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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. Hello, and welcome, everyone, to today's Corpay Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. To register to ask a question at any time, please press 1. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Jim Eglseder, Investor Relations. Please go ahead. Jim Eglseder: Good afternoon. Thank you for joining us today for our earnings call to discuss the fourth quarter and full year 2025 results. With me today are Ronald F. Clarke, our Chairman and CEO, and Peter Walker, our CFO. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of our website. Please refer to these materials for an explanation of the non-GAAP financial metrics discussed on this call along with the reconciliation of those measures to the nearest applicable GAAP measures. Our remarks today will also include forward-looking statements about expected operating and financial results, strategic initiatives, acquisitions and synergies, and divestitures, among other matters. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Some of those risks are mentioned in today's press release and on Form 8-Ks, and can also be found in our annual report on Form 10-Ks. These documents are available on our website and at sec.gov. So now I'll turn the call over to Ronald F. Clarke, our Chairman and CEO. Ron? Ronald F. Clarke: Okay, Jim. Thanks. Good afternoon, everyone, and thanks for joining today's call. Upfront here, I plan to cover three subjects along with highlights for 2025. First, provide my take on Q4. Second, I'll share our 2026 guidance. And then lastly, I'll outline our major priorities for 2026. Okay. Let me begin with our Q4 results. We reported revenue of $1.248 billion, up 21%, and cash EPS of $6.04, up 13%. That would be up 20% at a constant tax rate. The results were better than our expectations, mostly driven by cross-border and Alpha overperformance. We did call the macro spot on, so impact versus our guide. In the quarter, overall revenue growth was 11%, marking three consecutive quarters. Inside of that, our 10% and our 16%. So our two biggest businesses are doing quite well against pretty difficult comps. Importantly, our trends in the quarter were also quite positive. New sales, or bookings, were up 29% versus the prior year. So super robust sales. Same-store sales inched into the territory, up 1%. And overall, revenue retention was stable at 92%. Cash EBITDA in Q4 surpassed $700 million in the quarter. So look, all of this produced a record cash EPS print of over $6 a share. So really a terrific quarter for us. Let me make the turn to highlights for the full year 2025. So first, our financial performance for the year was quite good. Full year revenue of $4.5 billion, that's up 14%. Cash EPS of $21.38, up 12%, or again up 17% at a constant tax rate. Organic revenue growth for the full year was 10%. So that makes four of the last five years 10% organic revenue growth or higher. Full year sales growth was also 29%, with improving productivity. So we're continuing to sell a lot. Additionally, in the year, we made a number of moves to better position the company for the midterm. We acquired Alpha, the second largest acquisition in the company's history, giving us access to an international bank account product as well as the asset management market segment. Mastercard invested $300 million in our cross-border business at a $13 billion valuation, hopefully unlocking and serving the FI channel. We invested in Avid, which deepens our position in the middle market AP automation and payment space. And lastly, we acquired a second vehicle debt company in Brazil that'll further help accelerate Brazil's non-toll revenue growth. So look, financial performance ahead of our initial 2025 guide, along with a further rotation of our portfolio towards corporate payments. So quite pleased. Okay. Let me transition to our 2026 guidance. We are quite excited about it. So we're providing full year 2026 guidance at the midpoint of print revenue, $5.265 billion, that's up over $700 million versus last year or up 16%. And we're writing cash EPS at the midpoint of $26, on the button. That it's up 22%. Look. The drivers behind this 2026 guide are a few things. So first, fundamentals. Look, the business is working. We had a record Q4 finish. And the corresponding exit rate was super good trends, you know, positive sales, healthy client base, same-store sales, stable retention trends, big sales year again in 2025. We get a lot of that benefit as it rolls into 2026. And we are expecting continued 10% organic revenue growth this year. A second driver is accretive acquisitions. So our Alpha acquisition is expected to contribute about $300 million of incremental revenue, and Alpha paired with Avid together should contribute approximately $1 of cash EPS to our 2026 outlook. That's based on our final plans now. And then third, macro, we are expecting the macro to be our friend, to be helpful here in 2026. Favorable FX rates, particularly so in the first half. Lower SOFR rates, and finally, a constant year-over-year tax rate expected. So look, lots of reasons for confidence in our 2026 guide. The guide, just for clarity, does not include the impact of expected divestitures, including the pay by phone, nor the impact of any material capital allocation actions beyond simply delevering. Okay, let me turn to our top five priorities for 2026, which really are pretty consistent with last year's priorities. So first up is our portfolio. The goal, again, is to further simplify the company resulting in fewer bigger businesses and accelerate our rotation of corporate payments. We've announced one vehicle payment divestiture. We have two additional divestitures that we're working on. And as always, we're continuing to work the acquisition pipeline for new corporate payment acquisition opportunities. Second priority, USA sales. We're continuing to work to improve U.S. sales, particularly of our vehicle payments and lodging solutions. We've done a few things. We've hired a new CMO who recently started. We've developed some new Corpay brand creative ads to raise awareness of the company. We're growing our Zoom sales teams here in 2026. Concurrently, we're also really rethinking entirely new ways to sell our U.S. vehicle payment solutions as we deemphasize digital sales. A third priority, in payables, a number of things. One, we're trying to add new enterprise accounts there, particularly after our success with our first elephant last year. We are selling payables now in the UK, seeing some initial traction. We are doubling down on the sales force in the UK. And lastly, lots of energy exploring new monetization options with our merchant base or our vendor base. Those things include instant payment options, debit card payments, and even eChecks to help accelerate revenue growth in the AP segment. Our fourth priority is cross-border. Super focused on our multicurrency account and our international bank account capabilities, particularly given the Alpha deal. We're furthering our stablecoin capabilities. And obviously working hard to implement synergies related to the Alpha acquisition. We are progressing the FI channel opportunity with Mastercard. We have logged our first joint sale, so kudos there. And building really a pretty meaningful pipeline. So, excited about that. So fifth and last, AI. Yes. We have gotten religion around AI. We're currently in pilot with conversational AI being added to a number of our client UIs. We're using AI agents to reduce live agent expense, particularly in our lodging business. And we're even using AI to speed our merchant matching process against our internal merchant database to help drive new payable sales with prospects. So, look, five key priorities here in 2026. Each is well defined. Each is being worked. The portfolio, USA sales, payables expansion, cross-border capabilities, and AI implementation. So a busy year for sure. So look, in conclusion today, a strong finish, record earnings in Q4, on the high side of our guide, again encouraging organic revenue, new sales, same-store sales, and retention trends. Our full year 2025 financial performance again, finishing ahead of our initial guide. We logged another 10% full year organic revenue growth year that makes again for the last five years, again, a repositioning active repositioning year. Further simplification of the company, and the addition of more corporate payment assets. In terms of '26, again, outlooking really a super strong 2026, EPS expected to be up over 20% driven by the favorable fundamentals. The accretive acquisitions, and even a favorable macro. And lastly, we have laid out a clear set of priorities to better position the company to continue to compound over the midterm. So with that, let me turn the call back over to Peter to provide some additional detail on the quarter, the year, and our '26 outlook. Peter? Peter Walker: Thanks, Ron, and good afternoon, everyone. Let's start with highlights of the quarter and the year. Q4 revenue was $1.248 billion, overperforming the midpoint of our guidance driven by strong corporate payments performance. GAAP revenue grew 21% year over year driven by 11% organic revenue growth. Q4 adjusted EPS of $6.04 per share over the midpoint of our guidance and grew 13% year over year due to strong top-line performance and solid expense management. The headline for the quarter is overperformance, over 20% top-line and low teens bottom-line growth driven by our third consecutive quarter of delivering 11% organic revenue growth. We grew Q4 new sales 29% year over year and delivered a 92.3% retention rate fueling our business for 2026. Full year revenue was $4.528 billion delivering organic revenue growth of 10% for the full year and for four out of the last five years. Full year adjusted EPS was $21.38 growing 12%, but growing 17% at a constant tax rate. These strong year-over-year results are further reinforced by the healthy, consistent sequential quarterly growth in revenue, EBITDA, and adjusted EPS throughout 2025, which positions us well for 2026. We are exiting 2025 as an even stronger company than we entered the year. Now turning to our segment performance and the underlying drivers of our organic revenue growth. Corporate Payments delivered 16% organic growth for the quarter, 200 basis points drag from float revenue compression due to lower interest rates. This exceeded our expectations by 100 basis points, partially driven by Alpha revenue overperformance setting us up well for 2026. Overall, corporate payments performance was driven by growth in spend volumes, which increased 44% on a pro forma basis to over $81 billion in spend. Cross-border continued to deliver strong sales and revenue performance in Q4. This business is quite resilient with significant demand even in the face of trade-related uncertainty throughout the year. Additionally, the Alpha Group integration efforts are progressing well. The payables business continues to perform with especially strong sales performance in Q4. We're optimistic about the future of the business as we are in the early innings of market penetration and closed our strategic investment in Avid Exchange during the fourth quarter. We see tremendous upside over a very long period of time for this business. Vehicle Payments organic revenue growth was 10% again this quarter. As a reminder, we operate three approximately equal-sized vehicle payments businesses across the globe in the U.S., Europe, and Brazil. We saw continued strong results in all three geographies which drove the performance, improving U.S. Vehicle payments performance throughout the year is particularly encouraging. Lodging, representing less than 10% of our total revenue, decreased 7% year over year or was roughly flat for the quarter when adjusting for a 600 basis point drag from lower FEMA emergency revenue year over year. While clearly not recovering, progress continues and we are assuming low single-digit growth in our 2026 outlook, with headwinds in the first half of the year and returning to positive organic growth in the back half of the year as new sales and implementations come online. In summary, we delivered 11% organic growth in Q4, at the high end of our target range driven by continued strong corporate payments organic growth and double-digit vehicle payments organic growth. Now looking further down the income statement. Operating expenses of $684 million increased 25% primarily driven by a lower net gain on business dispositions year over year, acquisitions, divestitures, and related expenses and FX partially offset by a non-cash impairment charge in Q4 of last year. Excluding these impacts, operating expenses increased 8% driven by investments in sales and processing expenses related to higher transaction volumes. As we exited the quarter, we're starting to see benefit from expense rationalization initiatives recently that will deliver additional savings in 2026. Our adjusted EBITDA margin was 57.1%, our adjusted effective tax rate for the quarter was 25.8%. The increase in the rate was due to the favorable impact of employee stock options on the tax rate last year. On to the balance sheet, we ended the quarter in excellent shape with a leverage ratio of 2.8 times, spot on our guidance. We repurchased 1.7 million shares in the quarter for $500 million and a total of 2.6 million shares for the year. This leaves us with approximately $1.5 billion authorized for share repurchase inclusive of the $1 billion of additional authorization approved by the Board at the December meeting. We will continue to pursue M&A opportunities and we'll continue to buy back shares at this valuation, while maintaining leverage within our target range. Now, let me share some additional information on our 2026 full year and Q1 outlook. As Ron mentioned, as part of our continued rotation into corporate payments, we signed a definitive agreement to sell pay by phone, a non-core vehicle payments asset. The transaction is expected to close in 2026. The impact of this sale is not included in our guidance as we are sharing today as our policy is to update guidance for closed deals. Pay by phone is expected to produce 2026 annual revenues of approximately $100 million and the transaction is not expected to have a material impact on adjusted EPS, as we plan to use the proceeds to buy back shares. We'll provide more information when the deal is closed. Our 2026 revenue guidance is $5.265 billion at the midpoint of our range, growing 16% year over year. This assumes 10% organic revenue growth, also the midpoint of our range. 2026 organic revenue growth is lower than our 2025 exit rate of 11%, due to additional float headwinds more heavily weighted in 2026 in our corporate payments business. Our 2026 guidance for adjusted EPS is $26 per share at the midpoint, growing 22% year over year. Our confidence in our guidance is high, given most of the building blocks for this performance are already in place. This includes our strong organic growth exit rate and annualized Q4 trends, our expense rationalization initiatives which are already producing savings, and our Q4 share buybacks. $1 of accretion from the Avid and Alpha deals is achievable given our strong track record of M&A integration. The macro environment provides additional tailwinds, including a flat tax rate year over year. As a reminder, our revenue and adjusted EPS build throughout the year. You can see on Page 19 of the supplement, the percentage of full year revenue and EPS are lowest in Q1 and highest in Q4. This pattern is driven by our clients' highest business volumes occurring in Q2 and Q3, along with acquisition synergy realization increasing through the year, all over a relatively fixed cost basis. The consistent historical pattern gives us confidence in our ability to deliver our 2026 guidance. Below EBITDA, we're expecting net interest expense to be $370 million and $400 million, the adjusted tax rate to be between 25% to 27%, and weighted average shares to be flat with the period-end shares for Q25. Related to capital allocation, our forecast assumes free cash flow is used to pay down debt, which provides some potential upside opportunity should we deploy capital for buybacks or M&A. Our guidance does not include any share buybacks. From a segment perspective, we expect the following organic revenue growth rates: Corporate payments, mid-teens inclusive of the drag on float revenue from lower interest rates. Vehicle payments, high single digits. Lodging, low single digit. Our Q1 revenue guidance is $1.21 billion at the midpoint, growing 20% year over year. We expect Q1 organic revenue growth of 9% at the midpoint, lower than the full year 10% organic growth guide driven by the float headwind I mentioned earlier. We're expecting adjusted EPS of $5.45 at the midpoint, growing 21% year over year. We're planning organic revenue growth to increase in the remaining quarters as we digest the float headwinds. We provided additional detail regarding our full year and Q1 outlook in our press release and earnings supplement. Before I turn it over to the operator for Q&A, I'm delighted to share that we've remediated the outstanding material weakness related to user and you'll see this formally in our 10-K. I want to thank the team that made this happen. So operator, please open the line for questions. Operator: Thank you. If you'd like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. We do ask that you please limit yourself to one question and one follow-up. Once again, that is 1 to ask a question. Our first question comes from Andrew Jeffrey with William Blair. Please go ahead. Your line is now open. Andrew Jeffrey: Thank you. Appreciate you taking the question. Great to see the business momentum. Ron, I wanted to ask a little bit about the commentary around payables monetization. I know this is an area that you know, historically has been a little bit stubborn when it's come to you know, non-check based payments. I know you mentioned eCheck. But could you maybe dimensionalize that for us? Is it is that an initiative that could add to already impressive segment organic revenue growth? Or what's the timeline, do you think for driving better yield, from those initiatives? Ronald F. Clarke: Hey, Andrew. It's a great question. I think, you know, we've been a one-trick pony to the industry in terms of using, you know, virtual cards for monetization. And so this, you know, set of options now and basically kind of eliminating paper checks is the game. The idea of getting that thing sunset and using, you know, eChecks, debit at lower interchange, you know, ACH plus instant payments, the whole plethora of things that we can do that research suggests that merchants like that choice and some set of merchants will accept these new methods of payment where they won't accept virtual cards. And so we're in the middle of it. We're laying that stuff out. We're doing the research. We're testing. And so I would say, sometime Q2, Q3, we should see some impact of that. I think it just creates more legs for the business, right, long term. Andrew Jeffrey: Yeah. I agree. And then just a quick follow-up for Peter, if I may. Could you sort of parse out domestic vehicle payment, organic revenue growth versus Brazil? I assume that US and Europe look pretty similar. Just try to get a sense of what positive same-store sales might mean for that business. Peter Walker: Yeah. So UFCP business, you know, approximately 5% organic growth for the quarter. And, Europe and the rest of the world and Brazil, you know, tracked right on where they were for earlier in the year, so consistent results across all three for the 10% overall organic growth rate for vehicle payments. Andrew Jeffrey: Okay. Thank you. Operator: Thank you. We'll now move on to Darrin Peller with Wolfe Research. Your line is now open. Darrin Peller: Hey, guys. Thanks. Nice job. I just wanted to start off with one more of a strategic question and then a sustainability question on the growth rate on vehicles. Then I'll have a follow-up on the modeling side. But just when I look at the double-digit growth rate, obviously, good to see it holding up in these ranges even against what you're getting into harder comps towards the end of '24. So maybe just touch on sustainability, especially of The U.S. Fleet acceleration and what's needed to maybe push same-store sales meaningfully higher. Your view? Ronald F. Clarke: Hey, Darrin. It's Ron. It's sales is the answer. Right? So just to follow-up on Peter's thing, if you think of the three horsemen that create 10% as kind of low single digit. Like, right on ten. High double digit, average those things, you get to ten. And so the good news, if there is any, is this work we've done on The US visa vehicle has finally landed. Right? We've got stable retention that's now kind of in line with the rest of the businesses. I'm literally looking at a piece of paper and the same-store sales of The US business vehicle business went positive for the first time in six quarters. I'm looking at the piece of paper now. Approval rates are up. Credit is so so literally, the business has gotten to a good kinda reset spot. And now, like I said, the entire assignment sales. So if we could make a lot more sales there, we could, you know, inch the aggregated vehicle, you know, growth rate up. And if not, we'll stay with kind of low, mid, high. For that mix. The real question for me is, do we keep allocating what level of investment for growth do we keep making in that business? These are the other ones. This is one of the internal questions. Darrin Peller: Right. Alright. That's good to hear. Thanks. I guess just one follow-up would be on more of a modeling couple of questions, which is number one would be just if you could provide a little more color on the cadence of the accretion contribution given that's a pretty notable, a fair amount of the versus some of the Street numbers was the magnitude of accretion. Just so it's ramping through the year, help us understand that. And then I know getting some questions on interest expense. I think you're assuming a lower interest expense rate dollar amount. Just help us understand that notion just given you're adding debt at a pretty healthy rate as well. Thanks again, guys. Good job. Ronald F. Clarke: Well, Darrin, it's Ron. Let me take the first part, and Peter can take the second. So you know, we're kind of done with the plan. So when we talked, I guess, ninety days ago and we're literally just onboarding, out, but we finished the work. And so in the opening comments, I gave the dollar. So between those two deals, the NAV and investment, the Alpha acquisition, we're pretty comfortable we can get the dollar. And so we're literally already underway on a bunch of the things. Certainly on the cost takeout side on some of the revenue synergies that are super easy, like, coming across to our contracts and things. And so the biggest thing that'll unlock a bunch in the second half is the IT. We're gonna sunset their, you know, kind of their core corporate IT system in favor of ours, which opens up all kinds of savings around not only IT, but compliance and stuff like that. So I would say, you know, this is our third, fourth, fifth rodeo, right, of doing these things. So our confidence in what to do and what number is high. Then the last point I'll make, because you're good at math, is it's not one and done. It's one and more. So the way we think about it is whatever EBITDA we're getting in those businesses has to grow over. Right? The interest expense to finance those. So as we create the synergies, and those businesses grow, they're growing obviously over a fixed interest expense. And so, you know, in our multiyear plan, that creates even acceleration in EPS as you walk into next year. So the setup for those two things is quite good. Peter Walker: So, Darrin, picking up on your question on interest expense. So we ended the year about $7.7 billion in debt. As you know, we produced really high cash flows, so call it $1.8 billion of cash flows we produced throughout the year. So debt will produce throughout the year. Also, the forward curve is looking pretty positive for us on SOFR. So you put those two together, and that's what's leading to lower interest expense. Darrin Peller: Okay. Very helpful. Thanks, Peter. Thanks for Operator: Thank you. We'll now move on to Tien-Tsin Huang with JPMorgan. Please go ahead. Tien-Tsin Huang: Thank you so much, Haifman, Peter, and Jim. Great results. I wanted to ask on corporate payments if that's okay. Just mid-teens growth expected this year. Do you have the backlog to support this growth, or is there more business to go get? I'm just curious what the visibility looks like there. Could there be some room for upside? And if so, where? Ronald F. Clarke: Hey, Tien-Tsin. Thanks for the data boys. So I'd say on the 26 number, it's really two different things. In the payables, the full payables business, I'd say, we have the sales. Because the implementation cycle is longer there. And so, basically, we have a bunch of deals that we implement that drive that revenue. In the cross-border, it's a much shorter, right, sales to implementation cycle. So we have to make sales there. Although if there was one that took place on our company, I would not bet against the cross-border sales. We had a just rocking finish between you know, our core cross-border business and even the new Alpha business and stuff. And so that thing is firing. So I would say our confidence in the thing is super high. And, again, the reason for the thing not being a bit more robust is just the compression, obviously, of the float rates. Right, particularly as you as we absorb Alpha. Has a way bigger bank account deposit-based business than we do. It's a bit more acute. Right, the compression there, particularly early on. So know, when we get it's transitory, obviously. So we get to the other side of that. I think the outlook would be will be even better for business. Tien-Tsin Huang: Yeah. And if we get the monetization today, right, that Andrew asked if we get that cranking, that would be another upside, basically, to the business. Got it. No. You sound quite pleased with Alpha. That's great to hear. So mid-teens would be a win. For that segment. I did want to ask just on margins, if that's okay, as my follow-up with the expense rationalization. Is there a way to think about that impacted to '26 and just some broader comments on incremental margins in '26 any surprises or puts and takes to consider? Peter Walker: Yeah. Maybe I'll start. Finjan went Peter pick up. So we're targeting above $75 million of expense out. We've executed kind of $50 million of it. We're still working on the other $25 million, which we've identified, but still working. If you looked at our internal plan, not shockingly, margins climbed like crazy sequentially. Pretty fixed cost base once we make the sales investment, which we do early. And then revenue snowballs. Right? So revenue increases, call it, $100 million plus as you get into the second half or quarters. And so that's I think it's probably three points if you look at it. 300 basis points from Q1 to Q4. The reason that the overall margins for the full year wouldn't look a ton different is really it's the acquisition. Acquisition. Expense. Right? We're bringing across in these couple of deals, you know, a fair amount of cost, you know, at lower margins, basically. And then second, we paid the call given the profitability to put more in the sales and marketing and even into our brand. So we're trying to hold the margins, you know, pretty constant, improve them sequentially, and spend on some things that will help the growth going into next year. Tien-Tsin Huang: Perfect. It's great. Well done. Thank you. Operator: Thank you. Our next question comes from Mihir Bhatia with Bank of America. Your line is now open. Mihir Bhatia: Hi. Good afternoon. Thank you for taking my question. Nice results here. But Ron, maybe just have one to ask you about pay by phone. I think you bought that asset maybe a couple of years ago. Just any lessons from that process from owning that just what worked, what didn't as you think about go forward? Ronald F. Clarke: Yeah. Hey. That's a good question. So lessons, I'd say maybe two lessons on that. One is, you know, we had a thesis for buying that their five, six, 7 million active users and a lot of them in Europe could be kind of a launching pad for us to put those people into the network. And basically, we grew we couldn't do very well at that. So a new idea and it didn't work as great as it has in Brazil. But the second learning is we're good. Like, we take a business. We buy it. We triple the profits. We're selling it for 50% more than we bought it for. And so it's a great reminder that even when the thesis isn't perfect, that we can still make a return on the thing. And so we're pleased. I'm also pleased with the people that you know, that are running a thing, that built it, that where they where they'll go, they'll be happy and stuff. So I'm hoping for only good things for the buyer and the management team. Mihir Bhatia: Got it. No. And I think, you know, kudos to y'all for trying and pulling the plug when you all realize it wouldn't work. Wanted to maybe switch gears a little bit to just going back to the corporate payments. Business and just some of the questions there. Maybe, like, I think you kind of answered a little bit, but just trying to understand you know, you laid out a lot of priorities in that business, right, whether it's building The UK payables, adding enterprise accounts. New monetization options, growing sales in the FI channel, multi So just trying to understand the timelines there, like the lift that it'll take to implement some of those changes Like, what's gonna be a meaningful contributor there in 2026 versus initiatives that are maybe longer term, but just you're laying the building blocks today? Ronald F. Clarke: Yeah. That is a really good question. I think the main thing we're trying to do with that priority is just make sure people are clear on the opportunities. That when you stare at payables, you know, beyond just chopping the wood we have that there's some kind of factors you know, out from the middle market core there where hey. We can get more monetization against the spend. We can add enterprise, right, to the mix. We can go to geographies that widen the TAM. I'm also trying to make sure people are clear. That there's wave vectors to make the business go. I'd say on that one, it's clearly the monetization is the short term, is the 2026. Thing because we have the clients. We have the merchants. We have the money moving. And so we're simply trying to get more choice and stuff. So I'd say for sure, in that one. And then the same kind of on, I think, on the cross. Border side. I think longer term, because the sales cycle will be like the Mastercard you know, opportunity there or even, frankly, the international bank account opportunity. I think those are longer term, whereas the synergies of combining the Alpha corporate business would be a 2026. So I'd say those are the two get the money in 2026 things, monetization and payable, and alpha consolidation and synergies would be the things for this year. Mihir Bhatia: Got it. Thank you for taking my questions. Nice results. Operator: Thank you. Our next question comes from Sanjay Sakhrani with KBW. Your line is now open. Sanjay Sakhrani: Thank you. Ron, you talked about a couple of more divestitures in the pipeline and this one that you did today or announced today. Could you just give us a sense of what kind of liquidity you're looking at in terms of raising from that? I know you put out that $1.5 billion number last quarter, but if we just think about today's announcement plus the other two, does that get you to a higher number or equal number? Just trying to think through, you know, the liquidity you could raise and use of proceeds. Ronald F. Clarke: Yes. Think it's a good question, Sanjay. So, yeah, there's two other vehicle businesses that are out in process now, pretty late stage too. If we end up transacting on both of those, it'll be over $1 billion. Think of, call it, a know, $1 billion or $1.3 billion, somewhere in there. And the use of proceeds is to buy C Pay. At this price that we're at. So we'll have an answer. My guess is the next probably thirty days on those things. Sanjay Sakhrani: Got it. And then just maybe if you could elaborate on lodging. I know it remained weak, you guys are assuming the low single digits, but any anything specific happening there in terms of turning that ship around and how we should think on a go forward basis? Thanks. Ronald F. Clarke: Yeah. The prints, obviously, Sanjay, not too good. I feel a little bit similar for The US vehicle business. You know, I think I characterize those two businesses as problem children, you know, not behaving well a couple of years ago at lots of things wrong. I feel kind of the same that both businesses, particularly lodging, have stabilized. We fixed the IT. We fixed the product thing. We fixed the customers that kinda scooted away, the volume that scooted away. So if you look at, like, the same store as I quoted, you know, that's actually positive now with US vehicle and I think mostly flat and lodging. And so the good news is the management teams have made progress doing things that have stabilized the revenue. I'm still super disappointed in the new sales. And so that's the ticket. Really, the ticket for both of them is can they produce new sales now that the losses you know, have stabilized? They're both super great margin businesses. They're both above the line average in front of me, but they're in the sixties. In terms of EBITDA margin. So they're super great cash generators. The question is just can we productively make sales there vis a vis the other options we have for investing sales of the company. So we're giving it a run here in 2026. And if we see sales improvement and accelerate throughout the year, we'll be happy. And if we don't, we'll be probably thinking about doing something else. Sanjay Sakhrani: K. Great. Thank you. Operator: Yes. Thank you. We'll go next to Nate Svensson with Deutsche Bank. Please go ahead. Nate Svensson: Hey, guys. Thanks for the question. I want to follow-up on some of the cross-border priorities that were talking about in the prepared remarks, Ron. So you mentioned outperformance at Alpha a few times, and you obviously bumped up the alpha plus avid accretion to $1. Just maybe hoping for a little more color on what's going better than expected at alpha. What on the revenue synergy are you realizing? Is it better organic growth? Anything beyond that? And then you also called out the first joint sale with Mastercard. Fully get from your earlier answer. That's kind of a longer-term opportunity. We'd just love to hear more about that first wins on any specific details or learnings from that partnership as you look to go out and win more sales? In the pipeline that you do have. Ronald F. Clarke: Yeah, Nate. Two good questions there. I think the overperformance in alpha is the integration, the people thing has gone better than I thought. So when you meet a new group like that and bring the organizations together, sometimes there's a pause. People aren't firing and stuff. But I just feel like our management team and their team did a great job, a great kumbaya or whatever, where their guys just came, you know, roaring out of the blocks. You know, pitching, hey. We're a bigger, meaner company. We have better credit. We obviously have better products. We have better payment products. Versus just risk management products. And so to me, what was so great is the people, particularly the salespeople, have embraced some of the stuff that we bring to them and just went running out. And got a bunch of business closed. So that thing not only performed better than the finish. Yeah. I've looked at January, and those businesses are ahead again. This month. So I think it's cultural. It's something. But just everybody's at it. People aren't moving around and stuff. They're excited to be part of the game with us and stuff. So this is way before the other synergies of contract advantages, rate advantages, cost, IT. We got all the stuff in front of us. Bank account license. We nine other things that are gonna create money. But to me, that's super important. On the Mastercard thing, I gotta say, it is way exceeded mine, I know if it has the Mastercard folks. Expectations, but we now have a second sale. I think I said one, so that script's old already. We've actually closed out two deals. But more importantly, it's a crazy pipeline. Particularly in Europe, where, you know, Mastercard has done their part of getting some dedicated people to call on accounts that they know and love, and our guys go in to know a lot and literally I don't know if it's 50 to 70 in process opportunities. And so that thing which tends to have a very long sales cycle, stood up quite well. And I think back to the thesis question that was before us, I think the thesis is proving out the good relationships and credibility that Mastercard has coupled with our products and expertise is a good combo. So it'll take time to build, but it is a way help to make that segment meaningful. Right, for cross-border. I mean, I don't know if everyone's getting it, but that business was mostly a one-trick pony. We went out to midsize businesses around the world and sold services, and now we're talking about basically getting banks, getting FIs around the to use our services and becoming, you know, an international bank account deposit company as well. And so the extensions of those two additional kind of product and market segments is way significant. I don't know if people are picking it up, but it completely changes, I think, the long-term prospects for that business. So we spent a lot of time in this company doing iceberg work, kind of getting ready, getting things positioned. I think people discount it because everyone just wants to know what the numbers are. But I'm telling you that is gonna make a big difference for durability. Nate Svensson: Super, super exciting stuff. I guess for the follow-up, also on the cross-border business, we get some questions from time to time on a potential Supreme Court ruling on IEPA and maybe some impact that could have to CFAI even the tariffs are rolled back. So I'm not asking you to speculate on any potential outcome. But I guess in the event that there is some level of rollback of tariffs, any idea on how that could play out across either your corporate payments business or maybe the vehicle payments business as well? Is there still any pent-up demand you think might be released? Could this alleviate some of the pressure on the shipping and freight industry in The US or any other factors to keep in mind there? Ronald F. Clarke: Yeah. That's a super good follow-up. I would say care of certainty is our friend. Like, whatever it is, just be what it is. So it had a super jolt during Trump's liberation thing. I think our numbers in April were crazy as people try to anticipate things and then kind of our US, our North America business did really bad. The rest of the year because of the uncertainty and the other geographies picked it up. So anything that would either roll back limit or even just fix tariffs would be a plus to the cross-border business. Remember, like half you know, the dollars that they were service-based, not goods-based. And then, again, we have con you know, we do risk management contracts and stuff. So the exposure isn't across that entire business. And, really, most of the exposure is in North America, which probably, you know, a third of the business. So it's not like a massive amount, but it still would be, to your point, a plus for us if that thing got clarified. Nate Svensson: Super helpful. Thanks, Ron. Operator: Thank you. We'll go next to Ramsey El-Assal with Cantor Fitzgerald. Your line is now open. Ramsey El-Assal: Hi. Thank you so much for taking my call tonight. Wanted to ask about the strong sales growth, which is obviously super impressive. Can you give us your thoughts on whether the conversion of that sales to revenue, the timing of that conversion of bookings to revenue has changed as your business has changed? In other words, is now you have more corporate payments. Are you seeing a situation where you convert that revenue faster or convert those bookings rather faster or slower to revenue, or is it sort of the same as it was when you were primarily a, you know, fleet card business years and years ago? Ronald F. Clarke: Well, hey, Ramsey. Welcome to your new spot. Wanna say thank you. Congrats to you, on that and appreciate you continuing to keep an eye on us. So it's a really good question. So at the high level, the answer is it varies by business. As I mentioned, I think Tien-Tsin asked you know, our payables business has a slower contract signings or bookings to implementation and ramping. And I mentioned the cross-border business is much faster. So if you run through the businesses we have, that vary. Summer, you know, super fast, like in the fleet card business, it's almost systematic. We don't even book until we start. We actually call it a go-live. But the total is for the company, it's about one-third. In year. So for example, let's let me make up a number. Let's say we recorded $300 million in bookings in calendar year 2025. We would print about $100 million of print revenue inside of the 2025 goalposts. And then we would ramp some amount of that $200 million that we didn't capture into the forward year. So the way we think about building our revenue plans is we already have, in that example, $200 million coming our way here in 2026 that we didn't have. Right, hit our revenue numbers last year. And we'll grab a third of what our bookings plan is here in 2026. So that's kind of the model, kind of one-third in the current year, and then the two-thirds ramp depending on what the attrition is. So we've really did the statistics in all of this. So it's really easy for us to model it. Ramsey El-Assal: Got it. Yeah. That's super helpful. Thank you for that. And one follow-up for me. Stablecoins are a big thematic topic. Can you just give us an update on what you're seeing in the marketplace in terms of demand, if any? Also, just give us a quick overview of the capabilities that you guys are building out to accommodate stablecoins? Ronald F. Clarke: Yeah. That's a super I'm laughing a bit, Ramsey. Do you this morning when I get up, going, we had this earnings call tonight. I went out three of our guys. I went to the guy that has, you know, thousands and thousands of US merchants that we pay across border head that obviously moves tons of money to beneficiaries around the world. And our alpha guy who does the, you know, bank accounts, the 7,000 bank accounts, you know, that hold deposits. And I asked all three of them, hey. Talk to me about the demand. How many of the merchants or the deposit holders or beneficiaries are asking for a companion stablecoin wallet so that they can receive funds in stablecoin. And the basic answer was crickets. There's been really no, you know, basically, kind of no noise kind of no demand. Despite that, we are I think we said before, doing three things anyway. One is trying to serve crypto clients that actually have crypto, have Bitcoin, have stablecoins as clients. So we're doing that. We have four or five signed up. Two is we are working on the rails and piloting that, like, in our own treasury for example, to make sure we can actually move funds, you know, via, you know, blockchain. And then third, which is my favorite, is despite the demand comment, we are building stablecoin digital wallets so that anyone that has a bank account, if you will, they'll have a companion stablecoin account. So if someone wants to send them money outside of the banking hours, it could be captured, and then we could toggle it, you know, into the fiat account that we have from. So we are pushing ahead to have that and just see if there's more uptake on this. But it's what's the line? It's all quiet on the western front. At Agatha. Ramsey El-Assal: Fantastic, Ron. Thanks for your response there. Operator: Thank you. Our next question comes from Rayna Kumar with Oppenheimer. Your line is now open. Rayna Kumar: Good evening. Thanks for taking my question. Could you talk about just some of the drivers that'll get lodging back up to low single-digit growth this year? And separately, could you talk about your outlook for EBITDA margin this year and any puts and takes we should be aware of? Thank you. Peter Walker: Yeah. Hey. Hi, Rayna. It's Peter. So on the lodging side, the thought process is full year, we're expecting, you know, call it, low single digits there, but it's really a tale of two stories. So the first half of the year will continue to be negative organic growth. With a pickup in the back half of the year. And so I think the good news to share there is we have had quite a bit of luck on the sales side. And so those implementations are coming online in the back half of the year. So that kind of what gets you to the full year outlook on lodging. Then if we look at EBITDA margins, they are increasing substantially quarter over quarter 2026. Even margins will be slightly down year over year, mostly driven by the acquisitions. But as we start to implement the as the business volume grows and we implement the synergies, that's where you see the margins start to expand. Rayna Kumar: Thank you. Operator: Thank you. Our next question comes from Trevor Williams with Jefferies. Your line is now open. Trevor Williams: Great. Thanks very much. Peter, I want to go back to the organic guide. So the 9% growth in Q1 relative to the 11% in Q4 and the 10% you're assuming for the full year. It sounds like that's mostly just due to a bigger float headwind. For corporate payments in the first half and then the lodging improvement that you just walked through. But any other puts and takes cadence-wise for us to be mindful of? And then specific to the first quarter, just what you're baking in for Corporate Payments growth, both with and without float would be helpful? Thanks. Peter Walker: Yeah. So, Trevor, I do think you have it right when we look at Q1 twenty-six. It is the float headwinds mostly, really, as we pick up the alpha business. Right? You see a pretty sharp drop in the rate for the pound. And the rate for the euro. So it's a big driver there. Whereas the drop in SOFR is more kind of even throughout the year. And then you're exactly right on launching being a drag on the organic growth for Q1 at the 9%, but then we see ourselves returning to 10% for Q2 and the rest of the year. In terms of the guidance for corporate payments, you know, I'd say the guidance for the quarter is similar to what I shared for the year. We expect it to be mid-teens with, you know, flow drag against Ronald F. Clarke: Yeah. Hey, Trevor. It's Ron. I just just to add to what Peter said. So when we look at out at the curve, in our weighted average of what we earn, the Q1 versus Q1 last year is just the compression is just way more acute in this quarter we're sitting in. It's about 70 or 75 basis points. When we run it out to the end of the year, that thing shrinks to, like, 25 to 30 basis points. And so that's enough given we have alpha in the mix now for us to run the quarter at nine instead of 10. The other one just, by the way, which is a tad is really gift. We have a, you know, that thing has been running super hot with this secure packaging thing. I have it in front of me, but mid to high teens the last three or four quarters, that's coming back to Earth. Positive, but back to Earth here in Q1. So those two things together is what would have us, run-in the quarter at nine. Trevor Williams: Okay. No. That's helpful and good color on Gift. And then just as a follow-up on Brazil, with how much you guys are outpacing the underlying tag growth that's all coming from the contribution from extended network? Ron, how you think about the sustainability of that? And if you're able to keep that, if we think, like, high teens to 20% growth in Brazil, if you can keep that without layering in more acquisitions, like, Gringo, ZapPay. I know there was the other vehicle debts company that you bought last year. Just how to think about the durability of that growth? Thanks. Ronald F. Clarke: Great question. Yes, we're planning, Trevor, another crazy high teens year. As you know, half of it, you get because it had a crazy good year last year. Right? So that just rolls in. But look. The story of Brazil is the free banks didn't beat us. We said we were gonna create a bunch of non-toll revenue. We've got millions and millions of customers and business as well. So we're like, okay. If we give them some of these other vehicle things, will they come? And I wanna be super clear. Yes. They will. They buy fuel. They buy parking. They buy insurance. They buy vehicle debts. They're now going crazy with 10% of our new sales. We're selling the Sempra credit card. The Sempra credit card now for 10% of her new sales. And so to say it's working, I think, is an understatement. The second thing I say is I think it's helping sell the core toll because it's so differentiated now from a guy, a bank, who's buying some crappy toll thing wholesale one product. And offering it. So not only is it creating incremental revenue with profit leverage because it's added on, I think it's allowing us to keep selling mid- to high single-digit tag growth as well. So it is good, and I do feel like the banks there are getting weary. From some market feedback. So that could be the next domino to fall there as people think they could beat us by being free, and they haven't. And so that would be the next thing I keep an eye on. Trevor Williams: Okay. You, Ron. Operator: Thank you. Our next question comes from Michael Infante with Morgan Stanley. Your line is now open. Michael Infante: Yeah. Hey, guys. Thanks for squeezing me in here. I'll just ask Juan for the sake of time. Commentary on stablecoin demand was helpful, but I'd be curious just to get your high-level perspective on really the mechanism by which we'll actually start to see some medium-term compression of Stablecoin off-ramp costs in the future if those costs themselves are effectively just dictated by liquidity in those corridors. And if the answer is we're not likely to see that cost compression, like, how should we be thinking about the incremental tailwind for if you do actually start to see that demand from your customers show up. Thanks, guys. Ronald F. Clarke: Yeah. Hey, Michael. It's Ron. I mean, I'd say, well, I guess your guess is as good as ours because we see nothing, right, at this point. And I think we reiterated that the rails are an insignificant piece of the cost structure and of the value chain. And so look, who knows? I mean, people can price things crazy. Right? For whatever reason they have. But, like, we don't see it to your point. We see nothing, and we don't think it's likely if we're getting 50 or 60 basis points on a trade. And sometimes 100 depending on the customer in the quarter. It's mostly because of the liquidity and the compliance and everything else. And so we're staying in tune. We're watching it carefully and stuff, but we do not see that as a high risk. And then as I said, whether there is demand or not, we're gonna be there with the stablecoin offerings. And so if our clients want it, we're gonna make it available. But it reminds me a little bit of EV, this whole thing. You know, there's more being written and said about this than actually being used today. Is my takeaway. Michael Infante: It's helpful. Thanks, Ron. Operator: Thank you. We'll go next to David Koning with Baird. Your line is now open. David Koning: Yes. Hey, guys. Thanks so much. Just one question. Minority interest, that line has become a lot more important now with Avid, and a little bit of the Mastercard impact. It looks like on an adjusted basis, it was, like, $27 million in the quarter when you do the add back that was in your line. Is that I guess, why was that so high? That seems very high. And is that the right number on a quarterly basis going forward, or what should we think about that line? Peter Walker: So there maybe let's take that question with you offline. In a modeling conversation just so we can go through it more detail. David Koning: Okay. Great. Thanks. Operator: And our last question comes from Madison Sewer with Raymond James. Your line is now open. Madison Sewer: Hey, guys. Thanks for sneaking me in, and I'll just ask one as well here. Just circling back to the Mastercard partnership, early indications sound pretty positive there. So is the 200 to 300 basis point tailwind to cross-border still kind of the right way to think about the contribution from that partnership? Or do you think there could be potential upside given some of the early indications? Thanks, guys. Ronald F. Clarke: Yeah. That's another good question. I'd say it's a timing call, right, because the sales cycle on FI is longer than it is for corporates. But to your point, given the size of the pipeline and the fact that some of the things were actually, you know, converting, it's a whopper segment. I do want to remind you and others that virtually all of the cross-border business that we don't have, they have. So, like, all of it, right, is there. And so to the extent that we're successful, getting this thing going and happening with Mastercard, all I can say is, like, it is just so crazy large the flows that these banks have today that if we get in with a number of them, it, you know, over some cycle, it could be a big, big contribution. Just because they have all the business today. Right? The independents like us have such a fraction of the book today. So it's super exciting. Again, it's to me, it's just a question of what the time frame is. Madison Sewer: Thank you. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to our presenters for any additional or closing remarks. Jim Eglseder: Great. Thanks, everybody, for your interest. If you need anything else, you know where to find me. Have a good evening. 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 afternoon, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lucky Strike Entertainment Corporation Q2 2026 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Bobby Lavan, Chief Financial Officer. Please go ahead. Bobby Lavan: Good afternoon. This is Bobby Lavan, Lucky Strike Entertainment Corporation's Chief Financial Officer. Welcome to our conference call to discuss Lucky Strike Entertainment Corporation's second quarter 2026 earnings. Today, we issued a press release announcing our financial results for the period ended December 28, 2025. A copy of the press release is available in the Investor Relations section of our website. Joining me on the call today are Thomas Shannon, our Founder and Chief Executive, and Lev Ekster, our President. I would like to remind you that during today's conference call, we may make certain forward-looking statements about the company's performance. Such forward-looking statements are not guarantees of future performance, and therefore, one should not place undue reliance on them. Forward-looking statements are also subject to the inherent risks and uncertainties that could cause actual results to differ materially from those expressed. For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in our press release as well as the risk factors contained in the company's filings with the SEC. Lucky Strike Entertainment Corporation undertakes no obligation to revise or update any events or circumstances that occur after today's call. Also, during today's call, the company may discuss certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measures most directly comparable to each non-GAAP financial measure discussed and the reconciliation of the differences between each non-GAAP financial measure and the comparable GAAP financial measure can be found on the company's website. I will now turn the call over to Tom. Thomas Shannon: Thanks, everyone, for joining today's call. We finished December with a positive same-store sales comp of plus 0.3% and total revenue growth of plus 2.3%. The result was driven by continued strength in both our retail and league businesses, while we made steady progress turning around our events business, which ended nearly flat for the quarter, its best showing in years. Retail and leagues performed well throughout the quarter and provided a stable foundation for the comp. Events, which had been the primary drag on same-store sales over the past several quarters, inflected meaningfully in January. The changes we have made to the events organization, pricing, and funnel are beginning to show results. January started off with strong double-digit results. We saw one week of headwinds from the biggest snowstorm this country has seen in a while, and then a return back to momentum of strength in retail, leagues, and events. During the quarter, we made deliberate investments in payroll, marketing, and elevated activity levels to drive traffic and return the business to positive same-store sales growth. A number of these investments delivered attractive returns and helped establish positive momentum, particularly in retail, leagues, and the early stages of the events turnaround. However, not all of the spending generated the ROI we expected, with incremental labor in particular weighing on profitability. As a result, while we remain focused on driving organic growth, we are shifting toward a more balanced approach that places equal emphasis on same-store sales growth and EBITDA expansion. Going forward, investments will be more targeted, more measured, and held to a higher return threshold. In January, we also closed on the acquisition of Raging Waters, the largest water park in California. It will contribute meaningful EBITDA in the June and September quarters. When combined with Wet 'n Wild Emerald Point in North Carolina and three new family entertainment centers we have acquired, we expect a significant seasonal lift to earnings as we move through the summer months, reflecting the continued diversification of our portfolio. On the brand front, we opened Lucky Strike Aliso Viejo in Orange County, California in December, and early results have been encouraging. We now operate approximately 100 Lucky Strike locations and remain on track to sunset the Bolero brand by the end of this calendar year. Conversions to Lucky Strike have delivered strong lifts, and simplifying the portfolio to two cohesive brands, Lucky Strike and AMF, will drive efficiencies, particularly in marketing spend. At the same time, we plan to roll out a refreshed AMF look later this year that leans into the brand's more than 100-year history. This evolution strengthens our value-oriented offering while clearly differentiating it from Lucky Strike, positioning the portfolio for profitable growth and improved returns. With that, let's turn it over to Q&A. Operator: Ladies and gentlemen, we will now begin the question and answer session. As we enter Q&A, we ask that you please limit your input to one question. If you would like to withdraw your question, please press star 1 again. One moment, please, for your first question. Your first question comes from the line of Steven Wieczynski of Stifel. Please go ahead. Steven Wieczynski: So, Bobby, this is probably for you. Like, you know, as we kind of think about the results we have seen here, I am surprised you guys did not elect to kind of lower the EBITDA guidance for the full year, at least maybe bring the high end of that range down. Based on the EBITDA generation through the first six months, you guys would need to see a pretty significant uptick in the second half of the year to kind of get inside of that range at this point. So I guess my question is, are you guys still confident in getting into that range? And, you know, the start of the year has been strong. Bobby Lavan: Yeah. So, Steve, if you think about it from a numbers perspective, the past two years, we have had this $300 million business being really a drag on our results. You know, it is a drag on our financial results, but also events is sort of the tip of the spear as a lead gen for the business. That business has turned, you know, as Tom said in his commentary and in the press release, that business had organic growth in January and February. When you compound that with retail being up mid-single digits and leagues being up mid-single digits, you know, we are still within the paradigms of our guidance. You know, when we talked last quarter, we were very focused on people not getting super excited about December because we still had this corporate events business, which was front-end loaded in December as expected. Corporate events are down, but then you got into December, and our consumer events and our retail were on fire. And the first three weeks of January, the business was up double digits. So, you know, our confidence in the business is very high. We invested to get there, and now we need to pull back some of those investments. But, you know, we are definitely still within the confines of our guidance we gave out in August. Steven Wieczynski: Okay. That makes sense. And then maybe if I could add one more real quick. You know, I want to ask how we should think then about kind of, you know, a flow like, how the flow through would look for the rest of the year. Obviously, you know, you guys were investing, it seems like, pretty heavily in the corporate events business turning that around through December. So maybe a better way to ask that is, you know, how much of a drag was that on margins in your second quarter? Hopefully, that makes sense. Bobby Lavan: Yeah. So, you know, there are two or three buckets, I would say, of direct drag. So center payroll, on a comp basis, was up $6 million year over year. Right? Two, you know, we talked about and we flagged very heavily the marketing. The marketing investment on a year-over-year basis was up $4 million, and the marketing team investment on a year-over-year basis was up a million. Right? So, ultimately, finding the right balance on those numbers and organic growth is what we think we have gotten to in January. And we are very happy with the January results. We are going to, you know, ultimately optimize those numbers to make sure that, you know, we are getting the appropriate flow through. You know? And, you know, from our expectations, you should see margin growth in a material way in the fourth quarter as all the water parks and the boomers go from being a few million a quarter of drag to significant EBITDA. Steven Wieczynski: Okay. Helpful. Thanks, guys. Really appreciate it. Operator: Your next question comes from the line of Matthew Boss of JPMorgan. Please go ahead. Matthew Boss: Great. Thanks. So could you elaborate on progress with your initiatives that you have made to date to rebuild the Events business? Or specifically, drivers you think are underlying this recent inflection in the events business relative to the headwinds that you faced on that side of the house in the first half of the year? Bobby Lavan: Yeah. We chased price for two years. So if you called us and you wanted a discount, we would give it to you. Now discounts are an important part of any sort of location-based entertainment company. You know, if you call in the summer, Monday afternoon, you know, a discount is warranted. But if you call for a Thursday at Times Square in December, we should not give you a discount because demand is greater than the supply. And so in September, we built out dynamic pricing reporting systems. When we looked at where we were tracking in September, we were tracking for our events business to be down double digits, and we brought it all the way back. And that was really less through volume and more through dynamic pricing. And that is something that has dramatically changed over the past few years. You know, the volume, it is hard on the corporate side. You know, that is business that we need to build functions to kind of build, you know, our marketing function to get our name out there more. But, you know, also our marketing, which has really helped the kids' birthday parties and consumer parties. So pricing has been paramount, and also the partnership with marketing is really a sea change for the business. Matthew Boss: And maybe to that point, Bobby, could you elaborate on which investments you made in the second quarter that you saw translate to improved traffic or same-center comps? And then just how best to think about the continued investments as we think about the third or the fourth quarter, as I think you mentioned balancing margin in the back half of the year and particularly it sounds like the fourth quarter. Bobby Lavan: I am going to hand the hand over to Lev because you... Lev Ekster: Hey, Matt. So you saw we made a significant increase to our marketing budget, and that was an investment in building our brand and increasing the brand awareness. We feel like it was, for the most part, a pretty worthy investment. In fact, we saw our media impressions in the quarter increase 200% from Q2 of the prior year. We had 340 million impressions in Q2 of this year; we exceeded over a billion impressions. And that also converted. We saw online revenue increase 28% year over year, and booking conversions improved twofold. The rebrands of Lucky Strike, of which we did 30 in Q2, are also bearing fruit, and we anticipate being done with all of those rebrands this calendar year, which would put us right around 218 Lucky Strike locations. But when you consider the efficiency of going from three brands to two, it really helps our national awareness. I also want to mention that the marketing investment increased our share of voice. So our search impressions climbed significantly. In fact, it was a 520% increase, but we also saw efficiency with our CPMs decreasing by 38%. So from a high level, marketing increased, but largely as an investment in brand building, and we saw the benefits of that in January, and I think that is going to continue as we scale the rebrands of Lucky Strikes. Matthew Boss: Great. Best of luck. Lev Ekster: Thank you. Operator: Your next question comes from the line of Jason Tilchen of Canaccord Genuity. Please go ahead. Jason Tilchen: Good afternoon. Thanks for taking my question. I was wondering if we could talk about the food and beverage sales that you saw during the quarter. It was a little bit below what we were expecting. And I am just curious sort of how attach rates trended and what are some of the benefits you are starting to see from sort of the increased emphasis on training and some of the tablet implementation that you guys are rolling out? Thanks. Lev Ekster: So our retail comp was just shy of 2% at 1.7%, but our retail food was at 10.9%. So it continues to outperform. And while alcohol was a bit of a drag, with retail alcohol down right around 4.7%, we saw that our retail nonalcoholic comp grew more than the drag did; that increased 26.2% or $2 million. So in terms of food and beverage, it is pretty dynamic. We are seeing, obviously, as a society, the decrease in alcohol consumption. But we continue to invest in our zero-proof program. So we launched, as you remember, Kraft Lemonades earlier in the year. That has a run rate of over $5 million. With the success of Kraft Lemonades, later this quarter, we plan to introduce dirty soda programming to our traditional properties and boba drinks to our experiential properties, and we anticipate similar results. We are also, for the first time ever, going to introduce a zero-proof program to our AMF properties, our traditional locations. They have never had a mocktail program. So we are just changing with the times, investing more in zero-proof, and it is working. What also is working is our tablets. We introduced server tablets. Today, we sit at 125 locations with server tablets, and we are seeing the average check size increase about 7% with increased gratuities for the associates using the server tablets. By March, we are going to have server tablets in 160 of our locations. We are going to continue to evaluate as we scale that. But, ultimately, as Tom mentioned, we increased service labor in Q2. And some of it worked, and we saw retail comp growth. Some of it was inefficient, and we have to evaluate that. So we have actually recently trimmed some of our least profitable operating hours as a result of that. And we are looking at in and out times of our associates to make sure that they are very productive. But that investment in labor increased service labor for our guests, and our increased hospitality training is working because we have now seen for fourteen straight months our NPS score comp from the prior year. In fact, it hit our highest point of 78.7% in October. So from a hospitality perspective, from a retail growth perspective, the service is working. We just want to optimize it. Operator: Your next question comes from the line of Ian Zaffino of Oppenheimer. Please go ahead. Ian Zaffino: Great. Thank you very much. You know, you guys mentioned some of the investment that you are making and upping the return that you are expecting. Can you give us maybe kind of particulars of what was unexpected? I think you mentioned labor, but anything else? And then how are you actually accounting for some of the line items as you get to the return that you want to get to? Thanks. Bobby Lavan: Yeah. I mean, investments are focused on center payroll, marketing, infrastructure at the water parks, boomers, and then what I would call the other bucket or the incremental activity bucket. The center payroll, as Lev spoke at, we look center by center. We look at the amount of payroll we added, and we identify where that payroll delivered a return or did not deliver a return. Right? You know, returns are, in this world, you know, ultimately, you know, average labor is going to cost you $25 to $30 an hour. And if you are not getting the revenue to justify that, then you should not be investing in labor. Right? We are in an incremental margin business. You know, the incremental revenue needs to be greater than the incremental cost. You know, from a marketing perspective, you know, right now, we are injecting capital into a system that has generally been starved of marketing. We are watching impressions very strategically. We are testing market by market. And so, you know, the first market we leaned into was New York. New York City, we increased marketing spend. We rebranded Times Square, Chelsea Piers, Lucky Strikes, and both of those centers comped double digits in the second quarter. Right? At the same time, we have a state like Colorado where we have a hodgepodge of Bolero, Lucky Strikes, AMFs. It is harder to test that marketing spend. And that is why the rebrand is so important to get done this year. As it relates to the water parks and the FCCs, you know, these businesses have been starved of management labor. We think that there are massive opportunities on awareness, on investing capital into these locations, and we saw that with the robust performance at Boomers. Destin Water Park that we bought a year and a half ago, you know, that water park was up 20% year over year last summer. We continue to lean into that team, but that team does drive, you know, a multimillion-dollar drag in the off-season, but then you get EBITDA and more back. You know? And then the one that we found had the least returns was kind of incremental activity. We had more programs. More programs mean you are spending money faster. You are ultimately dealing with marketing materials, collateral, and the center of uniforms that you are not being as efficient. Now those are the things that we are going to plan better, pull back on, and really focus on service labor and marketing that drives the top line. Operator: Next question comes from the line of Eric Handler of ROTH Capital. Please go ahead. Eric Handler: So we are now about, let us call it, three and a half months away from Memorial Day when a lot of the regional water parks will be opening. You know, as you sort of when customers show up on a sort of, like, on a like-for-like basis, where are they going to notice the biggest changes in operations? Thomas Shannon: This is Tom Shannon. We have been investing in all of these assets really from shortly after we acquired them, and one of the reasons that Big Kahuna in Destin was up 20% is it got a comprehensive facelift. It was done very efficiently. It was done largely within park labor, but there was a lot of rot literally in the park where you had things like bridges that were dilapidated, fences that were not, you know, appealing or maybe even structurally sound. And the team in the off-season went through the entire park. They rebuilt seven bridges. They probably replaced half of the fencing. They painted literally everything. Gel-coated the slides, replaced, you know, malfunctioning pumps, lighting, etcetera, and the park looked effectively new. And the customers responded. We have done the same on the Boomers. So the preliminary numbers I have on the Boomers, the legacy Boomers that we have owned for more than a year, they are up in revenue 25% over the last two weeks. And that is six large locations from Boca Raton, Irvine, Little Moore, Modesto, etcetera. They all benefited from meaningful capital investment and some very efficient capital investment. I think you are going to see that in all the parks with the exception of probably Raging Waters, which we literally just closed on. We will do our best to upgrade aspects of that. But when the guest comes, they are going to see something they have not seen in a long time. And that is a really refreshed, really appealing, and upscale water park or family entertainment center where we have made the investments we have seen the return, and I think we have seen a better return than we would have reasonably expected or even hoped for. Operator: Your next question comes from the line of Eric Walt of Texas Capital Securities. Please go ahead. Eric Walt: Thank you. Good afternoon. I just have a question kind of following up on the very first question. Out of the gate around the guidance range, Bobby. I guess, you know, January is done, so five-ish months left in the fiscal year. You know, maybe talk about the biggest variables between kind of the, you know, the $50 million high end, low end range of revenue and $40 million on EBITDA, the biggest variable that would take it in your mind from the high end to low end or vice versa. And then which of those are most in your control, you know, like marketing, maintenance, something like that versus something that maybe is a little less out of your control? Bobby Lavan: Yeah. So if you go for six months, the comp is flat. Right? The comp is unbelievably easy for the next six months or five months, I guess, on the event side. Right? Additionally, leaning more into summer season pass, last year, we did $13 million. You know, we think we can beat that significantly this year. You know? And most important is going to be how profitable the Boomers, Emerald Point, which is, you know, the biggest water park in North Carolina, Raging Waters, which is the biggest water park in California, Raging Waves, the biggest water park in Illinois, all of these are we have invested in. We have done what we did to the legacy Boomers. And you remember we bought the legacy Boomers for $27 million, and those properties are doing $16 million of EBITDA at this point. We think we can, you know, get to not exactly there, but close on the water parks. And so how profitable the water parks come on with the capital invested is really the main driver in the fourth quarter. In the third quarter, you know, we started January strong. Right? And so, you know, we started January strong. You know, if it was not for this snow apocalypse that happened, you know, we would have been up double digits on a comp basis in January. We are still up. You know, we had a great month. We will see a ton of operating leverage that month. And the thing that, you know, Tom put in his quotes in his press release is committing to taking down the inefficiency spend. Right? And so the difference between, you know, the top and the bottom is going to be performance in the water parks, maintaining good organic growth, but also us getting costs under control. Operator: This question comes from the line of Michael Kupinski of NOBLE Capital. Please go ahead. Michael Kupinski: Yeah. Obviously, you are anticipating that the water parks are going to contribute meaningfully into the fourth quarter, so I plan to get a little granular here and start for the questions. In terms of Raging Waves, you indicated that it came with a lot of land. And I know that you had anticipated that you had planned to build out some event space there and maybe do some expansion. I was wondering if you had already done that. And then part of the growth that we saw last year, I think you said that you introduced alcohol and that we saw a little revenue lift from that. I was wondering if your Raging Waters in California, if that was part of the acquisition plan, if that already had alcohol, you know, they had that there, or is that a part of the introduction that you can see a little lift from that as well? And then, I guess, in terms of other investments into the water parks, are there other expansion plans that you have either done or contemplated for those? Thomas Shannon: Hi. This is Tom Shannon. Thanks for the question. With regard to Raging Waves, we did add some covered event spaces with open sides, and those were open for the last season. We also got a beer license in the middle of 2024, and we had that last year. That contributed a couple hundred thousand dollars in alcohol sales. We are increasing food and beverage availability throughout the park for this year. We have sort of reconfigured the flow as you walk in and where we have placed certain food and beverage outlets, optimized that. I think you will see continued lift. We purchased 66 acres adjacent to that park. We have not done anything with it, and we do not have any plans at present. We were going to embark on a pretty meaningful expansion of the park with the addition of an Action River, a family pool, and an adult pool with a swim-up bar that would have increased the in-park capacity by somewhere between 1,500 to 2,000 people. Unfortunately, we were not able to get through the permitting process in time to start construction this year, so that will be deferred to next winter for a 2027 summer opening. With regard to Raging Waters, it does not have a liquor license. We will be applying for a liquor license. That will not happen for this summer. Hopefully, we will have that for the following summer. Given the volume of that park, you know, that should be a meaningful number. I do not recall if there was anything else you asked that I have not covered. Please let me know. Michael Kupinski: Other outside of alcohol in terms of the prospects for growth there. Like, is there other land that you are getting, other expansion plans done in the future? Thomas Shannon: Well, I mean, we have extension opportunities within the confines of all of the parks. None of them are built out to their capacity. So over time, the answer is yes. But I think that you have a lot of very low investment, high return opportunities. For example, in Big Kahuna in Destin, you could do a lot of rides and make the park more dynamic and exciting. But the gating factor there is really there is not enough deck space and lounging space, which is relatively inexpensive. And so we focused on those sorts of things. We have ambitious expansions planned, as I mentioned, in Raging Waves. Also in Shipwreck Island in Panama City, we are doing a number of upgrades over the next two years at Wet 'n Wild Emerald Point, which is a very large high-volume park. We are adding a meaningful kiddie/family area. There will be upgrades to the cabanas there, which sell out nearly every weekend. We are adding something like 40 or 50 cabanas that will be in place for this coming season. There is a lot of that sort of stuff, relatively inexpensive, very high ROI, has a big impact on the guest experience. But we also have things planned like a large tower complex slide tower complex at Shipwreck Island in Panama City that we hope to have in place for the 2027 season. The expansion I mentioned at Raging Waves for the 2027 season and also some things that we would like to do at Raging Waters. For the most part, you know, these parks are in pretty good shape. It really comes down to being able to increase revenue through simply having more availability of food and beverage, more cabanas to sell, and, you know, and then optimizing pricing and packages, which I think we have done a pretty good job on for this upcoming season. Michael Kupinski: Thanks for the color. Thomas Shannon: My pleasure. Operator: Your next question comes from the line of Gregory Miller of Shoeh Securities. Please go ahead. Gregory Miller: Thanks. Good afternoon all. I am hoping you could provide some help in terms of getting a better understanding of how we should be thinking about, say, the next 50 or so Lucky Strike conversions relative to the first 100. How similar or different are these stores from a demographics perspective? Locations, the types of stores? In part, in terms of how we should be thinking about the ramp of these rebranded locations over the course of the rest of the year? Thank you. Thomas Shannon: Sure. This is Tom Shannon. There is no difference. It is not like we started at the top in terms of revenue and went down. A lot of what got converted was a function of how quickly they moved through a permitting process. As you know, we deal with a lot of permitting issues in a lot of municipalities. Some are very easy and efficient to deal with. Some are not. And so, you know, the pace at which these things happen is somewhat dictated by an external audience, which is municipal governments. So there is really no difference between the next fifty and the first 100. What is going to happen, and this is really important to note, is that we are going to build out critical mass in most, if not all, markets with the new Lucky Strike brand. So I think Bobby mentioned that we have markets like Denver where you still have three brands and you may have, you know, four or five Lucky Strikes out of 20 centers. It is not enough to do any meaningful marketing. You just cannot amortize the spend over enough centers. But when you get to, call it, 15 Lucky Strikes in the market, you are able to do that, and you are also able to do that on a national basis. So I think the returns will accelerate, and, you know, Lucky Strike will become a very, very powerful brand once we have 200 locations, which we expect by the end of calendar '26, and we are able to put real marketing muscle behind it in a way that has never occurred before. You are going to start to see a lot more relevance and unaided awareness of Lucky Strike. And then following that, AMF. You know? Just to sort of flesh out the point, AMF as a brand has probably had no meaningful marketing spend in three or four decades. It does not mean anything at all. The same is largely true of Lucky Strike. When Lucky Strike first launched, back in, I believe, 2003, it had a lot of excitement around the brand. It was on Entourage. You know, it was really considered a cool brand. And then it really sort of fell by the wayside, and no real money was spent on the brand. And so we are going from an environment of little to no investment over a very long period of time to one now where we have, or soon will have, critical mass in two brands that we are going to be investing serious marketing effort behind, and I think the upside in both of those is tremendous. Gregory Miller: Thank you, Tom. Operator: Your next question comes from the line of Jeremy Hamblin of Craig Hallum. Please go ahead. Will: Hey. This is Will on for Jeremy. Thanks for taking my questions. Just first wondering if you could break down the comp cadence by month through the second quarter? Then if you are able to quantify the weather impact you saw from the snowstorms? Bobby Lavan: Yeah. So it was the easiest cadence is plus one, plus one, minus one. A little bit better in October, November, and December, but that is the easiest way you should look at it. The hit from the snow in January was about $5 million in revenue. So, you know, it really took down Saturday afternoon to Saturday night about, you know, we lost at least $2.5 million on Sunday. We lost about $500,000 on Monday, Tuesday. So it is, you know, we were looking at double-digit comp for January until that. You know, we are still pretty happy with the comp. But, you know, we get through, yeah. And then snow in December offsets about $2 million. Will: Okay. That is helpful. And then just curious on the EBITDA drag from the water park business in the quarter. Then I know the focus has been on organic growth this year, but is there anything in the acquisition pipeline that we should consider for the back half? Bobby Lavan: We have done $95 million of acquisitions this year. You know, we are always looking at things, but right now, we are focused on having a monster summer season, you know, in our Boomers and water parks. Will: Got it. Appreciate the color. Operator: There are no further questions at this time. And with that, ladies and gentlemen, concludes today's conference call. We thank you for participating. You may now disconnect your lines.
