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Regina: Morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Illinois Tool Works Inc. Fourth Quarter and Full Year Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 a second time. Question. And if needed, one follow-up question. Thank you. Erin Linehan, Vice President of Investor Relations, you may begin the conference. Erin Linnihan: Thank you, Regina. Good morning, and welcome to our Illinois Tool Works Inc. fourth quarter 2025 conference call. I'm joined by our President and CEO, Christopher O'Herlihy, and Senior Vice President and CFO, Michael Larsen. During today's call, we will discuss Illinois Tool Works Inc.'s fourth quarter and full year and provide guidance for full year 2026. Slide two is a reminder that this presentation contains forward-looking statements. Please refer to the company's 2024 Form 10-Ks and subsequent reports filed with the SEC for more detail about important risks that could cause actual results to differ materially from our expectations. Christopher O'Herlihy: This presentation uses certain non-GAAP measures, and a reconciliation of those measures to the most directly comparable GAAP measures is contained in the press release. Please turn to slide three, and it's now my pleasure to turn the call over to our president and CEO, Christopher O'Herlihy. Chris? Christopher O'Herlihy: Thank you, Erin, and good morning, everyone. As you saw in our press release this morning, Illinois Tool Works Inc. delivered a solid finish to the year. In the fourth quarter, we outperformed our underlying end markets with revenue growth of more than 4% and delivered a 7% increase in GAAP EPS to $2.72. Through disciplined operational execution, we expanded operating income and margins to record levels. Starting with the top line, organic growth of 1.3% marked our best quality performance of the year. Overall, Q4 demand improved, as reflected in higher than normal sequential improvement of 4% from Q3. In addition to market outperformance, the Illinois Tool Works Inc. team continued to execute at a high level, resulting in operating income of $1.1 billion, an increase of 5%. Segment margins were 27.7%, 120 basis points, with a 140 basis point contribution from enterprise initiatives. Looking back on a challenging external environment in 2025, the Illinois Tool Works Inc. team delivered another year of robust financial performance. We consistently outperformed our markets, solidly improved profitability, and made meaningful progress on our next phase key strategic priorities. Throughout the year, we remained laser-focused on building above-market organic growth fueled by customer-backed innovation or CBI into a defining Illinois Tool Works Inc. strength. We are pleased to have achieved 2.4% CBI-fueled revenue growth in 2025, a 40 basis point improvement, as we track toward our 2030 goal of 3% plus. Furthermore, I'm encouraged by a key leading indicator of CBI contribution, or patent filings, which increased by 9% last year following an 18% increase in 2024. Turning to guidance, we enter 2026 with solid momentum. Per our usual approach, our organic growth projection of 1% to 3% reflects current demand levels adjusted for seasonality. We are well-positioned to capitalize on any further improvement in the macro environment. Our EPS guidance midpoint of $11.20 represents 7% growth, and we expect operating margin expansion of about 100 basis points powered by enterprise initiatives. Our 2026 forecast ensures we remain firmly on track to deliver on our 2030 performance goals. In closing, I want to sincerely thank our global Illinois Tool Works Inc. colleagues for their unwavering dedication to serving our customers and executing our strategy with excellence each and every day. With that, I'll turn the call over to Michael to provide more detail on the quarter and our guidance for 2026. Michael? Michael Larsen: Thank you, Chris, and good morning, everyone. In Q4, the Illinois Tool Works Inc. team delivered a solid operational and financial finish to the year. Organic growth was 1.3%, foreign currency translation added 2.5%, and acquisitions contributed 0.3%, bringing total revenue growth to 4.1%. Notably, our 4% sequential revenue growth from Q3 to Q4 significantly outperformed our historical sequential average of 2%. On a geographic basis, North America grew about 2%, Asia Pacific was up 3%, while Europe declined 2%. On the bottom line, we achieved a fourth-quarter record operating margin of 26.5%, with enterprise initiatives contributing 140 basis points. As noted in our press release, segment operating margin was 27.7%, a 120 basis point increase with incremental margins of more than 50%. All seven segments expanded operating margins driven by enterprise initiatives which contributed between 80 and 210 basis points per segment. Free cash flow conversion to net income was 109% for the quarter. We repurchased $375 million of our shares, and our tax rate was 22.8%. Please turn to slide four. And as Chris mentioned, CBI is our most impactful driver for organic growth. We're pleased with our 2025 progress, reaching a 2.4% CBI contribution, a 40 basis points year-over-year improvement. We expect meaningful progress again in 2026 on this key strategic initiative as we track toward our longer-term goal. Now let's move to the fourth quarter segment results, starting with Automotive OEM, where revenue increased 6% and organic revenue increased 2%. On a regional basis, North America was up 2%, while Europe was down 1% and China grew 5%. For the full year 2025, this segment outperformed relevant builds, and we expect our typical 200 to 300 basis points of outperformance in 2026. Full-year margins are a prime example of Illinois Tool Works Inc.'s "do what we say" execution. In 2025, margins improved by 150 basis points to 21.1%, consistent with the goal established during our 2023 Investor Day. Driven by our culture of continuous improvement, we expect to further expand these margins in 2026. Turning to Slide five, Food Equipment delivered revenue growth of 4% with organic growth of 1% as equipment was flat, offset by 3% growth in service. By region, North America was flat, with institutional end markets up in the high single digits offset by restaurants, down also in the high single digits. Retail was a bright spot, up nearly 5%, and the international business grew 2% with Europe up 2%. Test and measurement and electronics had a solid quarter. Revenue up 6%, organic revenue up 2%. Test and measurement was up 3% and electronics was flat against the tough comparison year over year. Notably, we began to see a positive pickup in semiconductor and electronics activity with our semi-related businesses up mid-single digits in the quarter. Operating margins improved by 110 basis points to 28.1%. Moving on to slide six, Welding revenue grew 3% with organic growth of 2% in the fourth quarter. Equipment was up 4%, and while consumables were flat, filler metals were up in the high single digits. Regionally, North America was up 4%, while international declined 5% against the tough comparison of 9% last year. Notably, operating margin reached 33.3%, a 210 basis points improvement. Polymers and Fluids had a strong top-line quarter with 5% organic growth supported by new product launches, in automotive aftermarket, grew 5%. Polymers was up 4% and fluids grew 6%. On a geographic basis, North America was up 5%, and international grew 4%. Operating margin expanded 110 basis points to 29%. Turning to Slide seven, in Construction Products, organic growth was down 4%. Regionally, North America was down 4%, with residential renovation down 5%, while commercial construction was up 5%. Europe was down 5%, and Australia and New Zealand were flat. Despite the top-line challenge, the team successfully expanded margins by 100 basis points to 29%. Specialty Products revenue increased 4%, and organic revenue was up 1%. Equipment growth was particularly strong, up 12%, and consumables were down 2% in the quarter. North America was flat, and international grew 3%. Moving to slide eight and full-year 2025 results, our global teams continue to execute at a high level, enabling us to consistently outperform our end markets and expand margins to deliver solid financial results in a mixed macro environment. Throughout 2025, we maintained our focus on maximizing Illinois Tool Works Inc.'s growth and performance over the long term, as we invested close to $800 million in high-return internal projects to accelerate organic growth and sustain productivity in our highly profitable core businesses. At the same time, we increased our dividend for the sixty-second consecutive year and returned a total of $3.3 billion to shareholders. Moving to Slide nine and our guidance for full year 2026, Illinois Tool Works Inc. is well-positioned to deliver meaningful progress on both the top and bottom lines in 2026. For our usual process, our total revenue projection of 2% to 4% and organic growth projection of 1% to 3% is based on current levels of demand adjusted for typical seasonality. At Illinois Tool Works Inc., growth is high quality, meaning it is delivered at attractive incremental margins in the mid to high forties for 2026. In terms of overall profitability, we expect operating margin to improve by approximately 100 basis points to a range of 26.5% to 27.5%. This includes a 100 basis points contribution from our enterprise initiatives, which provides margin expansion that is largely independent of volume. We're projecting a GAAP EPS range of $11 to $11.20, representing 7% growth at the $11.20 midpoint. Regarding the cadence for the year, we expect the first half, second half EPS split of approximately 47/53%, consistent with 2025. Factoring in typical seasonality, Q1 EPS should contribute roughly 23% of the full-year total. Lastly, we expect free cash flow conversion to net income of greater than 100% and plan to buy back approximately $1.5 billion of our shares in 2026. Turning to our final slide, Slide 10, all seven segments are projecting high-quality organic growth based on current run rates adjusted for seasonality, and every segment is well-positioned to outperform its respective end markets again in 2026. Consistent with Illinois Tool Works Inc.'s continuous improvement, never satisfied mindset, all segments are also projecting margin improvement, supported by another year of solid contributions from our enterprise initiatives. In summary, all seven segments are heading into 2026 well-positioned to deliver solid organic growth with industry-leading profitability and incremental margin. With that, Erin, I'll turn it back to you. Erin Linnihan: Thank you, Michael. Regina, I think we're ready to open the queue for questions. Please. Regina: At this time, I would like to remind everyone to ask a question, press star then the number one on your telephone keypad. You'll have the opportunity to ask. Our first question will come from the line of Andrew Kaplowitz with Citigroup. Please go ahead. Andrew Kaplowitz: Good morning, everyone. Christopher O'Herlihy: Morning. Morning, Andy. Andrew Kaplowitz: Chris or Michael, so test and measurement within the segment looks like it did improve meaningfully in Q4. You called out the commentary in semicon. It's been improving for you again, which is good to hear. You've had a couple of maybe, I'll call it, head fakes in semicon. So you're seeing more definitive turn now? And are you seeing a bit more of an unlock of your CapEx businesses in general in terms of growth? Christopher O'Herlihy: Yeah. So, Andy, in general, as you said, test and measurement had a pretty solid quarter. You know, after what was a pretty challenging year, you might remember, you know, mid of the year, we had pretty much a CapEx freeze related to the China shipments for two quarters. And so we certainly saw improvement in bookings in general industrial here in Q4. As Michael mentioned, we also saw an improvement in demand for semi electronics. Just to context that, I mean, semi is about 15% of test and measurement. So just to give you a perspective. You know, I would say that the semi at this point, you know, it seems to be sustainable based on what we see right now. But you know, as you said, you know, we had an uptick in Q2, came back down in Q3, but we've seen a recovery in Q4. And I think this is a part of the market we've got very strong competitive advantages. Particularly as it relates to semi manufacturing testing equipment. So whatever happens, we're well-positioned. We're particularly well-positioned to take share as the end market continues to improve. Yeah. And I maybe just to add beyond that, Andy, you know, the general industrial orders are also improving in test and measurement. As well as you've seen the improvement in revenues and our growth rates on the equipment side in welding. So all of that suggests that we are certainly seeing, I would say, a little more than green shoots at this point. Meaningful improvement not just in sales, but also orders and backlog is looking pretty good at this point. And so we got some pretty good momentum going into 2026 as reflected in the guidance that we gave for those two segments. Andrew Kaplowitz: Yes, that's great to hear, guys. And then when we think about margin expansion across your businesses in 2026, I know you expect it in all segments. Normally, I would think we just model higher incrementals where you're modeling higher growth. But you, for instance, had really good margin performance in construction again in Q4. And there is, you know, there are metals inflation out there. So any more advice on how to think about margin performance across the segments? Christopher O'Herlihy: Yeah. I would just say I'll go back to kind of our prepared remarks there, Andy. We expect, based on bottoms-up planning with our segments, based on having a chance to review the enterprise initiative savings, the actual projects, for 2026, we expect every segment to improve their operating margins in 2026. And the biggest driver, I think you pointed out, will be the enterprise initiatives again. So about 100 basis points from initiatives. And then, you know, also, there is some positive operating leverage at incremental margins that at this point are quite a bit higher than what we put up historically, as I said, kind of in that mid to high forties. So maybe that's a way to think about the margin improvement for each one of the segments in 2026. Now I will say this. We do have three segments now that are above 30% and so maybe you'll see a little bit less of improvement in those segments relative to the ones like auto that have been putting up some meaningful operating margin improvement, test and measurement as well, that still have a ways to go to get to, you know, test and measurement to that high twenties, 30% level. And improved CBI is the other driver of increased margins. Yeah. As you know, as we've talked about, the CBI progress is really encouraging, obviously, not just as a contributor to growth, but all of these new products that are coming in are coming in at higher margin. And so that's really the key to unlocking margin improvement on a go-forward basis, particularly in places like automotive OEM. Andrew Kaplowitz: Appreciate all the color, guys. Thank you. Regina: Our next question will come from the line of Joseph Ritchie with Goldman Sachs. Please go ahead. Joseph Ritchie: Morning, Joe. Joseph Ritchie: Hey. Can we just can we touch on the price-cost dynamics? So I think in the slides you had mentioned that price-cost is expected to be positive in 2026. Can you elaborate on that a little bit? And then also, seeing that resin prices have continued to come down, at this point, you know, what percentage of your COGS is resin? Christopher O'Herlihy: Let me start with the first part. I think on price-cost, we've been talking about this for a while in terms of, you know, this having kind of normalized after the wave of tariff-related increases we saw last year. So at this point, we're back to kind of where we used to be around price-cost, which is slightly favorable for full year 2026. But not a big driver of the margin improvement. Really, the efforts, particularly the tariffs, have really been centered around not just price, but also supply chain and making sure we do everything we can to mitigate some of these increases so we don't have to pass them on to our customers. So that's maybe one way to think about price-cost. I'm not sure I have the resin number right in front of me. It's pretty small. I think here again, I'm not quite sure where you were going with the question, but to the extent that there are increases or decreases in resin cost, those will be reflected in pricing actions that are taken again at the division level where this is more of a meaningful driver of their material costs. Yeah. No. Appreciate the comments. Joseph Ritchie: Michael. I guess I was thinking back, like, back in the, I don't know, call it 2016 time frame when you guys saw some deflation in resin. And I remember it being, like, 10 to 15% of your COGS back then. Obviously, that's a long time ago. But there are areas like polyfluid, areas in, like, auto, like injection molding, and, like, you know, gas caps, like plastic fasteners where you guys did see a benefit. So I was just really trying to think back at that time frame where you had some deflation in your cost structure, but then you have these, like, longer-term contracts and, like, the auto business where you can get some pricing. So I was just trying to understand whether that was gonna be potentially a meaningful mover to the 2026 bridge. Christopher O'Herlihy: Yes. So, Joe, I'd say the longer-term dynamic, long-term contract dynamic is still there, but the percentage is less than considerably less than I think we've always sent to 15 back then, I would say. We should It's a lot less. Yeah. And we have a very small portion of our business in specialty products that index to resin costs. And automotive, you know, there typically aren't adjustments made, you know, on the way up or on the way down. As you're well aware. So not something that's on our radar here in a meaningful way. Just because it's not gonna be material to the overall performance of the company this year as we sit here today. So Okay. Great. Thank you. I'll get back in queue. Appreciate it. Thank you too. Regina: Our next question comes from the line of Julian Mitchell with Barclays. Please go ahead. Julian Mitchell: Hi. Good morning. Good morning. Maybe just wanted good morning. Maybe just wondered first off if you could flesh out any sense of kind of seasonality for this year, anything unusual or And maybe remind us what we should expect typically for the first quarter, please? Christopher O'Herlihy: Sure, Julian. So I'd say there's really nothing unusual going on this year. We expect the year to unfold in line with typical seasonality. It looks a lot like last year. In terms of the quarterly splits. We kinda laid out the first half, second half EPS split, forty-seven fifty-three. That's what we did last year. As you know, Q1 always starts out down a few points of sequential revenue drop from Q4 to Q1. Like last year, that's about $100 million in revenue. From Q4 2025 to Q1 2026. Margins also dropped a little bit in Q1. And we typically end up around 23% of the full-year EPS here in the first quarter. Now, I will say this, that every quarter and then in Q2, we see a pickup again in margins from Q1 to Q2. Revenues pick back up again. And every quarter, this year, if you model this on a run rate basis, you'll see pretty meaningful revenue growth on a year-over-year basis in line with the guidance that we're giving in that 2% to 4% revenue growth. Every quarter is projected to have margin improvement on a year-over-year basis, including in Q1, maybe a little bit more modest in Q1, and then it picks up as we go through the year in Q2, three, and four. Earnings per share grows in line with kind of the guidance range we're giving you here, which is 7% of the midpoint. And so that's kinda how it typically plays out. Free cash flow tends to improve as we go through the year. So that's maybe as much as I can give you here. Julian Mitchell: That's extremely helpful. Thank you, Michael. And maybe my follow-up, just to understand, you talked about CBI, I think, a 2.4% to sales in 2025. Christopher O'Herlihy: Yeah. Julian Mitchell: And that was 40 bps better than the prior year. Maybe sort of flesh out a little bit the progress there in 2026, what we should expect, and any thoughts on the product life cycle management side? Sorry. The product life simplification side. Thank you. Christopher O'Herlihy: Mhmm. Yeah. So on CBI, as you mentioned, Julian, strong momentum here in '25, encouraged the progress that we're making across the company and particularly encouraged, I think, by the strength increased strength of our pipeline of new products. And, you know, it's really one of the reasons we believe we're outperforming our end markets. A lot of successful product launches this year, across the company, I would say most particularly in welding, test and measurement, food equipment, automotive. Good progress, 40 basis points of improvement in 2025 with continued incremental improvement here in 2026. Well on the path to get to three plus by 2030. Particularly encouraged, I think, by patent filings. I mean, patent filings were up 18% in 2024. Up another 9% in 2025. And why that's particularly important because at Illinois Tool Works Inc., this is a really leading indicator of progress on CBI. We're often or our patent filings are more often than not protecting customer solutions. And so an increase in patent activity is often pretty well correlated with future revenue growth. So really encouraged by everything we're seeing, more progress in '20. It can be a bit lumpy. You know, you can get ups and downs on this, but the trajectory is certainly on its way up, and we're very, very confident at this point that the 3% plus target is well within our reach. And, you know, I would not make the I think PLS is a to me is a different kind of a conversation. I don't really see a correlation between them. The only overlap between PLS and CBI is that they're both focused on differentiation. PLS is about ensuring that we prune our own differentiation and CBI, of course, is pursuing differentiation in a product development context. But, you know, PLS for us in '26, we see as more of a maintenance level, you know, 30 to 50 basis points. That's lower than 2025. But it's very much a bottom-up number. It's really decided on at the divisional level we've said before, it's a fundamental part of 8020 front to back and the ongoing strategic review portfolio pruning that goes on in our divisions. And we have obviously a very highly developed methodology around this. We get a lot of benefit from PLS implementation. We do it. You know, we get benefit in terms of growth from the standpoint of strategic clarity. Ensuring that we're executing on our most important customers and products and then effectively deploying resources on the back of that. Of course, from a margin improvement standpoint, the cost savings from PLS are a meaningful contributor to the enterprise initiatives that we generate every year. And a lot of these projects have a payback of less than a year or so. I think I would not really connect them that much. They're both very active in the company. PLS a little lower this year but puts it all steam ahead on CBI. Yeah. So PLS a little bit lower year over year, and CBI contribution revenue a little bit higher. On a year-over-year basis. So that's what's supporting the top-line guidance that we're giving you today. Regina: Our next question will come from the line of Scott Davis with Melius Research. Please go ahead. Scott Davis: Hey, good morning, guys. Good morning, Scott. Congrats on turning the corner here on the top line. I have to ask, the buyback is great, but I have to ask because you didn't mention M&A at all in the prepared remarks. And is that kinda off the table for '26, or you didn't mention it just because it's more opportunistic? Christopher O'Herlihy: It's the latter, Scott. It's certainly on the table for, you know, for the right companies. So as we've often said, we're focused on high-quality acquisitions that really will extend our long-term growth potential. While being able to leverage the business model to improve margins and we review opportunities all the time on an ongoing basis. We're pretty selective given that we genuinely believe we have a compelling organic growth opportunity. We're also pretty active in terms of reviewing opportunities and to the extent that we find the right opportunities while acknowledging, I think, the challenging valuation trends that we're seeing right now then we will be appropriately aggressive in pursuing them. You know, we obviously did the MTS deal three or four years ago. It turned out to be a great acquisition, met all of our kind criteria. Similarly, the quarter just past, we had one bolt-on acquisition in the semi-manufacturing space. Which is all the high-quality growth attributes that we look for. And we're certainly very open to doing more deals like this, and I would say we're actively prospecting around these deals. But we gotta find them. When we find them, we will. Yeah. I would just add. I agree with that. And Chris said, I think it's not necessarily an easy time to be a disciplined acquirer and often the challenge is really around valuation. And we're not gonna do deals that don't make sense to Illinois Tool Works Inc., which means we're not gonna do deals where we can't generate a reasonable risk-adjusted rate of return for our shareholders. And so that's kind of been our long-term positioning here, and that part of it is not gonna change on the book forward basis. And we agree with you that the buyback is a great way to allocate surplus capital. To our shareholders. Also contributes frankly, a share 2% EPS growth on an annual basis. And so that will remain an active share repurchase program will remain an important part of our capital allocation strategy on a go-forward basis. That's a good answer. Guys, I don't wanna be a dead horse. The CBI stuff is pretty interesting, and what does it take to get to 3%? Is it spending more or getting more out of what you have? And the reason why I asked that question is that, you know, up 18% and even up 9% patents are that's pretty big growth. Do you have to spend more to get to that 3%? Kinda what's the gating factor of bridging that gap? Christopher O'Herlihy: Yeah. It's not spending more, Scott. I think we've been meaningfully investing in a very focused way now for a number of years. You know, to build up the muscle around this. And really what's moving the needle and is very much a similar approach to what we took on 8020 funds back, you know, ten years ago. And we saw the results that accrued from that. But really, it's about a much higher level of leadership time and focus. It's certainly continuing to invest and build capabilities we have been doing for the last four or five years. And on that basis, we've seen innovation contribution more than double over the last five years. The capability that Bill that we're doing is at the segment level, but also in our divisions. You know, we have lots of great innovation practice around the company, and as we've mentioned on prior calls, we really codify this into a very effective and innovation framework. And we launched that framework in 2024. Again, this is the exact approach that we took in 8020 front to back. All that's certainly taken root. We see it in the patent filings. We see it in the yield. And, you know, we're well on track here to do the 3% plus. But I think all the pieces are in place, and it's no question of just building momentum and ensuring we get that consistently high quality of practice in every part of the company, and that will get us to more than three for sure. Yeah. And I might just add, that we've added the CBI metric as one of the key elements in our incentive plans on a go-forward basis. So if you look at the long-term incentive plans here, at Illinois Tool Works Inc., and in addition to margins, returns, EPS growth, we've added or the board has added CBI yield just in alignment with the overall strategic importance of this metric and this initiative on a go-forward basis. Helpful. Interesting. Thank you, guys. Best of luck this year. Pass it on. Thank you. Thank you, sir. Regina: Our next question comes from the line of Tami Zakaria with JPMorgan. Please go ahead. Tami Zakaria: So the auto segment growth in China was, I think, about 5% I think granted bills were also slower in the fourth quarter in China. But anything else to call out there? And how are you thinking about growth in autos in China as you look into 2026? Christopher O'Herlihy: Yes. So we see strong growth in China in order in 2026 largely on the basis of or this satisfactory work that we've done on really penetrating the EV space. And, you know, electric vehicles for us are very much a source of innovation and growth, what we see from our customers. And we've been generally leveraging that EV growth through new product innovation. We made significant investments over the last number of years targeting and building up our presence in EV. You know, China still represents about 65% of worldwide EV bills, and we're growing very nicely there. We're in a very strong position with Chinese OEMs, which is now 70% of the market. So really well-positioned. We see the growth in China in auto as being very sustainable, really on the back of the work we've done on EV, in particular, around CBI related to EV. So I might just add Understood. Greg that, you know, China has been a great growth story for Illinois Tool Works Inc. over the years, you know, driven primarily by the auto OEM business, which, as you said, grew 5% in Q4, but 12% for the full year. And the expectation remains the same in terms of outgrowing builds in China fueled by CBI and content growth with the Chinese OEMs as Chris said. So we'd expect growth in China auto OEM in that mid to high single digits. I'd just make a comment overall on China. You know, up 9% for the full year. Again, strong growth in China, in the auto business, but also test and measurement up high single digits. Welding up mid-teens, and so the expectation for next for this year, '26, is that China, which is now about $1.2 billion, 8% of our revenues, will grow in the mid maybe even in the high single digits based on what we're seeing for 2026. And I might just add lastly that margins in China, as you know, are the same as everywhere else around the world, and that's said, we'll continue to invest in China. And repatriate cash efficiently to the US as we've done over many years. Tami Zakaria: That is fantastic to hear. Thank you. And staying on the same topic, thanks for all the color on China. How are you thinking about growth in the U.S. or Americas versus Europe as it relates to the 1% to 3% organic growth outlook for the year? Christopher O'Herlihy: Yeah. So I think one of the things that was certainly encouraging here in the fourth quarter was the organic growth rate in North America. You know, up, you know, 2% plus. And we expect about the same, you know, maybe a little bit better than that based on run rates in 2026? Certainly a little bit more challenging. We don't expect much improvement in Europe. And then Asia Pacific was up 6% last year, primarily China, and we expect, like you said, another kind of meaningful contribution from Asia Pacific and China in the mid-single-digit range. So North America really, I'd say, pretty encouraging. Europe stays about the same. And Asia Pacific up kind of in the mid-single digits. China up in the mid, maybe high single digits. And so that's how you get to that 1% to 3% organic growth. And like we said earlier, again, more contribution from CBI, less of a headwind, to top line. From PLS, and you get to that 1% to 3% organic, 2% to 4% revenue for the full year. Tami Zakaria: Great. Thank you. Christopher O'Herlihy: Sure. Regina: Our next question will come from the line of Jamie Cook with Truist Securities. Please go ahead. Jamie Cook: Hi. Good morning. Two questions. I guess just my first one, the sequential revenue growth in the quarter, the 4% relative to normally 2%. Just color around that. Do you think that's more Illinois Tool Works Inc. specific, i.e., CBI is getting more traction, or would you know, say it's probably more just industrial markets getting better with 50 last month? And then my second question, Michael, just on the incremental margins for 2026, obviously implied very strong, you said mid to high 40s. That's above your 35 to 40% medium-term target on okay organic growth. So I'm just wondering if there's an underappreciated, you know, margin story or incremental margins can be higher. Maybe it's CBI. But just trying to piece that above-average incremental margins versus your target on and a half percent organic growth? I don't know. It just seems. Yeah. Christopher O'Herlihy: Better than what I thought. Right? So yeah. It's just Thanks. Let me talk about incrementals for glad you asked, by the way. So, like, you know, I think historically, we've been in that 35 to 40% range. That's what our kind of our long-term TSR algorithm is based on 35 to 40. If you look at kinda what we've been putting up over the last few quarters with limited growth, frankly, starting to improve. And when we look at kind of the plan for 2026, that's where we get to the mid to high forties. We can't really think of a reason why this wouldn't be sustainable over the long term. I mean, we've done a lot of work around the portfolio. You know, over a decade of enterprise initiatives. So the margin profile, variable margin, gross margin, all of those things the quality of the portfolio has never been better than it is today. And then you add on top of that accelerating how contribution from new products that all are coming in at higher margins. And then maybe most importantly, as Chris said and I mentioned in my remarks, are doing all of this while we are investing in Illinois Tool Works Inc. to kinda maximize the long-term performance from a growth and profitability standpoint. So about $800 million this year in our organic growth initiatives in our kind of productivity initiatives, the enterprise initiatives. And so it's not like we're holding back on investments. All of this is happening these incrementals in the mid to high forties are happening while we're fully funding all the quality projects that we have available to us. Inside the company. I think that's anything else on the market? Yeah. No. I agree with everything Mike had said. I would just highlight, Jamie, this is one of the side benefits of PLS, Noah, is this you know, you do PLS for enough time. What happens is you get an improvement in the quality of the portfolio. PLS is effectively a portfolio pruning exercise. And so what's really driving these incrementals and the reason that fundamentally believe there are no sustainably in the mid-forties comes from, you know, improvement in the quality of our portfolio from, you know, many years of thoughtful PLS, coupled with a continuous improvement in the practice of the business model against that portfolio. So you got those two things working together, and that's ultimately why incrementals now shifted from what was mid-thirties to what we know the least mid-forties. Jamie Cook: Right. Christopher O'Herlihy: And then I think, Jamie, on your other question on the sequentials from Q3 to Q4. So it was pretty broad-based. Nothing really stood out, which suggests that this is really kinda maybe a little bit of tailwind from the markets after a long time. Years of headwinds. Jamie Cook: It was more pronounced. Christopher O'Herlihy: In the segments that have a higher contribution from CBI. That is true. We didn't talk about polymers and fluids, but high contribution from new products in the automotive aftermarket, but also in the fluids business that's the part of that business that's really centered around biopharma. And then in the performance polymers side, it was growth in China. Again, taking advantage of the EV growth that Chris talked about earlier. So test and measurement, also seeing a pickup here. Sequentially from Q3 to Q4. They typically do. Maybe a little bit more pronounced than usual, and I think that's part of the semi pickup that we talked about. We saw that start to come through not just in order activity, but also in actual sales. Here in the fourth quarter. So it feels pretty good. Good momentum going into 2026, and off to a pretty good start, so far. Regina: Thank you. Our next question comes from the line of Steven Fisher with UBS. Please go ahead. Steven Fisher: Thanks. Good morning. Christopher O'Herlihy: I take out 100 basis points of. Steven Fisher: Enterprise initiatives, it seems like the margins are maybe really only flattish. I'm curious why they wouldn't be higher with the positive organic growth and the high incrementals you're talking about, maybe the incrementals are a function of the enterprise initiatives, but why isn't the margins higher with that positive organic growth? Christopher O'Herlihy: Yeah. That's a good question, Steven. So I'd say let me just say it's hard to quibble with margins, I think, that are in that 26 to 27% range to begin with. But if you look at 2026, there's definitely some positive operating leverage given the midpoint of our revenue guidance here and that, you know, 3% range, 2% organic. We're getting about 100 basis points from the enterprise initiatives. Price cost is slightly favorable. And then what you're seeing is an offset. So these are which is primarily inflation in some of our employee-related costs. Wages, health and welfare benefits. And there's also some investment. Steven Fisher: That Chris talked about to really. Christopher O'Herlihy: Accelerate the organic growth rate inside the company and maintain high levels of productivity inside the company. So those are really we've talked about this category before. And so that's the offset to what we're giving you. And I might just say, you know, we're giving you a range on margins. Right? So 26 and a half, to 27 and a half, about 100 basis points of improvement. And if we get if a this short cycle demand recovery really materializes and we get organic growth rates moving up in our range here, at the incrementals we're talking about, you're absolutely right. We should expect to see higher margins in 2026. Steven Fisher: Super helpful. And then just maybe a clarification. Did I hear you say that commercial side of construction in North America was up in the quarter? And I guess if so, how surprised were you to see that? Were you already seeing that in your run rates at the start of the quarter? Or is that something that changed? And are you seeing that carry forward? I mean you do have a pretty big inflection in construction in '26. Christopher O'Herlihy: Yeah. I'd say it's a fairly small portion of our business in look at North America. You know, it's about 20% of our exposure or sales are into the commercial side of things. So they can be a little bit lumpy. There was some pickup in activity as you might expect, related to things like data centers, for example, which sounds very exciting. But keep in mind what I just said. This is a pretty small part of the company but certainly encouraging to see a pickup on the commercial side. Steven Fisher: While the. Christopher O'Herlihy: Residential side, you know, our most perhaps our most interest rate-sensitive business remains, you know, really kind of stuck in some pretty challenging end markets. Housing starts down in the mid-single digits. But perhaps, you know, 2026 could be the year this really turns around. On the residential side. That's not included in our guidance. That would but if it were to happen, we'd be really well-positioned to take advantage of that. The improvement drivers for '26 are more related to less PLS, and more CBI. Right? Steven Fisher: Okay. Perfect. Thank you. Regina: Our next question comes from the line of Sabrina Abrams with Bank of America. Please go ahead. Sabrina Abrams: Morning. Morning. Sabrina Abrams: I wanted to follow-up on something that I believe you said in. Regina: Response to Julian's question. If every quarter we have revenue growing 2% to 4%, I think the FX tailwind just. Sabrina Abrams: Based on the DXY, FX tailwind is pretty material in Q1, and then it tails off quite a bit in the remaining quarters of the year. So would it be fair to think that organic growth the organic portion of growth accelerates as we move through the year? And just try to think if that assumption is correct and what's underlying the assumption. Regina: Thank you. Steven Fisher: Yeah. I think there's definitely, as you point out, a little bit more currency tailwind here in the first quarter. Christopher O'Herlihy: You know, there is positive organic growth in Q1, but it's not as high as it is in Q3, and '4. So maybe that's a way to think about it. Sabrina Abrams: Thank you. And then don't think anyone asked on this segment, but polymers and fluids had a nice surprise to the at least relative to what I was modeling. And it seems that it was pretty broad-based across the aftermarket, auto aftermarket and the fluids and polymer side. Anything to call out there that you're from an end market demand standpoint that maybe trended differently versus expectation? Regina: So just any color there would be great. Thank you. Sabrina Abrams: And it seems that the guide for 1% to 3% year would be quite conservative given the run rate of what we saw in Q4. Christopher O'Herlihy: Yeah. So, Sabrina, we did actually talk about this a couple of minutes ago, but just real quick. So a big contribution from CBI new products in the automotive aftermarket, specifically in the car care business. If you're in the market for wiper blades, Wanax wiper blades, were up meaningfully here in the fourth quarter with the launch of a new wiper blade in that space. In China, specifically polymers, continues to gain share. On the automotive EV side of things up double digits. More than 10%. In the fourth quarter. And then the reagents business that's part of fluids which is really focused around biopharma was up more than 20%. And again, so what you're seeing is more CBI little less PLS, and we're expecting more of the same here as we go into 2026. Sabrina Abrams: Got it. I guess just as a quick follow-up then, just wanna understand why, guiding for deceleration from Q4 next year? Christopher O'Herlihy: Well, I'm not sure that's really the case. I mean, I think we're guiding one to three. If you look at the performance for the full year this year, in powers of fluids, a little bit different than the fourth quarter. And then obviously, we're not going to launch, you know, the same amount of new products every quarter. So maybe the fourth quarter was a little bit higher from a CBI standpoint than kind of the typical run rate. So maybe that's a way to think about it. Sabrina Abrams: Thank you. Regina: Our final question will come from the line of David Rasa with Evercore. Please go ahead. David Rasa: Hi. I wonder if you'd help us. We're all sort of dancing around the organic cadence. How is January playing out versus the 1% to 3% guide? It just feels like there's a lot of, you know, filler metals up high single digit. Semis up mid-single. It feels like you're off to a relatively strong start to the year based off those cyclical trends exiting. Am I misreading the first quarter organic is at the full year guide? Or even above it? Any color in January would be great. And the company inventory, it went down a little bit sequentially. Histor I mean, it moves it moves around a lot. I appreciate that. Yeah. It went down to where wasn't even up year over year more than sales. And to me, that could be a little tell if know, hey. But think things are picking up. You'd be building some inventory. Just trying to square all that together. Thank you. Christopher O'Herlihy: Yeah. Thanks, David. So I think just on the inventory, that's kind of the typical cadence. Inventory levels of inventory do come down towards the year-end. I can tell you there's nothing going on in terms of lowering inventory levels because we expect lower growth. I think, as a matter of fact, if you go back to kind of the middle of the year, we, in some cases, like test and measurement, Chris talked about with some of the tariffs, to mitigate the risk from a supply chain standpoint, we actually added inventory in a few segments to mitigate that risk. So nothing unusual really from an inventory standpoint. In the fourth quarter. You know, I'd say January is off to we're we are. I can say this, we're right on track to where we thought we were gonna be. I did say that our the revenue growth guide for this year, if you look at it on a quarterly basis, we will be up if things stay the way they are. And, obviously, with a pretty dynamic environment in that, you know, three to 4% range. The organic growth rate is slightly lower in the first quarter relative to Q2, Q3, Q4. That's typical seasonality. Based on what we know today. You know? So it's not gonna be three, 4% organic growth in the first quarter based on current run rate. But it will be positive organic growth. We have a little bit more tailwind from currency at the beginning of the year, just kinda how the comparisons work out. And so that's how you get to a revenue growth rate in Q1 that's maybe closer to the other quarters even though organic is lower. Does that make sense to you? David Rasa: Yeah. No. That's helpful. And semi, I know you said 15% of the business. Think it used to be a little bit bigger, but, obviously, it's been slower. That incremental margin I feel like historically when that starts moving the incrementals, like, to be for the t and m margins were better than I was modeling for the quarter. Is semi a big part of that incremental margin improvement? Or am I overstating the impact when semi No, that is correct. I mean, Christopher O'Herlihy: this is the positioning has always been we know this is a cyclical space. And when we are at the bottom of the cycle, we want to be profitable, very profitable. And when things are going well, orders are picking up, revenues are picking up, incrementals come through at above-average levels and above-average levels of profitability. So that is a that's a reasonable assumption. Now it's 15% of test and measurement. 3% of Illinois Tool Works Inc. So but it is a space, as you know, when these cycles start to pick up, you can see some really, you know, above-average, meaningful growth rates for a period of time. And it's too early to tell whether that's what's going on here, but if you look at fab utilization, you look at the order activity, you look at, you know, plus 5% at attractive margins in Q4, it's looking pretty promising as we just start 2026. We're one month in. I'll just caution that things can change quickly. In this environment, but we feel really good about where we're at. We feel confident in our guidance, and well-positioned to deliver some solid results here both operationally and financially. In 2026. David Rasa: Alright. Thank you for the time. Appreciate it. Christopher O'Herlihy: Sure. Thank you. Regina: And that concludes our question and answer session and our call today. Thank you all for joining. You may disconnect at this time.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to J&J Snack Foods First Quarter 2026 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you would need to press star 11 on your telephone. You will then hear an automated message of that, and your hand is raised. And to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Reed Anderson, with ICR. Please go ahead. Reed Anderson: Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2026 First Quarter Conference Call. Before getting started, let me take a minute to read the safe harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives as well as our anticipated financial performance. This includes, without limitation, our expectations with respect to the success of our cost savings initiatives and customer demand improvements in the sales channels in which we operate. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our annual report on Form 10-K and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. As such, forward-looking statements represent management's estimates as of the date of the call today, 02/03/2026. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share, all of which are reconciled to the nearest GAAP measure on the company's earnings press release, which can be found in our Investor Relations section of our website. Joining me on the call today is Dan Fachner, our Chief Executive Officer, along with Shawn Munsell, our Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would like to turn the call over to Mr. Fachner. Please go ahead, Dan. Dan Fachner: Good morning. I'm pleased to report that our earnings recovery is underway and gaining momentum. We delivered adjusted EBITDA of $27 million on sales of $343.8 million in the first quarter, representing a 7% increase in adjusted EBITDA compared to the prior year. Results in the quarter included $1 million of unfavorable impact associated with product disposal costs. Our performance demonstrates the early benefits of Project Apollo transformation initiatives and our continued focus on operational excellence. Our first quarter results reflect meaningful progress on several fronts. Gross margin improved 200 basis points to 27.9% versus the prior year, driven by our early Apollo savings associated with plant consolidation and improved product mix. While net sales declined 5.2% to $343.8 million, most of the decline is attributed to our bakery business as we focus on higher margin opportunities. About $18 million of the revenue decline versus prior year was in that piece of business. Of this, about $13 million was related to SKU optimization efforts associated with Project Apollo. The remaining bakery sales decline included other lower margin products, which aligns with our portfolio optimization strategy. We expect portfolio optimization will represent an approximate 3% decline in sales in fiscal 2026. We also believe that sales in the quarter were impacted by the government shutdown and the pause in SNAP benefits. Looking at our syndicated retail data, we did see a dip in dollar sales in mid-November that coincided with the pause in SNAP benefits, with the largest impact in frozen novelties. Project Apollo is progressing as planned. Although we're still in the ramp-up phase and not yet at the full run rate, we realized over $3 million of net savings in Q1. With plant consolidation on track to be fully implemented during our fiscal second quarter, we remain confident in achieving $20 million of run rate operating income once all initiatives are activated. During the quarter, we completed our share repurchase authorization by purchasing $42 million of stock, demonstrating our confidence in the business and our commitment to returning cash to shareholders. Further, today, we announced a new $50 million repurchase authorization. Now I'll turn to commercial activities. We have solid momentum in our snack portfolio, and I'm especially encouraged by our pretzel performance in the quarter. In food service, pretzel sales were up an impressive 6.9%, reflecting the continued success of our Bavarian formulas. We also realized a 1.8% increase in food service share in the thirteen weeks ending December according to syndicated data. Growth in the quarter included new business with some of our large distribution customers. We also launched Bavarian Bytes and Twists at a major theater chain. Looking at our retail syndicated data, pretzel sales were up about 4% for the thirteen weeks ending December. We attribute the improving trends to the new formulation and packaging released last year. In frozen novelties, Dogsters continues to be the standout performer, with volume growing over 20% in the quarter with a new item launched late in Q1 and another launching in Q2. Retail partners have been positive regarding our innovation, and we continue to anticipate incremental distribution gains across regional and national customers in fiscal 2026. Dippin' Dots sales were up approximately 4% in the first quarter, fueled by retail growth, theater expansion, and amusement centers. At ICEE, we continue to pursue opportunities to expand at convenience and QSR. The rollout to a large Southwest convenience store operator is now complete, and the test with a major West Coast QSR operator continues to show encouraging results as the test market expands. Looking ahead, our innovation pipeline remains robust. During Q2, we'll be shipping several exciting new products, including two new releases of protein and whole grain pretzels, Luigi's mini pops with hydration and immunity benefits, Dippin' Dots sundae flavor extensions, and the launch of traditional Dippin' Dots for retail, a major growth milestone for that brand. While box office performance that aligns to our fiscal first quarter was disappointing, with an estimated decline to the prior year of about 10%, we remain optimistic about the theater performance for the balance of fiscal 2026. We saw improved theater trends in January, primarily from the success of the Avatar movie. The movie slate for the balance of the year includes some promising titles, including the Super Mario Galaxy movie, Minions 3, and Spider-Man: Brand New Day. I'll now turn the call over to Shawn to discuss the quarter results in more detail. Shawn Munsell: Thanks, Dan, and good morning, everyone. As Dan mentioned, we're pleased with our Q1 performance, which demonstrates early progress on our transformation initiatives. Foodservice segment net sales declined $19.7 million or 8.3% to $219.2 million, with $18 million of the decline attributed to our lower margin bakery business, largely reflecting steps we are taking to improve product mix. Handheld sales declined approximately $5 million in the quarter due to lower comparative volumes and contractual pricing true-up on lower costs of certain ingredients. Soft pretzel sales increased $3.6 million or about 6.9%, continuing the momentum from 2025. Retail segment net sales increased $1.2 million or 2.6% to $45.9 million, primarily driven by a $1.8 million increase in handheld volume as we lapped last year's capacity constraints from the facility fire. Sales within the remaining retail portfolio decreased about $600,000, primarily driven by lower frozen novelty sales as growth in Dogsters and Dippin' Dots was more than offset by decreases in other novelties. Frozen beverage net sales were materially flat at $78.7 million. Beverage sales were up modestly, whereas service and machine sales combined were down. Consolidated gross margin improved 200 basis points to 27.9%, primarily reflecting Apollo initiatives, including a reduction in lower margin sales. Results included product disposal expenses of approximately $1 million. Tariff-related costs were approximately $600,000 net of pricing offset. We do expect some tariff impact to subside over the course of fiscal 2026. Operating expenses increased to $95.4 million, which included $6.1 million in nonrecurring plant closure costs and other nonrecurring impacts. We expect additional nonrecurring transformation project costs of approximately $5 million in fiscal 2026. Selling and marketing expenses increased 9.9% or $2.8 million compared to the prior year quarter. Approximately 140 basis points of the increase was associated with higher commissions for retail vending sales, which is a growing component of our Dippin' Dots business. Investments to support our brands in preparation for a peak summer season accounted for roughly 250 basis points of the increase. Higher depreciation associated with customer equipment accounted for approximately 190 basis points of the increase, with almost half of that associated with growth in Dippin' Dots. We expect these investments to generate growth during the peak summer season. Distribution expenses declined $1.6 million or 3.9%, primarily due to lower volume. Distribution expenses were 11.1% of sales, as compared to 10.9% in the prior year. Administrative expenses were $20.4 million, an increase of 7.8% from the prior year. Approximately 300 basis points of the increase was related to nonrecurring restructuring charges and legal fees. Adjusted operating income was $8 million compared to $8.2 million in the prior year. Adjusted EBITDA increased 7% to $27 million versus $25.3 million last year. The effective tax rate was 27%. On a reported basis, earnings per diluted share was $0.05 compared to $0.26 last year, primarily reflecting the impact of one-time charges. On an adjusted basis, earnings per diluted share was $0.33, in line with last year. Our balance sheet remains strong with approximately $67 million in cash and no long-term debt. We had approximately $210 million of borrowing capacity under our revolving credit facility. During the quarter, we generated approximately $36 million in operating cash flow and invested $19 million in capital expenditures. As Dan mentioned, during the quarter, we completed our share repurchase authorization by buying back just over 158,000 shares for $42 million or an average price of about $91.60 per share. Including shares bought in fiscal 2025, we repurchased just over 525,000 shares for $50 million, or an average price of about $95 per share. That concludes our prepared remarks, and we are now ready to take your questions. Operator? Operator: Thank you. Please press 11 again. And our first question comes from Jon Andersen with William Blair. Your line is now open. Jon Andersen: Good morning. Thanks for the question. Good morning. I have one question on sales and then one on Project Apollo and cost outs. Beginning on sales, you mentioned that the SKU rat is now expected to kind of be a headwind of about three percentage points on a full-year basis. That makes sense, I understand, and is consistent with what you've talked about in terms of portfolio optimization work. But what I'm trying to kind of get to is how you're thinking about the full year, you know, in the context of that. I know you have kind of an underlying long-term objective of growing the business organically in the mid-single digits. But again, I think we have to net out the 300 bps related to this year. So and then I know there are some things that are building through the year as well in terms of commercial innovation, some new business wins. Are you looking for or expecting or budgeting, you know, to grow the business, headline sales on a full-year basis? And how might that kind of ramp from the number that you printed in Q1 work from here? Then I'll follow-up with a question on Project Apollo. Thanks. Dan Fachner: Great. Thank you, Jon. Yeah. Great question. And, you know, just to start off, we're really pleased with the way that the quarter has shaped up. It's really what we had talked about to begin with with Project Apollo and are very happy with the way that it is shaping up so far. The sales results in Q1 were just slightly softer than we anticipated, and that's due to the ramp-up of being able to consolidate those plants. You know, we have three of them that we consolidated. One is fully done at this point. One's kind of halfway there. We'll be done shortly, and then the final one will be done by the end of this quarter, which puts us at a full run rate. So Hey, Jon. Can you Excuse me. Jon, can you hear us? Jon Andersen: Yes. Dan Fachner: Okay. Good. We're sorry. We got a little interruption here. Apologize for that. So overall, we're happy with where the quarter landed, much like what we have talked about all along with you. As it looks towards long-term and where we might shake out for the year, like you talked about, we have a lot of great new business, great innovation coming on. And, yes, about 3% impacted by this SKU rationalization that was escalated during this quarter because of the speed in which we are able to consolidate those branches. We still look towards low single digits growth for the entire year, though. We think that we're in a good position with all the great things that we have going on to kind of land the plane there in that low single digits growth. Jon Andersen: Yeah. That's low single digits, Jon, on kind of the remaining portion of the portfolio. Dan Fachner: Got it. On the on the x SKU rat portion? Jon Andersen: Yeah. That's right. Yep. Okay. Fair point. Okay. And then you mentioned that Project Apollo, I think, delivered $3 million of cost savings in the quarter. I guess, the run rate you're looking to achieve once complete with phase one is $20 million. Yep. What else needs to happen to get to the $20 million annual run rate? And, you know, if you had to kind of, you know, point to a time frame this year, when you hit that stride, when do you think that that might be? Dan Fachner: Yes. We really believe that we'll be there here in the second quarter. The team has done a tremendous job getting us to this position. And we talked about that $20 million annual run rate, and we believe that we will be fully capable of doing that starting in Q2. Shawn Munsell: Yeah. And that's the so that's the plant consolidation component. So if you remember, Jon, $15 million of the $20 million is associated with plants. So we were closing in on the full run rate in Q1. Expect to hit it in Q2. A lot of the work has been done in terms of, you know, shutting down those plants, transferring inventory, you know, all of the closure and consolidation work. We expect that to be complete this quarter. The remaining $5 million, if you remember, that's a mix between, you know, distribution expense savings and G&A savings, and we expect to be on the run rate. We'll be ramping up in the third quarter of this fiscal year and then should be on the full run rate for that remaining $5 million by the fourth quarter. Jon Andersen: Okay. Super helpful. Maybe I squeeze if I could squeeze one more in. Know, I know that the commodity environment hasn't has not been a helper for you in recent years, and there have been certain, you know, pockets within your cost of goods basket, like eggs and cocoa. But, you know, can you give us an update on where things sit now? Are those less, you know, of a headwind moving forward? And how are you kind of thinking about just kind of inflation and also what you're doing overall from a portfolio perspective? And the impact on gross margin. You had a nice step up in Q1, 200 basis points. I'm wondering if we should be thinking about that kind of level of improvement year over year persisting as we move forward? And I know the plant consolidation is part of that. But there are probably other factors in there as well, portfolio mix, commodity costs, etcetera. Dan Fachner: Well, the plant consolidation and addition of some of the new business and our continued kind of mantra of margining up. So we're seeing some really nice things come through with all three of those things. Commodity pricing, I think, will be a little bit in our favor this year. You know, last year, we really struggled in this quarter and Q2 with some headwinds of like you talked about with cocoa and eggs. But overall, we believe this year that there's a good chance that that will kind of be in our favor. Shawn Munsell: Yeah. And one of the things that one other thing I meant to add too, Jon, is, you know, that the $1 million worth of product disposal costs that we incurred in the quarter, just to be clear, that was not adjusted out of our earnings. And so just think about the gross margin improvement in the context of that. You know, if not for, you know, product disposal, we would have picked up another you've had another million dollars going through gross profit in the quarter. Jon Andersen: Okay. And, Shawn, that's something that doesn't that that's done that's in the rearview mirror at this point that won't affect this group? Shawn Munsell: Yeah. That was just that was a one-time impact on some product that got on a spec. Jon Andersen: Okay. Great. Thank you very much. I'll get back in the queue. Thank you, Jon. Operator: Thank you. I am showing no further questions in the queue. I will now turn the call back to Dan for closing remarks. Dan Fachner: Thank you, operator. In closing, I want to emphasize that our Q1 results demonstrate that our transformation project has taken hold. The early benefits from Project Apollo combined with our continued pretzel growth and strong innovation pipeline position us well for fiscal 2026. With our strategic focus on higher margin opportunities and operational excellence, we're building momentum for sustainable growth. Our strong balance sheet provides flexibility to invest in growth opportunities while returning capital to shareholders. We remain confident in our ability to deliver the full benefits of Project Apollo and drive long-term value creation. Thank you for your continued support, and we look forward to updating you on our progress throughout fiscal 2026. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Hubbell Incorporated Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. How may I thank conference over to your first speaker today, Daniel Innamorato, Vice President of Investor Relations. Please go ahead. Daniel Innamorato: Thanks, Operator. Morning, everyone, and thank you for joining us. Earlier this morning, we issued a press release announcing our results for the fourth quarter and full year 2025. The press release and slides are posted at the Investors section of our website at hubbell.com. I'm joined today by our Chairman, President and CEO, Gerben Bakker, and our CFO, Joe Capazzoli. Please note our comments this morning may include statements related to the expected future results of our company. These are forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Please note the discussion of forward-looking statements in our press release and consider it incorporated by reference into this call. Additionally, comments may also include non-GAAP financial measures. Those measures are reconciled to the comparable GAAP measures, which are included in the press release and slides. Now let me turn the call over to Gerben. Gerben Bakker: Great. Good morning, and thank you for joining us to discuss Hubbell's fourth quarter and full year 2025 results. Hubbell delivered strong financial results in the fourth quarter, highlighted by 12% total sales growth, 140 basis points of adjusted operating margin expansion, 19% adjusted operating profit growth, and 15% adjusted earnings per share growth. Organic growth of 9% in the fourth quarter was driven by double-digit organic growth in our Electrical Solutions segment as well as our Grid Infrastructure businesses within the Utility Solutions segment. Our core utility and electrical markets remain strong as data center build-outs, load growth, and aging infrastructure resiliency investments generate robust project activity in front and behind the meter. Hubbell's portfolio of critical components and solutions is uniquely positioned at the intersection of grid modernization and electrification megatrends. Strong recent sales and order activity, along with continued execution on our strategy, positions us well to deliver on an attractive outlook in 2026 and beyond. Daniel Innamorato: Before I turn the call over to Joe to walk through our financial performance in more detail, I'd like to highlight a few key accomplishments in 2025. Starting with Electrical Solutions, we made significant progress in 2025 on our strategy to unify this segment to compete collectively. We generated above-market growth in attractive verticals with an integrated solutions-oriented service model for our customers, while simultaneously driving business simplification and operational efficiencies to expand margins. These efforts resulted in 7% organic growth and 14% adjusted operating profit growth for the full year. Additionally, full-year adjusted operating margins at HES reached 20% for the first time in history. In our Utility Solutions segment, while full-year organic growth was negatively impacted by metering and AMI markets, we delivered strong performance in the larger, higher-margin grid infrastructure businesses in our portfolio. Our leading positions in strong transmission and substation markets enabled double-digit growth for the full year, while distribution markets accelerated throughout 2025 as customer inventories normalized amid a healthy market backdrop. Over 80% of our HUS portfolio is aligned to electric T&D components and solutions, where our leading installed base and depth and breadth of product offering uniquely positions Hubbell to benefit from a highly visible long-term investment cycle. Importantly, we also continue to invest and allocate capital to high-return areas while further differentiating our unique service advantage with customers. Most notably, we closed on a high-growth and margin acquisition in DMC Power. Gerben Bakker: We invested in automation and expanded production capacity in high-growth areas, repositioned our sales force to gain share in attractive vertical markets, successfully launched new innovative solutions, and we continue to be recognized and awarded by our customers for industry-leading service levels. We plan to continue investing in each of these critical levers of our long-term strategy to drive ongoing growth and productivity benefits in 2026 and beyond. Hubbell's 2025 free cash flow margin of 15% and return on invested capital of 19% are strong evidence of the quality of our business model and of our ability to invest on behalf of our shareholders to generate strong returns both now and over the long term. Daniel Innamorato: Let me turn the call over right now to Joe to provide some more details on the financial results. Joe Capazzoli: Thank you, Gerben. I'm starting my comments on slide five. Hubbell's fourth-quarter financial performance was strong, with double-digit growth across sales, adjusted operating profit, and adjusted diluted earnings per share. Net sales of $1.493 billion in 2025 increased by 12% as compared to the prior year, driven by 9% organic growth and acquisitions contributing 3%. Both Electrical Solutions and Grid Infrastructure products within our Utility segment delivered double-digit organic growth in the fourth quarter, an acceleration versus prior quarters driven by incremental price realization and stronger demand in data center and utility T&D markets. This strength was partially offset by continued softness in grid automation, though declines in this business have moderated relative to prior quarters. From an operational standpoint, we generated $349 million of adjusted operating profit and expanded adjusted operating margins by 140 basis points in the fourth quarter, which combined with strong sales growth generated adjusted operating profit growth of 19%. While cost inflation accelerated in the fourth quarter as anticipated, our pricing and productivity actions have been successful in more than offsetting these costs. Our strong positions in attractive markets and our execution in proactively managing our cost structure drove positive price-cost productivity in the quarter. Adjusted diluted earnings per share were $4.73 in the fourth quarter, representing a 15% increase versus the prior year and were driven by strong operating profit growth partially offset by higher interest expense associated with the DMC Power acquisition and a higher year-over-year tax rate. Fourth-quarter free cash flow generation of $389 million was strong to close the year. On a full-year 2025 basis, we generated $875 million of free cash flow representing 90% conversion on adjusted net income, which was in line with our previous outlook. Our balance sheet remains strong with net debt to EBITDA of 1.3 times exiting the year, which positions us well to continue reinvesting in our business and deploying capital for shareholders at high rates of return as Gerben just highlighted. Turning to page six to review our performance by segment, Utility Solutions delivered a strong quarter with double-digit growth in sales and adjusted operating profit. Starting with the top line, Utility Solutions generated net sales in the fourth quarter of $936 million, which represents growth of 10% versus the prior year and includes organic growth of 7% and acquisitions contributing 4%. Grid infrastructure, which as a reminder represents approximately three-quarters of the segment sales, was up 12% organically. Grid infrastructure strength was broad-based, with strong growth across distribution, substation, and transmission markets. Utility customers continue to aggressively invest in new transmission and substation infrastructure to interconnect new sources of load and generation on the grid, while aging infrastructure trends drove solid hardening and resiliency activity in distribution markets against easier prior year comparisons. Outside of T&D markets, telecom and gas markets experienced solid growth in the quarter. Grid automation sales were down 8% in the quarter as solid growth in grid protections and controls was more than offset by weaker new project activity in meters and AMI. Operationally, HUS achieved $235 million of adjusted operating profit in the fourth quarter, representing 20% growth in adjusted operating profit versus the prior year with adjusted operating margins expanding 200 basis points year over year. Operating profit growth was primarily driven by strong volumes and infrastructure, favorable price-cost productivity, and acquisitions partially offset by volume declines within grid automation. Daniel Innamorato: Turning to page seven. Electrical Solution results were strong in the quarter, with double-digit growth in net sales and adjusted operating profit. For the fourth quarter, Electrical Solutions generated net sales of $557 million. Organic growth of 13% was driven by significant strength in data center markets and solid growth in light industrial markets, as well as strong price realization, partially offset by softer heavy industrial and nonresidential markets. Data center growth exceeded 60% in the quarter. Joe Capazzoli: In addition to healthy end market dynamics, our data center performance in the fourth quarter was bolstered by targeted capacity investments in our balance of systems components as well as strong project activity in our modular power distribution skid. Overall, our vertical market strategy and commercial alignment initiatives as well as new product introductions continue to drive outgrowth in key markets. Operationally, HES delivered $114 million of adjusted operating profit in the fourth quarter, representing 18% growth in adjusted operating profit versus the prior year with adjusted operating margins expanding 60 basis points year over year. Operating profit growth was primarily driven by strong volumes, and favorable price-cost productivity in the quarter, including attractive returns from our ongoing restructuring investments. Before I turn the call back over to Gerben to provide our full-year outlook, I'd like to highlight on Slide eight some recent investments we've made in our HES segment, which are generating increased output in high-growth areas as well as enhanced productivity across our manufacturing footprint. Our Burndy brand is a leader in electrical connectors and grounding products across a wide range of industrial end markets, including data center markets where Burndy has strong specified positions with major customers who value our leading product quality and service levels. With the significant demand inflection we've experienced in high-growth verticals like data center, we've had the opportunity to leverage capacity expansion investments to reconfigure our production workflows and drive productivity through automation. The example on the page highlights our recent investment in four specialized enclosed automation work cells for copper lug production, where we've been able to combine six manual production processes into single-flow automated lines for high-running SKUs, reducing factory processing time from days to minutes for certain product lines and reducing manufacturing complexity. The end result of these investments is that we were able to increase output to serve strong customer demand while also driving productivity through reductions in labor and factory floor space. Gerben Bakker: While this is one example of a major product line in one of our businesses, it demonstrates our ability to utilize CapEx investments to meet customer needs and drive both enhanced growth and margin expansion. This has been one of many critical components of our successful HES segment transformation strategy over the last several years, and we see further opportunity across both segments to invest in high-return growth and productivity initiatives within our factories. With that, I will turn the call back over to Gerben to provide our 2026 outlook. Great. Turning to page nine. We anticipate 5% to 7% organic growth across our portfolio in 2026. Similar to the preliminary view we provided in October, we anticipate broad-based strength across our largest businesses serving attractive utility T&D, data center, and light industrial end markets. Daniel Innamorato: In Utility Solutions, we anticipate 5% to 7% organic growth for the full year. Transmission and substation demand remains strong, and we expect our leading positions in these end markets to drive continued success in converting on high-visibility project pipelines as utility customers invest in grid interconnections. Utility distribution activity is healthy, driven by both routine maintenance and systematic upgrades to aging infrastructure in order for customers to meet key outage and performance metrics. Gerben Bakker: In grid automation, modernization initiatives targeted at delivering more insights and control capabilities in the field are expected to lead to continued strength in protection control solutions in 2026, more than offsetting a more modest outlook for meters and AMI markets. Daniel Innamorato: In Electrical Solutions, we anticipate 4% to 6% organic growth for the full year, and similar to 2025, we expect growth to be led by data center markets, which now represent more than 10% of segment sales and are expected to expand mid-teens. While we expect nonresidential and heavy industrial growth to be more muted, industrial reshoring and electrical mega project activities are expected to drive continued solid growth in light industrial and renewable markets. Looking across our portfolio, we expect a strong year of organic growth in 2026, and we believe our largest, highest-margin end markets are still early in a multiyear highly visible investment cycle, which will enable attractive growth for the next several years and beyond. Concluding our prepared remarks on Page 10, Joe Capazzoli: we are initiating our 2026 outlook this morning for 7% to 9% total sales growth, $19.15 to $19.85 of adjusted earnings per share, and approximately 90% free cash flow conversion on adjusted net income. At the midpoint of the range, this outlook anticipates approximately 10% year-over-year growth in adjusted operating profit driven primarily by strong organic growth and core operating leverage as well as wraparound contribution from the DMC Power acquisition. Operationally, we anticipate another year of margin expansion in 2026 as we are well-positioned to manage price and productivity to at least offset inflation, while also reaccelerating investment back into our business following a period of proactive cost management over the last couple of years. Our 2026 outlook is in line with our long-term financial framework, which we are confident will continue to deliver long-term value creation for our shareholders off of a strong multiyear base of performance. With that, let me turn the call over to questions and answers. Operator: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to one question and a follow-up. And our first question comes from the line of Jeffrey Sprague of Vertical Research. Your line is now open. Jeffrey Sprague: Good morning, Jeff. Oops. Sorry about that. I was on mute. Good morning, everyone. There was a comment about orders in the prepared remarks. I'm sure that's contemplated in your revenue guide. Can you just give us a little bit more color on what you're seeing in orders, kind of the complexion across the business? And one of the things I am wondering about is just the strong load growth and CapEx you're seeing. Is that negatively impacting MRO activity kind of in the core legacy business? Or is that sort of chugging along at a normal rate? Gerben Bakker: Yep. Let me maybe start with a general comment on orders, Jeff. And certainly, the recent momentum has been strong. And as we talked on our last call, we started to see this inflection in our order book in, like, the September time frame and particularly in the areas of T&D and data center. You know, as a reminder, we are primarily a book-to-bill business. But in that, you know, the order strength over the fourth quarter really drove our organic sales growth. So it wasn't, you know, working through backlog or anything. This was reflected in the actual orders that we saw. And I mean, I would say even exiting the year, that was very positive, and we've even built a little bit of backlog at some of our businesses like the T&D business. That order momentum going into '26 has continued. So I would say this visibility together with what we know are favorable end markets provides us confidence for '26. Now, of course, you know, being a book and bill business, our visibility doesn't extend throughout the entire year. We do have a few businesses where we're fully filled with backlog. But the majority of the business being book and bill, you know, we need to see how the year unfolds with that. But I would say it's off to a good start ending the year and starting this year. And, you know, particular to your question of CapEx with OpEx, and that's a question related to, you know, our utility and infrastructure business. As you see those percent, there's clearly, you know, a very strong inflection in the CapEx. It's very hard to say because a lot of the materials that we supply, Jeff, are fungible to whether, you know, the same materials go into CapEx that go into OpEx as well. What we are seeing shorter term, there's a lot of investment right now going into generation. And I would say, you know, that too falls within the general budgets that we have. And, you know, our exposure, of course, is less in generation, but that said, you know, what we see in transmission and substation, what we see in distribution, it's certainly very supportive of our long-term framework and positive going into '26. And then just on meters and AMI, I thought we might be done talking about it declining in the third quarter, but, you know, we're still heading south. I see you don't have any real expectation of note through 2026. But, I mean, is there something else going on with that business? Or is it just that total lack of project activity? We know the backlogs are completed, but any other color there? Gerben Bakker: Yeah. It's a little bit what you said, Jeff. It's, and as we work through '25 and, you know, as we communicated, we're still working through that large project backlog and, you know, through a lot of '25. We actually consumed backlog as we did that. What we haven't seen return is a lot of those larger projects. So the business right now is more, you know, smaller project, more replacement product, is evidenced for us when we see the book to bill at one or close to one that we're kind of have stabilized that business off this lower base. You know, I'd say the good part with that is we're now working off of this lower base, and we do expect, you know, from here on, to modestly grow that business. Now, of course, if you compare that to last year where throughout the year that business declined, you know, we have some comps to lap here, you know, in the first quarter. But if you think about it sequentially from here, I would say it's really at the bottom. And for here, it should start to grow modestly. Jeffrey Sprague: Right. And maybe just one other quick one, if I could. Just kind of you're indicating maybe Q1, right, a little bit tougher. Are you suggesting Q1 would be sort of outside the recent normal of sort of 19% to 20% of the year? Gerben Bakker: Yeah. I think the interesting part on Q1 is a little bit the comps. I think for us, the better way always to look at this is year over year. And from that perspective, it will, you know, be a very strong quarter if you compare to, you know, how we started last year. But I think if you think about the year in total, it's a fairly normal year. So I think in the kind of things that the percentage that you're thinking about. Now, you know, the only thing I would say in percentage is to not use that as the sole factor because those things, as you will do your models, are very, very sensitive to a tenth of a percentage point. But you're in the right. There's really nothing specifically to highlight of '26 that as we think throughout the year. Great. Thank you very much. Appreciate it. Operator: Thank you. One moment for our next question. Our next question comes from the line of Julian Mitchell of Barclays. Your line is now open. Julian, your line is now open. Julian Mitchell: Good morning, Julian. Okay. Sorry about that. I think I was maybe muted. So, maybe, just to start off with, could you help us understand on the margin front, I think the guide is embedding maybe 50 basis points of operating margin expansion for the year for the total company. Maybe help us understand if that's correct. And how we should think about that sort of playing out through the year? And is it weighted to any one segment of the two? Joe Capazzoli: Yeah. Good morning, Julian. Yeah. I would say that you're thinking about that level of margin expansion is about right. Like Gerben had mentioned, thinking about the way that our 2020 is kind of taking shape in terms of a bit of a normal let's say, seasonal head and shoulders type shape. You know, from 1Q. We peak in 3Q, come back down in 4Q. That's still higher than one. I think that's a good way to think about it. Julian Mitchell: And, Julian, I would just I would say maybe just from a timing perspective, we anticipate investing roughly $15 million to $20 million of restructuring this year. I think you'll probably see that a little front-end loaded. Maybe you see a third of it come through in the first quarter. And I'd probably also highlight our tax rate tends to be a little higher in the first quarter as well. Julian Mitchell: I understand. And so just to sort of follow-up a little bit on that first quarter point. Should assume organic sales growth is sort of front-loaded a little bit because of comps. And then in light of what you just said on the sort of BTLs and so forth, are we thinking sort of first quarter is about 20% of the year's EPS, that type of typical cadence? Joe Capazzoli: Yeah. I think, Julian, we'll see a strong start to the year from an organic perspective. And Gerben highlighted that. So I think you'll see nice 1Q year-over-year growth. Julian Mitchell: Got it. And that sort of 20% share of the year for EPS is roughly sensible? Joe Capazzoli: Yeah. I would say on that, you know, be careful with using this percentage. As I said, to Jeff's earlier question, those tend to be very, very sensitive in tens of a percentage point if you do that math. I wouldn't use that as the sole determinant of a first quarter rather. Think about the moving parts. Julian Mitchell: Got it. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Chris Snyder of Morgan Stanley. Your line is now open. Chris Snyder: Thank you. I wanted to follow-up on some of the margin commentary. So as you said, to Julian's question, maybe the guide calls for about 50 bps up in '26 at the midpoint. But, I mean, is it fair to think that Q1 would be well ahead of that level? I know it's always Q1 is always the lowest margin quarter of the year, but the comp a year ago just seems much easier in Q1, relative to Q2 to Q4. So just kind of any color on that. Joe Capazzoli: Yeah. I think we are anticipating, you know, solid margin expansion throughout the year, including the first quarter. And so I think, again, we're anticipating the momentum that we're carrying out of the fourth quarter positions us well to start the year. And maybe adding to that, and it was asking earlier question as well, the margin expansion we expect in not only the company, but in both segments. Thank you. I appreciate that. And then if I could just follow-up on price. I believe you guys pushed some incremental price during the quarter in Q4. So could you provide any color just on how price shook out in Q4? And then any expectations that that's, you know, underwriting the guide for '26? And if you could share anything around the wrap versus the incremental '26 action. That would be helpful. Thank you. Joe Capazzoli: Sure. So you're right to highlight that we did have some incremental price actions that were implemented in the fourth quarter. And I think we highlighted previously we were anticipating about three points of price for the full year. And that's consistent with what we saw come through. Certainly, that will have some wraparound impact. That will carry price into 2026. We'll also carry some cost inflation into 2026. And I think consistent with how we've been managing price-cost productivity, and again, consistent with our guide, we're anticipating neutral to positive on that front. Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Steve Tusa of JPMorgan and Chase. Your line is now open. Steve Tusa: Hey, guys. Good morning. Hey, Steve. How are you? Just on the flip side of that question, what let I know, you know, FIFO, kind of, changes things, but, like, what is your current assumption on raw materials prices? Are you guys just taking what the spots are today and then kinda running that through? Are you assuming some sort of average, some forecast? Like, what what are you assuming for kind of the underlying metals pricing, acknowledging it's not as big of a swing factor the near term as it used to be? Joe Capazzoli: Sure, Steve. Good morning. And, yeah, we're we've been watching and the materials, the metals prices, you know, very closely. And we did see some creep coming out of the fourth quarter with higher copper, aluminum, steel. And we're anticipating maybe more broadly, metals and other inflation, we're anticipating about mid-single digits for cost inflation in 2026. And our price actions and productivity is to address that level of cost inflation that we're expecting. Certainly, you know, we'll manage as the year progresses, but similar to levels of inflation that we addressed last year. I think that's how we're thinking about 2026. Steve Tusa: And is that inflation, based on what price level, like, at year end? Where we are today? Like, what does that inflation assume for the actual price levels? Joe Capazzoli: Yeah. It's in and around, you know, where we exited the year. Which again, you're kinda coming out of the fourth quarter. We saw some rise metals prices. That's kind of continued a little bit here in January. And we'll continue to keep our finger on the pulse with how they move and what we're doing on the price and productivity side. Okay. And then one last quick one on this on this first quarter question. Did you mean that like the 20% or whatever the guys talked about earlier, that that we're not that first quarter should be better than that? Or like, I I'm having trouble kinda reading the tea leaves whether you know, better than the 20% or a little bit less than the 20%. Of the year for one QPS? What we said, Steve, was we get off to a strong start from an organic growth and margin expansion perspective. I think, again, if you're looking at percentages the year, it can be very sensitive. So if you just look at how we exited '25 from a revenue perspective, that's good to think about seasonally. From a year-over-year margin perspective, we'd expect expansion. Right? So Yeah. I wouldn't necessarily be thinking about that number is higher. Steve Tusa: Okay. So okay. Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Joe O'Dea of Wells Fargo. Your line is now open. Joe O'Dea: Hi, good morning. Thanks for taking my questions. Can you talk a little bit about first half versus second half growth in grid infrastructure? And in particular, the transmission and substation side versus the electrical distribution side. And trying to get a little bit of color around electrical distribution comps, what you think kind of that underlying growth rate is in the back half of the year when the comps adjust? And then in addition, just what the backlog looks like on the transmission and substation side and visibility that you have into something like high single digit, low double digit throughout the year versus kind of stronger first half? Over second half? Gerben Bakker: Yeah. I would say if we think about those markets, clearly, you know, we're optimistic about the investments that are going. And I would say on the transmission and substation, that's been growing in these high single, low double digits for a while and that's how we continue to see that unfolding. You know, in distribution, you know, that was strengthening throughout last year. Right? That's why we said earlier in the year, we're still somewhat challenged with by that growth, but that we expected that to come, and we did see that come. So you think about that, it partially drives, of course, the better comp, easier comps earlier in the year to later in the year. But fundamentally, about these markets, you know, think about the substation and transmission in the kind of high single digits and distribution. Mid-single digits for '26 is the right way to be thinking about that. Okay. And then on free cash flow, it looks like maybe you shake out in a range of kind of $900 million to $1 billion for the year. Joe O'Dea: You know, just how you're thinking about the spend opportunity there, with respect to the M&A pipeline, appetite on share repo, just how we can think about your approach to some pretty good free cash generation? Joe Capazzoli: Sure, Joe. So we're yeah. You're right that we're thinking about $900 to $1 billion of free cash flow next year. And I think 2025 was a really good year of deploying capital to a combination of high-quality, you know, CapEx program. Our M&A was rather successful with three deals that roughly $950 million deployed. And we also layered in some share repurchase over the course of 2025. So with that level of cash flow we're anticipating next year, I think we would think about deploying in a similar fashion. To the extent that there's attractive bolt-on M&A that fits very complementary to our portfolio. And I think with that level of cash flow, we would probably think about supplementing with some more share repo as well. So I think going into the year, that's how we would think about it. The deal pipeline, maybe, Gerben, you can comment on that. But looks pretty good to start the year, but a lot still has to come together on the M&A front to be more specific. Gerben Bakker: Yep. Yep. And I think as we think about the return, CapEx continued to be highest return project followed by acquisitions. And I would say as far as acquisitions, that pipeline has bolt-ons in it. It has some larger deals in the timing. You know, as we always say, it's very, very hard to predict. But focused on the areas where we clearly have the right to play and right to win. So, you know, think about T&D markets, think about, you know, some of the core electrical markets. It's where we focused on. So you know, I feel good in our ability to continue to deploy capital, but we will remain very disciplined. And we see dividend and share repurchases as good alternatives in periods where that acquisition pipeline is perhaps or the execution on that pipeline is a little bit lower? Operator: Thank you. One moment for our next question. Our next question comes from the line of Nigel Coe of Wolfe Research. Your line is now open. Nigel Coe: Thanks. Good morning, everyone. Want to follow-up on Steve's question on the cost inflation side, 6% on COGS, I think, is the metric. If you just break that down, between, you know, sort of your the metals and raw materials, which I think is about 25% of your COGS, if I'm not mistaken, and then maybe components and then other COGS. I'm wondering, is that 6% a gross number, or would that be net of productivity? Joe Capazzoli: Yeah. You have the cost pie split about right. You know, half of the cost pool is materials, which includes metals and components. And about half of that cost pool is or a quarter is more on the metal side. So that's about right. The mid-single digits that we're anticipating for total inflation on our total cost pool is not net of productivity. Price and productivity would be outside of that to manage that mid-single digit cost pool. And, Nigel, I'd probably also highlight what we saw about a similar level of inflation, you know, total inflation in 2025. Mid-single digits. And, again, that was managed, you know, effectively with price and productivity levers throughout the year. Nigel Coe: Okay. Maybe my you know, as part of my follow-up, if I could maybe just clarify, is there additional price actions, you know, in the plan in the first quarter to address that? Does the wraparound price address that? But just a quick follow on really on the data center growth. I think you said mid-teens, which know, mid-teens isn't shabby, but certainly seems to be a bit below where the market's trending in '26. So just wondering you know, what gives you sort of informs the mid-teens view? Joe Capazzoli: So I'll start with the wraparound price. And yes. So we're anticipating wraparound price and modest incremental price to start the year. As we typically have first-quarter price increases roll through. And those are in motion and having conversations with customers. On the data center side, we highlighted 60% data center growth in the fourth quarter. I think that was roughly 40% growth for the full year in data center. And data center for us kind of discreetly, the way we describe that is more on the electrical side. And that's coming from two places primarily. One is our modular power distribution skid business. And that side of the business had a pretty heavy project load throughout 2025, which really drove a lot of those strong year-over-year growth rates from '25 versus '24. They're anticipated to continue a heavy project load in 2026. So those growth rates in '26 versus '25 will step down a little bit. And then we certainly have our connectors and grounding products, which also service data center and continue to grow nicely. So to start the year, we feel really good coming out of '25 on data center. And we're looking at that, you know, mid to high teens on our outlook for data center on the electrical side. Gerben Bakker: Yeah, maybe add. A good part of that business is short cycle, right? Think about Burndy Connector. So, you know, the visibility isn't out there that last year was a good year. And I would say it's a good example that we show where we're adding capital. We're expanding. And if that proves out to be conservative, we'll do better this year. But we'll serve that demand. Nigel Coe: Yep. Okay. Understood. Thanks. Operator: Thank you. One moment for our next question. Our next question comes from the line of Chad Dillard of Bernstein. Your line is now open. Chad Dillard: Hey, good morning, guys. I want to on your price cost through the year. So how do you expect that to trend? What's baked into your guidance? And then can you just remind us of the total tariff impact in '25 versus '26? And what is AEDPA versus February? Joe Capazzoli: Yeah. Price cost throughout 2026, it's a little hard to, you know, to kinda pinpoint or walk back quarter to quarter. We certainly anticipate as the year progresses, we'll see more inflation kind of settle in. And we would certainly anticipate between our price and productivity actions, they continue to ramp throughout the year. And so we're confident that we'll navigate that equation of managing price cost productivity to neutral or better throughout the year. And we don't anticipate a tremendous amount of lumpiness. Tariffs is a that's certainly, I think we said we said in the 2025, there's roughly we saw about $150 million worth of tariff and related, you know, cost. And over the 2025, we manage that number down a little lower than the $150 million level. And there really haven't been a whole lot of changes in tariff rates, you know, recently. Obviously, that can change at any point in time. Feel like we're managing that very effectively at the moment. And we're ready to react and respond if there's large changes in tariffs going forward. Chad Dillard: Gotcha. That's helpful. Tim, just a second question for you. It sounds like there's, you know, larger transmission projects that are in the wings over the next, like, couple of years. And you guys have talked about, I think, 85% of the polls to Hubbell. If we just, like, zoom in on, like, the transmission portion alone, what does that look like, and how should we think about the TAM opportunity problem? Gerben Bakker: Yeah. Certainly. I would say it's an area of strength. And if you look at our portfolio, I would say our portfolio is very similar, whether you're talking distribution or whether you're talking transmission and substation in the percentage of materials that we provide on it now. While we provide a very large percentage of the material, the cost tends to be low because of the nature of this component. And that speaks to the really, the strength of our portfolio where, you know, the quality of that and the service of that is extremely important. But it represents a lower percentage of the cost. So it's a really good position that price is not the first leading indicator there to compete rather some of these other ones. But these markets are very strong, and, you know, the visibility is further out on it. You're right to point out some of these projects go into, you know, '26, '27 NBO, the scale and scope of these both in length of a project of miles and in voltages of it. We very much participate in it. So our position is quite good in this market, and the markets are strong. So I'd say well-positioned. Operator: Thank you. One moment for our next question. Our next question comes from the line of Scott Graham of Seaport Research Partners. Your line is now open. Scott Graham: Hey. Good morning. Thanks for taking the question. On Aclara, I know that I think we generally stated earlier and, you know, the calls that, you know, there was supposed to be sort of a bottoming maybe in the fourth quarter and now it seems like, you know, maybe it's at the bottom going forward. I'm just wondering, was there business there that you walked away from perhaps, you know, repositioning it? And, you know, what is really the long-term portfolio fit here? Gerben Bakker: Yeah. Maybe I'd say there's not nothing specific to point out of business we walked away from, but what we have talked about in the past is that this business has traditionally served munis and coops really well. And, you know, a few years ago, we made a, you know, quite large investment in the technology to also be able to serve large IOU. And the technology is just a little bit different in those utilities. That proved to be, you know, harder. Both projects were being delayed during the COVID period of time, but even the adoption of that technology at large IOUs proved more difficult. So we did, you know, a pivot last year. We reshaped that business a little bit. We took a lot of cost out of that business to really continue to focus it on, you know, the market where we have a really strong position. And, you know, I think that business could do really well in that market that we're focused on. So that's really our focus for that business right now. You know, it's a quite small percentage of the overall utility business. If you look at it, it's about half of the grid automation business. And I would say the rest of the portfolio, the other half of that grid automation business as well as the grid infrastructure business, is very attractive margins and very attractive growth. So I'd look at this as, you know, a business that we expect to do better, that we expect the margin to improve from here going forward. It fits the portfolio. But that said, you know, we continue to look at our portfolio. It's what I said before. So at this point, though, that's the path that we're on for this business. Scott Graham: That's very helpful. Thank you. I very much appreciate that. You made a comment about a number of your divisions being, you know, early in a multiyear investment cycle. I obviously, I think we know most of those. But I wanted to maybe just focus on substation, which has been a great business for you for some time now. Is that one of the businesses where you think it's still early? And why? And if I may also say, how much of that business's growth has been sort of aided by data centers? If you could. Gerben Bakker: Yeah. Very, very attractive. Yeah. That's a great question. So the short of it is we're very well positioned. We've historically been well positioned. But if you look at some of our recent acquisitions, if you look at Systems Control, that's very much in that space. If you look at DMC that we just acquired, very much in that space. So we're growing our continue to grow our scale and scope of the products we offer in there. And I would say attractive area without data center but clearly aided by data centers right now as well. And so, you know, it's sometimes it's very specific. A data center will be, you know, putting up the infrastructure and then put the substation right next to it. And I would say those are very directly related. But utilities are investing a lot of this to just interconnect more power throughout the countries, and that requires a lot of substations. So it's very sometimes very hard to pinpoint is it specific or not today. So But the space is very attractive, Scott. Yes. And we're very well positioned in it. Scott Graham: Yeah. And the substations themselves, the infrastructure itself is pretty old still. Right? Gerben Bakker: Absolutely. Absolutely. Scott Graham: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Tommy Moll of Stephens. Your line is now open. Tommy Moll: Good morning and thank you for taking my questions. Hey, Tommy. Morning, Tommy. It sounds like the market conditions for your electric distribution business are somewhat normal now. I think you mentioned channel inventories seem normalized. I'm curious for any more detail you can give us there just given some of the uncertainty we go back say, a year ago, and when we look at the mid-singles guide you provided for this year, should we think of that as an accurate reflection of the underlying demand, or is there a little bit of help from perhaps a restock? In that number? Thank you. Gerben Bakker: Yeah. I would say maybe start with the last one. It's an accurate reflection of the end demand. You know, clearly, last year, we still saw that destock and, you know, I'm glad to stop talking about destock because it, you know, it lasted way too long at first with, you know, distribution and with end customers. Not going homogeneous, different, you know, different parts of the region, different customers going at different rates there. But we're through there, and I think that the best indication that we saw that early in the year starting to reflect with orders. Then later in the year, we started to see it by actually shipping and the book to bill stay in at that level. So we really feel confident that we're through that. What we didn't see, though, is customers, both details and distributors over pivot that. So what didn't happen is that they actually ran those inventories way, way down too far down and that they had to restart our conversations with our customers are what were days they were targeting, how were they coming to get into those days, specifically in distribution, and there was not an overshoot to that. So I'd say indicative of demand, Tommy. Tommy Moll: Yep. Thank you, Gerben. Perhaps this is indeed the last quarter we'll have to address this topic. I hope so. A follow-up question for you on M&A. It sounds like the pipeline is still pretty full. There have been a number of pretty high-profile transactions in your space, several of which you've been involved in, where you've been able to acquire at pretty reasonable multiples despite some of the impressive growth in the out years. So I'm just curious from where you sit today, does it still feel like that's gonna be possible in the year ahead, or how would you characterize seller versus the buyer expectations here? Thank you. Gerben Bakker: Yeah. Yeah. I mean, what you point out, clearly, multiples have gone up over the last. I mean, we were buying companies not too long ago in the single-digit multiples, and that's clearly increased. But you're pointing out the correct the returns on those businesses are still very good for us because the growth rates have gone up. Those are more attractive businesses. We do really well with those. When there are businesses that what we call right down the fairway, the bolt-ons, even some of the larger ones, you know, the synergies that we can get out of those businesses, the complementary growth that we can out of it, it's, you know, we're very good buyers of those businesses and can generally get more out of them probably than the average or acquired because it scales with the rest of our portfolio. So, you know, any one deal, you know, depending on the competition for it could, of course, be an outlier. We do see the entire pipeline. I can tell you that even though we don't always own every business that goes through this process, it's not because, you know, we didn't see it coming. Right? There's different reasons at times where we don't end up owning businesses. But we're very active in it. And I would say kind of the multiples that you see, I would say, is about where we continue to see pricing right now. Not higher, not necessarily lower. Tommy Moll: Thank you, Gerben. I'll turn it back. Yeah. Operator: Thank you. One moment for our next question. Our next question comes from the line of Brett Linzey of Mizuho. Your line is now open. Brett Linzey: Hey, good morning. Just back to the outlook and specifically the non-res heavy industrial piece you're planning for continued softness this year. Exits rates appear to be pretty soft in Q4. How do we think about those markets in the context of the mega project momentum you noted in the prepared remarks? Are those just longer duration or, you know, any color would be great? Joe Capazzoli: Yeah. I think we've seen non-res and heavy industrial have both been flattish, you know, low growth for the last couple of years. And we're not really seeing tangible signs of meaningful acceleration there, which is kinda consistent with what you saw us lay out on our '26 revenue outlook. I think for us, we see mega projects really impacting our light industrial business. And light industrial and data center has been a source of strength over the last couple of years. So I think that's probably where we're seeing it more so is on the light industrial side. Cautious on non-res and heavy. And, again, when we start to see that come through more tangibly, I think we feel better about the outlook on those markets. Brett Linzey: All right. Understood. And then just one quick follow-up on the price cost productivity equation. So the payback on the $15 million to $20 million of restructuring is that contemplated within the netting? Or should we think of the associated savings as maybe some cushion as those paybacks convert through the year? Joe Capazzoli: Yeah. Those paybacks tend to convert through the year. And, you know, discreetly, start an action and they're typically two to three-year paybacks. They're quite attractive. And our history, the last several years, has been investing a similar amount, you know, $15 to $20 million a year. So we have some really nice momentum from all the initiatives that we have rolling. So think about them, like, in the year, they're kinda self-funding with from prior actions. We're investing for the future. Those future projects have two to three-year paybacks, and there'll be nice tailwinds for next, you know, for '27, '28, and beyond. And we see a horizon with really attractive ongoing R&R opportunities. It's tough to do a lot of them, you know, at a single time because they can be, you know, complicated. They can be, you know, there's some risk associated with them, but we've been managing them very thoughtfully, and that's contemplated in our Appreciate the detail. Operator: Thank you. One moment for our next question. And our next question comes from the line of Alexander Virgo of Evercore ISI. Your line is now open. Alexander Virgo: Yes, thanks very much. Good morning, gents. I wonder if you could just pick up a couple of small ones for me. DMC coming in, in 2026, I think you talked about it being in line with prior expectations. But I'm just wondering about the benefits of margin accretion from the deal versus cost to integrate and if you could give us any color on that? And then on HES, it looks like XDC, the business kind of built to a decent mid-single-digit exit to the year. The implication in the guide, I guess, is that that perhaps inverses somewhat in the back half. I'm just wondering if there's anything specific you're baking in there or if it's just a bit of caution on lack of visibility and whether there's anything that you got in there in terms of new product contribution to growth that can help offset that. Thanks very much. Joe Capazzoli: You know, first, I think. Yes. So on the I'll take the DMC margin. DMC was with us for basically a full quarter in the fourth quarter. Their sales and their margin was right in line with our expectations and what we had previously communicated. And our outlook contemplates $130 million of revenue and roughly 40% operating margins, which is net of integration costs. So no change in how we were thinking about DMC and communicating that coming out of the fourth quarter. To start the year. We're very excited about what DMC adds to the portfolio. On the HES side, with the fourth-quarter exit rate, that fourth quarter was pretty heavy with data center projects. And so we would anticipate, and we have good line of sight, to data center projects throughout the duration of 2026. And so I think what you would see on electrical is nice year-over-year growth rates as we progress through the year. And naturally, with such a strong '25, you'd see that year-over-year when we get out to '6, for electrical that that'll shrink a little bit because of that surge in 04/2025 dynamic. Alexander Virgo: Perfect. Thanks very much. Operator: Thank you. I'm showing no further questions at this time. I'll now turn it back to Daniel Innamorato for closing remarks. Daniel Innamorato: Great. Thanks, everybody, for joining us. We're on all day for calls. And follow-ups. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, everyone, and welcome to the Graphic Packaging Holding Company fourth quarter and full year 2025 conference call. At this time, all participants are placed on a listen-only mode. We will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Mark Connelly. Sir, the floor is yours. Mark Connelly: Good morning. We have with us today Robert Reebroek, President and Chief Executive Officer, and Charles Lischer, Senior Vice President and Interim Chief Financial Officer. Robert Reebroek: During this call, we will reference our fourth quarter and full year 2025 earnings available through this webcast and on our website at www.graphicpkg.com. Today's presentation will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Risks and uncertainties include, but are not limited to, the factors identified in today's press release and in our SEC filings. Now let me turn the call over to Robert. Robert Reebroek: Thank you, Mark. Good morning, everyone, and thank you for joining us today. Before we review our results, I would like to take a few minutes to introduce myself and share my perspective on the opportunities I see for Graphic Packaging. I will discuss my initial observations and key focus areas as we adjust our strategy to drive value for shareholders. I've spent more than 25 years leading global consumer brands and businesses, including leading a Fortune 500 division and serving as a public company CEO. I've lived and worked across North America, Europe, South America, and Australia. Over that time, I've held leadership roles at Procter & Gamble, PepsiCo, Kimberly-Clark, and Primo Brands, where I gained experience operating complex businesses with global manufacturing and supply chains and building consumer brands at scale. In several of these roles, I've been a customer of Graphic Packaging, and my teams worked closely with the Graphic Packaging team to design winning packaging solutions. Throughout my career, packaging design and procurement have been a major part of my work. In creating winning packaging, I worked directly with brand teams and retail, including design and technical specifications, sustainability, and manufacturing requirements and performance needs. Notably, I worked on three innovative packaging solutions that went on to receive patent protection. Packaging is a critical part of the consumer experience, and I am aware of how packaging influences consumer purchasing decisions at the shelf and how consumers interact with packaging at home. I understand how important packaging is to our customers across the consumer packaged goods, quick-service restaurant, and retail industries. And I'm acutely aware of the challenges and opportunities our customers face in a world of GLP-1 BAHA and the evolution of private label. I've also seen firsthand the exceptional quality of our packaging solutions and the impact they have on customers, brands, and consumers. I have a deep appreciation for the role we play not just in protecting products or reducing costs, but in shaping and enhancing brand perception, enabling sustainability goals, and delivering exceptional quality and reliability. That perspective is what attracted me to Graphic Packaging, and it will shape how I approach the business and manage towards the substantial opportunities we have ahead. Today, I will spend some time discussing how I am assessing the business, what excites me about the foundation we have, and where I see opportunities to significantly improve performance and create value for shareholders. Chuck will then walk you through our fourth quarter and full year results and our outlook. Graphic Packaging is a world-class company with leading positions across attractive end markets, strong relationships with many of the world's most respected consumer brands and retailers, and an industry-leading asset base that was built to provide a high level of integration and durable long-term competitive advantage. Our people, scale, and capabilities are significant strengths. We have an exceptional team and an industry-leading production footprint, including a network of about 100 packaging facilities and the two highest quality and most efficient recycled paperboard manufacturing facilities in North America, in Waco and Kalamazoo. Our superior innovation and technical capabilities are helping us build stronger, deeper customer relationships with leading CPGs, QSRs, and retailers. While our manufacturing footprint and customer relationships are strong, we recognize that there is significant work to do. The actions we are taking now and will take place in the next several months are focused on unlocking Graphic Packaging's full potential to drive stronger performance and value for all our stakeholders: our investors, communities, employees, customers, and suppliers. When I stepped into the CEO role at the beginning of the year, we initiated a comprehensive operational and business review, including the company's footprint, systems, and organization, selective portfolio assets, and financial performance. This review is underway now. I've already visited multiple facilities, including Waco, Macon, and Perry, spent meaningful time with our leadership team and the board, held a global town hall joined by several thousand of our employees, joined the leadership of select industry organizations, met with key customers, and spoken with several of our shareholders. These interactions with our most important stakeholders are informing our early actions. Recognizing the depth of talent in this organization and the need for continuity, we've taken steps to retain and attract top talents. We have also implemented select initial organizational and reporting changes to enhance transparency and accountability. We established a transformation office led by our new Chief Transformation Officer, who will work hand in hand with me to drive operational improvements, enhance productivity, and cost savings throughout the organization without disrupting customer service. We engaged external expertise to supplement our own resources as we evaluate opportunities to enhance profitability and drive growth and innovation. And we have initiated a comprehensive review of our organization structure and operations footprint and a selective portfolio review to ensure that our resources are focused where we can create the greatest value for our shareholders. Now that I have been in the role a little more than 30 days, I would like to share a few of my initial observations on the most meaningful opportunities within our control. One, the external environment remains challenged near term. Overcapacity in commodity bleached paperboard markets is putting pressure on finished packaging, and demand trends for consumer staples remain uneven as a result of affordability and macroeconomic uncertainty. While we expect these trends to improve, we also acknowledge that consumer purchasing patterns and the dynamics between brands and private label are evolving. We are not simply waiting for markets to recover. We are focused on what we can control where our resources have the best opportunities to create lasting value. Two, the combination of softer than expected market demand and the need to build inventory out of the Waco startup led to paperboard and finished goods inventory levels higher than what we currently require. In addition, we need to right-size our cost structure for the realities of the current macroeconomic environment. We are taking immediate steps to address these issues that we believe will enhance our profitability over time and drive free cash generation in 2026 and beyond. Three, we have the best and most efficient recycled paperboard manufacturing facilities in North America. However, our costs to complete these projects were higher than anticipated, driving the need to quickly capture the value these assets can generate. Four, we need to significantly reduce inventory and ensure that every spending decision brings an appropriate return. These steps should allow us to reduce our debt, which in turn would allow us to prioritize returning capital to our investors. Five, through the investments we have made, Graphic Packaging has strong and durable competitive advantages. However, I believe that there are select opportunities within the portfolio to better optimize our position over time and drive value creation for shareholders. And finally, we are a global leader in innovation, but we need to move more quickly from idea to commercialization. We are already working to more carefully align our innovation teams with our best market opportunities with both new and existing customers. This is a key source of differentiation for Graphic Packaging, and I believe that our innovation team is the best in the business. In sum, I see tremendous opportunity to create real value for shareholders by one, enhancing profitability through cost actions and operational efficiencies; two, reducing inventory and capital spending to drive significant free cash flow generation; three, driving disciplined organic growth with innovation and exceptional customer service; four, prioritizing our free cash flow to reduce our leverage and return capital to shareholders; and five, conducting a comprehensive business review. In 2026, we expect to generate adjusted free cash flow between $700 million and $800 million. There are, of course, one-time items in our 2026 and also in our 2027 adjusted free cash flow projections, particularly with respect to inventory reduction and cash taxes. As we look beyond that timeframe, we are targeting adjusted free cash flow of $700 million plus incremental EBITDA growth. Recognizing that our current adjusted EBITDA is substantially lower than it was projected to be when the company first established its Vision 2030 financial targets, when volume growth was expected to be positive. Restoring top-line growth and delivering stronger margins is central to our value creation plan and key to delivering on the free cash flow generation potential of this exceptional company. Achieving an investment-grade credit rating by 2030 remains a central element of our Vision 2030 commitments. Now let's take a minute to dive a little deeper into each of those objectives. Our EBITDA margins have come under pressure in recent years, driven by both the external pricing and demand environments and our own cost structure. I believe that there is meaningful opportunity to optimize our cost and better align with the current operating environment while protecting the operational capabilities and market positions that make Graphic Packaging an industry leader. This effort spans SG&A, manufacturing footprint and efficiency, support functions, and core processes, and includes extensive deployment of AI tools. As previously mentioned, I have established a transformation office to lead the effort to strengthen accountability, drive operational excellence, and enhance productivity and cost savings across our entire company without disrupting customer service. My goal is to simplify the organization, improve execution, and eliminate inefficiencies, ensuring we can return to profitable growth with a cost structure that supports both our near-term needs and our long-term objectives. Where it makes sense, we will also be adding additional talent and capabilities to drive stronger organic growth. I want to briefly address Waco and Kalamazoo. The Waco project is substantially complete and already producing top-quality recycled paperboard to service our packaging system needs. Waco and Kalamazoo are world-class assets, the highest quality and most efficient recycled paperboard manufacturing facilities in North America. While the Waco facility is large, its net impact on market capacity is quite small after we closed two of our older, higher-cost facilities and other producers closed capacity. Its impact on our cost of production, however, is substantial and creates a durable long-term competitive advantage. While the market has been weak, a return to more normal consumer demand should put us in a strong position to restore volume growth and help ensure that we can leverage our production cost advantage to drive the best possible returns from our world-class Waco and Kalamazoo assets. Total 2025 capital spend was $935 million, higher than the company's target. Total project spend for the Waco Greenfield facility, which is substantially complete, is currently estimated at $1.67 billion when we include capitalized interest of approximately $80 million. Spending through 2025 totaled $1.58 billion. A review of the root causes of the higher than originally planned capital expenditures on the Waco project is underway, and appropriate corrective actions will be taken to prevent similar events from occurring in the future. Capital spending is expected to drop by approximately $485 million in 2026, including the remaining spend to complete Waco, and will remain at or below 5% of sales in the next several years, even as we invest selectively in productivity and new capabilities. As we exit the period of heavy capital investments, our opportunity to drive free cash flow improves significantly. We expect to reduce capital spending to approximately $450 million in 2026 and are raising the bar for new capital spending project approvals. At the same time, we are working to reduce our inventory balance towards our 15% to 16% of sales goal from an elevated 20% level at year-end. Together with our ongoing cost actions, disciplined organic growth, and the continued ramp-up at Waco, we expect to generate $700 million to $800 million of free cash flow in 2026 as we benefit from ongoing inventory reductions and a tax legislation passed last year and are targeting adjusted free cash flow of $700 million plus incremental EBITDA growth in the years ahead. This will give us the flexibility to significantly reduce leverage, return capital, and reinvest in the business over time. Our growth strategy is customer-centric and market-backed. We are focused on disciplined organic growth, putting our resources into markets with the best long-term opportunities while reducing our exposure to markets where we see less opportunity. We are partnering with key consumer packaged goods companies, quick-service restaurants, and retailers to improve baseline volume growth, bring innovation to market faster, and in some cases, selectively move into new end markets. In recent calls with customers, a recurring theme is the need to drive volume growth to protect or regain market share. We are ready to help our customers meet these goals with our best-in-class packaging innovation, unmatched scale, and exceptional customer service. We aim to be more than a supplier. Our goal is to be a trusted strategic partner to our customers. As part of this renewed commercial and customer focus, we recently promoted Jean Francois Oche to Chief Commercial Officer. I see the value in his global role, and I am working with Jean Francois to ensure that we have the talent we need to drive sustainable growth. Innovation is one of Graphic Packaging's greatest competitive advantages, a strength that was built over decades in North America and enhanced by the acquisition of AR Packaging in Europe in 2021. Our global innovation team is helping us bring paperboard packaging into new markets, often through plastic or foam replacements. Innovation has been a part of why we have been able to retain volume in the markets we serve. Innovations like Pacesetter, Rangier, ProducePack, and VaporSeal are driving adoption in growing categories such as produce, fresh food, protein, household products, and wellness, delivering the more circular, more functional, and more convenient packaging solutions that Graphic Packaging is known for. My priority here is to accelerate the speed of commercialization and ensure that our resources are focused on the most promising opportunities. With a broad portfolio that spans every grocery aisle, both with brands and private label, as well as food service, prioritizing where we put our resources is essential to driving real value creation. We aim to be the first choice for our customers and believe that with our innovation, product quality, and exceptional customer service, we have the right to win in a more normalized macro environment. Finally, the key pillars of our capital allocation strategy are one, reducing our leverage; two, returning capital to shareholders; and three, identifying opportunities to optimize our footprint and portfolio over time. Today, our net leverage stands at 3.8 times. We are taking concrete steps to reduce debt and move towards our target of an investment-grade rating by 2030. Deleveraging is our highest near-term capital allocation priority. We expect to pay down approximately $500 million of debt in 2026, but with the impact that our inventory reduction actions will have on adjusted EBITDA, our leverage ratio is likely to remain elevated. A key priority, returning capital to shareholders remains. We remain committed to returning capital through dividends and opportunistic share repurchase and expect to increase share repurchase activity as leverage declines. Lastly, we will look for opportunities to optimize our footprint and our portfolio, ensuring that capital and management attention are focused on the areas where we have durable competitive advantage and attractive growth opportunity. The common thread across all of this is discipline. By improving execution and cash generation, we will create a much stronger balance sheet that will provide the flexibility to allocate capital in a way that creates long-term value for shareholders. With that context, I'll turn it over to Chuck to walk through our fourth quarter and full year results. Charles Lischer: Thank you, Robert. Turning to slide 13, I will begin with a summary of our fourth quarter and full year financial results. The fourth quarter, net sales were $2.1 billion, basically flat year over year, by volumes and pricing, which were both down slightly less than 1%. More than offset by a $40 million foreign exchange benefit. Adjusted EBITDA for the quarter was $311 million. As discussed in earlier quarters, the pressure on adjusted EBITDA reflects a combination of unusual competitive pricing and softer packaging volumes, which together reduced adjusted EBITDA by approximately $40 million versus the year-ago quarter. Commodity and other operating cost inflation were in a similar range, along with the negative performance as a result of the production curtailment decisions we made during the quarter to manage inventory. Foreign exchange was an $8 million tailwind. For the full year, net sales were $8.6 billion, down approximately 2%. Augusta divestiture accounted for $150 million, up $190 million decrease. Price was an approximately 1% headwind, and volumes were basically flat. While FX was a $57 million tailwind. For the full year, adjusted EBITDA was approximately $1.4 billion. Price and volume were a combined $174 million headwind, and net performance of $59 million was not enough to offset commodity input and operating cost inflation of approximately $150 million. That performance was lower than normal as a result of production curtailments decisions we made primarily in the fourth quarter. The Augusta divestiture reduced adjusted EBITDA by $30 million, and foreign exchange was a $13 million tailwind. Adjusted EPS for the full year was $1.80, and we ended the year with a net leverage of 3.8 times, reflecting the headwinds to EBITDA investments at Waco, and our decision to repurchase more than 2% of shares outstanding during 2025. Slide 14 lays out our current expectations for 2026. We expect net sales in the range of $8.4 billion to $8.6 billion, which assumes volumes in the range of down 1% to up 1%, including the benefit of innovation sales growth, which is expected to be approximately 2% of sales. That implies market volumes down approximately 2% at the midpoint, reflecting our expectation of continued inflationary pressure and ongoing affordability challenges in the consumer staples market. While we do not comment on future pricing expectations, our guidance assumes a similar level of competitive pressure and packaging pricing as we saw in the fourth quarter and includes the expected impact of recent third-party announcements. Taken together, these represent a $150 million headwind across 2026, at the midpoint of our guidance range. Adjusted EBITDA is expected to be in the range of $1.05 billion to $1.25 billion on a reported basis and $1.2 billion to $1.4 billion on a pro forma basis, excluding the temporary impact of production curtailments related to our actions to remove approximately $260 million of paperboard and finished goods inventory in 2026. Our adjusted EBITDA guidance range also assumes a restoration of incentive compensation programs. Roughly $100 million figure represents approximately 5% of Graphic Packaging's total compensation cost and impacts over 2,000 employees. Given performance that was below expectations in both 2024 and 2025, incentive compensation awards were well below plan 2024 and effectively zero in 2025. A return to more normal incentive compensation, assuming that we reach our performance targets, is important to employee retention and attracting top talent. Adjusted cash flow is expected to inflect sharply upward in 2026 to $700 million to $800 million. This improvement is driven primarily by three factors. First, a step down in capital spending to $450 million. We will be reviewing all significant planned spending to ensure that it delivers appropriate returns. Second, the net benefit of our inventory reduction actions as we optimize inventory to our current production footprint and adapt to market demand realities. And third, improved profitability through our renewed focus on disciplined organic growth, operational excellence, SG&A, and other cost reductions. I look forward to partnering with the new transformation office that Robert established to improve our processes and better leverage technology and AI to drive fixed cost removal, operating cost reductions, and productivity initiatives. Adjusted EPS is expected in the range of 75¢ to $1.15. While we do not generally provide quarterly guidance, we do want to highlight a few factors that are expected to affect the progression of sales and EBITDA in 2026. Normal sales seasonality is more pronounced in submarkets than others, but relatively modest overall. In general, we tend to book something in the range of 23% of full-year net sales in the first quarter and 26% in the third quarter, second quarter modestly higher than the fourth quarter. Adjusted EBITDA tends to follow that same pattern before discrete items. Scheduled maintenance at our paperboard manufacturing facilities will be heavier in the first half by approximately $15 million, mostly in the second quarter, and by about $10 million in the fourth quarter. There is no significant maintenance scheduled for the third quarter. The production curtailments to reduce inventory that Robert mentioned are expected to be heaviest in the first half, in the range of $45 million at the midpoint for the first quarter and roughly $40 million in the second quarter. Third-quarter curtailment activity is expected to be the lowest since it is generally our busiest quarter. The actions that we are taking to reduce SG&A and other costs and to make operational improvements are expected to be moderately more back-end weighted. And finally, recent severe weather across Central and Eastern United States impacted operations at several facilities. While we don't have a final tally, our best estimate of the impact on first-quarter adjusted EBITDA is in the range of $20 million to $30 million. Taken together, normal seasonality and these discrete items imply that first-quarter adjusted EBITDA will be in the range of $200 million to $240 million. We expect first-half adjusted EBITDA to be roughly 40% to 45% of full-year adjusted EBITDA. And while we expect our effective tax rate to be in the range of 25% for the full year, our first-quarter tax rate will likely be slightly higher than in subsequent quarters. Slide 15 walks through key drivers of the year-over-year adjusted EBITDA change and a bridge to our 2026 adjusted cash flow target of $700 million to $800 million. Starting from $1.4 billion adjusted EBITDA in 2025, there are several moving pieces worth highlighting. First, the incentive compensation that I mentioned earlier was not earned in 2025. Second, as noted earlier, price and volume outcomes are assumed to be negative overall, reflecting the consumer affordability challenge and unusual competitive pressure in packaging pricing, along with the impact of announced third-party price changes and bleached paperboard. Third, the items over which we have the most control and performance, including the benefits from Waco and SG&A reductions, partially offset by January weather and production impacts, at between $100 million and $170 million. These gains will be partially offset by the one-time production curtailment impact as we reduce inventory levels. The actions we are taking to reduce inventory will generate cash flow in 2026 that do not reflect our normalized earnings power. Taken together, these factors are expected to result in 2026 adjusted EBITDA of between $1.05 billion and $1.25 billion, or approximately $1.2 billion to $1.4 billion on a normalized basis. On the right side of the page, we provide a bridge from expected 2026 adjusted EBITDA to expected 2026 adjusted free cash flow. The largest contributor to the incremental free cash flow in 2026 is capital expenditures, which are expected to decline to approximately $450 million. Additional contributors to 2026 adjusted cash flow expectations include a net working capital release from inventory reduction and lower cash taxes as a result of the 2025 tax law change. Incentive compensation is non-cash in 2026, as it would be paid in 2027. Cash interest is expected to be in the range of $255 million to $275 million, and other working capital and cash items are expected to be a source of cash of approximately $5 million at the midpoint. As Robert mentioned, our highest near-term capital allocation priority is to reduce debt given our current leverage position. We expect to pay down approximately $500 million of debt in 2026, which would put us on the path to an investment-grade credit rating by 2030. We remain committed to returning capital through dividends and opportunistic share repurchase activity and expect to increase share repurchase activity as leverage declines. In summary, 2025 reflected a challenging operating environment, but it also represents the final year of heavy investment. We are taking actions to optimize the company, drive operational efficiencies, and reduce inventories. We are entering a period that we expect will be defined by strong free cash flow generation, significant balance sheet improvement, and disciplined growth. With that, I'll turn it back to Robert. Robert Reebroek: Thank you, Chuck. Graphic Packaging is a strong company with a world-class asset base, deep customer relationships, and leading positions across attractive end markets. Our mid to long-term shareholder value creation plan is clear. We will enhance profitability by optimizing our cost structure and driving greater operational efficiency. We will generate significant free cash flow through our actions to reduce inventory and reduce capital spending. We will focus on disciplined organic growth and deliver exceptional customer service. We will reduce debt on our path to investment grade and return capital to shareholders through our dividend and opportunistic stock repurchase. And after a thorough review, we will work to optimize our resources to ensure they are focused where we can create the greatest value for our shareholders. With that, operator, let's open it up for questions. Operator: Certainly. Everyone, at this time, we will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then reenter the queue. And once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Matthew Roberts from Raymond James. Your line is live. Matthew Roberts: Hey, Robert, Chuck. Good morning. Robert, welcome, and congratulations on the role. So when you joined, Robert, the board noted your strong CPG background, and the timing, of course, coincided with Vision 2030. Those numbers are revised today. So ultimately, as you embark on that 90-day review or look to your longer-term targets alike, what makes your approach different than what has come before at Graphic Packaging? Would you say it's more operationally focused to reach free cash flow, or are commercial efforts more of a priority to ensure you're able to reach flat volumes in 2026? Robert Reebroek: Thanks, Matt. Thank you for welcoming me. Yeah. I do want to just recap a bit of my background. I did spend about 30 years in consumer brands as a customer of Graphic, not only in North America but also in Europe, South America, and Australia. So I bring a bit of a global perspective on the business, and I worked at Procter & Gamble, Kimberly-Clark, PepsiCo, and Primo. I have a background with complex businesses with global manufacturing and supply chains. And I have a lot of experience with packaging, design, procurements, and some prior experience, as you know, on tissue and towel manufacturing. And Brandy Millison tissue towel mill in Australia when I was running Kimberly-Clark, Australia. With regards to the approach, you know, I plan to focus on cost reduction, productivity, and operational excellence. We want to ensure we deliver a really good experience to our customers. I've had a number of calls with key customers over the last couple of weeks. Including yesterday, I spoke to two customers. These are customers across food service, beverages, and food, grocery. And, you know, they really need us to help them restore growth, and therefore we need to stay very close to that. I'll bring a more disciplined approach to CapEx going forward and focus on free cash flow generation to create value for our shareholders. So with regards to customer centricity, I do believe in a market-backed approach and really partnering with our customers. We'll do a bit of a review of our manufacturing footprint to understand where we can consolidate and drive productivity. We do have to define where we have the right to win, where we have competitive advantages, and focus the resources behind the core. We have to define what that core is. We have a lot of businesses that are around the world in different geographies that we have to understand better. And we'll do a selective, very selective review of the portfolio. Of course, you know, the mills are where the money is made. We will make sure that the mills and manufacturing facilities stay state-of-the-art and are fully utilized. Matthew Roberts: It's all very helpful. Thank you, Robert. I look forward to working with you and seeing the progress there. For my follow-up, could I ask about the inventory reduction? It goes from 15% of sales to or from 20% to 15%. I think that number implies about 200,000 tons. How are you able to balance that much coming out while Waco continues to ramp? And then given that inventory curtailment is a one-time benefit in '26, cash from the incentive comp also hits in '27. What other elements are needed to bridge to that $700 million figure again in 2027? Thank you all again for taking the questions. Robert Reebroek: Yeah. Just let me clarify the inventory reduction program. It'll primarily focus on recycled, bleached, and cub stock. We're also reducing some finished goods inventory where demand fell short of expectations. And in the bleached paperboard system, production and demand are in good balance. It's just really the inventory that's too high. And I want to emphasize that our customer service is a priority and will not be disrupted by inventory reduction action. Let me pass to Chuck for some of the financial details. Charles Lischer: Yeah. Hey, Matt. This is Chuck. So on the bridge to the 700, as you pointed out, a lot is going on in cash flow and EBITDA, which is why we provided the detailed bridges that we did. But before I talk all the way about post-2027, I want to just reiterate the confidence in 2026. We outlined the levers there. We see those levers. Have the confidence that we'll be able to pull those levers to hit the $700 million to $800 million range in 2026. 