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Operator: Good morning, and welcome to PayPal's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Sarah, and I will be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, PayPal's Chief Investor Relations Officer. Please go ahead. Steven Winoker: Thanks, Sarah. Welcome to PayPal's Fourth Quarter and Full Year 2025 Earnings Call. Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses as we see them today. As described in our earnings press release, SEC filings and on our website, those elements may change as the world changes. Over to you, Jamie. Jamie Miller: Thank you, Steve. Good morning, everyone, and thank you for joining the call. Before we turn to our full year and fourth quarter, I want to address the leadership announcement we made earlier this morning. The Board has appointed Enrique Lores, who was most recently our Board Chair, as the next President and CEO of PayPal effective March 1 to accelerate execution and bring greater discipline to how we implement our strategic priorities as we enter our next phase of growth. I want to thank Alex Chriss for his leadership and his many contributions to the company. It has been a pleasure working with him, and we wish him the very best. At the same time, we recognize as a company that our execution has not been what it needs to be. We have not moved fast enough or with the level of focus required, and we are taking immediate steps to address that reality. The Board's appointment of Enrique reflects a clear commitment to strengthening performance. He is a seasoned chief executive who brings deep experience driving customer-centric innovation and disciplined execution, simplifying complex businesses and leading large-scale transformations. We are fully aligned on the path ahead. During the brief transition period through early March, as Enrique steps away from his role at HP, I will serve as interim CEO, and Steve will partner with me leading our finance function to ensure continuity and maintaining momentum. Effective immediately, Board member, David Dorman, will take on the position of Board Chair. With that context, let's turn to our full year and fourth quarter 2025 performance. PayPal delivered solid 2025 performance across multiple dimensions, and I'm confident about our path forward. Last February, we held an Investor Day outlining our transformation strategy. One year later, there are elements working very well, but there are also areas pacing below our expectations, primarily within branded checkout, which I will spend much of my time discussing today. First, let me address the areas performing well. In 2025, Venmo revenue grew approximately 20% to $1.7 billion excluding interest income. Total active accounts surpassed 100 million, accompanied by 14% growth in ARPA for our monthly actives. We've turned around our Enterprise Payments business, delivering 7 consecutive quarters of profitable growth and a return to double-digit volume growth in the fourth quarter. These two businesses were once small contributors to profitability. In 2025, they drove nearly half of our 6% transaction margin dollar growth. In buy now, pay later, we delivered over $40 billion in TPV in 2025, growing more than 20% year-over-year. Additionally, we've made progress building new long-term growth drivers: omnichannel, agentic commerce, crypto and wallet interoperability. Where we haven't made the same progress is in online branded checkout. We've reimagined a product that had been stagnant and underinvested in for years, creating a new value proposition for merchants and consumers, but we were too optimistic about how quickly we could drive change and customer adoption across a massive global user base. The results are not yet where we expected them or want them to be. Let me update you on where we are, what is working and the steps we're taking to get back on track. For the past few years, we have delivered consistent mid-single-digit TPV growth. However, in the fourth quarter, online branded checkout TPV grew 1% on a currency-neutral basis, down from 5% in the third quarter. The 4-point deceleration was more than we expected and was concentrated in three main areas, each contributing roughly 1 point or so to the slowdown. First, U.S. retail weakness. We saw pressure across our retail merchant portfolio, particularly among lower and middle income consumers. While part of this can be attributed to macro factors and a K-shaped economy, it's also clear that we need to do more to win with key merchants, particularly during high-volume shopping periods. Second, international headwinds particularly in Germany, which is one of our largest markets. Our German growth has moderated due to macroeconomic softness, normalization of our long-standing market leadership position and competition from alternative payment methods. Third, deceleration in several high-growth verticals, specifically in travel, ticketing, crypto and gaming, categories that had strong growth in the fourth quarter of '24 and continuing through much of '25. Cutting across all of these, we had operational and deployment issues that amplified the pressure. To date, our delivery process has started with building a better product and expecting merchants to adopt at scale because of conversion benefits. The reality is our merchants, especially the largest ones, have many competing priorities and require much more hands-on integration support than we anticipated, which has slowed our progress. Additionally, the combination of biometric adoption and competitive presentment have proven critical to branded checkout performance. So while challenges in the macro environment are real, we haven't executed as well as we need to, and our product deployment in the second half of the year was slower than we planned. Our analysis of our merchant base, competitive dynamics and where we are seeing the strongest traction has sharpened our view of resource allocation for 2026. This work in branded checkout has brought three priorities into clear focus: experience, presentment and selection. These are the areas where we see the greatest opportunity to restore momentum. We know that consumers engage more deeply and frequently when they have a frictionless experience. They choose us more often when our products are featured upstream at the point of purchase and they habituate when rewarded through loyalty, marketing and other programs. On experience, our focus needs to be on both ensuring a frictionless consumer experience through biometric and pass key adoption and that merchants have upgraded to our target experiences. On presentment, we need competitive placement, including upstream buy now, pay later messaging and second buttons. And on selection, we must deliver loyalty benefits using rewards and co-marketing agreements with compelling consumer incentives. On experience, we've created a great product experience that performs well across desktop and mobile. When a consumer vaults PayPal as their default payment method, it's seamless. No password or authentication is required. The wallet typically has multiple funding sources ready, and we deliver 95% or greater conversion on average, which is second to none in the foundational strength we are building upon. We need to make vaulting available with more merchants and take friction out of the initial sign-up and onetime checkout flow. For non-vaulted transactions, we're continuing to scale our redesigned paysheet experience globally, now covering more than 30% of global checkout transactions. Fully optimized cohorts show nearly 1 point conversion improvement, though adoption across our back book remains incomplete with the target experience implemented on only a subset of our global transactions. 2026 will be about continuing to scale with strategic merchants and partners at the same time that we drive biometric enrollment. As discussed before, biometric authentication amplifies the impact of our paysheet redesign and makes vaulted sign-up easier, driving 2 to 5 points of conversion improvement in testing with some of our largest and most complex merchants. On presentment, we're making good progress, including adding upstream BNPL messaging at more major merchants in the fourth quarter. When PayPal is positioned above competitors and the value prop is amplified with either co-marketing or pay later messaging, we see more than twice the selection rate compared to when we're positioned below. On selection over the past 2 years, we've built a more compelling value proposition for consumers. That includes launching new products like our debit card and expanding options such as buy now, pay later, repositioning PayPal as an obvious choice for everyday purchases, whether paying now or over time. The result is a more engaged and healthier consumer base. Power users, which are consumer accounts that transact more than 100 times per year, grew 5% year-over-year. PayPal mobile app use among online branded checkout users has increased from approximately 50% in January 2023 to more than 60% now, and we will drive that even higher by year-end. Consumers with recent app use are about 40% more likely to select PayPal during checkout the following week, underscoring the value of app engagement in shaping checkout preference. This approach delivers when fully deployed. When we look at Cyber 5 performance across multiple merchants including in retail, tech and entertainment, for those with our latest checkout experience, strong presentment, upstream BNPL messaging and co-branded marketing with attractive offers, PayPal performed well. On average, those merchants delivered very attractive double-digit branded TPV growth, significantly outpacing their local markets. That gives us confidence that we have the right playbook. It's just not deployed in enough of the right places. Over the past several months, we've realigned our checkout teams with full ownership and improved operating rhythms to speed decision-making and execution. Two themes will shape our efforts in 2026: focus and investment. This is one area where Enrique will really help. His track record of relentless, disciplined execution in performance improvement in complex business environments makes him ideally suited for this challenge. First, a relentless focus on the highest impact merchants. To date, we've been optimizing for every merchant, and that approach has slowed our ability to move quickly on what matters most. We're changing our approach to focus on strategic merchants, representing nearly 25% of our branded checkout volume today but could be much larger. In January, we formed dedicated teams to implement improvements across experience, presentment and selection for these merchants. Second, focus on implementing experience and biometrics together, not sequentially. In too many cases, we were deploying our redesigned checkout without biometric enablement, which does not deliver the full conversion lift we know we can provide. That's changing. We're now deploying experience and biometrics together as a package more consistently. When we integrate a merchant on to our latest experience, we will simultaneously run biometric adoption campaigns, targeting their consumer base. We made good progress in 2025, but there is more work to be done. About 36% of our consumers are now what we would consider checkout-ready, which means they have biometric authentication in our app or with a device pass key. This is a 15 percentage point improvement relative to the prior year, and our goal is to bring closer to half of our consumers to checkout-ready status by the end of 2026. Third is a focus on presentment. It is just as critical as experience. As I mentioned before, when we secure a competitive placement on a merchant site, we perform significantly better. It is early days in bringing BNPL messaging on to product pages, now visible to less than 15% of our traffic, but the data is convincing. When our buy now, pay later offerings are presented upstream and with a second payment button, we see more than a 10% lift in branded checkout volume. We don't yet have enough of these high-impact placements in market, which was amplified during the holiday shopping season. And that's front and center as we focus on branded checkout execution. In many cases, we're tying our economics directly to performance so merchants share in the upside. Fourth, a focus on giving consumers a reason to come back. Our checkout improvements help with conversion, but we can do more to drive repeat usage by combining rewards, buy now, pay later and app-led engagement to make PayPal the obvious choice for consumers time after time. PayPal Plus, our rewards program launching in Europe and in the U.S. in '26, enables consumers to earn and redeem rewards at checkout, creating the consumer flywheel we've been working to build. We're seeing early but still encouraging results from the U.K. launch late last year. In December, branded checkout TPV rose by mid-single digits year-over-year for U.K. users enrolled in PayPal Plus and their overall PayPal TPV increased year-over-year compared to nonenrolled users. This was achieved almost entirely organically before activating marketing, which speaks to the opportunity ahead. In parallel, we're launching a brand-new app this year, which will be a destination for buy now, pay later management, rewards tracking through PayPal Plus and personalized offers, all designed to drive app engagement, which leads to a better checkout experience. From an investment perspective for branded checkout, we're striking calculated deals with strategic merchants that create value for both sides. Our approach helps them tackle their greatest needs, whether that's improving conversion, lowering payment costs, acquiring new customers or co-developing solutions while simultaneously modernizing PayPal's experience and strengthening our presentment across their channels. These are important investments to make. When more flagship merchants are live with full experience, benefits cascade, we accelerate learnings, refine our go-to-market and unlock the brand halo effect from being optimized at scale on merchants consumers use most. Overall, we're focused on execution as we move through 2026 as our redesigned experiences scale, biometric adoption increases presentment improves and our rewards program and app drive the flywheel. We expect these initiatives to deliver improving results daily, weekly, monthly and build over time as they reach scale and produce measurable impact. I'll now briefly cover the progress on our other growth drivers where we are seeing strong success: scaling omni, growing Venmo, driving PSP profitability and scaling our next-gen growth sectors. Despite online branded checkout challenges, branded experiences TPV grew 4% in the fourth quarter. We're live with debit or Tap to Pay in the U.S., Germany and in the U.K. with positive initial results. Starting with the U.S., where the PayPal debit card was launched over a year ago. In the fourth quarter, TPV growth accelerated to over 50% and MAAs grew by over 35%. We're happy with this performance and learning from and scaling what worked in the U.S. to Germany and the U.K., where we now have more than 700,000 debit card MAAs combined. This includes unique reward offers, marketing investment, in-app prompts and making it easy to add the cards to mobile wallets. We're pleased with the initial progress of our omni initiative and see a clear path to extending that success as we move through 2026. 2025 was a breakthrough year for Venmo, evolving from peer-to-peer payments into a monetized commerce platform. We reached over 100 million active accounts and the progress is showing in our results. Venmo TPV grew 13% in the fourth quarter and monthly active accounts reached 67 million, up 7% year-over-year. Venmo debit card TPV was up over 50% and MAAs grew 50%. Pay with Venmo TPV was up 32% and MAAs are up 26%. Venmo revenue grew approximately 20% year-over-year to $1.7 billion in 2025. More importantly, revenue composition has shifted as more consumers are using Venmo for everyday commerce. Over the past 2 years, Pay with Venmo and Venmo debit card revenue has doubled. This mix shift is important to our overall transformation and positions Venmo for stronger profitability as we continue to grow. Turning to our PSP business. In the fourth quarter, we continued to build on positive momentum in our PSP business. Within Enterprise Payments, thanks to both progress on price to value and value-added services, we meaningfully expanded margins year-over-year, roughly doubling our net processing yield and significantly improving profitability. At the beginning of 2024, we had several value-added services but didn't consistently charge for them. We exited 2025 with 16 services that merchants are happy to pay for because they're designed to improve authorization performance or reduce costs. Value-added services adoption continued to scale through the year, and in the fourth quarter, we added incremental capabilities, including flex factor and authorization enhancement delivered through our open architecture partner ecosystem as well as Visa's pre-dispute resolution service through VERIFY, which will help to reduce merchant costs. We took our first omnichannel enterprise merchant live through Verifone, expanding to in-store payments where 80% of payments occur, qualifying us for RFPs requiring both online and in-store capabilities. Going forward, because of our relationship with Verifone, we can compete for those opportunities and grow our share of both online and in-store volume. This is the realization of the vision we presented at Investor Day last year, and we expect to add new merchants and expand volumes with our existing ones as a result. Let me quickly share some of our latest developments in agentic commerce. Our vision is to create a universally trusted catalog that AI agents can access, discover and transact with safely and securely. Through our Store Sync offering, we are already connecting early adopters like Abercrombie & Fitch, Fabletics, PacSun and Wayfair with agentic chat platforms to allow consumers to discover, evaluate and purchase items within the chat. We went live with agentic purchasing through Perplexity ahead of Thanksgiving, and we are now also live on Microsoft Co-Pilot. We are helping merchants connect with customers through new channels and remove friction from the checkout process. Store Sync is enabled through a partnership with Cymbio, which we have agreed to acquire to bring this technology in-house. Agentic won't materially impact 2026 growth. But as AI-powered shopping scales, our aim is to become the default payment option. This is only the beginning, and we are collaborating closely with the major AI platforms as we build agentic commerce capabilities together. Before passing to Steve, let me address the Investor Day outlook provided a year ago. The environment has proven more demanding than we anticipated, presenting both challenges and opportunities. E-commerce growth has been challenging in key verticals and markets. Competitive intensity has increased, and merchant adoption has been more complicated to implement than we anticipated. And our execution is not yet where it needs to be. While we're addressing those challenges, other parts of the business are delivering. Venmo is on track to exceed $2 billion in revenue ahead of plan. Our Enterprise Payments business returned to double-digit volume growth in the fourth quarter and buy now, pay later continues to grow rapidly. And entirely new channels like agentic commerce have emerged faster than anyone expected a year ago. For branded checkout, our focus is on narrowing the gap with the market over time. Following our fourth quarter performance, we need to prove that out in coming quarters and years. There are multiple ways for us to deliver profitable growth over the long term, and 2025 was a great example of that. But given everything I've outlined, we are no longer committing to the specific outlook for 2027 we laid out at Investor Day last year. For these reasons, we think it's prudent for now to provide financial guidance 1 year at a time. And Steve will speak in more detail about how we're thinking about 2026 as a starting point. The strategy I outlined today focuses on three fundamentals: experience, presentment and selection. And these critical changes to our go-to-market approach will lay the groundwork for a stronger, more competitive online branded checkout business over time. In closing, while we're not satisfied with our online branded checkout performance today, we are confident in the plan to stabilize and strengthen it. Importantly, we are executing with multiple competitive advantages. Our scale, our trusted brand, deep consumer and merchant relationships and diversified growth drivers give us resilience and flexibility moving forward. As we continue transforming into a commerce platform, our focus remains clear: drive innovation that scales, deepen engagement on both sides of our network, strengthen and unify our core infrastructure and deliver sustainable, profitable growth. As Enrique steps into the CEO role, he will bring additional operational focus and discipline to priorities underway. And together with the right assets, strategy and team in place, we believe PayPal is well positioned for 2026 and beyond. Steve, over to you. Steven Winoker: Thanks, Jamie. Moving to Slide 9. TM dollars excluding interest grew 4% in the fourth quarter. The drivers of that growth were broad-based, led by strong credit performance, PSP profitability, Venmo monetization and loss improvement across multiple products. This diversification was key in offsetting the headwinds to branded checkout that Jamie walked through. As a result, we delivered 6% TM dollar growth and 14% non-GAAP EPS growth for 2025. And we continue to have clear opportunities to drive durable profitable growth in the years ahead. Moving to the fourth quarter and full year financials in more detail. Total payment volume grew 9% spot, 6% currency neutral in 4Q and 7% and 6%, respectively, for the full year, reaching $1.8 trillion. 4Q revenue grew 4% on a spot and 3% on a currency-neutral basis. Full year revenue grew 4% on a spot and currency-neutral basis to $33.2 billion. Non-GAAP earnings per share increased 3% to $1.23 and 14% for the full year to $5.31. Compared to our fourth quarter guidance, non-GAAP EPS came in $0.04 below the low end of our range. This was driven largely by a higher-than-expected tax rate and slightly lower-than-expected non-GAAP operating income resulting from pressure on branded and the timing of OpEx. Adjusted free cash flow, which excludes the timing impact from the origination and sales of pay later receivables, was $2.1 billion and $6.4 billion for the full year. Turning to Slide 10. We continue to drive deeper, more active relationships with our customers. Monthly active accounts increased 1% to 231 million. Transactions per active account excluding PSP, which is a good proxy for engagement, maintained momentum with 5% growth. Moving to Slide 11. Total payment volume in the fourth quarter grew 9% at spot and 6% on a currency-neutral basis to $475 billion. Working our way down the page, branded experiences' TPV, which includes online checkout, PayPal and Venmo debit as well as Tap to Pay, grew 4% in the fourth quarter and 6% for the full year. While debit card and Tap to Pay spend represent a small portion of branded experiences volume today, they continue to grow rapidly, up 60% year-over-year. Venmo TPV increased 13%, marking the fifth consecutive quarter of double-digit growth. On an online-only branded checkout basis, volume grew 1% on a currency-neutral basis, impacted by the factors that Jamie discussed in depth earlier. I'll talk more about how we are planning for the current year shortly. Pay with Venmo and buy now, pay later continue to outpace the market, taking share from other payment methods and growing 32% and 23%, respectively. P2P and other consumer volume accelerated to 10% growth in the fourth quarter, reflecting the debit card and Venmo momentum I just mentioned. Turning to PSP. Volume growth accelerated to 8% from 6% in 3Q and 2% in the first half of the year. Within PSP, Enterprise Payments showed notable strength with volume growth accelerating to 12% due to a combination of growth and profitable front book business and high retention and growth alongside our existing merchant base. Driving higher attachment of value-added services will be a key focus as we move through 2026. Moving to more financial detail on Slide 12. Transaction revenue grew 3% on a spot basis to $7.8 billion and grew 3% for the full year to $29.8 billion. Other value-added services revenue grew 10% to $857 million and 14% for the full year to $3.4 billion, driven by strong contribution from merchant and consumer credit, partially offset by lower interest rates. Transaction take rate declined by 9 basis points to 1.65%. Excluding the impact of foreign exchange hedges, transaction take rate declined about 7 basis points. This output was driven by a combination of higher growth in Enterprise Payments, Venmo and debit card adoption as well as branded co-marketing investments. TM dollars ex interest grew 4% in the quarter and 6% for the full year. Growth was led by contribution from our credit and omni initiatives, improvements in PSP profitability and Venmo monetization. Branded checkout flow-through was relatively neutral in the quarter given the combination of lower volume growth and increased investment intended to drive engagement, habituation and incrementality over time. Within volume-based expenses, transaction loss as a percentage of TPV improved to 6 basis points, a notable improvement compared to an average of 8 basis points during the first 3 quarters of the year. This outcome is a testament to our team's ongoing work to continue to improve and strengthen onboarding, fraud prevention and risk management capabilities. Non-transaction-related OpEx increased 2% in the quarter as we continue to actively manage our cost structure while reinvesting in key growth initiatives. Non-GAAP operating income grew 3% in the quarter to $1.6 billion and 9% for the full year to $6.4 billion. Moving to capital allocation. In the fourth quarter, we completed $1.5 billion in share repurchases, bringing full year repurchases to a total of $6 billion. We also paid the company's first quarterly dividend of $0.14 per share. We ended the quarter with $14.8 billion in cash, cash equivalents and investments and $11.6 billion in debt. Moving to guidance on Slide 13 for 1Q and full year 2026. Let me start by walking you through some key assumptions. As we discussed last quarter and Jamie detailed earlier, we see a significant opportunity to drive consumer engagement, habituation and higher selection of PayPal through targeted investments across the portfolio. For 2026, we expect these targeted growth investments to represent approximately 3 points of headwind to TM dollar growth while driving durable long-term benefits in the years ahead. This spend encompasses the strategic priorities Jamie outlined: scaling new experiences, improving presentment, increasing consumer selection as well as driving adoption of new channels. About 2/3 of the spend is targeted directly towards branded checkout and buy now, pay later with the remainder allocated to areas including Venmo loyalty and agentic. What's important to call out here is our approach. While a portion of these investments result in lower upfront economics that will weigh on TM dollar and EPS growth in 2026, they are critical to fundamentally shifting our branded checkout product and positioning over the next few years and have attractive multiyear payoffs that will improve the durability of our business in the years ahead. We're being very disciplined about how and where we deploy capital and will adjust as necessary, leaving flexibility to lean into areas that are working. We're actively harvesting productivity across the organization and reallocating resources to the highest return opportunities. We have conviction in the impact these initiatives will drive. However, given the slower exit rate from 4Q and the time required to scale these programs, our guidance reflects slightly positive to low single-digit branded checkout growth for the full year as we rebuild the momentum Jamie mentioned. Turning to more specifics. For the first quarter, we expect low single-digit revenue growth on a currency-neutral basis, TM dollars to decline slightly or roughly flat, excluding interest on customer balances, mid-single-digit growth in non-transaction operating expenses and non-GAAP EPS to be down mid-single digits. For the full year, we expect TM dollars to decline slightly or roughly flat excluding interest and customer balances, approximately 3% growth in nontransaction operating expenses and non-GAAP EPS ranging from down low single digits to slightly positive. Our guidance assumes approximately $6 billion in share repurchases and at least $6 billion of adjusted free cash flow. As Jamie discussed, we are no longer providing the specific multiyear growth outlook we presented at our Investor Day a year ago. As it relates to branded checkout, our prior outlook assumed a more stable e-commerce environment and a certain pace of product rollout and merchant adoption. Neither has materialized to date as we anticipated. And while we can point to a number of constructive indicators, it's hard to call the precise time frame when we will see an overall inflection for branded. Branded checkout represents over half our profit dollars, and we're confident the product, channel and marketing investments we're making will drive improvement and acceleration over time. There are also multiple paths to deliver attractive growth. Venmo, PSP, omnichannel initiative and credit are all levers that can contribute to TM dollar and EPS growth alongside branded improvements. Our overall value creation framework centers on driving volume growth by closing the online branded gap with e-commerce, increasing penetration off-line and keeping MAA growth in customer engagement at the center of our KPIs. We are strengthening and investing in our core, building out new growth paths like BNPL and Venmo while staying at the forefront of next-gen growth drivers, including agentic, PayPal World, ads and crypto. We are also driving process improvements and using AI to leverage our cost base and redirect spending to innovation. All of this will help us deliver higher levels of EPS growth, grow free cash flow in line with net income and apply disciplined capital allocation to deliver durable growth and higher returns. The business has already proven an ability to deliver at least mid-single-digit transaction margin dollar growth and double-digit EPS growth even in a challenging branded environment. The investments we're making in 2026 are designed to strengthen that foundation and position us to sustain and build on that performance in the years ahead. We have the financial flexibility to make these investments while returning capital to shareholders and, under Enrique's leadership, we're confident in our ability to execute the action plan Jamie laid out. With that, let's go to Q&A. But before we open the lines, I'd like to ask everyone to limit themselves to one question so we can get to as many of your fellow analysts as possible. Sarah, please open the line. Operator: [Operator Instructions] Your first question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Just you went through a lot. I wanted to ask on just the change in the CEO and the timing here. Just maybe, Jamie, can you give us some assurance that the change is primarily to address execution rather than the strategy? Because I'm getting questions from investors asking if there's still risk of wholesale strategy changes once Enrique comes in that could delay or extend the turnaround further here. Jamie Miller: Sure, Tien-Tsin. So the Board's decision is based on execution. They have been discussing this for the past few months. And when you look at the company, there's really good progress across innovation in a handful of different areas in the company, and you heard us call those out in our prepared remarks. Having said that, our execution is just too slow. And both the Board and Enrique have been deeply involved in setting our plans strategically and around our initiatives, and that carries into what our execution plan is in 2026. And so when you look at Enrique, Enrique has a very deep track record in not only innovation, but operationalizing innovation at scale and driving really complex tech-forward transformations. And so his background and who he is around faster decision-making, clear prioritization, more disciplined execution, which really we need that leaning into branded checkout, I think it's going to be very, very helpful. And I think the other accelerant here that will be good is having been on the Board for 5 years, having been the Chairman for the past 18 months, he just brings a level of depth and immediate context, which really should help shorten the typical cycle that you'd have in a new CEO coming onboard. Operator: The next question comes from Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: I second Tien-Tsin's appreciation about all the granularity here. It sounds like you're quite confident in your strategy around modern online checkout and meaning you see the offering itself is pretty effective and compelling. The issue seems to be getting the merchants to engage and implement it. So how do you do that? How do you get them to adopt it? Is it a question of incentives? Is competition keeping them from engaging? Like what can you guys do to sort of force the issue a little bit? Jamie Miller: So engaging with merchants really takes on a lot of different flavors. And whether that's a large enterprise, a small business, merchants want different things. They want to grow their business. They want to bring in new customers. They want to improve conversion. And so honestly, every single conversation we have involves a different strategy with respect to how we approach it. And that can range from really driving our merchant integrations to the latest integration and getting more conversions, combining that with our consumers on biometrics and pass key. It can really lean into upstream presentment around buy now, pay later and again more customer acquisition strategy all the way over to how do we co-market together and how do we pull people in, customers to engage and habituate not only around us but, equally importantly, with them. And so all of that are parts of these discussions. When we've looked at what we've learned over the last several months, I think one of the big things we learned was that we have been trying to do this across all merchants all at the same time. And what we have done now is really reformulated our teams around dedicated, mission-based teams particularly for high-impact merchants and really leaning into the latest integration, really deploying experience and biometrics together and really going in with an aggressive upstream presentment strategy. And you heard me talk about it in my prepared remarks, but I think it's worth repeating that when we see merchants with the latest integration, when we see them with upstream presentment and a second button and with that co-marketing, like that combination drives markedly higher performance for us with our merchants. And we saw that in the holiday season. So there's multiple ways to win here with our merchants, but each is unique, and that's exactly why we're organized the way we are going into '26. Operator: The next question comes from Darrin Peller with Wolfe Research. Darrin Peller: Maybe just a quick clarification in terms of the timeline you'd expect some of these investments to help come to fruition. And just help me frame a little bit more on if you're expecting TM dollars and branded to improve in the back half of this year or is this more of a 2027 story? So in other words, exiting the year, should we start to see any evidence of success? And then a bigger picture question would just be your thoughts on balancing between really a growth company and capital return story. I'm just curious if that's changed at all in your framework of how you think about investments in the business, capital investments going forward. Steven Winoker: Darrin, why don't I tackle the first question on transaction margin and Jamie will handle the growth versus capital return part of the question. On TM, think about the full year, we talk about a slight decline. We talk about that really coming from a consistent contribution from PSP and Venmo, offset by the roughly 3 points of headwinds from those increased growth investments. And then also we have a 1 to 1.5 points of lower interest. There's a bit less contribution from omni given credit normalization and tougher comps. And then I would call DXO a neutral contribution given the slightly positive to LSC growth we're talking about. This is pretty smooth as we go through the year in the sense that you have our 1Q numbers that we lay out there. Those investments have already started. So they will hit us in 1Q and through the course of the year as opposed to us calling for kind of a back-end loaded year. We're not doing this at this point, and I think we're going to need increased visibility from each of these initiatives and the new incremental investments are performing. We learned a ton in the fourth quarter from the investments that we made, and those are incredibly helpful. We'll apply that through the rest of the year. Jamie? Jamie Miller: Yes. And then, Darrin, with respect to balancing between growth and capital return, listen, we've got a collection of really unique assets here. And our focus right now is on transforming this business and really growing the assets we have and investing organically. In addition to that, we've had a strong capital return profile over the last couple of years with $6 billion buyback, the initiation of a dividend and continuing that program into this year. The Board discusses and is involved with our capital allocation strategy on a regular basis. And part of Enrique coming in really is to lean into continuing to improve and grow our businesses, and doing that through prioritization through better execution and really being very choiceful about where we're placing our bets. Operator: The next question comes from Sanjay Sakhrani with KBW. Sanjay Sakhrani: I just want to follow up on some of the questions that have been asked, maybe just a little bit more embellishment on what's included and embedded in the 2026 outlook given it's a transition year. I guess when we think about the underperformance in branded volumes, some of it's been the lack of upgrading merchants, macro and then maybe others taking share. Like which parts can actually turn the corner as we move through 2026? And then just on Tien-Tsin's question, is it fair that Enrique was involved in the process of sort of setting the expectation? So we shouldn't expect a big change after he comes on? Steven Winoker: Why don't I start with your questions around '26, then I'll hand it over to Jamie for the second part of your question around the branded and Board decision process, Sanjay. First, just running down the kind of P&L for a moment for '26 to give everybody that color. We talked about a slight decline in TM. Ex FBO, that's roughly flat, call it, about 3% increase in OpEx for the year. That gets you to non-GAAP EPS of this low single-digit decline to slightly positive. GAAP EPS of mid-single-digit decline. Tax rate assumption, call it, 19% to 21%. And then we provided the free cash flow story when you move over there. CapEx, about $1 billion or so. And then within all of that, OVAS, about flattish for the year, low single digit, by the way, in 1Q. TEs, at a bit of a lower rate versus '25, so called out about 88 bps or so versus 89 this year. TL, in line with '25, so call that about 7.5 bps of TPV. And creditor loan losses of about 2.5 bps, which is another 0.5 bp or so. So those are the numbers, Jamie, do you want to hit on the kind of how to think about branded and then the Board decision? Jamie Miller: Yes. With respect to branded, as Steve mentioned earlier, when we execute on these investments, we have included the cost of investments but we have assumed minimal in-year benefit from those. And when you look at the traction side of it, certainly, the changes we're making in go-to-market and traction around all elements of merchant integration, upstream presentment, all those different pieces will begin to gain traction as we go throughout the year. As we go live and merchants go up, we test, we start to see where we can adjust and pivot and optimize. But that will just continue as we go throughout the year. What I'm really excited about is Enrique coming in. I think the prioritization element here for us is really important. We have lots of good ideas. We love to do lots of things. And I think us getting laser-focused on what to go after and where with respect to branded is going to help us get even more traction sooner. And then with respect to Enrique's involvement from a strategy perspective, look, he's deeply involved in it. He has helped shape and reviewed not only the capital allocation strategy, the investment priorities that support them, but also the 2026 guidance. And he is coming in focused on the acceleration of our plan and just continuity in building on the work of the team. Operator: The next question comes from Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: So obviously, the branded checkout piece is a function of both the consumer and the merchant experience. Maybe you could talk about whether -- and obviously, you're addressing both pieces. But do you think the shortfall is attributable to one side or the other? Obviously heard the slowness in terms of the modern checkout experience, et cetera. But I'm curious if there's attribution more on one side versus the other. And then just if you could drill down the consumer side, just core PayPal trends, account acquisition, TPA ex-PSP trends and then also the need to perhaps drive a more holistic experience versus the transacting experience on the consumer side. Maybe talk a little bit about how all that's resonating. Jamie Miller: Sure. Let me talk a little bit about the first part of your question, then I'll turn it over to Steve for the account trends and some of that. And then I can talk a little bit about loyalty and some of the other programs that we're really focused on in 2026. With respect to branded checkout, in the second half, we began to see some slowdown really in September, and that really persisted into the fourth quarter. We saw weakness in U.S. retail. People have talked a lot about K-shaped economy. And we're really a middle-income demographic as it relates to the PayPal brand. And so certainly, we felt that in a slightly more pronounced way than others. We've had moderating international growth, including in Germany, and deceleration in high-growth verticals. We've had really strong growth over the last 18 months in places like travel, ticketing, crypto, gaming, things like that. And not only did we have tough comps, but those slowed a bit in December as well. And so all of this has been amplified by execution, by slower product deployment. So when you level back up to sort of merchant versus consumer, I'd say it's a play of both. And really, it underscores our need to get our experience further out into the market with our merchants, the latest integrations and consumers using biometrics and pass key and the presentment that we talked about and really leaning into things like co-marketing and loyalty programs. Steven Winoker: Andrew, to your question on transactions for active or TPA. Ex-PSP, it was growth of about 5%, which is in line with prior quarters. Think of the consistency quarter-to-quarter in branded P2P plus improvements in Venmo. And then we continue to be encouraged by the strength on the PayPal debit card engagement front as well. So positive here. And maybe this just brings me back to talking a little bit about the focus on quality in our consumer base, and that's indicative of that, the strength in PayPal power users, the idea that we're really going for more and more depth of engagement with our customer base as a key differentiator as opposed to just simply adding folks who are not durable or we're not able to drive deeper with. Jamie Miller: Yes. And then just coming back to the loyalty question, which I think is really most relevant to the third question you asked. We have been or are introducing competitive rewards programs for both PayPal and for Venmo. Venmo, we launched a couple of months ago, it's a program called Stash. And it's changed our onboarding. The program is about stepping up in levels as you come in, really incenting behavior around using our debit card, stepping up to credit and more rewards the more you work in and around our Venmo ecosystem. It is super cool. The onboarding process is very engaging and catchy. And we've had really good progress in our first several weeks on that. The other piece is PayPal Plus. And this is something we've been working on for over a year, really doing deep industry benchmarking. We really want this to be a very competitive program we soft launched in the U.K. a couple of months ago. And so while it's early, we're seeing some good cohorts of results come through there. And this rewards you for not just what you buy online but also what you buy off-line in sending money to friends, dabbling in crypto, things like that and again rewards but also some pretty unique characteristics around it with special drops of access to whether it's a deal or whether it's some other thing. This will be a global multiyear rollout and part of the incremental investment we talked about. It began, as I mentioned, fourth quarter for Venmo and PayPal U.K. But really, I'd say, midyear to second half is when PayPal Plus will come out for us. Early reads, super encouraging. We're just seeing nice TPV lift up across consumer cohorts that have come onboard. But again, something we're pretty excited about. Operator: The next question comes from Harshita Rawat with Bernstein. Harshita Rawat: I think a question which is in investors' minds is whether the branded business can be turned around or is the shift has tailed. Besides the macro, you have intensified competition, e-commerce is aggregating into platforms, aggregate you a smaller share. I know you talked about presentment, experience and rewards as kind of the key areas of execution. And maybe, I guess, talk about upstream presentment. It seems like PayPal historically has been a premium offering. Competitors are catching up on value proposition. Does it all mean that transaction margin dollars and branded will come down as you focus on upstream presentment? There's a concern on price-based competition as well. And also it's hard to, at this point, to kind of narrow the range of outcomes in branded. I know you talked about Venmo and PSP profitability. Can PayPal grow earnings if branded doesn't improve from here? Jamie Miller: Yes. So there's a lot there. And maybe I'll talk first about our approach with merchants and then I'll move over to talking about sort of the multiple ways we can win. With respect to upstream presentment, and let me just talk generally about the investments we're making. These clearly are multiyear investments. You look at these kinds of programs, and these are deep, going into co-invest with our merchants to really shift how we perform for them and, candidly, bring more value to them. And so what you see in '26, we fully expect that this kind of investment level will be consistent as we go into the few years following. And we think it's really important because we've really got to lean into the product, both in terms of having to deliver what it needs to deliver but also remain competitive, as you mentioned. Having said that, when you look at the company, I think one thing that 2025 really illustrated for us is that we do have really strong assets across the board between Venmo, PSP, debit and credit. We've really diversified our revenue growth sources as well as our margin growth sources. And so even with a low mid-single-digit branded checkout profile in 2025, we delivered very solid transaction margin dollar growth. We delivered mid-teens earnings per share growth. And so I think there continues to be a lot of ways we can win here. And again, I'm particularly excited about the acceleration in our execution and the galvanization around that, that we'll see this year with both investment and with Enrique. Operator: The next question comes from Dan Dolev with Mizuho. Dan Dolev: My question is kind of going back to sort of buybacks versus investing. The key question I'm asking and we're getting from a lot of investors is, why not just focus 100% on the merchant and just kind of drive as much growth as you can? What is sort of the puts and takes of that? Because you do have like this very strong two-sided network that's really powerful and global. And so obviously, everyone sees the opportunity. So what prevents you from just going all in on that one? Jamie Miller: The most important thing we've got to focus on right now, Dan, is improving our own execution and doing that with the investment dollars we have today and, as we prove that out, increasing that or shifting that or reprioritizing and doing different things with it. And I think you've got to have a balance on that between merchants and consumers. I think one of the great things Alex did when he came in was really focus on the different cohorts of how we work in the market, which is large enterprise, small business and consumer. And having a dedicated consumer team was really important for us because we have really drilled into where and how we win, as Steve talked before, about power users versus active loyalists and just understanding our consumer cohorts better. We know that we win with consumers when we've got a great merchant product, but we also know that merchants win when we bring the value of the consumers and that whole consumer base to them as well. So we've got to focus on both. But clearly, in the investment dollars this year, it's clearly very merchant-focused. Steven Winoker: And Dan, I would just add that this debate and question that you're raising is one that we've debated, you and I and many other investors, over time. I think it's our view that you can't win without both. The consumer, you've got to bring strength with the consumer to these merchant negotiations and discussions. That's one of the major reasons merchants want to work with us. And at the same time, you need to bring merchants to the consumers as well. So both are absolutely critical. Operator: The next question comes from Jason Kupferberg with Wells Fargo. Jason Kupferberg: So I know Enrique hasn't officially started yet, but he's obviously pretty familiar with the company. So just wondering, are all options on the table here with respect to creating shareholder value, potential asset sales, et cetera? And then can you just clarify on the branded outlook for '26, I think you said slightly positive. But does that represent a little bit of an acceleration versus where you exited Q4? Jamie Miller: Yes. What we said on the branded outlook was that it would be slightly positive to low single digits. And when you look at January quarter-to-date, while the environment continues to be dynamic, quarter-to-date, we're running slightly better than we were in the fourth quarter. Turning to the question on asset sales, things like that. I guess what I'd say is that we are really focused on transforming the business and driving shareholder value. And right now, that means executing on our integrated strategy. We've got several unique assets. We've talked about that, Venmo, Enterprise Payments, things like that. And both are core to our value creation and are performing well and they reinforce them and they complement our portfolio. So right now, our current plan is to really drill into that. The best way to create value is to improve your sales organically, and we're going to be very focused on doing that. Steven Winoker: Sarah, we are past the top of the hour. So I'm just going to turn it over to Jamie. Any final thoughts that you have? Jamie Miller: Yes. So first, thank you all for your questions. Over the past 2 years, this team has laid important groundwork and built significant momentum with meaningful opportunities ahead. And at the same time, we operate in one of the most competitive tech sectors, which makes disciplined execution really important to fully realizing the competitive advantages of our scaled two-sided network. And I'm really proud of the progress our team has made, and I have strong conviction that we're on the right trajectory to accelerate growth. And again, I want to both thank Alex and welcome Enrique, who brings deep experience leading large-scale organizational transformations, along with strong innovation and operational discipline and a clear understanding of our current priorities. And his familiarity with the business and track record of execution is going to help us move faster and with greater clarity as we enter this next phase. And I look forward to supporting a smooth transition and sustaining our momentum. So thank you. Operator: Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone. Welcome to Gartner's Fourth Quarter 2025 Earnings Call. I'm David Cohen, SVP of Investor Relations. At this time, all participants are in a listen only mode. After comments by Gene Hall, Gartner's Chairman and Chief Executive Officer; and Craig Safian, Gartner's Chief Financial Officer, there will be a question-and-answer session. We ask that you limit yourself to 1 question in order to give all our analysts a chance to participate in the call. Please be advised that today's conference is being recorded. This call will include a discussion of fourth quarter 2025 financial results and Gartner's outlook for 2026 is disclosed in today's earnings release and earnings supplement, both posted to our website, investor.gartner.com. On the call, unless stated otherwise, all references to EBITDA are for adjusted EBITDA, with the adjustments as described in our earnings release and supplement. Our contract values and associated growth rates we discuss are based on 2025 foreign exchange rates. All growth rates in Gene's comments are FX neutral, unless stated otherwise. All references to share counts are for fully diluted weighted average share counts unless stated otherwise. Reconciliations for all non-GAAP numbers we use are available in the Investor Relations section of the gartner.com website. As set forth in more detail in today's earnings release, certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's 2024 annual report Form 10-K and quarterly reports on Form 10-Q as well as in other filings with the SEC. I encourage all of you to review the risk factors listed in these documents. Now I will turn the call over to Gartner's Chairman and Chief Executive Officer, Gene Hall. Eugene Hall: Good morning. Thanks for joining us today. Fourth quarter revenue, EBITDA, margins, EPS and free cash flow were ahead of expectations, we continue to deliver great value to our clients. We were agile in managing expenses. And we repurchased more than $2 billion of Gartner stock in 2025. 2025 was a unique year due to a range of external market forces. Department of government efficiency or dose-related initiatives affected our U.S. federal clients. Evolving trade policies create complexity for tariff-impacted enterprises. Funding changes affected our state and local government and education clients, tech companies that are not in or adjacent to AI experienced a shifting landscape. And there were country-specific factors in several geographies. These external market forces led to increased scrutiny, elevated deal approval authority and extended buying cycles. Over the past few years, including 2025, the rate of change and volatility in the external environment has increased significantly. Executives have responded to this by slowing and deferring everything possible. This makes for a much tougher selling environment. The value bar is higher, but it's also a huge opportunity for us. Clients know they need help with these issues. Gartner is an insights business. Our high-value, forward-looking insights help clients on their journeys to achieve their mission-critical priorities. The key to capture an opportunity, while operating under deferred decision-making and higher value standards is to help clients engage more frequently with our insights. Clients who engage frequently with our insights, receive greater value and retain at higher rates. This was true in 2025 and every year prior, and it's still true today. Client engagement increased modestly throughout 2025, but in today's world, client engagement levels need to be even higher because the rate of change is faster than ever, driving incremental improvements on our standard practices wasn't enough. To achieve step change improvements, we needed to rethink many of our processes and practices. So we've been driving transformation across business and technology insights. We covered some aspects of this transformation on previous earnings calls. Today, I'll share a comprehensive view of what we're doing. We're transforming business and technology insights along 4 dimensions: impact; volume; timeliness; and user experience. Beginning with impact. Our insights provide tremendous value to clients today, and we know we can get even better. Our objective is to ensure insights are always on the topics our clients care about most right now. The biggest example today is AI. AI is transforming the world. It's our highest demand topic. During 2025, we expanded our AI insights. We have more than 6,000 AI-related documents in our library. We've documented more than 1,000 unique use cases. In 2025, we conducted more than 200,000 in-depth client conversations on AI, and we answered more than 500,000 AI-related questions through AskGartner. Based on our analytical measures, the impact of our insights is improving at a rapid pace by increasing the impact of our insights, we can ensure our clients get even more value on the topics they care most about at any given time. The second dimension is volume. We serve clients of every size in every industry and every enterprise function in 90 countries. This diverse set of clients have different mission-critical priorities. Our objective is to increase the number of insights, to accommodate the broadest range of client priorities. To achieve this, we're applying automation, streamlining processes and upgrading and upscaling our analyst teams. We developed a neural network AI model to quickly and systematically determine the topics our clients care about most. As of the end of 2025, our Active Insights library has grown by approximately 50%. By increasing volume, we can better accommodate the full range of our clients' mission-critical priorities. The third dimension is timeliness. The pace of the world continues to accelerate. Some say the rate of change will never be this slow again. We're ensuring our insights to keep pace with the ever accelerating pace of the world. We've introduced insight types that have produced the same day as important events occur in the world, such as a major security breach, where clients need immediate guidance. or in the rapidly evolving world of AI, where major changes happen every day. To support this, we've made 2 other innovations. First, we introduced new processes to create insights as quickly as the same day. Second, for insight types that are highly valued by our clients, such as Magic Quadrants, we reduced our average insight creation time by 75% compared to 2024. So we'll continue to ensure our insights keep pace with the ever accelerating pace of the world. The fourth element is user experience. If we produce great insights, but our clients can't find them, they won't receive value from them. Historically, the single biggest feedback from our clients was, Gartner produces tremendous insights, but I can't always find them. We're ensuring our clients can easily access the insights that are most relevant to them when they need them the most. As Gartner leverages AI to quickly identify and summarize the right high-value insights across our vast library. It leverages role, function, mission-critical priorities, insight viewership histories and more to make user responses even more relevant to each license user. We began rolling out AskGartner in August of last year. We completed the rollout in October. Licensed users who use AskGartner had substantially higher renewal rates than those who did not even with the same levels of engagement. We'll continuously improve and innovate AskGartner's capabilities. Separately, we're identifying role-specific insights each week that are particularly valuable and broadly applicable. Our goal is to ensure clients have every opportunity to engage with these uniquely valuable insights. We're also changing how we deliver insights in terms of format and access to meet today's client preferences. Conferences are an important way clients engage with our insights. Destination conferences provide high value to clients. But not all our clients can attend our destination conferences. For these clients, we launched Gartner C-level communities. Gartner C-level communities are local, peer-driven one-day events where C-level executives can gain access to our insights. We're continuing to expand both our destination conferences and Carter C-level communities in 2026 and beyond. We'll continue to improve the user experience to ensure our clients can access the insights they need to achieve their mission-critical priorities. So we're driving transformation across business and technology insights along 4 dimensions: impact; volume; timeliness; and user experience. We began driving these transformational improvements during 2025 and will continue during 2026 and beyond. We believe this transformation will provide a step change in the value to our clients over the next few years. In addition, we'll drive continuous improvement and innovation across the rest of the business. During 2025, we also took several shareholder value-enhancing actions, including repurchasing $2 billion of Gartner stock, increasing leverage with a successful inaugural investment-grade bond offering to support even more share repurchase capacity. Adding 2 new directors who bring unique and valuable skills to our Board, rotating our Board committee chairs and entering into a definitive agreement to sell our digital markets business. In summary, the world is changing more than ever before. This represents a huge opportunity for us. Gartner is an insights business that guides the leaders who shape the world. The key to capturing our opportunity while operating under a challenging selling environment is to help clients engage more frequently with our insights. In 2025, we began transforming business and technology insights along 4 dimensions: impact, volume, timeliness and user experience. These transformations will allow us to thrive in a world with greater change and uncertainty than ever. We expect to see the impact over the next few years, and we'll continue to keep you updated on our progress. With our unparalleled value proposition, continued transformation in business and technology insights and responsible reinvestment in our business, contract value will accelerate, as contract value accelerates, our P&L and free cash flow conversion will follow, we will continue to create value for our shareholders by generating free cash flow in excess of net income and returning capital to our share repurchase program. With that, I'll hand the call over to our Chief Financial Officer, Craig Safian. Craig Safian: Thank you, Gene, and good morning. Today, I'm going to walk you through fourth quarter and full year 2025 results, and I will introduce our 2026 guidance. Financial results in the fourth quarter were better than expected. For the full year, revenue increased from 2024 and EBITDA margins finished well ahead of our initial guidance from last February. Our return on invested capital continues to be above 20%, highlighting the strength of our business model and our ongoing ability to create long-term value. We increased leverage with a successful bond offering, our first as an investment-grade rated credit. We generated significant free cash flow and bought back about $2 billion of stock. And last week, we entered into a definitive agreement to sell the digital markets business, which allows us to focus even more on delivering insights to help our clients address their mission-critical priorities. Fourth quarter revenue was $1.8 billion, up 2% year-over-year as reported and unchanged FX neutral. For the full year, revenue was $6.5 billion, up 4% of reported and 3% FX neutral. Fourth quarter contract value or CV grew 1% year-over-year. Outside the U.S. federal government, CV grew 4%. In the quarter, total contribution margin was 67%, up 85 basis points from last year. EBITDA was $436 million, up 5% as reported and 1% FX neutral. Adjusted EPS was $3.94 and free cash flow was $271 million. For the full year, EBITDA was $1.6 billion. EBITDA margins were 24.8%, well above the initial guidance we gave at the start of the year. Adjusted EPS was $13.17. Free cash flow was $1.2 billion and ROIC was strong at around 24%. The Insight segment is our largest, most important business. It's subscription-based with strong retention, recurring revenue and excellent contribution margins. We get paid upfront, which allows us to generate strong free cash flow well in excess of net income. Insights revenue in the quarter grew 3% year-over-year as reported and 1% FX neutral. Fourth quarter Insights contribution margin was 77%, up 59 basis points versus last year. Full year Insights revenue increased 5% as reported and 4% FX neutral. For 2025, Insight's contribution margin was 77%, up 14 basis points from 2024. Contract value was $5.2 billion at the end of the fourth quarter, up 1% versus the prior year. Outside the U.S. federal government, CV growth was about 330 basis points faster at around 4%. Global NCVI in the quarter outside the U.S. federal government was positive $147 million. The vast majority of our U.S. federal contracts came up for renewal during 2025. At December 31, we had $126 million of U.S. Federal CV. Outside the U.S. Fed, we delivered CV growth across practices, industry sectors, company sizes and geographic regions. By sector, energy, banking and technology led to growth. CV grew at high single-digit or mid-single-digit rates across all commercial enterprise sizes. All but 2 of our top 10 countries grew in 2025 with 1 growing double digits. And we had more than $400 million of new business in the fourth quarter. Global Technology Sales contract value was $3.9 billion at the end of the fourth quarter, about flat compared with the prior year. GTS CV outside the U.S. federal business grew 4% in the quarter. Tech vendor CV increased mid-single digits, with services and software growing low double digit or high single digits. Wallet retention for GTS was 96% for the quarter. GTS new business of more than $300 million was down about 5% outside the U.S. federal government. The change in GTS quota-bearing headcount was consistent with our expectations. We managed our territory changes and investments based on the balance of expense discipline and opportunities to invest for growth. We've optimized territories with growth directed towards business developers and new logo and new business opportunities. BD productivity has remained strong, which is a foundation for our investment in adding BDs. Our regular full set of GTS metrics can be found in our earnings supplement. Global Business Sales contract value was $1.2 billion at the end of the fourth quarter, up 3% year-over-year. Outside the U.S. federal government, GBS CV grew about 200 basis points faster at around 6%. Growth was led by the sales, supply chain and legal practices. CBS and CVI was positive $16 million in the fourth quarter. Outside the U.S. federal government, GBS and CVI was positive $21 million. Wallet retention for GBS was 99% for the quarter, outside the U.S. federal business, wallet retention was over 100%. CBS new business of more than $100 million was down 4% compared to last year. The change in GBS quota-bearing headcount was consistent with our expectations. Similar to GTS, we managed our territory changes and investments based on the balance of expense discipline and opportunities to invest for growth. BD productivity has remained strong, which is a foundation for our investment in adding BDs. As with GTS, our regular full set of GBS metrics can be found in our earnings supplement. As we do each year at this time, we've also provided quarterly historical contract value data updated to 2026 FX rates on Page 21 of the earnings supplement. As you build your 2026 models, please remember to use the updated data as the baseline for your forecasting. The U.S. dollar weakened significantly over the course of 2025, causing this adjustment to be larger than most years. We've also provided several quarters of historical data to reflect the updated financials for the digital markets divestiture on Page 22 of the earnings supplement. Conferences revenue for the fourth quarter was $286 million. On a same conference basis, revenue growth was around 8% FX neutral. Contribution margin was 51%. We held 14 destination conferences in the fourth quarter as planned. Full year conferences revenue grew 11% to $645 million. FX-neutral growth was 9%. Contribution margin was 50%. Q4 consulting revenue was $134 million compared with $153 million in the year ago period. FX was a benefit of about 300 basis points in the quarter. Consulting contribution margin was 27% in Q4. Full year consulting revenue was $552 million compared to $559 million in the prior year. Contribution margin was 34%. Consolidated cost of services on a GAAP basis was $573 million in the quarter or 32.7% of revenue. For the full year, cost of services was $2 billion or 31.6% of revenue. SG&A on a GAAP basis was $798 million in the quarter or 45.5% of revenue. For the full year, SG&A was $3 billion or 47.2% of revenue. We continue to balance disciplined cost management, while ensuring we can invest in key areas such as expert talent, AI, the customer experience and frontline sellers. As a percentage of revenue, our costs are well below historical highs. EBITDA for the fourth quarter was $436 million, up 5% from last year's reported and 1% FX neutral. We outperformed in the fourth quarter through modest revenue upside, effective expense management and a prudent approach to guidance. EBITDA margins were 24.9%, up about 60 basis points from last year's Q4. Full year EBITDA was $1.6 billion, up 4% of reported and 2% FX neutral. EBITDA margins were 24.8%, consistent with last year. Depreciation in the quarter was $28 million. Full year depreciation was up 5%. Net interest expense before deferred financing costs in the quarter was $18 million, increasing by $7 million versus the fourth quarter of 2024 due to lower interest income on our cash balances. The full year net interest expense before deferred financing cost was $56 million, favorable by $10 million versus 2024 due to lower interest expense and higher interest income on our cash balances. The Q4 adjusted tax rate, which we use for the calculation of adjusted net income, was 20% for the quarter. This compares to last year's benefit of 25%. The tax rate for the items used to adjusted income was 3% for the quarter. The full year tax rate for the calculation of adjusted net income was 22%, in line with our expectations. The prior year tax rate benefited from favorable tax planning. Adjusted EPS in Q4 was $3.94. Full year adjusted EPS was $13.17. We had 72 million shares outstanding in the fourth quarter. This is an improvement of about 6 million shares or approximately 8% year-over-year. We exited the fourth quarter with 71 million shares on an unweighted basis. Operating cash flow for the quarter was $295 million. This compares with $335 million in Q4 2024. CapEx was $24 million, flat year-over-year. Fourth quarter free cash flow was $271 million. This compares with $311 million in Q4 of 2024. For the full year, operating cash flow was $1.3 billion. CapEx was $115 million, and free cash flow was $1.2 billion. Free cash flow on a rolling 4-quarter basis was 161% of GAAP net income and 73% of EBITDA. As we previously noted, there were 2 items that affect rolling fourth quarter net income and free cash flow, including a real estate lease termination payment in Q2 2025 and we also had a noncash goodwill impairment charge related to digital markets business in Q3 2025. Last week, we signed a definitive agreement to divest digital markets. Adjusting for these items, free cash flow on a rolling 4-quarter basis was 18% of revenue, 74% of EBITDA and 136% of GAAP net income. At the end of the fourth quarter, we had about $1.7 billion of cash. Our December 31 debt balance was $3 billion, of about $500 million from Q3 as a result of our most recent bond offering. Our reported gross debt to trailing 12-month EBITDA was 1.9x. Our expected free cash flow generation, available revolver and excess cash remaining on the balance sheet provide ample liquidity to deliver on our capital allocation strategy. Our balance sheet is very strong with $2.7 billion of liquidity, low levels of leverage and 100% fixed interest rates. We repurchased about $500 million of stock during the fourth quarter and $2 billion during the full year. Last week, the Board refreshed our authorization, bringing the total to about $1.2 billion. We expect the Board will continue to refresh the authorization as needed. As we continue to repurchase stock, we create value for shareholders through EPS accretion and increasing returns on invested capital. Before providing the 2026 guidance details, I want to discuss our base level assumptions and planning philosophy for the year. We've not included the digital markets business in the outlook. For Insights revenue, our guidance reflects Q4 2025 contract value and our CV growth rate accelerating over the course of 2026. First quarter and first half NCVI are important inputs to calendar 2026 revenue growth. We have taken a prudent view of NCVI phasing because Q1 is a seasonally important quarter for renewals. As always, we have high visibility into our Insights revenue based on our ending 2025 contract value. For conferences, we are basing our guidance on the 56 in-person destination conferences we have planned for 2026. We expect similar seasonality to what we saw in 2025 with Q4 the largest quarter, followed by Q2. We expect gross margins in the second quarter to be the highest of the year for the Conferences segment. We had a strong advanced bookings quarter in Q4, which provides very good visibility into 2026 revenue. We have a majority of what we've guided already under contract. This is ahead of where we were at the same time last year. For consulting, we have more visibility into the next quarter or 2 based on the composition of our backlog and pipeline as usual. Contract Optimization has had several very strong years and the business remains highly variable. Our base level assumptions for consolidated expenses reflect the run rate from the fourth quarter and merit increases scheduled to go into effect April 1 as usual. We recommend thinking about expenses sequentially with notable seasonality driven by the conferences calendar and annual merit increases. For GTS, we expect low single-digit QBH growth in 2026 with a focus on growth in our business developers. For GBS, we plan to grow QBH mid-single digits this year with an emphasis on growth in business developers. We have the recruiting capacity to go faster depending on how the year plays out. We continue to prudently manage our expenses, in part to create alignment with recent CV trends, and we are driving efficiencies wherever we can through automation, process improvements and leveraging technology. We are also prioritizing sensible investments to drive future growth and returns, which include key areas like business and technology insights analysts, artificial intelligence, the customer experience and sales capabilities, efficiencies and QBH. These investments are fully reflected in our 2026 guidance. Based on January FX rates, we expect revenue growth to benefit by about 110 basis points and EBITDA growth to benefit by about 170 basis points for the full year. As a reminder, about 1/3 of our revenue and operating expenses are denominated in currencies other than U.S. dollar. Our 2026 guidance is as follows: we expect Insights revenue of $5.9 billion or more, which is FX-neutral growth of about 1%. We expect Conferences revenue of $695 million or more, which is FX-neutral growth of about 7%. We expect consulting revenue of $570 million or more, which is growth of about 3% FX neutral. The result is an outlook for consolidated revenue of $6.455 billion or more, which is FX-neutral growth of 2%. We expect full year EBITDA of $1.515 billion or more. This reflects full year margins of 23.5% or more. As we move through the year, our strong visibility will get even better. For net interest expense, we expect higher interest costs as a result of the increase in leverage. Interest income will be affected by interest rates and the deployment of cash for repurchases made during 2025. In addition, we have not assumed interest income on excess cash that could be deployed on share repurchases. Notably, however, our share count for 2026 only assumes repurchases to offset dilution. This means in the adjusted EPS guidance, we effectively assume both less cash on the balance sheet and more shares outstanding than we are likely to have. We expect 2026 adjusted EPS of $12.30 or more. As I just noted, EPS would see a significant positive impact through a combination of fewer shares and/or greater interest income. For 2026, we expect free cash flow of $1.135 billion or more. This reflects a conversion from GAAP net income of 140%. Our guidance is based on about 71 million shares outstanding, again, only reflecting share repurchases to offset dilution. For Q1, we expect adjusted EBITDA of $370 million or more. Our financial results in Q4 were ahead of expectations. In particular, margins were strong and better than we guided at the start of 2025. We had another year of very strong free cash flow. ROIC continues to be excellent. We made significant accretive share repurchases, reducing our shares outstanding by 8% in the year. Contract value outside the U.S. federal business grew 4% in the quarter, and we are positioned to accelerate CV growth throughout 2026. As Gene detailed, in 2025, we began driving transformation across business and technology insights along 4 dimensions: impact, volume, timeliness and user experience. The investments to continue the transformation through 2026 are fully reflected in our guidance. Finally, we'll continue to deploy our capital to drive shareholder value and contribute to strong ROIC. Our capital allocation strategy remains focused on share repurchases, which will lower the share count over time and strategic value-enhancing tuck-in M&A. With that, I'll turn the call back over to the operator, and we'll be happy to take your questions. Operator? Operator: [Operator Instructions] Our first question comes from Jeff Meuler with Baird. PAUSE. Jeffrey Meuler: On the expected contract value acceleration as '26 unfolds, I guess there's going to be a mathematical benefit from moving past the peaking and lessening federal government headwind. Are you expecting acceleration beyond that on a ex government or federal government basis? And I imagine you expect some benefit from the step function operational changes. But just if you can give us a update on what you're seeing in terms of any leading indicator KPIs. You had talked about a lot of things last quarter like in quarter renewal rates. Just wondering if those have continued to make progress. Eugene Hall: Yes, Jeff. Yes, we are expecting CV to accelerate throughout the year and not just because of lesser headwinds within the federal government, u.S. federal government. Basically, as you said, we made more changes in the second half of last year with this transformation program and we expect those changes to begin hitting throughout -- or hitting in the building throughout 2026 and into '27. And so it's really -- that's what's driving the acceleration of CV over the year -- over '26 and then '27. Jeffrey Meuler: And on some of the leading indicators and what you were seeing on things like in-quarter renewal rates? Eugene Hall: So leading the way that we're approaching the transformation is, we know that, if our clients engage with us more, they renew at higher rates. And so we're looking at leading indicators that say they're going to engage more with our content. And so there's things like -- again, the important I talked about we've changed our content. One of the indicators we have is the conferences where we presented those new content. In our conference scores, we ask clients to rate each of the presentations as well as the overall conference. And those conference orders were up significantly and more than we've ever seen in the past for the conferences were held in the second half and particularly in Q4 of last year, but we have a lot of conferences. And so that's kind of one of the immediate indicators that we see. As I mentioned also, engagement actually has been rising. And as the engagement rises, doesn't -- when engagement goes up, it doesn't affect you today. But when that client comes up renewal over the next, depending whether it's a single or multiyear contract, when they come up over the next 12 or 24 months, they're much more likely to redo. So we see a positive impact from that as well. And so there's indicators like that that are telling us -- both our -- the transformation we're meeting BPI in terms of driving more engagers working. And in fact, we're seeing the beginnings of higher engagement as well. I mentioned another one as well, which is the uptake of -- I'm sorry, the impact to AskGartner, much coins get access -- much better access to content that they've been able to do in the past. And as I mentioned, we only rolled it out to all of our clients in October of last year. So our clients didn't have that much cash to use it. But for those clients that used it and then renewed last year, their renewal rates were actually significantly higher. I think it's a combination of both better access and also a transformation changes that we talked about earlier. So if we look at leading indicators, we think that actually that we're on a good track. And again, these things will take because of -- they have to use the content, they have to renew and that renewal takes place over a 12- to 24-month period. It's going to take a while for all these again, but I'd say the leading indicators, we view is very positive. Operator: Our next question comes from Andrew Nicholas with William Blair. Andrew Nicholas: Just want to follow up on the same kind of line of questioning, a couple of quarters ago, you talked about your hopes to kind of get back to the high single-digit range in terms of CV growth here in 2026. Just wondering, now a couple of quarters past that, how you're thinking about that kind of line of thinking? And the factors that you outlined at that time between the federal government business, tech vendors accelerating, tariff-related industries or tariff-impacted industries normalizing some and your own internal adaptations, is there any changes to kind of the magnitude of those benefits that you would speak to today versus 6 months ago? Craig Safian: Andrew, it's Craig. So sort of headline answer, I'd say, is and just reiterating what Gene just said, with the prior question is, we do expect CV and the CV growth rate to accelerate over the course of 2026 and that's obviously within our U.S. Fed portion of the business. Just lapping the significant headwinds and also the balance of the business accelerating as well. As you know, our normal course practice is not to guide specifically to CV. But we do fully expect all the factors that we've been discussing in the details, Gene provided to support driving that CV growth and also all the factors we talked about are those different buckets, we expect to have an impact as well into 2026. And so I think part of this is the environment still remains pretty chaotic. And we want to see what the environment looks like as we move our way through 2026. But baked into our guide and for all of our operating assumptions is the CV growth rate accelerating over the course of 2026. Operator: Our next question comes from Faiza Alwy with Deutsche Bank. Faiza Alwy: So just to follow up on that, Craig, I think you talked about the quarterly phasing of CV growth. I'm curious if you expect sort of that quarterly phasing to be similar to what we have seen historically? Or you could sort of put a finer point on that? I imagine you're expecting that some of the internal initiatives that you're taking will kind of help more towards the back half of the year, but any further perspective would be helpful. Craig Safian: Yes, great question, Faiza. Thank you. And so as we look at the way our exploration SKU looks like for 2026. It looks pretty consistent with what we've seen historically. And so a little bit overweighted in terms of coming up for renewal in Q1 and Q4. I'm so a little bit more than 25% in each of those quarters and obviously a little bit less than 25% that implies in the middle quarters Q2 and Q3. As you know -- and again, and our sort of NCVI build, as we think about it, we believe should be roughly consistent to what we've seen over the last several years. That all said, the revenue guide is obviously most sensitive to where we ended 2025, net contract value amount as we roll into 2026 and then the phasing of the NCVI. To your point, one is we tend to generate much more of our NCVI in the second half of the year historically and then to emphasize your point and Gene's points too, is that the transformation that we've been doing, again, these are not just started on Gen 1, we've been working through these for the last few quarters. But certainly, we'll have more of an impact on the second half of the year than on the first half of the year. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: I guess stepping back from the numbers, it seems like in recent months, you have taken some more kind of strategic steps, including the divestiture of the non-sub business. I think we understand you had an organizational realignment perhaps. So could you just talk about what drove these kind of more longer-term type actions and kind of how you're thinking about those actions versus kind of the environment that you're sitting in. Eugene Hall: Josh, great question. The last year, there were a lot of changes. In fact, over the last 2 or 3 years, there's been a lot of changes between what's happened with AI, the U.S. federal government, tariffs, all the things I kind of go in my talk. And so during the first half of last year, we came the conclusion that we should assume that the world is going to be like this forever, that there's going to be a lot more disruption in chaos. And we don't know what those things are going to be, but we need to be prepared for them. And so to do that, we've decided the best way to impact it in our business was to focus on our core BTI business. And on top of that -- and within that, the way to optimize that business is to get more client engagement. As I mentioned in my remarks, the more clients engage with us, the higher the retention is. And the high retention is, obviously, the faster business grows. And so we're really driving engagement and driving retention. And the way we're doing that is through with the transformation program. And we did a lot of analysis to understand what drives engagement. And it's the 4 things I talked about. It's the impact of our insights, the number of insights we cover all the mistrial priorities they have interest in, how fast we get it to them, especially in today's where things change so quickly. The user experience so they actually get access to them, whether it be through AskGartner or through enhanced conferences as I mentioned. The changes we made in the second half of last year were more change than we've ever done at Gartner. I've been here 20 in that entire time, it's more case we've ever done. And it's in a reaction to position the business so that even if the world does get better, that we can get back to the kind of growth rate that we've had historically meaning double-digit growth, even in a really bad environment because we've enhanced our BTI helping so much. And so as a result of that, 2 of the things you mentioned were as result of that. So one of them we decided that our digital markets business didn't fit in that vision. And so we made the decision after careful analysis, that didn't make sense. And so we made an arrangement we think is a very good owner report. And then the second thing is there were some staff changes, as we assess the BTI transformation, any transformational find that people that don't have the tolls today that you need going forward. And so for those people, we had -- unfortunately, we had an action that we took so that we could basically reposition skills, we have the skills we need going forward, not the skills could do in the past. And that was really one small part of the transformation but that was a part of the transformation. So this has nothing to do with the cost or something like that. It had to do with making sure we had the skills to address the impact, volume timeliness of user experience that we need as a business to thrive in any economic environment. Craig Safian: And then, Josh, one last thing I'd add is you know we're obviously very focused on doing shareholder value-enhancing initiatives. The #1 way we do that is to drive value for our clients, which then translates through the P&L and free cash flow statement. But obviously, we're focused on timing and maximizing shareholder value as well. And you know our capital allocation strategies around buybacks and potential value-enhancing M&A, tuck-in M&A. And so on the buybacks, as you saw noted, you have about $2 billion worth of shares repurchased over the course of 2025 taking advantage of the debt markets and transforming, if you will, our balance sheet, so that we have a little bit more leverage and more capacity to deploy our capital on behalf of our shareholders. And then we do typically talk about M&A, but divestitures can be ways to drive shareholder value as well. And as Gene outlined, I think we came to the -- through deep analysis through the recognition that digital markets was not a core part of the business. And so we look to drive value, sell it to a more natural owner and then from a shareholder value perspective, that allows us to use those proceeds, but also to focus on the core, which is really driving value out of the BTI business or the Insights business, I should say. Operator: Our next question comes from Jason Haas with Wells Fargo. Jason Haas: I'm curious, as part of some of the internal improvements you're making, are there any changes to try to institutionalize some of the process that your analysts go through to collect proprietary insights from your customers? Because our understanding is there's a treasure trove of data that your analysts are collecting. And I'm curious how much of that is coming through just sort of informal questioning? Or is there really a process around that to drive the questioners insights? Eugene Hall: Jason, it's a great question. And that is actually a core part of the BGI transformation as well. To your point, we have hundreds of thousands of conversations with our clients every day, I mean, every year. And with also with technology vendors, we have out of conversations. We have a lot of peer interactions where peers interact we get all that data, which a proprietary surveys. One challenge we have is with our 2,400 analysts, how do we get all the right information to those analysts. And so as a part of this transformation action, we've developed some very sophisticated systems that let us get -- get the insights that matter most to the analysts that are going to be actually working on particular topical area like cybersecurity or something like that. And it starts with this neural network-based system I talked about before, it starts there because, one of the most important cities we make is what do we actually write content on, what insights you want to write on, this neural network based system I talked about takes all of that input and says, what's trending, what are the things that people are most interested in the way it's updated on a real-time basis. So this week, what are our clients interested in? And then what assets do we have that can actually create incredible insights that will be a high value to those clients. And so your point is actually a key part of the transformation is, the way we worked many years ago was a bunch of analyst sat in the room and said, hey, what do you hear, what I hear. With thousands of analysts and hundreds of thousands of conversations, we can't work that way. And so we've leveraged technology, including AI, so that we can actually go right on the right topics by using the store model and then get all the right assets that will help those analysts write really insightful research into the hands of the right people. And so it's a core part of it. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: Wanted to get a sense of in the fourth quarter if AI sort of entered the renewal conversations a little bit more in terms of client decision-making around adding or removing seats and things like that? And I know you've got a lot of feedback from your clients. So I just wanted to hear sort of what you're hearing from them? And is the environment getting maybe a little bit better? Like I just wanted to get a sense of sort of the client environment and feedback. Eugene Hall: Yes, Toni. So the single biggest issue we are helping our clients with its AI across every function. So our clients really understand. They know they have challenges with it. And again, it's our single high span item. And as I've talked about in the past, with our salespeople, we ask each salesperson to document any concerns clients have. And one of the specific ones we ask them to document is if a client brings up that AI might be a substitute. And in addition to that, we have a help desk. And so any salesperson, that basically says, hey, the client said, I'm thinking about using AI instead of Gartner, we try to document, train salespeople. And by the way, they use the system right because it also tracks competitive threats and things like that. And so it is regular use perspective, probably half our salespeople use it in any given year. And so they're familiar with it and we train them on it. And we have this help desk in case somebody has an AI question and help desk is like the main repair man, which is to say that that has not been -- we have a lot of challenges with clients in terms of their own internal budgets that as we talked about. But one that we do not hear frequently is that they're thinking about using AI and some way the substitute for Gartner. And again, to your point, I think our salespeople is not -- if anything, Q4 is less of an issue or less confirmed than even before. But we try to track it very carefully. We're trying to get eyes open about it, and we don't see it as something that is restraining our growth as opposed to clients that have tariffs and budget problems and the federal government those things. Those are real problems that we have that we see every day. Toni Kaplan: Do you see those problems getting better, the Doge and tariff problems and things like that? Eugene Hall: So we'll approach it 2 different ways. So in terms of Doge, as we had touched about, all of our federal government clients, U.S. federal government contracts, virtually all of them are 1-year contracts, and so any client that wanted to cancel because of Doge after Q1, we'll have already had the chance to cancel. And so we believe -- and there's still tremendous demand. What's going on the government is we provide valuable services. The clients that are actually using our services like Chief Information Officers, et cetera, highly going on to use our services. They have tight budgets, they're getting direction for. And so in some cases, they cancel our contracts, which is why you've had care renewal rates. We believe that the ones that are going to cancel will have gone through it once we get through Q1 and that going forward, it would be more to a normal environment with the U.S. federal government, we had short value that we provide a lot of value. We have a lot of clients who want to buy it from us. And so that's kind of what we're expecting there. Outside of federal, tariff industries, it's down to the BDI transformation I talked about earlier, where we may -- as I mentioned, we've made more changes in second half of last year than ever before. And the whole idea is we need to increase value to our clients. We're going to do that by increasing engagement, more they engage, the higher value they get, the more they redo. And we know if we get engagement rates up even modestly, it has a material impact on real rates and then our growth rate. And so we're -- the federal government, we're going to hopefully get through all the contracts with people that are going to cancel. And again, for everyone else, and in fact, the federal government going forward, we're increasing the value right to our clients at a much higher rate through that I talk to impact volume timeliness and user experience. Operator: Our next question comes from Surinder Thind with Jefferies. Surinder Thind: Gene, could you maybe talk about your willingness to kind of maintain the medium-term guidance here. It seems like we've had a number of challenging years where there's always something that disrupts your ability to hit that medium-term guidance. And given the pace of change, what gives you confidence that you can achieve medium-term guidance? It just seems like disruption is in the air at this point. So beyond the current narrative here? Eugene Hall: Yes. As I mentioned earlier, we're taking a view that the world is always going to be more challenging than it was prior to a couple of years ago. And so because of that, we needed to really up the value provide to clients a lot. And so we have a program to do it. As I mentioned earlier in the call, actually, the early indicators are good. It's going to take time because, again, clients, we have to produce -- we are to make the changes I talked about. Clients going to have to use them. Then that contract has to come up for renewal. And so it's going to take a couple of years before we get the full benefit of programs that we're just talking about. But I have confidence that our CV will continue to accelerate over the time period because of the changes that we're making. Craig Safian: And Surinder, it's Craig. I think you kind of go back to every way we look at it, there is still a very large addressable market that we continue to figure out ways and unlock ways to go after that addressable market. The value we provide to our clients is unparalleled and unmatched. And again, all the things Gene outlined will allow us to continue to enhance and increase that value proposition. And then if you think about the 4 elements that Gene mentioned. All of those things, we believe, will allow us to better penetrate and hold on to that huge addressable market opportunity. And so there's really no change in our view on the market. We know the value we provide to clients. We're focused on continuing to enhance that value. And we believe that all those things are unchanged in terms of the opportunity for us going forward. Surinder Thind: That's helpful. And just a quick clarification here. I think, Gene, you mentioned this idea that to realize the full benefit of the investments that you're making maybe a few years. So is that the time frame then for kind of getting to your medium-term guidance targets? I just wanted to clarify that. Eugene Hall: So basically, as I mentioned, the way we're going to get the benefits is we make the changes. And again, we made a lot of change last year. It's not going to stop. We're going to continue making changes this year and the same for as I talked about. Then clients have to use and benefit from the have to actually get our insights and see the advantage to it. Then they come up for renewal, it's just the nature of our business because it's the subscription-based business. It can take a couple of years until you get the whole benefit of everything we're talking about. Craig Safian: And just to underscore that, Surinder, I mean the guide, as we said, implies or overtly has contract value growth rate reacceleration over the course of 2026. We don't expect to be done with that in 2026. And so we believe all the things that we are doing. We continue to make sure we're -- as both Gene and I mentioned, prioritizing the right kinds of investments to drive that reacceleration and drive strong returns on those investments in the future. And so as we mentioned, no change in our view on the market. We're doing all the right things, we believe, in terms of enhancing the value that we deliver to our clients and then with continued reacceleration, we believe we can drive lots of incremental shareholder value over the short, medium and long term. Operator: Our next question comes from Manav Patnaik with Barclays. Brendan Popson: This is Brendan on for Manav. I just want to ask for some more -- you talked about some of the rapid change internally. And I also noted you mentioned this 75% time reduction for insights. So I guess just any clarity on what exactly that means? And just anything else on the internal changes to drive this better retention? Eugene Hall: Yes, Brendan. As I mentioned, we're making these internal changes on impact line time-use experience. One important part of timeliness is actually how fast we can produce insights. And as we did this in-depth analysis in terms of how we produce insights, we've developed -- we basically decided in today's world where things happen so quickly. Again, you look at like AI or cybersecurity where things happen on a daily basis, we weren't operating at that kind of pace. And so beginning in July of last year. So these are not changes that happened like in January, beginning of July of last year, we looked at how could we take time out of the process and actually it involved a couple of things. First is new content types. So actually, we don't have content types like being called First take that is, if something happens today, you need to do about today, we get that first take out immediately because our clients do a big decisions about it. The second area was actually been changing the process, and in fact, we found that we had too many people in parts of the process at the back part of the price, so not the creative part, but the editing part. And so we actually downsized the -- that part of the process. When we change process as a product, so it was better. And the third thing we did is an automation and part of the automation is AI. And so between those 3 factors, different content types restructure the process and what is jobs are and then provide a lot of automation, including AI, allowed us to shrink the production time, which, again, in today's world is really, really important. As I mentioned earlier, we started making these changes in July. And so these are part of -- I mentioned -- we had more change than ever before in the second half of last year. This is one of those changes were again, it involves restructurings as well as process changes as well as substantive changes. Operator: Our next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: You've talked a lot about sort of expanding the breadth of your offerings, the velocity of the insights and the ease of use improvements as well. Just wondering if you can maybe talk about if there's any changes to your sales strategy, your go-to-market strategy that you're thinking about for this year? And then if you can also help us with how we should think about sort of the phasing of your quota-based headcount, quota-bearing headcount growth across GTS and GBS for '26. Eugene Hall: Yes, Scott. So I did not focus as much on sales because the BTI transformation is so much -- such a step and a huge change for us. We've always done a lot of innovation in sales, and we continue to do those innovations. And so like -- and I'll give you some examples. So one of them is that we know that our salespeople they come in, they have not typically been the C-level clients that they're selling to. So we need to make sure they have the skills of the confidence. We have various sensitive training programs. One of the things we've done to enhance that, which has actually worked out better than we expected actually is use AI-based role play tools so that we can put a sales person situation with these AI tools or they are talking to a prospect or a client about things like what's the value, how -- what questions they might have, if you like to just count -- why don't I give where those questions might be, that our sales feeling practiced ahead of time. We have always some old place, but adding AI-based tools has allowed us to exponentially explain those better role place. And the sales teams love these tools because it makes it so much more proficient. The second thing we're doing is there's content that if you look at all the content groups, we produce tons of it. What we've been doing is taking each week what is the content that would be most valuable for a salesperson in their role, whether they're selling CHROs it would be one set of content. If there's so CIOs a different set. If they're selling CFO, a different set. So for that week, if they had to be from one piece of conduct, what would it be we do it ever week. So what we're doing is actually identifying that content, and we have a whole process to get it up to our sales force and explain why they need to about that content, how they should talk up with clients, et cetera. It equips them to actually be much more substantive with our clients and confident on the issues that, that link are the most important, which is another piece we're doing. Another piece we're doing is expanding the role of business developers. And so we have a very modest sales force expansion planned for 2026. One of the things that we found even last -- even last year, our business developer productivity has been actually quite strong over time. So while we had a lot of challenges last year with existing clients, actually selling prospects, which are business developers do, was actually -- they were very strong. And so because the -- of our sales productivity strength there, that's the one place that we have added to our sales force going into 2026, which we think positions us well. Both 2026 and '27 is take time for people to full productivity. There's a lot of other changes that gives you a flavor for -- you didn't talk about a lot. We are continuing to innovate and maybe pick up the pace of innovation in sales and services as well. Operator: Our next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: You guys always give us a lot of data, specifically on the retention side. And I know there's a lot of noise in that number because of federal government, et cetera. But I'm just curious, are you seeing clients keeping their relationships with you, but maybe cutting back on seats or taking a lower level of service? And if that's happening, how do you counter that? Eugene Hall: Yes. So let me get started on it. So basically, what you said is exactly right, which is, we see very 2 clients actually outline casted us. Of course, we lose clients because there's virtues of acquisitions, some small companies go out of business, things like that. We make a stake sometimes, but if we look at '24 to '25, most of the retention issue we had was a client who has times saying, well, because of budget problems, I'm going to go down to 9 states. And that's kind of been the retention program issue that we faced. So that has been clients saying, well, I would go buy the Gartner. It's kind of -- it's been more -- I get a lot of Gartner. It's tough times, in fact, what often happens is clients have turnover. So somebody will leave a job, let's say they retire. They may not fill that position immediately. That's the most real see -- if someone leaves the job, changes companies or retires whatever. And it happens to sort of budget and they basically say, I've got 10 seats, one of them, so there's no one there right now because they left the company, so why don't we cut that seat out and then we'll revisit it when we get the position build. That's the most common thing we face in today's world. Craig Safian: And Jeff, just on the metric side of that, you can see, if you look at just the total global sales, client retention rates are up about 100 bps year-over-year. And so not only are we holding on to that, we're holding on to more of them on a year-over-year basis. The challenges all the things that Gene highlighted. And again, we believe all the things we're doing around the insights transformation are the things that are actually going to help change the outcome there from a retention perspective. And again, if you think about the investment in BD that Gene just talked about, all the things we're doing in the transformation business, continued process automation and process improvement, all of those things are what we believe will sort of bridge the gap and allow that contract value growth rate to accelerate in 2026.. Operator: Our next question comes from Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: You mentioned the tougher selling environment. I was just wondering, based on what you've seen in Jan, any thoughts or based on the feedback that you might have received for the sales people, how do you think about the sales environment in '26? what in particular, if you can talk about the demand environment and the budgets, how are shaping up? And color on those external market forces by industrial, that any particular industry like the tariff impact to industry if you have seen any lessening of pressure on that front? Eugene Hall: So we're certainly assuming that this year 2026, that the selling environment is going to be no better anticipated in 2025, that there's still going to be lots of challenges. So that's kind of our assumption. What I will say is that there are areas that are worse. So for example, when you're -- we sell to every industry, including, for example, oil producers. And if you look from oil prices going down, they have a tougher environment than I did even last year with lower oil prices. On the other hand, a lot of the tariffs have stabilized. So some of the companies that had turnover tariffs are kind of -- and with 15% tariffs, if that's where it stays at, we can live with that. And so I think it's a mixed bag in sort of every part of the economy. And so there are some parts that are a little bit better and there are other parts, I think, that are worse. So -- but again, we're assuming behind is not going to get better at all. Operator: Our next question comes from George Tong with Goldman Sachs. Unknown Analyst: This is Sami on for George. Your margin guidance suggests a step down from 2025. Is this the new baseline for the business since the incremental investments seem more PAUSE structural? Or do you view the decline as temporary and margins should return to that 25% level fairly quickly? Craig Safian: So as we built the plan for 2026, I'd say a couple of things. So one is we've been managing our run rate into 2026 over the course of 2025. And we talked about this a little bit in our prepared remarks, basically ensuring our cost base is aligned with CV growth and also with the corresponding revenue growth. And so some of the actions we took 2025, we got benefit in '25 -- 2026 Those were really for 2026. So that would be the first point to make. Second point I'd make is we've got our assumed operating expense plan, if you will, for 2026. Growing at about 5% year-over-year. And there's a little bit of FX in there. So on an FX net basis, growing around 4% year-over-year. That's basically our merit increase plus some selected investments, which we talked about in our prepared remarks. And then the third thing I'd say is, yes, we do believe that, that 23.5% is the new baseline, if you will, and we should be able to expand our margins going forward. Now again, with faster CV growth, as Gene highlighted, that certainly helps from a revenue growth perspective, EBITDA flow through free cash flow perspective, et cetera, and ultimately margin perspective. But again, we baked in accelerating CV growth into our plan for 2026. As you know, the revenue does lag that. And so that's also part of the margin bridge story from '25. Operator: I'm showing no further questions at this time. I'd like to turn the call back over to Gene Hall for closing remarks. Eugene Hall: So here's what I'd like you to take away from today's call. Q4 financial results were ahead of expectations. Margins and free cash flow were strong. We reduced our shares outstanding by 8% in the year. In 2025, we began transforming business and technology insights on 4 dimension: Impact, volume, timeliness and user experience. These transformations will allow us to thrive and will it greater change and uncertainty. We expect to see the impact over the next few years, and we'll continue to keep you updated on our progress. Looking ahead, we're well positioned to accelerate CV growth throughout 2026. We will continue to create value for our shareholders by providing timely objective insight, guidance and tools for our clients, responsibly investing for future growth, generating free cash flow well in excess of net income and returning capital to our shareholders through our repurchase program. Thanks for joining us today, and we look forward to updating you again next quarter. Operator: Thank you for your participation. You may now disconnect. Good day.