Florence Lip: Good day, and thank you for standing by. Welcome to Yum China Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Florence Lip, Senior Director, Investor Relations of Yum China. Please go ahead. Thank you, operator. Hello, everyone. And welcome to Yum China's Fourth Quarter 2025 Earnings Conference Call. With me on the call are our CEO, Ms. Joey Wat, and our CFO, Mr. Adrian Ding. Before we begin, I'll remind everyone that our remarks and investor materials contain forward-looking statements. These are subject to future events and uncertainties, and actual results may differ materially. Please refer to these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC filings. We'll also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our Investor Relations website at ir.yumchina.com. You can also find both the webcast replay and a PowerPoint presentation on our IR website. Please note that all year-over-year growth rates discussed today exclude the impact of foreign currency unless we mention otherwise. With that, I'll now turn the call over to Joey Wat, CEO of Yum China. Joey? Joey Wat: Thank you. Hello, everyone, and thank you for joining us. I would like to start by saying thank you to our team for delivering strong results this year, especially in such a dynamic market. In 2025, we opened more than 1,700 net new stores, taking our total to over 18,000 stores across more than 2,500 cities. Our focus on both system sales growth and same-store sales growth is paying off. Same-store sales growth has been positive for three consecutive quarters. System sales growth improved sequentially in quarter four, reaching 7%. Our dual focus on innovation and operational efficiency also boosts our healthy margins. OP margin expanded year over year in every quarter of 2025, reaching 10.9% for the full year. It is the highest level since our US listing. Excluding special items, operating profit grew 11% to $1.3 billion for the full year and was up 23% year over year in quarter four. By brand, both KFC and Pizza Hut exceeded our expectations in 2025. KFC's solid momentum continued with system sales growth reaching 8% in quarter four and 5% for the full year. Pizza Hut transformed its menu and operations resulting in 16% same-store transaction growth and 20% operating profit growth in 2025. While we accelerated growth, we also returned $1.5 billion to shareholders in 2025 through dividends and share repurchases, which is around 8% to 9% of our current market cap. Let me share a few key highlights from our core initiatives, and then I'll hand it over to Adrian to go through our results in more detail. First, we continue to delight our customers with year-round innovation, launching about 600 new or upgraded items annually. At the same time, we stay laser-focused on our hero products, which are significant drivers of sales and repeat purchases. These items have a loyal fan base that is also highly receptive to the new innovations they inspire. At KFC, our hero innovations include spicy original recipe chicken and crackling golden chicken wings. In 2025, hero products accounted for one-third of KFC sales, and together with their inspired innovations, they delivered high single-digit sales growth. At Pizza Hut, we sold over 200 million pizzas in 2025. The pizza category continued to grow strongly. Our newest thin crust pizza, Sohu Bao Di, perfectly crispy with plenty of toppings, has earned top reviews and become our best-selling crust. It now accounts for one out of every three pizzas sold and is bringing more customers, especially younger ones, into our stores. Second, we focus on delivering great value for money and emotional value on top of serving good food. As we shared at our Investor Day, our pricing strategy has been crucial to our success and has helped us deliver 12 consecutive quarters of same-store transaction growth. Total transactions grew 8%, exceeding 2 billion transactions in 2025. Emotional value matters too. Last year, we partnered with 70 leading IPs in gaming, animation, and sports. Whether tied to the latest hits or tapping into childhood memories, these collaborations help us engage customers and capture additional traffic. Beyond themed toys and special packaging, we decorated select stores and pop-up stores to make the experience more fun for our customers. Third, we capture new opportunities through front-end segmentation and back-end consolidation. Our multi-brand portfolio, diverse modules, and food offerings help us reach more customer segments and serve a wide range of occasions. On the back end, we force the synergies by sharing and centralizing resources in and across stores, regions, and even brands. Side-by-side modules K Coffee Cafe and K Pro are scaling quickly, reaching 2,200 and 200 KFC locations, respectively. They drive incremental sales and profit with light investment. Last year, we also piloted the Gemini model, which places KFC and Pizza Hut stores side by side to support entry into lower-tier cities. With a CapEx of 0.7 to 0.8 million for a pair of stores, it's a very attractive model for franchisees. We opened around 40 pairs of Gemini stores last year and expect to ramp up openings in 2026. Fourth, we are adopting an equity and franchise hybrid model to drive faster and more efficient store openings. We see great potential for growth in China. Recently, I visited Chongqing, China's largest city by population, with over 30 million people. In this wide-brand market, I saw a strong appetite for affordable good food. KFC's density there is only four stores per million people, well below the average of 17 in tier one and two cities, or Shanghai's 28. With menu innovation and multiple store formats, we are confident we can continue to expand our market share in China. To capture incremental opportunities in lower-tier cities, remote areas, and strategic locations, we began accelerating franchise expansion in 2024. The franchise mix of net new openings for KFC and Pizza Hut increased from 25% in 2024 to 36% in 2025. Equity stores remain the core of our business, representing over 80% of our store portfolio. The payback period of our new stores remains healthy at around two years for KFC and two to three years for Pizza Hut. Last but not least, we are embracing GenAI across our business to drive growth and efficiency. In our restaurants, we are piloting Q Smart, a giant AI assistant that integrates operation data such as labor and inventory. It identifies potential issues, recommends actions, and implements them. For example, Q Smart can detect staffing shortages, propose replacement staff, and initiate calls to them. This helps our RGM save time, make informed decisions, and run restaurants more smoothly. And in January, we rolled out SmartK, our AI ordering agent, to all KFC super app users. SmartK helps customers place orders. This feature has already been used by 2 million members, especially those who order breakfast and coffee. Customers respond positively to the added convenience and customized suggestions. At our Investor Day in November, we introduced our RGM 3.0 strategy, which takes a balanced approach across all three aspects of resilience, growth, and moats. We also outlined our plans for our next phase of growth, including expanding to over 30,000 stores by 2030. We are confident that we can continue our rapid growth while improving profitability and returning capital to shareholders. Let me now turn the call over to Adrian. Adrian Ding: Thank you, Joey. Let me now update key highlights by brand. Starting with KFC, in 2025, KFC opened 1,349 new stores, bringing its total to nearly 13,000 locations. System sales grew 5%, and restaurant margins expanded 50 basis points to 17.4%. Same-store sales growth turned positive for three consecutive quarters. In quarter four, system sales growth sequentially improved to 8% year over year. Same-store sales grew 3%, and same-store transactions increased by 3% year over year. Ticket average was flat, as growth in smaller orders was offset by the increase in delivery source mix, which carries a relatively higher ticket average. KFC side-by-side modules are rolling out rapidly. K Coffee Cafe tripled its footprint from 700 locations in 2024 to 2,200 locations in 2025. While expanding to more locations, we'll also increase per store daily cup sold by 25% year over year. Menu innovation has been key in driving repeat purchases. Last year, we launched a new product every week on average. K Coffee Cafes generated a mid-single-digit sales uplift for their parent KFC stores, and we're confident in this future expansion. K Pro added more than 200 locations in just one year. The slide view concept offers grain and pasta bowls and superfood smoothies. Backed by KFC's trusted quality and strong value for money, K Pro has resonated well with consumers and generated a double-digit sales uplift for its parent KFC stores. We aim to double K Pro's footprint to more than 400 locations in 2026, focusing on higher-tier cities. Now moving on to Pizza Hut. In 2025, Pizza Hut opened a record 444 net new stores, raising its total to 4,168 stores. Restaurant margins improved by 80 basis points to 12.8%, bringing its OP margin to 7.9%, the highest level since our 2016 listing. In quarter four, system sales grew 6% year over year, up from 4% in quarter three. Same-store sales grew 1%, positive for the third consecutive quarter. Same-store transactions increased 13%, growing double-digit for the fourth consecutive quarter. Ticket average was 69 yuan, down 11% year over year, reflecting our mass market strategy. Last year, Pizza Hut entered more than 200 new cities. About half of these, around 100 new cities, adopted the Wow format. We continue to refine the SOAR format and test different service models. The CapEx for a standalone new Wow store is around 0.65 to 0.85 million yuan. With lower CapEx, streamlined operations, and a simplified menu, Wow enables us to penetrate previously untapped locations, especially in lower-tier cities. We saw improving restaurant margins and a solid estimated payback period of two to three years for the new Wow stores, in line with the average new stores for Pizza Hut. Our emerging brands are also making steady progress. Lavazza opened 34 net new stores, including its first store in Hong Kong, taking its total store count to 146. Same-store sales growth turned positive in 2025, and overall store economics improved meaningfully. Its latest light model only requires 500,000 yuan in CapEx, roughly half the cost of the previous formats. Its retail business of packaged coffee products, the other growth engine, delivered over 40% sales growth and more than doubled operating profit year over year in 2025. Let me now go through our quarter four P&L. System sales grew 7% year over year, and same-store sales grew 3%. Our restaurant margin was 13.0%, 70 basis points higher year over year, mainly due to improvements in cost of sales and occupancy and other cost ratios. Cost of sales was 31.6%, 30 basis points lower year over year, mainly due to favorable commodity prices and supply chain efficiency gains. We share some of these savings with our consumers in the form of great value for money. Florence Lip: Cost of labor was 29.4%. Adrian Ding: 120 basis points higher year over year. While overall rider costs were higher due to a higher delivery mix, we maintained non-rider costs as a percent of sales at relatively stable levels through operational efficiency gains despite wage inflation. Occupancy and other was 26%, 160 basis points lower year over year, mainly due to sales leverage, store CapEx optimizations, and better rent. Our OP margin was 6.6%, 80 basis points higher year over year. Operating profit was $187 million, growing 23% year over year. Net income was $140 million, 22% higher year over year. Excluding our investment in Meituan, net income grew 14% year over year. Our investment in Meituan had a negative impact of $500,000 in quarter four, compared to a negative impact of $9 million in quarter four last year. As a reminder, we recognized $11 million less in interest income in quarter four this year due to a lower cash balance, resulting from the cash we returned to shareholders and lower interest rates. Diluted EPS was 40¢, 29% higher year over year, or up 21% year over year excluding our investment in Meituan. For the full year, system sales grew 4% and same-store sales grew 1%. Restaurant margin was 16.3%, 60 basis points higher year over year. Both KFC and Pizza Hut's restaurant margins improved year over year. G&A expenses were 4.9% of revenue, 10 basis points lower year over year. Operational efficiency gains more than offset higher performance-based compensation in the year. Operating profit grew 11% to $1.3 billion. Diluted EPS was $2.51, growing 8% year over year, or 14% excluding our investment in Meituan. Total CapEx was $626 million. Capital efficiency improved, ROIC reached 17.3%, up from 16.9% in 2024. Let's now turn to capital returns to shareholders. We're on track to return a total of $4.5 billion to shareholders from 2024 to 2026. That is $1.5 billion each year. In 2025, we returned $353 million in cash dividends and $1.14 billion in share repurchases. In 2026, we remain committed to returning $1.5 billion to shareholders. We're raising our quarterly dividend by 21% from 24¢ to 29¢. At 29¢ per quarter, the payout ratio will exceed 45% of our 2025 diluted EPS, with an annual dividend totaling around $400 million. We have also initiated a $460 million share repurchase plan for 2026. With these arrangements, we're well positioned to deliver on our commitment for the year. Starting in 2027, as outlined at our 2025 Investor Day, we plan to return approximately 100% of annual free cash flow after subsidiaries' dividend payments to noncontrolling interests. And this is expected to translate into an average annual return of $900 million to $1 billion plus in 2027 and 2028, and exceed $1 billion in 2028 and onward. These commitments are supported by our healthy cash position and robust cash generation. In 2025, we generated $840 million in free cash flow, an increase of 18% year over year. I ended the year with $2 billion in net cash. Now moving on to our 2026 outlook. We're confident we would reach more than 20,000 stores in 2026. This means opening over 1,900 net new stores, with 40% to 50% coming from franchisees for both KFC and Pizza Hut. We will continue to deepen our presence across China, especially in lower-tier cities and strategic locations, using a variety of store formats. With lower CapEx per store and a higher franchise mix, we expect the total CapEx to stay in the range of $600 million to $700 million this year. As for other financial metrics, we expect our growth in 2026 to be consistent with our three-year guidance shared at our Investor Day. That is thanks to our sales index of 100 to 102, mid to high single-digit system sales growth, high single-digit operating profit growth, double-digit EPS growth, and a slight improvement in restaurant margin and OP margin for Yum China. As activity on delivery platforms remains dynamic, we have factored in different scenarios and are confident that the impact on our businesses will be limited due to our balanced and disciplined approach. Our full-year projections are based on our current plans and have not assumed any changes in macro. Any improvement would represent potential upside. We will continue to track the progress of our new store openings, module development and rollouts, and other core initiatives and provide updates as we go. For quarter one, we're working hard to deliver our fourth consecutive quarter of positive same-store sales growth and thirteenth consecutive quarter of positive same-store transaction growth. Our margins face a tough year-over-year comparison. First, rider costs are the biggest headwind, driven by a higher delivery sales mix. Delivery mix increased from 42% in quarter one to 53% in quarter four last year and is expected to grow further. Second, the benefit from lower commodity prices will be smaller than before. Additionally, last year's base already reflected significant benefits from Project Freshii and Redeye. KFC's restaurant margin was already 19.8%, and Pizza Hut's restaurant margin improved 190 basis points year over year in quarter one last year, setting a high base for quarter one this year. We'll focus on efficiency and sales leverage and strive to maintain Yum China's restaurant margin and OP margin roughly in line with the prior year period in quarter one. With that, let me pass it back to Joey for her remarks on the Chinese New Year. Joey Wat: Thank you, Adrian. Let me share a few thoughts on the Chinese New Year, our key trading window of the year. Chinese New Year falls on February 17, considerably later than in most years. Our teams have prepared comprehensive scenario plans by the week and even daily. People will soon be traveling and gathering for the holiday season. Our brands are focusing on their signature products to capture the heavy traffic during Chinese New Year while maintaining strong operational efficiency. At KFC, buckets have long been our Chinese New Year signature, offering exciting food and abundant value. This year, in addition to our classic golden bucket and wing bucket, we are introducing for the first time peanuts and sunflower seed mini buckets. These packaged snacks honor Chinese tradition and help create a festive Chinese New Year atmosphere. At Pizza Hut, we are focusing on one of our hero products, the super supreme pizza. This time, we are adding new choices by pairing it with our classic Bolognese and trendy salted egg yolk toppings. Customers can also top up the pizza with a mountain of crunchy potato chips and rich sauce. These offerings are available in combos designed for family and friend gatherings and to drive ticket average. Overall, for this Chinese New Year, we are executing according to our plans. Trading year to date has been in line with our expectations. With that, I would like to wish everyone a happy and prosperous year of the horse. Now let me pass it back to Florence. Florence Lip: Thanks, Joey. Now we will open the call for questions. In order to give more people the chance to ask questions, limit your questions to one at a time. Thank you. We will now begin the question and answer session. On your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Michelle Cheng from Goldman Sachs. Please go ahead, Michelle. Michelle Cheng: Hi, Joey, Adrian, Florence. Congrats for the very strong results and ending 2025 with these impressive numbers. My question is about pricing. We noticed that you raised the delivery price recently, and earlier, we also hear some other brands are raising the price. So can you comment on your expectation on the pricing trend, including any changes in your end market promotion activities? And how this will be reflected in the same-store sales growth, especially since we should have a pretty easy base for the first quarter on both same-store sales growth and overall sales last year first quarter. And separately, if I may, regarding delivery mix, we noticed that delivery mix increased quite a lot, but the margin is still pretty good. So unlike other kinds of catering businesses, which have been suffering from higher delivery mix and lower margin, and for Pizza Hut, we even see payroll cost is down in the fourth quarter. So can you still elaborate a little bit more on how we should think about 2026 delivery mix and impact on the margin? Thank you very much. Joey Wat: Thank you, Michelle. Let me take the pricing part, and Adrian can answer the second one. The price increase for KFC was a mild adjustment. It only affects the delivery menu, and it has no change to dine-in and takeaway. And we also did not make any change to the signature campaign, such as the Crazy Thursday or the Weekend Buy More, Save More. And the price increase helped absorb some rider cost increase because of the higher delivery mix. With that said, we remain committed to offering great value for money, something we have done for a long time. And therefore, we are very committed to it. And that was thoroughly discussed in our Investor Day. Together, with our good food and emotional value, the primary goal of our business, of our commitment, is still to drive traffic. So we are still targeting the thirteenth consecutive quarter of same-store transaction growth and fourth quarter of same-store sales growth in quarter one. And so far, the trading has been in line with our expectation. So overall, in the short term and long term, I hope this demonstrates our confidence in our business model. Adrian? Adrian Ding: Yeah. Sure. Michelle, on your second question regarding margin outlook and also the delivery mix, I guess very briefly on delivery mix outlook for 2026. We do expect further increase in mix for delivery. For full year 2026. I mean, our delivery growth has been pretty solid for the past more than ten years. And for the past one year, given the dynamics in delivery aggregators, our growth has been particularly high, which has proven a pretty big surge in the delivery mix. I think from 42% last year to around 48% for the full year 2025. So it's a pretty significant increase. For the full year 2026, we do believe regardless of the delivery aggregator subsidy dynamics, we do expect that the delivery mix will surge further. And in terms of the margin impact on Yum China and the two brands, as we mentioned in the prepared remarks, we expect the full-year restaurant margin and OP margin to slightly improve year on year, and we are confident to achieve and deliver that. Specifically on two brands. For KFC, we expect the full-year restaurant margin to remain relatively stable year over year. It's already a very healthy level. And as you may recall, during our Investor Day three months ago, we actually gave a long-term guidance for KFC's restaurant margin, which is to be relatively stable over the long term as well at a healthy level. For Pizza Hut, we expect the full-year restaurant margin to slightly improve from 2025's level, with streamlined operations offsetting higher delivery costs and a higher base year over year. I would like to reiterate that for quarter one specifically, we face a tougher year-on-year comparison. As we mentioned in the prepared remarks, there are different factors that we mentioned in terms of meaningful delivery mix increase, and thereby the rider cost increase correspondingly. And also, the tailwind from favorable commodity prices gradually reduces. And also, the quarter one last year is a really high base, KFC's restaurant margin being as high as 19.8% and Pizza Hut's restaurant margin improved by 190 basis points year over year in quarter one last year. So both brands have a really high base. And, obviously, our guidance for the quarter one margin being kind of stable has accounted for the price increase on delivery platforms for KFC. And lastly, I think you asked about how do we understand each line of the key cost line items for full year 2026. For COS, cost of sales, we expect it to remain relatively stable. There will be a tailwind from commodity prices, but the tailwind will be smaller, and we will pass good value for money to our consumers. For COL, cost of labor, obviously, we face continued headwind from the higher rider cost as a result of the higher delivery mix expected for this year as well. And we aim to maintain the non-rider cost stable, offsetting the low single-digit wage inflation with more streamlined operations. And lastly, on O&O, occupancy and other costs, we continue to explore optimization opportunities and expect O&O as a percent of sales to keep improving year over year for the full year 2026. This is supported by store CapEx optimization and better rent. So, hopefully, that addresses your question. Thank you, Michelle. Michelle Cheng: Thank you so much, Joey and Adrian, and we wish you a great Chinese New Year. Joey Wat: Thank you. Thank you. Florence Lip: Thank you. We will now take our next question from Chen Luo from Bank of America. Please go ahead, Chen. Chen Luo: Hi, Joey, Adrian, Florence. Congrats again on the strong result. In fact, today is in China, and for those foreign investors, it actually stands for the first day of spring. So China consumption has been in winter for too many years. And our strong result has, fortunately, brought us a touch of warmth. And my question is more on the sales side. I noticed that our SSG has actually edged up higher in Q4 versus Q3. Despite the fact that the online delivery subsidy intensity has eased a little bit quarter on quarter. What have we done differently to boost SSG in Q4? And, also, as we are already into the on the constant currency basis, pre-COVID season, can you actually share with us some color on the year-to-date trading environment? I understand that we have the calendar distortion. So any comparison based on the calendar will be helpful. And lastly, I noticed that for SSG, for the system sales and revenue growth, usually, in previous quarters, revenue growth would be slower than the system sales growth. But in Q4, both numbers came in around 7%. How to reconcile the Q4 pattern versus the previous few quarters? That's all my questions. Thank you. Joey Wat: Thank you. Let me make a comment on the trading in Chinese New Year, and Adrian can tackle the numbers. So overall, the customer sentiment, as we mentioned at our Investor Day, we are seeing or we continue to see early signs of improving consumer sentiment, which is good news. With that said, Chinese New Year is a very key trading window. Heavy traffic concentrates into several days, and it creates a very significant challenge to operation. So we need to balance sales initiatives with operational efficiency as wages are higher, much higher during the public holidays. Point two is the Chinese New Year this year, as you mentioned, is considerably later than most years. And we actually have yet to reach the peak trading. We call it in Chinese. So we are climbing up the mountain, but we have not reached the peak yet. So it's slightly a bit early to make any big comment. So all we can see right now while sales are ramping up, year to date, trading has been in line with our expectation. And last but not least, we will continue our strategy to drive traffic, sales, and profit growth for the quarter, all three at the same time. We target to deliver our fourth consecutive quarter of positive SSG and thirteenth consecutive quarter of positive transaction growth, as I mentioned earlier. Adrian? Adrian Ding: Sure. The second question regarding the comparison between revenue growth and system sales growth, yes, normally, system sales growth should be slightly higher than revenue growth. And that's mainly caused by the higher growth of the franchise business contributing fully to the system sales but only roughly half to the revenue. And sometimes you do see similar figures or even the same figure for the growth of the two metrics. That's partially also due to rounding as well. But going forward, I think, generally speaking, we do expect a slightly higher system sales growth than revenue growth if we kind of disregard the rounding factor in it. So, hopefully, that addresses your question, Chen. Joey Wat: And also, the system sales growth, when we open a lot of stores during the last quarter, it helps the number, particularly the quarter four is slightly smaller one. Chen Luo: Got it. Thanks again. And congrats. Joey Wat: Thank you. We will now take our next question from Lillian Liu from Morgan Stanley. Please ask your question. Lillian Liu: Hello. Can you hear me? Joey Wat: Yes, we can. Lillian Liu: Okay. Hey, Joey, Adrian, and Florence. Congrats again. I have one question on Pizza Hut sales momentum. Because obviously, KFC still delivers very strong momentum in the fourth quarter, higher than Pizza Hut's trend. And I recall on the Investor Day, 2026 onwards, major sales growth will be mainly driven by actual growth, actually, will be mainly driven by Pizza Hut, which should be growing at a faster rate than KFC. So would like to understand, in particular, for 2026, what kind of incremental measures management plan to implement to drive up the Pizza Hut revenue or system sales momentum? Which could be higher than KFC. Thank you. Joey Wat: For Pizza Hut, first of all, our core business continues to drive very nice growth, and in 2025, you will see we actually entered more than 200 cities. And this is a very big number for Pizza Hut. And that was helped by the Pizza Hut model, which alone entered into more than 100 cities. Because for a long time, Pizza Hut city penetration was stuck at 900 cities. But now we are in over a thousand cities. And 2024 was the year we shared that we feel that Pizza Hut has reached the inflection point. So 2024 was nice growth, 2025 with the help of a Pizza Wow store, also grew very nicely. So that's one way. And the other one I would like to mention is some additional color on the product. So it's worth trying. If you have not tried yet, it's a handcrafted thin crust pizza. Sohu Bao Di pizza. The new crust was really amazing. And within a very short time, it accounts for one out of three pizzas sold. And this is a very big number. So now we have a good variety of pizza crust choices, the thin crust, the pan, the hand-tossed, and stuffed crust. And for those who spend a lot of time at Pizza Hut, you will know that doing pizza crust is the real deal. It's much harder than doing the topping. And the other product I would highlight is the burger. We have been selling burgers for more than a year now, and it's a mid-single-digit of our sales mix. So from the module to the key products, these are very exciting growth drivers for 2025, and it will continue into 2026. And I think I'll pause here. Thank you, Lillian. Lillian Liu: Okay. Thank you. Joey Wat: Thank you. We will now take our next question from Anne Ling from Jefferies. Anne Ling: Hi. Thank you, management team. A couple of questions here. So I would like to check first regarding the company mentioned about the like, you know, expanding or ramping up in year 2026. The Gemini stores. So just wanna check whether we will have to figure, like, you know, how much more Gemini store do we plan to open. And you mentioned that, you know, that is a new format, you know, on the franchising, which is called equity franchise model. I'm just wondering whether it means that Pizza Hut will sorry. I mean, Yum China will be investing in the franchise model. And if you can elaborate on that. And the second question is on the new coffee format as well as the K Pro. What is our plan for year 2026? And whether, like, you know, this attribute to, like, you know, same-store sales growth, you know, how much is attributable to same-store sales growth in year 2025? Thank you. Joey Wat: Again, I'll take the first question. Adrian, you can pick the second one. Thank you, Anne. So GEMINI, so the side-by-side, KFC small town, and Pizza Hut Wow Store is a pair with their own separate entrance and counter. However, on the back, we share the in-store resources, the staff, equipment, rent. It's particularly effective to enter lower-tier cities. And the CapEx is good. It's only 0.7, 0.8 million yuan for a pair. So very attractive for franchisees. And the sales are sort of the lighter version of the chassis small town and the lighter version of Pizza Hut Wow. So we would like to control the average payback estimate at about two years. The menu will continue to be even simpler. So KFC menu will be similar to the small town, and Pizza Hut's menu is probably only about 20% to 25% of the regular menu. And we expect the margin contribution will be incremental. And it's still early stage. We only have 42 pairs right now. Very small number, and we're testing it. But we do expect the Gemini model to improve its OP margin of our franchise business in the long term. And that's sort of the most updated progress of the Gemini store. Adrian? Adrian Ding: Yeah. Sure. Anne, I think you have a small question between the first one and the second one, which is what is the equity franchise hybrid model? Just to clarify, that is not a particular store model. It's like, basically means the acceleration of franchising initiative for Yum China. So, you know, in the future, we'll become a business, shifting from an equity-focused business only to a hybrid of equity franchise business. So that's not a store model. Just to clarify on that one. And then your second question is basically regarding K Coffee Cafe and K Pro. You know, as we mentioned, K Coffee Cafe contributes mid-single-digit incremental sales to the parent KFC store, and K Pro, which is a reasonably new initiative, I mean, the K Pro model now is quite different from the older K Pro two years ago. Right? So, you know, this new version of K Pro, we opened more than 200 new locations in the year 2025. And it's contributing double-digit incremental sales for the parent store with incremental profits. But given it's only 200 locations or slightly more than 200 locations out of 13,000 for the store count for KFC, you could imagine the K Pro contribution to the same-store sales growth for KFC is rather limited. Similar for K Coffee Cafe, actually, because if you think about K Coffee as a whole, the menu mix for K Coffee and K Coffee Cafe altogether is roughly, you know, we mentioned previously, roughly 4% of KFC's menu mix. So, you know, the K Coffee Cafe alone is even smaller. But we do have high hopes for both these two modules, you know, when they grow bigger and bigger, when they have more locations, they will represent higher contributions to the same-store sales growth of KFC. Thank you. Joey Wat: Thank you. Florence Lip: Thank you. We will now take our next question from the line of Christine Peng from UBS. Please ask your question. Christine Peng: Thank you, management, for the opportunity to raise questions. So I have two questions. So firstly is about K Pro. So, Adrian, can you provide us more details in terms of the economics of the K Pro model such as ticket value, the margin profile? And most importantly, if you can provide some details in terms of the customer profile, you know, the kind of differentiation from the major format of KFC. I think that'll be very helpful to understand the module in the longer term. I think the second question is about the Pizza Hut launching burger. You know, the question for Joey is that what's the management rationale behind this? Because, obviously, this is mostly targeted maybe, like, a single person menu. And in terms of the product differentiation, pricing strategies, what are the differentiations from the KFC burger offering, and what's gonna be, you know, the longer-term development strategy for this category going forward. Thank you. Joey Wat: Christine, for the K Pro, we plan to double the number of stores in 2026. So from 200 plus to at least 400. And it offers a very good value for money for the light meal with very strong food safety as a brand. And the menu is very distinct. It just needs to cross the border and try in Shenzhen. We have quite a few of those in Shenzhen. It offers energy bowls and smoothies. Smoothies are doing incredibly well there. In terms of the format, whatever I can say is, again, it's consistent with our corporate strategy of front-end segmentation and back-end consolidation. So it has its own counter and space for seating space for customers, but we share the KFC store space. Membership, equipment, resources, you name it. And here's some interesting sort of context for the customer. A significant portion of customers, namely could be as high as 80% or 90% of our sales, are from KFC members. This is a great example of how our membership program is really helping our long-term and short-term business. So it's an alternative for KFC members and that's right frequency. The frequency so far is very pleasing to us because it gives very little psychological burden to people for the light meal option, I guess. And, also, you can imagine the office location works really well for the K Pro. So we are hopeful for that. And then let me move on to Pizza Burger. We offer that for over a year now. And it's different from KFC burger. It's different in both ways. The pizza burger, the bun, is freshly made in the store with the same pizza crust dough, if that makes sense. So you can probably understand why we are doing burgers because we have this lovely dough. We can make pizza dough, we can also make burgers. But why not? It tastes really good. And then with very high-quality meat, and there are two flavors, which are fantastic. It's the burger with pineapple, fresh pineapple, and also Bolognese sauce. Which is quite creative. Why Bolognese sauce? It's pizza sauce. It's a sauce that customers really love. It's classic. So we have this category, this new product called burger. And you are absolutely right. It works very well for the single person's offering. And we can see the single person meal is an opportunity for Pizza Hut. Right now, the base is low, but for 2025, that one-person meal is growing at 50%, five zero. For Pizza Hut? It's lovely. So we continue to do a bit more of that. And let's see what 2026 will bring us. But, again, it's still early days. It's only one year. We'll continue to learn and do better for our customers. Thank you, Christine. Christine Peng: Thank you, Joey. Florence Lip: I'll take our next question from Ethan Wong from CLSA. Please go ahead, Ethan. Ethan Wong: Good evening. Joey Wat: So my question is on the delivery Sorry. Ethan, you might want to speak louder. We have a hard time hearing you. Ethan Wong: Sorry about that. Good evening. Yes. It's Joey. And yeah. Hi. So the question is on the delivery strategy. Joey Wat: Thank you, Ethan. That's a good question as well. So as we have observed over the last ten years trend, as Adrian mentioned earlier, the delivery continues to grow. So we continue to expect it to grow in 2026 too. But at the same time, I'm with you too. Dine-in and takeaway will still continue too. If I look at Pizza Hut, the takeaway, for example, 2025 takeaway percentage compared to 2019, it almost doubled. And I want to go more for takeaway. Takeaway is a good business. But at the same time, dine-in is still an important part of our business. For KFC, dine-in is still about 30%, and Pizza Hut is over 40%, about 45%. So it's still a very important part. And we still believe that the business will still be there in the long term. But at the same time, we are not judgmental. We basically embrace whatever the customer preference in terms of delivery, takeaway, and dine-in. And we strive to serve them well in all three channels. And then we'll balance the cost structure to do the best we could. So, yeah, we are really open-minded, and we'll do our best. But dine-in will continue. And in the lower-tier city, would dine-in be slightly higher to a certain extent in a sense that the ticket average, the big family consumption still is a Gansu. But one last thing is, you know, how do we balance the growth of delivery while the growth of delivery continues, we protect the margin. As you can see, we have done it. But at the same time, we have new growth drivers such as or means, like, customers right now, we see growing in terms of car ownership. Right? The car ownership is growing. And then the business related to that is growing too, and then we will deliver the food closest to the customer's car. And that is growing nicely. Now we have over 4,000 plus KFC stores that have what we call car-side pickup. So we are doing a variety of the business to balance the sales growth. Thank you, Ethan. Ethan Wong: Thank you, Joey. Florence Lip: Thank you. Our final question for today comes from Sijie Lin from CICC. CICC. Sijie Lin: Thank you for the last question. Thank you, Joey and Adrian. So my question is on the delivery platform subsidy. We know it's very dynamic, but could you provide a sense on how should we evaluate the trend and impact in 2026? And will the platform competition mitigate? What measures will we take to attract customers back to our own channel? Thank you. Adrian Ding: Thank you, Sijie. So on delivery subsidy dynamics, as we mentioned in the prepared remarks, we have different scenario planning for the subsidy, how that evolves. And regardless of the scenario would be, we believe and we're confident that the impact on our business will be limited. Because of our disciplined approach to drive sales, at the same time to protect margin and price integrity. And at the same time, and that's kind of the short-term horizon. The long-term horizon is we do believe this whole delivery aggregator subsidy, as we previously mentioned, it's good for the merchants, especially the larger merchants in the long run. Because the merchants have the choice of working with multiple parties. And, also, you know, we can obviously take the opportunity to secure some long-term benefits, you know, during the subsidy war. So, that's a response on both the short term and long term. And, you know, I think the natural question has always been on margin. And as we demonstrated in the previous quarters, we were able to protect our margins, actually, even slightly increase our margin. And that's why we're confident to give the guidance for the full year 2026. We have an improvement in restaurant margin and OP margin for Yum China slightly. But, you know, I would like to caution again. Sorry to repeat myself. For quarter one, we faced a tough comparison, and our guidance for quarter one is to stay roughly in line for restaurant margin, operating margin year over year for quarter one. Thank you, Sijie. Florence Lip: Thank you, Adrian. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Daniel Fannon: Good morning. My name is Daniel, and I will be your conference facilitator today. Welcome to T. Rowe Price Group, Inc.'s Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode until the question and answer period. I will give you instructions on how to ask questions at that time. As a reminder, this call is being recorded and will be available for replay on T. Rowe Price Group, Inc.'s website shortly after the call concludes. I will now turn the call over to Linsley Carruth, T. Rowe Price Group, Inc.'s Director of Investor Relations. Linsley Carruth: Hello, and thank you for joining us today for our fourth quarter earnings call. The press release and the supplemental materials document can be found on our IR website at investors.troweprice.com. Today's call will last approximately forty-five minutes. Our Chair, CEO, and President, Robert W. Sharps, and CFO, Jennifer Benson Dardis, will discuss the company's results for about fifteen minutes. Then we'll open it up to your questions, at which time we'll be joined by our Head of Global Investments, Eric Lanoue Veiel. We ask that you limit it to one question per participant. I'd like to remind you that during the course of this call, we may make a number of forward-looking statements and reference certain non-GAAP financial measures. Please refer to the forward-looking statement language and the reconciliations to GAAP in the supplemental materials as well as in our press release. Discussions related to the funds are intended to demonstrate their contribution to the organization's results and are not recommendations. All investment performance references to peer groups on today's call are using Morningstar peer groups and for the quarter that ended December 31, 2025. Now I'll turn it over to Rob. Robert W. Sharps: Thank you, Linsley, and thank you all for joining today's call. 2025 brought a third straight year of strong global market returns, though it remains a narrow market dominated by a handful of mega-cap stocks, and with riskier names outperforming quality and value. While this market growth served as a tailwind for our assets under management and investment advisory revenue, it was not an environment that was highly conducive to fundamental research, active management, and long-term investing. But we did see some evidence of the market broadening in the fourth quarter, which would be a positive for fundamental research-driven active management. We closed the year with $1.78 trillion in assets under management, up over 10% from the start of the year despite $56.9 billion in net outflows. Net outflows were concentrated in our equity and mutual fund business, with $75 billion of net outflows from equity and on a vehicle basis, almost $64 billion from mutual funds in 2025. Importantly, we saw an increase in gross sales, which were higher than 2024 and up over 40% from 2023. Offsetting these higher gross sales were redemptions that were greater than anticipated and were driven by performance shortfalls in certain strategies and from portfolio rebalancing due to elevated equity markets. We generated over $2 billion of free flow in 2025 and returned nearly $1.8 billion of cash to our stockholders. We also extended our long history of increasing our regular dividend, marking our thirty-ninth consecutive year of increases since our IPO in 1986. We are building momentum across our strategic initiatives. I remain confident in our plan, and our people, and I look forward to what's ahead. With that, I'll turn to investment performance. We are seeing improvement in the performance of several key and continue to have strong long-term performance across a range of strategies and asset classes. While we're headed in the right direction, there remains room for further improvement. About half of our funds beat their peer group, across the time periods, with 49%, 56%, 46%, and 61% outperforming on the one, three, five, and ten-year time periods respectively. For the three, five, and ten-year time periods, asset-weighted performance is stronger, with 72%, 54%, and 79% of fund assets beating their peer groups for the respective periods. For the one-year time period, 42% of fund assets beat their peer groups. On an asset-weighted basis, over half of our equity funds beat their peer groups on a three and five-year basis, and over 70% beat their peers for the ten-year time period. Fixed income continued to deliver strong performance with over 75% of fund assets beating their peer groups across the one, three, five, and ten-year time periods. Long-term performance in our target date franchise remains strong, with 81%, 55%, and 98% of fund assets outperforming the three, five, and ten-year time periods respectively. Several very strong quarters in 2020 that have been rolling off have been a recent drag on the five-year performance numbers. Returns for the one-year time period were weaker, with 29% of fund assets outperforming peers. This was driven by a slightly lower weight to international equities than some peers and by security selection in some of the underlying portfolios, primarily in 2025. Across alternatives, performance for the quarter was generally strong, amid a more discerning credit backdrop. Credit selection continued to be highly effective as it successfully avoided any exposure to widely publicized frauds or failures. Beyond investment performance, in 2025, we continue to make progress on our strategic initiatives. We established a strategic collaboration with Goldman Sachs, to pursue opportunities in wealth and retirement through co-developed public-private offerings and advice solutions. And in the fourth quarter, we launched the first co-branded model portfolios, including four portfolios that are now live on the GOL platform, and a fifth expected in 2026. In January, we launched one of the model series, the Goldman Sachs T. Rowe Price Group, Inc. dynamic ETF portfolio, on the Morgan Stanley platform. We extended our retirement leadership globally with a sub-advised retirement date fund series in partnership with a Japanese asset manager and two new retirement allocation funds with a strategic partner in Asia, marking the first time a US asset manager offered retirement-focused products to retail investors in Hong Kong and Singapore. Additionally, we saw growth in the Canadian target date series we launched in 2024. We maintained our position as an industry leader in active target date solutions. Building on over twenty years of product innovation and surpassing $500 billion in assets under management across a diverse suite of solutions. We also help clients navigate change and achieve better outcomes with the breadth of retirement solutions, including the launch of our innovative Social Security Analyzer tool. We grew our active ETF business with the recent launch of two new active core ETFs. One focused on the US and one on international. These active core strategies combine quantitative and fundamental research for alpha generation and we believe this approach will compete effectively with passive. We also expanded our fixed income ETF range with three new muni strategies, and one multi-sector ETF. All told, we launched 13 ETFs in 2025, bringing our total to 30, and we grew assets under management to over $21 billion at year-end. We continue to expand our alternatives business. At the start of January 2026, we had the first close for a T. Rowe Price Group, Inc. managed private equity fund. This strategy is a closed-end drawdown fund and seeks to create a portfolio of approximately 25 category-leading private companies. T. Rowe Price Group, Inc. has exceptional access to late-stage private given our successful eighteen-year track record of investing over $24 billion across approximately 300 private companies. And our reputation for being thoughtful, long-term, and value-added shareholders well beyond the IPO. OHA enjoyed a second consecutive record fundraising year, with over $16 billion of capital raising across the platform, led by private lending strategies. Private credit deployment experienced a strong finish to the year, reflecting increased sponsor activity and looking ahead there continues to be an expectation of an acceleration in deal volume. As the pipeline of pending private credit transactions remains robust. We made key organizational changes including the creation of the technology data and operations function to focus on integrating digital capabilities, data strategy, and enterprise operations to accelerate execution. And the global strategy function to sharpen our strategic vision integrate corporate development and product strategy, and support our growth agenda. We advanced our use of artificial intelligence across the firm, amplifying our investment professionals' capabilities without replacing their judgment. Improving the speed and personalization of client service, and adopting new technologies with disciplined governance and thoughtful onboarding. The momentum we built in 2025 carried into 2026 with our announcement in January of a new strategic partnership with First Abu Dhabi Bank. Leveraging our collective strengths and capabilities, our partnership with FAB aims to deliver world-class investment solutions across public and private markets, tailored to meet the needs of investors throughout the Middle East. While we have had an institutional business in the Middle East for some time, this is our first strategic partnership in the region. And it reflects our commitment to growing and diversifying our business through innovative global partnerships. This partnership and all the progress we made in 2025 are a reflection of our associates' steadfast commitment to our clients, and I want to thank each of them for their dedication. And now, Jen will share an update on our financial results. Jennifer Benson Dardis: Thank you, Rob, and hello, everyone. I'll review our financial results before opening the line for Q&A. Our adjusted diluted earnings per share for Q4 2025 was $2.44 bringing full-year adjusted diluted EPS to $9.72, up 4.2% from 2024 on higher average AUM investment advisory revenue, and lower average share count. As previously reported, we had $25.5 billion in net outflows in Q4, bringing the full year to $56.9 billion. As Rob noted, in 2025, we experienced elevated redemptions from our legacy equity and mutual fund business. Despite these redemptions, strong equity market returns more than offset the net outflows. And we ended the year with nearly $50 billion in additional equity assets under management. This trend, where equity market appreciation has exceeded equity net outflows, has been consistent over the past three years. We saw encouraging momentum and signs of strength quarter and in a few areas of our business we ended the year with positive net flows. Fixed income and alternatives had positive net flows for the quarter and along with multi-asset had positive net flows for the full year. Fixed Income has now delivered eight consecutive quarters of positive net flows. And our target date franchise ended the year with net inflows of $5.2 billion. Our ETF business remains strong with $1.8 billion in net inflows during the quarter, bringing 2025 net inflows to nearly $10.5 billion. Within other investment vehicles, for the full year, trust continued to see strong net inflows in the DC channel and we saw positive net flows to SMAs. In 2025, strong equity markets lifted the growth of our average AUM, increasing our investment advisory fees, net revenues, and diluted EPS over the prior year. Our Q4 adjusted net revenue of $1.9 billion raised our full-year adjusted net revenue to nearly $7.4 billion, an increase of 2.8% from 2024. Our Q4 Investment Advisory revenue of $1.7 billion increased 2.3% from the prior quarter and 4.2% from Q4 2024, driven by higher average AUM partially offset by a lower effective fee rate. Full-year investment advisory revenues of $6.6 billion were up 3.1% from the prior year. Our Q4 annualized effective fee rate excluding performance-based fees was 38.8 basis points, which is down from 39.1 basis points in Q3 2025. The decline in average effective fee rate continues to be driven by changes in our asset and vehicle mix. As client demand increasingly shifts toward lower-priced vehicles and strategies, we remain focused on delivering our investment strategies in our clients' vehicles of choice while maintaining competitive fee rates. Slide 19 in the supplement illustrates the changes in our vehicle mix over the past five years. Over time, we've seen a growing proportion of our gross sales going to fixed income and multi-asset, and to lower-priced vehicles like ETFs, trusts, and SMAs, while redemptions remain primarily concentrated in higher-priced equity strategies and mutual funds. These sales and redemption patterns drive the change in our asset and vehicle mix. Performance-based fees in Q4 of $14.2 million were predominantly from alternative strategies and were up from the prior quarter, but down from Q4 2024. Full-year performance-based fees of $37.4 million were down from 2024's $59.3 million. Turning to expenses, Q4 adjusted operating expenses were $1.2 billion bringing 2025 adjusted operating expenses, excluding carried interest expense, to $4.6 billion, which is up 3.4% from 2024's $4.46 billion and within the previously provided guidance of 2% to 4%. Based on normal market conditions, and assets at the end of 2025, we anticipate 2026 adjusted operating expenses excluding carried interest expense will be up 3% to 6% over 2025's $4.6 billion. This range includes our ongoing expense management program that allows us to invest in growth areas of the market. We remain committed to maintaining a strong cash position and returning capital to stockholders. During Q4, we bought back $141 million worth of shares, bringing buybacks for 2025 to $624.6 million or 2.8% of our shares outstanding. We closed the year with a strong balance sheet, holding $3.8 billion of cash discretionary investments, up $735 million from the start of the year. This allows us to support our recurring dividend while preserving the ability to pursue opportunistic acquisitions or partnerships and execute share buybacks. Our long-term approach to managing our business enables us to invest strategically in areas that strengthen our capabilities and drive meaningful results for our clients. Combined with our continued focus on prudent expense oversight, we remain well-positioned to navigate changing market cycles and evolving trends. And now we will open the line for Q&A. Daniel Fannon: Please press 11 on your telephone and wait for your name to be announced. In the interest of time, ask that you please limit yourself to one question. If you have any additional questions, you may rejoin the queue. Please standby while we compile the Q&A roster. Our first question comes from Alexander Blostein with Goldman Sachs. Your line is open. Alexander Blostein: Good morning. Thank you for the question. So maybe starting with just a question around how you guys are planning from an operating perspective for 2026. Heard this expense guide, so maybe just remind us of the ability to flex up or down, and then the bend the environment, for is maybe flattish for the year? Just want to understand that. Robert W. Sharps: Yeah. Alex, thank you for the question. The biggest factor in any single year on our operating margin is equity market return. As we've discussed in the past, there's a portion of our expense base, about a third of it, that's variable. But the biggest driver of our revenue is equity market returns. That said, we understand the dynamic of the revenue outlook with regard to flow and fee pressure. And we're going to need to balance going forward in investing to position ourselves for success long term and ensuring that we have world-class talent with a commitment to being a highly efficient organization with an ongoing focus on productivity. So we have a number of initiatives to drive cost savings to fund those investments. But, you know, I'm really not going to comment on what I think the margin profile will look like over time because as I said, the market return has such a significant influence on that. Jennifer Benson Dardis: And maybe if I can talk specifically about expenses and the guide for 2026. We had talked last time about the two-thirds of our controllable expenses that we were managing toward low single-digit growth. That's included in this plan. And as Rob mentioned, that's a balance of cost savings efforts and also earmarking funds to be able to invest in some of our growth areas. New vehicles such as ETFs, SMAs, models, and alternatives and in our partnerships where we're introducing new products. And also in things like advice. And then if you look at our market-driven expenses, that's what's driving it slightly higher into the range, and it's really two big drivers there. One is on what we call distribution expenses. That's things like 12b-1, trailer fees, or revenue share. Those increase with assets under management as opposed to revenue, and we saw tailwinds in growth in AUM at the end of the year and we have our normal market growth assumptions kind of moderate equity market growth in 2026 as well as modest fixed income growth. The second thing that's within there is our year-end compensation. And, again, that generally runs with revenue, but there are some accounting implications from our LTI program that are driving that a little higher this year. Daniel Fannon: Thank you. Our next question comes from Michael J. Cyprys with Morgan Stanley. Your line is open. Michael J. Cyprys: Hey, good morning. Thanks for taking the question. More of a longer-term view just on tokenization. Just curious, you could just talk a little bit about how you're experimenting with tokenization and blockchain. Where do you see some of the most compelling use cases and value to be unlocked? And curious how you see this all playing out over the next twelve, twenty-four months versus longer term and where might there be scope for differentiation? Eric Lanoue Veiel: Yeah. Hi, Michael. It's Eric. I'll take that one. First of all, we've been investing in our digitization capabilities going back to '22 when we first, you know, brought on a team and have built it out internally to develop expertise in this area. We think about it along three different vectors. First, there's an efficiency opportunity within tokenization for middle and back office savings that I think could be consequential in time. There's a product opportunity as you move more traditional finance assets on-chain. You open up opportunities to accelerate some of the trends that we're seeing, whether that's the convergence of public and privates, whether it's fractionalization or mass customization. There's a distribution opportunity. It opens up a new generation of investors who are native to mobile and crypto. We're working on all three of those. I would say on the efficiency front, within investments, we're doing a lot of work on end-to-end processes. That we think will really impact over time from a cost savings perspective, our middle and back office and potentially even some front office opportunity. On the product side, we've already talked about how we've registered with the SEC, our active crypto ETF that we hope to have in market. In '26 that will use a blend of fundamental and quantitative analysis to bring a multi-token ETF to the market. And then on the distribution side, I think that's a more open opportunity for us, and we'll explore everything from partnerships to de novo builds. Daniel Fannon: Thank you. Our next question comes from Craig Siegenthaler with Bank of America. Your line is open. Craig Siegenthaler: Good morning, everyone. My question is on the update on the potential migration of private into the 401(k) channel. So, we should be getting the DOL update shortly, maybe not this month as planned due to the government shutdown, but how do you think this plays out across the industry with single partnerships or multi-partner models? And, also, where is T. Rowe Price Group, Inc. now on the product launch front? With your new Goldman Sachs partnership, which will also include some OHA and credit? Robert W. Sharps: Yeah, Craig. Thank you for the question. So not a lot new since we've commented on this in the last few calls. Our multi-asset team has really researched the investment case for including private alternatives in defined contribution solutions, including target date funds. And they believe that the investment case is strong. That said, there is a mixed view among plan sponsors based on lack of clarity with regard to fiduciary risk. And change just, you know, kind of not only around fee, but also around liquidity. And it's a dynamic ultimately that we're going to need to navigate. As you said, the DOL comments are due to come back from the OMB. There'll be a public comment period. We may not get real clarity on what the ultimate guidance looks like for several months. You know, what we want to do is have a flexible approach that's responsive to our clients' interests. So with regard to the specific question about the Goldman Sachs T. Rowe Price Group, Inc. retirement date offering, we continue to work on product design and plan to have the offering in market in around midyear this year. We think there's a segment of the market that will be early adopters. And, you know, kind of ultimately, you know, kind of feel that interest could grow. But, you know, my sense is that penetration of the overall set will evolve relatively slowly and won't be for some period of time. Daniel Fannon: Thank you. Our next question comes from Dan Fannon with Jefferies. Your line is open. Dan Fannon: Thanks. Good morning. So wanted to talk about the target date business. You showed some outflows in the fourth quarter, something we haven't seen in a few years. Wanted to get a little bit more context around the momentum and or outlook for that business. As we think about 2026, whether that's kind of backlog, you know, kind of new win opportunities and or losses that might be, you know, within the periphery as of now. Robert W. Sharps: Yeah. Dan, thanks for the question. And if I may, maybe I'll take the opportunity to zoom out and talk about flows more broadly and then drill down on the target date business. Flows in the fourth quarter were meaningfully softer than we anticipated, especially in the month of December. The weakness was largely driven by equities. With particular pressure in growth equity portfolios driven by a handful of institutional losses and some rebalancing given the robust equity market returns in 2025. But as you cite, outflows in the retirement date funds which are not necessarily unusual for the month of December, but are unusual for the full fourth quarter were also a factor. About a third of the Q4 retirement date outflows were driven by M&A activity where our client was acquired and the plans were consolidated, we ended up losing the mandate. We also lost a handful of lumpy or larger mandates that weren't M&A related. But if you look at the broader trend, I think what you see is that fully active target date funds are losing share to passive and blend. Given our position as the largest fully active target date fund manager, that's going to be a headwind for us. On the positive side, I think we're really well positioned to mitigate or offset that headwind with our very strong blend and hybrid offerings, which incorporate a component of passive. The blend area is the fastest growing category within target date. It's actually growing faster than passive. And T. Rowe Price Group, Inc. is gaining market share in the blend category. So we believe that we'll continue to grow our retirement date franchise going forward. Whether or not that growth is consistent with the levels that have been in the past, I think to some extent, will depend on the intensity of the shift away from active and our ability to capture a portion of that with our blend and hybrid offering, but also to grow and gain market share, you know, from a new dollar perspective. Within that category. Just as a more current data point, we did have a billion seven of target date inflows in the month of January. I also got to take the opportunity to share some perspective on the 2026 flow outlook. You know, flows have been volatile and difficult for us to predict. But our base pace reflects continued pressure in equities. Partially offset by inflows in retirement date fund, and consistent with the previous comment with a continued shift towards blend. Steady growth in fixed income and accelerating growth in alternative. The intensity of equity outflows is the biggest factor for our overall flows. To get back to positive flows, we need equity outflows to moderate. We're confident that that will happen over time with strong performance. In January, we did have just under $6 billion of outflows, but the pipeline suggests that the rest of the quarter, being February and March, has the potential to improve from those levels. Daniel Fannon: Thank you. Our next question comes from Benjamin Elliot Budish with Barclays. Your line is open. Benjamin Elliot Budish: Hi, good morning and thank you for taking the question. Maybe, Rob, just following up on that last point. I know the market had a bit of a shock just yesterday, and I would expect your comments are sort of higher level taking over the course of the year. But just curious, how would you expect that sort of impact to translate to near-term equity flows? How do advisors and retail customers tend to respond to that sort of disruption? Could you maybe talk about the sort of mix across the equity franchise, how exposed is the business to, you know, software and services and, you know, the areas which, you know, at least the market is sort of worrying maybe under some kind of, you know, near-term threat from AI development. Thank you. Robert W. Sharps: Yeah. I'll start and welcome input from Eric and Jen who I'm sure have a perspective on the topic. With regard to how equity market returns impact flows, it depends by client type. I think there are certain client types that tend to react more quickly and other client types that, you know, have a commitment to the asset class. And allocation framework that kind of in some instance with the drawdown in the market may actually be inclined to rebalance and add to equities. I would say the net effect to us over a period longer than days or weeks really isn't that substantial. I think in the very short term, you may see a knee-jerk reaction to a sharp drawdown in the market in certain segments. But ultimately, there are a number of puts and takes. And as I've said in my earlier comment, despite robust market returns last year, that actually caused a bit of a drag as some of our clients rebalanced away from strategies had significant absolute returns. So that's, again, I'd say not something that is a meaningful factor in our outlook from a flow perspective. In terms of our exposure to software and services, I'll ask Eric to offer his perspective. I think a lot of the consternation in the market is over some of the private equity sponsors having significant deals and exposure to PE firms. As a largely liquid public manager, we have the ability to adapt and adjust to changing market environments. So our positioning can obviously be very fluid. You know, I would say that our overall mix is no more exposed than the market as a whole. But I'll ask for Eric to give a little bit more specific commentary in terms of software exposure. Eric Lanoue Veiel: Sure. So, you know, with almost roughly a trillion dollars in equity assets across a wide variety of different types of portfolios. We're obviously going to have a lot of different types of mandates with different types of exposure to software. As you think about what happened yesterday and the disruption risk of AI, specifically some very unique opportunities that were brought forward by Anthropic. We have been studying these opportunities and risks for a long time and have very deep research on them and have been positioned for events like this in many of our portfolios. That doesn't mean that in every portfolio, we're perfectly positioned for what happened in a single day of market action. But what happened yesterday in terms of the potential disruption of AI across different parts of the software industry is not a surprise to us. Daniel Fannon: Thank you. Our next question comes from Kenneth Brooks Worthington with JPMorgan. Your line is open. Kenneth Brooks Worthington: Hi, good morning. Along those same lines, on the AI disruption, what is Oak Hill's exposure to investments potentially disrupted by AI? Ultimately, you think the problems could be big enough in private credit to drive market share shifts and where might T. Rowe Price Group, Inc. fit into those share shifts if they're big enough to, you know, discuss here today? Robert W. Sharps: Yeah. Look. I'm not going to comment on OHA's underlying exposures. What I will say is that they have an extraordinarily rigorous credit process. And to the extent that we go into a credit environment where defaults are more prevalent, we think that OHA's process and performance will be a differentiating factor relative to the rest of the industry. And I might just take the opportunity to comment on OHA more broadly. OHA is doing well. They had a second consecutive year of record capital raise with particular strength in private lending. The T. Rowe Price Group, Inc. and OHA teams are working very well together on opportunities across wealth, insurance, and the broader institutional market. As a matter of fact, the T. Rowe Price Group, Inc. client-facing teams helped OHA bring in over $3 billion in new institutional commitments, with much of that in 2025. As we'd referenced earlier, OHA is deeply involved in our collaboration with Goldman Sachs. Their private credit capabilities are designed into several of the investment strategies, including the co-branded retirement date fund and multi-alts offering for wealth. We do plan to do a spotlight on OHA and our alternatives on one of the earnings calls later this year. And anticipate having Glenn Paul Schorr join us for that call. Daniel Fannon: Thank you. Our next question comes from Brennan Hawken with BMO Capital Markets. Your line is open. Brennan Hawken: You were speaking earlier to M&A and the sort of noise created in the target date sort of DC plan sales process. Plus maybe a few misses on some plans. Couple questions on that, couple follow-ups. Were there any particular factors that caused the misses, and how are you adjusting your offering in order to enhance your competitive positioning? And can you speak to the pipeline I know those sales cycles are likely pretty long. So how are we looking as we move forward, on that front? Thanks. Robert W. Sharps: Yeah. In terms of the Q4 activity, I think it's relatively straightforward. When one of our plan sponsors gets acquired, eventually the acquirer consolidates the plans. In certain instances, we're given the opportunity to compete for the combined plan. And in certain instances, the acquirer makes the decision that they automatically want to consolidate with their incumbent target date fund provider. So, you know, I mean, at the end of the day, that's really all the color on that that I have. I also don't really have any more color on the dynamic in the marketplace outside of saying that we're seeing less interest in new opportunities for fully active target date funds and a significant increase in opportunities in blend and hybrid. Yeah. I think to some extent, that's a reflection of where the market's been. Where the power of the returns in the market cap-weighted benchmarks, particularly in US large-cap equity. Ultimately, if that market dynamic changes and you have a backdrop that is more conducive to alpha generation from active management, then, you know, I think the fully active proposition will have more of an opportunity to stand out and be differentiated. In terms of the pipeline for target date funds, it would again be consistent with the comment. The overall activity is robust. But there we have more interest and more opportunity in blended hybrid than we do in fully active. Daniel Fannon: Thank you. Our next question comes from Michael Patrick Davitt with Autonomous Research. Your line is open. Michael Patrick Davitt: Good morning. Thank you. Just most of mine have been asked just a quick follow-up on that again. Can you remind on the targets, can you remind on the cadence each year on when those lumpier plan losses can occur? I know mostly December. I seem to remember there are a couple of other months where they can come through in the past as well. Thank you. Robert W. Sharps: Yeah. Outside of elevated activity around year-end, I would say that, you know, there really is no specific seasonality to plan activity. And, you know, it really can happen throughout the course of the year. Daniel Fannon: Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. And a member of our team will be happy to help you. Good morning and welcome to Evercore Inc.'s Fourth Quarter 2025 and Full Year Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Evercore Inc. management and the question and answer session. I will now turn the call over to Katy Haber, Head of Investor Relations at Evercore Inc. Please go ahead. Katy Haber: Thank you, Operator. Good morning, and thank you for joining us today for Evercore Inc.'s fourth quarter and full year 2025 financial results conference call. I'm Katy Haber, Evercore Inc.'s Head of Investor Relations. Joining me on the call today is John Weinberg, our Chairman and CEO, and Timothy LaLonde, our CFO. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore Inc.'s fourth quarter and full year 2025 financial results. Our discussion of our results today is complementary to the press release, which is available on our website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for thirty days beginning approximately one hour after the conclusion of this call. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore Inc. filings with the SEC, including our annual report on Form 10-Ks, quarterly reports on Form 10-Q, and current reports on Form 8-Ks. I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is important to evaluate Evercore Inc.'s performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I will now turn the call over to John Weinberg. John Weinberg: Thank you, Katy. And good morning, everyone. 2025 was a strong year for Evercore Inc. We saw broad-based momentum across all of our businesses and ended the year with the strongest revenue performance in our history. Firm-wide adjusted net revenue reached approximately $3.9 billion, up 29% versus the prior year and nearly 17% above our previous record in 2021. In fact, our fourth quarter represented the strongest revenue quarter in our history with nearly $1.3 billion in adjusted net revenue. For the year, we generated approximately $14.56 in adjusted earnings per share, continued to return a meaningful amount of capital to shareholders, and improved our margin profile. Our quarterly and full-year record results reflect the improving market environment, the benefits of our diversified business model, and the execution of our long-term growth strategy. We are pleased with how we delivered for our clients and our shareholders in 2025, and we enter 2026 with strong momentum and optimism. Before getting into the details, I want to put our results in the context of the market environment. Industry-wide global M&A activity rebounded meaningfully last year. Announced transactions totaled approximately $4.5 trillion, up 49% from the prior year and just 19% below record levels of 2021. Importantly, activity accelerated throughout the year. Deal volumes in the second half of 2025 were approximately 45% higher than in the first half, reflecting a clear shift in sentiment and decision-making. That improvement was particularly evident in the large-cap segment of the market. Global M&A volumes for transactions greater than $5 billion were the highest ever and approximately 13% above 2021 levels. Taken together, these metrics reflect improving confidence among boards and management teams, constructive financing conditions across public and private markets, and strong equity markets. Now turning to Evercore Inc. I want to highlight a few of our key accomplishments from the year across our market position, talent investment, and platform expansion. We continue to serve clients on a number of the most complex and notable transactions, acting as financial advisor on five of the 15 largest global M&A deals for the year and ranked third for sell-side transactions in the U.S. based on dollar value. Relative to our largest global competitors, we continue to gain share. For the second year in a row, we ranked as the third largest investment bank globally in 2025 based on advisory fees across all public firms. Nearly all of our businesses posted record results, including our North America and EMEA advisory businesses, private capital advisory, private funds group, our equities business, and wealth management. Importantly, the benefits of our diversification were increasingly evident. For the fourth quarter and full year, approximately 45% of revenues were generated from non-M&A businesses. Turning to talent. 2025 was a year of continued investment as we built out our senior advisory bench globally. We enter 2026 with 171 investment banking senior management directors. We hired 19 SMDs across sectors, products, and geographies, representing our largest class of new lateral SMDs to date and added 11 new promotes at the beginning of 2025. We are also excited to announce the recent promotion of eight investment banking SMDs globally, which is in addition to the 171 SMDs, underscoring our continued commitment to developing talent from within. In fact, 40% of our investment banking SMDs have been promoted internally, the highest percentage in our history. Our SMD base is 50% larger than it was at the end of 2021, and more than 40 SMDs are currently in a ramp mode, positioning us well for years ahead. Finally, expanding our platform across regions, sectors, and products was a key area of focus for us in 2025. We completed the acquisition of Robey Warshaw, a leading UK-based advisory firm. The acquisition represents a significant next step in our EMEA expansion strategy, and the integration is progressing well. We also continue to expand our footprint across key markets in EMEA, including significant investment in France, and first-time offices in Italy, The Nordics, and Saudi Arabia. And we remain focused on building those out over time. We further strengthened our sector coverage globally, including healthcare, industrials, and transportation, while continuing to deepen our sponsor coverage efforts. We remain focused on broadening our product capabilities, including debt advisory, securitization, private capital advisory, ECM, and ratings advisory, to name a few. Before turning to the outlook, I'll briefly highlight a few key trends across our businesses from the quarter and the year. Our M&A advisory businesses finished the year with strong momentum. In North America, our team achieved a record year, and activity was broad-based across sectors, while financial sponsor engagement continued to increase and broaden. Industry-wide, financial sponsor activity for 2025 was up 43% in dollar volume and 14% in the number of transactions, excluding deals below $100 million, and we are expecting continued improved activity in 2026. In EMEA, advisory activity accelerated meaningfully in the second half of the year. Our EMEA advisory business delivered record results in the fourth quarter and year, with strength across sectors and products. In the fourth quarter, we advised on a number of significant transactions around the globe, including Warner Bros. Discovery on its $83 billion sale of Warner Bros. to Netflix and the related spin-off, which was the largest M&A transaction of the year. Axalta's $25 billion merger with ExxonMobil, Sadara Therapeutics on its $9.2 billion sale to Merck, and Sealed Air's $10.3 billion acquisition by CDNR. Our Strategic Defense and Shareholder Advisory Group continued to be busy into year-end as activist campaigns remained at elevated levels. The liability management and restructuring group had a strong close to the year, generating its second-best year for revenues and notably well above last year's performance. Activity in the quarter and year reflected a more balanced mix of liability management and traditional restructuring activity. The private capital-related businesses remained a source of strength. PCA delivered another record year with strong performance across GP-led continuation funds, LP transactions, and structured capital solutions, and we advised on nearly half of industry-wide secondary volumes in 2025. The private funds group also posted a record year, continuing to deepen relationships with our core client base while also expanding our reach. Equity capital markets activity continued to gain momentum into the year-end, benefiting from an improving market backdrop for IPOs. We were a book runner in all of our equity transactions across products, and we continue to be diversified across sectors. Our equities business delivered a record quarter and year and had nine consecutive quarters of year-over-year revenue growth. Finally, our Wealth Management business had a record year and reached its highest quarter-end AUM of approximately $15.5 billion. As we look ahead, we believe 2025's steady build of activity will continue into 2026 and beyond. We expect many of the themes from 2025 to continue, including sustained engagement on large strategic transactions alongside a further broadening of activity across deal sizes, sectors, products, and geographies. Given the investments we've made across our platform, we believe Evercore Inc. is well-positioned to serve clients across the full spectrum of the market. We start the year with strong momentum and backlogs at record levels. Overall, we are constructive on the environment. At the same time, we remain mindful of the geopolitical and macroeconomic risks and note that transaction timing can be uneven. Importantly, the strategy we've been executing over the last several years continues to deliver results. We remain focused on delivering outstanding client service and intend to continue investing thoughtfully as new opportunities arise. We are confident in our position as we start the New Year. With that, let me turn it over to Tim. Timothy LaLonde: Thank you, John. Evercore Inc.'s fourth quarter and full-year results reflect strong performance across all our businesses. For 2025, net revenues, operating income, and EPS on a GAAP basis were $1.3 billion, $312 million, and $4.76 per share, respectively. For the full year, net revenues, operating income, and EPS on a GAAP basis were $3.9 billion, $790 million, and $14.05 per share, respectively. My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website. Our fourth quarter adjusted net revenues of $1.3 billion increased 32% versus 2024, our best quarter to date. On a full-year basis, adjusted net revenues of $3.9 billion increased 29% compared to last year and represent our strongest year on record. Fourth quarter adjusted operating income of $337 million increased 55% versus 2024. Adjusted earnings per share of $5.13 increased 50% versus the prior year period. For the full year, adjusted operating income of $839 million increased 50%, and adjusted earnings per share of $14.56 increased 55% versus the full year 2024. Our adjusted operating margin in the fourth quarter was 26%, an improvement of 380 basis points versus the prior year period. For the full year, our adjusted operating margin was 21.6%, up 300 basis points from the full year 2024. Turning to the businesses. Fourth quarter adjusted advisory fees of over $1.1 billion increased 33% year over year and represents a record quarter. Adjusted advisory fees were $3.3 billion for the full year, up 34% compared to 2024 and 19% above our prior record in 2021. Our advisory results for the quarter and year reflect strong client activity levels and momentum that built throughout the year. Our fourth quarter adjusted underwriting fees were $49 million, up 87% from a year ago. For the full year, adjusted underwriting revenues were $180 million, up 14% versus last year, reflecting improved market conditions. Commissions and related revenue of $66 million in the fourth quarter was up 15% year over year. For the full year, commissions and related revenue of $243 million was up 13% compared to 2024. Both the quarter and the year represented record results. Fourth quarter adjusted asset management and administration fees were $24 million, up 10% versus the fourth quarter of last year. For the full year, adjusted asset management and administration were $91 million, up 8% versus 2024. Fourth quarter adjusted other revenue net was approximately $30 million, which compares to $24 million a year ago. For the full year, adjusted other revenue net was $103 million compared to $105 million last year. Approximately 25% of the other revenue in 2025 was a gain on our DCCP hedge, with the remainder predominantly from interest income. Turning to expenses. The adjusted compensation ratio for the fourth quarter was 62%, down 320 basis points from last year's fourth quarter. Our full-year adjusted compensation ratio was 64.2%, down 150 basis points from 2024 and down 340 basis points over the past two years. Our increased revenue and the reduction in our full-year comp ratio reflect the benefits of a strengthening in the investment banking environment, an increase in our market share, partially offset by our significant investment in talent, including our largest ever addition of external SMDs. We are continuing to strive for additional gradual improvement in our comp ratio, balancing that with investment in our business and execution on our strategic growth plan. As I have said on past calls, our goals are to deliver excellence to our clients and to create value for our shareholders over the medium to longer term. The latter is accomplished by investing in and building our business and managing our expenses in a way that maximizes the present value of our future earnings and cash flows. Adjusted non-comp expenses in the fourth quarter and full year were $150 million and $552 million, up 26% and 17%, respectively. The non-comp ratio for the full year was 14.2%, down 150 basis points from 2024, driven by stronger revenues. For the quarter, the non-comp ratio was 12%. The 17% increase in our full-year non-comp expenses was in line with the increase we saw in 2024. The year-over-year increase reflects continued investment in the firm's technology infrastructure, an increase in client-related expenses, particularly as deal activity accelerated throughout the year. The increase also reflects higher rent and occupancy costs associated with office expansion, including additional floors in and renovation costs related to our New York offices, and additional occupancy costs related to our new leases in Paris, London, and Dubai. Client-related travel and entertainment spend also increased in the year as deal activity picked up. As we grow and continue to diversify our revenue streams, both geographically and with respect to lines of business, we must continue to invest in talent, technology, and infrastructure. We have discussed in some depth over the years our investment in talent. Some of our investment, such as in occupancy-related areas, is required to support our growth in the U.S. and EMEA. And at the time of investment, we must obtain enough capacity to provide for planned future growth. Part of our non-comp expense is for information services, for which the costs increase at a rate faster than the rate of inflation. In addition, as is broadly known, there are significant improvements in the rapidly evolving technology landscape, and we must make investments and incur costs today that we believe will provide benefits in the medium term. In the past, we have discussed non-comp growth drivers such as headcount growth, inflation, and some upward pressure beyond that related to the items I have just discussed. And they will continue to influence non-comp costs in the near term. As a reminder, the non-comp expense line consists of a mix of fixed and variable expenses, of which a significant portion would be considered variable and will fluctuate with transaction activity and headcount both in our businesses and in our corporate area, to execute on our increased transaction activity and growth initiatives. Nonetheless, as you can see from the improvement in both our full-year comp and non-comp ratios, we demonstrated leverage in 2025. We maintain a disciplined focus on our expenses, balancing that with investment in order to execute our strategic plan. Our adjusted tax rate for the quarter was 29.4%, up from the fourth quarter of last year. Our full-year adjusted tax rate was 19.8%, down from 21.8% in 2024. The full-year adjusted tax rate was significantly impacted by, among other things, the appreciation of the firm's share price upon vesting of RSU grants above the original grant price, generating a benefit which was larger than the prior year's tax benefit. As a reminder, the majority of this impact typically occurs in the first quarter. Turning to our balance sheet. As of December 31, our cash and investment securities totaled $3 billion. In 2025, we returned the second-largest amount of capital in the firm's history, totaling $812 million. This included approximately $151 million through dividends and $661 million through the repurchase of 2.4 million shares at an average price of $275.42. Our fourth-quarter adjusted diluted share count was approximately 45 million shares, modestly higher than the third quarter. For the full year, our weighted average share count ended at 44.4 million shares, approximately 225,000 shares higher versus the year prior. We remain committed to repurchasing shares to offset dilution from our year-end RSU bonus grants, and for the fifth year in a row, we have repurchased a number of shares greater than that, and we expect to do so again in 2026. We also repurchased shares sufficient to cover the number expected to be issued in both 2025 and 2026 in relation to the Robey Warshaw acquisition. We continue to maintain a strong cash position and take into consideration our regulatory requirements, the current economic and business environment, cash needs for the implementation of our strategic initiatives, including hiring plans, and preserving a solid financial footing. We are pleased with our performance in 2025. And as John mentioned, we begin the year with strong momentum in all of our businesses. We believe we are well-positioned for 2026 and are approaching this year with optimism. With that, we will now open the line for questions. Operator: Thank you. We will now conduct the question and answer portion of today's conference. Please limit yourself to one question only. You are welcome to rejoin the queue for any additional questions. And our first question will come from James Yaro with Goldman Sachs. James Yaro: Hi, this is Sunshin Jian, stepping in for James Yaro. 2025 was a heavily mega-cap M&A driven market. So could you help us think through the outlook for the large deals to continue or even accelerate from here? Thanks. John Weinberg: Thank you very much for the question. We think that we will continue to have a healthy environment. All of the things that have really existed to fuel the merger recovery still exist. Whether it's business prospects for many of the large companies, the strategy outreach from the companies, access to capital, and, in many respects, a relatively benign environment with respect to the regulatory side. Our backlogs are very strong. Those backlogs really incorporate both large-cap and mid-cap and small-cap, really at all sizes. We are very optimistic about this year. We continue to believe that it's going to be a constant and steady build. And we think that if our backlog is an indication, we are going to see a continuation of large-cap deals as well as deals really of all shapes and sizes. Operator: Okay. Thank you. We'll take our next question from Mike Brown with UBS. Mike Brown: Hey, good morning. So in 2025, we had a bit of the Goldilocks environment with the strong performance from restructuring and also M&A. As we look to 2026, can both continue to remain elevated here? Can restructuring revenue actually grow in 2026 versus 2025? And if the restructuring market itself stays somewhat flat, how much additional share do you think you can get in liability management and restructuring? John Weinberg: We think that the environment where restructuring and M&A coexist both strong is highly likely to persist. Our backlogs in each of those areas are high and really, in most respects, at record levels. We think that with respect to restructuring, our backlog is very diversified. So we're looking at whether liability management, looking at restructurings, we're looking at bankruptcies, all of those things are quite full in our backlogs. And we think that those will continue. And really, we feel very good about the restructuring environment for our business. On the M&A side, it's the same. We have very strong backlogs. We have real activity. We are in very serious and strong dialogues with corporations and management teams, and also boards. And we think that this is going to persist. So the answer to your question is we believe that both will coexist and both really will be quite strong if our backlogs and our activity levels are any indication. In terms of market share, I think that we are continuing to pick up market share in liability management and restructuring. We feel really good about how we're covering clients. And really, the new activity coming in is very diversified. So we feel really good about where we stand. Operator: Thank you. Our next question comes from Brennan Hawken with BMO Capital Markets. Brennan Hawken: Morning. Thank you for taking my question. So Tim, you talked a little bit about investing, sort of making hay when the sun is shining on the tech side, which makes a lot of sense. Could you help us maybe understand is that going to be calibrated to revenue, right? So you're almost start to think about the non-comp ratio, not obviously, it's not going to be the same as comp ratio, inherently, but maybe think about the growth rate with an eye to that and then maybe help us think about guardrails about how you manage it? And also, are there any particular businesses that are tech-heavy? I know like the PCA business is a very data-driven business. So any color on that would be great. Timothy LaLonde: Yes. Sure, Brennan, and thanks for the question. Look, the way to think about it is we feel like we've made significant strides with respect to growing the business and diversifying the business both with respect to lines of business and geographically. And in order to kind of build the first-rate corporation and then a foundation upon which to continue that kind of growth, we do need to invest in our infrastructure, and part of that is technology. And I mentioned in my comments about how there's a kind of a rapidly evolving landscape. And I don't need to go into that because it's well covered in the news, but I think that you've seen a pickup probably in the investment in our non-comps over the last couple of years. And so the increase in 2024 was 16%, the increase in 2025 was 17%. And I think in order to support the growth and the diversity and the technology initiatives, and so on, I wouldn't be surprised to see something somewhat similar as we head into 2026. I would note though, I think that the good news is the growth in the non-comps is less than the growth in our revenues. And so the corresponding revenue growth rates over those last two years were 23%, 29%, and we have made pretty significant progress on the non-comp ratio, bringing it down from 16.6% two years ago to 15.7% last year, and 14.2% this year. And so I think we're going to continue to invest in our infrastructure, but we're pleased with the fact that we're able to make some progress on the non-comp ratio. Brennan Hawken: Sure. And the business is Sorry. that drive the non-comp, any color on that? Timothy LaLonde: Pardon? Brennan Hawken: Any color on which part business drives the non-comp? Timothy LaLonde: Yes. Yes. It's why I would say that it's a yes, PCA is certainly one, but we're also, you know, for our kind of standard and traditional M&A and restructuring businesses. We're using it in equities. It's really and frankly in corporate as well as we seek to drive efficiencies in the corporate side of our business. And so it's really, I would say, comprehensive. And then aside from the technology, as we expand and I'm pleased with the progress we've made in our geographic expansion, particularly in Europe. That, of course, leads to both in Europe and in the U.S. increased occupancy costs as well, which are part of the underlying growth you're seeing in the non-comp expense. Brennan Hawken: Great. Thanks, Tim. And well done on the comp ratio by the way. Timothy LaLonde: Thank you. Operator: Thank you. Our next question comes from Devin Ryan with Citizens Bank. Devin Ryan: Great. Good morning, John. Good morning, Tim. Question just on kind of the broader outlook. Obviously, a lot of, I think, enthusiasm in there just around kind of the momentum into 2026. And I think we can see a lot of that even from the outside in terms of M&A backlogs and just kind of where the types of deals that Evercore Inc. is currently involved in. So great to see that. And then you hit on some of the momentum you're still seeing in restructuring. Great if you could just hit on some of the other non-M&A businesses, whether that's private capital or capital markets advisory. And just kind of where all these stack together. So I think people are trying to kind of put all together the non-M&A businesses have clearly grown and are a bigger contribution. You've got this M&A business that's on fire right now. Where are these other businesses kind of in that mix in terms of like growth expectations over the next twelve to eighteen months? Can they keep up at a similar pace? Or are they kind of a ballast in the market and maybe M&A grows but these other businesses can provide a little bit more stability? Good to get some kind of directional color there. Thank you. John Weinberg: Sure, Devin. We really continue to see strength throughout our system. I think, as we said, virtually all of our businesses are at or very close to record levels. In terms of the businesses, which you specifically highlighted, private capital advisory, let me start with that. PCA had a record year this year. PFG, which is our, as you know, is our fundraising businesses, they had a record year. Our debt advisory private capital markets businesses, which really were new two years ago or three years ago, have actually performed at a very high level and are setting records also. Our real estate advisory businesses have really picked up dramatically. So across the board, we're seeing momentum to our businesses. So in terms of the breakout between M&A and other businesses, it's actually still continuing to be very high. Even when M&A is running as hot as it is, we still have 45% of our businesses are non-M&A. And I think that's going to persist no matter really how strong M&A gets. Now, obviously, if M&A really hits the tsunami, that may be hard to pick up to keep track to keep on top of that because the M&A business, as you know, has great leverage in our system. But I think really what you're seeing is a real diversification. We've worked really hard to diversify. We've built out these very, very strong businesses. And we continue to see that. On the PCA side, which had a, as I said, had a record year, they had a very high market share this year. I think it was over 45%. They continue to be looking at a very diversified product set, whether that is LP-based or the GP-based businesses. As you know, the GP is the continuation fund business, which has actually really been on fire. But we have significant new product in that business also. So I think really what we're really building and working hard to do is to keep our very strong businesses and performing at the highest level, but also making sure that we are investing in the diversification, which we have promised shareholders that we will do. And I think so far, we're working hard and it's going quite well. Thank you. That's excellent. Thank you. Operator: Our next question will come from Daniel Kaczarov with Bank of America. Daniel Kaczarov: Good morning and thanks for taking my question. Just given the sell-off in software yesterday and as well as your stock's reaction, there seems to be some fears just about the potential impact AI may have on advisory businesses in 2026. I was wondering if you could talk to us about the potential disruption risks AI may pose to your pipelines and if you can provide any color on sector exposures in your backlogs, both on the public and private sides, that would be very helpful. Thank you very much. John Weinberg: Sure. Obviously, we've taken a strong look at that certainly, especially over the last twenty-four hours. And honestly, we have in our backlogs and really our business activities, we are very diversified. There is no question that AI is influencing the world. As we look at our business in the near and medium term, we really don't see disruption. Now obviously, the markets could be significantly seeing further disruption. And I think it would be unrealistic to say if the markets got very disruptive, that it wouldn't impact our business. Certainly, it can. But right now, look at what we're working on our backlogs, really what we're seeing, as I said, near term and medium term. And given our diversification, really along products, geographies, and sectors, we actually feel quite good about where we stand and really the stability of our business. Operator: Thank you. As a reminder, that is our next question will come from Alexander Bond with KBW. Alexander Bond: Hey, good morning, everyone. I have a question on the expectations for ECM in 2026. So the IPO sentiment continues to improve and seems like there could be a strong lineup of large deals coming to market sometime in the near future. Can you just give us an update on your backlog here and maybe high-level outlook for the year? And then also on the equities front, if this environment that we're in now in terms of heightened volatility becomes more entrenched or persists, can you just help us think about maybe what the right or what the revenue potential is for that area of the business? Thank you. John Weinberg: Sure. In terms of our backlog, our backlogs are good and they're building. We really saw a really healthy build through the fourth quarter. And I think that has just continued. We will absolutely be involved in what I think is a very healthy IPO business going forward here. And I think we're feeling quite good about really our activity levels. As you know, we've really diversified. We're not just in healthcare, but we are very involved in many different sectors now, and we've really spent a lot of time and effort building out our capabilities in those areas. And I think also really with respect to our activity levels, having strong research with ISI really has helped us to stay involved in thinking about a lot of different sectors. The bottom line is that I think the equity capital markets business is actually healthy and growing. We expect that it's going to continue along the lines of where it was in the fourth quarter and strengthening from there. So we're feeling quite good about that. Alexander Bond: Great. Thank you. That's helpful. Operator: Thank you. Our next question comes from Jim Mitchell with Seaport Global Securities. Jim Mitchell: Hey, good morning. Tim, I guess I'll ask the question that you probably don't want to answer, but you highlighted, I think, the last two years, comp ratio improvement of 340 basis points. Is that sort of your definition of gradual and a decent way to think about the next couple of years, assuming the environment continues to improve as we expect? Just any help on how you're thinking about the evolution of the comp ratio from here? Timothy LaLonde: Yes. Jim, and sure, happy to share some thoughts. And yes, as you mentioned, we have made some progress these last couple of years, 340 basis points over the last two years, as we came down from 67.6% to 65.7% and now 64.2% this year. And look, I don't want to make this answer sound too much like a disclaimer, but there are really a lot of things that go into determining the comp ratio. And it has to do with absolute revenues, revenue growth, market comp, and competitive environment, number of SMDs and non-SMDs hiring. So there's an awful lot of things that go into that. And what I would say is, we're striving to make continued progress. Now, whether we could continue to decrease it every year at the same kind of pace and magnitude that you've seen over the last couple of years might be a bit challenging. But we're striving to make continued improvement as we head into 2026. Operator: Okay. Thanks. Thank you. Our next question comes from Brendan O'Brien with Wolfe Research. Brendan O'Brien: I guess I just wanted to ask on the backdrop, and specifically just how you use characterize the conversations that you're having with your sponsor clients at the moment and whether there's been any notable shifts in the tenor of those discussions and how we should be thinking about the trajectory of sponsor activity throughout the remainder of this year? John Weinberg: Thanks for the question. As you have seen, we've had a very interesting set of circumstances with sponsors. We have a lot of dry powder, we have LPs that really want liquidity, and we have markets that seem to be recovering. And in many respects, the sponsor business has really started to gain momentum in terms of that activity level. On the M&A side, with size being a dictator, the bigger the more active you're seeing in the market. I think what we're seeing on the M&A side is that the market is starting to really start to diversify some. And that some of the middle market assets or even the B assets are becoming more liquid. And we're seeing in some respects a capitulation where sponsors are trying to really look carefully at their portfolios and start to move things out because they really want to create more movement. And so I think there will be a growing momentum in the sponsor business. Obviously, the big highest quality assets will continue. And then I think you're going to see assets throughout really the spectrum. Now, one of the very important things in terms of sponsor activity for us is, as we've said, we have a very strong set of businesses which service sponsors, whether PCA or PFG, or LP stake sales. And those businesses are very healthy. The dialogues are very strong. We're seeing that activity level continue. And so from that perspective, the sponsor business for us continues to build. As we've articulated in many calls before this, one of the things that we're spending a lot of time focusing on is how do we bring together all of the strengths of our businesses. The M&A side and the coverage side of the sponsor themselves, the PCA business and how we really interact with GPs on that business. The fundraising business with PFG, and really how we think about advising the senior people in these businesses about liquidity. And I think we're basing a lot of progress on that and we're feeling momentum there. So I'm hoping that that will lead to even more dialogue activity and opportunities for us to serve this very important and just client base. Brendan O'Brien: Great. Thank you for taking my question. Operator: Next, we have a question from Nathan Stein with Deutsche Bank. Nathan Stein: So large mega deals really fueled the deal-making recovery in 2025 and we're all monitoring the industry data to see when this could really start to widen out down market. Can you talk about the are you seeing an uptick in the core upper middle market transactions within your business lines? John Weinberg: We are definitely seeing more activity. We are definitely seeing more in our backlog. We do have diversification in our backlog. So we are seeing we have a significant number of what you classify as middle market. And frankly, you think about our investment as a firm, we are investing in coverage of the middle market. And so we're seeing more of those types of assignments coming into our backlog. As the people who we've hired over the last two or three years begin to mature and to hit their stride. So we're seeing it building out. In terms of the market itself, which I think is what your question is, is there really continued or increasing activity in the middle market? We think there is. We think that there is a very healthy build in that side. And we're seeing a lot of that. Our numbers of pitches, both sponsors in the middle market companies as well as non-sponsor, is up significantly. And so we're seeing a very strong level of pitch activity and dialogue activity in that middle market sector. Operator: Thank you. Our next question will come from Ryan Kenny with Morgan Stanley. Ryan Kenny: Hi, good morning. Thanks for taking my question. So on the private capital advisory side, you are a market leader in secondaries. We've seen some peers lean in recently. We've seen some of the money center banks doing more. So what's your sense of competition ramping up? Are you feeling that? And how do you protect your share? John Weinberg: There is definitely a lot of activity in people trying to build these businesses. And I'm certain that there's going to be very worthy competition and it's going to grow. We have a very good business, and we have a really, really well-established base. We have a group of clients who are very happy with the service that we've been providing them. And I think there's a level of advantage for having been in this business for a long time and done it well, whether it's data that we've been able to capture and it's very strong data, an experience level that people recognize, and I think in many respects, clients appreciate, a track record of success and the relationships themselves. And so, I think that we're going to be able to compete very adequately as new entrants come into the market. But as you know, on Wall Street, competition can be intense. The competitors are always very worthy and good. So we're going to have our hands full, but I think we're ready for it. And I think we're actually competing extremely well right now. Thank you. Operator: And we do have a follow-up question from Daniel Kaczarov with Bank of America. Daniel Kaczarov: Thank you for sneaking me in. Just when thinking about private, we've seen all struggle in terms of price action. Do you think LPs are recalibrating how they allocate to private markets? And on the non-M&A revenues, is there a high correlation between M&A activity? Or should we think of these two as entirely uncorrelated? Thank you. John Weinberg: Well, I don't think you can ever have something be entirely uncorrelated with the flow of funds going back and forth through asset classes. I don't think that we're going to see that, you know, what I would call as kind of a rethinking or maybe a somewhat of a discussion on all to be changing what's happening on the M&A side. So I think that what you'll see is you'll see flows of funds going back and forth. There always is. We don't see any major impact right now in our business. But obviously, we're watching it. Just like you are. But we don't anticipate it's going to have a big impact. Operator: Thank you. We do have another follow-up question from Nathan Stein with Deutsche Bank. Nathan Stein: Hey, thanks for taking the follow-up. I was hoping you'd provide additional color on the capital allocation strategy in 2026. You called out doing buybacks again this year. Net of the employee comp program. Is the 4Q repurchase level a good run rate for buybacks for the rest of the year? And just how are you thinking about capital allocation this year? Timothy LaLonde: Yes. Sure, Nate, and thanks for the question. I would not take any particular quarter of buybacks that you see from us and annualize it. I think just to give you some color on it. First, I would note is that the $812 million that we returned last year was our second-highest return of capital ever, trailing only 2021 and trailing that number by not much. And so that'd be the first point. Second is each year we've indicated to the market that we strive to acquire at least a number of shares equivalent to the number of RSUs we grant as part of our bonus cycle. So that's probably the second point I would make. And then thirdly, we're sitting right now on a, as of year-end, about $3 billion of cash. And some of that, of course, is required for regulatory purposes and for underwriting capital and for operating capital, but there's still some excess there. And we intend to be repurchasing shares, not only for the last five years, not only have we repurchased a number equivalent to the RSUs issued as part of our comp cycle, but we've acquired a number in excess of that. And I think we'd certainly strive to do that this year as well. Operator: Thank you. We do have one more question in the queue. This one from Jim Mitchell with Seaport Global Securities. Jim Mitchell: Yeah. Hey. Sorry. Apologies for keeping you. But maybe just, John, can you speak about the recruiting environment, whether or not getting tougher to get people to leave their seats in this environment? And is it getting more expensive? And just overall, what's your take on your recruiting pipeline? John Weinberg: Thanks, Jim. The recruiting environment has heated up a lot. And it's very intense and it's very competitive. We feel good about the pipeline of people that we're talking to. There's no question that getting people to move is harder than it was two or three years ago. But I think what's happening is there's a lot of momentum at Evercore Inc. And we have a pretty compelling story for people. But I do think your the premise of your question, which is it's harder and it's going to take more work and it may even be more expensive, that premise is correct. There is definitely going to be more competition. It's probably going to be more expensive. We're going to be having to work harder to get people to make the move, especially if they're very busy in a recovering environment. So I do think it's going to be hard. We've spent a lot of effort and time finding the right people and going after A-plus candidates. I think one of the things that we're really happy about is that a lot of the people that we really have worked hard to get over the last three or four years, many of them have ramped, hit their stride, they're starting to really kick in. And some of the results that we're showing now is that group. So our incentive to continue to go even if the environment is harder, maybe more expensive, will still be there. We're going to continue our aggressive recruiting efforts throughout the cycle here. Timothy LaLonde: Right. One thing I might add to that, Jim, is the good news is we've made a lot of progress in these past three years. We've added 41 through external means, and promoted 25 internally. We've got 40 that are in ramp mode. And so while as John said, we're always out there working hard trying to implement our strategic plan. And talking to a lot of people. Though we never know in any given year, exactly how many will cross the finish line, the good news is I think we're really well positioned based on the success we have had over the past three years. Jim Mitchell: Okay. That's really great color. Thanks for taking the follow-up. Operator: And there are no further questions in the queue at this time. With that said, this does conclude Evercore Inc.'s fourth quarter 2025 and full year earnings conference call. You may now disconnect.
