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Operator: Greetings and welcome to the Regional Management Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press 0. It's now my pleasure to turn the call over to Garrett Edson with ICR. Garrett, please go ahead. Garrett Edson: Thank you, and good afternoon. By now, everyone should have access to our earnings announcement and supplemental presentation which were released prior to this call and may be found on our website at regionalmanagement.com. Before we begin our formal remarks, I will direct you to page two of our supplemental presentation which contains important disclosures concerning forward-looking statements and the use of non-GAAP financial measures. Part of our discussion today may include forward-looking statements, which are based on management's current expectations, estimates, and projections about the company's future financial performance and business prospects. These forward-looking statements speak only as of today and are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict and that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance and therefore you should not place undue reliance upon them. We refer all of you to our press release, presentation, and recent filings with the SEC for a more detailed discussion of our forward-looking statements and the risks and uncertainties that could impact our future operating results and financial condition. Also, discussion today may include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measures can be found within our earnings announcement or earnings presentation and posted on our website at regionalmanagement.com. I would now like to introduce Latvir Lambda, president and CEO of Regional Management Corp. Latvir Lambda: Thanks, Garrett, and good afternoon, everyone. I'm pleased to be joining you today on my first earnings call as president and CEO of Regional Management. Over the past few months, I've had the opportunity to spend time in the business, meet many members of the regional team, and deepen my understanding of what makes this company special. I've also had significant time that I've spent reviewing the economics of the business across various customer product, risk, and market segments with an eye towards opportunities to grow net income and increase risk-adjusted returns. I'm excited about the opportunity ahead and honored to lead an organization with a strong culture, a disciplined operating model, and a long track record of responsible growth. Before turning to our results, I want to thank Rob for his leadership in building the strong platform we have today. I've appreciated working closely with him during this transition. Regional enters 2026 from a position of strength, and my focus is on building on that momentum. Joining me on the call today is Harp Rana, our chief financial and administrative officer. I'll begin with a summary of our fourth quarter and full-year results, provide an update on our strategic priorities and outlook, and then Harp will walk through the financial details. We delivered strong financial and operating results in the fourth quarter and finished 2025 with excellent momentum. In the fourth quarter, we generated net income of $12.9 million or $1.30 of diluted earnings per share, representing an increase of 33% year over year. This result exceeded our guidance despite incurring a larger provision for credit losses driven by stronger than expected portfolio growth. Quarterly revenue reached record levels reflecting continued growth in net receivables and consistent execution across the organization. For the full year, we generated net income of $44.4 million, an increase of 8% compared to 2024, landing towards the upper end of the guidance range we previously provided. Ending net receivables grew by $248 million or 13% year over year in line with the growth guidance of at least 10% that we provided at the outset of 2025. We closed the year with a loan portfolio of $2.1 billion. Portfolio growth remained a key driver of our performance. In the fourth quarter, net receivables increased by $87 million supported by strong origination activity across channels and healthy customer demand. Total fourth quarter originations were $537 million, up meaningfully from the prior year period. We continue to see encouraging trends in our underlying credit performance. A 30-plus delinquency rate improved 20 basis points year over year in the fourth quarter, supported by our credit tightening actions, improved analytics, and credit decisioning, and strong performance in most segments of newer vintages. This trend supports continued improved credit performance throughout the year. On an adjusted basis, our fourth quarter 2025 annualized net credit loss rate improved by 30 basis points year over year, and our full-year 2025 net credit loss rate improved by 70 basis points compared to the prior year. These improvements reflect disciplined underwriting, enhanced credit risk management, and the benefits of investments we've been making in data analytics and portfolio monitoring. During the first quarter, we expect to observe typical seasonality in net credit losses reflective of our later stage delinquency level which ordinarily drive a sequential net credit loss rate increase of roughly 150 basis points. Where we land in the first quarter will be sensitive to the denominator impact of payment and credit behavior driven by expected elevated tax refunds. Looking ahead, we'll continue to improve our net credit loss rate with a portfolio NPL rate tolerance level under 10% over the long term. Assuming a stable macroeconomic environment, we would expect to make continuous progress towards this 10% level throughout 2026. Expense discipline remained a key priority throughout the quarter and the year. Our annualized operating expense ratio was 12.4% in the fourth quarter, an all-time best and an improvement of 160 basis points compared to the prior year period. This reflected benefits of scale and continued focus on operating efficiency. For the full year, our operating expense ratio was 13.1%, an improvement of 70 basis points year over year, even as we continued to invest in the business. Capital generation remained strong throughout 2025. For the full year, we generated $74 million of capital and returned $36 million to shareholders through dividends and share repurchases. Our balance sheet remains healthy, flexible, and well-positioned to support continued growth and capital returns. Overall, we are very pleased with how the year finished and with the consistency of execution throughout the company. As I step into this role, my immediate focus has been on listening, learning, and building on regional trends. That said, there are several areas I see meaningful opportunity to grow shareholder value. First, portfolio growth remains a core priority, and within that, our auto secured portfolio stands out as a particularly attractive opportunity. In 2025, our auto secured portfolio grew by 42% year over year and continues to represent a larger portion of our overall portfolio. Credit performance and returns in this segment remain extremely compelling, and we will continue to invest in this asset class in a disciplined and analytically rigorous manner. Second, we continue to expand our physical footprint in attractive markets. In the fourth quarter, we opened five new branches in California and Louisiana. Looking ahead, we expect to open additional branches throughout 2026, with the potential for new state expansion as well. We will approach this expansion thoughtfully with a focus on execution, local talent, fraud and credit risk, and returns. Third, I see significant opportunities in continuing to invest in our people, technology, data analytics, and credit risk management. Regional success has been built on strong operators, a disciplined credit culture, and continuous improvement. My initial assessment of our digital capability, origination, and servicing customer journey indicates numerous opportunities to improve both the customer and team member experience. We believe investment in digital and AI will help us grow originations and lower our cost to originate and service our loan book. Importantly, even as we make these investments, we will continue lowering our operating expense ratio over time, supported by scale and productivity improvements. In parallel, we remain focused on improving branch state-level profitability. As the portfolio and footprint grow, disciplined evaluation of performance in every segment remains critical to delivering sustainable profitable growth and maximizing risk-adjusted return on capital. As we look at our business across various markets and digital affiliate channels, we are paying particular attention to first payment default trends, sales productivity, operating expenses, and risk-adjusted yields. We believe we have opportunities to optimize the yield and operating expenses in certain markets. I also want to touch briefly on an initiative that we've been working on over the past several quarters: developing a bank partnership capability. While still in development, we believe a bank partnership model could provide meaningful strategic benefits over time, including faster entry into new markets, greater product and operational uniformity across states, the ability to broaden our product set, and optimize risk-adjusted yields. We view this as another potential tool to support responsible growth and enhance our long-term strategic flexibility. We'll share more as this partnership and capability continue to take shape. Looking ahead, we remain focused on disciplined execution as we enter 2026. For the full year of 2026, we expect another year of ending net receivables growth of at least 10% and net income growth in the 20% to 25% range. For 2026, we expect net income to reflect our portfolio growth levels, normal first-quarter credit seasonality, and continued investment in the business. The projected year-over-year increase in tax refunds due to the One Big Beautiful Bill Act will likely reduce balances through debt paydowns and improve collections and delinquencies in the first quarter. Over the longer term, our objective is clear: to deliver sustainable profitable growth while generating attractive returns for shareholders. We will improve our return on equity through responsible portfolio growth, improving credit performance, operating leverage, and disciplined capital management. Regional enters the next phase of its growth with a strong foundation, a talented team, and a clear strategic focus. I'm excited about what lies ahead and confident in our ability to continue creating long-term value for our clients, our communities, and our shareholders. With that, I'll turn the call over to Harp, who will provide more detail on our financial results. Harpreet Rana: Thank you, Lockbir, and hello, everyone. I'll now take you through our fourth-quarter results in more detail. On Page five of the supplemental presentation, we provide our fourth-quarter financial highlights, demonstrating another quarter of significant improvements across key financial metrics. Our net income of $12.9 million and diluted EPS of $1.30 were once again supported by solid portfolio and revenue growth, a healthy credit profile, expense discipline, and a strong balance sheet. For 2026, consistent with seasonal trends and our 2025 quarterly results, our net income will be meaningfully higher in the second half of the year than the first half of the year, driven by stronger credit performance, balance sheet growth, and continued improvement in operating leverage. Turning to pages six and seven, we had a record total originations of $537 million in the fourth quarter, up 13% year over year. Loan volume was driven by continued strong performance from digital leads, our auto secured product, and the 17 de novo branches we've opened over the past twelve months. For the full year, we generated $2 billion in originations, a 19% increase from 2024. Our total portfolio finished at a record $2.1 billion at year-end, while our ending net receivables for branch reached $6.1 million on average. We continue to believe that key economic markers remain strong and that our customers tend to be resilient and adaptable. These conditions, along with the increase in our addressable market through geographic expansion, have allowed us to grow our portfolio while maintaining a tight credit box. Looking ahead, as a reminder, the first quarter is always our softest origination quarter because of the normal seasonal impact of tax refunds. Demand may be particularly soft this year due to the expected larger tax refunds for our customers. As a result, we anticipate that our ending net receivables will contract sequentially in the first quarter and perhaps more than our typical seasonal trend due to the OBBA impact. However, we expect consumer loan demand to remain strong for the balance of the year following tax season. Turning to page eight, total revenue grew to a record $170 million in the fourth quarter, up 10% year over year. Total revenue yield and interest and fee yield declined sixty and forty basis points sequentially to 32.5% and 29.3% respectively, due to seasonality and product mix. In the first quarter, we expect total revenue yield to decrease sequentially due to normal seasonal trends of interest accrual reversal associated with NCL and the runoff of smaller, higher-yielding loans during tax season. Moving to page nine, our portfolio continues to perform well. Our thirty-plus day delinquency rate as of quarter-end was 7.5%, a 20 basis point improvement year over year. Our fourth-quarter annualized net credit loss rate improved by 30 basis points year over year after adjusting for the prior year's 50 basis point impact from disaster deferrals. For the full year, our NCL rate improved by 70 basis points compared to 2024 after adjusting for the impact of the 2024 disaster deferrals and the fourth-quarter 2023 loan sale, which materially benefited first-quarter 2024 net credit losses. In the first quarter, we expect our delinquency rate to improve consistent with seasonal patterns associated with tax refund benefits. We anticipate that our net credit losses will increase sequentially, again, due to normal seasonality for NCLs. Turning to page 10, we increased our allowance for credit losses in the quarter by $8.9 million to support portfolio growth. Consistent with our outlook, our allowance for credit losses rate remained steady at 10.3%, an improvement of 20 basis points from the prior year period. Flipping to page 11, we continue to closely manage our spending while still investing in our growth capabilities and strategic initiatives. Our annualized operating expense ratio was 12.4% in the fourth quarter, another all-time best and an improvement of 160 basis points from the prior year period, as we modestly reduced expenses year over year. Turning to pages twelve and thirteen, our interest expense for the fourth quarter was $22.6 million or 4.3% of average net receivables on an annualized basis. We remain pleased with the way that we've managed our interest expense over the past few years. Moving forward, we continue to maintain a strong balance sheet with ample liquidity and borrowing capacity, diversified and staggered funding sources, and a sensible interest rate management strategy. Aside from investing in our growth and strategic initiatives, we continue to allocate excess capital to our dividend and share repurchase program. Our board of directors declared a dividend of 30¢ per common share for the first quarter, and pursuant to our buyback program, we repurchased approximately 197,000 shares of our common stock in the fourth quarter at a weighted average price of $38.07 per share. For the full year, we repurchased approximately 702,000 shares at a weighted average price of $34.12 per share. That concludes my remarks. I'll now turn the call back over to Lockbir. Latvir Lambda: Thanks, Harp. To close, we are very pleased with how we finished 2025 and encouraged by the momentum we are carrying into 2026. We delivered strong results while continuing to invest in the business, improve underlying credit performance, and drive operating leverage. Importantly, we did this in a disciplined way that positions us well for sustainable, profitable growth. As we look ahead, our priorities are clear: continue growing the portfolio responsibly, improving credit outcomes, expanding into attractive new markets, and investing in our people, technology, and analytics to enhance risk-adjusted returns. We believe the opportunities in front of us across products, markets, and operating efficiency are compelling, and we are focused on executing against them thoughtfully. Regional has a strong foundation, a resilient customer base, and a talented team, and I'm confident in our ability to continue creating long-term value for our shareholders. With that, we'll open the call for questions. Operator, could you please open the line? Operator: Certainly. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press 1 on your telephone keypad. We ask you please ask one question and one follow-up, then return to the queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is coming from Vincent Caintic from BTIG. Your line is now live. Vincent Caintic: Hey, good afternoon. Thanks for taking my questions and Lockbir, we are looking forward to working with you. Welcome on board. Latvir Lambda: Thank you. Vincent Caintic: First question, as you were very comprehensive already in your kind of strategic vision, the things you're focused on, so I really appreciate that. One of the comments you were discussing is bank partnerships, and I was wondering if you could go into more detail about what sort of things we can anticipate Regional Management getting enhanced by with the bank, and then have you thought about becoming a bank yourselves? It seems like some nonbanks are now kind of thinking about becoming banks given that it might be an easier path with the new administration. So just wanted your thoughts on that as well. Thank you. Latvir Lambda: Thanks, Vincent. You know, as I shared in my remarks, we've been working on a bank partnership for several quarters. I'm highly focused with the team on getting that initiative executed. We believe it'll improve our speed to market, expand our digital reach, and help us with product uniformity across the footprint. I think, as mentioned, one of the key things is it'll help us fill holes we have in meeting our client needs in certain states, just because of the way the regulations work. Plus, it'll help us optimize yields, just make sure we get paid for the risk we take in all various segments of our business. At this point, we don't have a detailed timeline, viewpoint, or any specific state rollouts at this stage, but we'll be sharing that as soon as we're comfortable doing so. To your second question, again, it's too early in the seat for me to come in and change the overall strategy or question the strategy. But to your point, we do see a number of nonbanks buying banking institutions. I think long term, it does obviously help with cost of funds flexibility and strategic options, if you will. In the near term, though, I think our focus is getting this initiative done that the team has been working on for a number of quarters. But we'll continue to evaluate the landscape to your point, as it evolves. Vincent Caintic: Okay. Thank you. Appreciate that. And then, Harp, so thank you for all the different guidance items for 2026. I was just curious, I think in the past, you've had some other guidance items. So I was just curious if you're willing to give guidance on like credit reserves, and maybe I think you were talking about expenses being a bit higher and then how should we think about yields and interest expense? Thank you. Harpreet Rana: Yes. So Vincent, traditionally and historically, we have provided detailed short-term P&L guidance, but, you know, we believe that our forecasting framework and how we run the business, and short-term precision isn't always the most effective or reliable way to communicate our outlook. Quarterly results can swing meaningfully due to timing-related factors that don't always reflect the true underlying momentum of the business. So we're shifting to a full-year view. We're going to keep focus where it belongs on the fundamental drivers of long-term value creation. Nothing about our transparency is going to change. We're always going to continue to provide you guys with color on these calls. How I would think about the first quarter and the other quarters is I would take a look at our business as very seasonal. So we've talked a little bit about that, you know, yield will be lower in the first quarter as the higher rate small loans pay down due to the impact of tax season. That could be a little bit higher this year as folks are expecting higher tax refunds. We know our delinquencies typically are always lowest in the first half, and then they increase. And as a result, our net credit losses are always highest in the first half of the year, and then they are lower in the rest of the year. In terms of ENR growth, we've talked about, right, the impact of tax season. When you're looking at last year, you'll want to normalize for the de novo growth that we had in the first quarter, which muted some of that runoff that we normally see, just because those de novos came on in 2024. So you'll want to adjust for that. And then the other thing that I would tell you is, you know, just adjust for the hurricane noise that we've had in the past year and then also for the loan sale benefit that we had in the first quarter of 2024. So if you make those adjustments, then you go back to the cyclicality of the business, that should get you there with your model. Along with the, you know, guidance that we did provide around the at least 10% ENR growth and our net income guidance for the year at that range. You also mentioned expenses. So expenses, you will see our OpEx come down over time as we gain scale, but there is seasonality, of course, in our expenses, particularly year over year, just as, you know, the full-year impact of some of the investments that we made last year sort of comes fully online in the first quarter. So that's how I would think about the model, but we're happy to delve deeper with you guys on, you know, the analyst calls later. Vincent Caintic: Okay. Great. Very helpful. Thank you. Operator: Thank you. Next question is coming from David Scharf from Citizens Capital Markets. Your line is now live. Zach Oster: Hi, good afternoon. This is Zach Oster on for David. Thank you for taking our question and congrats on the strong operational quarter. I wanted to dig in a little bit on the same-store results. So, obviously, good acceleration throughout the year in terms of same-store receivable growth. And, you know, speaking towards the guide for kind of expansion going into the new year, wanted to get some more detail or color on how much room there is basically to keep growing those balances on the same-store basis versus, you know, just kind of expanding the store cap? Thank you. Harpreet Rana: Paul, can you just repeat that last part of the question for me again, please? Zach Oster: Hey, no worries. Yeah, I just wanted to get some more color on where the growth trajectory is and kind of what pace we could be seeing for growth on a per-store basis for receivables versus, you know, just more of organic store expansion growth? Harpreet Rana: So I think we've talked a lot about, you know, sort of our market expansion, our geographic expansion, Paul, in terms of, right, that still is a lever for us. I think if you look at the supplemental presentation, you will see that we've become more efficient in terms of the loan balances that we have per branch. So we are becoming more efficient with those branches. So I would really marry those two things together as you're sort of thinking about the impact that that is going to have on our overall ENR balances. And then, you know, we provided you, obviously, with the ENR growth forecast for this year. And I would just, again, look at that in terms of seasonality, in terms of when we put that on as we know, right, in the first quarter, you have the tax refund. We go back to growing those balances in, you know, the second, third, and fourth quarters. And we would expect without any exogenous variables that that would be the same pattern that we would follow this year. Zach Oster: Got it. And then if maybe we can just get one follow-up, I wanted to get a little bit more detail also on, you know, the graduation program. I think that small balance loans came in a little bit lower than we were expecting while larger loans came in higher. So I wanted to see if we can get more color on, you know, how that's progressing and if there was kind of more of a funnel over to the larger loans and graduation during the quarter than expected? Harpreet Rana: Yeah. So, Kyle, how I would think about that is very much we meet the demand where the demand is as long as it fits within our credit box. So that is very much what we've been doing. Our auto product is more of a newer product for us. So you are seeing that grow in terms of its growing, you know, quite rapidly just because you're coming off of that smaller base. And then, of course, it has the larger ticket size. But we remain committed to our balanced approach to growth. We will continue to bring in smaller, higher-yielding loans that fit our credit box and our return hurdles. We will continue to graduate them up to larger small loans and also larger large loans, but the other end of that continuum being, you know, the auto secured test. You know, Lockbir talked a little bit about the auto secured business in his prepared remarks. We think that is a very stable portfolio. But we also understand what small loans bring to our balanced approach. And so we will continue with that graduation strategy. You will see, you know, sometimes some oscillation in that, but that is really because of where the demand is and our credit box at that time. We'll always continue to put on good loans that meet our return hurdles. Zach Oster: Got it. Thank you. Operator: Next question is coming from Kyle Joseph from Stephens. Your line is now live. Kyle Joseph: Hey, good afternoon. Thanks for taking my questions. Just wanted to step back and get your perspective on macro. Appreciate what you guys said in terms of tax refunds, and we understand the seasonality there. But, you know, from a high level, obviously, there's some uncertainty out there. But, you know, we've seen a call it, almost two years now or more of kind of a good mix of strong loan demand, balanced with stable credit. So, you know, weighing on the heels of the higher tax refunds, how you're expecting kind of the remainder of '26 to look and how that factors into your outlook. Thanks. Latvir Lambda: Hey, Kyle. Good afternoon. It's Lockbir. I appreciate the question. You know, the macro picture, I'm just restating what the FOMC statement was last week. You know, the economy has been growing at a solid pace. We do see the consumer to be healthy, so in the early stage delinquency levels for the fourth quarter. And so, as I said, I've been we've been studying kind of various segments of the book, slicing and dicing various segments and markets, and think overall, the consumer, to your point, is fairly healthy even in the part of the K-shaped economy that we serve. In terms of the first quarter, as we mentioned, we believe the OBPA impact really sort of has three sort of rungs to it. One, I think the real increase in purchasing power we believe consumers are going to use to pay down past due debt. So it should help in collections. Two, if consumers might use that increase in purchasing power to pay down debt in general, that's high interest rate or what have you. And so that's the big question mark in how much impact it does to balances. And then three, I think some of this refund increase, which folks estimate would be a 20% year-over-year increase, will also help increase discretionary spending, which frankly gives us an opportunity to grow loans. And so we are looking at this from all three perspectives. Post-OBPA impact, which, you know, by kind of ends May kind of time frame, we believe consumer loan demand is going to stay healthy as it has been, and so that's kind of what's reflected in our 10% receivables growth year-over-year sort of guidance for '26. Harpreet Rana: Yeah. And Kyle, just the other thing that I would add to that, some of the metrics that we tend to follow, we'll continue to look at the employment rate and then the unemployment rate for the folks, you know, for our current customers and for those folks that, you know, could be potential customers. We know that open jobs still remain at 7 million. So, you know, open jobs, ample open jobs for our folks, even if they do tend to lose their job. We've been watching inflation, which is moderating. And then, you know, we look at wage growth in sort of the, you know, the lowest quartiles, and there is wage growth that has moderated. But it still continues to be real wage growth. And then we always look at the gas per gallon. Right? And the gas per gallon has come down from where it was last year. It's come down from where it was in September. And, you know, we always look at the health of our customer in terms of their ability to pay. So we'll continue to do that, but we do believe that even if there is an outsized tax impact, because people get higher refunds, we believe that all indications are demand will continue to be there. And if they do pay down their loans, that you should see that in terms of collections and then, of course, on NCL later in the year. Kyle Joseph: Got it. Very helpful. And then, just kind of honing in on customer acquisition costs. Obviously, marketing isn't a huge part of your P&L. But just kind of want to get your sense for, you know, how marketing should trend kind of weighing what you talked about in terms of, you know, broader G&A trends. Harpreet Rana: I mean, if you take a look at our marketing quarter over quarter and year over year, we've improved it. Talked a little bit about it during the last call. We've become much more efficient, you know, around our mail. Now what we will do is we will probably reinvest some of that, right, in terms of growth. So right now, you saw in the quarter that we had ample growth in the quarter a little bit higher than the guidance that I gave, but we were better on our marketing expenses, and that's really due to the efficiency. But if demand is strong and those folks meet our risk box, we will probably redeploy some of those expenses in order to grow the business. Kyle Joseph: Got it. Very helpful. Thanks for taking my questions. Operator: Next question is coming from Alexander Villalobos from Jefferies. Your line is now live. Alexander Villalobos: Hey, guys. Thank you for taking my question. A lot of the questions I had have been answered. Did want to ask a question about pricing, though. Obviously, rates have come down a decent amount last year. Are you guys able to keep pricing kind of where it is given the segment of the consumer that you guys serve not being that maybe inelastic? I was just curious if pricing might come down a little bit as rates go down. Should we think about pricing, you know, yields of the book kind of, like, staying where they are? Thank you. Harpreet Rana: So, hey, just a couple of things on that, Alex. So when we think about pricing, we really look at pricing in context of, you know, where the market's at. And so you always want to price within a range to the market because you don't want adverse selection if you're too high. You don't want to be too low because then, you know, you just don't want to be too low. You're leaving some opportunity there on the table. So, you know, we always measure those things as we look at pricing. But, again, I'll go back to right. We also look at obviously the consumer's ability to pay, and this consumer is often more focused on the payment dollars that they have to pay every month. So as long as you do that first part where you're in line with what the market will bear in terms of competition, the consumer in this segment is usually most concerned about their monthly payment. So we put all of that together when we think about pricing. Alexander Villalobos: And some other different firms have been extending duration. Have you guys kind of kept duration where it has been historically or to get to that, like, payment that you're talking about, some other companies have extended duration. I was just curious if that has happened as well. Harpreet Rana: So we haven't done that, you know, in terms of how you're asking about it in terms of programmatically. I mean, we have put on, you know, our auto product, which just comes with, you know, it's a longer loan. So, you know, that definitely is a variable. And then, of course, as we work through our programs with customers who are having difficulty making payments, you know, we'll look at a number of curing tools in order, and that's on a, you know, loan by loan basis, in order to ensure that the customer has the ability to pay us and, therefore, will pay us. So we do look at it from that lens, but, no, there's no programmatic extension of duration. Alexander Villalobos: Perfect. Thank you. Operator: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Latvir Lambda: Thank you. Just to close and maybe repeat myself, I'll be very pleased with how we finished 2025. Really encouraged by the momentum we are carrying into 2026. I want to thank all my colleagues at Regional, the team. They've done a tremendous job building the platform and the momentum we have today, and I really thank them and wish them luck as we work together in building an amazing 2026. Thank you. Operator: Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Greetings, and welcome to the Tenable Holdings, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Erin Karney, Vice President, Investor Relations. Please go ahead. Erin Karney: Thank you, operator, and thank you all for joining us on today's conference call to discuss Tenable Holdings, Inc.'s fourth quarter and full year 2025 financial results. With me on the call today are Co-Chief Executive Officers, Stephen Vintz and Mark Thurmond, and Chief Financial Officer, Matthew Brown. Prior to this call, we issued a press release announcing our financial results for the quarter. You can find the press release on our IR website at tenable.com. We will make forward-looking statements during the course of this call, including statements relating to our guidance and expectations for the first quarter and full year 2026, growth and drivers in our business, changes in the threat landscape in the security industry, particularly regarding AI security and the shift to preemptive security, our competitive position in the market, growth in customer demand for and adoption of our solutions, including Tenable One, exposure management platform, planned innovation, including Agenic AI security and orchestration research and development investments in Tenable One, changes in key financial metrics, and our future results of operations and financial position. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements. You should not rely upon forward-looking statements as a prediction of future events. Forward-looking statements represent our beliefs and assumptions only as of today and should not be considered representative of our views as of any subsequent date. And we disclaim any obligation to update any forward-looking statements or outlook. For further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our most recent annual report on Form 10-K and subsequent reports that we file with the SEC. In addition, all of the financial results you'll discuss today are non-GAAP financial measures, with the exception of revenue. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalent. Our press release includes GAAP to non-GAAP reconciliations for these measures. I'll now turn the call over to Stephen Vintz. Stephen Vintz: Thanks, Erin. Before we get started, I want to welcome Vlad Krasinski to Tenable Holdings, Inc. as our new CTO. He'll be instrumental in advancing our AI strategy and driving innovation across our AI-powered platform, specifically advancing argentic remediation capabilities. Vlad comes with tremendous experience building and leading Microsoft's global multi-cloud security, enterprise AI security, and exposure management businesses. With that, let's get into the quarter. In Q4, we exceeded all of our guided metrics with 11% year-over-year revenue growth and 24% operating margin. Tenable One, our AI-powered exposure management platform, was 46% of new business this quarter, an exciting record for us. During the quarter, we added over 500 new enterprise platform customers, which was our best quarter in two years. Strong demand for preemptive security along with continued validation from major industry analyst firms is driving larger deal sizes. These firms have recognized Tenable One as a leader in exposure management. Mark will speak more about this momentarily. Now a key driver behind these wins is the complexity of the modern attack surface. AI is showing up in nearly every customer conversation. Organizations are moving quickly, but many still can't see where AI is running, what it touches, who can access it, or how it connects to the rest of the environment. This creates an invisible attack surface that most teams aren't equipped to manage. In response, many organizations have turned to AI-specific point products that focus on a narrow slice of the problem. But because they only see a part of the environment, they leave gaps across applications, identities, cloud workloads, and data, which is exactly where risk grows. This is why a platform approach is needed. And for Tenable Holdings, Inc., it's a natural extension of what we've always done and why we are demonstrating early customer momentum. Tenable One now continuously discovers AI across the entire organization, including internal and external, on-premises, and cloud, to deliver a complete risk-aware view of where AI operates, how it's connected, and where exposure is created. From there, the platform provides the insight and context that customers want to identify the governance controls required to reduce risk. By bringing AI into the same unified exposure management model that our platform customers already rely on, Tenable One delivers the clarity and consistency organizations need in a rapidly changing landscape. We are a platform-first company. Everything we do is about giving customers unified visibility, insight, and action in a way that scales with the complexity of the attack surface. Tenable One enables security leaders to reduce operational complexity, resulting in a comprehensive single source of truth for risk. As we expand our capabilities in the platform with more third-party integrations, we are also leaning in and investing in what comes next in preemptive security, including Agenic AI security and the evolution of exposure management into advanced remediation. Our customers are increasingly asking us to go beyond identifying risk and help them reduce it in an automated, repeatable way. We believe remediation will be a major part of the next chapter in exposure management, and that Tenable Holdings, Inc. is in a strong position to lead that shift into this expansive greenfield opportunity. As we enter this next phase, we see our advantages as fundamental to helping customers solve their biggest cybersecurity challenges. We have vast amounts of exposure data from over 15,000 enterprise platform customers through our open platform, in continuous scanning and exposure analysis. This helps create a competitive moat and will allow us to deliver data-driven scalability, autonomy, and transparency so our customers can reduce risk preemptively. We view our data's breadth, depth, and quality as unmatched given the expansive ecosystem of assets, environments, and signals it spans. This differentiation matters. The accuracy of any AI model or prioritization engine depends on the strength of its underlying data. And our data is built to give customers a level of precision and context that is difficult to replicate. And with emerging capabilities, we are positioning our solutions to turn that insight into action by automating the manual repetitive tasks that slow teams down, enabling faster and more efficient remediation. Our disciplined focus on expanding the platform and ensuring AI remains central to every innovation is driving stronger platform adoption and deeper customer engagement. We believe these priorities will be key drivers in the evolution of our growth trajectory as we move throughout 2026. And now I'd like to turn the call over to Mark Thurmond to discuss how customers and the industry are responding to the shift to exposure management and how we are positioned to lead them through this change. Mark Thurmond: Thanks, Stephen. We spoke last quarter about being recognized as a leader in the exposure management category by IDC and in the unified vulnerability management category by Forrester, two of the industry's top analyst firms. In Q4, we were named a leader in the 2025 Gartner Magic Quadrant for exposure assessment platforms. We were also named as the current company to beat in the 2025 Gartner AI vendor race. Tenable Holdings, Inc. is the company to beat for AI-powered exposure assessment reporting. Tenable Holdings, Inc. was also one of two vendors recognized as a customer choice alongside Wizz in the 2025 Gartner Peer Insights Voice of the Customer for Cloud Native Application Protection Platform report. Taken together, this recognition reinforces what we are hearing from customers and partners every day. Tenable One is emerging as the essential foundation for exposure management, helping customers turn fragmented security data into a unified actionable roadmap for risk reduction. Let me share a few examples of customer wins in Q4 and how they are using Tenable One as their environments grow more complex and their needs evolve. First, let's talk about expansion momentum. A large global enterprise significantly expanded its Tenable One deployment after consolidating and simplifying multiple VM technologies. They selected Tenable Holdings, Inc. because our platform gave them deeper, more accurate visibility, and reduced operational overhead compared to their previous tools. They also chose Tenable One for third-party risk management, following a highly competitive and rigorous evaluation, including multiple large platform players. This win reinforces two important trends we are seeing in real-time. Customers want to consolidate fragmented tools, and they increasingly view Tenable One as the strategic platform that can address multiple exposure-related use cases through a single unified platform approach. Second, we are seeing strong demand driven by rapid adoption of AI. We closed our first 7-figure deal driven by AI exposure in the quarter. A major telecommunications provider selected Tenable One to gain visibility into how AI was being deployed and used throughout the organization. They had no unified way to understand which agents were being used, what data was being shared, or how AI-driven activity was expanding their attack surface. Their teams were trying to address AI exposure in silos, which left significant blind spots. Tenable One AI exposure closed that gap by giving them end-to-end visibility across their entire AI environment. With Tenable One, they can see which AI apps are being used and by which users, what data is being shared by those users, and how these elements combine to create potential exposure paths. They chose Tenable Holdings, Inc. because our platform delivers a complete connected view of AI activity instead of a series of isolated findings. Third, we are seeing momentum in the public sector. A large higher education consortium selected Tenable Holdings, Inc. to lead a multiphase exposure management initiative spanning more than 20 campuses as part of the statewide cybersecurity modernization effort. The program focuses on reducing systemic risk across institutions with varied levels of maturity while establishing consistent visibility, prioritization, and remediation practices. This was a highly strategic win because the customer required a unified platform that could support a diverse environment, integrate with existing tools, and scale across dozens of institutions. Tenable One met those requirements and demonstrated the ability to drive measurable risk reduction in the early phases of the project. As a result, the customer consolidated on Tenable Holdings, Inc. and eliminated competitive solutions to standardize on Tenable One. Additional phases covering the remaining campuses are expected as the program expands. While these all represent clear examples of where Tenable Holdings, Inc. differentiates itself from the competition, there is one other key point here. We view these customer wins as representing early steps in a much larger opportunity. Customers are not buying Tenable Holdings, Inc. for a single use case. We are seeing that they are investing in Tenable One as a long-term platform to address exposures across multiple domains in their environments. This reflects a broader shift for platform consolidation. And Tenable One is becoming the system our customers standardize on as they replace fragmented point solutions. With that, I'll turn the call back over to Matthew Brown to dive deeper into the results for the quarter. Matthew Brown: Thanks, Mark. We're very encouraged by the strong fourth quarter, exceeding the high end of the range on every metric we guided to for the quarter and the year. It was an outstanding finish to the year, and I'm so proud of the entire team for their execution. Revenue for the quarter was $260.5 million, representing growth of 10.5% year-over-year and driving growth of 11% year-over-year on a full-year basis. The year-over-year growth in revenue for the quarter, as well as outperformance relative to guidance, was underpinned by a solid foundation of renewal business and an increase in our new and expansion growth rates driven by Tenable One adoption. Our percentage of recurring revenue remained high at 96% for the year. We're continuing to see increasing momentum in Tenable One, with an all-time high of 46% of new and expansion business coming from the platform. As preemptive security takes center stage, customers are turning to our platform as their solution of choice to manage risk across their attack surface, including AI. We added 502 new customers in the quarter, many of which came directly into Tenable One. The strength in Tenable One drove calculated current billings or CCB ahead of expectations to $327.8 million in the fourth quarter, a year-over-year increase of 8.5%. Full-year 2025 CCB landed at $1.049 billion, growing 8.2% year-over-year, while short-term remaining purchase obligations or CRPO grew 13.3%. Changes in upfront billing patterns and increasing contract durations are causing the growth rates in CCB and CRPO to diverge, which we expect to persist in the midterm. Net dollar expansion rate came in ahead of expectations at 106%. Non-GAAP gross margin was 82.7% for the quarter, an increase from 81.7% in Q4 2024. Full-year 2025 non-GAAP gross margin was 82.1%, compared to 81.4% in the prior year. We are encouraged by our ability to slowly but steadily increase non-GAAP gross margin year-over-year, both on a quarter and full-year basis. Non-GAAP income from operations for the quarter was $63.7 million or 24.4% of revenue. On a full-year basis, non-GAAP income from operations grew to $219 million or 21.9% of revenue, compared to $184.1 million or 20.5% of revenue in the prior year. I'm especially proud of our ability to steadily increase margins in 2025, growing operating margin 140 basis points compared to 2024, in a year in which we absorbed two acquisitions and invested significantly in product innovation, as demonstrated by the year-over-year increase in research and development expenses. We expect to continue our strong track record of delivering margin expansion while balancing for growth, having expanded our non-GAAP operating margin by 680 basis points since 2023. Non-GAAP earnings per share for the quarter was $0.48 compared to $0.41 in Q4 2024, an increase of 17.1%. Non-GAAP earnings per share for the year was $1.59 compared to $1.29 in 2024, an increase of 23.3%. The increase in Q4 and full-year EPS reflects the increase in profitability combined with a decrease in diluted shares outstanding. Turning to the balance sheet, cash and short-term investments totaled $402.2 million. We generated $87.5 million in unlevered free cash flow during the quarter, compared to $85.7 million in Q4 2024, bringing our full-year 2025 unlevered free cash flow to $277 million, a year-over-year increase of 16.5%, and now represents 27.7% of revenue. During the fourth quarter, we repurchased 2.3 million shares for $62.5 million, and through 2025, we have repurchased a total of 10.6 million shares for $362.4 million since November 2023. Today, I'm happy to announce that we recommended and the board approved a $150 million increase to our share repurchase authorization, increasing our current total to $338 million as of year-end, and enabling us to accelerate repurchases under the program. We believe that our current share price trades at a discount relative to our true value, and that utilizing our strong balance sheet and cash flow generation to more aggressively repurchase shares is an effective use of capital. Turning to the financial outlook for Q1 and full-year 2026, we have discussed over the past several quarters that CCB and RPO growth rates are diverging due to changes in upfront billings patterns and increasing contract durations. The increasing mix of larger strategic multiyear transactions is a desired outcome of our platform strategy and is driving an increase in overall contract duration. At the same time, the shift to annual installment billings based on customer demand and away from 100% upfront payments on multiyear transactions is reducing overall billing durations compared to prior periods and causing a negative distortion to CCB that we believe fails to accurately represent the growth of our business. In addition to the distortion dynamic that impacts what we disclose externally, internally, management is no longer using CCB as a component to monitor the performance of the business. Consequently, TCV is no longer a key financial metric for us, and we will not be providing a specific guidance range for CCB in 2026 and forward. Having said that, while we will not guide to a specific CCB range in 2026, we expect full-year 2026 CCB will be in line with current consensus expectations despite the anticipated billings duration headwinds. The momentum we experienced in Tenable One in 2025 and the growing opportunity in AI exposure gives us confidence heading into 2026. For Q1, we expect revenue to be in the range of $257 million to $260 million, representing a year-over-year increase of 8.1% at the midpoint. For full-year 2026, we expect revenue to be in the range of $1.065 billion to $1.075 billion, exceeding the $1 billion milestone for the first time and representing a year-over-year increase of 7.1% at the midpoint. We expect non-GAAP income from operations for the first quarter to be in the range of $53 million to $56 million or 21.1% of revenue at the midpoint. For full-year 2026, we expect non-GAAP operating income to be in the range of $245 million to $255 million or 23.4% of revenue at the midpoint, representing a year-over-year increase of 150 basis points. At the end of Q4, we began an effort to realign departments across the company, stripping out redundant roles and reinvesting into innovation in the Tenable One platform and AI security. As a result of these efforts, we incurred $3.1 million of restructuring expenses in Q4 and expect to incur approximately $5 million more in the first half of the year, all of which is expected to be paid in 2026. We expect non-GAAP net income for the first quarter to be in the range of $46 million to $49 million, representing a year-over-year increase of 7.2% at the midpoint. For full-year 2026, we expect non-GAAP net income in the range of $214 million to $224 million, representing a year-over-year increase of 12.7% at the midpoint. We expect non-GAAP earnings per share for the first quarter to be in the range of $0.39 to $0.42 per share, representing a year-over-year increase of 12.5% at the midpoint. For full-year 2026, we expect non-GAAP earnings per share in the range of $1.81 to $1.90 per share, representing a year-over-year increase of 16.7% at the midpoint. And finally, we expect unlevered free cash flow for the year to be in the range of $285 million to $295 million or 27.1% of revenue at the midpoint. While we're pleased unlevered free cash flow continues to grow year-over-year, it's worth noting that our 2026 forecast is being impacted by an estimated $24 million or approximately 220 basis points of margin due to the reduction in upfront multiyear billings and cash restructuring charges that I spoke about before. Looking ahead to 2027 and beyond, we expect billings durations to normalize, and unlevered free cash flow as a percentage of revenue will grow generally in line with growth in non-GAAP operating margin. In closing, we'd like to thank the entire Tenable Holdings, Inc. team and our customers and partners for a great result. It's amazing to see the traction we're getting in Tenable One and our customers' excitement around our AI exposure management capabilities. We believe that 2025 was important validation and that 2026 is setting the foundation for returning to accelerating growth, which is our number one priority. With that, we are happy to open up the call for questions. Operator? Operator: We'll now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. Lift the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Robbie Owens with Piper Sandler. Robbie Owens: Great. Good afternoon, everyone, and thanks for taking my question. Great stuff on the deal sizes moving up to success with Tenable One. Everything you're seeing from an exposure management standpoint. But hoping you could square that a little bit with what you saw in the large customer cohort and the net additions of $100,000 ACV customers as it was lower than we've seen in the past. Stephen Vintz: Hey, Robbie. This is Stephen. I would say two things. Number one, new business was strong for us. As you saw, we added 500 new customers, and the value of those lands is more sizable now than they have been in the past. Second thing is that expansion was good for us in the quarter. I want to make that very clear. Where we saw strength is within the cohort of customers that were our large customers. So our largest customers that have adopted Tenable One, who are using Tenable One, expanded within the quarter. So we're very pleased to see the ability to land and transact new business at higher price points with the platform, but also, more importantly, expand the relationship with our largest customers. And that's really the tale to take this quarter. Robbie Owens: Great. When you talk about some of the success you're seeing in terms of AI exposure, and I think you mentioned your first 7-figure deal on that front. Just help us understand where customers are in this journey at this point. Is it a tip of spear type of item for you or something that's being followed on? And while it's conversational, how much activity you're actually seeing out of the customer base right now to move? Stephen Vintz: Yeah. So it is literally coming up in every single conversation. Right? There isn't a conversation that you have with the CSO where AI and AI security and how to protect their organizations does not come up. So it is unbelievably prevalent. We see it everywhere. When you look at some of the opportunities that we're going after, obviously, we commented we closed our first 7-figure deal, which was outstanding. And when you look at some of the use cases, there's some constant themes that are coming up where I think we're uniquely positioned to excel. When you look at some of the things that are coming up from the CSO around looking at and discovering AI across the entire enterprise and the company, looking for, like, shadow AI and AI attack surface, you know, the public services being used from an AI perspective. Then how do they protect the AI workloads and the agents from misconfigurations and nonhuman identities, those types of things, and then the governance issues that are arising in regard to deploying and using AI. These are constant themes that we're seeing. And we are seeing pipeline build, and we're seeing it come up in all of our conversations. So I think this will be quite a bit of tailwind for us moving forward. Robbie Owens: Great. Thank you for the color. Operator: Our next question is from Saket Kalia with Barclays. Saket Kalia: Great. Hey, guys. Thanks for taking my questions here. Nice quarter. Stephen Vintz: Thank you. Thanks. Saket Kalia: Stephen and Mark, maybe just to start with you. I mean, Tenable One is clearly doing very well, and that really expands vulnerability management into exposure. And so maybe the question around that is, what additional modules within Tenable One are customers adopting most as you look at that growing Tenable One base? Maybe relatedly, how is that broader offering impacting your competitive win rates, if at all? Stephen Vintz: Sure. Yes. Good question, Saket. I would say a couple of things. First and foremost, as you saw this quarter, the mix of new business inflected higher. 46% of our total new sales came from the platform. Customers clearly want a platform. They clearly want to be able to assess risk holistically, and it really comes down to three things. One, I would say visibility. Two is insights, and three is action. And so one of the big areas of value for the platform is our ability to help customers understand their entire digital footprint, whether it's assets, systems, devices, workloads that are either in the cloud, on your network, on the factory floor. So, consequently, we have most customers who are using the platform are using us for traditional VM, but plus web app, plus cloud security, which continues to grow at a very nice rate. And then more recently, as Mark called out, securing the AI attack surface, which is a big blind spot for our customers. So and then more importantly, it's the ability to correlate all that data to deliver insights and help customers orchestrate remediation to reduce risk. And I think the takeaway here going forward, there'll be less emphasis on individual modules and individual products, and the emphasis for us is really selling the platform. Selling it in a more cohesive way, and making sure that we're giving customers access to all of the capabilities within the platform to continue to drive higher levels of utilization and continue to inflect selling prices higher. Saket Kalia: Got it. Very helpful. Maybe for my follow-up for you, Matt. Listen. It was very clear on the call. I mean, the billings duration dynamics definitely help explain why we're no longer gonna be talking about CCB. But it also sounds like the growth here in fiscal 2026 on CCB shouldn't be that impacted. Can you just unpack that a little bit? I mean, is the headwind from billing duration maybe smaller, or is there just faster underlying growth in the business that enables you to sort of endorse consensus? And maybe just philosophically, is it gonna be revenue that's gonna be really the basis that we should be judging the health of the business, or anything on that of new metrics that you think are gonna be better reflective of the dynamics that are happening? Matthew Brown: Yeah. Thanks for the question, Saket. So really, we saw a really strong finish to 2025, which gives us quite a bit of confidence heading into 2026. We are still seeing a billings duration headwind to CCB. But we did feel like it was important to at least give that qualitative direction around where our expectations are for CCB in 2026. Beyond that, though, you could just tell from our guide we're feeling very good about where revenue is coming in, op income, and despite the fact that we also see billings duration headwinds in free cash flow, we're also able to put up a pretty good free cash flow number for the guide as well. So generally feeling very positive, and it goes back to a lot of what we've discussed already, which is our confidence in the platform. We're seeing where that's working. That strategy is paying off. And the opportunities that we're continuing to see in AI. And despite that headwind, the one comment I would add there is that despite that headwind, we're seeing strength. If you look at strength in our business. So I think the guide reflects the strength and the underlying momentum of the business despite the change that Matt mentioned. So really pleased with the results for the quarter. Really pleased to be giving the guide today, and it demonstrates the increasing confidence in our ability to execute and deliver greater value to customers. Saket Kalia: Good stuff. Thanks, guys. Operator: Our next question is from Brian Essex with JPMorgan. Brian Essex: I appreciate all the commentary on the quality of the data across the platform. Or maybe for either Stephen or Mark, if you could maybe pull on that thread a little bit. As the investors become concerned about the potential for disruption, outside of the depth of visibility that you noted with Robbie and Saket, could you maybe help us better understand where some of the deeper data differentiation lies, how that resonates with customers? And then also, maybe how you might competitively see larger platform vendors that are innovating into the exposure management space, particularly as we see demand on the AI side. Stephen Vintz: Sure. First and foremost, let me say that AI is a massive opportunity for us. I want to be very clear about that. I think Mark and I are convicted in that. It makes us more relevant. It makes us more important. And more importantly, it makes exposure management more critical for our customers. Mark highlighted this earlier, but we're starting to see incremental AI budget dollars flow our way to help customers secure their use of AI. But it all starts with our data. The breadth and depth of the data we've collected over two-plus decades, we believe, is absolutely unparalleled. We talked about this earlier on the call. The data that we collect is unique. It's based on deep domain expertise and things like trusted access and years of continuous scanning, telemetry, and exposure analysis. And this is something that either general models or other companies can't replicate. And moreover, it's really about applying AI to leverage this data to deliver insights in a way that allows us to solve the exposure gap. And for that, AI is at the center of what we're doing. It's not only going to augment human operators, but it's going to give us critical context and knowledge to just help our customers develop a deeper understanding about their risk. And more importantly, it'll allow us to drive actionability and orchestrate remediation to reduce risk in the world of AI speed and scale. So this data is going to allow us to continue to create a bunch of Magenta workflows to get the job done the right way. And so we're well-positioned here, and it's a force multiplier in what we can do. And the last thing I would say here would be I think it's just to connect the dots is really about the brand, the trust customers have in us, the size of our customer base, the ability to leverage the data to reduce risk. It's all of these things. Brian Essex: Great. Super helpful. And maybe if I could do one quick follow-up for Matt. It could be conservatism in the guide. I mean, 1Q at the midpoint implies a sequential decline, which seems eerily similar to 1Q this year. You have the same philosophy. Should we think about setup this year the same way as you have coming into 2025? Matthew Brown: Yeah. I think, look. We're pretty happy with the guide. Certainly relative to the expectations that were already on there. And I think we're ahead across the board on our guided metrics. I expect seasonality will be pretty similar to what we've seen in the past. So I would expect that to be consistent. But we're very happy about the opportunity that we've seen, not just exiting the year, but also as we look ahead to pipeline and the deals that we have in front of us, we're feeling good about the year. Brian Essex: Alright. Super helpful. Great to see the consistency. So thank you. Operator: Our next question is from Joseph Gallo with Jefferies. Joseph Gallo: Hey, guys. Thanks for the question. There is a lot of strength in pro services the past two quarters. Can you just speak to that and how we should think about that in the context of guidance? Stephen Vintz: You bet. I'll comment on that. The reason you're starting to see that pick up, and it is a unique model that we have here at Tenable Holdings, Inc. because we do 100% of our business through partners and resellers. So our partners and resellers, they also drive a significant part of their business through services. But as we now are deploying a platform at scale, you see these deployments where they're going through and rolling out multiple different asset types. And so we're able to go in there. And as we're doing larger transactions, larger deals, we're able to go in there with our professional services organization and help them on this exposure management journey. When it was just core-based VM way back in the day, there wasn't this massive demand for professional services. But now as you deploy a platform, they want to do it. They want to deploy it quickly. They want to make sure that they get all of the different asset types deployed over time, and they want to get it done to drive their utilization rates as high as possible utilizing all their licenses. So we expect that to continue, but we also expect our partner community and the GSI community to be able to drive significant services exposure management platform Tenable One. Joseph Gallo: Awesome. That's really helpful. And then maybe just as a quick follow-up. So it was a really strong quarter, and you guys have spoken to your prudence, it seems like, in the guidance. But I just want to square away. You just grew 11%. You're guiding to 7%. So the exit rate may be below that. Is that just a straight math equation between the baton handoff between VM and exposure management? And at what point can we see exposure management be material enough to kind of offset that and stabilize growth? Stephen Vintz: Yeah. Underneath that, what we're seeing is strength and significantly higher growth rates within Tenable One, which is exactly what we want to see. Today, though, Tenable One represents about a third of our overall business. As that overall percentage continues to climb and continues to grow faster than non-Tenable One, we expect that overall growth rate then inflects higher, stabilizes, then inflects higher. The good thing is signs of that now. So we're seeing increased rates of adoption of Tenable One. That's exactly what we want to see. We're seeing increased growth rates within new and expansion, which is also exactly what we want to see. So the early signs are there, and that gives us confidence. Joseph Gallo: Great to hear. Nice job, guys. Thank you. Operator: Our next question is from Michael Cikos with Needham. Michael Cikos: Hey, thanks for taking questions, guys, and I'll echo the congratulations here. Appreciate the commentary on the shifting patterns here to annual installment billings. Matt, I guess first question for you, but my concern is you cited the $24 million headwind to unlevered free cash flow this year from both billings and restructuring. And the concern is that folks are still gonna calculate TCB and then try to triangulate off of that $24 million to derive some sort of figure. Can you point us in the right direction for why that is or is not what we should be doing when thinking about normalized CCB adjusting for these different billing patterns, please? And then I have a couple of follow-ups. Matthew Brown: So first off, we thought it was important to at least provide some qualitative direction around our expectations for CCB for 2026, which is why we pointed out in my prepared remarks that we expected CCB to be in line with current consensus expectations. So that was important for us. Underneath that, though, we know that that's despite some of the billings headwinds. And so I think what I would point to is yes, there is going to be this impact, but we're also providing other metrics that should be helpful. So we talk about the percentage of new and expansion business in Tenable One. We talk about additional new customers. We talk about our net expansion rate. Obviously, we're talking guide to revenue. The types of things that I would be looking at and that we are looking at are things like the net expansion rate. I think that's important. That came in ahead of expectations at 106%. Actually, we expected that to drop down to 105 in Q4, but we exceeded expectations and it landed at 106. I think that percentage very likely could bounce down to 105, but I expect that to stabilize in the middle of the year. And I think that's a very good first sign that things overall are stabilizing. So I think there's a lot there to look at. As you point out, CCB, you know, not only, of course, do we provide that qualitative direction, CCB is gonna be readily available for everyone to calculate when you're looking at our financial statements. So that is gonna be something that folks can continue to look at if they so choose. But we tried our best to quantify the impact, and that headwind is embedded into our expectations for 2026. Michael Cikos: Thanks for that, Matt. And just as a follow-up, I want to make sure I heard correctly. This probably goes back to Joe's question on the shape or what's implied for the deceleration through '26. But if I heard you correctly, so it sounds like the guide is underwriting a net expansion rate of 105 in the back half of the year. So first, did I hear that correctly? And then secondly, just given that Tenable One today is about a third of the business, at what scale does Tenable One need to be before we can actually see an inflection point? Matthew Brown: Yeah. So it underwrites a net expansion rate of 105 in the first half of the year. My expectation is that that rate stabilizes and could, in fact, inflect higher. And that really at that point demonstrates the stability in our overall growth rate, at which point, Tenable One continues to drive things higher. And in particular, as we see greater opportunities within exposure management, AI is just one example. But we're beginning to see the signs of accelerated growth beyond. And I think that's really the important point here, which is we have confidence in our ability. We feel like we have the right strategy, our confidence, our ability to execute as we've demonstrated here not only just this quarter, but over the last few quarters. Where we're demonstrating good stable growth with traction in the platform, and that is all preposition to driving growth higher. And so the investments we're making around the platform, the investments we're making in AI, helping our customers secure the AI attack surface, the investments we're making in the ability to monetize, leverage the data to deliver insights, orchestrate remediation. We're confident in our ability to drive growth higher. And that's, you know, Mark and I are focused on that. And the opportunity is right in front of us, and we're confident in our ability to do that. Michael Cikos: Very clear. Thank you, guys. Operator: Our next question is from Jonathan Ho with William Blair. Jonathan Ho: Hi. Good afternoon. Could you maybe talk a little bit about especially the broader adoption of Tenable One, you know, maybe what the pricing uplift looks like, but also potentially how asset and coverage rates increase over time as well. Thank you. Matthew Brown: Yeah. I can speak to that. This is Matt. So the great thing about the platform is we see an opportunity where customers today, standalone VM customers today moving to the platform to do full exposure management can see an uplift as much as 80% uplift when moving to the platform. But even customers that wanted to stand alone VM today, but want to move to the platform to do VM within the platform, they're seeing an increased set of capabilities within the platform, and they get an uplift as well. So regardless of where you're at in your exposure management journey, moving to the platform ends up being a net positive for the customer, and it ends up being a net uplift for us in terms of ASP. So that's why it's important when we move customers to the platform. The thing that gets us just incredibly optimistic there is yes, you get an uplift when they move to the platform, but these are also just the customers we want. You have customers that are turning less. They're expanding more. The deals are larger in size. They're more strategic. So this is a strategy that we're all in on and is working for us. And I think from our perspective, you know, the best part is that we've got a pretty good on-ramp here to the platform. And with roughly two-thirds of our business not on the platform, it represents an opportunity that we're very excited about. Jonathan Ho: Got it. And then just quickly as a follow-up. When it comes to AgenTek AI, we seem to be seeing a lot of interest in not just in sort of visibility, but also, you know, the governance side of AI. Can you talk a little bit about how your KIM and CNAP products sort of play a role in governance, why it's important, maybe what you're seeing customers invest in early on? Thank you. Matthew Brown: Yeah. Well, governance is all very important regardless of what domain, whether it's network, cloud, or even AI applications and AgenTek capabilities. And, you know, I think you mentioned on the cloud side, our CNF offering covers broad cloud risk across configs, identities, and workloads. Well, cloud VM, as we call it, zeroes in and extends traditional VM into those environments. And this also has specific app ensuring, like, workloads, virtual machines, and container images are monitored continuously and prioritized with context. So the problem we're helping solve is really about helping customers discover all of their assets across multi-domains. It's about correlating a lot of this data to deliver insights. And then it's also really about the transparency in the governance behind it so we can enforce AI security policies, enforce broader security policies to ensure there's the right use and deployment of this technology. Jonathan Ho: Thank you. Operator: Our next question is from Shaul Eyal with TD Cowen. Shaul Eyal: Thank you. Good afternoon, everybody. Congrats on the performance and initial 2026 outlook. Stephen, I know it's early days, but lots of consolidation in the exposure management arena. Do you see Tenable Holdings, Inc. benefiting from customers revisiting prior relations? And maybe as my follow-up, how would you characterize the current pricing environment? Have you seen increasing ASP slightly during the quarter, maybe even during January? Thank you. Stephen Vintz: Yes. I want to make sure the connection was clear. So prioritization certainly is a big challenge for a lot of customers. Our talking to a lot of CSOs, you know, what we hear time and time again is that they're overwhelmed with alerts, and they're starved for insights. And so there's a need to be able to correlate all that data across domains, whether it's network, cloud, OT, identities, all that's really important. And, you know, our goal here is to help customers prioritize and identify the riskiest exposures on their most critical assets that have a lot of access and entitlements. And we do that in a very visualized way that customers can consume. And that all points towards remediation. So you can't do you can't take action without delivering insights, and you can't deliver insights to customers in Corelight data without having visibility. But having twenty years plus of exposure analysis and ingesting data from others. So all of it's really important. It's all of it interconnected. That's why we're having success selling the platform in a very integrated way. Shaul Eyal: Any view on the ASPs during the quarter, maybe during January? Mark Thurmond: Yeah. So Mark here. Yeah. No. They were strong. I mean, you could see from our margin perspective, very, very strong quarter. We're not seeing any pricing pressure. The beautiful thing that Matt already highlighted is when you are selling Tenable One, the platform, obviously, you're getting an uplift for that. You're getting incremental capability. You're getting incremental coverage. And so when you look at it from a competitive standpoint, when you're driving and selling Tenable One, it is really about this consolidation play. So when you're able to go in and consolidate multiple other pools into the platform, and get a higher asset count into Tenable One, that allows you to get very, very good pricing. And so we feel very confident there. Not seeing any pricing pressure with new logo or with our install base. Shaul Eyal: Thank you so much. Operator: Our next question is from Patrick Colville with Scotiabank. Patrick Colville: Thank you for taking my question. I guess one for Matt. I just want to circle back to the guidance because lots of exciting innovation, success, but the guidance is strong. But if I look at RPO or short-term RPO, it was 13.3% in 4Q, whereas 2026 guidance is for 7%. It's just like a big gap between the two. So why is short-term RPO not a good indicator of forward revenue given there's such a big gap between the two? Matthew Brown: Yeah. I just want to make sure you're clear on this. So we don't guide CRPO. So that 2026 number that you mentioned is not an RPO number. So CRPO did come in at more than 13% for 2025. One of the things that we talked about with CRPO is that that number continues to be driven higher in part due to contract durations becoming longer. And that contract duration is increasing as a result of us entering into more larger strategic transactions, many times in the case of a Tenable One transaction. And so it's a desired outcome. It's what we want to see. We want to see our contracts durations going up. But it does have a byproduct effect of increasing CRPO and actually distorting that number a bit. You could see there was a tremendous growth in long-term RPO as well. So 2026, we don't guide to CRPO. And, actually, for similar reasons as to why we're no longer guiding to CCB. Both of those metrics are somewhat distorted. Patrick Colville: Okay. Very clear. And just focusing on another metric that you do guide to, non-GAAP operating I guess, margin. Right? I'm calculating it 23.5 for 2026. Which is a really if I'm calculating it correctly, it's a really healthy increase of about one and a half points year on year. I guess, can you just talk through if I'm right in my calculations, the puts and takes there and it seems like Tenable Holdings, Inc. is really continuing this effort to improve profitability. Matthew Brown: Yeah. That's right. So the guide for 2026 at the midpoint is 23.4%. And, you know, what I love about that number is yes, you're right. It's an increase of about 150 basis points year on year. It is also while we are investing significantly in product development, in particular, in the platform and around innovations in AI in particular. So this is something that we expect to be able to continue to drive higher. We've taken an approach where we're balancing growth and profitability. And our expectation is that we'll be able to grow 2026 by about 150 basis points while meeting all of our investment goals as well. Patrick Colville: Crystal clear. Thank you so much. Operator: Thank you. Our next question is from Rudy Kessinger with D.A. Davidson. Rudy Kessinger: Hey, great. Thanks for taking my questions. Congrats on the quarter and solid guidance here. Just one for me. Are the federal assumptions for Q3 and the full year? I know we're a couple quarters out from a big federal quarter, but the government's still a bit volatile, if you will, with almost shut down this past week. So what are the assumptions there relative to last year and just overall? A growth standpoint? Matthew Brown: Yeah. So the expectation is embedded within the guide for federal is that federal will perform more or less in line actually with the rest of the business. So we're not expecting outsized growth, and we're not expecting any particular headwinds from Fed. So again, just in line with overall company growth. But no, I think it's a very accurate feedback, and, you know, we're happy very happy with performance in the federal space in Q4. Finally seeing some stability there, and we're expecting the same thing in 2026. And from a state local FED perspective, very, very strong also. So it seems like things are getting back to normal there, which is great to see. Operator: Our next question is from Abhishek Merle with Morgan Stanley. Abhishek Merle: Hi. This is Abhishek Merli on behalf of Meta Marshall. Thank you for taking the questions. And congrats on a really strong end of the year. I guess to start off, could you kind of walk us through whether you embedded government shutdown into guidance? And then kind of what you end up seeing for the quarter in terms of the federal dynamics given the tougher backdrop? Matthew Brown: Yes. So no, a federal government shutdown is not embedded within the guide per se. But we saw minimal impact of that in 2025 and don't expect to see any significant impact on that one way or the other. As I mentioned, Fed our expectations for Fed in 2026 are very much in line with our expectations on growth on the rest of the business. Stephen Vintz: Okay. Yeah. And then the default Just one clarification. This is Stephen. So Mark talked about some of the strength in Fed and the fourth quarter. Right? Other quarters? Were not as favorable just given a confluence of different events in US federal this past year, and that's what's reflected in our outlook for the full year for 2026. Abhishek Merle: Got it. And then on, like, more of a budgetary perspective, do you see exposure management getting lumped into AI spend and budgets? And then can you kind of walk us through some of the dynamics you're seeing, of where it's being allocated in cybersecurity budgets more broadly? Stephen Vintz: Yeah. No. It's being added too. So when you take a look at the exposure management, when you look at like RFPs and you look at opportunities right now, you know, you are starting to see AI being added to it. And we highlighted in one of the big customer wins, you know, sometimes it can be for significant budget dollars. So when you're now competing, from an exposure management perspective, we are seeing an increase in RFPs and pipeline build around exposure management opportunities Tenable One AI is now becoming a critical part of that decision criteria. And so you're seeing that budget from an AI perspective be added into exposure management. And, a, it's a great differentiator for us. So it gives us a great competitive foothold, and it's also, you know, one of the more pressing areas, you know, that CSOs are really driving us to and having conversations with us about. Operator: Thank you. There are no further questions at this time. This does conclude today's conference. We thank you again for your participation. You may now disconnect your lines.
Operator: Good morning, and welcome, everyone, to this webcast with a presentation of the Annual Report 2025 from Norden that was published this morning. [Operator Instructions] With that, I'll hand over to CEO, Jan Rindbo; and CFO, Martin Badsted from Norden. Please go ahead. Jan Rindbo: Thank you very much, and a warm welcome to this annual report presentation. And also welcome to the Center of Global Trade, where Norden plays a major role as one of the largest operators of dry bulk ships and product tankers, moving just under 130 million tonnes of essential raw materials across the globe. But let's dive into the financial figures for 2025. And we delivered a full year profit of $120 million, which was right in the middle of our latest announced guidance for the year, but significantly better than our guidance at the beginning of 2025. We have delivered a return on invested capital of 8.9% and the underlying net asset values in the portfolio were as of the 31st of December, DKK 379 per share. We are returning a significant part of the annual profit back to the shareholders through a combination of a dividend of DKK 2 per share and a share buyback program that will run until the end of April. This year was busy on the asset transaction front. We had 48 transactions for the full year. And an important part of our profit in 2025 was generated from vessel sales, where we sold 23 ships, of which 15 were from our purchase option portfolio, but we are not just selling vessels, we actually added even more ships. 25 came in through new leases and also the purchase of one vessel. And when you look at the purchase option portfolio, we actually finished the year with 90 vessels in the portfolio, which was a growth of 14% in the number of purchase options that we control. And of the 90 purchase options, 40 of them are in the money that can be acquired in the next 2 years at values that are 18% below broker values. So still significant value in the portfolio despite the fact that we have realized some of that during the year. With that, I'll hand over to you, Martin, to dive a little bit more into our NAV. Martin Badsted: Thank you very much. As Jan said, our NAV at the end of the year was DKK 379 per share. That was actually a decline of about 11% since the beginning of the year, but all of that was driven by a weaker U.S. dollar. So if you actually adjust for the FX change and the fact that we paid out dividends and share buybacks, there's actually a positive underlying development in U.S. dollars per share. The current NAV, as you will see from the table here, is about 2/3 exposed to dry cargo with $917 million of portfolio value and 1/3 is tankers, $428 million. And when you look at the numbers just below there, you will see that there's actually very little leverage on the balance sheet. So a very, very strong financial position is baked into these numbers. On the right-hand side, we show you the sensitivity of the NAV compared to changes -- potential changes in the market. So for instance, if both the dry and tanker market change plus 10%, then the NAV increases about 16% to DKK 441 per share. So a good exposure against rising markets. Now if you have had time to look into the recently published annual report, you will see that we have now decided to show some of our numbers a little bit differently. We have 6 segments in Norden: that is the Dry Owner, Tanker Owner; and then the Dry Operator, large and small tanker operator; and Logistics. And up until now, we have allocated or we have made subtotals for these segments into asset management and into FST. That changes now. And instead, we will group these segments by Dry Cargo and Tankers, which we feel actually is probably more intuitive for most investors thinking about which exposure they are buying when they're buying a Norden share. So going forward, we will be reporting the Dry Cargo business unit and the Tanker business unit. But of course, nothing changes in the group figures and all the segment data will still be there. Looking then into Dry Cargo in this case, let's start with the market development. It's clear from this graph where the dark line shows the spot rates for Supramax during 2025, but it was a year in 2 halves. So the first part of the year was actually fairly weak, whereas in the middle of the summer, the market suddenly actually took off and the second half was much stronger. That was to start with mainly a Capesize thing, but it actually impacted all the segments. I will say, though, that Norden had a fairly high coverage during the second half. So most of this has been impacting asset values and deferred periods. Looking then into the numbers for Dry Cargo, you will see the 4 segments in the middle here. And it's clear that the Dry Owner part really delivers the bulk of earnings with $67.7 million for 2025. The other 3 combined, of course, produces a loss as is quite evident. And I think the important thing to notice here is that they are actually all improving quite a lot compared to 2024. So the trajectory is good, but the actual levels are, of course, not satisfactory. You are seeing that trajectory on the graph on the right-hand side, where the red line indicates the total for 2024 and 2025 for the Dry Cargo business unit, which has then increased from minus $56 million to plus $29 million for the full year 2025. So of course, we hope to continue those improvements. On the Tanker side, it was a little bit the same. The market in MR spot actually increased during the year and actually ended the second half of the year stronger than 2024, I think, against many people's expectations. That, of course, impacts our Tanker business unit because a lot of the exposure there is directly linked to the spot market. And looking into the Tanker numbers, you will see that we made $116 million total between Tanker Owner and Tanker Operator. It is clearly Tanker Owner that delivers the bulk of these earnings. And the decline in Tanker Operator was very much expected because that is part of the business model. You can say that when the market is strong for a long period of time, the cost of tonnage goes up and it becomes harder and harder to make a good margin. But I will actually emphasize that we have been able to grow the Pool part of our Tanker Operator business, delivering good management fees for a very low risk, which actually helps a lot in the measurement of return on invested capital. So with that, I will hand you back to Jan for a look at our guidance. Jan Rindbo: Thank you, Martin. So looking ahead now to this year, 2026, we have an expected full year net profit for 2026 in the range of between $30 million to $100 million. And there are 3 key drivers in the guidance numbers. The first I'd like to highlight is the new activity that we bring in during the year. So there's, of course, some uncertainty both in the terms of the volume of the new activity, but also the margins that we can generate from this new activity. Then the second point is that we have a significant open position of days that are not yet covered and exposed to the spot market. We have 5,700 open days in tankers and just over 7,000 days in dry cargo for the balance of 2026. And then the third point is just a reminder that the guidance here only includes known vessel sales. So we have already concluded sales for -- with profits of $20 million, but it's only the known transactions that are included in our guidance for the year. If we move on to the business model of Norden, we have 4 main engines in the business, so to say. We have both Dry Cargo and Tankers. And as Martin just showed, we have actually made a profit in both of these 2 segments. And then we have the asset-light, the operator part of the business and the asset heavy, which is the asset management part of the business. And here, clearly, the results in 2025 has been driven mostly by the asset management or the asset heavy, the ship-owning part of the business. What we can see if we zoom out and look at this over a longer period of time is that having multiple legs to stand on having different types of activities actually helps generate superior returns over time because usually, if not all 4 engines are running, then at least some of them are. And in some years, it can be the dry cargo. Other years, it can be tankers or asset-light or asset-heavy. But over time, we have generated in the last 5 years, a return around 25% on the invested capital, which is significantly higher than our industry peers. What we also see in this graph is where you have the absolute returns on the graph to the left. Then at the bottom, you see the volatility in the earnings. And here, you can also see that the earnings in Norden have been more volatile than our industry peers. And this is something that we are -- that we would like to address in our strategy. And this is clearly where the operating part of the business has had larger fluctuations. But if we look towards the strategy and the direction for us towards 2030, then one objective for us is to reduce this earnings volatility, obviously, maintain the high returns. We like that, but we like to bring that with a higher degree of stability in the earnings so that we don't have such a large volatility in our earnings. And the way we will do this is, first of all, we will look at the engine room of the operating business, become even more customer focused, really look at our cargo network, how we build a more efficient cargo network, reducing ballast time, capture more margins, optimize cargo flows, the voyage efficiencies that we see. We are also expanding into areas where -- that are less volatile. One of the significant points in 2025 has been our expansion into MPP and Project Cargo. We have, in the last 3 years, made 3 M&A acquisitions all within this area. And we have now also built a core fleet of leased vessels, so in the typical Norden style with purchase options and extension options. And those ships are actually starting to deliver already this year in 2026. So Project Cargo, minor bulk, port logistics, are all areas where with our expertise, we can bring more stable returns as it's more capability-driven and less exposed just to market fluctuations. But I think the third point in our strategy towards 2030 is that we are maintaining the core elements in our business model, the 4 main engines that I showed you because we think that really brings a lot of value as we have seen also in the past. And that brings me to the last slide, where we're just looking at summarizing as an investor, what are the main drivers for Norden that you should have as part of your thinking when you look at Norden. And I think the first point to highlight is that we are actually in an industry with good fundamentals. We see an aging global fleet. Especially when we look longer term, so towards 2030 or even beyond 2030, there is a significant aging of the fleet, both in Dry Bulk and in Tankers. And we have a relatively low order book and especially in the smaller segments of dry, but actually a low order book compared to the fleet age profile. And all these geopolitical tensions that we are seeing are creating dislocations that is also supporting tonne-mile demand. And that reduces the risk of prolonged periods of oversupply, which traditionally has hit the shipping industry in -- after periods of good markets. The second point is this business model that I just highlighted. So I don't need to say too much more about that, but we think that's a very strong model to generate value from. And then the third element is that we are within that business model, really focusing now on more the -- what we call the capability-driven earnings that are less market exposed. So our operating capabilities and building these more sort of complex cargo flows, essentially building higher barriers to entry in what is traditionally very commoditized segments. And then the last point is continuing this disciplined capital allocation, which has really driven our ROIC outperformance. So the benefit of running a large business with an asset-light platform is that we have the freedom, so to speak, to also buy and sell vessels. We are still servicing our customers because we are able to do that through the charter fleet that we do. And this sort of strict capital discipline allows us to return a lot of our profits to our shareholders. Over the last 5 years, we have actually returned through dividend and share buybacks, $1.2 billion, which is about the same level as our market cap today. And that has also driven over time, a strong shareholder value creation. And then overall, our target for Norden remains to generate ROIC above 12%, so well above the capital cost, but also continuing to generate returns that are better than the peers that we compare ourselves with. So with that, that concludes our presentation, and we're now ready to go to the Q&A part of the presentation. Operator: Yes, we are now ready for the Q&A session. [Operator Instructions]. But let's go ahead with the first question here. To what extent are the involving U.S. sanctions framework reshaping investment decision by shipowners and operators when it comes to ordering new tonnage, especially considering exposure to secondary sanctions, financing constraints and future trading flexibility? Jan Rindbo: Thank you. That's a great question because this was a big topic in 2025 with the USTR, the U.S. sanctions against Chinese shipbuilding and then the retaliation from China against the U.S. So there was a lot of noise in the markets, and I think everyone was scrambling to prepare for that. I think it's fair to say that when we look at the investment part of this and what has happened since then is that there is no clear pattern showing that people or the industry is shying away from ordering in, for example, China. If you look at dry bulk and tankers, I think now close to 70% of new orders are coming to Chinese shipyards. So you can argue whether there is actually a choice that shipowners can make. Order books are also pretty full until at least 2029 now. So I would say there's no clear pattern that the industry has shied away from investing in Chinese shipbuilding or in Chinese ships from Chinese yards. So I would say that it hasn't really changed the dynamics. Operator: And according to the Q4 financial report, the company had around 70 leased vessels and 12 owned vessels. Furthermore, it appears that 24 new leasing agreements has been made in 2025. Can the company explain the interest rate risk associated with the leasing agreements? Martin Badsted: Yes. Thank you for that question. So the structure really works in the way that instead of buying the ship, we take it on lease, which is typically a 5-year period with a firm lease payment during the period. And since that is a firm and constant lease payment during the period, that actually implies that we have sort of fixed the interest cost that is baked into that project. It's the same with the OpEx for running the ships that is all taken care of within that fixed time charter hire. So in essence, I would say the leases that we do have a fixed interest rate component, meaning that we have very low interest rate risk from that part at least. Operator: And the next question goes, why do you expect a weaker second half for tankers? Martin Badsted: Yes. So if I can answer that. So the current strength in the tanker market is, to a large extent, based on strong crude market where OPEC is pushing out a lot of products to the global markets. Of course, still the Russia sanctions and the Suez Canal issues, but also a low supply growth. But when we look into the second half of the year, we think actually that supply growth will accelerate a little bit. So that will keep or add more pressure to the market. And it's probably also likely that OPEC at some point will need to adjust because the way that we view it at least is that there's simply too much oil coming to the market at the moment. And at some point, this will hit inventories and that will hit prices. So we think there's reason to believe that the second half of the year will be somewhat weaker than what we have seen recently. Operator: Thank you. And the next question here. If dry bulk continues its positive momentum and tankers also does so partly in the first half, at least of 2026, I'm left with the impression that your guidance may be somewhat on the low side. Is your guidance set low and conservatively partly to be able to counteract geopolitical surprises? Jan Rindbo: So our guidance is based on the market expectations that we see now. Of course, if the market expectations or the markets continue to go up and improve, there is further value. We have the open days that we mentioned during the presentation, both actually in dry bulk and in tankers. And of course, if asset values also continue to go up, then that will support the NAV value of Norden. So of course, there is uncertainties as we look into a year. Again, we are just at the beginning of the year. We also have a significant part of our business, which is the new activity that is coming in that will generate a margin. And here, there are some uncertainties around both how big that activity will be and what margins we can lock in there. So it is the reason or one of the reasons why we have a larger span in the full year guidance. And again, just to repeat, the guidance only includes the asset sales that are already agreed. And therefore, if we choose to sell more ships during the year, and here, we are very optimistic looking at the opportunities in the market, looking at the market developments. But if there are further sales that we can do at profits, then that could add to the expectations during the year. And as I think we've shown you during the presentation, there's a lot of underlying value in Norden, both on the purchase options and on the owned vessels that we have in the fleet. But it will be opportunity driven as we go through the year. Operator: And the next question here. What is Norden's strategy for MPP/Project segment for the next 5 years? Jan Rindbo: Thank you. That's a great question because it ties right into the heart of our strategy. So we have done 3 M&A transactions that are all supporting our development in this part of the business. A big change for us in 2025 was that the sort of natural evolution was to then start building a core fleet, and we have done 16 transactions on MPP vessels alone during the year. So building a core fleet of the most fuel-efficient vessels. So a great fleet that we have very high expectations for and already are seeing significant customer demand for. So the strategy in the next 5 years towards 2030 is to keep growing this part of the business. It will help us to generate more stable earnings because this part of our asset portfolio is where we typically see the least volatility. And it's driven by capabilities from our teams across the world. And we, by the way, also see strong synergies between what we do in the MPP and Project Cargo space across our other vessel sizes. So we are now regularly carrying Project Cargo, not just on MPP vessels, but actually across our entire range of Dry Bulk vessels. Operator: And the next question here. How do we plan to restore a stable and competitive earnings in Dry Operator, especially large vessels, which is once again delivering a large negative EBIT? Jan Rindbo: Yes. So again, it ties in with the strategy that we presented earlier. And what -- the component in our business that we are looking to grow here is what we call the Base Margin business. So all the margins that we generate, not from market fluctuations, but simply from having good cargo combinations, efficient voyage executions where we're able to match a vessel and a cargo in the market without taking much market risk. Pool Management, as Martin mentioned during the presentation, is also a great generator of these base margins. So that's where we have our strategic focus. We still want to retain the ability to also position ourselves for the ups and downs in the market because that has done us very well over time. But building a more solid foundation of these base margin earnings is a key component in our strategy, and that will help us to both stabilize and hopefully also generate positive and better margins in the Dry Operator part of the business. Operator: And a question here. Can you please explain the strategy behind the coverage in Dry Cargo for 2026? Jan Rindbo: Yes. So we have a high level of cover, which has taken -- which was taken during 2025. So we had a more cautious view of the market. That was one driver. But it is also part of our business model to actually have a relatively high level of cover so that we don't like to be totally exposed to the markets, which, of course, when markets go up, means that we're not getting the maximum out of the markets, but also during downturns, it means that we protect the downside. And again, looking at this over a 5-year horizon, we have generated great returns by having that kind of approach to the markets. So we are more covered for 2026. But when you look at the numbers and our position, you will also see that we have a fairly large open position in dry bulk for 2027 onwards. We have over 30 newbuildings coming in. We have invested in Capesize, also new buildings that are coming in, where we have seen prices actually go up significantly from the time we made those investments. But it was always with a view that 2027 would be the time where we would see those benefits. It has come -- it's fair to say that, that has come a little bit earlier than also what we had expected. But our portfolio as such is actually well positioned to capture those upsides. But as things stand right now, it's mainly from 2027 onwards. Operator: And the next question here. You achieved a net profit of $120 million in 2025, but you're only guiding for $30 million to $100 million for 2026. What specific factors are causing earnings to expect it to fall so significantly? And what will it take for you to reach the upper end of guidance? Martin Badsted: Maybe I can at least start with this. So as Jan said before, the guidance, $30 million to $100 million is only based on the known vessel sales that we have agreed to already, whereas the $120 million for '25, of course, includes all the vessel gains that were made during the year. And that was actually $17 million, leaving the $50 million residual as the operating earnings. And that, of course, indicates that the new guidance is more on par with actually the operating earnings from 2025. And new gains if we make new agreements on profitable sales, will come on top of that. So that is a big part of it comparing sort of the vessel gains and the operating earnings in 2 different ways. Operator: And the next question here. What are your expectations regarding the recent agreement between U.S. and India, where India has pledged to stop buying Russian oil? Could that have a positive spillover effect on your business? And how are you positioned in relation to India? Is this agreement factored into the guidance for 2026? Martin Badsted: I would say, overall, it is factored in to the extent that we base our guidance also on forward rates that are prevailing in the market. So if the market sort of has priced this in, which typically happens very fast, then it's also baked into our guidance. It's clear that if this were to have a very positive effect, that would be positive for our spot earnings during the year. And you can say, in principle, all the disruptions that we are seeing, including the fact that India now may not buy Russian oil is net positive typically. But we have also seen over the last couple of years with new sanctions and disruptions that the market is really fast in actually adapting to new situations and it often ends up not having a big impact because people will find ways around these disruptions. So it's both yes and no, I would say. Some positive effect it's baked in, but it's not something that will, I think, change fundamentally the market outlook. Operator: And then the last question here. How do you access the impact of a potential Hafnia acquisition of TORM on your competitive position and the markets? Jan Rindbo: That's a good question. Of course, there's no direct impact on Norden, but I think consolidation in the industry is a good thing. So we, in a way, welcome that, but it's not something that really concerns us that much. We are focusing on our own business, servicing our own customers, running an efficient Pool Management business towards the third-party owners that are part of our pool, I think that is what is top of our mind. Operator: Thank you. There seems to be no further questions, and I'll leave the word to management for a final remark. Jan Rindbo: All right. Well, first of all, just the usual caution about forward-looking statements. But having said that, thank you very much for tuning in to this annual report presentation. Thank you very much for the many great questions. I think that gives us an opportunity to put a little bit more color to some of the highlights that we've shared with you in the presentation. So thank you very much for that. Thank you for engaging. And we look forward to seeing you again next time when we report on the Q1 results later this year.
