2026, one in March and then one in September time. But if you look at the total consolidated debt, because we have continued with our deleveraging program of repaying $1 billion loan, so the total consolidated debt actually dropped 4% year-on-year to around $24 billion. And without the increase in cash that Ivor mentioned earlier, the net attributable debt has actually dropped by 6% year-on-year to around $17.9 billion. As Ivor mentioned, the Trust will be declaring a DPU for the end of the 31st of December, 2025 at HKD 0.115, and we'll be making that distribution payment on 27th of March, 2026. So, lastly, I just want to go through quickly the Trust P&L. As Ivor mentioned earlier, in terms of revenue, we had a 3% year-on-year increase. In terms of operating expenses, we actually have a 1% improvement. So that gets us to a total operating expenses of around $7 billion with operating profit having an 8% year-on-year growth to $4.7 billion. As Ivor mentioned, well, despite the fact that we refinanced our debt in February at a higher rate, overall interest cost for the Trust actually recorded a 6% saving, largely because of the lower average HIBOR during 2025, which benefited from -- for our HIBOR-based bank loans plus the deleveraging that I mentioned earlier on the $1 billion repayment. So profit before tax is 12% better at $3.8 billion and then profit after tax is 13% better at $2.5 billion, resulting in a profit after tax attributable to our unitholders at $748 million, 15% better year-on-year. And that concludes our update on our results. Ivor Chow: Let's move to Q&A. Operator: [Operator Instructions] Mr. Herbert Lu from Goldman Sachs. Herbert Lu: Can you hear me? Ivor Chow: Go ahead. Herbert Lu: Great. I'm Herbert from Goldman Sachs. At first, congratulations on these good results despite the disruption of trade in 2025. Actually, I have 3 questions. Sorry, I dialed in a bit late, so I apologize if you already covered these questions in your presentation. On the -- Yes, our net profit increased by 15%, while DPU is a bit lower than last year. I know your presentation attributed to the increase in the reserve set aside in 2025 for Yantian. Could you please elaborate more? And will this trend continue in 2026? And what's your guidance for the range of DPU in 2026? And second question is, I know it's difficult to predict the container volume, but I still want to check what's your outlook on 2026 container throughput and ASP? And the third question is on operating expense is down by $80 million year-over-year. What's the main driver? Ivor Chow: Good questions. I'll start with number one first on the DPU side. And you're correct. As I said earlier, the net profit increase have given additional cash flow, but it is offset by the statutory reserve because of the PRC requirement. What the statutory reserves are, are basically kind of -- for all PRC companies, they are required to make a reserve for, let's say, welfare fund, staff fund and all that. Typically, it's around the 10% range, okay? So every company does it in China. But because we are a Sino-foreign joint venture, we have been actually exempted previously from making these reserves, okay? So the reserve is actually a percentage of the registered capital that every company has to make. So that's the first one we have to do. But because of the change in the company law in the PRC, Yantian, even though it is a Sino-foreign joint venture, is no longer exempted from making the statutory reserve. What the statutory reserve are is basically limitation of the amount of dividend that you have given out to shareholders and the cash will have to remain at the company level rather than distribute out to the shareholders in that sense. And so every year, we do expect that going forward, we'll have to make that reserve, which is around 10% of the profitability, net profit that we have every year. And this year, we expect the amount somewhere around $200 million. I think that $200 million will have to continue until we reach the statutory requirement of 50% of the registered capital. So that will probably take around 10 years or so. So if you look at around $200 million of cash flow that we are unable to distribute out from Yantian, that would translate to around -- roughly around HKD 0.02, HKD 0.025. But we have been able to offset that -- some of that decline HKD 0.025 by -- as Ivy said earlier, we have managed our interest costs better than we have expected because HIBOR is low this year compared to the U.S. rate. So we have actually benefited from that. But HIBOR actually has climbed back up -- and therefore, we do expect some of that savings that we have interest, to be not available in 2026 as well. So hence, overall, net-net, if you take a look at the increased profitability, a little bit less interest, but offset by that statutory reserve. Hence, our actual distributable cash is only about HKD 0.115. In terms of what I see next year, a couple of factors. Number one is interest costs, whether the Fed rate will reduce. The Fed rate will be an important factor, number one. Number two is, obviously, we have 2 refinancing to be done this year and the ability to refinance at a reasonable rate will have some impact on that DPU assessment. And number three, obviously, is the profitability, and I'll answer question number 2 later on. But -- and finally, depending on the overall market, the trade war, some of the things that we're watching for is the reopening of the Red Sea, whether the Red Sea conflict will be able to resolve and how that resolution will impact trading, will have a big impact on our volume as well. So that's something that we're watching out for as well. So those are the couple of factors that I looked at, that may impact DPU next year. But overall, I'm looking at somewhere between HKD 0.11 to HKD 0.12. And my personal target is try to kind of maintain that HKD 0.115, if I can, despite having that $200 million reserve going into 2026. But if we can have volume growth as well as managing interest costs better, then there may be a chance. So that's your question number one. In terms of question number two, in terms of -- obviously, it is quite difficult to forecast -- the world is extremely volatile, especially with the tariff policy and the various new trade agreements happening around the world. But overall, I mean, if we look at industry as a whole, for baseline every year, I do look at a low single-digit, maybe 1% to 3% type of volume growth every year. And I'm still looking at that. That's something we do try to achieve every year, be it from transshipment, be it from import or export. And the shipping market in general tend to look for that type of growth as well. So that's in terms of growth in Yantian. And obviously, Hong Kong, some sense of stability in Hong Kong would be good enough for me. In terms of ASP, ASP is affected by a couple of factors. Most of our ASP growth is obviously driven in Yantian. But if you talk about ASP because the renminbi fluctuation will have an impact on ASP, that's something to watch for and renminbi fluctuation is something that we cannot forecast. The second of all is -- has to do with the mix, the trade mix, whether the growth is focusing more on U.S., European trade or whereas the growth is focused on the intra-Asia trade and Middle East trade or the growth happening in the transshipment trade, all have an impact on ASP because the margins in U.S. and Europe is a bit better, whereas the margins for transshipment obviously is lower and that affects ASP as well. So these are the factors. But overall, are we seeing underlying pricing growth? Yes, we are trying to recover a cost increase through our tariff. That's something we always do on an annual basis when we renegotiate a contract with shipping line. But again, the underlying ASP may increase, but whether renminbi increase or decline or whether the different mixes increase will affect the overall [indiscernible] but I do see underlying ASP increase. And then -- and that's not something that only Yantian is doing. If you look at ports -- North and Eastern port in Shanghai and Ningbo, my understanding is most of those ports are looking for a pricing increase and some of them to the tune of over 10% because they have not had ASP increase over the last couple of years. And Yantian being a kind of a price leader in the market where we price according to supply and demand, obviously, our competitor raising the pricing is actually good for the overall market. So that's something I would say ASP is not overly pessimistic. Finally, on the operating expenses side, most of that saving is not really from the Yantian side, more from the Hong Kong side. Because Hong Kong, obviously, with the volume coming down, we have been having some of the facility kind of underutilized. So we've been saving a lot of operating costs, shaving a lot of costs as a result of some of that volume decline. So most of that operating cost is mostly from the Hong Kong side. Obviously, if there are more downside risk on the Hong Kong side, we'll look to further shave costs. But again, if Hong Kong can stabilize this year, then I do not see that we would be expecting kind of continuing reduction in operating costs. Herbert Lu: Just a follow-up on the ASP. You mentioned the underlying ASP may increase for Yantian, that already factor in the box mix change? I mean, Yantian now has more exposure to transshipment volume, maybe -- which may have a higher -- a lower ASP actually. So you forecast the ASP to grow is already factoring in the change -- mix change? Ivor Chow: Okay. So I cannot really forecast mix change. I -- When I comment on underlying ASP, it's just underlying tariff of the shipping lines, that is kind of like inflation adjusted or CPI adjusted or even low single-digit increase on some of it. How the renminbi change, or how mix change is difficult to forecast, especially individual trade -- will Europe -- again, what I said earlier with the various trade agreements happening, will trade between China and Europe increase and how fast that increase will -- will it offset -- will it be faster than some of the transshipment or MTs increase, is really hard to forecast. So I don't typically forecast mix change or renminbi change. I only forecast kind of underlying ASP change. And so the positive side is just on the stand-alone tariff. Operator: Next question comes from [indiscernible] from HSBC. Unknown Analyst: I hope I'm coming through well. So a couple of questions for you, Ivor, and then a couple of questions for Ivy. Firstly, if you could help us understand how the throughput has trended so far this year, whatever you possibly can share on how the trends are in Yantian and in Hong Kong? Ivor Chow: Okay. So Yantian, as I said, overall, Yantian grew about 7% last year. First half was strong. If you look at the last results that we have, first half was quite decent mostly because of kind of front-loading to avoid the tariff. So we had a kind of bump of first quarter when people kind of rush out the volume ahead of the tariff. Second quarter kind of trend in line. But third quarter was actually quite slow. Third quarter was traditionally the peak season, but I think there was a lot of uncertainty as to what the Trump administration was going to do. There was a lot of uncertainty. Third quarter was quite slow. But I would say that fourth quarter was actually, in some sense, surprisingly strong. Not so much on the U.S. trade side, but Europe was a bit of a surprise. I think overall, Europe grew double-digit in the fourth quarter, helped offset some of that decline that we saw in the U.S. So it is quite volatile right now. Every quarter tracks differently just because depending on -- shippers now kind of take advantage of windows where they feel safe and windows where there's a volatility and they try to avoid -- it's very difficult to forecast. But so far, as I said earlier, January is looking okay. Pre-Chinese New Year there was still a rush in Yantian. But again, hard to say what's going to happen after Chinese New Year. Shipping lines are, I wouldn't say pessimistic because it varies. Some shipping lines are a bit more optimistic, some are a bit more pessimistic. There is not a lot of direction at this point in time. But I am a bit more confident that other markets will fare better than the U.S. market. But that can change in the flash. That's for Yantian. Hong Kong, as I said earlier, Hong Kong is actually stabilizing on the import-export side. We haven't seen decline last year on import-export. But Hong Kong has seen most of the decline on the transshipment side. And as I said earlier, most of the transshipment is either transferred to Yantian or some of them went to Nansha and Shekou. So Hong Kong did see continuing decline in transshipment. The lucky side of it is because transshipment tends to be lower margin, it doesn't hurt our bottom line as much, and we have been able to pick up the transshipment loss in Yantian. So overall, the Trust volume suffered, but Hong Kong is still negative on the transshipment volume decline side. Unknown Analyst: Okay. That's very helpful. My second question to you, Ivor, is about the Yantian East expansion. If you can provide some update on where we stand on the project? When do you expect it to commence? And if there are any further capital commitments from the Trust side towards this project? Ivor Chow: Okay. On the East Port front, yes, I forgot to mention that. East Port continue to be on track, on target. As I said on -- I think the last call as well, we are slated for trial operation in the first quarter of 2027. So we're still on target for that. And we have already completed all capital injection requirement into East Port. So there are no further capital requirement from the Trust. Unknown Analyst: Okay. And then how much if you could remind us because this has been a project which has been in the work for quite a few years. When you start off in 1Q '27, what is the kind of capacity which will come through in the early phase? And how do you expect the ramp-up to phase through over the next few quarters after it commences? Ivor Chow: Sure. Just a quick update on East Port. It's actually 3 additional berth in the eastern side of Yantian. So roughly around 3 million additional capacity. If you look at Yantian last year handled around 16 million TEU, which is a record high, by the way. And so that will add capacity to -- by about 3 million. So I would -- when we finish the whole East Port expansion, we'll be looking at kind of like a nominal capacity of around 20 million, which we're handling 16 million right now. We will be rolling out the first berth next year. So roughly around 1 million additional capacity with each berth. And then over the next 2 years, we'll expand and release one berth additional every year. And to help you think about how I think about capacity, right, if you think about Yantian, last year, we were doing 15 million. And this year we grew 7%. And we actually grew 1 million TEU this year. That's actually [indiscernible] requirement that we need in order to cater to the demand. So that just gives you a feel of how we think about capacity increase. Unknown Analyst: Okay. That's helpful. And then maybe for Ivy, if you could help us understand what the CapEx will be this year for the Trust? And where do you expect to expend it? How much of that will be maintenance? I know in the past, you've mentioned that about $500 million is the maintenance CapEx irrespective of how trade spans out. But if you could help us revisit those numbers as well? Ivy Tong: I think as we mentioned, we are currently still expecting maintenance CapEx to be around that $500 million ballpark figure. So this is what we will aim to maintain. So that's -- yes, so it's in line with the guidance that we have given in the past for 2026 as well. Unknown Analyst: Okay. And finally for you, Ivy, you mentioned in the presentation that about 52% of the debt is fixed rate. Now of the floating rate debt, how much of it is more reliant on the HIBOR versus the U.S. policy rates? Or it doesn't matter and just depends on the overall interest environment? Ivy Tong: Well, that -- I think that depends on the overall interest environment. But currently, all our floating rates are actually HIBOR-based loans. So... Ivor Chow: Not fixed as U.S. dollar. And the reason why we have swapped some of the fixed floating -- fixed rate U.S. into HIBOR is just because HIBOR was a lot lower than the U.S. rates last year, and we benefit from that. But with HIBOR coming back up, we will have to manage the spread carefully. But for us, there is no exchange risk on either front. So we swapped just more opportunistically. And especially, we have actually moved away from a higher fixed component compared to before we're closer to 75%. We're moving lower down into the 50% range just because we've -- I think -- overall, I think the market agrees that the rate -- the current interest rate environment is past the max, and we could potentially be looking at slightly lower interest rate environment. So it would be beneficial for us to kind of maintain slightly more portion of floating in our portfolio. Unknown Analyst: Okay. That's very helpful. And maybe if I can just squeeze in one more question. In the presentation, you did mention about headwinds to Chinese exports from the Mexico tariffs. We know about the U.S. relationship, but there were [indiscernible] -- first Mexico. Is that a significant route? Or is it still more U.S. and Europe exports? And if you could also remind us what the mix now is or in the second half it was for the trade exposure to Europe versus the U.S. trade lane? Ivor Chow: Yes. Well, first of all, overall, Europe -- U.S. continue to account for about 30% to 40% export, with that number now closer to the low 30s compared to the high 40s before. Europe traditionally is somewhere around 25% to 30%. I think it's creep up 1 or 2 percentage point only. But transshipment has actually picked -- where it picked up a lot. Transshipment in Yantian went up quite a bit last year. So I think it went from around 15% to around 20% right now, yes, 20% to 25%. So the pickup is mostly on the transshipment side, and that affected ASP a little bit, kind of alluding to Herbert's question earlier. In terms of the Mexican tariff question is that, when the U.S. imposed tariffs directly on the country of origin in China, Chinese exporter try to, not circumvent, but they have increasingly set up their new manufacturing bases closer to the destination, be it Mexico, be it [indiscernible] Europe. So these tariffs that are put on to kind of intermediate manufacturing locations like Vietnam and Mexico, will indirectly affect trade to the U.S. So that's why we talk about the headwind, but it mostly affect the U.S. than anything else. But as I said, European trade so far, we haven't seen a negative. In fact, we have seen positive out of the European trade, I think partially because Europe, instead of buying from the traditional European exporter -- sorry, buying from the traditional European retailers, they're actually buying more from the e-commerce companies in China just because it's cheaper there. That has attracted a lot of European trade out of Yantian, where we handle a lot of the e-commerce business to Europe. Operator: Mr. [ Paul Chew ] from [indiscernible] Research. Unknown Analyst: Just some questions on the fluidity of the supply chain. Can you just elaborate a bit when you mentioned the gradual resumption of services from Suez Canal, is that what the major liners are preparing you for? And could you maybe elaborate on the impact if it does really open, are you -- is it just that there will be a short-term congestion in Europe that is what worries you? Ivor Chow: So the question surrounds is what's going to happen with the Red Sea situation resolved. So if you look at the -- some of the news in the market is some shipping lines are already testing the Red Sea to see whether it is safe to pass through the Suez Canal already. Some lines are trying that. Just to kind of dial back a little bit. Right now, currently, almost all shipping lines from the Asia-Europe trade go through the Cape of Good Hope in South Africa. And that adds quite a bit of additional transit time into Europe. So that absorbs quite a bit of capacity [ after ] the market, and that allows the shipping lines to maintain freight rates that they have enjoyed over the last year or so. I suppose the concern here is that when the Red Sea does reopen, and the Suez is passable, then at that time, there would be ships going through -- around the Cape of Good Hope. But at the same time, there will be ship racing from Asia through the Suez into Europe. So there will be 2 sets of ships because the slot cost for shipping line going through the Suez is going to be cheaper. So the margins for shipping lines is better. And so people -- ideally, when it's reopened, everybody will rush through the Suez to try to reach Europe ASAP. I suppose, as you alluded to earlier, the concern is that what would it do to the ports on the European side. Currently, I think generally, there are port congestion in Europe already, even with the Red Sea situation. So the concern is on the Red Sea opens and there is a race to Europe through the Red Sea to the Suez, that would cause a major disruption to the ports at the destination in Europe. So that is a concern of mine, obviously. And whether the shipping line can withhold the capacity and not clock up the ports in Europe remains to be seen. But if there is a congestion, it could be a substantial one because the ships going to Europe are really the largest vessels in the world. So even 5 or 6 or even 10 vessels can potentially clock up the system, like they did during COVID for an extended period of time. And how that will impact the supply chain in terms of how you say the fluidity -- and whether some of that congestion will start to come back and hit Asia is something that I'm on the lookout for. But right now, it's really difficult to foresee when and if that will happen. The likely earliest that Red Sea will open will probably be in the second half of this year, but that is an event that we'll look out for. Unknown Analyst: My second question is, I think in the prior call, you did allude that shipments to the U.S. by your e-commerce customers, they prefer to use ships because it's cheaper with -- even with the high -- because of the high tariffs, they're using ships. Do you still see that phenomena or that has maybe [ gone ]? Ivor Chow: Well, I suppose what I saw in the second half, I suppose, obviously, U.S. trade has declined, so overall declined 10%. But I think if you look at South China versus the rest of the China, especially in Northeast, I think the decline would be higher than 10%. I don't know exactly the numbers, but as far as I know, I believe that the decline is a bit more substantial than 10%. And the reason for that, I believe, is that e-commerce because of our focus in the southern part of China, especially in Yantian, that has allowed us to be a bit better. And e-commerce continues to do well. That segment of the market, even the second half continues to do well. Obviously, that can change depending on the tariff situation and whether they tighten the tariff on the small package they are. But for now, that segment of the market continues to be okay, quite well, actually. Unknown Analyst: My -- I guess my last question is, you did -- I think the first time [ probably ] mentioning some optimism over imports. Is it the similar sentiment that you get from the shipping lines or I guess it's more of your own analysis, yes, I think? Ivor Chow: Right. On the import side, it's more of my own than anything else. We have been -- obviously, with the trade imbalance, we've always felt that China has more room to grow on the import side, especially import being a fairly small proportion of our business. But the relative margins for import and with the trade imbalance, shipping lines is much more proactive in terms of pushing for imports as well. And from my read on the macroenvironment with all these trade agreements that China is hoping to sign with European countries, I would expect that there would be a quid pro quo with a certain level of imports coming into China. But obviously, a lot of them depending on the recovery of the Chinese economy, but I'm a bit more hopeful on that front. So it's more of a personal, but I think shipping lines themselves, if there are imports, they're happy to take the balance because for them, empty -- full out empty in is not good for business. Unknown Analyst: And just a quick follow-up on the earlier question. I'm not sure if you -- or maybe you do not disclose the amount of shipments that goes to Mexico directly, [indiscernible]? Ivor Chow: Mexico directly, I don't have that number with me, unfortunately. Typically, for us, the Latin America trade is relatively small. I think it's somewhere between 10% to 15% only, at most 10% actually. Unknown Analyst: But at the same time, I think in one of your statements, you mentioned Mexico might still impact you. But if the shipment -- the direct shipments are small there, how is it kind of negatively [ impact you ]? Ivor Chow: Well, I think what we're seeing is that the growth of the Mexican trade has been quite strong over the last couple of years. So that growth will slow down. That's what we worry about. Operator: [indiscernible] from HSBC Investment. Ivor Chow: Can you hear us? No. Unknown Analyst: Can you hear me? Ivor Chow: Yes, yes. Please go ahead. Unknown Analyst: I have 2 small questions coming from my side. First, I see end of last year, you have announcement saying that you need to sell back land to Shenzhen [ YPLES ] for the redevelopment of the region for around RMB 50 million. So I'm wondering how do you see this -- first of all, I'm wondering what's the use of this land in the past? And how do you see this sale may have impact for the expansion of your volume capacity in Yantian? And do you expect any other similar land arrangement in the mid-term? And second -- my second question is that for next year or midterm, should we expect similar debt reduction at this year, which is around $1 billion debt reduction? And will this be impacted by your increase of CapEx like what we see for this year? Ivor Chow: So I'll take the first question and then Ivy can talk about the debt repayment. In terms of the land that we sell, back to the Shenzhen government, that piece of land is for -- I think I talked a little bit about last year, maybe I should repeat that here. Intermodal is something that is a strategy for Yantian for the next 5 to 10 years. Currently, we do have a dedicated rail link into Yantian in South China, where we have the -- where we're the only one that has an on-dock rail link into Yantian. But rail business only account for a fairly small proportion of our business to the tune of around 300,000 TEU, and we do 15 million every year. So it's quite small. But as I said, with China moving a lot of the coastal manufacturing into the inland, particularly in Chengdu, Chongqing, Wuhan area, increasingly, I believe intermodal will be kind of the future of where the share of the market in terms of volume, the competition will be. So the development of the rail link becomes quite an important preparation for Yantian [ view ] over the next 5, 10 years. But because rail business tends to be heavily subsidized business, it is not a profitable business. So the Shenzhen government has agreed to take back the land that we have, and they would be the one investing in upgrading the intermodal facilities that we have in Yantian. So they're I think they're investing to the tune of around [ RMB 7 billion ] in order to expand the rail link from roughly around 300,000 TEU to potentially to above 3 million TEU by 2029 if the rail upgrade is fully completed. Obviously, it's going to be done in different phases, going from maybe 300,000 to maybe about 1 million first and then slowly ramp up to eventually 3 million. So still -- compare 3 million to 15 million is still not a substantial number, but it is where the future growth for Yantian is, especially when I said earlier that we are completing the East Port development where we have 3 million additional capacity. So the rail becomes kind of like an integrated strategy in terms of expanding Yantian reach from currently around 1,000 kilometer to about 2,000-plus kilometer in land. So it is a strategy, and that's why we're selling that piece of land. So yes, we will continue to have -- I think we already -- announced already a piece of land that we have sold that we would have an impact to us this year. We have some gain. This year, we will be booking. But the important part of that selling piece of land is more of the long-term intermodal strategy for China, not just for Yantian, but for -- overall for China. And I think I talked about a little bit before, it's exactly what is like the U.S. is doing. If you have shipment into L.A. and Long Beach on the West Coast in the U.S., the rail becomes quite important of shipping that goods into the Midwest in the U.S. So I think for China, it's the same thing. Again, you talk about export coming in, but in future, there will be more import coming into Hong Kong and Yantian, connecting to rail to the inland part of China as well. And that's something for me, the rail -- upgrading the rail facility is paramount to capturing that particular growth market over the next 5, 10 years. Ivy Tong: In terms of your second question, obviously, depending on how the operations pan out in 2026, it is still our intention to continue with our deleverage program to do the $1 billion repayment in 2026. Ivor Chow: Thank you. And thank you for joining, everybody, tonight. Operator: Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Welcome to the Swiss Prime Site Full Year 2025 Earnings Conference. [Operator Instructions] I will now hand you over to your host, Marcel Kucher. Marcel Kucher: A very warm welcome to everyone on the screens. Welcome to Swiss Prime Site here on the 34th floor of Prime Tower in the heart of Zurich. It's a great pleasure to have you here. I'm here joined by Anastasius Tschopp today. He's the Deputy CEO of our group and also the CEO of Swiss Prime Site Solutions, and he will talk later a little bit more about our asset management operations. Before we start with the numbers and the actual result, let us step back a little bit and look at where we stand today. Over the last couple of years, we have been building on our Swiss Real Estate platform with the two legs of our own property portfolio and the asset management. And today, we stand here very proud of what our platform has become. Over the past years, we have built not only this platform, but we have built it in a very synergetic way, that performs very strongly, and we'll show you today why this is the case and where this comes from. And more importantly, it also performs very synergistically across the cycle, building on the resilient Swiss economy. In today's cycle, we benefit from a very supportive financial conditions with record inflows of new capital. We have seen this in particular in our asset management with more than CHF 1 billion new money and a record high of CHF 14.3 billion in assets, driven by a very, very strong organic growth. We have also seen that in terms of the transactions that we could do, all the acquisitions that we could do, in particular, in the asset management in the residential area, where we have a structural undersupply here in Switzerland, like in many other countries as well. On the other side, and managing through the cycles with our own property portfolio, we have delivered development over the last couple of years, more than CHF 40 million in top line. And we have hence been very important part of building high-quality buildings here in Switzerland for the commercial sector. Again, this year, we have shown that also in the cycle with low rates and less inflation, we can drive like-for-like growth with a very, very strong 2% growth for this year. And hence, our platform is a true flywheel, creating momentum that reinforces itself and together and building on the strong foundations we will continue to thrive in the Swiss economy. And with that, more strategic outlook. We want to go into kind of the key elements that we want to present today. You see here all the details, but I want to summarize that into four key takeaways that I think you should remember once you leave this room. The first one is, we are growing. We are growing with a 2% like-for-like growth in our own portfolio. We have reduced our vacancy to 3.7%, a record low for Swiss Prime Site, showing how strong we perform in all of our properties. And we're also growing in the asset management sector. You've seen 18% top line growth last year. So very strong momentum all organic and fueled by the strong capital markets that we see. That will bring me to the second point. We are attracting new capital. We have done a capital increase for Swiss Prime Site in spring of last year, CHF 300 million, which are fully invested today. We have been able to attract CHF 1 billion in new money, an absolute record high for Swiss Prime Site Solutions in our asset management division. And we have been able to apply that in very attractive acquisitions throughout our -- the two segments. That brings me to the third one. We are investing. We have truly built a platform that has access to the most attractive transactions in Switzerland. Having done more than CHF 550 million in acquisitions for our own portfolio. And in addition to that, CHF 1.7 billion in acquisitions and transactions in the asset management sector, getting really access to the right transactions even in a market that is very flourishing. And fourth key takeaway, we are becoming more profitable and efficient. And you see that in a 3% up from a comparable EBITDA, up to CHF 408 million for that year. We see it in a more than 30% growth in the profit for Swiss Prime Site Solutions. And you see it also in the dividend proposal that we make, which is CHF 0.05 higher than in the previous year. So we're also sharing that benefit with our shareholders. Going from these key highlights, let me step back a little bit and look at this key elements here, how that performs in key financial figures. You've seen that in the press release and in our presentation, we have a slight decrease in the rental income only due to the fact that Jelmoli building went offline together with a couple of other buildings where we lost about CHF 14 million in top line last year. On a like-for-like basis, as I mentioned before, we have seen a very strong increase of 2%. In the asset management business, as I mentioned before, a record level of almost CHF 85 million in top line, 18% growth over last year, mostly driven by the organic growth and the money that we could attract to a small degree, about 1/10 of that driven by the full year consolidation of fundamental, which we acquired in April of 2024. EBITDA consolidated on a like-for-like basis 3.4%. As I mentioned before, in absolute numbers, minus 1.2%. But given the lower interest, in particular, as well as lower taxes, that translates into a profit before revaluation and sales of 1.3% to an also attractive level of almost CHF 320 million. On a per share basis, that translates into CHF 4.22 unchanged over the last year in terms of FFO I per share, FFO II per share we see an increase of 6% to CHF 4.17 and an EPRA NTA that is up 2% to CHF 101.40, underlying the very attractive real estate that we have, which also have seen a very positive revaluation last year. On what type of market do we achieve these results? And I think I want to leave you with four key elements here. The first one is on the transactions. We have seen last year a very high level of activity on the base of a very broad institutional buyer space. This has been not only the case in residential, but also in the commercial. We see yield compression in many of these respects. And we see, in particular, also an increasing number of larger assets being on the market which is attractive for us as a commercial player with our own portfolio. Second key takeaway that I want to leave you with is we have a continued polarization in the demand on the letting side. We see a huge demand for additional space in the core segments where we are, which means in the inner cities, this is where life is where people like to be, where people like to work. And that is contrasted by probably significantly less activity, a little bit further outside which is becoming more challenging what we see. The third key takeaway is on the valuations. We've seen for ourselves an increase in valuation of 1.7%, roughly translated into some CHF 220 million. And we see that across the board with discount rates going a little bit lower, but also the effects that we see from the positive growth in rental income on a like-for-like basis, which have an impact, obviously, on the valuations. In terms of our own book, we have been able to do our sales with roughly 5% profit, which is exactly where you want to be -- being at the market, but obviously on the conservative side in terms of the valuation. And finally, fund flows. We've seen a record year for ourselves. I mentioned that before, altogether, CHF 1.3 billion across our platform, CHF 300 million for our own capital increase in February and roughly CHF 1 billion in new assets for the asset management. Pension flows is an important element for that. We see here large inflows from the pension flows, and we also see higher allocations to real estate, which is supporting the entire market. Now for the next couple of minutes, let me dive a little bit deeper into the P&L and any individual results that we have from a finance perspective. Let me start with the top line and with the resilient rental income and the strong asset management growth that I've mentioned before. We've seen real estate income from rental decreased by 1.4%, as I mentioned before, that was all due to the fact that Jelmoli went offline together with Fraumunsterpost had an impact of roughly CHF 14 million, and you see that we were able to compensate most of that with our own growth, like-for-like growth as well as the acquisitions to a smaller extent. Second element I wanted to mention is the asset management, 18% plus over the last year, a record level of CHF 84 million roughly in top line. This is all due to the further increase of the funding flows that we have seen and then hence, the transaction that we could do following that. And to a very small degree, also on the full-time consolidation of the fundamental for the full year, as I mentioned before. That is contrasted obviously by the last elements that we see from our focus on the pure real estate platform with now rental income from retail only at CHF 10 million, which is the last 2 months that we've seen for Jelmoli. And also the other income coming down significantly, which was also related to the retail business. Hence, overall, about 17% lower total operating income, but what is more important to me, because this is all what we wanted to do with the focus on our real estate business on a comparable basis. Hence, excluding the effects that you have through the closing of Jelmoli, we have been able to grow 2.6% over the entire platform to a level of CHF 540 million for the last year. If we flip the side and look at our cost base, we see a similar positive picture with a huge drop in the operating expense. However, the majority of that is due to the fact that we continued -- discontinued the operations of our department store. And hence, again, I would to look at the lowest number here, so at the lower -- number at the bottom here where we have been on a comparable basis, hence, excluding all the effects that we have from closing the department store, a lower cost base of 2.8%, showing how much we can drive synergies across the platform. One of the key elements for that will be the real estate costs. You've seen before, the absolute number in terms of rental income reduced by roughly 1.4%. We have been able to decrease the cost of real estate of 5.4%, and that shows we've become much more efficient here and this focus on the buildings in these core locations on the slightly larger buildings that we have been pursuing over the last couple of years has also a positive effect here in terms of the efficiency and the cost ratio. Now if you bring this together, then we see that the positive revaluations that I've mentioned before, I will go into details a little bit later on this where this came from, then coupled also with the sales from properties where we had a gain of roughly 5% over the last value, leaving us with an EBITDA in absolute terms of roughly unchanged, CHF 410 million. But again, for me, the more important takeaway here is the number at the bottom. So, on a comparable basis, so excluding kind of the last time effect that we have from our Jelmoli operations, we see in a comparable increase of the EBITDA of 3.4%. And hence, again, amplifying what I've mentioned before here, the strength of the platform and how we can become more efficient going forward. Now, if you go further down from EBITDA on an FFO basis and the EPRA NTA here, we keep an unchanged Funds From Operations I from per share of CHF 4.22. In absolute numbers, you see that we see an increase of 3.2% here. But given the higher number of shares, this translates then in an unchanged number of CHF 4.22, showing that we have been adding value to our capital increase already in day 1 of the capital being employed, and this will only become better over the next years. On the intrinsic value per share. Here, you see a 2% increase comes to a large degree, from the revaluation effect that we have seen and a slight reduction in leverage, which I mentioned in a minute. So, what I want to do now is provide you a little bit more details on the two key drivers on the top line and then a couple of pages on the balance sheet as well. Let's start with the top line and obviously, the most important element is our rental income. You see here the composition on how we end up with the roughly CHF 455 million. We had seen last year in 2024, really strong sales with a strong tail end here. We sold in 2024, CHF 330 million, really focusing our portfolio on our key locations and on the key cities in Switzerland. Now this obviously had an impact then in 2025 in terms of the top line. And you've seen from that sales, we also sold about CHF 15.7 million in top line. Then what is very important to us and the key focus is what can we do with our existing portfolio. You see that here in blue, with an increase of roughly CHF 8 million, and that translates and you see this here in more detail in the 2% like-for-like growth with roughly 1.6% coming from real like-for-like growth, speaking from really changes in the underlying rent and in the rental contracts that we could actually sign coupled together with a further vacancy reductions, which has an impact on like-for-like of 4.3%. A small number still comes from indexation, 0.4%, and I would expect that to stay at that level given that we have pretty much zero inflation here in Switzerland or even come down a little bit further. Then the redevelopments, I mentioned that before. This is mostly Jelmoli, but also some elements of Fraumunsterpost. These are the buildings that went offline, temporarily offline. I think that's an important addition to that. We will renovate them, and I'll provide you more details on that when they will go online again in just a minute. The acquisitions that we did, the CHF 550 million that we acquired had not yet a full effect, given that a large part of it was only closed in December and the rest April and August. Hence, you will see much more impact of that going forward. In 2025, we had an impact of roughly CHF 5 million coming from that. And then we still have the completion of new builds, which is roughly CHF 9 million which, to a large degree, translates to Alto Pont-Rouge in Geneva as well as the buildings in JED in Schlieren, as well as in BERN 131. A word on the asset management side as well. How do the 18% realized that we've seen in top line growth last year. You see here the management fees have been growing by roughly 15%. So these are the underlying fees that have a very recurring character. The same recurring character is on the construction development side, slight reduction, given the fact that last year, we completed a little bit less construction than we did before. And then obviously, on the non-recurring side, on the transaction side, that is the mirror of the high net new money that we could attract of the CHF 1 billion, which were invested in about 120 transactions. As I mentioned before, CHF 1.7 billion roughly in transaction volume that we did in the asset management. An important figure for us is, we want to build here a stable asset management operation that mirrors kind of the stability that we have on the real estate side. And hence, an important number for us is that we remain at roughly 2/3 of recurring fees, and that was also a case in last year despite the very positive market at 66% recurring income. What you can also see here in the numbers is the cost base has been stable or even decreasing slightly. You see that in particular here on the personnel cost, which are the most important cost base, these are the elements that we can still can benefit from the integration of Fundamenta. We mentioned back then that we expect some CHF 8 million in synergies, and we have now been able to fully realize those. And you see that in the number here that EBITDA grew by significantly more than the top line, 31% exemplifying here the stability and in particular, also the scale effects that we have. That translates into an EBITDA margin, which we believe is very attractive of about 66%, so about 2/3 percent, and hence, shows the power again of our platform and doing things together. Two words on the balance sheet. The first one is obviously on our real estate portfolio, which has reached new heights with about CHF 13.9 billion, so almost approaching the CHF 14 billion mark. We started with roughly CHF 13 billion. We talked about the sales. I will provide some more details on that just in a minute, of CHF 130 million, then the CHF 550 million acquisitions that I mentioned before. Total investments in our developments was CHF 222 million with a strong focus, obviously, on YOND and Jelmoli. And then the valuation result that we mentioned before of the 1.8% roughly, providing us then with a total of CHF 13.9 billion. Maybe one word on the revaluation. We've seen given the strength of the Swiss market, a slight reduction in discount factor in real terms about 2 bps, in absolute terms, a little bit more, because our valuators also reduced the expectations on the inflation by 25 bps. The latter has practically no impact on us, given that we have a very large share of our property being fully indexed. Hence, we can pass on any indexation and any inflation. The latter one does have an impact. And hence, you see it's probably about 50-50 in terms of the revaluation result in terms of what we -- what stems from the discount factor reduction and what stems from the like-for-like growth and exceeding here the expectations our valuators had in terms of the closings of new contracts. And then the last element on the balance sheet is our financing, two pages on that. We have been able for the last year to place almost CHF 800 million in new financings. And for us, as a very important highlight, we were able to access the Eurobond market for the first time. We placed in September, a EUR 500 million Eurobond at a very attractive spread, roughly mimicking the spreads that we could reach here in Switzerland. What was very supporting for that placement and made us really feel good about this market is, we were able to attract EUR 4.3 billion in demand at that interest rates that we had. So we had an oversubscription of about 8x, which is very high even for the euro market and shows just the incredible strength of our name and of our platform in Switzerland, but also abroad. Despite the fact that we have a large degree of our financing with fixed interest rate. You see that here at 86%. We have been able to reduce the average interest rate significantly from about 1.1% that we had in the previous year to 0.94% if we are precise that is, we believe, a very attractive as well. Overall, given the financing level that we have here, that translates into an LTV net for the Real Estate segment of 38.1%, which is slight reduction of 0.2 percentage points over the last year. Well, we continue is that we have a very broad set of potential financing opportunities and that Eurobond only added to that, to make sure that in any position, we are always able to refinance ourselves. You see that here, about 50% is financed through unsecured bonds, 40% of that is roughly in the Swiss market, 10% is in the euro market. We have still access to the convertible bond markets. We have very good partnerships with our core banks, 13 banks in Switzerland for the unsecured loans, and we continue to have the secured loans with the insurance companies of about 11% of our overall portfolio. Moody's rating A3 stable, and that provides us with this access that we just mentioned before. In terms of the liquidity, we have a very high liquidity reserve of CHF 1.1 billion roughly. This is fully committed, so we can exit it at any time. And that provides us with enough liquidity over the next couple of years. So we don't have to go to the market, but we will, of course, access the market in order to stay an active player here. That's for the numbers and for the financial numbers. Let me spend a couple of minutes now to dive a little bit into more details of our portfolio, before I hand over then to Anastasius to provide some more details on the asset management side. Let's start with the overview. And given the acquisitions that we did this year as well as the disposals, we have strengthened further our position in our core markets. So we have now close to 60% of our portfolio, in Central Zurich area, about 20% in the Lake Geneva area, with the two strong hubs in Geneva itself as well as in Lausanne for us and about 12% in Basel in the northwestern part. We have further reduced the number of properties despite the acquisitions that we did, and we are currently at 132 million properties, which relates into an average size of our properties of around CHF 100 million, which we feel very comfortable with going forward. And we already talked about the property portfolio of close to CHF 14 billion. In terms of the use, we have further strengthened our office segment, which we strongly believe in, in the core markets that I mentioned before and in the prime locations that I mentioned before with close to 50% currently, 20% retail and then the rest is spread between infrastructure, logistics, which also includes labs for us, hotel, gastronomy and a slightly reduced share of Assisted Living, which are mostly the Tertianum we have. We're still very proud of the diversification of our tenant base. We have about 2,000 tenants, with 50% spread among the top 30 tenants. Our three largest tenants still remain the same with Tertianum slightly reduced at a little bit over 5%, Swisscom at roughly 5% and Globus slightly reduced also at close to 5%. I'll talk about Globus in just a minute. Where you see this beautifully, the focus that we have taken over the last couple of years in this matrix, which is provided by our evaluator, Wuest & Partner, where we have over the last couple of years, if you compare this to 4, 5 years ago, really been able to put a really, really strong focus. More than 99% is in these highest brackets in terms of quality of the locations, and close to 90% is also in the highest bracket in terms of quality of the building, and that has been a significant shift and the basis for the strong like-for-like growth that we could achieve. I'll show you some pictures on the acquisition, so let's skip that. But you also see where we sold properties. This is still not in the core elements that I mentioned before. So we sold properties Aarau, Biel, Augst, Buchs and Brugg with a strong element on two segments. The first one was Retail, where we're still reducing in particular, in these non-core locations. And the second one was developments, where we felt that the best one is residential going forward. So what we typically do is in order to capture the value as we develop it up to the point where it has a building permit and then sell it to somebody who has a core focus on residential. Now talking about the acquisition and the fantastic buildings that we were able to acquire. And fantastically enough. It starts here from the left to the right, not only in terms of location, but also in terms of timing. We started the year in April with the acquisition of the Place des Alpes in Geneva, from SGS, just last week. SGS opened its new headquarters in Baar, which have been beautifully renovated in our building. And hence, this was a truly beneficial transaction on both sides. We were able to acquire this beautiful building. You see with unobstructed view to the Lake of Geneva, and SPS was able to find the new headquarters in the canton of Zug as they wanted. We are currently in very advanced discussion with tenants, focuses on a single tenant again, which we hope to be able to close in the next couple of months. But we also have alternative discussions on a multi-tenant solution. Typically, we would look at two tenants, which should move in later this year. Then on Prilly, in Lausanne, key tenants here: SAP, Ruag, really strong technology tenants. We have long contracts of almost 20 years. This is a brand-new building to the highest elements, not only in terms of architecture, but also in terms of fit-out and sustainability. We are right at the very busy new station of Prilly and also right at the new station of the tramway, which will open later this year. Zurich-West, we have a little bit too much fog. Otherwise, you could see it from here, the headquarters of the Swiss Stock Exchange just down here, the road. Key tenant is the Swiss Stock Exchange. It's currently a single-tenant building, but already built in a way for a multi-tenant, so that we have full flexibility going forward. And then the last one, which we could close as part of an asset swap was in Bahnhofstrasse at Zurich, a beautiful building. And we being the absolute best owner, given that this was originally one building where we owned the first part already. This is the ones that know Bahnhofstrasse, where the Swatch Store is in. And now we added kind of the second part of that building, which provides us with many more opportunities going forward, in terms of efficiency and efficient use and space that we can offer. Fully let with key tenant rituals. If you calculate all this, and then it includes kind of the asset swap that we did in Bahnhofstrasse, you see a net yield of roughly 3.7%, which we believe is very attractive given the quality of the buildings and obviously, is highly accretive given where our actual yield is. Hence, very attractive acquisitions that we could do over the last year. One word on vacancy. You see here, if you just look at the graph, lowest ever, 3.7%. We could, in particular, sign a couple of new leases like SGS, like Banque Cantonale de Geneve, TurbinenBrau, and a couple of major extensions, EY just down here as one of our key tenants here on the Prime Tower campus, but also with the canton of Zurich, an attractive building in Oerlikon as well as the extension of Globus. I'll mention that a little bit more detail in just a minute. The 3.7% have an underlying 3.2%, which is operational vacancy and then 0.5% for strategic development. What does that mean? Those are floor spaces that we do not actively market currently because we start to empty a building so that we can do the future redevelopment. So with an underlying say vacancy of 3.2%, which is also a record low in the history of Swiss Prime Site. One word on WAULT. You see here a very even spread of the WAULT, pretty much everyone -- everything is 10%. That has a significant change over the last period. We increased our average WAULT by almost 0.5 year to 5.3 years, mostly driven by the extensions of EY, that we mentioned before, and Globus. On the Globus, I think we mentioned that during the half year already, we have a staggered extension agreement where we have 7 years for Lucerne and 8 years for Lausanne and then the 10 years for Geneva, which then also flattens kind of the profile going outwards. Then a question that usually comes, "Are you nervous about the 9% that is on the short term?" I say absolutely not. On the opposite. I look very much forward to that. We have been in good and advanced discussions with the majority of the tenants in here. And the reason why I think this is positive is because in vast majority of the cases, we see here a very positive potential for higher rents when we entered kind of the next agreement phase. Hence, no worries on that side from our perspective. Now, let me spend a couple of minutes on our three ongoing development projects. Obviously, the most important one being Jelmoli. Just a little bit, what's the current status here. We have started construction in April pretty much right after we closed the department store operations end of February. Obviously, the first stage in the construction is that you start to demolish, kind of lay open the underground structure, and that is pretty much finished by now. Part of that was also a removal of hazardous material just to provide you a little bit of an impression of the complexity of the building. The building is not actually one building, but it's four main buildings and 11 buildings, if you look also at kind of connecting buildings, together. Now everything is open, and we've taken out the opportunity over the next 2, 2.5 years to really bring this entire building, kind of, to the next century, where we will not only convert it into the office part in the upper floors, but also really address the structural elements and really catapult it into a new area. Overall, investment is going to be roughly CHF 210 million. We can be pretty sure on that by now, because we have agreed on a channel contract in September. And we expect a staggered completion starting in summer 2028. On the rental side, obviously, we still have roughly 50% pre-let. We are in very advanced discussions with some tenants. These are really top-tier tenants. We also have signed LOIs for two floors, of the remaining office floors and we see really good demand here for those. As I mentioned before, summer of '28 staggered completion date, in particular, for the offices. Hence, we are a little bit early for the real marketing efforts, and you see this here, the active marketing will start now in summer or late after the summer of this year, but kind of the premarketing, the effect, we are already very positive on that one. Second one, a snapshot is YOND Campus. Also here, we have just signed a contract with a general contractor. Investment volume remains at CHF 150 million, yielding from that, about CHF 8 million in additional top line. So you see it's also a very attractive yield on cost from this project. We have been able to sign a number of contracts already for that. One that I really like is part from Zuriwerk Foundation, which provides a real new hub here also for inclusion. The Turbinenbrau, so we continue kind of the addition of the building of brewing water leakers and now also beer in that area and a number of other signatures are pending. And hence, we are very happy in terms of how the marketing works. Also here, we have a staggered completion as of 2028. We have currently completed the garage, so the underground parking and now, we are now start building the YOND 3 construction. This is the main kind of new building. It's about 85% of the entire new development with the YOND 2, then following later on once we have also reached here our target level in terms of pre-letting. Last snapshot, Fraumunsterpost, the building in the middle of Zurich that everyone knows. Currently, we are doing a refurbishing here, bringing it also into the next century and of about CHF 30 million. Complete in here will be summer of next year. Will, in particular, have a focus on all the sustainability elements, on the heating elements, on the insulation elements, et cetera, with a sustainability certificate that we expect of BREEAM In-Use are very good. We are in advanced discussions with a number of tenants of about 2/3 of the floor space and expect that by the time this is completed, we should also have 80% plus let as usual with our buildings. And that is on track for the completion, as I mentioned here before. Two pages on sustainability, which remains a focus of ours. And I want to mention here four elements that are important to us and to me personally. The first one is, we continue with our certification process. We have pretty much everything certified in our portfolio that is certifiable. So excluding some parking spaces, et cetera. We have now 40% of our top-tier buildings that are eligible for our Green Finance Framework and that is only buildings that have a Good or Very Good or Platinum rating. We're working on that, that this will continue and the certification gives us a very strong indication on what we need to work on, and that's why this is attractive for us, not only to provide you as investors with the full transparency but also for us to provide us with an additional element of inputs on what we need to work on. A real key element that we achieved last year, and I want to jump here one page is another 10% year-on-year advancement in terms of the CO2 reduction path. You can see here, this is our linear target that we had to 2040 CO2 neutrality. We are well on track here. We are, in fact, advanced on track, and we could add here another year with a huge milestone with a further 10% reduction weather adjusted, by the way, which is important, because we do not benefit from a, say, mild winter, but we adjust for that, so that it's really comparable. Some of the key elements that we do here is obviously heating replacements and energy modernization. We also continue to work on the Green Leases here, which means we work together with our tenants in order to make sure that not only we reduce our energy consumption, but also our tenants work together with us, and we signed these in Green Leases. We work on the improvement of the energy mix and obviously, to wherever we can district heating mix, et cetera, and then obviously, the building shells, which is an important element, as I mentioned before, with Fraumunsterpost, for example, or also Globus, Jelmoli, where we focus on that as well in the renovation path. Let me go back. On two other elements, which is the circular economy element, which is a key element as well for us. In terms of our focus area, we have completed the Bern 131 project, which is a true lighthouse in that respect. You see here the embodied emissions is 7.3 kilograms. The ambitions as per the circular economy charter is close to 12 kilos. So we have been significantly below the already super low kind of ambition that we have taken for our charter. How did we do that? Well, it's mostly wooden construction with some concrete to reinforce it. We focus here on Swiss wood. So it's not wood from anywhere, but it's Swiss wood. And then obviously, the entire building is covered with photovoltaic cells so that the building actually produces more energy than what it consumes. And finally, because we want to have this really all encompassing, we have the Green Finance Framework where we refinanced almost CHF 800 million last year, under the Green Finance Framework. And for that, we build on what I mentioned before, our certificates in terms of Good and Very Good buildings that can only be eligible to the Green Finance Framework. So, with this, I would hand over to Anastasius for some additional words on the asset management part. Anastasius Tschopp: Thank you, Marcel. Dear ladies and gentlemen, a warm welcome from my side. The next few of minutes, I will give you some details about the Swiss Prime Site Solution results 2025. As Marcel Kucher mentioned before, we grew 2025 with CHF 1 billion assets under management. We raised CHF 1 billion new money. This is more than 2023 and 2024 together. Our Real Estate transaction volume, 2025 was CHF 1.75 billion. From all these deals were 30% of market deals. So we have really good networks in Switzerland. Now I will show you the three sub pillars of the asset management part. On the left-hand side, you can see our fund management. In this fund management, we raised CHF 430 million new equity in 2025. Another highlight was our IPO with the Investment Fund Commercial in December 2025 with a premium from 10%. In the middle, you can see the sub-pillar Wealth Management or Asset Management, the products there, the investment foundation, SPR or the Fundamenta Investment Foundation. In this part, we raised CHF 590 million new equity. And another highlight in this part was we extended the contract with Fundamenta Investment Foundation by 3 years to 2029. On the right-hand side, you can see our Real Estate Advisory sub-pillar. In this sub-pillar, we gained a new mandate by around about CHF 400 million. Swiss Prime Site Solutions are the biggest independent Real Estate Asset Manager in Switzerland. Only banks and insurance companies in Switzerland are larger than us. But they have an own book of equity, we do not have that. We have more than 2,700 clients. 600 clients of this 2,700 are pension funds. Our main focus in our products, to invest 60% is Living -- housing. The last slide from my side and the key takeaways for you, the pension fund system in Switzerland are very strong. They have to invest CHF 17 billion every year, around about 23% goes in Real Estate. So around about CHF 4 billion or CHF 5 billion every year. Our market share is 12% to 15%. So we think that we can raise every year CHF 600 million to CHF 700 million new equity. We have a net immigration in Switzerland by around about 100,000 people. And the interest rates are low or going down. So you can see, the business case for Swiss Prime Site Solutions is really stable. As Marcel Kucher has mentioned before, our recurring fees are 65% the last year, and we think it will go on with this number. For growth to CHF 60 billion assets under management, as we have as target to 2027, we can benefit from the economy of scale again. Thank you for your attention, and now I hand back to Marcel. Marcel Kucher: Thanks, Anastasius. So there's only one thing to say for me. What is the outlook? So we expect the attractive Swiss market to continue. And hence, we want to provide the guidance for next year for an FFO that further improves to CHF 4.25 to CHF 4.30 on a per share basis. We will do that with a very disciplined financing policy and remain with our LTV below 39%. We do see further potential to improve our vacancy and hence guide that we will be lower than this year, so lower than the 3.7%. And as Anastasius just mentioned, we see continued growth opportunities for Swiss Prime Site Solutions with an additional addition of CHF 1 billion AUM also for 2026. Hence, a positive outlook. And with that, that was it from our side, and we would hand over to questions. Marcel Kucher: I think we start here, who would have thought. We start here in the room and then hand over to potential questions that we have on our stream. We do this in English today because on the stream, we have many people that are English speaking. And we realized that the simultaneous translation was not always that easy. If you feel more comfortable in asking a question in German, that's no problem. Just please do that, and then we'll try to translate as good as I can. So, where do we start? With you. Perfect, Matteo. Matteo Villani: Matteo, Vontobel. I have a question on Slide 22, regarding the active portfolio management. Could you tell us how large is the amount that you would still say capital recycling is possible? And why did you tell in December that you will scale back the sales? Has it to do with the market environment or did not the buyer come as you wished for? Marcel Kucher: Yes. All right. Happy to do that. Let's start with the second one. It had nothing to do with the market. I mean, the market is super strong, and we've seen that with 5% profit that we make. We will also, this year, see a number of additional transactions that we partly signed already last year. That is, in particular, the second half of the asset swap, which will only happen in 2026, because these are in cantons where the communities have a first right of refusal. So there is a gap between, kind of, when you can close that. So we expect that to close somewhere in April or something like that, for the second part. So no, this has absolutely nothing to do with the market. For us, it was important that we provide transparency that we will keep a number of the buildings in our portfolio, as we have now with the capital increase, more equity and hence a little bit more flexibility. And your first question was around whether we can further kind of suppress that in the top quadrant. Was that the question? Matteo Villani: Like what's... Marcel Kucher: The number of buildings are... Matteo Villani: And in francs. Marcel Kucher: Okay. Well, for this year, my expectation will be that we will continue to sell about CHF 250 million worth of buildings. As I mentioned before, a part was already signed last year, so about CHF 150 million was already signed last year, which will now be closed in 2026, and we have a number of additional buildings that we have in the pipeline. I think, the focus of capital recycling shifts a little bit into more, say, a regular portfolio optimization. I think with what we have done over the last 5 years, we have really concentrated our portfolio in where we wanted to be. But given the size of our portfolio, we always see opportunities where we believe we are a better owner than somebody else, or within our portfolio where we see another owner be the better owner than us. That has a lot to do also with repositioning of buildings. I mentioned that before, we always have a look also with our commercial buildings, whether they would be suited for residential. And if that is the case, then we would develop it up to a certain level, typically building permit and cost certainty with the contractor general and then sell it on the market. Matteo Villani: One more question on the asset swap of the Bahnhofstrasse. What's the net yield of the building? Marcel Kucher: In Bahnhofstrasse, I think it's 2.7%, roughly. Yes. Ken? Ken Kagerer: Ken Kagerer, ZKB. My first question is to Anastasius Tschopp. And -- Okay. Whilst I see the fact that it's very easy or it seems to be very easy to raise cash in the current environment, I'm a bit more worried about the way how to deploy this cash into 2026, especially when we know that more than CHF 9 billion were raised last year and you plan to raise another CHF 1 billion and the others are also seem to be also very active. So, now comes the question. How do you want to deploy the money with good acquisitions on the direct market at the correct yield without diluting either the payout ratio or the quality of your existing products under management? Anastasius Tschopp: Thanks for your question. No. We have a good pipeline for all products. We have some transaction done in January, good transaction and our pipeline are full for the next 4, 5 months. And we are sure we can hold the quality and the performance in the product. Ken Kagerer: Just a small add-on for you. The fundamental contract was extended, was just mentioned. Can I expect that the margins or the costs stayed flat? Anastasius Tschopp: Yes. Ken Kagerer: Okay. The next question is on Jelmoli. I've just checked the full year presentation '22, and the Capital Markets Day presentation '23. And in '22, it was mentioned that the renovation costs should be above CHF 100 million. At the Capital Markets Day, it was mentioned that the renovation cost should be CHF 130 million. And when I remember correctly, Rene was very firm that this is a number he can stick to. And now I have read that we see CHF 210 million. Now comes the question. First, is the rooftop included or not already? And secondly, what has happened with the increase in the cost and what has happened, especially to the yield expectation on the construction cost? Marcel Kucher: Yes. Happy to do that. And yes, this is the entire building, including the roof. We will have a restaurant on the roof, we will have spaces on the roof for our office tenants that they can use, and that is part of this cost. The entire roof, but that was always the case, we'll only be able to use in '33 or something like that, because we will have the until then -- until we can connect to cool city. And we, up until then meet part of the roof or the coolers, for the cooling system. But, that was always the case. That is nothing new. In terms of the cost, that we have. I think now we can be firm on that. We signed a contract. We have obviously built back everything that is internally. So, we're now back to the bone and the structure of the building. And in the course of doing so, we decided that in part, it makes sense to do a little bit more, that has elements in the atrium where we believe we can add additional floor space and make existing floor space more attractive and bringing more light in it, but that is also a parts of where we will further support the structural elements. Given the increase in rent that we see and where we are also are with the LOIs that we signed, we see purely on cost -- on yield on cost about 4%. And if you add to that, the losses that Jelmoli did over the last couple of years, you'll be more in an area of 7%, 8%. So both numbers, even just the 4%, we do believe in a location like Bahnhofstrasse is super attractive. And hence, yes, this is going to be a very valuable addition to our portfolio going forward. Ken Kagerer: This brings me to my third and last question. What would need to happen for you to do another capital increase in 2026? Marcel Kucher: Well, for us, the most important thing is that it needs to be accretive. And it should be accretive quickly, not in 5 years' time and with a lot of hope. And the last year capital increase, I think, was at an attractive timing because we've seen end of '24 falling interest rates. And hence, we increased our capital in a phase of falling interest rates where we still could benefit from attractive acquisitions as these falling interest rates were not yet fully reflected in the prices. And I do believe you need to see these opportunities that allow us to grow our portfolio in an accretive way, that will make us then to do another capital increase. And as soon as we see those opportunities, I think we've shown that we are quick to act on that. Ken Kagerer: And do you see any opportunities now? Marcel Kucher: That we'll answer once we see them. Holger Frisch: Holger Frisch, ZKB. A question -- on the half year presentation, you presented a slide with the investment volume for SPS of about CHF 1.3 billion, broken down in CHF 200 million invested, CHF 100 million committed and CHF 1 billion open. Could you provide us with an update on the current number and the breakdown? Marcel Kucher: Yes. The number has not significantly changed. We thought it is more useful to talk about the projects that we're currently working on. As you can see, these are roughly the numbers in terms of commitment. So the CHF 200 million, the CHF 150 million, the CHF 30 million, together, CHF 380 million or the CHF 390 million, of which about CHF 70 million to CHF 80 million is already built. So we have a slight increase in terms of the commitment, obviously, because now we signed the general contract on YOND as well as Jelmoli. The overall number has not significantly changed, but this includes kind of conversions that will only take place in a number of years. Most prominently, if you look at Geneva, now we extended the contract with Globus by 10 years. So that means the conversion project that we developed here, we still want to do it. But realistically, we'll only do it in 10 years. Hence, some of the elements moved a little bit further out. Holger Frisch: Then second question would be on the maturity of the financial liabilities, this went down to 3.9 years, which is the lowest for the last 10 years, I think. So do you feel comfortable with that level now? Or do you have any plans to increase the maturity? And then maybe on the maturing bond of CHF 350 million in May, what are your refinancing discussions? Marcel Kucher: Yes. Okay. A number of elements on that. Why is the majority coming down a little bit? This has mostly to do with the unsecured loan that we have with the CHF 13. And that contract still runs about 4 years, part of it 5 years. And hence, it is too early now to renegotiate that. We will do that, say, 2 years before it actually matures roughly. And hence, you'll probably see that it comes down a little bit further. Does that worry us? No. Because it's a clear maturity pipeline that we have here. We have built up now many opportunities on how we can refinance, not the least the one in the euro market, where we have seen very attractive opportunities going forward. All the rest is roughly in the same range. You've seen the euro financing where we did roughly 6 years. Or you've also seen the one that we did in January of last year at roughly the same rate. With the upcoming majority, we already did the floater end of last year, which was part of that refinancing. The rest you see we have plenty of line that we could use. Obviously, we also reserve the right to do an additional bond refinancing, which -- where we see very attractive conditions currently. Holger Frisch: And one last question on the WAULT of about 5.3 years now. Could you break down the WAULT for the different types of use like office and retail and so on? Marcel Kucher: I don't have it here by-heart. We can provide it later on, but my gut feeling is, given that retail is only 20% by now of our portfolio, it should not have a significant difference. The large part of our retail, our co-op stores and Globus, of course, now -- and hence, you've seen here just the extension, hence, should be roughly in line. But if you want a precise number, I would have to check. I don't have that on by heart. Yes. Matteo and then Andrea. Matteo Villani: A quick question on Jelmoli at the Capital Markets Day in Geneva this spring, I thought the beginning of going live again is in 2028 at the beginning. Now you said at mid of 2028. Why is there this delay? Marcel Kucher: With what I mentioned before, where we will probably do a little bit more than we originally envisioned, because we believe this is beneficial to the building and the rental income that we can generate, we need to build that. And hence, the current plan, and we are very confident now that we can stick to this plan given that construction is now in full swing. And in particular, the building is empty now. So if you walk through the building currently, you see all the walls are dismantled. You see all the structural elements. So we are really very much focused now to rebuild the building, as I mentioned before. Tommaso Operto: Since the mic is here. Tommaso Operto, UBS. Question on reversion. Since inflation is as low as it is, focus will be on reversion. So could you update what the reversion potential is for the portfolio in general and then specifically also for this new couple of acquisitions that you made? Marcel Kucher: Yes. On average, I think the simple answer is it's about 10% of the reversionary potential. We do have about 5 years WAULT, as we've seen before. We have probably an implicit WAULT, which is a little bit longer given that some of our tenants still have options where they can extend at the same conditions. So taking the 10% and divide it by maybe 6 or something like that, that yields you around 1.4%, which we have now consistently been delivering in terms of real conversion. We're working hard on that. We're doing all sorts of things in terms of how we do community management, what services we provide to our tenants. If you look here in the Prime Tower, if you've been to the elevator, you see all sorts of services on the screens that we have. We have cars here, where pretty much the entire Prime Tower campus takes part of it. We have bikes and all that make tenants more sticky, because they really like it, and that is helpful for us going forward. So we try, obviously, to exceed expectations that Wuest & Partner has. And you see that in the revaluation. I mentioned before, roughly 50% comes from the underlying higher contracts that we could close. And we expect and we work hard on that. You will continue to see that going forward. Tommaso Operto: And for the new properties? Marcel Kucher: For the new properties, some of them come with a long contract. I mentioned Lausanne with a long contract. In terms of the Place des Alpes, which is the one that is -- that we are reletting. We are very positive that it's going to be in the mid-double-digit numbers in terms of what we undersigned and where we will end up now in terms of reversionary potential. We see that this attractive space with a beautiful building, old one and new one with an unobstructed view to Lake to Geneva is really attractive in the market, and hence, we're positive on the revaluation that we get there. Tommaso Operto: So, a double-digit percent increase? Or what's the double-digit, Okay. Marcel Kucher: Yes. Tommaso Operto: And then on the CFO transition, let's expect that you wouldn't be the only one. Marcel Kucher: Okay. Key message is, I will not do a double job. So that is the key message. We want to take this very seriously. We want to do a thorough evaluation if you talk to headhunters, that takes 4 to 6 months, and that time spend will be, do roughly say, in March, and we're working towards that. Andrea? Just behind you. Andrea Martel: Andrea Martel, NZZ. I have a question about Fraumunsterpost. Are you just redoing the offices on top, because Lidl hasn't open. Marcel Kucher: Lidl is still open. Lidl remains open and is open, but we're doing the entire office part. And the key element here is on the heating system, on the cooling system, et cetera, where we will go full green. Insulation is part of it with the windows. Obviously, this is a protected building. And we want to transform it in a way so that it's fit for the next 50 years plus. We've seen very good demand so far and really top-tier tenants, where we're in the progress -- in the process here of hopefully signing them up so that they will move in when it's ready in a 1.5 years roughly. Tommaso Operto: It's a recurring question that always comes up, but is there any update on Mullerstrasse for Google tenant? Marcel Kucher: Look, Google made an announcement. It was quite prominent in the newspaper. I think it was October last year, where they kind of committed to Zurich. All we hear is that they're now further reducing the workforce. On the contrary, it seems, at least from the outside, that they're transferring some of the development on their AI engine here to Zurich. In that announcement, it was also said by Google that Mullerstrasse is a key element of their strategy. Hence, we have no indications whatsoever from Google that they don't want to keep it, and that's the current update. Tommaso Operto: Just one follow-up on the double-digit percent increase for Place des Alpes you mentioned before. That's including CapEx or just as it is? Marcel Kucher: The CapEx is not going to be huge. Because the majority of the CapEx that we're going to do that is tenant fit out. Obviously, you need to do some CapEx if we separate it and have a multi-tenant, but that should also translate in higher per square meter prices. So it's roughly the same. But we are not going to -- we're not going to invest there hundreds of million. This building is in a very good shape. It has a modern heating system. It has a modern insulation system. And the CapEx that needs to be done is mostly around fit out, which will be done in conjunction with the tenure. All right. Then let's switch to virtual. We can come back here to the room if there are more questions. Are there any questions on the web -- from the website? Operator: [Operator Instructions] Our first question comes from Ana Escalante with Morgan Stanley. Ana Taborga: I have a couple of questions, please. The first one is on your vacancy guidance. So as you said, you are -- you ended 2025 in record lows. And you said that you see further potential for declines. How low do you think it is possible to go from here? Marcel Kucher: Look, I mean, as we mentioned here, we have an underlying vacancy of about 3.2%, excluding the one which we call strategic vacancy, which we do because we are renovating building. We do see a potential that we'll bring this down further. Maybe even slightly below 3%. But obviously, it has a natural end at one point in time, you do have some turnover. You want some turnover in fact, because of the reversionary potential that we do have. But for the time being, over the next couple of, say, years, probably at least 1 to 2 years, we still see further potential to reduce our vacancy and we're working on that. Ana Taborga: And then my second question is on acquisitions, both for the own portfolio and for the asset management business. So for the own portfolio, if we look at the guidance that you gave in the Capital Markets Day, it looks like you have already fulfilled all the acquisitions pipeline. So any further updates on that? Will you try to recycle further capital into acquisitions? Or do you think you are pretty much done and maybe just the occasional strategic opportunistic acquisition? And for the asset management business, would you consider growing outside of Switzerland, given the amount of capital that you've raised, would you consider doing a bit more in Germany, for example, that you're already there? Marcel Kucher: All right. In terms of acquisitions, I mean, we are already -- we are always screening the market. And I think that is very important because we are active managers. Hence, we have to actively manage our portfolio. Hence, we are always in the market. There is no need on that to be on the selling side, because as we mentioned now a couple of times, we have been able to move our portfolio in the right quadrant, so in the place where we want to be, where we see the highest opportunities in terms of like-for-like growth and value accretion. Having said that, we do have a number of properties which are currently under development where we see residential as the best use. So, we will sell those and that will free up capital that we can invest then in new acquisitions. So it's not a static portfolio, but we work with it on a daily basis and want to realize opportunities when we see them. And in terms of going abroad, we are in Germany, yes, we have roughly CHF 1 billion in Germany. We are constantly evaluating the market there. See, a little bit of a light on the horizon currently over the last compared to the last couple of years, but we'll have to further evaluate on that, and we'll provide you with an update. If you see more opportunity than to say organic growth going forward. Operator: Our next question comes from Steven Boumans with ABN AMRO ODDO BHF. Steven Boumans: I have two. So one, could you please quantify in how many acquisition processes you are for your own portfolio today and how that compares to around this time last year? Marcel Kucher: Sorry, I can't. But in -- we are in -- let's put it like that, in an attractive number of -- an attractive value number, we are in -- we are evaluating, but we always do that. But I cannot provide you with more detail, I'm sorry. Steven Boumans: Okay. Well, and to try and maybe your question. What percentage of non-recurring asset management fees do you assume for '26 and '27? Marcel Kucher: Our focus here is that we stay at the minimum of this 2/3 that we currently have as recurring fees. Hence, about 1/3 could potentially be non-recurring fees given the opportunities that we see within the market currently that we see that as a realistic that we stay below that 1/3. The 1/3 we realized last year was in a market where, as Anastasius mentioned, we did record -- we did attract record new money, and we were still able to stay at the 66%. Hence, that is the clear focus. We mentioned right in the beginning, the stability, coupled with the plus, with the growth. And that's a key element, obviously, in that, that we keep that ratio. Operator: We currently have no further questions from the webinar. Marcel Kucher: Wonderful. Then we have an additional question here from Ken in the room. Ken Kagerer: Thank you. It's again for Anastasius. Would you be willing to share with us the EBITDA margin of the German business? Marcel Kucher: We don't disclose. I think the -- what I can disclose, it's profitable. We're not losing money. Ken Kagerer: On EBITDA level or what level do you think? Marcel Kucher: On any level that you want to mention. I think that's an element that we worked on over the last couple of years. It's not yet at the same EBITDA margin that we have here in Switzerland, but it's now at an attractive level, which is sustainable. Ken Kagerer: When you say not yet, do you expect it to ever reach those levels and on what basis? Marcel Kucher: Let's do Germany in a different part. We'll plan another Capital Markets Day, and then we'll provide some additional elements on that. But yes, what we currently see is that Germany is recovering slightly, and we want to be there to take opportunity if that materializes. Wonderful. And thank you so much for your interest for coming here. It's been a great pleasure to host you here. We see now the fog is a little bit lighter. So you have a little bit more of the view. And with now all the participants that are here in the room invite you one floor up, to 35th floor, where we have some light refreshments prepared and continue the good discussions. For everyone on the webcast, thank you so much for your interest in Swiss Prime Site and wish you a wonderful day. Thanks.