Operator: Welcome to the Fourth Quarter and Full Year 2025 Stanley Black & Decker Earnings Conference Call. My name is Shannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a formal presentation. Please note that this conference is being recorded. I will now turn the call over to Vice President of Investor Relations, Michael Wherley. Mr. Wherley, you may begin. Michael Wherley: Thank you, Shannon. Good morning, everyone, and thanks for joining us for our fourth quarter and full year earnings call. With us today are Christopher Nelson, President and CEO, and Patrick Hallinan, Executive Vice President, CFO, and Chief Administrative Officer. Our earnings release, which was issued earlier this morning, and a supplemental presentation, which we will refer to, are available on the IR section of our website. A replay of today's webcast will also be available beginning around 11 AM Eastern Time. This morning, Chris and Pat will review our fourth quarter and full year results, along with our outlook for 2026, followed by a Q&A session. During today's call, we will be making some forward-looking statements based on current views. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty. It's therefore possible that actual results may materially differ from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8-Ks that will be filed with our press release, and in our most recent 34 Act filing. Additionally, we may also reference non-GAAP financial measures during the call. For applicable reconciliations to the related GAAP financial measure and additional information, please refer to the appendix of the supplemental presentation and the corresponding press release, which are available on our website. I will now turn the call over to our President and CEO, Christopher Nelson. Christopher Nelson: Thank you, Michael, and good morning, everyone. I am proud of the results our team delivered in 2025, a testament to our resilience, innovation, and relentless pursuit of excellence. DEWALT and aerospace fasteners were areas of notable revenue growth this year, up low single digits and 25% respectively, which contributed to full year revenues of $15.1 billion. Total revenues were down about 1% organically in 2025. Stanley Black & Decker has remained steadfast in our commitment to disciplined execution. This is especially important considering the constantly shifting macroeconomic and operating environment. We continue to proactively execute targeted growth investments and to pursue aggressive tariff mitigation actions. Part of our tariff mitigation strategy has been pricing actions, and we are closely monitoring the market response to ensure a balanced approach to top-line growth and margin expansion. We are confident that over the long term, these thoughtful actions will continue to drive strong performance and deliver meaningful value for our end users, channel partners, and our shareholders. Our tariff mitigation actions along with supply chain transformation efficiencies led to our adjusted gross margin expanding 70 basis points to 30.7% for full year 2025. We also marked the completion of our global cost reduction program, successfully capturing $2.1 billion of run rate pretax cost savings since the program's inception in mid-2022. As we have stated before, we will continue to tenaciously pursue annual productivity savings in the neighborhood of 3% net spend on an ongoing basis. The global cost reduction program helped to set a foundation from which we are institutionalizing the achievement of annual productivity savings to drive sustainable growth and support our adjusted gross margin expansion goals. Full year adjusted EBITDA grew by 5% as the adjusted gross margin improvement drove a 70 basis point improvement in adjusted EBITDA margin. We rigorously controlled costs throughout the organization while prioritizing targeted strategic growth investments to support our brand activation and innovation agendas. Adjusted earnings per share grew 7% in 2025, to $4.67. We view this as a solid outcome considering the dynamic operating and macroeconomic environment this year, including the substantial tariff headwinds incurred by our industry. Earnings growth and working capital efficiencies each contributed to strong free cash flow of almost $700 million in 2025. These funds not only supported our dividend and continued debt reduction, but they also provided capital for impactful investments that amplify the power of our brands and accelerate innovation. Additionally, on December 22, we announced the definitive agreement to sell our aerospace fasteners business. This portfolio change is consistent with our dedication to focusing on growing our biggest brands and businesses and enhancing shareholder value. We expect to use the net proceeds of over $1.5 billion to significantly reduce our debt, affording us flexibility to pursue a much more dynamic capital allocation strategy. Now shifting to performance in the fourth quarter. We delivered strong results across many of our key metrics in the period, with continued gross margin expansion, robust free cash flow, and a strengthened balance sheet. Revenue was down 1% overall, and 3% organically, which was below our expectations. We posted a 4% price increase and benefited from a 2% currency tailwind, which were offset by the 7% volume decline. We will unpack these drivers shortly. The adjusted gross margin rate of 33.3% was strong and towards the high end of our planning range as we continue to deliver supply chain cost reductions, implement tailored pricing plans, and execute tariff mitigation actions. Adjusted EBITDA margin of 13.5% was up by a robust 330 basis points year over year. Adjusted earnings per share were $1.41. Fourth quarter free cash flow was over $880 million, a very strong result as we effectively managed working capital while continuing to optimize our operations and supply chain. Turning to our fourth quarter operating performance by segment. I'll start with Tools and Outdoor. Fourth quarter revenue was approximately $3.2 billion, down 2% year over year. Organic revenue was down 4%, as a 5% benefit from targeted pricing actions was more than offset by 9% of volume pressure. Currency contributed a 2% benefit in the quarter. We successfully implemented our second price increase of the year in our US tools business, a low single-digit increase this time, with full implementation in the fourth quarter. The volume decrease was largely due to power tool demand dynamics in retail channels in North America and a soft market backdrop in North America and other developed markets. Much of the US tools retail volume headwind was experienced with opening price point products and in select promotional areas, as consumers have gravitated towards promotions during these uncertain economic times. As we've mentioned previously, we have expected consumer, competitor, and channel response to the meaningful tariff pricing would take a while to shake out, and then our top line could be volatile during this period. We see the fourth quarter result as an indication of this. We expect top line volatility through at least the first quarter as competitors continue to take price and as we tune our approach to promotions. Tools and Outdoor fourth quarter adjusted segment margin was 13.6%, up 340 basis points year over year. Margin expansion was primarily driven by higher pricing, tariff mitigation, and supply chain cost reductions. Now for additional context on the top line performance by product line in the fourth quarter. Power tools organic revenue declined 8%, largely resulting from factors consistent with my previous comments, and partially offset by professional strength in the commercial and industrial channel. Hand tools, accessories, and storage organic revenue was flat, as strong professional-grade power tool accessory performance was offset by hand tools due to conditions observed across the broader segment. Outdoor revenue increased 2% organically, driven by strong preseason ordering for 2026. The independent retail channel also exited the year with normalized inventory levels. These factors are both indications of a solid setup for growth in 2026. Now tools and outdoor performance by region. In North America, organic revenue declined 5%, reflecting trends consistent with the overall segment performance. In Europe, organic revenue declined 3%. Growth in key investment markets, including Central Europe and Iberia, was offset by softer market conditions in other parts of the region. The rest of world organic revenue declined 4%, primarily due to market softness in Asia and South America. On a full year basis, Tools and Outdoor organic revenue declined 2% due to the aforementioned factors impacting the fourth quarter, combined with the midyear tariff-related promotional reductions. Full year POS demand was in the same zone as the organic change. DEWALT successfully overcame broader headwinds and posted low single-digit organic growth for the full year, including organic growth across all product lines and regions. Our success was underpinned by prioritized marketing activation and accelerated innovation initiatives, both of which I've highlighted as strategic imperatives at Stanley Black & Decker. A prime example of these imperatives in action is the launch of our Atomic 20-volt max cordless grinder suite. Designed for high performance and mobility in tight spaces, this new product lineup allows users executing demanding applications to transition from pneumatic to cordless. The fabrication trades, particularly fitters and welders, some of the most demanding applications in the field. Our dedicated team of trade specialists are actively in the market now offering hands-on experiences to end users to convert this high-power sector of tools to enjoy the benefits of a cordless compact tool without sacrificing performance. There are also several differentiating features, such as the DEWALT Perform and Protect anti-rotation to maximize user control, and the option to pair with ToolConnect for job site asset management, to name a few. Our platforming method enabled a swift launch of these tailored solutions, adding to our more than 300 product 20-volt max system for the toughest job sites. We intend to continue setting the industry benchmark and redefining the threshold of productivity for our end users. Turning now to engineered fastening. Fourth quarter revenue grew 6% on a reported basis and 8% organically. Revenue growth was comprised of a 7% volume increase, 1% higher pricing, and a 1% currency tailwind. This was partially offset by a 3% headwind from the previously disclosed product line transfer to the Tools and Outdoor segment. This is the final quarter where this impact will be a factor. The aerospace business continued its strong trajectory, achieving 35% organic growth in the quarter. The automotive business delivered mid-single-digit organic growth, reflecting strong sales of our systems for auto OEMs. General industrial fasteners organic revenue declined low single digits. Adjusted segment margin for engineered fastening was 12.1% in the quarter. Year over year expansion was primarily driven by higher volumes, modest price increases, and strong cost controls. On a full year basis, the engineered fastening segment delivered 3% organic revenue growth. This included high single-digit organic revenue growth in the second half, which more than offset the end market pressure experienced during the first half of the year. Overall, both the tools and outdoor and engineered fastening segments delivered margin rates in line or better than expectations this quarter through disciplined execution, targeted pricing strategies, and continuous improvements across our operations. I would like to thank our team for their resilience and commitment to serving our customers and achieving these results. I will now pass the call to Pat to discuss progress we achieved on key performance metrics and to outline our 2026 planning assumptions. Patrick Hallinan: Thank you, Chris, and good morning to everyone joining us today. During the fourth quarter, we delivered significant progress on two of our top strategic priorities, expanding gross margins and improving the health of our balance sheet. I'll begin by taking a closer look at our gross margin performance. In the fourth quarter, we delivered an adjusted gross margin of 33.3%, a 210 basis point increase over the same period last year. This is a meaningful accomplishment achieved through pricing, tariff mitigation, and supply chain cost reductions. These factors were also the drivers of the company's full year performance of 30.7% adjusted gross margin. This represents a solid 70 basis point improvement compared to the prior year, an achievement made even more impressive given the broader market volatility we faced. I'd like to commend our team's outstanding execution as we encountered unprecedented tariff rate increases that began during the first quarter and peaked in April. The team's swift adaptability limited the gross margin decline to just one quarter before we resumed our positive year-over-year margin expansion trajectory in the second half of the year. As Chris mentioned, our global cost reduction program achieved its targeted objective, having delivered $2.1 billion of pretax run rate cost savings in total, including approximately $120 million of incremental savings in the fourth quarter. Operational excellence is one of the company's three strategic imperatives. Going forward, we expect operational excellence to remain a strategic imperative and to target gross improvement of 3% of net spend annually. Looking ahead, we remain fully committed to achieving adjusted gross margins that are above 35%, a long-standing objective that continues to guide our efforts and priorities. We continue to aim for reaching this milestone by 2026. Now turning to our cash flow and year-end leverage results. We generated $883 million of free cash flow in the fourth quarter, bringing the 2025 total to $688 million. This performance surpassed our planning assumption of $600 million, driven by disciplined management of working capital, particularly in receivables and inventory. Our capital deployment in 2025 was consistent with the progress of recent years. As we reduced debt by $240 million, returned $500 million of cash to shareholders via our dividend, and also invested greater than $100 million in growth initiatives to fuel brand building and innovation. This approach underscores our ongoing commitment to deliver value to our shareholders while strengthening our financial position. In just the past two years, we have taken significant strides in reducing our net debt to adjusted EBITDA leverage ratio, bringing it down by two and a half turns. We have reduced debt by $1.3 billion, supported by working capital efficiencies and organic cash generation, and increased adjusted EBITDA by $500 million or 44% over this two-year period. In December, we announced a definitive agreement to sell our CAM business for $1.8 billion in cash. We expect net proceeds after taxes and fees ranging between $1.525 billion to $1.6 billion. We will apply these proceeds to pay down debt, supporting incremental leverage reduction of one to one and a quarter turns in 2026 and positioning the company to meet our target leverage ratio of at or below 2.5 times. Achieving this critical financial milestone will provide us with greater flexibility. We will be well-positioned to respond to market dynamics, invest in growth, and enhance shareholder value creation. We are committed to maintaining a solid investment-grade credit rating to support our brands and our businesses, and we will continue to allocate capital thoughtfully with organic value creation the priority. Overall, our capital allocation priorities remain consistent with those communicated at our 2024 Capital Markets Day. Funding organic growth investments that drive long-term value continues to be our top priority. The company also remains committed over time to maintaining a strong and growing dividend and has a preference towards opportunistic share repurchases, which reflect our confidence in the company's future. In recent periods, our excess capital has been deployed to reduce debt, but following the CAM transaction, we anticipate having additional options for capital deployment, always guided by our disciplined approach and focus on organic shareholder value creation. Now let me walk you through our planning assumptions for 2026. We anticipate that 2026 will be another year of progress towards our key financial objectives, though we do not expect progress to be linear, as peak 2025 tariff expense and second half 2025 volume deleverage rolled off our balance sheet into first quarter and first half expenses, and as macroeconomic and geopolitical uncertainties continue. Despite this backdrop, we expect to make meaningful progress towards our objective as we did during 2025. For 2026, we expect adjusted earnings per share to be in the range of $4.90 to $5.70, representing growth of 13% at the midpoint. This planning assumption includes a half year of CAM results. We are working to close the CAM transaction during the first half, though the actual closing date is subject to customary regulatory approval. We expect CAM to contribute quarterly sales of approximately $110 million to $120 million and quarterly segment profit of approximately $10 million to $20 million in each of the first two quarters, which includes expected corporate and segment allocation. We are targeting free cash flow generation of $700 million to $900 million for the year, reflecting our expected continuation of strong cash flow conversion. This will be accomplished through a disciplined and efficient approach to working capital management, progressing inventory towards pre-pandemic norms, while remaining attentive to our ongoing tariff mitigation and footprint optimization initiatives. We are planning total company revenue to grow in the low single digits year over year, with organic revenue also expected to grow at a similar rate. This outlook reflects our focus on pivoting to growth and our confidence in seizing share opportunities across our key markets. This revenue outlook includes an expectation of 50 to 100 basis points of benefit from foreign exchange, which should predominantly benefit the first half. There are two important revenue dynamics to appreciate for 2026. First, there is a second half year-over-year impact of the CAM divestiture. Second, we will be transitioning our gas-powered walk-behind outdoor product lines to a licensed model during 2026, which will enhance margin and returns but will result in a reduction of in-year revenue. Let me provide more detail on this gas-powered product transition. Starting around the middle of the year, we will move away from manufacturing gas-powered walk-behind outdoor products ourselves, and instead adopt a licensing model for these products. The impact of this change will not be reported in organic revenue performance and will be a separate factor. This product area represents a lower margin portion of our outdoor portfolio and a shrinking part of the outdoor market. Importantly, the strategic shift does not alter our long-term view for outdoor, particularly as we advance the electrification of our product lineup. We expect this change to result in a revenue reduction of approximately $120 million to $140 million in 2026, and another $150 million to $170 million reduction in 2027, with most of the impact to be realized in 2026 and 2027. We expect this business model transition to enhance margins and returns. This business model change is already contemplated in our sales, margin, and EPS guidance. Moving to gross margin expectations. We anticipate adjusted gross margin will expand by approximately 150 basis points year over year, supported by top-line expansion, price, ongoing tariff mitigation efforts, and continuous operational improvement. We expect year-over-year gross margin improvement in both halves of the year, though as indicated in my earlier comments, first half margins will reflect headwinds from tariff expense and under absorption from 2025. Our planning assumes that tariff levels remain at current levels, and we will continue to progress our tariff mitigation initiatives. Our planning reflects margin recovery from tariff mitigation efforts. We plan to continue growth investments in 2026 to further advance our robust innovation pipeline and fuel market activation with the goal of enhancing brand health and accelerating organic growth. We expect SG&A as a percentage of sales to remain around 22%. We will continue to manage SG&A thoughtfully, preserving strategic investments that position the business for long-term growth. Looking at our segments, we are planning for organic revenue growth and segment margin expansion across both segments. Tools and Outdoor is expected to deliver low single-digit organic growth in 2026, with an emphasis on market share gains in what we anticipate will be a roughly flat market characterized by continued uncertainty. Organic revenue in the first quarter is projected to be down in a low single-digit range, reflecting North American retail dynamics like those in the fourth quarter, ahead of full implementation of promotional adjustments and changes to opening price points in nonstrategic brands and product categories. We are confident in our plans to drive organic revenue growth beyond the first quarter as we start lapping the price increases and promotional disruptions that started in the second quarter of 2025 and as we refine some of our promotional strategies. We expect to see sales trends improve from our new product launches and commercial initiatives with a focus on outperforming the market. Adjusted segment margin is expected to improve year over year, driven primarily by price actions, tariff mitigation, operational excellence, and thoughtful SG&A investment. Engineered fastening is planned to grow mid-single digits organically, with comparatively strong performance in the first half reflecting an anticipated half-year contribution from CAM. Our other two businesses, excluding CAM, are expected to deliver low to mid-single-digit growth for the year. Adjusted segment margin is expected to improve year over year, primarily due to continuous operating cost improvement and volume leverage. Turning to other 2026 assumptions. Our GAAP earnings guidance of $3.15 to $4.35 includes pretax non-GAAP adjustments ranging from $270 million to $345 million, primarily from footprint optimization actions, with approximately 20% of the total representing noncash charges. Now for additional planning assumptions on the first quarter. We are planning for net sales to be around $3.7 billion, down roughly 1% year over year due to a solid 2025 comparable. Adjusted earnings per share are expected to be approximately $0.55 to $0.60. In the first quarter, our earnings contribution will be impacted primarily by the timing of tariff cost realization as peak 2025 tariff expense rolls off our balance sheet into the first quarter income statement. We anticipate the first quarter will reflect the highest level of tariff expense on the P&L, which combined with the second half 2025 volume deleverage offsets pricing and productivity initiatives. As a result, we expect adjusted gross margin rate to be roughly flat year over year. Additionally, our adjusted EPS for the quarter assumes a planned tax rate of approximately 30%. In summary, 2026 is set to be another important year for our company. With a strong foundation set, sharpened portfolio, disciplined cost and capital allocation, and a relentless focus on customers, we are well-positioned to deliver growth and create long-term value for our shareholders. Thank you, and I will now turn the call back to Chris. Christopher Nelson: Thank you, Pat. With a strong foundation in place and with a significantly simplified and focused business, we believe our future success will now be determined by how effectively we execute our strategy, which is firmly anchored by our three strategic imperatives: activating our brands with purpose, driving operational excellence, and accelerating innovation. As Pat outlined, we are continuing to proactively manage factors within our control to effectively navigate evolving market conditions and make progress towards achieving our goals. We believe our planning assumptions for 2026 are balanced given the elevated levels of global uncertainty, and we remain committed to driving towards the long-term goals outlined during our November 2024 Capital Markets Day. We expect to achieve the following level of performance in 2028: mid-single-digit sales growth, 35 to 37% adjusted gross margins on a full-year basis, accompanied by adjusted EBITDA margins of mid to high teens, cash flow conversion of net income approximating 100%, cash flow return on investment margins in the low to mid-teens. This will all be complemented by disciplined capital allocation and asset efficiency. As Pat and I discussed, we are focused on significantly deleveraging our balance sheet this year, which goes hand in hand with continuing to have a solid investment-grade credit rating. For clarity, the assumptions that underlie these 2026 to 2028 targets are that our markets are growing by low single digits, that the inflationary/deflationary environment is reasonable, avoiding the extremes of either. Finally, these goals assume the current tariff landscape. As we look ahead, I am energized by the opportunities that lie before us, and I'm confident in our strategy. With a clear vision for 2026, we are building on our hard-earned momentum to serve our end users and create lasting value for our stakeholders. We are now ready for Q&A, Michael. Michael Wherley: Thank you. We will now open for questions. Our first question comes from Julian Mitchell of Barclays. Your line is open. Julian Mitchell: Hi, good morning. I just wanted to dial in a little bit more into the cadence of the gross and operating margin performance for the year. I think you said gross margin is flat year on year in the first quarter, up 150 points for the year. So just trying to understand, does that imply in, say, the fourth quarter, you're up 300 points or something, and maybe flesh out a little bit, you know, how quickly that gross margin improvement happens? Do we see it in the second quarter example, growing year on year? Thank you. Patrick Hallinan: Hey, Julian. Good question. Certainly, a lot of moving pieces in gross margin as we head into 2026. You know, I'd say the cadence throughout the year is we expect, you know, the first quarter to be around 30 and a half, the second quarter to be between that and maybe 31, and then the back half to be for each of the third and the fourth quarter in the 34 to 35% range. And the reason for that, a bit maybe unanticipated gross margin cadence coming off of the 33.3 in the fourth quarter is we do have affecting both the first and the second quarter, peak tariff expense across the two years. Our quarterly reported tariff expense in the first quarter and '26 will be at their peak. We have the volume deleverage which was effectively under absorption in the back half of '25 rolling off the balance sheet, affecting both quarters, and that under absorption came from the volume declines associated with tariff pricing. As we said before, as we went into tariff pricing, we were emphasizing margin preservation with our pricing and mitigation actions and service level by keeping that capacity in place, but it does have a deleverage effect as an expense in the first half of the year. And roughly, you can kind of think of those as, you know, tariffs are about 100 basis points a quarter or maybe slightly less than that, and deleverage is 100 basis points or more than that in one of the in those two quarters. So you're kind of between the two of those factors, you're losing about 200 basis points a quarter in each of the first and the second quarter. You know, whether you're looking kind of sequentially coming off Q4 or whether you're looking for what would typically be the 200 basis points of margin improvement year over year. It's kind of the same way you look at it. You're both getting affected by tariff expenditure rolling off the balance sheet, and volume deleverage rolling off the balance sheet. The good news is we've already got actions underway in the form of tariff mitigation and in the form of production cost reduction as we kind of recalibrate our plans for the volume realities. So we started those actions, as you can imagine, in the back part of last year. We accelerated them in the fourth quarter. We'll continue with tariff mitigation throughout the year, but that's pacing well. And we'll do a bit more capacity resizing in the early part of first quarter. So by the time we get through with the first half, we'll kind of have neutralized those headwinds. And therefore, that expansion in the back half becomes, you know, much more manageable because we've kinda rightsized plant capacity. We've accelerated tariff mitigation. In the launching off point for the back half. Means that those back half year over year margin improvements are much like our annual continuous improvement, and we have the plans in place to deliver those. Operator: Thank you. And our next question comes from Nigel Coe of Wolfe Research. Your line is open. Nigel Coe: Thanks. Good morning, everyone. Thanks for the question. I just wanted to pick up maybe on the tariff mitigation measures, Chris. It doesn't sound like price is part of that. And I'd like I'd just I'd just like you to touch on the fact that you mentioned, you know, consumers are a bit more promotional sensitive. So maybe just address the price elasticity as part of question. But I'm more interested in really in the tariff mitigation and the measures you're taking around supply chain and other factors to, you know, USMCA to to mitigate those tariffs? Christopher Nelson: Sure, Nigel. Good morning. Nice hearing from you as always. So I'll start with the tariff mitigation, and just to make sure I rebaseline everybody is that we we started with the premise, as Pat said, that we're gonna continue to emphasize the service levels for our customers, which we've done very well. We're we're actually at all-time highs right now from recent history, as well as making sure that through mitigation pricing actions, we would be covering margin and cash going forward. If we start with the specific operational mitigation plan I think you're referencing, you'll remember recall that rough order of magnitude, we were importing about 20% of a little bit less than 20% of our volume, for North America sale from China. And we had talked about, by the end of this year, 2026, largely being out of China for US consumption less than 5%. Those actions are a multiple of actions whether it was transferring from China to North America, whether it was taking dual, dual qualified SKUs and starting the production in North America versus exclusively in China. And we are we are pacing ahead of those mitigation transfers, vis a vis what our plan was. So we are comfortably on a glide path and actually a little bit ahead of the glide path in order to be at that level of essentially being out by the end of the year. So that's that's that. And I I I would just be remiss to say that, you know, in all of this, the amount of work that the team has done to get us ahead of the game is is really admirable. And as we talked about when Pat said, you know, a little bit of the capacity rolling off, you'll a part of that is intentional because as you can imagine, as we're moving production around the around the world, we wanna make sure that we have the appropriate amount of capacity to receive that in in location. And we'll start to be able to study that as we go. Secondarily, on USMCA, I had previously say said that we started at less than a third of our products that were USC USMCA qualified. And we said that in the medium term, we saw no reason that we would not be able to be at or around industry averages. For what that USMCA qualified percentage of imports would look like for a company, an industrial company, such as ourselves. We actually are making great progress in that area, and we see absolutely no barrier to be at, or maybe slightly above what that industry average would be, and we're we're pacing once again, ahead of making that you know, I think we had talked about that being in a, you know, eighteen month to two year time frame. We're pacing nicely ahead of that right now. So the operational mitigation is going very strong, and we actually feel that that is, you know, a big part of, you know, what we'll be able to continue to do to deliver continue to deliver the margin expansion that that Pat referenced. I think that you you asked a little bit about the volume in April as well as what that means from a pricing perspective. So I would just say, if I think about April and what we saw, you know, I think there's a couple of things in there, Nigel. One would be that, you know, there was there was certainly in in the market and I think specifically in North American and retail, and this is I think a common thread that we've seen in a lot of different people's releases. It was just a softer market backdrop. Secondarily, that in that environment, in our industry in particular, as you think about the pricing actions that have been taken, we saw a particularly noted sensitivity in what pricing sensitivity in the opening price point products and brands. And, you know, I an example of that, Nigel, would be our, you know, our cleaning and vacuum business and our Black and Decker branded portfolio, which are both reported in our in our power tool results, those are in on that line where people are looking at know, should I be trading down and what is the right value of that I should be taking a look at. So that is where we where we have a look at making sure that we understand, are we appropriately making the price volume margin trade offs in those OP type of products, and we're working through those, those plans as we speak there. And then secondarily, you know, yes, it was we saw more more consumers and buyers looking for promotions. And, you know, I think that that's that's would be expected in an environment like this. And we will continue to know, kind of tweak and modify our promotional assortment and promotional plans as we go forward to adjust it. These are these are minor types of issues that we we understand what's going on, and we have the actions in place to address them. And they're they're around the edges to be sure. Because if I just bring back once again and reiterate you know, where we started and saying, wanted to make sure that we were pricing and mitigation mitigating for for preserving our margin to make sure that we had the right margin structure for long term investment and growth of our core brands. That's where we are, and we've accomplished that very nicely. And we also said that we expected a level of volatility as all of this plays out, and we're seeing that now. And I would expect that volatility to continue to play out because candidly, you know, there has been a large shock put into our industry, and people are adjusting their promotion approaches as we go in a post tariff pricing world. And, you know, and even right now as we continue as we speak, more pricing is going into the market from different members of the competitive set. So I think that this will continue to monitor and adjust around the edges where necessary, but we're we're very happy with where we are, and we're very confident that we understand the issues from a pricing perspective and that we're right on where we wanted to be from actually the strategy that we laid out from the very beginning of this, of this episode. Operator: Thank you. And our next question comes from Timothy Wojs of Baird. Your line is open. Timothy Wojs: Hey, guys. Good morning. Chris, I had a follow-up on that question and then just my question. So the follow-up is you know, the tweaks that you're making, you know, to some of the promotional cadences and and price points and things. Is that really more of a reaction to what the consumer and how they're reacting to to price? Or or is it more competitive? So that's my follow-up question. And then the question I have is just on volume. You do kind of expect it does seem like you kind of expect volume to start to improve at at some point in 2026. How much visibility, I guess, do you have that you know, do you to that? Any sort of kind of specific share gains that you could kind of talk about it, you know, outside of just having some easier volume comps as you kind of work through the? Christopher Nelson: Yes, Tim. Thank you. It's great hearing from you. I mean, I would just start by saying that everything that we do is going to be in response to what we see our end users and our buyers and our customers doing. And I think it's obviously, there's a byproduct of what the competitive set is doing, but we are we are looking at our core end users and and customers by segment. And these are tweaks around the edges that you would expect to modify as we go forward. And I think that, you know, I I can't completely tease the two apart because as I said, you know, right now, there are still pricing actions being taken in the market by the competitive set. And, obviously, we'll keep that as a part of what we monitor as we make the modifications. Now was it as it relates to the to the promotional question you asked, these are, you know, these are things that are they're normal. They're normal course of business as you think about how you set up your promotional plans, and their normal mode of modifications that we go through on a on an annual basis. I think what is different is that because we have gone through a step function change in pricing, getting those levels dialed in to understand exactly where our models say that we're getting the the absolute optimal trade off between the volume and the margin, we're just working through those in certain highly sensitive SKUs but they're they're minor adjustments for us to make going forward. And, you know, we're we're once again reiterate, we're confident that that we're on the path to being do so. And know, it'll it'll be kind of those those things will be able to be in place going into Q2, and we'll probably see them in Q2 and Q3. From a volume perspective, I'd say that the most encouraging thing that we see is that through all of this, we have continued to see a very strong professional market. And our, you know, our professional channels and the the construction and industrial channel was a nice nice growth generator in in Q4, and we see that continuing. And as we get the different kind of kind of opening price point branded type of work done in in the retail segment as well as our promotional line. That underlying momentum that we're seeing there, I think, is gonna be a nice it's a nice indication that the overall strategy that we've laid out is is is actually paying dividends. We'll continue continue to grow. So, yes, that there would be, nice indications underlying that we see the volume opportunity for 2026. Operator: Thank you. And our next question comes from Christopher Snyder of Morgan Stanley. Your line is open. Christopher Snyder: Thank you. I appreciate the question. If we you guys talked a couple quarters ago about an that the tariff related price increases on the industry would maybe like, a one for one elasticity, on volume. Know, if we look over the last three quarters, you know, it seems like the elasticity has been more significant than that. The volume declines have been steeper than the price increases. So I guess, is that just a function of, you know, some of the soft consumer backdrop that we've talked about? Could it be a function of, you know, maybe something Stanley specific and maybe that could change as competitors push more price? In '26 per some of the earlier conversation. But just any color on that? And what could maybe cause that to get better over the next twelve months? Thank you. Patrick Hallinan: Yeah, Chris. You know, that's certainly our expectation as we went into, this pricing dynamic, which started in the second quarter. And, you know, for the first two quarters, you know, our overall results were very much in line with that expectation. I mean, you could tell by the results we reported in the fourth quarter, we did see an elasticity that was greater than that one for one level. And, you know, consistent with, some of the points Chris made in the last couple questions, I said, you know, we we see that heightened sensitivity was was really concentrated in opening price points and a few promotional areas. And as we expected all along on this journey because we and other players in the industry, both, manufacturers and retailers, took prices at very different time points in very different manners that we'd all be adjusting along the way, and there'd be some choppiness along the way. And we think you know, the fourth quarter was an indication of that choppiness. We probably have another at least first quarter to go, of some of that choppiness. But we think with very manageable and modest adjustments to promotional rhythms and levels and a few targeted opening price points in some nonstrategic brands. That we get back into that one to one zone, is our expectation, we think. That's, you know, very much within the manageable boundaries of of all the things we're navigating during the tariff jolt that's impacting the industry. Operator: Thank you. And our next question comes from David MacGregor of Longbow Research. Your line is open. Joe Nolan: Hi. Good morning. This is Joe Nolan on for David. You guys talk about being focused on paying down debt after selling the aerospace fastener business. Can you just talk about plans to invest in growth in the Craftsman and Stanley brands? And just how you expect to see share gains there and margin improvement in these brands in 2026. And just along with that, if we see the DIY space remain a little bit softer, just how much progress you can make in those spaces? Thanks. Patrick Hallinan: Yeah. Joe, I'll start and give you kinda some of the financials, and then I'll let Chris talk about some of the things going on with the Stanley and the Craftsman brand, which we're very excited about, and we do expect to see sales inflections in both of those brands this year, 2026. You know, from a pure kind of financial framework, as we stated on the call, you know, we'll get the proceeds from this transaction and pay down debt and get very much you know, at or below the two point times net debt to leave to EBITDA threshold, we certainly plan to persist a growing dividend, but that should still result in additional capital flexibility that we'd probably more likely been biased to pursue share repurchases as an export of call. As it pertains to investments in the brands, we certainly, in 2026, expect to be making an incremental $75 million to $100 million greater investments in the brands versus 2025. And, you know, you see our SG&A for the year will be up somewhere in that $90 to $100 million range. And what's happening inside of SG&A is the brand investment is going in, but we continue with SG&A efficiencies elsewhere. So elsewhere, the efficiencies are offsetting the things like merit and benefit inflation and offsetting some of the overhead that gets stranded with CAM. And that just leaves our year-over-year SG&A cadence really reflecting the incremental investment in the business. But we don't see the investment in the business going beyond that kinda incremental $75 to $100 million in 2026. But Chris can talk a little bit about what's going on with Craftsman and Stanley. We've making investments in those brands. Over a twenty four month plus horizon, and we expect those investments to result in inflection this year. Christopher Nelson: So thanks a lot, Pat. You know, Joe, great question. What I'd say is that I just take us to the beginning and and, you know, if you remember the beginning of the of the when I started talking about this, it was we made the conscious decision to start having our investment towards DEWALT out of the gate. It was, you know, in the professional segment, you know, greatest scale as well as had the most, what we thought clear, quick payback on those. Quickly following that, we started, as Pat said, you know, in the you know, you know, twenty four months ago to then, layer in incremental investments in both Stanley as well as Craftsman. As our other core brands. And, specifically, we're gonna start to see the fruits of that what we've been putting in for the past twenty four months and specifically a lot of the last twelve months, as we come into this year, we'll continue to invest. Let me give a little bit of color to that. I would say that from a product perspective, Craftsman and Stanley are going to see the some of their largest new product launches from a from a a kind of quantity perspective in, you know, in certainly recent history as we're launching a a large suite of Craftsman 20 v 20 products in 2026 as well as, you know, as we've talked about before. We put in a lot of work into redefining and refreshing the Stanley lineup, and that is now coming in as we speak right now in the lineup and being launched into our channel with our channel partners. So we're very excited about the and what we see there, and I think that's gonna be a nice inflection point that we can see coming. Secondarily, with those brands, and I'll talk about Stanley specifically, for example, you know, which the the majority of Stanley sales are outside The US, and we have been putting in, you know, dedicated sales and and, you know, feet on the street for that STANLEY brand. Specifically in the the European hand tools market. That we are seeing pay dividends and as we continue to build demand and shelf space in what is a very professional market in Europe for those those products. We see that being something that will continue to pay off. We've started to see certainly the inflection already. And then from an activation standpoint, I would say that, you know, we are going to be this year really amping up our efforts in, in social spend. We're gonna be, you know, spending, you know, at or above what I think is the highest level we've done, in the history of this company on those brands. So we're very excited about the progress obviously, that we've been talking about and we've seen the results on. In in DEWALT, and I would anticipate seeing that this year, probably Stanley will be a little sooner than Craftsman. We'll see, Craftsman inflect in the back half of the year as well, but we're we're we're really excited about what we have, and they're they're tangible things that are have been in progress for a couple of years that are now being launched in the marketplace. Operator: Thank you. And our next question comes from Robert Wertheimer of Melius Research. Your line is open. Robert Wertheimer: Question is a little bit about margin trajectory and just drivers beyond 26. I wonder if you can comment on what your kind of rate of inflation, your natural rate of inflation is running. Does productivity fully offset that? And so kind of margin gains from here are are price led? Is the idea that the 3% productivity will give you tailwinds versus your cost structure? I'll stop there. Thanks. Patrick Hallinan: Yeah, Rob. Good question. I'd say beyond '26, as I think both Chris and I mentioned, in the opening comments, we're pursuing gross annual savings roughly in the ballpark of 3% of our cost structure, which is, you know, call it $300 million in that ZIP code. Those are gross savings. You know? And every year, you get a manner of wage and benefit inflation inside of our COGS cost structure, plus you get you know, materials inflation and deflation that tends to be kind of net inflationary predominantly driven by metals. You know, I'd I'd say that that leaves you with usually a net savings after inflation. You know, in in the, you know, 100 ish million dollar range. Which allows you to make choices on incremental margin expansion, and or investment in the brands. I'd say that's that's kind of our structure going forward. And, you know, we'll manage SG&A relative to overall volumes. So, you know, we'll manage SG&A up and down with the volume in the business. And I'd say, you know, our our pricing in the business will be will be driven by innovation and brand building, you know, that know, that can be in place, you know, should material inflation get outside of any kind of normal band. But I'd say that's our our margin algorithm going forward that you know, you should expect, you know, pricing to be something when you get high side, margin or material inflation rather or things like tariffs. That itself help inside of COGS elsewhere and that we kinda manage SG&A to deal with with volume. Versus SG&A inflation. Operator: Thank you. And our next question comes from Eric Bosshard of Cleveland Research Company. Your line is open. Eric Bosshard: Thank you. I think I understand strategically what you're talking about. In terms of managing pricing and promotion through the first half in order to get better volume? You also talked about some price increases in 4Q and competitors raising price in 1Q. And so I guess what I'm trying to really understand is how pricing behaves 1Q, 2Q and into the back half. Do you sustain the current level of price? Do you get more price? Do the tweaks mean you end up getting less price? Just trying to figure out how that behaves in one Q2 q, and two half. Patrick Hallinan: Yeah, Eric. I don't know that I know it intimately by quarter. I would say for the full year, enterprise-wide, we would expect pricing in the range of plus 2%. It's for the most part, the carry in with the absorption of, you know, kind of modest changes to promotions and OPP that are are baked within that 2% pricing. Obviously, most of that's gonna come in the first half of the year. I I don't know it precisely by first quarter versus second quarter, but mostly, that's gonna come in the form of positive pricing in the first and second quarter, I would assume dominated by the first quarter since we started our pricing in the second quarter of last year. And then be relatively flattish, the third and the fourth quarter. Michael Wherley: Thank you everybody for those questions. We would like to thank you for your time and participation on today's call. If you have any further questions, please reach out to me directly. Have a good day. Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Sammy: Hello, everyone, and thank you for joining us today for the Yum! Brands 2025 fourth quarter earnings call. My name is Sammy, and I'll be coordinating your call today. Alright. Ask that you limit yourself to one question per participant. If you have any follow-up questions, please do rejoin the queue. I'm gonna hand over to your host, Matt Morris, Head of Investor Relations to begin. Please go ahead, Matt. Matthew Morris: Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO, Ranjith Roy, our CFO, and Dave Russell, our Senior Vice President and Corporate Controller. Matthew Morris: Following remarks from Chris and Roy, we'll open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions, and reconciliations of non-GAAP financial measures. Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. Our fourth quarter results reflect the comparison against an extra week in 2024 for business units that report on a period calendar basis. However, all figures discussed on this call exclude the impact of lapping that additional week. For more details on our reporting calendars, by market, please refer to our financial report section of our IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We would like to make you aware that our first quarter earnings will be released on April 29 with a conference call on the same day. Now I'll turn the call over to our CEO, Chris Turner. Christopher Turner: Thank you, Matt. Good morning, everyone. Yum delivered another year of outstanding results at KFC and Taco Bell with our fundamentals stronger than ever at both brands. Looking back at 2025, Taco Bell again gained market share, outperforming the QSR industry with exceptional 7% same-store sales growth and KFC delivered record-breaking unit development while hitting an incredible milestone in opening its 30,000th international restaurant. Both Taco Bell and KFC delivered 10% divisional core operating profit growth, a strong outcome that speaks to the durability of Yum's portfolio and the skillful execution of our team. And these great results build on multiple years of compounding success, as best highlighted by Taco Bell's system sales being up nearly 40% and KFC International units being up over 30% since 2021. What excites me most as I've stepped into the CEO role is not just the strength of our results, but the clarity in how we will continue to grow. Building on our strengths, and elevating our ambition. The combination of our global scale, unrivaled culture and talent, and world-class franchise partnerships create a unique and unbeatable competitive advantage. Our digital capabilities continued to be a powerful sales driver in 2025 as we reached new milestones with digital mix approaching 60% and digital sales growing 20% year over year. We saw growth across all digital channels, including mobile apps, loyalty programs, first and third-party delivery, and kiosk ordering. Investments in the Byte by Yum platform, our loyalty ecosystem, and AI-driven personalized marketing all underpin this incredible top-line momentum. These early wins reinforce our digital and technology strategy. Owning our core digital and technology platforms gives us an edge over the competition. YumScale uniquely positions us to develop common platforms and deploy them across brands and markets, creating a scalable foundation for the next wave of digital innovation. As we move into 2026 and beyond, I'm eager to build on what's working and in collaboration with our leaders thoughtfully apply the insights and ideas generated in my conversations with franchisees, team members, investors, and employees. Our recipe for good growth remains unchanged. Everything we do at Yum! Brands is in service of our mission to grow iconic restaurant brands globally, that are loved by our consumers. Connected through people, systems, technology, and trusted everywhere we operate. All of our work is powered by our unrivaled culture and talent, which remains our greatest strength and most important differentiator. Looking forward, we are raising the bar with clear priorities to drive the next chapter of growth for Yum. This means setting bold aspirations and delivering industry-leading performance. We have three core priorities. The first is battling for the future consumer, with the goal of meaningfully lifting average unit volumes over time. Second, accelerating restaurant-level economics for our franchisees, which will enable sustained, industry-leading unit growth across our brand. And third, reaching the full potential of Byte, leveraging our technology and digital capabilities to create more connected experiences for our consumers, and more profitable growth for our franchisees. One clear example of what raising the bar looks like in practice is Taco Bell. The brand is relentlessly innovating for next-generation growth with clear 2030 ambitions including reaching approximately $3,000,000 in US average unit volume, expanding to 3,000 international stores, and delivering 25 to 26% US restaurant-level margin. This reflects a deliberate multiyear journey focused on battling the future consumer, including expanding digital and loyalty, and new category entry points, which together will drive higher frequency, stronger check, and increasing traffic across dayparts. Combined with leveraging our scale, these initiatives improve four-wall economics and create a more attractive repeatable growth model for franchisees, which in turn accelerates new unit builds. Byte continues to support this progress by enabling more personalized engagement, stronger operational execution, and improved restaurant-level economics. Together, these efforts demonstrate how bold aspiration, disciplined execution, and a clear strategic roadmap can deliver durable growth and attractive return. Another important capability that supports how we raise the bar across the portfolio is Collider, which has been our in-house consumer insights agency for over a decade. In December, Collider published its 2026 food trends report, which highlighted three clear shifts in consumer behavior. First is what we call the me, me, me economy, where consumers are increasingly over-indexing on customization and crave-worthy food. Second is choice therapy, where consumers reclaim a sense of agency through small intentional choices often expressed through sauces and add-ons. And third is vibe mapping, reflecting the importance of delivering affordability that feels good and connects emotionally. These insights shape how we think about menu architecture, innovation platforms, and brand expression across the system, all with the aim of giving consumers what they want, staying ahead of the competition, and taking share. Now let me turn to our full-year results. At KFC, which represents 51% of our divisional operating profit, the brand delivered a strong year with 6% system sales growth resulting in an impressive 10% core operating profit increase. We delivered exceptional results in The UK market, KFC's largest equity estate where relevant limited-time offers paired with disruptive value drove a 10% increase in same-store sales in Q4 and high single-digit same-store sales growth for the year. Our results were strong in The Middle East, where same-store sales growth was high single digits in the fourth quarter, building off of the 13% comp growth we experienced in the fourth quarter last year. As we move into 2026, KFC CEO Scott Mazzinski is leaning into his previous experience at Taco Bell, and leveraging findings from Collider to reengineer the menu and calendar, continuously evolve and modernize the brand, and accelerate net new unit development. On the menu and calendar, KFC will increase the pace of its marketing windows while upgrading its limited-time offerings through partnerships to enhance the brand's cultural relevance. We'll also invest in high-confidence platforms that drive frequency and check growth, including beverages, sauces, and tenders. Leveraging learnings from Saucy by KFC, the team has developed more than 20 sauces creating a scalable platform that allows us to move innovation from limited-time offers to always-on proposition. We are also rolling out our beverage platform, Quench, approximately 3,000 stores this year, while refining our tender offerings by adjusting portion sizes and tailoring crispiness to consumer preferences. Similar to Taco Bell's successful and robust testing platform, the KFC team launched a global innovation hub in September, a centralized database of historical products, tested ideas, and collider concepts that will meaningfully shorten development cycle. The team will pair its higher innovation cadence with profitable low price point products, compelling individual value offers, and expanded daily menus designed to drive traffic while protecting margins long term. At Taco Bell, which represents 38% of our divisional operating profit, the brand continues to fire on all cylinders with full-year system sales growth of 8% and core operating profit growth of 10%. At Taco Bell US, our momentum continues to be driven by sustainable market share gain. Importantly, that growth is broad-based, with increased penetration among higher-income consumers, families, and younger guests. Key growth drivers this year included innovation-led buzz, with National Taco Day and Baja Blast Pie, $5.07, and $9 Luxe boxes, decades2.o, returning favorites like cheesy dipping burritos, and nuggets and fries. Looking ahead, the 2026 marketing calendar builds on this momentum by broadening our core platforms while leaning into key themes that we know resonate with consumers. We're focused on unlocking more growth potential on the road to achieving our 2030 goals by leveraging our magic formula including driving brand buzz through 26 new and tested innovation launches, dominating on value with the new luxe value menu and optimized $5.07, and $9 boxes, and expanding and innovating off our core platforms across beverages, fries, cantina, and crispy chicken. Digital remains a powerful growth lever and is expected to drive nearly one quarter of Taco Bell average unit volume growth in 2026. At Taco Bell International, in 2025, we achieved 5% same-store sales growth with standout performance in Canada, The UK, and Spain. This included fourth-quarter double-digit same-store sales growth in Canada where we successfully launched crispy chicken. We achieved over 15% system sales growth in Europe, where we launched the LiveMOS Club in The UK, laying the foundation for deeper loyalty and e-commerce integration. The team is committed to strengthening its position as a distinctive and culturally relevant brand reinforcing its food leadership by scaling craveable platforms and test future menu icons across key markets leaning into value as a core traffic and relevance driver, and building digital engagement through locally relevant platforms and partnerships. Turning to the Pizza Hut strategic review that we announced last quarter. The process is proceeding as planned and as of now, we intend to complete the review of options this year. We are pleased with the Pizza Hut team's dedication through this process, including their work with franchise partners to strengthen near-term results. Given the ongoing nature of the process, at this time, we cannot share further details on the strategic review. As I look back on 2025, I am proud of our teams around the world who make our iconic brands loved by consumers, trusted by all stakeholders, and connected to the communities we serve. Last year, we expanded access to education, skill building, and employment opportunities for more than 400,000 people. In partnership with our franchisees, we donated more than 4,000,000 pounds of food and supported communities and team members affected by disasters around the world. I extend my heartfelt thanks to all the individuals who made these efforts possible, demonstrating how we lead with heart, which is what makes this company truly special. That's the power of Beyond. Serving up good wherever we operate. As we close, we have iconic global brands with clear growth runways and a commitment to raise the bar. I want to emphasize that our brands are executing with discipline, guided by insight, and grounded in purpose. Most importantly, we have exceptional people. Franchisees, team members, and leaders around the world. This gives me tremendous confidence in our ability to navigate change, take share, and deliver consistent long-term value for our shareholders. With that, Roy, over to you. Ranjith Roy: Thanks, Chris. And good morning, everyone. I'll begin with our fourth quarter and full-year results. Before discussing Yum's balance sheet, liquidity position, and guidance for the upcoming year. Beginning with the top line, we grew our Q4 system sales 5% driven by 3% unit growth, and 3% same-store sales growth. System sales were led by strong Taco Bell same-store sales growth, record-high KFC international unit openings, and robust digital sales growth. Our digital sales topped $11 billion and grew 25% year over year, raising digital mix nine points higher to nearly 60%. For the full year, 5% led by our two largest brands, Taco Bell at 8% and KFC at 6%. Q4 company restaurant margins were 16%. Taco Bell US delivered 25.7% restaurant-level margins, a 50 basis point expansion year over year on 4% same-store sales growth at company-operated restaurants. Full-year Taco Bell US restaurant margins ended at 24.4%, despite higher beef prices year over year full-year margins at Taco Bell US expanded thanks to strong top line and transaction growth. For KFC, Q4 restaurant-level margins were 12.7%, a 60 basis point expansion year over year driven by an improvement of 150 basis points in our UK store margins, and nearly 350 basis points in our US store margins. Q4 ex-special G and A was $337 million, up 5% year over year. Reported G and A of $377 million included $40 million of special expenses primarily related to the Pizza Hut strategic options review. For the year, ex-special G and A was in line with our guidance, up 5% year over year at $1.15 billion. As a result, Q4 core operating profit grew 11% and ex-special EPS was $1.73. For the year, 7%. Excluding the Pizza Hut division, core operating profit grew 10%. Yum! Ex-special EPS for the year was $6.05, up 10%. Moving on to development. We opened over 1,800 new units in Q4, and over 4,550 new units for the year. KFC led unit growth with over 1,100 units opened in Q4 and nearly 3,000 units opened in the year. This is a record base for KFC's gross unit openings, and spanned 105 different markets. Were it not for the Turkey closures in 2025, KFC would have set a net new unit record in 2025. As you may well know, many of our franchisees set their development plans more than twelve months in advance. So the record-setting unit growth in 2025 on the back of a challenged same-store sales environment in 2024 is a testament to the global appeal of the KFC brand, its attractive restaurant paybacks, and our advantaged franchise system. Building upon an already strong system, the KFC team is prioritizing further improvement in paybacks and setting bold goals to drive attractive long-term growth for the KFC brand. A strong network of franchise partners is key to our mission. And we continue to see franchise partners achieve greater scale, advance operational capabilities, and invest in growth. To that end, on January 1st this year, two of KFC's publicly traded partners, Bevyani and Saf announced an intent to merge creating one of the largest food and beverage companies in India. This will bring together two already strong partners, and enhance Deviani's supply chain technology and development capabilities and accelerate growth in one of the largest underpenetrated markets globally. Similar advantages and scale are being realized in other parts of Asia, where the Carlyle Group, which acquired KFC Japan in 2024, has now doubled down to acquire KFC Korea. Underscoring the attractiveness they see in the KFC brand and the long-term white space opportunity. Carlisle has been clear about their intentions. To accelerate KFC's growth across Asia as is evident in Japan, where the pace of net new unit development increased by nearly 70% in the past year. We're incredibly excited to see our sophisticated well-cap franchise partners around the world gain greater scale and further strengthen their capabilities. Which combined with the enormous white space, provides even more reason to believe in the store development opportunity ahead. To illustrate this point, consider Thailand, an emerging market where we have approximately 24 KFC restaurants per million consuming class population today, and where we continue to see strong unit growth. We have many other large markets where the future potential is even bigger. As examples, India has only five, and Brazil, recently under new management, has only two KFC restaurants per million consuming class population today. Turning to Taco Bell development. We opened 228 new units in Q4, our second-highest Q4 ever. We continue to see a very attractive development runway. Anchored by a clear target of reaching at least 10,000 units in North America and 3,000 units internationally. Taco Bell entered five new markets in 2025, and opened 155 gross units internationally, up almost 40% from the prior year. Development occurred in 26 countries, including 10 units or more in each of India, The UK, Thailand, Brazil, Spain, and Canada. International expansion is supported by analytics-driven store development plans, and strong top-line growth leading to improved franchisee economics. All of which reinforces our confidence in Taco Bell's global growth trajectory. Moving to technology. As Chris mentioned, last year was an important year for our technology initiatives. We consolidated our portfolio of leading technology solutions into a single restaurant technology platform unveiled as Bite by Yum. The Bite platform is the only multi-brand, multi-market, QSR technology platform built by restaurant operators, or restaurant operators. We think about Byte's evolution in chapters. Chapter one was about building, integrating, and proving the platform in The US. Chapter two now focuses on product excellence and accelerating adoption across our global system. To make this adoption easier, we've simplified Byte into two interconnected core bundles. The smart ops bundle and the digital ordering bundle. The smart ops bundle includes by point of sale, menu, and kitchen management. And is in over 7,000 restaurants at year-end. The digital ordering bundle includes web and app ordering, menu, and third-party marketplace integrations, and is in nearly 18,000 restaurants at year-end. When including the two bundles, plus more narrow a la carte offerings, at least one byte product is live in approximately 38,000 globally. In 2025, Byte digital ordering bundle expanded to five new markets and processed over 370 million digital transactions. Representing over 60% growth year over year. In 2026, we will deploy smart ops in KFC UK and digital ordering in KFC Australia. Marking an important next phase of expansion. BiTE's benefits are widespread and include operational and consumer-facing impacts. For example, we've delivered up to a 75% reduction in aggregator ordering failure rate through the digital ordering bundle. Within the smart ops bundle, we've had restaurants see up to a 10% increase in consumer satisfaction and up to an 85% reduction in stock outs. Such improvements directly support sales conversion, consumer trust, and restaurant efficiency. Over time, these improvements will continue to contribute to higher same-store sales growth and stronger unit economics in support of our raise the bar ambitions. Furthermore, as the pace of technology change accelerates, our ability to own our data and key strategic components of our technology stack provides a differentiated competitive advantage to stay ahead. For example, at Taco Bell, we are advancing intelligent drive-through capabilities and our next-generation kiosk experience both designed to improve throughput accuracy, and guest engagement. Now on to Pizza Hut. Looking back at 2025, Pizza Hut saw a 1% same-store sales decline globally for the quarter and the year. We were pleased with continued momentum in Pizza Hut International where same-store sales were up 1% with strength in The Middle East, Latin America, and Asia. Pizza Hut globally opened over 440 gross units and nearly 1,200 gross units in 2025 across in Q4, 65 countries. Representing the fifth highest gross new bills in seven decades and a sign of brand health and strong franchise partners. This was partially offset by a few specific franchise situations that resulted in elevated Q4 store closures. As Chris shared, the strategic review we announced in November is progressing according to plan. We have aligned stakeholders on a targeted program in The US. Hutt Forward, that represents a bridge to a longer-term acceleration of the brand. This program includes alignment on a vibrant marketing program modernization of certain technology and franchise agreements, and Yum! Providing a one-time contribution to marketing support, along with the approval of some targeted closures of underperforming units. We have confidence in our Pizza Hut team and the steps they are taking. To help set expectations on key Pizza Hut business metrics for 2026. From a unit standpoint, we expect strong gross openings globally which are seasonally in the back half of the year. In the first half, in The US, we expect approximately 250 targeted closures of underperforming units tied to the HUD forward program, which will result in a decline in global Pizza Hut units in the first half. We expect Pizza Hut Q1 core operating profit to be down approximately 15% driven by the Q1 impact of the one-time Hutt Forward marketing support investments, that will be recorded in franchise and property expenses and G and A growth due to integration costs related to recently acquired stores in The UK. Next, I'll provide an update on our balance sheet and liquidity position as it stands today. Our capital priorities remain unchanged. Maximize shareholder value through strategic investments in the business, maintain a strong and flexible balance sheet, offer a competitive dividend and return excess cash to shareholders. For the year, net CapEx was $293 million consisting of $78 million in refranchising proceeds and $371 million in gross CapEx. We also completed a 128-unit Taco Bell acquisition for $668 million in Q4. When combining dividends and share buybacks, we returned approximately $1.35 billion to shareholders in 2025. Our net leverage ended the year at approximately four times. Subject to market conditions we expect to hold our net leverage at approximately four times moving forward. Turning to 2026 outlook. When excluding the Pizza Hut division, will meet or exceed we are confident the rest of our portfolio every component of our long-term growth algorithm including delivering over 5% net new unit growth. We expect Taco Bell US restaurant level margins of between 24-25%. Excluding Pizza Hut, ex-special GNA will grow mid-single digits, which includes the incremental overhead assumed with the Q4 Taco Bell US store acquisition. Amortization of reacquired franchise rights, which we record in unallocated company restaurant expenses, will increase by $30 million. Again, reflecting the Q4 Taco Bell US store acquisition. We expect interest expense to fall in the range of $500 to $520 million for the full year when excluding any potential debt issuances. We expect our tax rate to be in the range of 22 to 24%. In closing, we are encouraged by the strength and resilience of our business. Significant white space opportunity, strong unit economics, highly capable franchise partners, and clear growth drivers. In 2026, we are focused on raising the bar across all our businesses and completing the review of Pizza Hut strategic options. Positioning Yum for its next phase of growth and long-term value creation. With that, operator, we are ready to take questions. Sammy: Thank you very much. Operator: To ask a question? Please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. Our first question comes from Dennis Geiger from UBS. Your line is open Dennis. Please go ahead. Dennis Geiger: Good morning, guys. Thank you. Appreciate all of the detail on color on the call. Very helpful. Wondering if you could talk a little bit more about some of the comments around accelerating the long-term growth. If there's anything to elaborate on sort of opportunities to accelerate an already strong growth profile, perhaps any high-level color on sort of a potential what a potential increased focus on the Taco Bell and KFC businesses post a strategic review, what that could do. As far as the growth and maybe strengthening that growth even further? Christopher Turner: Yeah. Thanks, Dennis. As we look forward, the business has momentum coming out of 2025, continuing into 2026, As we look at 2026, you've got a lot of great things happening across our two big businesses in KFC and Taco Bell. Of course, the unit development side, KFC delivered a tremendous 2025. You have record gross unit openings for the full year and in Q4. That tells you that paybacks are strong. Our franchisees are strong in KFC International. And with our raise the bar strategy, we're looking to accelerate restaurant economics over the coming years, which will help us to broaden and sustain that strong development pace. Taco Bell, we had strong same-store sales in both US and international. International, 5% same-store sales growth last year. We got back to pace on net new unit growth in Taco Bell. We can continue to build on that in Taco Bell International we feel good about the development trajectory. As we go to the same-store sales side and building to overall system sales. Really excited about what the KFC global team is doing. You saw acceleration on a two-year basis from Q3 into Q4 on KFC. Scott Misbinski and his team, of course, are taking a page from the magic formula playbook at Taco Bell. Scott spent many years there. And you're seeing that come to life in our marketing plans for 2026 and beyond. They're focused on elevating marketing things like the partnerships that we had with Stranger Things in The UK, which led to a plus seven last year in The UK and KFC. New category entry points. We talked about expanding beverages. For example, rolling quench out nearly 3,000 stores this year. Elevating our innovation. We talked about tenders and ensuring we've got the right size the right formulations across markets to resonate with that next generation of consumers. And, of course, expanding flavors through sauces. Loyalty. We'll continue to take loyalty to more markets in KFC, and underneath all of it is leveraging our scale to help franchisees to deliver the right value across markets. In Taco Bell, it's continuing the momentum. The plan is working. You know, we laid out Sean at the event early last year. The path to 2030, we are on or ahead of that plan to get approximately $3,000,000 AUVs. We talked about some of the excitement drivers for this year. I'll just highlight a few that I'm really excited about. The biggest value launch in the brand's history earlier this year with deluxe value menu tremendous items at $3 or less, Our loyalty program continues to grow 23% more members, last year. That's 23% more members where we can have a direct relationship. And then finally, I'll highlight the strength relative to the industry. Taco Bell continues play in a category of one. You sum it all up with the profit plan. We'll continue to be balanced on how we manage G and A. You know, you look at 2026, we were already in our ability to deliver the algorithm even before you take into account those Taco Bell store acquisitions. With that, it just raises our confidence and our ability to deliver or exceed the long-term growth algorithm ex Pizza Hut as we go into next year. Operator: Our next question comes from David Palmer from Evercore ISI. Your line is open, David. Please go ahead. David Palmer: Hey. Yep. Thank you. Good morning. I wanted to follow-up on the prospects for reacceleration in KFC Global Development. And maybe the potential for higher franchise revenue and profitability from the composition of growth in the future as hopefully, the non-China unit growth accelerates There's been some slowdown even beyond the Turkey closures. And wondering if you could give us some you know, reason to feel confident that you can get back to 23 levels of KFC international growth ex China? And I know you've talked about some European markets, for example, having a higher profit per store and that are also underpenetrated. So I'm wondering if there's maybe also a little thing there where your composition of growth could really be a positive for franchise revenue and the profitability of that revenue. And thank you. Christopher Turner: Yeah. Thanks, David. If we focus on KFC global development, hitting on some really important points. And they tie back to the raise the bar strategy. Bad link for the future consumer, which ultimately should result in higher AUV growth, and accelerating restaurant economics for our franchisees, which, of course, is the lifeblood of unit development. To your point, we have really strong paybacks in a number of markets where we get the most development today, China being our biggest development market. But we expect to grow units in all of our markets around the globe. Every country, 150 plus countries that KFC is in, of course, you do that by in markets where the paybacks aren't as strong. How do we accelerate those? And that's what Scott has been team are focused on. It starts with reaching the consumer and driving AUV growth The second piece of that is leveraging our scale to help our franchisees continue to improve margins. So we have focused goals on how over the next few years do we systematically improve paybacks. As we do that, we will unlock white space in those markets. To your point, many of those markets may have higher AUVs. Than some of the places where we get the most development today. They may also have higher royalty rates. So both of those help to build the economic picture over the long term. To give you a few examples of when we get focused on markets, how we can accelerate Let's start with Korea. We've done a lot of work transformation in that market with our partner. In 2023 and 2024, we had five and six net new units. Last year, we accelerated to 39. Italy, we were doing low double digits, 12 units in 2023. Brought in a new partner, got focused on driving growth there. We've done thirty-five and thirty-four units each of the last two years. Japan, we were doing mid-thirties. Development. New partner, focus strategy. We've elevated that to 69 units last year. So you've got these examples of how when we lean in, we can unlock development As I look forward, I'm really excited to see what happens in Brazil. We have plenty of other markets where Scott Myspinski and his team are focused on unlocking that white space that we know is out there. Operator: Thank you very much. Our next question comes from David Tarantino from Baird. Your line is open, David. Please go ahead. David Tarantino: Hi. Good morning. I guess my first question, sticking with the theme on unit development, I guess, I look at your business, excluding Pizza Hut and some of the turkey closures you've disclosed, earlier this last year. Your unit development would have been comfortably above 5%. I think it would be around 6%. For the remaining business. And I just wanted to ask how you're thinking about that growth rate, for I guess, the two you know, big brands and whether commentary this morning has meant that signal that you think you might be able to accelerate that pace, or or you just talking about perhaps trying to continue that type of pace of growth in the KFC and Taco Bell. Businesses. Thank you. Ranjith Roy: Yes. Thank you. Happy to cover that. Look. We we're very pleased with the unit development momentum. We have around the world. Both in terms of near record development in KFC accelerating development in Taco Bell, and this covers multiple markets around the world. Now you you guys are, you know, pointed out around, you know, things around the acceleration and so on and so forth. If you tie that to what Chris Turner just covered in terms of raising the bar, the natural, you know, outcome of that is accelerating development over the longer term. I think also as you think about, you pointed out, you know, how does that flow through to our good growth algorithm? Look. Look. We had a couple of factors in the last year. One, you pointed out turkey closures that obviously have an impact on flow through of net new units to system sales. The other is, you know, we are big believers in the Yum China strategy. They're they're going after consumers with models that have strong paybacks, delivering positive transactions and same-store sales growth. But with mathematically lower AUVs. We're fully supportive of that strategy, but when you couple that with accelerating development as we unlock higher AUV markets around the world along with the higher royalties we have relative to the advantage license fees we get from we we provide to Yum China. Get the double whammy of accelerating growth over time, and we're focused on going after that opportunity. Operator: Thank you very much. Our next question comes from Jon Tower from Citi. Your line is open, Please go ahead. Jon Tower: Great. Thanks for taking the question. I was hoping maybe you could discuss Taco Bell's comp growth in 25%. And specifically, maybe how much of it was traffic driven And then into that a little bit, breaking down how much was increased guest frequency rather than dragging not dragging, bringing in new guests. And then, you know, specifically, where these new guests are coming from with respect to demographics. Are you starting to hit more at the higher income level in '25 and how that sets up for next year. Christopher Turner: Yeah. Thanks, John. Look. Really healthy growth in 2025 in Taco Bell US. If you dig into it, we had, strong same-store sales growth. You know, our numbers would say we were five or more points ahead of the category taking share. If you look at transaction growth, our data would say we're nearly five points ahead of the category. So bringing more consumers on more occasions to our restaurants, That transaction growth was driven by penetration and frequency. And to your point, it happened with a broad range of consumers. We saw transaction growth at all income bands. We did train more higher-income consumers into Taco Bell. Saw transaction growth with younger consumers. And with consumers with families. In fact, from a penetration standpoint, we saw the highest penetration growth in the eighteen to twenty-four-year range. So think about battling for that future consumer. Taco Bell is showing us a great example of how to do that. With that kind of growth relative to category, I think we're taking share broadly. From a broad range of competitors. It tells us that the Taco Bell marketing and value are really resonating. The new category use occasions that the team has added are very well fit to consumer needs. And, of course, as we bring those new consumers in, we're working hard to get them into the loyalty program, which, helps us to build a relationship with them to keep them coming back for the long term and to continue to build frequent over time. I'm really excited. Just wait. You know, watch for announcements around this year's LiveMOS Live event whenever we know, have that, I think we'll all be really excited by what Sean and the team share. When you sum it up for Taco Bell, they're doing a few things together. They have a really cool brand that is incredibly relevant in culture. They are providing craveability providing tremendous value and a convenient experience. Some other brands can do one or two of those things, but Taco Bell does all four of those things incredibly well. That's why they're wetting, and it's proven by their results. Operator: Our next question comes from Christine Cho from Goldman Sachs. Your line is open, Christine. Please go ahead. Christine Cho: Thank you. Great to see the Byte initiatives really moving to the next level. Could you help us understand the current adoption of Byte in The US, to kind of get a sense of the outcomes from the step one? What are some of the primary areas of adoption? How does the PACE of progress compare with prior years? And and feedback you're getting from franchisees? And and lastly, Roy, could you share any latest thoughts on the tech-related G and A into 2026? Thank you. Ranjith Roy: Thanks, Christine. I'll take both those questions. Look, we mentioned in the prepared remarks, The US market is where Byte has the highest penetration today. I would say that most of its components are active in the Taco Bell US system. And that and you're seeing that not just in in in how it works in making the restaurant operations efficient, but also in consumer-facing technologies that enable the marketing teams to drive better outcomes on the top line. You know, we're we're also fairly penetrated, I'd say, in in the Pizza Hut system in The US. We we we need to do more penetration plan to do more penetration in KFC over time. You know, obviously, from a deployment perspective, you know, the focus is on into selected international markets, proving it out, and then scale it. There's a massive opportunity in the years ahead. In addition, we're not taking our eyes off the ball in terms of maintaining and upgrading technology that's already deployed. That includes various initiatives both between the Byte teams as well as the Taco Bell technology teams. And we're continuing to make investments in that respect. Our investments are going to be prudent as we deploy and update technology. And we'll continue to bend the curve on g and a. But to be clear, we are still investing in technology on behalf of our system, and it's an important component of us raising the bar. All of this is incorporated into our confidence in delivering the algorithm or above this year. Thanks very much. Operator: Our next question comes from Jacob Aiken Phillips from Melius Research. Your line is open, Jacob. Please go ahead. Jacob Aiken Phillips: Hey. Good morning. I I I just wanted to continue. Of the bite question a little bit. I appreciate you breaking it down into more easily communicable parts. But so in internationally, you're you're making strides and I'm just curious what's currently the gating factor for further international expansion Our new restaurants are opening up internationally coming with bite components. And then any color can you can give on like, the timeline once it's implemented in the restaurant, when do you start seeing benefits and and how does that mature? Christopher Turner: Yeah. Jacob, you know, as we talk about reaching the full potential of BiTE, of course, part of that is where we have BiTE deployed, how do we continue to innovate, and stay ahead on behalf of our franchisees the competition. But the other part of reaching the full potential of Byte is taking it to more of our international markets. We introduced it to our international franchisees last year. The steps that are involved, you have to be thoughtful as you deploy. You certainly evaluate the BiTE benefits relative to the technology systems that are currently in those markets, then once you aligned with the franchise partners on the upside from implementing Byte, You then think through the implementation plan, and you wanna be very thoughtful particularly on the smart ops side. You wanna be very thoughtful about how you implement the restaurant, how you work through the change management with the team members. So it's a process. That's why this will be a journey that takes, time. We talked about a couple of the big markets and deployment that we'll be focused on this year. So this will be a steady expansion, but we look forward to getting byte into more and more markets so that our franchise partners can benefit from it. And our marketing teams can leverage the bike capabilities to better connect with consumers. Operator: Our next question comes from Jeffrey Bernstein from Barclays. Your line is open, Jeffrey. Please go ahead. Jeffrey Bernstein: Great. Thank you. Just curious about, Chris, your views on life beyond Pizza Hut I know there's no color to share just yet, but your thoughts on the existing portfolio's ability to achieve the prior long-term algorithm It sounds like you're framing it as this potential upside as you focus on the two core brands. But as you think about willingness to consider adding another global brand or whether you prefer to focus on accelerating your two core brands where seemingly have momentum then just a clarification, Roy, I think you said potential upside to your long-term algorithm across 2026. Just want to make sure that includes we should be assuming upside to the potential 8% plus core operating profit growth target for this year? Thank you. Christopher Turner: Yes. Thanks a bunch. As we think about the business for the long term, you know, right now, we've gotta complete the review of strategic options in Pizza Hut. So our primary focus right now is driving performance in all four of our brands. Our teams are laser-focused on that. And then, of course, we have you know, a set of team members that are focused on that review of strategic options. And that is where the focus is right now As we conclude that process, we'll share more on the long-term thoughts on the evolution of Young's strategy, but that's where our focus is now. Clearly, as I said, all four of our brands, we want to perform exceptionally well. We want them to be growing. We want them to be taking share. The two biggest brands, Taco Bell and KFC, Yeah. We've talked extensively about our confidence based on the momentum last year. Coming into this year. And as we implement the raise the bar strategy, we believe that that should improve all elements of the algorithm. That's why we are doing it. It will improve our ability to deliver or or start out to overdeliver on elements of the algorithm. That's why we are doing raise the bar. Battle for the future consumer, how do we increase our relevance to the next generation of consumers while remaining relevant to our core consumers who love us so much. Accelerating restaurant economics, that is the lifeblood of unit development, as we talked earlier, allows us to broaden the base of development unlock white space, in a broader set of markets, and then, of course, reaching the full potential of buy where we've deployed, ensure we operate with excellence, and continue to innovate, with our franchisees And in new markets where we haven't deployed yet, how do we take bite there so that more markets can enjoy the benefits of it? That's why we're doing raise the bar. It's why we have confidence in the long-term trajectory of the business. Ranjith Roy: And to clarify around the specific question around guidance twenty-three six, look. I I hope, you know, you're hearing from the prepared remarks and the q and a. Our guidance is around twenty twenty-six. But this team's confidence is about the long-term potential of the business, is extremely strong. Our guidance is specific to ex Pizza Hut. We obviously give specific Pizza Hut specific guidance separately so you guys can model it out. And, yes, based on the strength that we're seeing in Taco Bell, you know, lapping the lap, KFC in Q4 beginning to lap the lap globally. We're we're continuing to see momentum in 2026. And the combination of factors allows us to have confidence that we're gonna meet or exceed every element of the algorithm in 2026 including the 8% operating profit growth. Ex Pizza Hut. Matthew Morris: Operator, we have time for one more question. Operator: Thank you very much. Our final question today will come from Brian Bittner from Oppenheimer. Your line is open, Brian. Please go ahead. Brian Bittner: Thank you. Good morning, and thanks for all the color on on this call. As it relates to Pizza Hut and just the positioning of The U. S. Portfolio, you did talk about closing 250 units in the first half as as part of this program. You anticipate this to to encompass the totality of the units you think you need to close, or or is there a reason to think that number could grow Just what do you think the optimal number of stores for Pizza Hut to operate in The US is as you position this brand moving forward? Ranjith Roy: Hey, brother. I'm happy to take that. Look. You as we said in the last earnings call, we are taking focused short-term actions on Pizza Hut focused on the execution of the strategic review. In that context, you know, tremendously happy with the progress the team has made. And as we talk about the HUD forward program, which is where the closures come from, we think you know, it's it's the HUD forward is all focused on early twenty twenty-six. The 250 stores that we mentioned is a very small portion of the 20,000 unit estate that Pizza Hut has globally. And it is the right answer for the brand as we move through the strategic review. Great. Hey. Thanks, everyone, for your time this morning and really good Just in closing, I'll note a couple of things. Our two big brands, Taco Bell incredible momentum, the category of one with a plan that is working, and the momentum continues. KFC, Global Structural Advantage, development momentum that continues, and a real focus on accelerating AUVs over time leveraging the best of the Taco Bell magic formula Scott and his team. All of that's powered by Yum's distinctive strengths, which are talent and culture, digital invite, scale, and a global franchise base of the best franchise partners in the business. All of that sums up the confidence entering 2026, and we're looking forward to raising the bar. Thanks so much. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to the Aurora Cannabis Inc. Third Quarter 2026 Results Conference Call. All participants will be in a listen-only mode, and a question and answer session will follow the formal presentation. This conference call is being recorded today, Wednesday, February 4, 2026. I would now like to turn the conference over to your host, Kevin Niland, Director of Strategic Finance and Investor Relations. Please go ahead, sir. Hello, and thank you for joining us. Kevin Niland: With me is Miguel Martin, Executive Chairman and CEO, and Simona King, CFO. Earlier this morning, we filed our financials for the fiscal third quarter 2026 period ending December 31, 2025. Make sure our news release contains these results. This news release, with our financial statements and MD&A, is available on our IR website as well as via SEDAR Plus and EDGAR. We have also posted our investor presentation to our IR website for reference purposes. Our discussion today serves as a reminder that certain matters could constitute forward-looking statements that are subject to risks and uncertainties relating to our future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. Risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed via SEDAR Plus and EDGAR. Following our prepared remarks, we will conduct a question and answer session. With that, I'll turn the call over to Miguel. Please go ahead. Miguel Martin: Thanks, Kevin. Our quarterly performance reflects our strong competitive position in the rapidly expanding global medical cannabis market and continued commitment to profitable and sustainable growth. This success is supported by proven commercial execution and purposeful investments in science, technology, and talent. Additionally, our dedicated focus on improving patient and strengthening physician engagement has contributed significantly to these results. Let's begin with a brief review of the quarter. In fiscal Q3, first, net revenue increased 7%, driven by a record 12% growth in global medical cannabis revenue, including a 17% increase internationally. Notably, more than half of our total net revenue was generated outside of Canada. Second, adjusted gross margin rose 100 basis points to 62%, where we benefited from strong medical cannabis margins of 69%, which was the result of sustained growth in our higher-margin international markets. Third, profitability held strong, with adjusted EBITDA of $18.5 million and adjusted net income of $7.2 million. And finally, we generated positive free cash flow of $15.5 million and maintained our strong balance sheet with over $150 million in cash and the absence of cannabis business-related debt. Unlike most peers, we have focused on medical cannabis as the most promising industry segment for nearly a decade. We have therefore deployed considerable resources and investments, providing us with the following competitive advantages. We are one of Canada's largest global medical cannabis companies. We are Canada's leading exporter of medical cannabis. And finally, we are a market leader in the three biggest nationally legal medical cannabis markets outside of Canada. Notably, about 90% of our annual manufacturing capacity is produced within Aurora's European and TGA GMP-certified facilities and is subject to very stringent international standards. These standards are only increasing, significantly limiting the number of market participants. There is a limited number of cannabis companies like Aurora that have regulatory certifications for their manufacturing facilities that permit shipments directly to European and Australian markets. Aurora manufactures most of its own products and distributes them compliantly and profitably. This advantage helps to ensure consistency of supply around the world, critical to both prescribers and patients, and achieves lower manufacturing costs through higher yields, potency improvements, and other operational efficiencies. As this industry evolves, maintaining our momentum in global medical cannabis requires an even greater commitment. This entails dedicating our full attention to solidifying and growing our leadership position. Following a strategic review, we have identified the following actions. First, we will begin exiting select markets within the lower Canadian consumer cannabis segment, enabling us to further prioritize allocating products and resources to our higher-margin global medical cannabis business. Since consumer cannabis carries higher sales and marketing expenses than medical, this will benefit adjusted SG&A and consolidated adjusted gross margins in the coming quarters. While we expect some one-time costs that will impact cash flow in fiscal Q4, once the initiative is complete, we anticipate higher adjusted EBITDA contributions thereafter. Second, in relation to our plant propagation business, we are divesting our lower-margin plant propagation operations by selling our controlling stake in Bevo to its other principal shareholders. Combined, these actions will allow us to allocate capital more effectively, deliver enhanced profitability, streamline our operations, and improve execution quality. On a related note, today, we filed a prospectus supplement establishing a new at-the-market equity program. The ATM provides us the flexibility to issue and sell up to $100 million of common shares from time to time at our discretion. The company intends to use proceeds raised under the ATM program, if any, for strategic and accretive purposes only, including for increased cultivation capacity and potential M&A. With that, let's now dive into our individual medical cannabis markets. Germany is the largest individual medical cannabis market in Europe and remains closely watched across the region due to its outsized influence on neighboring countries. More than half of EU member countries have already integrated medical cannabis into healthcare, including reimbursement, which leads towards greater international alignment on regulatory approaches. This provides an obvious advantage for compliant EU GMP-certified companies like Aurora. The German market is still growing and was the primary driver of our double-digit growth in international revenue. According to German regulatory data, imports reached 72 metric tons in 2024 and are estimated to have more than doubled in 2025. Our successful commercial execution and strong reputation among wholesalers, distributors, and pharmacists have enabled us to continue to gain share in this rapidly growing market. We have consistently maintained a broad selection of core and premium products for the German market. However, more recently, we enhanced our offerings by introducing a new medical cannabis brand that prioritizes affordability and expands patient options without compromising quality standards. While increased competition in Germany has led to some price pressure, mainly affecting the value segment as new players enter and grow, our core and premium products, which represent most of our sales volume, have remained largely unaffected in terms of baseline pricing. The German government is considering modifications to the current telehealth framework related to cannabis descheduling, but it is still unclear how developments will unfold. We want to ensure that reasonable access to high-quality medical cannabis for the general public is maintained. But should changes be implemented within telehealth, we will adapt just as we did in Poland. We are currently doubling production at our manufacturing site in Germany. Increasing scale will facilitate yield improvements and operational efficiencies, allowing this facility to mirror the performance of our Canadian sites based upon the same industry-leading genetics and product consistency. In addition to the planned operational improvements, our German site joins our Canadian facilities that were recently GMP certified for another three years. This consistent supply of GMP-manufactured product is vital as we prepare for further growth in Germany and adjacent regulated markets. Australia remains our largest international medical cannabis market, where we currently hold the number two share in what could become a $1 billion opportunity, according to the Pennington Institute. Notably, most sales in Australia, both for MedRelief Australia, which we fully acquired two years ago, and for the market overall, are concentrated in value-priced products. This differs significantly from our other national medical cannabis markets, where our portfolio is anchored in core and premium offerings with stronger margins. We are actively working to shift our Australian sales mix towards the same world-class core and premium products we offer globally and expand patient access, including through additional distribution agreements. The Australian market is particularly attractive and positively impacting patient outcomes, as it offers one of the broadest product format ranges outside of North America, enabling us to fully leverage our diverse portfolio beyond flower and oils. While we are confident in our ability to successfully elevate the product mix, we are working through some anticipated near-term pressure on both sales and gross profit during the transition. In Poland, through continued collaboration and effective commercial execution, we gained market share and held the number one position in calendar year 2025. We are widely regarded as a key partner advancing medical cannabis in the country and are benefiting from increased annual import limits, which further supports our continued growth potential, including in fiscal Q3. The market has certainly evolved, but we have successfully navigated the shift in prescriptions from telehealth platforms to clinics while maintaining solid relationships with the regulatory authorities. In our view, we are well-positioned to maintain this leadership position in Poland thanks to our very skilled team engaging with all the key stakeholders and our broadening product portfolio of high-quality medical cannabis products. We recently expanded our product portfolio with the launch of a third proprietary cultivar in Poland, following market success in Canada, Germany, and Australia. These new cultivars are grown and manufactured in our GMP-certified facilities, using premium hang drying and curing techniques to ensure consistently high-quality standards. In the UK, we primarily operate in the premium and super-premium segments, where there is less competition. But an influx of value products in the market resulted in lower year-over-year sales during fiscal Q3. Our strategy is focused on expanding our distribution and clinic relationships through new partnerships, a critical step to onboarding and connecting with patients. Turning to Canada, we remain a strong leader in medical cannabis. Net revenue grew year over year during fiscal Q3 to a new record, and we gained market share, a key point of differentiation for us in a competitive market. Our priorities are enhancing our online marketplace, product innovation, and assortment, and ensuring a high-quality patient experience, especially for our valued veteran patients. In summary, we are reallocating and directing our resources to focus primarily on the global medical cannabis market, where we excel and see runway for growth. This involves gradually scaling back our Canadian consumer cannabis operations and selling our controlling interests in our plant propagation business. We believe this approach will improve our operational efficiency, unlock greater opportunities in both our existing markets and new countries, and drive sustainable revenue growth and profitability. Let me now turn the call over to Simona for a detailed financial review of fiscal Q3, followed by an outlook session. Simona King: Thank you, Miguel. We are encouraged by our fiscal Q3 results as reflected in our revenue growth, strong adjusted EBITDA, positive adjusted net income, and free cash flow. Time and again, we have demonstrated the soundness of a medical cannabis-first strategy, our consistent ability to deliver results aligned with our long-term objective. Let's review fiscal Q3 2026 compared to the prior year quarter and then discuss our outlook for the full year. First, net revenue of $94.2 million represented 7% growth, supported by record contributions from our global medical cannabis and plant propagation segment. Second, consolidated adjusted gross margin rose 100 basis points to 62%, while adjusted gross profit reached $55.6 million, a 6% increase. Global medical cannabis held its robust 69% adjusted gross margin. Third, adjusted EBITDA was strong at $18.5 million, combined with adjusted net income of $7.2 million. Fourth, we generated positive free cash flow of $15.5 million. And finally, we ended the quarter with $154 million in cash, cash equivalents, and short-term investments and no cannabis business debt. In medical cannabis, net revenue rose 12% to $76.2 million, inclusive of 17% growth internationally. We benefited from increased distribution in Germany and new product offerings in Poland, which combined with continued strong contributions from Canadian Medical. Medical cannabis comprised 81% of net revenue, compared to 77% in the prior year, and approximately 95% of adjusted gross profit. Adjusted gross margin for medical cannabis held strong at 69%, driven by high-margin international markets that benefited from sustainable cost reductions, high selling prices, and operational efficiencies, including sourcing for Europe from Canada. Consumer cannabis net revenue was $5.2 million, down 48% from $9.9 million. The year-over-year change was the expected result of the company's strategic shift to focus on portfolio optimization and the allocation of cannabis flower to the highest-margin business segments. Adjusted gross margins for consumer cannabis was 28%, compared to 26% due to sales of higher-margin products. People's plant propagation net revenue increased to $11.3 million, up 27% from $8.9 million in the prior year. Adjusted gross margin for plant propagation revenue fell to 16% compared to 40%. The decrease was due to increased contract labor and utilities costs, as well as inventory write-offs of $1.1 million in the current quarter related to surplus plants. Consolidated adjusted SG&A increased 14.5% to $35.8 million. The year-over-year change relates to higher professional fees, as well as additional headcount and contract labor costs in Europe and Australia, that are supporting these growing higher-margin markets. Adjusted EBITDA was $18.5 million compared to $19.4 million in the prior year, with the decrease primarily related to lower adjusted gross profit in the planned propagation segment and an increase in adjusted SG&A. Adjusted net income held relatively consistent at $7.2 million compared to $7.4 million in the prior year. Our balance sheet remains one of the strongest in the global cannabis industry, and our cannabis operations are completely debt-free. Free cash flow was $15.5 million compared to $27.4 million in the prior year quarter, reflecting a decrease in the working capital recovery of $9.2 million. Let me now provide some thoughts on what we expect for our fiscal year 2026 outlook, which ends on March 31. Annual global medical cannabis net revenue is expected to increase year over year to between $269 million and $281 million, driven primarily by 10% to 15% growth in the global medical cannabis segment. Plant propagation revenue is expected to perform in line with traditional seasonal trends, as 65% to 75% of revenues are normally earned in the first half of a calendar year. Consolidated adjusted gross margins are expected to remain strong as we have benefited from favorable sales mix due to higher global medical cannabis revenue, along with operational efficiencies in our manufacturing sites. And finally, annual consolidated adjusted EBITDA is anticipated to increase year over year with an expected range of $52 million to $57 million, representing 5% to 10% annual growth. This expected growth is driven primarily by net revenue increases and industry-leading margin in the global medical cannabis business. Thank you for your time. I'll now turn the call back to Miguel. Miguel Martin: Thanks, Simona. Our primary objective is to grow our business by capitalizing on the rapidly evolving global medical cannabis opportunity, which is projected to surpass $9 billion, thereby maximizing shareholder returns. We have established a strong competitive position by first building deep regulatory and world-class genetic capabilities supported by an extensive network of GMP manufacturing facilities and then demonstrating consistent commercial execution excellence. This approach has enabled us to be a market leader with both healthcare providers and patients. Through our focused commitment to global medical cannabis, we will reinforce our market-leading presence in Canada, Europe, Australia, and New Zealand and expand into additional markets as opportunities arise. We look forward to providing updates on our progress and strategic direction as we advance. Operator, we are now ready to take questions. Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Kenric Tighe with Canaccord Genuity. Please proceed with your question. Kenric Tighe: Thank you, and good morning. Congrats on the quarter. I just wanted to follow up on the Select Market Exit in Canada. Now if we looked at a number on the print, you're looking at roughly a $20 million in revenues business on a go-forward. Could you sort of speak to what the run rate would look like on a select on the exit from those markets? And perhaps also where there's a point in time whether you could or would essentially fully exit consumer cannabis in Canada. Miguel Martin: Yeah. Good morning, and thank you for the question. We are continuing to evaluate exactly what that looks like. I think what I can say, though, is that those decisions will be beneficial or accretive to our overall financial results. What we've seen is that the reallocation of our resources, particularly that finite high-quality flower, into the international market will make a significant difference in overall financials. And so, it's a bit of an evolution for us. The other point I guess I'd make is this isn't anything new. You've seen us continue to prioritize global medical cannabis over the last couple of years and done it very successfully as we've gone through. And so we'll continue to be a bit flexible. Now your point about would we ever get out completely? I think that's something we continue to evaluate. We've been in rec cannabis or consumer cannabis in Canada since day one, and so we still have that touchpoint. But again, our focus is profitability and growth. And if that is a decision that looks like it's best suited to be exclusively on the medical cannabis side, it's something we would do. Kenric Tighe: Great. Thank you, Miguel. And just a quick one with respect to Australia. The other premiumization strategy or sort of moving upmarket in Australia, how disruptive is that shift to your presence in the market? And what are your expectations around the timeline when we can sort of get a better handle on how this will play out and the benefits for that Australian business and what that Australian business will look like once you sort of high-graded your portfolio in the market? Miguel Martin: Yeah. I don't think it—well, thank you for the question. I don't think it's disruptive at all. I mean, Australia really started out under a model they call a concession model and a value model for those patients. And as we talked about, it's quite a large and diverse market, and there is an expansion and an interest by both prescribing physicians and patients for a variety of products on the premium side. And as you well know, it's not just flower and oil. So we run globally a premium and core model. So it's not disruptive for us at all, and it's very accretive in terms of margins. And so we know there's a lot of value flower available in Australia like other markets. Whether it's Germany, Poland, the UK, or Canada, our sweet spot is the genetics production and delivery of core premium medical cannabis products. And so, it sits right in the middle of all that. So I think it's consistent and not disruptive in any way. Kenric Tighe: Great. Thank you. I'll get back in queue. Miguel Martin: You got it. Thank you. Operator: Our next question comes from Derek Lessard with TD Cowen. Please proceed with your question. Derek Lessard: Probably past the acceptable time frame, but happy new year anyways, and a great start to it. Miguel Martin: Happy New Year, Derek. And I think the snow makes that timing and that point relevant, but go ahead. Derek Lessard: Yes. A couple of questions for me. Just maybe talk about the strategic decision to exit the plant propagation and sort of the timing around the expected close of the transaction. Miguel Martin: Sure. I mean, again, focus and execution on global medical cannabis is what we've proven we're best at and where the most profitability is. I think consistent with the announcement we made on the consumer business, when we look at our resources and we look at the best use of our time and energy and focus, it really is in that area. And the investment in plant propagation, while interesting for a period of time, continued to evolve in a way that wasn't that. And so we saw a great opportunity in divesting that majority share to the shareholders that already exist there. There are some economics that continue that allow us to participate in the success of that, including earnouts in the facilities that we've ended in. But when you look at investment and ROI of our time and resources, clearly, with high-growth markets such as Germany and Poland and the UK, it makes absolute sense for us to put all of our time and effort there. And I think if you look at the last quarter and you look at the last couple of years, when we focus on global medical cannabis, the results have always been positive. Derek Lessard: Absolutely. Makes sense, Miguel. And maybe just one for Simona. Appreciate the additional full guidance on the year. How should we think about the plant propagation contribution to EBITDA, I guess, for the full year and maybe for Q4? Simona King: Yeah. And as we continue to finalize the closing conditions and implications to our financials as a result of this divestiture, we will have a better sense of the pro forma in Q4. We will no longer be consolidating the financial results of the Bevo business, so it will be treated as discontinued operations. That will be the treatment going forward. And so I would say the focus really should be on thinking through the implications to the global medical cannabis business and continuing to model and think about Q4 and the future around the strength of that business. So it really is focusing on the global medical side. Derek Lessard: Okay. And then maybe one last one. I'll sneak one in, switching gears back to global medical. You pointed to Poland as one of the contributors to growth, which is great to see. Just maybe talk about how you've been navigating the pressure there or if anything has changed since last quarter. I think when you guys pointed to additional pressure given the changes in the regs there related to restrictions around the online consultations. Miguel Martin: Yeah. I mean, I think it's a great question. So, these regulatory frameworks are evolving, albeit with a pretty specific scientific underpinning. We saw the change in Poland, you mentioned, and what it required really was to lean back on a strong system. Product development, product registration, distribution, and specifically, having a way to be able to connect the patients through clinics. And we were very quickly able to do that. I think really built on the background of the strength of the medications and the reputation that we had, having physicians and patients want to get those products. And so we navigated quickly. Obviously, our results reflect that. That's why we're encouraged by what's happening in Germany with what may land there that we'll be able to do a similar execution. So these regs continue to evolve. You have to be agile, but I think having tremendous relationships with them, we have a very strong GR organization, a very strong regulatory team. And so we are able to work with the regulators as things evolve, and we think that's a strength of ours. Derek Lessard: Yeah. Great job, everybody, and congrats again on the quarter. Miguel Martin: Thank you so much, Derek. We appreciate it. Operator: Okay. Our next question comes from Bill Kirk with Roth Capital Partners. Please proceed with your question. Bill Kirk: A point of clarity first. I have year-to-date global medical cannabis at $211 million. The full-year guide is February to February. Are those numbers comparable? Because even the high ends would imply quarter-over-quarter deceleration in Q4. And the low end would imply a big deceleration. So I guess the clarity point, am I looking at those numbers comparably? Simona King: Yeah. So let me jump in on that one. So the guidance that we provided is the full revenue for the company, which is inclusive of Bevo in there. And so with this announcement today around the divestiture of our stake in Bevo, that's what we will be working through is the pro forma impact of that in Q4. So, it's continuing to focus on them as we think about the implications for Q4 with those results being removed and shown as discontinued operations. It's really focusing on the medical cannabis, global cannabis revenues, and trending those out. So keeping in mind that the full guidance was reflective of the total revenue. Bill Kirk: Okay. Okay. Because in the press release, it says annual global medical cannabis is expected to be $269 million to $281 million. Simona King: So yes. A policy. Yes. Global medical cannabis is $211 million. Right? Bill Kirk: Yes. Yes. Just to clarify that, that is correct. Global medical cannabis. And so, yes, we expect a strong quarter in Q4. Bill Kirk: Wouldn't that be implied $58 million to $70 million in global medical cannabis? And I think you just did over $75 million. So I think I'm looking at something wrong because that would imply a big deceleration in Q4 global medical cannabis from March, February, January. Simona King: Yeah. Yeah. Yes. We do expect the ranges that we've provided in the expectations in the release to be in line with where we're projecting the full year to come in at. Bill Kirk: Okay. And then the follow-up would be why do you expect the deceleration in April? Simona King: So at this point, we're really focusing on the full-year guidance and the ranges that we provided, which we believe will be in line with where we're trending. Taking into account, there could be some headwinds in some of the markets. So, again, highlighting that this is a record result for us on a full-year basis. Bill Kirk: Okay. Thank you. And then one last one for me. The adjusted gross margin in the wholesale business, I think it was 35% in the quarter. It's been higher than the consumer cannabis segment for a while. Why would the wholesale gross margin be higher than the consumer segment gross margin? Miguel Martin: Well, for a couple of reasons. One is that the consumer business, not only for us but for others, is tight. And when you look at fully loaded where you sort of end up in that market, you end up with those types of margins. I mean, I think you've seen it in the industry. It's not just us. The wholesale business is pretty good. I mean, it's obviously not as good as when you distribute and sell it yourself. And so I think it's just indicative of what it is. The other aspect of the wholesale business is those products that we sell are not readily available all over the world because of some of the regulatory requirements. So I think it's inherent to what you're seeing overall. And like I said, it's not just us on the consumer side. Bill Kirk: Thank you. Appreciate it. Miguel Martin: You got it. Thank you, Bill. Operator: Our next question comes from Brenner Cunnington with ATB Capital Markets. Please proceed with your question. Brenner Cunnington: Hey, good morning, and congrats on the results this quarter. Just looking at the ATM, so you mentioned the funds for this could go to M&A, and we're just kind of wondering, like, are there any potential assets that you might be interested in? Is it potentially, like, cultivation capacity expansion opportunities? Or any other top goals for the funds raised from this? Miguel Martin: Yeah. And thanks for the question and the comment. You know, the over $150 million in cash and then you add this, it really allows us to be opportunistic. Clearly, as you've seen from our announcement, our focus and really what we excel at is around that global medical cannabis point. And there are many aspects to it. Clearly, cultivation of GMP flower and products for the international market are always an area of interest for us. Beyond M&A, we've invested over $40 million internally in significant capacity and quality upgrades in our existing facilities, which has helped us receive that GMP certification for another three years at three of them. So cultivation, as you mentioned, is always of interest to us. But there are other aspects to global medical cannabis that have the potential as well, whether that's on the distribution side or the clinic side or other aspects. So it's really to be opportunistic, and we intend to use that clearly not for operations, but for accretive aspects, including M&A. And so, I would say it would be consistent with what we're focusing on, but the exact aspects of it and what it might be, we're not in a position to say yet, but we'll obviously update folks as that becomes more specific. Brenner Cunnington: Okay. Perfect. Fair enough. And then just looking at the exit from a lot of the consumer cannabis in Canada, what type of SG&A savings might we see from this? Miguel Martin: Yeah. I mean, we're continuing to evaluate that. I would say you'll see some of that reporting as you see the full year and then into Q4. We definitely think it's going to be a benefit. Though the other aspect, beyond the SG&A savings, is taking those inputs, as you heard from the previous question, and putting them into higher-margin markets. So the differential between the margins of, say, our consumer business and international markets is significant. And you've seen where the overall margin landed. So I think more to follow on what it is you heard from Simona's comments about the benefits that we believe financially that will provide us, and we look forward to sharing that with you once they sort of work their way through. Brenner Cunnington: Perfect. And then if I could just sneak in one little last one. So on the international market, just out of curiosity, are there any other international markets that you may be looking at? Miguel Martin: I mean, we look at all of them as they come online. We're in 12 countries today. We've got a regulatory team and a product registration process that has allowed us to enter every market that's come online. Typically, we like to have markets that have a science-based regulatory profile, which we're starting to see in Europe. So the latest new markets that are bringing medical cannabis on, places like Switzerland, Austria, France, and some others, we are working to bring our products into those markets. But we're very excited about potential developments in other new countries such as, say, Ukraine and Turkey. And again, we've been very successful because of our stringent regulatory requirements and GMP products to be able to enter them as they come online. So we continue to see global growth. I know there's a lot of interest in the US. But we've seen the growth in medical cannabis regulations and overall systems throughout Europe and in other parts of the world. And so we'll be there as they come online, and I think we've demonstrated we can be successful, not only launching but also sustaining our business in those markets. Brenner Cunnington: Understood. Thank you so much for the color. I'll jump back in the queue. Miguel Martin: Thank you very much. Operator: Our next question comes from Pablo Zuanic with Zuanic and Associates. Please proceed with your question. Pablo Zuanic: Thank you, and good morning, everyone. Miguel, I also want to discuss supply chain, but just first one question on the US. In your opinion, if we get rescheduling as it's been announced, would that allow you to enter the US market? Are we thinking we're going to have a federal legalization of medical cannabis? Will Aurora be able to participate given its expertise? Or the rescheduling doesn't necessarily mean federally legalizing medical cannabis. What's your opinion on that? Miguel Martin: It's early days, Pablo, and good morning. First and foremost, what the Trump administration announced is very consistent with what we've said is important. Medical cannabis first, a strong regulatory approach. And we think that lines up beautifully for a company like Aurora that operates in regulated markets all around the world. As it's been laid out, we haven't seen any of the final details of what a schedule one to schedule three would look like. It does not allow a Canadian company traded on the Nasdaq to directly go into that market. It does expand research. It does start to open the door for some variety of different things. But we'll have to see what the details look like. But it is a step in the right direction, and we're very encouraged by that. But again, it was a very strong medical message. That photo op in the White House with doctors and folks from the medical community really reinforces what we've always believed, which is this will be a medical-first opportunity, which is why we think Aurora is so well-positioned when we get there. Pablo Zuanic: Thank you. Look. And regarding supply chain, it's a bit of a two-part question in terms of understanding what you have right now and then how you're thinking about acquisitions. In terms of what you have right now, for example, you said in the call that most of the products that you sell are own or products, not in your facilities, but does that mean 51%, 90%? If you can give some color in terms of how much you're buying from third parties, that would help. A reminder of what you have in terms of your current facilities, and looking back, lessons from the Aurora Sky facility. So that part of the question is what you have now. In terms of buying cultivation capacity, are we talking about indoor versus greenhouse? Are we talking about small little craft growers? Are we talking about just Canadian or maybe other countries? Any color in that sense would help. Thank you. Miguel Martin: Sure. So the majority—I'm not going to give you a number, but it's closer to 100 than it is to 50—of the products that we sell internationally, we produce, distribute, and sell ourselves. A really important dynamic for everybody to understand is the GMP flower dynamic. That standard is getting more challenging. It is difficult. And once you get that certification, which you need to have, say, Germany, the fastest-growing market in Europe, you have it for three years. So we've got three of our largest facilities just received that certification, which is very exciting. And so GMP, premium flower, those prices continue to be solid and, in some cases, go up. And is our focus. In terms of facilities and potential acquisition, we have the benefit of having one of the largest genetic facilities in the world, a facility called Aurora Coast off the West Coast of Canada. Those genetics that are created there that we use ourselves and also sell to others have been successful both in indoor, which is our primary method of current growing, as well as with greenhouses, which many of our customers use those genetics. So both work, and you can get GMP certification in both. We obviously have a long history in indoor, but that doesn't mean that we are bound to it. I will say Canada continues to be the best place to grow high-quality premium GMP flower in the world. And we're proud of that. And we continue to see great opportunities to ship it. So it's a big competitive advantage for us to be able to grow that much flower, be one of Canada's, if not the largest, one of the largest exporters of GMP flower. And that's a core part of why we've been successful and will be successful going forward. Pablo Zuanic: Thank you. Miguel Martin: You're very welcome. Operator: We have reached the end of our question and answer session. There are no more further questions at this time. I would now like to turn the floor back over to Miguel Martin for closing comments. Miguel Martin: Thank you very much. We're very excited about this quarter and, more importantly, excited about the future of Aurora Cannabis, and we're thrilled to share some color with you here today. We'll continue to update you. We hope everyone is safe and well. All the best. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to Reynolds Consumer Products Inc. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is now my pleasure to introduce your host, Jill Coval, Director of Investor Relations. Thank you, Jill. You may begin. Jill Coval: Thank you, operator, and good morning, everyone. Thank you for joining us for Reynolds Consumer Products Inc. fourth quarter earnings conference call. Today's call is being webcast, and a replay will be available on the Investor Relations section of our corporate site at reynoldsconsumerproducts.com. Our earnings press release and investor presentation are also available. Joining me on the call today are Scott Huckins, our President and Chief Executive Officer, and Nathan Lowe, our Chief Financial Officer. Following their prepared remarks, we will open the call for a brief question and answer session. Before we begin, I would like to remind you that this morning's discussion will include forward-looking statements which are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those described today. Please refer to the Risk Factors section of our SEC filings for more information. The company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after the call. In addition, we will reference certain non-GAAP or adjusted financial measures during today's call. Reconciliations of these GAAP to non-GAAP financial measures are available in our earnings press release, investor presentation deck, and Form 10-Ks, which can be found on the Investor Relations section of our website. With that, I'd like to turn the call over to Scott. Scott Huckins: Thank you, Jill, and thank you to everyone joining us this morning. We closed 2025 with solid fourth quarter execution in what remains a challenging operating environment. Our team stayed focused on the fundamentals, evolving our portfolio to meet consumer needs, serving our retail partners well with case fill rates in the high 90s, protecting profitability, and advancing the strategic growth and profit-generating priorities that underpin our long-term value creation. We delivered sequential quarterly improvement throughout the year, mitigating escalating commodity, tariff, and consumer headwinds. Driven by our solid execution, along with successful innovation in our expanding revenue growth management capabilities, our strong fourth quarter performance was underpinned by share gains across the overwhelming majority of our categories, including our six largest core categories. These year gains included hefty waste bags, hefty food bags, Reynolds Wrap, Reynolds parchment, Reynolds Bakeware, hefty party cups, as well as the strong performance across our store brand offerings. These gains reflect the consumer's affinity for innovative and differentiated solutions in waste bags and food bags, sustained preference for branded quality and foil, and growing interest in convenience across cooking and baking products. All of this reinforces that our innovation priorities are on target and help shape our go-to-market execution. As a point of reference, we outperformed our categories by over one point in 2025, and by two points in the fourth quarter. I'm also very pleased that we were able to deliver these share gains while increasing profitability in the quarter versus a year ago. On our fourth quarter call last year, we noted that 2025 would be a transition year as we aligned our team and began executing against and investing behind a number of strategic priorities. These priorities span growth and innovation, productivity initiatives across manufacturing and supply chain, and other cost savings programs. Let me walk through our progress during the first year of implementing our strategy. Our innovation engine began to deliver in 2025, driven by a focused strategy on fewer ideas, bigger ambition, and better consumer outcomes. We expanded our hefty waste bag lineup with new scents and colors, including our popular watermelon scent. We introduced Reynolds Kitchen's parchment cooking bags and air fryer cups, EcoSafe compostable cutlery, and additional seasonal offerings in Reynolds Wrap holiday fun foil and festive printed hefty party cups. The success of these launches highlights the demand for fun, convenience, value, and highly functional sustainable alternatives. Importantly, these new products meet real consumer needs and reinforce our leadership in everyday household essential categories. These new items are in part why we outperformed our categories in 2025. We advanced our revenue growth management capabilities, beginning to migrate trade dollars from lower return programs to higher return and mutually beneficial programs that deliver better outcomes for both our retail partners and Reynolds. We also delivered early wins through pricing and price pack architecture optimization, helping to offset inflation and minimize elasticity. This disciplined approach produced results as evidenced in the foil category, where price gaps with store brands narrowed throughout the year, even as we successfully covered commodity pressure with substantial price increases. And we pursued targeted customer-level opportunities, beginning to close share gaps through expanded distribution in categories where our brands have a right to win. Our manufacturing and operating performance improved significantly in the second half of the year, as we accelerated our implementation of productivity initiatives, investments against our automation pipeline, and other complementary programs. All of these work streams are aimed at positioning our plants for increased efficiency and throughput. Our US-centric supply chain remains a competitive advantage, enabling our high service levels and supply chain agility in a volatile environment. Nathan will elaborate more on these initiatives in a few minutes. Importantly, we added significant talent to our management team to support and execute our strategy. We added experienced leaders across all areas of our business, including new leaders in sales, operations, supply chain, and our hefty tableware segment. I'm very pleased with how the leadership team has come together to drive the business forward and build momentum on each of our priorities as we exited 2025. As we enter 2026, we will continue to drive each of our priorities forward, which remain consistent with what I outlined a year ago. At the same time, we anticipate another year of sustained headwinds in 2026, underscoring the need for continued nimbleness, adaptability, and focus across the organization. As we move forward, we remain mindful of the state of the consumer environment and the retailer's focus on inventory management and consumer value. Our insights teams are tracking consumer patterns closely, helping refine our promotional strategy, price pack architecture, and innovation priorities to stay nimble as the year unfolds. Regarding raw materials, while resin has been relatively stable, aluminum has continued to move significantly higher. We've made excellent progress in aligning pricing with increasing costs, demonstrated by roughly 11 points of pricing present in the fourth quarter with only a two-point decline in retail volumes as seen in scanner data. For 2026, we have already implemented a price increase in January and are anticipating further adjustments for the second quarter. We will continue to balance pricing, potential elasticities, and promotions during key holiday shopping periods carefully to support demand. In terms of the competitive landscape, the dynamics have intensified in the waste bag and food bag categories as we exited the fourth quarter. We are seeing increased promotional and pricing activity being offered by the other brands we compete against, seemingly taking dollars out of these categories and creating added pressure for our business. Given our strong brand equity, we remain committed to our performance brand positioning and plan to stay the course on our current price points and promotional strategy, noting that value is a function of the consumer's view of product attributes and function relative to price, and not purely a measure of pricing relative to competitors. However, some near-term volume headwinds are possible, and we have embedded our estimate of this headwind into our outlook. Regarding our private label food and waste bag businesses, they remain resilient, delivering strong value for consumers as we continue to build a more robust branded presence. As you may recall from our commentary last quarter, the current environment is driving more transactional dynamics with retailers, including a greater focus on dual sourcing for private label programs. As this trend continues into 2026, we are actively managing both the risks and the opportunities. While this will create near-term pressure in 2026, we believe this will be more than offset by incremental opportunities over time. We remain confident that our category leadership and insights, strong service levels, innovation, quality, and increasing manufacturing efficiencies position us to compete effectively and remain an essential supplier. Despite the headwinds, our 2025 progress and momentum position us to deliver stable results in 2026, with adjusted EBITDA roughly flat year over year. This outlook reflects the achievements made against the priorities we outlined a year ago and recapped earlier. Importantly, this progress is not a one-time benefit but a foundation for sustained improvement going forward. Turning now to our strategic priorities. On the top line, we continue to work across our three core pillars of revenue growth management, share gap selling, and innovation. We are committed to building on the strong foundation established last year in revenue growth management. Our 2026 focus remains on channeling trade investments into higher return programs that drive improved results for both our retail partners and RCP. We have invested in people, tools, and training in 2025 to bring this forward into 2026. Emphasis will continue to be on closing share gaps between our category share and our retail partners' market shares. These opportunities exist in both our branded and private label businesses, and we seek to expand distribution in our core categories where we have demonstrated success. Innovation and differentiation will remain central to our growth strategy in 2026, building on the momentum established in 2025. By strengthening our enterprise-wide focus on consumer insights, we are increasing strategic precision, prioritizing innovation and our resources around the highest impact opportunities, enhancing our total portfolio value proposition with customers, and building scalable growth platforms to deliver sustained and profitable growth. Importantly, we are pleased with the strength of our current pipeline for 2026 and beyond. On the margin priorities, Nathan will cover how we are advancing our operations and supply chain priorities in a few minutes. We are also evolving how we look at our business. Beginning in Q1 2026, we will realign category organization across the hefty waste and storage, and Presto segments. Consolidating waste bags in one business and food bags and storage in another to increase efficiencies, sharpen the focus on innovation, and establish a structure to better unlock growth opportunities. Finally, on talent, our success at RCP is built on the strength of our 6,000 employee team. In 2026, we expect to continue developing talent and redefining what success looks like across the organization. We believe a high-performing and engaged workforce drives sustainable growth. In summary, 2025 was a year of disciplined execution, operating with greater agility, outperforming our categories at retail, and delivering sequentially improved financial results. All while beginning to drive out manufacturing and supply chain costs. The progress we achieved strengthens our confidence in both our strategy and our ability to execute in 2026 and beyond. While the near term will continue to see some challenges, we remain focused on driving sustained progress. With that, I will turn the call over to Nathan to review our financials and provide guidance for 2026. Nathan Lowe: Thank you, Scott, and good morning, everyone. 2025 was a year of taking decisive action in response to macro headwinds and building both resilience and momentum as we position the company for future success. Across the business, we delivered results that reflect meaningful advancement against our strategic objectives. We accelerated growth through expanded distribution and innovation. We delivered cost savings through productivity initiatives, strategic sourcing, and disciplined cost management. And we invested in a number of high ROI initiatives across our business, including capital to support growth in our fastest-growing segments, as well as making solid progress against our automation pipeline. We are encouraged by the progress we made against these initiatives through 2025, with early returns beginning to materialize in the fourth quarter. For the quarter, we are very pleased with how we closed out 2025, outperforming all guided metrics and delivering a strong performance that underscores the effectiveness of our strategy and disciplined execution. Net revenues of $1.03 billion represented 1% growth compared to $1.02 billion in 2024. Our retail volumes exceeded overall category trends, outperforming our categories by two points, while low-margin non-retail net revenues increased $24 million versus the prior year period. In the foil category, the underlying dynamics remain constructive despite multiple price increases in the last twelve months. Having executed multiple price increases in 2025, we are encouraged that fourth-quarter volume takeaways were down only two points, demonstrating the pricing power of our brands. Our hefty waste and storage and Presto segments each delivered strong volume growth and share gains in the quarter. And Hefty Tableware delivered a slight sequential volume improvement and improved profitability in the business to deliver a flat EBITDA result. However, declines in foam and the discretionary nature of the category continued to weigh heavily on the segment's top-line results. Stepping back up to the company results, we saw improved profitability in Q4. The impact of pricing to recover commodities and tariffs and growth in our low-margin non-retail business had a dilutive impact on gross margin percentages to the tune of 190 basis points, masking the underlying improvement in profitability. SG&A was down 19% versus 2024, driven by some delayering in the organization, surgical focus on optimizing advertising ROIs, and tight management of controllable costs. Adjusted EBITDA of $220 million represented a 3% increase on adjusted EBITDA in the year-ago period and was the only quarter of EBITDA growth in 2025. Manufacturing efficiencies and other cost improvements more than offset retail sales volume declines in the quarter. And adjusted EPS was $0.59 compared to $0.58 in 2024. Overall, our fourth-quarter results were strong, and we are well-positioned as we enter 2026 with the resources and continued willingness to invest in driving earnings growth. Turning to the full year 2025, we saw net revenues of $3.7 billion, representing year-over-year growth of 1%. The slight decline in retail revenues, which exceeded overall category performance, was more than offset by strong growth in non-retail revenues. SG&A was down 11% versus 2024, for the reasons I mentioned in the context of the fourth quarter. Adjusted EBITDA of $670 million is compared to adjusted EBITDA of $678 million in 2024. The change from the prior year was driven by lower retail volume, due in part to Q1 retailer destocking and overall decline in our categories, partially offset by cost reductions. It's important to underscore the pace and magnitude of the pricing and cost reduction actions taken to minimize the impact of approximately $100 million in higher tariffs and commodity costs on our result. And adjusted earnings per share were $1.66 compared to $1.67 in 2024, remembering that we are lapping a one-time 5¢ tax benefit in '24. We finished 2025 with very strong cash flow performance, generating full-year free cash flow of $316 million. This result benefited from our ongoing commitment to tightly managing working capital and driving improvements that offset the impact of higher commodity costs on cash flows. During the year, we successfully refinanced our term loan facility, extending the maturity of our debt and made an additional $100 million in voluntary principal payments. We reduced our net debt leverage to 2.1 times, at the low end of our stated target leverage range, providing significant financial flexibility to continue investing in the business. Taken together, these results reflect a business that is executing with greater agility and focus while building a stronger foundation for future growth. Turning now to our priorities for 2026. We made meaningful progress executing our strategic agenda in 2025, but we are still early in the journey with significant work ahead. We see substantial opportunities to deepen our capabilities, scale our initiatives, and unlock the full value of our strategy. Starting with margin expansion, we are committed to unlocking additional efficiencies across manufacturing and supply chain. Our approach centers on three key levers. First, embedding lean principles across our operations to improve yields, reduce bottlenecks, and improve productivity through process redesign and cost discipline, none of which require capital investment. Second, advanced technology deployment to provide real-time visibility into production metrics, uptime, and scrap, and enable faster data-driven decision-making on the floor. And third, pulling through high ROI automation investments from our multiyear pipeline that enhance operational performance across costs, quality, and safety. Outside of our operations, we will continue to invest in incremental innovation and distribution opportunities to accelerate earnings growth. For the full year 2026, we expect net revenues to be minus 3% to plus 1% compared to 2025 net revenues of $3.7 billion. The key drivers of this outlook include retail branded sales expected at or above category performance of down 2%. The anticipated category headwinds are primarily attributed to declines in foam and foil, the latter a function of elasticities on aluminum cost increases, while performance across our remaining categories is expected to remain relatively stable. Consistent with Scott's comments on increasing store brand bid activity given the macro environment, we have contemplated pressure in 2026 as we navigate losses in a portion of our store brand business, with replacement business coming on as the year progresses. Non-retail revenue is expected to be flat for the year. We expect net income and adjusted net income to be in the range of $331 million to $343 million and full-year EPS and adjusted EPS to be between $1.57 to $1.63. Our assumption is that interest expenses and D&A will be broadly in line with 2025, and our effective tax rate will be approximately 24.5%, consistent with historical rates. Our full-year adjusted EBITDA is expected to be in the range of $660 million and $675 million. Some other considerations to keep in mind. Our guide contemplates some level of pricing, and as Scott mentioned, we will take additional pricing actions where appropriate to reduce the impact of higher input costs while closely managing our price pack architecture, leveraging the revenue growth management tools we implemented in 2025. You should expect continued discipline in all areas of controllable costs. But we do expect SG&A will be up compared to 2025 levels, as we step up support for innovation and other strategic initiatives. With tableware trends likely to remain under pressure in 2026 due to foam and the discretionary nature of the category, our focus is to stabilize the core business away from foam with accelerated R&D efforts on innovation, the advancement of our sustainable solutions, and further extension of the entire Hefty Tableware portfolio into channels outside of mass and club. Moving now to the first quarter. We expect net revenues to be down 3% to plus 1% compared to the first quarter 2025 net revenues of $818 million. Net income and adjusted net income are expected to be between $49 million and $53 million in the first quarter, with EPS and adjusted EPS expected to be $0.23 to $0.25 compared to $0.23 in 2025. The company expects first-quarter adjusted EBITDA to be $120 million to $125 million compared to the first quarter '25 adjusted EBITDA of $117 million. Now turning to cash flow and capital allocation. We continue to advance our capital pipeline for organic investment opportunities. And as we begin executing 2026 projects, we are simultaneously replenishing the back end of our automation pipeline. I'm encouraged by the number of additional opportunities that we've identified and their attractive return profile. As a result, capital expenditures are expected to remain elevated as these capital projects extend beyond 2026 and into 2027, with 2026 CapEx expected to be in the low 200s. Our approach to capital allocation considers both organic and inorganic opportunities and continues to be centered around allocating capital to its highest value uses. We maintain a bias for investments that drive growth, with the proven ROIs in our automation CapEx pipeline essentially establishing a hurdle rate for other potential uses of capital. While we are pleased with our robust pipeline of opportunities to invest in the business and drive organic growth, we continue to explore M&A opportunities with more rigor to identify additional growth platforms for RCP. In closing, we are proud of the strong foundation we have built in 2025. The strength of our balance sheet, strong cash flows, and capital allocation discipline position us well for value-creating reinvestment in growth and profitability, and we look forward to unlocking even more of our potential in 2026 and the years that follow. With that, let's turn to your questions. Operator? Operator: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Kaumil Gajrawala with Jefferies. Please proceed. Kaumil Gajrawala: Hey, everybody. Good morning. I guess a couple of questions. I maybe want to understand more around the restructuring with Presto and Hefty. And so I see at a very high level some of your comments on what you're hoping to do. But if you could provide some more details or are people moving around? What does success look like in terms of what you'll be able to accomplish that you can't do already? And then maybe some of the logic path on making this decision. Is there something that you see in the market from a demand perspective? Is it something that you see in the market from a competitive dynamic that you think is likely to be ongoing? Because making a change like this usually means there's a bit of a different view on either the top line or the profitability of the categories in general. Scott Huckins: First of all, good morning, Kaumil. Thanks for the question. I think there's a couple of factors at work. If I walk through them, I think the first is clarity and focus. So rather than having two different business units have participation in shared categories, what we're after is having clarity of focus. Each of those business units has a core focus on a category, just to keep it simple. There are a couple of benefits we see with that. The first is end-to-end management, all the way from consumer insights to innovation to operations to supply chain, end-to-end across each of those businesses. So we think there's an efficiency gain to be had. The second is we think it adds clarity for growth. And that clarity for growth comes in two dimensions. One, we've got one dedicated team focused on category innovation in one business, another dedicated team focused on innovation in another business. And then finally, the opportunities to assess and execute against potential growth outside of those categories are even sharper. So that's the substance. I think you've also asked, is there a bunch of people movement? The answer is really no. No real change in org design of any substance. Again, more reorganizing so that these teams are dedicated to their categories. Kaumil Gajrawala: Okay. Got it. And then if I can ask about foam, I believe we're lapping, you know, sort of the beginning of when foam really started to turn and at least at that time, it felt like it was not a one-and-done, but that there were some, you know, maybe some states or some markets that were going to be particularly impacted, others that were a lot less. So it sounds like the situation continues to be challenging. So I'm just curious. Are we anywhere near sort of a stabilization point? I know you're offsetting factors with sustainable goods and such, but are we hitting a stabilization point, or is this a sort of thing where the pressure just continues to build? Scott Huckins: Thanks for that one. So maybe a little dimension. So if you look at the performance of that category in 2025, volumes were down about 14%, plus or minus for the category. So to your point, we expect to see about half that for memorability, being half that rate of decline in 2026. So certainly, the bigger shock to the system would have been '25 versus '26. I think what's happening is more consumer-driven, including things like the considerations of the cost of alternatives. Yes, you'll see if you study pulp and paper, you know, those costs have generally come down over the most recent years. So I think that's more what we're seeing in 2026 compared with a real structural change in the regulatory landscape in 2025. Kaumil Gajrawala: Okay. Got it. Thank you. Operator: Our next question is from Peter Grom with UBS. Please proceed. Peter Grom: Great. Thank you. Good morning, everybody. I was hoping to get some more color on the competitive dynamics that you alluded to around the hefty business. Maybe just more color in terms of what you're seeing and ultimately, the decision around maintaining price points in the current promotion strategy? You mentioned that volumes will potentially be impacted. So curious what's embedded in the guidance. And I guess whether you'll be willing to shift your strategy should the volume declines be worse than expected. Scott Huckins: Good morning, Peter. I'll start, Nathan may add, in terms of guide effects. So I think what we're seeing is two different dynamics. As we exited 2025, at least the waste category, we saw a pronounced increase in the promotion and pricing activities from another competitor in that space. And for context, we actually would have seen our hefty branded promotion actually looked a lot like our total company, and, importantly, even down in the fourth quarter versus last year. Just to sort of set the stage on what are we seeing. The comments about staying the course are really a fundamental and long-term view of maintaining the brand equity in the hefty brand. And the business has been built around that very principle in offering consumer value. So our view is the right long-term strategy for the business is to see the course, and I think we certainly take some comfort in performance. You know, as we think back about the year, by seven points, the hefty brand on retail track channel data outperformed the category, outperformed the category in the fourth quarter by three points. So we feel like we've got the winning approach to the marketplace, and we think staying the course is the right strategy. Nathan, anything on the guide we want to share? Nathan Lowe: I think you kind of hinted at this, Scott, because we saw seven points of growth in the hefty waste bag business in 2025 on a category that was roughly up one. So whilst we wouldn't expect that level of success in the category in 2026, we've certainly factored in some continued success, just not to that degree. Peter Grom: Great. And then maybe related on foil, elasticities have been favorable thus far. But as you think about the January price increase, more increases to come. How are you thinking about elasticity from here and maybe managing around that $5 price clip as we move forward? Scott Huckins: Yes. Again, thanks. Another good question. So I think I'd start with we are really pleased with our commercial team and what we've seen thus far because it has certainly been a dynamic raw material climate, and it's not as simple as just quote, executing price increases. I think as we've assessed the situation throughout the year, we've been taking measured, generally quarterly, price increases. A good example of our developing our GM capability because while we've been taking those price increases, we've actually seen the pricing gap to private label contract throughout the balance of the year, and I think that's a very, very important observation. Another piece is on consumer insights. So when we study consumer research, what we find is the consumer will tend to look at their most recent one or two purchase cycles in considering the effective price. So going back to my comment about taking measured quarterly increases, we think that's had a bit of a muting effect on elasticities. And then in closing, having said all of that, we certainly enjoyed some share gains in the year and the quarter, but we also want to be realistic about the fact that with each subsequent increase, of course, there's more elasticity risk. So that's how we're thinking about it. You know, so far so good, but we also want to be, you know, foreshadowing there, you know, with each increase, there's more elasticity risk. Peter Grom: Thank you so much. I'll pass it on. Operator: Our next question is from Andrea Teixeira with JPMorgan. Please proceed. Andrea Teixeira: Hi, everyone. Good morning. Thank you for the question. I was hoping to see, like, a good segue into Peter's question on promotional activity. You also alluded to private label, and that's something obviously that you are very active on the bag side. So I was curious to see if you are, number one, obviously seeing the down trade, and that impacting your hefty and your branded tableware, and how Presto and other private label brands that you have been commissioned to have been getting market share. So can you comment on that and how we should be thinking about the impact of mix within your guide? Scott Huckins: Sure. So as a general statement, I'd say we continue to see stability in the categories in terms of brand in-store brand mix. The categories have actually been remarkably stable. In terms of I think you specifically asked about Presto. We have seen pronounced growth in that business, particularly around food bags, probably more prominent in club than other channels. So I think that would be the commentary on this generally. Have we seen material trade down? We haven't been pretty stable. We've certainly seen some wins in the Presto business in food bags. In terms of brand store brand mix, my expectation would be we'd probably see more branded mix in 2026 in light of some of the offsets in private label that Nathan spoke about in the outlook. Andrea Teixeira: And then, but more specifically, so how can we think about, like, the, I mean, go looking ahead if there is any opportunity for you to actually gain more, you know, more private label share or like, how you see you just discussed Presto, but also, like, good value for your bags. Like, how is that performing relative to your brand? I mean, obviously, you want to continue to gain share, but if that's not the case, how should we be thinking of that mix impact? Scott Huckins: Sure. So we definitely see opportunities from a share standpoint, what we call share gap selling that was referenced in prepared remarks, to both gain business in branded and store brand formats. What I was trying to reference in the prepared comments was that we're seeing just a lot of bid activity commensurate with the state of the economy, which is not surprising. And so we have near-term headwinds, we also have wins that you'll start to see flow through the business, particularly in the back half of the year. So we definitely think that there's opportunities in both the branded and store brand part of the business. We'll start with some headwinds, and we'll start to offset those in the store brand business as we work our way through the year. Andrea Teixeira: Okay. Thank you, Scott. Appreciate it. Operator: Our next question is from Lauren Lieberman with Barclays. Please proceed. Lauren Lieberman: Great. Thanks. Good morning. Curious on the SG&A. So you mentioned some delayering, but then also the shorter-term dynamics on advertising. And you're going to kind of true up in '26. I just wanted to get a sense for that. I would have thought that the run rate of the first three quarters was kind of a sustainable level given the delayering work, and it's really about that April maybe had some more short-term adjustments on the SG&A spend just as we think about into '26. Is that reasonable? Nathan Lowe: Yeah. Look. I would say when we talk about the actions that we took on SG&A in 2025, there's the when we talk about advertising, let's start there, is that we really focused on getting to the point of optimizing ROIs on a marginal ROI basis. So it's not that we took too much SG&A out. It's that we got it to the right point where we're optimizing that. When we think about bringing some of the SG&A back in 2026, we're really talking about investing behind particular launches of innovation. And the delayering, as you pointed out, is more structural. So there's not a lot more to talk about on SG&A other than that. Those variable compensation, the other swing factor. Lauren Lieberman: Okay. And so was the variable compensation a big factor in the fourth quarter? Could $80 million just it's a, you know, $20 million lower than the kind of quarterly run rate. It's a big number. Nathan Lowe: In terms of Yes. It certainly contributed to the fourth quarter SG&A. Lauren Lieberman: Okay. And then as I look into this year, just curious for any perspective you can offer on commodity cost inflation and kind of what type of headwind do you think that's going to be to gross margin, not you know? And then on top of that, obviously, we'll think about how to flow through pricing. Nathan Lowe: Yes. Sure. So I think the way to think about it, as we talked about it all last year, it was two to four points of cost and a similar quantum of pricing to offset that. Say, that this year, we'll talk about it in two to three points of cost headwinds and a similar amount in terms of pricing to offset that through the year. Roughly half of that is carryover of costs that ramped in 2025. And similarly, the pricing that we took in 2025 wrapping around. In terms of margins, probably worth starting with a couple of the comments I made in my prepared remarks. Just to put some color to that. First, we are talking about retail sales volumes down, so that's the reason Scott talked about. At the same time, SG&A is expected to be up, which you mentioned, and then EBITDA flat. So that certainly implies that we're expecting some improvement in profitability. At the same time, when we're in a period of taking pricing to cover commodity cost increases, expect that to have a dilutive impact on margin percentages as was the case in 2025. Lauren Lieberman: Okay. Great. Alright. Thank you so much. Operator: Our next question is from Robert Ottenstein with Evercore ISI. Please proceed. Robert Ottenstein: Great. Thank you very much. Good morning. A couple of follow-up questions. So first, on the combination of Hefty and Presto, from what I can gather, that's more sort of strategic and efficiency-related rather than pure cost takeout? Is that the right way to look at it? Scott Huckins: Yeah. Good morning, Robert. That is accurate. It is not a cost-driven motive. It's an execution-driven motive or focus. And, again, just to restate part of my comment to the prior question, we think that unlocks and provides additional clarity for growth. So not a cost motive. It's execution and growth. Robert Ottenstein: I like Perfet. It's better outcomes with the same resources. Okay. Great. Great. Great. Second, can you talk a little bit about the market share gains that you got in Q4? You had been running at roughly 100 basis points. That went to 200. Maybe some of the drivers around that and was there any kind of one-offs or anything that makes it unusual? And would that kind of continue, driving share gains, you know, in the first three quarters of this year at least and how that ties into the spring shelf set. So you're getting, you know, increased shelf space due to those gains. Scott Huckins: Thanks for the follow-up. So I think what's interesting is that the share gains were really across the portfolio. So if you think about our six largest categories, we actually enjoyed share gain performance in each of those six. The only outlier candidly was foam. So the point of that is it was fairly broad. Certainly, I think there's two drivers of that. One would be innovation. Newer items are certainly winning in the marketplace. I also think it goes back to our performance brand-oriented philosophy. I think more and more as the retail consumer has even a more prominent focus on value, I think that's probably an assist complementing those first two pieces. And then, frankly, last for me would be service. You think about it's a pretty challenging dynamic year. Global tariffs shift and evolve. And we ran a high 90 case fill rate for the full year. I'm very proud of our supply chain team for that. But I think those would be the three drivers that allowed that performance. You asked about looks into '26. We certainly are seeing continuation of that generally in our January results in terms of our performance against the categories against those same dimensions. So I think as we see it, we see some continuation. Robert Ottenstein: And is it also reflected in increased shelf space in the March, April resets? Scott Huckins: I guess two things. So part of it is we picked up about five points of distribution total distribution points here in the fourth quarter. So by definition, that provides distribution growth. We'll see as we get into the May, June time frame, the final outcomes of distribution. But as we're going into it, we're fairly optimistic. Because, of course, that very shared performance certainly is a useful marketing discussion topic with our retail partners. Robert Ottenstein: Terrific. Thank you very much. Scott Huckins: Thank you. Operator: Our next question is from Brian McNamara with Canaccord Genuity. Please proceed. Brian McNamara: Hey. Good morning, guys. Thanks for taking the question. I wanted to drill down on elasticity as it relates to aluminum foil, which appears well-behaved thus far. I'm curious how you would compare the current environment to 2022, where 75 square foot foil at retail breached the $5 price point for a time, and then you lost a few points of branded share, then you gained it back once you promoted below that kind of $5 price point. We've recently observed that 75 foot the price is kind of across the country, kind of well north of that $5 price point, close to $6 in some places. So I'm curious, has that $5 price point goalpost moved? I'm curious how you should how we should think about that the elasticity threshold. Scott Huckins: Good morning, Brian. Another really good question. So I think there's a couple of factors at work, probably three. What's different about now versus 2022 that you referenced would be specifically price gaps to private label. Back in that era, those gaps were over a dollar between the brand and store brand. We are seeing significantly tighter gaps as we exited the year in 2025 and early days in 2026. That's the first point. I think the second point, and this factors into our thinking, is over those last several years, if you look at the average cost of an item in a consumer item, excuse me, in a store, it's up about 25, 30%. So it's not as though we have a proof statement, but we certainly observe that on a comparable basis, what was the $5 price point you referenced is conceptually, if you inflated that against the balance of the store, we certainly think that might be providing some insulation. And then third and finally, is our team has been taking pricing actions. We believe that the quarterly more gradual increases are more effective with the consumer than, say, a semiannual much larger increase back to the comment I think I shared earlier about consumer insights where the consumer will tend to look at the most one or two most recent purchases assessing price. So I think those are the dynamics. But, you know, we study the category you would guess. Every single day, and I think are going to benefit from RGM capabilities where we've got continued capability development in how we think about how, where, and when to promote against those key cells us. So I think those are the variables, but we certainly would expect to see elasticities. But we think that we've got the data would suggest they've been certainly more muted than they would have been in 2022. Brian McNamara: That's helpful. Thank you. Scott Huckins: You're welcome. Operator: This will conclude our question and answer session. I would like to turn the conference back over to Scott for closing remarks. Scott Huckins: Thank you, operator, and thank you to everyone who joined us today. Our analysts, our investors, and certainly our 6,000 teammates who make RCP the great company that it is. We're energized about the opportunities ahead of us, and we look forward to sharing our progress with you in the quarters to come. Wish everybody a great morning and a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, and welcome to The New York Times Company Fourth Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Anthony DiClemente, Senior Vice President, Investor Relations. Please go ahead. Thank you. Anthony DiClemente: And welcome to The New York Times Company's fourth quarter and full year 2025 Earnings Conference Call. On the call today, we have Meredith Kopit Levien, President and Chief Executive Officer, and Will Bardeen, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you that management will make forward-looking statements during the course of this call. These statements are based on current expectations and assumptions, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties that are described in the company's 2024 10-Ks and subsequent SEC filings. In addition, our presentation will include non-GAAP financial measures, and we have provided reconciliations to the most comparable GAAP measures in our earnings press release, which is available on our website at investors.nytco.com. In addition to our earnings press release, we've also posted a slide presentation relating to our results on our website at investors.nytco.com. And finally, please note that a copy of the prepared remarks from this morning's call will be posted to our investor website shortly after we conclude. With that, I will turn the call over to Meredith. Meredith Kopit Levien: Thanks, Anthony, and good morning, everyone. 