Operator: Hello, and welcome, everyone, to the 4Q 2025 LATAM Airlines Group Earnings Conference Call. My name is Becky, and I will be your operator today. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during the Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F, 2026 guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested and any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. If there are any members of the press on the call, please note that this call for the media is listen only. I will now hand over to your host, Ricardo Bottas, to begin. Please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our fourth quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andres Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations, and we will present the highlights and results for the fourth quarter and full year 2025. I will hand it over to Roberto to share his opening remarks about the quarter and year's highlights. Roberto Alvo Milosawlewitsch: Good morning, and thank you, Ricardo. 2025 marked a year of continuous consolidation and delivery. The strong results we're presenting today are the product of a model that LATAM Group has been building over the last 6 years, anchored first in the people and the customers, focused on impeccable execution and in the design of a superior experience. All of this in the context of an ever stronger passenger cargo networks, frequent flyer program, a very strong balance sheet and cash generation, a disciplined cost delivery and a highly diversified business model, all of which make our results resilient and less much subject to external factors and industry cycles. At the heart of this performance and more than 41,000 employees working at the different affilities of the group, their daily commitment, whether at customer touch points or behind the scenes, continues to be LATAM's Group most powerful asset. The culture of passionate, engaged people translated directly into the customer experience. In 2025, the group achieved a record Net Promoter Score of 54 points, which is a 3-point increase versus 2024, the highest full year results in our history. When our people thrive, customers feel the difference. Internally, the Organizational Health Index reached 83 points, placing LATAM Group in the top decile of the global benchmark for the first time. In terms of the operations, the group transported more than 87 million passengers during the year, including 23 million passengers in the fourth quarter alone. This was boosted by a capacity increase of 8.2% for the full year and 7.7% in the quarter, demonstrating the group's ability to grow efficiently while maintaining a healthy load factor of 84.4%. This ability to connect passengers to, from and within South America was enabled by the modern and efficient fleet that the group operates. In 2025, LATAM received a total of 26 aircrafts, 7 of which were incorporated in the fourth quarter. This includes the first Boeing Dreamliner with GE engines and brought the total fleet to 371 aircraft as of the end of the year, a 7% increase versus 2024, enabling the group to launch 22 new routes, of which 15 were international. On the financial side, adjusted operating margin reached 16.2% for the year, while adjusted EBITDAR came at almost $4.1 billion. Net income totaled approximately $1.5 billion, resulting in earnings per ADS of $4.95, highlighting the group's ability to translate operational performance into bottom line results. This bottom line grew by 50% versus the income generated in 2024. With this, in December, LATAM was able to distribute $400 million in interim dividends aligned with its capital allocation strategy determined by the financial policy. 2025 was just not a strong year. It was a reaffirmation of LATAM's structural strengths translated into consecutive years of margin expansion in the context of high capacity growth and driven by a strategy that combines a focus on people, a differentiated customer experience, an unmatchable footprint, disciplined cost control and a resilient balance sheet. This is what defines this new LATAM. This performance and design set the base for expected 2026 strong performance highlighted in our yearly guidance, of which we feel very confident at the moment despite fuel and currency volatility. I'm very proud to be here leading a group of 41,000 souls and to highlight and discuss our performance. With that, I'll hand it over to Ricardo, who will walk us through the achievements of this fourth quarter and full year 2025. Ricardo Dourado: Thank you, Roberto. Let's move to Slide 4. LATAM delivered a solid financial performance during the fourth quarter with improvements across all key metrics. Total revenues reached almost $4 billion, increasing 16.3% year-over-year. This growth was driven by the passenger segment, which rose 20.3%, supported by the strong demand and capacity growth. Cargo revenues declined 9.6% in the period, explained by a particular high comparison base as the fourth quarter of 2024 had delivered an exceptionally strong performance. Despite the full year cargo revenues increased year-over-year. As a result, the group delivered an adjusted EBITDAR of $1.1 billion, representing a 30.4% increase versus 4Q 2024. Adjusted operating income came in $661 million, up 42.7% year-over-year, and net income totaled $484 million, increasing 78.1% compared to the fourth quarter of last year. Margins also improved with adjusted operating margin standing out at 16.7%. This quarter, we saw an increase in unit cost ex fuel with passenger CASK ex-fuel reaching $0.047. About $0.02 of this can be explained by the appreciation of the local currencies during this period, along with another $0.02 related to the other nonrecurring costs in wages and benefits, which include a special onetime bonus approved on this last quarter. While quarterly unit costs were elevated, it's worth highlighting that full year passenger CASK ex-fuel came in at $0.044, fully within the updated guidance range for 2025 provided on last November. Importantly, this 7.9% increase in unit cost was more than offset by an even stronger improvement in unit revenue. Passenger RASK increased by 11.7%, reflecting LATAM's ability to sustain its value proposition and capture customer preference in an environment of healthy demand. Please join me on this next Slide 5 to take a deeper dive on the drivers for revenue performance across the different affiliates and business units. Overall, the fourth quarter showcased a well-balanced dynamic between capacity deployment and demand across our network, supported by healthy load factors and target commercial actions. On a consolidated level, capacity grew by nearly 8%, while maintaining a solid load factor of 85%, showcasing our ability to grow efficiently. Looking at the LATAM Airlines Brazil's domestic capacity expanded by 12% and demand kept pace with load factors increasing by 0.7 percentage points. This balance supported by a solid passenger RASK performance with growth of 14% in U.S. dollars and 10% in local currency, highlighting the strength of LATAM's value proposition in this market together with the resilience of demand. In domestic Spanish-speaking affiliate markets, passenger RASK grew by 23% in dollars and nearly 20% in local currency, driven by a disciplined capacity allocation that resulted in an increase in the load factor to 1.7 percentage point higher than before. Turning to the International segment. Capacity and passenger volumes both grew at a high single-digit pace. While load factor declined slightly year-over-year, it remained at a very healthy 85% levels. In parallel, unit revenues increased by 6%, supported by a well-diversified network, both in the regional and long-haul international operations and a strong execution. Altogether, these results reflect the robustness of LATAM Group's commercial model and its ability to grow profitable. The fourth quarter confirms that the network strategies and the disciplined capacity deployment continue to deliver strong outcomes across the board. Turning now to our value proposition and customer experience on Slide 6. During 2025, LATAM Group continued advancing initiatives focused on enhancing services across key touch points with a particular emphasis on consistency, reliability and design. At the center of this improvement is our continued focus on the premium segment, where LATAM has made significant upgrades to its value proposition. During the year, we introduced a renewed business class experience, launched the signature check-in and our new signature launch in Lima and announced the future enhancements like the investments in Wi-Fi on wide-body fleet beginning in 2026 and the new premium comfort cabin coming in 2027 as well as the investments on the new and the brand-new launch in Guarulhos. As part of this ongoing focus, LATAM was once again recognized internationally. In the fourth quarter, the group received the most improved brand award globally by the Design Air, a recognition that adds to early achievements such as Skytrax' Best Airline in South America, the APAC 5-star Global Airline Award and the Air Cargo Airline of the Year award by Air Cargo News, all serving as third-party endorsements that we are on the right path. The customer experience enhancement initiatives demonstrate the group's commitment to delivering a consistent and differentiated travel experience across the region and further strengthen the customer preference for LATAM, and the results are validating these investment decisions. For the full year, premium revenues accounted for 23% of passenger revenues and continue to grow faster than the passenger revenues overall. While passenger revenues grew 12% year-over-year, premium revenues increased by 14%, highlighting the continued momentum of this segment, which provides LATAM with access to a customer base that is structurally more stable throughout the year, less exposed to seasonality and more resilient to potential macroeconomic headwinds. Coupled with this, the LATAM PASS program plays a critical role in accessing this segment, fostering loyalty among customers who travel more frequently and generate higher expense through the wide range of benefits the program offers. LATAM PASS is by far the largest airline loyalty program in the region with almost 54 million members, accounting for nearly 60% of LATAM's passengers revenues. This combination of a resilient customer segment and a highly effective loyalty program reinforces the sustainability of LATAM's revenue base and equips the group with the tools to continue driving profitable growth. Jump to Slide 7. You see on this slide that the way that we are translating this into tangible results. Customer satisfaction reached record levels. Net Promoter Score rose to 54 points, as Roberto mentioned, for passenger operations, while among premium travelers each reached 58 points, the highest ever recorded by the group. This is a clear indication that our customers are recognizing and valuing the improvements. At the same time, premium revenues continue to show an upward trend, supporting by growth, customers' preference and a more differentiated onboard experience. And importantly, we have managed to achieve these results while maintaining costs stable since 2019, confirming that LATAM can deliver a differentiated experience, all while keeping its cost base stable. Let's move to Slide 8. We have spoken a lot about structural improvements and the sustainability of the profitability stemming from the unique ecosystem of LATAM Group. Passionate people, a financial foundation, an exceptional product, premium revenues and a focus on cost containment, all of that supports a virtual cycle that results in these numbers year after year. This year, LATAM expanded its revenues in 11.2% and its adjusted operating margin to 16.2%, reflecting the profitable growth strategy and the continued disciplined capacity execution. Over the course of the year, the group received 26 aircraft, launched 22 new routes and grew capacity by 8.2%, making the 3.5% margin expansion, a clear reflection of LATAM's ability to grow strategically, not just in volume but in the profitability targets. It's also a testament to the group's deep knowledge of its markets and disciplined execution over time. Adjusted EBITDAR grew by over 30% year-over-year to $4.1 billion, supported by revenue growth and efficiency across the operation, all within the guidance range. At the bottom line, net income increased significantly by 50% versus last year, further reinforcing the group ability to deliver sustainability financial results. These results are part of a broader trend, one of continuous improvements and reliable execution. LATAM enters 2026 on solid footing with a strong foundation to continue creating long-term value. Please join me on Slide 9. As you can see on this slide, LATAM's strong performance is not only reflected in earnings generation, but also in its ability to consistently translate those results into cash generation. During 2025, adjusted operating cash flow reached $3.3 billion, supported by strong operational and financial performance. This cash generation enabled the group to fully fund its core business needs, including maintenance and growth investments with $1.5 billion invested in CapEx net of financing while also covering interest payments. As we highlighted earlier, our CapEx investments have been directed towards enhancing the customer experience, but they have also been focused on accelerating LATAM's digital transformation across the business. With that, LATAM generated close to $1.4 billion in cash after covering all business-related commitments. Over the course of the year, the group executed 2 share repurchase programs totaling $585 million. Also, LATAM Group distributed $400 million in interim dividends in the fourth quarter, bringing total dividends for the year close to $605 million. Even after all of these, LATAM still delivered almost $200 million in positive cash generation in 2025, demonstrating its ability to invest in the business, meet its key obligations and also allocate capital towards additional initiatives, all while considering defined financial policy range. Let's move to Slide 10 and see how this is reflected in our balance sheet metrics. Balance sheet strength has been one of LATAM's key priorities over the past few years, and liquidity is one of the clearest expression of that focus. The group has consistently grown its nominal liquidity, reaching $3.7 billion by the end of 2025. As we just reviewed on the previous slide, it was through the additional capital allocation initiatives carried out in 2025 that LATAM was able to bring liquidity as a percentage of last 12 months revenues closer to the top of the policy range at 25.7%, demonstrating the flexibility the group has to allocate capital across multiple fronts while aiming at the final financial framework. At the same time, on the debt side, adjusted net leverage reached 1.5x below the last year and the maximum policy level of 2x, placing LATAM in a strong position heading into 2026 with the flexibility to continue investing while also preserving financial strength. Moving to the next slide. Let's take a look on the continuous optimization of the cost of capital and debt tenure. LATAM has taken important steps over the past 2 years to improve its cost of debt. Through refinancing exercises carried out in '24 and '25, the group successfully reduced the weighted average cost of debt from 10.7% in 2023 to 6.6% as of the end of 2025. In parallel, LATAM debt amortization profile is well balanced with no short and midterm relevant maturities. And furthermore, LATAM holds call options in '26 and '27 that offer potential opportunities to reprofile these maturities and also reevaluate the potential tender split to improve even more this debt profile. Let's move now to the Slide 12. As reflected in 2026 guidance published back in December, we expect it to be another year of continued profitable growth. Capacity is projected to grow between 8% and 10% and to deliver an adjusted operating margin between 15% and 17%, reflecting LATAM's focus on efficiency and disciplined execution. In terms of cash, adjusted levered free cash flow is expected to exceed $1.7 billion from $1.5 billion this last year, reinforcing the group's ability to consistently translate earnings into liquidity. We also expected liquidity above $5 billion for the end of 2026. And as we have mentioned in Investor Day held in December, given our financial policy range, we would have between $1 billion and $1.6 billion after CapEx investments and minimum dividend payments available for additional capital allocation initiatives in 2026. This year, LATAM will continue investing in key strategic areas, including the customer experience, the renewal of the fleet, efficient focused innovations and the continued reinforcement of balance sheet discipline. Again, to remind you of the main figures that were disclosed in the Investor Day, the CapEx plan for this year, net of finance -- the fleet of financing is about $1.7 billion. For the year, the group is expecting to receive 41 aircraft, of which 3 are wide-bodies and 12 correspond to the first Embraer E2s. The last slide, Slide 13. And before we move to the Q&A, let me briefly highlight the key message from 2025 performance. 2025 was another year of strong and consistent performance for LATAM, both operationally and financially. Operational excellence was matched by record levels of customer and employee satisfaction with NPS and Organizational health index reaching all-time highs. The group transported a record number of passengers, expanded the network with discipline and delivered a significant improvement in profitability with adjusted operating margin increasing 3.5 percentage points year-over-year to 16.2%. This profitability was translated all the way to the bottom line with annual net income closing at $1.5 billion. These results reflect the group's ability to grow efficiently while maintaining a focus on margins and operational excellence. During 2025, we fully funded investments in the business and met all financial commitments while generating cash. LATAM generated $1.4 billion in cash before executing 2 share repurchases and separately distributing dividends while still holding a strong liquidity level and low leverage. At the same time, we strengthened our balance sheet, aiming at the financial policy targets and focus on reducing the cost of debt, which now stands below 7%. Looking ahead, we are entering 2026 with solid momentum. Our guidance reflects continued profitable growth, supported by healthy demand, commercial discipline and a clear focus on the strategic priorities. With that, we will now open the line for your questions. Operator: [Operator Instructions] Our first question comes from Julia Orsi from JPMorgan. Julia Orsi: So we have 2 questions on our side. The first one is on yields. So we saw a strong pricing performance this quarter. Congratulations on that. Can you provide additional details on how yields are tracking across the regions? And the second one, based on recent trends, how is the booking curve and demand environment evolving? Is there any particular region that has been outperforming or underperforming? Roberto Alvo Milosawlewitsch: Julia, this is Roberto. Thanks for the questions. We saw, in general, strong and stable demand over all of the business areas where we operate. In the last couple of months of the year, domestic Chile was a little bit slower as compared to particularly 2024, but at an industrial level, and you can see that on the public figures. But we have seen already a recovery in the first months of the year. So I would say that all the business performed on a relatively good basis in 2025 last quarter in the passenger segment. Cargo, it was also good. Again, as Ricardo said, a very strong basis of comparison the last quarter in 2024. It still was robust and the current appreciation of the currencies will probably increase import demand into the region in the upcoming months. Booking curve for early 2026 looks healthy. We see no issues that concern us today. And in general, all the segments are performing well. As it has happened in the past 2 or 3 years, the segment that has been growing the most is international, and this is also reflected in our capacity during 2025 and also the guidance that we provided for [indiscernible]. But in general, we see no concerns on the demand side going forward, at least for the first quarter. Operator: Our next question comes from Michael Linenberg from Deutsche Bank. Michael Linenberg: A couple of questions here. Great way to end 2025. These are fantastic results. The when you talked about the CASK impact of 0.2% from the impact of the weak dollar. As we think about LATAM and how you have evolved your structure and the seasonality and the geography of your network, where do you come out with respect to the dollar? Is a weaker dollar overall better, even though I realize there's a cost headwind, is it just better overall for the performance of the company? And I'm just sort of in the context of the last 12 months, we've seen about a 10% depreciation of the dollar. How should we think about that on your business? Roberto Alvo Milosawlewitsch: Michael, thanks for the question. A great question. So let me give you -- at the end of the day, for us, a stronger local currency is more positive than a weaker local currency. And this derives from, a, on the domestic markets, basically, most of our revenue is expressed in local currency or happens in local currency and a significant portion of the cost is in dollar. So domestic markets work like import industries, if you want. And in the case of international, for us, it's also beneficial because even though the countries become more expensive for traveling into the region, if you want, purchasing power for traveling abroad is higher and our point-of-sale balance is higher on our South American side than our long-haul side. So the balance that we see is that a stronger currency vis-a-vis the dollar, net of higher cost because of the same effect are net positive. Michael Linenberg: Great. That's super helpful. And then I just -- I want to talk about CapEx for 2026. Last year, you took 26 airplanes. I believe this year is going to be a heavy delivery year. I know that the Embraers coming in are a big component of that. I think you're taking delivery of over 40 airplanes, 40, 41 airplanes. Can you just refresh us and how we should think about CapEx in 2026? Ricardo Dourado: Michael, it's Ricardo. And you are right. We are expecting to receive 41 aircraft and the CapEx is $1.7 billion net of financing. Remember that a relevant part of the CapEx delivers is going to be financed through [indiscernible] and also finance lease. And we are holding the increase in the investments that we have. And remember, we have a lot of investments in the retrofit of the cabins, still the renovation and the starting of the process to implement the new premium content and so on and so far. So that's the overall picture that we have. And remember, from these 41 deliveries that we are expecting, we expect to receive 3 additional 787s and also the first 12 Embraers on the last quarter, the last quarter. Roberto Alvo Milosawlewitsch: So the balance is [indiscernible], Michael. Neil Glynn: Okay. Great. And the balance is... Ricardo Dourado: 26 from the A320 family. Operator: Our next question comes from Jens Spiess from Morgan Stanley. Jens Spiess: Congrats on the results. I have a question on the net debt coming in at $5.9 billion, which was around 8% above your guidance. So if you could just elaborate on what turned out to be different versus your initial expectations. I would appreciate that. Ricardo Dourado: Sure. Actually, when we provide that guidance was before the announcement and the decision to distribute the $400 million dividend. So that was the main difference from the guidance that we disclosed before, Jens. Jens Spiess: Makes sense. Makes sense. So going forward, you will be updating your net debt guidance, right, for the potential dividends you will be paying. Is that correct? And just a follow-up question, if I may. On the E2s, when do you expect to deploy them? And what is your thought process on allocating that capacity? Will it be mostly targeting new routes and destinations? Or what's the plan there? Ricardo Dourado: Okay. So only for that reason in terms of the debt update, we don't need to update the guidance for that because we disclose all information related with that. And if and when we need to update other specific situation from the guidance, we will update everything. Roberto Alvo Milosawlewitsch: Jens, this is Roberto. Just complementing and clarify one thing on what Ricardo said. So our guidance doesn't provide any distributions on top of the minimum statutory dividends that we have to pay by law here in Chile, which is 30%, okay? So that's why you see $5 billion of liquidity going forward. But as Ricardo explained as well, over and above our finance policy, we have around $1 billion to $1.6 billion, and the Board will further decide on opportunities for capital allocation. If we end up doing something and if we will inform the market at the right time, and we will update the figures related to that with those potential things happening, okay? With respect to the A2s, so this will be deployed in Brazil domestic, the first 12 that we will receive this year. The strategy is that they will based out of our hubs. So we expect to see them flying out of Guarulhos, out of Brasilia, out of Fortaleza. And you can think about this in 2 ways. They allow us to fly new cities where the 319s, even though at the same time, their economics don't allow us to operate those cities. So you will see new destinations. You will also see probably increased frequencies on certain routes where we currently operate A320 related fleet and some combinations of these that we have never flown when you combine these 2 things. So you will see domestic Brasilia routes, both in opening new routes and increasing frequency in certain routes. Jens Spiess: Okay. Very clear. And just one quick follow-up, sorry, on the dividend distribution and the net debt guidance. So looking at 2026, everything that will be forward-looking is only the regulatory or mandated dividends that you're factoring in there. Anything in excess basically would only be updated on like looking backwards basically on what you already paid or what you already announced, right? Just to make sure we'll be modeling this correctly. Ricardo Dourado: Yes, you are correct. So as Roberto mentioned, the range that we disclosed as a calculation under the financial policy to have between $1 billion and $1.6 billion available, it's the consideration regarding the 21% and 25% range of the guidance in terms of liquidity. And that amount is not considering the guidance that we provide. So we only consider the CapEx that is expected and also the minimum dividends. Operator: [Operator Instructions] Our next question comes from Filipe Nielsen from Citigroup. Filipe Ferreira Nielsen: So I have 2 on my side. One is related to the costs that we saw this quarter. Just trying to break it between potential one-offs or costs that you think it could be something more structural during 2026. We know that there are effects from a weaker dollar, stronger local currency. So if you could like clarify which impacts were more like one-offs in the quarter and which ones were -- could remain for longer during 2026? And my second question is regarding the cargo operations. Just wanted to check your sense on how cargo yields should evolve in 2026. We have the guidance for volumes, but I just wanted to make sure how the top line on cargo should evolve. Ricardo Dourado: Okay, Filipe. Just to give you, I think, the more color in terms of the impact that we have in the fourth quarter, we disclosed that from this 4.7, we have 2 different impacts. 0.2 coming from the weaknesses of the U.S. dollar in the fourth quarter, 0.2, and the other 0.2 as what we call one-offs from this quarter. But remember, I would like just to emphasize the guidance that we provided for 2026. There is nothing structural. So we are confident that the level of investments that we have in all initiatives. Remember from the Investor Day, we disclosed that we have more than 700 initiatives internally in the company to provide more efficiency. We have this cost containment structural behavior in the company. And the guidance that we provide for this year is well aligned with the same trend between $0.043 and $0.045. So there is nothing material, nothing structural to be considered that could represent any risks from our perspective. But yes, we also have -- remember, in our guidance, the assumption to have, for instance, the BRL at 5.5. The BRL is now at 5.2, and then we have to reflect. But on the other hand, as Roberto explained in another question, we also have another positive impact in terms of RASK. So I also emphasize on the slide in terms of the results from the fourth quarter. The CASK have increased to 7.9%, but the RASK have increased even more to 11.7%. Roberto Alvo Milosawlewitsch: And the cargo question, Filipe, we don't disclose our unit revenues on cargo, but let me give you a couple of data points that are important. Northbound traffic is export traffic. Southbound traffic is import traffic. Import traffic normally has higher yields than export traffic just because of the nature of what is exported. It's basically raw materials going north and it's, if you want, perishables -- technological perishables coming south. So there may be a potential change in the mix just because of the currency appreciation that we will see if it happens during the year. But we don't see today significant issues in the demand side to believe that our -- that the unit revenues in cargo are going to be materially different. The start of the year is always low because people send inventories to close the prior year, and now we have the Chinese New Year, which is very relevant on the cargo side because basically China shuts off for a week. But the basis of growth and the stability of the market is [indiscernible]. We have no -- nothing to concern us at this point in time. Operator: Our next question comes from Gabriel Rezende from Itau BBA. Gabriel Rezende: Congratulations on the set of very strong results. Two questions here on our side. Correct me if I'm wrong, but you mentioned that around 23% out of your passenger revenue came from those more premium-related revenue. Just trying to understand where the company is targeting to land this number along 2026. So how much can this 23% increase along the year, what is the company's target at this point? And also, we talked a lot during the call about this positive FX environment, especially here in Brazil. And also, we are seeing a favorable oil price environment as well. Just trying to understand whether you see the sector at some point in time, perhaps this year, accommodating yields into a slightly lower base versus where we are at this point. Roberto Alvo Milosawlewitsch: Thank you. So second question first. We see -- I mean, Brazil was out of the 10 largest domestic markets in the world, the one that grew the most in 2025 which is quite impressive, I think. And we see momentum from that perspective. And at this point in time, I think that the capacity outlook for the industry in Brazil, together with the demand perception leads us to believe that it's going to be a stable year as compared to what it was in 2025. So we see potential for development of our strategy and our network over there as we have done it in the last 2 or 3 years. So I don't think at this point in time that we will see a significant change in dynamic of the market, at least for 2026. We don't see the elements of that. And more generally, I think that the capacity situation in the industry as a whole with the engine situation and the manufacturers still trying to catch up to replace older aircraft and to meet their commitments in deliveries is going to mean that 2026 is going to be similar to 2025 in terms of global capacity. I forgot the first question. Can you remind me, sorry, please? Unknown Attendee: What percentage -- with regard to our premium revenues, how we see that target going forward given the fact that we reached 23% of premium revenues. Roberto Alvo Milosawlewitsch: We don't disclose the target for premium revenue, but we believe that premium revenue will still grow faster than our total revenue and our capacity during 2026 as it has happened in the last few years. Operator: Our next question comes from Savanthi Syth from Raymond James. Savanthi Syth: Just a couple of questions from me. First one, just on the corporate side. I know you mentioned demand strong widely across the regions. But I was curious what you're seeing on the corporate side, if there's any acceleration there or any trends to call out? And then just secondly, I'm wondering there's one of your competitors that have kind of refocused on premium offering. And just wondering what you're seeing in the region and if there's still kind of maybe premium growth in offering is still outstripping or actually maybe demand is outstripping the supply. Roberto Alvo Milosawlewitsch: So corporate recovered probably 1.5 years ago from before 2020 already. Growth in corporate demand looks stable. I think what's most relevant is that we have been gaining consistently market share in corporate segments. And that you can see very clearly on public information provided by travel agency in Brazil, for example, where you can see that public information figure. And the set of what we have created, the network, the execution, the frequent flyer leads us to believe that this position we have is going to be maintained or even be increased in the upcoming future. So no concerns with respect to corporate demand at this point in time. And I think that LATAM has put itself in a very strong position to serve corporate customers, whether it's because of our network, because of our FFP, because of our delivery. And the second question, it's interesting. You mentioned premium offer. I think I said it in my speech, and it all starts with people. you are not going to be able to attract customers that want to fly again with you and particularly demanding customers as customers -- as premium customers only with hardware. You need software. And in that sense, I think that LATAM stands out completely with respect to not only its direct competition in the region, but also in many regions across. And this is one, I think, of the learnings of the last few years and what has started the cycle where now you see profitable growth that we have. At the same time, we believe that we can improve on execution, and I believe that we can still improve significantly on hardware, on the physical delivery of our product. As Ricardo mentioned, we just inaugurated a launch in Lima. We're going to reinaugurate a bigger launch in Guarulhos next year. We'll have premium economy on wide-bodies, we'll install WiFi and wide-bodies, which I think is an important lag. And at the end of the day, even though maybe our competitors are trying to catch up to us, we continue improving. But the DNA of this organization and the people, I think, is unmatchable at this point in time. Operator: [Operator Instructions] Our next question comes from Felipe Ballevona from Santander. Felipe Ballevona: I have a follow-up on Jens question about net debt. You stated that you ended up missing the guidance due to the $400 million dividend announcement. However, you said that the minimum dividend is considered in the guidance. And if I'm not mistaken, those $400 million wouldn't be extraordinary dividends, but minimum ones. So how can I put this 2 together? And also on a separate note, what's the currency breakdown of your debt? Roberto Alvo Milosawlewitsch: Yes. I'll pass to Ricardo on the second one. But I mean, just maybe it's good to clarify, minimum dividends 30%, but they are paid the following year, normally after the shareholders' meeting, and that happens in Chile normally in April, okay? What we did is that we advanced a significant portion of minimum dividend in December, and we paid $400 million in December. So as what you are seeing is net debt as of 31 of December, and that was not in the previous guidance, you have to adjust for those $400 million, okay, which means that in April, the company would have already counted those $400 million for the calculation of the final dividend that it would. So that's probably the clarification on this, okay? With respect to currency... Ricardo Dourado: Is that clear, no, the question regarding -- okay. And in terms of currency, I think almost 100% of our debt are in U.S. dollar. We only have one local bond that close to $160 million in local currency. So it's almost everything in U.S. dollars. Roberto Alvo Milosawlewitsch: And that's local currency... Operator: We currently have no further questions. So I'll hand back to Ricardo for closing remarks. Ricardo Dourado: Again, thank you all for connecting this morning. Please note that our Investor Relations team is available for any further questions. Have a great day, and thank you again. Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the Cognizant Technology Solutions year-end Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question at that time, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before Thank you. I would now like to turn the conference over to Mr. Tyler Scott, Senior Vice President, Investor Relations. Thank you. Please go ahead, sir. Tyler Scott: Thank you, operator, and good morning, everyone. Welcome to Cognizant's fourth quarter and full year 2025 earnings call. I am joined today by Ravi Kumar, our CEO, and Jatin Dalal, our CFO. Now, you should have received a copy of the earnings release and the investor supplement. If you have not, copies are available on our website, cognizant.com. Before we begin, I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's earnings release and other filings with the SEC. Additionally, during our call today, we will reference certain non-GAAP financial measures that we believe provide useful information for our investors. Reconciliations of non-GAAP financial measures where appropriate to corresponding GAAP measures can be found in the company's earnings release and other filings with the SEC. With that, over to you, Ravi. Ravi Kumar: Thank you, Tyler. Good morning, everyone. Thank you for joining us today. I'm pleased to report our momentum continued in the fourth quarter. Revenue growth and adjusted operating margin again outpaced our expectations. Looking at the quarter's highlights, revenue grew 3.8% year over year in constant currency, all organic, driven by North America. By segment, financial services led growth with constant currency revenue increasing 9% year over year during the quarter and 7% for the year, the highest annual level since 2016. Q4 bookings grew 9% year on year, driving a record quarterly total contract value. We signed 12 large deals with TCV of $100 million or greater, including one deal valued at more than $1 billion. The value of these large deal wins is 60% greater than a year ago. Adjusted operating margin of 16% improved by 30 basis points year over year. We now have over 4,000 AI engagements across all three vectors, and over 30% of our developer effort in software development cycles is AI-assisted and agent tech. Our productivity improved as fixed bid and transaction-based work now represent more than 50% of our revenue. We also saw a 5% and an 8% increase in trailing twelve-month revenues and adjusted operating income per employee, respectively. These results drove 2025 revenues up 6.4% in constant currency, surpassing the $20 billion mark and the high end of our guidance range. Importantly, we delivered profitable growth. Our 15.8% adjusted operating margin exceeded guidance, rising 50 basis points over last year. We achieved this result while investing in our people, including through a merit cycle for most associates and our highest discretionary annual bonus funding level since 2018. January marked my third anniversary as Cognizant's CEO. When we began this journey in early 2023, we set out to reclaim our winning heritage. In 2024, we successfully pivoted from stabilization to growth, industrialized a large deal engine, and expanded our platform strategy with AI-led investments to broaden our capabilities. In early 2025, we laid out our strategic objectives to amplify talent, scale innovation, and accelerate growth. We also set a goal to reach our industry's winner's circle by 2027. I'm extremely proud that we arrived two years early with top-tier revenue growth. Throughout 2025, we executed with speed and discipline, consistently meeting or beating the high end of our expectations each quarter as our investments began shaping Cognizant into an AI builder capable of scaling agentic AI across our clients' landscapes. Looking at additional milestones that demonstrate successful execution on our three strategic priorities, in 2025, we promoted more than 35,000 associates. We signed 28 deals, each with TCV above $100 million, with a combined TCV up nearly 50% versus last year. This includes five mega deals with TCV of $500 million or greater. Our net promoter scores reached a record high in 2025, from when I started three years ago. We expanded the breadth and depth of our partnerships across the hyperscaler and AI-native landscapes. We signed and have since closed our acquisition of Three Cloud, adding more than 1,200 Azure specialists and engineers to industrialize our deep expertise in Azure data and AI and application innovation. We returned $2 billion to shareholders through dividends and share repurchases. Our progress is reflected in our total shareholder return, which was top two within our peer group in 2025, both 2025 and the three-year period beginning 2023 through. Finally, with Belcan, we completed key integration milestones and continue to build a healthy synergy pipeline in the aerospace and defense industries. Last week, we announced Belcan secured a position on the missile defense agency's shield program. The indefinite delivery, indefinite quantity contract with a ceiling value of $150 billion positions us to compete for a broad range of task orders supporting innovative defense capabilities. As we enter 2026, our strategy is focused on solving the AI velocity gap. The gap between massive AI infrastructure spending in the past few years and business value realization for our clients. While AI technology is now mature enough to offer transformative value, the methodologies and tools to harness it are only just emerging, and the value to enterprises hasn't drifted yet. In fact, our latest new work new world research released last month reveals that AI is capable of unlocking $4.5 trillion in US labor value in the future. Cognizant's mission is to be the AI builder bridging the gap to enterprise value by converting the technology to measurable returns on investments for our clients. We are approaching this opportunity through our three-vector strategy. To capture vector one demand, as we call it, we're applying AI-led productivity to augment and accelerate traditional software cycles. As we shared at our Investor Day, we see a massive multi-trillion dollar opportunity to help clients accelerate the elimination of technology debt, build classical software in newer ways with AI platforms, and repurpose savings towards innovation. To capture what we call vector two and three, we are building entirely new cycles of agentic capital and digital labor that go beyond the reach of legacy software, creating a much larger total addressable spend. Closing this velocity gap, the AI velocity gap requires new methodologies and evolving beyond the traditional IT services role of the last two decades. In the nineties, we were bespoke systems builders. We wrote custom software code, and we owned the outcomes. In the two decades that followed, our role evolved into orchestrating classical software owned by various software providers. But classical software was written around the microprocessor, was deterministic, and built on rigid logic and fixed rules. Today's AI-led software, which is written around the frontier models, is probabilistic and contextual. This shift allows us to own the stack again and deliver outcomes. We believe the invention and reimagination of businesses will be driven by value at the intersection of AI-led agentic capital and classical software. To capture this demand, our AI builder stack acts as the connective tissue that addresses four layers of the ecosystem: AI compute, cloud, model access, and human capital services. Let me share some key elements. First is our trademark basis framework, our proprietary blueprint that guides clients in architecting new business processes, specifically for deploying and orchestrating autonomous agents. This is a fundamental shift from writing rigid logic to designing behavior, persona, intent, and outcomes. Second is our pioneering science of context engineering, a methodology for mapping a client's unique work graph, giving AI the situational awareness it needs to produce reliable business outcomes. Context engineering bundles an organization's operating principles, tribal knowledge, work patterns, friction sources, and historical and cultural imperatives so that AI intelligently binds to the enterprise's heterogeneous context, creating highly productive agentic capital. Third is our AI partnership ecosystem, which we continue to strengthen. On NVIDIA stack, we are offering solutions across the full life cycle, from building and fine-tuning models to standing up agentic applications and deploying them as microservices. With Anthropic, Google Cloud, Microsoft Azure, and OpenAI, we're using their frontier models and agentic tooling to build layers of application value to accelerate AI adoption for our clients. With Adobe and Typeface, we are modernizing the enterprise marketing function and enabling cutting-edge customer experiences and content by moving manual workflows to agentic orchestration. With Claude's code, cognition, GitHub, and WinSurf, we are industrializing software creation through advanced code generation. With WorkFabric, we are scaling the emerging discipline of context engineering. With Ryder and Uniphore, we are partnering to deploy specialized domain-specific AI platforms. With Palantir, we will integrate its foundry and artificial intelligence platform to support the integration of AI with our TriZero business. Finally, with Salesforce and ServiceNow, we are embedding our agentic networks directly into our client's primary enterprise workflows. The fourth layer of our AI builder stack is our own proprietary IP across platform services and research. For example, Source elevates our engineering velocity while neuro IT ops harnesses AI to proactively manage and self-heal hybrid environments. Our AI data services have helped curate billions of high-precision data points for global clients. With Sizeto, we are accelerating and improving health care management. Our recently launched CareAdvanced AI offerings help streamline clinical workflows, reduce administrative burden, and empower care teams with faster and more accurate insights. Our award-winning AI labs, which was awarded its sixty-first patent, continues to feed our continued investments in AI platforms and products. To industrialize our AI builder stack, we have formed three units to sharpen our go-to-market muscle. First, our market-facing AI units are the hunters of value seekers working to capture the $4.5 trillion in labor value our research identified. Second, our integrated AI solution unit acts as an architectural core bringing various components of the AI stack together with strategic partnerships, cognizant methodologies, and AI platforms to address specific reinvention needs of businesses. Finally, our centralized AI platforms and products unit is a factory packaging custom IP into repeatable solutions. Underpinning our AI builder stack is our talent strategy. Over the last two and a half years, over 340,000 of our associates have completed AI skilling. We are shifting from a traditional linear staffing model to an asynchronous autonomous software engineering model. In this framework, our associates are trained to delegate complex high-value macro tasks to agentic networks while the micro steer to outcomes using platforms like Cognition, Gemini, Cloud, Hub, and others, orchestrating through Cognizant FlowSource. We are in the process of developing a hyperproductive high-velocity delivery model for agents to asynchronously assist human software developers and agent managers. In addition, we are broadening our talent base with non-STEM talent and early career programs. This includes aggressively recruiting interdisciplinary skills at the intersection of industry domain and technology. We added over 16,000 associates in India in 2025. In 2026, we are targeting 2,000 campus hires in the US and approximately 20,000 in India. We are seeing this AI builder strategy translate into demand across our core practices. For example, our proprietary platforms like Flowsource and neuroengineering are helping clients unlock technology debt, helping to fuel 8% year over year in both the fourth quarter and year in our digital engineering practices. Similarly, as our clients rethink their operations through an agentic lens, demand for our BPO business powered by deep immersion of digital labor grew 9% year over year in the quarter and the year. Our AI data training services launched early last year is gaining traction with our clients to build fine-tune AI models at speed and scale. Demand for data and cloud modernization remains healthy with revenue across both practice areas growing mid-single digits organically, outpacing total company growth. Let me share a few client examples of our strategy in action. First, with the financial services client, we signed an incremental billion-dollar partnership where we are leveraging our AI platforms, including our NeuroSuite and FlowSource, to help accelerate speed to market, drive product innovation, and deliver enhanced productivity. Next, with Cisco, the global leader in food distribution, we're transforming their complex customer interaction ecosystem into agentic capital. Previously, customer requests from product credits to auto substitutions could have prolonged resolution windows. Now, by deploying orchestrated agents, we have collapsed that cycle to ninety seconds. Cisco is harvesting this AI-generated savings to fund its next phase of identification. In the health care sector, we moved from pilots to production-grade automation. For a major US regional player, our AI intake platform reduced enrollment cycle times from as many as seven days to minutes. On their claim side, our clinical engine now adjudicates 96% of nurse note reviews autonomously, cutting human review times from eight hours to twenty minutes. We are scaling this expertise globally through a new strategic collaboration with Bupa Hong Kong, where our GenAI-led business process as a service solution modernizes claim and fraud, waste, and abuse detection, marking our largest BPO win in the region. We announced a multiyear expansion with Kolar, a leader in kitchen and bath products, building on our successful five-year partnership. We are bringing our cloud management capabilities and AI solutions like neuro idea ops to advance Kolar's digital ecosystem and drive AI-driven innovation. As we look towards 2026, we are well-positioned to continue our momentum. Our ambition is to lead as an AI builder and maintain a position in our industry's winner's circle. In closing, I'm proud of all that we have accomplished over the last three years. It has helped us reach our industry's winner circle two years ahead of plan. As the next decade of contextual computing unlocks new waves of nonlinear enterprise productivity and agentic software cycles, I believe there is a significant opportunity to create shared value for our clients, our associates, and our shareholders. The foundation is set. I believe the boldest chapters of our story are still ahead. Thank you again for joining us. I'll now turn the call over to Jatin. Jatin Dalal: Thank you, Ravi, and thank you all for joining us. Our fourth quarter and full-year results were a significant milestone in a multiyear journey marked by disciplined execution, strategic clarity, and operational excellence. We delivered fourth-quarter revenue growth above the high end of our guidance range and exceeded the initial full-year guidance we provided in February across all revenue, adjusted operating income, EPS, and free cash flow. We expect that our calendar year 2025 constant currency revenue growth will be in the top tier among the 10 peers against which we benchmarked performance, placing us definitively in the winner's circle. Beyond revenue growth, we achieved each of the broader objectives we provided at our Investor Day. This includes sustaining large deal momentum, skilling for the future through AI training, approximately 260,000 employees, adjusted operating margin expansion of 50 basis points, and 2025 adjusted EPS growth of 11%, well above revenue growth. We delivered these results during a period of significant macroeconomic complexity and technological change, further bolstering our conviction in the strategic actions we have taken to become an AI builder company. We are well-positioned to sustain this growth in 2026 and confident that we can build on this momentum in the years ahead. Now moving to the details. In Q4, revenue of $5.3 billion grew 3.8% year over year in constant currency and was all organic. For the full year, the revenue of $21.1 billion grew 6.4% in constant currency, including 260 basis points of growth from Belcan. With respect to demand, the environment remains complex. Traditional discretionary spending cycles continue to evolve as clients rebaseline expectations for productivity gains. However, we view this as an opportunity to capture wallet share in large deals and help clients reinvest savings into innovation. Moreover, it opens new pools of addressable spend for us to advance our AI Builder strategy. Now, turning to segment results. Financial Services once again led with full-year constant currency revenue growth of approximately 7%. This was driven by strong performance in North America across banking, financial services, and insurance clients. We have seen a steady improvement in discretionary spending in the last several quarters and consistent large deal signings, including a new mega deal in the fourth quarter. Our pipeline is strong, and we feel well-positioned to carry this momentum into 2026. Health sciences performance was resilient despite ongoing industry cost pressures and policy changes. In this period of heightened uncertainty, we are helping customers reduce costs while improving patient experiences and accelerating productivity. These cost savings are funding clients' future-focused investments across core platforms, cloud modernization, and regulatory readiness. We are seeing GenAI projects grow in areas like claims efficiency, clinical documentation, and customer experience. TriZetto remains a core differentiator, driving growth in implementation and managed services as clients modernize their administrative cores. Products and resources performance has been stable. While tariff uncertainty continues to suppress discretionary spending, we expect large deal traction during 2025 to drive better performance in 2026. AI adoption is growing across consumer and retail sectors, leading to demand for data services and agentic-led experience transformation. In communications, media, and technology, fourth-quarter year-over-year growth among our technology customers was more than offset by weakness in comms and media. Within comms and media, we have seen some impact from broader end-market softness, particularly in North America. On the technology side, clients continue to rapidly innovate and adopt GenAI, which is driving demand for our services. Geographically, North America was again our standout region in the fourth quarter, with growth of more than 4% year over year in constant currency, driven by financial services and healthcare. Europe grew 2% in constant currency, with healthy growth in financial services and among life sciences customers. Rest of the world grew in line with the total company, driven by the Middle East. Turning to bookings, bookings growth in the fourth quarter was driven by robust large deal performance. We signed 12 deals, each with TCV of more than $100 million. This includes two mega deals in the quarter, one in financial services and one in healthcare. On a trailing twelve-month basis, bookings grew 5% and represented a book-to-bill of 1.3. Annual contract value declined modestly year over year due to the mix of longer-duration deals and softness in small deal banks. That said, our backlog visibility at year-end is similar to where it stood this time last year and underpins our confidence in our full-year guidance. Now moving on to margins. Fourth-quarter adjusted operating margin of 16% increased by 30 basis points year over year, benefiting from NextGen program savings, increased utilization, and the Indian rupee depreciation. We delivered this result despite increased compensation costs, including our merit cycle and variable compensation, which drove a significant portion of our gross margin change year over year. Variable compensation for the majority of our associates is expected to be the highest since 2018, and we remain committed to investing in talent to fuel our growth. In November, the Government of India implemented certain provisions of the Code on Social Security or Labor Code as part of a broader labor law consolidation initiative. These rules did not have a material impact on our P&L in the quarter but did result in a one-time increase to our defined benefit liability on our balance sheet with a corresponding increase to accumulated other comprehensive income. We anticipate a modest increase in our defined benefit costs perspective. Now, to additional details on EPS, cash flow, and capital allocation. Fourth-quarter adjusted diluted EPS was $1.35, up 12% year over year. This drove full-year EPS of $5.28, up 11% from the prior year. DSO of eighty-one days declined one day sequentially and increased three days year over year. Fourth-quarter free cash flow was up approximately $800 million and brought the full-year amount to $2.7 billion, representing more than 100% of net income. During the fourth quarter, we returned nearly $500 million of capital to shareholders through share repurchases and dividends, bringing the full-year total to approximately $2 billion. We ended the quarter with cash and short-term investments of $1.9 billion or net cash of $1.3 billion. These amounts exclude about $730 million, which was deemed restricted cash and held in escrow ahead of the closing of the Three Cloud acquisitions on January month. Our M&A pipeline is healthy, and we intend to maintain an active acquisition strategy to strengthen our capabilities aligned with our AI Builder strategy. We believe our robust free cash flow and strong balance sheet provide us with flexibility to invest strategically in the quarters ahead while continuing to return significant capital to shareholders. Now turning to 2026 guidance. For the first quarter, we expect revenue to grow 2.7% to 4.2% year over year in constant currency. This includes approximately 100 basis points from our recently completed acquisition of Three Cloud. The midpoint of this range implies a modest sequential decline on an organic basis, due in part to lower bill days in Cuba. For the full year, we expect revenue to grow 4% to 6.5% in constant currency. This includes an inorganic contribution of approximately 150 basis points, of which approximately one-third is expected to come from future M&A. The midpoint of the range implies organic revenue growth of approximately 3.8%, which is consistent with our 2025 performance. This is also approximately 150 basis points above the midpoint of our initial 2025 organic growth guidance provided last year. At the midpoint, our full-year guidance implies stronger sequential growth in the second and third quarters compared to 2025. Similar to our guidance philosophy last February, the midpoint is based on our current visibility and the discretionary demand environment as we see it today. Our adjusted operating margin guidance is 15.9% to 16.1%, which represents 10 to 30 basis points of expansion and is in line with the outlook we provided at our Investor Day last year. Similar to 2025, we expect expansion will be driven by cost discipline and SG&A leverage. We expect free cash flow conversion of 90-100% of net income. The adjusted effective tax rate is expected to be in the 25% to 26% range. The midpoint implies a modest increase year over year, driven in part by discrete beneficial items in 2025 that we do not expect to repeat in 2026. Our expected weighted average diluted share count is approximately 475 million. This leads to adjusted diluted EPS guidance of $5.56 to $5.70, representing 5% to 8% year-over-year growth. Expected EPS growth is being driven by anticipated revenue growth, margin expansion, and lower share count. This is being partially offset by a higher tax rate, lower interest income as a result of lower assumed interest rates, and an increase in non-operating expenses related to the India labor code changes. For 2026, we expect to return approximately $1.6 billion of capital to shareholders, including approximately $1 billion towards share repurchases and the remainder toward our regular dividend. This leaves ample expected free cash flow available for future M&A. As always, we will evaluate these plans regularly. In the absence of strategic and accretive acquisition targets, we expect to return capital to shareholders and not build cash on the balance sheet. Finally, as we mentioned last quarter, we continue to evaluate a potential primary offering and secondary listing in India. We have engaged various financial and legal advisers as well as the regulators in India to assess the idea. As always, we remain committed to acting in the best interest of our shareholders, and this process aligns with this commitment. As of today, the board and management team continue to evaluate the proposal and have not yet made a decision. In summary, 2025 was a successful year. As we look toward 2026, we are well-positioned to continue our momentum. As Ravi mentioned earlier, our ambition is to lead as an AI builder and maintain our position in our industry's winner circle. With that, we will open up the call for your questions. Operator: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Jason Kupferberg with Wells Fargo. Please proceed with your question. Jason Kupferberg: Good morning, Nice to see these numbers. I just wanted to start on the AI topic. And obviously, some new data points coming out from certain industry participants just over the last couple of days. For example, talking about expediting ERP implementations pretty significantly. It certainly seems to us, like, Cognizant to date has been a net winner from AI. To get your perspective on how that plays out in '26 and maybe just in light of some of these recent headlines, what percent of your total revenue currently comes from package implementation? Thanks. Ravi Kumar: Thank you for that question. You know, this has happened over tech revolutions before. When a new technology comes, we kind of think the old technology will go away, but the new technology will actually provide more opportunities. I see this as an increase in our total addressable spend. I mean, if you're referring to what's happening in the last few days, I can tell you any tool, any technology will not magically generate value on the other side. You need a bridge. And that bridge is what companies like Cognizant do. I'm gonna be precise on what I mean. You can't apply this technology on existing old processes. So you have to reinvent and reimagine a process. This is a technology that is very contextual in nature. It's not written on the microprocessor, which is deterministic. It's very probabilistic, which means we have pioneered something called context engineering, which is grounding this technology in the reality of an enterprise, understanding the heterogeneity of an enterprise. I mean, two SAP implementations are not the same, just to go back to the package work you spoke about. And it is about understanding the hustle, the flows, and everything else. Integrating deterministic software, which was written for the last twenty-five years, with probabilistic software, which will be written for the next twenty-five years. And building flows where digital and human labor can work together, integrating it into the operating and the physical layers of an enterprise. I think all of this is a lot of heavy lift. I mean, if this was all real, and if this was it, it would have switched on magically without anybody doing anything. We would have seen the drift of value already. And that's not happened yet. There is, you know, our study said there's $4.5 trillion of labor which can actually be amplified with higher productivity out of the $15 trillion in the United States in the last few years. It's not drifted yet because all of this has to be done. Equally, going back to what you just asked, there is technical debt. There is a lot of backlog. There is the elastic of software, the traditional software, leave it all the new software we're gonna write, which can actually expand. So we see this as a net new tailwind for us on two swim lanes. On the traditional software, apply it, you know, and do more for less and get more consumption because of elasticity, take out technical debts, take out the backlog. On the other end, apply this on a much new addressable spend, which classical software didn't penetrate. So I see this as more of a bigger opportunity for us and a higher surface area for us to actually operate. So this is a tailwind. We are cutting out to be winners. Our builder strategy is working. And our three-vector strategy we spoke about, both on applying this to traditional software and writing new agentic software, which can actually capture significantly more surface area and enterprises. We think it's a phenomenal opportunity. Now enterprise software package, you spoke about, you know, package software has been there for the last twenty years. There has been deterministic code. There's been systems of recording it. We're gonna apply layers of AI value on top of it, actually generate more value than before. So there is gonna be a coexistence of deterministic and probabilistic software, and there's gonna be interplay between the two. Okay. Jason Kupferberg: Understood. Thanks for all that color. And just a numbers one, for Jatin. I wanted to ask about gross margins. It sounded like the year-over-year decline in Q4 was primarily due to higher variable comp, which is arguably a good problem to have just given the overall financial performance of the company this year. But any other gross margin dynamics we should be thinking about in terms of 2026? Do you expect gross margins to be up year over year? And just to clarify, are you seeing any like-for-like pricing pressure as part of the year-over-year declines in gross margin currently? Thanks, guys. Jatin Dalal: Sure. So, yes, Q4 impact on gross margin was predominantly on account of higher bonus funding that we did for the full year. In quarter four, led by a strong operating margin performance for the full year that we were able to deliver. Apart from that, there was also a salary increase, as you are aware, which came through effective first November into the gross margin. So I would say those are the two factors that played out a bit in quarter four. I think the right way to see our gross margin is for the full year. And the full-year impacts are predominantly one, you know, the Belcan impact for the full year in 2025 gross margins. And the second is essentially slightly, I mean, essentially, the higher bonus for 2025. And as you mentioned, it's a good thing to have. Looking ahead for 2026, I mean, there is a productivity lag pressure in the industry. And therefore, the expectation that for a dollar value, you get a superior throughput than what you traditionally enjoyed through traditional productivity levers in the past. And that does impact the revenue, but I wouldn't call it a drag on margins yet so long as you are able to execute on your internal productivity measures and keep the cost curve below the price curve continuously, and that's what you have seen. We have been able to deliver revenue per employee productivity and profit per employee productivity in the previous twelve months. So far, we have been able to execute well against that market momentum for productivity, and therefore, I would say we are entering 2026 with that confidence. Going forward, we'll have to continue to watch out for the moment in the market. We do think that we have a few levers apart from AI productivity, and a couple of them are really the continued improvement in Pyramid. We hired 20,000 fresh college graduates in 2025, and we'll continue to look at that. And that does impact the long-term cost structure of the organization. And we'll continue to look at other traditional measures like offshoring and utilization beyond AI perk that I spoke about. So overall, we have things we can work through for 2026. Ravi Kumar: Thanks. Operator: Thank you. Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question. Tien-Tsin Huang: Really strong large deal activity again here in the fourth quarter. So I want to ask your confidence and your ability to grow off of that larger base in '26 over '25. How does the pipeline look for larger deals in '26? And any good line of sight into deal ramps being timely. Thanks. Ravi Kumar: Thank you, Tien-Tsin, for that question. Yeah. I think we've had a great bookings quarter, 9% YoY, TTM 5%. 50% increase in TCV on large deals for the full year and 60% increase in TCV of large deals in quarter four. And we are very excited about the fact that our fixed price business now is almost 50%. I mean, you know, three years ago, that used to be 41 to 42%. So we can, in some ways, fixed price it, share the productivity of the clients, and actually pass on some to ourselves. We're keeping that, you know, we are one of the we are probably the only player in our peer group which talks about code-assisted and autonomous software engineering. 32% of our code is AI-assisted. So we have now activated two swim lanes. In 2024, a lot of the large deals were productivity-led. Now we are seeing innovation-led vector two, vector three, as I call it. We did $1.2 billion deals in Q4. So it was a start. We crossed $10 billion. That's a record of starts. We have one $1 billion deal in quarter four, have five mega deals in the full year, and we have two mega deals in quarter four. So we have a strong pipeline, and we have reactivated both the swim lanes. And we are starting to do the transition of that work, and therefore, we see a solid quarter two and quarter three. In fact, we see more acceleration during the year of ramp-up as well as more deals on the way. So I'm very excited about the fact that this has become a tailwind for us. AI is a tailwind for us. Tien-Tsin Huang: No. Terrific. It's impressive. And so just clarify, you mentioned it there, Ravi or Jatin, if you wanna chime in. The confidence in the faster sequential growth beyond the first quarter being higher than the pattern in the last couple of years. So it sounds like that's really just what you see in terms of the large deals ramping and the timeliness of that? Jatin Dalal: Sure. So to me, there are two factors that play there. One, of course, is the strong bookings that we are walking in 2026 with. And the second is there is some amount of seasonality between quarters also in 2026 compared to '25. For example, in Q1, there are lower bill days in '26 compared to the number of bill days that we had in Q1 in 2025. Which automatically means that the sequential number improves in quarter two compared to quarter one in 2026. So these are the two factors that give us confidence that we can execute better sequential growth in the middle of the year. And that's what we have assumed in our guidance range, including the ramp-up of deals, you know, which we have closed in quarter four. Tien-Tsin Huang: Understood. Well done on all the deals here. Thank you. Operator: Our next question comes from the line of Keith Bachman with BMO Capital Markets. Please proceed with your question. Keith Bachman: Hi. Many thanks. I wanted to ask about the risk and opportunities of the fixed price, or success-based contracts are now about 50% of total. And what I'm trying to understand is your pricing I think you're pricing these contracts on assumed cost curves that leverage new innovations including AI, and I just wanna understand how you know, a, is there more are these are the prices more aggressive today than they have been? B, how should investors think about the risk and the opportunities of overage and underage in terms of achieving those cost curves? In other words, are you sharing those risks with the customers? But if you could just speak to the changing nature of the economic risks associated with these success-based contracts. Jatin Dalal: Sure. So, you know, there are various types of fixed price engagements, but essentially, I mean, they have one thing in common is that the larger component of delivery risk resides with the service providers like us. And, essentially, we underwrite the productivity in the beginning of the contract and we deliver to that productivity to the customer irrespective of whether we are able to achieve that outcome from a cost standpoint or not. The history of the industry is that we always have found ways through new technological progress to be able to deliver it. Specifically, in light of the whole large deal momentum that Cognizant has been able to achieve, we have a very, I would say, very robust process of bid versus date that we monitor every month the performance of the deals that we have won and how we are delivering our operating margin and revenue performance against those promises. And I'm happy to share that we deliver on aggregate of the portfolio very close to the expected margins that we had planned, which means we are in aggregate not having any overrun or also not significant underrun. So overall, we are tracking to the budgeted goal for our customers as we go, and that we will continue to do. That is something that is crucial in times like this when technology is shifting. And overall, we feel we are performing well. Ravi Kumar: I just wanna add two quick points to Jatin. If you look at it, in some ways, we are sharing the productivity, sharing the risk with our clients, but we are actually doubling down on execution. Look at our revenue per person and margin per person. It's gone up by 5% trailing twelve months, 8% margin, and 5% revenue trailing twelve months, which essentially means we are able to share with our clients the productivity, win, and actually, price to win and deliver to margins. That's our motto. And I think with this nonlinear opportunity with the technology, you can be ahead of the curve and do that. The second, I would believe, which is a very important shift, historically, if you look at it, go back to the nineties, companies like ours used to own the outcomes. And we used to price on outcomes. And then the enterprise software, both on-prem and SaaS, and then the plumbing on the cloud kind of abstracted layers of that value. And outcome-based was hard because there were so many people in the mix. We are fast forward. We can own the outcomes. We can own the outcomes. We can make this a platform play. We can make it nonlinear cost and nonlinear revenue. And we can take over operations of companies and give them a service. That is the reason why our BPO business is actually growing at 9%. Why on why? 9% of the BPO business is growing because we are able to do that very well. We are able to deliver outcomes on the value chain and share the benefits. Keith Bachman: Yeah. We thank you, Ravi. This sort of led into my next question durability of BPO. I think, you know, two years ago, many, including ourselves, had some concerns about the you know, what AI would do to BPO. It's been I think, one of the more robust parts of the market. And it seems clients need help in setting AI into BPO. And my question is, how durable is this? In other words, once you get those processes established in BPO, enabled by AI, does that create longer-term headwinds, or is there enough momentum here this is a multiyear tailwind or good growth within the context of BPO? Ravi Kumar: You know, that's a great question. I mean, look. This is total addressable spend, which is 10 times or maybe 20 times more than tech spend because you're embedding technology data into process and in recent times, machine learning and AI. You know, Cognizant has had nine to 10% growth in BPO for three years in a row. And the reason why we have done so is because we have always been on the cutting edge. We think this is a longish tailwind because operations of companies are a much bigger addressable spend. And we think we have an opportunity not just to transform, reinvent, reimagine flows in a company, we also have the ability to maintain them. There might be no I think we are underestimating how much that reinvention will need. It's decades of work. We are underestimating how much it needs to maintain. I mean, this is a contextual technology. It has to be grounded. It has to be situational. And we, you know, the effort needed to maintain and manage deterministic technology is less than the effort needed to maintain a probabilistic technology. So we have actually more work to do in maintaining than before. So I see this as a significant tailwind to our BPO business. We call it intuitive operations. You know? Even before AI into picture. So that's how we see this. Keith Bachman: Okay. Thank you, gentlemen. Much appreciated. Operator: Thank you. Our next question comes from the line of Jim Schneider with Goldman Sachs. Jim Schneider: Good morning. Thanks for taking my question. As you talked on the Health Sciences script about the cost benefits to those companies sort of outweighing any kind of regulatory pressures you're seeing. Clearly, in the payer space, there's been a lot of debate about additional regulatory burdens and cost pressures. Just would love to understand your level of confidence in the relative growth for your Health Sciences segment this year relative to your full-year guidance overall? Ravi Kumar: Thank you. Our health sciences business grew at six-plus percent, way higher than our company average. It's a business where we probably are the number one player in the market. We have a platform with half a trillion dollars of transactions flowing through it. We have 200 million members. We have a moat, which is super differentiated. There is a lot of labor sitting around it. And I think with the uncertainty of regulation in the payer side, you will want to transform those layers of value around the TriZero business. And shift that money to care. Because there is uncertainty around spend cycles. We're seeing more traction with companies that are willing to apply AgenTek in and around the traditional platform. And we see this capture of these value pools in new spend areas for Cognizant. We have started to partner with Palantir, which I spoke about. We have a partnership with Microsoft. We have a partnership with AWS. We are doing with Google Cloud. We're putting all these layers, and we're identifying the labor attached to it so that the administrative costs are gonna go down. And that money is gonna be underwritten for care. So there is more hustle and more work because of the uncertainty and the need and the paranoia about transformation so that this money is gonna be moved to care. Equally, there is a lot of work around applying agent takes to, say, bedside care. Or applying agentic to the life cycle of patients all the way from before they start to get to a doctor to after they finish the visit to the doctor. In fact, some of the places I've mentioned one or two examples where we are able to take notes of doctors and nurses and identify the whole thing and create high productivity for health care workers. So I see this as a tailwind because of the fact that there's uncertainty around regulation. We are actually gonna see more transformation on the administrative layers which will then transfer that value to care. Of course, there's also a part of life sciences and providers ecosystems there. And remember, the regulatory pressure is only on Medicaid and Medicare. It's not on commercial health care. But having said that, I think that uncertainty provides an opportunity to constantly innovate and transform and also to adhere to new regulatory norms using technology to adhere to new regulatory norms. Jim Schneider: Thank you. And then maybe as a follow-up, you sort of discussed many things that are sort of impacting gross margins at this point, whether that be the kind of outcome-based pricing, the fixed pricing, and also the pyramid. Can you maybe talk about when do you see line of sight to sort of gross margin inflecting on a year-over-year basis at some point during the course of this year? Thank you. Jatin Dalal: Yep. So, Sachin, we'll I mean, we have guided for the overall operating margin line. I want to guide at both the lines. But our endeavor would be to strive to reach that improvement in the gross margin line too. As I shared before, 2025 doesn't worry me because I know these core margins have remained protected. The dilution that you see in 2025 is coming predominantly because of Belcan, which has a structurally more on-site centric work, and therefore, it is not about lower profitability. But since you add a business that is more on-site centric, it is bound to have a lower gross margin, as you know. So it is not it is just a portfolio that has a particular characteristic which got added to the larger portfolio, that's one reason. And the second reason is really the higher bonus payout, which I think is a good thing for our employees. So I know we are protected and sustained the margin in '25. We will work towards, of course, improving them in the future. Ravi Kumar: I just wanna add two quick things here. Look. We are broadening the pyramid. We have a thesis that the value is actually gonna be more at the bottom. With higher productivity. Last year, we added more school graduates than the previous year. This year, we're gonna add more school graduates than the previous year. So that's gonna give a tailwind to it. Our productivity sharing with our clients and how much we are gonna keep back, is, you know, the 5% revenue per person and 8% revenue margin per person, that's gonna help. And, you know, good discipline operating has also helped. So there is a tailwind on it, and we're not worried about keeping our expensive margins for 2026 and beyond. Jim Schneider: Thank you. Operator: Thank you. Our next question comes from the line of Bryan Bergin with TD Cowen. Please proceed with your question. Bryan Bergin: Wanted to start with just kind of a bookings to growth question. So can you help bridge the ACV growth performance in 2025 to your 2026 growth guide? I'm just curious how you're factoring things pipeline diversion and really the midpoint of the range as well as things like short-term work. Can you detail that first? And then I'll ask my follow-up here. On the margin front, just SG&A, you've driven meaningful savings here in '25. You've actually held the dollar level flat for, like, three years. Understanding it wasn't optimized before, I'm just thinking how much more meaningful room do you have in that SG&A line to continue to help you? Jatin Dalal: Yeah. So on ACV, definitely we saw some amount of softness in quarter four, but I would also characterize that with the bundling of smaller deals being given out as consolidated contracts, and therefore, you see significant TCV of large deals which corresponds to that shrinkage for the smaller deals. That's a sort of industry dynamic that we see in times like this. So while that is definitely a data point, it is not something that is a challenge from a growth standpoint. On your sorry. Can you just repeat your second question? Bryan Bergin: Yeah. Just on SG&A. So you've done a great job there, right, for a couple of years. I'm just curious how much more room you have to optimize that base to continue to help if gross margin isn't gonna stabilize sooner? Jatin Dalal: SG&A continues to be an area of focus for us. So while we have done a good job in '25 and '24, so two years in a row, but that has now additional opportunity in the form of the deployment of AI in the corporate work that we do. So certainly, we will continue to push that in 2026 too. Bryan Bergin: Alright. Thank you. Operator: Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question. James Faucette: Thank you so much. Just wanted to ask a couple of quick follow-up questions. On near-term activity and sales engagement, I think you've mentioned a little bit of softness there at least in the fourth quarter. Can you just give a little more color there? Where were you seeing that? Is it just in near-term bookings, and how are you feeling about the potential for discretionary work to come back? I know that that's been something that everybody's been looking forward to coming back a little bit more aggressively, and clearly, you're doing well in kind of the larger deals, but just wondering about kind of more of the faster-term business. Ravi Kumar: Yeah. So, you know, look, we'll continue to see more large deal momentum. I mean, if you wanna share productivity with clients and win and use the process of consolidation, wallet share swap. Let's say, phenomenal opportunity. Innovation levers are trying to kick in now. That's gonna help us on smaller deals and discretionary. Look at financial services. We did nine-plus percent quarter four, and we did seven-plus percent for the full year. Financial services is a lot of discretionary. So and it's our largest vertical. And financial services performance in 2025 is the best we have had since 2018. So it is actually a good tailwind. I think there's gonna be as the pivot for AI shifts significantly from productivity to innovation, we're gonna see more discretionary flowing in. There is a talk of physical AI, which is now starting to hit manufacturing and automotive and aerospace and industries of that kind, that will also create opportunity. As the AI experiments will start to go into production, we're gonna see discretionary new value pools opening up. So overall, I think financial services is positive news, and it's one of our most cutting-edge industries and the highest exposure. So the others will follow. So I do see the unlock. Of course, the macro has to support for the acceleration. You know, for discretionary, the macro has to support. What I'm not worried about is, you know, actually, I would say if the AI advances have to trickle drift to the businesses, I would actually believe that that is actually gonna support the discretionary to come back. It's gonna be a catalyst. It's gonna trigger a CapEx cycle on enterprises to drift that value. And it will flow through to us. So that's how I'm seeing it. Financial services is a starting point, which has already happened. The others will follow. James Faucette: Yeah. Thanks for pointing out financial services. That stood out to us as well. And then just quickly, I know you gave a quick summary of the work that you're doing, India listing. Can you just give us a rough idea of what you're thinking about in terms of time frame or when at least we should be able to put together a calendar and time frame list? I know that's a key concern or at least thought for a lot of investors. Jatin Dalal: Yep. So as I mentioned in the opening remarks, we continue to make progress. We are engaged with our advisers. At this juncture, we are still thinking through the decision, the regulatory framework, and therefore, the around the imminent secondary sorry, primary offering and secondary listing. And at some point, we should be able to come back and tell you more about this. But at this juncture, I think it's a continued progress would be what I would suggest as an update from the previous quarter to this quarter. Ravi Kumar: And we have had constructive discussions with the regulators. So we're continuing to do what is right for our shareholders and continue to look for more investors to be a part of our growth story. So we'll keep you updated on that. Maybe we'll take one. Thank you. Operator: Our final question today comes from the line of Rod Bourgeois with DeepDive Equity Research. Please proceed with your question. Rod Bourgeois: Okay. Great. And I'll just ask one. Given the time here, Hey. You already addressed the question about AI being applied to ERP implementation. There's also new Claude plugins geared towards workflow automation. I wanted to ask to what extent you see such workflow automation abilities impacting your market opportunity and to what extent you already have a partnership all in that area. Thank you, Ravi. Ravi Kumar: Thank you, Rod. Look. We announced a partnership with Anthropic last year, late last year. The more AI can do, the more is the opportunity for us. It's very simple. I mean, let's talk about the plug into legal. How much software has been implemented in legal? There is so much paralegal work happening. In fact, we work for a professional services and a legal services company where we are agentifying all their paralegal work. That never existed before. Now there's a lot of labor around classical software. And all that labor needs more productivity. If you want to drift that value to higher productivity to the workers, in every function of a company, AI can be the catalyst. And that is a net new spend area for us. And that is what we're looking for. Those net new spend areas. This is a totally new addressable spend. And if you're embedding technology, you are able to integrate this technology to the system of record written in SaaS software and you're able to build those workflows, build those flows where humans and digital labor can work together and amplify the productivity. If you're able to reinvent those processes for higher throughput, higher velocity, using this tool as a catalyst, we're gonna up the productivity of enterprises and bump up the productivity of workers and we're gonna be the bridge to do that. So I see this as a unique new opportunity. The more it comes in I mean, remember, this technology is smart enough already. I mentioned in our remarks that $4.5 trillion of labor is already exposed to AI and it can create higher productivity. The reality is none of that is drifted to enterprises. None of that is drifted to enterprises. Need that bridge. And that bridge is all about contextual engineering. It is about reinventing the process. It's about redefining redesigning these flows in a company, integrating it into the SaaS layer so that there is interplay between deterministic and probabilistic layers. And it is also about integrating it into the physical and the operational layers of the company so that you can get that value. So that is the way forward. And, don't I mean, at this point in time, it is not about getting the smarter technologies. We already have smarter technologies. At this point in time, how do you drift that value to businesses? And, there is an urgency because you know, there's $405.1 billion dollars which has been spent on infrastructure in the last two years. And you have to get that value here, and there's trillions of dollars of value. And the shelf life of this technology is short. So I see this as a net positive. For more work, more surface area, more addressable spend. For companies like ours, and we call it the AI builder because we have this unique to be the bridge. Jatin Dalal: Thank you. Ravi Kumar: So thank you so much for joining the call. Thank you for your continued support. We've had an exciting 2025. You know, we have outpaced our own expectations on revenue, margin, EPS, EPS growth has been higher than revenue growth, expensive margins. This is what we said in the investor day. And we are continuing to keep our trajectory, accelerating our trajectory. We are on the top of our charts on our relative growth in comparison to our peers. And we hope to keep the Minas Circle performance in 2026 expansive margins, and EPS higher than revenue growth revenue growth at the middle of our range is actually higher than what we presented last year. And we are in a solid foundation. I think the boldest chapters are gonna be in 2627 as we go forward. Operator: Thank you. This concludes today's Cognizant Technology Solutions year-end fourth quarter 2025 earnings conference call. You may now disconnect your lines. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Vishay Intertechnology, Inc. Fourth Quarter 2025 Earnings Call. At this time, all after the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to turn the call over to your speaker today, Peter Henrici. Please go ahead. Peter G. Henrici: Thank you, Kevin. Good morning, and welcome to Vishay Intertechnology, Inc.'s Fourth Quarter and Year 2025 Earnings Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer, and by David E. McConnell, our Chief Financial Officer. This morning, we reported results for our fourth quarter and year 2025. A copy of our earnings release is available in the Investor Relations section of our website at ir.vishay.com. This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. During the call, we will be referring to a slide presentation, which we also posted at ir.vishay.com. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filing with the Securities and Exchange Commission. We are including information in our press release and on this conference call on various GAAP and non-GAAP measures. We have included a full GAAP to non-GAAP reconciliation in our press release, as well as in the presentation posted on ir.vishay.com, which we believe you will find useful when comparing our GAAP and non-GAAP results. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures. Now I turn the call over to President and Chief Executive Officer Joel Smejkal. Joel Smejkal: Thank you, Peter. Morning, everyone. I will start my remarks with a review of the fourth quarter revenue and business performance, and then turn the call over to Dave, who will take you through a review of the fourth quarter financial results and our guidance for 2026. Then I will update you on the strategic levers we are pulling under our five-year strategic plan. After that, we will be happy to answer any of your questions. For the fourth quarter, we generated revenue of $801 million, slightly above the midpoint of our guidance of $790 million and 1.3% higher than the third quarter. A growing broad-based business in industrial power and AI-related power applications drove this sequential increase. Revenue in all channels grew, led by distribution. Once again, Asia dominated the revenue growth. We executed well, still in an environment of shortages and escalations, by putting our expanded capacity to work to get backlog out the door while generally maintaining competitive lead times. We met urgent supply needs of automotive OEMs and tier ones toward the end of last year. Exercising our capacity readiness, our work under Vishay 3.0 is becoming visible in our revenue generation. Orders for the fourth quarter are at a three-year high across all main product technologies, except capacitors, which reached their three-year high already in '25. Orders from the channels of OEM, distribution, and EMS are also at three-year highs. Prior to Vishay 3.0, EMS customers ordered much less from Vishay because of our long lead times. Now we have an EMS business as a consistent and growing customer to support our accelerated growth. Overall, our order growth was broad-based in each region, each channel, each of our technologies, and each of our growth end markets: automotive, industrial power, aerospace defense, AI computing, and healthcare. These markets represent about 95% of our core business. After gradually building backlog each quarter over the first nine months of 2025, fourth quarter backlog grew nearly 14% with both semis and passives contributing to the increase. In The Americas, industrial and automotive customers drove semi orders, and aerospace defense customers drove passive orders. In Europe, we are seeing a broad recovery of industrial end market segments. In Asia, strong AI-related demand once again drove order growth. As a result, we ended the quarter with a book-to-bill of 1.2, up from the previously shared book-to-bill run rate at the October of 1.15. For semis, book-to-bill at quarter end was 1.27, and for passives, it was 1.13. Backlog at quarter end is $1.3 billion or 4.9 months. Improving market demand conditions, inventory replenishments, and our market share gains are putting us in a good position to grow. Positioning Vishay for greater growth and then achieving greater growth is our strategic plan. With many supporting initiatives from the beginning of Vishay March, we are making it possible through our heavy investment over the past three years to expand capacity for our high-growth, high-product, high-profit products, our initiatives to expand and more fully leverage the breadth of our portfolio of semiconductors and passives, and all of our work we put into strengthening customer engagement, reengaging with previously underserved and inactive customers, and developing new customer relationships. Customers are responding to the positive impacts of Vishay 3.0 with deeper technical engagements, greater collaboration, and their willingness to scale long-term with us. Let's turn to revenue review of revenue for the quarter, starting with the revenue by end market on slide three. Automotive revenue decreased 3.4% versus the third quarter, mostly related to lower pull rates during the December holiday weeks in The Americas and Europe. Asia automotive revenue grew in a seasonally strong quarter. Orders for the quarter grew in each region. One of the key drivers of this increase is that we have the capacity to interest customers to use Vishay as a new supplier to mitigate the shutdown risk they were facing. It also opened the door to several new opportunities with OEMs and tier ones to supply more vehicle platforms and to become a more meaningful supplier mid to long term. New model year production ramp-ups in customer forecast was another driver of strong bookings during the quarter. Design activity in automotive continues on projects related to electronic content, increasing including traction inverters, onboard chargers, ADAS, power steering, and infotainment. Industrial power revenue increased 3.2%, driven in part by increasing shipments of our high voltage DC power capacitors to many smart grid infrastructure projects, but also multiproduct inventory replenishment in the channel and strengthening market demand for building security power requirements and new industrial programs ramping up. During the quarter, we won another smart grid infrastructure project in The Americas, which will go into production in 2026. We are continuing discussions with many customers about industrial smart grid projects that extend through the year 2032. In other industrial power segments, bookings were strong in each region. Demand for industrial power management and demand for industrial automation is beginning to recover. Also, customers are beginning to place orders with longer visibility due to market stretching lead times with diodes and MOSFETs. Peter G. Henrici: Excuse me. Joel Smejkal: In The Americas, Vishay 3.0 is gaining previously lost and underserved customers who designed us into the bill of materials years ago, and now we are gaining orders to drive their further volumes. Design supporting AI infrastructure are moving to mass production. These are all positive indications that for Vishay, industrial is back. Our design activity remains focused on power supplies for industrial servers, power monitoring and control systems, next-generation AI power structures, smart meters, and humanoid robots. In addition, many customers are launching new versions of their core product lines. The aerospace defense end markets revenue was slightly down 1.2%, reflecting the impact of the US government shutdown on billings and some projects with delayed timing in Europe. Orders increased with strong demand, particularly for capacitors, as funding is approved for military programs and in anticipation of production ramps forecasted in 2026. Design activity in The Americas and Europe remains focused on low Earth orbit satellites, drones, missile defense systems, as well as munitions. Revenue in healthcare was flat compared to the third quarter, with shipments tied to program customer program milestones, sales will fluctuate. And for this quarter, revenue declined in The Americas and Asia. Europe, on the other hand, had its strongest quarter in three years on demand for hearing aids, implantables, and diagnostic equipment. Bookings increased. In The Americas, we are supplying new programs, are ramping up in Q1, and winning new business for capacitors to complement our custom magnetics business as we continue to fully leverage the breadth of Vishay's portfolio. In addition to continuing design activity on drug delivery systems, defibrillation, and advanced patient monitoring, we are now seeing opportunities emerge in the wearable space and are working with customers on heart rate and oxygen monitoring applications. Lastly, in the other category, revenue grew 10.6% versus the third quarter, primarily as customers ramp up production for new products to support AI power management applications. Order intake grew because of the increased production of AI servers and extended component lead times across the industry. A number of customers are actively adding Vishay to the bill of materials in AI-related applications for both semiconductors and passives. In addition to the continued design activity in power conversion and power management, including multiphase DC to DC converter modules and chipset multiphase power, AI optical modules, we are also working with customers on 800 volts power management applications. Let's start to slide four for channel revenue. We will review the channel revenue here. This quarter, each of our channels, OEM, EMS, and distribution, grew quarter over quarter, led by distribution. OEM revenue increased 1.1% on a seasonally strong period for automotive customers in Asia and some volume gains in Europe from aerospace defense and industrial customers, which was partially offset by a year-end slowdown in billings. EMS revenue increased 1.4%, reflecting gains in Asia related to AI power and inventory replenishment. While in The Americas and Europe, year-end holiday shutdowns closed receiving docks and reduced inventory at the December. Distribution revenue increased 1.4%, primarily in Asia due to strong automotive and AI demand, in addition to some inventory replenishment. Order intake was strong in each region. In The Americas and Europe, industrial and aerospace defense customers continue to drive most of the ordering as they prepare for new production starts in Q1. In Asia, bookings are accelerating as distributors replenish backlogs in anticipation of stronger AI demand forecast for 2026, ordering for pre-Lunar New Year in February, and in response to extended lead times for diodes and MOSFETs in both Asia and The Americas. Distribution inventory dropped to 22 weeks from 23 weeks last quarter. POS increased 3% mainly to year-end demand in Asia. In The Americas, industrial and aerospace defense demand drove an increase in POS, following the strongest POS quarter in three years and continued booking records in January. POS in Europe is steady. Based on customer input, our strategy to cross-sell technologies throughout the channel is delivering results. Turning to our geographical mix on slide five. Revenue growth for the quarter came entirely from Asia, which grew 3.6%, while The Americas and Europe were essentially flat compared to Q3 due to the year-end holiday slowdown, while somewhat offset by improved industrial demand. Before turning the call over to Dave, I would like to take a moment to thank the Vishay employees and our reps for their contributions to Vishay's success and accomplishments in 2025. Their commitment to putting the customer first, reengaging customers, embracing a business-minded approach, and increasing our production output and expanding our operations is helping to raise Vishay's level of performance and making Vishay 3.0 a reality. Now I will turn the call over to Dave for a review of our fourth quarter financial results. David E. McConnell: Thanks, Joel, and good morning, everyone. Let's start a review of the fourth quarter results with highlights on Slide six. Fourth quarter revenue was $801 million, exceeding the midpoint of our guidance and increasing 1% sequentially. The improvement was driven by a 2% increase in volume, partially offset by a modest decline in average selling prices. Compared to 2024, revenue increased 12%, driven by an 11% increase in volume. Favorable foreign currency, mainly from the euro, provided an additional 3% benefit, partially offset by a 1% decline in average selling prices, which includes tariff factors. Moving on to the next slide, presenting the income statement highlights. Gross profit was $157 million, resulting in a gross margin of 19.6%, modestly above both the midpoint of our guidance and the third quarter. Margin performance was driven primarily by higher volumes, which helped offset continued pressure from elevated metals and material costs. The negative impact from our Newport fab was approximately 130 basis points. Depreciation expense was $54 million and flat versus quarter three. SG&A expenses were $142 million, compared to $135 million for the third quarter and to $138 million, the midpoint of our guidance. SG&A was higher, primarily reflecting higher compensation costs, higher R&D spending, and legal costs and fees related to accounts receivable securitization transactions, which I will discuss as part of our cash flow review in a moment. GAAP operating margin was 1.8%, compared to 2.4% in the third quarter and a negative 7.9% in 2024, which included a goodwill impairment charge. EBITDA for the quarter was $70 million for an EBITDA margin of 8.8%, down from 9.6% in the third quarter. Our GAAP effective tax rate remains unmeaningful at these low levels of pretax income or loss, as relatively small items such as foreign currency and repatriation taxes have a disproportionate impact on the effective tax rate. We had guided that our Q4 tax expense was going to be between $4 and $8 million, somewhat independent of the earnings level, and our Q4 tax expense was in that range. GAAP earnings per share was 1¢, compared to a loss of 6¢ per share in the third quarter and a loss per share of 49¢ in 2024. Moving on to Slide eight. Provides a summary table detailing revenue, gross margin, and book-to-bill ratios across our reportable segments for quick reference. In the fourth quarter, Newport's results continued to be reported under MOSFETs business segment, reducing that segment's gross margin by approximately 600 basis points, an improvement from the 720 basis points impact seen in Q3. All reporting segments delivered revenue growth quarter over quarter except resistors, which were impacted by continued delays in US aerospace and defense spending. Turning to Slide nine. In the fourth quarter, our cash conversion cycle improved to 125 days, down from 130 days in Q3, in part due to our continued disciplined working capital management. But in addition, during the quarter, we securitized certain non-US accounts receivable as a means of providing efficient funding to support our immediate 12-inch wafer fab equipment purchase needs, which contributed to our DSO improvement from 53 days in Q3 to 48 days in Q4. Inventory decreased $759 million, and inventory days outstanding improved to 107 days. Continuing to slide 10, you can see we generated $149 million in operating cash for the fourth quarter, which included $62 million from the securitization of the accounts receivable. We continue to deploy cash for capacity expansion projects. Total CapEx for the quarter was $95 million, including $75 million designated for capacity expansion projects. For the full year, CapEx was $273 million, compared to our guidance of between $300 million and $350 million, as delivery of some equipment related to our new 12-inch fab in Germany was delayed to Q1. For the year, capital intensity was 8.9%, which is a decrease from the 10.9% in the prior year. Free cash flow for the quarter was $55 million, reflecting the high capital expenditures partially offset by the securitization of the accounts receivable, compared to a negative $24 million in the third quarter. Stockholder returns for the fourth quarter consisted of our $13.6 million quarterly dividend. We did not repurchase any shares in the quarter. At the end of the quarter, our global cash and short-term investment balance was $515 million, and we remain in a net borrowing position in The US with $219 million outstanding on our revolver. As discussed in the past, dividends, any share repurchases, required debt service, and our Newport investments are funded through available US liquidity sources. We have $254 million accessible on our revolving credit facilities at the current EBITDA levels. We expect to continue to draw on our revolver to fund our US cash needs. Moving over to slide 11 and our guidance. For 2026, revenues are expected to be between $800 million and $830 million. We expect Asia revenue to be lower than Q4 due to the impact of the Lunar New Year, with The Americas and Europe regions making up the difference. We also expect to see sequential revenue increases in each of our five key growth segments: automotive electronic content, industrial power, healthcare, aerospace and defense, and AI computing. Gross margin is expected to be in the range of 19.9%, plus or minus 50 basis points, including tariff impacts and expected continuing higher input costs. The Newport drag is expected to be between 50 to 75 basis points, and we still expect to exit quarter one with Newport gross profit neutral and accretive thereafter. Depreciation expense is expected to be approximately $55 million for the first quarter and $218 million for the full year 2026. SG&A expenses are expected to be $153 million, plus or minus $2 million. The increase versus Q4 is primarily due to the accrual of assumed incentive and stock compensation for 2026 versus the lower level of incentive and stock comp in 2025 and a full quarter of fees on the receivable securitization. We are also continuing to invest in R&D and customer-facing activities. We expect to hold at the Q1 level of SG&A expenses for each quarter of 2026. Our GAAP effective tax rate is not meaningful at the low levels of pretax income or loss. We expect tax expense to be between $2 and $4 million in quarter one, assuming a similar mix amongst tax jurisdictions. Finally, our stockholder return policy calls for us to return at least 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2026, we once again expect negative free cash flow due to our capacity expansion plans. Now I will turn the call back to Joel. Joel Smejkal: Alright. Thank you, Dave. Let's turn to slide 12 for an update on the strategic levers we are pulling as we execute our five-year strategic plan to drive faster revenue growth, raise our profitability, and enhance capital returns. For CapEx, we expect to spend between $400 million and $440 million during 2026. A bit more than half of the 2026 plan is allocated for investments at our 12-inch fab, including a carryover from 2025 related to equipment delays. Nearly all of the CapEx at our 12-inch fab will be spent during the first half of the year and will represent the peak of our five-year capacity expansion plan. In the second half of the year, CapEx is expected to be coming down from the first half. To put the 2026 CapEx into perspective, the average of our 2025 spend at the midpoint of our 2026 plan comes to about $350 million, in line with our annual CapEx spend since we began to invest in capacity expansions in 2023. At our Newport facility, we continue to ramp up wafer production in the fourth quarter, and automotive customers continue to audit the site. We have four audits planned for Q1, including two new customers. We are also continuing to ramp up production at our Taiwan and Turin, Italy facilities and getting more products qualified there. We have released well over 100 automotive part numbers for production, completed site audits with automotive customers, and scheduled others for 2026. We continue to execute our subcontractor initiative, which is freeing up capacity for our high-growth products and also broadening our product portfolio to increase our share of the customer's bill of materials. During the quarter, we qualified additional diodes, inductors, and capacitor products. Since we began this initiative two years ago, we have qualified over 10,000 part numbers, adding many diodes, resistors, capacitors, and inductors to our portfolio. Turning to innovation in our silicon carbide strategy. As planned, we released eight Gen 2 1200 volt planner MOSFETs for industrial use. More importantly, we now have released our first trench MOSFET, the silicon carbide Gen 3 1200 volts, for industrial and for automotive applications. This is a great technology advancement for Vishay, positioning us to design in 800 volt automotive and AI applications. In terms of solution selling, we released three new reference designs in Q4: two eFuse designs, one is a 40 amp bidirectional, and the second is a 20 amp unidirectional, and also an isolated current sensor for high voltage applications. These reference designs continue our promotion of Vishay products populating 80% or more of the components on a circuit board in a power application. Let's turn to slide 13. Looking ahead at 2026, we are laser-focused on maintaining capacity readiness to fulfill rising demand, growing share at existing customers, reengaging lost customers, and attracting new customers. Driving innovation and delivering new products and solutions, and expanding production in low-cost countries to support our regional competitiveness. Demand for the power requirements in the five growth segments is expected to remain directionally positive. Customer program visibility is improving, as shippable backlog is developing at later quarters for each of our key markets. Customers are also ramping up production of new projects. With these developments in business momentum, our factories are being loaded at a greater rate than the last quarter and much more so than in recent years. A solid book-to-bill of 1.2 and a faster rate of backlog development supports our view that revenue will increase each quarter this year. Customers are looking to secure supply while dealing with some extended lead times. We have made tremendous efforts over the past three years to position Vishay to be ready with capacity, to assure our customers of reliable supply, as they scale production and also to supply more part numbers to them. In summary, 2026 is our year to take off. We are pushing our factories to maintain competitive lead times and to win our customers' trust, positioning us to outperform the market and keeping us on our path to accelerate revenue growth, elevate profitability, and enhance our return on capital. Kevin, we are now ready to open up for questions. Operator: Thank you. Ladies and gentlemen, if you have a question, please press star 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press 11 again. One moment for our first question. Our first question comes from Peter Peng with JPMorgan. Your line is open. Peter Peng: Hey, guys. Thanks for taking my question. I think last quarter, when you were engaged with your customers, you guys were hearing expectations of mid to high single digits for the industry. Just given that it looks like your book-to-bill has been doing pretty well, bookings are increasing. I guess, what's that view now versus ninety days ago? Joel Smejkal: Peter. Thanks for the question. The view is still mid to high single digits. If we would divide it up by market segment, we have got the five market drivers we speak about: industrial power, we see as mid to high single digit growth. Automotive, a lot of electronic content. Car count seems to be flattish, but we will say automotive is flat to mid single digit for Vishay because of semis as well as passives. Aerospace defense, we are saying mid to high single digit because we think there will be much more consistent purchasing and program runs in 2026. AI, mid to high single digit. And healthcare, we are saying mid single digits. So we are still in that market of mid to high single digit, and we are pushing to outperform the rate of growth of the market. Got it. Peter Peng: And then a follow-up, if I may. Just on the gross margins, I know you guys are kind of facing some higher material costs and FX pressures. Have you tried to rework that into your annual negotiations? And then what's the right way to think about your gross margins kind of going forward as we progress through the year? Joel Smejkal: You want to take the second one, or you want to take the I'll take the first one. And Dave will take the second one. Yeah. We had a lot of annual contractual negotiations happen October through December. The resulting price decrease is much less than what was historical. We still have a price decrease because we were able to gain volume by positioning Vishay for greater share. So in the contractual agreements, less than historical ASP decline. We also went out in October and started increasing prices due to metals. We were one of the first to do it. Initially, got some pushback, but then it was realized across the industry that it is inevitable for everyone. So we raised prices on quite a few products in the fourth quarter. That starts to become effective in early Q1 depending on some contractual terms. And now we look at the metals today, and we continue to polish this. And in some product lines, we will come back with the second price increase. So metals is an important item that we evaluate every day. We have made the adjustments. And we see our ASP decline lower than historical for 2026. Dave, do you want to take the second part? David E. McConnell: Yeah. Yeah. Sure. Sure. So, Peter, just to give you some our thought process on the guidance of the '28 on the margin, so as Joel just mentioned, obviously, the annual contracts all hit in the first quarter. Right? So if ASP push against our volume increase basically cancel each other out. As you on my commentary, you will see the Newport drag has lessened, and it is going to lessen in the first quarter. So we get some benefit from that. And then the metals is fighting is this is the fourth component that is fighting against that. So when you add those four up, we get to the nineteen nine. How that progresses through the rest of the year, obviously, the ASP declines are mostly front-loaded with the annual contracts. Wage increases and such are already built into the first quarter. The book is still, so we have book-to-bill 1.2. So with volume efficiencies, we should be generating. We can see improvement in the margin as we move through the year. And the Newport and as well as the Newport fab continues to ramp up. Got it. Thank you. Operator: One moment for our next question. Our next question comes from Neil Young with Needham and Company. Your line is open. Shadi Mottwali: Hey, guys. This is Shadi Mottwali on for Neil Young. Thanks for letting us ask a question. To start off, I know you guys mentioned auto orders have increased as your guys' capacity has increased. But I was wondering what the company is seeing in the overall automotive demand environment. Joel Smejkal: Hi, Shadi. We have seen gain of share for Vishay. Through the negotiations in the quarter, in particular gaining MOSFET share in diode share. Because of the geopolitical issue that happened in the fourth quarter. We have seen increasing volumes going into 2026 with the large contractual customers. If we look at automotive overall, automotive, we see technology development in four areas. Battery management continues to be one. Infotainment in the car is two. Electrification is three. And ADAS is four. So we are seeing these four technology applications really driving a lot of design activity. Car count, people say car count generally flat. But we are excited about platform changes with customers as well as those four applications. Continuing to need the Vishay semis as well as passives. So we see automotive as mid flat to mid single digit depending on program start. Shadi Mottwali: Got it. Thank you. And then my follow-up is more of a broad-based question. But have customer conversations changed given the recent increases in pricing for memory? Joel Smejkal: For memory? Yes. It is always a discussion of where will the memory supply land. When you look at the segments that we serve, AI, memory and AI for sure, memory in consumer products. Consumer is quite small for us. Automotive has some memory. Not as much of a consumer as AI and compute. So people are watching it closely. When I was in CES memory, where is the memory going to be delivered to was a concern. We look at the applications we are in industrial power. The automotive, aerospace defense, the memory of those is lower in consumption than computer. It is going to be dependent on where the memory lands for sure, but we, at this point, are not forecasting a negative impact to revenue. Because of the segments we are serving, we believe they will get the small amount of memory that they need. Shadi Mottwali: Great. Thank you. Joel Smejkal: Thanks, Shadi. Operator: One moment for our next question. Next question comes from Ruplu Bhattacharya with Bank of America. Your line is open. Ruplu Bhattacharya: Hi. Thanks for taking my questions. Can you talk a little bit more about the automotive segment? Are you seeing any share gains against Nexperia? And Joel, can you talk about your content in different types of vehicles and gas cars versus EVs, and how do you see that content trending over the next couple of years? Joel Smejkal: Yep. Automotive, those four drivers that I mentioned: electrification, infotainment, battery management, and ADAS. Those are really nice development applications for us. Gaining share, we have done quite well to support the shortages that were in the marketplace in December. We were able to engage the OEMs as well as tier ones. We were given opportunities to cross part numbers. We crossed as many as we could with the equal equivalent matchup. And then we went through our wafer stock and any inventory that we might have found or expedited production to keep the automotive customer satisfied. But what also developed with that is the customer really became closer to Vishay. They learned a lot more about us. Because we were there to support a crisis, but then they wanted to learn more about future engagement. So we are gaining share. We continue to be looked at differently from the automotive OEMs than in the past. Positively, differently. And the tier ones gave us opportunities on part numbers and programs that we previously had no share. So we see it as positive, definitely positive. For the development and how Vishay responded, the feedback from customers was Vishay, we road-tested you. You were able to give us product. And we see that Vishay 3.0 is real. So let's talk about future engagement. Ruplu, regarding the different powertrains. Whether it is ICE or if it is hybrid, or EV, our content is pretty similar across all three. EV has the greatest content for sure because of redundant systems required. So there is more content there. Silicon carbide, as you know, we were not a player in silicon carbide on EV yet. But now the release of our trench product this month brings those samples to customer engineers to be able to now qualify Vishay into these next-generation automotive programs. So we are pretty excited about that. I think we will see our automotive content grow because we now are participating in the 400 volt, 800 volt systems of EV. That will be in the future. Ruplu Bhattacharya: Okay. Thanks for the details there. Can I just ask, so you talked about share gains? How much is that benefiting revenues in the March? Joel Smejkal: It is starting small. And we will see the ramping up beyond the March. Some automotive have to qualify the site. We did the part number cross on paper. And that they need to qualify the site. So I mentioned there are audits coming in Q1. Once those audits get done, the PCMs get approved. Then we will see the continued ramp up in later quarters. Ruplu Bhattacharya: Okay. Can I ask for some more details on CapEx spend and on OpEx? What are the areas of spend that you are going to have this year? And in the past, you have kind of put off or delayed the CapEx spending. With the spend that you are going to have this year, would you be caught up in terms of how you see demand and what CapEx and your manufacturing capacity be sufficient for future demand? So can you talk about, like, areas of investment and how you see your overall CapEx plan for the next couple of years? Joel Smejkal: Okay. The carryover that we talked about, we had intended to spend some of the money in 2025 on the equipment for the 12-inch fab. That is carried over into 2026. So that puts us in the range of $400 to $440 million. Around $230 million or so is for that. Aside from that, there are capacitor projects, the large DC power capacitor that we talk about for the smart grid. We are expanding production there because of projects that we are speaking about out to the year 2032. Tantalum polymer is another high order rate product. The tantalum polymer is used in AI, automotive, industrial, used in multimarket segments, so there will be expansion there. Our inductor product, the power inductors, we have the La Laguna facility. The inductors were the cornerstone of that site, and they will be expanding further in Mexico because customers are looking for regional supply as well as nontariff supply. So on the passive side, it is very targeted and selective. There is always there is also small spending on semiconductor projects where there may be a tooling requirement for a few million dollars here and there. But I think we come over the peak of our CapEx spending in 2026, and we start to return to a more normal type of spending where we do not have a project that is $100 million, $200 million, those projects would be behind us. Dave, do you have any Yeah. No. I was going to say, Ruplu, yeah, we are the days of the nine and ten percent cash capital intensity will be done. Yes. We will be back down to more normal levels. Obviously, we will have a higher revenue base, so the absolute dollar CapEx may be higher, but we will be back to the five and six percent levels. Ruplu Bhattacharya: Great. Can I ask just one last question, Dave? Just in terms of capital allocation and buybacks, how are you guys thinking about that? And Joel, is this time for any M&A, you know, either on the passive side or on the active side? Thank you for taking my questions. David E. McConnell: So the capital allocation, we have our you know, we have our return policy shareholder return policy, which is 70% of free cash flow. And we are predicting because of the 12-inch fab expenditures, our free cash flow will be negative for the year. Or down to zero, then you can ballpark it. So we are going to maintain the dividend. So I think that is the answer from the capital allocation side. I will let Joel answer the M&A side. Joel Smejkal: Yeah. Ruplu, M&A is always on the table. We look across passives and we look across semis with select technology. So it is on the table. We continue to look at it. Nothing to share at this point about a specific technology. But getting over the peak of this capital spending allows Vishay to then get into M&A at a deeper rate as well as continued restructuring of our footprint. We have got manufacturing locations that we still have as the next step to do an optimization and restructuring. So M&A for later spending plus optimization of our footprint. Ruplu Bhattacharya: Okay. Alright. Thank you for all the details. Appreciate it. Joel Smejkal: Thanks for the questions. Operator: And I am not showing any further questions at this time. I turn the call back to Joel for any further remarks. Joel Smejkal: Thank you, Kevin. Thank you, everyone, for joining our call in the fourth quarter. We have made tremendous efforts over the last three years to have the capacity ready to assure our customers of reliable supply, and I think it is really coming together now with the amount of interaction we have with customers plus the book-to-bill. The book-to-bill in January '26 is really building our momentum and setting this for a really successful year of Vishay 3.0 takeoff. We look forward to talking to you again in May, where we will report the first quarter results. Thank you very much. Have a great day. Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Gabrielle: Hello, everyone, and thank you for joining the CDW Corporation fourth quarter 2025 earnings call. My name is Gabrielle, and I will be coordinating your call today. During the presentation, you can register a question by pressing star. If you change your mind, please press star followed by 2 on your telephone keypad. Please kindly limit yourself to one question and one follow-up. If you have any further questions, please rejoin the queue. I will now hand over to your host, Steven J O'Brien with Investors. Please go ahead. Steven J O'Brien: Thank you, Gabby, and good morning, everyone. Joining me today to review our fourth quarter and full year 2025 results are Christine A. Leahy, our Chair and Chief Executive Officer, and Albert Joseph Miralles, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website investor.cdw.com, along with supplemental slides that you can use to follow along during this call. I'd like to remind you that certain comments made in this presentation are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8-Ks we furnished to the SEC today and in the company's other filings with the SEC. CDW Corporation assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income, and non-GAAP earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation charts in the slides for today's webcast and in our earnings release and Form 8-Ks. Please note all references to growth rates or dollar amounts changes in our remarks today are versus the comparable period in 2024, with net sales growth rates described on an average daily basis unless otherwise indicated. A replay of this webcast will be posted to our website later today. I want to remind you that this conference call is the property of CDW Corporation and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Christine A. Leahy. Christine A. Leahy: Thank you, Steve. Good morning, everyone. I'll begin our call with an overview of our fourth quarter and full year performance and share some thoughts on our strategic progress and expectations for 2026. Then I'll hand it over to Al, who will take you through a more detailed review of the financials as well as our capital allocation strategy and outlook. We'll move quickly through our prepared remarks to ensure we have plenty of time for questions. The team delivered a strong finish to a complex year, and fourth quarter results exceeded our expectations. Results that demonstrate the resilience of our business model, committed execution, and power of our strategy. The quarter, the team delivered net sales of $5.5 billion, up 5%. Gross profit of $1.25 billion, up 9%, non-GAAP operating income of $503 million, up 1%, and non-GAAP net income per share of $2.57, up 4% over 2024. Customers remained laser-focused on operating efficiency and cost leverage. Must-do priorities also included client devices, servers, and security. To help customers address these priorities, the team delivered solutions and services that drew on our deep architectural and technical expertise and drove strong double-digit growth across software, cloud, and professional and managed services. Higher margin categories that contributed to our strongest gross margin of the year. Turning to the full year results, 2025 performance was driven by our clear strategy and disciplined investments. Delivered in the face of remarkable complexity. 2025 was the year that tested every part of our company. We managed through uncertainty around tariffs, unexpected shifts in education and health care funding, significant changes in government spending priorities, and the longest federal government shutdown on record. Factors that shaped customer buying behaviors in unconventional ways. We stayed focused, adapted quickly, and advanced our strategy. The team executed with precision and leaned into their deep end market expertise and durable client relationships to help customers address their unique challenges. For the year, the team delivered over $22 billion in net sales, up 7%. Gross profit of nearly $5 billion, up 6%. Nearly $2 billion of non-GAAP operating income, up 3%, and record non-GAAP net income per share of $10.02, up 5%. Performance that generated $1.1 billion in adjusted free cash flow that we used to fund our capital allocation priorities, including the return of nearly $1 billion to shareholders via dividends and share repurchases, as well as a capability-enhancing tuck-in acquisition during the fourth quarter. Now let's take a deeper look at how meeting customer needs drove our fourth quarter results. As always, there were three drivers of performance. Our diverse portfolio of customer end markets, the breadth of our product solutions and services portfolio, and the relentless execution of our three-part strategy for growth. First, our diverse customer end markets. As you know, we have five US customer channels. Steven J O'Brien: Corporate Gabrielle: Small business, Christine A. Leahy: Health care, government, and education. Each channel is a meaningful billion-dollar-plus per year business on its own. Within each channel, teams are further segmented to focus on customer end markets, including geographies and verticals. We also have our UK and Canadian operations, which together delivered sales of $2.7 billion in 2025. Once again, the power of our diverse customer end markets was evident. As strong double-digit performance in both small business and state and local more than offset expected federal headwinds from the government shutdown. Gabrielle: Corporate top Christine A. Leahy: Corporate top line was relatively flat year over year, down 1%. With strong cloud adoption offset by slowing hardware solutions and the expected moderation in Windows 11 refresh activity. Exceptional small business growth of 18% was fueled by cloud consumption and related services and continued activity in client device modernization. Investments that underpin focus on innovative AI opportunities. Our international operations, UK and Canada, reported together as other, delivered high single-digit growth within the challenging markets. In our public business, health care increased by 5% on top of last year's exceptional performance. Government increased by 4% as strong double-digit growth in state and local more than offset the expected decline in federal, due to the extended shutdown. K-12 deep customer and partner relationships, combined with our life cycle services capabilities, drove a major Chromebook solutions rollout with New York City Department of Education. This together with solid growth in higher ed delivered a strong 13% increase in education top line. The diversity of our customer end markets was clearly a driver of fourth quarter performance. Gabrielle: The second driver of performance is our Christine A. Leahy: Broad and deep portfolio of solutions and services. This quarter, our full stack, full life cycle offering enabled us to meet the diverse customer priorities across our end markets. Portfolio performance was led by cloud and professional managed services. Cloud remains a major engine of performance contributing roughly half of the quarter's gross profit growth. Both cloud revenue and gross profit rose at strong double-digit rates fueled in part by accelerating demand for cloud-enabled AI solutions. Professional and managed services top line increased double digits driven by hybrid infrastructure engagement targeting expense savings and budget optimization. Implementation of AI-powered customer care and customer experience solutions, and AgenTeq AI engagement. Hardware increased by 2% as double-digit increases in notebooks and servers were offset by declines in storage. At the end of the quarter, our teams helped customers navigate memory-related price increases and announced future increases. Client devices showed continued growth of high single digits. Growth reflected a variety of cross currents with the large education project and modest memory-related pull-in offset by the expected slowdown in Windows 11 refresh by enterprises, and the forty-three-day government shutdown. Software performance was excellent. Top line rose by 12% and gross profit even faster. Driven by cloud as well as in part by customers renewing software licenses tied to hybrid solutions that extend the life of their existing infrastructure. Security remains a key priority across all of our customers, with top line and gross profit both up single digits. Security services remained strong led by demand for vulnerability assessments, identity, and access management implementations, and customer training. Along with engagements focused on cloud deployment, endpoint and application security, and safe adoption of AI. Security solutions showcase how we embed services in every outcome we deliver. Services that amplify and accelerate value for customers and partners alike. During the quarter, just as they did all year, the team did an exceptional job leveraging our deep and broad portfolio of full stack, full life cycle solutions to address customers' most pressing priorities. And that leads to our third driver of results, relentless execution of our growth strategy. Our investments in high relevance, high growth areas position CDW Corporation to deliver in a world where technology ecosystems are more dynamic and interconnected than ever. As choices multiply and risk rises, our value to customers and party partners only grows. And AI plays directly to our strengths. Gabrielle: We have the architectural depth, Christine A. Leahy: Partner reach, and delivery scale to lead in the AI era, and our services forward model sets us apart. Our AI offering spans strategy, data modernization, GenAI integration, and automation. And we're rapidly expanding our offerings with repeatable, scalable, Gabrielle: Toolkits. Christine A. Leahy: As always, our portfolio is built around the customer. Our vertical use cases map directly to desired end market outcomes. From risk and fraud and clinical efficiency to student success. Citizen services, and merchandising. In parallel, our horizontal solutions address universal priority, such as employee and customer experience, operations, security, and automation. Solutions like deployment playbooks and managed offerings. No matter the model, services are built in from day one. While still early, AI momentum is building across every market we serve. Let me share two recent AI solutions. One from a large enterprise and one for a small business, to bring this model to life. First, a large enterprise. A large enterprise wanted to scale advanced AI capabilities within a hybrid data center environment to meet rising performance demands, manage data sensitivity, and control the cost of public cloud AI workloads. After a competitive RFP process, we earned the deal with a solution that leveraged our deep partnership and our full stack full life cycle approach. One of the largest enterprise deployments of next-generation accelerated compute. The solution improves total cost of ownership with a potential ninety-day payback, dramatically increases developer agility, and reduces long-term regulatory and data governance risk. This is the model emerging across our enterprise customers. Complex recurring margin accretive engagements, where our integrated capabilities matter. While we help large enterprises implement full-scale AI stack build-outs, we also deliver solutions for smaller customers that embed AI directly into their workflows. As a workforce multiplier. A great example of this in action is the approach we used to help a fast-growing, multi-location automobile service business whose lean IT team was struggling to support an expanding footprint. Our solution, a modern IT service management platform that utilizes a generative AI virtual agent as the first line of support. The generative agent instantly resolves common questions, triages tickets, and surfaces relevant knowledge in real-time. Governance guardrails ensure safe handling of sensitive data, delivering efficiency gains without Steven J O'Brien: Added risk. Christine A. Leahy: Their IT team is holding headcount while shifting to higher value work. The kind of productivity-led ROI customers want from AI. And the entire engagement was delivered at an accessible price for a cost-conscious customer. Two great client stories that highlight our standout AI solutions. But with AI embedded across the entire stack, a key part of our AI story is that AI is not a discrete contributor. It is a pervasive one. Pervasive one, with results embedded in our hardware, software, and services performance. And that brings us to our expectations for 2026. Today's technology ecosystems are more dynamic, interconnected, and mission-critical than ever. At the same time, we continue to see unique dynamics from the public sector including lingering impacts of last year's government shutdown. As well as economic and geopolitical conditions that continue to drive cautious customer behavior. Against this backdrop, we currently look for the US IT market to grow in the low single digits in 2026, on a customer spend basis. 200 to 300 basis points of CDW Corporation outperformance. Wild parts include meaningful changes in known ongoing exogenous factors, which include public spending dynamics, tariff, and geopolitical risks, as well as memory pricing and supply. As always, we will provide updated perspective on business conditions and refine our view of the market as we move throughout the year. Regardless of market conditions, our priority is clear. Deliver sustainable profitable growth by deepening customer value, sharpening efficiency, and deploying capital with discipline, investing where we see the greatest strategic impact and long-term returns. Gabrielle: We are operating in a complex yet exciting time. Christine A. Leahy: With our full court press on strategy and team with proven execution, we are well-positioned to capture share by delivering on our unique value proposition to customers and partners. Now let me turn it over to Al, who will provide more detail on the financials and outlook. Al? Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our fourth quarter performance. Quickly recap 2025 as a whole, move to capital allocation priorities, and then finish with our outlook for 2026. Fourth quarter gross profit of $1.3 billion was up 8.6% year over year. This was above our expectations for a low to mid-single-digit year-over-year increase as our teams captured growth in client devices alongside increased demand for software and services. While we saw some moderate levels of pull forward in the range of $50 million in net sales, driven by memory-related price increases and supply chain concerns, the overall impact on fourth quarter growth was minor. Fourth quarter gross margin of 22.8% was up 50 basis points over the prior year's fourth quarter. Gross margin was also up 90 basis points compared to the third quarter driven by the impact of a higher mix of netted down revenues, improved product margins, and a slight mix at Appliant Devices sequentially. Despite the category's continued solid growth. The diversity of our end markets also served us well in this quarter. Government increased on the strength of state and local, while federal modestly outperformed our expectations and did factor in a blow-up prolonged government shutdown. Small business and international continue to execute at a high level, while education also posted solid growth with both K-12 and higher ed finishing the year strong. Healthcare also increased year over year despite the comparison to a prior year fourth quarter where sales increased 30%. Corporate was relatively flat year over year, this was in line with our expectations reflected both continued caution towards major capital investments in solutions hardware and customers being further along with their Windows 11 related refresh programs compared to other channels. The diversity of our portfolio also served us well in the quarter. Demand for licensed software was strong, and we saw robust growth in virtualization, application suites, network management, and storage area management software. As customers look to extend the useful life of their network and data center assets. The need for and relevance of CDW Corporation's professional managed services continue to grow as reflected by net sales transferred over time where CDW Corporation is principal increasing 11% year over year. Cloud, SaaS, and security offerings were particularly strong in the quarter. These are offerings included in the category of net sales, transferred at a point in time CDW Corporation is agent or netted down sales. Which increased 8%. Netted down revenues continue to represent an important Steven J O'Brien: And durable trend within our business, Christine A. Leahy: Representing 36.1% of gross profit up from 35.8% in '24 and up slightly from 36% in the third quarter. Gabrielle: Turning to expenses for the fourth quarter. Christine A. Leahy: Non-GAAP SG&A totaled $752 million, up 14.6% year over year and were consistent with our expectation that asymmetrical timing compared to 2024 would inflate the year-over-year growth comparison. This increase in expenses was primarily driven by commissions, related to higher gross profit achievement, and the impact of higher performance-based expenses compared to the prior year. We continue to structurally align our business for stronger future expense leverage, and we expect to make progress towards this in 2026 and deem 2025 to be a normal baseline for comparative purposes. Coworker count at the end of the quarter was approximately 14,800 and customer-facing coworker count was 10,500. Both down slightly year over year and quarter over quarter. Our goal is to balance growth expansion of capabilities, and exceptional customer experience with greater efficiency and cost leverage from our broader operations. Non-GAAP operating income was approximately $502 million, up 0.6% versus the prior year. Non-GAAP operating income margin of 9.1% was down 50 basis points from the prior year fourth quarter level when expenses benefited from lower performance-based compensation, and coworker-related costs. Net interest expense was up roughly $2 million year over year, and $3.5 million from the third quarter as we entered into a new expanded five-year senior unsecured credit facility. Our non-GAAP effective tax rate was moderately below the low end of our target range, at 24.2%. Non-GAAP net income was $336 million in the quarter, up 0.9% on a year-over-year basis. With fourth quarter weighted average diluted shares of 130.6 million. Non-GAAP net income per diluted share was $2.57, up 3.8% versus the prior year period and above our prior expectation of down slightly year over year. Shifting gears to briefly review full year results. 2025 was a year of transition and a return to growth. Market demand was relatively in line with what we initially anticipated while customer sentiment was cautious throughout the year impacted by the twists and turns of economic policies, geopolitical issues, and the early stages of many customers' AI journeys. Through all of that, our teams delivered for our customers and we're proud of their execution in this environment. We grew net sales 6.8%, and gross profit 5.9% during the year, holding gross margins reasonably flat at 21.7% again showing that even when client devices are higher in the mix, and solutions hardware demand is uneven, our margins remain resilient. Our non-GAAP net income per diluted share increased 5.2% breaking through the $10 per share mark an all-time record for CDW Corporation. Moving to the balance sheet. At period end, net debt was $5 billion down roughly $165 million from the prior quarter, driven by increased cash and cash equivalents. Liquidity increased under our new facility with cash plus revolver availability of approximately $2.5 billion. The three-month average cash conversion cycle was sixteen days, slightly below our target range of high teens to low twenties. This cash conversion metric reflects our effective management of working capital including disciplined management of our inventory levels even as hardware sales were firm and client device growth continued. As we've mentioned in the past, timing and market dynamics will influence working capital and the cash conversion cycle in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term. Adjusted free cash flow was an excellent $418 million in the quarter, bringing us to $1.09 billion for the full year. This reflects 82% of non-GAAP net income for the year within our stated rule of thumb of converting 80% to 90% of non-GAAP net income to cash. We effectively utilized cash consistent with our 2025 capital allocation objectives during the quarter, including returning $153 million in share repurchases and $82 million in the form of dividends. As a reminder, we began 2025 targeting to return 50% to 75% of adjusted free cash flow to shareholders. We finished well ahead of that target. Having returned nearly $1 billion to shareholders or 90% of our adjusted free cash flow. And that brings me to our capital allocation priorities moving forward. Our first capital priority is to increase the dividend in line with non-GAAP net income growth. We announced on our last earnings call a 1% increase in our dividend to $2.52 annually. Our twelfth consecutive year of an increase. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non-GAAP net income going forward. Our second priority is to ensure we have the right capital structure in place. We ended the fourth quarter at 2.4 times net leverage. Within our targeted range of two to three times. We will continue to proactively manage liquidity while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and share repurchases remain important drivers of shareholder value. Gabrielle: We continually evaluate M&A opportunities Christine A. Leahy: That can accelerate our three-part strategy for growth Steven J O'Brien: As shown by our recent acquisition Christine A. Leahy: Of the select assets of Lexicon Tech Solutions. This acquisition highlights our strategy of bolstering our end-to-end life cycle capabilities for education customers with the potential to broaden the applicability to our other channels down the road. For 2026, we are maintaining our target to return 50% to 75% of adjusted free cash flow to shareholders via the dividend and share repurchases. We remain active in the M&A market, our cash flow performance both in 2025 and what is expected for 2026, will allow us to be opportunistic towards share repurchases as we deem our stock to be attractive at this valuation. Customers have compelling needs to address priorities across the full IT stack. But this is balanced against the risk of supply chain, and pricing challenges. Ongoing geopolitical unrest, and general economic uncertainty and caution. A new year does not wipe the slate clean, but it does give us a chance at a fresh perspective. Steven J O'Brien: On that note, ahead of our Q1 2026 earnings call, we'll be updating the reporting of our customer channels. As a brief preview, we've made changes to reflect our current go-to-market structure. With this, you will see more information on government and education, including gross profit, and operating income for each. We will continue to disclose net sales for our health care, and corporate channels and will additionally disclose net sales for our financial services vertical. These channels will be included in the segment we will be calling commercial. Small business will be integrated within the commercial segment, and we will still maintain the preeminent small business support model in our industry and our small business teams will also be aligned to the areas of industry expertise. While we've seen heightened uncertainty in recent years, and 2025 was as dynamic a year as any, we believe we have navigated these complex environments with an appropriate level of prudence, and precision. We believe that our updated go-to-market structure and the investments we've made to fortify this structure we are set up for success in 2026 and beyond. Turning to our outlook. We will continue to deliver for our customers and partners. And as always, as the landscape changes, throughout the year, we will provide you with updates each quarter. With these factors in mind, our full year 2026 expectation is for our addressable IT market to grow low single digits and we target market outperformance of 200 to 300 basis points on a customer spend basis. With this, we expect gross profit to grow in the range of low single digits for the full year 2026. And we expect second-half gross profit contribution to be slightly above the first half. Based on the anticipated mix of products and solutions for 2026, gross margin should be slightly higher than 2025 levels, and remain well above rates from three-plus years ago. Finally, we expect our full-year non-GAAP net income per diluted share to grow mid-single digits year over year as we focus on operating leverage, and effective execution of our capital allocation priorities. Please remember, we hold ourselves accountable for delivering our financial outlook on a constant currency basis. On that note, our expectation is for currency to be neutral to reported growth rates for the year. Moving to modeling thoughts for the first quarter. We anticipate gross profit to decline at a mid-single-digit rate sequentially leading to mid-single-digit year-over-year growth. We expect some demand to be pulled forward into Q1 to get ahead of price increases in certain memory-intensive product categories. Separately, our first-quarter view reflects an expected slow start to the year for the federal channel as the pipeline rebuilds following last quarter's government shutdown. Moving down the P&L, we expect first-quarter operating expenses to be down from 2025 on a dollar basis whereas they are normally flat to up sequentially. However, as we normally see, the first-quarter operating margin will likely be at the lowest quarterly level for the year. Finally, expect the first-quarter non-GAAP net income per diluted share to be up mid-single digits year over year. That concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future results calls. With that, I will ask the operator to open it up for questions. And we would ask each of you to limit your questions to one. With a brief follow-up. Thank you. Gabrielle: Thank you very much, Al. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from David Vogt from UBS. Your line is now open. Please go ahead. David Vogt: Great. Thanks, guys. Christine A. Leahy: For taking my question and appreciate all the details Chris and Al. So maybe, Chris, for you, Al talked about a little bit of a pull forward in Q4. Hitting a little bit of a pull forward in Q1 from a memory perspective. How do we think about what that means for the balance of the year? I know the guidance talks about it even split from gross profit. But just from a demand perspective, what are your partners telling you in terms of how to think about these memory-sensitive product categories like PCs and servers and you know, just maybe help us qualitatively think about how the year should progress given where memory prices are today? Christine A. Leahy: Yeah, David. Let me, try to share as much visibility as we have into, the memory impact from partners and what we're seeing, vis a vis demand. First of all, I'd say as we think about the upcoming quarter, it's hard to tell yet what we expect to see from a pull-forward perspective. I think, look, we've quantified it and believe to the best of our ability that we're going to see about the same amount of pull forward in Q1 or slightly more than we actually saw in December. When you think about the various products, I would just tell you that PCs for us, for example, have been strong. We price these decelerating growth this coming year, but we still see strength as we explained in our prepared remarks. It might be a little choppier during the course of the year as a result of memory, but we still see strength there. What we've done is in the back half of the year, we've really just tamped that down a bit to take into account that we don't have visibility all the way to the back end of the year. But that's how we're thinking about it. Gabrielle: Great. And maybe one Al as a quick follow-up. You talked about Christine A. Leahy: SG&A being sort of a baseline in calendar 'twenty-five and working towards you know, operating leverage in '26. And I'm just penciling in really quick math that looks like based on your commentary, the SG&A as a percentage of gross profit doesn't really decline that much in '26. Mean, can you kinda talk to that? Is that is that the right way to think about it, and why shouldn't it decline a little bit more given, you know, obviously, all of the investments that you've made in '25 and '26 be a bit of a Albert Joseph Miralles: Know, better year in terms of conversion? Christine A. Leahy: Yeah. Thanks. Good morning, David, and thanks for the question. A couple of things. First, what you're seeing in our outlook as you would beginning of the year is prudent. But what you should take from it is the shape of the outlook that we're providing. Right? Low single digits and gross profit, and then mid-single digits down to EPS. We expect that we are going to have operating leverage in it top priority. Obviously, We're past the compares from the prior year. We've got a lot of focus on how do we continue to optimize our cost base here. But you will see kinda that operating leverage kick in and progress through the year. The impact on an SG&A ratio you will see it. Right? But that's gonna follow more as the operating leverage progresses and accelerates. And particularly, as we start to see growth pick up in a more meaningful way. So, our outlook shows the shape of how we'd like it to work, if we can amplify the growth, if we can continue to make progress on optimizing our expenses, David, it's gonna be, more significant in terms of progress down the P&L as well as that SG&A ratio coming down. Gabrielle: Great. Thanks, guys. Thank you, David. Gabrielle: Our next question is from Adam Tindle from Raymond James. Your line is now open. Please go ahead. Adam Tindle: Okay. Thanks. Good morning. Albert Joseph Miralles: I just wanted to start on the outlook. As I think about 2026, the drivers presumably PC mix will come down. You've got, obviously, these memory, price increases happening, so, you know, potential for inflation hitting. But when I think about the drivers here, it's low single-digit market growth, 200 to 300 basis point outperformance of that. And low single-digit gross profit dollar growth. So it seems like the implication here is not much improvement in gross margin despite PC mix coming down and inflation. Coming through the model. Last time we saw, this you know, increase in component cost, it was a benefit to gross margin. I just wonder if you zone into that point, what might be similar or different than a few years ago where we were getting benefits, from, inflation in this model? Adam Tindle: Thanks. Albert Joseph Miralles: Good morning, Adam. It's Al. So, I'll take that I do think that we are expecting that we will see gross Gabrielle: Margin Albert Joseph Miralles: Expansion. You know, we'll call it kinda modest pickup. But there is an opportunity for that to accelerate. If I give you a little bit more detail, kinda what that could look like in the way of the shape of the year, given the landscape we're dealing with in the memory environment. We will likely see stronger hardware growth in the first half and we will likely then see that fade a bit in lieu of more netted down revenues. Software cloud, etcetera. As well, we would hope that we will see progression through the year on services. So just shape of the gross margin, first half, probably a bit lighter, second half pickup, on the factors that I just mentioned. So that's what it looks like. Do think that, if that plays out, we would see that drop down into our operating margin. Obviously, you got a lot of moving parts right now, Adam. On these different fronts, but that's the way we'd see it. Looking as we sit here now. Adam Tindle: Got it. Thanks. Albert Joseph Miralles: Maybe a follow-up for Chris. I know a lot of the investor conversation recently has been around AI and whether or not that's a benefit or headwind to CDW Corporation. Reminds me a little bit of years ago when there were questions around cloud for CDW Corporation. And as you mentioned in the prepared remarks, think cloud is now driving a significant portion of the gross profit dollar growth in this model and clearly was not a headwind. So, Chris, I wonder if you might kinda compare and contrast cloud versus AI in terms of the investor narrative and what you're seeing in the customer behavior. And I remember at the time, you had kind of a landmark where you landed, AWS on the line card many years ago, and that was kind of the stomping point to say, you know, hey. You know, cloud is gonna be a benefit. You see opportunity like that with AI? Is there, you know, strategic partnership with OpenAI, Anthropic, somebody like that that could potentially materialize what would be sort of the turning point? Thanks. Christine A. Leahy: Yeah. Adam, thanks for the question. Let me start with the end and work backward. With, the various partners you've named. We've already got relationships with them as you would expect, and small smaller companies as well. But all the big players in the AI space, CDW Corporation has got partnership relationships with right now. I would say, look. While we're still in the early innings, and you heard me say this, AI momentum is picking up in all of our end markets. And, you know, a slight difference from cloud versus the AI revolution now is cloud was you know, just a consumption model, and AI is embedded across the entire stack. That's changing the entire platform, so to speak. So when I think about where we sit right we're very optimistic about 2026 and beyond. We are seeing customers absolutely move into production stage. And if I just take a moment on the value proposition that CDW Corporation brings to bear, look, organizations don't struggle with access to models. They struggle with making them work to solve problems, real problems. And that's across their full technology estate. Gabrielle: And so Christine A. Leahy: You think about CDW Corporation, that place to restrict. And its structural advantages that we built over decades. Our clients depend on our expertise for integration and secured deployment of AI-enabled tech solutions. And so customers are looking to us now to really help them adapt and consume. And remember, there's been a lot of investment in capacity, for AI. Now that capacity has to be consumed, and we're right there to help them do it. Know, a neutral party, with deep technical expertise across the entire tech stack, a trusted adviser with intimate knowledge of our customers in Flex Tech Estates, and increasingly an expert in identifying how these technologies can be applied. So we, Britney, ability to orchestrate and optimize across the technology landscape. And we believe that these capabilities the expertise in our customer intimacy and the customer relationships make us more relevant now than ever. You asked about an inflection point. I think we are at the point of inflection with our customers in AI, and we're seeing that in every component part of our business. Gabrielle: Thank you, Adam. Our next question is from Amit Daryanani from Evercore ISI. Your line is now open. Please go ahead. Amit Daryanani: Yep. Thanks. Good morning. Guess maybe the first one Chris, with IT budgets growing in the low single-digit range, Albert Joseph Miralles: Love to kind of understand where do you see customers allocating incremental dollars by category? Just anything in terms of 26 spend hardware versus solution would be helpful. And I don't think I heard you talk a lot about NetComm and how that's stacking up. So would love to see where where that's in the customer priority list. Christine A. Leahy: Yeah. Good good morning, Amit. I'll and I'll take this. And just maybe rattle through kind of our thoughts and what's underpinning our outlook. So as we sit here now, client client device growth, we continue to feel good about. Obviously, it's a different landscape we've we've been in, and maybe a little less kinda focused on Windows 11. I think kinda where the focus there would be Still plenty of units from COVID refresh. As well as we are seeing a pickup, on AIPCs. So in this memory-intensive environment, I think we'd expect that client devices could be a little more uneven than usual. But the activity we're seeing in the customer interactions we're seeing suggest there's still plenty of demand on the client front. Gabrielle: Cloud Albert Joseph Miralles: SaaS, security, kinda those evergreen categories that have been really strong for us. Expect will continue to be really important. And we would say kinda for the full year, those categories will, have higher weight. And so we'd expect that netted down revenues will continue to be very durable. In the solution space, it's a mixed bag, and it's been a mixed bag. We do, Amit, feel more positive on the network siding side of things. 2025 was a solid year on networking, and we think that there are, reasons and drivers for that to continue. On the server and storage front, a bit more choppy just as it's been. And so kind of our expectations on that front are pretty modest in the way of growth. Amit Daryanani: Got it. Super helpful. And then you know, Al, you spoke a little bit about the OpEx dynamics in the '26. So maybe you could expand on this a little bit because the last few quarters you've seen OpEx growth be ahead of revenue growth by a few 100 basis points. Do you think it's more a reflection of internal investments that you folks are making versus incentives or cost inflation? I'd love to just understand, like, what what happened in the last six months. And then as you think about leverage showing up in the model in twenty-six, can you expand on do you see that stacking up more across headcount control or incentive comp or inflation? Just I would love to kinda just understand what what drives the leverage in '26 as you go forward. Thank you. Albert Joseph Miralles: Yep. Happy to tackle that. So in 2025, you'll remember kinda q q one, we showed the greatest amount of operating leverage, and we indicated given the shape of the year, from the prior year around incentives, we expected asymmetry. The biggest driver of what we saw for the year was just that. It was the volatility, variability, through the quarters on the expense front relative to gross profit. Okay. So there's that. Number that number two, is, obviously, gross profit for us exceeded expectations. We are still a highly variable model, and therefore, OpEx is going to respond to that higher gross profit, and we definitely did we definitely did see that. And then thirdly, I would say, look. We have been investing and continue to invest, and we think it's critical to feed into our strategy. So that would be kind of the third theme. But the first two components really kinda trump the investment. Now as we move into 2026, we are now, like we said, a better baseline, more comparable baseline. On the variable components of comp. So we're gonna have that. We will continue to invest, but we are laser-focused on opportunities to optimize our fixed cost base we think there are opportunities with really good line of sight. And so that's what we're going after. You're gonna see it first show up, terms of quarterly operating leverage with a progressive kind of level of speed. Through the year, and then it ultimately is gonna knock down that and A ratio back in towards the range that we'd like it to be. Amit Daryanani: Helpful. Thank you. Gabrielle: Thank you, Amit. Our next question is from Erik Woodring. From Morgan Stanley. Your line is now open. Please go ahead. Erik Woodring: Great. Thank you for taking my questions. Chris, I realize this is kind of a backward-looking question, but it does inform the forward look. And Albert Joseph Miralles: For many years, especially in years where hardware spending was strong, CDW Corporation would outgrow Christine A. Leahy: U. S. IT market growth by maybe 400 to 500 basis points or even more. In each of the last three years, we haven't really seen that, only about 200 to 300 basis points of outperformance, even in a market like 2025 where hardware spending was robust. So I would just love to understand, is there something structural about the market, perhaps competition or something we're not considering, that just makes it harder to outperform in the ways that you used to? Or or or what what can maybe explain that just relative to historical outperformance? And then a quick follow-up. Thank you. Christine A. Leahy: Sure, Eric. Thanks for the question. If I think about the outperformance and we look at the addressable market in the last couple of years, you know, our outperformance has been in the high end of the two to three hundred basis point range in our view. In addition, the mix of our business is, continued to mix into netted down revenue. So while we have while you while you have less compression on the top line, the more hardware you have, we now have a much greater mix of netted down. So that's going to impact the differential as well. I would say there's nothing in my mind that that from a competitive perspective that that concerns us. We're know, we're still the number one trusted adviser to our customers when we look at the various category by category, we well outperform the market. And, look, we're really we're really confident and pleased with the strategy that we've put in place and how that is helping us to drive over index gross margin. And Al just went through, will give us the opportunity to leverage that down the P&L amplify earnings, and that's a result of the capabilities that we've built into the system. But we feel very confident about our ability to continue to take share moving forward across every category. Erik Woodring: Okay. That's really helpful. Thank you, And then just as a follow-up, the last two quarters, we've seen a pretty notable divergence in corporate versus small business performance. Obviously, SMB, very strong double-digit growth corporate, more so inching along Just what do you think can help explain this? Is this just kind of differences in where we are in spending cycles for these cohorts? And what does this mean for kind of these two cohorts as we think about 2026? Albert Joseph Miralles: Thank you so much. Christine A. Leahy: Yeah. I'd say a couple of things. We are in a little bit of difference in the spending cycles. And what we've seen with larger companies over the last couple of years, actually, particularly as AI has been introduced, is, taking the time to understand how that technology integrates into their estate and how to do that. And to do experimentation and testing. So they have been more focused on cost optimization, extending the useful life of assets, the must-dos, like client devices, etcetera, And now we are actually seeing a number of larger companies who are starting to move into production and starting to spend more in that area. You know, it's still a cautious time for all of our customers, so we are taking a prudent approach to spend in this coming year. And as Alice said, we expected to be uneven, but we are at the front end, I think, of an uptick. In what we're gonna start seeing from the corporate side. Small business is much more nimble in terms of their ability to adapt adopt AI. They're very cloud forward. And so they're at a they are at the front end of taking more packaged solutions applying them for a fast ROI, and doing it quickly and now. So I just think you're seeing differences in not just maturity. That's not the best way to describe it, but it's where all of our customers are in the adoption cycle. And the key thing is that we're helping them with both design but then, obviously, it's the adoption and, importantly, consumption because all of the capacity that's been built for AI consumption capabilities has got to now be used by our customers, and we are right in the middle of helping them do that. Erik Woodring: Great. Thank you so much for the color, Chris and Buck. Gabrielle: Our next question is from Ruplu Bhattacharya from the Bank of America. Your line is now open. Please go ahead. Hi. Thank you for taking my questions. Ruplu Bhattacharya: Al, based on the netted down items as a percent of gross profit, looks like margins in the core business ex netted down is actually trending well. I mean, it was up 70 bps, looks like sequentially and year on year. Can you remind us as suppliers are raising prices, how does that impact CDW Corporation? And can margins in the core business continue to grow? And I have a follow-up for Chris. Albert Joseph Miralles: Yeah. Good morning, Ruplow. Non-net non-netted down gross margins, you're right. Strong, three things kinda I'd owe that to. Our services growth has been strong. I would say sequentially, we had a bit of a mix out of client with age or aids our margins. And then thirdly, Ruplu, just margins and product margins in general have been resilient. And, we've seen that now for a number of quarters. So that certainly feels good. As we scroll forward and we think about some of the phenomena we have going on right now with memory, we feel good about margins. You know, I think what we're likely gonna see is increases in ASP, but just a reminder that we are a cost-plus provider, and, therefore, we are passing through our gross margin. And, right, during this period that we're seeing activity already, I think that concept is holding up, and we expect that will hold up. So on the non-netted down margin front for 2026, I would say we expect firmness. And if we see some deceleration of clients, there could be some upside as well. Ruplu Bhattacharya: Okay. Thanks for the details there. I appreciate that. Can I ask Chris a question? You've CDW Corporation has delivered very strong services growth now for the past many quarters. What type of work are you seeing are you engaging more with customers on the AI-related projects? Are you seeing small medium business, the middle market customers, are they looking at AI? And is this an area of focus and investment for for CDW Corporation? Thank you. Christine A. Leahy: Thanks, Rupul, for the question. Yes. It absolutely is. And when you think about that customer set that you just mentioned, those are customers that don't have the resources, the breadth of skills, and capabilities, the access to the partners. And the full kind of end-to-end capabilities and so CDW Corporation has been both investing in over the years, but now highly engaged with customers in the small business space, the mid-market space, and the higher end of the mid-market space as well. To help on the design stage, the architectural stage, the analytics stage, the workshopping stage, and then taking that to the next several stages, which is obvious a migration and deployment. It's actually activating and operating. It's ensuring that the data that fuels all the benefits of AI are governed. They're clean. Everything that needs to be done there. And then more and more, we're through what we are seeing and you see this in our results, is customers turning to us for managing their environment. So operating their environment securely and reliably. Is an important part of our value proposition and those customers in particular are looking more and more to outsource that. So that's a benefit to us as well. Ruplu Bhattacharya: Okay. Thanks for all the details. Appreciate it. Gabrielle: Thank you, Ruplu. Our next question is from Keith Housum from Northcoast Research. Your line is now open. Please go ahead. Keith Housum: Great. Thank you. Good morning, guys. Albert Joseph Miralles: Thanks for the opportunity here. In terms of just trying to unpack the memory industry-wide issue going on right now, I'm just trying to understand a Christine A. Leahy: Bit further here in terms of comparing that to perhaps chip shortages that we saw several years ago. Is there a thought process here that the increases in prices have started already? How much of your portfolio is impacted or potentially impacted by what could be the rising prices or, you know, eventual shortages as well? Just and any visibility to where could we actually see shortages and what would be the impact on Christine A. Leahy: You know, demand here? Albert Joseph Miralles: Yes. Keith, thanks for the question. It is quite fluid. What we are seeing kinda across OEM partners and kind of product generations is varying quite greatly. But you're seeing kinda week to week, month to month, price increases, flowing through. And what we're seeing is, customers help us helping customers navigate around that. In some cases, with these partners, Keith, there may be certain kind of configurations of machines, where they're not seeing as much of the way I'll just say it's the price increase, and there's less risk of supply. So it's very fluid at the time. Now to your question on supply, what we see right now, very robust customer demand, significant customer activity kinda, on this front. And plenty of written demand that we are experiencing. So far, we are not seeing any significant roadblocks on the supply chain side of things. But we are counting on that. You could see that as the year plays out. Our greatest visibility is obviously what's right in front of us for Q1 and to a bit lesser degree, Q2. But when we think about the demand we're seeing and the activity with customers, and the supply component, we feel good about the growth prospects in the first half. Obviously, we look to the second half. The visibility is less, Keith. And we think that that's where the supply chain challenges could start to come into play. So we have an outlook that is modest in that regard and presumes that we can see deep dampening of growth during that second half of the year? Keith Housum: Okay. Helpful. I appreciate it. So far, like, year to date, I guess, what do you see in terms of, like, the precise price increases? Are we seeing Christine A. Leahy: You know, single digits? Are we going to the double digits? Any type of context you can provide there. Albert Joseph Miralles: Yeah. I don't know if I have a single answer for you, Keith. Like I said, it does vary greatly by partner, by product, Right? So know, in some cases, it's small single digits. Some cases, it's a bit more and it is fluid. In terms of kinda where it will go. We could see in some cases, escalation. But just remember Keith, when we went go back to the periods where we've had this before, this is where we excel. This is where we work with our customers and help them navigate both the partner universe and ecosystem, but also the configurations that might work for them, but also optimizes their cost. And so, look, we're right in our sweet spot. Albeit, it's a challenging time. This is where kinda we bring the most value. Keith Housum: Thank you. Gabrielle: Thank you, Keith. I will now hand back to CDW Corporation management for closing remarks. Christine A. Leahy: Thank you, Gabby. Let me close by recognizing the incredible dedication and hard work of our coworkers around the globe, their ongoing commitment to serving our customers, is what makes us successful. Thank you to our customers for the privilege and opportunity to help you achieve your goals, and thank you to those listening for your time and continued interest in CDW Corporation. Al and I look forward to talking to you again next quarter. Gabrielle: Thank you. This concludes today's CDW Corporation fourth quarter 2025 earnings call. Thank you for joining. You may now disconnect your lines.
Operator: Thank you all for your patience. The conference call titled Valvoline's First Quarter Fiscal 2026 Conference Call and Webcast will begin shortly. During the presentation, you will have the opportunity to ask a question by pressing Hello, everyone, and welcome to Valvoline's First Quarter Fiscal 2026 Conference Call and Webcast. My name is James, and I will be your operator for this call. If you would like to ask a question during the presentation, you may do so by pressing The conference call will now start, and I will hand it over to our host, Elizabeth Clevinger with Investor Relations to begin. Thank you. Good morning, and welcome to Valvoline's First Quarter Fiscal 2026 Conference Call and Webcast. Elizabeth Clevinger: This morning, Valvoline released results for the first quarter ended December 31, 2025. This presentation should be viewed in conjunction with that earnings release, a copy of which is available on our investor relations website at investors.valvoline.com. Please note that these results are preliminary until we file our forms 10-Q with the Securities and Exchange Commission. On this morning's call is Lori Flees, our President and CEO, and John Kevin Willis, our CFO. As shown in the accompanying presentation, any of our remarks today that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation, and in our remarks, we will be discussing our results on an adjusted non-GAAP basis unless otherwise noted. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation append. With that, I will turn it over to Lori. Lori Flees: Thanks, Elizabeth, and good morning. Thank you all for joining us today to review our first quarter results. We delivered a strong quarter to start the fiscal year, driven by strong productivity gains in our stores, network expansion, and margin improvement, which translated to meaningful earnings growth. I would like to begin by thanking our team members and franchise partners for their execution in delivering these results. At our December investor update, we shared our targets and are focused on executing against those. Our first quarter performance reflects good progress against these commitments. Starting with top-line highlights, we saw another double-digit increase to both system-wide store sales and net sales. System-wide same-store sales grew 13.8% on a two-year stack. This quarter, ticket contributed the majority of the comp, with all three levers contributing. Net price and premiumization were the largest drivers. We also saw continued positive transaction growth despite a tougher year-over-year comparison. As we look at same-store sales breakdown between company and franchise stores, Franchise was slightly higher than the system average for the quarter and for the two-year stack. We continue to grow our active customer base in line with what we expected while bringing in new customers, including fleet, to the network. We continue to innovate our marketing to connect with new customers. We have some fun taking inspiration from college sports with our instant transfer portal, which was designed to invite drivers to transfer from their current oil change provider to Valvoline. Customer demand for our non-discretionary services remains, and we are not seeing signs of trade down or deferral. Our customers continue to tell us they are delighted by our quick, easy, trusted service and are giving us a 4.7-star rating across our network and NPS scores over 80%. Looking at network growth, we saw significant store additions this quarter. The one-time contribution of 162 stores from the Breeze transaction is a noteworthy step forward in our path to a 3,500-plus store network. The Breeze business is performing as expected, and integration activities are underway. Our teams are working well together as we integrate the organization. For example, the team has already consolidated and prioritized our acquisition and construction pipeline. We continue to be excited about both the growth potential of Breeze stores as well as the opportunities to share best practices across the team. Outside of Breeze, we added 38 net new stores with 10 coming from franchise. Our franchise openings were more modest in Q1, but we have a healthy pipeline for both company and franchise and are confident in our full-year expectations. We are pleased to see expansion in both our growth and adjusted EBITDA margin, driven by the work we discussed at our December investor update. Kevin will cover the details. But as we think about the rest of the year, I will remind you that Breeze is only reflected in our Q1 results for one month, and we still expect near-term headwinds on our margin rates with the addition of 162 immature stores. Driving productivity within our stores, growing our network, and expanding margin rate translates into meaningful profit growth. In Q1, both adjusted EBITDA and EPS grew double digits year over year for the quarter and grew faster than top-line sales. The first quarter demonstrated the strength of our business and the continued resiliency of customer demand. We executed our playbook to deliver meaningful profit growth to start the year. As we look to the remainder of the year, we feel it is too early to make changes to our guidance, but we are pleased with our Q1 performance. While not directly in our financial results, I want to share a couple of team highlights. First, Valvoline earned the number one ranking within the automotive services category for Entrepreneur Franchise 500 for the fourth year in a row. We were also named one of Yelp's most loved brands. These recognitions highlight the strength of our franchise model and the strong customer trust and loyalty built across our network. Second, I want to thank our customers, franchisees, and teams for an incredible sixteenth annual campaign with Children's Miracle Network. Through funds donated by guests at the time of service, corporate-led fundraising efforts, and contributions from franchisees, we raised more than $1.8 million for local children's hospitals in the communities where we operate, a nearly 40% increase over the prior year. With that, I will turn the call over to Kevin to provide more detail on our financial performance. John Kevin Willis: Thanks, Lori. We provided a summary of our financial results on slides five and six. Let me spend a few moments to talk about some of the highlights. We saw strong top-line growth with net sales of $462 million, an increase of 11% on a reported basis and 15% when adjusted for the impacts of refranchising in Q1 of last year. The gross margin rate of 37.4% increased 50 basis points year over year, driven by leverage in labor and product cost, offset by increases in other service delivery costs, which includes rent, property taxes, and depreciation. Leverage would have improved by an additional 50 basis points excluding the impact of depreciation primarily from new stores. We remain committed to managing SG&A in the business. That said, SG&A as a percent of net sales increased 30 basis points year over year to 19.3%. The primary reason for this is related to a nonrecurring payroll-related benefit of about $2.4 million in the prior year quarter. Absent this benefit, year-over-year SG&A as a percentage of sales would have declined by 30 basis points. Overall, adjusted EBITDA margin increased 60 basis points to 25.4%. On a GAAP basis, we reported a loss from continuing operations of $32.2 million, largely driven by the loss on divestiture of certain Breeze stores that was required by the FTC. On an adjusted basis, income from continuing operations was $47.6 million. Turning to EPS, we saw an increase of 16%, 28% when adjusted for refranchising. As a reminder, we expect pretax interest expense to increase by about $33 million in fiscal 2026 versus fiscal 2025 due to the new term loan B. Operating cash flows improved to $64.8 million, and free cash flow was $7.4 million, improving approximately $20 million compared to the prior year quarter. Taking into consideration the new term loan, our leverage ratio is 3.3 times based on adjusted EBITDA for a trailing twelve months. As a reminder, you will now hear us talk about leverage in terms of net debt to adjusted EBITDA. As we continue our core business growth and integrate and grow Breeze, we are focused on getting our leverage back down to 2.5 times as quickly as possible so we can resume share repurchase activity. All in all, the results for this quarter are strong, with double-digit sales and profit growth, margin expansion, and improved free cash flow. I will now turn it back over to Lori to wrap up. Lori Flees: Thanks, Kevin. We delivered a strong quarter to start the year and feel confident in our ability to deliver on the guidance we set for fiscal year 2026. The Breeze integration work is underway, and our teams are working well together. The fundamentals of our business remain strong. As we shared at our investor update in December, we are an established category leader with a track record of industry-leading performance and growth. That, along with our differentiated capabilities, will continue to drive strong margin and cash generation, positioning us to deliver long-term value to our shareholders. I will now turn it back over to Elizabeth to begin Q&A. Elizabeth Clevinger: Thanks, Lori. Before we start the Q&A, I want to remind everyone to limit your question to one at a follow-up. With that, operator, can you please open the line? Operator: Thank you, Elizabeth. Lines are now open for questions. We now have our first question from Mark Jordan from Goldman Sachs. Go ahead, please. Your line is now open. Mark Jordan: Hey, this is Mark Jordan. Thank you for taking my question. I joined a minute late, I apologize if this is already covered. But for same-store sales, it looks like some or all of the new brakes revenue is now included in the calculation. And I am just wondering what impact that had on 1Q? And then on the mobile channel in particular, how big is that business in terms of revenue? Lori Flees: Thanks, Mark. Yes. We mentioned during that we were piloting opportunities to expand our reach with mobile service delivery. We want to be transparent about the definition includes inclusion while we were early in the early stages of doing that. It is relatively small, limited to a couple of markets. And it is really tied to trying to meet the needs of both consumer and fleet demands for increasing convenience. In terms of the overall contribution into our comp this quarter, it was around 20 basis points. Mark Jordan: Excellent. Thank you very much for that. Then just one follow-up on franchise store growth. I know usually ramps throughout the fiscal year are usually back half-weighted. Can you just let us know how you feel about the pipeline for openings this year? Lori Flees: Yeah, Mark. It is a great question. The quarter we had a good quarter overall for new unit additions, but it was light on the franchise side. I will note that we had 13 gross additions. We had some closures, which are unusual relatively small for our fleet, but those netted out to 10. When we look at January, our franchise partners have opened nine units in January. So, again, a real indication that the pipeline is robust. And considering the winter storm firm in the back half of January, nine was a pretty good result. So when we look at our pipeline for the rest of the year, it is still very strong both on the company and the franchise side. And, you know, we continue to build momentum to get to that 250 new units in fiscal year 2027. Mark Jordan: Perfect. Thank you very much for the insight. Congrats on a great quarter. Lori Flees: Thank you. Operator: Thank you. Moving on to our questions here. We have Simeon Gutman from Morgan Stanley. Skyler Tennant: Hi. This is Skyler Tennant on behalf of Simeon Gutman. Thank you so much for taking our question. First, can you speak to the complexion of sales this quarter in terms of how pricing and units are trending? Are you seeing certain trends by region or in newer younger markets? Or do you trends seem to generally be pretty broad-based? John Kevin Willis: Thanks for the question. We actually, in the quarter, from a cadence perspective, October, November were pretty much as expected. December was strong. We saw good growth on both ticket and transaction. Ticket was the larger contributor to our same-store sales growth in the quarter. But overall, the growth was quite balanced and good both on the franchise side as well as the company side. Lori Flees: I think the only thing we may have seen in November was a little bit of early weather during the Thanksgiving period in some of our geographies. But other than that, there were not any notable differences or significant trends regionally across our network. Skyler Tennant: Okay. Thank you for that. And Lori, maybe how much time do you think needs to be spent on Breeze? Can you kind of give us a sense of how much focus is needed there versus the core business? Lori Flees: Yeah, it is a great question. I think it is important to remember that while a sizable M&A, Breeze represents less than 10% of our financial commitments for FY 2026. And you can see that the underlying business, given Breeze is only one month of Q1 results, is the momentum in that core business is really strong. Now we continue to be excited about the growth possible in the 162 oil changer stores that we have added. And we are certainly starting to share some good best practices. But I think we have got to keep context that Breeze is an important asset, and we are going to spend time to integrate it and integrate it well. But it is a small portion of the overall financial picture for us. Skyler Tennant: Okay. Thank you so much, and congratulations on the quarter. Lori Flees: Thank you. Thanks. Operator: Moving on to our next question from Max Bracklenko from TD Cowen. Max Bracklenko: Hey, thanks a lot, and congrats on the nice quarter. So with the strong 1Q comps and easing compares the rest of the year, how should we think about the shape of the year in the context of your guide? Then just any comments on the first month of 2Q? John Kevin Willis: Wanna start, and then I can cover Q2? Sure. Sure. Yeah. Thanks for the question. I mean, as we said at our Q1 call and on the investor update, we have taken a measured approach to the outlook for the full year. Really, really pleased with how Q1 played out. It was a strong quarter, and we are very happy about that. You know, there is still a lot of year left. And we want to continue to see how that unfolds. But we are confident in the guide that we put up in Q1 and reiterated at the investor update in December. So again, we feel really good about where we are. There is a lot of year left. We are still working through the Breeze transaction, obviously, in terms of integration, but Breeze also performed as expected for the month that we owned it in Q1. And so overall, it is a great start to the year. And, again, we are very confident in meeting our commitments for the year. Lori Flees: Max, as we think about Q2, apart from winter storm firm, you know, our start to the quarter was really strong. Now with the snow and ice conditions that hit many of the geographies that we operate in, particularly on the company side, momentum obviously slowed. And we are still in many areas, Kentucky included, still not thawed out completely, which has impacted consumers' kind of return to normal activity. I think as you look at the forecast, and the groundhog said we have another six weeks in the polar vortex that they expect coming. And the storms that could follow with that. We think it is going to take a little bit more time to recoup the transactions that pushed out. We do not see significant customer deferral when we look a couple of weeks at a time. But we do know from history that customers will return to get their cars serviced when their normal day-to-day activities resume. So we expect that as we go out through the balance of the quarter, we will recoup some of the volume that we obviously missed as people stayed off the roads. But overall, Q2 before the weather started was very strong. Max Bracklenko: Got it. That is very helpful. And then on Breeze, what is the latest thinking around the timing of the store conversions? How many locations do you plan to convert this fiscal year? And then what could be left for year two or year three? Then how should we think about both revenue as well as the margin impacts the rest of the year? Sequentially. Lori Flees: Are you on the last question, because I will have Kevin answer. Are you talking Breeze specific or more broadly? On the margin and the sales and tax-free? On the P&L. John Kevin Willis: Okay. Lori Flees: Alright. I will cover the first one. Yep. I will cover the first part, which is this really our integration overall. We closed the transaction in December, and simultaneous with that had to complete the divestitures that were required by the FTC. And while that may sound simple, there is a lot of commingling of data in every part of the business that we had to start to separate and transition that out. And so a lot of the focus in the first month was really getting that business stood up within our portfolio and stabilizing the team to ensure that they continued to deliver. And as Kevin said, they delivered exactly as expected, and we feel really good about that business. Our teams have been meeting, obviously, over the holiday period, but we are two months into integration planning. And I would say we are having the discussion around how we integrate the Breeze stores into our network. And all the things like systems and I talked about pipelines being integrated just to make sure that we are not competing against each other in any market. So there is a lot of work underway with parts of our team. But it is a little premature for me to share the specifics on store conversions. We are obviously engaging the team specifically on that. John Kevin Willis: As far as the financial impact, consistent with the commitments that we made at the investor update in December, we would expect the Breeze stores to add about $160 million top line for the ten months that we will own the business in fiscal 2026. Around $31 million of EBITDA. And I think as a reminder, obviously, we did take on leverage to do this transaction. We expect the cash interest to be about $33 million on a pretax basis and that we would expect to have about a $0.20 per share impact on EPS for the again, the ten months that we own the business. Max Bracklenko: Awesome. Thanks a lot, and best regards. John Kevin Willis: Sure. Thank you. Next question here is from David Bellinger from Mizuho. Go ahead please. Your line is now open. David Bellinger: Sort of macro related. We have been hearing a lot more about these affordability concerns across most of the consumer high prices holding spending back to some degree, but Valvoline has consistently seen trade-up activity products premiumization. Why do you think that is the case? Does it say something about the pricing potential of this business and maybe something more you can gradually tap into over time? Lori Flees: Yeah. David, it is a good question. Valvoline is a strong brand and business in a category that, as you know, is nondiscretionary. And there are a lot of tailwinds that affect us. One is the aging car park that leads us to present more non-oil change revenue services on average per customer that then gives us that lift despite the macro maybe running counter because people feel that they need to maintain the vehicle they have. Such that they do not have to replace that vehicle. I also think that the car park has evolved. And as the new vehicles start to age into the car park, the automotive manufacturer is the one who specs the kind of lubricant that is required. Now as a customer has a high mileage vehicle, starts to get over 100,000 miles, they really do want to maintain that vehicle rather than having to trade up into a new one. Or a newer one. And so those are the things that are driving some of how we have been bucking the trend. Our team educates the customer on their choices. They educate them as to the choices for their vehicle, based on the mileage, and the age of the vehicle, and what the OEM requires. So we just run our play and educate the customer, which builds trust, and I think that serves us well. We continue to look at pricing. I think we always want to be a little cautious given the macro environment to not move too quickly. But, obviously, we continue, and net pricing was a contributor to the comp this quarter, and we continue to adjust our pricing appropriately given our value proposition to the consumer. David Bellinger: Great. Great. Thanks for all that. Second question, completely different topic, maybe for Kevin. But the material weakness for internal controls that has been in your filings that has lasted somewhat longer than the timeline you initially laid out. So how much of that is simply waiting for approvals with the new systems in place? Or is there more technical work you have to do to get all that cleaned up? Thank you. John Kevin Willis: Yeah. Thanks for the question. The team has put in a tremendous amount of work to get us to the point where we are. As a reminder, in fiscal 2025, we really had two aspects of the material weakness that we were working on. The first was around systems. So let us call it IT general controls. That needed to be put in place, remediated, tested, proven to work. Proven to be effective. And we passed that test as part of fiscal 2025. That was in our 10-K disclosure. The second part of the material weakness is around business processes related controls. That work remains underway. And we continue to work with both our auditors as well as several third parties who are helping us with this project. What it really comes down to is just a massive amount of work to get everything in place, in terms of controls documented, making sure that we have the right controls in place and then proving to ourselves and to our auditors that those controls are working and that the overall control environment is effective. And that is what the team is working on as we speak. And has been working on for a while. But good progress has been made. We are still climbing the hill, and it is certainly our expectation that by the end of this fiscal year, we will be able to put this to bed. As a reminder, the test or the opinion is an annual opinion. And so, we will not be out of the woods on this until we get through the fiscal year and have a chance to review the control environment in its entirety based on the work that has been done, the testing we have done, the testing they will do, to arrive at that conclusion and an opinion. Lori Flees: But I will just add that both us and E&Y do not have concerns on any statement any risk of our financial statements not being accurate and of the business. So this is around business process controls, making sure they are documented, making sure they are executed, making sure they are tested. It is not any concern around the financial reporting of the business. David Bellinger: Understood. Thank you both. Operator: Thanks for that question, David. Next up we have Steven Zaccone from Citi. Go ahead please. Your line is now open. Steven Zaccone: Great. Good morning. Thanks very much for taking my question. I wanted to start on the gross margin performance because it clearly came in stronger than expected. Can you elaborate a little bit more on the strength in the quarter? And then do you see this organic growth rate of kind of 50 basis points expansion as the right run rate for the balance of the year? And then help us understand how Breeze will impact that gross margin performance since you have better visibility at this point than when you first gave guidance a couple of months ago? John Kevin Willis: Yes, thanks for the question. We were pleased with the gross margin progress that we made in the quarter versus prior year. As indicated in the prepared remarks, we were up about 50 basis points year over year. Labor and product were the primary drivers of that. We have been working and continue to work on the labor piece of the equation. The team has done a great job with that as we have expected. We have not only held on to, but been able to improve upon, that labor leverage a bit, and we would expect that progress to continue. The team is really looking at all aspects of store spend, controllable store spend, and labor has been a big focus because it is the largest piece of COGS. Product side, we did see some benefit in the quarter. We have seen base oil come down just a bit. As a reminder, we get the benefit of that, but we also pass that benefit along to our franchise partners. So those two were the primary driver. On the flip side of that, we did see increases to other service delivery costs, which include things like rent, property taxes, depreciation. Those increases are largely driven by adding new stores, especially the depreciation part, which was about 50 basis point negative versus prior year. But we did also see some increases in terms of both the rent and property taxes. Again, primarily related to new stores, but also just ordinary course. In terms of the full year and the Breeze impact, as we said, we are bringing 162 immature stores into the system that will have a negative impact on overall margin. Believe at the investor update, we indicated that we would expect it to be about 100 basis points of EBITDA margin impact. We continue to expect that to be the case, but obviously are working with the Breeze team and with our internal team to improve the business, to grow the business so that we can increase those margins, both gross and EBITDA. Steven Zaccone: Okay. And just a clarification. The 100 bps of pressure for margin, is it more weighted to grosses than SG&A? As we think about the model? John Kevin Willis: It is more on the EBITDA line. It is a bit of both, but 100 basis points on the EBITDA line. Because they do have a corporate center. Steven Zaccone: Okay. Second question is just you talked about pricing. And ticket, you know, in particular being a bigger contributor to the comp. Just remind us, how do you see the balance of the year for same-store sales between ticket and transaction? John Kevin Willis: We would expect on an overall basis to really be balanced as we have been. As you look at fiscal 2025, as we talk through that, it is more heavily weighted to tickets, but transaction growth is also very important. And I think also importantly, we saw transaction growth across the system in Q1 just as we did in fiscal 2025. We would expect to see that for the balance of the year. Really across the system, franchise and company. And so both are important to the comp. It has been the case that ticket has been a bigger driver, and we would expect that to continue to be the case. But again, both are quite important to the Steven Zaccone: Thanks for the detail. Operator: Moving on, we now have Scott Stember from ROTH Capital Partners. Go ahead please. Your line is now open. Scott Stember: Good morning, and thanks for taking my questions. Lori Flees: Hi, Scott. I have a question. Scott Stember: Thanks. A question about just bigger picture. Potential gains at the quick lube market at particularly, Valvoline is seeing, maybe from people trading down from car dealerships. Could that be a potential benefit in this very high inflationary environment? Are you seeing that? I am just trying to get a sense of where things are coming from. Lori Flees: Yeah. When we open a new store and we track where our customers last got their oil changed, we know that they come from where they are going in the marketplace. And about 35 to 40% of customers still go back to a dealership. And so we know and track that when we open a new store, and we bring in a new set of customers into our system about that same proportion are coming from outside the QuickLube market and within dealerships. Now I do not want to get into the psyche of the customers as to whether or not they are doing that to trade down. I think the reality is we offer a much more convenient service where it stays in your car. You do not have to make an appointment. You do not have to wait in a waiting room. You do not have to leave your car and come back for it. It is fifteen minutes or less. It is a much more convenient experience for the consumer and I think that is really what the consumer is making the decision on. I cannot we do not get into the details of why they decided to pick us. In enough detail across our system to be able to say it is much different than that. I am sure there are people who trade down, but I think convenience is likely the largest driver of switching. Scott Stember: Got it. And then last question. Obviously, store closures due to winter storm Fern. But once stores start opening up again, could you potentially talk about potential benefits that you guys will see, whether it is batteries, windshield wipers need to be replaced because of the ice. Just talk about any tailwinds we can get from that. Lori Flees: Yeah. Absolutely. And this time of year, we always see that. So while this storm may have been broader in reach, and maybe more prolonged in some areas. The things that you are talking about are the things that are driven during this time. So batteries that are older tend to falter during this time and need to be replaced. Windshield wipers definitely need to be replaced. So these are things that we typically see in our business, and as we have these weather impacts, we do try to modulate our labor. So we will not add labor. We will not do as much new customer marketing during this time, and we wait until the weather pattern has passed. And then we ramp that back up again in order to serve the customers who did not get service during the winter sort of storm period. But all the things you are talking about are exactly right. This time of year, we always have storms that just depends on when in the quarter they happen, and for how long they last. Scott Stember: Got it. That is all I have. Thank you. Operator: Thank you. Lori Flees: Scott. Operator: Alright. Thank you. And moving on to our next question here is from Steve Chimas from RBC Capital Markets. Go ahead, please. Your line is now open. Steve Chimas: Thank you for taking the question and good morning. So as we think about the comp, sounds like ticket was maybe four and a half points given the tougher transaction compare. Any color you can share just on the breakdown of premiumization with price and non-oil change revenue? John Kevin Willis: Yeah. We do not normally get into the specific components of it. As we look at the mix between ticket and transaction, I would say that for the quarter, ticket was roughly three-quarters of the comp is the way to think about it. But again, as we look at the comp, we saw growth in all those categories that you mentioned on the transaction side. And in terms of ticket, also positive in terms of price premiumization and NOCR for the quarter. So, again, a good balance, but, yes, ticket was a bit higher in the quarter than maybe what we saw in, say, '25. Steve Chimas: Got it. That is helpful. And maybe just as a follow-up on a different topic. So at the time that deal was announced, you talked about eighteen to twenty-four months from deal, from deal closed to delever to two and a half times to potentially resume share repurchases. I just kind of look at the model, at least on my end, it seems like you could maybe get there by year-end. So I guess just from where you are today, two months of Breeze under your belt, is eighteen months still the right way to think about it, or do you think you can potentially get there sooner? John Kevin Willis: Well, we wanted to frame it up in terms of a target that we felt very comfortable with, and we are still comfortable with that. To your point, we will continue to monitor this. And as we make progress on the balance sheet as the top line and EBITDA continues to grow, our commitment is once we are back in the range, you should expect us to return to share repurchases. So if we get there sooner than we will in fact start repurchasing shares sooner as well. Steve Chimas: That answer your question? John Kevin Willis: It does. Thank you very much, and good luck. Lori Flees: Thank you. Thanks, Steve. Operator: Thank you. Moving on to our next question here, we have Chris O'Cull from Stifel. Go ahead please. Your line is now open. Chris O'Cull: Lori, we noticed in the FTD that the company may start a national ad fund in fiscal 2027. Can you talk about why now may be the right time to launch a fund, but maybe you are learning about the potential of national advertising and maybe how quickly the system could grow this fund over the next few years, if that is the path you move forward with. Lori Flees: Absolutely. You hit on the main driver. As our network has grown and the reach and densification has improved, moving from a hyper-local only marketing spend to a national fund drives significant efficiency. And as it relates to some of the company store spending, we have already started shifting some of our company marketing spend for stores into more national funding. And as we have proven out and shown the benefits of that to our franchisees, that is the reason why we are moving towards that. In terms of how big it could get, I think it is premature to say, but we will obviously just keep monitoring. And as we see more efficient, we will obviously balance our spend. Chris O'Cull: Okay. When do you think you would have an estimate for what the contribution rate be? I think the FDD mentioned, like, a quarter of a point, but I assume it will be much larger than that. Lori Flees: Again, I think we are working in part with our franchisees and I think the FTD spells out how we are going to start. And I think based on the results and the performance of the national fund, we will continue to optimize across the marketing pools of spend. Chris O'Cull: Okay. And then I know the average sales ramp of new stores is in that three to five-year range, but can you talk about the variance around that average in markets where brand awareness is high? Versus markets maybe where brand awareness and penetration are relatively low. Lori Flees: I am not sure I caught the first part of your three to five-year ramp. Oh, three to five-year ramp. Got it. Got it. How does that compare in how does it compare in markets where the awareness is high versus maybe expansion or greenfield market? Chris O'Cull: Yeah. So what we typically see is the ramp in the first three years is a bit faster. If we are adding a store to a market that has good brand awareness, and it would be a little slower. But we do modulate our marketing spend given that. And that is all factored into our new unit forecast, which continue to drive really strong IRR returns in the mid-teens. And so that is factored into those forecasts. Chris O'Cull: Great. Thanks, guys. Operator: Thank you. We now move on to our next question here from Thomas Wendler from Stephens. Go ahead please. Your line is now open. Thomas Wendler: Hey, good morning, everyone. Thanks for the question. You have now lapped some of the larger refranchising activity in fiscal quarter 4Q 2024 and 01/2025. Can you give us a little bit of an idea of how much the 10 stores refranchised this last quarter impacted results? Lori Flees: Yes. First, I will just comment and restate what we have been saying for the better part of last year and in our December investor update that we really do not have any plans to do any further large-scale refranchising, but we do make transfers. And I think what you are referring to is we had a 10-store transfer in Q1. From franchise to from company to franchise. Similarly, in '25, we had a six-store transfer from franchise to company. And we are really doing that to optimize market boundaries so that either the franchise or company can optimize our G&A and marketing spend. In a geography. Now the specific transfers in Q1 were not really material from a financial standpoint, and we have incorporated that into guidance. So unlike the previous refranchising where there were three transactions that happened over a two-quarter period and fairly sizable, we are not going to continue to adjust numbers or recast them going forward for these small transfers between. Thomas Wendler: Perfect. Appreciate the color. Maybe on a separate note here, the instant transfer portal campaign I think you had mentioned you saw some, you know, early success on the first few weeks of this quarter before the storm. Can you maybe give us some early reads on the transfer portal? Is that the driver there? Lori Flees: I would not. I would say that all of the marketing activities that we do end up driving engagement. In our brands and conversion into our stores. The transfer portal was a really creative opportunity that our marketing team and our marketing partners came up with to sort of capture on a lot of the frenzy in college sports. It created very strong creative engagement with is around, you know, brand impressions and offers. Which when we look at that relative to our other social performance, it benchmarked very well. So you know, when you are trying to find new ways to reach new customers who have not had the experience of your brand, this kind of creativity goes a long way, and that I am really proud of the team for some of the things that they are working on and that they have done. Thomas Wendler: Alright. I appreciate you answering my questions, and great quarter, guys. Lori Flees: Thank you. Thank you. Operator: Alright. Moving on to our next question. This is from Peter Keith from Piper Sandler. Go ahead, please. Your line is now open. Sarah: Hi. This is Sarah on for Peter. Thanks for taking our questions. First, can you just give us an update on some of the progress with your technology initiatives? Are you finding the company has moved to a cloud-based tech architecture providing any competitive advantages in the channel? And then if so, what are these? Lori Flees: As you know, we have since we became a pure-play high-growth retail services company, we have been investing in tech in retail-specific technology. You know, in the first year, we implemented a new CRM system for both our fleet business as well as our franchise and business development businesses. Or areas. We then implemented SAP or the first phase of SAP in 2024. And in fiscal 2025, we implemented HRIS. We also in fiscal 2025, moved our customer data into the cloud and we have been slowly working on replatforming our proprietary system we call SuperPro. For our stores. We have upgraded our infrastructure in the stores so that it could support a cloud-based architecture. And so we are in the process of becoming more modern. And with that, you typically see the maintenance cost from a technology go down, so you get efficiency. As you get into more of the capabilities of SAP and HRIS, you get more efficiencies in your back office. And then on the customer side, you end up having a better, more consistent process where you can optimize and take time out of the service experience for the customer or take labor out. As you apply more technology and tools to the store day-to-day operations. So I would say this is a journey for us, but we are through some of the basic parts of the technology, replatforming, and now we are getting into the more value-added efficiency and effectiveness driving initiatives. But we do not see the investment in technology continuing to need to go up, as we have mentioned in our Investor Day update. We did grow technology spend and we will continue to spend in technology. But we do not see the year-over-year growth of that going faster than sales. In fact, we would expect that to moderate. Sarah: Okay. Thank you. That is very helpful. And then just on advertising, were you guys winning in most here and then just early results that you are seeing? Lori Flees: We have a pretty sophisticated marketing playbook that includes both what we call our life cycle management, which is us keeping in touch with the customer. We can predict when the customer is going to need to come back in for not just an oil change, but for also added services. Based on their driving pattern and what we see or in doing look-alike analysis. So we have a fairly robust process of keeping in touch with our customers. And that we just continue to optimize in terms of how and when we insert certain promotions to that communication process. And then as it relates to new customer acquisition and new store openings, you know, we continue to modify to drive down our customer acquisition costs in those environments. We continue to test new channels. And I would say that the performance continues to improve. Our return on ad spend is very productive, and we continue to optimize that. At the same time, as optimizing the discounting or optimizing net pricing. For every transaction that we have in our stores. Sarah: Okay. Thank you. Operator: Thank you. And moving on, we now have David Lantz from Wells Fargo. David Lantz: Hey, good morning and thanks for taking my questions. So you guys called out the nonrecurring payroll-related item in SG&A in Q1, but curious if you can talk through some of the puts and takes through the balance of the year. John Kevin Willis: Yeah. Happy to answer that. Yeah. We did have a nonrecurring item Q1 of last year. Taking that out of the equation, we did see SG&A leverage of 30 basis points year over year, which our commitment is to continue to do that throughout the balance of the year and going forward. As we look at the rest of the year, we should continue to see overall improvement from a core business perspective. We are very focused on scrutinizing spend across really all categories, not just SG&A, but also capital costs around store bills as well as cost of goods sold as we have talked about with labor improvement and other areas. So we are continuing to really bear down on these categories. And would expect to continue to see improvement as we go throughout the course of the year. David Lantz: Got it. That is helpful. And then clearly, you know, winter storm burn is driving some choppiness around transactions. But curious if you guys could help us parse out the potential impact to Q1 comps that that will have. Lori Flees: You mean Q2? Yeah. I think it is a little too early to say. We had a strong start to the year, and our expectations really are not changing for Q2 through Q4. Obviously, we are monitoring the weather, and we make adjustments. But, again, if you look at history for our business, as we have a weather pattern cycle through, it just shifts around when we capture the demand and serve the guests. It does not have a long-term impact or downward impact on our business. So again, we have to be smart to manage labor cost and manage our marketing spend. And when we do that, and we have proven we have gotten better at doing that as we apply more tools and technology, we can manage both our sales line and our profit line pretty effectively. David Lantz: Thank you. Operator: Thank you, David, for that question. And that is it, our questions queue are now clear, which concludes today's call. Thank you all for joining, and you can now disconnect your lines. Everyone, have a great day. Bye for now.