2027 will continue to benefit from the tax benefits. And there'll be additional inventory reduction. And then post-2027, there are some negatives and positives that happen. Some of the items that happened in 2026 are, of course, nonrecurring. But, for example, as the tax benefits end, then we have interest rates that are reducing. And as Robert pointed out earlier, we're going to be continuing to push on CapEx and other items in addition to normal EBITDA growth. So we can take you through the details more of that offline. Matthew Roberts: Excellent. Robert, Chuck, thank you all again. Operator: Thank you. Your next question is coming from Ghansham Panjabi from Baird. Your line is live. Ghansham Panjabi: Good morning, everybody, and best wishes to the two of you in your respective roles. You know, Robert, maybe just to start off with you, just given your background at the CPG level and, you know, your unique lens, if you will, how do you think this pricing dynamic situation in paperboard in the US will play out for the industry over the next couple of years? What can you do internally to sort of navigate through this period? Because it presumably, customers will be pretty opportunistic as it relates to substitution, etcetera, just given the, you know, change in the pricing dynamics. Robert Reebroek: Yes. Thanks, Ghansham. The two grades that matter most to us are recycled and unbleached. And both of those markets are in good balance. You know that we are very highly integrated as a company. And our smallest business is bleached paperboard, which is oversupplied with substantial new capacity that's come into the market. The demand outlook is trending down. So the current prices, we don't believe that bleached paperboard producers are earning a good return on capital. As I said, you know, we have very high integration in our bleach business, so our margins tend to be higher but are still a little bit below the cost of capital. You know, I think the bleach and the bleach markets are less integrated, so the economics are a little tougher, and the overcapacity is impacting the markets. And so that's where I am on that. Chuck, any thoughts from you? Charles Lischer: Yeah. I think you saw that in the AF&PA data that came out end of last week that I think you can see recycled and unbleached is generally aligned to demand and bleached. I think the weakness that you see there is consistent with what Robert talked about. So I think it's all as Robert laid out. Ghansham Panjabi: Okay. Thank you. And then, you know, Robert, do you kind of step back a bit, obviously, a lot going on this year and next, and so on. But, you know, if you look at the company's EBITDA margin profile, you know, 2023, 19.9% as your slide deck lays out, obviously, a huge deterioration that you're projecting over that time period through 2026. Is there anything structurally having changed in the industry that you cannot get back to the sort of high teens EBITDA margin threshold, or was 2023 just a unique situation? Robert Reebroek: We think that over the long run, we will be restoring our EBITDA margin to the higher teens level. As a result of restored demand, cost management, and productivity, so we're pretty confident that we will be managing that back towards that original Vision 2030 level. But it's too early to tell exactly where that's gonna land. Ghansham Panjabi: Thank you. Operator: Thank you. Your next question is coming from Arun Viswanathan from RBC Capital Markets. Your line is live. Arun Viswanathan: Great. Thanks for taking my question. And I guess I'll add my congratulations on the new roles as well. Yeah. I guess just kind of going along a similar line of questioning. Maybe we could get your perspective and insight on what you're hearing from your customers. Specifically, are they talking about SKU rationalization, changing packaging strategy? How are you hearing on how they're dealing with Maha and maybe other changes to consumer behavior? You know, obviously, we've seen some relatively lower volumes on the food side and food service. And are you hearing any kind of customer response to address that? Thanks. Robert Reebroek: Yes. Thanks, Arun. We do have very extensive conversations with our customers across food, beverage, grocery, various other industries, and food service. With regards to consumer packaged goods, customers are really highly focused on cost right now and driving rationalization in the number of packaging executions to reduce downtime and changeovers in the manufacturing process. So there is a need for simplification to drive better basically, COGS for their cost of goods, and our packaging complexity is part of the equation. So the more we can simplify our assortment, whether that's a specific execution in the beverage industry or in the food industry, the better. They also continue to focus on shared shelf and shared SKU. They want to gain volume share at retail. And a lot of the CPG companies, and some of them that I've spoken to, are reviewing their back price architecture to get the right price points with smaller portions and lower consumer price points. The other trend we see is that there's a lot of private label embracing innovation quickly, and they continue to gain momentum even in some categories that were historically insulated from private label growth. And customers really want packaging solutions now that reduce material usage, improve palletization, simplify the number of formats and complexity, but they also want very high-quality graphics that improve shelf appeal. So they're not willing to compromise on winning at the shelf, winning at the first moment of truth. There is another big trend, which is, you know, it starts in Europe, but it's coming to the US, is the single-use plastic reduction. That continues to be front and center of discussions with the large global players. The reduction of plastic in the US, specifically the reduction of foam, to improve the sustainability profile of our customers. Regards to food service, affordability has really created a challenge for the quick-service restaurants. And they need to innovate and stay competitive both in food and beverage and meal solutions. So they want to hit hot price, and they want to make sure that they're competitive across the board. Marketing and thematic promotions continue to be important. That's where we come in with our thematic packaging and our ability to react quickly to their orders. So we're starting to see some improvements with recent large-scale promotions, and I think the food service opportunity is substantial. And plastic and foam replacement will continue. So on Europe specifically, innovation is now a key driver there because of the regulatory changes against plastic. In North America, we're seeing that more and more consumers prefer paper cups over plastic and foam. Arun Viswanathan: Thanks for that comprehensive answer. I guess, just as a quick follow-up, back onto the SBS question. So, you know, I understand that it's a very small grade for you, but I guess our perception or my perception is that, you know, the oversupply is kind of also pressuring unbleached, and maybe customers are getting the option to switch into SBS because there's, you know, not much premium there. So how do you see that as well, and do you see that kind of oversupply in SBS continuing to weigh on other grades as well, or is it not really impactful? Thanks. Robert Reebroek: It's a well-known fact in the industry. There's overcapacity of bleach, and, you know, it is the most fragmented of the paperboard grades, as you know. And periods like this tend to resolve themselves usually through capacity rationalization, downtime, consolidation. But remember, we primarily sell finished packaging and have a high degree of integration. And we do see some price pressure in recycled packaging from bleach producers. They're looking for volume, but we haven't lost volume. And we have to be competitive with package price, and that can cause a little bit of margin pressure. And we also know that bleach packaging selling at the price of recycled long-term is not sustainable. It's more expensive to produce, and it doesn't earn the cost of capital returns. Now we're focused on driving volume where we have the right to win, and we control what we control. So we are focused on cost spending and exceptional customer service. So that's where we are at that. Operator: Thank you. Your next question is coming from Lewis Merrick from BNP Paribas. Your line is live. Lewis Merrick: Morning, Robert, Chuck, Mark. Thank you for taking my questions and congratulations on the appointment, Robert. Let me just go into portfolio review comments that you had in the deck and in your earnings statement. You just give us a sense or expand on the factors what you would consider as elements which would determine a core or non-core asset in your business today. But it could be quite a long list. Robert Reebroek: Very good question, Lewis. Thank you for the question. Thanks for welcoming. Okay. Great. Look. I'm a big believer in the focus on the core. As part of any company strategy. When you have a strong growing core, you win. And I think where we may have to provide a bit more perspective on all of the businesses we own around the globe, that may or may not be core to the operation. We're looking at an initial review of the business portfolio, the operations, and our global footprint. And we want to really focus on future growth and value creation and understand where we have the right to win. Let me give you an example of very obvious places which are part of our core. Our North America and Europe food and beverage business is obviously the biggest part of our company. No question that we have to play there. But there may be some smaller businesses that we have an opportunity to review. We want durable competitive advantage. And we want synergies. We want higher integration rates between our paperboard manufacturing and our conversion factories where we make the finished packaging. With regards to looking at everything, we are also going to look at zero-based budgeting, and particularly at CapEx. It's time to take a fresh look at all we do. We'll take a comprehensive look in the context of what is really a changing market. Consumer dynamics are changing. Certain packages are starting to accelerate. Others are starting to decline. Consumption patterns are evolving as well, and so we need to bring those consumer insights back into our company so that we can align our assets to future growth opportunities. Now it's very early days, no decisions have been made, and we'll keep you updated as appropriate. Lewis Merrick: Have you and the board had any thoughts as to whether you may look to revisit your dividend policy of $20.20 cents? Thank you. Charles Lischer: Dividend. So I think we are professionals. Oh, and I'll hop on dividend. So sorry. I didn't catch it for the first time. So on dividends, as we said in the prepared remarks, our clearest or most highest near-term priority is debt pay down. And so we are focused on debt pay down in the short term. But we have not committed to a dividend change this year yet. But over time, we would expect to have growing dividends as talked about in the prepared remarks. And increasing the return to shareholders. But clearly, the near-term priority is to pay down debt given our current leverage ratio. Lewis Merrick: Thank you. I'll send it over. Hope that's 20% actually with it. Thank you. Operator: Thank you. Your next question is coming from Mark Weintraub from Seaport Research Partners. Your line is live. Mark Weintraub: Thank you. Welcome both. Question, since you did mention that overcapacity in bleach board has been putting downward pressure on finished packaging pricing across your grades. I guess one of the questions I have is that if the trade journals show, for instance, CRB prices were to go down or something like that, if to some extent it's already been reflected that the pressures in the business because of overcapacity in SBS? Do you get hit a second time, or can you help us understand how the prices we might see in trade publications can affect what you end up realizing on a go-forward basis? Charles Lischer: Yeah. Hey, Mark. This is Chuck. I'll take that. So as you know, we've been seeking to convert many of our contracts over to a cost model. And so many of our contracts have made progress on that. So many of our contracts are no longer tied to published pricing. We do still have some contracts that are tied to published pricing. And our guide does not reflect any unpublished or unannounced changes in pricing. Mark Weintraub: Okay. And so just a follow-up. So if there are changes, is it modest because of the direct impact, modest because of the adjustments you've made in your contracts, or any help you can give? And I recognize if you're not comfortable, understood. But figured I'd ask. Charles Lischer: Yeah. There's several factors. There's timing as to when the price impact would be recognized based on our contracts, and then there's also, of course, offset by the ones that are already on the cost model. So it's there are a lot of moving parts and pieces there to give you specifics around it. Mark Weintraub: Okay. And just one other follow-up then. On Waco, I know originally you had outlined some relatively significant startup costs, I think $60 million or something like that. Could you just update us on what has happened and how you're reporting that, and it seems like you're just putting that in net productivity now. How should I be understanding that? Thank you. Charles Lischer: Yeah. So good news on that, given the strong startup of Waco, that our startup costs came in below, and we do not expect any longer startup costs to continue into 2026. So our startup costs came in at around $40 million in 2025. So lower than our original expectation. Given the strong startup. Importantly, though, we do put those costs below the line. And so that doesn't roll up into performance. It does roll up into the items that are below adjusted EBITDA. And so that information that was provided to you in the previous text was just information only, but that is something that, of course, impacts cash and came in stronger. And as I said, zero in 2026. Mark Weintraub: Okay. And just one clarification. So the Waco startup costs were excluded from the adjusted EBITDA number you gave us or included? Charles Lischer: They were excluded from adjusted EBITDA. Operator: Thank you. Our next question is coming from Gabe Hajde from Wells Fargo. Gabe Hajde: Hey. Good morning. Welcome. I had a question about seasonal working capital changes and then, obviously, the very concerted efforts to reduce inventory. Seems like a decent amount of that production will hit, and the reduced production will hit in the first half. But normally, you consume cash and working capital in the first quarter. And if I look at kind of what you gave us, you know, the 40% to 45% of EBITDA earned in the first half, it looks like leverage can, in fact, tick above closer to the mid-fours or higher. Can you talk about that a little bit? And then I have a follow-up. Thank you. Charles Lischer: Yeah. I think you've identified all the right trends. Historically, our cash flow is strongest in the fourth quarter, and that's how it played out in 2025. And we would expect it to play out that way in 2026 as well. I will say the impact in 2026 should be significantly moderated versus where it was in 2025. If you remember 2025, the heavy spend on Waco was through the first three quarters, and so you would have seen a much more negative impact or a heavier negative impact on free cash flow in 2025 than what we'll see in 2026. So it'll more follow the EBITDA, but it is still our cash flow has historically and always been back-end weighted as we build for the season through the summer and then harvest that cash in the back half. Gabe Hajde: Okay. Thank you. And then the 200,000 tons roughly of inventory this year, and obviously, you gave us $1 equivalent. I guess, Chuck, for 2027, can you give us a reference point? I think you talked about some moving parts to bridge to the $700 million of free cash flow. But will you still be sort of underproducing next year? And again, I appreciate it. It depends on demand. But and unlocking some inventory. And if so, do you have an order of magnitude as it sits right now? Charles Lischer: You know, we're not giving 2027 guidance down, so we'll give you the number. But as you hit on the key factors, I mean, we are committed to bringing inventory down to the target ranges that Robert gave, the 15% to 16% target. We would, of course, much prefer that to come out via demand, as you mentioned, than come out via downtime. But we are indeed committed to bringing it out. Operator: Thank you. We have reached our allotted time for Q&A. I'll now hand the conference back to Robert Reebroek for closing remarks. Please go ahead. Robert Reebroek: Thank you, operator. I appreciate you joining us on our earnings call today. I'm excited to be here leading this outstanding team at what is truly a pivotal time for our company. Graphic Packaging serves markets with attractive subsegments and solid secular trends. With the best-in-class assets and a highly talented team, we're a global leader in sustainable consumer packaging. And through the actions we're taking, we plan to grow our market share and further strengthen our industry-leading position. While I've had the opportunity to engage with several of you already, I look forward to connecting with others and to provide ongoing updates on the business and our progress against these priorities. Thank you for your interest in Graphic Packaging. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Welcome to the MPLX Fourth Quarter 2025 Earnings Call. My name is Julie, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin. Kristina Kazarian: Welcome to MPLX's fourth quarter 2025 earnings conference call. The slides that accompany the call today can be found on our website at mplx.com under the Investor tab. Joining me on the call today are Maryann Mannen, President and CEO, Carl Hagedorn, CFO, and other members of the executive team. We invite you to read the safe harbor statements on Slide two. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as our filings with the SEC. As a reminder, in 2025, MPLX divested non-core gathering and processing assets, which had a $23 million year-over-year impact on our adjusted EBITDA within our natural gas and NGL services segment. Additional details on the impact of this divestiture can be found on Page 11 in our earnings release. With that, I will turn the call over to Maryann. Maryann Mannen: Thanks, Kristina. Good morning, and thank you for joining our call. 2025 was a year of disciplined investment and strong returns. It was our fourth consecutive year achieving a mid-single-digit three-year adjusted EBITDA growth CAGR. Adjusted EBITDA reached just over $7 billion. The strength across our business gave us confidence to continue our history of returning meaningful capital to our unitholders. We increased our distribution by 12.5%, bringing total returns in 2025 to $4.4 billion. This decision reflects our commitment to return the value we create as we advance MPLX's growth strategy with our unitholders. Over the past year, we took meaningful steps to position MPLX for the next phase of growth. We deployed $5.5 billion to our natural gas and NGL value chains, primarily focused on the fastest-growing region in the country. We optimized our portfolio through divestitures of non-core assets, ensuring our future capital deployment is aligned with the strongest return opportunities as we build the infrastructure that will fuel tomorrow's energy needs. Together, these investments and portfolio actions create a more resilient and competitive MPLX, one that we believe can continue delivering growth capital to our unitholders while maintaining our strong track record of returning. Today, we announced our capital plan for 2026. We are planning to invest $2.4 billion as we execute on a robust pipeline of capital projects that support long-term structural growth. The long-term fundamentals for natural gas and NGL demand remain strong. In the U.S., natural gas demand is anticipated to grow over 15% through 2030, driven by the rapid expansion of LNG export capacity and rising power needs, particularly from data centers. We are also seeing higher gas-to-oil ratios across key shale basins as aging wells produce more associated gas per barrel of oil. This trend is increasing supplies of NGL-rich gas and under the strategic importance of our infrastructure in the Permian. Globally, petrochemical demand for ethane and propane are driving increased NGL exports, further reinforcing the strength of the long-term outlook. 90% of our growth capital will be directed towards our natural gas and NGL services segment, where we see some of the most compelling opportunities in the midstream sector. These projects are concentrated in the Permian and Marcellus, two of the most prolific and competitive basins in North America, and are expected to generate mid-teens returns when they come into service in 2028 and beyond. These investments reflect our confidence in the long-term fundamentals of the energy market and in MPLX's ability to continue capturing value as these opportunities unfold. Execution of our Permian NGL wellhead to water strategy continues to advance. We are integrating the sour gas treating operations we acquired last year into our existing gathering and processing footprint in the Delaware Basin. Titan treating complex construction continues and is progressing on time and on budget. By 2026, we expect to be treating more than 400 million cubic feet per day of sour gas. This sour gas complex enhances our treating and blending capabilities and provides an attractive solution for producers who are increasing activity in the low-cost sour gas window of the Delaware. Building on the downstream opportunities created by this platform, today, we announced Secretariat II, a new 300 million cubic feet per day processing plant. Expected to deliver mid-teens returns, the $320 million plant will be our eighth gas processing facility in the Delaware Basin and is expected online in 2028. Once in service, our total processing capacity in the basin will reach approximately 1.7 billion cubic feet per day. Further downstream, the Bengal pipeline expansion remains on schedule, with incremental capacity expected online in the fourth quarter of this year. Beyond BANGL, we are advancing construction of a 300,000 barrel per day of Gulf Coast fractionation capacity, as well as our 400,000 barrel per day LPG export terminal JV. Engineering and construction continue. We have secured key construction permits reflecting strong regulatory and stakeholder engagement. Site grading is near completion and is being executed with strong safety performance and responsible environmental stewardship. The LPG export terminal, expected online in 2028, will benefit from its advantaged proximity to open water, positioning us to serve growing global markets with greater efficiency. Elsewhere in the Permian, MPLX continues to invest in its integrated natural gas value chain. In November, MPLX, along with its JV partners, announced the expansion of the Eiger Express natural gas pipeline to 3.7 billion cubic feet per day. The expansion demonstrates the record demand for firm takeaway capacity we are seeing across the basin. Construction is also progressing on several long-haul JV pipeline systems. These investments are underpinned by commitments from the basin's leading producers and will enhance shippers' access to multiple premium markets along the Gulf Coast. In the Marcellus, our largest operating region, construction is advancing on the 300 million cubic feet per day Harmon Creek III gas processing and fractionation complex. Upon completion, expected in 2026, our Northeast processing capacity will reach 8.1 billion cubic feet per day and fractionation capacity of 800,000 barrels per day, positioning MPLX to serve growing Marcellus and Utica volumes. MPLX is also expanding its Marcellus gathering system to meet producer needs through a $450 million project, which will add compression support, well connections, and enhance MPLX's Majorsville gas processing complex. The project is expected to deliver mid-teens returns and enter service in 2028. Our capital deployment strategy positions MPLX for durable long-term growth. We are building the infrastructure system that will support rising North American future energy needs. From new treating and processing capacity to downstream fractionation, we plan to deliver on our commitment to create sustainable value for our unitholders. Now let me turn the call over to Carl to discuss our operational and financial results for the quarter. Carl Hagedorn: Thanks, Maryann. Slide eight outlines the fourth quarter operational and financial performance highlights for our Crude Oil and Products and Logistics segment. Segment adjusted EBITDA increased $52 million compared to 2024. The increase was primarily driven by a $37 million from a revised FERC tariff issued in November and higher rates, partially offset by higher planned project-related expenses. Pipeline volumes increased 1%, terminal volumes decreased 2% year over year. Moving to our Natural Gas and NGL Services segment on slide nine, segment adjusted EBITDA decreased $10 million compared to 2024. The divestiture of non-core gathering and processing assets and lower NGL prices more than offset growth from recently acquired assets and higher volumes. After considering the $23 million impact of divesting non-core gathering and processing assets, we actually grew 2.1% year over year for the fourth quarter. Gathered volumes increased 2% year over year, primarily due to production growth in the Utica. Processing volumes decreased 1% year over year, as increased production in the Marcellus was more than offset by the sale of non-core assets. Processing volumes in the Utica have increased 4% year over year as producers continue to target this liquids-rich acreage. Marcellus processing utilization was 97% for the quarter, nearing capacity as Harmon Creek III is positioned to come online on a just-in-time basis later this year. Total fractionation volumes decreased 2% year over year as higher ethane recoveries in the Marcellus and Utica were more than offset by the sale of the Rockies assets. Within our natural gas and NGL business, recent freezing conditions across the country have impacted crude oil and natural gas production. We have seen minimal impact to our assets, though some producer customers have experienced frozen well pads and equipment, impacting volumes at a few of our facilities in the Permian. Moving to our fourth quarter financial highlights on slide 10, adjusted EBITDA of $1.8 billion increased 2% from the prior year, while distributable cash flow of $1.4 billion decreased 4% over the same time frame, due to interest expense associated with incremental debt used to finance recent acquisitions and growth capital. During the quarter, MPLX returned $1.2 billion to unitholders in distributions and unit repurchases. MPLX ended the quarter with a cash balance of $2.1 billion and plans to utilize this cash in alignment with our capital allocation framework. MPLX maintains a solid balance sheet. Looking forward, in March, MPLX has $1.5 billion of 1.75% senior notes maturing, which we intend to refinance. We expect leverage to fall over time as our acquisitions reach full run rate and our organic growth projects are placed into service. Now let me hand it back to Maryann for some concluding thoughts. Maryann Mannen: Thanks, Carl. Through disciplined capital deployment, execution, and optimization of our integrated value chains, we have achieved a three-year adjusted EBITDA CAGR of 6.7%. The strong performance enabled us to increase our quarterly distribution by 12.5% for a consecutive year in 2025. We expect this level of distribution growth for two more years. MPLX enters 2026 in a position of strength. Over the past year, we made deliberate investments and portfolio decisions that sharpened our focus and expanded our capabilities. We deployed capital into some of the growing regions in the country, divested non-core assets, and built a more resilient competitive platform. In the second half of this year, we anticipate seeing contributions from the second Titan sour gas treatment plant, Harmon Creek III, the Bengal pipeline expansion, the Bay Runner pipeline, and the Blackcomb Pipeline. We expect growth in 2026 to exceed 2025, driven by increased throughput on existing assets and new assets being placed into service. As these assets ramp to full capacity, we anticipate they will also support mid-single-digit EBITDA growth in 2027 as well. We remain confident these investments will enhance our cash flows and enable us to continue returning meaningful capital to our shareholders. Now let me turn the call over to Kristina. Kristina Kazarian: Thanks, Maryann. As we open the call for your questions and as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will be prompt for additional questions. Operator, please open the line for questions. Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Our first question comes from John Mackay with Goldman Sachs. Your line is open. John Mackay: Hey, good morning, team. Thank you for the time. Maryann, I wanted to pull together a couple of points you mentioned. Can you talk a little bit more about your confidence in that mid-teens return target for the project backlog? Particularly in the context of maybe lower growth in 2025 versus the mid-single-digit overall target going forward. And maybe particularly anything you can share around contract protections? Etcetera. Thank you. Maryann Mannen: Yes. Good morning, John. Thank you. And certainly, when we think about 2026 and frankly, when we think about any capital investment that we put to work, we continue to use our lens of strict capital discipline and ensure that we are delivering mid-teens returns and that those projects are also supportive of our mid-single-digit growth. As I mentioned, from a period or two ago, as we look at the growth going forward, it is unlikely that we are going to be able to be completely linear. We are putting capital to work that has EBITDA contribution that's coming online in later years. And then we are also adding in our organic M&A opportunities projects that come online in the short term in order to be able to deliver that as well. Let me give you a couple of examples of that. You think about BANGL, the incremental ownership comes online in 2026. Incremental EBITDA mentioned, Secretariat I ramping up through 2026. That will add incremental EBITDA again this year. We have got Bay Runner, as I mentioned, in Blackcomb in service in the fourth quarter contributing to that also. Moving on to the Marcellus, you have got Harmon Creek III also that will be online in the back half of the year. These are some significant projects, again, through that lens, mid-teens returns to support mid-single digits. So that gives us the confidence as we say that one year on year 25% to '26 we should see growth above what we saw in 2024 and 2025. We hope that you see that the 2026 capital outlook really signals compelling investment opportunities for us. Think the backdrop, particularly when you look at demand pool NGL nat gas is extremely supportive. And then frankly, when we look at 2026, exit rate for our sour gas project, we remain confident in our ability to deliver that EBITDA into 2027. And as I mentioned, Gulf Coast project on track for 2028 and beyond. John Mackay: I appreciate all that detail. Thank you. Maybe drilling in a bit more, it sounds like you have had some early success on commercializing some of the Northwind kind of synergy projects with Secretariat II. You just frame up for us kind of where that process stands? Is there more you can do on capturing some of those volumes coming off that system? Thanks. Maryann Mannen: Yes. Certainly, John. Thank you for the question. As you know, when we talk about the acquisition of Northwinders, we call it our Delaware Basin sour gas facility, we felt like it was a critical platform for future growth, particularly when you look at what we consider to be some of the best rock in the Permian and our ability to help producers with treating and processing that. We mentioned at that time that we thought when you looked at the processing contracts now, those had a much shorter duration versus the long-term average thirteen year on the treating side. But on the processing side, we said this could potentially be accelerating our growth as we were able to bring new assets online. To address those contract roll off on the processing side. I would also tell you that Secretariat II will also help us support our legacy volumes as well. So not only is it supportive of growth beyond the Northwinds platform, but also for our legacy growth. I am going to ask Greg to give you incremental color on the legacy side. Gregory Floerke: John, yes, we are really excited about we continue to be very excited about the sour gas system that we acquired. Is if we had I mentioned before that it wraps around our existing legacy system. Planned and build it. Part of the Titan II expansion, which we are on track on time and budget to have complete late in the year, allows us to meet our expectations for run rate in 2027 is as Maryann mentioned. But it also provides an opportunity to connect this system into our legacy system. So along with the Titan II project and the compression expansions and the pipelines that we are building to support that uptick in volume. We are also building connecting lines, one on the north end, one from the Titan facility over actually to Secretariat and to our Tornado complex and then a middle line. So we will be able to start offloading when those lines are complete and as Titan capacity ramps up. But we are also we see very robust growth continuing in the legacy portion of our system, some of it on the edge of the sour, some in the sweet, but still really robust activity from the drillers. So we upsized Secretariat II, it will be our first 300 million cubic feet per day plant and partly to account for the additional growth we have from both systems. John Mackay: Thanks for that. Appreciate it. Operator: Thank you. Our next question comes from Manav Gupta with UBS. Your line is open. Manav Gupta: Maryann, I just wanted to ask you, there is a little bit of bearish sentiment on LPG exports generally and fears of overcapacity. But, you know, in the last few days, you have had this India US deal and India is looking to buy a lot more energy from the US. And I think LPG exports could be a new growth opportunity in that direction. So if you could if you had time and if you could talk a little bit about the new opportunities that open for LPG exports, with this India US trade deal. Maryann Mannen: Yeah. Good morning, Manav, and thank you, you are absolutely right. You know, one of the reasons why we can to look at this opportunity, putting capital to work. We see strong demand for NGL and nat gas and there is a pool there, obviously, from the growth anticipated from LNG. And as you mentioned, I think the announcement or the conversations yesterday really are further supportive of the positions that we have and have had really for the last two last several quarters as we think about some of the capital that we have put to work. We think market dynamics for global LPG demand remain very strong. There is no doubt about that. And again, as I mentioned, I think the announcement or the conversation yesterday hard to predict, right? Early days there, but it is certainly, I think, supportive. And then when we look at our assets, we are pretty convinced about their capabilities. When they come online, 2028-2029. We believe will be full as we have shared with you before. We think we have got a good position when we look at export given our dock, given the partnership that we have and given the potential there for the long term. So we feel very good about that obviously, as we continue to book capital to work in that space. Manav Gupta: Perfect. My quick follow-up here is, look, when we look at organic growth capital, obviously, think you were at $2.4 billion for '26. You were close to $2 billion last year, but then you did deploy almost $3.03 and a half billion of growth capital through M&A. And I am trying to understand, would if there are right opportunities present themselves, would you be open to still bolt on M&A 2026? And the question I am trying to ask is, at the start of the call, you said dividend distribution growth can be 12% for the next couple of years. I am trying to understand with some good M&A, can that two years become three years or more, if you could help us understand that? Maryann Mannen: Yes, certainly Manav and thank you for the question. As you know, in similar as we set out this time last year, we put forth our capital plan and that capital plan is very specific to the organic projects that we have ongoing. You would think about our Gulf Coast frac and terminal, the capital on the Delaware Basin sour gas, we have got the Marcellus expansion that I mentioned, Secretariat. But we continue to look for M&A opportunities. We look through them through the lens of strict capital discipline. We ensure that they meet mid-teens returns and also that they are strategically aligned with one, our nat gas and NGL wellhead to water strategy they fit that strategy. So when I talk about the 12.5% being for the next two years, that meets all of the financial criteria that we have shared. That does not mean we do not have an intention of increasing the distribution beyond that. And as you say, it will depend on what that growth is. So as we find those M&A opportunities, we have a balance sheet that is quite strong we believe. And we would absolutely consider incremental opportunities. And frankly, as you have seen us do in the past, some that are easiest for us and fairly immediately accretive would be our JVs. When we look at take BANGL as an example, there are opportunities that would exist for us to continue to build out our ownership with the JVs that we currently have as a part of our portfolio. Hope that helps. Manav Gupta: Thank you so much. Maryann Mannen: You are welcome. Operator: Our next question comes from Theresa Chen with Barclays. Your line is open. Theresa Chen: Hi, Maryann. Maybe taking the opposite side of the M&A question. Looking at your portfolio optimization which has been fairly consistent through the years, would you say you are at in terms of pruning assets that are less strategic across your portfolio to free up capital to pursue additional organic and tuck-in M&A growth? Maryann Mannen: Yes. Good morning, Theresa. Thanks for the question. As you know, we continue to evaluate all of our assets. We say we want to ensure that we have the portfolio for today and the portfolio for the future. All of those basins today are cash flow positive. But we will always look through short term and long term and see whether or not there are owners of those assets similar as we think about what we just recently did with the Rockies. That have a different view on that growth profile. So that we can continue to invest in those opportunities in the Marcellus and in the Permian where we believe the most opportunity exists for us. So we will continue to do that, Theresa. Absolutely. Theresa Chen: Understood. And given recent consolidation by some of the upstream community, how do these trends affect your growth outlook for your supply push assets and recontracting strategy over time? Maryann Mannen: So I would tell you as we look at some of the recent announcements, certainly those customers have been and will continue to be an important part of our portfolio. Specifically when we look at recontracting. If you think about the one that was just announced yesterday. And again, it is an early read, but when we look through that in terms of the way that the transaction has been announced and it is structured, we do not see any immediate risk with contract renegotiation, etcetera, from a legal perspective. Absolutely no. Theresa Chen: Thank you. Operator: Welcome, Theresa. Thank you. Our next question comes from Keith Stanley with Wolfe Research. Your line is open. Keith Stanley: Sorry to beat a dead horse on the growth rate, but wanted to clarify on 2026. You said it is faster growth than 2025. But would you say it is an above-average growth year in 2026 or just faster than '25? And relatedly, is that 2026 growth expectation inclusive of the headwind from the Rockies asset sale? Maryann Mannen: So thank you for the question, Keith. Yes, it is inclusive of the headwind coming from the Rocky sale, absolutely. And my comment 24% to 25% growth is stronger than 24% to 25%. But I am not suggesting that it is completely outsized there. It is larger growth. Remember, we are starting from a $7 billion position. So growing that mid-single-digit, you know, is the range of $450 to $500 million depending on where you are in your mid-single-digit range. So it is 24 excuse me. 25 to 26 stronger than 24 to 25. I hope that helps, Keith. Keith Stanley: It does. Second question, I wanted to ask on the FERC index change for the next five-year period. So it is now a PPI minus 0.6%, I think. Should we think of that as a headwind for your outlook for the liquids business? Or would you say that new inflation adjustment level was expected and already baked into your plans and outlook? Shawn Lyon: Keith, this is Shawn. Thanks for the question. Although the FERC adder is negative, we did anticipate this and this is in our plan. So we do not expect it to impact our plan to grow our EBITDA mid-single digits. Let me show context also. If you just look at the COPAL segment that we are about 33% of the COPAL segment is tied to the FERC. And across all of MPLX, it is about 20%. So it gives you some context of how much that announcement by FERC and the effect with MPLX. Operator: Thank you. Our next question comes from Elvira Scotto with RBC Capital Markets. Your line is open. Elvira Scotto: Hey, good morning everyone. I was wondering if you can provide some additional commentary around the new growth projects in the Marcellus you are hearing from producer customers? And then how do you expect Harmon Creek III to ramp? Maryann Mannen: Yes, good morning. Thank you. So when we talk about Marcellus, first of all, I mentioned we have got capital this year and that project will come on come in service in a few years, right? It is not an immediate contribution in 2026. Mid-teens returns clearly producer customers if you think about the way that we stay connected to our producer customers and just in time, a pretty important project for the long term. It is a compressor station, 30 miles of pipeline, well connections, debottlenecking, and so important as we think about providing that egress for our producer customers. I am going to give the pass it to Greg and have Greg tell you a little bit more about that project. Gregory Floerke: We are really excited about the Harmon Creek III Project and also we are building a second full-size deethanizer as part of that project and some compression and pipe to help feed that. It is in our gathering system in Washington County, PA. If you look at the entire Marcellus, we were at 97% utilization this last quarter. So we are and that is a high utilization number, but you put it in context, sets close to 7 billion cubic feet a day that is going through that system. So it is our largest system. Nearly full. So it is a great story. When we need to expand and a producer wants to expand, right now, it typically means a new plant. Or at least major piping and compression to help try to fill whatever existing capacity is there. So we expect Harmon Creek III, which is tied into that system and has great residue takeaway and GL takeaway capability and the demand that is there. For that to take up that additional capacity will be will be ramped up and filled on our normal timeframe. Elvira Scotto: Okay, thanks. And then just wanted to switch over to capital allocation. Can you maybe talk a little bit about any comments around leverage and distribution coverage, kind of expectations in '26 and '27? And then just as you have become a much bigger company with a much bigger EBITDA base, and you have a lot of kind of organic growth opportunity. How should we think about sort of CapEx moving forward? Carl Hagedorn: Thank you. Appreciate that question. Let me start with the capital allocation. Excuse me. What I would tell you is when we think about capital allocation, our philosophy remains unchanged. So you think about the way we have lined that out historically, it has been first and foremost maintenance capital, then our distribution growth, then our growth capital, then our unit buybacks. So that last one always being the one that we would toggle. As we look forward to 2026 and 2027, even as we talked about, Maryann mentioned, 12.5% distributions over the couple of years, we model that out. We think about coverage. We do not see ourselves going on an annual basis below that comfort level of 1.3 times. We are obviously also very much watching our leverage and managing to a leverage number that I think we have historically said we are comfortable at that four point zero times. And as we look forward with our capital plans, as we sit today, we would not go above that four point times. Elvira Scotto: Great. And then just on the kind of CapEx how should we think about CapEx kind of going forward, the organic? Carl Hagedorn: Yes. It is a great question. And as we think about CapEx, we think about our growth, what we really have to as you said, the EBITDA number keeps getting larger. So as that number grows, the number of organic projects and or bolt-on M&A has to grow with that EBITDA number. If you continue to target a mid-teens return, right, we can do that math. We know that over time that number has to grow. So we are actively looking at that on a five-year really basis and beyond. And we are modeling that EBITDA in as we would see these projects come online. Elvira Scotto: Okay. Thank you. Operator: You are welcome. Thank you. At this time, I am showing no further questions. Maryann Mannen: All right. Thank you for your interest in MPLX today. Should you have more questions, or would you like clarifications on topics discussed this morning, please contact us. Our team will be available to take your calls. Thank you for joining us today. Operator: Thank you for your participation. Participants, you may disconnect at this time.
Operator: At this time, I would like to welcome everyone to this Embla Medical Q4 and Annual Report for 2025 Conference Call. Today's call is being recorded. [Operator Instructions] I'll now turn the call over to your speakers. You may now begin. Sveinn Sölvason: Thank you very much, operator. Good morning, and welcome to the Embla Medical conference call where we will review the fourth quarter and full year results for 2025. I'm Sveinn Solvason, President and CEO of Embla Medical. Today, also joining me here is our Chief Financial Officer, Arna Sveinsdottir; and Embla Medical's Head of Investor Relations, Klaus Sindahl. The presentation should take approximately 20 minutes, after which there will be an opportunity to ask questions during a Q&A session. If you can please go to the next slide. 2025 was a year of meaningful progress for Embla Medical with several milestones as we continue to take steps on our journey to build a company that is focused on delivering products and services for individuals with a chronic as well as acute mobility need. The need for our solutions remains as strong as ever. And once again, our team delivered with focus and purpose. I want to take the opportunity to recap some of the key highlights on this slide. In September, we completed the majority investment in Streifeneder. The investment marks a key milestone for Embla Medical positioning us as a full range provider in the prosthetics market while strengthening our presence in key markets, especially private pay markets with less developed health care systems. In addition, Streifeneder will help us expand our reach and ultimately enable us to reach more patients that need our products. Innovation remains at the heart of our progress. In 2025, we introduced new impactful solutions, including 2 new bionic knees, Navii and Icon as well as the Odyssey iQ bionic support. We're also pleased to see that Fior & Gentz was awarded its first reimbursement code in the United States last summer for their microprocessor-controlled knee joint. Another meaningful milestone I also wanted to highlight is the opening of our first clinic in Ukraine. Establishing a presence in Ukraine during a very difficult time underscores our commitment to ensuring access to high-quality mobility care. In conjunction with the opening of our Kyiv clinic, we also announced a landmark partnership with the government of Iceland to launch the Iceland Support Mobility in Ukraine initiative. This initiative is a 3-year program designed to deliver high-quality prosthetic care and rehabilitation to Ukrainian entities. Lastly, I'm also proud that Embla Medical earned a place among the world's top 500 companies pairing strong growth with environmental responsibility. This was the second consecutive year Embla Medical was highlighted as one of the world's best companies in sustainable growth. If you please turn to the next slide for an overview of the key highlights for the fourth quarter and full year. In '25, we delivered solid organic sales growth with increasing underlying profitability as well as strong cash flow. For the full year, organic sales growth was 6%, driven by strong performance in prosthetics and neuro orthotics. Reported growth was 9% and growth in local currency was 7% for 2025, including contribution from the majority investment in Streifeneder, which was completed, as earlier mentioned, in September. Sales in the fourth quarter amounted to $257 million, representing 7% organic growth. Our reported growth was 14% for the quarter, including 5 percentage points contribution from FX and 3 points from M&A. Growth in the fourth quarter was solid, driven again by the Prosthetics and Neuro Orthotics segment as well as also now Patient Care, where sales picked up in quarter 4 with a strong finish to the year. The EBITDA margin came in at 20% for the full year, on par with '24. For the fourth quarter, the EBITDA margin was 19% compared to 21% in quarter 4 of '24, and Arna will elaborate on that later. We delivered strong cash flow in the quarter and full year as well, benefiting from solid operating results and lower CapEx compared to the same period in '24. During the fourth quarter, we continued the rollout of our ForMotion brand at several patient care facilities in the U.S. and Australia and we expect our global rebranding to complete in the first quarter this year. In Patient Care, we have implemented several initiatives during last year to enhance long-term growth and profitability in our Patient Care business, and I'll add a little bit more color on that also later. I also want to highlight progress in our R&D in the fourth quarter with 2 important product launches during the quarter, Pro-Flex LP Junior by Ossur is a new prosthetic ankle and foot designed for active young users, delivering enhanced durability and waterproof performance. In our power portfolio, we have updates for our Power Knee with functional improvements, enhancing both mobility and adoption of power solutions. Lastly, we have issued new guidance for 2026 of 5% to 8% organic sales growth and an EBITDA margin of 20% to 22%. And in line with our capital structure and capital allocation policy, a new share buyback program was initiated here in the beginning of January. Please turn to the next slide. In both EMEA and APAC regions, we had strong sales growth in the fourth quarter. Sales were very strong in the EMEA region with 12% growth, while APAC delivered 9%. Americas ended, however, flat following a good third quarter. And we'll cover the dynamics in each of our reporting segments on the following slide. If you turn to the next slide, please. Starting with Prosthetics and Neuro Orthotics, we delivered 9% organic sales growth for the quarter and 10% for the full year. In EMEA, we continued to see strong momentum in the quarter with good sales growth across all major markets driven by, yes, solid contribution from recently launched innovations. In addition, we see very encouraging and strong organic contribution in the quarter from the newly acquired Streifeneder. Growth in the Americas was moderate after a strong quarter 3 and somewhat below our expectations. The weaker performance in the fourth quarter is partly explained by a strong comparison with the same period in '24. Meanwhile, we remain encouraged with the progress as we saw strong sales growth, especially in our College Park portfolio driven by the Icon knee and the new Odyssey iQ. Lastly, solid growth in APAC, driven by Australia, while partly offset by more moderate growth in the rest of Asia. In Neuro Orthotics, the business continues to track in line with expectations following the expansion into new international markets in the last 12 to 18 months. Sales growth in the fourth quarter was, yes, very solid, driven by continued growth momentum in our existing German business and supported by good uptake in new markets such as Australia and France. If you turn to the next slide, please, on Bracing. Sales in Bracing and Supports were soft in the fourth quarter and for the full year with some regional variances. Sales performance in '25 continues to be impacted by shift in market dynamics and price sensitivity causing partial loss of business in addition to an overall increasing and a very competitive environment. Embla Medical has a very good position in the key bracing markets in both the U.S. and Europe, and we expect to grow in line with market here in '26, supported by focused initiatives as well as new product launches. If we go to the next slide, please. Sales in Patient Care picked up in quarter 4 with a strong finish to the year. In EMEA, we saw strong growth return across our key markets. Meanwhile, Americas ended down in the quarter due to partly a very strong comparable quarter in '24. Despite the declining sales in Americas, we see very encouraging signs and results of the work we're doing to get our Patient Care business back on track. Lastly, we saw a strong finish to the year in APAC, driven by very solid performance in Australia. As communicated in the third quarter of 2025, our Patient Care business has, over the last few quarters, experienced lower-than-expected growth, mainly in our biggest regions, both EMEA and Americas. The performance can partly be ascribed to some softness and timing or fluctuations in patient volumes, especially in the first quarters of the year, but also these internal change initiatives, including the brand change, systems integrations and other change initiatives that have had some disruption in -- or caused some disruption in our business temporarily. We have several initiatives that are being implemented in our Patient Care business with a heavy focus on performance management to strengthen the long-term growth and profitability of this important segment. It's our clear ambition to get the Patient Care business back on track and deliver in line with the structural growth we see elsewhere in the O&P industry. With this overview of our performance for the quarter and year, I would like to now hand it over to you, Arna, to go through the financials in more detail. Arna, please. Gudny Sveinsdottir: Yes. Thank you, Sveinn. If you can please turn to the next slide for an overview of our financials. In quarter 4, the gross profit margin was 62% compared to 63% in the comparable period 2024. The gross profit margin was positively impacted by strong sales in Prosthetics and Neuro Orthotics and efficiency gains in manufacturing, but offset by FX, tariffs and initiatives in Patient Care. For the full year, the gross profit margin was 62%, largely explained by the same items as for the quarter. OpEx grew organically 7% in the fourth quarter but excluding the initiatives in Patient Care, OpEx grew organic below sales growth, in line with continued focus on cost management on the SG&A side. Our EBITDA margin was 19% for the quarter compared to 21% in quarter 4 2024, while the margin was 20% in the full year and on par with 2024. While the EBITDA margin was positively impacted by strong sales growth and efficiency in manufacturing, it was negatively impacted by FX, tariffs and initiatives in Patient Care. The initiatives in Patient Care impacted both COGS and OpEx by approximately $2 million in the quarter and around $6 million in the full year. If you sum up the impact of the Patient Care initiatives, FX and tariffs, the total impact on EBITDA margin was around 3 percentage points in the quarter and 1.5 percentage points in the full year. I'm very pleased to see that we delivered strong net profit in the quarter, which grew 33% compared to the same period in '24. And our net profit for the full year grew 21% compared to '24. If you please turn to the next slide for the status on our cash flow and leverage. During the first quarter, CapEx was $8 million or 3% relative to sales. CapEx in 2025 returned to a normalized level around 3% to 4% following closure of facility expansion program carried out in '24 to support growth. Our free cash flow was strong during the quarter as we generated $42 million compared to $33 million for the same period last year. The strong cash flow benefited from solid operating results, positive effect from net working capital and normalized CapEx levels. For the full year '25, free cash flow amounted to $100 million or 11% of sales compared to $77 million or 9% of sales in 2024. On the balance sheet, our net interest-bearing debt to EBITDA corresponded to 2.4x at year-end and within the range of 2 to 3x. As we are within our target range, we continue with our share buyback program. And with this overview on our finances, I will hand over to Sveinn again for his closing remarks and comment around our guidance. Sveinn Sölvason: Thank you, Arna. If you please turn to the next slide. We delivered solid organic growth in 2025, in line with our guidance as well as our Growth27 financial ambition. This is a testament to our ability to execute on our targets and priorities despite an increasingly more uncertain geopolitical environment. For 2026, we are issuing new guidance. We expect organic sales growth to be in the range of 5% to 8%. In Prosthetics and Neuro Orthotics, we anticipate continued momentum across regions, supported by solid contributions from our Bionic portfolio and recently launched innovations in addition to upcoming launches in 2026. Some positive impact from the U.S. Medicare coverage expansion is also expected to contribute to sales supported by our existing portfolio of microprocessor controlled knee solutions. These solutions will, in the future, be complemented by a more dedicated K2 solution to better serve the less mobile users in the low active K2 patient population. In Neuro Orthotics, we expect to see contributions from the ongoing rollout of our Neuro Orthotics offering into new markets, leveraging our global commercial infrastructure and our promotion footprint. In Patient Care, we expect growth to gradually improve during '26 with the aim of eventually returning to consistent sales performance in line with the market. Growth in '26 is expected to be driven by volume growth and increased efficiency or productivity, supported by the initiatives implemented across our Patient Care business in the second half of 2025. Focus will be on enhancing our long-term growth profile and profitability of the business while benefiting from the structural growth in the OP industry that we serve in recent periods. Lastly, Bracing and Supports is expected to grow approximately in line with market growth. We expect solid growth in selected key regions supported by launches of new products, but also with continued competitive pressure in selected markets. For '26, our EBITDA margin is expected to be in the range of 20% to 22%. The EBITDA margin is expected to be positively impacted by solid sales performance, a favorable product mix from increased sales of our high-end solutions, continued efficiency gains in manufacturing and increasing profitability in Patient Care and also continued cost control in our SG&A structure. At current foreign exchange rates, keeping all other factors constant, the EBITDA margin is expected to be negatively impacted by about 30 basis points in '26 when compared to '25. With this overview, our presentation is now concluded, and we would like to open the call for questions. Operator, please move to the next slide and the Q&A can begin. Operator: [Operator Instructions] And our first question will be from Tobias Nissen from Danske Bank. Tobias Nissen: I have a few. Let's just start out with EMEA, very strong here with 12% organic growth for the quarter and quite the acceleration from the last few quarters. So can you talk more to what's actually the driver here for this growth acceleration and any standout countries or products? And can you say if there's any, you can say, one-offs that contribute to this solid growth here? That's my first question. Sveinn Sölvason: Tobias, thanks for your question. Yes, we've had consistent solid performance in our EMEA region across -- here in the quarter, across all business areas with the exception of bracing, which was flattish. This is a result of, yes, solid contribution, I would say, across all our major markets in the prosthetics and neuro side, where we have essentially our base business, our mechanical business across our prosthetic portfolio, both on the premium side as well as the, as you could say, the more value side with Streifeneder doing well. And we have also good development on our high-end bionic side, which drives that extra benefit on the mix side. Then there is -- we have been building our presence in -- also in Ukraine and selling more products there. If you remember, we stopped selling products to Russia a couple of years ago and Ukraine is starting to become a meaningful market for us. And then finally, on the Patient Care side, this was a quarter where we had good progress across all our European markets and are starting to see some impact of the initiatives we are doing to build a global patient care franchise. So I think that these are the highlights, Tobias. Tobias Nissen: Okay. That makes sense. Is the Ukraine you also opened the clinic you mentioned this is perhaps a little bit early, but how do you see momentum here? Is there any one-offs related to Ukraine in the quarter? Sveinn Sölvason: No one-offs, no as such. And this is not contributing yet. It's only cost at the moment as such, but we are starting to build the infrastructure to be able to serve what is an important market for us. We want to make sure we are there to deliver to a need for what we do well. But this is not -- there are no one-offs -- meaningful one-offs just maybe on the cost side, but nothing material. But I would say this is more something that will have meaningful impact, we believe, medium, long term. Tobias Nissen: That makes sense. And then just on Americas, it was a bit soft here with 0% organic growth. I know you mentioned some tough comps. But with Europe benefiting from these new innovations, why do we not see this in the numbers for Americas? I know Patient Care is a bit -- also a bit soft. But what is the market growth actually in Americas? And actually what is required to get Americas back to growing again? Sveinn Sölvason: The market in the Americas is healthy. And if we look at our reported growth in the Americas, that's a net result of our bracing business, Patient Care business and our prosthetics and neuro business. Well, starting with the bracing business, the environment in bracing in the U.S. has been tough, very competitive and some price erosion in some key categories. So we see a decline here in the fourth quarter. But going into '26, we have some -- especially some new products that will help us fight the erosion we see in some selected pockets. On the Patient Care side, that has been the main reason for our softness in the U.S. And there, we've talked about our initiative to build one business on the back of a portfolio of acquisitions, introducing a new brand, introducing new systems and processes to make sure we benefit from being a large integrated company in patient care, and that has caused some disruption. On the product side in Prosthetics and Neuro Orthotics, we are generating actually decent growth. However, a little bit below our expectation, but we're working hard on positioning us well here for 2026. So these are -- that's a little bit the big picture here. So the main kind of reason for the sluggish quarter 4 is the Patient Care side of the business. Tobias Nissen: Okay. That makes sense. You mentioned you are finished or expect to be finished with the promotion, you can say, rebranding in Q1 in Americas. Do we have to get on the other side of this before you see Patient Care starting to return to market growth? Or it is possible to get there before this? Sveinn Sölvason: What we are communicating is that we -- during the year, we will get back to at least market growth in Patient Care. Exact timing, I'm not going to comment on that, but we are gradually expect to be, let's say, in the mid-single-digit growth area. And it's -- maybe I'll use the opportunity to kind of refresh the context around Patient Care. I mean last 18 months have been a period where we have been taking the next step in our maturity journey as a patient care business or in our Patient Care business moving from a, you could say, a portfolio of acquired businesses with some limited integration into really building a global business. That includes the brand systems and processes such that we can gain benefit from being a real global player in patient care, and that has caused some disruption in our business, all these change initiatives. But as we get that behind us, we will grow in line -- at least in line with the market, and we're working hard on achieving that milestone. Tobias Nissen: Just a final one for me on tariffs. What was the impact here in Q4? And what are your assumptions going into '26 here in terms of headwind? Sveinn Sölvason: So I mean, the tariff impact here in the quarter was around $2 million and around sort of $5 million to $6 million in full year '25. And remember, sort of we didn't have a lot of tariffs in the beginning of '25. So the run -- so let's say, the full year impact for '26, keeping everything constant will be a little bit higher. Operator: The next question will be from the line of Sam England from Berenberg. Samuel England: Just a couple from me. So on the margin side, amongst other things, you had some impact from the Streifeneder acquisition in Q4. Can you comment on how the integration there is progressing and how the acquisition will impact margins as you head into 2026? And then the second one, on the U.S. rollout of NEURO HiTRONIC, can you provide some comments on how that's progressing after you got the new reimbursement code last quarter? And then more broadly, what your expectations are for the Neuro Orthotics business as we head into 2026? Sveinn Sölvason: Yes. Thanks, Sam. I appreciate your questions. On the Streifeneder piece, yes, it's slightly dilutive for our margins this business. But as we progress with the integration, we expect the dilution to be marginal in '26, only 10 plus -- 10 to 20 basis points in '26-ish. But the integration is going well. We are pleased with this investment, good performance here in quarter 4, and we're sort of continuing to advance and mature our approach to how we position the overall business to be a supplier across the whole spectrum, essentially both premium and value when it comes to prosthetic components. With regard to Neuro Orthotics, great milestone in '26 that we are eligible for the code, Medicare code. And we've done a lot of groundwork here in the latter half of '25 to prepare the business for growth here in '26. So we -- this will be part of our growth story here in '26. We have not provided any specific communication with regards to the impact, but we will start to see some traction here in the first half of 2026. Operator: The next question will be from Dominic Rose from Intron Health. Dominic Rose: I've got 2. My first question is about the guidance. The top end of your guidance is slightly above the trend growth in the market. What would you have to see to hit that top end? And just making sure whether there's any M&A impact included within that? Question two, when could the Ukrainian market become a material growth driver? And can you help to contextualize the potential size of that market? Sveinn Sölvason: Dominic, thanks for your questions. Yes, we've guided 5% to 8% organic growth, which is largely in line with kind of the our overall kind of growth ambition for the 5-year strategy we're executing on now. So what -- as always, when we start a new year, we built our guidance based on a set of assumptions, how we read the current trends in the business and what our plans are to drive sales growth. And what needs to happen for us to deliver in the upper end, we need another solid year in our Prosthetics and Neuro Orthotics business, similar to what we've done this year. We need to get Patient Care business delivering at least in line with market. And the earlier we get there, the better chance we have of delivering in the upper end of the range. And then we need to deliver in market in line with market growth in bracing. And this will position us in the upper end of the range. And sort of then -- yes, I hope that kind of gives a little bit of color. I mean where we do have the strongest structural growth drivers, that is in our neuro -- or our prosthetics and neuro business, where ultimately, it's about defending and growing our share in our mechanical range and driving the mix or driving more adoption of these high-end solutions. And that is what you need to follow the -- where you need to follow the progress on our ability to do that. That will determine largely where we'll end up in the range. Then on Ukraine, I'll be cautious here in terms of communicating. I think everybody knows the facts around the size of the amputee population in Ukraine. How the market will develop will depend on a lot of factors, how the development will be in the country itself and when the war will stop and how a system will develop around supporting amputees. These are all factors that will sort of that will ultimately impact how the market will develop. But I think just looking at the need there, it's a big need, and this will be a -- there's a lot of work for our industry to do as well as we can to support the amputee population with good solutions. But I'm cautious to provide any estimates to how the market will develop in terms of size. Operator: The next question will be from Jesper Ingildsen from Carnegie. Jesper Ingildsen: A couple of questions from my side. Just going back to the strong EMEA growth that you saw here in Q4, the 12% organic growth. As I understand, that's also helped by the way you treat acquisitions. Could you just maybe highlight how much the Streifeneder acquisition has contributed towards that growth? And then maybe just broadly in terms of '26, is anything to call out here in terms of basing, both in terms of top line growth, but also from a margin perspective. So I mean, obviously, you're calling out gradual improvement in Patient Care, but also bracing and support getting back on track to market growth. Like what is the timing there? And also from a cost perspective, anything to call out that could impact the margin? Sveinn Sölvason: Yes. Thanks, Jesper. I mean on the organic growth, yes, the way we include acquisitions in organic growth is basically we will just compare to the previous year, what Streifeneder did in quarter 4 last year and because that is essentially the -- ultimately the organic growth in the business in the portfolio that we own for the quarter. So this had a -- yes, I would say, a slight positive impact on the EMEA growth, but it's not a deciding factor. What the main theme there is, again, just solid performance across our core portfolio in Prosthetics and Neuro Orthotics as well as just our Patient Care business delivering a solid quarter. On your question with regards to bracing, yes, we -- our goal is to deliver bracing growth in line with market here -- here in the year. And like -- I mean, the macro picture in bracing is unchanged. There is pricing pressure, especially in the U.S. market, partly reimbursement related. But it's important to keep in mind that still these products that -- which account for the vast majority of our portfolio in bracing are fundamental products and standard of care in each and every major health care system. What will be different for us here in '26 versus '25 is that we have some important product launches in big categories that we expect to contribute and help us fight, let's say, the erosion we see still in some selected pockets. So that is -- that is where we are in bracing. It's a competitive marketplace, but our position is strong in the key markets we operate in bracing, and it's our goal to deliver at least in line with market. Operator: [Operator Instructions] The next question will be from Martin Brenoe from -- he just jumped up. So our next question will be from Yiwei Zhou from SEB. Yiwei Zhou: It's Yiwei from SEB. And also a couple of questions from my side. Firstly, maybe a question to Arna. You mentioned here the restructuring initiatives for Patient Care. And what -- when do you expect this to be complete during 2026? Gudny Sveinsdottir: So restructuring initiatives in Patient Care have more or less been done. We are now starting to focus on the performance management and the initiatives we are implementing and make them -- make sure that we deliver in 2026. As we said, it will gradually impact the year, but we do not expect any material initiatives in 2026 affecting our margins from Patient Care. Yiwei Zhou: Okay. Very clear. And then also a question on the EBITDA margin guidance. The range is a bit wider than usual for '26. And apart from the continued external headwinds, is there any internal variables you're seeing sort of uncertainties? Sveinn Sölvason: No. Well, I think it's fair to say that external environment is part of the overall picture, especially the tariff. Sorry, could you please mute your lines. Yiwei Zhou: Yes. Okay. Sveinn Sölvason: Yes, I think that is -- I think it's mainly because of just the external environment that we're operating in that we go in with a little bit broader range. I think it's important to keep in mind the big picture in margin. I mean we guided in the beginning of '25, we guided for 20% to 21% EBITDA margin. And kind of the main -- then always things change as we get into the year. Some things are better than what we anticipated, some things are not as good as we anticipated. Some -- I mean, we did anticipate that we would take a lot of costs through our P&L because of the work we're doing in Patient Care. That did not surprise us, even though it's maybe been a little bit higher than what we anticipated. But what we did not anticipate in the beginning of the year where there's the FX impact and also the tariffs. These are meaningful topics. And I think it's important to also understand that despite these, you could say, the tariffs that I mentioned earlier, which is probably $5 million to $6 million on a full year basis, the FX impact and the cost we pushed through in relation to the brand and system changes in patient care, we're growing or increasing our margins year-over-year. And I think that is a key message. And that also goes back to, again, our overall hypothesis in terms of what our financial ambitions are within that Growth '27 framework is to grow our top line faster than we did pre-COVID. And we've delivered consistently on that here in the first 3 years of this 5-year strategy period as well as also delivering on the margin piece. So yes, we're going into 2026 with a little bit broader range. And you could say perhaps the volatility on the tariff side and on the FX side is a big part of that going in a little bit broader. But our intention still remains the same to continue to grow our margin. Yiwei Zhou: Okay. But I just want to understand what needs to happen to get to the 22% EBITDA margin. I mean there's no sign that the FX headwind will be reversed and then the tariff is still there. Could you maybe comment also. Sveinn Sölvason: Yes. That will ultimately depends on our ability to grow the business and our ability to move forward, specifically our Patient Care plans to benefit from running a global platform around how we deliver mobility solutions, how we source the materials we use in our fabrication processes and how we're able to create an environment that is better for our clinical workforce that is every day doing an incredible job in seeing and serving patients. So all of the our efforts in Patient Care are essentially aimed at enabling more productivity such that we're able to see more patients and deliver more solutions. So this is the -- probably the biggest single topic with regards to our margin story this year, our ability to make progress on our Patient Care plans. Yiwei Zhou: Great. Very clear. And then the last question, maybe challenge a bit on the long-term growth target. I mean, initially, you provided was 5% to 7% organic growth at the latest Capital Market Day. And you recently sort of indicate you see the upside 5% to 8%, which is also what you are guiding for '26. I mean looking back '24 and '25, both you delivered only 6%, close to lower end of this range. I mean what -- I mean what make you confident to accelerate the growth in the coming years? I just want to get a feeling, I mean, how realistic is this 8% at the high end of the guidance range? Sveinn Sölvason: Yes. That's a fair question, Yiwei. And if you look at the -- going back to this Growth '27 period that we're now in, we delivered 9% in '23, which was though partly impacted by an inflationary environment that is different to what we see now, of course, 6% in '24 and then now again 6% in '25. And I think ultimately, our organic growth will be a result of our performance in -- or the weighted average of the growth in the 3 segments. What we've delivered here, especially in our legacy product business, Prosthetics and Neuro Orthotics is that we've delivered a very clear step-up in growth compared to historic. And that is again driven by just solid performance in our breadth and across the mechanical business and good execution on the Bionics side that drives that mix growth. Regarding our ability to deliver in the upper end of this 5% to 8% range, again, it will require still solid execution in Prosthetics and Neuro Orthotics and our ability to deliver more in line with the market on the patient care side. These are the biggest topics. Yes, bracing will have to be there as well, but that is a smaller part of our portfolio, around 14% of our overall sales, but still also to push into the upper end of the range, we need to do better than what we did in '25 in bracing. Operator: Our next question will be from the line of Martin Brenoe from Nordea. Martin Brenoe: Just have 3 quite simple questions. First of all, you mentioned Australia had quite decent growth, strong growth there. Just wondering whether there is any special ordering or any phasing we should be aware of? And to broaden that a little bit, is there any phasing we should be aware of when we are doing our model for Q1 in terms of any growth that could have happened in Q1 that was pulled a bit forward to Q4 2025? That's the first question. Sveinn Sölvason: Yes, Martin, thanks for your question. No, not as such. I mean we just had a we have a high-quality business in a favorable market in Australia, and we did exceptionally well across both our product and Patient Care business here in '25, and we are also in a position to have a good year in '26 in Australia. So no one-offs or anything like that here in the quarter. Martin Brenoe: That sounds very promising. And then my second question is on Fior & Gentz. Maybe just a quick status on -- if you look at that compared to your overall prosthetics business, how much does that account for? And how much in terms of the group growth do you expect it to contribute with? If you can provide just some color on Fior & Gentz contribution would be very helpful. Sveinn Sölvason: Martin, what I'll say there is I'll just point back to the announcement we did when we acquired the business in terms of its relative size. It is at that point in time, the business was roughly yes, $25-ish million and growing and the historical growth was around 14% organic growth. And what we've communicated since then is that we continue to deliver growth around that range. Now when it comes to contribution to overall growth, we -- we are, for example, starting from a low base in the U.S. And that will -- as we are able to gain some traction on especially the new reimbursement code for the knee brace, the Bionic knee brace that can and will impact our growth. So I hope this gives you a little bit of color. We don't report specifically on Fior & Gentz, but it's by all means delivering in line with our plans and also as we roll out to new markets and leverage our commercial infrastructure in other regions where there is good reimbursement for these types of solutions. Martin Brenoe: That's very clear. Sveinn, just a final question for me, and then I'll jump back in the line. It says in the report that you have in the future will launch a dedicated K2 MPK solution. Just wondering if you can specify in the future a little bit more to an analyst like me. Sveinn Sölvason: Thanks, Martin. I think there's no secret that we are working hard on complementing our strong Bionic grades with a product that is, you could say, specifically designed for low-active amputees. We do have a strong range. We have obviously the Navii, the Rheo and also the Icon from College Park. So we have a strong range that fits under the new reimbursement scheme also in the United States, and we believe that we are capturing our fair share of the uptake in the U.S. But we are working hard on a new low-active knee. It will not come to the market this year. But we will -- as we get closer, we will provide more guidance on time line. Operator: [Operator Instructions] As there appears to be no more questions in the queue, I'll hand it back to the speakers for any closing remarks. Sveinn Sölvason: Thank you very much, operator. Thank you, everyone, for dialing in today and listening and participating in our conference call. I encourage you to reach out to our Investor Relations team if you have any further questions. And with that, I'll close the call and wish you all a great day. Thank you very much.