2025 was a great year for The New York Times. Thanks to strong execution against a clear long-term strategy. We added 1,400,000 net new digital subscribers, bringing total subscribers to 12,800,000. This puts us further down the path to our next milestone of 15,000,000 subscribers and beyond. Engagement across the portfolio was strong, which contributed to significant growth in digital advertising. We generated more than $2 billion in total digital revenues for the first time. Also grew adjusted operating profit more than 20% and expanded margin to 19.5%. Our fourth quarter results were a fitting capstone to the year and reflect contributions from every part of our portfolio. We added 450,000 net new digital subscribers in the quarter and digital subscription revenues grew 14%. Advertising beat our expectations with digital advertising up 25% and total advertising increasing 16%. Licensing, affiliate, and other revenues also grew. We delivered this growth by engaging and monetizing audiences across multiple products and revenue streams, which is a clear example of our strategy in action. AOP grew and margins expanded in the quarter even as we continue to invest in our world-class journalism and premium product experience. Let me spend a few minutes putting these results in a broader strategic context as we begin the year. The information ecosystem is changing rapidly, and the challenges media companies face remain steep. We're operating in a polarized, low-trust environment shaped by a few powerful platforms whose actions create headwinds for publishers. We believe that The Times is well-positioned to navigate these trends. Given the differentiated value we have developed based on years of strategic investment, there are even bigger opportunities ahead, and we are confident that we can pursue them ambitiously and profitably thanks to the durability of our essential subscription strategy and a handful of unique advantages. Let me name them. First, our world-class news coverage and each of our lifestyle products addresses a big global market. Hundreds of millions of people around the world engage with news, sports, games, recipes, and shopping recommendations in their daily lives. We already reach many tens of millions of them every week across our portfolio and see the opportunity to engage directly and deeply with many millions more than we do today. Second, we built a unique engine for creating original, independent, and high-quality content at scale. Our core New York Times newsroom is one of the few that can go wherever the story does and report it from on the ground in more than 150 countries and every US state last year. The Athletic is the world's largest sports journalism operation. Our in-house games team has a track record of producing original puzzles that are cultural sensations and played by millions. Cooking has more than 25,000 vetted recipes and a growing video catalog that gets people excited for their next meal. And Wirecutter's experts rigorously review thousands of consumer products every year. Providing independent, human-made journalism and lifestyle products that resonate with huge audiences around the world is not easy. While others have been doing less of it, we continue to thoughtfully invest, making what we do more rare and more valuable to more people. Third, we are constantly innovating to express our journalism and content in all the ways and formats that audiences want to consume it. We're using AI to make our reporting more accessible, and we're rapidly growing our offering in video, which represents a major new audience opportunity for us. As linear TV continues to decline and viewing habits shift even more to digital platforms, we see a long-term opportunity to establish The Times as a preferred brand for watching news in addition to reading and listening. Finally, we've developed multiple digital revenue streams to monetize consistently high engagement. We're confident that our product portfolio will continue to fuel strong digital subscription revenue growth and that digital advertising and our other digital revenue streams are positioned for healthy growth as well. We plan to further capitalize on these advantages in 2026 in a few ways. We'll keep covering the most important stories with independence and rigor. We'll do that in more formats and places, especially with video. We'll add even more value in every part of our portfolio through new shows, coverage areas, games, and product features. And we'll thoughtfully navigate the changing technological landscape to make The Times even more valuable to more people. Executing well against these priorities is how we plan to get millions more people to have direct relationships and daily habits with The New York Times. And as we do that, we expect 2026 to be another year of subscriber growth, revenue growth, AOP growth, margin expansion, and strong free cash flow. I will close by reflecting briefly on history. 2026 is a year of milestones. The 200th birthday of America and the 175th anniversary of the founding of The New York Times. Trustworthy, independent journalism has been a crucial part of our country's success, and that's just as true today as it was in 1851. But it requires continued vigilance to ensure journalism can play its essential role in society. And it requires continued reinvention for a journalism business to succeed. Over the course of nearly two centuries, The Times has experienced the advent of radio, broadcast TV, cable TV, the Internet, smartphones, social media, and now AI. Local markets turned into national and then international ones. Daily habits accelerated into a need for near-instantaneous information. Amidst this relentless change, The Times has adapted, thrived, and played a crucial civic role. Today, we anchor the daily habits of millions who rely on our journalism and lifestyle products, making us more essential to more people than ever before. This track record strengthens the conviction we have in our ability to continue to deliver on our mission and to build a larger and more valuable company as we do. And with that, I'll hand it over to Will. Thanks, Meredith, and good morning, everyone. Will Bardeen: In 2025, we delivered strong results, including another year of healthy revenue growth, AOP growth, margin expansion, and strong free cash flow generation. As Meredith said, we continue to grow our subscriber base over the course of the year, adding 1,400,000 digital subscribers. We also grew total digital-only ARPU and drove strong subscriber engagement. This led to an increase of approximately 14% in digital subscription revenues and helped power our multiple revenue streams, including digital advertising, which increased 20%. We grew overall revenue in the full year by approximately 9% as increases in digital revenues were partially offset by ongoing declines in print. These healthy revenue results coupled with our disciplined approach to cost throughout the year drove operating leverage. AOP grew by approximately 21% year over year in 2025 to $550 million. AOP margin expanded by approximately 190 basis points to 19.5%. We delivered these results even as we continue to prioritize strategic investments aimed at further differentiating our high-quality journalism and digital products. We generated approximately $551 million of free cash flow in 2025. That strong free cash flow generation primarily reflected our robust AOP and our capital-efficient model. We also benefited during the year from lower cash taxes due to the change in tax law for R&D expenditure deductions, as well as from the net proceeds of the sale of excess land at our printing facility. Over the course of the year, we returned approximately $275 million to shareholders. This included approximately $165 million in share repurchases and approximately $110 million in dividends. Today, we announced an increase in the quarterly dividend from $0.18 to $0.23, consistent with our capital allocation strategy. I'll note that as of year-end, we had $350 million remaining on our share repurchase authorization. Now I'll discuss the fourth quarter's key results, followed by our financial outlook for 2026. Please note that all comparisons are to the prior year period unless otherwise specified. I'll start with our subscription revenues. We added approximately 450,000 net new digital subscribers in the quarter, bringing our total subscriber count to approximately 12,800,000. Subscriber growth came from multiple products across our portfolio. We also continue to be pleased with the rollout of our family plan subscription offering. Total digital-only ARPU grew year over year to $9.72 as we stepped up subscribers from promotional to higher prices and raised prices on certain tenured subscribers. We continue to be encouraged by the results we're seeing at pricing step-up points, which we believe reflect the value we continue to add into our product. As a result, we remain confident in our ARPU trajectory. I'll note here that following 2025, we plan to make a change to our subscriber disclosures. We will continue to report total digital-only subscribers and total digital-only ARPU. However, we will discontinue reporting digital-only subscribers and ARPU by the categories of bundle and multiproduct, news only, and other single product, as well as the percentages represented by group corporate group education and family subscriptions. We believe total digital-only subscribers and total digital-only ARPU best align with how we manage the business for long-term growth. With both higher digital subscribers and higher total digital-only ARPU in the fourth quarter, digital-only subscription revenues grew approximately 14% to $382 million. Total subscription revenues grew approximately 9% to $510 million, which was in line with the guidance we provided for the quarter. Digital advertising revenues also came in above the guidance we provided, increasing approximately 25% to $147 million. The growth in digital advertising was due mainly to strong marketer demand and new advertising supply. Affiliate licensing and other revenues increased 5.5% in the quarter to $100 million, primarily as a result of higher licensing revenues. This was in line with our guidance. Adjusted operating costs grew 9.7%. This was above the 6% to 7% guidance range that we provided last quarter. I'll note that the primary reason for costs coming in above the guidance range was higher expenses associated with incentive compensation programs related to our financial outperformance. AOP grew 13% in the quarter to approximately $192 million, and AOP margin expanded 50 basis points to approximately 24%. Adjusted diluted EPS in Q4 increased $0.09 to $0.89, primarily driven by higher operating profit. I'll now look ahead to Q1. Digital-only subscription revenues are expected to increase 14% to 17%, and total subscription revenues are expected to increase 9% to 11%. Digital advertising revenues are expected to increase high teens to low 20s, and total advertising revenues are expected to increase low double digits. Affiliate licensing and other revenues are expected to increase high single digits. Adjusted operating costs are expected to increase 8% to 9%. We intend to continue operating efficiently while making disciplined investments in our high-quality journalism and digital product experiences that add value for our audiences. As we've discussed, video in particular remains an important area of strategic investment being reflected in our guidance. We are confident in our ability to generate strong returns as we grow the amount and impact of video journalism in news and across our portfolio. In summary, our strategy is continuing to work as designed. The strategic priorities for the coming year that Meredith highlighted are all aimed at building a larger and more engaged audience over time, growing our subscriber base, and powering our multiple revenue streams. For the full year 2026, we expect another year of healthy growth in revenues and AOP margin expansion and strong free cash flow generation. In addition, we remain on the path to achieving our midterm targets for subscribers, AOP growth, and capital returns. With that, we're happy to take your questions. We will now begin the question and answer session. Operator: To ask a question, press * then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question today comes from David Karnovsky with JPMorgan. Please go ahead. David Karnovsky: Thank you. Meredith, when we look at that 20% digital ad growth last year, just with hindsight, is it possible to kind of break that out between kind of new supply, new products, or just engagement? And then kind of how much opportunity you see on these fronts? And then for Will, the adjusted cost guide for Q1 is a bit above recent trends. So I wanted to see if you could unpack some of the drivers there. And you mentioned video specifically. I'm not sure if there's a way for you to kind of dimensionalize the impact there. Thank you. Meredith Kopit Levien: Yes. Good morning. I'll start on ads. I mean, the first thing to say is we were very happy with the performance last year, and I'd say we feel good about what we see as sort of all three elements of the ad business in terms of supply, which you asked about. We did add more ad supply in a number of places last year. And I would say as we have more opportunities to engage the audience, we should have more to add new and different kinds of supply. And I'll also say on supply, we have a really good track record of, and we did a lot of this last year, making the supply we already have more valuable, and that's with data and improvements to campuses and overall performance. In terms of demand, I would say that picture has improved. It's improved in a couple of ways. One, you know, we can do bigger deals with the marketers we already work with because there's more to offer. And two, and I've talked about this for a while now, I think we appeal to more marketers because we're now at scale in multiple spaces that are very appealing to them. And then the last thing to say, and I think I said a version of this for years, our ad products really work. They're performing. And so because of that, marketers come back and they buy more, and that's, I would say, thanks to the quality of both the canvases and the sort of way we apply those canvases and also to our targeting tools. And then lastly, I would just say we really believe in our leadership and the team, and execution has been kind of strong across the board. Will, I think the next part of the question. Will Bardeen: Yeah, to take the question, David, on the cost guide. So looking forward on cost and investments, I think the most important thing to say is that our overall approach isn't changing. So we don't guide beyond the quarter, but we remain focused over the long term on sustaining healthy revenue growth, AOP growth, and margin expansion. In other words, growing revenues faster than growing costs. And we do that by managing costs very closely while also making strategic investments that continue to differentiate us. And as Meredith and I both said in our remarks, as you mentioned in your question, that does include investment into video, which we're excited about. You know, we ramped that up, particularly in the back half of '25. The Q1 expense guide reflects year-over-year impact of that ramp of volume and video production at both The Times and The Athletic across the portfolio. Also, you know, just full cost, we also continue, as we've said in the past, to value the flexibility to lean into areas like sales and marketing when there are good returns in the market, where we see a good opportunity to run a brand campaign. But stepping back, with respect to cost investments, our overall resource allocation approach reflects ongoing cost efficiency combined with that thoughtful investment into the journalism and digital product experiences that we really think are going to add value to our audiences over time. And it's that disciplined approach that enables us to continue to target not just healthy revenue growth, but also year-over-year AOP growth and margin expansion for '26 and beyond. David Karnovsky: Great. Thanks a lot, David. Operator, we'll take our next question, please. Operator: The next question comes from Benjamin Soff with Deutsche Bank. Please go ahead. Benjamin Soff: Good morning. Thanks for the question. I wanted to ask first about capital allocation. You had another healthy year of free cash flow. Your balance sheet is obviously in a pretty strong position. So what are your latest thoughts on capital allocation as we head into 2026? How do you think about perhaps updating your shareholder return target as you continue to build up cash? And then I wanted to ask about password sharing. To date, you primarily focused on approaching that with a carrot, not a stick. Can you talk about how you think about password sharing on your platform broadly? And the different tools that might be available to help unlock that opportunity? Thank you. Will Bardeen: Sure. I'll take the capital allocation question, and Meredith can take the password sharing question. Definitely appreciate the question. We're clearly pleased with both the strong free cash flow generation and the strong balance sheet. At this time, what I'd say is no change to our strategy here. We believe our capital allocation strategy continues to serve us well. And recall, the top priority on that is continuing high-return organic investment into our essential subscription strategy. And I think you hear with some of our remarks today and as we've been narrating over the last call or two, video is an exciting opportunity for us there. And then after that, we intend to return at least 50% of our free cash flow to shareholders over the midterm. That's our stated target. And you've seen and continue to see a balance as we are on pace for that target between dividends and share repurchases. I note today in my remarks, the $0.05 increase to the dividend from $0.18 to $0.23 and this track record of repurchases with $350 million of the authorization remaining at the end of the year. And then we like having a strong balance sheet. It's a dynamic time in the media industry, so we're comfortable with that. Any M&A would have a very high bar. We're very pleased with the pace of our strategy and the spaces we're in. So that's sort of the specifics to say we're pleased with our capital-light allocation strategy and nothing to change at this time. Meredith Kopit Levien: Great. Why don't I take password sharing? I think there's two answers to that. The first one is to say, and I talked about this in my prepared remarks, we still regard ourselves as playing in these very big spaces, you know, news, coverage broadly defined, and then sports, games, recipes, shopping, bikes, all of which have a lot of running room in them. So we see a really big market opportunity and regard ourselves as, you know, still having lots of room to penetrate there. So that should give you a sense of how we think about password sharing as, like, potentially an opportunity down the line, but we're still in a phase of really wanting to bring more people into using and engaging with The Times. And the way we've done that, you know, so far, like, in the last six or nine months is with our family plan, which we are incredibly excited about. So that's almost like the carrot version of password sharing. The family plan is going very, very well. And I would say it's got three elements to it that really work for us. One, it is a sort of further penetration move, and it is helping us do that. People are bringing new people into an opportunity to engage with The Times, and we're very excited about that. That's our own subscribers getting other people in their lives to subscribe. And a lot of the things we do at The Times are sort of fundamentally shared or shareable experiences. The second thing to say with the family plan is it is priced at a premium, it's just, like, additive out of the gate to revenue and the same, you know, again, the carrot version of using password sharing crackdown as the stick. And then the third thing to say is, like, a broad point that a whole model runs on very strong engagement from people, and the family plan is yet another way to improve engagement of our subscribers and ultimately retention. We've long had the insight if we can get you. First, it was to read across more topics. You'd be more likely to stay longer, pay more over time. And then if we could get you to engage with more products, that was true. And now it's if we can get you to do it with the people you love and interact with, that is also true. So our version for now in a sort of moment where we still feel like we're relatively early in market penetration of dealing with what you're describing as password sharing is the family plan. But I don't rule out something else to offer it. Will Bardeen: Thanks, Ben. Operator, next question, please. Operator: The next question comes from Thomas Yeh with Morgan Stanley. Please go ahead. Thomas Yeh: Thanks so much. One more on the video journalism initiative, which sounds like an area you're really deciding to lean in on. I think to date, you've been adding more videos of reporters explaining their work as kind of a brand trust or social media marketing tool. Can you just talk about how you see the evolution of that product towards something you mentioned maybe closer to what we see on linear TV and how that fits into the investment needs that Will referred to? On the non-news single product growth, that was again a pretty big contributor to subscriber growth this quarter. I know you'll change the disclosure going forward, but maybe one last time, can you add color on what's been driving that strength across games or athletic and what you're seeing there? Thank you. Meredith Kopit Levien: Yeah. I'm good morning, Thomas. I'm happy to take both of those. The first thing to say about video, and I think you got in both of our prepared remarks, is we just see it as a really big long-term opportunity to establish The Times as the preferred brand for watching news in addition to reading and listening to that news. And there are sort of three parts to it, one of which you're asking about specifically: production, and then engagement and monetization. In terms of production, which is what I think you're pushing on, you can regard us as being in a phase where we're really beginning to scale it. And I think to your point, what we feel really good about from 2025 is we've arrived at sort of two things. One, scalable formats, and I'll name them, and also kind of video language for The Times that feels like it's really, really working. So what does that look like? You mentioned reporter videos. We are scaling that up. And one of the inherent advantages we have in the model is an enormous one of the world's most robust reporting forces. So you can imagine how that scales. In addition to reporter video, I think we've really distinguished ourselves in our still, you know, in early days of it with what we call visual investigations. You've seen a lot of that recently. That is something we're doing more and more of. I think that becomes even more important in sort of a low-trust environment. We're just showing more, so they're straightforwardly showing more of what is happening when a reporter is on the scene somewhere in news clips. And then we've made a really deliberate effort to turn our hit podcast, in most cases, into full-bore video shows, and that's going very, very well. And in terms of where all that is playing out, you're seeing us do that in our new watch tab, which we launched last year, in the core app of The Times, and that's, you know, early days, but we're very, very happy with what we're seeing there so far. And then also putting more of our video in all the places people engage with news off-platform, which we think is a really important part of our long-term engaged audience growth strategy. So we feel very good about all that. The most important thing to say is it's early days, and the phase we're in right now is really ramping up that production and building a wide engaged audience for it. So more engagement from the people we already have and then, you know, net new audience to engage with video. I think your second question was about single product growth in non-news. I'll just say, we're really pleased with the strong net ads growth in the quarter. I'd say it's our strategy working as designed. And as you've heard us say before, the great thing about the model is we have multiple levers for growth, and the different levers, the different products in the portfolio are going to play different roles at different times. And I would even say all of our products played some role in the quarter, and that is almost always true depending on the time of year. Some are driving subscriber growth, some are driving audience engagement, but it's all sort of a system that's working together. And we're, you know, super excited about what we saw in the quarter. Will Bardeen: Great. Thank you, Thomas. Operator, next question, please. Operator: The next question comes from Ketan Mamrall with Evercore. Please go ahead. Ketan Mamrall: Good morning and thanks for taking the questions. One on ARPU and a follow-up on costs. On the digital-only subscriber ARPU side, growth has historically been a highlight over the last few quarters, up in the 3% to 4% range. That growth decelerated a bit more than expected in the quarter. Based on your Q1 outlook, it certainly seems like overall digital-only subscription revenue growth will remain healthy. But any more color on ARPU specifically and the moving pieces for 2026 would be appreciated. And to follow-up with another question on costs, Will, I appreciate that you don't guide beyond the quarter, but I think despite the very attractive strength in net adds, advertising, free cash flow, and other parts of the story, there'll be some consternation on costs. So I just wanted to see if there's anything more you can share on the trajectory over there. Should the takeaway be that the high single-digit growth range exiting 2025 into 2026 is perhaps the new normal? Or should we expect a deceleration back to the mid-single-digit range in the back half of the year as you begin to lap some of these investments in video? Thanks. Will Bardeen: Yes, I'll take both of those. Why don't I just start with the second one? I think the key thing to say there is simply that we remain very focused on sustaining not just the healthy revenue growth, but also AOP growth and margin expansion. So very disciplined on costs and investments. And I described that in my remarks. I think that's the framework that I want to make sure to leave you with that we're very focused on. Move to ARPU. I totally appreciate the question. We sort of provide, as you noted, quarterly guidance on digital subscription revenue growth, which is the thing that we're trying to maximize over the long term. And that's a function of both our sub base and our ARPU. And as you've seen and expect to continue, ARPU growth in any given quarter can fluctuate for a variety of reasons. Those can be the volume and mix of sub additions, and where the, you know, what's the nature of the sub? Are they on a promotion? Are they tenured? Are they international, domestic? We have some different pricing. And then the timing of targeted price increases can play a role as well. So you noted in our guidance, we're expecting strong digital sub revenue growth in 2026. And I think it's maybe worth calling out as we begin '26 some of the color you asked for, we do expect in particular to see the benefit of an increase in the digital bundle price to $30 from $25. A ten-year cohort of bundled subscribers began paying those higher prices in Q1. And as we'd expected from some of our earlier testing, we tend to test all of our pricing. The results so far are very encouraging. So we don't guide to ARPU specifically. Overall, we continue, as I said, to be pleased with the health of the ARPU drivers. And we see multiple factors that are giving us confidence in our ARPU trajectory over time. At the basic level, we're continuing to add value to our products. They become more valuable. We're seeing strong audience and subscriber engagement. So an appreciation among our audience for that value. And then we remain pleased with the performance of our pricing step-up points, including when we raised prices on some groups of tenured subscribers. Ketan Mamrall: That's great. Thank you, Ketan. Operator, next question. Operator: The next question comes from Jason Bazinet with Citi. Please go ahead. Jason Bazinet: Sorry to do this, another one on costs. So you said in the fourth quarter, the expenses were a bit higher because of incentive comp. But going forward, it's more of the investments you're making. The incentive comp just sort of spread across all the cost items you disclosed? Or is it isolated in one? And same thing on the video investments. Are those across? Will Bardeen: Yeah. Appreciate the question. Yeah. So let me take the Q4 dynamic there. As I said, the primary reason for the difference between the guidance and what we came in at was higher expenses associated with incentive compensation programs and our financial outperformance. Now I'll note here that, for example, having such strong advertising revenue performance, meaningfully higher than our expectations in Q4, which is a very big ad quarter, has an impact on the full year and multiyear financials that are tied to our incentive plan. And that did impact, to your question, all four of our expense lines in the quarter. G&A was where that impact was the most obvious. But it might also be helpful for me in response to your question to note that it's also kind of its impact on the sales and marketing line in particular. As we disclosed in our earnings release, our marketing media expenses in the quarter were only 1.8%. So higher compensation expenses were also a factor in why that overall sales and marketing line was up over 11.5% in Q4, and it plays it's really in all those lines. So that's kind of that main story in Q4. Underlying that, you know, included we had started to ramp up our video investments and continue to make disciplined investments in those areas that are positioning us for sustainable growth for the long term. And I think that I've already talked about that in the context of the guide going forward. Jason Bazinet: Great. Yep. Thanks. Thanks so much, Jason. Operator, we'll take our next question, please. Operator: The next question comes from Kanan Venkatesh with Barclays. Please go ahead. Kanan Venkatesh: Thank you. Meredith, when we look at the growth in advertising, obviously, it looks like there's a lot of upside there. I mean, something that you could see as potentially a way to manage your ARPUs and the. In other words, instead of raising price, would you use some of the advertising to essentially make the product affordable for customers, you know, courier subscribers, a bit faster by leaning in on advertising? So it'd be great to get your thoughts on that. And then on the AI front, I mean, obviously, there's a lot of litigation expense building on that. But would you be able to get some sense of timelines around this as to when you expect resolution? And when we think about the puts and takes, obviously, there's some licensing fees you could get out of some of these models, but at the same time, how do you view the threats from AI? Longer term? Like, how do you weigh the opportunity versus cost in that front? Thank you. Meredith Kopit Levien: Yeah. Thanks, Kanan. Let me start on the AI question. And then I think I heard you on the advertising question. If not, you can try and answer it. You can redirect me if I didn't hear you quite right. I would say on AI, you know, we continue to see headwinds. We've been talking about that for a while now. But our strategy of building differentiated products at scale, which are worthy of seeking out and building habits with, make us really resilient to headwinds and are rapidly changing and pretty low-trust ecosystem. And over the long term, we believe what we do is going to be even more valuable to consumers and to business partners and ultimately even the LLMs themselves in an information ecosystem where it's harder and harder to find things that are true and valuable and worthwhile. So, you know, and we're already using, and we've talked about this in prior calls, we're using AI to make our work more accessible, do a number of things in the subscription model. We've got an AI-powered ad product that is really working. So we're already sort of harnessing AI in effective ways to make the business more productive and build our engaged audience. I think the question, do you want to try one more time on the ad question just to make sure I heard it right, and then I'm happy to answer it. Kanan Venkatesh: I mean, basically, the question is, you can get ARPU through advertising or through subscription fees. So is there a path where you, because your advertising revenues are growing faster, you grow prices lower and therefore, you know? Meredith Kopit Levien: I see what you're asking. Yeah. Yeah. Yeah. Let me just say broadly, one of the things that we are most excited about in terms of our strategy and our model, and I talked about this in my prepared remarks, one of the unique advantages that The Times has is we have this multi-revenue stream model, and you saw that really working. And so, you know, we particularly as we focus on building a larger and more valuable New York Times company, the sort of what powers that is building our engaged audience. And having an opportunity to monetize that audience, particularly as we're building in early chapters through advertising, is awesome. And you're really seeing that play out. And I could talk about that literally in every part of the portfolio, and every part of the portfolio contributed to the ad success in 2025, and we expect every part of the portfolio to play a role going forward. But in places like games, we've got, I think we have 11 games now, and six of them, maybe off by one, I think, are free games. And we, you know, monetize the enormous amount of engagement we get with our free games, first through advertising, and that's a great and exciting aspect of the business. And as we build The Athletic and really widen people's understanding of the power of The Athletic, if you're a sports fan and what it can do, it really makes the audience bigger. We've been very, very happy with what it can do as a commercial business, as an ad business. So I'd regard it as a whole system working together. And ultimately, what we're doing is also building funnels for future subscription growth, and it all kind of works together. It's all very deliberate. Kanan Venkatesh: Okay. Great. Will Bardeen: Thanks, Kanan. Operator, let's take one final question. Operator: The final question comes from Doug Arthur with Huber Research. Please go ahead. Doug Arthur: Last but not least. Just on that single product growth, which there's been quite a few questions on. I mean, I guess the question is, do you remain confident that it's sort of expanding the funnel, expanding the TAM, and you are getting or do have the potential to convert strongly engaged single product users to, you know, more valuable bundle type subscription? Is that working? And then I've got a follow-up. Meredith Kopit Levien: My short answer on that, Doug, is yes. We, you know, this is a whole system. All of the products beyond news broadly defined are playing a role in the funnel. We really like what we see in terms of how it's working in the subscription funnel and ultimately bringing people in, you know, into initial products and then being able to engage them more over time. And as we engage them more, they become more valuable to us in multiple ways. So yes, yes, yes, yes to what you're asking. And I'll just add on the back of that. Will Bardeen: Absolutely to the subscription business. And as Meredith said, the power of those multiple products from games to The Athletic in supporting the ad results we're seeing is also part of the encouraging story that we're telling. Meredith Kopit Levien: And cooking and Wirecutter too? Yep. Doug Arthur: So do you, you said you had one last follow-up? Doug Arthur: Yeah. There's been chatter in the press about the contract negotiations with the News Guild. I guess, focus on remote work guidelines. Is there anything to see there? Is there anything you can comment on? Meredith Kopit Levien: We have a long history of working with a number of unions at The Times and productive relationships with all of our unions, and we are, I think, well-prepared to move through this contract period as we have been in the past. And we're very confident that The Times will continue to be a great place for, in this case, journalists and ad people who are most of the folks represented in the current negotiation to work. Operator: This concludes our question and answer session. I would like to turn the conference back over to Anthony DiClemente for any closing remarks. Anthony DiClemente: Great. Well, thank you, everyone, for joining us for the call, and we'll see you next quarter. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Bunge Global S.A. Fourth Quarter 2025 Earnings Release and Conference Call. All participants will be in a listen-only mode. Should you need assistance, after today's presentation, there will be an opportunity to ask questions. To withdraw your question, please note this event is being recorded. I would now like to turn the conference over to Mark Haden. Please go ahead. Mark Haden: Thank you for joining us this morning for our fourth quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found at the Investor Center on our website at bunge.com under Events and Presentations. Reconciliations of our non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to Slide two and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view of respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. LogMeNet provides additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in the press release. And we encourage you to review these factors. On the call this morning are Greg Heckman, Bunge Chief Executive Officer, and John Neppl, Chief Financial Officer. I'll now turn the call over to Greg. Gregory A. Heckman: Thank you, Mark. And good morning, everyone. I want to start this morning by thanking the team and recognizing their extraordinary work around the world, both throughout 2025 and as we move into 2026. This past year was one of execution, investment, and integration, all in a market environment that demanded agility and discipline. In 2025, we reached a major milestone with the completion of our Viterra combination. The integration work our teams accomplished has been exceptional, and we remain highly engaged and excited about the progress we're continuing to make together. Building on a foundation of culture that we're already aligned on doing what is right for customers, this combination brings both organizations together within our proven end-to-end value chain operating model. Removing complexity and strengthening shared goals. As a result, we've increased connectivity and the flow of information across our combined organization. A crucial component to how we operate. As I've said before, it's our competitive advantage to have great people across the organization having the same information at the same time and working toward unified objectives. This alignment is already delivering results. We are unlocking synergies in origination, merchandising, processing, and distribution. Optimizing flows between origin and destination and capturing margin through improved logistics and better coordination. For example, previously Viterra's origination activities in most regions would have been managed purely through a merchandising lens. Leveraging a nimble platform built to operate on short lead times, today, people managing the same network of elevators are now making decisions with a more complete picture of our global platform. Taking an integrated view that balances speed with longer-term considerations. This not only allows us to keep our processing and refining plants running at high capacities but also results in more profitable outcomes for both farmers and consumers. We have capabilities today that we didn't have before. And we're just getting started. These types of benefits are durable and will compound over time. We will provide more details on synergy capture, capital allocation priorities, and our combined long-term outlook at our Investor Day on March 10. And while we've been integrating Viterra, we've also been working to advance our large greenfield projects navigating trade flows, policy uncertainty, and geopolitical volatility. All while staying focused on connecting farmers to end-market demand across food, feed, and fuel. Shifting to our operating performance, our fourth quarter reflected higher results in all our segments. Driven by strong execution and our expanded footprint and capabilities. John will go into more details in a moment. Externally, the environment remains complex. With limited forward visibility. Geopolitical tensions, evolving trade flows, and uncertainty around biofuel policy, and that's particularly in the U.S., continue to influence farmer and consumer behavior. Based on what we can see today in the current environment, and forward curves, expect full-year 2026 adjusted EPS in the range of $7.5 to $8. And with that, I'll turn it over to John for more details on our financials and outlook. John W. Neppl: Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on slide five. Our reported fourth quarter earnings per share was $0.49 compared to $4.36 in 2024. Our reported results included an unfavorable mark-to-market timing difference of $0.55 per share and an unfavorable impact of $0.95 primarily from notable items related to the settlement of our U.S. Defined benefit pension plan, Viterra transaction integration cost, and an impairment of a long-term investment. Prior year results included a net positive impact of $0.98 from notable items, primarily related to the gain on the sale of our Sugar and Bioenergy joint partially offset by Viterra transaction integration costs. Adjusted EPS was $1.99 in the fourth quarter, included approximately $50 million of net tax benefits. Versus $2.13 in the prior year. Adjusted segment earnings before interest and taxes or EBIT was $756 million in the quarter versus $546 million last year with all segments showing higher year-over-year results. In the Soybean Processing and Refining segment, slightly higher results were primarily driven by South America reflecting higher processing and refining results in Argentina and Brazil. In the destination value chain, lower processing results in Europe and origination in The Americas were partially offset by improved results in Asia. Results in North America were lower in both processing and refining. Higher process volumes were largely attributed to the company's expanded production capacity in Argentina. Higher merchandise volumes reflected the company's expanded soybean origination footprint. In the softseed processing and refining segment, higher results were primarily driven by better average processing margins and the addition of Viterra's softseed assets and capabilities. In North America, higher processing results were partially offset by lower results in refining. In Europe, results were higher in processing and biodiesel, but lower in refining. In Argentina, results were higher in processing and modestly higher in refining. The resulting Global South Seeds and Global Oils merchandising activities also increased reflecting strong execution. Higher softseed process volumes primarily reflected the company's increased production capacity in Argentina, Canada, and Europe. Higher merchandise volumes were driven by the company's expanded soft seeds origination footprint. For other oilseeds Processing and Refining segment, improved results reflected stronger specialty oils performance in Asia and North America. Along with higher global oils merchandising activity. Results in Europe were in line with the prior year. In the Grain Merchandising and Milling segment, higher results were primarily driven by global wheat and barley as well as wheat milling, partially offset by lower results in global corn and ocean freight. Higher volumes were primarily reflected in company's expanded grain handling footprint and capabilities along with large global green crops. Prior year results included corn milling, was divested in the second quarter of 2025. The increase in corporate expenses was primarily driven by the addition of Viterra. Higher other results primarily reflected our captive insurance program, partially offset by $10 million of prior year income, the Sugar and Bioenergy joint venture that was divested in 2024. Net interest expense of $176 million was up in the quarter compared to last year reflecting the addition of Viterra partially offset by lower average net interest rates. Let's turn to Slide six where you can see our adjusted EPS and EBIT trends over the past five years. The recent performance trends reflect less volatility due to a more balanced global supply and demand environment, particularly in grains, and the impact of ongoing trade and biofuel uncertainty that has created a very spot transactional market environment. Slide seven details our capital allocation. For the full year, we've generated just over $1.7 billion of adjusted funds from operations. After allocating $485 million to sustaining CapEx, includes maintenance, environmental health, and safety, we had approximately $1.25 billion of discretionary cash flow available. We paid $459 million in dividends and invested $1.2 billion in growth and productivity-related CapEx. We received approximately $1.2 billion of cash proceeds from the sale of a variety of assets in businesses. And we also repurchased 6.7 million Bunge shares for $551 million. This resulted in $173 million retained cash flow. Moving to Slide eight. Year-end net debt excluding readily marketable inventories or RMI was approximately $700 million. The recent change versus history reflects the impact of the acquisition debt assumed and issued related to Viterra. Our adjusted leverage ratio, which reflects our adjusted net debt to adjusted was 1.9 times at the end of the fourth quarter. Slide nine highlights our liquidity position, which remains strong. At year-end, we had committed credit facilities of approximately $9.7 billion of which approximately $9 billion was unused and available. Providing ample liquidity to manage the ongoing capital needs of our larger combined company. Please turn to Slide 10. For the trailing twelve months, adjusted ROIC was 8.1% and ROIC was 6.9%. Adjusting for construction and progress on our large multiyear projects and excess cash on our balance sheet, our adjusted ROIC would increase to 9.3% and ROIC to 7.5%. As a reminder from last quarter, we decreased both our weighted average cost of capital and adjusted weighted average cost of capital from 77.7% respectively, to 66.7% respectively reflecting the recent upgrade in our credit rating change in capital structure of the combined company and lower interest rate environment. Importantly, we're not lowering our long-term investment return expectations. Moving to slide 11. For the year, we produced discretionary cash flow approximately $1.25 billion similar to the prior year and cash flow yield or yield or cash return on equity of 9.4% compared to our cost of equity of 7.2%. Please turn to Slide 12 and our 2026 outlook. Taking into account the current margin and macro environment of forward curves, we forecast full-year 2026 adjusted EPS in the range of $7.5 to $8. As Greg mentioned in his remarks, the environment remains complex. With limited forward visibility, particularly related to U.S. Biofuel policy. As a result, we believe the curves do not properly reflect what opportunities should develop during the year once the policy is finalized. Additionally, we expect the following for 2026. Adjusted annual effective tax rate in the range of 23% to 27%, net interest expense in the range of $575 million to $620 million, capital expenditures in the range of $1.5 billion to $1.7 billion, depreciation and amortization of approximately $975 million. With that, I'll turn things back over to Greg for some closing comments. Gregory A. Heckman: Thanks, John. Before we go to Q&A, I wanted to just offer a few thoughts. Through our disciplined execution, portfolio optimization, and strategic investment, we've reshaped this company into a more agile, diversified, resilient Bunge. We've overcome multiple obstacles including geopolitical shifts that continue to reshape global trade flows. Yet through all of that, the team has executed, adapted, and delivered. Those experiences have only strengthened our confidence and our ability to succeed going forward. With the addition of Viterra, we now have greater reach across origins and destinations, deeper insight into global flows, more capability and optionality to serve customers, and manage risk. We're still on a transformation journey, and continuous improvement is part of who we are. At the same time, our Bunge team is operating from a position of greater strength than at any point in our history. We've never been in a better position. We've never been more needed and we've never been more prepared. Thanks to our people and the global infrastructure we operate. And we look forward to sharing more on the opportunities ahead of us at our Investor Day on March 10. In the meantime, I'll close by saying as we look ahead, I'm confident that capabilities that we've built will allow us to deliver value in any environment. While continuing to connect farmers to the markets to sustain communities and feed the world. With that, we'll turn to Q&A. Operator: Thank you. We will now begin the question and answer session. And you would like to withdraw your question, at this time, we will pause momentarily to assemble our roster. The first question comes from Tom Palmer with JPMorgan. Please go ahead. Tom Palmer: Thank you and good morning, Greg and John. I know your guidance does not take a view on how industry conditions might change, but I had a couple of questions here. One, I wonder to what extent you think the RVO might be reflected in the curve today? And then when we see board crush margins moving higher over the past month or so, has this had much impact on the margins that you are able to capture in your crush operations up to this point? Thanks. Gregory A. Heckman: Sure. I'll start on that, John. So yes, you're correct. Our outlook, we did not put any assumptions about what the RVO would do to the curves over the profitability. Beyond what the curves are already showing. Now as you called out, we've definitely seen The U.S. Curves, in the second half, right, improve a little bit. And we think those probably driven by RVO tailwind expectations. Now that being said, there's not much business done beyond Q1 right now. That we're still pretty open on the balance of the year. And then the other feature, I think you've got pretty high oil stocks in The U.S. Until we see that demand come on. Is a little different than the rest of the world where the oil S and Ds are pretty balanced. That could get cleaned up pretty quickly. Should we get the RVO enacted. But the actual details are important and the timing is important. So, you know, we all wait, but to stay consistent, we just gave the forecast on what we can see today and what the curves are today. Yes. And maybe just to add, Tom, that on top oil has certainly been up and down. Based on market expectations. But we're seeing good steady demand soybean meal. And I think that's a global phenomenon. But in The U.S. as well, soybean meal demand has been strong. So that's at least helping from a crush perspective. Tom Palmer: Understood. Thank you. I had a question just on cadence for the year. I think as historically earnings have been a bit more weighted to the second half of the year than the first half. But the composition of the business is obviously changed quite a bit here. So any thoughts on both kind of the earnings cadence as we think about this year and to what extent that might be reflective of what normal seasonality might look like in the business as we look forward? Thank you. Gregory A. Heckman: Yes, Tom, I think how we're looking at this year and I don't know that this is necessarily going to be indicative of the future, but just given where the forward curve sits today, we're looking at first half, second half weighted more like a 30-70 this year, which is a little lighter first half than maybe what we typically see. And then even on the Q1, Q2, we're looking at a 35-65 type split. So absent the impact of RVO change in Q1 we're going to be through the end of Q1 by the time that probably gets resolved. Pretty light Q1. So 35, 65 first half and 30.7 for the full year. Tom Palmer: Okay. Thank you. Operator: Our next question comes from Heather Jones with Heather Jones Research. Please go ahead. Heather Lynn Jones: Good morning. Thanks for the question. I just wanted to just clarify one thing on the guidance. So typically, you guys use the forward curve to set your guidance. And adjust that based on what you're seeing in the physical. Markets is that any different? Did you do anything different this time, like, just did you just take the curves and then make adjustments for what you're seeing as far as basis, etcetera, or just want to clarify that. Gregory A. Heckman: Yes, Heather. Thanks for the question. Yes, we were a little boring in our consistency. So yes, we use the exact same approach that we've been because we just think that makes it easier to understand how we come at this each quarter. But yes. And I would just say it's right now, obviously, we would expect once the RVO was finalized for the conditions to improve that the question of the dynamics we're waiting to hear are obviously finalization or reallocation, the compliance years are they going to have retroactive 2026 to the first of the year. When it's going to actually get finalized to start taking effect. So there's still some unknowns there until it actually gets codified. So rather than try to guess on all that, we just take the curves away they are and let the market do its work. And in a perfect world, we'd get some clarity ahead of our investor day on March 10, but fingers crossed. Heather Lynn Jones: Well, as Gary said, my fingers crossed too. Then a big picture question. So since 2022-2023, trade lanes have shifted, you don't have the disruption you had then, you've had quite a bit of crush capacity added in North America and South America. But you have more constructive biofuel policy in Indonesia, Brazil, Europe, and if this is anything if The U.S. has anything likes been telegraphed, it's gonna be much more constructive in The U.S. So putting all that together, increased capacity but much greater demand. Do you envision a scenario where crush margins, both soft and soy, could replicate what we saw on the 2022-2023 time frame? I know those are a lot of what ifs, but just would love to get your thoughts on a scenario like that. Gregory A. Heckman: Yes. No, you've called out a lot of the key things that we're seeing. There's no doubt as John said, the takeaway on meal globally has been better than everyone expected. Part of that, I think, to be the growth we're seeing in protein demand, especially in chicken and the growth there. On the biofuel policy, no, you're exactly right. There are things happening kind of everywhere, whether it's the B-fifteen in Brazil and eventually going to B-sixteen later this year we think. Indonesia does policy. They've shown the ability to continue to make changes there to adapt what we're seeing in Germany on the RED III and then of course our own biofuel policy here. But I think what you're seeing is that governments understand the biofuel policy it's good for the farming community. It's good for all those communities that value that starts at the farm gate then moves through the value chain. So, think we expect biofuel policy to continue to be constructive as far as comparing back to certain years I don't know that I can make that exact call today, but I think we feel it's definitely constructive. What we do like and you ask about soft, is we have a much more balanced footprint globally, not only in soy but in soft and we've added a larger percentage of soft crush now. And of course, that is definitely favorable with the oil demand and that will favor us soft crush going forward. So we think our more balanced footprint there will be helpful for sure. Yes. I might just add on, Heather. The other thing is we haven't really seen any global meaningful global disruption. Whether it's weather or geopolitical here for a bit. I mean, there's been obviously the trade trade issues with China, but when you really think about a big shock to the the global system, there really hasn't been one for a while. And a weather event could really have a big impact and given our global footprint going forward. I think we we feel like we're positioned is good or better than anyone to handle that. Heather Lynn Jones: Okay. Thank you. Operator: The next question comes from Andrew Strelzik with BMO. Please go ahead. Andrew Strelzik: Good morning. Thanks for taking the question. I had a couple of things. The first one, just from an operational perspective, I was hoping that you could maybe compare the Viterra operations kind of at the time of the acquisition to when you guys took over the Bunge business. And I and I guess where I'm coming from is I'm just curious if you see similar opportunities to kind of transform the earnings power of the Viterra piece separate of the synergies through internal operations as has been the case of Bunge, or if there are any meaningful differences that you've observed. Gregory A. Heckman: I'd say the answer is yes. It was one of the things I think both companies were excited about coming together and doing the deal where that best and better practice is. And as we're able to share that, it starts everywhere from the safety of our people as we brought the safety programs together and relaunched combined safety program on best and better practices. And definitely, there is a bit of a replay of what we did in 2019 when we joined Bunge. We're now looking at the combined portfolio and making sure that we're running the right assets and the right businesses where we have a right to win for the long term. All the capital allocation is done from the center. And that's healthy for the teams to compete for that capital. Aligning the rewards programs and staying focused externally on our customers at both ends of the value chain and being able to do that from global diversified balance that we now have across crops across geographies and across origination has as well as crushing distribution. We've got more capillarity and granularity at origination and destination than we've ever had. And ultimately, you wrap all that in a risk culture. And I do think Bunge when we joined had incredible capabilities as does Viterra. And it's been great. Our teams did a ton of work pre-close, and we hit the ground running on day one with one view of our global positions for the people to make decisions with. The teams have embraced the culture. They understand how the risk needs of commercial teams work together in order to help manage their earnings at risk. And run our assets at high capacity utilizations. Help our customers manage their risk. I'll tell you, in this environment, that is really needed now and that has real value. And that's the one that continues to pay benefits over and over. Look, we're getting started. We've got a lot to do, but we really like the way the teams are engaging and we're together here early on. And you're right. We've done a lot of this before, so it's just about doing the work. Andrew Strelzik: Okay. Great. That was super helpful. And I apologize if I missed this, but can you share what you're assuming in '26 in the guidance for synergies on the cost and commercial side and maybe how we should think about that phasing in within that the kind of split you gave for EPS through the year? Thank you. John W. Neppl: Yes, Andrew, this is John. So I would say on the cost side, which is what we've got baked into our forecast primarily, we're feeling very good about where we are. We're estimating about $190 million of realized synergies in 2026, which is actually ahead of schedule. When we look at what we laid out at the time we filed our proxy, laid out our expectation growth synergies, we expected a second-year full year about $175 million roughly. We're actually going to do better than that in six months earlier. So we've taken a lot we took some action ahead of close and actually started getting the organization structured and ready for the close of the transaction. So we had a bit of a head start coming into the close. And, you know, in 2025 and prior, we realized a little over $70 million of synergy already by the end of 2025. And so we're looking at $190 million for next year, for 2026 year we're in now. With a run rate by the end of the year somewhere around $220 million run rate by the end of the year. So feel very good about that. Of course, $190 million is baked into our forecast. On the commercial side, I think that's still developing. You know, we've got line of sight to a lot of good things. But like anything, those ones are you know, a little more difficult to quantify individually. But I would say a relatively modest amount of synergy baked into the forecast on the commercial side. Andrew Strelzik: Great. Thank you very much. Operator: Our next question is from Salvator Tiano with Bank of America. Please go ahead. Salvator Tiano: Yes, thank you very much. So I want to start a little bit with the question. If I heard correctly, you said this year we expect to realize $190 million or $1.90. So I guess this, by our estimates, is around 70 or 75¢ in EPS year on year growth. So how is the guidance, I guess, on the low end and frankly even adjusting for the dividend even on the high end. Lower year over year It seems a little bit counterintuitive since even without the RVOs, the operating environment seems to have been a little bit better. For commodities trading, for biofuels, So does this imply essentially a material decline year on year before the synergies and why would that be the case? John W. Neppl: Yes, had a little bit trouble hearing you, but I would look at it this way. We're going to have with the full year of Viterra obviously we have a full year impact of share outstanding shares. We have full year of interest cost full year of depreciation, some of those impacts obviously. And I would say parts of the business that are yet to be performing as well as I think they could. Around grains and merchandising business, I think going forward, we still have work to do there. But, you know, overall, I think know, again, we're using the four curves as they stand today. And I think that, you know, getting some clarity there and some upside, you know, will be some opportunity. But at this point, it's that's how we're seeing it. And of that 190, synergy, if you look versus 25, there's 120 incremental. We did about 70 in '25. So for your modeling, it's one twenty incremental. In '26. Salvator Tiano: Okay. Perfect. So that's extremely helpful. And the other thing I want to ask is a little bit about the cadence you provided earlier. It seems to us that this implying kind of $0.80 in Q1, 1 in Q2 and then around 2.7 in the second half. So my two questions are firstly, $0.80 in Q1 that will be probably, you know, the lowest EPS figure in a long time and theoretically, again, the idea is that the markets are a little bit better than they were at the trough of last year, getting paid much lower. So are there any specific items or segments that maybe affected by timing, something that is pushing earnings away from Q1? The second part of the question is, if we're not really assuming a major improvement in the forward curves, in the guidance. How are we getting to around $2.7 EPS in the second half in each of the quarters? And if the IPOs come, are we talking about $3.5 or even $4 at some point in quarterly EPS? John W. Neppl: Yes, I think if you look, you're really on, obviously, the first the first the first half kind of the breakdown there in terms of quarter. And then the second half, think we're looking at about a forty-sixty on the second half at this point, but it's still way early. So a little difficult to predict that. But I think, look, a lot can happen. A lot of Q1s baked already were a month more than a month into Q1. I think that we're off to an okay start, but again, when biofuel policy gets resolved, Q1 is going have largely been completed. And so we're hopeful that it's going to provide us some upside here as we look through the balance of the year. But yes, Q1 is a really light quarter. We're a much bigger company. And but a lot of uncertainty what we found, what we've seen really 2025 and especially into 2026 is, very spot customers on both ends. Farmers are spot, our customers are very spot and it just creates less opportunity for us. And if you look and I might say, you look kind of coming out of Q4, you've got on soy, you've got average margins are down in Q1 versus Q4. In soft, you've got crush margins down kind of seasonally versus Q4. And then you say, kind of how do you come out of Q4? One, you got thank the team for really executing very well in a quarter where you had really no market catalyst heavy stocks, you've got uncertainty around the bio and trade. Policy. So I think what we saw there is the team executed very well even though with ample supplies farmers don't want to sell at the lower prices and you're feeding food customers and fuel customers haven't needed to buy because they've been rewarded for waiting. So that environment is definitely carrying over into Q1. Now that being said, as in I think there's opportunities there that the team will execute well against it. The other kind of feature is the Australian harvest was delayed somewhat by weather That's now definitely an important feature of us. And that's sliding some of that from Q4 into Q1, but it also has brought margins down a little bit the way that that harvest is developing and the demand is developing. So those are kind of some of the features. Salvator Tiano: Thank you very much. Operator: Our next question is from Ben Theurer with Barclays. Please go ahead. Benjamin M. Theurer: Hi, good morning, Greg, John. Thanks for taking my question. One on grain handling, actually, just to help us understand because grain merchandising, used to be not as relevant, but now with Viterra, it starts to become a little more of a heavyweight as well. So how should we think about the current conditions, right? 2025 was a lot of uncertainty with trade that the conflict between US, China, etcetera. So as you look through the opportunities in the business, in the combined business, and we talk about the merchandising, maybe ocean freight, etcetera, how should we think about the 2026 setup here? And what's, like, kind of, like, a level of disruption or activity that you need in this business to really make the most out of the no larger footprint that you're having? Gregory A. Heckman: Yeah. You know, I start by reminding us, right, we've got six months under our belt running it together. So this we're looking forward to the first half as this is a very seasonal business. We'll get to see Q1 and Q2 with the combined platform and then we'll start lapping the time that we ran together in the second half of last year. So look, the teams are continuing to adjust and do the scenario analysis for a number of things that can happen. But there is that important baseload business, serving customers every day, We've got the geographical balance. We should have the absolute best cost position to be there with the right product, the right quantity, the right quality, at the right price. So we'll do that baseload business and then adjust to whatever disruptions. And we've already seen some of that where we've had to repair origins and destinations and where we've actually had to develop some new destinations because some of the trade disruptions. So I think that becomes standard part of the business. And as you called out as well, ocean freight, we've combined that group. We're a very large user of course of the ocean freight. We're starting to see the benefits of that larger platform and some of that lowering the cost between origin destination and being able to react faster to change. So I think part of it's just getting the reps getting to fewer systems and processes and having the teams you know, continue to make those improvements. So whatever the environment, we know it will improve eventually, but know, until it does, I know our team will get all of the benefit that we can out of it. And Ben, maybe I'd just add. I mean, for Q4, we only had a thirty million dollars increase year over year in the segment. And I think as you look into 2026, you should see a better year over year improvement especially in the first half, obviously, when we don't have the comps are against the prior Bunge only, even in the second half, we expect the comps to be better versus the combined company second half. So, it's moving in the right direction. It's just that's the biggest part of Viterra's business. And while we were really, really pleased with how well the crush was folded in, very quickly because we had a much larger crush footprint. So that folded in very nicely to network quickly. You have a lot more people, a lot more assets, a lot more locations involved on the merchandising and handling side and it's more work. Benjamin M. Theurer: But John W. Neppl: to Greg's point, we're doing the right things. We got the teams focused. It's going to take a little bit longer to get that humming. Benjamin M. Theurer: Okay. And then my second question real quick is CapEx, obviously, last year was give or take $1.7 billion of which a little more than $1.2 billion was for growth. The guidance you issued for this year is more or less the same level. If we take the midpoint here, just a little bit lower. I suspect sustaining CapEx goes a little bit up, but it's probably still going to be roughly a billion in growth investments. So how should we think about the return on investments here that $1 billion plus last year, probably another $1 billion this year, what's like the return you're expecting from that and especially the timing of those returns? John W. Neppl: Yes. Let me start with maybe talk about the mega projects. So our spend on mega projects, so the four large capital projects that we've the multiyear projects, that spend is going to drop about $350 million in 2026 as we finish kind of get to the completion dates on the projects. So that leaves that's about $600 to $650 million on the mega projects. That will be largely wrapped up by the end of the year. We really don't we have not modeled in really much if any contribution from those projects. So the Moorestown plant is in commissioning now and will be running this year. Obviously, a lot of the time this year is going to be spent on qualifying the plant for our food customers. We will get some volume through there, probably not high enough capacity utilization to have meaningful contribution in 2026. So we've not really added much in the forecast for that. And then our Destrehan barge unloading and crush plant expansion. Remember the crush plant in the joint venture with Chevron. And then the barge unloading, those will be up mid-year and of course, we're not we don't have a lot baked into the forecast a contribution in '26 for those either. I think they'll really be, you know, hit they'll really be contributing a lot more as we get into 2027. And then our the final project is the West Sun plant in Netherlands that will be up and running in for the most part early 2027. So not a lot of contribution from those in 2026, but we should see a bump up in '27 relative to that spend. We've got also we've earmarked a few 100 million for other growth projects in '26 to round out the billion-dollar rough number. Those haven't all been approved, and we'll review those as we go and may or may not decide to do those. But we've we've got that included in the forecast. That's why we have a range of one one point five to 1.7 If we did all of that, we'd be closer to 1.7. If we choose not to do some of those projects, we'll be closer to 1.5. And those, you know, obviously, anything we're constructing during '26 likely wouldn't have a meaningful impact on 2026 returns. Benjamin M. Theurer: Got it. Thank you very much. Operator: Thank you. The next question comes from Stephen Haynes with Morgan Stanley. Please go ahead. Steven Kyle Haynes: Hey, good morning. Thanks for taking my question. Lots been covered. Maybe just another way on the guidance. I think in the past, you've you've provided some directional I guess, guide by segment. I realize it's maybe a bit harder just given, you know, the first half of last year doesn't have, Viterra in it and and this year has a full contribution. But is there a way that maybe you could frame by segment know, working back from the midpoint of your guide, like, whatever adjusted EBIT is kind of assumed at that level. You know, how you see that splitting out between each of your businesses this year? Thank you. John W. Neppl: Yeah. So if you look Steven, this is John. If you look at kind of our core segment, eBay, so that's defined as a segment results before corporate. I'd I'd look at it this way about half that that EBIT is gonna be in our soy processing and refining. How we're looking at it for the year. So we call that 50%. About a quarter of it in our soft processing and refining segment. And then grain merchandising and milling, we're forecasting to be around 20% of it. And then the remainder of the remaining 5% would be in our other process of refining. That's kind of how we see the rough forecast for the year. And then of course offsetting that to some degree will be the corporate. The corporate and other we would expect to be, call it 120,000,000 $125,000,000 per quarter negative against against that. Steven Kyle Haynes: Okay. Thank you. Appreciate all the help detail. Operator: Thank you. The next question is from Derrick Whitfield with Texas Capital. Please go ahead. Derrick Whitfield: Good morning, all and thanks for taking my questions. John W. Neppl: Good morning. Derrick Whitfield: With regard to the RVO, the administration has been quite supportive of The US and farmers nearly at every turn. We have heard in recent weeks a range of 5.2 to 5,600,000,000 gallons per BPD volumes. I guess where is your view on where the administration will land on absolute volumes? And the half range generation concept for imported products and feedstocks? John W. Neppl: Derek, this is John. I think on the 5.2 to 5.6, I don't know that we see where it's going to end up. Obviously, we prefer the 5.6 obviously, but, we're hopeful they'll at least start at the midpoint. Of the range and maybe go up from there. Especially given that it appears and pretty likely that the half rent, the 50% rent is not gonna take effect in 2026. You know, They're going to kick that can down the road to 2027 and make a decision then. So hopefully, given that decision, they'll move to the high side of this range of 5.2 to 5.6. But we don't obviously, don't know yet yet and hoping hoping here over the next few weeks to get some clarity. Derrick Whitfield: Hey, Dale. Let's hope your crystal ball is right on the five six side. But maybe on a on a similar topic. So I read in a recent trade article that Bunge was recognized as the first company to certify soybeans for use in the production of SAF under the CORSIA plus protocol. To the degree that you can, could you speak to that market opportunity for Bunge from this development? Given the favorable price realization for SAF over RD and the tightness we're seeing in qualified feedstocks for SAF. John W. Neppl: Yeah. Look, I think we don't have anything baked into our forecast for that. So anything that develops during the year is going to be upside for us. I think it's still fairly nascent market, at least from the way we've participated up to this point. But certainly, it's going to be you know, incremental demand. It could be massive incremental demand it really gets rolling. But we work a lot with the in fuel. We've got relationships with all the large fuel producers. And those are produced jet fuel. So, we're optimistic that is that as that gain some traction, we'll be right there to participate. But would tell you in our 2026 numbers, we don't have anything meaningful baked in for that. So looking forward to seeing how it develops. So we are, you know, we are focused on and for the long term. And one of the things that you know, we've got with the partnership with Chevron and the partnership with Repsol and some of the other fuel customers, right? It's not only serving them, with the current origination that we have, but now having the touch we do globally with more farmers than anyone else as we're working to develop some of these new novel seeds and cover crops, we'll have the ability to meet what their needs are for the long term, it's SAF or or renewable diesel or traditional bio biodiesel. So really excited about the combined capabilities of the company and and definitely want to be the partner of choice for the fuel industry. Derrick Whitfield: Great. Thank you. Operator: Thank you. The next question comes from Matthew Blair with TPH. Please go ahead. Matthew Blair: Great. Thanks for taking my question. So for the $750 to $8 guide, you mentioned you're just taking the current futures curve. As as we think about the spread there, the low end versus the high end, what what determines that? Is that just based on Bunge's execution? You know, what what puts you at the low end of that guide and what puts you at the high end? Thank you. Gregory A. Heckman: Yes. I'll start, John. John W. Neppl: Sure. Gregory A. Heckman: I think how we see the market continue to develop from a demand standpoint. We talked about the soy stocks are definitely heavy, but we have seen that's only in The U.S. Merchant milling we'll see how as we have that first half of the year running the combined footprint. And as the crops come off here in Australia, as some of the trade disruption that we've had. We really expect it to be not as complicated as last year. That should be good for our merchandising segment. From a from an overall the other is just we continue to work not only on the cost synergies, as John said, kind of trying to deliver more and faster. And then the commercial synergies, as we're on the front end as the teams work together. As those plans continue to develop, those could continue to benefit us in the second half. So I think the combined we've just got more levers to pull on both the cost as well as the margin side than we've ever had. John W. Neppl: I would just add, Matthew, that when you look at our soy and soft we can use the forward curves for a majority of that business. And so, we feel like whether we agree with the curves or not, that's what we use. And that's got a fairly decent level of specificity to it. But when you get to the merchandising and milling side, there are no four curves. And so what the environment is going to be like, I think if we if we continue on with a global heavy stock spot customers, not a lot of opportunity in that market. It's going to be a little bit tougher. But again, volatility disruption, global demand shifts trade policy changes, all those things create opportunity on the merchandising side that it's really hard to model in. So we will obviously be able to be in a good position as Greg pointed take advantage of those things. Probably two other things worth mentioning right? We saw last year China drawing a lot of beans out of Brazil, particularly in South America overall that was created headwinds for crush there. And then, of course, as The US China issue got solved, then taking beans out of The US in the fall, which created some headwinds for crush margins there. We'd expect to see a more normal flow in the coming year. And then on the soft side, of course, we've had two years in a row of tough sunseed production in the Black Sea Europe area and that's been hard on margins. While we've got some more balance in Argentina on the sun crush side and we had good crops there, in the second half. I think if we can get a good sun crop that should be improvements in Black Sea in Europe for sun crushing. So those are some of the flags, I guess, of the bigger issues that we're watching develop. Matthew Blair: Sounds good. And for the follow-up, so renewable diesel margins in The U.S. Are already moving up quite a bit in the first quarter. Are there any signs in your system yet on a larger pole for soybean oil from from the renewable diesel space? You know, any signs that The U. Renewable diesel utilization is stepping up as these margins improve? John W. Neppl: We're seeing some modest pull, honestly, I mean, continue to build in oil. And I think until we get I think until we get clarity and the producers have certainty, we're still going to see stocks build. If we look at the model and we look at the demand, it could turn very quickly. And we could go from a surplus oil environment today where we're building stocks to to a very tight market very quickly. And our expectation would be if we get to the 5.2 or 5.6 depending on even under either of those scenarios, there's going to be substantial pull on soybean oil, canola oil, is favored feedstocks along with the domestic low CI and we'll see things tighten up fairly quickly. Obviously, everybody's kinda kinda waiting to see what's gonna happen. Yeah. There's starting to be some instances anticipation of that, but not anywhere near what we what we will expect once things are finalized. Matthew Blair: Great. Thanks for your comments. Operator: Thank you. The next question is from Manav Gupta with UBS. Please go ahead. Manav Gupta: Hi. So my first question is the buyback was pretty strong in 3Q and sorry, 3Q and it dropped off a cliff in 4Q. Like you went from $5.45 to 6,000,000. I'm just trying to understand why such a steep drop and how should we look at buybacks going ahead? John W. Neppl: Yeah. We we just you know, we we stepped in the market to get a majority of it done. We just we didn't complete it all at the end of Q3 and going into Q4. But we're absolutely committed to wrapping that up the remaining program. And we'll get that done, I think fairly soon. Relative to ongoing, I think as we look forward, we definitely see an opportunity to make share buyback a bigger part of our capital allocation process, and we're gonna discuss that more on Investor Day certainly as we find more of a forward outlook. But this this machine should generate a lot of cash going forward. And our view is that return to shareholders is going to be a more critical part of our ongoing capital as we move forward. We'll highlight more details on that in March. Manav Gupta: My second question is when you look at the street for 1Q, it's like 176. Your guidance is implying 80. Like, where do you think the street is getting it so wrong versus what you are guiding? Like, why are why is the street almost double where you are? Terms of your guidance? Gregory A. Heckman: Yeah. I I think it's difficult to say maybe at this point other than maybe understanding the velocity of what we're seeing. That maybe the RVO impact would start getting traction in Q1. And that obviously has been delayed And we're fairly locked for Q1. So even if we get as things improve, we have some open capacity to capture some of that. But by the time the RVO gets finalized and enacted, we're going to be through the quarter. And maybe there's just some a bit of disconnect in terms of the timing of that. I'd say also, you know what, I hope you I hope you heard is we kinda talk through that while this is fairly back half loaded, as we talk about the range It feels like there are a lot more things that could kind of turn to the favorable versus be challenging as we think about how markets develop policy develops, more normalized trade flows, versus what we saw in 2025 and where we've got a big global machine to run with a lot of long lead times, all those things are favorable. I think we had to look at the things that could kind of tip to negative or positive. I think we feel things are maybe more bent to the positive when you roll them all up. So I hope that was clear. Manav Gupta: Thank you. Operator: Thank you. The next question is from Puran Sharma with Stephens Inc. Please go ahead. Pohren Sharma: Good morning and thanks for the question. Just wanted to start off and get a little bit more granularity into the commercial synergy opportunity. I think you mentioned a few details on the call, but was just wondering you know, what what are the opportunities that that you've kind of uncovered and and and what are some of the things that that you're working on Any anything kinda higher level would be helpful. Thanks. Gregory A. Heckman: Sure. There's no doubt as a process the vertical nature of this combination with let's say, much stronger origination and Bunge having a bigger processing footprint as a processor, the more you can buy direct from the farm, better that is for controlling everything from your pipelines and capacity utilization and quality and yields and everything. And we've definitely got a lot of focus on increasing the percent we buy direct from farmers and providing the markets for them. And now we've got much more capability to do that. We're seeing that that gain continue to push forward a higher percent bought direct and that will continue then as we talked earlier, when you're optimizing the total footprint, you'll make different decisions than when you were competitors on the timing of understanding the needs of a processing plant and also understanding the needs of our origination and being able to keep the flows moving through the ports and to third party customers. So getting the reps with the team and getting an understanding of our combined capabilities has been great. And then even if you take something like and talk about our soft sea crushing platform, I talked about we're much more balanced not only on our seed origination and global merchandising, where we've seen a number of opportunities with some of the trade disruptions be able to continue to get the farmer seed to market and find the right demand but also on the meal, on the sun meal and the canola and rapeseed meal, where when we look at the combined footprint, we've been able to connect origins and destinations that weren't connected before. And then as some of those trade lanes were shut off and were not economical, we've even developed some new markets that didn't exist before, that weren't using some of these products. And so we've been able to grow those markets. And it's just the combined capabilities as we get the repetitions to continue to peel those opportunities back. And just the way the teams are working together, I just couldn't be more pleased. And I've had the opportunity to do a lot of travel around and visit plants and visit the offices visit ports. It's fantastic. You go into a room and nobody nobody says, I was by terror, was bungie. It's just everybody's bungee. The teams are excited about the capabilities that we've got in global platform and what we can do to serve our customers to work together. And there's no lack of challenges in the world right now, but I don't think anybody is better equipped than Bunge to deal with it. Pohren Sharma: Thank you. Operator: We have no further questions, ladies and gentlemen. This concludes our question and answer session. I would like to turn the conference back over to Greg Heckmann for any closing remarks. Gregory A. Heckman: I'd just like to thank everybody for joining us for today. We appreciate your interest in Bunge. We look forward to speaking to you again very soon hope everybody has a great day. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Shyamali: My name is Shyamali, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Fourth Quarter and Full Year 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. I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference. Thank you. And thank you everyone for joining us on today's call. Christina Jones: I am joined today by Olumide Soroye, Fortive's President and CEO, and Mark D. Okerstrom, Fortive's CFO. During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com. We will also make forward-looking statements, including statements regarding events or developments that we expect or anticipate will, or may occur in the future. These forward-looking statements are subject to a number of risks and actual results might differ materially from any forward-looking statements that we make today. Information regarding these risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified. And our results and outlook discussed today are on a continuing operations basis. With that, I'll turn the call over to Olumide. Olumide Soroye: Thank you, Christina. Let me begin on slide three. Q4 was another quarter of solid execution by our new Fortive team. With the first February 2026 strategic and financial plans firmly in place, our strong conviction in the road ahead continues to build. In July, we began our journey as new Fortive, united by one mission, aligned around two segments serving attractive end markets with strong secular tailwinds, and guided by a clear strategy with three pillars: accelerate profitable organic growth, allocate capital with discipline, and build and maintain investor trust. All with the goal of delivering benchmark-beating shareholder returns in the years ahead. Our Q3 and Q4 results reinforce our conviction in this path. While we are still early in the journey, we are diligently executing the Fortive Accelerator strategy and sustaining the operational rigor that Fortive is known for. We enter 2026 with optimism, enthusiasm, and an unrelenting focus on execution. I have five key messages to cover today. First, our teams continue to execute well with the power of our Fortive business system driving solid Q4 results ahead of our expectations. In Q4, we delivered core growth of just over 3%, adjusted EBITDA growth of 8%, and adjusted EPS growth of about 13%. We were pleased to see another quarter of growth acceleration in the business, knowing that we have even more growth upside ahead of us. Second, our strong Q4 earnings performance resulted in full-year adjusted EPS of $2.71, exceeding the high end of our guidance range of $2.63 to $2.67. Olumide Soroye: Third, we continue to deploy capital in accordance with our disciplined approach, anchored in optimizing shareholder returns over the medium to long term. In the fourth quarter, we executed an additional $265 million of share repurchases, bringing total second-half repurchases to $1.3 billion. We are diligently progressing our Fortive Accelerator strategy to deliver benchmark-beating shareholder returns. I'll spend a few minutes on this in the next slide. Finally, as we turn our focus to 2026, we are initiating full-year 2026 adjusted EPS guidance of $2.90 to $3.00, representing approximately 9% year-over-year growth at the midpoint. Moving to Slide four. Before we turn to our Q4 results, I'd like to highlight the progress we've made on each of the three Fortive Accelerator pillars. Beginning with our focus on driving faster profitable organic growth. In terms of innovation acceleration, this quarter, we continue to accelerate new product introduction velocity, including offerings aimed at high-growth verticals. At Fluke, we launched a new data center testing solution, Certified Max, with the fastest time to report in the industry, helping customers test and validate complex fiber systems quickly and accurately. At ServiceChannel, our third major product release of the year went live in Q4. This release enhances maintenance professional onboarding, work order visibility, compliance, and payment efficiency. On the commercial front, we continue to intensify our focus on faster-growing end markets and regions, where we have been making deliberate targeted investments. This quarter, we saw early signs that our targeted actions are resonating in the areas we've prioritized. Fluke delivered another strong quarter in data center, Industrial Scientific's expanded commercial coverage drove acceleration in EMEA, and our investment in a broader sales team for Fluke and ASP in India directly contributed to strong growth in the region. We also made progress in advancing the recurring elements of our portfolio, enhancing customer engagement, and strengthening the durability of our revenue streams. In Q4, recurring revenue again grew faster than consolidated revenue, driven by continued strength in Fluke's maintenance software and deeply embedded data as well as AI-enhanced software capabilities across iOS and AHS segments. Moving to the second pillar, disciplined capital allocation is an integral component of our Fortive Accelerator strategy. Consistent with our priorities, in 2025, we repurchased about 26 million shares or roughly 8% of our diluted shares outstanding. We also continue to refine our M&A funnel and processes to reflect our go-forward strategy, prioritizing accretive bolt-on deals that meet our rigorous strategic and financial criteria. In the second half of the year, we closed two small transactions that met this high bar, enabling us to actively strengthen our M&A muscle. As we look to 2026 and beyond, our capital deployment priorities for new Fortive remain crystal clear: invest in organic growth, pursue bolt-on M&A where the risk-adjusted returns exceed other uses of capital, return capital through share repurchases, and maintain a modest growing dividend. All with a focus on best relative returns and maximizing medium to long-term shareholder value. Moving to our final pillar, building and maintaining investor trust. We were pleased to deliver performance ahead of expectations in Q3 and Q4, including adjusted EPS that surpassed the high end of our guidance range. We recognize there is more work to do here, and we remain confident and focused on delivering the 2026-2027 financial framework and further acceleration that we committed to at our Investor Day in June 2025. With that, I'll turn it over to Mark to walk through our financial results for the fourth quarter. Thanks, Olumide. I'll begin with slide five. Mark D. Okerstrom: In the fourth quarter, we delivered total revenue of $1.1 billion, up just over 4.5% year-over-year on a reported basis, up just over 3% on a core basis. We are pleased to see volume growth return and solid performance across all regions. We again delivered core growth in both iOS and AHS, with iOS outperforming our expectations and AHS performing broadly in line. In iOS, solid customer demand and strong commercial and operational execution drove acceleration from Q3, with better-than-expected results in professional instrumentation and in gas detection. In AHS, overall results were broadly similar to Q3, including continued strength in healthcare software. From a geographic perspective, all regions grew nicely, with North America delivering another quarter of solid growth, APAC growth remained steady, and Europe accelerated from Q3. An encouraging data point, but not yet a sustained trend. Latin American sales also picked up the pace of growth sequentially, driven by strong performance in professional instrumentation. Adjusted gross margin in the quarter was about 63%, down about 150 basis points from prior year driven largely by product mix, the net effect of tariffs and countermeasures, and targeted growth investments in our AHS segment. Q4 adjusted EBITDA was $358 million, up about 8% year-over-year. Adjusted EBITDA margin expanded approximately 100 basis points to nearly 32%. This strong operational performance was driven by operating leverage alongside continued progress on deliberate organizational streamlining across the portfolio and a sharpened focus on corporate cost discipline. We delivered adjusted EPS of 90¢ in Q4, up about 13% year-over-year, marking our second quarter of double-digit EPS growth. Strong adjusted EPS performance was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases, partially offset by modestly higher tax expense. Our full-year adjusted EPS of $2.71 represented year-over-year growth of just over 12%. We generated about $315 million of free cash flow in the fourth quarter and about $930 million of free cash flow for the full year. Our full-year 2025 free cash flow conversion on adjusted net income remains nicely north of 100%. Moving to our segment results, starting with Intelligent Operating on slide six. Revenue for the segment grew just over 5% on a reported basis with core revenue growth of about 4%, nicely ahead of our expectations. Growth was driven by both price and volume and reflected solid performance across professional instrumentation, facility and asset lifecycle software, and gas detection products. At Fluke, we saw strong FBS-driven commercial and operational execution and resilient customer demand, resulting in another quarter of modest sequential acceleration despite the challenging comp from prior year. North America continues to be the strongest growth driver, and we were encouraged by early signs of improvement in Europe and green shoots from commercial efforts in Latin America and Asia Pacific. Our facilities and asset lifecycle software business continued to deliver solid results, driven by strong demand for multisite facility maintenance and marketplace software in North America. Government demand for procurement and estimating solutions is beginning to stabilize but remains pressured compared to the strong growth we saw for several years post-COVID. Our gas detection business is growing nicely, buoyed by strong demand and share gains. We saw particular strength in our hardware-as-a-service product line and broad strength in North America. Adjusted gross margin in the segment was just under 67%, down about 130 basis points, primarily due to product mix and the net effect of tariffs and related countermeasures. Q4 adjusted EBITDA in the segment grew 8% to $288 million, driven by operating leverage and reduced costs associated with flattening and rationalizing segment-level organizational structures, partially offset by targeted growth investments to support innovation and commercial initiatives. Adjusted EBITDA margin expanded to just over 37% in iOS, which is up about 100 basis points from prior year. Moving to our advanced healthcare solutions segment on slide seven, delivered total revenue of $353 million. Revenue grew approximately 3% year-over-year and 1.6% on a core basis. As we noted throughout the year, we continue to see reimbursement and funding policy changes impact the AHS segment, specifically the deferral of US-based hospital capital expenditures. However, demand trends improved again in Q4, and we are encouraged by the health of the commercial pipeline and positive customer feedback regarding the superior technical performance of our low-temperature sterilization offer. Our software products in the segment continue to deliver solid growth, fueled by strong execution and structural advantages from resilient SaaS-based revenue models. Adjusted gross margin in the segment was 56% in Q4 versus roughly 58% in the prior year period, driven by strategic investments to drive growth. Q4 adjusted EBITDA in this segment was $92 million, and adjusted EBITDA margin was 26%, with year-over-year variance driven by our growth investments as we position ourselves for acceleration in the years ahead. Turning to Slide eight, as noted earlier, we deployed an incremental $265 million to share repurchases in the fourth quarter, reflecting continued confidence in our ability to deliver on our value creation plan. Additionally, we repurchased another roughly 2.5 million shares since the end of the quarter, bringing total fully diluted shares outstanding to approximately 315 million as of the date of this call. Our balance sheet remains strong. We finished the year at 2.6 times gross debt to adjusted EBITDA, and we have ample capacity to execute on our capital deployment priorities in 2026. As previously highlighted, our full-year 2025 free cash flow was about $930 million, with free cash flow conversion on adjusted net income nicely over 100%. We remain steadfast in our commitment to our capital allocation priorities and an overall approach that seeks best relative returns. Moving to slide nine, we are initiating our full-year adjusted EPS guidance of $2.90 to $3.00 per share. This outlook assumes a continuation of the market dynamics we experienced in Q4. It also reflects current tariff rates, with tariffs net of countermeasures not currently expected to be meaningful to the bottom line in 2026. Let me provide a few additional considerations to assist with modeling. Based on current foreign exchange rates, we are assuming reported revenue of nearly $4.3 billion and core revenue growth in the range of 2% to 3%. We are planning for a mid-teens adjusted effective tax rate on a full-year basis, with Q1 through Q3 in the high teens and Q4 in the high single digits to low double digits. We are currently modeling a full-year net interest expense just over $120 million. Our current diluted share count is roughly 315 million shares, taking into account the incremental share repurchases done since the end of the fourth quarter. In terms of the shape of the year, on a reported basis, we would expect top and bottom line to broadly follow recent historical patterns. At current rates, we would expect FX to be an approximately 300 basis point tailwind in the first quarter, a tailwind that should ease as we move through the year. As the year unfolds and we continue to execute on our Fortive Accelerator strategy, quarterly phasing may evolve. As a final note, before turning it back to Olumide for closing remarks and Q&A, we're off to a strong start at New Fortive, and we remain committed to unrelenting execution on the Fortive Accelerator three-pillar value creation strategy and financial framework that we outlined at our June 2025 Investor Day. We recognize there is much more to do, but momentum is building, and we're excited about what lies ahead. I'll now turn it back over to Olumide. Olumide Soroye: Thanks, Mark. I'll wrap up with a few reflections on where we are and where we are headed. We are now a stronger, more focused Fortive. Over the last six months, we've simplified our operating model, sharpened our strategic and capital allocation priorities, evolved our Fortive business system into an even more powerful engine for sustained growth, and elevated our team's focus on the source of all growth, our customers. That clarity is translating into stronger internal alignment and real excitement across our teams. Importantly, we are seeing signals that our Fortive Accelerator strategy is working. First, in 2025, we delivered accelerating growth, expanding margins, and double-digit EPS growth while investing deliberately in the initiatives that position us to deliver on a multiyear financial framework we outlined at Investor Day. Second, we are allocating capital with discipline to deliver the best rate of return over the medium to long term and executed $1.3 billion of share repurchases in the last two quarters. Finally, we are committed to building and maintaining investor trust, and we are pleased to have delivered results ahead of expectations in our first two quarters as New Fortive. We are encouraged with the progress we've made in these early innings. However, we have significant unfinished business and untapped potential, and we are driving with urgency, intensity, and accountability to unlock it. As we look ahead to 2026 and beyond, we are confident in the path we're on, energized by our momentum, and committed to delivering strong performance for our shareholders. I want to thank every one of our Fortive team members around the world who do extraordinary work every day and dedicate themselves to our shared purpose of innovating essential technologies to keep our world safe and productive. And every one of our 100,000 customers who entrust us with their mission-critical safety and productivity needs. Thank you all for your continued interest in Fortive. With that, I'll turn it to Christina for Q&A. Christina Jones: Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions. Olumide Soroye: Thank you. Shyamali: We will now be conducting a question and answer session. Our first question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Thank you. Good day, everyone. Deane Dray: Hi, Olumide. Hey, maybe we can start with getting some color on Fluke. It's always helpful to get a sense of the sell-in and sell-out in terms of the short cycle demand there. But it looks like you're also getting good traction with the new products. But if we could start there, please. Olumide Soroye: Thanks for the question, Deane. So, I mean, we're very pleased with Fluke's performance and the durability of demand in that business. Just to give you a few data points, our POS trends were broadly consistent with what we've been saying in recent quarters, with North America remaining the strongest region. But we also saw encouraging improvements in EMEA and LatAm, and APAC was holding steady. So in terms of end demand, solid and strong signals overall. And then the other growth at Fluke continued in the fourth quarter. We're quite pleased to see that. Above one. And, you know, kind of the channel inventory outside the US continue to improve. We expect that to continue through 2026. So everything you look at in terms of market signal is very strong. You know, Fluke is also just a great example of the impact of our Fortive Accelerator strategy and how we're executing that. So the pace of new product innovation in Fluke is faster than ever. Targeted commercial investments in markets like data center and defense, the recurring revenue in Fluke, which we've talked about now a few times, that continued to grow double-digit ARR within Fluke. And it's just an exciting piece of the resiliency of that business. So really feel good about the momentum there. Was with the Fluke team last week, and the excitement level that they feel about the growth opportunities has never been higher. And for me, that's an important signal of what's to come. Great. And just as a follow-up, could you talk about price? What was price? How much of a contribution in the quarter? What are you assuming in your guidance? And any color on price cost or a couple of references on tariffs? Mark D. Okerstrom: Sure, Deane. I'll take that. So in the quarter, price was about 2%, volume about 1% roughly. I would say 2026 is roughly in line. We got a bit of a price tailwind in 2025 due to the tariff countermeasures we did. But I would think about it as broadly in line. Deane Dray: Great. And price cost? Mark D. Okerstrom: Yeah. We're not going to provide that level of detail. I would just say that, you know, generally, you know, we feel good about the gross margin scenarios going forward. And again, we're really committed to the 50 to 100 basis points of EBITDA margin expansion that we provided in our financial framework, and we're going to use all the levers down the P&L to drive growth. Deane Dray: Great. Thank you. Mark D. Okerstrom: Welcome. Thanks, Deane. Deane Dray: Thank you. Shyamali: Our next question comes from the line of Julian Mitchell with Barclays. Please proceed with your question. Julian Mitchell: Hi, good afternoon. Maybe, and I realize you don't give sort of explicit quarterly guidance, but maybe if you could help us a little bit more with how the first quarter is starting out the year. I think the last couple of years with new Fortive about 20% of the year's EPS. I just wondered if there was anything this quarter that would make it a huge outlier versus that and sort of allied to that, are we expecting organic sales growth each quarter is in that 2% to 3% full-year range roughly? Mark D. Okerstrom: Yes. Thanks, Julian. You know, I think I've been just turning to our prepared remarks in terms of the quarterly phasing, and we do expect reported revenue as well as adjusted EBITDA to broadly, you know, follow the trends that we've seen in terms of distribution across each of the quarters. And that takes into account all factors. As you know, as always, there's, you know, a few things with days here and there. We've got a little bit of favorability in Q1 and a little bit of a negative in Q4, but that's all accounted for in the shaping color that we've given. And then just as a reminder, you know, we did call out that we thought there would be about 300 basis points of tailwind from FX in the first quarter, particularly. I would say that we feel good about how the year started. You know, January, you know, has come in, you know, very solid. And so, you know, all of the shaping guidance we've given has really taken that strength into consideration. Julian Mitchell: Thanks very much. And then just my second one, maybe on margins. AHS, you had some margin pressure in the fourth quarter, and you called out reinvestments. I think maybe give us some more color on is that something that's, I don't know, multiyear reinvestment need? Or it was just something very localized in late 2025, and we should see AHS margins pick up again in the year ahead? Olumide Soroye: Yes. Thanks, Julian. Short answer is it's very localized in Q4. I mean, that segment overall, as you know, has relatively strong gross margins. That's a result of the strength of our brands. And we'll keep getting better, frankly, with the innovation pace that we're driving that I generally imagine are accretive products. And the fact that our software and consumables component of that segment also raise the fleet average. And the, you know, Fortive business system value analysis, value engineering journey continues. So the path of margin improvement in the segment remains firmly intact. And for Q4 specifically, we deliberately made some strategic investments that really set us up well for top-line growth acceleration, and that's investment with customers, sales and marketing, R&D. But they're very localized in the quarter versus a long multiyear journey type of thing. The general trend should be margin improvement. Julian Mitchell: That's great. Thank you. Olumide Soroye: Thanks, Julian. Shyamali: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question. Nigel Coe: Good afternoon, everyone. Maybe just a quick and same question, different flavor. Based on your comments, Mark, about normal seasonality, it feels like should be within the range in pretty much every quarter, 2% to 3%, including the first quarter with 2Q probably your best quarter given easy comp. Just want to make sure we're not too far off base. And then maybe on the framework, I think you said 50 basis points of margin expansion. I wasn't sure if that was the right number. And then the share count of 315, that's what's in the plan for the full year as well. Mark D. Okerstrom: Yeah. I'll take those in reverse order. 315 is, in fact, what we're modeling as well. 50 to 100 basis points is the financial framework for the 2026-2027 period. And I think I would model that for 2026 as well. And then in terms of core growth, I think you're in the ballpark, and I think you've got the comp right. I mean, Q2 is a particularly easy comp. Nigel Coe: Okay. It seems that you're being very conservative with your framework of the EPS, but understandably as well. And then my follow-on is really on the software side. You're aware of all the concerns around AI with the kind of software model. So just maybe just take that head-on and kind of what are seeing in the software businesses in a bit more detail? Are there any areas of pressure? And then given the sort of the pullback we've seen in software asset valuations, is this a good time to be buying software assets? Olumide Soroye: Yeah. Thanks. I'll take that one. So as it relates to kind of software and AI, we really see that as a meaningful acceleration for what we do in software. Because keep in mind, not all software is the same. What we do are mission-critical enterprise software kind of provisions for customers. And they have a number of characteristics, including deep workflow integration, proprietary data assets, high regulatory requirements. A lot of them have large two-sided networks with tens of thousands of participants. All of them make them really sticky and really systems of record for our customers. And so what we're seeing is a strong pull from customers for us to deploy AgenTeq and GenAI-powered enhancements, which drives even better customer experience and deep integration into our customer workflows. And frankly, that's part of what's contributing to the growth momentum we're seeing. So net-net for us, really AI is an opportunity, and we're actively seizing that across the portfolio where it makes sense. And to your question about, is it a good time to buy software assets? It hasn't escaped our attention that the bar is really high right now if you're looking at any software assets to make sure it can withstand the appropriate questioning on what AI means for it. So I think it just raised the hurdle, Nigel, in terms of the scrutiny that goes into any software asset. And like we've mentioned, our focus now is on really targeted bolt-on deals out of the small, and we're not specifically hunting for software assets at this point. Nigel Coe: Great color. Thank you. Olumide Soroye: Thanks. Thank you. Shyamali: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Scott Davis: Hey, guys. And Christina, congrats on the timing of that buyback. It seemed pretty beneficial to you guys. So look, we're trying to get used to kind of a new management team here and kind of how you guys guide. The $2.90 to $3.00 is a pretty tight range versus what we're used to in industrials. There's a lot of variables in any given year. But is the $2.90 to $3.00 more a function of you feel like you've got that kind of visibility and the puts and takes are kind of all coming together, particularly given your share count and such? Or is this, again, just trying to get a sense of how you guys are planning on guiding going forward and maybe just give a little color there would be helpful. Mark D. Okerstrom: Yes. Thanks for the question, Scott. You know, I think it's a byproduct of, I think, the durability of the business. I think the improvements we've made in forecasting the business, and then I think some of the decisions we made in 2025. I think the share repurchases in total give us about a 600 basis point tailwind to EPS net of the interest expense on it. So that gives us a fair bit of comfort. We've got a good command on the cost structure of the business. We've taken costs out of the business in 2025. We started reinvesting that in the fourth quarter. And I think when the K comes out, you'll see G&A down, sales and marketing up, R&D up, you know, consistent with the investment priorities we've made. And we've got, you know, really clear views on how we're translating our strategic plans through, you know, PD into our operating plans, and we feel good about execution. So I think all of that combined, again, with the recurring revenue profile of the business, gives us comfort in the range that we provided. Scott Davis: Okay. That's good color. And guys, I know the term bolt-on is all in the eyes of the beholder, but what does, when you think about a five-year plan, and imagine, I think when Fortive was spun out, there was actually a ten-year plan that Jim talked about. But when you guys think about a, just talk about a five-year plan, what kind of a tailwind do you think bolt-ons are? Is it 1% on the top line? Is it 2%? Is it, or is it just too hard to say given, you know, just really the opportunistic nature? Olumide Soroye: Yeah. I think the last piece of your question there, Scott, is the answer. I think it's hard to call a number based on the opportunities to make sure of it. The thing we do know for a fact, Scott, is that the value creation pieces that we've laid out here, which we're quite pleased with how this is shaping up in our first couple of quarters here, it's really compelling and does not require us to do anything dramatic from an M&A point of view. We're really focused on this idea that we are going to get this set of businesses to grow much faster organically by deploying the power of the Fortive business system with the enhancements we're making to it and investing smartly from an organic point of view. So that's the primary channel in our strategy, and we're going to go full steam on that. And bolt-ons, again, are smaller deals, so I just kind of enhancements to the value creation story, but we're not going to call a number on what it has to have because it is very opportunistic and not required for our success. Scott Davis: Yeah. Makes sense. Okay. Thank you. Best of luck. Olumide Soroye: Appreciate it. Thank you. Thank you, Scott. Shyamali: Thank you. Our next question comes from the line of Joseph O'Dea with Wells Fargo. Please proceed with your question. Joseph O'Dea: Hi, thanks for taking my question. Can you just unpack the iOS 4% organic a little bit more, the degree to which that surprised internally, sources of that surprise? And I think there's some consideration right now to whether things in the '25 just broadly general industrial demand kind of pushed and the degree to which that could have benefited Q4, your January comments make it sound like not so much, just trying to understand that strength a little bit more and the equipment side versus the software side. Any color there would be helpful as well. Olumide Soroye: Yes. Thanks for the question. I mean, the short answer is this was really about our teams executing the Fortive Accelerator strategy much faster and much more in an impactful way than we anticipated. So if you just look at the key components of iOS, we've talked about Fluke quite a bit. That team just did a terrific job with the kind of end-of-year execution. And we saw stronger demand in some areas like our data center applications and defense. And the team just seized all of those opportunities and not just got the orders in, but also got the shipments out, and we ended up with very healthy backlog levels. So I will call it a story of just excellent execution. You know? And if you think about the kind of software businesses, the same thing, terrific job across the board by that team to execute on the strategy and get some things done faster than we anticipated. And the gas detection and environmental health and safety part of iOS, again, just strong execution to end the year. And just the energy that our teams are feeling. And as we go into the New Year, again, the outlook we've laid out here is not presuming a change in that that's significant either way from a macro point of view. What we're really banking on here is that we have confidence in our team's ability to execute the strategy and continue driving growth. Joseph O'Dea: And then just circling back to your answer to Nigel's question, kind of the AI debate and thinking you made a comment about how your customers are looking for AgenTeq AI enhancements? And maybe just a little bit of detail or color there on the types of enhancements that you're currently working on or that are in the market to expand on the offerings that you have? Olumide Soroye: Yes. And we've mentioned a couple of examples of those in the prepared remarks for today. We talked about ServiceChannel and the third main release they had in 2025 was launched in Q4. That included some AI-enabled enhancements. That's a business where we have a two-sided network and really the system of record for customers' repair and maintenance. So it's just a natural place for customers to activate a feature that's AI-enabled, and we rolled that out in Q4. We talked about some at Fluke on our call in Q3. So they're very kind of targeted enhancements that deliver real business value to customers. And these AI tools are really just an instrument to help unlock value that's AI-enabled but software-delivered. And that's the key because you have to land these things in the workflow software that customers can actually use. And this is enterprise customers we're talking about. So those are just a couple of examples. Joseph O'Dea: Got it. Thank you. Olumide Soroye: Thanks. Thank you. Shyamali: Next question comes from the line of Scott Graham with Seaport Research Partners. Please proceed with your question. Scott Graham: Hey, good afternoon. Very nice quarter. Congratulations. Olumide, I asked you a question at Investor Day last, I guess it was June, about the FAL business, and the business had been constantly kind of lowered, the growth outlook had been lowered by the former team and kind of landed in sort of that mid-single-digit area. Since then, we've had the government shutdown. But as that gets past us, I hope you don't mind if I ask you again, do you see FAL kind of sort of moving in steadying into sort of a mid-single-digit growth algorithm, let's say even beginning in the second half of this year? Olumide Soroye: Yeah. No. Thanks for that question. Short answer is we really like the FAL platform and the potential there. And all three of our operating brands there have continued to strengthen their performance. And so we feel really good about that outlook. A little bit like I mentioned at Investor Day, we don't have a ceiling on what's possible with this business. And the confidence we have is it certainly would deliver and help us attain the financial framework that we've laid out. And how high it can go, we intentionally don't put a cap on it. And we like what we're seeing across all the brands. We think it's going to be a strong year of continued acceleration for that platform. Scott Graham: That's great. Thank you. And then just quickly turning to ASP. I want to try to understand the dynamic here. I know that there has been consternation around CapEx from hospital customers, but that business is more a consumable business. So can you maybe help us understand a little bit the dynamic there, why that ASP has been weak for a couple of quarters now off of the concerns that the hospitals have. I understand that that's a spending thing, not just CapEx probably more broadly. But again, ASP is more of a consumables business. And I guess I thought it would not have been hurt as much by some of the pullbacks in CapEx. Could you walk us through that? Olumide Soroye: Yeah. No. Thanks for that. And it's important because I think from a consumables point of view, from a services point of view, and in the software components of our AHS segment overall, those continue to grow and really steady contribution in Q4 to our growth. The key is the capital equipment, while it's not a huge percentage, the revenue recognition happens in quarter when a transaction happens, while consumables and services, they're wonderful because they're consistent over the life cycle, but capital is more concentrated in revenue impact. So that's where that remains the place where we have the pressure in really in Q2, Q3, and Q4. Important thing is it got progressively better. Q2 was sort of the wash, and it got better in Q3 and better in Q4. And our clients and customers continue to be a little bit cautious given what's going on with healthcare policy. But it's getting better literally by the week. And we like that trend. We're staying close to our customers. I was with some of them just a couple of days ago, earlier this week, and they love our team, they love our products, and we're with them as they try to sort through the spending challenges they have. Scott Graham: Appreciate it. Thanks. Olumide Soroye: Thank you. Shyamali: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please proceed with your question. Andy Kaplowitz: Hi, everyone. Hello, Andy. So you mentioned some green shoots in areas such as Europe and Asia within iOS, but you didn't want to get too excited about those areas, I get. But maybe give more color into what is inflecting in those areas within Fluke, for instance, and what do you assess as the durability of the turn as you see it? Olumide Soroye: Yeah. So, I mean, as you kind of get to read the approach we're trying to take, we're trying to be really clear-eyed and prudent before we call a single quarter a new trend. What I would say is for both EMEA and APAC and frankly LATAM, it was a story of our teams really settling into what the macro conditions were and executing much better. And that's really the primary thing that we saw in Q4. So I wouldn't call it a market inflection. We want to see a few more quarters of that before we make a call on that. But at this point, I'll describe it as we got better outcomes based on our team's execution, and, you know, we expect at some point the markets will get better, but that will be upside for us. Andy Kaplowitz: That's helpful. And maybe we could focus on gas a little. I mean, what's going on in industrial scientific? Because I think you mentioned growing market share. Your teams are doing really well. What kind of growth are you dialing in for '26 sort of in that kind of business? Olumide Soroye: Yes. So in terms of what's going on there, I think it's a great story. It's a great story of we've got a great market that delivers mission-critical safety solutions. We've got a great product that really leads the market in this hardware-as-a-service offering, which is kind of the exciting and fast-growing piece of that business for us. And we've got a great team that's excited about what they're doing and executing on innovation better than they've ever done, and we're investing in targeted markets. We mentioned the work they did in EMEA with investing in capacity, commercial capacity, sales capacity there, and that yielded results. And they also really just a new level of customer engagement in that business across the leadership team. And they have the support of our entire leadership team as they do that. So that's really what's going on. And as we look at 26, we've counted on that continued execution, and we've baked that into the outlook we laid out here. So we expect it to be a really strong year for that business. Andy Kaplowitz: Appreciate the color. Olumide Soroye: Thanks. Shyamali: Thank you. Our next question comes from the line of Chris Snyder with Morgan Stanley. Please proceed with your question. Chris Snyder: Thank you. I wanted to ask about iOS organic growth in Q4. I mean, I think you guys mentioned that Fluke was the growth leader in that segment for the quarter. But I was wondering if you could provide any color or numbers just on the respective growth rates for Fluke versus the software businesses within iOS. And then as we look into next year, I'm assuming the 2% to 3% organic growth guide underwrites something below 4% for iOS? So just kind of wondering, which of the categories is expected to decelerate from that Q4 number? Thank you. Olumide Soroye: Yeah. No. Thanks for the question. Overall, I'd say all the elements of iOS contributed to our performance in Q4. I'd say they all did, frankly, better than we expected. So I wouldn't call it a Fluke-only story in that sense. And then as we look into what we're expecting for 2026 and your question on is anyone decelerating to get us from four to what we've effectively included in the guide here, look, the way I'd describe it is we expect all the businesses to contribute to the growth story here. And we're really, really confident that our teams are set up to execute effectively the strategy we've laid out. So, you know, I wouldn't call anyone with the expectation to decelerate. What we've reflected, frankly, in our guide here is we're early in the year, and we want to make sure that we set up a guide that gives us a chance to actually rely on our execution without counting on macros. And if things improve macro, saw some of the PMI data that came out. If that plays out as a sustained expansion, that will be upside. If things get better and government spend, that will be upside for us. But we've tried to be prudent and open-eyed in our guide here, not expecting that we're lowering our aspiration for faster growth in any way. Chris Snyder: Thank you. I really appreciate that. And then obviously there's been a good amount of conversation already around, you know, what could AI mean for the software businesses. You know, there's market concerns on competition from that. I guess, is there anything metrics you could provide, whether it's around recontracting rates, new customer wins, that just give you confidence that these solutions are still have really strong traction in the market and are winning with customers? Thank you. Olumide Soroye: Yeah. No. Thanks for that. And look, I realize the curiosity on this question is at an all-time high right now. The thing I would say on that is, and I described the substance of why we're winning and why we see this as LARADA. But I'll just say all of this business is for us continue to contribute a growth rate that's higher than our fleet. ARR growth is really strong. Gross dollar retention, which is the renewal rates, remain really strong across all these businesses. Our net dollar retention continues to get better, which means some of these AI enhancements we're adding on are actually driving expansion of what customers are paying us. And the customer use rate of these products are actually getting better for us because of the innovation pace that our teams are driving. So everything we see in substance, and not every software business is the same, been around software now for decades. And you have to be designing and what the actual business is. And for this enterprise, system of record type of things that we do, it's really all the metrics are encouraging for us. Chris Snyder: Thank you. I appreciate that perspective. Olumide Soroye: Thank you. Chris Snyder: Thank you. Shyamali: And we have reached the end of the question and answer session. I would like to turn the floor back to Olumide Soroye for closing remarks. Olumide Soroye: Well, thank you very much for joining us. Thanks for your interest in Fortive. We are really excited about how the equity value creation story we're building is shaping up. First two quarters was new Fortive. We've accelerated top-line performance, reduced cost, repurchased 26 million shares, and we're pleased with how that set us up for 2026. But importantly, our focus here is really on accelerating our execution on the strategy we've laid out here. Teams are excited. Our customers are engaging. And we're just grateful for your interest and look forward to a terrific journey of value creation ahead of us. Thank you all. Shyamali: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Welcome to the IAC Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Christopher Halpin, COO and CFO. Please go ahead. Christopher Halpin: Thank you. Good morning, everyone. Christopher Halpin here, and welcome to the IAC Fourth Quarter Earnings Call. Joining me today are Barry Diller, the Chairman and Senior Executive of IAC; and Neil Vogel, CEO of People Inc. IAC has published a presentation on the Investor Relations section of our website today entitled Q4 Earnings Presentation. On this call, Barry, Neil and I will provide some introductory remarks referencing that presentation and then open it up to Q&A. Before we get to that, I'd like to remind you that during this presentation, we may make certain statements that are considered forward-looking under the federal securities laws. These forward-looking statements may include statements related to our outlook, strategy and future performance and are based on current expectations and on information currently available to us. Actual outcomes and results may differ materially from the future results expressed or implied in these statements due to a number of risks and uncertainties, including those contained in our most recent annual report on Form 10-K and in the subsequent reports we filed with the SEC. The information provided on this conference call should be considered in light of such risks. We'll also discuss certain non-GAAP measures, which, as a reminder, include adjusted EBITDA, which we'll refer to today as EBITDA for simplicity during the call. I'll also refer you to our earnings releases, investor presentations, our public filings with the SEC and again, to the Investor Relations section of our website for all comparable GAAP measures and full reconciliations for material non-GAAP measures. And now I will hand it over to Barry. Barry Diller: Good morning, everyone. We had a solid fourth quarter at the company. It was a confident finish to a year that was defined by focus and execution. People grew digital revenue by 14%, defying the expectations of all the digital publishing doubters. People's financial performance amid increasing AI disruption speaks really loudly. AI overviews are now appearing on most of our queries, and we're delivering record results. As I've said before, People has prepared for this disruption for years and with brands able to travel where the audiences are, not just our sites and apps but across all social media, news platforms, video, events. We're expanding with the surge of new products and experiences wherever audiences engage. But at its core, our strategy at People is not to rely on the daily grind of conventional digital publishing to propel our future. As I talked about last time that I was on this call, we're in the process of inverting these iconic traditional content businesses into entirely new consumer businesses. Products that stand on their own and revenue streams with stronger immunity against disintermediation. This isn't hypothetical. We're on our way right now working through several concepts. At Southern Tea, this iconically wonderful magazine that is beloved by its audience and has a product -- not a product, but often describes the experience of Southern Tea, a particular kind of tea that you only get in the South, we're going to do introduce Southern Tea's Southern Tea as a product that we will own and then distribute. At Food & Wine, we're going to do a project with best chefs. We know the best chefs every place in the world. And we're going to organize those chefs in a way no one has done before and create a product line through that. At Travel & Leisure, we're going to do our own White Lotus. After all, we know every great destination in the world. We have the most beautiful pictures of everything that the White Lotus creators would have creamed over if they had access to that in creating different places. So we're going to do that. We're going to -- every single one of our books has opportunities for us to essentially invert the process and come up with products and services that we can brand and then we can promote through our -- how many books do we distribute, Neil, a year, like 350 million? Neil Vogel: Yes. In the neighborhood, yes. Barry Diller: In the neighborhood, why did I get this wrong? Neil Vogel: No, that's right. That's exactly right. Yes. Barry Diller: So we -- not only do we have that, so we have these books. Adding a page, 2 pages, 3 pages costs virtually nothing. So we can sell through in unique ways almost anything that no one else can do. And we've got -- that's just for -- we want to do stand-alone page ads but we also can do editorial about these products of ours. So if we get -- it seems inconceivable to me that we can't take these books that know more about their domains than anybody else anywhere until ChatGPT knows everything and if it does out of it long before, we will have figured out new business lines, which can't disintermediate by AI. But what I'm saying is we know so much about all these domains, and we can use that creatively to say, all right, what is possible for us to do out of that knowledge that we can create a new product or service. I think that is the gold mine of people in the ensuing years. The other pillar is MGM. And as we had said, we increased our ownership in MGM. We repurchased more IAC in the quarter. We bought about 1%, I think it is of MGM. So we could get to 25%, which is an important actual accounting milestone for us. We've bought stock back of $337 million in '26. We're going to continue to evaluate buybacks as we always do, opportunistically. And we are ever mindful of this huge discount in the value of IAC. We really do have a formative -- I really do believe -- deeply believe we have a real growth engine in People. We are outcompeting anyone else in digital publishing. And with all the headwinds and all the things that are going to happen to digital publishing and publishing in general that are downsides for us, every one of them seem to be upside. That's our different distinction. Anyway, if anything obvious, I am bullish on what '26 has in store. And with that, I'm anxious to get to your questions, and I hope Chris will be relatively brief in his remarks. Christopher Halpin: Thank you, BD. I'll start talking on Page 5 of the presentation about People's financial performance. It was a strong quarter across the board with the business delivering 14% Digital revenue growth, driven by solid execution across all 3 revenue categories: Advertising; Performance Marketing and Licensing. Advertising grew 9% in the quarter, returning to growth and doing so despite a 13% decline in core sessions. Neil will go in more depth on this front but this highlights the success of the off-platform strategy and the strength of People's brands amidst AI headwinds. Performance Marketing grew 17% in the quarter over the important holiday period, reflecting both excellent execution by Neil's team and the strength of the consumer. Finally, Licensing grew 36%, driven by robust engagement with our content across Apple News and content syndication partners and the new AI content partnership with Meta contributed a little bit to growth as well. The Print segment declined 23% as expected, due partly to $20 million of revenue in the prior period from political advertising, which we flagged previously, and partly to the continued sectoral decline in print. Adjusted EBITDA was solid in the quarter, growing 9% in Digital when you adjust for severance expense a year ago and with incremental Digital margins at 26%. Print produced $13 million of adjusted EBITDA in the quarter, down from a year ago for the reasons stated earlier but more than enough to offset $9 million of corporate expenses. So the fourth quarter capped a solid year, $1.8 billion of revenue, $1.1 billion of that Digital revenue growing 10%. Aggregate adjusted EBITDA was $331 million for the year, reflecting the exclusion of the $41 million in gains from lease buyouts and the $15 million in third quarter severance. And Digital full year EBITDA margins were essentially flat year-over-year at 28%. With that, I will hand it to Neil to go deeper into people, strategy and performance. Neil Vogel: Guys. Thanks, Chris. Thanks, Barry. I too will go against my nature and be as brief as I can and hit the highlights here. We had a really strong quarter. As you guys all know, the publishing and web ecosystem has been changing dramatically, and we've been working hard to change along with it. The strategies we've outlined to you and have been talking about, they're working. As Chris and Barry said, we had 14% digital revenue growth in the quarter. It's a testament to the strength of the brands, truly the strength of the brands and our team's execution. Key is the diversity of our revenue models and the breadth of the industry sectors in which we compete is also a real strength. And I think importantly, in Q4, alongside our growth, we continued to invest heavily in a raft of new products and services, some of which you can see here on this slide, which I believe is Page 6 in your deck. The new Food & Wine Classic in Charleston exceeded our expectations. We had our most successful media cycle in the history of the Rejuvenated Seepixus Manali franchise, a very important franchise for People. And InStyle popular, the Intern social video franchise has become a real blueprint for what we're able to do our platform. And we made solid progress, which I'm sure we'll get to in the Q&A on initiatives we discussed like D/Cipher and MyRecipes and the PEOPLE app, and there's a lot more to come, as BD said. We are energized. We feel really good about where we are. And we did all this in the face of a lot of disruption. Let's go to the next slide, and we can talk through that. We delivered this quarter in despite of a very challenging environment to core web sessions. Looking at the core sessions, we're down 13% year-over-year in the quarter. The biggest contributor to that is a 50% drop in Google search referrals over the last 2 years. This quarter, we also saw a little softness in non-search traffic sources, mainly driven by declines in Google Discover, which is their version of Apple News, which had been a contributor to non-search growth earlier in the year. However, offsetting the effects of core sessions decline is the continued rapid growth in our off-platform and distributed audiences. You can see off-platform views have nearly doubled in the last 2 years and grew 43% last quarter year-over-year. There's real momentum here. This is a continuation of a pronounced shift in our business. We are aligning our efforts and resources to connect with audiences where they are now. We are going where the people are. Our brands have great momentum across everything from Instagram to Apple News to TikTok to YouTube as well as real cultural cloud in our tentpole events and our operated properties. And the non-session-based growth is underpinning our financial story. And the next slide really gets some color on that. If you go to Slide 8 in the IAC deck, this slide clearly shows that our non-session-based revenue sources are now the fastest-growing part of our business. Again, non-session-based revenue, revenue not based on web sessions, now comprises about 38% of total digital revenue, and it grew 37% year-over-year in Q4. This growth is led by D/Cipher, our events businesses, creator and social models, including the Feedfeed acquisition, our deep partnership with Apple News and our AI licensing deals. At the same time, sessions-based revenue was 62% of total revenue and grew at 4% year-over-year. We absorbed the declines in Google referral traffic by delivering great premium sales quarter across our brands and showed continued strength in our Performance Marketing business. The brands are still super strong and advertisers and marketers are really interested in these brands, both in the new environments and the traditional environments. Look, this is the model for our future. Strong growth from non-session-based revenue streams led by our growth in off-platform audiences at D/Cipher and executing against our session-based businesses while absorbing continued declines in referral traffic from Google and other platforms. We're super proud of this quarter. We have a solid model, as BD talked about. We got a lot of seeds planted, and we're excited and we got a clear path in front of us. We've got a ton to do, but we got the teams, and we think we have a real strategy to succeed. So with that, I will kick it back to Chris. Christopher Halpin: Thanks, Neil. Moving to Page 10. Let's talk through performance at our other consolidated businesses. Care saw 9% revenue declines in the quarter, driven by softness in Enterprise, which we highlighted last quarter. Consumer revenue declined 4%, steady with last quarter, and we continue to see the benefits of Care's product improvements, marketing investment and add-on offerings bearing fruit. On the Enterprise side, as employers have tightened their benefit spend, many have adjusted their existing programs, leading to a 13% Enterprise revenue decline for the quarter. This decline is exacerbated by some particularly robust client usage and out-of-period client true-ups in Q4 '24. We believe both Consumer and total Care revenue in aggregate will return to growth by midyear. Care adjusted EBITDA was excellent at $19 million for the quarter, generating 22% EBITDA margins. Normalized on a year-over-year basis, profitability was essentially flat as Care incurred $9 million in legal charges and $2.5 million in severance in the fourth quarter last year. Emerging & Other revenue grew 18% and flipped to profitability with $3 million in adjusted EBITDA. The revenue growth was the output of strong performance at the Daily Beast, where revenues grew 50% and at Vivian, which grew in the fourth quarter for the first time since Q3 '24 and has regained its momentum. Both businesses were profitable in the quarter and the year-over-year picture further improved due to the resolution of the legacy legal matter we mentioned on our last earnings call. Finally, Corporate adjusted EBITDA was $23 million, down from a year ago and last quarter as we continue to reduce our overhead and get back into the mid-$80 million range on an annualized basis. Turning to the next page, we'll talk about guidance. IAC has always managed our businesses for the long term, not on a quarterly basis. At a high level, we will stop providing quarterly guidance as we do not believe it's productive for our businesses to focus on short-term results, particularly people as it navigates fundamental shifts in its industry. We want our businesses to remain focused on execution and long-term value creation, and this change also reflects proactive feedback from some investors. As in the past, we make changes to our guidance based on what we believe is best for the businesses and our shareholders. We will, however, continue to provide annual guidance as summarized on Page 11. For People Inc., we expect both digital revenue and digital adjusted EBITDA to grow mid- to high single digits for the year. We are forecasting approximately $15 million in litigation expenses this year related to our Google Ad tech litigation, which will result in corporate expense exceeding print adjusted EBITDA by that amount. Absent the litigation expense, we would expect them to offset. When rolled up, that produces our guidance range of $310 million to $340 million of total adjusted EBITDA for People Inc. I would note, this range implies digital adjusted EBITDA of $325 million to $355 million for the year compared to $315 million in 2025. We are expecting Care adjusted EBITDA of $45 million to $55 million with consumer returning to top line growth by the middle of the year. Our Search segment, which comprises Ask Media or AMG, a search monetization business, has innovated while navigating a complex and challenging search ecosystem for more than a decade. A reminder that our Search segment is managed for margin, not growth and has not been an area of strategic focus at IAC for a long time as it has steadily shrunk in size and materiality. As disclosed in our recent 8-K, we are in negotiations with Google, which supplies paid listings to AMG to extend our relationship and the outcome of those negotiations will likely determine the future of the business. At present, we are guiding to a range of negative $5 million to positive $10 million of adjusted EBITDA, and we expect to know a lot more over the next 90 days. Emerging & Other should continue to grow top line, thanks to Vivian and The Daily Beast, and we are expecting $0 million to $10 million of EBITDA there. And finally, Corporate expense is expected to be $80 million to $90 million, and we will continue to work to come in at the bottom of that range. Finally, Page 12 summarizes our continued buyback activities, as Barry mentioned. With our purchases since last earnings, we have bought back $337 million of our shares over the past 12 months and reduced our share count by 10%. With that, let's go to questions. Operator, first question. Operator: [Operator Instructions] Our first question comes from Ross Sandler with Barclays. Ross Sandler: Neil, could we go back to Slide 8 and the non-session-based revenue growing 37%. Could you just elaborate on like what are the key drivers of that line? And how do we feel about that in 2026 in the context of the mid- to high single growth rate for People overall? Barry Diller: Wait, wait, wait. Neil, before you do, I just want to say one thing about the growth in people for next year. Yes, we're conservative. And when we come out with guidance, a silly process that why all of us engage in it, I do not know. But nevertheless, there we are. I would be very disappointed if People did not exceed that number. People has momentum. It is getting -- these areas that we're developing are going to take time to develop but that machine is so well run, and I think it's going to produce more than you are saying in your guidance. So I know you'll all get mad at me but that is what life is for. Christopher Halpin: It's we. It's we. Neil Vogel: And look, the truth is we want expectations. Expectations are good. And Ross, to go back to your question, what is fueling that is from a high level, we're going where the audiences are. And if you look back like 5 years ago, this is going to be probably longer than you wanted, we were like 70% of our traffic from Google Search. Now it's like 30%, right? People would look at the Internet that we compete in and they would say, "Oh my God, you guys are too much Google. How can this say you're not diversified enough?" We would look at the market and say, 90% of the web started at Google, we're bad at this. Like we're not good enough at 70%, we should be better. And what that did was gave us a really tight and close view into Google, and we instrumented our business to work with Google, which at the time was the dominant source. Now that gave us 2 skills. One, we realized very, very quickly when Google started to change, and that wasn't going to be the best source. And two, we were very early on it. So what we were able to do 2, 2.5 years ago is we were jumping up and down and saying Google Zero internally. And what it gave us to do is we developed all of these new skills. And the payoff of these new skills is now. We developed all these new distribution channels for our content, for our audiences, whether it's social, whether it's reaching people through events, whether it's reaching people through things like D/Cipher, we had a sense of where the market was going and we're going with it. The audiences are going in that direction and the advertisers are going in that direction, and we're going in that direction. And we feel like we've put together a really, really interesting pool of assets. It's different for every brand to address this. And again, the proof is in the numbers, and we feel really good about what we've done. So that would be my answer. Operator: And the next question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: Just 2 questions for Barry. First, on M&A, without being specific but maybe in generalities, what are the types of assets that IAC is interested in? And obviously, we've all read about speculation of your potential interest in CNN. And would that -- if that was something, would that be done through IAC or outside of IAC but just generally talk about M&A aspirations. And then just secondly, maybe, Barry, just review your investment thesis on MGM and why you felt that, that was a good deployment of capital right now as opposed to saving that capital for buybacks or M&A. Barry Diller: I'll start with MGM. It's kind of self-evident. We bought the stock at what dollar level, Chris? Christopher Halpin: $40 million. Barry Diller: No, no, no. Christopher Halpin: $40 million. Barry Diller: No, our total purchase of MGM stock. Our total equity in MGM how much. Christopher Halpin: We bought $1.3 billion. Barry Diller: And it's valued at what? Christopher Halpin: $2.2 billion. Barry Diller: So that's the answer to that. That's not the full answer. Yes, we've done very well. We bought it at the right time. We recognized it as something that we had interest in. But since we bought it, and we bought more since that initial purchase, I have become absolutely convinced that this collection of extraordinary properties, 40% of Las Vegas is owned by MGM. The infrastructure of Las Vegas can never be duplicated. Every piece of what they do is something that you can iterate on, that you can improve, that you can innovate without huge, huge amounts of capital and give people the experience that somewhat actually been hurt in the last couple of years but by its own hand, I think. Las Vegas always said to people, you come here and there is value here. We've all heard of inexpensive hotel rooms, et cetera. There are some inexpensive. But I think the town really overplay gouge in certain areas. And I'm pretty sure that pretty sure that that's going to turn. Value will come back at the value area of part of the business. We are very much in the luxury part of the business, and that has done well. And as we begin this period, I think, of innovation, I think we're going to turn the town on in a way it has not been turned on at least in the most exciting way other than the wonderful sphere that has been planted here. So my belief in Las Vegas in that no one is going to get between the excitement and entertainment of Las Vegas by any technical means of AI unless we are all in a simulation and nothing else matters. So that's Las Vegas. Then we are developing a resort in Osaka in Japan, only gaming resort of huge, huge $12 billion scale that it's long dated. It won't come into play until '29, '30. But when it does, it's going to be one of those golden assets. So I am -- I can't -- if I look around and you say, what would interest me in M&A would be to find another opportunity like this one. By the way, I haven't found it. I don't think it's on the horizon, by the way. I don't really think that right now is the time for us to be, I wouldn't -- we never squander around but putting like bets down on things that are not -- that do not have -- it's kind of a bromide, you never want to do it if you don't have potential. But right now, I really don't see anything at a price that would be rational to pay. And I don't see anything that's really particularly exciting. We've got a company that's got People, which I can only overdue, so I'll not do more than I did before in what I think of the potential of People. And we've got MGM, and we've got cash to continue to increase our ownership in both of those. And yes, an opportunity may come along. But I like the hand we have right now. So that's a long-winded answer. Did I answer the first part of your question? Oh, Well, you asked about CNN. I've been interested in CNN for years. I think it's less than 50-50. I'll get the opportunity but the hand could play that way. We'll know in the next months as the Paramount Skydance, Warner Discovery, Netflix diorama plays out. I suspect that if it happened, it would be on the personal side, not through IAC but that's really unpredictable at the moment. I think that's the rather fulsome answer to your question. Christopher Halpin: Thank you, BD. Yes, just one point I'd add for investors, great results released by BetMGM today, reflecting the performance there and solidity. So another leg to the MGM. Barry Diller: What I don't get is how you all people -- I'm not all God here. I sound like that person God forbid. What I don't understand of the entire investment community is here you have a situation where we invested -- not a huge amount but we invested hundreds of millions of dollars in BetMGM. BetMGM lost and people were critical of it for several years. And it took us -- of course, it took us some time to get it together. We go from like $170 million -- or you can correct me with the exact figures or loss or a $200 million loss in 1 year to $170 million profit the next year. Why hasn't everybody say, "Oh my f**** God, that is a turn." And this year's projections, are much higher than that. Nobody pays attention to it. I truly don't get it. But eventually, truth speaks. What I am assuming nationally. Operator: The next question comes from Justin Patterson with KeyBanc. Justin Patterson: You're clearly excited about a lot of these transformations going on at People. How scalable are some of these new curated experiences? How do you think that changes your relationships with audiences and monetization opportunities? And how should we think about just the investment levels to support this transformation in the AI era? And then separately, just one on Vivian. Bill Kong was recently named CEO. Could you talk about some of his top priorities in that role? Neil Vogel: Yes, I'll go first and Chris will go second. So what I would say is the key to our business is we need direct relationships with our audiences and direct relationships with our advertisers. And the things we are most excited about in the business are the things that you highlight, the new things that we've launched. And look, we're -- the roots of our company are 100 years old. So it was not a given we would be great at these things and launching new things. But so far, so good. We feel very good about the momentum we have and some of the headline things we've talked to you about. So first, let's just go through a couple of them. MyRecipes, which we launched a little bit less than a year ago, which is a recipe locker or place to store recipes. I think most of you guys know we are by far the largest player in food and recipes on the Internet. We have in under a year with very little to no outside marketing, we've got 3 million registered users who've saved 24 million recipes. And we're perfecting that experience. This is an audience that advertisers love. It's a service that people love, and there is no Google between us and these audiences. It's really, really effective, and it's teaching us a skill set, and this has an incredibly bright future. It's got a great team running it also. We've talked a little bit about the PEOPLE app with you guys. The PEOPLE app for us, I think, and I'm not sure if BD has ever brought this up before, the PEOPLE app can eventually be the hub of the entire People brand. And what we have really focused on with our investment dollars is getting that experience right. So we're -- we launched it again a little less than a year ago. We've got about 300,000 downloads. Our expenditure has not been on getting downloads made but 300,000 is a pretty good number. What we're really focused on is engagement and how can we change people's relationship lower case P with upper case P People. And here's the key stat that's interesting. And the thing that gets us so enthusiastic about this. On the web, when someone goes to people's -- sort of people.com, People's website, the average visit is 2 minutes long. If you are in the app and you open the app and you start playing around the web experience, which is not anywhere near as good as it's going to get with the plans we have, that's a 6-minute duration. So we are 3x the amount of time spent in the app than on the site for typical visit. Then we launched a bit ago a suite of games. We launched something called the People puzzler, which was historically in the magazine, a crossword puzzle, and we launched 2 new games since. These games have been a huge hit. People who are in the app and play a game have a 20-minute duration in the app. So you can see real traction. And you can see maybe subscriptions go out of this thing, maybe a big ad business goes out of this thing, maybe sponsorships do. I'm not sure but delighting an audience with a great product is great. And what I would say is with 2 of these things, building new products is not a skill every company has. We've worked very, very hard at this. We've pivoted a ton of resources away from what we've done traditionally into these 2 projects. And I'll just -- I'll highlight one more while we're at it because it's something we're really proud of. At InStyle, we've got kind of a hit on our hands. We do a lot of social-first video. And we did a social-first video series we're currently doing called the Intern. And it's almost -- it's very like the Office E. Every one that appears in the intern actually works for us and works on the team with the exception of 2 people who play interns at InStyle. And it has captured a zeitgeist of sort of like the Gen Z experience in an incredible way. Barry Diller: Neo, when we started doing the Intern, and we do, I don't know, 6 a season and we do how many seasons -- how many of these do we do a year? Neil Vogel: Yes. So there's -- so far last year, we've done 7 seasons, but a season is just 3-minute episodes. Barry Diller: Fine. What I'm trying to do is just educate people. So the first few, they -- first, they cost nothing but you'd made 50,000 or 80,000 or whatever. Now for -- I think it's for a given season, you're up to sponsorships at the 500,000, 700,000 level? Neil Vogel: That's correct, yes. Barry Diller: I mean when you think about that, again, out of nothing at no real cost. This is done in-house basically on an iPhone or it has been done on an iPhone. And they are genuinely funny, and they have reached a genuine audience. That is that we now have, as what Neil has done is redeploying his forces into these new and productive areas. With the brands that we have, when you are doing that and you're dealing with ideation, you create new things that have nothing to do with search, with the issues of digital advertising or the problems of digital advertising, they're their own products, and we are producing them at real scale now. That's really exciting. Neil Vogel: Yes. Barry Diller: It's quite enough for now. Next question. Christopher Halpin: Yes. Let me -- and I'll just cover Vivian. Vivian is an exciting business within emerging and other. We announced last week that Vivian Founder and CEO, Parth Bhakta, has moved to Chairman and Bill Kong, our COO, is taking over as CEO. Parth has done a great job building this business. It is a clinician marketplace. Operator: I am not seeing [indiscernible] right now. Can you... Christopher Halpin: Excuse me, operator. Operator: And the next question comes from... Christopher Halpin: Operator, please stop. Operator, I'm answering a question quickly. Vivian is a marketplace that sits between 2.7 million nurses on the one side and health care staffing agencies and providers on the other. It is really a great moment. It is -- the business has returned to growth last quarter after facing some major sectoral headwinds. It is driving forward in taking share and its AI products, we think, are industry changing. So Bill is the ideal leader. He's grown -- he's developed across product, marketing and other channels and has really performed extremely well. Parth is excited for him to take over as CEO, and it's really about driving our AI products deeper into our customers. Operator, next question please. Operator: The next question comes from John Blackledge with TD Cowen. John Blackledge: Great. Maybe 2 for Chris. One on the People 2026 EBITDA outlook. At the midpoint of the range, it looks like kind of flattish EBITDA. Can you unpack the guide a little bit, Chris, and how we should think about drivers of EBITDA at People this year? And then second question, just on IAC's free cash flow conversion. So you guys guided to '26 EBITDA range of $260 million to $335 million. How should we think about free cash flow conversion of EBITDA this year? Christopher Halpin: Yes. Thanks, John. On EBITDA guidance, we definitely want to explain this in detail to investors at People. So when you compare 2025 adjusted EBITDA for People to our '26 guidance, there are 2 key countervailing trends you need to understand. As background, '25 adjusted EBITDA, when you remove the $41 million in lease gains and the $15 million in severance expense was $331 million. That comprises $315 million of digital adjusted EBITDA and then an incremental $16 million deriving from the excess of print EBITDA over corporate expense. So $315 million and then a $16 million incremental. In our 2026 guidance, we are guiding to mid- to high single-digit EBITDA growth off of the $315 million generated in 2025. On the other hand, our guidance assumes $15 million in Google litigation expense hitting corporate. Without that litigation cost, we expect print EBITDA to equal corporate expense. So with the litigation, what you're seeing is a $31 million net swing from '25 actuals to '26 guidance in the relationship between Print and Corporate. It's that swing that leads the guidance to be in the $310 million to $340 million range and to look flattish year-over-year. Our most important line item in our mind is Digital revenue and EBITDA, and that is growing solidly. And as we said before, if you adjust for the Google litigation expense, we are guiding to $325 million to $355 million on Digital EBITDA. Going to IAC adjusted free cash flow. Simply, there are 4 line items between EBITDA and free cash flow that you should think about in your models. CapEx, change in working capital, net interest expense, taxes. CapEx for IAC is minor. It was $20 million last year, probably $20 million to $30 million in the '26 range. Net cash interest expense is the difference between the interest expense on the People debt and the interest income we make on our cash balances. Last year, it was $64 million of net interest expense. We would expect net interest expense to be around that same number, assuming flat yields on cash. Cash taxes are minimal due to our NOLs. So that leaves working capital. That was a major use of cash last year due to 2 items. One were the lease buyouts that we talked about, north of $40 million as well as some unfavorable timing this past year of vendor payments and receivables. Looking ahead, we don't expect any similar large outflows like the lease buyouts and then working capital should normalize. So when you roll that up, we'd guide to 50% plus EBITDA to free cash flow conversion across IAC in 2026. Thanks, John. Operator, next question. Operator: Next question comes from Cory Carpenter with JPMorgan. Cory Carpenter: I had 2. I wanted to ask, you called out the $15 million spend on the Google litigation. Maybe just update us on where you're at with that and kind of how you're thinking about the range of outcomes. And then, Barry, I think last quarter, you talked a lot about also the simplification of IAC. So maybe if you could just give us an update on how you're thinking about that and any progress you've made. Neil Vogel: I'll do the litigation thing quickly, and then I'll kick to BD. So again, just to refresh everybody, the lawsuit builds on the government's antitrust case against Google, where Google was found to monopolize the ad server and ad exchange markets, right? Two major publishers, Gannett and Daily Mail already sued. And in their cases, the court ruled that they don't need to again prove what the government approved. We expect to rely on that ruling. Again, the costs are about $50 million. Chris has gone in great detail about that. Damages will be proved in this litigation in this phase. We seek to recover hundreds of millions of dollars in damages. Again, it all depends on where this lands. But we look at this as an investment. They've already been found to be sort of, again, I don't know the legal term in violation of these laws. So we'll see where it lands. Christopher Halpin: BD, you want... Barry Diller: It has the potential to land very big. So as far as simplification, we've been doing this for really the last couple of years as we've cleaned up many, many things inside IAC, closed, transferred, et cetera. We're going to continue to do it. We're bringing down our overhead, which we should. Our overhead was large because we had so many businesses that we were responsible for and so much infrastructure. We're now really down to a couple of key businesses. So you're going to see simplification throughout the year. Christopher Halpin: Thank you, Cory. Operator, next question. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe 2, if I could. First, with respect to the Ad business, any mark-to-market views in terms of the overall macro environment, either verticals or the way in which advertisers are spending their money, brand versus direct response in terms of how that's impacting the business right now? And then I wanted to revisit the comments you made about the forward guidance in your prepared remarks in terms of maybe going a little bit deeper on what you think it might do to impact the operations, freeing people up to think a little more medium to longer term and whether the investment community could also expect some sort of at least qualitative commentary mark-to-market on a quarter-to-quarter basis. Neil Vogel: Sure. I'll do the ad market first, and I'll kick to Chris. So I think we do this a lot around here. I think we put the market at a 6 out of 10 where it is now. It's healthy, remained generally favorable in Q4. It's pretty solid for us. I think particular to us, we have some real advantages, right? Brands matter and in an AI world where everything is uncertain and everything is a platform and everything is UGC. The strength of brands really resonate. We're in a lot of markets. That helps. Our programs really perform, both the traditional on-platform and off-platform. Our ad relationships are good. And we're very much with some of the new things we're doing, we're in the ad side guest. Not only do we have like the real nuts and bolts to deliver but we've got the cool stuff, too. And it's really helped us. And I think the strongest sectors -- and again, I can only really speak to us but some of this does trickle out to the broader market. Health and pharma has been good for us, travel, tech. Some of the weaker sections for us or some of the stuff you're seeing macro exposed like food and beverage, CPG, in a large way has been very challenged. I'm sure you guys have heard about that. That's really our take. Look, we -- the market right now is good enough for us to execute, and that's our main concern. Christopher Halpin: And then on guidance, look, the -- it's a few things. One, there are a lot of -- especially in People Inc., which is our biggest business, there is a lot of volatility in the underlying market. Neil has talked about everything they're doing to guide the ship successfully through the choppy waters and they're proving that out in the data but stressing about quarter-to-quarter metrics on sessions, individual revenue line items, et cetera, we thought -- we came to the conclusion it's a long walk for a short drink. And that doesn't necessarily mean downside. We surprised to the upside last quarter with very strong revenue. It's really around head down execution to drive the strongest, best digital businesses. And we'll do that on with an annual basis and tell you what we're working towards. And then to your point, we will talk -- or to your second question, we will give guidance qualitatively -- not guidance, we'll give views qualitatively of what's happening in the markets, what's happening in the dynamics and our strategy. Thank, Eric. Operator, next question. Operator: And the next question comes from Dan Kurnos with StoneX. Daniel Kurnos: Maybe first for Neil, any directional way to think about sizing or helping us think about D/Cipher+ this year? And should we think of any announcements coming the way that Roku used Nielsen ACR as a data and conversion layer with Amazon DSP? Are there any ways that we could think about major partnerships? And then I guess for Chris, just on Care, maybe just unpack the growth a little bit, how you think it could trend over the course of the year and then more longer -- and then longer term, just what are the aspirations for growth at Care? Neil Vogel: I'll go first with Decipher. So we're obviously very excited about Decipher. It's our fastest-growing off-platform business in terms of headcount, in terms of revenue. It's going to be a big driver for us. Again, it opens up a lot of TAM for us, right? We can do CTV. We can basically target using our data, which is fantastic. the Open Web. I think to dimension it for you guys, I think we'd say of the growth, the mid- to high single-digits growth, 2 to 3 points of that this year will be D/Cipher+. It's got real momentum. And I think we're at a place now where Jim Lawson, who I believe who I know that you know, has really found its footing. We have a real team behind this, and this is a -- it's go time on this business. And I think you're going to see real results in it this year. We're very, very excited about it. Again, it's all about our strategy. We're going where the people are there, and we're bringing advertisers with us, we're bringing our content with us, and this is a really big part of it. And Jim is doing a great job. There's a lot of energy around this. And I'll pump to Chris for the rest of it. Christopher Halpin: Yes. And on Care, the consumer business really was in a multiyear slowdown post -- partly driven by post-pandemic dynamics and then also driven by challenges or underperformance on the product and in our marketing. We've taken steps and Brad Wilson and team have taken steps on a number of those in the consumer -- this consumer platform starting second quarter last year that we've talked before about. We're seeing the stability in sign-ups. We know our comps, we start to get back to more normalized levels and lap some easier comps starting in Q2. So as we've talked about, we expect to get back to consumer growth midyear revenue and then drive on from there. And then Enterprise, we're working through some macro challenges as employers cut back. But there's also opportunities to grow employers and new entrant -- new customers that can come in. So our goal is to get back to revenue growth next -- this coming year. We believe we're going to get there and have line of sight. Margins, we feel good about and the underlying profitability. On an ongoing basis, care should be growing 15% to 20% given its market position, given the opportunities in both its segments and just the ever-increasing need for care, both for consumers who are really struggling with it across child, senior, adult, pet and also employers who are increasingly view it as a base benefit. Barry Diller: Let's do the last question, please. Operator: And the last question comes from James Heaney with Jefferies. James Heaney: Yes. Great. I think a lot of them have been addressed. But just on -- maybe just on the slowdown in digital revenue growth into the mid- to high singles next year. Curious like any conservatism in that guide? Any comping dynamics that you'd call out driving that? Or is that more of an organic slowdown? Just anything on that? And if you can talk about phasing, I know you're not thinking of it on a quarterly basis but anything we should think about for the year? Christopher Halpin: Certainly. If you look broadly across '25, Digital revenue grew 10%. Our guidance of mid- to high single digits reflects some conservatism as we continue to navigate broader search disruptions. As Barry and Neil have said, we feel good about our positioning. We feel great about the robustness of our monetization and the off-platform strategy and the scale and freshness of our content. But we always want to be thoughtful at the beginning of the year on our outlook. So that would be the background. Thank you, James. Thank you, everyone. Barry Diller: Thank you all. Nice to be with you. Christopher Halpin: Thank you, operator. We can conclude the call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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.