Essi Lipponen: Hello, and welcome to Fiskars Group's Q4 and Full Year 2025 Results Webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Jyri Luomakoski; and our CFO, Jussi Siitonen. Let's look at the agenda for this webcast. Jyri will start with the key takeaways of the quarter and the year. After that, Jussi will continue with the financials. Then back to Jyri, who will go through business area development and also talk a bit about how this year looks like. After that, we will have plenty of time for your questions, and we will welcome questions both through the phone lines and through the chat. You can type in your questions in the chat already during the presentation. Please go ahead, Jyri. Jyri Luomakoski: Thank you, Essi, and good morning. Just briefly before we dive into the numbers and what's been happening in our two businesses. Key takeaways, there are some highlights, some lowlights as always in life. What we think was really important that our Vita business area actually had both Q3 and Q4, two consecutive quarters growing and that brought also the group numbers to a what I would call a green or black zero in terms of top line. This we need to bring into the context of Vita having had before these two growth quarters, more than 10 quarters of negative growth or flat top line. And of course, as we started in the summer, focusing on cash flow that those efforts were bearing fruit and the cash flow in the fourth quarter was also quite strong, and Jussi will go deeper into how strong and record-breaking that was. But of course, the lowlight is that our comparable EBIT declined, and that was impacted by our own actions predominantly, i.e., curtailing our production to manage the inventories to manage cash, and this had a price tag consequently on the EBIT. This morning, we also announced our plans to turn around on BA Vita's performance and also, we'll address that a bit more in depth in a few minutes. The Board made their proposal to the AGM, and that is to maintain a stable dividend as our policy is saying, stable or growing, EUR 0.84 per share to be paid in four installments. And '26, we expect our comparable EBIT to improve from the '25 level. But that was the key kind of highlights, key takeaways as an intro and I'm happy to hand over to Jussi, please. Jussi Siitonen: Thank you, Jyri, and hello, everyone. Let's start first with Q4 and then go to the full year here. When it comes to net sales there, as Jyri mentioned, we were able to report positive growth now in Q4, 1.3% at constant currencies. It was very much driven by Vita. The good thing also is that this growth was very broad-based. When we take our top 10 countries at group level, 7 out of top 10 countries were growing, including USA, Sweden, Japan, China, Australia being the ones which were at this kind of mid even to high single-digit type of growth. On EBIT, we came down EUR 10 million versus last year. Out of this approximately EUR 10 million, a bit more than EUR 4 million was Vita related. The remaining part was quite evenly split between Fiskars BA and other operations. Gross margin came down 200 basis points to 47.4%. Roughly 150 of this 200 basis points was tariff related. And as Jyri mentioned, the focus what we have had in second half, especially now in Q4, was there on the cash flow. And we are able to report now all-time high Q4 free cash flow. And actually, this Q4 was the second best quarterly cash flow overall in the recent history of this company. Moving then to full year results. So here, we came out with a flat top line. And despite this flat top line, we had countries with solid full year, high single-digit, even double-digit growth like Sweden, Japan and China. On EBIT, we were down EUR 35 million versus last year at EUR 76.4 million. There were three main reasons for this drop what we had in EBIT. The big one and the main one is low production volumes and negative variances that one that especially in Vita. Then we had more investment in demand creation, especially in marketing. That's on one topic there and tariffs, which we were then able to partially mitigate, but that was the third big reason. When it comes to full year gross margin of 47.1% there, which was 170 points down versus last year, roughly 100 basis points out of that 170 was tariff related. And despite the strong second half, especially Q4 free cash flow, our first half cash flow was rather challenging. And there, for the full year, we were short roughly EUR 5 million versus last year. Let's dive a bit deeper at these changes what we had in full year when it comes to EBIT. And let's start here on the right, BA Fiskars. So, BA Fiskars, as you can see here, the tariff impact what we had, BA Fiskars was able to fully practically mitigate the negative tariff impacts there, mainly through the OpEx efficiency improvement, but also the underlying gross margin, excluding the direct tariff impact improved in 2025. Then Vita here in the middle, you can see this gross margin negative impact there coming from those low production volumes. What I would like to highlight here that it's very production volume related, not sales volumes, therefore, this kind of promotional sales, what we have had, they have mainly been there for those categories which are end of the line anyhow. So, the big decline is very much production volumes. Moving then to the cash flow. As I mentioned, we were able to deliver strong Q4 cash flow of EUR 91.5 million here, EUR 22 million better than last year in Q4. That's mainly driven by change in inventory. So, we were able to take inventories down in Q4 by EUR 35 million approximately, which is almost the same amount more than what we had last year in the same period. Also, the tight CapEx control what we put in place, we were able to cut CapEx by EUR 6 million versus last year same period. And then on a full year basis, however, the inventories continued increasing by EUR 11 million on a full year basis. There also the CapEx was partially compensating or reduced CapEx was partially compensating this one, but the full year cash flow of EUR 76.3 million is some EUR 5.5 million behind the last year. Then on balance sheet. So net debt to EBITDA, we came down in Q4 from 3.7x to 3.3x in one period. Net debt came down EUR 92 million in Q4. And out of this EUR 92 million, roughly EUR 20 million is relating to lease terminations and the rest, roughly EUR 70 million is pure cash flow driven improvement what we had there. Of course, this 3.3 is not what we have given as a target of 2.5, but important is that we are now able to demonstrate a declining trend there when it comes to our net debt EBITDA. Then the last but not least, when it comes to our sustainability targets there, if we start first with focus more here on those environmental targets, we were able to improve slightly our circularity targets being 50% by 2030, 50% of our products and services are coming from circulated materials. So now it's 27%. So we are well up to speed to this 50% target by 2030. Of course, all these kind of, I would say, low-hanging ones are already implemented, so getting the target is getting challenging and challenging as we speak. When it comes to emissions, both Scope 1 and 2, we were able to improve. Now it's 62%, target being 60% by 2030. So, it seems that we are already there. However, this is very volume related and volume driven. And now when the volume has been a bit down, also this percent is improving. Once the volume are increasing, the 60% remains to be a good target. The only environmental target where we are behind last year related to Scope 3 emissions for transportation. Now it was 18%. The main reason is both sea and road freights in U.S.A., partially because of higher volumes, partially also because of the way our carriers defined these emissions. That's very shortly where we are with the numbers. And now giving it back to you, Jyri . Jyri Luomakoski: Thank you, Jussi. what's been up in our businesses, Vita. Net sales growth that we mentioned and also the comparable EBIT decline and what was the key driver there. So 4.6% top line growth in Q4 and 3% for the full year. And this is, of course, a prerequisite that we have growth helps turning the business around. When we look at sources of growth, D2C sales performance was good and both Danish brands, Georg Jensen, Royal Copenhagen performed nicely as did Momin Arabia. Of these 2 celebrated also big birthdays, Royal Copenhagen got 250 years last year and Moomin as a character filled 80. And when we look at the drivers behind the top line, Jussi already mentioned and we've been reading in many reports around our company that the decline in profitability would be relating to the inventory actions in terms of sellout but that's not really the case. It is really the scale down of production. And as a consequence, when you start to curtail production, you have still fixed costs that are not absorbed by the inventory, and they are expensed immediately. So it's been very active and deliberate actions that we've been doing. This morning's announcement, big changes planned for Vita. And clearly, we want to reset the brand with a structure that it's meeting our ambitions, building global iconic desirable brands and scale for profitable growth. It involves also structural changes in terms of some business unit combinations, which are not impacting the kind of sales end necessarily, but more the back office and the overhead structures within Vita. And that's extremely important. We also mentioned a few moves already that are now kicked off in terms of manufacturing in Denmark, moving our distribution center from the U.S. East Coast to more kind of e-com optimized location and at the same time, outsourcing it. So, creating a more of a variable cost structure there. So these are the key kind of actions. But then what do we expect as a result out of here? We expect a net reduction of approximately 310 roles when the program is completed. That means then upon completion, we will then have annual savings of around EUR 28 million. And of these, in H2, as we have now announced the program and the plans, this triggers employee and union rep consultations in different geographies, they take their time, then having after those processes conclusions and taking then the actions that those consultations have arrived to means that the economic benefits of the planned program start to trigger in the second half. So approximately 1/3 of the EUR 28 million is expected to be income statement effective and impact our profitability in this '26 in this year, but that happening really in the second half of the year. And then of the rest, there will be some tails flowing into '28, but the majority of the rest in '27. Our estimates of the one-off costs, which would be recorded then as items affecting comparability is in the magnitude of about EUR 9 million. Some highlights in the business. I mentioned for Copenhagen's 250 years anniversary, a big event in Copenhagen at our flagship stores, which is attracting a lot of people is the Christmas tables settings, and that's really drawing crowds and keeping the interest up in the brand. Moomin Arabia launched the -- actually the largest collection, festive moments and that was subject to pretty high demand because the MAX was sold out during December. That's what the desirable brand is. Collaboration between a fashion brand, JW Anderson and Wedgwood also delivered good engagement and commercial traction. And for New Year's Eve, if you happen to spend it at Times Square in New York, you would have noticed the Waterford crystal ball coming down, and that's also now visible in the shop-in-shop at Macy's flagship in New York at Herald Square. So, market kind of being more active and visible in the market. And as we see from the growth numbers, these things also bear fruit, which is extremely important. Moving to BA Fiskars, decline in the top line and tariffs, we were pretty much in the epicenter of the tariff topic as a business with our significant exposure to the U.S. market. So comparable net sales declined 7% in Q4, snow came a bit late for the fourth quarter in Europe and in the Nordics, which is a big kind of a seasonal market for snow tools in those years where there is a lot of snow and 4.6% for the full year. And tariff uncertainties, recall last spring when the tariffs kicked in, that was a big situation where consumers were confused and trade was confused, what's going to happen, et cetera. Excellent mitigation work by our teams and things started to stabilize. And Jussi mentioned in the U.S., actually, at the end, our business was growing. And this tariff mitigation has been an important achievement and extremely critical for having what I would call still having seen some of our competitors and peer companies reports, I think we can be proud about the margins we've been able to sustain also despite the top line decline. Some highlights, already in November, we arranged a get to know BA Fiskars event for investors and those materials have been available to the public pet care line has been well received by the market. That's important. It's about minus 10 centigrade in Helsinki, a lot of snow and many other European geographies are also freezing. So, Fiskars Power, which is now the first products have been shipped actually to stores. It's not yet the high season for these products. I don't know where I would use it, even though I'm definitely myself also personally going to buy one. But this is a type of a sample. The slide was not wide enough to bring the entire innovation fireworks to the slide, but many, many good and nice things that have gained shelf space and traction in the market are coming from our Fiskars business area. With the financial statements release, the Board also announced their proposal to the Annual General Meeting of maintaining the dividend at EUR 0.84. This is when you look at the payout ratio to EPS, indicating a very high payout ratio. We need to remember that these items also include our EPS some write-offs and so forth. But then on cash earnings per share, about 2/3 is in line with the proposal to be paid out. The change to earlier practice where we have been paying dividends in 2 installments, one in the spring, one in the autumn is actually to get into payout per quarter, so March, June, September, December payout, also matching our cash flow pattern in our normal business seasonality better. Guidance. So we are expecting our comparable EBIT to improve from the '25 level, '25 level was 76.4%. And what's behind that thinking? We recognize that the uncertainties in the global economy will persist also in '26. We clearly count for the EBIT support from the planned changes in BA Vita in the second half of the year. Our active tariff mitigation efforts have been successful last year. And based on that performance, we have a confidence that we will be also successful in '26. The flip side is that the inventories, even though we had a significant decline in our inventories, we want to further improve that net working capital item, and it will have some negative impact, and at the same time, we also know that the U.S. tariffs, remembering that liberation day was in April '25. So after -- right after the first quarter. steel tariffs came into force in August, if I recall the date correct, and those impacts then annualize into '26. We do not give quarterly guidance, but I think it's important to remember these key aspects, Liberation Day, April, so Q1 last year's comps are pretty good. Second half impact from the Vita changes and steel tariffs started in the third quarter last year. So just to keep those in mind when you are modeling how the year would look like. And this is maybe prophylactically addressing if there is a criticism that this is a Fluffy guidance, yes, it is to some extent admittedly. But if we have started this morning in the first countries, change negotiations and similar consultation process with our employees on the Vita program, they take their time and then to implement then the conclusions and the decisions as a consequence of those negotiations are topics that we thought that it's better to be coming out now with this type of guidance. And then when things advance and we know more on the precise kind of timing of certain actions and so forth, it always leaves us some room to clarify and specify more in depth the guidance. Some of our teams have been very active over also the last weekend advancing the technical part of our separation of BAs into subsidiaries. So those splits into entities in some major countries have also now taken place. So, we think that we are well on schedule with our Q1 deadline having the legal structure behind the BAs also implemented, which then will also help us in terms of the transparency measurability, for example, to the exact capital employed in each of the businesses. So, this is moving ahead as planned. And that's maybe the good segue to the paid commercial, so to speak. We are planning to arrange our Capital Markets Day on May 12 in Espoo, Finland, which would be then for institutional investors, analysts and then, of course, online attendance open on a broad basis, and this is now the plan a bit after we have completed the incorporation of the BAs and have more transparency also to shed some light into those aspects in May. Look forward to meeting you there. So, in summary, key takeaways. top line growth in EBITDA, where that was not the routine and practice over the last prior 10 or 11 quarters, now 2 consecutive ones is giving, of course, also forward-looking us confidence that we can grow. We know the elements for that cash flow, important for managing our balance sheet and capital structure. EBIT decline last year, really driven in a big way by our own actions to focus on cash flow. So that's the other side of that coin. Definitely, the beta plans now going into negotiation and thereafter to execution, dividend staying stable, moving to a quarterly payout on the dividend and then guidance growing or improving the comparable EBIT from last year. That takes us to Q&A. Operator: [Operator Instructions] Yes. Thank you, Juss and Jyri. Let's first see if we have any questions through the phone lines. The next question comes from Maria Wikstrom from SEB. Maria Wikstrom: Yes. This is Maria from SEB. I have 3 questions, and I would like to take them one by one. So I'd like to start with the top line growth in Vita. So if you could discuss a little bit more specifically, I mean, which markets you see performing better than the other markets. So which markets or geographies were behind the growth in the fourth quarter? Jussi Siitonen: Yes. So as I said, the growth was very, very broad-based on what we had in Q4. And bearing in mind that actually Vita came down and Vita was the one growing. So if I'm right, exactly, 9 out of 10 top countries for Vita were growing. So it was broad-based, big countries covering 90% of the business. At the same time also when it comes to channels we were able to demonstrate a good growth. Also when it comes to consumer, 80% pulled up and with an E-commercial only 12% up in Q4. Without going to each of the countries, is where broad-based [indiscernible]. Maria Wikstrom: So what would make you confident this time around that, I mean, making this large cost saving effort that you will actually record the savings on the EBIT line? Jyri Luomakoski: And for me, having joined this role as an interim in April, it's easy to say we haven't, I fully agree, we haven't been perfect in executing. Some of the old programs where it's been -- yes, I've seen at that time as a Board member that, yes, a lot of people have departed, but kind of gradually, there's been some type of a revolving door filling back some of the positions. And that happens quite easily when you look at different businesses and these type of programs. What I think is the key differentiator here is that there are structural changes, combining some of our business units, changing really the org structure and clarifying the accountabilities, but those structural changes drive then reductions in certain overhead functions and so forth in the marketplace. So that clearly drives the confidence that these are there to stick and it's on a very frequent loop by group management, by our Board and definitely every quarter by the market that we are executing what we have promised. Jussi Siitonen: Maria, on that one. So you're absolutely right, bottom line matters. At the same time, what we have seen is quite, I would say, even dramatic top line drop what we have had. So therefore, loosing the volumes at the same time driving fixed cost saving actions there. Many of those actions are just there to mitigate the volume drop. Maria Wikstrom: And then my final question is on the gearing as I think it surprised me and I think part of the market that you the Board of Directors decided to keep the dividend flat compared to last year, even that, I mean, the gearing is down, but we are still much above the target level at 3.3%. So when do you expect, I mean, to reach the targeted gearing level at 2.5? And what makes you so confident to pay out the last year's dividends with the current gearing level? Jyri Luomakoski: So, you refer, I think, to the leverage here and where we have set a target to be at maximum 2.5 and that target is still valid. Important is that we move towards that one. And of course, when the Board considers the dividend proposal to the AGM, they inquire management and look at our long-term plans and the capital needs and also the confidence in our plans to further reduce inventories or improve our net working capital performance. And that's typically then having set many years in the Board on the other side of the table, so to speak, to drive the confidence what is something that's good and the right balance of rewarding shareholders but at the same time, being true to the targets that the company has set and the needs of the business. And from that perspective, that has been basically the process. Jussi Siitonen: Yes. As I said, it was very encouraging what we did in Q4, getting net debt down by EUR 92 million out of EUR 70 million something was really cash flow driven, the remaining being those lease terminations. On that one, we have been also quite openly said that the potential what we have there in trade working capital, no matter what are the measures, what are the KPIs you are using and benchmarks there based on our previous performance pre-COVID time, we do have roughly EUR 100 million potential in our net working capital. The actions announced today are also targeting this excess inventories, excess working capital, what we have. So we do have sources available for internal funding. Operator: At this point. The next question comes from Joni Sandvall from Nordea. Joni Sandvall: Maybe continuing still with the cost savings program. Can you give any more color on the rightsizing of the business? I mean, are you expecting to exit some production site out of the Nordics? Or how should we view this? And what is your actual target for own production levels in Fiskars. Jyri Luomakoski: The announcement does not lift any exits per se, but rationalization, what we do and where that's one of the key parameters here. And the aim is, of course, to right size the production, the supply to match the demand and the fact that we still have inventories, as Jussi alluded to, that net working capital has some room to improve, and that's driving those. But they are now subject to the negotiations in different sites. And consequently, after those negotiations before I start to put dots to the map. And then after that, we can give a bit more flavor and update on the, say, geographic coordinates. Joni Sandvall: Then maybe a question on Fiskars BA. There has been strong mitigation of the tariffs. But how confident are you now entering into '26? And how we should view the net impact from current steel tariffs and mitigation actions for '26? Jussi Siitonen: Yes. Joni, as I said, the impacts what we had in 2025 and how they were mitigated mainly through OpEx savings so that the underlying gross margin improved. The toolbox is pretty much the same. The impact -- the incremental impact of the tariffs, of course, is the whole Q1 when it comes to those liberation-based tariffs and then impacts from the steel tariff from August onwards. The plans for Fiskars BA has in place are still targeting to mitigate these impacts there. What's the magnitude there? It's a bit -- I would say it's a bit less than what it was in 2025, but we are still talking about a significant amount we are now mitigating through those very resilient plans what Fiskars BA has put in place, including also this production re-foot printing. Joni Sandvall: And maybe a question also, you have now the new categories, the first batches sent to the retailers. So could you give any indication of what level of sales should we expect from these categories in '26? Jyri Luomakoski: We have not quantified sales by product or product category per se. As I said, on pet care, the initial feedback has been very positive when that was launched in the first market, our Ultra Axis, which was not on the slide, but one of the key launches doing a kind of a rebasing on the a wood prep category have had a very positive feedback and demand and restocked many times to key distributors also outside of Finland. So people are doing wood prep work also outside of the Nordics, as we have seen. So reception and feedback from the market have been very positive. And some of these, like power, it's a completely new category for us. Yes, we've been doing poppers, pruners, but all kinds of hand-operated, and now we are getting the help of power and electrical drives to do that. There, we don't yet have a baseline. But after the gardening season of this year, we are also happy to comment a bit more on the success and the reception, here at minus 10. I don't think too many people think about guiding tools. And in some geographies, we actually postponed the media launches just a few weeks to allow some type of spring thoughts coming into people's minds. Joni Sandvall: Okay. And maybe to Jussi, a couple of technical questions, if you can give any comment of the timing of one-off items for '26? Jussi Siitonen: As Jyri mentioned, the negotiations started just today. And therefore, it depends there. So most likely, most of that will be in the first half, but we get back more, let's say, a precise comment on that one once we are proceeding with the negotiations. Joni Sandvall: Okay. And finally, on the CapEx split for '26, you mentioned tight CapEx discipline now in Q4. So what should we expect from '26? Jyri Luomakoski: As you saw, we came down EUR 9 million in 2025 versus 2024, out of which EUR 6 million was in Q4. The full year level, what we currently have for 2026 is pretty well in line with what we had full year 2025. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Essi Lipponen: Thank you for your questions. And we do have questions in the chat as well. So let's continue with those. First, related to Vita's program. Jyri, maybe if you take this one. Do you expect any negative sales impact arising from these plants? Jyri Luomakoski: Not really. When I look at the plans and the structures, where do we want to tackle our cost position? This is something that doesn't lead to, at least in my view would have direct sales impact. Essi Lipponen: Thank you. Then Jyri, if you continue, when do you expect the production to roughly match your sales volumes in Vita... Jyri Luomakoski: Depends a bit on the category, product category, and technology. In some areas, it is likely to be this year. In some areas, it is more likely that it won't be yet this year, and we will be running the whole year with a kind of curtailed production, really to make sure that we get to our targeted net working capital structure. That's the prime focus here. Essi Lipponen: And on the same topic, but maybe I will give this one to Jussi. Is Vita's 2024 gross margin, which was about 56.5, according to at least the one who asked the question. I don't have the number right here. Is that a relevant benchmark going forward once the production rates normalize? Or is there a permanent negative impact on the GM from some factors? Jussi Siitonen: As we mentioned, the decline that we have had there, 240 basis points in 2025 versus 2024 in Vita, that's very much production volume related, not sales price volume related, but coming production. So, then, assumingly, the logic is correct without commenting on any numbers here. So once we get volumes up, of course, then this fixed cost absorption will improve. Essi Lipponen: Then, about the Fiskars segment, I will hand this over to Jyri. The first half of 2025 was challenging for the Fiskars segment, especially in the U.S. market. What is your expectation for H1 this year? Jyri Luomakoski: Well, as I said, we don't guide quarters. We don't even guide the halves. I don't see any when we had the turmoil of the tariffs in H1 last year. And after that, things have been more normalizing, and the American consumer has also been happy to shop if we leave the winter storms and those types of 1-week disturbances out of the picture. I wouldn't identify any change in the pattern that has started in H2, that New Year City would have changed that pattern in any direction. But as I said, quarterly or half-year guidance is not available, unfortunately. Essi Lipponen: Yes. Then we have already discussed the leverage, but maybe if Jyri can discuss what the focused measures are aiming to reduce leverage, given that it has remained above your target for 2 years already. Jyri Luomakoski: Three elements, I would say, when basically taking the cash flow statement, we are also guiding for improved profits to make more profits. And we need to remember leverage that's net debt to EBITDA. So it improves automatically even in the absence of net debt, not changing when the EBITDA increases. So that's key. Then, having the net debt element addressed definitely 2 key drivers. We've had some big-ticket CapEx items over the last couple of years, also partly relating to sustainability and kind of decarbonizing some of our production. And now, definitely the new launches, for example, at Fiskars, there are some tooling investments, et cetera, coming, but they are directly supporting business and the business growth, and keeping the brands relevant. But net working capital, as Jussi addressed, we have still clearly as our target to look at the net working capital turnover ratios that we had pre-COVID, then the roller coasters, a boom, and then some doom times out of that. And hence, the last few years are not a kind of acceptable benchmark for us. We set our targets higher and continue that work on the front. So EBITDA up and debt down. That's effectively what the formula also spells out. Essi Lipponen: Thank you, Jyri. And one for Jussi about the higher silver and gold prices. What is the impact on the Vita or Georg Jensen margin? Jussi Siitonen: This is very much Georg Jensen, both when it comes to gold and silver. So both metals, we have hedged. We have good hedges in place. You can imagine they are well into money at the moment because the hedge rates are coming from last year. Therefore, no immediate negative impact coming from those ones. Essi Lipponen: Thank you. At this moment, we have only one question. Let's see if we get any more. We have a question about the dividend. Maybe we can give a recap on the proposal for this year, and maybe about our policy. The question is, is the dividend going to stay at EUR 0.84 a year? Or will it change? Jyri, if you still want to give a recap on that. Jyri Luomakoski: The Board's proposal concerns the dividend payable out of last year, payable in 4 installments, EUR 0.21 each in the second half of the last month of every quarter, if I kind of remember the precise dates correctly. So from 2 to 4 installments in aggregate, the annual dividend, EUR 0.84. We are not taking any stance on dividends beyond those that are payable in '26. And the rationale relates to the policy, stable or growing dividend, our cash earnings, which are about 1.5x the proposed dividend, and that's basically the rationale in the tree. The Board considers always when making those proposals, the needs of the business, CapEx needs, and what is the outlook and confidence in the outlook. And I think that indicates also a certain level of confidence in the actions that we are taking and in the projections that we have for '26. Essi Lipponen: Great. Thank you, Jyri. And it seems that we don't have any questions at this point. So thank you for your active participation. And I wish you a nice end of the week. And still, before we end the call, I would like to...
Hjalmar Jernstrom: Good afternoon, and welcome to the Pricer Fourth Quarter 2025 Investor Presentation here at DNB Carnegie. My name is Hjalmar Jernstrom, and I'm joined today by CEO, Magnus Larsson; and CFO, Claes Wenthzel. Welcome, guys. And during the presentation, questions can be submitted live and we will address these during the Q&A session. With that said, I hand over the word to you. Magnus Larsson: Thank you very much. Hello, everyone. Really happy to be here. My name is Magnus. I'm the CEO of Pricer. And with me today, as mentioned by Hjalmar, is Claes. So let me jump straight into the presentation. For those of you who haven't been paying too much attention to Pricer before, but are tempted to join the call. This is the very quick Pricer in a brief slide. So our vision is to be the preferred partner for in-store communication and digitalization. This is something that, of course, is spot on for what the physical retailers with physical stores are aiming to do now. We aim to do it the best and be their preferred partner. I will come back to a few customers that actually have selected us as their preferred partner later in the presentation. In essence, we have sold or delivered close to 400 million of our labels. We have done way more than 28,000 stores. And today, we have more than 6,000 stores on our SaaS service Plaza. We have close to 50 million ESLs connected, which, of course, gives a lot of opportunity to future sales. Looking at Q4, the first thing I would like to highlight is that we've seen a positive trend during the second half versus the first half. When I compare it now Q3 and Q4 together, we have a net sales that actually increased 20% compared to the first half, which has been, of course, very, very positive. We have seen a good intake -- order intake momentum in Q4. It's actually the highest in the year. We have been awarded with 5 new customer contracts in Q4 in the U.S., in Netherlands and in Norway. But also more importantly, what we can see is that there is a clear and tangible increase in the customer engagement basically across many markets, but it's from RFQ processes. So basically, they come to us to actually buy stuff to proactively being discussing digitalization and the way forward. Very, very positive development. Looking at our financials, you will see that we have had a major decrease in our inventories. As you might remember, and I know Claes will speak more about it, we had an excess inventory when we came into 2025 that we have now dealt with and it's been sold. So it's been contributing to our strong positive cash flow. But it's, of course, also affected our -- it's not, of course, but it has affected our gross margin due to the sale of this excess inventory. All in all, we have a year of full year profitability. We have a good EBIT. We have an EBIT margin of 2.9% on the adjusted side, and we have a net profit for the full year. So why does our customers buy from Pricer? There are quite a few trends that affect the behavior from shoppers, the behavior of our customers and retailers. And I will show you 5 examples now on the 2 coming slides. And you can see that one key driver has been the drive for strategic digitalization in the physical store. Now with AI being a very large thing, it also spills over to quite a few of the physical retailers. They see all the benefits they can do utilizing AI tools. But in order to do that, they really need to make the store physical or digital. So it's not only the fact that they want to address the operational cost, which is still a key driver. But it also what kind of gadgets, sensors, ESLs do I need in my store to actually be able to operate in a different way and be more efficient using also the AI tools. So we can see this is a quite new trend, but we can see that especially, I think, on the U.S. market, this has been a driver for some of the recent customer dialogues that we see. It's from the hyper and supermarkets, but also down to convenience stores where they want to see how can we be more effective. So what am I talking about? What are the key customer wins? The first one I'd like to speak about is the deal we got with IBM Federal and with DeCA, the Defense Commissary Agency. So that's actually the U.S. Department of Defense. It's their stores that they have for the armed forces. So in the U.S. and outside Continental U.S., they have in all the Army bases, they have the commissary stores, sorry, what they sell grocery to the serving staff and everyone working at the Army base. So this is a really big thing in the U.S. We've been vetted as a supplier by the U.S. Department of Defense or Department of War as they also are referred to. It's hard to pass that threshold. So we're extremely proud of this win. We have a planned deployment of ESLs in 57 other stores outside Continental U.S. and we have a potential of modernizing all the stores in -- it's like actually 178 ones in the U.S. market. We did receive the first order in December, and we're continuously planning together with IBM Federal on the rollout of these stores. But also in the U.S. market, having DeCA as a reference and also the fact that we've been vetted by Department of Defense is a big thing. The second one is also an American customer, Merchants Distributor store, we call them MDI. It's a wholesale grocery store distributor. They actually sell everything from groceries, wholesale, but they also do technology. They help their members to buy whatever they need to their stores. So we are -- we have an exclusive agreement with them now. We're the only potential supplier. They have 600 members. But across those members, they have 3,000 different locations or stores in 17 states. They are really active. They want to make this happen. They see the clear benefit for their members. So it will be Pricer Plaza. It will be 4-color ESLs. First orders received now in December. And above all, it's a brand-new Pricer customer. And of course, we hope to see them grow together with us during '26 and into the future. If we look at Europe, we decided to go for a direct sales model on the Nordic and Baltic market. We announced Norgesgruppen, we announced Coop Norway in October and November. If you look at Norgesgruppen, they have roughly 1,800 grocery stores. They're #1 on the Norwegian market. We are a current supplier of in-store communication and digitalization, but it's a new direct customers. So we're really happy for this engagement. We had the Coop management team over last week. We spent 2 days discussing what is the future, what are the road maps, what are the key things we're going to look at into the future. They have both do-it-yourself stores and they have grocery stores, and they have more than 1,000 stores. So also here, a new direct customer. But so here, we have an existing customer, PLUS that we won back in 2000. They've been using their system a lot and felt that it's working so good that they wanted to really upgrade it to have the most recent version of what we do. So they will buy our 4-color labels. We'll start with 100 stores this year, and we do another 165 stores in 2027. So we're basically modernizing the entire setup. But also part of this deal is the buyback of the existing labels. There will be a TED Talks on this and then positive effects when we are at the EuroShop event in a few weeks' time. But in essence, we're going to take their labels back. We will refurbish them, and we will resell them to give them a second life. So from a sustainability point of view, a very good business, but also from our point of view, also very good business. And before handing over to Claes, I would like to speak a little bit about Pricer Avenue and Pricer Avenue at the NRF show in New York. So now second week in January, we had the NRF show in New York. It's a massive retail event or retail tech event where everyone that's someone on the tech market are participating. So we now do the commercial launch of Pricer Avenue is now commercially available. We do expect the first stores to be deployed now during Q2. It's, I call it here a low-volume deploy. So we have a limited number of labels. And once again, it will be quite exclusive. So we will agree which stores will be allowed to get it. They will focus on using it for the high impact zone. So basically where they have high-value products or where they have high churn products, but areas where they see that they really want to do whatever they can on the merchandise and the promotion side. So we'll be very exciting. We'll be very exciting with also the necessary discussions that we're going to have with the suppliers that want to use this for promotion. We had a number of pilots. They were pilots for also for us to get both feedback in terms of how well does it work in the store? Do we need to make any changes to it. But also, of course, to get the customer feedback. And here, we've got a lot. So it's been embedded now in the commercial product and future releases of the commercial product. One additional thing that we launched is a new model, brand-new model to Pricer Plaza called designer. It's a tool made to actually design this extended label, but it's now also -- will be available for all our ESLs. In fact, with the designer tool, you can do pretty much what you want. We will treat any screen as a canvas, so it could be to paper, it could be paper tag, it could be billboards, it could be televisions, it could be obviously be Avenue and also ESLs. And we had some people passing by our booth from a company that typically works with paper and paper publishing. They were delighted to see the tool and said, this is something that we should have. And since everyone is moving more into the publishing direction, I think it's extremely positive. And you can also see on the picture here what Pricer Avenue looks like in real life when it's actually working. So this was maybe not talk of the town in New York, but it was definitely the talk of the NRF. We also had a TED Talk together with the Technology Officer, Rob Smith of Coop of East England, where we spoke about in-store shopper engagement and how we can actually increase that impact with the help of Avenue. But I guess, enough of bragging and promotion and over to the hardcore figures. So Claes. Claes Wenthzel: Yes. Sales slightly down in Q4 compared to last year, but at the same level in fixed currency. Gross margin decreased in Q4 with 1.5% unit compared to last year as it is negatively affected by sales of the excess inventory we had in the beginning of the year. Operating profit was SEK 19.8 million, and that has been impacted by the one-off cost of SEK 4.5 million in Q4, which is related to VAT back to 2022 and 2023 in Canada. And if you look at the cash flow, our operating cash flow for 2025 is SEK 180 million, which is more than SEK 100 million better than last year. And cash flow has a large impact from the reduction in the inventory. What is also important and what we are a little proud of is that we do not have any net debt anymore, and we have available cash of more than SEK 450 million at the end of the year. Magnus Larsson: Good. So let's wrap up then before we move into the Q&A. So once again, I want to highlight the strong order intake in Q4. It is the highest in 2025. We have a book-to-bill that is actually above 1. So we have had more orders than net sales, which, of course, anyone in a company, you want to end up in that situation. On the other side, on the flip side of the coin, we still see this uncertainty on the market. The geopolitical situation, the macroeconomics makes it a bit hard to really predict the future. We can see that there will be a near-term impact on investments with retailers. But we also see all the ongoing dialogues and the increase in dialogue. So the question is when they will actually place the order? Will it be now in '26? Or will it be in '27. But the amount of discussions has been very, very positive, and it's actually across the market. And maybe I shouldn't say it, I will say it anyway, we can see an increase on the U.S. market. It doesn't mean that we will -- you will see it commercially yet. But it's very positive to see that it's actually picking up. Commercial launch of Pricer Avenue, we do expect installs in Q2. We will be selective. We want them to really make a splash when they are installed. We want it to be clear benefit also to the retailers. So they said that this was a really good investment and that they're happy to share it. We do believe that the increased customer engagement that we see that it will create new opportunities in the second half of 2026. Of course, opportunities will come earlier, but hopefully, there will be some tangible outcome as well. It's a bit too early to say, but we are positive given the changes in dialogues that we see, more interest, more incoming interest. More customers are actually looking to make larger investments, and they're running through official procurement processes. But also having said all this, it's important to remember that we have a large number of long-term customers that is generating repeat businesses across the markets in pretty much all the areas, we have a lot of customers just working with the system, doing continuous investments. But the flip side is also on the positive flip side is that we can see that they are also looking at -- many of them are looking at the next generation. They want to go for color. They want to do Avenue. So we see that as soon as they feel that the uncertainty is shifting, I believe that there will be quite a lot of interest in modernizing existing Pricer setups. So that's pretty much everything, Hjalmar. Hjalmar Jernstrom: All right. Thank you. Yes. So let's start off with some Q&A. So I got some prepared questions, and then we got some on the line as well. But I think it's very interesting. And let's start with what you mentioned, this clearly increased interest among customers also across markets. Could you describe what phase of the process that you see this increase? Is it that new customers are reaching out for an initial contact? Or is it as far as ongoing evaluations? And where do you see this hike in interest? Magnus Larsson: It's a combination. We can see that, especially if I take the U.S. market that I spoke about, there were quite a few dialogues that we had back in '24 that were sort of paused during '25. We can see that some of those are coming back. They are gaining certainty. They feel that it's necessary to move ahead. But then there are also brand-new customers that are coming and it's inroad. They get in contact with us and said that we would be interested in a dialogue. So that has been very positive. We see also that the formal processes that has also been something we see in Europe. There are more formal processes now where people say, we are planning for an investment. But we have also seen customers that have made the a selection and said that now we're going to go with supplier X, but nothing really happens. So it's been a very odd year in that sense that we have seen -- we have been selected in processes and nothing happened. We've seen competitors being selected and then yet again, nothing happens, which makes it quite difficult to assess the situation. And I think one of the points I missed is actually that it's still very hard to predict the business, and we do expect lumpiness to continue. And I think it's also fair to say that there might be -- could be similar seasonality this year as we had last year. It's hard to say, but it could be good to mentally prepare for it at least. Hjalmar Jernstrom: Okay. Thank you. Yes, that's very useful. You mentioned also on the order intake, of course, supported by PLUS, but also the merchant distributors and IBM Federal that you spoke of. Could you -- like these -- in specific, these 2 U.S. customers, are these -- are the orders substantial to the Q4 order intake? And what could we expect going forward in terms of the ramp-up with these counterparts that you're expecting? Magnus Larsson: I say it was not substantial in Q4. With the IBM Federal, we are planning. So we do a continuous planning. So we have a very good idea of where we will land until somewhere mid-second half. But we are continuously planning. So now we have done quite a few stores planned. Order intake will come as we receive them quarter-by-quarter. With MDI, we had a first order, and there is quite a lot of discussions ongoing now for different stores. So since they work through their members, there's -- they are having other internal exhibitions. They're pushing it. Their local IT team is actually driving it because they want to make this happen. So there it will -- once again, it will be something, I believe, will be growing even I would be happy to sell to all the 3,000 stores, but I don't think that's very likely, but we do expect to take a chunk of this volume. Hjalmar Jernstrom: And considering then the reach that you can achieve if we speak of the MDI, for example, what is the size or what is the potential in the stores? Are these smaller stores? Are they supermarkets? Are there hypermarkets as well? Like how is the split? Magnus Larsson: They have a mix, but there's quite a lot of stores that are pretty much like supermarkets or very large convenience stores. But would almost be on the level that we would consider maybe not supermarkets, but almost in Europe. So it's a mix. Hjalmar Jernstrom: And staying on the U.S. market, do you see any pressure maybe from trade turmoil relating to, I mean, trade-related issues that prohibits you from -- or maybe it's a headwind to business in the U.S., but you mentioned the strength there. So I guess you're not seeing that or... Magnus Larsson: We haven't seen it really. So I mean the dialogues are starting again. So -- it might be that they feel a bit relieved that they feel that, okay, maybe the tariffs are now -- this is the levels where we'll see the tariffs. I think one big thing has been the fear will they increase further. But I think it's also been the drive to digitize. They really want to digitize the store to make it like a digital asset or the physical store. And I think maybe we're looking at the way they allocate the CapEx investment, probably more now on digitizing the physical store and doing the online presence, which they -- many of them have. So I -- at least I hope that we will see shifting budgets. Hjalmar Jernstrom: Yes. All right. Sounds promising. Let's jump to Europe then. And if we speak on France, for example, what signals are you getting here from customers? Are you picking up anything? And maybe if you can give us an update on the renegotiation of the Carrefour agreement, which, of course, is to be renegotiated this year. Magnus Larsson: Yes. So if I start with Carrefour, it's ongoing. Typically, what we have experienced during every process with Carrefour is that it takes some time. Typically, they will spend in Q1 and then maybe a little bit into Q2 for the supplier selection. So there is a lot of meetings, a lot of discussions. So we will see basically into Q2. But of course, I feel that we're having good discussions. On France in general, we see that our customers, they are having challenges with profitability. That also goes for Carrefour. But we also see that especially the business that we have, we have a very solid business with a number of retail chains through their franchise stores. So the franchise owner, we have a hunting license for a number of different chains in France. We have a team that's out every single day and then selling. And here, we can see that we have a very solid run rate of -- on the field sales activities. And then what you can get when you -- when we win Carrefour, we will get an increase of the orders from their own operated stores. When we won Brico Depot or METRO in France a few years ago, we can also see that you get this immediate impact but it's limited during the time of the deployment. But the field sales deployment that we have a very good and solid run rate business. Hjalmar Jernstrom: Okay. Yes. And then on the switch then to the direct sales approach in the Nordics and Baltics. Here, you mentioned that you have not really reached the full impact yet maybe. Could you describe this process more, maybe how much it is currently impacting order intake? And how can we expect maybe the ramp-up of this conversion going forward? Magnus Larsson: I have a positive view on the Nordics now. We have the team in place. They're fully up to speed. We have all the contracts in place, and we are selling. We have a field team now in Sweden. It's a fairly small one, but they are immensely effective. So we can see that there is a lot of activities. So from that point of view, I think that the year has been starting well. Hjalmar Jernstrom: Yes. Okay. Yes. Let's jump to some questions then on the line. First one is like you mentioned the possibility then to reuse the three color ESL or the legacy products. How would you describe the market for this product? Is it possible to find a buyer for these products? And is the commercial sense in maybe reusing these and distributing to other customers? And what is your sort of current view of that market? Magnus Larsson: So we have done it or we are doing it continuously. But what we can see is that many customers, they want to go for a new ESL, they want the latest. But then also, there are customers where they might actually have installed since before and they -- some of them, they are struggling with profitability, but they feel they would want to upgrade from an old generation from black and white to something more. And there, by doing the refurbishment, basically, we take the ESL, we would clean it, we upgrade the software, we feed new batteries and then we sell it. Well, it will be a good deal for them because they get a good label at a good price, and we get the profitability out of it. It's better profitability than, of course, on the revenue side, which is limited. But the idea of actually being able to take it for another cycle it feels very good from a sustainability point of view, but it's also good from a business point of view. Hjalmar Jernstrom: And I interpret then that it's mainly then replacement orders. Magnus Larsson: I would say then there are markets where we're customers are interested in buying refurbished labels where typically you can imagine that the purchasing power is much less, but they might not really be in our spotlight either for where I want our salespeople to go. But clearly, there is business opportunities for this also outside our existing customers. Hjalmar Jernstrom: And then we have a question on the line regarding technology and maybe technological lead, the technological position. I mean it happens so much with all the R&D spending in this market. So how would you perceive your current technological position then compared to peers? I mean, if we evaluate items like signal reliability, energy consumption and so forth. Magnus Larsson: We are -- our technology that we use, we are still by far the most efficient from an energy point of view in terms of responsiveness. We're by far the best energy consumption the same. But on the other hand, we should also see that standardization and radio is and there is an ESL standard based on radio. And I do appreciate standards. I think it's something that will drive the mass market forward, and that's, of course, interesting. So I've said before, and I will say it again, we believe in -- it's more important to speak about how the system is actually used or what protocol it is. So it's -- of course, we are looking at where should we be, what are the investments we'll need to make. So I wouldn't exclude that there will be a radio solution. I've been talking about it before. And it's an interesting area, but we also see the benefit that we'll bring to the market. So I think that maybe the future would be a combination, at least for us, where we bring the best of both worlds. Second aspect is, of course, what we do with Avenue, which is really perceived as innovative from customers, from our ecosystem players, also from competitors, where we know they are looking very actively at what we do from a form factor point of view, the way we actually have done the setup of Avenue, the way we can actually enable it to -- for additional IoT devices and functionalities. We had an innovation zone at the NRF. So we had the normal plastic rails, but it's been disturbing me a bit is for Avenue that we still have paper inlays, but now we actually had e-paper inlays. So we just demonstrated a very basic version where we're constantly changing the color. And this we had -- I think every single competitor came there. We had the ying people coming in there saying this is what we should do. So I believe that there is still much more to do, and we are really in the front now when it comes to innovation and taking ESL from this plastic display to shelf communication. And there is no one close to what we do right now. Hjalmar Jernstrom: Yes. And then we got a question maybe on the topic of Avenue. Do you expect Avenue sales to be margin accretive? I guess, if that is compare maybe to 4-color label systems or yes, similar systems that you offer, is a typical installation then for the Avenue expected to be margin accretive going forward? Magnus Larsson: We -- our expectation is that if we do it right, that we will give them one more tool. With ESL, we deal with operational efficiency. You will do that with Avenue as well. But with Avenue, we also give the possibility to increase the size of the shopper basket through promotion, but also the ability to sell the space to CPGs or people that do basically suppliers of food and grocery stuff and/or wine, that kind of supply. So yes, we will ask for a higher price. We will expect to get a clear premium for selling this because we also expect to deliver much higher value to our customers. So it should really be a win-win-win. Hjalmar Jernstrom: Yes. And then on the maybe general development of the recurring revenue, are you satisfied with the current growth rate? And maybe could you remind us again of the setup of the recurring revenue with Plaza and so forth. Magnus Larsson: So being satisfied is a very strong. I'm happy for the development. Would I like more? Absolutely. It is going really well. This year, we have converted a lot of stores from our on-prem service to Pricer Plaza for customers that, for whatever reason, want or have to stay on-prem, well, then we have changed that to subscription service. So if they want the latest version, it's only through subscriptions, also if it's in a PC. I think the development has been good. This year, we're planning to migrate more stores. And of course, almost every single store that we win are Plaza customers. We are now adding modules to be able to also increase the price of Plaza when we sell it. The next step will, of course, be to see, okay, how can we find more adjacent software functionality that we can actually sell a stand-alone. But right now, we're working a lot. We're connecting new stores or existing stores to Plaza, new stores to Plaza and then see how can we actually increase the price of what we do. Hjalmar Jernstrom: Yes. And then if we jump to Canada and the Sobeys rollout of deliveries, we have a question here, whether you expect the same level of sales in 2026 compared to 2025? I guess that also includes then the initial larger order rollout, but also you mentioned, of course, the strength in the Canadian market, so maybe potential follow-up orders. Can you give some color on this? Magnus Larsson: Since we don't give forecast, I cannot answer it specifically, but we have a positive outlook. We have a good dialogue and relationship with Sobeys. They've been very happy with the deployment. And there is a lot of interest, and we do expect to continue our deliveries to Sobeys, but I cannot go into any details on exactly how much that would be in money. Hjalmar Jernstrom: Yes. All right. No, that's fine. And then we have a question then on the gross margin impact from the inventory reduction. Is this mainly then from maybe sort of a proactive pricing towards customers? Or is this mainly relating then maybe to FX impacts on the inventory? Could you give some -- maybe some granularity on this? Claes Wenthzel: You mean the difference in margin in Q4 compared to Q3? Magnus Larsson: From the excess inventory. Hjalmar Jernstrom: The gross margin impact from the excess inventory and whether this is a result maybe of then reducing prices to the customers in order to reduce inventory or are they right otherwise? Claes Wenthzel: It's 2 things. One is that when this was brought up, it was too much higher U.S. dollar rate. So that is one negative impact, of course, when you sell it out. The other one is that to get rid of it all now before the year-end, it was also done to a lower price. Hjalmar Jernstrom: Yes. Okay. And we have a question also from the line on the current levels of inventory. Or do you feel that you -- I mean, considering your best guess on the outlook going forward, do you feel that you have excess inventory right now? Or are you on a more sort of like a level that you are satisfied with your best guess and on the outlook? Claes Wenthzel: Now at the end of the year, we do not have any excess inventory. But of course, we can always have a more optimal level of inventory. But this is, of course, also must be related to the orders we have and that we will deliver the coming quarters. Magnus Larsson: And I think actually, we -- what we have done this year is also that we have ended one of our large product lines. We sold off all the ESLs from that product line, which means that we are producing fewer varieties now. So we have a standard family and only one standard family, which means that we will not build more stock the same way or have to build the stock the same way as we did before. So by nature, we should not tie as much capital in inventories as we were forced to do before. Hjalmar Jernstrom: Yes. Okay. Then we have quite a lot of questions actually on the U.K. Do you still hold the view that U.K. is sort of like a hot market right now? I mean we see some activities in the market. If we look at it in a wider perspective, there is some CapEx investment going on, but you also previously mentioned, of course, a lot of valuations being carried out. What would you say is the current state of the U.K. market? Magnus Larsson: Some mixed feelings actually because there is a lot of activity. It is a hot market. But we also see customer wins, whether it's a winner announced and then they are selected, but nothing really happens. But so we have the procurement processes. We have a lot of inbound interest. But still, we don't see all of that materialize, which is a bit odd really. But there is a lot of interest clearly. But we haven't seen and even people being selected, but not that there are any real deployments as a result. Hjalmar Jernstrom: All right. All right. I think then we have addressed all the questions on the line and also my questions. So thank you so much, and I'll leave it to you for any concluding remarks. Magnus Larsson: Thank you very much, Hjalmar. Thank you very much for joining our quarterly presentation. I hope you found it interesting. I look forward to come back in with the Q1 presentation back in April, I guess. So until then, thank you very much.
Essi Lipponen: Hello, and welcome to Fiskars Group's Q4 and Full Year 2025 Results Webcast. My name is Essi Lipponen, and I'm the Director of Investor Relations. I'm here with our President and CEO, Jyri Luomakoski; and our CFO, Jussi Siitonen. Let's look at the agenda for this webcast. Jyri will start with the key takeaways of the quarter and the year. After that, Jussi will continue with the financials. Then back to Jyri, who will go through business area development and also talk a bit about how this year looks like. After that, we will have plenty of time for your questions, and we will welcome questions both through the phone lines and through the chat. You can type in your questions in the chat already during the presentation. Please go ahead, Jyri. Jyri Luomakoski: Thank you, Essi, and good morning. Just briefly before we dive into the numbers and what's been happening in our two businesses. Key takeaways, there are some highlights, some lowlights as always in life. What we think was really important that our Vita business area actually had both Q3 and Q4, two consecutive quarters growing and that brought also the group numbers to a what I would call a green or black zero in terms of top line. This we need to bring into the context of Vita having had before these two growth quarters, more than 10 quarters of negative growth or flat top line. And of course, as we started in the summer, focusing on cash flow that those efforts were bearing fruit and the cash flow in the fourth quarter was also quite strong, and Jussi will go deeper into how strong and record-breaking that was. But of course, the lowlight is that our comparable EBIT declined, and that was impacted by our own actions predominantly, i.e., curtailing our production to manage the inventories to manage cash, and this had a price tag consequently on the EBIT. This morning, we also announced our plans to turn around on BA Vita's performance and also, we'll address that a bit more in depth in a few minutes. The Board made their proposal to the AGM, and that is to maintain a stable dividend as our policy is saying, stable or growing, EUR 0.84 per share to be paid in four installments. And '26, we expect our comparable EBIT to improve from the '25 level. But that was the key kind of highlights, key takeaways as an intro and I'm happy to hand over to Jussi, please. Jussi Siitonen: Thank you, Jyri, and hello, everyone. Let's start first with Q4 and then go to the full year here. When it comes to net sales there, as Jyri mentioned, we were able to report positive growth now in Q4, 1.3% at constant currencies. It was very much driven by Vita. The good thing also is that this growth was very broad-based. When we take our top 10 countries at group level, 7 out of top 10 countries were growing, including USA, Sweden, Japan, China, Australia being the ones which were at this kind of mid even to high single-digit type of growth. On EBIT, we came down EUR 10 million versus last year. Out of this approximately EUR 10 million, a bit more than EUR 4 million was Vita related. The remaining part was quite evenly split between Fiskars BA and other operations. Gross margin came down 200 basis points to 47.4%. Roughly 150 of this 200 basis points was tariff related. And as Jyri mentioned, the focus what we have had in second half, especially now in Q4, was there on the cash flow. And we are able to report now all-time high Q4 free cash flow. And actually, this Q4 was the second best quarterly cash flow overall in the recent history of this company. Moving then to full year results. So here, we came out with a flat top line. And despite this flat top line, we had countries with solid full year, high single-digit, even double-digit growth like Sweden, Japan and China. On EBIT, we were down EUR 35 million versus last year at EUR 76.4 million. There were three main reasons for this drop what we had in EBIT. The big one and the main one is low production volumes and negative variances that one that especially in Vita. Then we had more investment in demand creation, especially in marketing. That's on one topic there and tariffs, which we were then able to partially mitigate, but that was the third big reason. When it comes to full year gross margin of 47.1% there, which was 170 points down versus last year, roughly 100 basis points out of that 170 was tariff related. And despite the strong second half, especially Q4 free cash flow, our first half cash flow was rather challenging. And there, for the full year, we were short roughly EUR 5 million versus last year. Let's dive a bit deeper at these changes what we had in full year when it comes to EBIT. And let's start here on the right, BA Fiskars. So, BA Fiskars, as you can see here, the tariff impact what we had, BA Fiskars was able to fully practically mitigate the negative tariff impacts there, mainly through the OpEx efficiency improvement, but also the underlying gross margin, excluding the direct tariff impact improved in 2025. Then Vita here in the middle, you can see this gross margin negative impact there coming from those low production volumes. What I would like to highlight here that it's very production volume related, not sales volumes, therefore, this kind of promotional sales, what we have had, they have mainly been there for those categories which are end of the line anyhow. So, the big decline is very much production volumes. Moving then to the cash flow. As I mentioned, we were able to deliver strong Q4 cash flow of EUR 91.5 million here, EUR 22 million better than last year in Q4. That's mainly driven by change in inventory. So, we were able to take inventories down in Q4 by EUR 35 million approximately, which is almost the same amount more than what we had last year in the same period. Also, the tight CapEx control what we put in place, we were able to cut CapEx by EUR 6 million versus last year same period. And then on a full year basis, however, the inventories continued increasing by EUR 11 million on a full year basis. There also the CapEx was partially compensating or reduced CapEx was partially compensating this one, but the full year cash flow of EUR 76.3 million is some EUR 5.5 million behind the last year. Then on balance sheet. So net debt to EBITDA, we came down in Q4 from 3.7x to 3.3x in one period. Net debt came down EUR 92 million in Q4. And out of this EUR 92 million, roughly EUR 20 million is relating to lease terminations and the rest, roughly EUR 70 million is pure cash flow driven improvement what we had there. Of course, this 3.3 is not what we have given as a target of 2.5, but important is that we are now able to demonstrate a declining trend there when it comes to our net debt EBITDA. Then the last but not least, when it comes to our sustainability targets there, if we start first with focus more here on those environmental targets, we were able to improve slightly our circularity targets being 50% by 2030, 50% of our products and services are coming from circulated materials. So now it's 27%. So we are well up to speed to this 50% target by 2030. Of course, all these kind of, I would say, low-hanging ones are already implemented, so getting the target is getting challenging and challenging as we speak. When it comes to emissions, both Scope 1 and 2, we were able to improve. Now it's 62%, target being 60% by 2030. So, it seems that we are already there. However, this is very volume related and volume driven. And now when the volume has been a bit down, also this percent is improving. Once the volume are increasing, the 60% remains to be a good target. The only environmental target where we are behind last year related to Scope 3 emissions for transportation. Now it was 18%. The main reason is both sea and road freights in U.S.A., partially because of higher volumes, partially also because of the way our carriers defined these emissions. That's very shortly where we are with the numbers. And now giving it back to you, Jyri . Jyri Luomakoski: Thank you, Jussi. what's been up in our businesses, Vita. Net sales growth that we mentioned and also the comparable EBIT decline and what was the key driver there. So 4.6% top line growth in Q4 and 3% for the full year. And this is, of course, a prerequisite that we have growth helps turning the business around. When we look at sources of growth, D2C sales performance was good and both Danish brands, Georg Jensen, Royal Copenhagen performed nicely as did Momin Arabia. Of these 2 celebrated also big birthdays, Royal Copenhagen got 250 years last year and Moomin as a character filled 80. And when we look at the drivers behind the top line, Jussi already mentioned and we've been reading in many reports around our company that the decline in profitability would be relating to the inventory actions in terms of sellout but that's not really the case. It is really the scale down of production. And as a consequence, when you start to curtail production, you have still fixed costs that are not absorbed by the inventory, and they are expensed immediately. So it's been very active and deliberate actions that we've been doing. This morning's announcement, big changes planned for Vita. And clearly, we want to reset the brand with a structure that it's meeting our ambitions, building global iconic desirable brands and scale for profitable growth. It involves also structural changes in terms of some business unit combinations, which are not impacting the kind of sales end necessarily, but more the back office and the overhead structures within Vita. And that's extremely important. We also mentioned a few moves already that are now kicked off in terms of manufacturing in Denmark, moving our distribution center from the U.S. East Coast to more kind of e-com optimized location and at the same time, outsourcing it. So, creating a more of a variable cost structure there. So these are the key kind of actions. But then what do we expect as a result out of here? We expect a net reduction of approximately 310 roles when the program is completed. That means then upon completion, we will then have annual savings of around EUR 28 million. And of these, in H2, as we have now announced the program and the plans, this triggers employee and union rep consultations in different geographies, they take their time, then having after those processes conclusions and taking then the actions that those consultations have arrived to means that the economic benefits of the planned program start to trigger in the second half. So approximately 1/3 of the EUR 28 million is expected to be income statement effective and impact our profitability in this '26 in this year, but that happening really in the second half of the year. And then of the rest, there will be some tails flowing into '28, but the majority of the rest in '27. Our estimates of the one-off costs, which would be recorded then as items affecting comparability is in the magnitude of about EUR 9 million. Some highlights in the business. I mentioned for Copenhagen's 250 years anniversary, a big event in Copenhagen at our flagship stores, which is attracting a lot of people is the Christmas tables settings, and that's really drawing crowds and keeping the interest up in the brand. Moomin Arabia launched the -- actually the largest collection, festive moments and that was subject to pretty high demand because the MAX was sold out during December. That's what the desirable brand is. Collaboration between a fashion brand, JW Anderson and Wedgwood also delivered good engagement and commercial traction. And for New Year's Eve, if you happen to spend it at Times Square in New York, you would have noticed the Waterford crystal ball coming down, and that's also now visible in the shop-in-shop at Macy's flagship in New York at Herald Square. So, market kind of being more active and visible in the market. And as we see from the growth numbers, these things also bear fruit, which is extremely important. Moving to BA Fiskars, decline in the top line and tariffs, we were pretty much in the epicenter of the tariff topic as a business with our significant exposure to the U.S. market. So comparable net sales declined 7% in Q4, snow came a bit late for the fourth quarter in Europe and in the Nordics, which is a big kind of a seasonal market for snow tools in those years where there is a lot of snow and 4.6% for the full year. And tariff uncertainties, recall last spring when the tariffs kicked in, that was a big situation where consumers were confused and trade was confused, what's going to happen, et cetera. Excellent mitigation work by our teams and things started to stabilize. And Jussi mentioned in the U.S., actually, at the end, our business was growing. And this tariff mitigation has been an important achievement and extremely critical for having what I would call still having seen some of our competitors and peer companies reports, I think we can be proud about the margins we've been able to sustain also despite the top line decline. Some highlights, already in November, we arranged a get to know BA Fiskars event for investors and those materials have been available to the public pet care line has been well received by the market. That's important. It's about minus 10 centigrade in Helsinki, a lot of snow and many other European geographies are also freezing. So, Fiskars Power, which is now the first products have been shipped actually to stores. It's not yet the high season for these products. I don't know where I would use it, even though I'm definitely myself also personally going to buy one. But this is a type of a sample. The slide was not wide enough to bring the entire innovation fireworks to the slide, but many, many good and nice things that have gained shelf space and traction in the market are coming from our Fiskars business area. With the financial statements release, the Board also announced their proposal to the Annual General Meeting of maintaining the dividend at EUR 0.84. This is when you look at the payout ratio to EPS, indicating a very high payout ratio. We need to remember that these items also include our EPS some write-offs and so forth. But then on cash earnings per share, about 2/3 is in line with the proposal to be paid out. The change to earlier practice where we have been paying dividends in 2 installments, one in the spring, one in the autumn is actually to get into payout per quarter, so March, June, September, December payout, also matching our cash flow pattern in our normal business seasonality better. Guidance. So we are expecting our comparable EBIT to improve from the '25 level, '25 level was 76.4%. And what's behind that thinking? We recognize that the uncertainties in the global economy will persist also in '26. We clearly count for the EBIT support from the planned changes in BA Vita in the second half of the year. Our active tariff mitigation efforts have been successful last year. And based on that performance, we have a confidence that we will be also successful in '26. The flip side is that the inventories, even though we had a significant decline in our inventories, we want to further improve that net working capital item, and it will have some negative impact, and at the same time, we also know that the U.S. tariffs, remembering that liberation day was in April '25. So after -- right after the first quarter. steel tariffs came into force in August, if I recall the date correct, and those impacts then annualize into '26. We do not give quarterly guidance, but I think it's important to remember these key aspects, Liberation Day, April, so Q1 last year's comps are pretty good. Second half impact from the Vita changes and steel tariffs started in the third quarter last year. So just to keep those in mind when you are modeling how the year would look like. And this is maybe prophylactically addressing if there is a criticism that this is a Fluffy guidance, yes, it is to some extent admittedly. But if we have started this morning in the first countries, change negotiations and similar consultation process with our employees on the Vita program, they take their time and then to implement then the conclusions and the decisions as a consequence of those negotiations are topics that we thought that it's better to be coming out now with this type of guidance. And then when things advance and we know more on the precise kind of timing of certain actions and so forth, it always leaves us some room to clarify and specify more in depth the guidance. Some of our teams have been very active over also the last weekend advancing the technical part of our separation of BAs into subsidiaries. So those splits into entities in some major countries have also now taken place. So, we think that we are well on schedule with our Q1 deadline having the legal structure behind the BAs also implemented, which then will also help us in terms of the transparency measurability, for example, to the exact capital employed in each of the businesses. So, this is moving ahead as planned. And that's maybe the good segue to the paid commercial, so to speak. We are planning to arrange our Capital Markets Day on May 12 in Espoo, Finland, which would be then for institutional investors, analysts and then, of course, online attendance open on a broad basis, and this is now the plan a bit after we have completed the incorporation of the BAs and have more transparency also to shed some light into those aspects in May. Look forward to meeting you there. So, in summary, key takeaways. top line growth in EBITDA, where that was not the routine and practice over the last prior 10 or 11 quarters, now 2 consecutive ones is giving, of course, also forward-looking us confidence that we can grow. We know the elements for that cash flow, important for managing our balance sheet and capital structure. EBIT decline last year, really driven in a big way by our own actions to focus on cash flow. So that's the other side of that coin. Definitely, the beta plans now going into negotiation and thereafter to execution, dividend staying stable, moving to a quarterly payout on the dividend and then guidance growing or improving the comparable EBIT from last year. That takes us to Q&A. Operator: [Operator Instructions] Yes. Thank you, Juss and Jyri. Let's first see if we have any questions through the phone lines. The next question comes from Maria Wikstrom from SEB. Maria Wikstrom: Yes. This is Maria from SEB. I have 3 questions, and I would like to take them one by one. So I'd like to start with the top line growth in Vita. So if you could discuss a little bit more specifically, I mean, which markets you see performing better than the other markets. So which markets or geographies were behind the growth in the fourth quarter? Jussi Siitonen: Yes. So as I said, the growth was very, very broad-based on what we had in Q4. And bearing in mind that actually Vita came down and Vita was the one growing. So if I'm right, exactly, 9 out of 10 top countries for Vita were growing. So it was broad-based, big countries covering 90% of the business. At the same time also when it comes to channels we were able to demonstrate a good growth. Also when it comes to consumer, 80% pulled up and with an E-commercial only 12% up in Q4. Without going to each of the countries, is where broad-based [indiscernible]. Maria Wikstrom: So what would make you confident this time around that, I mean, making this large cost saving effort that you will actually record the savings on the EBIT line? Jyri Luomakoski: And for me, having joined this role as an interim in April, it's easy to say we haven't, I fully agree, we haven't been perfect in executing. Some of the old programs where it's been -- yes, I've seen at that time as a Board member that, yes, a lot of people have departed, but kind of gradually, there's been some type of a revolving door filling back some of the positions. And that happens quite easily when you look at different businesses and these type of programs. What I think is the key differentiator here is that there are structural changes, combining some of our business units, changing really the org structure and clarifying the accountabilities, but those structural changes drive then reductions in certain overhead functions and so forth in the marketplace. So that clearly drives the confidence that these are there to stick and it's on a very frequent loop by group management, by our Board and definitely every quarter by the market that we are executing what we have promised. Jussi Siitonen: Maria, on that one. So you're absolutely right, bottom line matters. At the same time, what we have seen is quite, I would say, even dramatic top line drop what we have had. So therefore, loosing the volumes at the same time driving fixed cost saving actions there. Many of those actions are just there to mitigate the volume drop. Maria Wikstrom: And then my final question is on the gearing as I think it surprised me and I think part of the market that you the Board of Directors decided to keep the dividend flat compared to last year, even that, I mean, the gearing is down, but we are still much above the target level at 3.3%. So when do you expect, I mean, to reach the targeted gearing level at 2.5? And what makes you so confident to pay out the last year's dividends with the current gearing level? Jyri Luomakoski: So, you refer, I think, to the leverage here and where we have set a target to be at maximum 2.5 and that target is still valid. Important is that we move towards that one. And of course, when the Board considers the dividend proposal to the AGM, they inquire management and look at our long-term plans and the capital needs and also the confidence in our plans to further reduce inventories or improve our net working capital performance. And that's typically then having set many years in the Board on the other side of the table, so to speak, to drive the confidence what is something that's good and the right balance of rewarding shareholders but at the same time, being true to the targets that the company has set and the needs of the business. And from that perspective, that has been basically the process. Jussi Siitonen: Yes. As I said, it was very encouraging what we did in Q4, getting net debt down by EUR 92 million out of EUR 70 million something was really cash flow driven, the remaining being those lease terminations. On that one, we have been also quite openly said that the potential what we have there in trade working capital, no matter what are the measures, what are the KPIs you are using and benchmarks there based on our previous performance pre-COVID time, we do have roughly EUR 100 million potential in our net working capital. The actions announced today are also targeting this excess inventories, excess working capital, what we have. So we do have sources available for internal funding. Operator: At this point. The next question comes from Joni Sandvall from Nordea. Joni Sandvall: Maybe continuing still with the cost savings program. Can you give any more color on the rightsizing of the business? I mean, are you expecting to exit some production site out of the Nordics? Or how should we view this? And what is your actual target for own production levels in Fiskars. Jyri Luomakoski: The announcement does not lift any exits per se, but rationalization, what we do and where that's one of the key parameters here. And the aim is, of course, to right size the production, the supply to match the demand and the fact that we still have inventories, as Jussi alluded to, that net working capital has some room to improve, and that's driving those. But they are now subject to the negotiations in different sites. And consequently, after those negotiations before I start to put dots to the map. And then after that, we can give a bit more flavor and update on the, say, geographic coordinates. Joni Sandvall: Then maybe a question on Fiskars BA. There has been strong mitigation of the tariffs. But how confident are you now entering into '26? And how we should view the net impact from current steel tariffs and mitigation actions for '26? Jussi Siitonen: Yes. Joni, as I said, the impacts what we had in 2025 and how they were mitigated mainly through OpEx savings so that the underlying gross margin improved. The toolbox is pretty much the same. The impact -- the incremental impact of the tariffs, of course, is the whole Q1 when it comes to those liberation-based tariffs and then impacts from the steel tariff from August onwards. The plans for Fiskars BA has in place are still targeting to mitigate these impacts there. What's the magnitude there? It's a bit -- I would say it's a bit less than what it was in 2025, but we are still talking about a significant amount we are now mitigating through those very resilient plans what Fiskars BA has put in place, including also this production re-foot printing. Joni Sandvall: And maybe a question also, you have now the new categories, the first batches sent to the retailers. So could you give any indication of what level of sales should we expect from these categories in '26? Jyri Luomakoski: We have not quantified sales by product or product category per se. As I said, on pet care, the initial feedback has been very positive when that was launched in the first market, our Ultra Axis, which was not on the slide, but one of the key launches doing a kind of a rebasing on the a wood prep category have had a very positive feedback and demand and restocked many times to key distributors also outside of Finland. So people are doing wood prep work also outside of the Nordics, as we have seen. So reception and feedback from the market have been very positive. And some of these, like power, it's a completely new category for us. Yes, we've been doing poppers, pruners, but all kinds of hand-operated, and now we are getting the help of power and electrical drives to do that. There, we don't yet have a baseline. But after the gardening season of this year, we are also happy to comment a bit more on the success and the reception, here at minus 10. I don't think too many people think about guiding tools. And in some geographies, we actually postponed the media launches just a few weeks to allow some type of spring thoughts coming into people's minds. Joni Sandvall: Okay. And maybe to Jussi, a couple of technical questions, if you can give any comment of the timing of one-off items for '26? Jussi Siitonen: As Jyri mentioned, the negotiations started just today. And therefore, it depends there. So most likely, most of that will be in the first half, but we get back more, let's say, a precise comment on that one once we are proceeding with the negotiations. Joni Sandvall: Okay. And finally, on the CapEx split for '26, you mentioned tight CapEx discipline now in Q4. So what should we expect from '26? Jyri Luomakoski: As you saw, we came down EUR 9 million in 2025 versus 2024, out of which EUR 6 million was in Q4. The full year level, what we currently have for 2026 is pretty well in line with what we had full year 2025. Operator: There are no more questions at this time. So I hand the conference back to the speakers. Essi Lipponen: Thank you for your questions. And we do have questions in the chat as well. So let's continue with those. First, related to Vita's program. Jyri, maybe if you take this one. Do you expect any negative sales impact arising from these plants? Jyri Luomakoski: Not really. When I look at the plans and the structures, where do we want to tackle our cost position? This is something that doesn't lead to, at least in my view would have direct sales impact. Essi Lipponen: Thank you. Then Jyri, if you continue, when do you expect the production to roughly match your sales volumes in Vita... Jyri Luomakoski: Depends a bit on the category, product category, and technology. In some areas, it is likely to be this year. In some areas, it is more likely that it won't be yet this year, and we will be running the whole year with a kind of curtailed production, really to make sure that we get to our targeted net working capital structure. That's the prime focus here. Essi Lipponen: And on the same topic, but maybe I will give this one to Jussi. Is Vita's 2024 gross margin, which was about 56.5, according to at least the one who asked the question. I don't have the number right here. Is that a relevant benchmark going forward once the production rates normalize? Or is there a permanent negative impact on the GM from some factors? Jussi Siitonen: As we mentioned, the decline that we have had there, 240 basis points in 2025 versus 2024 in Vita, that's very much production volume related, not sales price volume related, but coming production. So, then, assumingly, the logic is correct without commenting on any numbers here. So once we get volumes up, of course, then this fixed cost absorption will improve. Essi Lipponen: Then, about the Fiskars segment, I will hand this over to Jyri. The first half of 2025 was challenging for the Fiskars segment, especially in the U.S. market. What is your expectation for H1 this year? Jyri Luomakoski: Well, as I said, we don't guide quarters. We don't even guide the halves. I don't see any when we had the turmoil of the tariffs in H1 last year. And after that, things have been more normalizing, and the American consumer has also been happy to shop if we leave the winter storms and those types of 1-week disturbances out of the picture. I wouldn't identify any change in the pattern that has started in H2, that New Year City would have changed that pattern in any direction. But as I said, quarterly or half-year guidance is not available, unfortunately. Essi Lipponen: Yes. Then we have already discussed the leverage, but maybe if Jyri can discuss what the focused measures are aiming to reduce leverage, given that it has remained above your target for 2 years already. Jyri Luomakoski: Three elements, I would say, when basically taking the cash flow statement, we are also guiding for improved profits to make more profits. And we need to remember leverage that's net debt to EBITDA. So it improves automatically even in the absence of net debt, not changing when the EBITDA increases. So that's key. Then, having the net debt element addressed definitely 2 key drivers. We've had some big-ticket CapEx items over the last couple of years, also partly relating to sustainability and kind of decarbonizing some of our production. And now, definitely the new launches, for example, at Fiskars, there are some tooling investments, et cetera, coming, but they are directly supporting business and the business growth, and keeping the brands relevant. But net working capital, as Jussi addressed, we have still clearly as our target to look at the net working capital turnover ratios that we had pre-COVID, then the roller coasters, a boom, and then some doom times out of that. And hence, the last few years are not a kind of acceptable benchmark for us. We set our targets higher and continue that work on the front. So EBITDA up and debt down. That's effectively what the formula also spells out. Essi Lipponen: Thank you, Jyri. And one for Jussi about the higher silver and gold prices. What is the impact on the Vita or Georg Jensen margin? Jussi Siitonen: This is very much Georg Jensen, both when it comes to gold and silver. So both metals, we have hedged. We have good hedges in place. You can imagine they are well into money at the moment because the hedge rates are coming from last year. Therefore, no immediate negative impact coming from those ones. Essi Lipponen: Thank you. At this moment, we have only one question. Let's see if we get any more. We have a question about the dividend. Maybe we can give a recap on the proposal for this year, and maybe about our policy. The question is, is the dividend going to stay at EUR 0.84 a year? Or will it change? Jyri, if you still want to give a recap on that. Jyri Luomakoski: The Board's proposal concerns the dividend payable out of last year, payable in 4 installments, EUR 0.21 each in the second half of the last month of every quarter, if I kind of remember the precise dates correctly. So from 2 to 4 installments in aggregate, the annual dividend, EUR 0.84. We are not taking any stance on dividends beyond those that are payable in '26. And the rationale relates to the policy, stable or growing dividend, our cash earnings, which are about 1.5x the proposed dividend, and that's basically the rationale in the tree. The Board considers always when making those proposals, the needs of the business, CapEx needs, and what is the outlook and confidence in the outlook. And I think that indicates also a certain level of confidence in the actions that we are taking and in the projections that we have for '26. Essi Lipponen: Great. Thank you, Jyri. And it seems that we don't have any questions at this point. So thank you for your active participation. And I wish you a nice end of the week. And still, before we end the call, I would like to...