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Good day, everyone, and welcome to Performance Food Group Company's Fiscal Year Q2 2026 Earnings Conference Call. Bill Marshall: Please press the star key followed by the number one on your telephone keypad at any time. I would now like to turn the call over to Bill Marshall, Senior Vice President, Investor Relations for Performance Food Group Company. Please go ahead, sir. Bill Marshall: Thank you, and good morning. We are here with Scott McPherson, Performance Food Group Company's CEO, and Patrick Hatcher, Performance Food Group Company's CFO. We issued a press release this morning regarding our 2026 fiscal second quarter results, which can be found in the Investor Relations section of our website at pfgc.com. During our call today, unless otherwise stated, we are comparing results to the results in the same period in fiscal 2025. Any reference to 2025, 2026, or specific quarters refers to our fiscal calendar unless otherwise stated. The results discussed on this call will include GAAP and non-GAAP results adjusted for certain items. The reconciliation of these non-GAAP measures to the corresponding GAAP measures can be found at the back of the earnings release. Our remarks on this call and in the earnings release contain forward-looking statements and projections of future results. Please review the cautionary forward-looking statements section in today's earnings release and our SEC filings for various factors that could cause our actual results to differ materially from our forward-looking statements and projections. With that, I would now like to turn the call over to Scott. Scott McPherson: Thanks, Bill. Good morning, everyone, and thank you for joining our call today. Before jumping into our second quarter results, I would like to recognize George Holm. We announced in December after nearly 25 years with Performance Food Group Company, George has retired from his role as CEO. Over his career, George built an impeccable reputation as an industry leader, a visionary, and an agent of growth. Since Performance Food Group Company's IPO in '2, sales have more than quadrupled to over $60 billion, and the market cap of Performance Food Group Company has increased sevenfold. Much of which can be attributed to the vision and influence George has had on the company. More importantly, because of George's stewardship, Performance Food Group Company is defined by more than just financial results. It is a place where people want to work, customers and suppliers want to do business, and a preferred partner for strategic M&A. There's a reason that Performance Food Group Company is often the first and sometimes only call from prospective acquisition opportunities. Many of you have had the opportunity to meet with George and experience his knowledge and insight firsthand. On behalf of our entire organization, I would like to share my heartfelt thanks to George for everything he has done for the many thousands of people who have crossed his path. I'm also thrilled that George will continue to play an important role for Performance Food Group Company. As executive chair of our board, he will be heavily involved in the pursuit of strategic M&A opportunities, maintain his connection to key customers, and be active in Performance Food Group Company's overarching strategy. Following an industry icon like George comes with great responsibility, and I'm excited to take the helm and lead Performance Food Group Company through our next chapter. George and I have worked together closely for the past four years, developed a powerful friendship, and collaborated on the vision for Performance Food Group Company. As I look ahead, I'm excited to lead this organization, and I'm extremely confident in our ability to continue to drive growth and EBITDA performance by executing on our strategic priorities. In May, we outlined our three-year strategic vision, which the company and I are deeply committed to delivering. More specifically, this is a roadmap grounded by a balance of continued revenue growth, market share gains, gross margin enhancement initiatives, and improving operating leverage. The organization is off to a solid start in achieving our three-year plan and has strategies in place to give us a high level of confidence we will deliver. Let's now turn to our results for the second quarter of our fiscal 2026. Despite a difficult macro environment, I'm proud of our organization's ability to overcome the challenges in the final months of the calendar year. The quarter saw declining foot traffic, the impact of the government shutdown, and softer sales per location across our segments. Despite the challenging backdrop, our company was able to post solid revenue and profit performance within our previously stated guidance range. Breaking it down by segment, let's begin with food service. Our organization delivered 5.3% organic independent case growth driven by a 5.8% independent account growth. During the quarter, we gained share across independent, regional, and national business largely consistent with our gains in prior quarters. Share gains were broad-based across a range of concepts with particular strength in chicken, burger, barbecue, and seafood restaurants. To elaborate further, after a strong start to October, volume trends moderated soon after the government shutdown took effect. We did see some recovery once the shutdown was lifted, and we finished the calendar year with case growth in December roughly in line with the November result. According to Black Box data, industry-wide foot traffic decelerated through the quarter with December traffic down 3.5%. Our chain restaurant business followed a similar glide path reflecting consistent industry pressures. Our total chain restaurant volume grew by low single digits year over year, as new business we've onboarded over the past several quarters offset the softer traffic environment. We attribute our consistent market share outperformance in part to our efforts behind growing, training, and supporting the best sales force in the food service industry. Our efforts in this area are proven out in the independent restaurant space. We continued to hire new associates during the period ending December with nearly 6% more salespeople than we had at the end of calendar 2024. As we have discussed on past calls, we do not have a corporate-wide hiring mandate nor do we require artificial hiring goals. Instead, we emphasize the importance of expanding our sales force as a key driver of volume and market share growth while empowering our local operating companies to hire according to their specific needs. We still believe a rate of hiring at or above 6% makes sense for the long-term support of our growth rate, but expect this number to fluctuate in any given period. I want to take a moment to discuss the integration of Channing Brothers. As we discussed last quarter, we are pleased with the work being done at Cheney and expect this company to be a significant contributor to Performance Food Group Company's revenue and profit growth long into the future. That said, we have been very consistent in our messaging around synergy timing when we expect the financial performance of Cheney to accelerate. When we made the acquisition, Cheney was making meaningful investments in its infrastructure to support growth. More specifically, the addition of a new 350,000 square foot facility in Florence, South Carolina, and a new 42,000 square foot facility in Saint Cloud, Florida, to expand its manufacturing capabilities. These investments, along with other integration costs, have had a short-term impact on Cheney's performance and our overall P&L. Despite this activity, Cheney continues to grow independent cases at a rate consistent with the rest of our food service operating companies, gain share in its distribution markets, and provide its customer base with great service. To close out my comments on Cheney, I want to remind you that we anticipate the majority of the synergies to start flowing through the income statement late in year two through year three after the close of the acquisition. Profit performance for Cheney should begin accelerating accordingly. All in all, our food service segment had a solid second quarter growing volume through market share gains, new business wins, and expansion of our private brand portfolio. We faced two meaningful EBITDA hurdles in the quarter that are likely to persist in the Q with my earlier comments on Cheney and the impact of cheese and poultry deflation. Despite the challenges, we remain confident in our strategy and expect our results to accelerate as we move through our fourth quarter, setting us up for a strong fiscal 2027. Turning to the convenience segment, on our prior earnings calls, we disclosed the addition of sizable new business wins for Core Mark. In the final weeks of September, we successfully onboarded over 500 Love stores contributing nicely to our second quarter results. Also joining the Core Mark fold in December, were over 600 Racetrack locations which we successfully integrated into our network, setting the segment up for a strong finish to fiscal 2026. Let's look at the convenience segment's performance during the second quarter. Net sales increased 6.1%, benefiting from market share gains and the onboarding of the new accounts just discussed. Our data shows a mid-single-digit industry decline in the key convenience categories as persistent inflation continues to weigh on the channel. Hallmark's positive volume results reflect the company's strong share gain outperformance and execution during the period. Convenience segment sales were driven by low single-digit dollar growth from food, food service, and related products and mid-teen non-combustible nicotine product sales growth. Cigarette sales were flattish in the period. As a reminder, the mix shift away from cigarettes towards other nicotine categories and growth in food, food service, and related products causes a revenue headwind that is nicely accretive to our gross margin. This dynamic is a consistent secular tailwind for our profit growth which we expect to gain momentum over time. Moving on to profit. In the second quarter, our convenience segment adjusted EBITDA increased 13.4% as a result of strong cost discipline and operating efficiency in addition to business from Loves and Racetrack. Once again, our great team at Core Mark showed remarkable resilience and the ability to drive profit growth despite a challenging backdrop. Turning to specialty, trends in the second quarter were broadly similar to the first quarter. With a modest improvement in top-line trends coupled with nice productivity gains, produced segment adjusted EBITDA margin expansion. Sales growth was tempered by another difficult quarter in theater which was down over 30%, representing an approximate $50 million drag on overall sales. Outside of theaters, specialty performed well growing sales at a high single to low double-digit rate in the vending office coffee retail, campus, and travel channels. Proactive management of operating expenses produced nearly 7% segment adjusted EBITDA growth in the quarter, representing 40 basis points of margin expansion. Closing out my remarks, it's certainly been a dynamic operating environment to take over as Performance Food Group Company's CEO. That said, I'm inspired by our organization's ability to consistently gain share across our business segments, operate safely while delivering exceptional customer service, and enhance our operating leverage. Driving sustained growth in EBITDA dollars and margins for our shareholders. Our diversification seeks to provide consistent performance in a range of economic scenarios, and our strong pipeline of new potential business should result in consistent long-term revenue and profit growth for Performance Food Group Company. I'll now turn it over to Patrick, who will review our financial performance and outlook. Patrick? Patrick Hatcher: Thank you, Scott, and good morning. Today, I will review our financial results from our second quarter, provide color on our financial position, and review our updated guidance for 2026. To echo Scott's comments, despite challenges in the quarter, we are very pleased with our progress through the first six months of 2026. Through December, we continued to make progress on our financial position, as our strong cash flow was used to invest behind our business to drive growth and reduce leverage. We believe that the investments we are making today will pay off nicely as we execute our strategy. We believe that the investments we are making today will pay off nicely as we execute our strategy. In a moment, I will provide additional color on our financial position and capital allocation priorities. First, let's review our results for the second quarter. Performance Food Group Company's total net sales grew 5.2% in the second quarter, with growth in all three operating segments and particular strength in foodservice and convenience. Total company cases increased 3.4% during the quarter, highlighted by a 5.3% organic independent restaurant case growth and a 6.3% organic case gain in our convenience segment. As a reminder, having fully lapped the Cheney Brothers acquisition, as of the second week of the second quarter, Cheney was reported as part of our organic business for the vast majority of the period. As Scott mentioned, in our convenience business, we are very pleased with the contribution from the addition of Loves, and are looking forward to the benefit of the Racetrack business, which started onboarding late in the second quarter. These businesses are expected to deliver incremental sales and profit dollars over the next several quarters. Total company cost inflation was approximately 4.5% for the quarter, just slightly higher than what we experienced in the prior quarter. With that said, there were some items moving around within our cost basket. Foodservice inflation of 1.8% was below recent trends, with notable deflation in the cheese and poultry categories, somewhat offset by higher inflation in beef. Specialty segment cost inflation was 5.4% year over year, about 140 basis points higher than the prior quarter, mainly the result of candy and hot drink price inflation. Convenience cost inflation increased 7.4%, again, slightly higher than the prior quarter due to inflation in tobacco and candy. As Scott mentioned, the inflation impact on the convenience segment sales growth is offset by the revenue mix shift away from cigarettes. The inflationary environment has been volatile over the past several years, but as a company, we have demonstrated our ability to handle a range of outcomes. We continue to model inflation rates remaining in the low single to mid-single-digit range throughout 2026. Moving down the P&L, total company gross profit increased 7.6% in the second quarter, representing a gross profit per case increase of $0.20 as compared to the prior year's period. We are very pleased with our gross profit results, which shows our organization's resilience and long-term growth opportunity. In 2026, Performance Food Group Company reported net income of $61.7 million, a 45.5% increase year over year. Adjusted EBITDA increased 6.7% to $451 million, with all three operating segments contributing to our adjusted EBITDA growth. Diluted earnings per share in the fiscal second quarter was $0.39, while adjusted diluted earnings per share was $0.98, flat year over year. Our EPS was impacted by several below-the-line items, including higher interest expense and an effective tax rate in the period. Our interest expense increased due to higher finance lease costs, offsetting lower debt balances and more favorable interest rates. Looking ahead, we anticipate a very modest sequential decline in the net interest expense. Our effective tax rate was 28.8% in the second quarter, an increase from 25.2% last year. The increase in our quarterly effective tax rate was due to a decrease in deductible items related to stock-based compensation and an increase in foreign taxes as a percentage of income, partially offset by an increase in tax credits. We continue to expect our 2026 tax rate to be close to our historical average. Turning to our financial position and cash flow performance. In the first six months of 2026, Performance Food Group Company generated $456 million of operating cash flow, an increase of $77 million compared to the same period last year. We invested about $192 million in capital expenditures during the first six months. We continue to anticipate full-year 2026 CapEx to be approximately 70 basis points of net revenue, in line with our long-term target. Our investments in CapEx are primarily focused on maintaining and supporting growth within our infrastructure and high-return projects that we believe will support our long-term growth goals. In 2026, we generated about $264 million of free cash flow, up nearly $89 million compared to last year. We did not repurchase any shares under our share repurchase program in the quarter. We will be opportunistic around share repurchase, but our priority remains debt reduction. The M&A pipeline remains robust, and we continue to evaluate strategic M&A. Performance Food Group Company has a history of successful acquisitions to drive growth and shareholder value, and we expect that to continue. At the same time, we will apply our typical high standards and robust due diligence to evaluate high-quality acquisition opportunities. Turning to our guidance. Today, we announced guidance for 2026 and updated our range for the full year. For the third quarter, we expect net sales to be in the range of $16 to $16.3 billion and adjusted EBITDA between $390 million and $410 million. These ranges include continued deflation in cheese and poultry, the investment in our business, including onboarding of new capacity at Cheney, and continuation of a difficult backdrop for our specialty segment. We have also contemplated the impact of the recent winter storms in our outlook for the third quarter. For the full fiscal year, our sales target is now a range of $67.25 to $68.25 billion. We now expect full-year adjusted EBITDA in a range of $1.875 to $1.975 billion for 2026. The adjustments in our full-year projections are largely a flow-through of the more difficult second quarter period. Our results keep us on track to achieve the three-year projection we announced at Investor Day with sales in the range of $73 to $75 billion and adjusted EBITDA between $2.3 and $2.5 billion in fiscal 2028. To summarize, we are pleased with our progress despite a difficult operating environment in the second quarter. We are in a solid financial position, which supports our growth investments and capital return to our shareholders, and expect strong execution in the second half of the year. Thank you for your time today. We appreciate your interest in Performance Food Group Company. And with that, Scott and I would be happy to take your questions. Operator: Thank you. At this time, if you would like to ask a question, please press 1 on your keypad. To leave the queue, press 2. Once again, that is 1 to ask a question and 2 to remove yourself. We'll pause for just a moment to allow questions to queue. We'll take our first question from Mark Carden with UBS. Please go ahead. Mark Carden: Great. Good morning. Thanks so much for taking the questions. To start, on organic independent case growth, you started the quarter with some solid momentum. Called out the shutdown. Any additional color you can add on performance by month? And then you also just called out some of the recent weather headwinds and impact to guidance. How is January lined up relative to your initial expectations? And do you still see a path to that 6% organic independent case growth for the full year? Scott McPherson: Hi, Mark. This is Scott. Great questions. And as you talked about in Q2, we started the quarter in October, you know, fairly strong. That was the strongest period of the quarter. And then obviously, the shutdown certainly had an impact the longer it carried on. We saw our November and December months, you know, relatively equivalent. Definitely some choppiness week to week. And then as we moved into January, we saw, you know, really nice rebound, nice performance in January. And then, you know, certainly, as you know, you know, February has been, you know, materially impacted by weather. Last week, you know, really a good portion of the country was impacted. And this week, you know, a little more isolated to the Eastern Half and the Southeast. But certainly had an impact and something we factored into guidance. When I look at the big picture, you know, we're very optimistic about the full year. And I think, you know, you called out the 6% target. That's always what we aspire to. That's that's kind of how our sales organization is geared is we want to be 6% or above. So we're certainly fighting to get there. Mark Carden: Great. And then on the Salesforce front, have you guys seen much of an impact on either new hiring or retention in the back of some of the earlier uncertainty relating to US Foods discussions perhaps earlier in the quarter? And then just how did the pace of your Salesforce growth compare to recent quarters? Scott McPherson: No. It's a great question. You know, really, what I look at when I think about Salesforce, force hiring and performance is really market share. And as I look at the Salesforce's market share performance, not just over the last couple of quarters, but over the last, you know, five or six quarters, we've been very consistent in our independent market share gains. You know, as far as actual headcount, we've been right at that 6% range for the first two quarters of this year. I'm totally comfortable at that level, you know, to see them continue to grow share, you know, to demonstrate through new account acquisition, we're at 5.8%. Net new account gains this quarter, same last quarter. But at the end of the day, and I talked about this in my comments, you know, we are decentralized around that hiring. We certainly have opcos that are hiring in the double-digit range. And some that are, you know, probably below that 6% range. And we really leave that up to them. But, you know, what I use is my gauge is really anchoring back to market share. So I feel really good about where we're at right now and the availability of talent. Mark Carden: Great. Thanks so much. Goodbye. Operator: We'll hear next from Alex Slagle with Jefferies. Please go ahead. Alex Slagle: Wondering if you could dissect the dynamics at play for the foodservice business. In the second quarter. It seemed like really strong independent growth and the independent mix, you know, sales jumped a lot, but the OpEx was elevated. You called out the chain investments and the cheese and poultry deflation. But maybe you could kind of talk a little bit more about how impactful that was and the cadence of the investments, behind Chaney and, you know, how that maybe differed from expectations or if that was sort of similar to what you expected. Scott McPherson: Yeah. Let me just start off with Chaney. You know, want to take a step back and just, you know, that acquisition is something that we pursued for a long time. It's been a great acquisition to date. It's a great cultural fit. It fills in a geography that is really strategic for us. So we're really happy with the progress of the acquisition. As I called out in my remarks, we knew going in that we were going to make some material investments in their infrastructure. We have a brand new building that is just completed. We just started receiving product this week. It will start shipping probably over the next three to four weeks. So, certainly, there are some costs related to that. We also opened a new manufacturing facility for them. So overall, I would say, you know, their costs are running a little bit higher than we anticipated. And the other thing that we're taking them through right now is, you know, they transitioning into being part of a public company is, you know, the integration cost to our benefits to our payroll, to our financial mapping. So, again, really happy with the acquisition. Certainly, you know, expenses are on a little bit higher than we anticipated. Then just, you know, you kind of asked about the overall cadence in food service. You know, as you pointed out, really happy with our market share growth, both in independent and chain. You know, from a margin standpoint, you know, as we continue to grow that independent market share, that mix really helps our margin. So that's performed really well. And then, you know, I think from an OpEx standpoint in the core food service, you know, ex Cheney, you know, we have leverage, but I'd say, you know, definitely, there's some opportunity in leveraging OpEx in that area as well. But really, you know, pretty happy with how the core food service segment performed. And then we talked about the deflation in those two couple categories did have an impact on margins for sure. We over-indexed in those two categories. So, really, you know, summing it all up, you know, Cheney and the deflation were really, you know, at the end of the day, really the miss in the quarter that would have gotten to the upper half of guidance. Alex Slagle: Okay. And then I guess along the same lines, at least in terms of the improving mix of convenience, EBITDA margin opportunity, I wanted to ask about. I mean, it's expanded nicely, and some of that is the foodservice growth. And some other mixed items. But, I mean, the food service penetration actually is still seems to have a long way to go. Kinda curious what that could mean over time for the overall convenience EBITDA margins as we look out the few years, you know, and we continue to grow that portion of your business there. Scott McPherson: Yeah. It's a great call out, Alex. There's a lot of things going on in the convenience segment that really, I think, help our margin profile over time. You certainly called out food service, and I agree with you. There's a long runway ahead. You know, we continue to grow food service in that high single-digit, low double-digit range. Both in our convenience segment and our food service segment into convenience. So, you know, kind of hitting that from two ends. So that's performing really well. When you look at the macro of convenience though, you know, one of the things that's, you know, I think really encouraging is what's happening in the non-combustible space. Non-combustible nicotine, oral nicotine, and other forms of nicotine that aren't combustible are growing at a rapid pace. Those have a nicer margin profile than combustible cigarettes. So as we see that migration, there's a natural benefit to our margins in mix. So, you know, that's been a great progression, and I think that's going to continue for a long time. So we feel really good about how we're set up in convenience from a margin standpoint. Alex Slagle: Thanks. Operator: We'll hear next from John Heinbockel with Guggenheim. Please go ahead. John Heinbockel: Hey, guys. Scott, maybe you can touch on some of the self-help that you referenced back at the Investor Day, particularly strategic procurement. Where are we in that journey? You know? And then maybe as a related question for Patrick, just the impact of deflation on margin comes from where? I don't know if that's mix or, you know, inventory gains, or how does that flow through? Scott McPherson: Yeah. So I'll take the first half of that and let Patrick tackle the second. So, John, we, you know, at Investor Day talked about procurement opportunities. And we've done a lot of work on that. And, you know, certainly in the clean room environment that we had over the last few months, you know, that allowed us to really dig into our own side of the procurement ledger. And really, at the end of the day, it gave us, you know, that much more confidence that, you know, we're going to be able to get to that top end of the $100 to $125 million of procurement synergies over our three-year plan. You know, the cadence of that, I'd say it's fairly, you know, linear. I think, you know, we're starting to capture some of that in the back half of this year. We'll definitely see capture in year two or in year three and get us to that end number. So we feel really confident about that. Patrick Hatcher: Yeah. And, John, thanks for the question. I'll jump in here. Yeah. So where we're going to see the impact from the deflation is largely going to be in margin, but it could also be a little bit of inventory gains. I mean, you have to remember we have a very large basket of commodity goods that are constantly moving around. We called out cheese and poultry because our expectations for the quarter were higher than what we actually saw come through with the inflation. So that's the reason we called it out, and it's because we also over-indexed in those two commodities versus the rest of the basket. John Heinbockel: Alright. Maybe follow-up for Scott. I know as part of The US food process, right, was some chain business. You know, that had sort of gotten tabled. Does that come back? When does that come back? And you know, how material is that? Scott McPherson: Yeah. I think as George mentioned on prior earnings calls, you know, we had two or three folks in the pipeline, I'd say fairly material pieces of business that we felt like we had a really good shot at picking up. And as we said, you know, we felt like they were on the fence. Most of those, what they do in that situation is they will renew for the short term, and that's what happened with a couple of these. They signed one-year extensions on their agreements. You know, so we're certainly still in dialogue. But I would just step back and say, overall, in the food service space, we feel really good about our pipeline, both in chain. In the convenience space, obviously, you know, they're performing exceptionally well from a market share standpoint. And I'd even step back and look at specialty and say, you know, we definitely called out the headwind in theater. That's been certainly a challenge. That challenge will really persist for us in the next quarter. That's when we lap at the end of this next or I guess this third quarter that we're in. We lap a pretty material loss in theater. But the rest of the segments are really performing pretty well. When I look at vending and retail, our e-commerce platform, you know, we're starting to see some momentum there. So feel really good as we get into, you know, Q4, that you're going to start to see some nice performance out of the specialty from a growth standpoint. John Heinbockel: Thank you. Operator: We'll move now to Jeffrey Bernstein with Barclays. Please go ahead. Jeffrey Bernstein: Great. Thank you very much. My first question is just on M&A topic. Scott, you mentioned the pipeline is robust. Just wondering whether there's any change in Performance Food Group Company's specific interest. Seems like you're still working hard on the Chaney integration. Maybe costs are coming in a little higher than you thought. So I'm wondering if there's any change to the approach to that M&A, maybe with George stepping back, how we kind of prioritize that process? And then I had one follow-up. Scott McPherson: Yeah. I would say overall, you know, really no change to our approach to M&A. I mean, George and I have collaborated on M&A for the last four years. We'll continue to collaborate moving forward on that. We certainly are looking at things in our pipeline, you know, to your point, you know, Cheney, I think has progressed really well. We're really excited about what that's going to bring. And we called out early on that, you know, the synergies that we'll see in Cheney really come at the end of year two and year three. And that's really the way we approach M&A. You know, we try not to make any drastic changes in those first couple years to really, you know, let them acclimate to the organization. We try and learn what we can from them as well. And we think that just makes for a much better long-term approach to M&A, and that's paid off with Reinhart. It's paid off with Core Mark, and it's certainly going to pay off with Cheney. Jeffrey Bernstein: Understood. And then just to follow-up on the independent organic case growth. I know you talked about always targeting kind of that 6% type range. I think the impression is going to be a little bit more of a fight to get there in the fiscal third quarter. So I'm wondering if you could share any of the current run rate or your expectation for that third quarter. And there was a passing mention on the weather. I was expecting to hear something more material. I was wondering whether you could quantify how much potentially that weather impact has had on sales, which were modestly below street expectations for the third quarter, but EBITDA, which was well below. Just trying to gauge the primary driver of that EBITDA shortfall, whether weather had a more outsized impact or whether it's primarily Cheney. Thank you. Scott McPherson: Well, I'll talk to the cadence of the quarter. And, Patrick, you might want to fill in a couple of things here. We actually started January off really nicely. I would say it was a, you know, call it a rebound from where we were at in December, picked up nicely in January. And then certainly, you know, last week's weather was impactful. And, you know, I think going into this week, certainly having an impact as well. And that's certainly something that we took into consideration when we talked about our guide for the third quarter and the full year. Patrick, anything you want to add? Patrick Hatcher: Yeah. Just a couple of comments on the guidance for Q3. You know, really what we have embedded in that guidance in the EBITDA is, you know, we do expect to see some continuation of the OpEx challenges that we've had to Cheney that we saw in Q2 will continue in Q3. We also are seeing that deflation impact from cheese and poultry continue into Q3. Scott touched on specialty. And then, obviously, the weather, we contemplate that. You know, we've had bad weather last year, two years ago during this quarter. It is our smaller quarter. It's very hard to, you know, obviously nail down weather, but we have recently experienced two weeks of, you know, impact from weather. And as Scott mentioned, you know, we did see a nice uptick in independent cases as we entered this quarter. And we have the convenience with their new Racetrack customer being for the full quarter. So we have some tailwinds as well. And that's really kind of how we built out the guidance for the quarter. Jeffrey Bernstein: Thank you. Operator: We'll turn next to Edward Kelly with Wells Fargo. Please go ahead. Edward Kelly: Yeah. Hi. Good morning, everyone. I'm sure George is listening. If he is, you know, he will be missed, and so just wanted to say congratulations. I wanted to follow-up on the cost side, you know, for you. As it pertains to, you know, some of the higher than expected costs related to Cheney. I would think that the weather disruption probably adds, you know, some added cost too. I'm curious as we think about when the business normalizes and we look out, you know, into the next, you know, fiscal year, are there, you know, tailwinds associated with lapping this type of stuff? You know, just kind of curious as to how sort of, like, one-time in nature, you know, some of the stuff is. Scott McPherson: No. It's a great, great question, Ed. And, you know, certainly, as we talked about, Cheney, the, you know, the major investment in a facility, you know, that's a 350,000 square foot facility that, you know, we're staffing and have been staffing over the last couple of months. And, you know, that won't be fully online, you know, until probably two months from now. So you've definitely got some expense involved with that. And then, you know, as you called out, certainly, creates some expense challenges. You know, as I look at the three-year guidance, I think that's really where we contemplated, you know, what those tailwinds look like. And certainly, you know, our synergies in Cheney we expect to come in years two and really into year three. And that's going to be a nice contributor to our three-year guidance. And, you know, we feel really strong about delivering that. Edward Kelly: Alright. And then just a follow-up for you and, you know, pertains to the three-year guide that you referenced. That, you know, there's been concern about this inflation. You mentioned it on the call today. I guess, first, you know, what's embedded in that three-year guide in terms of, like, an inflation outlook? If food service, you know, is just sort of, like, plotting along at one to 2%, is there any issue with hitting the three-year, you know, guidance if it's a low level of inflation? Just kind of curious as to how you contemplated all that in that outlook. Patrick Hatcher: Yes. This is Patrick. And it's a great question. And as we think about the three-year guidance and inflation, you know, we embedded into our models what we thought would be a consistent number. And, you know, we've always said, you know, where we are right now is pretty good. We're calling out the deflation this quarter just because, as I've mentioned, our expectations were cheese and poultry specifically were going to not be as deflationary as they are. So when we think about the three-year guidance, we have a lot of confidence in hitting that guidance. We're very much on track if you look at where we're projecting this full-year guidance to be. And then as we enter next year, yeah, we have just a lot of confidence in executing our strategy. Continue to take market share, and then, you know, everything else that we've talked about. Edward Kelly: Great. Thank you. Operator: We'll move now to Kelly Bania with BMO Capital Markets. Please go ahead. Ben Wood: Hi, good morning. This is Ben Wood on behalf of Kelly Bania. Thank you for taking our questions. Could you provide any more detail on the monthly cadence of volume trends you saw in convenience? Some of the industry data we look at suggest that sales trends really accelerated into December and through year-end. Is that consistent with what you guys saw? And if so, how are you thinking about the possibility of some of those key categories in convenience inflecting positive going forward? Scott McPherson: No, it's a great question. As I look back over the full second quarter, those results were, you know, I would say fairly consistent with what we've seen historically, which was kind of low to mid-single-digit declines in a number of categories. To your point though, as we exited the second quarter in December and maybe even into January, I think one of the things that we've benefited from in the convenience segment is when you get fuel pricing that drops down, you know, in some markets into the $2 range, that certainly helps car travel and people being out on the road. You know, obviously, we were really, you know, propelled by, you know, new account wins. But even taking that away, you know, we continue to gain share in our convenience segment, you know, both at the chain level, the regional level. So, you know, our segment's performing well. And to your point, I think there are some signs of improved performance and traffic in convenience. Ben Wood: Great. And then just kind of following up on that. In light of the announcement yesterday from Pepsi to pretty majorly lower price in some of their key snack brands, do you expect others to follow suit? And is there a possibility that some of the snack and convenience categories might become deflationary off of this? And how does that impact your different businesses? Scott McPherson: I wouldn't want to make predictions on whether other snack categories would become deflationary. That would be, you know, I've been in this space for thirty years. I've never seen those categories become deflationary. Yesterday's announcement was very interesting. You know, what I have since heard is that that's primarily just on the big bag. So right now, we don't see that as being a big impact on our convenience segment. Certainly, that could change and pass along to some other SKUs. But, you know, I don't see that becoming an industry trend just based on my historical experience. Ben Wood: Great. Thank you. Operator: We'll move now to Lauren Silberman with Deutsche Bank. Please go ahead. Lauren Silberman: Thank you. So I wanted to go back on the OpEx side. Can you help us understand how core underlying OpEx is growing ex Cheney? I guess I'm trying to understand how much of the growth is investments in the core business, Salesforce, versus some of the noise that's changing with the new facilities coming online? Scott McPherson: No. It's a great question, Lauren. I would say and think I said a little earlier in the call, I would say there's certainly always opportunity in getting more expense leverage, you know, across all of our segments. I would say in the core food service segment, you know, quarter over quarter, our expense performance was fairly consistent. We are certainly seeing leverage as a percent of gross profit dollars in our expenses. So, you know, feel good about how the core is performing. Certainly, to improve. But, you know, the bulk of our miss in OpEx from what we anticipated was really just the overrun we saw in Chaney. Lauren Silberman: Okay. I guess in the back half of the year, any way to frame how we should be thinking about that growth now that it's in the full segment year over year clean? And I guess is the overrun more of a pull forward of expenses or higher overall expenses? Scott McPherson: No. I think it was really situational just to Cheney. And as I talked about with new buildings coming on, some of the things that we're doing to get them to be part of our overall, you know, public organization is certainly added some cost to them. So, you know, we expect that to continue a little bit into the third quarter. As we called out. But, you know, in the long run, you know, we're a company that's really focused on getting OpEx leverage across all our segments. And, you know, feel very comfortable that in our full year, we'll get that in a position that we feel really comfortable with. And that was all, obviously, contemplated in our guidance for the full year. Lauren Silberman: Okay. And then if I could just go on the promotional environment, can you talk about what you're seeing in amongst competitors? Any changes in the promotional environment, especially as one of your competitors seems to be building some momentum, and then there's just the moving pieces of product inflation and how different peers react. Scott McPherson: Certainly. You know, what I said earlier, what I consistently look at is market share gains. And I think we have performed exceptionally well, you know, this quarter, last quarter. And now as I look back for a number of quarters, market share gains have been very consistent across the independent space, across the chain space as well. You know, so from that perspective, I feel good about how we're performing. That's really my focus. You know, as far as the competitive environment, you know, I would say it's always competitive. I wouldn't say that I saw anything different, you know, this quarter or last quarter than I've seen, you know, from prior quarters. Lauren Silberman: Thank you very much. Scott McPherson: You bet. Thank you. Operator: We'll move next to Brian Harbour with Morgan Stanley. Please go ahead. Brian Harbour: Brian, we can't hear you. Operator: Yeah. Your line is difficult. Are you able to pick up a handset? Brian Harbour: Can you hear me now? Operator: Yes. Perfect. Brian Harbour: Okay. Great. On your deflation comments, can you remind us how those products get marked up? And I guess, you know, for, like, cheese, for example, I mean, how much is this sort of like, category issue if you think about pizza? You know, in contrast to chicken, I would think that, you know, that's demand is still very good there. Could you just elaborate on that? Patrick Hatcher: Yeah. So just I'll try to keep this high level, but, you know, we're going to, we take our independent customers, we're going to have a markup on cost, and our salespeople are the ones that determine that. A deflationary environment, what's happening with these two commodities is there's oversupply. There's a lot of supply. A lot of capacity came on with cheese. And so it's at a very low point. And same thing with poultry. They're able to increase their supply significantly. They do this from time to time, and they go oversupply, and then they go undersupply. So again, it's really just our over-indexing because of our customer base in those two commodities that we called this out. Brian Harbour: Yep. Okay. Understood. And then just in convenience, I guess I would assume that there's sort of, you know, secular pressure on snack foods and that it's not just the inflation that's happened there, but sort of preference. I think we're seeing that in grocery stores. So, you know, how much do you think that do you agree with that? And do you think that, you know, the convenience stores are sort of committed to replacing some of those products with perhaps healthier options or more on-trend options? Do you think that's happening fast enough such that it sort of, you know, improves sales in that segment versus what you've been seeing? Scott McPherson: No. It's a great question. There's a lot to unpack there. The first thing I'd say is just looking at product inflation. If you look at snack and candy, you know, I guess, since pre-COVID until today, you know, those are two of the categories that had the highest inflationary increases of any consumable product that's out there. So certainly, I think that price elevation had an impact on demand. And so, you know, Frito's response, you know, like I said, is surprised me a little bit because I do think the consumer is catching up. And, you know, so as we talked about, we've seen a little heightened demand over the last couple of periods in convenience. As far as the mix of products, I think the one real opportunity for us is really in food service. You know, I think the convenience store more and more is becoming a relevant option for high-quality food options. And, you know, so as we think about consumer behavior changing, they want fresher, they want healthier, and, you know, convenience stores have an opportunity to fill that need. And we feel that, you know, we're somebody that can certainly fill that. As far as consumer packaged goods and that mix changing, there's been a shift in general to more healthier and convenience. And to your point, I think could this, you know, kind of dynamic accelerate it? Certainly, could. But I think as we all know, it takes consumer package companies a while to get products to market. So I don't see anything dramatically happening quickly. Operator: We'll move next to Peter Saleh with BTIG. Please go ahead. Peter Saleh: Great. Thanks for taking the question. I did want to come back to maybe Jeff's question on the forward guide. Can you just talk a little bit about maybe what's embedded from a macro perspective going forward? I mean, we do have some, you know, much higher tax refunds coming through. That should benefit this quarter or maybe into the, you know, first calendar half of the year. Have you embedded any of that into your guide? Have you thought about that? I know you said January was a pretty good month. February, I guess, started off pretty slow. But I think the quarter is really defined by how March performed. So any thoughts on that would be helpful. Patrick Hatcher: Yeah. Peter, that is a really good question. I spent a lot of time looking into the, you know, the tax refunds. The no taxes on tips or overtime that are going to start coming through. Yeah. And other tailwinds, honestly. I mean, what's the World Cup going to do? All these things as we go Q3 and Q4. We did not embed those in our guidance, mainly because it's very hard to know what that flow-through is going to be, but we do know that putting more money in the consumer's pocket, especially the folks that are maybe on the lower end, we'll see how much of that goes into the market and how much they use that for discretionary spend into restaurants. But we do know that's a very positive thing, and then we know that the World Cup should also be another tailwind, but we didn't put that in the guidance. Peter Saleh: Great. I appreciate that. Can you also comment I think last quarter, George commented that there could be some changes to the SNAP benefits and that could have an impact. Have you seen any change on that front and any impact to date? Scott McPherson: And there's some, you know, recently contemplated changes as well. But no, I can't say that we have seen any material impact on any of the changes or contemplated changes in SNAP at this point. Peter Saleh: Thank you very much. Operator: We'll move now to Karen Holthouse with Citi. Please go ahead. Karen Holthouse: Hi. Thanks for taking the question. I wanted to dig into, you know, Florida a little bit and just kind of excluding Chaney Brothers or noise from that, your sense of just the underlying health of that market. I think we're hearing some concerns around travel tourism, particularly international tourism around theme parks and whatnot. Being down pretty materially. And then just as snowbird season has gotten underway, any risk that Canadians are avoiding the market this year? Scott McPherson: No. I think it's a great question. And, certainly, we have our finger on that pulse pretty closely. You know, the one thing that I would say that I've been very pleased about with Chaney is their independent share gain. You know, they continue to grow independent share at a rate consistent with the rest of our business. And definitely, you know, we've been following very closely the travel patterns, and I've seen the recent theme park attendance. So I do think there's been a little bit of a slowdown with international travel and the Canadian travel in the marketplace. But I'll tell you, we have a ton of confidence in Florida overall. I mean, that's been a state that's been growing consistently for a number of years. And, you know, I feel like that, you know, they're poised for a big rebound, and that's state. But, you know, we're performing really pretty well in the state, all things considered. Karen Holthouse: And then one quick follow-up that just prior to the bigger weather events that we saw the last week or so, anything to comment in terms of geographic performance in the quarter today? Scott McPherson: Oh, it's a really good question. Yeah. We had called out on prior earnings calls that we saw some slowness in the Midwest and we'd also called out areas where we had, you know, friends travel from Canada. But as I think back to, you know, last quarter, the start of this quarter, you know, particularly the start of this quarter, you know, January, which, you know, January isn't the bellwether month because it's a smaller month, but really saw a pretty consistent performance across the map. Didn't see any markets that had any material, you know, lulls or surges. Karen Holthouse: Great. Thank you. Operator: And once again, ladies and gentlemen, that is We'll turn next to Danilo Gargiulo with Bernstein. Please go ahead. Danilo Gargiulo: Great. Scott, once again, congratulations on your new role. And I want to ask you a more strategic question to begin with. So as you embark in this new role, how would you like your era to be remembered for? In other words, where do you see incremental opportunities for performance going forward? Scott McPherson: I really appreciate the question. I think it's a great question. One of the reasons that I'm at Performance Food Group Company, it's one of the reasons that, you know, as I was running Core Mark that we decided to merge with them is culturally, I truly foundationally believed in what George and Performance Food Group Company were doing as a company. So, you know, as I've worked with George over the last four years, I would say that, you know, we very much align in how we look at the business. I think fundamentally, we're both believers in driving growth, you know, both organically and through M&A. I think we both pay particular attention to margin and, you know, how mix can help and drive margin. Culture is very important, you know, to me. And then I'd say if there's any, you know, anything that maybe is a little different is I probably have a little slant towards, you know, how are we going to leverage technology? How are we going to leverage that to be more efficient as a company? You know, but outside of that, I'd say, you know, George and I, our approach to the business is very consistent. And my priority for this company is to continue to drive, you know, that top-line growth, but make sure that, you know, everything that we do allows it to flow to the bottom line and that we do, you know, with a great culture and make sure there's a great place for people to work. Danilo Gargiulo: Okay. Great. Thank you. And you mentioned margin in your answer. And earlier, you also talked about the discovery that you really had with the, you know, during the process of a potential merger with US Foods on the procurement side. So I'm wondering, over what time frame do you expect performance to start closing some of the margin gap versus peers? You know, absent, obviously, the mix impact that it's going to be favoring you over time. And what are some of the low-hanging fruits you think you could capture without impacting the case growth? Scott McPherson: No. Another great question. I would say that the work we did in the clean room was just validation. We felt like when we, you know, sat down and put together our strategy for investor day, you know, this is a company as I called out in my prior remarks that's grown dramatically over the last ten years. And so we felt like as we sit down with our vendors and partner with our vendors that there's opportunity to create cost of goods benefits, to create logistics benefits, you know, just through our size and scale and creating efficiency with our vendor partners. So, you know, I think the clean room exercise was just a further validation that that opportunity exists and that, you know, we have a clear line of sight to go capture it. And the second, I'm sorry, the second part of your question? Danilo Gargiulo: What is the right time frame for the closure of the margin gap? Scott McPherson: Yeah. I think I've called that out a little bit. You know, we really incorporated that synergy into our three-year guide. And as I look at, you know, the cadence of that, I would say that, you know, we're in the early innings. We're, you know, in the first couple of quarters of that. But we felt like and still feel like that's going to flow, you know, fairly consistently year to year. So, you know, I think that my thinking there is unchanged. Danilo Gargiulo: Okay. Thank you. Operator: As there are no further questions in queue at this time, I would like to turn the call back over to Bill Marshall for any additional or closing comments. Bill Marshall: Thank you for joining our call today. If you have any follow-up questions, please reach out to Investor Relations. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time, and you may disconnect.
Operator: Good morning, everyone, and welcome to the Lear Corporation for the Quarter and Full Year 2025 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. At this time, I'd like to turn the conference call over to Tim Brumbaugh, Vice President, Investor Relations. Please go ahead. Timothy Brumbaugh: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear's fourth quarter and full year 2025 earnings call. Presenting today are Ray Scott, Lear President and CEO, and Jason Cardew, Senior Vice President and CFO. Other members of Lear's senior management team have also joined us. Following prepared remarks, we will open the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Ray begins, I'd like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear's expectations for the future. As detailed in our safe harbor statement on slide two, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-K and other periodic reports. Also, I want to remind you that during today's presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today's call is on Slide three. First, Ray will review highlights from the year and provide a business update. Jason will then review our fourth quarter and full year financial results and provide our outlook for 2026. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I'd like to invite Ray to begin. Raymond Scott: Thanks, Tim. Please turn to Slide five, which highlights our key financial metrics for the fourth quarter and full year 2025. Lear delivered a 5% increase in revenue in the fourth quarter, generating $23.3 billion for the full year. Core operating earnings were $1.1 billion or 4.6% of net sales for the full year. Adjusted earnings per share was $12.8, a 1% increase from 2024. This is our fifth consecutive year-over-year increase. Operating cash flow was $1.1 billion, and free cash flow was $527 million in 2025. Slide six summarizes key financial and business highlights from the fourth quarter and full year. Our strategic priorities continue to drive execution across four key areas: extending our global leadership position in Seating, expanding margins in E-Systems, growing our competitive advantage and operational excellence through Idea by Lear, and supporting our sustainable value creation with disciplined capital allocation. We made progress towards our goals in both Seating and E-Systems by finishing the year with some of the most significant new business awards in Lear's history. In Seating, we were awarded the complete seats for a major truck program from an American-based automaker, the largest seating conquest award on record. General Motors awarded Lear the complete seats for their large SUVs and full-size pickup trucks to be produced at Orion Assembly starting in 2027. This award continues Lear's long history as GM's seat supplier for full-size pickup trucks and SUVs while supporting GM's expansion of their U.S. manufacturing footprint. Our China team continues to grow business with domestic automakers. In the fourth quarter, we secured several complete seat programs with Chang'an, Dongfeng, and LEAP Motor, and a thermal comfort award with BYD. I couldn't be more proud of the team for securing these critical awards that demonstrate how we are extending our global leadership position. In E-Systems, we continued our strong momentum with new business awards for nine wire harness programs and several electronics and connection system programs across all major regions, including the Volkswagen Group in Europe and South America, and key Chinese automakers such as BAIC, Geely, and SAIC. For the full year, we secured over $1.4 billion in E-Systems business awards, our strongest performance in over a decade. The second highest annual total in Lear's history. These awards will benefit from our operational improvements we have made, driving improved margins as it launches in future years. Our strong operating performance continued into the fourth quarter, with both segments exceeding expectations. For the full year, we generated approximately $195 million in net operating performance, translating to 60 basis points in Seating and 110 basis points in E-Systems. Our best year of positive net performance is a testament to our commitment to operational excellence and the benefits we are capturing from our investment in digital tools, automation, and restructuring. The capabilities we are developing through Idea by Lear are a growing performance differentiator. 2025 marked a pivotal year in our digital transformation. We extended our partnership with Palantir and launched the inaugural Lear Fellowship, the first program of its kind in our industry. Our first cohort completed the intensive twelve-week training in the fourth quarter. In 2026, we're expanding the program with a second cohort focused on European operations and globally thereafter. Our operational excellence and quality leadership continue to earn recognition. We achieved more top four finishes than any other supplier in the J.D. Power 2025 U.S. quality and satisfaction study. In E-Systems, our multi-year quality improvement initiatives delivered results. Customers awarded us with a record 11 quality awards. Our foundation and operational excellence drives our quality and cost advantages, leading to new business and conquest wins while expanding margins in both segments. Automotive News recognized our innovative zone control module with a 2025 PACE award. This award-winning technology will launch on the BMW new class architecture this year. In China, we took operating control of two joint ventures supporting several programs for BYD and Series. These consolidations also allow us to leverage our full operating capabilities and will drive growth in 2026 and beyond. Last February, we acquired Stone Shield Engineering to enhance our wire harness automation capabilities. In just one year, we rapidly scaled StoneShield's technology from Europe to our operations in South America, Mexico, and the U.S. The combination of our profitable growth in Seating and E-Systems supported by idea-driven productivity advances fuels efficient cash flow conversion. That cash supports our disciplined capital allocation and enables us to accelerate our share repurchase program. We repurchased $325 million in shares during 2025, significantly exceeding our initial $250 million target. Combined with our dividend, we returned almost $500 million to shareholders. Turning to Slide seven, I'll provide more detail on our key onshoring and conquest awards and how they demonstrated our ability to extend our global leadership in Seating. We were awarded the contract to supply complete seats for General Motors' full-size SUVs and pickup trucks at the Orion plant projected to launch in 2027. Adding Orion extends Lear's strong partnership with General Motors, supporting their premier programs across the entire footprint. The largest seating conquest award in Lear's history is for a truck program with an American automaker, displacing the incumbent complete seat suppliers for multiple plants. Our industry-leading automation capabilities and superior quality performance were key factors that enabled us to win this business. We will share additional details for this award at the appropriate time. Our strong customer relationships, proven execution, and extensive U.S. manufacturing footprint give us a distinct competitive advantage. Investing in automation and designing capital specifically optimized for our manufacturing processes, rather than relying on off-the-shelf solutions, we've enhanced operational efficiency, reduced cost, and accelerated our speed to market. We also continue to win conquest awards in other regions, including China. For BMW, we will supply seats for vehicles that were previously exported to Asia. We will also support future production on the C11 for LEAP Motor. These onshoring and conquest awards will provide future growth while solidifying Lear's differentiation and leadership position in Seating. Slide eight illustrates the significant progress and market leadership we have achieved in thermal comfort. Through our strategic acquisitions of Kongsberg and IGB, combined with our organic development work on modularity, Lear has become the only seat supplier with a complete portfolio of thermal comfort solutions, from individual components to fully integrated systems. This vertical integration capability enables us to deliver innovative solutions to meet the demands of each of our customers. Our value proposition for our customers is driving growth. To date, we have secured 33 awards for innovative thermal comfort solutions, including our ComfortFlex modules, our ComfortMax Seat systems, Flex Air foam alternatives, and Intu applications. These awards will generate combined average annual revenue of approximately $170 million at peak production. This is not a proof of concept. Nine programs are already in production and generating revenue today, with 14 additional launches secured for 2026, an inflection point for thermal comfort. Customers' acceptance is broad and diversified, spanning 15 automakers across all key regions, North America, Europe, and Asia. We're the only seat supplier with the scale, technology, and integration capability to meet the accelerating demand for thermal comfort innovation. We also recognize that some of our customers prefer to maintain their traditional sourcing strategies, purchasing individual components rather than integrated systems. Our complete suite of products allows us to serve these customers as well. Awards won in 2025 for core components will generate a combined average annual sales of $80 million. Our flexibility and vertical integration make Lear the only company capable of meeting customers' needs, whether they seek cutting-edge full modularity innovative solutions or traditional individual components. Turning to Slide nine, we highlight our industry-leading commitment to automation and digital transformation. Our industry-first facility for fully automated assembly of Comfort Flex, ComfortMax, and FlexAir products demonstrates more than a decade of strategic investment in automation. Through both acquisitions and organic development, we've built proprietary capabilities in vision systems, material handling, and purpose-built capital that enable us to develop solutions our competitors cannot replicate by simply purchasing off-the-shelf robots and cobots. Product innovation and process improvements have allowed us to reduce seating costs for new programs by 200 to over 500 basis points. This durable cost advantage will allow us to increase our industry-leading seat margins and continue to separate ourselves from our competitors. You can see the advantage reflected in the awards we just discussed today. Our digital transformation is accelerating as we enter into 2026. Last year, Palantir Foundry platform reached over 17,000 users and generated more than 300 custom applications. We're deepening our AI capabilities through our global Lear fellowship program, with our second cohort of the twelve-week program launching in Europe earlier this year. These digital tools are delivering measurable results, enabling us to transform operations and respond rapidly to industry volatility. Let me share a couple of examples with you. The first one is cycle time deviation. This tool provides real-time shop floor performance data, allowing us to make immediate adjustments. For instance, we can quickly identify bottlenecks, like specific equipment failures, and reallocate resources accordingly. We've developed this across 100% of our North American and European just-in-time facilities, achieving a 3% to 5% efficiency gain. This generated $10 million in savings in 2025, and we expect $15 million this year as we roll it out globally. The second example is our tariff tracking solution. When tariffs were announced in early 2025, we had 150 trucks carrying thousands of parts crossing borders daily. We needed to identify each part's HTS code and USMCA certification status, a massive undertaking. Our team partnered with Palantir to build an enterprise-wide solution in just ten days. This tool provides real-time tracking, automatically applies HTS codes, checks USMCA status, and categorizes tariff designations. The result recovered nearly 100% of our tariff costs within the year and accelerated cash reimbursements from our customers. Our commitment to automation, AI, and digital tools is driving tangible operating performance and positioning Lear years ahead of our competition. Slide 10 demonstrates how we delivered on key commitments we made at the beginning of the year. In Seating, we secured multiple conquest awards through the year, including three significant wins I highlighted earlier. In E-Systems, we won significant conquest business in Wiring with both American and key global automakers, as well as with Stellantis for the Jeep Cherokee and Wrangler platforms. Our Thermal Comfort Awards will help drive future growth in our Seating business, and our strong relationships with Chinese domestic automakers continue to deliver new business wins. Our Idea by Lear initiatives and our investments in automation generated $70 million in savings for the full year. Earlier in the year, we identified additional near-term opportunities by focusing on restructuring actions. As a result, we achieved $85 million in restructuring savings for the full year, $30 million more than our original target of $55 million. The consolidation of our two joint ventures, as well as changes in production schedules, led to slightly higher hourly headcount than originally projected. However, we still reduced our global hourly headcount by 7,000 this year and by 22,000 over the last two years. As a result of relentless focus across the entire company, our full-year net performance savings was a record $195 million, 56% above our original target of $125 million. This contributed 60 basis points to net performance to Seating and 110 basis points to E-Systems. As a reminder, our net performance figures are after absorbing costs primarily from contractual price reduction agreements with our customers and any changes in commodities, transactional FX, and labor rates. Delivering this level of operational improvement in a year of significant industry volatility and production disruption is a remarkable accomplishment by the entire Lear team. Now turning to Slide 11. We continue our commitment to expanding margins and generating long-term revenue growth. As we begin 2026, we have a robust pipeline of conquest opportunities in both Seating and E-Systems, some of which resulted from a number of delayed sourcing decisions as our customers continue to adjust their footprint and product strategies. For E-Systems, we have seen increased customer engagement in wire harness sourcing, and we have several key opportunities that we expect to be awarded in the first half of this year. We continue to see significant interest from our customers for our innovative modular seat products. These opportunities, along with our core thermal comfort products, will drive growth in our components business. The strong relationship with our local teams with our key domestic Chinese automakers are driving new business opportunities. With our current backlog and additional sourcing wins, we expect more than 50% of our revenue in China to be from the Chinese domestic automakers next year. The continued investments we're making in idea and automation projects are expected to generate an additional $75 million of savings this year. We also see significant opportunities from our restructuring investments. The savings from the actions we put in place last year, combined with the actions planned for this year, are expected to total $80 million. You will continue to see the benefits from these actions come through in the net performance we report on a quarterly basis. In 2026, we expect to deliver 40 basis points of net performance in Seating and 80 basis points in E-Systems. The introduction of these scorecard metrics in 2025 allowed us to hold us accountable and track our progress. We remain committed to once again delivering on these key metrics to drive sustainable growth and improve margins in both segments. Please turn to Slide 12, which shows our 2026 and 2027 sales backlog. As a reminder, our sales backlog includes awarded programs net of any lost business and programs rolling off. It excludes pursued business, net new business in a non-consolidated joint venture, and the roll-off of the discontinued product lines in E-Systems. In 2026, we expect approximately $60 million of net new business. Seating is expected to deliver about $740 million, driven primarily by the key launches listed on the slide. E-Systems is expected to experience a headwind of about $140 million in 2026, primarily due to the roll-off of the Ford Escape, the Corsair in North America, as well as the Focus in Europe. However, this is partially offset by key new launches. In 2027, we expect $725 million in net new business, with approximately $465 million in Seating and $260 million in E-Systems. The $1.325 billion two-year backlog provides a solid foundation of growth. The makeup of our backlog is strengthening as approximately half of our revenue is from new programs driven by ICE vehicles. Our China growth is led by domestic automakers, which represents approximately 85% of our consolidated backlog. Additionally, non-consolidated joint ventures have approximately $5.55 billion of backlog, 55% of which is with Chinese domestic automakers. This two-year backlog provides a solid foundation for growth, and when combined with the expected new business awards in 2026, will allow us to accelerate growth into 2028, 2029, and beyond. I'd like to turn the call over to Jason for the financial review. Jason Cardew: Thanks, Ray. Slide 14 shows key performance highlights from 2025 that position us to deliver profitable growth in 2026. We finished the year strong in Q4, supported by both revenue growth and operating execution. Whole company sales increased 5% year over year, reflecting the addition of new business in both segments and the impact of commercial recoveries. Adjusted EPS grew by 16%, driven by our reduced share count due to our share repurchases as well as a lower tax rate relative to last year. Seating sales outgrew industry production by two percentage points, driven primarily by positive volume on their programs in North America and China, and despite a one percentage point drag due to reduced JLR VARs. E-Systems margins improved by 30 basis points as compared to 2024 due to our strong operating performance. As a result, we met or exceeded our key 2025 initiatives. We delivered record net performance of $195 million, started the year with a target of $125 million, increasing by $25 million on our second quarter call, and outperformed the $170 million target that we had established during our last earnings call. The strong operating performance contributed 60 basis points to Seating and 110 basis points to E-Systems margins, exceeding our targets of forty and eighty basis points respectively. Strong free cash flow of $527 million enabled us to repurchase $325 million of shares, $75 million above our initial $250 million target. The momentum generated in 2025 sets the foundation for continued execution in 2026. At the midpoint of our guidance, we expect year-over-year increases across the board for revenue, operating income, margins, and free cash flow. Our two-year backlog now stands at $1.325 billion, an increase of $125 million from our initial estimate given last quarter, giving us confidence in our commitment to meet or exceed our key growth and margin improvement targets. Given our strong cash generation profile, we expect free cash flow conversion above 80%, and as a result, we are targeting share repurchases of more than $300 million in 2026. We remain focused on disciplined execution, margin expansion, cash generation, and delivering value to our shareholders. Slide 15 shows vehicle production key exchange rates for the fourth quarter. Global production increased 1% compared to the same period last year. Production volumes were flat in North America and declined by 2% in Europe, while volumes in China were up 3%. The US dollar weakened against both the euro and the RMB. Turning to slide 16, I will highlight our financial results for 2025. Our sales increased 5% year over year to $6 billion. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were up 2%, reflecting the addition of new business in both of our business segments, partially offset by lower volumes on Lear platforms. Core operating earnings were $259 million compared to $258 million last year, driven by positive net performance in our margin accretive backlog, partially offset by lower volumes on Lear platforms. Adjusted earnings per share were $3.41 as compared to $2.94 a year ago, reflecting the benefit of our share repurchase program and a lower tax rate relative to last year. Fourth quarter operating cash flow was $476 million compared to $681 million last year, due primarily to the timing of working capital. Slide 17 explains the variance in sales and adjusted operating margins for the fourth quarter in the Seating segment. Sales for the fourth quarter were $4.4 billion, an increase of $222 million or 5% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were up 3% due to the addition of new business such as the Series M7 in China and the Volkswagen Terra in South America, partially offset by lower volumes on their platforms, including several JLR programs. Adjusted earnings were $263 million, up 6% or $6 million or 2% compared to 2024, with adjusted operating margins of 6%. Operating margins were lower compared to last year, primarily due to lower volumes and the mix of production by program, partially offset by strong net performance in our margin accretive backlog. Slide 18 explains the variance in sales and adjusted operating margins for the fourth quarter in the E-Systems segment. Sales for the fourth quarter were $1.6 billion, an increase of $51 million or 3% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were down 2%, driven by lower volumes on Lear platforms, including GM electric vehicle platforms, in the Colorado and Canyon in North America, as well as several JLR programs in Europe, partially offset by the addition of new business such as the GM XT5 in Asia and the Volvo EX30 in Europe. Adjusted earnings were $84 million or 5.3% of sales compared to $77 million and 5% of sales in 2024. Higher operating margins were driven by strong outperformance in our margin accretive backlog and the impact of foreign exchange, partially offset by the reduction of volumes on Lear platforms and the impact of acquisitions and divestitures. Slide 19 explains the variance in sales and adjusted operating margins for the full year in the Seating segment. Sales for 2025 were $17.3 billion, an increase of $61 million or 0.4% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were down less than 1% due to lower volumes on Lear platforms, including several JLR programs in Europe and several Mercedes programs in North America and Asia, partially offset by the addition of new business such as the Series M7 and Xiaomi Su seven in China, as well as the CooperTerraMar in Europe. Adjusted earnings were $1.1 billion, down 1% compared to 2024, with adjusted operating margins of 6.4%. Operating margins were lower compared to last year, primarily due to lower volumes and the mix of production by program, partially offset by strong outperformance in our margin accretive backlog. Slide 20 explains the variance in sales and adjusted operating margins for the full year in the E-Systems segment. Sales for 2025 were $6 billion, a decrease of $108 million or 2% from 2024. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, sales were down 5%. This decline in sales was driven by lower volumes on their platforms, including GM electric vehicle platforms and the Ford Escape in North America, and several JLR programs in Europe, as well as the wind-down of discontinued product lines, partially offset by the addition of new business such as the Renault four and five, the Citroen C3 and C3 aircraft in Europe. Adjusted earnings were $293 million or 4.9% of sales, compared to $310 million and 5.1% of sales in 2024. Lower operating margins were driven by the reduction in volumes on their platforms and the wind-down of discontinued product lines, partially offset by strong outperformance in our margin accretive backlog. Slide 21 provides global vehicle production volume and currency assumptions that form the basis of our 2026 full-year outlook. Our production assumptions are based on several sources, including internal estimates, customer production schedules, and S&P forecasts. At the midpoint of our guidance range, we assume that global industry production will be down 1% on a Lear sales-weighted basis, driven by lower volumes in our largest markets, North America, Europe, and China. From a currency perspective, our 2026 outlook assumes an average euro exchange rate of $1.026 per euro and an average Chinese RMB exchange rate of RMB7.1 to the dollar. Slide 22 provides detail on our outlook for 2026. Our revenue is expected to be in the range of $23.2 to $24 billion. At the midpoint, this would be an increase of $351 million or 2% compared to 2025. Excluding the impact of foreign exchange, commodities, tariff recoveries, acquisitions, and divestitures, our revenue would be down 1%. Core operating earnings are expected to be in the range of $1.03 billion to $1.2 billion. At the midpoint, this implies an increase of 5% compared to 2025. Adjusted net income is expected to be in the range of $6.45 to $765 million. Restructuring costs are expected to be approximately $175 million to support our footprint rationalization actions as we continue to reduce excess capacity, improve manufacturing costs through automation, and by shifting our footprint to lower-cost regions. Capital spending is expected to be approximately $660 million to fund our new vehicle launches and investments in automation. Lear's strong focus on generating cash allows us to maintain a strong balance sheet while making organic and inorganic investments to strengthen our business, as well as to continue funding share repurchases. Our outlook for operating cash flow for the year is expected to be in the range of $1.2 billion to $1.3 billion, and our free cash flow is expected to be $600 million at the midpoint of our guidance. The midpoint of our outlook is consistent with our free cash flow conversion target of over 80%. Slide 23 walks our 2025 actual results to the midpoint of our 2026 outlook. Year over year, revenue is expected to increase by $351 million, driven by new business and the positive impact from foreign exchange, as well as the recovery of tariff expenses. We expect overall company adjusted margins to improve by 10 basis points, driven by strong net performance and our margin accretive backlog. Positive net performance primarily reflects the benefits from our Idea by Lear initiatives and savings from restructuring actions, with wage inflation, customer contractual price reductions, and higher launch and engineering costs largely offset by material cost reductions from our suppliers, cost technology optimization, and commercial recoveries. Seating operating margins are expected to increase 10 basis points to 6.5%, reflecting strong net performance in our margin accretive backlog, partially offset by the impact of lower volumes on existing platforms. The E-Systems segment is expected to increase operating margins by 10 basis points to 5%, driven by continued performance improvements, partially offset by the impact of lower volumes on existing platforms, wind-down of discontinued product lines, and the build-out of the Escape and Corsair in our backlog. We have included detailed walks to the midpoint of our guidance for Seating and E-Systems in the appendix. We expect net performance to contribute 40 basis points of margin improvement in Seating and 80 basis points in E-Systems in 2026, reflecting the positive momentum in our automation and digital investments, as well as our restructuring actions. Moving to Slide 24, we highlight our balanced capital allocation strategy. Our balance sheet and liquidity profile continues to be a significant competitive advantage for us. Our cost of debt is low, averaging less than 4%, and our debt structure has a weighted average life of approximately eleven years. In addition, we have $3 billion of available liquidity. Our capital allocation priorities remain consistent. We are focused on generating strong cash flow, investing in the core business to drive profitable growth, and returning excess cash to shareholders. Given our current valuation and confidence in our ability to enhance the long-term value of the business, we believe the best near-term use of excess cash is to prioritize share repurchases and our sustained dividend. At this time, we do not see a compelling significant strategic acquisition opportunity in either segment that would deliver superior returns. In 2026, we are targeting over 80% free cash flow conversion, which will enable us to buy back at least $300 million worth of stock, with additional repurchases depending on free cash flow generation and tuck-in acquisition opportunities. Since initiating the share repurchase program in 2011, we have repurchased $5.9 billion worth of shares and returned over 85% of free cash flow to shareholders through repurchases and dividends. Our current share repurchase authorization has approximately $775 million remaining, which allows us to repurchase shares through 12/31/2026. Now I'll turn it back to Ray for some closing thoughts. Raymond Scott: Thanks, Jason. Please turn to Slide 26. In closing, 2025 was a year where we delivered on our commitments and advanced our strategic priorities. We delivered solid financial results and secured critical new business awards despite persistent industry and macroeconomic volatility. This performance positions Lear for sustained growth and margin expansion going forward. Our key wins underscore our competitive advantages. The Orion Facility Award with General Motors and the largest conquest win in Lear's history was driven by our leadership in quality and automation. Capabilities that are very difficult to replicate and increasingly valued by our customers. We delivered on our key growth and margin improvement scorecard metrics for 2025, demonstrating our ability to execute on our commitments. This execution gives us confidence as we look ahead. Looking to 2026 and beyond, we see measurable progress against each of our strategic pillars. Our pace of business wins will support our continued growing leadership in Seating. Our momentum in E-Systems demonstrates our progress to improve the profitability of that business. IDEA continues to expand and enhance our ability to deliver strong operating performance and serve our customers with innovative products and manufacturing solutions. It is all resulting in strong cash flow generation that enables us to continue rewarding shareholders while supporting our strong balance sheet. 2025 was a year where we built credibility by consistently meeting or exceeding our commitments. This track record provides strong momentum as we enter 2026. And we are confident in our ability to grow revenue, operating income, margins, and free cash flow to continue to drive value for our shareholders. And now we'd be happy to take your questions. Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. We do ask that you please press star and then 1 to join the question queue. Prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. And our first question today comes from Dan Levy from Barclays. Please go ahead with your question. Dan Levy: Hi. Good morning. Thanks for taking the questions. I wanted to start out first if you could just talk about the conquest win and more so in the context of your broader aspiration to get your seating share up to, I think, 29%. When you look at that alongside what you're doing with TCS, do you still have that line of sight? Is it further upside? And maybe what is it that's driving these incremental wins, the superior cost? Is it that maybe there's some weakness across some of your competitors? Maybe you could just unpack that a bit, please. Raymond Scott: Well, okay. First of all, that conquest win, I think, was significant. First of all, the largest conquest win in our history, and I'd argue in seating history, but there's a lot of focus on innovation and technology. There's a specific, I think we strategically really focused on that platform, and the OEM was really focused on technology, both on the product side and the manufacturing side. And I think it's important to note that. And so having the innovation center that we, you know, we recently announced here, being able to take customers through that, demonstrating that this is in theory, this is actually in use, in production, in different manufacturing plants. Demonstrating our wins. I always talk about the strategy around modularity. That we were really reluctant to really start talking about modularity until we had a contract, a production win. And when we got that, we started talking a lot more openly about what we're doing and changing the actual product itself that was designed more efficiently, from a cost standpoint, from a customer perspective, but more equally as important from a manufacturing adjacency perspective around manufacturing integration with just-in-time. And so what that win did, and the feedback I got from that particular OEM was you won across the board. Every functional group was unanimous in the decision for Lear. And that's rare. I mean, the decisions we get can be mixed. You could have certain groups that support some that don't, but at the end of the day, they have a unanimous decision across every single functional group within a particular customer was very unique. And I think secondly, it validated at the right time what we've been talking about. And it was focused on innovation and technology at a manufacturing level with product design that was very unique. And so we've acquired IGB Kongsberg. It's been a great integration. We've been able to really take those products and integrate them into a modular solution. You have to have that engineering capability. You can't partner with anyone. We've found that you have to have it. The acquisitions we've been doing for ten years along automation. I mean, we are a manufacturing integrator. You know, we've actually brought that in-house. And so our ability to manufacture capital that has very unique capabilities. You can buy cobots and robots, those are commodities and talk about that you're doing automation. But where you differentiate, and I'm even a little leery. We have a picture here of our innovation center. I don't want to show too much because it is really revolutionary in how we're getting at this from a manufacturing perspective. So one, I think that win, yes, it's significant in the size of the win. From a manufacturing perspective, you know, two different manufacturing plants. Significant. But it was more on the fact that our innovation and technology won it, not on the performance of the competitors that were in place. It was the OEM is really looking to change the supply chain around technology. And so your second question, why we've been at this, you know, well over a decade on we're going to look at innovation on the manufacturing and the product side being tied together was all a part of our growth strategy. And so having that validation, we're seeing a lot more, you know, I'll say openness with some of the domestic Chinese. We're around innovation technology. That's imperative. I think that's why we've been successful. So still have a very aggressive target on growth. We believe that 29% is something that we absolutely is reasonable and something we can achieve because of our technology innovation. We believe we can continue to grow with the traditional OEMs even if their market share might be shifting. We also believe we have great innovation technology to grow with the domestic Chinese, and you're seeing that. Year over year, it's been incredible. We think there's significant opportunities with the Japanese, and we're starting those relationships and getting in around technology and innovation. So we're not backing off our target. We think it's very reasonable. I tell you, that award was very satisfying, not just from a growth perspective, but it validates our strategy in a number of different key ways. And so we're going to keep pushing. You know, I talked a little bit about how I think we did a great job in '25. You know, we're not where we need to be. We know we have a lot of work to do. We need to continue on E-Systems, and we continue on Seating, but boy, we have some momentum. We really have momentum. And so we're not backing off that target of market share. Dan Levy: Great. Thank you. As a follow-up, I wanted to ask about the net performance. And it seems like you're actually talking, you initially, I think, downplayed some of the expectations on the magnitude of net performance we could see in '26 relative to '25. It looks like it's going to be fairly comparable. Maybe you could just help us unpack what inning you're in on some of these automation savings, restructuring savings. I don't mean to, you know, you just gave your '26 outlook today, but how much more is there beyond what you've outlined for 2026? Raymond Scott: Yes. I think as we look out '27, '28, and beyond, we see a similar level of opportunity in terms of net performance, and we're committed to delivering that forty and eighty basis points again, not just in '26, but in '27 and beyond. And the mix of what will drive that is likely to shift as we get into '27 and '28, where there may be a little bit less in terms of restructuring savings in '27 than what we enjoyed here in '25 and what we expect in '26. But the level of savings we expect from the digital and automation side under the idea umbrella, we expect will continue to grow. And this fellowship program that we started last year, you know, we reviewed the initial projects that came out of that, and it's remarkable. And so we see an opportunity to really build momentum after a strong '25, a good start to '26, and see that number and the benefit from idea-related projects really increasing further in '27 and '28, and that will provide primary support for that kind of reoccurrence of that forty and eighty basis points of net performance growth year over year. Dan Levy: Great. Thank you. Raymond Scott: Welcome. Operator: Our next question comes from Colin Langan from Wells Fargo. Please go ahead with your question. Colin Langan: Thanks for taking my questions. Any color on how should we think about the cadence of earnings as we go through the year, particularly with some of the T1 downtime in Q1 and later in the year? Jason Cardew: Yeah. And, you know, we're not providing pinpoint guidance for the first quarter, but a month into the quarter, we have a pretty good line of sight on customer production schedules. And the year is off to, I would say, a fairly strong start, and we see the first quarter shaping up pretty similar to how we exited the fourth quarter. So, you know, revenues in that $6 billion range, operating income around $260 million. The mix between segments is likely to be a little bit different. We had a very strong fourth quarter in E-Systems. We do expect a modest step down there. You have the impact of the Escape Corsair building out. We had a very strong quarter commercially in the fourth quarter. So in terms of the margin by segments, we would expect Seating to be in the low 6s and E-Systems right around 5%. So we expect the year to get off to a solid start, and we don't expect or require sort of a hockey stick of improvement throughout the year to hit the full-year guidance that we provided today. The first quarter is sort of in line with how we see largely in line with how we see the year playing out. Now, as the year progresses, you know, you mentioned some downtime on the T1. The first plant will be going through a changeover that does weigh on volumes, particularly on the seating side, so there'll be a little bit of choppiness from that. But we expect the year to get off to a good start in the first quarter. And as we normally do, Colin, we'll provide an update at an investor conference later in the quarter on how things are progressing there. Colin Langan: Got it. That's very helpful. Any color on you mentioned on the slides on shoring. It sounds like the major congrats on the big win, but it sounds like that was a conquest that was already here. How any way to size the onshoring wins you have? And then, you know, what is the potential when these could actually launch? How quickly can some of these onshore actually come in? Can they actually even help 27 at this point, or is all kind of bidding on 28, 29? Jason Cardew: In terms of the onshoring, the Orion award will be in 27. And we're using SMT volumes to sort of model the backlog impact of that. And we've included $75 million in our Seating backlog in 2027 attributed to that. So there's some cannibalization of existing program volumes in other plants, but there is some upside there, we believe, as a result of that additional capacity GM's putting in place. We don't see a lot of additional onshoring sourcing activity that would benefit '27. I think that's more likely 28, 29%, where you would see the effects of that sourcing play out. We've talked in the past about, for example, Mercedes putting production of another program here in the US, as one example. So those are going to happen a little bit later. And sort of taking these, you know, onshoring opportunities one at a time. It was very important to secure Orion. And we accomplished that in the fourth quarter. Now we'll move on to the next opportunity as the year progresses. Raymond Scott: Yes. I think to, you know, talk about how we're looking at this is one, what's come out early on between conquest and onshoring was absolutely targeted in something that desired and we went after. And everything we focus on is getting good returns. And it has reliable history, good production volume, something that we want to put our capital dollars and invest in in a way that we get a good return. And so every single onshoring opportunity doesn't look the same to us. And there's some that will make sense to us where we think we can get and drive, like, for example, on this conquest win, new technology that is going to be introduced into the industry. In a very selective strategic way with a good history of volume that is a brand that's well recognized. Others, you know, we may focus on the component part of the business and focus on other parts of onshoring that makes more sense to us. And so I think you asked the timing. If I had to put it on analogy of sports, we're probably in the fourth inning. I feel pretty good because I think we hit a couple grand slams. Dinger's out of the park, but, you know, we're going to be cautious and smart about how we look at this, but we're going to be focused on what is best for Lear, and we'll go at it every time we get an opportunity to look at what that business looks like. And so it's early, but I like the position we're in right now. Colin Langan: Got it. All right. Thanks for taking my question. Operator: Our next question comes from Joe Spak from UBS. Please go ahead with your question. Joe Spak: Thanks. Good morning, everyone. On the large conquest win, you know, I was just wondering if you recall this, like, our back of the envelope math suggests it could be, like, 4 or $500 million in revenue. Just want to make sure we're in the right ballpark. And also, that's not in that 27 backlog. Right? That program starts beyond that. I just want to confirm that and when you think you might need to start spending some capital for that huge win? Jason Cardew: Yeah, Joe. That program is outside of the backlog window. That would launch at the tail end of '28 and really benefit '29. And, you know, we don't want to speak specifically about any individual program as we mentioned in the prepared remarks until the appropriate time. But what we can say is that between Seating and E-Systems, we had about $800 million of Conquest awards in 2025. So a really strong year of taking share in both Seating and Wire from competitors. And as we look out to 2026, we have about a billion and a half dollar conquest pipeline opportunity in Seating and about 600,000,000 in E-Systems. So significantly more than what we've historically seen on the E-Systems side and maybe more of a typical year in terms of the seating opportunity. But we do see opportunities to continue taking share in both the jet business and in our wire business. Raymond Scott: I think it's important, like I mentioned earlier, is that we're being very strategic in how we're looking at the future growth opportunities. We learned quite a bit from the EV volume reductions here in North America, good programs and the risk profile they may bring. You know, the program that we're focused on have a long history, a great brand, great volume. And where we invest that type of innovation technology is to get us nice returns. And I think equally as important, was excited with Seating E-Systems, I'll tell you, 1.4 billion. Second to another year where we had a particular program, it was a large program in that year. A great year. And everything that we're targeting in E-Systems is at target or above margins. And so the backlog as it comes in should be healthy from a margin perspective. And what it did was why '25 was so important? Like I said, it gives us credibility. Our net performance and what we're doing operationally is outstanding. We got work to do. We're not where we need to be. I'll be very clear on that. I tell the team that all the time. But I like the momentum we have on the net performance. The growth equally is important. Because we're in a competitive position, but we're winning business at healthy margins. And that's what it's all about. We're not going to chase business. We're not going to chase programs that are risky. That don't have that history of longevity or volume. Or being very selective on what we go after. That's what I keep mentioning is that it gives us an opportunity because of our innovation and technology, you know, particularly in seating, to really focus on what we think is important growth programs and platforms globally. Joe Spak: Right. Actually, Ray, you just touched on part of my second question, which is, you know, we've seen some meaningful amount of dollars from the OEMs for some canceled programs mostly related to EVs. So you've obviously invested some capital for those programs. Can you just help us understand, like, are those discussions done? Are they ongoing? Is there any payments towards you embedded in your '26 outlook? Jason Cardew: Yes. I would say, Joe, that the major negotiations are largely complete. And we do expect some cash benefit, and that's embedded in the guidance for this year. As those agreements are finalized and paid out. And there was some benefit to our net performance in the fourth quarter that was probably the biggest positive surprise from our mid-quarter update. Was the magnitude of those settlements relative to what we had expected. They came in a little bit stronger than what we embedded in our guidance. And what we provided to investors in terms of an update in December. But there aren't significant additional opportunities that we see beyond that, impacting 2026. I think we've largely completed the most significant of those negotiations. Joe Spak: Just a quick follow-up. Is that when if we look at your walk is that in that other February? Is that where you're placing some of those recoveries? Jason Cardew: Yeah. There is some deferred revenue associated with those agreements. That shows up in that other both in the fourth quarter and for 'twenty six. Operator: And our next question comes from Emmanuel Rosner from Wolfe Research. Please go ahead with your question. Emmanuel Rosner: Great. Thank you so much. Just a couple of quick follow-ups to earlier questions. First on the cadence, it sounds like the first quarter is off to a pretty strong start, but then you also, you know, flagged that there may be some, you know, choppiness around some of the T1 downtime. Are you, you know, based on your schedule, are you seeing some of that downtime not in Q1 and sort of, like, in potentially future quarters? Jason Cardew: Yeah. I think it's more in the third quarter. In terms of the changeover at the first T1 facility where we'll see the lower volumes more in the second half of the year than in the first half of the year. Emmanuel Rosner: Got it. Then my second follow-up was, there was not much mention at all of and copper in particular. Can you just remind us how to think about potential impact? I know that obviously, most of it is, you know, passed through, but just how should we think about impact on this year? Jason Cardew: Yes. We've worked hard over the last number of years to put indexing and pass-through agreements in place, pretty much across the whole suite of commodities that impact our business. And so you're not going to see much impact in terms of earnings from changes in commodity prices, but you could see some choppiness in revenues. We've assumed $5.25 for copper for the year, which I know is a little bit lower than the current market price, that's, you know, almost a dollar higher than last year. And it's slightly higher than what we experienced in the fourth quarter. So if it does remain at $6, there would be some additional revenue, but very little change in earnings. Most of those indexing agreements are on a one-quarter lag, you could have a blip in one quarter. But afterwards, that is passed through. Similar agreements in place for steel. Largely insulated from fluctuations in steel cost and overall, I think the commodity impact for the year which is embedded in our net performance, is about a headwind of about six basis points. So it's pretty nominal. Emmanuel Rosner: That's really helpful. Thank you. Jason Cardew: You're welcome. Operator: And our next question comes from Itay Michaeli from TD Cowen. Itay Michaeli: Had a follow-up, a couple of follow-ups on Page 20, Slide twenty-three. On the roughly $800 million drag from volume mix this year, hoping to give a bit more color about the drivers there. And also, that includes some JLR recoveries after the disruptions last year? Jason Cardew: Yes. Itay, short answer is yes, it does include the recovery with JLR. We've largely aligned our guidance with the S&P forecast. And so there's several kind of drags on that volume line for us that I can highlight to provide a little bit more color. We talked about the changeover on the GM full-size pickup trucks, the first programs impacted by that. So that's one of the factors. We also see significantly lower volumes on the GM electric vehicle platforms consistent with what they've announced. I think also in Europe, while we do see the benefit of higher volumes with JLR, we do see lower volumes on a number of customers that would attribute to a combination of share displacement, the Chinese taking share in that market as well as maybe a little bit lower volume on exports to the U.S. because of tariffs. So we see lower volumes, for example, with Porsche and Stellantis. Nissan, as some examples of that. And then in China, we do see lower volumes on some of our traditional customers with Audi and BMW, to a lesser extent GM and Ford. And that's partially offset by some growth with BYD and Geely. Now that volume impact is largely offset by our strong backlog for the year. And I would at this stage of the year, I would characterize the volume assumptions as maybe shading towards the conservative end of the spectrum. Particularly the way we're seeing the year start off here in the first quarter. I think that if you look at S&P's outlook, they may be underestimating how the European automakers respond to the Chinese threat in the European market and adjust prices. We've heard customers talk about that publicly. We also think that the underlying strength in the U.S. market may be not fully captured in the S&P outlook. And so you could see a little bit more improvement there. And what we tried to do is have a wide enough range to capture those types of things at the high end of the guidance range. And then the low end of the range sort of captures the unknowns. Are there new trade and tariff-related disputes? Is there something that leads to structurally weaker demand than what we're anticipating? And as we sit here today, I feel pretty good about the midpoint and above. But just given what we've been through the last several years, just think it's appropriate to have some caution built in and protect for that at the low end of the guidance range. Operator: Our next question comes from Mark Delaney from Goldman Sachs. Please go ahead with your question. Mark Delaney: Yes. Good morning and thank you very much for taking the questions. You mentioned a number of TCS programs and progress you're making there. I'm hoping you can put that into context. And is TCS revenue still tracking to the 01/2027 target you previously had and with a 10% EBIT margin? Jason Cardew: Yes. We're excited about the success and progress we're making with thermal comfort. Of the 33 awards that we've talked about, those programs beginning to launch last year and really inflecting even higher this year. With all that being said, the $1 billion target remains in place. We're pushing the timing of that out a little bit. And that business was impacted by the same factors that impacted the rest of the company, most notably the lack of demand for electric vehicle platforms and how all those programs that were in the pipeline were canceled or launched at lower volumes. And so that will weigh on the 27 number, but that business is growing. We still have confidence in achieving both the $1 billion of revenue and the 10% margin target. But we are pushing that out a little bit at this stage, Mark. Raymond Scott: Yeah. I think the good news is, and we talked about, was now that we have this in production, and it's gaining traction, we're not quoting against that. I haven't seen anyone that we're quoting against. So we're the only ones that can produce a full modular assembly of comfort thermal comfort products. And so, I think as a Ready Cross Go and as they look across their own platforms, we're going to be able to accelerate our own awards. But it feels really good where we're at, 33 different awards. You know, this new innovation center we put up, I think is really the customers we are bringing through, they can actually touch and see and feel it, is really helping. And like I said, it really helped us with this large conquest when we got when we walked the customers through that facility and they got to understand what's in production, man, it really hits home. And so, in order to continue to push it, I feel really good where we're at. Jason mentioned some of the volume collapses on the EVs where we had awarded programs and some of the delays, but still feel really good where we're at and what we're doing and how it's differentiating ourselves. And it's interesting. We went back and kind of looked at the customers and where they're at. There's different customer strategies. And like I said, you have some that are still really focused on common architecture, single sourcing of components, so we can do a great job there. And then, but the bulk of them are in this hybrid between manufacturing and product design around innovation. And that's where our sweet spot is. And we can still more of the, I'll call it, innovative kind of pushing the boundary of innovation, we can support those modular concepts. And so we can hit every one of our customers and then those two buckets I just talked about with hybrid and the further developed innovation customers, we're the only ones that we're voting those type of solutions. And so I feel really good where we're at. Mark Delaney: That's all helpful. One other question for me was a follow-up on the Conquest business and congrats on the award you were able to announce today. You previously talked about a $3 billion conquest opportunity in Seating. I'm hoping you could put the progress you have now into context with what has been won and what might still be available as you think about the seating conquest opportunity set specifically? Thanks. Jason Cardew: Yes. I think at the start of last year, there was a total opportunity of $3 billion, and that as we sit here today, you know, we talked about $800 million of net conquest awards in both Seating and Wire together. That's now been completed. We have a billion and a half dollar pipeline of seating conquest opportunities for this year. So we had a good year. We had a great year in '25. And I see, you know, continued opportunity in '26. And those two taken together put us on track to achieve that 29% market share over time. Raymond Scott: Yeah. I think, again, last year, we talked up quite a bit about the pipeline and what we're quoting and some of the canceled, delayed, or pushed out programs. And a lot that's resulted even into this early part of this year. I feel really good about E-Systems where they're at. We got some good conquest opportunities in front of us, hopefully, in the call, we'll make some announcements. And seating, I think, will be similar to this year where a lot of those will extend into the second half. But again, the pipeline is rich. And like I said, we're being very, very selective and strategic on where we're placing our bets and where we're going to invest our dollars. And so, you know, with this innovation and seating and how we're differentiating ourselves, I think it's going to continue to keep us in a good position. But I think equally as important, E-Systems, we're seeing a lot of opportunities like I talked about in the wire business. And so a lot of that's conquest. And so, you know, that'll be a it's a first half, second half. First half with E-Systems, I think we'll have some announcements. Second half, I think we'll continue to have good announcements in Seating. Mark Delaney: Thank you. Raymond Scott: Okay. That's it for the Q&A. I just want to again talk to the team that's on the phone. Again, you've heard me say this. Great 2025. Our net performance almost $200 million, best performance in the history of Lear Corporation, driven by your hard work. I know this year is going to be equally as tough, but I know, like I always say, we're built differently. We're built with that competitive attitude to continue to beat the numbers that we put in place and exceed expectations. New business wins, you guys know how happy I am about what you guys achieved. We're differentiating ourselves. We're doing it through innovation technology. The business that we're going after is very selective, and it's going to get us good returns as we launch that business. Idea by Lear, we talked about it. Man, you guys continue to blow me away with the things that you're coming up with with capital, non-production purchasing, purchasing components. It's across the board from free cash flow to inventory levels to OI. I think we're just scratching the surface. I know we got connected dots on a lot of different things, but, man, you guys are doing a great job. In this value creation process that we're introducing throughout the company and really focus longer term on strategic applications of good business is going to be great all making us a stronger company. Thank you for everything you did in 2025. Build differently. I'm looking forward to a great year in 2026. Operator: The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