Olof Grenmark: Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 2025 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas; and our CFO, Hakan Gabrielsson. We will also have a Q&A session, which we will start here in Stockholm. Mikael, the stage is yours. Welcome. Mikael Staffas: Thank you, Olof, and good morning to everybody from me as well. We in Stockholm here have a crispy morning. When I woke up this morning, it said minus 15 degrees outside of my bedroom window. Today, we will give the presentation of the Q report, and we'll also touch on the R&R statement update that we've also issued this morning. So generally speaking, for Q4, there's been a very strong metal price development. Everybody knows about this. And of course, precious metals have been really rallying during the quarter. At the same time, we've had a negative development on prices and terms, but that has in relationship to, of course, a much smaller movement. We have a continued strong mine production in Aitik. We have been stripping very, very hard for quite some time, and we are now happy to say that we're, in some way, catching up on the stripping depth that we've had before. We're also happy to say that the grades are going up in Aitik and have now started on their journey on going upwards. Apart from Aitik, we've had generally lower grades in mines. To some extent, this is maybe slightly more than we had expected, but part of this was already in our guidance that we've had before. We had a stable production in smelters. We're very pleased with that in general. We had a one-off positive of SEK 410 million linked to summing up of taking care of the metals in Ronnskar in the fire as we had the fire metals in the tankhouse, was going down and going down into the ground. And we have now, during this quarter, done a summary of that and where we are actually standing, and we have been able to recognize this SEK 400 million positive effect. The dividend has also been recommended by the Board. This is fully in line with our dividend policy of 1/3 of net profit, and it amounts to SEK 11 per share. We also have a very positive R&R development. I'll get back to that in a little while. So the financial performance in general, a little bit more than SEK 4 billion in profit. It's the third best profit in the history of Boliden for a quarter, which is good. We do have the positive SEK 410 million one-off, which is much lower than what we had last year in that comparison. The free cash flow also quite healthy at SEK 2.7 billion despite record level investments. And we've had a favorable development of working capital in the quarter. And the CapEx, as I said, according to budget, but on a high level. On the key projects, on the Odda project, there's not really much more to say compared to what we said when we issued the guidance for 2026. We are right now in the middle of commissioning, and it's going so far well. We have started to deliver some of the Odda Leach product actually as the first delivery. It's a very small-scale delivery so far. The Ronnskar tankhouse is on track and ramping up during the second half of this year. The Boliden Area tailing management is also on track. And the early part of the Garpenberg expansion, which is the Paste project, is also moving on according to plan. We have been also getting, which we were hoping for to get the environmental permit for Garpenberg. It has been appealed. So the appeal process will be launched here going forward. On ESG side, we're also [indiscernible] with the development. The greenhouse gas emissions are going in the right direction. And you always have to point out that when you look on the graph here to the right and also on the comparison number that we have not restated any previous numbers with the acquisition of Zinkgruvan and Somincor. If we were to take that into account, this is looking much better. The lost time injury frequency at 3.6 is a very good number, even though it was even better last year. And this also means that we're ending up the full year on 3.6, which is, I think, the best year in the history of Boliden. Sick leave continues to move in the right direction. We're not quite back to pre-COVID levels, but we're approaching coming back to pre-COVID levels. On the market side, and I think this slide shows it all and everybody wants to discuss that, yes, we've had negative currency development, and you see that on the little graph below, the bluish graph. We've had relatively weak TCs, zinc and for copper on the spot side. And we've had -- but we had copper or metal prices that have more than enough outweighed that, especially the precious metals, gold and silver, but also relatively strong copper and also slightly -- at least slightly improving also zinc prices. If you look at this on the cash cost, and I think that this -- if there's any time maybe you should not look too much on to this graph is right now because it will be lots of discussion with the people who make this one and the source of this information, exactly how they will account for the precious metals in this because with the big increase of precious metals as is most of the zinc or copper mines in the world have that as a byproduct and as a credit means that cost will go down. You see here in the assessment for '25, that costs are down, but I will not be really responsible exactly how this has been counted. But it's not that the zinc mines in the world are getting so much better at managing cost. It has to do with the silver price going up. And the same thing with the copper mines in the world not getting better in managing the cost, it's the gold price that is going up. If you look at our mine production, once again, in Aitik, we've had a milled volume around what we've guided for. The grades have improved versus Q3, and we had a strong total mine production with very good stripping in the quarter, which is going to help us going forward, especially to work with how to get around the diorite issue when we will get more potential [indiscernible] to work from. In Garpenberg, I think this is the second best quarter ever in terms of throughput [indiscernible] grades are lower, but that's also according to plan. Kevitsa, stable production at capacity, lower grades also remain [indiscernible] to plan. Somincor, quite a strong improved operational efficiency we've seen during the quarter. Tara continues with the ramp-up. And in Zinkgruvan, we had good production, slightly lower zinc grades this quarter also, nothing to really look into in long term. It's more or less according to plan. On the smelter side, it's been generally good production, especially on the copper side, good production in Ronnskar with high free metals; good production, actually record production in Harjavalta in terms of copper cathodes; high silver production. At Kokkola, slightly lower. We've had some process disturbances during the quarter, maybe not much. Odda is continuing to doing well in one way, but of course, also struggling operating a zinc smelter right to a major construction activities. Bergsoe had some planned maintenance in the quarter. Otherwise, everything went well. And with that, I will give over to you, Hakan, to talk about the numbers. Håkan Gabrielsson: Thank you. Good morning. So as Mikael said, we are reporting an operating profit, excluding process inventory of SEK 4.1 billion, which is clearly above the comparison period. I think it's also worthwhile to look at the operating profit then including process inventories, which is at SEK 5.8 billion, a substantial increase to the comparison. And that's, of course, due to the stronger metal prices and the big part pressures that we have in the process inventories. This leads to an earnings per share of SEK 15.31, which is a 40% increase compared to last year. On this slide, you also see a high investment number. We do have high CapEx, which is completely in line with the guidance. And all in all, a strong cash flow at SEK 2.7 billion. Looking at the profit by business area, you can see that mines has had a really good quarter, of course, helped by the rally in gold and silver and also strong copper. Smelters is also clearly up compared to Q3, and there are a few reasons. One is the one-off recovery adjustments that we talked about already in December, but also smelters are much helped by stronger precious metal prices, and we also have slightly less maintenance in Q4 compared to Q3. If we then dive into the analysis of profit quarter-on-quarter here and start with the one comparing Q4 of this year -- or sorry, Q4 of 2025 to Q4 of '24. Looking 1 year back, much is about adding the acquired units. It will come back in many of the lines here. But we can start with prices and terms where we've seen a strong improvement. Metal prices, if we only look at the metal prices isolated, contributed by about SEK 2.5 billion compared to the same quarter 1 year back. And then it was then offset by a lower dollar and lower TCs, landing at a plus of almost SEK 1 billion. So all in all, a good development. Volumes up 1.5. That's mainly the new mines and also Tara that has been ramping up. It's a little bit offset by weaker grades above all in the Boliden Area and Garpenberg. Costs, same things. It's an effect of the acquired mines and the restart of Tara. If you back out those top parts, we're roughly flat with the same quarter last year. So we do not see much of an inflation at this point in time. And I think, yes, we can also comment on the items affecting comparability. We have insurance incomes and we have recoveries in Ronnskar, and that is further specified in the report. If we then move on and look at the sequential comparison, Q4 to Q3, you can again see the big impact of stronger prices. And that's primarily silver and copper in this comparison, but also gold. Volumes, though, is a bit down, and we talked much about Q3 being a very, very strong quarter with some records in it. We have slightly lower production in mines, both throughput and grades with the exception of Aitik, where grades is starting to move in the right direction. Costs, they are seasonally higher. We see a pretty strong seasonality. As I mentioned, compared to last year, it's roughly flat, but we do have higher costs in Q4 than Q3. So it's seasonality, we spend a bit more on external services. And also due to the strong development of prices, we had to increase our provisions for profit sharing and similar in Q4. Moving on then to cash flow. Well, we've talked about the strong earnings, EBITDA. We talked about investment being in line with guidance, but we also had a good quarter in working capital. Typically, what happens when prices go up is that we tie more capital. Each tonne of inventory has a higher value and so on. But regardless of that, we've been able to release working capital also in this quarter, which is the third consecutive quarter with a positive number in here. So all in all, we are happy with the cash flow. And that's -- with that cash flow and with that price development, it sums up in a strong balance sheet. We have a net debt to equity now down to 20% as a result of this good development. So a strong balance sheet and robust financing to support that. This is also a time when we look a bit at the full year numbers. And this year, we reached an operating profit, excluding process inventory of SEK 10.7 billion. It is down compared to last year, but then last year was very much boosted by big insurance income. So adjusting for that, it's a step in the right direction. Prices and terms has a positive impact. Volumes are up. And of course, the acquisitions and the restart of Tara is an important part of this. But all in all, it has been a good year. And looking at mines, you can see the profit, the EBIT for each one of the mines and a couple of ones that I'd like to highlight is the Garpenberg mines, really strong performance with an EBIT of SEK 4.4 billion, of course, helped by good silver prices, but also by a good operational year. Also the Boliden Area, which is showing an impressive result of just over SEK 2 billion. That is another good year. And again, good operational performance, but also good prices on gold, in particular, helps the Boliden Area. And SEK 2.5 billion profit is great. We don't disclose the return on capital employed, but of course, it's a fantastic number for a site like Boliden. I'd also just like to highlight that in the Somincor and Zinkgruvan numbers, the depreciation of the overvalues following the acquisition are included. Looking at an EBITDA level and extrapolating to a full year, it's within the range of what we guided for, for these 2 mines. Smelters, a year that has been, to some extent, characterized by low treatment charges. Still we arrived at SEK 3.7 billion, down compared to last year due to the one-off insurance income we had last year. But there has been some pressure on prices, but the gold and silver has compensated that, especially in the copper smelters. Harjavalta delivering a result in excess of SEK 1.5 billion and Ronnskar with a SEK 1 billion profit, which is a really good number considering that we still don't have a tankhouse on that site. The zinc smelters are suffering a bit more with Kokkola coming down and Odda having a negative result due to the prices, but also due to the expansion project having a slight negative effect on the daily production. And I think this is also an effect of not being able to recover silver, which we cannot today in Odda and it underlines the importance of the project that is currently ongoing. So with that, I'll hand over to Mikael. Mikael Staffas: Thank you, Hakan. Now we've had some technical issues with my microphone. Hopefully, now it will work on here. As I said in the beginning, we also released today the R&R statement and the R&R statement, in my mind, looked very, very strong and very good. Generally on exploration, we spent a little bit less than SEK 1 billion on this during the year. It is areas that are familiar to you. It's close to our existing operations. So it is apart from the fact that we're working on early exploration in Canada, which is new geography to us. We are mainly working within existing geographies. And if you then look at the actual reserves update at the end of 2025, well, we have increased reserves in the Boliden Area. We have -- in Somincor, in Tara and in Zinkgruvan. This is mainly due to improved price assumptions. And here, now you have to be kind of careful because this is that we had -- these are price assumptions that were set in the beginning of 2025 for doing the calculations during 2025. They were slightly better than the ones that we had in the beginning of 2024. They are nowhere close to where we are today on spot prices. So these are still, with today's prices, extremely conservative, but they're slightly more aggressive than we were a year before. When you do that, you get better volumes, but typically, you get lower grades because you will incentivize mining from lower grade areas. Now what is great this year is that we have this increased volume, and we do not have lower grades. And that's mainly due to successful exploration that fills in this whole gap in a very good way. Then we also, of course, had lots of work during the year to transfer Zinkgruvan and Somincor into both the PERC standard and into the Boliden way of reporting within PERC. That's, of course, a process where lots of people have done lots of work, but it's nothing strange that has come out of that work. So if you then look at that, you can see that Aitik, we do not have a new update for reserves. So reserves are still ending up in 2048, which is a year shorter than the last year. But as I said, we have not had an update of the optimization for the reserves. The Boliden Area, very strong update, now extending to 2036 from 2033, so a 3-year addition in the Boliden Area, and it looks good and it's all 3 mines that are contributing to this. Garpenberg, on the reserve side, it has continued very good. We'll come to the resource in a while that looks really good. Kevitsa, nothing new happening. We are working on with the pushback #4, which means there is a 2034 end of life of mine. Somincor, partially because of the different ways of counting and doing so on the official life of mine is now 2036, which is already a year or 2 better than what we said when we bought it and much better than what Boliden had reported before. Tara is adding another 2 years of reserves up until 2032. And Zinkgruvan also increasing of 2.5 million tonnes, which is then also means that we come up to 2035. And then to the right in the exhibit, you can see the 10-year development. And you can see here after 10 years of really hard working in the Boliden Area, we managed to increase the life of mine from about 9 to now over 10 years. And it's the first time, I think, ever that we have Boliden over 10 years. And Garpenberg, very strong development, close to 25 years life of mine. If we then look at the resources, we can see that in the Aitik area, we have both indicated resources and inferred resources going up in Aitik itself. And additionally, here, Nautanen now coming in, if you add these 2 together, at over 50 million tonnes of indicated and inferred together, which means that this becomes enough to really warrant a deeper look into actually making a project out of this given the high grades that we have there. In the Boliden Area, despite the fact that we have had the resource conversions into reserves, you had a 3-year extra reserve side. We still have more resources coming in at the Boliden Area from very successful exploration during the year. In Garpenberg, we have altogether about 25 million or 30 million more tonnes of resources coming in. We are then adding up the amount of tonnes and the resource together. We're getting close to 150 million tonnes. This is getting large enough that, as I said to some journalists this morning, it's kind of absolutely wrong not looking into expanding the Garpenberg mine with the, once again, very successful R&R update that we had. Somincor, here, you have to be careful about the comparison numbers because we are really comparing apples with oranges. So you need to be perfect there. But as I said, the Somincor looks relatively good, tara looks relatively good and Zinkgruvan looks relatively good. So all in all, what I feel is a very strong R&R update. Outlook for the coming year, no news whatsoever. This is exactly the same as we said in December. So there are no news. The only little news there is that we are right now, as I'm speaking, experiencing very heavy rains in Portugal, and we've done that all through January. That has caused issues for us in water management. We're far from alone. I think everything in Portugal is affected by these rains. It's, of course, very unclear what will happen going forward in the rest of the quarter. We don't know the exact weather. Therefore, it's very difficult to say exactly how much this will impact in Q1. But our estimate as of today is that it's not going to impact more in Q1 than that we're going to be able to keep the full year guidance for Somincor. It's mainly the mill that's affected by this, not so much the mine. And as you know, in Somincor, it is the mine that's the bottleneck and not the mill. So we should be able to catch up over the year what we lose potentially from having to stop because of water issues. With that, I will invite you all with questions. Olof Grenmark: Ladies and gentlemen, that opens up our Q&A session for the Q4 2025. I've been informed that we have many questions on the web. [Operator Instructions] And we'll start here in Stockholm, and we have Kaleb Solomon, SEB. Kaleb Solomon: Yes. You mentioned in the mineral resource report that the Finnish mining tax for Kevitsa wasn't factored into last year's reporting. Can you give some color on to what sort of extent you expect that cost increase to impact resource estimates? Mikael Staffas: In terms of the reserves, it will not impact at all because that's the pushback #4. In terms of the resources, I cannot tell. Kaleb Solomon: Okay. And recoveries at Aitik were pretty much back to normal levels, close to 90% this quarter. Is it fair to say that the sort of recovery issues are completely behind you? Mikael Staffas: Yes. Olof Grenmark: Johannes Grunselius, SB1 Markets. Johannes Grunselius: Yes, I have a question on Odda and what you see there for the coming quarters. I think you have guided for EBITDA uplift of EUR 150 million or something like that. Can you give some color if that's intact and what you see for the coming quarters in terms of sort of tailwind? Mikael Staffas: I don't have a good number. Maybe you do, Hakan, but the EUR 150 million for an annual number, I say, what as of right now is quite understated given the high silver prices. The uptick should be bigger than that. But I don't have another number to give you. But I would say that as of right now, the EUR 150 million is actually pretty conservative. And then that's for the full year status. And of course, we will not have full year production in 2026, but maybe 3 quarters of full production or something like that if now we continue with the ramp-up during Q1 as guided. Johannes Grunselius: And you feel comfortable about the ramp-up, where you are at the moment? Mikael Staffas: Yes. The ramp-up is going more or less according to plan. And as of yesterday, we went up to full year to say, 24/7 manning on this one. So now we're basically running the process altogether. We haven't started feeding concentrate yet, but it's going forward the way we're anticipating. Olof Grenmark: Christian Kopfer, Handelsbanken. Christian Kopfer: It was a quite solid result. I just -- if I look at your production, especially in the mines for Q4, correct me if I'm wrong, but it seems like you didn't live up to your own expectations in the mines on -- if you look in full for Q4, if I'm wrong, you can just tell me. But if I'm right on that, from your perspective, was it, call it, normal hiccups? Or how do you see Q4? Mikael Staffas: The mine production, the grades apart from Aitik are slightly lower than what we had expected. So it's -- you can say grades issue, and I would say this is all timing issues. There's nothing that will matter in the long time. And the throughput was around where it should be. Christian Kopfer: But it was something in Kankberg, I mean, the gold mine. So it seems like you came down quite a lot on gold in Kankberg. What was that? Normal hiccups or... Mikael Staffas: No, I think it's mainly a lower part of Kankberg in the total ore mix, and that goes normally up and down. So there's nothing wrong in the actual -- by the way, I didn't say that. But in the R&R statement, the reconciliation is also done this year and the reconciliation looking for all of '25 compared to what the R&R statement had for '25 and what we had in our plans is clearly within tolerances. Christian Kopfer: All right. Finally for me then for Hakan. If prices, everything flatten out, what would you say is the internal elimination, call it, reserve, what you will get back in internal elimination if everything flattens out? Håkan Gabrielsson: Well, that's an interesting question because it depends where it flattens out. But from now, it all depends to prices where they stand compared to year-end. And I think that we have, let's say, a couple of hundred to release at constant prices. But then we'll see where the prices take us because that has a big impact. Olof Grenmark: Igor Tubic, Carnegie, please? Igor Tubic: I just want to go back to the production for the full year because looking at your numbers, primarily for Aitik and Tara, you guided for 40 million tonnes and you reached slightly above 39 million. And for Tara, you reached slightly above 1.4 million and you guided for 1.6 million. And looking for 2026, you have guided for increased numbers. Can you please elaborate a little bit around that so we understand what you are doing in order to improve the ore milled? Mikael Staffas: In Aitik, you know that why we are not close to the 45 million is because of diorite issues that we've had in the ore. And diorite is not going away overnight, but we will have less diorite, and that's why we can go from up to the 41 million that we have guided. In Tara, it's a more complex situation. It's a new organization. It's a new setup after we restarted from having been in shutdown, and we have not been able to achieve the productivity during the year that we had anticipated. We were also late in getting some contractors in. As we look for 2026, that looks better, and therefore, we feel confident about what we have guided about it. Igor Tubic: Okay. And the second question, have you seen any prebuying among your industrial customers? Mikael Staffas: I actually don't know. I'm looking at my CFO. Håkan Gabrielsson: No, I'm not aware of that. I don't think we've seen any of that. Olof Grenmark: Any more questions here in Stockholm? Okay. Operator, then we hand over to the international questions, please. Operator: [Operator Instructions] The next question comes from Alain Gabriel from Morgan Stanley. Alain Gabriel: A couple of questions from my side. I'll do them one at a time. Firstly, Mikael, on the Odda project, you sound as if you are quite satisfied and happy with the progress of the project. Do you mind giving us a bit more color how you expect the earnings to be phased over the course of the year, the earnings uplift from the project? And what would be the approximate mark-to-market earnings uplift on spot commodity prices because clearly, things have moved quite a lot since you've given the estimated uplift. That's my first question. Mikael Staffas: And on the mark-to-market on spot, I may look at my CFO for that number. As I just said before, I actually don't know. The other question is around when I feel it's going to come. Well, I think that we should be in full production by the end of this quarter. And therefore, you can say that we should get roughly 75% of this during the year as a whole. So that will be a number on kind of how the timing will work out. Håkan Gabrielsson: And regarding the spot level of the uplift, I think we'll leave it at the level where the EUR 150 million is understated. We did a simulated performance this Friday -- or last Friday. And just in a couple of calendar days, the whole price environment has changed quite a lot. So for that reason, I'd rather not give any exact forecast. But we leave it at the fact that it's understated, the EUR 150 million. Alain Gabriel: Okay. Understood. And my second question, it's a high-level question on both Somincor and Zinkgruvan. You seem to have extended the remaining life of mine with the latest R&R update as you've also just articulated now. How are you thinking about the medium-term capital allocation to these 2 mines? Are there any big ticket items that may be needed to ensure that the life of mine is actually extended to the mid-2030s as you are planning to do? Mikael Staffas: Somincor will need a ventilation shaft to put in relatively quickly. I don't know exact number. That is still relatively modest CapEx, but it's there. For Zinkgruvan, we don't see if we need to do any kind of major changes. It's more continuous as is and with just normal replacing CapEx. Operator: The next question comes from Liam Fitzpatrick from Deutsche Bank. Liam Fitzpatrick: I've three hopefully quick questions from me. The first one, just on the dividend -- in terms of the special dividend. It looks like if we look ahead a few quarters, you could be well below the 20% gearing threshold. So could you just remind us of the policy in terms of how you would look at potential top-ups in a year's time? Second question, just on the CMD in March, you had a CMD a year ago. We had the update from you in December as well. Are you able to give us a little preview of kind of what to expect? Is this going to largely be a progress update? Or should we expect to hear about new projects and initiatives? Mikael Staffas: To start with the dividend policy, just to remind everybody, we have a clear dividend policy of 1/3 payout ratio from net profits. That's what you've seen suggested here today. Then we have -- the next one is that when we are having a too strong balance sheet and strong is defined as having less than 20% gearing. And then this time, we include the net reclamation debt as well into the gearing. And we also take care of the fact that we already -- it will be after the ordinary dividend. And that number right now, I think, was 30% or 32%, so clearly north of 20%. I don't want to make any prediction of when this is going to happen or if it's going to happen, it will all be down to price and terms. On the CMD in March, you can expect update on projects. And of course, this will be, I think, right when Odda is maybe very hot off the press. We will have updates from also what's happening in Ronnskar and how we're doing in the Boliden Area sand recovery project. Regarding new projects, we will see what we get, but hopefully, there could be something around that, and it will not be something that comes straight out of the sky, but we have discussed that there are potential further steps into Garpenberg, and we have discussed that there might be some discussions around cement during the early part of '26. And to the extent that we get this in place, you might hear more about that also in March. Liam Fitzpatrick: And just as a quick follow-up, we can safely assume that any sort of new approvals or additional steps are kind of captured within the SEK 15 billion CapEx number for '26? Mikael Staffas: We'll see. I could add just to be very clear to you that those 2, for example, will have relatively little CapEx in '26. It's more '27, '28 that will be affected. Operator: The next question comes from Amos Fletcher from Barclays. Amos Fletcher: Just a couple of questions on cash flow items. I just wanted to ask Hakan on the cash tax side, it looks like you paid very little in the quarter relative to the P&L accrual. Should we expect some catch-up in Q1? And then the second question was on working capital. Can you guide on sort of what your expectation for the quarterly dynamics through 2026 is? Obviously, it sort of feels like we're at a relatively low level of working capital at this point. Håkan Gabrielsson: Thank you, Amos. Two good questions. I'm happy you asked that about the tax one. I should have perhaps highlighted that already in the presentation. But it's right. The way it works is that you decide a preliminary tax level based on where you stand in the beginning of the year and then we pay according to that. And given the development that we've seen in the later part of the year, it is a quite big tax amount that we will have to catch up with the final payments during this year. And we have some flexibility when during the year to take it. But there is a fair amount of catching up that we'll have to do this year. Secondly, working capital, we typically tie working capital in Q1. Looking back over the years, it's about SEK 1.5 billion at constant prices. Then it's relatively stable in Q2 and Q3 and then Q4, we release roughly the same amount. So that's -- I mean, to give some indication for Q1, I would expect us to tie about SEK 1.5 billion working capital. What's happening this year as well is that we have a little bit extra in working capital for Odda. That's fairly small amount since it's zinc. But then towards the end of the year, we'll also come back with an amount on how much we're going to tie for the Ronnskar ramp-up. I think we're talking about SEK 1 billion to SEK 1.5 billion, depending on where the prices stand. Amos Fletcher: Okay. And then one little follow-up, if possible. I just wanted to ask on the MAMA effect in this quarter. Could you talk us through what that was and where expectations should be for Q1 that, let's say, flat prices where we are today? Håkan Gabrielsson: The MAMA effect, just to repeat what that is, that is the open positions we had when we started the Q4 and that got their final pricing. So in Q4, that had a positive impact of SEK 300 million. And assuming that prices are flat compared to where we -- to the end of the quarter, that should be pretty much 0. But then again, we'll have to see where the spot prices end up, but SEK 300 million for Q4. Operator: The next question comes from Jason Fairclough from Bank of America. Jason Fairclough: Just a question for you on the reserves and resource statement. I wonder if you could just talk high level about the sensitivity of your reserves and resources to the prices that are used to calculate those reserves and resources. Also, you've given planning prices. Are those actually your reserve calculation prices? Or is that what you're using to run the business in the short term? Mikael Staffas: If I start in the end of that question, the answer is we use the same. Our planning prices are used both for investments in the kind of medium term, a couple of years out and also for calculating R&R. So it's the same number. And therefore, you can now see what we have been using throughout the year as a planning price for investment. Regarding sensitivity to prices, well, the Aitik mine is very sensitive to prices and terms on gold and on copper. And it's not -- even though you're not supposed to talk about it, of course, Aitik at today's spot price and terms would be vastly larger than what you see here. The underground mines are less sensitive, even though there's always some sensitivity, but the underground mines are less sensitive to these fluctuations. And as of right now, you can say that the whole resources in Kevitsa and their ability to be upgraded to reserves is very much dependent on pricing terms, but also tax levels in Finland. Jason Fairclough: Okay. Can I just do a follow-up one as well? And I think this is one we've talked about before. So CapEx, there's always a bit of discussion as to how much money you guys need to spend to keep the business running to keep output flat. And I think in the past, this figure has been as low as SEK 7 billion, but I think you've drifted that up a little bit now. These days, you have some new mines. So how do you think about sort of a through-the-cycle level of CapEx required to keep the mines running? Mikael Staffas: Do you want to take that, Hakan? Or should I go ahead? Håkan Gabrielsson: Well, I mean, you're right. I mean we've added a couple of billion due to the -- I mean if you start at the SEK 7 billion and then you add a couple of billion for the new mines and some inflation, then I think you're ending up roughly right. But in addition to that, I'd like to defer that for a month or so until we have the capital markets update because that's the time where we usually dive into the CapEx question a little bit more. But I'm not sure if you want to highlight some more there. Mikael Staffas: No, it is -- of course, you can get a number to answer your question, but it's also -- and everybody is aware of that, that when we talk about sustaining CapEx that what we need to kind of get on from year-to-year. If we only do sustaining CapEx, we will eventually deplete the mines because we're not developing anything new and we're getting to lower grades. So yes, sustaining CapEx is one level where if you go below that, you will very quickly reduce your production, but then there is something more if you really want it flat for a long time. But as I said, Hakan will have that as a little bit of a discussion on the capital markets update as well. Operator: The next question comes from Daniel Major from UBS. Daniel Major: Just first one on Garpenberg, two parts to it. One, can you give any approximate indication of the time lines on the appeal process for the environmental permit? And then the second part, assuming the permit is not appealed successfully, when would you expect to achieve the 4.5 million tonne throughput run rate? Mikael Staffas: We have guided for the 4.5 million. We have guided to you that we are aiming to increase by about 200,000 per year for 5 years. So around 2030, we'll achieve the 4.5 million. Regarding the appeal timing, it's always very difficult to tell. But as a rule of thumb, a year from the verdict. So sometimes late this year, we should be able to get the verdict from the appeals court. Daniel Major: Okay. Two modeling questions. Maybe I missed it, but did you give any guidance for the distribution of maintenance through the year quarterly in the smelters? Håkan Gabrielsson: I'm looking at Olof. No, we haven't done that. We have to complete that during the capital markets update. But typically, Q2 and Q3 are the heavy quarters. It's relatively small numbers in the other quarters. Daniel Major: Okay. And then the final one, how much have you got left in terms of cash insurance proceeds that comes through in receivables in 2026 from the insurance claim? Håkan Gabrielsson: It's about SEK 330 million that is due to be -- well, in fact, we have received it already in January, but it will be a positive then in the Q1 cash flow. So where we stand here and now, there is nothing more to receive, but SEK 334 million, I think, that we received in January this year. Daniel Major: Okay. And so your net is expected to be at SEK 1.5 billion working capital build after that. Is that the right kind of ballpark? Mikael Staffas: Yes. Håkan Gabrielsson: Yes. That is correct. Operator: [Operator Instructions] The next question comes from Richard Hatch from Berenberg. Richard Hatch: Two questions. Just the first one, just on cost inflation. Hakan, you mentioned that you weren't really seeing any cost inflation, but I guess it's only a matter of time if prices remain this high. So can you just give us your thoughts on the outlook for cost inflation and where and when we might be seeing it? That's the first one, please. Håkan Gabrielsson: Well, that's a difficult question. I wish I had a crystal ball to answer that. But looking at what we see right now, we do have the regular salary inflation, which is fairly limited in our part of the world. And then for the external purchases, we haven't seen much inflation at all, I should say, on OpEx. It looks like there is more inflation on the CapEx side, but that's more difficult to compare quarter-to-quarter. I guess you're right, if we see the same price levels, there is a risk that we see a pressure on the inflation, but it's a bit difficult to say then when and where that will come. Richard Hatch: Okay. That's helpful. And I'll just -- so my follow-up is -- well, two follow-ups. One, you just talked about the CapEx inflation. Is that just because we're seeing more appetite from more companies wanting more hit. So therefore, there's a bit more tension there? Or is it something else? And then the follow-up is just on the tax. So I see your current tax liability is SEK 1.3 billion. You answered an earlier question with regards to the tax payments, but should we be perhaps unwinding that kind of SEK 1 billion-or-so build year-on-year on the tax liability over the course of 2026. Is that the right way to kind of think about it on a cash basis? Håkan Gabrielsson: Start with the taxes. Yes, that's roughly the right way of thinking of it. I think it's not really SEK 1 billion, but it's close to that level. And then CapEx inflation, I think we also have to come back to that in the capital markets update. But there is -- just when looking at projects, there is a feeling that things are increasing, looking at what is announced by other parties and so on. But let's come back to that. Olof Grenmark: Ladies and gentlemen, we have a few minutes to go. Are there any follow-up questions here from Stockholm? Yes, we have Jonas Grunselius, SB1 Markets. Johannes Grunselius: Okay. I'll take the opportunity for an extra question here. How about -- yes, I was wondering about Nautanen. You have applied for some kind of permit there to the EU. And I suppose you want to have a fast track. And can you elaborate when you see this project to sort of starting and when can you maybe go ahead with first commercial production? And how will all this change basically the Aitik feedstock into the mill basically? Mikael Staffas: Just on timing, I mean, it's unclear right now. As you know, the only -- we have a mining concession that's been appealed. We need to make an environmental permit. If we get the strategic status, that should all help and speed that process up. But I think we're still talking about 3 years just to be talking about order of magnitude. And then we will be able to move ahead with the investment and get production a couple of years later. So this is something that in best case has production 2030, 2031, something like that. How will it impact Aitik is a very good question because there has been this constant question about how do you best process the Nautanen feed? Do you mix it in with the general Aitik and just increase the average grade? Or do you, in some way, batch it? And that's still being worked around. So -- and if you batch it, then you can say Aitik -- the rest of Aitik should be totally unaffected by this one, and this will get its own kind of situation. And the answer is, we are not quite sure. The best guess, if you were to ask me today, is that we will probably invest in a new mill line and we will mill Nautanen separately, and then we will mix the feed from the mills and have a joint flotation, but that's the best thinking right now. Johannes Grunselius: Is the deposit fully sort of examined? Or do you see a potential for increasing the reserves? Mikael Staffas: Nautanen is open, I would say, in every direction, they're not quite true, but clearly opening towards the depth. So the 50 million tonnes that we have now should normally not be the end of it. So we are continuing exploration. Olof Grenmark: Any other follow-up questions here in Stockholm? Then I hear in my ear that we have some questions on the web, please, as follow-ups. Operator: The next question comes from Amos Fletcher from Barclays. Amos Fletcher: Just one follow-up. I just wanted to come back to one of the questions asked earlier about surplus capital returns. In a fantasy scenario of higher commodity prices going forward, would you typically wait until the end of the year to launch any kind of surplus capital returns? Or is that something that you could think about doing intra-year if your net debt-to-equity ratio gets low enough? Mikael Staffas: In the Swedish context, it's only the AGM that can decide that. That means that if we were to do it during the year, we have to call an extra EGM specifically for that purpose. Maybe not impossible, but I think it's highly unlikely. Olof Grenmark: Next question, please, operator. Operator: The next question comes from Marina Calero from RBC Capital Markets. Marina Calero Ródenas: I just have a couple of follow-up questions. The first one is on your cement projects. I've seen that you have received some grants or financial support from the environmental authorities. Do you consider increasing the scope of that project? And then a second question, of the one-off impact on recoveries in the smelting division, can you clarify what part of that has been converted into cash and if there's anything that still remains to be converted? Mikael Staffas: I'll leave the last one for you. On the cement project, you're absolutely right, and everybody who reads Swedish have read that, that we have received some grants towards the cement project. The cement project is about size. The one that we're looking into and the one we're working on is fitted pretty well for what is possible in Ronnskar. It's linked to the size of the fuming operations that we have. So there, the kind of the scope creep is relatively limited. But the technology as such is one that works well with copper slags. It actually works well also with zinc slags, and it might even work on mine tailings. So there might be many feeds into this process, which means that we could theoretically, over time, if this thing works and if it works in the market and if it works in production also at other sites, but that's way too early to tell. We are right now making sure that we get a first stage, this demonstration plant, as we call [indiscernible] up and running. And the size of that one, as I said, is determined by the size of the existing fuming operation. Håkan Gabrielsson: And second question on the one-off adjustment of recoveries. All of that has been converted to cash as of the end of Q4. Some came already in the earlier quarters, but by the end of Q4, everything is cash. Olof Grenmark: Ladies and gentlemen, time is flying. We have time for one final question from the web. And after that, I leave it over to you, Mikael, to end this session. Please go ahead. Operator: The next question comes from Liam Fitzpatrick from Deutsche Bank. Liam Fitzpatrick: Apologies. Probably a question for Hakan, just on the provisional pricing. I think last quarter, you broke it down into the 2 buckets. There was the MAMA and then there was the effect of a chunk of sales being priced at the end of the quarter rather than the average price. So I think last quarter, it was around SEK 100 million and then another SEK 200 million to SEK 300 million. So you gave us the MAMA figure for this quarter, which was SEK 300 million. Do you have the other number as well? Håkan Gabrielsson: I don't know. And I think it's just important to recall that we are not invoicing strictly according to average prices evenly through the quarter. It will depend on whether we invoice one week or the next week and so on. We have described the pricing methodology that we use in the capital markets material with MAMA peers. So I would rather refer to that than give any exact numbers. Mikael Staffas: What Hakan is really saying is that all these things are relatively easy if you have small deviations. When you have big deviations, this is more difficult to actually assess. So with that, everybody else, thank you all for listening this morning. It's been very interesting for me to be able to present this, especially the R&R update, which we feel very good about. We feel very good about the general strategy that we have. And we will now continue our meetings during the day, and we will face the 15 degrees minus temperature in Stockholm. Have a nice day, everybody.
Operator: Hello, and thank you for standing by. Welcome to Ashland's First Quarter 2026 Earnings Conference Call and Webcast. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. I would now like to hand the conference over to Sandy Klugman, Director of Investor Relations. You may begin. Sandy Klugman: Thank you. My name is Sandy Klugman, and I'm Ashland's Director of Investor Relations. Joining me on the call today are Guillermo Novo, Chair and CEO, William Whitaker, CFO, as well as our business unit leaders: Alessandra Assis, Life Sciences and Intermediates; James Minicucci, Personal Care; and Dago Caceres, Specialty Additives. Please note that we will be referencing slides during today's call. We encourage you to follow along with the webcast materials available at ashland.com under Investor Relations. As a reminder, today's presentation contains forward-looking statements regarding our fiscal 2026 outlook and other matters as detailed on Slide 2 and in our Form 10-Q. These statements are subject to risks and uncertainties that could cause future results to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but there is no assurance these expectations will be achieved. We will also reference certain adjusted financial metrics, both actual and projected, which are non-GAAP measures. We present these adjusted figures to provide additional insight into our ongoing business performance. GAAP reconciliations are available on our website and in the appendix of these slides. I'll now hand the call over to Guillermo for his opening remarks. Guillermo Novo: Thanks, Sandy, and welcome to everyone joining us. For today, I'm happy to join this call from Shanghai, China. I begin with our first quarter highlights and how we are advancing our strategic priorities. Later in the call, I'll return to share some of the latest innovation developments where we continue to see tremendous momentum and opportunities for differentiation. William will review our financial results, operational execution, and outlook. Our business unit leaders will provide additional insight into performance across their segments and markets. Please turn to Slide 5. Let's begin with a review of the key business drivers for the first quarter. We delivered solid results while navigating ongoing demand softness in coatings and constructions, supported by strong execution and disciplined cost actions. Life Science delivered healthy growth supported by resilient pharma demand and momentum across our Innovate and Globalize pillars. Injectables, tablet coatings, and high-value cellulosic excipients all contributed to year-over-year growth. Innovation continued to strengthen performance, with contributions from low nitride cellulosics, high purity excipients, and several new product introductions. Personal Care delivered stable performance with underlying demand broadly steady. Biofunctional actives grew double digits, and microbial protection continued to gain share as our Globalize initiatives supported high-value applications. Softer volumes in core hair and skin care primarily reflected unplanned and isolated customer plant outages, facing muted demand. Specialty Additives continued to with coatings and construction driving most of the year-over-year decline. Coatings weakness was most pronounced in China and select export markets, while construction softness reflected broader market conditions. Despite lower volumes, cost actions and HCC network benefits drove meaningful margin expansion. Sandy Klugman: Intermediate market conditions were modestly softer, reflecting trough-like dynamics across BDO and its derivatives, which pressured captive BDO transfer pricing. The merchant business was stable with steady volume and modest pricing pressure resulting in flat sales. Operationally, the team continued to manage through equipment replacement in Calvert City while delivering solid free cash flow. Although this issue impacted costs and pressured margins across the BPD chain, customer supply remained uninterrupted. The impact we expected to be contained within the first quarter will now extend into the second quarter, as commissioning of the new unit revealed additional equipment issues that are delaying the start-up. We anticipate completing necessary fixes and bringing the unit online later in the quarter. Guillermo Novo: Although outside Q1, recent weather-related events also have impacted our operations in the Mid-Atlantic. Customer supply remained uninterrupted, but we expect incremental costs, which William will address later in the call as part of our outlook for the year. While we saw month-to-month variability, we exited the quarter on a stronger footing, with December improving versus November and the momentum continuing in January. Taken together, these results reflect steady execution and continued progress across our strategic priorities. Now I'll turn the call over to William to walk through the first quarter financial performance in more detail. William Whitaker: Thank you, Guillermo. Please turn to Slide 6. Our first quarter performance reflects increasing consistency of our operating model. Across the portfolio, the team executed well, advanced our initiatives, and managed through operational impacts while maintaining solid cost discipline. The portfolio and manufacturing optimization actions we took last year are supporting margins through improved mix, lower costs, and a more efficient footprint. Evoqua was included in our Q1 results last year, but as we move into Q2, we fully lapped our portfolio actions, providing us with a clear performance baseline going forward and delivered strong operating cash flow. We've also strengthened our working capital performance, a focus area for the team. Altogether, the quarter reflects a strengthening foundation with early signs of improving momentum, indicating that a growth inflection is building as fiscal 2026 unfolds. Please turn to Slide 7. First, the consistency of our consumer-facing businesses, now roughly 85% of our portfolio, continues to provide meaningful stability and resilience. Second, our innovation and Globalize initiatives are gaining strong traction with sustained momentum in our highest value applications. Third, last year's structural actions are fully embedded, improving margin durability and positioning us for stronger leverage as demand recovers. And finally, even in segments experiencing more challenging conditions, our teams remain disciplined and focused on core fundamentals, ensuring we stay well-positioned as industry conditions evolve. Overall, the quarter reflects resilient performance as our streamlined portfolio, strengthened cost structure, and disciplined execution continue to support our long-term strategy. With innovation accelerating, Globalize expanding, and productivity initiatives progressing, we are well-positioned to build momentum throughout the year. And now on to the financial details. Please turn to Slide 9. Sales for the quarter were $386 million, down 5% versus last year. The previously announced Evoqua divestiture accounted for roughly $10 million or about 2% of the decline. Excluding this portfolio action, sales were down 3%, reflecting a mixed demand environment. Life Sciences continued to grow, supported by steady demand and ongoing innovation momentum. Personal Care remains stable overall and would have grown low single digits excluding the unplanned customer outages. Specialty Additives softened, reflecting broader demand conditions and ongoing competitive intensity. Pricing declined 2% generally across segments, primarily reflecting carryover adjustments from the prior year. FX contributed a favorable $9 million or 2% to sales versus prior year. And moving on to profitability. Adjusted EBITDA was $58 million, down 5% year-over-year, including a $1 million impact from the Evoqua divestiture. Sandy Klugman: Excluding that action, adjusted EBITDA climbed 3%, reflecting lower volumes and modest pricing pressure partially offset by favorable mix, lower SARD, and FX benefits. Importantly, the quarter included the anticipated $10 million adjusted EBITDA impact from the Calvert City outage. As Guillermo noted, we had expected the full effect to be recognized in the first quarter, but some impact will now carry into the second quarter, which we'll address in our guidance. Raw material costs remain generally stable to favorable, and we continue to benefit from our cost actions across the portfolio. Adjusted EBITDA margins held steady at 15%, with over 250 basis points of compression stemming from the Calvert City outage. Adjusted operating income grew 27% versus prior year, reflecting the stability of the underlying business as well as reduced depreciation and amortization from our optimization actions. Adjusted EPS, excluding intangible amortization, was $0.26, down 7% from the prior year, reflecting lower income. We delivered a strong quarter of cash generation, $125 million of cash provided by operating activities and $26 million of ongoing free cash flow, which excludes the previously disclosed tax refund. Lower working capital and CapEx drove healthy free cash flow conversion of nearly 50% in our seasonally low quarter. We ended the quarter with total liquidity of approximately $900 million, a strong position as we move into the balance of the fiscal year. Net debt was $1.1 billion, and our net leverage remains solid at 2.7 times, providing flexibility to invest in strategic priorities while maintaining disciplined capital allocation. Now let's turn it to our business unit leaders for a closer look at segment performance. Alessandra, over to you. Alessandra Assis: Thank you, William. Good morning, everyone. Please turn to Slide 10. For Life Sciences, sales were $139 million, up 4% from the prior year, driven by resilient pharma demand and continued strength across our Innovate and Globalize pillars. Pharma delivered low single-digit year-over-year growth, marking its third consecutive quarter of volume gains. Demand remains strong for our high-value cellulosic excipients, supported by broad customer engagement across regions. Injectables delivered another quarter of strong above-market growth with continued pipeline expansion and accelerating uptake of recently launched products, reinforcing our confidence in sustainable growth within this high-margin segment. Tablet Coatings delivered double-digit year-over-year growth across all regions, with particularly strong momentum in Asia Pacific. In Nutrition, recent wins and ongoing commercial activity continue to support improving traction as we move through fiscal 2026. Pricing was slightly lower year-over-year, in line with expectations and largely reflecting carryover impacts from prior year adjustments, but remained stable sequentially. Foreign exchange provided a $3 million benefit to sales. Turning to innovation, we continue to advance excellence in pharmaceutical ingredients. We saw meaningful contributions from our low nitride offering, including the recently launched Plasdome Low Nitride and Benacel Low Nitride Grain. In injectables, we launched our new high-purity viola sucrose stabilizer for biologics in October. Early customer engagement has been encouraging, with positive technical feedback and a growing commercial pipeline. In addition, multiple new injectable launches are planned for fiscal 2026, each supported by strong prelaunch customer engagement and rising market pull. These advancements reinforce our commitment to delivering high-quality solutions that meet evolving customer needs. Turning to profitability, adjusted EBITDA was $31 million, up 11% year-over-year. Margins expanded to 22.3%, a 140 basis points improvement, including a $4 million impact from the Calvert City outage during the quarter. The year-over-year increase was driven by favorable mix, resilient pharma demand, and lower SAR as restructuring benefits continue to flow through, partially offset by modest pricing pressure. Foreign exchange provided an additional $2 million benefit to EBITDA. Life Sciences continues to demonstrate strong operational discipline, resilient end-market demand, and consistent progress across both our Innovate and Globalize agendas. Please turn to Slide 11 for Intermediates. Intermediates' performance remained challenged, consistent with what we expected entering the fiscal year. Sales were $31 million, down 6% versus last year. Merchant sales were $22 million, with steady volumes and modest pricing pressure, resulting in flat year-over-year performance. Captive BDO sales declined to $9 million, driven by both lower volumes and lower transfer prices. Foreign exchange had a negligible impact on sales. Turning to profitability, adjusted EBITDA was $1 million, down from $6 million in the prior year, with margins declining to 3.2% from 18.2%. Margins compressed due to lower pricing, reduced operating leverage, and roughly $2 million of early quarter upstream production impacts from the Calvert City outage. The team remains focused on disciplined commercial execution, cost control, and navigating a market environment that is expected to remain challenged until broader industrial activity improves. Now I will turn the call over to Jim to discuss Personal Care. James Minicucci: Thank you, Alessandra. I'll now highlight our Personal Care results. Please turn to Slide 12 for Personal Care. Personal Care delivered resilient results, underscoring the stability of the portfolio despite mixed market conditions. Sales were $123 million, down 8% year-over-year, almost entirely due to the Evoqua divestiture, which reduced sales by approximately 7%. With the Evoqua divestiture now lapped, we have a clean baseline going forward into Q2. Organic sales declined 1%, reflecting a broadly stable demand environment. Biofunctional actives continue to perform well and delivered another quarter of double-digit growth versus the prior year quarter. Customer expansions and project pipeline conversions are accelerating. Colipepto, our 2025 hero product launch, is gaining broad-based market adoption. Colipepto mimics 20 collagen sequences in our skin, providing immediate flash hydration and corrects the appearance of both expression and deep wrinkles in the skin. Microbial protection delivered year-over-year volume growth above market, driven by share gains across most regions and customer wins. With a competitive and regional footprint, Microbial Protection is well-positioned to continue executing on a robust opportunity pipeline. Within Care Ingredients, performance varied by region and segment. In general, most regions performed well, with notable strength in the EMEA region and China. Care Ingredients experienced several unplanned customer plant outages in the quarter and softer demand in North America. Foreign exchange contributed approximately $3 million of favorability to segment sales. For Personal Care, innovation and commercial execution remain a strength, with continued momentum in our Globalize platforms and sustained demand for higher-value differentiated applications. Turning to profitability, adjusted EBITDA was $26 million compared to $30 million in the prior year. This includes a $1 million EBITDA impact from the Evoqua divestiture. Excluding that portfolio action, EBITDA was modestly lower, driven by the more than $4 million Calvert City impact and the demand trends noted earlier, partially offset by mix and cost discipline. EBITDA margins remained healthy at 21.1%, demonstrating the strength of the portfolio and the benefit of ongoing commercial and productivity efforts. Personal Care continues to deliver strong performance in our Globalize platforms, resilient margins, and meaningful traction in our innovation pipeline. Now I'll hand it over to Dago to review the results of Specialty Additives. Dago? Dago Caceres: Thank you, Jim. Please turn to Slide 13. Specialty Additives continue to operate in a muted demand environment during the first quarter. Sales were $102 million, down 11% year-over-year. Coatings and construction accounted for the vast majority of the year-over-year shortfall. In coatings, the decline was led by China, where weak demand and structural overcapacity continued to weigh on results. Additional softness came from export markets in the Middle East, Africa, and India, where competitive intensity remained elevated. North America continued to show muted demand in the coatings market. Outside these regions, coatings demand was relatively stable, with outperformance in Europe and Latin America. Construction volumes were also lower, reflecting soft conditions across the nonstructural repair and remodel market, our primary area of exposure. Across other industrial end markets, including energy and performance specialties, demand remained muted but generally stable. Pricing was modestly lower year-over-year, while foreign exchange contributed approximately $2 million to sales. Importantly, the team continues to focus on operational efficiency initiatives and capture benefits from prior manufacturing optimization actions, including the HCC consolidation, which improves our cost structure and mitigated the impact of lower volumes. Adjusted EBITDA was $15 million, up 15% from the prior year. EBITDA margin improved to 14.7%, a 340 basis point expansion supported by efficiencies from the consolidated HCC network. The team remains sharply focused on cost discipline and commercial excellence while continuing to advance innovation that helps our customers deliver differentiated solutions in a challenging market. Underscoring the strength of our innovation pipeline, we delivered approximately $5 million in sales from recent product launches this quarter. Looking ahead, Specialty Additives is well-positioned to benefit from an eventual coatings recovery, supported by disciplined cost management, a more efficient manufacturing network, and ongoing innovation progress. With that, I'll hand it back to William. William? William Whitaker: Thanks, Dago. Please turn to Slide 15. As we move through the first quarter, I want to highlight the progress we're making across our Execute pillar and how our operational transformation continues to support the business. Overall, our total cost savings target of approximately $30 million for fiscal 2026 remains on track. Specifically, our restructuring plan is completed and will be ratably recognized throughout the first half of the fiscal year. We continue to make progress on our network optimization targets. VP and D optimization and small plant consolidation efforts also remain on schedule, with benefits weighted toward the second half. As we talked about last quarter, we are addressing higher-than-expected unit costs at the consolidated HCC site as we scale operations. Following the Parlane closure and network volume rebalancing, we are delivering productivity improvements and stabilizing operations while strengthening the global HCC network. Our total savings target of $50 to $55 million remains intact, with upside to $60 million as China demand improves. Across the network, we're seeing potential for additional productivity improvements and capacity optimizations. This work is ongoing, but the trajectory remains positive. Our priorities with Execute remain clear: deliver structural cost improvements, simplify the network, and enhance systems and processes, which include sales and operations planning, standard costing, and forecasting. All of which strengthen planning, accountability, and ultimately performance. I want to recognize our operations team for managing through isolated challenges this quarter. We'll speak to these dynamics further in the outlook. Please turn to Slide 16. I'd now like to provide an update on our Globalize and Innovate platforms. As we move through fiscal 2026, I'm encouraged by the early year momentum we've seen across both pillars. On Globalize, we're seeing solid traction supported by increased engagement, focused commercial initiatives, and early benefits from our recent investments. Year-to-date, we've delivered $3 million of incremental Globalize sales towards our $20 million goal for the year, with notable contributions across the portfolio. In aggregate, the Globalize business lines grew 8% versus last year. On the Innovate side, momentum was even stronger. We delivered $6 million of incremental innovation sales towards our $15 million goal for the year. This reflects the continued strength of our innovation pipeline, particularly in pharmaceutics, as well as recent commercial introductions across multiple segments. Guillermo will speak to this in more detail shortly, but the team continues to advance a broad and healthy launch pipeline. The early performance across Globalize and Innovate highlights the strength of these levers and the strategic advantage they bring to our portfolio. While still early in the year, we remain on track to deliver our fiscal 2026 $35 million revenue commitment from Globalize and Innovate. Please turn to Slide 17. I will now walk through our updated fiscal 2026 outlook, which reflects a prudent view of market conditions and continued confidence in our ability to execute. For fiscal 2026, we are narrowing our adjusted EBITDA range to $400 million to $420 million. All other elements of our guidance remain unchanged. Let me briefly summarize the assumptions underlying this outlook. Life Sciences and Personal Care remain resilient, supported by stable end markets and momentum across our Globalize and Innovate platforms. Specialty Additives and Intermediates remain mixed, with a coatings recovery expected to be gradual and regionally uneven until broader housing and industrial activity improves. We're seeing healthy demand patterns in consumer-oriented categories to start the second quarter. Raw materials are expected to be stable to favorable overall, and supply chains remain reliable. Similar to prior years, we expect a second-half weighted performance. We continue to expect Innovate and Globalize to drive growth above underlying markets, and our total cost savings target of $30 million remains on track to support margin improvement through the year. As Guillermo discussed, repairs to the Calvert City unit are taking longer than anticipated. What we had initially expected to be contained to the first quarter will now extend into the second. In recent weeks, we also experienced brief outages at sites due to adverse weather. While the operations team managed safely without customer disruption, these events resulted in incremental costs and downtime. Our revised outlook reflects approximately $11 million of temporary impacts from the Calvert City start-up delay and recent weather-related disruptions, all isolated to the second quarter. The volume-related impacts, which were roughly two-thirds of the overall total, are fully recoverable, but the timing of absorption recovery is more challenging. VP and D cannot begin recovering absorption until the unit is back at normal operating rates, which will not occur until late Q2. This means recovery can only begin in Q3, with partial flow-through in the income statement into Q4. For HEC, recovery depends on the seasonal demand lift. Visibility into April through September demand typically firms in March, which creates uncertainty about when and how much recovery can be prudently initiated. Given these timing constraints and the current visibility on seasonal demand, we believe it is prudent to remain more cautious at the top end of the guide. We will continue to manage production, inventory, and free cash flow with discipline while ensuring uninterrupted customer supply. Overall, our fiscal 2026 guidance reflects balanced planning, disciplined execution, and visibility into the drivers of long-term value creation, even as we manage temporary operational challenges. With that, I'll turn the call over to Guillermo to discuss our technology platforms and leadership priorities. Guillermo Novo: Thank you, William. Please turn to Slide 18. Innovation remains one of the most powerful drivers of long-term value creation at Ashland. And the momentum we're seeing this early in fiscal 2026 is both exciting and strategically important. This slide highlights just a few of the breakthrough platforms that are reshaping our pipeline and opening new opportunities across multiple end markets. These are not isolated projects. They're scalable technology platforms built on science, customer collaboration, and disciplined execution, each with the potential to fuel long-term growth. Since the 2025 Innovation Day, our teams have delivered meaningful progress across multiple platforms. Our TVO technologies continue to advance through early commercial adoption, supported by regulatory filings across all key regions and multiple customer qualification cycles. In ag, our TVO for seed coatings, Agramer EcoCoat, received US EPA pre-approval in 2025 and is also REACH approved. Its performance and sustainability profile have been validated by multiple customer trials, with more trials ongoing. Customers are in the process of filing their own regulatory approvals for their formulated products in different regions. We're also making great progress in the development of a TVO for oral dispersions in ag formulations. This product would already have regulatory approval, the same as our Agramer EcoCoat. In Personal Care, we launched Lubrihands, a TVO-based product for hair conditioning, with great customer feedback, core customer approvals, and many other testing and formulations. Development of our TVO for hairspray and styling is maturing well, nearing generation one launch with encouraging customer evaluations underway. Our TVO technology for silicone alternatives has passed preliminary testing with key customers and is now in advanced evaluations. In coatings, we continue to make progress on developing TVO technology for TiO2 efficiency and for UV curing. Based on current performance profiles, all customers are showing strong interest in these technologies. Most other new TVO development projects continue to advance and are demonstrating strong performance and value for our customers. Our super wetting agent platforms, which offer PFAS-free and silicone-free sustainability advantages, achieved another successful launch in industrial and specialty coatings. Our coatings team recently launched a new version of our Weather EZ Wet 310, which has broader geographic regulatory approvals and is accelerating commercialization. We've had successful customer trials and feedback on our new super wetter for ag, validating performance benefits with no phytotoxicity relative to the current commercial wetters. We expect to receive US EPA referral feedback this April. In Personal Care, we're expanding this technology into hair care and home care applications. In hair, we are currently targeting textured hair. Our early beta testing feedback has been very positive. In home care, we're advancing the super wetter technology for auto dishwash applications. Especially in bioresorbable polymers, momentum is building in aesthetic medicine, next-generation dermal fillers, with fiscal year 2025 launches and recent customer audits supporting a strong multiyear outlook. We also continue to scale a strong pipeline with preclinical milestone sales for both generic and new drug development programs. We're also excited about the interest and performance feedback we've received in Personal Care for our new modified starch for rheology control and skin leave-on applications. And we will be launching this product this year. In addition, we're expanding our starch technology into hairstyling applications. These platforms are strategically important, each representing a scalable and high-value opportunity that strengthens our ability to compete and win in differentiated markets. They reflect the combined strength of our science, our global reach, and our ability to commercialize meaningful new technologies. Together, they reinforce why innovation remains a key driver of long-term growth. Lastly, although not part of our new technology platforms, our coatings team is launching a number of new multifunctional HEC products this year that can provide unique cost and performance benefits to our customers, including better cost and use and improved performance. Please turn to Slide 19. As we look ahead, I'd like to outline the leadership priorities guiding our execution. While markets are mixed as anticipated, we enter the year with momentum on several fronts. The business has become significantly more focused, resilient, and better positioned to drive high-value growth. Our cost actions are already supporting margin performance, with additional P&L benefits expected as the year progresses. Our innovation platforms and Globalize investments continue to gain traction. Our priorities for fiscal 2026 are clear: deliver on safety, profitable growth, free cash flow, and RONA; advance our manufacturing optimization and inventory performance; accelerate innovation, scale our Globalize platforms, and foster a productivity-focused culture; strengthen our systems and processes, including leveraging AI to enhance productivity; prioritize talent development, leadership stability, and organizational strength; and maintain transparent communications and consistent execution in our engagement with our investors. Fiscal 2026 is about converting our transformation into sustained performance. With a more focused and resilient portfolio, disciplined capital allocation, and a clear strategic roadmap, Ashland is well-positioned to deliver durable value creation for all stakeholders. And despite temporary operational and weather challenges, our strategy, strong execution, and commercial momentum give us confidence in delivering our fiscal 2026 commitments. Thank you to the entire Ashland team for your commitment and execution, and thank you for joining our call today. Operator, please open the line for Q&A. Operator: Thank you. Please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Joshua Spector with UBS. Your line is open. Joshua Spector: Yeah. Hi. Good morning. I have two questions. First, just specifically on Personal Care. Can you talk about the comments around the customer outage impacting demand? Is that an ongoing issue? Is that resolved? Do we catch up from that? And then second, Guillermo, in some of your prepared remarks from the release last night, you talked about some optimism, I think, on some of the demand you were seeing building in your second quarter here. Just wondering if you could give more color there if that's adding to any visibility or if it's still pretty limited? Thanks. Guillermo Novo: Okay. Let me do a quick comment on the demand and then on the PC outage. Jim, I'll pass it to you to give some comments. So we did start. If you look at Q1, we started the quarter strong in November, and I think like other companies, November was a bit softer. And then we did see the pickup really in December and January, as also as William commented, continued to grow. So and then it's pretty broad-based. In terms of Life Science and Personal Care, I would say in coatings, it's in line with our expectations. I'm not overreading the coating side because this is still low in the seasonality. You know, the season really starts to pick up in March, really April to September is when we see the bigger volume. So it's a bit early. But it's been stable, and I would say no big surprises. So overall, right now, we're not trying to overread. There's nothing really to change our outlook. So we're pretty confident. And I think over the next two months, we should start picking up. Our order book for February still remains strong too. So we'll see how that evolves. Obviously, we have now, I mean, China, Chinese New Year and all that. Hope it'll be a weaker February, but through March, it should pick up. Then on the PC side, I mean, there are outages. We just had our own outages on things. And so they're temporary and recoverable. But, Jim, do you want to comment on that? James Minicucci: Thanks, Guillermo and Josh. Thank you for the question. So as William had mentioned, excluding those customer outages, the business would have been up low single digits. Specifically, in North America, there were several customers that had unplanned outages. The outages were on the customer side, so it was not related to our inability to supply or anything driven from our side. And through conversations with customers, we understand that it was not demand-driven either. The outages all occurred in Q1. Some of them were multi-week, with a couple of them extending over a month, almost two months in one case. They all are back online. They all came back online before we closed Q1. And we do expect to recover most of it in Q2 and through the balance of the year. So we are starting to recover some of that in Q2. And by the end of the fiscal year, we do expect to recover most of that impact. Joshua Spector: Okay. Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Sison with Wells Fargo. Your line is open. Michael Sison: Hey. Good morning. For Personal Care, do we see volume start to turn the corner here in the second or third quarters? Is that because I think Evoqua is done, right, in terms of the outlook? Do we start to see positive volume growth? Guillermo Novo: Yeah. So Evoqua is done, as Jim said, so that from the comps are going to be cleaner. You know, if we see just the macro on the consumer side, and it's behaving resilient overall. Most of our customers are indicating that it's flat at the top. In the single digits. So from a volume perspective, we expect to continue to see that as the year progresses. So no big surprise there, Mike. Michael Sison: Great. And then maybe just revisiting kind of the longer-term outlook. How do you think about rebuilding EBITDA to higher levels from here? Guillermo Novo: So I think one, a lot of it has to do, you know, if you look at our strategy, Execute, Globalize, Innovate. Execute is about productivity. We've got a lot of projects going through. You know, we're already seeing the benefits. You see it the impacts on markets and competitive dynamics. Over the last year, our margins continue to hold up. And I think that's a reflection of a lot of the productivity actions. So we're already doing that. Obviously, as volumes pick up, you know, we'll have a lot more leverage in terms of our absorption and most of our key plans. So volume pickup obviously will be very helpful. For now, we continue to remain focused on driving that productivity. Most of the projects are going very well. I think that was the one plant that we're, you know, we're putting a lot of effort on because of all the network trends of the HEC network optimization is our Hopewell plan. They're very busy. There's a lot of activity there. When we closed Parlin, they've brought a lot of products. Yeah. We've had a little bit of cost issues there, so that one we're going to continue to focus. And, obviously, the storm, that was one of the spots that was hardest hit. So some of those initiatives have been stalled a little bit just as a result of the storm. But we're focused. We have a clear agenda, and we're going to continue to drive that. The rest is going to be the Globalize, Innovate. All those are higher margin areas. And the more we can grow, the more we can extend, you know, our margins and our EBITDA. And, equally, I would say, in Life Science, a lot of the cellulosic businesses, growth that we're seeing in our core businesses are all higher margin. William Whitaker: And then, Mike, just to add, it's William. I think the other key piece too to keep in mind is we have the $90 million program outstanding, right? That's the combination of restructuring and the manufacturing optimization. We got 25 of that in fiscal 2025. We've committed to another 30 in fiscal 2026. That leaves another 35 yet to play out. So that's the other component on top of what Guillermo referenced on the productivity side. I just wanted to make sure you had those levers as well. Michael Sison: Got it. Thank you. Operator: Thank you. Our next question comes from the line of John Roberts with Mizuho. Your line is open. John Roberts: Thank you. On the China coatings demand, is there a line of sight to the bottom so that you'll begin at least comping flat year over year at some point? Guillermo Novo: Yeah. So let me get some comments, and then I'll Dago, if you could comment. I'm here right now in China. I would say, you know, a lot of the impact of the down market started last year, and it's already happened. Most of, you know, the impact with our customers. I don't expect that this is going to improve, you know, that quickly. You know, we see a lot of actions by the government to stimulate, to reenergize the profit market, but the reality is it's going to take a while. I think the issue is for here, it's going to be expect muted demand for a while. With the overcapacity, you're going to continue to see deflationary pressures across the board. Most of that has already happened. You know, we've been hit hard on, you know, in our business here in China. So we're bottoming out. There's a limit to how much. You know, you can lose path. When you lost a business, you can't lose more. So I think what I'm excited now is the team we've rebalanced the network. So that we're not getting impacted with empty capacity in our plants. We're using a very cost-effective plant for us. Using it for exports now. Around the world and especially in The Middle East and Africa. So well-positioned, and today, you know, talking to our teams, they've really done a fantastic job in just looking at our portfolio using this time to get our plan costs in order. But it also expanding our product line both into more cost-effective, different performance, the cost parameters so that we can compete on the low end. And also some higher performance products that we can provide both lower cost and use but higher performance. So we're expanding our ability to go back into the market in a more constructive way than just price. Price gains as we move forward. But, Dago, do you want to comment on the comps and some of the other things your team is doing? Dago Caceres: Yeah. Sure, Guillermo. And I think you're spot on. So, I mean, the China comps are expected to ease in the second half following the second quarter. So we're ready to hit first of last year comps. So we'll be expecting to lap up to the next quarter. So that's number one. The other point that I would like to emphasize is, you know, what is it that we're making to resolve this with the situation. Right? What is it that we're working on? And there's three points that I want to emphasize. One is commercial discipline. The other one is productivity, and the third one is innovation. So on commercial discipline, which is a lot of focus on volume price management, to ensure that we do what's right for the business. And there is also a lot of focus on customer intimacy just staying very close to customers so that we can deploy our innovation. Productivity, the good news is that Nanjing is a really excellent plant that we have. It's a very strong asset, and they do have very clear productivity improvement targets that we're going after. So I'm very excited about that as well. But probably the best one is really on innovation. We're moving fast. We're moving with urgency. We expect some of the results that we're doing on the innovation on our core products to materialize actually in 2026. Which will really help us with the situation. And the intent here is to protect our core portfolio and then basically kind of produce create products that are made for the China market. So very excited about what we are doing here. And last point, I just want to reinforce what Guillermo was saying is this is a really good plant. This is a plant that I would say I would call it a global asset. Absolutely. Initial intent was to produce in China for China, but this plant can produce for any other parts of the world. So what we're doing is rebalancing. There are opportunities outside of China for sure that we're going after with a lot of focus. John Roberts: And then secondly, where are you facing the most risks and uncertainty around global trade issues? Guillermo Novo: Yeah. I think that the area that we're looking at more is what's Europe going to do. You know, I think there's a lot of push right now for our industry. In terms of some of the cost competitive, the plant consolidations. So there's a lot of dialogue going on there. But there's no clear decisions on what they're going to do. But I would say that's probably the area of focus for us at this point in time. We don't have anything that I would say specific, we know that this is probably one of the areas of higher pressure in terms of the regional interests to take some action. John Roberts: Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Chris Parkinson with Wolfe Research. Your line is open. Chris Parkinson: Just turning back to Life Sciences. Break down the growth algo here now that you're passing multiple years of a little bit of choppiness. Just when you take a step back, how are you thinking about, you didn't mention BPND in the PowerPoint. So I'm kind of curious on what effect, if any, that had on the price mix in the quarter. And then it seems like actually gaining pretty decent momentum in tablets and cellulosics. So when we look at this for '26 and then, you know, kind of '27, is this I'm finally getting back to just the low kind of like a low single-digit volume growth rate, perhaps a little bit more constructive price mix. Getting margins back up to the prior year's levels? Like how should we be parsing that out? Thank you. Guillermo Novo: Let me make a quick comment, and then I'll pass it to Alessandra. She can give more detail. Color on the business. But I would say, just specifically on the BPND, that's the, you know, the Life Science business has been fine. That's where we had the issue. A while back, and you know the story. One big competitor coming back in and all that. Was the biggest issue for us. That has stabilized. Right? So the BPND, I would say, volumes are stable, pricing are stable. That's not the biggest growth driver at this point in time. We wanted to stabilize it. I think we're seeing that across the world. That's one of the issues of really driving productivity. Making sure that we're going to be competitive, and any price that we gave in the past that we're trying to recover through productivity, asset utilization, all those kinds of things. But the team, the broader strategy continues to progress and never really stopped. In terms of the cellulosics or some of these other areas. But Alessandra, if you could comment on that and on BPND as you see things, that'd be great. Alessandra Assis: Yep. Sure. So looking ahead, looking at the next few quarters, we expect to continue to deliver on healthy growth. So two aspects looking at the resilient pharma demand roughly low single digit. And then we are seeing the momentum across our both Innovate and Globalize pillars, and that represents around 200 basis points above market on the growth that we are projecting. As Guillermo mentioned, BPND is expected to be stable. We just concluded the contract negotiations in Europe. And they were mostly aligned with our expectations. Don't share and with modest price pressure on certain portfolios. But net-net, they were in line with our expectations, so we remain very much focused on positioning our Globalize Innovate growth strategy. And the share gain opportunities. When you're looking at injectables, we deliver an outstanding first quarter. Double-digit growth versus prior year. We are seeing a strong uptake on new Guillermo was talking about this on innovation on his prepared remarks. You're seeing the pipeline expansion and also a very effective regional business development model that we have put in place. Which is positioning us to continue to see sustainable above-market growth in the coming quarters. Tablet coatings specifically, we also saw double-digit growth. Year over year in the first quarter. The pipeline has expanded significantly. And our production efforts were focused in the last few quarters, and you're seeing that. We've seen the good momentum from a production from a productivity improvement. In Wilmington and also our new the new sites in Brazil and China supporting our growth for the fiscal year 2026. And we have a new plant that we announced before in India that is coming up in fiscal 2027. So Guillermo was just in India a few days ago, also visiting the new site is coming up in fiscal 2027. So overall, a lot of discipline from a commercial standpoint on price volume management and a focus on positioning our Globalize and Innovate growth strategies. Then we are confident in the growth we're projecting over the next couple of quarters. Chris Parkinson: Got it. And just as a real quick follow-up and kind of triangulating some of the things you said to Josh's question. In Personal Care, it seems like there's a lot of moving parts, and it seems like you're seeing a decent recovery in the biofunctionals and bioactives. In addition to some new products at NPI momentum. Is that a functionality of stronger demand in places like Asia? Stabilization in Europe? Is it too early to say? You know, I'm trying to get to know, kind of the growth rates ex the issues you saw in hair care, but it seems pretty constructive. So I'd be kind of curious on how you're thinking about that as we progress through fiscal year 26. Thank you. Guillermo Novo: Perfect. Make a quick comment and Jim, if you can talk about the specific regions and biofunctionals and all the areas. But just something make one thing clear. You know, if you look at our core Personal Care business, that's the established business that we've had for a long time. It's pretty stable. You know? The ups and downs are more driven by customer demand and there's not big shared shifts. I think that growth is coming from the new things. Our Globalize are in both biofunctionals and micro protection. And in the core, it's all these new technologies that we're working on that, frankly, Personal Care was the first business really in which we were developing the TVOs and all these products. So there is a level of stability. You know? A lot of these, it's up and down. It's the same customers that have been buying some of these products for a long time and there is a lot of stability there. But Jim, if you want to comment a little bit more color? James Minicucci: Sure. Thanks, Guillermo. Hey, Chris. So I, you know, I think we've really been working to make the Personal Care story as simple as possible just given all the different pieces and parts of the portfolio. And I think when you look at Q1, you know, we're very happy with Q1. As you mentioned, biofunctional performed extremely well. We have stabilization in our base, which we had talked about in the prior quarter. That base continues to be stable, and we're seeing even some growth there. We're more excited by all the work the team has done to expand the biofunctional portfolio. We've gained a lot of new customers, especially in Europe and in China. And we're getting our new product launches into those customers. As I mentioned, Colipepto, it's you know, I don't want to say a miracle product, but it's something that within three minutes, you already start to feel that hydration. Within a couple of hours, you already start to get real, you know, glowing in your skin, and the team's done a great job launching products. And you know, we feel biofunctional is really moving in the right direction going forward. Microbial protection, it's all about continuing to grow there, convert opportunities, and we've seen really nice growth across all the regions. And then as Guillermo mentioned, in our Care Ingredients business, aside from that, you know, there's always perhaps some noise as you go into the end of the year. But we had the customer outages specifically in Q1. Generally, it's very stable. The team's done a really nice job converting opportunities, especially in skin. You will see as we go through the balance of the year oral care will be, I would say, more smooth this year for us over the next three quarters. Sometimes it tends to be a bit more concentrated in a couple of quarters. But overall, you know, I would say Q1, really, it was the customer outages. It will be smoother through Q2 to Q4. North America demand that we're continuing to monitor. As I said, a bit of a mixed environment there. Chris Parkinson: Helpful color. Thank you. Operator: Please stand by for our next question. Our next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open. Mike Harrison: Hi. Good morning. Was wondering, Alessandra, in Life Sciences, you mentioned low nitrate cellulosic. Can you help us understand what differentiates those from typical cellulosics and why that's important? Guillermo Novo: Alessandra, if you could comment just on the ones that we've already launched and the ones that we continue to launch and not just cellulosics, but the whole theme of high purity that you guys are working on. Alessandra Assis: Yep. Yeah. So we launched the new low nitride grade for both plastones, which is VP and E, and Benacel, you know, cellulosics Benetcel. So this brings in the hands of product quality basically, nitrosamine. On the pharma industry. Versus their regulatory requirements. And it is the pharma companies overall across the board, not just large pharmas, but generics. All pharma companies are very much focused on that, on bringing the low nitride grade for excipient to help with the nitrosamine levels on their formulation. So that has been a good success for us with the launch on the low nitrides. And we see that more and more in our portfolio expanding into with no like type rates, not just some cellulosics in your question, but also VP and D and other areas. Mike Harrison: Alright. That's very helpful. And then I was also within the specialty additives business, was hoping for a little bit more detail on the $5 million of contribution that you're expecting from innovation. Is that mostly the super wetting agent that you referred to on Slide 18? Or maybe what product lines or technologies are really starting to show commercial traction within specialty additives. Thank you. Guillermo Novo: Yeah, thanks for the question. So, yeah, I would say it's across the board. It's across the board. So when you look at our strategy for specialty additives, it's a heavy focus, of course, on protecting our rheology modifier participation, and we have new products that are going in there. But then there is a big effort right now to go beyond this additive into other additives. So you have deformers. You have wetting agents. You have pH neutralizers, etcetera. And the team has been very focused on expanding our portfolio because it really solidifies the participation that we have with customers. It gives us higher access and also enables us to go after other parts of our customers' portfolio. For instance, we're very strong in architectural coatings. We know our customers also have participation in industrial coatings. It is really a great opportunity to branch out and to really solidify our position there. When you look at the sales and what we're working on for this year because we have very good targets, very strong targets for innovation. Really, the focus is going to be on, number one, solidifying our position in and differentiating in rheology modification. Both synthetic and cellulosic. Number two, continue to expand our additives. So you're going to see a lot of that and super wetting agents are included there. But then strategically and longer term, very much excited about the progress we're making with our platform technologies. In particular, TVO and TiO2 spacer, etcetera, where we do expect to see some traction this year. Mike Harrison: And, Mike, I wanted to highlight it. My comments talked a little bit on the regulatory, if you notice, on a lot of these innovations, not just the innovation and the customer but the regulatory side. When you're bringing new products to market in today's world, you have to deal with all the, you know, approvals for selling these products. In ag and reach in Europe. And I think the coatings team and that's it. The specialty additives team has done a wonderful job. The EasyWeb 310. We launched EasyWeb 300. It's working well. But given its profile, we have certain requirements in terms of the regulatory needs. So they were able to go in modify it enough so that no performance was changed, but it now allows us to accelerate the commercialization because it meets much more of the regulatory requirements around the world. So, you know, strategizing as we develop these products and making sure that we're within certain areas to accelerate commercialization. Within regulatory is really important. It seems that we've had a very good job there. So that launch will really help us get traction on commercialization. Mike Harrison: Alright. Thanks very much. Operator: Thank you. Our next question comes from the line of John McNulty with BMO. Your line is open. Bhavesh Lodaya: Hi. Good morning. This is Bhavesh for John. Just one question for me. So recently, we saw that an oral dose GLP-1 drug was approved by the FDA. Can you speak to whether your life science platform has exposure to this line of with the oral dose medication, and if yes, help us think about the potential for demand pull for this one. Thank you. Guillermo Novo: Alessandra, you want to comment on that? Alessandra Assis: Yep. Sure. So thinking about looking at the GLP-1, so both the oral GLP-1 and oral biologics present a significant opportunity for Ashland. And our VP and D portfolio is especially relevant to this space. And it is our tablet coatings. When you think about the high, you know, high volume, high throughput needed, for the types of demand that we're talking about. So our high solids coatings Aquarius Genesis is also especially relevant for that. So currently, we have multiple active projects with some of the biggest pharma players in this space. In addition, we are doubling down on innovation in this area as we have identified a pipeline with over 80 emerging opportunities. And one of those innovations is our sodium cap rate, which is a variation enhancer that we target to launch over the summer. We already have received multiple customer samples requests and are working with several customers on that upcoming launch for this summer. So in summary, yes, GLP-1 formulations and the overall oral biologic represent a significant opportunity for Ashland. And our VP and D portfolio is of particular interest and as well our new innovation programs. Bhavesh Lodaya: Thank you. Operator: Please stand by for our next question. Our next question comes from the line of Carl Vandenberg with Deutsche Bank. Your line is open. David Begleiter: Hi. This is Dave Begleiter. Guillermo, you mentioned improving momentum in January. Can you talk about and you do have some easy comps in Q2 across all three segments. So what does that mean for volume growth in those segments year over year? Guillermo Novo: As we said, it will be in line with what we had been forecasting. So Personal Care and Life Science. It's in the low single digits. You know, anything over that, we need to grow through some of the innovation, but the order book is in line with our forecast or our updated forecast on what we're doing. So no big surprise there. Same thing, you know, in the SA, we're seeing the same thing. All the orders coming in line. It's going to be still challenged versus prior year because of China. And some of the dynamics there. But even North America, Europe actually did very well for us. But I'd be I just be cautious. And that's a I'm not going to really be positive or negative until we start getting closer to the bigger season. You know, these months don't mean as much in terms of what the full year is going to come out. But for us, it's reassuring that January and the order book for February remains strong. David Begleiter: Got it. In terms of the first half outages, how much of that $20 million plus do you get back in the second half of the year? Guillermo Novo: So we're working we were going to start working on the first part this quarter, but, obviously, that's getting delayed. Most of the issues were in the BPND side. In Q1. Now that's why we're being a little bit more cautious. In theory, all of it is recoverable. The issue is when. We want to recover it. So in BPND, as William said, if we start at the end of the and, again, we're working just be clear, we're working to get it done as quickly as possible. We're expecting by, you know, the second half of the quarter, if we can get a few every week counts in terms of being able to improve our performance. So we've given ourselves some room there in terms of the timing of when the unit will come on stream. But in our current forecast, it would be at the end of this quarter. Which means we as William said, we need to get most of that in the third quarter to impact this year. If not, if we do it in the fourth quarter, we'll recover it, but it'll flow into next year. So BPND is an issue of getting the plan started, and then we can start getting the recovery of the absorption part. There are other costs. This is especially around the storm. That are costs energy costs that went up and other repair costs with the freeze. I mean, not huge items, but items that have added up that are going to be more of a I think it's one set two-thirds was absorption, one-third was cost. HEC is a choice. I think they're I'll be honest. I'm being very conservative. Until we start seeing the season, we can always produce more. Whenever we want. I think if this is a time of being prudent, like we've done in other years, I'm very open of the balance sheet. It's something we need to look at, not just the P&L. We're not here just to hit one quarter results. It's a long term. We want to do the right thing for the long term for the company. I think having a solid balance sheet, cash is king, in a lot of these times of uncertainty, so we're going to be a little bit more prudent. Again, decision. If the season starts in March, that's probably when we would start making that. That means, again, that third quarter would be the critical quarter to be built eventually. David Begleiter: Thank you. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Lawrence Alexander with Jefferies. Your line is open. Dan Rizwan: Hi. This is Dan Rizwan for Laurence. Thanks for taking my question. I was just you mentioned injectable launches and some of the new products. But just in general, I was wondering how long it takes a new product to ramp up to mid-cycle and then to peak sales, you know, just the time frame? Guillermo Novo: It really varies by product line. But like we've said before, we're talking about everything we're doing. We want to show. We want to be very transparent. But reality, when these approvals come, they take time. If you go into the example I would use, a personal care. If customer x approves it's a big brand. You know, they have in next, you know, 2027, I'm going to reformulate. They approve now, but they launch in 2027. Or 2026. They have dates. On which they're doing. So our issue is make sure that we get the approvals, get everything ready, before those launch dates. So we have roadmaps of when all these big brands are doing reformulations. We're working with our customers. And it's very important to hit those dates. Coatings is a little bit different. They can move a little bit more quickly, again, they do a lot more testing, extras, you know, they like it. They want it, but then they get everything some testing. So everybody has their norm. On how they work through. I would say pharma is really partnering with them across their entire development, you know, cycle. So when they're ready to launch, you know, you will go with them, but that's depending if it's a generic. It could be three to five years. If it's a new drug, you know, you're in, like, a longer pipeline. But that's the importance of having a strong pipeline. And what we've been doing last year is build the pipeline, and that's what I'm excited about. That the technologies have now enhanced that they are in pipelines. We're getting validation. So it's really now going into, you know, our customers thinking we like these technologies. When are we going to commercialize? Are we going to commercialize this next year? So it's a very different conversation. As we move forward. Dan Rizwan: Great. Thank you very much. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Eric Boyce with Evercore. Your line is open. Eric Boyce: First, could you please provide an update on the contract price renewals that I think recently occurred around year-end? And how might when those renewals go into effect impact kind of price by segment in fiscal 2Q and for the balance of the year? Thanks. Guillermo Novo: I think most of them, as Alessandra said, I think are mostly completed. We're in final form in pharma. It's mostly in Europe, and that's pretty advanced. So I think we're mostly done on there. I think, you know, the only ones and, Dago, where you can comment in some regions. We have some now that are ongoing, Middle East, Africa, India. That are going now in the March, April time frame. But most of the other ones are already done. But that any other contracts? Dago Caceres: No. I mean, in the case of coatings, some of the large contracts, I would say North America and Europe, they just follow the calendar year. So those contracts are done, and I guess, the results are as expected. Other areas in Asia, actually, the contracts were finalized in October. That's actually their cycle October to October. We're only missing areas in the Middle East, Africa, India where we have a couple of strategic customers, and that will be April. So the contracts are finalized. We're valid starting in early April. So that's the only one that is remaining. We're negotiating as we speak, and we expect to finalize some of those contracts pretty soon. Eric Boyce: Okay. Great. And then as a follow-up, are any further asset sales maybe in additives or intermediates under consideration either now or previously? And if not, and I suspect not, could you remind on why that may not make strategic sense? Thank you. Guillermo Novo: So we've done a lot of the changes already. In terms of selling the parts of the business that we didn't see fit. And most of them were stand-alone parts. We've consolidated some of the product lines that we didn't like. They couldn't sell, and have the asset that we can repurpose. That was more of our CMC asset in The US and MC asset in Europe, and I think the timing of that was very good. We shut down a plant and consolidated. So all those actions are done. Going to do some more optimizations more around the productivity where it would be more units within the plan, you know, that we're streamlining so that we can instead of having a lot of equipment and not having them utilized, really focus and invest on the ones that are higher end that can give us the best cost. But that wouldn't involve a sale. The rest of the business is integrated. This is the part, you know, everybody you want to just be live set. It's the same plan that supply across multiple areas. Frankly speaking, just from my past experience with other companies, I mean, all this artificially cutting up things haven't worked out that well. So for us, we like the portfolio we have. It is integrated. We feel that between the high-quality pharma, personal care, and architectural coatings being, you know, it is being impacted, but tended historically to be more consumer-oriented. We see that stability in North America and Europe. Would say what's happening in Asia is a little bit different than the norm. We like those. We think, you know, focusing on additives, low cost use, high value use can allow us a differentiation, and we can leverage the scale across the asset. So we think that integration is critical, and we think there's value in artificially. Eric Boyce: Cool. Operator: Our next question comes from the line of Stephen Haines with Morgan Stanley. Your line is open. Stephen Haines: Hey, good morning, and thanks for squeezing me in here. Just wanted to ask on your execute slide. You got the $30 million, I think, of restructuring, and then there's the additional productivity that currently says still TBD. I've been hopping between calls, so apologies if I missed this. But have you kind of outlined the timeline and maybe how to think about, like, what that uplift could look like relative to the cost savings that you've already kind of disclosed and quantified for us all? Thank you. Guillermo Novo: So we're working through that. We've done a lot of network as we looked at, for example, in our acetylene chain between the two plants in Texas City, Copper City, we had units that overcapacity. They've been overcapacity for a long time. We've consolidated, shut some down. Put all our volume on the more productive units. So that's driving our cost. Productivity. As we looked at across other production units, what we're finding is that there is an opportunity to continue to drive. So again, if we have, I think, a simple example, core reactors and they're over underutilized, can we concentrate on one or two? Put our volumes there. Invest in those reactors to get more throughputs. We do cycle times. Those kinds of things we're doing. So some of them we're already doing. We're planning out how much we can get. Others, we create the productivity, but the benefit will come as long pick up. So the issue is, you know, productivity, you can't wait to have the volume to do it. You do it, and as the volume comes, you're just going to be able to leverage it. But it allows us to reduce cost as we do some of these changes. So that's the part that we're trying to calculate. And, obviously, you know, this the storm and all that right now, our engineers and everybody's have been a little bit distracted over the last few weeks. But we continue to work. And throughout the year, we will be defining that. And our view is going to be continue to do what we're doing now, be very transparent, as to the goals that we want to commit to, you know, tell you what we're going to do, and then we'll be held accountable to deliver on those targets. Stephen Haines: Understood. Thank you. Operator: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Guillermo Novo for closing remarks. Guillermo Novo: Well, thank you, everyone, for participating in the call. We really appreciate it. We're very excited, you know, the portfolio is in difficult times performing as we have expected. Will continue to drive our strategy. We believe that that's going to be the best way to generate significant value creation and create optionality for us to really drive our strategy of profitable growth. So we look forward to seeing all of you in the near future and having more discussions on Ashland. Thank you for your interest. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, everyone, and welcome to today's Akzo Nobel Q4 and Full Year Results Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand you over to Jan Willem Enhus, Head of Investor Relations to begin the call. Please go ahead, when you're ready. Jan Willem Enhus: Good morning, everyone, and welcome to Akzo Nobel's investor update for the fourth quarter and full year 2025. I'm Jan Willem Enhus, Head of Investor Relations. Today, our CEO, Greg Poux-Guillaume; and CFO, Maarten de Vries, will take you through our results. We'll refer to the presentation, which you can follow by webcast or download from our website at akzonobel.com. A replay of the webcast will also be made available following the event. There will be a Q&A session after the presentation. For additional information, please contact our Investor Relations team. Before we start, a reminder of our forward-looking statements disclaimer on Slide 2. Please note, this also applies to the conference call and answers to your questions. I will now hand over to Greg, who will start on Slide 3 of the presentation. Gregoire Poux-Guillaume: Thanks, Jan Willem. Good morning to everyone on the call. In 2025, we made substantive strides towards a stronger Akzo Nobel. In tepid markets, our progress was rooted in price discipline and the relentless execution of our efficiency programs, resulting in a full year adjusted EBITDA of EUR 1.444 billion, adjusted for ForEx translation and our Indian divestment, this is within 1% of our initial constant currency guidance of [ EUR 15.50 ] given at the beginning of the year. And profitability is at 14.2% which is 40 basis points up versus last year. In Q4, volumes were down 2% year-on-year with price/mix up 1%. Our adjusted EBITDA came in at EUR 309 million or EUR 343 million, excluding ForEx translation and the Indian divestment. This is 7% higher than last year on a comparable basis and corresponds to a 13% margin up 70 basis points year-on-year. Operationally, we achieved net OpEx savings of EUR 98 million year-to-date, EUR 28 million ahead of plan. Free cash flow came in materially higher at EUR 606 million on efficient working capital management. And we reduced leverage to 2x, bringing it in line with our midterm ambitions. Overall, we delivered a banner year in operational execution alongside 2 major portfolio moves, value crystallizing divestment in India and our proposed merger with Axalta, which will reduce costs, boost innovation and accelerate growth. Let's now turn to Slide 4. Q4 volumes were down 2% year-on-year with mixed performance between our segments. Overall, Deco volumes were slightly down at minus 1%. Europe, Middle East and Africa was flat, with growth in the U.K. and a recovery in Turkey, the continued weakness in France. Looking ahead, we expect 2026 to be stable with a European recovery further out. Latin America declined mid-single digits, with Argentina doing well, but Brazil impacted by the BSF disposal. As you know, the Suvinil business was for sale, was bought by Sherwin, but there was a moment of -- there was a moment of lack of leadership of that business, which disrupted the Brazilian market in the middle of the year. But as Sherwin closed the deal and started running the business, this recovered and Q4 was a good quarter for us. Growth will resume in 2026 as Brazil returns to normal trading conditions, which Brazil has already returned to normal trading conditions. So, so far, so good. China delivered low single-digit growth with our business continuing to outperform in a weak market. We expect this to continue in 2026 and for the Chinese market to finally rebound in 2027. Southeast Asia remained mixed with softer demand in Indonesia, more than offset by growth in Vietnam, where momentum is anticipated to remain solid throughout 2026. Let's turn to Coatings now. In Coatings, volumes declined 3% in Q4, primarily due to market pullback in most of our segments in North America. Powder remain impacted by low architectural demand, although Asia continued its strong momentum, stabilization in North America is expected in the second half of 2026. Marine and Protective delivered a slower quarter with growth in yachts, but a lower marine on tougher comps. Market share in dry docking will underpin volumes in 2026, market share gains, clearly, in dry docking for 2026. Automotive and Specialty improved sequentially to flat volumes overall. Aerospace outperformed while Refinish in North America remained at trough. Going forward, low single-digit growth will be driven by a strong Aerospace with a very strong order book and a stabilization in Refinish in the second half of 2026. Industrial Coatings was down mid-single digits. Coil and Wood were in line with markets. Our Packaging business faces a temporary pullback due to an industry technology shift and the delayed approvals of our product. We are planning to lose market share in 2026 because of this, but we will rebound and recover market share in 2027 on new awards. We're convinced we have best-in-class technology. So it's a temporary setback, but we will see a market share erosion in '26 before rebounding in '27 in Packaging. On balance, we expect full year volumes to be broadly flat in 2026. After Q1 with similar conditions to Q4 of last year, we anticipate an improving market trajectory in the second half of the year, particularly in North America. Turning to Slide 5. We closed the sale of Akzo Nobel India Limited at an attractive 25x EBITDA multiple, generating approximately EUR 900 million of proceeds, which showcases that our active portfolio management creates exceptional value. We retained full ownership of our Powder business in India by buying out the minorities and also secured a recurring royalty stream from the liquid coatings assets we divested to JSW. We continue our portfolio review in Asia as per our strategy to focus on leadership positions and to monetize assets that are significantly more valuable to other people than us. So there'll be more disposals in 2026 in Asia. All actions under our SG&A efficiency program were completed by mid-2025. We now expect around EUR 200 million of gross cost savings based on the elimination of 2,900 functional positions. This is EUR 80 million above our initial target, while also delivering a leaner and more focused operating model. Meanwhile, our Industrial Excellence Program continues to gather pace. We've closed 12 sites to date in the last 2 years since the start of the program, all without disruption to the business and while improving service levels. All actions under the Industrial program are expected to be completed by end of 2026. We've got at least 6 more closures planned in 2026, and we're making good progress on this. In short, our programs are driving a leaner cost base, better return on capital and a more focused agile organization. The impact of these programs is detailed on Page 6. Page 6, 2 years into our efficiency journey. I thought it would be helpful to present an overview of the phasing and the benefits of our 2 programs, very much like we did last year. Our SG&A program was fully executed in less than a year. We've achieved EUR 145 million in savings to date with at least EUR 50 million carryover in 2026, which will offset annual inflation alongside other productivity measures. In total, the program will deliver EUR 200 million of gross cost savings, EUR 80 million above the original plan, as I mentioned, with only EUR 50 million higher than originally envisaged cost. So EUR 80 million more value, only EUR 50 million more cost, all of this completed in less than a year, 2,900 positions, a lot of them in Europe. So you can see that we executed and we executed decisively. Our industrial transformation program remains fully on track and will be completed at the end of 2026. The focus remains on footprint optimization, modernization of anchor sites and supply chain consolidation. We expect a benefit of EUR 90 million in 2026 alongside a slightly higher restructuring cost and corresponding cash outflow. With EUR 110 million of carryover benefit in 2027, the program is set to deliver total gross savings of EUR 300 million. If you take the 2 programs together, that's EUR 0.5 billion of cost takeout demonstrating that our self-help is working and delivering a leaner organization with meaningful operating leverage on any volume recovery. Moving to Slide 7. Slide 7 is really a summary because the benefits of our efficiency programs, they're substantial. But sometimes they're obscured by the significant negative ForEx translation over the past 3 years, which does not impact profitability, but does make the reported numbers harder to read. We've tried in this table to isolate the effects with profitability gains in both Deco and Coatings and a more efficient use of capital as highlighted by our working capital improvement. We've made steady progress over the past 3 years, with adjusted EBITDA up 40% or almost EUR 0.5 billion on a comparable basis to 2022. Our progress has been built on price discipline, a leaner organization with greatly improved service levels. This, in conjunction with product innovation, will allow us to capture more than our share of commercial opportunities even in softer markets. The actions already in place will pave our way to achieving our midterm targets and more. And I'll now hand over to Maarten to discuss our Q4 performance on Slide 8. Maarten? Maarten de Vries: Yes. Thanks, Greg, and good morning, everybody. At the group level, organic sales declined by 1%, with volumes down 2% and a positive price/mix effect of 1%. The divestment of India had a negative 1% impact on revenue for both Deco and Coatings. FX translation further reduced revenue by 6%, resulting in a reported revenue decline of 9%. In Deco, volumes decreased by 1%, primarily driven by LatAm. While positive pricing in EMEA and LatAm was offset by a negative mix, organic sales for Deco were down by 1%. In Coatings, volumes were down 3% reflecting ongoing weakness in North America. Group adjusted EBITDA was EUR 309 million or EUR 343 million at constant currencies and adjusted for the India divestment. The EBITDA margin improved to 13%, up 70 bps compared to prior year. This improvement was due to margin expansion of 240 bps in Deco, supported by structural cost savings. Improvements in Coatings profitability continued to be muted by negative mix, particularly from weaker North America. We delivered another strong quarter of free cash flow totaling EUR 362 million. For the full year, free cash flow reached EUR 606 million, primarily driven by significant improvements in our working capital position. At year-end, trade working capital was 14.7%, a full percentage point below the previous year and within the target range. Importantly, we achieved this while driving our industrial transformation, which requires inventory buildup to support volume redistribution. Return on investment also improved to 13.5%, up from 13.3% last year. And finally, strong cash flow generation, together with the proceeds from the India divestment enabled us to reduce net debt to below EUR 3 billion and our leverage ratio to 2x, in line with our plan. Turning now to our '26 outlook. Looking ahead, based on current market visibility, we don't anticipate a material recovery across our end markets in 2026. A weak first half is expected with the second half helped by easier comparisons. We will remain firmly focused on the implementation of our self-help programs and maintaining strict cost discipline. In 2026, we aim to increase our full year adjusted EBITDA by at least EUR 100 million on a comparable basis, driven by costs rather than volume. Any volume recovery will be a plus. On a reported basis, including a EUR 40 million scope adjustment for the India divestment and an expected further EUR 35 million of FX translation impact, this should translate to a reported adjusted EBITDA at or above EUR 1.47 billion. The EUR 100 million step-up is driven by what we control with the Industrial program contributing EUR 90 million of savings. Carryover of the SG&A program will offset inflation combined with productivity as outlined in the overview table on Slide 6. This provides a solid earnings baseline with any improvement in market conditions translating into potential upside. The first quarter is expected to look a lot like the fourth quarter. Soft volume trends continuing, some efficiency uplift and a negative FX impact of around EUR 30 million. With that, back to Greg for the wrap-up. Gregoire Poux-Guillaume: Thank you. Moving to Slide 11. On November 18, together with Axalta, we announced a transformative step for both companies, a merger of equals to shape the future of our industry. This compelling combination builds a more resilient coatings leader with enhanced margins and superior cash generation. We see at least [ $600 million ] of cost synergies, and we have the experienced leadership team to execute them with discipline and convert them into a sustainable margin with the robust cash flow. On top of this, we expect revenue synergies to boost gross by 100 to 200 basis points. We'll share more details on this in the coming months ahead of the shareholder votes. By joining forces, we will not only generate significant synergies, but will also create a company that will bring the best of both worlds to our customers, shareholders and employees. Closing is expected late in 2026 or early in 2027. Preparation for the proposed merger are ongoing, but will not deter or distract us from a more core execution agenda as we deliver against our 2026 outlook. I'll now hand over to Jan Willem to close with information about upcoming events and then we'll start the Q&A. Jan Willem? Jan Willem Enhus: Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to the upcoming events going on Slide 12. We will publish our annual report on February 24. This concludes the formal presentation, and we'll be happy to address your questions. Please state your name and company when asking a question and limit the number of questions to 2 per person so others can participate. Operator, please start the Q&A session. Operator: [Operator Instructions] Our first one is from Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. First question, on the EUR 100 million EBITDA constant currency growth, could you just help us understand the drivers of that? You've obviously talked flat volumes, but I assume positive mix. There should be a net pricing benefit in there, and then there's also cost savings. So just trying to figure out the moving parts because noting that net pricing environment is relatively positive. That's my first question. Second question, if I may. You touched on the deal there with Axalta. Any further updates on timelines or synergy plans, have you guys been able to at least better understand the potential of the merger since the initial announcement? Gregoire Poux-Guillaume: Thank you, Thomas. I'll start with the Axalta question. The focus right now is to hit the ground running in terms of the critical path and the critical path of any merger like the one that we're planning with Axalta is the regulatory approvals. We've made really good progress. We're working well together. By the end of next week, the main regulatory filings are in Europe and in the U.S. And the one that's the most time consuming is Europe, very, very heavy detailed document upfront and a process that's a bit longer. So we wanted to make sure that we got it out very quickly. And by the end of next week, we'll have completed all the main filings, including Europe. So we're tracking well from that perspective. And in parallel, we're doing work on detailing the synergy plans and also substantiating the revenue synergies that we want to talk about ahead of the shareholder vote. So all going well. Nothing to report beyond the fact that we're hitting our milestones and making good progress with still the aim to close by the end of 2026. And in terms of the EUR 100 million step-up at -- on a comparable basis in EBITDA, it's essentially based on self-help. It's mostly driven by costs. We're not assuming the volume growth. We're assuming volumes to be flat. It's a crapshoot on volumes. There's a lot of macro uncertainty. We saw some of the reactions this morning from some of you guys that felt this might be a little bit conservative, but there's really not a whole lot to gain by getting ahead of ourselves and volumes at this point. And then I think that your main question is the pricing question, but it's really the margin expansion question. Prices were up for us 1% in 2025. We plan to be priced up again in 2026. But the more important question is how that how the margin expansion works out because it's essentially price minus raws. And if you look at our plan in 2025, we were planning for more pricing, but also higher raws. The raws ended up being lower, which made some of the pricing gains more difficult to achieve. So it's really a question of how the market will unfold in 2026. Right now, it's looking like raws in the first half of the year will be favorable. And in the second half of the year, prices will pick up and now become a little bit unfavorable. The pricing discussions are ongoing and it's about striking that balance with our customers, but we'll be priced up in '26, and we'll expand margins in '26. Operator: Our next question is from Laurent Favre at BNP Paribas. Laurent Favre: Two questions, please. The first one, I'm sorry, it's the boring one, but you just mentioned Q1 would be similar to Q4. I just wanted to clarify that I guess, what you meant was on the year-on-year organic development? And then the second one, maybe a little bit more interesting. You mentioned that there would be more disposals in Asian Deco for the year. I'm just wondering, are you thinking about specific areas where I guess you, like in India, don't have leadership? Or are you also considering countries where you do have leadership and are you also considering, I guess, big countries like China where I think the market is a lot more skeptical? Gregoire Poux-Guillaume: Maarten will take the Q1 question, I'll take the Asia question. We're considering -- we're working. I mean not considering, we're working on more disposals in Deco Asia. It's -- the starting point is always whether we feel that we've got a winning hand over time or whether our business might be more valuable to somebody else. We're not considering exiting China in Deco. It's a good business. It's a business in which the market was really down the last 2 years and everybody suffered. And we're on our way to a recovery. We had a good year in 2025 despite the fact that the market was still going down mid-single digits. In '26, the market will still be going slightly down in China in Deco, but we are planning to continue on our current momentum, and we see a market recovery in 2027. So we're working on improving our business in China and getting ahead of the wave and fully capitalizing on that market recovery. That's our priority for the next few years. Everything else in Deco Asia, we're assessing because once we announced that we were selling India and we closed that, you can imagine that, that generated inbounds. And we have views as to what the right moves are. We're working on some of them, but we don't plan to let the merger with Axalta slow down our momentum on this. We'll execute these moves at the timing whenever they make sense. That's what I'm trying to say. Maarten, do you want to take the Q1 question? Maarten de Vries: Yes, on your question on Q1. So Q1 sequentially versus Q4 is very much similar. You asked about the organic volume trends similar to Q4 and then the only thing which will differ in Q1 is that there will be additional efficiency gains from the industrial excellence program. And what I mentioned earlier is that the FX translation impact for Q1 will be again at EUR 30 million if you compare that to last year Q1. But Similar to Q4 with a bit of additional efficiency gains. Gregoire Poux-Guillaume: Laurent, anything else? Laurent Favre: No. That's it. Operator: Our next question is from Christian Faitz at Kepler Cheuvreux. Christian Faitz: Two questions. First, back to China Deco. How long -- it seems to be a price mix problem rather than a volume problem for the time being. How long do you see this negative price mix to continue? Will it improve during '26? And then second question, can you elucidate a bit the situation in Automotive Refinish? Is this business still hampered by people not having their cars repaired because they fear increasing insurance premiums? Gregoire Poux-Guillaume: Yes. Yes. So China Deco. China Deco, the driver of the market downturn in the last couple of years was the collapse of the real estate market in China, the property developers that went belly up. Construction really dropped significantly in China. That impacted the project side of the business a lot more than the retail side of the business because the retail side of the business is driven by renovation even in China. But although Akzo Nobel had a small presence in projects and is actually the #2 player in retail, we had the knock-on effect of some of our competitors shifting their volumes to -- shifting their capacity to try to gain volume on the retail side. So essentially, that created a little bit of a price war driven by Nippon Paints in -- on the retail side and took the profitability of the market down overall. That volume trajectory still hasn't recovered. That's what I was trying to explain, hasn't recovered for the market. The market was down, I think I said mid-single digits in '25, but I think it was a little bit higher than that. It might have been even closer to high single digits. It's going to be down again, mid-single digits in '26. What's interesting about Akzo is that we've been recovering and we've been rebounding from a profit perspective by essentially capitalizing on our position in premium, where we've been doing well, and we've been actually doing a lot better than the market. So what you're calling a price/mix, it's -- our recovery is being driven by premium. It's still a really competitive market. The price erosion has stopped. And I believe that in the market where there's been a lot of price give back, there are very good reasons for essentially the players in the market to have price discipline going forward, but it's not a market recovery yet. That market recovery is really anticipated for 2027 based on projections of how the real estate essentially development is unfolding in the coming months. So China Deco good for us, not good overall as a market. We expect it to be good for us again in '26, but once again, it's due to our very specific positioning and our ability to win in premium. Vehicle Refinish, Maarten? Maarten de Vries: Yes. Vehicle Refinish, what we've seen is a continuing of the trend which we've seen in terms of the insurance, the higher insurance premium and a lower kind of softness in vehicle Refinish in North America and in EMEA while, by the way, we see growth in Asia. That trend will, for sure, continue in Q1 and Q2 and is expected to improve in the second half of '26. Gregoire Poux-Guillaume: Christian, did we answer your question? Christian Faitz: Yes. Operator: The next question is from Matthew Yates of Bank of America. Matthew Yates: I've got a couple that probably for Maarten. First, can you just explain the corporate line in Q4 looked a bit lower than normal, let's say? And then I just had a question around the cash flow. Where you are on working capital now? Obviously, the metrics have improved. Just conscious, is that driven by volumes? Or is that price deflation coming through? I'm trying to understand where your physical stocks are sitting relative to what you need, given that your order book still seems to be going backwards at the moment? And maybe just for Greg, just to come back on the pricing. I'm not entirely sure I understood the answer there. Do you think net pricing is definitely going to be positive in the first half and then the second half remains to be seen given whatever inflation we may or may not get in the raw material basket? Maarten de Vries: So let me first start with your first 2 questions. On the corporate line, we've seen a bit higher benefits in Q4. Of course, structurally on the back half also our SG&A saving program, but also we had some benefits in pension costs as well as insurance costs. So Q4 was indeed a little bit lower than normal. If you look going forward, in fact, in the past, this line has been roughly EUR 70 million on a total year basis. '25 was a little bit lower. Going forward, you should more think of between EUR 60 million and EUR 70 million. So it is going down, but Q4 was a little bit lower. On the free cash flow, has been very much driven by the working capital takeout, 15.7% at the end of last year, 14.7% at the end of '24, 14.7% at the end of '25. In fact, on inventory levels, the DIO in days were flat versus the end of '24, but it included prebuy of raw materials and also inventory buildup because of the industrial efficiency program, the site closures in the first quarter. So overall, we are happy with the trajectory of inventory but also receivables and payables. And as we said, we will take further actions to reduce working capital. It will be around 14.5% or just below 14.5% at the end of this year. Gregoire Poux-Guillaume: To your pricing question, Matthew, I wasn't trying to confuse you what I was saying is that '25 was plus 1% price/mix, '26 should not be very different. It's not going to be a whole lot more and I'm pointing out the fact that the last year, the raw environment was projected to be more challenging than it ended up being. This year, raw mats will be favorable in the first half, less favorable in the second. And as you know, a lot of the price increases, particularly in Deco are things that we submit and we negotiate in the first half of the year. So it's really just a question of how quickly we come to a conclusion on that. And a lot of our customers look at price versus raws. So it's -- we'll be expanding, but by how much remains to be seen, and it's not reflected significantly in our margin projections for 2026. So the EUR 100 million is not price heavy. Maarten, did I explain that well? Do you want to add anything? Maarten de Vries: Not -- maybe some color. I mean the EUR 100 million is very much self-help as we mentioned earlier. You have the EUR 90 million net benefit from initial excellence program. We have the carryover of the SG&A program of at least EUR 50 million additional productivity actions, but those are there to offset inflation because we will see again, wage inflation of roughly 3%. So that EUR 90 million is a net benefit and then -- and that's the main underpinning for the EUR 100 million step-up. Operator: Our next question is from Tony Jones at Rothschild & Co. Tony Jones: Tony Jones at Rothschild. I've got 2. Firstly, on cash. With the merger still on track, can you update us on the share repurchase? I think it's EUR 400 million post the India sale. I understand the approvals in place. So can we assume that's front-loaded into the first half of '26? And then secondly, some of your peers have started to indicate where we are in a refurbishment cycle and how they're planning for that. How do you see Akzo's position? Gregoire Poux-Guillaume: The first question, I think, is a slight misunderstanding. When we announced the merger, we announced that both companies were suspending share buybacks. So the EUR 400 million share buyback at Akzo is not happening. But what's happening is that we're returning EUR 2.5 billion to our shareholders at closing to reflect the -- to get to the announced parity. So you're not getting the EUR 400 million as a share buyback upfront, but you're getting the EUR 2.5 billion if we proceed according to plan towards the end of the year as we close the transaction. The second question... Maarten de Vries: The EUR 2.5 billion, just to be clear, includes the regular dividend. Gregoire Poux-Guillaume: Yes, includes the regular dividend. Maarten de Vries: During the year. Gregoire Poux-Guillaume: And the second question was... Maarten de Vries: What was your second question? Tony Jones: Refurbishment. Gregoire Poux-Guillaume: I don't understand. What do you mean by the refurbishment cycle? Tony Jones: Yes. Some of your competitors have started to talk about extended volume cycles. So things like remodeling activity in certain countries or regions. Do you have a perspective on it? Gregoire Poux-Guillaume: No. We don't really have anything intelligent to say on this. I think it's -- it's a -- I mean it's a well known. I don't know if I can call it well known, but it's a normal kind of behavior pattern, which is that when the Deco market is driven by consumer confidence and when consumer confidence goes down, there's always been this philosophical debate of will customers paint less or will they paint with cheaper products. And what we've demonstrated over the last few cycles as it relates to Akzo is that we don't see a lot of trading down. So consumers are not shifting to cheaper products, but they have a tendency to space out the repainting. And -- but that's a confidence down scenario. I think consumer confidence has been recovering. So we're not seeing any specific spacing out of repainting or renovations in homes. This is not an effect that will -- this is not an effect that we'll use as an excuse for anything. Operator: Next question is from Chetan Udeshi with JPMorgan. Chetan Udeshi: I had a couple of questions. First, just going back to the comments on Q1 sort of outlook. And I just wanted to clarify, typically, we see some seasonal uplift in Q1 versus Q4, it could be like 4%, 5%. Are you suggesting we won't see that? Or were your comments more from a year-on-year perspective being similar to what you saw in Q4, but we should still see some sequential improvement, I suppose, in Q1 versus Q4? That's the first question. The second question was one of the drags on volumes over second half of last year at Akzo, but also your competitors have the U.S. weakness and we saw yesterday the manufacturing ISM print was very, very strong for month of Jan. And I was just curious if you've actually seen that reflect at all in your orders in the U.S.? Are you seeing any uplift in your order book in the U.S. that we saw come through in the ISM index print? Gregoire Poux-Guillaume: I'll take the second question. It's a bit early to talk about a rebound in the U.S., but in one of our coating businesses for which I do have the numbers for January, they're in line with what we were expecting in January, which is a good sign because sometimes there's a end of year effect where people are slow to get out of the starting blocks in January. It seems to be progressing according to plan. But it's really too early, Chetan, for us to read signs of an impending rebound in the U.S. from that. We're still expecting that the first half will be soft in general. Maarten, do you want to answer the other question? Maarten de Vries: Yes, on the other question, I mean Q4 and Q1 are traditionally the smaller quarters. And what we commented on is that we -- if we look sequentially, Q1 looks a lot like Q4. I commented earlier on the volume trajectory. And I also commented on the fact that we will see some of the efficiency actions coming through in Q1, which is then on top of Q4, but overall, similar trends. Gregoire Poux-Guillaume: Chetan, anything else? Chetan Udeshi: Got it. No, that's fine. Operator: Our next question is from James Hooper with Bernstein Societe Generale Group. James Hooper: I kind of got one question, two parts. I just wanted where -- how do you see your market share has changed over 2025, Greg? I know you referenced packaging on the call. But there's also been some positive commentary out of some of your peers, for example, around auto refinish. And then around that, obviously, you've made -- you've shown on the slides you've made a lot of progress in the last few years on the cost side. But is there kind of now kind of -- is this the time for a more similar plan on the revenue side? Because if we compare your organic growth to peers, it's been slightly below not just fourth quarter, but also through 2025 as well. Gregoire Poux-Guillaume: The organic growth to peers, if I benchmark with PPG, they had a much better order in Q4 than we did. But overall, if I take the last 18 to 24 months, I'm pretty sure that if you benchmark the numbers, you'll see that we grew faster than they did. So I don't think we're at disadvantage to peers. I do think there's -- I do think PPG had a better quarter in Q4 from that perspective. But you take the quarters in isolation, it's really hard to reach any conclusion. But once again, I don't think this is -- I don't think we're growing less than comparable companies. I think we've actually been doing a little bit better from that perspective. But your point is still correct, though. It's -- we've done a lot of work on costs that positions us to be very competitive as the market picks up. We haven't been trying to gain market share at the expense of pricing. So the combination of the cost takeout and the price discipline has been more about margin expansion than it has been about using price to gain volume. If I take your market share question, Vehicle Refinish, we're not losing market share. I think these comments from peers were probably inelegant cryptic comments about companies getting sold and being distracted and the other guys picking up the pieces while the company is getting distracted, but it wasn't an Akzo comment. We're fine from that perspective. Packaging is a very isolated issue. It's linked to a product introduction. You've got approvals. We were more ambitious in the product development, but that ambition led us to be a little bit late to the party in terms of getting the approvals. The approvals are all happening. There's no technical issue linked to that. It's just that it put us at the back of the queue. And therefore, it leads to a market share drop for 12 to 18 months, a bit of last year and most of '26 and then a recovery in '27. It's not ideal, but it's a temporary thing, and it's -- and we're very confident about the quality and the performance of our product. And on everything else in powder, I think we've been gaining market share if I look at our performance versus everybody else. In, let's see, what can I comment? In Marine Protective, clearly, we've been gaining market share. We've been recovering the last few years and our trajectory is very much a market share positive trajectory. And I made the comment that our growth in Marine in '26 was based on the dry docking market share gains. And in Deco, we've been gaining certainly in Latin America. I know we gained market share in Colombia this year. Brazil was a weird year because of the Suvinil effect, as I explained. But I think Q4 was the first quarter where Akzo Nobel had a higher customer recognition than Suvinil in the retail market, knowing that historically, Suvinil was a leader. So that tells you that our trajectory is pretty good. And in Deco in Europe, if you take the U.K. market, which is a really large market for us, our second largest customer went bankrupt last year, Homebase. And despite that, we're -- we didn't lose market share in 2025, which is really an incredible achievement if you think about it because what it means is that. Because by the way, we were over-indexed in Homebase. Homebase had a very premium paint segment, so we were over-indexed and we were essentially -- our market share in Homebase was higher than our market share overall in the U.K. And despite Homebase disappearing and some of the stores getting closed and some of them changing formats, we maintained our market share in the U.K., which means that people were not buying at Homebase. They were buying Dulux. And when Homebase went away, people bought Dulux but somewhere else, which I think is an incredible reflection of the strength of the brand. So now from a market share perspective, we feel comfortable apart from the packaging points, which is a temporary issue that I pointed out. We feel comfortable that we are either defending or in the areas I've mentioned gaining. But once again, in a market that doesn't have whole lot of direction and has a lot of softness, you have to decide whether you're willing to compromise on price in order to gain volumes. We clearly have competitors. If you take the powder market, we have competitors who are playing a price game right now. And some of those are competitors that I've mentioned in this long-winded answer. So it's -- different people have different game plans. Ours is to expand margins and that's what we'll continue to do. And then the volumes will come, but it's not -- our first priority is not volumes. We certainly want to defend our positions but we will grow only if that growth that comes with really strong price discipline. Hopefully, I answered your question. James Hooper: Yes, thank you. Very comprehensive answer. Operator: Our next question is from Stefano Toffano with ABN AMRO and ODDO BHF. Stefano Toffano: Maybe just one question on the market share. I mean, a very comprehensive answer, so thank you very much for that. But I mean, looking at the results, I think, if I'm not mistaken, and please correct me if I'm wrong, this is the first negative organic growth quarter since, I believe, Q2 2020 according to my model, unless I made some mistake. But it does -- I mean, do I read too much into that? Because again, one of the first ideas here is yes, maybe you're focusing internally on the margin, et cetera, and not at the expense of some overall market share. So maybe if you can comment a little bit on that. Second one, on working capital, I noticed that the midterm guidance for the working capital has been notched up a little bit to 13% to 14% and it was 13%. I was wondering what the idea was behind that. Last question, and just a technical one. If you can please remind me how much India adjusted EBITDA was in 2025? Gregoire Poux-Guillaume: Okay. Your first question, I gave a really long-winded answer the first time around. I'll give a really short one. Yes, you're reading too much into Q4. It's a small quarter. There's no valid extrapolation from that one data point. And as you rightly pointed out, the direction has been pretty consistently the other way around for the last few years and therefore, no, we're not dropping market share. I commented very transparently on packaging. A lot of companies would dance around these issues. Look, at the end of the day, it's -- sometimes you're first out of the gate, sometimes you're not first out of the gate. And it's important to understand how that unfolds. But overall, we've had good momentum in a soft market. And once again, we're not arbitrating in the way you're implying. So I said it would be a short answer and then I can't resist giving you a longer one, but yes, you're reading too much. Working capital? Maarten? Maarten de Vries: On working capital, yes, our original guidance, which we gave 2 years ago was around 13%. We are saying now more in the range of 13% to 14%. I think it's also a reflection that the world is changing. And it's better to have a little bit more inventory, especially given the volatility in the markets and the tariff situation. So things have changed. But overall, we are on our improvement trajectory from working capital levels, which were 17%, 18%, coming now to 14.7%. And getting by '27 to that range of 13% to 14%. So -- and it's very much also benefiting on the back of our industrial efficiency program, where we are optimizing our footprint but also our supply chains. So that's on the working capital. On India, and what we've said earlier is that compared to '25, you need to correct for EUR 40 million downwards. And the impact in December was EUR 6 million. So the total correction on adjusted EBITDA level is EUR 46 million, of which EUR 6 million sits already in December '25 and then '25 to '26, a correction of EUR 40 million. Gregoire Poux-Guillaume: I think this was the last question. Thanks a lot. We'll wrap up because you guys have a busy day. It's -- Q4 was -- Q4 was a soft quarter in terms of market momentum but it was a strong quarter in terms of execution as was 2025. We end the quarter and we end the year price up, profit up, cash up, so we're executing on what we can control. Once again, we're staying disciplined and we're working full speed ahead on getting to closing with Axalta as quickly as possible and targeting the end of 2026. And at least in this early phase, hitting our milestones to get there. So that's all I have for you today. I thank you for your time and your interest, and we'll talk to you soon. Thank you.
Operator: Hello, everyone, and welcome to today's Akzo Nobel Q4 and Full Year Results Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I will now hand you over to Jan Willem Enhus, Head of Investor Relations to begin the call. Please go ahead, when you're ready. Jan Willem Enhus: Good morning, everyone, and welcome to Akzo Nobel's investor update for the fourth quarter and full year 2025. I'm Jan Willem Enhus, Head of Investor Relations. Today, our CEO, Greg Poux-Guillaume; and CFO, Maarten de Vries, will take you through our results. We'll refer to the presentation, which you can follow by webcast or download from our website at akzonobel.com. A replay of the webcast will also be made available following the event. There will be a Q&A session after the presentation. For additional information, please contact our Investor Relations team. Before we start, a reminder of our forward-looking statements disclaimer on Slide 2. Please note, this also applies to the conference call and answers to your questions. I will now hand over to Greg, who will start on Slide 3 of the presentation. Gregoire Poux-Guillaume: Thanks, Jan Willem. Good morning to everyone on the call. In 2025, we made substantive strides towards a stronger Akzo Nobel. In tepid markets, our progress was rooted in price discipline and the relentless execution of our efficiency programs, resulting in a full year adjusted EBITDA of EUR 1.444 billion, adjusted for ForEx translation and our Indian divestment, this is within 1% of our initial constant currency guidance of [ EUR 15.50 ] given at the beginning of the year. And profitability is at 14.2% which is 40 basis points up versus last year. In Q4, volumes were down 2% year-on-year with price/mix up 1%. Our adjusted EBITDA came in at EUR 309 million or EUR 343 million, excluding ForEx translation and the Indian divestment. This is 7% higher than last year on a comparable basis and corresponds to a 13% margin up 70 basis points year-on-year. Operationally, we achieved net OpEx savings of EUR 98 million year-to-date, EUR 28 million ahead of plan. Free cash flow came in materially higher at EUR 606 million on efficient working capital management. And we reduced leverage to 2x, bringing it in line with our midterm ambitions. Overall, we delivered a banner year in operational execution alongside 2 major portfolio moves, value crystallizing divestment in India and our proposed merger with Axalta, which will reduce costs, boost innovation and accelerate growth. Let's now turn to Slide 4. Q4 volumes were down 2% year-on-year with mixed performance between our segments. Overall, Deco volumes were slightly down at minus 1%. Europe, Middle East and Africa was flat, with growth in the U.K. and a recovery in Turkey, the continued weakness in France. Looking ahead, we expect 2026 to be stable with a European recovery further out. Latin America declined mid-single digits, with Argentina doing well, but Brazil impacted by the BSF disposal. As you know, the Suvinil business was for sale, was bought by Sherwin, but there was a moment of -- there was a moment of lack of leadership of that business, which disrupted the Brazilian market in the middle of the year. But as Sherwin closed the deal and started running the business, this recovered and Q4 was a good quarter for us. Growth will resume in 2026 as Brazil returns to normal trading conditions, which Brazil has already returned to normal trading conditions. So, so far, so good. China delivered low single-digit growth with our business continuing to outperform in a weak market. We expect this to continue in 2026 and for the Chinese market to finally rebound in 2027. Southeast Asia remained mixed with softer demand in Indonesia, more than offset by growth in Vietnam, where momentum is anticipated to remain solid throughout 2026. Let's turn to Coatings now. In Coatings, volumes declined 3% in Q4, primarily due to market pullback in most of our segments in North America. Powder remain impacted by low architectural demand, although Asia continued its strong momentum, stabilization in North America is expected in the second half of 2026. Marine and Protective delivered a slower quarter with growth in yachts, but a lower marine on tougher comps. Market share in dry docking will underpin volumes in 2026, market share gains, clearly, in dry docking for 2026. Automotive and Specialty improved sequentially to flat volumes overall. Aerospace outperformed while Refinish in North America remained at trough. Going forward, low single-digit growth will be driven by a strong Aerospace with a very strong order book and a stabilization in Refinish in the second half of 2026. Industrial Coatings was down mid-single digits. Coil and Wood were in line with markets. Our Packaging business faces a temporary pullback due to an industry technology shift and the delayed approvals of our product. We are planning to lose market share in 2026 because of this, but we will rebound and recover market share in 2027 on new awards. We're convinced we have best-in-class technology. So it's a temporary setback, but we will see a market share erosion in '26 before rebounding in '27 in Packaging. On balance, we expect full year volumes to be broadly flat in 2026. After Q1 with similar conditions to Q4 of last year, we anticipate an improving market trajectory in the second half of the year, particularly in North America. Turning to Slide 5. We closed the sale of Akzo Nobel India Limited at an attractive 25x EBITDA multiple, generating approximately EUR 900 million of proceeds, which showcases that our active portfolio management creates exceptional value. We retained full ownership of our Powder business in India by buying out the minorities and also secured a recurring royalty stream from the liquid coatings assets we divested to JSW. We continue our portfolio review in Asia as per our strategy to focus on leadership positions and to monetize assets that are significantly more valuable to other people than us. So there'll be more disposals in 2026 in Asia. All actions under our SG&A efficiency program were completed by mid-2025. We now expect around EUR 200 million of gross cost savings based on the elimination of 2,900 functional positions. This is EUR 80 million above our initial target, while also delivering a leaner and more focused operating model. Meanwhile, our Industrial Excellence Program continues to gather pace. We've closed 12 sites to date in the last 2 years since the start of the program, all without disruption to the business and while improving service levels. All actions under the Industrial program are expected to be completed by end of 2026. We've got at least 6 more closures planned in 2026, and we're making good progress on this. In short, our programs are driving a leaner cost base, better return on capital and a more focused agile organization. The impact of these programs is detailed on Page 6. Page 6, 2 years into our efficiency journey. I thought it would be helpful to present an overview of the phasing and the benefits of our 2 programs, very much like we did last year. Our SG&A program was fully executed in less than a year. We've achieved EUR 145 million in savings to date with at least EUR 50 million carryover in 2026, which will offset annual inflation alongside other productivity measures. In total, the program will deliver EUR 200 million of gross cost savings, EUR 80 million above the original plan, as I mentioned, with only EUR 50 million higher than originally envisaged cost. So EUR 80 million more value, only EUR 50 million more cost, all of this completed in less than a year, 2,900 positions, a lot of them in Europe. So you can see that we executed and we executed decisively. Our industrial transformation program remains fully on track and will be completed at the end of 2026. The focus remains on footprint optimization, modernization of anchor sites and supply chain consolidation. We expect a benefit of EUR 90 million in 2026 alongside a slightly higher restructuring cost and corresponding cash outflow. With EUR 110 million of carryover benefit in 2027, the program is set to deliver total gross savings of EUR 300 million. If you take the 2 programs together, that's EUR 0.5 billion of cost takeout demonstrating that our self-help is working and delivering a leaner organization with meaningful operating leverage on any volume recovery. Moving to Slide 7. Slide 7 is really a summary because the benefits of our efficiency programs, they're substantial. But sometimes they're obscured by the significant negative ForEx translation over the past 3 years, which does not impact profitability, but does make the reported numbers harder to read. We've tried in this table to isolate the effects with profitability gains in both Deco and Coatings and a more efficient use of capital as highlighted by our working capital improvement. We've made steady progress over the past 3 years, with adjusted EBITDA up 40% or almost EUR 0.5 billion on a comparable basis to 2022. Our progress has been built on price discipline, a leaner organization with greatly improved service levels. This, in conjunction with product innovation, will allow us to capture more than our share of commercial opportunities even in softer markets. The actions already in place will pave our way to achieving our midterm targets and more. And I'll now hand over to Maarten to discuss our Q4 performance on Slide 8. Maarten? Maarten de Vries: Yes. Thanks, Greg, and good morning, everybody. At the group level, organic sales declined by 1%, with volumes down 2% and a positive price/mix effect of 1%. The divestment of India had a negative 1% impact on revenue for both Deco and Coatings. FX translation further reduced revenue by 6%, resulting in a reported revenue decline of 9%. In Deco, volumes decreased by 1%, primarily driven by LatAm. While positive pricing in EMEA and LatAm was offset by a negative mix, organic sales for Deco were down by 1%. In Coatings, volumes were down 3% reflecting ongoing weakness in North America. Group adjusted EBITDA was EUR 309 million or EUR 343 million at constant currencies and adjusted for the India divestment. The EBITDA margin improved to 13%, up 70 bps compared to prior year. This improvement was due to margin expansion of 240 bps in Deco, supported by structural cost savings. Improvements in Coatings profitability continued to be muted by negative mix, particularly from weaker North America. We delivered another strong quarter of free cash flow totaling EUR 362 million. For the full year, free cash flow reached EUR 606 million, primarily driven by significant improvements in our working capital position. At year-end, trade working capital was 14.7%, a full percentage point below the previous year and within the target range. Importantly, we achieved this while driving our industrial transformation, which requires inventory buildup to support volume redistribution. Return on investment also improved to 13.5%, up from 13.3% last year. And finally, strong cash flow generation, together with the proceeds from the India divestment enabled us to reduce net debt to below EUR 3 billion and our leverage ratio to 2x, in line with our plan. Turning now to our '26 outlook. Looking ahead, based on current market visibility, we don't anticipate a material recovery across our end markets in 2026. A weak first half is expected with the second half helped by easier comparisons. We will remain firmly focused on the implementation of our self-help programs and maintaining strict cost discipline. In 2026, we aim to increase our full year adjusted EBITDA by at least EUR 100 million on a comparable basis, driven by costs rather than volume. Any volume recovery will be a plus. On a reported basis, including a EUR 40 million scope adjustment for the India divestment and an expected further EUR 35 million of FX translation impact, this should translate to a reported adjusted EBITDA at or above EUR 1.47 billion. The EUR 100 million step-up is driven by what we control with the Industrial program contributing EUR 90 million of savings. Carryover of the SG&A program will offset inflation combined with productivity as outlined in the overview table on Slide 6. This provides a solid earnings baseline with any improvement in market conditions translating into potential upside. The first quarter is expected to look a lot like the fourth quarter. Soft volume trends continuing, some efficiency uplift and a negative FX impact of around EUR 30 million. With that, back to Greg for the wrap-up. Gregoire Poux-Guillaume: Thank you. Moving to Slide 11. On November 18, together with Axalta, we announced a transformative step for both companies, a merger of equals to shape the future of our industry. This compelling combination builds a more resilient coatings leader with enhanced margins and superior cash generation. We see at least [ $600 million ] of cost synergies, and we have the experienced leadership team to execute them with discipline and convert them into a sustainable margin with the robust cash flow. On top of this, we expect revenue synergies to boost gross by 100 to 200 basis points. We'll share more details on this in the coming months ahead of the shareholder votes. By joining forces, we will not only generate significant synergies, but will also create a company that will bring the best of both worlds to our customers, shareholders and employees. Closing is expected late in 2026 or early in 2027. Preparation for the proposed merger are ongoing, but will not deter or distract us from a more core execution agenda as we deliver against our 2026 outlook. I'll now hand over to Jan Willem to close with information about upcoming events and then we'll start the Q&A. Jan Willem? Jan Willem Enhus: Thank you, Greg. Before we start the Q&A session, I would like to draw your attention to the upcoming events going on Slide 12. We will publish our annual report on February 24. This concludes the formal presentation, and we'll be happy to address your questions. Please state your name and company when asking a question and limit the number of questions to 2 per person so others can participate. Operator, please start the Q&A session. Operator: [Operator Instructions] Our first one is from Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. First question, on the EUR 100 million EBITDA constant currency growth, could you just help us understand the drivers of that? You've obviously talked flat volumes, but I assume positive mix. There should be a net pricing benefit in there, and then there's also cost savings. So just trying to figure out the moving parts because noting that net pricing environment is relatively positive. That's my first question. Second question, if I may. You touched on the deal there with Axalta. Any further updates on timelines or synergy plans, have you guys been able to at least better understand the potential of the merger since the initial announcement? Gregoire Poux-Guillaume: Thank you, Thomas. I'll start with the Axalta question. The focus right now is to hit the ground running in terms of the critical path and the critical path of any merger like the one that we're planning with Axalta is the regulatory approvals. We've made really good progress. We're working well together. By the end of next week, the main regulatory filings are in Europe and in the U.S. And the one that's the most time consuming is Europe, very, very heavy detailed document upfront and a process that's a bit longer. So we wanted to make sure that we got it out very quickly. And by the end of next week, we'll have completed all the main filings, including Europe. So we're tracking well from that perspective. And in parallel, we're doing work on detailing the synergy plans and also substantiating the revenue synergies that we want to talk about ahead of the shareholder vote. So all going well. Nothing to report beyond the fact that we're hitting our milestones and making good progress with still the aim to close by the end of 2026. And in terms of the EUR 100 million step-up at -- on a comparable basis in EBITDA, it's essentially based on self-help. It's mostly driven by costs. We're not assuming the volume growth. We're assuming volumes to be flat. It's a crapshoot on volumes. There's a lot of macro uncertainty. We saw some of the reactions this morning from some of you guys that felt this might be a little bit conservative, but there's really not a whole lot to gain by getting ahead of ourselves and volumes at this point. And then I think that your main question is the pricing question, but it's really the margin expansion question. Prices were up for us 1% in 2025. We plan to be priced up again in 2026. But the more important question is how that how the margin expansion works out because it's essentially price minus raws. And if you look at our plan in 2025, we were planning for more pricing, but also higher raws. The raws ended up being lower, which made some of the pricing gains more difficult to achieve. So it's really a question of how the market will unfold in 2026. Right now, it's looking like raws in the first half of the year will be favorable. And in the second half of the year, prices will pick up and now become a little bit unfavorable. The pricing discussions are ongoing and it's about striking that balance with our customers, but we'll be priced up in '26, and we'll expand margins in '26. Operator: Our next question is from Laurent Favre at BNP Paribas. Laurent Favre: Two questions, please. The first one, I'm sorry, it's the boring one, but you just mentioned Q1 would be similar to Q4. I just wanted to clarify that I guess, what you meant was on the year-on-year organic development? And then the second one, maybe a little bit more interesting. You mentioned that there would be more disposals in Asian Deco for the year. I'm just wondering, are you thinking about specific areas where I guess you, like in India, don't have leadership? Or are you also considering countries where you do have leadership and are you also considering, I guess, big countries like China where I think the market is a lot more skeptical? Gregoire Poux-Guillaume: Maarten will take the Q1 question, I'll take the Asia question. We're considering -- we're working. I mean not considering, we're working on more disposals in Deco Asia. It's -- the starting point is always whether we feel that we've got a winning hand over time or whether our business might be more valuable to somebody else. We're not considering exiting China in Deco. It's a good business. It's a business in which the market was really down the last 2 years and everybody suffered. And we're on our way to a recovery. We had a good year in 2025 despite the fact that the market was still going down mid-single digits. In '26, the market will still be going slightly down in China in Deco, but we are planning to continue on our current momentum, and we see a market recovery in 2027. So we're working on improving our business in China and getting ahead of the wave and fully capitalizing on that market recovery. That's our priority for the next few years. Everything else in Deco Asia, we're assessing because once we announced that we were selling India and we closed that, you can imagine that, that generated inbounds. And we have views as to what the right moves are. We're working on some of them, but we don't plan to let the merger with Axalta slow down our momentum on this. We'll execute these moves at the timing whenever they make sense. That's what I'm trying to say. Maarten, do you want to take the Q1 question? Maarten de Vries: Yes, on your question on Q1. So Q1 sequentially versus Q4 is very much similar. You asked about the organic volume trends similar to Q4 and then the only thing which will differ in Q1 is that there will be additional efficiency gains from the industrial excellence program. And what I mentioned earlier is that the FX translation impact for Q1 will be again at EUR 30 million if you compare that to last year Q1. But Similar to Q4 with a bit of additional efficiency gains. Gregoire Poux-Guillaume: Laurent, anything else? Laurent Favre: No. That's it. Operator: Our next question is from Christian Faitz at Kepler Cheuvreux. Christian Faitz: Two questions. First, back to China Deco. How long -- it seems to be a price mix problem rather than a volume problem for the time being. How long do you see this negative price mix to continue? Will it improve during '26? And then second question, can you elucidate a bit the situation in Automotive Refinish? Is this business still hampered by people not having their cars repaired because they fear increasing insurance premiums? Gregoire Poux-Guillaume: Yes. Yes. So China Deco. China Deco, the driver of the market downturn in the last couple of years was the collapse of the real estate market in China, the property developers that went belly up. Construction really dropped significantly in China. That impacted the project side of the business a lot more than the retail side of the business because the retail side of the business is driven by renovation even in China. But although Akzo Nobel had a small presence in projects and is actually the #2 player in retail, we had the knock-on effect of some of our competitors shifting their volumes to -- shifting their capacity to try to gain volume on the retail side. So essentially, that created a little bit of a price war driven by Nippon Paints in -- on the retail side and took the profitability of the market down overall. That volume trajectory still hasn't recovered. That's what I was trying to explain, hasn't recovered for the market. The market was down, I think I said mid-single digits in '25, but I think it was a little bit higher than that. It might have been even closer to high single digits. It's going to be down again, mid-single digits in '26. What's interesting about Akzo is that we've been recovering and we've been rebounding from a profit perspective by essentially capitalizing on our position in premium, where we've been doing well, and we've been actually doing a lot better than the market. So what you're calling a price/mix, it's -- our recovery is being driven by premium. It's still a really competitive market. The price erosion has stopped. And I believe that in the market where there's been a lot of price give back, there are very good reasons for essentially the players in the market to have price discipline going forward, but it's not a market recovery yet. That market recovery is really anticipated for 2027 based on projections of how the real estate essentially development is unfolding in the coming months. So China Deco good for us, not good overall as a market. We expect it to be good for us again in '26, but once again, it's due to our very specific positioning and our ability to win in premium. Vehicle Refinish, Maarten? Maarten de Vries: Yes. Vehicle Refinish, what we've seen is a continuing of the trend which we've seen in terms of the insurance, the higher insurance premium and a lower kind of softness in vehicle Refinish in North America and in EMEA while, by the way, we see growth in Asia. That trend will, for sure, continue in Q1 and Q2 and is expected to improve in the second half of '26. Gregoire Poux-Guillaume: Christian, did we answer your question? Christian Faitz: Yes. Operator: The next question is from Matthew Yates of Bank of America. Matthew Yates: I've got a couple that probably for Maarten. First, can you just explain the corporate line in Q4 looked a bit lower than normal, let's say? And then I just had a question around the cash flow. Where you are on working capital now? Obviously, the metrics have improved. Just conscious, is that driven by volumes? Or is that price deflation coming through? I'm trying to understand where your physical stocks are sitting relative to what you need, given that your order book still seems to be going backwards at the moment? And maybe just for Greg, just to come back on the pricing. I'm not entirely sure I understood the answer there. Do you think net pricing is definitely going to be positive in the first half and then the second half remains to be seen given whatever inflation we may or may not get in the raw material basket? Maarten de Vries: So let me first start with your first 2 questions. On the corporate line, we've seen a bit higher benefits in Q4. Of course, structurally on the back half also our SG&A saving program, but also we had some benefits in pension costs as well as insurance costs. So Q4 was indeed a little bit lower than normal. If you look going forward, in fact, in the past, this line has been roughly EUR 70 million on a total year basis. '25 was a little bit lower. Going forward, you should more think of between EUR 60 million and EUR 70 million. So it is going down, but Q4 was a little bit lower. On the free cash flow, has been very much driven by the working capital takeout, 15.7% at the end of last year, 14.7% at the end of '24, 14.7% at the end of '25. In fact, on inventory levels, the DIO in days were flat versus the end of '24, but it included prebuy of raw materials and also inventory buildup because of the industrial efficiency program, the site closures in the first quarter. So overall, we are happy with the trajectory of inventory but also receivables and payables. And as we said, we will take further actions to reduce working capital. It will be around 14.5% or just below 14.5% at the end of this year. Gregoire Poux-Guillaume: To your pricing question, Matthew, I wasn't trying to confuse you what I was saying is that '25 was plus 1% price/mix, '26 should not be very different. It's not going to be a whole lot more and I'm pointing out the fact that the last year, the raw environment was projected to be more challenging than it ended up being. This year, raw mats will be favorable in the first half, less favorable in the second. And as you know, a lot of the price increases, particularly in Deco are things that we submit and we negotiate in the first half of the year. So it's really just a question of how quickly we come to a conclusion on that. And a lot of our customers look at price versus raws. So it's -- we'll be expanding, but by how much remains to be seen, and it's not reflected significantly in our margin projections for 2026. So the EUR 100 million is not price heavy. Maarten, did I explain that well? Do you want to add anything? Maarten de Vries: Not -- maybe some color. I mean the EUR 100 million is very much self-help as we mentioned earlier. You have the EUR 90 million net benefit from initial excellence program. We have the carryover of the SG&A program of at least EUR 50 million additional productivity actions, but those are there to offset inflation because we will see again, wage inflation of roughly 3%. So that EUR 90 million is a net benefit and then -- and that's the main underpinning for the EUR 100 million step-up. Operator: Our next question is from Tony Jones at Rothschild & Co. Tony Jones: Tony Jones at Rothschild. I've got 2. Firstly, on cash. With the merger still on track, can you update us on the share repurchase? I think it's EUR 400 million post the India sale. I understand the approvals in place. So can we assume that's front-loaded into the first half of '26? And then secondly, some of your peers have started to indicate where we are in a refurbishment cycle and how they're planning for that. How do you see Akzo's position? Gregoire Poux-Guillaume: The first question, I think, is a slight misunderstanding. When we announced the merger, we announced that both companies were suspending share buybacks. So the EUR 400 million share buyback at Akzo is not happening. But what's happening is that we're returning EUR 2.5 billion to our shareholders at closing to reflect the -- to get to the announced parity. So you're not getting the EUR 400 million as a share buyback upfront, but you're getting the EUR 2.5 billion if we proceed according to plan towards the end of the year as we close the transaction. The second question... Maarten de Vries: The EUR 2.5 billion, just to be clear, includes the regular dividend. Gregoire Poux-Guillaume: Yes, includes the regular dividend. Maarten de Vries: During the year. Gregoire Poux-Guillaume: And the second question was... Maarten de Vries: What was your second question? Tony Jones: Refurbishment. Gregoire Poux-Guillaume: I don't understand. What do you mean by the refurbishment cycle? Tony Jones: Yes. Some of your competitors have started to talk about extended volume cycles. So things like remodeling activity in certain countries or regions. Do you have a perspective on it? Gregoire Poux-Guillaume: No. We don't really have anything intelligent to say on this. I think it's -- it's a -- I mean it's a well known. I don't know if I can call it well known, but it's a normal kind of behavior pattern, which is that when the Deco market is driven by consumer confidence and when consumer confidence goes down, there's always been this philosophical debate of will customers paint less or will they paint with cheaper products. And what we've demonstrated over the last few cycles as it relates to Akzo is that we don't see a lot of trading down. So consumers are not shifting to cheaper products, but they have a tendency to space out the repainting. And -- but that's a confidence down scenario. I think consumer confidence has been recovering. So we're not seeing any specific spacing out of repainting or renovations in homes. This is not an effect that will -- this is not an effect that we'll use as an excuse for anything. Operator: Next question is from Chetan Udeshi with JPMorgan. Chetan Udeshi: I had a couple of questions. First, just going back to the comments on Q1 sort of outlook. And I just wanted to clarify, typically, we see some seasonal uplift in Q1 versus Q4, it could be like 4%, 5%. Are you suggesting we won't see that? Or were your comments more from a year-on-year perspective being similar to what you saw in Q4, but we should still see some sequential improvement, I suppose, in Q1 versus Q4? That's the first question. The second question was one of the drags on volumes over second half of last year at Akzo, but also your competitors have the U.S. weakness and we saw yesterday the manufacturing ISM print was very, very strong for month of Jan. And I was just curious if you've actually seen that reflect at all in your orders in the U.S.? Are you seeing any uplift in your order book in the U.S. that we saw come through in the ISM index print? Gregoire Poux-Guillaume: I'll take the second question. It's a bit early to talk about a rebound in the U.S., but in one of our coating businesses for which I do have the numbers for January, they're in line with what we were expecting in January, which is a good sign because sometimes there's a end of year effect where people are slow to get out of the starting blocks in January. It seems to be progressing according to plan. But it's really too early, Chetan, for us to read signs of an impending rebound in the U.S. from that. We're still expecting that the first half will be soft in general. Maarten, do you want to answer the other question? Maarten de Vries: Yes, on the other question, I mean Q4 and Q1 are traditionally the smaller quarters. And what we commented on is that we -- if we look sequentially, Q1 looks a lot like Q4. I commented earlier on the volume trajectory. And I also commented on the fact that we will see some of the efficiency actions coming through in Q1, which is then on top of Q4, but overall, similar trends. Gregoire Poux-Guillaume: Chetan, anything else? Chetan Udeshi: Got it. No, that's fine. Operator: Our next question is from James Hooper with Bernstein Societe Generale Group. James Hooper: I kind of got one question, two parts. I just wanted where -- how do you see your market share has changed over 2025, Greg? I know you referenced packaging on the call. But there's also been some positive commentary out of some of your peers, for example, around auto refinish. And then around that, obviously, you've made -- you've shown on the slides you've made a lot of progress in the last few years on the cost side. But is there kind of now kind of -- is this the time for a more similar plan on the revenue side? Because if we compare your organic growth to peers, it's been slightly below not just fourth quarter, but also through 2025 as well. Gregoire Poux-Guillaume: The organic growth to peers, if I benchmark with PPG, they had a much better order in Q4 than we did. But overall, if I take the last 18 to 24 months, I'm pretty sure that if you benchmark the numbers, you'll see that we grew faster than they did. So I don't think we're at disadvantage to peers. I do think there's -- I do think PPG had a better quarter in Q4 from that perspective. But you take the quarters in isolation, it's really hard to reach any conclusion. But once again, I don't think this is -- I don't think we're growing less than comparable companies. I think we've actually been doing a little bit better from that perspective. But your point is still correct, though. It's -- we've done a lot of work on costs that positions us to be very competitive as the market picks up. We haven't been trying to gain market share at the expense of pricing. So the combination of the cost takeout and the price discipline has been more about margin expansion than it has been about using price to gain volume. If I take your market share question, Vehicle Refinish, we're not losing market share. I think these comments from peers were probably inelegant cryptic comments about companies getting sold and being distracted and the other guys picking up the pieces while the company is getting distracted, but it wasn't an Akzo comment. We're fine from that perspective. Packaging is a very isolated issue. It's linked to a product introduction. You've got approvals. We were more ambitious in the product development, but that ambition led us to be a little bit late to the party in terms of getting the approvals. The approvals are all happening. There's no technical issue linked to that. It's just that it put us at the back of the queue. And therefore, it leads to a market share drop for 12 to 18 months, a bit of last year and most of '26 and then a recovery in '27. It's not ideal, but it's a temporary thing, and it's -- and we're very confident about the quality and the performance of our product. And on everything else in powder, I think we've been gaining market share if I look at our performance versus everybody else. In, let's see, what can I comment? In Marine Protective, clearly, we've been gaining market share. We've been recovering the last few years and our trajectory is very much a market share positive trajectory. And I made the comment that our growth in Marine in '26 was based on the dry docking market share gains. And in Deco, we've been gaining certainly in Latin America. I know we gained market share in Colombia this year. Brazil was a weird year because of the Suvinil effect, as I explained. But I think Q4 was the first quarter where Akzo Nobel had a higher customer recognition than Suvinil in the retail market, knowing that historically, Suvinil was a leader. So that tells you that our trajectory is pretty good. And in Deco in Europe, if you take the U.K. market, which is a really large market for us, our second largest customer went bankrupt last year, Homebase. And despite that, we're -- we didn't lose market share in 2025, which is really an incredible achievement if you think about it because what it means is that. Because by the way, we were over-indexed in Homebase. Homebase had a very premium paint segment, so we were over-indexed and we were essentially -- our market share in Homebase was higher than our market share overall in the U.K. And despite Homebase disappearing and some of the stores getting closed and some of them changing formats, we maintained our market share in the U.K., which means that people were not buying at Homebase. They were buying Dulux. And when Homebase went away, people bought Dulux but somewhere else, which I think is an incredible reflection of the strength of the brand. So now from a market share perspective, we feel comfortable apart from the packaging points, which is a temporary issue that I pointed out. We feel comfortable that we are either defending or in the areas I've mentioned gaining. But once again, in a market that doesn't have whole lot of direction and has a lot of softness, you have to decide whether you're willing to compromise on price in order to gain volumes. We clearly have competitors. If you take the powder market, we have competitors who are playing a price game right now. And some of those are competitors that I've mentioned in this long-winded answer. So it's -- different people have different game plans. Ours is to expand margins and that's what we'll continue to do. And then the volumes will come, but it's not -- our first priority is not volumes. We certainly want to defend our positions but we will grow only if that growth that comes with really strong price discipline. Hopefully, I answered your question. James Hooper: Yes, thank you. Very comprehensive answer. Operator: Our next question is from Stefano Toffano with ABN AMRO and ODDO BHF. Stefano Toffano: Maybe just one question on the market share. I mean, a very comprehensive answer, so thank you very much for that. But I mean, looking at the results, I think, if I'm not mistaken, and please correct me if I'm wrong, this is the first negative organic growth quarter since, I believe, Q2 2020 according to my model, unless I made some mistake. But it does -- I mean, do I read too much into that? Because again, one of the first ideas here is yes, maybe you're focusing internally on the margin, et cetera, and not at the expense of some overall market share. So maybe if you can comment a little bit on that. Second one, on working capital, I noticed that the midterm guidance for the working capital has been notched up a little bit to 13% to 14% and it was 13%. I was wondering what the idea was behind that. Last question, and just a technical one. If you can please remind me how much India adjusted EBITDA was in 2025? Gregoire Poux-Guillaume: Okay. Your first question, I gave a really long-winded answer the first time around. I'll give a really short one. Yes, you're reading too much into Q4. It's a small quarter. There's no valid extrapolation from that one data point. And as you rightly pointed out, the direction has been pretty consistently the other way around for the last few years and therefore, no, we're not dropping market share. I commented very transparently on packaging. A lot of companies would dance around these issues. Look, at the end of the day, it's -- sometimes you're first out of the gate, sometimes you're not first out of the gate. And it's important to understand how that unfolds. But overall, we've had good momentum in a soft market. And once again, we're not arbitrating in the way you're implying. So I said it would be a short answer and then I can't resist giving you a longer one, but yes, you're reading too much. Working capital? Maarten? Maarten de Vries: On working capital, yes, our original guidance, which we gave 2 years ago was around 13%. We are saying now more in the range of 13% to 14%. I think it's also a reflection that the world is changing. And it's better to have a little bit more inventory, especially given the volatility in the markets and the tariff situation. So things have changed. But overall, we are on our improvement trajectory from working capital levels, which were 17%, 18%, coming now to 14.7%. And getting by '27 to that range of 13% to 14%. So -- and it's very much also benefiting on the back of our industrial efficiency program, where we are optimizing our footprint but also our supply chains. So that's on the working capital. On India, and what we've said earlier is that compared to '25, you need to correct for EUR 40 million downwards. And the impact in December was EUR 6 million. So the total correction on adjusted EBITDA level is EUR 46 million, of which EUR 6 million sits already in December '25 and then '25 to '26, a correction of EUR 40 million. Gregoire Poux-Guillaume: I think this was the last question. Thanks a lot. We'll wrap up because you guys have a busy day. It's -- Q4 was -- Q4 was a soft quarter in terms of market momentum but it was a strong quarter in terms of execution as was 2025. We end the quarter and we end the year price up, profit up, cash up, so we're executing on what we can control. Once again, we're staying disciplined and we're working full speed ahead on getting to closing with Axalta as quickly as possible and targeting the end of 2026. And at least in this early phase, hitting our milestones to get there. So that's all I have for you today. I thank you for your time and your interest, and we'll talk to you soon. Thank you.