Operator: Ladies and gentlemen, welcome to the Liquidity Services, Inc. First Quarter Fiscal Year 2026 Financial Results Conference Call. My name is Michelle, and I will be your operator for today's call. Please note that this conference call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Michael Patrick, Liquidity Services' Vice President and Controller. Please go ahead. Michael Patrick: Good morning. On the call today are Bill Angrick, our Chairman and Chief Executive Officer, and Jorge A. Celaya, our Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your questions reflect management's views as of today, February 5, 2026, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, please have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliation of these measures with their most comparable GAAP measures as available. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I will turn the presentation over to our Chairman and CEO, Bill Angrick. Bill Angrick: Good morning. We began fiscal year 2026 with strong momentum, delivering a first quarter that reflects the power of our platform, the resilience of our multichannel marketplace model, and our continued commitment to profitable technology-enabled growth. I am pleased to report that Liquidity Services, Inc. once again demonstrated the ability to scale efficiently, deepen buyer and seller engagement, and create long-term value for our customers and shareholders. In the first quarter, while GAAP revenue was flat due to the increasing share of consignment sales, our consolidated gross merchandise volume and direct profit increased to $398 million and $57 million, respectively. Our profitability expanded meaningfully with GAAP net income up 29%, non-GAAP adjusted EBITDA growth of 38% year over year to $18.1 million, and adjusted EPS growth of 39% year over year to $0.39 per share. We closed the quarter with $181.4 million in cash and no financial debt, providing strategic flexibility as we continue to invest in growth and technology. Our performance reflects disciplined execution across each segment of our business. GovDeals delivered 7% GMV growth fueled by seller acquisition and continued market share expansion, including an all-time record of over 500 new agency clients such as the Pennsylvania Department of Transportation, the State of New York, Housing and Urban Development Agency, New York Port Authority, and the City of Malibu, California. Clients continue to be attracted by the breadth and liquidity of our GovDeals marketplace, which transacts in over 500 asset categories, providing our clients a one-stop solution to optimize their surplus and idle assets. Direct profit grew 13% year over year, benefiting from enhanced services, stronger than forecast pricing on asset sales, driven by robust buyer participation and higher average commission rates. Our SCG segment achieved 3% GMV growth and a 16% increase in segment direct profit driven by strong buyer participation and improved product mix, despite a year-over-year decline in purchase model programs. Our direct-to-consumer GMV increased 40% year over year as we tap growing consumer demand. We have continued to leverage technology and process improvements to drive efficiencies as our direct profit per labor hour surged over 48% year over year in Q1, reflecting improved productivity. Our CAG segment saw 17% GAAP revenue growth supported by increased activity in industrial spot purchases and heavy equipment transactions, partially offsetting lower GMV year over year related to the prior year's unusually large energy projects. Our heavy equipment category continued its strong expansion, logging 27% year-over-year organic GMV growth and 88% growth in the number of transactions, fueled by strong buyer participation. We signed over 100 new seller clients in our CAG segment during Q1 and are expecting a steady ramp during the balance of fiscal year 2026. Machinio and software solutions continued a strong trajectory with 27% revenue growth reflecting subscription expansion and the successful integration of our auction software business. Machinio's launch of its advertising and systems offerings into the marine industry vertical is going exceptionally well. Machinio is also growing the number of service providers on its marketplace, which enhances machinio.com as a full-service destination for buyers of used machinery and equipment. Our auction solutions business is focused on building the world's most scalable, multitenant auction platform for resellers, retail liquidators, and traditional auction houses. This niche is perfectly suited for the buyers of products on our liquidation.com B2B marketplace. Our interim goal is scaling our auction software business to 1,000 customers with ARR of $10,000 or more. Across Liquidity Services, Inc., we are benefiting from the operating leverage created through our intelligent deployment of AI, data analytics, and automation, which is improving efficiency, strengthening decision-making, and enhancing the customer experience. For example, we continue to refine our asset categories and product taxonomy to improve buyer navigation and conversion. We've also leveraged AI to enhance our predictive lead scoring for new customers and engagement with our existing customers based on role-based signals. We also successfully launched Retail Rush, our new consumer auction channel, leveraging our software solution suite to expand our reach into the retail secondary market and attract new buyers and sellers to our ecosystem. Our marketplace continues to scale in both size and engagement. We now serve 6.2 million registered buyers, an increase of 9% year over year, with 983,000 auction participants and 264,000 completed transactions in this quarter alone, each demonstrating the growing relevance and liquidity of our platform. Looking ahead to the second quarter, we anticipate double-digit adjusted EBITDA growth versus the prior year, supported by a healthy business development pipeline, continued strength in GovDeals, expanding consignment activity in retail, and solid buyer demand across our categories. Our business model remains resilient, underpinned by durable long-term trends in circular commerce, sustainability, digitization, and the growing need for enterprises to manage surplus assets efficiently. We remain committed to disciplined investment in technology, data analytics, multichannel marketing, and operational excellence. As we expand our platform and capabilities, our focus remains on delivering superior outcomes for sellers, exceptional value for buyers, and sustained returns for shareholders. Thank you for your confidence and continued support. We are well-positioned to build on our early momentum and deliver another year of profitable growth. I'll turn it over to Jorge A. Celaya now for more details on the quarter. Jorge A. Celaya: Good morning. Our fiscal year 2026 is off to a solid start. Our first quarter non-GAAP adjusted EBITDA was $18.1 million, increasing 38% over 2025, which itself had grown adjusted EBITDA by 81% over 2024. GovDeals continues to grow and reported expanded margins compared to the same quarter last year, while the heavy equipment category in our Capital Assets Group or CAG segment also continued to perform strongly in the market. Our retail segment, or RSCG, generated stronger margins for the quarter as its product mix included an increased proportion of lower touch flows for both purchase and consignment. Our non-GAAP adjusted EBITDA has reflected continued growth in lower touch consignment transactions and expanding multichannel buyer outreach, particularly in our retail segment. These results also demonstrate our efforts to continuously improve our operating efficiency, with operating leverage resulting in strong fall-through again during this past quarter. Our consolidated results for 2026 include GMV of $398 million, up 3%, while revenue was slightly down by 1% to $121.2 million, reflecting the previously anticipated mix shift of lower purchase transaction activity in our retail segment mostly offset by consignment flows. Our GAAP earnings per share was $0.23, up 28%. Our non-GAAP adjusted earnings per share was $0.39, up 39%, and our non-GAAP adjusted EBITDA was $18.1 million, up 38%. GAAP earnings per share grew at a slightly lower rate than our non-GAAP profitability metrics due to performance-based stock compensation expense. We ended the fiscal first quarter with $181.4 million in cash, cash equivalents, and short-term investments. We continue to have zero debt, and we have $26 million of available borrowing capacity under our credit facility. During the fiscal first quarter, we conducted $1.5 million of share repurchases. At the end of the quarter, we had $15 million remaining on our authorization to perform additional share repurchases. Specifically, comparing segment results from this fiscal first quarter to the same quarter last year, our GovDeals segment was up 7% on GMV, up 9% on revenue, and up 13% on improved direct profit due to market share expansion rates across certain sellers while also reflecting the operating efficiency initiatives implemented over the last two quarters. Our Retail segment was up 3% on GMV, down 6% on revenue, yet up 16% on direct profit. Segment direct profit was $21.5 million, setting yet another quarterly record, following continued growth in key consignment programs, higher volumes of lower touch purchase flows, and strong multichannel buyer participation. Our CAG segment was down 10% on GMV, yet up 17% on revenue, up 7% on direct profit. The GMV to revenue ratio for CAG was in line with the low purchase activity in the fiscal first quarter of last year. These results reflect the continued growth and market share expansion in our heavy equipment consignment category, while the prior year contained some larger yet lower take rate projects in the energy category. Machinio and software solutions combined to increase revenue by 27% and direct profit by 23%, driven by increased Machinio subscriptions and pricing for its services, as well as contribution from our recently acquired software solutions business. Moving on to our outlook for 2026, we are continuing to focus on delivering profitable growth. GMV is expected to grow year over year. While we began the quarter with difficult weather conditions across the country, we expect the remainder of the quarter to deliver solid activity and still anticipate strong year-over-year growth for both GMV and profit from our GovDeals and Retail segments. We also have been implementing operational efficiencies improvements that will continue to show in higher direct profit margins compared to last year. Our second quarter outlook does include one-time costs and operating expenses of approximately $300,000 to $400,000 related to streamlining a retail operating location to continue enhancing our processing productivity for higher touch flows. The fiscal second quarter guidance also reflects the product mix within retail for purchase flows that sequentially are currently expected to be at a slightly lower margin than this past fiscal first quarter, including a modest seasonal increase in logistics costs as we enter the post-holiday season. Our low end of guidance range reflects continued double-digit growth in adjusted EBITDA compared to the same quarter last year. We also remain well-positioned based on trends in current seller flows and buyer demand as we look ahead to 2026. GAAP and non-GAAP adjusted EPS are expected to remain solid despite a comparatively low effective tax rate in 2025. These guidance ranges reflect higher margin business mix compared to last year delivered with continued operational efficiency. On a consolidated basis, consignment GMV is expected to continue to be in the low eighties as a percent of total GMV, consolidated revenue as a percent of GMV is expected to be slightly below 30%, and the total of our segment direct profits as a percent of consolidated revenue is expected to be in the mid to high 40% range. These ratios can vary based on our overall business mix, including asset categories in any given period. Management's guidance for 2026 is as follows: We expect GMV to range from $375 million to $415 million. GAAP net income is expected in the range of $6.5 million to $9.5 million, with corresponding GAAP diluted earnings per share ranging from $0.20 to $0.29 per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.29 to $0.38 per share. We estimate non-GAAP adjusted EBITDA to range from $14 million to $17 million. The GAAP and non-GAAP earnings per share guidance assumes our second quarter income tax rate will be in the mid to high 20s, and that we have approximately 32.5 to 33 million fully weighted average shares outstanding for 2026. CapEx is expected to remain consistent with recent levels of approximately $2 million per quarter, and free cash flow conversion should be in line with historical and seasonal patterns. Thank you. We will now take your questions. Operator: Thank you. And to ask a question, please press 11 on your phone and wait for your name to be announced. And if you wish to be removed from the queue, please press 11 again. If you are using a speakerphone, you may need to pick up the headset first before pressing the number. And our first question will come from George Frederick Sutton with Craig Hallum. Your line is now open. George Frederick Sutton: Thank you. Nice results. So Bill, you mentioned multiple times in your prepared comments that you're seeing tech-enabled growth, you're leveraging technology. I wondered if you could call out some of the bigger drivers that you're referring to there. Bill Angrick: Well, we've commented in the last year about improving the conversion rate of buyers, browsers that eventually become registered buyers, that eventually become bidders. That is the dynamic that drives higher recovery rate and more satisfied sellers. And there's no doubt that the investments we've made in machine-driven systems and intelligent signaling of when's the right time to show the buyer a particular asset has boosted results. The fact that that's happening in an automated way without a high content of labor makes it more productive. Another example would be the operational realm of scanning an asset and making it available for purchase online. That is historically a very labor-intensive process with defects. Did I get the right number of photos? Did I get the right number of angles? Did I get the right description? Did I append the description with the right OEM data? All of that can be automated, and we are automating it. And it's delivering a more accurate description more quickly and with less labor content. On the sales and marketing side, you know, the inbound leads, we've automated the process of identifying who are the right parties to contact, and to engage that contact through drip campaigns at the right points in time with automation. And harnessing a lot of the historical data regarding the $15 billion in sales that we've completed and bringing that data to life for prospects to make them aware of our expertise, which increases the likelihood that they're going to convert to a new customer. You heard that we signed an all-time record 500 new, 500 plus, actually, new agency clients in our government market. A lot of that has to do with what I've just described, and that extends to our commercial segments as well. George Frederick Sutton: Well, I did want to focus on that last comment specifically because it was impressive that you called out the growing number of CAG and GovDeals clients. Obviously, it would give a sense of the durability of growth. Any sense on sort of how significant the impact of bringing in these new clients are in verticals and any plans or any sort of suggestions for growth and continued additions there? Bill Angrick: I think we've got a great runway in both the public sector, government market, and in the commercial markets, not only within the Capital Asset Group, and the star being our heavy equipment category, but also the retail industrial supply chain. I mean, people are coming home to the platform, and it's not hard to understand why. We've got the most buyers delivering the highest recovery. We've got all the value-added services to help reduce supply chain costs. We've got the best data to give them appraisals of what their assets are worth. Buyers like the platform. You know, the reach and depth of what we have for sale. They can find a lot of value, a lot of end-user businesses can source what they need. So, you know, we think there's a structural improvement in buyer and seller acquisition happening in the platform. And I think as we move through 2026, I mean, there's going to be 10-digit asset sales and programs being announced with Fortune 1000 clients. That's where we live. I mean, if you're a large blue-chip company, you want a proven solution. You don't want someone learning on the job. You want trust. You want loyalty. You want something that can, you know, at industrial scale, execute. We have great compliance, by the way. There's been reports about, you know, greater fraud happening in the returns reverse logistics space and just generally, and we have tremendous experience identifying and qualifying our buyer base to essentially remove that fraud risk, and that's another reason why sellers transact on the Liquidity Services, Inc. marketplace platform. George Frederick Sutton: Alright. Wonderful. I'll turn it over. Thank you. Operator: Thank you. And the next question will come from Gary Frank Prestopino with Barrington. Your line is open. Gary Frank Prestopino: Good morning, everyone. Following up on George's question and the theme that you set forth in terms of using technology to increase efficiencies. Have you been increasing your Salesforce commensurate with the ability to drive growth in new client acquisition, or is a lot of this just really coming from the tech investments that you're making that are making it easier to drive new business? Bill Angrick: Gary, the majority would be leveraging improved automation and scoring of the right companies and delivering the messages at the right times to increase conversion. Having said that, we absolutely, in a targeted fashion, have added resources to support the sales outreach because when you have a great story to tell, it's important that you get people in the channels, heavy equipment, to spread awareness. And we're just getting started in many of our categories, which are showing tremendous promise. You know, we've been at nearly 30% compound annual growth per quarter on a GMV basis there. And we think that can be a $1 billion GMV business. And, you know, call it we're at $100 million to $110 million GMV run rate. So there's plenty of room there. We have added targeted resources in our GovDeals marketplace. I've rattled off some of those new clients. These are big structural wins when you're talking about, you know, New York Housing Urban Development, New York State Port Authority, State of Pennsylvania, Department of Transportation. And when you win these types of mandates, you know, these are agencies that do a lot of due diligence. They want to understand your ability to scale and service, you know, large flows of assets and do so in an efficient way. And so we've answered emphatically, you know, that we are the best in class for those types of clients. So with the benefit of automation, we can, you know, get some increasing operating leverage, but we're always going to be, you know, hunting for growth, and we have added resources in the areas I mentioned. Gary Frank Prestopino: So, okay. That's great. So, and you also mentioned your heavy equipment sales were up 20% or GMV was up 20%. You're offering more or less a sell-in-place solution, right, with heavy equipment. And I guess the question I would have is, you know, are you looking at niches that are not currently covered by some of the larger players in the market? I guess, what would be the competitive advantage that you have that you're able to, you know, gain this kind of share? Bill Angrick: Well, you've got, number one, lower net commission rates, lower take rates, two, lower out-of-pocket transportation and make-ready costs, three, flexibility for the seller to set the terms and conditions of sale, four, the ability to introduce data-driven reserve prices that protect the seller's downside. Fourth, you know, we've got a tremendous buyer base, and we're delivering very good recovery rates on the gross asset sales. And, you know, those things have compounded to give us that differentiation and adoption. Gary Frank Prestopino: Okay. Is it, and I remember speaking with you about this, talking about heavy equipment, does that include yellow iron? Bill Angrick: Yes. Gary Frank Prestopino: Okay. Alright. And then lastly, where do we stand with the Retail Rush product? Bill Angrick: So we're live in the first prototype with Retail Rush. It's ramping week over week, month over month. The pickup location is in Columbus, Ohio. And the really important point is that we're seeing the uptick in recovery rate for the same assets sold in the Retail Rush channel versus the wholesale channel. There's this insatiable appetite for value with consumer buyers. And so we're tapping that, and we're carefully creating an auction experience that combines, you know, value with a treasure hunt experience and automating as much of that process as we can. So we think there's a niche there. And we know from our, you know, tens of thousands of B2B buyers in the retail marketplace, you know, these are people that would love to have the same capabilities of the Retail Rush software platform. So over time, we can envision partnering with our buying customers on the liquidation.com platform by giving them a license to use this B2C auction model and set up their pickup locations in different points of presence around the United States and then eventually in Canada. Gary Frank Prestopino: Okay. Thank you very much. Operator: Thank you. And we have no further questions at this time. This does conclude today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust annual results announcement for the year ended 31st December, 2025. Now, I will hand over to Mr. Ivor Chow, the CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin. Ivor Chow: Thank you. Hello, everyone. Thank you for joining our 2025 results announcement call. As usual, today, I'll give you kind of a low down as to how the second half of last year went as well as giving you some thoughts as to how I see 2026. And then I'm going to talk, obviously, a little bit about the DPU distribution and how I see it going forward. And then I'll hand over to Ivy, our CFO, to quickly cover the figures, and then we'll finally end it with Q&A, depending on where -- what you guys want to ask me about. Overall, if you kind of look at our results, you would say, I'm actually overall pretty happy with the 2025 results. It was obviously a fairly difficult year. The shipping market was particularly volatile given what's happening around the world, the geopolitical tensions, the tariff war and all the things that's happening around the world has had an impact to the stability of the shipping industry and the movement of goods overall. So despite kind of all of that, we achieved a throughput growth of about 3%, whereas most of our growth or almost all of our growth is driven by the growth in Yantian, almost 7% year-on-year growth, while Hong Kong kind of continue its decline that we have seen over the last couple of years. And I'll talk individually about them as well. But overall, if you kind of look at the individual trade, if you will, obviously, U.S. is affected significantly by the tariff imposed on China as well as other region -- other parts of the world. So if you look at the U.S. trade alone, especially export from Yantian is almost down 10%. The good thing is China export to the rest of the world, including Europe, continued to do quite well in 2025. And Europe was a bit of a surprise. It did actually increase 14% year-on-year in 2025 despite whatever is happening around the Red Sea and around the Suez Canal. So we can actually definitely see that China is actually pivoting away from relying on the U.S. market alone, but growing substantially is Europe, Middle East and Southeast Asian trade. And for Yantian, other than export, Yantian has also benefited a lot from the Gemini alliance, which I talked about last year as well. Yantian was picked as the transshipment location for South China and Yantian picked up a lot of transshipment, including some of the transshipment from Hong Kong as well. So, in some sense, you can look at -- there has been some shift of volume from our Hong Kong operation into Yantian. And overall, the Trust, it doesn't really suffer from that transition because Yantian margin is as good as Hong Kong. So overall, I think we did quite well. Obviously, we have refinancing done last year, which kind of increased our interest rates. And in 2026, we have 2 more refinancing to be done as well. And so we are definitely on the lookout on how interest cost is going to affect us going forward. But overall, as I said, we did quite well. Overall 2025 year-on-year from a profitability standpoint, we've done okay. I'll talk a little bit about DPU, obviously. We've decided on a full year distribution of HKD 0.115 per unit, which is slightly lower than what we had in 2024 of HKD 0.122. So it's about 4%, 5% decline versus last year. And there are a couple of reasons for that. Obviously, it is still within what I was hoping for. So we have done well on the profitability front. So our cash flow actually increased as a result of a higher profitability, but it is negatively impacted by 2 things. Number one of all, obviously, when we refi our average cost of borrowing increase last year, despite us paying down debt, that offset some of it, but interest cost, it has gone up, number one. Secondly, we're also impacted by the fact that Yantian starting with 2025, we've started with the making statutory reserve in our -- in Yantian operation, where previously with foreign joint venture, we were exempted from the statutory reserve. But because China changes company law, we are no longer -- Yantian is no longer exempted from making the statutory reserves. So we have to start making that 10% reserve in 2025. And that, in some sense, reduced our ability to dividend out almost close to about HKD 200 million in distribution, and that affected almost close to around HKD 0.02 of DPU right there. So in some sense, the profitability growth offset some of that statutory reserve requirement, and we ended up with a slightly lower DPU compared to last year. But looking at the upside, I suppose we have managed the interest cycle very well. Most of our borrowing were done 5 years ago when interest rates were around -- inclusive of the margin, we're paying close to around 2% interest cost on average. And with the refinancing, we're now looking at 4% to 5%. But I think with the final 2 refinancing done this year, we would have reached the -- I suppose we would have fully moved into the current interest cycle and with the expectation that Fed rates will come down, hopefully, further in 2026, I think this would be the peak of our interest cost in 2026 and maybe 2027. And if we can continue to grow on the volume and profitability front, then possibly 2025, 2026 will be kind of like the bottom year of our DPU and then we can start growing DPU again based on profitability. And looking out for 2026, so far, obviously, looking just in January alone, things are still good. Chinese New Year -- there's been a slight rush in Chinese New Year. But I think a lot remains to be seen what happens after Chinese New Year. Will U.S. pick back up again? Some of the new trade agreement that China will have with Europe, with Canada, will those pan out, meaning that will other trade continues to climb to offset some of the U.S. decline? Or will U.S. consumption kind of stabilize with interest rate coming down? All those questions will be on the lookout for in 2026 as well. But with those trade agreements that China will strike with the various countries, one of the things that we'll be on the lookout for is obviously on imports. Imports have been fairly weak for the last 2 years just because of the economic situation in China. So import has been on a decline. But I think that with these new trade agreements that China will have with Europe, with Canada, with rest of the world, I believe that China will not be forced, but they will be looking to boost up their import to honor some of these trade agreements. So we would be looking out for increases in import probably in the second half of this year. And currently, there is a large trade imbalance where our export outweighed our import almost 80-20. So there is a lot to -- room to grow in terms of the import size, and that's something to watch for both Hong Kong and Yantian. Hong Kong is actually quite suitable for import and the lower import is actually hurting Hong Kong. But if I talk about Hong Kong alone, last year, yes, volume has come down. But if I look at the silver lining of the Hong Kong volume, you would see that export and import coming into Hong Kong has actually remained stable. It has not declined any further, like what we have seen in 2023, 2024 after COVID. So the local market, import-export has actually stabilized in Hong Kong. What Hong Kong has been losing in 2025 was mostly transshipment volume as well as some intra-Asia volume, but mostly on the transshipment side. As I alluded earlier, a lot of that transshipment either shipped to Western Shenzhen or to Yantian. So whether Hong Kong 2026 will be kind of like the bottoming out of Hong Kong remains to be seen. But I think Hong Kong is -- has been in a transition over the last 2 years. And not just on the port alone, but on the whole of Hong Kong, I think the economy is starting to rebound a little bit. Property is on the rebound a little bit. And we're looking as to whether we can have Hong Kong kind of like remain stable this year and try to regrow that business together with Yantian going forward. So I'll pause here, and then I'll hand it over to Ivy to talk a little bit about the P&L, and then we'll move on to the Q&A. Thank you. Ivy Tong: Hi, everybody. Basically, if we talk about throughput, as Ivor mentioned, Trust has done well for 2025. So throughput is at 23 million, 3% better year-on-year, with Yantian growing by 7% and -- but offset by the drop in throughput in Kwai Tsing by 6%. If we look at the revenue front, total revenue is at $11.9 billion, 3% improvement year-on-year. In terms of the segment information, pretty much the split between Hong Kong and Chinese Mainland is roughly comparable to 2024 with a 2% point increase in Chinese Mainland for 2025. On total CapEx, there is $445 million, a 20% year-on-year increase or equivalent to around HKD 74 million. The increase is just largely due to operational upgrades that have been carried out both at Yantian and Hong Kong, such as tightening our QCs and just making improvement to support our conversion to using remote RTGCs, et cetera. If we move on then to just look at our financial position on -- in terms of debt, what you'll see in 2025, the short-term debt has increased, but that's largely just due to the 2 guaranteed notes that we have expiring in 2026, one in March and then one in September time. But if you look at the total consolidated debt, because we have continued with our deleveraging program of repaying $1 billion loan, so the total consolidated debt actually dropped 4% year-on-year to around $24 billion. And without the increase in cash that Ivor mentioned earlier, the net attributable debt has actually dropped by 6% year-on-year to around $17.9 billion. As Ivor mentioned, the Trust will be declaring a DPU for the end of the 31st of December, 2025 at HKD 0.115, and we'll be making that distribution payment on 27th of March, 2026. So, lastly, I just want to go through quickly the Trust P&L. As Ivor mentioned earlier, in terms of revenue, we had a 3% year-on-year increase. In terms of operating expenses, we actually have a 1% improvement. So that gets us to a total operating expenses of around $7 billion with operating profit having an 8% year-on-year growth to $4.7 billion. As Ivor mentioned, well, despite the fact that we refinanced our debt in February at a higher rate, overall interest cost for the Trust actually recorded a 6% saving, largely because of the lower average HIBOR during 2025, which benefited from -- for our HIBOR-based bank loans plus the deleveraging that I mentioned earlier on the $1 billion repayment. So profit before tax is 12% better at $3.8 billion and then profit after tax is 13% better at $2.5 billion, resulting in a profit after tax attributable to our unitholders at $748 million, 15% better year-on-year. And that concludes our update on our results. Ivor Chow: Let's move to Q&A. Operator: [Operator Instructions] Mr. Herbert Lu from Goldman Sachs. Herbert Lu: Can you hear me? Ivor Chow: Go ahead. Herbert Lu: Great. I'm Herbert from Goldman Sachs. At first, congratulations on these good results despite the disruption of trade in 2025. Actually, I have 3 questions. Sorry, I dialed in a bit late, so I apologize if you already covered these questions in your presentation. On the -- Yes, our net profit increased by 15%, while DPU is a bit lower than last year. I know your presentation attributed to the increase in the reserve set aside in 2025 for Yantian. Could you please elaborate more? And will this trend continue in 2026? And what's your guidance for the range of DPU in 2026? And second question is, I know it's difficult to predict the container volume, but I still want to check what's your outlook on 2026 container throughput and ASP? And the third question is on operating expense is down by $80 million year-over-year. What's the main driver? Ivor Chow: Good questions. I'll start with number one first on the DPU side. And you're correct. As I said earlier, the net profit increase have given additional cash flow, but it is offset by the statutory reserve because of the PRC requirement. What the statutory reserves are, are basically kind of -- for all PRC companies, they are required to make a reserve for, let's say, welfare fund, staff fund and all that. Typically, it's around the 10% range, okay? So every company does it in China. But because we are a Sino-foreign joint venture, we have been actually exempted previously from making these reserves, okay? So the reserve is actually a percentage of the registered capital that every company has to make. So that's the first one we have to do. But because of the change in the company law in the PRC, Yantian, even though it is a Sino-foreign joint venture, is no longer exempted from making the statutory reserve. What the statutory reserve are is basically limitation of the amount of dividend that you have given out to shareholders and the cash will have to remain at the company level rather than distribute out to the shareholders in that sense. And so every year, we do expect that going forward, we'll have to make that reserve, which is around 10% of the profitability, net profit that we have every year. And this year, we expect the amount somewhere around $200 million. I think that $200 million will have to continue until we reach the statutory requirement of 50% of the registered capital. So that will probably take around 10 years or so. So if you look at around $200 million of cash flow that we are unable to distribute out from Yantian, that would translate to around -- roughly around HKD 0.02, HKD 0.025. But we have been able to offset that -- some of that decline HKD 0.025 by -- as Ivy said earlier, we have managed our interest costs better than we have expected because HIBOR is low this year compared to the U.S. rate. So we have actually benefited from that. But HIBOR actually has climbed back up -- and therefore, we do expect some of that savings that we have interest, to be not available in 2026 as well. So hence, overall, net-net, if you take a look at the increased profitability, a little bit less interest, but offset by that statutory reserve. Hence, our actual distributable cash is only about HKD 0.115. In terms of what I see next year, a couple of factors. Number one is interest costs, whether the Fed rate will reduce. The Fed rate will be an important factor, number one. Number two is, obviously, we have 2 refinancing to be done this year and the ability to refinance at a reasonable rate will have some impact on that DPU assessment. And number three, obviously, is the profitability, and I'll answer question number 2 later on. But -- and finally, depending on the overall market, the trade war, some of the things that we're watching for is the reopening of the Red Sea, whether the Red Sea conflict will be able to resolve and how that resolution will impact trading, will have a big impact on our volume as well. So that's something that we're watching out for as well. So those are the couple of factors that I looked at, that may impact DPU next year. But overall, I'm looking at somewhere between HKD 0.11 to HKD 0.12. And my personal target is try to kind of maintain that HKD 0.115, if I can, despite having that $200 million reserve going into 2026. But if we can have volume growth as well as managing interest costs better, then there may be a chance. So that's your question number one. In terms of question number two, in terms of -- obviously, it is quite difficult to forecast -- the world is extremely volatile, especially with the tariff policy and the various new trade agreements happening around the world. But overall, I mean, if we look at industry as a whole, for baseline every year, I do look at a low single-digit, maybe 1% to 3% type of volume growth every year. And I'm still looking at that. That's something we do try to achieve every year, be it from transshipment, be it from import or export. And the shipping market in general tend to look for that type of growth as well. So that's in terms of growth in Yantian. And obviously, Hong Kong, some sense of stability in Hong Kong would be good enough for me. In terms of ASP, ASP is affected by a couple of factors. Most of our ASP growth is obviously driven in Yantian. But if you talk about ASP because the renminbi fluctuation will have an impact on ASP, that's something to watch for and renminbi fluctuation is something that we cannot forecast. The second of all is -- has to do with the mix, the trade mix, whether the growth is focusing more on U.S., European trade or whereas the growth is focused on the intra-Asia trade and Middle East trade or the growth happening in the transshipment trade, all have an impact on ASP because the margins in U.S. and Europe is a bit better, whereas the margins for transshipment obviously is lower and that affects ASP as well. So these are the factors. But overall, are we seeing underlying pricing growth? Yes, we are trying to recover a cost increase through our tariff. That's something we always do on an annual basis when we renegotiate a contract with shipping line. But again, the underlying ASP may increase, but whether renminbi increase or decline or whether the different mixes increase will affect the overall [indiscernible] but I do see underlying ASP increase. And then -- and that's not something that only Yantian is doing. If you look at ports -- North and Eastern port in Shanghai and Ningbo, my understanding is most of those ports are looking for a pricing increase and some of them to the tune of over 10% because they have not had ASP increase over the last couple of years. And Yantian being a kind of a price leader in the market where we price according to supply and demand, obviously, our competitor raising the pricing is actually good for the overall market. So that's something I would say ASP is not overly pessimistic. Finally, on the operating expenses side, most of that saving is not really from the Yantian side, more from the Hong Kong side. Because Hong Kong, obviously, with the volume coming down, we have been having some of the facility kind of underutilized. So we've been saving a lot of operating costs, shaving a lot of costs as a result of some of that volume decline. So most of that operating cost is mostly from the Hong Kong side. Obviously, if there are more downside risk on the Hong Kong side, we'll look to further shave costs. But again, if Hong Kong can stabilize this year, then I do not see that we would be expecting kind of continuing reduction in operating costs. Herbert Lu: Just a follow-up on the ASP. You mentioned the underlying ASP may increase for Yantian, that already factor in the box mix change? I mean, Yantian now has more exposure to transshipment volume, maybe -- which may have a higher -- a lower ASP actually. So you forecast the ASP to grow is already factoring in the change -- mix change? Ivor Chow: Okay. So I cannot really forecast mix change. I -- When I comment on underlying ASP, it's just underlying tariff of the shipping lines, that is kind of like inflation adjusted or CPI adjusted or even low single-digit increase on some of it. How the renminbi change, or how mix change is difficult to forecast, especially individual trade -- will Europe -- again, what I said earlier with the various trade agreements happening, will trade between China and Europe increase and how fast that increase will -- will it offset -- will it be faster than some of the transshipment or MTs increase, is really hard to forecast. So I don't typically forecast mix change or renminbi change. I only forecast kind of underlying ASP change. And so the positive side is just on the stand-alone tariff. Operator: Next question comes from [indiscernible] from HSBC. Unknown Analyst: I hope I'm coming through well. So a couple of questions for you, Ivor, and then a couple of questions for Ivy. Firstly, if you could help us understand how the throughput has trended so far this year, whatever you possibly can share on how the trends are in Yantian and in Hong Kong? Ivor Chow: Okay. So Yantian, as I said, overall, Yantian grew about 7% last year. First half was strong. If you look at the last results that we have, first half was quite decent mostly because of kind of front-loading to avoid the tariff. So we had a kind of bump of first quarter when people kind of rush out the volume ahead of the tariff. Second quarter kind of trend in line. But third quarter was actually quite slow. Third quarter was traditionally the peak season, but I think there was a lot of uncertainty as to what the Trump administration was going to do. There was a lot of uncertainty. Third quarter was quite slow. But I would say that fourth quarter was actually, in some sense, surprisingly strong. Not so much on the U.S. trade side, but Europe was a bit of a surprise. I think overall, Europe grew double-digit in the fourth quarter, helped offset some of that decline that we saw in the U.S. So it is quite volatile right now. Every quarter tracks differently just because depending on -- shippers now kind of take advantage of windows where they feel safe and windows where there's a volatility and they try to avoid -- it's very difficult to forecast. But so far, as I said earlier, January is looking okay. Pre-Chinese New Year there was still a rush in Yantian. But again, hard to say what's going to happen after Chinese New Year. Shipping lines are, I wouldn't say pessimistic because it varies. Some shipping lines are a bit more optimistic, some are a bit more pessimistic. There is not a lot of direction at this point in time. But I am a bit more confident that other markets will fare better than the U.S. market. But that can change in the flash. That's for Yantian. Hong Kong, as I said earlier, Hong Kong is actually stabilizing on the import-export side. We haven't seen decline last year on import-export. But Hong Kong has seen most of the decline on the transshipment side. And as I said earlier, most of the transshipment is either transferred to Yantian or some of them went to Nansha and Shekou. So Hong Kong did see continuing decline in transshipment. The lucky side of it is because transshipment tends to be lower margin, it doesn't hurt our bottom line as much, and we have been able to pick up the transshipment loss in Yantian. So overall, the Trust volume suffered, but Hong Kong is still negative on the transshipment volume decline side. Unknown Analyst: Okay. That's very helpful. My second question to you, Ivor, is about the Yantian East expansion. If you can provide some update on where we stand on the project? When do you expect it to commence? And if there are any further capital commitments from the Trust side towards this project? Ivor Chow: Okay. On the East Port front, yes, I forgot to mention that. East Port continue to be on track, on target. As I said on -- I think the last call as well, we are slated for trial operation in the first quarter of 2027. So we're still on target for that. And we have already completed all capital injection requirement into East Port. So there are no further capital requirement from the Trust. Unknown Analyst: Okay. And then how much if you could remind us because this has been a project which has been in the work for quite a few years. When you start off in 1Q '27, what is the kind of capacity which will come through in the early phase? And how do you expect the ramp-up to phase through over the next few quarters after it commences? Ivor Chow: Sure. Just a quick update on East Port. It's actually 3 additional berth in the eastern side of Yantian. So roughly around 3 million additional capacity. If you look at Yantian last year handled around 16 million TEU, which is a record high, by the way. And so that will add capacity to -- by about 3 million. So I would -- when we finish the whole East Port expansion, we'll be looking at kind of like a nominal capacity of around 20 million, which we're handling 16 million right now. We will be rolling out the first berth next year. So roughly around 1 million additional capacity with each berth. And then over the next 2 years, we'll expand and release one berth additional every year. And to help you think about how I think about capacity, right, if you think about Yantian, last year, we were doing 15 million. And this year we grew 7%. And we actually grew 1 million TEU this year. That's actually [indiscernible] requirement that we need in order to cater to the demand. So that just gives you a feel of how we think about capacity increase. Unknown Analyst: Okay. That's helpful. And then maybe for Ivy, if you could help us understand what the CapEx will be this year for the Trust? And where do you expect to expend it? How much of that will be maintenance? I know in the past, you've mentioned that about $500 million is the maintenance CapEx irrespective of how trade spans out. But if you could help us revisit those numbers as well? Ivy Tong: I think as we mentioned, we are currently still expecting maintenance CapEx to be around that $500 million ballpark figure. So this is what we will aim to maintain. So that's -- yes, so it's in line with the guidance that we have given in the past for 2026 as well. Unknown Analyst: Okay. And finally for you, Ivy, you mentioned in the presentation that about 52% of the debt is fixed rate. Now of the floating rate debt, how much of it is more reliant on the HIBOR versus the U.S. policy rates? Or it doesn't matter and just depends on the overall interest environment? Ivy Tong: Well, that -- I think that depends on the overall interest environment. But currently, all our floating rates are actually HIBOR-based loans. So... Ivor Chow: Not fixed as U.S. dollar. And the reason why we have swapped some of the fixed floating -- fixed rate U.S. into HIBOR is just because HIBOR was a lot lower than the U.S. rates last year, and we benefit from that. But with HIBOR coming back up, we will have to manage the spread carefully. But for us, there is no exchange risk on either front. So we swapped just more opportunistically. And especially, we have actually moved away from a higher fixed component compared to before we're closer to 75%. We're moving lower down into the 50% range just because we've -- I think -- overall, I think the market agrees that the rate -- the current interest rate environment is past the max, and we could potentially be looking at slightly lower interest rate environment. So it would be beneficial for us to kind of maintain slightly more portion of floating in our portfolio. Unknown Analyst: Okay. That's very helpful. And maybe if I can just squeeze in one more question. In the presentation, you did mention about headwinds to Chinese exports from the Mexico tariffs. We know about the U.S. relationship, but there were [indiscernible] -- first Mexico. Is that a significant route? Or is it still more U.S. and Europe exports? And if you could also remind us what the mix now is or in the second half it was for the trade exposure to Europe versus the U.S. trade lane? Ivor Chow: Yes. Well, first of all, overall, Europe -- U.S. continue to account for about 30% to 40% export, with that number now closer to the low 30s compared to the high 40s before. Europe traditionally is somewhere around 25% to 30%. I think it's creep up 1 or 2 percentage point only. But transshipment has actually picked -- where it picked up a lot. Transshipment in Yantian went up quite a bit last year. So I think it went from around 15% to around 20% right now, yes, 20% to 25%. So the pickup is mostly on the transshipment side, and that affected ASP a little bit, kind of alluding to Herbert's question earlier. In terms of the Mexican tariff question is that, when the U.S. imposed tariffs directly on the country of origin in China, Chinese exporter try to, not circumvent, but they have increasingly set up their new manufacturing bases closer to the destination, be it Mexico, be it [indiscernible] Europe. So these tariffs that are put on to kind of intermediate manufacturing locations like Vietnam and Mexico, will indirectly affect trade to the U.S. So that's why we talk about the headwind, but it mostly affect the U.S. than anything else. But as I said, European trade so far, we haven't seen a negative. In fact, we have seen positive out of the European trade, I think partially because Europe, instead of buying from the traditional European exporter -- sorry, buying from the traditional European retailers, they're actually buying more from the e-commerce companies in China just because it's cheaper there. That has attracted a lot of European trade out of Yantian, where we handle a lot of the e-commerce business to Europe. Operator: Mr. [ Paul Chew ] from [indiscernible] Research. Unknown Analyst: Just some questions on the fluidity of the supply chain. Can you just elaborate a bit when you mentioned the gradual resumption of services from Suez Canal, is that what the major liners are preparing you for? And could you maybe elaborate on the impact if it does really open, are you -- is it just that there will be a short-term congestion in Europe that is what worries you? Ivor Chow: So the question surrounds is what's going to happen with the Red Sea situation resolved. So if you look at the -- some of the news in the market is some shipping lines are already testing the Red Sea to see whether it is safe to pass through the Suez Canal already. Some lines are trying that. Just to kind of dial back a little bit. Right now, currently, almost all shipping lines from the Asia-Europe trade go through the Cape of Good Hope in South Africa. And that adds quite a bit of additional transit time into Europe. So that absorbs quite a bit of capacity [ after ] the market, and that allows the shipping lines to maintain freight rates that they have enjoyed over the last year or so. I suppose the concern here is that when the Red Sea does reopen, and the Suez is passable, then at that time, there would be ships going through -- around the Cape of Good Hope. But at the same time, there will be ship racing from Asia through the Suez into Europe. So there will be 2 sets of ships because the slot cost for shipping line going through the Suez is going to be cheaper. So the margins for shipping lines is better. And so people -- ideally, when it's reopened, everybody will rush through the Suez to try to reach Europe ASAP. I suppose, as you alluded to earlier, the concern is that what would it do to the ports on the European side. Currently, I think generally, there are port congestion in Europe already, even with the Red Sea situation. So the concern is on the Red Sea opens and there is a race to Europe through the Red Sea to the Suez, that would cause a major disruption to the ports at the destination in Europe. So that is a concern of mine, obviously. And whether the shipping line can withhold the capacity and not clock up the ports in Europe remains to be seen. But if there is a congestion, it could be a substantial one because the ships going to Europe are really the largest vessels in the world. So even 5 or 6 or even 10 vessels can potentially clock up the system, like they did during COVID for an extended period of time. And how that will impact the supply chain in terms of how you say the fluidity -- and whether some of that congestion will start to come back and hit Asia is something that I'm on the lookout for. But right now, it's really difficult to foresee when and if that will happen. The likely earliest that Red Sea will open will probably be in the second half of this year, but that is an event that we'll look out for. Unknown Analyst: My second question is, I think in the prior call, you did allude that shipments to the U.S. by your e-commerce customers, they prefer to use ships because it's cheaper with -- even with the high -- because of the high tariffs, they're using ships. Do you still see that phenomena or that has maybe [ gone ]? Ivor Chow: Well, I suppose what I saw in the second half, I suppose, obviously, U.S. trade has declined, so overall declined 10%. But I think if you look at South China versus the rest of the China, especially in Northeast, I think the decline would be higher than 10%. I don't know exactly the numbers, but as far as I know, I believe that the decline is a bit more substantial than 10%. And the reason for that, I believe, is that e-commerce because of our focus in the southern part of China, especially in Yantian, that has allowed us to be a bit better. And e-commerce continues to do well. That segment of the market, even the second half continues to do well. Obviously, that can change depending on the tariff situation and whether they tighten the tariff on the small package they are. But for now, that segment of the market continues to be okay, quite well, actually. Unknown Analyst: My -- I guess my last question is, you did -- I think the first time [ probably ] mentioning some optimism over imports. Is it the similar sentiment that you get from the shipping lines or I guess it's more of your own analysis, yes, I think? Ivor Chow: Right. On the import side, it's more of my own than anything else. We have been -- obviously, with the trade imbalance, we've always felt that China has more room to grow on the import side, especially import being a fairly small proportion of our business. But the relative margins for import and with the trade imbalance, shipping lines is much more proactive in terms of pushing for imports as well. And from my read on the macroenvironment with all these trade agreements that China is hoping to sign with European countries, I would expect that there would be a quid pro quo with a certain level of imports coming into China. But obviously, a lot of them depending on the recovery of the Chinese economy, but I'm a bit more hopeful on that front. So it's more of a personal, but I think shipping lines themselves, if there are imports, they're happy to take the balance because for them, empty -- full out empty in is not good for business. Unknown Analyst: And just a quick follow-up on the earlier question. I'm not sure if you -- or maybe you do not disclose the amount of shipments that goes to Mexico directly, [indiscernible]? Ivor Chow: Mexico directly, I don't have that number with me, unfortunately. Typically, for us, the Latin America trade is relatively small. I think it's somewhere between 10% to 15% only, at most 10% actually. Unknown Analyst: But at the same time, I think in one of your statements, you mentioned Mexico might still impact you. But if the shipment -- the direct shipments are small there, how is it kind of negatively [ impact you ]? Ivor Chow: Well, I think what we're seeing is that the growth of the Mexican trade has been quite strong over the last couple of years. So that growth will slow down. That's what we worry about. Operator: [indiscernible] from HSBC Investment. Ivor Chow: Can you hear us? No. Unknown Analyst: Can you hear me? Ivor Chow: Yes, yes. Please go ahead. Unknown Analyst: I have 2 small questions coming from my side. First, I see end of last year, you have announcement saying that you need to sell back land to Shenzhen [ YPLES ] for the redevelopment of the region for around RMB 50 million. So I'm wondering how do you see this -- first of all, I'm wondering what's the use of this land in the past? And how do you see this sale may have impact for the expansion of your volume capacity in Yantian? And do you expect any other similar land arrangement in the mid-term? And second -- my second question is that for next year or midterm, should we expect similar debt reduction at this year, which is around $1 billion debt reduction? And will this be impacted by your increase of CapEx like what we see for this year? Ivor Chow: So I'll take the first question and then Ivy can talk about the debt repayment. In terms of the land that we sell, back to the Shenzhen government, that piece of land is for -- I think I talked a little bit about last year, maybe I should repeat that here. Intermodal is something that is a strategy for Yantian for the next 5 to 10 years. Currently, we do have a dedicated rail link into Yantian in South China, where we have the -- where we're the only one that has an on-dock rail link into Yantian. But rail business only account for a fairly small proportion of our business to the tune of around 300,000 TEU, and we do 15 million every year. So it's quite small. But as I said, with China moving a lot of the coastal manufacturing into the inland, particularly in Chengdu, Chongqing, Wuhan area, increasingly, I believe intermodal will be kind of the future of where the share of the market in terms of volume, the competition will be. So the development of the rail link becomes quite an important preparation for Yantian [ view ] over the next 5, 10 years. But because rail business tends to be heavily subsidized business, it is not a profitable business. So the Shenzhen government has agreed to take back the land that we have, and they would be the one investing in upgrading the intermodal facilities that we have in Yantian. So they're I think they're investing to the tune of around [ RMB 7 billion ] in order to expand the rail link from roughly around 300,000 TEU to potentially to above 3 million TEU by 2029 if the rail upgrade is fully completed. Obviously, it's going to be done in different phases, going from maybe 300,000 to maybe about 1 million first and then slowly ramp up to eventually 3 million. So still -- compare 3 million to 15 million is still not a substantial number, but it is where the future growth for Yantian is, especially when I said earlier that we are completing the East Port development where we have 3 million additional capacity. So the rail becomes kind of like an integrated strategy in terms of expanding Yantian reach from currently around 1,000 kilometer to about 2,000-plus kilometer in land. So it is a strategy, and that's why we're selling that piece of land. So yes, we will continue to have -- I think we already -- announced already a piece of land that we have sold that we would have an impact to us this year. We have some gain. This year, we will be booking. But the important part of that selling piece of land is more of the long-term intermodal strategy for China, not just for Yantian, but for -- overall for China. And I think I talked about a little bit before, it's exactly what is like the U.S. is doing. If you have shipment into L.A. and Long Beach on the West Coast in the U.S., the rail becomes quite important of shipping that goods into the Midwest in the U.S. So I think for China, it's the same thing. Again, you talk about export coming in, but in future, there will be more import coming into Hong Kong and Yantian, connecting to rail to the inland part of China as well. And that's something for me, the rail -- upgrading the rail facility is paramount to capturing that particular growth market over the next 5, 10 years. Ivy Tong: In terms of your second question, obviously, depending on how the operations pan out in 2026, it is still our intention to continue with our deleverage program to do the $1 billion repayment in 2026. Ivor Chow: Thank you. And thank you for joining, everybody, tonight. Operator: Ladies and gentlemen, as there are no further questions, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the AGCO Corporation 2025 Fourth Quarter Earnings Call. All participants will be in a listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. In consideration of time, please limit yourself to one question and one follow-up. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Greg Peterson, AGCO Corporation Head of Investor Relations. Please go ahead. Greg Peterson: Thanks, and good morning. Welcome to those of you joining us for AGCO Corporation's fourth quarter 2025 earnings call. We will refer to a slide presentation this morning as posted on our website at www.agocorp.com. The non-GAAP measures used in the slide presentation are reconciled to GAAP measures in the appendix of the presentation. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. Demand, product development, and capital expenditure plans and timing of those plans and our expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm income, production levels, price levels, margins, earnings, operating income, cash flow, engineering expense, tax rates, and other financial metrics. All of these forward-looking statements are subject to risks that could cause actual results to differ materially from those suggested by the statements. These risks are further described in the safe harbor included on Slide two in the accompanying presentation. Actual results could differ materially from those suggested in these statements. Further information concerning these and other risks is included in AGCO Corporation's filings with the SEC, including its Form 10-K and subsequent Form 10-Q filings. AGCO Corporation disclaims any obligation to update any forward-looking statements except as required by law. We will make a replay of this call available on our corporate website later today. On the call with me this morning is Eric Hansotia, our chairman, president, and chief executive officer as well as Damon Audia, our senior vice president and chief financial officer. With that, Eric, please go ahead. Eric Hansotia: Thanks, Greg, and good morning to everyone joining us today. We closed the year with another strong quarter, delivering an adjusted operating margin of 10.1%, and fourth quarter net sales of $2.9 billion which were up 1% year over year or up nearly 4% excluding the grain and protein divestiture. EEM continued to be a powerful driver delivering 8% growth and extending its multi-quarter record of strong performance. On a full-year basis, we delivered a 7.7% adjusted operating margin. Adjusted earnings per share were $5.28, on sales of $10.1 billion, reflecting a 13.5% decrease versus 2024, or just 7% excluding the divested grain and protein business. These results highlight the disciplined execution of our global teams driven by our three high-margin growth levers, sustained cost discipline, and the positive impact of our multiyear structural transformation. We operated at intentionally low production levels and despite a soft market environment, that weighed on industry demand, we ended the year with significantly lower company, and dealer inventories compared to 2024 a favorable outcome that strengthens our position and demonstrates meaningful progress. Our adjusted operating margins are among the best in AGCO Corporation's history. And the strongest we've ever delivered at this point in the cycle. We have nearly doubled our adjusted operating margins from prior troughs and are close to prior industry peaks. Clear evidence that AGCO Corporation has structurally changed to a higher performing and more profitable company. I want to thank the AGCO Corporation team for their disciplined commitment and impressive execution throughout the year. Their agility allowed us to maintain solid performance, repeatedly exceed our expectations, and continue advancing our farmer-first priorities. Building on the transformational actions taken in 2024, including the formation of the PTX business, the divestiture of the majority of grain and protein business, 2025 was a year focused on advancing our strategic ambitions in agriculture machinery, and precision ag technology. Our redefined portfolio and focus are where AGCO Corporation wants to be. Poised to continue serving farmers and investors better than anyone else when demand strengthens. Our PTX brand continued to gain significant momentum. During 2025, we introduced 14 new products across the crop cycle. Expanding the industry's most comprehensive retrofit precision ag portfolio. We also made substantial progress expanding our dealer network. Ending the year with more than 70 global PTX Elite dealers, more than doubling the amount from the start of the year. These dealers sell both precision planting and PTX Trimble products, enabling us to broaden product coverage and deepen customer engagement. This independent retrofit network focused on the mixed fleet remains an absolute clear differentiator providing the comprehensive product expertise and the broad equipment compatibility that today's farmers require. These PTX Elite dealers are supported by more than 300 Fent, Massey Ferguson, Valtter equipment dealers. 200 CNH dealers, alongside continued sales to more than 100 OEM customers. This expanding footprint is strengthening our global market presence. Increasing the number of farmers we can reach, with our industry-leading smart farming solutions. Vent delivered a standout year of market performance in almost every region, In North America, we gained large ag market share underscoring the strength of FENT portfolio and the power of our team of experts and dealers. With some of our largest dealers switching to the ideal combine last year, it further emphasized the strength of the Fent full line product offering, and our ability to accelerate our performance when North America large ag begins to recover. Our parts and service business continued to perform well. Across challenging market conditions. The Farmacore model, combined with digital engagement, twenty-four seven online parts access, machine configuration tools, servicing capabilities, and industry-leading parts fill rates, continue to support this high-margin growth lever and drive meaningful progress. Strong execution also drove meaningful cost actions in 2025. Resulting in a $65 million bottom line savings through continued operating efficiency across the organization reflecting a real focus on performance improvement, We anticipate a further $40 to $60 million of incremental savings in 2026. Our overall confidence in the business is reflected in $250 million of share repurchases in the fourth quarter. Part of our $1 billion capital return program announced last year. As we look at 2026, we will continue to navigate a dynamic phase of the industry cycle. Trade patterns and record global crop production continue to compress farm margins. With corn, soybean, and wheat prices near breakeven levels. Despite this environment, our operational discipline positions us well continued progress. Over time, we continue to expect increased adoption of precision ag technologies as farmers constantly look for ways profitably increase yields. Entering 2026, current market conditions continue to moderate demand across most equipment categories. Yet we remain able to advance our technology strategy and expect long-term positive industry progress. Slide four details industry unit retail sales by region for 2025. Industry retail sales across all major regions were lower in 2025 as the market adjusted following several years of elevated demand. In North America, industry retail tractor sales were 10% lower compared to 2024. With larger horsepower categories accounting for a greater portion of the change as the year progressed. Combined unit sales were 27% lower year over year. Current farm income dynamics evolving green export demand, and elevated input costs continue to guide purchasing behavior. Particularly for larger equipment heading into 2026. In Western Europe, industry retail tractor sales were 7% lower than 2024, with most major markets experiencing double-digit percentage movements. Looking at 2026, relatively stable farm income levels and an aging equipment fleet are expected to support industry volumes growing modestly above the 2025 levels. In Brazil, industry retail tractor sales were 2% lower than the prior year. Growth in smaller and midsized equipment partially offset the modernization in larger tractor categories. Crop production remains healthy, and certain trade developments provided opportunities for farmers, demand for larger equipment has not yet shown renewed growth. As in prior cycles, industry demand is expected to recover over time. While farmers are currently prioritizing productivity improvements across their existing fleets, the need to increase yields and meet global agriculture demand remains unchanged. Precision agriculture plays a critical role enabling that productivity, and our award-winning portfolio positions AGCO Corporation well to capitalize on that long-term opportunity. AGCO Corporation's production hours for 2025 are shown on slide five. To ensure year-over-year comparability, grain and protein production hours have been excluded from the 2024 baseline. Fourth quarter production hours were modestly higher, than 2024 as increases in Europe and South America more than offset the significant production declines in North America. For the full year, total production hours were down 12% versus 2024. With North America accounting for the largest portion of that adjustment. Reinforcing our disciplined approach to balancing output, and market needs. For 2026, we expect production hours to be broadly flat year over year. With a modest lift in the first half reflecting easier year-over-year comparisons and a modest decline in the second half. This cadence ensures production remains well aligned with retail demand and supports ongoing dealer inventory normalization. Turning to regional inventories. In Europe, we ended 2025 with dealer inventories at approximately four months of supply. Aligned with our target levels. Being at these inventory levels in our largest and most profitable region is an important positive especially with the industry projected to grow in 2026. In South America, dealer inventories increased to about five months relative to our three-month target. This reflects adjustments to lower forward sales expectations as industry conditions evolved during the fourth quarter. However, year-end dealer inventory units were down modestly from the third quarter levels. In North America, we achieved another quarter of sequential progress in inventory management. Ending the year at seven months of supply compared to eight months at the end of the third quarter. While still above our six-month target, we reduced dealer inventory units by over 9% during the quarter and by more than 30% for the full year. We have significantly strengthened the quality of channel inventory heading into 2026, and we will continue to adjust production to better align dealer inventory levels. Slide six summarizes how our strategy continues to deliver even in a muted demand environment. Over the past several years, we've reshaped AGCO Corporation into a more resilient higher-performing company. One that generates stronger margins at the trough, and greater earnings power through the cycle. The results we delivered in 2025 are clear proof of that. Our three growth levers, high-margin products, technology-driven differentiation, and a world-class aftermarket business, continue to perform well this year. Each of them contributed meaningfully despite the softer industry backdrop. Demonstrating that our model scales regardless of where we are in the cycle. This framework is also what positions us and gives us confidence to consistently deliver mid-cycle adjusted operating margins in the 14 to 15% range. It's a structurally different AGCO Corporation. More focused on innovation, more disciplined on costs and investments, increasingly driven by high-value revenue streams. Finally, the strength of this model supports 75 to 100% free cash flow conversion. That financial capacity allows us to keep investing in innovation, advancing our go-to-market transformation, and returning capital to shareholders. All while maintaining disciplined operational execution. Taken together, these levers explain why AGCO Corporation is executing at a higher level today than ever before at this point in the cycle. And why we're well-positioned to outperform as the cycle normalizes. Slide seven highlights key takeaways from our premier precision ag event. PTX's 2026 winter conference. It's an event that brings together thousands of farmers and dealers on-site and virtually. And this year was the first showing of the full breadth and depth of the PTX portfolio. More than 4,000 farmers most under enormous pressures currently, focused on learning practical solutions and strategies for technologies that can be implemented immediately to improve productivity, efficiency, and returns. A high-value opportunity in today's market environment. As you would expect, the feedback on the event and new product introductions was exceptional. As farmers could clearly see how we were innovating to make them more productive and more profitable. This year, three technologies delivered notable impact. First, Symphony Vision, Our vision-based spray technology uses intelligent cameras to continuously adjust application rates based on weed severity. Delivering a 60% chemical and cost savings. This year, we introduced Symphony Vision Duo, a dual nozzle system that allows farmers to spot spray contact herbicides while simultaneously variable rate applying residuals. Fertilizers, or fungicides a single pass, supporting better input management and higher field efficiency. This is a one-of-a-kind injection system that mixes the solutions not only delivers meaningful cost savings from reduced chemical usage, but also delivers significantly higher uptime for farmers than other systems just can't offer. As with our broader precision planting portfolio, farmers own the technology. With no per acre recurring fees, reinforcing a strong value proposition. Second is AeroTube, a breakthrough seed delivery system designed to improve plant orientation at placement. Conventional systems drop seeds randomly into the furrow. Which can lead to uneven emergence and leaf alignment. Arrow tube places seeds in an optimal orientation while controlling depth, spacing, and singulation. Enabling each plant to capture more sunlight and reach its yield potential. A clear productivity advantage, When you think about the significant yield decline for plants that emerge just 48 hours later than the others, the opportunity is huge for our farmers. Third is PharmEngage. Launched in 2025, our farmer-facing digital platforms integrate machine connectivity agronomic insights, and task management across brands and platforms. PharmEngage brings together functionality from AGCO Connect, and FENT one, and will be included in all model year 2026 FENT and Massey Ferguson machines sold in North America. Serving as a central hub for day-to-day farm operations. Each of these innovations reflect how we listen to the farmer, to understand the issue then deliver practical scalable solutions that address real on-farm needs and help farmers operate with greater productivity efficiency, and profitability. I couldn't be more excited about the portfolio of award-winning products we have for our farmers and I look forward to further introductions later this year I'm even more confident that we will continue to be the most farmer-focused company in the industry offering industry-leading smart farming solutions. With that, turn the call over to Damon to cover the financials in more detail. Damon Audia: Thank you, Eric. Good morning, everyone. Slide eight provides an overview of regional net sales performance for the fourth quarter and full year. Net sales for the fourth quarter were 3% lower year over year excluding the favorable impact of currency translation. For comparability, we also excluded the $75 million of sales associated with the divested grain and protein business in 2024. Breaking fourth quarter net sales down by region. Europe Middle East net sales were 1% lower than the same period in 2024, excluding currency impacts. Lower sales across many Western European markets were partially offset by growth in Germany and The UK, Lower sales in tractors were partially offset by better performance in hay tools. South America net sales were 9% lower, excluding currency translation. Results reflected moderate industry demand, with reduced sales of tractors and implements offset in part by growth in combines. North American net sales were down 9% excluding currency translation. Results reflected moderated industry demand and our deliberate production discipline to support dealer inventory normalization Lower sales of sprayers and midrange tractors accounted for most of the year-over-year change. Asia Pacific Africa net sales were up 3% excluding currency translation impacts. Higher sales in Australia were partially offset by lower sales across several Asian markets. Finally, consolidated replacement part sales were $440 million in the fourth quarter, up 5% year over year on a reported basis and down 1% excluding favorable currency translation. For the full year, parts revenue was $1.9 billion reflecting 2% growth on a reported basis and flat growth excluding favorable currency effects underscoring the strong value and consistent progress of this important growth driver. Turning to Slide nine. The fourth quarter adjusted operating margin was 10.1%, up 20 basis points from the prior year. The improvement reflects excellent and resilient performance in Europe, Middle East, again this quarter. And consistent discipline across other parts of our business. Margin performance continued to be shaped by factory under absorption and discounting across the industry. Despite that environment, higher sales and production volumes in Europe and our continued cost discipline supported better total company adjusted operating margins during the quarter. By region, Europe Middle East income from operations increased by $57 million compared to 2024, with operating margins approaching 17%. Results were driven by effective pricing execution and a favorable sales mix. North America income from operations decreased by $33 million year over year and operating margin remain below breakeven. The results reflect lower sales volume and factory under absorption associated with reduced production levels of over 50% aligned with dealer inventory normalization representing disciplined management of this business. South America operating income was $21 million lower than the prior year with margins nearing 3%. Reflecting lower sales and higher engineering expense. Asia Pacific Africa delivered relatively flat operating income with operating margins near 8%, supported by effective cost management and lower SG and A expenses. Slide 10 shows our full year free cash flow for 2024 and 2025. As a reminder, free cash flow represents cash provided by or used in operating activities less purchases of property, plant, and equipment. Free cash flow conversion is calculated as free cash flow divided by adjusted net income, offering a clear and consistent measure of performance. We generated record free cash flow of $740 million in 2025. Up more than $440 million versus 2024. This strong improvement was supported by better working capital execution, higher fourth quarter sales and lower capital expenditures year over year reflecting effective operational Our capital allocation priorities remain consistent. Reinvest in the business, maintain our investment-grade credit profile, consider acquisitions where we can accelerate technology adoption, and return capital directly to our shareholders. A framework that continues to deliver favorable long-term outcomes. Following the TAPI resolution last year, we've shifted our philosophy on direct returns to investors with a focus on share repurchases rather than our special variable dividend program. With this focus, we executed a $250 million accelerated share repurchase in 2025, under our $1 billion repurchase authorization demonstrating our commitment to shareholder returns. Given the strong free cash flow generation in 2025, we will evaluate further opportunities during our normal capital allocation review later this year. We also paid a regular quarterly dividend of 29¢ per share throughout the year, totaling approximately $87 million in dividend payments for 2025. Reinforcing a reliable and healthy capital return program. We continue to deploy capital with the discipline to drive long-term shareholder value supported by the increased flexibility afforded by our repurchase program. Slide 11 summarizes our 2026 market outlook across three major regions. For North America, we forecast large ag industry sales down approximately 15% from 2025's already low levels. The USDA's elevated January crop supply estimates resulted in significant declines in commodity prices in both soybean and corn prices remain below the long-term average. Farmers are delaying new equipment purchases due to elevated input costs, and tighter profit margins. The US government's $12 billion farmer bridge assistance program is helping to shore up farmers' balance sheets but it's not translated into new equipment purchases at this time. The North American small tractor segment offers a more positive counterbalance as livestock and hay economics remain comparatively resilient and the older fleet points to emerging replacement opportunities in 2026. We expect smaller tractors to be up modestly. In Western Europe, stability from the subsidy framework provides a solid foundation and offsets softer wheat prices and geopolitical crosscurrents. Early season exports improved. Profitability is expected to rise in '26 and winter seeding conditions have been supportive across many markets. The EU continues to benefit from lower interest rates versus other key ag regions, providing a more favorable operating position. We expect Western European tractor volumes to be up modestly in 2026. Brazil's crop environment remains constructive. Led by a large soybean harvest and healthy export demand. At the same time, interest rates credit availability, corn margins, and weather in select regions will pressure demand in 2026. Our plan assumes relatively flat demand for the year, with some pressure early in the year and a stronger second half due to potentially improved government support. Slide 12 highlights the key assumptions underlying our full-year 2026 outlook. We expect global industry demand to remain relatively flat compared 2025 with the industry increasing from 86% of mid-cycle to around 87% in 2026. Our sales plan assumes share gains, a 2% FX benefit, and between 23% in pricing. At 3%, our pricing is designed to cover material inflation and tariff costs on a dollar basis, but will be margin dilutive even at the high end of the range impacting our 2026 operating margins and our year-over-year incrementals. Dealer destocking advanced in 2025. And we continue to prioritize strong channel alignment in 2026 particularly in North America, reinforcing a disciplined and balanced go-to-market approach. Our guidance reflects current tariff regime and mitigation through cost actions and pricing ensuring a well-managed framework for navigating policy dynamics. We will adjust our outlook if policy actions change. Engineering expense is planned to increase by almost $50 million over year, representing approximately 5% of sales and ensuring an investment level that fuels the flywheel of innovation across the portfolio. As Eric mentioned, we expect further benefits from our restructuring actions of $40 million to $60 million in 2026. Production hours in 'twenty six are expected to be broadly in line with 2025. Maintaining healthy balance between production rates and retail demand to support ongoing inventory discipline. We expect adjusted operating margins between 7.58% reflecting positive structural improvements to the portfolio and benefits from our ongoing cost initiatives, but muted due to the price versus cost and tariff equation this year as well as higher engineering spend. Our effective tax rate is anticipated to be 32 to 34% for 2026. Turning to slide 13 for our 2026 outlook. Our full-year net sales outlook is expected to range from $10.4 billion to $10.7 billion Based on this sales outlook, flat production volumes continued cost discipline and pricing execution we are targeting adjusted earnings per share in the range of $5.5 to $6 This assumes no material changes to existing trade measures. Capital expenditures are estimated to be around $350 million positioning us for future demand inflection while maintaining investment discipline. We continue to target free cash flow conversion of 75% to 100% of adjusted net income supported by strong working capital management and ongoing inventory efficiency. For the 2026, we expect net sales modestly up year over year as we align production with demand and continue to realize the benefits of our cost efficiency initiatives, we anticipate first quarter earnings per share between $0.40 and $0.45 We expect profitability to strengthen as the year progresses reflecting improved absorption, continued operational execution, and the timing of our cost actions. As Eric noted, 2025 performance demonstrates consistent execution on our strategy in a more resilient better-positioned business through the cycle. We are confident in delivering continued progress across net sales, adjusted operating margin and adjusted EPS while navigating the current industry backdrop. With that, I'll turn the call over to the operator to begin the Q&A. Thank you. Operator: We will now begin the question and answer session. To ask a question, you may press star. Then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up. And the first question today will come from Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann: Great. To think about what you're planning relative to inventories in The U. S. I guess you're still about a month ahead of where you'd like to be. How long does that process take from here? Yeah. Excuse me. Good morning, Steve. So I think as we as you hit on, we we did finish the year a little bit above our six-month target. So we will have some underproduction here likely in the first half of the year in North America trying to right-size the dealer inventories. We'll see how the outlook for the balance of the year goes, but at least right now, I would expect sort of underproduction probably in the around 10% range, give or take. As we continue to rightsize here. Understood. Okay. I think overall that I said in my comments, we did a really good job. We took units down by 9% or so. But just given that twelve-month forward outlook we give you, the months didn't really move materially. They only dropped down one month to despite the 9% reduction in units. Understood. Okay. And then, Damon, you mentioned your prepared comments some discounting, and yet you guys are looking for, I think, 2% or 3% price for '26 Just square those two for me. What what are you seeing in terms of the discounting, and and how do you still get that price? Damon Audia: Yeah. So, Steve, I think overall, we've seen some competitive pressures especially in certain markets like South America. It was definitely a more aggressive market there. When I look at the the team though, despite that, our fourth quarter came in exceptionally strong. If you may recall, I start at the end of the third quarter call, we guided, I think, price in the range of 0 to 1%. We finished the year just north of 1%. So the team gained share took the took dealer inventories down, and had pricing better than our plan coupled with the volume. So the team's done an exceptional job in managing and selling the value of our products relative to the competition. And so when I look at the pricing that we have carryover this year going into 2026, we have north of 1% of that two to 3% sort of already embedded into our into our base here. So, you know, overall, as we think about the new product introductions coming, what we see in Europe, we we feel comfortable in that two to 3% range to at least start the year. Operator: The next question will come from Kristen Owen with Oppenheimer. Please go ahead. Kristen Owen: I wanted to start here with your outlook for Europe I mean that has continued to outperform for you guys. You just give us a sense of what's happening on the ground there? I mean, we've seen a little bit of compression in some of the dairy margins recently. So maybe just give us a sense of farmer sentiment there. What you're seeing in terms of demand, and maybe ask you to double click on on the the pricing acceptance that you're seeing there. Eric Hansotia: Sure. Yeah. I'll take that one, Kristen. You know, if we take a start like, at the industry to start off with, and one of the things that we watch is average age of the fleet. And it's been climbing steeply in EAM as has it as it's been in North America. But let's stay on EM for now. It's almost back to its record peak age, and that's creating just a lot of pent-up demand for new products. And and as so that's number one. That's kinda where the fleet is. Farmer sentiment is actually relatively positive. We had a far a field tech days this fall. Spent time at Agrotechnica. And the spent time with thousands of farmers at AgriTechnica. The the feedback that we were getting was more positive than we expected. So although the SEMA barometer is kinda just hovering in the same spot, which is one of the prediction models, we're bullish we think the market's gonna be up in in this year. And I think, Kristen, if I go to your other questions here, Damon Audia: overall, the demand profiles remain relatively strong. Their dealer inventories, as I made on the comments or Eric made, were right around four months. So we're right where we want to be from a dealer inventory standpoint. Pricing in Europe finished the year quite strong. We had over 3% price in Europe in the fourth quarter on top of that strong volume growth with expectations as well. And so we have relatively good carryover going into 2026 in Europe pricing as well. And then you layer on the new product introductions that we showed at AgriTechnica We've got some great new products out there, the FENT 800, is gonna be a hugely successful product coupled with some of the other ones. So again, the European team has continued despite the backdrop here. The European team is continuing to hit on all cylinders doing very well in gaining share holding their margins at exceptionally high levels for us, and gives us a lot of confidence as we as we go into '26 in that market. Kristen Owen: That's great. Thank you for that color. And then my my follow-up question just is here on the cost savings actions. I think you called out $65 million bottom line benefit in savings in 2025. Another $40 million to $60 million in 'twenty six. Can you just remind us where the big buckets of those cost savings are coming from and maybe tie that back to what you outlined for the 2029 targets, where you're seeing those cost savings come through? Thank you. Damon Audia: Yeah, sure. Good question, Kristen. And geographically, I would say they're very similar to our revenue split. So we're seeing them across all of our four regions. The the vast majority of this is coming through or in the g and a bucket. So a lot of as AGCO Corporation's a company that had been built through acquisitions, we spent a lot of time in the last couple years really trying to standardize and simplify our processes Once we've done that, how do we move them into lower cost opportunities, either offshoring them to other AGCO Corporation locations or potentially outsourcing them to third-party providers who can do that well for us And so we've seen a lot of savings coming from that shift And at the same time, we've really been trying to leverage artificial intelligence more and more within the company where we can automate those processes streamline that, making it easier for our dealers, easier for our customers, easier for our associates. So we're seeing some good momentum on the AI side of the house as well. By just streamlining the work and moving it into a more advanced product. You're right. We did about $65 million in savings this year. We have another $40 to $60 million in savings coming in 2026. As I've mentioned on some prior calls, given the industry downturn, we've been looking to accelerate some of those cost actions that we saw in '26. Into 2025. Excuse me. And that was part of the benefit that we saw in the fourth quarter. So as I think about where we are at the end of 2025, the run rate savings is about a $190 million. So we're already in line with what we told the investors in December 2024. As to how we would run rate out of 2026. So we pulled some things in. Now we got a lot of that in the fourth quarter, so you're still gonna see the absolute dollars come to the bottom line here in 2026. From a run rate savings, we're already at about $1.90. So we'll probably get a little bit north of that 200 by the '26. So very well positioned for that particular bucket. On delivering to the 14 to 15% adjusted operating margin at mid-cycle that we talked about at our last Investor Day. Eric Hansotia: Yeah. Maybe I'll just add a little bit on that one. This is Project Reimagine that Damon was describing, and you know, 700 projects that are all managed very tightly going through the stage gates, that's taking out the $200 million in overhead. What's still in front of us is more work left to do on AI. As Damon's talked about. We've got about a 160 agentic AI projects in flight right now, 50 of them completely done. But a lot of them in flight. And then shift to low-cost country. That's still in front of us as well. We're we're aggressively going after that in '26 and '27. Much of our supply base is in high-cost countries. We're we're aggressively moving that. So overhead kinda towards the tail end and very mature, we're going after product cost really aggressively. Operator: Again, if you have a question, please press star. Then 1. Next question will come from Mig Dobre with Baird. Please go ahead. Mig Dobre: I I I found your comments on on 2025 being a the biggest year of share gain to be really interesting. And I'm wondering if you can maybe give us a little more context there. As I understood it, it's North America. What's sort of specific to some of the things that you've been doing relative to maybe competitors pulling back from the market if if that at all was a factor. And PTX, you know, can we talk a little bit about how you see that progressing as well? It seems like the market, to some extent, are starting to stabilize here. Do you think PTX can be a source of outgrowth, especially on the retrofitting part the business as we think about '26 and even '27? Eric Hansotia: Yeah. Thanks, Vic. Few comments. One, overall, AGCO Corporation turned in the highest market share in our history in 2025. And that's global. So all over, when you take a look at where farmers are seeing value, they voted with their their order book to come to AGCO Corporation. What's underneath that? Net promoter score which is our customer feedback to AGCO Corporation, hit its all-time high in '25. So the the the this the perception of the overall value of the product, the dealer performance, the services, the data, management, data platform, all of that is coming together. And and we feel like it's it's, fueled for growth. We had a record patent filing in 2025. So we think we've got a great set of innovations continuing to come through. So that's the macro. Then you drill into North America, it was the largest one-year gain in market share for large ag in in North America. Largely, our portfolio has been what it is. It's it's now working with the dealers. To get the most out of our our partnership with our dealers to serve customers. We've got several focus areas. It's not so much about conquering white space. It's largely about penetrating the space the dealers are already in. And so we've been looking at performance by county and getting a very granular work plan together with our our major dealers and saying, how do we go change how we're how we're, supporting the farmers About 85% of our big dealers now have their have adopted Farmer Core, at least the early phases of it. They're showing where their service trucks are and, doing much more of the work on farm. So you know, that farmer core combined with detailed work with our dealers matched up with a industry-leading product portfolio we think is starting to show the early days. We we also made a bit of an org change to even sharpen our focus on North America. So that's kind of the machinery side of the business. Now if we switch over to 14 product launches. There's essentially an innovation an education side to that business as well. On innovation, we had 14 product launches, way ahead of what we would have expected a year or two ago. The the feedback at winter conferences I talked about, I go to that every single year. Super strong. Some of the best farmers in the world I think it was one of our best winter conferences. So the innovation engine is going strongly. But the the bulk of the work now is is on channel development. And, establishing our our elite dealers, which is those dealers that carry the full product line. They're the tech dealers. They don't sell tractors and combines. They just sell tech. Establishing them, we've grown that to a little over 70 dealers now. We only had about 40 and, we added about 40, yeah, in 2025. So it's a channel story there as well. If you look at retrofit, it only is down about a third as much as the overall market. So our thesis all along about serving farmers serving the mixed fleet, serving every farmer regardless of brand, is playing out. As long as you keep innovating, that that, farmers are thirsty to be whether they're in a peak or a trough market, they're thirsty to be more productive and profitable. Mig Dobre: Appreciate the color. That was really helpful. And then, I guess my follow-up going going back to EMEA, can you talk a little bit about how how we should think about margins? I mean, margin here in '25 surprised at least relative to our model pretty consistently. Should we be thinking additional margin expansion in '26 especially as maybe volumes here get a little bit better? Thank you. You. Damon Audia: Yeah. Nick Nick, overall, I think you're gonna see the European margins stay relatively consistent here in 'twenty six versus 2025 on an annual basis. May mix a little bit in quarter depending on production schedules, timing of pricing actions, but but generally speaking, would expect to see Europe right around that percent operating margin where they finished last year. Operator: The next question will come from Jamie Cook with Truist. Please go ahead. Jamie Cook: Hi, good morning. Nice quarter. I guess Damon, just two questions. You just answered the question on e margins. Just wondering how we're thinking about margins or sorry, losses in North America in 2026 relative to 2025, given the top line outlook and how where we end up in South America with concerns about some of the discounting I guess then on the positive, I think operating cash flow number, it was very strong in the fourth quarter for the year. So was there anything unusual in that? Is there any reason to believe free cash flow conversion has opportunities to improve from here? Thank you. Damon Audia: Yeah. Good morning, Jamie. And, I think on on North America, we're as I in one of the earlier questions, we will be underproducing relative to retail in in the first half of the year. So you're gonna see the the North American margins are are gonna be negative likely for the first two to three quarters. A little bit too early to to see how they play out in the fourth quarter right now given the the industry outlook, but I think for us, we'll see Q1 and Q2 will likely be worse than Q1 and Q2 last year given the underproduction and the decline in the large ag market. And then hopefully, we'll start to see the margins improve year over year, but still be down in Q3, which is likely a negative for the full year. So but we'll see how that fourth quarter starts to pan out Fourth quarter free cash flow, again, I so I've said in my comments, just great performance, record free cash flow for the year. A lot of that was to do with the incremental volume that we saw flow through in North America and the significant volume increase we saw in South I'm sorry, in Europe. As you know, Jamie, we sell those receivables to AGCO Corporation Finance so that receivable translates into cash for us very quickly. So great result for us there. As I think about twenty-six, we still feel comfortable in that conversion ratio of 75 to a 100% of of adjusted net income. So we'll stick with that for, for 2026. If I think about working capital, here for '26, again, I expect us to continue to refine our inventory, but we'll see how the build comes up The team has done a really nice job with forecasting, and getting the scheduling in our factories better, helping take out some of that working capital in the system. So I'm hopeful that there's a little bit of a modest improvement in working capital 26 as well. Eric Hansotia: Thank you. Operator: The next question will come from Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everybody. I wonder if we could just talk about your Precision Planting product lines specifically. What kind of demand are you anticipating for this planting season? How does 26 versus 25 look for that product on a retrofit and first fit? Basis, if you mind. Eric Hansotia: Yeah. We're we're expecting, you know, the market in general to be down in North America as we you know, the overall market kinda moves in the same direction. But we think that there's gonna be enough attention on the retrofit business that it won't move down as much. And there's a lot of interest in AeroTube. That's the new seat placement launch that we had where you it places the seed tip down and at the right orientation. So when it comes out of the ground, it it perfect emergence and the leaves have more capture of sunlight. That's all. That's unique to precision planting. There's nothing else like it in the in the world, and and we think that that's gonna generate a lot of attention. But so is the dual boom spray system. So we we're we're pretty bullish Those two, hardware products combined with our PharmEngage platform we think that there's a lot of interest in the precision planning market. Especially those two are predominantly biggest hits for North America. Damon Audia: Yeah. And, Jerry, just to put some numbers, I know we've had a couple questions on PTX. So 2025, the PTX team, did an exceptional job. They they hit their numbers. They finished the year right around $860 million. So credit to the team, they were on forecasts or above every quarter, so a little bit better than where we finished 2024. And for 2026, again, Eric alluded to, we do see the retrofit market doing better than the equipment market. And I I would say right now, we see the, the '26 PTX revenue flat to to modestly up versus the $8.60 that they finished, this year here. So good performance by the team and a lot of new products as Eric touched on giving us some good momentum especially on that retrofit channel. Jerry Revich: Well, that's that's a good year given the backdrop. And in terms of the overall cost structure, obviously, you folks have done a lot of work. Can you talk about any incremental opportunities that you're considering? You know, obviously, the the tariff headwinds are pretty painful. Do we see more potential opportunities if we think about the cost structure exiting '26 versus starting '26? Damon Audia: I think, Jerry, for us, from the SG and A standpoint, what we've sort of communicated to the here for the 60 for the 40 to 60,000,000 of incremental costs, I think we got fairly really good visibility on that. Eric alluded to more on the cost of goods sold side. And I wouldn't say that's necessarily connected to the tariff environment. But as we think about how do we make ourselves more efficient without compromising to the farmers, we do think there are some opportunities to evaluate our sourcing. Now that may come to certain that may help us from a tariff standpoint, but as we think about that, it's identifying suppliers who can deliver the quality that our farmers demand but doing it in a way that's lower cost for us and really leveraging the economies of scale that we have with our Massey Ferguson and our Vulture brands. Globally globally. And so we see some opportunities for that helping improve the cost of goods sold. And helping position the margins for Massey and Vulture more, especially as these volumes start to pick up hopefully in '27 and beyond. Operator: The next question will come from Tami Zakaria with JPMorgan. Please go ahead. Tami Zakaria: Hey. Hey. Good morning. Thank you so much. I wanted to get some color on how you're thinking about operating margins by the different regions. If if you could provide some color there, North America, Brazil, Europe, how to think about you know, as the year progresses, like, first half for back half. So any color you can give on regional margins as it relates to first half and back half would be helpful. Damon Audia: Yeah. Sure. No worries, Tammy. I think for as Mig asked in the question, I think Europe should stay right around that 15% margin for the full year and similar to what we've seen in the individual quarters. As the other question came up on North America, think you're gonna see North America, let's say, directionally down in a loss position position probably in that sort of high single, low double-digit range for '26 based on the industry forecast. It's gonna be worse year over year in the first half given the industry and the underproduction and then probably a little bit better than what we did last year in the back half of the year. And then South America, that's kind of, as you know, a little bit uncertain right now. Overall, for the full year, I think it'll be our fourth forecast shows it being modestly better versus versus 2025 on a full-year basis. Gonna start worse off because we gotta do some underproduction here. We've gotta get the dealer inventories, and we've got some weaker mix right now and then sort of picking up to be a little bit stronger in the back half of the year given what we saw here in the back half of 2025. So I'd say margins for the full year relatively flat, maybe a little bit above but more of a shift between first and second half, and then Asia being relatively flat relative to last year from an overall margin perspective. Tami Zakaria: Understood. That's very helpful. And quickly, I think there's been some announcements on Indian tariffs going down. Any any thoughts on whether that could be a tailwind for you And overall, like, could you remind how much of tires and pack is currently baked in so we can kind of keep track if if other tariff rates come down. We can sort of calculate this off with that. Damon Audia: Yeah. Absolutely. So if we think about the incremental tariff cost that we're gonna to see in our P and L in 2026 versus 'twenty five, and it's just the tariff costs themselves, that's about a $65 million headwind year over year. And if I think about what we incurred in our P and L last year, it was around $40 million So the absolute total tariff cost in '26 will be just around $105,110,000,000. So we've set around 1% of our sales. So that's sort of directionally where we're at. But about 65 of that will be incremental to 2020, to 2025. And that's what's compressing our year over year margins because when you look at our pricing guide of two to 3%, as I said on the call, at 3% when you look at inflation plus tariffs, we're only going to cover that on a dollar basis at the three. So that's actually margin dilutive and if you look at the midpoint of our pricing guide we would actually be negative from an earning standpoint and it would be margin dilutive. So that's sort of what's in the numbers right now. Based on what we know. If what was communicated related to India does come to fruition. Probably not gonna have a big effect on us Tammy. It's a couple it would be a couple million dollars of a positive but not a not a big mover to that $65 million that I just quoted. Operator: Please go ahead. And the last question today will come from Angel Castillo with Morgan Stanley. Esther O'Shaneya: Hi. This is Esther O'Shaneya. On for Angel. Congrats on a good quarter. My question is, maybe going back to tariffs, could you maybe give us like kind of the cadence, each quarter going to 2026? Do you see more happening in the first half or second half? Or is it kind of equally, divvied up? Damon Audia: Yeah. Good morning, Esther. So, overall, given the timing of the tariffs last year, again, as I think about that $65 million incremental, it's going to be heavily weighted here in the first half of the year because if you remember the timing of when tariffs rolled in last year, coupled with the level of inventories that we had and our dealers had we really saw that start to pick up in the third quarter and more into the fourth quarter. So you're sort of looking at probably the majority of that 65 sitting in the first half. And then the balance of it sort of rolling in in the third quarter and then being somewhat neutral in the fourth quarter. Esther O'Shaneya: Okay. And just a follow-up, are there any limiting factors in your ability to under produce at a greater degree just to kinda fix some of the excess inventory you mentioned in the call today? Eric Hansotia: So there's no Damon Audia: there's no inhibitors for us in reducing our production. But I think you have to understand the complexity of a full portfolio And as we talk about the industry, the planter industry, industry is different than the combine industry, which is different than a low horsepower, medium horsepower, high horsepower. So depending on which industry is fluctuating and what that dealer has on his or her yard will influence our production. So we don't have any take or pay contracts with suppliers. We don't have any issues that prohibit us from slowing our production, but it's more as the different types of products have different dynamics that influence them that's what may adjust the inventory or the the, the months on hand that we then have try to adjust. Operator: This concludes our question and answer session. I would like to turn the conference back over to Eric Hansotia for any closing remarks. Eric Hansotia: Great. So I just want to thank everybody for joining us today and, some of the really good questions. 2025 reflects a meaningful progress year that we've made in transferring AGCO Corporation. Into a more resilient, better-positioned company We're executing with discipline and focus on what we can control. In a pretty volatile market. And we're always staying focused on our farmer-first strategy, to to that creates purpose for our employees. Our global team delivered a 7.7% adjusted operating margin in 2025. That's a high watermark and notable achievement at this stage of the ag cycle, best we've ever performed at the trough. I'm really appreciative of the commitment and results of our team and our dealer organization. We remain focused on delivering for all stakeholders. For our farmers, our innovation flywheel continues to spin fast. With solutions designed to solve real on-farm problems. We recorded a record net promoter score, and have a record set of patent filings. So farmers like what we've got, and we've got more coming. For shareholders, we exceeded, executed a $250 million accelerated share repurchase in quarter four as part of our $1 billion program, and we're in a new chapter in that regard, with our ability to to do share buybacks. And share buybacks are probably coming more in the future. Because we had a record free cash flow of 07/2025, all-time high mark for for AGCO Corporation. Our 2026 outlook reflects our ability to keep earnings earning the trust of farmers and OEMs. Transforming our dealer network gaining market share, driving our high-margin growth levers, and executing structural changes, and cost initiatives that will position us well for when demand recovers. 2025 was the bottom of the trough and the fleets in our major markets are at the peak of their age. So we expect that the the future looks brighter. Thanks for everybody's participation today. Operator: Thank you for joining the AGCO Corporation earnings call. The call has concluded. Have a nice day.