Operator: To all sites on hold, thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time throughout the call, please press 0 and a member of our team will be happy to help you. Good morning, and welcome to the Bio-Techne Earnings Conference Call for 2026. At this time, all participants have been placed in listen-only mode. The call will be open for questions following management's prepared remarks. During our Q&A session, please limit yourself to one question and one follow-up. I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Good morning, and thank you for joining us. David Clair: On the call with me this morning are Kim Kelderman, President and Chief Executive Officer, and James T. Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our Safe Harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-Ks for fiscal year 2025 identify certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-Ks, as well as the company's other SEC filings, are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to the most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of the Bio-Techne Corporation website at www.biotechne.com. Separately, in the coming weeks, we will be participating in the Cowen and Leerink Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Thank you, Dave. And good morning, everyone. Welcome to Bio-Techne's second quarter earnings call of fiscal 2026. Kim Kelderman: Our second quarter performance was largely in line with our expectations. Continued strength from our large pharma customers was offset by a soft yet improving biotech end market and a soft but stable US academic end market. As anticipated, order timing impact from two of our largest cell therapy customers receiving FDA Fast Track designations also created a temporary headwind. Taken together, these factors resulted in flat organic revenue growth for the quarter. Overall, these end market dynamics combined with solid execution across the organization drove sequential year-over-year organic revenue growth improvement in most of our product categories. I would like to mention the following highlights. Our core reagents and assays, proteomic analysis instruments, and diagnostic kits all grew modestly more in Q2 than during Q1. Cell therapy, excluding our two largest FDA Fast Track customers, delivered strong sequential improvement in year-over-year growth. In our spatial biology franchise, we saw a meaningful acceleration in bookings for our automated Comet platform. In addition, we delivered our third consecutive quarter of growth in China, alongside notable strength across the rest of Asia. The team delivered these top-line results with a continued focus on our sector-leading profitability profile. Adjusted operating margins expanded, like in our first quarter, by approximately 100 basis points year-over-year to 31.1%. This performance reflects our disciplined approach to productivity and cost management while continuing to invest in the strategic growth verticals that will continue to shape Bio-Techne's future. These four strategically important growth verticals—cell therapy, proteomic analytical instrumentation, spatial biology, and precision diagnostic tools—now represent 47% of our total revenue, up from 32% in fiscal 2020, and with that, delivering an upper teens CAGR over the past five years. Notably, our core portfolio of reagents, assays, and diagnostic controls delivered a competitive mid-single-digit CAGR over the same period. Calendar 2026 is a milestone year as we celebrate Bio-Techne's fiftieth anniversary. Several events are planned to mark the occasion, including ringing the Nasdaq closing bell on February 25. Over the past five decades, we have built one of the most durable and differentiated portfolios in life science tools addressing high-growth, high-value applications aligned with global healthcare megatrends. We recently highlighted several of these high-value applications during our presentation at the JPMorgan Healthcare Conference. As a case in point, we often emphasize the essential role our GMP reagents and proteomic analysis instruments play in enabling cell therapy workflows. But these capabilities extend well beyond cell therapy as our tools support development and manufacturing across a broad range of advanced therapies. Our ProteinSimple franchise, for example, is an essential component in the development, manufacturing, and quality processes of monoclonal antibodies, antibody-drug conjugates, and other advanced biological treatments. Turning now to the performance of our end markets in the most recent quarter, beginning with the biopharma customers. Excluding cell therapy, the divergence between large pharma and emerging biotech persisted in Q2, although the gap narrowed. Revenue from our large pharma customers remained strong, increasing low double digits for the fourth consecutive quarter. In contrast, emerging biotech declined mid-single digits, reflecting continued pressures stemming from negative funding conditions during 2025. While growth from these smaller biotech customers remained challenging, we did see sequential improvement. As many of you know, biotech funding rebounded meaningfully in 2025, positioning this end market for improvement going forward. In academia, stabilization in the US continued with constructive developments on the federal funding front. Both the House and Senate appropriation bills include roughly a 1% NIH budget increase, maintaining indirect funding rates, and capping multiyear grants at fiscal 2025 levels. While these bills must still be reconciled, the proposals are far more supportive of academic research than originally feared. For Bio-Techne, a modest decline in our US academic business was partially offset by stable growth in Europe, resulting in a low single-digit decline for this end market overall. Shifting to performance by geography, the Americas declined high single digits. However, after adjusting for cell therapy order timing headwinds, revenue in the region grew low single digits. EMEA was flat against a strong double-digit comparison from the prior year as strength in diagnostics was offset by order timing dynamics. China grew mid-single digits, marking its third consecutive quarter of growth supported by R&D investments from CDMO, CRO, and biotech customers working on advanced therapies. This activity level is driving demand for reagents and proteomic analytical tools. Across the APAC region, we saw strong, broad-based performance with growth approaching 20%. We remain encouraged by the momentum in both China and APAC and believe that these regions are well-positioned for continued growth. Let's now turn to our segments, starting with the Protein Sciences segment, which declined 1% organically. As expected, Fast Track designation from the FDA for our two largest cell therapy customers reduced near-term GMP reagent demand, given that these customers had already secured the materials necessary to complete their clinical programs. Therefore, the revenue in our cell therapy business declined over 30%, including a 50% drop in the GMP reagents specifically. However, excluding the two customers that are progressing through priority review with the FDA, GMP reagents grew nearly 30%, which underscores the strength of our offering and improving end market demand. Sticking with cell therapy, I'd also like to give an update on Wilson Wolf. As a reminder, Wilson Wolf manufactures the market-leading G-Rex line of bioreactors used to efficiently and economically scale cell therapies. We currently own 20% of Wilson Wolf and will complete the full acquisition by the end of calendar year 2027 or sooner based upon achievement of certain milestones. Wilson Wolf's G-Rex bioreactor remains highly synergistic with our cell therapy offering. This single-use system requires media and GMP proteins to efficiently scale cell therapies and is fully compatible with our closed POPAC cytokine delivery solutions. Wilson Wolf performed exceptionally well, delivering 20% organic revenue growth in the quarter and upper teens growth on a trailing twelve-month basis. We also continue to advance our organoid initiatives during the quarter. Organoids, lab-grown 3D representations of human organs, depend heavily on cell culture matrices, small molecules, growth factors, and cytokines, all of which are longstanding strengths for Bio-Techne. The FDA's recent validation of organoid solutions as acceptable replacements for animal-based models further underscores the rising importance of these cell-based systems. To support this shift, we recently launched Culturex Synthetic Hydrogel, a fully defined synthetic matrix designed to reduce variability relative to traditional animal-based products and to align with the growing adoption of non-animal-derived models. Now let's discuss our proteomic analytical instruments collectively marketed under the ProteinSimple brand. The productivity and precision these platforms deliver across research, biopharma manufacturing, and QA/QC applications continue to resonate strongly with customers. Even in a challenging capital equipment environment, particularly among biotech and academic laboratories, instrument sales grew upper single digits in the quarter with strength across all three major platforms. We continue to advance innovation across our instrumentation portfolio, highlighted by the introduction of ultra-sensitive assays on our automated multiplexing immunoassay platform called Ella. These new assays enable fentogram-level detection of low-abundance biomarkers in blood, which represents a 2-5x improvement in sensitivity over legacy Ella assays. We launched the first application of this enhanced capability for research use only, supporting the detection of neurological biomarkers. Within our Simple Western franchise, demand for LEO, our next-generation high-throughput, automated western blot system, remains exceptionally strong. LEO exceeded our expectations once again, driven by continued robust adoption and an expanding order funnel. This past quarter, we further enhanced the platform by adding fluorescence detection, enabling multiplexing workflows and providing deeper insights into protein expression and pathway characterization. These enhancements meaningfully broaden LEO's utility in advanced proteomic applications and address significant needs in the biopharma end markets. Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types, delivered low single-digit growth for the quarter. The portfolio's lot-to-lot consistency, high bioactivity, and broad catalog continue to differentiate this offering. Stabilization across US academia and biotech combined with ongoing strength in pharma supported overall performance in the quarter. Now let's turn to our Diagnostics and Spatial Biology segment, which delivered 3% organic growth. Within spatial biology, our RNAscope product suite generated low single-digit growth. RNAscope enables researchers to detect and visualize RNA sequences at single-cell resolution within intact tissue samples, offering best-in-class specificity and sensitivity. Customers are increasingly leveraging RNAscope and microRNAscope probes and assays to assess biodistribution and toxicity for nucleic acid-based therapeutics, including antisense oligonucleotides and small interfering RNA therapies. Adoption of RNAscope in our diagnostic settings, which we do through our platform partners, also continues to expand rapidly, with growth exceeding 20% for both the quarter and the first half of the fiscal year. Momentum also continued with our Comet instrument, which delivered nearly 40% growth in bookings, marking the second consecutive quarter of strong booking activity. Comet's fully automated multi-omic capabilities are increasingly valued by both academic and biopharma customers as a powerful tool for uncovering novel biological insights. Spatial biology remains the business within our portfolio with the highest academic concentration and a meaningful presence in biotech. Despite ongoing challenges across both of these end markets, we remain encouraged by the sustained momentum in this franchise. Lastly, our diagnostics business delivered high single-digit growth supported by balanced performance across both clinical controls and molecular diagnostic kits. Recent innovation within our molecular diagnostics portfolio is driving increased customer interest, evaluation, and adoption, particularly among oncology and carrier screening reference laboratories. This includes our ESL One exosome-based mutation kit, which is used to monitor resistance to breast cancer therapies, as well as our Amplidex Carrier Screening Plus kit, which interrogates 11 of the most common genes associated with elevated risk for genetic disorders. In summary, the Bio-Techne team continues to execute extremely well while navigating an end market environment that is stabilizing but still challenging. Our disciplined focus on productivity and cost management remains a key driver of our operating margin expansion. Operator: And although funding uncertainty has influenced Kim Kelderman: customer behavior in emerging biotech and US academia, recent strength in biotech funding activity and the favorable fiscal 2026 US appropriation bills position both these end markets for continued stabilization and gradual improvement. As we enter our fiftieth year as a company, I remain confident in the durable moats surrounding our core portfolio and in our competitive positions across our fast-growing verticals of cell therapy, proteomic analysis, spatial biology, and molecular diagnostics. With that, I'll turn the call over to Jim. Jim? James T. Hippel: Thanks, Kim. I'll begin with additional details on our Q2 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.46, up 10% year-over-year, with foreign exchange having a favorable impact of $0.04. GAAP EPS came in at $0.24, up from $0.22 in the prior year period. Total revenue for Q2 was $295.9 million, flat year-over-year on both an organic and reported basis. Foreign currency exchange contributed a 2% tailwind, while businesses held for sale created a 2% headwind. Excluding the timing impact from our two largest cell therapy customers, who received FDA Fast Track designation, organic growth was 4% for the quarter. From a geographic lens, North America declined upper single digits as strength from large pharma was offset by order timing in cell therapy, continued funding pressure in biotech, and soft but sequential stabilization from our academic customers. In Europe, revenue was flat against a very strong prior year comparison, with low single-digit growth in academia offsetting a modest decline from biopharma in the region. We are encouraged by the third consecutive quarter of growth in China, where revenue increased mid-single digits. APAC, excluding China, increased almost 20% as the Asian geography continues to show signs of sustained momentum. By end market, biopharma declined mid-single digits overall. However, excluding our largest cell therapy customers, biopharma grew mid-single digits, driven by strong pharma demand but partially offset by emerging biotech softness. Academia declined low single digits, with low single-digit growth in Europe partially offsetting low single-digit declines in the US. Below the revenue line, adjusted gross margin was 68.5%, down from 70.5% last year. The decline was driven by unfavorable product and customer mix, which we expect to gradually improve as the calendar year progresses. Adjusted SG&A was 29.6% of revenue, down 240 basis points compared to 32% last year. R&D expense was 7.8% compared to 8.5% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin reached 31.1%, up 100 basis points year-over-year. This improvement was fueled by the Exosome Diagnostics divestiture and productivity gains, partially offset by unfavorable product mix. Our better-than-expected margin reflects deliberate management of productivity and cost containment measures aimed at maximizing operating leverage in a dynamic environment. Below operating income, net interest expense was $1.1 million, up $500,000 year-over-year due to the expiration of interest rate hedges. Bank debt at quarter-end stood at $260 million, down $40 million sequentially. Other adjusted non-operating income was $1.9 million, up $3.2 million from the prior year, primarily due to non-recurring foreign exchange losses in the prior year related to overseas cash pooling arrangements. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year driven by geographic mix. Turning to cash flow and capital deployment, we generated $82.4 million in operating cash flow, with $5.9 million in net capital expenditures. Also during Q2, we returned $12.5 million to shareholders via dividends and ended the quarter with 157 million average diluted shares outstanding, down 2% year-over-year. Our balance sheet remains strong with $172.9 million in cash and a total leverage ratio well below one times EBITDA. M&A remains a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q2 reported sales were $215.1 million, an increase of 2% year-over-year. Organic revenue declined 1%, with a 3% benefit from foreign exchange. Excluding cell therapy timing impacts from our largest customers, organic growth was 4%. Growth was led by our proteomic analytical tools franchise, with notable strength from large pharma customers, as well as low single-digit growth within our core portfolio of research reagents and assays. There was also a large reagent order from an OEM commercial supply customer in Q2 that historically was placed in our fiscal Q3. The timing of this order added an additional 1% growth to Protein Sciences and the company overall. Protein Sciences' operating margin was 39.3%, down 190 basis points year-over-year, primarily due to unfavorable product mix, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q2 sales were $81.2 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment. Diagnostics products grew upper single digits, while spatial biology was relatively flat. It's worth noting that this segment grew low double digits organically in the prior year, creating a challenging comparison. And as Kim already highlighted, our Comet instruments saw solid double-digit growth in bookings for the second consecutive quarter. Segment operating margin improved to 10.4%, up from 3.9% last year, driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers. We expect continued margin expansion as our Comet spatial biology platform scales. In summary, the team delivered strong second-quarter execution in a stable market, with improved biotech funding as well as further progression towards more favorable NIH funding outcomes, giving us reasons to believe that customer sentiment should be gradually improving as we progress through the calendar year 2026. We remain excited about the FDA Fast Track designation awarded to our largest cell therapy customers. These designations accelerate clinical timelines but reduce near-term reagent demand. Following strong ordering in fiscal year 2025, these customers are now progressing through Phase III trials, resulting in a temporary pause in GMP reagent Kim Kelderman: purchases. James T. Hippel: We expect this headwind to moderate slightly in Q3, impacting growth by approximately 300 basis points year-over-year, before moderating further in our fourth quarter and then being completely out of our year-over-year comparison in fiscal 2027. Also, as I mentioned in my Protein Sciences commentary, Q2 benefited from the timing of a large commercial supply order from one of our OEM partners that was originally expected in Q3. This timing benefit in Q2 will now be a 100 basis points headwind to Q3. Taking these customer-specific headwinds into account, we anticipate overall Q3 organic growth to be consistent with Q2. However, excluding the customer-specific cell therapy and OEM headwinds, we expect underlying growth for the remainder of our business to be mid-single digits. This outlook tracks with the stabilization of our end markets and improving customer sentiment. You'll recall that in our fiscal Q1, our underlying organic growth excluding the largest cell therapy customers was 1%. In Q2, the underlying growth was 3%, and also backing out the favorable timing of the Protein Sciences OEM customer supply order. This near-term outlook also sets us nicely for continued improvement in Q4 and a great start to fiscal year 2027 as improved biotech funding translates into higher spending, resolution of US academic budgets is reached, our company-specific headwinds start to abate, and we begin to lap lower year-over-year comps. From a margin perspective, we remain focused on balancing growth investments with operational efficiency. We're pleased with the upside delivered in Q1 and Q2, and remain on track to achieve 100 basis points of operating margin expansion for the full fiscal year. This concludes my prepared remarks. I'll turn the call back over to the operator to open the line for questions. Kim Kelderman: Thank you. Operator: Once again, that is star one to ask a question. Our first question comes from Matthew Richard Larew with William Blair. Your line is open. Matthew Richard Larew: Hi, good morning and thanks for taking the question. So Jim, just following up on growth cadence. So 1% ex items in fiscal Q1, then 3%. Operator: And you're saying mid-single Matthew Richard Larew: in fiscal Q3, James T. Hippel: And I believe there's a 100 bps headwind in fiscal Q4. So if I'm reading this through, you're expecting sort of for the calendar year '26 ex these items mid-single-digit growth with improvement throughout the year. Is that the message? James T. Hippel: Make sure. Yeah. So, like, we haven't come off our low single-digit view for the full year. And that would require mid-single-digit growth in Q4 at least. Yes. Kim Kelderman: And I think, Matt, good morning. What you're trying to ask is if you take these two large customers from the GMP headwinds out, would that be the underlying growth? And I think that's in the ballpark. Matthew Richard Larew: Okay. Very good. And then just following up on gross margins, the year-over-year step down makes sense because of your two large customers. The quarter-over-quarter initially was less clear, but perhaps it's that large OEM order that shifted fiscal Q3 into fiscal Q2. So Jim, maybe just give a sense for why on a sequential basis, gross margins were down and how those should trend for the balance of the year. James T. Hippel: Yeah. I mean, unfortunately, it was really driven by an unfavorable mix on a number of fronts. Unfavorable mix in terms of our reagents versus our instruments. We talked about the strength in our ProteinSimple franchise. Great margins, but still less than our reagents. And we also had some margin pressures in our diagnostics and spatial segment there where we had, of course, spatial underperforming the diagnostic side that has higher margin pull-through, so you got mix issues there. But in addition, within the diagnostics orders, a lot of different OEM customers have different margin profiles, and it just so happened that we had a larger influx of lower margin customers this quarter. But we again expect the overall mix, both within protein factors as well as in diagnostics, to gradually improve as those mixes start to unwind more favorably in Q3 and Q4. Matthew Richard Larew: Okay. Thank you. We'll move next to Daniel Leonard with UBS. Your line is open. Daniel Leonard: Thank you very much. Maybe I'll take up that gross margin question. Jim, what's the driver of a more favorable unwind on gross margin? Presumably, you still expect ProteinSimple to be strong and in Spatial, it sounds like it ought to recover. Given the, you know, growth in bookings. James T. Hippel: Yeah. So with the overall meeting market gradually improving, and our core has been improving. The margins of our high margins of our reagents will start to flow through more. Again, the customer mix within diagnostics, we know we have visibility to what's flowing through there. We believe that will improve as well. So it truly is more of a mix scenario than anything else. And based on our current view and outlook and what we see ahead of us, we see that mix again, gradually improving in the back half of the year. Daniel Leonard: Okay. Thank you. And then a high-level question. Given the times we're in, I would be curious for your team's thoughts on AI's impact on demand for Bio-Techne, just given the number of times Patrick Donnelly: Pfizer mentioned yesterday, AI is a cost-saving and productivity enhancer in R&D. Kim Kelderman: I can give you a high-level view on that, Dan. Overall, we do believe that AI is a great enabler not only for our customers but also for us, obviously. Our customers will use AI to better understand and to better drive their programs forward. Highly likely AI will help them to be more specific in what kind of materials they want. And highly likely because of the capabilities, the molecules, and the ingredients that they will want to use are going to be more complex. And you know, we've worked for fifty years honing our capabilities in designing but also manufacturing. In a reproducible way these ingredients in very high-quality formats and we believe that these trends will therefore play into our cards, into the strengths that we have built as a company. And overall, are going to be a tailwind. Daniel Leonard: Appreciate that. Thanks, Kim. We'll move next to Puneet Souda with Leerink Partners. Your line is open. Puneet Souda: Yes. Hi, guys. Thanks for the questions here. Kim Kelderman: So, first one, I mean, I appreciate the meaningful step up that needs to happen in the fourth fiscal quarter here. In organic growth. I think you gave some underlying drivers to that. But just wondering if you could maybe point out a number that we should be thinking about exiting the year. And then on '27, I know it's just two quarters away for you. After the guide. I was wondering if you're willing to share any thoughts on potentially reaching high single-digit or is that visibility not clear yet just given all of the moving parts and the end market. Kim Kelderman: Yeah. Puneet, let me begin your first question with the underlying business trends, and I'll let Jim talk to what that means for the numbers. But if you look at our last couple of quarters, and I'll segment it in the way we usually do it, we have our core business, which is a little over half of the company. Where we can clearly see a recuperation increase of our run rate business. Right? You see the underlying business accelerating, and that bodes well for the activity levels in the markets overall. And if I then double click on the performance in our four growth verticals in cell therapy, obviously, two Fast Track designation accounts play a big role in that. But if you take those out, the business has been growing 30%. And that's in line with where we expect it to be even in tough markets. We have fantastic traction in organoids, which is a strong up-and-coming end market for us. The proteomic analysis obviously, business too. We're now sitting back in the mid-single digits. Accelerating spatial two times in the black where we are flattish, but back in the positive growth territory for the lesions. Sorry, for the reagents and instruments coming along because we have strong order bookings. Sprinkle on top of that the new product introductions where we have basically every month introduced a significant new feature for every business. And then you know, not that we're banking on it, but we've seen very positive trending in our end markets. China and APAC for the third time, China in positive growth. And accelerating. APAC is turning even stronger. And then as you know, tough markets in academic and biotech, but we've talked about some of the indicators why there are positive opportunities there when it comes to the overall end market health. So that is the underlying dynamic, and Jim can actually translate that in numbers. James T. Hippel: Yeah. So, Puneet, let's just start with, you know, the comps we're facing, from Q3 versus Q4. So we grew 6% of the company in Q3 of last year, and we grew 3% in Q4. That decrease in growth rate you know, from a comp perspective, a combination of from a headwind or tailwind perspective, a combination of lower headwinds from these two cell therapy customers we've talked about. But also, you know, easier comps within our both academic and small biotech starting in February. So there's a 3% tailwind sequentially just right there as a combination of those three things. Kim Kelderman: And then as Kim talked about in terms of the underlying momentum we're seeing in our whole entire rest of our business, as I mentioned in my comments, if you exclude these two customers and this one OEM timing that we had, our underlying growth was 1% in Q1, 3% in Q2. Our implied guidance would suggest a slight step up in Q3. And so you see this momentum building within our baseline business. And so we think that will continue to build as we exit the year in Q4 and that's on top of the, you know, the 3% tailwind we have from a comp perspective. So that's how we're thinking about exiting the year, which is obviously a very, you know, very strong momentum as we an underlying base business growth as the final headwinds from these customers go away at the start of our fiscal year '27. So not giving any fiscal year '27 guidance, obviously, at this point, but the momentum of business is very encouraging right now. Puneet Souda: Got it. That's helpful, Jim. And then on China, you pointed that out a couple of times throughout the call. What's clearly interesting here is you're growing ahead of the peers. Indeed consistently. So just could you dive a bit deeper into that? And what's driving this trend, the end market, the customers, what's different here? Versus for Bio-Techne versus some of the peers? Thank you. Kim Kelderman: Yeah. You're welcome. Yeah. China, it's the third quarter. We are in a positive territory, and the growth is accelerating. I think the China market is overall gaining momentum. They have approved their fifteenth five-year funding plan in which life science is, again, a high priority. And we've seen successes from local biotech companies having exits in the form of M&A or through licensing, and you can clearly see a peak of deals done in a with China Biotech. Overall activity in CDMO and CRO is also improving, and I think we're well-positioned to capitalize on that. And that's really have been driving our results. Operator: Got it. Okay. Thank you. Patrick Donnelly: We'll take our next question from Patrick Donnelly with Citigroup. Your line is open. Patrick Donnelly: Helpful rundown there kind of moving pieces as we head into year-end and next year. I just wanna kind of zone in on a few. It sounds like, again, the message here is mid-single-digit underlying growth if you back out the customers or at least that ballpark. For '26 And then as biotech improves and then these customers flip, you have something to build on as you get into '27. You talk about the biotech piece in particular? Again, still declining for you guys, but sounds like all the conversations are improving. Obviously, we see the funding numbers, which were quite strong in calendar 4Q. What are you hearing from that customer base? And what's the right way to think about the timing of that funding improvement showing up for you guys in terms of revenue? Is it kind of that six-month type lag that you've talked about before? What's the right way to think about the path forward on the biotech for you guys? Kim Kelderman: Patrick, thanks for the question. James T. Hippel: Sure. Kim Kelderman: Biotech has been a tough end market. Right? Obviously, the '25 funding was dismal. That resulted for us in a negative high single digits Q1 and a negative mid-single digits Q2, improving but still not very good. Now we are encouraged because we've really made sure that we are addressing the market with the right products and the right teams. We also make sure that we're launching new product introductions and continuously fit for that end market and we, of course, keep a close eye on the overall health of the end market. Primarily through the funding. And just mentioned that Q3 calendar Q3 funding stabilized, slightly increased, but funding in Q4 increased significantly. And we've also seen very healthy numbers for the first month of the new calendar year. Overall, M&A activity is an important indicator and has been trending positive in that market. Licensing has been positive and trending in the market. Lower interest rates are important to funding of that market and are doing well. And then you know, assuming that there will be access to capital, yes, you're right. Typically, the delay of the funding coming trickling through in life science tools is six months. There's quite some underutilized infrastructure in place. So you know, we are anticipating the bell curve to sit at six months to let's say two quarters plus minus one. And that goes from companies switching on or accelerating their programs and ordering a little bit earlier especially in the reagent side that can go relatively quickly. But then CapEx takes a little bit longer, and that will be the back end of that bell curve. And that's how we look at the dynamics. Patrick Donnelly: On the cell therapy piece, it sounds like, again, ex those customers are seeing pretty good growth. Can you help us size up? I think at our conference when we were chatting, we were talking about at the peak, those two customers were maybe as much as 40% of the GMP business. Again, you talked about the GMP business down 50%, so that makes sense. Are we to kind of expect this the GMP business normalizes as we get into one Q fiscal one Q twenty-seven for you guys? And then gets back to that you know, over 20% growth as a business, just want to make sure we're thinking about clearly the impact of these customers, when it can flip, and, again, what the right way to think about the sizing of that business is before the customers after and the right baseline. Thank you so much. Kim Kelderman: Yeah. Patrick, thanks for the question. We're excited that these two customers have their Fast Track designation, obviously an indication for the importance of the treatment, and we've talked about it extensively, so I'll keep that part short. Underlying 700 plus customers, 85 in clinical studies, and six in phase three. But overall in much more evenly sized customers, so it's not gonna be as lumpy as the two that we are now working through this specific air pocket we talked about. But yes, the air pocket was indeed a 200 basis headwind for Q1, 400 for this quarter, Q2. And then we're thinking of the impact to be 300 basis points and then somewhere around a 150 but anywhere between a hundred and two hundred for Q4 and then a total reset. So your conclusion is right that from there, we will go back to normalized growth, as I just mentioned in the pre the first question, underlying growth in that business was 30%. This last quarter, and that is actually a growth that we would expect from this business. But take into account that that is still under very constrained conditions if you look at academic and biotech markets. Daniel Leonard: So, overall, Kim Kelderman: we have a very positive view on the end market in particular. Knowing that our comparables will be flushed out, Q1 twenty twenty-seven, also knowing that the number of clinical studies have increased in a healthy pace, and knowing that the mix of clinical studies has tilted towards cell therapy-related treatments, that really plays into our strengths and reads much better on our portfolio. So overall, a very positive about this division going forward into the new fiscal year. Operator: We'll move next to Daniel Anthony Arias with Stifel. Your line is open. Daniel Anthony Arias: Good morning, guys. Thank you. Jim, I'm sorry, I just want to go back to the outlook one more time if I can. Is the picture that you're kind of sketching out for the end of the fiscal year, the mid-single-digit growth in 4Q, does that assume that both academic and biotech are growing at that point? Or is it what gets you there really just continued pharma strength and then normalized spending from these two GMP customers? James T. Hippel: Yeah. Because of the easier comps we can get there to largely without seeing much of a step up in those two customers. Daniel Anthony Arias: But, you know, but, again, I think any significant improvement in spending to those two partners could be upside. Okay. Daniel Anthony Arias: And then maybe on the spatial biology side, you have the academic exposure that obviously impacts the instrument side of the equation. But on consumables, how are you thinking about the pull-through rate for LUNIPOR this year? Is that something that you think can grow as an average? Kim Kelderman: Yes. Dan, thanks. Thanks for always keeping a keen eye out on the spatial side of business. I appreciate it. Daniel Anthony Arias: Yeah. Listen. It has indeed a larger proportion of revenue linked to the academic performance. Academic performance has stabilized, and what we're really pleased to see is that the mix of the grants has tilted from some research areas more to oncology and neurology, and a preferred tool for those research end markets is spatial. So you do see even though the market is on pressure, that our cons revenues have gone back into positive growth territory, which we are very happy to see in constrained markets. And therefore, this mix is really playing in our favor. Very similar story for biotech. And as you know, we are very happy with our competitive position of the Comet. Our fully automated multiomic instrument. We're really happy to see that our win-loss rates are very high right there where we won them. To be. And the pull-through now is about 45k per instrument per year. But we are working hard on getting the multiomic capabilities rolled out and customers trained on it. And that will drive pull-through for my reagents. And we're actively working on broadening our antibody portfolio for spatial analysis as well. And as you know, we have a broad portfolio of probes in the RNA detection side. Will now have a very broad capability and offering from the protein detection side and we're one of the few that offer true parallel multiomics, and therefore, we are aiming that over time, the pull-through per box under the agent side would be more in the 90k per box per year area. So, certainly, a pull-through play that will definitely help driving growth, but also drive margins. Daniel Anthony Arias: Okay. But do you think by the end of this calendar year, you're higher than that 45k? I mean, 90 you know, doubling the pull-through rate would be great. But, I mean, it's twenty twenty-six a year where it's up Kim Kelderman: We will certainly be able to see the start of that trend. But that's a multi-quarter or maybe even more than a year play that I just talked about. That's a true adoption of Multiomics in the space. The space is nascent, but we'll certainly continue to keep pushing forward to the ability and the capability that we will offer our customers. And there's certainly demand for it. So that's a longer-term play. But, yes, the trend will improve quarter by quarter. Daniel Anthony Arias: Yeah. Okay. Thanks, Kim. Operator: We'll move next to apologies. We'll move next to Steven McLaurin Etoch with Stephens Inc. Your line is open. Steven McLaurin Etoch: Hey, good morning and thank you for taking my questions. Maybe just given the FDA's focus on reducing animal models, like to just get an update on how interest has trended for your organoid offerings in can you just give us a sense for how much revenue that's generated from these product lines in the quarter? Yeah. Organoids obviously, is a very interesting trend that we picked up on early couple of years ago. It's a $1.4 billion market growing at mid-teens, and certainly something that we want to play in. Especially because of our broad portfolio of products that are very essential in growing cells and not different for organoids. It's about a $50 million run rate business right now. And yeah, we're definitely aligning our product portfolio or marketing materials and also our new product introductions in favor of that capability, because if you think at the end of it, it's not only the reduced use of animal models but also the organoid model as such gives you a much better result, much more related to an actual human result than an animal model would. So not only is the quality and the consistency of the data you generate from organoids better, it's also a more humane method of getting that data. So overall, a win-win, and that's also one of the reasons why we just launched our Cultrix Coltrex synthetic hydrogel, which is, you know, a gel that helps you grow organoids. And even that gel is now animal-free. And that makes consistency much easier of this medium. And it's also much better to analyze. There's less background noise in any of the analytical methods you would use in organoids. So overall, a very interesting fast-growing market that makes sense to have a strong adoption in the end markets. And then it's not only our cell therapy reagents that read on the opportunity. It's also spatial, the spatial capabilities to interrogate these the organoids. And then Maurice and Ella in our protein analysis business also are tools utilized in the analysis of organoids. So overall, a real boost for our Bio-Techne product portfolio. Steven McLaurin Etoch: Appreciate the color there. And then secondly, you've also, you know, consistently discussed M&A as a core capability. How are you thinking about valuations in the pipeline in front of you today? And are there any particular footholds you think an acquisition might slot you in a little bit better? Kim Kelderman: Yeah. M&A has been and will continue to be a core focus for us. We've been very, very busy, not been able to pull a deal off yet. But certainly very interested in deploying our capital that way. We don't really care if it's private or public. We are really looking at where is the best strategic fit. If you think about it, our core specifically around novel antibodies, we wouldn't mind at all adding to those capabilities. Cell therapy is obviously an area that we address really well, but we wouldn't mind broadening our portfolio. And then in the proteomic analysis, we're also keen on adding capabilities that would benefit the company and fit our strategic model. So overall, we are very interested. And in the meantime, as you know, we already have kicked off the Wilson Wolf acquisition. We own 20% of it currently, and we will finalize that acquisition at the latest a little bit less than eight quarters from now at the end of calendar twenty twenty-seven, and as you know, this is a business that fits really nicely with the Bio-Techne cell therapy business and has a fantastic synergy between our product lines. It grew 20% this last quarter. Has 70% plus EBITDA margins, so immediately accretive. So we're very excited that if nothing else, we will be working on that integration and completing that acquisition. We're very interested in doing something in between if possible. Steven McLaurin Etoch: Appreciate the color. We'll move next to Brandon Couillard with Wells Fargo. Your line is open. Brandon Couillard: Hi, thanks. Good morning. Jim, it looks like you're kind of outperforming on operating margin expansion in the first half of the year even though mix is kind of working against you. As you talked about? You're sticking with the 100 basis points for the full year. But you previously talked about maybe exiting up 200 bps year-over-year. So is there some reinvestment that's happening in the back half of the year that kind of brings you back to the original goal? And kind of unpack how you expect margins to bear or trend in the second half? Yes. So if you look at the second half so we have a bit of an anomaly in Q3. I mean, if you kind of look at from Q2 to Q4 sequentially last year, we went from roughly 30% operating margins, jumped to 30%, almost 35 operating margins, and then in Q4, we were back down to 32. There were some timing of expenses, as well as some mix, but mostly timing of expenses that occur between Q3 and Q4, which kind of caused that lopsidedness. Now how we're thinking about it is that from a sequential perspective, we'll see continued improvement in gross margin as that mix, negative mix starts to unwind. And we'll see sequential revenue growth, which we always do seasonality-wise, from Q3 to Q2 to Q2 to Q3, and usually even a little bit of a step up from Q3 to Q4 beyond that. So how we're thinking about it is that sequentially, the margin will continue to expand roughly half of that expansion will come from the gross margin improvement throughout the back half of the year. And the other half will come through the higher revenue so that we expect to have in the second half of the year. Brandon Couillard: How that plays out by quarter is Q3 will be a tougher comp on an operating margin perspective, but Q4 will be an easier comp. And when it's all said and done, James T. Hippel: think it will be 100 basis points of improvement. For the second half. Brandon Couillard: Okay. And then just a question on operating cash flow down pretty meaningfully. In the first half. I mean you typically do just under half of the full year operating cash flow in the first half. So is there something going on in terms of a timing dynamic that you'd like to call out? And where do you see cash flow shaping out for the full year right now? Yeah. And I may we may have mentioned the last earnings call, but I'll mention it again. So first of Q2 cash flow was very strong. It was on par with last year. As you'd expect, with our revenue being on par. It was really a Q1 issue, and it was really two main drivers. The first one being the amount and timing of our bonus accrual payouts. For incentive compensation purposes. James T. Hippel: If you go back a year ago, Q1, we had you know, a very low payout in our bonuses. And in the fiscal year '25, we had a more normal payout. So that it that turned out to be a much larger cash outflow and bonuses from a year-over-year comp perspective in our first quarter. We also had some timing of tax payments that impacted Q1. And that timing of tax payments will gradually unwind throughout this fiscal year. Some of it already did in Q2. Brandon Couillard: But, the more permanent timing difference for the year will be that Q1 payment of incentive cash bonuses to employees. James T. Hippel: Thanks. Thank you. Operator: At this time, we've reached our allotted time for questions. I'll now turn the call back over to Kim Kelderman for any additional or closing remarks. Kim Kelderman: Thank you everyone for joining today's call. I want to acknowledge the team's outstanding execution amid a complex and continually evolving market environment. The new momentum in biotech funding, progress around the US economic budgets, and strong engagement with our large pharma customers all reinforce our confidence in the ongoing recovery of our end markets. As we enter our fiftieth year, we do so with a portfolio that is more durable, more differentiated, and more strategically aligned with the future of science and medicine than at any point in our history. The strength of our durable core portfolio combined with our continued investments across cell therapy, proteomic analytical instruments, spatial biology, and precision diagnostic tools positioned Bio-Techne exceptionally well for the opportunities ahead. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and welcome, everyone, to the IDEX Corporation Fourth Quarter 2025 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I'd like to turn the conference over to Jim Giannakouros, Vice President of Investor Relations. Please go ahead. Jim Giannakouros: Good morning, everyone. And welcome to IDEX's fourth quarter 2025 earnings conference call. We released our fourth quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investors section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX, and Sean Gillen, our Chief Financial Officer. Today's call will begin with Eric providing highlights of our fourth quarter and full-year results, and a discussion of our current business outlook and strategies. Then Sean will discuss additional financial details and our outlook for 2026. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide two of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric. Eric Ashleman: Thanks, Jim. Good morning, everyone, and thank you for joining us today. Before I dive in, I want to welcome Sean Gillen, who joined us in January as our Chief Financial Officer. Prior to joining IDEX, Sean served as CFO at AAR Corp for over seven years, and he brings extensive experience driving profitable growth, operational execution, and disciplined capital allocation. His expertise and track record of successfully implementing operational efficiencies, optimizing portfolios, and executing on strategic M&A fully complement IDEX's strategy. He's hit the ground running as he finishes up his first month of onboarding, and we look forward to benefiting from his leadership as we continue to shape and execute our enterprise strategy. Welcome to the team, Sean. I'm proud of the results the IDEX teams collectively delivered in the fourth quarter. We'll go into each of these in more detail, but we delivered organic sales growth and margin expansion for IDEX while also significantly expanding the order book within HST as we closed out 2025. These results show signs that our strategy is working and provide strong momentum as we enter our fiscal year 2026. I'd like to thank our teams around the world for their hard work, agility, and disciplined execution. Turning to slide three. We are progressing well through phase three of IDEX's purposeful evolution as we thoughtfully expand and integrate our capabilities in targeted advantage markets. With the support of our 8020 playbook, we are making this pivot both organically and through M&A. As a key element of this strategy, we built new scalable growth platforms that allow us to compound our efforts through cross-business unit collaboration. Please turn to slide four where I'd like to illustrate how this work is paying off within our HST segment. We've seen acceleration in order rates over the last year and a half with our strongest mark coming in 2025 with organic orders growth of 34%. This has driven organic sales growth towards a mid-single-digit level as we move into 2026. Our performance pneumatics group, we are helping customers support data center construction driven by demand from artificial intelligence. Specifically, our air tech and gas businesses are collaborating with thermal management applications to support data center liquid cooling and on-site, behind-the-meter power generation. We provide blowers, vacuum pumps, valves, and other specialty components to solve key problems in these areas. If customers have asked us to scale up quickly, our pneumatic teams have leveraged their own global footprints while also utilizing shared Asia Pacific facilities and capabilities within IDEX. We first talked about this emerging growth potential about a year ago. It's inspiring to see how far we've come since then. We walked through the strategic building blocks of our material science solutions on last quarter's call. At the highest level, we've mapped each business' unique capabilities to one of three competitive attributes as we form unique properties from materials, shape, and control surfaces enable surface function through coatings capabilities. We continue to see strong growth across the platform within space and defense, semiconductor, and data center communication markets. In 2025, we complemented our organic efforts with a small but meaningful acquisition in Microlam. A very high-quality bolt-on that brings proprietary difficult-to-machine forming capabilities into our already advantaged optics toolbox. Integration into IDEX is going well, it's great to see strong growth momentum out of the gate for the business. They are largely booked for 2026 as we work to expand capacity by applying the IDEX operating model. At Mott, which transforms material powders for specialty filtration, we see growth within the same MSS markets for many of the same customers. In fact, our life sciences, MSS, and Mott leaders are expanding the scope of coordinated commercial efforts for maximum focused impact. Our life sciences team, operating within our longest chartered integrated platform, continues to win in the pharma space, as a key initiative within their long-term growth strategy. Our materials processing technologies group with strong food and pharma-focused global development and production resources, is also driving favorable growth results for HST. And our sealing solutions businesses are seeing nice growth from semicon sealing applications, largely in support of the increased demand for data center memory. Our 8020 playbook, which supports the formal resource choices in segmentation to drive growth in this way, also has a part to play to support margin expansion within the segment. Our teams will be taking advantage of the flywheel effect of HST growth from our 80 to support the next round of 20 simplification to help boost overall segment portfolio margin. We'll call out some of these results in the quarters to come as we highlight the top line and bottom line power of 8020 within our enterprise strategy. Before I turn it over to Sean for more detailed financial commentary, I'd like to pull back up quickly restate the highlights for HST, and expand our IDEX Q4 story with some framing comments around the more industrial and municipal-facing businesses within FMT and FSDP. I'm on slide five. IDEX delivered better than expected fourth quarter results despite the continued challenges our businesses face given macro uncertainties. Our 345%, respectively, as they capitalized on advantaged growth supporting the AI-related ecosystem within and near data centers. HST is also seeing growth in semiconductor filtration and sealing consumables, space and defense applications, and wins within food and pharma markets. Industrial and auto market exposures within HST, make up about 20% of segment revenues, remained flattish we have not observed any meaningful signs of demand improvement. HST also drove 60 basis points of margin improvement year over year. We leverage volume growth, apply 8020 and operational excellence standards in newly acquired entities and improved mix, we will drive continued margin expansion within HST going forward. In Fluid and Metering Technologies, organic orders and sales grew 41% year over year, respectively. Our municipal water-facing businesses remained strong, growing mid-single digits, and mining through our AVO franchise continues to be an area of strength as demand for precious metals increases. While the general industrial landscape all in continues to trend flattish, SMT is experiencing noticeable softness in chemical, energy, and agriculture markets. Regarding the broad, mature, and fragmented industrial end markets, there does seem to be an emerging consensus that 2026 will see a return to growth after three years of PMI contraction. Made more likely if last year's volatile policy headwinds moderate. But at this point, as we look at our leading indicators, we are not seeing an inflection point and activity, and our guidance reflects this reality. Due to the rapid replenishment nature of our businesses, if there is a return to growth, we'll see it quickly, and we are well-positioned to capitalize on it should it occur. Finally, in our fire and safety diversified product segment, growth in our North American fire and rescue business was more than offset by pressures outside The US, and cyclical softness in dispensing, Bandit is trending generally flat alongside our other diversified industrial businesses. With that, I'll pass it over to Sean to discuss our financials and our 2026 outlook in greater detail. Sean Gillen: Thanks, Eric, and good morning, everyone. I appreciate the warm welcome, and I'm thrilled to have joined the IDEX team. In my first few weeks, I am struck by the solid foundation of the IDEX franchise which is underpinned by a strong focus on 8020. I'm excited to work with this talented team embracing 8020, targeting key high-growth markets, and continuing to optimize our portfolio. All while maintaining a disciplined approach to capital allocation. With that, I'll turn to the financial results in more detail. All the comparisons I will discuss will be against the prior year period unless stated otherwise. Please turn to Slide six. As Eric mentioned, in 2025, IDEX delivered better than expected financial performance. Organic revenue growth of 1% came in as expected with strength in HST more than offsetting negative year-over-year performance at FSDP. Adjusted EBITDA margin expanded 40 basis points year over year, on positive price cost and productivity improvements, and adjusted EPS came in higher than our guided range in the fourth quarter. Overall, our orders grew 16% organically in the quarter. Our HFT segment reached a record high at $493 million with orders growing 34% organically in the fourth quarter. FMT orders grew mid-single digit and FSDP orders were flat year over year. Recall that we typically enter any given quarter 50% booked overall. However, the strong order activity and record backlog in HST gives us greater visibility and confidence in our outlook for that portion of the business. In FMT and FSDP, the rapid fulfillment nature of those businesses limit our visibility to approximately midway into a quarter. Touching on some of the more meaningful business demand trends in the quarter, we saw strong order activity in areas influenced by data centers. And for us, as Eric mentioned, that's in power, semiconductor, and optical switching. We also saw strength in municipal water, food and pharma, and space and defense. And in life sciences, we continued to see low single-digit growth. Organic sales in the fourth quarter grew 1% as positive price more than offset volume declines. The teams drove positive price across each of the segments. Volumes were flat at HST and declined year over year at FMT and FSTP. IDEX adjusted gross margin was flat year over year in the quarter as price cost and productivity benefits were offset by volume deleverage and mix. Adjusted EBITDA margin expanded 40 basis points versus last year, reflecting productivity gains favorable price cost dynamics and cost discipline more than offsetting volume deleverage and negative mix. We were successful in our platform optimization and cost containment efforts as they yielded approximately $60 million of full-year savings. Free cash flow for the full year 2025 of $617 million increased 2% versus last year and free cash flow conversion for the year came in at 103% of adjusted net income. Our targeted free cash flow conversion of at least 100% at IDEX remains unchanged. We ended the year with strong liquidity of approximately $1.1 billion. And finally, we spent $73 million to repurchase IDEX shares in the quarter, taking our total share repurchases for the year to nearly $250 million or 1.4 million shares. Now quickly some color on our results by segment. I'm on Slide seven. In 34% and revenue grew 5%. Volumes increased in data center applications semiconductor consumables, and space and defense. Volume strength in these areas were partially offset by year-over-year declines in life sciences pharma, and general industrial. HST adjusted EBITDA margin expanded 60 basis points year over year as positive price cost and productivity gains more than offset unfavorable mix and higher variable compensation. Turning to slide eight. In FMT, organic orders increased 4% and organic sales increased 1%. Orders growth was supported by our intelligent water platform, which was partially offset by softness in the chemical end markets. Looking at our leading indicator industrial order rates, they appear range bound without any indication of a sustainable inflection in demand. Within FMT, we continue to see subdued spending environments within the oil and gas, chemical, and agricultural markets. These exposures make up over a third of FMT. FMT's adjusted EBITDA margin declined 20 basis points year over year as positive price cost and platform optimization and cost containment actions were more than offset by volume deleverage higher employee-related costs, and unfavorable mix. Please turn to slide nine. FSDP organic orders were flat year over year and organic sales declined by 5% for the second consecutive quarter. Continued growth in North American fire OEM and stability at Bandit were more than offset by continued weakness in fire and safety outside The US and subdued capital spending in dispensing. These headwinds were identified last quarter and continue to persist. FSDP adjusted EBITDA margin increased 50 basis points year over year, as productivity gains and favorable mix more than offset volume deleverage. Please turn to slide 10, where I'll touch on capital allocation. We drove $190 million of free cash flow in the fourth quarter, and $617 million for the full year 2025. During 2025, we reduced our gross leverage position from 2.2 to two times. We did this while paying $213 million in dividends, in 2025, and as mentioned previously, repurchasing nearly $250 million worth of shares. Regarding our capital deployment methodology, I view this across four key areas. Maintaining a strong balance sheet, organic investments to drive growth, M&A, and return of capital to shareholders via dividends and share repurchases. With IDEX's strong financial position and cash flow generation, we can allocate capital to each of these areas. First, we will maintain our investment-grade credit rating, which provides reliable access to capital at attractive rates. Second, we will continue to organically invest in our businesses to drive growth where we have the highest return opportunities. Third, regarding M&A, in the near term, we will focus on the integration of recently acquired businesses, and new acquisitions will likely be bolt-on in nature. In parallel, we are doing the work to chart a road map for where IDEX goes next. We are looking at what other technologies and market access points could be additive to our portfolio and where potential divestiture could make sense. We expect M&A activity to be an ongoing part of our long-term growth algorithm. Fourth, we will return capital to shareholders via both dividends and share repurchases. Regarding dividends, our target of 30% to 35% of adjusted net income paid remains unchanged. On share repurchases, we will look to have a base amount of repurchase that we consistently return to shareholders. We can flex above this amount based on leverage levels and relative M&A activity. We look forward to executing on this capital deployment methodology and driving value for our shareholders. Now I'd like to discuss our guidance for 2026. Please turn to Slide 11. For the full year 2026, we expect organic growth of 1% to 2%. Jim Giannakouros: Our overall IDEX organic growth guidance balances approximate mid-single-digit growth for HST, and flat to slightly down outlooks for FMT and FSTP. Mirroring trends we experienced in 2025 and visibility afforded to us by HST's strong order book in the fourth quarter. Adjusted EBITDA margin is expected to be in the 26% to 27% range in 2026. While we expect solid leverage and margin expansion of perhaps 50 basis points improvement at HST this year, volume decrementals offsetting price cost and productivity is our base assumption for both FMT and FSTP. Regarding our effective tax rate, we expect it to be approximately 24% in 2026. Adjusted EPS guidance for 2026 is $8.15 to $8.35 representing low to mid-single-digit growth year over year. For 2026, we expect organic growth of 1%, adjusted EBITDA margin of approximately 24.5%, and adjusted EPS of $1.73 to $1.78 relatively flat year over year. As a reminder, the first quarter is typically our seasonally softest both from a top and bottom line perspective. Within FMT, businesses such as ag and water are impacted by the winter season, while FSTP and HST experience a reset of budget cycles for larger volume orders. Our initial outlook contemplates a typical low to mid-single-digit sequential increase in second-quarter sales with a more pronounced step up in earnings given higher volumes and normalization at the corporate expense line. Our current forecast reflects plans for 8020 informed reinvestment into our businesses to drive organic growth and continued execution to improve operational performance across all businesses. And lastly, we will maintain a balanced capital deployment plan near term skewing towards tuck-in acquisitions and returning capital to shareholders. Similar to 2025. With that, I'll turn the call back over to Eric. Eric Ashleman: Thanks, Sean. I'm on slide 12. We believe our strategies will drive increased growth in sustainable value creation for IDEX going forward. And our bookings in the fourth quarter are a strong indicator that our strategies are working. 8020 is at the heart of all that we do at IDEX, working across integrated business units is a meaningful expansion of our source code. Within our earlier walk through of HST Momentum, we've highlighted how 8020 choices can work powerfully for us to drive growth and margin at a single unit level, a collaborative small group a formal growth platform, and for a few powerful and select applications across the entire segment. 8020 analytics help us isolate the opportunity and align resources our tunable technologies allow us to quickly shift from a pressured to an advantaged area with relative ease. But it's really our teams and our culture that power this work. We carefully built and nurtured an open, engaged, and natural collaborative culture through all phases of our evolution. In fact, this work began formally before we began to apply 8020 to IDEX. Our value of trust, team, and excellence powered by a shared purpose of trusted solutions improving lives, helped our leaders unleash potential across business boundaries, with an ability to course correct as conditions warrant. We have more work to do as we move through phase three, but we're very pleased to see strong performance feedback in the areas where we've spent so much time and effort together. Look forward to sharing more of our story with you in the days ahead. That concludes our prepared remarks. And with that, I'll turn it over to the operator to take your questions. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. Our first question comes from Deane Dray at RBC Capital Markets. Deane Dray: Thank you. Good morning, everyone. Hey, Eric. Eric Ashleman: Hey, Deane. Really interested to hear your thoughts about the I don't I don't want to call it a disconnect because it's probably a lag effect here, but we finally got a PMI above 50 after eleven months. You have such an array of bellwether businesses that are usually synced to the type of inflection in the macro. You mentioned Bandit. But, just take us through how you see the demand outlook right now based upon what you have for day rates, you know, what do you see in the order size, are you getting any blanket orders. But this is really helpful to get down to that granular level, if we could, please. Eric Ashleman: Yeah. Sure. Well, look. We were happy to see that readout as well. But as we said in the, you know, in the comments here, and you know, we track about six or seven businesses that are really, really close to consumption. Rapid replenishment, you know, we'll take an order on a Monday, make it on a Wednesday, and ship it on a Friday. That's pretty typical. You mentioned a few of those businesses. Always look at them and see, you know, if they're moving together. That usually tells us we've seen some inflection. And so far, even through January, we've seen them be steady but we have not seen them inflect up yet. Now, of course, it was a, you know, weather-altered January. We'll see where things shape up in February and into March and as things warm up a bit. But as of now, happy to see the headline but don't really yet see the inflection. You know, and that's kinda the same story in the fourth quarter. Those kinda hung in there but didn't move around much. We mentioned some of the pressure sectors that we have. Those are being driven by different drivers. But I think for us, it's keeping an eye on it. As I said in my remarks, there's certainly chatter around the likelihood, you know, given the duration some of the things that are shaping up on the policy side. But haven't seen it yet. When we do, of course, as you know, we will tend to see it first. I think most importantly, you know, we can chase it without frankly, adding anything to the resource of the capital base. And our incrementals on that upside would be really, really good. Deane Dray: That's really good to hear. And just as a follow-up, I'd like to welcome Sean And I noticed you said $80.20, the requisite number of times. I know that's a full immersion, and it's gonna be ongoing here. But I'm most interested in hearing from you, Sean, is you're coming in with a fresh set of eyes. IDEX is one of the high-quality compounders, so it's you know, the opposite of a fixer-upper. But there's still items metrics that a fresh set of eyes probably sees that you have And just kinda talk us through where you are focusing, what kind of priorities that you think would be helpful for us to hear? Thank you. Sean Gillen: Yeah. Appreciate the question. As you mentioned, I mean, a couple of observations early on, you know, the incredibly strong franchise that IDEX has, as you mentioned, underpinned by 8020 and everything. That is done here. And from my standpoint, I kinda look at it in a couple of ways. You have an incredibly strong franchise with really strong financial characteristics, and I'm talking EBITDA margin and the cash flow associated with that. Which affords us nice opportunities to allocate that capital to drive growth And as I look at it, I see a continuation of a lot of things that have happened here. And then helping around the edges in kinda M&A strategy and execution as we see this next kind of, you know, three-point o in IDEX. So a lot of good to work with and, you know, bring some of my skill set and some of the things I've done in the past to help continue to move the needle. Deane Dray: Great to hear, and best of luck. Operator: We'll go next to Vladimir Bystricky at Citigroup. Vladimir Bystricky: Hey. Good morning, guys. Thanks for taking my call. Eric Ashleman: Sure, Vlad. Vladimir Bystricky: This is Maybe I don't know if I missed it, but can you just talk about how much price ended up contributing to top line overall in 'twenty five And then within your 1% to 2% organic growth outlook for '26, how much of price contribution is in that number? Sean Gillen: Yeah. Happy to take that. So in fiscal year twenty-five, price was around 3%. In Q4, it was a little higher than that in that three and a half percent range. And then as you look into the current fiscal year twenty twenty-six and the guidance, we're kind of forecasting around a point to two one to 2% in terms of price contribution coming down from the levels of last year, but still additive overall. Vladimir Bystricky: Okay. So roughly flattish volumes overall across the portfolio with positive volumes in HST and some negatives in SSDP and SMT. Is that the right way to think about it? Sean Gillen: That's exactly right. Vladimir Bystricky: Okay. Perfect. That's helpful. And then, I guess, you know, just stepping back, you know, obviously, you talked about capital allocation over the past several quarters and today here on the call. With the shift to bolt-ons versus larger acquisitions and more on buybacks, how should we think about the potential for incremental know, meaningful portfolio pruning, if you will, outside of the growth platforms. Eric Ashleman: I think right now, here in the short term, I mean, we're really focused on, you know, the cap the businesses that link to the capital that we deployed pretty aggressively over the last few years. Know, that's a look at our portfolio from top to bottom is always something that we're doing together as a team. I think on the divesting side, you know, nothing really, at least in the short term, that's beyond kind of the unit of measures that you've seen here more recently. You know, it's things that are associated with 8020 work both in a business unit or a product line spectrum. So I think most of our focus now is on capitalizing on growth, growth velocity, And then as I said in the remarks, specifically within some of the acquired business in HST taking advantage of some of the growth that's already on the board now and using it in some ways to fund some choices that we know we want to go make through a few of the recently acquired businesses. You know, how those are The run out and the disposition of those will play a part here but again in a more typical kind of smaller unit of measure here in the near term. Vladimir Bystricky: Got it. That's helpful. Eric. Thanks. I'll get back in queue. Operator: We'll go next to Michael Halloran at Baird. Michael Halloran: Hey. Good morning, everyone, and welcome, Sean. Eric Ashleman: Hi, Mike. Michael Halloran: Hey. So can we just go back to the disconnect between the strength in orders and the building momentum you're seeing in the orders and the conversion to revenue. I know there has been at least some level of shift and you've as you've reshaped the portfolio, brought on some longer site cycle application. So maybe just refresh, the disconnect, and then I guess, when do you think that starts normalizing towards each other? Right? I mean, as you said in your prepared remarks, you know, relatively short cycle tends to convert quickly. So maybe just walk through those dynamics. Eric Ashleman: Yeah. So, I mean, if you're taking a look at how revenue is gonna kinda flow from Q4 into one and back into two, which is you know, things that we've talked about here. I mean, there's kinda two components of that on the top line side. One that's pretty typical and traditional for IDEX and one that's a little newer. So on the FMT side, we've always kinda had that dynamic. Largely associated with weather. And weather's impact in our water franchises and agriculture franchises specifically. And so you kind of see that Go a little lower in Q1. It comes back in Q2. And we have that same trend in the guidance that we have here looking forward into '26. There is a small component coming out of HST now that we also referred to. You know, we're we've got some larger orders that we're capturing here. Some of them are coming from, you know, markets that we're targeting that have more of a kind of traditional fiscal spend profile that has, you know, budgets running out in Q4 and people making sure that they spend those. You can see it in the big capture number for us in Q4, and honestly, some of that came in kinda close to the end of the quarter. If you look at just where lead times on the gear that we're gonna make kind of naturally fall out, it's not unusual to see some of it moving into Q2. That's how long it'll take to get moving. So places like our materials processing technologies business, you know, it's more sophisticated CapEx probably the place where you see it the most. And so I think starting to see a little bit of an HSE dynamic there as we continue to grow within some of these spaces. We'll probably add that component onto what we would typically see from the FMT weather-related side. It's not a lot. And frankly, think of it as a V, which is again, been kind of the typical IDEX profile. You'll see it here with the HST business as well. Michael Halloran: Thanks, Ted. And then you know, maybe just the life science piece. Could you talk about what you're seeing there? And how your guide should shape out through the year and maybe put that in the context of what your client base is saying. And how they're expecting improvement through the year and kind of correlation points there, please? Eric Ashleman: Yeah. I think, you know, we saw in '25, it was kinda low single-digit growth. It was stable. It was predictable. Really, for us, kinda driven on the positive side by growth in pharma applications and then the derivations that make their way into our products. A little bit of pressure on the more academic research piece. Has that played out? The only real change there, the government shutdown, the prolonged nature of it in Q4 I think, you know, put a little pressure on that business at the end of the year and I think added a bit to the uncertainty, heading into '26. We think that'll normalize over time and we've kinda got the business still running forward at sort of low single-digit growth. Some open questions still remain on, you know, the piece related to China. The innovation, very, very strong with inside the business. Continue to work with customers on, you know, different products to support platform releases at a healthy clip. But we've got that dialed in at kinda continuing along at mid-single digits. And looking for different signs of inflection there. One specifically, I think, around some more certainty around where that academic research and support would be through the indirect lever of NIH funding. Michael Halloran: Thanks, Eric. Appreciate it. Operator: Thank you. We'll take our next question from Joseph Giordano at TD Cowen. Joseph Giordano: Hi, Joe. Eric Ashleman: Hey. So you kinda touched on this, but, like, you know, a year ago, when you were giving guidance for 2025, we got into a position where you know, full-year guidance looks fine. One q guidance looked very weak relative to where people were thinking. And it was you know, there was this need to have these kind of larger orders come through and some tough comps there now. If you think through the businesses that kind of play in that, and you kind of marry that with the orders that you saw in HST? Like, how is it know, how is how should we view this guide relative to those, like, you know, one Q4 q, progression differently than we did last year. Eric Ashleman: That's a great question, and we are in a different position. Exactly for the reasons that you talked about. So as an example, in HST, when you just look at backlog, kinda year over year, the difference with the exit last year from the year prior we've built over a $100 million of backlog. And while it you know, almost half of it is in the data center area that we talked about in the opening remarks, it's actually broadly applied elsewhere across HST. You see it coming from our materials processing technologies business. See it coming from the MSS franchises. We now have MicroLamb on the board. You know? So we've got really, really good order support here. Quite a bit more of it than we did at this time last year. Again, some of it, you know, cycles in the way I suggested around Q1 and then moves up again in Q2, but the assurance levels are quite a bit higher this year, especially in HST. Joseph Giordano: Perfect. And then if we talk about some of these newer markets like data center power, like, how large is that now? How large can it realistically get in, like, a year or two? And maybe can you speak to the capital intensity from your standpoint that is required to capitalize on this? Eric Ashleman: Yeah. I've kind of tackled it backwards. The capital intensity is actually not very different from what we typically do. It's light intensity. So think of this as a lot of critical subcomponents that we're making. We will just make more of them. On a lot of the same equipment that we have. Still pretty rare in IDEX. To be running more than two shifts anywhere. And so we've got an opportunity to flex the current capital base reasonably, and you shouldn't see a deviation there. Would have to add manpower, of course, and we are. You know? So that's something that our teams are working through, but nothing really significant on the capital side. In terms of where all this can go, I mean, that's an open question, obviously, for the whole sector. But, you know, we're playing in a number of different areas. We talked about, you know, behind-the-meter power. That's you're seeing a lot of that in the pneumatics area. That's kind of ramping as we go with you know, kind of a flagship customer during the year. But we've got a number of other areas or applications largely in the areas of thermal management, the discrete thermal management that we're working. We've got some optical switching and communications work, even in FMT, we've got some power gen support. Some of the technologies we have over there for more typical generators. So we're actually managing it This is one area that we're managing at a segment level. Just to make sure that we're coordinated across. We can see all the opportunities. To the extent we're working with similar customers, we're making sure we're coming together as one IDEX. So I think still room to run here. We're innovating a lot in the background. Very, very excited overall about the potential. As we said in the beginning here, won't need a lot of capital deployment to capitalize on it. Joseph Giordano: Thanks, guys. Appreciate it. Operator: We'll take our next question from Matt Summerville at D. A. Davidson. Matt Summerville: Thanks. Morning. Maybe could you dig into a little bit adding a little bit of geographic depth and talk about the order cadence that you saw in FMT, kind of the chem, O and G and ag side of the business? And then an HST industrial in auto. Just trying to understand you know, the a little more of the commentary around just not really seeing any sign of inflection. They just further punctuate that a little bit for us. Eric Ashleman: Yeah. Well, you mentioned some of the ones you mentioned are the more pressured sectors for us, you know, overall. So I'll speak specifically to those And I'll start with energy. We always have to scale that a bit in terms of the work that we do. We do mobility custody transfer there. We actually had a strong beginning of the year. You know, we saw a lot of truck builds and things and some optimism around the state of those markets. And I think as it played out, you take a look at where oil prices landed and some of the geopolitical stuff, that was out there, you know, we just saw a pause, kind of an unexpected pause in at the end of the year. So that really is micro exposure in the space for us. Have kind of a positive front half and a less positive second half. Now it has been a very, very cold winter, Ultimately, that typically helps that market down the road, so we'll see. The chemical side, you know, that's been pretty pressured throughout the year. You know, a lot of our exposure there is our probably lead franchise is European based. And so when we think of the state of European chemicals in particular, they really haven't been very strong. To be fair, the business is chasing international expansion. They've done really, really well in India. In our shared campus up there. But I think chemicals, we're waiting to see signs of just general recovery there. Agriculture is another. You know, that's we've been kind of in a multiyear cycle there. Our orders ebb and flow kind of cyclically around weather patterns. You know? So as just look at it, we have to look at year-over-year performance. Team is doing well, executing that business well. Certainly well-positioned, but we're still waiting for signs of recovery there. And I would say just broad industrial it's been pretty similar and kinda flattish throughout. I'd say the theme of the day is, you know, just enough orders coming through for maintaining the system, you know, replacing like-for-like components where we've had that share position for years if not decades. So that's all solid and has remained that way and held up that way in January. It's just a question of not enough expansion in more specific projects, people building out plants, and doing things that require just more confidence around customer commitments. You know, geographically, I would just say the, you know, the trends are not that different with the exception it's a smaller part of the business. But, you know, India, probably the head for us. North America, second. I would say Europe, third. Matt Summerville: Thank you for all that color. I guess, with the order activity you saw in HST, is there a way to sort of parse out how much of that may have been kind of year-end budget flush slash blanket activity and realizing 34% may not continue. But are you still seeing that forward strength in inbound order momentum now is, you know, 2026. Is kinda kicked off. And then also, is there any incremental savings from the optimization left over to be realized in '26? Thank you, guys. Eric Ashleman: Sure. I'll take the first, and I'll let Sean weigh in on the second. Actually, January has been strong as well. So while there is some phenomenon there tied to year-end, pieces that that is not you know, that that is not the majority of what's going on here. A lot of it is just it's momentum that we frankly Seen building over the last year and a half. It was strongest here in Q4. We're very happy with what we've seen initially in January. And, while kinda data centers is the headline, the broad-based nature of it also lends itself to being something that's got good rhythm, good cadence, and we're expecting it to continue into the year. Sean Gillen: And then on part two on the cost containment, as I mentioned in the remarks, we did realize about $60 million of cost savings in last fiscal year. And that was really kind of the full targeted amount. Those actions were taken early in the calendar year and so most of the benefit was realized last year. A portion of that was kind of more temporary in nature, so I would expect a portion of that, a portion of it was about $20 million in temporary temporary in nature. I expect that a little bit of that we allow to come back into the results this year. As we resource and invest in some areas, particularly the ones where we're seeing growth in the order volume that we've been talking about. Matt Summerville: Understood. Thank you, guys. Operator: Our next question comes from Bryan Blair at Oppenheimer. Bryan Blair: Good morning, guys. Welcome, Sean. To get a slightly different angle on the know, the standout HST order strength? Eric, you just said that you know, data centers were the you know, the the highlights. Are you willing to speak to how much of Q4 order growth was AI-related versus other markets and applications? Just trying to frame, I suppose, dimensionalize the drivers there. Eric Ashleman: Well, you know, it is a little tricky because of the nature of the work that we do. While we have a lot you know, the things that we do in Nomadix are clearly linked to data centers. I would even argue a lot of what's driving nice positive growth in semiconductors is, you know, is tangentially related to it as well. I would be willing to say here is that is I kinda pointed to that backlog growth year over year. You know, just under half of it, we probably put in direct data center applications. But I would argue a lot of the other segments and pieces that are coming in, they're one or two steps over. You know, semiconductor is a segment for us. It has been strong, especially on the consumable side. A lot of it's supporting memory production. And then we've, you know, we think we're seeing some good things building as well on some of that you know, very, very critical componentry that we supply in the lithography. And so it's kind of all in within that same ecosystem. But let's say about half of the backlog build in very specific data center supported applications. Bryan Blair: Okay. That's helpful color. It'll be great if we could drill down a bit more on municipal and industrial water. Trends and outlook there. Where did revenue and order growth shake out in Q4? Then looking forward, what drives your team's confidence in sustainable mid-single-digit type growth? Whether that be, you know, external or at a market level or in terms of your team's value prop and the ability to win in those Eric Ashleman: Yeah. Well, first, you know, just on the numbers side, you just called it. I mean, we had a strong Q4 in the municipal-facing water side that was double-digit growth. We've kinda got it mapped out at mid-single-digit plus going forward. And I think it comes back to the critical nature of the work that we do here. Very, very specifically, we're doing, you know, inspection, and analytics work. So we're helping municipalities understand the state of affairs underground and where they might need capital to be vectored in to correct it. You know? So, again, we're kind of at the lead tip of the spear, if you will, on, you know, putting capital work for infrastructure, refurbishment. You kinda need our diagnostics to be able to do it, both to put that capital to work then, frankly, you need it operationally as well. So whether it's significant weather events, and we've just seen another round of those, those stress infrastructure, it's our technology that helps you understand where it's coming from and how you go mitigate it really, really fast. So it's just a testament to the criticality of what we do. It's always been a nice piece of the business. It's made even more so now that more capital is being put to work, and we absolutely seeing that continue. One last piece. When you look at water for IDEX, I just always remind people there's a side of it that's related to high purity semiconductor work. For a while now, that's been offsetting some of these dynamics on the municipal side. We saw some nice orders growth there as well in Q4. And so we'll have less need to call that out as an asterisk we go forward and talk about water as a platform. All very encouraging. Bryan Blair: Thanks again. Operator: Our next question comes from Nathan Jones at Stifel. Nathan Jones: Hi, Nathan. Let me start by saying I was late on the call. So if you've already answered my questions, tell me to read the transcript. I wanted to ask about the platforming strategy that, you know, you've been on for a year or two now. Maybe you could talk about what you're looking to accomplish with that in 2026. I know you had some restructuring expenses around that in 2025 that generated some cost savings. Are there any more of those kinds of things contemplated for 2026? Just any more color you can give us around that kind of Eric Ashleman: Yeah. Look. The optimization side, I'll let Sean take a handle at that. We got a little bit of it that flows over into the next year. He can take you through it. But the focus here is growth. I mean, so the whole idea is to get units working together in advantage markets and take the power of our innovation passion to solve customer problems and frankly, exponentially put it to work. We're seeing it work. So the growth that we're talking about here for IDEX overall, a lot of it in HSE it is disproportionately coming out of these platform environments and you can see it in applications where, generally, it's not just a single unit, but it's a couple units or a platform working together taking one piece of technology in one area and leveraging it onto another, Sometimes it's even just taking talent putting it to work to make sure we can free up capacity and assist your business. Go after data center volume, things like that. So it's this compounding power of putting things together that have long been IDEX assets putting them to work around markets that just have more favorable headwinds. So I think that's you know, that's the headline. That's the theme, and we're really happy to see it starting to bear a lot of positive fruit. We have it now, and we see it continuing as we go forward. Just got done talking about the water platform. That's made stronger because of all the technology that's now working together to provide that analytical output. When we talk about data centers, there's a number of units that are here. We actually have to coordinate it at the HST segment level. We've always had it in life sciences. To be honest, that's kind of where the original source code came from. So it's something that we're really excited about. I'll let Sean tackle a little bit more of the productivity flow through. Sean Gillen: Yep. And just on that point on the cost piece, as I mentioned, last year you had about $60 million of savings related with cost actions. 40 of that are structural, right, that will just continue. Most of that was realized last year. You might have a little bit of bleed over into this year, some incremental benefits. And then the other $20 million was kind of more temporary in nature based on the environment. Now the environment is pretty similar, so we're gonna keep most of that cost out, but expect some of that we'd allow to come back into the business as we invest particularly in these areas where we're seeing growth. Nathan Jones: But there aren't any incremental actions planned for 2026. Should request think about the guide. There's no kinda round two or anything like that on cost takeout. Sean Gillen: Okay. I guess just a quick one on course productivity that is part of the business. Nathan Jones: Got it. Then just a quick one on share repurchase. IDEX hasn't historically been a serial repurchaser that you did repurchase every quarter during 2025. Should we expect a continuation of that in 2026, and what's the plan for share repurchase 2026? And I'll leave it there. Thanks. Sean Gillen: Yeah. Yeah. Good question. And so I think you should expect a similar level of activity that you saw in the second half of last year, which is around $75 million per quarter, that stepped up, as you mentioned, last year. The first part of last year was around $50 million a quarter. Stepped it up to around 75 in Q3 and Q4. I think that's probably the right assumption. As you think about this next year. You know, be different based on M&A activity, but that'd be kind of the base amount I'd have you think about. Nathan Jones: Great. Thanks for taking the questions. Operator: Our next question comes from Rob Wertheimer at Melius Research. Rob Wertheimer: I had two, and I'll just do them both at once, if I may. Could you just share general thoughts around lithography drivers of that potential cycle? There's a lot going on obviously in various areas. And then secondly, may or may not wanna touch on this, but very strong pricing power in different aspects of data center build out. And do you have any thoughts on how your margin is trended, some of those orders flow into revenues? Thank you. Eric Ashleman: Sure. Well, on, you know, the lithography side, we have a you know, just to bracket it semi con business for IDEX is just a little under 10% overall. About half of that is consumable parts and things like filters and seals. And then kind of the other half is split between metrology. A lot of those are optics applications. And then the other half, so we're down to kind of small single digit. It's goes into this advanced lithography area that you're talking about. We only have so much exposure, and it tends to be at the very, very high end of the duty cycle. So as you know, we've been talking about it probably maybe disproportionately because one of our recent had some nice exposure here, and then we saw it you know, swing around quite aggressively because of some trade restrictions. Around that type of business. That's really kind of unchanged at this point. I think those boundaries are largely set. What has been more positively, here lately is, I think, just the general momentum around chip builds for either advanced AI some of the stuff related to memory for data center racks There's just a lot more activity and a lot more need for capital gear. So we have heard more positive comments. The only thing and some of those, you know, referencing order velocity and order capture, You know, these are high ticket items, and the lead times are very long. So for us, we have to kinda look at current inventories of components, where lead times might fall into build schedules, and things like that. Specifically around this part of the business. But we will generally be much happier with you know, positive momentum, positive headlines, and we've seen more for those for those reasons. You talked about pricing power specifically within data centers. I would argue with this is it doesn't really work differently for us than it does through much of the rest of IDEX. We, you know, we typically are entering with high critical items pretty low on the bill of materials. Know? So the work that we're doing here is not atypical for IDEX. And so the way that we think about pricing is material input come up and the recovery arguments that we make there. I wouldn't argue they're very different than they are anywhere else. Sure. The market is growing, and everything there is mission critical and delivering on those has to be know, has to be perfect. That's not different from all the business that we do on IDEX. So I think we have actually similar pricing dynamics. And as we have started to ramp up that business, the flow through on our business has been very good. Rob Wertheimer: Perfect. Thank you. Operator: And next, we'll move to Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Hey. Good morning, everyone. Eric Ashleman: Hi, Andrew. Andrew Buscaglia: Wanted to if you can parse out a couple of things within your segments. First off, with FMT, you know, I would think that this business would see strong accelerating orders in the event production recovery if that were to happen this year. Orders were okay this quarter, but my question is is is there anything that's changed or evolved within FMT that makes it that would make it act a little bit longer cycle over you know, its typical short cycle history. I just know, like, a lot of change in the last five years post-COVID. So wondering if you could comment on that. Eric Ashleman: Yeah. Nothing different within those markets. You know, these are franchises, some of which are over a 100 years old. The positions that we have with customers are you know, decades. And the work that we're doing, a lot of the business is like-for-like replacement. And that really hasn't changed. So if you just brought this down and started to think about it as a story, you know, today, we're seeing order rates that suggest if it's pumps in a factory that they're still running and they're running the same number of shifts and they still need the, you know, replacement, levels to be the same, if things were to vector up, would probably say that we're gonna put more maintenance on the shelf or we might expand you know, part back end of our plant, and we'd need more pumps. So that we're at we're we're kind of as we always have been, laid out there. Our fulfillment rates are the same. We're still know, have the same level of relationships, and, frankly, just share doesn't move around very fast in this market. So with acceleration, we would see really no different And what we should expect on our side in terms of both capture rates as well as really nice flow through on the incremental volume. Andrew Buscaglia: Yeah. Okay. And kind of a similar question with with an FM and HST. You know, I get sometimes I listen to the call. You get excited over portions of the business that seem to be doing well, data center, space and defense. Biopharma. And you do a little work on it, you realize you're kinda talking about percentage of sales or so or like that or in that ballpark. Maybe if you could bucket together these kinda higher growth areas between FMT and HST as a portion of those segments, could help? I don't know if you have an estimate then and how much we're about here when you kinda jumble it all together in each segment. Eric Ashleman: Well, I mean, you know, if we a lot of what we're referring to particularly on the growth and momentum side is in HST. And, you know, we were talking about this this morning. It is interesting that, you know, we made a mention here that the industrial and automotive side of HST is now 20%. And there were days long past where that was almost half of the segment. Our life sciences piece, you know, which is kinda life classic life sciences, analytical instrumentation, and pharma exposed markets, that's about a third. That, at one time, was a significant more significant piece of this as well. So the diversification of HST has come a long way. Over the last few years. And so if you think of kind of the markets that we've been talking about here, it's a significant percentage of HST We're talking about pneumatics with a lot of the data center explosion. Everything happening within the MS and MSS. I mean, that platform in Q4 was double-digit growth. And so we're just seeing nice broad diversification across these target advantage markets and you're seeing that kind of relative pie graph start to tilt in the right direction because of the capital that we've deployed there. And I think FMT is pretty similar profile than, you know, maybe the water growth has changed it to a slight degree, but that's long been kind of a broad industrial exposed area. Some discrete call outs in chemicals and agriculture, and we talked about some of the pressures we have there. Andrew Buscaglia: Yeah. Okay. Thank you. Operator: And that concludes our Q and A session. I will now turn the conference back over to Eric Ashleman for closing remarks. Eric Ashleman: Well, thanks very much, and I want to thank everybody for joining today as we close out the year and launch into 2026. I really think today, three headlines and takeaways. Number one, our growth platform strategy is working. And it's really powered by the cross-business collaboration and innovation that we talked about through the questions today. Our strongest growth is coming out of our growth platforms. We're really, really happy with the work that's happening there and the things that lay ahead for us. Number two, HST as a segment overall is doing very, very well. The teams are working phenomenally across the businesses and across the units. You know, on the growth side and feel good about the margin expansion and some of the things we're gonna drive there as well in a focused way in '26. Then we've touched on it a lot. I think our industrial businesses are really well set up. To capitalize on growth, you know, at the first sign of inflection. I'll just remind you that when that when it does move, we will see it. We'll see it early, and we'll jump on it quick. And then the incremental performance as we do that will be very good. As we're able to chase significant upside without really any change to the resource capital base of the company. So with those headlines in mind, I wish you all a great day, and thanks for your support and joining us today. Take care. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Fredrik Dalborg: Good morning, everyone, and welcome to the AddLife Fourth Quarter Presentation. This morning, we will take you through the highlights of the quarter and then, of course, open up for a Q&A session. After that Q&A, we do encourage you to stay on because we have recorded a wonderful video of one of our companies, this time, Biolin, a manufacturer of advanced research instruments. So now let's go. I'm very pleased to note that the AddLife companies were able to wrap up 2025 in a good way. We saw continued profit improvement. We saw strong profit and strong cash flow. On the EBITA margin account, we saw that Labtech were able to protect the very high level at 14.1%, EBITA margin, same as we had in the strong fourth quarter of last year. And on the Medtech side, it improved to 12% compared to 11.6% in the corresponding quarter of last year. Overall, we saw healthy customer demand in our markets. But of course, currency effects impacted our sales growth, but the currency adjusted sales increased by 2% in the quarter. We are working diligently with profit improvement initiatives, and this is one of the core parts of our business model. We have seen for many quarters now a continuous improvement, and we do expect that to continue in the future as well. In the U.K., we have had a long-standing dialogue with a key partner in the area of endoscopy. They have chosen to go direct, and we have supported them in that, handing over the team and the resources related to that business, and we have received a consideration of SEK 158 million in the quarter. So this, in combination with the strong cash flow that we saw has helped us to achieve a net debt-to-EBITDA of 2.2. So this -- with this, we achieved our goal of remaining at 3 or below, and we have actually far exceeded the ambition as well. So very pleased with that. So now I hand over to Christina, who will take us through the details of the quarterly financials. Welcome, Christina. Christina Rubenhag: Thank you, Fredrik. We had a stable growth in the quarter after a very strong fourth quarter last year. Organic and acquired revenue growth was 2%, while adjusted EBITA growth was 5%. In the quarter, we had negative effect from currencies. And looking at revenue, it was minus 5%, and the EBITA was impacted with minus 7%. We have 2 financial targets within AddLife. One is to improve profit with 15% year-over-year. On the long term, this is supposed to come approx half from acquired and half from organic growth. Looking at 2025, organic growth was 10% and acquired growth contributed with additional 2%. Then we had FX impacts in the quarter. So total EBITA growth for 2025 was 8%. So including currencies, sales growth was minus 3% in the quarter with organic and acquired growth of 1%, respectively. We had stronger gross margin. This is due to price management, also increased prices in new tenders and the product mix where we are moving towards more advanced high-margin products. We had higher OpEx in the quarter as well, driven by growth investments and also some specific projects. The adjusted EBITA margin was up to 12.4% in the quarter compared to 12.3% last year. Also, lower interest costs continue to have a positive impact on the profit and loss. And then adding divested operations, profit before tax increased with 129%. EBITA margin is clearly in a positive trend. Looking back to 2023, we were at 10.5%, increasing to 11.3% and now we end 2025 on 12.1%. Looking at the fourth quarter, Labtech margin remained at a high level of 14.1%, same as last year, while Medtech increased to 12% from 11.6%. Full year EBITA margin has also increased for both business areas. They are approximately at the same level now. Labtech, 12.5% and Medtech is on 12.4%. An increasing EBITA margin has been a focus area throughout the last 3 years, and that remains a top priority moving into 2026. Operating cash flow is normally high in the fourth quarter, and this year was not an exception. We delivered almost SEK 900 million in the quarter and for the full year, it was SEK 1.4 billion. Also cash conversion remains high at 111%. Excluding sales of operation, it was at a high 98%. And to be above 100%, that is a little bit too high. So going forward, probably in the range of 95% is more realistic. And of course, focus on working capital efficiency remains a priority also in 2026. Working capital contributed with SEK 426 million in the quarter. And here, we had lower inventory. We had strong collection of accounts receivables and also account payable was higher. Looking at inventory towards sales, we were at 16% throughout 2025, slightly better compared to '24 that was 17%. Acquisitions in the quarter relate to Pharmacold and Opitek. Net debt was reduced with almost SEK 800 million in the quarter. With majority of the loans in euros, here, we had a positive impact from currencies. But the main reason for the net debt to be reduced in the quarter was due to repayment of loans and increase of cash. When we talk about net debt, we include in addition to bank loans and deducting cash, lease liabilities, contingent consideration, pension liabilities and provisions. Net debt in 2025 decreased with almost SEK 900 million. And at the end of the year, leverage were at 2.2, which is clearly below the target of 3 or below that we set up for ourselves. Net debt towards adjusted EBITA was 2.5. The second financial target for AddLife is to have a profit over working cap of above 45%. 