Operator: Good day, and welcome to the Flexsteel Industries Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mike Ressler, Chief Financial Officer for Flexsteel Industries. Please go ahead. Michael Ressler: Thank you, and welcome to today's call to discuss Flexsteel Industries second quarter fiscal year 2026 financial results. Our earnings release, which we issued after market close yesterday, Monday, February 2, is available on the Investor Relations section of our website at www.flexsteel.com under News and Events. I'm here today with Derek Schmidt, President and Chief Executive Officer. On today's call, we will provide prepared remarks, and then we'll open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified using words such as estimate, anticipate, expect and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as prediction of future events. Additionally, we may refer to non-GAAP measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today. And with that, I'll turn the call over to Derek Schmidt. Derek? Derek Schmidt: Good morning, and thank you for joining us today. I'm pleased to share our second quarter results and to spend some time discussing how Flexsteel is performing in an environment that continues to be highly dynamic. Industry demand remains uneven, tariff policy is evolving quickly and consumer behavior continues to shift. Against that backdrop, I'm encouraged not only by the financial results we delivered this quarter, but by how our organization is operating with agility, discipline and a clear focus on long-term value creation. During the quarter, we delivered strong year-over-year sales growth of 9% and meaningful profit improvement, extending the momentum we've built over the past 2 years. Importantly, this performance was achieved while navigating a very choppy external environment, underscoring the progress we've made building an organization that can adapt quickly to change without losing focus on execution. What's particularly encouraging is the quality and balance of our growth. We are performing well in our core business with new product introductions and share gains with strategic accounts. At the same time, we're seeing steady progress in newer and expanded markets, including health and wellness and case goods. The diversity of these growth drivers gives us confidence that our momentum is becoming more resilient and less dependent on any single product category, customer or market condition. What's notable this quarter is that our growth drivers are reinforcing one another and scaling more effectively across the portfolio. Our investments in consumer insights, product development and innovation are improving the effectiveness of new launches, while stronger partnerships with retailers are helping accelerate adoption of new products across multiple categories. This breadth of contribution gives us confidence that our growth is becoming more durable even as industry demand remains uneven. While we're encouraged by our continued sales growth, I'm equally pleased with the progress we're making on profitability. This quarter's operating margin of 7.6% and the continued year-over-year profitability improvement reflects the disciplined way our teams are managing the business amid a complex and changing environment. Our margin performance continues to benefit from a combination of sales leverage, productivity improvements and thoughtful product portfolio management. Importantly, these gains are increasingly structural in nature. Through consistent execution, we've strengthened our cost discipline, improved operational efficiency and enhanced the margin profile of new and existing products. This operating discipline has been particularly important as we've navigated significant external volatility. The ability to manage cost, adjust pricing thoughtfully and protect margins while continuing to invest in growth initiatives speaks to how the organization has evolved over the past several years. As we look ahead, while the U.S. economy continues to show areas of resilience, housing activity, consumer confidence and discretionary spending patterns remain inconsistent and continue to weigh on overall industry demand. Feedback from our retail partners suggests that consumer behavior remains highly variable with periods of engagement followed by pullbacks driven by economic uncertainty and inflation concerns. In this environment, visibility remains limited and demand patterns can shift quickly. That said, our teams are staying close to our customers and adjusting as conditions evolve. This flexibility, combined with disciplined execution, allows us to respond quickly to changes in demand while remaining focused on our long-term growth objectives. Tariffs continue to represent a significant source of uncertainty for the furniture industry and the policy environment remains fluid. As tariff structures evolve, the implications for sourcing, pricing and demand can change quickly, requiring companies to adapt in real time. Flexsteel has faced similar disruptions in the past from prior tariff cycles to global supply chain disruptions and rapid demand swings. And those experiences have shaped how we operate today. Our organization is built to respond decisively to external change while remaining disciplined in execution and capital allocation. While the current tariff environment presents meaningful challenges, we believe it also underscores why we've invested in building a more agile and disciplined operating model, including the ability to adjust pricing thoughtfully, manage cost, evaluate sourcing alternatives and maintain strong customer relationships, all which we believe will be critical in the periods ahead. We believe our agility, combined with disciplined execution and continued investment in our growth platforms, positions us to not only manage near-term volatility, but to continue gaining share over time. Looking further ahead, we are actively evaluating broader cost reduction opportunities and alternative supply chain options that can strengthen our position over the long term. While we expect tariffs and pricing actions to create pressure on both demand and margins in the second half of our fiscal 2026, we are confident in our ability to identify and execute the right actions to support profitable growth over time. We entered this period with a strong balance sheet, solid profitability and a clear strategic road map. Our focus remains on navigating near-term challenges while continuing to invest in the capabilities that drive long-term shareholder value. In summary, our second quarter results reflect an organization that is executing consistently today while positioning itself to compound growth and profitability over time, even in a volatile environment. With that, I'll turn the call over to Mike, who will give you some additional details on the financial performance for the second quarter and our financial outlook. Michael Ressler: Thanks, Derek. For the second quarter, net sales were $118.2 million or growth of 9% compared to net sales of $108.5 million in the prior year quarter. This marks our ninth consecutive quarter of year-over-year sales growth. The increase was primarily driven by higher unit volume in sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in our made-to-order soft seating products and homestyles branded ready-to-assemble products. Sales order backlog at the end of the period was $82.4 million, which includes estimated tariff surcharges. From a profit perspective, the company delivered GAAP operating income of $9.0 million or 7.6% of sales in the second quarter. The prior year quarter GAAP operating income of $11.7 million included a $5 million gain from the sale of our former Dublin, Georgia manufacturing facility. Current quarter operating income increased 35% or 150 basis points compared to adjusted operating income of $6.7 million or 6.1% of sales in the prior year quarter. The increase is driven by favorable sales mix of higher-margin new products, partially offset by continued investments in growth initiatives. The impact of tariffs on operating margin in the quarter was largely mitigated through a combination of pricing actions and cost savings initiatives. Moving to the balance sheet and statement of cash flows. The company ended the quarter with a cash balance of $36.8 million and working capital of $126 million and no bank debt. The increase in working capital was primarily driven by higher cost inventory due to tariffs and an intentional increase in safety stock of top-selling products ahead of tariffs that were previously scheduled to increase on January 1. In addition, accounts receivable increased due to timing of sales in the quarter. Given the level of uncertainty regarding both demand and the impact of tariffs on our business, we believe it is appropriate to continue our pause on providing any forward-looking guidance. However, as Derek alluded to earlier, we expect some margin dilution in the second half of the fiscal year relative to the second quarter as we are now selling higher cost inventory burdened with 25% tariffs. As the impact of tariffs, pricing actions, consumer demand and our cost savings efforts become clearer, we will continue to share more information. With that, I'll turn the call back over to Derek to share his closing perspectives. Derek Schmidt: Thanks, Mike. As we look ahead, we recognize that the external environment is likely to remain unpredictable in the near term. Tariff policy continues to evolve, consumer demand patterns remain uneven and macroeconomic visibility is limited. However, these conditions reinforce rather than diminish the importance of the progress we've made strengthening our organization. Flexsteel is agile, disciplined and well positioned to respond to change. Our teams are moving quickly and thoughtfully as conditions evolve, balancing near-term actions with a clear focus on long-term value creation. We are managing risk, protecting profitability and continuing to invest in the growth platforms that support sustained share gains. Periods of disruption often create opportunity for companies that are prepared to act decisively while maintaining strategic focus. We believe our combination of operating discipline, financial strength and investment in innovation and consumer-led growth positions us well, not just to navigate the current environment, but to emerge stronger over time. With that, we'll open the call to your questions. Operator? Operator: [Operator Instructions] The first question comes from Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski: So first, it's really great to see the sales and earnings increase in a still choppy demand environment. So first, I guess, as we think about the revenue increase on a consolidated basis, can you talk about unit volumes and pricing as far as how that impacted the quarter? Michael Ressler: Yes, Anthony, what I would tell you is you're correct in that the environment has been very choppy. But in terms of the breakdown, tariff revenue in the quarter was roughly, give or take, $9 million to $10 million, about $9.5 million. So when you look at it kind of from a unit volume perspective, we are relatively flat versus the prior quarter, but certainly had categories within the business where unit volumes were up in other areas kind of where we've seen unit volumes down in certain areas. Derek Schmidt: I'll just -- I'll add to Mike's comment. I think what we're pleased with is that we saw really nice unit volume gains in many areas of our soft seating business. So despite the fact that we took pricing, we're still seeing good unit growth in that area. That was offset by, I think, unit volume declines in made-to-order seating, which that category has been soft. And then as you know, we've got this homestyles ready-to-assemble business, and that has been struggling. Sales were down almost 50% in that area. But the core of the portfolio is operating really well despite the fact that we pushed through tariff pricing, which we find very encouraging. Anthony Lebiedzinski: Yes, absolutely. So as we think about new product introductions, can you share roughly what portion of your sales is now coming from new products? And as we think about the outlook going forward, can you talk about the pipeline for new products? Derek Schmidt: Yes. In terms of where our sales are being derived from, Anthony, I mean, over the last, I would say, 6 to 8 quarters, we've been consistently 30% to 40% of our overall sales is coming from new products. So it is a substantial driver, I think, of our ability to continue to gain share. In terms of new product pipeline, I'm reluctant to give too many details just because competitors can -- in this environment, especially with AI, can rapidly kind of clone, I think, what we're doing. What I will convey, though, is that we have a really exciting and focused pipeline of new product coming here over the next 3 markets, so 18 months. So I feel really good about the pipeline and our ability to continue to bring products that are relevant to consumers and ultimately will drive traffic to our retailers, which is one of the areas that I think that we're differentiating ourselves from in this environment. Anthony Lebiedzinski: And then -- so I guess, looking at the strategic accounts, which we've spoken about in previous calls, so it's not new, but -- and you've done well with that. So as we think about going forward, are there additional retailers that you think you may be underpenetrated in or have potential new wins? How do we think about that? I just wanted to get a better understanding of what's more to come as far as potential expanded distribution for you guys? Derek Schmidt: Yes. I think we've shared, Anthony, what we deem strategic accounts represents about 20 large independent retailers that we believe are progressing their omnichannel capabilities and are well positioned to continue to gain share in the overall market. And so we've really aligned our business model around serving those 20 accounts in a differentiated manner. To address your question, the vast majority of those 20 customers, we already have very strong relationships. There are a handful that were, I'll call emerging relationships, which we believe there's pretty significant growth potential and that we've been working for the last year or so. I still believe that there is ample room for strategic accounts to drive exponential growth. And that's obviously both share gains with existing accounts and the handful of other retailers that were probably underpenetrated or under-indexed with. So again, we are going to continue to, I think, put investment, continue to refine our value proposition to those retailers because we believe that there's substantial growth in the years ahead. Anthony Lebiedzinski: Got you. And then -- so as we think about the tariffs, you said that they were largely mitigated with price actions and also just cost savings. So as far as your confidence level to be able to offset that going forward, how do we think about that? And then just another question as far as the gross margin. I know a couple of the recent quarters were impacted by favorable currency impact. I didn't see anything about that this quarter. So I just wanted to make sure that there wasn't anything there. Michael Ressler: Yes. Anthony, on the tariffs in the current quarter, we've talked about we're very measured in our approach, right? We understand we want to be very cognizant of the consumer and sensitivity to pricing. But through our pricing actions and all the cost savings initiatives the team has been aggressively working on, largely able to mitigate it in the quarter. With that said, the current quarter inventory is probably burdened with, give or take, a 20% tariff level. So as we think about kind of the back half of the year, we would expect some dilution to margins as our cost of sales becomes fully burdened with the tariff. I'd say the biggest variable that's really hard to predict is the impact on unit demand. If we're able to kind of hold unit demand and obviously, that would certainly minimize the potential impact on the dilution in the back half. And in terms of FX, really not a material impact in gross margins in the quarter. We have a little bit of a benefit from the revaluation of our VAT receivable, but that was largely offset by the impact on our operating expenses. Derek Schmidt: The one thing I'll add, Anthony, to Mike's comment regarding kind of tariff impact on margin. So as Mike alluded to, again, we would expect here in the next couple of quarters, certainly for there to be some margin dilution as we roll through higher cost inventory. That said, we are working on other cost initiatives that we would expect would offset that tariff impact in the midterm. Anthony Lebiedzinski: Understood. And my last question is just the tax rate came in a little bit higher than we expected. Was there anything unusual here? And how do we think about the tax rate here on a go-forward basis for the balance of the fiscal year? Michael Ressler: Yes, Anthony, there was a little bit of an impact in the quarter as it relates to kind of our return of provision true-up related to foreign taxes, but I would expect kind of the tax rate going forward to be closer to kind of what the full year tax rate is reflecting. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Derek Schmidt for any closing remarks. Derek Schmidt: Thank you. In closing, I want to reiterate my confidence in the direction of our business and the strength of our organization. I'm proud of how our teams are performing, staying focused, adapting quickly and executing at a high level despite external uncertainty. And it's that combination of agility and discipline, which is a core strength of Flexsteel, and it gives me confidence in our ability to continue building value over the long term. I want to thank our employees for their continued hard work and commitment, and I appreciate our shareholders and partners for their ongoing support. Thank you for joining us today, and we look forward to updating you on our progress next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Vitrolife Q4 2025 Earnings Call. [Operator Instructions] Now, I will hand the conference over to CEO, Bronwyn Brophy, and Par Ihrskog. Please go ahead. Bronwyn Brophy: Good morning, everyone, and welcome to the Vitrolife Group Q4 report. I'll now move you through the first slide of the presentation. Let me start with the highlights. We delivered 6% organic growth in local currency, excluding discontinued business, beating our own internal forecast for the quarter in relation to the top line. Strong growth in Americas, again, driven by North America. I should also call out that APAC also performed very well in the quarter with 10% organic growth in local currency. And the third point that I would like to highlight is that following a strategic review of our Genetic Services business, we announced a restructuring program in December. This will allow us to focus on the key tests and markets with stronger prospects for profitable growth. I'll now move on to the next slide, please, and take you through the key highlights. So sales in the fourth quarter were SEK 891 million, an organic growth in local currencies of 6%, as I mentioned, but significantly impacted by minus 10% from currency effects. Gross margin was 58.6% when adjusted for the restructuring. This was a decrease versus Q4 2024, which was exceptionally strong. Additional factors impacting the gross margin are: a currency impact, which is the majority impact; the regional mix. As you will see in the coming slides, we are increasingly having a greater percentage of our revenue coming from Americas. And then, we also have a mix effect within Consumables in APAC, where we had a targeted campaign in disposable devices. Moving down then to EBITDA. We had EBITDA of SEK 251 million in the quarter, equating to an EBITDA margin of 28.2%. We also have a significant negative currency impact here just under 3%. Regional mix and product mix, as I mentioned also in relation to margin, is playing a role. And we do have higher OpEx here due to strategic investments that we made in sales and marketing in North America -- of course, that also helped us to drive the growth there -- and also in IT, where we have made investments to support our customer journey and also enabling us to drive growth in North America. I'd like then to comment on the operating cash flow, SEK 160 million. Clearly, here, the starting point is lower for the reasons that I have just explained. Last year, we also had a positive effect from changes in net working capital. Then, for the full year, we had organic growth in local currencies, excluding discontinued business, of 4%. And actually, Par in his final slide of the financial section will take you through the full year numbers in detail. Okay. Moving on then, please, to the sales and growth per geographical segment. So I'll start with Americas, where, as I said, we delivered 9% organic growth in local currency, driven by a very strong performance in our key focus market of North America. Americas, as you can now see, accounts for 34% of our revenue. Moving on then to EMEA, a challenging quarter for our EMEA region as we expected due to very high Technologies quarter across the region in Q4 2024. I do want to highlight that Europe is performing well. However, Genetic Services in the Middle East is impacting the overall EMEA results. A great quarter in Consumables across the region with share gains in key focus markets. EMEA now accounting, as you can see there, for 34% of the share of total sales. Okay. Moving on then to APAC. We had strong growth in APAC, up 10% organic growth in local currencies, and this region outperformed our internal expectations in both Consumables and Technologies. Okay. We'll move on now and take a deeper dive into each of the regions, starting with market region EMEA. Sales in EMEA were SEK 333 million, a decrease of minus 1% in local currencies, excluding discontinued business. Consumables delivered 11% growth, well above market growth level, and this was driven by share gains in key focus markets where we decided to double down. So you're really going to see that focus is the name of the game for us. As I previously mentioned, we were very challenged to deliver growth in Technologies in this region due to the comps with last year. So this decline was forecasted as expected. What I am pleased with is the run rate revenue coming from the consumables part of Technologies is performing strongly. Moving into Genetics then in the EMEA region. Genetics is performing very well in Europe. However, clinics in the Middle East have in-sourced activities to boost their income during the downturn from the geopolitical situation, and we don't expect this business to return. Typically, [indiscernible] it tends to stay that way. Moving on then to market region Americas. Americas, we have sales of SEK 299 million in Americas and organic growth of 9% in local currency. We delivered strong growth across the entire portfolio in all markets in the region, which was great to see. The investments we have made in sales and marketing in North America are clearly paying off, and there is no doubt that we are taking share in this key region for the Vitrolife Group. We have been focusing the team on increasing the penetration of EmbryoScope, and we were delighted to see a 40% growth in Technologies in this region in the quarter. Genetics also continued to perform well, driven by share gain momentum. Earlier in the year, we have taken quite a bit of share in North America, and that share gain momentum continued in Q4. Okay. I will now move you on to market region APAC and give you some more color on the performance here. So a strong finish to the year in our APAC region, growth of 11% in local currencies in Consumables, driven by share gains in disposable devices where we launched a targeted campaign. We delivered 13% growth in Technologies as clinics finally released year-end budget, thereby allowing for investments in capital purchases. So overall, a strong finish to the year after a tough first half in APAC. I will now hand you over to Par, who will take you through further details on our geographical segments. Par Ihrskog: Thank you, Bronwyn. We are now on Page #9 in the deck, where I will provide more details of the geographical segments, Americas, EMEA and APAC, starting with the Americas on the left side. As Bronwyn mentioned, sales amounted to SEK 299 million, reflecting a 9% organic growth in local currencies and a minus 4% growth in SEK, negatively impacted by currency. Gross income amounted to SEK 167 million with a gross margin of 55.7%. This compares to last year's gross income of SEK 171 million and a margin of 55.0%, an improvement of 0.5 percent points, driven by the product mix despite negatively impacted by the FX effect on the gross margin. Selling expenses for the quarter rose from SEK 76 million to SEK 83 million, reflecting the ongoing investment in sales and marketing in the U.S. as previously announced. The market contribution for the quarter was 27.9% compared to 30.5% last year, impacted by the increased strategic investment into sales and marketing capabilities. Let's move on to EMEA. There, we had a minus 7% decrease in local currencies and minus 13% in SEK, totaling to SEK 333 million sales. The sales were negatively impacted by currencies and the discontinued business. Excluding the discontinued business, sales decreased by minus 1% in local currencies. Gross income was SEK 195 million with a gross margin of 58.5% compared to SEK 245 million and a margin of 63.9% last year, mainly driven by the restructuring reserve, negative currency and product mix effects. The gross margin excluding the restructuring was 60.2%. Selling expenses increased from SEK 82 million to SEK 100 million. Excluding the restructuring costs, the selling expense amounted to SEK 79 million, which is in line with last year [indiscernible]. The market contribution margin for the quarter was 28.4% compared to 42.4%, explained by restructuring reserve and product mix. The adjusted market contribution was 36.4%. In APAC, sales amounted to SEK 259 million, reflecting an increase by 10% organic growth in local currencies but a 2% decrease in SEK, negatively impacted by currency. Gross income was SEK 155 million with a gross margin of 59.9%, which is lower than previous year's gross income of SEK 170 million and a gross margin of 64.2%, a decline of 4.3 percent points compared to previous quarters, negatively impacted by currency and product mix within the Consumables in APAC. Selling expenses increased from SEK 40 million to SEK 45 million. The market contribution margin for the quarter was 42.5%, down from 49.1% last year, explained by lower gross margin and somewhat higher OpEx in the quarter. Let's move to the next slide. On this slide, I will comment on the Q4 financial highlights, starting with net sales. As [ earlier ] mentioned, the sales amounted to SEK 891 million compared to previous year with a sales of SEK 959 million, corresponding to a 3% growth in local currencies, a minus 7% decrease in SEK and positive growth of 6% in local currencies, excluding discontinued business. The gross margin income amounted to SEK 522 million compared to SEK 586 million previous year, corresponding to a gross margin of 58.0%, down from 61.1%. Q4 2024 was an exceptional strong quarter from a margin perspective. Adjusted for the restructuring, the margin in Q4 this year was 58.6%, which is more in line with our historical performance. The drop in the margin is explained by mainly currency effect, but also regional mix effect and also the mix effect coming from the Consumables in APAC. And then, I'll move to EBITDA. EBITDA -- all in all, this gives us an adjusted EBITDA of SEK 251 million compared to SEK 337 million previous year. As I just mentioned, this was an exceptionally strong quarter last year. This gives us an EBITDA margin of 28.2% when adjusting for restructuring expenses compared to 35.1% last year. The drop in margin is explained by currency effects, regional mix effect and mix effect within the Consumables in APAC. Okay. Let's move to the next slide where I will go more into detail on the operating expense development last year compared to this year. So last year, we had an OpEx of SEK 361 million, and this year, we ended up at SEK 378 million. And let me explain the bridge here. On the selling expense, we saw an increase. This is excluding impairment and restructuring reserves. So this is clean from those onetime bookings. So the selling expense increased by SEK 6 million, reflecting the investments we have done in North America in sales and marketing. The admin expense, we saw a reduction of SEK 2 million versus Q4 last year. We still have some increased IT expenses here, but that has been offset by a reduction in other admin areas, so a positive net effect. On the R&D, we saw an increase of SEK 5 million in the quarter compared to last year, which is mainly a phasing effect. And the spending here is in line with our efforts to increase our R&D expenses in preparation of new product launches. And on the other operating expenses, in this one, we also have the FX effect from our revaluation of accounts receivables and accounts payable, had a negative effect in total. Okay. And then, key financials. Here, I will focus on the year-to-date column mainly. And the sales then for the full year amounted to SEK 3.5 billion, corresponding to a 2% growth in local currencies, a 5% decrease in SEK and a 4% increase in local currencies, excluding discontinued business. The gross margin decreased from 59.3% to 58.1%, mainly due to currency effects. The adjusted gross margin is 58.2%. The EBITDA for the full year amounted to SEK 949 million compared to SEK 1,225 million corresponding to an EBITDA margin of 27.6% versus 34.0% previous year. The adjusted EBITDA margin was 29.2% for the full year. And again, the decrease in the margin is heavily impacted by currency effect, driven by the strengthened SEK against other currencies. The margin was also negatively affected by the increase on OpEx, which I explained is mainly selling expenses in North America and our IT investments. Net income amounted to SEK 390 million compared to SEK 514 million previous year, heavily impacted by the currency fluctuations. This gives an earnings per share of SEK 2.89 compared to SEK 3.78 last year. On the operating cash flow, it amounted to SEK 635 million for the full year compared to SEK 907 million previous year. The main reason is the underlying result, but also we had a negative impact on the changes in net working capital this year, explaining part of the difference. Our leverage net debt to EBITDA ended up at 0.7 compared to 0.7 previous year. The proposed dividend from the Board is SEK 1.10 per share, which is the same as last year. And I will now hand over back to you again, Bronwyn. Bronwyn Brophy: Thank you, Par. So moving on then to the focus for 2026. And as always, we will focus on 3 key areas: on growth, on innovation and on operational excellence. And I'd like to start with growth. We will continue to drive share gains in key markets, and that's very important. We're not going to be all things to all people in key markets, leveraging the full breadth of the portfolio. I think one of the statistics that we've been tracking very closely is the percentage of customers who are now buying across Consumables, Technologies and Genetic Services, and this is trending up nicely. So the strategy of leveraging the full breadth is working, and we'll continue to drive share gains using our portfolio position. The second point on growth is accelerated penetration of our combined EmbryoScope and lab control solutions. We've really doubled down here. That's why we're particularly happy with the 40% growth in North America in Q4, and it's really as a result of this EmbryoScope -- combined EmbryoScope and lab control solutions. Third point, very important, we have been investing in commercial excellence capabilities for the past 12 months. It improves our segmentation that helps us to drive profitable growth. And back to the point around taking market share, we've been tracking this very closely now with much more advanced metrics than we had previously. So we will further leverage the commercial excellence capabilities in 2026, again, to drive that profitable growth. Moving on then to innovation. We have prioritized the programs that will have the greatest impact and relevance for customers and patients. I think that's very important. And then, we do hear clinics and customers calling out for help with automation. So we will further develop and we continue to invest in our IVF platform. This will ultimately help clinics to automate, to scale and to drive efficiency. And actually, if you look at the integration that we now have between EmbryoScope and our witnessing solution, you can see the foray that we are making in that area. In relation to operational excellence, we have invested in IT and digital capabilities. We need to make further investments there to improve the customer journey. This has really also helped us in North America last year and then some of the key focus markets in APAC and Europe, and it also helps to increase our efficiency. And another focus area in relation to operational excellence heading into 2026 is, we want to drive improvements in our internal processes and workflows to optimize our cost base. And then, as you know, the Vitrolife Group doesn't like to issue guidance, but we just wanted to give an opinion on the macroeconomic conditions as we turn the corner and are now into 2026. We do expect market conditions to return to more normal levels this year, thereby providing greater opportunities for us to drive profitable growth. So this will be the focus for the company in 2026. And with that, I think we can now move into Q&A. Thank you very much for your attention. Operator: [Operator Instructions] The next question comes from Jakob Lembke from SEB. Jakob Lembke: My first question is on the gross margin. You mentioned regional mix here during the call. I just want to clarify that is this mainly related to the sort of different business mix you have in the regions? Or are there anything else behind that in the regional mix? And then, also if you could sort of give an indication of sort of a 58%, 59% gross margin is a new normal we should expect going forward? Par Ihrskog: Yes. On the gross margin, as we explained, it's a big impact from currency, but also partly it's regional mix. It's less impact on -- it's a negative impact, but it's less impact compared to the currency impact, and it's very much driven by the growth in U.S. Yes. And what was the second part of your question? Jakob Lembke: No, given the moving parts, I guess, a range between sort of 58% and 59% on the gross margin is something we should expect going forward? Bronwyn Brophy: Yes, I can take that one. And maybe just to add one point to Par's point. Just on the gross margin, Jacob, because I know you know us very well, so there is a regional mix effect. Par is spot on there with the U.S. growth. I guess, everybody knows that one. There is also a mix effect within Consumables in APAC. So you can see that there. In terms of what you can expect going forward, I mean, Q4 last year wasn't normal. It was abnormally good. I think we will return to more normal levels, more in the sort of 59% range. We're not expecting the mix effect to be this extreme as we move through 2026. We're also working on initiatives to improve our profitability in North America. As you know, North America has a big component of Genetic Services. But obviously, the more we can increase Technologies' penetration, EmbryoScope and share gains on Consumables side, that helps. So yes, I guess, this quarter, we're sort of comparing 2 extremes, if you like, but we expect to return to more normal gross margin levels in 2026. Does that help to answer your question without reading too much? Is that okay, Jakob? Jakob Lembke: Yes, that's very clear. Then my follow-up question is just on trying to understand the admin costs here in Q4 because, I mean, you had sort of surprise high admin costs in Q4 last year, and now, they're also looking quite high when we disregard the one-offs as well? And yes, sort of just what is really behind that? And also, what do you expect for costs related to the legal process in the U.S. for 2026? Par Ihrskog: Yes. On the admin cost, in there, we have IT and then we have other support functions like finance and HR and legal. And IT spend, as we have communicated also previous quarters, have increased somewhat to -- as we invest in our IT capabilities. That increase in IT that we've seen in the last couple of quarters, in Q4, it has been partly offset by reduced admin costs in other areas such as finance, legal and HR. Yes, so this level you see right now is the underlying base. We have also communicated in December a restructuring program where some -- where we are attacking or looking at reducing admin cost and selling costs in 2026. Jakob Lembke: Okay. And if you could comment on expectations on legal costs maybe for '26 versus 2025. Par Ihrskog: We have not made any reservation for legal costs related to the transaction in U.S., and we don't plan to either. We don't see the need for that. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A little bit sort of -- [ if we can ] dig a little bit deeper into this IT investment you're doing. If you can provide us with some more specific on what it actually is? How big are these investments? And for how long do you expect to invest into essentially the back end of your business? Bronwyn Brophy: I can take this one, Par. Yes. So I guess, IT investment is going into 2 key areas, Ulrik. The first part is on the customer-facing, customer journey, digitalizing how we interact with clinics, but also with patients. And this is a key enabler of driving growth, particularly in North America, but also increasingly in Western Europe. So I would say that's category one. We're also making investments in IT that will allow us in time, and it will take time, to improve our efficiencies. So, that can be efficiency in lab operations, things like [indiscernible]. Obviously, when you're running a services business, you want to have -- you don't have to have the best of every system, but you want to be able to drive efficiency and also scale. So apart from the customer journey, the other investments are going into, I guess, what I would call backbone investments. Now, again, we have to be pragmatic here. They need to be linked to driving growth. And we're not expecting to be best-in-class in everything related to IT, but we do believe there is a need to make investments in order to support our growth ambitions. Does that answer your question, Ulrik? Ulrik Trattner: Sure. Yes. And just to clarify, so it sounds like there's not IT investment into products. It's more customer -- like more on sales and marketing kind of IT infrastructure rather than IT investment into products. Bronwyn Brophy: Yes. I think that's a fair comment. Yes. I mean, we are -- as part of our R&D program, as you know, we've openly stated that we are aiming to build an end-to-end IVF platform. So there are some digital investments there, but the vast majority are going on the customer sales and marketing drive growth side, either drive growth or help us to improve efficiency. So yes, you're correct with that assumption. Ulrik Trattner: Great. And just a follow-up question on the general OpEx math and quantification of FX effect on EBITDA. If you were able to give us some hint on the quantification of the negative FX effects here for Q4? We know the top line effect here, but how big was the effect on EBITDA? Par Ihrskog: Yes. All in all, the FX effect on EBITDA margin is approximately 2.5 percent points affecting the EBITDA margin negatively. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: First of all, a clarification there or maybe confirmation. Did you say that the adjusted contribution margin for the EMEA region was 36.4% in the quarter? Bronwyn Brophy: [indiscernible] adjusted margin? Can you repeat the question, Sten? Can you repeat the question, Sten? You just went [indiscernible] for a moment. Sten Gustafsson: Sure. I think you mentioned the adjusted contribution margin in the EMEA region. Par Ihrskog: Yes, it is -- the adjusted one is 36.4%. Sten Gustafsson: Okay. Great. So my question is, what exactly are you restructuring in the EMEA region? And how should we think about sort of -- will there be savings coming out of that? Or what exactly have you done in the region? Par Ihrskog: Yes. I mean, this restructuring is connected to the announcement we made in December related to the Genetic Services business. We are stopping providing 2 product lines, GPDx and NACE, and we are also exiting some markets. And so -- and of course, that affects the whole company but has a larger effect on this region compared to the other regions. So the restructuring cost is related to people, to a large extent, that are affected by this restructuring action that we are taking. Bronwyn Brophy: Yes. Maybe to explain in a slightly different way, Sten, we announced the restructuring, as Par mentioned, in December. The region that's most impacted by that restructuring is EMEA. The reason why EMEA is the most impacted region is because most of the NACE and GPDx revenue was in that region. And most of the markets that we will be exiting is within the EMEA region. So that's, yes, maybe a slightly different way to explain it. Does that answer your question? Sten Gustafsson: Yes, absolutely. That clarifies a lot. And I do remember you announced it, and we were discussing different potential cost savings coming out of it. So it all makes sense. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: So I'll stick to the one question, and it's about the organic growth that you -- I think 3% reported, but 6% excluding discontinued businesses. Would you be willing to help us understand the phase-out of the products? For how long will the tests continue to be a part of your sales? And when do you expect the phased-out products to be fully phased out? Par Ihrskog: Yes. This discontinued business doesn't relate to the exiting of these 2 product lines. This relates to the exiting of a market announced also last year -- or in December 2023, we announced that. The exiting of these product lines that we announced last December are taking place right now. We expect it to be finalized in Q1. Bronwyn Brophy: Yes. Most of it should be -- yes, sorry, just one correction. So we exited that market. I think most people know which market it is. So we exited that market in December 2024. So we have the full 2025 having to explain organic growth in local currencies, excluding discontinued business, and it was because of that exit of that sizable market in Q4 2024. With the restructuring that we announced in December, our goal is to have essentially to be fully out of those tests and most of those markets by the end of the first half. We have set ourselves an accelerated target on that. So we -- in certain instances, we'd like to be done and dusted by the end of Q1. But our commitment in that announcement is by midyear. Does that help to answer your question? And just to make sure we're not confusing a previous market [indiscernible]. And there are a lot of puts and takes here. So I do apologize, yes. Ludwig Germunder: Yes. And just a follow-up on that. Do you expect -- the organic growth, which was 6%, now do you expect that growth to continue to be around that growth rate over the next year? Or how should we think about the future? Bronwyn Brophy: Yes. I don't like to guide, and I don't like to guess. The only thing I can say to you is that we are expecting market conditions to return to more normal levels. I mean, last year, it wasn't normal in any shape or form. We had a big APAC effect in Q1. We had a Trump U.S. administration effect in Q2 and Q3. So we do expect more normal market conditions this year. I guess, what does more normal mean? There are big regional variances now, as you can see. But what we've decided to do as a company is double down where the growth is and obviously protect what we have where the growth is a little bit slower. So I don't want to guide. All I will say is that we -- and I hear the same from some of our competitor transcripts. I think as an industry, we're expecting more normal market conditions this year. The key thing for us is not just driving growth, it's driving profitable growth. So big focus this year on ensuring that we get the right portfolio balance in the regions. I think North America is doing fantastically well, and we're really happy that the investments there are paying off, but we need to continue to drive EmbryoScope penetration. We need to continue to take share gains in Consumables. So I don't want to guide. I'm not going to fall into the trap, but hopefully, I've given you more color around how we see things in 2026 and more of a return to normality. But again, it's got to be about profitable growth. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I wanted to start off a bit on the same theme here on the IVF market environment. And I think in Q3, you highlighted that you saw a pickup in cycles towards the end of the quarter. So I just wonder how this has tracked throughout the quarter? And yes, now, like, into January here, has it continued to improve basically? Bronwyn Brophy: Yes, good question. So, as I mentioned before, we didn't sort of see an explosion of pent-up demand in North America following the announcement from the White House in October. But we did see a steady pickup in the cycle growth in the final weeks of the quarter, and that seems to be continuing into Q1. It's very early to say. I haven't even seen our full January numbers yet, but I'm going to -- I was at JPMorgan. I spent a lot of time visiting customers as well in the U.S., and the sentiment seems to be better. What I would say is that the announcements that were made in relation to very significant price reductions, everybody now realizes that that's not the case. But there's clarity now in the U.S. in terms of what the cost of a cycle is going to be. There are other things like California becoming a mandated state. That's something that was delayed for quite a while. So I mean, it's one stage within the United States, but it's a big one. So I think there's a little more optimism in California, in particular, in terms of cycle rates slowly but surely picking up as we advance through 2026. And then, I don't want to make it all about North America, how do we feel about the rest of the world. Western Europe is looking good and steady, and cycle growth seems to be, again, approaching more normal levels. The Middle East, it's had a big -- that's been a big impact to the geopolitical situation there. And then, as we view APAC, I've commented many times, we believe that there are endemic issues in China in relation to improving the birth rate and the cycle growth, but the government is also increasingly stepping in and approving funding. There are opportunities in other parts of Asia, which I'm not going to go into for competitive reasons. So relatively normal growth rates returning, we expect, but there will be regional differences. And I think the key thing for us, back to the point that I made on our commercial excellence capabilities, we're really getting laser-focused in terms of where we're doubling down and where we're not going to double down, so where do we see the greatest opportunities to drive profitable growth. Does that answer your question, Ludvig? I don't want to be going around the world giving my sort of prognosis, but that's how we see things at a corporate level. Ludvig Lundgren: Yes. Very clear. And then, I just had a follow-up on the gross margin in APAC here. So you highlighted that there was some negative product mix from campaigns, I believe. So I just wonder if it's possible to quantify this in some way. And also, like, will this affect also Q1, Q2 looking into '26? Bronwyn Brophy: I mean, I can take the second part. No, we expect the margins in APAC to normalize in 2026. I don't know, in terms of quantifying the mix, we probably can't. Par Ihrskog: We don't disclose the detail, the effect, but it had an effect, not only in APAC, but also on the total gross margin for the group. But we don't disclose the number. Bronwyn Brophy: What I will say is, it was a strategic decision to go after a growth opportunity. So it was a targeted campaign. I mean, 10% growth in APAC, I don't think anybody expected that. It surpassed our expectations, but I think it surpassed our expectations more on the Technologies side. On the Consumables, we very much decided that we had an opportunity to take share in disposable devices, and we went for it. Yes. Ludvig Lundgren: Okay. And just very quick on that, so like when you have gained some share now in Q4 in APAC, like, will that also improve growth ahead in APAC? Is that a reasonable assumption? Bronwyn Brophy: I mean, that's what we're trying to do. APAC has been pretty stagnant for a lot of the reasons that I've mentioned. The market growth in APAC is pretty stagnant, but we believe we had an opportunity to take share from a couple of competitors in relation to a specific part of the portfolio. So yes, we went for it. Will that continue in 2026? I mean, taking that magnitude of share, that will be tough, but we do have the share gain momentum. So it should definitely improve our disposable device performance in APAC in 2026. Does that make sense without me giving away too much information? Hopefully, I'm helping to answer your question. Ludvig Lundgren: Yes, very clear. Operator: The next question comes from Johan Unnerus from SB1 Markets. Unknown Analyst: Congratulations to the progress made in the U.S. market, especially as you're investing in commercial reach there. Well, some question relating to gross margins. First, a small one. EMEA, I think you referred to some in-sourcing. Does that has an impact on margins in that region? And I have a second question. Bronwyn Brophy: Johan, thank you for your compliment on North America. We're going to take it graciously because we are very pleased with our North America -- and I think we should bear in mind, it's only 2 years ago that we decided that we were going to go after growth in North America. And to be seeing the returns after only having made those investments not so long ago is pleasing to us. Now, we're not losing the run of ourselves. We have a long way to go, but we are pleased with the progress there. So let's touch EMEA. So what has happened in the EMEA region actually is probably best explained in my CEO comments, and that is with the downturn in activity due to the geopolitical situation in the Middle East. What we have seen is that clinics have in-sourced some of their genetic services business. And we have seen historically, when clinics in-source -- we saw this in North America 3 years ago -- typically, the business -- you might get drip feeds of it coming back, but it's rare that you get all of that Genetic Services business back. So clinics in an endeavor to boost their revenues have in-sourced. They've taken the opportunity to in-source. The impact on margins, that's a good question. It's also a tough question. It's not necessarily a negative thing because the margins in Genetic Services are lower versus the rest of the portfolio. So they're lower than Technologies and Consumables. So it doesn't necessarily imply a negative margin mix in the region. What we do need to do in this region is, we have to make up for that lost business, right? So we got to drive share gains across the rest of the portfolio, and we have to drive share gains in the other markets in the region. I think we're particularly happy with the Consumables performance in EMEA. So you can see on Page 22 of the report, it's 11% organic growth in local currencies. So that's good. Technologies, a very tough quarter. But if we can move the needle on Technologies there, the run rate on Technologies is doing very well, that will also help the EMEA margin mix. So it's a very long explanation to your question, Johan, but there are quite a few moving parts on that one. But hopefully, I'm giving you context there. Yes. Unknown Analyst: Excellent. And then, perhaps a more important question on the U.S. It's often easier to improve gross margin when you have better traction as you seem to have. But the process of improving gross margins, changing the product mix and perhaps working on efficiencies as well, as you alluded to, could you provide any timelines on those dynamics? Bronwyn Brophy: Yes. I mean, the thing is -- Par, you can chip in here as well. But the investments in sales and marketing, they're done now. I mean, we don't envisage making any further investments in sales and marketing. I would say they're fully loaded. So now, we got -- we have to drive productivity, right? So the revenue per commercial investment, the revenue per sales rep, that needs to go up. We made those investments. It's taken time. But we would expect productivity improvements in terms of revenue generation coming out of those commercial investments. There is a mix component, and we are really focusing on EmbryoScope and witnessing. That's evidenced in the 40% growth in the quarter. We're going to keep doubling down there. I think what we like is that clinic chains are increasingly seeing the workflow benefits from EmbryoScope. It's a big capital outlay, but it also drives efficiency. So that's good. And then, Johan, we have to look at pricing. I mean, we're still operating in an inflationary environment. We can't carry those costs so inevitably. And the team did a very good job actually in North America last year on pricing. We managed to mitigate a significant amount of the tariff impact. But yes, I mean, inflation is still there, and we will have to look at pricing opportunities actually in all of the regions. Par, [indiscernible]. Par Ihrskog: Maybe I can just add, we have made our investments in the U.S. We don't intend to increase the level. We will -- we have done the work now. So now, it's -- we have this fixed cost there, and we aim for further growth in North America. And if that happens, of course, the contributor margin will gradually improve if we continue to see growth in North America or Americas and keep the OpEx level constant, which is our plan. Unknown Analyst: And any sense of the effect on gross margins? Should we expect improved gross margin in the Americas, especially in the U.S. market in '26? Or could you provide some flavor on that? Bronwyn Brophy: I mean, with everything fully loaded, our aim and our goal is absolutely to improve the gross margin in North America. I'm sticking my neck out here. You're going to track me on that metric, but that's what we have to try to do, right? I mean, it's very clear in the numbers in this quarter. We've had a fantastic performance on the top line. North America is doing great and APAC did wonderfully well. But we have to work on the margin piece because we don't want Americas to become dilutive overall. So absolutely, the strategic name of the game and where we're doubling down is on the areas where we can improve the margin from what is becoming our fastest-growing region. And it's the largest IVF market in the world. So we want to win there, but we want to win there driving margin improvement. Does that answer your question? Unknown Analyst: Yes, sort of. Bronwyn Brophy: If you want to ask it a slightly different way, and I can see if I can do better without -- yes. What are you missing? Unknown Analyst: No, no, no. I'm pleased. I mean, I understand the complexity. Of course, it's difficult to provide precise feedback for '26. But yes, I can see the work in progress. Bronwyn Brophy: Yes, exactly. Operator: The next question comes from Filip Einarsson from Redeye. Filip Einarsson: So I wanted to start on something you mentioned both in the call and also in the report, namely the market normalization in 2026. Maybe if you could expand a little bit on this statement and to what extent you expect this to be the graduality of it? Bronwyn Brophy: Yes. Great question. So historically, cycle growth has been in the mid-single-digit range. That was not the case in 2025. Based on our best intelligence, and we are very close to the market, but also you can hear it in the competitive commentary and also on the clinic side, the cycle growth was significantly impacted in 2025 for a multitude of reasons, which I'm not going to bore everybody with by repeating it. I absolutely hate going back to this zodiac thing, but we don't have snakes, dragons this year. Hopefully, we don't have presidential statements on IVF. I mean, they're done. They're past us. So, that created a lot of noise. The situation in the Middle East seems to be holding. Western Europe is looking pretty stable. Cycles are definitely returning to more normal levels there. So we're not getting very excited in terms of an explosion in IVF cycles. That's absolutely not happening. But based on Q4, early indicators, and again, we are -- we've really become laser-focused on steering Vitrolife in a metric-driven way, particularly on the commercial side. And the leading indicators there do point to more normal cycle levels. How -- the second part of your question then is, how quickly do we get there? How long is a piece of strain? That's a little bit harder to predict. I guess -- well, I don't guess. What we envisage in our company is a slow, steady return to more normal levels. But will we get there in Q1? Maybe. Should we be there in Q2? I mean, unless we have some big disturbances, we would be expecting to get back to those more normal levels in Q2. Does that answer your question? Filip Einarsson: Yes. Great. And then, I have one more follow-up. So obviously, currency has been a big topic in 2025 and in Q4. Can you maybe elaborate a little bit on if there's any measures taken to limit the impact in 2026, given eventual ongoing uncertainty on the macroeconomic level? Par Ihrskog: Yes. Currency has been a huge impact for us and for many Swedish companies having exports. Just to give you a flavor of it, the U.S. dollar-SEK rate, you probably know this, but the SEK strengthened almost 17% last year from 1st of January to end of December. And the euro was more like 7%, 8%. And the Danish krona, which is also an important currency for us, was also some 8%. Yen was 14%. So we had a huge impact on currency. So what do we do to -- I mean, we don't really know what happens. We don't work with hedging in our company. What we are trying to do better is to increase our natural hedge by balancing purchases in certain currencies matching the revenue stream. This takes time. So I don't expect us to fix that in a short while, but this is something we need to increase our focus on going forward to improve our natural hedge. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: Going back to the very strong performance in Asia or APAC region, 10%, obviously, very impressive, and you talk about tough in China. Did you have positive sales growth in China despite the soft market or... Bronwyn Brophy: Yes. We don't give country breakdown, but maybe the best and fairest way that I can answer that question is that we had growth in almost all countries in the APAC region in Q4. Even -- so I mean, on the Technologies piece as well, Sten, it was a tough year for capital purchases. But we saw a release of budgets, and it was literally in the final couple of weeks of the year. Lucky, we had enough EmbryoScopes in stock to be able to service the demand because it was quite an uptick in the last -- basically in the last 3 weeks. But it was -- yes, I'm not going to answer country specific. What I will tell you is, most of the countries in APAC had a positive performance in Q4. Sten Gustafsson: Sounds good. And any countries doing extremely well, unusually well? Or was it more across the board? Bronwyn Brophy: No, I don't think there was any sort of extreme -- I don't think there was any sort of extreme. So we did have a targeted campaign on disposable devices. We saw an opportunity to take share from competitors. And I mean, Sten, you know us very well. Media, we don't -- we've already taken a lot of share on media in APAC. So share gain opportunities are tougher to come by, much tougher to come by. So we've been looking at APAC as part of our strategic review. And we said, where do we have opportunities to take share? We can't continue to sort of grow with the market. And we identified disposable devices as a double down. So we went for that across the region. And then, the other big sort of needle mover was, we still believe there were opportunities on the EmbryoScope side, even though clinics were sort of managing the capital piece. And when they were released, we were able to capitalize on that. We don't have a sort of Genetics component here, but -- so yes. No, there was no explosion in any one particular country. That didn't happen. Sten Gustafsson: Sounds good because, I mean, 10% is an impressive number given the softness in China. So, well done. Bronwyn Brophy: Yes, absolutely. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: Yes. I just had a short follow-up just on Technologies in North America, if you can elaborate on sort of what countries, what sort of customers and so on? Bronwyn Brophy: Yes. That's my favorite question, Jakob, because we had 40% growth in Americas. It was across the region. I think what pleases us most here is that we are starting to crack into the chains. And we came very close -- very, very close to having one of the largest cross-border chains in North America going full EmbryoScope. I think we were 2 short -- 2 EmbryoScopes short of a particular chain being fully converted to EmbryoScope. And that's been tough for us, right, because historically, in North America, we've been able to sell one-off EmbryoScopes, but we weren't really cracking the chains. And you can understand why. I mean, they're big -- it's a big investment. But that started to happen. It started to happen last year. We've adapted our go-to-market model. We now focus on key account manager style. So we have people specifically targeting and talking to the C-suites of the large clinic chains, and it's paying off. So what drove that big 40% increase is, we're starting to move the needle on EmbryoScope in the chains. It's been a heavy lift, but we're getting there now. And then, I think very importantly, as I always say to the team, don't just sell EmbryoScopes. You have to make sure that they get used. So the other metric that we're tracking, back to our commercial excellence dashboards, is we're checking the revenue generated per EmbryoScope. So we don't just want clinic chains investing in EmbryoScope. We want them investing and using them to drive efficiency. And we're starting to see the run rate in Technologies. That component is picking up very nicely. But it's all markets in Americas. But I should give a shout out to North America because I think the team did a really great job there. Does that answer your question, Jakob? Jakob Lembke: Yes. That's great. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: On Genetics and EMEA and the in-sourcing as you noted, you don't expect these sort of share losses to be regained, given that they've gone internal. But is it possible to sort of quantify the risk of continuous in-sourcing as we did see in the Americas 2, 3 years ago? Or is this more temporary related to the macro? Or is this a continuous trend? Bronwyn Brophy: Yes. It's a great question, Ulrik. The ones who have in-sourced are the larger ones. So I never like to be complacent, okay? And we don't take any customer or any business for granted, and we have to earn our trust every single day. But the customers that have in-sourced in the second half of 2025 are the bigger ones. So I guess -- and I want to be really clear. I wouldn't call it share losses. It's definite in-sourcing. We can see it. We know the clinics. We have the names. We know the players and then people working there. So I think the biggest impact is likely behind us, Ulrik. And again, we've seen this with in-sourcing in North America. It doesn't always -- well, first of all, it's not as easy as people think. In any services business, scale is important. Economies of scale are -- they're very important. And I think a lot of clinics that did in-source, particularly in North America, didn't get the type of gains that they expected. Let's see if the Middle East are able to do it more efficiently or better. But it hasn't always paid off, the in-sourcing. I thought you were going to ask me [indiscernible] question, Ulrik. I was waiting for it. Yes. I think we're finished now. And I'd like to thank you all for your time and attention this morning, for your great questions. We very much appreciate it. So from Stockholm, from myself and Par and from Amelie Wilson in Investor Relations, thank you all very much, and have a wonderful day.
Olof Grenmark: Ladies and gentlemen, I'd like to welcome you to Boliden's Q4 2025 Results Presentation. My name is Olof Grenmark, and I'm Head of Investor Relations. Today, we will have a results presentation led by our President and CEO, Mikael Staffas; and our CFO, Hakan Gabrielsson. We will also have a Q&A session, which we will start here in Stockholm. Mikael, the stage is yours. Welcome. Mikael Staffas: Thank you, Olof, and good morning to everybody from me as well. We in Stockholm here have a crispy morning. When I woke up this morning, it said minus 15 degrees outside of my bedroom window. Today, we will give the presentation of the Q report, and we'll also touch on the R&R statement update that we've also issued this morning. So generally speaking, for Q4, there's been a very strong metal price development. Everybody knows about this. And of course, precious metals have been really rallying during the quarter. At the same time, we've had a negative development on prices and terms, but that has in relationship to, of course, a much smaller movement. We have a continued strong mine production in Aitik. We have been stripping very, very hard for quite some time, and we are now happy to say that we're, in some way, catching up on the stripping depth that we've had before. We're also happy to say that the grades are going up in Aitik and have now started on their journey on going upwards. Apart from Aitik, we've had generally lower grades in mines. To some extent, this is maybe slightly more than we had expected, but part of this was already in our guidance that we've had before. We had a stable production in smelters. We're very pleased with that in general. We had a one-off positive of SEK 410 million linked to summing up of taking care of the metals in Ronnskar in the fire as we had the fire metals in the tankhouse, was going down and going down into the ground. And we have now, during this quarter, done a summary of that and where we are actually standing, and we have been able to recognize this SEK 400 million positive effect. The dividend has also been recommended by the Board. This is fully in line with our dividend policy of 1/3 of net profit, and it amounts to SEK 11 per share. We also have a very positive R&R development. I'll get back to that in a little while. So the financial performance in general, a little bit more than SEK 4 billion in profit. It's the third best profit in the history of Boliden for a quarter, which is good. We do have the positive SEK 410 million one-off, which is much lower than what we had last year in that comparison. The free cash flow also quite healthy at SEK 2.7 billion despite record level investments. And we've had a favorable development of working capital in the quarter. And the CapEx, as I said, according to budget, but on a high level. On the key projects, on the Odda project, there's not really much more to say compared to what we said when we issued the guidance for 2026. We are right now in the middle of commissioning, and it's going so far well. We have started to deliver some of the Odda Leach product actually as the first delivery. It's a very small-scale delivery so far. The Ronnskar tankhouse is on track and ramping up during the second half of this year. The Boliden Area tailing management is also on track. And the early part of the Garpenberg expansion, which is the Paste project, is also moving on according to plan. We have been also getting, which we were hoping for to get the environmental permit for Garpenberg. It has been appealed. So the appeal process will be launched here going forward. On ESG side, we're also [indiscernible] with the development. The greenhouse gas emissions are going in the right direction. And you always have to point out that when you look on the graph here to the right and also on the comparison number that we have not restated any previous numbers with the acquisition of Zinkgruvan and Somincor. If we were to take that into account, this is looking much better. The lost time injury frequency at 3.6 is a very good number, even though it was even better last year. And this also means that we're ending up the full year on 3.6, which is, I think, the best year in the history of Boliden. Sick leave continues to move in the right direction. We're not quite back to pre-COVID levels, but we're approaching coming back to pre-COVID levels. On the market side, and I think this slide shows it all and everybody wants to discuss that, yes, we've had negative currency development, and you see that on the little graph below, the bluish graph. We've had relatively weak TCs, zinc and for copper on the spot side. And we've had -- but we had copper or metal prices that have more than enough outweighed that, especially the precious metals, gold and silver, but also relatively strong copper and also slightly -- at least slightly improving also zinc prices. If you look at this on the cash cost, and I think that this -- if there's any time maybe you should not look too much on to this graph is right now because it will be lots of discussion with the people who make this one and the source of this information, exactly how they will account for the precious metals in this because with the big increase of precious metals as is most of the zinc or copper mines in the world have that as a byproduct and as a credit means that cost will go down. You see here in the assessment for '25, that costs are down, but I will not be really responsible exactly how this has been counted. But it's not that the zinc mines in the world are getting so much better at managing cost. It has to do with the silver price going up. And the same thing with the copper mines in the world not getting better in managing the cost, it's the gold price that is going up. If you look at our mine production, once again, in Aitik, we've had a milled volume around what we've guided for. The grades have improved versus Q3, and we had a strong total mine production with very good stripping in the quarter, which is going to help us going forward, especially to work with how to get around the diorite issue when we will get more potential [indiscernible] to work from. In Garpenberg, I think this is the second best quarter ever in terms of throughput [indiscernible] grades are lower, but that's also according to plan. Kevitsa, stable production at capacity, lower grades also remain [indiscernible] to plan. Somincor, quite a strong improved operational efficiency we've seen during the quarter. Tara continues with the ramp-up. And in Zinkgruvan, we had good production, slightly lower zinc grades this quarter also, nothing to really look into in long term. It's more or less according to plan. On the smelter side, it's been generally good production, especially on the copper side, good production in Ronnskar with high free metals; good production, actually record production in Harjavalta in terms of copper cathodes; high silver production. At Kokkola, slightly lower. We've had some process disturbances during the quarter, maybe not much. Odda is continuing to doing well in one way, but of course, also struggling operating a zinc smelter right to a major construction activities. Bergsoe had some planned maintenance in the quarter. Otherwise, everything went well. And with that, I will give over to you, Hakan, to talk about the numbers. Håkan Gabrielsson: Thank you. Good morning. So as Mikael said, we are reporting an operating profit, excluding process inventory of SEK 4.1 billion, which is clearly above the comparison period. I think it's also worthwhile to look at the operating profit then including process inventories, which is at SEK 5.8 billion, a substantial increase to the comparison. And that's, of course, due to the stronger metal prices and the big part pressures that we have in the process inventories. This leads to an earnings per share of SEK 15.31, which is a 40% increase compared to last year. On this slide, you also see a high investment number. We do have high CapEx, which is completely in line with the guidance. And all in all, a strong cash flow at SEK 2.7 billion. Looking at the profit by business area, you can see that mines has had a really good quarter, of course, helped by the rally in gold and silver and also strong copper. Smelters is also clearly up compared to Q3, and there are a few reasons. One is the one-off recovery adjustments that we talked about already in December, but also smelters are much helped by stronger precious metal prices, and we also have slightly less maintenance in Q4 compared to Q3. If we then dive into the analysis of profit quarter-on-quarter here and start with the one comparing Q4 of this year -- or sorry, Q4 of 2025 to Q4 of '24. Looking 1 year back, much is about adding the acquired units. It will come back in many of the lines here. But we can start with prices and terms where we've seen a strong improvement. Metal prices, if we only look at the metal prices isolated, contributed by about SEK 2.5 billion compared to the same quarter 1 year back. And then it was then offset by a lower dollar and lower TCs, landing at a plus of almost SEK 1 billion. So all in all, a good development. Volumes up 1.5. That's mainly the new mines and also Tara that has been ramping up. It's a little bit offset by weaker grades above all in the Boliden Area and Garpenberg. Costs, same things. It's an effect of the acquired mines and the restart of Tara. If you back out those top parts, we're roughly flat with the same quarter last year. So we do not see much of an inflation at this point in time. And I think, yes, we can also comment on the items affecting comparability. We have insurance incomes and we have recoveries in Ronnskar, and that is further specified in the report. If we then move on and look at the sequential comparison, Q4 to Q3, you can again see the big impact of stronger prices. And that's primarily silver and copper in this comparison, but also gold. Volumes, though, is a bit down, and we talked much about Q3 being a very, very strong quarter with some records in it. We have slightly lower production in mines, both throughput and grades with the exception of Aitik, where grades is starting to move in the right direction. Costs, they are seasonally higher. We see a pretty strong seasonality. As I mentioned, compared to last year, it's roughly flat, but we do have higher costs in Q4 than Q3. So it's seasonality, we spend a bit more on external services. And also due to the strong development of prices, we had to increase our provisions for profit sharing and similar in Q4. Moving on then to cash flow. Well, we've talked about the strong earnings, EBITDA. We talked about investment being in line with guidance, but we also had a good quarter in working capital. Typically, what happens when prices go up is that we tie more capital. Each tonne of inventory has a higher value and so on. But regardless of that, we've been able to release working capital also in this quarter, which is the third consecutive quarter with a positive number in here. So all in all, we are happy with the cash flow. And that's -- with that cash flow and with that price development, it sums up in a strong balance sheet. We have a net debt to equity now down to 20% as a result of this good development. So a strong balance sheet and robust financing to support that. This is also a time when we look a bit at the full year numbers. And this year, we reached an operating profit, excluding process inventory of SEK 10.7 billion. It is down compared to last year, but then last year was very much boosted by big insurance income. So adjusting for that, it's a step in the right direction. Prices and terms has a positive impact. Volumes are up. And of course, the acquisitions and the restart of Tara is an important part of this. But all in all, it has been a good year. And looking at mines, you can see the profit, the EBIT for each one of the mines and a couple of ones that I'd like to highlight is the Garpenberg mines, really strong performance with an EBIT of SEK 4.4 billion, of course, helped by good silver prices, but also by a good operational year. Also the Boliden Area, which is showing an impressive result of just over SEK 2 billion. That is another good year. And again, good operational performance, but also good prices on gold, in particular, helps the Boliden Area. And SEK 2.5 billion profit is great. We don't disclose the return on capital employed, but of course, it's a fantastic number for a site like Boliden. I'd also just like to highlight that in the Somincor and Zinkgruvan numbers, the depreciation of the overvalues following the acquisition are included. Looking at an EBITDA level and extrapolating to a full year, it's within the range of what we guided for, for these 2 mines. Smelters, a year that has been, to some extent, characterized by low treatment charges. Still we arrived at SEK 3.7 billion, down compared to last year due to the one-off insurance income we had last year. But there has been some pressure on prices, but the gold and silver has compensated that, especially in the copper smelters. Harjavalta delivering a result in excess of SEK 1.5 billion and Ronnskar with a SEK 1 billion profit, which is a really good number considering that we still don't have a tankhouse on that site. The zinc smelters are suffering a bit more with Kokkola coming down and Odda having a negative result due to the prices, but also due to the expansion project having a slight negative effect on the daily production. And I think this is also an effect of not being able to recover silver, which we cannot today in Odda and it underlines the importance of the project that is currently ongoing. So with that, I'll hand over to Mikael. Mikael Staffas: Thank you, Hakan. Now we've had some technical issues with my microphone. Hopefully, now it will work on here. As I said in the beginning, we also released today the R&R statement and the R&R statement, in my mind, looked very, very strong and very good. Generally on exploration, we spent a little bit less than SEK 1 billion on this during the year. It is areas that are familiar to you. It's close to our existing operations. So it is apart from the fact that we're working on early exploration in Canada, which is new geography to us. We are mainly working within existing geographies. And if you then look at the actual reserves update at the end of 2025, well, we have increased reserves in the Boliden Area. We have -- in Somincor, in Tara and in Zinkgruvan. This is mainly due to improved price assumptions. And here, now you have to be kind of careful because this is that we had -- these are price assumptions that were set in the beginning of 2025 for doing the calculations during 2025. They were slightly better than the ones that we had in the beginning of 2024. They are nowhere close to where we are today on spot prices. So these are still, with today's prices, extremely conservative, but they're slightly more aggressive than we were a year before. When you do that, you get better volumes, but typically, you get lower grades because you will incentivize mining from lower grade areas. Now what is great this year is that we have this increased volume, and we do not have lower grades. And that's mainly due to successful exploration that fills in this whole gap in a very good way. Then we also, of course, had lots of work during the year to transfer Zinkgruvan and Somincor into both the PERC standard and into the Boliden way of reporting within PERC. That's, of course, a process where lots of people have done lots of work, but it's nothing strange that has come out of that work. So if you then look at that, you can see that Aitik, we do not have a new update for reserves. So reserves are still ending up in 2048, which is a year shorter than the last year. But as I said, we have not had an update of the optimization for the reserves. The Boliden Area, very strong update, now extending to 2036 from 2033, so a 3-year addition in the Boliden Area, and it looks good and it's all 3 mines that are contributing to this. Garpenberg, on the reserve side, it has continued very good. We'll come to the resource in a while that looks really good. Kevitsa, nothing new happening. We are working on with the pushback #4, which means there is a 2034 end of life of mine. Somincor, partially because of the different ways of counting and doing so on the official life of mine is now 2036, which is already a year or 2 better than what we said when we bought it and much better than what Boliden had reported before. Tara is adding another 2 years of reserves up until 2032. And Zinkgruvan also increasing of 2.5 million tonnes, which is then also means that we come up to 2035. And then to the right in the exhibit, you can see the 10-year development. And you can see here after 10 years of really hard working in the Boliden Area, we managed to increase the life of mine from about 9 to now over 10 years. And it's the first time, I think, ever that we have Boliden over 10 years. And Garpenberg, very strong development, close to 25 years life of mine. If we then look at the resources, we can see that in the Aitik area, we have both indicated resources and inferred resources going up in Aitik itself. And additionally, here, Nautanen now coming in, if you add these 2 together, at over 50 million tonnes of indicated and inferred together, which means that this becomes enough to really warrant a deeper look into actually making a project out of this given the high grades that we have there. In the Boliden Area, despite the fact that we have had the resource conversions into reserves, you had a 3-year extra reserve side. We still have more resources coming in at the Boliden Area from very successful exploration during the year. In Garpenberg, we have altogether about 25 million or 30 million more tonnes of resources coming in. We are then adding up the amount of tonnes and the resource together. We're getting close to 150 million tonnes. This is getting large enough that, as I said to some journalists this morning, it's kind of absolutely wrong not looking into expanding the Garpenberg mine with the, once again, very successful R&R update that we had. Somincor, here, you have to be careful about the comparison numbers because we are really comparing apples with oranges. So you need to be perfect there. But as I said, the Somincor looks relatively good, tara looks relatively good and Zinkgruvan looks relatively good. So all in all, what I feel is a very strong R&R update. Outlook for the coming year, no news whatsoever. This is exactly the same as we said in December. So there are no news. The only little news there is that we are right now, as I'm speaking, experiencing very heavy rains in Portugal, and we've done that all through January. That has caused issues for us in water management. We're far from alone. I think everything in Portugal is affected by these rains. It's, of course, very unclear what will happen going forward in the rest of the quarter. We don't know the exact weather. Therefore, it's very difficult to say exactly how much this will impact in Q1. But our estimate as of today is that it's not going to impact more in Q1 than that we're going to be able to keep the full year guidance for Somincor. It's mainly the mill that's affected by this, not so much the mine. And as you know, in Somincor, it is the mine that's the bottleneck and not the mill. So we should be able to catch up over the year what we lose potentially from having to stop because of water issues. With that, I will invite you all with questions. Olof Grenmark: Ladies and gentlemen, that opens up our Q&A session for the Q4 2025. I've been informed that we have many questions on the web. [Operator Instructions] And we'll start here in Stockholm, and we have Kaleb Solomon, SEB. Kaleb Solomon: Yes. You mentioned in the mineral resource report that the Finnish mining tax for Kevitsa wasn't factored into last year's reporting. Can you give some color on to what sort of extent you expect that cost increase to impact resource estimates? Mikael Staffas: In terms of the reserves, it will not impact at all because that's the pushback #4. In terms of the resources, I cannot tell. Kaleb Solomon: Okay. And recoveries at Aitik were pretty much back to normal levels, close to 90% this quarter. Is it fair to say that the sort of recovery issues are completely behind you? Mikael Staffas: Yes. Olof Grenmark: Johannes Grunselius, SB1 Markets. Johannes Grunselius: Yes, I have a question on Odda and what you see there for the coming quarters. I think you have guided for EBITDA uplift of EUR 150 million or something like that. Can you give some color if that's intact and what you see for the coming quarters in terms of sort of tailwind? Mikael Staffas: I don't have a good number. Maybe you do, Hakan, but the EUR 150 million for an annual number, I say, what as of right now is quite understated given the high silver prices. The uptick should be bigger than that. But I don't have another number to give you. But I would say that as of right now, the EUR 150 million is actually pretty conservative. And then that's for the full year status. And of course, we will not have full year production in 2026, but maybe 3 quarters of full production or something like that if now we continue with the ramp-up during Q1 as guided. Johannes Grunselius: And you feel comfortable about the ramp-up, where you are at the moment? Mikael Staffas: Yes. The ramp-up is going more or less according to plan. And as of yesterday, we went up to full year to say, 24/7 manning on this one. So now we're basically running the process altogether. We haven't started feeding concentrate yet, but it's going forward the way we're anticipating. Olof Grenmark: Christian Kopfer, Handelsbanken. Christian Kopfer: It was a quite solid result. I just -- if I look at your production, especially in the mines for Q4, correct me if I'm wrong, but it seems like you didn't live up to your own expectations in the mines on -- if you look in full for Q4, if I'm wrong, you can just tell me. But if I'm right on that, from your perspective, was it, call it, normal hiccups? Or how do you see Q4? Mikael Staffas: The mine production, the grades apart from Aitik are slightly lower than what we had expected. So it's -- you can say grades issue, and I would say this is all timing issues. There's nothing that will matter in the long time. And the throughput was around where it should be. Christian Kopfer: But it was something in Kankberg, I mean, the gold mine. So it seems like you came down quite a lot on gold in Kankberg. What was that? Normal hiccups or... Mikael Staffas: No, I think it's mainly a lower part of Kankberg in the total ore mix, and that goes normally up and down. So there's nothing wrong in the actual -- by the way, I didn't say that. But in the R&R statement, the reconciliation is also done this year and the reconciliation looking for all of '25 compared to what the R&R statement had for '25 and what we had in our plans is clearly within tolerances. Christian Kopfer: All right. Finally for me then for Hakan. If prices, everything flatten out, what would you say is the internal elimination, call it, reserve, what you will get back in internal elimination if everything flattens out? Håkan Gabrielsson: Well, that's an interesting question because it depends where it flattens out. But from now, it all depends to prices where they stand compared to year-end. And I think that we have, let's say, a couple of hundred to release at constant prices. But then we'll see where the prices take us because that has a big impact. Olof Grenmark: Igor Tubic, Carnegie, please? Igor Tubic: I just want to go back to the production for the full year because looking at your numbers, primarily for Aitik and Tara, you guided for 40 million tonnes and you reached slightly above 39 million. And for Tara, you reached slightly above 1.4 million and you guided for 1.6 million. And looking for 2026, you have guided for increased numbers. Can you please elaborate a little bit around that so we understand what you are doing in order to improve the ore milled? Mikael Staffas: In Aitik, you know that why we are not close to the 45 million is because of diorite issues that we've had in the ore. And diorite is not going away overnight, but we will have less diorite, and that's why we can go from up to the 41 million that we have guided. In Tara, it's a more complex situation. It's a new organization. It's a new setup after we restarted from having been in shutdown, and we have not been able to achieve the productivity during the year that we had anticipated. We were also late in getting some contractors in. As we look for 2026, that looks better, and therefore, we feel confident about what we have guided about it. Igor Tubic: Okay. And the second question, have you seen any prebuying among your industrial customers? Mikael Staffas: I actually don't know. I'm looking at my CFO. Håkan Gabrielsson: No, I'm not aware of that. I don't think we've seen any of that. Olof Grenmark: Any more questions here in Stockholm? Okay. Operator, then we hand over to the international questions, please. Operator: [Operator Instructions] The next question comes from Alain Gabriel from Morgan Stanley. Alain Gabriel: A couple of questions from my side. I'll do them one at a time. Firstly, Mikael, on the Odda project, you sound as if you are quite satisfied and happy with the progress of the project. Do you mind giving us a bit more color how you expect the earnings to be phased over the course of the year, the earnings uplift from the project? And what would be the approximate mark-to-market earnings uplift on spot commodity prices because clearly, things have moved quite a lot since you've given the estimated uplift. That's my first question. Mikael Staffas: And on the mark-to-market on spot, I may look at my CFO for that number. As I just said before, I actually don't know. The other question is around when I feel it's going to come. Well, I think that we should be in full production by the end of this quarter. And therefore, you can say that we should get roughly 75% of this during the year as a whole. So that will be a number on kind of how the timing will work out. Håkan Gabrielsson: And regarding the spot level of the uplift, I think we'll leave it at the level where the EUR 150 million is understated. We did a simulated performance this Friday -- or last Friday. And just in a couple of calendar days, the whole price environment has changed quite a lot. So for that reason, I'd rather not give any exact forecast. But we leave it at the fact that it's understated, the EUR 150 million. Alain Gabriel: Okay. Understood. And my second question, it's a high-level question on both Somincor and Zinkgruvan. You seem to have extended the remaining life of mine with the latest R&R update as you've also just articulated now. How are you thinking about the medium-term capital allocation to these 2 mines? Are there any big ticket items that may be needed to ensure that the life of mine is actually extended to the mid-2030s as you are planning to do? Mikael Staffas: Somincor will need a ventilation shaft to put in relatively quickly. I don't know exact number. That is still relatively modest CapEx, but it's there. For Zinkgruvan, we don't see if we need to do any kind of major changes. It's more continuous as is and with just normal replacing CapEx. Operator: The next question comes from Liam Fitzpatrick from Deutsche Bank. Liam Fitzpatrick: I've three hopefully quick questions from me. The first one, just on the dividend -- in terms of the special dividend. It looks like if we look ahead a few quarters, you could be well below the 20% gearing threshold. So could you just remind us of the policy in terms of how you would look at potential top-ups in a year's time? Second question, just on the CMD in March, you had a CMD a year ago. We had the update from you in December as well. Are you able to give us a little preview of kind of what to expect? Is this going to largely be a progress update? Or should we expect to hear about new projects and initiatives? Mikael Staffas: To start with the dividend policy, just to remind everybody, we have a clear dividend policy of 1/3 payout ratio from net profits. That's what you've seen suggested here today. Then we have -- the next one is that when we are having a too strong balance sheet and strong is defined as having less than 20% gearing. And then this time, we include the net reclamation debt as well into the gearing. And we also take care of the fact that we already -- it will be after the ordinary dividend. And that number right now, I think, was 30% or 32%, so clearly north of 20%. I don't want to make any prediction of when this is going to happen or if it's going to happen, it will all be down to price and terms. On the CMD in March, you can expect update on projects. And of course, this will be, I think, right when Odda is maybe very hot off the press. We will have updates from also what's happening in Ronnskar and how we're doing in the Boliden Area sand recovery project. Regarding new projects, we will see what we get, but hopefully, there could be something around that, and it will not be something that comes straight out of the sky, but we have discussed that there are potential further steps into Garpenberg, and we have discussed that there might be some discussions around cement during the early part of '26. And to the extent that we get this in place, you might hear more about that also in March. Liam Fitzpatrick: And just as a quick follow-up, we can safely assume that any sort of new approvals or additional steps are kind of captured within the SEK 15 billion CapEx number for '26? Mikael Staffas: We'll see. I could add just to be very clear to you that those 2, for example, will have relatively little CapEx in '26. It's more '27, '28 that will be affected. Operator: The next question comes from Amos Fletcher from Barclays. Amos Fletcher: Just a couple of questions on cash flow items. I just wanted to ask Hakan on the cash tax side, it looks like you paid very little in the quarter relative to the P&L accrual. Should we expect some catch-up in Q1? And then the second question was on working capital. Can you guide on sort of what your expectation for the quarterly dynamics through 2026 is? Obviously, it sort of feels like we're at a relatively low level of working capital at this point. Håkan Gabrielsson: Thank you, Amos. Two good questions. I'm happy you asked that about the tax one. I should have perhaps highlighted that already in the presentation. But it's right. The way it works is that you decide a preliminary tax level based on where you stand in the beginning of the year and then we pay according to that. And given the development that we've seen in the later part of the year, it is a quite big tax amount that we will have to catch up with the final payments during this year. And we have some flexibility when during the year to take it. But there is a fair amount of catching up that we'll have to do this year. Secondly, working capital, we typically tie working capital in Q1. Looking back over the years, it's about SEK 1.5 billion at constant prices. Then it's relatively stable in Q2 and Q3 and then Q4, we release roughly the same amount. So that's -- I mean, to give some indication for Q1, I would expect us to tie about SEK 1.5 billion working capital. What's happening this year as well is that we have a little bit extra in working capital for Odda. That's fairly small amount since it's zinc. But then towards the end of the year, we'll also come back with an amount on how much we're going to tie for the Ronnskar ramp-up. I think we're talking about SEK 1 billion to SEK 1.5 billion, depending on where the prices stand. Amos Fletcher: Okay. And then one little follow-up, if possible. I just wanted to ask on the MAMA effect in this quarter. Could you talk us through what that was and where expectations should be for Q1 that, let's say, flat prices where we are today? Håkan Gabrielsson: The MAMA effect, just to repeat what that is, that is the open positions we had when we started the Q4 and that got their final pricing. So in Q4, that had a positive impact of SEK 300 million. And assuming that prices are flat compared to where we -- to the end of the quarter, that should be pretty much 0. But then again, we'll have to see where the spot prices end up, but SEK 300 million for Q4. Operator: The next question comes from Jason Fairclough from Bank of America. Jason Fairclough: Just a question for you on the reserves and resource statement. I wonder if you could just talk high level about the sensitivity of your reserves and resources to the prices that are used to calculate those reserves and resources. Also, you've given planning prices. Are those actually your reserve calculation prices? Or is that what you're using to run the business in the short term? Mikael Staffas: If I start in the end of that question, the answer is we use the same. Our planning prices are used both for investments in the kind of medium term, a couple of years out and also for calculating R&R. So it's the same number. And therefore, you can now see what we have been using throughout the year as a planning price for investment. Regarding sensitivity to prices, well, the Aitik mine is very sensitive to prices and terms on gold and on copper. And it's not -- even though you're not supposed to talk about it, of course, Aitik at today's spot price and terms would be vastly larger than what you see here. The underground mines are less sensitive, even though there's always some sensitivity, but the underground mines are less sensitive to these fluctuations. And as of right now, you can say that the whole resources in Kevitsa and their ability to be upgraded to reserves is very much dependent on pricing terms, but also tax levels in Finland. Jason Fairclough: Okay. Can I just do a follow-up one as well? And I think this is one we've talked about before. So CapEx, there's always a bit of discussion as to how much money you guys need to spend to keep the business running to keep output flat. And I think in the past, this figure has been as low as SEK 7 billion, but I think you've drifted that up a little bit now. These days, you have some new mines. So how do you think about sort of a through-the-cycle level of CapEx required to keep the mines running? Mikael Staffas: Do you want to take that, Hakan? Or should I go ahead? Håkan Gabrielsson: Well, I mean, you're right. I mean we've added a couple of billion due to the -- I mean if you start at the SEK 7 billion and then you add a couple of billion for the new mines and some inflation, then I think you're ending up roughly right. But in addition to that, I'd like to defer that for a month or so until we have the capital markets update because that's the time where we usually dive into the CapEx question a little bit more. But I'm not sure if you want to highlight some more there. Mikael Staffas: No, it is -- of course, you can get a number to answer your question, but it's also -- and everybody is aware of that, that when we talk about sustaining CapEx that what we need to kind of get on from year-to-year. If we only do sustaining CapEx, we will eventually deplete the mines because we're not developing anything new and we're getting to lower grades. So yes, sustaining CapEx is one level where if you go below that, you will very quickly reduce your production, but then there is something more if you really want it flat for a long time. But as I said, Hakan will have that as a little bit of a discussion on the capital markets update as well. Operator: The next question comes from Daniel Major from UBS. Daniel Major: Just first one on Garpenberg, two parts to it. One, can you give any approximate indication of the time lines on the appeal process for the environmental permit? And then the second part, assuming the permit is not appealed successfully, when would you expect to achieve the 4.5 million tonne throughput run rate? Mikael Staffas: We have guided for the 4.5 million. We have guided to you that we are aiming to increase by about 200,000 per year for 5 years. So around 2030, we'll achieve the 4.5 million. Regarding the appeal timing, it's always very difficult to tell. But as a rule of thumb, a year from the verdict. So sometimes late this year, we should be able to get the verdict from the appeals court. Daniel Major: Okay. Two modeling questions. Maybe I missed it, but did you give any guidance for the distribution of maintenance through the year quarterly in the smelters? Håkan Gabrielsson: I'm looking at Olof. No, we haven't done that. We have to complete that during the capital markets update. But typically, Q2 and Q3 are the heavy quarters. It's relatively small numbers in the other quarters. Daniel Major: Okay. And then the final one, how much have you got left in terms of cash insurance proceeds that comes through in receivables in 2026 from the insurance claim? Håkan Gabrielsson: It's about SEK 330 million that is due to be -- well, in fact, we have received it already in January, but it will be a positive then in the Q1 cash flow. So where we stand here and now, there is nothing more to receive, but SEK 334 million, I think, that we received in January this year. Daniel Major: Okay. And so your net is expected to be at SEK 1.5 billion working capital build after that. Is that the right kind of ballpark? Mikael Staffas: Yes. Håkan Gabrielsson: Yes. That is correct. Operator: [Operator Instructions] The next question comes from Richard Hatch from Berenberg. Richard Hatch: Two questions. Just the first one, just on cost inflation. Hakan, you mentioned that you weren't really seeing any cost inflation, but I guess it's only a matter of time if prices remain this high. So can you just give us your thoughts on the outlook for cost inflation and where and when we might be seeing it? That's the first one, please. Håkan Gabrielsson: Well, that's a difficult question. I wish I had a crystal ball to answer that. But looking at what we see right now, we do have the regular salary inflation, which is fairly limited in our part of the world. And then for the external purchases, we haven't seen much inflation at all, I should say, on OpEx. It looks like there is more inflation on the CapEx side, but that's more difficult to compare quarter-to-quarter. I guess you're right, if we see the same price levels, there is a risk that we see a pressure on the inflation, but it's a bit difficult to say then when and where that will come. Richard Hatch: Okay. That's helpful. And I'll just -- so my follow-up is -- well, two follow-ups. One, you just talked about the CapEx inflation. Is that just because we're seeing more appetite from more companies wanting more hit. So therefore, there's a bit more tension there? Or is it something else? And then the follow-up is just on the tax. So I see your current tax liability is SEK 1.3 billion. You answered an earlier question with regards to the tax payments, but should we be perhaps unwinding that kind of SEK 1 billion-or-so build year-on-year on the tax liability over the course of 2026. Is that the right way to kind of think about it on a cash basis? Håkan Gabrielsson: Start with the taxes. Yes, that's roughly the right way of thinking of it. I think it's not really SEK 1 billion, but it's close to that level. And then CapEx inflation, I think we also have to come back to that in the capital markets update. But there is -- just when looking at projects, there is a feeling that things are increasing, looking at what is announced by other parties and so on. But let's come back to that. Olof Grenmark: Ladies and gentlemen, we have a few minutes to go. Are there any follow-up questions here from Stockholm? Yes, we have Jonas Grunselius, SB1 Markets. Johannes Grunselius: Okay. I'll take the opportunity for an extra question here. How about -- yes, I was wondering about Nautanen. You have applied for some kind of permit there to the EU. And I suppose you want to have a fast track. And can you elaborate when you see this project to sort of starting and when can you maybe go ahead with first commercial production? And how will all this change basically the Aitik feedstock into the mill basically? Mikael Staffas: Just on timing, I mean, it's unclear right now. As you know, the only -- we have a mining concession that's been appealed. We need to make an environmental permit. If we get the strategic status, that should all help and speed that process up. But I think we're still talking about 3 years just to be talking about order of magnitude. And then we will be able to move ahead with the investment and get production a couple of years later. So this is something that in best case has production 2030, 2031, something like that. How will it impact Aitik is a very good question because there has been this constant question about how do you best process the Nautanen feed? Do you mix it in with the general Aitik and just increase the average grade? Or do you, in some way, batch it? And that's still being worked around. So -- and if you batch it, then you can say Aitik -- the rest of Aitik should be totally unaffected by this one, and this will get its own kind of situation. And the answer is, we are not quite sure. The best guess, if you were to ask me today, is that we will probably invest in a new mill line and we will mill Nautanen separately, and then we will mix the feed from the mills and have a joint flotation, but that's the best thinking right now. Johannes Grunselius: Is the deposit fully sort of examined? Or do you see a potential for increasing the reserves? Mikael Staffas: Nautanen is open, I would say, in every direction, they're not quite true, but clearly opening towards the depth. So the 50 million tonnes that we have now should normally not be the end of it. So we are continuing exploration. Olof Grenmark: Any other follow-up questions here in Stockholm? Then I hear in my ear that we have some questions on the web, please, as follow-ups. Operator: The next question comes from Amos Fletcher from Barclays. Amos Fletcher: Just one follow-up. I just wanted to come back to one of the questions asked earlier about surplus capital returns. In a fantasy scenario of higher commodity prices going forward, would you typically wait until the end of the year to launch any kind of surplus capital returns? Or is that something that you could think about doing intra-year if your net debt-to-equity ratio gets low enough? Mikael Staffas: In the Swedish context, it's only the AGM that can decide that. That means that if we were to do it during the year, we have to call an extra EGM specifically for that purpose. Maybe not impossible, but I think it's highly unlikely. Olof Grenmark: Next question, please, operator. Operator: The next question comes from Marina Calero from RBC Capital Markets. Marina Calero Ródenas: I just have a couple of follow-up questions. The first one is on your cement projects. I've seen that you have received some grants or financial support from the environmental authorities. Do you consider increasing the scope of that project? And then a second question, of the one-off impact on recoveries in the smelting division, can you clarify what part of that has been converted into cash and if there's anything that still remains to be converted? Mikael Staffas: I'll leave the last one for you. On the cement project, you're absolutely right, and everybody who reads Swedish have read that, that we have received some grants towards the cement project. The cement project is about size. The one that we're looking into and the one we're working on is fitted pretty well for what is possible in Ronnskar. It's linked to the size of the fuming operations that we have. So there, the kind of the scope creep is relatively limited. But the technology as such is one that works well with copper slags. It actually works well also with zinc slags, and it might even work on mine tailings. So there might be many feeds into this process, which means that we could theoretically, over time, if this thing works and if it works in the market and if it works in production also at other sites, but that's way too early to tell. We are right now making sure that we get a first stage, this demonstration plant, as we call [indiscernible] up and running. And the size of that one, as I said, is determined by the size of the existing fuming operation. Håkan Gabrielsson: And second question on the one-off adjustment of recoveries. All of that has been converted to cash as of the end of Q4. Some came already in the earlier quarters, but by the end of Q4, everything is cash. Olof Grenmark: Ladies and gentlemen, time is flying. We have time for one final question from the web. And after that, I leave it over to you, Mikael, to end this session. Please go ahead. Operator: The next question comes from Liam Fitzpatrick from Deutsche Bank. Liam Fitzpatrick: Apologies. Probably a question for Hakan, just on the provisional pricing. I think last quarter, you broke it down into the 2 buckets. There was the MAMA and then there was the effect of a chunk of sales being priced at the end of the quarter rather than the average price. So I think last quarter, it was around SEK 100 million and then another SEK 200 million to SEK 300 million. So you gave us the MAMA figure for this quarter, which was SEK 300 million. Do you have the other number as well? Håkan Gabrielsson: I don't know. And I think it's just important to recall that we are not invoicing strictly according to average prices evenly through the quarter. It will depend on whether we invoice one week or the next week and so on. We have described the pricing methodology that we use in the capital markets material with MAMA peers. So I would rather refer to that than give any exact numbers. Mikael Staffas: What Hakan is really saying is that all these things are relatively easy if you have small deviations. When you have big deviations, this is more difficult to actually assess. So with that, everybody else, thank you all for listening this morning. It's been very interesting for me to be able to present this, especially the R&R update, which we feel very good about. We feel very good about the general strategy that we have. And we will now continue our meetings during the day, and we will face the 15 degrees minus temperature in Stockholm. Have a nice day, everybody.