Operator: Good morning, everyone, and welcome to the CMS Energy 2025 Year End Results. The earnings news release issued earlier today and the presentation used in the webcast are available on CMS Energy's website in the Investor Relations section. This call is being recorded. After the presentation, we will conduct a question and answer session, and instructions will be provided. Just a reminder, there will be a rebroadcast of this conference call today beginning at 12 PM Eastern Time running through February 12. This presentation is also being webcast and is available on CMS Energy's website in the Investor Relations section. At this time, I would like to turn the call over to Mr. Jason Shore, Treasurer and Vice President of Investor Relations. Jason Shore: Thank you, Adam. Good morning, everyone, and thank you for joining us today. With me are Garrick Rochow, President and Chief Executive Officer, and Rejji Hayes, Executive Vice President and Chief Financial Officer. This presentation contains forward-looking statements, which are subject to risks and uncertainties. Please refer to our SEC filings for more information regarding the risks and other factors that could cause our actual results to differ materially. This presentation also includes non-GAAP measures. Reconciliations of these measures to the directly comparable GAAP measures are included in the appendix and posted on our website. And now I'll turn the call over to Garrick. Garrick Rochow: Thank you, Jason. And good morning, everyone. Before we get into the financial results, I'm very proud of the team in 2025. As you see from the slide, I want to highlight a few of the big wins the CMS Energy team delivered in 2025. First, I'm very pleased with our large load tariff, which was approved in November. Supplying energy for data centers is a national story, and the rush to serve is on the mind of utility leaders. I'm very proud of the tariff the team worked so hard on this year because it's strategic and thoughtful. It protects our customers and supports growth in the state. This tariff provides certainty for our data centers as we bring new load onto the system and ensures existing customers don't pay a single cent for the investments. In some cases, they will see tangible benefits as this new load supports more affordable rates as we grow Michigan. Next, we received approval for our twenty-year renewable energy plan. Another area the team worked hard on to put the right plan together that meets the requirements in our state's energy law. More importantly, this approval highlights the constructive regulatory environment in Michigan and provides visibility and certainty for our long-term investments in solar and wind, providing roughly $14 billion of customer investment opportunity over the next decade. On this last one, we have a saying around here: Victory loves preparation. I want to talk about our gas business. It's been a cold start to the winter, and as always, we have been prepared to serve our customers. That doesn't happen by luck or accident. That is a deliberate commitment of our team who work every day to buy gas at the lowest price, store it in some of the largest storage fields in the nation, and deliver it safely and reliably to our customers. We're reducing the price of gas when it is needed most by our customers. This is affordability in action. This reflects our ongoing work to replace this important storage and delivery infrastructure, investing over $1 billion in the year so we are there when our customers expect us. At CMS Energy, we wake up every day committed to serve and deliver value for all our stakeholders. In 2025 marks our twenty-third year of industry-leading performance. As we prepare for these calls, we do a lot of work on slides, and we all have our favorites. This next one is mine. It highlights the team's commitment to excellence and what we are able to achieve. It shows results, proof points of the great regulatory construct in Michigan. I know you hear from Rejji and me all the time when we're on the road. Our long history of constructive outcomes, multiple years, multiple cases, then add the unique mechanisms like incentives on energy waste reduction, you know, PPAs, all of which is built into the energy law. It's an outstanding construct. More importantly, we have been successful in getting top-tier outcomes to support our long track record of performance. This year was no different. Two rate orders, electric and gas, both approved with constructive outcomes, delivering big wins for our customers, supporting critically important work to improve electric reliability and ensure gas safety across our system. Our twenty-year renewable energy plan approved over $14 billion of customer investment opportunity to achieve the state's energy law by 2040. Visibility and certainty for the recovery of our investments. We also delivered on the first-ever storm deferral mechanism approved in June. Our large load tariff was approved in November, priming the pump for growth. Like I said, my favorite slide. These important outcomes provide visibility and certainty for customer investments in our electric and gas systems. This track record of constructive outcomes continues to highlight what the CMS Energy team is able to achieve and further reaffirms Michigan's top-tier regulatory environment. I look forward, I have confidence in our ongoing electric rate case. Given the reactions to our recent proposal for decision, I would remind the investment community that this is simply a step in the process and it is not reflective or consistent with our strong track record of performance. The MPSC staff professionals have spent significant time with the testimony and merits of this case. Staff position is constructive, and I would argue much closer to the expected rate case outcome. I would also note that the commissioner's previous public comments from the bench support the need for an improved electric grid in constructive ROEs. This case is built on the fundamentals of our reliability roadmap, the MPSC Commission Liberty distribution audit, and the necessary customer investments to support electric reliability while maintaining affordability. I expect a constructive outcome for our customers and investors. I also expect the ROE to be 9.9% or better. In our recently filed gas rate case, I'm confident in the investments to ensure the gas system is safe, reliable, and clean, and the value to customers of our proposed full gas decoupling. As I shared a moment ago, our gas price is on the decline. Our residential natural gas rate is 28% below the national average, striking the right balance between investment in the system and affordability for our customers. Now onto the financials. For 2025, we exceeded our adjusted earnings per share guidance and delivered $3.61 per share. This is up over 8% from 2024's actual result and delivers that compounding of earnings you have come to expect from CMS Energy. Throughout 2025, we continue to see strong performance at the utility, largely driven by constructive regulatory outcomes and robust performance at NorthStar driving full-year results. This performance allowed us the opportunity to exceed or beat guidance at year-end, deliver better service for our customers, and derisk the business for the coming year. For 2026, we are raising our annual guidance by 3 to $3.83 to $3.90, which represents 6% to 8% growth off of 2025 actual results. We continue to guide toward the high end. Our practice of rebasing higher off of action is a differentiator in the sector and provides a higher quality of earnings for our investors. We deliver year in and year out. Easy straightforward math, compounding growth, and bringing greater value. How we've done it for years. We're also reaffirming our long-term guidance range of 6% to 8% toward the high end. As part of our total shareholder return, we'll continue to grow the dividend as we have for over twenty years, targeting a dividend payout ratio of approximately 55% over time. Finally, remain confident in our ability to manage the business and execute year in and year out regardless of circumstances. Twenty-three years now. Consistent industry-leading performance. On slide six, we've highlighted our five-year $24 billion utility customer investment plan, up $4 billion from our prior plan. These investments are necessary to deliver better customer service through improved reliability, both in distribution and supply. I want to take a moment to connect the dots on why I'm excited and confident in our ability to execute on this plan. First, we've increased our electric generation investment by approximately $2.5 billion over the previous plan. Most of this customer investment is already approved in the renewable energy plan, with the visibility and certainty I mentioned earlier. Another customer investment that I communicated on previous calls is the addition of natural gas generation in battery storage. Our integrated resource plan that we'll file in mid-2026 will detail additional capacity needed to replace retired plants and support existing and future growth. This customer investment opportunity is not contingent on new data centers but growth already or soon to be connected to our system. We know we are well on our way in planning and preparation to deliver capacity in this five-year window. Second, we continue to roll more of our electric reliability roadmap into our five-year plan to strengthen our electric distribution system, which has increased by approximately $1.2 billion over the previous plan. This work and these investments are well aligned with the Michigan Public Service Commission, the results of the Liberty Distribution Audit. We've also seen constructive support for our investment recovery mechanism in the rate case process. Finally, our gas investments also increased in this plan in the amount of approximately $400 million. This aligns with our ten-year natural gas delivery plan as a result of greater demand across the gas transmission system for power generation and industrial growth. So when I step back and objectively look at our five-year customer investment plan, there is visibility and certainty around the investments. We have an efficient workforce to get the work done. The work provides significant value to our customers, and I have confidence we can do it affordably. This plan supports 10.5% rate base growth through 2030. In addition to our robust customer investment plan, we have meaningful growth drivers outside traditional rate base, which are unique to Michigan and CMS Energy and are sometimes overlooked. The financial compensation mechanism, which allows us to earn on PPAs, grows over the five-year period, offering nearly $50 million of incentives by the end of the decade. There's approximately $65 million per year of incentives through our energy efficiency programs enhanced by the 2023 energy law. We also expect incremental earnings from our nonutility business, NorthStar Clean Energy, as we continue to see attractive pricing from capacity and energy sold at Dearborn Industrial Generation, or DIG. Now we make all these investments with a strong focus on customer affordability. We have a proven track record of driving customer savings through the CE Way and digital automation. Episodic cost-saving opportunities, low growth, and energy waste reduction. This creates capital headroom, which maintains affordability as we make important and needed investments in our system. To offer a few examples, in 2025, we had another great year leveraging the CE Way to deliver work more efficiently. Over $100 million in savings. In 2025, our energy waste reduction program will save our customers approximately $1.2 billion, reducing our customers' bills. Because when you use less, you pay less. Our efforts here are making an impact. Today, our customers' utility bills remain roughly 3% of their total expenses or what is often referred to as share of wallet. This is down 150 basis points from a decade ago. While we've invested significantly in our system to the tune of roughly $24 billion. I'm also pleased to share that our recent electric bill increases are among the lowest in the country. We are committed to keeping our residential bills below the national average. Midwest average too, and plan to be over the five-year plan period. This is an important commitment. Every penny we spend on our infrastructure investments is done with customer affordability at the center. As I've said before, Michigan is growing, and I continue to be positive and confident about the progress of the data center we announced on the Q2 call. The large load tariff was an important milestone to provide clarity for the data centers and to protect our existing customers. I'm pleased to share that there has been great progress with the data centers that are considering locating in our service area. Regarding the data center referenced on the Q2 call and depicted on the slide, we've reached commercial terms on the extraordinary facilities agreement, which is similar to an ESA or electric service agreement. We're also at near final terms in our rate agreement. Our agreements have a path to serve their peak demand. We know both the timing and incremental supply resources that are needed to serve this load. We also know the expected ramp timeline. That timeline would have their data center online as early as 2028. Keep in mind, the data center is not yet reflected in our five-year customer investment plan. In addition, we are in advanced talks with the second data center that has been public about their expansion in Michigan and specifically in our service area. We can't give more details at this point. I can say we are working with them on their needs. We are looking forward to serving this prospective customer. Our pipeline for growth is exciting and robust in Michigan and in our service area. We are well equipped and prepared to serve data centers and manufacturing customers. On that high note, let me hand the call over to Rejji to offer additional details. Rejji Hayes: Thank you, Garrick. And good morning, everyone. To elaborate on the strength of our financial performance in 2025, on Slide nine, you'll note that we met or exceeded all of our key financial objectives for the year. Most notably, our adjusted earnings per share. To avoid being repetitive, I'll just note that we successfully invested $3.8 billion largely in line with our original guidance to make our electric and gas systems safer, more reliable, and cleaner on behalf of our 3 million customers at the utility. We managed to do this while funding the business in a cost-efficient manner largely through operating cash flow, well-priced bond and equity financings, and tax credit transfers. This prudent funding strategy enabled us to maintain our solid investment-grade credit metrics and associated ratings as affirmed by each of the rating agencies over the course of the year. Most recently by S&P for our parent company, CMS Energy, in December. Moving on to our 2026 EPS guidance on Slide 10, you'll note the rebasing off the range higher off of our 2025 adjusted EPS actuals as per our historical practice. More specifically, our 2026 adjusted EPS guidance range has increased by $0.03 per share on both ends of the range to $3.83 to $3.90 per share. Our increased 2026 EPS guidance implies 6% to 8% growth with continued confidence toward the high end of the range as Garrick noted, which is effectively 7% to 8% given our historical performance. As you can see in the segment details, our EPS will primarily be driven by the utility providing $4.28 to 4.33¢ of adjusted earnings. We plan for normal weather, constructive regulatory outcomes, and earned returns at or near authorized levels. At NorthStar, we're assuming an EPS contribution of $0.25 to $0.30, which incorporates normalized operations at DIG, benefiting from an increasingly favorable mix of capacity contracts and the completion of select renewable projects. Lastly, our financing assumptions remain conservative at the parent segment with expected equity issuances of approximately $700 million to support the increased capital plan at the utility. Our guidance in the parent segment also includes a full year of interest expense from last year's successful convertible debt offering in the fourth quarter and assumes the absence of liability management transactions. To elaborate on the glide path to achieve our 2026 adjusted EPS guidance range, you'll see the usual waterfall chart on Slide 11. For clarification purposes, all of the variance analyses herein are measured on a full-year basis and are relative to 2025. From left to right, we plan for normal weather, which in this case amounts to $0.22 per share of negative variance given the absence of favorable temperatures experienced in 2025, largely in our electric business. Additionally, we anticipate 37¢ per share of pickup attributable to rate relief driven by the residual benefits of last year's gas and electric rate cases and the expectation of constructive outcomes in our pending electric and gas rate cases. Outside of the general rate cases, we also expect to see earnings contributions from our investments in renewable generation assets in accordance with our recently approved renewable energy plan. As always, our rate relief figures are stated net of investment-related costs such as depreciation, property taxes, and utility interest expense. As we turn to the cost structure in 2026, you'll note 12¢ per share of positive variance due to the anticipation of continued productivity driven by the CE Way and more normalized storm activity in our service territory. It is also worth noting that our projected operating expenses reflect the benefits of operational pull-aheads executed in 2025, and as always, we will adjust our cost assumptions in accordance with rate case outcomes. Given the financial flexibility inherent in the forward-looking test year. Lastly, in the penultimate bar on the right-hand side, you'll note a modest variance, which largely consists of growth at NorthStar per my earlier comments. This bucket also includes the roll-off of 2025 liability management transactions and the usual conservative assumptions around parent financing costs and taxes among other items. In aggregate, these assumptions equate to a variance of negative 5¢ to positive $0.02 per share. As always, we'll adapt to changing conditions throughout the year to capitalize on opportunities and mitigate risks. To deliver on our operational and financial objectives to the benefit of customers and investors. On slide 12, we have a summary of our near and long-term financial objectives. As Garrick noted, from a dividend policy perspective, we're targeting a payout ratio of approximately 60% in 2026. And roughly 55% over the course of our five-year plan. Given the elevated cost of capital environment, and the breadth and depth of customer investment opportunities before us, we continue to believe that it is prudent to retain more earnings to fund growth. From a balance sheet perspective, we continue to target solid investment-grade credit ratings and we'll continue to manage our key credit metrics accordingly as we balance the needs of the business. As such, we intend to continue our at-the-market or ATM equity issuance program in the amount of approximately $700 million in 2026 as mentioned earlier. Over the course of the five-year plan, our aggregate equity needs will be consistent with our historical ratio of $0.40 of equity for every dollar of incremental CapEx. And equates to an average of approximately $750 million per year given a substantial increase in our five-year customer investment plan. While we do have some capacity remaining with our existing ATM program, you can expect us to file a new prospectus supplement to reflect our updated needs later this year. Lastly, we also expect select large multiyear economic development projects to begin ramping up in 2026, yielding approximately 3% weather-normalized load growth for the year. With run rate assumptions of 2% to 3% in the outer years of our plan. Slide 13 offers more specificity on the funding needs in 2026 at the utility and the parent. At the utility, we're planning to issue a little over $1.7 billion in aggregate. And at the parent, you'll note that our debt financing needs were pulled ahead in November 2025, which leaves the aforementioned equity issuance needs of roughly $700 million. Needless to say, we'll remain opportunistic throughout the year and we'll continue to monitor the markets for attractive issuance windows. On slide 14, we've refreshed our sensitivity analysis on key variables for your planning assumptions. As you'll note, with reasonable planning assumptions and our track record of risk mitigation, the probability of large variances from our plan is minimized. Our model has served and will continue to serve all stakeholders well. Our customers receive safe, reliable, and clean energy at affordable prices. Our diverse and battle-tested workforce remains committed to our purpose-driven organization, and our investors benefit from consistent industry-leading financial performance. And with that, I'll hand it back to Garrick for his final remarks before the Q and A session. Garrick Rochow: Thanks, Rejji. At CMS Energy, we deliver. Twenty-three years now of consistent industry-leading performance regardless of changing circumstances. Year in and year out. You can count on CMS Energy to deliver for all of its stakeholders. With that, Adam, please open the lines for Q and A. Operator: Thank you very much, Garrick. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you're using a speaker function, please make sure you pick up your headset. We'll proceed in the order you signal us, and we'll take as many questions as time permits. If you do find that your question has been answered, you may remove yourself by pressing the star key followed by the digit. We'll pause for just a second. Our first question comes from Julien Dumoulin-Smith from Jefferies. Julien, please go ahead. Your line is open. Julien Dumoulin-Smith: Hey, good morning, team. Thank you guys very much. As always, appreciate your infectious energy you convey on these calls. I look. If I can kick it off here as it pertains to the data center opportunity you guys alluded to here. Obviously, you're in advanced talks as you characterize it here. Can you give us a little bit more of a sense as to where we stand on data centers in Michigan? Obviously, there's been a lot of discussion in the state more broadly, maybe not necessarily specifically as the second site here. But how are you thinking about that opportunity, and how would you set expectations on the timeline? Obviously, can't give too many details, but at least from a financial update, and frankly, in terms of a roll forward of your overall plan, you've put a lot of progress in here with 10.5% rate base CAGR. Just want to see how you would marry up any kind of timing on a second data center here against your wider financial plan here ultimately. This is best you can tell right hear from you. Garrick Rochow: Yeah. Julien. Good morning. Like, I'm very pleased with the progress from a data center. And you look at that entire funnel, and that funnel has actually grown. We've had just in the last month, another two data centers joined the grouping there. Again, they're kind of at the top of the funnel. They haven't worked their way through. Even in broader economic development, there's two large manufacturing customers that are in that funnel too that are relatively new in thing. And so like, Michigan's economic development story looks very, very strong from my perspective. And then they're continuing to move through that funnel, and we pull we've blown a couple of them out in my prepared remarks. And so like, again, referencing the you know, the one we announced in Q2 with a with a you know, a tentative agreement. That's continued to move forward. The first piece is getting that data center tariff in place. That really paves the way. Right, for these. They know the they know the terms. They know the conditions. And so getting the facilities or extraordinary facilities agreement in place was a big win. And, again, that's comparable to a service agreement or electric service agreement. Other utilities. And then this rate construct or rate contract is at near near final. And that's necessary to go through the regulatory process of approving the contract. Right? And so I feel good about that. That should be a short process because we've done all these preapprovals. Right? And so, again, that's a good glide path. And we continue to work with these customers on finalizing zoning. And so everything is headed in the right direction here. Which gives me a lot of confidence about our ability to secure well, a couple data centers potentially. But, like, certainly, what I'm focused on is the one where we're closest with the with the contract terms and conditions. That helpful? Julien? Julien Dumoulin-Smith: Yeah. Absolutely. Then maybe secondly, I mean, you guys just gave this big update on the plan here. I just want to nitpick a little bit around it. In as much as it it really puts a lot of latitude within the six to eight here. So would love to think about or or walk through a little bit what's in and what's out of the plan and how you think about the pieces here. Because you get a 10.5% against the six to eight. Obviously, you guys are talking about, you know, a certain degree of dilution against that. But separately, you talked about a $50 million pretax FCM. I talked about some $65 million of energy incentives. Or energy efficiency incentives. You talk about North Star, Digby contracting. Like, if you take the rate base plus some of these other items, how how are feeling about the six to eight? What's in and what's not? Encompassed in the formal plan today? I I'm I'm cognizant much of the data center discussion we just had is not explicitly. Garrick Rochow: Yeah. Just to just to confirm that, the data center piece not, and that would be incremental, investments. And we again, we know what that timeline looks like and those resources and how to accommodate those to deliver for the customers. But Rejji will walk through a little bit of math here. In the six to 8%. Rejji Hayes: Yeah, Julien. We thought we'd get that question within the first three or so questions. So you you did meet the over under on that. So well done. Yeah. And so, I think you've got the components right. Where you've got 10 and a half percent rate based CAGR over the five-year window. And then if you add NorthStar, opportunities as well as the FCM, both of which have grown versus the prior vintage. That adds about another point on top of that 10 and a half percent. And then there's some other puts and takes that we could certainly spend some time on offline. And so that gives you I would say, a low double-digit CAGR, with NorthStar, FC FCM plus, rate-based growth. What bridges it down to the guide of six percent eight with the confidence toward the high end, which as I said in my prepared remarks, is call it let's call it seven to 8%, and let's realistically call it 7.5% to 8%. What bridges you down to that is just the funding cost because we are issuing more equity in this plan versus the prior vintage. We've quantified that as about three and a half percent, just given our market cap today and, again, the quantum of equity. And so you're going from a low double-digit CAGR of growth netted down by that equity that, again, is around three and a half percent. The other, driver of sort of downward pressure on that growth is just the fact that we've got about $1.7 of parent refinancings over the course of this five-year plan. And it's important to remember that, unlike the prior sort of fifteen years or the first fifteen years of this century, money is no longer free. And so, unfortunately, we'll be refinancing those parent bonds at issuance levels higher than initially they were funded at. So there's a little bit of a negative arbitrage. We're not alone in this. The entire sector will be impacted by that. But needless to say, it's important to remember that the parent company, those financing costs are nonrecoverable. And so it's a combination of the equity needs and just parent refinancings that will drive us back down to that seven and a half to 8%. And the last thing I'll note is just even if you do that math out and you say, okay. Well, there's a little bit cushion. That kinda gets me to about eight and a half percent. Remember, we compound off of actuals every year. As Garrick noted in his prepared remarks, we think that's a higher quality of earnings, and you do have to build in some contingency to be able to do that year in and year out like we've done for the past twenty-three years. And then, of course, as we've talked about before, we do not have a full decoupling yet on gas or and certainly not on electric, and we have storm activity. And so you have to build in some cushion as well for weather weather risk. And so for all those reasons, we feel good about the guide today, and that's how you bridge from that high teens or sorry. Not high teens, but low double-digit, CAGR down to the six to eight and really it seven and a half to 8%. Is that helpful? Julien Dumoulin-Smith: Let me look. May I just Oh, that's actually maybe I just add some Garrick Rochow: Yeah. I wanna add a little more clarity even on the to Rejji's good remarks and just reflect here on 2025. Constructive regulatory outcomes, outperformance on NorthStar, that allowed us to reinvest back in the in the business. Rejji talked about from a pull-ahead perspective. Better customer service. We're able to do that this year. Additional tree trimming, work on the gas, system. We also derisked future years, and there was upside that we're able to pass on to to our investors. And then we have the confidence to, again, compound off that. And add 3¢ to our guide. So, like, this should speak to the the strength of our plan and our confidence in the plan. And so again, don't underestimate this compounding piece, six to eight to the high end. In this compounding of growth. Julien Dumoulin-Smith: That's awesome. Thank you so much, Appreciate the comprehensive nature of that response, and I appreciate I'm on the bingo card today. Alright, guys. All the best. Operator: The next question comes from Nicholas Campanella from Barclays. Nicholas, please go ahead. Your line is open. Nicholas Campanella: Hey, good morning, everyone. Thanks for for the answers on rate base to to earnings walk. That was very helpful. You know, maybe, you know, maybe just a large component of the plan is also just you know, the authorized returns. And, you know, I hear the comments about you know, expecting you know, something closer to a $9.09. Just, you know, the PSD, I I would say, is just quite concerning from know, seeing an eight and change ROE significantly below the national average. Not really representative of the the cost of capital environment that you guys kinda spoke to in the prepared. So just maybe kinda talk a little bit about what the feedback from stakeholders has been since this has come out and how you're kind of viewing the decision tree in in into March here and just overall confidence for a constructive outcome? Garrick Rochow: Look. I'm not concerned about the the ALJ PFD at all. Just to be super clear, this team, the CMS Energy team has delivered and we've got a track record of performance. And credit goes to the team, and a very constructive regulatory environment. And as I shared, just to be clear, we expect a constructive outcome, and I expect an ROE of 9.9 or better. Not close to 9.9. 9.9 or better in the context of this case. And let's just take that 8.2. Like, it's an outlier. It's not well supported. It doesn't match the environment. Like, it's gonna be discounted in this case. But I will point to this. Take the revenue deficiency. That the ALJ offer. 168,000,000. Apply a prevailing ROE of $9.09. It's like the number goes to $3.14. Right? That's actually in the ballpark where staff is at. It's actually a lot closer. So that speaks to the merits of the case. Like, there's good justification for the capital investment. There's good justification for what we need to do in o and m and and tree trimming and storm restoration and the like. And then turn to staff's position. Alright? Like I said in my prepared remarks, professionals. Amazing public servants who are dedicated to understanding this industry. And there's lot stuff that goes on outside the cases. IRPs and REPs and reliability road maps. We're building the case like we're building outside the case for the next case, and then you go into the case. And this team, the CMS Energy team, does an amazing job of and have an our testimony in justification in business cases. For these investments. And the revenue deficiency from staff is very constructive as well. Right? It's $3.03 17. I guess an ask of $4.04 23. And so like, there is a clear path to a constructive outcome. In terms of ROEs, we've heard it. From the bench. From the chair, access has been driven out. And I believe supported by testimony, again, clear testimony supports these ROEs. That this commission sees the importance of attracting and attracting capital to Michigan, and that's important for all stakeholders. Including our customers. So that gives me a great confidence that we'll be able to achieve. A successful outcome in this rate case as well as a ROE of nine nine or better. Alright. Nicholas Campanella: Thanks thanks for those thoughts. Really really appreciate that. And then just know, on the IRP, can you maybe kinda talk about how the one to two gigawatts in final stages kinda impacts the capacity need, just or maybe just level set, you know, without this what is kind of the outlook for the capacity need out to the, you know, early 2030s And then, you know, a follow on is just when you when you would wrap in the one to two gigs, do you see it as truly incremental to the 10 and a half CAGR that you you outlined today just given the large load tariffs, should protect customers from a rate standpoint, and, you know, this should purely translate to rate additional rate base growth? Thanks. Garrick Rochow: Just to be clear on this, the data centers are not in the plan. So any growth from the data centers that are in that funnel are not included in the customer investment plan. Just to be clear about that. And so when I think about this integrated resource plan, and I've shared this in some of the calls, we got a we got a renewable energy law. Or clean energy law. And so much of that's already been approved in the renewable energy plan. So you're gonna see that within this IRP. But there's a gap in capacity. You can put all this clean energy in, but you need to fill the gaps. When the sun's not shining and the wind's not blowing. Just you just have to do that. And you're gonna do that with batteries, and you're gonna do that with you know, natural gas. That's gonna be have to be part of the mix. And so then when we look forward, we also know this. Right? We've got load growth in the state. Again, separate from those that funnel. 450 megawatts of connected load last year. That was on our slide last quarter. Right? Those have already been connected. It's 3% load growth just next year alone, and we forecast two to 3% over the over the five-year plan. And so 've gotta be able to deliver on that. Right? And then you look forward and you've got some retirements. We got current three and four. It's, you know, oil-fired peakers. They're gonna retire in 2031. Right? That's a roughly a gigawatt of capacity. And so those capacity needs that we're foreshadowing here have to play out in this next IRP and are built into this $24 billion customer investment plan. Rejji Hayes: Yeah, Nick. This is Rejji. All I would add to Garrick's good comments is that and I think we've shared this sensitivity in the past, but generally, every gigawatt of additional load we bring onto the system will need anywhere from, call it, 2 and a half billion dollars to about $5.05 plus billion dollars, and that is a combination of distribution-related resources needed to interconnect the load opportunity as well as additional supply. And I think this point that Garrick has raised is critical in our differentiation versus perhaps some of our peers. This CapEx backlog that we're laying out for you today, this five-year plan, the 24 billion not predicated on us landing these large to load opportunities So that creates incremental CapEx and direct to directly ask answer, one of the parts of your question. The rate base CAGR would in fact go up if we landed one of these opportunities and had to build out more capacity to accommodate its needs. So, obviously, a lot of opportunity on the outside looking in and look forward to giving you updates later in the year. Nicholas Campanella: Hey. Thanks a lot. That's really clear, and appreciate the time. Thank you. Operator: The next question comes from Shahriar Pourreza from Wells Fargo. Shahriar, your line is open. Please go ahead. Marcella Pedepran: Good morning. This is Marcella Pedepran on for Shahriar. Thank you for taking our question. Garrick Rochow: Yeah. Good morning. Thanks. Marcella Pedepran: So you highlight bill growth compared to the national average and to share of wallet. As well as potential savings with a one gigawatt data center addition And we've seen rates be a really big topic in gubernatorial elections, so thank you, Sheryl, and New Jersey, and just this week with Josh Shapiro in Pennsylvania. How are you thinking about affordability going into the election year in Michigan? Garrick Rochow: Marcella, it is a great question. The good thing is this isn't our first rodeo. We've been doing the affordability and the cost savings for a long, long time. But this this issue, as you pointed out, is not a Michigan issue. It's broader national And, frankly, when you got a k-shaped economy, like, this president gonna have some challenges in this midterm election. And so when you look at across the nation and particularly look at energy costs, it's most pronounced in PJM. Reminder, we are not PJM. We're MISO. In PJM, all those costs are flowing through the customer. All those supply and energy and capacity dynamics are flowing right to the customer. 50% of the bill. And it's happening with deregulated utilities. Right? All that flows through and impacts the residential customer. The good thing about us, again, we're not PJM. We're MISO. And, also, we're a regulated utility. And we own generation. So we're able to hedge that cost. And I showed on my first slide just this year alone in 2025, we saved our customers $250 million by self-generating with our own units that are a good heat rate versus buying from the market. Exposure to the volatility market. 250. And if you go back a year ago, was over 200 million. If you go back three years ago, approaching $200 million. It's in all if you go back to Q4 calls in the slide deck, you'll see all that information. So, like, that's why I say it's not our first rodeo. We do the same thing in our gas business. We buy gas in the summer. We have the net largest natural gas storage fields in the world. We deliver that low-cost gas in the winter. Keep our gas supply cost low. This affordability is not new to us. I talked about in my prepared remarks, $100 million of savings through the CUA. 450 over the last five years. 1.2 billion of customer measures from energy efficiency perspective. Right? I can go on and on about the things we do. And here's the here's some data. You can look to the Detroit News on this. Richard Zuba, old, Michigan residents, Michigan voters, and they asked about this question on cost of living. And 80% a huge number in a poll. 80% of Michigan residents said the issue with cost of living was groceries. Groceries. It wasn't energy. Like, it's a different fact pattern here in Michigan. And so we continue to focus on it, and that's why we're able to talk about being below the Midwest average and the national average because we deliver. Now brought up the important piece of this affordability in the election. And just to be clear, we've got 10 people running for governor. It's a crowded field. Right? And everyone's trying to find their little lane. And, you know, they talk about different extremes, you know, extreme politics, like, dead catting. There's all kinds of ways to describe all this stuff. Again, you gotta look at the polling numbers here. And the other important piece is so who's pulling And so we know that. We work with them. That's an important piece. But, also, remember another piece in this, there's plenty of information that shows that rate freezes in Michigan are legal. Go back to act three of 1939. Go to public act one ninety-one of 1982. Go back to case law of Michigan in Michigan, in the Michigan Supreme Court. So again, we've got a good fact pattern affordability. We've got good case law and good precedent. But that's that's not all we do. Well, like, we go meet with these candidates, these gubernatorial candidates, and I pull out two two pieces of paper, double-sided two pieces of paper, and I present them with 10 policy things. Policy and legislative things that they can do to improve affordability. And I will tell you, r like some of them, and d's like some of them, you know what? That changes the conversation. Now I'm with them. Now I'm a partner. Now we're able to provide solutions to continue to take this great affordability equation we have and make it even better. Here in our capital in Lansing, Michigan. And so like, here's part of our success. Twenty-three years of consistent financial performance. That doesn't have my my luck or accident. Right? It's because because I got good energy law. That's a big piece of it. But, also, our job is to be solution providers. To work with everybody on either side of the aisle. And when you can come and be a solution provider, man, that's how you get good outcomes. And that's why this works this investment thesis works and why we're able to do what we do. Great question, Marcella. Marcella Pedepran: Thanks. That's super helpful. I'll leave it there. Appreciate it. Operator: Next question comes from David Arcaro from Morgan Stanley. David, please go ahead. Your line is open. David Arcaro: Hey, thank you. Good morning. A bit of a follow on to that thread and a really hey. Really appreciate the comments, Garrick. I was wondering if you could touch on the data center piece of things on the large load, tariff side. And I guess one effort that we've seen, maybe getting more common, you know, data centers paying their full share of all costs. You know, we saw Microsoft, present that, that initiative on their side. But I was wondering, you know, maybe talk about the large load tariff. And are there ways I mean, there are some costs that are more challenging to allocate, whether it's the full generation cost or whether it's the full transmission cost. How can you, you know, how do you plan to inflate customers, from large loads? Are there strategies that you'd take beyond the large tariff that you've got there? Garrick Rochow: It's a great tariff to protect customers. You know, we're out in the public talking about this, and out some of the misinformation that's out there that this is not gonna raise residential rates at all. In fact, there's a benefit associated with these data centers. And so as I talked about, we're in near final terms with the rate construct. It has to be very clear. About how they're gonna pay for those facts, how they're gonna pay for the capacity in the energy, and it's how it's transmission and distribution, how it's all on their nickel. And so it's great when companies like Microsoft come out and say, hey. Gonna protect the residential customer. It aligns exactly with what this tariff is, you know, aligns greatly with the tariff. And so and we're gonna have to get approval from the Michigan Public Service Commission on these on these contracts. Right? And so it's very clear what the rules of the road are, I'm pleased to say we're making great progress on that. I won't get into specifics of how much supply and when, but, no, like I said, it can be on at the on online as soon as 2028. And, again, as that contracts get finalized, as the zoning is finalized, we'll be sure to share that with the investment community and others. David Arcaro: Okay. Great. Thanks. That's helpful. And not sure if you specifically mentioned, but has there been support from data centers on the large load tariff just in terms of continued interest in, in coming to Michigan, you know, able to work under the new provisions under that tariff? Garrick Rochow: Yes. Yes. In fact, like, I shared on some of my earlier responses, that data center pipeline is advanced. And it's even grown in size. And so, again, both positive indicators, support for this data center tariff. In Michigan's growth. David Arcaro: Great. Okay. Thanks so much. Operator: The next question comes from Michael Sullivan from Wolfe Research. Michael, please go ahead. Your line is open. Michael Sullivan: Hey, good morning. Garrick Rochow: Hi, Michael. Michael Sullivan: Hey, Garrick. Wanted to pick up on the last couple of questions just around data centers coming to to your territory. Particularly on the on the zoning front. You know, there's a lot of articles out there locally and and even nationally too. Just how how much of an impediment has that been, if at all, And how how much should we think about that as just like a gating factor to get get these things over the finish line. Garrick Rochow: I don't see this impediment at all. And just to be clear, I know the Wall Street Journal had Wall Street Journal had an article on this and referenced how Michigan Howell is not in our service territory, but your question is still very important and and very valid. Look. We've been doing business in the state for a hundred and forty years. It goes back to the Foote brothers. And we know those communities that are more pro investment, and we know the ones that are harder. And we know it's because we're building out solar. We're building out wind, we're know, we do pipeline work. And so in part, we help steer these data centers in into those areas where it's it's more accommodating to growth. But, also, the the Wall Street Journal article, I think where where they had it wrong was the more a more moratorium does not mean stopped. In fact, it's a short process. Like, these are thirty, sixty, ninety. Some are a hundred and eighty day moratoriums. But there's still progress being made. And I would suggest it's good due process, these township officials, these community officials are collecting information from their constituents They're doing research, and we just saw this in Mason, Michigan. Right, in our service territory. Had a moratorium in place. It was a ninety day. They actually came out sooner than the ninety day period. And came out with a new zoning zoning ordinance that allowed for data centers. And so again, I say finalizing zoning, we work through those things alongside with the hyperscalers with the developers, achieve success. And, again, I see that as a hold up or an impediment in Michigan. Michael Sullivan: K. That's really helpful. Appreciate the color. And then just shifting back to kind of the pending rate case and regulatory strategy. What are your thoughts on just being able to get back to more frequent settlements to to maybe just take volatility out of the process associated with with ALJs, like the one we just got. And then also, like, potential to space out cases a little bit more just given, I think, there's been commentary from the commission in the past and now whether or not rate freeze is legal, illegal, materializes, but anything that can, like, alleviate pressure on on frequency and then also yeah, just parties putting things forth. And being able to settle more preemptively. Garrick Rochow: As I've shared before, I continue to be open towards settlement and settlement discussions, and we'll continue to explore those. But, again, the merits of the case and just the fact pattern in Michigan, we wouldn't go the full distance as we did last year in 2025 with our case and get very constructive outcomes. And so I'm I'm happy to go that route. And I don't think it's reflective at all about the the environment in Michigan. Again, because at the end of the day, we're getting successful and constructive outcomes from commission. In terms of spacing out, I think a really important data point that I referenced on the call and we have this information. I think, actually, Wolf's presenting this in a different format too, is that Michigan and particularly CMS and and the other large utility, like, our rate increases are some of the lowest in the country. Right? And so can we space them out? Sure. But, like, let's do the math and, like, what's going on in these other states, frankly? And so we've got a really good story. And when we go on an annual rate cases, we're able to pass savings back to our customers We're able to make sure that those increases are more in line with inflation or better than inflation. And so smaller little bites at the at the apple is really a great approach. Now I'm always open. With the right construct if there's a way to to expand those out and go longer. But we have to have the right construct in Michigan to be able to do that. There's some talks, early talks in in that direction, but nothing that it's you know, serious at this point. Michael. Michael Sullivan: Appreciate it. Thank you, Garrick. Operator: The next question comes from Jeremy Tonet from JPMorgan. Jeremy, please go ahead. Your line is open. Jeremy Tonet: Hi, good morning. Garrick Rochow: Hey. Good morning, Jeremy. Morning. Jeremy Tonet: Thanks for all the, good color today. Just was curious, you know, with the upcoming state of the state here, we've seen in other states utilities kind of featured in some of the commentary here. And wondering if you had any expectations or any thoughts to share here, you know, given we've seen in other states? Garrick Rochow: Let me offer this. Again, I'll start with a big headline. Twenty-three years of consistent financial performance. We have that one slide on there. And regardless of the weather, regardless of the CEO, regardless of the governor, again, r's or d's, regardless of the legislature, regardless of the commission, like, we deliver. And I gotta overuse this term probably, but not by luck or accident. Right? It's energy law. Right? And a lot of that is already set. And it's typically bipartisan when it's done. But that sets a lot of the parameters. And, again, when it comes to the commissioners are on staggered terms, the six-year terms, you can only have two from one party. So that sets a lot of the parameters in Michigan. That's the great thing about Michigan. But remember, as one of the largest investors in the state, the gubernatorial candidates know that. As one of the largest property taxpayers in the state, the gubernatorial candidates know that. As one of the largest job providers, and union job providers, gubernatorial candidates know that. Right? And so we have a way of working with these candidates to find solutions. And it goes back to my earlier comment. When I come in and I can bring a gubernatorial candidate, a two pages front and back of good policy solutions what happens in that discussion? Right? Also, I'm in their boat. Right? All my I'm in there helping them be successful. And now when they're out with constituents, they can point to say, here's the three things. Here's the six things. Here's the 10 things we can do in Michigan. To help make bills even more affordable. And remember, we're starting from a really a really good starting spot. And so I mean, that's the that's the dynamic that plays out, and that's how it allows us to be successful. You know, time and time again. So, hopefully, that scratches you the itch of your question there, Jeremy. Jeremy Tonet: Got it. That's helpful. I'll leave it there. Thanks. Operator: The next question comes from Andrew Weisel from Scotiabank. Andrew, please go ahead. Your line is open. Andrew Weisel: Hey. Good morning, everybody. Morning. Garrick Rochow: Morning, Andrew. Andrew Weisel: You covered a lot of the main topics. So I've just got two sort of more nuanced ones. First, on equity. Obviously, as you kind of previewed, tick up from $500 million last year to $700 million this year to an average $750 million in the long-term plan. How should we think about that going forward? Should it be consistent? Should it be ramping up to match the CapEx profile? Or would it be more front-end loaded given the lag of cash recovery per generation relative to distribution? And does that assume additional use of hybrids or JSNs, or would hybrids potentially reduce the equity needs? Rejji Hayes: Andrew, it's Rejji. Appreciate the question. I'm getting to a point age-wise where I when I get multipart questions, I may I have to circle back. So if I miss something, just let me know. But with respect to equity, I I think you you're you've the premise of your question is right. I mean, they they tend to live increase with CapEx needs. And so this plan is 4 billion higher with 24 billion CapEx to the utility than the prior vintage of 20 billion. And so we've said with that historical sort of ratio of $0.40 of for every dollar of incremental CapEx, this plan has about a billion and a half or so of greater equity needs than the prior vintage, specifically prior vintage was $2.2 billion in aggregate. This one's about three and three-quarters. So again, that historical relationship, still highs, and that allows us to maintain that kind of mid-teens credit metric levels on a consolidated basis, which is where we like to be. With respect to junior subordinated notes, we do have a a little bit of those in the plan, over a five-year period. I'd say just over 1 billion. It's a market that we've just seen, quite pleasantly. We've just seen an increase in breadth and depth of liquidity in that market, and we've seen really strong execution, most notably over the last thirty-six months or so. So we have baked in a little bit of that in the plan, not in this year, but later on, say, more 2728. So we do have again, a little over a billion and a half of junior subs in the plan. Given the strong execution we've seen historically. And then with respect to the shaping of the needs, I would say it's, again, fairly commensurate with the capital needs, and the capital needs are somewhat front-end loaded. If you look at the details on the CapEx plan we have in the appendix, in the deck for today. And so we anticipate issuing a a good portion of that in the first three years of the plan and then at levels out. It really kind of, really drops off in the latter two years. Now we will be opportunistic as always, and if we see our stock trading at levels that are, not offensive, and I would submit they are offensive where they are today, you know, we'll be opportunistic. But the plan for this year is to dribble out that $700 million. And over time, again, if we see the stock trading at levels that we think are more reasonable, we may be a little bit more aggressive than So let me pause there and see if that's helpful. Andrew Weisel: It is. Thank you. And your memory is still intact. You you got all of those. Next one, you previously talked about a $20 billion CapEx plan $25 billion of incremental opportunities. Now you're guiding to $24 billion. Should we think of that as pulling for from the opportunities bucket into the formal plan? Or is this more like an incremental 4 billion that you've identified and you still have a similar opportunities bucket beyond the new Outlook? Rejji Hayes: Yeah. So great question. And I would say in terms of that $25 billion of backlog we've been talking about that's outside of the prior plan looking in, yes, we certainly dipped into that with the $4 billion incremental. But I would say it's it's not a perfectly symmetric equation because the reality is we have additional CapEx needs as we're preparing this new integrated resource plan that will likely drive additional CapEx needs. As Garrick and I noted earlier, our plan does not presuppose us realizing some of these large data center opportunities from a customer investment perspective. And so that would add to that backlog as well. And then I would also just note in this plan, obviously, with the growth of financial compensation mechanism related earnings, we are taking some of that CapEx opportunity and converting it into PPAs. And so we have dipped into that well, but I would say from where we sit, the well is quite infinite when it comes CapEx backlog at the utility, and it just grows every year because there's a lot lot to do on both the distribution side and the supply side. And electric and gas has quite a bit to do as well. Andrew Weisel: Infinite. Wow. That's a good word to use. Okay. Thank you so much. Appreciate it. Operator: The next question comes from Anthony Crowdell from Mizuho. Anthony, please go ahead. Your line is open. Anthony Crowdell: Hey, good morning team. Rejji, really happy that CMS is still serving caffeinated coffee in the employee kitchen. Just one one end, you're currently asking for a decoupling in your gas case. Just curious if you plan on I know I'm thinking forward, you're currently in your an electric case now. Thinking in your next electric case, do you ask for decoupling or given the load that you're showing a big increase in industrial load? In 2025 if you're less inclined to SI given the strong load growth? Rejji Hayes: Anthony, appreciate the question. And as always, we we show up for these calls well caffeinated. So, glad you noticed. Yeah. Our intent is to just focus on revenue decoupling, in the gas business. We have looked historically at the trends in terms of sales for our business and just don't see the need, to look to do that for the electric business. So the intent right now is the gas, just for the gas business That's what's embedded in this pending case that we filed in mid-December. And really, no appetite at the moment to look at that from an electric perspective. Anthony Crowdell: Great. That's all I had. Thanks so much. Rejji Hayes: Okay. Yeah. Ahead, Rejji. Anthony, the only other thing I would note is that it it is actually not permitted. To utilize decoupling in an electric business. That is actually a part of the legislation that's been passed. Anthony Crowdell: Okay. Thank you. Operator: Final question today comes from Bill Apicelli from UBS. Please go ahead. Your line is open. Bill Apicelli: Hey, good morning. Garrick Rochow: Good morning, Bill. Bill Apicelli: Had a question around the the 3% residential bill inflation inflation, maybe you could just unpack a bit when we think about 10.5% rate base growth So how much are you managing with the CE Way? And then do you have any else on the affordability side that can help? Right? So I think in the past, you've talked about some higher priced PURPA contracts that roll off. Maybe you could just speak to to other tools that are there to manage the affordability. Rejji Hayes: Yeah. Bill, thanks for the question. And I think you've hit some of the key items that drive that downward pressure on bills and rates every year. So we've been at this, as Garrick noted earlier, for multiple decades now where we really try to self-fund a lot of that rate-based growth. And for, I'd say, two decades, it's been episodic cost reductions, good decisions, and we certainly are assuming that the we do have high-priced PPAs that will be rolling off over time at some point. We'll be out of coal, and so that will drive cost savings as well. And those are a bit more episodic, but the CE Way just continues, to offer more and more savings each year. And I I'll remind everyone that we only about a decade ago, so we think we're just scratching the surface. And I remember going back to 2018, 2019, we delivered probably just under $10 million of operating expense reduction from the CUA. And we were fiving because we were in year two, one or two of, in CEUA. And as Garrick noted, just this past year, we did another year of a $100 million of savings. So a lot of opportunity there, but we're really excited about again, to in terms of levers or opportunities to just self-fund our growth is just converting on this attractive economic development backlog backlog. That to me is really the third leg of the affordability stool. We know that we're very strong in delivering on the cost performance side. But we can also convert, not even all, but just a portion this economic development backlog, you can see that it just drives great downward pressure on bills and rates and funds a lot of these needed customer investments that we have across our electric business. And that's where we provided that sensitivity. In one of the slides Garrick spoke to, we basically have shown that with a gigawatt of conversion on this economic development, backlog associated with the large load tariff, that drives about two points of reduction in that bill CAGR. So again, a lot of a lot of errors in our quiver, and we look forward to continue to executing on all of those to create that downward pressure to fund the CapEx plan. Bill Apicelli: Great. No, that's very helpful. Thank you. And I guess one housekeeping item. It looks like the DNA in 'twenty-eight, 'twenty-nine is about $100 million lower than the prior guide you had given there anything driving that or despite the fact that the CapEx is higher? So any color there. Rejji Hayes: Yeah. Yeah. My sense is it's mix. That usually what it is because you do have different depreciation rates depending on the assets, the distribution assets tend to be longer-lived than the generation assets, and so it's got to be mixed. But the IR team will certainly follow-up with you after the call to unpack that some more, Bill. Bill Apicelli: Great. Thank you very much. Operator: Thank you. This concludes today's Q and A session. So I'll hand the call back to Mr. Garrick Rochow for any closing comments. Garrick Rochow: Thanks, Adam. I'd like to thank you for joining us today. I look forward to seeing you on the conference circuit. Take care. And stay safe. Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Michael Rednor: Good morning, and welcome to Carrier's Fourth Quarter 2025 Earnings Conference Call. On the call with me today are David Gitlin, Chairman and Chief Executive Officer, and Patrick Goris, Chief Financial Officer. Except where otherwise noted, the company will speak to results from continuing operations excluding restructuring costs and certain significant nonrecurring items. A reconciliation of these and other non-GAAP financial measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements which are subject to risks and uncertainties. Carrier's SEC filings, including our Form 10-Ks, quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. With that, I'd like to turn the call over to Dave. David Gitlin: Thanks, Mike, and good morning, everyone. 2025 was an important year for Carrier. The short cycle residential and light commercial markets softened more than we expected in the second half of the year. We made meaningful progress on our strategic priorities and reached major milestones, including growing our data center business to around $1 billion. Notably, even with 10%, and light commercial down about 20%, total company organic sales were down about 1% as we continued to drive growth in our long cycle and aftermarket businesses. We also reduced channel inventory and lowered overhead, while continuing to invest in technology differentiation, salespeople, and technicians. Those actions position us for stronger growth when our short cycle markets recover. We had our fifth consecutive year of double-digit growth in commercial HVAC, while continuing to gain share and increase margins. Aftermarket was also up double digits for the fifth consecutive year. We offset tariffs with aggressive cost and pricing actions, drove strong material productivity, and took decisive overhead cost actions. And as you'll see in our outlook, the cost actions that we execute into 2025 will deliver over $100 million of savings in 2026. Finally, we distributed $3.7 billion to our shareholders through buybacks and dividends. In terms of capital allocation, we remain focused on investing in the highest return opportunities, maintaining a strong balance sheet, and returning cash to shareholders. We will continue to focus on outsized growth in products, aftermarket, and system offerings, and you can see the progress we're making on all three growth vectors starting with products on slide four. Our data center investments are delivering results with fourth quarter CSA data center orders up more than five times. We are still in the early innings, and our expanded portfolio now addresses essentially all major data center chiller applications. Our share of water-cooled chillers has increased four times since spin, and with our recently introduced Maglev bearing air-cooled chillers, we see meaningful share opportunity there as well. Key differentiators include quick restart, free cooling, and leading at elevated ambient temperatures. We introduced our first CDU for liquid cooling in 2025 and plan additional higher capacity CDUs up to five megawatts in 2026. Over the past couple of years, we have expanded our commercial HVAC engine lab and chiller manufacturing capacity globally and have added hundreds of technicians. These multiyear investments have positioned us to outgrow the commercial HVAC market as reflected in our 2026 outlook, with double-digit revenue growth, including data centers up about 50%. Aftermarket also remains a good news story for us as you can see on slide five. Our playbook works, and we continue to improve upon it. Three years ago, we had 17,000 chillers connected. Today, it is over 70,000. Our attachment rate in CSA grew more than three times last year and is now close to 60%, and our global coverage, that is chillers covered by service agreements, is up to 110,000, including Toshiba. We estimate that 70 to 80% of our high complexity chillers are under service contracts. The area within our aftermarket business where we see the highest growth potential over the next five years is modifications and upgrades. Sales last year were up 20%. With a focused team, investments, and strategy, we see great opportunities in cities globally. In 2026, we are well positioned for double-digit aftermarket growth for our sixth consecutive year. Turning to systems on slide six. HEMS offering in The United States is getting tremendous attention from hyperscalers and utilities, and it is not surprising given the magnitude of the impact that our solution can have on the grid. If our integrated heat pump battery solution were in every home and building that Carrier currently serves, we would free up nearly 15% of grid capacity during peak hours. It also weighs favorably versus alternatives in terms of time to market, cost of implementation, and affordability to the consumer. Our Carrier Energy team's progress in 2025 was significant. Through field trials in Carrier employee homes, we have been demonstrating that we can consistently provide up to four hours of battery-powered heat pump operation during peak hours. We are planning market launch later this year. Likewise, in Europe, we have been working closely with our installers to offer differentiated HEMS solutions. Our SystemsProphy installers, those qualified to sell and install complete solutions, including heat pump, battery, solar PV, domestic hot water, all connected through our digital home energy management system offering, drove their sales up double digits last year. We plan to double our number of qualified Prophy installers in 2026, driving strong growth for them and us. Turning to Slide seven. In our CST business, there is no better example of an end-to-end solution than what we're seeing in our container business. Four years ago, links did not exist. Today, we have over 220,000 paid link subscriptions with over 110,000 on containers, including six of the world's top 10 shipping lines. We also recently invested in NetVaso, which provides enhanced wireless IoT connectivity on cargo ships. By combining advanced AI-driven reefer health algorithms in our LINX applications with enhanced ship connectivity, we enable shipping customers to avoid manual checks on refrigerated units and to predict and avoid failures before they occur. This end-to-end solution is expected to help smooth the container and provide meaningful recurring revenues while delivering differentiated customer value. Let me turn now to discussing some of our shorter businesses starting with CSA resi on Slide eight. Over the long term, residential remains a significant opportunity for Carrier. It is a large replacement-driven market with secular tailwinds in and heat pumps, and our leading brands, channels, and installed base are unmatched and position us for outsized earnings growth as demand normalizes. In this market, we estimate demand in a typical year to be around 9 million units. Between 2020 and 2024, our industry averaged 9.7 million units for a cumulative overage, so to speak, of about three and a half million units. Last year, we estimate our industry delivered about 7.5 million units, so we absorbed about 45% of that overage. We are assuming that we absorb the balance in 2026. Our assumption for the year is essentially no change to the macro conditions that we exited last year with. Little change to mortgage rates, consumer confidence, or new and existing home sales. That would result in total industry units down 10 to 15%. With that industry assumption, our sales would be down high single digits as we benefit from the absence of destocking in 2026 compared to 2025, combined with low single-digit price realization. Turning to CSE Residential on Slide nine. The good news in this market is that the transition from boilers to heat pumps is underway with heat pumps growing double digits as anticipated. The bad news is that the total heating market has been in a cyclical downturn for the past few years. Like The Americas, the industry has been absorbing overage that we saw in the 2022, 2023 time frame. We expect continued softness in total heating units in 2026, resulting in expected flat sales with our growth initiatives being offset by lower industry volumes. When unit volume stabilizes, we are well positioned to drive strong earnings growth given our strategic initiatives and the cost actions that we have taken in this segment. Turning to Slide 10 for what this all means for our full-year guidance. With respect to revenue growth, we expect that about 40% of our portfolio, commercial HVAC and aftermarket, will continue to grow double digits. Expected continued softness in our higher margin short cycle businesses, especially CSA residential and light commercial, is expected to largely offset that growth, taking the total to about 1% organic growth for the company. On the profit side, mix is expected to be a headwind somewhat offset by the cost actions that we took last year. Patrick will take you through the guidance in more detail, but we will continue to focus on controlling the controllables all across all aspects of growth, cost, and productivity. We are the best-positioned company in our industry when our short cycle recover, which they surely will, and we are poised to see outsized gains when they in fact recover. We enter 2026 energized and focused on outgrowing our markets, delivering best-in-class solutions for our customers, and driving productivity as we always do. With that, I will turn it over to Patrick. Patrick Goris: Thank you, Dave, and good morning, everyone. I'll provide some color on our results and then move to our 2026 outlook. Please turn to Slide 11. For the quarter, reported sales were $4.8 billion, adjusted operating profit was $455 million, and adjusted EPS was $0.34. As expected, the year-over-year decline in these financial metrics was largely due to much lower volumes in our higher margin CSA residential and light commercial businesses, leading to an overall 9% decline in organic growth partially offset by a 3% tailwind from foreign currency translation. Total company orders were up over 15% in the quarter, driven by strength in CSA Commercial underscoring continued strong demand for our products in this market. Adjusted operating profit was down 33%, mainly reflecting lower organic sales and the unfavorable business mix I just referred to as well as much lower manufacturing output, partially offset by strong productivity. The adjusted EPS decline mainly reflects lower adjusted operating profit, a lower share count, and somewhat higher interest expense and tax rate. We have included the year-over-year adjusted EPS bridge in the appendix on Slide 21. Free cash flow in the fourth quarter of about $900 million reflected a large reduction in inventories and accounts receivable, and full-year free cash flow of about $2.1 billion was in line with expectations. As to full-year results, you can see that our organic sales were down about 1% due to weakness in our shorter cycle businesses, which represent over 50% of our portfolio. Very strong growth in global commercial HVAC, up 14%, helped mitigate the short cycle business' sales decline. Moving on to the segments, starting with CSA on Slide 12. This segment had a very difficult quarter. Organic sales down 17%. Commercial delivered another strong quarter, with sales up 12%, but this was more than offset by lower resi and light commercial sales. Resi sales were down close to 40% with volume down over 40%, offset by regulatory mix and price. Light commercial sales declined 20%. Segment operating margin was just under 9%, a decline of about 10 points versus the prior year, reflecting the impact of lower sales, and significant under absorption in our resi manufacturing facilities, which had less than half the output compared to Q4 of last year. At year-end, field inventories for resi were down roughly 30% year over year in line with our expectations. And we believe that field destocking is now substantially behind us. Similarly, light commercial distributor inventories were down 25% year over year. For the full year, CSA Commercial had another excellent year with sales up over 25% offset by resi down nine and light commercial down twenty percent. Moving to the CSE segment on Slide 13. Organic sales were down 2% with commercial up mid-single digits, offset by mid-single digits declines in resi light commercial. The residential heating market continues to be challenging in this region, particularly in Germany, which is our largest market. Transition to electrification and heat pumps is happening, as reflected by growth in heat pump sales and a decline in boiler sales. Segment operating profit and margin were both up year over year on lower organic sales reflecting the impact of cost actions. Turning to Climate Solutions Asia Pacific, on Slide 14. Strength in India and Australia was more than offset by ongoing weakness in resin light commercial in China, leading to an overall 9% sales decline. Overall sales in China were down about 20%, with Resi and Light commercial down about 30%. Where we intentionally reduced distributor inventory during the quarter while commercial in China was down mid-single digits. Segment operating margin of about 12% was up 100 basis points, primarily driven by strong productivity offset by the impacts of lower sales. Moving to Transportation on Slide 15. This segment had a strong quarter with 10% organic sales growth driven by continued exceptional growth in container. Global truck and trailer was flat in the quarter with growth in North America offset by weakness in Europe and Asia. Segment operating margins, expanded by 30 basis points year over year primarily driven by strong productivity, partially offset by business mix. Turning to Q4 orders. On Slide 16. Total company orders were up 16% for the quarter, with strength driven by commercial HVAC globally which was up over 45% and particularly in CSA, where commercial orders increased 80% reflecting some large data center wins. Applied orders within CSA commercial more than tripled compared to last year. Light commercial orders were up 70% with resi orders about flat. As you can see on the slide, orders were flat to up in every segment. Moving on to Slide 17, and shifting to 2026 organic sales guidance. We expect flat to low mid-single digit organic growth and reported sales of approximately $22 billion. This includes a roughly $350 million year-over-year revenue headwind from the exit of Riello mainly reported in the CSE segment. We announced the sale in December and our guide assumes the transaction closes at the end of the first quarter. Also, Dave mentioned earlier, our outlook reflects continued double-digit growth in commercial and aftermarket globally, offset by continued expected softness in our shorter cycle businesses. In commercial HVAC globally, we expect the first half to be up low to mid-single digits and the second half up mid-teens reflecting comps and customer delivery timing. This back half acceleration reflects conversion of data center wins and delivery of our broader commercial backlog. By segment, we expect CSA and CSE to be up low single digits while CS AME and CST are expected to be about flat. Within CSA residential, we expect a very difficult first half followed by growth in the second half as we benefit from the absence of destocking. CSA Commercial is expected to remain strong. And as I just mentioned, accelerating in the second half as we deliver more of our data center wins. Within CSE, our outlook for a flat RLC business largely reflects expected continued overall heating market weakness. Within CSAME, expected declines in China are offset by growth in the rest of the segment. And in Transportation, declines in container as 2025 was a record year are expected to be offset by modest growth in our global truck and trailer business as well as Sensatec. Moving on to Slide 18, profit and guidance. Profit and cash guidance. Total company adjusted operating profit is expected to be about $3.4 billion. The benefit of modest organic growth and productivity, including prior year overhead cost actions are partially offset by unfavorable business mix given high single-digit declines in CSA resi and light commercial and investments. We expect free cash flow to be approximately $2 billion which will be second half weighted, reflecting our normal seasonality. Finally, we intend to repurchase about $1.5 billion in shares. Moving to Slide 19, We expect adjusted EPS of approximately $2.8 up high single digits versus 2025. Adjusted EPS growth includes about $0.15 from increased operating profit as I just outlined, as well as tailwinds from a lower tax rate and a lower share count which are partially offset by higher net interest expense NCI and the exit of Riello. As usual, additional guide items are in the appendix on Slide 23, and our guide assumes no change to the macro, including the current tariff environment. Finally, let me provide some additional color on the first quarter. As we've communicated previously, CSA resi faces a very tough compare. We anticipate total company Q1 revenues to be about $5 billion with organic revenue down high single digits, including CSA resi down over 20%. We expect Q1 company operating margin to be about 10% largely reflecting the sales and manufacturing volume pressure in our higher margin short cycle businesses. Adjusted EPS is expected to be about $0.50 which includes the benefit of about a 0% effective tax rate due to a discrete tax item in the first quarter. Free cash flow is expected to be a use of a few $100 million in line with our normal operating cadence. While we expect sales and EPS to be pretty well balanced between the first and second half of the year in absolute terms, the year-on-year growth in sales and EPS will obviously be second half weighted. Overall, we will continue to drive operational excellence throughout our businesses as we return to organic growth and margin expansion and remain focused on executing in 2026. With that, I would like to ask the operator to open it up for questions. Operator: We will now begin the question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Nigel Coe with Wolfe. Your line is open. Please go ahead. Nigel Coe: Thanks. Good morning. Wow. What a year. Thanks for all the details. I did want to maybe, Patrick, dig a little bit deeper into the one Q you know, sort of mix? And can you just maybe talk about you know, the CFA margins? And I it it looks to me if if I just eyeball the numbers, it looks like maybe close to 10% maybe maybe low double-digit margins in CSA. And number one, is that correct? And secondly, just run through some of the drivers for that. So, you know, the fixed cost absorption headwinds that you're facing, any kind of raw material impacts, you know, just, you know, kind of what's driving that margin. And maybe the the the recovery part from there? Patrick Goris: Yes. There's a lot there. I'll start with CS expected margins in Q1. And from an overall company, we expect them to be close to about 15% in Q1. Point of view, the way you can think about Q1 is Q1 actually looks very similar to 2025. But with a bit higher sales at about $5 billion. And about a point higher of an operating margin point of view. In Q4, our resi sales were down about 40% and we expect them we expect resi sales in Q1 in The Americas to be down about 20 to 25%. And so that explains a little bit of the uptick in margin in Q1. And then in Q1, because of the 0% effective tax rate, that is about a 10¢ benefit versus so about 15¢ improvement Q4. Five points 5¢ of that is better CSA performance. 