2025 ended at 62% compared to 51% last year. And debt has been reduced via self-generated cash flow. And entering into 2026, we now have a balance sheet that supports both organic and acquired growth. And with that, I hand over to Fredrik again. Fredrik Dalborg: Well, thank you, Christina, for that thorough review, and now we will get into the business areas summaries. So starting with Labtech. As you may remember, Q4 of 2024 was a very strong quarter for Labtech. And this quarter, we saw currency adjusted revenues declined a little bit by 3%. We're really pleased to note that the EBITA margin were maintained in spite of that slight drop in revenue. So we are still at 14.1%, same as the corresponding quarter last year. So that's very healthy. We saw a little bit less instrument sales in this quarter compared to last year. And in that last year quarter, we had a very high level of instruments being delivered linked to various tenders that we won. In the market in general, there has been some hesitation with academic market sales. We saw that this quarter also, but slightly better, I would say. We also saw a little bit of caution in the pharma industry segment. In the third quarter of this year, we were really pleased to note a very healthy development in Central and Eastern Europe, and we saw that continue into Q4. So that helped a lot, wrapping up the quarter for Labtech in a very healthy way. Moving on to Medtech then. We saw growth, excluding currency effects at 4% and acquired growth was 1%. EBITA margin improved to 12% from 11.6% in the corresponding quarter. Capital sales in the U.K. have been weak for some time now, as many of you have noted. We were really pleased to see that, that actually improved in the fourth quarter. So that's great news. As I mentioned earlier, we have an agreement with a supplier to hand over the endoscopy business in U.K. and receive the consideration for that. Elective surgery in general in the European market tended to be relatively flat. The patients list weren't really shrinking. And on top of that, we also had strikes in U.K. as well as in Spain during the month of December. So number of surgical procedures was relatively low. But anyways, a good growth in the Medtech business and also helped by a healthy development in Homecare, which we think will continue going forward. We talk a lot about improving margins, and that is indeed a key activity for us, actually what we have chosen to prioritize the highest. So what are we actually doing? We are working on margin improvement initiatives in the eye surgery business, we are strengthening the margins in Homecare. We are working with specific initiatives in the companies where we see further improvement potential. And then on a more general level, we are always driving gradual and continuous performance improvement programs across all companies. This is a key piece of our business model. We are also pruning our product portfolio, removing products that are less profitable and adding new and advanced high-margin products. We are also increasing the share of own products. And of course, the acquisitions we make are focused on higher-margin segments and are expected to contribute to this positive development in terms of margin. And we do these activities, we drive them, of course, starting with our fantastic companies within the group. They are all led by strong and empowered leadership teams, and they have a very nice entrepreneurial spirit that we like to see. So they are very strong in this continuous work to improve margins. They are also supported by a group of experienced business unit leaders. We are also leveraging the activities we have within AddLife Academy and a strong group of business controllers. And on top of that, the companies together with the business unit leaders work on an acquisition agenda improving margins over time. So with this, we have a lot of activities ongoing. We have seen a lot of good results, and we do expect those results to continue. I also want to highlight our unmatched European coverage. This is something that we have been working on for quite some time, creating a pan-European footprint. So of course, our origins in the Nordics are strong, but we are very strong in Western Europe, Central and Eastern Europe as well as Southern Europe. This is important for us because it gives access to a very large market. It gives us more supplier opportunities. We are also able to choose from a broader range of acquisition targets, which is quite powerful because we can be selective and really choose the acquisition targets that are attractive in many ways, including healthy multiples. So -- and I also want to move forward to acquisitions now. Again, acquisitions are again becoming a very important growth driver for us. And in the month of December, we were very pleased to welcome 2 new companies to the AddLife family, starting with Pharmacold, which is a specialized in highly customized refrigeration technologies as well as services for the pharma industry and for the health care sectors. Together with Holm & Halby's customer base and regulatory know-how, we see great potential for these highly customized products and to grow that business even further. So a very nice and healthy acquisition here, relatively small, but with great potential. Another acquisition that we concluded in the month of December is a Danish manufacturer specializing in patient positioning products that address both staff ergonomics as well as the patient safety. We have worked with this company for many years. We know the products well, and they are really well renowned in the market. This business will become part of Mediplast and very much in line with the strategy that we have to increase the share of our own products. So a nice addition to the business and very much in line with the strategies that we have laid out. So very happy to also welcome Opitek to the AddLife family. So to summarize the quarter, we are very pleased to note that the margin improvements, they do continue in the fourth quarter as well as for the full year, of course. And we are working diligently on these efforts, and we do expect further potential to improve the margins going forward. Of course, currency effect impacted revenues, but organic and acquired growth were positive compared with a strong Q4 in 2024. We're very pleased with the fact that net debt-to-EBITDA is now at 2.2. So this means that our ambition to reduce it below 3 has been achieved and exceeded. With this, we have strengthened the balance sheet, and this enables us to really pick up the pace with acquisitions again, which we did already in December, and we expect a lot of activity going forward. So I can really say that we look forward with confidence and enthusiasm to a strong 2026. Thank you very much. And with that, we open up for Q&A. Fredrik Dalborg: All right. So thank you for listening into the presentation. And now we are ready for questions. And I think we see a few of you having raised the hands already. So [ Philip ] maybe you can start and don't forget to unmute. Unknown Analyst: I hope you can hear me now. Fredrik Dalborg: Yes. Christina Rubenhag: I can. Unknown Analyst: Starting on the U.K. market recovery, positive to hear that you're seeing some early signs there. Could you elaborate a bit on the momentum you're seeing entering '26 and what you're seeing throughout the coming year here? Fredrik Dalborg: Yes, of course. Thank you. Good question. So as you may remember, we have seen for really the whole year a bit of a hesitation in primarily capital spending and capital investments in the U.K. market. And we're pleased to note that in the fourth quarter, that actually started to improve again. So that's a healthy. Sign. Looking at the general trend in the U.K. market, there was a little bit of a, I would say, subdued surgical procedures because of flu and also strikes and whatnot. But capital really did pick up. So we're pleased to note that. So that's a good sign also for the future. We can also note that as we have stated before, the NHS has become more and more clear in their vision for the future, where after the election immediately was relatively big. It's become more and more focused and clear what they are planning to do and in January, we have seen further statements talking about robotic surgery, talking about AI, talking about gene sequencing, things that we, as a group, are quite engaged in. So I think these are all positive signs. I hope that's an answer to your question, [ Philip ]. Unknown Analyst: Yes, of course. Good. And while we're on the notion of U.K. and also perhaps Spain, the strikes in December, early December, is it possible to quantify that impact or give any indication of how large that impact was? Fredrik Dalborg: A little bit tricky, but I think we should look at it as a few days of lost surgical procedures. So a few days of lost sales in U.K. as well as in Spain. Unknown Analyst: Sure. Makes sense. And then perhaps finally for me, and then I'll get back into the queue. You talked about an improvement in home care market, which is positive, of course. How sort of -- what's your visibility on it? And how sustainable is it? Is it throughout the year? Or is it a few months or... Fredrik Dalborg: Well, I think we're starting to see signs of improvement, but we still have work to do. I mean it's still an area where we think there is further growth and margin improvement potential. So there are a few things that are going on here. We have a few initiatives that have been worked on with -- in terms of product launches and so on that are now starting to show signs of really picking up the pace. So that's exciting that a lot of that is on the technology side. On top of that, we have also seen in multiple countries, a healthy trend in terms of construction. So some new care homes and so on that are being built or being planned to be built. So I think the outlook is in general in that market is improving. And our internal initiatives are also starting to show signs of results. So more work to do, but some positive direction there, I think we can see. All right. Thank you for good questions. So I think we have Ulrik here. Ulrik Trattner: Yes, hopefully, you can hear me, all right. Fredrik Dalborg: Yes, we can. Yes. Ulrik Trattner: A few questions on my end. You commented on a slightly softer Labtech market, especially in Denmark and a bit of caution from the pharma companies. Is that something that you see broad-based and something you potentially could elaborate a little bit about? Fredrik Dalborg: Well, not super broad-based. I think it's quite primarily a Denmark thing where we see a little bit of hesitation just very recently. We're not super worried about it. I think there is a healthy underlying market and growth there. So I think in 2026, that should pick up again is our expectation. So nothing dramatic there. But looking at our numbers, Denmark came down a little bit on the sales side, partly currency, but also a little bit of a slower activity. But again, we do think it's temporary. Ulrik Trattner: And just general on the market conditions because I remember like 1 year ago, we did see a trend shift in tender activity. You entered into a few higher-margin tenders, and that looks to have continued throughout '25. So can you just give us sort of the state of the sort of tender market where we're at versus what we entered into '25? Fredrik Dalborg: I think we're -- we have seen the impact of these tenders. There were quite a few in fairly short period of time that we were successful in winning and those instruments were installed -- a lot of it were installed back in Q4 in 2024. So that was a bit of a peak on the instrument sales there. Of course, we have been benefiting from those sales related to the instruments that were installed. So the consumable sales have been supporting us throughout the year and will continue to do so going forward. Tender activity in general, I think it's normal, I would say, activity ongoing for sure, but sometimes there's a little bit more sometimes there's a little bit less quarter-to-quarter. But then overall, no trend shift really, I would say. I hope that's answer your question. Ulrik Trattner: Yes, yes, absolutely. That's perfect. And you sound optimistic about continuous margin improvements. And you guys have spoken before that there is improvements to be done in Homecare. And you've done a lot of tail cutting on the Medtech side generally throughout '25. Have you seen the full effects of the tail cutting? And are you done on that end where you feel -- obviously, there's some natural tail cutting going on, I guess, in your business, but majority of it is done in '25. And second question would be then the follow-up if you have enjoyed sort of the full effects on the margin side from those cutting out lower-margin products? Fredrik Dalborg: There were a few bigger measures taken during the year, you're correct. So we've seen that playing out nicely. So -- but the evolution of the product portfolio, it continues. And so there, I'm sure that we will be looking at portfolios and taking out less interesting products. For sure, we are adding a lot of new things. So I think the -- over all of 2025, we've increased our activity in terms of business development, finding new suppliers. And that has generated a number of new products being brought into the portfolio. Some of them have started to sell, but sometimes it takes time, especially if it's a novel technology and these activities and increased resource, both in the larger companies, but also using our network to support the smaller companies evolution of the portfolio. So I think more to come in terms of continuous addition of advanced products for sure. Ulrik Trattner: Great. And last question on my end before getting back into the queue. Can you say anything about the margin profile of the divested endoscopy business, if it was on par with rest of Medtech or roughly where they were at? Fredrik Dalborg: Yes. It was a healthy margin business for sure compared to the Healthcare 21 other product line. So good margin business. All right. Thanks, Ulrik. So now we move forward, so we have Albin here, right? Are you ready for us? Albin, are you ready for us? Daniel Albin: All right. I think I will stay on the margin side here. We've never seen such high gross margin in Q4. And of course, you're working with it, focusing on it. But is this just like the new focus? Or is it some timing effects as well? And how should we think about the gross margin heading into '26? Fredrik Dalborg: Yes. I think. Do you want to comment on that, Christina? Or is it something... Christina Rubenhag: There's no one-offs into it. No, it's more the result, I think, of the continuous work that has been done during the last 3 years. Fredrik Dalborg: So nothing dramatic disturbing the comparison, I would say. I think it's -- like Christina said, something we have prioritized and something that we're working on and something that every company is contributing to. Daniel Albin: All right. That's good to hear. And then on the M&A pipeline, you're now down at 2.2x net debt-to-EBITDA impressively. So can you give us an update on the pipeline? And how do you find the competition and pricing in the market currently? Fredrik Dalborg: Yes. No, I think we're very pleased that we have reached a really good level on the net debt-to-EBITDA. So we can put these concerns about balance sheet behind us. That's nice. We have been expecting this and preparing for it, right? So we have over the last almost 2 years, been gradually gearing up the activity and resource that are focusing on acquisitions. So the business unit leaders are driving their respective agendas for what type of acquisitions they want to make, and they are supported by a strong team of transaction specialists here in -- at the head office. So this pipeline looks healthy. We have a number of discussions ongoing, and we have a pretty clear plan of what we expect to do in the coming quarters. So I think we are optimistic about it. And then, of course, we are picky. We do stick to our criteria. We are picky about valuation and so on. And since we have a quite long list of attractive targets and we can search all over Europe, as we mentioned earlier, we will be picky when it comes to quality of company and the valuation as well. But I think it looks good. So we're excited about it. Daniel Albin: That's clear. And then looking at net sales per country, I just noticed that rest of the world is now down at SEK 2 million. Maybe I missed something here, but what does that stem from? And is that part of the plan? Fredrik Dalborg: Rest of the world, I think that's primarily China, Australia, U.S. to some extent, yes. So it's coming down a little bit. Well, I think we're clearly seeing some of our companies that are selling into the U.S. market, primarily research, certainly feel a change in behavior there. But it's -- on a group level, it doesn't really move the needle. But for those companies, it's obvious. And now let's move forward to Jakob. Let's see. I think he's still on mute, right? Jakob Lembke: Can you hear me? Fredrik Dalborg: Yes, we can hear you. Jakob Lembke: My first question is on the Medtech EBITA margin. Just to understand -- or looking at the U.K. on the sales, it seems that the U.K. actually grew in the quarter but you still say that the profitability is down from the U.K. [indiscernible]. Fredrik Dalborg: Well, I think if we look at the U.K. for the whole year, it's been negative, unfortunately, in the first 3 quarters. But now it improved significantly in the fourth quarter. So we're pleased about that. And it was driven to a large extent by more capital sales. So that's exciting. So the question there on the profitability, I think that we received a question earlier that asked about business that we're discontinuing and whether that was a high or low-margin business, I would say it's a good margin business in line with what we normally see in the U.K. market. So that's how we would look at it. Is that -- was that the question you asked? Jakob Lembke: Yes, not really. I mean, if I recall correctly, you had quite good sales to the U.K. a year ago. And now you were able to grow that earnings contribution from the U.K. in this quarter as well despite the sort of negative impact from flus and worse operating days and so on. Fredrik Dalborg: Yes. I think the conclusion is that a number of surgical procedures hasn't really grown. It's been a little bit challenged by flu and strikes and whatnot. But it's been holding up, so to speak. And then on top of that, we've seen a marked pickup when it comes to capital. So that's good. I mean it's been a bit of a challenge, a decline over the past few quarters, but now it's changed direction. So that's a positive. Jakob Lembke: Okay. Then just if we look forward, last year, I think Q1 was clearly the strongest quarter in terms of EBITA margin for Medtech. Is that still what we should expect in 2026? I know there's a sort of U.K. budget effect in Q1. Fredrik Dalborg: Yes. I think we don't want to really make any projections or forecasts or outlooks for coming quarters. But normally, we do see Q1, the final year of the fiscal year for NHS is normally strong. Of course, the discontinued business, there might be in previous years, some sales related to that, that will not happen in Q1. But other sales will. So that's to keep in mind. But apart from that, I don't want to give any real outlook for the coming quarters. But of course, we -- in general, we are -- we think many parts of our business is really picking up the pace, and there's a lot of stability in other parts. So I think overall, we're very optimistic about the future. Jakob Lembke: And just a short follow-up. The divested business, is that more capital or consumables? Fredrik Dalborg: Mix. Capital and consumables and service. Jakob Lembke: Okay. And then just a final question, sort of a follow-on on the M&A pipeline. If you can talk a bit about sort of what type of companies you have in the pipeline and also the size, if -- it's more smaller companies or larger ones? Fredrik Dalborg: Well, yes, I think we have a good mix in the pipeline. We're actively in active dialogues with a few and then analyzing a number of others and so on. So it looks pretty healthy. We are sticking to our criteria, which means that the company should be below EUR 50 million in turnover and the sweet spot is probably lower than that, say, EUR 10 million to EUR 30 million, somewhere in that neighborhood, EUR 10 million to EUR 30 million of turnover. And they should also be in areas that we understand and then we have a good knowledge base to assess the companies. We love the entrepreneurial ones, of course, prefer to buy companies from entrepreneurial owners. So we're sticking to the plan here. And of course, what we can look at the previous acquisitions, I think Edge and BonsaiLab are excellent examples of acquisitions we like to see. The ones we made in December are also great additions, but they are a little bit on the small side. So a little bit -- little bigger than that, but certainly not the very big ones of 2021 and 2022. Christina Rubenhag: And of course, an EBITA margin contributing to the growth as well. Fredrik Dalborg: Yes. Of course. So I hope that gives some clarity, but hopefully, we will be able to communicate more about that in the not-too-distant future. And now we have Mattias. I think, he's on mute. Mattias Häggblom: I had only a few left. So -- but I'm going to try and push you a bit more on the M&A side. So you state in the report you will be fully able to execute your growth plan for both organic and acquisition-driven growth. So is it possible to give us maybe a number or range in terms of your aspiration for '26, if not at least compare with the contribution from M&A in 2025, which added 1%, so which is obviously below -- it's a more towards the right direction. But should we think about a 5% to 7% contribution? Or what -- obviously, dependent on deals and signatures, but your aspiration would be interesting to hear. Fredrik Dalborg: Yes. Something like that, Mattias. I mean, traditionally, we have said that to achieve our 15% profit growth target, roughly half of that should come from organic and half of it from acquisitions. And in the past, we're kind of proud that we have almost achieved that 15% through organic activity. The organic activity will continue, no doubt. But in 2026 and beyond, we should get back to that more of that mix of roughly 50-50 over time. So that means a few more acquisitions. So we have 3 in 2025, right? So it's going to have to be a few more than that. Mattias Häggblom: That's helpful. And then with regards to the divestment and the SEK 140 million in revenues, obviously, you spoke about Q1, so obviously, no more shipments there. But then in the report, you talked about an ability to gradually replace it over time, but perhaps not already in '26. So talk about that process in terms of gradually replacing. Fredrik Dalborg: Yes. So I think that's a great point. That's something -- first of all, I would like to say having a setup like this where we hand over a business to a supplier is fairly normal, right? This is something that happens all the time in the life of a distributor. What sets this apart a little bit is we really got handsome payout for all the work we've done to build that business. So that's a positive in many ways. And then, of course, this is something we know happens from time to time. So we work in a continuous way to add new products to the portfolio. And we like to add more products and to broaden the portfolio as well as evolving it towards even more advanced products. So this has been ongoing for a while. We don't expect and actually don't want just one quick replacement of the same size. We would rather have a few more products added to it. And of course, that's not starting now. That's been ongoing for a long time now. So the gradual addition of products has started to happen and will continue during the year. I think, will there be a big chunk of the business immediately replacing it of the same size coming in Q1? No, but it's been ongoing for quite some time. So I would say a gradual replacement of that business is already ongoing. Mattias Häggblom: That's helpful. And final question for me. You spoke about products that were discontinued due to shaping the portfolio towards more higher-margin products. I didn't catch if Christina perhaps quantify what portion of sales that were discontinued during the year to help us understand the bridge from 2024 base to where you ended 2025. Christina Rubenhag: We haven't really quantified that. But then if we look at the mix of everything that then it's approx 1% [ reduction ] yes. Fredrik Dalborg: Gustav, yes. Gustav Berneblad: It's Gustav here from Nordea. Just to come back to Medtech here and our favorite topic of AddVision. In terms of that margin, can we get some sort of ballpark indication of how that is progressing here? Is still within the range of mid-single digits? Or what's your view there? Fredrik Dalborg: Yes, mid-single digits. It is improving over last year, not dramatically, but it is improving. It's better than last year Q4. So that's, that's nice. We have actually taken quite a few measures within that group in this quarter as well, the things that we have seen that needs to be addressed and have been addressed in the quarter. So that gives us further confidence in the direction of the British and German business. In other parts of the business, I think as you know that we have, what I would say, achieved a good level of stability and a nice trajectory. So that's great. So now with these measures, we hope that the same thing will apply for all the parts of the business. So mid-single digits still improving, but of course, lots of more upside, I would say, in that business before we are happy with it as it stands. Gustav Berneblad: No, that's perfect. Then do you expect effect already here in 2026 from these measures you have taken here recently or... Fredrik Dalborg: Yes. Christina Rubenhag: Yes. Fredrik Dalborg: Yes. We're aligned there. Gustav Berneblad: And then in terms of Labtech, just as one final question here. Given that you saw, I mean, lower instrument sales in Q4 and of course, I mean, compared to Q4 last year was a strong quarter, we know that. But in terms of the Labtech margin, I mean, did you see a net positive mix effect on the margin coming from gene sequencing? Or how would you describe it? I mean, we saw organic growth down 3%. So just to get a better understanding there. Fredrik Dalborg: Yes. I think it's a good point. I mean we didn't have the same level of instruments as the somewhat unusual Q4 of last year. So we're actually quite happy with the fact that we remained at 14.1%. That's a very healthy margin. So I think you're correct. There is a healthy underlying trend in that business. Some of the businesses are gradually improving, great customer relationships and strong supplier relationships and also doing an excellent job in adding new products. Others still have some work to do in -- primarily those on the research side, where we had seen a little bit less stability in demand, but I think we have a quite impressive product portfolio, and we see good evolution in those areas. We have made some changes also there in the past few months. So I think we're confident that we are on the right track there as well. So I think it's a healthy business, but there is also room for improvement. Gustav Berneblad: Okay. So it sounds more like it's structural rather than a temporary mix -- positive mix effect in Q4 then? Fredrik Dalborg: Yes. I would say there's a structural improvement underneath, so to speak. Okay. So now let's see. Do we have any more questions? None seem to be raising their hand. But thanks, everyone, for listening in, and thanks for great questions. And you're all free to e-mail or call afterwards if you want to follow-up on specific topics. So with that, we wrap up. But I do encourage you to stay on to see the video about Biolin. Biolin is a very exciting company, developing and manufacturing really advanced products for the research field. So please take a look at that if you have a few more minutes to spare. Thank you very much, and take care.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the trivago Q4 Earnings Call 2025. I must advise you the call is being recorded today, Wednesday, the 4th of February 2026. We are pleased to be joined on the call today by Johannes Thomas, trivago's CEO and Managing Director; and Wolf Schmuhl, trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflects management's view as of Tuesday, February 3, 2026, only, unless expressly stated otherwise, in which case, it reflects management's view as of today, Wednesday, February 4, 2026, only. Trivago does not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to the Q4 2025 operating and financial review and trivago's other filings with the SEC for information about factors which could cause trivago's actual results to differ materially from these forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted on trivago's Investor Relations website at ir.trivago.com. You are encouraged to periodically visit trivago's Investor Relations website for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2024. With that, let me turn the call over to Johannes. Johannes Thomas: Good morning, and thank you for joining our Q4 2025 earnings call. We are thrilled to share the results of an exceptional year 2025, and our fourth consecutive quarter with double-digit year-over-year growth in Referral revenue and higher-than-expected profitability. For the full year 2025, we exceeded both our top and bottom line expectations despite material FX-related headwinds, delivering 19% year-over-year total revenue growth and EUR 15.8 million in adjusted EBITDA. We closed the year with an exceptionally strong fourth quarter, achieving 27% year-over-year total revenue growth. In 2025, our strategic theme for the year was turning the tide, steering our focus on making our turnaround a reality. In 2026, we are rallying behind the theme, optimizing momentum, pushing frontiers, striking the right balance between growth and marketing discipline while continuing to innovate at the leading edge of our space. Our long-term strategy is playing out. We are confident that our brand and product flywheels can continue to drive growth and profitability. For 2026, we expect double-digit total revenue growth and are targeting at least EUR 20 million of adjusted EBITDA. Despite strong comparables in the first half of the year, we anticipate our fifth consecutive quarter of double-digit total revenue growth in Q1 at higher profitability compared to previous years. Let me now highlight a few developments of the past year that demonstrate our outstanding progress the trivago team has achieved since Andrej, our CPO; Jasmine, our CMO, and I returned to the company in mid-2023. Our increased brand marketing investments since mid-'23 are paying off. Branded traffic revenue growth has outpaced top line revenue growth significantly in the recent years. We are seeing compounding effects and sustained attractive return on incremental brand marketing spend. Our core hotel search product continues to advance quickly. In 2025, we have improved our conversion reaching 37% increase versus 2023, materially enhancing our unit economics. These gains are powered by AI and hundreds of experiments each quarter. We have evolved our member proposition, driving revenue from logged-in members to more than 25% of Referral revenue, a 93% increase in Q4 2025 compared to Q4 2023. Our investments in empowering partners are translating into meaningful gains. Our partners reach more qualified leads than ever, and our transaction-based CPA model continues to exceed expectations. More than 140 partners have adopted this operating model and over 25% of Referral revenue is now processed under this model. Referral revenue flowing through our higher-converting trivago Book & Go funnel has increased by 137% in Q4 2025 compared to Q4 2023. Zooming out, we believe we are well positioned within a $1.6 trillion travel market with hotels representing about $500 billion of that opportunity. Our recent research shows that roughly half of travelers prioritize value for money and competitive prices. More than 40% of travelers compare prices between different booking sites. Our deal-oriented value proposition is tailored to this need, giving us conviction that we have a substantial room to grow. Let me now recap our key success drivers behind each of our strategic pillars and outline our priorities for 2026. For additional detail, please refer to our investor presentation on ir.trivago.com, which further demonstrates our progress and the points I'm about to cover. Our first strategic priority is to drive growth through brand marketing. Our brand engine continues to gain momentum. Our brand marketing team has run campaigns in 30 countries and have delivered success across all geographical segments in 2025. Our AI-powered summer campaign featuring global icon and soccer coach, Jurgen Klopp, has proven very effective, and our winter campaign started with promising results. In the last quarter, we followed a different approach compared to previous year. We leaned into LatAm markets, which have a different peak seasonality, and invested in other key markets where we identified exceptional opportunities that we chose to exploit. We're consistently improving brand marketing efficiency and have expanded into new brand marketing channels. We remain disciplined and invest behind what we see is working. In 2026, we will continue to increase brand marketing spend, primarily in the markets we have focused on in the recent years. However, the pace of growth and brand spend will be substantially lower than in the past years as we are now getting closer to our target brand marketing investment levels. Our priority will shift from entering new markets to further optimizing existing ones. Unlike prior years, when profitable regions subsidized newly activated markets to a greater extent, we expect a slower growth in incremental brand marketing spend, combined with compounding effects of the past investments to make us progressively more profitable in 2026 and beyond. Our second strategic priority is to enhance our hotel search and price conversion experience. In 2025, we significantly increased the number of tests run on our platform, delivering meaningful product improvements and conversion rate gains. Advanced machine learning and LLMs have enabled us to develop and scale AI-powered features that are broadly adopted by our users. Our AI highlights and AI review summaries are changing how people discover and evaluate hotels in every search on trivago today. Our AI-driven natural language search allows travelers to search hotels in entirely new ways. We launched our AI Smart Search in Q4 2024, becoming the first hotel search platform to offer this capability. It's an advanced free-text search powered by large language models that lets users find hotels using natural conversational queries. Since the launch, we have steadily increased its visibility, continuously refined both the UX as well as the underlying logic. As a result, we are seeing growing user adoption. Our member proposition continues to strengthen as well, which we expect to improve retention. The key drivers behind this success are the exclusive rates that our partners provide to our members and our enhanced ability to personalize search results. Looking ahead to 2026, we will maintain our relentless focus on improving our core product. We see clear upside in further increasing conversion through high-velocity testing. We will continue to invest in AI-powered features that are central to offering a superior hotel search experience. We aim to lead on price perception, offering great deals and making them easy for users to find. We will also stay focused on expanding our member base. In addition, we will double down on trivago Book & Go, which we aim to integrate more deeply in our user platform's journey with a goal to facilitate a more seamless booking experience that further elevates conversion rates for our partners and trivago. Our third strategic priority is to empower our partners to realize their full potential on our platform. Our transaction-based CPA model has seen broad adoption among small and midsized partners. These partners often lack resources and data scale needed to optimize bids and exposure effectively in our auction. By shifting risk and optimization complexity away from bidding, the CPA model helps smaller partners compete more effectively in our marketplace. Going forward, we will continue to deliver highly qualified users to our partners, equip them with even better tools and increase our efforts to help them optimize their rates on trivago. In particular, we will focus on working with our partners to deliver more exclusive deals to our members. Finally, let me share my enthusiasm on the evolution of AI. I see this as a huge opportunity for our business and shareholders. Our vision is to operate with 600 people as if we were 6,000. We are fast, nimble team adopting AI in every possible way, using it to amplify our marketing impact with previously unimaginable features for our users, and boost our team's productivity day by day. In short, we are doing far more without expanding our workforce. With that, I'll hand over to our CFO, Wolf, for a more detailed financial review. Wolf Schmuhl: Thank you, Johannes, and good morning, everyone. We are excited to report that the fourth quarter reflected our profitable growth trajectory with a year-over-year total revenue growth of 27%. For the full year, we achieved total revenue growth of 19% year-over-year, a net income of EUR 11.2 million and an adjusted EBITDA of EUR 15.8 million, despite FX-related headwinds. Our brand strategy as well as our continuous product improvements led to an all-time high in our conversion rate, which significantly improved our unit economics. Let's review our fourth quarter results and our 2026 outlook. Unless otherwise indicated, all comparisons for 2025 are on a year-over-year basis. In the fourth quarter, our total revenue reached EUR 120 million, representing a 27% increase compared to the same period in 2024. We are pleased to note this marks our fifth consecutive quarter of total revenue growth. This growth was driven by yet another quarter of strong year-over-year double-digit Referral revenue growth of 20% in Americas, 16% in Rest of the World and 15% in Developed Europe. We achieved this despite FX-related headwinds of approximately 5% globally. The growth was primarily driven by increased branded channel traffic in response to our ongoing brand marketing investments. Strong creatives and the diversification of our branded marketing channels create further potential to scale and reduce our dependency on search engines. During the fourth quarter, we reported a net income of EUR 14.5 million and achieved a better-than-expected adjusted EBITDA of EUR 11.3 million. Operational expenses increased by EUR 26 million, totaling EUR 113 million for the fourth quarter. This was mainly due to a EUR 19.7 million increase in selling and marketing, resulting from higher brand marketing investments made over the course of the quarter and incremental expenses resulting from our acquisition of trivago DEALS, formerly Holisto. Advertising spend increased by EUR 9.8 million or 43% in Americas, EUR 4.3 million or 31% in Rest of World, and EUR 3.8 million or 18% in Developed Europe, driven largely by increased brand marketing investments in all trivago core segments. Due to the scaling of our brand marketing investments in this quarter, global ROAS decreased from 162.9% in the prior year to 147.9% in 2025. We observed a reduction in ROAS year-over-year across all trivago core segments during the fourth quarter with Americas decreasing from 159.6% in 2024 to 137.5% in 2025, rest of World decreasing from 148.3% in 2024 to 131% in 2025 and Developed Europe from 176% in 2024 to 173.8% in 2025. As of December 31, 2025, we held EUR 130.9 million in cash and cash equivalents and no long-term debt, underscoring our exceptional financial position. Although we are facing tough comps in Q1 and Q2 2026, we are off to an encouraging start in line with our expectations. We will maintain cost discipline and keep our headcount stable by leveraging AI. We will further scale our brand marketing investments, but on a lower level compared to previous years, and make use of compounding brand effects in order to gradually increase profitability in 2026. For 2026, we expect double-digit percentage total revenue growth and an adjusted EBITDA of at least EUR 20 million. With that, let's open the line for questions. Operator, we are now ready to take the first question. Operator: [Operator Instructions] Your first question comes from the line of Naved Khan with B.Riley Securities. Please go ahead. Naved Khan: So my first question is just a little bit of clarification on the guidance. So for the double-digit growth in 2026, how should we think about the growth in Referral revenues because you do have some contribution from the Holisto acquisition? Should we expect Referral revenue to also grow in the double digits? And then maybe a related question is, pre-COVID, I think you had around over EUR 800 million in Referral revenue, and you had kind of set out an aspiration goal of getting back to those kind of levels. Do you still expect to get back to where you were pre-COVID levels? And I think the EBITDA margin around the time was around 6%. So how should we think about that over the kind of medium term? And then maybe just a clarification on the brand advertising channel. I think you talked about kind of finding a new opportunity. Can you just elaborate on that a little bit, if it's offline or online? And what's the opportunity to scale that channel? Wolf Schmuhl: Naved, here's Wolf. Thanks for your question. So let me start with your first question and clarify on how we want to give guidance from now. We decided and we also mentioned it in the last earnings call that from now on, we will only give guidance on total revenue. Why do we do this? We think it's more meaningful because when you look at Referral revenue as a proxy for the development of trivago Core, this is from our perspective not meaningful anymore because you will have a distorted picture because -- and this is also described in our 6-K, if you look only at the Referral revenue, because we presented after intercompany elimination. And therefore, the part that is related to trivago DEALS is not included. And it will be added as other revenue, and then you end up with a total revenue, which is, I guess, a meaningful picture from our perspective. And another important point, which is important in this context is that the more trivago Book & Go will gain traction in the future, the more this picture that you miss when you only look at Referral revenue will be distorted. We will only give guidance on the total revenue and so on a consolidated level. And yes, here we are with a double-digit top line growth. And what maybe one other point that I would like to mention is, or what I can say is, that we saw an encouraging start in January, in line with our expectation for Q1, which is double-digit top line growth and improved profitability. That's it on the first question. Johannes Thomas: Maybe I can talk about aspirations. And I think two things here. You mentioned 2019 numbers. It remains our aspiration to get as close as possible towards that. But it's not like a hard goal we want to achieve. It's more an outcome of executing what we do in marketing. We are more disciplined in performance marketing, and we are not after just generating volumes. We are after driving branded traffic revenue growth, which means we are increasing our ad spend. We increased our marketing efficiency. We increased the impact of our creative. And we think we do still a substantial increase in brand marketing investment this year. We will also see brand marketing investments in the next few years, but there will be a degressive curve. So the increased spend will kind of slow down, and then the revenue is more an outcome because in terms of percentage -- in terms of profitability, we want to get to around 10% adjusted EBITDA share rather in the next few years. And from there, then decide, do we expand into new markets or do we further focus on expanding profitability and margins? And that's still open. But I think in the short term, you should think about 2019 is the aspiration. Whether it's EUR 800 million or EUR 700 million, I think we will figure that out. We're not dogmatic about it. What's then important for us is to expand the bottom line, deliver a solid outcome and then decide, do we continue to lean into growth? Or do we focus more on margin? And this decision is part dependent and we will take in a few years. And then the brand marketing, I think I explained a bit the brand marketing strategy around the incremental spends being degressive and slowing down. I think this year, what you have seen in this quarter, the ROAS has been lower compared to previous year and even the previous year, the year before that. Typically, we had a higher ROAS in the fourth quarter. The major reason is that we've leaned into LatAm markets. Latin American markets have a different seasonality, that peak seasonality is around these times. So it's basically a flipped peak seasonality in Europe. And in the U.S. also, it's around July June, August and in Latin America, it's the opposite side. We have leaned into those markets. They used to be very successful. Last year, we made a big leap in becoming more successful in these markets. And we doubled down this year in those markets in Q4. That's why you will see the ROAS is lower in terms of dynamics. And then we have also other markets where we saw opportunities and how you can think about that is, we are around the world talking to media stations and marketing outlets. And when we see there's opportunity and being exposure available for an attractive price, we would take that opportunity and as we expect, a very attractive return on that. We have seen that in Q4. So we saw opportunities to lean into in other key markets, and we have done that as well. I think that's maybe how you can think about Q4, and what we did differently compared to previous years. Naved Khan: Excellent. Thank you very much, and keep up the good execution. Johannes Thomas: Thank you. Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Dae Lee: This is Dae Lee, on for Doug. First one, just talk a little bit about how you will characterize the health of global travel as we sit today? And are you expecting any impact from major sporting events, such as the Winter Olympics or the World Cup on your platform? And then secondly, where do you expect the most benefits to show up from the newer products like Book & Go and CPA model? And can these products drive further diversification in your advertiser base? Johannes Thomas: Thanks for your question. Let me begin with -- I'll give you a quick overview on the travel trends we are currently seeing. So the development we are describing here is based on our internal data for Q4. And we see ADRs were positive in Rest of World, Americas, and Developed Europe were slightly negative. Length of stay was slightly up in all 3 segments, and ABV was positive in Developed Europe and Rest of World, and stable in Americas. When we look at recent search interest based on our internal data for travel that starts in Q1 2026, the clicked ABV overall looks stable. Clicked ABV for Q1 in Developed Europe and Rest of World is positive. And for Americas, it's slightly negative. Share of search interest for 4- to 5-star categories is stable on a global level. And the average travel distance clicked during the fourth quarter remains positive year-on-year, while the mix of search requests for international travel destinations remain stable, except for trips by travelers from Americas, where we continue to see a shift more towards domestic trips by U.S. travelers combined with double-digit declines in travel to the U.S. from countries like Canada, Germany or France. So that's it on the travel trends. Maybe the mega events, we have not modeled anything into neither positive nor negative impact around World Cup or Olympics. It's more a problem with many mega events overlapping each other. We don't see that. And they rather get more people to travel than less. So I think there's nothing we would call out here. We also don't see trends. We certainly see prices up during those periods in the effective cities, but that's probably no news. And then what you asked around Book & Go and CPA, you can see in the share and the partner mix that our mix has become more healthy in the course of the last 2, 3 years after pandemic, which is more -- it's back to where it has been 2019. And we think that's a good level. And part of this development is that I think, in particular, maybe if you compare both, CPA has bigger impact in making partners more competitive. And Book & Go over the course also increased an impact. But it's still compared to CPA, I think, a smaller impact. Book & Go, I think we shared it has grown 137% Q4 '25 compared to Q4 2023. And this trajectory you see also in the investor presentation has been a trajectory that also happened into 2025 and coming -- during 2024 and 2025. We expect this trend to continue and this will further support driving up conversions for our partners and for trivago as a whole. And that will contribute to that as well. Operator: Your next question comes from the line of Stephen Ju with UBS. Vanessa Fong: This is Vanessa, calling in for Stephen. So you previously mentioned Holisto now in trivago DEALS could provide white label booking engine services, particularly for small and medium-sized OTAs and potentially hotel chains. I was just hoping if we could get an update on this opportunity. Johannes Thomas: I think I touched on it a bit in my remarks and in the previous question. So what this means is, we facilitate the booking for our partners. Our priority is not and might be an opportunity in the future is that we kind of power full tech stacks of other OTAs or so on. That's not a priority for us. What we focus on this Book & Go being a channel that completes the booking on trivago on behalf of our partners. And on behalf of trivago DEALS or the underlying product Holista has been operating in the past. And that is developing very well in our platform, and with the main goal of driving conversion. And we outlined that conversion has been up 37% compared to 2023, which means marketing is more effective, which means user satisfaction is a lot higher and that, I think, will be the payoff year and not kind of a separate business line that we are after. Operator: Your next question comes from the line of Wei Fang with Mizuho Securities. Wei Fang: Congrats on the solid growth as well. I just want to double-click on the commentary you're saying you're getting much closer to your plan like brand marketing level, right? And does that mean you will need to maybe shift a little bit of your traffic strategy to some of the other channels on the way? Just wanted to see if you can comment on that. Johannes Thomas: Thank you for your question. I'm not sure if I fully got it. But if you think about how we increase our brand investment, I think I have touched on it before, our strategy is to keep increasing this year substantially in the years ahead, but with less incremental growth than previous years. I think we generally -- what I mentioned is that we have also worked -- that we have also been successful in other brand market and new or additional brand marketing channels, if you are after that. So in the past, we had a strong focus on linear TV. And over the past 2 years, we have tried a lot of new channels from streaming to podcasts to social media, all kinds of new channels that have emerged, and really we're now able to scale because technologically, they evolve very well. And we have diversified into channels. And today, we are less dependent on linear TV. And when it comes to broader marketing channels, we have been very disciplined in performance marketing. As we know, the attractive and the profitable traffic that we get that has stickiness and then also gives us lifetime value is branded traffic, when people come to us directly and they have our brand in mind, compared to performance marketing channels where you have a touch point and then don't have so much stickiness. So we have reduced dependencies on performance marketing channels or on search channels over the course of the year, which was an important step as well, and we will continue to be disciplined on those channels. And I think on the brand channel, we have become more diversified, which was also an objective to get confidence that we have avenues to grow in brands and with a high elasticity when we incrementally invest. Operator: There are no further questions at this time. I will now turn the call back to Johannes for closing remarks. Johannes Thomas: Thank you. I'm proud to be on this journey with such a strong team, and I want to say thanks a lot to everyone at trivago for making our turnaround a reality. Our shareholders can be confident that we will remain focused on sustaining our momentum and be disciplined in executing on our strategy. Thank you to our partners and investors for your continued trust and support, and we look forward to sharing further updates in our next quarterly call. Thanks a lot. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Jutta Mikkola: Hello, everyone, and welcome to Stora Enso's Q4 and Full Year Results Presentation. I'm Jutta Mikkola, Head of Investor Relations, and I'm delighted to be joined here today with our President and CEO, Hans Sohlstrom; and our CFO, Niclas Rosenlew. We're kicking off the webcast with our clear theme, sharpened strategic focus. It reflects the work we've done throughout 2025 and the momentum we are carrying into 2026. Today, we'll start with Hans, who will walk you through the key highlights and our strategic priorities. After that, Niclas will take you through our financial performance and we'll close with the main takeaways and what's ahead of us in 2026. Once we've covered everything, as usual, we'll open the floor for your questions. Thank you for joining us. Great to have you with us. Over to you, Hans. Hans Sohlstrom: Thank you, Jutta, and hello, everyone. Great to have you with us. 2025 was a pivotal year for Stora Enso, marked by decisive actions to sharpen our strategic focus and unlock long-term value for our shareholders. In Q4, we completed the strategic review of our Swedish forest assets, a major milestone and begun the separation to form 2 strong companies, a leading renewable materials company with a sharpened focus on packaging and Europe's largest listed pure-play forest company. We also launched a strategic review of our Central European sawmills and building solutions operations to further focus our portfolio. Despite a challenging environment during 2025, we delivered resilient results with a sales of EUR 9.3 billion and EBIT of EUR 528 million. We continued ramping up the Oulu consumer board line, a key part of our renewable packaging strategy throughout 2025. This weighted on our earnings by EUR 140 million in total during the year, but strengthens our long-term position and competitiveness. Excluding Oulu, the underlying profitability improved across all business areas with Biomaterials the exception due to lower pulp prices. Our net debt to adjusted EBITDA improved to 2.8x, supported by the divestment of approximately 175,000 hectares of Swedish forest land at a value of EUR 900 million and by our ongoing focus on cash flow and cost competitiveness. The Board of Directors will propose a dividend of EUR 0.25 per share at the Annual General Meeting on the 24th of March, 2026. Finally, we hosted a successful Capital Markets Day, where we introduced our new financial targets, strategic priorities and a clear road map for the coming years topics I'll return to shortly. But before that, let's review how we did with our sustainability progress. During 2025, we had strong progress on our sustainability targets. By the end of 2025, we have reduced Scope 1 and 2 emissions by 61% from 2019 base year, well surpassing our 2030 targets to reduce emissions by 50%. I'm also proud to say that Stora Enso once again has been included on CDP's Climate Change A list, highlighting our strong transparency and performance in climate actions. This recognition affirms our dedication to sustainable growth through emission reduction, renewable material innovation and advancing the circular bioeconomy. Additionally, in partnership with IUCN, the International Union for Conservation of Nature, we completed a pioneering project that offers the forest sector a science-based framework for achieving net-positive biodiversity impact. This collaboration helps forestry operations focus on the most effective actions to reduce species extinction risks while maintaining long-term economic value. But now let's look at the new financial targets and strategic priorities that we have set for the next years. Our strategic priorities as set forth in our Capital Market Day are clear. We want to lead in customer value creation, grow our business, expand our margins and generate strong cash flow over the cycle. We will achieve this through our continued actions in sourcing, operational efficiency, commercial excellence, working capital and fixed cost, all underpinned by a disciplined approach to capital allocation. Customer centricity is now at the forefront of our strategy. It drives us to push innovation, quality and sustainability across everything we do. With superior customer offering and the use of advanced technologies, we are raising the bar and setting new industry standards. So how will this show in our performance over the cycle? First, annual revenue growth of about 4% per annum. We have a strong track record of over 5% during the last decade for our renewable packaging business. We are well invested for the next wave and we will continue to lead in innovation, quality, sustainability and operational efficiency. Second, we are implementing our plan with speed and determination to reach about 10% EBIT margin. And importantly, this is fully in our own hands. We are putting profit and loss responsibility in place across 6 business areas and 23 P&L responsible business units, enabling determined execution of value creation actions and a strengthened focus on the core business. Third, we will distribute 50% of our net profit as dividends. Fourth, we will take our net debt per EBITDA to below 1x through disciplined capital allocation and a continued focus on cash flow. Finally, we introduced a new reporting structure. Our packaging businesses will be regrouped into Consumer Packaging and Integrated Packaging alongside Biomaterials and other as reporting segments. These new segments will be applied starting in Q1 2026. As just mentioned, one of our key strategic priorities is to expand margins through business focus, a strong performance culture and systematic value creation. The last 2 years show this is working. Despite headwinds from low consumer confidence and significantly higher wood costs, about EUR 900 million annual headwind compared to the year 2021, our sales have grown and our underlying profitability has improved. This progress comes from our own actions that have more than offset the market headwinds during these years and the work continues. In addition to the completed value creation programs, achieving about EUR 900 million profit impact during the years 2024 and 2025, we have identified additional EUR 500 million to EUR 700 million of profit improvement initiatives, all with clear owners and being worked on as we speak. At the same time, the Oulu ramp up continues and weighs profitability short-term. Once at full capacity, it will add around EUR 800 million in sales and support higher margins. With these levers, we are on a clear path towards reaching about 10% EBIT margin, excluding Swedish forests within 2 to 4 years regardless of market conditions. The message is clear. Margin expansion will come from our own focus, our performance culture and disciplined execution. We are taking determined actions to build a better company and our own future. Let's talk about our recent innovation highlights. We grew our portfolio of premium Packaging Materials with the launch of Ensovelvet, a new uncoated solid bleached sulfide board with velvet-like smoothness on both sides. It is developed for luxury applications such as cosmetics, perfumes and other premium consumer goods where touch and appearance are important. It also ensures excellent printability. Ensovelvet is, of course, recyclable, supporting the shift towards circular packaging solutions. The absence of coating also means fewer materials are needed in production, resulting in a reduced carbon footprint while maintaining the premium performance expected from premium Packaging Materials. Stora Enso's CLT solutions enabled the construction of the world's first large-scale timber data center in Falun, Sweden, and the site is now expanding with 2 new data centers. Using mass timber drastically cuts embedded carbon and accelerates construction time. The developer, Eco Data Center is aiming to be one of the world's most sustainable data centers. By using mass timber supplied by Stora Enso, the company has created a scalable blueprint for a new type of sustainable infrastructure. World Packaging Organization awarded Stora Enso in 3 categories: e-commerce, food and other for sustainable and innovative design. Niclas, let's take a look at the financials. Niclas Rosenlew: Thank you, Hans. So let's begin with group sales development and EBIT for 2025 as well as then for the fourth quarter. Group sales increased to EUR 9.3 billion in 2025. This was partially supported by structural changes, most notably the Junnikkala acquisition and the Oulu ramp-up. In Q4, sales declined and this was due to slightly lower board prices and significantly lower pulp prices. Adjusted EBIT for the full year decreased. However, if we exclude the old ramp-up, actually, the profitability improved across nearly all business areas. The exception was Biomaterials, where significantly lower pulp prices weighted on performance. And in Q4, the reasons for the EBIT decline are pretty much the same. Underlying businesses were developing quite nicely, considering the tough market and the old ramp-up was the main reason for the lower EBIT. In general, market headwinds such as lower pulp prices were offset by value creation actions. Looking at the EBIT development for the full year. The impact of our value creation actions is clearly visible. Even with the significant decline in pulp prices, our price and mix improved by more than EUR 100 million, while volumes remained stable. As Hans mentioned earlier, we continue to face a sizable headwind from fiber costs close to EUR 300 million this year. Despite these headwinds, our ongoing cost and value creation actions had a good positive effect. Other variable costs and fixed costs declined by more than EUR 200 million, supported by a leaner and more business-focused organizational structure. These actions have strengthened our ability to navigate market volatility and deliver a more resilient performance. The main drag on earnings for the year came from Oulu or the ramp-up of Oulu, which had a negative impact on EBIT of roughly EUR 140 million, again for the full year. While Oulu weighs on short-term profitability, we do remain confident in the long-term value and industry-leading quality this investment will bring once the line reaches its full potential in 2027. If we then move on to cash flow, despite the challenging market environment, we managed to safeguard profitability and improve cash generation. Cash flow after investing activities continued to be positive as expected following the gradual completion of the investment phase in Oulu. As we now become more disciplined with our capital allocation, combined with ending the heavy investment phase, we expect cash flow after investments continue to improve. So on that note, let's take a look at the net debt. Net debt decreased by almost EUR 800 million in the third quarter, driven by the Swedish forest asset divestment and remained stable in the fourth quarter. Our net debt to adjusted EBITDA ratio is now 2.8x. Operating working capital remained -- also remained stable at 7% of sales and we intend to maintain it at these lower levels and reduce it further whenever possible. So let's take a look at our segment performance. Starting with Packaging Materials. During the quarter, we conducted maintenance in some of our main sites. In addition, we continue to ramp up the new Oulu board machine. Despite this, profitability was preserved, thanks to good value creation activities and strong customer offers. Sales decreased driven by slightly lower consumer board prices and adverse currency effect from a weaker U.S. dollar. Adjusted EBIT improved slightly year-on-year despite a EUR 31 million negative from the ramp-up in Oulu. In Packaging Solutions, we delivered a positive result despite ongoing market challenges. Sales increased slightly, driven by higher sales prices from improved product mix and an increase in sales volumes. Adjusted EBIT increased year-on-year, supported by higher sales and the good momentum with value creation actions. So in summary, despite persistent overcapacity, actions to enhance product and customer mix, combined with continued cost efficiency improvements helped protect margins. Moving from Packaging to Biomaterials. In Biomaterials, the challenging market conditions continued. Demand for softwood and hardwood pulp was weaker in both Europe and China. Sales and adjusted EBIT decreased due to lower sales prices and volumes and adverse currency movements. However, intensified value creation actions such as cost reduction measures partly mitigated the negative effect. In Wood Products, market continued to be subdued with high raw material costs and low construction market activity. Sales increased mainly due to Junnikkala volumes and higher sales prices, both in classic sawn and building solutions products. Adjusted EBIT improved as the increase in raw material costs was more than offset by higher sales prices and value creation actions. Product curtailments were implemented to align with challenging market conditions. Finally, in Forest, sales were stable with no material differences in wood prices or volumes. EBIT decreased primarily due to the divestment of the 12% of Swedish Forest Holdings at the end of the third quarter. The fair value of the group's forest assets increased slightly to EUR 8.5 billion or EUR 10.75 per share. The results demonstrate strong operational performance within our forest assets and wood supply operations. So with that, I hand back to you, Hans, for concluding remarks. Hans Sohlstrom: Thank you, Niclas. As we enter 2026, we expect market conditions to remain subdued and volatile, shaped by ongoing macroeconomic and geopolitical uncertainty. Our priorities are clear. We will continue to execute our strategy, drive proactive, systematic and determined work across the whole group. We continue to improve profitability, cash flow and cost competitiveness through activities related to sourcing, operational efficiency, commercial excellence, working capital and fixed costs and maintain a disciplined approach to capital allocation. The demerger and listing of our Swedish forest assets will be a key focus as will the ongoing strategic review of our Central European sawmills and ramping up of our Oulu site. I want to thank all our employees, customers and partners for their dedication and resilience during this transformative year. Together, we are building a stronger, more focused and more sustainable Stora Enso. Thank you for listening and we are now ready to take your questions. Operator: [Operator Instructions] Our first question will come from Charlie Muir-Sands with BNP Paribas. Charlie Muir-Sands: I just had a couple of questions on the Packaging Materials segment on both pricing and on costs. Firstly, on the pricing side, I wonder if you could talk about the environment generally. We've seen obviously indexation reports suggesting that FBB prices are coming down a bit. One of your peers the other day also flagged pricing pressures in the liquid packaging board space, which is a grade that's obviously not price reported. So yes, firstly, on the pricing side. And then on the cost side, can you talk about what scale of tailwind you might envisage seeing from the fall in wood costs that we're starting to see in Finland and perhaps trickling over into Sweden? And when you would expect Oulu to no longer be a drag? Hans Sohlstrom: Yes. So first of all, when it comes to liquid packaging board, we have multiyear agreements, which basically meant that our prices have somewhat improved for this year compared to last year. When it comes to cartonboard, you are right that following statistics, there has been some slight decline in prices there. And then as you also know from public sources, there has been price increase announcements in containerboard, in testliner, also in Europe happening lately. Then on the cost side, I mean, yes, following also here public statistics, wood costs in Finland and Sweden, especially pulpwood, have come down throughout the latter part of last year. And -- but I don't want to take any stance on any predictions or forecasts here how the things will play out. Regarding Oulu, we have guided now for the first quarter still a negative EBIT impact between EUR 15 million and EUR 30 million on an EBIT level. And we remain confident there that we are continuing and progressing the ramp-up in order to be then fully ramped up for year 2027. Charlie Muir-Sands: But for Q2, do you anticipate Oulu still being a drag? Or should this be the last quarter? Hans Sohlstrom: Well, we don't give any further guidance there. I would say that the ramp-up is progressing. Quality is excellent. The feedback from customers is really good and quality properties, even if we had high expectations, having even exceeded our expectations in some cases. Charlie Muir-Sands: And finally, sorry, just I saw that you're guiding to much lower income from sale of emission certificates in the year ahead. Which segments would those headwinds year-on-year apply to? Hans Sohlstrom: It concerns mainly 3 of our business units. So it's Skutskar, which is pulp in Sweden, then it's Fors in Sweden, which is cartonboard and then it's also Enocell Uimaharju in Finland, which is pulp. So it's mainly the Biomaterials segment. Operator: Our next question comes from Lars Kjellberg with Stifel. Lars Kjellberg: I appreciate you don't want to forecast wood cost. But if you kind of -- where we are today in Finland in particular and the pressures we see in Sweden, if they were to stay where they are, when would you start to see a positive impact from that? I'm also hearing that wood costs in Poland has gone up. Can you provide any color on that, if that is indeed the case? I also want to question a bit about currency because, of course, both the Swedish krona and the euro are very strong. You had hedges, of course, right, but what sort of potential headwind would that be? And the final one, I'll just stick with consumer board, you have for a long time spoken to the pressures and imbalance in the market and soft demand. So the question is, as a big producer of consumer board, what sort of actions are you taking to rebalance the market and to get away from that pricing pressure? I appreciate closing assets is not your priority, but are you thinking about meaningful curtailment of capacity until demand resurfaces? Niclas Rosenlew: I'll take -- I'll take the first one. So the wood cost up or down, I mean, I guess the rule of thumb is 3 to 6 months. So first, it goes into the wood yard and then it goes into production. So 3 to 6 months depends, but that's kind of the kind of rule of thumb, which you could use. Hans Sohlstrom: And then your question on consumer board. So yes, we have also taken some curtail -- or curtailed our capacity to some extent. I would say the primary actions here in a situation of low operating rates and is to be the most cost-efficient, to work on your cost and efficiencies and be closer to your customers than ever before and produce the best possible quality of product and service. That's the way to manage in this kind of circumstances. You also had a question about the currency exchange rate, you want to comment... Niclas Rosenlew: Yes. Yes. I would say no -- nothing particular there. I mean, dollar has, as you know, been a headwind for us, the weaker dollar, given that quite a significant chunk of products, not least pulp is kind of dollar priced. And then on the Swedish krona, of course, we have quite significant operations in Sweden. So a kind of stronger Swedish krona means more costs also. But I would say just in general that the dollar is the kind of main swing factor here. Lars Kjellberg: Just a follow-up, I also asked you about Polish wood costs, if you have any color on that? And if you can share with us what sort of operating rates you're running at in consumer board in those? Niclas Rosenlew: Yes. So first of all, the Polish wood costs, we actually consume very little pulpwood in Poland because we are primarily using recycled fibers there to produce testliner. So it's not that relevant for us when it comes to log costs in Central Europe. They have been increasing, but so have also the price of timber and sawn goods. And what -- and you had some other question there, a follow-up question. Yes, operating rates. Well, we are not commenting further on the operating rates. Operator: Our next question comes from Pallav Mittal with Barclays. Pallav Mittal: So 3 questions. I'll take it one by one. So just following up on the first question around liquid packaging board. So your peer -- one of your peers has highlighted a difficult demand dynamic as well. And based on what we can see, one of your largest customers over the last few quarters has also highlighted a difficult volume backdrop. So just wanted to understand the demand dynamics. Clearly, your comments on pricing, we agree that it is a multiyear agreement and it is going up. But what are you seeing on the demand side of things? Hans Sohlstrom: Thanks to the multiyear agreements we have in liquid packaging board with our key customers, we see positive development both in terms of volumes and price. Pallav Mittal: Okay. And as you have now highlighted for the last few quarters that the market-related movements have been offset by your own actions. So if you could just help us understand, I mean, as we think about 2026, lower wood cost, et cetera. So if you were just to like give us some guidance in terms of those 2 buckets, do you still expect the market-related movements to be a significant headwind and then offset by some of your own actions, which you have said EUR 500 million to EUR 700 million for the next 3 years? Niclas Rosenlew: Yes. I think on the own actions, the teams are continuing the good work and certainly we'll continue during 2026 as well. What comes to wood cost, as Hans said, we just don't want to predict or comment on that. But on the own actions, we'll certainly continue to work on that and there's a good momentum. Pallav Mittal: And then lastly, just on the EU testliner pricing that the industry is trying to pass through. Any comments on how customers are reacting to it because now we are in the first week of Feb and it was expected to go live on the 1st of Feb? And do you think any of it will actually pass through given the cost environment and the demand backdrop? Hans Sohlstrom: Yes, I don't want to speculate here, but I think there has been broadly price increase announcements and there is a broad price increase attempt now in the industry and it's, of course, badly needed by the industry. Operator: Our next question comes from Linus Larsson from SEB. Linus Larsson: First off, a follow-up question on Packaging Materials. The price realization quarter-on-quarter in the fourth quarter was quite negative, minus 7% or so, from what we can see. Could you please just explain that mix effects, real price changes, FX, how that all adds up? And then also, please, if you could just clarify what you said previously on your multiyear liquid packaging board contract, what does that setup entail for 2026? Can you please just clarify, have you had renegotiations going into 2026 for a portion of that? And what's the nature of the agreements in place? Do they imply price hikes or price declines at the start of 2026? So just directionally, if you could just please clarify that? Niclas Rosenlew: So first, your latter question about liquid packaging board. So with most of our key customers, we have long-term multiyear agreements in place, implying improved pricing and volume for this year, but not for all. I mean, there are also customers where we have annual negotiations. But generally speaking, for the majority, there are multiyear agreements in place. And then when it comes to the Packaging Material quarter-on-quarter price development, so Q3 into Q4, so there was especially in the area of containerboard, some price reductions as we can see from public sources, [ resi ] and other sources as well as also in cartonboard. So that weighted on our average prices for Packaging Materials in Q4 compared to Q3. Linus Larsson: Got it. And then maybe a second question on forestry and the increase that we saw in forest book values in the fourth quarter. And you did write about it in the report, but if you could just expand a bit on that, what drove the increase? And also any updates, if there are any on the planned spinoff, please? Niclas Rosenlew: Yes. So the increase was primarily driven by the stronger Swedish krona. So FX was the prime driver. Also kind of the underlying asset, there was some increase, but the EUR 200 million or so increase we saw was mainly driven by FX. And then what comes to the spin, progress being made every day. Separation, a lot of activities there. So I would say on track and making good headwinds or good progress there. Operator: Your next question comes from Ioannis Masvoulas with Morgan Stanley. Ioannis Masvoulas: Excellent. Excellent. So a few follow-ups from my side. Just the first one, going back to liquid paperboard. Across your entire order book, if we think about '26 versus '25, is it fair to assume a low single-digit improvement in pricing? And related to this, do you think you're gaining market share in either Europe or Asia, as that will explain some of your comments on volume trends versus some of your peers? Hans Sohlstrom: Yes. So in liquid packaging board, we have some slightly increased pricing for the majority of our customers. And when it comes to market shares, I don't want to comment on those. Ioannis Masvoulas: Okay. And maybe one more on Oulu. So I appreciate you wouldn't like to provide full year guidance on potential ramp-up costs. But if we look at Q4, you account for about EUR 31 million impact. And for Q1, you're talking somewhere between EUR 15 million to EUR 30 million impact. So at the high end feels like there is no much improvement or a reduction in the ramp-up costs. Could you talk about some of the challenges there? And could you also clarify whether Oulu was EBITDA breakeven because that's something you mentioned in the past, but I didn't see that in today's release in terms of the Q4 run rate? Niclas Rosenlew: Yes. So first, Oulu was EBITDA breakeven in when running full during month of October. Then towards the end of Q4, we had some planned shutdowns and also some curtailments. But as we had guided before, we reached EBITDA breakeven in the month of October during, let's say, normal full run month. And when it comes to the first quarter, I mean, we are continuing the ramp-up as planned with excellent customer feedback and quality achievements. And of course, I mean, we need also to take into consideration that the cartonboard prices, as we know from public sources, are somewhat down. So with a certain impact also here. Plus then, of course, we have to consider also other things affecting then the weighting on the Oulu profitability during the first quarter. Operator: Our next question comes from Detlef Winckelmann at JPMorgan. Detlef Winckelmann: Just a quick one from me just on your pulp wood costs. Obviously, we've seen them come down quite drastically in the last, call it, couple of quarters. I'm hearing some conflicting views. I just want to hear your thoughts on whether this is a supply chain change or a demand-only driven price decrease. We're hearing from a handful of people, independent experts that maybe supply and wood being harvested is actually up. And at the same time, I'm hearing the exact opposite from someone else. So just would love some clarity there, if you can. Hans Sohlstrom: Well, yes, do you want to take it, Niclas? Niclas Rosenlew: Yes. I mean, sure, there's multiple factors, but to put it simply, the view is more demand. So demand has been lower. Some of the industry players, for instance, in Finland have been -- Finland have been curtailing production during the second -- latter part of the year. Operator: Our next question comes from Cole Hathorn with Jefferies. Cole Hathorn: Just like a follow-up on the wood cost side of things. You provide some helpful guidance for a 10% move in wood cost for the whole of Stora, which includes your sawn timber business as well as obviously your Latin American operations. Is there a guidance just so that we can think about the sensitivities for a 10% move just in the Nordic wood prices, just to understand the quantum? That's the first question. The second is thinking about the liquid packaging board of Beihai and given there's a number of capacity that's ramped up in China, just like any commentary that you can provide about profitability of your Beihai and China operations? Hans Sohlstrom: Yes. So first of all, our Beihai operation is doing very well. Also from a profitability perspective, it is one of the world's, if not even the world's most efficient board -- consumer board production line according to board machinery manufacturers statistics. So doing very well indeed. Excellent quality. I mean, we are competing in the high-end, highest quality liquid packaging board segment and consumer board segments in China, where we have a opportunity also to differentiate. And then when it comes to the wood costs, as you can see in our report, a 10% wood cost decrease would have a EUR 238 million impact on annual -- positive impact on annual EBIT. We haven't broken down that specifically for the Nordics, but the clear majority of this is the Nordics. So not all of it, but the clear majority. Cole Hathorn: And then maybe just as a follow-up, Niclas, your CapEx numbers come in nicely at EUR 550 million. It is lower year-on-year. It's the first time you're getting towards depreciation or below. I'd just like to think about how you're thinking about CapEx? And then, Hans, one for you on the EUR 500 million to EUR 700 million savings. Is there any color that you can give on what might be contributed in 2026? Because there are a number of moving parts this year. We do have lower prices. You've got potential positives from the Oulu drag being less negative. You've got the positives from potential wood costs, but the bucket that's missing is your own internal actions and efficiencies. Any quantum of that EUR 500 million to EUR 700 million that might be achieved in 2026 would be helpful. Niclas Rosenlew: Yes. So on the CapEx, we've done a fair amount of work on CapEx in latter part of last year and we discussed some of it in the CMD as well. And of course, one part of it is the, as we call it, the end of the heavy investment phase, which is primarily Oulu, but we've actually gone beyond that. I mean, we've looked a lot at where do we get returns, what type of investments are better, which ones are worse and so on and so on. A lot of categorization of our different assets, where do we invest, where do we not invest. So what you see now in the EUR 550 million guidance is kind of a summary, the outcome of this work. And it's -- in the end, it's all about discipline and returns. And I'm sure we'll learn more during this year and then we see how it moves beyond this year also. But the theme is clearly now let's be disciplined and let's ensure good returns on those investments we make. Hans Sohlstrom: And when it comes to the -- our own profit improvement actions, in the CMD, we explained that during 2024, we -- and then the 3 first quarters of 2025, we have achieved EUR 850 million of annual P&L impact and we are now at roughly EUR 900 million after the fourth quarter. And we also said that there is more to come. Currently, we have in the pipeline, EUR 500 million to EUR 700 million of projects and initiatives from a P&L impact standpoint. And as we said in the CMD, 2 to 4 years, 2 years if we also get some market tailwind. So in order to achieve about 10% EBIT margin level, so 2 years, if we get some market tailwind and 4 years if we have a continuous market headwind. So that's about the guidance I can give. Of course, the more you do these cost savings and streamlining, the harder it also gets. That's also good to remember. Niclas Rosenlew: Yes. And just to give you some additional color because it's a good team, nice team. So for instance, what we are looking at for the moment is fixed cost, how do we work efficiently within Stora Enso. And then also procurement is another area we are looking into as we speak. And there is potential. So it's quite positive and good. Operator: Our next question comes from Andres Castanos-Mollor with Berenberg. Andres Castanos-Mollor: It would be a follow-up on CapEx, please. How much of that EUR 550 million is allocated to forest? And how would our run rate of an ex-forest company look like for maintenance CapEx? Niclas Rosenlew: Now I'm actually looking at Jutta here across the table. How much of that is forest? I can't remember by heart actually. Jutta Mikkola: Right. It's not that much biological assets to some extent, but there also maturity would be actually Latin American CapEx. So it's not that much that goes into the forest. Hans Sohlstrom: So very, very little into the forest company as such. Operator: There are no further questions. I shall now hand back to Hans Sohlstrom; and CFO, Niclas Rosenlew, for closing remarks. Hans Sohlstrom: Thank you very much, all, for your -- for taking time and for your interest. As you can see, we are moving forward with speed and determination to improve our financial performance and to strengthen and build a better, more sustainable and more valuable Stora Enso. During last year, we have sharpened our strategic focus. We have defined our strategic priorities of leading in customer value, putting the customers in the center through innovation, sustainability and service and quality. We are looking to -- also to grow faster than the market, over 4% per annum. And we have a track record within renewable packaging of growing above 5% during the last 10 years and we are well invested to materialize this growth. We are expanding our margins to the well above 10% EBIT margins through our own actions regardless of market circumstances. And then last but not least, we are generating cash through disciplined capital allocation. Thank you very much for your interest. We are moving forward with speed and determination. Thank you. Bye-bye.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter Fiscal Year 2026 Cabot Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Robert Rist, Vice President, Investor Relations and Corporate Planning. Please go ahead, sir. Robert Rist: Thank you, Michelle. Good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our first quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this call. During this conference call, we will make forward-looking statements about our expected and future operational and financial performance. Each forward-looking statement is subject to the risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are available on the Investor Relations section of the website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measure presented should not be considered to be an alternative to financial measure required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investor Relations section of our website. I will now turn the call over to Sean, who will discuss the first quarter highlights, followed by several company and business updates. Erica will review the corporate financial details and the business segment results for the first quarter. Following this, Sean will provide an update to our 2026 outlook, discuss market demand drivers, provide some closing comments and then open the floor to questions. Sean? Sean Keohane: Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. In the first quarter, we continued to execute at a high level in a challenging economic environment, delivering adjusted earnings per share of $1.53 in the quarter. EBIT in the Reinforcement Materials segment declined by 22% compared to the first quarter of fiscal 2025 in what remains a challenging demand environment. This decline was driven primarily by lower volumes in the Americas and Asia Pacific. EBIT in the Performance Chemicals segment increased by 7% compared to the first quarter of fiscal 2025 on a more favorable product mix and continued momentum in our Battery Materials product line. Later in the presentation, I'll spend more time highlighting the strong performance and momentum we see in this growth vector, including the exciting announcement of our multiyear agreement with PowerCo. Operating cash flow was strong in the quarter, which allows us to invest to sustain our high-quality asset base and gives us the flexibility to invest in high confidence growth projects while returning significant levels of cash to shareholders. As we indicated in our fourth quarter fiscal 2025 call, the global demand environment, particularly in the Reinforcement Materials segment remains challenging. Tire production levels have been depressed and are lagging growth in miles driven as inflation has likely caused a delay in the replacement cycle and a trade-down effect at the lower end of the market. In the Western geographies of the Americas and Europe, we have seen several years of tire production declines, which has impacted carbon black utilization rates. Tire imports from Asia continue to take share from domestically produced tires. And while Western countries are taking increasingly aggressive actions to address unfair trade practices, we have yet to see tariffs or other trade measures result in a meaningful decline in the flow of imported tires. In the United States, imports from Asia have declined sequentially in the last few months, but remain up approximately 4% year-over-year. In Brazil, tariffs have helped slow the flow of imported tires, particularly from China, resulting in a 4% year-over-year decline in 2025 of passenger car tire imports. In Europe, tire imports continue to be at elevated levels as few protection measures have been implemented to date. The tire industry currently has an antidumping petition under review with a determination scheduled for June of 2026. It is against this backdrop that we conducted our annual negotiations in Reinforcement Materials for our calendar year 2026 supply agreements. As we communicated in November, these negotiations were challenging and took longer to conclude. As you know, our tire agreements are heavily concentrated in the Americas and Europe as Asia Pacific is largely a spot market. The level of tire imports from Asia into the Western regions contributed to a reduction in local tire production, leading to a decline in local carbon black capacity utilization in a more intense competitive environment. In the Americas, we faced pricing pressure as carbon black industry utilization rates dipped below 80%. In Europe, the challenges were even more pronounced with both pricing and volumes coming under pressure as tire imports increased 8% year-to-date November 2025. Pricing declined across Western regions and in defending our pricing levels, we lost volume in Europe. Pricing impacts varied by region, but were generally in the range of 7% to 9% decline as compared to 2025 levels, reflecting the competitive pressures in the market. Across all regions, we continue to price our products based on our value proposition of reliable in-region supply, quality, sustainability and innovation. However, the competitive dynamics negatively impacted the outcome of the negotiations. As we look forward, the picture on regional carbon black utilizations is a dynamic one. There are some recent signals that trade protection measures may be starting to have an impact on tire imports in the Americas, and we do see the global tire majors actively investing to reinvigorate and defend their Tier 2 tire brands. Furthermore, there is an expectation embedded in global data's tire production forecast for 2026 for growth in Western geographies as demand recovers from depressed levels. While these factors would be supportive of an improving regional utilization picture for our Reinforcement Materials segment, we are taking a series of actions to reinforce our leadership and to provide a foundation for sustained strong margins and cash generation. In fiscal year 2025, we delivered $50 million of cost savings, and we expect to maintain these benefits in fiscal 2026. While we have new growth assets coming online that we anticipate will increase costs in fiscal year 2026, we expect these new assets will drive bottom line profitability. We also are focused on additional programs in fiscal 2026 that are targeted to reduce existing costs by another $30 million. These programs include procurement savings, headcount reductions in Reinforcement Materials and benefits from accelerating technology deployment for improved yield and manufacturing efficiencies that we expect will be rolled out during fiscal 2026 and into fiscal 2027. In addition to cost actions, we have reduced our capital expenditures for the full year to align with the current market environment. We are tensioning this spend while continuing to maintain our assets and invest in attractive growth opportunities to sustain strategic momentum. We expect our new CapEx range to be approximately $60 million lower at the midpoint compared to 2025 actuals, which would support robust free cash flow generation, enabling us to sustain a high level of cash return to shareholders through dividends and share repurchases. Finally, as a result of the declining carbon black utilization levels in Western geographies, we believe it is prudent to look at our network capacity and align it to current demand levels. With this in mind, we are finalizing plans to rationalize carbon black capacity in the Americas and Europe to position us to operate more efficiently, enhance profitability and maintain flexibility as we navigate this challenging demand environment. We will communicate any decisions when they are made. Before I hand it over to Erica to discuss our financial performance, I also want to highlight an area of our portfolio that continues to perform well, our battery materials product line. We are a global leader in this space with the broadest range of conductive additives, formulations and blends and strong participation with leading global customers. Battery Materials represents a significant strategic opportunity for Cabot, and we are excited about the progress we've made and the momentum we see ahead. Our Battery Materials product line delivered another strong quarter with revenue growth of 39% compared to the first quarter of fiscal 2025. This growth reflects the continued momentum in electric vehicle and energy storage applications as well as the benefits of new customer agreements and capacity expansions that we believe position us well for sustained performance. EBITDA margins in this product line remain attractive running at 22% on a trailing 12-month basis, which underscores the strength of our technology and disciplined execution of our strategy. Global demand for lithium-ion batteries is expected to accelerate meaningfully over the remainder of the decade, with the sector projected to grow at roughly a 20% compound annual growth rate through 2030. This expected growth is being driven by both the continued rise in electric vehicle adoption on a global basis and also by the rapid rollout of large-scale battery energy storage systems. We believe our LITX and ENERMAX brands are increasingly well positioned. These brands bring together our most advanced conductive additives, formulations and blends, solutions that are enabling superior battery performance in both EV applications and battery ESS installations. A critical element of our battery materials strategy is to establish incumbency in the Western geographies as gigafactories are built there. Last month, we signed a multiyear agreement with PowerCo, and I want to take a moment to highlight why we believe this is such an important milestone for our battery materials product line. PowerCo is a subsidiary of Volkswagen Group, the second largest auto producer globally with a broad and deep lineup of electric vehicles. VW has made clear its strategic intent to produce a substantial portion of its own batteries through the build-out of several gigafactories, and this agreement positions Cabot squarely at the center of that strategy. The agreement represents the first step in what we expect will be a multisite, multiyear expansion of PowerCo's battery production footprint. Securing this agreement not only reinforces our leadership position in conductive additives formulations and blends for lithium-ion battery applications, but it also creates a strong foundation for growth as PowerCo scales its operations. We are excited about the opportunity to grow alongside an industry leader and deepen our role as a trusted partner in the global EV battery value chain. Over time, we expect this agreement to be a material contributor to profit growth in our Battery Materials product line. It underscores the strength of our technology and the confidence our customers have in Cabot as a leader in this space. As I mentioned, one area that is helping to fuel the strong growth in our Battery Materials product line is the rapidly growing battery energy storage systems application. These systems play a critical role in enabling clean, reliable and flexible power for the energy grid, renewable energy sources and the fast-growing network of data centers. As demand for uninterrupted power supply accelerates, driven in part by the proliferation of AI-enabled data centers, the demand for battery ESS is expected to grow at a 26% compound annual growth rate through 2030. Cabot is well positioned to capitalize on this growth. Our advanced conductive additives, formulations and blends are designed to improve cycle life and enhance battery efficiency, delivering the performance that customers in this application require. As we look ahead, we anticipate that battery ESS will be a significant contributor to the long-term growth of our Battery Materials product line. We expect the combination of this rapidly expanding sector and the larger battery electric vehicle market to create a powerful growth engine for Cabot. With strong fundamentals, increasing demand for energy storage and Cabot's differentiated technology, we believe we are well positioned to create a high-growth business that can drive long-term shareholder value creation. I'll now turn the call over to Erica to discuss the financial and performance results of the quarter in more detail. Erica? Erica McLaughlin: Thanks, Sean. Adjusted EPS in the first quarter was $1.53. This performance was 13% below the same quarter last year, driven by lower EBIT in our Reinforcement Materials segment, partially offset by higher EBIT in our Performance Chemicals segment. Cash flow from operations was strong at $126 million in the quarter, which included a working capital decrease of $5 million. Discretionary free cash flow was $71 million in the quarter. We ended the quarter with a cash balance of $230 million, and our liquidity position remains strong at approximately $1.4 billion. Capital expenditures for the first quarter of 2026 were $69 million, and we expect capital expenditures in fiscal 2026 to be between $200 million and $230 million. Additional uses of cash during the first quarter were $24 million for dividends and $52 million for share repurchases. Our debt balance was $1.1 billion, and our net debt-to-EBITDA remained at 1.2x as of December 31, 2025. The operating tax rate for the first quarter was 28%, and we continue to anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%. Now moving to Reinforcement Materials. EBIT decreased by $28 million in the first fiscal quarter compared to the same period last year, primarily due to lower volumes, which were down 7% year-over-year. Regionally, volumes were down 15% in the Americas and 7% in Asia Pacific, while volumes in Europe were up 6%. Volumes were impacted by lower production levels and year-end inventory management by our tire customers in the Americas and increased competitive intensity in Asia Pacific. Looking to the second quarter of fiscal 2026, we expect a sequential decrease in EBIT of approximately $5 million to $10 million, driven by the outcomes of our calendar year 2026 customer agreements, partially offset by higher volumes from seasonal improvements. As fiscal 2026 progresses, we expect to see improving EBIT in the third and fourth quarters as compared to the second quarter, driven by the benefits from our new capacity in Indonesia and our acquisition in Mexico as well as improved costs from the countermeasures we are driving. Now turning to Performance Chemicals. During the first quarter of fiscal 2026, EBIT for the segment increased by $3 million as compared to the same period in the prior year. The increase in the first quarter was due to higher gross profit per ton from a more favorable product mix and continued optimization and cost reduction efforts. Volumes were lower by 3% year-over-year, primarily due to lower demand in Europe. Looking ahead to the second quarter of fiscal 2026, we expect EBIT to remain relatively consistent with the first quarter as sequential volume improvement in the Western regions is expected to be offset by the timing of costs. As fiscal 2026 progresses, we expect to see improving EBIT in the third and fourth quarters as compared to the second quarter, driven by stronger volumes in the back half of the year. I will now turn it back to Sean to discuss our 2026 outlook. Sean? Sean Keohane: Thanks, Erica. As we look to the balance of fiscal year 2026, we are narrowing our adjusted earnings per share guidance range to between $6 and $6.50. This guidance incorporates the final outcomes of our calendar year 2026 annual Reinforcement Materials customer agreements that I discussed earlier. In terms of assumptions that underpin this outlook, in Reinforcement Materials, we anticipate volumes to be relatively flat year-over-year, which includes the impact of the first quarter volumes and some volume loss in Europe in our calendar year '26 customer agreements, which are offset by volumes from new assets, including our new line in Indonesia and our plant acquisition in Mexico. We closed this acquisition at the end of January and results will be consolidated starting in February. Our outlook also reflects lower pricing year-over-year driven by the annual agreements that I discussed earlier. In Performance Chemicals, we anticipate low single-digit volume growth year-over-year, driven by our Battery Materials product line and tailwinds in certain end markets such as infrastructure and consumer. We expect to maintain our gross profit per ton as compared to the prior year. Our balance sheet continues to be very strong with net debt-to-EBITDA of 1.2x as of December 31, 2025. We anticipate continued strong free cash flow generation driven by robust operating cash flow and moderating CapEx spending. The combination of balance sheet strength and cash flow generating capacity allows for significant flexibility in our usage of cash, which we plan to invest to maintain our global asset base, drive strategic growth opportunities and return cash to shareholders through dividends and share repurchases. While the current environment remains challenging, there are a number of factors that would provide support for an improved demand profile over the medium and longer term. As I've discussed, for Reinforcement Materials, demand in the Western geographies has been impacted by elevated tire imports and depressed tire sales. Looking forward, industry forecasts project domestic tire production in the Western regions to return to growth in 2026 and 2027. The rate and pace of this recovery will likely be influenced in part by trade measures on tire imports, such as tariffs and antidumping duties, which are currently playing out across the various regions. In addition, pent-up demand for a delayed tire replacement cycle is expected to support volume growth as consumers return to more normal buying patterns as inflation abates and interest rates move down. At the same time, the global tire manufacturers are reinvigorating and leveraging their Tier 2 brands to defend share from Asian tire imports into Western geographies, which should help stabilize regional demand and support volume growth moving forward. In Performance Chemicals, we expect our diverse portfolio of applications to deliver GDP plus growth over time. While some end markets such as housing and construction and consumer durable applications remain subdued, we see strong growth prospects in certain applications that are driven by macro tailwinds. As I discussed previously, our Battery Materials product line is expected to continue benefiting from the rapid build-out of battery energy storage systems and continued penetration of electric vehicles, particularly in Asia and Europe. Beyond batteries, our product sales into infrastructure-related applications continue to experience strong demand as our consumer and semiconductor-related applications. As we look ahead, we would expect a continued easing of inflation and a further rate cut cycle to be supportive of demand levels overall. Given our broad global footprint and recognized technology leadership, we believe we are well positioned to capture value as demand recovers. While the environment remains dynamic, we are focused on leveraging Cabot's strengths to position the company for long-term success. It starts with our leadership position. Cabot is a proven technology leader with the widest global scale in our industry, and this positions us well to win and outcompete others. Our large global network of competitive assets and leading technologies enable us to optimize globally, serve customers effectively and maximize returns. In the current environment, our focus will be on global asset optimization, process technology deployment, efficiency programs and cost reductions to extend our leadership position and maintain our strong margins. The cash flow characteristics of Cabot and our investment-grade balance sheet are enduring strengths of the company. The financial capacity allows us to fund strategic growth opportunities while maintaining a high level of cash return through dividends and share repurchases. We expect cash flow and liquidity to remain strong, and our investment-grade balance sheet provides great flexibility to execute our Creating for Tomorrow strategy. Finally, we see clear growth opportunities ahead and are investing to win. We are building momentum in our Battery Materials product line, which is a proven high-growth platform supported by strong macro tailwinds fueling the data center build-out and electrification of mobility. In the infrastructure sector, wire and cable applications and investments in alternative energy generation are experiencing robust growth, and Cabot's products and global footprint are well recognized by leading customers in these key applications. Cabot is well positioned to navigate the current uncertainty, and this management team brings a track record of experience, disciplined execution and a commitment to shareholder value creation. I am confident in our ability to execute our strategy and to return to a path for growth beyond 2026. I will now turn the call back over for our Q&A session. Operator: [Operator Instructions] And our first question will come from John Roberts with Mizuho. John Ezekiel Roberts: I think the Asia country tire export data leads the U.S. import data by a couple of months. What are you seeing on those tires that are leaving the ports in Asia? Sean Keohane: John, I would say the picture kind of remains pretty consistent. I think in the Americas, we're definitely seeing in more recent months that the tire imports have been coming down a bit sequentially, certainly in North America. And I think the current data would be consistent with that. So we'll have to see how that plays out, but that would be the current view. And certainly, in South America, the import levels have -- as a result of tariff measures down there, particularly in Brazil, have resulted in a modest year-over-year decline. And again, I think current data would be consistent with that. So there can be turbulence here, of course, as regional -- as various regions implement various protective policies, you can have a bit of channel stuffing that can happen ahead of changes in those policies. But I would see that those directional trends, I think, seem to be continuing. So we'll be watching that closely. In Europe, I think there haven't been significant measures put in place yet. There is an antidumping duty petition that's under review right now. So we'll have to see what happens there. So I would say the tire imports continue into Europe. John Ezekiel Roberts: And is the volume weakness in Europe silicas just the construction silicones market? Or is it being exacerbated by Dow's silanes closure? Sean Keohane: Yes. I would say, overall, our demand has not been materially impacted by Dow's silanes closure. We reached an agreement there to be compensated for any nonperformance or underperformance that contract calls for. I think Europe, just in general, is weaker in terms of housing and construction, which is a big end market for silicones. And so I would say it's more of a general market weakness than anything specific. Operator: And the next question will come from Kevin Estok with Jefferies. Kevin Estok: So just real quick, on your multiyear supply agreement with PowerCo, I guess, have you quantified what the, I guess, expected earnings contribution is from this agreement? Sean Keohane: Kevin, we have not for obvious confidentiality reasons. But obviously, the agreement is an important one strategically because of how significant PowerCo, we expect will be given VW's very broad lineup of EVs and their intent to make a substantial portion of their own batteries, number one. Number two, as part of our strategy, we not only compete and do very well as a leader in China, but our strategy calls for establishing incumbency outside of China as battery gigafactories get developed. And this contract is an important one in that -- in pursuit of that strategy. Kevin Estok: Okay. Understood. And I guess my second question would be just -- so obviously, you're largely a make-in region, sell-in region model. But I guess I was wondering what the magnitude of your cross-border specialty product sales where that were basically exposed to tariffs. And I guess, whether you had any pricing mechanisms that would recover some of those costs? Sean Keohane: Sorry, Kevin, could you just repeat, you're talking about in the Reinforcement segment? Or are you talking about in Performance Chemicals? Kevin Estok: Actually -- well, either of you, if you have any, I guess, any points there, yes. Sean Keohane: Yes. No, the company is largely a make-in region, sell-in region. We do have some relatively small volumes of products in Performance Chemicals that move across regions, given the unique and specialty nature of certain technologies, they're not necessarily replicated in every region. And so there are some small cross-regional volumes that do move there, but they would be quite small in the overall -- as an overall proportion of Cabot sales. And so we've not really had any material impacts in those product lines as a result of the trade tensions that are underway globally. Operator: And our next question will come from David Begleiter with Deutsche Bank. David Begleiter: Sean, can you talk to how your new Mexico plant fits into Americas manufacturing footprint now that you look to close capacity in the Americas? Sean Keohane: Yes, sure, David. So the Mexico plant is an important one strategically. As you know, we already have a plant in Mexico in Altamira, very close by to where this plant is. So there will certainly be operational synergies as we integrate this site into our existing management structure there in Mexico. And Mexico continues to be an important market where there is tire expansion. And so we see this as an important strategic asset. I think the other thing to remember here is I think it's an important and strong signal of our long-term partnership with Bridgestone. This agreement has a long-term supply agreement, providing materials back to Bridgestone for use in their tire production in Mexico and in the Americas. So it's underpinned by a long-term agreement. So I think our view here is that it fits in strategically given our existing footprint and the integration with our assets there as well as the close partnership with customers that are investing in that region for growth in tire production. David Begleiter: Very clear. That's helpful. And one more question, Sean. Can you talk to on your annual contracts, how the volumes were realized by region, North America, South America and Europe for the upcoming -- for the current year? Sean Keohane: Sure. So in terms of the contract agreements from a volume standpoint, I would say, overall, as was commented earlier, we're expecting volumes across Reinforcement to be relatively flat globally. And -- but if we look at the contract specifically, I would say in the Americas, there's basically no real change in share position here. So we would expect those volumes to sort of grow with market, which will be kind of flattish is the outlook, a little bit up perhaps, but in that range. And then in Europe, we did lose some volume in the contract negotiations there. And so we would expect European volumes to be down in 2026. Operator: And our next question will come from Josh Spector with UBS. Joshua Spector: I had 2 questions just on the Battery Materials piece. I mean I think if we go back a couple of years ago, you sized that business as something like $25 million in EBITDA, and we expected it to grow, then there was pricing pressure and it came down. So can you help us re-level set to the earnings in that business in fiscal '25? And then second, I think a lot of the growth in conductive additives were more about energy density. We talked about EV batteries and extended range. Does conductive carbons have the same value add in battery energy storage systems where maybe the space requirement isn't as much of a constraint. Just curious if you can comment on those 2 pieces. Sean Keohane: Sure. Thank you, Josh. So in terms of the ESS application and the EV application, there are similarities in terms of expectations for battery performance, but there are also some differences. You highlighted one of the biggest ones, which is, obviously, in an EV, there's a space constraint. And so trying to pack more energy density into smaller space is important, and that leads to slightly different requirements in terms of the conductive additives and the blends or formulations of those additives to meet that requirement, whereas energy storage systems generally are less space constrained. And so I would say that's the most significant difference. In both cases, they require high-value conductive additives and blends and formulations of those to optimize the performance. So the profitability of both of these applications is quite good. So we're excited about the build-out there. Certainly, the momentum behind the build-out of energy storage is accelerating. And then outside of -- when you look at China and Europe for EVs, there's continued penetration there. With respect to the overall profitability of the business, we have not disclosed a more recent number. You are correct back in that period of time where we were. And then the industry went through a sort of prolonged destocking cycle. So I would say it took a while to kind of level out. I think people realize that there was excess inventory of battery cells in '23 and into 2024. So there was kind of a normalizing that's been quite difficult to figure out what the current run rate is. That being said, we have been growing very nicely here in this business, and I commented earlier on our overall profit EBITDA margin level in this business. So you can see that it's a material contributor to the Performance Chemicals segment and one that we believe will grow as the build-out outside of China happens to be a material contributor to Cabot. That's certainly our aspiration here, and we're making investments to make that happen. And we sit here today in a really strong position. We've got the broadest range of conductive additives and an ability to formulate blends of both conductive carbons and carbon nanotubes and carbon nanostructures. And I think that portfolio is a distinguishing one and then the global footprint that we offer as customers build out outside of China is an important feature of Cabot's position here, and we're very well positioned with the top global producers around the world as they're building out. So we feel like we're hitting the milestones here. And in any new business, there's always some choppiness as things evolve, but we're focused on the long term here and very pleased with the momentum we're seeing. Operator: [Operator Instructions] The next question comes from Lydia Huang with JPMorgan. Wenyi Huang: How does it affect your margins when you sell to a higher mix of lower-tier tires versus when you sell to more higher-tier tires? And have there been changes to your customer mix? Sean Keohane: Lydia, so I would say in terms of the major customer mix, I would say, not major changes to that mix or profile as we look out into 2026. I think your question about profitability by tire, I think it's important to think about this in a couple of different ways. First of all, every tire has several grades of carbon black in it, depending on which part of the tire you're talking about. So each is specifically designed to impart performance in that part of the tire architecture. So segmentation is important for us, not only in terms of customers, which types of tires and then which grades of carbon black we try to tailor for different parts of each tire. And so the market choices and the segmentation are important. Traditionally, what you find is that reinforcing grades impart more performance on the tire. Those are the ones that are on the tread or part of the tread architecture. And so that's very important in terms of delivering not only the wear but the fuel economy requirements of the tire. So you'd traditionally see higher performance related to those types of grades. But the segmentation is a very important part of how we run this business, both customer types of tires, whether they're for domestic or export as well as which products we try to tailor for different parts of the tire. Wenyi Huang: And how is reinforcement materials volume trending quarter-to-date in the Americas compared to the December quarter? And are the performances different in South America and in North America? Sean Keohane: So in terms of volumes so far in January, we are seeing that volumes are up a little bit year-over-year in the Americas. And so I think that's -- in Europe, that's positive. And then if you look at sequentially, it's up some 15-ish percent or something in that range, I