Magnus Ahlqvist: Good morning, and welcome, everyone. Andreas and I are proud to report strong results for Q4 and for the full year 2025. So let us go straight to some of the performance highlights. The organic growth in the quarter was 3%, and this was supported by 6% growth in Technology & Solutions. We had a good finish to the year in Technology & Solutions with 2% improvement sequentially. And the adjusted organic growth of the group -- and that means when you exclude the closedown of the SCIS business was 4%. And now to something important. The operating margin was 8% and 8.2% adjusted in the quarter, thanks to the strong delivery across the entire business. North America achieved a 10% operating margin in the quarter, and Europe delivered another quarter with more than 8%. And we have improved the operating margin now 20 quarters in a row and are delivering on the 8% target that we communicated 3.5 years ago. EPS real change, excluding IAC was also strong at 18% and we had continued strong delivery in terms of cash flow with operating cash flow of 88% for the full year and net debt to EBITDA ratio improved further to 2.1. And based on the stronger underlying performance, the dividend proposal is SEK 5.30, which represents an 18% increase. And looking at the future, we announced a very important milestone for our journey with the acquisition of Liferaft yesterday evening. And this is the leading provider of threat intelligence and I will provide more details regarding the strategic importance of Liferaft at the end of this presentation. So let's then shift to the performance in the business lines and segments. We delivered strong margin development in both business lines with 12.7% for Technology & Solutions, 6.6% of Services in the quarter. And there is growth, as I stated, in Technology & Solutions for 6%, so 2% improvement compared to the previous quarter. And the growth in Security Services was 1% and this growth is obviously negatively impacted by the SCIS business where we're closing down the government part of that business. So with that, let's move to the segment, and we are starting, as always, with North America where we're delivering a very strong set of results and a record 10% operating margin in the quarter. And if we start with a growth of 5%, this was driven by good portfolio development and price increases in the Guarding business and by good development in technology. The real sales growth in Technology & Solutions improved to 4% compared to lower growth in the previous quarter. And when looking at the profitability, strong leverage and cost control in Guarding, together with solid profitability in Technology and a recovery in the Pinkerton business all contributed to the record level operating margin. So all in all, a very strong performance, a record-breaking 10%, so well done by our North America team. We then move to Europe, where we are also very pleased with the development. The organic growth was 4% in the quarter, and the growth was supported by price increases including impact from the hyperinflation environment in Turkey and also by solid growth of Technology & Solutions, while active portfolio management in the Services business had a negative impact on growth. Sales growth in Technology & Solutions was 7%. But it's the profitability development that stands out with 110 basis points improvement to 8.1%. And the margin improvement was driven by both business lines, including positive impact from the business optimization program. The Security Services business was positively impacted by higher margin on new sales, active portfolio management and also the divestiture of the Airport Security business in France. We also recorded a solid improvement in the operating margin in the Technology & Solutions business line driven by good portfolio development and solid cost control. And as commented earlier, we expect the work we're addressing low-margin Guarding contracts to be completed during the first half of 2026. So all in all, solid development by our European team and also here an operating margin at a record level. Shifting then to be Ibero-America, where we are pleased to report good organic growth and decent margin improvement. The growth was 5%, and this was driven by high single digital growth in Technology & Solutions and prices increases in the Services business. But similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress here and driving good conversions to Technology & Solutions. And the real sales growth in Technology & Solutions was 7% in the quarter. The operating margin improved 20 basis points in the quarter, and the improvement was primarily driven by positive impact from active portfolio management in the Security Services business line. So to conclude, strong delivery in 2025 by our Ibero-America team. And looking then at the performance across the group, we are driving disciplined execution of our strategy, and I'm really pleased to see strong execution across all segments. And the client retention is solid at 90%. So with that, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And first of all, if I sound different to normal, it is because I'm about to lose my voice, I apologize for that. We start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 70 basis points to 8%. It is a strong quarter where we improved our operating income with 15% adjusted for currency. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.2%. Looking below operating results, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. The items affecting comparability was SEK 78 million, and this was related to the ongoing European transformation and business optimization programs. And the full year cost for these programs was SEK 382 million, approximately in line with our previous guidance. We have executed the business optimization program in a good way where the annualized savings in Q4 are in line with the targeted SEK 200 million savings. The business optimization program is now closed. And in 2026, the only remaining program is related to the European transformation. And here, we estimate to have a full year 2026 program cost of SEK 225 million to SEK 250 million, a material reduction compared to the SEK 382 million related to the programs in 2025. In Q3, we took a SEK 1.5 billion cost in items affecting comparability related to the close-down of the government business within SCIS. The close-down is progressing according to plan and had limited impact on our operating result in Q4. We continue to expect the vast majority of the business to be closed down by the end of 2026, and we will also start to see an accelerated execution of the close-down during the first half year. Our finance net came in at SEK 383 million, a reduction of SEK 146 million compared to last year. And here, we continue to see a positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year 2026, we estimate the finance net to continue to reduce and land around SEK 1.6 billion to be compared to the SEK 1.8 billion for the full year 2025. Moving to tax. Here, we had a tax rate of 29.5% for the full year, slightly higher than our Q3 forecast of 29.2%. The full year tax rate was impacted by the SCIS close-down cost in Q3, where we estimate around half of the cost to be tax deductible over time. Adjusted for the close-down impact, the full year tax rate was 27.2%, and we expect the 2026 tax rate to be in the approximately same area. All in all, we have a strong quarter where we grow our FX adjusted EPS with 18%. And as we summarize 2025, we have improved our adjusted operating margin with 60 basis points to 7.7%, grown our operating result with 11% and grown our EPS with 18%. And at the same time, we also achieved our financial target of an operating margin of 8% in the second half year of 2025. The adjusted operating margin in the second half was 8.2%. We then move to cash flow, where our operating cash flow was solid at SEK 3.9 billion or 128% of operating income. The cash flow was supported by lower growth rates and the continued improved DSO, but also negatively impacted by the additional USD 44 million payroll in our U.S. Guarding business as we communicated in the third quarter. This negative impact is a timing impact only, which occurs every fifth to sixth year. The free cash flow landed at SEK 3 billion, supported then by the solid operating cash flow, reduced interest payments due to the lower interest rates and debt levels and positive tax timing impacts. Looking at the full year 2025, we delivered another year of record cash flow. The operating cash flow was more than SEK 10 billion or 88% of the result, supported by good working capital focus and lower growth rates. And we have now delivered operating cash flows above our financial targets of 70% to 80% over the last 2 years, a result of our strong focus to build a more qualitative business and also structurally improve our working capital over time. And this has, of course, also translated into stronger free cash flows, which creates increased flexibility and opportunity for us as we move into a new phase of our strategic journey. Our cash generation will also be positively impacted as our items affecting comparability continues to reduce as we go into 2026 and beyond. We then have a look at our net debt, which was SEK 31.3 billion at the end of the quarter. This is a reduction of SEK 2.1 billion compared to Q3, mainly supported by the strong free cash flow, but also by the strength in Swedish krona. In the quarter, we paid the second tranche of our dividend, and we had SEK 321 million of total IAC payments, whereof approximately SEK 160 million was related to the final payment for the U.S. government and Paragon settlement. We have now made all 3 payments related to this settlement and expect no further cash flow out related to the case. Looking at the right-hand side, our net debt to EBITDA reduced to 2.1. This is an 0.4x improvement compared to Q4 last year, where positive EBITDA development, good cash generation and the strength in Swedish krona have supported positively and we are well below our target net debt-to-EBITDA of less than 3x. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, remain with strong liquidity, and we have no financial covenants in our debt facilities. After a period of important refinancing focus, our main focus during the second half of 2025 has been to amortize debt, supported by the strong free cash flow generation. In the quarter, we repaid SEK 1.9 billion of debt and throughout 2025, we have amortized a total of SEK 3.3 billion. This continues to support our cost of financing going forward. And looking at the maturity chart, we have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Many thanks, Andreas. So I'd like to share a few perspectives regarding our strategic development and the Liferaft acquisition before we open up the Q&A. First, we are proud of the fact that we are reaching our 8% target in the second half of 2025. Back in 2022, when we did the Stanley acquisition, we accelerated the work to change the profile of Securitas security company with the strongest technology and digital offering to our clients in combination with high-quality guarding services. And when looking back at last 4 years, we have been executing well. We are a sharper, more focused company today and operating at a different margin level. And as we're entering 2026, this also means that we can then start to retire this bridge that we have kept coming back to every quarter and over the last 3.5 years. Looking at the future, we're very excited about the acquisition of Liferaft. So when I look at the transformation of Securitas during the last 6, 7 years, we have kept a clear focus on investing in the core capabilities that we consider critical to winning in this industry and those are focused on presence, technology and data. In this context, we strengthened our guarding value proposition. We have improved the profitability of guarding. We've built a globally leading technology position and a more modern and digitally capable business. So we have strong pillars in our business today. But we've also worked to meet the increasing client demans for better understanding the risks and the threats facing their business. And over the past 5 years, we have developed in-house risk intelligence capabilities that we are providing to more and more customers. So all this is good, you might say, but what is then the importance of the Liferaft acquisition? Well, Liferaft is one of the leading SaaS-based threat intelligence providers focused on OSINT and that's open source intelligence. This is a very strong team with deep expertise in threat intelligence and they have been a partner and provider to Securitas for many years. And with Liferaft, we will be able to scale and leverage their capabilities across our client base and in the process strengthen our clients value proposition. When looking at the financials, the company is currently prioritizing rapid expansion and growing organically around 30% on an annual basis, but also then reinvesting very strong gross margins to accelerate organic growth. And given the increase in demand in this market, I fully support this approach. The acquisition is fully in line with our strategy to create a more scalable business model and becomes an important addition to accelerate growth in high-margin recurring monthly revenue. And as previously stated, the recurring monthly revenue for the group exceeds more than SEK 1 billion. So we are thrilled to welcome the Liferaft team when we are closing the transaction, joining forces to shape the future with more intelligence-led security. And the future is promising. With the transformation of Securitas, we're well positioned with a clearly differentiated client offering, well positioned for profitable growth. And we are operating in an attractive market, but also a growing market where we see steady increase in the demand for quality security. We have transformed and repositioned our client portfolio with a clear focus on segments with more sophisticated security needs and higher growth profile. And we partner with our clients for the long term and we see that our deeper engagement model, where we leverage our technology and digital capabilities, is generating high value for our clients and also for us. And the approach is working. So like Andreas and I have commented, we're executing well on our plans, 20 consecutive quarters of operating margin improvement and solid cash flow generation. We've had a clear focus on enhancing the quality of our business and margin improvement in recent years. But as more and more units reach the required profitability thresholds -- so from my perspective, that means for a good sustainable business, they also gained the right to shift focus to profitable growth. And with the business now in much better shape, we can shift emphasis towards commercial synergies and driving growth. And as stated many times, we do this with a clear focus on building a more scalable business. So we are confident and excited about our longer-term opportunities and we're looking forward to sharing more in the Capital Markets Day in June. So in conclusion, we are on the right path, well positioned for the next phase. So with that, we conclude the Q4 presentation and happy to open up the Q&A. Operator: [Operator Instructions] The next question comes from Francesco Nardinocchi from Goldman Sachs. Suhasini Varanasi: This is Suhasini from Goldman Sachs, actually. I just had a couple of questions please. So the -- if we think about your growth and margin expectations for the first half versus second half of this year, would it be fair to say that because of the impact of your underperforming contract exits that's going to be completed by first half this year, maybe the growth is a little more weighted to second half and similarly on margins. And I'm not sure I read but how much are you expecting to pay for the acquisition of Liferaft? And how is your M&A pipeline looking at this point in time? Magnus Ahlqvist: Yes. Thank you. So when you're looking at that, I think it's the right assumption that finalizing that work will have a negative impact in the near term from the active portfolio management. But that's why it's also so important and so positive that we are soon done with that work. And as I commented in the last couple of years, we were more quick in North America in terms of finalizing that work. So I think that is obviously something that we're looking forward to also in Europe. Then when you look at the growth in Q4, we had 6% growth in Technology & Solutions, and that's a clear improvement compared to the previous quarters. We have a strong offering. Solutions is more of a portfolio business. Technology part, there's also some variability with installations, but we see that we are on a good path. So I think that is the other part that I would just highlight because that part of the business, there is no impact from active portfolio management. Andreas Lindback: We have not disclosed the purchase price related to Liferaft simply due to commercial reasons that we're not doing that. But we have paid a fair market price for this type of business overall. So -- and there will be some details coming as we have closed the transaction as well. On the M&A pipeline side, as we have said, we are ramping up our focus on continued bolt-on acquisitions within Technology & Solutions and some targeted also acquisitions in the intelligence area. We made a few minor ones outside Liferaft, but we are still in ramp-up mode, I would say. So the pipeline is not -- there's not a huge pipeline at this point in time, but it's something that we are working towards improving. Operator: The next question comes Remi Grenu from Morgan Stanley. Remi Grenu: First, a quick question on the 2026 outlook. I guess, given you have achieved the 8% and the CMD is not before June, we are left a little bit in dark in term of margin development. So just trying to have your overview on 2026 margin development if we exclude any -- excluding the positive impact that the closure of SCIS is going to generate. But on an underlying basis with the portfolio of the company, do you believe that there is still potential for margin improvement from the current run rate at the end of 2025. So that would be the first question. The second one is on North America. The organic growth very suddenly accelerated in Q2 and it's been normalizing a little bit over the last 2 quarters. Just trying to understand the drivers of that sudden acceleration and what's happening since then? Why it is coming back down? Is it about like volume normalizing, lower pricing and also taking a step back on that market, what do you think is the structural level of organic growth in North America? And then the last one, you have come to the end of that strategic plan in 2025. Have you started to have a think about the new KPIs for management remuneration, variable remuneration and going into the next phase of the company, what do you think would be most relevant in terms of aligning the interest of shareholders with management? Magnus Ahlqvist: Very good. Thank you, Remi. So we don't provide guidance. But first of all, I think it's been really important for all of us internally and also externally that we are delivering on the 8% because it represents a very significant shift. When you're looking at 2026, driving good growth in Technology & Solutions will have a positive impact on margin. I could also expect some positive impact from active portfolio management work that we still have some of that work yet to be done. Business optimization program, we've commented as well. We successfully completed that in 2025, should also help and support. So generally speaking, I mean, we are -- and I spelled that out, I think back in 2022 is that 8% is important to achieve. We believe that now we have a really good opportunity to also be related to your third question, calibrate more precisely as well how we maximize the value creation because we've had very hard focus on improving the quality and the margin. But it's quite obvious to us as well that we get done with some of the structural work and the heavy lifting and cleaning. We're largely done with that now and that also means that we can then also start to shift focus on more profitable growth going forward. And I think that is something that we -- that is clearly on our minds. And it's also clearly something that we're also reflecting also in how we're calibrating some of the incentive programs as well so that we really gear those towards maximizing value for our shareholders. So I think those are the key points. North America, maybe briefly on your side, Andreas? Andreas Lindback: I can just follow up on the KPIs because there's also misunderstanding related to that up until now. We have both long-term incentive programs, and we have short-term incentive programs. It's right, as you say, that operating the margin has been a focus for the long-term incentive programs. But in the short-term incentive programs, which is a material part of total compensation, it is also about driving growth in the earnings as well. So I just want to highlight that. And then if you want to take the... Magnus Ahlqvist: Yes. No, that's an important point because if you look also at the operating result growth, really solid double-digit levels in 2025 in constant currency. And we are here, obviously, to drive that for change, but it's always going to be a balance as well. And we should also remember that operating margin improvement is also helping and accelerating also the operating result growth. So I think that's an important clarification about the programs that we've had up until now. When you look at North America, we feel good about our position. We feel good about the market in general. So I wouldn't -- and it's a little bit difficult to call out the specific growth numbers. This is something that in our industry, it is a little bit difficult to get a very clear understanding of how the total market is developing. But I would say that we are well positioned in terms of the segments where we are and also segments where there is, generally speaking, a higher emphasis on the quality, security is important, but there is also very healthy underlying growth. So I would say that we are well positioned, but it's difficult, Remi, to call out a very specific overall growth number. But I believe with the offering that we have, we should be able to grow at least with the market and preferably above market rate. And that is very much based on the strength of the offering but also that we are well positioned in terms of the segments that we serve. Operator: The next question comes from Andy Grobler from BNPP. Andrew Grobler: Just a couple from me, if I may. Firstly, just in Q4, in terms of the European growth, can you talk through the tailwinds from Turkey and also the headwinds from portfolio management, so sort of to get to the underlying numbers there? And then secondly on the longer-term perspective, Technology keeps evolving at pace as we can see from the stock market. I just wondered what you're seeing in your end markets? And if at this stage, there's any signs or you expect to see over time, price deflation within your monitoring activities and the extent to which that's possible. That would be really helpful. Andreas Lindback: Thank you. When it comes to the European growth rates in the fourth quarter, you can say more or less all the positive growth is coming from Turkey in essence. That's the first statement. So Turkey had an impact for sure. If you're then looking at the -- where we have volume growth was in Technology & Solutions in Europe and then there was a negative impact that we have not quantified related to the [ APM ] that is impacting the Security Services portfolio. So I think those are 3 pillars to bear in mind when looking at the European organic growth. Magnus Ahlqvist: And then, Andy, on the technology, I mean, what we call the technology business is essentially business where we drive or we design, we install systems and then we operate and serve those systems for our customers. So there's a couple of different components. But a big part of the value, I would say, when I look at the kind of 3 main areas of activity, installation, service maintenance and also monitoring is that, that work is quite tightly connected. So when we are doing a good integration and installation work, we're very well positioned to also provide the best type of service and maintenance. But more and more of what we are doing and what we're also interested in building is more the recurring revenue. And there, obviously, connected services, those are usually not just simple kind of monitoring lines, for example, it's usually part of a broader value proposition and there, I believe that we are in a good position based on the great strengths that we have built. And where also the deep integration of Stanley has really helped us because we have built genuinely good service capability and levels and also [ rich ] service offering to our clients as well. So I think that we are in good shape in that sense from a market perspective and also the offering that we bring. Andrew Grobler: Okay. And then just lastly, Andreas, thank you for all your help over the years and best of luck with whatever the future may bring. Andreas Lindback: Thank you. And likewise, Andy. Magnus Ahlqvist: I remember to say a special thank you to Andreas at the end of the call today as well. But I'm glad you comment that, Andy. Andreas has been a great partner all along here. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Firstly, just following up from Remi's question on North America. Obviously, very mindful that active portfolio management has been a headwind to growth. And as that starts to end, you flagged in Europe in the first half, that should be a positive as you switch to that growth focus. But as Remi flagged, as we look at North America, the portfolio management has ended and growth has slowed sequentially from 2Q through to 4Q, the 5% we saw in 4Q. To what extent is that slowing in North America? Are you guys maybe holding back to focus on margin rather than kind of fully pushing the commercial engine in the business? And to what extent maybe is it just that it's a continued tough market that is still hard to drive growth? That would be the first question. Secondly, just like a bit of an update on the technology side. Obviously, growth improved sequentially 6% in the quarter, but it's still well below the 8% to 10% target. So I'd be keen just to understand of that 6%, how much is pricing, how much is volume and how you think about the outlook towards that 8% to 10%? And then third question, just on free cash flow. Just in the full year, obviously, a positive outcome overall, but there was a positive impact from working capital for the full year. Like I don't typically think of you guys as a positive net working capital business. So to what extent is that net working capital number sustainable and how should we think about potential unwind as we move through 2026 as well? Magnus Ahlqvist: Thank you, Allen. I think on the first question, we don't see any change in the trend in North America. I mean some variation there will be between the different quarters. We are well positioned. Like you highlighted, we've done with the active portfolio management, and it's obviously a dynamic market. But when you look at what we are winning and what we are losing, yes, we feel good. So no major issue or anything specific to read into that from my perspective. Andreas Lindback: When it comes to the Technology and Solutions growth, when we set the target of 8% to 10%, it's important to remember that was also including acquisitions. And there, we have done limited. We've been focusing on integrating and then also taking down our balance sheet, although it's something that we are looking at ramping up. So in that context, the 6% is a decent number. When you look into that 6% on the Technology side, it is definitely volumes mainly from that growth. If you're looking at the Solutions side, it's a combination of both volumes and price. So all in all, more volume than price when it comes to the 6%. So -- and it's also a decent number, we should say. When it comes to free cash flow, a couple of lenses here. I mean, we said in the last Capital Markets Day, yes, there will be a mix shift in the working capital with the technology business coming in. But we also said clearly that we are working on structurally improving our working capital, and that's really what we have been doing over the last couple of years, which is giving a positive result. So we have definitely structurally improved on the working capital side. And we also show that in the 88% cash flow this year, 84% last year. So it's also not just a temporary change. Then as you all know, we have seasonality in our cash flow, where our Q4 cash flow is stronger. And now the number is coming in somewhat below Q4 last year, but still at a very strong level. So going into Q1, yes, it will definitely be weaker from that standard seasonality that we're having. But the underlying trend, I think, is most important when it looks at the cash flow given we have volatility. And there, I hope you all see that we have elevated the cash flow, and we are now delivering above our financial targets 2 years in a row. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Two initially, if I may. And looking at the mounting down of CIS in 2026, if you could share some more details on the run rate and how it's sort of expected to progress and where we may be end of 2026 in terms of revenue? Are we all the way down to 0? Or is it only maybe halfway there? And second question is associated also to this, trying to trickle out the underlying cost base for the, call it, group other item or overhead line items here. So if you could share any guidance or thoughts on the underlying costs for the Securitas business, excluding CIS, that would be very much helpful. Andreas Lindback: Thank you. If we start then with the government business within SCIS closed down, as I mentioned here earlier as well, we have started to see some impact in the fourth quarter from the close-down on the top line, but it's not much. But you should expect to see an accelerated impact in the first 6 months from the close-down activities. And then if you're looking at your question there, where will it be at the end of 2026, we expect that most of it will for sure be done. The vast majority will be done by the end of 2026. So I hope that helps a little bit by understanding how we expect this to progress throughout the year. When it comes to other in our segment reporting, 3 components, as you know, our Africa, Middle East and Asia business. We have our SCIS business, and we have the group cost. The Africa, Middle East and Asia business continued to deliver strongly in the quarter comparing them to last year. The SCIS business was fairly stable when you look at the bottom line. And then on the group cost, it was higher than last year. And here, we have been running tight cost control throughout the year. But in the fourth quarter, we released some more project investments in the quarter. And that's the main reason and then some year-end reconciliation, but that's the main reason compared to last year. To understand the trend there, I would also very much look at the full year number. Viktor Lindeberg: Okay. That's very clear. And another question on the topic you have brought up Magnus in the CEO letter this quarter, you mentioned the run rate is about -- or at least USD 1 billion or looking at the [ SAS ] and recurring revenues. And I recall you mentioned 18 months ago a run rate of [ USD 1.25 billion ] per month. So just to understand, are we talking apples-to-apples here or what -- why dimensioning or maybe confusion from my side here? Magnus Ahlqvist: Thanks, Viktor. No, we're just keen also on highlighting that we have quite a significant number. I mean, we are clearly above that [ USD 1 billion ], but we will share a lot more detail in the Capital Markets Day in June because this is an important focus area also in terms of building a more scalable business. Viktor Lindeberg: Okay. So it has not deteriorated over the past 18 months. That's what you're saying? Andreas Lindback: No, no. We have seen growth in the business since then. Operator: [Operator Instructions] The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I just had a bit of a detailed follow-up on to Andreas. You mentioned that in 2026, you expect some SEK 225 million to SEK 250 million in items affecting comparability. Is that sort of including this 1% of revenue you are sort of reviewing right now? Or could there be some one-offs on top of this from this review? Andreas Lindback: Relevant question. The number that I mentioned is excluding any impact from strategic assessments, which obviously then could be both a positive or negative number, so to say. So excluding that, just for clarity. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one quick follow-up question from me, please, on the Security Services margin. Obviously, that's now up more than 100 bps over the past couple of years. Just wondering if you can give us a sense of how much of the improvement there you've seen this year over the last year is portfolio management versus what's coming from price increases or any other drivers? Are we pretty close to peak margins in this side of the business as you get to the end of the portfolio pruning? Or are there other levers you think you can look at as you move into next year? Magnus Ahlqvist: Thank you. A couple of different drivers, Nicole. When you're looking at that margin improvement, new sales margins have been consistently very healthy, and that's a good indication that we have a good offering. Clients see the value in that offering. Active portfolio management is also there contributed. But I would also say that we've also been working to also run the business, leveraging the new platforms that we've invested in a more efficient way. So automation and also AI has also been helping us to also optimize how we run the operation. If you're looking at the services margin on a group level, I think that there is further opportunity to continuously improve that in the next couple of years. So I would not agree with the comment that this is kind of peak margin. We believe that driving the things that we have been driving, but also continuously strengthening the value proposition, we are in a good position to enhance the value essentially. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Thanks a lot, everyone, for your interest and a special thank you to you, Andreas. Highly respected and appreciated colleague. I also think with -- in the dialogue also with many of you have also been a really good asset. So just to say thank you. But obviously, then looking ahead as well, we are now at full speed in terms of the assessment and also seeing really good interest also for this position. So we will come back on that matter. But most important today, I think, is just to -- yes, for me to also express our appreciation from the entire team. Andreas Lindback: Thank you very much, Magnus. And thank you, everyone, on the call as well for really good collaboration in the last couple of years, highly appreciated. Magnus Ahlqvist: So I think with that, we wrap up the Q4 and 2025 presentation. Thanks a lot, everyone.
Magnus Ahlqvist: Good morning, and welcome, everyone. Andreas and I are proud to report strong results for Q4 and for the full year 2025. So let us go straight to some of the performance highlights. The organic growth in the quarter was 3%, and this was supported by 6% growth in Technology & Solutions. We had a good finish to the year in Technology & Solutions with 2% improvement sequentially. And the adjusted organic growth of the group -- and that means when you exclude the closedown of the SCIS business was 4%. And now to something important. The operating margin was 8% and 8.2% adjusted in the quarter, thanks to the strong delivery across the entire business. North America achieved a 10% operating margin in the quarter, and Europe delivered another quarter with more than 8%. And we have improved the operating margin now 20 quarters in a row and are delivering on the 8% target that we communicated 3.5 years ago. EPS real change, excluding IAC was also strong at 18% and we had continued strong delivery in terms of cash flow with operating cash flow of 88% for the full year and net debt to EBITDA ratio improved further to 2.1. And based on the stronger underlying performance, the dividend proposal is SEK 5.30, which represents an 18% increase. And looking at the future, we announced a very important milestone for our journey with the acquisition of Liferaft yesterday evening. And this is the leading provider of threat intelligence and I will provide more details regarding the strategic importance of Liferaft at the end of this presentation. So let's then shift to the performance in the business lines and segments. We delivered strong margin development in both business lines with 12.7% for Technology & Solutions, 6.6% of Services in the quarter. And there is growth, as I stated, in Technology & Solutions for 6%, so 2% improvement compared to the previous quarter. And the growth in Security Services was 1% and this growth is obviously negatively impacted by the SCIS business where we're closing down the government part of that business. So with that, let's move to the segment, and we are starting, as always, with North America where we're delivering a very strong set of results and a record 10% operating margin in the quarter. And if we start with a growth of 5%, this was driven by good portfolio development and price increases in the Guarding business and by good development in technology. The real sales growth in Technology & Solutions improved to 4% compared to lower growth in the previous quarter. And when looking at the profitability, strong leverage and cost control in Guarding, together with solid profitability in Technology and a recovery in the Pinkerton business all contributed to the record level operating margin. So all in all, a very strong performance, a record-breaking 10%, so well done by our North America team. We then move to Europe, where we are also very pleased with the development. The organic growth was 4% in the quarter, and the growth was supported by price increases including impact from the hyperinflation environment in Turkey and also by solid growth of Technology & Solutions, while active portfolio management in the Services business had a negative impact on growth. Sales growth in Technology & Solutions was 7%. But it's the profitability development that stands out with 110 basis points improvement to 8.1%. And the margin improvement was driven by both business lines, including positive impact from the business optimization program. The Security Services business was positively impacted by higher margin on new sales, active portfolio management and also the divestiture of the Airport Security business in France. We also recorded a solid improvement in the operating margin in the Technology & Solutions business line driven by good portfolio development and solid cost control. And as commented earlier, we expect the work we're addressing low-margin Guarding contracts to be completed during the first half of 2026. So all in all, solid development by our European team and also here an operating margin at a record level. Shifting then to be Ibero-America, where we are pleased to report good organic growth and decent margin improvement. The growth was 5%, and this was driven by high single digital growth in Technology & Solutions and prices increases in the Services business. But similar to Europe, there is a negative impact on the growth from active portfolio management, but we're making good progress here and driving good conversions to Technology & Solutions. And the real sales growth in Technology & Solutions was 7% in the quarter. The operating margin improved 20 basis points in the quarter, and the improvement was primarily driven by positive impact from active portfolio management in the Security Services business line. So to conclude, strong delivery in 2025 by our Ibero-America team. And looking then at the performance across the group, we are driving disciplined execution of our strategy, and I'm really pleased to see strong execution across all segments. And the client retention is solid at 90%. So with that, turn to the finance update and handing over to you, Andreas. Andreas Lindback: Thank you, Magnus. And first of all, if I sound different to normal, it is because I'm about to lose my voice, I apologize for that. We start with the income statement, where we had organic sales growth of 3% and improved the operating margin with 70 basis points to 8%. It is a strong quarter where we improved our operating income with 15% adjusted for currency. As we communicated in Q2, we have introduced 2 new KPIs, which are adjusting our organic growth and our operating margin for the government business to be closed down within SCIS. In the quarter, the adjusted organic growth was 4% and the adjusted operating margin was 8.2%. Looking below operating results, there are no material developments in amortization of acquisition-related intangibles nor in the acquisition-related costs. The items affecting comparability was SEK 78 million, and this was related to the ongoing European transformation and business optimization programs. And the full year cost for these programs was SEK 382 million, approximately in line with our previous guidance. We have executed the business optimization program in a good way where the annualized savings in Q4 are in line with the targeted SEK 200 million savings. The business optimization program is now closed. And in 2026, the only remaining program is related to the European transformation. And here, we estimate to have a full year 2026 program cost of SEK 225 million to SEK 250 million, a material reduction compared to the SEK 382 million related to the programs in 2025. In Q3, we took a SEK 1.5 billion cost in items affecting comparability related to the close-down of the government business within SCIS. The close-down is progressing according to plan and had limited impact on our operating result in Q4. We continue to expect the vast majority of the business to be closed down by the end of 2026, and we will also start to see an accelerated execution of the close-down during the first half year. Our finance net came in at SEK 383 million, a reduction of SEK 146 million compared to last year. And here, we continue to see a positive trend of reduced financing costs as interest rates and our debt levels are going down. For the full year 2026, we estimate the finance net to continue to reduce and land around SEK 1.6 billion to be compared to the SEK 1.8 billion for the full year 2025. Moving to tax. Here, we had a tax rate of 29.5% for the full year, slightly higher than our Q3 forecast of 29.2%. The full year tax rate was impacted by the SCIS close-down cost in Q3, where we estimate around half of the cost to be tax deductible over time. Adjusted for the close-down impact, the full year tax rate was 27.2%, and we expect the 2026 tax rate to be in the approximately same area. All in all, we have a strong quarter where we grow our FX adjusted EPS with 18%. And as we summarize 2025, we have improved our adjusted operating margin with 60 basis points to 7.7%, grown our operating result with 11% and grown our EPS with 18%. And at the same time, we also achieved our financial target of an operating margin of 8% in the second half year of 2025. The adjusted operating margin in the second half was 8.2%. We then move to cash flow, where our operating cash flow was solid at SEK 3.9 billion or 128% of operating income. The cash flow was supported by lower growth rates and the continued improved DSO, but also negatively impacted by the additional USD 44 million payroll in our U.S. Guarding business as we communicated in the third quarter. This negative impact is a timing impact only, which occurs every fifth to sixth year. The free cash flow landed at SEK 3 billion, supported then by the solid operating cash flow, reduced interest payments due to the lower interest rates and debt levels and positive tax timing impacts. Looking at the full year 2025, we delivered another year of record cash flow. The operating cash flow was more than SEK 10 billion or 88% of the result, supported by good working capital focus and lower growth rates. And we have now delivered operating cash flows above our financial targets of 70% to 80% over the last 2 years, a result of our strong focus to build a more qualitative business and also structurally improve our working capital over time. And this has, of course, also translated into stronger free cash flows, which creates increased flexibility and opportunity for us as we move into a new phase of our strategic journey. Our cash generation will also be positively impacted as our items affecting comparability continues to reduce as we go into 2026 and beyond. We then have a look at our net debt, which was SEK 31.3 billion at the end of the quarter. This is a reduction of SEK 2.1 billion compared to Q3, mainly supported by the strong free cash flow, but also by the strength in Swedish krona. In the quarter, we paid the second tranche of our dividend, and we had SEK 321 million of total IAC payments, whereof approximately SEK 160 million was related to the final payment for the U.S. government and Paragon settlement. We have now made all 3 payments related to this settlement and expect no further cash flow out related to the case. Looking at the right-hand side, our net debt to EBITDA reduced to 2.1. This is an 0.4x improvement compared to Q4 last year, where positive EBITDA development, good cash generation and the strength in Swedish krona have supported positively and we are well below our target net debt-to-EBITDA of less than 3x. Moving on to have a look at our financing and financial position, where we continue to have a strong balance sheet, remain with strong liquidity, and we have no financial covenants in our debt facilities. After a period of important refinancing focus, our main focus during the second half of 2025 has been to amortize debt, supported by the strong free cash flow generation. In the quarter, we repaid SEK 1.9 billion of debt and throughout 2025, we have amortized a total of SEK 3.3 billion. This continues to support our cost of financing going forward. And looking at the maturity chart, we have very limited refinancing needs throughout 2026. And as always, we remain committed to our investment-grade rating. So with that, I hand over back to you, Magnus. Magnus Ahlqvist: Many thanks, Andreas. So I'd like to share a few perspectives regarding our strategic development and the Liferaft acquisition before we open up the Q&A. First, we are proud of the fact that we are reaching our 8% target in the second half of 2025. Back in 2022, when we did the Stanley acquisition, we accelerated the work to change the profile of Securitas security company with the strongest technology and digital offering to our clients in combination with high-quality guarding services. And when looking back at last 4 years, we have been executing well. We are a sharper, more focused company today and operating at a different margin level. And as we're entering 2026, this also means that we can then start to retire this bridge that we have kept coming back to every quarter and over the last 3.5 years. Looking at the future, we're very excited about the acquisition of Liferaft. So when I look at the transformation of Securitas during the last 6, 7 years, we have kept a clear focus on investing in the core capabilities that we consider critical to winning in this industry and those are focused on presence, technology and data. In this context, we strengthened our guarding value proposition. We have improved the profitability of guarding. We've built a globally leading technology position and a more modern and digitally capable business. So we have strong pillars in our business today. But we've also worked to meet the increasing client demans for better understanding the risks and the threats facing their business. And over the past 5 years, we have developed in-house risk intelligence capabilities that we are providing to more and more customers. So all this is good, you might say, but what is then the importance of the Liferaft acquisition? Well, Liferaft is one of the leading SaaS-based threat intelligence providers focused on OSINT and that's open source intelligence. This is a very strong team with deep expertise in threat intelligence and they have been a partner and provider to Securitas for many years. And with Liferaft, we will be able to scale and leverage their capabilities across our client base and in the process strengthen our clients value proposition. When looking at the financials, the company is currently prioritizing rapid expansion and growing organically around 30% on an annual basis, but also then reinvesting very strong gross margins to accelerate organic growth. And given the increase in demand in this market, I fully support this approach. The acquisition is fully in line with our strategy to create a more scalable business model and becomes an important addition to accelerate growth in high-margin recurring monthly revenue. And as previously stated, the recurring monthly revenue for the group exceeds more than SEK 1 billion. So we are thrilled to welcome the Liferaft team when we are closing the transaction, joining forces to shape the future with more intelligence-led security. And the future is promising. With the transformation of Securitas, we're well positioned with a clearly differentiated client offering, well positioned for profitable growth. And we are operating in an attractive market, but also a growing market where we see steady increase in the demand for quality security. We have transformed and repositioned our client portfolio with a clear focus on segments with more sophisticated security needs and higher growth profile. And we partner with our clients for the long term and we see that our deeper engagement model, where we leverage our technology and digital capabilities, is generating high value for our clients and also for us. And the approach is working. So like Andreas and I have commented, we're executing well on our plans, 20 consecutive quarters of operating margin improvement and solid cash flow generation. We've had a clear focus on enhancing the quality of our business and margin improvement in recent years. But as more and more units reach the required profitability thresholds -- so from my perspective, that means for a good sustainable business, they also gained the right to shift focus to profitable growth. And with the business now in much better shape, we can shift emphasis towards commercial synergies and driving growth. And as stated many times, we do this with a clear focus on building a more scalable business. So we are confident and excited about our longer-term opportunities and we're looking forward to sharing more in the Capital Markets Day in June. So in conclusion, we are on the right path, well positioned for the next phase. So with that, we conclude the Q4 presentation and happy to open up the Q&A. Operator: [Operator Instructions] The next question comes from Francesco Nardinocchi from Goldman Sachs. Suhasini Varanasi: This is Suhasini from Goldman Sachs, actually. I just had a couple of questions please. So the -- if we think about your growth and margin expectations for the first half versus second half of this year, would it be fair to say that because of the impact of your underperforming contract exits that's going to be completed by first half this year, maybe the growth is a little more weighted to second half and similarly on margins. And I'm not sure I read but how much are you expecting to pay for the acquisition of Liferaft? And how is your M&A pipeline looking at this point in time? Magnus Ahlqvist: Yes. Thank you. So when you're looking at that, I think it's the right assumption that finalizing that work will have a negative impact in the near term from the active portfolio management. But that's why it's also so important and so positive that we are soon done with that work. And as I commented in the last couple of years, we were more quick in North America in terms of finalizing that work. So I think that is obviously something that we're looking forward to also in Europe. Then when you look at the growth in Q4, we had 6% growth in Technology & Solutions, and that's a clear improvement compared to the previous quarters. We have a strong offering. Solutions is more of a portfolio business. Technology part, there's also some variability with installations, but we see that we are on a good path. So I think that is the other part that I would just highlight because that part of the business, there is no impact from active portfolio management. Andreas Lindback: We have not disclosed the purchase price related to Liferaft simply due to commercial reasons that we're not doing that. But we have paid a fair market price for this type of business overall. So -- and there will be some details coming as we have closed the transaction as well. On the M&A pipeline side, as we have said, we are ramping up our focus on continued bolt-on acquisitions within Technology & Solutions and some targeted also acquisitions in the intelligence area. We made a few minor ones outside Liferaft, but we are still in ramp-up mode, I would say. So the pipeline is not -- there's not a huge pipeline at this point in time, but it's something that we are working towards improving. Operator: The next question comes Remi Grenu from Morgan Stanley. Remi Grenu: First, a quick question on the 2026 outlook. I guess, given you have achieved the 8% and the CMD is not before June, we are left a little bit in dark in term of margin development. So just trying to have your overview on 2026 margin development if we exclude any -- excluding the positive impact that the closure of SCIS is going to generate. But on an underlying basis with the portfolio of the company, do you believe that there is still potential for margin improvement from the current run rate at the end of 2025. So that would be the first question. The second one is on North America. The organic growth very suddenly accelerated in Q2 and it's been normalizing a little bit over the last 2 quarters. Just trying to understand the drivers of that sudden acceleration and what's happening since then? Why it is coming back down? Is it about like volume normalizing, lower pricing and also taking a step back on that market, what do you think is the structural level of organic growth in North America? And then the last one, you have come to the end of that strategic plan in 2025. Have you started to have a think about the new KPIs for management remuneration, variable remuneration and going into the next phase of the company, what do you think would be most relevant in terms of aligning the interest of shareholders with management? Magnus Ahlqvist: Very good. Thank you, Remi. So we don't provide guidance. But first of all, I think it's been really important for all of us internally and also externally that we are delivering on the 8% because it represents a very significant shift. When you're looking at 2026, driving good growth in Technology & Solutions will have a positive impact on margin. I could also expect some positive impact from active portfolio management work that we still have some of that work yet to be done. Business optimization program, we've commented as well. We successfully completed that in 2025, should also help and support. So generally speaking, I mean, we are -- and I spelled that out, I think back in 2022 is that 8% is important to achieve. We believe that now we have a really good opportunity to also be related to your third question, calibrate more precisely as well how we maximize the value creation because we've had very hard focus on improving the quality and the margin. But it's quite obvious to us as well that we get done with some of the structural work and the heavy lifting and cleaning. We're largely done with that now and that also means that we can then also start to shift focus on more profitable growth going forward. And I think that is something that we -- that is clearly on our minds. And it's also clearly something that we're also reflecting also in how we're calibrating some of the incentive programs as well so that we really gear those towards maximizing value for our shareholders. So I think those are the key points. North America, maybe briefly on your side, Andreas? Andreas Lindback: I can just follow up on the KPIs because there's also misunderstanding related to that up until now. We have both long-term incentive programs, and we have short-term incentive programs. It's right, as you say, that operating the margin has been a focus for the long-term incentive programs. But in the short-term incentive programs, which is a material part of total compensation, it is also about driving growth in the earnings as well. So I just want to highlight that. And then if you want to take the... Magnus Ahlqvist: Yes. No, that's an important point because if you look also at the operating result growth, really solid double-digit levels in 2025 in constant currency. And we are here, obviously, to drive that for change, but it's always going to be a balance as well. And we should also remember that operating margin improvement is also helping and accelerating also the operating result growth. So I think that's an important clarification about the programs that we've had up until now. When you look at North America, we feel good about our position. We feel good about the market in general. So I wouldn't -- and it's a little bit difficult to call out the specific growth numbers. This is something that in our industry, it is a little bit difficult to get a very clear understanding of how the total market is developing. But I would say that we are well positioned in terms of the segments where we are and also segments where there is, generally speaking, a higher emphasis on the quality, security is important, but there is also very healthy underlying growth. So I would say that we are well positioned, but it's difficult, Remi, to call out a very specific overall growth number. But I believe with the offering that we have, we should be able to grow at least with the market and preferably above market rate. And that is very much based on the strength of the offering but also that we are well positioned in terms of the segments that we serve. Operator: The next question comes from Andy Grobler from BNPP. Andrew Grobler: Just a couple from me, if I may. Firstly, just in Q4, in terms of the European growth, can you talk through the tailwinds from Turkey and also the headwinds from portfolio management, so sort of to get to the underlying numbers there? And then secondly on the longer-term perspective, Technology keeps evolving at pace as we can see from the stock market. I just wondered what you're seeing in your end markets? And if at this stage, there's any signs or you expect to see over time, price deflation within your monitoring activities and the extent to which that's possible. That would be really helpful. Andreas Lindback: Thank you. When it comes to the European growth rates in the fourth quarter, you can say more or less all the positive growth is coming from Turkey in essence. That's the first statement. So Turkey had an impact for sure. If you're then looking at the -- where we have volume growth was in Technology & Solutions in Europe and then there was a negative impact that we have not quantified related to the [ APM ] that is impacting the Security Services portfolio. So I think those are 3 pillars to bear in mind when looking at the European organic growth. Magnus Ahlqvist: And then, Andy, on the technology, I mean, what we call the technology business is essentially business where we drive or we design, we install systems and then we operate and serve those systems for our customers. So there's a couple of different components. But a big part of the value, I would say, when I look at the kind of 3 main areas of activity, installation, service maintenance and also monitoring is that, that work is quite tightly connected. So when we are doing a good integration and installation work, we're very well positioned to also provide the best type of service and maintenance. But more and more of what we are doing and what we're also interested in building is more the recurring revenue. And there, obviously, connected services, those are usually not just simple kind of monitoring lines, for example, it's usually part of a broader value proposition and there, I believe that we are in a good position based on the great strengths that we have built. And where also the deep integration of Stanley has really helped us because we have built genuinely good service capability and levels and also [ rich ] service offering to our clients as well. So I think that we are in good shape in that sense from a market perspective and also the offering that we bring. Andrew Grobler: Okay. And then just lastly, Andreas, thank you for all your help over the years and best of luck with whatever the future may bring. Andreas Lindback: Thank you. And likewise, Andy. Magnus Ahlqvist: I remember to say a special thank you to Andreas at the end of the call today as well. But I'm glad you comment that, Andy. Andreas has been a great partner all along here. Operator: The next question comes from Allen Wells from Jefferies. Allen Wells: A couple from me, please. Firstly, just following up from Remi's question on North America. Obviously, very mindful that active portfolio management has been a headwind to growth. And as that starts to end, you flagged in Europe in the first half, that should be a positive as you switch to that growth focus. But as Remi flagged, as we look at North America, the portfolio management has ended and growth has slowed sequentially from 2Q through to 4Q, the 5% we saw in 4Q. To what extent is that slowing in North America? Are you guys maybe holding back to focus on margin rather than kind of fully pushing the commercial engine in the business? And to what extent maybe is it just that it's a continued tough market that is still hard to drive growth? That would be the first question. Secondly, just like a bit of an update on the technology side. Obviously, growth improved sequentially 6% in the quarter, but it's still well below the 8% to 10% target. So I'd be keen just to understand of that 6%, how much is pricing, how much is volume and how you think about the outlook towards that 8% to 10%? And then third question, just on free cash flow. Just in the full year, obviously, a positive outcome overall, but there was a positive impact from working capital for the full year. Like I don't typically think of you guys as a positive net working capital business. So to what extent is that net working capital number sustainable and how should we think about potential unwind as we move through 2026 as well? Magnus Ahlqvist: Thank you, Allen. I think on the first question, we don't see any change in the trend in North America. I mean some variation there will be between the different quarters. We are well positioned. Like you highlighted, we've done with the active portfolio management, and it's obviously a dynamic market. But when you look at what we are winning and what we are losing, yes, we feel good. So no major issue or anything specific to read into that from my perspective. Andreas Lindback: When it comes to the Technology and Solutions growth, when we set the target of 8% to 10%, it's important to remember that was also including acquisitions. And there, we have done limited. We've been focusing on integrating and then also taking down our balance sheet, although it's something that we are looking at ramping up. So in that context, the 6% is a decent number. When you look into that 6% on the Technology side, it is definitely volumes mainly from that growth. If you're looking at the Solutions side, it's a combination of both volumes and price. So all in all, more volume than price when it comes to the 6%. So -- and it's also a decent number, we should say. When it comes to free cash flow, a couple of lenses here. I mean, we said in the last Capital Markets Day, yes, there will be a mix shift in the working capital with the technology business coming in. But we also said clearly that we are working on structurally improving our working capital, and that's really what we have been doing over the last couple of years, which is giving a positive result. So we have definitely structurally improved on the working capital side. And we also show that in the 88% cash flow this year, 84% last year. So it's also not just a temporary change. Then as you all know, we have seasonality in our cash flow, where our Q4 cash flow is stronger. And now the number is coming in somewhat below Q4 last year, but still at a very strong level. So going into Q1, yes, it will definitely be weaker from that standard seasonality that we're having. But the underlying trend, I think, is most important when it looks at the cash flow given we have volatility. And there, I hope you all see that we have elevated the cash flow, and we are now delivering above our financial targets 2 years in a row. Operator: The next question comes from Viktor Lindeberg from DNB Carnegie. Viktor Lindeberg: Two initially, if I may. And looking at the mounting down of CIS in 2026, if you could share some more details on the run rate and how it's sort of expected to progress and where we may be end of 2026 in terms of revenue? Are we all the way down to 0? Or is it only maybe halfway there? And second question is associated also to this, trying to trickle out the underlying cost base for the, call it, group other item or overhead line items here. So if you could share any guidance or thoughts on the underlying costs for the Securitas business, excluding CIS, that would be very much helpful. Andreas Lindback: Thank you. If we start then with the government business within SCIS closed down, as I mentioned here earlier as well, we have started to see some impact in the fourth quarter from the close-down on the top line, but it's not much. But you should expect to see an accelerated impact in the first 6 months from the close-down activities. And then if you're looking at your question there, where will it be at the end of 2026, we expect that most of it will for sure be done. The vast majority will be done by the end of 2026. So I hope that helps a little bit by understanding how we expect this to progress throughout the year. When it comes to other in our segment reporting, 3 components, as you know, our Africa, Middle East and Asia business. We have our SCIS business, and we have the group cost. The Africa, Middle East and Asia business continued to deliver strongly in the quarter comparing them to last year. The SCIS business was fairly stable when you look at the bottom line. And then on the group cost, it was higher than last year. And here, we have been running tight cost control throughout the year. But in the fourth quarter, we released some more project investments in the quarter. And that's the main reason and then some year-end reconciliation, but that's the main reason compared to last year. To understand the trend there, I would also very much look at the full year number. Viktor Lindeberg: Okay. That's very clear. And another question on the topic you have brought up Magnus in the CEO letter this quarter, you mentioned the run rate is about -- or at least USD 1 billion or looking at the [ SAS ] and recurring revenues. And I recall you mentioned 18 months ago a run rate of [ USD 1.25 billion ] per month. So just to understand, are we talking apples-to-apples here or what -- why dimensioning or maybe confusion from my side here? Magnus Ahlqvist: Thanks, Viktor. No, we're just keen also on highlighting that we have quite a significant number. I mean, we are clearly above that [ USD 1 billion ], but we will share a lot more detail in the Capital Markets Day in June because this is an important focus area also in terms of building a more scalable business. Viktor Lindeberg: Okay. So it has not deteriorated over the past 18 months. That's what you're saying? Andreas Lindback: No, no. We have seen growth in the business since then. Operator: [Operator Instructions] The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I just had a bit of a detailed follow-up on to Andreas. You mentioned that in 2026, you expect some SEK 225 million to SEK 250 million in items affecting comparability. Is that sort of including this 1% of revenue you are sort of reviewing right now? Or could there be some one-offs on top of this from this review? Andreas Lindback: Relevant question. The number that I mentioned is excluding any impact from strategic assessments, which obviously then could be both a positive or negative number, so to say. So excluding that, just for clarity. Operator: The next question comes from Nicole Manion from UBS. Nicole Manion: Just one quick follow-up question from me, please, on the Security Services margin. Obviously, that's now up more than 100 bps over the past couple of years. Just wondering if you can give us a sense of how much of the improvement there you've seen this year over the last year is portfolio management versus what's coming from price increases or any other drivers? Are we pretty close to peak margins in this side of the business as you get to the end of the portfolio pruning? Or are there other levers you think you can look at as you move into next year? Magnus Ahlqvist: Thank you. A couple of different drivers, Nicole. When you're looking at that margin improvement, new sales margins have been consistently very healthy, and that's a good indication that we have a good offering. Clients see the value in that offering. Active portfolio management is also there contributed. But I would also say that we've also been working to also run the business, leveraging the new platforms that we've invested in a more efficient way. So automation and also AI has also been helping us to also optimize how we run the operation. If you're looking at the services margin on a group level, I think that there is further opportunity to continuously improve that in the next couple of years. So I would not agree with the comment that this is kind of peak margin. We believe that driving the things that we have been driving, but also continuously strengthening the value proposition, we are in a good position to enhance the value essentially. Operator: There are no more questions at this time. So I hand the conference back to the President and CEO, Magnus Ahlqvist, for any closing comments. Magnus Ahlqvist: Thanks a lot, everyone, for your interest and a special thank you to you, Andreas. Highly respected and appreciated colleague. I also think with -- in the dialogue also with many of you have also been a really good asset. So just to say thank you. But obviously, then looking ahead as well, we are now at full speed in terms of the assessment and also seeing really good interest also for this position. So we will come back on that matter. But most important today, I think, is just to -- yes, for me to also express our appreciation from the entire team. Andreas Lindback: Thank you very much, Magnus. And thank you, everyone, on the call as well for really good collaboration in the last couple of years, highly appreciated. Magnus Ahlqvist: So I think with that, we wrap up the Q4 and 2025 presentation. Thanks a lot, everyone.
Bård Pedersen: Good morning to all, both here in the room in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is B�rd Glad Pedersen. I'm Head of Investor Relations in Equinor. To those of you who are in the room, I want to inform you that there are no emergency drills planned for today. So if there is an alarm, we will evacuate and follow instructions. Today, we will have a presentation first from our CEO, Anders Opedal, followed by a presentation from our CFO, Torgrim Reitan, before we start the Q&A. [Operator Instructions] So with that, I hand it to Anders for your presentation. Anders Opedal: And thank you all for joining here in the room, and thank you for participating on digital. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintain a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow and robustness. This makes sure that we can navigate through and leverage market volatility and the current macro environment. So we have 3 key messages for you today. First, we are well positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and '27, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook with $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensure that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near-term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last 5 years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. A stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain and lower commodity prices. This results in all-time high record production, thanks to good operational performance and new fields on stream. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg on stream, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operator ship awarded to an international company. We continue high-grading our portfolio, and we maintained cost and capital discipline. All this has enabled us to deliver industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we said at the start of the year. Last year, we received 2 stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty when it comes to possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and '28 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operation to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and '27 combined with growth from '26 to '27. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These 2 transactions build on previous high-grading of the portfolio, divesting mature assets and invest more in long-term gas production onshore U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and '27 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remain the backbone of the company. In 2026, the NCS will contribute to our production growth, and we work to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient and increase return while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded internationally -- international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for '26 and '27 deliver safe operations and strong project execution of already sanctioned portfolio. All this, Norwegian oil and gas, international oil and gas, power are tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develops, customers are in place and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have 3-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilo per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumptions is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and '27, reflecting market realities. We have reduced our CapEx outlook for these 2 years with around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, no change to 5% to 15% and 15% to 30%, respectively. We maintain a stable investments of around $10 billion annually to oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in �rsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets is expected to contribute more than $1.1 billion this year. The action we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend with $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see true timing effects like the tax lag in Norway and the phasing of Empire Wind and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guiding in the background, I will give the floor to Torgrim that will take you through -- further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please. Torgrim Reitan: So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx and an attractive project portfolio. Our financial framework sets the boundary conditions for how capital allocation -- for our capital allocation and how we manage our company. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. And this is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly to sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these 3 areas, we expect limited investments over the next 2 years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. And this is important to manage risk and to continue to deliver value. Over the next 2 years, we will see through the timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operation is stronger, and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. And if you ask me, that is a premium KPI that we hold very high in our company. And with this financial framework, we expect to deliver around 13% over the next 2 years, now using a lower price deck than what we have used earlier as such. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. And having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. And in 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to a flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. And I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. And we operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next 2 years by $4 billion, made divestments totaling more than $6 billion since 2024 and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. So I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices, while internationally and particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. And with full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into an after-tax investments of less than $1.5 billion. And when prices change, 78% of the effect on the revenue is absorbed by reduced taxes. So this makes the NCS less exposed to lower prices than other basins. So what happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion, and this is across the global portfolio and adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now 1/3 of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. So in 2025, we delivered around $1 billion in cash flow from operations out of that asset. Production increased by 45% on back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves, and we are able to add value through trading, pipeline capacity and access to premium markets such as New York City and Toronto. So in January this year, gas prices in the Northeast reached very high levels driven by the winter storms, and we used our infrastructure and trading to capture quite a bit of value out of that volatility. Okay. So now to our fourth quarter and full year results. These slides sums up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas and new wells coming on stream. In the quarter, production was up 6% despite some operational issues in Norway and in Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewables power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields on stream. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. And in our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. So the result of this price review explains the difference from the MMP guidance. So this is a one-off. However, important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, and they are mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims and currency. For the year, underlying OpEx and SG&A was up 1%. And if you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and �rsted rights issue participation and somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. So thank you very much for the attention. And now I will leave the word back to you, B�rd, for the Q&A session. So thanks. Bård Pedersen: Thank you, both Anders and Torgrim. We will now start the Q&A. [Operator Instructions] So then we'll start. And the first hand I saw was Teodor Sveen-Nilsen from Sparebank. Teodor Nilsen: Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results? Anders Opedal: Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have -- when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistency investing into Norwegian oil and gas and in international oil and gas. And last year and this year, we are reducing the CapEx outlook for our renewables and low carbon solutions. And this is due to that 2, 3 years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently into our attractive oil and gas portfolio that Torgrim demonstrated and be market-driven and invest in low-carbon solution and power when the time is right, the profitability is right and the market comes. So I cannot give you the guiding for '28 already. But with this consistency investments in oil and gas and this change we have done in the CapEx for renewables and low carbon solutions and the market will probably not change very much over the next years, I think you will see somewhat consistency in our CapEx guiding going forward, and we will come back to more details about this in June. Torgrim Reitan: And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where sort of if the price in the contract dislocates from what the market should have been and the price should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in processes like this. And often, we take such things into arbitration as we have done in this case. So that has gone on for a while, and we won in that arbitration. Over the year, we have accrued revenue related to that because we consider that we had a strong case. We had an even better outcome than what we accrued as such. So this will be a one-off payment during the year. And from now on, there is a new mechanism in place on that contract as such. Bård Pedersen: Sorry, Teodor, I need to stick to the 2 questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier. John Olaisen: First question is regarding Johan Sverdrup... Bård Pedersen: John, please use the microphone so people can hear you online. John Olaisen: Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also secondly, it's a long time since you bought assets internationally. Do you have -- are you looking at potential acquisitions internationally? Those are the 2 questions, Sverdrup and M&A. Anders Opedal: Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. Then a field like this is like all other fields, eventually, it will come into decline, and we see that now. So we see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20% and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. And of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, high production efficiency, have a high water cut and flow through the separators. The team is working to make sure that this decline is as low as possible. But above 10, well below 20 is what we see and kind of planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere that we have monetized those assets. And when we have seen opportunistic opportunities to invest, we have done it like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. And we have had a strategy of optimizing the international business, and we have optimized it now and set it clear for growth. And now is the focus to deliver on that growth finding more attractive exploration opportunities within those selected areas and at the same time, be open for value-accretive opportunities in the market. Bård Pedersen: Thank you. Next on my list is Henri Patricot from UBS. Henri Patricot: Two questions from me. The first one on the cash flow guidance for '26, '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact to the financial framework you presented today if the project does not complete or implications for the broader CapEx and shareholder returns? Anders Opedal: So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards. Torgrim Reitan: Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make up our mind. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next 2 years in a way. So the threshold for not moving forward with it is extremely high in a way. I mean the total economics of that project life cycle is something else. But clearly, the decision that we have to make is actually how it look going forward. And going forward, it's actually pretty solid. So the threshold for stopping it is very high. Our job is to deliver this on time and schedule. And I must say, I am extremely proud of what that project organization has been able to do through all of this volatility this year to keep it steady on the track. So we are on track to deliver, and we have no other plans than that. Anders Opedal: Yes. And then the cash flow from operation that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumption, $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. And the answer here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. And it's also a 3% production increase in 2026 that will also contribute to a higher cash flow. Bård Pedersen: Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget? Anders Opedal: Well, when it comes to -- we are guiding now on Johan Sverdrup for 2026. And to say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. And I also remind you that in the end of '27, we will have Johan Sverdrup Phase 3 coming on stream as well. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have a production growth. And then we will see now how Johan Sverdrup behave during the first part of the decline and how we are mitigated and then we will come back to it. So it's too early to say. When the increases on the Empire Wind, it's very much related to 2 elements, is tariffs that has been imposed to the project and is also an effect of the first stop-work order that we had. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. And the most important parts of the progress, we were able to do after the preliminary injunction. So very little effect of the project. So it's the execution part of it -- it's going well in terms of CapEx -- use of CapEx in this project, but there is a remaining uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland that was removed a little bit a few days later, and that is some of the uncertainty that we are facing with this project. Bård Pedersen: The next one on the list is Alastair Syme from Citi. Alastair Syme: Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx and look, I know you're not alone in doing this in the industry. But if I go back a few years ago, you had outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different to what you anticipated several years ago? Anders Opedal: Thank you. It's a really good question. And I think kind of this is where we were saying today that we are signaling a consistency. We have over the last 5 years, been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we were -- had experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. We -- for instance, also for hydrogen, a couple of years ago, we actually had head of terms contracts with customers. Those has been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we were able to -- been able to do Northern Lights -- Northern Lights Phase 2, Northern Endurance. So we see now that the licensing for or support regimes and applications for capturing CO2 goes slower despite that the framework and the laws are much more in favor of CO2 now than it was before. So to summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. 3, 4 years ago, customers called us to buy natural gas and was also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago when everyone had a 2030 target, much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions. So that is what had happened. And we have focused on business-to-business with hard-to-abate industry that has postponed the targets. Bård Pedersen: Next question is from Irene Himona from Bernstein. Irene Himona: My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does �rsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially. Anders Opedal: You can start with that, Torgrim, and I'll do the integrated power. Torgrim Reitan: Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as sort of the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, it's the concept of having a stable share buyback through a cycle, comes a little bit theoretical. We're just coming out of a super cycle, and we have returned $54 billion over the last 3 years based on that in a way. So where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. So the number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. So we want to sort of give you an outlook for -- over a couple of years here. So the way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. And the cash dividend, you should see -- consider as bankable. Share buyback clearly will be more dependent on macro environment as we move forward. Anders Opedal: When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries and CCGTs. We do have exposure in all of this. We have gas to power in U.K. We have battery in Poland and onshore and offshore and solar. This was divided in different business area. Now everything is integrated into one business area power. And then we have Danske Commodities that are able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. And from that, we are able to potentially if we have the right investment opportunity to expand further on the integrated power. But of course, with our gas position in Europe and U.S., we are, of course, well positioned also for gas to power if we see the right opportunities in the future. �rsted and working together with �rsted and collaboration with �rsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways and working together with �rsted, collaborating with �rsted will fit into an integrated power in different types of potential structures. Bård Pedersen: Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas. Paul Redman: My first question is just how do you think about growth at Equinor? The reason I asked that question is at the Capital Markets Day last year, you highlighted a flat to decline in production 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term -- well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? And how should we think about MMP going forward? Anders Opedal: I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create a growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% on the annual -- in 2025. So still growth in Integrated Power over the next year. And then as I said, we will have to think how we can create further profitable and disciplined growth into that area. When it comes to the international business, we have repositioned that portfolio. And you can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So it's clearly a growth in there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. We -- it will be difficult to create further growth in -- on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to be able to keep the production at the highest possible level on the Norwegian continental shelf and growing free cash flow from that portfolio. And that is what we're aiming for, for Norwegian continental shelf internationally and integrated power. Torgrim Reitan: Thanks, Paul. On MMP. So if you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's sort of -- that's what you should, in a way, expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. And in Europe, we have a 70% day ahead exposure and a 30% month ahead exposure. So you can rest assure that sort of the spikes you have seen in January, it finds its way to our P&L in Europe. In the U.S., we don't have -- we don't sort of have a firm exposure that we want, but clearly, the traders keep a certain part open. So when going into January, in the U.S., our traders left 30% exposed to the prompt or cash prices as such. So at the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. And then we have a transportation capacity into New York, actually coming up at Penn Station. And we achieved more than $100 per MBtu in that weekend as such. So just examples of when you see volatility, you should expect us to be able to get it in a way. So that's why these results typically fluctuates. Bård Pedersen: Thank you, Paul. Vidar Lyngv�r from Danske Bank. Vidar Lyngvær: First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25? Torgrim Reitan: Johan Sverdrup exit to exit or -- let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just -- yes, and team is nodding there. So that is the way it works, yes. Anders Opedal: Yes. Yes, a little bit more color to this. As I answered earlier, we had a different market view. So we had, for instance, potential hydrogen project, transportation of CCS project in the CapEx outlook that we showed last year, those projects are not materializing. In addition, we have reduced our onshore renewable CapEx as well. And in total, this adds up to those $4 billion and together also with the ITC as you have seen. Bård Pedersen: Good. Steffen Evjen from DNB Carnegie. Steffen Evjen: On the ITC, just could you please remind me on the milestones they are required for that payment to come in, in terms of first power and any other things that has to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders? Torgrim Reitan: It's our share and then the ITC. ITC, yes. So the way it works is that you can recognize it when you start production and sort of that is sort of scale as you continue to start up the various turbines. So what we have assumed is that we recognize all of this in 2027 because that's sort of the plan. There is an upside that there is some ITCs recognized in 2026. We haven't based our analysis on it. So that is sort of the recognition part. And then there is -- so what is the cash flow impact of it. And it will take some time from we recognize it to the cash flow is in our account. So what you see on the slide is that we have assumed $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. So that sort of give you a little bit of a perspective around this. It is a significant financial operations to manage all of this, as you would know, but there is a large and growing market for ITC in a well-functioning market in the U.S. for this. Bård Pedersen: Next one is Martijn Rats from Morgan Stanley. Martijn Rats: I've got 2, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in �rsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind, renewables in general. And in many ways, that had the character, therefore, when you put these 2 things together, it's like, well, we do less organically and we do more inorganically. It was sort of not a total reduction, but it had an element of we're swapping one type of spending for another type of spending. And I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, is that -- should we interpret that as well, the company is just going to do less of that stuff? Or should we anticipate that in the fullness of time, this also turns out to be a swap, less organic, but more inorganic. I was hoping you could say a few things about that. And then the other question I wanted to ask is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount and also because Ecuador has already been very focused on that for some time. I was positively surprised that there's still sort of that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? And also just for the avoidance of 10%, how does that translate into absolute sort of absolute dollar amounts, that would be helpful? Anders Opedal: Let's start with that question first, and Torgrim. Torgrim Reitan: Okay. Thanks, Martijn. So on the 10% reduction. So over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production and despite the inflation as such. So our people and organization has done a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is a significant impact of divestment of Peregrino and the establishment of Adura that will be equity accounted as such. So the reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still inflation as such. So this comes from many sources. First of all, activity level. Clearly, we have taken down and prioritized that very hard. That has a direct impact on it. We have taken down early phase costs significantly in the portfolio, also a significant contributor. Staff are continue to high grade and take out efficiencies. And then the business areas are clearly working on this. So -- but on your question, is there more to come? And the answer is yes, we are never satisfied with where we are on this. And I can give you 2 examples of what to come. One is the work around NCS 2035. We do see a significant cost impact of that. So we hope to show more on that in June. The other one is actually artificial intelligence. So we have already see that in our numbers, NOK 1 billion or so, which is good. However, this is early days. And we do believe that with our large operations and our ability to take out effect across assets that AI can really be a significant contributor to further cost improvements. So we'll continue to fight and work this -- but the 10% is clearly colored by the inorganic moves we have done. Anders Opedal: Yes. So -- and thank you for that CapEx question, Martijn. And let me elaborate a little bit how I think around this because you probably see now that several times, we have taken down the renewables and low-carbon solution CapEx. And it's not necessarily because we have done any inorganic moves. It's also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. And a couple of years ago, we had several projects inside our CapEx outlook that is now not inside the CapEx outlook due to deliberately not being successful in those auctions. So a more positive view some years ago, as we said during the �rsted acquisition of 10%, we found it more value creating at that point in time, do an inorganic move than do organic move. This -- we have further taken down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and the hydrogen project in Eemshaven, which are now pushed further out in time. And actually, the hydrogen projects in Eemshaven is stopped before FEED, and we will not move forward. And in these areas, I don't think there are many inorganic moves to be done that will create value. So you should not expect us to work much on this. We will continue to work on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2 and Endurance, but we will not make investments before we see -- we have long-term contracts, we have seen costs coming down and we see profitable projects. And that means that there needs to be a better market than we see today. Bård Pedersen: Thank you, Martijn. Next one is Nash Cui from Barclays. Naisheng Cui: Two questions, please. The first one is on your upstream reserve life. I wonder how do you think about a reasonable level of upstream reserve life in the medium to long run, please could better technologies like AI to help extend base? Then my second question is on �rsted. I think earlier, you mentioned that you could collaborate more with �rsted in kind of different types of potential structures. And I wonder if you could elaborate what you mean by the potential structures? Anders Opedal: Well, you have seen what we have done, just an example with Shell in U.K. There's always way to work together to create value for both shareholders. But there is no discussion at the moment, but we see that a further collaboration with �rsted could benefit both companies, but nothing new to elaborate today. When it comes to reserve life, I think this will also -- the ROP will be affected in the years to come that we have many more exploration wells, smaller discoveries and faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today around 7 because we have so many exploration wells, we have discoveries. And last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in Sleipner area is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. So we will continue to implement AI in exploration to ensure that we are able to discover new resources that was overseen in the past that we now can drill and bring to market in a quicker way. And by using AI, not only on exploration, but also in operations, and so on. We saved $130 million last year, and this is accelerating. So as Torgrim said earlier, we are really focusing on implementing AI to create value in the company. And this is something that you will hear more about in the future. Bård Pedersen: Next is Jason Gabelman from TD Cowen. Jason Gabelman: I wanted to first go back to the Empire Wind guidance. And I'm wondering if the $600 million of cash flow, is that what Equinor expects to receive? Or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? And I wonder if you have a similar number for the Dogger projects. And then my follow-up is just on kind of broader exploration opportunities beyond what you've discussed. And we've seen companies kind of going back into regions where fiscal terms have improved like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or given kind of the lack of footprint in those regions, is it not a core focus? Anders Opedal: Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. So basically, what you have seen, what we have done in the international oil and gas portfolio is to focus it. We were in 30 to 40 countries, high cost, high exploration cost. And we have concluded that we were not successful with that strategy, adding too much cost and too little of progress in putting new resources into the inventory. So we have worked very hard to focus and building an attractive exploration portfolio in those focused areas like in Angola, in Brazil and in U.S. offshore. And of course, Bidenor East Canada, we're working on the Bidenor field, where this will also have attractive exploration opportunities around it, similar to what we see on Castberg and other new fields. Then, of course, we will, of course, always be open for ideas and value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we see now we have learned the basin. We have experience, and we think we can expand quite a lot on that one. Brazil, for one instance, by Bacalhau, the Raya, we have an attractive exploration opportunities there now, the neighbor block to the Bumerangue discoveries for BP. We have a block close to Raya, and we're maturing up to see what kind of exploration program we can have in that area. And next -- and in this year, we will actually also drill exploration wells in Angola. So we are curious about other areas, but we'll have most of our focus in the focused area. Torgrim Reitan: And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity as such. There's no sort of money of that, that goes to the lenders. A couple of things. There is a portfolio effect in addition to the cash flow within the project. And that is related to that the depreciation that we have in Empire Wind goes into the IFRS results and the minimum tax in the U.S. is based on IFRS results. So it sort of reduces the minimum tax payments in the states as such. So there's a portfolio effect coming on top of the direct cash flow in the project as such. Bård Pedersen: Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list. Kim Fustier: I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, et cetera. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments, but more small developments? And then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately? Anders Opedal: Yes. Thank you. So the Norwegian continental shelf is changing. With after Johan Sverdrup and Bacalhau, we have, as I said, much more smaller discoveries, smaller fields. Most of the developments will be now subsea tie-in projects. We actually have 75 of those in our portfolio over the next 10 years. So it's about making sure that we're able to execute on these projects faster. We are going -- that we can drill more exploration well faster, and we can create more value. So then we have actually started with looking into how we work. how is our work processes, all the way from working together with partners, internal approval processes, field development processes for subsea tie-in and so on. We have looked at 70 work processes, how to -- for drilling to development and so on. We have simplified those work processes, and we have looked at them together such that all these processes are streamlined end to end. And just to say a change that I will do, instead of making 7, 8 individual decisions on these projects one by one, we will group the decision. And twice a year, I will make a lump decision of several projects, enabling faster decision-making processes and ensure that we're able to move this project faster. Based on changing the way we work, we are also reorganizing both the project organization, the drilling organization and the operation units on the Norwegian continental shelf, not offshore, but all the onshore function, enabling to work according to the new simplified work processes. So this is actually one of the largest changes we have done developing the Norwegian continental shelf since we established the StatoilHydro company and merged StatoilHydro back in 2007, 2008. So it's actually changing the way we work because the geology and the reserves on the Norwegian continental shelf changes. And what do we want to achieve? Well, we want to move time from discovery to production from 5 to 7 years to 2 to 3 years, and we need to increase the volumes that we are able to find during exploration, meaning that we need a 200 to 300 efficiency gains on the Norwegian continental shelf. When it comes to Wisting, this is far in the north in the Barents Sea, challenging projects. We're working hard to simplify it. We have made a lot of progress in that respect. We will work on concluding on the concept during first half of 2026 or in 2026 and then move towards hopefully a DG3 during 2027. But let me underline this. We are not schedule driven. This is a project where we have to make sure that this is the right project, right financial, right breakeven, NPV, and we have everything in place because this is a very, very challenging project. On the Bay du Nord, we are approaching also a concept selection at what we call Decision Gate 2. We have a good engagement with local authorities and the government of Canada to -- so we can work together. This is a very good project. We have worked well together with suppliers for a long time to take down the cost and the breakeven as much as possible. And if we are successful now over the next months, then we can bring it towards an investment decisions over the next -- over the next years. And both these projects, if we are successful, will contribute to high production beyond 2030. Bård Pedersen: Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America. Christopher Kuplent: I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. But when you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks. Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next 2 years? Torgrim Reitan: Well, Chris, I think I need to be very precise here. So I mean, you're on to it. So clearly, you should look across those 2 years when you think about sort of our free cash flow generation that we have available to cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. So it makes sense to look across those 2 years. And we have done that when we have set the share buyback level for '26 as such, we have. Bård Pedersen: Thank you, Chris. Matt Lofting, JPMorgan. Matthew Lofting: Just one on Empire Wind and read-throughs from it. I mean it seems Equinor has done a good job keeping the project execution on track amid the past hold orders. But I just wonder how the company reflects on implications from this and having retained 100% equity stake through it for best assessing risk management and risk-adjusted returns, let's say, on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account perhaps above as well as belowground factors? Anders Opedal: Thank you. That's a really good question. And yes, this is definitely something to reflect on. And we normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked it somewhat with higher strike prices with a financing package. And then as you have seen, the political risk with the new administration was higher than anticipated. This is a trend we see now in several countries that energy investments are more and more politicalized and polarized. And we see it in Norway. We see it in U.K., we see it in U.S. And definitely, for us, this brings some reflections about what is the above-ground risk you can take. And for myself, I reflected quite a lot about to see bipartisan support for future projects. If there is a kind of a strong division for potential projects, then we need to think twice and really understand the political risk. And this is something new. It's not only in U.S. This is something new that we have seen lately in several countries. And kind of we need to adapt the learning, and we need to bring into future decision processes definitely. Very important question you raised there. And with the political changes we have seen, which were kind of outweighted all the other factors that was reducing the risk, we would have probably thought differently about Empire Wind in the past. Bård Pedersen: Thank you. We are on the hour, but let's take one more and hope is short and then we'll round it off, and that is you, James Carmichael from Berenberg. James Carmichael: Just one last quick one, I think. Just again on Empire Wind. I was just wondering if you could clarify your sort of best case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around sort of future hold orders, et cetera. Anders Opedal: Yes. This is a little bit early to say kind of because it's a judge in U.S. to decide that timing when this -- the merits of the case will come up for the court. There's been indication that will happen fairly quick with some couple of months, and that gives us opportunity to elaborate on the case in a good way. I just want to also remind you that all the 4 other operators we're doing exactly the same thing, challenging this in court and all of them were granted a preliminary injunction. We mean that this stop-work order was unlawful. And at least with so consistent preliminary injunction, I think also we have a strong case moving forward. But I'm an engineer and not a lawyer. So -- but yes, we are moving forward with a strong belief that we will have a good case in the court, strong case. Bård Pedersen: Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage all the way through the list, but I want to be respectful for everybody's time. And as always, the Investor Relations team remain available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.