Operator: Welcome to the presentation of Sartorius and Sartorius Stedim Biotech on the Preliminary Results 2025. Please note that the call is being recorded and streamed on Sartorius' website. Your participation in this implies your consent with this. A replay will be available shortly after the call. I would now like to turn the conference over to Petra Müller, Head of Investor Relations of Sartorius. Petra Muller: Thank you, operator. Hello, and a warm welcome from my side. I'm joined today by our CEO, Michael Grosse; by Florian Funck, our CFO; by René Fáber, Head of our Bioprocessing Division and CEO of Sartorius Stedim Biotech; and by Alexandra Gatzemeyer, Head of our Lab Products & Services division. As always, we will start with prepared remarks followed by the Q&A session. As the call is scheduled to 1 hour, please limit your question to 1 so that as many participants as possible can take part. Please note that management's comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation. With that, I'm pleased to hand over to Michael Grosse, CEO of Sartorius. Michael, please go ahead. Michael Grosse: Thank you very much, Petra, and a warm welcome also from my side, and thank you all for joining us today for our preliminary full year 2025 results. Before we begin, I would like to sincerely thank all of our colleagues across Sartorius for their commitment and dedication over the past year. Their passion, professionalism and strong focus on execution are clearly reflected in our results we are presenting today. I would also like to personally thank everyone who has made it such a smooth and rewarding experience for me to step into my role as a CEO, and particular thanks as well to my colleagues here, Alexandra, René and Florian from the executive team. It has been really a great journey up to now, fantastic work on the strategy and great things to come. And I don't want to miss out as well on saying thank you to the team here from Investor Relations, Communications and Finance because I think the workload over the last couple of weeks and days have been tremendous in order to get us all prepared and get our reporting in place. Thank you all for that. Now let me briefly summarize key messages that we would like to share with you today. First of all, 2025 was characterized by return to normal demand behavior for consumables and continued cautious investment activities by our core customers. Combined with an active operational management in a still challenging environment, we delivered improved operational and financial performance. Okay. All right, supported by the improvement -- improving demand trends, mainly on the consumable side and the operating leverage inherent in our model, Sartorius achieved considerable profitable growth. For the full year, we delivered results slightly ahead of our upgraded full year 2025 sales guidance. Profitability landed in the upper half of our initial guidance from April and exceeded our October EBITDA target, with a margin of 29.7%. This performance reflects growing volumes, operating leverage and strong execution. Now growth was once again driven by our recurring business across both divisions. In Bioprocess Solutions, strong double-digit growth in recurring revenue more than offset continued softness in equipment, which, however, stabilized over the year. In Lab Products & Services, performance improved gradually as expected. Growth in H2 was driven by recurring business, while instruments showed positive momentum also supported by product launches in bioanalytics. Our operating performance allowed us to further reduce our leverage ratio, underscoring our commitment to financial discipline and a strong balance sheet. Overall, in 2025, we laid a solid foundation for the year 2026. For the group, we expected sales growth of around 5% to 9% with an underlying EBITDA margin slightly above 30%. Let me now turn to actions we are taking to enable future growth. Let's talk about innovation and partnerships. We have made tangible progress in 2 key areas: innovation and the expansion of our resilient global R&D and production capacity. We launched several new solutions across both divisions. In Bioprocessing, we made progress in more sustainable product design with the launch of Sartopore Evo, a PFAS-free filtration solution, which addresses growing regulatory and customer expectations around the elimination of persistent substances while maintaining the high performance and reliability our customers require. We also launched the Sartocon cassettes, further strengthening our offering for efficient and scalable downstream processing, particularly for viral vector purification. Now on the equipment side, we introduced the Pionic Continuous bioprocessing platform developed with Sanofi, which faces high customer interest. This platform supports the industry's transition from traditional batch production to continuous processes, enabling faster, more efficient and more sustainable manufacturing workflows. And our teams advance our bioanalytical portfolio, including the only live-cell imaging system with confocal microscopy inside an incubator, a really important step forward for the work with complex 3D cell model. We further strengthened this area also through the acquisition of MATTEK, expanding our portfolio of advanced 3D cell models that more closely mimic human tissue, deliver more predictive and reproducible results and help reduce the need for animal testing. And we entered into a partnership with Nanotein Technologies, enhancing our capabilities in cell expansion and activation to support next-generation biologics. In parallel, we continue to invest in a resilient global manufacturing footprint. We completed the expansion of [ Aubagne ] and progressed with the expansion in Germany, as well as with the construction of our greenfield site in Songdo, South Korea, ensuring scalability, supply reliability and proximity to our customers. Taken together, these actions strengthen our ability to support customers as markets normalize and position for Sartorius for sustainable innovation-led growth over the coming years. With this, let's take a closer look into our numbers. Florian? Florian Funck: Yes. Thank you, Michael, and a warm welcome also from my side to everybody out there. I'm happy to take you through our numbers that's reflected, in my perspective, a consistently strong performance in the year 2025. So let's start with top line performance. Our sales revenue increased by 7.6% in constant currencies and 4.7% in reported currencies, reaching slightly more than EUR 3.5 billion. This positive development was driven by mid-teens growth in our recurring business in 2025, which represents, by far, the largest part of our business, as you know. Our nonrecurring business remains soft on a full year basis, but clearly stabilized in H2 and was above H1 in absolute numbers as respective. The difference between constant currency and reported growth was primarily driven by U.S. dollar weakness, which represents a headwind of almost 300 basis points to reported sales growth in fiscal year 2025. Our full year performance was also influenced by U.S. tariffs. The successful implementation of tariff surcharges contributed approximately 1 percentage point to sales revenue growth. Order intake developed strongly, growing faster than sales. And as a result, our 12-month rolling book-to-bill ratio remained consistently above 1 throughout the year '25, although as expected and also communicated in our last quarterly call, it declined slightly sequentially in Q4 due to a very strong prior year comparison. In absolute terms, order intake in Q4 was roughly on par with the exceptional strong Q4 2024. You remember that above EUR 1 billion figure that we posted there. And that was the quarter with the highest absolute order intake in 2025. And therefore, we entered 2026 on the back of a strong order book. Looking at our divisions in more detail. Bioprocess Solutions delivered another strong quarter, bringing full year sales revenue growth to 9.5% in constant currency. Growth was driven by mid-teens growth in consumables throughout the year, while equipment remained soft, as Michael already mentioned, but was clearly stabilizing with H2 '25 sales being double-digit percentage above H1 '25 sales. Lab Products & Services delivered a resilient performance in a challenging market environment. Sales were essentially flat at 0.2% in constant currencies plus, supported by solid momentum in consumer goods and services. The acquisition of MATTEK contributed slightly more than 1 percentage point to growth. Instrument sales were impacted by constrained CapEx spending in life science research and market. However, we are seeing encouraging signs of stabilization supported by positive momentum in bioanalytics in the second half, driven in part also by the launch of several updated instruments in that market space. Let me also quickly elaborate on our regional performance. EMEA sales performance remained robust with growth of almost 6% in 2025. As a reminder, the recovery in EMEA started earlier than in other regions and therefore, faces higher base effects compared to the Americas or APAC. The Americas outperformed, growing by 8.9%, like APAC, which also grew by 8.9%. In APAC, China continued to stabilize with early signs of improvement. Excluding China, the APAC region delivered low double-digit growth in the year 2025. Let's now turn to our profitability. In addition to robust growth momentum, we achieved a strong improvement in profitability over the past 12 months. Underlying EBITDA increased overproportionately by 11.2% to EUR 1.052 billion, with the margin expanding by 170 basis points to 29.7%. This margin improvement was driven by positive volume and product mix effect as well as economies of scale, further underpinned by cost discipline, more than offsetting FX and tariff-related headwinds of around 1 percentage point. Looking at the divisional profit distribution, profitability in our BPS division developed strongly. Underlying EBITDA increased by 15.2% to EUR 907 million, and the margin improved by 240 basis points to 31.7% based on the effect just mentioned also for the group. In LPS, margin declined year-on-year to 21.5%, roughly 50-50, reflecting an unfavorable product mix on the one hand side as well as FX and tariff-related impact on the other hand side. Now let's take a look at the performance below underlying EBITDA, where both net profit and cash flow developed well. The strong increase in underlying EBITDA of 11% translated into overproportionate growth and underlying net profit of 18% and reported net profit of 84%. As a result, underlying EPS also grew at a very strong 18%. Turning to cash-related items. Operating cash flow amounted to EUR 837 million, below the exceptionally strong prior year level of EUR 976 million, which was positively impacted by significant one-off inventory reduction measures in the year 2024. While business volume improved strongly in 2025, working capital remained largely unchanged. Going forward, we remain committed to keeping net working capital growth below our sales growth. Free cash flow amounted to EUR 390 million, reflecting the development of our operating cash flow. In addition, free cash flow is also reflecting the slightly increased CapEx spending from EUR 410 million to EUR 441 million. Accordingly, the CapEx ratio was 12.5%, which is exactly in line with our guidance throughout the year. To conclude our section on 2025 financials, let us now look at the development of the balance sheet-related key figures. We see a strong equity ratio of 39.8%. The increase versus year-end '24 is mainly due to some repayments on financial instruments using our strong cash position and therefore tightening the balance sheet total. Net debt remained largely unchanged, while gross debt has been reduced by EUR 277 million and despite payout of the acquisition of MATTEK in summer 2025 of EUR 70 million. The leverage ratio, defined as net debt to underlying EBITDA, improved as expected from 3.96x to 3.55x in 2025, despite the acquisition of MATTEK, which added approximately 0.1 turns to the ratio. So we are well underway on our planned deleveraging path. And as you can see in the title, we stay committed to our investment-grade rating. With that, I would like to hand back over to Michael. Michael Grosse: Thank you, Florian. So overall, we are very pleased with the strong performance Sartorius delivered in 2025, supported by improving demand trends, mainly on the consumable side. In addition, the results demonstrate the resilience of our business model and confirm the attractive long-term opportunities in the biopharma and life science markets. We will remain focused on disciplined execution, targeted investments in innovation and capacity and operational excellence. Looking at 2026, it is clear that our industry is back on track, but has not yet fully reached its long-term growth level, especially in terms of demand for equipment and instruments. Since the year is still young, we have deliberately set a broad guidance range to account for continued high macroeconomics and industry-specific volatility. The lower end of the range reflects the cautious scenario in which market conditions weaken. However, we currently expect market dynamics to continue normalizing and positive trends to continue. For 2026, we expect to continue our profitable growth trajectory with a continued positive development in the Bioprocess Solutions division and a recovery in the Lab Products & Services division. For the group, we expect sales growth in constant currencies of around 5% to 9%, including a positive effect from the market acquisition and U.S. tariff-related surcharges totaling approximately 1 percentage point. And for the underlying EBITDA margin, we expect an increase to slightly above 30% in which a technical margin dilution of around 50 basis points from tariff surcharges is already reflected. In Bioprocess Solutions, we anticipate sales growth of around 6% to 10%, mainly driven by the recurring business, while we expect equipment business to remain at least stable. The underlying EBITDA margin should be slightly above 32%. In Lab Products & Services, sales growth is expected at around 2% to 6%, including a growth contribution of 1.5 percentage points for MATTEK. This reflects the continued growth recurring business and an at least stable instrument business. We expect underlying EBITDA margin to be slightly below 21%, mainly influenced by deliberate investments in advanced cell models with additional headwinds from unfavorable mix, ForEx, and the dilutive effect of the existing tariffs. CapEx ratio should be around the prior year level as we will continue to invest selectively and with discipline in expanding our global research and manufacturing footprint. Net debt to underlying EBITDA should decrease to slightly above 3x at year-end. As usual, we will provide some additional information for modeling purpose. As you can see, with the Euro-U.S. rate of 1.2, there, we would be a headwind of around 2 percentage points on the reported versus constant currency growth in full year 2026. In Q1, the headwinds would be around 4 percentage points at Euro-U.S. rate of 1.2. Taken together, we are confident that Sartorius is well positioned to benefit from continued recovery. With that, I would now like to hand over to René, who will walk us through the financials of Sartorius Stedim Biotech in more detail. René, over to you. Rene Faber: Thank you very much, Michael. Also from my side, welcome, and thank you for joining us on the call today. In 2025, Sartorius Stedim Biotech achieved considerable profitable growth driven by improving demand, particularly for consumables and operating leverage. This allowed us not only to achieve our updated October 2025 guidance, but also to exceed our top line expectations. Overall, we are very pleased with the results and would like to sincerely thank our all colleagues across the Sartorius Stedim Biotech for their commitment, dedication and really hard work in making 2025 a success. Looking at the numbers. Sales for the Sartorius Stedim Biotech Group increased by 9.6% in constant currencies, reaching nearly EUR 3 billion. Growth in reported currencies was 6.7%, primarily due to the weaker U.S. dollar, which represented a headwind of almost 300 basis points. The successful implementation of tariff surcharges contributed approximately 1% of sales revenue. Our high-margin recurring consumables business remained very strong, delivering mid-teens growth more than offsetting the soft but increasingly stabilizing equipment business. Order intake grew faster than sales, keeping our 12-month rolling book-to-bill ratio consistently above 1, while the ratio declined slightly sequentially in Q4, as Florian explained, due to a very strong prior year comparison. Q4 order intake was roughly on par with the exception of Q4 2024, making it the highest absolute order intake quarter in 2025. We therefore entered 2026 with a strong order book. Underlying EBITDA increased by 17% to EUR 914 million, driven by volume, product mix and economies of scale. Consequently, the underlying EBITDA margin improved significantly to 30.8%, an increase of 2.8 percentage points compared to the previous year. Looking at the top line performance from a regional perspective, EMEA made a solid momentum, delivering 7.3% growth. This robust performance came despite a higher comparison base resulting from an earlier recovery cycle. The Americas grew by almost 12% followed by Asia Pacific growing almost 11%. In APAC, China stabilized and was only slightly dilutive to the overall growth. Excluding China, the growth the region delivered was in the low double-digit range for 2025. I'm also quite pleased with the more recent development in China beyond stabilization as the year progress, we are now seeing really early signs of recovery. Looking at the net profit and cash flow, underlying EBITDA growth of the strong 17% translated into an overproportional increase in underlying net profit of 26.7% to EUR 428 million and reported net profit of nearly 52% to EUR 266 million. Underlying EPS rose by 26% to EUR 4.4. Operating cash flow remained solid at EUR 692 million, although below the high level recorded in the prior year, which was positively influenced by the pulling of inventory that Florian already touched upon. Free cash flow stood at EUR 295 million, and the CapEx as a percentage of sales came in at 13.3%. A quick look at our balance sheet metrics. Our equity ratio improved to 51.7% in the end of 2025 with the increase being driven by some repayment of financial liabilities and therefore, tightening the balance sheet total. Net debt decreased by EUR 18 million versus year-end 2024 and gross debt reduction. Deleveraging is progressing as planned with the net debt to underlying EBITDA ratio improving to 2.38 by the end of 2025. So we are very well on track on our deleveraging path. Now before we move into the Q&A, let me also quickly elaborate on our full year guidance for the Sartorius Stedim Biotech Group. As mentioned earlier, we are very pleased with the strong performance of Sartorius Stedim Biotech has delivered across all key financial dimensions. The 2025 results demonstrate the resilience of our business model and confirm the attractive long-term opportunity in biopharma market. We will remain focused on disciplined execution, targeted investments and innovation and capacity and operational excellence. Looking in 2026, same is true for Sartorius Stedim Biotech and for Sartorius AG when it comes to the overall environment and industry trends. Therefore, we also have deliberately set a broad guidance range with the lower end of the range reflecting a cautious scenario in which market conditions weaken. However, we currently expect market dynamics to continue normalizing and positive trends to continue. We expect to stay on our profitable growth path and for 2026 sales revenue growth in the range of around 6% to 10% in constant currencies, including a 1 percentage point contribution from the U.S. tariff surcharges. Growth will be mainly driven by the recurring business, but against high costs, while the equipment business should remain at least stable. The underlying EBITDA margin should increase to slightly above 31%, in which a technical margin dilution of around 50 basis points from tariff surcharges is reflected. Our CapEx ratio is expected to stay around previous year level at around 13%, reflecting our ongoing investments into research and resilient production footprint. Our commitment to deleveraging remains unchanged. We anticipate the leverage ratio, the net debt to underlying EBITDA to decrease to slightly above 2 at year-end. Our modeling assumptions, Michael already explained, expected headwind from FX on Sartorius AG level, same is true for Sartorius Stedim Biotech. With this, I will hand over to the operator to begin our Q&A session. Operator: [Operator Instructions] The first question comes from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: What does your guidance assume in terms of U.S. onshoring build-outs in 2026? What could drive upside to these expectations? Michael Grosse: Yes. So I'll take that. Subbu, thanks for the question. I mean, right now, as we've been seeing that there is a lot of plans, some of them really committed, some of them still a bit on the horizon. As we see as well the lead times for order particularly on the equipment on a larger system side for greenfield or for larger expansions, we think that the impact from large -- from relevant reshoring activities will most likely not contribute with revenue in 2026. So we've not baked anything of that in our current expectation and assumptions. This would rather be for the year 2027 and beyond where this may have a larger impact. However, we are very closely connected, of course, with all our customers, supporting them on their plans, discussing opportunities as we move forward. It goes up from this, of course, very short near-term activities on brownfields and expansions of existing capacity. Subhalaxmi Nambi: Perfect. And a quick follow-up. How did equipment orders for BPS and LPS, respectively, trend for the quarter for Q4? And are you starting to see any early signs of recovery? You spoke about comparison and orders, but I was just trying to figure out what about equipment orders separately for LPS and BPS. Rene Faber: Thank you for the question. Although we are not giving further information on that very detailed level. But what I can tell you is, on the one hand side, we have been talking about H2 sales being much stronger than H1 sales. And the same holds true when we look at order intake where the order intake in H2 was also well within double digits above H1, which, of course, then speaks to the quality of the order book and therefore, our cautiously optimistic outlook then also into '26. Operator: Next question comes from Richard Vosser from JPMorgan. Richard Vosser: One question, please. So you talked about market conditions not fully back to normal for equipment. So just a little bit of elaboration on changes of customer sentiment here. You've talked a little bit just now about equipment orders suggesting improvement. So just thinking about, first, your confidence in the stabilization of equipment revenues, what's underpinning that in '26? But also, when do you think equipment could move more back to normal levels? We've seen that happen for consumables in '25. What's your thinking there? Rene Faber: Yes. Thank you for the question. I'll take it. Let me first get back to 2025. You will remember when we talked about stabilization of equipment like in Q3, we said for H2 '25, we expect to be in revenues for -- with equipment at least on the levels of H1, maybe slightly above. And you could hear from Florian that H2 came out as stronger, so confirmed the stabilization stronger compared to the H1. So I think that's a clear kind of confirmation of our view and expectations and visibility and the discussions with our customers that the equipment is stabilizing. And now looking, of course, into the 2026, we continue to see the positive discussions and have positive discussions with customers. They are tangible projects, sizable projects on the horizon. The order book is healthy as we mentioned in the -- a few minutes ago. So as Florian [indiscernible], cautiously optimistic looking into the 2026. We believe that the portfolio we have is well positioned to help customers quickly adjust their capacity, single-use technologies are designed to make -- to do -- to provide flexibility. So yes, we're very encouraged about the current -- the sentiment as well as the -- our position and discussions we had with our clients. Michael Grosse: I would like to expand even that from Rene's perspective, I think the similar situation is true as well for LPS division on the basis of equally, I would say, strong development interest levels in needs and opportunities, particularly on the biolytical instrument side, as well a trend that we see in the second half of the year, particularly in Q4, coming and resulting into a good level of contribution in both sales and order intake. And again, so same sentiment for us. But again, I think it will take, for sure, the full quarter Q1 for us to have simply better visibility, better understanding the continuation of the order intake trade in order to have a better view whether this requires further refinement of our perspective for the full year at that point in time. Operator: The next question comes from Doug [indiscernible] from Schenkel. Douglas Schenkel: It's Douglas Schenkel from Wolfe. I'm going to try to do 3 really quickly. One, I just want to confirm, based on your responses to the earlier questions that your 2026 guidance does not currently assume an improvement in bioprocessing equipment demand. So that's the first one. The second, can you please bridge to your margin guidance for the year? Specifically, what would be helpful is, what's the impact of foreign exchange, tariffs and operating efficiencies as you incorporate those into your guidance? And then third, [Technical Difficulty] many companies in your peer group have taken a more conservative approach to guidance than had been the norm given market challenges over the past several years and given ongoing policy uncertainty. With that in mind and also recognizing that this is issuance as CEO, how would you describe your initial guidance philosophy? Florian Funck: So maybe I start to give a little bit more perspective on the margin guidance here. So what we know as of now, of course, is roughly the impact of the tariff on the year 2026, which is to be around 50 basis points. What we do not know is the full FX impact. The weaker the U.S. dollar the higher this impact might be, although we think we are in a good position to a certain extent also to compensate certain headwinds on the FX side in the margin. The, let's say, broad improvement in margin that we are seeing, if we are taking out tariff and FX impact, is definitely a 3-digit basis point number, so above 100 basis points and should be driven to a majority from ongoing operational leverage that we've seen. Michael Grosse: Yes. Maybe to add to Florian's point there just because you may have really in mind as well our fantastic margin contribution that we delivered in 2025. And of course, there are other effects that I think are relevant in my mind to keep in mind there. Of course, on the operating leverage, since we are now already throughout the last year on a different level, the effect of this is, of course, diminishing to a point. Keep as well in mind that when it gets to our activities that we launched in the year even before on our cost reduction programs that the main effect there as well was visible, particularly in 2024 and 2025, still continues in 2026, but less so. So with this and as well a bit of the question mark, how much of the equipment will be there in the year 2026. If that is a higher degree of recovery, of course, the margin mix, the mix effect that we have seen in 2025 was probably as well a bit more favorable compared to 2024 than it may be in 2026 compared to 2025. Then you talked as well a bit about the guidance philosophy. Yes, I think we try to express that in our wording already. On the one hand side, it's early in the year. We felt like, okay, we're feeling confident enough in order to quantify our guidance. But given the fact that it's early in the year, given the still the level of uncertainty that we have there in terms of macroeconomical and geopolitical aspects, as you mentioned, I think we want to as well, therefore, be prepared for this and the lack of full visibility for the full year on the basis of order intake and the book and the market trends, we felt the philosophy is indeed that we have decided for a wide range with the 4 percentage points we have there. We don't feel that we are neither over aggressive nor over conservative with what we put out there. However, we feel that we will not celebrate if we achieve only a 6% growth for 2026. That's equally clear. At the same time, the level where we will land on versus the mid or even beyond the midpoint is so much dependent now on what will happen. So I think we will be in a better position after the first quarter to give more clarity as the year progresses. And that is why I think the philosophy remains, I would say, remains balanced, remains balanced. Operator: The next question comes from Harry Sephton from UBS. Harry Sephton: [Technical Difficulty] consumables. So we're seeing a more comfortable high single-digit to low double-digit growth across the big players in the industry on the consumable side. Based on your guidance, that you're expecting to be more in line with market growth. So what do you see in terms of potential upside or downside risk to market share in the near term on the consumable side? Rene Faber: Yes, I take it. So a question on consumables. As you will know, the consumables is very much -- the majority represents the majority of our revenues for the -- I'm talking for the Bioprocess division. You will know that most of that recurring revenues, consumables revenues are linked to commercial manufacturing and consumption of our customers of the products in making commercial drugs, adding late-stage clinical material production, it comes to around 80% of the consumables revenue are linked to that late-stage plus commercial manufacturing. So -- and that's more or less kind of also gives you an idea about what dictates the growth of consumables. Looking forward, it's very much about the volumes, manufacturing volumes of our customers. We can do little about that, of course. But then once new drugs are being approved or enter these late-stage clinical phases, yes, that drives additional volumes for these consumables. So looking forward, I think we have been working consistently over the years with the teams in all regions to make sure we are early with customers and place these consumables spec in, validate when the decisions are made and validations are done and also working hardly with customers to convert wherever possible in an ongoing and existing processes towards our products. The highlight of that was, of course, during the pandemic where mainly due to our ability to supply and the customers, we gained market shares and kept or we were able also to protect roughly 1/3 of this gain moving forward. So we are, I think, on a very healthy and successful track record to drive that above market -- above drug volume growth of our consumable revenues. Of course, as we mentioned in presenting our 2025 results, we have seen a strong mid-teens growth of our consumables in 2025. So comps are higher now looking in 2026, but we are very confident that these fundamentals and the volumes driving the growth of consumables are there are intact and are positive about the outlook in '26 and beyond. Operator: The next question comes from James Quigley from Goldman Sachs. James Quigley: I've got one on China, please. So you said in the slide and in the comments that China is starting to show some encouraging signs of growth. I think some of your peers at a recent conference still sounded a bit muted on China growth. So what are you seeing here in the region that's driving those encouraging comments from you across the BPS and the LPS divisions? Michael Grosse: So I mean I can get started a little bit. I mean, highlighting perspective again, I think China has really a few years back that I think we've seen a really difficult market environment with as well, very strong level of guided preference with regard to local players and for local production. We feel now that a little bit this notion of rebaselining the market has come to an end. We feel now that we are able to, right now, keep market shares in China and benefit from probably the still modest level of the growth that the China market demonstrates. At the same time, there's, of course, a lot of innovation activities that we are part of and want to equally, I think, being asked by customers to be part of the rollout of out-licensing and bringing some of their pipeline development into other regions and markets. Our expectation for the market, however, overall is still a rather flattish or rather very modest level of degree of growth expectation given as well the prior year performance that we've seen. So we don't see and we don't expect naturally a big turnaround of that momentum. It's still probably there to come later. At the same time, there's a big overhang and a high capacity buildup on the equipment side. So particularly on the equipment side, we feel as well that China will, in the year 2026, be a rather muted market. But on consumables, we think will be part of the game. And yes, as we said, we are -- we have modest expectations here on the market. Operator: The next question comes from Charles Pitman-King from Barclays. Charles Pitman: A quick question, please, on just the guidance again. Just trying to relate the kind of 2 separate statements of the low end of your guidance range, reflecting kind of deteriorating market outlook. But also your commentary around the strong order book and equipment being at least stable. Can you confirm, therefore, that the low end of your guidance range reflects equipment being stable, supported by your existing backlog and other market deteriorations impacting consumables? And then just a quick clarification on margins. Just wondering why you're only providing a kind of bottom end of that range. And is it the implication that at the top end of the range, you have rising equipment, which will offset the margin such that your only confident to provide at the bottom end of the range? I'm just trying to -- yes, just thinking about how you're setting this out. Michael Grosse: So first part, yes, I mean... Unknown Executive: Charles, you broke up a little here technically. That's why we are a little puzzled. Could you repeat the first part of the question? Charles Pitman: Sorry. My question relates to trying to triangulate the 2 guidance commentary, one being that your sales could be at the low end of the range upon worsening market conditions, but did you separately expect equipment to be at least stable? I'm just wanting to confirm that your order book means that you have this confidence in your equipment being at least stable, and that in the scenario where you hit the low end of the range, that's driven by consumable deterioration more so than any downside to your equipment outlook? Michael Grosse: Okay. So I mean, yes, I mean, again, I think on the lower end of our guidance as we try to express, we see some level of, I would say, market situation overall. So we would see that there is no impact, no positive contribution there from the equipment and possibly as well a slight deterioration even on the consumable side. We see the total mix. It depends on how you see the 2 elements of that coming together. But as we say, I mean, if we see the momentum that we've seen right now based on, as you said, the order intake generated in equipment, and at least, stable situation plus the continuation of the current trajectory of the consumables that would be slightly above the bottom part of the guidance. So we would assume some level of deterioration of that condition. Then I think the other question was on the margin. Florian Funck: Yes. While we have not given a range for the margin, we have said that we want to reach slightly above. So this is in a way open to one side. Now let's assume we would be on the lower end of our guidance range. The 5% for the group, we would definitely aim to see margin improvement against prior year, but we might not fully reach that. So the margin corridor that we are indicating to was slightly above -- the 30% was more towards the midpoint of the guidance. If we then come to the upper part of the guidance corridor on top line, of course, there's way more potential on the back of more operational leverage. Operator: The next question comes from Charlie Haywood from Bank of America. Charlie Haywood: Charlie Haywood, Bank of America. I have 2. So first one in '26, is it fair to expect typical seasonality on the bioprocessing side? So I think you've previously commented to 4Q, 1Q, 2Q, 3Q. Or given equipment phasing and what looks like a strong fourth quarter for those orders and a 6- to 12-month order book, might that distort to possibly fueling a stronger second half? And then the second question is just a bit more on midterm. Now that you spent a bit of time in the business. You previously sort of commented to Merck's 9% to 10% market outlook not far from your thinking. I guess how are you currently seeing the bioprocess midterm market growth in the end markets there? Michael Grosse: Thanks for the question. So I think we can maybe kick off a little bit on the basis. I think, as you know, we don't really break down and guide on the basis of quarterly perspective. So I think in this case, we would like to leave a little bit the breadth of the way of how we look at the year to come in more the total perspective. So we will not provide any specifics as we see the quarters moving forward. Again, I think it is probably more in the nature of the business. If you think about -- and it's probably a similar pattern that we've seen during the last year, given the lead times of equipment orders, particularly we now see that, okay, we generated the order intake in the second half of the year, Q4. So things now with the lead time, 6 to 12 months on the Bioprocess side, of course, then we would expect sales realization in all these orders to rather hit the second half of the year than the first half of the year. So that's natural by the lead time of those orders. Yes. Then in terms of the market. Yes, I think we hold to that. I mean we basically took a look at the market. We'll get back a little bit more interesting insight on the market analysis that we've done for the capital market that we will provide and bring up in March. However, as we said, we think that the assumption there for the market to be around a 9% growth, I think, is something that's very much in line with our views and with our analysis. Again, depending a little bit also on the specific market segment and then the exposure to the market segments. But that corridor is well in line with our analysis that we've done. And that is well what we believe that in our minds, we will measure us against from a mid- and long-term perspective. Operator: The next question comes from James Vane-Tempest from Jefferies. James Vane-Tempest: Just on LPS, actually. You mentioned in the presentation that the rolling book-to-bill is now more than 1, but now you specifically stated in both divisions. So I was just kind of curious whether the LPS book-to-bill turned in Q4 to be above 1? And if so, where you're seeing accelerating orders from either certain customer or product groups? And then related to LPS, I mean the guidance that you've given is marked the fourth year of margin decline in a row. I know we're going to hit more in March. But conceptually, how realistic is it from here to get back to levels seen a few years ago? And what would it take to get there? Michael Grosse: Okay. So the first part of the question was about the book-to-bill. Sorry, do you want to take that? Florian Funck: Exactly. James, as you know, we would not like to go specifically into that. But let me put it that way. We were quite pleased with what we have seen than in Q4. Let us leave it on that level. Michael Grosse: And then one was related to profitability. James Vane-Tempest: LPS margins, yes, in terms of the fourth year of decline and just thinking about what it would take to get back to where it was? Florian Funck: Yes. I think this is a question that we should discuss more in detail around the Capital Markets Day, if you don't mind. James Vane-Tempest: Okay. No, that's fine. One quick follow-up, if I can. And that is just about the business flow within BPS. Historically, you've kind of alluded to consumables equipment normalized being 75%, 25% approximately. And I know at 9 months, I think you sort of said it was around 85%, 15%. So just as an approximation, I was just kind of curious where that sort of number for the full year. Michael Grosse: Okay. Just maybe a short point of clarification. So I think, let's say, the numbers you're referring to on the 75%-25% would be on the group level. If we look at BPS, I think we see the rough proportion over the last half year, we've more talk about 80%-20% on that ratio. And again, I think, yes, that is where we see the current state. We don't necessarily believe as well, given the discussion earlier that, that will be as well roughly the level that we will see as we continue into the year 2026 now. Operator: The next question comes from Charles Weston from RBC Europe. Charles Weston: You've talked about Europe being ahead or EMEA being ahead in terms of the recovery curve. Does that also mean it's ahead in terms of the equipment order recovery curve? So have you got sort of proof of those orders turning into -- that interest turning into orders and revenue in Europe? And just a clarification question. You said you have good discussions with your customers to understand their CapEx plans. Can you give us any insight into whether the big investments that they're making is more about them shifting CapEx from other parts of the world into the U.S. or whether they are genuinely adding additional capacity into the U.S. over and above what they would be normally planning? Michael Grosse: No, thanks for the question. On EMEA, I think the situation is not that we see any difference here. Yes, the recovery overall happened earlier there, but we cannot now say that we have data that suggests on the equipment recovery that EMEA is ahead of the other regions. So that's not really the case. Florian Funck: Yes, and the discussions we have with customers on the equipment, they are mostly not today related to the onshoring or reshoring in terms of tangible projects, investments, either replacing old instruments or adding capacities. The discussions are with -- around onshoring, it's more about understanding really what is relevant of the -- what has been published from the headlines from our customers, what is of relevance for us, of course, you will see a lot of R&D investment being included in these headlines. You will see also investment in classical pharma facilities, final field drug product facility, so all less relevant for us. So trying to understand what's really in for Sartorius, and then also trying to understand really what the timing will be and when the discussions about the equipment, the providers will start. So this is more about where the onshoring discussions are today. So the very tangible projects are still less related to that topic. Operator: Next question comes from Odysseas Manesiotis from BNP Paribas. Odysseas Manesiotis: First, to better understand the growth deceleration in Q4. I have EMEA around 4% CER for Stedim. Could you give us a feeling of how that's different between equipment and consumables or just whether that's the growth we should be expecting for the region as the new normal? And secondly, in order to have a better feeling of the conservative business embedded in your guide, is it fair to say that your book-to-bill for the entirety of the year was pretty much close to your pre-pandemic average of around 1.05? And last quick one, biotech funding has been -- has been quite strong. What's the usual lag that you see between a biotech funding recovery and a pickup in your order intake? Florian Funck: So let me maybe start with the growth regarding BPS recurring versus nonrecurring in H2 because I think really looking only at 1 quarter doesn't make sense in looking at the matter, it's already really short term. But just to give you a feeling, the growth that we've seen in the nonrecurring business was very similar to the growth that we've seen also in the consumable business in H2. So this is also a reason besides the effects that we've seen in the order intake while we are taking that confident stance towards 2026. When it comes to book-to-bill, we are not communicating on the level of book-to-bill. Sorry. Operator: [Operator Instructions] The next question comes from Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just to come back -- can you hear me? Michael Grosse: Yes. It's okay. Thibault Boutherin: Just to come back on the topic of onshoring and the last CapEx plan that has been announced. There is a question that comes back often from investors, which is, is there a risk that because we see CapEx being skewed towards the U.S. in the next few years to see an imbalance between you and your competitors? So I think the idea from some investors is maybe U.S. peers would be better positioned to benefit from CapEx being skewed to the U.S. So just wanted to know if you could comment on your competitivity in the U.S., the market share relative to other regions and give an answer of how a shift of investments to the U.S. in terms of equipment and CapEx for biopharma would impact you? Rene Faber: Yes. So I'll take that question. Look, the -- in our industry, and I think it's been always the case, still is the case. The main decision criteria is the technology and the performance. Their customers don't make really compromises when it comes to how they equip their facilities, if it's for preclinical small scale manufacturing or even commercial. So I think there we -- and this is where we really see ourselves being ahead with a lot of focus on innovation. So I think for us, the positioning to benefit and participate in the potential onshoring wave is very strong. We have a facility to assemble equipment in the U.S., in the Boston area, in Marlboro, as well to be close to customers in case of the factor acceptance that and so on for more complex equipment. So I think, yes, we are ready to take all the opportunities, the feedback from customers is strong, so positive about the outlook here. Operator: Next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: It's one more structural question on equipment. So we know from the past, normally, equipment and consumables should grow at a similar rate over the cycle. So we now see consumable demand healthy for a while, while equipment is at least lagging behind. Can you comment about the reasons for this reluctancy? Is it more like still an overhang from, let's say, the time during the pandemic or post the pandemic? Or could it be that there is a more structural change as higher quality consumables might have increased the efficiency of the tighter of a production process and therefore, some structural lower or slower demand for equipment might be the case for a quite longer period of time before we see more expansion or new manufacturing facilities? So that's, to say, upgrades and lower expansion. Rene Faber: Yes. Thank you for the question. I try to kind of give you more color to think about why this reluctancy to invest, you addressed or you asked how much of that is coming with kind of a post-pandemic would call macroeconomic cash-driven impact or development. I think that's very much more on that side, plus the overcapacities, which have been built during the pandemic in some areas versus how you call it kind of a structural change in a way that by technologies improving, it would require less of this equipment. Actually here, over years and decades, we have seen exactly the opposite. The better the technology gets, the more of it will be used, especially in single-use manufacturing, the [ cake ] of what you can address with single use increases or grows, the better the technology, the higher the titers, the better the yields are. So I think that's very much a positive ongoing trend with this improvement. So again, back to your question, I think it's very much on the cash post-pandemic macroeconomic impacts rather than any different structural technology-related. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: My question is on the LPS margin. When do you expect these investments in Advanced Cell Models to begin contributing positively to the margin of the segment again? And then just a very quick housekeeping one. Is a 27% tax rate a fair assumption again for the Sartorius Group in 2026? Florian Funck: Yes. Let me start with the housekeeping question. We currently think that the 27% is still okay for the year '26. And on the margin, as I said, it's connected a lot, of course, to our engagement in Advanced Cell Models, which is an emerging business, but should not be impacting on a sales side very soon, but rather we are building up for the more long-term perspective, more to elaborate on at our Capital Markets Day. Operator: Next question comes from Harry Gillis from Berenberg. Harry Gillis: I have one clarification regarding an earlier question on guidance. I'm sorry, I didn't quite catch that. Does the 6% guidance at the low end of your for BPS growth, does that assume a further decline in equipment sales, sorry? Or does your expectation for at least stable equipment hold here and it's deterioration in growth in consumables? And secondly, could I just ask you. Do you expect your CapEx ratio to remain stable at around 12.5% into '26? How should we think about that over the midterm as some of your larger projects start to roll off? Florian Funck: Should I start with the last question on the CapEx rate. So of course, you are asking more the midterm perspective, but I think we have always quite consistently communicated that we are -- we should see from the year '27 onwards, an overall reduction in our CapEx ratio. '26 is, therefore, the last year, where especially also driven by our expansion projects in Korea. We are seeing elevated levels of our CapEx ratio to then come down afterwards, more on the Capital Markets Day. Rene Faber: Then again, on the guidance, just to repeat, we said at least flat, so we are not considering any decrease in equipment revenues for 2026 in our guidance. Operator: Next question comes from Shubhangi Gupta from HSBC. Shubhangi Gupta: So just a clarification for your guidance or the upper end of your sales growth, does it assume recovery in equipment sales? And if yes, what is the time line? And how should we think about the phasing of growth in 2026, given H2 have tough comps, especially from strong growth in consumables? Florian Funck: Yes. Again, so now the question is about the upper range of the guidance. Here, as we said, of course, in that case, we would expect the contribution of both consumables, continued healthy growth as knowing and considering the higher comps coming from this -- from 2025 as well as at least a moderate growth in equipment revenues. So that's kind of our current thinking. And again, very positive what we have seen so far, the order book, the trends we see. So quite confident we are heading there. But as Michael said in the introduction, still early in the year and more to come with our Q1 results. Michael Grosse: Yes. Give us a bit more time on that, please. So on that. However, I think just to add on, I mean, as we said at the other stage, given a bit as well if we think that one of the contributing or deciding factors towards the upper end, it will indeed be a more strong recovery and growth contribution as well from the equipment instrument side. Again, on the lead times that are there, of course, assumption is probably fair to say that this is something that happens rather later in the year than earlier. So it's something that we would expect to rather beyond Q1 to happen, if it happens in the degree that we may hope for, but we don't know. Shubhangi Gupta: And just a quick follow-up, can you comment... Petra Muller: I'm sorry, Shubhangi, but we have 3 more people in the queue. I'm sorry, we have to head on because we are over time already. Sorry about that. Happy to take your question afterwards. Operator: The next question comes from Anna Snopkowski from KeyBanc. Anna Snopkowski: This is Anna on for Paul Knight. I just was wondering, you mentioned on your last call, you were having some early conversations with small CDMO customers. How has this progressed in the quarter? And are those early conversations around equipment broad-based or concentrated in any customer group or certain types of equipment like those that help your customers reduce costs? Florian Funck: Yes. Thank you for the question. So yes, absolutely, that was a kind of an ongoing development we have seen in 2025. Towards the second half, we've seen the smaller CDMOs also becoming more and more active. We've seen them, their pipelines filling, their projects coming and discussion started, and it's both really about -- its equipment and consumables. So preparing for delivering on the project, it's all about getting ready to make the batches, preparing to get an order in consumables to be -- to have them on -- to build inventories as well as where needed, add equipment to prepare the capacity as well. So that's been the development we've seen with them, and it didn't change so far. So also kind of contributes to our positive outlook. Operator: The next question comes from Naresh Chouhan from Intron Health. Naresh Chouhan: Just on BPS. When you talk about double-digit consumable growth, can I confirm that this is more like low teens if we exclude China, just to give us a sense of where underlying demand is in Western market and the kind of state of the Western market recovery? Florian Funck: Yes. So consumables kind of, yes, low teens is a fair assumption in a positive outlook, right? And yes, that's how we are looking forward, not only '26 but ahead as well. Yes, so you're right. Operator: The last question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: Yes. I'm sorry because I really don't understand the guidance regarding LPS when it comes to the margin. And so I know when you're trying to push back about the CMD and probably you're right, but that makes me think, is there anything and especially when we look at the Q4, where we had the margin gain versus the Q3, is there anything more structural that you're planning? And this is a new way where probably we should think about the division in the future, meaning a complete reorg internally of the LPS division that could justify not having any execution gain coming over the sales growth even at the midpoint of 4%, which is quite nice for that division, by the way. So any more clarity on that? How should we think about that margin in the context of back to growth and a scenario, which is not that bad at the end? Florian Funck: So Delphine, maybe I'll start, and then Michael, especially to add on, on that. But first of all, we definitely think that the LPS business is a 20% plus margin business going forward. On the other hand side, on the current position that we are at, at a margin of 21.5%, knowing that the tariff impact overall in the group is roughly 50 basis points in 2026, knowing that there are unknown on the FX side and knowing that we are ramping up our investment through the P&L into ACM, we thought it is appropriate to guide then for the year '26 with a slightly below 21%. Michael Grosse: Yes. And over and above what Florian said, of course, we want to give you an incentive to join the Capital Markets Day here, very clearly, any strategic type of consideration about how we see the business, the divisions as we move forward. You're welcome in March to our Capital Markets Day. Operator: There are no more questions from the phone. I would now like to turn the conference back over to Petra Muller, Head of Investor Relations. Petra Muller: Yes. Thank you very much, Valentina. This concludes today's call. Please reach out to the Investor Relations team in case of any open questions. We thank you for joining us and wish you a pleasant rest of the day. Take care and see you next time. Thank you. Goodbye. Michael Grosse: Thank you. Bye-bye, all. Many thanks. Operator: You may now disconnect.
Operator: Welcome to the presentation of Sartorius and Sartorius Stedim Biotech on the Preliminary Results 2025. Please note that the call is being recorded and streamed on Sartorius' website. Your participation in this implies your consent with this. A replay will be available shortly after the call. I would now like to turn the conference over to Petra Müller, Head of Investor Relations of Sartorius. Petra Muller: Thank you, operator. Hello, and a warm welcome from my side. I'm joined today by our CEO, Michael Grosse; by Florian Funck, our CFO; by René Fáber, Head of our Bioprocessing Division and CEO of Sartorius Stedim Biotech; and by Alexandra Gatzemeyer, Head of our Lab Products & Services division. As always, we will start with prepared remarks followed by the Q&A session. As the call is scheduled to 1 hour, please limit your question to 1 so that as many participants as possible can take part. Please note that management's comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation. With that, I'm pleased to hand over to Michael Grosse, CEO of Sartorius. Michael, please go ahead. Michael Grosse: Thank you very much, Petra, and a warm welcome also from my side, and thank you all for joining us today for our preliminary full year 2025 results. Before we begin, I would like to sincerely thank all of our colleagues across Sartorius for their commitment and dedication over the past year. Their passion, professionalism and strong focus on execution are clearly reflected in our results we are presenting today. I would also like to personally thank everyone who has made it such a smooth and rewarding experience for me to step into my role as a CEO, and particular thanks as well to my colleagues here, Alexandra, René and Florian from the executive team. It has been really a great journey up to now, fantastic work on the strategy and great things to come. And I don't want to miss out as well on saying thank you to the team here from Investor Relations, Communications and Finance because I think the workload over the last couple of weeks and days have been tremendous in order to get us all prepared and get our reporting in place. Thank you all for that. Now let me briefly summarize key messages that we would like to share with you today. First of all, 2025 was characterized by return to normal demand behavior for consumables and continued cautious investment activities by our core customers. Combined with an active operational management in a still challenging environment, we delivered improved operational and financial performance. Okay. All right, supported by the improvement -- improving demand trends, mainly on the consumable side and the operating leverage inherent in our model, Sartorius achieved considerable profitable growth. For the full year, we delivered results slightly ahead of our upgraded full year 2025 sales guidance. Profitability landed in the upper half of our initial guidance from April and exceeded our October EBITDA target, with a margin of 29.7%. This performance reflects growing volumes, operating leverage and strong execution. Now growth was once again driven by our recurring business across both divisions. In Bioprocess Solutions, strong double-digit growth in recurring revenue more than offset continued softness in equipment, which, however, stabilized over the year. In Lab Products & Services, performance improved gradually as expected. Growth in H2 was driven by recurring business, while instruments showed positive momentum also supported by product launches in bioanalytics. Our operating performance allowed us to further reduce our leverage ratio, underscoring our commitment to financial discipline and a strong balance sheet. Overall, in 2025, we laid a solid foundation for the year 2026. For the group, we expected sales growth of around 5% to 9% with an underlying EBITDA margin slightly above 30%. Let me now turn to actions we are taking to enable future growth. Let's talk about innovation and partnerships. We have made tangible progress in 2 key areas: innovation and the expansion of our resilient global R&D and production capacity. We launched several new solutions across both divisions. In Bioprocessing, we made progress in more sustainable product design with the launch of Sartopore Evo, a PFAS-free filtration solution, which addresses growing regulatory and customer expectations around the elimination of persistent substances while maintaining the high performance and reliability our customers require. We also launched the Sartocon cassettes, further strengthening our offering for efficient and scalable downstream processing, particularly for viral vector purification. Now on the equipment side, we introduced the Pionic Continuous bioprocessing platform developed with Sanofi, which faces high customer interest. This platform supports the industry's transition from traditional batch production to continuous processes, enabling faster, more efficient and more sustainable manufacturing workflows. And our teams advance our bioanalytical portfolio, including the only live-cell imaging system with confocal microscopy inside an incubator, a really important step forward for the work with complex 3D cell model. We further strengthened this area also through the acquisition of MATTEK, expanding our portfolio of advanced 3D cell models that more closely mimic human tissue, deliver more predictive and reproducible results and help reduce the need for animal testing. And we entered into a partnership with Nanotein Technologies, enhancing our capabilities in cell expansion and activation to support next-generation biologics. In parallel, we continue to invest in a resilient global manufacturing footprint. We completed the expansion of [ Aubagne ] and progressed with the expansion in Germany, as well as with the construction of our greenfield site in Songdo, South Korea, ensuring scalability, supply reliability and proximity to our customers. Taken together, these actions strengthen our ability to support customers as markets normalize and position for Sartorius for sustainable innovation-led growth over the coming years. With this, let's take a closer look into our numbers. Florian? Florian Funck: Yes. Thank you, Michael, and a warm welcome also from my side to everybody out there. I'm happy to take you through our numbers that's reflected, in my perspective, a consistently strong performance in the year 2025. So let's start with top line performance. Our sales revenue increased by 7.6% in constant currencies and 4.7% in reported currencies, reaching slightly more than EUR 3.5 billion. This positive development was driven by mid-teens growth in our recurring business in 2025, which represents, by far, the largest part of our business, as you know. Our nonrecurring business remains soft on a full year basis, but clearly stabilized in H2 and was above H1 in absolute numbers as respective. The difference between constant currency and reported growth was primarily driven by U.S. dollar weakness, which represents a headwind of almost 300 basis points to reported sales growth in fiscal year 2025. Our full year performance was also influenced by U.S. tariffs. The successful implementation of tariff surcharges contributed approximately 1 percentage point to sales revenue growth. Order intake developed strongly, growing faster than sales. And as a result, our 12-month rolling book-to-bill ratio remained consistently above 1 throughout the year '25, although as expected and also communicated in our last quarterly call, it declined slightly sequentially in Q4 due to a very strong prior year comparison. In absolute terms, order intake in Q4 was roughly on par with the exceptional strong Q4 2024. You remember that above EUR 1 billion figure that we posted there. And that was the quarter with the highest absolute order intake in 2025. And therefore, we entered 2026 on the back of a strong order book. Looking at our divisions in more detail. Bioprocess Solutions delivered another strong quarter, bringing full year sales revenue growth to 9.5% in constant currency. Growth was driven by mid-teens growth in consumables throughout the year, while equipment remained soft, as Michael already mentioned, but was clearly stabilizing with H2 '25 sales being double-digit percentage above H1 '25 sales. Lab Products & Services delivered a resilient performance in a challenging market environment. Sales were essentially flat at 0.2% in constant currencies plus, supported by solid momentum in consumer goods and services. The acquisition of MATTEK contributed slightly more than 1 percentage point to growth. Instrument sales were impacted by constrained CapEx spending in life science research and market. However, we are seeing encouraging signs of stabilization supported by positive momentum in bioanalytics in the second half, driven in part also by the launch of several updated instruments in that market space. Let me also quickly elaborate on our regional performance. EMEA sales performance remained robust with growth of almost 6% in 2025. As a reminder, the recovery in EMEA started earlier than in other regions and therefore, faces higher base effects compared to the Americas or APAC. The Americas outperformed, growing by 8.9%, like APAC, which also grew by 8.9%. In APAC, China continued to stabilize with early signs of improvement. Excluding China, the APAC region delivered low double-digit growth in the year 2025. Let's now turn to our profitability. In addition to robust growth momentum, we achieved a strong improvement in profitability over the past 12 months. Underlying EBITDA increased overproportionately by 11.2% to EUR 1.052 billion, with the margin expanding by 170 basis points to 29.7%. This margin improvement was driven by positive volume and product mix effect as well as economies of scale, further underpinned by cost discipline, more than offsetting FX and tariff-related headwinds of around 1 percentage point. Looking at the divisional profit distribution, profitability in our BPS division developed strongly. Underlying EBITDA increased by 15.2% to EUR 907 million, and the margin improved by 240 basis points to 31.7% based on the effect just mentioned also for the group. In LPS, margin declined year-on-year to 21.5%, roughly 50-50, reflecting an unfavorable product mix on the one hand side as well as FX and tariff-related impact on the other hand side. Now let's take a look at the performance below underlying EBITDA, where both net profit and cash flow developed well. The strong increase in underlying EBITDA of 11% translated into overproportionate growth and underlying net profit of 18% and reported net profit of 84%. As a result, underlying EPS also grew at a very strong 18%. Turning to cash-related items. Operating cash flow amounted to EUR 837 million, below the exceptionally strong prior year level of EUR 976 million, which was positively impacted by significant one-off inventory reduction measures in the year 2024. While business volume improved strongly in 2025, working capital remained largely unchanged. Going forward, we remain committed to keeping net working capital growth below our sales growth. Free cash flow amounted to EUR 390 million, reflecting the development of our operating cash flow. In addition, free cash flow is also reflecting the slightly increased CapEx spending from EUR 410 million to EUR 441 million. Accordingly, the CapEx ratio was 12.5%, which is exactly in line with our guidance throughout the year. To conclude our section on 2025 financials, let us now look at the development of the balance sheet-related key figures. We see a strong equity ratio of 39.8%. The increase versus year-end '24 is mainly due to some repayments on financial instruments using our strong cash position and therefore tightening the balance sheet total. Net debt remained largely unchanged, while gross debt has been reduced by EUR 277 million and despite payout of the acquisition of MATTEK in summer 2025 of EUR 70 million. The leverage ratio, defined as net debt to underlying EBITDA, improved as expected from 3.96x to 3.55x in 2025, despite the acquisition of MATTEK, which added approximately 0.1 turns to the ratio. So we are well underway on our planned deleveraging path. And as you can see in the title, we stay committed to our investment-grade rating. With that, I would like to hand back over to Michael. Michael Grosse: Thank you, Florian. So overall, we are very pleased with the strong performance Sartorius delivered in 2025, supported by improving demand trends, mainly on the consumable side. In addition, the results demonstrate the resilience of our business model and confirm the attractive long-term opportunities in the biopharma and life science markets. We will remain focused on disciplined execution, targeted investments in innovation and capacity and operational excellence. Looking at 2026, it is clear that our industry is back on track, but has not yet fully reached its long-term growth level, especially in terms of demand for equipment and instruments. Since the year is still young, we have deliberately set a broad guidance range to account for continued high macroeconomics and industry-specific volatility. The lower end of the range reflects the cautious scenario in which market conditions weaken. However, we currently expect market dynamics to continue normalizing and positive trends to continue. For 2026, we expect to continue our profitable growth trajectory with a continued positive development in the Bioprocess Solutions division and a recovery in the Lab Products & Services division. For the group, we expect sales growth in constant currencies of around 5% to 9%, including a positive effect from the market acquisition and U.S. tariff-related surcharges totaling approximately 1 percentage point. And for the underlying EBITDA margin, we expect an increase to slightly above 30% in which a technical margin dilution of around 50 basis points from tariff surcharges is already reflected. In Bioprocess Solutions, we anticipate sales growth of around 6% to 10%, mainly driven by the recurring business, while we expect equipment business to remain at least stable. The underlying EBITDA margin should be slightly above 32%. In Lab Products & Services, sales growth is expected at around 2% to 6%, including a growth contribution of 1.5 percentage points for MATTEK. This reflects the continued growth recurring business and an at least stable instrument business. We expect underlying EBITDA margin to be slightly below 21%, mainly influenced by deliberate investments in advanced cell models with additional headwinds from unfavorable mix, ForEx, and the dilutive effect of the existing tariffs. CapEx ratio should be around the prior year level as we will continue to invest selectively and with discipline in expanding our global research and manufacturing footprint. Net debt to underlying EBITDA should decrease to slightly above 3x at year-end. As usual, we will provide some additional information for modeling purpose. As you can see, with the Euro-U.S. rate of 1.2, there, we would be a headwind of around 2 percentage points on the reported versus constant currency growth in full year 2026. In Q1, the headwinds would be around 4 percentage points at Euro-U.S. rate of 1.2. Taken together, we are confident that Sartorius is well positioned to benefit from continued recovery. With that, I would now like to hand over to René, who will walk us through the financials of Sartorius Stedim Biotech in more detail. René, over to you. Rene Faber: Thank you very much, Michael. Also from my side, welcome, and thank you for joining us on the call today. In 2025, Sartorius Stedim Biotech achieved considerable profitable growth driven by improving demand, particularly for consumables and operating leverage. This allowed us not only to achieve our updated October 2025 guidance, but also to exceed our top line expectations. Overall, we are very pleased with the results and would like to sincerely thank our all colleagues across the Sartorius Stedim Biotech for their commitment, dedication and really hard work in making 2025 a success. Looking at the numbers. Sales for the Sartorius Stedim Biotech Group increased by 9.6% in constant currencies, reaching nearly EUR 3 billion. Growth in reported currencies was 6.7%, primarily due to the weaker U.S. dollar, which represented a headwind of almost 300 basis points. The successful implementation of tariff surcharges contributed approximately 1% of sales revenue. Our high-margin recurring consumables business remained very strong, delivering mid-teens growth more than offsetting the soft but increasingly stabilizing equipment business. Order intake grew faster than sales, keeping our 12-month rolling book-to-bill ratio consistently above 1, while the ratio declined slightly sequentially in Q4, as Florian explained, due to a very strong prior year comparison. Q4 order intake was roughly on par with the exception of Q4 2024, making it the highest absolute order intake quarter in 2025. We therefore entered 2026 with a strong order book. Underlying EBITDA increased by 17% to EUR 914 million, driven by volume, product mix and economies of scale. Consequently, the underlying EBITDA margin improved significantly to 30.8%, an increase of 2.8 percentage points compared to the previous year. Looking at the top line performance from a regional perspective, EMEA made a solid momentum, delivering 7.3% growth. This robust performance came despite a higher comparison base resulting from an earlier recovery cycle. The Americas grew by almost 12% followed by Asia Pacific growing almost 11%. In APAC, China stabilized and was only slightly dilutive to the overall growth. Excluding China, the growth the region delivered was in the low double-digit range for 2025. I'm also quite pleased with the more recent development in China beyond stabilization as the year progress, we are now seeing really early signs of recovery. Looking at the net profit and cash flow, underlying EBITDA growth of the strong 17% translated into an overproportional increase in underlying net profit of 26.7% to EUR 428 million and reported net profit of nearly 52% to EUR 266 million. Underlying EPS rose by 26% to EUR 4.4. Operating cash flow remained solid at EUR 692 million, although below the high level recorded in the prior year, which was positively influenced by the pulling of inventory that Florian already touched upon. Free cash flow stood at EUR 295 million, and the CapEx as a percentage of sales came in at 13.3%. A quick look at our balance sheet metrics. Our equity ratio improved to 51.7% in the end of 2025 with the increase being driven by some repayment of financial liabilities and therefore, tightening the balance sheet total. Net debt decreased by EUR 18 million versus year-end 2024 and gross debt reduction. Deleveraging is progressing as planned with the net debt to underlying EBITDA ratio improving to 2.38 by the end of 2025. So we are very well on track on our deleveraging path. Now before we move into the Q&A, let me also quickly elaborate on our full year guidance for the Sartorius Stedim Biotech Group. As mentioned earlier, we are very pleased with the strong performance of Sartorius Stedim Biotech has delivered across all key financial dimensions. The 2025 results demonstrate the resilience of our business model and confirm the attractive long-term opportunity in biopharma market. We will remain focused on disciplined execution, targeted investments and innovation and capacity and operational excellence. Looking in 2026, same is true for Sartorius Stedim Biotech and for Sartorius AG when it comes to the overall environment and industry trends. Therefore, we also have deliberately set a broad guidance range with the lower end of the range reflecting a cautious scenario in which market conditions weaken. However, we currently expect market dynamics to continue normalizing and positive trends to continue. We expect to stay on our profitable growth path and for 2026 sales revenue growth in the range of around 6% to 10% in constant currencies, including a 1 percentage point contribution from the U.S. tariff surcharges. Growth will be mainly driven by the recurring business, but against high costs, while the equipment business should remain at least stable. The underlying EBITDA margin should increase to slightly above 31%, in which a technical margin dilution of around 50 basis points from tariff surcharges is reflected. Our CapEx ratio is expected to stay around previous year level at around 13%, reflecting our ongoing investments into research and resilient production footprint. Our commitment to deleveraging remains unchanged. We anticipate the leverage ratio, the net debt to underlying EBITDA to decrease to slightly above 2 at year-end. Our modeling assumptions, Michael already explained, expected headwind from FX on Sartorius AG level, same is true for Sartorius Stedim Biotech. With this, I will hand over to the operator to begin our Q&A session. Operator: [Operator Instructions] The first question comes from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: What does your guidance assume in terms of U.S. onshoring build-outs in 2026? What could drive upside to these expectations? Michael Grosse: Yes. So I'll take that. Subbu, thanks for the question. I mean, right now, as we've been seeing that there is a lot of plans, some of them really committed, some of them still a bit on the horizon. As we see as well the lead times for order particularly on the equipment on a larger system side for greenfield or for larger expansions, we think that the impact from large -- from relevant reshoring activities will most likely not contribute with revenue in 2026. So we've not baked anything of that in our current expectation and assumptions. This would rather be for the year 2027 and beyond where this may have a larger impact. However, we are very closely connected, of course, with all our customers, supporting them on their plans, discussing opportunities as we move forward. It goes up from this, of course, very short near-term activities on brownfields and expansions of existing capacity. Subhalaxmi Nambi: Perfect. And a quick follow-up. How did equipment orders for BPS and LPS, respectively, trend for the quarter for Q4? And are you starting to see any early signs of recovery? You spoke about comparison and orders, but I was just trying to figure out what about equipment orders separately for LPS and BPS. Rene Faber: Thank you for the question. Although we are not giving further information on that very detailed level. But what I can tell you is, on the one hand side, we have been talking about H2 sales being much stronger than H1 sales. And the same holds true when we look at order intake where the order intake in H2 was also well within double digits above H1, which, of course, then speaks to the quality of the order book and therefore, our cautiously optimistic outlook then also into '26. Operator: Next question comes from Richard Vosser from JPMorgan. Richard Vosser: One question, please. So you talked about market conditions not fully back to normal for equipment. So just a little bit of elaboration on changes of customer sentiment here. You've talked a little bit just now about equipment orders suggesting improvement. So just thinking about, first, your confidence in the stabilization of equipment revenues, what's underpinning that in '26? But also, when do you think equipment could move more back to normal levels? We've seen that happen for consumables in '25. What's your thinking there? Rene Faber: Yes. Thank you for the question. I'll take it. Let me first get back to 2025. You will remember when we talked about stabilization of equipment like in Q3, we said for H2 '25, we expect to be in revenues for -- with equipment at least on the levels of H1, maybe slightly above. And you could hear from Florian that H2 came out as stronger, so confirmed the stabilization stronger compared to the H1. So I think that's a clear kind of confirmation of our view and expectations and visibility and the discussions with our customers that the equipment is stabilizing. And now looking, of course, into the 2026, we continue to see the positive discussions and have positive discussions with customers. They are tangible projects, sizable projects on the horizon. The order book is healthy as we mentioned in the -- a few minutes ago. So as Florian [indiscernible], cautiously optimistic looking into the 2026. We believe that the portfolio we have is well positioned to help customers quickly adjust their capacity, single-use technologies are designed to make -- to do -- to provide flexibility. So yes, we're very encouraged about the current -- the sentiment as well as the -- our position and discussions we had with our clients. Michael Grosse: I would like to expand even that from Rene's perspective, I think the similar situation is true as well for LPS division on the basis of equally, I would say, strong development interest levels in needs and opportunities, particularly on the biolytical instrument side, as well a trend that we see in the second half of the year, particularly in Q4, coming and resulting into a good level of contribution in both sales and order intake. And again, so same sentiment for us. But again, I think it will take, for sure, the full quarter Q1 for us to have simply better visibility, better understanding the continuation of the order intake trade in order to have a better view whether this requires further refinement of our perspective for the full year at that point in time. Operator: The next question comes from Doug [indiscernible] from Schenkel. Douglas Schenkel: It's Douglas Schenkel from Wolfe. I'm going to try to do 3 really quickly. One, I just want to confirm, based on your responses to the earlier questions that your 2026 guidance does not currently assume an improvement in bioprocessing equipment demand. So that's the first one. The second, can you please bridge to your margin guidance for the year? Specifically, what would be helpful is, what's the impact of foreign exchange, tariffs and operating efficiencies as you incorporate those into your guidance? And then third, [Technical Difficulty] many companies in your peer group have taken a more conservative approach to guidance than had been the norm given market challenges over the past several years and given ongoing policy uncertainty. With that in mind and also recognizing that this is issuance as CEO, how would you describe your initial guidance philosophy? Florian Funck: So maybe I start to give a little bit more perspective on the margin guidance here. So what we know as of now, of course, is roughly the impact of the tariff on the year 2026, which is to be around 50 basis points. What we do not know is the full FX impact. The weaker the U.S. dollar the higher this impact might be, although we think we are in a good position to a certain extent also to compensate certain headwinds on the FX side in the margin. The, let's say, broad improvement in margin that we are seeing, if we are taking out tariff and FX impact, is definitely a 3-digit basis point number, so above 100 basis points and should be driven to a majority from ongoing operational leverage that we've seen. Michael Grosse: Yes. Maybe to add to Florian's point there just because you may have really in mind as well our fantastic margin contribution that we delivered in 2025. And of course, there are other effects that I think are relevant in my mind to keep in mind there. Of course, on the operating leverage, since we are now already throughout the last year on a different level, the effect of this is, of course, diminishing to a point. Keep as well in mind that when it gets to our activities that we launched in the year even before on our cost reduction programs that the main effect there as well was visible, particularly in 2024 and 2025, still continues in 2026, but less so. So with this and as well a bit of the question mark, how much of the equipment will be there in the year 2026. If that is a higher degree of recovery, of course, the margin mix, the mix effect that we have seen in 2025 was probably as well a bit more favorable compared to 2024 than it may be in 2026 compared to 2025. Then you talked as well a bit about the guidance philosophy. Yes, I think we try to express that in our wording already. On the one hand side, it's early in the year. We felt like, okay, we're feeling confident enough in order to quantify our guidance. But given the fact that it's early in the year, given the still the level of uncertainty that we