Operator: Welcome to Vitrolife Q4 2025 Earnings Call. [Operator Instructions] Now, I will hand the conference over to CEO, Bronwyn Brophy, and Par Ihrskog. Please go ahead. Bronwyn Brophy: Good morning, everyone, and welcome to the Vitrolife Group Q4 report. I'll now move you through the first slide of the presentation. Let me start with the highlights. We delivered 6% organic growth in local currency, excluding discontinued business, beating our own internal forecast for the quarter in relation to the top line. Strong growth in Americas, again, driven by North America. I should also call out that APAC also performed very well in the quarter with 10% organic growth in local currency. And the third point that I would like to highlight is that following a strategic review of our Genetic Services business, we announced a restructuring program in December. This will allow us to focus on the key tests and markets with stronger prospects for profitable growth. I'll now move on to the next slide, please, and take you through the key highlights. So sales in the fourth quarter were SEK 891 million, an organic growth in local currencies of 6%, as I mentioned, but significantly impacted by minus 10% from currency effects. Gross margin was 58.6% when adjusted for the restructuring. This was a decrease versus Q4 2024, which was exceptionally strong. Additional factors impacting the gross margin are: a currency impact, which is the majority impact; the regional mix. As you will see in the coming slides, we are increasingly having a greater percentage of our revenue coming from Americas. And then, we also have a mix effect within Consumables in APAC, where we had a targeted campaign in disposable devices. Moving down then to EBITDA. We had EBITDA of SEK 251 million in the quarter, equating to an EBITDA margin of 28.2%. We also have a significant negative currency impact here just under 3%. Regional mix and product mix, as I mentioned also in relation to margin, is playing a role. And we do have higher OpEx here due to strategic investments that we made in sales and marketing in North America -- of course, that also helped us to drive the growth there -- and also in IT, where we have made investments to support our customer journey and also enabling us to drive growth in North America. I'd like then to comment on the operating cash flow, SEK 160 million. Clearly, here, the starting point is lower for the reasons that I have just explained. Last year, we also had a positive effect from changes in net working capital. Then, for the full year, we had organic growth in local currencies, excluding discontinued business, of 4%. And actually, Par in his final slide of the financial section will take you through the full year numbers in detail. Okay. Moving on then, please, to the sales and growth per geographical segment. So I'll start with Americas, where, as I said, we delivered 9% organic growth in local currency, driven by a very strong performance in our key focus market of North America. Americas, as you can now see, accounts for 34% of our revenue. Moving on then to EMEA, a challenging quarter for our EMEA region as we expected due to very high Technologies quarter across the region in Q4 2024. I do want to highlight that Europe is performing well. However, Genetic Services in the Middle East is impacting the overall EMEA results. A great quarter in Consumables across the region with share gains in key focus markets. EMEA now accounting, as you can see there, for 34% of the share of total sales. Okay. Moving on then to APAC. We had strong growth in APAC, up 10% organic growth in local currencies, and this region outperformed our internal expectations in both Consumables and Technologies. Okay. We'll move on now and take a deeper dive into each of the regions, starting with market region EMEA. Sales in EMEA were SEK 333 million, a decrease of minus 1% in local currencies, excluding discontinued business. Consumables delivered 11% growth, well above market growth level, and this was driven by share gains in key focus markets where we decided to double down. So you're really going to see that focus is the name of the game for us. As I previously mentioned, we were very challenged to deliver growth in Technologies in this region due to the comps with last year. So this decline was forecasted as expected. What I am pleased with is the run rate revenue coming from the consumables part of Technologies is performing strongly. Moving into Genetics then in the EMEA region. Genetics is performing very well in Europe. However, clinics in the Middle East have in-sourced activities to boost their income during the downturn from the geopolitical situation, and we don't expect this business to return. Typically, [indiscernible] it tends to stay that way. Moving on then to market region Americas. Americas, we have sales of SEK 299 million in Americas and organic growth of 9% in local currency. We delivered strong growth across the entire portfolio in all markets in the region, which was great to see. The investments we have made in sales and marketing in North America are clearly paying off, and there is no doubt that we are taking share in this key region for the Vitrolife Group. We have been focusing the team on increasing the penetration of EmbryoScope, and we were delighted to see a 40% growth in Technologies in this region in the quarter. Genetics also continued to perform well, driven by share gain momentum. Earlier in the year, we have taken quite a bit of share in North America, and that share gain momentum continued in Q4. Okay. I will now move you on to market region APAC and give you some more color on the performance here. So a strong finish to the year in our APAC region, growth of 11% in local currencies in Consumables, driven by share gains in disposable devices where we launched a targeted campaign. We delivered 13% growth in Technologies as clinics finally released year-end budget, thereby allowing for investments in capital purchases. So overall, a strong finish to the year after a tough first half in APAC. I will now hand you over to Par, who will take you through further details on our geographical segments. Par Ihrskog: Thank you, Bronwyn. We are now on Page #9 in the deck, where I will provide more details of the geographical segments, Americas, EMEA and APAC, starting with the Americas on the left side. As Bronwyn mentioned, sales amounted to SEK 299 million, reflecting a 9% organic growth in local currencies and a minus 4% growth in SEK, negatively impacted by currency. Gross income amounted to SEK 167 million with a gross margin of 55.7%. This compares to last year's gross income of SEK 171 million and a margin of 55.0%, an improvement of 0.5 percent points, driven by the product mix despite negatively impacted by the FX effect on the gross margin. Selling expenses for the quarter rose from SEK 76 million to SEK 83 million, reflecting the ongoing investment in sales and marketing in the U.S. as previously announced. The market contribution for the quarter was 27.9% compared to 30.5% last year, impacted by the increased strategic investment into sales and marketing capabilities. Let's move on to EMEA. There, we had a minus 7% decrease in local currencies and minus 13% in SEK, totaling to SEK 333 million sales. The sales were negatively impacted by currencies and the discontinued business. Excluding the discontinued business, sales decreased by minus 1% in local currencies. Gross income was SEK 195 million with a gross margin of 58.5% compared to SEK 245 million and a margin of 63.9% last year, mainly driven by the restructuring reserve, negative currency and product mix effects. The gross margin excluding the restructuring was 60.2%. Selling expenses increased from SEK 82 million to SEK 100 million. Excluding the restructuring costs, the selling expense amounted to SEK 79 million, which is in line with last year [indiscernible]. The market contribution margin for the quarter was 28.4% compared to 42.4%, explained by restructuring reserve and product mix. The adjusted market contribution was 36.4%. In APAC, sales amounted to SEK 259 million, reflecting an increase by 10% organic growth in local currencies but a 2% decrease in SEK, negatively impacted by currency. Gross income was SEK 155 million with a gross margin of 59.9%, which is lower than previous year's gross income of SEK 170 million and a gross margin of 64.2%, a decline of 4.3 percent points compared to previous quarters, negatively impacted by currency and product mix within the Consumables in APAC. Selling expenses increased from SEK 40 million to SEK 45 million. The market contribution margin for the quarter was 42.5%, down from 49.1% last year, explained by lower gross margin and somewhat higher OpEx in the quarter. Let's move to the next slide. On this slide, I will comment on the Q4 financial highlights, starting with net sales. As [ earlier ] mentioned, the sales amounted to SEK 891 million compared to previous year with a sales of SEK 959 million, corresponding to a 3% growth in local currencies, a minus 7% decrease in SEK and positive growth of 6% in local currencies, excluding discontinued business. The gross margin income amounted to SEK 522 million compared to SEK 586 million previous year, corresponding to a gross margin of 58.0%, down from 61.1%. Q4 2024 was an exceptional strong quarter from a margin perspective. Adjusted for the restructuring, the margin in Q4 this year was 58.6%, which is more in line with our historical performance. The drop in the margin is explained by mainly currency effect, but also regional mix effect and also the mix effect coming from the Consumables in APAC. And then, I'll move to EBITDA. EBITDA -- all in all, this gives us an adjusted EBITDA of SEK 251 million compared to SEK 337 million previous year. As I just mentioned, this was an exceptionally strong quarter last year. This gives us an EBITDA margin of 28.2% when adjusting for restructuring expenses compared to 35.1% last year. The drop in margin is explained by currency effects, regional mix effect and mix effect within the Consumables in APAC. Okay. Let's move to the next slide where I will go more into detail on the operating expense development last year compared to this year. So last year, we had an OpEx of SEK 361 million, and this year, we ended up at SEK 378 million. And let me explain the bridge here. On the selling expense, we saw an increase. This is excluding impairment and restructuring reserves. So this is clean from those onetime bookings. So the selling expense increased by SEK 6 million, reflecting the investments we have done in North America in sales and marketing. The admin expense, we saw a reduction of SEK 2 million versus Q4 last year. We still have some increased IT expenses here, but that has been offset by a reduction in other admin areas, so a positive net effect. On the R&D, we saw an increase of SEK 5 million in the quarter compared to last year, which is mainly a phasing effect. And the spending here is in line with our efforts to increase our R&D expenses in preparation of new product launches. And on the other operating expenses, in this one, we also have the FX effect from our revaluation of accounts receivables and accounts payable, had a negative effect in total. Okay. And then, key financials. Here, I will focus on the year-to-date column mainly. And the sales then for the full year amounted to SEK 3.5 billion, corresponding to a 2% growth in local currencies, a 5% decrease in SEK and a 4% increase in local currencies, excluding discontinued business. The gross margin decreased from 59.3% to 58.1%, mainly due to currency effects. The adjusted gross margin is 58.2%. The EBITDA for the full year amounted to SEK 949 million compared to SEK 1,225 million corresponding to an EBITDA margin of 27.6% versus 34.0% previous year. The adjusted EBITDA margin was 29.2% for the full year. And again, the decrease in the margin is heavily impacted by currency effect, driven by the strengthened SEK against other currencies. The margin was also negatively affected by the increase on OpEx, which I explained is mainly selling expenses in North America and our IT investments. Net income amounted to SEK 390 million compared to SEK 514 million previous year, heavily impacted by the currency fluctuations. This gives an earnings per share of SEK 2.89 compared to SEK 3.78 last year. On the operating cash flow, it amounted to SEK 635 million for the full year compared to SEK 907 million previous year. The main reason is the underlying result, but also we had a negative impact on the changes in net working capital this year, explaining part of the difference. Our leverage net debt to EBITDA ended up at 0.7 compared to 0.7 previous year. The proposed dividend from the Board is SEK 1.10 per share, which is the same as last year. And I will now hand over back to you again, Bronwyn. Bronwyn Brophy: Thank you, Par. So moving on then to the focus for 2026. And as always, we will focus on 3 key areas: on growth, on innovation and on operational excellence. And I'd like to start with growth. We will continue to drive share gains in key markets, and that's very important. We're not going to be all things to all people in key markets, leveraging the full breadth of the portfolio. I think one of the statistics that we've been tracking very closely is the percentage of customers who are now buying across Consumables, Technologies and Genetic Services, and this is trending up nicely. So the strategy of leveraging the full breadth is working, and we'll continue to drive share gains using our portfolio position. The second point on growth is accelerated penetration of our combined EmbryoScope and lab control solutions. We've really doubled down here. That's why we're particularly happy with the 40% growth in North America in Q4, and it's really as a result of this EmbryoScope -- combined EmbryoScope and lab control solutions. Third point, very important, we have been investing in commercial excellence capabilities for the past 12 months. It improves our segmentation that helps us to drive profitable growth. And back to the point around taking market share, we've been tracking this very closely now with much more advanced metrics than we had previously. So we will further leverage the commercial excellence capabilities in 2026, again, to drive that profitable growth. Moving on then to innovation. We have prioritized the programs that will have the greatest impact and relevance for customers and patients. I think that's very important. And then, we do hear clinics and customers calling out for help with automation. So we will further develop and we continue to invest in our IVF platform. This will ultimately help clinics to automate, to scale and to drive efficiency. And actually, if you look at the integration that we now have between EmbryoScope and our witnessing solution, you can see the foray that we are making in that area. In relation to operational excellence, we have invested in IT and digital capabilities. We need to make further investments there to improve the customer journey. This has really also helped us in North America last year and then some of the key focus markets in APAC and Europe, and it also helps to increase our efficiency. And another focus area in relation to operational excellence heading into 2026 is, we want to drive improvements in our internal processes and workflows to optimize our cost base. And then, as you know, the Vitrolife Group doesn't like to issue guidance, but we just wanted to give an opinion on the macroeconomic conditions as we turn the corner and are now into 2026. We do expect market conditions to return to more normal levels this year, thereby providing greater opportunities for us to drive profitable growth. So this will be the focus for the company in 2026. And with that, I think we can now move into Q&A. Thank you very much for your attention. Operator: [Operator Instructions] The next question comes from Jakob Lembke from SEB. Jakob Lembke: My first question is on the gross margin. You mentioned regional mix here during the call. I just want to clarify that is this mainly related to the sort of different business mix you have in the regions? Or are there anything else behind that in the regional mix? And then, also if you could sort of give an indication of sort of a 58%, 59% gross margin is a new normal we should expect going forward? Par Ihrskog: Yes. On the gross margin, as we explained, it's a big impact from currency, but also partly it's regional mix. It's less impact on -- it's a negative impact, but it's less impact compared to the currency impact, and it's very much driven by the growth in U.S. Yes. And what was the second part of your question? Jakob Lembke: No, given the moving parts, I guess, a range between sort of 58% and 59% on the gross margin is something we should expect going forward? Bronwyn Brophy: Yes, I can take that one. And maybe just to add one point to Par's point. Just on the gross margin, Jacob, because I know you know us very well, so there is a regional mix effect. Par is spot on there with the U.S. growth. I guess, everybody knows that one. There is also a mix effect within Consumables in APAC. So you can see that there. In terms of what you can expect going forward, I mean, Q4 last year wasn't normal. It was abnormally good. I think we will return to more normal levels, more in the sort of 59% range. We're not expecting the mix effect to be this extreme as we move through 2026. We're also working on initiatives to improve our profitability in North America. As you know, North America has a big component of Genetic Services. But obviously, the more we can increase Technologies' penetration, EmbryoScope and share gains on Consumables side, that helps. So yes, I guess, this quarter, we're sort of comparing 2 extremes, if you like, but we expect to return to more normal gross margin levels in 2026. Does that help to answer your question without reading too much? Is that okay, Jakob? Jakob Lembke: Yes, that's very clear. Then my follow-up question is just on trying to understand the admin costs here in Q4 because, I mean, you had sort of surprise high admin costs in Q4 last year, and now, they're also looking quite high when we disregard the one-offs as well? And yes, sort of just what is really behind that? And also, what do you expect for costs related to the legal process in the U.S. for 2026? Par Ihrskog: Yes. On the admin cost, in there, we have IT and then we have other support functions like finance and HR and legal. And IT spend, as we have communicated also previous quarters, have increased somewhat to -- as we invest in our IT capabilities. That increase in IT that we've seen in the last couple of quarters, in Q4, it has been partly offset by reduced admin costs in other areas such as finance, legal and HR. Yes, so this level you see right now is the underlying base. We have also communicated in December a restructuring program where some -- where we are attacking or looking at reducing admin cost and selling costs in 2026. Jakob Lembke: Okay. And if you could comment on expectations on legal costs maybe for '26 versus 2025. Par Ihrskog: We have not made any reservation for legal costs related to the transaction in U.S., and we don't plan to either. We don't see the need for that. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A little bit sort of -- [ if we can ] dig a little bit deeper into this IT investment you're doing. If you can provide us with some more specific on what it actually is? How big are these investments? And for how long do you expect to invest into essentially the back end of your business? Bronwyn Brophy: I can take this one, Par. Yes. So I guess, IT investment is going into 2 key areas, Ulrik. The first part is on the customer-facing, customer journey, digitalizing how we interact with clinics, but also with patients. And this is a key enabler of driving growth, particularly in North America, but also increasingly in Western Europe. So I would say that's category one. We're also making investments in IT that will allow us in time, and it will take time, to improve our efficiencies. So, that can be efficiency in lab operations, things like [indiscernible]. Obviously, when you're running a services business, you want to have -- you don't have to have the best of every system, but you want to be able to drive efficiency and also scale. So apart from the customer journey, the other investments are going into, I guess, what I would call backbone investments. Now, again, we have to be pragmatic here. They need to be linked to driving growth. And we're not expecting to be best-in-class in everything related to IT, but we do believe there is a need to make investments in order to support our growth ambitions. Does that answer your question, Ulrik? Ulrik Trattner: Sure. Yes. And just to clarify, so it sounds like there's not IT investment into products. It's more customer -- like more on sales and marketing kind of IT infrastructure rather than IT investment into products. Bronwyn Brophy: Yes. I think that's a fair comment. Yes. I mean, we are -- as part of our R&D program, as you know, we've openly stated that we are aiming to build an end-to-end IVF platform. So there are some digital investments there, but the vast majority are going on the customer sales and marketing drive growth side, either drive growth or help us to improve efficiency. So yes, you're correct with that assumption. Ulrik Trattner: Great. And just a follow-up question on the general OpEx math and quantification of FX effect on EBITDA. If you were able to give us some hint on the quantification of the negative FX effects here for Q4? We know the top line effect here, but how big was the effect on EBITDA? Par Ihrskog: Yes. All in all, the FX effect on EBITDA margin is approximately 2.5 percent points affecting the EBITDA margin negatively. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: First of all, a clarification there or maybe confirmation. Did you say that the adjusted contribution margin for the EMEA region was 36.4% in the quarter? Bronwyn Brophy: [indiscernible] adjusted margin? Can you repeat the question, Sten? Can you repeat the question, Sten? You just went [indiscernible] for a moment. Sten Gustafsson: Sure. I think you mentioned the adjusted contribution margin in the EMEA region. Par Ihrskog: Yes, it is -- the adjusted one is 36.4%. Sten Gustafsson: Okay. Great. So my question is, what exactly are you restructuring in the EMEA region? And how should we think about sort of -- will there be savings coming out of that? Or what exactly have you done in the region? Par Ihrskog: Yes. I mean, this restructuring is connected to the announcement we made in December related to the Genetic Services business. We are stopping providing 2 product lines, GPDx and NACE, and we are also exiting some markets. And so -- and of course, that affects the whole company but has a larger effect on this region compared to the other regions. So the restructuring cost is related to people, to a large extent, that are affected by this restructuring action that we are taking. Bronwyn Brophy: Yes. Maybe to explain in a slightly different way, Sten, we announced the restructuring, as Par mentioned, in December. The region that's most impacted by that restructuring is EMEA. The reason why EMEA is the most impacted region is because most of the NACE and GPDx revenue was in that region. And most of the markets that we will be exiting is within the EMEA region. So that's, yes, maybe a slightly different way to explain it. Does that answer your question? Sten Gustafsson: Yes, absolutely. That clarifies a lot. And I do remember you announced it, and we were discussing different potential cost savings coming out of it. So it all makes sense. Operator: The next question comes from Ludwig Germunder from Handelsbanken. Ludwig Germunder: So I'll stick to the one question, and it's about the organic growth that you -- I think 3% reported, but 6% excluding discontinued businesses. Would you be willing to help us understand the phase-out of the products? For how long will the tests continue to be a part of your sales? And when do you expect the phased-out products to be fully phased out? Par Ihrskog: Yes. This discontinued business doesn't relate to the exiting of these 2 product lines. This relates to the exiting of a market announced also last year -- or in December 2023, we announced that. The exiting of these product lines that we announced last December are taking place right now. We expect it to be finalized in Q1. Bronwyn Brophy: Yes. Most of it should be -- yes, sorry, just one correction. So we exited that market. I think most people know which market it is. So we exited that market in December 2024. So we have the full 2025 having to explain organic growth in local currencies, excluding discontinued business, and it was because of that exit of that sizable market in Q4 2024. With the restructuring that we announced in December, our goal is to have essentially to be fully out of those tests and most of those markets by the end of the first half. We have set ourselves an accelerated target on that. So we -- in certain instances, we'd like to be done and dusted by the end of Q1. But our commitment in that announcement is by midyear. Does that help to answer your question? And just to make sure we're not confusing a previous market [indiscernible]. And there are a lot of puts and takes here. So I do apologize, yes. Ludwig Germunder: Yes. And just a follow-up on that. Do you expect -- the organic growth, which was 6%, now do you expect that growth to continue to be around that growth rate over the next year? Or how should we think about the future? Bronwyn Brophy: Yes. I don't like to guide, and I don't like to guess. The only thing I can say to you is that we are expecting market conditions to return to more normal levels. I mean, last year, it wasn't normal in any shape or form. We had a big APAC effect in Q1. We had a Trump U.S. administration effect in Q2 and Q3. So we do expect more normal market conditions this year. I guess, what does more normal mean? There are big regional variances now, as you can see. But what we've decided to do as a company is double down where the growth is and obviously protect what we have where the growth is a little bit slower. So I don't want to guide. All I will say is that we -- and I hear the same from some of our competitor transcripts. I think as an industry, we're expecting more normal market conditions this year. The key thing for us is not just driving growth, it's driving profitable growth. So big focus this year on ensuring that we get the right portfolio balance in the regions. I think North America is doing fantastically well, and we're really happy that the investments there are paying off, but we need to continue to drive EmbryoScope penetration. We need to continue to take share gains in Consumables. So I don't want to guide. I'm not going to fall into the trap, but hopefully, I've given you more color around how we see things in 2026 and more of a return to normality. But again, it's got to be about profitable growth. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I wanted to start off a bit on the same theme here on the IVF market environment. And I think in Q3, you highlighted that you saw a pickup in cycles towards the end of the quarter. So I just wonder how this has tracked throughout the quarter? And yes, now, like, into January here, has it continued to improve basically? Bronwyn Brophy: Yes, good question. So, as I mentioned before, we didn't sort of see an explosion of pent-up demand in North America following the announcement from the White House in October. But we did see a steady pickup in the cycle growth in the final weeks of the quarter, and that seems to be continuing into Q1. It's very early to say. I haven't even seen our full January numbers yet, but I'm going to -- I was at JPMorgan. I spent a lot of time visiting customers as well in the U.S., and the sentiment seems to be better. What I would say is that the announcements that were made in relation to very significant price reductions, everybody now realizes that that's not the case. But there's clarity now in the U.S. in terms of what the cost of a cycle is going to be. There are other things like California becoming a mandated state. That's something that was delayed for quite a while. So I mean, it's one stage within the United States, but it's a big one. So I think there's a little more optimism in California, in particular, in terms of cycle rates slowly but surely picking up as we advance through 2026. And then, I don't want to make it all about North America, how do we feel about the rest of the world. Western Europe is looking good and steady, and cycle growth seems to be, again, approaching more normal levels. The Middle East, it's had a big -- that's been a big impact to the geopolitical situation there. And then, as we view APAC, I've commented many times, we believe that there are endemic issues in China in relation to improving the birth rate and the cycle growth, but the government is also increasingly stepping in and approving funding. There are opportunities in other parts of Asia, which I'm not going to go into for competitive reasons. So relatively normal growth rates returning, we expect, but there will be regional differences. And I think the key thing for us, back to the point that I made on our commercial excellence capabilities, we're really getting laser-focused in terms of where we're doubling down and where we're not going to double down, so where do we see the greatest opportunities to drive profitable growth. Does that answer your question, Ludvig? I don't want to be going around the world giving my sort of prognosis, but that's how we see things at a corporate level. Ludvig Lundgren: Yes. Very clear. And then, I just had a follow-up on the gross margin in APAC here. So you highlighted that there was some negative product mix from campaigns, I believe. So I just wonder if it's possible to quantify this in some way. And also, like, will this affect also Q1, Q2 looking into '26? Bronwyn Brophy: I mean, I can take the second part. No, we expect the margins in APAC to normalize in 2026. I don't know, in terms of quantifying the mix, we probably can't. Par Ihrskog: We don't disclose the detail, the effect, but it had an effect, not only in APAC, but also on the total gross margin for the group. But we don't disclose the number. Bronwyn Brophy: What I will say is, it was a strategic decision to go after a growth opportunity. So it was a targeted campaign. I mean, 10% growth in APAC, I don't think anybody expected that. It surpassed our expectations, but I think it surpassed our expectations more on the Technologies side. On the Consumables, we very much decided that we had an opportunity to take share in disposable devices, and we went for it. Yes. Ludvig Lundgren: Okay. And just very quick on that, so like when you have gained some share now in Q4 in APAC, like, will that also improve growth ahead in APAC? Is that a reasonable assumption? Bronwyn Brophy: I mean, that's what we're trying to do. APAC has been pretty stagnant for a lot of the reasons that I've mentioned. The market growth in APAC is pretty stagnant, but we believe we had an opportunity to take share from a couple of competitors in relation to a specific part of the portfolio. So yes, we went for it. Will that continue in 2026? I mean, taking that magnitude of share, that will be tough, but we do have the share gain momentum. So it should definitely improve our disposable device performance in APAC in 2026. Does that make sense without me giving away too much information? Hopefully, I'm helping to answer your question. Ludvig Lundgren: Yes, very clear. Operator: The next question comes from Johan Unnerus from SB1 Markets. Unknown Analyst: Congratulations to the progress made in the U.S. market, especially as you're investing in commercial reach there. Well, some question relating to gross margins. First, a small one. EMEA, I think you referred to some in-sourcing. Does that has an impact on margins in that region? And I have a second question. Bronwyn Brophy: Johan, thank you for your compliment on North America. We're going to take it graciously because we are very pleased with our North America -- and I think we should bear in mind, it's only 2 years ago that we decided that we were going to go after growth in North America. And to be seeing the returns after only having made those investments not so long ago is pleasing to us. Now, we're not losing the run of ourselves. We have a long way to go, but we are pleased with the progress there. So let's touch EMEA. So what has happened in the EMEA region actually is probably best explained in my CEO comments, and that is with the downturn in activity due to the geopolitical situation in the Middle East. What we have seen is that clinics have in-sourced some of their genetic services business. And we have seen historically, when clinics in-source -- we saw this in North America 3 years ago -- typically, the business -- you might get drip feeds of it coming back, but it's rare that you get all of that Genetic Services business back. So clinics in an endeavor to boost their revenues have in-sourced. They've taken the opportunity to in-source. The impact on margins, that's a good question. It's also a tough question. It's not necessarily a negative thing because the margins in Genetic Services are lower versus the rest of the portfolio. So they're lower than Technologies and Consumables. So it doesn't necessarily imply a negative margin mix in the region. What we do need to do in this region is, we have to make up for that lost business, right? So we got to drive share gains across the rest of the portfolio, and we have to drive share gains in the other markets in the region. I think we're particularly happy with the Consumables performance in EMEA. So you can see on Page 22 of the report, it's 11% organic growth in local currencies. So that's good. Technologies, a very tough quarter. But if we can move the needle on Technologies there, the run rate on Technologies is doing very well, that will also help the EMEA margin mix. So it's a very long explanation to your question, Johan, but there are quite a few moving parts on that one. But hopefully, I'm giving you context there. Yes. Unknown Analyst: Excellent. And then, perhaps a more important question on the U.S. It's often easier to improve gross margin when you have better traction as you seem to have. But the process of improving gross margins, changing the product mix and perhaps working on efficiencies as well, as you alluded to, could you provide any timelines on those dynamics? Bronwyn Brophy: Yes. I mean, the thing is -- Par, you can chip in here as well. But the investments in sales and marketing, they're done now. I mean, we don't envisage making any further investments in sales and marketing. I would say they're fully loaded. So now, we got -- we have to drive productivity, right? So the revenue per commercial investment, the revenue per sales rep, that needs to go up. We made those investments. It's taken time. But we would expect productivity improvements in terms of revenue generation coming out of those commercial investments. There is a mix component, and we are really focusing on EmbryoScope and witnessing. That's evidenced in the 40% growth in the quarter. We're going to keep doubling down there. I think what we like is that clinic chains are increasingly seeing the workflow benefits from EmbryoScope. It's a big capital outlay, but it also drives efficiency. So that's good. And then, Johan, we have to look at pricing. I mean, we're still operating in an inflationary environment. We can't carry those costs so inevitably. And the team did a very good job actually in North America last year on pricing. We managed to mitigate a significant amount of the tariff impact. But yes, I mean, inflation is still there, and we will have to look at pricing opportunities actually in all of the regions. Par, [indiscernible]. Par Ihrskog: Maybe I can just add, we have made our investments in the U.S. We don't intend to increase the level. We will -- we have done the work now. So now, it's -- we have this fixed cost there, and we aim for further growth in North America. And if that happens, of course, the contributor margin will gradually improve if we continue to see growth in North America or Americas and keep the OpEx level constant, which is our plan. Unknown Analyst: And any sense of the effect on gross margins? Should we expect improved gross margin in the Americas, especially in the U.S. market in '26? Or could you provide some flavor on that? Bronwyn Brophy: I mean, with everything fully loaded, our aim and our goal is absolutely to improve the gross margin in North America. I'm sticking my neck out here. You're going to track me on that metric, but that's what we have to try to do, right? I mean, it's very clear in the numbers in this quarter. We've had a fantastic performance on the top line. North America is doing great and APAC did wonderfully well. But we have to work on the margin piece because we don't want Americas to become dilutive overall. So absolutely, the strategic name of the game and where we're doubling down is on the areas where we can improve the margin from what is becoming our fastest-growing region. And it's the largest IVF market in the world. So we want to win there, but we want to win there driving margin improvement. Does that answer your question? Unknown Analyst: Yes, sort of. Bronwyn Brophy: If you want to ask it a slightly different way, and I can see if I can do better without -- yes. What are you missing? Unknown Analyst: No, no, no. I'm pleased. I mean, I understand the complexity. Of course, it's difficult to provide precise feedback for '26. But yes, I can see the work in progress. Bronwyn Brophy: Yes, exactly. Operator: The next question comes from Filip Einarsson from Redeye. Filip Einarsson: So I wanted to start on something you mentioned both in the call and also in the report, namely the market normalization in 2026. Maybe if you could expand a little bit on this statement and to what extent you expect this to be the graduality of it? Bronwyn Brophy: Yes. Great question. So historically, cycle growth has been in the mid-single-digit range. That was not the case in 2025. Based on our best intelligence, and we are very close to the market, but also you can hear it in the competitive commentary and also on the clinic side, the cycle growth was significantly impacted in 2025 for a multitude of reasons, which I'm not going to bore everybody with by repeating it. I absolutely hate going back to this zodiac thing, but we don't have snakes, dragons this year. Hopefully, we don't have presidential statements on IVF. I mean, they're done. They're past us. So, that created a lot of noise. The situation in the Middle East seems to be holding. Western Europe is looking pretty stable. Cycles are definitely returning to more normal levels there. So we're not getting very excited in terms of an explosion in IVF cycles. That's absolutely not happening. But based on Q4, early indicators, and again, we are -- we've really become laser-focused on steering Vitrolife in a metric-driven way, particularly on the commercial side. And the leading indicators there do point to more normal cycle levels. How -- the second part of your question then is, how quickly do we get there? How long is a piece of strain? That's a little bit harder to predict. I guess -- well, I don't guess. What we envisage in our company is a slow, steady return to more normal levels. But will we get there in Q1? Maybe. Should we be there in Q2? I mean, unless we have some big disturbances, we would be expecting to get back to those more normal levels in Q2. Does that answer your question? Filip Einarsson: Yes. Great. And then, I have one more follow-up. So obviously, currency has been a big topic in 2025 and in Q4. Can you maybe elaborate a little bit on if there's any measures taken to limit the impact in 2026, given eventual ongoing uncertainty on the macroeconomic level? Par Ihrskog: Yes. Currency has been a huge impact for us and for many Swedish companies having exports. Just to give you a flavor of it, the U.S. dollar-SEK rate, you probably know this, but the SEK strengthened almost 17% last year from 1st of January to end of December. And the euro was more like 7%, 8%. And the Danish krona, which is also an important currency for us, was also some 8%. Yen was 14%. So we had a huge impact on currency. So what do we do to -- I mean, we don't really know what happens. We don't work with hedging in our company. What we are trying to do better is to increase our natural hedge by balancing purchases in certain currencies matching the revenue stream. This takes time. So I don't expect us to fix that in a short while, but this is something we need to increase our focus on going forward to improve our natural hedge. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: Going back to the very strong performance in Asia or APAC region, 10%, obviously, very impressive, and you talk about tough in China. Did you have positive sales growth in China despite the soft market or... Bronwyn Brophy: Yes. We don't give country breakdown, but maybe the best and fairest way that I can answer that question is that we had growth in almost all countries in the APAC region in Q4. Even -- so I mean, on the Technologies piece as well, Sten, it was a tough year for capital purchases. But we saw a release of budgets, and it was literally in the final couple of weeks of the year. Lucky, we had enough EmbryoScopes in stock to be able to service the demand because it was quite an uptick in the last -- basically in the last 3 weeks. But it was -- yes, I'm not going to answer country specific. What I will tell you is, most of the countries in APAC had a positive performance in Q4. Sten Gustafsson: Sounds good. And any countries doing extremely well, unusually well? Or was it more across the board? Bronwyn Brophy: No, I don't think there was any sort of extreme -- I don't think there was any sort of extreme. So we did have a targeted campaign on disposable devices. We saw an opportunity to take share from competitors. And I mean, Sten, you know us very well. Media, we don't -- we've already taken a lot of share on media in APAC. So share gain opportunities are tougher to come by, much tougher to come by. So we've been looking at APAC as part of our strategic review. And we said, where do we have opportunities to take share? We can't continue to sort of grow with the market. And we identified disposable devices as a double down. So we went for that across the region. And then, the other big sort of needle mover was, we still believe there were opportunities on the EmbryoScope side, even though clinics were sort of managing the capital piece. And when they were released, we were able to capitalize on that. We don't have a sort of Genetics component here, but -- so yes. No, there was no explosion in any one particular country. That didn't happen. Sten Gustafsson: Sounds good because, I mean, 10% is an impressive number given the softness in China. So, well done. Bronwyn Brophy: Yes, absolutely. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: Yes. I just had a short follow-up just on Technologies in North America, if you can elaborate on sort of what countries, what sort of customers and so on? Bronwyn Brophy: Yes. That's my favorite question, Jakob, because we had 40% growth in Americas. It was across the region. I think what pleases us most here is that we are starting to crack into the chains. And we came very close -- very, very close to having one of the largest cross-border chains in North America going full EmbryoScope. I think we were 2 short -- 2 EmbryoScopes short of a particular chain being fully converted to EmbryoScope. And that's been tough for us, right, because historically, in North America, we've been able to sell one-off EmbryoScopes, but we weren't really cracking the chains. And you can understand why. I mean, they're big -- it's a big investment. But that started to happen. It started to happen last year. We've adapted our go-to-market model. We now focus on key account manager style. So we have people specifically targeting and talking to the C-suites of the large clinic chains, and it's paying off. So what drove that big 40% increase is, we're starting to move the needle on EmbryoScope in the chains. It's been a heavy lift, but we're getting there now. And then, I think very importantly, as I always say to the team, don't just sell EmbryoScopes. You have to make sure that they get used. So the other metric that we're tracking, back to our commercial excellence dashboards, is we're checking the revenue generated per EmbryoScope. So we don't just want clinic chains investing in EmbryoScope. We want them investing and using them to drive efficiency. And we're starting to see the run rate in Technologies. That component is picking up very nicely. But it's all markets in Americas. But I should give a shout out to North America because I think the team did a really great job there. Does that answer your question, Jakob? Jakob Lembke: Yes. That's great. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: On Genetics and EMEA and the in-sourcing as you noted, you don't expect these sort of share losses to be regained, given that they've gone internal. But is it possible to sort of quantify the risk of continuous in-sourcing as we did see in the Americas 2, 3 years ago? Or is this more temporary related to the macro? Or is this a continuous trend? Bronwyn Brophy: Yes. It's a great question, Ulrik. The ones who have in-sourced are the larger ones. So I never like to be complacent, okay? And we don't take any customer or any business for granted, and we have to earn our trust every single day. But the customers that have in-sourced in the second half of 2025 are the bigger ones. So I guess -- and I want to be really clear. I wouldn't call it share losses. It's definite in-sourcing. We can see it. We know the clinics. We have the names. We know the players and then people working there. So I think the biggest impact is likely behind us, Ulrik. And again, we've seen this with in-sourcing in North America. It doesn't always -- well, first of all, it's not as easy as people think. In any services business, scale is important. Economies of scale are -- they're very important. And I think a lot of clinics that did in-source, particularly in North America, didn't get the type of gains that they expected. Let's see if the Middle East are able to do it more efficiently or better. But it hasn't always paid off, the in-sourcing. I thought you were going to ask me [indiscernible] question, Ulrik. I was waiting for it. Yes. I think we're finished now. And I'd like to thank you all for your time and attention this morning, for your great questions. We very much appreciate it. So from Stockholm, from myself and Par and from Amelie Wilson in Investor Relations, thank you all very much, and have a wonderful day.
Operator: Good morning. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to Atkore's First Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to your host, Matt Kline, Vice President of Treasury and Investor Relations. You may begin. Matthew Kline: Thank you, and good morning, everyone. I'm joined today by Bill Waltz, President and CEO; and John Deitzer, Chief Financial Officer; and John Pregenzer, Chief Operating Officer and President of Electrical. We will take questions at the conclusion of the call. I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or financial performance of the company. Such statements involve risks and uncertainties such that actual results may differ materially. Please refer to our SEC filings and today's press release, which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. In addition, any reference in our discussion today to EBITDA means adjusted EBITDA in any reference to EPS or adjusted EPS means adjusted diluted earnings per share. Adjusted EBITDA and adjusted diluted earnings per share are non-GAAP measures. Reconciliations of non-GAAP measures and a presentation of the most comparable GAAP measures are available in the appendix to today's presentation. With that, I'll turn it over to Bill. William Waltz: Thanks, Matt, and good morning, everyone. Starting on Slide 3, we are pleased with our first quarter performance. We achieved net sales of $656 million and adjusted EBITDA of $69 million, both were above our outlook range. Our $0.83 of adjusted EPS was also above the top end of our outlook range. Organic volume increased 2% in the first quarter driven by strong performance in our Electrical segment. Our teams have been focused on improving manufacturing efficiency and controlling costs which has helped generate over $30 million of productivity savings year-over-year. We also continue to advance our strategic alternative process to evaluate opportunities to strengthen our business and maximize value for our shareholders. During the quarter, we completed the divestiture of our Tectron Mechanical Tube product line and manufacturing facility. The sale further enhances our focus on the electrical infrastructure portfolio and is aligned with our broader 80/20 initiative aimed at directing our manufacturing capacity to electrical end markets. And in the second fiscal quarter, we expect to complete the previously announced exit of three manufacturing facilities. We will continue to provide updates on our ongoing strategic alternative process as appropriate as we move forward. I also see some highlights release for fiscal year 2025 sustainability report, which we recently published. This report details our ongoing initiatives and accomplishments over 2025 goals. Looking ahead to the remainder of 2026, we are on track to deliver our FY '26 outlook that we presented in November. We expect for net sales to be in a range of $2.95 billion and $3.05 billion. Our net sales outlook adjust for approximately $40 million of annual sales related to our Tectron mechanical tube product line resulting from the divestiture. Our adjusted EBITDA between $340 million and $360 million remains unchanged. Adjusted EPS is expected to be in the range of $5.05 and $5.55. We remain focused on our core electrical infrastructure portfolio, which is supported by broader megatrends and where we see the most opportunity for growth. Our team is focused on continuous improvement initiatives in our plants and providing unmatched service and quality for our customers. By doing so, we are confident in our ability to drive sales volume and profitability. I'd like to take a moment to thank all of our employees for everything they do to support our key stakeholders. With that, I'll now turn the call over to John Deitzer to talk through the results from the quarter and provide more details on our outlook. John Deitzer: Thank you, Bill, and good morning, everyone. Moving to our consolidated results on Slide 4. In the first quarter, we achieved net sales of $656 million and adjusted EBITDA of $69 million. Adjusted EPS was $0.83 per share compared to $1.63 in the prior year. Our tax rate in the first quarter was 3%, a decrease from 21% in the prior year. The first quarter tax rate reflects a onetime discrete benefit associated with tax planning related to a foreign operation. Turning to Slide 5 and our consolidated bridges. Organic volumes were up 2% compared to the first quarter of fiscal '25. Our average selling prices declined 3% during the quarter, most of which came from our PVC conduit products, which were partially offset by increased average selling prices for our steel conduit products. Moving to Slide 6. Our 2% volume increase during the first quarter was driven primarily from our metal electrical conduit and our plastic pipe conduit product categories. Both product categories benefited from healthy nonresidential end market demand. Our metal framing, cable management and construction service businesses saw lower volume compared to the prior year, primarily due to the timing of certain project-based work. We expect growth from these businesses throughout the duration of the year. Our mechanical tube business, which includes our solar-related products is also expected to grow throughout the year due to the expected timing of large utility-scale solar projects. As we previously communicated, we are shifting certain available capacity from our existing nonsolar mechanical products to our electrical conduit products as part of our 80/20 initiative. We would expect that to continue throughout the year to help support electrical end market demand. Overall, we continue to expect mid-single-digit volume growth for the full year. Turning to Slide 7. Net sales increased year-over-year in our Electrical segment, driven by higher volume growth, offset by lower selling prices. Adjusted EBITDA margins compressed in our Electrical segment due to higher material costs and lower average selling prices. Net sales in our S&I segment were lower compared to the previous year, primarily due to lower volume. Adjusted EBITDA and adjusted EBITDA margins both increased year-over-year due to increased productivity. As Bill mentioned earlier, Atkore recognized over $30 million of year-over-year productivity, most of which was generated from our S&I segment. Turning to Slide 8. We ended the quarter in a favorable cash position despite a year-over-year decline in our operating cash flow. Keep in mind that our Q4 FY '25 operating cash flow was our strongest quarter, generating approximately $200 million. Our first quarter in FY '26 ended before we typically receive large collections from our accounts receivables. Those cash collections fell into the first part of our fiscal Q2. Our results included approximately $18 million in cash proceeds recognized from our Tectron tube divestiture. These proceeds represent a portion of the divestiture proceeds. We anticipate receiving an additional $7 million in the second quarter from the sale of our real estate where the products were manufactured. Our balance sheet remains in a strong position with no debt maturity repayments required until 2030. Moving to Slide 9. We continue to expect volume growth to be mid-single digits for the full year. Our volume growth expectations are a combination of core construction growth as well as contributions from certain growth initiatives such as solar and global construction services. The recent Dodge Momentum Index forecast continue to support growth in the core nonresidential end markets. As a reminder, we are no longer providing quarterly guidance. Rather, we will continue to update our full year expectations. In November, we communicated that our full year expectations are weighted more toward the back half of the year. We still believe this to be true. With that said, we expect our second quarter to be similar to but slightly better than our first quarter results from an adjusted EBITDA perspective. For the full year, we expect net sales to be in the range of $2.95 billion to $3.05 billion and adjusted EBITDA in the range of $340 million to $360 million and adjusted EPS in the range of $5.05 and $5.55. With that, I'll turn it to John Pregenzer to give an update on our end markets and our long-term strategic focus. John Pregenzer: Thanks, John. Turning to Slide 10. Last year, we announced our intention to consolidate 3 manufacturing facilities. This decision helps us to prioritize our portfolio for domestically manufactured electrical infrastructure products. These actions are part of our broader 80/20 initiative to serve our customers efficiently while also creating a more streamlined cost structure. We are on track to exit these facilities in our second fiscal quarter. As John mentioned, our expected volume growth in fiscal '26 is a combination of base market growth and contributions from certain key strategic investments. The Dodge Momentum Index continues to suggest favorable forward-looking indicators of growth. A recent Moody's ratings analysis suggests that $3 trillion of investment will flow into the data center market in the next 5 years to support the need for servers, computing equipment and new power capacity. Our portfolio of metal framing, cable management and the entirety of our conduit product line are well positioned to benefit from this growth. As the electrical industry plans to support these growth figures, available labor continues to be top of mind. The associated builders and contractors estimates that approximately 350,000 additional workers are needed to meet the demand for construction services in 2026, and that number grows to 450,000 in 2027. Atkore has a history of prioritizing labor-saving opportunities for installers through new product development. Our PVC junction boxes, 20-foot conduit and patented MC Glide armored cable are just a few examples of how Atkore has made construction installation more efficient. The electrical industry is a great place to be, and we are working to meet the market demand by executing our Atkore business system centered on strategy, people and process. With that, we'll turn it over to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Can you give us a little more color on the core markets that you're seeing? I know you just talked about it, but it looks like core PVC and metal conduit markets in terms of volume accelerated a bit in Q1 versus what you saw in FY '25. So maybe you can talk about that. And then conversely, I know you've talked about construction services ramping up at some point. I mean there are a lot of mega projects out there, particularly in data centers, as you kind of cited. So when can we see that start to move? William Waltz: Yes. Andy, I'll start here and then turn it over to you to Johns. Yes, you are correct -- and again, John Deitzer, something if we want to get the precise numbers. But PVC, we're seeing good growth with, steel conduit we're seeing good growth with so up in good markets overall. And then regarding data centers, it truly is just the timing of year-over-year in those projects. We are seeing, again, with our -- giving you precise numbers, we are seeing strong backlogs and commitments for orders and expansion opportunities. So we're bullish in this fiscal year and then even more so as we get into fiscal year '27 and so forth. Andrew Kaplowitz: And Bill begs the -- sorry, did you want to say something else? John Pregenzer: No, Andy, just a few more information on that is strong Dodge Momentum Index in the quarter. We could really see obviously being driven by data centers. Warehousing is strong. and education, health care, some other end markets, we're seeing some growth. Specifically to PVC, we have seen some increases from the border wall. So it's been one of the areas that's been driving some of the stronger PVC conduit demand. Andrew Kaplowitz: That's very helpful color. And it begs the question. Obviously, it's early in the year, but you didn't raise your EBITDA and EPS despite pretty good Q1, especially given the good productivity. So is there anything incrementally you're concerned about? Or is it just really early in the year? John Deitzer: Andy, I'll jump in here. I mean. Yes, go ahead, Bill. William Waltz: Go ahead John. John Deitzer: Yes. Andy, I think it's just -- we're -- first quarter, we're pleased with the results here. I think as we look forward, we still have a lot to do. So I can walk through some of the other dynamics here as we're seeing. But just I think the good first quarter and want to maintain where we're at. Bill, anything if you wanted to add? William Waltz: I was going to do very much the same. It's like to sit here -- let's hit our numbers, grow. We had great productivity that we called out. So I mean, things are moving along at this stage. But before we get too far out ahead of ourselves, Andy, let's get another quarter before we even start talking about the second half of the year because there still is a reasonable pickup in Q3 and Q4. So it just seems like the wise thing to do at this stage. Andrew Kaplowitz: Agreed. And then just one more quick one. An update, I think you talked about the competitive environment a little bit. You mentioned PVC kind of pricing is still down, but steel conduit up. I think you said import competition in PVC kind of remains. But sort of what are you seeing in the 2 major markets there, particularly from the foreign competition? William Waltz: Yes. So specifically for foreign competition, and I'll start with PVC and go to steal. PVC continues -- the imports continue to come in. So maybe not surprised because, again, there's very few tariffs. It's the 10%. And as we walked through, it all depends. This is not new news on the -- what somebody claims is the value. So I don't think anything has dramatically changed there, but it's not like it's necessarily improved. But it's still probably -- again, we don't have precise numbers on the market size, but it's still probably less than 10% of the whole market. So -- but it's growing like our PVC business is also growing. Steel, I think there is moving more in our favor where, again, we had strong growth. And give or take, for the last 3 months, I want to say from a year-over-year perspective, it was down low to mid-single digits for imports. So while they're stepping back slightly, we're continuing to grow. And then I think in the prepared remarks, but if not, both our quarter-over-quarter -- excuse me, sequential quarters are up in price and also sequentially go up in margins and so forth. So moving definitely in the right direction with metal conduit. Operator: Your next question comes from David Tarantino with KeyBanc Capital Markets. David Tarantino: I appreciate there's an update specifically on the strategic review, but maybe could you give us some more color and an update on the cost saving effort, what you expect productivity to contribute following the nice start to this quarter and particularly around the exit of those 3 facilities that it's expected to be completed here soon. William Waltz: Yes. So I'll walk through it and again color from the team here. But -- so for strategic alternatives, we're still being worked. So -- but again, as we've always said, the Board doesn't have a time frame. So I don't want to sit here and give any more handicap on things or time frame or so forth. But we're continuing to progress through different things. Obviously, we mentioned small things like the divestiture of Tectron. We're still moving forward with HDP probably at a faster pace than you imagine in the overall examination if we do consider Atkore as a whole corporation and so forth. So from that standpoint, moving forward, a phenomenal quarter with productivity. I expect this to be our best year probably for productivity. On the same hand, realistically, we're not going to have $30 million every quarter. But we started a good January, and it should be -- last year was a strong productivity, and this should be a good year of productivity. And then finally, to the 3 plant closures, I'll let John Pregenzer or John Deitzer add a little bit more color. But I think to what John Deitzer has mentioned in the past, it's $10 million, $12 million, and we think potentially more as we get things running. And I would say they're running the closures at a smooth and ready to on schedule complement to John Pregenzer or if he wants to add anything to that? John Pregenzer: No, Dave, I think everything is going as planned, seeing favorable transfer of the manufacturing equipment and start-up, hiring of the people in the plants that are getting the additional capacity is going well. The training is going well. So we don't see any issues with executing all 3 of those actually on plan and on schedule. John Deitzer: Great. And then just to add, David, just a little bit of color on the productivity dynamic throughout the year. We are very pleased, as Bill mentioned, around the first quarter's performance. And as John mentioned, we're really pleased with where we're going. We have a little bit of dynamics quarter-to-quarter this year, just meaning the second quarter, in particular, last year in Q2 was a pretty strong -- was the high watermark for us from an EBITDA perspective. And so the comp will have a little bit of a dynamic this year, Q2 year-over-year. That being said, though, we're really pleased with the overall plan for annual productivity this year and then think some of these initiatives will continue to benefit us as we move into '27. But in the second quarter, we're not likely to see the strength here that we saw in the first quarter largely due to the year-over-year comparison item. Hopefully, that helps in frame it a little bit the dynamics. David Tarantino: Yes. That's helpful. And then nice to see the price declines on the top line narrow, but maybe to put a finer point on price cost, could you give us an update on what you have here embedded in the guide? It looks like much of the year-over-year headwind that was previously expected has kind of already occurred. So how should we be thinking about that previous unmitigated $50 million headwind now and the offsets to it? John Deitzer: Got it, David. Yes, it's a good question. And the price versus cost headwind that we have this year is largely loaded here in the first half. You see the impact in the first quarter. We, again, think the second quarter year-over-year, we're going to have a price versus cost unfavorable. I don't want to start guiding price versus cost quarter-to-quarter, but we do anticipate the totality of the back half to be price versus cost positive here, might be very slightly, but that's potentially here as we're ramping. So it is very much loaded here in the first half. So we'll see how the dynamics play out throughout the year. But right now, to your point, very much a first half issue here that we're working through. Operator: Your next question comes from Chris Moore with CJS Securities. Christopher Moore: Yes. So terrific margins on S&I. Is that 16.2% is that sustainable moving forward? Or just kind of any thoughts there? John Deitzer: Thanks, Chris. I mean, I feel like a little bit of a broken record. I've said this a few times. We anticipate that business to be more in the, let's call it, 12% to 14% adjusted EBITDA margin level. It does have some mix dynamics when we think about the growth in solar, et cetera. that might have a little bit of margin dynamic with it. But that team has done a very nice job of performing from a productivity perspective and has driven those margins higher. So I do anticipate some of the mix dynamics probably will level out a little bit. And I don't know if we're going to be able to continue exactly at the positive productivity level we had. We did have some items that were more discrete benefits here in the first quarter that helped push that elevated a little bit. So we'll probably see margin regression in the S&I segment here as we move throughout the year. Christopher Moore: Got it. And from a cash flow perspective, you talked about Q1 timing, some of the issues there. Just maybe from a fiscal '26 perspective, can you talk a little bit further in terms of kind of overall thoughts and how we should be thinking about it? John Deitzer: Yes, it's a great question. So as we move through the year, we do anticipate cash from ops to improve. The first quarter was a bit of a headwind, as we mentioned. But you have to go back and remember how strong of a cash flow quarter we had in the fourth quarter of fiscal '25. And so we had received multiple AR payments both back in July and then in September. And the way this quarter ended on December 26, we -- several large receivables we have fell into our fiscal January, but really occurred December 28 or 30 type of dynamic. As we look forward, we expect to be modestly here price cash from ops positive in the second quarter and then continue to ramp here in the third and fourth quarter from a cash flow perspective. You have seen -- we have modestly reduced our expectation on capital expenditures here this year. We're just really ensuring we're investing in the right projects and really dialing that in as well as we move through the year. Christopher Moore: Got it. And maybe just last one for me. Obviously, backlog is not historically an important metric for you guys. But with some of the focus here on data center, et cetera, is it potentially becoming a little bit more important? And is that something that's building a little bit at this point in time? William Waltz: Yes. I think, Chris, there are a couple of thoughts there. For the core business, it's shipping 5 days, 10 days and little backlog. For the data center business itself, global construction business, the question I answered for Andy, we are seeing backlogs grow in a couple of facets. One, the amount of orders we have in and then also things if it's not an order, kind of like an LOI and so forth. So I don't know at this stage or for this year, if we want to dimensionalize that publicly, but there is the potential as it continues to grow. It is a business that I think we're all very optimistic at the pace that, that business has in front of us. Operator: Your next question comes from Deane Dray with RBC. Deane Dray: How I'd like to circle back on some of the competitive dynamics and how it impacted price in the quarter. Just when steel being up year-over-year, that's really encouraging. Is that more a reflection of stronger volume? Any competitive changes there? And for PVC down, I know there's new capacity coming on. How much of that weighed on the ongoing PVC pressure? And this all kind of frames the question of when do you think you get a normalized year-over-year price? Is that -- it's going to be kind of hard to pinpoint which quarter, but is it still your expectation that it will happen this year? William Waltz: Yes, Deane, I'll start and then for John or John if they, want to jump in there. So -- and with the multifaceted question, I think starting with steel, I think overall demands were strong. So I don't know, but I assume my competitors are also up there and also with imports going back, you did have a good market for us to grow and for us to get price and us to get margin. So market demand is strong and so forth. For imports and so forth there, I don't know -- again, I can't say specifically. I don't think it's necessarily more supply coming into the market as much as I would say, in general, us hitting our numbers and so forth there. It's probably what we perceived with price dynamics, both top line and spread and so forth. So in my mind, I'm pretty pleased that we're back -- I can't commit to the future, but we're back pegging pretty well how we think the markets are going to react. And I think to earlier comments from John Deitzer, we're still expecting spread compression within PVC. As to looking out and go, when does that stop, I may turn over to my peers, but at least for me, to try to peg one quarter with any precision is a little tougher there. Deane Dray: That's really helpful. And then just as you talk about shifting some of the manufacturing resources to your core electrical, have you been able to size what you think your capacity increase is going to be, let's say, on a percent basis in conduit? Or will it be in other non-conduit electrolyte cable? William Waltz: I think especially, Deane, think of more conduit and here's why to go -- if you think of what mechanical makes, it's our S&I, it is metal products. So therefore, Harvey, for example, one of our largest facilities, it is using the 80/20 rule effectively, which has actually, I think, helped the S&I margins to earlier questions of let's get with our key customers with key products, and we don't have to have 1,000 C items. So it's actually helping in our intention in the future to actually help the margins there. And then it is freeing up capacity for our electrical products to earlier conduits -- metal conduit specifically and to questions there that we just answered is where we are seeing volume growth. And with data centers and overall markets, it's a place that we would expect long-term growth. So it's working well to say what percent, but I think it's enough that we can keep up with the markets as we go forward. So it's kind of a win-win-win there and complement John Pregenzer and the rest of the team for really driving that effectively here. John Deitzer: Just one thing to circle back on your earlier question and David's earlier question as well. It is a little bit difficult to predict the dynamics associated with price versus cost because there are so many different factors. One item that I think we're watching here in the near term a little bit is the volatility and fluctuation that we've seen in copper. If we just rewind like 6 months ago, it's up roughly 40%, give or take, from where we gave our outlook back in November, we're probably up around 25%. There's just been a lot of volatility there. And that would be one variable and also trying to make some of these assessments as we move forward. I mean these markets move quickly. And so that's one of the dynamics here that we're trying to watch and understand as we move throughout the year is that volatility a little bit. But I think the team has done a nice job because one of the facility closures is in the area where we use copper, and I think it's -- the team is working to improve the cost structure and try to be reactive to some of that volatility as well. So there's just a lot of moving parts and dynamics versus trying to pinpoint a singular, hey, this is when things change in one way or another. Operator: Your next question comes from Justin Clare with ROTH Capital Partners. Justin Clare: So just wanted to follow up on steel conduit pricing here. So I think it's the fourth quarter in a row that pricing has improved. So wondering if you could just speak a little bit to the trend you expect ahead? Do you anticipate continued price improvement in fiscal Q2? And then does the guidance for the year embed a continued upward trend in steel pricing? How are you thinking about that? And then just lastly, is the higher pricing supporting margin improvement for steel conduit, -- if you could speak to potential magnitude or how that's being affected? William Waltz: Yes. So Justin, I'll start here and the team can add as always. So you are correct that steel conduit prices it's been 4 quarters so continue to go up with price. And also in most of those quarters, it's been up sequentially. And for example, our last quarter, probably our best quarter for spreads in a long time. So those things are moving. At this stage in our forecast, I don't think we're expecting meaningful spread increases. So -- but I also won't bake anything in to go for what we're guiding for us and say, oh, there's going to be so much more. Steel prices are expected, and I'm just going from different people's professional forecast that we use to continue to go up slightly over the next 6, 9 months here. So I think we can keep up with pricing, but I wouldn't expect a lot of extra spread or at least that's not baked into our numbers here. Justin Clare: Got it. Okay. And then just one on the tariffs. I believe aluminum tariffs were potentially expected to have an impact on the cost structure. Wondering how that's evolving if you've secured domestic sources of supply and what the potential impact on the margins could be? William Waltz: Yes. Again, without getting too specific on future steps, but you are correct, Justin, that for us, the tariffs because where we did get our products, our aluminum from offshore, at least offshore Canada, I'll be specific. So they are being impacted by the tariffs. We are looking at domestic sources, but I don't want to give out even if nothing else for our competitors. The probability of that because even simple things like that, getting to it through specs. And then also, I do think the domestic manufacturers back to they know that people like us and so forth are looking for domestic supply, they're raising the price. So how much of an arbitrage we have compared to our competitors or how much we can save compared to the tariffs is hard to quantify. But I will tell you, it has been an impact that I don't think we've passed along the impact of the 50% aluminum tariffs. That kind of ties back to John Deitzer's question or answer, excuse me, even though things like copper are so volatile right now that us predicting that our cable business is a little bit more challenging in the short term here. Operator: Your next question comes from Chris Dankert with Loop Capital. Christopher Dankert: I guess just to kind of circle back on solar, I think you touched on it in your prepared remarks, but I missed it. Can you just kind of give us a sense for what the solar activity is now, kind of how we're shifting capacity in that market? And then just kind of an update there. William Waltz: Yes. So what we said, and then it's a great -- I'm glad you can say a setup question for us, is solar from the quarter, just with timing of projects was down from a year-over-year perspective. That said, we do have a good backlog there, almost to other people's questions on global mega projects of orders coming in, commitments from OEMs. And then the other thing that's helping us that we mentioned last year, but our facility Hobart that we make a lot of the solar torque tubes and is performing really well. So that does a couple of things. It helps drive some of the productivity we talked about for the first quarter. It helps with our overall estimates for productivity for the year and the increase in throughput is helping as this demand does come up here. So I think solar, like global mega projects should be a good thing for this quarter and quite frankly, the second half of the year. To earlier questions, you look at the step-up between what we're estimating for profits in Q1 and Q2 compared to what we need to deliver in Q3 and Q4 to hit the average of our numbers of $350 million EBITDA. Christopher Dankert: As a point of clarification, I just -- I assume that the solar torque tubes were generally for domestic projects. Is any of that for export outside of North America right now? William Waltz: Some. So I don't know long term how much will be, but it does -- one of our customers has ordered a meaningful amount here for projects overseas. But I don't know if that's a long-term trend or not versus the short term. So I think I would leave it at majority of our focus and our customers are North America-based with coincidentally short term, some projects going overseas. Christopher Dankert: Got it. Got it. That's helpful. And then I guess just finally, on Hobart, any update as far as factory loading there, operational metrics, anything worth calling out either in terms of just being on track or any kind of wins or headaches there? William Waltz: Yes, John? John Pregenzer: Yes. No, Hobart is going well. obviously, bringing in the additional solar volume, but their operational rates are continuing to improve. A lot of the productivity that we delivered was contributed by Hobart. So I think everything is progressing as we need it to be. Operator: This concludes the question-and-answer session. I would now like to turn the call back over to Bill Waltz for closing remarks. William Waltz: Thank you. Let me take a moment to summarize my 3 key takeaways from today's discussion. First, Atkore's fiscal 2026 is off to a good start. Our results reflect a combination of healthy end markets and self-help productivity gains. We will continue to operate with a proactive mindset as we progress throughout the year. Second, we anticipate favorable market demand for the balance of the year as we reaffirm our full year outlook. Finally, as we execute previously announced strategic actions and evaluate additional opportunities, we are laser-focused on creating long-term value for our shareholders. With that, thank you for your support and interest in our company. We look forward to speaking with you during our next quarterly call. This concludes the call for today. Operator: This concludes today's conference. You may now disconnect.