10¢ of that is a lower tax rate. Nigel Coe: Okay. Just the 10¢ the 10% overall operating margin is what threw me off there. So maybe talk talk about the other segments, other downside drivers in the other segments. Patrick Goris: Yes. If I go through the other segments, the Transportation segment is expected to have similar margins to the prior year. About 14%. Asia, had very strong margins in the '25. We think the margins will be similar to what we've seen in the 2025, so about the 10%, 11% range. And Europe, we think that the margins will be similar in Q1 as they were in Q4. So generally, similar margins as to what we've seen in our businesses in the fourth quarter of the year. The Americas a little bit better. It's less of a headwind of resi. Nigel Coe: Okay. Thanks, Patrick. Patrick Goris: Thank you. Operator: Your next question comes from Julian Mitchell with Barclays. Your line is open. Please go ahead. Julian Mitchell: Hi, good morning. Maybe just wanted to understand a little bit more that full-year guidance for the CSA residential business. Maybe help us understand what you're seeing in the market on pricing and how you see industry discipline on the price front. And maybe help us clarify kind of how much volume share gain or outperformance you're expecting this year relative to that double-digit I think, sell-in market decline? David Gitlin: Yeah. Julian, let me let me kinda walk you through how we came up with our forecast and guidance for for this year. So we're assuming at the highest level that industry conditions are the same as last year. So no improvement on interest rates, consumer confidence, newer existing home sales. We assume that the second half of 26 industry units are the same as the second half of 2025. So on a two-year stack, that would mean a 30% decline in industry units which is what we assume for the 2026. So all the result there is that in the first half of this year, industry units would be down year over year by twenty year to 25%. And in the second half, industry units would be flat. To the 10 to 15%. Now, Julian, what it means for us is that we believe that the distributor inventory destocking that occurred in the second half of last year is substantially behind us. So, therefore, we think that in the first half of this year, we'll be down 20, 25% consistent with movement. And in the second half, sales will be up our sales will be up 10% given the absence of last year's second half destocking. So a bit complicated, but what that all means is the net result of all of this is that we expect our sales and our our sales and our volume to be down high single digits year over year with our sales including about a low single-digit benefit from pricing. Julian Mitchell: That's super helpful. Thanks very much. Maybe my question would go on a different topic around CS You know, you had this dynamic in 2025 where decent heat pump growth offset by a boiler price and and sort of mix headwind. Just wondered what you're dialing in for that CSE RLC market for the year ahead. And how you see your own internal dynamics vis a vis heat pump and and boilers playing out? David Gitlin: Well, look. I think the mix up is essentially playing out as we thought. You know? So, the issue is that what we're predicting for this year, for 2026, is that the industry overall in Europe will be down mid to high single digits. Now we guide it to flat because we do get the benefit of mix up, you know, heat pumps up double digits, boilers down low to mid single digits. We'll see aftermarket up double digits, which drops through at a point in a point or two. And then we have our growth initiatives and our revenue synergies, are are frankly playing out well. The big issue that we've been having, frankly, is in Germany where we're, of course, overweighted. So remember, we were thinking that the German market would go from something like 715,000 to 660, then we thought 640,000, and it ended up around 600,000. If you look over historically, the German market is about 800,000. So just like in The US, we do think there will be a reversion to to the mean. We just don't think it happens this year given some of the continued ambiguity and uncertainty around some of the heating laws in Germany. Julian Mitchell: Great. Thank you. David Gitlin: Thanks, Julian. Operator: Your next question comes from the line of Scott Davis with Melius Research. Your line is open. Please go ahead. Scott Davis: Hey. Good morning, guys. Morning, Scott. Morning. I'm looking at slide eight, and I'm just trying to figure out how far below normal do you think channel inventories are in CSA resi? David Gitlin: Yes, Scott. We as we sit here today, we ended we ended January versus January down about 30 per 32%. So we we did go to great lengths with our channel partners. To end at the field inventory levels that we had we had said. And, you know, that's putting us at, like, twenty eighteen type levels. So the good news is that the field inventory that we targeted to get down we got down, and we've continued to take it down. Here in January. Scott Davis: Okay. Helpful. And moving to to more fun stuff, data center, is obviously usually helpful here. But it no. I don't know how far out you're booking orders, but when you think about the billion-dollar revenue numbers that you put up, 60% up orders kind of implies 1,000,000,006 for '26. Is that somewhere in the ballpark? And perhaps there could be some orders in '27 and and stuff. I'm sure it's not perfect, but I'm just trying to get a sense of that how that orders flows through through revenues and '26. David Gitlin: Yes, Scott. That's about right. I what we're guiding is to 1 and a half billion for this year. So you're in the ballpark. Okay. So we we saw great orders, last year. I mean, phenomenal orders in April been good. So we feel, very well positioned. Now the reality is that we have a lot more in March and April. We would love to see a little bit more pulled in. But right now, that's when the customers that, that we've had great wins with are are are looking for the deliveries. We feel really good about data centers for this year. Scott Davis: Okay. Helpful color. Thanks. Best of luck, guys. Appreciate it. David Gitlin: Thank you, Scott. Yep. Operator: Your next call comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead. Joe Ritchie: Hey, guys. Good morning. David Gitlin: Hey, Joe. Good morning, Joe. Joe Ritchie: Hey, Dave. Can we just talk about the, the inventory dynamic just a little further So so clearly, you saw a pretty big reduction in your inventories q on q. I think it was 17%, but the inventory levels were up year over year about 8%. And so is that a function of just building inventories in the parts of your business that are growing? Just give us any more detail on that dynamic. Patrick Goris: Hey, Joe. Patrick here. You you may recall that we decided last year to keep our US resi manufacturing facilities running at minimal levels. Because it was more economical than shutting them down for several months and then having a cold start. As a result, is a couple 100,000,000 more inventory on our books at the end of the year than we otherwise would. And our current guide assumes that that gets liquidated through the year. Quarter over quarter, inventories actually dropped. Joe Ritchie: Got it. Okay. Great. That's that's that's helpful, Patrick. And then and then and then one last question. I know we were kinda being a dead horse here on the on the resi side. But this, like, six and a half million unit industry average, I mean, assuming whatever you wanna assume for new new new housing starts you know, call it somewhere in that million, a million and a half zone. Really kind of res assumes a replacement rate that's, like, north of twenty years for this year. It just seems you know, seems it it seems conservative at first blush. Just any thoughts around you know, if you go back even further, Dave, and you take a look at you know, where the industry was even before that kinda 2020 time frame, like, you know, do you really think that for the year, you're gonna need to flush out this much demand in order to get back to equilibrium? Or trying to be conservative to start the year? Thank you. David Gitlin: You know, Joe, what what we start with are some of those bigger picture, analyses, you know, the average you know, with new home construction of nine, nine point seven and three and a half overage, last year, seven and a half. So we kinda use that for triangulation. Then we go towards what we're seeing with boots on the ground in the marketplace. And we're seeing that what we ended last year, a lot of those macros we did not assume that we'd wake up on January 1 and they'd all be suddenly better and different. So that's why we did the analysis that I kinda took Julian through of what we assumed in the second half. We just assumed for the second half this year because, you know, it is a seasonal business. We can't assume sec something for the second half and apply those volumes to the first half. So we tried to be as pure as we could about the analysis that that we applied, and then we applied that two-year stack to 24. So look, you know, we, we we've guided to down, high single digits for us, the market down 10 to 15. And if things play out exactly as they did in the second half, that's about where we would end up this year. Do we hope it's better? Of course. But that's that's how we're planning. Joe Ritchie: K. Very helpful. Thank you. Thank you. Operator: Your next question comes from the line of Steve Tusa with JPMorgan Chase and Co. Your line is now open. Please go ahead. Steve Tusa: Hey, guys. Good morning. David Gitlin: How are you? Hey, Steve. Steve Tusa: Good. Good. Just on on the on the resi side, I I haven't done the math, but what do you what do you think for the, you know, like, for the year now, like, Movement ended at? You know, in in the channel. And what are you assuming? Movement is for next year? Like, help me with what Movement was in Sorry. Like like like like sell out sell out. Sell out. Sorry. Sell out. Yeah. Steve, Steve, Moomit was down about 30% in q, '4. Okay. That's so that's the sellout number. Okay. And then what are you guys assuming for in for in inflation in total company price? And are you how are you marking the commodities? Are you marking them, like, to market today or year end? Or maybe just some color on the inflation side? Patrick Goris: Steve, in terms of pricing, Dave mentioned about low single digits, so give or take close to a point. For the total company. In terms of commodities, we block on a a rolling four quarters. And today, as of today, we have about a $60 million headwind related to copper, steel, and aluminum headwind for this for this year, and that is net of our blocking position. That headwind is about equal across the four quarters. And we're about 50 a little over 50% blocked for the full year. Steve Tusa: Okay. And the one percent's in resi as well? Is resi a little higher than one? Patrick Goris: Low single digits. So in that range. That range. David Gitlin: Great. You know, we That's good. See, we announced a price increase of up to, I think, five or six effective in in March. And we think we'll realize in that low single-digit range. Steve Tusa: Great. Thank you. David Gitlin: Thank you. Operator: Your next question comes from the line of Andrew Kaplowitz with Citigroup. Your line is now open. Please go ahead. Andrew Kaplowitz: Hey. Good morning, everyone. Hi, Andy. Dave, you obviously talked about the 100,000,000 of cost benefits expected in '26 that you actioned in '25. Maybe you could talk about how the benefits are layering in in '26 and if, for instance, CSE residential or CSAME continues to drag, what can you do to protect the margin improvement you have in your guidance? Patrick Goris: K. I I'm gonna I wanna make sure I get but I'm gonna walk you through the profit walk '26 versus '25. At the at a high level, we're targeting about a $100 million of incremental operating profit. Volume mix combined is a headwind of about 100,000,000 We talked earlier about price So price is about a point as I combine that with some of the tariffs about a $102,100,000,000 dollars. Productivity, including the cost actions that we have taken, is close to $400 million. You offset that with some of the inflation that I mentioned, annual increase in merit and then investments. And basically, you get to about $100 million increase in operating profit. And then, of course, the segments each have their targets and are working on contingency plans depending on how they perform versus their targets for the year. Andrew Kaplowitz: It's helpful, Patrick. And maybe you can touch on the guide for CSA, I mean, and the confidence level there for flat 26%. As you know, China RLC revenue was down 30% in Q4 twenty five. You talked about destocking, but it looks like your orders bounced back a little and maybe decompensated. So us more color on what you're seeing there versus the rest of Asia. David Gitlin: You know, for AME for '26, Andy, we we're guiding flat. We expect China to be down about high single digits. We think RLC softness continues. We we think that's down about 20 with the CHVAC business in China being up low single digits. And then the rest of Asia to grow high single digits. We've been doing very well in places like India, and The Middle East. Japan you know, those have been that are watching us for the last two years, Japan actually grew 8%. And frankly, when we bought that Toshiba business, very little growth with margins pretty close to zero. And by the end of this year, our EBITROS should be in the mid-teens. And last year, we grew 8%. So a lot of good work outside of China. Resi in China remains tough. We tried to take some action in the fourth quarter to decrease the amount of inventory in the channel on the residential side. So hopefully, helps us a bit going into next year, but the macros in that resi channel business are still tough. Andrew Kaplowitz: Appreciate the color. David Gitlin: Thanks, Andy. Operator: Your next question comes from the line of Deane Dray with RBC Capital Markets. Your line is open. Please go ahead. Deane Dray: Hey, David. Good morning, everyone. David Gitlin: Hey. Deane Dray: Dave, if we just step back in terms of all the dynamics in the d destocking, what's your expectation when we come into the typical cooling season? There's still a sense there's pent some pent up demand on the resi side and channel inventory at eight-year lows. Will there be any chance of stock outs? Just it sounds like the the channel in could be some channel inefficiencies. And just kinda how are you prepared for that? David Gitlin: You know, it's one of the the things that we put a lot of on, obviously, forecasting, but also operational agility. So as we get into the season, we have our forecast. You know, we've, assumed, for example, that the first quarter is down in the 20, 25% range, and January was kinda consistent with we with what we thought was gonna happen for the first quarter. As you get into the season, what we we learned from last year is that things can surprise you to the upside or or downside, so we just need to be ready If we get into the season and weather is a very positive factor, we have inventory levels in the channel quite low. Demand starts to pick up. We will we will be positioned, operationally to support that but we think we've tried to plan in a way consistent with what we've been seeing over these last six months. Deane Dray: Alright. That's good to hear. We'll be listening to Al Roker. Yeah. And then Yeah. On the data center side, what are the implications on the recent comments from NVIDIA regarding chiller demand you know, does that change your expectations for the mix between water and air chillers? Does it change any of the configuration economics of the configurations that you're you're modeling in today? David Gitlin: You know, we actually have been very, very fortunate to work very closely with NVIDIA. Frankly, earlier this week, in Vegas, our team was meeting, with NVIDIA. We've been working together on a number of climate optimized reference designs and thinking very closely about the chilling requirements for their future chip, the verruban. What I would say, Dean, at the highest level is that number one, data centers will require a combination of and traditional cooling, and we are confident that NVIDIA agrees with that. If you look at the Blackwell chip and the new 55 degrees C. Both so both need some form of cooling. The Vera Rubin chips will be more efficient and delivers a lot more output but the inlet the input temperature will be about the same. And that power translates directly heat, so both designs require the same amount of heat dissipation. So working closely with NVIDIA and, of course, our hyperscaler and colo customers. We're working on both liquid cooling traditional cooling, the combination through our Quantum Leap offering. And, yes, there's gonna be depending on the customer, some prefer water cooling, if you have access to more water. And then a lot of our recent wins have been on the air-cooled side. Deane Dray: Good to hear. Thank you. David Gitlin: Thank you, Dean. Operator: Your next question comes from the line of Chris Snyder with Morgan Stanley. Your line is open. Please go ahead. Chris Snyder: Thank you. I wanted to follow-up on on some of that conversation around speaking to the channel partners. Do you think your channel partners plan for the same level of spring purchasing that they have done in prior years? Or do you think would maybe be a more spread out cadence throughout Q2 and Q3 just given all the volatility that they've had to work through over the last twelve months. Because, you know, while channel inventories, you know, have returned to twenty eighteen levels, per some of the comments, It seems like demand could be tracking below 28. 18 levels. Thank you. David Gitlin: Yeah, Chris. I think that our channel partners are planning the year very consistent with how we're planning the year. So I think after what we all saw in the second half of last year, where frankly, we all got surprised by the magnitude of the decline. I think there's a reticent for a reticence for anyone to get out over their skis. So everyone went to great lengths to get field inventory down. Our our channel partners and us working with them We think that we're balanced, and it'll all now be a function of underlying demand as we get into the season. So I think that clearly, there will be more demand as we get into the season than off season. I think it would be a typical ramp but off a lower base. Thank you. I I appreciate that. And then maybe if I could follow-up on Americas margins. I think Patrick said Q1 of about 15%. So if my math is right, it seems like, you know, you guys are calling for Q2 to Q3 to to to get back to that mid-range. You know? And, obviously, that's a level that you guys have gotten to consistently in the past. But can you just maybe talk about the path to get there? Because it feels like there would still be some level of absorption headwinds you know, volume's still down, and just continued cost inflation in the market. Thank you. Patrick Goris: Yes, Chris. So Most of the under absorption year over year this year will be in Q1. For resi. And then sequentially, given the seasonal build, which there will be a seasonal build, that typically happens in the second quarter, late in the first quarter. That is the reason, frankly, why sequentially, we expect margins to improve in that mid-20s range as you mentioned, for CSA. And so it's a combination of less headwind from under absorption, as well as an improvement in sequential sales, which is typical for CSA, even though in absolute terms, organic sales will be lower than the year before. Chris Snyder: Thank you. Patrick Goris: You're welcome. Operator: Your next question comes from the line of Amit Mehrotra with UBS. Your line is open. Please go ahead. Amit Mehrotra: Thanks. Thanks, operator. Hi, everybody. Dave, I just had a maybe, a philosophical question, and then I wanted to get, a follow-up on incremental margins if I could. So first, folks sometimes never waste a good crisis. And what I mean by that is is that you know, given kind of the environment that you've had to endure, has that offered an opportunity to kinda rethink how the company approaches some of the structural costs? Is there anything that you're doing or wanna do with respect to cost that that that's born from this environment of just hyper cyclicality in the market? David Gitlin: Oh, for sure, Amit. I mean, I love I I love the question because as you just said, you never wanna let a good crisis go to waste. So we certainly, from a cost perspective, we did take out which is very, very difficult, but the right thing to do, we did have to reduce 3,000 heads last year, mostly in the second half of last year. We, we always look at our footprint and had to rationalize our footprint, and there will be more of that as we go forward. Then we look at our overall way of doing business. So we're using AI across our functions to drive more productivity. There's a lot of demands on our people. So it's easy to to to just sort of try to, take out cost. The hard thing is to drive better productivity while taking out cost. So the team's done a great job embracing AI as well to drive more productivity. Then we've looked across everything. We've looked at our forecasting. We've looked at how our whole growth process and how we look at specific campaign by campaign and introducing new products into the marketplace to ensure we win. And we've looked at product platform platforming. So how we can use a back office COE concept for engineering to drive product platforming, So we've made a lot of changes. Look. Our formula works since our spin. Got surprised in the second half of last year by some of the residential downturn. We are not pleased that we missed in the second half. It's not who we are. We plan for that never to happen again. That's not who we are as a company, and we went to great lengths to to learn from that in the second half to do everything in our power to make sure it never happens again. Amit Mehrotra: Great. And and just a a follow-up highly related to that. If I look at the decremental margins, obviously, very, very high in the fourth quarter could have implied quite high in the first quarter as well. You know, the the counterpoint to that is high decrementals sort of also imply high incrementals. And and and I'd just be curious, you know, when this thing turns, and eventually it will turn, how much cost do you have to do you think you have to bring back, and can we be looking at you know, the same type of margin just incrementally as opposed to decrementally, if you can talk about Patrick Goris: Yeah, Chris. Maybe a little bit about the Q4 decrementals and if look at the decrementals, it looks like it's a 70% decremental. It's impacted by currency. If you yank out currency, which is about a $150 million in sales with no earnings, our decrementals are 50%. Still really high. But not, of course, close to 70%. The 50% of the represents or reflects sales reductions in resi and light commercial in The US and the under absorption. So as those businesses recover, which as you said at some point, they will recover, we expect to have high incrementals. And you mentioned how much of the cost we've taken out do we have to add back Our current guide includes about a $100 million of incremental investments. Throughout this period, we continue to invest in sales resources and digital capabilities And so I do not expect we have to add a lot of incremental cost that we've taken out this year. As business improves. We will continue to increase our annual investments, but I don't see a a step up after what we've done last year. Amit Mehrotra: Right. Great. Wonderful. Thank you, guys. Good luck. Appreciate it. David Gitlin: Thank you. Operator: Your next question comes from the line of Joe O'Dea with Wells Fargo. Your line is open. Please go ahead. Joe O'Dea: Hi. Good morning. Thanks for taking my questions. Dave, can you just taking a step back and thinking about the resi cycle and 6,500,000 units and underlying support for nine Just talk about the building blocks to to get back to to nine, the degree to which what we're seeing this year is just replacement that happened maybe sooner than it needed to in that twenty twenty to twenty four period, what you think about in terms of repair versus replace, dragging things out a little bit in '26, But most important, you know, that path to get back to nine. David Gitlin: Yeah, Joe. I think it comes back to the fundamentals. You know? Once you start to see the thirty year start with a five or less, you know, it's been starting in the low sixes. A little bit of tailwind on consumer confidence, a pickup in new home construction, especially on single-family side, and existing home sales A lot of those elements, once you start to see that underlying demand pick back up, we should start to see a a reversion to the mean of that overall 9 million units. I think in terms of repair versus replace, I have no doubt that we saw an uptick in repair last year. We don't think that that's a long-term trend. And I would say for for three reasons, Joe. Number one is that the economics will almost always weigh better in favor of a replacement. A typical repair can cost a thousand dollars. The compressor can be a few k. But it only extends the unit's life by one to three years. So in general, a consumer will be better off with a full replacement Number two, it it was particularly impacted by low sale of existing homes because it hurts you on both ends from the the homeowner that's been waiting to buy a new home is a little bit reluctant to have a full replacement a year two before they sell their home. So they may be waiting and limping along with a repair And once they buy the home, they will often negotiate a replacement of the HVAC product as part of the the full replacement. So that decrease in existing home sales has put probably more pressure on repair versus replace. But as existing home sales starts to pick up, which it eventually will, you'll get back into that replacement cycle. And the third piece I'd mentioned is what you typically see in an industry is with a refrigerant chain, you do refrigerant change, you see more repair versus replace. It takes a while for the channel to get trained on the new refrigerant. Last year, we had a canister shortage with the four fifty four b, which impacted things a bit. And then the old refrigerant eventually becomes more expensive, and it's harder to access. So that that it will lead to more replacement over time. So we need the macros to recover. We don't see repair over replace as a long-term trend. And once that happens, which it eventually will, and we'll be ready operationally to support our customers, the conversion on that will be quite positive. Joe O'Dea: That that's helpful color. And then, just on CDUs, like, why why do you win on CDUs? You know, we hear kinda talk about a pretty fragmented competitive environment, just the degree to which for you a sale tends to be more of a system sale with a with a chiller and air handling. You know, what that means for kind of margin profile of a CDU and if that's dragging things down at all, just to explain that a little bit. David Gitlin: Yeah. No. No margin, drag at all from CDUs. You know, I'm really proud of the team because we looked on the liquid cooling side, we've looked at both organic and inorganic. And we've opted for a couple of VC investments. You know, we still have a percentage of Zutor Corp. Which has a two-phase solution. On the CDU side, we decided to produce our own. It's essentially a mini chiller. We introduced one megawatt or 1.3 megawatt last year. We've already had a really nice wind down in the, Southern part of The United States. We just got a handshake on a new one earlier this week. For another one in South America. So we feel good about what we've introduced organically. We have a three and a five megawatt coming out later this year. There's a lot of interest. And I think that part of it is our relationship with customers, but part of it is that BMS interaction not only between traditional cooling and liquid cooling, but the entire cooling cycle with our with our chip customers as well. So we're really excited about what we have going on. Liquid cooling and Quantum Leap. We're in the first inning. But we see this as a real differentiator for us going forward. Joe O'Dea: Thank you. David Gitlin: Thank you. Operator: Your next question comes from the line of Tommy Moll with Stephens. Your line is open. Please go ahead. Tommy Moll: Morning, and thank you for taking my question. David Gitlin: Hey, Tommy. Morning, Tommy. Tommy Moll: Wanted to circle back on the comments about MVMT. Two-part question here. Was the down 30 in fourth quarter, is that a a volume number or a revenue number? And then as you think about movement in '26, Dave, if I'm trying to read between the lines here, I think you're essentially saying that channel inventories are pretty balanced currently. And so I think the takeaway there is movement on a track your sales pretty closely through '26, but correct me if that's not right. David Gitlin: It's generally right. What I would say first of all, Tommy, four Q, volume was down a little bit north of 40. Our sales were down in the high thirties because, you know, we got a mid-single digit benefit from, price and mix. The movement if you think about this year, movement will generally track our sales except in the second half, we get a bit of a benefit from the absence of destocking that happened in the second half of last year. Tommy Moll: Okay. Thank you for for that verification. The Q4 number we said was volume was units. The Q4 moment is down below 30% is volume. Yep. Okay. And just sticking with Resy for a follow-up here. Obviously, there there have been a lot of headwinds on the volume side. We can all make guesses as to what the drivers are. But one that hasn't been mentioned squarely that I just wanna mention now is Diagon, which obviously lost a lot of market share toward the 2024. You were one of the clear beneficiaries of that. And so granted the industry demand levels are are pretty poor right now, But could your volumes also not just be reflecting the fact that they've been able to take back some of that share and that not that's not a a fault of anyone. That's just a reality that there's a mean reversion in place, and so you're gonna see some of that in volume headwinds at carrier. David Gitlin: We don't we don't think so, Tommy. We we understand what you're saying that we know that there's been some changes in share in the industry over the last five years. If you look at us versus spin, we're probably up a few 100 basis points since we spun. And if you look at our share last year, I would call it flat from a movement perspective, a sellout perspective. So we saw no change in share last year. We understand there's some movement in terms of some folks that may have lost some share and picked it up. From our perspective, up a few 100 bps since we spun, and last year, we held steady at that number. And we expect to hold steady at that number. If not, increase. We have bunch of new products coming out. We have a new fan coil that showed a lot of there was a lot of interest in in Vegas earlier this week. The team's done really well with our channel partners to position us, so we have no intent of losing any share while maintaining price. And, we wanna ensure that we are on that track of of gaining share. Tommy Moll: Thank you, Dave. I'll turn it back. David Gitlin: Thanks, Tom. Operator: This concludes our Q&A session. I will now turn the call back to David Gitlin for closing remarks. David Gitlin: Well, listen. Thanks to all of you. We could not be more energized about this year. We did take the opportunity to learn from some things from last year and apply those to position us for a tremendous year in '26. So my thanks to our nearly 50,000 teammates around the world, and thanks to, our investors for your continued confidence. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to the X-FAB Full Year and Fourth Quarter 2025 Results Conference Call. [Operator Instructions] I will hand the conference over to Rudi De Winter, CEO. The floor is yours. Please go ahead. Rudi De Winter: Thank you, and welcome, everyone. We have today in the conference call with me Alba Morganti, CFO; and Damien Macq, my successor and CEO. In the fourth quarter in 2025, we recorded revenues of $222 million, up 18% year-on-year and down 3% quarter-on-quarter. The fourth quarter revenue in our core markets was $204 million, up 13% year-on-year and down 5% quarter-on-quarter. The core business represented 94% of our total revenue. Full year revenue amounted to $870 million, up 7% year-on-year. and within the guided range. In the full year of 2025, our core business was $814 million which is 7% growth compared to the previous year, and our core business represented also 94% of the total revenue. Our order intake in the fourth quarter came in at $164 million, and it understates actual underlying demand by approximately $30 million to $40 million as first of all, we have shorter cycle times resulting in customers ordering later. Secondly, we have higher wafer yields resulting in order -- reduced order quantities. And third, because of the absence of new bookings in the 0.6um CMOS technologies that we are terminating in early 2027. Customers already placed these orders following the last time by announcement more than a year ago. The backlog at the end of the quarter was $318 million, down to -- from $347 million and at the end of the quarter. The backlog relative to our revenue is still high compared to history and pre-COVID situation. In the fourth quarter, automotive revenues came in at $133 million, up 3% year-on-year and down 10% quarter-on-quarter. The sequential decline was mainly due to inventory corrections in various channels of the supply chain and also influenced by the end of major LTAs and the underlying end market. This trend is also evident in the full year automotive revenue, which recorded only a slight increase of 1%. Although the shift to full electric mobility in 2025 advanced at a slower pace, it remains an important megatrend, underpinning our automotive business. Key automotive applications driving the growth in 2025 included battery and thermal management systems as well as on-board chargers for electric vehicles. In the industrial end market, we recorded a quarterly revenue of $50 million. This was up 40% year-on-year and 6% quarter-on-quarter. The strong growth was driven by the recovery of the SiC business, the recovery of the fragmented industrial market and the prototyping revenue for Photonics, while an elevated level of production in last-time-buy technologies, also contributed. The fourth quarter medical revenue amounted to $21 million up 28% year-on-year and flat sequentially. The demand for DNA sequencing, ultrasound applications as well as contactless temperature sensors was strong in the past quarter. In the total of 2025, our medical business achieved a record revenue of $71 million marking 26% increase over previous year. For a further update, I would like to pass the word now to Damien. Damien Macq: Thank you, Rudi. Good morning, good afternoon, everyone. Let's start with CMOS and SOI revenue. In the fourth quarter, this revenue was up 7% year-on-year and down 5% quarter-on-quarter. For the full year, revenue grew 8% compared to the previous year. Quarterly microsystem revenue was up 24% year-on-year and down 9% sequentially. In 2025, X-FAB microsystem business achieved revenue exceeding USD 100 million for the first time, representing an 11% increase compared to 2024. X-FAB silicon carbide business demonstrated a remarkable recovery, achieving robust growth in the fourth quarter, driven by solid demand for data centers, electric vehicles and renewable energy applications. Revenue increased by 77% year-on-year and 6% quarter-on-quarter. Silicon carbide wafer starts raised 60% sequentially. This was the largest ever silicon carbide wafer start in the quarter. The weaker quarter-over-quarter revenue growth reflects the much higher share of customer-supplied silicon carbide wafers, which carried lower billings due to the less pass-through of substrate costs. For the full year, silicon carbide revenue reached USD 33.8 million, which constitute a 34% decrease against 2024 when the first quarter was still exceptionally strong. Quarterly prototyping revenue was USD 20.3 million, down 14% year-on-year and up 3% quarter-on-quarter. Over the past 3 quarters, its fab recorded a notable increase in CMOS and SOI prototyping revenue reflecting renewed customer confidence after capacity constraints were resolved with last year completion of it's fab capacity expansion program, and from significant operational improvement in terms of product yield and cycle times. Let's now zoom in specific products and development highlights achieved in 2025. In Q4, we secured a major design win for 110-nanometer CMOS technology, particularly in sensing application, which should contribute to revenue growth from 2028 onward. For our 110-nanometer SOI platform, we see confirmation of the strong ramp-up for motor control and automotive LED drivers, and we booked an important design win for new ultrasonic applications. In microsystem, interest in our through-silicon via technology continues to grow, especially for photon-counting CT scanners. On top of the technology capability of its fab, another key factor in this engagement is our customers' ability to establish a fully localized supply chain for this next-generation scanner platform. In MEMS, we achieved the first design win for our next-generation inertial sensors. For power application, we launched as well an innovative snubber technology, this device is integrated inside silicon carbide inverters to review the switching losses by up to 70% and therefore, improving the electrical vehicle range. This solution has already been adopted by 1 OEM and is under evaluation by several orders. In the photonic space, we teamed up with LIGENTEC on the lowest lost silicon nitride platform for various applications, main one being quantum computing. This already contributed to 7% of our total NRE in 2025. In GaN, we secured several major NRE. A first one for the development of industrial protection devices. 2 additional protraction inverters for small and medium EVs and a fourth one for 800-volt data center applications. In silicon carbide, we continue to make excellent progress with a major Asian Tier 1 in EV traction inverter, achieving record-setting electrical performance. Our latest XSICM03 platform has also enabled multiple customers to reach leading-edge electrical performances, driving further design wins across renewable energy, automotive, data center and circuit breaker applications. Its fab technology portfolio with the emphasis on power sensing and microsystem technologies is strategically aligned with global mega trends, including the electrification of everything with worldwide decarbonization initiative and advancement in health care for aging populations. This alignment creates substantial opportunities within X-FAB key end markets, automotive, industrial and medical, driving sustainable growth in the long term. The short-term visibility remains limited, primarily due to continued inventory adjustment by automotive customers and persistent geopolitical uncertainties. Let's now go through the short operation update. By mid-2025, X-FAB concluded its major 3 years $1 billion capacity expansion program. In September, we celebrated the grand opening of our new facilities in Malaysia, following the launch of our production in this new cleanroom. All equipment related to this expansion have been installed and qualified. Production in X-FAB popular 180-nanometer technology is being ramped up gradually there. The site's target capacity of 40,000 wafer start per month will be fully operational by the end of 2026. The increased capacity and reduced cycle time enable X-FAB to become much more attractive for new business opportunities and to respond more quickly to market opportunity when they arise. In the fourth quarter, significant progress was made in securing financial support under the EU Chip Act for the growth of X-FAB's microsystem business. The funding will be used to further advance the MEMS and microsystem offering and more specifically to support the ongoing transition of the site in Erfurt Germany, to the microsystem hub of X-FAB Group. Capital expenditure in the fourth quarter reached USD 25.2 million, bringing the total CapEx for the year to USD 204.1 million. This is lower than the initially projected USD 250 million as some expenditures were postponed to the current year. New capital expenditure in 2026 are projected to come in at around USD 100 million. This CapEx will be allocated to enhance our process capabilities, to facilitate the transition of the Erfurt Germany and Lubock Texas sites to microsystem and silicon carbide, respectively, and to support necessary maintenance and further autoimmune activities across all sites. In response to the short-term challenge and limited visibility, we are also introducing further cost efficiency measures. This initiative includes a planned headcount return in the high single-digit percentage range for 2026, as well as a gradual reduction of operational costs. By the fourth quarter of 2026, cost savings are estimated to reach USD 6 million per quarter. Concurrently, we remain well positioned to respond swiftly to increasing customers' requirements and growing demand. I will now pass it over to Alba Morganti, CFO of X-FAB for the financial update. Alba Morganti: Thank you, Damien. Good evening, ladies and gentlemen. We will now go to the financial update. I would like to start this financial section by highlighting that in 2025, we totalized $870.3 million sales, meeting the yearly guidance of $840 million to $870 million. This represented an increase of 7% compared to 2024. The sales in the fourth quarter totalized $222.3 million, which is an increase of 18% year-on-year, also in the guided range of $215 million to $225 million. In the fourth quarter, our EBITDA was -- of $42.3 million with an EBITDA margin of 19%. If we exclude the impact from revenues recognized over time, our EBITDA margin would have been of 19.2%, which is still below the guided range of 22.5% to 25.5%. The main reason for that is the miss -- that we missed, our guidance is that the fourth quarter profitability was impacted by a one-off item totalizing $9.3 million, out of which $6 million resulted from the renegotiation of a long-term agreement for the SiC raw wafers while $3 million were due to the reevaluation of our silicon carbide substrates inventory in Lubock and we had renegotiated lower prices. If we exclude these exceptional items, the EBITDA margin would have been of 23.6%. I would like to add that with the productivity improvement plan Damien was referring to, we are in a trajectory to achieve a 30% of EBITDA margin with a quarterly revenue level of $240 million. Since a few years now, our business is naturally hedged and our profitability remains unaffected by exchange rate fluctuations. At a constant USD/Euro exchange rate of USD/EURO 1.07 as experienced in the previous year's quarter the EBITDA margin would have been up 19.3%. Cash and cash equivalents at the end of the fourth quarter amounted to $194.3 million, up $20.1 million compared to the previous quarter, while our net debt decreased by $4.5 million quarter-on-quarter. Our cash position improved despite the fact that in 2025, we repaid several bank loans for more than $75 million as well as leasings for more than $24 million and we also repaid some prepayment that we received from customers, including LTA contracts for about $43 million. And to conclude the financial section, I would like to share our next year's guidance -- next quarter, sorry. Our Q1 '26 revenue is expected to come in within a range of $190 million to $200 million with an EBITDA margin in the range of 18% to 21%. This guidance is based on an average exchange rate of 1.17 USD/Euro and does not take into account the impact of IFRS 15. For the time being, we are not providing a full year 2026 guidance due to the limited visibility and the current macroeconomic environment. And now I would like to give the word back to Rudi. Rudi De Winter: Thank you, Alba. While we remain cautious about the near term, we are observing encouraging developments across our business. Momentum in our CMOS and SOI prototyping revenues is building as our operational improvements make us again more attractive. We see a high level of interest in our microsystem capabilities that is opening substantial new opportunities. Our silicon carbide business is on track for recovery. And we see strong traction for our photonics on the one hand and the gallium nitride on the other hand, demonstrated by several new contracts. I firmly believe X-FAB is excellently positioned for robust growth. The fundamentals of our business remain strong, and I'm confident of X-FAB's long-term sustainable growth. X-FAB is ready for what's next. With that, I'm very pleased to hand over the leadership of X-FAB to Damien Macq, who will succeed me as CEO of the group. And with that, we close the opening, and we are opening for questions. Operator: [Operator Instructions] The first question is coming from Robert Sanders from Deutsche Bank. Robert Sanders: Can I just get a bit of better understanding of the trends by end market? It looks like industrial, medical is performing well, auto clearly soft. Is that what you expect to be the story of the year as it were, even if you can't give specific guidance. Is there any reason to think that that's not the story of the year. And then the second question would just be around your lack of 300-millimeter footprint and your largest customer's business in China, they seem to be under big pressure to use local foundries. What can you do to mitigate the risk that they have to source locally as opposed from you? Damien Macq: Yes. I think your understanding of the end market -- this is Damien speaking -- is aligned with what we see right now. We see uncertainty on the automotive. So -- but strong industrial. So I think the industrial will stay strong, medical -- was a good year in Medical and likely this will be prolonged as well with important design wins as well in the pipe. Regarding the 300-millimeter footprint. At this point in time, we still see customers coming from China to look for our product. So basically, we being a high voltage, being a automotive qualification. And right now, we do not see the absence of 300-millimeter in our site as a handicap. So we keep seeing strong business coming out of companies that are headquartered in China, and we will need to monitor the evolution over the coming quarters to see where other situation are evolving there. Does that answer your question? Rudi De Winter: Operator are we still... Operator: Yes. I think 0- Robert Sanders, I was looking for a feedback, but I guess, this replies to his question. So we have the next question coming now from [ Luke DeSoto ]. Unknown Analyst: First of all, I would like to thank Rudi De Winter for the huge investments which you have done with X-FAB, and this without any dilution for the shareholders. I think this is an incredible good job and how that has been managed financially. I see that there are now a lot of platforms and technologies available at X-FAB. What are the actions? That would be my first question. What are the actions to increase actually the sales because that is still a little bit lagging behind? Damien Macq: Yes. So that's a very good point. Maybe this was not disclosed in this presentation, but we are reorganizing ourselves also across 3 business units. So we have moved some people closer to end customers, and we want to reinforce our co-design capabilities with customers. So business development is and was along 2025, a critical topic that is going to be prolonged in 2026. And if you see some of the results for 2025, so we observed quarter-over-quarter an improvement of our design win in the CMOS technology. So this is something that we need to [ prolonged ]. You have also to realize that we are coming out of a period of allocation with a lot of stress and a lot of stretch with our customers. This period is now over, and it's really time to go hand and [ try ] to collect additional business. And I think the items that were described also in this call, also in regard with microsystem are a good demonstration of the result that this can provide. So it's a very good point, deploying now the technologies and all the good deals that we have in hands to our customer is essential. Also I want to repeat what I said earlier regarding photonics. So photonics is also a technology where we see a lot of traction from our customers. I want to repeat that 7% of the total NRE of the company was realized on photonic -- with photonic technologies. Unknown Analyst: Okay. My second question is more towards finance. I see that the current liabilities are very high, $700 million, $702 million, while the current assets are at $648 million. Are we going to have some stress on a financial basis? Alba Morganti: Look, no, we have credit lines available to support the working capital needs. We have our first revolving credit facility of EUR 200 million, which will expire end of this year, but we are in renegotiation with the banks of the syndication to use the clause of -- which is included in the contract to extend it by 1 year, and we will still have the other one running until -- well, it's of -- we have another 3 years for the other one. And so for the time being, we see rather a decrease of the net debt, thanks to the fact that our major CapEx expansion plan is now over. Therefore, we see a relaxation actually is the other way around of our indebtedness. We have been able to repay several debts which were due, so absolutely in line with expectations in 2025, and we will continue to do so in the future. Unknown Analyst: Okay. So overall, actually, we just need to focus now on getting more sales and then everything will leverage out, and we will get the benefit of the investments. Alba Morganti: That's clear... Unknown Analyst: Yes. It will be marvelous company. Alba Morganti: Thank you for this lovely compliment. But yes, you're absolutely right. Thank you. Operator: [Operator Instructions] There are no further questions at this time. So I hand the conference back to the speakers for any closing remarks. Damien Macq: Thank you. Damien speaking. Before closing the call, I wanted to take a moment to acknowledge the leadership and instrumental contribution of Rudi, as it was already mentioned in this call. I'm grateful for the strong foundation that we have built under his tenure over the past 15 years and for the support from the Board and from our global team as I step into the CEO role. My focus will be on further specialization through continuous innovation, offering unique capabilities on market and customer diversification and on disciplined execution in our operations to serve our customers with the level of performance and quality required to make them successful. For the past 3 years spent within X-FAB as COO, I had the opportunity to interact with our global teams. I trust we are already and committed to building and delivering our robust growth on the momentum already in place. Uta, Alba and myself remain available for any follow-up, and we look forward to speaking with you for our next quarterly conference call on the results of the first quarter 2026. This call is scheduled on the 30th of April. Thank you very much to everyone. Bye-bye. Rudi De Winter: Thank you. Alba Morganti: Thank you. Operator: Thanks for participating to today's call. You may now disconnect.
Simon Falk: Hi, everyone. Thank you for joining us on Jyske Bank's conference call for the financial results for 2025. This is Simon Hagbart from Investor Relations speaking. With me, I have Jyske Bank's CEO, Lars Morch; and CFO, Birger Nielsen. Lars and Birger will walk you through our prepared remarks. Afterwards, we will open up for questions. I will now hand over to Lars. Lars Stensgaard Morch: Thank you, Simon. And I would also like to thank everybody for joining this conference call today. We closed 2025 on a strong note, delivering results above our previously guided ranges and growing EPS a full 18% year-on-year in Q4. This performance supported an upgrade of our outlook as well as our preannounced results for '25 in January. This morning, we published the full set of results for '25, including full details on strong capital position and updated capital targets. We now target a CET1 ratio of approximately 15% and a total capital ratio around 20%. This is at the lower end of our previous capital targets despite a systemic buffer of 0.9 percentage points. On the back of this, we have announced our largest capital distribution so far of DKK 4.5 billion in total, an increase of 20% year-on-year. We also provided our outlook for '26. We expect earnings per share in the range of DKK 71 to DKK 85, reflecting more normal levels of loan impairment charges and value adjustments following a favorable '25. We expect to continue to see positive core operating trends in '26. We are gaining personal customers in target segments, increasing our mortgage market share and have seen a healthy development with particularly larger corporates with high levels of customer satisfaction in all segments. The Danish economy is likely to show a balanced trajectory with a stable rate outlook as we maintain a solid credit quality with significant buffers in place. Overall, we ended '26 in a healthy position, and we are well placed to further build on our momentum. With that, let me hand over to Birger for a walk-through of our financial results. Birger Krogh Nielsen: Thank you, Lars. And as you may well know, the PL numbers and some of the balance sheet numbers were released back in the mid-January. And as Lars alluded to, the macro environment is actually relatively stable. Average long-term growth around 2% is expected. Inflation is under control. We have a high and steady employment and house prices are still on the rise, expectedly 3% during '26. And on top of that, the geopolitical uncertainty, of course, has and still can have some impact on the demand for credit facilities. Looking at the chart, a few comments. For '25 in total, the return on tangible equity was 11.9% and a cost/income ratio at 48%, better than our projections for '28, and there are several reasons to that. One is that the decrease in interest rates was 0.25 percentage points lower than expected. And value adjustments were very strong in '25, now the third consecutive year with a significant spread tightening with highly rated liquid Danish bonds. And thirdly, cost of risk was 0 for the second year in a row. And finally, we upgraded our expectations after Q3 and again, when we released the numbers in January. As you also can see, the EPS was in total DKK 85 in '25 with a strong end to the year, both in Q3 and Q4 with DKK 23 in those quarters. And looking at the right-hand side of the graph or the slide, you can see that AUM is still on the rise, Q-o-Q, a 2% rise, driven both by positive markets and net inflow of customers. And on the lending side, Q-o-Q, you can see that mortgages was up 1%, driven by private individuals and bank lending was up a couple of percent, both -- primarily driven by corporates despite the transfer of loans of mortgage-like loans to the balance sheet of Jyske Realkredit. And when it comes to leasing, it was a bit more muted during the course of Q4. Deposits finally on an upward trend again, both driven by private individuals as well as time deposits from corporates. So a decent development in balances at the end of the year. The outlook for this year, DKK 71 to DKK 85, DKK 4.3 billion to DKK 5.1 billion after tax. The core income line was very steady from '24 to '25, and we expect a lower level in '26, primarily driven by value adjustments. Core income -- sorry, core expenses is also expected to be slightly lower in '26. We will see a lower level of one-offs, and we will also do some cost initiatives that will outpace both inflation and wage inflation during the course of the year. Loan impairment charges. We expect an expense in '26, although a low one. We see significant post-model adjustments of DKK 1.7 billion here by year-end. We have, in the last 10 years seen 0 basis points average-wise in impairments. We have low write-offs also in Q4 and the Stage 3 part of the total portfolio is down from 1.1% end of '24 to now 0.9% end of '25. Net profit, I have referred to that. And finally, capital targets around 15% and 20%. I'll return to that in just a minute. And finally, also to mention that we don't see any further significant impact from upcoming regulation, primarily the output floor from CRR 3 given the current risk weights. Lars?. Lars Stensgaard Morch: Yes. Thanks a lot, Birger. A bit of a busy slide, I'm afraid here, but let's see if we can follow the logic. Moving from the left-hand side here, we have the results or the outcomes, the financial targets that you know from our strategy. And in the middle, you have the priorities, the activities that we do to make sure that we deliver on the left-hand side. And on the right-hand side, you have the specific, more detailed examples of the deliveries that we have managed to -- the things that we managed to deliver in '25. So taking a look at the middle here, you see the ambition that we want to increase the quality of the service that we deliver, but also we want to increase the quantity of the meetings and the interactions that we have with the clients. In order to support that, we have the activities on the right-hand side here, and I'll just mention a couple of them. First, on the personal customer part, automated data collection for credit processing that ensures higher quality and obviously also higher speed. More digital solutions that make saving and investment easier, again, potential for more and at the same time, higher quality customer experience. New AI assistance and copilot for advisers, streamlining workflows, supporting meeting preparations and making things easier inside. On the business and corporate side, automated price setting, data collection and guarantee creation, faster customer responses should be ensured that way also. New meeting concept for larger customers, making sure that we have a tighter link between the objectives and the financial solutions. We also have an upgraded risk management tool that can enhance the quality of the service that we give to our clients and the value of the advice linking the business strategy with the interest rate risks and financing risks altogether. So this is basically just showing that we are steaming forward in order to deliver on the right-hand side here to support that we see the clients more often and that we deliver more value to the clients when we meet. And obviously, then again, is able to deliver on the left-hand side here the financial targets and the volume targets here. Birger Krogh Nielsen: Yes. And looking at the net interest income, you can see the uplift in '22 and '23 was, of course, driven by the merger with Handelsbanken Denmark and PFA Bank. And for the quarter, we saw an increase of NII of 1%. And if we include a one-off of net interest income of DKK 38 million related to tax matters, it is more or less a flattish development from Q3 to Q4. During '26, we hope to see an increase, of course, very much dependent on the volume development during the course of the year. Lars Stensgaard Morch: On the personal customer side of the business, we've been under pressure in terms of volume and in terms of customer satisfaction for some years from approximately 2020 up until late '24. Now we have a number of consecutive quarters where we are building on the higher customer satisfaction and building more volume, which is part of the aims that we had in the strategy. The change have come a little bit faster than we anticipated, but we are pleased to see that we are building momentum here. We have, as of today, announced some price changes on our mortgage products. These are changes that will ensure that we are also going forward, competitive both in short-term loans and in the 30-year mortgage loans and a couple of the loans in between. We see a limited financial impact on the results in '26 and fully phased in, this will be approximately on the low end of DKK 100 million, not taking into account the dynamic effects, which obviously, if we are not competitive, will also have an impact on the volumes that we are able to write going forward. So altogether, we think we are still very competitive. And at the same time, it will not have very significant financial implications for the group. We have seen higher activity levels during '25 and also during the fourth quarter. Net interest -- net fee income was up a full 11% in '25. And actually, if we merge the last 5 years, up 45%, of course, inclusive of the acquisitions we've made. I have mentioned several times during the course of '25 that there are several factors behind this, but just to replicate again and mention again, markets have been favorable. New customers have entered, and we have done more business with existing customers. And also very importantly, that the turnover in the housing market is more or less normalized after a period with low turnover. And of course, together with our momentum in the segment for mortgages for private individuals has lifted the total income. So the fee uplift, as you see here on the chart, is driven by higher number of transactions and higher volumes. Costs are expected to decrease in '26. The underlying costs were moderate in '25. And if we look at Q4 in isolation, the underlying increase was around 2%, where inflation and salary increases were partly offset by 2% lower FTEs in Q4 of this year versus '24. The strategy going forward, as we also mentioned back in the autumn of '24 was -- is a CI level below 50% and to the extent possible, stable costs. We saw one-off costs in '25, especially related to the expansion of Bankdata and going into '26, as we say, lower costs from the level of DKK 6.6 billion in '25. But be aware that when we announced the strategy in the autumn of '24, we talked about a level around DKK 6.5 billion. And also be aware that we, of course, together with some efficiency initiatives, we also have initiated a marketing campaign with a new corporate visual identity that will take place during the course of this year. Moving onto capital. We have finalized the latest share buyback program here by the end of January, DKK 2.25 billion with an average price of DKK 680. And now we are heading for a record-setting capital distribution in '26, where we expect to distribute 84% of the result after tax to shareholders, split between DKK 1.5 billion in dividend, which will be proposed to the AGM here in March and DKK 3 billion in buybacks. And we have engaged with Bank of America to execute the program. And the program will start as of today and end by January '27 at the latest. Then finally, looking into capital targets. We have now changed a bit the outlook and expectations for the level of CET1 and the capital ratio. Now we are talking about around 15% and around 20%, and that includes the systemic risk buffer of 0.9%. We know that the Systemic Risk Council has recommended a reduction in that risk buffer. It is yet to be decided by the government and the implications will be of a minor extent if that were to be implemented here during '26. But overall, you can see that we have a 16.1% CET1 ratio by end year, well above the target of around 15%. And if we then include the reservations for expected payouts, they actually consume 1.4% in total. So 17.5% is actually the buildup for future need of capital. And we will, of course, during the course of the year, reserve for buybacks and dividends quarter-by-quarter. Simon Falk: Thank you, Birger, and thank you, Lars. We'll now open up for questions. [Operator Instructions] And the first question in line comes from Mathias Nielsen from Nordea. Mathias Nielsen: And congratulations on the strong end to '25. If we start on a very high-level note, like it looks like you're ahead of the plans that you set out in the strategy a bit more than a year ago. Can you maybe say a bit about it, is that just things happening faster than you expected? Or is it also the potential for more that has actually been a bit bigger than what you initially expected, if I start there. Lars Stensgaard Morch: Yes. Good question, Mathias, Lars here. I think it's a combination of internal matters and the market. So if you look at the market, that has been a little bit more gentle than we anticipated when we launched the strategy by the end of '24. And we've seen interest rates at a different level than what we anticipated. So we have had some help basically. But we also see that internally, we are able to move a bit faster than we anticipated on some of the initiatives. It's still early days. There's a lot of work still in the strategy on our platform, on IT and so on. But so far, we are definitely on plan. And hopefully, we will be a little bit ahead of plan when we move further into '26. Mathias Nielsen: That was very clear. And then maybe a bit of a nerdy question, but bear with me. So this Bank Data one-off cost, like you seem to be the only bank so far that is taking a one-off cost. Can you maybe explain like a bit of the dynamics like why you're taking it? Is it something that we should expect then to be a tailwind in the coming years because you revaluation -- have revaluation gains? How should we think about it just [indiscernible] went out with taking the write-down? Lars Stensgaard Morch: Yes, I can start and then Birger, if you want to add. I think it's clear with the agreement that is between Bankdata and Jyske Bank and being finalized and the integration that is being prepared that there are 2 different alleys you could take as a bank here. We've decided to take the alley that we've normally taken in Jyske Bank, which is a bit on the conservative side. I've noticed that some of our -- some of the other banks on Bankdata or at least I've seen one bank doing it differently so far, which is fully understandable because that's also possible to handle it this way. The thing is Bankdata has a fairly strong balance sheet, and that can potentially give -- and we think that's the base case, so we think that's very possible, give Bankdata the possibility to handle the cost of this integration within that balance sheet. And then from '28 and forward, we'll get an even stronger Bankdata with more volume on this, and then it will be able to handle the cost basically that we have getting Arbejdernes Landsbank and [ Vestjysk Bank ] on board. We have taken a more cautious route on this, which is, as I said, in line with how Jyske Bank have handled these kind of things in the past and in agreement with our external auditors who acknowledge that both ways can be -- it can be done both ways, but also support this as the right one for Jyske Bank to take. Birger Krogh Nielsen: And maybe just to extend a bit, when we talk with the auditors and when we look at the regulation in Denmark, the cost -- we know there is a cost to be paid as a member of Bankdata. We know -- we don't know the timing, and we don't know the amount. It's uncertain, but it's then a normal procedure actually to be careful and to book the cost after a best estimate in the quarter where you get the knowledge. Lars Stensgaard Morch: But you're right, Mathias. There is obviously a possibility of that not showing to be needed. Mathias Nielsen: And then would it then come back in one go? Or would it be like over the years, like what is the dynamics if it shows -- it turns out that Bankdata can handle this by themselves. How would that work like from an accounting perspective in Jyske Bank? Birger Krogh Nielsen: Well, there are -- of course, there are bills to be paid over the next couple of years with the migration costs and other costs related to the agreement with Sydbank. And of course, when those bills are up for payment, things will be settled also relative also in our books, of course. Mathias Nielsen: Okay. Maybe the last question, and then I'll jump in the queue. So when I listen to the comments on hope to see the NII coming up and guide down on cost, like isn't it difficult to see the bottom of the guidance range unless loan losses spike? Is there any broad comments you can make on like what's the assumption of the top and the bottom of the guidance that could help us understand like how you would even in a quite negative scenario end at the bottom of the range? Simon Falk: Yes. well, we usually use the DKK 800 million as an interval. So that's sort of the base case, but that's not to say that it's not related somehow to the numbers. So what we do is usually we look at the volatility of value adjustment and investment portfolio earnings, and we also set in some scenarios related to loan impairment charges as those are the most volatile components of our P&L. So that is how we come up with the interval. And I agree that if we are to end up at the lower end of the interval that would mean materially higher loan impairment charges than what we've seen in recent years, but also lower value adjustments likely. And next in line is Alexander Vilstrup-J rgensen from DNB Carnegie. Alexander Vilstrup-Jørgensen: So I have 2 questions. First, on core expenses. One of your peers recently flagged lower IT costs driven by economies of scale on the Bankdata platform. So I was just wondering if you could elaborate on your own expectations for cost savings at Bankdata and maybe also include the timing and magnitude of any potential reductions. Lars Stensgaard Morch: Yes. Thanks a lot, Alexander. I saw that, too, and I could follow his calculations. I think it was Ringkj bing that was out yesterday saying that we add volume to Bankdata, meaning that the expense will come down 17% like-for-like. I also saw that he then added that, that can come as a cost saving or it can come as further investments into digitalization if it makes sense. We are trying to run a tight ship on Bankdata. So obviously, we'll see if we can get some of it as cost savings and then we'll see what is needed in potential investments. I think it's safe to say that this is now the cheapest and we also believe the best data platform in the country and gaining volume is going to take cost down, but it's also going to make it more resilient in terms of what is needed going forward to ensure a strong digital platform, both in terms of functionality for clients, but also in making sure that it's a resilient, strong platform. So he's right. John is right. 17% is what we've calculated so far that could be taken out of the cost of Bankdata for us also. Alexander Vilstrup-Jørgensen: I also have a question regarding your ordinary bank loans. So to me, volumes for ordinary bank loans seems a tad down compared to last year. Is there any reason behind this? Shouldn't your volumes for ordinary bank loans increased as a result of your improved customer satisfaction ratings? Lars Stensgaard Morch: Not necessarily because we have still some of our Handelsbanken customers that came from bank loans and are generally moving towards mortgage loans on our Realkredit setup. So that's the underlying trend here. That's what is... Simon Falk: Thank you, Alexander. So next in line is Martin Birk from SEB. Martin Birk: Yes. Just 2 small questions from my side. First of all, the -- I guess first question goes on the price initiatives you took this morning in light of, I assume, peers also moving. How far are you willing to go? Is this only going to be a front book market share? Or should we also see the back book eventually getting the benefit without having to refinance? That's my first question. Then second question, coming back to capital and perhaps also less or more resiliency in stress test and a 15% CET1 target, how does that position you for future payouts? Lars Stensgaard Morch: Well, let me take the first one, Birger, and you can take the second one. The first one, thanks a lot, Martin, on the pricing on mortgages. We don't know where the competition is going to take the price level here. I think for us, a part of the reason why we make the decision it's a front book that we adjust is that when prices were adjusted upwards last time in the cycle, we did not really increase the prices on the back book in that scenario, which would then be a totally different way we would handle it if we lower the prices. Then on our book, a lot of them are short loans, which means that they will be refinanced within a year. And we do not reduce prices on these ones. So that would be basically for free if we did it. And they can then move on to either the same product or on to one of the other new attractive products here. So I think now we have a very strong portfolio of loans, both the bank balance loans, but also the loans on the mortgage balance sheet. And we have them with the short interest rate, we have them with medium and we have them with long. So we have a strong portfolio when we meet the clients, and I think we are priced to compete on this one. Without this meaning that we will necessarily see a big drop in the income here because our clients will be moving from another competitively priced product for instance, the F1s to the longer interest rate products, which, again, will also be competitively priced. So basically, we'll be following what is going on in the market. We think the reason why we've been winning market share is not because of generally the prices, it's because of the service model that we have and the turnaround that we have seen in number of volumes or in number of loans and in volumes on personal mortgages that has been done without us changing the price. And we've seen competitors moving down on price before us, and we've been able to keep that up. We'll be -- we'll ensure that we have a good product and an attractive price, but we think we are also driving the volume with having a good service model and being fast basically. Birger Krogh Nielsen: Yes. And then to the second question regarding the capital distribution and resilience in stress test, you're quite right that given some of the shifts we made in our model landscape and model setup recently, we are more resilient now to downturn and stress than we were formerly, especially because some of the segments are now managed under the foundation IRB setup versus an advanced IRB setup. And that, of course, leads us to a potential, larger buffer. And before giving any guidance in the market, we, of course, need to have a dialogue with the FSA regarding their full and their acknowledgment of the new setup that we have, and that will happen in the coming months, quarters. But you're quite right that there is a potential for a larger buffer. When we then look at the distribution and the split between dividends and buybacks, you have now heard us say that we have launched the largest buyback program of DKK 3 billion in the market. And of course, there is a limitation when it comes to liquidity in the stock in general. So going forward and if buffer will be extended, we, of course, need to adhere to the split between these 2 elements of distribution of capital. Martin Birk: Okay. But I guess the means of distribution that can always be changed? Birger Krogh Nielsen: The split, of course, is up for a debate and especially if liquidity in the market is a limiting factor. Simon Falk: And next question in line comes from Asbj rn M rk from Danske Bank. Asbjørn Mørk: Most of them have already been answered. But I have basically more of a strategic pricing question, Lars. Maybe it goes to you, but it's more like now you're lowering the prices on mortgages. I, of course, am fully aware of how your competitors have reacted and hence, it seems like more of a reaction to that. But I'm just trying to understand the rationale here because you had the lowest prices for a decade. And you also alluded to it, and you were not -- I mean you're basically losing market shares for many years. Now that trend has changed over the last year or so, but obviously not due to prices. So just wondering, do you actually believe that the price is the sort of decisive factor for clients? Secondly, since you're cutting mainly in the interest only and in the high LTV areas, how does this price reaction sort of go hand-in-hand with your strategy of growing in the more affluent areas as well on the private side? Lars Stensgaard Morch: Yes. Thanks a lot. Good questions here. I think some of the history that you're describing here is not 100% right because Jyske was actually winning market shares back in time on the mortgages. And Jyske was winning up until 2019 and a number of things with changes to the organizational structure and service models in relation to clients, pricing of other products meant that Jyske was losing out, and that was what you saw in the graph here. So -- and with that, I'm basically saying that price is an important factor, not the only factor and probably not the most important factor, but you need to be priced fairly competitive. I think we, in all honesty, we're more competitively priced on the short end here with the loans with refinancing often than with the longer. And we want to be competitive in both end of the scale here to support the clients and also to have a portfolio development that we would like to see in the bank. So what will happen here is probably that will go from one competitively priced product to another competitively priced products in a little bit larger scale than what we've seen before. Then you could also say that these are changes, directional changes that it was our plan to do in terms of making sure that we have attractive product price on -- across the different products here. Now we are doing that as tactical changes also, but it fits within our strategy. We still have a strategy relating to our portfolio of products, which is also about making sure that we have differentiating products. And we'll be able to, I think, launch new stuff within the not too far distance that will make us even more competitive, not from a price competitiveness only but also from a product competitiveness part. So I think it's one factor. It needs to be right, but it's certainly not the only one. I have to say I'm fairly impressed with the organization being able to turn around the development without using the price basically as a differentiator during the last couple of years. If we've not changed some of the prices now, it would have been a negative differentiator. I think we are moving in with the pack here and being more competitive or being very competitive on selective products. Asbjørn Mørk: That's very clear. Then if I may, on the sort of the competitive landscape and the consolidation that we've seen in the last 5 quarters. Have you seen any reaction in the market from Nykredit Spar Nord or changed behavior for that matter or from the AL Sydbank? And what should we sort of expect to be the Jyske Bank response, not in terms of M&A, but more in terms of product launches or more aggressive behavior or something? Is there something out there we should expect from you given the -- all the turmoil in the market? Lars Stensgaard Morch: Yes. I think if you look at our situation at the moment, we have the organization in place. We have no major projects going on. Obviously, we have the eyes on the possibilities in the market, and we have the muscles to also take advantage of some of these opportunities here. What we've seen so far is predominantly a number of employees, the number of people applying for jobs is increasing quite a bit, but we will not go down the different tracks that some of our competitors are doing and taking major teams from retail. We don't believe in that strategy. We think we are scalable with what we have today. And if we are adding, it will be select employees in select geographies and not the teams of 8 or 10 spread across the country here. So you do not see that kind of -- we don't envisage that we'll have this kind of aggressive behavior on this. We've also seen that we've been gaining some customers, not very, very significant, but some and more during the last couple of months due to customers that thought, well, then that might actually be the reason why I'm looking for a new bank. And then I believe the next part will be when they migrate the banks. It's very difficult at that point in time because you'll be extremely busy internally and the focus on clients can be a little bit less. So maybe we'll also have an uptake at that point in time of new clients. Simon Falk: Next question in line comes from Namita Samtani from Barclays. Namita Samtani: The first one on the net interest income. Did I hear you say that you hope it goes up year-on-year versus 2025? And my second question, how do you see competition and pricing on the bank lending side? Simon Falk: Yes. So maybe I'll start on the net interest income year-over-year. So we haven't provided exact guidance for 2026 versus 2025. What we said was basically we expect Q1 2026 to be the low point, and that is due to Q4 having a one-off positive impact of DKK 38 million, and there will also be 2 fewer interest -- days of interest in Q1. So underlying, we believe we have seen a trough in terms of NII, but we need to go into Q1 to see the actual trough and then we'll expect to grow from there. Whether that's enough to keep NII stable year-on-year, I think consensus is for a slight decline, and I get how you could end up there. Birger Krogh Nielsen: Looking at the competitive landscape, I think for bank lending, I think it's fair to say that there is ample liquidity and capital still within the banks. So that leads us to a relatively fierce competitive situation in '25. which also actually was the case if you go back in '24. But it seems to us that there has been even more competitive -- there's more competitiveness in the market now than there was 1 year ago. And you need to couple that with what I said initially that the demand for credit facilities may be a bit subdued due to the geopolitical uncertainty around Denmark because if you look at Denmark in isolation, we are still on a good footing when it comes to the economic development. Simon Falk: So there are no further questions in line. And with that, we would like to thank you for participating in today's conference call. A recording of the call will be made available on our IR website in the coming days. Please do not hesitate to contact us if you have further questions, and we appreciate your interest in Jyske Bank and wish you a nice day.