have there in terms of macroeconomical and geopolitical aspects, as you mentioned, I think we want to as well, therefore, be prepared for this and the lack of full visibility for the full year on the basis of order intake and the book and the market trends, we felt the philosophy is indeed that we have decided for a wide range with the 4 percentage points we have there. We don't feel that we are neither over aggressive nor over conservative with what we put out there. However, we feel that we will not celebrate if we achieve only a 6% growth for 2026. That's equally clear. At the same time, the level where we will land on versus the mid or even beyond the midpoint is so much dependent now on what will happen. So I think we will be in a better position after the first quarter to give more clarity as the year progresses. And that is why I think the philosophy remains, I would say, remains balanced, remains balanced. Operator: The next question comes from Harry Sephton from UBS. Harry Sephton: [Technical Difficulty] consumables. So we're seeing a more comfortable high single-digit to low double-digit growth across the big players in the industry on the consumable side. Based on your guidance, that you're expecting to be more in line with market growth. So what do you see in terms of potential upside or downside risk to market share in the near term on the consumable side? Rene Faber: Yes, I take it. So a question on consumables. As you will know, the consumables is very much -- the majority represents the majority of our revenues for the -- I'm talking for the Bioprocess division. You will know that most of that recurring revenues, consumables revenues are linked to commercial manufacturing and consumption of our customers of the products in making commercial drugs, adding late-stage clinical material production, it comes to around 80% of the consumables revenue are linked to that late-stage plus commercial manufacturing. So -- and that's more or less kind of also gives you an idea about what dictates the growth of consumables. Looking forward, it's very much about the volumes, manufacturing volumes of our customers. We can do little about that, of course. But then once new drugs are being approved or enter these late-stage clinical phases, yes, that drives additional volumes for these consumables. So looking forward, I think we have been working consistently over the years with the teams in all regions to make sure we are early with customers and place these consumables spec in, validate when the decisions are made and validations are done and also working hardly with customers to convert wherever possible in an ongoing and existing processes towards our products. The highlight of that was, of course, during the pandemic where mainly due to our ability to supply and the customers, we gained market shares and kept or we were able also to protect roughly 1/3 of this gain moving forward. So we are, I think, on a very healthy and successful track record to drive that above market -- above drug volume growth of our consumable revenues. Of course, as we mentioned in presenting our 2025 results, we have seen a strong mid-teens growth of our consumables in 2025. So comps are higher now looking in 2026, but we are very confident that these fundamentals and the volumes driving the growth of consumables are there are intact and are positive about the outlook in '26 and beyond. Operator: The next question comes from James Quigley from Goldman Sachs. James Quigley: I've got one on China, please. So you said in the slide and in the comments that China is starting to show some encouraging signs of growth. I think some of your peers at a recent conference still sounded a bit muted on China growth. So what are you seeing here in the region that's driving those encouraging comments from you across the BPS and the LPS divisions? Michael Grosse: So I mean I can get started a little bit. I mean, highlighting perspective again, I think China has really a few years back that I think we've seen a really difficult market environment with as well, very strong level of guided preference with regard to local players and for local production. We feel now that a little bit this notion of rebaselining the market has come to an end. We feel now that we are able to, right now, keep market shares in China and benefit from probably the still modest level of the growth that the China market demonstrates. At the same time, there's, of course, a lot of innovation activities that we are part of and want to equally, I think, being asked by customers to be part of the rollout of out-licensing and bringing some of their pipeline development into other regions and markets. Our expectation for the market, however, overall is still a rather flattish or rather very modest level of degree of growth expectation given as well the prior year performance that we've seen. So we don't see and we don't expect naturally a big turnaround of that momentum. It's still probably there to come later. At the same time, there's a big overhang and a high capacity buildup on the equipment side. So particularly on the equipment side, we feel as well that China will, in the year 2026, be a rather muted market. But on consumables, we think will be part of the game. And yes, as we said, we are -- we have modest expectations here on the market. Operator: The next question comes from Charles Pitman-King from Barclays. Charles Pitman: A quick question, please, on just the guidance again. Just trying to relate the kind of 2 separate statements of the low end of your guidance range, reflecting kind of deteriorating market outlook. But also your commentary around the strong order book and equipment being at least stable. Can you confirm, therefore, that the low end of your guidance range reflects equipment being stable, supported by your existing backlog and other market deteriorations impacting consumables? And then just a quick clarification on margins. Just wondering why you're only providing a kind of bottom end of that range. And is it the implication that at the top end of the range, you have rising equipment, which will offset the margin such that your only confident to provide at the bottom end of the range? I'm just trying to -- yes, just thinking about how you're setting this out. Michael Grosse: So first part, yes, I mean... Unknown Executive: Charles, you broke up a little here technically. That's why we are a little puzzled. Could you repeat the first part of the question? Charles Pitman: Sorry. My question relates to trying to triangulate the 2 guidance commentary, one being that your sales could be at the low end of the range upon worsening market conditions, but did you separately expect equipment to be at least stable? I'm just wanting to confirm that your order book means that you have this confidence in your equipment being at least stable, and that in the scenario where you hit the low end of the range, that's driven by consumable deterioration more so than any downside to your equipment outlook? Michael Grosse: Okay. So I mean, yes, I mean, again, I think on the lower end of our guidance as we try to express, we see some level of, I would say, market situation overall. So we would see that there is no impact, no positive contribution there from the equipment and possibly as well a slight deterioration even on the consumable side. We see the total mix. It depends on how you see the 2 elements of that coming together. But as we say, I mean, if we see the momentum that we've seen right now based on, as you said, the order intake generated in equipment, and at least, stable situation plus the continuation of the current trajectory of the consumables that would be slightly above the bottom part of the guidance. So we would assume some level of deterioration of that condition. Then I think the other question was on the margin. Florian Funck: Yes. While we have not given a range for the margin, we have said that we want to reach slightly above. So this is in a way open to one side. Now let's assume we would be on the lower end of our guidance range. The 5% for the group, we would definitely aim to see margin improvement against prior year, but we might not fully reach that. So the margin corridor that we are indicating to was slightly above -- the 30% was more towards the midpoint of the guidance. If we then come to the upper part of the guidance corridor on top line, of course, there's way more potential on the back of more operational leverage. Operator: The next question comes from Charlie Haywood from Bank of America. Charlie Haywood: Charlie Haywood, Bank of America. I have 2. So first one in '26, is it fair to expect typical seasonality on the bioprocessing side? So I think you've previously commented to 4Q, 1Q, 2Q, 3Q. Or given equipment phasing and what looks like a strong fourth quarter for those orders and a 6- to 12-month order book, might that distort to possibly fueling a stronger second half? And then the second question is just a bit more on midterm. Now that you spent a bit of time in the business. You previously sort of commented to Merck's 9% to 10% market outlook not far from your thinking. I guess how are you currently seeing the bioprocess midterm market growth in the end markets there? Michael Grosse: Thanks for the question. So I think we can maybe kick off a little bit on the basis. I think, as you know, we don't really break down and guide on the basis of quarterly perspective. So I think in this case, we would like to leave a little bit the breadth of the way of how we look at the year to come in more the total perspective. So we will not provide any specifics as we see the quarters moving forward. Again, I think it is probably more in the nature of the business. If you think about -- and it's probably a similar pattern that we've seen during the last year, given the lead times of equipment orders, particularly we now see that, okay, we generated the order intake in the second half of the year, Q4. So things now with the lead time, 6 to 12 months on the Bioprocess side, of course, then we would expect sales realization in all these orders to rather hit the second half of the year than the first half of the year. So that's natural by the lead time of those orders. Yes. Then in terms of the market. Yes, I think we hold to that. I mean we basically took a look at the market. We'll get back a little bit more interesting insight on the market analysis that we've done for the capital market that we will provide and bring up in March. However, as we said, we think that the assumption there for the market to be around a 9% growth, I think, is something that's very much in line with our views and with our analysis. Again, depending a little bit also on the specific market segment and then the exposure to the market segments. But that corridor is well in line with our analysis that we've done. And that is well what we believe that in our minds, we will measure us against from a mid- and long-term perspective. Operator: The next question comes from James Vane-Tempest from Jefferies. James Vane-Tempest: Just on LPS, actually. You mentioned in the presentation that the rolling book-to-bill is now more than 1, but now you specifically stated in both divisions. So I was just kind of curious whether the LPS book-to-bill turned in Q4 to be above 1? And if so, where you're seeing accelerating orders from either certain customer or product groups? And then related to LPS, I mean the guidance that you've given is marked the fourth year of margin decline in a row. I know we're going to hit more in March. But conceptually, how realistic is it from here to get back to levels seen a few years ago? And what would it take to get there? Michael Grosse: Okay. So the first part of the question was about the book-to-bill. Sorry, do you want to take that? Florian Funck: Exactly. James, as you know, we would not like to go specifically into that. But let me put it that way. We were quite pleased with what we have seen than in Q4. Let us leave it on that level. Michael Grosse: And then one was related to profitability. James Vane-Tempest: LPS margins, yes, in terms of the fourth year of decline and just thinking about what it would take to get back to where it was? Florian Funck: Yes. I think this is a question that we should discuss more in detail around the Capital Markets Day, if you don't mind. James Vane-Tempest: Okay. No, that's fine. One quick follow-up, if I can. And that is just about the business flow within BPS. Historically, you've kind of alluded to consumables equipment normalized being 75%, 25% approximately. And I know at 9 months, I think you sort of said it was around 85%, 15%. So just as an approximation, I was just kind of curious where that sort of number for the full year. Michael Grosse: Okay. Just maybe a short point of clarification. So I think, let's say, the numbers you're referring to on the 75%-25% would be on the group level. If we look at BPS, I think we see the rough proportion over the last half year, we've more talk about 80%-20% on that ratio. And again, I think, yes, that is where we see the current state. We don't necessarily believe as well, given the discussion earlier that, that will be as well roughly the level that we will see as we continue into the year 2026 now. Operator: The next question comes from Charles Weston from RBC Europe. Charles Weston: You've talked about Europe being ahead or EMEA being ahead in terms of the recovery curve. Does that also mean it's ahead in terms of the equipment order recovery curve? So have you got sort of proof of those orders turning into -- that interest turning into orders and revenue in Europe? And just a clarification question. You said you have good discussions with your customers to understand their CapEx plans. Can you give us any insight into whether the big investments that they're making is more about them shifting CapEx from other parts of the world into the U.S. or whether they are genuinely adding additional capacity into the U.S. over and above what they would be normally planning? Michael Grosse: No, thanks for the question. On EMEA, I think the situation is not that we see any difference here. Yes, the recovery overall happened earlier there, but we cannot now say that we have data that suggests on the equipment recovery that EMEA is ahead of the other regions. So that's not really the case. Florian Funck: Yes, and the discussions we have with customers on the equipment, they are mostly not today related to the onshoring or reshoring in terms of tangible projects, investments, either replacing old instruments or adding capacities. The discussions are with -- around onshoring, it's more about understanding really what is relevant of the -- what has been published from the headlines from our customers, what is of relevance for us, of course, you will see a lot of R&D investment being included in these headlines. You will see also investment in classical pharma facilities, final field drug product facility, so all less relevant for us. So trying to understand what's really in for Sartorius, and then also trying to understand really what the timing will be and when the discussions about the equipment, the providers will start. So this is more about where the onshoring discussions are today. So the very tangible projects are still less related to that topic. Operator: Next question comes from Odysseas Manesiotis from BNP Paribas. Odysseas Manesiotis: First, to better understand the growth deceleration in Q4. I have EMEA around 4% CER for Stedim. Could you give us a feeling of how that's different between equipment and consumables or just whether that's the growth we should be expecting for the region as the new normal? And secondly, in order to have a better feeling of the conservative business embedded in your guide, is it fair to say that your book-to-bill for the entirety of the year was pretty much close to your pre-pandemic average of around 1.05? And last quick one, biotech funding has been -- has been quite strong. What's the usual lag that you see between a biotech funding recovery and a pickup in your order intake? Florian Funck: So let me maybe start with the growth regarding BPS recurring versus nonrecurring in H2 because I think really looking only at 1 quarter doesn't make sense in looking at the matter, it's already really short term. But just to give you a feeling, the growth that we've seen in the nonrecurring business was very similar to the growth that we've seen also in the consumable business in H2. So this is also a reason besides the effects that we've seen in the order intake while we are taking that confident stance towards 2026. When it comes to book-to-bill, we are not communicating on the level of book-to-bill. Sorry. Operator: [Operator Instructions] The next question comes from Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just to come back -- can you hear me? Michael Grosse: Yes. It's okay. Thibault Boutherin: Just to come back on the topic of onshoring and the last CapEx plan that has been announced. There is a question that comes back often from investors, which is, is there a risk that because we see CapEx being skewed towards the U.S. in the next few years to see an imbalance between you and your competitors? So I think the idea from some investors is maybe U.S. peers would be better positioned to benefit from CapEx being skewed to the U.S. So just wanted to know if you could comment on your competitivity in the U.S., the market share relative to other regions and give an answer of how a shift of investments to the U.S. in terms of equipment and CapEx for biopharma would impact you? Rene Faber: Yes. So I'll take that question. Look, the -- in our industry, and I think it's been always the case, still is the case. The main decision criteria is the technology and the performance. Their customers don't make really compromises when it comes to how they equip their facilities, if it's for preclinical small scale manufacturing or even commercial. So I think there we -- and this is where we really see ourselves being ahead with a lot of focus on innovation. So I think for us, the positioning to benefit and participate in the potential onshoring wave is very strong. We have a facility to assemble equipment in the U.S., in the Boston area, in Marlboro, as well to be close to customers in case of the factor acceptance that and so on for more complex equipment. So I think, yes, we are ready to take all the opportunities, the feedback from customers is strong, so positive about the outlook here. Operator: Next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: It's one more structural question on equipment. So we know from the past, normally, equipment and consumables should grow at a similar rate over the cycle. So we now see consumable demand healthy for a while, while equipment is at least lagging behind. Can you comment about the reasons for this reluctancy? Is it more like still an overhang from, let's say, the time during the pandemic or post the pandemic? Or could it be that there is a more structural change as higher quality consumables might have increased the efficiency of the tighter of a production process and therefore, some structural lower or slower demand for equipment might be the case for a quite longer period of time before we see more expansion or new manufacturing facilities? So that's, to say, upgrades and lower expansion. Rene Faber: Yes. Thank you for the question. I try to kind of give you more color to think about why this reluctancy to invest, you addressed or you asked how much of that is coming with kind of a post-pandemic would call macroeconomic cash-driven impact or development. I think that's very much more on that side, plus the overcapacities, which have been built during the pandemic in some areas versus how you call it kind of a structural change in a way that by technologies improving, it would require less of this equipment. Actually here, over years and decades, we have seen exactly the opposite. The better the technology gets, the more of it will be used, especially in single-use manufacturing, the [ cake ] of what you can address with single use increases or grows, the better the technology, the higher the titers, the better the yields are. So I think that's very much a positive ongoing trend with this improvement. So again, back to your question, I think it's very much on the cash post-pandemic macroeconomic impacts rather than any different structural technology-related. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: My question is on the LPS margin. When do you expect these investments in Advanced Cell Models to begin contributing positively to the margin of the segment again? And then just a very quick housekeeping one. Is a 27% tax rate a fair assumption again for the Sartorius Group in 2026? Florian Funck: Yes. Let me start with the housekeeping question. We currently think that the 27% is still okay for the year '26. And on the margin, as I said, it's connected a lot, of course, to our engagement in Advanced Cell Models, which is an emerging business, but should not be impacting on a sales side very soon, but rather we are building up for the more long-term perspective, more to elaborate on at our Capital Markets Day. Operator: Next question comes from Harry Gillis from Berenberg. Harry Gillis: I have one clarification regarding an earlier question on guidance. I'm sorry, I didn't quite catch that. Does the 6% guidance at the low end of your for BPS growth, does that assume a further decline in equipment sales, sorry? Or does your expectation for at least stable equipment hold here and it's deterioration in growth in consumables? And secondly, could I just ask you. Do you expect your CapEx ratio to remain stable at around 12.5% into '26? How should we think about that over the midterm as some of your larger projects start to roll off? Florian Funck: Should I start with the last question on the CapEx rate. So of course, you are asking more the midterm perspective, but I think we have always quite consistently communicated that we are -- we should see from the year '27 onwards, an overall reduction in our CapEx ratio. '26 is, therefore, the last year, where especially also driven by our expansion projects in Korea. We are seeing elevated levels of our CapEx ratio to then come down afterwards, more on the Capital Markets Day. Rene Faber: Then again, on the guidance, just to repeat, we said at least flat, so we are not considering any decrease in equipment revenues for 2026 in our guidance. Operator: Next question comes from Shubhangi Gupta from HSBC. Shubhangi Gupta: So just a clarification for your guidance or the upper end of your sales growth, does it assume recovery in equipment sales? And if yes, what is the time line? And how should we think about the phasing of growth in 2026, given H2 have tough comps, especially from strong growth in consumables? Florian Funck: Yes. Again, so now the question is about the upper range of the guidance. Here, as we said, of course, in that case, we would expect the contribution of both consumables, continued healthy growth as knowing and considering the higher comps coming from this -- from 2025 as well as at least a moderate growth in equipment revenues. So that's kind of our current thinking. And again, very positive what we have seen so far, the order book, the trends we see. So quite confident we are heading there. But as Michael said in the introduction, still early in the year and more to come with our Q1 results. Michael Grosse: Yes. Give us a bit more time on that, please. So on that. However, I think just to add on, I mean, as we said at the other stage, given a bit as well if we think that one of the contributing or deciding factors towards the upper end, it will indeed be a more strong recovery and growth contribution as well from the equipment instrument side. Again, on the lead times that are there, of course, assumption is probably fair to say that this is something that happens rather later in the year than earlier. So it's something that we would expect to rather beyond Q1 to happen, if it happens in the degree that we may hope for, but we don't know. Shubhangi Gupta: And just a quick follow-up, can you comment... Petra Muller: I'm sorry, Shubhangi, but we have 3 more people in the queue. I'm sorry, we have to head on because we are over time already. Sorry about that. Happy to take your question afterwards. Operator: The next question comes from Anna Snopkowski from KeyBanc. Anna Snopkowski: This is Anna on for Paul Knight. I just was wondering, you mentioned on your last call, you were having some early conversations with small CDMO customers. How has this progressed in the quarter? And are those early conversations around equipment broad-based or concentrated in any customer group or certain types of equipment like those that help your customers reduce costs? Florian Funck: Yes. Thank you for the question. So yes, absolutely, that was a kind of an ongoing development we have seen in 2025. Towards the second half, we've seen the smaller CDMOs also becoming more and more active. We've seen them, their pipelines filling, their projects coming and discussion started, and it's both really about -- its equipment and consumables. So preparing for delivering on the project, it's all about getting ready to make the batches, preparing to get an order in consumables to be -- to have them on -- to build inventories as well as where needed, add equipment to prepare the capacity as well. So that's been the development we've seen with them, and it didn't change so far. So also kind of contributes to our positive outlook. Operator: The next question comes from Naresh Chouhan from Intron Health. Naresh Chouhan: Just on BPS. When you talk about double-digit consumable growth, can I confirm that this is more like low teens if we exclude China, just to give us a sense of where underlying demand is in Western market and the kind of state of the Western market recovery? Florian Funck: Yes. So consumables kind of, yes, low teens is a fair assumption in a positive outlook, right? And yes, that's how we are looking forward, not only '26 but ahead as well. Yes, so you're right. Operator: The last question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: Yes. I'm sorry because I really don't understand the guidance regarding LPS when it comes to the margin. And so I know when you're trying to push back about the CMD and probably you're right, but that makes me think, is there anything and especially when we look at the Q4, where we had the margin gain versus the Q3, is there anything more structural that you're planning? And this is a new way where probably we should think about the division in the future, meaning a complete reorg internally of the LPS division that could justify not having any execution gain coming over the sales growth even at the midpoint of 4%, which is quite nice for that division, by the way. So any more clarity on that? How should we think about that margin in the context of back to growth and a scenario, which is not that bad at the end? Florian Funck: So Delphine, maybe I'll start, and then Michael, especially to add on, on that. But first of all, we definitely think that the LPS business is a 20% plus margin business going forward. On the other hand side, on the current position that we are at, at a margin of 21.5%, knowing that the tariff impact overall in the group is roughly 50 basis points in 2026, knowing that there are unknown on the FX side and knowing that we are ramping up our investment through the P&L into ACM, we thought it is appropriate to guide then for the year '26 with a slightly below 21%. Michael Grosse: Yes. And over and above what Florian said, of course, we want to give you an incentive to join the Capital Markets Day here, very clearly, any strategic type of consideration about how we see the business, the divisions as we move forward. You're welcome in March to our Capital Markets Day. Operator: There are no more questions from the phone. I would now like to turn the conference back over to Petra Muller, Head of Investor Relations. Petra Muller: Yes. Thank you very much, Valentina. This concludes today's call. Please reach out to the Investor Relations team in case of any open questions. We thank you for joining us and wish you a pleasant rest of the day. Take care and see you next time. Thank you. Goodbye. Michael Grosse: Thank you. Bye-bye, all. Many thanks. Operator: You may now disconnect.
Operator: Welcome to the presentation of Sartorius and Sartorius Stedim Biotech on the Preliminary Results 2025. Please note that the call is being recorded and streamed on Sartorius' website. Your participation in this implies your consent with this. A replay will be available shortly after the call. I would now like to turn the conference over to Petra Müller, Head of Investor Relations of Sartorius. Petra Muller: Thank you, operator. Hello, and a warm welcome from my side. I'm joined today by our CEO, Michael Grosse; by Florian Funck, our CFO; by René Fáber, Head of our Bioprocessing Division and CEO of Sartorius Stedim Biotech; and by Alexandra Gatzemeyer, Head of our Lab Products & Services division. As always, we will start with prepared remarks followed by the Q&A session. As the call is scheduled to 1 hour, please limit your question to 1 so that as many participants as possible can take part. Please note that management's comments during this call will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation. With that, I'm pleased to hand over to Michael Grosse, CEO of Sartorius. Michael, please go ahead. Michael Grosse: Thank you very much, Petra, and a warm welcome also from my side, and thank you all for joining us today for our preliminary full year 2025 results. Before we begin, I would like to sincerely thank all of our colleagues across Sartorius for their commitment and dedication over the past year. Their passion, professionalism and strong focus on execution are clearly reflected in our results we are presenting today. I would also like to personally thank everyone who has made it such a smooth and rewarding experience for me to step into my role as a CEO, and particular thanks as well to my colleagues here, Alexandra, René and Florian from the executive team. It has been really a great journey up to now, fantastic work on the strategy and great things to come. And I don't want to miss out as well on saying thank you to the team here from Investor Relations, Communications and Finance because I think the workload over the last couple of weeks and days have been tremendous in order to get us all prepared and get our reporting in place. Thank you all for that. Now let me briefly summarize key messages that we would like to share with you today. First of all, 2025 was characterized by return to normal demand behavior for consumables and continued cautious investment activities by our core customers. Combined with an active operational management in a still challenging environment, we delivered improved operational and financial performance. Okay. All right, supported by the improvement -- improving demand trends, mainly on the consumable side and the operating leverage inherent in our model, Sartorius achieved considerable profitable growth. For the full year, we delivered results slightly ahead of our upgraded full year 2025 sales guidance. Profitability landed in the upper half of our initial guidance from April and exceeded our October EBITDA target, with a margin of 29.7%. This performance reflects growing volumes, operating leverage and strong execution. Now growth was once again driven by our recurring business across both divisions. In Bioprocess Solutions, strong double-digit growth in recurring revenue more than offset continued softness in equipment, which, however, stabilized over the year. In Lab Products & Services, performance improved gradually as expected. Growth in H2 was driven by recurring business, while instruments showed positive momentum also supported by product launches in bioanalytics. Our operating performance allowed us to further reduce our leverage ratio, underscoring our commitment to financial discipline and a strong balance sheet. Overall, in 2025, we laid a solid foundation for the year 2026. For the group, we expected sales growth of around 5% to 9% with an underlying EBITDA margin slightly above 30%. Let me now turn to actions we are taking to enable future growth. Let's talk about innovation and partnerships. We have made tangible progress in 2 key areas: innovation and the expansion of our resilient global R&D and production capacity. We launched several new solutions across both divisions. In Bioprocessing, we made progress in more sustainable product design with the launch of Sartopore Evo, a PFAS-free filtration solution, which addresses growing regulatory and customer expectations around the elimination of persistent substances while maintaining the high performance and reliability our customers require. We also launched the Sartocon cassettes, further strengthening our offering for efficient and scalable downstream processing, particularly for viral vector purification. Now on the equipment side, we introduced the Pionic Continuous bioprocessing platform developed with Sanofi, which faces high customer interest. This platform supports the industry's transition from traditional batch production to continuous processes, enabling faster, more efficient and more sustainable manufacturing workflows. And our teams advance our bioanalytical portfolio, including the only live-cell imaging system with confocal microscopy inside an incubator, a really important step forward for the work with complex 3D cell model. We further strengthened this area also through the acquisition of MATTEK, expanding our portfolio of advanced 3D cell models that more closely mimic human tissue, deliver more predictive and reproducible results and help reduce the need for animal testing. And we entered into a partnership with Nanotein Technologies, enhancing our capabilities in cell expansion and activation to support next-generation biologics. In parallel, we continue to invest in a resilient global manufacturing footprint. We completed the expansion of [ Aubagne ] and progressed with the expansion in Germany, as well as with the construction of our greenfield site in Songdo, South Korea, ensuring scalability, supply reliability and proximity to our customers. Taken together, these actions strengthen our ability to support customers as markets normalize and position for Sartorius for sustainable innovation-led growth over the coming years. With this, let's take a closer look into our numbers. Florian? Florian Funck: Yes. Thank you, Michael, and a warm welcome also from my side to everybody out there. I'm happy to take you through our numbers that's reflected, in my perspective, a consistently strong performance in the year 2025. So let's start with top line performance. Our sales revenue increased by 7.6% in constant currencies and 4.7% in reported currencies, reaching slightly more than EUR 3.5 billion. This positive development was driven by mid-teens growth in our recurring business in 2025, which represents, by far, the largest part of our business, as you know. Our nonrecurring business remains soft on a full year basis, but clearly stabilized in H2 and was above H1 in absolute numbers as respective. The difference between constant currency and reported growth was primarily driven by U.S. dollar weakness, which represents a headwind of almost 300 basis points to reported sales growth in fiscal year 2025. Our full year performance was also influenced by U.S. tariffs. The successful implementation of tariff surcharges contributed approximately 1 percentage point to sales revenue growth. Order intake developed strongly, growing faster than sales. And as a result, our 12-month rolling book-to-bill ratio remained consistently above 1 throughout the year '25, although as expected and also communicated in our last quarterly call, it declined slightly sequentially in Q4 due to a very strong prior year comparison. In absolute terms, order intake in Q4 was roughly on par with the exceptional strong Q4 2024. You remember that above EUR 1 billion figure that we posted there. And that was the quarter with the highest absolute order intake in 2025. And therefore, we entered 2026 on the back of a strong order book. Looking at our divisions in more detail. Bioprocess Solutions delivered another strong quarter, bringing full year sales revenue growth to 9.5% in constant currency. Growth was driven by mid-teens growth in consumables throughout the year, while equipment remained soft, as Michael already mentioned, but was clearly stabilizing with H2 '25 sales being double-digit percentage above H1 '25 sales. Lab Products & Services delivered a resilient performance in a challenging market environment. Sales were essentially flat at 0.2% in constant currencies plus, supported by solid momentum in consumer goods and services. The acquisition of MATTEK contributed slightly more than 1 percentage point to growth. Instrument sales were impacted by constrained CapEx spending in life science research and market. However, we are seeing encouraging signs of stabilization supported by positive momentum in bioanalytics in the second half, driven in part also by the launch of several updated instruments in that market space. Let me also quickly elaborate on our regional performance. EMEA sales performance remained robust with growth of almost 6% in 2025. As a reminder, the recovery in EMEA started earlier than in other regions and therefore, faces higher base effects compared to the Americas or APAC. The Americas outperformed, growing by 8.9%, like APAC, which also grew by 8.9%. In APAC, China continued to stabilize with early signs of improvement. Excluding China, the APAC region delivered low double-digit growth in the year 2025. Let's now turn to our profitability. In addition to robust growth momentum, we achieved a strong improvement in profitability over the past 12 months. Underlying EBITDA increased overproportionately by 11.2% to EUR 1.052 billion, with the margin expanding by 170 basis points to 29.7%. This margin improvement was driven by positive volume and product mix effect as well as economies of scale, further underpinned by cost discipline, more than offsetting FX and tariff-related headwinds of around 1 percentage point. Looking at the divisional profit distribution, profitability in our BPS division developed strongly. Underlying EBITDA increased by 15.2% to EUR 907 million, and the margin improved by 240 basis points to 31.7% based on the effect just mentioned also for the group. In LPS, margin declined year-on-year to 21.5%, roughly 50-50, reflecting an unfavorable product mix on the one hand side as well as FX and tariff-related impact on the other hand side. Now let's take a look at the performance below underlying EBITDA, where both net profit and cash flow developed well. The strong increase in underlying EBITDA of 11% translated into overproportionate growth and underlying net profit of 18% and reported net profit of 84%. As a result, underlying EPS also grew at a very strong 18%. Turning to cash-related items. Operating cash flow amounted to EUR 837 million, below the exceptionally strong prior year level of EUR 976 million, which was positively impacted by significant one-off inventory reduction measures in the year 2024. While business volume improved strongly in 2025, working capital remained largely unchanged. Going forward, we remain committed to keeping net working capital growth below our sales growth. Free cash flow amounted to EUR 390 million, reflecting the development of our operating cash flow. In addition, free cash flow is also reflecting the slightly increased CapEx spending from EUR 410 million to EUR 441 million. Accordingly, the CapEx ratio was 12.5%, which is exactly in line with our guidance throughout the year. To conclude our section on 2025 financials, let us now look at the development of the balance sheet-related key figures. We see a strong equity ratio of 39.8%. The increase versus year-end '24 is mainly due to some repayments on financial instruments using our strong cash position and therefore tightening the balance sheet total. Net debt remained largely unchanged, while gross debt has been reduced by EUR 277 million and despite payout of the acquisition of MATTEK in summer 2025 of EUR 70 million. The leverage ratio, defined as net debt to underlying EBITDA, improved as expected from 3.96x to 3.55x in 2025, despite the acquisition of MATTEK, which added approximately 0.1 turns to the ratio. So we are well underway on our planned deleveraging path. And as you can see in the title, we stay committed to our investment-grade rating. With that, I would like to hand back over to Michael. Michael Grosse: Thank you, Florian. So overall, we are very pleased with the strong performance Sartorius delivered in 2025, supported by improving demand trends, mainly on the consumable side. In addition, the results demonstrate the resilience of our business model and confirm the attractive long-term opportunities in the biopharma and life science markets. We will remain focused on disciplined execution, targeted investments in innovation and capacity and operational excellence. Looking at 2026, it is clear that our industry is back on track, but has not yet fully reached its long-term growth level, especially in terms of demand for equipment and instruments. Since the year is still young, we have deliberately set a broad guidance range to account for continued high macroeconomics and industry-specific volatility. The lower end of the range reflects the cautious scenario in which market conditions weaken. However, we currently expect market dynamics to continue normalizing and positive trends to continue. For 2026, we expect to continue our profitable growth trajectory with a continued positive development in the Bioprocess Solutions division and a recovery in the Lab Products & Services division. For the group, we expect sales growth in constant currencies of around 5% to 9%, including a positive effect from the market acquisition and U.S. tariff-related surcharges totaling approximately 1 percentage point. And for the underlying EBITDA margin, we expect an increase to slightly above 30% in which a technical margin dilution of around 50 basis points from tariff surcharges is already reflected. In Bioprocess Solutions, we anticipate sales growth of around 6% to 10%, mainly driven by the recurring business, while we expect equipment business to remain at least stable. The underlying EBITDA margin should be slightly above 32%. In Lab Products & Services, sales growth is expected at around 2% to 6%, including a growth contribution of 1.5 percentage points for MATTEK. This reflects the continued growth recurring business and an at least stable instrument business. We expect underlying EBITDA margin to be slightly below 21%, mainly influenced by deliberate investments in advanced cell models with additional headwinds from unfavorable mix, ForEx, and the dilutive effect of the existing tariffs. CapEx ratio should be around the prior year level as we will continue to invest selectively and with discipline in expanding our global research and manufacturing footprint. Net debt to underlying EBITDA should decrease to slightly above 3x at year-end. As usual, we will provide some additional information for modeling purpose. As you can see, with the Euro-U.S. rate of 1.2, there, we would be a headwind of around 2 percentage points on the reported versus constant currency growth in full year 2026. In Q1, the headwinds would be around 4 percentage points at Euro-U.S. rate of 1.2. Taken together, we are confident that Sartorius is well positioned to benefit from continued recovery. With that, I would now like to hand over to René, who will walk us through the financials of Sartorius Stedim Biotech in more detail. René, over to you. Rene Faber: Thank you very much, Michael. Also from my side, welcome, and thank you for joining us on the call today. In 2025, Sartorius Stedim Biotech achieved considerable profitable growth driven by improving demand, particularly for consumables and operating leverage. This allowed us not only to achieve our updated October 2025 guidance, but also to exceed our top line expectations. Overall, we are very pleased with the results and would like to sincerely thank our all colleagues across the Sartorius Stedim Biotech for their commitment, dedication and really hard work in making 2025 a success. Looking at the numbers. Sales for the Sartorius Stedim Biotech Group increased by 9.6% in constant currencies, reaching nearly EUR 3 billion. Growth in reported currencies was 6.7%, primarily due to the weaker U.S. dollar, which represented a headwind of almost 300 basis points. The successful implementation of tariff surcharges contributed approximately 1% of sales revenue. Our high-margin recurring consumables business remained very strong, delivering mid-teens growth more than offsetting the soft but increasingly stabilizing equipment business. Order intake grew faster than sales, keeping our 12-month rolling book-to-bill ratio consistently above 1, while the ratio declined slightly sequentially in Q4, as Florian explained, due to a very strong prior year comparison. Q4 order intake was roughly on par with the exception of Q4 2024, making it the highest absolute order intake quarter in 2025. We therefore entered 2026 with a strong order book. Underlying EBITDA increased by 17% to EUR 914 million, driven by volume, product mix and economies of scale. Consequently, the underlying EBITDA margin improved significantly to 30.8%, an increase of 2.8 percentage points compared to the previous year. Looking at the top line performance from a regional perspective, EMEA made a solid momentum, delivering 7.3% growth. This robust performance came despite a higher comparison base resulting from an earlier recovery cycle. The Americas grew by almost 12% followed by Asia Pacific growing almost 11%. In APAC, China stabilized and was only slightly dilutive to the overall growth. Excluding China, the growth the region delivered was in the low double-digit range for 2025. I'm also quite pleased with the more recent development in China beyond stabilization as the year progress, we are now seeing really early signs of recovery. Looking at the net profit and cash flow, underlying EBITDA growth of the strong 17% translated into an overproportional increase in underlying net profit of 26.7% to EUR 428 million and reported net profit of nearly 52% to EUR 266 million. Underlying EPS rose by 26% to EUR 4.4. Operating cash flow remained solid at EUR 692 million, although below the high level recorded in the prior year, which was positively influenced by the pulling of inventory that Florian already touched upon. Free cash flow stood at EUR 295 million, and the CapEx as a percentage of sales came in at 13.3%. A quick look at our balance sheet metrics. Our equity ratio improved to 51.7% in the end of 2025 with the increase being driven by some repayment of financial liabilities and therefore, tightening the balance sheet total. Net debt decreased by EUR 18 million versus year-end 2024 and gross debt reduction. Deleveraging is progressing as planned with the net debt to underlying EBITDA ratio improving to 2.38 by the end of 2025. So we are very well on track on our deleveraging path. Now before we move into the Q&A, let me also quickly elaborate on our full year guidance for the Sartorius Stedim Biotech Group. As mentioned earlier, we are very pleased with the strong performance of Sartorius Stedim Biotech has delivered across all key financial dimensions. The 2025 results demonstrate the resilience of our business model and confirm the attractive long-term opportunity in biopharma market. We will remain focused on disciplined execution, targeted investments and innovation and capacity and operational excellence. Looking in 2026, same is true for Sartorius Stedim Biotech and for Sartorius AG when it comes to the overall environment and industry trends. Therefore, we also have deliberately set a broad guidance range with the lower end of the range reflecting a cautious scenario in which market conditions weaken. However, we currently expect market dynamics to continue normalizing and positive trends to continue. We expect to stay on our profitable growth path and for 2026 sales revenue growth in the range of around 6% to 10% in constant currencies, including a 1 percentage point contribution from the U.S. tariff surcharges. Growth will be mainly driven by the recurring business, but against high costs, while the equipment business should remain at least stable. The underlying EBITDA margin should increase to slightly above 31%, in which a technical margin dilution of around 50 basis points from tariff surcharges is reflected. Our CapEx ratio is expected to stay around previous year level at around 13%, reflecting our ongoing investments into research and resilient production footprint. Our commitment to deleveraging remains unchanged. We anticipate the leverage ratio, the net debt to underlying EBITDA to decrease to slightly above 2 at year-end. Our modeling assumptions, Michael already explained, expected headwind from FX on Sartorius AG level, same is true for Sartorius Stedim Biotech. With this, I will hand over to the operator to begin our Q&A session. Operator: [Operator Instructions] The first question comes from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: What does your guidance assume in terms of U.S. onshoring build-outs in 2026? What could drive upside to these expectations? Michael Grosse: Yes. So I'll take that. Subbu, thanks for the question. I mean, right now, as we've been seeing that there is a lot of plans, some of them really committed, some of them still a bit on the horizon. As we see as well the lead times for order particularly on the equipment on a larger system side for greenfield or for larger expansions, we think that the impact from large -- from relevant reshoring activities will most likely not contribute with revenue in 2026. So we've not baked anything of that in our current expectation and assumptions. This would rather be for the year 2027 and beyond where this may have a larger impact. However, we are very closely connected, of course, with all our customers, supporting them on their plans, discussing opportunities as we move forward. It goes up from this, of course, very short near-term activities on brownfields and expansions of existing capacity. Subhalaxmi Nambi: Perfect. And a quick follow-up. How did equipment orders for BPS and LPS, respectively, trend for the quarter for Q4? And are you starting to see any early signs of recovery? You spoke about comparison and orders, but I was just trying to figure out what about equipment orders separately for LPS and BPS. Rene Faber: Thank you for the question. Although we are not giving further information on that very detailed level. But what I can tell you is, on the one hand side, we have been talking about H2 sales being much stronger than H1 sales. And the same holds true when we look at order intake where the order intake in H2 was also well within double digits above H1, which, of course, then speaks to the quality of the order book and therefore, our cautiously optimistic outlook then also into '26. Operator: Next question comes from Richard Vosser from JPMorgan. Richard Vosser: One question, please. So you talked about market conditions not fully back to normal for equipment. So just a little bit of elaboration on changes of customer sentiment here. You've talked a little bit just now about equipment orders suggesting improvement. So just thinking about, first, your confidence in the stabilization of equipment revenues, what's underpinning that in '26? But also, when do you think equipment could move more back to normal levels? We've seen that happen for consumables in '25. What's your thinking there? Rene Faber: Yes. Thank you for the question. I'll take it. Let me first get back to 2025. You will remember when we talked about stabilization of equipment like in Q3, we said for H2 '25, we expect to be in revenues for -- with equipment at least on the levels of H1, maybe slightly above. And you could hear from Florian that H2 came out as stronger, so confirmed the stabilization stronger compared to the H1. So I think that's a clear kind of confirmation of our view and expectations and visibility and the discussions with our customers that the equipment is stabilizing. And now looking, of course, into the 2026, we continue to see the positive discussions and have positive discussions with customers. They are tangible projects, sizable projects on the horizon. The order book is healthy as we mentioned in the -- a few minutes ago. So as Florian [indiscernible], cautiously optimistic looking into the 2026. We believe that the portfolio we have is well positioned to help customers quickly adjust their capacity, single-use technologies are designed to make -- to do -- to provide flexibility. So yes, we're very encouraged about the current -- the sentiment as well as the -- our position and discussions we had with our clients. Michael Grosse: I would like to expand even that from Rene's perspective, I think the similar situation is true as well for LPS division on the basis of equally, I would say, strong development interest levels in needs and opportunities, particularly on the biolytical instrument side, as well a trend that we see in the second half of the year, particularly in Q4, coming and resulting into a good level of contribution in both sales and order intake. And again, so same sentiment for us. But again, I think it will take, for sure, the full quarter Q1 for us to have simply better visibility, better understanding the continuation of the order intake trade in order to have a better view whether this requires further refinement of our perspective for the full year at that point in time. Operator: The next question comes from Doug [indiscernible] from Schenkel. Douglas Schenkel: It's Douglas Schenkel from Wolfe. I'm going to try to do 3 really quickly. One, I just want to confirm, based on your responses to the earlier questions that your 2026 guidance does not currently assume an improvement in bioprocessing equipment demand. So that's the first one. The second, can you please bridge to your margin guidance for the year? Specifically, what would be helpful is, what's the impact of foreign exchange, tariffs and operating efficiencies as you incorporate those into your guidance? And then third, [Technical Difficulty] many companies in your peer group have taken a more conservative approach to guidance than had been the norm given market challenges over the past several years and given ongoing policy uncertainty. With that in mind and also recognizing that this is issuance as CEO, how would you describe your initial guidance philosophy? Florian Funck: So maybe I start to give a little bit more perspective on the margin guidance here. So what we know as of now, of course, is roughly the impact of the tariff on the year 2026, which is to be around 50 basis points. What we do not know is the full FX impact. The weaker the U.S. dollar the higher this impact might be, although we think we are in a good position to a certain extent also to compensate certain headwinds on the FX side in the margin. The, let's say, broad improvement in margin that we are seeing, if we are taking out tariff and FX impact, is definitely a 3-digit basis point number, so above 100 basis points and should be driven to a majority from ongoing operational leverage that we've seen. Michael Grosse: Yes. Maybe to add to Florian's point there just because you may have really in mind as well our fantastic margin contribution that we delivered in 2025. And of course, there are other effects that I think are relevant in my mind to keep in mind there. Of course, on the operating leverage, since we are now already throughout the last year on a different level, the effect of this is, of course, diminishing to a point. Keep as well in mind that when it gets to our activities that we launched in the year even before on our cost reduction programs that the main effect there as well was visible, particularly in 2024 and 2025, still continues in 2026, but less so. So with this and as well a bit of the question mark, how much of the equipment will be there in the year 2026. If that is a higher degree of recovery, of course, the margin mix, the mix effect that we have seen in 2025 was probably as well a bit more favorable compared to 2024 than it may be in 2026 compared to 2025. Then you talked as well a bit about the guidance philosophy. Yes, I think we try to express that in our wording already. On the one hand side, it's early in the year. We felt like, okay, we're feeling confident enough in order to quantify our guidance. But given the fact that it's early in the year, given the still the level of uncertainty that we have there in terms of macroeconomical and geopolitical aspects, as you mentioned, I think we want to as well, therefore, be prepared for this and the lack of full visibility for the full year on the basis of order intake and the book and the market trends, we felt the philosophy is indeed that we have decided for a wide range with the 4 percentage points we have there. We don't feel that we are neither over aggressive nor over conservative with what we put out there. However, we feel that we will not celebrate if we achieve only a 6% growth for 2026. That's equally clear. At the same time, the level where we will land on versus the mid or even beyond the midpoint is so much dependent now on what will happen. So I think we will be in a better position after the first quarter to give more clarity as the year progresses. And that is why I think the philosophy remains, I would say, remains balanced, remains balanced. Operator: The next question comes from Harry Sephton from UBS. Harry Sephton: [Technical Difficulty] consumables. So we're seeing a more comfortable high single-digit to low double-digit growth across the big players in the industry on the consumable side. Based on your guidance, that you're expecting to be more in line with market growth. So what do you see in terms of potential upside or downside risk to market share in the near term on the consumable side? Rene Faber: Yes, I take it. So a question on consumables. As you will know, the consumables is very much -- the majority represents the majority of our revenues for the -- I'm talking for the Bioprocess division. You will know that most of that recurring revenues, consumables revenues are linked to commercial manufacturing and consumption of our customers of the products in making commercial drugs, adding late-stage clinical material production, it comes to around 80% of the consumables revenue are linked to that late-stage plus commercial manufacturing. So -- and that's more or less kind of also gives you an idea about what dictates the growth of consumables. Looking forward, it's very much about the volumes, manufacturing volumes of our customers. We can do little about that, of course. But then once new drugs are being approved or enter these late-stage clinical phases, yes, that drives additional volumes for these consumables. So looking forward, I think we have been working consistently over the years with the teams in all regions to make sure we are early with customers and place these consumables spec in, validate when the decisions are made and validations are done and also working hardly with customers to convert wherever possible in an ongoing and existing processes towards our products. The highlight of that was, of course, during the pandemic where mainly due to our ability to supply and the customers, we gained market shares and kept or we were able also to protect roughly 1/3 of this gain moving forward. So we are, I think, on a very healthy and successful track record to drive that above market -- above drug volume growth of our consumable revenues. Of course, as we mentioned in presenting our 2025 results, we have seen a strong mid-teens growth of our consumables in 2025. So comps are higher now looking in 2026, but we are very confident that these fundamentals and the volumes driving the growth of consumables are there are intact and are positive about the outlook in '26 and beyond. Operator: The next question comes from James Quigley from Goldman Sachs. James Quigley: I've got one on China, please. So you said in the slide and in the comments that China is starting to show some encouraging signs of growth. I think some of your peers at a recent conference still sounded a bit muted on China growth. So what are you seeing here in the region that's driving those encouraging comments from you across the BPS and the LPS divisions? Michael Grosse: So I mean I can get started a little bit. I mean, highlighting perspective again, I think China has really a few years back that I think we've seen a really difficult market environment with as well, very strong level of guided preference with regard to local players and for local production. We feel now that a little bit this notion of rebaselining the market has come to an end. We feel now that we are able to, right now, keep market shares in China and benefit from probably the still modest level of the growth that the China market demonstrates. At the same time, there's, of course, a lot of innovation activities that we are part of and want to equally, I think, being asked by customers to be part of the rollout of out-licensing and bringing some of their pipeline development into other regions and markets. Our expectation for the market, however, overall is still a rather flattish or rather very modest level of degree of growth expectation given as well the prior year performance that we've seen. So we don't see and we don't expect naturally a big turnaround of that momentum. It's still probably there to come later. At the same time, there's a big overhang and a high capacity buildup on the equipment side. So particularly on the equipment side, we feel as well that China will, in the year 2026, be a rather muted market. But on consumables, we think will be part of the game. And yes, as we said, we are -- we have modest expectations here on the market. Operator: The next question comes from Charles Pitman-King from Barclays. Charles Pitman: A quick question, please, on just the guidance again. Just trying to relate the kind of 2 separate statements of the low end of your guidance range, reflecting kind of deteriorating market outlook. But also your commentary around the strong order book and equipment being at least stable. Can you confirm, therefore, that the low end of your guidance range reflects equipment being stable, supported by your existing backlog and other market deteriorations impacting consumables? And then just a quick clarification on margins. Just wondering why you're only providing a kind of bottom end of that range. And is it the implication that at the top end of the range, you have rising equipment, which will offset the margin such that your only confident to provide at the bottom end of the range? I'm just trying to -- yes, just thinking about how you're setting this out. Michael Grosse: So first part, yes, I mean... Unknown Executive: Charles, you broke up a little here technically. That's why we are a little puzzled. Could you repeat the first part of the question? Charles Pitman: Sorry. My question relates to trying to triangulate the 2 guidance commentary, one being that your sales could be at the low end of the range upon worsening market conditions, but did you separately expect equipment to be at least stable? I'm just wanting to confirm that your order book means that you have this confidence in your equipment being at least stable, and that in the scenario where you hit the low end of the range, that's driven by consumable deterioration more so than any downside to your equipment outlook? Michael Grosse: Okay. So I mean, yes, I mean, again, I think on the lower end of our guidance as we try to express, we see some level of, I would say, market situation overall. So we would see that there is no impact, no positive contribution there from the equipment and possibly as well a slight deterioration even on the consumable side. We see the total mix. It depends on how you see the 2 elements of that coming together. But as we say, I mean, if we see the momentum that we've seen right now based on, as you said, the order intake generated in equipment, and at least, stable situation plus the continuation of the current trajectory of the consumables that would be slightly above the bottom part of the guidance. So we would assume some level of deterioration of that condition. Then I think the other question was on the margin. Florian Funck: Yes. While we have not given a range for the margin, we have said that we want to reach slightly above. So this is in a way open to one side. Now let's assume we would be on the lower end of our guidance range. The 5% for the group, we would definitely aim to see margin improvement against prior year, but we might not fully reach that. So the margin corridor that we are indicating to was slightly above -- the 30% was more towards the midpoint of the guidance. If we then come to the upper part of the guidance corridor on top line, of course, there's way more potential on the back of more operational leverage. Operator: The next question comes from Charlie Haywood from Bank of America. Charlie Haywood: Charlie Haywood, Bank of America. I have 2. So first one in '26, is it fair to expect typical seasonality on the bioprocessing side? So I think you've previously commented to 4Q, 1Q, 2Q, 3Q. Or given equipment phasing and what looks like a strong fourth quarter for those orders and a 6- to 12-month order book, might that distort to possibly fueling a stronger second half? And then the second question is just a bit more on midterm. Now that you spent a bit of time in the business. You previously sort of commented to Merck's 9% to 10% market outlook not far from your thinking. I guess how are you currently seeing the bioprocess midterm market growth in the end markets there? Michael Grosse: Thanks for the question. So I think we can maybe kick off a little bit on the basis. I think, as you know, we don't really break down and guide on the basis of quarterly perspective. So I think in this case, we would like to leave a little bit the breadth of the way of how we look at the year to come in more the total perspective. So we will not provide any specifics as we see the quarters moving forward. Again, I think it is probably more in the nature of the business. If you think about -- and it's probably a similar pattern that we've seen during the last year, given the lead times of equipment orders, particularly we now see that, okay, we generated the order intake in the second half of the year, Q4. So things now with the lead time, 6 to 12 months on the Bioprocess side, of course, then we would expect sales realization in all these orders to rather hit the second half of the year than the first half of the year. So that's natural by the lead time of those orders. Yes. Then in terms of the market. Yes, I think we hold to that. I mean we basically took a look at the market. We'll get back a little bit more interesting insight on the market analysis that we've done for the capital market that we will provide and bring up in March. However, as we said, we think that the assumption there for the market to be around a 9% growth, I think, is something that's very much in line with our views and with our analysis. Again, depending a little bit also on the specific market segment and then the exposure to the market segments. But that corridor is well in line with our analysis that we've done. And that is well what we believe that in our minds, we will measure us against from a mid- and long-term perspective. Operator: The next question comes from James Vane-Tempest from Jefferies. James Vane-Tempest: Just on LPS, actually. You mentioned in the presentation that the rolling book-to-bill is now more than 1, but now you specifically stated in both divisions. So I was just kind of curious whether the LPS book-to-bill turned in Q4 to be above 1? And if so, where you're seeing accelerating orders from either certain customer or product groups? And then related to LPS, I mean the guidance that you've given is marked the fourth year of margin decline in a row. I know we're going to hit more in March. But conceptually, how realistic is it from here to get back to levels seen a few years ago? And what would it take to get there? Michael Grosse: Okay. So the first part of the question was about the book-to-bill. Sorry, do you want to take that? Florian Funck: Exactly. James, as you know, we would not like to go specifically into that. But let me put it that way. We were quite pleased with what we have seen than in Q4. Let us leave it on that level. Michael Grosse: And then one was related to profitability. James Vane-Tempest: LPS margins, yes, in terms of the fourth year of decline and just thinking about what it would take to get back to where it was? Florian Funck: Yes. I think this is a question that we should discuss more in detail around the Capital Markets Day, if you don't mind. James Vane-Tempest: Okay. No, that's fine. One quick follow-up, if I can. And that is just about the business flow within BPS. Historically, you've kind of alluded to consumables equipment normalized being 75%, 25% approximately. And I know at 9 months, I think you sort of said it was around 85%, 15%. So just as an approximation, I was just kind of curious where that sort of number for the full year. Michael Grosse: Okay. Just maybe a short point of clarification. So I think, let's say, the numbers you're referring to on the 75%-25% would be on the group level. If we look at BPS, I think we see the rough proportion over the last half year, we've more talk about 80%-20% on that ratio. And again, I think, yes, that is where we see the current state. We don't necessarily believe as well, given the discussion earlier that, that will be as well roughly the level that we will see as we continue into the year 2026 now. Operator: The next question comes from Charles Weston from RBC Europe. Charles Weston: You've talked about Europe being ahead or EMEA being ahead in terms of the recovery curve. Does that also mean it's ahead in terms of the equipment order recovery curve? So have you got sort of proof of those orders turning into -- that interest turning into orders and revenue in Europe? And just a clarification question. You said you have good discussions with your customers to understand their CapEx plans. Can you give us any insight into whether the big investments that they're making is more about them shifting CapEx from other parts of the world into the U.S. or whether they are genuinely adding additional capacity into the U.S. over and above what they would be normally planning? Michael Grosse: No, thanks for the question. On EMEA, I think the situation is not that we see any difference here. Yes, the recovery overall happened earlier there, but we cannot now say that we have data that suggests on the equipment recovery that EMEA is ahead of the other regions. So that's not really the case. Florian Funck: Yes, and the discussions we have with customers on the equipment, they are mostly not today related to the onshoring or reshoring in terms of tangible projects, investments, either replacing old instruments or adding capacities. The discussions are with -- around onshoring, it's more about understanding really what is relevant of the -- what has been published from the headlines from our customers, what is of relevance for us, of course, you will see a lot of R&D investment being included in these headlines. You will see also investment in classical pharma facilities, final field drug product facility, so all less relevant for us. So trying to understand what's really in for Sartorius, and then also trying to understand really what the timing will be and when the discussions about the equipment, the providers will start. So this is more about where the onshoring discussions are today. So the very tangible projects are still less related to that topic. Operator: Next question comes from Odysseas Manesiotis from BNP Paribas. Odysseas Manesiotis: First, to better understand the growth deceleration in Q4. I have EMEA around 4% CER for Stedim. Could you give us a feeling of how that's different between equipment and consumables or just whether that's the growth we should be expecting for the region as the new normal? And secondly, in order to have a better feeling of the conservative business embedded in your guide, is it fair to say that your book-to-bill for the entirety of the year was pretty much close to your pre-pandemic average of around 1.05? And last quick one, biotech funding has been -- has been quite strong. What's the usual lag that you see between a biotech funding recovery and a pickup in your order intake? Florian Funck: So let me maybe start with the growth regarding BPS recurring versus nonrecurring in H2 because I think really looking only at 1 quarter doesn't make sense in looking at the matter, it's already really short term. But just to give you a feeling, the growth that we've seen in the nonrecurring business was very similar to the growth that we've seen also in the consumable business in H2. So this is also a reason besides the effects that we've seen in the order intake while we are taking that confident stance towards 2026. When it comes to book-to-bill, we are not communicating on the level of book-to-bill. Sorry. Operator: [Operator Instructions] The next question comes from Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just to come back -- can you hear me? Michael Grosse: Yes. It's okay. Thibault Boutherin: Just to come back on the topic of onshoring and the last CapEx plan that has been announced. There is a question that comes back often from investors, which is, is there a risk that because we see CapEx being skewed towards the U.S. in the next few years to see an imbalance between you and your competitors? So I think the idea from some investors is maybe U.S. peers would be better positioned to benefit from CapEx being skewed to the U.S. So just wanted to know if you could comment on your competitivity in the U.S., the market share relative to other regions and give an answer of how a shift of investments to the U.S. in terms of equipment and CapEx for biopharma would impact you? Rene Faber: Yes. So I'll take that question. Look, the -- in our industry, and I think it's been always the case, still is the case. The main decision criteria is the technology and the performance. Their customers don't make really compromises when it comes to how they equip their facilities, if it's for preclinical small scale manufacturing or even commercial. So I think there we -- and this is where we really see ourselves being ahead with a lot of focus on innovation. So I think for us, the positioning to benefit and participate in the potential onshoring wave is very strong. We have a facility to assemble equipment in the U.S., in the Boston area, in Marlboro, as well to be close to customers in case of the factor acceptance that and so on for more complex equipment. So I think, yes, we are ready to take all the opportunities, the feedback from customers is strong, so positive about the outlook here. Operator: Next question comes from Oliver Metzger from ODDO BHF. Oliver Metzger: It's one more structural question on equipment. So we know from the past, normally, equipment and consumables should grow at a similar rate over the cycle. So we now see consumable demand healthy for a while, while equipment is at least lagging behind. Can you comment about the reasons for this reluctancy? Is it more like still an overhang from, let's say, the time during the pandemic or post the pandemic? Or could it be that there is a more structural change as higher quality consumables might have increased the efficiency of the tighter of a production process and therefore, some structural lower or slower demand for equipment might be the case for a quite longer period of time before we see more expansion or new manufacturing facilities? So that's, to say, upgrades and lower expansion. Rene Faber: Yes. Thank you for the question. I try to kind of give you more color to think about why this reluctancy to invest, you addressed or you asked how much of that is coming with kind of a post-pandemic would call macroeconomic cash-driven impact or development. I think that's very much more on that side, plus the overcapacities, which have been built during the pandemic in some areas versus how you call it kind of a structural change in a way that by technologies improving, it would require less of this equipment. Actually here, over years and decades, we have seen exactly the opposite. The better the technology gets, the more of it will be used, especially in single-use manufacturing, the [ cake ] of what you can address with single use increases or grows, the better the technology, the higher the titers, the better the yields are. So I think that's very much a positive ongoing trend with this improvement. So again, back to your question, I think it's very much on the cash post-pandemic macroeconomic impacts rather than any different structural technology-related. Operator: The next question comes from Falko Friedrichs from Deutsche Bank. Falko Friedrichs: My question is on the LPS margin. When do you expect these investments in Advanced Cell Models to begin contributing positively to the margin of the segment again? And then just a very quick housekeeping one. Is a 27% tax rate a fair assumption again for the Sartorius Group in 2026? Florian Funck: Yes. Let me start with the housekeeping question. We currently think that the 27% is still okay for the year '26. And on the margin, as I said, it's connected a lot, of course, to our engagement in Advanced Cell Models, which is an emerging business, but should not be impacting on a sales side very soon, but rather we are building up for the more long-term perspective, more to elaborate on at our Capital Markets Day. Operator: Next question comes from Harry Gillis from Berenberg. Harry Gillis: I have one clarification regarding an earlier question on guidance. I'm sorry, I didn't quite catch that. Does the 6% guidance at the low end of your for BPS growth, does that assume a further decline in equipment sales, sorry? Or does your expectation for at least stable equipment hold here and it's deterioration in growth in consumables? And secondly, could I just ask you. Do you expect your CapEx ratio to remain stable at around 12.5% into '26? How should we think about that over the midterm as some of your larger projects start to roll off? Florian Funck: Should I start with the last question on the CapEx rate. So of course, you are asking more the midterm perspective, but I think we have always quite consistently communicated that we are -- we should see from the year '27 onwards, an overall reduction in our CapEx ratio. '26 is, therefore, the last year, where especially also driven by our expansion projects in Korea. We are seeing elevated levels of our CapEx ratio to then come down afterwards, more on the Capital Markets Day. Rene Faber: Then again, on the guidance, just to repeat, we said at least flat, so we are not considering any decrease in equipment revenues for 2026 in our guidance. Operator: Next question comes from Shubhangi Gupta from HSBC. Shubhangi Gupta: So just a clarification for your guidance or the upper end of your sales growth, does it assume recovery in equipment sales? And if yes, what is the time line? And how should we think about the phasing of growth in 2026, given H2 have tough comps, especially from strong growth in consumables? Florian Funck: Yes. Again, so now the question is about the upper range of the guidance. Here, as we said, of course, in that case, we would expect the contribution of both consumables, continued healthy growth as knowing and considering the higher comps coming from this -- from 2025 as well as at least a moderate growth in equipment revenues. So that's kind of our current thinking. And again, very positive what we have seen so far, the order book, the trends we see. So quite confident we are heading there. But as Michael said in the introduction, still early in the year and more to come with our Q1 results. Michael Grosse: Yes. Give us a bit more time on that, please. So on that. However, I think just to add on, I mean, as we said at the other stage, given a bit as well if we think that one of the contributing or deciding factors towards the upper end, it will indeed be a more strong recovery and growth contribution as well from the equipment instrument side. Again, on the lead times that are there, of course, assumption is probably fair to say that this is something that happens rather later in the year than earlier. So it's something that we would expect to rather beyond Q1 to happen, if it happens in the degree that we may hope for, but we don't know. Shubhangi Gupta: And just a quick follow-up, can you comment... Petra Muller: I'm sorry, Shubhangi, but we have 3 more people in the queue. I'm sorry, we have to head on because we are over time already. Sorry about that. Happy to take your question afterwards. Operator: The next question comes from Anna Snopkowski from KeyBanc. Anna Snopkowski: This is Anna on for Paul Knight. I just was wondering, you mentioned on your last call, you were having some early conversations with small CDMO customers. How has this progressed in the quarter? And are those early conversations around equipment broad-based or concentrated in any customer group or certain types of equipment like those that help your customers reduce costs? Florian Funck: Yes. Thank you for the question. So yes, absolutely, that was a kind of an ongoing development we have seen in 2025. Towards the second half, we've seen the smaller CDMOs also becoming more and more active. We've seen them, their pipelines filling, their projects coming and discussion started, and it's both really about -- its equipment and consumables. So preparing for delivering on the project, it's all about getting ready to make the batches, preparing to get an order in consumables to be -- to have them on -- to build inventories as well as where needed, add equipment to prepare the capacity as well. So that's been the development we've seen with them, and it didn't change so far. So also kind of contributes to our positive outlook. Operator: The next question comes from Naresh Chouhan from Intron Health. Naresh Chouhan: Just on BPS. When you talk about double-digit consumable growth, can I confirm that this is more like low teens if we exclude China, just to give us a sense of where underlying demand is in Western market and the kind of state of the Western market recovery? Florian Funck: Yes. So consumables kind of, yes, low teens is a fair assumption in a positive outlook, right? And yes, that's how we are looking forward, not only '26 but ahead as well. Yes, so you're right. Operator: The last question comes from Delphine Le Louet from Bernstein. Delphine Le Louet: Yes. I'm sorry because I really don't understand the guidance regarding LPS when it comes to the margin. And so I know when you're trying to push back about the CMD and probably you're right, but that makes me think, is there anything and especially when we look at the Q4, where we had the margin gain versus the Q3, is there anything more structural that you're planning? And this is a new way where probably we should think about the division in the future, meaning a complete reorg internally of the LPS division that could justify not having any execution gain coming over the sales growth even at the midpoint of 4%, which is quite nice for that division, by the way. So any more clarity on that? How should we think about that margin in the context of back to growth and a scenario, which is not that bad at the end? Florian Funck: So Delphine, maybe I'll start, and then Michael, especially to add on, on that. But first of all, we definitely think that the LPS business is a 20% plus margin business going forward. On the other hand side, on the current position that we are at, at a margin of 21.5%, knowing that the tariff impact overall in the group is roughly 50 basis points in 2026, knowing that there are unknown on the FX side and knowing that we are ramping up our investment through the P&L into ACM, we thought it is appropriate to guide then for the year '26 with a slightly below 21%. Michael Grosse: Yes. And over and above what Florian said, of course, we want to give you an incentive to join the Capital Markets Day here, very clearly, any strategic type of consideration about how we see the business, the divisions as we move forward. You're welcome in March to our Capital Markets Day. Operator: There are no more questions from the phone. I would now like to turn the conference back over to Petra Muller, Head of Investor Relations. Petra Muller: Yes. Thank you very much, Valentina. This concludes today's call. Please reach out to the Investor Relations team in case of any open questions. We thank you for joining us and wish you a pleasant rest of the day. Take care and see you next time. Thank you. Goodbye. Michael Grosse: Thank you. Bye-bye, all. Many thanks. Operator: You may now disconnect.