think, sequentially. But that's not a surprise. You normally have a seasonally weaker December quarter. And I think that was even more pronounced as you saw in our volume results for December because of significant inventory management by customers at the end of the year. So seeing a sequential step-up like that was expected. So on a year-over-year basis through January, it seems like it's developing fine and as expected. Operator: Thank you. I am showing no further questions in the queue at this time. I would now like to turn the call back over to Sean for closing remarks. Sean Keohane: Great. Thank you, Michelle, and thank you all for joining today our Q1 call, and we look forward to talking with you again in the upcoming quarters, and thank you for your continued support of Cabot Corporation. Have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good morning. This is the conference operator. Welcome, and thank you for joining the Cr�dit Agricole Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Today's speakers will be Ms. Clotilde L'Angevin, Deputy General Manager of Cr�dit Agricole; and Mr. Olivier Gavalda, Chief Executive Officer of Cr�dit Agricole. At this time, I would like to turn the conference over to Mr. Gavalda. Please go ahead, sir. Olivier-Eric Gavalda: Thank you. Good morning, everyone. It's a pleasure for me to share with you the strong results published this morning by Cr�dit Agricole S.A. that Clotilde will describe extensively in a few minutes. Before that, let me start with a brief introduction and highlight the key commercial and financial figures as well as give you an outlook for 2026. On this slide, once again, and despite the uncertainties and erratic events in 2025, Cr�dit Agricole S.A. is posting high results for 2025, reaching again a level above EUR 7 billion, and this performance is supported by a very dynamic commercial activity. Net income group share amounts precisely to EUR 7.1 billion. It is a stable level compared to 2024 despite the tax surcharge of EUR 147 million recorded this year. So in fact, excluding this tax surcharge, it is a slight increase. These very good results are driven by an increase in revenues by 3.3%, thanks to a dynamic commercial activity this year that I will further illustrate in a few minutes. These very good results also translate into strong profitability with a return on tangible equity of 13.5%, stable compared to last year, and the capacity to distribute a dividend of EUR 1.13 per share, increased by 3% this year. CASA CET1 ratio is above the 11% target. Its level is of 11.8% at the end of December. We confirm that very high solvency level of the group with a CET1 ratio of 17.4%, placing us among the most solid of major European banks. A few words on the fourth quarter that Clotilde will describe in much more details afterwards. Q4 is impacted by Banco BPM first consolidation for EUR 607 million. Thanks to this consolidation, there will no longer be volatility in the P&L linked to the evolution of Banco BPM share price, as this operation sets the foundation of a regular contribution of Banco BPM to our results, around EUR 100 million per quarter regarding the 2025 performance of BPM. On the next slide, in 2025, we have experienced numerous commercial successes. A few examples deserve to be highlighted. We have acquired 2.1 million new clients, best performance in the history of Cr�dit Agricole. Loan production for our retail banks increased by 15% compared to 2024, reaching EUR 140 billion. Insurance premium income set a new record at EUR 52 billion, up 20% compared to 2024. Amundi's net inflows were multiplied by 1.6 to reach EUR 88 billion. CACIB reaches record results driven by all its business lines across our different geographies. And despite the difficulties incurred by CAPFM in the automotive market in Europe and China, the level of activity remains high, particularly in Personal Finance. Furthermore, in 2025, Cr�dit Agricole S.A. continued its momentum in partnership and investments, notably with structuring partnerships and targeted acquisitions in Europe, Asia and U.S. We can, in particular, mention launch of partnership with Victory Capital in U.S., increase in our stake in Banco BPM in Italy, long-term partnership with Crelan in Belgium, acquisition of noncontrolling interests in CACEIS and major partnership with ICG in Private assets. These key transactions strengthen the group's position as a leading European player and accelerate its development in high potential markets. On the next slide, our solid results reinforce the financial ambitions set in our strategic plan. All in all, as illustrated in the chart in pro forma data, the results achieved in 2025 are fully in line with the trajectory on -- of the -- our plan and reinforce our confidence in our ability to meet objectives we have set regarding our revenue growth, net income group share, return on tangible equity and cost/income ratio. For the cost/income ratio, we have reached a peak point, and I'm very confident it should drop in the next quarters. More specifically, 2026 outlook is based on the set of favorable factors, in particular, the continuation and acceleration of the commercial momentum, amplified by the rollout of new strategic initiatives of our plan, the gradual integration of recent acquisitions and realization of synergies, the Retail Banking and Personal Finance business line in France are expected to continue to benefit from the upturn in margins, whereas mobility activities are set to see a recovery in profitability. Corporate Investment Banking should continue to perform in volatile environment. And finally, Banco BPM will now make a recurring and high contribution to profit of around, as I said, EUR 100 million per quarter. Obviously, uncertainties, and you know that, will remain high. In the last slide, as it is, many investments undertaken in 2025 have already materialized or will materialize in the coming weeks and coming months. We are truly off to a running start. Here too, a few examples, starting with our efforts for acceleration. First, concerning retail banking in France, we can mention that the regional banks have developed as part of their 2030 ambitions, the 100% digital housing loan journey. LCL has just deployed its digital offering for professionals and is preparing its easy digital offering for individuals. The transformation of LCL is on track. We have launched Indosuez corporate advisory to serve midsized companies, and we can mention also a few upcoming international developments, particularly the European savings platform will be launched in April in Germany. In Asia, CACEIS will open a branch in Singapore in 2026. And of course, our transformation and simplification efforts will continue, particularly around AI, as well as our innovation efforts with, for example, CACEIS, CACIB and Amundi joining forces to launch initiatives in the world of tokenized finance. All these projects and the value created by our recent acquisitions make me very confident about the future. Our development in France, in Italy, in Europe and in Asia is on track, and our model demonstrated its strength once again. Now, it's time to give the floor to Clotilde, who will provide you with a more detailed presentation of our quarterly and annual results. Thank you, and see you soon. Clotilde, over to you. Clotilde L'Angevin: Thank you, Olivier. Hello, everybody. So moving to the slide regarding the key figures. You see here that we have strong annual results, as Olivier was saying, that are, in particular, stable for CASA this year without any form of adjustments. Now, in the quarter specifically, the results for Group Cr�dit Agricole and for CASA were impacted in particular by Banco BPM effects. One that I'm going to detail a little bit further down on the revenue front, an impact of the fluctuations in the share price of Banco BPM for EUR 320 million. And another on the net income front, an impact of the first-time consolidation of Banco BPM for EUR 607 million. And this explains the decrease in net income by 23.9% for Group Cr�dit Agricole and by 39.3% for Cr�dit Agricole S.A. this quarter. Now, if we look at the annual results, however, the revenues are record in 2025, both for the group, it increased by 3.9%; and for CASA, it increased by 3.3%, thanks to dynamic activity in all of the business lines, and in particular, for the group, thanks to the rebound in net interest income in France. The gross operating income, as you see, was up this year despite the investments that Olivier was talking about to set the stage for future developments in our medium-term plan. We have operational efficiency that is well managed with the cost-to-income ratio at 55.7% for CASA and 59.6% for the group. The cost of risk is under control. We have a cost of risk on outstandings of 35 basis points, sorry, for CASA compared to 34 last year and 28 for the group compared to 27 last year. And so all in all, net income group share reached EUR 8.8 billion for the group and EUR 7.1 billion for CASA. This is, in particular, stable for CASA despite the impact of the additional corporate tax charge, which is EUR 280 million for the group and EUR 147 million for CASA. The increase in net income would have been 1.8% for CASA and 4.6% for Group Cr�dit Agricole, excluding this impact. Now, if I move to the next slide, activity supported this strong growth in revenues over the year. And in particular, we have activity that was sustained across all of the business lines this quarter and over the year. Now, customer capture was strong, 517,000 this quarter, which brings the total for the year to the 2,100,000 new customers that Olivier was talking about in France, Italy and Poland. And our customer base is also expanding this year. Activity was strong, in particular, in retail banking in France. I talked about it for the group. Loan production was dynamic, driven by the corporate loan production that increased by 14% quarter-on-quarter and 16% year-on-year. And the home loan production was also strong, 9% quarter-on-quarter, 21% year-on-year, in particular, in the regional banks this quarter. And over the year, we have again an increase in market share for the regional banks. International loan production was also strong, in particular in Italy, with a 5.4% growth rate quarter-on-quarter in corporates and individuals, but also, for example, in Poland, thanks to retail. And so outstanding loans increased in all of our markets. On-balance sheet savings also increased in all of our markets, and the off-balance sheet savings inflows were dynamic in France and in Italy. And so this translates into the performance of insurance. We had record net inflows over the year in life insurance, EUR 15.9 billion. And this quarter, they were strong, driven by France and both by unit-linked and the euro fund. The premium income in insurance is high. It crossed in 2025, the EUR 50 billion threshold with a 20% increase this quarter, thanks, of course, to savings and retirement. You know that there's a context of increased precautionary savings, but also thanks to the P&C activity to individual death and disability insurance and to group insurance. And so P&C activity is growing both in France and internationally with 17.9 million contracts in our portfolio, and the equipment of our customers continues to increase in all of the retail networks. In Asset Management, we have a record level of AUMs of EUR 2,380 billion, thanks mainly to strong inflows. Olivier was talking about the EUR 88 billion inflows over the year, EUR 21 billion this quarter, thanks to medium to long-term assets into the JVs, and in particular, passive management and to continued strong momentum in third-party distribution. In Wealth Management, activity was also strong this quarter with record net inflows and strong customer capture. In Wealth Management, just to parentheses, the integration of the group is well underway. We have 30% of synergies that are already achieved, and this allows us to comfortably confirm our guidance of EUR 150 million to EUR 200 million net income group share contribution by 2028. In Personal Finance and Mobility, production was also high, EUR 12.1 billion this quarter, thanks in particular to dynamic activity in Personal Finance. As you know, the automobile activity was impacted this quarter and this year by unfavorable market conditions, but we have managed loans that increased across all segments. Production and leasing was dynamic this quarter, thanks in particular to renewable energy in France and benefiting from the integration of Merca Leasing. And finally, in the large customers division, the CIB confirms its performance with a new record level of Q4 and 2025 revenues, thanks both to market activities, where we had a strong performance in rates and repo activities and to financing activities, in particular, in the telco sector in Corporate and Leverage Finance. And of course, we maintain our leading positions on syndicated loans and bond issuances. And finally, in Asset Servicing, we have assets under custody and assets under management that increased this quarter, thanks to positive effects -- market effects, sorry, but also to the arrival of new customers. And the ISB integration is now finalized. Customer and IT migrations are completed, and the synergies have been achieved at a rate of 66%. And so we're very confident on our guidance of EUR 100 million of net income for 2026 contribution of ISB integration. By the way, I was talking about the growth in ISB. If you're curious, on Slide 41, we have analyzed the majority of our 2015-2022 transactions in order to look at the return on investments of these past acquisitions, which is, of course, on average, higher than our 10% limits, 13% as of 2025. And it's too early to calculate a 3-year ROI for the 2023-'24 operations, but we already have strong ROIs to date, and the synergies are on track for the 3 main operations of the period. I was talking about ISB for CACEIS and the Group, but also ALD, which is very profitable. Now, moving to revenues. So this activity, the dynamism of activity translates, as it has been doing, as you can see on the figure on the right for the past 10 years into revenue growth. Now, this quarter, CASA revenues were impacted by a negative Banco BPM share valuation of minus EUR 57 million. And so compared to the Q4 positive effect of EUR 263 million, this valuation impacts the change in revenues by EUR 320 million. Now, recall that until the first consolidation of Banco BPM in December, we have fluctuations in the share price of Banco BPM that impacted our revenues. And so we do still have this fluctuation. And this is why, in particular, we wanted to limit the exposure of our income statement, sorry, to the volatility in Banco BPM share price. And this is why we asked and we received the authorization by the ECB to cross the 20% threshold in order to equity account our stake within the framework of significant influence, and this is consistent with our position as a long-term shareholder and partner of Banco BPM. Now, going forward, this stake will be immune to the fluctuation of the share price of Banco BPM, and it's going to generate regular net income of, as Olivier was saying, if we base this on the past income statements of Banco BPM, about EUR 400 million per year. This is strong value creation. Recall that, over the past years, we have had strong value creation also, thanks to, in particular, the dividend earnings from Banco BPM. And so all in all, the contribution was EUR 200 million in 2023, about EUR 600 million in 2024 and about EUR 200 million in 2025, including, and I'm going to come back to it just afterwards, the impact of the first consolidation. So you see we have a strong value creation in our accounts in the past and in the future, thanks to this share in Banco BPM. Now, if I come back to revenues, excluding this EUR 320 million impact, the revenues increased by 2.7% this quarter, and this is thanks to the sustained activity that I was talking about in our business lines. The revenues increased by EUR 60 million in asset gathering. We have a scope effect linked to the Amundi U.S. deconsolidation, but also a scope effect linked to the integration of our insurance activities that are in JV with Banco BPM. And these 2 scope effects more or less cancel out. Besides this, activity was strong in all of the business lines. Revenues also increased in CIB despite an unfavorable foreign exchange impact and in asset servicing, thanks to strong fees and commissions income. In SFS, the revenues were impacted by EUR 30 million base effect that we have talked to you about last year in Consumer Finance. But on the other hand, we had revenues in leasing that benefited from the integration of Merca Leasing. And besides this, revenues benefited from favorable price and volume effects in Consumer Finance, which off-setted the decline in mobility revenues. You know that we have mobility revenues in our Cr�dit Agricole Auto Bank entity. And finally, the revenues increased by EUR 91 million in retail banking in all geographies, thanks to the strength of fees and commissions income in Italy and in France. And in France, finally, thanks to the rebound in net interest income. So as you can see, we're starting to see what we talked about in the medium-term plan on net interest income, a net interest income that's going to continue to slightly decrease in 2026 in Italy, but net interest income that will increase in LCL, by the way, also in regional banks, thanks to the reduction in the cost of resources, we have a normalization of the customer deposit mix and the rate effect and thanks to the gradual repricing of loans. So all in all, we have growing revenues in the businesses, continuing the dynamics that you observed over the past 10 years. Now, if I move to costs. The cost-to-income ratio has increased this year at 55.7%, but it remains very under control. It's an increase of 1.3 percentage points after 15 percentage points drop between 2015 and 2024. And if we look at the quarter, you see that we have a growth by 4.7%. But if we break down the expenses, you'll see a certain number of elements. First, we have scope effects. We have scope effects linked to the deconsolidation of Amundi U.S., but we also -- negative, but we also have positive scope effects from the integration of insurance entities in partnership with Banco BPM, Banque Thaler and the resumption of depository activities. So these both scope effects, as you can see on the right, along with the integration and acquisition costs, they more or less cancel out, first point. The second point, we have restructuring costs. You know that we talked about in the last quarter about EUR 80 million restructuring costs for Amundi in the context of an optimization plan in France, Italy, Germany and Australia that will generate EUR 40 million of annual savings from 2026 onwards. We have in addition to that for EUR 8 million this quarter. But more importantly, we have strong restructuring charges in Italy, EUR 65 million. This is really, as Olivier was saying, to prepare for a medium-term plan, i.e., the growth in digital customer capture, productivity efforts on administrative activities, improved sales force expertise. And then, if we take off these scope effects and restructuring costs, we have a growth that is very limited in recurring expenses, 2.5%. And this growth also allows us -- this growth in recurring expenses also corresponds to investments within our medium-term plan, for example, in LCL to continue to transform our distribution model, for example, in CIB, in cash management and equity solutions. So we're really laying the ground for our medium-term plan with these expenses. Now, if I move to cost of risk, cost of risk increased by 5.9% this quarter. But if you look at the Stage 3 incurred cost of risk, you'll see that it's very stable compared to the Q3 and Q2 levels. Now, what are the exceptional items that explain the increase in cost of risk this quarter? There's mainly 2 exceptional items. The first one is a EUR 41 million provision on the U.K. car loans litigation. As you know, we have a 2% market share. So it's limited for us. Of course, all of the CAPFM U.K. entities immediately complied with regulation on -- it's the setting of rates by distribution intermediates. But we are subject, as the other players that have a larger market share, to customer claims related to the past. And so we decided to prudently increase our provisioning in the context of an ongoing consultation by FCA to bring the total stock of our provisions to EUR 88 million. And so the outcome of the consultation is expected soon, hopefully, by the end of the month. And the second exceptional effect is a EUR 30 million provision. This corresponds in Italy, again, to a market element. It corresponds to our current estimation of our 5% share of bailing out of a small digital bank in Italy, which is Banca Progetto, bailing out by the Italian deposit guarantee scheme. And so, as I was saying, besides these elements, the Stage 3 cost of risk is very close to the Q3 and Q2 levels. 44% of the Stage 3 cost of risk is explained by SFS, where the risk has been relatively stable over the past quarters. Then, we have 32% for LCL with an increase in individual risk on corporates, mainly in retail distribution sector. And then, we have a little bit in Italy in CIB. In CIB, the cost of risk remains very low with investment-grade customers mainly in a diversified and a balanced geopolitical risk. So if I conclude on this slide, there's no surge in loan loss provisions, even though, of course, we monitor closely the corporate customers in retail banking, and in particular, for example, small real estate developers, construction, distribution, automobile, textiles and more generally SMEs. But our lending policy is cautious. And as always, our provisioning is very prudent. And as you can see, our main asset quality indicators are very solid. The cost of risk as a share of outstandings is low, both at CASA and group. The loan loss reserves are very high, and we have among the best coverage ratios in Europe, both for the group and for CASA. I'm going to move very quickly on to the next slide, just to tell you that for Cr�dit Agricole Italia, in particular, you see that the cost of risk on outstandings is stable at 39 basis points, excluding the Banca Progetto provision. And you see that we have relatively stable cost of risk after very low quarters, by the way, in beginning of '25 and end of 2024. Moving on to the slide on quarterly results. So we have strong activity, managed operational efficiency, cost of risks that are under control. But, however, our results in the fourth quarter were impacted by 2 exceptional effects that I'm going to explain in a little bit more detail right now. First of all, a first effect, which is a negative impact, as you can see on equity accounting of the performance of our JV with Stellantis, which is Leasys with a minus EUR 111 million contribution. Now, what happened? In CAPFM, we have 3 growth drivers in 22 countries. And we have 2 growth drivers that performed well in 2025, the servicing to the bank entities and personal finance, which is restoring its margins. There was one growth driver, mobility that suffered in 2025 due to market conditions, in particular, because the automobile market has been suffering in 2025. And on top of that, the car manufacturers that we have close ties with have had specific difficulties. So I'm thinking of GAC in China. I'm thinking of Tesla in Europe. And of course, I'm thinking of Stellantis with which we have our JV. So the 3 entities that we have on mobility, one is Cr�dit Agricole Auto Bank, for which we have gross operating income, which is good. The second one is our JV with GAC Sofinco, where production has been impacted, but results are positive, and production is picking up in the last month of the year. And then, finally, Leasys. Now, the difficulties faced by Stellantis reduced the attractivity of the range of vehicles. And so Leasys, which is the JV we have with Stellantis, has to make commercial investments, and the performance of remarketing was impacted. And so, in the Q4, we decided to review all of the remarketing values of our used vehicles portfolios in Leasys, systematically applying a conservative discount compared to market prices. So this impacted the Q4 results, but it's going to strengthen our financial base for Leasys, and it allows Leasys to prepare for a rebound in profitability because we're well positioned to benefit from the growth, which is coming in the long-term leasing market. We're starting on a solid footing, and we also have a strong position in particular in Italy, number one. And going forward, we're going to roll out new services and insurance solutions focusing on added value. That's the first effect. The second effect is one that you know better, which is the impact of the first consolidation of Banco BPM. So you recall that we acquired Banco BPM shares in tranches, each at a different price. And so when we consolidate for the first time, we decided to take a prudent accounting position, which is to take as reference the equity value and not the share price. And so we assess at each date of the acquisition, our share of the net assets acquired. So we carve out the fair value effect in P&L and OCI for about EUR 1.9 billion. It's negative because the price is higher today than what it was when we bought the shares. And then, conversely, we recognize a badwill effect, which is the difference between the price of the shares at the moment of the acquisition and the equity value of our participation. And then, there's an adjustment to net book value and net position. And so all in all, since the difference between the price of our participation at the time of consolidation and the equity value of our participation today is positive, we have a P&L impact that's negative. But as I was saying, going forward, based upon Banco BPM's past results, we should have an increase of about EUR 100 million of net income per quarter. So this quarterly net income has these exceptional effects that made it a little bit complicated to read. But if you look at annual results without any form of restatement, we have stable results at EUR 7.1 billion. So we have a certain number of exceptional elements that more or less cancel out. We have the impact of the first consolidation that I talked about of Banco BPM. We also have in the Q2, the capital gain linked to the deconsolidation of Amundi U.S. in the Q2. And we also have an additional corporate tax charge for EUR 147 million. And so if you exclude all of these elements on the right of the figure, you see that we have a gross operating income, which increased in 2025 by 1.3%, thanks to buoyant activity in our business lines and thanks to our constant attention to operational efficiency. And cost of risk is under control. And so all in all, you remember that we had told you that we would have a stable net income over the year, excluding additional corporate tax. Now including this, it's stable. And excluding it, net income would have increased by 1.8%. Finally, as indicated by Olivier, the ROTE is high at 13.5%. Pro forma, it's at 13.9%, and this bodes well for 2028 financial trajectory. Now, if I move to capital, for CASA, recall that the target in our medium-term plan is 11%. So we still have a very high level of CET1 this quarter, 11.8%, about 300 percentage points -- basis points, sorry, above our 8.75% SREP requirement. And this is thanks to, first, retained results, 22 basis points, which are the consequence of the generation of income that I commented before, but also integrating a 50% payout, payout based upon a distributable net income, which we adjusted to exclude the capital gain related to the deconsolidation of Amundi U.S. for EUR 304 million. It's not a cash effect and to exclude this accounting effect of the EUR 607 million P&L impact of the first consolidation of Banco BPM. And so this amounts to a dividend of EUR 1.13 per share, an increase compared to last year of 3%. Now, if I come back to the waterfall, we also have the effect of the organic growth for the business lines, 6 percentage points. And we have an active management of our balance sheet. In particular, we have optimized, as planned in our medium-term plan, our RWAs through the synthetic risk transfers for about 7 basis points, and this allowed us to release EUR 1.6 billion RWAs in CACIB net and EUR 0.6 billion in Cr�dit Agricole Personal Finance and Mobility in the fourth quarter. So we're going to really have an attitude which is scarce resource monitoring, always making sure that the cost of release is accretive. But you see here that we have this active management of the balance sheet, which allows us to compensate almost the methodological impact in the M&A and others. These M&A impacts include a plus 9 basis points impact of Banco BPM. Now, we have a negative impact of the EUR 607 million P&L first consolidation effect that I talked to you about, 14 basis points. And then, there's naturally because we have this prudent view regarding our equity accounting, there's a decrease in the prudential value of Banco BPM and our CET1. So we have a positive impact corresponding to the reduction in RWAs corresponding to this decrease. And this is why the impact of the first consolidation is positive for CASA and nonsignificant for the group because for CASA, this positive impact is stronger because our exemption threshold for the significant participations above 10% had already been full. So this is why we have a different impact between CASA and the group on the next page. This box also includes a share buyback impact, which compensates the Q3 impact of the capital increase for employees in order to neutralize the dilutive impact of that Q3 capital increase. This is 9 basis points. And we have a couple of small M&A impacts of which beginning of the participation in ICG. And finally, we have a few methodological effects. For example, in Italy, we have put in place new retail RWA models. This was included -- this is about 15 basis points, and this was included in the 40 basis points methodological impact we announced on our Capital Markets Day. And so the waterfall brings us to 11.8%, which is very comfortably above 11%. And then slide CET1 Group Cr�dit Agricole, next slide. I'm going to go very quickly on this because I talked about the effect regarding Banco BPM in particular. But I just wanted to insist upon the fact that our objective is not to accumulate capital at the level of CASA. And so that's why in terms of solidity, the relevant figure is the CET1 of the group, which is very comfortable at 17.4%, a 760 basis points distance to our SREP requirements. And so we have organic growth of businesses, and we also have a slight methodological impact regarding the correction of corporate loss given defaults for the regional banks. Leverage ratio is very comfortable. TLAC and MREL ratios are very strong. So we have a very strong capital position at the level of the group. On Slide 18, we also have a very comfortable liquidity position, a high level of liquidity reserves at EUR 485 billion. The LCL and NSFR ratios are excellent. NSFR is going to be published end of March, but in the Q3, we were close to 120% for the group, 114% for CASA. And the group has mobilized various levers to diversify the sources of liquidity, thanks to its universal banking model. One, our customer deposits that are abundant, stable, diversified and granular. And so our liquidity coverage ratio is very high, above our targets, which is a range between 110% and 130%. On the next slide, we have our transition plan that continues to be organized around 3 pillars: accelerating of the development of financing to renewables and low-carbon energy sources that has increased from the first half to EUR 28.6 billion in 2025. We're also helping our customers in their own transition by providing financing consistently with the group's sustainable asset framework. This has increased this quarter to EUR 116.5 billion. And finally, we continue to decrease our financing to carbon-based energy sources. And so moving on to the next slide, let me conclude by saying that this quarter, net income is impacted by an accounting effect linked to the impact of the first consolidation of Banco BPM and by the difficulties of the automobile market. These 2 elements should, in fact, disappear in 2026 and contribute on the other hand to growth, thanks to the growth in mobility and thanks to the regular high recurring profit contribution of Banco BPM. Activity was sustained in all of the business lines with record inflows, outstandings and premiums income and asset gathering, record performance in CIB, a strong pickup in net interest income in France. The fourth quarter, as Olivier was saying, marks the beginning of the medium-term plan, and we have already started rolling out the different dimensions of our plan in retail banking in France, in Germany in terms of innovation and efficiency. And so the gross operating income increased in 2025 for CASA and the Group. Income is high at EUR 7.1 billion, and this strong performance allows us to post high profitability with an ROTE of 13.5% and to propose to the general assembly an increasing dividend. So we're very much on track to meet our 2028 financial targets. I'm going to stop here. Thank you very much for your attention. We can now open the floor to your questions. Operator: [Operator Instructions] The first question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: The question is a bit conceptual, but when I look at your results and revenues in particular versus consensus, I mean, very strong activity everywhere, you've beaten, it's very strong. But at the same time, Clotilde, I feel for you because you spent the last 45 minutes literally going through every single one-off and restructuring and everything. And at the end of the day, your stock is down 3%, which I think is a bit harsh. So -- I mean, I totally appreciate the whole non-recurring aspects of Banco BPM and everything. You've explained the legal cases. But, is it fair to say that the reason why you ended up with that accumulation of nonrecurring aspect is probably due to the fact that you have a plan coming and you need a bit of a reset for a perimeter you feel comfortable with over the next 3 years and everything? Or is it actually the problems of having a decentralized structure, which means that you end up at the end of each quarter with an accumulation of things that were not necessarily planned at the beginning? Just to try to figure out when we can actually expect something quite clean, if you see what I mean. Clotilde L'Angevin: Yes. Thank you, Jacques-Henri. I see what you mean, and thank you for feeling for me for the 45 minutes. It's true that we really want to set the stage for the medium-term plan. And so that's why we were very satisfied when we received the authorization from the ECB to equity account our stake in Banco BPM because that's going to reduce fluctuations and provide high and recurring profit going forward. We intentionally accounted for the restructuring costs in Amundi and Cr�dit Agricole Italia in 2025 because this again sets the stage for our medium-term plan and growth going forward in retail, in asset management. But we're also -- I didn't talk about it too much, but we're also investing also in CIB, in LCL. So the costs that you have this quarter really reflects this investment that we have for the future in our medium-term plan. Now there are a few one-offs that don't depend on us, in fact, regarding, in particular, the U.K. provision and the Banca Progetto restructuring. And we have this issue in terms of the automobile market, but all of this should pick up. And I think what we really want -- what I really want to insist upon is the fact that we have really an outlook that's going to be strong for 2026 because we also have the integration of the recent acquisitions. That's also something that's going to pick up. We no longer have these integration costs for CACEIS. We have very limited integration costs that are going to be coming in 2026 for the group, but it's going to be limited. And as you can see, we're on Slide 6, we really have a lot of tailwinds going forward, in particular, with margins that are going to pick up, in particular, for French retail and for consumer finance. And of course, performance continues to be very strong in CIB and Cr�dit Agricole Assurances. Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: A few questions on my side as well. First of all, I mean, given the restatements you've done for the BPM on your accounts, which was very helpful, would you guide for an increasing net income year-on-year from the restated EUR 7.27 billion in '25, given all the moving parts? Consensus has that flattish or slightly down, which I think is a bit too cautious. And the second question is on capital and distribution. I mean, you've been increasing your EPS, but still accumulating excess capital. So you've just presented your plan, so there's no policy increase, policy in distribution and so on. But just want to hear you in terms of your plans in terms of what areas you could do some bolt-on and where you see good use of capital. And then, talking about this bolt-on, I mean, you had a very interesting slide, Slide 41, showing the ROI for the previous M&A deals. I mean, I already picked some on this with you, Clotilde, on the CMD, when you said the 10% ROI -- above 10% ROI is satisfactory. I thought it was quite of a low number. But now, I look at what you've done so far, between 11% and 13%. I mean, is that something really you've kind of expected from the origination of those deals or you were hoping for better than that and been disappointed by integration? Clotilde L'Angevin: Thank you, Tarik, for your question. Now, regarding guidance, I think really what I want to go back to is what Olivier was saying in terms of how we're setting the stage for the plan -- for the Act 2028 plan. So indeed, if you look at pro forma, we had a EUR 7.3 billion net income group share in 2025. And so we're well on track to reach our target, which is to go beyond 8.5% in 2028. But as you know, we really like to remain on multi-annual targets. In terms of cost-to-income, what I can tell you maybe more precisely, however, is that the 57.4% pro forma cost to income is a peak. It should go down next year. So 2026 cost-to-income should be lower than what it was in 2025. On the other elements, in terms of revenues, net income and ROTE, what I can just tell you is all of this we're on track to increase, and it's true that the 13.9% pro forma ROTE of 2025, really bodes well for the future. And I think we can really say that the 14% target for 2028 is really a minimum. Now, you were talking on organic bolt-ons. You know that our track record is really based upon a mix of organic and a mix of bolt-ons. In the Capital Markets Day, we talked to you about the fact that we had revenue growth that was 70% organic and 30% external growth. And that's why we had a revenue growth that was more than 5% over the past 6 years, and we're targeting a revenue growth of 3.5% in this medium-term plan. This is supposing that there would only be organic growth. We do hope we will do external growth operations. And as you were saying, Tarik, we do have very strict financial criteria. And so thank you for spotting out to Slide 41, and so thank you for Cecile and the team, and by the way, who prepared this slide. We take into account ROI, of course, and we're happy to have these figures. The 10% figure is a minimum. But there's also other criteria that we take into account. And we talked about it in the Capital Markets Day. We have to have operations that are accretive in terms of ROTE. We have to have a demonstrated integration capacity by the benefit of this integrating. We have to have revenues and cost synergies. And of course, these operations have to be very well aligned with our strategy. And so, to answer maybe your question as to what we can see in terms of bolt-ons, it's going to be linked with our strategy. Olivier was talking about the fact that we want to develop -- in terms of -- in France, in Europe, in Germany, we want to develop in Asia. We want to support the savings development in Europe, in particular. We want to support the development of corporates, in particular with mid-caps. In Europe, more generally, we were talking about these different triangles of growth where the mid-caps and the corporates are going to support the competitiveness of Europe. All of these are areas where we want to continue to develop, and all the business lines that you see, by the way, on Slide 41, all of the business lines have critical size, are profitable and so are very well positioned to continue to seizing opportunities if they appear. But we're really in an opportunistic mode because our medium-term plan, we can reach the targets through -- solely through organic growth. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: Yes. So I have 2 questions. On the first one, if I can ask on sort of your comments going back to your comments on 2026 outlook, when you mentioned the headwinds on NII for Italy, CACEIS and wealth management. I'm just wondering, is that just you're trying to be conservative? Because you do have already volume growth, and NII has stabilized in Italy. Shouldn't volume be able to offset the rate headwinds, just if you could give a bit of color on that? The second thing is, do you mind just like expanding a little bit and elaborating more about sort of Leasys and GAC Sofinco in China? Because -- I mean, how quickly can we see a rebound in your associate income? Production is picking up, it seems, in China, but like how quickly can we see that already in the numbers? And how can we measure the sort of the implications of the write-downs you've done on Leasys this quarter in terms of what that means for '26 and '27? Clotilde L'Angevin: Thank you. Thank you for your questions, Delphine. Yes, we have tailwinds for net interest income in France, but we do have headwinds for net interest income, as you were saying, in Italy, in CACEIS and wealth managers. We're, of course, hoping that volumes are going to pick up, and we have dynamism in commissions, but it's true that there is a rate effect that we see in Italy. The decrease in net interest income in Italy should not be that significant. On the other hand, the increase in net interest income in France should be a little bit stronger, in particular for LCL, and of course, in the regional banks, which also are going to support which is also going to support growth in the regional banks, which is always good for the activity of the business lines of CASA. So relatively, reasonable headwinds on net interest income in Italy. Now, if I come back a little bit to Leasys and to China. So let me just maybe talk about China a little bit because I didn't go too much into detail about that because, in fact, the production had slowed down in the first quarters of the year. In particular, I talked to you about that in the Q2 and in the Q3 in China. And in fact, we have had in the Q2 2025, an event where the Chinese authorities imposed a 5% floor to the commissions, which caused the market to normalize because we had, had the entry onto the market of banks, which caused competitive conditions on the market. And so production is picking up. December was the highest month of the year for GAC Sofinco in GAC Leasing. But the effect of this normalization, it's going to take a few quarters to come into the income because the average duration of these loans is a little bit more than 30 months. So we have to be cautious. But nevertheless, GAC has also begun to diversify its activities to the used car financing, for example, to the development of new services. So I think reasonably, we could consider that China's income could stabilize in 2026 compared to 2025. And hopefully, it's going to pick up going after that. Now, for Leasys, there's going to be drivers of profitability going forward for Leasys and for mobility more generally, a diversification of the distribution channel, a revamping of the services catalog, an improvement in the remarketing process with value sharing with car constructors, IT tools. We're developing a cross-European remarketing strategy, building on synergies between the different entities. And of course, the automobile market should pick up, and we are going to have more value-driven pricing. Now, we're confident in the fact that Leasys was going to recover profitability levels in 2026 and pick up even more in 2027. So a regular increase over the years of the medium-term plan. Operator: The next question is from Pierre Chedeville, CIC. Pierre Chedeville: Two questions on my side. First question regarding the launch of the platform in Germany and more generally in Europe on the savings side and online side. Will it cost some -- do we have to anticipate some extra charges regarding this launch and this project in 2026? Because you are not very precise on that side in the P&C. So do we have, I don't know, IT investments, things like that? I'd like to come back also on the cost of risk in LCL. You mentioned some attention points regarding retail and distribution. Do you think that here we will have to have a forecast in the coming quarters in terms of cost of risk similar to what we see -- what we've seen in this Q4 for the next quarter? Or is this a peak, I would say, in Q4 and the normalization in the coming quarters? Clotilde L'Angevin: Thank you, Pierre, for your questions. So regarding the development in Germany, of which we have the development of the digital savings platform, but which includes the development, for example, with -- of everyday banking services. This development should be relatively low cost -- I would say, would be below EUR 50 million. Why? Because we already have a setup in Germany with Creditplus, 20 branches, and Creditplus is already doing EUR 15 billion in on-balance sheet savings. What we're going to do is we're going to put up a very agile and efficient platform, in particular, to internalize the margins in terms of on-balance sheet savings. And this is something that we should start in the first half of 2026. And then, we're going to incrementally build upon that, adding day-to-day banking solutions with essential banking products. This should come in the second half of 2026. And then, in 2027, we should have off-balance sheet savings offers. What am I talking about? I'm talking about all of the synergies that we can do with the entities of the group, such as Amundi, for example, or Cr�dit Agricole Assurances. But these on-balance sheet savings themselves should be relatively competitive because we're going to propose a number of on-balance sheet solutions for our customers in Germany, which should make this digital saving platform very interesting. But to answer precisely your question, Pierre, all of these developments should be at a very low cost, less than EUR 50 million. And hopefully, we're going to have revenues that are going to contribute to our growth, thanks to these initiatives. That's the first point. The second point, you're talking about cost of risk in LCL. It's true that we have had an increase in incurred Stage 3 cost of risk this quarter in LCL. And so it's true that we're going to be very cautious regarding the different sectors that I talked to you about, retail development, automobile, textiles, distribution, et cetera, et cetera. It's very difficult to say what's coming in fact, a lot of uncertainty. We have a lot of uncertainty in France, in Europe regarding the corporate market. What I can tell you is that we have had low cost of risk in the recent quarters. But we have, more importantly, accumulated over the past year very strong provisions, provisions at the level of the group, provisions also at the level of CASA. The provisions at the level of CASA include prudent provisions that represent about 1.5 years of cost of risk. At the level of the group, we're close to 3 years of cost of risk. So we have very strong provisioning. And so if the Stage 3 cost of risk continues to increase over the next quarters, we really have these buffers in terms of prudent provisioning that allows us to limit the cost of risk, and I'm still very comfortable regarding the hypothesis that we have in our medium-term plan, which is a cost of risk at 40 basis points for CASA during the medium-term plan. Operator: The next question is from Matthew Clark, Mediobanca. Jonathan Matthew Clark: I have a couple of questions. Firstly, on Leasys, and then, on Slide 41. So with Leasys, can we expect it to break even already next quarter? Or is more a full-year breakeven kind of project? Is that the right way to think about it? And then, the second question is just on the calculation of your ROI on Slide 41. Is the 13% as simple as your net profit divided by the sum of all the considerations for those entities? Or is it more like a return on invested capital calculation or some other aspects of it? Any guidance there would be appreciated. Clotilde L'Angevin: All right. Thank you, Matt. Regarding Leasys, I'm not going to give you any quarterly guidance. What I'm going to tell you is that hopefully, we're going to have a positive profitability for Leasys in 2026, picking up in 2027. But uncertainty is relatively high on the automobile market. So it would not be unreasonable for me to give you any quarterly guidance regarding Leasys, but we are comfortable in the fact that we're -- confident on the fact that we're going to resume profitability, double-digit contribution to net income in 2026. Now, for the M&A operations, it, in fact, depends because some of the M&A operations are difficult to -- the ROI is difficult to calculate because the objective of these operations usually is to really have them really feed into the business, and it's oftentimes very difficult to see what is the contribution of this integrated activity to cost or revenue synergies. So when we look at the ROI, we look at the revenue synergies. We look at the cost synergies. We compare that to the price of acquisition. And then going forward, we try to estimate the contribution of the integrated activity to the net income, but it's going to be an estimation naturally because it's difficult because we don't have separate entities. One of the cost synergies that -- one of the drivers of the cost synergies is the migration -- IT migration and the merging of legal entities. So this makes things difficult, but what we do look at to simplify is we do look at additional net income in year 3 compared to the capital that we invested. Jonathan Matthew Clark: So just to clarify, is it compared to the consideration that you -- when you say capital that you invested, is that the consideration you pay to the seller? Or is that the CET1 on capital that's--okay? Clotilde L'Angevin: It's the cash. It's the cash that we paid. It's not a CET1. We do have a return on CET1, but that is more comparable in fact to the ROTE. What I'm telling you that we have an ROI and we want to have something that is accretive in terms of ROTE, perhaps to have something that's accretive in terms of ROTE, we look at a certain number of elements, the RONE, but oftentimes, the ROCET1, which looks at the capital consideration that you're talking about. When we look at ROI, we're comparing it to the cash invested. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have 2. The first one is just a quick follow-up on the cost of risk in LCL. And I just wanted to better understand if the increase of cost of risk was linked to a limited number of big tickets. Or was it more a broad-based issue with certain sectors that you called out in the slide? And the second one is on the tax. What do you expect for 2026 taxation at CASA level? Clotilde L'Angevin: All right. Thank you very much, Alberto, for your questions. Regarding LCL, it's an increase in a certain number of individual risks on corporates, but I would not say that it's 1 or 2 large deals. There are -- it's not completely a large number of small corporates. There are individual risks, but it's a little bit more diversified regarding the SMEs. So it's an increase in the SME risk in the different sectors that I was talking to you about. It's not 1 or 2 specific cases. Now, regarding the corporate tax, going forward, we do have, as you saw, the publication of the tax decisions by the government, which causes us to forecast a relatively similar corporate tax going forward. It's too early as of today to draw conclusions, but we still have a corporate tax that should be based on an average of the fiscal revenues of past year and current year. So that's why we can't estimate it as of today. The corporate tax for 2025 was based upon the average of the fiscal revenues of 2024 and 2025. So we have to calculate -- we're going to have to calculate the corporate tax going forward based upon the fiscal revenues of 2025 and 2026. Now, it's more or less the same type of corporate tax, except that the threshold in terms of turnover is a little bit higher. It goes from EUR 1 billion to EUR 1.5 billion, which could have an impact at the level of the group. But all in all, we will have a corporate tax. The amount will be in the same ballpark as what we had this year. And it's true that this is something that is taking into account -- in our medium-term plan, we know that we have to take into account a certain number of uncertainties, and this is one of the uncertainties that we have to take into account. Hopefully, it's not going to continue until 2028, i.e., the end of our medium-term plan. Operator: The next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: I had 2. Firstly, on Specialized Financial Services. I know that this is one area where consensus seems to be consistently underestimating your strength. Anything that you can say as to why consensus seems lower? And what do you think it is missing? And a follow-up on Leasys, can you clarify what drove the higher used car sale losses and whether there's more pain to come? And lastly, on Corporate Center, if you can give guidance, now that we will not have the Banco BPM accounting impact, do you think the 4Q underlying level of, say, call it, EUR 80 million negative net income, is a reasonable run rate to extrapolate going forward? Clotilde L'Angevin: Okay. Thank you, Sharath. So for SFS, the thing is that it's difficult to estimate the impact on mobility in the context that we have currently, which is a context of an automobile market that is under difficulty. So this is something, in fact, that has been -- had an impact on most of the car constructors, but it's true that the car constructors with which we have a relationship today with Cr�dit Agricole Bank, specifically with Tesla, GAC Sofinco with GAC and Leasys with Stellantis, we have had difficulties on these 3 car constructors, each for specific reasons that hopefully are going -- are behind us, and hopefully, activity should pick up. That's the first point. But if I extrapolate a little bit to used car, there is a market where the arrival of electric vehicles is making the residual value of used cars difficult also to estimate. That's also why we adopted a very prudent approach by applying a conservative discount to our used car residual values for Leasys. This is really to put us on a solid base for the future regarding this dimension. And if I -- because we have a certain number of growth drivers in CAPFM, not only mobility, we also have personal finance. And in terms of personal finance, we're optimistic. As to the pickup, we're going to have tailwinds linked to the margins, and we're going to have also a pickup in the insurance and services. So these are elements that should help us going forward. For Corporate Center, what we said in the medium-term plan was that we could target around EUR 900 million -- EUR 400 million in contribution, I think. I'm just verifying that with Cecile right now. She's nodding -- she's shaking her head. So maybe that's not that. I'm going to have to come back to you as to the guidance we have in the medium-term plan in terms of the corporate center. Operator: Next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: A few questions on insurance, if I may, which was about a very strong figure. The first question is related to CSM, which has enjoyed a very strong growth of 9.1% over 12 months. So it's partly due, of course, to the activity, but also you mentioned some positive market effect. Can you just please tell us what has been the market effect or what has been the new business CSM, just to understand a little bit the quality of this strong increase? The second question is on P&C. Your combined ratio has been broadly stable at 94.6% for the full year. So what do you expect in terms of price increase this year? And what do you expect in terms of combined ratio this year and over the plan? I have in mind that maybe you expect a broadly stable combined ratio over the plan, but I don't know if you can confirm or elaborate a little bit on that. And maybe the third question is on solvency. Solvency is down a little bit compared to year-end '24, but it's still very strong. So it's fine. My question is, first, I mean, do you have a view on the dividend to be paid by Cr�dit Agricole Assurance to CASA in Q2 and the impact on CET1 ratio? Or is it maybe too early for this? And the second question is, do you have a view on what could be or what will be the impact of the Solvency II overview on the solvency margin? Clotilde L'Angevin: All right. Thank you, Benoit. Now, regarding the CSM, so we have a certain number of elements. And in particular, we have the variable fee approach dimension, which is contributing to the allocation of the CSM. So we have a very slight decrease in the allocation factor, but nevertheless, we have a CSM that is -- that we have -- which we have new business contribution that is higher than the CSM allocation. The positive market effects are effects that you can have, in particular, in the GSA in terms of -- for the life insurance. Now regarding P&C, we have a combined ratio indeed at 94.6% at the end of the year. Going forward, there's going to be pluses and minuses. There's going to be an impact on claims, for example, of climate change, for example. But on the other hand, the premiums in this context should adapt. And the idea for us is to be able to develop P&Cs in France, internationally to develop the equipment rate to diversify also to principalize our customers in the retail banking in order to increase the extent of P&C solutions that they can have. So these are areas for growth in terms of P&C going forward. But it's true that there will be this mix between claims and premiums going forward because this is linked to the evolution of the market. And in terms of solvency, it's really too early to give you any elements like that. Of course, the solvency ratio is something that we usually give you at an annual level for Cr�dit Agricole Assurances, which is very high. We had a slight decrease this year, 6 percentage points over year in the context of increased rates, but strong growth in activity and -- but it remains extremely high and very comfortable. Benoit Valleaux: Okay. Maybe just regarding the CSM, do you have the figures regarding the contribution from the new business to CSM in '25? Clotilde L'Angevin: We have the fact that the allocation factor is 7.5% and new business contribution is higher than the CSM allocation. Operator: The next question is from Ned Tidmarsh, Morgan Stanley. Edward George Tidmarsh: I just wanted to ask how is the current macro situation in France impacting CASA? And can you talk a little bit more about your outlook on French retail going forward given the recent positive developments on the deposit mix and pricing, please? Clotilde L'Angevin: All right. Thank you. So in fact, the uncertainty linked to the fiscal budget government situation has decreased a little bit. And we have seen that in the asset swaps from the OETs, which has decreased in these past weeks. In fact, the asset swap for OETs has gone below that of Italy. So we have had a market where conditions have been relatively good. Now, there is still uncertainty going forward more generally, but uncertainty linked to European growth to the aging of population, to competitiveness issues. There is an uncertainty linked to the level of public debt, for example, in Europe, and also, of course, to the geopolitical risk, which will have an impact on the supply chains -- global supply chains. This all creates uncertainty more generally. Now, 2 points. First of all, on our capacity to raise liquidity to meet our funding plans, CASA has a very strong position. There is an impact, a slight impact of the fact that we are -- we have an impact due to the government -- French government debt. But nevertheless, the spreads are very low for us. And in fact, our funding plan for last year, we went beyond our funding plan, which was EUR 20 billion. We went to EUR 23.1 billion because the conditions were very strong. And the funding plan that we have is very favorable, sorry. And the funding plan that we have this year is about EUR 18 billion -- 1-8, and we have already achieved about 31% of this funding plan as of end of January, which is very good and which shows that there's abundant liquidity for the European banks and for Cr�dit Agricole, which has a very strong capital and liquidity position, and our conditions, our funding conditions are very good. So that's the first point. The second point is what could be -- so there's no issue for us, CASA, Group Cr�dit Agricole in terms of capacity to raise funding. The second point is, will macroeconomic uncertainty have an impact on activity, activity in the countries where we operate and our activity? Now, you saw in our medium-term plan that we want to increase the share of revenues outside of France from about 55% to about 60%. So this is development that will allow us to diversify also our business mix, first point. And then the second point is that we consider that we're very well positioned to support our customers in the developments that will be necessary, i.e., for example, I was talking about aging population. We're very well positioned to support the savings, the development of savings in Europe, thanks to insurance, thanks to asset management, thanks to the deal that we just signed with ICG in private debt, et cetera, et cetera. That's the first point on savings. And in our medium-term plan, we're also committing to support the mid-caps in Europe in the way that they contribute to competitiveness of Europe in a certain number of sectors, like defense or health or agri or technology. So we're well positioned to navigate in this uncertain environment. Operator: The next question is from Cyril Toutounji, BNP Paribas. Cyril Toutounji: I've got 2. The first one will be on Germany. I know you're launching your platform this year. So I'm just wondering what's your strategy to capture market share in the market that's becoming more and more competitive with new entrants? And the second one would be on French retail revenues. So it was really strong this quarter. And the drivers of NII especially are pretty structural. So I'm just wondering what's preventing us to maybe extrapolate this growth that's quite above the strategic plan revenue targets. Clotilde L'Angevin: All right. Thank you for your question. How we want to gain market share? So we're being very reasonable in the targets that we have. We want to go from 1 million customers to 2 million customers in Germany. We have savings outstandings that are EUR 15 billion. We want to reach about EUR 30 billion in Germany. And if we expand that to other countries, it will reach -- we're going to reach the EUR 40 billion that we talked about in our medium-term plan. So it's a relatively reasonable target because we're starting on this basis of 1 million customers and EUR 15 billion in outstandings. And as I was saying this before, we think that we're going to have a competitive edge linked to the number of solutions we can provide in terms of on-balance sheet savings in this digital platform, time deposits, et cetera. So we have a certain number of solutions that should be more numerous than those of other competitors. But recall that Germany is a market where there's a very strong depth in terms of savings. We want to target affluent customers. And so we're relatively optimistic regarding this, first point. The second point, indeed, the net interest income revenue increased strongly in France this quarter, and in particular, in the regional banks. And in the medium-term plan, we have increased -- an increase -- we have included, sorry, an increase in net interest income. The 11% net interest income that we have seen in French retail this quarter is probably a little bit strong. But for going forward -- but in 2026, I think we can say that we will have a high single-digit increase in French retail in 2026. And then, maybe coming back because Cecile and the team were just checking to the Corporate Center, the minus EUR 400 million I was talking about is indeed a good order of magnitude for a guidance for the net income for the Corporate Center by 2028. Operator: [Operator Instructions] Gentlemen, Ms. L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: Thank you. Thank you very much, everyone, for your attention. So I'm not going to come back to the results that are very strong this year. I just wanted to make one last point. We talked a lot about medium-term plan, which is very good because we're really orienting ourselves into this medium-term plan by 2028. And during the medium-term plan, we have promised that we would do a couple of workshops on a couple of businesses. And in particular, we had talked to you about a workshop for LCL in the first half of this year. And so I'm very pleased to ask you to save the date of May 26, where we will be pleased to host you for an LCL workshop in Paris. And I'm going to stop there. Thank you, everyone, for your attention, and have a very nice day. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Hello, and thank you for standing by. Welcome to Enact's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Daniel Kohl. You may begin. Daniel Kohl: Thank you, and good morning. Welcome to our fourth quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding the forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit. Rohit Gupta: Thank you, Daniel. Good morning, everyone. Enact delivered a very strong finish to 2025 that reflected the disciplined execution of our strategy, robust credit performance and our commitment to shareholder value creation. For the full year, we reported adjusted operating income of $688 million or $4.61 per diluted share. We returned over $500 million of capital to shareholders and the year-end adjusted book value per share increased 11% to $37.87. Before discussing the quarter, I want to take a moment to highlight some of our accomplishments in 2025. In a complex housing environment, we helped over 134,000 borrowers buy a home and over 16,000 borrowers keep their home. We continue to innovate our risk selection and pricing capabilities, leveraging advanced modeling and machine learning to deploy the latest version of our pricing engine, Rate360. We generated $52 billion of new insurance written and ended the year with record insurance in-force of $273 billion. We maintained our commitment to expense discipline with full year operating expenses at $217 million, excluding restructuring charges. We delivered record levels of capital returns to our shareholders, and we enhanced our financial flexibility by entering a new $435 million revolving credit facility and protected our forward books at attractive cost of capital through new CRT deals. Our execution continued to be recognized by the market, evidenced by receiving multiple credit ratings upgrades. Finally, Enact received multiple industry and local awards, a testament to our commitment to excellence and providing an exceptional employee experience. Taken together, these accomplishments underscore the progress we made in 2025 and reinforce our confidence in Enact's long-term strategy. Turning to our fourth quarter results. We reported adjusted operating income of $179 million or $1.23 per diluted share, while adjusted return on equity was 13.5%, and we generated robust new insurance written of over $14 billion, driven by an increase in refinance originations as mortgage rates declined. However, 59% of loans in our book have rates below 6%, providing support for continued elevated persistency. The long-term drivers of housing demand remain strong, and we are confident that mortgage insurance will continue to play an essential role for both buyers and lenders. Pricing remained constructive in the quarter, and our dynamic risk-adjusted pricing engine, Rate360 is enabling us to prudently price risk with discipline as market conditions continue to evolve. Our insurance in-force portfolio remains resilient with risk-weighted average FICO score of 746. The risk-weighted average loan-to-value ratio was 93% and layered risk was 1.2% of risk in-force. Cure performance continues to outperform our expectations, driven by favorable credit performance and effective loss mitigation efforts. This resulted in a net reserve release of $60 million in the quarter, partially driven by a claim rate reduction from 9% to 8%. Dean will touch more on this shortly. We also continue to advance our capital allocation priorities of supporting existing policyholders by maintaining a strong balance sheet, investing in our business to drive organic growth and efficiencies, funding attractive new business opportunities and returning excess capital to shareholders. At the end of the quarter, our PMIERs sufficiency ratio was 162%, providing significant financial flexibility and our credit and investment portfolios are in excellent shape. Our strong capital position is further reinforced by the effective implementation of our CRT program and the backing of our credit facility. We continue to make steady progress against our strategic initiatives, advancing innovation in the MI business and continuing to expand into attractive adjacencies. Enact Re continued to perform well and participated in attractive GSE single and multifamily deals in the quarter while maintaining strong underwriting standards and generating attractive risk-adjusted returns. Enact Re remains a long-term growth opportunity that is both capital and expense efficient. Finally, as it relates to capital returns, during the fourth quarter, we returned $157 million to shareholders through share repurchases and dividends. We remain committed to our capital allocation priorities, and we are pleased to announce our 2026 capital return expectations of approximately $500 million. Additionally, we issued a press release last night announcing that our Board of Directors authorized a new share repurchase program that is the largest in Enact's history. In closing, we believe we are well positioned to continue navigating the uncertain macro environment, supporting our customers and delivering sustainable value for shareholders, none of which would be possible without the hard work and talent of our employees, and I would like to take a moment to thank them for their continued efforts and contributions. With that, I will now hand the call over to Dean. Hardin Mitchell: Thanks, Rohit, and good morning, everyone. We are pleased with the very strong results we delivered in the fourth quarter of 2025, which concluded an excellent year for Enact. Adjusted operating income was $179 million or $1.23 per diluted share compared to $1.09 per diluted share in the same period last year and $1.12 per diluted share in the third quarter of 2025. Adjusted operating return on equity was 13.5%. For the full year, adjusted operating income totaled $688 million or $4.61 per diluted share compared to $718 million or $4.56 per diluted share in 2024. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release. Turning to the fourth quarter. New insurance written was $14 billion for the fourth quarter, up 2% sequentially and up 8% year-over-year. This new business is well priced, has a strong credit risk profile and is comprised of loans that are well underwritten to prudent market standards. Persistency was 80% in the fourth quarter, down 3 points sequentially and down 2 points year-over-year on lower prevailing mortgage rates. While mortgage rates have fallen recently, only 22% of our mortgages in our portfolio have rates at least 50 basis points above December's average of 6.2%, providing support for continued elevated persistency. The combination of solid new insurance written and lower but still elevated persistency drove primary insurance in-force of $273 billion in the fourth quarter, up $1 billion from the third quarter of 2025 and $4 billion or approximately 1% year-over-year. Total net premiums earned were $246 million, up $1 million sequentially and flat year-over-year. Our base premium rate of 39.6 basis points was down 0.1 basis point sequentially, in line with our expectations. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter. Given our current expectations for the MI market size and mortgage rates, we anticipate our base premium rate in 2026 to be relatively flat versus 2025. Our net earned premium rate was 34.8 basis points, down slightly sequentially, driven by higher ceded premiums. Investment income in the fourth quarter was $69 million, flat sequentially and up $6 million or 10% year-over-year. Our new money investment yield of approximately 5% contributed to an increase in the weighted average portfolio book yield of 4.4% for the quarter. While we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income. Turning to credit. We continue to see strong loss performance across our overall portfolio. New delinquencies increased sequentially to 13,700 in the quarter from 13,000 in the third quarter of 2025, in line with expected seasonal trends. Our new delinquency rate for the quarter remained consistent with pre-pandemic levels at 1.5%, an increase of 10 basis points from the third quarter of 2025 and flat versus the fourth quarter of 2024. Total delinquencies in the fourth quarter increased sequentially to 24,900 from 23,400 as news outpaced cures and the delinquency rate increased 10 basis points sequentially to 2.6%. Losses in the fourth quarter of 2025 were $18 million, and the loss ratio was 7% compared to $36 million and 15%, respectively, in the third quarter of 2025 and $24 million and 10%, respectively, in the fourth quarter of 2024. We reduced our claim rate in the quarter for new and recent delinquencies from 9% to 8% after factoring in the continued strong cure performance sustained throughout 2025. We believe the 8% claim rate is well aligned with the current macroeconomic uncertainties and remains consistent with our measured and prudent reserve philosophy. The net reserve release of $60 million in the fourth quarter was driven by favorable cure performance, our loss mitigation activities and the reduction in our claim rate assumption. This compares to reserve releases of $45 million and $56 million in the third quarter of 2025 and fourth quarter of 2024, respectively. We maintain our focus on disciplined cost management in 2025. Operating expenses for the fourth quarter of 2025 were $59 million, and the expense ratio was 24% compared to $53 million and 22%, respectively, in the third quarter of 2025 and $57 million and 24%, respectively, in the fourth quarter of 2024. For the full year, our operating expenses of $218 million or $217 million, excluding reorganization costs, were favorable to our updated guidance of approximately $219 million. For 2026, we anticipate an operating expense range of $215 million to $220 million, excluding any reorganization costs as we continue to prudently manage our expense base, balancing our continued focus to drive further efficiencies in our business while also investing in our growth initiatives. We continue to operate from a strong capital and liquidity position reinforced by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements at the end of the fourth quarter. And as of December 31, 2025, our third-party CRT program provides $1.9 billion of PMIERs capital credit. Turning now to capital allocation. During the quarter, we paid out $30 million or $0.21 per share through our quarterly dividend, and we bought back 3.4 million shares at an average price of $37.66 for $127 million. For the full year 2025, we returned $503 million to shareholders. $121 million through our quarterly dividends, and we repurchased 10.5 million shares at an average price of $36.25 for a total of $382 million. Through January 30, we have repurchased an additional 0.8 million shares for $31 million. For 2026, we expect capital returns of approximately $500 million. As in the past, the ultimate amount and form of capital return to shareholders will be dependent on business performance, market conditions and regulatory approvals. As we announced yesterday, the Board has authorized a new $500 million share repurchase program and declared a quarterly dividend of $0.21 per common share payable March 19. Overall, we are pleased with our performance in 2025, and we believe we are well positioned for another strong year in 2026. We remain focused on prudently managing risk, maintaining a strong balance sheet and delivering solid returns for our shareholders. With that, let me turn the call back to Rohit. Rohit Gupta: Thanks, Dean. Looking ahead to 2026, our strong balance sheet, the portfolio's significant embedded equity and our disciplined operating approach position us to effectively navigate uncertainty and capitalize on long-term opportunities. Additionally, demographic tailwinds, particularly among first-time homebuyers, support long-term demand for housing and for private mortgage insurance. Finally, as housing affordability and supply constraints shape policy discussions, we continue to actively engage with our lending partners, the GSEs, the FHFA and the administration and believe we remain well positioned to navigate and adapt to an evolving policy environment. We remain committed to helping people responsibly achieve the dream of homeownership and deliver long-term value for all our stakeholders. Operator, we are now ready for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Doug Harter with UBS. Douglas Harter: Appreciate the guidance on the capital return. In the past couple of years, you were able to exceed your initial capital return goal. Like how do you think about the sensitivities to that capital return goal for 2026? And what could cause that to come in better? Or what would be the factors that might cause you to need to slow it down? Hardin Mitchell: Yes, Doug, it's Dean. Thanks for the question. Yes, we're -- much like we said in our prepared remarks, we set a capital return guidance for the beginning of the -- at the beginning of the year. We're very confident in delivering $500 million back to shareholders. But we'll continue to evaluate dynamics in the marketplace, namely our business performance, how the business continues to perform, how we continue to grow the business and certainly loss performance during 2026. We're also going to be looking at the macroeconomic environment. Obviously, we're looking at the prevailing macroeconomic environment, the uncertainties that exist today and still feel confident in our ability to return $500 million, but we're going to look and see how that evolves over the course of the remainder of the year, and that can have an effect. And then lastly, and maybe a little bit less in this market right now is the regulatory environment. Is there anything going on either in the context of PMIERs or with the state regulatory environments or otherwise that would cause us to rethink and adjust our planned $500 million capital return in 2026? But we're confident that right now, given those dynamics, we're confident in the ability to return $500 million to shareholders in 2026. Operator: Our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I wanted to start actually where you ended that last answer, Dean, just about regulatory environment. Obviously, I think everyone has been hearing about a potential for an FHA rate cut, affordability agenda and other such things. Are there a few things that you guys are particularly paying attention to from a regulatory or government action standpoint that maybe are worth highlighting for investors that we should just keep an eye out for? Rohit Gupta: Mihir, thank you for the question. This is Rohit. I would say we remain actively engaged with the new administration, and that includes treasury, FHFA, the GSEs as well as policymakers. And our focus continues to be on the topics that are in discussions. So on the most macro basis, we are talking about limited inventory challenges as well as affordability challenges. So as ideas come up, we actually provide our input on the pros and cons of those ideas, but also equally important in our market, we provide input on implementation of those ideas and what that entails. So the ideas like credit scores come up, what are the pros and cons of different credit score ideas, all the way to some of the recent ideas that are being discussed on the announcement of GSEs buying mortgage-backed securities, and on institutional investors buying single-family homes. So I would say those ideas are more in the water table as already announced. Any future ideas that come up, and there's a list of ideas that you mentioned that are in discussion, we are actively engaged on all those places. I wouldn't call out any specific idea which is high up on the list from an execution perspective. I think it's just a list of ideas right now. So that's how I would frame it. Mihir Bhatia: Okay. And then maybe just like a little bit more just from 2026 thoughts. What type of mortgage market are you planning for in 2026? What does that mean for NIW or insurance in-force? I think you talked about premium rate and OpEx, but just like what are you assuming for the mortgage market and NIW in that scenario? Rohit Gupta: Yes. Yes, Mihir, thank you for the question. So I would say in this environment, when there is a good amount of rate volatility and mortgage rate volatility, specifically, it's tough to forecast originations. So I'll just give you that caveat upfront. But with that being said, we look at external originations forecast to figure out what the market originations are, overall mortgage originations are and just to kind of index the market on the purchase origination side. So our take is that 90-plus percent of the market in 2025 was -- for MI market size was purchase origination. And if you look at 2026 purchase originations forecast in the market between Fannie Mae, MBA, Moody's, you see a range of an 8% increase all the way to a 24% increase between those 3 external parties. So as we think about those external forecasts and convert that to a mortgage insurance market, we can see an increase of approximately 10% to 15% from 2025 to 2026. Again, with the caveat being that that's based on our current forecast of mortgage rate expectations, affordability expectations, but that environment continues [ to be ] dynamic. So as the environment evolves, we will come back and update that forecast. But at this point of time, that feels like the most updated view for us. Mihir Bhatia: Right. No, that's quite helpful. And just one last one for me, and then I'll get back in queue. Just on default rates, where do you think they trend from here? Is it just like you read stability and seasonality from here? Anything we should be keeping in mind, whether from a vintage seasoning, vintage size type of view? Hardin Mitchell: Yes, Mihir, it's Dean again. From a delq rate perspective, I think we're seeing what we would expect to see. So just in terms of vintage contribution to delq rates, you continue to see book years age up their loss development pattern. And so as newer books season or age towards higher parts of the loss development patterns, they're contributing more delinquencies as you would expect to the overall delq rate. I think the portfolio now stands at about 4 years, about 4.1 years on a weighted average basis. That's kind of towards that plateauing of the loss development pattern, the normal loss development pattern. So I think what we'd expect heading into -- before we get to '26, what we saw in '25 is kind of in line with what we expected. We expected year-over-year change in new delinquencies to slow. From '23 to '24, it was in the mid-teens. When you went from '24 to '25, it was in the mid-single digits. So very much in line with expectations. I think as we think about going from '25 to '26, we could still see it continue to moderate. So might still increase in terms of new delinquencies year-over-year, but moderating from its current level, recognizing that year-over-year, there were only 2,000 incremental new delinquencies. So we're dealing with pretty small numbers. Operator: Our next question comes from the line of Rick Shane with JPMorgan. Richard Shane: Look, in some ways, you guys have 2 books. You have the sort of pre-'22 legacy book with credit that's going to be sort of best in a generation. You have a subsequent book that I think is evolving to be in line to better with your sort of underwritten expectations. As you look at the second part of that book, the front book, I am curious if you can sort of put credit performance in some terms versus your expectations, how are things tracking? But specifically, are there things that you are seeing within certain cohorts, whether it's DTI, LTV, geography that are stand out in terms of elevated risks? Hardin Mitchell: Yes, Rick, it's Dean. Thanks for the question. If we think about vintage performance, I'd probably start off by saying it's kind of redundant to your question a little bit. But let me start off by saying all of our recent book years have been performing in line with or better than our pricing expectations. Obviously, to your -- a little bit underpinning your question, our newer books, so I think 2022 through 2024 have been originated in primarily a purchase market, which tend to have higher risk attributes like a little bit higher LTV, a little bit higher DTI than refi market. And in addition to that, they have had much more modest home price appreciation and in certain instances, depreciation depending on the geography compared to prior book years. We price for those attributes. So we price for our view of risk. We price for our future view of home prices, all in an objective to achieve an attractive return on equity. So on new vintages, we haven't seen performance differ from our pricing expectations that we established at policy inception. And we still believe we're onboarding the right risk at the right price, if you will, across vintages, across book years based on vintage performance to date. Yes, are there differences across attributes? Of course, risk attributes matter, geographies matter. Again, we factor that in our price, and we haven't seen anything that worked against our expectations and created negative variation. Richard Shane: Got it. And anything going forward that you're going to be -- and I realize you have to be sensitive about this from a competitive perspective. But any areas that you would highlight where you're being a little bit more circumspect about risk? Hardin Mitchell: Yes. I mean we don't want to go into our pricing schema, if you will. But let me just -- I mean, I think it's the things that you would expect, Rick. So there are certainly areas of the country where housing supply has increased and home prices have either moderated or declined. I think parts of the Sunbelt, particularly kind of Florida, Texas, California, Arizona, I don't think those are states that would surprise you as having pulled back a little bit in terms of home prices. That's in contrast to the Northeast, where you still have low housing supply and home prices continue to appreciate pretty meaningfully. So we're monitoring housing markets as an example of something that we're keeping our eye on for affordability, supply-demand dynamics, and we'll continue to consider that as we think about how to, again, crystallize our philosophy of the right risk at the right price. Rohit Gupta: And Rick, just to add to Dean's point, we have talked about this in the past and also mentioned it in our prepared remarks on the call. We have very deep analytics and a lot of capabilities even from a forecasting perspective to incorporate those views in our pricing, and we have the ability to make those pricing changes on a very frequent basis when we think those are appropriate. So to Dean's point, not only historically speaking, but also looking forward, we continue to incorporate that view of risk, performance, geographic differences or risk attributes at a loan level into our pricing. And now we have the mechanism to charge that price at a very granular level. Operator: Our next question comes from the line of Bose George with KBW. Bose George: Actually, on expenses, you guys continue to do a good job there, kept it flat now for a few years and it seems to be the case again in '26. Is technology the main driver? And then longer term, could we see the expense ratio continue to decline as expenses stay flattish or at least increase by less than revenues? Rohit Gupta: Yes. Thank you, Bose. I appreciate your question. So I would say from an expense perspective, you are correct. We have actually not only kept our expenses flat in the last year -- 2 years, but since our IPO, our expenses are -- on a dollar basis are probably down $30-plus million on an annualized run rate basis. So we continue to invest in technology, invest in different amounts of innovation to drive that improvement. And that is meant to drive all aspects of our business, drive productivity, drive better customer experience and drive smarter decisions. So when you think about our expenses in 2025 coming in below our original guidance, that is driven by us actually harvesting those benefits, harvesting those gains from our investments, and we see the same thing happening in 2026. Now in terms of long-term expectations on expense ratio, I think it's tougher to give that guidance. Our aspiration is to always be prudent managers of expenses. So yes, we will always try to actually improve our expense ratio, both through growing our premiums by actually getting to a larger, more profitable book and at the same time, getting the right efficiencies from the business. But how those premiums play out and how those expense dollars play out are difficult to forecast beyond 2026. So yes, directionally, you're absolutely correct. And then as we navigate through '26 and get to '27, we'll provide updated guidance. Bose George: Okay. Great. And then just on the reinsurance transactions that you guys did, can you just talk about the attachment and detachment points? And then how is the pricing on that market, just the trend in pricing? Hardin Mitchell: Yes, Bose, we -- so let me start with the pricing, and then I'll go to the nature of the agreement. From a pricing perspective, we're seeing a tremendous amount of demand in the traditional reinsurance market for mortgage credit default risk. That has benefited the terms of our -- some of our most recent reinsurance transactions going all the way back to the coverage we've secured on both the 2026 book as well as now the 2-year forward 2027 book. So we've typically talked about that in low to mid-single digits cost of capital. If you go prior to those transactions, we were probably on the higher end of that cost range. In these most recent transactions, we're on the lower end of that continuum from a cost range perspective. From an attachment and detachment perspective, our objective with our CRT program and certainly our CRT transactions is twofold. It's to provide cost-efficient capital relief and also obviously to protect the balance sheet from a volatility perspective. If we think about that first objective, what that means for our XOLs is we secure coverage inside the PMIERs tier. And so we typically attach around the 3%. It's not always 3% of our risk in-force, but it's generally in that ballpark and then detach within PMIERs, and that's typically, again, PMIERs requirements on new business are generally around that 7%. So you can see our transactions evolve through time. But generally, in broad strokes, attachment and detachment around those points that I just gave you, Bose. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Rohit for closing remarks. Rohit Gupta: Thank you, Towanda, and thank you, everyone. We appreciate your interest in Enact, and I look forward to seeing many of you this quarter in Florida at UBS' Financial Services Conference on February 9 and at Bank of America's Financial Conference on February 10. We also plan to attend the RBC Capital Markets Global Financial Institutions Conference in New York on March 11. With that, we will wrap up the call. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning. This is the conference operator. Welcome, and thank you for joining the Cr�dit Agricole Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Today's speakers will be Ms. Clotilde L'Angevin, Deputy General Manager of Cr�dit Agricole; and Mr. Olivier Gavalda, Chief Executive Officer of Cr�dit Agricole. At this time, I would like to turn the conference over to Mr. Gavalda. Please go ahead, sir. Olivier-Eric Gavalda: Thank you. Good morning, everyone. It's a pleasure for me to share with you the strong results published this morning by Cr�dit Agricole S.A. that Clotilde will describe extensively in a few minutes. Before that, let me start with a brief introduction and highlight the key commercial and financial figures as well as give you an outlook for 2026. On this slide, once again, and despite the uncertainties and erratic events in 2025, Cr�dit Agricole S.A. is posting high results for 2025, reaching again a level above EUR 7 billion, and this performance is supported by a very dynamic commercial activity. Net income group share amounts precisely to EUR 7.1 billion. It is a stable level compared to 2024 despite the tax surcharge of EUR 147 million recorded this year. So in fact, excluding this tax surcharge, it is a slight increase. These very good results are driven by an increase in revenues by 3.3%, thanks to a dynamic commercial activity this year that I will further illustrate in a few minutes. These very good results also translate into strong profitability with a return on tangible equity of 13.5%, stable compared to last year, and the capacity to distribute a dividend of EUR 1.13 per share, increased by 3% this year. CASA CET1 ratio is above the 11% target. Its level is of 11.8% at the end of December. We confirm that very high solvency level of the group with a CET1 ratio of 17.4%, placing us among the most solid of major European banks. A few words on the fourth quarter that Clotilde will describe in much more details afterwards. Q4 is impacted by Banco BPM first consolidation for EUR 607 million. Thanks to this consolidation, there will no longer be volatility in the P&L linked to the evolution of Banco BPM share price, as this operation sets the foundation of a regular contribution of Banco BPM to our results, around EUR 100 million per quarter regarding the 2025 performance of BPM. On the next slide, in 2025, we have experienced numerous commercial successes. A few examples deserve to be highlighted. We have acquired 2.1 million new clients, best performance in the history of Cr�dit Agricole. Loan production for our retail banks increased by 15% compared to 2024, reaching EUR 140 billion. Insurance premium income set a new record at EUR 52 billion, up 20% compared to 2024. Amundi's net inflows were multiplied by 1.6 to reach EUR 88 billion. CACIB reaches record results driven by all its business lines across our different geographies. And despite the difficulties incurred by CAPFM in the automotive market in Europe and China, the level of activity remains high, particularly in Personal Finance. Furthermore, in 2025, Cr�dit Agricole S.A. continued its momentum in partnership and investments, notably with structuring partnerships and targeted acquisitions in Europe, Asia and U.S. We can, in particular, mention launch of partnership with Victory Capital in U.S., increase in our stake in Banco BPM in Italy, long-term partnership with Crelan in Belgium, acquisition of noncontrolling interests in CACEIS and major partnership with ICG in Private assets. These key transactions strengthen the group's position as a leading European player and accelerate its development in high potential markets. On the next slide, our solid results reinforce the financial ambitions set in our strategic plan. All in all, as illustrated in the chart in pro forma data, the results achieved in 2025 are fully in line with the trajectory on -- of the -- our plan and reinforce our confidence in our ability to meet objectives we have set regarding our revenue growth, net income group share, return on tangible equity and cost/income ratio. For the cost/income ratio, we have reached a peak point, and I'm very confident it should drop in the next quarters. More specifically, 2026 outlook is based on the set of favorable factors, in particular, the continuation and acceleration of the commercial momentum, amplified by the rollout of new strategic initiatives of our plan, the gradual integration of recent acquisitions and realization of synergies, the Retail Banking and Personal Finance business line in France are expected to continue to benefit from the upturn in margins, whereas mobility activities are set to see a recovery in profitability. Corporate Investment Banking should continue to perform in volatile environment. And finally, Banco BPM will now make a recurring and high contribution to profit of around, as I said, EUR 100 million per quarter. Obviously, uncertainties, and you know that, will remain high. In the last slide, as it is, many investments undertaken in 2025 have already materialized or will materialize in the coming weeks and coming months. We are truly off to a running start. Here too, a few examples, starting with our efforts for acceleration. First, concerning retail banking in France, we can mention that the regional banks have developed as part of their 2030 ambitions, the 100% digital housing loan journey. LCL has just deployed its digital offering for professionals and is preparing its easy digital offering for individuals. The transformation of LCL is on track. We have launched Indosuez corporate advisory to serve midsized companies, and we can mention also a few upcoming international developments, particularly the European savings platform will be launched in April in Germany. In Asia, CACEIS will open a branch in Singapore in 2026. And of course, our transformation and simplification efforts will continue, particularly around AI, as well as our innovation efforts with, for example, CACEIS, CACIB and Amundi joining forces to launch initiatives in the world of tokenized finance. All these projects and the value created by our recent acquisitions make me very confident about the future. Our development in France, in Italy, in Europe and in Asia is on track, and our model demonstrated its strength once again. Now, it's time to give the floor to Clotilde, who will provide you with a more detailed presentation of our quarterly and annual results. Thank you, and see you soon. Clotilde, over to you. Clotilde L'Angevin: Thank you, Olivier. Hello, everybody. So moving to the slide regarding the key figures. You see here that we have strong annual results, as Olivier was saying, that are, in particular, stable for CASA this year without any form of adjustments. Now, in the quarter specifically, the results for Group Cr�dit Agricole and for CASA were impacted in particular by Banco BPM effects. One that I'm going to detail a little bit further down on the revenue front, an impact of the fluctuations in the share price of Banco BPM for EUR 320 million. And another on the net income front, an impact of the first-time consolidation of Banco BPM for EUR 607 million. And this explains the decrease in net income by 23.9% for Group Cr�dit Agricole and by 39.3% for Cr�dit Agricole S.A. this quarter. Now, if we look at the annual results, however, the revenues are record in 2025, both for the group, it increased by 3.9%; and for CASA, it increased by 3.3%, thanks to dynamic activity in all of the business lines, and in particular, for the group, thanks to the rebound in net interest income in France. The gross operating income, as you see, was up this year despite the investments that Olivier was talking about to set the stage for future developments in our medium-term plan. We have operational efficiency that is well managed with the cost-to-income ratio at 55.7% for CASA and 59.6% for the group. The cost of risk is under control. We have a cost of risk on outstandings of 35 basis points, sorry, for CASA compared to 34 last year and 28 for the group compared to 27 last year. And so all in all, net income group share reached EUR 8.8 billion for the group and EUR 7.1 billion for CASA. This is, in particular, stable for CASA despite the impact of the additional corporate tax charge, which is EUR 280 million for the group and EUR 147 million for CASA. The increase in net income would have been 1.8% for CASA and 4.6% for Group Cr�dit Agricole, excluding this impact. Now, if I move to the next slide, activity supported this strong growth in revenues over the year. And in particular, we have activity that was sustained across all of the business lines this quarter and over the year. Now, customer capture was strong, 517,000 this quarter, which brings the total for the year to the 2,100,000 new customers that Olivier was talking about in France, Italy and Poland. And our customer base is also expanding this year. Activity was strong, in particular, in retail banking in France. I talked about it for the group. Loan production was dynamic, driven by the corporate loan production that increased by 14% quarter-on-quarter and 16% year-on-year. And the home loan production was also strong, 9% quarter-on-quarter, 21% year-on-year, in particular, in the regional banks this quarter. And over the year, we have again an increase in market share for the regional banks. International loan production was also strong, in particular in Italy, with a 5.4% growth rate quarter-on-quarter in corporates and individuals, but also, for example, in Poland, thanks to retail. And so outstanding loans increased in all of our markets. On-balance sheet savings also increased in all of our markets, and the off-balance sheet savings inflows were dynamic in France and in Italy. And so this translates into the performance of insurance. We had record net inflows over the year in life insurance, EUR 15.9 billion. And this quarter, they were strong, driven by France and both by unit-linked and the euro fund. The premium income in insurance is high. It crossed in 2025, the EUR 50 billion threshold with a 20% increase this quarter, thanks, of course, to savings and retirement. You know that there's a context of increased precautionary savings, but also thanks to the P&C activity to individual death and disability insurance and to group insurance. And so P&C activity is growing both in France and internationally with 17.9 million contracts in our portfolio, and the equipment of our customers continues to increase in all of the retail networks. In Asset Management, we have a record level of AUMs of EUR 2,380 billion, thanks mainly to strong inflows. Olivier was talking about the EUR 88 billion inflows over the year, EUR 21 billion this quarter, thanks to medium to long-term assets into the JVs, and in particular, passive management and to continued strong momentum in third-party distribution. In Wealth Management, activity was also strong this quarter with record net inflows and strong customer capture. In Wealth Management, just to parentheses, the integration of the group is well underway. We have 30% of synergies that are already achieved, and this allows us to comfortably confirm our guidance of EUR 150 million to EUR 200 million net income group share contribution by 2028. In Personal Finance and Mobility, production was also high, EUR 12.1 billion this quarter, thanks in particular to dynamic activity in Personal Finance. As you know, the automobile activity was impacted this quarter and this year by unfavorable market conditions, but we have managed loans that increased across all segments. Production and leasing was dynamic this quarter, thanks in particular to renewable energy in France and benefiting from the integration of Merca Leasing. And finally, in the large customers division, the CIB confirms its performance with a new record level of Q4 and 2025 revenues, thanks both to market activities, where we had a strong performance in rates and repo activities and to financing activities, in particular, in the telco sector in Corporate and Leverage Finance. And of course, we maintain our leading positions on syndicated loans and bond issuances. And finally, in Asset Servicing, we have assets under custody and assets under management that increased this quarter, thanks to positive effects -- market effects, sorry, but also to the arrival of new customers. And the ISB integration is now finalized. Customer and IT migrations are completed, and the synergies have been achieved at a rate of 66%. And so we're very confident on our guidance of EUR 100 million of net income for 2026 contribution of ISB integration. By the way, I was talking about the growth in ISB. If you're curious, on Slide 41, we have analyzed the majority of our 2015-2022 transactions in order to look at the return on investments of these past acquisitions, which is, of course, on average, higher than our 10% limits, 13% as of 2025. And it's too early to calculate a 3-year ROI for the 2023-'24 operations, but we already have strong ROIs to date, and the synergies are on track for the 3 main operations of the period. I was talking about ISB for CACEIS and the Group, but also ALD, which is very profitable. Now, moving to revenues. So this activity, the dynamism of activity translates, as it has been doing, as you can see on the figure on the right for the past 10 years into revenue growth. Now, this quarter, CASA revenues were impacted by a negative Banco BPM share valuation of minus EUR 57 million. And so compared to the Q4 positive effect of EUR 263 million, this valuation impacts the change in revenues by EUR 320 million. Now, recall that until the first consolidation of Banco BPM in December, we have fluctuations in the share price of Banco BPM that impacted our revenues. And so we do still have this fluctuation. And this is why, in particular, we wanted to limit the exposure of our income statement, sorry, to the volatility in Banco BPM share price. And this is why we asked and we received the authorization by the ECB to cross the 20% threshold in order to equity account our stake within the framework of significant influence, and this is consistent with our position as a long-term shareholder and partner of Banco BPM. Now, going forward, this stake will be immune to the fluctuation of the share price of Banco BPM, and it's going to generate regular net income of, as Olivier was saying, if we base this on the past income statements of Banco BPM, about EUR 400 million per year. This is strong value creation. Recall that, over the past years, we have had strong value creation also, thanks to, in particular, the dividend earnings from Banco BPM. And so all in all, the contribution was EUR 200 million in 2023, about EUR 600 million in 2024 and about EUR 200 million in 2025, including, and I'm going to come back to it just afterwards, the impact of the first consolidation. So you see we have a strong value creation in our accounts in the past and in the future, thanks to this share in Banco BPM. Now, if I come back to revenues, excluding this EUR 320 million impact, the revenues increased by 2.7% this quarter, and this is thanks to the sustained activity that I was talking about in our business lines. The revenues increased by EUR 60 million in asset gathering. We have a scope effect linked to the Amundi U.S. deconsolidation, but also a scope effect linked to the integration of our insurance activities that are in JV with Banco BPM. And these 2 scope effects more or less cancel out. Besides this, activity was strong in all of the business lines. Revenues also increased in CIB despite an unfavorable foreign exchange impact and in asset servicing, thanks to strong fees and commissions income. In SFS, the revenues were impacted by EUR 30 million base effect that we have talked to you about last year in Consumer Finance. But on the other hand, we had revenues in leasing that benefited from the integration of Merca Leasing. And besides this, revenues benefited from favorable price and volume effects in Consumer Finance, which off-setted the decline in mobility revenues. You know that we have mobility revenues in our Cr�dit Agricole Auto Bank entity. And finally, the revenues increased by EUR 91 million in retail banking in all geographies, thanks to the strength of fees and commissions income in Italy and in France. And in France, finally, thanks to the rebound in net interest income. So as you can see, we're starting to see what we talked about in the medium-term plan on net interest income, a net interest income that's going to continue to slightly decrease in 2026 in Italy, but net interest income that will increase in LCL, by the way, also in regional banks, thanks to the reduction in the cost of resources, we have a normalization of the customer deposit mix and the rate effect and thanks to the gradual repricing of loans. So all in all, we have growing revenues in the businesses, continuing the dynamics that you observed over the past 10 years. Now, if I move to costs. The cost-to-income ratio has increased this year at 55.7%, but it remains very under control. It's an increase of 1.3 percentage points after 15 percentage points drop between 2015 and 2024. And if we look at the quarter, you see that we have a growth by 4.7%. But if we break down the expenses, you'll see a certain number of elements. First, we have scope effects. We have scope effects linked to the deconsolidation of Amundi U.S., but we also -- negative, but we also have positive scope effects from the integration of insurance entities in partnership with Banco BPM, Banque Thaler and the resumption of depository activities. So these both scope effects, as you can see on the right, along with the integration and acquisition costs, they more or less cancel out, first point. The second point, we have restructuring costs. You know that we talked about in the last quarter about EUR 80 million restructuring costs for Amundi in the context of an optimization plan in France, Italy, Germany and Australia that will generate EUR 40 million of annual savings from 2026 onwards. We have in addition to that for EUR 8 million this quarter. But more importantly, we have strong restructuring charges in Italy, EUR 65 million. This is really, as Olivier was saying, to prepare for a medium-term plan, i.e., the growth in digital customer capture, productivity efforts on administrative activities, improved sales force expertise. And then, if we take off these scope effects and restructuring costs, we have a growth that is very limited in recurring expenses, 2.5%. And this growth also allows us -- this growth in recurring expenses also corresponds to investments within our medium-term plan, for example, in LCL to continue to transform our distribution model, for example, in CIB, in cash management and equity solutions. So we're really laying the ground for our medium-term plan with these expenses. Now, if I move to cost of risk, cost of risk increased by 5.9% this quarter. But if you look at the Stage 3 incurred cost of risk, you'll see that it's very stable compared to the Q3 and Q2 levels. Now, what are the exceptional items that explain the increase in cost of risk this quarter? There's mainly 2 exceptional items. The first one is a EUR 41 million provision on the U.K. car loans litigation. As you know, we have a 2% market share. So it's limited for us. Of course, all of the CAPFM U.K. entities immediately complied with regulation on -- it's the setting of rates by distribution intermediates. But we are subject, as the other players that have a larger market share, to customer claims related to the past. And so we decided to prudently increase our provisioning in the context of an ongoing consultation by FCA to bring the total stock of our provisions to EUR 88 million. And so the outcome of the consultation is expected soon, hopefully, by the end of the month. And the second exceptional effect is a EUR 30 million provision. This corresponds in Italy, again, to a market element. It corresponds to our current estimation of our 5% share of bailing out of a small digital bank in Italy, which is Banca Progetto, bailing out by the Italian deposit guarantee scheme. And so, as I was saying, besides these elements, the Stage 3 cost of risk is very close to the Q3 and Q2 levels. 