Operator: Hello, and welcome to Globe Life Inc. Fourth Quarter Earnings Release Call. My name is Jim. I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Stephen Mota, Senior Director of Investor Relations, to begin today's conference. Thank you, sir. Stephen Mota: Thank you. Good morning, everyone. Joining the call today are Frank Svoboda; and Matt Darden, our Co-Chief Executive Officers; Tom Kalmbach, our Chief Financial Officer; Mike Majors, our Chief Strategy Officer; and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release 2024 10-K and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Frank. Frank Svoboda: Thank you, Stephen, and good morning, everyone. In the fourth quarter, net income was $266 million or $3.29 per share compared to $255 million or $3.01 per share a year ago. Net operating income for the quarter was $274 million or $3.39 per share, an increase of 8% over the $3.14 per share from a year ago. For the full year 2025, net operating income was $14.52, $0.02 above the midpoint of our previous guidance. On a GAAP reported basis, return on equity through December 31 is 20.9% and book value per share is $74.17 excluding accumulated other comprehensive income, or AOCI, and return on equity of 16% and book value per share as of December 31 is $96.16, up 11% from a year ago. Before discussing the third quarter insurance operations, I would like to say a few words about the nature of our business. As I reflect on the results of the past year, I remain confident that our business model effectively positions us for future success. Globe Life helps provide financial security in the vastly underserved, lower middle to middle-income market that has largely been ignored by the financial services industry. We distribute basic protection products that are simple for agents and consumers to understand and are designed specifically to meet the needs of this market. Studies indicate that over 50% of Americans are underinsured. As such, we have a significant sustainable growth opportunity without having to compete for market share with other insurance companies. The history of growth at Globe Life is clearly demonstrated by both our recent and long-term results, and we are fully focused and confident in our ability to continue to grow in the future. We are honored to serve this market and grateful to have the opportunity to make tomorrow better for millions of working families. Now in our insurance operations. Total premium revenue in the fourth quarter grew 5% over the year ago quarter. For the full year 2026, we expect total premium revenue to grow approximately 7% to 8%. Life premium revenue for the fourth quarter increased 3% from the year ago quarter to $850 million. Life underwriting margin was $350 million, up 4% from a year ago, driven by premium growth and lower overall policy obligations. In 2026, we expect life premium revenue to grow between 4% and 4.5% compared to 3% growth for the full year 2025. As a percent of premium, we anticipate life underwriting margin to be between 41.5% and 44.5%. In health insurance, premium revenue grew 9% to $392 million, and health underwriting margin was also up 9% to $99 million. In 2026, we expect health premium revenue to grow in the range of 14% to 16% compared to 9% growth for 2025. This is due to strong sales activity and premium rate increases on our Medicare Supplement business. As a percent of premium, we anticipate health underwriting margin to be between 23% and 27%. The midpoint of the range is slightly below the underwriting margin percentage for 2025, primarily due to the strong premium growth expected in 2026 from our United American General Agency division which does have a lower underwriting margin percentage than our other distributions. Administrative expenses were $92 million for the quarter, an increase of approximately 1% over the fourth quarter of 2024. As a percent of premium, administrative expenses were 7.4%. In 2026, we expect administrative expenses to be approximately 7.3% of premium the same as in 2025. I will now turn the call over to Matt for his comments on the fourth quarter marketing operations. James Darden: Thank you, Frank. Now as a reminder, I mentioned last quarter that while growth in our agent count has historically been subject to frequent short-term fluctuations, we continually see significant long-term growth. Over the last 10 years, our agent count has nearly doubled, and I am confident we can continue to see strong long-term growth due to the enormous pool of potential agent recruits and the opportunity that we provide. Our recruiting strategy does not target insurance agents. We are simply recruiting individuals from all walks of life who are looking to improve their financial position and have more control over their career. Now let's discuss the results of each distribution, starting with our exclusive agencies. At American Income Life, the life premiums were up 6% over the year ago quarter to $457 million. The life underwriting margin was up 5% to $208 million. In the fourth quarter, net life sales were $102 million, up 10% from a year ago. The average producing agent count for the fourth quarter was 11,699, down 2% from a year ago. While we generated strong recruiting activity, we had more agent turnover than expected. Now this is not always a bad thing as it can result in a more productive agency depending on the quality of the agent's loss. The 10% sales growth this quarter was due to better overall agent productivity. That being said, we place great importance on agent retention and have introduced an initiative to emphasize agent retention to help ensure continued agency growth. Now at Liberty National, the life premiums were up 4% over the year ago quarter to $98 million, and the life underwriting margin was up 6% to $36 million. Net life sales were $28 million, up 6% from the year ago quarter. Net health sales were $9 million, roughly flat from the year ago quarter. The average producing agent count for the fourth quarter was 3,965, up 6% from a year ago. I believe the initiatives that I had mentioned last quarter are having a positive impact and I'm confident we will continue to see growth at this agency as we move forward. At Family Heritage, health premiums increased 10% over the year ago quarter to $121 million, and the health underwriting margin also increased 10% to $44 million. Net health sales were up 15% to $31 million due to increases in agent count and productivity. The average producing agent count for the fourth quarter was 1,640, up 8% from a year ago. We've now seen 6 consecutive quarters of strong agent count growth for Family Heritage resulting from the continued focus on recruiting and growing agency middle management. In our direct-to-consumer division at Globe Life, the life premiums were approximately flat over the year ago quarter to $244 million while the life underwriting margin increased 3% to $74 million. While life premiums were flat this quarter, net life sales were $29 million, up 24% from the year ago quarter. We are excited to see this continued sales turnaround from the declining trend of recent years. As we've mentioned before, new technology introduced earlier this year, has helped improve the conversion of customer inquiries into sales without incurring incremental underwriting risk. The resulting margin improvement has allowed us to increase marketing volume and further grow direct-to-consumer inquiries and sales. Now we've also seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also contributed to margin improvement, allowing us to invest more heavily in advertising further increasing lead volume, which in turn leads to sales growth in both our direct-to-consumer and agency channels. We expect this division to increase leads generated for our 3 exclusive agencies during 2026 by approximately 10%. United American is our General Agency division, and here, the health premiums increased 14% over the year ago quarter to $173 million and this is driven by sales growth in Medicare Supplement rate increases that we have discussed previously. Health underwriting margin was $8 million, up $2 million from the year ago quarter. Strong activity across the entire agency resulted in net health sales of $77 million, an increase of approximately $47 million over the year ago quarter. We attribute this tremendous growth primarily to the significant movement of Medicare beneficiaries for Medicare Advantage plans to Medicare Supplement plans. As a result -- as a reminder, we do not market Medicare Advantage plans. Now I'd like to discuss our projections and based on recent trends and our experience with our business, we expect the average producing agent count trends for the full year 2026 to be as follows: at American Income, mid-single digit growth; Liberty National, high single digit growth; and at Family Heritage, low double digit growth. Net life sales for 2026 are expected to be as follows: at American Income, high single digit growth; Liberty National, low double digit growth; and direct-to-consumer, mid-single digit growth. Net health sales for 2026 are expected to be as follows: for Liberty National and Family Heritage, both low double digit growth. Now for United American, considering we nearly doubled our sales in 2025, we are currently projecting flat sales growth for 2026. We acknowledge there are considerable dynamics in the Medicare marketplace, and we will refine our estimates as we move through the year. I'll now turn the call back to Frank. Frank Svoboda: Thanks, Matt. We will now turn to the investment operations. Excess investment income, which we define as net investment income less only required interest was $31 million, down approximately $8 million from the year ago quarter. Net investment income was $281 million, approximately flat while average invested assets grew 1%. Required interest is up approximately 3% over the year ago quarter, relatively consistent with growth in average policy liabilities. Net investment income was negatively impacted in the current quarter by lower average invested asset growth. As discussed on prior calls, and lower average earned yield on our short-term direct commercial mortgage loan and limited partnership investments as compared to a year ago. Net investment income also declined sequentially from the third quarter as we had very good returns from our limited partnership investments in the third quarter, but that returned to more normal levels in the fourth quarter. As a reminder, the income reported from these investments is based on income earned by the partnerships in the quarter and will vary from quarter-to-quarter. In addition, we held a little more cash during the current quarter than normal, due to the Bermuda reinsurance transactions executed in the quarter. For the full year 2026, we do expect net investment income to grow between 3% and 4%, required interest to grow around 4% and excess investment income to be relatively flat. Now regarding our investment yield. In the fourth quarter, we invested $131 million in fixed maturities, primarily in the financial and industrial sectors. These investments were at an average yield of 6.23%, an average rating of A- and an average life of 27 years. We also invested approximately $145 million in commercial mortgage loans and limited partnerships with debt like characteristics and an average expected cash return over time of approximately 9% to 10%. These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments while still being in line of our overall conservative investment philosophy. For the entire fixed maturity portfolio, the fourth quarter yield was 5.29%, up 2 basis points from the fourth quarter of 2024, including the investment income from our other long-term nonfixed maturity investments. Fourth quarter earned yield was 5.4%. While we do own floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Invested assets are $21.7 billion, including $18.8 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.3 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-, same as a year ago. Our fixed maturity investment portfolio has a net unrealized loss position of $1.2 billion due to the current market rates being higher than the book value on our holdings. As we have historically noted, we are not concerned by the unrealized loss position as it is mostly interest rate driven and currently relates entirely to bonds with maturities that extend beyond 10 years. We have the intent and, more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprised 42% of the fixed maturity portfolio compared to 46% from the year ago quarter. This percentage is at its lowest level since 2003. As we have discussed on prior calls, the BBB securities we acquire generally provide the best risk-adjusted, capital-adjusted returns due in part to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. That said, our allocation of BBB rated bonds has decreased over the past few years as we have found better risk-adjusted, capital-adjusted value in higher-rated bonds given the narrowing of corporate spreads. While the concentration of our BBB bonds might still be a little higher than some of our peers, remember that we have little or no exposure to other higher-risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities. Below investment-grade bonds remain near historical lows at $521 million compared to $529 million a year ago. The percentage of below investment-grade bonds to total fixed maturities is just 2.8%, consistent with the year-end 2024. The amount of our below investment-grade bonds at just 6.7% of our total equity, excluding AOCI, is at its lowest percentage of equity at any year-end in over 25 years. Due to the long duration of our fixed maturity liabilities, we invest in long-dated assets. As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. While there may be uncertainty as to where the U.S. economy is headed, we are well positioned to withstand a significant economic downturn due to holding historically low percentages of invested assets in BBB and below investment-grade bonds as a percentage of equity. In addition, we have very strong underwriting profits and long-dated liabilities, so we will not be forced to sell bonds in order to pay claims. With respect to our anticipated investment acquisitions for the full year 2026, at the midpoint of our guidance, we assume investment of approximately $900 million to $1.1 billion in fixed maturities at an average yield between 5.9% and 6% and approximately $300 million to $400 million in commercial mortgage loans and limited partnership investments with debt-like characteristics and an average expected cash return over time of 7% to 9%. Also at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around 5.3% for the full year 2026. With respect to our nonfixed maturity long-term investments, we anticipate the yield impacting net investment income to be in the range of 7% to 8% for 2026. In total, including these additional investments, we anticipate the blended earned yield to be approximately 5.4% to 5.5%. Now I will turn the call over to Tom for his comments on capital and liquidity. Thomas Kalmbach: Thanks, Frank. First, I'll spend a few minutes discussing our available liquidity, share repurchases and the capital position. The parent began the year with liquid assets of approximately $90 million and ended the year with liquid assets of approximately $80 million. In the fourth quarter, the company repurchased approximately 1.3 million shares of Globe Life Inc. common stock for a total cost of approximately $170 million at an average share price of $134.44. For the full year, we purchased 5.4 million shares for a total cost of $685 million at an average share price of $126.41. Including shareholder dividend payments of approximately $85 million, the company returned approximately $770 million to shareholders during 2025. In addition to the liquid assets held by the parent, the parent will generate excess cash flows during 2026. The parent company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less interest paid on debt and is available to return to its shareholders in the form of dividends and through share repurchases. We invest -- we continue to invest in our growth through making investments in the business, in new business, technology and insurance operations. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made these substantial investments and acquired new long-duration assets to fund their future cash needs. In 2025, parent excess cash flow, excluding the benefit of extraordinary dividends, was approximately $620 million. Although statutory results are not yet final, for 2026, we anticipate excess cash flow to increase to approximately $625 million to $675 million, given recent favorable mortality trends and growth in premium. We will continue to use our cash as efficiently as possible. We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be the primary use of parent's excess cash flow after the payment of shareholder dividends. In our guidance, we anticipate distributing between $85 million to $95 million -- sorry, $85 million to $90 million to our shareholders in the form of dividend payments with the remainder being used for share repurchases in the range of $535 million to $585 million. We anticipate liquid assets at the parent to be in the range of $50 million to $60 million at the end of 2026. Now with regards to the capital positions at our insurance subsidiaries. Our goal is to maintain capital within our insurance operations at levels necessary to support our current ratings. Global Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. Although this target range is lower than many of our peers, it is appropriate given the stable premium revenue from our large number of in-force policies, the nature of our protection products with benefits that are not sensitive to interest rates or equity markets. Our conservative investment portfolio and strong consistent underwriting margins, which result in consistent statutory earnings at our insurance companies. Since our statutory financial statements are not yet final, our consolidated RBC ratio for year-end 2025 is not yet known. However, we anticipate the final 2025 RBC ratio will be within our targeted range. During the quarter, we finalized the licensing and formation of Globe Life Re LTD, a Bermuda reinsurance affiliate for the purposes of reinsuring a portion of new business and in-force life insurance policies issued by Globe Life affiliates and executed the initial reinsurance transactions. As previously noted, we estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. We anticipate parent's annual excess cash flow will increase over time toward $200 million as earnings emerge from reinsurance additional in-force and new business. This additional excess cash flow will enhance the financial strength of the company and will provide additional financial flexibility for the parent to support growth. Now with regards to policy obligations for the current quarter, for the fourth quarter, policy obligations as a percent of premium has declined from 36.7% in the year-ago quarter to 35.4%, consistent with continued favorable trends in mortality. Health policy obligations as a percent of premium were 53.7% compared with 54.1% from the year ago quarter. For United American individual Medicare supplement claim trends have been relatively stable. However, we did see seasonally high claims in the fourth quarter for both individual and group health products. Now with regards to our full year underwriting margins, normalized for the impact of assumption updates. As I mentioned on previous calls, as required by GAAP accounting standards, each year, we review and generally update actuarial assumptions for mortality, morbidity and lapses, and we have chosen to do this in the third quarter each year. When assumptions changes are made, GAAP accounting standards require a cumulative catch-up adjustment. This cumulative catch-up is the assumption related remeasurement gain or loss, an assumption remeasurement gain lowers the reserve balances and indicates an improved outlook as less premium is needed to fund reserves to meet future policy obligations. The opposite is true if there is an assumption remeasurement loss. To better understand the performance of the business for the full year, we think it is beneficial to look at normalized underwriting margins, which exclude the impact of assumption changes and provide an improved basis for comparison of year-over-year results. For the full year 2025, normalized life underwriting margin as a percentage of premium increased to 41% compared with 39.7% for the prior year. Normalized life policy obligations as a percent of premium improved by over 2 percentage points from the prior year due to favorable mortality trends but was partially offset by higher amortization of acquisition costs. Normalized health margin as a percent of premium was 25.4% compared with 27.3% for the prior year and is reflective of higher claims experience and the timing of premium rate increases during the year at United American. Finally, with respect to our '26 guidance. For the full year '26 we estimate net operating earnings per diluted share will be in the range of $14.95 to $15.65, representing 5% earnings per share growth at the midpoint of the range. This is an increase from our prior guidance related primarily to continued improved mortality and experience trends that we are monitoring, including anticipated positive impacts from life assumption updates that will occur in the third quarter. In addition, we are anticipating higher health underwriting margins given the strong premium growth at United American. Normalized earnings per share growth, which removes the impact of assumption updates in both 2025 and in the midpoint of 2026 is approximately 10%. At the midpoint of our guidance, we anticipate total premium revenue growth of 7% to 8% with life premium growth growing 4% to 4.5% and health premium revenue growth growing 14% to 16%. Health premium growth is benefiting not only from strong growth in Medicare Supplement sales in 2025, but also $80 million to $90 million of additional annualized premiums resulting from approved rate increases on individual Medicare Supplement policies that would be phased in throughout 2026 and fully implemented by 2027. Recall the majority of these rate increases will be effective beginning in the second quarter of 2026. As a result, this delay, along with seasonally high claims typically incurred in the first quarter, we anticipate United American's health margin percentage in the first quarter will be lower than the full year margin percent of 8% to 10%. However, we anticipate an average of 10% to 11% in the last 3 quarters of the year as the full effect of the premium rate increases is realized. We anticipate underwriting margins as a percent of premium to be in the range of 41.5% to 44.5% for the Life segment and 23% to 27% for the Health segment. In our guidance, we anticipate recent favorable trends will continue through 2026. Given this, our '26 guidance range reflects an estimated third quarter benefit from assumption updates and resulting remeasurement gain of $50 million to $100 million, which is expected to increase the life margin as a percent of premium in the third quarter to a range of 48% to 52%. Those are my comments. I'll now turn it over to Matt. James Darden: Thank you, Tom. Those are our comments, and we will now open up the call for questions. Operator: [Operator Instructions] Our first question today will come from the line of Jimmy Bhullar at JPMorgan. Jamminder Bhullar: I had a couple of questions. First was just on the first year lapses. They seem to pick up across various channels, especially in direct response. So hoping that you could give us some color on what's going on there. Thomas Kalmbach: Yes. Thanks, Jimmy. Yes, we -- you're definitely right. First quarter lapses for direct-to-consumer and actually Liberty National were actually a little bit higher than what we had expected. At this point, we see them as fluctuations and we'll continue to monitor them. On DTC, our sales increases are primarily coming from the internet channel, which we actually see higher lapses on the internet channel. So a little bit higher, not to be unexpected, but it was higher than what we would have anticipated from that channel. The one thing I'd say is I think the growth in sales, even with a little bit higher lapses is a positive because it does add to underwriting margins overall, but it is something we'll continue to pay attention to.. Jamminder Bhullar: Then on MedSup, maybe if you could just talk about the dynamics between MedSup and med advantage. Historically, obviously, with the Republican government, you'd assume med advantage was going to grow this time it's sort of going in the opposite direction. But the 2 questions I had on that was, do you expect like -- I'm assuming your outlook for growth in MedSup is fairly constructive. And if that is correct, then if we think about, you filed prices, I think, around the middle of last year, maybe third quarter or so. And since then, claims trends have stayed elevated. So should we assume that you'd have to sort of go through around the price increases to get the margins on the business that you've signed to more of a normal level. So maybe we should expect slightly weaker margins initially and then improved after you implement the higher prices. Thomas Kalmbach: Yes, Jimmy, on the claim trends, we've actually see claim trends stabilize in the third and fourth quarter. So that's different than what we saw in 2024, where we had seen claim trends increase in the third and fourth quarter. So those trends that we've seen recently are actually a little bit less than the anticipated trends that we had in our rate increases. So we do feel like the rate increases that we got approvals for are adequate to bring us over the course of '26 and into '27 back to kind of our normal margins in that 10% to 12% range. As I mentioned in my comments, we'd expect 10% to 11% in quarters 2, 3 and 4 of 2026, and those rate increases will carry into the first quarter of '27 as well. Frank Svoboda: Yes, I'd probably just add just kind of a reminder that fourth quarter would just as -- again, seasonality would be probably just a little bit on the lower end of that range and probably just slightly behind where second and third quarter would have been. And then really, as you get all that rate increase fully into 2027, that's where we would really anticipate getting back into those more normal levels that you get it for the full year. James Darden: And then I'll touch on your market trend. Obviously, our results are very strong for the fourth quarter. A lot of that is, we believe, the dynamic of what's going on with Medicare Advantage market and people continuing to find value in Medicare Supplement. There's been a lot of discussion related to the government reimbursement rates and associated impact on Medicare Advantage. Carriers as well as what they're doing from either premium increase, cost reductions or scaling back. We see that also on the provider side of scaling back, taking Medicare Advantage plans. All of those are beneficial to us for a marketplace perspective. I think it is going to be very interesting to see how Q1 and Q2 play out with the dynamics of that market. As we've mentioned before, we are pricing for profitability. We're not pricing just to gain market share. And so it's very important, as Tom has mentioned, the management of our rate increases consistent with our claims performance is very important for the overall profitability of that block of business. And we're clearly, from what we see, not out of line with what other carriers are experiencing nor the rate increases that we're requesting which bodes well for our premium earnings in 2026. And so there -- the sales side is really hard to predict right now, but we had tremendous growth in the current -- well, prior year now 2025. And so it will be -- we'll really see how things come through as we get into the first and second quarter of this year. Thomas Kalmbach: Maybe one other thing to mention, Jimmy, is just as we think about claim trends is, CMS did introduce prior authorization requirements for traditional Medicare Supplement starting in 6 states in 2026. So I would like to see kind of how that impacts overall claim trends. But I think overall, it should be a favorable impact as they try to reduce fraud, waste and other abuses that they've seen in the Medicare program. Operator: Our next question today will come from Wilma Burdis at Raymond James. Wilma Jackson Burdis: Sales have been quite strong in the last few years, even probably stronger than the long term. And you cited some efficiencies there with branding and lead sharing and sourcing. Is there more tailwind to unlock there? Or has a lot of that work been done there? James Darden: No. I think as we continue to leverage on our technology investments, I think we'll continue to see tailwinds from an efficiency perspective. On the agency side, I think there's still more to unlock. There's a variety of technology that has been implemented, but there's a lot of things on the horizon that we are in process that will come online and in '26 and '27. So I think that will continue to help our agent productivity, which clearly drives sales growth and drives it a little bit faster to the extent that we do that effectively, drives it a little bit faster than our agent count growth, which is our overall goal with those investments. And then the technology on the DTC side, the way we market, as was mentioned, a significant amount of those sales are coming from our online channel. And as we market and target customers that are in our demographic that are looking for our type of product, the sophistication there from a technology perspective continues to be a significant focus of ours, and we continue to invest in that area. And I think that's why you'll continue to see growth trends there as well as just any sort of efficiency that we have through the distribution model. So we've talked about of converting people that are interested, those leads and inquiries into ultimate sales and then keeping them on the books through a great customer experience will continue to benefit us going forward. So I don't -- I'd say my punchline to all that is, I don't think we fully achieved all that we can through the use of technology enhancements, but we'll continue to focus on that in the coming days to get the growth that we're looking for. Wilma Jackson Burdis: Great to hear. Could you talk a little bit about remeasurement gains, which were strong in both life and in health, which actually reversed recently, but health remeasurement gains look pretty strong. Can you just go into a little bit more detail on the drivers there and how you expect that to trend? Thomas Kalmbach: Yes. With regards to kind of what I'd say is quarterly actual to expected remeasurement gains. We are seeing life mortality experience and lapse experience that's favorable relative to our long-term assumptions. And similarly, on the health side as well. I think we continue to expect mortality to continue at kind of where they've been recently, which would result in continued life actual to expected remeasurement gains. And as we're looking at that experience and looking to see how the first quarter and second quarter emerge we kind of follow our process of updating assumptions. We'd also, as I mentioned, expect an assumption remeasurement gain in the $50 million to $100 million range in the third quarter of 2026. Now when we make those assumption changes, I think we can -- depending upon where we set those long-term assumptions, I think that we would continue to see remeasurement gains potentially even in the third and the fourth quarter of next year as well. So I don't think we'd necessarily eliminate all of them. For the health side, it's a little bit different is health the premium rate increases on the health side will help our ability to generate experience that could produce continued remeasurement gains. But the health side remeasurement gains are much more volatile just because of the way Medicare Supplement and the rate increases are applied to in the reserve practices is just a little bit unique versus our normal supplemental health business. So we will see a little bit of volatility around remeasurement gains and losses in the health line. Operator: Our next question will come from Jack Matten at BMO. Francis Matten: First question I have is on excess cash flow. I think the guidance this year is the same midpoint, and that's before even with a higher GAAP earnings outlook. So I guess that's partly related to the kind of the GAAP assumption remeasurement gain that you're embedding now. But anything else that's different across GAAP versus statutory that we should be thinking about there. Frank Svoboda: Yes. And I'm sorry, Jack, you're just a little bit -- it's hard to understand your question, but I think it was looking for differences that were kind of happening that we're seeing on the GAAP or the statutory side that was impacting the excess cash flows. I mean I think in what Tom was providing from his guidance of $625 million to $675 million, we are just seeing that is really being driven in and of itself by just good solid statutory earnings in 2025 that then convert into dividends to the parent company in 2026. That is growing a little bit over, I'm going to say the normal statutory earnings that we had in the prior year there. Of course, we had some extraordinary dividends in 2025 that were brought up as well. But if you kind of pull those out, we're seeing just a nice increase. I feel better that we're actually at a kind of another level with respect to our statutory earnings and therefore, the cash flow generation at the parent company. No real significant changes in the statutory or the GAAP models. If you think about '25 or even '26 at this point in time, that's really impacting it, like we maybe it had in some of the prior years. Thomas Kalmbach: Yes. And just for clarity, we don't expect any benefit from the Globe Life Re Bermuda transaction in 2026 at this point in time. Frank Svoboda: And to the extent that, that changes at all, over the course of the year, as we talk to our regulators, we'll be sure to disclose that and talk about that on future calls. Francis Matten: Great. And then a follow-up on the American Income agent count. I know that there's usually like a stair-step pattern over time, but it looks like a bit of a larger drop this quarter than what we usually would see. Any sense on what's driving that? And then any more detail on the retention initiatives that you referenced in your prepared remarks? James Darden: Yes. I would say for American income, it is not uncommon for the fourth quarter end of the year for agent count from a sequential basis to go down. If you look at 3 of the last 4 years, we've had that phenomenon. So I'd say it's not unexpected. Typically, we see those agents that may be struggling with their productivity and production kind of toward the end of the year, may be a time that they fall off. What we're doing from a focus on that perspective is, as we've talked about in the past, it's our middle management and managers that are out there recruiting, training, onboarding and retaining agents. And so we're looking at some incentives changing their incentive compensation a little bit to continue to focus on that agent retention. So those will go in towards the beginning of the year, and then obviously, they take a little bit of time to get implemented. And so like I said, if you look at it over a long term, it's not a concerning trend. That's why we're projecting that we're going to have agent count growth. But overall, we are focused on the productivity of our entire agency and that continues to be very strong for all our agencies, but including American Income. And so I think that's why you see little bit higher sales growth than just the agent count growth. Again, quarter-to-quarter, we're going to get some of those fluctuations. Operator: We'll take our next question from Andrew Kligerman at TD Cowen. Andrew Kligerman: I want to stay on Jack's question with regard to sales. So it sounds like you're going to put the retention initiatives in place this year. So that wasn't the case last year. So I guess that explains why you cited average producing agents going up mid-single digit and then at American Income and then net life sales going up high single digit. So maybe that's -- I'm trying to get at the productivity a little bit more. What drove it up in the fourth quarter to see a 2% drop in average producing agents with a 10% increase in sales? Was it -- I think you touched on earlier, those -- the lead generation coming from direct-to-consumer, but I can see that you're baking in more productivity even going forward. So trying to get it better. I'd like to get a better understanding of what's driving that. James Darden: Sure. I think as we've talked about in the past, you've got to look at the agent count growth as a leading indicator and then the sales growth follows. And so if you go back for American Income, Q4 of '24 was a 7% growth and in Q1, Q2 and Q3 were all low single-digit growth quarters for just the agent count. And so that carries forward into sales in Q4. We're also seeing some productivity gains as well as just the premium on a per sale basis is up compared to the same quarter in the prior year. And so that's also driving it as well. And as we've talked about, the thing with the product in the marketplace is that the consumer is -- we go through a needs-based analysis that is sitting down with the customer and determining what their needs are and then based upon what those are. We have the right amount of coverage, which obviously has an impact on the amount of premium that we collect on a per policy basis. I think some of the -- when I talked about the quality of the leads and the conversion of those globe leads generated out of our DTC channel into American Income is also helping on that productivity is reflected in the premium on a per sale basis as well as just the agents that are producing every single week what their sales are from that perspective. And so you are correct, just recognizing the agent count, we think the agent count growth might be just a little bit slower than the sales growth for 2026, and it's just reflective of some of those dynamics. And we'll see how some of these incentives come into place. And I wouldn't characterize it that we had no incentives in 2025 for our managers to recruit and retain agents. It's just we found that we always have to kind of adjust to that and make sure we've got the right incentives correct between that balance of sales and recruiting, training and retaining agents. And so we're doing some few tweaks that will go in here at the beginning of '26, and we'll see if we got it right as we move throughout the year. Andrew Kligerman: Very helpful. And if I can go back to the MedSup, I mean, what a fabulous year in terms of sales growth at United American and just saying that you think sales will be flat in '26 is pretty darn good. As we look further out, is there a chance that the dynamic between med advantage and med Supplement kind of shifts in the favor of med advantage where they kind of align better with regulations and compliance and pricing and you could see a dip in the opposite direction, some real pressure on sales as more med advantage gets sold. James Darden: I mean, it's certainly possible. As we mentioned before, we've been in this business for decades. We have more and more people from an age perspective entering into the market in general. So that would be, I would think, a tailwind. But it's really hard to predict the government support within the Medicare Advantage space. And so that will play some into the dynamics. But I think from a Medicare Supplement perspective, there's always going to be a need in a marketplace for that particular product. People that want the freedom of choice and some of the benefits that the Medicare Supplement marketplace provides. So again, I think there will always be a place in that market. We are very much focused on maintaining our margins, and we're really not going to chase market share at the expense of just pricing to gain market share for the sake of it. So I think you've seen that over a long period of time with us is that our sales growth will ebb and flow in that area, depending on the marketplace, but it's very important that we maintain our pricing for the existing in-force block as well that really translates into that underwriting margin dollar that we're really focused on from a long-term stability perspective. Operator: [Operator Instructions] Moving on, we'll hear from John Barnidge at Piper Sandler. John Barnidge: My first question on the investment portfolio, can you talk about exposure to software and how you see the portfolio impacted by AI along with any derisking activities that have been pursued. Frank Svoboda: Sure. Thanks, John. On our -- I think a lot of the discussion on potential exposure has kind of been in that alternative portfolio category. We've kind of taken a look at within the limited partnerships and the different investments looking at information that we have available there. Our best estimate is that there's really less than probably $15 million within that alternative portfolio that is really related to software companies. So we do think it's pretty limited. Overall, our private credit is probably about 1% of our total invested assets. I think that's about the amount we had last quarter, and that really hasn't changed again this year. So overall, we have pretty low allocation to the alternative space in general than private credit. And then it doesn't look like right now, at least in that side, we have much from the software. As we think about it on the fixed maturity portfolio, we've always been underweight, I would say, on tech you kind of think about we're out there trying to buy bonds that are 20, 30 years out, and it's hard to find the technology companies that we really feel comfortable fit into that space. So less than 2% of our invested assets of our fixed maturity portfolio is in some type of a technology type activity within that sector. What we have exposure to mostly are the hardware providers, data service providers and that type of thing. There's probably a couple of names in there. We kind of think probably less than $50 million that have a little bit more susceptibility to be displaced. They do have some moats with respect to some proprietary data that they have with respect to the space that they operate in. So I think it gives them some protection, but that we're kind of keeping an eye on. It is I think the whole AI disruption is a risk that the investment team has been considering for a number of years. And clearly, within part of the matrix that they utilize as they think about the bonds that the companies that we're going to invest in. And again, we're looking for those names that are really long term, we think, are going to be around for the long term. And so it's the IBMs and the Amazons and the Microsofts that are mostly in our portfolio. Operator: Our next question will come from Wes Carmichael at Wells Fargo. Wesley Carmichael: I had a couple of questions on Bermuda. One, I think the press release in December, I think you noticed -- or you noted that the first reinsurance transaction you executed with your business plan. Wondering if you could provide a little more detail on that transaction just in terms of size and scope. Thomas Kalmbach: Sure. Yes, we are pleased to get the licensing information of the company and the approval of our U.S. regulators as well as the Bermuda regulators to complete that transaction. And our goal there was really to get the company established because we wanted to actually get it established in 2025, so we could have audited financial statements for the entity beginning in 2026 that we finalize as '25 results. So that allows us to be on a path for the requirements of reciprocal jurisdiction. And so we're well on that path and we're executing relative to kind of our business plan at this point in time. That initial transaction was about $1.2 billion of statutory reserves that got transferred. And so during the course of 2026, we do intend -- and this is consistent with our business plan as well that was approved by Bermuda. We do intend to reinsure some new business as well as incrementally a little bit more in-force business in 2026. So we'll grow the amount of business that's reinsured in Bermuda over the next 3 to 5 years. Wesley Carmichael: And I guess my follow-up was on that point is, is it still possible to get early approval for reciprocal jurisdiction? And I'm just trying to understand when you get that status. Are there near-term plans for -- to increase the pace of reinsurance? And just really trying to understand how much of a lift in excess cash flows do you kind of expect in 2026 or 2027? Thomas Kalmbach: We've kind of thought through that, and that's really part of kind of our business plan that we established earlier on. We do think it is possible to get early reciprocal jurisdiction, but it is subject to regulatory approval. So we really want to go through the process, and we'll update you if we do, in fact, get reciprocal jurisdiction early. And that would allow the potential for, again, I'd say, potential for additional dividend distributions from the Bermuda sub, but those are also subject to Bermuda regulatory approval. So again, we don't want to get too far ahead of ourselves, and we want to actually go through the process of having those discussions with our regulators. Frank Svoboda: And I just add, if -- I think the kind of the time frame on that as far as working with the regulators is probably something that happens a little bit more mid-year, we do anticipate that if we were able to get that, any potential distributions that we might get in '26 would be toward the end of the year. And so -- we have not built any of that into our '26 plan as of this time, and we'll clearly take a look at that as the year progresses. We do anticipate that there would be some opportunity then starting in 2027. And as Tom has kind of talked about, we think that it can be up to $200 million or at least working toward $200 million over time. And that would be -- just kind of a reminder that is what we would anticipate would be annual cash flows up to the parent. But again, part of that is with the business plan and continuing to build that up with continuing transactions here over the next few years. Operator: And we'll hear from Mark Hughes at Truist Securities. Mark Hughes: On the claims, you said were seasonally higher in individual and group health. Was that normal seasonality? Or is that a little bit above and beyond? Thomas Kalmbach: I think, first of all, we normally expect a little bit higher claims in the fourth quarter in the individual and group health lines. However, I would say is that in the group lines, we did see a little bit higher severity. And so it was a little bit higher than what we had anticipated. Mark Hughes: Understood. And then you've talked to a lot of factors that could influence profitability in the health business, but the 23% to 27% the 4-point swing anything else that we should consider when we think about the high end or low end of that range? Thomas Kalmbach: I think some of it -- Frank alluded to in his comments as well, is that Medicare Supplement has a lower underwriting margin. Just on it as a line of business. And so to the extent that, that grows faster than some of the other lines, we're going to see a little bit of downward pressure on just the overall health underwriting margins as a percent of premium. Now the underwriting margin dollars from health would grow. And so I think we just got to -- so that's why the range of 23% to 27% is somewhat dependent upon how strong Medicare Supplement sales come in. Frank Svoboda: Yes. Mark, that's exactly right. When you kind of look at 2025, United American, that whole side of it, the Medicare Supplement side comprised about 49% of the total health premium, whereas in Family Heritage, Liberty, American Income that have that other limited, our true limited benefit product, that's a little bit more stable. The margins on that limited benefit side are more in that 43% to 44% range versus what we had in 2025 of around 5%, 6% with respect to overall margins on the MedSup side. Now in 2026, we expect that MedSup margin to be up in that 8% to 10% range. But again, it's now at about 53% of the overall premium is what we kind of anticipate right now. And so it's just taking a little higher percentage of that overall premium piece. And so it's kind of -- just bringing down the average just a little bit. Despite the lower margins that we have on that, I mean, it is still a very good business for us and -- because it is very lower amount of capital required ultimately. So when you start thinking about internal rates of return and returns on capital and that type of thing, it is a very good business from that perspective. So we don't find it really overly concerning when you kind of see a slight decrease in the overall health margin percentage. If we think about it as long as it's kind of just from that overall mix of business, we think, overall, that's still a good diversification for us. Operator: And that was our final question from our audience today. I'm happy to turn the floor back to Mr. Stephen Mota for any additional or closing remarks. Stephen Mota: All right. Thank you for joining us this morning then. Those are our comments, and we will talk to you again next quarter. Operator: Ladies and gentlemen, thank you for joining today's Globe Life Inc. fourth quarter earnings. You may now disconnect your lines. Enjoy the rest of your day.
Operator: Hello, and welcome to today's presentation with Nolato, who is going to present the report for the Fourth Quarter of 2025. With us here to present today is CEO, Christer Wahlquist; and CFO, Per-Ola Holmstrom. [Operator Instructions]. After presentation, there will be a Q&A. [Operator Instructions] And with that said, I hand over the word to you guys. Christer Wahlquist: Thank you, and welcome to the presentation of Nolato's Fourth Quarter of 2025. Starting on Page 2, we had sales that totaled just shy of SEK 2.3 billion in the quarter, which gives a growth of approximately 2% adjusted for currency. We saw an increased growth rate for the Medical Solutions business area at 5%. We saw a decrease of approximately 1% for Engineered Solutions adjusted for currency. We had some headwinds on the sales in the last part of the quarter due to Christmas holidays and during that time. Our operating profit ended up at SEK 236 million in comparison to SEK 240 million. This was strongly affected by currency headwinds of 6%. The margin rose to 10.4%. So we saw improved margins in both areas, but sequentially lower due to somewhat weaker volumes during the Christmas break and also some startup costs for the new programs in United States. If we focus on the full year of 2025, we ended up at close to SEK 9.5 billion in sales. That was corresponding to a 2% increase adjusted for currency. We saw an operating profit increase 11%, even though we had a strong currency headwind. The margin improved and ended up at 11.3% in comparison to 9.9%. So we saw a 1.4 percentage points increase of margin. The earnings per share ended up at SEK 2.88 per share, and we have a very strong financial position, enabling us to execute on our increased acquisition strategy. The dividend proposal is SEK 1.7 in comparison to SEK 1.5 per share, and that is a current payout ratio of 59% in comparison to 61% last year. If we jump to Page 5, starting with Medical Solutions. Here, we are on a growth and global expansion journey, and this business area now corresponds to 58% of group sales in the fourth quarter. On Page 6, we see our focused product areas. We feel that we are very well positioned with leading global customers and positioned in very interesting product areas. If we go through them a little quickly, we see the in vitro diagnostics with a long-term growth potential, and we have a very strong position in this therapeutical area. Cardiology, of course, high-end market, a lot of lifetime implants and very high demands on the products delivered. Drug Delivery, a growth market area where we have a very strong position and well positioned for continuously growth. Endoscopy and General Surgery, it's a changing market. It's interesting with the new sort of more robotic surgery that are coming in. Continence Care, of course, high-volume market with huge volumes. If we then jump into the fourth quarter for Medical Solutions, we ended up just above SEK 1.3 billion in sales, which corresponds to a 5% adjusted currency growth. We see that the drug delivery market continued to exhibit growth within the autoinjector and pen injector systems. We saw a positive development for the in vitro diagnostic during the year with a slow start last year and then increasing volumes. If we look on the margin side, we ended up at 11.6% margin for the business area. That is an improvement of 0.4 percentage points compared to 2024. We had, during the quarter, a negative impact due to temporary higher cost for the start-ups, as mentioned before, and also some volume headwinds during the Christmas breaks. Our expansions are going according to plan, both in Hungary, Poland and Malaysia. Jumping into Engineered Solutions, which is a sales level of close to SEK 1 billion and 42% of group sales in fourth quarter. In this area, we are focusing on different product areas, of course, the consumer electronics where we see potentials, hygiene, good potentials and automotive, of course, a little bit slow right now, as we explained in previous quarters. And then that's a little bit different market, the materials, where we see strong growth, but also affected during this quarter by the increased cost of precious materials. Jumping to the next page and then summarizing Engineered Solutions for the fourth quarter. As mentioned, strong growth for materials, 10% increase if we adjust for the currency. We saw sustained performance for consumer electronics, particularly in Asia. After a positive performance during the year, volumes decreased for Hygiene in the last quarter due to an inventory adjustments ahead of year-end. The total business area ended up at a margin of 9.9% in comparison to 9.2%. We saw, of course, favorable product mix. But if we compare to the previous quarters of 2025, we had negative impact of the lower volumes and sharply increased precious metal prices, as mentioned. Per-Ola Holmström: Good afternoon, Per-Ola Holmstrom, CFO, and group financial highlights on Page 11. Net sales was SEK 2.272 billion in the quarter, a 2% growth given currency headwinds of 7%. Operating profit EBITA amounted to SEK 236 million, slightly below last year, but with currency headwinds of 6%, representing an accelerating negative effect of about SEK 14 million in the fourth quarter. The EBITA margin for the full year 2025 improved by 1.4 percentage points, driven by pricing, cost adjustments and efforts in the entire supply chain. The quarter improved 0.3 percentage points to 10.4%. The declined margin compared to previous quarters 2025 was negatively affected by: one, temporarily higher costs for start-up of the new products in the U.S. The medical margin was negatively affected by that by 0.5 percentage points; two, slightly lower volumes within mainly Engineered due to holidays at year-end; three, sharply increased prices for precious metals within materials in business area Engineered. Summarizing these 2 effects for Engineered, the total negative effect is 1.0 percentage points for the business area. Four, group cost was on the high side in Q4 and in comparison to Q3 that had one-offs of plus SEK 7 million in addition, effects from M&A activities in Q4, giving a delta of SEK 10 million compared to Q3. Summarizing these 4 items, the temporary negative effect is in the range of SEK 25 million to SEK 30 million compared to Q3. Parts of these will influence the first quarter 2026 as well. Cash flow from operating activities was SEK 310 million, a good level in the quarter, but last year was very positive from improved working capital. Net investments, we did see a shift in trends. CapEx declined compared to the comparative quarter last year to SEK 146 million. The full year 2026 is expected to be between SEK 650 million to SEK 700 million, where SEK 100 million approximately still is left for the Hungarian project. Return on capital employed for the full year improved to 14.2%. Christer Wahlquist: Turning to Page 13 -- no, sorry. Jumping, turning to Page 12 -- sorry. Sustainable development. We have had a very positive development of our -- all kinds of measurements on the sustainable side. If we focus first on our Scope 1 and 2 emission, we have reduced this by 96% in absolute terms from our base year 2025 (sic) [ 2021 ] versus our target of 70% for 2020 (sic) [ 2030 ] . So it's an impressive journey on that side. If we talk about Scope 3 Upstream's emissions, we have reduced that by 30% in absolute terms from the same base year versus our target of 25%. So we are well ahead of our near-term targets on path towards 2030. We're also delivering fast results on our science-based target initiatives. And our Net-Zero targets for 2045 is approved by science-based target initiative in January of this year. Turning to Page 13, focusing on our current situation. Overall, we see a very favorable financial position that enables intensified M&A agenda and focusing on medical solutions, we have a continuous growth strategy. We see very high market activity. We have a very strong broad customer base with long-standing close customer relationships enable us to continue our growth journey. Our establishments of operations in Malaysia and an expansion in Poland as well as in Hungary are creating excellent opportunities for us. Within the Engineered Solutions business area, we are advancing our market positions. We have established position in new product areas and successful in new products and technology areas, mainly data center is very positive for materials and also the expansion of our operations in Malaysia, creating opportunities. We are now handling over for questions. Operator: Thank you so much for the presentation. Ladies and gentlemen, we will now carry on with some questions. [Operator Instructions] And the first caller here is Carl Ragnerstam from Nordea. You have the word. Carl Ragnerstam: It's Carl from Nordea. Sorry for a slow unmuting. A couple of questions here. It is, of course, a lot of dynamics in these reports. So I hope to unpack some of them. You mentioned 100 basis points in Engineered owing to shutdowns as well as the precious material thing. So firstly, I wonder what materials are we talking about? And secondly, yes, how do you view that topic specifically for Q1 and Q2? Per-Ola Holmström: Yes. We could see that the pricing we are talking about that is affecting materials. And as you know, we are compounding a material, which is including metal particles and some of these materials within that part is based on silver particles. And as you have seen, pricing of that has skyrocketed during the fourth quarter, and it has continued in the beginning of January as well. That is a part where we have quite short actions to change the pricing to our customers. And we are, of course, in the process of doing that. It's more standard materials, which we are handling, and that will give effect. But of course, there is a timing effect. And as you have seen, pricing have continued up in the beginning of January as well, however, now declining. So we are in the middle of a very dynamic pricing because of the silver materials mainly. So that is affecting that part. Carl Ragnerstam: And what portion of the 100 basis points was the metal or material thing compared to the customer earlier shutdowns? Per-Ola Holmström: That is the larger part of the 1 percentage. Carl Ragnerstam: And what did you say about Q1? Is it same effect or less effect or ballpark? Per-Ola Holmström: Yes. We do see that, that will continue in Q1 as well, but it's slowing down a bit during the end of the quarter. That is our assumption based on pricing activities that we have done. Then, of course, we don't know the ongoing pricing dynamics for the silver pricing going forward. But as far as we can see right now, there will be an effect which is slowing down during the rest of the quarter. Carl Ragnerstam: That's very clear. Jumping into Medical, you mentioned the production ramp-up in the U.S., the 50 basis points impact. How long is that ramp? And what product are you? Is it a multiproduct facility? Or what are you ramping? Christer Wahlquist: It's a multi things. There are different programs ramping at the same time. And we are expecting that to continue a little bit into the first quarter and then, of course, be more steady state. Carl Ragnerstam: Good. And the final question, if I may, is on the Medical organic growth. Did the new autoinjector contract that you're manufacturing in Hungary contribute with a similar magnitude as in Q3? And if so, what is the main delta behind the acceleration of the organic growth in Medical? Christer Wahlquist: It's continuing -- the new program in Hungary is continuing on the same level as in the third quarter and also expected to continue on the same level in the first quarter of 2026. So that's -- and then it's a general thing. We have a growth in different areas, all kinds -- all over the place, more or less. Carl Ragnerstam: Okay. Sorry, final one. In terms of the M&A cost you touched upon, it seems a little bit -- it is a little bit on the high side given your history of doing due diligence. Is it fair to assume that it's a bigger transaction? Or is it several smaller ones you're looking into? Per-Ola Holmström: Well, I mean, the delta of the SEK 10 million is coming from SEK 7 million from the one-time positive effect in Q3 and then the rest is mainly coming from these activities. So well... Carl Ragnerstam: Okay. Fair enough. Per-Ola Holmström: Large or not large, but yes, nothing... Carl Ragnerstam: Then I understand that. Very good. That's all for me. Operator: And the next caller here is Oscar Ronnkvist from SEB. You have the word. Oscar Ronnkvist: So yes, I just had one question on the volumes. So assuming that there were earlier shutdowns in Q4, do you expect to see a catch-up effect in Q1? Or is it more of a normalized quarter? Christer Wahlquist: I think we would see the first quarter as a more normalized quarter. Oscar Ronnkvist: All right. I see. And then just on the start-up costs here in the U.S., any particular reason why you sort of highlight that as a temporary cost? I suppose that, I mean, you're looking to expand most of the time. Christer Wahlquist: Yes, it was just an explanation to that we have several things running and it was more than normal. Oscar Ronnkvist: All right. I see. And then just I think a follow-up on Carl's question before, but just a clarification on the pricing adjustments in materials in specific. So how would you handle the dynamics of price increases when we have so volatile precious metal prices? Christer Wahlquist: Yes. It's a continuous -- of course, if you have an upwards trend, it's something that then you have to adjust and do it the right timing. And it's always a dynamic process, and you can't really go back to a customer every day. So then you might lose some temporarily on the upgoing if it's a continuous upwards trend. Oscar Ronnkvist: All right. But have you done any price increases thus far based on the higher material prices that we saw especially in Q4? Christer Wahlquist: Yes. We have. Operator: Thank you. And yes, final shout out here [Operator Instructions] It seems that, that was all the questions we had. So thank you so much, Nolato, for presenting here today, and thank you all for tuning in. I wish you a pleasant day. Christer Wahlquist: Thank you. Goodbye. Per-Ola Holmström: Bye.
Operator: Welcome to the ScanSource, Inc. quarterly earnings conference call. Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mary M. Gentry, Senior Vice President Finance and Treasurer. Please go ahead. Mary M. Gentry: Good morning, and thank you for joining us. Our call will include prepared remarks from Michael L. Baur, our Chair and CEO, and Stephen T. Jones, our Chief Financial Officer. We will review our operating results for the quarter and then take your questions. We posted an earnings infographic that accompanies our comments and webcast in the Investor Relations section of our website. As you know, certain statements in our press release, infographic, and on this call are forward-looking statements and subject to risks and uncertainties that could cause actual results to differ materially from expectations. These risks and uncertainties include the factors identified in our earnings release and in our Form 10-Ks for the year ended June 30, 2025, and in our subsequent reports on Form 10-Q. Forward-looking statements represent our views only as of today, and ScanSource, Inc. disclaims any duty to update these statements except as required by law. During our call, we will discuss both GAAP and non-GAAP results and have provided reconciliations on our website in our Form 8-Ks filed earlier today. I'll now turn the call over to Mike. Michael L. Baur: Thanks, Mary, and thanks, everyone, for joining us today. In the second quarter, we generated strong free cash flow and delivered net sales and gross profit growth in both segments. However, our profitability was negatively impacted due to some unexpected expenses contained in the quarter. This resulted in declines in both gross profit and EBITDA margins compared to our very strong first quarter. In Q2, we had organic net sales growth for both segments, though slower than expected for our Specialty Technology Solutions segment. Today, we're excited to announce the launching of a new converged communication sales team at ScanSource, Inc. This communications team unifies the ScanSource communications products and the Intelisys products and services to fully embrace the accelerating convergence of hardware, cloud, and customer experience technologies. We believe end users are embracing cloud-based UCaaS and CX platforms, and this is a growth opportunity for our channel partners. We're bringing together the expertise of our people to form one unified sales team. A team with deep knowledge of communications products and Intelisys cloud-based CX solutions. By giving this one team responsibility for both the hardware and recurring cloud business for these partners, we are strengthening partner alignment, expanding our share of wallet, and positioning ScanSource, Inc. at the center of this converging ecosystem. In our Intelisys and advisory segment, our investment strategy is driving growth and momentum in new orders. We make these investments ahead of the revenue understanding that it typically takes about a year for new orders to convert into billings. As a result, we're seeing our new orders increase at a faster rate than our current revenue from billings. New investments for Intelisys include building out our new Converge communication sales team, which is designed to further accelerate growth and capture new end-user solution opportunities. As we move ahead, our strategy centers on helping our channel partners deliver innovative converged solutions driving both organic net sales and free cash flow through solid execution of our strategic plan. Our team is focused on profitable growth, executing our strategy, and making progress toward our three-year strategic goals. I'll now turn the call over to Steve to take you through our financial results and outlook for fiscal year 2026. Stephen T. Jones: Thanks, Mike. Q2 net sales grew 3% year over year in both segments. And gross profits increased 1% year over year. Profits for the quarter were negatively impacted by some higher period expenses in our Specialty Technology Solutions segment impacting both COGS and SG&A. We delivered strong free cash flow in the quarter and closed on a new five-year credit facility that will support our strategic objectives and capital priorities. Turning to our segments, I'll start with our Specialty Technology Solutions segment. Net sales increased 3% year over year and 4% quarter over quarter. Gross profits increased 1% year over year. Higher period expenses, including freight cost and mix, impacted gross profit margins by approximately 30 basis points. Excluding these costs, gross profit growth would have been in line with the revenue growth for the segment. The percent of gross profit from recurring revenues grew to approximately 18% for the segment and includes positive contributions from the acquisition of Advantix and DataZoom. The Specialty Technology Solutions segment adjusted EBITDA margin was 2.8%. For the quarter, the impact on segment adjusted EBITDA margin from higher period expenses is approximately 60 basis points. In our Intelisys and Advisory segment, net sales increased 3% year over year, in line with our expectations. Annual net billings increased to approximately $2.85 billion. Gross profits increased 3% year over year, while adjusted EBITDA margin for the segment was 41%. Going a bit deeper on our balance sheet and cash flows. We ended Q2 with approximately $83 million in cash and a net debt leverage ratio of approximately zero on a trailing twelve-month adjusted EBITDA basis. Adjusted ROIC was 11.9% for the quarter and 13.3% for the year. Share repurchases for the quarter totaled $18 million and we have $179 million remaining under our share repurchase authorization. We continue to have a strong balance sheet and are well-positioned to execute our strategic priorities and achieve our three-year goals. Our three-year goals focus on growing the company's gross profit contributions from recurring streams, expanding our profitability, delivering strong free cash flow, and disciplined capital deployment. You can find our goals in the infographic and our investor presentation in the investors section of our website. We are pleased with the contribution from our acquisitions, including the most recent acquisition of DataZoom and what they bring to our channel capabilities and our strategic plan. We continue to explore acquisition opportunities that could expand our capabilities and help us drive additional value across our partner ecosystem. Our capital allocation priorities also include continued share repurchases. We are confident in our business model and are optimistic for growth in the second half of our fiscal year. For the first half of our fiscal year, our gross profit margin was close to 14%, and our adjusted EBITDA margin was over 4.6%. We are updating our full-year projections based on our first-half performance. We now believe that full-year revenue will be in the range of $3 billion to $3.1 billion and adjusted EBITDA will be in the range of between $140 million and $150 million. For annual free cash flow, we maintain our expectations of at least $80 million. Our expectations include an increase in the second half of large deals, as well as investment in our Intelisys and Advisory segment to drive new order growth. We'll now open it up for questions. Operator: Ladies and gentlemen, if you have a question or comment at this time, please press 11 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. I'm sorry. Simply press 11 again. Again, if you have a question or comment, please press 11 on your telephone keypad. Our first question or comment comes from the line of Gregory John Burns from Sidoti. Mr. Burns, your line is open. Gregory John Burns: Morning. Could you just give us a little bit more color maybe on the period cost that you highlighted and, you know, whether or not you expect that to continue into the second half of the year, or are they just gonna remain kind of localized into this quarter? Stephen T. Jones: Hi. Good morning, Greg. This is Steve. I'll take that question. Yeah. You know, in our 10-Q, we outlined some of the costs both in our COGS and in our SG&A. You know, in the COGS piece of it, it's really around mix and freight expense in the quarter. That pushed our margins down. We also called out some bad debt expense driven by a customer-specific reserve that we took. And we closely manage our receivables, and we have a very healthy receivables portfolio. So when we look at that, we do think that's more period-related. Gregory John Burns: Okay. And I guess you mentioned also a little bit slower than expected growth in the technology segment. Could you just maybe give us a little bit more color on where specifically the lower growth was coming from or, you know, maybe some detail around product categories that might be helpful for us to better understand the dynamics? Michael L. Baur: Hey, Greg. Good morning. It's Mike. I think what I would say about that is the large deals are really part of the story here. And maybe that's where I'll talk about it. We saw large deals get broken up into smaller pieces. And so as they're rolling out, they're not happening normally. And we saw this even last quarter. And so I believe that's the real story here is that we've got a slowdown in large deals that are being invoiced in the quarter. And we see that by the way, we see that as part of the challenge for the hardware business as we look out. And implicit in our adjusted guidance is that we do need the large deals to resume. And we believe that that will happen. Gregory John Burns: Okay. Is there any specific reason why you have more confidence in that? Are you seeing anything specifically? Anything you're hearing from your customers? Michael L. Baur: Well, it is based on information. We just had last week, our sales kickoff for our internal specialty sales teams. So we spent a lot of time talking to our sales teams about what they're hearing from partners, from suppliers. So, yeah, it's based on surveys of our partner community. And what they believe as they look at their calendar year. And many of these partners, as we all know, you know, they don't have large, long pipelines. So they generally have very good shorter-term information. And we believe that the information we're getting suggests the large deals will continue to happen. But, again, they may be broken up over the quarter, so this is really more of a for the year, we feel good about it. Q2, we had expected more than we actually booked. Gregory John Burns: Okay. Alright. Great. Thank you. Operator: Yep. Our next question or comment comes from the line of Keith Michael Housum from Northcoast Research. Mr. Housum, your line is now open. Keith Michael Housum: Great. Thank you. Can you guys hear me okay? Michael L. Baur: Keith, we got you. Keith Michael Housum: Okay. Great. Great. I appreciate it. Hey. Mike. I understand the memory issue that's affecting the wireless technology world. On the price side, it may not impact you guys so much because you guys know, pretty much pass through the prices. But into what are you hearing from the customers in terms of are you seeing prices increasing now? And, you know, any concerns that you have that perhaps should be some of the supply shortage at some point through not only the second half of your fiscal year, but throughout all 2026. Michael L. Baur: Yeah. Good morning, Keith. We talked about that for sure is the suppliers are indicating that the memory issue will affect them. They don't know, you know, what's the near-term impact versus long-term. And some of it is a pricing issue, as you know, and some of it potentially could be a shortage issue. Right? And since so many technology companies use the same memory sources, I think that'll be a challenge for some of our suppliers. So we certainly think that we're gonna be in the same position as everyone else in the channel to manage through this. But right now, there's just a lack of visibility as to the near-term impact. So we've adjusted our guidance knowing what we know today about the potential for that to happen. And right now, it's not significant in our guidance. Okay? Keith Michael Housum: Okay. Appreciate that. I'm gonna ask you to look into your crystal ball a little bit here as you talk about the Intelisys business. You guys have been restructuring that business now for a few quarters. Are we thinking the 2026, the calendar year, we should see Intelisys sales start to accelerate from the current levels? Michael L. Baur: Well, I would say this, Keith. We probably didn't restructure as much as we added additional sales capabilities. That's the way I would frame it. And what we expected from our sales teams when we brought on Ken Mills, which will be over a year and a half ago now. So for sure, we believe we had to get more aggressive at acquiring new customers and focusing on new orders and not just at the existing book of business that many of our partners had. And I think part of it too is we went through a couple of years ago an aging of the Intelisys partner community. We had many of the partners, as you recall, that were selling their books of business, that were selling their agency, and we kinda saw the peak of that, I believe, a year and a half ago and I believe that has diminished to some extent. And so I believe even the partners that have been around a long time are now focused more on new orders. And I believe the new order growth that we referenced that is growing faster than our billings is indicative of what we'll see next year. Already in '26, we're benefiting from what Ken put in place a year ago. And I think that's why we're starting to see momentum. And I expect it will continue to grow at a faster rate than new orders. Yes. Keith Michael Housum: Okay. And in Brazil, I see it was down 9% organic this quarter. Anything new happening there? I know, you a year or two ago, we lost Broadcom, but I was kind of surprised by how much that declined year over year. Michael L. Baur: Yeah. I don't think there's anything specific we can call out, but certainly, we wish that market would recover. It's a market condition that we're in with all the other distributors in Brazil. So from a market perspective, we feel like our management team is managing and pulling the levers that are under their control. Whether that's managing expenses or whether that's managing inventories and bringing on new suppliers to replace the supplier that we lost. So I think the management team is operating at a very high level. But it's a challenging market right now for the distribution segment in Brazil. Keith Michael Housum: Yeah. That's a higher than company average gross profits, correct, in Brazil? Michael L. Baur: Yes. That's right. And I would say, historically, don't know how much we talked about it, Steve, but it would drop to the bottom line as well. It would be a higher profitability, Steve. Stephen T. Jones: Yeah. That's right, Keith. This is Steve. I would say that a lot of their GP flows through. They manage cost very well, and a lot of that does flow through. Keith Michael Housum: That's certainly not helping your gross profit line either. Michael L. Baur: That's right. Correct. Keith Michael Housum: Okay. And then maybe help me understand a little bit more in terms of the launch that you did today in terms of one communications team. Perhaps can you describe how it was operating previously and how you how that's gonna be different going forward? Michael L. Baur: Yeah. Sure. So we've been trying to figure this out for a while as to how do we have a partner. Let's say it's a traditional communications partner, or it might be a Mitel partner, Keith, or ShoreTel or Avaya, any of our communications heavy partners that were traditionally selling premise-based equipment and maybe not selling cloud yet or maybe they're selling cloud. But the sales team at ScanSource, Inc. under specialty was only selling on the hardware. And so if a Mitel partner wanted to buy some connectivity products or services or solutions, the ScanSource, Inc. specialty seller would have to pass that on as a lead to someone on the Intelisys team. So now we're gonna have one team that can service that partner that will sell the Intelisys products and the specialty hardware products to the same partner. We're gonna make it much easier for the partner. It's also gonna give our communication hardware sellers a lot more to sell to their partners. So I think the partner community will love this idea. We're gonna enable them, gonna make it easier, we believe this is gonna create new solutions from suppliers that will see this as a very attractive way to reach more of the VAR community. Keith Michael Housum: Okay. How are we gonna see that in the income statement going forward? Are you gonna move some of the communications down to the Intelisys segment? Stephen T. Jones: No. Hey, Keith. This is Steve. Now we'll wind up with the same reporting in our segment. That's a segment reporting discussion. This is more of a management alignment and a go-to-market discussion. Michael L. Baur: Yes. Because, again, let me finish that part of the description. I left out the there'll be Intelisys employees that will be part of this virtual team, and they will sell hardware now. And so if you've got an Intelisys agent that's working with an Intelisys salesperson that reports into the Intelisys management team, they'll now have the right model so they can sell hardware. Whereas in the past, the Intelisys employee here at ScanSource, Inc. would flip that lead, the hardware, over to the hardware guys. And they just wasn't working. There was not the right incentives and opportunities. So that's what's changing. Keith Michael Housum: Okay. Got it. Thanks, guys. Good luck. Michael L. Baur: Yeah. Thank you. Thanks, Keith. Operator: Our next question or comment comes from the line of Guy Drummond Hardwick from Barclays. Your line is open. Guy Drummond Hardwick: Wondering how much of the lowering of guidance is the absence of large deals versus the potential shortages of product that you mentioned? Michael L. Baur: Hey, Guy. It's Mike. Yeah. I think our view right now, I think this is what I was trying to say earlier, is our guidance is relative to large deals, not to shortages. So we're not in our guidance indicating that there's going to be a shortage impact on our guidance. That's not what we're suggesting today. Guy Drummond Hardwick: Okay. And just as a follow-up, could you just kind of update us on the kind of competitive environment in the TSD market? I mean, look. Looks like the headcount additions of your competitors have already slowed quite sharply, and it's pretty much flat or down for the last six months. So just wondering have things improved? Have you noticed any improvements in terms of the market or not yet? Michael L. Baur: Well, I think the overall TSD space is very competitive and has been, as you know, for a while. We believe that there have been some changes in their approach to how they're gonna grow their business organically. Because we know that from a competitive standpoint, there's been a lot of acquisitive activity from the TSDs. And you've not seen that, of course, from Intelisys, from ScanSource, Inc. So we believe that has come to a has slowed down. And now the yeah. I think the opportunity and the pressure on all the TSDs to grow organically. That's why you hear us talking about new order growth and that's what we believe is the right metric because that will show that we can obviously, in some cases, take market share from the other TSDs, and that's reflected in the new order growth. But it also it also talks about improving the value proposition for the TSD both in the eyes of the partner, who's the seller, but also in the eyes of the suppliers. Because the suppliers they need organic growth to happen, not just share shift among the TSDs. So we're very focused on organic growth. And we believe that you will see a change in the market share between all the TSDs over the next year as we execute on our strategy. Guy Drummond Hardwick: Thank you. Michael L. Baur: You bet. Operator: Again, ladies and gentlemen, if you have a question or comment at this time, please press 11 on your telephone keypad. Our next question or comment comes from the line of Adam Tyler Tindle from Raymond James. Mr. Tindle, your line is open. Adam Tyler Tindle: Mike, just wanted to take a step back. I know we've gone through a lot of detail in this call, but if we take a step back and think we're two quarters into the fiscal year now, you're reducing guidance. If you were to rewind to your initial fiscal 2026 plan, what would be, you know, sort of the biggest variance areas versus your expectations entering this year? I hear on the large deals. I just wanna push back. I mean, we would think that would be just kind of more of a timing issue throughout the course of the year. So if you were to kinda, you know, sit yourself back in the seat when you were entering this year, versus now? What are kind of the key areas that maybe have been a little bit disappointing relative to your expectations that caused the reduction in guidance? Michael L. Baur: Yeah. Yeah. Good morning, Adam. Well, let me go back to something I used to say a lot is that our business is very hard to forecast. Orders come in today. They go out today. This is in the specialty business, which is where the challenge has been. So no news there that that's how that business has always worked. Very difficult to forecast what we're gonna do beyond today. We get orders in today. We ship today. Right? We don't work off of a backlog traditionally. We get information on large deals that will happen there's no guarantees when they'll actually ship. So if I go back to and to answer your question directly, Adam, if I go back and remember what we were saying back in August, we were saying, like the year before, this is gonna be a second half loaded year. That we believe going and give an annual guidance is again, not something that I enjoy doing, but we did. Because we have for the last few years. And so give an annual guidance back in August with the visibility I have today, I would have said, well, we probably should have forecasted the first half a little lower. Expecting the second half to be bigger. And what we're trying to say now is second half is gonna show growth. And the second in this guidance that you'll see, like, at the midpoint, that's gonna show that we're gonna have a modest growth. Year over year for the second half. For the year, that's not a great number, but if we can, in the second half, show growth, we believe we'll then build momentum going into '27. And that's the way we've always built our business. Adam Tyler Tindle: Yep. I understand. Trust me. We I think we can fully empathize with the difficulty in forecasting. I think you're telling my boss that I need a raise. Michael L. Baur: Exactly. Yeah. Exactly. Exactly. Adam Tyler Tindle: Steve, I wanted to ask on the magnitude of the cut. I mean, I think it makes a lot of sense for investors to kinda take the medicine now and, you know, rather than set expectations to climb back for the year, let's just go ahead and reduce. But on the magnitude, understand you don't guide, you know, on a quarterly basis necessarily, but you know, relative to, I think, a lot of our expectations in the quarter this guidance was reduced by kinda more than that annualized miss quote unquote. How did you think about, you know, the magnitude of the guidance reduction? And I also noticed that you've I think you maintained free cash flow. So maybe touch on how you're able to do that. Stephen T. Jones: Yeah. Good morning, Adam. Yeah. A couple of things. When we look at the second half, we look at it a couple of ways. Right? We're trying to take the information that we have from our customer base, what they're working on, and then we put that against really, if you look back over our years, and you look at first half versus second half, performance, and I'm thinking about the last two years, we've been kinda 49, 51, fifty fifty. So that's how we get confidence in this the second half looks a whole lot like the first half, a little bit of growth that we see coming because, again, we're thinking large deals are going to have to return. This to your point before, it's been more of a push out than it is a loss. And so that's what's really guiding our expectations. On the free cash flow, I think this comes back to the way we've changed our business model. And I confidence we have in our business model. This is what should happen if we're growing in that low single digits rate. So we have a lot of confidence in our team's ability to deliver that at least $80 million in free cash flow, which has a really good cash yield for us. Adam Tyler Tindle: Yep. That makes sense. And you know I'm gonna ask about capital allocation following that question, of course. Mike, I mean, you know, obviously, you know, one day is not necessarily a trend, but the stock's now hovering below book value. You know, does this so, you know, obviously, you're gonna maintain free cash flow for the year, as Steve just mentioned, so you have some, you know, cash to work with. How are you thinking about priorities? Around capital allocation? And does this, you know, perhaps elevate share repurchase? Michael L. Baur: I think what we'd like to do as a management team and at our board level is talk about what are we trying to do on a three-year basis. And our three-year goals, we believe, are still intact. We said that in our call. And we believe if you look at our three-year goals, we believe we can have growth. And from a gross profit perspective, which is where we've been saying we gotta focus on gross profit growth. To do that, we have to have some top-line help. There's no doubt about it. And we believe that for us, there's a combination of organic and inorganic that needs to happen on the growth side. At the same time, as we've said, I believe we said our share repurchase authorization is still $179 million. And in the first half of this year, we bought about $40 million in shares, Steve. Is that right? Stephen T. Jones: Right. Michael L. Baur: So we believe that's indicative of our strategy, that our strategy hasn't changed. This quarter. We hope our investors don't believe our strategy has changed. We hate to deliver news that's not what we expected. But, again, if we think about this is a quarter, this isn't the year, and we want to be fair, though, to everyone about our expectations for the second half, and make sure that we're not oversteering. We believe we're being we have a strong history of doing our best to give our investors an accurate, clear view of what we know today. But our goal is let's keep our three-year strategic goals in mind. We believe those are very strong. And, again, as we look at the second half, based on our annual guidance that we've adjusted to, that's still a very strong EBITDA margin for the year. That'll come in consistent with what we're doing from a three-year goal perspective. And I think that's the important part. Just look at the metrics that we'll still deliver. This is a very strong company. Excellent balance sheet, strong profitability. Adam Tyler Tindle: Got it. I'm gonna do one more. I think I might be last in the queue. So on Intelisys, I did wanna ask Mike. The dynamic of, I think, billings lagging new orders was something that sounded a little bit newer. I just wanted you to, you know, maybe double click and help explain that dynamic. I mean, you've been operating in Intelisys for many years now. I could have missed it, but I don't recall hearing that dynamic much. Over the past number of years. So maybe just kinda double click on what that was and what changed. To drive that. Steve, is there any way to and this is probably a difficult one, but to quantify that, the impact that that's having and maybe when that, like, catches up, how, you know, how we think about it in the financial statements. Michael L. Baur: Well, the reason we started talking about new order growth was I'm a think back now. It's probably three years ago, Adam, that we started talking about this margin pressure, if you recall. Margin pressure that was happening at Intelisys and in the TSD community as all the other TSDs started bringing in new ownership PE investments. And there was a market share land grab, which drove margins down for Intelisys, which drove down our revenue growth. Right? And we would start talking as you know about our revenues, and we talked about end-user billings. And, generally, the end-user billings were really, at the end of the day, a great metric for is this market growing. Because we would have margin pressure that in a year or a quarter would reduce our growth because of just margin compression. But it looked like the TAM was slowing down. The opportunity was slowing down. That wasn't the case. So we decided a year ago that we needed to start being able to talk about new orders. If we can have a and we decided not to give a number because we're in a competitive market against other private companies. So we believe new orders growth faster than our revenues is indicative of what will come. And so this delay that happens because if we close an order today, it may not get billed for six to twelve months from now, maybe even fifteen months. And so it's just focused, Adam, on new orders that you won't see in the quarter that are indicative of future revenues. And that's why this pivot to that is important that we communicate it. Stephen T. Jones: Yeah. Adam, this is Steve. I'll take the second half of that question. The impossible one to answer. Right? Is how do we know? Well, we believe, and I think the message to our investors is as we invest, we're looking for the right ROI. On those investments. So if you're hearing us continue to invest in Intelisys and in that order growth, we believe that there's a good ROI on that because this all has to hold together with our three-year goals and the goals that we've laid out and we're committed to. That's the best way to think about is this are we still confident that we're continuing to accelerate the new order growth? If we're still investing in there, our expectation is it's a good ROI. And we continue to do it. Adam Tyler Tindle: Very helpful. Thanks. Look forward to seeing you next month at our conference. Michael L. Baur: Yeah. Thanks, Adam. Operator: Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Stephen T. Jones for any closing remarks. Stephen T. Jones: Yeah. Thank you, and thank you for joining us today. We expect to hold our next conference call to discuss March 31 quarterly results on Thursday, May 7, 2026, at approximately 10:30 AM. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Greetings. Welcome to the Fourth Quarter and Fiscal Year 2025 Cummins Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Note this conference is being recorded. I will now turn the conference over to Nicholas Arens, Executive Director of Investor Relations. You may now begin. Nicholas Arens: Thank you, Rob. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the fourth quarter and full year of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck in our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently filed annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Nick. Good morning. I will start with a summary of 2025, discuss our fourth quarter and full year results, and finish with a discussion of our outlook for 2026. Mark will then take you through more details of our fourth quarter and full-year financial performance and our forecast for this year. As I reflect on 2025, I am pleased to share that we delivered strong financial performance despite weak demand in North America truck markets, ongoing trade tariff volatility, and an uncertain regulatory landscape. Our results underscore the disciplined execution of our strategy, the dedication of our employees, and the commitment to deliver strong financial performance. I am proud of what Cummins accomplished for our stakeholders and remain energized by the opportunities ahead as we continue to advance our strategic priorities and deliver on our financial commitments. Our strategy continues to be the right one, pursuing many paths forward to meet our customers' evolving needs today and in the future. Our strong and diverse position across geographies, markets, and technologies continues to differentiate us and provides the flexibility to adapt in a rapidly changing environment. In 2025, we further strengthened our position by evolving our portfolio to continue investing in innovative solutions that meet our customers' evolving priorities and long-term requirements. In our engine business, we introduced the much-anticipated X10 as a part of Cummins Helm platforms. This engine replaces both the L9 and X12 engine platforms and will deliver a new level of performance, durability, and efficiency for heavy and medium-duty customers. Alongside the X15 and B Series, the X10 provides customers with the power solution to meet their unique operational requirements while maintaining the performance and reliability for which Cummins is known. In addition, we unveiled the new Cummins B 7.2 diesel engine that brings the latest technology and advancements to one of our most proven platforms. The new engine will feature a slightly higher displacement and is designed to be a global platform, which creates flexibility for different applications and duty cycles. Both the B 7.2 and X10 engines will be manufactured for North America markets in the Rocky Mount engine plant in North Carolina. In our Power Systems business, we continue to advance hybrid solutions for mining customers through two significant actions this year. We acquired the assets of First Mode, a leader in retrofit hybrid solutions for mining and rail operations. This technology represents the first commercially available retrofit system for mining equipment, significantly reducing total cost of ownership while advancing decarbonization in operations. Additionally, we announced a collaboration with Komatsu to develop hybrid powertrains for surface hauling mining equipment. This joint development effort will leverage the breadth and scale of Komatsu's global capabilities to enable the acceleration of optimized hybrid solutions for mining. We are excited about the opportunity to bridge current operational needs with future low-carbon goals to support our customers' sustainability efforts. Additionally, within Power Systems, expanding on the success of our acclaimed Sentum Series generator sets, we launched the new 17-liter engine platform generator that produces up to one megawatt of power. The S17 Sentum genset was developed to produce a large power output within a compact footprint to meet the growing power demands in urban environments, where compact design and high performance are critical. The new genset is designed to support a wide range of critical market segments, such as commercial properties, healthcare facilities, and water treatment plants. Along with completing the Centum Series lineup, we also completed our capacity expansion on the 95-liter ahead of schedule, positioning us to meet rising demand and support a wide range of customer needs. Lastly, as we navigate this long and dynamic transition with our customers, we remain committed to pacing and refocusing our investments on the most promising paths, as the adoption of zero-emission solutions slows in some regions around the world. As we mentioned last quarter, we initiated a review of our electrolyzer business within the Accelera segment to streamline operations and focus investments amid policy-driven shifts in hydrogen demand. In the fourth quarter, this led to additional recorded charges, which you will see reflected in our results. We remain committed to our multi-solution strategy while pacing and focusing our investments as the zero-emissions landscape evolves. The actions we have taken will lower costs going forward. Now I will comment on the overall company performance for the fourth quarter of 2025 and cover some of our key markets. Revenues for the quarter totaled $8.5 billion, an increase of 1% compared to 2024, as continued high demand in our global power generation markets, higher pickup truck volumes, and improved pricing more than offset lower North American heavy and medium-duty truck volumes. EBITDA was $1.2 billion or 13.5% compared to $1 billion or 12.1% a year ago. Fourth quarter 2025 results included $218 million of charges related to the strategic review of our electrolyzer business within our Accelera business segment. This compares to the fourth quarter 2024 result, which included $312 million of charges related to the strategic reorganization of our Accelera business segment. Excluding those items, EBITDA was $1.4 billion or 16%, compared to $1.3 billion or 15.8% a year ago. EBITDA percent improved compared to 2024 as the benefits of higher power generation and pickup truck volume, pricing, lower compensation expenses, and operational efficiency more than exceeded lower North America medium and heavy-duty truck volumes, higher product coverage costs, and the dilutive impact of tariffs. 2025 revenues were $33.7 billion, down 1% from the prior year as lower North America heavy and medium-duty truck demand more than offset higher power generation volumes and improved pricing. EBITDA was $5.4 billion or 16% of sales, compared to $6.3 billion or 18.6% of sales in 2024. The 2025 results included $458 million of charges related to our electrolyzer business within our Accelera business segment. This compares to 2024 results that included the gain related to the separation of Atmos, net of transaction costs and other expenses of $1.3 billion, charges related to the Accelera reorganization of $312 million, and $29 million of other restructuring actions. Excluding those items, EBITDA was a record $5.8 billion or 17.4% of sales for 2025, compared to $5.4 billion or 15.7% of sales for 2024, as the benefits of higher power generation volumes, pricing, lower compensation expenses, and improved operational efficiency more than exceeded lower North America heavy and medium-duty truck volumes and the negative impact from tariffs. EBITDA reached record levels in both our Power Systems and Distribution segments. Power Systems delivered a record full-year EBITDA of 22.7% of sales, up from 18.4% in 2024, while distribution achieved a record 14.6% of sales, up from 12.1% in the prior year. I am proud of these remarkable results with record earnings despite a downside for North America truck markets and the achievement of our 2030 financial commitments ahead of schedule. This reflects the strength of our strategy and our disciplined focus on execution. As you will see from our 2026 financial guidance, we are well-positioned to build on this momentum. As we look to 2026, we continue to operate in a dynamic trade and regulatory environment, but we are getting greater clarity on important areas for our industry. EPA's confirmation of the 2027 Low NOx Rule is an important step in advancing regulatory certainty, and we are well-positioned with our product plans. Now let me provide our overall outlook for 2026 and then comment on individual regions and end markets. We are forecasting total company revenues for 2026 to be up 3% to 8% compared to 2025, and EBITDA, including the dilutive impact of tariffs, to be 17% to 18% of sales compared to 17.4% the prior year. For our markets, we expect continued weakness in first-half demand in our North America heavy and medium-duty truck market but anticipate other markets, particularly power generation, to remain strong throughout the year. Industry production for heavy-duty trucks in North America is projected to range from 220,000 to 240,000 units in 2026, flat to up 10% year over year, with the second half of the year higher than the first. In the medium-duty truck market, we expect market size to be between 110,000 to 120,000 units, also flat to up 10% compared to 2025. Our engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 in 2026, down 5% to up 5% year over year. In China, we project total revenue, including joint ventures, to decrease 1% in 2026, with weakness in heavy and medium-duty truck demand partially offset by growth in data center demand. For China heavy and medium-duty truck demand, we project a range of down 10% to flat. While we expect export demand to remain high, we anticipate the domestic demand will decline as a result of lower impacts from NS4 scrapping policy stimulus. In India, we project total revenues, including joint ventures, to decrease 5% in 2025. We expect industry demand for trucks to be down 10% to flat for the year with weak replacement demand and limited infrastructure spending. For global construction, we expect a range of down 5% to up 5% year over year, as we anticipate domestic demand in China and North America to be roughly flat, and export demand in China slightly down given geopolitical uncertainties. We project our major global high horsepower market to remain strong in 2026. Revenues in our global power generation markets are expected to increase 10% to 20%, driven by continued high demand in the data center market and the successful execution of our capacity expansion, which was completed in 2025. Sales of mining engines are expected to be flat to up 10%, driven by replacement demand. For aftermarket, we expect a range of up 2% to 8% for 2026, with increased parts consumption from aging fleets and higher rebuild demand. In summary, 2025 was a strong year with record earnings, excluding one-time items, despite a down cycle in North America truck markets. In 2026, we expect North America truck demand to be slightly better than 2025, particularly in the second half of the year, along with continued strength in our power generation, industrial, and aftermarket businesses. Cummins remains well-positioned to invest in future growth, deliver strong financial returns, and return cash to investors. As I close, I would like to officially announce that our Analyst Day is now scheduled for May 21, in New York City, and expect invitations to be sent out shortly. I look forward to sharing updates on our financial guidance and further discussing our strategy then. Now let me turn it over to Mark, who will discuss our financial results in more detail. Mark Smith: Thanks, Jen, and good morning, everyone. We delivered strong operational results in 2025, achieving record EBITDA and earnings per share, excluding one-time items, despite the down cycle in North America truck markets and ongoing tariff volatility. These results reflect the effectiveness of our strategy, our disciplined focus on financial performance, and the hard work of our employees. Now let me go into more detail on Q4 and the full-year performance. Fourth quarter reported revenues were $8.5 billion, an increase of $89 million from a year ago. EBITDA was $1.2 billion or 13.5% of sales compared to $1 billion or 12.1% a year ago. In the fourth quarter, our strategic review of the electrolyzer business and Accelera resulted in charges of $218 million. This compares to 2024, which included $312 million of costs related to the reorganization of Accelera. Stripping those out, looking at underlying performance, we delivered EBITDA in the fourth quarter of $1.4 billion or 16% compared to $1.3 billion or 15.8% of sales a year ago, even as North America heavy and medium-duty truck engine volume declined by a combined 30%. Fourth quarter revenues increased from 1% a year ago as continued high demand in our global power generation markets, higher pickup truck volumes, and improved pricing more than offset lower North American truck volumes. Sales in North America were down 2%, while international revenues increased 5%. Foreign currency movements positively impacted sales by less than 1%. Fourth quarter EBITDA improved to 16% compared to 15.8% a year ago. Higher power generation and pickup truck volumes, pricing, lower compensation expenses, operational improvements, and higher joint venture and other income, lots of things higher, all helped more than offset lower North American medium and heavy-duty trucks, higher product coverage costs, primarily in Accelera, and the dilutive impact of tariffs. Now I will summarize some of the impacts by line item in the income statement. Gross margin was $2 billion or 22.9% of sales, up compared to 24.1% a year ago as lower North American truck volumes, higher product coverage, and the dilutive impact of tariffs more than offset stronger power generation demand, favorable pricing, and operational efficiency. Selling, admin, and research expenses were $1.1 billion or 13.3% of sales, compared to $1.2 billion or 13.7% last year, primarily due to strong cost control as truck markets weakened and lower compensation expenses. Joint venture income of $116 million increased $46 million, primarily driven by higher volumes in our China joint ventures, on and off-highway. Other income was negative $58 million compared to negative $196 million a year ago. 2025 other income included $80 million related to the electrolyzer charges, while 2024 included $171 million related to the Accelera reorganization costs. Excluding these items, other income increased by $50 million, driven by marked-to-market gains on investments related to company-owned life insurance, a modest gain this quarter compared to losses a year ago. Interest expense was $82 million, a decrease of $7 million from the prior year, driven by lower weighted average interest rates. The all-in effective tax rate in the fourth quarter was 21.6%, which included $69 million or $0.50 per diluted share favorable discrete items. All-in net earnings for the quarter were $53 million or $4.27 per diluted share, which includes $215 million or $1.15 per diluted share of charges related to the strategic review of the electrolyzer business. Excluding these charges, EPS was $5.81 per diluted share. Operating cash flow in the quarter was an inflow of $1.5 billion, up $112 million from a year ago. For the full year 2025, revenues were $33.7 billion, a decrease of 1% from a year ago. EBITDA was $5.4 billion or 16% compared to $6.3 billion or 18.6% of sales in 2024. 