Cyril Meilland: Hello. Good morning, all. I'm Cyril Meilland, the Head of Investor Relations at Amundi, and it's a real pleasure to welcome you today in the not so sunny London for a presentation of our full year and fourth quarter results. We are here in our London office, and this is a hybrid event. So we will have people in the room and people online via Zoom. We shall have a presentation by our CEO, who is here with me, Valerie Baudson; and our Deputy CEO, Nicolas Calcoen. Presentation will last for about 30 minutes. And as usual, it will be followed by a Q&A session for as long as it takes. So ask any questions. The questions can be asked obviously in the room as well as online. [Operator Instructions] And unfortunately, before we get started, a very short disclaimer. Throughout the presentation, we will make some forward-looking statements and mention forecasts. We call your attention to the fact that Amundi's actual results may differ from these statements. Some of the factors that may cause the results to differ materially are listed in our universal registration documents. And Amundi assumes no duty and does not undertake to update any forward-looking statements. And after this task, I leave the floor to Valerie. Thank you. Valérie Baudson: Well, thank you, Cyril, and good morning, everyone, in the room behind the screen. We are very pleased to present our Q4 and full year 2025 results, which reflect both our record activity and the core elements of our Invest for the Future 2028 plan. So I will take you through some key highlights before Nicolas, as usual, looks at our activity and financial results in more detail. First, our assets under management have now reached almost EUR 2.4 trillion, so up 6%. This is thanks to record total 2025 net inflows of EUR 88 billion from both passive and active management activities. In terms of clients, this performance was driven by positive inflows across retail, institutional and our JVs. Retail inflows predominantly came from our very fast-growing third-party distribution business. And on the institutional side, medium- to long-term asset collection tripled in 2025 with some major mandate wins in Europe and the Gulf in Q4. Our activity drove strong financial results with adjusted pretax income up 12% for the quarter and 6% for the year, while adjusted EPS reached EUR 6.58. This performance and our strong financial position allow us to propose a 2025 dividend of EUR 4.25. This represents a payout that is EUR 100 million above our 65% target. And we are also delivering on our commitment to return excess capital to shareholders from the 2025 strategic cycle. So today, we are announcing a EUR 500 million share buyback, which starts tomorrow. So combined, the dividend and share buyback will return close to EUR 1.4 billion to investors, around 10% of our current market cap. And more than half of these figures will go to minority shareholders. So all in all, we enjoyed success across all our strategic growth areas in our Invest for the Future plan, making 2025 a strong start to our 2028 plan period. So let's take a closer look at some of the key activities. Clients first, starting with retirement, which is, as you remember, one of the key strategic priorities in our new plan. We have established a dedicated business line to package our offer and capture new opportunities. And following from the people's pensions in the U.K., we secured another major mandate at the end of the year. Amundi is one of just 3 asset managers selected for Ireland's new auto enrollment pension scheme, which will serve the majority of the Irish workforce. Assets for this scheme are expected to reach EUR 20 billion in the next 10 years. Our other major strategic client priority, you remember, is digital distribution. We saw EUR 10 billion in net new assets from digital players in 2025, almost half of our full year retail flows. New mandates included the retirement offer launched with Moneybox, an award-winning digital wealth management platform in the U.K. This partnership brings together Moneybox client-led product design with Amundi's global multi-asset and ETF expertise, creating 3 new Moneybox blended funds. Now geographies next, starting with Asia. We continue to deliver strong growth powered by our direct presence and our successful JVs. Asian net inflows were EUR 33 billion for the year. Over 40% came from our direct distribution business with contributions well diversified by country and client type. And on the JV side, India and Korea were the main contributors and China showed a good momentum as well. Now closer to home, Europe continues to offer significant growth potential for Amundi and increasing our market share in Northern Europe is, as you remember, another strategic priority. Our 2025 activity reflects this with EUR 40 billion in net inflows from this region, including EUR 29 billion from the U.K. Germany contributed EUR 8 billion in net inflows with EUR 5 billion from digital platforms. And as part of our new strategy, we will also reinforce our presence and build on strong client activity in new high potential regions. The Middle East is one of these. And in addition to strong business momentum, we also signed a new strategic partnership with First Abu Dhabi Bank to target Gulf investors at the end of 2025. This partnership combines Amundi's wide coverage of investment solutions and asset classes with First Abu Dhabi Bank regional insights and presence. Solutions next, where innovation is key to future growth. So let's start with active management, where we saw good investment performance as we continue to widen and strengthen our offer. We launched 3 new UCITS funds in key strategies: global equity, U.S. large caps and U.S. mid-caps. These funds fulfilled via our Victory Capital partnership are the first from investment platforms outside of the former Amundi U.S. brand pioneer, demonstrating the clear potential to extend our range as promised. We have also launched in 2025, the first tokenized share for one of our money market funds. The fund is now easily accessible via standard distribution networks and/or the tokenized shares. This first class of tokenized shares is just the beginning, and we will gradually test and add new features to our offering based on specific business cases. Smart Solutions, our another commercially successful innovation, well suited to the current environment. These solutions enable institutional investors to optimize their excess cash by capturing their premiums offered by top-tier issuers for their funding while maintaining low volatility and high liquidity. Assets under management for these funds reached more than EUR 41 billion in '25, representing additional inflows of EUR 20 billion. And this includes EUR 3 billion -- additional EUR 3 billion from a European public institution in Q4. Now ETFs next, where we are further strengthening our position as the second largest provider in Europe and the #1 European provider, both in terms of assets under management and inflows. ETFs assets under management reached EUR 342 billion, up 27% year-on-year. In Q4, we achieved record quarterly inflows of EUR 18 billion and EUR 46 billion for the year. We are, by far, the #1 collector of European equity ETF inflows. This leadership is driven by our diversified offer, which includes products like [ Euro ] Stoxx Europe 600, the largest selling European equity ETF on the market. But innovation is also key to capturing ETF growth. So new products, including macro thematics like defense and strategic autonomy collected EUR 5 billion in '25. Innovation is also key to adapt and grow our responsible investment offer. In July, we launched a new global green bond fund tailored for Zurich's Life Insurance clients seeking diversified access to Green bonds. And in December, we launched a Euro biodiversity credit fund available to both institutional and retail clients in more than 10 countries. This fund allows investors to participate in the preservation of natural capital through a euro credit allocation. So in summary, a period of strong innovation across our investment solutions that is supporting, of course, our growth trajectory. Finally, I would like to highlight Amundi Technology. We are now a recognized technology provider covering the entire savings value chain and operating at scale in 15 markets. Revenues reached EUR 116 million in 2025, up 45% year-on-year, thanks to 10 new client wins, which also saw us enter 2 new markets, Denmark and Singapore. We talked about some of the great 2025 client wins at the Capital Market Day, including AJ Bell in the U.K. Since then, leading Dutch assets and wealth manager, Van Lanschot Kempen has selected our ALTO investment platform. We also signed Bankdata, a technology services consortium made up of 7 Danish banks that serve 1/3 of the country's population. Bankdata selected Amundi's ALTO wealth and Distribution solution to introduce comprehensive portfolio analytics and reporting into its ecosystem and obviously, for the clients of these banks. We also recently launched our new Data-as-a-Service offer, leveraging our robust architecture, our data provider connectivity and our market expertise. We are now onboarding our first client, a leading global insurer in Asia. So our tech business is continuing to deliver growth while also serving as a key strategic enabler for the wider Amundi Group. It strengthens our investment solutions, creates durable long-term relationships and is a key differentiator for Amundi among European asset managers. So that's all for me for now. Let me hand over to Nicolas to take you through our Q4 and '25 activity and financial results in more detail. And I will be back, of course, for some closing remarks ahead of the Q&A. Nicolas Calcoen: Thank you, Valerie, and good morning, everyone. I will now comment on our activity and the financial results. Starting with our assets under management, which reached EUR 2.38 trillion at the end of December. This is again a new record for Amundi. Assets were up by 6% over the year. Almost 2/3 of the growth is coming from net inflows at EUR 88 billion of 4% of AUM, and the rest come from a positive market and ForEx effect of EUR 62 billion despite the depreciation of the U.S. dollar and the Indian rupee. On the fourth quarter, our assets rose by 2.7% with similar trends. Moving now to our net inflows. As I said, they amounted to EUR 88 billion. They are sharply up versus 2024, which already showed a strong increase compared to the previous year. In other words, we have enjoyed strong business momentum in the past 3 years. Furthermore, this business momentum was driven mostly by medium- to long-term assets from our 2 client segments, retail and institutional. Long-term net inflows indeed more than doubled at EUR 81 billion for all these clients. Long-term flows were positive in both active and passive management. Passive management was very successful at EUR 76 billion, including the EUR 46 billion in ETFs, as Valerie highlighted. And active management gathered EUR 13 billion, almost double the net flows of the previous year. Fixed income was again the main driver, but growth also came from the return to positive net flows of active multi-asset management. Conversely, treasury products posted net outflows largely related to the ECB rate cuts and a slightly more risk on approach by our institutional clients. Turning to our joint ventures. They collected EUR 20 billion. I will come back later on with more detail. And finally, the U.S. distribution of Victory Capital for the share we own in this partner posted net outflows of EUR 1.4 billion. However, the strategies managed by Victory Capital that Amundi distributes to its clients in Europe and Asia gathered EUR 800 million despite a lower appetite for U.S. strategies last year. I will not comment in detail on the fourth quarter because it is, in fact, very much in line with the full year trends with some acceleration in areas like long-term assets in general, in particular, ETF, but also active management. Coming to performance. Our investment management teams delivered sustained performance in 2025 as illustrated on the slide. Close to 3/4 of our open-ended funds were in the first and second quarter over 1 year, 3 years and 5 years and 233 Amundi funds are rated 4 or 5 star by Morningstar. The investment performance is particularly good for fixed income and multi-asset flagships. For example, in multi-assets, global -- multi-asset on its more conservative versions, global multi-asset conservative ranked in the top 5 and 10 percentile of the category. On the fixed income side, global aggregate, our main flagship outperformed its benchmark by more than 300 basis points on our Euro subordinated strategy by more than 600 basis points. And beyond this particular highlights, I think the main message from this slide remains sustained consistency at a high level of investment performance. Looking next at our client segments, starting with retail. Retail flow was positive at EUR 22 billion over the full year. These flows remain driven by third-party distributors, which continued to post very healthy inflows of EUR 33 billion with EUR 27 billion in ETF and positive flows in active management. Flows are also very diversified by region. In Europe, first with EUR 23 billion with a high level of activity, in particular in Northern Europe, in U.K., in Germany, in Netherlands, but also in Spain and Italy. Asia continued its healthy momentum with EUR 6 billion of net flows. And in addition, we gathered material flows from high potential regions like the Middle East, Canada and Mexico in line with the strategy -- our strategy to conquer these new markets. Beyond third-party distribution, our Chinese joint venture with Bank of China also enjoys strong momentum with EUR 2 billion gathered year-to-date. And turning now to our international partner networks. The net outflows totaled EUR 14 billion, as you can see. They are fully attributable to UniCredit, where outflows totaled EUR 16 billion in the full year, of which EUR 4 billion in the last quarter. Finally, the French partner networks in France are showing positive net inflows of EUR 1 billion. The fourth quarter net inflows in this segment are entirely due to treasury products, in particular due to corporate clients of these networks, where the long-term assets are positive. Moving to the institutional segments now. In '25, net inflows were EUR 48 billion with a strong performance in long-term assets at EUR 61 billion, triple the level of '24. Passive management accounting for large share EUR 44 billion, of which almost half coming from the mandate won with people's pension. But we also gathered close to EUR 20 billion from active management for the most part in the Smart Solutions Valerie highlighted. If you look at by subsegments, institutional and sovereign posted record levels, thanks to a series of mandate wins in Europe and the Middle East, with in particular sovereign funds, central banks or stable relative entities. Employee and savings and retirement business that we presented more in depth last quarter posted a high level of long-term inflows once again. And finally, Credit Agricole and Societe Gennerale, the long-term inflows of EUR 17 billion benefited from the renewed interest in euro contracts in France. The short one maybe on the outflows from treasury products. They originated, as I indicated, from the rate cuts implemented by the central banks and the resulting share for our clients for better yields. An illustration once again of the success -- of this is the success of the Smart Solutions we mentioned. Again, I will not comment in detail on the fourth quarter. As you can see, the trends are very similar to the one we saw for the full year with EUR 13 billion in total. Finally, our Asian joint ventures posted net inflows of EUR 20 billion over the full year with good performance in all countries. South Korea posted EUR 6 billion, mostly in long-term assets, and we saw some outflows in the last quarter, which are purely seasonal and linked to treasury products. China with ABC continued its recovery with EUR 2 billion inflows over the year. And our Indian joint ventures posted more than EUR 10 billion of inflows. The decrease compared to '24 is partially explained by the decline in the Indian rupee versus euro. And for the rest, it was driven by lower inflows from institutional clients in a less favorable markets. However, net inflows into savings plans in retail continue to grow in a very healthy manner. Moving now to our net results. You are now very familiar with the pro forma restatement that we made to 2024 quarters to make the series comparable after the clubbing -- the closing, sorry, of our partnership with Victory. So I will not detail them again, but you have, of course, all the details in the appendix of the slide deck and in the press release. All my comments will refer to adjusted data and year-on-year variations refer to '22 pro forma figures -- '24, sorry, pro forma figures. So let's start with the review of our fourth quarter and in particular, on revenues. As you can see, total revenues were just shy of EUR 900 million in this quarter. They were up by more than 8%, thanks to a healthy growth in all business-related fees in asset management and technology. First, net management revenues were up by 7% compared to the last quarter of '24, of which 4% for management fees, thanks to our strong asset gathering in the past 12 months. And performance fees were very elevated, thanks to the performance delivered by our teams across a large range of expertise. Technology revenues were up by 37% at EUR 35 million. This reflects both healthy growth in license revenues and a high level of billed revenues, thanks to the launch of new client projects. Finally, a short word about our financial income. It's stable compared to the end of '24, but this reflects contrasting elements. On one hand, the decrease in euro short-term rates resulted in a material drop of the return we get from our voluntary placement of our cash. However, on the other hand, this was offset by better mark-to-market valuation and carried interest from our private asset investments. Turning now to our cost at EUR 450 million. They were up on the quarter by 6%, more than 2 points below the top line growth in the context of very healthy business development. This good cost control over our cost was achieved, thanks to our continued efficiency efforts, including the first savings from the cost optimization plan we announced in the second quarter of last year. This allowed us to continue our investment in our strategic priorities to nurture our future growth. And approximately 1/3 of the year-on-year cost growth originate from investment, in particular from technology. As a consequence of this large jaws effect, the adjusted cost-income ratio was 50%, 51.5% to be precise on this quarter. Finally, our adjusted pretax income topped EUR 500 million for the first time in a quarter at EUR 519 million to be precise. It was up by 12%, thanks to, again, the healthy growth in operating profit, up by 11% and the acceleration from our associates up by 21%. It's further contribution from our Asian joint ventures, which was up by 20%, driven mainly by our Indian joint venture. And despite the decline in the rupee and the contribution from Victory Capital, which was up by 19%, reaching EUR 35 million, thanks to the synergies and again, despite the currency headwind. The adjusted net income was EUR 376 million, almost the same level as in the fourth quarter '24 despite the exceptional items in the tax charge. First, of course, the tax surcharge in France, which represented around EUR 11 million in this quarter. And second, the resulting tax on an exceptional dividend we received from our Indian JVs, which represented a cost of EUR 12 million, sorry. This exceptional dividend was paid out in preparation of the IPO of SBI FM, which is, as you know, scheduled for the first half of this year. And we received indeed EUR 130 million as exceptional dividend. But as the joint venture is consolidated according to the equity method, this dividend does not contribute to our results, but only to our cash position. Finally, let's get a look to our financial performance for the full year. The trends, as you can see, are very similar to those of the first quarter. The pretax income rose by 6% to an all-time high of almost EUR 1.9 billion, EUR 1,858 million to be precise. And this growth was driven by an equivalent growth in revenues, 6%, driven by business-related fees, of which 4% for management fees, which represent 2/3 of this growth, 20% growth for performance fees to EUR 173 million, and 40% of growth for technology revenues reaching EUR 116 million, including a full year of aixigo. But organic growth and technology again remained very solid, excluding aixigo, 30% of growth in revenues. Our revenue margin, asset management revenue margin, of course, was 15.9 basis points pro forma again of the deconsolidation of Amundi U.S, like in the first half of '25, but down by 50 basis points from full year '24. We already commented on this decrease in the previous month -- previous quarters. It is entirely due to the strong growth we have enjoyed in the Institutional claimant segment, in passive management and as well as in active fixed income. So both the clients and the project mix have therefore weighted on our margins, but the growth has been profitable on a bottom line basis, of course. Finally, on the revenue side, contrary to business-related revenues, net financial income was down by 5% due to the rate cuts by the ECB and partially offset by the positive mark-to-market as for the last quarter. On the cost side, costs were controlled, again, 6% growth, in line with revenues, reflecting again the investment we made in our growth drivers. And more than half of the cost growth is related to an increase in investment in particular, again in technology. As a result of this good cost control, our operational efficiency remained best-in-class with an adjusted cost income ratio of -- sorry, 52.1% for the full year. This good operating performance for our fully controlled business was complemented once again by strong contribution from our associates. Our Asian joint ventures contributed EUR 135 million or 10% of our net result and up also by 10% despite again the currency headwind in India. And the contribution from Victory Capital was EUR 95 million for the first -- for the last 9 months only, up by 12% over the profit contribution of Amundi U.S. over the same period in '24. As a consequence, excluding the tax surcharge in France that totaled EUR 74 million, our adjusted net income would have been over EUR 1.4 billion. And including the tax surcharge, it was EUR 1,354 million, and the earnings per share was EUR 6.58. This good level of profitability only strengthened again our financial position, as you can see on this new slide. We are probably the traditional asset manager with the largest tangible equity base globally. Indeed, it reached EUR 4.9 billion at the end of '25, up by 10% over a year. As Valerie announced, the strong balance sheet allow us to propose to the general assembly next June, a dividend per share of EUR 4.25. This represents a payout of 74%, EUR 1 billion over what it would have been if we had applied the minimum 65% target. This decision is part of our disciplined capital management. If we can move to the next slide. Our final surplus capital at the end of December '25, the end of our previous plan and before distribution on ICG was EUR 1.4 billion. We will appropriate this amount for 3 purposes in line with our commitments. First, M&A. The acquisition of our stake in ICG is likely to use EUR 700 million to EUR 800 million for the final 9.9% share we target. Second, the ordinary dividend, the EUR 100 million above the minimum payout I just mentioned. And third, additional capital return. The Board has indeed decided on a final amount for share buyback of EUR 500 million, well above the minimum EUR 300 million we had committed at our Capital Market Day in November. This will represent an earning accretion of around 3% at the current share price. And this share buyback will start tomorrow and is likely to span over a full year given the share liquidity and the regulatory constraints applicable to such an operation. It's worth noting that if we combine the total ordinary dividend for '25 around EUR 900 million and the share buyback, we will return to our shareholders this year just shy of EUR 1.4 billion, almost 10% of our current market capitalization. One last word regarding our partnership with ICG and the equity stake we are in the process of building. As you know, we have acquired via a structured transaction 4.64% in ICG on November 19, the day after our Capital Market Day. So we own the shares with full voting rights. However, the structured transaction is still in the process of being unwound. The next milestone is for us to get the mandatory approval from various authorities. We should obtain them in the course of the second or third quarter. And by that time, we will be allowed to appoint a director to the Board of ICG and to start equity accounting for our stake, the 4.64% I mentioned. This will also allow ICG to start issuing new nonvoting shares to us for a total economic interest of 5.3%, taking our final stake to the target 9.9%. They will do so while at the same time, buy back an equivalent amount of ordinary shares on the market and canceling them to avoid dilution. This process is expected to last several months, depending, of course, on ICG share liquidity. And it should be completed early '27, at which point, we shall equity account for the full amount. I hope this clarifies the process. Of course, ICG will be integrated on our reporting as an associate in a similar way to Victory, and Cyril and the team at your disposal for the detail. I will now hand back to Valerie for concluding remarks before we take your questions. Thank you very much for your attention. Valérie Baudson: So thank you, Nicolas. 2025 has been a solid start to our new strategic plan period. We saw higher activity across our strategic growth areas, which supported our strong results. In terms of strategic initiatives, as Nicolas outlined, we are now building our stake in ICG. Our wider partnership has kicked off, and we have already seen some very promising and fruitful cooperation. We are both excited by the significant long-term value it will generate, both in terms of enriching our investment solutions and delivering return on investment for Amundi. We are already working on the funds we are planning to launch with ICG and expect to offer them to our wealth investors soon in H2. And finally, with our proposed EUR 900 million dividend and our EUR 500 million share buyback, we are delivering shareholder returns of more than EUR 1.4 billion, fully demonstrating our disciplined capital management approach. And with that, Cyril, I think it's back to you for the Q&A. Cyril Meilland: Thank you, Valerie and Nicolas. Many questions. We'll start from the room. [Operator Instructions] Let's start with the front row, Arnaud. Arnaud Giblat: Three questions, please... Unknown Executive: To make sure that we can hear [indiscernible]. Is it okay? Arnaud Giblat: Three questions. Firstly, can I ask about ALTO? So a big step-up in Q4. You did say that there was a lot of build for new clients going on. I'm just wondering, how we should be thinking about the coming quarters. Does that build continue -- the revenues from build continue into the future quarters? Or does it step back down to recurring revenues in Q1? My second question is on SocGen. So the contract you announced was renegotiated, I think, in the press release, no material impact because I think Societe Generale as a percentage of the total group has been diluted. I'm just wondering if you could give us a bit more specifics. Has the conditions in terms of share of flows changed with that renegotiation? Has the headline rates changed as part of that negotiation? And my third question is on the Irish DC pension. I think during the presentation; you mentioned EUR 20 billion flow potential over 10 years. Just wondering, how that splits across the 3 partners and what sort of products, the fee rates? I mean, any more details you can disclose that could be helpful. Valérie Baudson: I will let you on SocGen and I answer on ALTO and the Irish into enrollment. On ALTO, Arnaud, as mentioned, new clients -- I mean, in tech, you have the build part when you win the client and that you have to build the project and then you have the recurring fees. So obviously, everything built means more recurring fees for the future. But of course, according to the number of clients you won in the quarter, you can have some plus or minus. So this last quarter was a very good one because new clients. By definition, the sale process in the technology area is a long one. So we are working today on clients that we hope will be onboarded in 2026, but I am unable to tell you today what will be the exact figures for 2026. What I'm absolutely comfortable and happy about is the fact that we are onboarding more and more clients, which means that we are building more and more recurring revenues, which do not depend on the markets or on the geopolitics or whatever for the future and which are reinforcing our position. And we -- another point which is really important with ALTO is that we deliver growth and new clients, both on ALTO investment or investment platform and on ALTO Wealth. So the 2 lines of -- main lines of products and clients are really up and running. And last but not least, we managed to open new countries because when you get your first client in one country, it means that people around look at it and it's also a source of growth for the future. Regarding the Irish to enrollment by which -- you know that this is a brand-new scheme in Ireland. And by definition, there is no history on which we can count. But we shared is that, that might represent EUR 20 billion, of course, shared between the 3 players. So for the time, it's really just starting. We are thrilled -- I mean, we wanted to focus on that one. It will not change the P&L of Amundi in 2026. It's a very long-term mandate, but we were thrilled about it because it's recognition of the capacities and the expertise of Amundi in the retirement area. And as we are absolutely certain that the move from DB to DC both in Europe and in Asia will go ongoing. The more we are recognized as a strong player in this area, the better it will deliver growth for the future. Nicolas Calcoen: And regarding the Societe Generale deal, so as you know, we don't disclose the specifics on our agreement. What I can tell you is that it confirms our position as a privileged provider of asset management with our funds or mandates for the -- our clients and for that networks, and it should not have any material impact on our P&L going forward. Cyril Meilland: Okay. Next question from Nick. Nicholas Herman: Nicholas Herman from Citi. Three questions as well, please. Firstly, is there any update you can give us on the SBI JV IPO, please? I guess, presumably, can you confirm if you're still on track for an IPO in the first half of this year? Any update on the process would be helpful. Secondly, on passive inflows. Did I hear you correctly that you brought in EUR 5 billion from new passive product launches during the year, it's about 10% of your passive inflows. I guess could you just talk about the competitive environment within passive because it looks like you've been taking a lot better share recently. But I guess also as part of that, and I know you don't disclose your passive fee margins. But I guess with such strong demand for funds like Core Stoxx 600, is it fair to assume that the margins on your passive inflows have been dilutive to your blended passive fee margins? And then finally, just a technical one on the buyback. Just curious why you decided to upsize the buyback already 2.5 months after announcing the buyback of at least EUR 300 million. And I guess also part of that... Valérie Baudson: Why we increased... Nicholas Herman: [indiscernible] it before, I think when you announced it, at least EUR 300 million and now 2.5 months later you're saying EUR 500 million. So why stay? And what is it that drives the variance of the cost of the ICG stake between EUR 700 million and EUR 800 million because I understand that you've structured the transaction to kind of limit the variability. Is that an incorrect understanding? If you could clarify that please. Valérie Baudson: Okay. We're going to clarify. On the -- so on the SBI IPO, very simple. The process is on track. And as of today, but we're still only in January, we expect the IPO to happen by the end of the semester by the end of June. But 6 months to go, an IPO is not an easy process. So -- but for the time being, everything is on track. Second topic on the passive side, I don't know if we have -- if you want to share any figures. I mean, honestly, regarding your question around the Core Stoxx 600, I think what is remarkable here is that Europe attracted by definition, a lot of flows this year for good reasons, of course, the performance of the index, but also the fact that the dollar decreased a lot, as you know. And for all these reasons, investors have diversified their position and all over Europe and Asia and especially diversified their position in investing into Europe. So it's great news that our Core Stoxx 600 attracted so many flows. And I think it's the sort of evidence and recognition that Amundi is the largest ETF provider in Europe with the largest and widest range. Honestly, on the margins for me, it's -- I'm going to let Nicolas look at it or answer if any, but I haven't seen anything significant. Nicolas Calcoen: No, nothing significant. And what's important to see is that we have inflows on, I would say, very vanilla products, but we are also innovating and margins on more innovative products tend to be higher. So... Valérie Baudson: Yes, because at the same time, so we stress the Eurostoxx 600, but we launched a lot of EFT, thematic fund, [indiscernible], strategy [indiscernible], which have attracted a lot of flows as well. As you know, we launched our first active ETFs with by definition, higher margin. We also launched, as you remember, at the end of the year, our ETF as a platform service, which is another way to increase the revenues of Amundi. I remind you, we offer our ETF platform, both to active asset managers who don't have one and who want to list their expertise on the market, and we act as a service provider, but we also sell this platform to distributors who want to distribute ETFs, can be passive or active under their own brand name. So all this is a sort of, I would say, virtuous circle on the ETF space. And on your last question, I'm going to try to do it to make it very simple. On the share buyback, when we announced you this share buyback and said minimum EUR 300 million, it's because in early November, by definition, we did not have the figures at the end of the year. What we committed was to give you back the excess capital at the end of the 2025 plan. And when we add -- when we look at the end of 2025 and when we add the price of ICG, the dividend we are proposing to the -- we propose to the Board and the excess capital, the difference is the EUR 500 million. So we are committing to our promise. Nicolas Calcoen: On ICG, the reason why there's no precise number is as you have understood, there are 2 operations, one which is already done, and which is structured operation. But there's a second operation, which will be issuance of shares in the months or quarters to come by ICG to us, and they will buy back on the market. And we don't know at which price it will be done, and they are still probably something like a year before the end of the operation. Valérie Baudson: So we will know... Nicolas Calcoen: So we don't know exactly the price at which we will buy the full stake. Cyril Meilland: Okay. Thank you. Next question from Tom. Thomas Mills: It's Tom Mills from Jefferies. I don't think you guys mentioned in your presentation about Fund Channel. I was just interested in how that business is developing. I guess we've seen some consolidation in the B2B fund services space in the last month or so. Just curious as to how you see that development in terms of your own competitive positioning. Is that something you object to from an antitrust perspective? Just curious on your thoughts. Valérie Baudson: First of all, we saw a very nice development on Fund Channel. I'm going to Nicolas or [indiscernible] to give the exact figures, but we won new clients, and the company is growing at the pace we were expecting budget-wise. And second, there was a very -- I'm not sure we discussed about that already. There has been a very important development this year within Fund Channel, we launched a specific money market platform, which is super attractive for all our corporate clients. So it will be an additional source of growth for us in the future. So we are still totally committed to Fund Channel and are very happy to remain and to be a strong competitor on that market. For us, it's both a source of growth and also a very important way to go on delivering a good service to all our clients and to help them manage their open architecture. Thomas Mills: [indiscernible] just a combination of... Cyril Meilland: Maybe we should use, mic, I think, for online... Thomas Mills: Just the combination that we've seen elsewhere in the market, Deutsche Borse and all funds, is that something that you guys are fine with? Is there any some antitrust objection that you might have to that combination? Valérie Baudson: We never comment on the transactions of our competitors. I cannot -- only comment about the fact that we are very happy to have Fund Channel, and we are totally committed to go on having it growing and confident. Nicolas Calcoen: Assets under distribution are EUR 660 billion, which is above the target we had set to the previous plan at the end of December. Cyril Meilland: Jacques-Henri and then we will answer it with online questions from Claire. Jacques-Henri Gaulard: Jacques-Henri Gaulard from Kepler Cheuvreux. I did something fun this morning. I didn't restate the Q4 2025. And when you don't do that, when you don't restate, you realize that imagine you don't have revenues as a reference from the U.S. You have the UniCredit outflow. So it's not exactly a great condition. But despite that, your earnings pre associates remain flat, pretty much stable, which is quite incredible. The whole point being the resilience of the rest of the business versus that is quite big. Then you're also going to buy back 600 million of share, maybe more, you never know if we have an IPO. So when are you raising your EPS target for '28? Valérie Baudson: First, we take the good part of your comment. Jacques-Henri, thank you so much. And I'm very happy that you see through your spreadsheet, the reality behind Amundi, which is the incredible resilience, which is linked to something real, the huge diversification of our client base, our expertise of our services, et cetera, which makes us strong and growing day after day. And as I told you during the medium-term plan, I'm very confident that for the 2028 plan, and I will -- and today even more. We have no plan to change the target. We were very clear by telling you that the earnings per share target was a floor on which we committed, and we stick to the strategy as of today. Cyril Meilland: Thank you. We move, as I said, to online questions. So I open the mic of Pierre Chedeville. Pierre, you should be able to unmute your mic and speak. Unknown Analyst: Jacques-Henri, asked the same question as me -- as I wanted to ask, but I wanted to ask, when are you going to lower your cost income ratio target? Valérie Baudson: Same answer. Same answer [indiscernible] question... Unknown Analyst: More or less the same question. So more or less the same answer. Other question regarding your digital development, I was wondering if you had any target related to Credit Agricole ambitions in this area. You know that Credit Agricole wants to develop strongly on the savings side with BforBank Bank and also in Germany, particularly with Credit [indiscernible]. And I wanted to know what is exactly the cooperation you are setting up with them, if you have any target there, it could be interesting. A precision regarding the tax. Can we imagine that in 2026, now that we have the budget voted, we will see more or less the same tax impact in 2026. roughly, I would say, a tax rate around 31%, something like that. Is it reasonable to see that or not? And maybe just to clarify regarding share buyback. As far as I understand, you said in your business plan that you were focusing on external growth, you privilege external growth. So I mean that if you are about to make over share buybacks operation, you will wait for the end of the plan? Or I'm not clear on that. Valérie Baudson: Thank you. Nicolas, I'm going to take the Credit Agricole, and I would be letting on somebody to other one. On Credit Agricole, of course, I mean, by definition, Credit Agricole is an essential, okay, has always been an essential client of Amundi, and we are totally committed to all their growth prospects and thrilled that they are investing outside of Europe in the savings area. So we are working on that topic to answer very transparently this question. We are working on that topic with them, of course, as we would with any other clients, but of course, on that topic. But also not only on this one, we are -- it would be very long to explain, but we are delivering every year new solutions. For instance, we just launched last year incredibly successful new DPM solution within the Credit Agricole networks, which is growing very fast. So we have plenty of new solutions that we launch on a recurring basis, both with [ Credit ] Regional and with LCL. We have been working a lot with BforBank already. This is not new for us. It's been a long relationship, and we are in the process of helping [indiscernible] in development in Germany right now. So no specific figures to give you and to release, but you can be assured that we are helping them, of course. On the tax, Nicolas? Nicolas Calcoen: On the tax, indeed, as you have noticed in France, the tax bill has been -- the budget bill has been adopted or in the process to be formally adopted. It does include the same tax surcharge mechanism as last year with the same rule, the same way. So basically, it will have the same impact for Amundi, meaning tax surcharge, which should be around, let's say, EUR 70 million to EUR 75 million. By the way, accounted the same way as last year. It's based both on '25 and '26 results. So it will be accounted -- let's say, 60% will be -- around 60% will be accounted on the first quarter and the rest will be accounted progressively in the 3 following quarters. And indeed, I would say, excluding our tax -- this tax surcharge, our tax -- average blended tax rate is, let's say, around globally for Amundi around 25% -- 25%, 26%. And this tax surcharge added close to 5% to this tax rate. And the last question -- yes, was regarding share buyback. So let me reclarify the share buyback we are announcing the EUR 500 million is the implementation of fact of the commitment we took in the previous plan and the commitment was to use the excess capital to do M&A or to return it by the end of the plan. So that we are fulfilling our commitment. Going forward, our approach has been, I think, developed during our last medium-term plan Capital Day. We continue to prioritize external growth for the use of excess capital. But at the same time, we don't want to accumulate capital on the balance sheet. So at the end of the day, we return the flexibility to return excess capital that wouldn't be used to the shareholders, but at the time in a way that will be determined during the course of the plan. Cyril Meilland: Thank you. We will take our next question from Hubert in the room. Hubert Lam: It's Hubert Lam from Bank of America. Just 3 questions. Firstly, for ICG, I think you mentioned the first product is going to be launched in the second half of this year. Could you remind us again, like is it a private credit product, private credit or/and public credit product? Also who you can distribute it to geographies and maybe even what your outlook in terms of flows for that? Second question is, I saw that the French networks had a good inflows into medium, long-term in Q4. So wondering if you see this as a turning point, just any dynamics around that? And lastly, just a follow-up on the ALTO question earlier. Q4, we saw a step up. I think in the presentation, you mentioned 40% of it was due to project revenues. I'm wondering, how much of that was maybe a one-off? Or is this something that could be sustained in the near term, at least? Valérie Baudson: On the cost side or on the revenue side? Hubert Lam: The revenue, sorry. Valérie Baudson: Can you repeat the last one, sorry? Hubert Lam: Yes, questions on ALTO. Valérie Baudson: On ALTO, sorry. Okay. Hubert Lam: I think it was EUR 35 million in the quarter. I think you mentioned 40% of it was due to project revenues or something like... Nicolas Calcoen: 40%. Hubert Lam: 40% margin [indiscernible]. Is that a one-off, or is that seasonal one-off? I'm just wondering how would you think about this number? Valérie Baudson: It's probably higher than what would be the average. Nicolas Calcoen: Exactly. Valérie Baudson: If I had to give an answer, but it will depend on all the new clients we will get next year. But it's probably -- I mean, let's say it's a bit higher. On ICG, so yes, we will launch our first 2 new common solutions. So we are in the process of building the SCA and package the solution in the new regulated format we have in Europe, as you know. We expect all this to be ready during H2, probably after summer. We're working hard to make it very efficient and quick and in an excellent collaboration and good project mode. The 2 first solutions will be one on private credit and the other one on secondaries. And we're already preparing what will be the future. But at least these 2 are in the pipeline, and we will -- it will be under regulated European format. So obviously, distributed in Europe and in some Asian countries, which allow it. On the second question was on [indiscernible] Nicolas? Nicolas Calcoen: French network. Valérie Baudson: I mean, french network, sorry. French networks part of the flows we saw is linked to the dynamic of the life insurance in France, which is, as you know, dynamic and which also explains, by the way, the very good figures we have on the insurance side for the euro contracts on the institutional side in our figures. And part of it is a share of the new solutions I was mentioning. Typically, the very nice growth rate on our new DPM solutions is part of what you see in Q4. Cyril Meilland: We take next question from Zoom. So Michael, I'm opening your mic. Unknown Analyst: Can you hear me? Cyril Meilland: Yes, we can. Unknown Analyst: I have 3 questions, please. First, I think you indicated UniCredit channels saw about EUR 16 billion of outflows in 2025. Should we expect a similar number next year? And can you confirm whether any of the distribution -- if they are paying a penalty fee related to your distribution contract? That's number one. And number two, we saw really strong performance fees in the quarter, and yet you still showed pretty good cost discipline. I was just wondering how much of the Q4 cost base was performance fee related, i.e., incremental compensation based on that? And then finally, in terms of the share buyback, is this a buyback that will include your parent company? Or is the shares are going to be bought back from minority shareholders? Valérie Baudson: Good. I take UniCredit, I'll let you take the two other ones, Nicolas. So UniCredit, nothing new since the medium-term plan you attended. You know our partnership present in July '27, at which point it might not be renewed. We committed on targets to you which we will deliver whatever happens with UniCredit. We are obviously fully committed to service as we always done the networks and their clients. The difference is that we give you the exact flows and assets on a quarterly basis to give you full transparency of it. So I remind them, minus EUR 16 billion with EUR 4 billion at the end -- for the last quarter. Obviously, I'm not going to speculate on what will happen in '26. What I can tell you is that UniCredit represents today EUR 86 billion of assets under management. Group-wise, among which EUR 66 billion in Italy. And that means EUR 86 billion out of EUR 2,380 billion, as you know, and EUR 86 billion is less than what we raised this year overall. I just wanted to remind the global picture on that front. Otherwise, nothing more. Nicolas Calcoen: On the second question regarding performance fees and potentially associated costs, there are no costs directly associated to performance fees as to any kind of revenues, by the way. Just a reminder, we have a variable remuneration policy, which is to basically, I would say, allocate something between 14% and 20% of the pre-variable remuneration gross operating income to variable remuneration, but it's appreciated globally, no direct cost associated to any particular kind of revenues in particular performance fees. And the last question regarding -- yes, it was a share buyback. So Credit Agricole informed us that they will not participate in the share buyback. So it will be bought on the market. Unknown Analyst: [indiscernible]? Valérie Baudson: We never comment on our [indiscernible] on our partners and clients. Cyril Meilland: Thank you. Next question from Sharath. Sharath Ramanathan: Sharath Kumar from Deutsche Bank. I have 3 questions, 2 on India and one on digital flows. Firstly, on the India flows, I would say still not very encouraging. Do you think yesterday's tariff deal with the U.S. and Sunday's budget announcement could be the catalyst for the flow's recovery in India? So what is the outlook on the near-term flows? The second one, sticking with India. From my calculations, assuming that we get a $14 billion IPO value for the SBI on the basis of what we hear from the press, I calculate capital gains of, say, $300 million, $350 million for the 3.7% stake that you would sell. So what do you intend to do with the proceeds? Would it go into the M&A pool? Or do you -- are you thinking about a special dividend? And finally, on digital flows, how do you characterize the nature of flows? What does it do to your group margins? I imagine it would be accretive, but if you could clarify, that would be helpful. Valérie Baudson: On the digital flow... Sharath Ramanathan: On the digital flows -- so what sort of products are we getting at? And what sort of margins compared to the group margins? Valérie Baudson: Okay. On the first question about [indiscernible]. Sorry, SBI flows first before speaking about the IPO. Honestly, exactly as Nicolas explained it, we saw this year that the Indian rupee was down 15%, which clearly explained a material part of the decrease in flows in euros over the period. And the slowdown was driven by institutional clients, which were, I would say, less enthusiastic in this environment. What is very positive and essential for us is the fact that on the retail side and on the rise of the individual savings plans, which is incredible source of growth for the future of this company. They have remained very dynamic. So the strong fundamentals are completely here, despite the fact that the rupee was really down this year. So I am fully and totally confident in the future and the growth outlook of SBI MF just because this is a market which is still so -- which has such a low penetration compared to the penetration of the asset management industry, we can see in the U.S., in Europe and even in a lot of other Asian countries that the growth is going to be huge. Second, regarding the transaction, of course, we -- it's much too early to give both the valuation and value for Amundi. And it's also too early to say whether it will depend on the decision of the Board when it will be done. We will discuss this topic later. And on the digital flows, what is obvious is that distributing savings digitally means using a lot of ETF, and it is the reason why Amundi is so successful in -- it's one of the reasons why Amundi is so successful in this new market, which is the digital distribution of savings. It is not the only reason. It's also because it's a very different way of working with digital distributors than with traditional banks and that we really were able to adapt to everything in terms of marketing, in terms of technology, in terms of speed of answering, et cetera, et cetera. But at least it does explain. So of course, a big bulk of this distribution is and will be done through ETF. But as I explained to you very often, the cost of production of an ETF is much, much, much lower than the cost of production of active management. And at the end of the day, selling ETFs for Amundi is very profitable and exponentially profitable. Sharath Ramanathan: Just a follow-up. Just on the India flows on the AUM mix, do you have -- what is it between Retail and Institutional segment? Valérie Baudson: I'm going to ask my CFO friends in the room to give you the exact figure. Can we come back to you later on the call. Cyril Meilland: We'll definitely get back to you, Sharath. I think there was a question from Michael. Michael Sanderson: Mike Sanderson, Barclays. Just a couple, please. First of all, the ICG product launch timings, you've obviously laid out the time line in relation to the corporate governance and the ownership piece. Are they directly linked? Does the regulatory piece have to come through before you can launch the product? Or are you happy to go separately? And then secondly, you saw some strong institutional flows through Q4 that you particularly noted. And I'm just interested, first of all, the scale of them and whether there's any sort of margin dilution, particular margin dilution when you're talking sovereign wealth and central banks? And secondly, I suppose, the pipeline in those areas, how that's looking into the next year? Valérie Baudson: On ICG, the answer is no. There is absolutely no relationship between these regulatory approvals, which are really linked to the accounting topic that Nicolas was explaining and the partnerships. We already started the raising, and we will be delivering it whatever the regulatory and financial process. On the second point, Nicolas? Nicolas Calcoen: So no particular dilution. We had indeed a strong activity on the last quarter. And as for any of our business, the margins we can -- we get depend very much on the type of strategies we propose and not that much on the type of clients. So... Valérie Baudson: If I have to give you an idea, I think the institutional share of our business this year was particularly exceptional, but it will depend on our clients in 2026. So -- and once again, we are thrilled to see so many big institutional clients, especially in the retirement area, willing to work with Amundi. Cyril Meilland: We do not seem to have any questions from the Zoom video conference. Any questions left from the room? No. Okay. Thank you. I think that's done. Thank you very much. Obviously, we're at your disposal for any follow-up. Annabelle, Thomas and myself and looking forward to our next encounters at the very last Q1 results, which will be announced on the 29th of April, if I remember well. Thank you. Valérie Baudson: Thank you so much. Nicolas Calcoen: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Patria Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Andre Medina from Patria Shareholder Relations. Please go ahead. Andre Medina: Thank you. Good morning, everyone, and welcome to Patria's Fourth Quarter and Full Year 2025 Earnings Call. Speaking today on the call are our Chief Executive Officer, Alex Saigh; and our Chief Financial Officer, Ana Russo; and our Chief Economist, Luis Fernando Lopes, for the Q&A session. This morning, we issued a press release and earnings presentation detailing our results for the quarter, which you can find posted in the Investor Relations section of our website on Form 6-K filed within the Securities and Exchange Commission. This call is being webcast, and a replay will be available. Before we begin, I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain, do not guarantee future performance and undue reliance should not be placed on them. Patria assumes no obligation and does not intend to update any such forward-looking statements. Such statements are based on current management expectations and involve risks, including those discussed in the Risk Factors section of our latest Form 20-F annual report. Also note that no statements on this call constitute an offer to sell or a solicitation of an offer to purchase an interest in any Patria fund. As a foreign private issuer, Patria reports financial results using International Financial Reporting Standards, or IFRS, as opposed to U.S. GAAP. Additionally, we would like to remind everyone that we will refer to certain non-IFRS measures, which we believe are relevant in assessing the financial performance of the business, but which should not be considered in isolation from or as a substitute for measures prepared in accordance with IFRS. Reconciliation of these measures to the most comparable IFRS measures are included in our earnings presentation. Now I'll turn the call over to Alex. Alexandre Teixeira de Assumpção Saigh: Thank you, Andre. Good morning, everyone, and thank you for joining us today. We are very excited to report our fourth quarter results, a capstone to a very successful 2025, which highlights how as we enter 2026, Patria is in a strong position to achieve and hopefully exceed the 3-year fundraising and FRE fee-related earnings objectives in addition to other important KPIs we set for ourselves at our Investor Day in December 2024. Highlights of the quarter and 2025 include organic fundraising of $1.7 billion in the quarter and a record $7.7 billion for the full year, sharply surpassed our previously upwardly revised full year target of $6 billion by more than $1 billion. We generated $203 million of fee-related earnings in 2025, up 19% year-over-year, achieving our objective of $200 million plus for the year. Distributable earnings per share reached $1.27 in 2025, driven by the strong fee-related earnings growth in addition to $19.6 million of performance-related earnings in the fourth quarter. We announced back on November 26, 2025, the acquisition of 51% of the Brazilian private credit manager, Solis, which closed on January 2. Solis, with approximately $3.5 billion of fee-earning AUM as of the third quarter 2025, substantially expands our capabilities and scale in the rapidly growing private credit market in Brazil. Pro forma for the acquisition, our credit vertical fee-earning AUM is approximately $12.1 billion. We also announced on December 11, 2025, the acquisition of several REITs real estate investment trusts from the Brazilian real estate manager, RBR, which closed yesterday and is expected to add approximately $1.3 billion of permanent capital real estate investment trust assets in Brazil. We are now the largest manager of listed REITs in Brazil with a pro forma fee-earning AUM of approximately $5.7 billion, a market in which we believe scale provides significant competitive advantages. Also just yesterday, we announced an agreement to acquire WP Global Partners, a U.S.-based lower middle market private equity solutions manager with $1.8 billion of fee-earning AUM as of the third quarter 2025, which will enhance our global capabilities in our global private markets solutions business. Pro forma for the acquisition, our GPMS Global Private Markets Solutions fee-earning AUM is approximately $13.6 billion. Our total fee-earning AUM of $41 billion as of the fourth quarter 2025 rose 5% sequentially and 24% year-over-year. Pro forma for the announced acquisitions, our fee-earning AUM at year-end is approximately $47.4 billion, putting us in a strong position to achieve our year-end 2027 target of $70 billion. We are also pleased to share that our energy trading platform, Tria, which has experienced strong growth since its launch in 2024 and contributed with $4 million to our 2025 distributable earnings signed a definite agreement with Raizen to acquire its energy trading arm, Raizen Power. Upon completion of the transaction, Tria is expected to become one of the largest independent energy trading companies in Brazil. Finally, adding to our current approved share buyback program of 3 million shares, of which we have already acquired 1.5 million in the third quarter 2025, our Board just approved an additional 3 million share buyback program. On top, further illustrating Patria Partners' alignment with our business, of which we already own approximately 60% and our belief in Patria's unique position to continue its growth path, we, Patria's Partners through our holding company, PHL, are happy to announce our intention to purchase up to 2.5 million PAX shares. Summing it all up, we can now purchase up to 7 million shares to return capital to our shareholders. Now let's take a closer look into the quarter and the year, starting with fundraising. The $1.7 billion of capital we raised in the fourth quarter 2025 and the $7.7 billion we raised for the full year do not include any acquisition and were driven by continued demand for our infrastructure, credit, real estate and GPMS strategies. Our fundraising in 2025 exceeded the initial $6 billion target we set back at our Investor Day in December 2024. As well as the revised target of $6.6 billion we set in the third quarter of 2025. While we are leaving our 2026 and 2027 fundraising targets at $7 billion and $8 billion unchanged for now, our success in leveraging the investments we have been making in our platforms and distribution capabilities increases our confidence in our ability to meet and hopefully exceed our targets. Now turning to the fundraising performance of specific asset classes As the leading infrastructure investor in Latin America, we continue to see increased global interest in this fast-growing asset class as we raised approximately $2.3 billion for our infrastructure strategies in 2025, led by the final closing of our Infrastructure Development Fund V and various fee-paying SMAs and co-investment vehicles. This was approximately 5x what we raised for infrastructure in 2024, and we see no letup in demand for these strategies from both global investors as exemplified by the recently announced $2 billion data center projects led by one of our drawdown funds in partnership with ByteDance and increasingly local investors. Next, GPMS raised almost $2 billion in 2025, continuing to highlight the strong support from our clients and our success in integrating this business into our platform. The recently announced agreement to acquire WP Global Partners with approximately $1.8 billion of fee-earning AUM, we expect will further strengthen investor demand for our solutions strategies over time as it enhances our investment capabilities in the United States. Credit also had another strong year, fundraising a record $1.8 billion of capital, handily surpassing the $1.4 billion raised in 2024, which was itself a record. Continued strong investment performance, combined with the addition of Solis and its robust private credit capabilities further enhances the capital raising prospects of our credit platform. On that note, let me give a little more color on how we see the private credit opportunity in Brazil. The total Brazilian credit market reached $1.7 trillion in 2024, with $800 billion estimated to represent the addressable market opportunity for asset-backed nonbank private credit, of which around $200 billion is already currently served through private credit vehicles, mainly CLOs. CLOs, which AUM in Brazil exceeded $150 billion as of September 2025, have been the fastest-growing asset management strategy in the country, having grown at a 30% plus CAGR compounded annual growth rate since 2019. This growth is supported by multiple structural drivers, including, but not limited to, favorable regulation, banking disintermediation, tax incentives and broader financial deepening and growing interest in the CLO structure amongst investors. With the acquisition of a majority stake in Solis, Patria significantly enhances its capabilities and scale in this very attractive market. Finally, even within a high interest rate environment, we see building momentum in our real estate business. Our real estate strategies raised over $520 million in the fourth quarter of 2025, including over $260 million through a follow-on offering in our Brazilian logistics REITs and over $180 million in our funds in Colombia. As the largest manager of REITs assets in Brazil and one of the largest in Colombia with over $8 billion of pro forma permanent capital fee earning AUM, -- we believe our substantial scale in this business is a significant competitive advantage when it comes to attracting investor capital, and we are excited with the opportunities this business has to offer heading into 2026. Of course, fundraising alone does not drive growth in fee-earning AUM and management fees. And we are proud to report that redemptions decreased by approximately 25% in 2025 versus 2024, a clear reflection of our strong investment performance across our verticals. Our ability to grow our fee-earning AUM is further enhanced by the stickiness of our asset base, given that approximately 90% is in vehicles with no or limited redemptions, including 22% or $9.1 billion of fee-earning AUM in permanent capital vehicles. Our strong fundraising, coupled with low redemption rates and a sticky asset base is translating into solid net organic growth as we generated approximately $2.4 billion of organic net inflows into fee-earning AUM in 2025, representing an organic growth rate of about 7%. We see additional room for our organic growth rates to increase further in the years ahead as we plan to grow our base of attractive products in sticky structures. In addition, with over 50% of our management fees charged on NAV or market value, our strong investment performance continues to be an important growth driver, contributing approximately $3 billion to our fee-earning AUM. Combined organic net inflows and the positive impact of investment performance added over $5.3 billion to our fee-earning AUM in 2025. The impact of FX throughout the year was also positive, adding $2 billion to our fee-paying asset base. Finally, the acquisition of the Brazilian REITs discussed during our last earnings call and concluded in the second quarter of 2025 contributed with $600 million. Summing it all together, our fee-earning AUM in the fourth quarter of 2025 reached $40.8 billion, up 24% or $7.9 billion year-over-year. Pro forma for recently announced acquisitions, our fee-earning AUM is now at $47.4 billion. It is also important to highlight that as we expand our business, a large portion of the capital we raise will only flow into fee-earning AUM as capital is deployed. Our fourth quarter 2025 pending fee-earning AUM totaled about $2.9 billion, further highlighting our future fee-earning AUM and management fee growth potential. Our fee-earning AUM growth is also reflected in the diversification of our business. Pro forma for recent acquisitions, our fee-earning AUM base is well diversified across our asset classes with 29% in GPMS, 26% in credit, 19% in real estate, 12% in private equity, 9% in infrastructure and 6% in public equities. Patria today has over 35 investment strategies with more than 100 products with no single product representing more than 8% of our pro forma fee-earning AUM. Our largest fund, which is a corporate credit LatAm high-yield fund has approximately $3.8 billion in AUM and has delivered an impressive 13.1% net compounded annualized return since inception in 2022 and as of the fourth quarter 2025. Our corporate credit LatAm high-yield strategy more broadly, which started back in 2000, currently has an aggregate AUM of over $5 billion. And as of the fourth quarter 2025 has outperformed its benchmark for every single period, 1 year, 3 years, 5 years and since inception. with since inception, net compounded annualized return of 11.1%, exceeding the benchmark by more than 360 basis points. In terms of geography, approximately 1/3 of our assets are invested in Brazil, 1/3 in other Latin American countries and 1/3 in developed markets across Europe and the United States. With regards to our investor base, our sources of capital are also diversified across geographies with approximately 27% of our AUM coming from Europe and the Middle East, 31% from Latin America, excluding Brazil, 16% from North America, 18% from Brazil and 9% from the Asia Pacific region. Looking at our foreign exchange exposure, over 60% of our fee-earning AUM is denominated in a diversified basket of hard currencies, mainly the U.S. dollar and not exposed to soft currency fluctuations. Finally, as I mentioned before, approximately 90% of our pro forma fee earnings AUM is in vehicles with no or limited redemptions, including 22% or $9.1 billion of fee-earning AUM in permanent capital vehicles. These points further highlight the quality of our fee-paying asset base and the predictability and long duration of our management fees. Finally, we're also expanding the number of flagship drawdown funds into new strategies and asset classes, including infrastructure development, infrastructure credit, private equity buyouts, growth equity, venture capital, private credit, real estate development, secondaries, co-investment vehicles, among others. All of these products will be eligible to generate performance fees, highlighting the potential for even greater diversification of our performance fee earnings stream. Now our strong fee-earning AUM growth is translating into robust growth in fee-related earnings. In the fourth quarter of 2025, we reported fee-related earnings of $64.2 million, representing 30% sequential and 17% year-over-year growth, also supported by our margin expansion of 5% versus the third quarter 2025 and 5% versus 1 year ago, reflecting our success in integrating acquisitions and the growing scale of our business. For the full year, fee-related earnings reached $202.5 million, up 19% and in line with our guidance. On a per share basis, fee-related earnings of $0.41 in the fourth quarter 2025 rose 30% sequentially and 14% year-over-year. Full year fee-related earnings per share was $1.28, a 15% year-over-year increase. Given our strong fundraising momentum and fee-earning AUM growth outlook, we remain confident in meeting our 2026 fee-related earnings targets of $225 million to $245 million or $1.42 to $1.54 per share, in addition to our target of $260 million to $290 million or $1.60 to $1.80 per share. As a reminder, our fee-related earnings targets are inclusive of already announced and prospective M&A. We reported $78.5 million of distributable earnings in the fourth quarter and $200.9 million for the full year. On a per share basis, this was $0.50 and $1.27, respectively. In addition to the very strong fee-related earnings growth we highlighted earlier, distributable earnings also benefited from multiple monetization events in our Infrastructure Fund III as we announced last quarter, our share count for the fourth quarter 2025 remained at 158 million shares. In connection with performance-related earnings, I think it is important to address the decrease in our net accrued performance fees primarily due to private equity buyout Fund V falling out of carry. As this particular fund's performance is close to its hurdle rate and given its European carry structure, foreign exchange and the price of public holdings can drive private equity buyout Fund V in and out of carry frequently. However, as we look more deeply into our business, we are optimistic in our ability to generate future performance fees as we believe we remain on track to deliver our performance-related earnings target range of $120 million to $140 million from the fourth quarter 2024 to the end of 2027. We have already realized $62 million of performance-related earnings against our target and Infrastructure Fund III, which is generating cash carry and had approximately $19 million of net accrued carry remaining as of year-end is expected to generate performance fees in 2026. Private Equity buyout Fund VI, which is a 2019 vintage and has over $210 million of net accrued carry is fully invested and entering its monetization phase. We have several newer strategies in growth and venture that have performed well. And while still early days, already have about $7 million of net accrued carry, a balance that we would expect to grow over the coming years. For both private equity and infrastructure, an increasing proportion of our growing co-investment assets are carry eligible, which has the potential to generate performance fees on a deal-by-deal basis. In addition, as I mentioned, we have an expanding range of drawdown funds across our asset classes eligible to generate performance fees. To summarize, I want to reinforce that we believe that we are on track to deliver on our performance-related earnings target range of $120 million to $140 million from the fourth quarter 2024 to the end of 2027. With $62 million already realized, approximately $20 million expected in 2026, mainly from our Infrastructure Development Fund III and the remaining balance expected to be realized in 2027 from multiple funds. Before I conclude, a quick note on macro. From our perspective, the macro events, both globally and within the region favor the drivers of our business. These long-term drivers such as the financial deepening across Latin America, deregulation and pension reforms in large economies in the region, increased allocations to alternatives, robust demand for infrastructure investing, potentially lower interest rates on the back of declining inflation and better fiscal prospects, a consequence of more market-friendly governments being elected in the region continue to drive demand from both local and global investors. If anything, the current geopolitical scenario, coupled with a weaker U.S. dollar and attractive on-the-ground trends are fueling increased interest in Latin America from a broadening range of investors. Incidentally, that is what capital markets showed in 2025 and also year-to-date with the region outperforming in many asset classes. With that as a backdrop, we think it is important for investors to keep in mind that we have close to 40 years of investing experience navigating the various economic and political cycles in the region. This experience, combined with the greater diversification and resilience of our business, in our view, make us uniquely positioned to capitalize on both the increased investor interest in the region and the wide range of investment opportunities we see. Again, we are excited about the fundraising and fee-related earnings momentum we have been building, momentum which is supported by our increasing scale and capabilities across an expanding range of strategies. We believe our long-term opportunity and outlook remain bright, and none of this would be possible without the dedication and capabilities of our team members. for which I am very proud and grateful. On a final note, I want to comment on organizational and structural changes we have announced in recent months. First, I'd like to thank our CFO, Chief Financial Officer, Ana Russo. Ana approached me about a year ago with her plan to step down from her current corporate role as Patria's CFO to focus the next stage of her career on advisory and nonexecutive roles and projects. We are sorry to see Ana leave and want to thank her for all her hard work and contribution in the past several years. but we are glad that we will continue our relationship in several fronts as, for example, with her current position as Board member of Patria-Moneda Asset Management in Chile. I wish Ana the best of luck as she charts a new career path. Following an extensive review process, we announced that Raphael Denadai, currently Patria's partner and CFO of Portfolio Management with over 25 years of experience, will assume the role of Patria's CFO effective in April 2026. Ana, who will remain in her position until then, will provide more color on the transition in her prepared remarks. In addition, as we announced back in December 2025, to further strengthen our corporate structure in order to drive operational excellence and better support Patria's strategic execution at scale. Patria recently created the role of Global Chief Operating Officer and was pleased to introduce Nikitas Psyllakis as our new Global COO. Nikitas joins Patria from DWS Group, bringing over 20 years of extensive global experience in financial services, having led strategic planning, operational transformation and regulatory initiatives. With that, I would like to once again welcome Nikitas and Raphael to their new roles. Now let me turn the call over to Ana to review our financial results in more detail. Thank you, Ana. Ana Russo: Thank you, Alex, for the kind words, and good morning, everyone. Indeed, it's quite rewarding to close out 2025 with $7.7 billion of organic fundraising, exceeding by a large margin, our previously upwardly revised full year target of $6.6 billion by more than $1 billion. We expect the strong fundraising momentum and fee-earning AUM growth for 2025 to continue as we enter the second year of our current 3-year plan and are even more confident of our ability to achieve our objectives for 2026 and 2027. Before I review our financials in more detail, I would like to take a moment to speak about my transition from the CFO role. Stepping down as Patria's CFO is a deeply personal decision driven by my desire to dedicate the next stage of my career to advisory and nonexecutive positions, areas where I believe I can contribute to a different organization given my diverse background. I will continue serving as a Board member of Patria-Moneda Asset Management in Chile and remain fully committed to Patria as a CFO through the end of April. Over the next few months, my focus will be on delivering all 2025 annual reports and regulatory obligations, supporting our new auditor, KPMG, as they complete their first annual audit and most importantly, ensuring a smooth and effective transition to Raphael Denadai. I'm extremely proud of how Patria has evolved during my 3.5-year tenure as CFO, and I'm confident that my colleague, Raphael, will do an excellent job and supported by a strong and committed team. Let's review our fourth quarter and full year 2025 results in more detail. Our full year organic fundraising of $7.7 billion was an important step to deliver our cumulative 3-year plan of $21 billion of total fundraising that we communicated at our 2024 Investor Day. Our success this year demonstrates that the strategic investments we made across our investment platforms, products and distribution capabilities are paying off. We entered 2026 with greater visibility and unwavering confidence in our ability and our path to achieve our objectives for this year and next. Our FEAUM rose 24% year-over-year and 5% sequentially to $40.8 billion. The strong year-over-year growth reflects mainly the combination of solid organic net inflows of $2.4 billion and the positive contribution from our strong investment performance in addition to a positive FX impact and the acquisition of several Brazilian REITs concluded in the second quarter of 2025. As Alex mentioned, our fee-earning AUM growth continues to highlight our expanding fundraising capabilities and deployment opportunities, coupled with the stickiness and resilience of our asset base. Pending fee-earning AUM of $2.9 billion, combined with our fundraising goals, the 22% of fee-earning AUM that are in permanent capital vehicles, the almost 35% of fee-earning AUM in drawdown funds with an average life of 6 years and an overall stickiness of our asset base, altogether highlight our ongoing ability to generate net organic FEAUM growth over time. Total fee revenue in the fourth quarter reached $101 million, up 8% year-over-year and about 19% sequentially. For the full year, total fee revenue reached $344 million, an increase of 14% versus 1 year ago. Our management fee rate averaged 92 basis points over the trailing 4 quarters. As reviewed at our December 9, 2024 Investor Day, we are steadily diversifying our business and introducing new investment strategies and product structures, which are key drivers of our growth. Consequently, our management fee rate will continue to evolve, and we expect our fee rate to trend towards approximately 90 basis points over the coming quarters, but with the potential to vary depending on the mix. Looking into our expense lines, operating expenses, which include personnel and G&A expenses, totaled approximately $36.1 million in the quarter, up 5% sequentially and down 4% year-over-year. We remain focused on controlling expenses and capturing operating efficiencies even as we continue to reinvest in the business. For the full year, operating expenses totaled $141.6 million, up 8% versus 2024, mainly driven by new acquisitions and salary increase inflation adjustment, partially offset by realized operating efficiencies. As we look ahead to 2026, excluding the impact of acquisitions, total expenses in the fourth quarter are a good starting point as we enter the new year. Putting it all together, Patria delivered fee-related earnings of $64.3 million in the quarter, up 17% versus prior year and 30% sequentially with an FRE margin that rose approximately 5 percentage points versus Q4 '24 and sequentially to 63.6%. We remind everyone that the fourth quarter is often our strongest quarter in terms of FRE margin, driven by the recognition of most of our high-margin incentive fees from our credit and public equity portfolio, which totaled $11.3 million in the quarter. For the full year 2025, we generated $202.5 million of fee-related earnings, up 19% year-over-year, in line with our guidance. As Alex mentioned, we continue to expect to generate $225 million to $245 million of FRE in 2026, and we remain confident that we are on path to deliver on our 2027 FRE target of $260 million to $290 million with an FRE margin objective of 58% to 60%. While our recent M&A may exert some short-term pressures of FRE margins, our expanding scale and ability to realize operating efficiencies keep us confident that we can meet our FRE margin objectives for 2026 and 2027 of 58% to 60%. As noted on our last call, in Q4 2025, we had multiple monetization events in our Infrastructure Fund III, which generated $19.6 million of performance-related earnings in the fourth quarter. We continue to expect Infrastructure III, which had approximately $19 million of net accrued performance fees at the quarter end to continue its realization through 2026. Our total net accrued performance fee decreased from $402 million in the third quarter '25 to $249 million in the fourth quarter of 2025, mainly driven by private equity Fund V falling out of carry, driven by the price of public listed companies and FX. For reference purpose, if we consider the FX rate and the price of the public holdings by end of January, net accrued performance fees for Fund V would have been around $40 million. As we look more deeply into our business and as detailed by Alex, we are optimistic about our ability to generate future performance fees from multiple funds. Next, our net financial and other income and expenses in fourth quarter '25 totaled a positive $1.8 million versus Q4 '24, mainly due to lower average debt and higher contribution from Tria, our energy trading platform. Sequentially, net financial income and other expenses were up of $0.8 million versus third quarter '25, mainly reflecting a lower contribution from Tria. While it can vary sharply quarter-to-quarter, it's worth noting that in 2025, Tria contributed approximately $4 million to Patria, and we are very excited regarding the long-term potential of this business and hope to share more updates on the development of this business over the course of 2026. At the end of the quarter, net debt totaled approximately $105 million, slightly below the $108 million for the third quarter '25 as we did not have any meaningful M&A payments in the quarter. Our net debt to FRE ratio of 0.5 was well below our long-term guidance of 1x. Deferred M&A-related cash payments through 2028 currently total approximately $110 million, excluding potential earn-outs. As highlighted in previous earnings call, during third quarter, we entered a total return swap or TRS with a financial institution through which 1.5 million shares were purchased on our behalf. We expect to settle the TRS by Q3 2026, at which point the share will be transferred to Patria and subsequently retired. I would like to take the opportunity to recap our capital management strategy based on our strong cash generation and conversion of distributable earnings. First, we increased our dividend by $0.05 per share for 2026, resulting in an expected dividend payment of $100 million. Second, we will target around 3 million shares repurchase to offset dilution from stock-based compensation and any M&A transaction settled in shares. For this purpose, we may again consider the use of total return swaps, which have proven to be a cost-effective capital management tool. With regard to current M&A, we expect funding to come primarily from cash. Also, as of December 31, our 2026 deferring contingent payment totals approximately $100 million, of which about 80% is expected to be paid in cash. To highlight our ample ability to fund our growth and maintain a healthy dividend, let's look at a simple math. Based on the midpoint of our 2026 FRE guidance and expected PRE, we estimate our cash generation in 2026 will be approximately $220 million. So detracting our dividend, payment of TRS and the current deferred and contingent payments noted before, we still leave us with the capacity to fund CapEx and additional M&A when considering our cash generation and our total unused debt capacity of over $100 million. Of note, our total current net debt capacity is about $235 million or onetime FRE compared to the $105 million at year-end, which is very conservative as industry standards. All the above underscores the strength of our financial position to support growth initiatives and maintain strategic optionality for our shareholders. Our effective tax rate in the fourth quarter '25 was 4.2%, excluding performance fees, which is usually crystallized in the tax favorable jurisdiction, the effective rate was 5.6%, which represents 120 basis point improvement versus Q4 '24 on a comparable basis. The reduction was mainly driven by tax credits on our U.K. entities. On a full year basis, excluding performance fees, the effective tax rate reached 6.3% with 180 basis points lower than 2024. Looking ahead, we continue to expect our annual tax rate to average around 10% -- in the fourth quarter, we generated $78.5 million of distributable earnings or $0.50 per share. For the full year, distributable earnings were $200.9 million or $1.27 per share, representing a 6% year-over-year growth from $189.2 million in 2024 with a strong FRE growth more than offsetting lower performance-related earnings and the higher share count. While FRE and DE are important financial metrics, I would like to give you some additional color on line items that impact our net income. In 2025, net income totaled $85.6 million, which is up 19% versus $71.9 million in 2024. The increase of $13.6 million is mainly driven by distributable earnings growth and lower deferred contingent consideration, partially offset by higher than originally anticipated equity-based compensation, reflecting better performance, lower employee turnover and expansion of the program. We plan to give more color on the equity-based comp and other line items during our first quarter call. We finished the quarter with 158 million shares, unchanged from the prior quarter. We did not repurchase any share in the quarter and continue to expect the share count to average between 158 