44% of the Stage 3 cost of risk is explained by SFS, where the risk has been relatively stable over the past quarters. Then, we have 32% for LCL with an increase in individual risk on corporates, mainly in retail distribution sector. And then, we have a little bit in Italy in CIB. In CIB, the cost of risk remains very low with investment-grade customers mainly in a diversified and a balanced geopolitical risk. So if I conclude on this slide, there's no surge in loan loss provisions, even though, of course, we monitor closely the corporate customers in retail banking, and in particular, for example, small real estate developers, construction, distribution, automobile, textiles and more generally SMEs. But our lending policy is cautious. And as always, our provisioning is very prudent. And as you can see, our main asset quality indicators are very solid. The cost of risk as a share of outstandings is low, both at CASA and group. The loan loss reserves are very high, and we have among the best coverage ratios in Europe, both for the group and for CASA. I'm going to move very quickly on to the next slide, just to tell you that for Cr�dit Agricole Italia, in particular, you see that the cost of risk on outstandings is stable at 39 basis points, excluding the Banca Progetto provision. And you see that we have relatively stable cost of risk after very low quarters, by the way, in beginning of '25 and end of 2024. Moving on to the slide on quarterly results. So we have strong activity, managed operational efficiency, cost of risks that are under control. But, however, our results in the fourth quarter were impacted by 2 exceptional effects that I'm going to explain in a little bit more detail right now. First of all, a first effect, which is a negative impact, as you can see on equity accounting of the performance of our JV with Stellantis, which is Leasys with a minus EUR 111 million contribution. Now, what happened? In CAPFM, we have 3 growth drivers in 22 countries. And we have 2 growth drivers that performed well in 2025, the servicing to the bank entities and personal finance, which is restoring its margins. There was one growth driver, mobility that suffered in 2025 due to market conditions, in particular, because the automobile market has been suffering in 2025. And on top of that, the car manufacturers that we have close ties with have had specific difficulties. So I'm thinking of GAC in China. I'm thinking of Tesla in Europe. And of course, I'm thinking of Stellantis with which we have our JV. So the 3 entities that we have on mobility, one is Cr�dit Agricole Auto Bank, for which we have gross operating income, which is good. The second one is our JV with GAC Sofinco, where production has been impacted, but results are positive, and production is picking up in the last month of the year. And then, finally, Leasys. Now, the difficulties faced by Stellantis reduced the attractivity of the range of vehicles. And so Leasys, which is the JV we have with Stellantis, has to make commercial investments, and the performance of remarketing was impacted. And so, in the Q4, we decided to review all of the remarketing values of our used vehicles portfolios in Leasys, systematically applying a conservative discount compared to market prices. So this impacted the Q4 results, but it's going to strengthen our financial base for Leasys, and it allows Leasys to prepare for a rebound in profitability because we're well positioned to benefit from the growth, which is coming in the long-term leasing market. We're starting on a solid footing, and we also have a strong position in particular in Italy, number one. And going forward, we're going to roll out new services and insurance solutions focusing on added value. That's the first effect. The second effect is one that you know better, which is the impact of the first consolidation of Banco BPM. So you recall that we acquired Banco BPM shares in tranches, each at a different price. And so when we consolidate for the first time, we decided to take a prudent accounting position, which is to take as reference the equity value and not the share price. And so we assess at each date of the acquisition, our share of the net assets acquired. So we carve out the fair value effect in P&L and OCI for about EUR 1.9 billion. It's negative because the price is higher today than what it was when we bought the shares. And then, conversely, we recognize a badwill effect, which is the difference between the price of the shares at the moment of the acquisition and the equity value of our participation. And then, there's an adjustment to net book value and net position. And so all in all, since the difference between the price of our participation at the time of consolidation and the equity value of our participation today is positive, we have a P&L impact that's negative. But as I was saying, going forward, based upon Banco BPM's past results, we should have an increase of about EUR 100 million of net income per quarter. So this quarterly net income has these exceptional effects that made it a little bit complicated to read. But if you look at annual results without any form of restatement, we have stable results at EUR 7.1 billion. So we have a certain number of exceptional elements that more or less cancel out. We have the impact of the first consolidation that I talked about of Banco BPM. We also have in the Q2, the capital gain linked to the deconsolidation of Amundi U.S. in the Q2. And we also have an additional corporate tax charge for EUR 147 million. And so if you exclude all of these elements on the right of the figure, you see that we have a gross operating income, which increased in 2025 by 1.3%, thanks to buoyant activity in our business lines and thanks to our constant attention to operational efficiency. And cost of risk is under control. And so all in all, you remember that we had told you that we would have a stable net income over the year, excluding additional corporate tax. Now including this, it's stable. And excluding it, net income would have increased by 1.8%. Finally, as indicated by Olivier, the ROTE is high at 13.5%. Pro forma, it's at 13.9%, and this bodes well for 2028 financial trajectory. Now, if I move to capital, for CASA, recall that the target in our medium-term plan is 11%. So we still have a very high level of CET1 this quarter, 11.8%, about 300 percentage points -- basis points, sorry, above our 8.75% SREP requirement. And this is thanks to, first, retained results, 22 basis points, which are the consequence of the generation of income that I commented before, but also integrating a 50% payout, payout based upon a distributable net income, which we adjusted to exclude the capital gain related to the deconsolidation of Amundi U.S. for EUR 304 million. It's not a cash effect and to exclude this accounting effect of the EUR 607 million P&L impact of the first consolidation of Banco BPM. And so this amounts to a dividend of EUR 1.13 per share, an increase compared to last year of 3%. Now, if I come back to the waterfall, we also have the effect of the organic growth for the business lines, 6 percentage points. And we have an active management of our balance sheet. In particular, we have optimized, as planned in our medium-term plan, our RWAs through the synthetic risk transfers for about 7 basis points, and this allowed us to release EUR 1.6 billion RWAs in CACIB net and EUR 0.6 billion in Cr�dit Agricole Personal Finance and Mobility in the fourth quarter. So we're going to really have an attitude which is scarce resource monitoring, always making sure that the cost of release is accretive. But you see here that we have this active management of the balance sheet, which allows us to compensate almost the methodological impact in the M&A and others. These M&A impacts include a plus 9 basis points impact of Banco BPM. Now, we have a negative impact of the EUR 607 million P&L first consolidation effect that I talked to you about, 14 basis points. And then, there's naturally because we have this prudent view regarding our equity accounting, there's a decrease in the prudential value of Banco BPM and our CET1. So we have a positive impact corresponding to the reduction in RWAs corresponding to this decrease. And this is why the impact of the first consolidation is positive for CASA and nonsignificant for the group because for CASA, this positive impact is stronger because our exemption threshold for the significant participations above 10% had already been full. So this is why we have a different impact between CASA and the group on the next page. This box also includes a share buyback impact, which compensates the Q3 impact of the capital increase for employees in order to neutralize the dilutive impact of that Q3 capital increase. This is 9 basis points. And we have a couple of small M&A impacts of which beginning of the participation in ICG. And finally, we have a few methodological effects. For example, in Italy, we have put in place new retail RWA models. This was included -- this is about 15 basis points, and this was included in the 40 basis points methodological impact we announced on our Capital Markets Day. And so the waterfall brings us to 11.8%, which is very comfortably above 11%. And then slide CET1 Group Cr�dit Agricole, next slide. I'm going to go very quickly on this because I talked about the effect regarding Banco BPM in particular. But I just wanted to insist upon the fact that our objective is not to accumulate capital at the level of CASA. And so that's why in terms of solidity, the relevant figure is the CET1 of the group, which is very comfortable at 17.4%, a 760 basis points distance to our SREP requirements. And so we have organic growth of businesses, and we also have a slight methodological impact regarding the correction of corporate loss given defaults for the regional banks. Leverage ratio is very comfortable. TLAC and MREL ratios are very strong. So we have a very strong capital position at the level of the group. On Slide 18, we also have a very comfortable liquidity position, a high level of liquidity reserves at EUR 485 billion. The LCL and NSFR ratios are excellent. NSFR is going to be published end of March, but in the Q3, we were close to 120% for the group, 114% for CASA. And the group has mobilized various levers to diversify the sources of liquidity, thanks to its universal banking model. One, our customer deposits that are abundant, stable, diversified and granular. And so our liquidity coverage ratio is very high, above our targets, which is a range between 110% and 130%. On the next slide, we have our transition plan that continues to be organized around 3 pillars: accelerating of the development of financing to renewables and low-carbon energy sources that has increased from the first half to EUR 28.6 billion in 2025. We're also helping our customers in their own transition by providing financing consistently with the group's sustainable asset framework. This has increased this quarter to EUR 116.5 billion. And finally, we continue to decrease our financing to carbon-based energy sources. And so moving on to the next slide, let me conclude by saying that this quarter, net income is impacted by an accounting effect linked to the impact of the first consolidation of Banco BPM and by the difficulties of the automobile market. These 2 elements should, in fact, disappear in 2026 and contribute on the other hand to growth, thanks to the growth in mobility and thanks to the regular high recurring profit contribution of Banco BPM. Activity was sustained in all of the business lines with record inflows, outstandings and premiums income and asset gathering, record performance in CIB, a strong pickup in net interest income in France. The fourth quarter, as Olivier was saying, marks the beginning of the medium-term plan, and we have already started rolling out the different dimensions of our plan in retail banking in France, in Germany in terms of innovation and efficiency. And so the gross operating income increased in 2025 for CASA and the Group. Income is high at EUR 7.1 billion, and this strong performance allows us to post high profitability with an ROTE of 13.5% and to propose to the general assembly an increasing dividend. So we're very much on track to meet our 2028 financial targets. I'm going to stop here. Thank you very much for your attention. We can now open the floor to your questions. Operator: [Operator Instructions] The first question is from Jacques-Henri Gaulard, Kepler Cheuvreux. Jacques-Henri Gaulard: The question is a bit conceptual, but when I look at your results and revenues in particular versus consensus, I mean, very strong activity everywhere, you've beaten, it's very strong. But at the same time, Clotilde, I feel for you because you spent the last 45 minutes literally going through every single one-off and restructuring and everything. And at the end of the day, your stock is down 3%, which I think is a bit harsh. So -- I mean, I totally appreciate the whole non-recurring aspects of Banco BPM and everything. You've explained the legal cases. But, is it fair to say that the reason why you ended up with that accumulation of nonrecurring aspect is probably due to the fact that you have a plan coming and you need a bit of a reset for a perimeter you feel comfortable with over the next 3 years and everything? Or is it actually the problems of having a decentralized structure, which means that you end up at the end of each quarter with an accumulation of things that were not necessarily planned at the beginning? Just to try to figure out when we can actually expect something quite clean, if you see what I mean. Clotilde L'Angevin: Yes. Thank you, Jacques-Henri. I see what you mean, and thank you for feeling for me for the 45 minutes. It's true that we really want to set the stage for the medium-term plan. And so that's why we were very satisfied when we received the authorization from the ECB to equity account our stake in Banco BPM because that's going to reduce fluctuations and provide high and recurring profit going forward. We intentionally accounted for the restructuring costs in Amundi and Cr�dit Agricole Italia in 2025 because this again sets the stage for our medium-term plan and growth going forward in retail, in asset management. But we're also -- I didn't talk about it too much, but we're also investing also in CIB, in LCL. So the costs that you have this quarter really reflects this investment that we have for the future in our medium-term plan. Now there are a few one-offs that don't depend on us, in fact, regarding, in particular, the U.K. provision and the Banca Progetto restructuring. And we have this issue in terms of the automobile market, but all of this should pick up. And I think what we really want -- what I really want to insist upon is the fact that we have really an outlook that's going to be strong for 2026 because we also have the integration of the recent acquisitions. That's also something that's going to pick up. We no longer have these integration costs for CACEIS. We have very limited integration costs that are going to be coming in 2026 for the group, but it's going to be limited. And as you can see, we're on Slide 6, we really have a lot of tailwinds going forward, in particular, with margins that are going to pick up, in particular, for French retail and for consumer finance. And of course, performance continues to be very strong in CIB and Cr�dit Agricole Assurances. Operator: The next question is from Tarik El Mejjad, Bank of America. Tarik El Mejjad: A few questions on my side as well. First of all, I mean, given the restatements you've done for the BPM on your accounts, which was very helpful, would you guide for an increasing net income year-on-year from the restated EUR 7.27 billion in '25, given all the moving parts? Consensus has that flattish or slightly down, which I think is a bit too cautious. And the second question is on capital and distribution. I mean, you've been increasing your EPS, but still accumulating excess capital. So you've just presented your plan, so there's no policy increase, policy in distribution and so on. But just want to hear you in terms of your plans in terms of what areas you could do some bolt-on and where you see good use of capital. And then, talking about this bolt-on, I mean, you had a very interesting slide, Slide 41, showing the ROI for the previous M&A deals. I mean, I already picked some on this with you, Clotilde, on the CMD, when you said the 10% ROI -- above 10% ROI is satisfactory. I thought it was quite of a low number. But now, I look at what you've done so far, between 11% and 13%. I mean, is that something really you've kind of expected from the origination of those deals or you were hoping for better than that and been disappointed by integration? Clotilde L'Angevin: Thank you, Tarik, for your question. Now, regarding guidance, I think really what I want to go back to is what Olivier was saying in terms of how we're setting the stage for the plan -- for the Act 2028 plan. So indeed, if you look at pro forma, we had a EUR 7.3 billion net income group share in 2025. And so we're well on track to reach our target, which is to go beyond 8.5% in 2028. But as you know, we really like to remain on multi-annual targets. In terms of cost-to-income, what I can tell you maybe more precisely, however, is that the 57.4% pro forma cost to income is a peak. It should go down next year. So 2026 cost-to-income should be lower than what it was in 2025. On the other elements, in terms of revenues, net income and ROTE, what I can just tell you is all of this we're on track to increase, and it's true that the 13.9% pro forma ROTE of 2025, really bodes well for the future. And I think we can really say that the 14% target for 2028 is really a minimum. Now, you were talking on organic bolt-ons. You know that our track record is really based upon a mix of organic and a mix of bolt-ons. In the Capital Markets Day, we talked to you about the fact that we had revenue growth that was 70% organic and 30% external growth. And that's why we had a revenue growth that was more than 5% over the past 6 years, and we're targeting a revenue growth of 3.5% in this medium-term plan. This is supposing that there would only be organic growth. We do hope we will do external growth operations. And as you were saying, Tarik, we do have very strict financial criteria. And so thank you for spotting out to Slide 41, and so thank you for Cecile and the team, and by the way, who prepared this slide. We take into account ROI, of course, and we're happy to have these figures. The 10% figure is a minimum. But there's also other criteria that we take into account. And we talked about it in the Capital Markets Day. We have to have operations that are accretive in terms of ROTE. We have to have a demonstrated integration capacity by the benefit of this integrating. We have to have revenues and cost synergies. And of course, these operations have to be very well aligned with our strategy. And so, to answer maybe your question as to what we can see in terms of bolt-ons, it's going to be linked with our strategy. Olivier was talking about the fact that we want to develop -- in terms of -- in France, in Europe, in Germany, we want to develop in Asia. We want to support the savings development in Europe, in particular. We want to support the development of corporates, in particular with mid-caps. In Europe, more generally, we were talking about these different triangles of growth where the mid-caps and the corporates are going to support the competitiveness of Europe. All of these are areas where we want to continue to develop, and all the business lines that you see, by the way, on Slide 41, all of the business lines have critical size, are profitable and so are very well positioned to continue to seizing opportunities if they appear. But we're really in an opportunistic mode because our medium-term plan, we can reach the targets through -- solely through organic growth. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: Yes. So I have 2 questions. On the first one, if I can ask on sort of your comments going back to your comments on 2026 outlook, when you mentioned the headwinds on NII for Italy, CACEIS and wealth management. I'm just wondering, is that just you're trying to be conservative? Because you do have already volume growth, and NII has stabilized in Italy. Shouldn't volume be able to offset the rate headwinds, just if you could give a bit of color on that? The second thing is, do you mind just like expanding a little bit and elaborating more about sort of Leasys and GAC Sofinco in China? Because -- I mean, how quickly can we see a rebound in your associate income? Production is picking up, it seems, in China, but like how quickly can we see that already in the numbers? And how can we measure the sort of the implications of the write-downs you've done on Leasys this quarter in terms of what that means for '26 and '27? Clotilde L'Angevin: Thank you. Thank you for your questions, Delphine. Yes, we have tailwinds for net interest income in France, but we do have headwinds for net interest income, as you were saying, in Italy, in CACEIS and wealth managers. We're, of course, hoping that volumes are going to pick up, and we have dynamism in commissions, but it's true that there is a rate effect that we see in Italy. The decrease in net interest income in Italy should not be that significant. On the other hand, the increase in net interest income in France should be a little bit stronger, in particular for LCL, and of course, in the regional banks, which also are going to support which is also going to support growth in the regional banks, which is always good for the activity of the business lines of CASA. So relatively, reasonable headwinds on net interest income in Italy. Now, if I come back a little bit to Leasys and to China. So let me just maybe talk about China a little bit because I didn't go too much into detail about that because, in fact, the production had slowed down in the first quarters of the year. In particular, I talked to you about that in the Q2 and in the Q3 in China. And in fact, we have had in the Q2 2025, an event where the Chinese authorities imposed a 5% floor to the commissions, which caused the market to normalize because we had, had the entry onto the market of banks, which caused competitive conditions on the market. And so production is picking up. December was the highest month of the year for GAC Sofinco in GAC Leasing. But the effect of this normalization, it's going to take a few quarters to come into the income because the average duration of these loans is a little bit more than 30 months. So we have to be cautious. But nevertheless, GAC has also begun to diversify its activities to the used car financing, for example, to the development of new services. So I think reasonably, we could consider that China's income could stabilize in 2026 compared to 2025. And hopefully, it's going to pick up going after that. Now, for Leasys, there's going to be drivers of profitability going forward for Leasys and for mobility more generally, a diversification of the distribution channel, a revamping of the services catalog, an improvement in the remarketing process with value sharing with car constructors, IT tools. We're developing a cross-European remarketing strategy, building on synergies between the different entities. And of course, the automobile market should pick up, and we are going to have more value-driven pricing. Now, we're confident in the fact that Leasys was going to recover profitability levels in 2026 and pick up even more in 2027. So a regular increase over the years of the medium-term plan. Operator: The next question is from Pierre Chedeville, CIC. Pierre Chedeville: Two questions on my side. First question regarding the launch of the platform in Germany and more generally in Europe on the savings side and online side. Will it cost some -- do we have to anticipate some extra charges regarding this launch and this project in 2026? Because you are not very precise on that side in the P&C. So do we have, I don't know, IT investments, things like that? I'd like to come back also on the cost of risk in LCL. You mentioned some attention points regarding retail and distribution. Do you think that here we will have to have a forecast in the coming quarters in terms of cost of risk similar to what we see -- what we've seen in this Q4 for the next quarter? Or is this a peak, I would say, in Q4 and the normalization in the coming quarters? Clotilde L'Angevin: Thank you, Pierre, for your questions. So regarding the development in Germany, of which we have the development of the digital savings platform, but which includes the development, for example, with -- of everyday banking services. This development should be relatively low cost -- I would say, would be below EUR 50 million. Why? Because we already have a setup in Germany with Creditplus, 20 branches, and Creditplus is already doing EUR 15 billion in on-balance sheet savings. What we're going to do is we're going to put up a very agile and efficient platform, in particular, to internalize the margins in terms of on-balance sheet savings. And this is something that we should start in the first half of 2026. And then, we're going to incrementally build upon that, adding day-to-day banking solutions with essential banking products. This should come in the second half of 2026. And then, in 2027, we should have off-balance sheet savings offers. What am I talking about? I'm talking about all of the synergies that we can do with the entities of the group, such as Amundi, for example, or Cr�dit Agricole Assurances. But these on-balance sheet savings themselves should be relatively competitive because we're going to propose a number of on-balance sheet solutions for our customers in Germany, which should make this digital saving platform very interesting. But to answer precisely your question, Pierre, all of these developments should be at a very low cost, less than EUR 50 million. And hopefully, we're going to have revenues that are going to contribute to our growth, thanks to these initiatives. That's the first point. The second point, you're talking about cost of risk in LCL. It's true that we have had an increase in incurred Stage 3 cost of risk this quarter in LCL. And so it's true that we're going to be very cautious regarding the different sectors that I talked to you about, retail development, automobile, textiles, distribution, et cetera, et cetera. It's very difficult to say what's coming in fact, a lot of uncertainty. We have a lot of uncertainty in France, in Europe regarding the corporate market. What I can tell you is that we have had low cost of risk in the recent quarters. But we have, more importantly, accumulated over the past year very strong provisions, provisions at the level of the group, provisions also at the level of CASA. The provisions at the level of CASA include prudent provisions that represent about 1.5 years of cost of risk. At the level of the group, we're close to 3 years of cost of risk. So we have very strong provisioning. And so if the Stage 3 cost of risk continues to increase over the next quarters, we really have these buffers in terms of prudent provisioning that allows us to limit the cost of risk, and I'm still very comfortable regarding the hypothesis that we have in our medium-term plan, which is a cost of risk at 40 basis points for CASA during the medium-term plan. Operator: The next question is from Matthew Clark, Mediobanca. Jonathan Matthew Clark: I have a couple of questions. Firstly, on Leasys, and then, on Slide 41. So with Leasys, can we expect it to break even already next quarter? Or is more a full-year breakeven kind of project? Is that the right way to think about it? And then, the second question is just on the calculation of your ROI on Slide 41. Is the 13% as simple as your net profit divided by the sum of all the considerations for those entities? Or is it more like a return on invested capital calculation or some other aspects of it? Any guidance there would be appreciated. Clotilde L'Angevin: All right. Thank you, Matt. Regarding Leasys, I'm not going to give you any quarterly guidance. What I'm going to tell you is that hopefully, we're going to have a positive profitability for Leasys in 2026, picking up in 2027. But uncertainty is relatively high on the automobile market. So it would not be unreasonable for me to give you any quarterly guidance regarding Leasys, but we are comfortable in the fact that we're -- confident on the fact that we're going to resume profitability, double-digit contribution to net income in 2026. Now, for the M&A operations, it, in fact, depends because some of the M&A operations are difficult to -- the ROI is difficult to calculate because the objective of these operations usually is to really have them really feed into the business, and it's oftentimes very difficult to see what is the contribution of this integrated activity to cost or revenue synergies. So when we look at the ROI, we look at the revenue synergies. We look at the cost synergies. We compare that to the price of acquisition. And then going forward, we try to estimate the contribution of the integrated activity to the net income, but it's going to be an estimation naturally because it's difficult because we don't have separate entities. One of the cost synergies that -- one of the drivers of the cost synergies is the migration -- IT migration and the merging of legal entities. So this makes things difficult, but what we do look at to simplify is we do look at additional net income in year 3 compared to the capital that we invested. Jonathan Matthew Clark: So just to clarify, is it compared to the consideration that you -- when you say capital that you invested, is that the consideration you pay to the seller? Or is that the CET1 on capital that's--okay? Clotilde L'Angevin: It's the cash. It's the cash that we paid. It's not a CET1. We do have a return on CET1, but that is more comparable in fact to the ROTE. What I'm telling you that we have an ROI and we want to have something that is accretive in terms of ROTE, perhaps to have something that's accretive in terms of ROTE, we look at a certain number of elements, the RONE, but oftentimes, the ROCET1, which looks at the capital consideration that you're talking about. When we look at ROI, we're comparing it to the cash invested. Operator: The next question is from Alberto Artoni, Intesa Sanpaolo. Alberto Artoni: I have 2. The first one is just a quick follow-up on the cost of risk in LCL. And I just wanted to better understand if the increase of cost of risk was linked to a limited number of big tickets. Or was it more a broad-based issue with certain sectors that you called out in the slide? And the second one is on the tax. What do you expect for 2026 taxation at CASA level? Clotilde L'Angevin: All right. Thank you very much, Alberto, for your questions. Regarding LCL, it's an increase in a certain number of individual risks on corporates, but I would not say that it's 1 or 2 large deals. There are -- it's not completely a large number of small corporates. There are individual risks, but it's a little bit more diversified regarding the SMEs. So it's an increase in the SME risk in the different sectors that I was talking to you about. It's not 1 or 2 specific cases. Now, regarding the corporate tax, going forward, we do have, as you saw, the publication of the tax decisions by the government, which causes us to forecast a relatively similar corporate tax going forward. It's too early as of today to draw conclusions, but we still have a corporate tax that should be based on an average of the fiscal revenues of past year and current year. So that's why we can't estimate it as of today. The corporate tax for 2025 was based upon the average of the fiscal revenues of 2024 and 2025. So we have to calculate -- we're going to have to calculate the corporate tax going forward based upon the fiscal revenues of 2025 and 2026. Now, it's more or less the same type of corporate tax, except that the threshold in terms of turnover is a little bit higher. It goes from EUR 1 billion to EUR 1.5 billion, which could have an impact at the level of the group. But all in all, we will have a corporate tax. The amount will be in the same ballpark as what we had this year. And it's true that this is something that is taking into account -- in our medium-term plan, we know that we have to take into account a certain number of uncertainties, and this is one of the uncertainties that we have to take into account. Hopefully, it's not going to continue until 2028, i.e., the end of our medium-term plan. Operator: The next question is from Sharath Kumar, Deutsche Bank. Sharath Ramanathan: I had 2. Firstly, on Specialized Financial Services. I know that this is one area where consensus seems to be consistently underestimating your strength. Anything that you can say as to why consensus seems lower? And what do you think it is missing? And a follow-up on Leasys, can you clarify what drove the higher used car sale losses and whether there's more pain to come? And lastly, on Corporate Center, if you can give guidance, now that we will not have the Banco BPM accounting impact, do you think the 4Q underlying level of, say, call it, EUR 80 million negative net income, is a reasonable run rate to extrapolate going forward? Clotilde L'Angevin: Okay. Thank you, Sharath. So for SFS, the thing is that it's difficult to estimate the impact on mobility in the context that we have currently, which is a context of an automobile market that is under difficulty. So this is something, in fact, that has been -- had an impact on most of the car constructors, but it's true that the car constructors with which we have a relationship today with Cr�dit Agricole Bank, specifically with Tesla, GAC Sofinco with GAC and Leasys with Stellantis, we have had difficulties on these 3 car constructors, each for specific reasons that hopefully are going -- are behind us, and hopefully, activity should pick up. That's the first point. But if I extrapolate a little bit to used car, there is a market where the arrival of electric vehicles is making the residual value of used cars difficult also to estimate. That's also why we adopted a very prudent approach by applying a conservative discount to our used car residual values for Leasys. This is really to put us on a solid base for the future regarding this dimension. And if I -- because we have a certain number of growth drivers in CAPFM, not only mobility, we also have personal finance. And in terms of personal finance, we're optimistic. As to the pickup, we're going to have tailwinds linked to the margins, and we're going to have also a pickup in the insurance and services. So these are elements that should help us going forward. For Corporate Center, what we said in the medium-term plan was that we could target around EUR 900 million -- EUR 400 million in contribution, I think. I'm just verifying that with Cecile right now. She's nodding -- she's shaking her head. So maybe that's not that. I'm going to have to come back to you as to the guidance we have in the medium-term plan in terms of the corporate center. Operator: Next question is from Benoit Valleaux, ODDO BHF. Benoit Valleaux: A few questions on insurance, if I may, which was about a very strong figure. The first question is related to CSM, which has enjoyed a very strong growth of 9.1% over 12 months. So it's partly due, of course, to the activity, but also you mentioned some positive market effect. Can you just please tell us what has been the market effect or what has been the new business CSM, just to understand a little bit the quality of this strong increase? The second question is on P&C. Your combined ratio has been broadly stable at 94.6% for the full year. So what do you expect in terms of price increase this year? And what do you expect in terms of combined ratio this year and over the plan? I have in mind that maybe you expect a broadly stable combined ratio over the plan, but I don't know if you can confirm or elaborate a little bit on that. And maybe the third question is on solvency. Solvency is down a little bit compared to year-end '24, but it's still very strong. So it's fine. My question is, first, I mean, do you have a view on the dividend to be paid by Cr�dit Agricole Assurance to CASA in Q2 and the impact on CET1 ratio? Or is it maybe too early for this? And the second question is, do you have a view on what could be or what will be the impact of the Solvency II overview on the solvency margin? Clotilde L'Angevin: All right. Thank you, Benoit. Now, regarding the CSM, so we have a certain number of elements. And in particular, we have the variable fee approach dimension, which is contributing to the allocation of the CSM. So we have a very slight decrease in the allocation factor, but nevertheless, we have a CSM that is -- that we have -- which we have new business contribution that is higher than the CSM allocation. The positive market effects are effects that you can have, in particular, in the GSA in terms of -- for the life insurance. Now regarding P&C, we have a combined ratio indeed at 94.6% at the end of the year. Going forward, there's going to be pluses and minuses. There's going to be an impact on claims, for example, of climate change, for example. But on the other hand, the premiums in this context should adapt. And the idea for us is to be able to develop P&Cs in France, internationally to develop the equipment rate to diversify also to principalize our customers in the retail banking in order to increase the extent of P&C solutions that they can have. So these are areas for growth in terms of P&C going forward. But it's true that there will be this mix between claims and premiums going forward because this is linked to the evolution of the market. And in terms of solvency, it's really too early to give you any elements like that. Of course, the solvency ratio is something that we usually give you at an annual level for Cr�dit Agricole Assurances, which is very high. We had a slight decrease this year, 6 percentage points over year in the context of increased rates, but strong growth in activity and -- but it remains extremely high and very comfortable. Benoit Valleaux: Okay. Maybe just regarding the CSM, do you have the figures regarding the contribution from the new business to CSM in '25? Clotilde L'Angevin: We have the fact that the allocation factor is 7.5% and new business contribution is higher than the CSM allocation. Operator: The next question is from Ned Tidmarsh, Morgan Stanley. Edward George Tidmarsh: I just wanted to ask how is the current macro situation in France impacting CASA? And can you talk a little bit more about your outlook on French retail going forward given the recent positive developments on the deposit mix and pricing, please? Clotilde L'Angevin: All right. Thank you. So in fact, the uncertainty linked to the fiscal budget government situation has decreased a little bit. And we have seen that in the asset swaps from the OETs, which has decreased in these past weeks. In fact, the asset swap for OETs has gone below that of Italy. So we have had a market where conditions have been relatively good. Now, there is still uncertainty going forward more generally, but uncertainty linked to European growth to the aging of population, to competitiveness issues. There is an uncertainty linked to the level of public debt, for example, in Europe, and also, of course, to the geopolitical risk, which will have an impact on the supply chains -- global supply chains. This all creates uncertainty more generally. Now, 2 points. First of all, on our capacity to raise liquidity to meet our funding plans, CASA has a very strong position. There is an impact, a slight impact of the fact that we are -- we have an impact due to the government -- French government debt. But nevertheless, the spreads are very low for us. And in fact, our funding plan for last year, we went beyond our funding plan, which was EUR 20 billion. We went to EUR 23.1 billion because the conditions were very strong. And the funding plan that we have is very favorable, sorry. And the funding plan that we have this year is about EUR 18 billion -- 1-8, and we have already achieved about 31% of this funding plan as of end of January, which is very good and which shows that there's abundant liquidity for the European banks and for Cr�dit Agricole, which has a very strong capital and liquidity position, and our conditions, our funding conditions are very good. So that's the first point. The second point is what could be -- so there's no issue for us, CASA, Group Cr�dit Agricole in terms of capacity to raise funding. The second point is, will macroeconomic uncertainty have an impact on activity, activity in the countries where we operate and our activity? Now, you saw in our medium-term plan that we want to increase the share of revenues outside of France from about 55% to about 60%. So this is development that will allow us to diversify also our business mix, first point. And then the second point is that we consider that we're very well positioned to support our customers in the developments that will be necessary, i.e., for example, I was talking about aging population. We're very well positioned to support the savings, the development of savings in Europe, thanks to insurance, thanks to asset management, thanks to the deal that we just signed with ICG in private debt, et cetera, et cetera. That's the first point on savings. And in our medium-term plan, we're also committing to support the mid-caps in Europe in the way that they contribute to competitiveness of Europe in a certain number of sectors, like defense or health or agri or technology. So we're well positioned to navigate in this uncertain environment. Operator: The next question is from Cyril Toutounji, BNP Paribas. Cyril Toutounji: I've got 2. The first one will be on Germany. I know you're launching your platform this year. So I'm just wondering what's your strategy to capture market share in the market that's becoming more and more competitive with new entrants? And the second one would be on French retail revenues. So it was really strong this quarter. And the drivers of NII especially are pretty structural. So I'm just wondering what's preventing us to maybe extrapolate this growth that's quite above the strategic plan revenue targets. Clotilde L'Angevin: All right. Thank you for your question. How we want to gain market share? So we're being very reasonable in the targets that we have. We want to go from 1 million customers to 2 million customers in Germany. We have savings outstandings that are EUR 15 billion. We want to reach about EUR 30 billion in Germany. And if we expand that to other countries, it will reach -- we're going to reach the EUR 40 billion that we talked about in our medium-term plan. So it's a relatively reasonable target because we're starting on this basis of 1 million customers and EUR 15 billion in outstandings. And as I was saying this before, we think that we're going to have a competitive edge linked to the number of solutions we can provide in terms of on-balance sheet savings in this digital platform, time deposits, et cetera. So we have a certain number of solutions that should be more numerous than those of other competitors. But recall that Germany is a market where there's a very strong depth in terms of savings. We want to target affluent customers. And so we're relatively optimistic regarding this, first point. The second point, indeed, the net interest income revenue increased strongly in France this quarter, and in particular, in the regional banks. And in the medium-term plan, we have increased -- an increase -- we have included, sorry, an increase in net interest income. The 11% net interest income that we have seen in French retail this quarter is probably a little bit strong. But for going forward -- but in 2026, I think we can say that we will have a high single-digit increase in French retail in 2026. And then, maybe coming back because Cecile and the team were just checking to the Corporate Center, the minus EUR 400 million I was talking about is indeed a good order of magnitude for a guidance for the net income for the Corporate Center by 2028. Operator: [Operator Instructions] Gentlemen, Ms. L'Angevin, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Clotilde L'Angevin: Thank you. Thank you very much, everyone, for your attention. So I'm not going to come back to the results that are very strong this year. I just wanted to make one last point. We talked a lot about medium-term plan, which is very good because we're really orienting ourselves into this medium-term plan by 2028. And during the medium-term plan, we have promised that we would do a couple of workshops on a couple of businesses. And in particular, we had talked to you about a workshop for LCL in the first half of this year. And so I'm very pleased to ask you to save the date of May 26, where we will be pleased to host you for an LCL workshop in Paris. And I'm going to stop there. Thank you, everyone, for your attention, and have a very nice day. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good morning, and thank you for standing by. Welcome to the AbbVie Fourth Quarter 2025 Earnings Conference Call. All participants will be able to listen only until the question and answer portion of this call. Today's call is also being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ms. Elizabeth Shea, Senior Vice President, Investor Relations. Elizabeth Shea: Good morning, and thanks for joining us. Also on the call with me today are Robert Michael, Chairman and Chief Executive Officer; Jeffrey Stewart, Executive Vice President, Chief Commercial Officer; Roopal Thakkar, Executive Vice President, Research and Development, Chief Scientific Officer; and Scott Reents, Executive Vice President, Chief Financial Officer. Before we get started, I'll note that some statements we make today may be considered forward-looking statements based on our current expectations. AbbVie cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in our forward-looking statements. Additional information about these risks and uncertainties is included in our SEC filings. AbbVie undertakes no obligation to update these forward-looking statements except as required by law. On today's conference call, non-GAAP financial measures will be used to help investors understand AbbVie's business performance. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings release and regulatory filings from today, which can be found on our website. Following our prepared remarks, we will take your questions. So with that, I'll turn the call over to Robert. Robert Michael: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us. Our fourth quarter performance closes out another excellent year for AbbVie, and I am very pleased with the significant progress we made in 2025. We delivered record net sales and exceeded our financial commitments, advanced our pipeline across all stages of development, and acquired new sources of growth through strategic transactions. We are entering 2026 with substantial momentum and remain well-positioned to deliver another year of strong growth. Turning to our results, we delivered full-year adjusted earnings per share of $10, which is $0.54 above our initial guidance midpoint. Excluding the impact of IPR&D expense, total net revenues were $61.2 billion, beating our initial guidance by more than $2 billion. Our sales growth of 8.6% led to a new all-time high for AbbVie, exceeding our previous peak revenue by more than $3 billion, despite nearly $16 billion of US HUMIRA erosion since the LOE. Our excellent performance puts us in a strong position to advance our innovative medicines. In 2025, we increased adjusted R&D expense by nearly $1 billion, fully funding the 90 clinical programs currently in development. We also obtained several new product and indication approvals, including RINVOQ for GCA, EMERALIS for nonsquamous, non-small cell lung cancer, and Epkinle for second-line follicular lymphoma. And we bolstered our pipeline by investing more than $5 billion in new business development, including several promising mechanisms and technologies. These include an in vivo CAR T platform in immunology from Capstan Therapeutics, bradicilacin, a next-generation psychedelic with promising data in depression, ISB 2001, a novel trispecific antibody for multiple myeloma, 295, a long-acting amylin analog for obesity, and a next-generation siRNA platform from 8Rx that has applicability in immunology, neuroscience, and oncology. We also recently announced a transaction with Remagen, adding a novel PD-1 VEGF bispecific antibody to combine with our ADCs across multiple solid tumors, further strengthening AbbVie's oncology portfolio. Turning to 2026, we expect AbbVie to once again deliver top-tier performance. We anticipate total sales growth of 9.5%, reflecting another year of robust sales results despite headwinds from continued HUMIRA erosion and IMBRUVICA IRA pricing. The main drivers of this growth include SKYRIZI and RINVOQ, with combined sales of more than $31 billion, already surpassing our 2027 long-term guidance by half a billion. We are also forecasting a substantial sales ramp for Vialev, achieving blockbuster status this year as a transformational treatment for Parkinson's. And we expect continued double-digit revenue growth from our leading migraine products, which are also trending significantly above our long-term expectations. Given the strong outlook of our diverse portfolio, we are well-positioned to deliver high single-digit revenue growth through 2029. Turning now to R&D, we anticipate a number of key catalysts across our core therapeutic areas over the next 24 months. In immunology, this includes pivotal data for three additional RINVOQ indications as well as initial data for our Crohn's combination platform with SKYRIZI. In neuroscience, we anticipate key readouts for next-generation assets 932, bretacelacin, and miraclodene. And in oncology, we expect registrational data for etentamig, as well as mid-to-late-stage readouts for tmAbA in several solid tumors. These are all very exciting opportunities that have the potential to drive sustained long-term growth. Lastly, we recently announced a voluntary agreement with the US government that reinforces our commitment to patient access and affordability while also protecting our ability to invest in innovation. Key elements of this three-year agreement include offering low prices in Medicaid, expanding direct-to-patient cash pay options for select products, and committing $100 billion in US R&D and capital investments over the next decade. In summary, we are delivering outstanding execution, and the outlook of our business remains very strong. With that, I'll turn the call over to Jeffrey for additional comments on our commercial highlights. Jeffrey? Jeffrey Stewart: Thank you, Robert. I'll start with the quarterly results for immunology, which delivered total revenues of approximately $8.6 billion. SKYRIZI total sales were $5 billion, reflecting operational growth of 31.9%. RINVOQ total sales were nearly $2.4 billion, reflecting operational growth of 28.6%. On a full-year basis, SKYRIZI and RINVOQ delivered approximately $25.9 billion in total combined revenue, an impressive increase of more than $8 billion year-over-year, well exceeding our initial guidance expectations. These results reflect exceptional performance across their respective indications, and I'll highlight a few examples. Starting with psoriatic disease, a market that is growing high single digits with modest biologic penetration where our portfolio has clear leadership. SKYRIZI total prescription share in the US biologic psoriasis market is now more than 45% and accelerating in the fourth quarter. Our in-play capture rates of new and switching patients have exceeded 55% across all lines of therapy, four times higher than the next closest competitor. And when you consider SKYRIZI's very high and durable skin clearance, including new and statistically significant data across the board, hard-to-treat areas like scalp, genitals, palmar, plantar, also widely demonstrated superior efficacy to both biologic and two oral agents. Along with that simple quarterly dosing, we do not expect a material impact to our robust outlook in psoriasis from any existing or new therapies this year and beyond. Moving to PSA derm, where nearly 30% of patients visiting dermatologists have both skin and joint involvement, SKYRIZI is now capturing roughly one out of every four in-play patients on biologic across all lines of therapy in the US, further supporting SKYRIZI's strong momentum. The PSA indication represents a critical differentiator in the psoriasis market, especially relative to emerging options where PSA efficacy is still unproven. Importantly, SKYRIZI has achieved PSA frontline in-play patient share leadership for biologics in both the derm and the room segments. Turning more broadly to room, RINVOQ continues to achieve a leading mid-teen in-play patient share for RA across all lines of therapy in the US. This is roughly double our total TRx share, highlighting a nice setup for incremental share capture in RA over the next several years, driven by our active communication of the select switch trial with data demonstrating RINVOQ's doubling of remission rates versus treatment with a second TNF inhibitor. And lastly, in IBD, where we continue to deliver strong performance and remain very well-positioned. The IBD market is very robust with high single-digit growth, driven by increasing biologic penetration and rapidly expanding lines of therapy as patients cycle to newer, high-efficacy agents like SKYRIZI and RINVOQ. We are very pleased with SKYRIZI's strong growth in IBD. Global sales for this indication were approximately $6.4 billion in 2025, more than double our prior year performance in IBD. We remain very confident in SKYRIZI's profile in IBD, including its demonstrated strong impact on clinical remission, as well as extremely strong endoscopic data with best-in-class placebo-adjusted rates, particularly in the bionaiive patients. And you can see this clinical profile playing out well when you consider our current market shares by line of therapy. Importantly, and despite in-class competition for most of 2025, SKYRIZI capture rates remain exceptionally impressive, especially in that frontline treatment of IBD, which is the strongest signal of overall physician preference. And SKYRIZI remains the clear leader. SKYRIZI retains a very high IL-23 category patient share, with an in-play capture rate of approximately 75% in the frontline setting overall for IBD. This is driven by an even higher frontline capture rate for SKYRIZI in Crohn's disease, which is roughly two-thirds of the total IBD market. And these capture rates have been strong and consistent even as the IL-23 category expands rapidly. SKYRIZI's dosing convenience is also favored, with less frequent maintenance treatment to the most effective dose for other IL-23s, which is very important as patients tend to be on therapy for many years. So SKYRIZI continues to perform very well and will continue to do so in 2026 and beyond. Equally importantly, and unlike any other competitor, we have a second compelling treatment in IBD, RINVOQ, which is also capturing robust mid-teens in-play share across all lines of therapy in Crohn's disease and ulcerative colitis. RINVOQ has demonstrated some of the strongest response rates to date in IBD, including rapidity of action, which is important for patients who need rapid control and durable remission. And with RINVOQ's recently expanded label in IBD, patients will now have access to RINVOQ earlier in the treatment paradigm, when anti-TNF treatment is clinically inadvisable. SKYRIZI and RINVOQ are a great pair in IBD. SKYRIZI is well-positioned in frontline, and we see more opportunity than ever before for RINVOQ in the second line plus setting. So together, our two brands have already exceeded peak HUMIRA sales by more than $4.5 billion and are on pace to deliver more than 20% growth in 2026, remarkable considering this year will be their eighth year on the market. Turning now to HUMIRA, which delivered global sales of more than $1.2 billion, down 26.1% on an operational basis, primarily due to biosimilar competition and in line with our expectations. We anticipate HUMIRA access will decrease further throughout 2026 as more plans move to exclusive biosimilar contracts. Moving to neuroscience, where full-year revenues were more than $10.7 billion, reflecting impressive absolute sales growth of nearly $1.8 billion. In the quarter, total revenues were more than $2.9 billion, up 17.3% on an operational basis. This robust performance is driven by continued double-digit growth of Vraylar, with global sales of $1 billion, Therapeutic with global revenues of $990 million, Ubrellvi, with global sales of $339 million, and QULYPTA, with global revenues of $288 million. Beyond these leading therapies for psychiatry and migraine, we are very excited for our emerging portfolio in Parkinson's disease, which we believe remains underappreciated. Violet's launch continues to be outstanding. Total sales were $183 million in the quarter, up approximately 33% on a sequential basis. The uptake is exceptionally strong across international markets, and we expect sales to ramp in the US, where Violet recently received full coverage. Feedback from prescribers and patients' communities remain very encouraging, highlighting meaningful improvements in on-time and off-time as a result of Violet's continuous 24-hour delivery and the control of symptoms morning, day, and night. Given these insights and the robust early launch trends globally, we now expect Violet to achieve blockbuster revenue in 2026. And when you add Tavapadon, for potential use as a monotherapy for early Parkinson's disease, as well as an adjunct to optimize oral therapy for more advanced patients, we believe we have the potential multibillion-dollar emerging PD franchise over the long term. And we remain on track for commercial approval of tevapadon in the US later this year. Moving now to oncology, where total revenues were nearly $1.7 billion in the quarter, down 2.5% on an operational basis. VENCLEXTA global sales were $710 million, up 6.4% on an operational basis, reflecting continued strong demand in CLL, with combination use of VENCLEXTA plus BTK inhibitors emerging as a preferred all-oral fixed-duration treatment. In 2026, we anticipate another major commercial catalyst with the global approvals of VENCLEXTA plus Calquence in combination, two leading brands in CLL, offering patients the potential for time off treatment, addressing an important need. Double-digit sales growth from Elijir, Epkinley, and Amrelis also helped to partially offset the expected sales decline for IMBRUVICA, which was down 20.8%, primarily due to continued competitive dynamics. And we do anticipate IMBRUVICA IRA price pricing will unfavorably impact our oncology portfolio growth in 2026. Turning now to aesthetics, which delivered global sales of nearly $1.3 billion in the quarter, down 1.2% on an operational basis. BOTOX Cosmetic global revenues were $717 million, up 3.8% on an operational basis. Juvederm global sales were $249 million, down 10.8% on an operational basis. We've seen over the last several quarters, economic headwinds have continued to impact market conditions globally, and we anticipate category growth will remain challenged in 2026. With our leading market shares relatively stable for both toxins and fillers, we are focused on investing to stimulate the market, which remains highly underpenetrated. We expect to further catalyze growth with new promotional programs for Botox, including the Only You campaign that was launched over the last several months, with encouraging early results. An unbranded program to educate practices and consumers about the benefit of fillers, with a focus on driving natural outcomes, as well as additional injector training, which will be supported by our three new AMI training centers in the US as well as training programs in key international geographies. Bringing innovation to the aesthetics market with our pipeline is also a clear priority. We look forward to commercializing Trinibot e, a fast-acting short-duration toxin, which is expected to be approved in the US later this year. So overall, I'm extremely pleased with the execution across our commercial portfolio, which is demonstrating very, very strong momentum as we head into 2026. And with that, I will turn the call over to Roopal for comments on our R&D highlights. Roopal? Thank you, Jeffrey. Roopal Thakkar: I'll start with immunology, where we are on track for numerous important data readouts across all stages of our pipeline this year, as well as several regulatory submissions and approvals. Regulatory applications for RINVOQ in nonsegmental vitiligo were recently submitted, with an approval decision in the US anticipated in the fourth quarter. Regulatory applications for RINVOQ in alopecia areata are under review in Europe and Japan, with approval decisions expected later this year. Our US submission is planned for the second quarter. Over the course of 2026, results from several late-stage programs are anticipated, including phase three data from studies for both RINVOQ and lutekizumab in hidradenitis suppurativa, and a study evaluating subcutaneous induction with SKYRIZI in Crohn's disease. We continue to make substantial progress with our early and mid-stage programs as well, where we have an exciting pipeline of next-generation therapies that have the potential to drive higher efficacy relative to standard of care. This year, we'll see data from our Crohn's disease platform study, evaluating SKYRIZI in combination with our novel anti-alpha four beta seven antibody ABBV 3A2 and our anti-IO one alpha beta bispecific, lutekizumab. Our extended half-life TL1A antibody will also be evaluated in combination with SKYRIZI, with a phase 2b dose-ranging study in Crohn's and ulcerative colitis beginning later this year. Separately, a phase two study is underway to evaluate our TREM1 antibody as a monotherapy in Crohn's disease. Data from this study will be available later this year and will help inform our combination strategy for this molecule. The phase 1b trial for ABBV 319, our anti-CD19 ADC with a steroid payload, is now underway, and we will soon begin dosing patients with our in vivo CD19 CAR T, ABBV 619. These B cell depleting approaches have the potential to become transformative modalities to reset the immune system and provide deep, durable, drug-free remission for patients with autoimmune diseases. Individual patient data from dose escalation studies will be available on a rolling basis, and we anticipate seeing efficacy results later this year. Several additional immunology assets will also be entering the clinic this year, including an extended half-life anti-IL-23 antibody and an oral peptide IL-23 inhibitor. Moving to oncology, progress continues with our next-generation cMet ADC tmAbA. Strong data have been observed in late-line colorectal cancer, as both a monotherapy and in combination with bevacizumab. Therefore, we will be initiating a phase three study this year in an all-comers population in combination with VEV. Dose optimization continues for tmAbA in non-small cell lung cancer, where both EGFR wild-type and EGFR mutant populations are being evaluated. Data from these studies will be available next year, informing our phase three path. In pancreatic cancer, tmAbA will be studied in combination with different regimens of chemotherapy. Later this year, data is anticipated in head and neck and ovarian cancer. We're making very good progress across several tumor types with tmAbA. We recently announced a deal with Remagen for a PD-1 VEGF antibody. This molecule will be a nice complement to our ADC portfolio and has demonstrated competitive monotherapy efficacy as well as encouraging early data in ADC and chemo combinations. Our strategy is to initially combine this PD-1 VEGF with tmAbA in lung and colorectal, with other tumor types also under consideration. These novel combinations have the potential to drive faster disease control, longer duration, and ultimately longer survival. In small cell lung cancer, a phase two trial for ABBV 706 in combination with atezolizumab recently began in treatment-naive patients. A phase three study in second-line plus patients is also planned to initiate this year. In hematologic malignancies, the regulatory application for PIVC in blastic plasmacytoid dendritic cell neoplasm is under review with the FDA. An approval decision is anticipated later this year. Enrollment is projected to complete this quarter in our phase three trial evaluating monotherapy atentamig in third-line plus multiple myeloma, with an objective response rate readout anticipated in the second half of this year. A phase two study of ententamig plus daratumumab in frontline transplant-ineligible patients was recently initiated. Additionally, a phase three study in second-line evaluating entantamig with pomalidomide is expected to begin by early 2027. Turning to neuroscience, in our movement disorder programs, an approval decision is anticipated in the third quarter for tevapadon in Parkinson's disease. As a highly effective treatment for motor symptoms, with low rates of dyskinesia, edema, sedation, and impulse control disorder, tevapadon has the potential to be an important new treatment option, both as a monotherapy and as an adjunct to levocarbidopa in patients still experiencing motor fluctuations. This year, a phase two study assessing gemmibot A in essential tremor will begin. Essential tremor is the most common movement disorder and an area with considerable need for effective and tolerable therapies. Unlike most patients with spasticity, patients with essential tremor typically have normal strength. Therefore, it is important that neighboring muscles are not inadvertently affected, and this is by toxin diffusion. Our new toxin is highly potent and has the potential for less spread to neighboring muscles, making it well-suited for treating essential tremor. In migraine, the phase three ECLIPSE trial evaluating QLIPTA for acute treatment of migraine met its primary and key secondary endpoints, with Qlipta demonstrating superiority over placebo. Approval decisions in Europe and Japan are expected later this year. Our phase three studies evaluating Qlipta and UBRELVY for menstrual migraine prevention are progressing well, with data from both trials expected in the second half of this year. Regulatory submission for Qlipta in Europe is anticipated later this year, and for UBRELVY in the US in 2027. Menstrual migraine is a distinct subtype affecting nearly 15% of women with migraine. Attacks are considered more difficult to treat, more disabling, last longer, and have a higher tendency to recur. There is a clear need for more effective treatment for this form of migraine. In the area of psychiatry, several readouts and study starts are planned this year across multiple programs. Our dose escalation study continues for ameraclidine in schizophrenia, with the 75-milligram dose cleared and 100 milligrams currently being assessed. Further dose escalation is planned until a tolerability threshold is reached. Based on the favorable profile with 75 milligrams and the potential to move the dose even higher, emeraclidine will be moving forward in development as both a monotherapy and adjunctive treatment for schizophrenia. Dose ranging in elderly patients is also ongoing, which will support development plans in psychosis related to Alzheimer's, Parkinson's, and dementia with Lewy bodies. Phase two studies across all indications will begin after the completion of multiple ascending dose evaluation. The phase two study for ABBV 932 in bipolar depression is nearing completion, and data is expected around the middle of this year. Data from the generalized anxiety disorder phase two is anticipated in the early part of 2027. This year, data from two additional cohorts from a phase two study evaluating bradicilacin in major depressive disorder will help inform our development strategy and phase three plans. This short-acting psychedelic demonstrated very strong durable efficacy in a preliminary phase two study. Based on this emerging profile, reticilacin has the potential to become a groundbreaking new treatment in depression. Moving to other areas of our pipeline, in obesity, data will be available this year from two ongoing phase one studies evaluating our long-acting amylin analog ABBV 295 in overweight and obese patients. Results will guide our phase two program, which is expected to begin near the end of this year. In aesthetics, the regulatory application for our rapid-onset short-acting toxin Trenebody is under review, and an approval decision is expected this year. To summarize, we continue to demonstrate significant progress across all stages of our pipeline and anticipate many important regulatory and clinical milestones in 2026. With that, I'll turn the call over to Scott. Scott Reents: Thank you, Roopal. Starting with our fourth quarter results, we reported adjusted earnings per share of $2.71, which is $0.08 above our guidance midpoint. These results include a $0.71 unfavorable impact from acquired IPR&D expense. Total net revenues were $16.6 billion, reflecting robust growth of 10%, including a 0.5% favorable impact from foreign exchange. Our ex-HUMIRA growth platform delivered reported growth of 14.5%, once again exceeding our expectations. Adjusted gross margin was 83.6% of sales, adjusted R&D expense was 15.4% of sales, and adjusted SG&A expense was 22.3%. The adjusted operating margin was 38.3% of sales, which included a 7.6% unfavorable impact from acquired IPR&D expense. Net interest expense was $655 million. The adjusted tax rate was 18.3%, reflecting the lower deductibility of the acquired IPR&D expense this quarter. Turning to our financial outlook for 2026, our full-year adjusted earnings per share guidance is between $14.37 and $14.57. Please note that this guidance does not include an estimate for acquired IPR&D expense that may be incurred throughout the year. We expect total net revenues of approximately $67 billion, reflecting growth of 9.5%. At current rates, we expect foreign exchange to have a roughly 0.8% favorable impact on full-year sales growth. This revenue forecast contemplates the following approximate assumptions for select key products and therapeutic areas. We expect global immunology sales of $34.5 billion, including SKYRIZI revenue of $21.5 billion, driven by market growth and share gains across the psoriatic and IBD indications, RINVOQ revenue of $10.1 billion, with growth across room, derm, and gastro indications, and HUMIRA total revenue of $2.9 billion, reflecting continued biosimilar impact. For neuroscience, we expect global sales of $12.5 billion, reflecting robust double-digit growth. This includes Vraylar revenue of $4 billion, driven by continued strong prescription demand, Botox Therapeutic sales of $4.1 billion, with strong performance across indications, total oral CGRP revenue of $2.9 billion, supported by market growth and share gains, and BIOLIF sales of $1 billion, demonstrating the brand's impressive launch and multibillion-dollar potential. In oncology, we expect global sales of $6.5 billion, including IMBRUVICA revenue of $2.2 billion, reflecting competitive headwinds and the impact of lower IRA-related pricing, VENCLEXTA sales of $3 billion, which reflects continued strong demand, and ELEHIR revenue of $850 million. For aesthetics, we expect global sales of $5 billion. This includes Botox Cosmetic revenue of $2.7 billion, reflecting modest market growth and relatively stable market share, and Juvederm sales of $950 million, reflecting continued headwinds in key dermal filler markets. Moving to the P&L for 2026, we are forecasting full-year adjusted gross margin above 84% of sales, adjusted R&D expense of approximately $9.7 billion, and adjusted SG&A expense of approximately $14.2 billion. We also expect an adjusted operating margin ratio of approximately 48.5%, reflecting meaningful expansion compared to 2025. We expect adjusted net interest expense of approximately $2.8 billion, which includes anticipated refinancing. We forecast our non-GAAP tax rate to be approximately 14%, reflecting a modest underlying improvement compared to 2025 due to recent tax law changes. Keep in mind that last year's non-GAAP tax rate of 18% included a 3% impact from acquired IPR&D expense. Finally, we expect our share count to be roughly in line with 2025. Turning to the first quarter, we anticipate net revenues of approximately $14.7 billion. At current rates, we expect foreign exchange to have a roughly 2% favorable impact on sales growth. This revenue forecast considers the following approximate assumptions for key products and selected therapeutic areas. We expect global immunology sales to approach $7.1 billion, including SKYRIZI sales of $4.4 billion and RINVOQ revenue of $2 billion, reflecting typical seasonality as well as an unfavorable price comparison for RINVOQ related to the timing of prior year rebates in the first half. We also anticipate neuroscience revenue of $2.8 billion, oncology sales of $1.6 billion, and aesthetics revenue of $1.2 billion, reflecting growth of roughly 9%, including a favorable comparison as we lap one-time price headwinds associated with changes to the Alley program. We are forecasting an adjusted operating margin ratio of roughly 46% and model a non-GAAP tax rate of approximately 13.7%. We expect adjusted earnings per share between $2.97 and $3.01. This guidance does not include acquired IPR&D expense that may be incurred in the quarter. Finally, AbbVie's robust business performance continues to support our capital allocation priorities. Our cash balance at December was $5.2 billion, and we expect to generate free cash flow of $18.5 billion in 2026, which includes roughly $3.5 billion of SKYRIZI royalty payments. This free cash flow will support a strong and growing quarterly dividend, which we have increased by more than 330% since inception, as well as investments in business development to further enhance our portfolio. In closing, we are pleased with AbbVie's results in 2025, and our financial outlook remains very strong. We have significant momentum across our diverse portfolio and are well-positioned to deliver strong results in 2026 and beyond. With that, I'll turn the call back over to Elizabeth. Elizabeth Shea: Thanks, Scott. We will now open the call for questions. In the interest of hearing from as many analysts as possible over the remainder of the call, we ask that you please limit your questions to one or two. Operator? We'll take the first question, please. Operator: Thank you. The first question in the queue is from David Risinger with Leerink Partners. Your line is open. David Risinger: Thanks very much and congrats on the solid fourth quarter and the momentum of the company. I just have one question, which is you mentioned the psychedelic that's in development. Could you please provide some more details on that, the opportunity to improve upon the profile of J&J's bravado? Thanks very much. Roopal Thakkar: Hi. It's Roopal. I'll take that one. We see this one as a potential breakthrough type of therapy in a couple of elements. One is it works through the 5-HT2A serotonergic pathway and has a short-acting, I would say, hallucination time period where patients experience the potential hallucinations upfront and then it rapidly goes away. And what we've observed is that you see immediate efficacy and then you see that efficacy held on for quite some time. So that's a benefit. And these patients are then able to stay for a short time in the clinic and then leave. The other notable differences from any other medications in this space are the very high levels of efficacy that were observed, and that almost led to a remission-like state in the majority of patients. Now we have two more readouts before the phase three begins. And in those readouts, what we're doing is reducing the dose of the control arm. And recall data that we've seen thus far were not against placebo; they were, in fact, against an active control of the drug itself, which that data looked pretty good. But when you looked at the main dose, it looked very impressive. So we're gonna look at a comparator with a slightly lower dose of self-control, and then that'll read out, I would say, by Q3 or so. And then we'll have a phase three plan going forward that we'll discuss with regulators. But this has the potential to be highly differentiated. Elizabeth Shea: Operator, next question, please. Operator: Yes. The next question is from Christopher Schott with JPMorgan. Your line is open. Christopher Schott: Great. Thanks. Much. Just a couple parter on the immunology franchise. I guess just first on SKYRIZI in IBD. It sounds like you haven't really seen any change in new start share here with the Tremfya entry. As my question, is that the case in both Crohn's and UC, or is that just more a holistic kind of IBD comment? And my kind of bigger picture question is, I've been reading more investors feeling that the Street now better understands the potential for SKYRIZI and RINVOQ over time. As a result, there's no longer as much potential upside to numbers. I guess I'd just feature in your view of consensus growth expectations for these assets over time. Is the market now largely getting this right at this point? Or do you see further potential for growth upside as you think about the breadth of indications, etcetera? Thank you. Jeffrey Stewart: Yeah. Hi, Chris. It's Jeff. So, you know, we see some slight distinctions between the capture rate for SKYRIZI in Crohn's versus UC, and that's really probably largely based on when the launches took place with the competitor. But as I mentioned, and it may not be widely understood, we see definitely a bifurcation in where the capture rate is coming. It's quite clear that our new patient starts are very, very stable. And they're very high in both UC and Crohn's. If you look at where the starts are coming from, and I mentioned in my prepared remarks, we have very, very high capture rates. Seventy-five percent overall in IBD in the frontline setting, which sort of gives you a sense of where the preference of the customers are. And it's 80%—I didn't highlight that in my speech—it's 80% in Crohn's, so it's slightly lower in UC on the frontline setting. So we see the dynamics again as very stable and high new patient starts, despite the competitive entrant. High capture rate, leading capture rates by far in frontline, which is really, really critical, which gives you a sense the competitor is coming in and capturing in the second line. And then overall, we see a very substantial, overall IL-23 category expansion. So when we look at all of those dynamics, our compete level is extremely high. And we're very, very comfortable with the momentum that we're gonna continue to see with SKYRIZI even before we get to RINVOQ coming in in the later line. So that gives you some sense overall on IBD. I'll let maybe Robert address the second question. Robert Michael: Yeah. So, Chris, this is Robert. Thanks for your question. Look. I see numerous sources of upside across the enterprise. I'll start with your question on SKYRIZI and RINVOQ. Obviously, the combined guidance for this year is already $500 million higher than our 2027 estimate, and we do expect both SKYRIZI and RINVOQ to grow robustly into the 2030s. And clearly, as we look at models, you know, that longer-term growth is not reflected. And so we do think on a longer-term basis, there's clearly more upside to SKYRIZI and RINVOQ. And then when you consider, you know, things like the market growth projections, we'll gain share, along with the next wave of RINVOQ indications. You know, we have a lot of confidence in the long-term potential for those two assets. But beyond immunology, when you look at AbbVie, I think what's underappreciated is both, I'd say, neuroscience and oncology in particular. I'd say neuroscience is clearly overperforming. We delivered nearly 20% growth last year. We expect to deliver mid-teens growth this year. It'll put us in the number one position in the industry. I mean, Violet will already achieve our peak sales guidance this year. We had given long-term guidance of greater than a billion dollars peak. We're guiding to a billion dollars. We think our Parkinson's franchise, including BioLeb, Duopa, and Tivapadon, can achieve peak sales in excess of $5 billion. That's not reflected in treatment models. And given the ramp of our oral CGRPs, we believe our migraine franchise will also exceed $5 billion in peak sales. Recall, we gave peak sales estimates of greater than $3 billion based on this year's guidance, we're almost there. And so, clearly, the street is not modeling that type of upside for our migraine business. In psychiatry, we have several next-generation assets with 962, bradisilacin as Roopal highlighted, and emriclidine, which we're clearly studying the dose. That can help replace the $5 billion peak of Vraylar at its LOE in 2030. So we're in a very strong position to lead in neuroscience for the long term with three $5 billion-plus franchises. And I haven't even mentioned essential tremor or other therapeutic toxin indications, or the opportunity in Alzheimer's. And so, you know, we have, I'd say, a profound opportunity to lead in neuroscience for the long term, and that's clearly not reflected in street models. And then when I look at oncology, we have a very compelling pipeline that doesn't get enough attention. For example, our ADC tmAbA has shown promising data in CRC, lung, gastroesophageal, and pancreatic cancers. In CRC alone, tmAbA has the potential to be a multibillion-dollar opportunity, not to mention the other solid tumors that it could potentially treat. And we also have exciting opportunities in oncology, such as etentamig and the follow-on trispecifics in multiple myeloma, 706 in small cell lung cancer, and 969 in prostate cancer. So we have many opportunities to deliver upside to street long-term estimates. And with no significant LOEs until the next decade, we have plenty of capacity to invest in both internal and external innovation to drive very strong long-term growth. Elizabeth Shea: Thank you, Chris. Operator, next question, please. Operator: Next question is from Terence Flynn with Morgan Stanley. Your line is open. Terence Flynn: Great. Thanks for taking the questions. Maybe two for me. Robert, appreciate your just your recent comments on looking at external innovation. Maybe you could give us an update on your BD lens, kind of the size and risk profile of potential deals you might consider. I know you did more of the early-stage deals as you walked through the beginning of the call, but how are you thinking about the opportunities on the forward here? And then maybe for Roopal, just wondering if you can frame expectations for the upcoming RINVOQ and Ludi Phase III HS data in terms of what you'd like to see from a target profile perspective? Thank you. Robert Michael: Terence. It's Robert. So I'll take your first question here. You're right. If you look at the last two years, we've invested over $8 billion in external innovation that has added significant depth to our pipeline, with more than 30 deals. And again, these are opportunities that can drive growth in the next decade and beyond. To recap, I mean, in immunology, you know, we've added new mechanisms such as TL1A and TREM1 that can play a key role in our combination strategy. We've added oral peptides capabilities from Nimble, the in vivo CAR T platform from Capstan, neuroscience, again, our next-generation assets in psychiatry, 932, bradycilsin, and americlidine have all come through BD, and we acquired a very compelling brain cell platform from Aliata that gives us, I'd say, a very compelling opportunity in Alzheimer's. In oncology, we've added trispecifics and multiple myeloma that could follow etentamig. The in vivo CAR T platform from Umoja, as well as a PD-one VEGF antibody, which I highlighted in my remarks, which will complement our ADC portfolio. And I should also mention the siRNA platform from an ADX can really generate opportunities across all three of those therapeutic areas. I mean, we're clearly focused on early-stage opportunities, so that we have solid growth drivers in the middle part of the next decade given how sizable we expect SKYRIZI and RINVOQ to be, and that's also why we utilize BD to enter into another growth area in obesity, which we will build upon as we identify other differentiated assets. We're clearly taking a close look at what's available out there, and to the extent we see something that we feel is differentiated, we'll pursue it. And I would say to the extent we see a differentiated asset in any of our core areas, whether early or late stage. I think sometimes there's a misconception that we're only interested in early stage. We were willing to invest in late-stage assets. We certainly have the financial wherewithal. Strategically for the company, it's really about positioning the pipeline to deliver, you know, that growth in the next decade because we have clear line of sight to grow drivers for this decade. But, again, given our strong growth outlook and no LOEs this decade, we have plenty of firepower to pursue both early and late-stage opportunities. We're not limited to early stage, and we're focused on our core areas, immunology, neuroscience, oncology, and building out obesity. Roopal Thakkar: Terence, it's Roopal. I'll talk about HS expectations. So first of all, with RINVOQ, we're excited about this particular study and indication, especially as we look across previous indications. So for example, if you look at Crohn's disease and recently alopecia areata, RINVOQ really overperforms relative to any other JAK inhibitor in the class, along with any other biologic, if we were to take a look there. And that's why this study is going to be very important to build on the data that we've generated so far with RINVOQ. Now, I will say this will be in a treatment failure population because that's where we believe the JAK inhibitor class will be used in HS. And the dermatologist will already have familiarity with it when they've already used it for atopic dermatitis and soon alopecia areata and vitiligo. So maybe the efficacy won't be as sky-high as we would see in a naive population. But we think it can be very meaningful because patients tend to cycle off of these assets as they become available. Now with lutekizumab, that one is a different mechanism. It's IL-one beta, beta in particular, it's very highly expressed in tissues of patients with hidradenitis suppurativa, and that one will be studied in a naive population and an experienced population. And so far in phase two, we've seen amongst the highest efficacy reported. So, hopefully, in phase three, we'll see something similar. But you can also follow the positioning of these two future medicines in this space similar to what Jeffrey was describing previously in IBD. We'll have a lead asset in the naive setting. This would be lutekizumab. It has also shown a very strong safety profile, high efficacy in phase two, and then one for those patients that are not finding relief with current biologics or even LUTI. So our sales teams and medical teams will have both of these to talk about in a similar concept that we have now demonstrated with IBD, quite successfully. Elizabeth Shea: Thanks, Terence. Operator, next question, please. Operator: Next question is from Asad Haider with Goldman Sachs. Your line is open. Asad Haider: Great. Thanks. Maybe first for Roopal, you talked about this a little bit already, but maybe if you could expand upon how you see the oncology portfolio evolving from here. With respect to novel combos, you've got this new externally sourced PD-one, better bispecific that you just brought in. Alongside your existing ADC asset. Do you see the portfolio as appropriately positioned now from that perspective? And are there other gaps that you see with respect to where the science is evolving? And then if I could just also throw one in for Scott on the aesthetics franchise, that's been in a protracted downturn based on macro headwinds. I know you've talked about efforts to revitalize growth looking at Treneborn e approval. Later this year as a potential catalyst. Are you able to provide any quantitative framing on what you expect to see post-approval and launch just recognizing that there's some investor debate about the commercial opportunity for that program? Thank you. Roopal Thakkar: Hey. It's Roopal. I'll start with oncology. You heard us talk about tmAbA in 706 as examples, and tmAbA multiple tumor types we get rapid efficacy which is very important and the strategy being maintaining that efficacy like a chemotherapy or better but having a better tolerability profile. For example, comparison to conventional chemo, we don't see the high rates of stomatitis, diarrhea, hair loss, which in fact you still see with certain ADCs, but we don't see that profile with our construct, with our linker technology. And our particular topo warhead, whether that's against cMAT or CESS6, for example, so that's a starting point. And then the combinations become very important to help build on the durability of these assets and utilization over the long term so the patient is able to benefit maximally. And we believe that PD-one VEGF is a terrific combo partner. I mentioned colorectal and lung thus far. But as I stated, we're gonna see tmAbA readout in head and neck and ovarian. And that could be also potential areas of combination. The other key component of our oncology strategy is also having the ability to have a biomarker approach where physicians, patients are always seeking an individualized care regimen. And we have seen examples particularly in GEA, I would say, and other tumor types that when you have slightly increased expression profiles you see higher efficacy. Though that sets up an ability to differentiate our portfolio over the long term. Now if there's examples where we don't need a biomarker approach, then we won't take it. So 706 is a good example in small cell lung cancer. And you asked maybe what's missing. We think a T cell engager could be a very nice combination with 706, and we have brought one in-house. The other internal development programs and access we already have that we're working on that hopefully will get to the clinic soon is in KRAS. We are interested in lung, colorectal, pancreatic, strong data in pancreatic with tmAbA already, and we feel in the future having a selective KRAS hopefully avoids NNH RAS, would allow for optimal combinations. So I would say very excited on the solid front. And just to briefly touch on, Robert mentioned, 969, we haven't talked much about that today. However, we're trying to get that data to ask so I would look for that. That is taking our bispecific technology similar construct than how we built lutekizumab against IL-one alpha beta. But in prostate cancer, this would be against PSMA and STeEP, and then we take the WARHEAD and linker technology from tmAbA and add that to 969. So the team is excited about the potential in prostate cancer, which is a very large tumor type and I would say with still substantial unmet need, and we described the heme side where we have next generational BCMA, CD38, and GPCR 5d, assets moving rapidly into the clinic. Jeffrey Stewart: And then maybe it's Jeff. I'll address your training bot in the Botox question. I think what's important as we look into 2026, largely what we see is that the sales impact of the Trini bot will largely accrue really to Botox, and I'll walk through that. But given the timing of the launch and the fact that right now we have plans to train 12,000 core injectors, it's really gonna not really appear until towards the end of the year, but it's gonna gate heavily into 'twenty seven. So I'll give you some sense of how the dynamics will work. We believe when we look at the patient funnel, that, at peak, we could potentially up to double the inflow of patients that would basically start to move into the toxin market. Because they're still, you know, we look in the US, 55 million considerors that just haven't made that leap yet. So the first dynamic is the stimulation of the market that starts to start to gate in at the '26 and certainly we believe, heavily into '27 and '28. The second thing that we see is that since it is a short-duration toxin, it only lasts for two and a half to three weeks. The real commercial impact goes to your conversion rate, our key performance indicator of how fast we convert to full-strength Botox. And the way that we think about that metric is right now we have very high leading share in the US in the low 60s percent. We would anticipate that once patients start on Trenebot, as they start to gate in over this time period, that we have a much higher conversion rate than our existing share. So it starts to build share as well. And so net-net, we were very excited about this innovation. We think it's gonna operate to sort of increase inflows substantially over our plan, again, more in the '27 and beyond standpoint as we get training ramped up, and also accrue to Botox share. So that's how we're looking at that market development over time. Elizabeth Shea: Thanks, Asad. Operator, next question, please. Operator: Next question comes from Vamil Divan with Guggenheim Securities. Your line is open. Vamil Divan: Great. Thanks for taking the question. Maybe one, do have, actually, still on the Botox topic. And then one other one. On Botox, we were sort of surprised to see that one selected for the Medicare price reductions in 2028. I'm wondering if this is a surprise to you as well or you're sort of expecting that. And then what that might mean for pricing on the cosmetic side? Because I think it's always been tied to therapeutic and cosmetic pricing. So if there's reductions from Medicare on the therapeutic side, would you have to sort of carry that over to cosmetic care? Do you maybe have more flexibility in some way? In the future. And then my second question is back on the immunology franchise. And I caught them away. You said around 1Q pricing dynamic. But maybe you can just share your thinking around pricing overall on that market. First, I was in RINVOQ. First day this year and maybe over the next couple of years. Just how things evolve from a pricing perspective. Thank you. Robert Michael: Thanks, Vamil. It's Robert. Jeff and I will tag team your first question here. So as it relates to Botox being selected for Medicare negotiation, we're obviously disappointed that it was selected given that it's a plasma-derived product and should have been excluded. That said, we did plan conservatively that it could be selected based on CMS spend, so its selection does not impact our long-term growth guidance at all. Jeffrey Stewart: Yeah. And, also, in terms of the pricing separation, we're comfortable with how we understand that effectuation may ultimately take place if and when it does happen in 2028. Certainly, we did see that when the announcement was made, there were comments around Botox Cosmetic, but that's just more of a formulaic dynamic with the way the government looks at NDCs, but it's quite clear that, you know, there's a cash pay component. So we don't see a large or meaningful interaction between the two even if we do see the negotiation take place in twenty-eight. Scott Reents: Sure. And this is Scott. I'll address your question on pricing for SKYRIZI and RINVOQ. So we've talked about it, and we continue to expect low single-digit pricing headwinds for both of those products, both in '26 and over the next few years as well. That's what we've seen. I would tell you '25 was unique. We had some pricing tailwinds in '25. And so in the end, for SKYRIZI, we were roughly flat for pricing on the year for SKYRIZI. Had some positive price in the first half of the year, and it was negative price in the back half of the year. And RINVOQ was slightly down on a year-over-year basis for pricing in '25 as well. Pricing favorability in the first half and pricing unfavorability in the second half, netting to slightly down. That does come into play when we look at, for instance, the first quarter of RINVOQ. You'll see that pricing headwind, frankly, high single-digit as an unfavorable comparison that RINVOQ is facing on a prior year basis. So those dynamics will be played, but you're going to see low single-digit pricing in '26 for both products and then, you know, going forward as well as our anticipation. Elizabeth Shea: Thanks, Vamil. Operator, next question, please. Operator: Next question is from Steve Scala with TD Cowen. Your line is open. Steve Scala: Thank you so much. It is clear that you are confident in SKYRIZI in IBD, but the competition is growing very rapidly. And it looks like it's inevitable. It will make an important impact on SKYRIZI. So what can be done to neutralize these gains at this juncture? And secondly, in the drug pricing deal AbbVie signed with President Trump, the release noted exemption from tariffs and future pricing mandates. Can you elaborate on what exemption from future pricing mandates constitutes beyond avoidance of demonstration projects? And how important is avoidance of demonstration projects? Thank you. Jeffrey Stewart: Yeah. Hi, Steve. It's Jeff. Just maybe a few comments. You know, I've outlined how stable our capture rates are. Look, it is a competitive market. There have been changes in terms of frontline and later lines, but we're very, very confident that we're going to see very significant growth in leadership with SKYRIZI over IBD as well as the RINVOQ dynamic we discussed. Now what are some things that we can think about and are thinking about in terms of continuing the momentum and even increasing our momentum? First, you know, if this is not a zero-sum game with the two IL-23s. There's a lot of other products in the marketplace. And I think that we've highlighted before, we will shortly see a readout over a head-to-head study with Entyvio. Entyvio is the leading agent or close to it with SKYRIZI in UC, and it does pretty well in Crohn's as well. So with the head-to-head data for SKYRIZI versus Entyvio, we see a significant opportunity to continue the momentum beyond just the IL-23 growth and the competition that we've been talking about. The other dynamic that we see there is a modest, I would say, market value driver. It gets a lot of play over this idea of a sub-q induction versus an IV induction. And as Roopal highlighted in his prepared remarks, we will close that gap. We believe, sometime in early twenty-seven. Based on the readout that we're anticipating. So we have, you know, many, many strategies that we continue to pursue to make sure that we can maintain and sustain our SKYRIZI leadership over time. Robert Michael: Hey, Steve. This is Robert. You know, we're pleased that we were able to reach an agreement with the Trump administration that, again, balances affordability and access and protects the US innovation ecosystem going forward. And so, we're pleased where that's landed. As you noted, similar to many of our peers who did also execute agreements, we are exempt during the term from tariffs, as well as the pricing mandates inclusive of demonstration projects. So your understanding is correct. Elizabeth Shea: Thank you, Steve. Operator? Next question, please. Operator: Next question is from Mohit Bansal with Wells Fargo. Your line is open. Mohit Bansal: Great. Thank you very much for taking my question. Maybe a question on the migraine primary care expansion here. So in Pfizer yesterday, talked about that they are generating about 83% share in the new prescribers for in the migraine market. I'm assuming this is all primary care, but again, would you talk a little bit about how your expansion strategy into primary care is going? And then do you are you seeing any increased competition there from the competition in the migraine market? Thank you. Jeffrey Stewart: Yes. Thanks for the question. We're, as Robert mentioned in one of his responses, we are extremely pleased with our migraine business. I mean, certainly, we have a very large Botox business. It's the only toxin approved in chronic migraine. And just to be very, very clear, we have the absolute leading brand with UBRELVY in acute migraine. Okay? And that lead is expanding. We also have recently become the number one branded drug in the episodic oral CGRP for prevention with QLIPTA. So we have an extremely strong position. It's very difficult for us to triangulate against what the competitor said. But you can just look at our reported sales when you add up our total oral CGRP sales, which is also rapidly globalizing. So we see, if anything, that we're going to continue to stretch our lead in that area. Now we also have considerable primary care presence right now with both Ubrellvy and we call on essentially over 70 or 80,000 physicians, most of which are primary care physicians. We also cover headache specialists, neurologists, of course. So we have very significant reach and we have also a very significant lead in this category. Robert Michael: And this is Robert. I'll just add. I mean, as we saw the comment this—well, it's hard for us to reconcile when you just compare the revenue in 2025 for Qlipta and Yubrelevy. Combined is almost $1 billion higher than the competitor. So it's difficult for us to reconcile the numbers that were being quoted. When I look at the performance of the oral migraine franchise and just the continuous share gains, we're talking about, you know, over a point every year and now delivering, you know, almost $3 billion this year, which was, again, the peak that we had previously communicated. And, obviously, both brands have long runway. And so as I mentioned before, as we look at these brands, we would expect them to exceed $5 billion now. So just tremendous momentum. The profile of both drugs is very powerful. And the commercial execution has been very strong. Elizabeth Shea: Thank you, Mohit. Operator, next question please. Operator: Next question is from David Amsellem with Piper Sandler. Your line is open. David Amsellem: Hey, thanks. So on RINVOQ and Vitiligo, can you talk about the sizing of that opportunity given the dirt that's systemic options? And also, do you perceive a competitive threat from IL-fifteen directed therapies in vitiligo down the road? That's number one. And then secondly, as you talk about potential replacement for Vraylar following its LOE, does that also contemplate a long-acting form of cariprazine as one of those replacements? Thanks. Jeffrey Stewart: Yeah. Hi. It's Jeff. I'll take the vitiligo question. So, yeah, we've highlighted that if you look at our next generation of our next wave of RINVOQ approvals, that we anticipate roughly $2 billion or more in peak year sales. And those are going to start to gate out here relatively soon. We're right on track with GCA, which is moving quite well. It's the smallest of the bunch. It's difficult to say. When we look at vitiligo, I mean, we've sized that opportunity, you know, roughly just above half a billion at peak. But, again, we could surprise ourselves there. I mean, the data looks quite strong. And to your point, it is the only systemic agent. And so, ultimately, where we end up in terms of that peak year sales will also depend on the labeling that we get as we go through the process. Certainly, we're reviewing quite a bit of disease state awareness that we'll start to gate in with AbbVie spending in the middle part of the year where we're gonna basically highlight the fact that there is no systemic treatment for this disease that has tremendous psychosocial impact and is probably still underestimated in terms of what might happen. But, again, we're still really roughly in that $2 billion plus range for all of those new indications and excited to bring vitiligo to the market. Roopal Thakkar: And David, it's Roopal. Maybe on the competitive side, we'll have to see this over time. I mean, there's growing familiarity with RINVOQ now in dermatology. With atopic dermatitis soon for HS, alopecia areata, and the efficacy is very strong and what we're also observing is in alopecia areata and vitiligo seems to continue to increase over time. And the tolerability with our simple oral is also appreciated by a physician and patient. So if that were to enter again, I think we still have the opportunity to compete based on the high efficacy that we've seen across other indications. David Amsellem: David. Oh, sorry. Sorry. We've got a follow-up on Vraylar. Sorry. Roopal Thakkar: Yeah. And maybe on the Vraylar LAI. Yes. We do have some partnerships in place, and then we're assessing, I would just say, not just Vraylar, but other assets in terms of long-acting injectables. We've seen good tolerability and high efficacy with Vraylar. So that one could be quite amenable to this type of strategy. Elizabeth Shea: Thanks, David. Operator, next question, please. Operator: Next question is from Luisa Hector with Berenberg. Your line is now open. Luisa Hector: Hi there. Thank you. I have a couple. On aesthetics, just to check, are there any regions where you are losing share in toxins or fillers? And is this franchise that's profitable than when you acquired it? And maybe to touch on a b I don't know if you can just remind us what the profile is you're looking for in your Amylin and how soon you might pivot into phase three. Could you launch on weight loss only without the longer CVOT trials? Thank you. Jeffrey Stewart: Yeah. Hi, Luisa. I couldn't understand the full question, but there are some areas where we have had some share loss. I'd say particularly in Brazil, Brazil has been the one area where we've seen some declines in share, particularly in the filler category. And I'm glad you asked the question because we do have a geographic mix issue that has come in 2025 where Brazil and Latin America tend to grow, and we've lost a little bit of share. Whereas we have much more stable or growing share in China and Asia. So hopefully, answers your question. Robert Michael: And maybe to put a little bit of perspective, just keep in mind that the US and China is a vast majority of the aesthetics business for us. When, you know, Jeff talks about a market like Brazil, you know, you're talking about less than $100 million. So just to put in perspective that to the extent we have lost some share there, it's a very small market for us. Roopal Thakkar: And then on obesity, it's Roopal. You know, the key for us there is gonna be that tolerability profile along with weight, I think as the incretins readout within a few percentage points of each other, whether it's weekly or monthly, we still feel that there's gonna be a substantial number of patients that are gonna cycle off of those for a variety of reasons, including tolerability. So with the two phase ones that are underway now, us looking for dosing regimens and potentially even going out to monthly is gonna be the key for us as we go forward into phase two and phase three. With regard to being able to pull in phase three, certainly that would be regulatory discussions that we would have, especially if we see strong safety and efficacy profiles as the data emerge. Elizabeth Shea: Thanks, Luisa. Operator, next question, please. Operator: Next question is from Michael Yee with UBS. Your line is open. And, Michael, if you're there, please check your mute button. Michael Yee: Can you hear me okay? Great. Just in terms of immunology. Yep. In terms of the Crohn's disease immunology platform program that's ongoing, I think I've seen on ct.gov, and you pointed out is critically important. Can you just tell me a little bit about what you're to get from that study? Is it going to raise the bar in terms of efficacy and that is obviously, is the key component of this to extend your leadership. Thank you. Roopal Thakkar: Yeah. Hi. It's Roopal. So, yes, the increasing efficacy would be important, the degree of which will be determined by the types of patients. So if we are studying naive patients, which there could be less and less as we've seen SKYRIZI just have tremendous penetration in IBD in the frontline, then our consideration is what can come after. So a key component of these IBD platform studies are also to study patients who have already received SKYRIZI. So there could be a slightly different efficacy outcome there if you're looking at second and third lines. These are very important lines in IBD because they continue to expand as patients roll off of anti-TNFs and we've actually seen less and less clinicians turning to anti-TNFs. So this is where 23s are becoming very important as Jeff has highlighted, in particular SKYRIZI. And when we look at combinations with SKYRIZI, can we treat those patients as well? The tolerability also will be very important. We're doing our best to avoid boxed warnings if at all possible, which would exist if we combine with an anti-TNF, which is not our strategy because there's less and less utilization. We do have an alpha four beta seven. We've talked about ludi. We also have TL1A, which can also be a good combination. The other core component of this strategy is also in parallel as these data read out. Is to look at our ability to coformulate and deliver these together in a patient-friendly way. So many things coming together, and we're excited to hopefully share some data this year. Elizabeth Shea: Thanks, Michael. Operator, we have time for one final question. Operator: The final question is from Evan Singelman with BMO Capital Markets. Your line is open. Malcolm Hoffman: Hi. This is Malcolm Hoffman on for Evan. Thanks for taking our question. So I wanted to touch on 932, which I think has been addressed or at least mentioned a couple of times throughout the call. But I know you have the Phase two readout later this year in bipolar. As a follow-on to VRAYLAR, can you maybe give us some framing on how you're thinking could compare to Vraylar given the heavier targeting of D3 versus D2? And then just a second follow-up there. If you're looking to pursue drug and anxiety as well, is there any expectation to expand into areas like addiction again, given the heavier D3 reliance here? Thank you. Roopal Thakkar: Thanks. It's Roopal. I'll take that. So, yes, later this year, we'll see the data 932. Currently, I'll talk about generalized anxiety disorder. We do not have that approved for Vraylar, though we have seen effect in patients who have some anxiety lowering of those scores, and that's why I think we see such strong uptake of Vraylar and why it was important to study a next generational version. Hopefully, with less D2, we anticipate potentially less movement disorder. So that's one thing that we would be looking for is that safety and tolerability profile while maintaining efficacy. I think that'll be important. We'll also see a breakdown between bipolar one and bipolar two. We have observed that Vraylar has worked better on the bipolar one side. That could be a potential outcome, but that's data that we're gonna look at. Also, that'll be very important. And in terms of other indications, that could be, what you mentioned, could be something else that we would look at. And as we step back and consider all of psychiatry, we'll have two studies in phase two with a kappa opioid receptor antagonist, which we believe has strong potency. I mentioned bretacilacin in depression, but you could imagine there could be indication expansion for that one as well. And as we make good progress with emeraclidine and those doses, being able to go higher again, having potential there in psychosis of neurodegeneration as well as schizophrenia that we've mentioned. So along with 932, there's a whole portfolio there, and I'll mention continue to partner with Gideon Richter and there's even a more D3 leaning asset that is within preclinical tox that could also see a first in human within the next year or eighteen months. Elizabeth Shea: Thanks, everyone. That concludes today's conference call. If you'd like to listen to a replay of the call, please visit our website at investors.abbvie.com. Again, thank you for joining us. Operator: This concludes today's call. Thank you for your participation. You may disconnect at this time.