Operator: Good morning, and welcome to PepsiCo's 2025 Fourth Quarter Earnings Question-and-Answer session. [Operator Instructions] Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin. Ravi Pamnani: Thank you, Kevin, and good morning, everyone. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 3, 2026, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our fourth quarter 2025 earnings release and 2025 Form 10-K available on pepsico.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results including a discussion of factors that could cause actual results to materially differ from forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta; and PepsiCo's Executive Vice President and CFO, Steve Schmitt. [Operator Instructions] And with that, I will turn it over to the operator for the first question. Operator: [Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a question this morning on PFNA. You did announce that you're going to be accelerating your increased affordability initiatives this year during the first half. So I guess, hoping for a little more color on this strategy, what's been working? And then how much lower will your average price points fall? And then you did mention productivity things will help fund these commercial plans. And I guess in the context of this, you expect PFNA op margins to expand this year. So if you could touch on how you'll ultimately balance growth and profitability for that business, that would be helpful. Stephen Schmitt: Bonnie, it's Steve. Maybe I'll take a stab at it and let Ramon comment a little further. In regards to your question on the investments we're making in PFNA, I'd say there's three points. First, and most importantly, we're playing offense here. And second, we're excited about the initiatives and the benefits that will come both in volume and sales growth. And third, from an overall perspective, this investment is manageable for the business. It's included in our guidance and our productivity progress, as you mentioned, certainly, that's going to help fund the initiatives that we have. So we're really fortunate. You saw the productivity that we had in the fourth quarter. We expect a lot of that to carry over. That's going to fund some of our investments. And we'll be balanced about how we use that productivity to invest in the business and drive sales growth. Ramon Laguarta: Yes, Bonnie, maybe I can give a bit more color. This is part of a multi-vector strategy to drive category growth and then obviously, our participation in the category. And this is something we've been working on since Q2 or so of last year testing at scale in some of our key markets. We think that for some consumers, low- and middle-income consumers, the biggest friction they have today in our category for faster penetration is affordability. So we have been testing multiple ways to give them affordability. So this will be a very surgical, very focused on particular brands, particular formats, particular channels, investment. And we -- from the test that we've done at scale in multiple markets, this has very good ROI for us. You should be thinking this on top of space gains, big space games that we're getting through the partnership with our customers because of these investments in price. We're also investing, as we said on our prepared remarks, a lot on innovation, especially to provide more functionality, simpler ingredients, restage some of our larger brands. So it's a comprehensive investment plan funded through the productivities, the rightsizing we did in Frito and other productivity opportunities we took at the global level to reinvest in the acceleration of the category, managing the category for the long term and making sure that we participate at a higher level in this category that is starting to grow, and we feel very good about how these different interventions will continue to drive accelerated growth in the balance of the year. Operator: [Operator Instructions] The next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was hoping to -- if you can comment further on the pricing reinvestment you just alluded to. There was a news article that talked about as much as 15% in some of the PFNA items, right? So -- and you're doing the restaging. So I was hoping to see if you are -- what are your tools to be able to mitigate that in the first half? Or should we expect that to be a tough first half relative to what you just posted in PFNA. And then related to that, it talks, I mean, obviously, you're also restaging Gatorade. So I was hoping to see if you can comment on the volume trajectory. You have an easier comp for PBNA as you go into the first half, in particular, the second quarter. So if you can talk about like how we should be expecting the cadence of your guidance. That would be super helpful. Ramon Laguarta: Okay, Andrea, let's step back for a minute. We expect Frito-Lay to grow volume, net revenue and operating margin this year. So that should be the framework that we operate in. Now this growth will come early in the year, okay? So we expect volume growth and net revenue growth to come early in the year. The way you should think about the pricing investments and the article, obviously, talks about the maximum. As I said earlier, it will be very surgical investment, in particular, consumers, brands, channels where we see that the biggest friction for higher frequency price and that's the way we've tested and the way it will go. Now you should think about a combination of some price investments, not all of it is obviously net revenue from PepsiCo. And a large space gains. Just to give you a number, the average space gain for Frito-Lay in the new resets of both the main aisle and the perimeter will be double digit. So we'll be growing double-digit space in Frito-Lay from the March, April time frame when most of our partners start changing their layout. So this is a good return for us and a great return for the category as well. And this category needs to grow. It's very relevant for our partners, it's relevant for us. Stephen Schmitt: And one other thing, Andrea, you asked to think about the cadence of the quarters. We talked about in our guidance from a sales growth standpoint that we expected sales to strengthen in the second half as more of our initiatives are put in place and gains traction as well as we have poppi and some other acquisitions from prior year moving into organic growth. From an EPS perspective, we think the year will be pretty balanced from a first half, second half standpoint, and we'll certainly update you as the year progresses. Ramon Laguarta: Maybe if I can -- sorry, if I can add, Andrea, there is a -- we're also restaging two big brands. We're restaging Gatorade, and we're restaging Quaker. We're starting the year with Lay's and Tostitos, those are multibillion-dollar brands for us. And then later in the year, we're going to have big relaunches of Gatorade and Quaker. Two big, big brands, obviously, for us that are more on the sweet spot of growth of the categories. Operator: Our next question comes from Dara Mohsenian with Morgan Stanley. Dara Mohsenian: I was just hoping for a little more detail on the focus on affordability and the price investments. Just, a, is that more focused on specific packages, brands? Can you just give us a little more detail in terms of how you're thinking about that? And then, b, there is some evidence, right? There are some retailers where you've taken actions already as we look back to last year and the last few months of the year. So maybe just help us understand what level of payback you saw there? Are you seeing volume pick up more than the price investments? Is it close to the price investments? How do you sort of think about the forward outlook there relative to what you've seen so far, understanding that it will be more aggressive actions in '26? Ramon Laguarta: Yes, Dara. So as I mentioned, it is very surgical. This is well tested at scale. Obviously, we're executing it means that we got very good ROI from those investments. Volume return is pretty good, and that's what the category needs, units and volume to go up. This not only has a good impact in the consumer, obviously, being part of our business and being part of our brand. But as you can imagine, once we've rightsized Frito-Lay as we have, the flow-through of additional volume has a lot of good leverage for us. So you should think about all these components, and we'll update you more as we get more data in coming quarters, we're very optimistic and we started the year in a good place. Operator: Our next question comes from Lauren Lieberman with Barclays. Lauren Lieberman: We had -- quickly just had the time to go through the 10-K before the call started. I noticed that advertising was down like it was double digits, like $500 million in 2025. So just curious about what drove that thought for '26? Or whether -- I would think advertising would go up, but that was sort of a bigger decline than I would have expected to see for 2025. And I'd love to hear more about it. Stephen Schmitt: Lauren, it's Steve. Thanks for your question. You're right. It did go down this year. We did get some efficiency from both the working and non-working advertising line. And your assumption that it should go up next year is a good one, too. That's a benefit from -- just from a cost of sales standpoint that we did get in 2025 that we would expect not to get that same benefit. So we're going to be very growth-minded. We're going to be making sure our messaging comes through from a value and innovation standpoint. And so we'll be investing in the sales growth for this year. Operator: Our next question comes from Filippo Falorni with Citi. Filippo Falorni: I wanted to ask on the guidance for organic sales for '26. You mentioned that in the second half of the year, you expect to be at the higher end of the full year guidance range. Can you walk us through like the drivers of the acceleration throughout the year? Because Ramon, you mentioned before, you're expecting PFNA to return already to volume growth earlier in the year. So is this further acceleration in PFNA or maybe some acceleration in the other two segments, PBNA and International. Maybe you can comment on the expectations for the other two segments as well. Ramon Laguarta: Yes. Filippo. Yes, I think the way you should think about the year is, we expect our International business to continue to perform at similar levels to last year, mid-single digit. We're seeing good performance in some of our larger markets, Mexico improving in the Q4 and then also having a good start, China as well, South Africa as well. So -- but you should think about mid-single-digit growth for our International business. That's the way it has been performing for the last 19 quarters or so. So there. And the acceleration comes mostly from our North America businesses. On the beverage side, we feel good about the acceleration it had in '24 -- in '25, and we think that it will continue. So you should expect a little bit more acceleration from the beverage business. But clearly, it is our food business that has been improving throughout the year, both volume and net revenue. And December was better than October, and we expect that obviously, Q1 will be better than Q4 and so on. So that is the way we're thinking about the year. And then you have some sort of a mechanical acceleration in organic from the -- some of the acquisitions we made earlier in the year, they turn into organic throughout the year. That will have also a some mechanical impact. But those acquisitions are very in high-growth segments of the category. That's why we did it. They've been integrated very well into our distribution systems and we're getting additional return on those brands. So they'll continue to grow, and there will be an acceleration of the portfolio in the second half. So those are the main the main buckets of growth and how you should be thinking about the acceleration in the second half. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: So Ramon, you outlined a lot of innovation in the prepared remarks and talked about some of the success you've seen with Naked and Pepsi Prebiotic. So granted, it's still very, very early. But can you just talk about what you are learning or seeing from the innovation and how that informs your view on the path forward in North America? Ramon Laguarta: Yes, it's a great question, and obviously, we're thinking about growth in two main dimensions. One is making sure that our core brands continue to grow, and that's why we're investing meaningful effort from the organization and dollars to restage some of our large brands. So if you think about the effort to relaunch Lay's globally, we did it with Pepsi actually 2 years ago, we're still getting very good returns on that investment. Now we're relaunching Lay's globally with a new reposition -- a new positioning, you will see for the Super Bowl based on freshness, based on farmers, simple ingredients, no artificials. We know that, that is going to bring consumers to the brand. We're relaunching Tostitos. And as I mentioned, we're relaunching Gatorade and we're relaunching Quaker. So big brands that need to continue to drive the machine. And they were innovating in the periphery of the category where we're seeing growth. And just to give you some examples, Naked was a good innovation for us. It's going to be a permanent innovation for us. And what it taught us is that there are consumers out there that are looking for us to give them excuses to come into the category. And these are mainly younger households, moms that are -- love our products, but they want it in this case, the case of Naked like no artificials. So now the actual claim is, now I can give my children, my favorites, because it has no artificial. So we're thinking about innovation from a category building point of view, bringing more consumers into the category and obviously, driving frequency of the category as I discussed earlier with the affordability investments. The same in beverages, we're seeing the consumers willing to come into the category if we give them the right products. Our big -- one of the big innovations we have in the plan for next year -- for this year is Gatorade low sugar, no artificials. Within this is going to be from the conversation with our customers, the space, the allocation, et cetera, it's going to be a big innovation for us. Again, probably the same the same consumer looking for reasons to come into some of our large brands. We're very keen on some of the fiber innovation. We're very keen on some of the innovation with protein. We are betting a lot on portion control. I think portion control is also a very big lever to keep consumers in the category and increase our frequency. So our multipack both in foods and beverages is going to be a very critical lever for us to grow. And I think we're getting better, more insightful, more granular in the combinations and the price points and the different occasions where those packs can participate, and we know that they're driving category growth, and they're driving penetration of our brands. Operator: Our next question comes from Kevin Grundy with BNP Paribas. Kevin Grundy: Ramon, just picking up on that -- your comment a moment ago on healthier innovations, but I wanted to drill down specifically on GLP-1 adoption, because it comes up a decent amount in terms of the pushback on what may keep certain investors out of your stock. So naturally there remains a lot of concern. You have old tablets hitting the market, more insurance plans picking up weight loss drugs, et cetera. Can you -- not to be redundant, Ramon, with your comments from a moment ago, but maybe just address this GLP-1 concern, head on. Did you -- were you able to address this in the test markets where you had success with the innovation you're rolling out and the price investment? And do you feel like PepsiCo has a good handle on what higher adoption rates may look like in terms of implications for the category and for your outlook. So your thoughts there would be appreciated. Ramon Laguarta: Yes, I think we should assume that there will be a broader adoption of GLP-1 medicines, as those options evolve and they are more affordable. So I think that should be an assumption now. We are reacting. We have been working on this for some time. There are multiple levers that we're using, and we're very optimistic on how PepsiCo can play in that new reality with the consumer. I think there are more opportunities than threats, but they are both. The way we're reacting is multiple. One, we believe portion control and we've tested and we see that families with GLP, they continue to engage in our category, but they do it in smaller portions. So the way to keep the category relevant is through smaller portions. If you think about our portfolio in the U.S., 70% plus of our food business is already in single serve, right? So we're investing in single-serve capacity. We continue to provide consumer solutions for 1 ounce, 1.5 ounces, small portions that they can be through the consumers' life. Now there are big opportunities for us. If you think about consumer habits in -- when consumers are in GLP medication. One is hydration, big idea for us, big opportunities. We're relaunching Gatorade, Propel is growing 20-plus powders, tablets, more functionality along with hydration, big idea. Fiber, we know those consumers are looking for fiber. They have some digestive problems. We can provide -- we are innovating around fiber, whole grains, that's a big space. We're relaunching Quaker. Quaker will put emphasis on that space, but not only that, SunChips and some of our food products as well. Protein, obviously, that's an area where we've been innovating for some time, and we'll continue to do it. We're working on cooking methods, so our consumers like baked, they like pop. We're working on air frying. We're working on different technologies to make sure our products are cooked in a way that is more closer to what the consumers will prefer. So multiple vectors of transformation that we will be sequencing with a sense of urgency, we did last year, we continued to do this year. But I think this could turn into an opportunity for us, and that's how we're approaching it in the U.S., but not only the U.S., this is going to be an opportunity for us in multiple markets. Operator: Our next question comes from Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: I guess the big news and congratulations to the double-digit shelf space gains that you talked about earlier. Can you maybe just give us some more details where is it coming from when you go through typical grocer, Frito-Lay has quite a bit of shelf space already. So is this within the salty-snack aisle, or with the incremental shelf space, maybe in other parts of the store? Just any more details around what's expected to be this big increase at the reset time? Ramon Laguarta: Yes. Good question. And it is a great achievement of our commercial teams in partnership with our customers. And it will be in multiple, as you can imagine, in multiple parts of the store. It is in the main shelf, but it's also in the perimeter. And it's a consequence of the increased units that we're seeing as we make our category more affordable, there's clearly more throughput and there needs to be more capacity in the store to either fulfill online or to give the consumers the in-store experience. So yes, both main shelf, perimeter has been tested. Capacity will be critical for us to continue to increase the volume of the units. Operator: Our next question comes from Michael Lavery with Piper Sandler. Michael Lavery: I just wanted to come back to some of the innovation and marketing, but maybe on the biggest brands, I know you're driving the savings to help fund step-ups there. But what's different maybe in any shift in capabilities or strategically obviously, the biggest brands could potentially have the biggest impact if you can move the needle there. But I just want to understand maybe what's changing? And is it primarily just a bigger push in visibility? Or help us unpack some of what you're hoping to work on your largest brands. Ramon Laguarta: Yes. Let me take the example of Lay's and that might give you a good sense of Lay's. So late we're changing the visuals with the idea of making the brand more center on simplicity, nature, freshness, potato, the ingredients of the food because that's what consumers are looking for, the food in the brand. There is a -- we're also changing some of the oil. So you will see versions of Lay's with avocado oil, you will see versions of Lay's with olive oil. So it's an elevation of the ingredients. It's the simplicity of the portfolio. We're eliminating artificials and we are investing much more in terms of A&M and in terms of price points of the brand. So it's a holistic relaunch of the brand. We're doing it globally and we're elevating the farmers that produce our products that grow our potatoes. And I think every time we do that, we see that consumers move away from the artificiality or high processing of our products perception, and they move to what it is, which is simple product, cooked with precision at scale, and kitchen logic and no artificial. So that is the change in perception we're trying to do. It is working, and we'll continue to invest. Think about that applied to Gatorade, applied to Quaker, applied to Tostitos and you'll get a sense of what we're trying to do. Operator: Our next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: Ramon, if we pivot back to PBNA and how you expect that segment to ultimately contribute in terms of growth and profit margin, you mentioned a number of drivers in your response earlier to Filippo's question. But I guess if we could drill a little further down, I'd love some perspective on how you expect the energy portfolio to contribute to that segment's progress, just how material that is to the plans in '26? And any early returns on either CELSIUS's category captaincy or the onboarding of Alani? Ramon Laguarta: That's great. So listen, I think we're very happy with the progress we're making in the beverage business. Our focus this year will be on increasing competitiveness of the business. I think there are some areas of the portfolio where we can be more competitive. And it's a combination of execution, it's a combination of affordability brand building. So we're focusing on that in particular, on the soft drinks and parts of the functional hydration portfolio. So that will be the focus. And we feel good about the plans and we feel good about the -- again, the space, and we'll feel good about investments we're going to be making. So the other thing you should think about is we've been very consistent on improving the margins of the business and '26 will be no different. We plan to continue to improve the margin of the beverage business in North America and in direction to the target that we've shared with you in the past. Now with -- especially on your specific question on energy, we're very happy with the way we're going to participate in that fast-growing profit pool of the category, which is energy. The way we've engineered this through a combination of a distribution margin plus participating in ownership of CELSIUS, I think, is a good way for us to participate. The CELSIUS brand continues to grow. And the introduction or the integration of the Alani new portfolio into our business has been pretty positive so far. It's early. We still haven't completed all the distributors around the country. So we should see more acceleration in the coming months. But so far, we're seeing some of the metrics on execution already improving, and that should be positive for us going forward. There's very good collaboration with the CELSIUS team. I think the separation of functions between the brand building part and the more the execution part works well. And yes, we should be able to continue to gain share in some -- I think we're close to 20% now for the full portfolio. It's a meaningful participation in a category that is continuing to grow. And but has opportunities to grow even further. Operator: Our next question comes from Peter Galbo with Bank of America. Peter Galbo: I just wanted to follow up maybe a little bit on Filippo's question. And Ramon, I think you've mentioned it a few times. But just as we think about lapping some of the M&A that's going to go into the organic, is there any way to kind of frame what those -- once they become organic, kind of will be contributors to the full year? And I ask that just in the context of trying to compare the base business kind of like-for-like relative to when poppi and Siete move into the organic base. Stephen Schmitt: This is Steve. Maybe I'll just start with when they flip into organic. We have Siete it will be in the March time frame. poppi in the July time frame. Alani Nu towards the end of the year, I think, as Ramon talked about. It should certainly help our organic growth. We haven't been specific on exactly what that will be, but we'll report on that as the quarters evolve. Operator: Our next question comes from Chris Carey with Wells Fargo Securities. Christopher Carey: So trademark Pepsi grew volume and dollars in 2025, which is a great outcome. Can you just give us a sense of what went well in 2025, specifically for that business and perhaps a bit of a preview of how you can continue that momentum in 2026? Obviously, there's some previews of ad spots that are coming up, among other initiatives. And just connected, it doesn't get a lot of attention, but Mountain Dew has been a bit more sluggish, but it's not an relevant brand specifically for the PBNA business, which will be important as we get through the year. Maybe just a few tidbits on how you're thinking about Mountain Dew and how to reinvigorate some of the growth as what you had seen with brand Pepsi? Ramon Laguarta: Great. So yes, listen, we're happy with Pepsi, obviously. It's a brand that is very important for our portfolio of beverages in the U.S. and globally. And we're doing very well globally, but also it's improving in the U.S. We're not satisfied yet, so I think we have more potential with Pepsi, and that's why we are investing in a couple of areas. No sugar, as you saw, Pepsi Zero. I think we have a very good product, a product that over 100,000 consumers have told us that they prefer over our competitor based on our Pepsi Challenge, and we want to tell our consumers that we're here and try us. So that's why we're investing in advertising in a way that is simple and easy to understand. The same way we've been quite successful in our Food Deserves Pepsi campaign and that, together with increasing our availability in restaurants and food consumption spaces away from home has also been a big driver of volume, but also I would say, awareness and trial of the brand, and we'll continue to push on those two. So feel good about Pepsi, feel good about our advertising, feel good about our consumer programs and customer programs. Now Mountain Dew, as you said, has been a more difficult project. I think we're making good progress. The teams are iterating innovation. Baja has been a very successful innovation for us and some of the flavors that go with that, especially with Hispanic population, but not only. We'll continue to iterate with -- I think we have a marketing model that is very local. It's a brand that is very different in different parts of the country. So our marketing needs to be quite segmented and granular. And I think our marketing teams are finding ways to be relevant in different parts of the country with the same brand, but obviously different messages and different innovation and different portfolios. So we feel good. It will take a little bit longer, I would say, for Mountain Dew, but we're seeing progress, '25 was better than '24 and '26 will be better than '25. Operator: Our next question comes from Robert Moskow with TD Cowen. Robert Moskow: Ramon, I was hoping if you could give us just a little bit of an update on the tests that you're conducting in Texas. And I think Florida too, where you're merging food and beverage distribution. What's working? And are there elements of the combination that are difficult to execute? And how does that inform the broader strategic review that you're conducting for North America Beverages distribution? Ramon Laguarta: Yes, great question, and it's clearly an area of focus for us, eliminating duplications between our two large U.S. businesses and finding ways to create advantage on the integration is where we're working on. There is some good insights already in integrated delivery, integrated inventory points. So those are very positive initial numbers that we're getting that will make us more cost efficient, but at the same time, more flexible to provide better customer service, which at the end is one of the drivers of value. We plan to update all of you later in the year, towards the end of the year with specific details on our plans going forward. So we're working on learning as much as we can, scaling some of the solutions. There's obviously technical IT systems solutions that we're putting in place that would be high value, I think, for us and for the industry. There's also some innovation in terms of vehicles and some of the transportation, the trucks that we have to put in place. So there is innovation. There is discovery and there is -- some of our best people are against this project, which gives us a lot of confidence that we'll build something unique that will be high value for the company, both in terms of efficiency and also in terms of giving our customers a much better service for the demand of the future. Now as we said in the past, this will not be a one-size-fits-all for the U.S. because the reality of the marketplace is very different, and we will construct a scale model that takes into consideration the nuances of every part of the U.S., including potential small refranchising models in part of the country. If we consider that, that is the best solution. Again, very small parts, very kind of complementary to our main assumption, which is that the integration of the two businesses will drive a lot of value. Operator: Our last question comes from Robert Ottenstein with Evercore ISI. Robert Ottenstein: I was wondering if you could just kind of step back and touch on the macro backdrop that you're working with, maybe any change in trends in major markets through the fourth quarter? And into January, any expectations of the impact of government measures in the U.S. And what are you thinking about in terms of the macro conditions, in terms of your guidance for the year. Are you expecting things to kind of continue the way they are or kind of pick up or weaken in any key markets in terms of supporting your guidance? Ramon Laguarta: Yes. The way we've constructed our guidance is continuistic from what we've seen in Q4. So clearly, a middle- and low-income consumer that continues to be stretched and choiceful and that we have to earn being part of their basket every day. I think that's how we're thinking about it for the U.S. Internationally, we're seeing different parts of the world behaving differently, but we're optimistic about Mexico, as I said earlier, we're seeing positive trends in China. Again, I'm referring to our business and the surroundings of our business rather than larger macros. We're seeing positive situation in the Middle East. We're seeing a good consumer there as well. A bit weaker in Western Europe, and then Brazil kind of neutral. So those are our bigger markets, and those are the assumptions that we've been putting in our guidance. Overall, I would say, rather continuistic based on the data that we have, with monthly data that we have with consumers. Okay. So I think this is the last call -- question. So thank you very much, everybody, for joining us today and for the confidence you've placed in our stock. And I look forward to seeing you can in CAGNY in a couple of weeks and continuing the conversation. Thank you. Operator: Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
Operator: Good day, and welcome to Spire Inc.'s First Quarter Fiscal 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Megan L. McPhail, Managing Director, Investor Relations. Please go ahead. Megan L. McPhail: Good morning and welcome to Spire Inc.'s fiscal 2026 First Quarter Earnings Call. We issued an earnings news release this morning and you may access it on our website at spireenergy.com under Newsroom. There's a slide presentation that accompanies our webcast, which can be downloaded from our website. Before we begin, let me cover our safe harbor statement and use of non-GAAP earnings measures. Today's call, including responses to questions, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different from those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing performance and results of operations. Non-GAAP measures used by management when evaluating our explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. On the call today is Scott Edward Doyle, President and CEO, and Adam W. Woodard, Executive Vice President and CFO. With that, I will turn the call over to Scott Edward Doyle. Scott? Scott Edward Doyle: Good morning and thank you for joining us. As we begin our fiscal first quarter update, I want to recognize and appreciate the hard work of our employees across every part of our organization during winter storm Fern. The recent weather event was an opportunity for us to serve our customers when they needed us most, and I am very proud of how we responded. With extreme weather impacting all our service territories, our team collaborated closely, making sure homes and businesses stayed safe and warm. According to the American Gas Association, winter storm Fern led to some of the highest demand for natural gas in our nation's history. In fact, at the height of the storm, just our Spire utilities delivered natural gas equivalent to 31 gigawatts of electric generation capacity at a much lower cost to customers. Despite extreme conditions, natural gas once again distinguished itself, underscoring that direct use of natural gas remains the most reliable and affordable way to heat your home. This morning, we announced adjusted earnings of $1.77 per share, up from $1.34 per share a year ago. The strong year-over-year improvement reflects solid execution in our gas utility business, supported by new rates across all of the utilities. Our marketing and midstream segments also delivered meaningful contributions. Just as we have discussed on prior calls, cost management and customer affordability remain central to our strategy. We continue to pursue efficiencies while investing in system improvements and safety, ensuring we maintain the reliability our customers expect. On the regulatory front, we are executing on our goal to achieve constructive outcomes in all jurisdictions. New Missouri rates became effective in October, and in November, we filed a request for a $30.3 million revenue increase under the infrastructure system replacement surcharge, with rates expected to be effective no later than May. Spire Alabama and Spire Gulf rates under the rate stabilization equalization mechanism were updated in December, supporting our continued system investment. Looking ahead, we are reaffirming our 2026 adjusted EPS guidance of $5.25 to $5.45 per share, our 2027 adjusted EPS guidance of $5.65 to $5.85 per share, and our long-term 5% to 7% adjusted EPS growth target. These targets underscore our confidence in the strength of our portfolio and our disciplined approach to capital deployment. Our ten-year capital plan remains at $11.2 billion, with the majority targeted toward utility investments. Finally, we remain on track to close the acquisition of the Piedmont, Tennessee business in calendar quarter one 2026, a transaction that strengthens our regulated growth profile. We remain committed to delivering on our financial and operational goals as we execute our strategy to grow organically, invest in infrastructure, and drive continuous improvement. Turning now to Page five for an update on the Tennessee acquisition. We continue to make progress toward closing. The Hart-Scott-Rodino review is complete, and approval from the Tennessee Public Utility Commission remains pending. Our financing plan is aligned with maintaining our current credit ratings and includes a balanced mix of debt, equity, and hybrid securities. In November, we issued $900 million junior subordinated notes of Spire Inc. Following this, in December, we entered into a master note purchase agreement for $825 million of Spire Tennessee senior notes, which will fund at closing. We continue to expect minimal common equity needs. As we have discussed on previous earnings calls, evaluation of the potential sale of our natural gas storage assets is ongoing. The timeline for an announcement has extended beyond our initial expectation, reflecting our objective to achieve the right value for each of the assets. We are focused on simplifying our portfolio and expect to provide an update later this quarter ahead of the acquisition close. Operationally, our integration planning is well underway, supported by an eighteen-month transition services agreement designed to ensure seamless continuity for both customers and employees. Moving to page six. This quarter, we invested $230 million in capital expenditures, with the majority directed toward our gas utility operations, including system upgrades, infrastructure modernization, and new business connections. These investments are already delivering value, as reflected in the strong operational performance and reliability of the system through a quarter marked by weather swings from unseasonably warm to well below average temperatures. CapEx was lower year-over-year, driven by the near completion of the advanced meter upgrades in the St. Louis region and the wrap-up of our storage expansion project. We continue to expect 2026 CapEx of $800 million to $900 million, supported by our ten-year $11.2 billion capital plan. These investments directly support rate-based growth of roughly 7% in Missouri, 7.5% in Tennessee, and 6% regulated equity growth in Alabama and Gulf. This consistent and disciplined investment strategy underpins our confidence in achieving long-term 5% to 7% adjusted EPS growth. I'll now turn the call over to Adam W. Woodard for a financial review and update on guidance. Adam W. Woodard: Thanks, Scott, and good morning, everyone. I'll begin with our quarterly results, which are detailed on Pages seven and eight of our presentation. For the first quarter, we reported adjusted earnings of $108 million or $1.77 per share, compared to $81 million or $1.34 per share a year ago. Breaking down earnings by business segment, Gas Utilities earned $104 million, up over 33%, or $26 million from last year, driven by the new rates in Missouri and higher margin under the RSE in Alabama. Benefits were partially offset by the lower Raleigh metric margin in both Missouri and Alabama, along with higher O&M, depreciation, and interest expense. Gas marketing earned $4.5 million, an increase of $2.3 million due to increased portfolio optimization opportunities. Midstream delivered earnings of $12.7 million, up almost $1 million from last year, driven by additional capacity at Spire Storage, partially offset by higher depreciation and interest expense. Finally, other corporate costs were an adjusted loss of $12.7 million, approximately $2 million higher than the prior year. This reflects higher corporate costs and slightly higher interest expense in the current year. Turning now to our growth outlook on Page nine. As Scott mentioned, we are reaffirming our 5% to 7% long-term adjusted EPS growth target, supported by strong rate base growth across Missouri and Tennessee, steady regulated equity growth in Alabama and Gulf, and our ten-year $11.2 billion CapEx plan. We remain committed to executing on our strategy and are affirming our 2026 adjusted earnings guidance range of $5.25 to $5.45 per share. As a reminder, this range excludes the results of the pending acquisition of the Piedmont, Tennessee business and includes a full year of earnings related to our natural gas storage facilities. We are also affirming our 2027 adjusted earnings guidance range of $5.65 to $5.85 per share, which reflects a full year of expected earnings contribution of the Piedmont, Tennessee business and excludes earnings from Spire Storage. The adjusted earnings range for corporate and other has been updated to a range of negative $40 million to negative $46 million, lowering the midpoint by $9 million to reflect the interest expense related to the incremental debt to redeem Spire Inc. Preferred stock. Fiscal 2026 preferred dividends impacting EPS are expected to be lower by $9 million. I would like to note that our merger of the STL and Mogas pipelines was completed on January 1, 2026. It will operate as the Spire Mogas pipeline. Moving now to Slide 10 for an update on our base business financing plan. Excluding Tennessee, we expect equity needs of $0 to $50 million per year and will continue to rely on long-term debt to support refinancing and capital requirements. Our recent base business financing activity includes $200 million of first mortgage bonds issued at Spire Missouri in October 2025 and $200 million of 6.38% junior subordinated notes issued in January 2026. We intend to use the proceeds from these JSNs along with other funds to redeem all outstanding shares of Spire Inc. Preferred stock. Our projected long-term debt issuances for 2026 have increased by $250 million, driven by the decision to redeem the preferred shares. As always, we remain focused on maintaining our balance sheet strength and flexibility. We continue to target FFO to debt of 15% to 16%. With that, let me turn it back over to you, Scott. Scott Edward Doyle: Thanks, Adam. To close, our business priorities for the year remain consistent with our commentary over the past several quarters. Safely and reliably deliver natural gas service, execute our capital plan efficiently and recover capital in a timely manner, maintain a strong focus on customer affordability through disciplined cost management, achieve constructive regulatory outcomes, including preparing for a future year Missouri rate case, and successfully financing and closing the Tennessee acquisition while ensuring a seamless integration. Thank you for joining us today. We appreciate your continued support and we are now ready to take your questions. Megan L. McPhail: Thank you. Operator: The first question comes from Gabe Moreen with Mizuho. Please go ahead. Gabe Moreen: Hey, good morning team. Maybe if I can start off in terms of some of the volatility we've seen here in gas markets in January. Scott, you mentioned how well the utilities performed operationally, but can you talk about maybe how marketing was positioned during the month and whether it might have been able to capture some of that volatility? Scott Edward Doyle: Hey, Gabe. Good morning. I mean, we mentioned, I feel really good about how all of our systems performed across the enterprise during the month. It's a little early to describe them quantitatively at this time. But one thing we do know, we met all of our customer obligations. The market itself performed very well. Both from the supply side, but even just the way the markets work during those times. Everything was fluid and liquid during that time. So it felt good about how that event took place. So look forward to talking more about that on the quarter call. Gabe Moreen: Got it, Scott. And I know you say you want to talk about things too much quantitatively, but can you also just talk about how utilities hedging strategy may have played out in terms of protecting customers from some of the volatility and whether you're satisfied with how that worked out as well. Scott Edward Doyle: Yeah, simple answer is yes, satisfied. Strategy, particularly in As you know, on our utility purchasing both Missouri and Alabama. We have the ability to operate effectively our own AMA for the utilities and those performed as expected during this time. So our customers are protected and benefited from that activity. Gabe Moreen: Great. That's all I have. Thanks, Scott. Scott Edward Doyle: Thanks, Gabe. Thanks, Gabe. Operator: The next question comes from David Arcaro with Morgan Stanley. Please go ahead. David Arcaro: Hey, good morning. Thanks so much. I was wondering if you could give maybe a little bit more color on the storage asset sales process. But I guess any feedback that you got from the market on interest and appetite for those assets? Could you maybe lay out the timing and how that might line up? Like could this a full transaction get done before the close or kind of how what are the backup plans there? Scott Edward Doyle: Yes, sure, David. Good morning. As we mentioned in our prepared remarks, the evaluation process has gone a little longer than we initially anticipated. What our focus remains, making sure we get the right value for each of the assets. Maybe just a comment about the assets themselves. Coming out of January, in particular, from an operational perspective, they performed very well, met all of our customer obligations, still have demand. For those services, for those assets. On a going forward basis. So feel good about that. Feel good about the process, how it's unfolding at this time, but just making sure we're spending the time looking at the opportunities that are in front of us and our focus continues to remain on prioritizing the utilities and simplifying our portfolio. As we go through this process. I'll let Adam maybe comment a little bit more on timing and from a financing standpoint. Adam W. Woodard: Yes. Hey, David, it's Adam. We do expect to have make an announcement on this on the storage evaluation a little bit later this quarter. To your point, as far as whether something is transacted prior to the close of Tennessee. We do we do are are fully covered with the a bridge loan and if we needed to tap that for a short period of time that that we would be able to do that But we we know, we we we are committed to making announcement here later this quarter prior to the close of Tennessee. David Arcaro: Yeah. Got it. Thanks. And just was it in response to was it harder to find interest or sell the assets together, or were valuation different from what you had expected going into that process? Scott Edward Doyle: No. Yes, David, we've had very good interest in them. Again, these assets can be looked at in combination or they can be looked at separately And so what we're wanting to do is make sure that full process plays out. David Arcaro: Got it. Okay. Thanks. That is helpful. Then maybe a separate topic. I was just wondering if you could touch on maybe more broadly economic development efforts. Are you seeing opportunities for large loads or large generation facilities coming into your service territories, anything on the larger side that boost growth in the the pipeline. Scott Edward Doyle: Yes, sure, David. On the Particularly on large loads as it relates to the pipeline, the opportunity there for us is to serve generation needs either as they convert coal to gas or as new gas plants come online. We're active in talking to different parties, but don't have anything to announce We'll announce when the time is right. David Arcaro: Okay. Great. Thank you so much. Operator: The next question comes from Julien Dumoulin Smith with Jefferies. Please go ahead. Bhak: Hi, Tim. This is Bhak on for Julien. Congrats on the solid quarter. Appreciate the color on the storage transaction and marketing segment. And maybe just a quick follow-up just how should we think about the timing for equity issuance related to the Tennessee acquisition? Adam W. Woodard: Yeah. So, Bhak, maybe to walk through of where we're at, where we're we've come from and where we're at now and expectations around that. So, in November, raised $900 million of the JSN market and then followed that up with $825 million for the operating companies, Spire Tennessee operating company, that leaves, give or take, about $750 million to either raise or recycle through, you know, from a from potential sale of businesses. We're looking to get that announcement made on what that looks like. I you know, that would that would indicate something if if we weren't needing to to the equity market, that would be sometime after the the next call in in May or June. Bhak: Understood. Appreciate the color. Scott Edward Doyle: Thanks, Bhak. Operator: The next question comes from Ross Fowler with Bank of America. Please go ahead. Ross Fowler: Good morning, Scott. Good morning, Adam. How are you? Maybe taking a step back bigger picture question. Obviously, you know, we're on track to close Tennessee by the end of the first quarter. Or I mean, excuse me, we're on track to get a storage asset sale announced the end of the first quarter, you're moving to Tennessee close pending approval of Tennessee commission. So once we get through both of those things, how do you you know, you talked about prioritizing utilities, simplifying the business model, How do you think about your scale of the company post those two transactions? Should they be executed in completed? And how do you think about strategically how you would think about adding utility to that portfolio or other things you could take out of the portfolio? Just general thoughts around that. Scott Edward Doyle: Yes. Thanks, Ross. Our primary focus right now is closing the transaction and integrating Tennessee and making sure that we have a seamless transition for our customers there. And so our plate is really full right now with regard to executing on that priority. And so that we want to keep that a priority. So at this time, that's that's what we're focused on is doing that. From a scale perspective, this has some benefit for customers ultimately because we'll be able to spread our shared services costs over a bigger base is what we'll do as well. So that scale benefit is a benefit for our customers and for the company as well. But that's what we're focused on right now is executing on our plan. Ross Fowler: And then how do you you you mentioned the integration of Tennessee. Post close. How do you think about this probably system stuff you have to do, operational stuff you have to do. I mean, it's not contiguous, but you're still all that sort of back office stuff you have to do. You mentioned shared services. How do you think about the timeline of, you know, you know, on piece of paper, it never looks like a lot of work. I imagine it's a ton of work. How do you think about the the timeline of getting that accomplished and getting through that integration? Scott Edward Doyle: Yeah. I know the the 100 plus people on our side, are working on that, really appreciate that comment, Ross, as to the amount of effort that's required as well. So a lot of work takes place post close as you know, we do have integration teams working very closely with Duke both on the separation of the assets, but also on the continual continued operation of them is we'll have transition services for a period of eighteen months. So our job will be to work to make sure that both for employees and customers as we transition those services and bring them under the Spire umbrella of serving them. That we do that in a way that is methodical, but also brings value to to the organization as well. And so when we do that, a lot of plans have been put in place and once we close, we'll be doing the really hard work of pulling this off. The good news is this is a company Spire is is a company that a long history of doing this and has a lot of well-developed muscles regarding this. So I feel very confident in our ability to to do this. Ross Fowler: Alright. Thank you very much. Scott Edward Doyle: Thanks, Ross. Operator: The next question comes from Paul Fremont with Ladenburg. Please go ahead. Paul Fremont: Thank you. Congratulations on a strong quarter. I guess my first question relates to storage. I guess in the past, you've expressed optimism of being able to complete the review with the sale. Do you still have that optimism at this point in time that that at the end of the month, you can achieve a sale or the end of the quarter, I mean? Scott Edward Doyle: Yes, Paul, this is Scott, and good morning. Yes, we look, we've had strong interest in these assets. And as I've mentioned earlier, our desire at this time is to make sure that we're getting good value for both or each. And so that's what's causing the process perhaps go a little longer than we had anticipated initially. But feel good about where we are in the stage of process at this time. Paul Fremont: Great. And then when I look at all the financing that you've done it it seems like you've been able achieve some very reasonable rates. And you've gone sort of beyond in terms of potentially achieving savings from the retirement of the preferred. Does that compare favorably to the assumptions that you put out when you gave guidance on the fourth quarter call? Adam W. Woodard: Hey, Paul, it's Adam. It's a good question. I would I would say that we were contemplating the the redemption of the preferred in that guidance. So that's it's not additive to it. And I think so far in the acquisition financing, it's we're relatively close to what our our expectations were. Good question. Paul Fremont: Great. Great. Thanks a lot. That's it for me. Scott Edward Doyle: Thanks, Paul. Operator: The next question comes from Bill Apicelli with UBS. Please go ahead. Bill Apicelli: Hi, good morning. Scott Edward Doyle: Good morning, Bill. Just a on the clarifying that preferred impact because you guys do show the corporate other sign line item getting impacted by about $9 million. But then there's a direct one to one offset, right, on the different the preferred dividend impact, which you you don't actually quantify in, you know, in the guidance, but looks like the so net net EPS is unchanged. Right? So even though the the cumulative you know, earnings, if you add the the buckets up, gets worse. But there's an offset that's not actually shown. Is that the way to think about That that's right, Bill. Adam W. Woodard: Yeah. I think you're following it. Bill Apicelli: Okay. And then can you just remind us on the the the rugged strategy or calendar from here, particularly as it relates to Missouri? You know, just as a you know, walk us through sort of the time line of of when the next case would be filed and new rates under the new under the new legislation? Scott Edward Doyle: Yes. Hey, Bill. On the rate case timing, it'll the way we have it at least anticipated right now is we follow the pattern of our prior case, which is we'd file it fiscal year end, but before Thanksgiving. So look the October, November timeframe of this year, And then the timeframe of the rate case for prosecution would follow most likely the same amount of time it took for this last rate case. As we talked to a lot of folks, it's a case of first impression with being the first future test year that we would be filing. So we'd want to work through those details with the commission as we go through this process as well. But that's what we're looking forward to later this year and work is already underway in dialogue with commission staff and others as we prepare to file that the package under the under the conditions that they'd like for us to file it. Bill Apicelli: Okay. That's very helpful. Thank you. That's it for me. Scott Edward Doyle: Thank you, Bill. Operator: This concludes the question and answer session. I would like to turn the conference back over to Megan L. McPhail for any closing remarks. Please go ahead. Megan L. McPhail: Thank you for joining us on the call today. We look forward to seeing many of you at conferences in the coming weeks. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Amy L. Baker: Thank you for joining today's Capital Southwest Third Quarter Fiscal Year 2026 Earnings Call. Participating on the call today are Michael Sarner, Chief Executive Officer, Chris Rehberger, Chief Financial Officer, Josh Weinstein, Chief Investment Officer, and Amy L. Baker, Executive Vice President Accounting. I will now turn the call over to Amy L. Baker. Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements. These statements are based on current conditions, currently available information, and management's expectations, assumptions, and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Capital Southwest's publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, except as required by law. I will now hand the call over to our president, and chief executive officer, Michael Sarner. Michael Sarner: Thanks, Amy. And thank you all for joining us for our third quarter fiscal year 2026 earnings call. We are pleased to be with you today. And look forward to walking you through our results for the quarter. During the third fiscal quarter, we generated pretax net investment income of 60¢ per share, supported by strong recurring earnings across the portfolio. Our undistributed taxable income balance remained robust, at $1.02 per share reflecting consistent realization activity. In fact, over the last twelve months, we have harvested $44.5 million in realized gains from equity access. Driving UTI growth from 68¢ per share in December 2024 to today's level. Subsequent to quarter end, we realized an additional realized gain of $6.8 million from another equity exit. Which should further support our UTI balance going forward. Our board of directors has declared a total of 58¢ in regular dividends for January, February, and March 2026, and has also declared a quarterly dividend, supplemental dividend, of 6¢ per share payable in March bringing total dividends declared for March to 64¢ per share. Turning to originations. Deal flow in the lower middle market remained healthy this quarter. We closed $244 million in total new commitments across eight new portfolio companies, and 16 existing portfolio companies. Add-on financings continue to be an important source of originations for us. As over the last twelve months, add-ons as a percentage of total new commitment have been 29%. These opportunities allow us to deploy capital into businesses we know well with proven management teams and sponsors. The weighted average spread on our new commitments this quarter was approximately 6.4% which we view is very attractive given today's competitive spread environment. On the capitalization front, last quarter we strengthened our balance sheet by issuing $350 million in aggregate principal, of 5.95% notes due 2030. This quarter, we used a portion of the proceeds to fully redeem our $150 million notes due 2026 and $71.9 million notes due 2028. Extending our maturity profile at an attractive cost of capital. We also raised approximately $53 million in gross equity proceeds through our equity ATM program. At a weighted average share price of $21.11 per share or a 127% of the prevailing NAV per share. Reinforcing our ability to raise capital efficiently and accretively. Subsequent to quarter end, we announced a first out senior loan joint venture with a private credit asset manager which I would like to spend some time discussing. We believe this new JV will enhance our competitiveness in our core lower middle market by enabling us to participate in larger, higher quality deals with tighter spreads while maintaining disciplined hold sizes. The structure also allows us to earn outsized economics due to our role as originator and administrator of the JV. And higher relative yields on last out loans. Which is extremely important in an environment where SOFR is declining and loan spreads on new deals remain very tight. The first out loans within the JV are expected to be conservatively levered, approximately 1.5 times debt to EBITDA or less, and once fully ramped, expect the JV to generate a low to mid teens equity return for Capital Southwest. Finally, our partners in the JV is a highly regarded, well-capitalized asset manager with whom we are extremely excited to build a long-term relationship. We believe this relationship may open up other unique opportunities for co-investment in the future as we continue to expand our platform. Overall, we are pleased with our performance this quarter, enthusiastic about the prospects for this new venture. We look forward to giving further updates on the funds in the coming quarters. I will now hand the call over to Josh, to review more specifics on our investment activity and the market environment. Josh Weinstein: Thanks, Michael. This quarter, we deployed a total of $199 million of new committed capital. Consisting of a $197 million in first lien senior secured debt and $2 million of equity across eight new portfolio companies. We also completed add-on financing for 16 existing portfolio companies. Totaling $44 million in first lien senior secured debt and $405,000 in equity. Our on-balance sheet credit portfolio ended the quarter at $1.8 billion representing 19% year-over-year growth from $1.5 billion as of December 2024. Importantly, 100% of new portfolio companies debt originations were first lien senior secured And as of quarter end, 99% of the credit portfolio remained first lien senior secured. With a weighted average exposure per company of only 0.9%. This level of portfolio granularity reflects our disciplined approach to risk management as we continue to scale the balance The vast majority of our deal activity continues to be in first lien senior secured loans to private equity-backed companies. Approximately 93% of our credit portfolio is sponsor-backed, which provides strong governance operational support, and when needed, the potential for junior capital. In the lower middle market, we frequently have the opportunity to invest on a monthly on a minority basis in the equity of our portfolio companies parry pursuit with the private equity firm where we believe the equity thesis is compelling. As of quarter end, our equity co-investment portfolio consisted of 86 investments with a total fair value of 183 representing 9% of our total portfolio at fair value. This portfolio was marked at a 133% of our cost. Representing $45.2 million of embedded unrealized appreciation. Or 76¢ per share. These equity positions continue to give our shareholders meaningful upside participation in growing lower middle market businesses driven by both operational improvement and strategic add-on acquisitions. This is evident from the recent realized gains, which Michael mentioned earlier. The lower middle market remains highly competitive, as this segment of the market continues to attract both bank and nonbank lenders. While this has resulted in tight loan pricing, for high-quality opportunities, the depth and strength of our sponsor relationships the team has cultivated over the years have continued to result in our sourcing and winning opportunities with attractive risk return profile. Today, our portfolio includes investments from 90 unique private equity firms, And over the past twelve months, we closed 14 new platform investments with sponsors we had not previously partnered with. Since launching our credit strategy, we have completed transactions with over 129 private equity firms nationwide. Including more than 20% with whom we have completed multiple deals. Our portfolio now consists of 132 portfolio allocated 90% to first lien senior secured debt, 0.8% to second lien senior secured debt, and 9.1% to equity co-investments. The credit portfolio generated a weighted average yield of 11.3% with weighted average leverage through our security of 3.6 times EBITDA. We remain pleased with the overall performance of the portfolio. At origination, all loans are initially assigned an investment rating of two on a five-point scale, with one being the highest rating and five being the lowest rating. As of quarter end, 90% of the portfolio at fair value was rated in the top two categories. Cash flow coverage remained strong at 3.4 times, reflecting an improvement from the 2.9 times low observed during the peak of base rates. This strength is further supported by the fact that our loans represent on average, only 44% of portfolio company enterprise value. Our portfolio remains broadly diversified across industries, and our average exposure per company of less than 1% continues to provide meaningful protection against idiosyncratic risk. For new platform deals closed during the December, weighted average senior leverage was three times debt to EBITDA, and weighted average loan to value was 36%. Providing a substantial equity cushion for each of our debt. Over the past twelve months, new platform originations have averaged 3.3 times senior leverage, and 37% loan to value. Underscoring our consistent commitment to conservative underwriting. I will now hand the call over to Chris to review the specifics of our financial performance for the quarter. Chris Rehberger: Thanks, Josh. Turning to our financial performance for the quarter. Pretax net investment income was $34.6 million or 60¢ per share. Total investment income increased to $61.4 million up from $56.9 million in the prior quarter. The increase was driven primarily by a $1.8 million increase in PIK income a $1.1 million increase in fees and other income, and a $1 million increase in dividend income. The increase in PIC was driven by an amendment to one of our portfolio companies, in which the sponsor provided significant new cash equity support and a debt pay down in exchange for a pick option. As of quarter end, nonaccruals represented just 1.5% of our investment portfolio at fair value. During the quarter, paid a 58¢ per share regular dividend and a $06 per share supplemental dividend. For the March 2026 quarter, our board has again declared a total of $0.58 per share in regular dividends, payable monthly in each of January, February, and March 2026 and maintained the 6¢ supplemental dividend also payable in March, bringing total dividends declared to 64¢ per share. We continue to demonstrate strong dividend coverage, with a 110% cumulative coverage since launching our credit strategy. With UTI of a dollar and 2¢ per share, and a sizable unrealized appreciation balance in our equity portfolio, we remain confident in our ability to continue distributing quarterly supplemental dividends over time. LTM operating leverage ended the good quarter at 1.7%. Significantly better than the BDC industry average of approximately 2.6%. As our asset base continues to grow, our near-term target for operating leverage is 1.5% or below, reflecting the inherent efficiency of the internally managed BDC model. The internally managed model has and will continue to provide meaningful fixed cost leverage to shareholders while still allowing us to invest in talent and infrastructure as we continue to scale a best-in-class BDC platform. NAV per share increased to $16.75 per share up from $16.62 per share in the prior quarter. Driven primarily by our equity ATM program. As Michael noted, last quarter, we issued $350 million of 5.95% unsecured notes due twenty third. During the December, we used a portion of the proceeds to fully redeem our $71.9 million August 2028 notes and a $150 million October 2026 notes. With no make-whole payments required. We view this refinancing as a highly favorable outcome for shareholders strengthening our balance sheet and positioning us well across a range of market environments. Our liquidity position remains robust, with approximately $438 million in cash and undrawn leverage commitments across our two credit facilities plus $20 million available on SBA debentures. In total, this represents more than 1.5 times coverage of the $285 million in unfunded commitments across the portfolio. Regulatory leverage ended the quarter at 0.89 to one debt to equity, down slightly from 0.91 to one in the prior quarter. While our target leverage remains 0.8 to 0.95, we continue to factor in the macroeconomic backdrop and intend to maintain a prudent leverage cushion to help mitigate capital markets volatility. We will continue to raise secured and unsecured debt capital, as well as equity through our ATM program in a methodical and opportunistic manner to ensure we maintain significant liquidity at a conservatively constructed balance sheet with adequate covenant cushions. I will now hand the call back to Michael for some final comments. Michael Sarner: Thank you, Chris, Josh, and Amy. Thank you to all of our employees who work tirelessly behind the scenes to help us deliver for our shareholders and communicate our progress each quarter. Your dedication is a critical part of what makes this platform so strong. And it remains a deep source of pride for me. And to everyone joining us today, we appreciate your continued interest engagement, and support. We remain focused on executing our strategy maintaining disciplined growth and creating long-term value for our shareholders. That concludes our prepared remarks. Operator, we're ready to open the line for Q and A. Operator: And wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Doug Harter with UBS. Douglas Harter: Thanks. I was hoping you could just expand a little more, talk about the lower middle market. Just how do you view that from a competitive dynamic today? What are you seeing in terms of players or is anyone, you know, kinda moving back into that market, moving out of the market, you know, how are you seeing that? And what's the outlook for spreads as a result? Michael Sarner: Yeah. I do not think it's really changed much over the last probably six months. I think over the last twelve and eighteen months, we have seen regional banks that I've noticed this before. They've dropped down historically they only landed, you know, to maybe one and a half turns of leverage in a maybe in a senior measure. Structure. And more recently, we're seeing regional banks actually underwrite a whole unitranche loan. Now they come and go. Certainly anytime you're seeing headlines of know, private credit issues, they sort of back off. But by and large, I think that it was kind of the same players mean, what we probably have seen in the last I would say, one to two months is that there's particularly on the BDC space, there's 27,042 BDCs that cut their dividends And I think we're only seeing five BDCs trade above book right now. So there's a little less competition from our peers. As they sort of lick their wounds right now. Other than that, I think that, you we're in a very strong competitive position Obviously, we've announced this joint venture, which we think is gonna strengthen our ability to continue to win deals that are in our core competency, the lower middle market. Douglas Harter: Great. And I guess just then on the spread outlook, how that kind of those comments would lead to kind of how you think spreads progress over the coming quarters? Michael Sarner: Yeah. So we look at it in our the spread on debt is actually from 03/31/2025. It was 7.35%. Today, seven point two four. So we've held in pretty well from a spread perspective. I think we say that we've seen spreads the spread compression has seemed to stop the last twelve months and even the last three months we've seen our spreads on our newly originated deals the mid sixes. And those are with, you know, three times leverage and 36% loan to value. So very conservatively structured deals. With decent with decent decent spread. So I I think for us, we'll continue to be somewhere between seven percent and and seven and a quarter if we would expect for the next twelve months. Douglas Harter: Appreciate that. Thank you. Operator: Our next question comes from Mickey Schleien with Clear Street. Mickey Schleien: Yes. Good morning, everyone. Michael, could you give us a sense of the breakdown of the portfolio between sponsored and non-sponsored at this time? Michael Sarner: I think it's 93% sponsored and 7% non-sponsored. And that's probably I thought it's been it's typically been somewhere between 85-95% sponsored deals. Mickey Schleien: And how are those sponsors behaving in terms of their appetite for deals in the in the current market environment? You know, I mean, we go quarter to quarter, and you know, sometimes it's risk on, sometimes it's risk off. We're there's so much going on. Can you give us a sense of just the backdrop? Michael Sarner: Josh, you wanna take this one? Josh Weinstein: I think there's there's still a lot of capital in the private equity lower middle market private equity funds. So this they're still looking for deals. I think that if you ask most private equity sponsors in the lower middle market, they would say last year was a pretty quote, unquote, weak year from a deployment perspective, and they're hoping 2026 there'll be more opportunities for them. But yeah. So I think that they're looking for deals. They have capital to spend, but they're not you know, last year, they didn't find as many deals available to them. You know, the other thing I would add is that the lower lower middle market where we play the 3 to 15,000,000 in EBITDA, you know, we're not volume you see isn't as typical with what you hear on the headlines of you know, m and a going up and down. There are founders as an aging pop aging population where, you know, companies are turning over. There's been a steady drumbeat I wouldn't say that there's been there's clearly not the same peaks and troughs that you see in the upper and middle middle market. So I I think the sponsors that that Josh is referring to, they're they're they're still seeing plenty of of deal flow. Mickey Schleien: And and, Michael, with that in mind, I mean, we're we're certainly reading a lot about pressure from LPs on these sponsors to to provide them some liquidity. But I'm getting the sense that you know, the sponsors you work with, which are know, focused on the lower middle market, is that less of an issue for them? Michael Sarner: I think it's I mean, I I think it can be an issue. Depends on where they are in the life cycle of fund. I mean, I think that they're that you're I think that they're looking for opportunities to exit as well. To provide that liquidity to LPs, but but probably a little bit less pressure than you'd see in the middle market or upper middle market. But but you know, we obviously talk to a lot of sponsors in the country and have deep relationships with them. But you know, speaking specifically about their you know, their liquidity situations and all that stuff is a little bit tough for us. Mickey Schleien: Right. No. I get it. Michael Sarner: Yep. And the other thing I would note for you, this is when we go through our investment committee process, on new deals, we definitely focus on where this investment stands in a fund life. So if a comp if if a fund or a sponsor, this is, you know, one of the last deals, and we're you know, there's only 5 to 10,000,000 of dry powder. That's allocated with the rest of the portfolio. That's certainly gonna be a negative and something that we're gonna discuss to see whether we still feel good about the credit. So we typically want these deals to be in, you know, beginning or the middle stages of of a fund line. Mickey Schleien: Understood. Michael, given what we've just talked about in terms of sponsors, any sense of you know, how active you expect to be, you know, this calendar year and and maybe even next year in terms of deal flow and know, repayment risk in the portfolio and essentially, you know, what's your sort of business plan for net portfolio growth? Michael Sarner: No. I I honestly I feel very bullish for for several reasons. One, you know, we've grown our sponsor relationships think we cited the numbers earlier over time. We've recently added another MD under originating MD, Brian Mullins, who brings his own unique set of sponsors. Who's gonna be covering know, the contrary. We recently promoted Grant Easton, one of our principals, to MD, and he's you know, he's firing on all cylinders, and he's been so he's another source of origination. And then, you know, the joint venture, I'm looking back to it. So the joint venture allows us to compete on the same deals we're looking at today, but we've historically held the line at around 5.75% because that's you know, that's a moving target. But most recently, 5.75% spread kinda meets our ROE target. And anything below that, you know, with the we we didn't view as accretive to the portfolio and and helpful to our dividend. By doing this joint venture, we're able to compete and win on deals that 5% or above, while still actually, you know, incorporating additional arranger fees profit allocation, and this enhanced spread that increases the yield on the deal by a 100 basis points. So we're gonna be able to see the same amount of deals from one perspective, but be winning more of them. And these are typically the reason this venture was really important to us is we were focused over the last twelve months saying, look, You've seen a lot of really high-quality deals that we would love to put in our portfolio that we thought were, quote, unquote, you know, sleep at night credit. But we weren't getting our DLC and the ability to go below $5.05 75. This is giving them another you know, arrow and a quiver to to actually go out and compete And, these are deals that we can consider cleaner and more high quality. And it also allows us to maintain granularities. We think that's been a huge part of our success is maintaining granularity through the last ten years and then not really getting greedy, staying below that 1% on average. Mickey Schleien: Michael, did you say in your prepared remarks that the JV would be primarily a last out fund? Did I hear you correctly? Michael Sarner: No. So well, I'd say it's primarily, but there's gonna be different types of assets that go into the fund. But the the probably the best example of what this fund is is if you look at a a $10 million EBITDA company, that's levered three and a half times with say, 35% loan to value at a you know, five fifty spread. That's a $35 million total debt check. So in our in the example I give you, the first out we go into the joint venture, So probably correct myself. The only thing that's pretty much going into the joint ventures would be first out position. So they would hold $10 million at $3.75 spread one turn of leverage, and 10% loan to value. On our balance sheet, we would hold $25 million of that debt of the debt stack and that would get a, you know, 66.25% spread and still levered at the same 3.5 times and 35% loan to value. So that kinda gives you an idea of what what what it'll look like on balance sheet and and in the JV. Mickey Schleien: Understood. And and what kind of leverage do you expect the JV's balance sheet to have? Michael Sarner: So I'll start. The asset level is gonna be between one and one and a half turns. Of leverage for for individually on the asset side. The fund itself will be probably something around two and a half turns plus or minus. Mickey Schleien: Okay. And that gets you to your ROE target. I understand. And lastly, and I appreciate your patience, the portfolio has about 21% at fair value in consumer products and services, restaurants, and and movies. You know, those are, you know, sort of cyclical segments. Can can you discuss your underwriting approach to those segments and how are those portfolio companies doing given know, everything we're reading about a k shaped economy? Michael Sarner: So I think maybe Josh, wanna take this one? I would tell you that when I look at our weighted average leverage for consumer services that fall into the buckets you're referring to, leverage is is slightly elevated at 4.2 times. When we look at, you know, where other portfolios begin at five and a half to six times in upper middle market, we would say it's still pretty conservatively levered because, you know, our entry multiple on many of these companies are gonna be somewhere between one and a half to three times leverage. Okay. We're we're certainly cognizant of of consumer discretionary. So I would say there's a decent amount of that consumer probably the majority that consumer, we think, well positioned for consumer pullback or economic pullback. And on top of that, we do structure our deals you know, recognizing, you know, where we are with the know, with the with potential consumer pullback. Mickey Schleien: Understood. I appreciate you taking my questions. That's all I have this morning. Thank you very much. Michael Sarner: Thanks, Nick. Operator: Our next question comes from Erik Zwick with Lucid Capital Markets. Erik Zwick: Good morning. This is Justin Marco on for Erik today. Just going back to the spread conversation, it was wondering if you guys could talk about the current state of underwriting conditions and if you're seeing any other signs of pressure on structure terms? Michael Sarner: We have from a performance standpoint, I would tell you that we're not seeing pressure on any particular industry. Any issues in the portfolio continue to be idiosyncratic. I think you're asking about the the structures of the of new deals we're doing. I I think is is that your question? Erik Zwick: Yeah. Yep. Michael Sarner: Yeah. So so I think we said this, and it it can stay consistent that we've we've definitely seen we had seen spread compression over the last twelve, eighteen months considerably. But but structurally in the lower middle market, we have not seen, you know, sort of weak credit agreements or asks coming through from our private equity sponsors. It's it's pretty status quo from a structural perspective over the last bunch of years. I think that where where the lower middle market has moved in the last kinda eighteen months or so, has been on the pricing and spread, not on the structure. So it's still seeing good covenants and and and solid credit documents. Yes. I mean, almost, I'd say, 100% of our portfolio or close to it. You know, I have a fixed charge covenant and leverage covenant. We have a CapEx covenant. And then to the extent that there's a DDTL, you'll see an incurrence covenant as well. Erik Zwick: Okay. Thanks for the color there. And for me. Any other additional details on the new JV expecting to be fully ramped up? whether, you have like a targeted size in mind or when you're Michael Sarner: Sure. So we've actually we've been negotiating that for a bit of time. We've already started ramping. We we closed three deals that will be contributed closed three deals in the $12.30 mark quarter that contributed in the coming weeks. And we're close to closing a credit facility I think how many? $300 million credit facility. I think the answer to question is each party was contributing committed $50 million of equity to date. We think it's gonna take probably at least a year to get probably up to the the full leverage. So it's gonna probably it'll it'll eventually be a a mid teens return. I think it'll be, you know, double digits return. By the end of the year. Erik Zwick: Got it. Thanks for taking my questions today. Michael Sarner: Of course. Operator: Our next question comes from Dylan Hines with B. Riley Securities. Dylan Hines: Hey, thanks for taking my I was just wondering, I noticed you talked about the in the quarter for the originations. I was wondering, do you have do you know what the weighted average yield was for your originations in the quarter? Michael Sarner: Wait over to you. Well, we I think I said earlier. So the spread on the new deals this quarter was six and a half percent. And leverage was three times, and loan to value is 36%. So are you just saying I mean, with the so far, so the weighted average yield is approximately ten fifty. Dylan Hines: Gotcha. Right. Okay. Deals. Gotcha. Yeah. And then I was wondering about the ATM issuances. Do you expect to continue doing that as long as the premium's favorable? Do you have a do you have a target rate that you generally wanna issue at? Or Michael Sarner: Yeah. Sure. So, yeah, if you look, you know, past history, we do somewhere between 30 and 50,000,000 every quarter. That vacillates depending on deal flow and repayments and and liquidity needs. But certainly, with the with the premium we're trading at, you know, somewhere in that range it is would be a good expectation for the coming quarter. Dylan Hines: Okay. Alright. That'll be it. Thank you. Michael Sarner: Welcome. Operator: Our next question comes from Robert Dodd with Raymond James. Robert Dodd: Hi, everybody. Hope you can hear me with the much background noise On the JV, we can go back, is there any impact? Mean, you've said you don't need to expand kind of your your your net currently in terms of being able to to to stock that up. But is there any intent to can you expand maybe the size of the businesses or the the, the type of leverage multiple, anything like that. Maybe once it gets closer to to to scale, or is it is it just it's exactly the same assets, just the the lowest spread ones going in that JV? Michael Sarner: I I think that's right. It's pretty much exactly the same as this. I think these deals that are really targeted for this are gonna be deals that are between 5 and 10,000,000 of EBITDA. So there, like I said, many times are very clean. They're deals? And they're priced between 5 and $5.75. I would say it's the extent that we're seeing deals that are slightly larger, so let's call them you know, 35 to $40 million check, which we don't prefer to hold, because our our our preference for granularity, this does give us the ability on those deals to put 10 to 15,000,000 in the JV. While, you know, still maintaining a, you know, 20 to $30 million hold. to be feel more comfortable in putting So I think it on the margin, it allows us to start to feel that are slightly larger. But for the most part, it's just the cleanest deals in our course base. Robert Dodd: Got it. Thank you for that. One more quick. It's it's been topical over the last couple of days. How are you evaluating AI risk both within the assets you already have in the portfolio, but then when you look at new originations and opportunities, how much, if any, is is AI risk being factored into your underwriting case Michael Sarner: Honestly, that is it's something that we started taking up about probably a year ago. We formed an AI committee And then actually created a segment in our investment committee process which rates the various aspects of a company in terms of the the AI risk or so because, look, when we look at companies, sometimes AI is gonna be helpful. We see in some financial services companies, they're gonna be using AI to to know, basically become more efficient. In other deals, we're seeing AI as a potential. We just saw a deal maybe two weeks ago that we we couldn't get comfortable with because the advent of AI may not impact business in the next two years, but it would impact the business in five. And therefore, you know, the concern of how it's gonna get sold and at what valuation would that cover the debt. So I think looking at we're we're certainly it's definitely a a a heavy segment of our investment committee discussion. And then internally, we're looking to see how we can utilize AI as well to become more efficient as an organization. And that's something that's it's begun in our Robert Dodd: Got it. Thank you. Operator: That concludes today's question and answer session. I'd like to turn the call back to Michael Sarner for closing remarks. Michael Sarner: Yeah. I wanna take one minute to just pause and reflect. Our our company, our balance sheet, just passed $2 billion in assets. I know, you know, growing the balance sheet is not the goal here. It's creating value. It is a testament to everybody who's worked here and all the value that's created to allow us to continue to grow. And my optimism today, and I think our optimism as a group has never been higher, I mean, we've mentioned the two you know, new MDs that are you know, helping enhance the business. The joint venture, which we spent a lot of time discussing, You know, we've we've talked about we've over the last twelve months, we've exited to date, like, $50 million in equity. And I'd remind everybody that's on 5000005% equity portfolio at cost. So we're punching way above our weight, which tells you, you know, our underwriting both on our debt and and our ability to to create equity gains has been has been strong. That's created the dollar 2 per share of UTI. We have 76¢ of unrealized appreciation and we would tell you majority of that are in companies that are in the market. Some in the 2026 and other in the back half. Our operating leverage of the company is 1.4% on a run rate basis. Excluding the onetime charge in from from last year. Conservative leverage at active corporate level of 0.89, conservative leverage at our portfolio level of 3.6 times, significant liquidity. And and all of that is brought us to a place where we have a a 40% plus premium to book on our stock. Which reflects, I think, all the strong work we've done in the company. So, you know, as we leave this call, I I just I'm I'm thankful to all of the shareholders that support the company. I'm extremely proud of of all of the employees who who've done this great work. And as we look forward, we, you know, we see this optimism and and hope you understand it as well. Thanks to everyone, and and have a great week. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. And welcome to the Hamilton Lane Fiscal Third Quarter 2026 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Tuesday, February 3, 2026. I would now like to turn the conference over to John Oh, Head of Shareholder Relations. Please go ahead. John Oh: Thank you, Natasha. Good morning, and welcome to the Hamilton Lane Q3 Fiscal 2026 Earnings Call. Today, I will be joined by Erik Hirsch, Co-Chief Executive Officer, and Jeff Armbrister, Chief Financial Officer. Earlier this morning, we issued a press release and a slide presentation, which are available on our website. Before we discuss the quarter's results, we want to remind you that we will be making forward-looking statements. Forward-looking statements discuss our current expectations and projections, relating to our financial position, results of operations, plans, objectives, future performance, and business. These forward-looking statements do not guarantee future events or performance and are subject to risks and uncertainties that may cause our actual results to differ materially from those projected. For a discussion of these risks, please review the cautionary statements and risk factors included in the Hamilton Lane fiscal 2025 10-Ks and subsequent reports we file with the SEC. These forward-looking statements are made only as of today and except as required, we undertake no obligation to update or revise any of them. We will also be referring to non-GAAP measures that we view as important in assessing the performance of our business. Reconciliation of those non-GAAP measures to GAAP can be found in the earnings presentation materials made available on the Shareholders section of the Hamilton Lane website. Our full financial statements will be made available when our 10-Q is filed. Please note that nothing on this call represents an offer to sell or a solicitation of an offer to purchase interest in any of Hamilton Lane's products. Let's begin with the highlights and I'll start with our total asset. At quarter end, total asset footprint stood at over $1 trillion and represents a 6% increase to our footprint year over year. AUM stood at $146 billion and grew $11 billion or 8% compared to the prior year period. The growth came from both our specialized funds and our customized separate accounts. AUA came in at $871 billion and grew $50 billion or 6% relative to the prior year period. This stemmed primarily from market value growth of the portfolio and the addition of a variety of technology solutions and back-office mandates. Total management and advisory fees for the year-to-date period were up 11% year over year. Total fee-related revenue for the period, which is the sum of management fees and fee-related performance revenues, was $57 million and represents 31% growth year over year. Fee-related earnings were $254.6 million year to date, and represent 37% growth year over year. We generated fiscal year-to-date GAAP EPS of $4.35 based on $183 million of GAAP net income, and non-GAAP EPS of $4.41 based on $240.1 million of adjusted net income. We have also declared a dividend of $0.54 per share this quarter, which keeps us on track for the 10% increase over last fiscal year, equating to the targeted $2.16 per share for fiscal year 2026. With that, I will now turn the call over to Erik. Erik Hirsch: Thank you, John, and good morning, everyone. As we look back on calendar 2025, Juan and I are very proud of all that has been accomplished. And we are enthusiastic about the significant opportunity that lies ahead. Our team successfully navigated changing markets and high client expectations. We delivered strong growth and outstanding results and we exited calendar year 2025 with real momentum. We have a larger, more global reach, a more diversified platform, expanded and deeper client relationships, and new product lines that are gaining traction and growing. While Juan and I have the privilege of witnessing what this team does every day, it is also rewarding to be recognized by those outside of Hamilton Lane. So I am honored to say that Hamilton Lane was once again recognized by pension and investments as one of the best places to work in money management. We have now earned this recognition for the fourteenth consecutive year and are one of only five companies that has been recognized every single year since the award's inception in 2012. Our people are our asset. And we have worked hard to create an environment that is collaborative and growth-oriented where we all focus on what matters. Doing the very best we can for our customers. Let me move now to a quick update on the strategic partnership with Guardian that I highlighted on our last call. I'm proud to announce that the partnership has officially closed, and we are already hard at work. As a reminder, Hamilton Lane will oversee nearly $5 billion of Guardian's existing private equity portfolio, and these assets will be reflected in our total asset footprint beginning next quarter. Also, we expect to receive additional annual commitments of approximately $500 million for at least ten years, enabling Guardian to access a broad range of private market opportunities across primary, secondary, and co-investment strategies through our platform. This also includes support for Hamilton Lane's global evergreen platform where at least $250 million of capital will be invested into our evergreen. In addition, the partnership also provides Guardian with HL and E equity warrants and other financial incentives driving alignment and opportunities for long-term value creation. The initial economic impacts of the partnership will be recognized in our fiscal 2026, and we will provide additional details on our next call. Our partnership with Guardian is a clear proof point of our ability to work alongside the world's most sophisticated institutional investors to design and execute comprehensive private market programs. In a very short period of time, we are already fully engaged. Capital has been allocated to our US secondaries and venture evergreen funds. Complemented by a sizable commitment to our latest closed-end direct equity fund and to the upcoming first close of our next secondary fund. Additionally, we have also successfully onboarded three of our US Evergreen offerings onto their Park Avenue securities platform and we look forward to working closely with their extensive adviser network to deliver evergreen solutions for their clients. We remain excited about this partnership and all the opportunities for mutual success that lie ahead. Let me now turn to an update on our capital raising and fee-earning AUM. Total fee-earning AUM stood at $79.1 billion and grew $8.1 billion or 11%, relative to the prior year period. Net quarter-over-quarter growth was $2.7 billion or 4%. Fee-earning AUM growth continues to be largely driven by our specialized fund platform with our semi-liquid Evergreen products leading our strong momentum. The combination of our net positive fundraising, product additions, and strong performance has driven the growth of total fund net value in our Evergreen offering. We have also executed well on our closed-end offerings as evidenced by recent closes and momentum for those funds in market or that have recently held final closes. I will provide more detail on that shortly. Before I move on, I want to reiterate that our blended fee rate continues to benefit from the shift in the mix of fee-earning AUM towards higher fee rate specialized funds most notably our Evergreen products. Today, our blended fee rate stands at 67 basis points with the mix of separate accounts to specialized fund fee-earning AUM at 52% and 48% respectively. This fee rate is 10 basis points or 18% higher than when we went public in 2017. Then our mix was 67% customized separate accounts and 33% specialized funds. We view this shift as a powerful component of our business model and an important driver supporting the trajectory of our management fees over time. Let's move now to specialized funds where fee-earning AUM ended fiscal Q3 at $38.1 billion having grown $6.9 billion over the last twelve months. This represents an increase of 22%. Quarter-over-quarter net growth was $2.4 billion or 7% with much of this driven by our evergreen platform with a strong combination of net new flows and positive net asset value appreciation. Additionally, we benefited from Evergreen non-fee-earning AUM that turned to fee-earning AUM in the quarter as I had detailed on our prior call. In addition to the growth numbers we are experiencing, we have in front of us, several recent closed-end fund launches, most notably our seventh secondary product, which we discussed on our last call, and more recently, our second venture access product. To put that in context, our sixth secondary fund raised $5.6 billion and extended our track record of raising larger funds in that franchise. We believe we are capable of successfully managing increasingly larger pools of capital in both of these spaces, and in neither space, are we anywhere close to the largest player? We have plenty of room to continue to grow. On the venture side, we're looking to build on the success of our inaugural venture access product, which closed in February 2025 with nearly $610 million of investor commitments. We currently expect to hold first closes for both the new secondary fund and the second venture access fund sometime in 2026. Now let's move to the rest of the product suite, and I'll start with our sixth equity opportunities fund. As a quick reminder, this fund focuses on direct equity investments alongside leading general partners and it offers two fee arrangements that either charge management fees on a committed capital basis and a 10% carry, or fees on a net invested basis with a 12.5% carry. Our prior direct equity fund offered the same arrangement and raised $2.1 billion. Now during the quarter, we held additional closes totaling nearly $300 million of LP commitments. Then in January, we held another close of approximately $500 million. So taken together, the fund now stands at over $2.3 billion. And at that size, we have surpassed the prior fund by nearly 15%, and we have solid visibility on additional capital in the pipeline that has yet to close. The management fee mix is currently about 35% on committed capital, and 65% on net invested. Jeff will provide additional detail on the retro fees associated with the capital that closed both in the quarter and post quarter end. We expect to hold a final close of this fund over the coming months. And we remain focused on finishing this fundraise on a strong note. Turning now to our second infrastructure fund. As a reminder, this strategy focuses on direct equity and secondaries across the infrastructure landscape and the fund earns management fees on a net invested basis. I am pleased to report that just yesterday, we announced the final close bringing total capital raised in and alongside the fund to nearly $2 billion. With over $1.5 billion coming into the fund and nearly $400 million alongside the fund and related vehicles. At this size, we have now more than tripled the capital raised in our inaugural infrastructure fund. This second vintage is off to a strong start with over 40% committed as of December 31. We view this outcome as evidence of our ability to launch and scale new strategies, and we remain confident in our ability to further grow this franchise. Let's now turn to our annual strategic opportunity fund, which is our closed-end direct credit strategy. As a reminder, this fund charges management fees on a net invested basis. On December 31, we held the final close for the ninth series, and raised a total of $527 million of investor commitments. This will be our final series of our strategic opportunities franchise. When we launched our strategic opportunities franchise more than a decade ago, private credit looked very different. Investors were looking for a blended approach between senior and junior credit and we built a product to match. Now over time, private credit has scaled and has become more segmented and investor preferences have followed. We're now reshaping how we position and construct this closed-end franchise so it's set up for the next leg of growth. And better align with how clients are allocating across senior, junior, and opportunistic credit. We are in the process of launching a variety of closed-end credit funds that are more segmented, and those will sit alongside our credit evergreen funds but they will now follow a more traditional fundraising cadence. Where we raise capital every few years. Importantly, the management fee dynamics will be unchanged. Fees will continue to be charged on a net invested basis, and will move into fee-earning AUM as capital is deployed. We launched our first credit vehicle ten years ago, and then we managed a sum total of $70 million in credit product AUM. Today, across closed-end and evergreen, we are managing nearly $4 billion in fee-earning AUM, reflecting a compounded growth rate of more than 45%. While we are proud of this success, we also recognize how modest this is in the context of the credit markets, and we are excited to continue scaling this business in a very significant way and believe we have a clear path to do just that. Let's now move to our Evergreen platform. Our Evergreen platform delivered another strong quarter. For the quarter ended December 31, 2025, we generated over $1.2 billion of net inflows across the suite driven by a combination of expanded product offerings, robust fundraising, and solid investment performance. At quarter end, total Evergreen AUM reached over $16 billion representing over 70% year-over-year growth. Within that total, our core multi-strategy private markets offering continues to anchor the platform. It ended 2025 at over $11.7 billion of AUM, and once again delivered sustained positive net inflows. Recurring flows from existing partners. We are making real progress broadening distribution for this flagship strategy in the US and internationally while also seeing healthy many of whom are now adding allocations to our newer evergreen strategies. Turning to credit. Despite recent headlines and volatility in certain parts of the private credit market, our international credit Evergreen Fund remains on extremely solid footing. It continued to generate positive net inflows in the quarter, with AUM surpassing the $2 billion mark at calendar year-end 2025. Performance remains strong with a since inception net annualized return of over 9.5% and positive monthly performance throughout all of calendar year 2025. December net inflows were the fourth highest month since its launch in 2022, and for calendar year 2025, we averaged over $90 million of monthly net inflows. In addition to that, we remain on track to introduce its US registered counterpart in the coming months. Finally, we are encouraged by the trajectory of our newer Evergreen offerings. Both our infrastructure Evergreen, which was launched in 2024, and our secondaries Evergreen, which was launched in early 2025, are both approaching the $1 billion AUM threshold respectively. That progress reinforces our conviction that the Evergreen platform can be and is increasingly becoming a multi-strategy, multi-asset growth engine for the firm over time. Let's wrap up here with customized separate accounts. At quarter end, customized separate account fee-earning AUM stood at $41.1 billion and grew $1.3 billion or 3% over the last twelve months. Net quarter-over-quarter growth was $280 million or 1% with the growth gross contributions stemming from a mix of new client wins, re-up activity from existing clients, and contributions for investment activity. This was offset by fee basis step-downs and returns of capital stemming from exit activity. We continue to carry substantial committed and contractual dry powder ready to deploy, supported by a strong pipeline of mandates that have been awarded, and are currently moving through the contracting stage. Across our platform, we have long-dated relationships with the majority of our separate account clients, and have experienced minimal churn over our history, underscoring the durability and depth of these partnerships. Because separate account programs are highly tailored rather than formulaic, the pace at which they move from sale to full deployment can vary. Introducing timing variability in which assets and revenues come online. In fact, in December alone, we closed on more than $2 billion of new SMA capital coming from a mix of existing client re-ups, new service lines with current clients, and new relationships to Hamilton Lane. Behind that, our pipeline of live opportunities to various stages of negotiation remains sizable and in the multibillion-dollar range. That said, we continue to see our clients adopting and desiring product solutions at a faster pace than SMAs. We believe that serves them and us well. Let me move now to the update on our latest addition to the Hamilton Lane Innovations portfolio where we utilize our balance sheet capital to invest in differentiated technology solutions that broaden access to the asset class, enhance the investor experience, and strengthen the overall infrastructure of the private market ecosystem. On January 6, we announced an investment in Pluto Financial Technologies, alongside Apollo, Motive Ventures, and Portage. Pluto operates at the intersection of two important trends for our industry. The continued expansion of private markets and the growing need for sophisticated technology-enabled infrastructure to support that growth. Pluto's platform is built specifically for private market investors and uses AI-driven technology to connect directly to underlying portfolios, providing access to credit without forcing the sale of positions or the need to work through multiple intermediaries. The objective is straightforward. Give investors a practical liquidity tool while allowing them to stay committed to their long-term private market allocations. As individual investors continue to allocate more capital to the private markets, and in turn become incrementally larger and larger parts of investor portfolios, the importance of liquidity has only increased. Historically, many individual investors and their advisers view limited liquidity as a barrier to meaningful allocation even when they were convinced of the return and diversification benefits. As structures, secondary solutions, and product design have evolved to offer more frequent liquidity windows, and better tools for managing flows, we are seeing that hesitancy begin to fade. We believe that continuing to improve the liquidity experience for individuals in a thoughtful, risk-aware way is one of the keys to deeper penetration of private markets in the wealth channel. Simply put, the more we can marry institutional quality exposure, a liquidity profile that works for individuals, the larger the opportunity set becomes. We believe that Pluto is helping to drive increased liquidity in our asset class and uniquely leveraging technology to make that happen. We are proud to join them on this important journey, and look forward to providing you with future updates. And with that, I'll pass the call to Jeff to cover the financials. Jeff Armbrister: Thank you, Erik, and good morning, everyone. Year to date for fiscal 2026 management and advisory fees were up 11% from the prior year period. However, this includes the impact of nearly $21 million of retro fees from specialized funds. Namely the final close for our sixth secondary fund in the prior year period, versus $2 million in the current year-to-date period. Stemming primarily from our latest direct equity fund. Total fee-related revenue was up 31% largely driven by fee-related performance revenues recognized year-to-date fiscal 2026 versus a minimal amount during the same period in fiscal 2025. Year to date, specialized funds revenue increased by $35 million or 15% compared to the prior year period. Growth in specialized fund revenue was driven by continued growth in our Evergreen platform, which continues to be a key driver of specialized fund fee-earning AUM. Again, the year-over-year growth here was impacted by the retro fee element that I just alluded to. Moving on to customized separate accounts, revenue increased $4 million or 4% compared to the prior year period due to the addition of new accounts, re-ups from existing clients, and continued investment activity. Revenue from our reporting, monitoring, data, and analytics offerings increased by over $5 million or 24% compared to the prior year period as we continue to produce strong growth in our technology solutions offering. Lastly, the final component of our revenue is incentive fees, which totaled $136 million for the period. This amount includes fee-related performance revenues stemming primarily from the quarterly crystallization of performance fees from our US private assets Evergreen Fund with additional contributions coming from our more recently launched Evergreen Funds. Let's turn now to our unrealized carry balance. The balance is up 15% from the prior year period even while having recognized $77 million of incentive fees excluding fee-related performance revenues during the last twelve months. The unrealized carry balance now stands at approximately $1.5 billion. Moving to expenses, fiscal year-to-date total expenses increased $40 million or 14% compared with the prior year period. Total compensation and benefits increased $29 million or 15% due primarily to increases in operating performance headcount, and equity-based compensation. This was offset by lower incentive fee compensation due to a prior year period decrease in non-FRPR incentive fee revenue compared to the G&A increased by $11 million. We continue to see growth in revenue-related expenses, including the third-party commissions related to our US Evergreen product, being offered on wirehouses. We will continue to emphasize that while overall G&A expenses increased over time, the bulk of the increase stems from these revenue-related expenses. Which is a good thing and can be an indicator of growth to come. We continue to successfully offset this with cost savings and expense discipline in other parts of the business where we have discretion. Let's move now to FRE. And just a quick reminder, FRE will now include the fee-related performance revenues and exclude the impact of equity-based compensation in the calculation of FRE. With that, fiscal year-to-date FRE came in at $255 million was up 37% relative to the prior year period. FRE margin year-to-date came in at 50% compared to 48% for the prior year period. Both FRE and FRE margin benefited from strong fee-related performance revenues in the period. Before I wrap up and end with some balance sheet commentary, I wanted to reiterate and summarize the financial impacts from the Guardian partnership. And as Erik mentioned earlier, the initial financial impact will not be reflected until next quarter. We expect to earn management fees on capital invested into our Evergreen funds which will be reflected in specialized funds revenue as well as fees from a separate account that will resemble a typical institutional mandate in both portfolio construction and fee schedule. In both cases, there is also potential for performance fees aligned with the underlying strategies. The associated warrant package is expected to result in less than 1% dilution based on our fully diluted share count as of December 31, 2025, and be based on a vesting schedule. Additional details on the warrant package can be found in our prior Q2 10-Q and our upcoming October filing. I'll wrap up now with some commentary on our balance sheet. Our largest asset continues to be our investments alongside our clients in our customized separate accounts and specialized funds. Over the long term, we view these investments as an important component of our continued growth. We expect that we will continue to invest our balance sheet capital alongside our clients. With regard to our liabilities, we continue to be modestly levered and we'll continue to evaluate utilizing our strong balance sheet in support of continued growth for the firm. With that, we will now open up the call for questions. Thank you. Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We ask that you please limit yourself to one question. If you have additional questions, you may press star one again. One moment, for your first question. Your first question comes from Ken Worthington with JPMorgan. Please go ahead. Ken Worthington: Hi. Good morning, and thanks for taking the question. Erik, can you talk about the product roadmap for wealth in calendar 2026? You opened a handful plus of new wealth-focused specialized fund products in '25, including the registration of existing funds into different regions. How should we see 2025 for new product launches really geared to this wealth customer? Erik Hirsch: Thanks, Ken. A couple of things. I think I had mentioned this on a prior call. I think the part that's been noteworthy for us is how these products are actually resonating with the institutional customer. So today, we're still seeing about 15 to 20% of our flows coming from the institutional. And I think we believe that as folks get more acclimated and more educated, that that number will continue to go up. So you mentioned that in calendar 2025, we launched a lot of products. I don't think 2026 will see nearly that volume coming from us. We've now built out strategies in a lot of our core areas. So while we will add some additional products, that won't be nearly at the rate as we saw a year prior, and our focus right now is really getting the products that we have in market to scale. Operator: Great. Thank you. Your next question comes from Alex Blostein with Goldman Sachs. Please go ahead. Anthony: Hey. Good morning. This is Anthony on for Alex. I wanted to ask about software exposure in the business, given recent events. You know, there's been a growing number of concerns around software exposure for a lot of your peers. So could you expand on what that looks like at Hamilton Lane and how you see those businesses performing given potential AI risk? Erik Hirsch: Thank you. Sure. Anthony, it's Erik. I'll take that. So I think than a lot of the other large publicly traded managers, our portfolios are much more diversified because we're not taking ownership directly of single assets. So that co-investment secondary and fund model for us results in our customer exposure being very, very diversified across sector, geography, size, etcetera. So one, we don't have any kind of concentration across portfolios in software. And so that's not a topic for us that right now we're that we see as an at all of an issue for us nor for the customers. Operator: Thank you. Your next question comes from Michael Cyprys with Morgan Stanley. Please go ahead, Michael. Michael Cyprys: Oh, hey. Thanks for taking the question. Just wanted to ask about exit activity. Just curious how you're seeing exit pathways evolve across your platform and the broader industry. And what would you say is maybe the one or two gating items that you're watching could make distributions accelerate sharply across the industry? Erik Hirsch: Sure, Michael. It's Erik. So we are seeing distribution activity pick up. I think this has been more of buyers and sellers reaching more of a kind of an equilibrium in how they're each viewing the market. The IPO market better, but as you know and as we've discussed in the past, that's not a huge exit activity for our business and not a what moves the needle more huge exit activity for our portfolios. So, generally, I think is simply having buyers and sellers agreeing where the markets aren't agreeing on price. So we see that happening. We see a rationalization occurring there. It's also driven by just the maturing of the assets and the fact that they're a lot of them are now reaching kind of their fourth or fifth or sixth year of ownership. The work has been done. The growth has been achieved, and now they're ready to go and harness the profit. So, I see 2026 as a stronger exit environment than we saw certainly in calendar 2025. Michael Cyprys: Great. Thanks. And if I could ask a question on the Evergreen platform that's quickly becoming multi-asset, multi-strategy and with a number of scaled products over a billion in size. Just how are you thinking about opportunities that can open up now as a result of that evolution, whether it's model portfolios, maybe even obtaining placement within target date or other liquid fund strategies in partnership with others, Curious how you're thinking about that. Erik Hirsch: Yeah. I think we're thinking about all of those pieces, Michael. I think what you're seeing is wave number one was sort of the introduction of these products to the market. Wave number two has really been focused on education around some of the benefits of these products. To both institutional and individual investors. And wave number three becomes more around kind of the structuring and partnership where you start using these products as tools in a variety of different ways, a number of which you mentioned. So we're kind of through wave one. We're getting towards wave, you know, finishing up wave two on the education piece, which still continues, and now we're heading into wave three. And so we're involved in dialogue across all of those aspects. Michael Cyprys: Great. Thank you. Operator: Your next question comes from Alex Bond with KBW. Please go ahead. Alex Bond: Hey. Good morning, everyone. I actually have a follow-up on the Evergreen side and specifically the increasing institutional base there. So you've highlighted previously that one of the reasons these products are attractive for institutional is their more liquid nature relative to a traditional drawdown fund. But maybe it would be helpful if you can help us think about maybe what the dispersion has been in terms of redemption requests between institutional and retail clients within the Evergreen suite to date, and maybe to what extent institutional clients have taken advantage of this feature to date? Erik Hirsch: Yeah. Alex, Erik. So I actually don't think the liquidity provision is one of the top two most attractive pieces to them. I think the top two most attractive pieces are much more around ease of use dealing with capital calls, distributions, and sort of severely lagging reporting schedules, not optimal. Benefit number two is the ability to actually tack manage your portfolio in a more thoughtful way. If you're a CIO today of an institution and you want to apply some sort of a credit overweight or an infrastructure overweight or a venture overweight, doing that through draw funds is really impractical. You have to go have us find the funds for you, subscribe to the funds, It takes years for those funds to get capital to put to work to see the net asset value grow. And so trying to do a tactical overweight using drawdown funds means that you need to sort of have a three to five plus year view outwards that that overweight is gonna sort of still be a good thing in that timetable. In Evergreen, they can simply put on an overweight instantaneously because the capital is obviously fully invested. So we're not seeing the institutional investor behave with a higher redemption rate or moving in and out. We're seeing them use this as a portfolio construction tool and ease of use. Third piece I'd mention is actually small institutional investors. Back in the day, they would be a fund to funds customer. And as you know, Hamilton Lane hasn't even offered a fund to funds product in years. That market segment altered that investor base, in some cases, left the class altogether. Or they got convinced that going into a secondaries or co fund was an okay solution. Today, that small institutional investor is much more embraced ever way reenter the private markets. So we see all those as thoughtful, good, and those are gonna be long-term sustaining trends. Alex Bond: Got it. That's helpful. Thanks, Erik. Operator: Your next question comes from Brennan Hawken with BMO. Please go ahead. Brennan Hawken: Good morning. Thanks for taking my question. I was hoping you could speak a little bit to what you're seeing on the ground in the wealth channel. I hear about a little bit of a sitting on hands with the headlines around private credit that we saw in the year-end. So curious what you're seeing there. And when we also have heard that there's the potential for a greater shift or a greater preference for model portfolios, you know, sort of centralizing the allocations. Are you seeing any early signs of that? And what are your thoughts about how to deal with such a shift? Erik Hirsch: Sure, it's Erik. I'll take those. So look, we kind of laid out our flows. We're not seeing the sitting on hands that you're sort of referencing. I think part of this is we're positioned as a differentiated product. That managed manager of managers is simply different than single manager strategy. And I think the market has obviously been very receptive to our positioning there. And our flows continue to be good. Model portfolio is certainly a topic of conversation. You're seeing early moves there. But to say today that you're seeing some massive sort of sea change, I would say just the data is not bearing that out. As I mentioned on the prior question, we're engaged in dialogue around that. We have some model portfolio exposure already. And I think this is gonna come down to investor preference. I don't see a world where all investors are gonna simply want the model portfolio. Investors generally, whether we're talking about buying private market assets, we're talking about buying food or clothing, investors want choice and they tend to want control. And so for some, that model portfolio will be ease of use, and that will be the most attractive aspect to it, and that will be sort of the guarding item. And for others, they're gonna want to make much more tailored individualized selection. So I think it's a world where you're gonna see both pieces exist. And we're all gonna have to make sure that our products and our lineup is meeting the customer where the customer is. Not trying to force the customer to kind of adhere to whatever game or structure that we want them to be playing. Brennan Hawken: Right. Thanks for that color, and thanks for taking my question. Operator: As a reminder, if you wish to ask a question, please press 1. The next question comes from Mike Brown with UBS. Please go ahead. Mike Brown: Great. Thanks for taking my question. Wanted to ask on the secondary side. So it's clearly a hot asset class, maybe the hottest asset class in the space at the moment. And the industry saw record capital raising for the industry last year. One of the funds that closed was over $30 billion. Expecting a $30 billion fund for Hamilton Lane yet, but when you think about fund seven, we look at fund six. That closed at $5.6 billion. That was up over 40% versus the prior vintage. So when you're thinking about fund seven, and the tailwinds for the space, any view on relative size versus the prior vintage? And maybe just touch on how investor sentiment and interest is in secondaries currently? Erik Hirsch: Sure. It's Erik. I'll take that. So as you noted, the space has grown. I frankly think if you step back and just look at that at a macro level, it's healthy. Liquidity investors is a good thing. It gives people more choices. And so invest more liquid options whether it's through traditional secondaries or whether it's through our recent partnership with Pluto. We think all that's good. Second point, it's still one of the most undercapitalized parts of our asset class. If you look at capital raised relative to the size of deals brought to market, huge capital mismatch. There's not nearly enough capital in the market to deal with sort of the demand and interest of transactions looking to get financed. So massively undercapitalized. The scale, third point, has also changed. So the industry is getting a lot bigger, funds are getting bigger as a result of that. And so what it means to be a big secondary player today is very different than what it meant to be that sort of big player ten years ago. I think for us, we've tended to be more of a mid-market oriented player. And so that has sort of caused us to still grow substantially, as you noted, from funds to fund to fund. Our goal is to continue to be one of those leading players, and so that means there's a whole lot of runway ahead of us. So as I said very clear on the call, we are not one of the top handful of largest players in the space. We have aspirations to continue to move up market we think we've got a lot of room to do that. And we are based on investor sentiment, management meetings, feedback, etcetera, all that feels encouraging. Mike Brown: Great. Thanks. Thanks, Erik. Operator: Thank you. And as one more reminder, if you wish to ask a question, please press star followed by the one. As there are no further questions oh, sorry. Mike Brown has one more question. Please go ahead, Mike. Mike Brown: Great. Thank you for taking the follow-up here. Erik, I just wanted to follow-up on the software question earlier in the call. Just given your unique visibility into funds and the underlying portfolio companies, and I'm sure you're active dialogues with the managers, you just maybe expand on your view on how AI disruption could really kind of flow through this software landscape and how certain parts of the market could be more impacted than others in certain areas that perhaps have better insulation from these AI disruption-related risks. Erik Hirsch: Sure. I think it's I think this is sort of the danger of painting with an overly broad brush. I think it's frankly not a lot different than what we're seeing in credit. You've got a handful of managers who have credit portfolio problems due to their own investment selection. And then we want to sort of turn that into kind of a broad industry issue. There's no question that there are some software businesses that were bought sort of pre-COVID. High prices were paid. AI was far away when those transactions were done. The impact was not sort of priced in. And there will be certainly some companies that are going to struggle and are gonna struggle to result in good performance or any performance for their investors. That said, the notion that every software business is going to suffer hugely negative consequences due to AI, I think is not true. And frankly, we're sort of seeing that we've got a number of companies in the software space that are continuing to grow, continuing to rack up customers. I think there's another way to look at this, which is in some cases, the AI solution is in need of the client and the traditional old-school software companies have the customer. I actually think you could see some mergers and acquisitions that are coming from kind of what we'll think of as new tech versus old tech and that that might be a completely fine outcome. So I think what we're saying to our clients today, whether it's around software, whether it's around credit, or whether it's around any sub-strategy, we need to have a much more granular conversation about companies, fund managers, individual funds rather than having big macro strategies, and that's one of the macro discussions, and that's one of the benefits of where we sit. We get to go in due diligence on every fund manager looking through every asset that they hold, and if we're looking at a secondary deal, we're getting to price through every company in that underlying portfolio. And so we're not making big investment decisions kind of thematically. We're making them kind of a bottoms-up asset by asset look through to figure out whether there's high-quality assets and making sure we're getting those at the right price with the right partner. Mike Brown: Thank you. Operator: And this concludes the question and answer session for today. I will now turn the call over to Erik Hirsch, Co-Chief Executive Officer, for closing remarks. Please continue. Erik Hirsch: Just wanted to say proud of the quarter. Juan and I are very proud of the team for the hard work. This doesn't happen by accident. It takes real effort, particularly in this kind of market environment. We appreciate your time, support, and the questions. And for those of you on the East Coast, stay warm. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to the Eaton Corporation plc Fourth Quarter 2025 Earnings Results. At this time, after the speakers' presentation, there will be a question and answer session. To remove yourself from the queue, please press star one one again. As a reminder, this call may be recorded. I would now like to turn the call over to Yan Jin, Senior Vice President of Investor Relations. Please go ahead. Yan Jin: Thank you all for joining us for Eaton Corporation plc's fourth quarter 2025 earnings call. With me today are Paulo Ruiz Sternadt, Chief Executive Officer, and Olivier Leonetti, Executive Vice President and Chief Financial Officer. Our agenda today includes opening remarks by Paulo, then he will turn it over to Olivier, who will highlight the company's performance in the fourth quarter. As we have done in our past calls, we will be taking questions at the end of Paulo's closing commentary. The press release and the presentation we will go through today have been posted on our website. This presentation includes adjusted earnings per share and other non-GAAP measures, reconciled in the appendix. A webcast of this call is accessible on our website and will be available for replay. I would like to remind you that our comments today will include statements related to the expected future results of the company and are therefore forward-looking statements. Our actual results may differ materially from our forecasted projections due to a wide range of risks and uncertainties that are described in our earnings release and presentation. With that, I will turn it over to Paulo. Paulo Ruiz Sternadt: Thanks, Yan, and thanks, everyone, for joining us. I'm happy to report we've delivered solid results. From a demand perspective, we continue to see tremendous strength. On a rolling twelve-month basis, our orders accelerated in Electrical Americas, up 16% from up 7% in Q3. Our Electrical Americas backlog grew 31% year over year, reaching an all-time record. In addition, demand in our aerospace remains very strong. We posted order growth of 11% on a rolling twelve-month basis and backlog expansion of 16% year over year. As a result, our book-to-bill for the combined segments was above 1.2 on a quarterly basis or 1.1 on a rolling twelve-month basis. We continue to deliver robust growth in the data center market. Our orders accelerated approximately 200%, and our sales were up above 40% versus Q4 2024. Our accelerating orders in 2025 demonstrate continued strong demand and a winning value proposition. Among the Q4 highlights, our adjusted earnings per share were up 18% versus the prior year, and our segment margins of 24.9% hit the Q4 quarterly record, up 20 basis points year over year. We reaffirmed our commitment to strategic capital allocation with $13 billion in announced investments in 2025, highlighted by the acquisitions of FiberBond, Resilient Power Systems, UltraPCS, and the announced addition of Boyd Terminal. In addition to that, we announced our intent to spin off the mobility business into a separate publicly traded company, further strengthening our portfolio and our growth trajectory. Lastly, we delivered on our 2025 adjusted earnings commitment, and we are strongly positioned to outperform against 2026 guidance. Olivier and I will deep dive into Q4 and the 2026 outlook. But first, let's move to slide four. We continue to drive Eaton Corporation plc forward with our bold strategy to lead, invest, and execute for growth. All three are designed to accelerate our growth and create sustained value for shareholders. Today, we will focus on investing and executing for growth, including our recent announcements to spin off our mobility business and sharing progress on the actions we've taken to best position us to execute operationally in Electrical Americas. Both exciting and meaningful to our strategy. So let's move to slide five and our intent to spin mobility. This is an exciting next step which will unlock greater long-term sustainable value for our teams, our customers, and shareholders for both of these world-class companies. The separation of mobility, including both our vehicle and e-mobility segments, builds on our track record and continues our work to reshape the company's portfolio. So I want to share more today about what this move means for Eaton Corporation plc and Mobility. Eaton Corporation plc will be even better positioned to capitalize on strong growth trends across electrical and aerospace markets. This will allow us to focus more sharply on these leading businesses that are powering strong revenue growth and margin expansion. For mobility, this move will allow the team to build on its strong leadership position in automotive and commercial vehicle markets. As a standalone public company, mobility will be the leading independent provider of engineered solutions to global vehicle auto and off-highway OEMs, with a strong portfolio and compelling organic growth prospects. Turning to slide six. As a standalone business with approximately $3 billion in revenue, mobility is a leading scale provider of engineering solutions that create, distribute, and optimize power for all types of vehicles and propulsion systems. It focuses on safety-critical components and systems on automotive and commercial vehicles. The mobility team has built a reputation that is highly valued in the market and recognized as a true innovation partner to its customers. We expect mobility to benefit from increased strategic focus to drive a more optimized capital allocation strategy, which will allow for more flexibility to pursue additional growth opportunities in the markets where it's best positioned. Now turning to Slide seven. The mobility spin is the right move at the right time. The decision to separate Eaton Corporation plc and mobility underscores our bold 2030 strategy to lead, invest, and execute for growth. This transaction will sharpen our strategic focus and optimize the portfolio. It will provide Eaton Corporation plc with improved agility and flexibility to meet the moments of generational growth. We will be able to advance our growth strategy by prioritizing capital on higher growth, higher margin markets with more earnings consistency. It will enable both companies to unlock greater value through fast decision-making and more tailored capital allocation. This separation builds on our strong track record of value creation and portfolio transformation and follows the divestitures of Lighting in 2020 and Hydraulics in 2021. We expect it to be immediately accretive to organic growth rate and operating margin. As we work to integrate UltraPCS and close Boyd Thermal, I'm confident that separating mobility will position both companies to sharpen their focus to drive long-term value. Moving to Electrical Americas on Slide eight, here's a quick update on mega projects, which we'll do annually moving forward. There's a clear correlation between the acceleration of these projects and our future order growth. The mega project secular tailwind is one of the many reasons we are expanding capacity to invest and execute for growth. Trends remain very positive. Mega project backlog is up 30% year over year, to $3 trillion, and now we are tracking 866 projects. Data centers continue to drive most of the growth, representing 54% of the year-to-date announcements, the rest is largely U.S. reshoring. Additionally, the U.S. large data center construction backlog is now up to eleven years at the 2025 build rates. The U.S. backlog stands at 206 gigawatts. The start rate for this project increased slightly to approximately 16%. Our mega project revenue grew more than 30% in 2025 over 2024. These large long-cycle projects typically convert to revenue over three to five years and provide a durable long-term growth tailwind. A market that will be stronger for longer. Now for Page nine, you see that not only does the mega project data support continuous strength, but so does our robust negotiation pipeline and backlog. Negotiations in Electrical Americas are up to nearly $10 billion in 2025. In fact, the pipeline has increased over four times since 2019, with a multiyear CAGR of 26%. On the right, backlog also continues to set records with Electrical Americas at $15.3 billion and Aerospace at $4.3 billion for a total backlog of $19.6 billion. Versus prior year, our backlogs grew 29% in electrical and 16% in aerospace. They also increased compared to Q3 by 9% in electrical and 3% in aerospace. We are clearly experiencing extraordinary growth, and as a result, we have a high level of confidence in our future demand and structurally higher organic growth rates through 2030. Turning to slide 10, let me share how we accelerate our execute for growth strategy in Electrical Americas. Electrical Americas is seeing unprecedented demand with all-time high backlog and record order intake. It's a good challenge to have, and we are well-positioned to meet it with our broad portfolio and strong engineering expertise. In response to this incredible demand environment, we've already announced investments around $1.5 billion to strategically expand capacity. At the same time, we are adapting quickly to our evolving customer landscape. We are partnering very closely with our customers to tailor solutions to their needs and deliver fast responses, including increasing our engineering velocity, scaling up the network of partners, and our supply chain to ensure timely reliable material availability across our operations. To meet this moment, we are ramping up quickly at a never-before-seen pace. We are laser-focused on the critical sites that are driving the majority of our growth. We've assembled tiger teams with deep specialized expertise and deployed them into our operations to accelerate focus. At Eaton Corporation plc, we have a strong operational track record of operational excellence across our businesses. We did this recently in our Electrical Global business to help us win larger power distribution projects and to grow margins. We also did it in aerospace, to post considerable gains both in our growth rates and margins. So as we turn to optimizing our largest business, the Electrical Americas, we are highly confident in our ability to do it again. While there's clearly complexity while we ramp, I'm confident that Eaton Corporation plc has the right actions in place to execute for growth in The Americas and meet our 2026 margin guidance of 30% at the midpoint in 2026 and a 32% margin target by 2030. Now I will turn it over to Olivier to walk through our financials. Olivier Leonetti: Thanks, Paulo. I'll start by providing a brief summary of Q4 results on page 11. Organic growth for the quarter was 9%, driven by strength in aerospace, electrical Americas, and electrical global, partially offset by weaknesses in vehicle and e-mobility. Otherwise, organic growth would have been almost 12%. We generated quarterly revenue of $7.1 billion and expanded margins by 20 basis points to 24.9%, adjusted EPS of $3.33 increased by 18%, which is in line with the midpoint of our guidance range. Now, let's move to the segment details. On Slide 12, we highlight the Electrical Americas segment. The business maintained strong operational momentum, delivering another record quarter on operating profit and strong margins. Organic sales growth of 15% was driven primarily by strength in data centers, up about 40%, along with strong growth in commercial and institutional. Operating margin of 29.8% was down 180 basis points versus prior year, largely driven by capacity ramp cost. Orders accelerated by up 16% on a trailing twelve-month basis, from up 7%. This reflects a powerful acceleration with total quarterly orders increasing sequentially by more than 18%. Building on that momentum, we achieved an all-time record level of orders booked in 2025, and orders in the quarter were up more than 50%. Book to bill increased to 1.2, and our backlog year on year grew by over $3 billion or 31% to $13.2 billion, providing strong visibility for our organic growth outlook. Data center demand is accelerating faster than ever, setting us up for an exceptional growth run rate in the years ahead. Now, I'd summarize the result for our electrical global segment. Total growth of 10% included organic growth of 6%, a very strong performance for the quarter. We had strength in data center, residential, and machine OEM. Operating margin of 19.7% was up 200 basis points over prior year, driven primarily by sales growth and EMEA continued operational improvement, partially offset by higher inflation. Orders climbed 6% on a rolling twelve-month basis, driven by broad end market momentum and exceptional strength in data center demand, reinforcing a powerful growth trajectory ahead. Backlog increased 19% from prior year, while book to bill remained above one on a rolling twelve-month basis. Before moving to our industrial businesses, I'd like to briefly recap the combined electrical segment's performance. For Q4, we posted organic growth of 12% and segment margin of 26.5%. On a rolling twelve-month basis, orders accelerated to up 13%, and our book to bill ratio for our electrical sector remains over one. This represents continued acceleration with quarterly orders up sequentially by 10%. In the quarter, electrical sector orders were up by more than 40%. As a result, total electrical backlog increased 29% over prior year. With demand surging, we're energized by the significant growth opportunity ahead. Page 14 highlights our aerospace segment. Organic sales growth of 20% remained at a high level and resulted in quarterly record sales, with broad-based strength across all markets, and particular strength in commercial OEM and defense aftermarket. Operating margin expanded by 120 basis points to 24.1%, driven primarily by sales growth. On a rolling twelve-month basis, orders increased 11%, driven by defense OEM and aftermarket up 13%, respectively. On a two-year stack basis, trailing twelve-month orders were up 21%. Our book to bill for our 1.1 on a rolling twelve-month basis, resulting in backlog increase of 16% year over year and 3% sequentially. We are excited to welcome the Ultra PCS team with the closing of the deal in January. Overall, aerospace delivered a strong Q4 and is poised for continued strength. Moving to our vehicle segment, on page 15. In the quarter, the business declined by 13% on an organic basis, primarily driven by weaknesses in the North America truck and light vehicle markets. Margins are down 230 basis points year over year, primarily driven by lower sales. On Page 16, we show results for our e-mobility business. Revenue decreased 15% from 17% lower organic, partially offset by 2% favorable FX. Operating profit was $10 million. Now I will pass it back to Paulo to go over the remainder of the presentation. Paulo Ruiz Sternadt: Thanks, Olivier. I want to take this opportunity to recognize Olivier's significant contributions to our company ahead of his leaving on April 1, 2026, as part of a planned transition. He has been a board director for five years and a valued member of the management team for two years, and he continues to help ensure a smooth transition. We wish him the best of luck when the time comes to leave Eaton Corporation plc. Merci, Olivier. Olivier Leonetti: Thank you. Paulo Ruiz Sternadt: Shifting our attention ahead to 2026 on page 17. Here's an update to our end market growth assumptions for the year. All in, this continues to equate to about 7% growth, and with some outgrowth, is consistent with our 2030 organic growth CAGR of 6% to 9%. We've increased our expectation for commercial aerospace to strong double-digit growth from solid growth. We now expect the residential market to be flat from slight growth. We continue to see many paths to sustainable growth, and we are confident in our end market positioning to deliver another differentiated year of growth. Moving to Page 18, we summarize our 2026 revenue and margin guidance. Following a strong 2025 in which we posted 8% organic growth for the year, we expect the total company to be between 7% to 9% in 2026, with strength in Electrical Americas at 10% at the midpoint. For segment margins, our guidance range is 24.6% to 25%. That's up 30 basis points over 2025 at the midpoint, driven by improvements in each of our businesses. On the next page, we have the balance of our guidance for 2026 and Q1. For 2026, our adjusted EPS is expected to be between $13 and $13.50, $13.25 at the midpoint, and up 10% from 2025. For cash flow, our guidance is $3.9 billion to $4.3 billion, up 14% at the midpoint. As previously communicated, we do not plan to buy back shares in 2026, due to the pending Boyd deal. So we expect share counts to remain relatively flat to the prior year. We also provided guidance on this page for Q1, including organic growth of 5% to 7% and operating margins of 22.2% to 20.6%. As we scale capacity in our largest business, we're incurring higher than typical ramp-up costs to start the year, with improvement anticipated in each quarter. We have great confidence in the acceleration in both revenue and margins from this starting point. The healthy end markets, combined with our record backlog, provide tremendous visibility for our forecast for the year. We have the best-positioned portfolio enabling us to be laser-focused on execution in 2026. I will close with a quick summary on page 20. We had a strong quarter where we delivered on adjusted EPS commitment. It also included record revenue, record segment profit, and a Q4 record for segment margins. The demand we are seeing is unprecedented and is reflected in the continued order acceleration and growing backlogs. Our strategy to lead, invest, and execute for growth is positioning us to capture generational demand and deliver lasting value for our shareholders. We are leaning into higher growth, higher margin businesses, for better earnings consistency. We see this as an inflection point for a new growth story. Bottom line, as we head into 2026 and beyond, we are moving forward with strong demand momentum, and we have exceptional confidence in the setup and our capabilities for sustainable growth. We see an exciting runway in front of us with our strongest days still ahead. With that, I'm happy to take your questions. Yan Jin: Hey, thanks, Paulo. For the Q&A today, please limit your opportunity just to one question and a follow-up. Thanks for your cooperation. With that, I will turn it over to the operator to give you guys the instruction. Operator: Thank you. Once again, if you'd like to ask a question, please press 11. Our first question comes from Andrew Obin with Bank of America. Your line is open. Andrew Obin: Yes, good morning. Can you hear me? Paulo Ruiz Sternadt: Yes. Good morning, Andrew. Andrew Obin: Morning. Good morning. And, Olivier, thank you for all the help over the years. Olivier Leonetti: Thanks so much. Andrew Obin: My first question would be just, you know, to give, you know, obviously, very strong order numbers, but maybe give us more context as to what gives you confidence in double-digit growth in data center markets in '26 and beyond. Paulo Ruiz Sternadt: Yeah. Thanks, Andrew. I think this is top of mind for everyone. So let me elaborate on this. I will start with the market because that's what drives our optimism here. We are extremely confident when we look at the indicators from the market. Announcements on the industry were up over 200% year over year in 2025. Similar rate, almost, you know, the backlog is also over 200% up, and it equates to eleven years of what was built in 2025. So although the industry continues to find ways to build data centers faster, the backlog keeps growing. So it still represents eleven years, which is incredible. The kickoff, so the project starts were also up almost 100% year over year. So the market is very, very strong. You probably noticed on recent news from the hyperscalers that they reconfirmed their CapEx plans for 2026. This is also great news that supports these projects. Multitenant and new cloud players, they've they are so active. Never seen them so active as they are today. If I'm to summarize the market picture here, lots of strength, and these projects will take years to complete. So that gives us the optimism in the future. Then I would like to turn to Eaton Corporation plc a little bit because you saw in our order numbers, we are winning. As I mentioned to you before, I consider Eaton Corporation plc to have the broadest portfolio in power management solutions today already in data centers. As you think about what's happening with AI, our solutions start with the white space products centered around the chip. Into the gray space where we traditionally won with our core power distribution power quality products, moving all the way up in front of the meter with our utility grid products. So as you know, we offer hardware, we offer services in software and hardware. So we are very well positioned already. But we didn't stop there as a team. We decided to invest both organically and inorganically in this very growing market. Examples of organic investments are our capacity plans to ramp up our factories, as we're gonna discuss shortly later as well. We also invest in front-end resources and innovative technologies. Those are the investments we have. We also have deployed capital, as you know, and we deployed capital to grow inorganically as well. So resilient power accelerates our future towards this direct current technology. The acquisition of FiberBond has been very successful with models built out for the data centers. The announced acquisition of Boyd, which is, man, it's even faster growing part of the market, which is the liquid cooling. So with all that in mind, and using the Q4 data as a proof point, our Electrical Americas orders grew 200%, and our orders in Europe grew almost 80% year over year. So that proves that not only, Andrew, the market is strong, but our strategy is working. The value proposition we have is resonating with customers and also indicates that we're gonna be ready for the future of this industry to lead the future as a company. So we are very bullish about the data center market. Andrew Obin: And maybe a follow-up question. As you alluded to, there has been a lot of chatter on liquid cooling and technology trends over the last few months. Paulo, what do you think about recent market developments? Paulo Ruiz Sternadt: Thanks, Andrew. I will say this to everyone. I think news on cooling will be out every month. We just need to get used to it. Right? People talk about new technology developments, new wings, and it's a fast-growing market, which is rather fascinating, so that justifies the excitement. I will only get started by pointing out I just talked about how important the data center market is for us in the industry. And remind that the liquid cooling portion of this market is growing at an even faster pace than the average of the business, which is already fascinating. I also said last quarter to everyone that with AI loads increasing, the white space becomes much, much more interesting for Eaton Corporation plc. Not only with our traditional solutions in terms of power protection and power quality, but also if you look at cooling, which is also very important. We believe in the synergies, commercial and technical synergies, of these two technologies in the white space. So this is an exciting development. I'm gonna make a short reminder to everyone why we chose Boyd to be, you know, the acquisition in this field. I consider they have a very similar approach as Eaton Corporation plc. They lead with technology. Lead with innovation. They are market leaders in their space with a global footprint. And the best engineering team. So whatever happens in this market, when you have a group of engineers that are 500 of them and 500 of the best in the industry, you can figure out ways to win today in the future. To give you a sense of the development of this market for us, I said before that with AI loads, our dollars per megawatt of accessible market are growing. So today, we are already at $2.9 million per megawatt with our current portfolio. After the Boyd acquisition, when the Boyd acquisition is completed, this accessible market will be increased to $3.4 million per megawatt. So it's really exciting to see that development. Now, your question specifically on what to expect from the latest NVIDIA announcement as a good example for cooling. I'll try to help everyone here to visualize the system in simple terms. So try to think about two types of loops, two types of circuits of fluid circuits. The first one, the main one, I call the inner loop, which is close to the white space. It is designed to protect the revenue-making assets and the secondary loops. So the outer loop, which is used to connect the white space to the utilities area of the data center, is supported by the chillers. So if you think about the inner loops, where we decided to play, they're closer to the white space, and they are there to protect and keep all the revenue makers operating, all the assets. Think about GPUs, but also think about TPUs, think about CPUs, think about power supplies, network switches, etcetera. They all require cooling. This is the portion of the cooling market that Eaton Corporation plc decided to play in. Here, just a summary of what is offered in this inner loop. Think about the cold plates. Think about the CDUs, so the coolant distribution units. Then you have piping, manifolds, controls unit, etcetera. Basically, what happens is that the CDU, the coolant distribution unit, pumps cool liquid into the loads. Again, the chips, the power supplies, etcetera. This cool liquid absorbs heat by the cold plates, and the warmer liquid returns to the CDU. The CDU today has capability, has a heat exchanger, can take care of part of the heat dissipation, but it also communicates with the outer loop with the chillers. This outer loop separates the circuit from the inner loop, is where the CDU sends hot water to the chillers and gets refrigerated water back. This is how the system works today in a very, very, very simplistic way. As I said before, we don't participate in the chillers market directly. We consider it a best option for Eaton Corporation plc to collaborate and partner with the specialized market leaders on chillers. This announcement for NVIDIA, just to conclude the point here, implies that their chips, the next generation chips, can run hotter, meaning that supposedly, the data center operators will not need as many and or as powerful chillers as today. But this still needs to be proven. I would like to say that there is no negative impact on the inner loop, the part of the cooling that we decided to play. I would say it's quite the opposite because those systems, those new systems, will require even more sophisticated elements. It's true for cold plates and also true for CDUs. So all in all, I'm very confident and comfortable with Boyd's position. As they have, as I said before, early technical engagement, effectively participating commercially in all the chip platforms, the hyperscale plans, etcetera, covering the future. So we feel good about their future position. We confirm that optimism through the diligence process by checking the incredible breadth of solutions that are about to be launched today and in the years to come. For the shorter term, which I think is also important, after a very solid finish to 2025 and a very strong January, we remain confident in Boyd's strong position to meet or exceed the 2026 revenues of $1.7 billion. I hope that helps, Andrew. Andrew Obin: Oh, that was certainly an extensive answer. Really appreciate it. Good luck. Operator: Thank you. Our next question comes from Chris Snyder with Morgan Stanley. Chris Snyder: Thank you. I wanted to ask about the quarterly cadence of the '26 EPS guide. At the midpoint, Q1 is calling maybe just low single-digit year-on-year growth. But the full year is at 10%. So obviously calling for a pretty big pickup post-Q1. Could you just provide some color on that trajectory as we get past Q1? Thank you. Paulo Ruiz Sternadt: Great. Great, Chris. I think it's another top-of-mind question for everyone, so thanks for asking that. Let me start with how we see the guidance for the full year. We believe 2026 guidance represents strong organic growth and is supported by record backlog. So we feel really good about it. In terms of margins, we continue to expand segment margin while we absorb all these ramp-up costs, and we continue to deliver what I consider industry-leading margins. As you saw, we keep winning orders, and we are preparing ourselves for the next wave of this differentiated growth and margin expansion cycle. If you compare our guidance with our models that I saw from most of you, I think above the line, we are pretty much on dot in terms of segment margin and top line. Below the line, I see some differences with most of the models. I'll outline. I see high interest expense year over year. This is due to the acquisition of Ultra PCS and the finance of FiberBond. The second item is that we plan to keep our share count flat. As we decided to temporarily suspend the share buyback as we invest in our business. So those are the two differences for the full year. In terms of the splits to the core of your question, first and second half split, we expect roughly 44% of the EPS coming in the first half and around 56% in the second half. When I look at the historical averages of the business for the last ten years, the first half has been 47%, and the second half, 53. So these three points difference can be easily explained by two main reasons. Tax rate takes care of two of the three points. We see a higher tax rate in the first half of 20 to 21%. Versus 16 to 17% tax in the second half. So that's the biggest difference here. Then the Electrical Americas ramp is the explanation for the other point. Given the extensive headcount additions and depreciation costs we're gonna have in the first half, especially in Q1. So the way to think about it, our guidance fully absorbs these ramp-up costs, and I believe we have a high degree of confidence, I want to say, in our focus for the year. The way to think about it is that we set realistic expectations, which we aim to beat. Chris Snyder: Thank you, Paulo. I really appreciate that. If I could follow up on some of the capacity expansion plans in The Americas. So obviously, a pretty massive undertaking. Since this is something that the company really hasn't had to do for a long period of time, I would be interested, have there been any challenges that have come through related to the capacity expansion? Do you have a line of sight to that capacity coming online? Just trying to figure out when you think this capacity expansion turns from a headwind for the company to a tailwind for the company. Thank you. Paulo Ruiz Sternadt: Another top-of-mind question. I would say this is a great challenge to have, Chris. We are not in a position to turn our back on the opportunities we see in the market here. We have strong markets, strong backlogs, record levels of backlogs. We are winning a higher share of orders as well. I believe that those investments you are making are also giving our customers the confidence to place their business with us. This is really important that we keep in mind. If you think about accelerating ramp-up, our second-half orders last year were 41% higher than 2024, 41%. So we announced those plans to expand capacity. When you start looking at this market and getting those orders, you need to accelerate. So we accelerate in our ramp, and this is what caused some pressure for Q4 last year and especially Q1 this year as well. So it's based on the order successes that we're accelerating our ramp. Overall, I would say the capacity expansion, the construction goes on plan. It's a multiyear program, as you know, and we are not entirely surprised with the temporary short-term headwinds we have. Because we have far too many sizable projects. The company has never done this before. At the same time, if you look at the Electrical Americas business, in the past four years, they grew double digits in the last four years straight. So it was about time for us to invest in that business. Actually, the average growth was 15%, so it's incredible growth that the business experienced. So we needed to invest. To cope with the success we are having, and we are very confident in the short, medium, and long term of this business. In simple terms, if you think about the capacity ads, when you add manufacturing costs like headcount, depreciation, and you do this ahead of your sales ramp, you naturally incur margin headwinds. This is what happens. Right? We are fully absorbing those ramp-up costs, and I would say we continue to deliver industry-leading margins of roughly 30%. So just think about the potential of this business. You put all this pressure on cost on this business, and it keeps running and delivering around 30% margin. So the potential is there for when those ramp-ups are over. Specifically, on the cadence of these investments, the $1.5 billion we invested around two dozen projects, so think about 24 projects, by mid of last year, we finalized the construction of half of them. So half of the projects were over. We started the ramp in the second half, specifically more into Q4. We continue to ramp those plans in 2026. For the other half of the projects that are remaining, construction investment half of this will be largely done by the first half. The construction. The ramp will start at the end of the first half. The last quarter of projects will continue through 2026. With production ramp in '27. What gave us confidence here is that half of the projects were already online last year, and we continue to ramp them. We are adding additional projects with ramp-up expected in the first half of this year. So we have high confidence in our plan for the year. The simple way to think about cadence, because that's probably the spirit of your question, is to think about Q1 as being our guidance for the business. Expect progress in Q2, I would say expect momentum into Q3. Then a stronger pace of backlog liquidation in Q4 and moving to 2027. That's the way to model how the Americas business will behave. I would just like to conclude. I know it's a lot of information, but possibly the most important discussion point of the whole call. I believe our long-term growth is supported by strong markets, and we're making investments to win. We have a strong portfolio position, so no problem here. It can only get better after these investments. In the short term, in the near term, our growth is in the bag. So it's in our backlog. We are strong operators, and that's the time to execute and get it done. So I think that's the message. Olivier Leonetti: And, Chris, an additional color on your question on the impact. Quantifying it. We have said that all along. The impact on ESA margin due to those ramps, and Paulo went through those, was about 100 basis points last year. We believe this year is going to be a bit higher, difficult to quantify with precision, but we see an impact of about 130 basis points in the full costs would be front-end loaded. 2026. Those higher. As a reminder, despite those, impact the ESA margin is still clocking at about 30%. Chris Snyder: Thank you both. Really appreciate that. Operator: Thank you. Our next question comes from Nigel Coe with Wolfe Research. Your line is open. Nigel Coe: Thanks. Good morning. Very detailed question so far, Paulo. Hi, guys. Just maybe just following up on that last answer. Your Q1, it'd be great to just put in some of the gaps on the Q1 guide. In particular, what you're dialing for the Electrical Americas organic versus a tougher comp, but more importantly, it sounds like the headwind from investment spending could be maybe 200 basis points in The Americas. Just wondering where you see the margin starting off in that segment. Paulo Ruiz Sternadt: So the way, as I said before, Olivier correctly stated the yearly impact of the ramp for the Electrical Americas business around 130 basis points is not equally distributed across quarters. So as first-half loaded, so we're gonna get most of the impact in Q1 and Q2 from those, you know, ex costs. So that's the way to think about it. Overall, as I said before, the business continues to win large orders. We didn't need to change our plans in terms of what we wanted to build or the capacity plans we wanted to add. What we needed to do and we did was to accelerate the ramp in terms of bringing people and bringing the resources earlier in the process so we can respond to this incredible order intake we are having as a team. Once again, I believe the team is doing a fantastic job in terms of balancing that with still, you know, industry-leading margins. We are confident that when this is behind us, we're gonna see those inefficiencies go away, and we can get a print even higher. Margins in the business. So we remain committed to the 32% margin corridor through the long-term plan that we stated last year. As you look at this business, right, 15% organic growth in Q4. You look at the total growth around 20%. The way to think about the business is we are adding, you know, integrating companies, like FiberBond, etcetera, and we continue to deliver 30% margins as a business. So it is a fantastic business opportunity for us. We're gonna stay very close to this team as we did with aerospace, as we did with electrical global, to help this team execute on this large ramp. Nigel Coe: Great. I've got a follow-up question on the portfolio and your longer-term growth outlook, but I'm just wondering maybe Olivier, perhaps, you could just clarify, if Electrical Americas margins are kicking off the year with, I don't know, a 28 handle on the margin, are we exiting with a 31 type handle? Just wanna make sure that that cadence is what you're communicating. But Paulo, back to you on the organic kind of, like, you know, the six to 9% framework. Just subtracting the lowest growth business from that framework, you're adding a business that you see very strong double digits. How are you thinking about how the framework sort of recasts for the portfolio change you're making? And then, of course, FiberBond, etcetera, into that mix. Paulo Ruiz Sternadt: Yeah. So think you're alluding to the commitments we made in March for the long-term plan, I suppose. Correct? Nigel Coe: Yes. Correct. Paulo Ruiz Sternadt: Okay. Let me comment on that. So, of course, every move we are making is to make the situation better. It needs to get very clear from the get-go. But let me refresh the targets we committed to the whole group here. We committed last March in our six-year plan, long-term plan. We committed to a growth between 6-9% top-line growth for the period. Segment margins of 28% in 2030, and we also committed to EPS growth on average of 12% or higher over the period. So what happened since then, since March? Several things happened. To confirm our optimism in these 2030 targets, I would say this, Nigel and everyone, we are committed to overachieving as a team. There is upside. I'll be honest. There is upside to the plan. At the same time as a group, we wanna be conservative, so we wanna beat and raise over time on the expectations. I would like to give you now a balanced view of where we stand now versus the commitments we made. So first, I'll look at the upside. You look at the upside on this business, the first big upside is not necessarily on the portfolio per se, but it's that I baked only half of the data center forecast growth from the industry into my original plan. So back then, the industry forecasts were around 33% growth. Data center for the period, I included only 17% in our numbers. So this is by far the biggest positive we have. If you look at how we performed in 2025, we are growing at a much faster pace than that. So we grew at 44% the business, being 49% in Americas and 36% in global. So not only are we ahead of the 33% market growth, but we are much ahead of the '17 I consider. So this is one very positive upside to keep in mind. The second one is the one that you mentioned. Is around the portfolio because the long-term plan we shared with you, transparently, said did not include any inorganic benefits. So since then, we closed the acquisition of Resilient Power, FiberBond, Ultra PCS, and soon will close Boyd. We also announced, last week, the spin-off of mobility. I would say there's none of those measures were part of this long-term plan, and all those moves, no exception, are accretive to top-line growth rates and margins. So again, another big, big upside to the long-term plan. Now I'm gonna allude to the other side, which is to be more cautious and prudent. Right? It's a six-year plan. We just concluded one year. So, I believe we need to be cautious and prudent as a team. I am observing, still observing, the short-cycle businesses. We believe they have bottomed out right now. Which is good. Some green shoots here. That includes Resi, Machine OEM, and even mobility markets, hopefully. It's also true that our exposure to those markets, as a share of the total company, is decreasing over time. But we need to watch these markets closely. So momentary improvement is encouraging. But no clear positive trend yet. We also mastered other things that were not in the plan, just think about tariffs in 2025. Was not part of the plan. We mastered that pretty well. So all in all, I would say this, there is clear upside to the plan. We are prudent. We think it's too early to provide new targets for 2030. We plan to refresh those targets as soon as most of these portfolio moves are concluded. I'll tell you, we don't plan to have an Investor Day in 2026 because we wanna focus on executing on this large ramp. On strong backlog we have, and we also wanna make progress on our acquisitions and the spin-off. So that's a balanced view of the future positive. On for sure. But cautious because of a six-year plan. Nigel Coe: Thanks, Paulo. Cheers. Operator: Thank you. Our next question comes from Nicole DeBlase with Deutsche Bank. Your line is open. Nicole DeBlase: Yes, thanks. Good morning, guys. Paulo Ruiz Sternadt: Hi, Nicole. Nicole DeBlase: Hello. Just wanted to circle back on margins. Sorry. There's been a lot of questions on this already. But there's a pretty big sequential step down embedded in the first quarter. Versus what you did in 4Q. I think normally, margins are down more like 60 bps sequentially. You obviously have a lot more than that in the guide. Is that all attributable to what's happening with Electrical America's capacity ramp? Just confirm that the investments and the inefficiencies are stepping up that much sequentially relative to 4Q. Paulo Ruiz Sternadt: Yeah. So you are in the ballpark, right, Nicole? So it is mostly related to the Electrical Americas ramp. For sure. As we said before, it's not equally across the year. So we're taking most of that hit in Q4 last year. Q1 2026, and starts to ease up in other quarters. Towards the end of the year. So that's a good way to model the sequence here. Nicole DeBlase: Okay. Understood. Then just going back to the Electrical Americas order trends, you gave the 200% growth for data centers. Can you just talk through a little bit of what you saw in the non-data center verticals this quarter? Paulo Ruiz Sternadt: Absolutely. We talk extensively about utilities as well. We believe in this long-term potential for this business. Given everything that's happening with, you know, electrification, data center build-out, and also resilience and grid hardening. So this is a good business. We saw, you know, for orders, we had momentum in this utility business. On a twelve-month basis, our Electrical Americas order was up low teens. So also very strong orders. For utilities. Electrical global orders were up mid-single digits as well on a twelve-month basis. Sales were up in the Electrical Americas in the year, mid-single digits, and Electrical Global up 10%. So good performance here. We talk extensively about data centers. I'm not gonna repeat. The data here is a fantastic story. Not only in Electrical Americas but also in Global. But then, I'd like to talk about aerospace as well because I rarely get a question in aerospace. I'm really proud of this team. You know, not only did they land tremendous wins for programs in 2024 and '25, but at the same time, they're improving execution. So you see, you know, their top line accelerating to 12% in the year and margins improving 90 basis points. So it really looks good. We had a good surprise in 2025, which was the aftermarket. Pickup was really good. We might get that surprise again in 2026. But the market is good as well. My last comment is just, you know, we can deep dive into any of those segments you guys feel like. But just a short comment on short cycle again. I said we are encouraged by the latest view. We consider this to be green shoots on the market. It's reflecting positively in global, and we expect this is gonna inflect positively as well in America. Including for res in the future. We're just cautious here. Right? As we move into the year, with the guidance, can beat and raise. Nicole DeBlase: Thanks, Paulo. I'll pass it on. Operator: Thank you. Our next question comes from Deane Dray with RBC Capital Markets. Your line is open. Deane Dray: Thank you. Good morning, everyone. Wanted to circle back on the data center order mix. You can either give it for 4Q or for the year. Just be interested in directionally how much is hyperscale as a percent of your orders versus colo and enterprise? Are you being asked to do more of these five-year supply agreements as your backlog extends? Paulo Ruiz Sternadt: Okay. Great question. I would say this. I'm very, very happy and proud that the team managed to create an environment where we have multiple customers in data centers that are important to us. Some years ago, we had a couple of hyperscalers that carried most of the weight. Today, we are very well positioned with all hyperscalers and the key multitenant, so a much more balanced approach. That's also part of the secret sauce why we are winning larger orders versus other companies because we are exposed. We are servicing them well, and we are investing capacity. So I don't wanna give you a breakdown there because we make this very much a much more balanced mix of customers, which I love. The other part of your question, if I'm getting this correctly, I can give a data point. In the past, most of our orders and revenues came from cloud versus AI. What we saw in 2025 in terms of our orders to give you some sense of the transition here, we already saw the orders in 2025 were fifty-fifty. So 50% of our orders were cloud-based data center growth. The other half were AI. Which actually helps us. If you remember what I said ten, fifteen minutes ago, our dollar per megawatt content increases with AI load, so we welcome that change and that shift. Looking at revenues, for 2025, it's still most of the revenues were cloud-based. So 70% were cloud, 30% were AI. But AI is growing, you can see in the order mix. Which is great for Eaton Corporation plc. Deane Dray: That's really helpful. Just to clarify, there had been a discussion a year ago about Eaton Corporation plc being asked to do more five-year supply agreements with these hyperscale players, and these are very profitable supply links. But just where does that stand if you have been signing any more of those? Then just my follow-up question was, where does the stand on the 800-volt DC transition? Paulo Ruiz Sternadt: Okay. So on the multiyear part, we don't see that dynamic any longer, to be very transparent with you. This happened some years ago where customers are buying on a panic to guarantee capacity. We've been investing in capacity. So the orders we are getting now are to be delivered in between twelve and eighteen months. That's it. That's the way to think about it. So no one is pre-booking or preordering capacity there they see for the future. Deane Dray: And the 800 volt? Paulo Ruiz Sternadt: 800 volt, we are leading the technology here with resilient power. We are working with authorities to create codes so we can commercialize the technology. We have a seat at the table to define those codes. Together with the industry leaders. But we are ready. We are ready to make that shift. We want to partner not only with the chip manufacturers but also with the hyperscalers, and we are partnering with them to design their new setups. Yan Jin: Thank you. Hey. Good. Hey. Thanks, guys. We have reached the end of our call. We do appreciate the questions. As always, the IR team will be available to address your follow-up questions. Thanks for joining us, and have a great day. Operator: Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. Welcome to CorVel Corporation Quarterly Earnings Release Webcast. During the course of this webcast, CorVel Corporation will make projections or other forward-looking statements regarding future events or future financial performances of the company. CorVel wishes to caution you that these statements are only predictions and that actual events or results may differ materially. CorVel refers you to the documents in the company's files from time to time with the Securities and Exchange Commission, specifically the company's last Form 10-Ks and 10-Q filed for the most recent fiscal year-end quarter. These documents contain and identify factors that could cause actual results to differ materially from those contained in our projections and forward-looking statements. I would now like to turn the call over to Michael Combs, President and Chief Executive Officer. Michael, you may proceed. Thank you. Michael Combs: Good morning, and thank you for joining us to review CorVel's December results. I am very pleased to have Brian Nichols, CorVel's Chief Financial Officer, on the call today. Thank you, Michael. Good morning, everyone. A pleasure to join the call this morning. Today, we are going to review operational performance, including 2025 highlights, a deeper dive into the value AI is bringing to our business model, key growth drivers, and the market trends that are shaping our business. Brian, let's start with an overview of the quarter's financial results. Absolutely, Michael. CorVel's revenue for the nine months ending 12/31/2025, was $710 million, a 7% increase from $664 million at the same period of the previous fiscal year. Fiscal year-to-date earnings per share were $1.53, up 16% compared to $1.32 during the nine months ending 12/31/2024. The December 2025 quarter ended with revenues at $236 million, 3% above the $228 million achieved in December. Earnings per share for the December 2025 quarter were $0.47, an increase of 2% over the same quarter of the prior year's EPS at $0.46. I would like to remind our listeners that the earnings per share results from the quarter in annual comparisons have been adjusted to account for the three-for-one stock split reported in December 2024. In comparing the 2024 and 2025 December quarters, the allocation of general and administrative expenses decreased from 9.7% to 9.6%. And margin had a commensurate improvement of 23.2% to 23.3%. However, an increase to the effective tax rate did temper earnings results. Overall, CorVel's operations netted an income of $24.1 million in December, which was an increase from $23.8 million in December 2024. Throughout the fiscal year, products highlighting the growth among network solutions and patient management services were independent medical evaluations, serious ancillary care solutions, medical bill review, and claims management. In addition to financial results, I would also like to discuss noteworthy trends in the workers' compensation market. These trends include lower volume of work-related injuries, increasing injury severity, rising medical costs, and shifts within the labor market. The US Department of Labor recently reported a small decline in total work-related injuries from 2023 to 2024. While this report reflects results from more than a year ago, the trend is consistent with what has been occurring over the past decade and was magnified at the onset of the global pandemic in 2020. It is no secret that a reduction in work-related injuries equates to a lower volume of workers' compensation claims. CorVel certainly recognizes this trend. However, we also recognize that past declining volume of work-related injuries alone may not gauge the viability and value of the managed workers' compensation market. And other changes throughout the industry may be pointing toward growth opportunities. While work-related injuries have been moving in a decreasing pattern, the inverse response is occurring for injury severity and medical cost per claim. According to the National Council on Compensation Insurance, average medical and lost time claim severity increased by a percent in 2024, resulting in elevated medical costs and extended duration to injury claims. Further, the report indicated five consecutive years with an increase. The cost of medical compensation claims is also being impacted by medical inflation. The Workers' Compensation Research Institute noted rising medical costs within a range of 5% to 12% among multiple states. The inflationary change can be attributed to increased billed charges for medical providers and allowance of higher payments among multiple states' medical fee schedules. Labor market shifts, such as increasing job openings among occupations requiring moderate to heavy levels of physical demand, also be important to consider when valuing the managed workers' compensation industry. According to the US Bureau of Labor Statistics, new job openings are expected to maintain or exceed current growth averages among several physically demanding occupations, including transportation, construction, maintenance, food service, childcare, recreation, hospitality, and healthcare. These occupations are likely to be more susceptible to work-related injuries than those with sedentary or less physically demanding job functions. Collectively, the trends I have shared support the argument that the workers' compensation market is a growing industry for organizations equipped to address its challenges. CorVel's focus on product innovation, savings through clinical outcomes, and effective management allow us to not only adapt to these industry shifts but also leverage them for continued market share gains. And with that overview of our financial performance, I'll now turn the call over to our CEO, Michael Combs, to discuss operational progress and strategic priorities. Thank you, Brian. December results were modest relative to expectations, primarily reflecting short-term operational factors rather than a change in fundamentals, including, as Brian mentioned, the normalization of our effective tax rate after an extended period of lower-than-average levels. I want to transition to highlights from 2025. The net revenue retention for business was 100%. We had a 44% close rate on new business opportunities, and we experienced strong incremental growth with existing partners. On the AI front, increased traction with our AI initiatives and following our thematically, the areas of focus. Augmenting the development process, increasing operational efficiency, elevating the work of our team members, and enhancing outcomes achieved for our partners. In addition, there was a technology-centric acquisition that we closed in June. While relatively small, we are realizing meaningful increases in efficiency and effectiveness in the health payment integrity services for the commercial health segment through the integration of related logic and functionality through the acquisition. The realized ROI and impact are consistent with optimistic expectations. Continuing on AI and how we are harnessing AI and automation opportunities across our business, this is a little more detail in specific projects. As lower-value activities are increasingly automated, we expect meaningful reduction in service delivery costs while simultaneously improving client outcomes. Although pricing pressure is likely over time, we expect cost efficiencies to more than offset any associated fee adjustments. The near-term implications of AI on our business are becoming clearer in focus. They are broad, spanning our products, services, and software development processes. Following are a few specific examples. In the commercial health business, we routinely receive claim volumes that surpass processing capacity. While some claims present limited savings potential, others offer significantly higher value for our partners. Because each claim we select includes a cost regardless of its ultimate savings, disciplined selection is critical. We are increasingly leveraging technology to prioritize those claims where we can deliver the greatest impact while also generating the strongest return on investment for CorVel. In claims management, transitions and adjuster assignments often create inefficiencies as new adjusters take on large portfolios of open claims. With roughly 125 active cases, achieving timely visibility into risk, complexity, and required actions for assigned claims can be challenging. We are deploying technology to augment adjuster decision-making, providing rapid understanding of claim nuances and clear prioritization of those tasks requiring immediate attention. Also in claims management, there are many stakeholders, partners, healthcare providers, clinical team members, all requiring information. We are leveraging technology to provide a seamless interface that allows stakeholders to self-service, obtaining real-time information for many even complex inquiries. In case management, AI is enhancing the efficiency and scalability of our team's operations. Using AI to automate documentation, data synthesis, and routine workflows will allow clinicians to manage higher caseloads and focus on complex high-impact interventions. Financially, this supports margin expansion through productivity gains while maintaining an outcome-driven service model. Strategically, AI strengthens our platform by embedding decision support into workflows that are difficult to replicate without CorVel's data, clinical expertise, and regulatory experience. And finally, AI is transforming the software development process from ideation to deployment, enabling us to accomplish more, more quickly. We have a very compelling software development roadmap for 2026. This is certainly not a comprehensive list, but a few representative examples of areas of focus. In the property and casualty business, by intentionally applying technology across our claims and case management systems, introducing intelligence earlier in the process, reducing administrative friction, modernizing data exchange, and leveraging automation and AI, we deliver a fundamentally simpler, more efficient, and more accurate experience. As buyers prioritize efficiency, transparency, outcomes, and cost, CorVel is well-positioned to generate differentiated results while scaling in 2026 and beyond. On the healthcare payment integrity front, this is our CERES division. The market continues to evolve as medical costs rise while reimbursement rates remain flat, intensifying pressure on payers to control costs. In response, health plans are increasingly turning to technology, particularly AI and automation, to improve accuracy, identifying errors earlier in the claims life cycle, and strengthening financial performance. At the same time, ongoing vendor consolidation is prompting payers to reevaluate their partnerships. With a growing preference for proven scalable vendors that can consistently deliver measurable results, operational stability, and long-term value, CERES combines deeper clinical expertise and efficient proven workflows to identify issues before claims are paid. We continue to advance the use of AI, machine learning, and predictive analytics to deliver solutions that are more accurate, scalable, and impactful, driving increased business and value for our partners. This momentum is reflected in the operating results. We have strengthened our market position, created opportunities to expand across additional products and lines of business, and seen heightened interest in CERES from large industry players seeking differentiated data-driven capabilities. We also accelerated our technology roadmap through the strategic acquisition mentioned earlier on the call. Integration is progressing ahead of plan, and we are already seeing the benefits from faster innovation and enhanced capabilities. Of note, the US Department of Justice recently released its False Claims Act enforcement statistics, which reported that settlements and judgments reached record levels in 2025, with recoveries exceeding $6.8 billion. Of that, $5.7 billion in total recoveries were in the healthcare sector. CERES's payment integrity and fraud, waste, and abuse services help partners address this risk by utilizing prepaid services to prevent improper payments before they occur and identifying aberrant billing patterns early, while postpaid services can recoup dollars due to the same issues. These capabilities reduce exposure to false claims and deliver measurable financial impact through avoided or reclaimed overpayments and lower medical cost trends. Taken together, these dynamics underscore the growing importance of proactive technology-enabled payment integrity solutions. CERES is well-positioned to meet this need by combining advanced analytics, clinical rigor, and scalable operations to help partners reduce risk, improve compliance, and make meaningful impact to medical costs. As regulatory scrutiny intensifies and financial pressure on payers continues, our ability to prevent improper payments before they occur while efficiently recovering dollars post-payment creates sustained value for our partners. With strong operational momentum, an accelerated technology roadmap, and increasing interest from larger industry participants, CERES remains focused on expanding its role as a trusted, differentiated partner in an increasingly complex healthcare landscape. Brian, would you provide the additional financial metrics for the quarter? During the quarter, CorVel repurchased 185,559 shares at a cost of $13.4 million. From inception to date, the company has repurchased 114.9 million shares for an aggregated total of $868 million. Through this program, the company has now repurchased 69% of the total shares outstanding at an average price of $7.55 per share. The repurchasing of shares continues to be funded from the company's strong operating cash flow. CorVel's days sales outstanding was 39 days in the December 2025 quarter, which is an improvement of three days compared to the same period a year ago. The quarter-ending cash balance was $230 million. Fiscal year-to-date free cash flow is $90 million, with $36 million having been used for capital expenditures. In the same period of the previous fiscal year, capital expenditures were $24 million to $27 million. This change in CapEx is a result of increased spending on our proprietary software development and software licenses. CorVel's financial strategy will remain committed to responsible management of financial risk. Conversely, many competing organizations throughout the market spaces in which we operate are faced with the costs and challenges of considerable debt obligations and consequently may lack the financial agility needed for service integration and innovation. We believe that our strong and debt-free balance sheet uniquely positions CorVel for continued strategic product expansion, technological advancement, and acquisition opportunities. Thank you for your time this morning. I will now invite the operator to open this session for questions. Operator: Thank you. On the web platform and click enter to submit. We will pause for a brief moment to see if any come in. We do have a web question from Adam. Can you provide more detail on the deceleration of year-over-year revenue growth? Brandon O'Brien: For each segment. There has been a long track record of quarter-over-quarter revenue growth that ended this quarter. What drove that? Michael Combs: And we are live. Yes? Yeah. I would say we look at the fundamentals on which the organization was structured. And revenue growth over our history, certainly, if you look at the ten years, it is not a straight line necessarily. So we believe that the focus we have with the investment in technology, our reputation in the business, and the trajectory, the momentum we have indicates that the historical pattern will continue. So we are not looking at a small cycle change, if you will, as an indication of future results. Brandon O'Brien: Have an online firm Jesse, can you please provide more context around segment quarter three? Michael Combs: CorVel operates within a single segment. And the services that we provide within that segment are patient management and network solutions. As a policy, we do not break up the various products and report those separately. Rather, our entire company and all of our products operate through one single segment. Operator: There are no further questions at this time. I would like to hand the conference back over to management for closing remarks. Michael Combs: Thank you for joining the call today. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning. Thank you for standing by, and welcome to the Madison Square Garden Entertainment Corp. Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ari Danes, Senior Vice President, Investor Relations and Treasury. Please go ahead. Ari Danes: Thank you. Good morning, and welcome to MSG Entertainment's Fiscal 2026 Second Quarter Earnings Conference Call. On today's call, David Collins, our EVP and Chief Financial Officer, will provide an update on the company's operations and review our financial results for the period. After our prepared remarks, we will open up the call for questions. If you do not have a copy of today's earnings release, it is available in the Investors section of our corporate website. Please take note of the following. Today's discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to the company's filings with the SEC for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. On Pages 5 and 6 of today's earnings release, we provide consolidated statements of operations and a reconciliation of operating income to adjusted operating income, or AOI, a non-GAAP financial measure. And with that, I'll now turn the call over to David. David Collins: Thank you, Ari, and good morning, everyone. For the company's fiscal second quarter, we reported revenues of $460 million and adjusted operating income of $190 million, both representing double-digit percentage increases year-over-year. These results were led by another record-setting year for the Christmas Spectacular in its 92nd holiday season run. This quarter's results also reflected growth across virtually every other aspect of our business. That included bookings, sponsorship and suites, as well as the various revenue streams related to the Knicks and Rangers. So with the successful first half of the year behind us, we're confident that we are well on our way to delivering robust growth in revenue and adjusted operating income this fiscal year. Let's now review some second quarter operational highlights. During the quarter, our venues welcomed approximately 2.9 million guests at over 475 events which was led by this year's Christmas Spectacular production. Across its entire holiday season run, which ended in January, we had 215 paid performances of the Christmas Spectacular, an increase compared to the 200 shows we ran last year. In light of the demand we saw, we added several shows to this year's run and across 8.5 weeks of performances, we sold over 1.2 million tickets. This reflected growth in both individual and group tickets and was the production's highest attendance in 25 years. We also saw a year-over-year increase in average ticket yields as we remain focused on strategically managing marketing and pricing our ticketing inventory. In addition, the enthusiasm from guests for this holiday tradition helped drive record level per caps on food, beverage and merchandise. As a result of these positive factors, per show revenue increased by a mid-single-digit percentage as compared to fiscal '25 and the Christmas Spectacular generated approximately $195 million in total revenue this season. The 2025 season also marked the introduction at Radio City Music Hall of new groundbreaking audio technology called Sphere Immersive Sound. This system is now in use for all concerts at the venue following its debut last week with the New York Phil Harmonic. Turning to bookings. During the fiscal second quarter, we saw an increase in the number of events year-over-year across our venues. This was primarily driven by growth in concerts at the company's theaters, family shows and marquee sporting events. However, the number of concerts at the Garden was down as compared to the prior year quarter due to the timing of events within the fiscal year. On the family show front, Cirque du Soleil's Twas the Night Before, completed a 63 show run across the Chicago Theater and the Theater at Madison Square Garden in December. Helping to drive improved financial results in this category on a year-over-year basis. In Marquee sports, we welcome back UFC, WWE, and professional tennis to the Garden during the quarter, while our robust schedule of college sports also got underway. From a demand standpoint, the majority of concerts across our portfolio of venues were again sold out during the second quarter. In terms of in-venue spending, merchandise per caps concerts were up in the quarter, while food and beverage per caps were down, both of which we primarily attribute to the mix of events. Looking ahead, we have continued to add a wide array of events to our calendar. That includes concerts across our venues, marquee sporting events at the Garden and special events like the Tony Awards, which will return to Radio City in June. We also recently announced a 30-night Harry Styles residency at the Garden. This run will begin in August, setting us up for continued momentum in the first half of the next fiscal year. With regards to the Knicks and Rangers, the teams began their '25, '26 seasons at the Garden in October. So far, we have seen higher per game revenues across our various revenue and profit sharing arrangements with the teams as compared to the prior year. Turning to our marketing partnerships business. Fiscal 2026 has been highlighted by a number of sponsorship announcements so far. For example, we recently reached a multiyear renewal with Anheuser-Busch, as well as an expanded multiyear partnership with Infosys. That includes making Infosys the official naming rights partner of the theater at Madison Square Garden, which is now called the Infosys Theater at Madison Square Garden. These marketing partnerships demonstrate the headway we are making with our sponsorship sales effort back in-house. In terms of premium hospitality, we continue to see strong new sales and renewal activity for suites at the Garden, including for a number of Lexus level suites that were recently renovated. Our progress in these businesses puts us on track for growth across both marketing partnerships and premium hospitality in fiscal '26. Now let's turn to our financial results. For the fiscal '26 second quarter, we reported revenues of $459.9 million, an increase of 13% versus the prior year quarter. This reflected increases in revenues from entertainment offerings, arena license fees and other leasing revenues, as well as food, beverage and merchandise revenues. The increase in revenues from entertainment offerings primarily reflected growth in the Christmas Spectacular production, mainly due to higher ticket-related revenues. This reflected 14 additional performances and higher per show revenues, both as compared to the prior year quarter. In addition, revenues from other live entertainment and sporting events increased year-over-year due to higher per event revenues and to a lesser extent, an increase in the number of events held at the Garden. Revenues subject to sharing of economics with MSG Sports pursuant to the arena license agreements and revenues from venue-related sponsorships, signage and suite license fees also grew year-over-year. I would also note that as a result of this year's schedule, the Knicks and Rangers played a combined four more home games during the fiscal second quarter as compared to the prior year quarter. This timing impact will reverse over the balance of the fiscal year. These increases were slightly offset by a decrease in revenues from concerts due to a decrease in the number of concerts at the Garden, which was mostly offset by higher per concert revenues and an increase in the number of concerts at the company's theaters. The increase in food, beverage and merchandise revenues mainly reflected higher F&B sales at Knicks and Ranger Games, the Christmas Spectacular production and other live entertainment and sporting events. These increases were partially offset by lower F&B sales at concerts, primarily due to a decrease in the number of concerts at the Garden. Second quarter adjusted operating income of $190.4 million increased 16% as compared to the prior year quarter. This primarily reflects the increase in revenues partially offset by higher direct operating SG&A expenses. Turning to our balance sheet. As of December 31, we had $157 million of unrestricted cash up from $30 million as of September 30, reflecting our strong cash flow generation during our seasonally busiest time of the year. In addition, our debt balances at quarter end was $594 million. This reflects the paydown of the full $20 million revolver balance during the quarter. As a reminder, we have repurchased approximately 623,000 shares of our Class A common stock for $25 million fiscal year-to-date. We have approximately $45 million remaining under our current buyback authorization. And going forward, we will continue to explore ways to opportunistically return capital to shareholders. So in summary, with the continued momentum in our business, we are confident we are on a clear path to delivering a robust fiscal '26 and believe we remain well positioned to drive long-term value for our shareholders. I will now turn the call back over to Ari. Ari Danes: Thank you, David. Operator, can we now open up the call for questions? Operator: [Operator Instructions] Your first question comes from the line of Stephen Laszczyk from Goldman Sachs. Stephen Laszczyk: David, on the Christmas Spectacular nice performance this year. I was just curious if you could maybe talk a little bit more about the pricing sell-through and audience demographic trends that played out throughout the 2025 holiday season and how those might have compared to prior years for the Spectacular. And then, looking ahead, I would also be curious to your thinking on the opportunity to grow the Spectacular from here? How much more headroom do you feel like still exists in things like show count and pricing as you look ahead into next year's run? David Collins: Great, Stephen. Thanks for the question. Yes, obviously, we had a great run this year. In this year's run, we saw a number of positive signs across ticket demand and pricing. And we continue to optimize our schedule, our pricing and our marketing for the production. And we believe we are set up for success in the future years. On an overall basis, this year, per show revenue increased by a mid-single-digit percentage in that, and that reflected a number of positive factors, including growth in per show ticketing revenue, as well as record high food, beverage and merchandise per caps. The growth in per show ticketing revenue was driven by increased per show sell-through and as well as an improvement in average ticket prices. So if we take a look at the sell-through demand, demand was broad-based across the production with growth in both individuals and groups. We also saw growth across every geographic category that we track with the one exception of international tourism, which was down versus last year. I'd add that the decline in international ticket sales is consistent with lower international tourism to New York this past holiday season. So while I think it may be a little premature to give specifics, based on the demand we saw this year, we believe there is room to again increase the Christmas show count for next holiday season. We're also able to increase our average ticket yield by managing marketing and pricing our ticket inventory effectively. The Christmas Spectacular continues to be a premium entertainment product and it's still priced well below average ticket prices for comparable entertainment options. And going forward, we continue to believe that there are opportunities to improve our yields. So overall, with that said, we're optimistic that there is continued ticket pricing upside along with the potential to increase our show count as we look ahead to next year and beyond. Operator: Your next question comes from the line of Cameron Mansson-Perrone from Morgan Stanley. Cameron Mansson-Perrone: Focusing in on the concert business, I'm wondering if you could give us an update on bookings trends more generally at the Garden and across the portfolio. How are those trending through the remainder of fiscal '26 and acknowledging it's early right now, any indication on pacing for early 27? David Collins: Sure. If we take a look at concert bookings for the rest of fiscal '26, first, let me reiterate that we had a successful first half of the year in our bookings business. We saw an increase in the total number of bookings in the fiscal first half, including for concerts with robust growth in our financial results year-to-date. In terms of the rest of the fiscal year in our concerts business at our theaters, similar to what we had said on our last call, we do continue to pace behind for the March and June quarters. However, given that the typical booking windows for our theaters is 3 to 6 months, we are still actively booking concerts for the remainder of the fiscal year. And if we take a look at the Garden, we are currently pacing up strongly for both the fiscal third and fourth quarters. And in fact, we have now exceeded our concert bookings goal for the year at the Garden and that puts us on track for robust growth in the number of concerts at the arena this fiscal year. As far as -- I think the second part of your question was how our concert bookings looking for the first half of 2027, I would say it's a bit early to discuss pacing for our theaters, given the short booking window that's typical there. However, with the Garden, we typically book 6 to 9 months out. So at this stage, we do have strong visibility into the September '26 quarter and increasing visibility into December '26 quarter. In short, I would say that we are off to a really strong start at the arena. We are pacing well ahead in the first half of fiscal '27 as compared to the first half of fiscal '26. And that, of course, includes the impact of the recently announced Harry Styles residency, as well as a number of other notable acts, including multi-night runs from Bon Jovi and Rush as well as first-time headliners such as Olivia Dean, Alex Warren and Louis Tomlinson. So Also, as you probably remember, the September 2025 quarter was a record for the number of concerts in any quarter at -- the Garden, and we are now on pace to shatter that record in the upcoming September quarter. So we are encouraged by the early indicators for next year and believe that the Garden is likely headed towards another year of really strong concert growth in fiscal '27. Operator: Your next question comes from the line of Brandon Ross from LightShed Partners. Brandon Ross: Just wanted to follow up on Cameron's question. We're in the second half of this question about fiscal a lot of residency activity there with 30 nights at Harry Styles and 9 nights of Bon Jovi, and who knows what else. Investors are trying to understand exactly how incremental this is going to be versus fiscal '26, both, I guess, in terms of the amount of nights filled and then the associated revenue. So any color you could provide to help us get there, including if this is a promoted run or rental on the Harry Styles? David Collins: Okay. Sure. Brandon, thank you. Thanks for the question. Well, first, let me say we are pleased to welcome back Harry Styles to the Garden for this record-breaking run. These 30 nights will start in late August and conclude in October, which is within our fiscal '27 first and second quarters. And the shows will take place every Wednesday, Friday and Saturday night of the Garden for 10 straight weeks during that period, and we are already seeing strong momentum in presales. I don't know if you saw, but Ticketmaster reported $11.5 million registrations making this presell the largest ever presale for a single artist in the New York market. As it relates to our outlook for fiscal '27, while we don't think all 30 nights will be incremental, we do expect this to be a meaningful contributor to a concert growth at the Garden next year by taking place three nights per week. It still leaves a lot of available inventory in August and September, which is a time when the Knicks and Rangers seasons are not quite yet underway. I would also say that New York is a unique market, and the Garden is a unique venue. And we have a good track record of booking and selling out shows that no matter what day of the week it may be, we can sell them. And we are already seeing positive signs outside of this residency with a number of other notable headlines announced, including several multi-night runs. So as I mentioned earlier, we are pacing well ahead for fiscal '27. So once again, we believe that Garden is likely headed towards another year of strong concert growth. And I think your last question was whether this was a co-promote or rental. This will be a rental deal. Brandon Ross: Okay. And then first of all, there are more preregistrations for Harry Styles and people live in New York, pretty impressive. David Collins: Yes. Brandon Ross: Okay. And then, first of all, the more preregistrations for Harry Styles and people live in New York City, pretty impressive. Yes. Then thinking about future years, should we expect these longer residencies to become an annual thing? Or is this really just a one-off year in fiscal '27? David Collins: Yes, sure. Yes. I mean let me say a few things. First, obviously, let me reiterate that we're off to a strong start in terms of bookings for '27. And now, of course, include the Harry Style residency for 30 nights. And we also have, as I mentioned before, Bon Jovi for a 9-show residency at the Garden this summer in -- in fact, we are in discussions for another potential residency at one of our theaters also in fiscal '27. So you can see that we believe there's a great value in bringing residencies to our venues as it -- we view it as building more of a recurring base of business and it also increases our visibility into the forward calendar, which is really important to us as well. So this remains an important area for our booking business. And I think while it's a little too early to discuss fiscal 2028 and beyond, we are continuing to have discussions with other artists about future residencies at all of our venues, including the Garden and we look forward to keeping you updated on that progress. Operator: Your next question comes from the line of Peter Henderson from Bank of America. Peter Henderson: Can you just talk about what you're seeing for consumer demand trends across the portfolio, both from an attendance and per cap perspective and just how they're tracking versus last quarter and maybe last year? And then also just looking forward what you're seeing in terms of on sale activity. And then on capital returns, maybe can you talk about how you decide to lean in and how you size what you're going to return and what the key inputs are that you weigh, whether it be valuation or visibility into free cash flow or leverage comfort? David Collins: Sure. Thanks, Peter. Sure. Let's start with the consumer demand question. I mean, we certainly keep a close eye on the macro environment, but I have to say we continue to see strong consumer demand. There are a number of factors that support our view. I mean, first, of all, as we've discussed, we saw exceptional demand for the Christmas Spectacular's 2025 holiday run. We had another year of record revenues there. We had our highest attendance in 25 years and we had record high food, beverage and merchandise per caps. In terms of bookings, the majority of our concerts at our venues were again sold out this past quarter and -- and year-to-date, we have seen concerts perform better than we initially expected, and a number of upcoming acts across our venues have added additional shows due to strong cement -- I'm sorry, strong demand. As we look at the next 2 quarters, the sell-through rate for concerts is currently pacing ahead of where it was the same time last year. And I guess the last thing I would say is, as I mentioned earlier, the Ticketmaster reporting of 11.5 million registrations during the Harry Styles presale the largest ever presales or a single artist in New York, I would say, given all this, we continue to see strong demand from consumers for sure. As far as your question about capital, as we've discussed before, here at MSG, we have three key priorities in terms of our capital allocation and that first one being ensuring that we have a strong balance sheet and at the quarter end, we had net debt of approximately $437 million, and we expect the business should naturally delever as it grows over time. Second is to ensure we have appropriate flexibility to pursue compelling opportunities that come along and if -- and when they arise. In terms of capital projects, right now, there aren't any major ones to flag as we look out at the rest of the fiscal year. And I would say our third priority remains to opportunistically return capital to our shareholders. And as you all know, we repurchased $25 million of stock during the fiscal first quarter of this year, and we still have $45 million remaining under our current buyback authorization. And what I would say is going forward, we will continue to explore ways to return capital to our shareholders. Operator: Your next question comes from the line of David Karnovsky from JPMorgan. David Karnovsky: I wanted to see if there were any updates on the Penn Station process and whether that original May timeline is intact for a master developer selection and on a related basis, assuming there was some involvement for the theater at MSG, like how should investors think about the current contribution of that venue to the current company's financials? And could shows like, sir, which you called out, get rerouted to like another one of your venues like the Beacon or Radio City in the event it needed to be? David Collins: Sure, David. Thanks for the question. As far as the plans on redevelopment, as you know, the U.S. Department of Transportation and Amtrak continue to reiterate their intended project schedule. As early as in January, they completed an initial step to select a short list of developers to participate in the RFP process. And -- and as far as we know, based on that RFP process, they are expected to select a massive developer by May 2026. And I would say, as invested members of our community, we remain committed to improving Penn Station in the surrounding area. And as redevelopment of the area continues, we are committed to collaborating closely with all stakeholders that -- and I would say that's all -- we have to report at this time, but things seem to be still on target for that May 2026. In terms of the theater at MSG, first, I'd remind you that the significant majority of our company's economics are driven first and foremost by the Garden and second, by the Christmas Spectacular with the theaters in aggregate following that. Also, the theater in MSG is one of four theaters in our portfolio and one of three in New York varying capacities and if needed, we believe that we have the ability to shift some events from the Infosys theater at MSG to our other theaters in New York. Ari Danes: Thanks, David. Operator, we have time for one last caller. Operator: Your final question comes from the line of Peter Supino from Wolf Research. John Stid: Jack Stid on for Peter. Two questions for you, if I may. First, SG&A was elevated year-on-year. Could you unpack that for us? And how should we think about SG&A for the balance of the fiscal year? David Collins: Sure. Thanks, Jack. First, yes, let me say that SG&A expense results were a bit noisy this quarter and included a couple of nonrecurring items. The largest one, which we called out in the earnings release was $4 million in executive management transition costs. We had also reported executive management transition costs in the year ago quarter. Additionally, the quarter included a onetime expense true-up of $2 million, which related to prior year periods. With that being said, even if we exclude the nonrecurring items, SG&A expense growth this quarter was elevated and above what I would expect our long-term expense growth to be. The growth reflects higher employee compensation, which is consistent with what we've said in the past about higher labor costs for this fiscal year. And as we look to fiscal '26 for the rest of -- I'm sorry, rest of fiscal '26, we similarly expect the March quarter reflects higher labor costs on a year-over-year basis. In addition, I would note that we recently implemented a voluntary exit program at the company. This program is meant to support our goals around streamlining processes and supporting a more efficient and nimble organization. As a result, we do expect to incur approximately $8 million in severance expense related to the program, primarily in the March quarter, and we expect that SG&A will start to normalize by our June quarter. John Stid: Got you. That's very helpful. And then secondly, you called out lower F&B per cap due to mix this quarter. Could you impact as well? David Collins: Sure. Let me just say both F&B and merchandise per cap can fluctuate quarter-to-quarter based on the mix of artists and genres. For example, Rock A typically generate higher F&B spend but lower merchandise spend, while Pop acts tend to show the opposite, primarily due to differences in audience demographics. So using the Garden as an example, which obviously is our largest and most economically significant venue, last year in the second quarter, the Garden was more heavily weighted towards rock, while this year, the Garden featured a broader genre mix, including Pop acts. So as a result, this quarter at the Garden, F&B per caps were down, but merchandise per caps were up year-over-year, partly due to this mix that I'm talking about. However, if you look at it on a combined basis at the Garden, food, beverage and merchandise per caps were up overall in the fiscal second quarter. So the shift to merchandise sales more than offset the decrease in food and beverage at the arena. I would also note that for the artists that played the garden in both periods, we saw growth in their food, beverage and merchandise per cap. So overall, we continue to see strong consumer demand in this part of our business. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Ari Danes for closing remarks. Ari Danes: Thanks. We look forward to speaking with you on our May earnings call. Have a good day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and thank you for joining us for RPC, Inc.'s Fourth Quarter 2025 Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. [Operator Instructions] I will now turn the call over to Mr. Schmit. Michael Schmit: Thank you, and good morning. Before we begin, I want to remind you that some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. Please refer to our press release issued today, along with our 10-K and other public filings that outline those risks, all of which can be found on RPC's website at www.rpc.net. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity. We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. I'll now turn the call over to our President and CEO, Ben Palmer. Ben Palmer: Thanks, Mike, and thank you for joining our call this morning. Today, we'll talk about our fourth quarter results and provide you with a few operational highlights. Fourth quarter results reflect a sequential revenue decline across the majority of our service lines, while October and November were consistent with third quarter monthly activity, we saw weakness in December, particularly later in the month. During the quarter, service lines other than pressure pumping represented 70% of total revenues and saw a 4% sequential decrease compared to the third quarter of 2025. Although we did see revenues increase at Spinnaker's cementing business, Patterson Tubular Services storage and inspection business and Cudd Pressure Control, snubbing and well control businesses. Within Technical Services, Thru Tubing Solutions downhole tools revenues decreased 9% sequentially. We saw growth in our Southeast and Northeast regions, our largest region, the Western Mid-Con, which includes Elk City and Odessa locations was flat sequentially. Weakness was experienced in the international and the Rocky Mountain regions. Thru Tubing Solutions is a market leader in downhole completion tools and includes a portfolio of products and advanced technologies. We have seen success building since our late 2024 rollout of the A-10 downhole motor. The new motor is positioned in the completions market to specifically address today's longer laterals and higher flow rates. We believe this tool technology provides customers with unmatched performance and has resulted in incremental share gains. Thru Tubing Solutions continues to expand the rollout of its new metal-on-metal power section component called Metal Max. The product allows for a shorter motor design, higher torque output, reduced downtime and improved performance in demanding downhole environments. This improved technology allows us to expand into new markets due to these advantages. We initially prototyped the Metal Max motor in a few key geographic areas and have recently expanded into other regions. Thru Tubing Solutions continues to actively market and develop its UnPlug technology. This innovative product reduces and sometimes eliminate the need for bridge plugs during the completion of a well and delivers faster drill-out times while achieving highly effective stage isolation. While the product is early in its life cycle, adoption has steadily increased. Also within Technical Services, Cudd Pressure Controls revenues were up 1% sequentially, led by increases in well control activity and snubbing, which was up 13% as this equipment was well utilized during the quarter. Cudd Pressure Control snubbing business expects to take delivery of a big bore snubbing unit in 2026 that is specifically designed for cavern gas storage work. This unit was built to support a long-term customer of their storage well maintenance schedule over the next several years. This work is regulatory driven and is part of our effort to continue diversifying into other markets. Coiled tubing, our largest service line within Cudd Pressure Control, was down 2% sequentially after a really strong third quarter. Our new 2 7/8-inch unit continued to be well utilized. We are upgrading an existing coil unit to handle the larger 2 7/8-inch tubing and is expected to be in service by the middle of 2026. Pintail Completions, the largest wireline provider in the Permian Basin, experienced a decline in revenues of 3% during the quarter. Given our market position, we expect 2026 to trend closely with large Permian operator activity. Cudd Energy Services pressure pumping business saw a 6% sequential decrease. This decline largely related to holiday shutdowns and a fleet we idled in October. We do not expect to reactivate any fleets until returns improve. Many of our businesses have been impacted by recent winter storms early in the first quarter. While activity is expected to continue as conditions improve, these lost operating days are not fully recoverable and the associated costs incurred will impact near-term profitability. RPC's focus remains on leveraging our strong balance sheet and maximizing long-term shareholder returns. We continue to strategically grow our less capital-intensive service lines, both organically and through acquisitions. With that, Mike will now discuss the quarter's financial results. Michael Schmit: Thanks, Ben. Our fourth quarter financial results with sequential comparisons to the third quarter of 2025 are as follows: revenues decreased 5% to $426 million compared to Q3. Breaking down our operating segments: Technical Services, which represented 95% of our total fourth quarter revenues was down 4%. Support Services, which represented 5% of our revenues, was down 18%. The following is a breakdown of the fourth quarter revenues for our largest service lines. Pressure pumping, 27.6%; wireline, 24.1%; downhole tools, 22.4%; coiled tubing, 9.7%; cementing, 5.9%; rental tools, 3.4%. Together, these service lines accounted for 93% of our total revenues. As disclosed in this morning's press release, we made the decision to expense wireline cables that were previously being capitalized beginning in the fourth quarter. This was due to a change in our useful lives because of increased activity and change in work type. The impact is seen primarily through an increase in cost of revenues and a reduction in capital expenditures, but also a modest decrease in depreciation and amortization. Cost of revenues, excluding depreciation and amortization, was $337 million compared to $335 million in the previous quarter. This increase was primarily related to expensing wireline cables and other materials and supplies expenses related to job mix. SG&A expenses were $48 million, up slightly from $45 million. As a percent of revenue, SG&A increased 120 basis points to 11.2%, primarily due to employee incentives and higher other related employment costs. The effective tax rate was unusually high during the quarter. The higher rate was primarily due to the liquidation of our company-owned life insurance policies that were part of the previously announced dissolution of the company's nonqualified supplemental retirement income plan, coupled with the nondeductible portion of acquisition-related employment costs. Adjusted diluted EPS was $0.04 in the fourth quarter. Adjustments totaled $0.06 and related to expenses of wireline cables purchased and capitalized from previous quarters, acquisition-related employment costs and a significant increase in tax expense related to taxable gains on the sale of the company-owned life insurance policies and other investments related to the liquidation of the company's nonqualified supplemental retirement income plan. Adjusted EBITDA was $55.1 million, down from $67.8 million due to the broad-based declines across the majority of the businesses. Adjusted EBITDA margin decreased 230 basis points sequentially to 12.9%. The adjustments made to EBITDA were made to make future periods more comparable. Operating cash flow to date was $201.3 million and after CapEx of $148.4 million, free cash flow was $52.9 million. The change to expensing wireline cables reduced both operating cash flow and CapEx, but resulted in no change to free cash flow. At quarter end, we had approximately $210 million in cash, a $50 million seller finance note payable and no borrowings from our $100 million revolving credit facility. Payment of dividends totaled $35.1 million year-to-date through Q4 '25. During the quarter, we paid $8.8 million in dividends. Full year 2025 capital expenditures were $148 million, primarily related to maintenance CapEx and inclusive of opportunistic asset purchases as well as our ERP and other IT system upgrades. Capital expenditures were $12 million lower due to wireline cables being expensed rather than capitalized in the fourth quarter. Additionally, we saw approximately $15 million in anticipated capital expenditures delayed into 2026. Due to this delay, we expect 2026 capital expenditures in the range of $150 million to $180 million. We'll adjust our spend based on activity levels. I'll now turn it back over to Ben for some closing remarks. Ben Palmer: Thank you, Mike. 2025 was a challenging year with year-end oil prices reaching its lowest level since COVID. While we have seen recent improvement in oil and gas -- natural gas prices, we need further increases to spur significant customer activity levels. Our management teams have experienced many cycles over the years, and we will continue to focus on costs, returns and maintaining financial flexibility. This flexibility allows us to take advantage of opportunities that arise and to pursue growth opportunities through selective investment for organic growth, investment in new technologies and M&A within our existing markets and the broader energy sector. I want to thank all of our employees who put in tremendous work to drive high levels of service and value to our customers. Thank you for joining us this morning. And at this time, we're happy to address any questions you might have. Operator: [Operator Instructions] And your first question comes from the line of Don Crist with Johnson Rice. Donald Crist: My first question, and Ben, I don't want to pin you down to any kind of guidance for the first quarter. But given the weather impacts for the first, call it, 2 weeks of the year, do you think it kind of shakes out similar to the fourth quarter directionally? And again, I'm not looking for specific numbers here. Ben Palmer: To be honest with you, Don, it's a great question. We're still trying to analyze the impact. We do have -- we're quite geographically diversified, but we are concentrated in the Permian and in the Mid-Con, Oklahoma, and both of those areas were hit pretty hard. So reasonable question. I understand why you're asking, but we don't know yet. But certainly, it's not insignificant, put it that way. Donald Crist: Right. I understand it's hard to quantify given we still got a lot of winter left. So my second question would be, we've seen a lot of your competitors have challenges in outside of pressure pumping and the other business lines that you all operate in. And a lot of that equipment start to move overseas to the Middle East and other places for unconventional type development. Are you seeing that other business lines, Thru Tubing and coil and wireline start to normalize or some of your competitors go away and have a little bit less competition there as that equipment moves overseas? Ben Palmer: Maybe a little bit of that. I don't know that it's a tremendous amount yet. But certainly, every little bit can help. There have been -- we've heard of some competitors and some of those other service lines that are obviously reorganizing or being sold, absorbed by other competitors. So perhaps that is an indication that the market stress is getting to some of the less well-capitalized companies. And hopefully, that will inert our benefit as we move forward. Donald Crist: Okay. And just one last question for me. Obviously, you've been very prudent with the balance sheet over the years and selectively done M&A, but you've got a pretty large cash hoard right now. Any indication that we could see some stock buybacks? Or are you going to just keep that for M&A in the near term? Ben Palmer: We're always evaluating the various uses of our capital and buybacks are certainly one of those choices. And we'll just have to see again, reasonable question. I wouldn't see us necessarily in the near term doing anything dramatically different, but that's in the tool chest, and we're looking at it. Operator: Your next question comes from the line of John Daniel with Daniel Energy Partners. John Daniel: Today you mentioned that the -- it was idled in -- Is there anything -- Can you hear me okay? Ben Palmer: John, a little bit difficult. Michael Schmit: Yes, cut out. John Daniel: How about now? Ben Palmer: Yes, much better. John Daniel: Sorry, just driving the Midland. My question is, with the fleet that was idled in October, I think you said October at least in the fourth quarter, is there anything today which would suggest that you think that fleet comes back this year? And with the reactivation, is it a function of price? Or would it be a function of if you had a sufficient amount of work even at current pricing? Just how do you think about that? Ben Palmer: It's a good question. I would have to -- I mean, we're always looking and evaluating opportunities where -- I would say the probability is we would need to be really comfortable that it's incrementally better pricing. We're not looking for the same pricing at the prior activity levels, right? And as we've always talked over the years, some of it -- given -- I mean, we do have some customers that we do have nice steady programs with. So it's always a combination of our confidence in how steady the activity can be at a certain pricing and so forth. So I think we're not in a panic to try to put that fleet back to work. We want to make sure we're comfortable that it's going to be generating probably better cash flow than we've recently been experiencing, not just in that fleet. But just overall, we would want to present a pretty high probability that we would have an incremental benefit from bringing it back into service. John Daniel: Okay. Fair enough. The second question goes -- is about M&A. Obviously, you guys have the balance sheet to prosecute deals should you wish to. When you think -- step back and think about just the market, you've got some of your peers that are chasing power, others will be more focused on international. It would seem that the universe of realistic buyers of traditional land equipment is kind of diminishing. I don't know if that's think that's a reasonably fair statement. Is that -- would you agree with that? And does it argue you take -- be very careful. I mean, you just take your time. There's no rush to do deals if there's limited buyers. Just if you could kind of bloviate on that. Ben Palmer: I think that's a good way to set it up. Yes, there -- I'm not knowledgeable of the entire market. But yes, I don't think there's a whole lot of competition out there for people seeking to buy traditional oil field services companies, but there are some good companies out there that could be ones that would either add to some of our existing service lines. It could be a really good strategic fit, but all of it depending on, of course, trajectory of their business and the price and all of those sorts of things. So yes, we're not in panic. We traditionally don't lean into highly competitive bidding situations. And to the entire point, there's probably not going to be situations where there's multiple bidders aggressively going after a particular target. So I think that's a nice position to be in that we can be patient. We do have the balance sheet, not only the capital capacity, but the cash gives us a lot of flexibility. And so OFS is something we're looking at. But we too want to be -- we want to open up the aperture of what's the possible. We've been doing some things that are on the edges of other parts of energy like some of the gas storage work. We don't have any debt that's of a significant amount, but we like that diversification. And so we're opening up that to look at even more broadly than we may have in the past. Operator: [Operator Instructions] And your next question comes from the line of Derek Podhaizer with Piper Sandler. Derek Podhaizer: Maybe we could just start with some just some additional insight and maybe some history into the updated wireline accounting treatment. Maybe just why now and not when the deal occurred last year. I think you mentioned a change in work type with the wireline. I'm just trying to understand better really what happened that caused this change? Michael Schmit: Sure. Derek, thanks for the question. Previously, they had an audit and previously, they were capitalizing wireline, but the business has started changing about the time that we had the acquisition. It's more simul-frac, [ tunnel ] frac and just working more. So it's something we kept our eyes on and that we wanted to make sure we were comfortable with by the end of the year. We were only depreciating them over 18 months previously, which was kind of where they historically have been. But we knew that the type of work was changing. And so we were just monitoring over the last couple of quarters, how much spend we were having on wireline cables. And we were more comfortable that it's closer to under a year. And so rather than letting it build over time and being aggressive, we thought the right thing to do was within our purchase accounting window. We had enough evidence at this point before year-end to go ahead and make the switch. And we focus a lot on free cash flow here, and it doesn't have a ton of -- it has 0 free cash flow impact. So for us, we just thought it was the correct accounting treatment as we looked at kind of how quickly we were using up the cables, which has really changed and started changing as the work changed. Ben Palmer: Derek, as you know, too, I mean, we and the pumping industry went through this with fluid issues a number of years ago. So it's not dissimilar in that regard. So I appreciate the question. Derek Podhaizer: Right. Yes. No, that was very helpful. I appreciate the color. And yes, it did remind me of the fluid issue years ago. I guess maybe a question on Thru Tubing Solutions. You talked about international regions and your footprint there. Maybe just can you expand on that, maybe to educate us on the location and the type of technology you're deploying there and how you really see that business growing over the next couple of years? Ben Palmer: Yes. Well, with respect to the color on international, we have pared back significantly our international business from where we were a number of years ago. Thru Tubing Solutions has the largest presence internationally of our service lines. The Middle East is where we have the most activity, and that's the area that experienced the weakness that we were referring to. Michael Schmit: In Canada, area where we've done some work historically and have center work up in Canada consistently. Derek Podhaizer: Got it. Is there any renewed focus as far as the Middle East and the build-out of unconventionals and Thru Tubing being a potential growth trajectory for you, maybe reigniting just given the unconventional buildout of the Middle East? Or is that not the correct read-through? Ben Palmer: It's possible. We kind of several years ago, kind of changed our business model there. So we have less of a "physical presence." We're making the tools and the technology available. So yes, I mean, I think our tools certainly can perform very well in those environments like they do here in the states. So I would expect and hope that we would have some improvement there. But like I said, we're not directly there ourselves. So we're working through other groups and making our tools available to them. So we'll have to see. Hopefully, if they can be successful and we can increase the revenues there. So it's not anything that we're counting on in any of our current forecast, but we hope it does come to fruition. Derek Podhaizer: Got it. Okay. That's helpful. And then maybe just a third question, a quick state of the union on the current spot market in pressure pumping. How is the competition? It's always been oversupplied, but you stack the fleet, and I'm sure some of your competitors have stacked fleet. I'm not sure if any of the smaller mom-and-pop privates have gone away, just given where pricing and activity has gone to. Obviously, we have accelerating attrition as well. So maybe could you help us further understand the state of the market today? Do you see competition reducing? Any sort of secular fundamental improvement that we could potentially see in the spot market as we work through the year? Ben Palmer: We're not seeing anything dramatic yet at this point. Of course, there's some of the consolidation that was occurring over the last couple of years has resulted in us selling off some of the properties and things like that, and that brings in some of the customers that are more spotty looking, if you will. So it could create some opportunities, but it's really more of the same. I think discipline. We're trying to be disciplined again with our pricing. Again, one of the reasons we idle the fleet, we trim a little bit of headcount. So we're trying to do what we can to make the best of the situation. We are certainly continuing to maintain the business, but the returns just -- they need to improve, and we're hopeful that competitors. There are some mom-and-pops out there that are difficult to compete with. But we continue to support pressure pumping, but we're focused on some of the other service lines that are less capital intensive, and we'll see where all that takes us. Operator: Your next question comes from the line of Chuck Minervino with Susquehanna. Charles Minervino: I was just wondering if you could talk a little bit about that 2026 CapEx. It sounds like you had some deferred spend from 2025. But then also, I guess, the wireline cable now comes out of the CapEx. Maybe they were offsetting each other. But if they are, you still going to have CapEx up in 2026. So I was just curious if you can kind of touch on that a little bit and if there's maybe room for that to come down if you're looking to generate a little bit more free cash flow during the year? Ben Palmer: Well, I think we put out there, I think it's a conservative number and that it's maybe larger, we could have said something smaller, but we're trying to be realistic with respect to our near-term and longer-term plans. I mean we've always -- certainly, if things move dramatically in one way or the other. CapEx, there's oftentimes long lead times on that. So sometimes you can't immediately cut it off. But we scrutinize our CapEx very, very carefully. Certainly, there's opportunities to reduce it if conditions warrant the way we run the business, our management teams, they look at their plans, they come up with their CapEx plans, but they know that in terms of unapproved or undelivered equipment, it's always subject to us together with them making the decision that we're not going to spend that money. So it's not committed if it's in the budget. That doesn't mean it can be spent. So we scrutinize it very carefully. So there is an opportunity for that number to come down. Likewise, there could be opportunities for it go up slightly, right, if an opportunity comes along that we can pursue. We've got the balance sheet to be able to do that. So -- but yes, we -- everybody understands that at the end of the day, the free cash flow is where the rubber meets the road and everybody buys into that and understands and trying to do what's prudent to be able to support our businesses and selectively grow them, but obviously be very, very mindful and particular and selective about the CapEx investments. We'll continue to do that. Charles Minervino: Got it. And then just one other. In Support Services, I know not a huge piece of the overall revenue pie, but the rental tool revenue down pretty sharply, it sounds like late in the year. I know there's always seasonality late in the year. Was that particularly kind of sharper than you've seen historically? And I was just kind of curious if there was any reason for it or any more color you can provide? Ben Palmer: Yes. It is -- it was more acute. That business, a nice little business that's been really, really steady. So I don't say it was a surprise. I mean this kind of thing can always happen in the fourth quarter. It's kind of -- you can have 1 or 2 customers that slow down for whatever reason. And I think it too was impacted in the Rockies, similar to Thru Tubing Solutions that we talked about. So it's kind of 1 or 2 customer-specific that impacted that. So it's really just -- some of it was not permanent delays. I mean it's just -- obviously, they're a rental tool company and drilling. So this was some delays on drilling some wells. But we believe it's only delays. It was just delaying it slightly. So it's not a lost opportunity or anything like that. It was just a delay. Michael Schmit: The other call out on that is they have a really great third quarter. So I mean, they had a pretty tough comparable. Operator: There are no further questions at this time. I will now turn the call back over to Ben Palmer for closing remarks. Ben Palmer: Thank you very much, operator. We appreciate everybody calling in and listening and look forward to talking to some of you perhaps later today, and hope you have a good rest of the day. Take care. Operator: Today's call will be available for replay on www.rpc.net within 2 hours following the completion of the call. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings and welcome to the W.W. Grainger, Inc. Fourth Quarter 2025 Earnings Conference Call and Webcast. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Now my pleasure to introduce your host, Kyle Bland, Vice President, Investor Relations. Kyle, please go ahead. Kyle: Good morning. Welcome to Grainger's Fourth Quarter and Full Year 2025 Earnings Call. With me are Donald G. Macpherson, Chairman and CEO, and Deidra Cheeks Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8-Ks and other periodic reports filed with the SEC. This morning's call includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the fourth quarter 2025 period. We have also included organic revenue adjustments in the presentation, normalized sales growth reflect our exit from the U.K. Market, including the Cromwell divestiture, and the closure of Zoro UK. Definitions and full reconciliations of our non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U.S. GAAP, and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO's public statements. Now, I'll turn it over to DG. Donald G. Macpherson: Thanks, Kyle. Good morning, everyone, and thank you for joining. Despite the macroeconomic uncertainty and challenging environment in 2025, the Grainger team continued to execute against our strategy, delivering exceptional service and a best-in-class experience for our customers. During 2025, we made strong progress. We leveraged our technology capabilities and MRO know-how to strengthen our competitive advantage in each segment. We streamlined our portfolio by exiting the U.K. Market, invested in new supply chain capacity to extend our service leadership. We did the greater edge each day to foster a workplace environment where team members can build a rewarding career. And we delivered on our financial commitments for the year. Overall, this progress positions us well as we move into 2026. Before I dive into these 2025 accomplishments in more detail, I thought it would be helpful to reiterate our go-to-market strategy and how each of our operating models addresses the needs of MRO customers. Providing a flawless experience and delivering tangible value. This context is important as it drives most of the incremental investment we are making across the business and prioritizes the work our team does every day. Over the last several years, we have invested heavily to build market-leading data and technology capabilities. This includes core product and customer information assets, which have taken on even greater importance as AI accelerates and creates new opportunities to unlock additional value. These data assets underpin our five strategic growth engines and fuel our ability to gain share within our high-touch solutions segment. In 2025, we made great progress across these five areas. In merchandising, we have consistently gained share through this important initiative by building a highly curated product assortment. This includes continued work across our category review process and expanded use of the Grainger brand name within our private label offer. Our category reviews focus on improving product search, organization, and content, and have more recently had an increasing emphasis on new product introductions, including expansion into new categories. Recent examples include efforts to build out a relevant offer to support data center customers, as well as an expanded breadth of factory automation products such as sensors, machine controls, and actuators. In total, our merchandising efforts in 2025 resulted in net assortment growth of over 85,000 SKUs, our largest net SKU growth for the high-touch segment in nearly a decade. In marketing, the team remains focused on delivering strong returns while also finding ways to improve program effectiveness to deliver better outcomes for the dollars we are spending. During 2025, we found new and creative ways to further leverage our advantaged information assets to increase personalization and improve our marketing investment strategy. On the latter, we are leveraging our know-how and machine learning to optimize investment at the SKU level based on our knowledge of relative pricing, product availability, and customer lifetime value. The success we continue to see across this space supports further incremental investment in 2026 and beyond. Moving to our seller coverage initiative, we continue to leverage our improved customer data to expand our force with a focus on underserved business locations. After slowing our pace and adjusting our approach with this initiative in 2023 and 2024, we added around 110 new sellers across two geographies in 2025. This brings our total program expansion to over 300 sellers across six geographies since 2022, more than a 10% increase in our U.S.-based sales team. The collective performance to date of these geographies has been in line with expectations, and we plan to address two more regions in 2026. Our sellers are crucial to providing value for our customers and generating demand, and we remain committed to investing in tools and resources to increase their effectiveness. In 2025, we saw strong usage of our new SellerInsights platform. As you may recall, this platform integrates with existing Grainger data sources to provide sellers with a one-stop-shop customer insights. In 2026, we will leverage AI in this platform to deliver actionable insights, identify new customer contacts, and strengthen leader coaching opportunities. We are just scratching the surface of our potential in this area, and we are excited about the path ahead. Lastly, we continue to see increased demand for value-added services as labor scarcity and cost savings initiatives become customer imperatives. In KeepStock specifically, this has resulted in new customer installations and product category expansions, driving further embeddedness and deeper share of wallet. Additionally, the KeepStock team made progress over the past year further developing customer-facing tools, and we anticipate a broader rollout of these new capabilities to begin in 2026. These tools provide customers access to enhanced data and insights, aimed at improving their user experience and driving procurement cost savings. While it is already a critical part of our offer, we expect KeepStock to become even more valuable going forward. We are excited about the progress we have made across these five strategic growth engines and remain confident in our ability to drive share gain as we execute against these important initiatives. Now, given the critical role that technology is playing in our space, I thought it would be helpful to provide a few use cases of how we are leveraging AI and machine learning across the business. While the ramp curves differ by initiatives, as these efforts mature, they can help increase productivity, enhance service, and create revenue opportunities over time. We have broad experience deploying AI and machine learning, and when underpinned by our differentiated data assets, we can create tremendous value. I have already touched on how machine learning is optimizing our marketing investment strategy and how AI is helping us improve seller effectiveness. On the slide, you can see several other areas of the business where these new technologies are fueling advancements. The point here is to show how prevalent these powerful tools have become and to highlight how we can leverage our data assets to create solutions that add real value to our customers and to our bottom line. We have learned a great deal in the past two years about AI and feel well-positioned to accelerate these efforts moving forward. Moving to the Endless Assortment segment, we made great progress propelling both businesses forward in 2025. At Zoro, the team has regained its growth momentum, focusing on driving improved repeat purchase rates through an enhanced customer experience. Our progress during the year included optimizing the assortment to improve delivery times, launching Zoro-branded private label products, improving the quality of customer acquisitions to enable better repeat rates, enhancing direct marketing capabilities through better analytics, and improving the customer experience through more accurate delivery communication. These actions helped reaccelerate sales growth back into the high teens for the full year. At MonotaRO, the team continues to execute well, driving strong results, including 25% growth of enterprise customers. They continue to improve and expand the distribution capabilities by extending the reach of same-day shipping regions beyond Tokyo and Osaka, while also planning for the future with the groundbreaking of the new Mito DC, outside Tokyo. Similar to High Touch, we have also progressed our AI and ML capabilities across both EA businesses. It is still early innings, but we are using these technologies to drive productivity and accelerate our momentum across the flywheel, and we have included a few examples on this slide. All told, we delivered great results across the endless assortment segment in 2025 and are positioned well to continue this momentum into the new year. Turning to Slide nine, I am very pleased with the continued progress we are making across our distribution network as we stay focused on extending our industry-leading ability to deliver next-day complete orders to customers across both segments. Notably, we made meaningful progress on three new facilities across the U.S. and Japan. The Northwest DC, which is located outside of Portland, is set to start full outbound operations later this year. This building will improve our service and reduce transportation costs throughout the Northwest. We also continue to make great progress with our Houston distribution center and expect inbound operations to begin in 2027, with outbound following a few quarters later. In Japan, MonotaRO is making great progress on their new highly automated DC in Mido, scheduled to open in 2028. This facility, when complete, will nearly double the shipping capacity that MonotaRO has in the country. Outside of new capacity investments, the supply chain team has also worked hard to leverage inventory and transportation solutions to improve service in certain markets, including Florida and Canada. Overall, we continue to invest across our supply chain to ensure that we maintain and extend our leading position in customer fulfillment. The heart of our organization remains our people, who work hard every day to fulfill our purpose to keep the world working. As you can see on Slide 10, our culture was again recognized externally during 2025. We were recertified as a great place to work in the U.S., Canada, and Mexico, affirming our commitment to being an employer of choice and a place where every team member feels valued and empowered. We were honored for the first time as one of the world's most ethical companies, named once again as one of Fortune's most admired companies, and recognized by Glassdoor as the best place to work. These recognitions are a testament to the culture we have built over almost a century in this industry. Grainger will always be a place where every team member can have a fulfilling and meaningful career if they are willing to work hard and serve our customers. Now turning to our full-year financials. 2025 certainly had its share of challenges between shifting tariff dynamics, soft MRO market demand, and the government shutdown. Despite these challenging macro headwinds, we still delivered total company sales growth of 4.5% on a reported basis and 4.9% on a daily organic constant currency basis, with total sales finishing the year at $79.9 billion. Growth for the year included continued share gain from our High Touch Solutions U.S. Business, which finished the year with roughly 250 basis points of outgrowth on a volume basis. The endless assortment segment showed significant top-line improvement with daily organic constant currency sales up 15.6%. Both Zoro and MonotaRO continue to win with their core B2B customer base and drive improved repeat purchase rates, positioning them well for the future. Alongside the solid top line, the team also did a nice job managing strong margins despite LIFO headwinds, with operating margin finishing at 15% for the year. We delivered adjusted EPS growth of 1.3% to $39.48 per share, ROIC finished at 39.1%, and operating cash flow was $2 billion, which allowed us to return $1.5 billion to Grainger shareholders through dividends and share repurchases. Overall, I am proud of what we accomplished in 2025. We continue to focus on improving in core areas of the business to perform well over the long term. With that, I will turn it over to Dee to review our fourth-quarter results. Deidra Cheeks Merriwether: Thanks, DG. I want to echo DG's sentiment on our 2025 performance. Not only did we make progress on a number of strategic initiatives, but the team was also able to drive top and bottom-line results within the original 2025 outlook we provided a year ago. A strong outcome despite the challenging macro environment we faced. Now turning to our fourth-quarter results. We had another solid quarter to finish the year with results roughly in line with expectations. For the total company, daily sales grew 4.5% or 4.6% on a daily organic constant currency basis, which included growth in both segments. Sales were healthy in the period despite softness during the start of the quarter from the government shutdown and the lapping of a prior-year hurricane-related sales benefit. If you were to normalize these events, sales for the total company would have been up approximately 6.5% for the quarter on a daily organic constant currency basis. Total company gross margins for the quarter were strong, ending at 39.5%, down about 10 basis points over the prior-year period, driven by segment mix headwinds from faster-growing endless assortment. Operating margins were down 70 basis points year over year due to increased SG&A expense, which came in higher than expected in the period due to unforeseen healthcare costs above our normal run rate and a softer top line in the high-tech solutions segment. Overall, we delivered diluted EPS for the quarter of $9.44, which was down 2.8% versus 2024, but above the midpoint of our implied fourth-quarter guide. Moving to segment level results. The High Touch Solutions segment delivered sales growth of 2.2% on a reported basis or 2.1% on a daily constant currency basis. Results included nearly three points of price inflation for this segment, showing meaningful sequential improvement as tariff costs continue to be passed. From an end-market perspective, our indicators suggest the MRO market gained momentum sequentially but remained muted in the period. For Grainger specifically, we saw strong performance with contract and manufacturing customers, which helped to offset slower growth in other areas of the business, including year-over-year softness in the government end market. If you were to normalize government sales for the impact of the shutdown and the prior-year hurricane-related sales benefit, sales for the high-touch segment would have been up roughly 4.5% for the quarter on a daily constant currency basis. On profitability, gross margin finished the quarter at 42.3%, flat versus the prior year. We continue to see tariff-related inflation, which caused further LIFO inventory valuation headwinds, although the magnitude of these charges came in favorable to our expectations. These charges were offset by positive mix and a number of other smaller tailwinds. Price cost on a LIFO basis remains negative but improved in the quarter as our pricing actions took hold. Similar to last quarter, if we excluded the LIFO headwind and we wanted to compare ourselves to our peer set, which report on LIFO, our implied FIFO gross margin rate would have increased year over year with price cost roughly neutral on this basis. On SG&A, margins delivered in the period as payroll and higher-than-expected healthcare costs, along with continued marketing investment, were only partially offset by productivity. We also saw a softer top line in the period due to the impact of the government shutdown, which further weighed on margins. Taking all this together, operating margin for the segment finished at 15.8%, down 120 basis points versus the prior-year quarter. Before moving on, I want to share a brief update on where we are with tariffs. In the fourth quarter, we remained engaged in active dialogue with our supplier partners and took modest price increases in November to help offset continued cost pressure. These actions were on top of the price increases in May and September when we began to pass through tariff-related costs. In January, we passed further price in response to previously delayed tariff inflation and to offset annually negotiated cost increases with our suppliers, which were largely in effect as of February 1. These actions are net of a partial rollback on certain Chinese tariffs announced at the end of last year. As we look ahead, we have passed the majority of known tariff-related costs to date, but the situation still remains fluid. Importantly, our team is staying agile, and we remain confident in our ability to adhere to our core tenets to reach price cost neutrality over time while maintaining competitive pricing. Donald G. Macpherson: Turning to Slide 16. U.S. Business. We wanted to share an update on our volume outgrowth for the High Touch Solutions segment. When we last spoke about outgrowth in detail, it was during the first quarter of 2025 as we observed a meaningful inflection in the underlying single-factor benchmark that we use to measure MRO market volume. This inflection was misaligned with what we were seeing on the ground with our MRO customers and likely caused by shifting macroeconomic dynamics and bifurcation across industries. These dynamics are driving where tariffs are impacting demand in some industries while others are experiencing a tailwind, notably those tied to aircraft manufacturing and data center build-out. As we have been discussing over the past few years, we built a separate market model back in late 2023 after a sustained period of dislocation between what we were hearing from customers and what the single-factor model was implying about market volume growth. This multifactor model was developed after testing over 1,000 publicly available economic indicators to find the best combination of explanatory factors with a high correlation to underlying U.S. Economic census data for MRO products. Specifically, the model pulls in several different supply and demand factors, including net core capital goods shipments, import-export dynamics, and end-user activity to formulate a comprehensive view of the MRO landscape. When comparing the two model inputs side by side, while neither model mirrors the exact weight of Grainger's customer end markets, the multifactor model does capture a broader base of end-market activities outside of manufacturing while also eliminating non-MRO product categories. Further, the multifactor model captures a more dynamic view of the economy, relevant trade flows, and shows a stronger correlation to underlying MRO product consumption data. And while the inner workings of the multifactor model are less accessible externally, and no model is perfect, the comprehensive nature of the model would suggest it more accurately reflects the performance of our market, specifically in periods of economic disruption or change. With this context in mind, if you turn to Slide 17, we have charted the historical results for both models, starting with the point at which economic inputs were first published for the multifactor model. As you can see, the two models are highly correlated, and over this twenty-plus year period, the average annual growth rate is nearly identical. However, the models do experience disconnects during periods of macroeconomic shifts. Typically, when the multifactor model trails a single-factor model or vice versa, it eventually catches up, but the duration of these dislocations is unpredictable. As you see, we have experienced a prolonged period of dislocation since the pandemic, including each model moving in opposite directions after new tariffs were enacted in early 2025. It is unclear to us how long this diversion will last. With this, given its comprehensive nature and the fact that we have studied each model exhaustively over the last couple of years, we are more confident in the demand signals from the multifactor model. And we will use it to measure our outgrowth progress going forward. On this basis, turning to Slide 18 and using our multifactor MRO model, we estimate that Grainger finished full year 2025 with roughly 250 basis points of outgrowth on a volume basis as our High-tech Solutions U.S. Business grew volume by 1.4% compared to our multifactor MRO model, which was down between 1.5% and 0.5% for the year. Albeit short of our 400 to 500 basis points long-term target, we are continuing to take healthy share. Marketing and merchandising remain our largest contributors to outgrowth, and on a go-forward basis, we are anticipating a more consistent impact from seller coverage and seller effectiveness as new geographies ramp and seller tools mature. Overall, we remain confident in our strategic growth engines and their ability to drive share over the long term and continue to target 400 to 500 basis points of average annual outgrowth over time. Now focusing on the endless assortment segment. Sales increased 14.3% on a reported basis or 15.7% on a daily organic constant currency basis, which normalizes for the FX headwinds realized in the period and the closure of our Zoro UK business. Zoro U.S. was up 16%, while MonotaRO achieved 18.4% growth in local days and local constant currency. At a business level, Zoro continues its momentum, driving strong growth from its core B2B customers along with improving customer retention rates. At MonotaRO, sales remained strong with continued growth from enterprise customers, coupled with solid acquisition and repeat purchase rates with small and midsized businesses. Additionally, MonotaRO experienced increased web traffic stemming from a competitor's cyber outage, which provided a tailwind to sales in the period. On profitability, operating margins increased by 200 basis points to 10.6% with favorability across the segment. MonotaRO margins remained strong at 13.6%, up 100 basis points, and Zoro margin improved to 6.3%, up 260 basis points, with both businesses benefiting from gross margin flow-through and healthy top-line leverage. Overall, we are proud of the exceptional performance throughout 2025 within the endless assortment segment and look to continue the momentum this year. Moving into our outlook for 2026. At the total company level, we expect revenue to be between $18.7 billion and $19.1 billion, driven by growth in both segments. This translates to daily organic constant currency sales between 6.5% and 9%, which is 230 basis points higher than reported sales growth at the midpoint, after adjusting for FX headwinds and the impact of our exit from the U.K. Market. Within our High Touch Solutions segment, we expect daily constant currency sales growth between 5% and 7.5%. In the U.S., we anticipate continued demand pressure as tariff-related price increases weigh on market volumes. And while we expect industry-specific tailwinds in certain areas of the economy will persist, many of these green shoots are outside of core MRO product categories. With this, while we acknowledge falling interest rates and other macro factors could reverse the multiyear volume contraction in our industry, we are conservatively modeling the market to be down 1.5% to flat. On share gain, we are assuming outgrowth improves through the year as we ramp investment and gain traction with our growth drivers. We expect this will deliver outgrowth at or below our long-term target range in 2026. Lastly, we expect meaningful price contribution to revenue, which includes the wrap of 2025 actions and incremental price this year to fully catch up on the costs we are seeing from suppliers. This price contribution factors into the partial rollback on certain Chinese tariffs announced in November, which excludes any impact from future unknown tariffs or rollbacks that may or may not occur in 2026. In the endless assortment segment, we anticipate daily organic constant currency sales to grow between 12.5% and 15%, in the range of their long-term framework. This segment-level growth will be roughly 230 basis points lower on a reported basis when you normalize for the expected foreign currency exchange headwinds and the closure of our Zoro UK business. At the business unit level, Zoro is anticipated to grow in the low teens as they continue their momentum in driving higher repeat rates, consistent service, and improved mid-funnel marketing. MonotaRO is also expected to grow in the low teens in local days and local currency, which normalizes for one less Japanese selling day in 2026 and expected FX headwinds from the yen. This strong performance is fueled by growth with new and enterprise customers, strong repeat rates with core B2B customers, and a carryover benefit from the competitor cyber outage. Moving to our margin expectations. We expect total company operating margins to range between 15.4% and 15.9%, up 40 to 90 basis points compared to 2025. This reflects improvements in both segments as well as a 45 basis points tailwind from our exit of the U.K. Market, split roughly evenly between gross margin and SG&A leverage. In the High Touch Solutions segment, we expect operating margins between 16.9% and 17.4%, up 35 basis points at the midpoint. Gross margin will improve as price cost normalizes and LIFO inventory valuation headwinds subside in the back half of the year. This favorability is partially offset by a modest headwind from our private label portfolio, where tariff dynamics have changed competitiveness on certain SKUs. We expect SG&A leverage to improve as the accelerating top line and our productivity efforts offset ramping investment across our demand generators. In endless assortment, we anticipate operating margin will continue to ramp between 10% to 10.5%, up 20 to 70 basis points versus 2025. Gross margins are expected to be down slightly at the midpoint, and we expect continued healthy operating leverage improvement in both businesses. Our closure of Zoro UK is also positively contributing to segment-level operating margin. Turning now to capital allocation. Our business is positioned to generate strong cash flow in 2026, with expected operating cash of approximately $2.1 billion to $2.3 billion, reflecting conversion of around 100%. Our capital allocation priorities remain consistent and largely unchanged from prior years. We will continue to invest in the business with CapEx in the range of $550 million to $650 million, supporting supply chain initiatives, construction of new facilities in the U.S. and Japan, and ongoing technology and data investments. We will pursue selective inorganic opportunities while maintaining strategic and price discipline, and beyond investment, we expect to return excess cash to shareholders through dividends and share repurchases. We will formally set the 2026 dividend in the second quarter but again anticipate high single to low double-digit annual increases. Share repurchases related to Grainger common stock are expected to be around $1 billion for the year. Overall, our return-focused philosophy gives us flexibility to invest efficiently while delivering strong returns for our shareholders over the long term. In summary, at the total company level, we plan to grow the top line by 4.2% to 6.7% on a reported basis or 6.5% to 9% on a daily organic constant currency basis, which normalizes for FX headwinds and our exit of the U.K. market. You can see margin improvement through the P&L, which reflects the previously mentioned tailwinds from the U.K. exit, gross margin recovery, and healthy leverage in both segments. These margin benefits will be partially offset by continued segment mix headwinds as endless assortment grows faster than high touch. We are expecting the effective tax rate in 2026 to be roughly 25%, about 130 basis points unfavorable versus the prior year adjusted rate, mainly due to the impact of recent federal tax law changes and the lack of one-time tax planning initiatives that will not recur in 2026. Taking all this together, including our share repurchase outlook, we expect EPS of $42.25 to $44.75 per share, up over 10% at the midpoint. From a seasonality perspective, we expect year-over-year sales growth to be relatively consistent as we move throughout the year on a daily organic constant currency basis. Gross margin will deviate from its normal seasonality given LIFO and price cost dynamics as we comp over tariff headwinds in the prior year and reflect the impact of this year's annual Grainger Show meeting. With this, first-half gross margins will be at or slightly below our annual guide before rebounding in the back half of the year as the tariff-related impacts subside. Operating margin will follow a similar trajectory, where the first half is at or below our full-year guide before rebounding in the back half of the year. The first quarter is off to a strong start with preliminary January sales of over 10% on a daily organic constant currency basis. This start supports our expectation for the first quarter sales of around $4.5 billion to $4.6 billion, up north of 7.5% on a daily organic constant currency basis or roughly 200 basis points lower on a reported basis. First-quarter gross margins will remain healthy but decline sequentially versus 2025. This differs from our normal seasonal pattern as we continue to face tariff-related pressures and reflect the impact from the Grainger sales meeting, which flips to a gross margin headwind in 2026. This gross margin pressure will be offset by sequential leverage improvement, and we anticipate first-quarter operating margins will be just north of 15% for the total company. Lastly, as I have consistently done at the end of the past few years, I have included our long-term earnings framework for reference. The only change from the last time I shared this framework is a modest change to our go-forward tax rate assumption to reflect new federal legislation. Importantly, all the core operating tenets of this framework remain intact. We are well-positioned to deliver great results for our shareholders for years to come. With that, I'll turn it back to DG for some closing remarks. Donald G. Macpherson: Thanks, Dee. Before I open it up for questions, I want to acknowledge our nearly 25,000 Grainger team members who consistently demonstrate our principles and drive strong performance for Grainger. Every day they show up, start with a customer, and compete with urgency to deliver on our purpose and create an exceptional experience. Looking ahead, I'm excited about how 2026 is shaping up and confident in our ability to extend our advantage for the long term. Regardless of the environment, we will continue to provide a best-in-class MRO offer while investing in the core of our business, an industry-leading distribution network, and innovative technology capabilities. By staying focused on what matters most to our customers and creating a great workplace for our team members, we are poised to deliver continued growth, share gain, and strong returns for our stakeholders. With that, I will open it up for Q&A. Operator: Thank you. We will now be conducting a question and answer session. Our first question today is coming from David Manthey from Baird. Your line is now live. David Manthey: Hey, good morning, everyone. My first question is a statement really, 10% growth daily organic constant currency in January looks pretty good. As we're looking at Slide 21 and thinking about your guidance for the high-touch business, it looks like share gain similar to 2025. Pricing is a key delta there at up about 300 basis points. But you also have market growth at minus 1.5% to flat, which is the same backdrop you had in 2025. And given other industry participants and what you're seeing in January, could you just talk about what drives your cautiousness for the year overall? Donald G. Macpherson: Yeah. So thanks for the question. So, you know, as we plan, we always start planning relatively conservatively. There's no advantage in planning for growth that we haven't seen yet. What I would say about January, certainly, it was strong across the board. We did get a bit of a tailwind from the competitive outage in Japan that adds a little bit to that total as well. As Dee described, we're pretty confident in sort of that 7.5 number for the year. So we feel like maybe a little bit better start than we expected, and we may be wrong on the market, but that's always a variable that we have. David Manthey: Yes, sounds good. And then I wonder if you could give us an update on digital channels. A few years ago, you told us KeepStock was 16%, Website 30%, and 25% of order origination. Don't know if you have those offhand or we could take one. Donald G. Macpherson: Yeah. Sure. So, what I would say is everything direct connection to customers has become more of our share. So, actually, eDiePRO is the biggest share we have at this point. Closer to 40 at this point. GCOM is still a big part of that, and then KeepStocks growing a little bit as well as a percentage of the total. So the vast majority of our contract customers now have a combination of ePro and KeepStock on-site. And so that's a big part of what we do in terms of creating stickiness and creating value for our customers. David Manthey: Alright. Thanks, DG. Operator: Thank you. The next question today is coming from Jacob Levinson from Melius Research. Your line is now live. Jacob Levinson: Hi, good morning everyone. Deidra Cheeks Merriwether: Good morning. Jacob Levinson: Maybe just thinking about David's question a little bit of a different way, DG, if you talk to your customers, your large customers, can you just give us a sense of what the tone of those conversations have been like? Because it certainly feels like we've seen some sort of cyclical inflection this quarter. Obviously, ISM, for example, I'm just trying to get a sense of when you talk to the CEOs, your peers, what the tone of those conversations are like, particularly if we're talking, you know, more of the rate-sensitive end markets, not necessarily aerospace or data center. Donald G. Macpherson: Yeah. I think the tone hasn't changed too much. There's no I'd say there's no panic, but there's not really enormous tailwinds that people are seeing from a volume perspective. I think everybody is seeing price, which obviously helps with the revenue numbers. But generally, you know, it's very, very industry-specific at this point. So you can run the gamut from very, very high optimism to fairly strong pessimism as well. Overall, I think the mood is okay, but not expecting huge, huge market growth. Jacob Levinson: Okay. That's helpful. And on the medium customer front, it seems like there's been quite an acceleration there the last couple of quarters, and I'm not sure if that's a structural change in how you're approaching those customers or maybe there's some price in there, but maybe you could speak to what's really driving that? Donald G. Macpherson: Yeah. I mean, it's a little bit of acceleration. There were some comps that we had that make it look a little bit favorable. We certainly are focused on growing with midsized customers, and a lot of things we do in merchandising help those efforts. So, it's good to see a little bit of traction, but it's not a huge inflection point, although we expect to continue to grow midsize faster than the rest. Jacob Levinson: Fair enough. Thank you, DG. I'll pass it on. Operator: Thank you. Next question is coming from Ryan Merkel from William Blair. Your line is now live. Ryan Merkel: Hey, everyone. Thanks for the question. I wanted to start with gross margins. I guess a two-part question. First, gross margins in 4Q were a little bit better than we were thinking. Where did the upside come from there? And then you put a finer point on first-quarter gross margins? I think you said down sequentially just what was the reason? Thank you. Deidra Cheeks Merriwether: Yes. Hi. The main headwind that we received in the quarter was really related to LIFO. So we had kind of laid out, you know, that LIFO would be a little bit more negative than what it actually came in, you know, still increase what softer than that. So that helped us out from a gross margin perspective. And then as we continue to talk about, we did continue to take price. So price helped offset that a little bit in the quarter. So those were the two largest things that impacted Q4 from a gross margin perspective. Ryan Merkel: And then in Q1, we do expect some of those LIFO costs to shift into Q1 as well. Deidra Cheeks Merriwether: Correct. Ryan Merkel: Okay. So it's really LIFO, which is why gross margins are down sequentially into 1Q? Deidra Cheeks Merriwether: Yes. Yes. Okay. Alright. Yes. The other piece in the first quarter is related to it. You heard in prepared remarks we discussed the Grainger sales meeting. And so anytime we have customers attend the Grainger sales meeting, which is every other year, then our supplier rebates due to our accounting methodologies allow us to offset a portion of those rebates in SG&A. So therefore, it becomes a headwind on GM. And so that's gonna happen in 2026 as well. Donald G. Macpherson: So it's a headwind to GP and a positive to SG&A again. Deidra Cheeks Merriwether: Net net neutral operating margin. Ryan Merkel: Okay. That's great. Thanks for that. And then for the '26 margin guide, it doesn't look like there's a lot of organic margin lift ex Cromwell. For example, at the bottom end of the guide, I think margins are flat. So what are some of the key factors in the margin guide? And think you said gross margins for the year are going to be flat to down. Deidra Cheeks Merriwether: Yes. If you look at it year over year, 25% to 26 don't forget, EA is going to continue to grow faster than high touch, and that's a headwind for us. Of about 10 basis points. You as you noted, The UK market exit is gonna be a tailwind for us. And then when you look at high touch, there's a lot of puts and takes there. We talked a little bit about, you know, Grainger sales meeting, price cost, and the LIFO tailwind that we will get mostly in the second half. Gonna contribute about 20 basis points. So when you add all that together, that's a 30 basis point difference between where we ended in 2025 to where we believe we will end in 2026. Operator: Thank you. Our next question is coming from Christopher Glynn from Oppenheimer. Your line is now live. Christopher Glynn: Thanks. Good morning, everyone. Just in terms of the continued outgrowth for HTS, obviously, it's been resilient in some very varied macro environments. But I'm just curious what you think is really behind the differential in the current trend line versus the long-term expectation? Donald G. Macpherson: Yeah. I think that, you know, I would point you to a couple of things. Certainly, some factors were out of our control. We have more exposure to government. The government shutdown hurt the share gain in this year. But we also, if you remember, paused some more seller ads a couple of years ago when they weren't we weren't seeing the performance we needed to see and adjusted, and now we are seeing the performance, so we've reaccelerated that. But that's had an impact over the last couple of years as well. I would say that we're seeing good things in that front. Seeing good things at seller effectiveness. We're seeing good things in on-site performance with KeepStock. We also, along with marketing and merchandising, we're pretty bullish around net contracts that we've been seeing recently. So that's a positive force as well. So we think all that's gonna get us, get that improvement that we wanna see. Christopher Glynn: Great. And then on the comment on seeing improved endless assortment, repeat rates. Just wondering if you could double click on that. Donald G. Macpherson: Yes. I mean, the business has been super focused on getting consistent purchases from core business customers. They've changed a lot. I won't go into the details of some of that's probably not worth sharing other than to say, the way we're acquiring customers, what we're doing with marketing, the way we're talking about service and communicating service delivery, promise to customers. All that has helped, and they've seen significant increases in repeat rates over the last eighteen months. So it's good to see. Christopher Glynn: Great. And just a quick cleaning. Dee, could you remind me what the January or the January guidance for organic ADS was? Deidra Cheeks Merriwether: Seven point seven point five yes. Christopher Glynn: Great. Thank you. Operator: Next question today is coming from Tommy Moll from Stephens. Your line is now live. Tommy Moll: Good morning and thank you for taking my questions. Deidra Cheeks Merriwether: Good morning. Tommy Moll: DG, I wanted to follow-up on your comment a second ago about the trend below your target for long-term outgrowth in recent years? Point taken, on the pause that you've communicated previously on the seller ads. But if we just look high level here, you had outperformance versus your target pretty meaningfully during the years 'twenty two and 'twenty three. So I would I'd characterize what those had in common as an external stress on the supply chain, just globally, where you had scale, your competitors lack scale, that that nets to your benefit. If we think about a lot of the other years, there's a more normalized environment where you're performing below that 400 to 500 target. Is the simplest answer here, not just that 400 to 500 is an average, but you're really gonna punch above that in times of stress in the market. And in a, quote, unquote, more normalized environment, you're probably gonna be a bit below the target. Donald G. Macpherson: I think that, certainly, we handled that supply stress well. I would definitely agree with that. It was a smaller portion of we had 875 basis points of outgrowth two years in a row. It was a small portion of that total. So I do think that may be a general statement to make that could be true, but I don't think I do think we've averaged 540 basis points through the last five years of outgrowth, and we expect to be able to get to that 400 to 500 mark again. So I think that, you know, some of that is just our own execution and some of its external factors, as I mentioned before. Tommy Moll: Okay. On that execution point, you mentioned for seller coverage, you're going to add I think you added two markets last year, add two more this year. If you look across the folks you're hiring, these roles, in an increasingly digital environment. Are you targeting different types of sellers than you have historically? And if you think about the average tenure of the folks you're hiring in these new geos, does it skew perhaps below the average tenure of the rest of your sales force? Donald G. Macpherson: I'd say that the process we usually add sellers hasn't changed all that much. We're looking for general selling skills and some sort of interest in the types of product we sell and the environments we sell in. And that hasn't changed much. I think there's a broader trend here that has been an important one from our customers, which is generally a lack of mechanical talent, I'd say. It's I'm not sure that's the right word, but I'm sort of say that. There are fewer people who are mechanically inclined. And it's actually been good for us in many ways as customers have asked to do more on-site. And so that's a trend that we do see. But in terms of who we're hiring, we're still looking for a lot of the same skills we've performed in the past. Tommy Moll: Thank you. I appreciate the insight. We'll turn it back. Operator: Thank you. Next question is coming from Chris Dankert from Loop Capital Markets. Your line is now live. Chris Dankert: Good morning. Thanks for taking the question. I guess like you said, we've seen some nice market share gains and some optimization of what's within Grainger's control here the past couple of years. But just looking back at the market share numbers, it looks like we're guiding for a fifth consecutive year of contraction in the market. Maybe just does it imply we're in an impaired or shrinking market? Does that imply that reshoring is a bit of a mirage? I just maybe, DG, what do you see when you see that contraction five years running? What is where do you pulling out of that? Donald G. Macpherson: I think if you look over a thirty-year history, the reality is that manufacturing activity has been pretty stable in the U.S. It hasn't been increasing much, and employment has gone down. I think that sort of gives you a sense that long term, from a volume basis, our market has never been a fast-growing market. So that's why we have the earnings algorithm we have gain share consistently, a little bit of price, and then managing and get SG&A. That's what we have to do. I think in all industrial markets, you would see something similar, to be honest. And when you studied industrial markets in the past, it's not most of them are not fast growth markets. Chris Dankert: Fair. Fair. I guess just shifting gears a bit to the digital investment. I know a lot of your peers look at clicks to success. Maybe just is that a metric you guys track any kind of color you can give us on improvement there? Is there a different KPI that you measure with the digital investment and the AI investment? Just any thoughts there? Donald G. Macpherson: Well, so, are you asking about, like, online? How we measure success online? Chris Dankert: Yeah. Just how quickly customers can kinda get to what they need digitally online. Yeah. Donald G. Macpherson: Oh, yeah. Yeah. Yeah. So we look at a whole bunch of metrics. We track the process sort of soup to nuts as we look at it. And, certainly, conversion rate, which is, I think, what you're talking about is a big metric that we do look at. For sure. And we also do a lot of surveys to understand competitiveness, and how we do competitively on a bunch of digital sort of factors. And so I'd say we're super well measured in that space. Chris Dankert: Got it. Thanks so much. Operator: Thank you. Next question is coming from Stephen Volkmann from Jefferies. Your line is now live. Stephen Volkmann: Hi, good morning. Most of mine has been answered, but I wanted to go back, Dee, to your slide around tariffs, which is helpful. But is the message that you've now priced for all the tariff increases that you've seen? Deidra Cheeks Merriwether: So, yes. We have essentially passed through all known tariffs and are working in this quarter to also correct for some of the Chinese tariffs that were rolled back in November. So based upon our annual cost negotiations that the team went through in the back half of 2025, we feel like we're fairly caught up in passing, you know, cost onto customers at this point in time. Now anything in the future that is unknown, whether, you know, for additional tariffs or further rollbacks, we have not included any estimates of that nature in our outlook. Stephen Volkmann: Okay. Great. And it seems like, in some of the businesses that we follow, some producers have been pretty slow to pass these price increases through. Do you think your suppliers are kind of where they need to be? Or do you think there's a good chance that we'll see additional sort of pass-throughs as the year progresses? Donald G. Macpherson: So what I would say is suppliers had choices to make, and their choice was usually do I pass dollar amount or do I pass percentage? And so I think overall, we're somewhere between dollar and percent is what I would say. What we've seen from our suppliers. That doesn't mean necessarily that they need to add any more price. I don't think that would drive that necessarily at this point. Stephen Volkmann: Okay. Great. Thank you, guys. Operator: Thank you. Next question today is coming from Guy Drummond Hardwick from Barclays. Your line is now live. Guy Drummond Hardwick: Hi, good morning. Deidra Cheeks Merriwether: Good morning. Guy Drummond Hardwick: I think last year, the growth in underlying operating expenses was 5%. It looks like the guidance for this year is better than that, like just on the 4%. Same particular reason for that. Was that just the benefit of the Cromwell operating expenses dropping away? And I think the OpEx ratios were worse for Cromwell than the overall group. But you also said in the prepared remarks, sorry, maybe I'll let just leave it at that and let you just mention that before I follow-up. Donald G. Macpherson: It's a lot of Cromwell is the answer. And then there's more leverage in EA and High Touch as well, but a lot of it is Cromwell. Guy Drummond Hardwick: Okay. And you also said in your prepared remarks that marketing and merchandising is a big driver to outgrowth. So given that you're guiding to a much greater outgrowth this year than last year, I mean, should we assume that your OpEx is factored in that higher merchandising and marketing expense for 2026? Donald G. Macpherson: Yes. Yes. That's right. That's right. Guy Drummond Hardwick: Okay. Got it. Thank you. Operator: Thank you. Our next question today is coming from Chris Schneider from Morgan Stanley. Your line is now live. Chris Schneider: Thank you. I hopped on a little late, so I apologize if this got discussed. But could you provide the level of price embedded in the '26 guide? And then specifically, how much is wrapped from the intra-year actions in '25? How much is new price? And has there been any growing pushback to price in the market from customers? Thank you. Deidra Cheeks Merriwether: Yes. So generally, we've noted in the prepared remarks that our price into 2026 is north of three. And then if you look at all the wrap and price that and run rate price that we've discussed previously, we believe that amounts to about two and a half to three of that. All in 2026, we're north of 3% for price. Donald G. Macpherson: And we haven't seen tremendous pushback from customers. The elasticity has been what we did generally expect at this point. Chris Schneider: Thank you. I appreciate that. And then if I could follow-up on the earlier point that gross margin would be down sequentially into Q1. Obviously, different than normal seasonality. I'm not sure it's ever been down sequentially into Q1. I guess, you just kind of maybe help unpack some of the moving parts there? Because it seems like the price cost improved as Q4 went on following the November price action. I would have just thought that you would have a continuation of that into Q1. And I would have also thought maybe Q1 would have, you know, the full realization of the benefit from Cromwell going away. That probably not fully reflected in the Q4 gross margin. So just any color on some of the moving parts there would be helpful. Thank you. Deidra Cheeks Merriwether: Sure. So, again, LIFO even in 2026, will continue to be a headwind because, of course, we are passing and have received new costs from customers. That does subside as the year goes on, but Q4 to Q1, that is a headwind. We talked about the Grainger sales meeting. I don't know if you were on for that. But that is a 20 basis points drag as well. This is the year where we have customers at the show, and supplier rebates that would normally remain up in gross margin go down to SG&A to offset some of the SG&A costs. So then that becomes a headwind this year, a tailwind in next year when we have no customers. And then you may have heard us talk, we haven't talked about it as much today, but our private label business with the tariff impacts and looking to remain competitive based upon where we actually manufacture those products and being able to pass on the tariff increases, mostly we have done that at rate like DG just noted. So that creates a headwind in gross margins for us. Specifically as customers are transitioning to a national brand. For some of those products. So that's also a drag. And then what you noted was, like, the normal seasonality recovery, price cost favorability, things like that. That is accounted for as a positive, but it's only about 10 basis points. So all those things together take us from 39.5 to 39.1 percent Q4 to Q3. Chris Schneider: Thank you. I appreciate that. Operator: Thank you. Our next question is coming from Connor Maniglia from Bernstein. Your line is now live. Connor Maniglia: Great. Thanks for having me this morning. Just a quick one. On Slide eight, you touched on the Zoro branded private label product. You talk a little bit about the progress you've seen so far maybe just some customer feedback, repeat rates, etcetera? Then can you speak to the margin impact on the business overall? Donald G. Macpherson: It's not material enough at this point to have any impact on the margins, but we have seen good early success in repeat rates and that core business customer that Zoro serves really likes the Zoro private brand that we've launched so far. Operator: Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Donald G. Macpherson: Great. Thanks, everyone, for joining today. Really appreciate it and thanks for the questions. You'll have many opportunities with our IR team after the meeting if we didn't get to you. I just want to reiterate the fact that we feel really good about how things are set up moving forward. We are hearing positive things from our customers. We're providing great service. And we're getting some of the growth drivers accelerated again. So look forward to having a great year and look forward to seeing you out. Thanks so much. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.