million and 160 million from 2025 to 2027, inclusive of our additional share repurchase. In 2025, the Board approved a share repurchase program of up to 3 million shares, of which we have utilized $1.5 million through the TRS. At our recent Board meeting, we received the approval for an additional 3 million shares to be added to the program. Finally, we declared a dividend of $0.15 per share for the fourth quarter. We remind everyone that we have updated our fixed dividend policy from $0.60 in 2025 to $0.65 per share for 2026, an increase of 8%. Overall, we are truly encouraged by our fourth quarter results and with the momentum we are building as we continue to diversify and improve the resilience of our business. We believe we are firmly on track to achieve the various targets we have shared with you, and we are excited by the growth opportunity ahead. Thank you, everybody, for dialing in, and we are now ready to answer your questions. Operator: [Operator Instructions] And our first incomes from Craig Siegenthaler of Bank of America. Craig Siegenthaler: So first question is on private equity valuation process. We've had some recent inbound on the topic, so I thought we could kind of clean it up here. Private Equity Funds IV and V, they're both pre-2016 vintage funds. They both have a significant amount of unrealized value. So I was wondering if you could talk about your internal valuation process, how it works and also how those valuations are validated by third parties. Alexandre Teixeira de Assumpção Saigh: Okay. Thank you very much, Craig. Thanks for your question. On the valuation process, we -- in summary, we use industry practice, industry common valuation process for our private equity drawdown funds and our infrastructure fund funds, all of our drawdown funds, we -- once a year, we have an independent appraiser to value the funds. We normally use a recognized independent appraiser that does the valuation with year-end numbers, in this case, end of 2025. This independent appraiser works with the management teams of the respective portfolio company, going through a whole understanding of the business, understanding of the next 3 to 5 years and future prospects of the business and more of a technical discounted cash flow model as it is common in the industry for these kinds of valuations. And then this valuation, of course, is compared with multiples and compared with industry multiples, peers, if there are no comparable listed peers, whatever. So it's, of course, the main methodology is a discounted cash flow. And of course, the end result is compared with peers, valuations, listed, nonlisted M&A transactions, et cetera, et cetera. As it is what I'm saying, it's completely normal for these kind of valuations in the industry. And what we do is actually we then -- they give us a range and then we value within the range, we actually mark the companies one by one. That's what we do. And during the year, we don't really do much. We just actually have the valuation during the year, quarter-by-quarter be adjusted by the cost of capital of that specific business and adjust the valuation if something major happens like we sell part of the business or we merge or whatever or something really went -- goes wrong, like COVID or something like that or whatever. But if there was no major changes, I don't -- we really don't like and we are advised not really to keep changing the valuation of the business. If nothing major happens with that specific business during the year, we just then adjust the valuation by, again, the cost of capital until we go through that process, all that process again at the end of the subsequent year. So again, we have been doing this for -- since inception, right? Our first private equity fund was back in '97. It's going to be 30 years, not 29 years as of now. We know that because it's going to be -- this year is going to be our annual meeting with investors #29, and we do 1 a year. So it's now 29 years ago, we did our first one. And we've been doing this kind of valuation for the businesses since then. We check with the industry practices now and again, and the industry practices continue to be more or less what I just mentioned. But it's different, and I think there's sometimes confusion when we -- if we -- when we -- about charging management fees and performance fees, et cetera. Now we do not charge management fees on NAV for the drawdown funds. So the valuation is an indicative value because it doesn't mean much for our revenues. It doesn't mean anything for our revenues because we charge on costs. So if we did invest $100 in that business and that business now is valued at $150 or $50, we continue charging on $100 until we sell the business. So the valuation does not affect our management fees. Number two, we do not run performance fees, unrealized performance fees through our P&L. So if we have more performance fee, more unrealized performance fees or less unrealized performance fees, all the numbers that you just heard me say about our 2025 financials and Ana Russo say about our 2025 financials does not affect any little bit, okay? It's no effect whatsoever because we do not run our performance fees through our P&L. Our team, our employees are not incentivized by unrealized performance fees. They do not receive a bonus on unrealized performance fees. So if the valuation is 1, 2, 3 or 4, 10 or 0, their bonus is exactly the same. We only run the performance fees through our P&L. We only recognize performance fees if they are paid, if they are paid, cash in the bank. And then we recognize as revenues and then we calculate the bonuses of our employees, and we pay a couple of quarters later. So there's even a negative working capital here, the firm versus the employees on paying performance fees. Now we don't anticipate any performance fees as bonus before we actually get the cash, okay? And we get the money in the bank account. So we do actually give the number of unrealized performance fees as an off-balance sheet number, not completely off balance sheet, is unrealized. And as you probably saw for the December 2025 numbers, we have around $250 million of unrealized performance fees. And we gave the guidance that we're going to -- we should generate around $120 million to $140 million of performance fees from the last quarter of 2024, all the way to the end of 2027. We already realized $60 million plus. We have another $60 million to go, $60 million. And there's a -- I think the most -- the highest probability fund that will generate performance fees continues to be Infrastructure Fund III for 2026. We just gave the guidance that we think we're going to generate another $20 million for 2026. And there are so many other strategies that today we have in our menu of products that generate performance fees, venture capital, growth equity, private debt, opportunistic real estate, blah, blah, blah, blah, blah, all of them should then generate more fees that we should actually make us hit the target by the end of 2027. So this is what we do. Again, it's industry practice. We try to be as conservative as possible, but we get a valuation range from the appraiser we normally don't -- of course, we talk to the operator about the valuation process. But what we do is like we try to put in the middle of the range, and that's how we use -- that's the exercise of how we actually mark our companies. I think it's -- again, it's -- this is -- again, you are -- you know the industry very well. And sometimes you might compare the valuation of a company with another company that you might know well in another industry, in another country, in another situation, one company is doing better, the other company is doing worse, one company is this, one company is that, one company has more debt, less debt. It's very hard sometimes for you to compare one single asset with another single asset. Of course, it's hard for us to also be able to have individual opinions because we follow the valuation of the independent appraiser, okay? So this is what we do. And yes, our Private Equity Fund IV, as you know, has been underperforming. And now we have Private Equity Fund V also not generating performance fees. So 2 funds that as of the end of 2025, we don't expect performance fees coming from these 2 funds. And this is also already reflected in all of our numbers. So when we gave our projections guidance for '25, '26, '27, the end of 2024, we had a PC stay with '25, '26, '27 projections. As you can see from that presentation, we had asset class by asset class projection. And you can see that we were conservative in capital raising for private equity, given that private equity Fund IV and V are underperforming. And we were more optimistic and realistic about fundraising for the other asset classes. So -- and if you look at how much money we raised in 2025, $7.7 billion, surpassing by 30% our initial guidance of $6 billion, 30% more than our initial guidance is a substantial increase in which asset classes in credit, in real estate and in GPMS, Global Private Market Solutions. So we were not expecting to raise in 2025 more money for the private equity asset class vertical. We were expecting to raise from other asset classes. Not only we did, we surpassed in total by 30% our initial guidance. We gave a guidance for 2026 of $7 billion organic fundraising and 2027 for $8 billion, and we raised $7.7 billion in 2025. So I think we're in a strong position to continue delivering the guidance and hopefully even exceeding. So I hope I answered your questions there. Craig Siegenthaler: I do have a follow-up also on private equity. But if you look at the MSCI Brazil Index of listed public equities, Brazil has been very strong. As you know, it's returned 55% over the last 12 months, outperforming the S&P 500 in the U.S. by about 40%. Interest rates are expected to decline in Brazil. All this should benefit public equities, private equities, your realization pipeline. So can you talk about the prospects for both IPOs and strategic exits in private equity in 2026? And I assume exits to other private equity firms are still quite limited at this moment given the lack of competition in Brazil, too. Alexandre Teixeira de Assumpção Saigh: Yes. Thank you very much. Yes, I think normally, I'm generalizing again here, sorry to generalize listed traded securities do anticipate trends. And in this case, I think the upward trend that you just mentioned, we did see through the 2025 numbers of listed securities. And the MSCI is one of them. As you mentioned, appreciating substantially in 2025 in local currency and in U.S. dollars. Of course, the U.S. dollar has weakened against some of the local currencies. So that's helped the U.S. dollar also base return. That normally translates into private securities with time. It is not from Monday to Tuesday, but the whole enthusiasm with the region and investors start buying assets which they can and the listed ones are the ones that they have more access because they're listed, of course. And the private assets come in due time. And that's exactly what we're seeing. And a lot of exits from both our infrastructure and private equity funds programmed, infrastructure coming first. Basically, all of the assets of our Infrastructure Fund II were sold already. All of the assets of our Infrastructure III sold most of the assets in Infrastructure Fund III. So we're getting into the mode of beginning to realize the investments of Infrastructure Fund IV. Same in private equity, I think focusing in selling the assets of Private Equity Fund IV and V. Private Equity Fund IV, as we do invest -- we did invest mostly in health care, it was affected also by COVID, but companies they are recovering. And Private Equity Fund V, we have invested also in health care also investing in other sectors and Private Equity Fund VI and VII, I fully invested, 7 being invested now should begin to come into realization. Also, we have the growth equity funds, which are also private equity. Now we just mentioned about the private equity buyout funds, but we have private equity growth funds. Private equity growth Fund #1, which is a single asset fund, which was managed by [ Kamado Ping ], the asset manager that we did partner with acquire a couple of years ago, is a company in the pet care space that is doing extremely well, and that's a prospect for a sale and IPO as well. We also see private Active Growth Fund #2 with already 2 realizations, partial realization, full realization of an education company was the full realization. And we see other prospects coming along of more realizations this year and in 2026. And we also see our private active venture fund with significant and important realizations in '25 and other realizations coming into 2026. One of the notorious realizations that we did of our private equity venture fund #3 was a company called Avenue, which is basically a brokerage house targeted for Brazilians willing to open a cash account or a bank account in U.S. dollars. And it was acquired by Itau. It was a very, very, very good deal for us. So not only is the private equity buyout strategies that are posed to generate performance fees, our private equity growth funds, our private equity venture funds, our infrastructure development funds, our real estate opportunistic funds that we have in Colombia that is also right for realizations, our real estate opportunistic funds in Chile that also are right for realizations and will generate performance fees in the future. And now with other funds like private debt that we raised private debt LatAm #1, also fully invested, short duration, should generate performance fees in the future, and we are currently in the road raising private debt #2. So again, I think we're excited about the prospects, but boil everything down, we're expecting $60 million of performance fees over the next 2 years, $20 million should come from Infrastructure Fund III. Our presentation shows that we have an inventory as of December 2025 of approximately $250 million of performance fees. So $60 million out of $250 million is close to 20%, 20-something percent. So if we realize 20-something percent of that $49 million, $250 million of performance fees that we showed as of now in our December 2025 numbers, we should then be able to hit the guidance that we gave for the next 2 years. Of course, no major caveats. Performance fees depends on so many things. It depends on the macro situation. It depends on the political situation. So I'm just saying there's no macro caveat here. I think when I look into management fees, the preservability and predictability of our management fees, given that 22% of fee-paying AUM is now permanent capital structures, and we have long-dated drawdown funds, 90% of our funds are in drawdown funds or permanent capital. I can say with more confidence that our predictability of our management fees and therefore, our FRE is more visible. Everything that I said about performance fees is a big question mark because things can happen and companies can perform better or worse. The macro situation can get better or worse. The U.S. dollar can get -- can strengthen and weaken. So therefore, we have a low hit ratio. And I'm putting this major caveat that we might generate it, but we might not as well, given there are performance fees, not management fees that are already being driven by permanent capital or drawdown funds in nature, okay? Operator: And our next question comes from Lindsey Shema of Goldman Sachs. Lindsey Marie Shema: Just wondering, you maintained your 2026 fundraising guidance. And because of that, it does imply slightly lower fundraising in 2026. So because of that, I just want to understand, do you see any risks to fundraising? Are you maybe a little bit less optimistic? And what are really those reasons for maintaining the fundraising guidance where they are? And then on the flip side, if there's kind of any upside risk to that guidance? And then on that note, if you could just mention how much of your fundraising is coming from your own fund of funds and how that plays into your fundraising? Alexandre Teixeira de Assumpção Saigh: Lindsey, thanks for the question, and thanks for participating in the call. No, we're just being conservative, to be honest. I think it's -- we're not -- we had a guidance. We gave a 3-year plan. We want to hit the 3-year plan. And the 3-year plan that we did give out December of '24 was to raise organically $21 billion. So it would be $6 billion in 2025, which we did $7.7 billion, actual $7.7 billion versus $6 billion, the guidance and $7 billion for 2026, $8 billion for 2027. So $6 billion plus $7 billion plus the $8 billion, $21 billion, our organic fundraising to hit the $70 billion of fee-earning AUM by the end of 2027, having started in the end of 2024 at around $35 billion. So we would double fee-earning AUM, which is 25% increase per year. And -- we are extremely positive about our fundraising momentum. And -- but we wanted to keep that as a $7 billion and $8 billion guidance. Nothing that really worries about that. On the contrary, we see a good momentum. But we didn't see any reason for us to upsize this guidance given that it's $21 billion for the 3 years. I think we're in a good momentum to deliver the 3-year plan. But having said that, let us go through the first 1 or 2 quarters of 2026, and we're going to be in the mid of the $21 billion target. And if we feel even more confident we'll come out with a new number. Hopefully, I cannot guarantee. Hopefully, it's going to be on the positive side, but that's it. It was more for conservative reasons than any other reason. On the second part of your question that our fund of funds do not really fund of funds, to be honest. And I think private equity and infrastructure, if that's what you're referring to, we don't see any of our -- we don't have any fund of funds investing in our buyout private equity funds, growth private equity funds, venture private equity funds. We don't have any fund -- our fund of funds investing in our development infrastructure funds. We do not -- we don't have that fund of funds investing in our own funds that I can -- I don't know -- Marco, any comments there? I don't think we have anything, right? Marco DIppolito: My only comment here and good afternoon, everyone. My only comment here is, as Alex said, we don't have a fund of fund. We do manage a listed trust that has actually funded one of our secondary funds. The amount is $75 million. Again, a very small amount relative to the overall fundraising for last year. Just to remind, this is a vehicle that has an independent Board. It's a listed trust listed in the London Stock Exchange. Therefore, decisions are subject to an independent Board. Alexandre Teixeira de Assumpção Saigh: Okay. Any subsequent questions, Lindsey? Did we manage to answer your questions? Lindsey Marie Shema: Yes. Thank you, Marco. It was the listed vehicle that I was asking about there. And then maybe just some further color on fundraising. Are you still seeing international interest in Latin America region? I know Brazil has been kind of a hot topic right now. What regions are you really seeing the most interest from? And where do you expect that incremental fundraising to come from? Alexandre Teixeira de Assumpção Saigh: Yes. No, thank you, Lindsey. No, yes, I think we have the -- I have been saying that, I think, over the last earnings -- several earnings calls that we have been geographically overperforming LatAm, overperforming Asia, Middle East. We're kind of performing at expectations in Europe. and we are underperforming the U.S. So I've been saying that for several earnings calls. That hasn't really changed much throughout the whole year 2025. We have been, again, overperforming LatAm. In general, we have been overperforming, right, 7.7% versus the guidance of 6%, 30% more. Where is it coming from? Overperforming Asia Pacific, overperforming Middle East, overperforming LatAm, in line with our expectations in Europe, underperforming the U.S. And asset class-wise, overperforming credit, overperforming GPMS, overperforming infrastructure, in line with real estate and in line with private equity. And as I mentioned, our expectations for private equity were low, but were in line with our expectations. We see these geopolitical shifts in the world benefiting LatAm. We see interest from Asia Pacific, Middle East and LatAm itself. I think some of that interest in LatAm has to do with geopolitical shifts in some of the investors in these regions allocating more to LatAm versus other parts of the world. And I think LatAm is extremely well positioned to benefit from these trends given the solid democracies with solid institutional frameworks, solid regulatory framework with -- if you look at the kind of balanced fiscal budgets relative to other countries in the world, of course, you can see that -- you can say the 1% or 2% there or here is that. But if you compare to other countries in the world in a somewhat better situation. We see also a region of the world with a high percentage of renewable energy being driving manufacturing. We have commodities, soft and hard commodities in the region. We have -- the region has the second largest deposit of rare earth in the world is in the region, a region that is also rich in oil and gas and also in protein and other commodities. So it's a region that actually was, in my view, underrated for so many years. And now I think it's getting its place under the sun. -- optimistic about continuing to see even more resources coming to the region in the near future. Operator: Our next question comes from Ricardo Buchpiguel of BTG Pactual. Ricardo Buchpiguel: Can you please provide more color on the nature of the process related to the around $100 million in litigation liabilities Patria has and also comment about the chances of having to pay some of this value? And how are the key steps on the main litigations on this bulk of $100 million? Alexandre Teixeira de Assumpção Saigh: All right. Ana, do you want to help me with this answer? I think specifically the litigation liability, please? Ana Russo: Thank you, Ricardo, for the question. I was also making sure that this -- the $100 million as is posted in our -- I think in our financial statement and also 20-F, it just so that is not in our balance sheet, as you know, because we just consider an accrue if there is a possibility for considering that is losing. So you -- as part of our information, you're going to see that more than 80% of this litigation, we already it's going to went away in our next reports and basically as we already in the past already included in all the statements that are very -- it was not possible -- it was not a remote, but it was probable. So we actually won and this more than 85% is going to go away in our next reports, okay? So we will see in our next reports. Ricardo Buchpiguel: That's clear. And a follow-up question. We saw that there was an increase in transaction costs related to M&A understand that Pat has been reaccelerating the M&A agenda and some announcements were made this year. So my question is if we should see -- should expect this level of transaction costs of around like $20 million, $25 million per quarter in the following quarters. Alexandre Teixeira de Assumpção Saigh: Yes. I think -- well, I can take that from a macro view and then I can answer specific about the numbers. Just again, just to go through this litigation process again. So we won a specific litigation there, Ricardo, where around approximately 85% of the number of $100 million will come out of our numbers as of beginning of 2026, okay? So that's 85% out of the $100 million there. On transaction costs, I think we did say, I think, to the market that we would have a hiatus in our acquisitions during 2025 in order to be able to show our capability to integrate the businesses that we have acquired and fundraise for the businesses that we did acquire, which I think we were spot on with the $7.7 billion that we raised does not include any acquisitions because we did not do any acquisitions during 2025. And we raised money for businesses that we had acquired in the past like our credit business, our GPMS business, et cetera, and our real estate business as well. So happy that, that happened. We had 1 year of hiatus. In addition, we also mentioned that as we do integrate these acquisitions will bring our FRE margins again to 58% to 60%. Now our FRE margin was close to 59% for 2025, so right in the middle of the 58%, 60% number that we gave. And compared to 2024, our margins increased from around 56% to around 59% because of the integration of the businesses that we acquired in 2024 or earlier than that, okay? We also mentioned that as of the end of 2025, we would like to continue our acquisitions in very strategically placed. We also gave the guidance in December 2024 that we would fundraise $21 billion organically, as I mentioned here in Vinay's answer, but also do $18 billion of fee-paying AUM acquisitions. In order to reach the $70 billion of fee-paying AUM by 2027. So we will come back with the acquisitions programs as we did with the acquisition of this private debt platform, private credit platform in Brazil, plus some real estate investment trust in Brazil as well. Plus recently, we announced the signing of a global private market solution business in the United States called WP. So yes, I think we will come back. And I think what is the guideline is the $18 billion. If you add these 3 acquisitions is around 7.5 -- so we see that -- or we give us a guidance that we should try to buy another $10 billion of fee-paying AUM by the end of 2027. So that's -- it's the same guidance as we gave in the end of 2024. The $18 billion, I'm just subtracting what we have already acquired, around 8 billion. So we have another $10 billion to go by the end of 2027. I hope I answered your question. Ricardo Buchpiguel: No, that's clear. And given that the pace of M&A should continue in line with the strategy here, should we expect still this transaction cost that impacts the accounting net profit and excluded from distributable earnings, should it continue to be around like $20 million, $25 million? Alexandre Teixeira de Assumpção Saigh: Yes. Sorry, that's right. Ana, if you can comment on the number itself, please. I'm sorry. I forgot the second part of your answer. Ana Russo: Ricardo, as you know, this line of transaction costs, including all our nonrecurring expenses, which is directly related to our M&As and also restructuring costs, as you know. The quarter specifically was accelerated because of those M&A agenda, as Alexandre mentioned, the closing of those 2 of Solis and RBR and signing of WP. And specifically in this quarter is a higher than usual, the quarter specifically because of the impact of those transactions and some of the specific agreements that hit or cost that hit the fourth quarter. So when we look in a quarterly basis, is -- I would say this is on the high end. So -- it's too high to consider that all quarters is going to be around $20 million. But we are -- as we have no new M&As, when we talk about total year, we can expect to have a slightly lower next year, but not in a quarterly basis, $20 million is more on the high side because of those events happening in the same quarter. I think I don't know if I answer your question. Ricardo Buchpiguel: That's very clear. So mainly when you are closing M&A, we should see small well. That's very clear. Operator: And our next question comes from Nicolas Vaysselier of BNP Paribas. Nicolas Vaysselier: I would like to bring the discussion back to the flagship PE and infrastructure funds. I acknowledge this is not the bulk of your fundraising targets for the next few years. Still, I would like to have a bit of color from your side. I mean you've managed to raise the success of funds in what was a difficult environment -- macro environment for the LatAm region. And I was wondering if you could tell us more about the changes in the LP base you might have had from PE Fund IV to PE Fund V and same thing on the infra and particularly the sort of free-up rates you've managed to achieve from your LPs? Alexandre Teixeira de Assumpção Saigh: Nicolas, thanks for your question. Well, we have seen, in general, I think if we go back to our earlier funds and today, a shift from endowments and family offices to institutional investors. And so if you look at the absolute value of the dollars that we raised more and more for these funds that you mentioned, the drawdown funds, private equity funds and infrastructure funds drawdown, private equity buyout, private equity growth and infrastructure development, which no value add, we see more and more institutional investors composing the absolute value of the fundraising. You have a big number of family offices, but in absolute value, they are contributing less and because the institutional investors come with sizable checks, not sizable checks. So that has been the trend in most of our drawdown funds, those that you just mentioned specifically, the trends are similar to ones that I described. Re-up rates, they go from 40% to 60% re-up rates. I think the latest fund that we are raising drawdown is our secondaries opportunity fund #5. We have re-up rates above 50%. So that's the latest one. So to give you no fresh news on that. And if you go back to the funds that you mentioned, even though you mentioned private equity buyout #4, but it's a 10-year-old fund. To be honest, I forget now what is the re-up rate versus private equity buyout #3 because it's 10, 12 years ago. But the latest funds, it's around the 40%, 60%, which I have in mind number, Nicolas. I can get back to you offline on the re-up rates of private equity buyout #4, which I forget given that it's not a 10-year-old fund. But the last ones that I see infrastructure development fund #5 that we closed in 2025. That's the range, 40% to 60% re-ups. -- secondary opportunistic opportunity fund #5. We see around 50% re-up rates. So that's more or less between the 40% and 60% for the more recent funds that I have fresher in my memory. But I can go offline and look for you for the older funds, okay, if you don't mind. Operator: And our next question comes from Carlos Gomez-Lopez of HSBC. Carlos Gomez-Lopez: So first, I want to congratulate Ana I think for a very good present very good job and luck in your next endeavor. Specifically on Page 21, you give us a very good breakdown about shares outstanding and the increase in the first quarter of '25. We understand this is related to particular transactions M&A. What do we expect for the share count in the next, let's say, 2 or 3 years? Where should we expect to be dilution to shareholders -- and second, when you look at the EPS evolution on Page 2 -- and I realize that the earnings is not everything, but you have had 126 in '23, 24 in '24, 127 '25. What -- again, what is the evolution that we should expect in the coming years. Alexandre Teixeira de Assumpção Saigh: Carlos, thank you for your question. I'll ask Ana to help me here and answer specifically on the numbers that you just mentioned. In general, we gave a guideline in our December 2024 3-year plan tax Day that we will have a share count of around 158 million to 160 million shares for the '25, '26 and '27 period. We have finished 2025 with 158 million shares, and we project 2026 to '27 for the share count to stay within that range, around 160 million shares, around 160 million shares. Again, a guideline that we gave in the end of 2024 for the '25, '26 and '27 period. And we have -- also we gave as a guideline, our FRE for 2026 for this year is $225 million to $245 million with a midrange, of course, of $235 million. And for 2027, $260 million to $290 million with a midrange to $275 million. So then we use these numbers and we use the share count that I gave you and to calculate the FRE per share. And Ana, do you have the specific numbers there that you can help me, please for FRE per share for '26 and '27? Ana Russo: Sorry, I was on mute. Yes. I think just to understand what Carlos, what you're saying. So -- when we look into our FRE per share -- sorry, we have 108 on the FRE when we talk -- I'm sorry, -- you were talking about FRE per share. I'm sorry that we couldn't hear you. Carlos Gomez-Lopez: No, no. Actually, your answer has been on FRE per share, and I understand that it is the main metrics that you use. But I was looking at distributable earnings, which ultimately is the measure for shareholders. Alexandre Teixeira de Assumpção Saigh: To be honest, it's very hard to listen exactly to what you were asking. I think there was a noise in the background. So I understood FRE, but you're saying DE. So I'm sorry about that, Carlos. Carlos Gomez-Lopez: No, no, my fault. I hope it's better now. Alexandre Teixeira de Assumpção Saigh: No, no, I'm sorry. We were not listening very well to your question. So on the DE side, what we do is the following. We give an FRE number, which is the one that I just gave you, $225 million to $245 million for 2026, $260 million to $190 million for 2027. We also give them a share count number, which is 158 million shares to 160 million shares for '26 and '27. And we also give a performance-related earnings number. We do not give a per year number because it's very hard, as I was, I think, answering one of the questions here today to pinpoint exactly which quarter, which year that performance fees is going to be generated. So we gave a 3-year guidance. The 3-year guidance was $120 million to $140 million of performance fees. As of the end of 2025, we generated approximately $60 million, $62 million of performance fees. So for 2026 and 2027, there's $60 million to $80 million to go. okay? And we -- it's very hard again to predict exactly what quarter or even 1 year. So that's why we gave a 3-year guidance. We are 1 year into the guidance. We have another 2 years to go. If we take into the low end of the range, which is now $60 million to go of performance fees, we predict that Infrastructure Fund III is the one that will probably generate the highest probability to generate performance fees. And we estimate that there is a non unrealized performance fees in that fund of $20 million. So that's $20 million out of the $60 million. And the other $40 million should come from other funds that we have several funds that are maturing to generate performance fees in several different asset classes. So we don't give specific DE per share on a quarter-by-quarter basis or year-by-year basis because of this nature of our performance fees. if I managed to answer your question. Carlos Gomez-Lopez: No, you have answered that question. And last one, do you expect the tax rate, which is down again about 5% or so to stay in those levels? Alexandre Teixeira de Assumpção Saigh: Our guidance on tax is around 10% tax rate. That's our guidance. We're currently been able to have a lower tax rate several different reasons. One specifically for 2025 is because we had a tax credit in the U.K. But we don't see that as a recurring tax credit for 2026, 2027. So we should, as we move into 2026, 2027 to see approximately a 10% tax rate. And Ana, do you want to comment on that as well, please? Ana Russo: Yes. Our tax rate, there are 2 impacts when you look into our tax rate is also the size of the performance also impact our effective tax rate because some of the revenue sometimes comes from jurisdiction which have a favorable tax rate. So you also have to take that into consideration when compared year-over-year. But when we look into over time, and as Alexandre mentioned, and I mentioned in my remarks, is actually this year was actually had a favorable impact of a credit on the U.K. And therefore, we foresee for the next 3 years that at the end of the 3-year period, it would reach approximately 10%. So it's going to increase over time to reach approximately 10% as we increase revenue and income in jurisdictions and pay more tax as we -- as our mix of M&A that enters and also our revenue. So this has been our guidance and we're looking to our plan. Operator: Our next question comes from Fernanda Sayao of JPMorgan. Fernanda Sayão: You've been growing very aggressively on the real estate business. Could you elaborate a little bit more on the strategy here? And how dependent do you think that lower rates is to grow this business? Alexandre Teixeira de Assumpção Saigh: Thank you, Fernanda. Thanks for your question. And well, we are extremely excited with our real estate business in general, not only in Brazil, but in LatAm. And we are the largest real estate investment trust manager in Brazil as of now and scale in this asset class does matter. Yes, I think it's -- we've been successfully fundraising and there are several ways that we can fundraise. It is an asset class in general that is interest rate dependent. Yes, it is in general. We see that as interest rates do raise, you have a slower pace of fundraising as interest rates start showing a trend of decreasing, which is the case of Brazil, which is -- we saw that in Chile last year, we see the fundraising increasing, increasing. So it is dependent. Interest rates -- when interest rates increased in Brazil, using Brazil as an example, fundraising then the pace of fundraising decreased and vice versa now, we see that the Brazilian Central Bank will most probably reduce interest rates in Brazil this year as the yield curve also shows that. And our fundraising pace, at least in Brazil should increase. It should be better fundraising environment for our Brazilian real estate investment trusts. In addition, Fernanda, what we also see that given the size of our funds in Brazil, -- we -- a lot of investors look to us. And of course, we are talking also proactively with investors in exchanging their assets for shares of the fund. So it's an asset exchange. If you have a portfolio of real estate and you want to exit that portfolio, maybe you don't want to sell the whole real estate 100%, you can actually get shares of the fund and you can sell 10% now, 20% then because we have large funds that do have a sizable and very reasonable daily liquidity. It's also very interesting for families when they do inheritance planning. You have one real estate or a portfolio of real estate and you have 2 or 3 sons or daughters, you don't have to sell the whole thing and you don't have to give real estate divided by 3, you can give shares of a fund. which for inheritance purposes and planning is very, very intelligent. So we see a lot of not only institutional investors looking for our funds as a liquidity path, exchanging their portfolio with shares of our funds. We also see families and family offices looking for our funds in order to have better family inheritance planning. So all of that together, I think we see that 2026 should be a better year in Brazil for fundraising for the real estate investment trust versus '25. '25 was already a good year, and we already started doing this exchange of assets for shares of the fund. But I think we see even more so in 2026. So yes, I think we're excited about that asset class, and I think that adds to our enthusiasm with fundraising for 2026, Fernanda. I hope I answered your question. Operator: I'm showing no further questions at this time. I'd like to turn it back to Alex Saigh for any closing remarks. Alexandre Teixeira de Assumpção Saigh: Great. Thank you very much for your patience and keeping on with us for long 1.5 hour here and your support is very much appreciated. I hope to see all of you in person during the year. I think there are several conferences that you already invited, and thank you very much for the invitation. And here we go. Hope to continue delivering as we are extremely confident in our numbers, and we start the year with a very strong momentum. And hopefully, that momentum is going to translate into even better fundraising that we gave the guidance and also fee earnings AUM and revenues, et cetera. Thanks a lot. Have a good day. Bye-bye. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the Teradyne Fourth Quarter and Full Year 2025 Earnings Conference Call [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Amy McAndrews, Vice President of Corporate Relations for Teradyne. Please go ahead. Amy McAndrews: Thank you, operator. Good morning, everyone, and welcome to our discussion of Teradyne's most recent financial results. I'm joined this morning by our CEO, Greg Smith; and our CFO, Michelle Turner. Following our opening remarks, we'll provide details of our performance for the fourth quarter and full year of 2025, our outlook for the first quarter of 2026 and our new target earnings model. The press release containing our fourth quarter results was issued last evening. We are providing slides as well as a copy of this earnings script on the Teradyne investor website that may be helpful in following the discussion. Replays of this call will be available via the same page after the call ends. The matter that we discuss today will include forward-looking statements that involve risks that could cause Teradyne's results to differ materially from management's current expectations. We caution listeners not to place undue reliance on any forward-looking statements included in this presentation. We encourage you to review the safe harbor statement contained in the slides accompanying this presentation as well as the risk factors described in our annual report on Form 10-K for the fiscal year ended December 31, 2024, on file with the SEC. Additionally, these forward-looking statements are made only as of today. During today's call, we will refer to non-GAAP financial measures. We have posted additional information concerning these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP financial measures, where available on the Investor page of our website. Looking ahead between now and our next earnings call, Teradyne expects to participate in technology or industrial-focused investor conferences hosted by Citi, Susquehanna, Morgan Stanley and Cantor. Our quiet period will begin at the close of business on March 13, 2026. Following Greg and Michelle's comments this morning, we'll open up the call for questions. This call is scheduled for 1 hour. Greg? Gregory Smith: Thanks, Amy, and thank you all for joining us today. I'll start off by summarizing our fourth quarter and full year 2025 results and provide some context for our initial view of 2026 and our new target earnings model. Teradyne had a strong fourth quarter with 41% sequential revenue growth and more than 100% non-GAAP earnings growth. Both revenue and EPS were above our high guidance as trends we noted previously continued through the end of the year. Semiconductor Test, Product Test and Robotics all delivered double-digit sequential growth. A striking trend was the increase in AI-driven revenue in the second half of 2025. This is obvious in compute and memory, however, the rapid build-out of cloud and edge AI is also driving demand for power management, SLT, HDD, ICT and optical test. This aligns with the themes of AI, verticalization and electrification that we have highlighted in prior calls. When you roll it up, AI demand drove 40% to 50% of our revenue in Q3. In Q4, AI drove more than 60% of our revenue. Looking forward to Q1 of 2026, we expect that upwards of 70% of our revenue will be driven by AI applications. Now Michelle will go into a lot more detail about the quarterly results and trends. I'd like to give you a little full year color for each of Teradyne's businesses. Starting first with the Product Test group. Overall, we grew revenue 8% in 2025, driven by strength in defense and aerospace. We have successfully integrated Quantifi Photonics into this group, including training the sales team for LitePoint and Production Board Test on the Quantifi product line. We expect all of our business lines in this group to grow in 2026. Turning now to Robotics. In 2025, we saw 3 consecutive quarters of growth starting in Q2. As we have discussed previously, we are optimistic about the value-creating opportunity in physical AI and advanced robotics, and our strategy has been to focus the organization on the segments, customers and technologies with the highest growth potential. For all of 2025, the Semiconductor Test Group delivered 19% year on year growth. SoC test revenue grew 23% year-over-year, driven mainly by networking and VIP compute. Memory test revenue was up slightly in a roughly flat memory test market on continued share gains in HBM and DRAM final test. With strong VIP revenue, we believe that we maintained about 50% market share in the VIP compute market in 2025. This entire segment remains very concentrated with only a few players driving significant ATE purchases. This contributed to revenue lumpiness in 2025 and complicates forecasting VIP share in the future. Our full year financial results reflect a successful pivot to AI-driven demand in high performance computing. Back in 2020 and 2021, our business was dominated by mobile. We were highly exposed to mobile in SoC, memory, and wireless test. Now in 2025, compute is the largest component of our revenue and grew 90% year-over-year. This growth can be attributed to the decisions and investments [ we've ] made over the past few years that are now yielding. Our historically strong networking business has been growing because of the high density of network connections in AI Data Centers and the increasing complexity of networking components. The work that we have done to align our product roadmap and customer facing teams to VIP and merchant computing customers has enabled us to capture valuable new design wins. While we are gaining in compute and memory, we believe that diverse revenue mix is Teradyne�'s long-term strength. Using round numbers, in 2023, only about 10% of our SoC product revenue was in compute, 50% was in auto/industrial and 40% was in mobile. Now in 2025, nearly 50% was in compute, and auto/industrial and mobile were roughly balanced at a 1/4 each. This balance derisks our target earnings model. The SoC TAM reached record levels in 2025, nearly 60% larger than 2024. Looking forward, we expect that TAM to grow robustly over the midterm driven by continued data center build out and the growth of Edge AI. Predicting this growth rate from year to year is going to be difficult because of the high concentration and less predictable product ramps. One big socket sliding across year boundaries could have a significant positive or negative effect on year-to-year growth. Although this uncertainty makes it challenging to predict the 2026 SoC TAM, we are expecting robust year-on-year TAM growth. At a segment level, we expect compute to grow significantly from a very high base driven by AI. We expect to see moderate recovery in auto/industrial, but we are uncertain about the mobile TAM. Although we are expecting to see a significant jump in device complexity, there are questions about unit volume, product mix and capital efficiency improvements. All in all, we believe that we are positioned to gain share in the single digits in SoC test in a significantly larger market. Now shifting gears to memory. In 2025, the overall memory TAM was down about 4% from 2024, and we are able to gain a little share. A bright spot in the test -- the memory test market was AI compute demand for both HBM and DRAM. Again, it is useful to take a longer-term look at the changes in memory test. Back in 2020 and 2021, the memory test market was split more or less evenly between FLASH and DRAM. In 2025, DRAM and HBM comprised nearly 90% of the memory TAM, a trend we expect to continue into 2026. Overall, we expect a resurgent memory market in 2026 with low double-digit TAM growth over 2025, driven by continued strength in HBM and DRAM, and we expect to continue our incremental share gains. Our IST business delivered over 50% growth from 2024 to 2025. Historically, IST has had very high segment and customer concentration. In 2024 and before, we served the HDD and mobile SLT markets, and our revenue was mostly driven by a large single customer in each segment. In 2025, this began to change. We won a new customer in mobile SLT in 2024, and that ramped strongly in 2025. Also in 2025, we entered compute SLT and won business from 2 customers in that segment. Finally, in late 2025, we received orders from a new customer in HDD, which will be ramping in 2026. All of this is setting us up for continued strong revenue growth from IST in 2026 and beyond. Michelle will be going over our target earnings model in some detail. I'd like to comment on the underlying drivers of that model. In looking at the future, we had to answer 2 questions. The first question is whether the markets we are in are poised for growth. In our mind, the answer to that is unequivocally true. Right now, the prime mover of the market is AI data center. Our product lines cover this market from beginning to end from testing compute devices to complete server trays all the way to robot-assisted operations in AI data centers. Looking beyond the AI data center, segments of the market where Teradyne has high share are poised for recovery. auto/industrial will have long-term growth tied to the transition to Edge AI, EVs and 800-volt data center power. Mobile is positioned for steep complexity increases as the compute power required to run inference on LLMs is crammed into phones. Physical AI is already expanding the applications of advanced robotics, and we believe that trend will continue to strengthen. The second question is whether we, Teradyne, are positioned to gain share in the markets where we play. Again, I think the evidence from 2025 is clear. We are. We have gained share in HBM and DRAM, we have maintained high share in networking, we have ramped significant new VIP sockets, we have a leadership position in silicon photonics device test, and we are in play for a share of merchant GPU. We have won new segments and customers in our IST group in both storage test and system-level test of compute devices. But Teradyne's exposure to the growing AI data center market extends beyond device test. Our Production Board Test business tests the server trays that devices go into. Our Quantifi Photonics instruments test silicon photonics from device to rack. In alignment with our strategy to go from wafer to data center, last Thursday, Teradyne announced an agreement with MultiLane to form a joint venture. MultiLane is a global leader in high-speed I/O and data center interconnect test solutions. This joint venture will be called MultiLane Test Products and is being formed to serve the growing AI data center demand. Upon the close of this transaction, which we expect in the first half of this year, we will be the majority owner of the JV and MultiLane will maintain a minority position. In Robotics, we have built a world-class platform for physical AI applications that is being applied in multiple industry verticals, and we have embedded AI capabilities into our AMR products. Most importantly, we have begun to ramp an important worldwide AI-driven application in e-commerce. So to sum up, Teradyne is positioned to deliver better than market growth in markets that are going to be growing robustly over the next few years. We foresee a future where the ATE TAM will be $12 billion to $14 billion, up from about $9 billion in 2025. In that market, our long-term model illustrates our expectation that Teradyne would deliver nearly 2x 2025's revenue and 2.5x the earnings per share. With that, I'll turn the call over to Michelle Turner, our Chief Financial Officer, and welcome her to her very first Teradyne earnings call. Michelle, over to you. Michelle Turner: Thank you, Greg, and good morning, everyone. I'm thrilled to have joined the Teradyne team and look forward to the value-creating opportunities ahead. Today, I will cover our fourth quarter and full year 2025 financial results, then I will share our Q1 2026 outlook. And then finally, I will discuss our new target earnings model. Now on to Q4. Fourth quarter sales were $1.083 billion with non-GAAP EPS of $1.80, both above the high end of our guidance range. Fourth quarter sales were the highest revenue quarter of 2025 and our second highest quarter in history, only $3 million below our record during the mobile boom of 2021. Semi Test revenue was $883 million, fueled by AI compute and memory demand. Within Semi Test, SoC revenue was $647 million, up 47% quarter-on-quarter. And memory revenue was $206 million, up 61% quarter-on-quarter, marking a record sales quarter for our memory business. The Product Test Group at $110 million grew double digits sequentially and year-on-year, driven by strong defense and aerospace demand. Robotics revenue of $89 million grew for the third consecutive quarter and was up 19% from Q3. In Q4, greater than 5% of our Robotics revenue was driven by a large e-commerce customer. Moving on to bottom line. Non-GAAP gross margins were 57.2%, aligned with our guidance range, driven by Semi Test AI demand strength, offset primarily by lower product test group margins and robotics mix and an inventory write-down on legacy products. Non-GAAP operating expenses were $306 million, and the non-GAAP operating profit rate was 29% in the quarter. Non-GAAP operating profit dollars in the quarter roughly doubled to $314 million in comparison to both prior quarter and prior year. We generated $219 million in free cash flow and returned $204 million to our shareholders through share repurchases and dividends. Our tax rate for the quarter, excluding discrete items, was 10.6% and 10.3% on a non-GAAP and GAAP basis, respectively. Overall, fourth quarter results were strong across the portfolio. Now turning to full year results. Our revenue was $3.2 billion, up 13% from prior year. At the beginning of the year, our SoC revenue was equally divided across our major end markets of compute, mobility and auto and industrial. Exiting the year, fueled by strong AI-driven demand, compute is now the largest part of our SoC portfolio, eclipsing our historical stronghold of mobile. From an overall portfolio perspective, Semi Test now represents close to 80% of our enterprise sales, an increase from the low 70s over the last few years. From a customer perspective, I'd like to remind you about a characteristic of our business model. We typically have a specifying customer who chooses platforms and drives demand and a purchasing customer who actually places the order and receives the equipment. In different cases, the specifying and purchasing customers have more influence in the purchase decision. In 2025, we had 2 greater than 10% specifying customers and 1 greater than 10% purchasing customer. Gross margin for the year was 58.3%, OpEx was $1.2 billion and operating profit was 22%. Non-GAAP EPS was $3.96. We generated $450 million in free cash flow and returned $785 million or 174% of free cash flow to our shareholders through share repurchases and dividends. We ended 2025 with $448 million of cash and marketable securities. Our tax rate for the full year, excluding discrete items, was 12.8% and 12.6% on a non-GAAP and GAAP basis, respectively. Now to our outlook for Q1. Since our October call, we've continued to see demand across our group strengthen. Q1 sales are expected to be between $1.15 billion and $1.25 billion, which would be a new quarterly record, driven by all things AI. The midpoint of this revenue range is 11% growth from an already strong Q4 and 75% growth from the same period in 2025. Non-GAAP EPS is in the range of $1.89 to $2.25 on 158 million diluted shares. From a margin perspective, we expect first quarter gross margins to be in the range of 58.5% to 59.5%, up 180 basis points at the midpoint of the guidance quarter-over-quarter. OpEx is expected to increase 6% from Q4 and run at approximately 26% to 28% of first quarter sales. The non-GAAP operating profit rate at the midpoint of our first quarter guidance is 32%. With the strong start to the year, I want to take a minute to talk about our historical sales patterns and how this is a classic example of history is not necessarily indicative of the future. Many of you who have been following us for a while know historically, we've experienced what we call lumpy Q2 or Q3 revenue trends tied to mobile demand and product life cycles. From 2020 to 2024, we consistently delivered the majority of our sales in second and third quarter. 2025 broke this pattern. Q4 represented our largest quarter of the year. As our compute and memory portfolios continue to grow, our revenue will continue to be lumpy yet follow a less predictable pattern. While 2025 sales were 40% in the first half and 60% in the second half, based on what we know today, we expect 2026 sales to be in the inverse. Before I walk through our new target earnings model, a few comments on our recently announced MultiLane joint venture. As Greg mentioned, we expect to close the joint venture in Q2 '26. For your modeling purposes, the results of this business will be consolidated into the results of our Product Test Group, and our EPS will reflect our share of the results of this business. We will disclose the net income attributable to the noncontrolling interest as a new line item on our income statement. We expect this deal to be accretive in 2026 with a de minimis impact to EPS. Now moving on to our new target earnings model. Rather than anchoring our earnings model to a specific future year, as we've done historically, this year, we are framing it around what our P&L looks like at an ATE TAM of $12 billion to $14 billion, which we believe is achievable within this midterm. This approach better reflects the inherent lumpiness in both compute and memory demand where program timing and customer buying patterns can shift revenue across the quarter and year boundaries. So at an ATE TAM of $12 billion to $14 billion, our target model assumes roughly $6 billion of revenue. At this scale, we expect gross margins between 59% and 61%, a point higher at the high end versus our prior model. We anticipate OpEx of 27% to 29% of revenue, reflecting operating leverage and the benefits of scale. This results in an operating profit of 30% to 34% and non-GAAP EPS of $9.50 to $11. We expect this growth over the midterm to be proportional across each of our groups. From a Semi Test Group perspective, we expect to grow our revenue greater than the overall ATE market growth rate, reflecting our expectations of share gains. This growth is driven by continued strength in AI compute and memory as well as anticipated recovery in auto/industrial and mobile. Our mobile assumptions reflect recovery but not a return to the 2021 peak. We also expect growth in IST tied to wins in SLT for compute as well as HDD. From a Product Test Group perspective, we expect growth across the portfolio tied to compute, Defense, Photonics, high-speed Internet data and data centers. From a Robotics Group perspective, we expect growth tied to physical AI, expanding SAM, reducing implementation complexity and continued persistent labor shortages. Our strategic pivot towards large accounts, along with a sharper focus on E-commerce, Logistics, Semiconductor and Electronics verticals is expected to further support growth. This new target earnings model is reflective of our conviction in the growth potential of the ATE TAM driven by all things AI even at today's unprecedented levels. Moving from a date-driven earnings model to an evergreen one reflects this conviction while also recognizing a lack of precision in terms of which year this comes to fruition. Now turning to capital allocation. Our strategy remains consistent to maintain cash reserves that enable us to run the business and have dry powder for M&A. For reference, from 2015 to 2025, we returned over $5.4 billion to shareholders through share repurchases and dividends, which is roughly 100% of free cash flow. We will remain opportunistic around value-creating inorganic opportunities as well as share buybacks. So summing up, exiting 2025, we are encouraged by the strength of the business. Our overall company revenues grew 13% year-on-year, and our SoC and memory contributed 17% year-over-year, helping to achieve a 23% increase in our EPS to $3.96. We are making strategic investments to drive competitive advantages and gain market share in the Semi Test and Product Test Groups. We remain focused on large accounts and attractive verticals to drive sustainable growth in Robotics. We entered 2026 feeling good about the year ahead. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] We will take our first question from C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess wanted to focus near term and then a longer-term question. On the near term, can you kind of help us understand how to better think about calendar '26? I heard you talk about kind of the inverse of that 58%, 42% we saw in calendar '25. But curious how to think about perhaps the overall revenue growth rate or thinking about June so we can size it. Will you grow above the high end of kind of the revenue target range of 25%? Or any help would be great. Michelle Turner: Thanks for the question. This is Michelle. So I'll give some color commentary. I know this is going to be of interest to everyone who's listening in. So a couple of things I would reference in terms of this year versus past year. One, we are entering the year with a healthy backlog. And so we're excited by that. That's a positive when you think about our positioning for 2026. So we have better fidelity than we did, say, the same period last year. And then the other thing I would highlight is we typically, for those that follow the Teradyne story, we talk about having like 13 weeks of demand kind of insights from a forecast perspective. I would say we have better insights this year to first half. And so that's a positive from an overall 2026 perspective. I do want to balance this, however, with kind of what I talked about in my opening remarks and really emphasize the lumpiness of this new sales pattern. So I want to caution us against kind of a linearity trend assumptions with the recognition that we could see things move between quarters and between years as we recognize some of these ordering patterns in this kind of new AI infrastructure build-out environment. Gregory Smith: Yes. C.J., I'll add one thought here. This is Greg. The run rate that we have in Q1 is like we have a fair amount of strength in Q1. We don't have great visibility into the second half. So we're a little bit cautious that we don't want people to sort of take that and run with it for the full year. We expect that we're in kind of a 2-, 3-quarter surge that may lead to a shorter period of digestion afterwards. Christopher Muse: Great. Very helpful. And then, Greg, longer-term question, implicit in your new target model is a vision for your share of [ AAT ] to grow from about 25% to 46%. So would love to hear kind of your high-level thoughts on what the key drivers are behind that. Gregory Smith: So right now, in the -- our model, our sort of $12 billion to $14 billion TAM model with us at $6 billion, that actually is moderated from that 46% level just a little bit. And that reflects -- in that model, we expect that the compute TAM is going to continue to grow. We're going to be gaining share in the compute space, but we're coming from a much lower share position. So I think we are -- like thinking about it from a long-term model perspective, we expect to gain share in compute. We expect the mobile market to probably get to maybe 1.5x the size that it is now, and we maintain the share that we have. Auto and industrial, probably the same kind of proportional gain in terms of the TAM size, and we'd maintain and then in memory, it's going to have incremental growth through this midterm. And right now, we feel like -- if you look back a few years, there were multiple parts of the memory market where we were not even present. Now we feel like we are in most of the segments for most of the customers. And so we are in a position to sort of split the share and ride the trends in the markets. Does that help? Operator: Our next question comes from Timothy Arcuri with UBS. Timothy Arcuri: Greg, I wanted to come up the last question from a different angle. So if I take your new model, and it seems -- if I take what you've already said for Robotics, how much it will grow, and I grow systems test at a pretty good clip, product test at a good clip. It seems to me like the Semi Test share only gets back to the like high 30s, which is really only where it was from 2022 to 2025. So it doesn't really seem to imply that much share gain. I mean it does off of where it was in 2025 because it was sub-30%, but it doesn't seem to imply very much share from where it was in 2022 to 2024. So maybe you can provide a little more color, like is that calculation wrong? Is the Semi Test number assumed having share higher than that? Because it seems like it's not that much higher than it's been in the past few years. Gregory Smith: I think the -- in order to get to the numbers that you have that you probably have slightly more aggressive growth expectations for the Robotics and the Product Test Group. So we're kind of thinking across this midterm that the proportion, sort of the 80-10-10 proportions are going to be roughly the same. And so -- and by my math, we are in the low 40s per share in ATE. And remember that like the IST stuff is in our revenue, but it's not in the ATE TAM. That's in a separate segment. Timothy Arcuri: Yes. Okay. All right. And then can you break either your -- Michelle, can you break down the SoC TAM in 2025, the $7.2 billion. Can you break it down between compute, mobile, auto? And maybe also, you've talked before about how large the VIP TAM is within compute. Can you give us a sense of how big that was in 2025? Gregory Smith: So in 2025, the TAM broke down roughly -- we think it's -- and this is subject to us sort of totaling up the final numbers, which will come in over the next couple of months from third-party sources. But our expectation was that compute was in the neighborhood of $5 billion for the year. Mobility in about $1 billion; auto industrial just under $1 billion and service was in the $700 million range. For memory, overall, we think that the TAM was just under $1.4 billion and $1.2 billion of that was DRAM. The rest was FLASH. Timothy Arcuri: And Greg, of the compute portion, how much is VIP, sorry? Gregory Smith: I think it's just over $600. Operator: We will move next with Mehdi Hosseini with SIG. Mehdi Hosseini: Just one additional follow-up on the SoC TAM. Greg, you highlighted market share of around 50% for custom ASICs back in 2025. How do you see that evolving, especially given the increased new products coming out? It is my expectation that the concentration is actually going to get broaden out and more custom ASIC coming out? And would that enable you to increase market share about 50%? And I have a follow-up. Gregory Smith: Sure. So yes, so in 2025, we think share was roughly 50% of VIP compute. When you look into the future, we expect that, that share split is going to -- it's -- the thing about this space is that no share is safe. We are challenging for sockets that we don't have. We're being challenged for sockets that we do have. And that's true for stuff that is in high volume right now and programs that have yet to ramp. The thing that I'm a little bit cautious in terms of trying to size the TAM for ASIC programs that are not yet in volume because what tends to happen is that the hyperscalers will benchmark the performance of their own ASICs against what they can get commercially and they will only take their ASICs to full volume if they see an advantage in like tokens per watt or what other metric they are trying to focus on. So I think long term, it's likely that we'll be able to maintain 50%, but I am expecting that this is going to be a really noisy number, especially at the quarter-by-quarter level, but even yearly, depending on when different ramps happen, it's going to slosh the share around a fair amount. Mehdi Hosseini: That's fair. And then for the entire team, as we look at your $6 billion near-term revenue target, given your revised ATE market, it was only 6, 9 months ago that we were contemplating if your revenues would increase above a couple of billion. And now there's a new target. And what I wanted to figure out what the question is, what is the sensitivity to that ATE and the $6 billion revenue target? Is that a baseline assumption? Is that a kind of average of awards than a best case scenario? And any thoughts around how you came up with the ATE and $6 billion revenue target will be very helpful. Gregory Smith: So, I think the -- first, I'll say that it's a balanced number that there are potential balloons and anchors around our $6 billion. Probably the most important uncertainty is the speed at which the market grows. Like how long does it take to get to this kind of a TAM size? And I say that because like I've been in this business for a long time. And I've been in situations where we look into the future and we see like up and to the right kind of TAM forecasts and then external conditions change things. So I think it's one of the reasons that we wanted to look at an evergreen model is because we can't predict the external factors that are going to drive the TAM. So that's probably the biggest x factor in all of this. The next is our share in the ATE market. And that is really related to the compute space. We have -- we believe we're positioned to gain share in the compute space on an incremental basis that it will take time, but we think that we have a good product and good position with the customers in this space to be able to increase ourselves from a relatively low position. The next part of this and the thing that gives me a fair amount of confidence around our $6 billion number is the other stuff beyond the core ATE, the compute space, if you will. I think the mobile space, we are going to ride whatever the TAM does, and I think that TAM is going to recover on the basis of complexity. We are in a position to gain share in the industrial and automotive space because of the acquisition of the power group that we got from Infineon last year to cover the wideband gap power market. And our IST business has a much broader customer base to help drive healthy revenue growth through this midterm. And then we have this extra large customer in the robotics space on top of the core business that we think is a catalyst for growth there. So I think we have a balanced plan going out into the future, and I think that helps to derisk that number. Operator: Our next question comes from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: Congrats on the great results and guidance. I know you can't get into specifics. I'm just kind of curious on the GPU test side, which is a growth opportunity for you. What is the realistic market share expectation for this year? And how high can that go over the next 3 years or so? And can that parlay into ASIC market share, too? And then I had a quick follow-up. Gregory Smith: Okay. So let me give you sort of a quick update of where we are in this project. So we're making great project -- progress, and we expect to achieve production qualification. The call process for these things is very complex. It's very expensive and the exact date for a release to production is tough to pin down, but we're really confident of our success here. Once we achieve qualification, I believe we'll incrementally gain share for these devices over the course of a couple of years. I just want to be clear that our guidance for Q1 does not include any merchant GPU revenue. We see that as more of a factor in the second half of 2026. We believe it would be a material amount of revenue for us, but it would not be a heck of a lot of share inside of the account where we won. So single-digit kind of share numbers to start. And then over time, what we've seen in other situations where we have a competitive dual source situation is that we eventually get to a situation where the vendors are balanced between 30% and 70% share. And that is not saying that like our share top is 30%, but we'll take time to get up to that 30% and then we'll essentially be going head-to-head on a competitive basis around who gets how much. Sreekrishnan Sankarnarayanan: Got it. Very helpful. And then just a quick follow-up. I understand you don't want to give a full year outlook and first half weighted for this year. Is it because of conservatism? I'm just curious because given that mobile is less, I would expect no seasonality anymore. So I'm just curious why do you think it's still first half weighted besides visibility and conservatism? Gregory Smith: So I'll give Michelle a chance to comment. I would say that part of it is because major programs that we're a part of are first half loaded. And so the demand that we can map for the full year is definitely more concentrated in the first half than the second half. But there's also an element of we don't know about the second half that there are a lot of irons in the fire that could result in second half growth, but we can't pin that down enough to sort of give a confident forecast for where the full year will be. I don't know, Michelle, do you want to add anything on there? Michelle Turner: No, I think you summed it up well, Greg. I think the only other thing I would add is in comparison to previous years, coming into '26, we have really strong backlog, which is giving us better fidelity and insights into the first half. Operator: Our next question comes from Jim Schneider with Goldman Sachs. James Schneider: Just a bit of a clarification, if I could. And I may have missed it, so I apologize. But if you -- as we think about 2026, can you maybe help give us a sense, given everything you said about the first half and 2 quarter visibility and the potential unknowns in the back half, maybe give us any sense about how we should be thinking about the Q2 relative to Q1 rough numbers? I mean, is flattish something we should expect as a reasonable jumping off point on a sequential basis? And/or can you help us on where you think roughly, even if it's a large range, we could land in terms of the ATE TAM in 2026? Michelle Turner: Yes. So from a Q2 perspective, we're not going to give a second quarter guide. I'm just going to go back to -- we have better visibility within the first half, and I would expect '26 to be the inverse of 2025 with roughly 60% of our sales in the first half. We'll give you an update when we get into Q2. Thank you. Gregory Smith: So on the ATE TAM for 2026, what we talked about in our prepared remarks was robust growth from 2025. And the reason that we're using adjectives versus numbers is that it comes down to a really wide range essentially based on the uncertainty in the second half. So like if you wanted to put a big wide range around it, it would be like 20% to 40% growth for the year, but we don't know where in that range it would land. James Schneider: Understood. That is helpful. And then maybe just as a follow-up, it was referred to before, and I think you've talked about, I think, to paraphrase, many ways to get to the target model, assuming that not everything happens perfectly, even if the endpoint is uncertain. But as you think about that model, is that what you think could be a mid-cycle model in a couple of 3 years' time, whereas that would kind of incorporate a lot of cyclical ups and downs once we get past this kind of period of very explosive growth? Gregory Smith: Yes. So the -- when we were doing a model that was like fixed to a particular year, we always had all of these caveats around sort of we're trying to average out the cycle, looking at long-term growth trends and all of that was, in the end, not particularly helpful. So what we decided to do was to give people an idea of sort of what Teradyne would look like at $6 billion. And at $6 billion, we think that we need an ATE TAM between $12 billion and $14 billion to be at that kind of a revenue level. And then the rest of the business model sort of drops down from there in terms of our expectations of the investments we need to make and the kind of margin we'll get. So I do believe that the model is achievable over the next few years. But whether it's at the -- whether you interpret a few as a small number or a few as a larger number really depends on how quickly the ATE TAM grows, and that has to do with whether the current pace of data center build-out continues, but kind of at this rate. So the numbers that are out in terms of how much silicon is going into data centers are kind of mind-boggling. It's from '24 to '25, it's like 60% more silicon revenue in data centers. Looking out to 2026, it's way more than 100% year-on-year growth. So whether that can persist from '26 to '27 or if it moderates, that's the thing that's going to determine how fast it takes to get to that $6 billion. Operator: We will move next with Brian Chin with Stifel. Brian Chin: Maybe to start with, Greg, I was wondering if you could outline maybe a few catalysts for GPU share gain over the next few years in terms of Teradyne's platform differentiation, higher device power and complexity and maybe the addition of new test insertions. Gregory Smith: Yes. So the addition of new test insertions, I think, is a catalyst for TAM growth more than a catalyst for share growth. So as these new insertions come in, we will have an opportunity to compete for them. And the same thing is as the merchant GPU market has more specialized chiplets per device, I think there's more shots on goal, more higher quality requirements for the test at the chiplet level. So there's a bunch of things that I think are accelerating the compute TAM. Now in terms of compute share, there are a number of things that I think our customers like about our product. The first and most obvious is that they believe that we have a more resilient supply chain that we're able to respond to demand with generally shorter lead times. And that's an important thing when their demands are somewhat unpredictable. The second is that it's actually a better tester. We have very good reliability in production circumstances. We have good uptime. The OSATs like it a lot. So they are helping to advocate for that as a choice. And we also have a next generation of instruments that is in beta test now, which will significantly increase the amount of power available to the devices and very importantly, the amount of memory for the test programs and the test patterns that these devices are going to need. The last is that I think our tester has better capabilities to allow these devices to be tested in the same way that they're used in the server in a mission mode. And that requires a pretty sophisticated, almost like building a server into the tester itself. So I think we have some advantages that allow us to achieve higher coverage, essentially moving defect detection as far to the left as possible. Brian Chin: Great. That's really helpful. And then I think in the prepared remarks, you mentioned a new HDD customer. Is that an example of your test platform outperforming their internal tester? I guess, how much growth do you expect from HDD test in '26 and off of what revenue base in '25? And then kind of last part of that, more broadly, are there other historical instances of semiconductor logic and DRAM IDMs using captive test platforms? And are we at the point there where complexity in semi test really compels those companies also to use external platforms? Gregory Smith: Yes. So in HDD, you're right that this is a case of commercial test replacing in-house test or I actually think that the right way to think about it is complementing internal test. I don't think that this is like a complete flip as much as a way for a customer to effectively build capacity. So -- but we're really excited about the change because we've been working to try and achieve it for a number of years. From a revenue perspective, we don't break out the HDD versus other revenue inside of the IST Group. But I will tell you that like our HDD revenue is going to like double between 2025 and 2026. Now -- sorry, you had a part B to your question, which is other captive in the rest of the semiconductor ATE space. So right now, there are -- really, there's one big player in SoC and there's one big player in memory that have captive ATE strategies. I think the -- like long term, I think the memory one is probably more persistent. The SoC one, I think, is probably going to change over the next couple of years as there are a broader range of customers for foundry that want commercial platforms. Operator: We will move next with Samik Chatterjee with JPMorgan. Samik Chatterjee: Greg, maybe if I can just change gears here and ask you about the mobile SoC TAM. And in your prepared remarks, I think you did say you're expecting it to be about 1.5x the current TAM in your target model. I mean is that sort of all driven by the complexity? Or are you thinking about some sort of volume tailwinds as well? And then you did mention near term, there being sort of a capital efficiency of customers that may be making you a bit more cautious. If you can explain that like what you're seeing on that front, that will be helpful. I have a quick follow-up. Gregory Smith: Sure. So yes, the thing that we want to try and emphasize is that in like a $12 billion to $14 billion TAM model, we are not expecting the mobile TAM to get back to prior peak that is like a half decent guess is somewhere like halfway between where it is now and the prior peak. So -- and you're asking in terms of like what would drive that. I think that it is primarily around complexity that not units that smartphone units have been sort of hovering in a relatively narrow range. There's a potential that if there's a compelling new form factor or really compelling AI-based features that it would drive a higher refresh rate, but that certainly hasn't been the case for the last 4 or 5 years. So we're modeling kind of relatively consistent unit volume, but increased complexity across the broad product line. Now the reason that we are cautious about that, I think like we're pretty certain that there's going to be a lot of complexity growth and more complexity means more testers are required. However, there is a really large fleet of testers that are installed for mobile, and there are a lot of different parts across a number of different vendors that can use very similar tester configurations. And so by carefully arranging the use of that fleet, they can optimize the utilization on a year-round basis, and it can help to moderate the amount of additional capacity that they need to add. In the old days, like back in 2020, 2021, there was a smaller installed base and there were fewer SKUs that were being tested, more of them were being introduced and ramped very quickly. That was the kind of thing that really piled up the demand to drive much higher TAMs. Samik Chatterjee: Okay. And maybe just for my follow-up, going back to the AI compute side. I mean you did mention that the VIP ASICs sort of was not launched already in production as the volumes are a bit tough to quantify at this point. But in terms of broadening of the customer base, given it's a very concentrated sort of purchasing from a few customers right now, as you look out to the medium term, particularly in terms of your target earnings model, do you see a broadening out of the customer base? Does that sort of reduce when you get to that target model, does that reduce the lumpiness in that kind of business just given higher visibility from a broader set of customers? Gregory Smith: Yes. So in a $12 billion to $14 billion TAM, our expectation is that we would add additional logos in terms of VIP compute wins. But it's not like it's going to go from a very small number to dozens. It's more like 4 or 5 different programs. And what I expect to see the steady state in this market is that Teradyne and Advantest are going to be competing on a generational basis for new design wins. And those decisions are going to be made on the basis of the features of the tester, the reliability of the tester more than sort of incumbency as the thing that drives the selection. Operator: Our next question comes from David Duley with Steelhead. David Duley: I guess the first one is, I think you mentioned 3 10% customers. Could you talk about which segments they might be in or how large they might be? I know you probably don't want to give us the names, but if you could give us the names, that would be great as well. Gregory Smith: So in the 3 10% customers, as Michelle said, 2 of them were specifiers, One was a purchasing customer. The specifying customers, one was in the mobile space, one was in the compute space. And the purchasing customer does it all. David Duley: Okay. And relative size of how much above 10%? I guess I'm just trying to figure out customer concentration. Michelle Turner: Roughly 10%. It's not substantially higher than that. David Duley: So each one around 10%, is that what you just said, I'm sorry? Michelle Turner: Yes. Yes. David Duley: Okay. All right. Final question, I guess, is, Greg, I think you kind of mentioned when you look at all the pieces for 2026, the overall TAM growth, I guess, is going to be around 30%. I'm guessing that the SoC TAM grows faster than that and the memory TAM grows slower than that in 2026. If you could just comment on roughly the growth in each piece. And then if you said you're going to gain share in 2026, and that means, obviously, you're going to grow faster than 30%. Is that a fair assumption? Gregory Smith: So no. The -- yes. The -- like in a range between 20% and 40%, you may arithmetically put that at the mean of 30%. We are not trying to communicate that at all. We are trying to communicate that we have -- we don't have sufficient visibility into the second half to give a good TAM estimate for 2026. Your assumption around SoC growing faster and memory going slower, I think, is fair. I think that we are expecting that kind of a market where the compute TAM is already big, and it's going to grow a lot. The memory TAM is going to grow more incrementally. The -- we believe that we are positioned for share gain, and that really depends to a certain extent around whether -- like which segments of the TAM grow the most. So even if we gain share in compute, since our share position in compute is relatively lower, if the compute TAM grows a ton, then that could be dilutive to our overall share position, even though we're getting better in every segment that we serve. So that's the reason that I want to be cautious about that. Operator: And we have time for one more question. We will move next with Vedvati Shrotre with Evercore. Vedvati Shrotre: So one clarification I had is, so the GPU win -- the GPU merchant win, does that in any way dictate your second half versus first half dynamics? And then even in the new target model, are you assuming contributions from GPU wins? Gregory Smith: So yes, a significant ramp associated with merchant GPU would have an impact in the second half. I'm not sure I caught the second part of your question. Vedvati Shrotre: Is that a part of your new target model as well? Gregory Smith: Yes, yes. So -- and it's -- but the thing I want to emphasize is -- as I said, the merchant -- like share in merchant GPU is going to be an incremental gain over years. And so it is a part of that $6 billion model, but we don't assume a radically high share in the merchant GPU space. Vedvati Shrotre: Understood. And then the second question I had was on the Robotics, you have the large e-commerce program starting to ramp. So does that mean that you -- is there a possibility that your revenues grow like the robotics piece grows to higher than the breakeven revenues that you have for that business? Gregory Smith: Yes. So we're aiming at breakeven for Robotics this year. And we expect -- so just in terms of the large e-commerce customer, we think that, that revenue is kind of going to triple-ish between 2025 and 2026 and then grow substantially post '26 as the deployments go to a larger number of facilities. So that's a pretty good tailwind. And it -- so I think we're looking to have that business at breakeven in '26 and then contributing positively beyond. Operator: And this concludes our Q&A session as well as the Teradyne Fourth Quarter and Full Year 2025 Earnings Call and Webcast. You may disconnect your line at this time. Have a wonderful day.