2025 included $458 million of charges related to our electrolyzer business within Accelera. This compares to 2024 results that included the gain related to the separation of Atmos, net transaction costs and other expenses of $1.3 billion, charges related to Accelera of $312 million, and $29 million of restructuring. A lot of moving parts in those comparisons. If you strip those out, the underlying EBITDA percentage improved by 170 basis points year over year, primarily driven by higher power generation volumes, pricing, lower compensation expenses, and operational improvements, all of which more than exceeded lower North American truck volumes and the diluted impact from tariffs. All-in net earnings were $2.8 billion or $20.50 per diluted share, compared to $3.9 billion or $28.37 per diluted share a year ago. Excluding previously mentioned one-time charges, 2025 net earnings were $3.3 billion or $23.78 per diluted share, compared to 2024 net earnings of $3 billion or $21.37 per diluted share. Capital expenditures in 2025 were $1.2 billion, flat compared to 2024, as we continue to invest in new products and capabilities to drive growth, particularly related to the on-highway Helm platforms within our engine and components business in North America, and also incremental capacity adds within our Power Systems business to serve the growing demand for data centers. Our long-term goal is to deliver at least 50% of operating cash flow to shareholders in the form of share repurchases and dividends. In 2025, we focused our capital allocation on organic investment, dividend growth, and returning $1.1 billion to shareholders via the dividend and maintaining our A credit rating metrics. I will now summarize the 2025 results for the operating segments that exclude the electrolyzer strategic review costs, and I will provide guidance for 2026. For the Engine segment, 2025 revenues were $10.9 billion, down 7% from a year ago. EBITDA was 12.7% of sales compared to 14.1% of sales a year ago, primarily due to lower North American heavy and medium-duty truck volumes. In 2026, we project revenues for the engine business will be flat to up 5%, with weakness continuing in North American heavy and medium-duty trucks in the first half of the year, with an anticipated strengthening in the second half of the year. 2026 EBITDA is expected to be in the range of 12% to 13%. Our component segment revenues were $10.1 billion, down 10% from the prior year, and EBITDA was 13.8%, up compared to 13.5% in 2024, as the impact of lower truck volumes was more than offset with cost reduction improvements. For 2026, we expect total revenue for the components business to be flat to up 5%, primarily driven by the expected improvement in North American heavy and medium-duty truck markets in the second half of this year. The EBITDA margins are expected to be 13% to 14%. In the Distribution segment, revenues increased 9% from a year ago to a record $12.4 billion, and EBITDA was also a record of 14.6%, up 250 basis points from a year ago, driven by higher power generation volumes and pricing. We expect 2026 distribution revenues to grow 5% to 10%, driven by continued strength in power generation markets and higher aftermarket demand. The EBITDA margins are expected to be in the range of 13.25% to 14.25%. In the Power Systems segment, revenues were also a record $7.5 billion, up 16% from the prior year, driven primarily by demand for power generation equipment, especially in data center applications in North America and China. EBITDA was a record 22.7%, up 430 basis points from 2024, driven by stronger volumes, favorable pricing, and a continued focus on operational performance margin improvement while improving capacity for future growth in demand. In 2026, we expect Power Systems revenues to be 12% to 17%, driven by continued strength in power generation and EBITDA in the range of 23% to 24%. Accelera revenues increased to $460 million in 2025. We had a net operating loss in this segment of $438 million compared to $452 million the prior year. While we lowered costs in existing operations through our restructure actions, this was partially offset by higher product coverage costs in this segment in the fourth quarter. In 2026, we expect Accelera revenues to be in the range of $300 million to $350 million, and net losses to decline to $325 million to $355 million, reflecting our ongoing efforts to streamline the business and lower costs while ensuring we are set up for long-term success in those product lines where the prospects are more promising. We currently project 2026 company revenues to be up 3% to 8%. Company EBITDA margins are expected to be approximately 17% to 18%, as the benefits of modest second-half recovery in truck strength and power generation are somewhat offset by the dilutive impact of tariffs. I should have added that in this spirit of saving time, I did not acknowledge that tariffs diluted the EBITDA percent of every single segment in 2025 and will continue to do so on a percent basis in 2026, even though we did well to mitigate costs and largely recover them. Our effective tax rate is expected to be approximately 24% in 2026, excluding discrete items. Capital investments will be in the range of $1.35 billion to $1.45 billion this year as we continue to make critical investments to support growth. To summarize, we delivered record profitability in 2025, excluding one-time charges, even as demand in North America heavy and medium-duty truck markets declined sharply. This performance was driven by strength in execution in our core business, with power systems and distribution delivering record profitable growth, and the engines and components segments particularly managing costs well through the trough. In Accelera, we took further actions to reduce costs going forward in light of weaker demand while maintaining investments where we believe more promising returns lie ahead. Cash generation has been and will continue to be a focus, enabling us to continue investing in new products for current and future markets during times of uncertainty and continuing to return cash to shareholders while maintaining a strong balance sheet. We look forward to updating our long-term financial targets at our upcoming Analyst Day in May. Thank you for your interest and your patience as we got through quarters, years, and full guidance outlook. Now let me turn it back to Nick. Nicholas Arens: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Operator: Thank you. Our first question comes from the line of Jerry Revich with Wells Fargo. Please proceed with your question. Jerry Revich: Yes, hi. Good morning, everyone. Jennifer Rumsey: Hi, Jerry. Good morning. Jerry Revich: Can you update us on how you are thinking about potentially adding capacity in power systems for the diesel variant and also what are the updated thoughts around potential natural gas product? And can you update us on where lead times stand now as well? Thank you. Jennifer Rumsey: Yep. Happy to do that, Jerry. So, you know, we continue to see very strong demand in our power generation business. And as noted in the comments, we completed the doubling of our capacity of the 95-liter engine and genset that we supply, which is very popular in the data center market. We have completed the launch of our Sentum product line, and we continue to see benefits of those investments as well as ongoing operational efficiency performance in power systems and DBU, which is leading to the guide for this year. We had record order intake in Q4 for power generation. We are taking orders now well into 2028. So the demand remains very strong for diesel backup power, and we are well-positioned with the product and channel support that we offer to provide that. We are continuing to look at opportunities to increase capacity. For this year, you can expect the benefit of those things that I already outlined to come through full year and in smaller improvements and efficiency in how we leverage what we have. We will be talking more in May at our Analyst Day about where we think we may have the opportunity to continue to leverage the capacity and products that we offer and if there are any additional investments into new products. But as you would expect, we are very thoughtful and disciplined in how we think about that. Mark Smith: And I would just add, even with it, whilst the total of our CapEx outlook in the last three months has not really changed, we have allocated more incrementally to power systems in the last few months, Jerry. You know, and really right now, we are a low-risk weighted play on the AI boom because we are making modest incremental internal investment for which there is high and growing visibility for demand. So we feel confident about our approach. Jerry Revich: Thank you. And I got my voice back. You are talking about power systems gets me all choked up. I am wondering, Mark, can we just talk about the guidance outlook for 2026? Really good performance this year across engine components of distributions. You are guiding for up sales, but softer margins at the midpoint. Can you expand for us on the comment you made on tariffs? What is the impact of the pass-through and any other puts and takes around guidance in light of the strong performance of '25? Mark Smith: It is no surprise to anyone that the gross impact of tariffs accumulated through the year, the headlines were one thing, but it took time for those costs to start filtering through the supply chain, managing, negotiating, optimizing, but the fourth quarter was, you know, clearly the biggest gross impact. We have done well to offset that. But as we look forward with the current regime of tariffs, that is full-year dilutive on an absolute basis, Jerry, it is about 50 basis points mostly through sales and recovery, not dollar losses. And so we will see more of that on a percent basis in engines and distribution in particular going into next year. So that is a modest percentage tailwind into those two areas. Otherwise, there is nothing fundamentally changing. It is obviously a very busy period for engines and components, all the new product development going on ahead of the 2027 emissions regulations. And then in distribution, we do have some modest investments in systems upgrades, particularly in our international regions. So those are the things. But, yes, we look at the numbers the same as you do. We are delighted with performance given all the combination of conditions, variations, complexities of 2025, and fundamentally, underneath what there is a strong business with strong strategic position, high visibility to growth in power systems, hopefully, coming off the bottom of a truck market. Again, we will continue as the truck cycle moves off this bottom to expect results to improve not just this year, but going forwards too? More meaningful and sustained improvement as truck fundamentals improve. Operator: Thank you. The next question will be coming from the line of Rob Wertheimer with Melius Research. Please proceed with your questions. Rob Wertheimer: Just a quick question on the sequential revenue in Power Systems from 3Q to 4Q. I do not know whether that was any capacity issues, timing issues, or anything else. Obviously, you are growing next year. So I was just curious about the relative lack of growth. And then more generally, you mentioned demand into 2028 for data centers, which is great. Is there any change in the shape of what is happening? Is there more behind the meter that might demand more backup? Is there any trend in the design of data centers that either favors or not diesel backup? Thank you. Jennifer Rumsey: Yes. On your first question, what I would say is we were able to deliver the 95-liter capacity expansion ahead of schedule. So we saw more benefit of that sooner last year. And then as we went into Q4, we had a few down days that are not atypical at the end of the year and things that you do at the end of the year within plants. A little bit of softening in aftermarket. So those things had some impact on top-line performance. And then the other dynamic we had in Power Systems in Q4 was tariffs are still changing. Let us just acknowledge that while there may be some places where we are getting more clarity, that is still changing in the India tariff. In Q4, it had a negative impact. We are working to recover those costs, but as things change over time, there is typically a lag in how we manage through that with our customers. In terms of diesel backup, you know, there continues to be a desire for most, you know, really all data center customers to have diesel backup power available to just ensure a level of uptime and reliability that they need, and the conversations are more around how do we use the product line that we have to meet the strong demand that is out there. Rob Wertheimer: Thank you. Operator: Our next question is from the line of Jamie Cook with Truist Securities. Please proceed with your question. Jamie Cook: Hi, good morning. I guess, Mark, just two questions, if you could just unpack the margins or implied lack of incremental margins in 2026 for the engine business? I understand we have tariffs, but I thought we were getting pricing through and perhaps some benefit from Section 232. So is there anything else in there? Is there a first half, second half story there? We are exiting the year incremental margins higher. I am just trying to understand how you think about incremental margins through this cycle relative to your 25% target that you guys laid out for engines? And then my last question on just distribution. Again, the implied margins are below 14%. You talked a little, I think, in the last answer about growth or sorry, investment in that business. So how much is the investment? Where is it going to? And just again, exiting margins exiting 2025, the fourth quarter with a 15.1% margin, and ending implied 2026 below 14% just does not make a lot of sense. Thank you. Mark Smith: We have had a lot of discussions about the distribution margins. And the performance over a number of years has been really good. So we are really thrilled with the distribution leadership team continuing to grow earnings and margins. The tariffs throw a little bit of a spanner in the works from a percentage basis. You know, we are in tens of basis points of dilution there. It is taken longer to work through distribution. And then the recoveries. And yet, there is a little bit of investment. Nothing underlying has fundamentally changed. So we still think the distribution business is going to be a dollar and a percent grower over time. There can be some, yeah, modest investments in a over a short period of time, but nothing fundamentally changing there. And then in the engine business, yeah, there is not a lot of pricing this year. There has been a lot of tariff recovery work and tariff mitigation work going on in 2025. But not this year. We are really in preparing for more demand whilst preparing for new product launches. All of those things are going on at the same time. Little bit of dilution from tariffs. And then there is not nothing is happening significant we do not expect on the JV income line, maybe even be down in on-highway a little bit in China, maybe up a little bit the power systems JV earnings in China. So the net guide is at close to zero for JV earnings for the company, but it may be a little bit of dilution embedded in the engine business guidance and a little bit of enhancement embedded in power systems overall, but nothing dramatic or changing. But yes, overall, I would say pricing is not a big feature of 2026. Jennifer Rumsey: I will just add, Jamie, on the $232 tariff. First, we are, of course, very supportive of the U.S. Administration's focus on strengthening manufacturing and some of the things that they are doing as part of February to make sure that for companies like Cummins that are manufacturing for the U.S., and the U.S. and even manufacturing in the U.S. for export, that there are incentives to do that. And they are still working through the details of the engine offset program. So we are waiting for clarity on how that will work as well as how they define U.S. content. So there is some uncertainty built into that range that we have on our margins in the engine business and components that will depend on how those details work out, and we hope to have more clarity after Q1. Operator: The next question is from the line of Angel Castillo with Morgan Stanley. Please proceed with your questions. Angel Castillo: Hi, thanks for taking my question. I just wanted to start out maybe on the supply side of power gen or actually the supply demand. One quick one on the demand side. You mentioned record level of orders in the fourth quarter. Can you size your backlog exactly at this point and maybe provide a little bit more color on what the growth rate was either year over year or sequentially to your in terms of orders or the backlog? Then on the supply side, we have been hearing about capacity investments from perhaps other competitors. How are you kind of thinking about what that means for the competitive environment out there? And impact your decision to invest in capacity as well? Jennifer Rumsey: Yes. I mean, we do not quantify the size of our back order. So all I can say is we had a record in Q3, we set another record in Q4 in terms of that demand intake and multiyear strength and continued discussions with our data center customers on how we can meet their multiyear needs and what they are doing. So there is at this point, we see plenty of demand and, you know, some of the investment questions is just defining the plan that we think is efficient use of the capital we have as it relates to natural gas or other things having confidence in the multiyear outlook. On what, the market demand may be. We do feel pretty confident that we will see strong demand continuing for diesel backup power. And so there really is that developing the detailed plan of what we think we can do and also our suppliers' abilities to invest and keep up with what we are doing in our own facilities. Angel Castillo: That is helpful. And then maybe just on capital allocation a little bit here. So your net debt to EBITDA seems to be below one and you are taking some charges on Accelera reducing some investments there. I think your R&D expense, if I am not mistaken, should be coming down post EPA engines. So I think that is 2028. Can you also have your truck market bottoming here and hopefully starting to improve. So how should we think about capital allocation as we kind of progress into 2026? I know you are mentioned reviewing some of these investments that you will talk about more at Investor Day. But assuming you are able to deploy some of maybe Accelera type of investments or others, into that power gen. Should we expect buybacks to come back in the order of magnitude there that we should kind of think about product capital allocation would be helpful. Mark Smith: Yes. What I would say is we have worked hard over the last couple of years to restore our credit metrics post the drivetrain business or formerly Meritor acquisition. So we are in a strong position. We have financial flexibility. Most well, all of what we are investing in today in the current year can be funded within our current cash flow operations. So we do have that flexibility. We talked about them kind of a minimum goal of 50% back to shareholders. And we do have that flexibility to deploy more capital to shareholders going forward. So if we see the right balance of opportunities. Operator: Thank you. The next question is from the line of David Raso with Evercore ISI. Please proceed with your question. David Raso: Hi, thank you. On the tariff impact, can you take us through the cadence? I think you alluded to the fourth quarter was your highest gross impact. The 50 bps that you gave is the drag. I assume that was a net number, that was not just gross. Is that correct? Mark Smith: 50 bits the 50 bits was the net full-year drag for 2026. David Raso: So if the net drag is, call it $175 million for the full year, can you take us through the cadence? We are just trying to get a sense of obviously, the margin guide is a bit disappointing, and people are just trying to figure out where at least we think you are exiting 26% on the margins. Mark Smith: You are doing some kind of net drag there, I think, David, and that is not right. So the drag is really on, let us call it, inflated revenues and inflated recovering and inflated COGS. Incurring costs. It is not not just the market one would be a it is a not a dollar block. Jennifer Rumsey: Yeah. We are our strategy is to work to recover dollars. And that return from the end the revenue number. David Raso: If sorry. Yeah. The revenue number will move depending on what the tariff dollar is as well our recovery. Nicholas Arens: So what is it you want to know, Dave? David Raso: Well, I am curious. What is the revenue the price offset? Like, we are just trying to figure out how much is it price cost, and also more trying to figure out how we exit the year. Mark Smith: You are talking you are talking about less you are talking about less than 2% year-over-year revenue increase due to the annualized impact of tariff recovery? David Raso: Helpful. And the pricing comment, I think you made a comment. Not much pricing in '26 or something like that. I apologize. Sure exactly what you are referring to. The tariff impact, was that something that maybe did not raise price quickly enough? I am just kind of curious how you are thinking about ability to capture about pricing ex tariffs. Mark Smith: Tariffs is not pricing in my mind. So I am just saying other than puts tariffs to one side, we have done a good job mitigating that. The net impact to our P&L through all the actions we took was modest. But overall pricing given that we are mostly selling out existing products, right? This current year that we have done a lot both on pricing in the past few years and the recovery on top. This is we are not anticipating this is going to be a big year for net pricing x tariffs. But we are moving towards the transition to new products, which is a whole different angle and that is for next year, not for this year. Operator: Thank you. The next question is from the line of Steven Fisher with UBS. Thanks. Good morning. And sorry, just to clarify again, I know the message previously had been going into Q4, expect to beat price versus cost neutral on the prior existing tariffs, and then it was going to take a little time to get the latest round. So what are we thinking? Is it sort of just a net neutral on price versus cost on the tariffs as you see them today for the year? I guess maybe to start there. Mark Smith: Yes. Give or take. A few dollars. Not exactly perfect dollar for dollar, but yes. It is not. But a significant dollar hit year over year, but the magnitude of the annualization of the sales and the cost of sales is dilutive to the EBITDA. Since other I will send another way, if we had no tariffs if they suddenly evaporated, our EBITDA percent at the midpoint would be half a point higher, but it would be on lower revenues. Steven Fisher: Right. Okay. That is helpful. And then I guess just related to this, since you mentioned India, I am curious what you actually have baked into the guidance for India given some of the changes that we have heard about very recently. Mark Smith: I mean, you are talking about India. Right? Now you are talking I mean, we are talking tens of millions of dollars related to India. And a lot of it was moving global product around because we you know, it is a more international business. Right? And the largely power generation markets where we are shipping products all around the world. So yeah, we are in the tens of millions, but we cannot go through every individual tariff by country or we will be even longer than we would enjoy. Nicholas Arens: I think, Steve, just to add to that, this is Nick. What I would say is Q4 for power systems was more transitory impact of India tariffs coming through. But to Mark's point, as we move into '26, we feel well-positioned on that particular element to hit our Q4. Mark Smith: That is where the margins would one of the reasons why the margin down just a little bit in Q4, and you can see from the guide we have got margin expansion built into the guidance there. Operator: Our next question is from the line of Kyle Menges with Citigroup. Please proceed with your question. Kyle Menges: Thanks for taking the question, guys. I did want to ask on EPA 27 now that we have gotten more clarity on that and we have heard from various others in the industry that it could lead to a plus or minus $10,000 of increase just to the cost of a truck. So trying to think about how that would actually impact Cummins, I guess, on just engine pricing margin and then also just how to think about the impact to components volume, just given the added content as well as pricing? Jennifer Rumsey: Yeah. Great. Let me break this down in a couple of things. You know, first, we are committed to always delivering innovative efficient solutions to our customers to meet their needs and with the regulation. And for those of you that have been around the industry for some time, it is quite unusual to have this level of uncertainty, this close to a regulatory implementation date. So the EPA indication late last year, as you noted, that they will move forward with the 27 NOx rule was an important step to give more regulatory certainty. And I think the EPA has worked hard to balance with regulatory certainty and allowing those that have made big investments in products to launch in '27, not only to comply with the regulation but to bring other values to our customers to move forward while also looking at reducing the cost impact to the end customer. And so they have given some indication of what that looks like. We think we are very well positioned with our Helm engine platforms and the new products that we are going to be launching around those regulations. There is still a lot of work underway that we are active in with the regulators, with our customers, with our suppliers on the details of those changes that they are going to make and that we complete our validation and certification process in accordance with those. So we are working through that. And just will note, you know, we work with multiple OEMs. The most OEMs on our B series product, which is in a, you know, high variety of different applications. So that is one in particular that we are focused on. Net of that is we are all moving forward toward that gaining the additional clarity that we need and it will still result in content ad in engine business and in the components business after treatment. In particular, ACT is estimated $10,000 to $15,000 for a heavy-duty truck ad associated with that, and the majority of that will be in the powertrain. So it will split for us in our content ad between the engine business and the components business. And we will see that coming in with those new product launches. But again, they are also bringing more efficiency, more power, advancing our digital solutions, excited about the value we are going to bring to our customers along with that regulatory change. Operator: Our next question is from the line of Noah Kaye with Oppenheimer. Please proceed with your question. Noah Kaye: That is a perfect lead into my question, which is now that we have a little bit more certainty that this is going to happen, even if we are still looking for the fine points of it, what is the guide embed for, any kind of prebuy for '26? Jennifer Rumsey: Yeah. I mean, it is a big question and part of what I would say is will influence the range and how much the second half comes back. But we are assuming we will see some prebuy in the second half of next year. There is a combination of the natural coming out of the down cycle for the truck market, the more stability and tariffs that will cause customers to start buying trucks again, and then prebuy in the second half of the year. But we are really watching to try to how much will that be. You saw strong orders in December. Improvement in orders last month. But how that flows over the course of the year, I think we are all cautiously optimistic is what I would say. And then, you know, demand does start to strengthen, how quickly can the supply base flex back up because it dropped quite dramatically last year. So those are the things to watch. Mark Smith: Yeah. Fundamentals have improved a little bit. It has been a long dry spell. So hopefully that continues in addition to buying some product ahead of the changes. Jennifer Rumsey: May mean some more even performance as you go from the second half of this year into next year, though. Noah Kaye: Okay. And then I guess the tie into that just again around the engine margins. You mentioned the preparing for new product launches. But I know a lot of investment has gone into preparing the platform. So is it an incremental headwind to margins, the investment and the preparation costs for launch in 2026? Or are we actually starting to lap that? Mark Smith: We are starting to lap it to some extent, but said another way, we are essentially in some cases running with parallel operating systems. Some of the engine platforms are going to change quite significantly as we work through the introduction. So as we get through the other side of the launches, yes, we would expect the margins to step up once we convert over. Operator: Thank you. Our next question is from the line of Tim Thein with Raymond James. Please proceed with your question. Tim Thein: I will just kind of package these together. Question one is just on Mark going back to the comments earlier about the capital allocation flexibility that you have. I am curious as part of that, maybe it does not factor in or not, but your joint venture partner in your AMT venture announced a potential or likely spin-off of that business. I am just curious if that impacts could that give rise to potential option for Cummins if it wanted to increase its stake there. Maybe just thoughts around that. And then I guess part two is the data center revenue in total in '25. Can you help us on that? And then what is embedded in 2026 across power systems and distribution? Thank you. Jennifer Rumsey: Yeah. You know, of course, we have an important partnership with Eaton, as you noted, in the Eaton Cummins joint venture. I think it is premature to say how that will happen. We would expect continued partnership with that portion of their business going forward, and that joint venture and really making sure that we have optimized powertrains for our customers. Nicholas Arens: And then specific to your question on data center revenue, we had alluded, last call and $2.4 billion, $2.6 billion of total company revenue and expectations that would grow 30% to 35%. We did hit the upper bound of that. So for 2025, we are at about $3.5 billion between our power systems business and then also our distribution business. Operator: Thank you. Our last question comes from the line of Chad Dillard with Bernstein. Please proceed with your question. Chad Dillard: Hey, good morning, guys. So with the restructuring you took in Accelera, can you talk about how that changes the cost structure? Where do breakeven margins go? And then just maybe a little more color on just what the actions were. Jennifer Rumsey: Yes. So with this, the actions in the fourth quarter were really focused on our electrolyzer business. And just frankly, with the policy changes in green hydrogen, the demand for green hydrogen has dried up, dramatically lower. And so that has had a relook at our participation. You know, we have commitments to customers that we have made, but we will stop future commercial activity. And so what that means and even with some of the that are starting to flow through that we took a year ago is we have meaningfully lowered losses for this year, but some of these things take time to fully play through just based on existing business and commitments that we have, but we have meaningfully reduced our participation in hydrogen. And we continue to feel like we have got some good capability in battery electric powertrains and pacing our investments there. Given the slowing in the market, but the anticipation that that will continue to grow over time is really where we are focused. And then, of course, we never stopped investing in the engine side of our solutions. And so, anticipate more strength there for longer. Mark Smith: Yeah. And I think you will see in our disclosure some of the breakdown of cost was a combination of some people actions, some inventory write-downs, some contract exits. It is a whole combination of things. Whereas the Q3 charge is really just a goodwill impairment. This was related to specific actions that lower the cost going forwards. So as Jen said, what, you know, permanently reducing the rate of participation in electrolyzers going forward, but observing commitments we have already made. So that should have a positive trend to it over time. Chad Dillard: Got it. That is helpful. And then I wanted to revisit the gross tariff conversation. Can we just go back to talking about the seasonality of that from like first half versus second half? Mark Smith: Somebody else is responsible for the seasonality of that. But this is what I would say, like think of if you look at over the course of last year, you saw growing, especially in the second half, tariff cost through and recovery increasing as we negotiated commercial agreements with our customers that becomes hopefully more stable and steady this year. Although there are still some new tariff announcements. And as I noted, details around engine offset and 232 that we will need to work through. So we are continuing to spend a lot of time on how this is moving in. The agreements that we have with our suppliers and customers and fundamentally, maintain our goal of recovering at a dollar level our actual cost. Mark Smith: But the degree of variation has moderated here between the quarters. We were able to deliver the net, you know, mostly recovered in the fourth quarter that anticipated, which contributed to the solid results overall. So from the seasonal, it is more just the pacing of how long it took to work through the supply chain. And of course, there were a number of changes up and down. Operator: Thank you. At this time, we have reached the end of our question and answer session. I will turn the floor back to Nicholas Arens for closing remarks. Nicholas Arens: Thank you. That concludes our teleconference for the day. Thank you all for participating in your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you.
[speaker 0]: Good morning, and welcome to the Snap on Incorporated Fourth Quarter and Full Year twenty twenty five Results Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sarah Verbsky, Vice President of Investor Relations. Please go ahead. [speaker 1]: Thank you, Drew, and good morning, everyone. We appreciate you joining us today as we review Snap on's fourth quarter and full year results which are detailed in our press release issued earlier this morning. We have on the call Nick Pinchuk, Snap on's Chief Executive Officer. And Aldo Pagliari, Snap on's chief financial officer. Nick will kick off our call this morning with his perspective on our performance. Aldo will then provide a more detailed review of our financial results. After Nick provides some closing thoughts, we'll take your questions. As usual, we've provided slides to supplement our discussion. These slides can be accessed under the Downloads tab in the webcast viewer as well as on our website, snapon.com, under the Investors section. The slides will be archived on our website along with the transcript of today's call. Any statements made during this call relative to management's expectations, estimates, or beliefs or that otherwise discuss management's or the company's outlook, plans or projections are forward looking statements, and actual results may differ materially from those made in such statements. Additional information and the factors that could cause our results to differ materially from those in the forward looking statements are contained in our SEC filings. Finally, this presentation includes non GAAP measures of financial performance which are not meant to be considered in isolation or as a substitute for their GAAP counterparts. Additional information regarding these measures is included in our earnings release issued today, which can be found on our website. With that said, I'd now like to turn the call over to Nick Pinchuk. Nick? [speaker 0]: Thanks, Sarah. Good morning, everybody. Oh, well, I'll start by saying these times are some. Seems like every day brings a new twist of considerable Fluctuating tariffs with big swing. Unpresident in domestic and international events that dominate the news. Prolonged government shutdowns. We just avoided another one that hits just keep on coming. But as we speak about the period, I believe you'll see that in the middle of it all, snap on shine through. With strength. I'm gonna tell you, about that as we review the quarter. It's a story of resilient markets, sales progress, profitability, and continuing investments that further fortify our advantages in product and brand and in people. And so as I cover the highlights of the last three months, I'll give you my perspective on the reason on the on the performance. On the markets, and on the progress we've made. Then Aldo will move into a more detailed review of the financials. Our fourth quarter was incurred. We believe it emphatically serves as testimony that our balanced approach growth and improvement is effective enough. Our advantages are powerful enough and our team is experienced, capable, and committed enough to perform even in the most challenging of environment. So here are the numbers. In the fourth quarter, sales were 1,000,000,231,900,000.0. Up 2.8% from last year as reported, including 1.4, 1.4% organic increase and 15,600,000.0 favorable foreign currency. Positive growth against the wind. And our OpCo operating income, OI, for the quarter was of 265,200,000.0 was equal to last year's. And the OI margin for the period was 21.5%. 60 basis points short of last year. The impact of unfavorable currency combined with additional investments in brand building and product development development. For financial services, OI of 34,400,000.0 was up 7,700,000.0 or 115% from last year. Doing a large part to the fifty third week in the two thousand twenty five fiscal calendar being uniquely beneficial to the credit And when combined with Opco, the overall earnings for the corporation of $339,600,000 was up 2.3% versus 24 and total margin was 25.3%. Our overall quarterly EPS it reached $4.94, up 12¢ from the 42 recorded last year. The quarter shows the same resilience demonstrated over the years as as we've paid dividends every quarter since 1939. Without a single interruption or reduction. In fact, in November, it was with clear belief in our future. That we raised our dividend by 14%. The sixteenth straight year of increase. It was not a strong and tangible estimate [speaker 1]: to Snap on's consistency, [speaker 0]: right through a variety of environments. Well, those are the numbers. Now to the market. We believe the automotive repair remains very favorable. And that's validated by the average age of the car park. Now at eight twelve point eight years, and it's continuing to rise. By the growing numb by the growing complexity of new platforms driving more difficult and time consuming repairs, and by the ongoing climb in household spending on vehicle repair, it's up again. And the vehicles and fixers all over are cashing in on the surge. Tech wages are up. Again. [speaker 1]: Extending a, you know, fairly positive trend. [speaker 2]: Hours worked in the in in in the in the in the bays are also on the rise. We believe technicians are financially stronger than ever, and their prospects just keep getting better. It's unmistakable. There's a growing demand for for capable vehicle repair. Shop owners tell about tell us all the time. They need more tech, and we believe the need to continue for and we believe this this need will continue for several years. You know, in fact, there's a good piece, I think. A a recent article in The Economist ditched test books and leave how and learn how to use a wrench to AI proof your job. That piece emphasized the considerable need for more technicians and the solid security provided by the profession. And it cites vehicle repair as one of the most AI proof of jobs. Work is pretty challenging, both physically and mentally. Each repair is different with variations and conditions that never seem to be the same. And as such, a mechanic needs a mastery of a massive repertoire of procedures. Must summon the logic to troubleshoot puzzling failures, and must be able to navigate intricate mechanical setups. With precision. It's a job that's getting more [speaker 0]: complex [speaker 2]: every day. The techs need help and keep it up. And Snap on's well well positioned to do just that. Now, a related but different segment, shop owners and managers are also adapting, continuing to invest in in in the advanced commit equipment and specialty tools required to attend the latest vehicles. This is where repair assistance information or the RSNI group resides. It's a target rich environment. It's a target rich environment for our capable undercar and collision equipment, and it's a great and growing opportunity. For our expanding array of software and data products. It's an arena where Snap on is well positioned with our extensive line of proprietary and comprehensive databases. Billions of data points. Now leveraged with large language models, language machine learning programs that search the the exhaustive and complex information matching the problem signature with just the right repair procedure in a split section. [speaker 0]: Second. [speaker 2]: Greatly expediting the vehicle fix, increasing shop productivity, and getting the vehicle back on the road faster than ever. Again, this again, this quarter, I had the opportunity to meet with with our with franchisees from coast to coast. They're a great barometer. They were all positive about the new about the now. And very enthusiastic about their futures. Sure. They still encounter the the ongoing hesitation of text have toward long term payback for, you know, purchases. But at the same time, they're energized by the success of the tools group execution pivoting the faster payback items, rolling out a continuous steam of innovative offerings that are making difficult and critical repair work faster and much easier. Now in the current environment, tool storage remains the most category. But we do see demand for smaller boxes and our large range of accessories are starting to roar. In fact, the the fourth quarter showed kind of some significant improvement in originations. They were almost flat in the quarter. It's a clear game that bodes well for a future. It appears that our pivot is working. So despite the challenges, automotive repair remains robust, and we believe we're well positioned to capitalize. Now let's turn to critical industries where our commercial and industrial or C and I group operates with a focus on taking Snap on out of the garage to places where work is very critical. Justifying a Snap On level product. Complex tasks performed in in heart and grueling environments from oilfields to subsea subsea floors, the clean rooms for chip manufacturing, and to tightly controlled bays for rocket manufacturing. This arena relies on our extensive catalog of products that provide precision, durability, reliability, and repeatability, all characteristics required to get the job done where the tasks are essential and critical. We believe we have a decisive advantage in this critical areas, and we keep investing to make it even stronger. And the fourth quarter was no exception. This is also in the market where [speaker 0]: with the largest global footprint for us. [speaker 1]: And, you know, that creates challenges in navigating the international [speaker 2]: headwinds like government protocols, varying economies, and currency fluctuation During the quarter, Europe saw the continuing impact of the Ukraine war, And Asia was marked by the general loss of confidence in the Chinese economy. And the impact of the evolving US terrorist terrorist regime. Changes all the time. More than any group, C and I encounters these logical these obstacles from country to country, and it does cause some adversities across the group. But we're confident we have the strengths to overcome the variation and keep progressing. Making the most of the abundant opportunities in this critical sector. So that's an overview of our markets. Resistance against turbulence filled with opportunities. And we're well put, I should say resilience and resistance. Against the turbulence and it's filled opportunities. And we're well positioned to leverage the possibilities. Progressing down our runways for growth, efforts that are fortified by our SNAPA evaluation processes, safety, quality, customer connection, innovation, and rapid continuous improvement or RCI. The core activities that underpin our perform performance, enabling it to hold fast despite the difficult headwinds of these days. Now for the operating groups. Let's start with C and I. Fourth quarter sales of $398.1 for the group were up $18,900,000 or 5% with our organic gain of 2,800,000.0 and seven point nine million of favorable foreign currency translation. [speaker 0]: Our Power Dual division led the way with that growth [speaker 2]: with double digit gains. Moving forward on the market enthusiasm for our new innovative power solutions that make work much easier. And especially torque business was also up, driven by the the ever growing need for precision instruments. And in the critical industries, come back. Our industrial operations overcame the impact of the prolonged US government shutdown. It kinda cut off things for a while. Things were kinda slow for a while. They they overcame that wielding, its increasingly powerful custom kitting operations like never before. To come roaring down the stretch, registering a positive volume and catching up. I mean, you should have seen this team seen them working on catching up. It was a wowza. A why for the for CNI was 60,600,000.0. Included in included a benefit of $4,500,000 related to the refinement of our footprint. And compared and it compared with the 63,500,000.0 registered last year. The OI margin was 15.2% versus the 16.7% in 02/2024, primarily due to material cost increase and stronger sales in some of the group's lower margin businesses. As I said, the sales group was the sales growth was fueled by new innovative power tools. Engineered by our team in Murphy, North Carolina and Kenosha, Wisconsin. In the back half of the quarter, [speaker 0]: For example, in the back half of the quarter, [speaker 2]: we launched our new NanoAxis cordless slugger. I mean, this baby is groundbreaking. Developed from insights gained from customer connections right in the shots at point of work. The Nano is a compact power tool. And when I say compact, I mean, small enough to fit right in the palm of your hand, and it can be carried everywhere in a a small pocket to be always on hand when the need arises. The big advantage is the techs change positions across the shop. Or venture out into the yard. [speaker 3]: The unit has an internal also has an internal ampere [speaker 2]: hour battery that that drives over 600 fasteners. 600 fasteners on a single charge. You see, from our customer connections, we know that most inspections and general repairs are low torque applications like removing panels, clamps, and fasteners under the dash and and in crowded engine compartments. For these common tasks, the nano has the power for rapid renewal removal, the control to avoid stripping the fastener, and has the right size to fit where no other power tool can go. It's a real time saver and a fast payback item And it's right on target for the environment. [speaker 3]: The initial [speaker 2]: release featured two two models, one straight and one ninety degree 90 degree pistol driver. [speaker 3]: Both [speaker 2]: and both units [speaker 3]: set new records [speaker 2]: for new power tool rollouts. [speaker 3]: Pretty strong. [speaker 2]: Also in the quarter, our city of industry factor in California launched our new Control Tech plus torque wrench. It's a unit that has high precision has the high precision needed for critical industries and performs a great liability in the harsh conditions that are often empowered outside the garage. It's it's robust. All steel construction is durable. [speaker 3]: Perfect for heavy duty use. And the design includes a large LED [speaker 2]: a large LED display that's visible in bright sunlight or in dark work areas. Anywhere an industrial tech plies their trade. And that unit is is intrinsic, and and the unit is intrinsically safe, meaning it's certified to work in flammable areas. An important feature for critical applications. And the internal rechargeable battery battery ensures the device is always powered up and ready for work. Our new Control Tech Plus, accurate, durable, easier to use, and safe. Taking Snap on out of the garage and helping deliver the C and I quarter. Well, that's C and I. Sales up. A powerful comeback wielding our critical custom kit capacity. Mighty Mike power tools and precision torque. Rising all rising to new levels. Now on to the tools group. Quarterly sales of 505,000,000. For instance, quarterly sales were of 505,000,000 were debt down from the we're at 505,000,000, down from the 506,600,000.0 of last year. But the OI was a 107,300,000.0, up from the 106,900,000.0 last year. And the OI margin was 21.2%, rising 10 basis points. The fluctuating tariffs, the prolonged shutdown, and the constant period of big bang actions and ideas coming out of Washington has stoked technician uncertainty and reinforced reluctance toward longer payback items. But the tools group but the tools group's ongoing visit [speaker 3]: has [speaker 2]: wanted a series of shorter payback items that that are are [speaker 3]: bringing high value and strengthened margins for the shop. [speaker 2]: And that positive is evidenced by the by the group's gross margins of 6.1%, a gain of a 150 basis points over last year despite the flat volume. [speaker 3]: Boom shackalacka. [speaker 0]: This is an eye pop. [speaker 2]: And at the same time, even in the turbulence, we remain committed toward investing Even in the turbulence, we remain committed toward investing in the band network. Maintaining our advantage in product and branding and people. So the quarter in the tools group in the quarter, spending on on operating expenses rose a 140 basis points. Helping to ensure that the group will be at full strength when the uncertainty thaws [speaker 3]: But the Snap on Pour the core of our business here is our powerful product line. [speaker 2]: Now over 85,000 strong across the corporation, over 40,000 just in the tools group. And the period saw a number of great new examples in the tools group. During the quarter, our Milwaukee, Wisconsin facility released a new line of impact flex sockets. Customer connection identified a range of tasks. We're removing components We're we're removing components to access the fix was burning a lot of tech time. Arm to that insight, our engineers have designed the new three zero seven RIP LMS a seven piece impact socket set featuring extra long reduced diameter shafts. And low profile hex head. [speaker 3]: Now its design enables easy access to deeply recess fasteners, and it provides a clearance around blocking obstruction. All without removing additional parts. It's an ideal tool for speeding up routine tests like like brake caliper removals, catalytic converter replacements, and extracting exhaust Our new long shaft impact socket set set is a winner. It increases productivity, creates quick paybacks, and the technicians have noticed. Making this design another hit product, $1,000,000 hit product. [speaker 2]: Also rolling out of the Algona, Iowa plant, [speaker 3]: a new two storage configuration. The KTL one zero two one, a 54 single bank master series role play cab. But with the unique features that all seven drawers span the full width of the box. [speaker 2]: And those drawers are equipped with heavy duty [speaker 3]: heavy duty dual bear ball bearing slides unit has the space and the strength to handle additional storage without within a compact footprint, 9,300 square inches to be exact. Now space and strength define a storage utility [speaker 2]: and the new unit has plenty of space for for our foam organizing trades at TexFlub and a low capacity of nearly three and a half tons [speaker 3]: Big. [speaker 2]: It's an offering with powerful capabilities at a mid range price point, and it's just the storage product [speaker 3]: for this environment. And as you might expect, it was a great success. Success. Some of what you see in the originations come from this. Well, that's the tools. Matching techno preferences, leveraging customer connection, [speaker 2]: investing in our strengths. All in the turbulence. Now for RS and I. Sales in the quarter were 467,800,000.0. Up 11,200,000.0 compared to 2,022, and including on our organic sales gain of 4,800,000.0. The group's fifth consecutive quarter of growth against the turbulence. [speaker 3]: Higher volume with vehicle OEMs and dealerships and gains within information databases [speaker 2]: independent garages led the way, more than offsetting [speaker 3]: lower sales and big ticket diagnostic units. [speaker 2]: Morris and I are operating earnings for the quarter were 117,700,000.0 and the operating margin was a strong 25.2%. But [speaker 3]: it was down 140 basis points [speaker 2]: from the 26.6% recorded last year. [speaker 3]: You know, that [speaker 2]: that reduction represents very robust investment in software development and brand building. Similar to Tools Group, 46.9%, about equal to last year despite cost increases. And just like tools, the groups the group invested to build its advantage in both hardware and software software, helping the radio helping driving the operating expenses a 130 basis points over last year. Thus, the numbers. But we believe the spending will be well worth [speaker 3]: and will make our advantages even stronger going forward. You see, [speaker 2]: growing vehicle complexity paired with an aging car park makes understanding the different vehicle setups very difficult. Especially with the variations of creature comforts and safety equipment found in modern vehicles. And this is where RSI itself converting billions of data points within microseconds, and delivering it into the hands of the tech, enabling enabling them to diagnose the [speaker 3]: problem and execute the fix. [speaker 0]: Quickly. [speaker 3]: And it's already happened. [speaker 2]: In the quarter, the grocery the group released the all new MT. It's not about MT 2,600. [speaker 3]: Diagnostic platform offering a quick payback unit position that's a powerful entry level device [speaker 2]: for the for the diagnostic arena, for the automotive diagnostic arena. The new unit's capable of community communicating with 50 different OEMs from around the globe on models dating back to 1983. In other words, it handles a wide range of vehicles, and it is fast. [speaker 3]: With live data graphs, functional tests, the capability to reset service and check engine and check engine lines. Plug into this vehicle's diagnostic data into a vehicle's diagnostic port, and press go. It's ready to go. No time wasted loading software. [speaker 2]: It auto and it automatically identifies the vehicle VIN specific information. You know, just because the same make it just because it's the same make and model. Doesn't mean the vehicle's the same in the repair [speaker 3]: world. Models are not the same in the repair world. One could have been [speaker 2]: one could have been ordered with options like parking assist and the other with air ride suspension. But there's and and [speaker 3]: but there's no need to look it up. Now. The m t 2,600 knows the unique differences instantly without any additional input. And it's a real time saver. It's a productivity advancer. And it's a pay raiser. For entry level techs. The Snap on m 2,600, a powerful feature set and a price aligned [speaker 2]: to match current techno technician preferences. And it was a hit with franchisees and with the customers alike. [speaker 3]: So that's RSNI. [speaker 2]: Trends remain robust. Aging car park. [speaker 3]: Vehicle technology. Continuing to advance, making repairs complex, abundant opportunities for growth. And Snap on is the position and the product lineup to take advantage and we're investing to extend that lead. That's our fourth order. [speaker 2]: Performance in the midst of turbulence. C and I sales up, critical industries impeded by the shutdown, but roaring back to report a positive. Substantial gains with new power tools and precision torque products, The tools grew about flat [speaker 3]: attenuated by tech uncertainty, by growing gross margins, up a 150 basis points without a volume boost, [speaker 2]: Continuing investments in products, and brands and its people. RS and I, fifth straight quarter of growth gains with OEMs and independent shops, strengthening its database and its software and the overall business. [speaker 3]: Sales up 2.8% as reported, 1.4% organically, and an EPS of $4.94 up again over last year. Progress in investment in a difficult market. It was an encouraging quarter. [speaker 0]: Now I'll turn the call over to Aldo. Aldo? Thanks, Nick. Our consolidated operating results for the fourth quarter are summarized on Slide six. Net sales of $1,231,900,000 in the quarter represented an increase of 2.8% in 2024 levels. Reflecting a 1.4% organic sales gain and $15,600,000 of favorable foreign currency translation. Sales in our commercial and industrial sector or the C and I group increased year over year led by strong performances with critical industry customers and robust sales by our power tools operation. In our automotive repair market, sales gains with repair shop owners and managers were somewhat tempered by slightly lower activity our franchise van chain. Consolidated gross margin of 49.2% compared to 49% in the fourth quarter last year. The decline of 50 basis points primarily reflected higher material and other costs as well as higher sales and lower gross margin businesses within the C and I group. These headwinds were partially offset by benefits from the company's RCI initiatives And while Snap on is relatively advantaged in the current tariff environment, generally, manufacturing products in the markets where they're sold our costs can be affected by trade policies. Operating expenses as a percentage of net sales of 27.7% compared to 27.6% in 2024. Operating earnings before financial services of $265,200,000 in the quarter were unchanged from last year. As a percentage of net sales, operating margin before financial services of 21.5% compared to the 22.1% reported in 2024. As you may know, Snap on operates on a fiscal calendar, which results in an week being added to our fiscal year every five to six years. Accordingly, the 2025 fiscal year contained fifty three weeks of operating results [speaker 3]: with the extra week [speaker 0]: relative to the prior year occurring in the fourth quarter. While the impact of this additional week was not material, to Snap on's consolidated fourth quarter total revenues and net earnings, financial services segment did earn an additional full week of interest income from its financing portfolio. At the consolidated level, the net earnings benefit from the additional week of financial services interest income was largely offset a corresponding additional week of fixed expenses primarily personnel related costs. With that said, financial services revenue of $108,000,000 in the fourth quarter including $7,400,000 of revenue resulting from the extra week of interest income compared to $100,500,000 last year. While operating earnings of 74,400,000.0 compared to $66,700,000 in 2024. Consolidated operating earnings of 339,600,000.0 compared to $331,900,000 last year. As a percentage of revenues, the operating earnings margin of 25.3% compared to twenty five point five percent twenty twenty four. Our fourth quarter effective income tax rate was 22.3% in 2025, and 22.5% in 2024. Net earnings of $260,700,000 or $4.94 per diluted share compared to $258,100,000 or $4.82 per diluted share in 2024. Now let's turn to our segment results for the quarter. Starting with the C and I group on Slide seven, Sales of $398,100,000 rose $18,900,000 compared to 2024 levels, reflecting a 2.8% organic sales increase and $7,900,000 of favorable foreign currency translation. [speaker 1]: The organic gain includes a mid single digit increase [speaker 0]: in activity with customers in critical industries, a double digit rise in power tools, a mid single digit improvement in specialty tour. [speaker 3]: These gains were partially offset [speaker 0]: by lower sales to The United States markets by the Asia Pacific business. Overall, the organic sales gain largely reflects success new product launches from our power tools operation, and continued improving demand from our critical industry customers. Including those in The United States and international aviation, heavy duty, and technical education. Despite delays associated with the government shutdown in October and November, sales into military and defense applications rebounded, and were down only slightly for the quarter versus last year, with activity increasing as we exited the fourth quarter. Gross margin of 38.6% compared to 41% in 2024. This decline was primarily due to higher material and other costs increased sales and lower gross margin businesses and 30 basis points of unfavorable foreign currency effects, partially offset by savings from RCI initiatives. During the fourth quarter, the C and I group refined its footprint and go to market strategy resulting in a net benefit to operating expenses of $4,500,000. As detailed on Slide seven, these actions included a net gain on the sale of a building that was partially offset by cost to retire certain trademarks, and by restructuring charges. [speaker 3]: As such, [speaker 0]: operating expenses as a percentage of sales of 23.4% in the quarter including the net benefit, compared to 24.3% last year. Operating earnings for the C and I group of 60,600,000.0 compared to $63,500,000 in 2024, and the operating margin of 15.2% compared to 16.7% last Now turning to Slide eight. Sales in the Snap on Tools Group of $55,000,000 compared to $506,600,000 last year. Reflecting a seven tenths of a percent organic sales decline largely offset by $1,800,000 of favorable foreign currency translation. The organic decrease reflects a low single digit decline in The United States, partially offset by a high single digit gain in the segment's international operations. During the quarter, we believe our ongoing pivot to featuring the benefits of shorter payback items continued to mitigate the persistent uncertainty of technician customers in the current environment. Gross margin improved 150 basis points to 46.1% in the quarter, from 44.6% last year. Mostly due to a year over year shift in product mix, including higher sales of new products, and savings from the segment's RCI initiatives. Operating expenses as a percentage of sales of 24.9% compared to 23.5% in 2024 largely reflecting increased brand building and other costs. Operating earnings for the Snap on Tools Group of 107,300,000.0 compared to $106,900,000 in 2024. The operating margin of 21.2% improved 10 basis points from last year. Turning to the RS and I group shown on Slide nine. Sales of $467,800,000 compared $456,600,000 a year ago. Reflecting a 1% organic sales increase and $6,400,000 of favorable foreign currency translation. The organic improvement includes low single digit gains in activity with OEM dealers and in sales of diagnostics and repair information products to independent repair shop owners and managers. While our undercar equipment sales were flat with last year, the business experienced improving activity in all of our product lines outside of collision repair, continue to be down year over year. Gross margin for the 46.9% compared to 47% last year. The savings from RCI nearly offset the effects of tariffs, and higher material costs. Operating expenses as a percentage of sales of 21.7% compared to 20.4% in 2024, largely reflecting increased activity and higher expense businesses and a rise in other costs. Operating earnings of a 117,700,000.0 compared to a $121,400,000 last The operating margin of 25.2% compared to 26.6% reported in 2024. Now turning to Slide 10. Revenue from financial services of $100,000,000 compared to $100,500,000 last year. As previously stated, this includes $7,400,000 of higher revenue resulting from a full additional week of interest income due to our fifty third week fiscal year. Financial services operating earnings of $74,400,000 compared to $66,700,000 in 2024 largely reflecting the additional interest income. Financial services expenses of 33,600,000.0 compared to $33,800,000 last year. As a percentage of the average financial services portfolio, [speaker 2]: expenses [speaker 0]: were 1.3% in the 2025 and '24. In the fourth quarter, the average yield on finance receivables of 17.6% in 2025 compared to 17.7% in 2024 while the average yield on contract receivables was 9.1% in both years. Total loan originations of $285,100,000 in the fourth quarter were unchanged from last year and on a year over year basis reflected stable originations of tool storage products. Moving to Slide 11. Our year end balance sheet includes approximately $2,500,000,000 of gross financing receivables with $2,200,000,000 from our US operation. For extended credit or finance receivables, The US sixty day plus delinquency rate of 2.1% is up 10 basis points from the 2024. Additionally, it is also up 10 basis points from last quarter reflecting the typical seasonal increase between the third and fourth quarters. Trailing twelve month net losses for the overall extended credit portfolio of $72,100,000 represented 3.67% of outstandings at year end. We believe that these portfolio performance metrics remain relatively balanced, get considering the current environment. Now turning to slide 12. Cash provided by operating activities of $268,100,000.0 in the quarter decreased $25,400,000 from comparable twenty twenty four levels. Primarily reflecting a $52,700,000 increase in net cash paid for income taxes partially offset by a $23,000,000 decrease in working investment. Net cash provided by investing activities of $25,900,000 included proceeds from the sale of a building a net decrease in finance receivables of $11,200,000 as well as capital expenditures of $13,500,000 Net cash used by financing activities of 200 and $500,000 included cash dividends of 126,700,000.0 and the repurchase of 227,000 shares of common stock for $80,400,000 under our existing share repurchase programs. As of year end, we had remaining availability to repurchase up to an additional $260,000,000 of common stock under our existing authorizations. Turning to Slide 13. Grades and other accounts receivables of $881,400,000 represented an increase of $65,800,000 from 2024 at year end levels. And included $25,300,000 of foreign currency translation $19,800,000 related to the previously discussed sale of a building, and a higher mix of sales with longer payment terms. Day sales outstanding of sixty seven days compared to sixty two days at year end 2024. Inventories increased by $81,800,000 from 2024 year end levels, and that included $41,400,000 of foreign currency translation. On a trailing twelve month basis, inventory turns to 2.4 were the same as last year. [speaker 3]: And [speaker 0]: Our year end cash position of $10,000,006,245,000,000 dollars compared to $1,000,000,360,500,000 at the end of 2024. Addition to our existing cash and expected cash flows from operations, we have more than $900,000,000 available under our credit facilities, There were no amounts borrowed or outstanding under the credit facilities during the year. Nor was any commercial paper issued or outstanding in the at the end of the year. That concludes my remarks on our fourth quarter performance. Now have a few outlook items for 2026. With respect to corporate cost, we currently believe that the expenses will approximate $28,000,000 each order, We expect that capital expenditures for the year will approximate $100,000,000 and we currently anticipate that our full year 2026 effective income tax rate will be in the range of 22% to 23%. I'll now turn the call back to Nick for his closing thoughts. Nick? [speaker 3]: Thanks, Aldo. [speaker 0]: Bless the quarter. [speaker 3]: Sales growth, solid profitability and expanded investments in fortifying our inherent advantages. [speaker 2]: All in a time of turbulence, tariffs, [speaker 3]: shutdowns, and conflicts, [speaker 2]: considerable uncertainty. C and I sales, were up 5% as reported [speaker 3]: 2.8% organically. A late comeback for [speaker 2]: critical industries, recovering some of the shutdown impact, great and great new product [speaker 3]: in power tools and specialty torque. Tools group, [speaker 2]: volume down 0.3% as reported, 0.7 per percent organically, about flat. OI margin of 21.2%, up 10 basis [speaker 3]: points, and gross margins of 46.1%, up a 150 basis up 150 basis points against the impact of higher material costs and inflation. And RS and I sales up 2.5% as reported [speaker 2]: 1% organically. OI margin's down, but still strong. [speaker 3]: At 25.2%, and gross margin's about flat. Resistant to the pressure of cost rises and tariffs. Making gains in on our making gains on our advantage in both software and data. It all came together for diluted EPS of $4.94, up from the $4 and 82 percent cents reported last year. [speaker 2]: It was [speaker 3]: as I said, many times, this [speaker 2]: this call an encouraging quarter. [speaker 3]: Going forward, [speaker 2]: we believe we'll benefit from our continuous investment in building our advantages. The uncertainty appears to be in for a thought, and we believe the resilience of a [speaker 3]: of our markets will continue essential and critical. As as they are. We are [speaker 2]: in this we are [speaker 3]: building our advantages. And they are in our all our advantages, and they are powerful. With our advantage in product to tools really do solve critical tasks we have more than 85,000 of them with new entry entries always coming. Our advantages in brand. Step on really is the outward sign of pride and dignity of working that working men and women take in their professions. It's re it's a respected and preferred and preferred many. And with our advantages in people. Skill, committed, battle tested, and enlisted in the expectation of success as a standard. We believe these strengths will set us apart, will enable us to overcome the turbulence and will drive Snap on to extend its positive trajectory throughout this year and well beyond. [speaker 2]: Before I turn the call over to the operator, I'll just speak directly to our franchisees and associates. When I refer to our advantages, both now and in the future, I think of you. The quarter was encouraging. And your conviction and hard work has made it so. [speaker 3]: For your success, once again, [speaker 2]: in offering another positive performance, you have my congratulations. For the intense energy and extraordinary capability you bring to bear every day [speaker 3]: you have my admiration. And for your continued commitment to our team, and your unfailing confidence in our shared future. You have my thanks. [speaker 2]: Now I'll turn the call over to the operator. Operator? [speaker 0]: Thank you. We will now begin the question and answer session. To ask a question, on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Scott Stember with ROTH Capital. Please go ahead. Good morning, and thanks for taking my questions. [speaker 3]: Mister Scott Stemper, how are you? [speaker 0]: Good. Thank you. Thank you. Hopefully, the the same for you. Question on the the tools group. You know, we you know, saw a little bit of a rebound in the previous couple of quarters, and returned a little bit negative here. Just trying to get a sense, are you seeing any increased level of technician softness, or is this you guys just having a greater availability of these quicker payback item and we're just seeing a little a little bit more of a mix towards the lower Actually ticket items? [speaker 3]: That's a great question. I look. I I think I think this. I think you know, it's about flat. [speaker 2]: We're up a little bit the last time. You know? So you could look at that as a back [speaker 3]: But we don't see it that way. We see that the quarter was pretty turbulent. [speaker 2]: You know, you might think that the shutdown doesn't affect the tools group, but you should have been there talking to the the franchisees of Maryland and Virginia. [speaker 0]: They didn't think it had any effect. They didn't think it was a no effect situation. [speaker 2]: And then and then the tariffs are getting pretty turbulent. And just think about Canada. There have been 29 different presidential or prime minister pronunciations since the beginning of the year, about changing the tariffs with Canada. And the other tariffs are not are not [speaker 3]: the way they are. And then you have this news every time you get up in the you look at the noise, you see things. So that affected [speaker 2]: their [speaker 3]: think, their general view. And then we heard a little bit about that. So I think that was part of it. [speaker 2]: Now I think I said in the in the in in the in the call, I think sooner or later, [speaker 3]: people gotta get used to this. So you could kinda expect a thought coming [speaker 2]: You saw green shoots, I think, in one in the in the originations. The originations being kind of flattish [speaker 3]: year over year and down a little bit, [speaker 2]: but it it it but but [speaker 1]: that's [speaker 2]: better than it's been. So you kinda you kinda believe that, boy, things are that's a change. And part of it is pivot. [speaker 3]: But some of it may be some thaw. [speaker 2]: So we see that. And then one of the things I think that [speaker 3]: eye popping, I said so in the call, is [speaker 2]: jeez, in this time, your gross margins are up a 150 basis points. [speaker 0]: Wowza. [speaker 2]: You know? So they so whatever the tools group is doing and executing, they're doing pretty well within the conditions they've been handed. [speaker 0]: Gotcha. And I think you alluded to tool storage, actually. I think you said it was kinda flattish in the quarter. Can you you talk about actual hand tools? Diagnostic, just some of the other subsegments? [speaker 2]: Sure. Look. Look. I'm not gonna give you exact numbers. I don't wanna [speaker 3]: you know, pin myself to that cross. But but but I think look. This I didn't really say that tool storage is up. I said that originations [speaker 2]: which is not what the tools group does. Remember, group sells to the franchise and the franchisee on sells. And the and that's [speaker 3]: becomes an origination. [speaker 2]: So the originations are more an indication of what's happening at the level between the franchisee and the customer. So that was sort of flattish, which is, you know, all the same positives I said. The tool storage was still down some. Year over year in the in the tools group selling to the franchisees. Tool hand tools is better. [speaker 3]: Diagnostics was down. Power tools is up. [speaker 0]: Oh, okay. Sorry about that. And then just last question. Sales onto the van versus off of the van? [speaker 2]: You know, I hate talking about this, Scott. You know, because no no month is significant, really. Fully significant. We always say that it has a lot of variations from month to month, but it all comes out in a wash in the end. And generally, what we sell on the van equals what we sell up. [speaker 3]: But this quarter, sales were up [speaker 2]: over up [speaker 3]: you know, kinda substantially bigger [speaker 2]: don't know if you call it substantial, but but, clearly, clearly with with with quite a bit of room bigger off the van [speaker 3]: than our sails to the van. So I think that's a better I would say that's that's a nice data point, better than a pokemon eye with a sharp stick. But I'm not gonna hang my hat on it. But it is if you [speaker 2]: if you wanna classify green shoots, maybe this is a green shoot. [speaker 3]: I just hope the rabbits don't eat the green shoot. You know? But I but I but I think you know, it's a positive thing. [speaker 0]: Got it. That's great. Thank you so much. [speaker 3]: Sure. [speaker 0]: The next question comes from Luke Junk with Baird. Please go ahead. [speaker 3]: Good morning. Thanks for taking the question. Maybe if you could just jump off on one of the things you just said, Nick, diagnostics. I think you said it was down in the Tools Group in the quarter. Can we just maybe double click on that? I'm not sure if we should think there is some pull forward just from the launch strength that you saw in the middle part of this year, or is there just maybe some inherent lumpiness? Wanna kinda just separate the Well, there's kind of I think I think it's more I look. I think it's more inherent lumpiness driven by the [speaker 2]: the the characteristics of the launch. You know? So in the third quarter, [speaker 0]: second and third quarter, toward the end of the second quarter, we've launched the Triton. I think that's gotta [speaker 3]: price. I don't know. It must be 4,000, $4,500. It's a massive and powerful unit. And this quarter, we we launched the MT 2,600, which is an entry level [speaker 2]: thing, which is substantially lower in price. But, you know, a sale is sort of a sale for the franchisee. [speaker 3]: You know? Yeah. Maybe he has to work a little harder for the bigger ticket item. You know? But not still probably gotta put in the same amount of time for either one. [speaker 2]: And so he's [speaker 3]: he spends he does his pitch. [speaker 0]: You know? He does his his his show and [speaker 2]: explains everything, and he gets $1,500 or $4,000. Think that's pretty much what you're seeing this quarter. [speaker 3]: Okay. Helpful. I wanna switch gears to C and I. Critical industries. Do you know if you look a quarter ago, we returned to kinda modest growth, now tracking up mid single exiting 25. But it sounds like [speaker 2]: actually maybe even was higher in December given what you mentioned around the shutdown. Any reason to think that that momentum doesn't now carry over into next year in critical industries? [speaker 3]: Well, I think we have we have great optimism [speaker 2]: for our power in critical industries. We think our [speaker 3]: our array of custom kits keeps growing and therefore we have a greater span of sale. Our custom kitting capacity, we keep increasing it. And one of the things I I didn't fully, I suppose, tease out in this in this, in this comments is that's what allowed us to catch up at the end. We really pumped it up. I mean, if you looked at October and November, it was [speaker 2]: a it wasn't the greatest time. You know? Things had had the military business, which is a nice business for them, had gone to a crawl. [speaker 3]: And then they came roaring back. Like I said, you had to see these guys out there working. [speaker 2]: The jet you know, the the the the head of the the division was out there and is younger, but he's working. Packet. So I I think I think this is you know, yes, you should see momentum coming out of this quarter. Now you know, we don't give guidance so this is one data point that we are positive. And they didn't fully catch up [speaker 3]: So, therefore, you would expect to have some catch up coming out. We'll see how that plays out over three months. But I feel good about it. [speaker 2]: Last thing kinda coming across in both [speaker 4]: DNI and the tools group, just the our tool strength. I mean, that's been under pressure for a while here. Pretty short bounce back in the quarter. It's want to unpack maybe shorter term impacts given the product launch momentum that you mentioned and just maybe your historical experience in terms of the tails of that momentum leaking into into future periods? Thanks, Nick. [speaker 3]: Well, I I know. I look. I think I think again, we don't give guides, buddy. You know? But but but the last time we've launched a product like this, like the Nano, [speaker 2]: oh, years ago. You know, it's a while ago. This kind of uniqueness of it and it had quite a bit of legs. [speaker 3]: It went on for a while. [speaker 2]: It's not it's it's it's a whole different line. You know? So that tends to have more legs to it. [speaker 3]: If you're talking about other products like the long neck ratchet, which which I didn't mention on this call, I mentioned last call, 13 inches of [speaker 2]: neck long, 30% longer than anybody else, tremendous power at a distance. [speaker 3]: But [speaker 2]: that one, you know, can be more episodic. And so you have to you have to sell you know, find the people who don't have it already if you're a franchisee. And then to some extent, it is episodic, like [speaker 0]: like, [speaker 2]: the diagnostics. I do think, though, that you're gonna see that more and more in power tools today for us because there was a period when we turned our power tools engineers and some of our engineers partially away from new products and said, this is the period in which we couldn't get components. And so you had to re you had to use engineering time to re to to target [speaker 4]: the [speaker 2]: components that were actually you could actually get, where they actually were available. And that meant design change, and it eats up time. And so now we've got everything full strength, focused [speaker 3]: on new product, and they seem to be hitting the ball out of the park with [speaker 2]: repeatability. [speaker 3]: So I feel pretty good about it. I think the nano's got legs [speaker 2]: but generally, power tools can be upside. [speaker 4]: Understood. I'll, I'll leave it there. Thanks, Nick. [speaker 2]: Sure. [speaker 0]: The next question comes from Sherif El Sabahi with Bank of America. Please go ahead. Hi. Good morning. I just wanted to touch on some of the brand [speaker 4]: building expenses that you had had called out, particularly in the tools group. [speaker 5]: What exactly is is in embedded in those costs, and how do you expect them to look how do you expect them to look going forward? Is that sort of an ongoing cost [speaker 0]: I'm not gonna give you exactly what's in the cost. You know? [speaker 2]: Because you'll be asking me how much I'm spending every quarter on each of those categories. I'm not gonna say that. But but look. Here's the kinds of things [speaker 5]: we worked on. [speaker 3]: We worked on training [speaker 4]: You know, this is the kind of thing training in our in our business. We worked [speaker 3]: some on advertising for the brand. The advertising is up. We worked on building software which spreads across this business and the RSNI business. We worked on social media [speaker 2]: the use of social media more correctly. I mean, these guys are all individual businessmen. The the 3,400 bands. And, you know, some of them are great at this stuff, and some of them are not. So we worked on those things. [speaker 3]: That's the that was the kinds of things we we spent on in [speaker 2]: in the tools. [speaker 5]: Understood. And I know the the fifty third week wasn't, necessarily impactful to the financials. Were you able to give us sort of a a ring fence the size of it and the impact of the year? [speaker 3]: Sure. One thing you gotta know. It's vastly different between the financial company and the operating company. For the financial company, it's a bonanza. I think Aldo said it's like $7,000,000 extra profit. You know, that was pretty much fifty third week. If you look at the operating companies, you gotta understand where it is, and it's during the Christmas you know, the holiday period. And these are [speaker 2]: these are expenseful [speaker 3]: sales week. [speaker 0]: Period. [speaker 2]: So it generally is a loser. You have most you have a lot of the expenses flowed through your p and l. They're just there like clockwork. And you don't get any sales. That's what happens. So they're a negative. I will tell you that when you when you roll that out, it's not [speaker 3]: it's not what do we call it? It's not significant. It's not a significant thing for us. Maybe yeah. But it's a little bit of a wait actually. A little bit of a negative, but not significant. [speaker 5]: Understood. Thank you. [speaker 3]: Sure. [speaker 0]: The next question comes from David MacGregor with Longbow Research. Please go ahead. [speaker 5]: Yes. Good morning, everyone. [speaker 2]: Nick, I guess I wanted to [speaker 5]: hey. Good morning. I I wanted to, just ask you about, last quarter, had talked about the SFC, and you had said there were great orders. You were up mid single digits. But that we're not getting money. I think that was the exact quote. You're not getting much of that at all. So, I guess I'm having trouble reconciling that with essentially flat second half sort of Snap on Tools segment organic growth. Can you just understand the dynamics and also maybe what you saw in the way of fourth quarter growth in the non SFC fulfillment business? [speaker 3]: Yeah. Look. I think yes. It it remember, I think I say that the SFC are orders, not sales. So there could there could cancellation. That you fulfill in the second half, Nick. And so in and and so what second half? I don't know. Do you do you mean the second half or the quarter? For the fourth quarter? Second half of the year. You just [speaker 2]: well, the second half of the year is is not [speaker 3]: supported by the SFC. The SFC pretty much, you know, starts to starts to blink out in terms of effect just as you cross over the year end. [speaker 2]: There isn't there isn't an effect You see what I mean? It's all in it's all in the half. So you could ask, why we didn't do better in the fourth quarter if we had mid single digits in the SFC. [speaker 3]: And that and that's because [speaker 2]: the actual orders end up being a cocktail of about three things. There are there are the they're the SSC for the [speaker 3]: for that half that we refer to. There's the kickoff for the second half, the big bang events, and then there are a bunch of bunch of usual programs that that flow flow out at different times. They're big promotions. And then [speaker 2]: there's the monthly meetings. For the franchisees that roll out promotions in each one of those. So the combination of those is what makes the quarter. So if you say, if you say that the SFC orders were 5.8 per you know, it was worth was like [speaker 3]: mid single digits. And okay, you're not really not necessarily gonna get those. They could be canceled, but they could all be taken up. [speaker 2]: And you could have weakness in one of the promotions. Or just everybody say every every month, oh, I got enough. I'm not gonna take anything this month, or I'm gonna take a lot less this month. That is that's what makes it so hard to predict. Now [speaker 3]: SFC and kickoff, you you feel good if you get more orders, but it's not [speaker 5]: definitive. [speaker 3]: I think I say that [speaker 2]: you know, when when when this happens. So that's that's a look at it. [speaker 3]: So it's a it's a cocktail of a bunch of different selling efforts. That result in the flat quarter. [speaker 5]: Yeah. Maybe I'll follow-up with you offline on that. Is there anything you can say about the regional kickoffs, Nick? And how they're going? [speaker 0]: Well, they're over. First of all, so No. I know they're over. They're they're behind us. I'm asking how they went. They okay. [speaker 3]: They they were they were in it. [speaker 2]: Were in the first quarter, so don't comment on future. [speaker 3]: But the one I went to was very positive. People people were people were very enthusiastic. And I would say that our reports from around the country, Aldo went to one. [speaker 2]: And his his was similarly [speaker 3]: positive. So we think they came out well. I think like the s I think the orders were reasonably robust. But like the SFC, they're not definitive. [speaker 2]: You know? So if you were just gonna base your view of the future, on the on the kickoff, you would feel pretty good. [speaker 3]: I I think I think, you know, what we what I'd say what I'd say, David, is [speaker 2]: more or less [speaker 3]: that this was a particularly turbulent time in terms of uncertainty. But if you look at the the gross margins, the execution seems to be pretty good. If you look at the or if you look at the [speaker 2]: the originations, it seems like the pivot is working because people buying some of those small boxes. You know, at least off the van. If you look at the sales off the van, and you say, well, yeah, it's only one quarter, but it's you know, better than the sales to the van. That seems like a positive. And if you look at the the nature of the world, you wonder if people aren't getting tired of being uncertain, things won't go off. So I think we're kind of optimistic going forward. [speaker 5]: Okay. Last question for me is just on the balance sheet. I mean, you get a billion 6 of cash. [speaker 4]: You know, a little over 400,000,000 of net cash. [speaker 5]: Generating a billion dollars a year of free cash flow. I mean, you're doing an extraordinary job here. Are you gonna go with the cash? What what remind us on your priorities for m and a. Okay. Priorities are like this. Well, [speaker 3]: as you know, I bet you've been looking at it so long, you noticed dead nuts. But but the the if you if you look at it, we're we're working capital hogs. So we always have to have you know, a pretty good dollop of cash to make sure. [speaker 2]: In case things should explode in terms of sales, we wanna be ready to fund it because we are not working capital [speaker 3]: We're not among the small working capital. You know, great. Inventory turnover, for example. But we that's the bare that's our model. And so you got that. You got enough cash for that. Then the whole thing is the dividend. We have as I said in my call, we have we have declared dividends every year since 1939, and we have never reduced it. [speaker 2]: So we think about the perpetuity of the dividend. And we think with sixteen straight consecutive increases, we always look at in those contexts. And then you've got acquisitions. We always review we're always reviewing acquisitions now. Quite often, you look closer and you find out so many warts you don't want it or it's selling into a segment we don't want. But we do look at acquisitions consistently, and we have made several of the car aligner, for example, Norbar. [speaker 3]: Bunch of different things over the years. And then we look at is Aldo took you through, I think we spent 80,000,000 plus in share buybacks last year. Got it. [speaker 5]: Well, thanks very much. Good luck. Sure. The next question comes from Bret Jordan with Jefferies. [speaker 0]: Please go ahead. Hey, good morning, guys. This is Patrick Buckley on for Bret. Thanks for taking our question. [speaker 4]: Within tools group in in The US, could you talk a bit more about what you're seeing in the competitive landscape? Any notable shifts in strategies as far as pricing or mix or marketing? [speaker 2]: Why do you always ask about the competitors? [speaker 3]: That's what I wanna know. But but anyway anyway, look. I no. We're not seeing I don't I don't think we're seeing so much about that. I mean, I think I think [speaker 2]: we have less pressure from [speaker 5]: from tariffs than almost anybody else. [speaker 3]: I I'm not sure that everybody's gross margins are up in the tools group, but I'm not hearing people talk about pressures. But that's normal. I'll tell you this. When I get on a van, [speaker 2]: and I do all the time or I meet franchisees or it's they never mention the competition. [speaker 3]: They always you know, I I shouldn't say never. [speaker 2]: But they seldom mention the competition [speaker 3]: And it's because Snap on is kind of out [speaker 2]: in a different area. People decide to buy a Snap on product. Or they decide to choose from a bunch of other alternatives. [speaker 3]: That's really the way it is. We're not actually competing with those guys for the same people. [speaker 0]: I don't I don't we don't we don't see our guys don't see it that way. Now I I don't know. I think I think [speaker 2]: you know, knowing where they source from and you know, some have had difficulty in making in The United States. I think the tariffs have gotta give them [speaker 3]: fits. [speaker 0]: They haven't given us fits. [speaker 2]: So I would think we'd be in a better position [speaker 3]: Well, I'm not sure. I mean, they might absorb it in profitability. Nobody said to us that anybody's dropping price Nobody said to us, oh, people are raising a price, and it makes a difference to us. [speaker 2]: Because we're always above them anyway. [speaker 0]: Great. That that's all for us. Thanks, guys. This concludes our question and answer session. I would like to turn the conference back over to Sarah Verbsky for any closing remarks. [speaker 1]: Thank you all for joining us today. A replay of the call will be available shortly on snapon.com. As always, we appreciate your interest in Snap on. Good day. [speaker 3]: The conference has now concluded. Goodbye. [speaker 0]: Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Acadian Asset Management Inc. Earnings Conference Call and Webcast for the Fourth Quarter 2025. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question and answer session. To be added to the queue, please press the star followed by one at any time during the call. If you need to reach an operator, please press star followed by 0. Please note that this call is being recorded today, Thursday, February 5, 2026, at 11 AM Eastern Time. I would now like to turn the meeting over to Melody Huang, SVP, Director of Finance and Investor Relations. Please go ahead, Melody. Melody Huang: Good morning, and welcome to Acadian Asset Management Inc. Conference call to discuss our results for the fourth quarter ended December 31, 2025. Before we begin the presentation, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form 8-Ks filed today containing the earnings release, our 2024 Form 10-K, and our Form Thank you for 2025. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them as of new information or future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including the reconciliation of those measures to GAAP measures, can be found on our website, along with the slides that we will use as part of today's discussion. Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment product. Kelly Young, our President and Chief Executive Officer, will lead the call. And now I'm pleased to turn the call over to Kelly. Kelly Ann Young: Thanks, Melody. Good morning, everyone, and thanks for joining us today. I'm delighted to share our Q4 2025 and full-year 2025 results with you. I'm pleased to highlight that we delivered breakthrough results across assets under management and profitability. We ended Q4 2025 on another high note. Our US GAAP net income attributable to controlling interest was down 18%, and EPS was down 14% compared to the year prior due to increased non-cash expenses, representing changes in the valuation of Acadian LLC equity and profit interest. Our ENI diluted EPS of $1.32 was up 2%, driven by share repurchases, the highest level of quarterly ENI EPS in the firm's history. Our adjusted EBITDA was up 1%. We realized $5.4 billion of positive net client cash flows in Q4 2025, 3% of beginning period AUM, driven by enhanced extensions as well as emerging markets equity. And finally, AUM surged to $177.5 billion as of December 31, 2025, making another record high for Acadian. Moving to slide three, full-year 2025 strong outperformance. Our US GAAP net income attributable to controlling interest was down 6%, and EPS down 0.5% compared to the prior year, driven by increased non-cash expenses representing changes in the value of Acadian LLC equity and profits interest. We will discuss the full-year ENI, EPS, and net flows on the following slide. Our adjusted EBITDA was up 9% compared to 2024, driven by significant growth in recurring management fees. Focusing on slide four, this slide captures the exceptional and historic year 2025 was for Acadian. We generated $29 billion in net client cash flows. That organic growth combined with robust equity markets drove our AUM to an all-time high of nearly $178 billion as of December 31, 2025. At the same time, our 2025 ENI total revenue grew to nearly $549 million, up 9% from 2024. We also expanded our ENI margin more than two percentage points to 35.5% and reduced our gross leverage to one times as of year-end 2025, down from 1.5 times at year-end 2024. Finally, we delivered record annual 2025 ENI EPS of $3.25, up 18% year-over-year, supported by greater ENI earnings and the efficient return of capital to our shareholders in the form of share repurchases. These milestones and financial results reflect our team's discipline and dedication in executing the organic growth plan we articulated when I assumed the CEO role in 2025. As we enter Acadian's fortieth year in business, I believe we are better positioned than ever. We remain focused on delivering solutions and generating alpha for our clients, as well as expanding targeted product and distribution initiatives that promise to deliver long-term growth and value for our shareholders. Turning to Slide five, Acadian's investment performance track record remains strong despite a challenging 2025. We have five major implementations which comprise the majority of our assets. As of December 31, 2025, global equity, emerging markets equity, non-US equity, small-cap equity, and enhanced equity have 100% of assets outperforming benchmarks across three, five, and ten-year periods. Global equity markets delivered strong returns in Q4 2025 to close out 2025. However, crowding in lesser quality, high beta stocks created a more challenging environment for the fundamentally driven signals, such as quality, that drive Acadian's approach, particularly in the second half of the year. Toward the end of the year, value and quality-oriented stocks performed better, a welcome change after their struggles in Q3. Our performance improved in Q4 2025. As we enter a new year, we remain confident in our disciplined, systematic approach and believe we are well-positioned as markets begin to refocus on company fundamentals. Slide six details how our investment process has weathered various market cycles and generated meaningful long-term alpha for our clients. Our revenue-weighted five-year annualized return in excess of the benchmark was 4.7% as of the end of the quarter, on a consolidated firm-wide basis. Our asset-weighted five-year annualized return in excess of the benchmark was 3.8% as of the end of the quarter. By revenue weight, 95% of Acadian's strategies outperformed their respective benchmarks across three, five, and ten-year periods as of December 31, 2025. And by asset weight, 91% of Acadian strategies outperformed their respective benchmarks across three, five, and ten-year periods. The next slide highlights our sustained momentum in net flows. We realized positive net flows of $5.4 billion in the fourth quarter, representing 3% of beginning period AUM. The quarter's net flows were again diverse across products and client types. Enhanced extension and emerging markets equities all generated strong net client cash flows. As I referenced earlier, for the full year of 2025, we generated net flows of $29 billion, and with positive flows of $2 billion in 2024, we have now generated eight consecutive quarters of positive net flows. Our current pipeline remains robust and active after the funding of a number of significant client wins in 2025, and we expect continued positive momentum in the year ahead. I'm now going to turn the call over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation. Scott Hynes: Thanks, Kelly. Turning to slide nine, our key GAAP and ENI performance metrics are summarized here on both a quarterly and full-year basis. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP to ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on slide 10, Q4 2025 management fees of $140 million increased 32% from Q4 2024, reflecting a 43% increase in average AUM, driven by strong positive net flows and market appreciation. Total ENI revenue of $170 million increased from Q4 2024 by 2%, primarily due to recurring base management fee growth partially offset by a decline in performance fees. We have now delivered nearly 8% or higher quarter-on-quarter management fee growth for three consecutive quarters, and with fourth-quarter end-of-period AUM of $178 billion, we enter 2026 with a significantly stronger recurring revenue base. This stronger entry point enhances our confidence in our ability to deliver earnings, generate free cash flow, self-fund organic investments, and return capital to shareholders. Moving to slide 11, Q4 2025 ENI operating expenses increased 5%, primarily driven by higher sales-based compensation, as well as general and administrative costs, including continued investments in IT and infrastructure. Our ENI operating margin expanded 338 basis points to 45.7%, from 42.3% in Q4 2024, driven by increased ENI management fees. While our Q4 2025 operating expense ratio fell 10 percentage points year-over-year to 40.9%, reflecting the impact of improved operating leverage. Q4 2025 variable compensation decreased 18% year-on-year, primarily driven by reduced performance fee-related compensation, as well as increased non-cash compensation. In sympathy, our Q4 2025 variable compensation ratio decreased to 29.4% in Q4 2025, from 35.7% in Q4 2024. While our full-year 2025 variable comp ratio decreased to 39.4% from 42.3% in 2024. Assuming revenue mix and levels similar to 2025, contractual allocations would imply a 2026 variable compensation ratio of approximately 40 to 43%. Turning to slide 12 on capital resources, as of December 31, 2025, we had $101 million of cash and $97 million of seed investments on the balance sheet, with a $200 million balance on our new term loan credit facility, and zero balance on our revolving credit facility. We completed the previously announced refinancing of our $275 million senior notes in Q4 2025, reducing our gross debt by $75 million and helping lower our gross leverage ratio from the prior year by half a turn to one times and our net leverage ratio to 0.5 times. This refinancing has left our balance sheet stronger and more durable, better positioning us to navigate various market environments and to continue to return excess capital going forward. As a reminder, Acadian's leverage typically peaks in the first quarter of each year, as we draw down on our revolver to fund annual compensation, but then declines through the year as we generate cash and pay down the revolver. We expect this dynamic to continue in 2026. Moving to Slide 13, we have a track record of creating significant value through share buybacks in recent years. Outstanding diluted shares have decreased 58% from 86 million in Q4 2019 to 35.8 million shares in Q4 2025. Over the same period, $1.4 billion in excess capital was returned to shareholders through share buybacks and dividends. Share repurchases were suspended in Q4 2025, as balance sheet cash supported the previously discussed deleveraging. We repurchased 1.8 million shares of common stock in 2025, a 5% reduction in our total shares outstanding from 2024, for an aggregate total of $48 million. Acadian's board has declared an interim dividend of 10¢ per share, an increase from the prior $0 per share level, to be paid on March 20, 2026, to shareholders of record as of the close of business on March 13, 2026. This increased dividend level reflects the board's confidence in our recurring revenue base and continued strong free cash flow generation. Going forward, we expect to continue generating strong free cash flow and returning excess capital to shareholders through dividends and share repurchases. I'll now turn the call back over to Kelly. Kelly Ann Young: Before moving to Q&A, let me recap some key points on slide 14. Acadian is competitively positioned as the only pure-play publicly traded systematic manager with a forty-year track record and competitive edge in systematic investing. Our investment performance track record remained strong this quarter, with more than 95% of strategies by revenue outperforming over three, five, and ten-year periods. Business momentum continued to pace in 2025, with net inflows of $5.4 billion for the quarter, and $29.4 billion for the year, the highest annual NCCF in the firm's history, and with record AUM of $177.5 billion. Q4 2025 financial results included record management fees of $146 million, up 32% from Q4 2024, record ENI EPS of $1.32, up 2% from 2024, and operating margin expansion to 45.7%, up from 42.3% in Q4 2024. Finally, capital management remained a focus in the quarter as we strengthened our balance sheet with the senior notes redemption and Term Loan A refinancing, and announced an increase in our quarterly dividend to 10¢ per share. Acadian is well-positioned to continue to drive growth and generate value for shareholders through targeted distribution initiatives and strategic product offerings. Our talented and dedicated team is acutely focused on achieving these goals, and I look forward to building on the momentum we saw in 2025. This concludes my prepared remarks. Operator: At this time, those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad. To cancel a question, please press star 1 again. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of John Joseph Dunn with Evercore. Please go ahead. John Joseph Dunn: Thank you. I wanted to go back to the institutional pipeline. You said it remains robust. Maybe if you could just give a little flavor of the composition of it and maybe the cadence of timing you expect over the course of 2026? Kelly Ann Young: Yeah. Hi, John. It's Nicole. Thanks. Thanks for the question. Yes. As I said, I think, you know, the pipeline remains very strong, and the pipeline looks exactly how we would want it to. So in terms of very diverse by product type, by geographies, and by vehicle. We continue to see a lot of interest in enhanced. As you know, that was a theme that we saw a lot through 2025. That continues, I think, to resonate with clients looking for, you know, lower risk but consistent returns at a lower fee, and we continue to see that as a key feature in the pipeline. On the other end of the risk spectrum, our extension strategy, we've seen real interest there, I'd say particularly from North America, but increasingly across the globe. So those are the two key features and, again, two of the key terms that we talked about in terms of our growth strategy last year. And then a real resurgence of interest in some of our core areas like EM, which, you know, has been muted over the last few years, and that was a feature of cash flows in Q4, and we continue to see interest there, I think, as clients are looking for diversification, you know, away from the US and with strong tailwinds from dollar weakening. So again, it looks very diverse. Really, I'd say that, you know, the features of enhanced core and extensions continue to hold as things. And, again, we're continuing to see that diversification and interest really across the globe, driven by, you know, not just our US clients but internationally as well. So again, broad pipeline, a continuation of the things that we saw in 2025. But as I say, with areas like EM that historically, it's perhaps a little more used over the last couple of years continuing now to sort of feature as a theme. Scott Hynes: Hey. Hey, John. It's Scott. I just had to add to what Kelly provided there that, you know, since I joined last spring, and we obviously stare at very granular pipeline data, you know, the levels have been remarkably durable. Even through, as you know, with the digestion or the realization of some really large wins. So again, we feel incredibly well-positioned going into the year, and that's probably suggested kind of if anything. From my chair, it should be remarkable the extent to which we've seen that pipeline refill. John Joseph Dunn: Got it. And then maybe just a word on your current areas of investment. And looking over the course of the year, any changes we should be thinking about in the more like fixed expense line items? Scott Hynes: Yeah. Well, I'll start, and I'll let Kelly add anything if she'd like. I mean, one, stepping back, I think we are very bullish in this regard in our ability to continue to generate positive operating leverage. We're focused on scaling the business. We're confident in our ability, you know, to do so. When we think about investment areas, you know, I think there are some key areas, some of which are related to certain of the positive initiatives that we already announced in the last year. You think about areas like systematic credit. I know Kelly's team has already talked to you and others about some of the continued investments we make there that take the form. Usually, at this point of people. So to make that more real, dedicated salespeople, for instance, systematic credit, you know, when we think about technology, that's obviously a huge focus for us. Part of the mode around the business. So, you know, we're seeing continued investments there. A pick around here is, like, data. How we work with data that does involve some ongoing AI investments just to amount our research team, for instance, to be more focused on strategies, achieving outcomes, less on manipulating data so to speak. So, hopefully, that gives you a bit of a flavor of where we're headed. But, again, I think overall, expenses we made a lot of headwind this year in terms of realizing margin improvement. As Kelly said earlier, we remain really confident in our ability to where the business is heading today to effectively self-fund and investment we see going forward. But there's certainly no step change. It's just ongoing investments in areas where we see, you know, growth like systematic credit. John Joseph Dunn: Thanks very much. Operator: Your next question comes from the line of Kenneth S. Lee with RBC Capital Markets. Please go ahead. Kenneth S. Lee: Hey, good morning and thanks for taking my question. Just one on the outlook for capital returns. And realize that you increased the quarterly common dividend there as well. How do you think about share repurchases in this context? Is there a certain level that you could be looking at or some kind of payout ratio, you know, any kind of, you know, guardrails around that? Thanks. Scott Hynes: Yeah. Thanks, Dan. I appreciate the question. Look. I think we feel really well-positioned, right, in terms of capital return. You know, I know you know and our investors know we completed a refinancing last year. We think that makes the balance sheet much, much more durable, provides a lot more flexibility here. The business is behaving really well and generating a lot of free cash flow. The dividend, I would add, up from a penny to 10¢ a quarter, is there a signal as I suggested earlier in Kelly underlying as well, a signal of confidence in the way the business is behaving and for that to be durable. I would add that when you set that aside, share repurchases, I would not want folks to misread that that's some sort of either-or conversation. We need a more reflection that dividend increase of the business growing and scale in such a way in our level of free cash flow that we think that's durable. Right? But that in no way is a binary either-or conversation to share repurchases. To be very direct on the levels, as I said, we want to be athletic. No. There's not a payout ratio per se that we're managing to. And, you know, stepping back and from your balance sheet management, if over time, and this is over the long term, I do think it is our intention to march newer toward a net cap position versus more net debt position. And the term loan, we could all provide this flexibility in this regard. That was purposeful. But that's certainly not a rush, and we do think that share repurchases will be a priority this year. Again, very healthy free cash flow. We did pause in the fourth quarter with that plan refinancing. That is over. That is done. And with more than $100 million on balance sheet as we printed at the end of April, let's put it this way. It wouldn't be our intention to just sit on that. Right? We're going to be athletic. We're going to be active. It is now put balanced against the investment that Kelly and team would be looking at us for is the finance side. But, again, we think no step changes there. We've already had the investment we need for announced product initiatives. Could there be incremental seed capital? Yes. But, again, there's no big step change. So again, that's a long way of saying that AUD and your purchasing is over. And we think, again, we're really well-positioned heading into this year. The business is behaving well. And we're going to be active in athletic industry. Kenneth S. Lee: Gotcha. That's very helpful there. And one follow-up if I may. I'm not sure whether I might have missed this early in the call, but what was the composition of net flows in the quarter in the fourth quarter? Were there any particular outsized mandates, to want to see what strategies were driving some of the flows there? Thanks. Kelly Ann Young: Yeah. Sure. Of course, Ken. Yeah. No. Just again, it was a sort of quarter that we really want to see from the NCCS standpoint. So, no one big dominant mandate that is driving those numbers. Again, very diverse across, I'd say, everything from enhanced at the lower risk end through to extensions on the higher risk side. As I mentioned earlier, EM was an EM core strategy with a core feature of Q4 flows as well. Very much balanced, I'd say, between international and our US clients. So very diverse, not one large sort of theme there that's dominating on one particular mandate. And very diverse, as I say, by strategy group, by geography of client, and then by vehicle type, some of those separate accounts, some of those coming into our existing funds. So broad and diverse and exactly what we really want to see in the quarter, you know, from an NCPF standpoint. Kenneth S. Lee: Right. Very helpful. Thanks again. Operator: Thanks. Again, if you would like to ask a question, press 1 on your telephone keypad. There are no further questions at this time. This concludes our question and answer session. I'd like to turn the conference call back over to Kelly Young. Kelly Ann Young: In closing, I'd like to reiterate our excitement for the business. We were delighted by the 25% increase in net client cash flow in the period, the 52% increase in AUM, and the 32% growth in management fees. And we remain incredibly positive for the trajectory for Acadian in 2026 as we continue strong growth ahead. Thank you, everyone, for joining us today.