Operator: Good day, ladies and gentlemen, and welcome to TomTom's Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn over to your host for today's conference, Claudia Janssen from Investor Relations. You may begin. Claudia Janssen: Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the fourth quarter and full year 2025 operational highlights and financial results with CEO, Harold Goddijn; and CFO, Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financial results, our Automotive backlog and our outlook. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. And with that, Harold, let me hand it over to you. Harold Goddijn: Yes. Thank you very much, Claudia, and good morning, good afternoon, everybody. 2025 was an important year for TomTom as our product strategy clearly matured and we gained commercial traction. We introduced several new products with our Lane Model Maps standing out as a major milestone. Orbis Lane Model Maps provide lane-level intelligence, including geometry and lane markings, but at a true urban scale. And by leveraging our AI-powered map factory, we can now produce lane accurate maps with exceptional efficiency and freshness, and this has been proven to be a differentiating capability. A strong validation is that we secured a record amount of new business, and that includes a collaboration with CARIAD where TomTom Orbis Lane Model Maps were selected as a core component of the automated driving system supporting the Volkswagen Group brands. In Enterprise, Orbis Maps broadened and diversified our customer base. In the beginning of 2025, we announced a new cooperation with Esri, through which we provide maps, traffic data to support businesses and governments with location intelligence, addressing various use cases from maintaining critical infrastructure to analyzing traffic flows. And more recently, we deepened our global partnership with Uber, expanding our collaboration to enhance on-demand travel experiences worldwide. Looking ahead to 2026, I'm confident that continued advancements in our product portfolio will further strengthen our commercial traction across both our Automotive and Enterprise business, supporting top line growth over time. We will continue to expand and enhance our product offering, and we will make it easier for developers and for businesses to access our data, which will support future growth. We see meaningful commercial opportunities emerging in automated driving and infotainment as well as in high potential verticals such as insurtech and state and local government. Thank you very much. This is my part of the presentation. I'm handing over to Taco. Taco Titulaer: Thank you, Harold. I will cover our financial performance, the key trends we're seeing, an update on our Automotive backlog and our outlook. After which, we will take your questions. Automotive IFRS revenue for the fourth quarter amounted to EUR 77 million, down 3% year-on-year. Automotive operational revenue was 12% lower compared to Q4 last year. The Enterprise business delivered EUR 39 million, a 10% decline versus the same quarter last year. Approximately half of this decline is explained by a weaker U.S. dollar versus the euro year-on-year as around 3/4 of our Enterprise revenue are U.S. dollar-denominated. The remainder of the decline reflects a continued phase out of a large customer, partly offset by a broadening of our customer base over the course of the year. Gross margin was 89% in the fourth quarter, a 2 percentage point improvement compared with Q4 2024, mainly driven by a lower proportion of hardware in our revenue mix. Operating expenses were EUR 110 million, a reduction of EUR 21 million compared with the same period last year, reflecting the combined effect of capitalizing development costs associated with our Lane Model Maps and disciplined cost management. For the full year 2025, we recorded group revenue of EUR 555 million, 3% lower than in 2024. Automotive IFRS revenue was EUR 323 million, down 2% from last year due to lower car volumes at some customers and the phaseout of certain car lines, partly balanced by new model starting production. Operational revenue in Automotive dropped 1%, staying largely stable versus 2024. Our Enterprise revenue for the year was EUR 159 million, 2% lower year-on-year. For the full year, the picture is similar as in the quarter, normalized for the currency fluctuations. Enterprise revenue showed a marginal increase compared with last year. For the full year, gross margin was 88%, an improvement compared with 2024. This continued shift away from consumer hardware structurally strengthened our gross margin from 85% in 2024 to 88% in 2025, and we expect it to move north of 90% in 2026. Operating expenses decreased to EUR 489 million, a EUR 19 million reduction, same as for the Q4 trend. This reduction was due to capitalization of our map investment, lower amortization charges and reduced personnel costs from the second half of 2025, partly offset by the reorganization charge booked in Q2 2025. Looking ahead, the quarterly OpEx run rate entering in 2026 will likely be a few minutes -- a few million euros higher than what we saw in Q4. But for the year as a whole, we expect the total operating expenses to remain below 2025 in 2026. Free cash flow, excluding the cost for the reorganization we announced halfway in the year, EUR 19 million. This was an inflow of EUR 32 million compared with EUR 4 million outflow last year. Having covered our results, let's move on to the Automotive backlog. Our Automotive backlog at the end of the year reached EUR 2.4 billion, a net increase of EUR 300 million compared with the end of 2024. Our Automotive backlog represents the expected IFRS revenue from all awarded deals. Accordingly, the backlog decreases as revenue is recognized and increases when new deals are won. Its value can also fluctuate when customers revise their vehicle production forecast and with ForEx revaluations. The increase in backlog this year was driven by a record level of new deals. Our book-to-bill ratio was well above 2 last year, partly offset by negative impact from ForEx revaluations, which has a more pronounced than usual effect on the backlog valuation. A large portion of the Automotive revenue we expect to report in 2026 and '27 is already covered by the backlog generated from prior year's order intake. The majority of the value from the 2025 order intake is expected to start being recognized from 2028 onwards. From a product perspective, we see Automotive RFQs increasingly gravitating towards Lane Model Maps, the maps that enable autonomous driving functionality and support a growing range of advanced safety features. The products accounted for approximately half of last year's order intake, and we expect this [ should ] continue to grow. OEMs are clearly increasing their product and engineering focus in this area as Lane Model Maps enable both improved vehicle performance and meaningful differentiation. Our strong positioning in this area reflects a decade of sustained investment in these capabilities, and we're now seeing those investments translate into tangible commercial results. An additional benefit is that securing Lane Model Maps deals opens the door to road model map awards for the navigation use cases, supporting further market share gains. Now let's move to the 2026 outlook. Looking ahead to 2026, our revenue will reflect the transition of some customers. However, this impact is temporary. 2026 group revenue is projected to be between EUR 495 million and EUR 555 million, with Location Technology contributing EUR 435 million to EUR 485 million. We expect our operating result to improve year-on-year, while free cash flow is expected to turn temporarily negative due to the sustained investment in our Lane Model Maps. Operating margin is expected to be around 3% of group revenue. A return to top line growth is foreseen in 2027. Higher revenues combined with disciplined cost control are set to drive a further step-up in operating margin as well. To conclude, let me summarize our prepared remarks. We closed 2025 with a strong strategic momentum, marked by a record Automotive order intake and an expansion into automated driving. Despite modest top line declines driven by market conditions and customer transitions, EBIT and cash generation improved meaningfully. With an expanded EUR 2.4 billion Automotive backlog, new product launches and strengthening commercial partnerships, TomTom enters 2026 well positioned for a return to growth in 2027. And with that, we are ready to take your questions. Please, operator, please start the Q&A session. Operator: [Operator Instructions] And our question come from the line from Marc Hesselink from ING. Marc Hesselink: Yes. I have a couple of questions on the lane model. I think this is the new product versus the HD Maps that you previously had. But I think under the hood, a lot changed in the way you build your process, you build your map, how you can integrate with the client. Just if you can explain how this product currently looks like? And also how are your clients going to integrate it? And if you can also talk about what is your competitive position there? Is this now something that is really unique for TomTom that none of the competition has something like this? And if you then compare it, there's always sometimes still the debate between for this kind of functionality, do you need a map, yes or no? What's the status there also with things like the redundancy of the safety features? Harold Goddijn: Yes, Marc, thank you. Yes. So the lane model is fundamentally different from a road model map because it is a representation of the actual road and all the lines on that road and the dividers and whatnot. So you get a replica encoded of what is the road surface, what the road surface looks like. And the problem with building that map is that it's always been very expensive and not -- didn't scale very well. But with new advances in technology and new data that are becoming available, we can now produce those maps to a high degree of automation, not completely automated, but there's a high degree of automation is possible now. And that means that it's becoming economically viable to do this on all roads, not just the motorways. And it also means that you have a process for upgrading and change detection. So you can build maps that are fresher. All those capabilities are critical for self-driving and automated driving. We see that those maps are used in those systems as not only as backup, but also as a sensor. The challenge for self-driving technologies is to reduce the number of interventions of the driver of the vehicle and maps data play a very critical role in reaching that objective. Marc Hesselink: Yes. And the competition at this stage? Harold Goddijn: Well, so we don't have full visibility, but we believe that the method that we are deploying is novel, differentiating, leads to better results, scales better than what our competitors are capable of producing. Marc Hesselink: Okay. And if we look at the client side, you obviously have a big success with the CARIAD. But what about the discussions with other OEMs? Is this something that you -- I'm sorry. Harold Goddijn: Yes, go on, Marc. Marc Hesselink: Yes, I said -- and I wanted to add to -- do you speak to many other clients, including also the Chinese OEMs? Harold Goddijn: Yes. So the interest is coming from a broad range of car brands. People of carmakers want this. They can see the value of having that dataset available for the self-driving function, and that is broadly shared amongst all our customers and also potentially new customers. So we see a profound deep interest in understanding what's going on and how this technology can help them to make those cars and bring the level of automation to the next level. And next to that, we also see interest from software developers who are developing the self-driving software stack. There are a number of independent software developers who are doing this, but some based in -- mostly based in China. And they also show strong interest in understanding what this technology can bring and how it can help them to mature their own technology stack. Operator: [Operator Instructions]. Claudia Janssen: Let me -- if there's no -- I see -- if there's no further questions, let me give the opportunity to some of the analysts if they want to take the questions. If not -- no. If there's no additional questions, I want to thank you all for joining us today. And operator, you may now close the call. Unknown Executive: There is... Claudia Janssen: Oh, sorry. Andrew, sorry. Operator: I have a question that's come through now. So we are now going to take the next question from Andrew Hayman from Independent Minds. Andrew Hayman: Yes. Could you maybe give some guidance to how negative you think the free cash flow will be in 2026? Taco Titulaer: Yes. Thank you, Andrew. So 2 things I want to say about that. One is -- the second thing is to answer your question. But the first thing is that we introduced new guidance metrics in 2020. So we gave guidance on the top line and the bottom line. The top line was the group revenue and the Location Technology revenue. And the bottom line, we chose free cash flow because free cash flow at that time was the best tracker of our profitability. That had to do with the disparity -- the difference between operating and reported revenue in Automotive and the big delta between amortization and CapEx that we saw in the OpEx line resulting from the acquisition of Tele Atlas. Now both effects are kind of gone. So you also saw last year that reported revenue and operational revenue in Automotive is at parity. They're kind of almost the same. And also, we have -- we don't have any amortization left that's related to the Tele Atlas acquisition. So we want to normalize our guidance towards a revenue and an EBIT forecast. And that said, as we also have -- and then coming into your second or your primary question, the fact that Automotive is declining next year temporarily and we sustain our investment at the same level as we had last year, we will see free cash flow being negative in this year. How large it will be, I don't know exactly, but I expect it will be above EUR 10 million, but not much more than that. And then if our revenue, our top line is recovering in 2027, I expect that free cash flow will be positive again as of 2027 onwards. But an official guidance will follow in 12 months from now about that. So we'll continue to provide direction about free cash flow, but the primary guider or primary KPI for profitability will be EBIT. Andrew Hayman: Okay. And then in terms of the bookings that came in, how much of that is new customers? And how much is just more business from existing customers? And then maybe just tied in with that, how does the funnel of business look for 2026? Is there going to be -- is it a bit quieter after so much activity in 2025? Taco Titulaer: Well, yes, so if you look at order intake, you can make a 2x2 matrix. In the horizontal, you say existing customers and new customers. On the vertical, you say lane model or road model, where lane model is the automated driving and safety use cases and where road model is more for the driver itself to navigate from A to B. What I already mentioned in my prepared remarks is that what we've seen is that if you break down the order intake of last year that roughly half of that order intake is related to lane model. And that percentage will only grow further. So also for 2026, we think that the proportion of lane model RFQs and potential wins will be tilted towards lane and not so much road. Road models can be a tag-along deal. Increasingly, OEMs want to focus on securing the right quality and the right vendor of lane models. And also that gives us opportunities to also secure extra deals in road modeling. The majority -- yes, CARIAD is an existing customer, of course, because we already do software with them. So in that sense, the majority of the order intake was with existing customers. Harold Goddijn: But I want to add to [Audio Gap] first time that we deliver map data at scale to the VW Group. Taco Titulaer: Yes, that's different. But before it was navigation software and traffic, et cetera, but now it is also including map data. Andrew Hayman: Okay. And how does the funnel of potential sales look for this year? Because it looks like -- I mean... Harold Goddijn: There's a broad and deep book of opportunities out there, not dissimilar from 2025. So the activity is really -- is there from what we can see now. But what we also have seen in 2025 is that timing is very difficult to predict also because of ambiguity in product planning in all sorts of market conditions. But I think the way we look at it now, there is substantial opportunity available again in 2026 for further building of the backlog. And there are also opportunities available to us for extending and growing our market share. Operator: And the questions come from the line of Marc Hesselink from ING. Marc Hesselink: A follow-up. One on the Enterprise segment. I think in previous calls, we've discussed a lot about the momentum for the small clients being quite good. But then for the bigger, longer sales cycles, is that still ongoing? Are you still talking to these bigger potential clients? And would we expect something beyond '26 in the '27 period? Is that likely? Harold Goddijn: I don't think there's -- we don't anticipate a big shift in market opportunities in 2026. No extraordinary, but we think that the momentum we have to an extent in the long tail opportunities, that will continue throughout 2026. The composition -- yes, so there's a lot to go after in -- also in the Enterprise sector. Marc Hesselink: Okay. And -- but the big clients, they sort of stick to their own products or... Harold Goddijn: Well, we have a good market share with the big tech companies already. There are not that many of them, but our market share there and our representation with big tech is significant. So the growth and the expansion need to come from companies below that tier. There's a lot of them in the EUR 10 million kind of category. There are a lot of them in the -- between EUR 1 million and EUR 10 million category that are available to us to win. Marc Hesselink: Okay. Okay. That's clear. And then the second follow-up was on -- you mentioned also for next [ year, so '27 ] to be cautious on the cost side. And I just want to understand that a bit because I think that you say you're moving towards the more automated process. It's almost now already almost fully automated. Is that something that you can still take a bit of steps there to further automate it and at that stage, decrease the cost a bit? Harold Goddijn: Yes. Well, we -- so there's a number of things that we can achieve through -- on the cost side. I think the most important one is that our product portfolio is maturing and coming together. And we're more product-driven than in the past. And that means that we can do things more effectively, better at higher quality and we can leverage that software much better than we've ever been able to do in the past. We see also opportunities to further leverage the power of AI, especially in the engineering side. We're making some meaningful progress in that area. So the combination of a simpler product portfolio at a higher quality that is reaching completeness now after a long period of transition, those are all indicators that we can do things more faster at higher quality, but also with -- allow us also to keep a lid on the cost and not let that grow. There will be additional costs in maturing lane level product, as Taco already indicated. But all in all, I think we are in a good position not to let the cost and the OpEx run away from us, but rather contain it and manage it carefully without that giving strong limitation on our ability to get things done. Claudia Janssen: Okay. With that, I want to thank you all for joining us today. And operator, now you can really close the call. Thank you. Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.
Bård Pedersen: Good morning to all, both here in the room in Oslo and to all our participants online. Welcome to the presentation of Equinor's Fourth Quarter and Full Year Results for 2025. My name is B�rd Glad Pedersen. I'm Head of Investor Relations in Equinor. To those of you who are in the room, I want to inform you that there are no emergency drills planned for today. So if there is an alarm, we will evacuate and follow instructions. Today, we will have a presentation first from our CEO, Anders Opedal, followed by a presentation from our CFO, Torgrim Reitan, before we start the Q&A. [Operator Instructions] So with that, I hand it to Anders for your presentation. Anders Opedal: And thank you all for joining here in the room, and thank you for participating on digital. So for Equinor, 2025 was a year of strong deliveries, but it was also a year of increased geopolitical tension and market uncertainty. Our job is to ensure we allocate our resources in a way that maintain a competitive business, creating value at all times. Today, Torgrim and I will show how we take the necessary measures to further strengthen our competitiveness, cash flow and robustness. This makes sure that we can navigate through and leverage market volatility and the current macro environment. So we have 3 key messages for you today. First, we are well positioned for maximizing long-term shareholder value. Today, we will share how clear strategic priorities guide capital allocation for 2026 and '27, and we will revert at our Capital Market Day in June to present our strategy towards 2030. Second, we take firm actions to strengthen free cash flow. We reduced our CapEx outlook with $4 billion and maintain strong cost discipline. This makes us more robust towards lower prices and ensure that we can maintain a solid balance sheet through the cycles. And third, we continue to develop an attractive portfolio, delivering oil and gas production growth. With this, we are prepared for volatility ahead. The energy transition is shifting gears in many markets with governments and companies changing priorities. Current oil prices are supported by geopolitical risk, but we are prepared for strong supply combined with moderate demand growth, putting pressure on the oil price in the near-term. For gas, the European market has seen cold weather and high draw on storage in late December and in January. Storage levels are now around 40%, significantly below average for the last 5 years and also lower than last year. We expect continued volatility ahead and more LNG coming into the market. In the U.S., low temperatures have driven up local demand and reduced exports of LNG. But before I progress any further, I will always start with safety. Despite fewer people being hurt and our safety numbers moving in the right direction, we still have serious incidents and need to improve. In September, our colleague was fatally injured during a lifting operation at Mongstad. A stark reminder that we cannot rest until everyone returns safely home from work every day. Our safety trend reflects years of good work from the people in our organization and our suppliers. Safety remains our first priority. Throughout 2025, we have delivered strong performance despite geopolitical uncertainty, high inflation in the supply chain and lower commodity prices. This results in all-time high record production, thanks to good operational performance and new fields on stream. We have matured a competitive project portfolio across the Norwegian continental shelf and internationally. With Johan Castberg on stream, we opened a new region in the Barents Sea. In Brazil, we started production from Bacalhau, the first pre-salt operator ship awarded to an international company. We continue high-grading our portfolio, and we maintained cost and capital discipline. All this has enabled us to deliver industry-leading return on average capital employed of 14.5% and $18 billion in cash flow from operations after tax. We have delivered $9 billion in capital distribution to our shareholders, as we said at the start of the year. Last year, we received 2 stop-work orders for Empire Wind. In our view, both are unlawful. The first one was lifted by the UN administration in May. The second stop-work order came just before Christmas. This cited national security reasons, already a central part of an extensive approval process where we have complied with all requirements. In January, we were granted a preliminary injunction allowing us to resume construction. There will be a continued legal process, and we remain in dialogue with U.S. authorities to resolve any issues. Despite the significant challenges caused by the stop-work orders, the project execution is according to plan. The project is now over 60% complete. We have successfully installed all monopiles, the offshore substation and almost 300 kilometers of subsea cables. The total CapEx for Empire Wind is now expected to be around $7.5 billion. Around $3 billion is remaining, and we, like other companies, remain exposed to uncertainty when it comes to possible future tariffs. The project qualifies for tax credits as decided by the U.S. Congress. The cash effect of these is expected to be around $2.5 billion. So far, we have drawn $2.7 billion from project financing. We expect to draw the remaining $400 million this year. For 2027 and '28 combined, we expect around $600 million in cash flow from operations. Combined with the ITC, this covers the remaining CapEx in the period. We have continued high-grading our portfolio. We announced the latest move earlier this week, divesting onshore assets in Argentina for a total consideration of $1.1 billion, unlocking capital for high value creation opportunities. The establishment of Adura was a major milestone last year. Our joint venture with Shell has created a leading operator on the U.K. continental shelf, fully self-funded, covering all Rosebank CapEx and well positioned for growth. The JV company expects to distribute more than 50% of cash flow from operation to its shareholders, starting from the first half of 2026. Based on Adura's plans, we expect total dividends of more than $1 billion for 2026 and '27 combined with growth from '26 to '27. This moves our U.K. portfolio from being cash negative due to CapEx to cash positive from dividends. These 2 transactions build on previous high-grading of the portfolio, divesting mature assets and invest more in long-term gas production onshore U.S. Through this, we have created a more future-proof international portfolio, focusing on prospective core areas, increasing free cash flow, strong production, lowering cost and a portfolio with low carbon intensity. Now on to our strategic priorities for 2026 and '27 and how they guide our capital allocation. The world is changing, but one thing remains firm. Energy demand continues to grow. We are well positioned to contribute to energy security, affordability and sustainability. So first, after more than 50 years of developing the Norwegian continental shelf, we are uniquely positioned for value creation here, and we continue to invest. The Norwegian continental shelf remain the backbone of the company. In 2026, the NCS will contribute to our production growth, and we work to maintain strong production well into the next decade. In the future, as you know, we expect to make more but smaller discoveries. To ensure commerciality, we will work with partners, suppliers, authorities and unions to change the way we operate on the Norwegian continental shelf. We will develop future discoveries faster, become more efficient and increase return while improving safety further. Next, we are set to deliver strong production and cash flow growth from our high-graded internationally -- international oil and gas portfolio. We are progressing project execution and exploration across key geographies, adding new volumes and opportunities for longevity in the portfolio. On power, we combine our renewable portfolio with flexible power to build an integrated power business and strengthen our competitiveness. We are value-driven in all we do and disciplined in execution and capital allocation. The main focus for '26 and '27 deliver safe operations and strong project execution of already sanctioned portfolio. All this, Norwegian oil and gas, international oil and gas, power are tied together by our marketing and trading capabilities, creating value uplift across our business. We are positioned to create value within low carbon solutions like carbon capture and storage, but markets are developing at a slower pace than anticipated. In addition to the execution of Northern Lights and Northern Endurance, we will continue to mature a few selected options and markets at low cost. We will be positioned to invest as markets develops, customers are in place and returns are robust. We grow our production to even higher levels in 2026 from a record high production level in 2025. For the year, we expect a production growth of around 3%. We are ramping up new fields, which more than offset divestment and natural decline. We are replenishing our portfolio and have 3-year average reserve replacement ratio of 100%. On the NCS, we made 14 commercial discoveries last year, mainly close to existing infrastructure, adding to longevity. And we continue to explore. We have added attractive acreage in Norway, Brazil and Angola, where we expect to drill around 30 exploration wells in 2026. We expect to reduce our unit production cost to $6 per barrel. We continue to focus on delivering a carbon-efficient portfolio with a CO2 upstream intensity of 6.3 kilo per barrel. We take firm actions to strengthen our cash flow and further increase resilience facing higher market uncertainty. In 2026, we expect around $16 billion in cash flow from operations after tax. This reflects a lower price outlook and is also impacted by the tax lag effect in Norway. A flat price assumptions is growing to around $18 billion in 2027. We have strengthened our investment program for 2026 and '27, reflecting market realities. We have reduced our CapEx outlook for these 2 years with around $4 billion, mainly within power and low carbon. This also influenced our net carbon intensity reduction for 2030 and 2035, no change to 5% to 15% and 15% to 30%, respectively. We maintain a stable investments of around $10 billion annually to oil and gas. Our CapEx guiding for 2026 is around $13 billion. This includes Empire Wind, where we, in 2027, expect to monetize investment tax credits for around $2 billion. With this, we indicate CapEx of $9 billion for 2027. In the current situation for the offshore wind industry, we are focusing on projects in execution and have a high bar for committing capital towards new offshore wind projects. This includes our ownership in �rsted. We will continue driving cost improvements, including the portfolio high-grading we have done. We aim for 10% OpEx reduction in 2026, even while growing production. We continue with strategic portfolio optimization to strengthen future cash flow. Proceeds from the divestment of Peregrino and onshore Argentina assets is expected to contribute more than $1.1 billion this year. The action we take to strengthen our cash flow and robustness support sustainable, competitive capital distribution. This is important to me and a priority for the Board of Directors. The starting point is the cash dividend. We have set an ambition to grow the quarterly cash dividend with $0.02 per share on an annual basis. We continue to deliver on this. It represents an industry-leading increase of more than 5%. We also continue to use share buybacks to deliver competitive total distribution. For 2026, we announced a share buyback program of $1.5 billion, including the state share. The first tranche of $375 million starts tomorrow. As previously communicated, we see true timing effects like the tax lag in Norway and the phasing of Empire Wind and lean on the balance sheet to deliver competitive capital distribution in 2026. In 2027, we have taken action to deliver stronger free cash flow. This is important to ensure that we can deliver competitive capital distribution in a long-term sustainable manner. So with our guiding in the background, I will give the floor to Torgrim that will take you through -- further through the details. And then I look forward to questions together with Torgrim when he is finished. So Torgrim, please. Torgrim Reitan: So thank you, Anders, and good morning and good afternoon, and thank you for joining us here today. So 2025 was a good year for Equinor. We delivered strong performance and record high production. But before we dive into the financial results, I want to expand on how we will manage through a period of volatility. So we are prepared for lower prices with a strong balance sheet, lower cost and CapEx and an attractive project portfolio. Our financial framework sets the boundary conditions for how capital allocation -- for our capital allocation and how we manage our company. So to start, our highest priority will be to deliver a robust and a growing cash dividend, in line with our dividend policy, and this reflects growth in our long-term underlying earnings. Then we will continue to invest in an attractive and high-graded investment portfolio with low breakevens and strong returns in line with the following priorities. First, our unique position on the Norwegian continental shelf gives us competitive advantages. And this is why we will continue to prioritize developing this area and allocating almost 60% of our investments to an area we know better than anyone. In '26, we have 16 projects in execution in Norway. Many of these are tie-ins to existing infrastructure with low cost and very low breakevens. Then we will allocate 30% of our capital to our international oil and gas business. This is mainly to sanctioned projects, and we expect to increase production to more than 900,000 barrels per day in 2030. And then around 10% of our capital will be allocated to building an integrated power business where the main focus is on delivering our offshore wind projects in execution safely, on time and on cost. Outside these 3 areas, we expect limited investments over the next 2 years. As you know, we will prioritize having a strong balance sheet and liquidity necessary at all times. And this is important to manage risk and to continue to deliver value. Over the next 2 years, we will see through the timing effects such as the NCS tax lag and the tax credit on Empire Wind impacting our cash flow from operations, and we will lean on the balance sheet. We will lean on the balance sheet in 2026 to cover CapEx and distribution. Next year, in 2027, cash flow from operation is stronger, and we have lowered CapEx, significantly improving the free cash flow. So we will manage the balance sheet through this period and continue to deliver competitive capital distribution, including share buybacks. For more than a decade, we have consistently delivered an industry-leading return on capital employed. And if you ask me, that is a premium KPI that we hold very high in our company. And with this financial framework, we expect to deliver around 13% over the next 2 years, now using a lower price deck than what we have used earlier as such. So that is comparable to what we have said earlier. We are used to managing volatility and deliver value through cycles. First, to manage cycles, we have to run with a strong balance sheet and a robust credit rating, and we have that. We have that. And having liquidity available is key. We have close to $20 billion for the time being. Second, a low cost base is important to ensure that we make money at low prices, and we continue to reduce our costs. We have a low unit production cost. And in 2026, we will further reduce it by around 10% to $6 per barrel. We are the lowest cost supplier of pipe gas to Europe with our all-in costs of less than $2 per MBtu, and we are sure that we will create significant value in any price scenario in Europe. Through strong cost performance and portfolio high-grading, we aim to reduce OpEx and SG&A by 10% in 2026. This corresponds to a flat underlying cost development, overcoming inflation while growing production. We are addressing costs in all parts of the organization. And I want to highlight that in 2025, we brought down OpEx and SG&A in renewables by 27%, mainly due to reductions in early phase costs. And then thirdly, it is key to have a competitive project portfolio that makes sense at lower prices. And we operate a majority of our projects, giving us the flexibility needed to adjust when we want to do that. Through portfolio flexibility and high-grading, we have reduced CapEx over the next 2 years by $4 billion, made divestments totaling more than $6 billion since 2024 and strengthened the quality of our portfolio. Our average breakeven is around $40, and we see an internal rate of return of 25% in the portfolio at $65 oil. We remain a leader on CO2 efficiency and an average payback of 2.5 years. So I will call this a robust, low-risk and high-value project portfolio that will create value also at low prices. In periods of volatility, our NCS position and our international portfolio complement each other. In Norway, we are more robust to lower prices, while internationally and particularly in the U.S., where we have strengthened our gas position, we have a large exposure to upside in prices. So Norway first. We have immediate deductions for CapEx against the special petroleum tax. And with full consolidation between fields and no asset ring-fencing, our pretax CapEx of around $6 billion translates into an after-tax investments of less than $1.5 billion. And when prices change, 78% of the effect on the revenue is absorbed by reduced taxes. So this makes the NCS less exposed to lower prices than other basins. So what happens if prices change? With a $10 move in oil prices, the cash flow is only impacted by $1.2 billion, and this is across the global portfolio and adjusted for tax lag. For European gas, a $2 change equals $800 million. What is particularly interesting is the U.S. gas, where the production is now 1/3 of our Norwegian gas position. But still, a $2 movement in gas price has a similar effect on cash flow after tax as in Norway. So let me elaborate more on the U.S. gas as that has become even more important to us. So in 2025, we delivered around $1 billion in cash flow from operations out of that asset. Production increased by 45% on back of well-timed acquisitions to around 300,000 barrels per day, capturing gas prices that were more than 50% higher than in 2024. We have a low unit production cost for U.S. gas around $1 per barrel, and we are well positioned to benefit from robust power load growth and increased demand in the Northeast. We are marketing our gas ourselves, and we are able to add value through trading, pipeline capacity and access to premium markets such as New York City and Toronto. So in January this year, gas prices in the Northeast reached very high levels driven by the winter storms, and we used our infrastructure and trading to capture quite a bit of value out of that volatility. Okay. So now to our fourth quarter and full year results. These slides sums up the key numbers you heard from Anders. Safety is our first priority. We see strong safety results, but we need to continue improving with force. Return on average capital employed in '25 was 14.5%. Cash flow from operations after tax came in at $18 billion, and earnings per share was strong at $0.81. For the year, we produced 2,137,000 barrels per day. This is record high and up 3.4% from last year, driven by ramp-up on Johan Castberg and Halten East on the NCS, U.S. onshore gas and new wells coming on stream. In the quarter, production was up 6% despite some operational issues in Norway and in Brazil. On the NCS, Johan Sverdrup had another strong year. For power, we produced 5.65 terawatt hours and renewables power generation was up by 25%. So then to financials. Adjusted operating income from E&P Norway totaled $5 billion, driven by increased production at lower prices. Depreciation was up compared to last year due to new fields on stream. Our E&P International results were impacted by portfolio changes and an underlift situation in the quarter. In the U.S., results were driven by significantly higher gas production, capturing higher prices. And in our MMP segment, results were driven by gas trading and optimization and a favorable price review result in January. So the result of this price review explains the difference from the MMP guidance. So this is a one-off. However, important enough, and the cash flow impact will be somewhat higher than the accounting effect, and it will come in 2026. On a group level, we had net impairments of $626 million and losses on sale of assets of $282 million. These do not impact adjusted numbers. A significant part of this relates to the Peregrino and the Adura transactions, and they are mainly driven by accounting treatment of these transactions, more of a technical nature. Adjusted OpEx and SG&A was up 7% compared to the same quarter last year and up 9% for the year. These are driven by transportation costs, insurance claims and currency. For the year, underlying OpEx and SG&A was up 1%. And if you adjust for currency headwinds, it was actually slightly down. For the year, our cash flow from operations came in at $18 billion after tax, in line with our guidance when we adjust for changes in prices. Organic CapEx for the year was $13.1 billion, also in line with what we said. Our net debt to capital employed ended at 17.8%. This increase from last quarter is mainly driven by NCS tax payments and �rsted rights issue participation and somewhat increasing working capital. So let me conclude with our guiding. For 2026, we expect $13 billion in organic CapEx and a 3% growth in oil and gas production. We have increased our quarterly cash dividend by more than 5% now at $0.39 per share and announced a share buyback of up to $1.5 billion for the year, starting with the first tranche tomorrow. So thank you very much for the attention. And now I will leave the word back to you, B�rd, for the Q&A session. So thanks. Bård Pedersen: Thank you, both Anders and Torgrim. We will now start the Q&A. [Operator Instructions] So then we'll start. And the first hand I saw was Teodor Sveen-Nilsen from Sparebank. Teodor Nilsen: Congrats on strong results. So 2 questions. First on CapEx. You obviously reduced the guidance for 2027. I just wonder how we should interpret the run rate into 2028. Should we also assume that 2028 CapEx will be well below the $13 billion you previously announced? Or is that too early to say anything about? And second question, that is on MMP. Could you just explain what's behind the price review that boosted the results? Anders Opedal: Thank you very much. So you can think about the price review, Torgrim, while I'm talking about the CapEx. Yes, you're right. We have reduced the CapEx. We have -- when we are looking into the CapEx profile over the last years, we have had consistency. You have seen that we have consistency investing into Norwegian oil and gas and in international oil and gas. And last year and this year, we are reducing the CapEx outlook for our renewables and low carbon solutions. And this is due to that 2, 3 years ago, we had a different market view than we have today. We don't expect that this market will change dramatically over the next years. We intend to continue focusing, investing consistently into our attractive oil and gas portfolio that Torgrim demonstrated and be market-driven and invest in low-carbon solution and power when the time is right, the profitability is right and the market comes. So I cannot give you the guiding for '28 already. But with this consistency investments in oil and gas and this change we have done in the CapEx for renewables and low carbon solutions and the market will probably not change very much over the next years, I think you will see somewhat consistency in our CapEx guiding going forward, and we will come back to more details about this in June. Torgrim Reitan: And thanks, Teodor. On the price review, that is a normal mechanism in many of the gas contracts where sort of if the price in the contract dislocates from what the market should have been and the price should have been, we have a mechanism to renegotiate or open up that. We often disagree with customers in processes like this. And often, we take such things into arbitration as we have done in this case. So that has gone on for a while, and we won in that arbitration. Over the year, we have accrued revenue related to that because we consider that we had a strong case. We had an even better outcome than what we accrued as such. So this will be a one-off payment during the year. And from now on, there is a new mechanism in place on that contract as such. Bård Pedersen: Sorry, Teodor, I need to stick to the 2 questions because we want to cover as many as possible. And the next one is on my list is John Olaisen, ABG Sundal Collier. John Olaisen: First question is regarding Johan Sverdrup... Bård Pedersen: John, please use the microphone so people can hear you online. John Olaisen: Okay. Sorry. It's John Olaisen from ABG. My first question is regarding Johan Sverdrup. Anders, you quoted in the media today saying that you expect it to decline by more than 10% this year. I wanted to elaborate a little bit more on that. How much more? And do we expect the same for the next few years? So that's my first question on Johan Sverdrup production profile. The second question is regarding M&A. You've sold a lot of assets internationally. So I wonder, do you still have assets on the sales list internationally? And also secondly, it's a long time since you bought assets internationally. Do you have -- are you looking at potential acquisitions internationally? Those are the 2 questions, Sverdrup and M&A. Anders Opedal: Thank you. First of all, when it comes to Sverdrup, I think we have demonstrated over many, many years how we've been able to keep up the production, even increase it due to the fantastic work that is done by the people working with Johan Sverdrup. Then a field like this is like all other fields, eventually, it will come into decline, and we see that now. So we see a decline in Johan Sverdrup for 2026, which is more than 10%, but well below 20% and that is what we put into our numbers. Still, we will have a growth in Equinor of 3% for 2026 and actually also a growth both on the Norwegian continental shelf and internationally. And of course, based on all the good work, drilling new wells, placing the wells better, retrofitting the wells, high production efficiency, have a high water cut and flow through the separators. The team is working to make sure that this decline is as low as possible. But above 10, well below 20 is what we see and kind of planning for in 2026. Well, we don't have a specific list of M&A sales candidates and targets that we disclose. But I think what you have seen, what we have done in the past, we have been active both in divestment where we think the timing is right to create value and where we see that future investment can be used better elsewhere that we have monetized those assets. And when we have seen opportunistic opportunities to invest, we have done it like twice in the U.S. gas in the Marcellus. You can expect us to be active going forward. And we have had a strategy of optimizing the international business, and we have optimized it now and set it clear for growth. And now is the focus to deliver on that growth finding more attractive exploration opportunities within those selected areas and at the same time, be open for value-accretive opportunities in the market. Bård Pedersen: Thank you. Next on my list is Henri Patricot from UBS. Henri Patricot: Two questions from me. The first one on the cash flow guidance for '26, '27, you do show this meaningful improvement in '27 to $18 billion. Could you give us a bit more of a breakdown behind this improvement? I think you mentioned Empire Wind starting up, some tax lag effect. What else is contributing to this sharp increase? And then secondly, I was wondering, there's uncertainty still around Empire Wind 1. What would be the impact to the financial framework you presented today if the project does not complete or implications for the broader CapEx and shareholder returns? Anders Opedal: So if you, Torgrim start with Empire Wind, then I can take on the CapEx reduction for '27 afterwards. Torgrim Reitan: Okay. So thanks, Henri. On the Empire Wind, clearly, we are steered by sort of forward-looking economics and forward-looking cash flows when we make up our mind. So from now on, the remainder of investments will be covered by the ITC and cash flow from operations over the next 2 years in a way. So the threshold for not moving forward with it is extremely high in a way. I mean the total economics of that project life cycle is something else. But clearly, the decision that we have to make is actually how it look going forward. And going forward, it's actually pretty solid. So the threshold for stopping it is very high. Our job is to deliver this on time and schedule. And I must say, I am extremely proud of what that project organization has been able to do through all of this volatility this year to keep it steady on the track. So we are on track to deliver, and we have no other plans than that. Anders Opedal: Yes. And then the cash flow from operation that is increasing from $16 billion to $18 billion towards '27. This is based on flat price assumption, $65 on the oil price and $9 and $3.5 for Europe and U.S., respectively. And the answer here is that this is the tax lag. We are this year paying a higher tax based on higher prices last year on the Norwegian continental shelf. And it's also a 3% production increase in 2026 that will also contribute to a higher cash flow. Bård Pedersen: Good. I have a long list also online. So let's take a few from there. The first one to raise his hand was Biraj Borkhataria from RBC. Biraj Borkhataria: Just the first one is a follow-up on Johan Sverdrup. You mentioned the decline for 2026. What is in your base case for 2027 and beyond? Because obviously, it's quite a big part of your portfolio. It'd be good to get some clarity there on the decline rates. And then the second question is just on the Empire Wind budget has obviously gone up a little bit. How should we think about how much contingency you have in that new $7.5 billion budget? Anders Opedal: Well, when it comes to -- we are guiding now on Johan Sverdrup for 2026. And to say what it will be in '27 is too early. As I said, we have a fantastic team there that will do everything they can to reduce this decline. We will drill new wells. And I also remind you that in the end of '27, we will have Johan Sverdrup Phase 3 coming on stream as well. We have ramp-up of other fields on the Norwegian continental shelf, meaning that despite this reduction in '26 decline in Johan Sverdrup, we will still have a production growth. And then we will see now how Johan Sverdrup behave during the first part of the decline and how we are mitigated and then we will come back to it. So it's too early to say. When the increases on the Empire Wind, it's very much related to 2 elements, is tariffs that has been imposed to the project and is also an effect of the first stop-work order that we had. The second stop-work order, we were able to execute part of the project, most of the project in the beginning of the stop-work order. And the most important parts of the progress, we were able to do after the preliminary injunction. So very little effect of the project. So it's the execution part of it -- it's going well in terms of CapEx -- use of CapEx in this project, but there is a remaining uncertainty on tariffs. You might remember a couple of weeks ago, a 10% tariff due to Greenland that was removed a little bit a few days later, and that is some of the uncertainty that we are facing with this project. Bård Pedersen: The next one on the list is Alastair Syme from Citi. Alastair Syme: Just one question really to Anders. I just wanted to reflect on the journey that Equinor has been on in recent years with respect to the transition because you are signaling today a further scaling back in ambitions with a lower CapEx and look, I know you're not alone in doing this in the industry. But if I go back a few years ago, you had outlined a competitive position where Equinor could be differentiated in the transition space. So I guess my question is, what are your reflections on this journey? And what do you think has happened that is different to what you anticipated several years ago? Anders Opedal: Thank you. It's a really good question. And I think kind of this is where we were saying today that we are signaling a consistency. We have over the last 5 years, been extremely consistent in our communication around oil and gas and how we will develop the oil and gas portfolio, optimize it, and we have delivered on that. But we also had a different market view on offshore wind and the transportation and storage of CO2 in particular. This is where we were -- had experience. We saw a market growing for transportation and storage of CO2 going faster than we actually have seen. We -- for instance, also for hydrogen, a couple of years ago, we actually had head of terms contracts with customers. Those has been canceled, meaning that we have not been able to progress a lot of these projects within that area. But keeping in mind, we were able to -- been able to do Northern Lights -- Northern Lights Phase 2, Northern Endurance. So we see now that the licensing for or support regimes and applications for capturing CO2 goes slower despite that the framework and the laws are much more in favor of CO2 now than it was before. So to summarize very quickly, we had a different market view some years ago based on real discussions with governments and potential customers than we have today. 3, 4 years ago, customers called us to buy natural gas and was also asking for potential hydrogen and transportation and storage of CO2. Today, they continue to buy natural gas, but they have postponed their own targets for reducing emissions beyond 2030. Some years ago when everyone had a 2030 target, much more focus from customers to have this market up and running very fast. Now with different targets beyond 2030 to collect enough CO2 to have long-term contracts we have found it very difficult. That's why we are allocating no more CapEx into that area due to the market conditions. So that is what had happened. And we have focused on business-to-business with hard-to-abate industry that has postponed the targets. Bård Pedersen: Next question is from Irene Himona from Bernstein. Irene Himona: My first question is one of clarification really. You referred to your objective to build an integrated power portfolio. Typically, when your peers refer to integrated power, they mean essentially adding gas-fired power generation to renewables. So I wanted to ask what does integrated power mean for you? And how does �rsted fit in that? My second question, just going back to the share buyback. Previously, in the past, you had guided to a long-term sustainable through-the-cycle share buyback of around about $2 billion. Today, you lowered that to $1.5 billion. I'm just trying to understand what has changed between then and now essentially. Anders Opedal: You can start with that, Torgrim, and I'll do the integrated power. Torgrim Reitan: Okay. Thanks, Irene. So well, we have said at earlier years, $1.2 billion as sort of the sustainable level in a way. So $1.5 billion is actually above that. We retired the $1.2 billion a bit back. To give a little bit more context, Irene, it's the concept of having a stable share buyback through a cycle, comes a little bit theoretical. We're just coming out of a super cycle, and we have returned $54 billion over the last 3 years based on that in a way. So where we are now, we are actually the first year where the balance sheet is normalized, and we aim to manage within our means. So the number that we put forward today is $1.5 billion. We are leaning on the balance sheet this year, but you have seen in 2027. So we want to sort of give you an outlook for -- over a couple of years here. So the way you should think about share buyback is that it is a natural part of the capital distribution. It is something that is regular and is on top of the cash dividend. And the cash dividend, you should see -- consider as bankable. Share buyback clearly will be more dependent on macro environment as we move forward. Anders Opedal: When it comes to integrated power, for us, that means both intermittent power like offshore wind, onshore wind, solar, in addition to flexible power, batteries and CCGTs. We do have exposure in all of this. We have gas to power in U.K. We have battery in Poland and onshore and offshore and solar. This was divided in different business area. Now everything is integrated into one business area power. And then we have Danske Commodities that are able to integrate this totality and add additional value to this. Having said that, the priority within Integrated Power over the next year is to deliver on the already sanctioned projects. And from that, we are able to potentially if we have the right investment opportunity to expand further on the integrated power. But of course, with our gas position in Europe and U.S., we are, of course, well positioned also for gas to power if we see the right opportunities in the future. �rsted and working together with �rsted and collaboration with �rsted, as we have said, fits into this type of integrated power. We can be exposed in offshore wind in different ways and working together with �rsted, collaborating with �rsted will fit into an integrated power in different types of potential structures. Bård Pedersen: Thank you, Irene, for that. I'll take one more on the phone and then return to the room here. The next one is Paul Redman from BNP Paribas. Paul Redman: My first question is just how do you think about growth at Equinor? The reason I asked that question is at the Capital Markets Day last year, you highlighted a flat to decline in production 2026 plus. And I'm assuming that included some Vaca Muerta production as well. You're heavily cutting the renewable portfolio spend. So just how do we think about growth going forward from here? And then secondly, when I look at MMP, I guess the long-term -- well, the annual guidance was $1.6 billion, $400 million a quarter. You generated about $1.25 billion to $1.3 billion for the quarter if I take out the long-term gas contract review from this quarter. Is there any reason the guidance isn't updated? And how should we think about MMP going forward? Anders Opedal: I'll start with the growth, and we divide it so you can take the MMP. Well, let's start with the renewables. We have said that we don't want to invest more than what we have already sanctioned, but that will create a growth. We had a 45% growth quarter-to-quarter on the renewable business this year, 25% on the annual -- in 2025. So still growth in Integrated Power over the next year. And then as I said, we will have to think how we can create further profitable and disciplined growth into that area. When it comes to the international business, we have repositioned that portfolio. And you can expect from today's level towards 2030, growing this production towards 900 million barrels a day. So it's clearly a growth in there, growth in production, growth in free cash flow. On the Norwegian continental shelf, we will continue to explore. We -- it will be difficult to create further growth in -- on the Norwegian continental shelf, but we have received attractive acreage. We will drill 26 exploration wells on the Norwegian continental shelf next year. We're working on reducing the time from exploration to production from 5 to 7 years to 2 to 3 years, enabling more efficiency to be able to keep the production at the highest possible level on the Norwegian continental shelf and growing free cash flow from that portfolio. And that is what we're aiming for, for Norwegian continental shelf internationally and integrated power. Torgrim Reitan: Thanks, Paul. On MMP. So if you strip away the price review, you get to around $400 million in the fourth quarter, which is very much around sort of what we guide at. So that's sort of -- that's what you should, in a way, expect on a quarterly basis. However, there will be fluctuations as you very well know. What typically drives results are volatility in commodity markets and also contango versus backwardation. I can give you one example actually from January, where there has been a lot of volatility in the gas market. And in Europe, we have a 70% day ahead exposure and a 30% month ahead exposure. So you can rest assure that sort of the spikes you have seen in January, it finds its way to our P&L in Europe. In the U.S., we don't have -- we don't sort of have a firm exposure that we want, but clearly, the traders keep a certain part open. So when going into January, in the U.S., our traders left 30% exposed to the prompt or cash prices as such. So at the most extreme, for instance, the in-basin price for Marcellus gas was $60 per MBtu, and we took that. And then we have a transportation capacity into New York, actually coming up at Penn Station. And we achieved more than $100 per MBtu in that weekend as such. So just examples of when you see volatility, you should expect us to be able to get it in a way. So that's why these results typically fluctuates. Bård Pedersen: Thank you, Paul. Vidar Lyngv�r from Danske Bank. Vidar Lyngvær: First, just another clarification on the renewable spending in 2027. You're reducing CapEx by $4 billion. I get the tax credit part. Could you add some more color on where the remaining cut comes from? Second, Johan Sverdrup, you mentioned the decline rates there. Are those exit to exit, so exit '25 to exit '26? Or is it average production decline in '26 versus average in '25? Torgrim Reitan: Johan Sverdrup exit to exit or -- let's come back to the specifics on that. But I do think it is when you compare sort of the last year production with next year production as such. And just -- yes, and team is nodding there. So that is the way it works, yes. Anders Opedal: Yes. Yes, a little bit more color to this. As I answered earlier, we had a different market view. So we had, for instance, potential hydrogen project, transportation of CCS project in the CapEx outlook that we showed last year, those projects are not materializing. In addition, we have reduced our onshore renewable CapEx as well. And in total, this adds up to those $4 billion and together also with the ITC as you have seen. Bård Pedersen: Good. Steffen Evjen from DNB Carnegie. Steffen Evjen: On the ITC, just could you please remind me on the milestones they are required for that payment to come in, in terms of first power and any other things that has to be fulfilled? My second question is just a clarification on Adura. I think you said $1 billion in dividends. Is that your share? Or is that the total share to both shareholders? Torgrim Reitan: It's our share and then the ITC. ITC, yes. So the way it works is that you can recognize it when you start production and sort of that is sort of scale as you continue to start up the various turbines. So what we have assumed is that we recognize all of this in 2027 because that's sort of the plan. There is an upside that there is some ITCs recognized in 2026. We haven't based our analysis on it. So that is sort of the recognition part. And then there is -- so what is the cash flow impact of it. And it will take some time from we recognize it to the cash flow is in our account. So what you see on the slide is that we have assumed $2 billion impact of the ITC in '27, while the total number, the absolute number is $2.5 billion. So that sort of give you a little bit of a perspective around this. It is a significant financial operations to manage all of this, as you would know, but there is a large and growing market for ITC in a well-functioning market in the U.S. for this. Bård Pedersen: Next one is Martijn Rats from Morgan Stanley. Martijn Rats: I've got 2, if I may. I wanted to ask you again about the CapEx reductions. I know there have been a few questions about it already. But when Equinor took the initial 10% stake in �rsted, very soon thereafter, we also had a reduction in the CapEx outlook for offshore wind, renewables in general. And in many ways, that had the character, therefore, when you put these 2 things together, it's like, well, we do less organically and we do more inorganically. It was sort of not a total reduction, but it had an element of we're swapping one type of spending for another type of spending. And I was wondering how we should interpret this reduction in CapEx on this occasion. If power and low carbon CapEx goes down, is that -- should we interpret that as well, the company is just going to do less of that stuff? Or should we anticipate that in the fullness of time, this also turns out to be a swap, less organic, but more inorganic. I was hoping you could say a few things about that. And then the other question I wanted to ask is about the 10% OpEx and SG&A reduction target. Like 10% in a single year is quite a significant amount and also because Ecuador has already been very focused on that for some time. I was positively surprised that there's still sort of that type of opportunity available. Could you talk a little bit about the key levers, where that spending can be reduced? And also just for the avoidance of 10%, how does that translate into absolute sort of absolute dollar amounts, that would be helpful? Anders Opedal: Let's start with that question first, and Torgrim. Torgrim Reitan: Okay. Thanks, Martijn. So on the 10% reduction. So over the last years, we have been able to maintain OpEx and SG&A flat even if we have grown our production and despite the inflation as such. So our people and organization has done a good job. Next year, we expect that number to come down by 10%. That is a very big number. However, it is a significant impact of divestment of Peregrino and the establishment of Adura that will be equity accounted as such. So the reported numbers will be down 10%. But when you adjust for structural changes, we expect to maintain OpEx and SG&A flat, growing by 3% and still inflation as such. So this comes from many sources. First of all, activity level. Clearly, we have taken down and prioritized that very hard. That has a direct impact on it. We have taken down early phase costs significantly in the portfolio, also a significant contributor. Staff are continue to high grade and take out efficiencies. And then the business areas are clearly working on this. So -- but on your question, is there more to come? And the answer is yes, we are never satisfied with where we are on this. And I can give you 2 examples of what to come. One is the work around NCS 2035. We do see a significant cost impact of that. So we hope to show more on that in June. The other one is actually artificial intelligence. So we have already see that in our numbers, NOK 1 billion or so, which is good. However, this is early days. And we do believe that with our large operations and our ability to take out effect across assets that AI can really be a significant contributor to further cost improvements. So we'll continue to fight and work this -- but the 10% is clearly colored by the inorganic moves we have done. Anders Opedal: Yes. So -- and thank you for that CapEx question, Martijn. And let me elaborate a little bit how I think around this because you probably see now that several times, we have taken down the renewables and low-carbon solution CapEx. And it's not necessarily because we have done any inorganic moves. It's also because we have not been successful in some of the bidding because we have raised the bar for winning future CFDs. And a couple of years ago, we had several projects inside our CapEx outlook that is now not inside the CapEx outlook due to deliberately not being successful in those auctions. So a more positive view some years ago, as we said during the �rsted acquisition of 10%, we found it more value creating at that point in time, do an inorganic move than do organic move. This -- we have further taken down the CapEx for offshore wind, but also on onshore renewables. A couple of years ago and last year, we had a much more positive market view and direct discussions with customers for CO2 highway and the hydrogen project in Eemshaven, which are now pushed further out in time. And actually, the hydrogen projects in Eemshaven is stopped before FEED, and we will not move forward. And in these areas, I don't think there are many inorganic moves to be done that will create value. So you should not expect us to work much on this. We will continue to work on being a leading company in terms of transportation and storage of CO2, building on Northern Lights 1, 2 and Endurance, but we will not make investments before we see -- we have long-term contracts, we have seen costs coming down and we see profitable projects. And that means that there needs to be a better market than we see today. Bård Pedersen: Thank you, Martijn. Next one is Nash Cui from Barclays. Naisheng Cui: Two questions, please. The first one is on your upstream reserve life. I wonder how do you think about a reasonable level of upstream reserve life in the medium to long run, please could better technologies like AI to help extend base? Then my second question is on �rsted. I think earlier, you mentioned that you could collaborate more with �rsted in kind of different types of potential structures. And I wonder if you could elaborate what you mean by the potential structures? Anders Opedal: Well, you have seen what we have done, just an example with Shell in U.K. There's always way to work together to create value for both shareholders. But there is no discussion at the moment, but we see that a further collaboration with �rsted could benefit both companies, but nothing new to elaborate today. When it comes to reserve life, I think this will also -- the ROP will be affected in the years to come that we have many more exploration wells, smaller discoveries and faster time from discoveries to production, meaning that the ROP will be lower than traditionally when we had the big elephants on the Norwegian continental shelf. At the same time, we are comfortable with our ROP where we see it today around 7 because we have so many exploration wells, we have discoveries. And last year, we had 14 discoveries, adding in total 125 million barrels in new resources. Lofn and Langemann, which is in Sleipner area is in an area where we thought there was nothing more to be found, but new technology, new seismic, use of AI has enabled us to make more discoveries. We have seen the same in the Ringvei Vest area. So we will continue to implement AI in exploration to ensure that we are able to discover new resources that was overseen in the past that we now can drill and bring to market in a quicker way. And by using AI, not only on exploration, but also in operations, and so on. We saved $130 million last year, and this is accelerating. So as Torgrim said earlier, we are really focusing on implementing AI to create value in the company. And this is something that you will hear more about in the future. Bård Pedersen: Next is Jason Gabelman from TD Cowen. Jason Gabelman: I wanted to first go back to the Empire Wind guidance. And I'm wondering if the $600 million of cash flow, is that what Equinor expects to receive? Or are there going to be some repayments on the project financing that are going to minimize that in the earlier years? And I wonder if you have a similar number for the Dogger projects. And then my follow-up is just on kind of broader exploration opportunities beyond what you've discussed. And we've seen companies kind of going back into regions where fiscal terms have improved like the Middle East and West Africa. I wonder if you look at those regions as potential opportunities for the company to exploit or given kind of the lack of footprint in those regions, is it not a core focus? Anders Opedal: Yes. I'll start with that question, and you can do the $600 million and the synergy effects there. So basically, what you have seen, what we have done in the international oil and gas portfolio is to focus it. We were in 30 to 40 countries, high cost, high exploration cost. And we have concluded that we were not successful with that strategy, adding too much cost and too little of progress in putting new resources into the inventory. So we have worked very hard to focus and building an attractive exploration portfolio in those focused areas like in Angola, in Brazil and in U.S. offshore. And of course, Bidenor East Canada, we're working on the Bidenor field, where this will also have attractive exploration opportunities around it, similar to what we see on Castberg and other new fields. Then, of course, we will, of course, always be open for ideas and value-adding exploration activity outside this core, but the bar is high. We will not have a global exploration strategy moving around in all parts of the world. We have areas where we see now we have learned the basin. We have experience, and we think we can expand quite a lot on that one. Brazil, for one instance, by Bacalhau, the Raya, we have an attractive exploration opportunities there now, the neighbor block to the Bumerangue discoveries for BP. We have a block close to Raya, and we're maturing up to see what kind of exploration program we can have in that area. And next -- and in this year, we will actually also drill exploration wells in Angola. So we are curious about other areas, but we'll have most of our focus in the focused area. Torgrim Reitan: And then Jason, on the $600 million in cash flow related to Empire Wind, that is related to our equity as such. There's no sort of money of that, that goes to the lenders. A couple of things. There is a portfolio effect in addition to the cash flow within the project. And that is related to that the depreciation that we have in Empire Wind goes into the IFRS results and the minimum tax in the U.S. is based on IFRS results. So it sort of reduces the minimum tax payments in the states as such. So there's a portfolio effect coming on top of the direct cash flow in the project as such. Bård Pedersen: Just to clarify in the CFFO, the interest payment is included, but not the payment to the lenders, as you said. Thank you, Jason. Kim Fustier from HSBC is next on my list. Kim Fustier: I had a couple on the NCS, please. Firstly, I believe that back in November, you announced a reorganization of your NCS business along centralized functional lines like subsea drilling, et cetera. Could you give a bit more color on this? And how does that move help to set you up for a future on the NCS with fewer big developments, but more small developments? And then secondly, could you give an update on a couple of pre-FID projects, Wisting and then Bay du Nord in Canada, where there seems to have been some technical progress lately? Anders Opedal: Yes. Thank you. So the Norwegian continental shelf is changing. With after Johan Sverdrup and Bacalhau, we have, as I said, much more smaller discoveries, smaller fields. Most of the developments will be now subsea tie-in projects. We actually have 75 of those in our portfolio over the next 10 years. So it's about making sure that we're able to execute on these projects faster. We are going -- that we can drill more exploration well faster, and we can create more value. So then we have actually started with looking into how we work. how is our work processes, all the way from working together with partners, internal approval processes, field development processes for subsea tie-in and so on. We have looked at 70 work processes, how to -- for drilling to development and so on. We have simplified those work processes, and we have looked at them together such that all these processes are streamlined end to end. And just to say a change that I will do, instead of making 7, 8 individual decisions on these projects one by one, we will group the decision. And twice a year, I will make a lump decision of several projects, enabling faster decision-making processes and ensure that we're able to move this project faster. Based on changing the way we work, we are also reorganizing both the project organization, the drilling organization and the operation units on the Norwegian continental shelf, not offshore, but all the onshore function, enabling to work according to the new simplified work processes. So this is actually one of the largest changes we have done developing the Norwegian continental shelf since we established the StatoilHydro company and merged StatoilHydro back in 2007, 2008. So it's actually changing the way we work because the geology and the reserves on the Norwegian continental shelf changes. And what do we want to achieve? Well, we want to move time from discovery to production from 5 to 7 years to 2 to 3 years, and we need to increase the volumes that we are able to find during exploration, meaning that we need a 200 to 300 efficiency gains on the Norwegian continental shelf. When it comes to Wisting, this is far in the north in the Barents Sea, challenging projects. We're working hard to simplify it. We have made a lot of progress in that respect. We will work on concluding on the concept during first half of 2026 or in 2026 and then move towards hopefully a DG3 during 2027. But let me underline this. We are not schedule driven. This is a project where we have to make sure that this is the right project, right financial, right breakeven, NPV, and we have everything in place because this is a very, very challenging project. On the Bay du Nord, we are approaching also a concept selection at what we call Decision Gate 2. We have a good engagement with local authorities and the government of Canada to -- so we can work together. This is a very good project. We have worked well together with suppliers for a long time to take down the cost and the breakeven as much as possible. And if we are successful now over the next months, then we can bring it towards an investment decisions over the next -- over the next years. And both these projects, if we are successful, will contribute to high production beyond 2030. Bård Pedersen: Thank you, Kim. I have a few left on my list, and I want to cover as many as possible. So I ask that you limit yourself to one question to give as many as possible the opportunity. Next one is Chris Kuplent from Bank of America. Christopher Kuplent: I'll keep it to one question for Torgrim, and please forgive me for some quick mental math. But when you set your $1.5 billion buyback, are you effectively arguing over the course of '26 and '27, considering the lumps and bumps in your CFFO as well as CapEx, you're targeting to be free cash flow neutral after dividends and buybacks. Am I putting too many words in your mouth? Or is that a fair characterization of what you're trying to do over the next 2 years? Torgrim Reitan: Well, Chris, I think I need to be very precise here. So I mean, you're on to it. So clearly, you should look across those 2 years when you think about sort of our free cash flow generation that we have available to cash dividend and share buyback. We aim to run with a solid balance sheet. However, we are going to lean on the balance sheet in '26, well aware that next year is a larger free cash flow. So it makes sense to look across those 2 years. And we have done that when we have set the share buyback level for '26 as such, we have. Bård Pedersen: Thank you, Chris. Matt Lofting, JPMorgan. Matthew Lofting: Just one on Empire Wind and read-throughs from it. I mean it seems Equinor has done a good job keeping the project execution on track amid the past hold orders. But I just wonder how the company reflects on implications from this and having retained 100% equity stake through it for best assessing risk management and risk-adjusted returns, let's say, on future capital allocations. Are there learnings that are emerging from Empire Wind for optimal sizing, taking into account perhaps above as well as belowground factors? Anders Opedal: Thank you. That's a really good question. And yes, this is definitely something to reflect on. And we normally don't take 100% in any license, not on oil and gas and not in offshore wind. But due to a deal with BP, they took some and we took this. We derisked it somewhat with higher strike prices with a financing package. And then as you have seen, the political risk with the new administration was higher than anticipated. This is a trend we see now in several countries that energy investments are more and more politicalized and polarized. And we see it in Norway. We see it in U.K., we see it in U.S. And definitely, for us, this brings some reflections about what is the above-ground risk you can take. And for myself, I reflected quite a lot about to see bipartisan support for future projects. If there is a kind of a strong division for potential projects, then we need to think twice and really understand the political risk. And this is something new. It's not only in U.S. This is something new that we have seen lately in several countries. And kind of we need to adapt the learning, and we need to bring into future decision processes definitely. Very important question you raised there. And with the political changes we have seen, which were kind of outweighted all the other factors that was reducing the risk, we would have probably thought differently about Empire Wind in the past. Bård Pedersen: Thank you. We are on the hour, but let's take one more and hope is short and then we'll round it off, and that is you, James Carmichael from Berenberg. James Carmichael: Just one last quick one, I think. Just again on Empire Wind. I was just wondering if you could clarify your sort of best case estimate on the timing of the underlying court case and when we might be able to sort of put any uncertainty to be around sort of future hold orders, et cetera. Anders Opedal: Yes. This is a little bit early to say kind of because it's a judge in U.S. to decide that timing when this -- the merits of the case will come up for the court. There's been indication that will happen fairly quick with some couple of months, and that gives us opportunity to elaborate on the case in a good way. I just want to also remind you that all the 4 other operators we're doing exactly the same thing, challenging this in court and all of them were granted a preliminary injunction. We mean that this stop-work order was unlawful. And at least with so consistent preliminary injunction, I think also we have a strong case moving forward. But I'm an engineer and not a lawyer. So -- but yes, we are moving forward with a strong belief that we will have a good case in the court, strong case. Bård Pedersen: Thank you. I would like to thank you all for participating and for asking your questions. We didn't manage all the way through the list, but I want to be respectful for everybody's time. And as always, the Investor Relations team remain available for any follow-up questions during today or later in the week. Have a good afternoon, everybody, and thank you for joining.
Operator: Good day, ladies and gentlemen, and welcome to TomTom's Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn over to your host for today's conference, Claudia Janssen from Investor Relations. You may begin. Claudia Janssen: Thank you. Good afternoon, everyone, and welcome to our conference call. In today's call, we will discuss the fourth quarter and full year 2025 operational highlights and financial results with CEO, Harold Goddijn; and CFO, Taco Titulaer. Harold will begin with an update on strategic developments. Taco will then provide further insight into our financial results, our Automotive backlog and our outlook. After their prepared remarks, we will open the line for your questions. As always, please note that safe harbor applies. And with that, Harold, let me hand it over to you. Harold Goddijn: Yes. Thank you very much, Claudia, and good morning, good afternoon, everybody. 2025 was an important year for TomTom as our product strategy clearly matured and we gained commercial traction. We introduced several new products with our Lane Model Maps standing out as a major milestone. Orbis Lane Model Maps provide lane-level intelligence, including geometry and lane markings, but at a true urban scale. And by leveraging our AI-powered map factory, we can now produce lane accurate maps with exceptional efficiency and freshness, and this has been proven to be a differentiating capability. A strong validation is that we secured a record amount of new business, and that includes a collaboration with CARIAD where TomTom Orbis Lane Model Maps were selected as a core component of the automated driving system supporting the Volkswagen Group brands. In Enterprise, Orbis Maps broadened and diversified our customer base. In the beginning of 2025, we announced a new cooperation with Esri, through which we provide maps, traffic data to support businesses and governments with location intelligence, addressing various use cases from maintaining critical infrastructure to analyzing traffic flows. And more recently, we deepened our global partnership with Uber, expanding our collaboration to enhance on-demand travel experiences worldwide. Looking ahead to 2026, I'm confident that continued advancements in our product portfolio will further strengthen our commercial traction across both our Automotive and Enterprise business, supporting top line growth over time. We will continue to expand and enhance our product offering, and we will make it easier for developers and for businesses to access our data, which will support future growth. We see meaningful commercial opportunities emerging in automated driving and infotainment as well as in high potential verticals such as insurtech and state and local government. Thank you very much. This is my part of the presentation. I'm handing over to Taco. Taco Titulaer: Thank you, Harold. I will cover our financial performance, the key trends we're seeing, an update on our Automotive backlog and our outlook. After which, we will take your questions. Automotive IFRS revenue for the fourth quarter amounted to EUR 77 million, down 3% year-on-year. Automotive operational revenue was 12% lower compared to Q4 last year. The Enterprise business delivered EUR 39 million, a 10% decline versus the same quarter last year. Approximately half of this decline is explained by a weaker U.S. dollar versus the euro year-on-year as around 3/4 of our Enterprise revenue are U.S. dollar-denominated. The remainder of the decline reflects a continued phase out of a large customer, partly offset by a broadening of our customer base over the course of the year. Gross margin was 89% in the fourth quarter, a 2 percentage point improvement compared with Q4 2024, mainly driven by a lower proportion of hardware in our revenue mix. Operating expenses were EUR 110 million, a reduction of EUR 21 million compared with the same period last year, reflecting the combined effect of capitalizing development costs associated with our Lane Model Maps and disciplined cost management. For the full year 2025, we recorded group revenue of EUR 555 million, 3% lower than in 2024. Automotive IFRS revenue was EUR 323 million, down 2% from last year due to lower car volumes at some customers and the phaseout of certain car lines, partly balanced by new model starting production. Operational revenue in Automotive dropped 1%, staying largely stable versus 2024. Our Enterprise revenue for the year was EUR 159 million, 2% lower year-on-year. For the full year, the picture is similar as in the quarter, normalized for the currency fluctuations. Enterprise revenue showed a marginal increase compared with last year. For the full year, gross margin was 88%, an improvement compared with 2024. This continued shift away from consumer hardware structurally strengthened our gross margin from 85% in 2024 to 88% in 2025, and we expect it to move north of 90% in 2026. Operating expenses decreased to EUR 489 million, a EUR 19 million reduction, same as for the Q4 trend. This reduction was due to capitalization of our map investment, lower amortization charges and reduced personnel costs from the second half of 2025, partly offset by the reorganization charge booked in Q2 2025. Looking ahead, the quarterly OpEx run rate entering in 2026 will likely be a few minutes -- a few million euros higher than what we saw in Q4. But for the year as a whole, we expect the total operating expenses to remain below 2025 in 2026. Free cash flow, excluding the cost for the reorganization we announced halfway in the year, EUR 19 million. This was an inflow of EUR 32 million compared with EUR 4 million outflow last year. Having covered our results, let's move on to the Automotive backlog. Our Automotive backlog at the end of the year reached EUR 2.4 billion, a net increase of EUR 300 million compared with the end of 2024. Our Automotive backlog represents the expected IFRS revenue from all awarded deals. Accordingly, the backlog decreases as revenue is recognized and increases when new deals are won. Its value can also fluctuate when customers revise their vehicle production forecast and with ForEx revaluations. The increase in backlog this year was driven by a record level of new deals. Our book-to-bill ratio was well above 2 last year, partly offset by negative impact from ForEx revaluations, which has a more pronounced than usual effect on the backlog valuation. A large portion of the Automotive revenue we expect to report in 2026 and '27 is already covered by the backlog generated from prior year's order intake. The majority of the value from the 2025 order intake is expected to start being recognized from 2028 onwards. From a product perspective, we see Automotive RFQs increasingly gravitating towards Lane Model Maps, the maps that enable autonomous driving functionality and support a growing range of advanced safety features. The products accounted for approximately half of last year's order intake, and we expect this [ should ] continue to grow. OEMs are clearly increasing their product and engineering focus in this area as Lane Model Maps enable both improved vehicle performance and meaningful differentiation. Our strong positioning in this area reflects a decade of sustained investment in these capabilities, and we're now seeing those investments translate into tangible commercial results. An additional benefit is that securing Lane Model Maps deals opens the door to road model map awards for the navigation use cases, supporting further market share gains. Now let's move to the 2026 outlook. Looking ahead to 2026, our revenue will reflect the transition of some customers. However, this impact is temporary. 2026 group revenue is projected to be between EUR 495 million and EUR 555 million, with Location Technology contributing EUR 435 million to EUR 485 million. We expect our operating result to improve year-on-year, while free cash flow is expected to turn temporarily negative due to the sustained investment in our Lane Model Maps. Operating margin is expected to be around 3% of group revenue. A return to top line growth is foreseen in 2027. Higher revenues combined with disciplined cost control are set to drive a further step-up in operating margin as well. To conclude, let me summarize our prepared remarks. We closed 2025 with a strong strategic momentum, marked by a record Automotive order intake and an expansion into automated driving. Despite modest top line declines driven by market conditions and customer transitions, EBIT and cash generation improved meaningfully. With an expanded EUR 2.4 billion Automotive backlog, new product launches and strengthening commercial partnerships, TomTom enters 2026 well positioned for a return to growth in 2027. And with that, we are ready to take your questions. Please, operator, please start the Q&A session. Operator: [Operator Instructions] And our question come from the line from Marc Hesselink from ING. Marc Hesselink: Yes. I have a couple of questions on the lane model. I think this is the new product versus the HD Maps that you previously had. But I think under the hood, a lot changed in the way you build your process, you build your map, how you can integrate with the client. Just if you can explain how this product currently looks like? And also how are your clients going to integrate it? And if you can also talk about what is your competitive position there? Is this now something that is really unique for TomTom that none of the competition has something like this? And if you then compare it, there's always sometimes still the debate between for this kind of functionality, do you need a map, yes or no? What's the status there also with things like the redundancy of the safety features? Harold Goddijn: Yes, Marc, thank you. Yes. So the lane model is fundamentally different from a road model map because it is a representation of the actual road and all the lines on that road and the dividers and whatnot. So you get a replica encoded of what is the road surface, what the road surface looks like. And the problem with building that map is that it's always been very expensive and not -- didn't scale very well. But with new advances in technology and new data that are becoming available, we can now produce those maps to a high degree of automation, not completely automated, but there's a high degree of automation is possible now. And that means that it's becoming economically viable to do this on all roads, not just the motorways. And it also means that you have a process for upgrading and change detection. So you can build maps that are fresher. All those capabilities are critical for self-driving and automated driving. We see that those maps are used in those systems as not only as backup, but also as a sensor. The challenge for self-driving technologies is to reduce the number of interventions of the driver of the vehicle and maps data play a very critical role in reaching that objective. Marc Hesselink: Yes. And the competition at this stage? Harold Goddijn: Well, so we don't have full visibility, but we believe that the method that we are deploying is novel, differentiating, leads to better results, scales better than what our competitors are capable of producing. Marc Hesselink: Okay. And if we look at the client side, you obviously have a big success with the CARIAD. But what about the discussions with other OEMs? Is this something that you -- I'm sorry. Harold Goddijn: Yes, go on, Marc. Marc Hesselink: Yes, I said -- and I wanted to add to -- do you speak to many other clients, including also the Chinese OEMs? Harold Goddijn: Yes. So the interest is coming from a broad range of car brands. People of carmakers want this. They can see the value of having that dataset available for the self-driving function, and that is broadly shared amongst all our customers and also potentially new customers. So we see a profound deep interest in understanding what's going on and how this technology can help them to make those cars and bring the level of automation to the next level. And next to that, we also see interest from software developers who are developing the self-driving software stack. There are a number of independent software developers who are doing this, but some based in -- mostly based in China. And they also show strong interest in understanding what this technology can bring and how it can help them to mature their own technology stack. Operator: [Operator Instructions]. Claudia Janssen: Let me -- if there's no -- I see -- if there's no further questions, let me give the opportunity to some of the analysts if they want to take the questions. If not -- no. If there's no additional questions, I want to thank you all for joining us today. And operator, you may now close the call. Unknown Executive: There is... Claudia Janssen: Oh, sorry. Andrew, sorry. Operator: I have a question that's come through now. So we are now going to take the next question from Andrew Hayman from Independent Minds. Andrew Hayman: Yes. Could you maybe give some guidance to how negative you think the free cash flow will be in 2026? Taco Titulaer: Yes. Thank you, Andrew. So 2 things I want to say about that. One is -- the second thing is to answer your question. But the first thing is that we introduced new guidance metrics in 2020. So we gave guidance on the top line and the bottom line. The top line was the group revenue and the Location Technology revenue. And the bottom line, we chose free cash flow because free cash flow at that time was the best tracker of our profitability. That had to do with the disparity -- the difference between operating and reported revenue in Automotive and the big delta between amortization and CapEx that we saw in the OpEx line resulting from the acquisition of Tele Atlas. Now both effects are kind of gone. So you also saw last year that reported revenue and operational revenue in Automotive is at parity. They're kind of almost the same. And also, we have -- we don't have any amortization left that's related to the Tele Atlas acquisition. So we want to normalize our guidance towards a revenue and an EBIT forecast. And that said, as we also have -- and then coming into your second or your primary question, the fact that Automotive is declining next year temporarily and we sustain our investment at the same level as we had last year, we will see free cash flow being negative in this year. How large it will be, I don't know exactly, but I expect it will be above EUR 10 million, but not much more than that. And then if our revenue, our top line is recovering in 2027, I expect that free cash flow will be positive again as of 2027 onwards. But an official guidance will follow in 12 months from now about that. So we'll continue to provide direction about free cash flow, but the primary guider or primary KPI for profitability will be EBIT. Andrew Hayman: Okay. And then in terms of the bookings that came in, how much of that is new customers? And how much is just more business from existing customers? And then maybe just tied in with that, how does the funnel of business look for 2026? Is there going to be -- is it a bit quieter after so much activity in 2025? Taco Titulaer: Well, yes, so if you look at order intake, you can make a 2x2 matrix. In the horizontal, you say existing customers and new customers. On the vertical, you say lane model or road model, where lane model is the automated driving and safety use cases and where road model is more for the driver itself to navigate from A to B. What I already mentioned in my prepared remarks is that what we've seen is that if you break down the order intake of last year that roughly half of that order intake is related to lane model. And that percentage will only grow further. So also for 2026, we think that the proportion of lane model RFQs and potential wins will be tilted towards lane and not so much road. Road models can be a tag-along deal. Increasingly, OEMs want to focus on securing the right quality and the right vendor of lane models. And also that gives us opportunities to also secure extra deals in road modeling. The majority -- yes, CARIAD is an existing customer, of course, because we already do software with them. So in that sense, the majority of the order intake was with existing customers. Harold Goddijn: But I want to add to [Audio Gap] first time that we deliver map data at scale to the VW Group. Taco Titulaer: Yes, that's different. But before it was navigation software and traffic, et cetera, but now it is also including map data. Andrew Hayman: Okay. And how does the funnel of potential sales look for this year? Because it looks like -- I mean... Harold Goddijn: There's a broad and deep book of opportunities out there, not dissimilar from 2025. So the activity is really -- is there from what we can see now. But what we also have seen in 2025 is that timing is very difficult to predict also because of ambiguity in product planning in all sorts of market conditions. But I think the way we look at it now, there is substantial opportunity available again in 2026 for further building of the backlog. And there are also opportunities available to us for extending and growing our market share. Operator: And the questions come from the line of Marc Hesselink from ING. Marc Hesselink: A follow-up. One on the Enterprise segment. I think in previous calls, we've discussed a lot about the momentum for the small clients being quite good. But then for the bigger, longer sales cycles, is that still ongoing? Are you still talking to these bigger potential clients? And would we expect something beyond '26 in the '27 period? Is that likely? Harold Goddijn: I don't think there's -- we don't anticipate a big shift in market opportunities in 2026. No extraordinary, but we think that the momentum we have to an extent in the long tail opportunities, that will continue throughout 2026. The composition -- yes, so there's a lot to go after in -- also in the Enterprise sector. Marc Hesselink: Okay. And -- but the big clients, they sort of stick to their own products or... Harold Goddijn: Well, we have a good market share with the big tech companies already. There are not that many of them, but our market share there and our representation with big tech is significant. So the growth and the expansion need to come from companies below that tier. There's a lot of them in the EUR 10 million kind of category. There are a lot of them in the -- between EUR 1 million and EUR 10 million category that are available to us to win. Marc Hesselink: Okay. Okay. That's clear. And then the second follow-up was on -- you mentioned also for next [ year, so '27 ] to be cautious on the cost side. And I just want to understand that a bit because I think that you say you're moving towards the more automated process. It's almost now already almost fully automated. Is that something that you can still take a bit of steps there to further automate it and at that stage, decrease the cost a bit? Harold Goddijn: Yes. Well, we -- so there's a number of things that we can achieve through -- on the cost side. I think the most important one is that our product portfolio is maturing and coming together. And we're more product-driven than in the past. And that means that we can do things more effectively, better at higher quality and we can leverage that software much better than we've ever been able to do in the past. We see also opportunities to further leverage the power of AI, especially in the engineering side. We're making some meaningful progress in that area. So the combination of a simpler product portfolio at a higher quality that is reaching completeness now after a long period of transition, those are all indicators that we can do things more faster at higher quality, but also with -- allow us also to keep a lid on the cost and not let that grow. There will be additional costs in maturing lane level product, as Taco already indicated. But all in all, I think we are in a good position not to let the cost and the OpEx run away from us, but rather contain it and manage it carefully without that giving strong limitation on our ability to get things done. Claudia Janssen: Okay. With that, I want to thank you all for joining us today. And operator, now you can really close the call. Thank you. Operator: Thank you. This concludes today's presentation. Thank you for participating. You may now disconnect.