Operator: Hello, and welcome to Xcel Energy's 2025 Year End Earnings Conference Call. My name is Jordan, and I will be your coordinator for today's event. Please note this conference is being recorded. For the duration of the call, your lines will be in listen-only mode. A question and answer session will follow the prepared remarks, and questions will only be taken from institutional investors and analysts. Reporters can contact media relations with inquiries, and individual investors and others can reach out to investor relations. I would now like to turn the call over to your host today, Mr. Roopesh Aggarwal, Vice President of Investor Relations. Please go ahead, sir. Roopesh Aggarwal: Good morning, and welcome to Xcel Energy's 2025 year-end earnings call. Joining me today are Bob Frenzel, Chairman, President, and Chief Executive Officer, and Brian Van Abel, Executive Vice President and Chief Financial Officer. In addition, we have other members of the management team in the room to answer your questions if needed. This morning, we will review our 2025 full-year results and highlights, provide updated 2026 assumptions, and share recent business and regulatory updates. Slides that accompany today's call are available on our website. Some comments during today's call may contain forward-looking information. Significant factors that could cause results to differ from those anticipated are described in our earnings release and SEC filings. Today, we will discuss certain metrics that are non-GAAP measures. Information on the comparable GAAP measures and reconciliations are included in our earnings release. As a reminder, we recorded a charge of $300 million or 38¢ per share in 2025 reflecting the settlement in principle reached with plaintiffs in the Marshall Wildfire. As a result, our GAAP earnings for 2025 were $3.42 per share while our ongoing earnings, which exclude this nonrecurring charge, were $3.80 per share. All further discussion on our earnings call will focus on annual ongoing earnings. For more information on this, please see the disclosure in our earnings release. I will now turn the call over to Bob. Bob Frenzel: Thank you, Roopesh. Good morning, everybody. At Xcel Energy, we continue to deliver on a once-in-a-generation opportunity to meet the increasing demands of our customers as they electrify more parts of their lives, support the economic development of our communities, fuel the rapid growth of AI and data centers, and continue to lead a clean energy transition in the country. Over the next five years, Xcel Energy expects to invest in excess of $60 billion to modernize and expand the grid. Adding advanced transmission and distribution infrastructure, new natural gas and renewable generation, smart, weather-hardened infrastructure, these upgrades will strengthen sustainability, reliability, and resiliency while keeping our customer bills as low as possible. We've also continued our decades-long track record of producing strong results for our owners. In 2025, Xcel Energy delivered ongoing earnings of $3.80 per share, marking the twenty-first consecutive year of meeting or exceeding our initial ongoing earnings. We achieved that outcome with some of the lowest electric and natural gas bills in the country. This consistency reflects the strength of our strategy, the diversity of our business, and the dedication of our Xcel Energy team who show up every day for safety, reliability, affordability, and sustainability as their top priorities. 2025 showcased what our people are capable of as we reached several important customer and operational milestones. With our disciplined execution and geographic advantage for renewables, we continue to deliver for our customers. Our residential electric customers in Colorado have the lowest share of wallet out of all 50 states. And average electric bills in our other states occupy five of the top 11 spots in the country. Since 2020, residential electric bills in Denver and Minneapolis have grown far less than inflation, and less than common expenses like groceries, gasoline, health care, insurance, and housing. And when compared to other national electricity providers, these bills have grown 40-80% less than other regions. It's a testament to our focus on affordability, our productive regulatory jurisdictions, and importantly, our integrated regulated utility model that allows for long-term asset investment. Also a testament to our one Xcel Energy Way continuous improvement program that has realized over $1.5 billion in cumulative savings since 2020, while also improving customer and operating outcomes. As a result, when looking at our five-year average O&M expenses per megawatt hour, Xcel Energy ranked fourth lowest out of our peer utility companies. And even with some of the lowest energy bills in the country, we know some of our customers still struggle to make ends meet. In 2025, our energy assistance programs reached nearly 200,000 customers and provided nearly $200 million in funding, our highest ever one-year total. Our focus on reliability, affordability, and customer service was recognized by JD Power, who ranked Xcel Energy in the top quartile for the Midwest region and had the second-highest score in customer satisfaction. Across our eight states, we continue to build and maintain the critical infrastructure that supports our customers' energy needs. In 2025, we invested nearly $12 billion, our largest one-year total. In September, phase two of our Sherco solar project started commercial operation, and a third phase will come online in 2026. Once complete, Sherco will be the largest solar facility in the Upper Midwest. We also completed the conversion of our 1,000-megawatt Harrington coal plant to natural gas, which provides essential energy resiliency and reliability to our customers. And we source and deliver that natural gas for Harrington from the Permian. That combination will benefit the local community for years to come. We completed 370 megawatts of wind repowerings at our Border and Pleasant Valley facilities in the Upper Midwest. We expect $750 million in PTC benefits, which exceeds the investment that we made into these facilities, creating more affordable energy for our customers. We placed our 325-megawatt Rocky Mountain solar project in service this year, our first utility-scale solar farm in Colorado, with many more to come. And we released our updated 2026 to 2030 capital plan, which includes, relative to our previous plan, an additional 7,000 megawatts of company-owned renewables, natural gas generation, and storage across our states to transition our fleet and build for growth. Speaking of enabling growth, over the past fifteen years, Xcel Energy has been the leading builder of new transmission line miles in the country. Last spring, we energized our first two segments of the Colorado Power Pathway ahead of schedule, on scope, and under budget, delivering significant value to our Colorado customers. The remaining segments will be energized in 2026 and 2027. Across SPP and MISO in 2025-2026, Xcel Energy has been awarded over 760 miles of new 765 kV transmission lines. This includes the second 765 kV line in SPP that was awarded this week, which gives us line of sight to $1.5 billion in additional investment over our base five-year plan. This will be the first voltage lines of this class in SPP and constitute 20% of the approved new ultra-high voltage transmission in this country, recognizing Xcel Energy's expertise in building and operating transmission networks. We also reached several milestones as we continue to make efforts to protect our customers and communities from the threats of extreme weather. In 2025, we rapidly accessed accelerated system investments, including completing eight times as many pole inspections and 25% more pole replacements than the previous year. We installed over 250 Pano AI cameras and weather stations. In 2025, we received approvals from both Colorado and Texas commissions for our wildfire mitigation and system resiliency plans, as well as published wildfire mitigation plans in each of our other states. Favorable wildfire legislation passed into law in Texas and North Dakota, and we're working on similar frameworks in other states. And we continue to improve and refine operational measures to protect our communities, including daily wildfire risk monitoring, proactive customer communications, wildfire safety operations, and in very rare circumstances, public safety power shutoff capability. And our investments are paying off. During winter storm Uri this January, our electric and natural gas operations across NSP, PSCO, and SPS performed exceptionally well. Thanks to rigorous winter readiness, proactive fuel management, and strong coordination across our operations teams, we reliably served customers through periods of high demand, constrained gas supply, and challenging weather. And we were able to export our generation length when the system needed us most, providing grid stability and incremental customer benefits. Our operators and field crews executed cold weather procedures flawlessly. We maintained system reliability and managed costs responsibly despite record-setting conditions. I'm very excited about our achievements in 2025. I want to turn to our strong start to 2026. Today, we are advancing our data center pipeline with a new recently signed ESA with a large data center in the Upper Midwest. This brings Xcel Energy to over two gigawatts of new contracted data center capacity. Our goal for 2026 is another one gigawatt, bringing our total to three gigawatts of contracted data center service by 2026. And while we had length in the Upper Midwest this winter and forecast so through the end of the decade, we also know that it's critical that we have the right resources to develop new generation infrastructure to deliver on the opportunities in our 20-plus gigawatt large load pipeline. So earlier this week, Xcel Energy announced an MOU with longtime partner, NextEra Energy, to co-develop generation storage and interconnections to serve data center projects across our operating companies. By engaging early with leading developers like NextEra, we can better anticipate system needs for new data centers, streamline development timelines, advance innovative grid technologies, and continue to provide the network benefits that data centers bring to all of our customers. With this agreement, we now expect to have six gigawatts total data center capacity contracted by 2027, with electricity sales and generation investment that will ramp into the 2030s. We will deliver the benefits of two of the best development teams in the industry to meet this moment for our country and our customers. As we've talked about over the past two to three years, execution against our capital and growth plans are critical to our stakeholders. We believe that our scale and our diversity are assets we can deliver to the benefit of our customers and our regions. We have strategic agreements in place with multiple tier-one EPC firms across our portfolio of renewable and natural gas generation projects, as well as transmission, distribution, and natural gas systems. And earlier this week, we announced a landmark strategic alliance with GE Vernova to support our growing portfolio of wind and natural gas generation, transmission, distribution, and technology projects into the 2030s. This partnership will focus on delivering key benefits to Xcel Energy's customers and stakeholders through enhanced certainty of supply, operational flexibility, and cost affordability. Each of the partnerships is a mutual commitment to innovation and strategic collaboration. We will work together to explore advancements in areas such as artificial intelligence, grid modernization, and joint research and development programs. As a first step, Xcel Energy has five additional natural gas turbines from GE Vernova, bringing our total to 24 gas CTs on order across our vendors. Additionally, we're integrating GE Vernova into our renewable energy pipeline, bidding several gigawatts of wind projects with GE turbines in our pending and upcoming RFPs. Combined with agreements with other equipment and engineering construction firms, Xcel Energy has built a scalable, resilient, and flexible engine to ensure delivery of critical system investments. This engine has also enabled us to safe harbor equipment for approximately 20 gigawatts of renewable generation storage, preserving a significant volume of production and investment tax credits for the benefits of our customers. Finally, Xcel Energy's commitment is about much more than energy. The heart of what drives our people is a deep compassion, connection, and commitment to the communities that we serve. That's because these communities are not just customers who receive our energy. It's because our people live in the same neighborhoods. Our children attend the same schools. And we attend the same community events. And so it goes without saying that the tragic events across the Twin Cities have weighed heavily on our communities, our customers, and our employees. We've engaged extensively and proactively with senior federal, state, local, and community officials with a goal to deescalate and identify a sustainable path forward. I was pleased to sign on to the letter with 60 other Minnesota companies urging for a solution. And alongside peer companies in the Twin Cities, the Xcel Energy Foundation has committed to help fund the Minneapolis Foundation to support local small businesses impacted by recent events. I know that our Xcel Energy community will continue to do what we do best, making energy work better for our customers while supporting our teammates and caring for our neighbors. Looking at the broader community engagement in 2025, Xcel Energy initiated 15 economic development projects for our local communities, which are projected to create more than $7 billion in capital and nearly 1,400 jobs. Additionally, nearly 53% of our supply chain spend was local, and we spent nearly a billion dollars with small and diverse suppliers. Xcel Energy employees, contractors, and retirees supported by the company's foundation provided over $14 million in over 60,000 volunteer hours to support over 400 local charitable organizations and causes in 2025. And for the twelfth year, Xcel Energy was honored as one of the world's most admired companies by Fortune Magazine. We ranked first in social responsibility and placed fourth among the most admired electric and natural gas companies in the country. I continue to be thankful and grateful for each of our employees and partners who shared their time, resources, and talents this year to make energy work better. With that, I'll turn it over to Brian. Brian Van Abel: Bob, and good morning, everyone. Starting with our financial results. Xcel Energy reported ongoing earnings of $3.80 per share for the full year 2025, compared to ongoing earnings of $3.50 per share in 2024. The most significant earnings drivers for the year include the following: Higher electric and natural gas revenues due to rate case outcomes, nonfuel riders, and sales growth, partially offset by higher fuel and purchased power expenses, increased earnings by $1.21 per share. Higher AFUDC increased earnings by 27¢ per share. Offsetting these positive drivers, higher interest charges and common equity financing decreased earnings by 46¢ per share, reflecting funding of our infrastructure investments and financial discipline to maintain a strong balance sheet. Higher depreciation and amortization decreased earnings by 28¢ per share, reflecting our capital investment programs. Higher O&M expenses decreased earnings by 25¢ per share, and other items combined to decrease earnings by 19¢ per share. Turning to sales. Full-year weather-adjusted electric sales increased by 2.2%, driven by increased C&I load in SPS and PSCO. For 2026, we continue to expect full-year weather-adjusted electric sales to increase 3%. Shifting to expenses. O&M expenses increased $190 million in 2025. Increases are primarily due to accelerated wildfire mitigation costs in Colorado, excess liability insurance costs, and higher benefit costs in late third and fourth quarter 2025, and increased costs from generation maintenance. Moving to regulatory activity. During the fourth quarter, in Colorado, we filed both electric and natural gas rate cases. We anticipate commission decisions on each and the implementation of new rates by the end of Q3 2026. In November, we filed a New Mexico electric rate case and anticipate a commission decision in 2026. And in Wisconsin, we received final approval for our electric and natural gas rate case and implemented new rates in January. As we look to additional investments to our base capital plan, Xcel Energy has 10 to 12 plus gigawatts of additional generation RFP and transmission opportunities in SPP and MISO. These investments align with our approved resource plans and are critical to ensure we have the energy we need to serve our customers, retire legacy generation, and ensure reliability. These RFPs also help capture expiring production and investment tax credits, which will help keep customer bills low. For the recommended portfolio in Colorado's near-term solicitation, we are now expecting the commission to review these resources in multiple tranches through early 2026. Additional needs under our approved IRP will be subject to RFPs later this year. In December, we issued an RFP in NSP for 4,100 megawatts of renewable generation and storage to be placed in service by 2030. Bids are due in March, and we expect a recommendation filing later this year. In October, we issued an RFP for 1,500 to 3,000 megawatts of additional nameplate generation. Bids were received in January, and we expect a report from the independent monitor in late Q2 2026. And finally, as Bob mentioned, in SPP, we were awarded another 765 kV transmission line, which gives line of sight to $1.5 billion of additional investment over our base five-year plan. We also continue to make strong progress on the 222 of the 287 submitted claims. We've reached settlements with 79 of the 83 potential claims presented for mediation by parties represented by attorneys. And finally, 22 of 47 complaints have been settled or dismissed. We have updated the low end of our estimated liability to $430 million. We've committed $382 million in settlement agreements, including agreements with the subrogated insurer plaintiffs and the three largest claims by acreage. As a reminder, we have approximately $500 million of insurance coverage. Regarding the Marshall Wildfire settlement, final settlement agreements have been executed with the subrogation insurers and nearly all individual plaintiffs. Xcel Energy is aware of three individual plaintiffs, out of 4,000 plus, who have not yet accepted a settlement or otherwise stopped prosecuting claims. Moving to guidance. We are reaffirming our 2026 EPS guidance range of $4.04 to $4.16. We remain confident in our ability to deliver six to eight plus percent long-term earnings growth and expect to deliver 9% EPS growth on average through 2030. Updates to key assumptions are included in our slides and earnings release. With that, I'll wrap up with a quick summary. Xcel Energy posted strong ongoing 2025 earnings of $3.80 per share, meeting or exceeding ongoing guidance for the twenty-first consecutive year. We continue to lead a clean energy transition while ensuring safe, clean, and reliable service and keeping customer bills as low as possible. We continue to make progress to realize our 10 plus billion dollar pipeline of additional investment opportunities, including a new 765 kV awarded in SPP this week. We've announced two strategic alliances with industry-leading development and supply chain partners to ensure we have the resources, technology, and capacity to deliver on our capital plan. We now have signed ESAs for over two gigawatts of data centers and remain on track to contract three gigawatts total by 2026. In addition, we have updated our plan to contract six gigawatts of total data center capacity by 2027. We continue to maintain a strong balance sheet and credit metrics, using a balance of debt and equity to fund accretive growth. We are reaffirming our 2026 EPS guidance of $4.04 to $4.16 per share. And finally, we remain confident in our ability to deliver 6% to eight plus percent long-term earnings growth and expect to deliver 9% EPS growth on average through 2030. This concludes our prepared remarks. Operator, we will now take questions. Operator: In order to ask a question, press 1 on your telephone keypad. Your first question comes from the line of Julien Dumoulin-Smith. Your line is live. Brian Russell: Good morning. It's Brian Russell on for Julien. Hey. Good morning. Hey. Just, I want to just understand more clearly what the upcoming filings in Colorado for the JTS and how that ties into the large tariff filing. Should we expect as you sign customers to the large tariff, you'll then submit the capacity need to the commission and issue an independent RFP for each, or will you group them together to make the process more efficient? And then how does it tie into that six-gigawatt target by 2027? Bob Frenzel: Yeah. I'll start with that answer. And if I didn't answer all the pieces of that question, just feel free to chime in. As we think about it, we're aiming to file that large load and work through that regulatory proceeding in Tariff in Colorado early in Q2. And once we have that kind of large load tariff and that construct, we'll seek to bring forward large loads within that framework along with likely a package of generation to serve that large load. But really focused on driving customer benefit for all of our current customers. So that's really the timing in terms of getting the large load tariff filing in Colorado. The kind of six gigawatts, right, we doubled our data center expected contracted capacity from three gigawatts to six gigawatts. That six gigawatts is contemplated across our system right now. You saw the one we just signed is focused on the Upper Midwest, and I think that's our focus on the Upper Midwest right now. We have some really good opportunities that we're working through. And then as we work through the large load tariff filing, not only in Colorado but Texas and New Mexico, we'll seek for opportunities there too. Brian Russell: Okay. Great. And then just to follow on that, the $10 billion CapEx pipeline, right, that only includes kind of that low end of the 5,000 to 14,000 gigawatts of range of potential capacity data center-driven needs in Colorado. Right? So there's notable upside even at the $10 billion. Bob Frenzel: Yes. That's absolutely a fair characterization. Right? As we think about it. And, really, that kind of low end didn't include significant data center growth in Colorado. So as we look to data center opportunities thereafter, the large load tariff filing would include additional generation to serve those resources. Brian Russell: Alright. Great. Thank you very much. Operator: Your next question comes from the line of Jeremy Tonet from JPMorgan. Your line is live. Diana Niles: Hey. Good morning. This is Diana Niles on for Jeremy. Brian Van Abel: Morning. Diana Niles: Hi. Good morning. So my question is considering data centers coming online in the coming years, how should we think about that ramp to sales CAGR reaching 5% across service territories? And do you still expect 3% of this 5% from data centers? Brian Van Abel: Yeah. Thanks for the question. This is Brian. Now we'll update our five-year sales forecast as we typically do in Q3. That 5% sales CAGR was based on the three gigawatts of data center that we had all tied in our last Q3 update. Clearly, we've updated that from three gigawatts to six gigawatts. But I think there's some of it when you look at the timing, and we expect to have these contracts signed by 2027. In the construction cycle, a lot of those may come in kind of that '29 type period. And then it's really about energizing in the 2030 and the early 2030s and about extending our capital investment opportunity, our generation need. So, certainly, significant sales growth opportunity, but we think about it more in this later part of this five-year driving significant growth, significant sales growth, and benefit for our other customers into the 2030s, about extent. So it's really about extending our growth opportunities, sales growth, capital investment growth, and benefit to our current customers. Diana Niles: Great. Thank you. And then on the Smokehouse Creek, I saw the low-end estimate rose about the same amount as the finalized settlement agreements. So there were estimated losses to the low end stay around $50 million. I'm just wondering how many lawsuits that $50 million might represent and sort of how sticky finalizing those might be. Brian Van Abel: Maybe I'll take a step back and try and answer that question. I think we've made really good progress if you look at just the number of claims we've settled. We have over 320 claims settled. And about roughly 420 claims and lawsuits in total. So we've settled on a significant number, only about 90 to 100 outstanding. And I think you look at and I've talked about it before, is we've settled some of the largest claims. We settled the three largest claims by acreage, which were high-value ranches. We settled with our subrogation insurers. So when I think about it, we've made considerable progress from this time last year to today. This time last year, we just had over 100 settlements, and now we have three times that amount. So we'll continue to evaluate it. We expect to get some additional claims in as we near the two-year deadline. And then we'll evaluate it like we do every quarter. But we continue to make really good progress on the overall claims. And, again, it's a low-end estimate, but we feel good when we think about we have $380 million of that $430 million already settled. And so it's really our low-end estimate focused on that $50 million. Relative to about $120 million of insurance proceeds left when you look at our coverage amount. Diana Niles: Great. Thank you. Operator: Next question comes from the line of Carly Davenport from Goldman Sachs. Your line is live. Carly Davenport: Hey, good morning. Thanks so much for taking my question. Maybe just to start on the partnership with NextEra. Could you talk a little bit more about the roles that each of you will play in developing these data center projects? And maybe if there are any time-to-market advantages given that is still the top priority for data center customers? Bob Frenzel: Yeah. Hey, Carly. It's Bob. Thanks for the question. The last time we got together, it was in the third quarter last year sometime. We talked a lot about executing on a capital backlog plan, executing on a data center large load plans for the company, and really finding the mechanisms that allowed us to execute in totality across the company. And I think what you heard from the team today was execution across all three of those areas. With regards to NextEra in particular, you used a word that I use a lot here, which is speed. So we do think there'll be increased clock speed as we think through combining two of the best sales teams, two of the best development teams, two of the best analytical teams in the country to deliver solutions for a very sophisticated customer set. We also think that it brings scale, and the ability to put an inflection point in the curve of data center delivery and signed ESAs and contracts and ultimately investment opportunities in all three of our big regions. When I think about roles and role clarity, you know, still at MOU stage, although I'd tell you a lot of the terms and conditions have been really agreed upon by the organizations. We've got to get to sort of final joint development agreement type framework, which I think will get too quickly. I think about us having a great backlog and visibility and conversations with hyperscalers and data center developers. We know NextEra has a national platform of this as well. And bringing those two together and being able to sit in a room and compare notes of who we're talking to, where is the best place to do this as it pertains to our regulated footprint. And then do we have generation that we can bring to the table that we need to bring to the table with speed, with certainty, price transparency, and with competitiveness. I think that's what the teams are gonna bring together collectively. It's not an exclusive arrangement, but we expect to do a lot of work through this agreement, and it's not fuel type limited. If you think about where we sit in sustainability goals as a company, where these hyperscalers and data centers and customers of data center developers wanna be, it's a highly sustainable product, and no one's delivered more wind or solar or storage development across the country than NextEra. And we've been twenty-year partners with them, signed our first PPA with them in 2006, our first PSA for a development transfer a decade ago. So this is a great working relationship. All we're doing, I think, here is codifying it for the purposes of speed and execution certainty. Carly Davenport: That's super helpful. Thanks, Bob. And then, maybe just the follow-up. Just there are a number of elections across your states this year. Any early views in particular on Minnesota and Colorado? Where you have ongoing rate cases and just sort of the role that you'd expect affordability to play in the respective campaigns? Bob Frenzel: Yeah. Great question. Something we pay a ton of attention to. And if you saw my heard my prepared remarks, I spent a lot of time talking about where I think we sit as a company in terms of affordability. You know, Colorado number one, lowest energy bills, electric and gas in the country. I think that's a great starting spot. We needed to file both electric and gas cases there. We've invested substantially into that state over the last two or three years. We haven't filed a case. We did file a case at the end of last year, and that'll go through prosecution through the course of this year. You know, the election, probably early to tell. There's a lot of great candidates in Colorado for governor. Two big names on the Democratic side, one big name on the Republican side of the ticket, and probably early innings for us to see how that's gonna play out in November. Certainly, energy and energy goals for the state have been very critical. We know that one of the things the state legislature is gonna look at is 2040 legislation for some clean energy standards. It's been a Governor Polis priority for a long time. So we know that clean energy is gonna be on the table. We are a huge leader here and in Colorado, and I think we got a great seat at the table when it comes to energy policy in that election. In Minnesota, obviously, Senator Klobuchar just put her hat in the ring for the governor's election. And there's a crowded field of folks on the Republican side as well. So probably early innings to tell what might happen there. You know, we've got a rate case here in Minnesota that we've been prosecuting for about a year. We expect decisions here by, call it, midyear this year. And potential to settle between now and then. So I'm not certain how much the gubernatorial cycle will affect the outcomes of the cases that we have in front of us in Minnesota. That's right. And, Carly, just a couple things to add. I mean, we have echo all Bob's points on affordability, and we have a great affordability story while we're driving state in those two states. And so we're really aligned both on state energy policy and the affordability narrative. And then if you looked at our Colorado electric rate case filing, we put forth an enhanced affordability proposal, really getting at our customers that do have a higher energy burden, and we proposed something for customers that were at a five to 6% energy burden down to two and a half percent in the combined electric and gas bill. So, really, looking at where can we address the affordability issues. So we were pretty excited about where we sit from affordability story. Our narrative but also looking to address it in the pockets where we can. Carly Davenport: Really helpful. Thank you both. Operator: Your next question comes from the line of Steven D’Ambrisi from RBC Capital Markets. Your line is live. Steven D’Ambrisi: Bob. Hey, Brian. Thanks very much for taking my question. Good morning. Bob Frenzel: Morning, Steve. Steven D’Ambrisi: Good morning, Bob. I just had a quick one about, this the effectively the data center pipeline update. You know, I think on the third quarter when you rolled out your formal financial plan, you had talked about roughly three gigawatts between the two buckets of contracted and high probability, and that those two buckets would drive 3% of the 5% total sales growth. And so can you just give me a little color about now that that combined bucket looks like it's doubling to almost six gigawatts. What does that mean for your sales growth? And then the attended question would just be as we get clarity on some of the high probability pipeline, you know, when do we see do we see updated IRPs that reflect some of this load? Incremental load growth, and just how does that filter down into capital ultimately? Thanks. Brian Van Abel: Hey. Hey, Steve. Thanks for the question. And absolutely right in terms of we said on the Q3 call, three gigawatts of data centers in our high probability bucket. We also said on the Q3 call that we would execute on two gigawatts by this time, and we did execute on two gigawatts by this time. So want to ensure that we're delivering on what we tell our investors because I think that's really important. And so, you know, we feel that we have clear conviction by essentially doubling our data center opportunity from three gigawatts to six gigawatts. And so excited about that. In terms of our sales forecast, that three gigawatts translated to three of the 5% growth. We'll provide a holistic update in Q3 like we normally do when we roll forward our five-year sales forecast plan. But certainly an opportunity. Although I do think if you look at the timing and when you'd execute an ESA, we say through 2027, and kind of think about that cycle. You might see a lot of these coming in maybe that 2029-2030 as they energize and then ramp up into the 2030s. So I think it's really the opportunity is how do we think about extending our growth beyond 2030. So some potential sales impact within this five years, but, really, it's post-2030 as we think about these, particularly with the call it, the very large data centers, the one gigawatt plus where they ramp up over time. And then you would see there's really two ways they could come in through our you asked if they come in through the resource planning process. Certainly could come in through the resource planning process, but I think more often, you'll see them come packaged with an ESA. You know, in terms of we're gonna bring forward a specific data center, and here's the package of resources. That will serve it with. Bob Frenzel: Yeah. Steve, it's Bob. Let's just I'll add on to what Brian said. Is, you know, look. We're gonna expect some modest sales this decade. We'll have to update our plan accordingly. We'd expect to start investing probably capital to build the generation to serve those sales? In the later part of this decade as well. We'll update our capital plan accordingly in the third quarter. And I'd just say, give us a little bit of time with the NextEra partnership to figure out how fast we can get our feet underneath us, how fast we can run, and how fast can bring this stuff to the table. So give us a little bit of time, and we'll keep this group informed as we go through the year and certainly a fulsome update in the third quarter. Brian Van Abel: Yes. And I think about it, you know, we have that 10 plus billion dollar pipeline slide. When you look at our current base capital plan in terms of we have very strong growth in investing for our customers in the front three years but then it's how do we fill in and strengthen that pipeline in year '29 and '30 and beyond. So that's a really good way to think about it deepening our pipeline of opportunities, and extending that pipeline of opportunities post-2030. Steven D’Ambrisi: Great. That's super helpful. And then just one one other one quickly. Just you had mentioned that maybe the Colorado near-term RFPs were going to get bifurcated or trenched out, I guess. And so you just talk about you know, I think it was the proposal was 2.1 gigs company-owned across a portfolio of 4.9 gigawatts. And so what does that look like in the you know, in the this tranching out looks like the timeline around some of these trench updates, I guess? Thanks. Brian Van Abel: Yeah. And the commission is working through the deliberation. So kind of what what at least as we understand is here today, they approved about one gigawatt of projects including our gas plant in the last set of And then they asked for some additional analysis over the next call, one or two months that we're working on expeditiously. And so they're gonna look at a new portfolio, which could potentially include up to one gigawatt of our company-owned solar plus storage in that next tranche. And then potentially a tranche three the timing is unclear, but likely in the first half. So we'll work with our stakeholders. Obviously, we brought forward this near-term procurement. With a number of our key stakeholders in the state to really drive projects, ensure they come online before the tax credits expire. We will continue to work with the stakeholders about the importance of that from a customer affordability perspective. But if anything doesn't get picked up in the near-term procurement, it just shifts to overall resource plan, the just transition plan that is in flight. It's really this is a subset of what we expect to execute in the resource plan, which will be follow-on RFPs later this year. Steven D’Ambrisi: Understood. Thanks very much for the time, guys. A great update. Appreciate it. Operator: Your next question comes from the line of Nicholas Campanella from Barclays. Your line is live. Nicholas Campanella: Can you guys hear me? Brian Van Abel: Hey, Nick. We can hear you. Nicholas Campanella: Hello? Bob Frenzel: Hey. Hey. How's everything? I'm really sorry. I just I jumped on late. From another call, but just wanted to to kinda clarify you know, the six the six gigawatts now is pressured higher. On on the 5% long-term low growth factor. Is is that correct? Apologies if I'm repeating. Brian Van Abel: Yeah. Nick, that's correct. And we really think about it. In terms of, you know, our like we said, we doubled our data center expectations here from three to six when you peel back from Q3. Obviously, I have clear conviction because what we put on our slides, expect to execute on. And so that does provide sales growth opportunity, and that what I would expect more in the twenty-nine to thirty timeline when you look at kind of the schedule and what it takes from an executing ESA to the energization. So the way we look at that is really later in this sales force forecast, but really prolonged into 2030 when you think about the ramp schedules on some of these very large data centers, you know, multiple-year ramp schedules, which just means a multi-year generation build-out for us. As we think about it. So deepening the opportunity in late in this five-year and extending our opportunity into the 2030s. Nicholas Campanella: Alright. That's great. That's great. I'm sorry if I made you repeat yourself. And then maybe just, like, when we kinda look at the earned returns just for 2025 actuals, they are pretty significantly, you know, under authorized. So can you just kinda talk a little bit about just the past you authorized and what's embedded in the plan I'm specifically kinda thinking about, you know, Colorado, as well as SPS. And where you kinda see your earned ROEs trending as you get to you know, on the other side of these rate cases. Thanks. Brian Van Abel: Yeah. Yeah. Thanks, Nick. I think, you know, SPS is clear. We had pretty challenging weather in the Q4 in SPS and a couple other unique items in '25. So I expect that to get back closer to where it's been the last few years. As we get rider recovery, and we have a New Mexico rate case in flight that we filed last year. Colorado specifically, yeah, significant under earnings. But I think maybe refresh from that perspective. We really wanted to get through the Marshall trial and get a constructive settlement with that respect. And we get if you didn't catch the opening remarks, we only have three known plaintiffs left. To settle out of 4,000 plaintiffs. So we feel really good about where we are with that. We filed the Colorado Electric and the Colorado Gas case here late last year. So from an ROE improvement perspective, you know, those cases play out, and we expect a decision in revenue late Q3 of this year. So some revenue in the door this year, but you see the full impact of those rate cases in 2027. So I expect significant ROE improvement from where we landed in 2025 in Colorado. In '27 as we think about those rate cases. Nicholas Campanella: And then the last one, if I could, and I appreciate all those answers, Brian. Just maybe clarify what's kind of embedded in the low end of this $10 billion plus incremental bucket. It just seems like there's potential for this to be well above that figure. So is there any way that you could kinda bookend that if we're thinking about, at minimum, what could kinda be coming into the next full-year update when you could quickly do your refresh? In the third quarter? Brian Van Abel: Maybe I'll walk through a couple of the markers that we're watching, Nick, to help you think about how we're gonna roll forward this year into Q3. We have if I think through the significant RFPs that we have outstanding, we talked about the Colorado near-term plan, which the commission's looking at approving in tranches. But we should have visibility on that as we work through the next several months. The 1,500 to 3,000 megawatts of nameplate capacity. We already received the bids. And we're working through the analysis of those bids and the independent monitor will make a filing in Q2. So we'll have visibility on that opportunity. Then the significant opportunity in Minnesota with 4,100 megawatts of renewables all in service by 2030 to really capture the tax benefits. For the benefit of our customer. And so those were that's likely a filing later this year. You'll have visibility, but certainly not regulatory approval on. But that's a really important filing as we think about accelerating projects for our benefits of our customers in the Midwest. So that's kind of the generation side on the current outstanding RFPs. We just this earlier this week received approval of a 765 kV transmission line in SPP. In SPS, $1.5 billion for a 765 line. So, clearly, we'll roll that into our plan. That COD by the 2030 all within our five-year plan. And then we think about all the data center upside we have as we look at bringing on potential data centers and the generation that come with that. So there's a reason why we put a plus next to that $10 billion. We feel really good about these opportunities. And we think about filling in our 2029-2030 investment pipeline. And then extending it into 2030 beyond that. So don't I don't think there's an upside and a high-end number to put that beyond. We feel really good about these opportunities and the partnership that we talked about with GE Vernova, the data center joint development agreement that we're working on with NextEra, just kinda strengthens that pipeline and also when we think about these data centers, it's really about driving benefit for our current customers too. Really important as we think about when we bring forward some of these data center opportunities. Nicholas Campanella: Thank you very much. Appreciate you taking these questions. Operator: Your next question comes from the line of Travis Miller from Morningstar. Your line is live. Travis Miller: Good morning, everyone. Thank you. Bob Frenzel: Morning, Travis. Travis Miller: Wonder if you could quickly go over what's the regulatory process for some of these ESAs that either you're signing now or that you're negotiating in the Upper Midwest, understand the Colorado situation. But what about in the Upper Midwest? Brian Van Abel: Yeah. So, you know, we announced an additional data center deal just on this call as Bob spoke about in his remarks. There'll be a regulatory filing in the Upper Midwest associated with that. And then commission approval associated with that. It's still confidential, so we won't we can't speak much about it. But we look forward to bringing those details. And there'll just be a regulatory approval. Really important in terms of showing overall benefit. And so think about that. If we have a large load tariff filing in place, we'll align with that large load tariff filing. And that should help from a regulatory approval process. So that's the best way to think about it. Get the large load tariff filings in place and then move forward with specific ESAs that align with that. Bob Frenzel: And, Travis, those tariffs are in process in Minnesota, Wisconsin, Colorado, Texas. I may miss the state in there, but our goal is to get large load tariffs and then sign contracts underneath those tariffs that resemble those. And that should be the sort of regular path for data center contracting. Travis Miller: Okay. Can those data centers come online before those large tariffs? Or not? It's just under the timing here? Brian Van Abel: Yes. We would align, and I think it's to understand. We have one data center that's already energized. We have three data centers that are energizing in 2026. And we can well, do we just make sure we align those ESAs with the large load tariff. So, yes, they can. It's just important. You know? And then we've been very clear only with our stakeholders, but with our investors about the importance of those principles. And how we manage both benefit for our current customers and manage risk to our customers and the company for these large loads. Travis Miller: Okay. Got it. Thanks. And then higher level, obviously, hearing a lot around the country, etcetera, about bring your own generation. What's that look like in your area? Are you seeing data centers bringing their own generation, making proposals, and then if you're seeing that or even if you're anticipating that, what does that mean for your system and reliability? How does that all work together? Bob Frenzel: Yeah. Hey, Travis. It's Bob. I think the bring your own gen is maybe a mnemonic construct that is sort of if you're we don't want you to take existing supply out of the stack. It doesn't necessarily mean that data centers are gonna show up with their own generation per se. We think that as you think as you look across the country and the sort of different regulatory frameworks that are out there, you know, we think data centers by and large and our conversations with them have affirmed this they don't really wanna own and operate their own generation. They'd rather have someone own and operate for them. In a deregulated market, that may mean working with a developer to build that generation, leave it through a regulated utility, and sell it to the customer, that seems a normal path for a deregulated market. For our markets, it would be we want to bring in incremental generation to our networks to support these new large loads. And in doing so, when you bring that generation, you price protect your existing customer base from any incremental costs that may come from that new generation. And then the shared benefit comes from this big fixed asset, we call it the grid, and spreading that across more units of production. And that's where all customers will benefit by bringing large loads in. And if you can protect them from the price side of new generation, which we think we have the capability of in all of our states, I think that's how I think about bring your own generation in the country. There will be some people developers that will build their own generation over time, but we think that's a pretty small, small set of data center developers and hyperscalers. Travis Miller: Okay. That makes sense. And then one real quick one. The Colorado, if you get that large load tariff in place, is that upside to the six gigawatts? I think you had mentioned that you could see more projects or more interest come in. Once you got that or that embedded in the six gigawatt? Brian Van Abel: You know, when we think we have not specified where those well, we have two gigawatts under contract. We have not specified those remaining four where they will come from. We have significant interest across all of our service territories and operating companies. I think we're most focused in the Upper Midwest in the near term. As we move forward, but interest across all operating companies. And I think, you know, we put that six gigawatts up there, but that's through 2027. You don't stop there. You continue to look at how can we drive overall data center development. Beyond that. So I would you know, we'll continue to provide updates on that, but it's just we haven't specified we haven't given anyone the specificity. We have a large pipeline across all of our territories. Travis Miller: Sure. Okay. Got it. Thanks so much. Operator: Your next question comes from the line of Paul Patterson from Glenrock Associates. Your line is live. Paul Patterson: Hey. Good morning. Bob Frenzel: Morning. Paul Patterson: Just wanted to just had one question left on these PSPSs, these power shutoffs and sort of some of the news that's come out about them from the fire districts and from these lawmakers. Just to you elaborate a little bit? I know you guys are working hard on this issue, and, obviously, it's a safety issue that you guys are focused on. Just any thoughts on this that we've been seeing a bit of stuff coming out of Colorado on this? Bob Frenzel: Hey, Paul. It's Bob. Look. Let me start with we are 100% committed to protecting the communities and our customers from the risk of volatile weather and wildfires. And we absolutely don't take lightly the need to potentially turn the power off in selected locations for short periods of time to protect them. We have spent an enormous amount of time, energy, effort, and investment in making our system harder, making our operational intelligence better, and minimizing the scope and the impact and the number of these items. And we expect that to continue as we go forward in time. We continue to operate under a wildfire mitigation plan in Colorado and a system reliability plan in Texas. Gonna help us continue to further segment our system, continue to build out the operational intelligence, and the ability to continue to minimize the impact of these occurrences. I will share with you, though, that the December outcome in Colorado was some, you know, high winds, and it pertained to a dangerous situation in Colorado. So we stand by our decision. We took the right action. And all we're trying to do is minimize the impact on our vulnerable customers when we have to do that. And so we're working on a battery pilot for our durable medical good customers. We are increasing our collaboration and partnership with our local partners, and we had enormous amounts of support from the broad community, the OEMs, the counties, everybody in the fire districts, we feel good. It's not our preferred choice of action, but we are absolutely gonna protect our customers, our communities. From the risk that we cause a catastrophic wildfire. Paul Patterson: Absolutely. No. I guess my question is sort of, like, I guess, I'm a little bit surprised by sort of some of this reaction. Is it a communication issue, do you think? I mean, I just in terms of I mean, obviously, you guys are not you're not taking this lightly. So I just you know, in terms of you you're doing it to protect people. You know? So I guess what I guess what I'm a little surprised by is sort of this pushback or at least the coverage of it. Do you follow what I'm saying of is this an issue of communication? Do you think that people don't really understand that I apologize. That's what my question is. Bob Frenzel: Our year-over-year performance between, you know, 2024, 2025 was a remarkable improvement in terms of our coordination, our early warning, and our performance and our restoration times. Certainly room for improvement. We work hard on communication. We work hard on outage maps. We're investing in technology to do that. It's all part of our road map. I think one of the challenging things for people just to understand is sometimes you may be in the circuit that gets turned off proactively. Sometimes because of the weather, you might be in a circuit that gets knocked down that we didn't proactively turn off. So some people are on, some people are off, they don't know why they're on, and they don't know why they're off. And so we're trying to work through sort of real information sharing with our customers, to make sure that we give them the best recovery times, the best reasons for why they may be out in a certain situation and, again, trying to minimize all of those as they happen. Paul Patterson: Okay. Great. Awesome. Thanks so much. Bob Frenzel: Thank you. Operator: There are no further questions. And with that, I'd like to turn the call over to CFO, Brian Van Abel, for closing remarks. Brian Van Abel: Thank you all for participating in our earnings call this morning. Please contact our Investor Relations team with any follow-up questions. Operator: That concludes today's meeting. You may disconnect.
Operator: Morning, everyone, and thank you for standing by. My name is Gil, and I will be your operator for today. At this time, I would like to welcome each and every one of you to the InterDigital's fourth quarter twenty twenty five earnings 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 would like to ask a question during this time, simply press star followed by the number one on a telephone keypad. If you would like to withdraw your question, kindly press star one again. I will now turn the call over to Raiford Garrabrant, Head of Investor Relations. Please go ahead. Raiford Garrabrant: Thank you, Gil, and good morning, everyone. Welcome to InterDigital's Fourth Quarter 2025 Earnings Conference Call. I am Raiford Garrabrant, Head of Investor Relations for [COMPANYNAME]. With me on today's call are Liren Chen, our President and CEO, and Rich Brezski, our CFO. Consistent with prior calls, we will offer some highlights about the quarter and the company, and then open the call up for questions. For additional details, you can access our earnings release and slide presentation that accompany this call on our Investor Relations website. Before we begin our remarks, I need to remind you that in this call, we will make forward-looking statements regarding our current beliefs, plans, and expectations, which are not guarantees of future performance and are made only as of the date hereof. Forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the Risk section of our 2025 annual report on Form 10-K and in our other SEC filings. In addition, today's presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the supplemental materials posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren Chen. Liren Chen: Thank you, Rayford. Good morning, everyone. Thanks for joining us today. At the beginning of 2025, we set aggressive goals to grow our company, including building on the momentum of our smartphone licensing program to drive revenue growth with a special focus on increasing annualized recurring revenue and margin expansion, building a strong licensing pipeline by advancing our video service licensing program, expanding our AI research capability, and growing our standard leadership and patent portfolio at a critical stage in the development of 6Gs and the next-generation video codecs. I'm pleased to say that we have exceeded our goals on all these fronts. We finished 2025 with a strong fourth quarter delivering revenue and EPS above the high end of our outlook, built strong momentum across our licensing programs, completed a key acquisition to strengthen our AI research, and added new inventions to our patent portfolio, reaching a new record-breaking high. This rounded off an excellent year where revenue for the full year was $834 million, the second-highest in our history. We increased our annualized recurring revenue to $582 million, up 24% year over year. Adjusted EBITDA was $589 million, and our non-GAAP EPS was more than $15, both at all-time highs. Today, I will focus on progress throughout the year and why we believe we are well-positioned to drive shareholder value in 2026. Rich will then talk you through our fourth-quarter financial performance, and our 2026 outlook in more detail. In our smartphone program, we had a record-setting year in 2025. We completed the Samsung smartphone licensing contract, extending one of our longest customer relationships all the way to 2030. We signed new deals with two more top 10 global smartphone vendors, Vivo and Honor. With these additions, we have now licensed eight of the top 10 largest smartphone manufacturers, covering about 85% of the overall market. Our new agreement with Samsung is the most valuable license in our history, continuing our win-win relationship that stretches back to the 1990s. In 2025, we also renewed agreements with Sharp and SAICL. For the year, our smartphone revenue was just below $680 million, up 14% year over year to an all-time high. This strong momentum has continued into 2026 as we renewed our license with Xiaomi at the beginning of the year. We now have the three largest smartphone vendors, Apple, Samsung, and Xiaomi, licensed through the end of the decade, providing a strong foundation for the company to build on future organic growth. In our CE and IoT program, we continue to make good progress. In 2025, we signed a new agreement with HP, the world's largest PC manufacturer. We now have licensed about half of the global PC market. In the fourth quarter, we signed a CE device license agreement with a significant social media company covering our video coding and Wi-Fi patents. At the start of 2026, we completed a new license with LG Electronics, covering the company's digital TV and computer display monitors. LG is one of the top global TV manufacturers with strong sales in the premium part of the market. We are thrilled to add it to our CE licensing program. Including the latest deals, we have now signed over 50 license agreements with a total contract value of more than $4.6 billion since 2021. We also continue to make good progress in our video service program and our focus on licensing some of the world's largest streaming platforms. We believe that this space continues to represent an excellent growth opportunity for us. Initially, our focus is on streaming services, but we also see opportunities in other video-driven platforms where our innovation in areas like video compression is central to the efficient processing and delivery of video content and to the consumer experience overall. At the beginning of 2025, we launched our enforcement campaign against Disney+, Hulu, and ESPN+ streaming services. We received two preliminary injunctions in Brazil and two injunctions in Germany against Disney, and in the fourth quarter, we launched our enforcement proceedings against Amazon. These are important steps toward our goal of signing long-term agreements with both companies. As I've said many times before, we always prefer getting license deals done through bilateral negotiations, but we will rigorously pursue fair value for years of investment in our research and deepen the value of our intellectual property, which allows us to continue to invest in the next generation of technology. And when we enforce our patent rights, we have a strong track record of ultimately signing a license that's fair to both parties. The central role we play in the connected world is only possible because we have built and continue to expand our research pipeline, which provides us with a strong foundation of assets to license today and which ensures that we have a platform that drives growth across licensing programs through 2030 and beyond. In 2025, we placed particular emphasis on deepening our AI expertise and strengthening our leadership in developing AI-based solutions for the next generation of standardized technologies. Through our standard contributions and our technology leadership, we drive much deeper use of AI to make networks more efficient and reliable, to make video of better quality and more energy-efficient, and by leading the development of advanced wireless networks to better support the rapid growth use of AI across devices and services. Our recent acquisition of AI startup DeepRender, which we completed in Q4, is a perfect example of how we strengthened our engineering team to lead research in AI and video compression in the years to come. In our wireless research, we are already actively contributing to the 6G standard development, which is due to be the first native AI wireless standard. AI impacting wireless and video growth means that the leadership position we hold in multiple standard groups becomes even more important. In 2025, one of our senior engineers was reelected chair of a key working group within 3GPP, the standard organization which is leading the development of 6G. We also hold multiple leadership positions in AI working groups in several other standard organizations. The strength of our research and our expertise in building a world-class patent portfolio to protect our innovations are key drivers behind our business success. In 2025, our portfolio grew by 14% year over year and surpassed 38,000 granted patents and applications. Our portfolio is one of the largest across wireless, video, and AI, and more importantly, is also ranked as one of the highest quality in the world according to several independent third-party reports. Through 2025, our success was recognized by multiple third parties, including by Newsweek, which named us one of our market's greatest companies, by Fortune, which included us among America's fastest-growing companies, and by Time, which recognized us as one of America's growth leaders. More recently, another sign of our momentum at the start of 2026, Forbes recognized us as the number one most successful mid-cap company in America for 2026. In this analysis, Forbes looked at long-term performance and this award reflects our success in building a foundation for the future and delivering even greater shareholder value going forward. Before I hand it over to Rich, I want to let you know that next month we'll be back at Mobile World Congress in Barcelona, where we'll be demonstrating some of our cutting-edge technology, including how 6G will reshape connectivity, our innovative application of AI, and how we are leading the development of more immersive video. We'll also present a demo alongside gaming technology pioneer, Razer, continuing our track record of showcasing cutting-edge innovation alongside industry partners. Please get in touch if you'd like to meet at the show. And with that, I'll pass you over to Rich. Rich Brezski: Thanks, Liren. Q4 was a strong finish to an excellent year as we delivered revenue, adjusted EBITDA, and non-GAAP EPS in Q4 that all exceeded the high end of our outlook. The upside was driven primarily by the new CE device license agreement with a significant social media company that Liren mentioned earlier. Total revenue of $158 million exceeded the high end of our outlook of $144 million to $148 million and included $13 million of catch-up revenue. ARR increased 24% year over year in Q4 to $582 million. Our adjusted EBITDA for the quarter of $88 million exceeded the high end of our outlook of $68 million to $76 million, resulting in an adjusted EBITDA margin of 56%. GAAP EPS for the quarter of $1.20 exceeded the high end of our outlook of $0.72 to $0.95. Non-GAAP EPS of $2.12 for the quarter exceeded the high end of our outlook of $1.38 to $1.63. Cash generation for the quarter was robust, with cash from operations of $63 million and free cash flow of $48 million. Building on Liren's comments, I'll highlight a few key metrics from our full-year 2025 results and provide additional perspective on how each item has improved over the last four years. First, total revenue for full-year 2025 was a near-record at $834 million, roughly two times the 2021 levels of $425 million. Next, adjusted EBITDA for full-year 2025 reached a record high of $589 million, almost three times the 2021 level of $208 million. Finally, for full-year 2025, we delivered record non-GAAP EPS of $15.31 per share, more than four times the $3.73 per share we reported in 2021. The dramatic gains in these metrics reflect both strong execution and the operating leverage in our business model. Over the past four years, roughly two times revenue growth has delivered nearly three times growth in adjusted EBITDA and more than four times growth in non-GAAP EPS. All of this was driven by our recurring long-term investment in research. Turning to our outlook, we have guided to another very strong year in 2026, with expectations for total revenue in the range of $675 million to $775 million, adjusted EBITDA of $381 million to $477 million, and non-GAAP diluted earnings per share of $8.74 to $11.84. For Q1, we expect revenue will be $194 million to $200 million from existing contracts, including catch-up sales of $55 million to $60 million. Based only on existing contracts, we expect an adjusted EBITDA margin of 52% to 55% and non-GAAP diluted earnings per share of $2.39 to $2.68. Entering 2026, we saw a step-down in ARR from year-end expirations, but we have already renewed about two-thirds of the $92 million that expired at the end of 2025, and we expect additional renewals and new agreements will drive further increases in ARR, keeping us on pace to reach $1 billion by 2030. Before I turn it back to Raiford, I want to reiterate that our quarterly guidance for Q1 2026 does not include the impact of any new agreements or arbitration results we may sign or receive over the balance of the first quarter. This is because it is harder to predict the timing of new agreements in short windows. In contrast, our full-year guidance includes potential contributions from both new agreements and arbitration results. As was the case last year, we believe we can achieve financial results within our full-year guided range through different combinations of new agreements and arbitration results. With that, I'll turn it back to Raiford. Raiford Garrabrant: Thanks, Rich. Before we move to Q and A, I'd like to mention that we'll be attending a number of investor events in Q1, including the ROTH Conference in Dana Point, California, and the Sidoti Conference, which is virtual. Please reach out to your representatives at those firms if you would like to schedule a meeting. Now we are ready to take questions. Operator: At this time, I would like to remind everyone that in order to ask a question, you may press star then the number one on your telephone keypad. Also, we kindly ask to please limit your questions to one and one follow-up only so that everyone can have the chance to engage with our speakers today. Your first question comes from the line of Scott Searle with Roth Capital. Your line is open. Scott Searle: Hey, good morning. Thanks for taking the questions. Congrats on a nice quarter and outlook. Rich, maybe just to dive in quickly on the guidance. I think I heard the number in terms of the $194 million to $200 million in the first quarter that's got $55 million to $60 million of catch-up. So it kind of implies that recurring has gone down, or at least the immediate outlook of contracts in hand is down sequentially from the December. Now I know that there are expirations that go along with it, but I'm wondering if you could provide a little bit of color if that's the right ballpark in terms of where we're starting with recurring fees, and the outlook and expectation of resigning some of those contracts that I believe Xiaomi was one of them, but Samsung TV, etcetera. How should we be thinking about that over the course of the next couple of quarters? Rich Brezski: Yes, Scott. That's right. So as we disclosed, you know, coming a year ago that we had roughly $90 million of expirations at the end of '25 and we updated that disclosure in the current K. But as noted, we did renew Xiaomi, so about two-thirds of that was covered. And then we also had the LG agreement, which is contributing recurring revenue as well. So net net, you know, we haven't recovered all of it yet. We're still working on other renewals. And certainly, we look to get new agreements to drive further increases in ARR over the course of the year. Scott Searle: Got you. Very helpful. And then I'll jump in on the litigation front. Wondering, Liren, if you could provide a little bit of color just in terms of potential timelines as it relates to Disney. You've had some positive outcomes in terms of Brazil and Germany. But is there an expected timeline of when you start to get some more, I guess, court feedback on that front? Similarly, the updated timeline with Amazon and, Rich, on the litigation cost front, I know it was elevated this past quarter. I think the number was about $19 million, which is the highest in recent memory. But given the events and the litigation that's ongoing, how should we think about that going forward into the first, second quarter, and course of 2026? Thanks. Liren Chen: Hey, Scott. Good morning. This is Liren. So on the litigation side, we could not be happier with where we are with the Disney case. As I said in my prepared remarks, we filed the litigations in '25 and already got really positive results from Brazil and Germany. Of the four patents being decided, we essentially won all of them in regard to the infringement. And we've already got preliminary injunctions in two different countries. But that's not all. We have more than a dozen patents asserted, and therefore we still have a majority of the cases coming to trial in even bigger jurisdictions like the United States, as well as UPC, and those are starting in the summertime and also in the second half of this year. We have disclosed each of these cases in our 10-K filings. So we are confident about our case and we await the outcome of those decisions. Regarding our Amazon case, as I said in my prepared remarks, the assertion was frankly starting in Q4. As you might recall, Amazon was actually litigated in Salesforce, and so the case was filed on our side in Q4. So it's trailing a little bit behind in terms of timing. But we are asserting multiple cases in four-plus jurisdictions plus ITC, and Amazon also has devices that we are also asserting against. So it will take time to go through each one of them. Again, there's more disclosure in our 10-K file. Rich Brezski: Yeah. And, Scott, on litigation cost, well, the first thing I'd say is you can infer from our guidance that we have some uptick in expenses going into Q1. Without being too granular, let me give you broad strokes there. We have revenue share on the new Madison Agreement we signed, which is roughly almost half of the catch-up sales for Q1. And then, even accounting for that, expenses are still up a little bit, and that's mostly driven by an expectation for increased litigation expense. We do expect it to be higher in Q1 and broadly for 2026. That's all factored into the 2026 full-year guide as well. And then, beyond that, we continue to invest in our research and portfolio, so we have some a little increase there as well. Scott Searle: Great. Thanks so much. Very helpful. I'll get back in the queue. Operator: Your next question comes from the line of Kevin Durden with Jefferies. Please go ahead. Kevin Durden: Yeah. Hey. Good morning, guys. Congrats on the strong results and all the progress. Wondering if you can talk a little bit more about the consumer electronics device agreement with the social media company. Do you guys see that being a high-volume agreement? Liren Chen: Yeah. Hey, Kevin. Good morning. This is Liren. Of that particular agreement, it's a device agreement, and it's licensed our video access and Wi-Fi. So it's actually not a huge volume agreement, neither do they apply to the service side. So that's as far as I can say on that agreement. Kevin Durden: Okay. Got it. That makes sense. And then just looking at a litigation question, I know you guys had a strong start to 2025, with positives on Disney, and you are working on Amazon. I mean, what do you guys kind of see as the biggest threats on the litigation front? Is it really just kind of the budgets that Disney and Amazon have? Liren Chen: Can you clarify by "threat" do you mean threats to us? Kevin Durden: I guess just the threat of them potentially not signing or the court cases not going your way. Liren Chen: Gotcha. Yeah. Hey, Kevin. As I mentioned earlier, we are being very careful in terms of our litigation strategy. We always prefer negotiations for deal-making. However, on both cases here, after, frankly, lengthy negotiations, we decided it was the right thing to do to enforce our patent rights. But you can also probably tell in our disclosures here, it's a multi-jurisdictional enforcement campaign. In either case, we are asserting more than a dozen different patents even though there's potential risk for each patent litigation. I mean, any litigation carries its own inherent risk. But our patents are really high quality, and some of the patents have already been battle-tested in regard to durability and other issues. So we are doing really, really well. Therefore, our whole litigation campaign does not really depend on winning every single patent assertion, but we feel very strong about the value of our portfolio, and we feel that the right thing for us to do is to get, you know, what is fair so we can keep on funding R&D. So that's our global enforcement campaign, broadly speaking. And you should know that in most of those cases, when we assert them, we ask both for past damages for the infringement as well as injunctions if we win. Kevin Durden: Okay. Perfect. I appreciate the color. Thank you. Operator: Your next question comes from the line of Alinda Lee with William Blair. Your line is open. Thank you. Alinda Lee: With the focus on R&D, how should we think about M&A as part of the effort to expand and deepen the patent portfolio here? Liren Chen: Yeah. Hey, good morning, Alinda. This is Liren. Yes, so we take a pretty broad approach in our R&D investment. As I said in prior calls, we believe strongly we have one of the most advanced R&D engines in the industry. We have some of the best innovators led by our CTO Rajesh Pankaj, who is widely recognized as one of the most brilliant minds in our industry. But having said that, though, we are also having the luxury of having resources, having the industry reputation that we engage leading companies like DeepRender, which allows us to fill certain gaps in our research, and frankly, allows us to accelerate some areas where we are quite strong already. So we are pretty open-minded, and we have a fairly broad funnel. We are considering them, you know, as they come. Alinda Lee: Yep. That makes sense. And then, from a litigation perspective for streaming services, is there anything that's fundamentally different from a litigation perspective as compared to the litigations with smartphones and also the CE and IoT? Liren Chen: Yeah. Hey. That's a great question. So as I said earlier, we always prefer bilateral negotiations. And I'll say one of the differences in the smartphone industry is that we have been licensing for multiple decades, and we have some of the longest relationships, as I said earlier, including the Samsung relationship, which goes all the way to the 1990s. On the streaming platform side, this is a relatively new industry for us, even though our fundamental technology has been used by those vendors for many, many years now. But it does take a bit of extra time for us to demonstrate the strength of our portfolio, to convince them that this would be a fair price. So I'd say we are in the early stage of this industry, so therefore, that's where I see that customer engagement takes a bit of extra time. Alinda Lee: Got it. That makes sense. Thank you so much. Operator: Thank you, everyone. And that concludes our Q&A session for today. I will now turn the call over back to Liren Chen, InterDigital's CEO, for the closing remarks. Please go ahead. Liren Chen: Thank you, Gil. Before we close, I'd like to thank all our employees for their dedication and contributions to [COMPANYNAME], as well as our many partners and licensees for a very strong quarter and a record-breaking 2025. Thank you to everyone who joined today's call. And we look forward to updating you on our progress next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Have a nice day ahead, everyone, and keep safe always. Thank you.