Cyril Meilland: Hello. Good morning, all. I'm Cyril Meilland, the Head of Investor Relations at Amundi, and it's a real pleasure to welcome you today in the not so sunny London for a presentation of our full year and fourth quarter results. We are here in our London office, and this is a hybrid event. So we will have people in the room and people online via Zoom. We shall have a presentation by our CEO, who is here with me, Valerie Baudson; and our Deputy CEO, Nicolas Calcoen. Presentation will last for about 30 minutes. And as usual, it will be followed by a Q&A session for as long as it takes. So ask any questions. The questions can be asked obviously in the room as well as online. [Operator Instructions] And unfortunately, before we get started, a very short disclaimer. Throughout the presentation, we will make some forward-looking statements and mention forecasts. We call your attention to the fact that Amundi's actual results may differ from these statements. Some of the factors that may cause the results to differ materially are listed in our universal registration documents. And Amundi assumes no duty and does not undertake to update any forward-looking statements. And after this task, I leave the floor to Valerie. Thank you. Valérie Baudson: Well, thank you, Cyril, and good morning, everyone, in the room behind the screen. We are very pleased to present our Q4 and full year 2025 results, which reflect both our record activity and the core elements of our Invest for the Future 2028 plan. So I will take you through some key highlights before Nicolas, as usual, looks at our activity and financial results in more detail. First, our assets under management have now reached almost EUR 2.4 trillion, so up 6%. This is thanks to record total 2025 net inflows of EUR 88 billion from both passive and active management activities. In terms of clients, this performance was driven by positive inflows across retail, institutional and our JVs. Retail inflows predominantly came from our very fast-growing third-party distribution business. And on the institutional side, medium- to long-term asset collection tripled in 2025 with some major mandate wins in Europe and the Gulf in Q4. Our activity drove strong financial results with adjusted pretax income up 12% for the quarter and 6% for the year, while adjusted EPS reached EUR 6.58. This performance and our strong financial position allow us to propose a 2025 dividend of EUR 4.25. This represents a payout that is EUR 100 million above our 65% target. And we are also delivering on our commitment to return excess capital to shareholders from the 2025 strategic cycle. So today, we are announcing a EUR 500 million share buyback, which starts tomorrow. So combined, the dividend and share buyback will return close to EUR 1.4 billion to investors, around 10% of our current market cap. And more than half of these figures will go to minority shareholders. So all in all, we enjoyed success across all our strategic growth areas in our Invest for the Future plan, making 2025 a strong start to our 2028 plan period. So let's take a closer look at some of the key activities. Clients first, starting with retirement, which is, as you remember, one of the key strategic priorities in our new plan. We have established a dedicated business line to package our offer and capture new opportunities. And following from the people's pensions in the U.K., we secured another major mandate at the end of the year. Amundi is one of just 3 asset managers selected for Ireland's new auto enrollment pension scheme, which will serve the majority of the Irish workforce. Assets for this scheme are expected to reach EUR 20 billion in the next 10 years. Our other major strategic client priority, you remember, is digital distribution. We saw EUR 10 billion in net new assets from digital players in 2025, almost half of our full year retail flows. New mandates included the retirement offer launched with Moneybox, an award-winning digital wealth management platform in the U.K. This partnership brings together Moneybox client-led product design with Amundi's global multi-asset and ETF expertise, creating 3 new Moneybox blended funds. Now geographies next, starting with Asia. We continue to deliver strong growth powered by our direct presence and our successful JVs. Asian net inflows were EUR 33 billion for the year. Over 40% came from our direct distribution business with contributions well diversified by country and client type. And on the JV side, India and Korea were the main contributors and China showed a good momentum as well. Now closer to home, Europe continues to offer significant growth potential for Amundi and increasing our market share in Northern Europe is, as you remember, another strategic priority. Our 2025 activity reflects this with EUR 40 billion in net inflows from this region, including EUR 29 billion from the U.K. Germany contributed EUR 8 billion in net inflows with EUR 5 billion from digital platforms. And as part of our new strategy, we will also reinforce our presence and build on strong client activity in new high potential regions. The Middle East is one of these. And in addition to strong business momentum, we also signed a new strategic partnership with First Abu Dhabi Bank to target Gulf investors at the end of 2025. This partnership combines Amundi's wide coverage of investment solutions and asset classes with First Abu Dhabi Bank regional insights and presence. Solutions next, where innovation is key to future growth. So let's start with active management, where we saw good investment performance as we continue to widen and strengthen our offer. We launched 3 new UCITS funds in key strategies: global equity, U.S. large caps and U.S. mid-caps. These funds fulfilled via our Victory Capital partnership are the first from investment platforms outside of the former Amundi U.S. brand pioneer, demonstrating the clear potential to extend our range as promised. We have also launched in 2025, the first tokenized share for one of our money market funds. The fund is now easily accessible via standard distribution networks and/or the tokenized shares. This first class of tokenized shares is just the beginning, and we will gradually test and add new features to our offering based on specific business cases. Smart Solutions, our another commercially successful innovation, well suited to the current environment. These solutions enable institutional investors to optimize their excess cash by capturing their premiums offered by top-tier issuers for their funding while maintaining low volatility and high liquidity. Assets under management for these funds reached more than EUR 41 billion in '25, representing additional inflows of EUR 20 billion. And this includes EUR 3 billion -- additional EUR 3 billion from a European public institution in Q4. Now ETFs next, where we are further strengthening our position as the second largest provider in Europe and the #1 European provider, both in terms of assets under management and inflows. ETFs assets under management reached EUR 342 billion, up 27% year-on-year. In Q4, we achieved record quarterly inflows of EUR 18 billion and EUR 46 billion for the year. We are, by far, the #1 collector of European equity ETF inflows. This leadership is driven by our diversified offer, which includes products like [ Euro ] Stoxx Europe 600, the largest selling European equity ETF on the market. But innovation is also key to capturing ETF growth. So new products, including macro thematics like defense and strategic autonomy collected EUR 5 billion in '25. Innovation is also key to adapt and grow our responsible investment offer. In July, we launched a new global green bond fund tailored for Zurich's Life Insurance clients seeking diversified access to Green bonds. And in December, we launched a Euro biodiversity credit fund available to both institutional and retail clients in more than 10 countries. This fund allows investors to participate in the preservation of natural capital through a euro credit allocation. So in summary, a period of strong innovation across our investment solutions that is supporting, of course, our growth trajectory. Finally, I would like to highlight Amundi Technology. We are now a recognized technology provider covering the entire savings value chain and operating at scale in 15 markets. Revenues reached EUR 116 million in 2025, up 45% year-on-year, thanks to 10 new client wins, which also saw us enter 2 new markets, Denmark and Singapore. We talked about some of the great 2025 client wins at the Capital Market Day, including AJ Bell in the U.K. Since then, leading Dutch assets and wealth manager, Van Lanschot Kempen has selected our ALTO investment platform. We also signed Bankdata, a technology services consortium made up of 7 Danish banks that serve 1/3 of the country's population. Bankdata selected Amundi's ALTO wealth and Distribution solution to introduce comprehensive portfolio analytics and reporting into its ecosystem and obviously, for the clients of these banks. We also recently launched our new Data-as-a-Service offer, leveraging our robust architecture, our data provider connectivity and our market expertise. We are now onboarding our first client, a leading global insurer in Asia. So our tech business is continuing to deliver growth while also serving as a key strategic enabler for the wider Amundi Group. It strengthens our investment solutions, creates durable long-term relationships and is a key differentiator for Amundi among European asset managers. So that's all for me for now. Let me hand over to Nicolas to take you through our Q4 and '25 activity and financial results in more detail. And I will be back, of course, for some closing remarks ahead of the Q&A. Nicolas Calcoen: Thank you, Valerie, and good morning, everyone. I will now comment on our activity and the financial results. Starting with our assets under management, which reached EUR 2.38 trillion at the end of December. This is again a new record for Amundi. Assets were up by 6% over the year. Almost 2/3 of the growth is coming from net inflows at EUR 88 billion of 4% of AUM, and the rest come from a positive market and ForEx effect of EUR 62 billion despite the depreciation of the U.S. dollar and the Indian rupee. On the fourth quarter, our assets rose by 2.7% with similar trends. Moving now to our net inflows. As I said, they amounted to EUR 88 billion. They are sharply up versus 2024, which already showed a strong increase compared to the previous year. In other words, we have enjoyed strong business momentum in the past 3 years. Furthermore, this business momentum was driven mostly by medium- to long-term assets from our 2 client segments, retail and institutional. Long-term net inflows indeed more than doubled at EUR 81 billion for all these clients. Long-term flows were positive in both active and passive management. Passive management was very successful at EUR 76 billion, including the EUR 46 billion in ETFs, as Valerie highlighted. And active management gathered EUR 13 billion, almost double the net flows of the previous year. Fixed income was again the main driver, but growth also came from the return to positive net flows of active multi-asset management. Conversely, treasury products posted net outflows largely related to the ECB rate cuts and a slightly more risk on approach by our institutional clients. Turning to our joint ventures. They collected EUR 20 billion. I will come back later on with more detail. And finally, the U.S. distribution of Victory Capital for the share we own in this partner posted net outflows of EUR 1.4 billion. However, the strategies managed by Victory Capital that Amundi distributes to its clients in Europe and Asia gathered EUR 800 million despite a lower appetite for U.S. strategies last year. I will not comment in detail on the fourth quarter because it is, in fact, very much in line with the full year trends with some acceleration in areas like long-term assets in general, in particular, ETF, but also active management. Coming to performance. Our investment management teams delivered sustained performance in 2025 as illustrated on the slide. Close to 3/4 of our open-ended funds were in the first and second quarter over 1 year, 3 years and 5 years and 233 Amundi funds are rated 4 or 5 star by Morningstar. The investment performance is particularly good for fixed income and multi-asset flagships. For example, in multi-assets, global -- multi-asset on its more conservative versions, global multi-asset conservative ranked in the top 5 and 10 percentile of the category. On the fixed income side, global aggregate, our main flagship outperformed its benchmark by more than 300 basis points on our Euro subordinated strategy by more than 600 basis points. And beyond this particular highlights, I think the main message from this slide remains sustained consistency at a high level of investment performance. Looking next at our client segments, starting with retail. Retail flow was positive at EUR 22 billion over the full year. These flows remain driven by third-party distributors, which continued to post very healthy inflows of EUR 33 billion with EUR 27 billion in ETF and positive flows in active management. Flows are also very diversified by region. In Europe, first with EUR 23 billion with a high level of activity, in particular in Northern Europe, in U.K., in Germany, in Netherlands, but also in Spain and Italy. Asia continued its healthy momentum with EUR 6 billion of net flows. And in addition, we gathered material flows from high potential regions like the Middle East, Canada and Mexico in line with the strategy -- our strategy to conquer these new markets. Beyond third-party distribution, our Chinese joint venture with Bank of China also enjoys strong momentum with EUR 2 billion gathered year-to-date. And turning now to our international partner networks. The net outflows totaled EUR 14 billion, as you can see. They are fully attributable to UniCredit, where outflows totaled EUR 16 billion in the full year, of which EUR 4 billion in the last quarter. Finally, the French partner networks in France are showing positive net inflows of EUR 1 billion. The fourth quarter net inflows in this segment are entirely due to treasury products, in particular due to corporate clients of these networks, where the long-term assets are positive. Moving to the institutional segments now. In '25, net inflows were EUR 48 billion with a strong performance in long-term assets at EUR 61 billion, triple the level of '24. Passive management accounting for large share EUR 44 billion, of which almost half coming from the mandate won with people's pension. But we also gathered close to EUR 20 billion from active management for the most part in the Smart Solutions Valerie highlighted. If you look at by subsegments, institutional and sovereign posted record levels, thanks to a series of mandate wins in Europe and the Middle East, with in particular sovereign funds, central banks or stable relative entities. Employee and savings and retirement business that we presented more in depth last quarter posted a high level of long-term inflows once again. And finally, Credit Agricole and Societe Gennerale, the long-term inflows of EUR 17 billion benefited from the renewed interest in euro contracts in France. The short one maybe on the outflows from treasury products. They originated, as I indicated, from the rate cuts implemented by the central banks and the resulting share for our clients for better yields. An illustration once again of the success -- of this is the success of the Smart Solutions we mentioned. Again, I will not comment in detail on the fourth quarter. As you can see, the trends are very similar to the one we saw for the full year with EUR 13 billion in total. Finally, our Asian joint ventures posted net inflows of EUR 20 billion over the full year with good performance in all countries. South Korea posted EUR 6 billion, mostly in long-term assets, and we saw some outflows in the last quarter, which are purely seasonal and linked to treasury products. China with ABC continued its recovery with EUR 2 billion inflows over the year. And our Indian joint ventures posted more than EUR 10 billion of inflows. The decrease compared to '24 is partially explained by the decline in the Indian rupee versus euro. And for the rest, it was driven by lower inflows from institutional clients in a less favorable markets. However, net inflows into savings plans in retail continue to grow in a very healthy manner. Moving now to our net results. You are now very familiar with the pro forma restatement that we made to 2024 quarters to make the series comparable after the clubbing -- the closing, sorry, of our partnership with Victory. So I will not detail them again, but you have, of course, all the details in the appendix of the slide deck and in the press release. All my comments will refer to adjusted data and year-on-year variations refer to '22 pro forma figures -- '24, sorry, pro forma figures. So let's start with the review of our fourth quarter and in particular, on revenues. As you can see, total revenues were just shy of EUR 900 million in this quarter. They were up by more than 8%, thanks to a healthy growth in all business-related fees in asset management and technology. First, net management revenues were up by 7% compared to the last quarter of '24, of which 4% for management fees, thanks to our strong asset gathering in the past 12 months. And performance fees were very elevated, thanks to the performance delivered by our teams across a large range of expertise. Technology revenues were up by 37% at EUR 35 million. This reflects both healthy growth in license revenues and a high level of billed revenues, thanks to the launch of new client projects. Finally, a short word about our financial income. It's stable compared to the end of '24, but this reflects contrasting elements. On one hand, the decrease in euro short-term rates resulted in a material drop of the return we get from our voluntary placement of our cash. However, on the other hand, this was offset by better mark-to-market valuation and carried interest from our private asset investments. Turning now to our cost at EUR 450 million. They were up on the quarter by 6%, more than 2 points below the top line growth in the context of very healthy business development. This good cost control over our cost was achieved, thanks to our continued efficiency efforts, including the first savings from the cost optimization plan we announced in the second quarter of last year. This allowed us to continue our investment in our strategic priorities to nurture our future growth. And approximately 1/3 of the year-on-year cost growth originate from investment, in particular from technology. As a consequence of this large jaws effect, the adjusted cost-income ratio was 50%, 51.5% to be precise on this quarter. Finally, our adjusted pretax income topped EUR 500 million for the first time in a quarter at EUR 519 million to be precise. It was up by 12%, thanks to, again, the healthy growth in operating profit, up by 11% and the acceleration from our associates up by 21%. It's further contribution from our Asian joint ventures, which was up by 20%, driven mainly by our Indian joint venture. And despite the decline in the rupee and the contribution from Victory Capital, which was up by 19%, reaching EUR 35 million, thanks to the synergies and again, despite the currency headwind. The adjusted net income was EUR 376 million, almost the same level as in the fourth quarter '24 despite the exceptional items in the tax charge. First, of course, the tax surcharge in France, which represented around EUR 11 million in this quarter. And second, the resulting tax on an exceptional dividend we received from our Indian JVs, which represented a cost of EUR 12 million, sorry. This exceptional dividend was paid out in preparation of the IPO of SBI FM, which is, as you know, scheduled for the first half of this year. And we received indeed EUR 130 million as exceptional dividend. But as the joint venture is consolidated according to the equity method, this dividend does not contribute to our results, but only to our cash position. Finally, let's get a look to our financial performance for the full year. The trends, as you can see, are very similar to those of the first quarter. The pretax income rose by 6% to an all-time high of almost EUR 1.9 billion, EUR 1,858 million to be precise. And this growth was driven by an equivalent growth in revenues, 6%, driven by business-related fees, of which 4% for management fees, which represent 2/3 of this growth, 20% growth for performance fees to EUR 173 million, and 40% of growth for technology revenues reaching EUR 116 million, including a full year of aixigo. But organic growth and technology again remained very solid, excluding aixigo, 30% of growth in revenues. Our revenue margin, asset management revenue margin, of course, was 15.9 basis points pro forma again of the deconsolidation of Amundi U.S, like in the first half of '25, but down by 50 basis points from full year '24. We already commented on this decrease in the previous month -- previous quarters. It is entirely due to the strong growth we have enjoyed in the Institutional claimant segment, in passive management and as well as in active fixed income. So both the clients and the project mix have therefore weighted on our margins, but the growth has been profitable on a bottom line basis, of course. Finally, on the revenue side, contrary to business-related revenues, net financial income was down by 5% due to the rate cuts by the ECB and partially offset by the positive mark-to-market as for the last quarter. On the cost side, costs were controlled, again, 6% growth, in line with revenues, reflecting again the investment we made in our growth drivers. And more than half of the cost growth is related to an increase in investment in particular, again in technology. As a result of this good cost control, our operational efficiency remained best-in-class with an adjusted cost income ratio of -- sorry, 52.1% for the full year. This good operating performance for our fully controlled business was complemented once again by strong contribution from our associates. Our Asian joint ventures contributed EUR 135 million or 10% of our net result and up also by 10% despite again the currency headwind in India. And the contribution from Victory Capital was EUR 95 million for the first -- for the last 9 months only, up by 12% over the profit contribution of Amundi U.S. over the same period in '24. As a consequence, excluding the tax surcharge in France that totaled EUR 74 million, our adjusted net income would have been over EUR 1.4 billion. And including the tax surcharge, it was EUR 1,354 million, and the earnings per share was EUR 6.58. This good level of profitability only strengthened again our financial position, as you can see on this new slide. We are probably the traditional asset manager with the largest tangible equity base globally. Indeed, it reached EUR 4.9 billion at the end of '25, up by 10% over a year. As Valerie announced, the strong balance sheet allow us to propose to the general assembly next June, a dividend per share of EUR 4.25. This represents a payout of 74%, EUR 1 billion over what it would have been if we had applied the minimum 65% target. This decision is part of our disciplined capital management. If we can move to the next slide. Our final surplus capital at the end of December '25, the end of our previous plan and before distribution on ICG was EUR 1.4 billion. We will appropriate this amount for 3 purposes in line with our commitments. First, M&A. The acquisition of our stake in ICG is likely to use EUR 700 million to EUR 800 million for the final 9.9% share we target. Second, the ordinary dividend, the EUR 100 million above the minimum payout I just mentioned. And third, additional capital return. The Board has indeed decided on a final amount for share buyback of EUR 500 million, well above the minimum EUR 300 million we had committed at our Capital Market Day in November. This will represent an earning accretion of around 3% at the current share price. And this share buyback will start tomorrow and is likely to span over a full year given the share liquidity and the regulatory constraints applicable to such an operation. It's worth noting that if we combine the total ordinary dividend for '25 around EUR 900 million and the share buyback, we will return to our shareholders this year just shy of EUR 1.4 billion, almost 10% of our current market capitalization. One last word regarding our partnership with ICG and the equity stake we are in the process of building. As you know, we have acquired via a structured transaction 4.64% in ICG on November 19, the day after our Capital Market Day. So we own the shares with full voting rights. However, the structured transaction is still in the process of being unwound. The next milestone is for us to get the mandatory approval from various authorities. We should obtain them in the course of the second or third quarter. And by that time, we will be allowed to appoint a director to the Board of ICG and to start equity accounting for our stake, the 4.64% I mentioned. This will also allow ICG to start issuing new nonvoting shares to us for a total economic interest of 5.3%, taking our final stake to the target 9.9%. They will do so while at the same time, buy back an equivalent amount of ordinary shares on the market and canceling them to avoid dilution. This process is expected to last several months, depending, of course, on ICG share liquidity. And it should be completed early '27, at which point, we shall equity account for the full amount. I hope this clarifies the process. Of course, ICG will be integrated on our reporting as an associate in a similar way to Victory, and Cyril and the team at your disposal for the detail. I will now hand back to Valerie for concluding remarks before we take your questions. Thank you very much for your attention. Valérie Baudson: So thank you, Nicolas. 2025 has been a solid start to our new strategic plan period. We saw higher activity across our strategic growth areas, which supported our strong results. In terms of strategic initiatives, as Nicolas outlined, we are now building our stake in ICG. Our wider partnership has kicked off, and we have already seen some very promising and fruitful cooperation. We are both excited by the significant long-term value it will generate, both in terms of enriching our investment solutions and delivering return on investment for Amundi. We are already working on the funds we are planning to launch with ICG and expect to offer them to our wealth investors soon in H2. And finally, with our proposed EUR 900 million dividend and our EUR 500 million share buyback, we are delivering shareholder returns of more than EUR 1.4 billion, fully demonstrating our disciplined capital management approach. And with that, Cyril, I think it's back to you for the Q&A. Cyril Meilland: Thank you, Valerie and Nicolas. Many questions. We'll start from the room. [Operator Instructions] Let's start with the front row, Arnaud. Arnaud Giblat: Three questions, please... Unknown Executive: To make sure that we can hear [indiscernible]. Is it okay? Arnaud Giblat: Three questions. Firstly, can I ask about ALTO? So a big step-up in Q4. You did say that there was a lot of build for new clients going on. I'm just wondering, how we should be thinking about the coming quarters. Does that build continue -- the revenues from build continue into the future quarters? Or does it step back down to recurring revenues in Q1? My second question is on SocGen. So the contract you announced was renegotiated, I think, in the press release, no material impact because I think Societe Generale as a percentage of the total group has been diluted. I'm just wondering if you could give us a bit more specifics. Has the conditions in terms of share of flows changed with that renegotiation? Has the headline rates changed as part of that negotiation? And my third question is on the Irish DC pension. I think during the presentation; you mentioned EUR 20 billion flow potential over 10 years. Just wondering, how that splits across the 3 partners and what sort of products, the fee rates? I mean, any more details you can disclose that could be helpful. Valérie Baudson: I will let you on SocGen and I answer on ALTO and the Irish into enrollment. On ALTO, Arnaud, as mentioned, new clients -- I mean, in tech, you have the build part when you win the client and that you have to build the project and then you have the recurring fees. So obviously, everything built means more recurring fees for the future. But of course, according to the number of clients you won in the quarter, you can have some plus or minus. So this last quarter was a very good one because new clients. By definition, the sale process in the technology area is a long one. So we are working today on clients that we hope will be onboarded in 2026, but I am unable to tell you today what will be the exact figures for 2026. What I'm absolutely comfortable and happy about is the fact that we are onboarding more and more clients, which means that we are building more and more recurring revenues, which do not depend on the markets or on the geopolitics or whatever for the future and which are reinforcing our position. And we -- another point which is really important with ALTO is that we deliver growth and new clients, both on ALTO investment or investment platform and on ALTO Wealth. So the 2 lines of -- main lines of products and clients are really up and running. And last but not least, we managed to open new countries because when you get your first client in one country, it means that people around look at it and it's also a source of growth for the future. Regarding the Irish to enrollment by which -- you know that this is a brand-new scheme in Ireland. And by definition, there is no history on which we can count. But we shared is that, that might represent EUR 20 billion, of course, shared between the 3 players. So for the time, it's really just starting. We are thrilled -- I mean, we wanted to focus on that one. It will not change the P&L of Amundi in 2026. It's a very long-term mandate, but we were thrilled about it because it's recognition of the capacities and the expertise of Amundi in the retirement area. And as we are absolutely certain that the move from DB to DC both in Europe and in Asia will go ongoing. The more we are recognized as a strong player in this area, the better it will deliver growth for the future. Nicolas Calcoen: And regarding the Societe Generale deal, so as you know, we don't disclose the specifics on our agreement. What I can tell you is that it confirms our position as a privileged provider of asset management with our funds or mandates for the -- our clients and for that networks, and it should not have any material impact on our P&L going forward. Cyril Meilland: Okay. Next question from Nick. Nicholas Herman: Nicholas Herman from Citi. Three questions as well, please. Firstly, is there any update you can give us on the SBI JV IPO, please? I guess, presumably, can you confirm if you're still on track for an IPO in the first half of this year? Any update on the process would be helpful. Secondly, on passive inflows. Did I hear you correctly that you brought in EUR 5 billion from new passive product launches during the year, it's about 10% of your passive inflows. I guess could you just talk about the competitive environment within passive because it looks like you've been taking a lot better share recently. But I guess also as part of that, and I know you don't disclose your passive fee margins. But I guess with such strong demand for funds like Core Stoxx 600, is it fair to assume that the margins on your passive inflows have been dilutive to your blended passive fee margins? And then finally, just a technical one on the buyback. Just curious why you decided to upsize the buyback already 2.5 months after announcing the buyback of at least EUR 300 million. And I guess also part of that... Valérie Baudson: Why we increased... Nicholas Herman: [indiscernible] it before, I think when you announced it, at least EUR 300 million and now 2.5 months later you're saying EUR 500 million. So why stay? And what is it that drives the variance of the cost of the ICG stake between EUR 700 million and EUR 800 million because I understand that you've structured the transaction to kind of limit the variability. Is that an incorrect understanding? If you could clarify that please. Valérie Baudson: Okay. We're going to clarify. On the -- so on the SBI IPO, very simple. The process is on track. And as of today, but we're still only in January, we expect the IPO to happen by the end of the semester by the end of June. But 6 months to go, an IPO is not an easy process. So -- but for the time being, everything is on track. Second topic on the passive side, I don't know if we have -- if you want to share any figures. I mean, honestly, regarding your question around the Core Stoxx 600, I think what is remarkable here is that Europe attracted by definition, a lot of flows this year for good reasons, of course, the performance of the index, but also the fact that the dollar decreased a lot, as you know. And for all these reasons, investors have diversified their position and all over Europe and Asia and especially diversified their position in investing into Europe. So it's great news that our Core Stoxx 600 attracted so many flows. And I think it's the sort of evidence and recognition that Amundi is the largest ETF provider in Europe with the largest and widest range. Honestly, on the margins for me, it's -- I'm going to let Nicolas look at it or answer if any, but I haven't seen anything significant. Nicolas Calcoen: No, nothing significant. And what's important to see is that we have inflows on, I would say, very vanilla products, but we are also innovating and margins on more innovative products tend to be higher. So... Valérie Baudson: Yes, because at the same time, so we stress the Eurostoxx 600, but we launched a lot of EFT, thematic fund, [indiscernible], strategy [indiscernible], which have attracted a lot of flows as well. As you know, we launched our first active ETFs with by definition, higher margin. We also launched, as you remember, at the end of the year, our ETF as a platform service, which is another way to increase the revenues of Amundi. I remind you, we offer our ETF platform, both to active asset managers who don't have one and who want to list their expertise on the market, and we act as a service provider, but we also sell this platform to distributors who want to distribute ETFs, can be passive or active under their own brand name. So all this is a sort of, I would say, virtuous circle on the ETF space. And on your last question, I'm going to try to do it to make it very simple. On the share buyback, when we announced you this share buyback and said minimum EUR 300 million, it's because in early November, by definition, we did not have the figures at the end of the year. What we committed was to give you back the excess capital at the end of the 2025 plan. And when we add -- when we look at the end of 2025 and when we add the price of ICG, the dividend we are proposing to the -- we propose to the Board and the excess capital, the difference is the EUR 500 million. So we are committing to our promise. Nicolas Calcoen: On ICG, the reason why there's no precise number is as you have understood, there are 2 operations, one which is already done, and which is structured operation. But there's a second operation, which will be issuance of shares in the months or quarters to come by ICG to us, and they will buy back on the market. And we don't know at which price it will be done, and they are still probably something like a year before the end of the operation. Valérie Baudson: So we will know... Nicolas Calcoen: So we don't know exactly the price at which we will buy the full stake. Cyril Meilland: Okay. Thank you. Next question from Tom. Thomas Mills: It's Tom Mills from Jefferies. I don't think you guys mentioned in your presentation about Fund Channel. I was just interested in how that business is developing. I guess we've seen some consolidation in the B2B fund services space in the last month or so. Just curious as to how you see that development in terms of your own competitive positioning. Is that something you object to from an antitrust perspective? Just curious on your thoughts. Valérie Baudson: First of all, we saw a very nice development on Fund Channel. I'm going to Nicolas or [indiscernible] to give the exact figures, but we won new clients, and the company is growing at the pace we were expecting budget-wise. And second, there was a very -- I'm not sure we discussed about that already. There has been a very important development this year within Fund Channel, we launched a specific money market platform, which is super attractive for all our corporate clients. So it will be an additional source of growth for us in the future. So we are still totally committed to Fund Channel and are very happy to remain and to be a strong competitor on that market. For us, it's both a source of growth and also a very important way to go on delivering a good service to all our clients and to help them manage their open architecture. Thomas Mills: [indiscernible] just a combination of... Cyril Meilland: Maybe we should use, mic, I think, for online... Thomas Mills: Just the combination that we've seen elsewhere in the market, Deutsche Borse and all funds, is that something that you guys are fine with? Is there any some antitrust objection that you might have to that combination? Valérie Baudson: We never comment on the transactions of our competitors. I cannot -- only comment about the fact that we are very happy to have Fund Channel, and we are totally committed to go on having it growing and confident. Nicolas Calcoen: Assets under distribution are EUR 660 billion, which is above the target we had set to the previous plan at the end of December. Cyril Meilland: Jacques-Henri and then we will answer it with online questions from Claire. Jacques-Henri Gaulard: Jacques-Henri Gaulard from Kepler Cheuvreux. I did something fun this morning. I didn't restate the Q4 2025. And when you don't do that, when you don't restate, you realize that imagine you don't have revenues as a reference from the U.S. You have the UniCredit outflow. So it's not exactly a great condition. But despite that, your earnings pre associates remain flat, pretty much stable, which is quite incredible. The whole point being the resilience of the rest of the business versus that is quite big. Then you're also going to buy back 600 million of share, maybe more, you never know if we have an IPO. So when are you raising your EPS target for '28? Valérie Baudson: First, we take the good part of your comment. Jacques-Henri, thank you so much. And I'm very happy that you see through your spreadsheet, the reality behind Amundi, which is the incredible resilience, which is linked to something real, the huge diversification of our client base, our expertise of our services, et cetera, which makes us strong and growing day after day. And as I told you during the medium-term plan, I'm very confident that for the 2028 plan, and I will -- and today even more. We have no plan to change the target. We were very clear by telling you that the earnings per share target was a floor on which we committed, and we stick to the strategy as of today. Cyril Meilland: Thank you. We move, as I said, to online questions. So I open the mic of Pierre Chedeville. Pierre, you should be able to unmute your mic and speak. Unknown Analyst: Jacques-Henri, asked the same question as me -- as I wanted to ask, but I wanted to ask, when are you going to lower your cost income ratio target? Valérie Baudson: Same answer. Same answer [indiscernible] question... Unknown Analyst: More or less the same question. So more or less the same answer. Other question regarding your digital development, I was wondering if you had any target related to Credit Agricole ambitions in this area. You know that Credit Agricole wants to develop strongly on the savings side with BforBank Bank and also in Germany, particularly with Credit [indiscernible]. And I wanted to know what is exactly the cooperation you are setting up with them, if you have any target there, it could be interesting. A precision regarding the tax. Can we imagine that in 2026, now that we have the budget voted, we will see more or less the same tax impact in 2026. roughly, I would say, a tax rate around 31%, something like that. Is it reasonable to see that or not? And maybe just to clarify regarding share buyback. As far as I understand, you said in your business plan that you were focusing on external growth, you privilege external growth. So I mean that if you are about to make over share buybacks operation, you will wait for the end of the plan? Or I'm not clear on that. Valérie Baudson: Thank you. Nicolas, I'm going to take the Credit Agricole, and I would be letting on somebody to other one. On Credit Agricole, of course, I mean, by definition, Credit Agricole is an essential, okay, has always been an essential client of Amundi, and we are totally committed to all their growth prospects and thrilled that they are investing outside of Europe in the savings area. So we are working on that topic to answer very transparently this question. We are working on that topic with them, of course, as we would with any other clients, but of course, on that topic. But also not only on this one, we are -- it would be very long to explain, but we are delivering every year new solutions. For instance, we just launched last year incredibly successful new DPM solution within the Credit Agricole networks, which is growing very fast. So we have plenty of new solutions that we launch on a recurring basis, both with [ Credit ] Regional and with LCL. We have been working a lot with BforBank already. This is not new for us. It's been a long relationship, and we are in the process of helping [indiscernible] in development in Germany right now. So no specific figures to give you and to release, but you can be assured that we are helping them, of course. On the tax, Nicolas? Nicolas Calcoen: On the tax, indeed, as you have noticed in France, the tax bill has been -- the budget bill has been adopted or in the process to be formally adopted. It does include the same tax surcharge mechanism as last year with the same rule, the same way. So basically, it will have the same impact for Amundi, meaning tax surcharge, which should be around, let's say, EUR 70 million to EUR 75 million. By the way, accounted the same way as last year. It's based both on '25 and '26 results. So it will be accounted -- let's say, 60% will be -- around 60% will be accounted on the first quarter and the rest will be accounted progressively in the 3 following quarters. And indeed, I would say, excluding our tax -- this tax surcharge, our tax -- average blended tax rate is, let's say, around globally for Amundi around 25% -- 25%, 26%. And this tax surcharge added close to 5% to this tax rate. And the last question -- yes, was regarding share buyback. So let me reclarify the share buyback we are announcing the EUR 500 million is the implementation of fact of the commitment we took in the previous plan and the commitment was to use the excess capital to do M&A or to return it by the end of the plan. So that we are fulfilling our commitment. Going forward, our approach has been, I think, developed during our last medium-term plan Capital Day. We continue to prioritize external growth for the use of excess capital. But at the same time, we don't want to accumulate capital on the balance sheet. So at the end of the day, we return the flexibility to return excess capital that wouldn't be used to the shareholders, but at the time in a way that will be determined during the course of the plan. Cyril Meilland: Thank you. We will take our next question from Hubert in the room. Hubert Lam: It's Hubert Lam from Bank of America. Just 3 questions. Firstly, for ICG, I think you mentioned the first product is going to be launched in the second half of this year. Could you remind us again, like is it a private credit product, private credit or/and public credit product? Also who you can distribute it to geographies and maybe even what your outlook in terms of flows for that? Second question is, I saw that the French networks had a good inflows into medium, long-term in Q4. So wondering if you see this as a turning point, just any dynamics around that? And lastly, just a follow-up on the ALTO question earlier. Q4, we saw a step up. I think in the presentation, you mentioned 40% of it was due to project revenues. I'm wondering, how much of that was maybe a one-off? Or is this something that could be sustained in the near term, at least? Valérie Baudson: On the cost side or on the revenue side? Hubert Lam: The revenue, sorry. Valérie Baudson: Can you repeat the last one, sorry? Hubert Lam: Yes, questions on ALTO. Valérie Baudson: On ALTO, sorry. Okay. Hubert Lam: I think it was EUR 35 million in the quarter. I think you mentioned 40% of it was due to project revenues or something like... Nicolas Calcoen: 40%. Hubert Lam: 40% margin [indiscernible]. Is that a one-off, or is that seasonal one-off? I'm just wondering how would you think about this number? Valérie Baudson: It's probably higher than what would be the average. Nicolas Calcoen: Exactly. Valérie Baudson: If I had to give an answer, but it will depend on all the new clients we will get next year. But it's probably -- I mean, let's say it's a bit higher. On ICG, so yes, we will launch our first 2 new common solutions. So we are in the process of building the SCA and package the solution in the new regulated format we have in Europe, as you know. We expect all this to be ready during H2, probably after summer. We're working hard to make it very efficient and quick and in an excellent collaboration and good project mode. The 2 first solutions will be one on private credit and the other one on secondaries. And we're already preparing what will be the future. But at least these 2 are in the pipeline, and we will -- it will be under regulated European format. So obviously, distributed in Europe and in some Asian countries, which allow it. On the second question was on [indiscernible] Nicolas? Nicolas Calcoen: French network. Valérie Baudson: I mean, french network, sorry. French networks part of the flows we saw is linked to the dynamic of the life insurance in France, which is, as you know, dynamic and which also explains, by the way, the very good figures we have on the insurance side for the euro contracts on the institutional side in our figures. And part of it is a share of the new solutions I was mentioning. Typically, the very nice growth rate on our new DPM solutions is part of what you see in Q4. Cyril Meilland: We take next question from Zoom. So Michael, I'm opening your mic. Unknown Analyst: Can you hear me? Cyril Meilland: Yes, we can. Unknown Analyst: I have 3 questions, please. First, I think you indicated UniCredit channels saw about EUR 16 billion of outflows in 2025. Should we expect a similar number next year? And can you confirm whether any of the distribution -- if they are paying a penalty fee related to your distribution contract? That's number one. And number two, we saw really strong performance fees in the quarter, and yet you still showed pretty good cost discipline. I was just wondering how much of the Q4 cost base was performance fee related, i.e., incremental compensation based on that? And then finally, in terms of the share buyback, is this a buyback that will include your parent company? Or is the shares are going to be bought back from minority shareholders? Valérie Baudson: Good. I take UniCredit, I'll let you take the two other ones, Nicolas. So UniCredit, nothing new since the medium-term plan you attended. You know our partnership present in July '27, at which point it might not be renewed. We committed on targets to you which we will deliver whatever happens with UniCredit. We are obviously fully committed to service as we always done the networks and their clients. The difference is that we give you the exact flows and assets on a quarterly basis to give you full transparency of it. So I remind them, minus EUR 16 billion with EUR 4 billion at the end -- for the last quarter. Obviously, I'm not going to speculate on what will happen in '26. What I can tell you is that UniCredit represents today EUR 86 billion of assets under management. Group-wise, among which EUR 66 billion in Italy. And that means EUR 86 billion out of EUR 2,380 billion, as you know, and EUR 86 billion is less than what we raised this year overall. I just wanted to remind the global picture on that front. Otherwise, nothing more. Nicolas Calcoen: On the second question regarding performance fees and potentially associated costs, there are no costs directly associated to performance fees as to any kind of revenues, by the way. Just a reminder, we have a variable remuneration policy, which is to basically, I would say, allocate something between 14% and 20% of the pre-variable remuneration gross operating income to variable remuneration, but it's appreciated globally, no direct cost associated to any particular kind of revenues in particular performance fees. And the last question regarding -- yes, it was a share buyback. So Credit Agricole informed us that they will not participate in the share buyback. So it will be bought on the market. Unknown Analyst: [indiscernible]? Valérie Baudson: We never comment on our [indiscernible] on our partners and clients. Cyril Meilland: Thank you. Next question from Sharath. Sharath Ramanathan: Sharath Kumar from Deutsche Bank. I have 3 questions, 2 on India and one on digital flows. Firstly, on the India flows, I would say still not very encouraging. Do you think yesterday's tariff deal with the U.S. and Sunday's budget announcement could be the catalyst for the flow's recovery in India? So what is the outlook on the near-term flows? The second one, sticking with India. From my calculations, assuming that we get a $14 billion IPO value for the SBI on the basis of what we hear from the press, I calculate capital gains of, say, $300 million, $350 million for the 3.7% stake that you would sell. So what do you intend to do with the proceeds? Would it go into the M&A pool? Or do you -- are you thinking about a special dividend? And finally, on digital flows, how do you characterize the nature of flows? What does it do to your group margins? I imagine it would be accretive, but if you could clarify, that would be helpful. Valérie Baudson: On the digital flow... Sharath Ramanathan: On the digital flows -- so what sort of products are we getting at? And what sort of margins compared to the group margins? Valérie Baudson: Okay. On the first question about [indiscernible]. Sorry, SBI flows first before speaking about the IPO. Honestly, exactly as Nicolas explained it, we saw this year that the Indian rupee was down 15%, which clearly explained a material part of the decrease in flows in euros over the period. And the slowdown was driven by institutional clients, which were, I would say, less enthusiastic in this environment. What is very positive and essential for us is the fact that on the retail side and on the rise of the individual savings plans, which is incredible source of growth for the future of this company. They have remained very dynamic. So the strong fundamentals are completely here, despite the fact that the rupee was really down this year. So I am fully and totally confident in the future and the growth outlook of SBI MF just because this is a market which is still so -- which has such a low penetration compared to the penetration of the asset management industry, we can see in the U.S., in Europe and even in a lot of other Asian countries that the growth is going to be huge. Second, regarding the transaction, of course, we -- it's much too early to give both the valuation and value for Amundi. And it's also too early to say whether it will depend on the decision of the Board when it will be done. We will discuss this topic later. And on the digital flows, what is obvious is that distributing savings digitally means using a lot of ETF, and it is the reason why Amundi is so successful in -- it's one of the reasons why Amundi is so successful in this new market, which is the digital distribution of savings. It is not the only reason. It's also because it's a very different way of working with digital distributors than with traditional banks and that we really were able to adapt to everything in terms of marketing, in terms of technology, in terms of speed of answering, et cetera, et cetera. But at least it does explain. So of course, a big bulk of this distribution is and will be done through ETF. But as I explained to you very often, the cost of production of an ETF is much, much, much lower than the cost of production of active management. And at the end of the day, selling ETFs for Amundi is very profitable and exponentially profitable. Sharath Ramanathan: Just a follow-up. Just on the India flows on the AUM mix, do you have -- what is it between Retail and Institutional segment? Valérie Baudson: I'm going to ask my CFO friends in the room to give you the exact figure. Can we come back to you later on the call. Cyril Meilland: We'll definitely get back to you, Sharath. I think there was a question from Michael. Michael Sanderson: Mike Sanderson, Barclays. Just a couple, please. First of all, the ICG product launch timings, you've obviously laid out the time line in relation to the corporate governance and the ownership piece. Are they directly linked? Does the regulatory piece have to come through before you can launch the product? Or are you happy to go separately? And then secondly, you saw some strong institutional flows through Q4 that you particularly noted. And I'm just interested, first of all, the scale of them and whether there's any sort of margin dilution, particular margin dilution when you're talking sovereign wealth and central banks? And secondly, I suppose, the pipeline in those areas, how that's looking into the next year? Valérie Baudson: On ICG, the answer is no. There is absolutely no relationship between these regulatory approvals, which are really linked to the accounting topic that Nicolas was explaining and the partnerships. We already started the raising, and we will be delivering it whatever the regulatory and financial process. On the second point, Nicolas? Nicolas Calcoen: So no particular dilution. We had indeed a strong activity on the last quarter. And as for any of our business, the margins we can -- we get depend very much on the type of strategies we propose and not that much on the type of clients. So... Valérie Baudson: If I have to give you an idea, I think the institutional share of our business this year was particularly exceptional, but it will depend on our clients in 2026. So -- and once again, we are thrilled to see so many big institutional clients, especially in the retirement area, willing to work with Amundi. Cyril Meilland: We do not seem to have any questions from the Zoom video conference. Any questions left from the room? No. Okay. Thank you. I think that's done. Thank you very much. Obviously, we're at your disposal for any follow-up. Annabelle, Thomas and myself and looking forward to our next encounters at the very last Q1 results, which will be announced on the 29th of April, if I remember well. Thank you. Valérie Baudson: Thank you so much. Nicolas Calcoen: Thank you.
Operator: Good day, everyone. And welcome to the Aytu BioPharma Fiscal 2026 Second Quarter Earnings Call. At this time, all participants are placed on a listen-only mode. And we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Robert Blum. Sir, the floor is yours. Robert Blum: Alright. Thank you very much, and good afternoon. As the operator indicated, during today's call, we will be discussing Aytu BioPharma's fiscal 2026 second quarter operational and financial results for the period ended 12/31/2025. Joining us on today's call is Aytu's Chief Executive Officer, Josh Disbrow, and Ryan Selhorn, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question and answer session. I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the press release issued earlier today or by utilizing the link on the company's website under events and presentations. Finally, I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results of Aytu BioPharma. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors including, but not limited to, the factors set forth in the company's filings with the SEC. Aytu undertakes no obligation to update or revise any of these forward-looking statements. With that said, let me turn the call over to Josh Disbrow, Chief Executive Officer of Aytu BioPharma. Josh, please proceed. Josh Disbrow: Thank you, Robert, and welcome, everyone. I'm excited to be speaking with you on what is truly a momentous time for Aytu as we just commercially launched ExuA. The first and only 5-HT1A agonist approved by the FDA for the treatment of MDD representing a truly novel way to treat MDD. As many of you are aware, we held an Investor Day back on January 20 where we spent the better part of two hours diving into all things ExuA. If you weren't able to attend in person or part of the live broadcast, please know that a replay is available on our website under the Investor Relations page. And I certainly encourage everyone to take a listen. Given the deep dive we just did two weeks ago, let me spend a few minutes summarizing a few of the key discussions that occurred during the event, which were really divided between understanding the 5-HT1A receptor and its clinical importance in major depressive disorder, along with the unmet treatment needs and their implications for antidepressant treatment selection in MDD. And further, ExuA's clinical trial data, including efficacy and safety, and some in-depth elements of our commercial launch strategy. First, on the clinical side, Dr. Steven Stahl, an internationally renowned clinician, researcher, and teacher in psychiatry, with subspecialty expertise in psychopharmacology, discussed how the current standard of care for major depressive disorder has largely relied on SSRIs and SNRIs, which work by broadly increasing serotonin levels in the synapse and non-selectively activating multiple serotonin receptor subtypes. While these therapies can provide symptom relief, that lack of selectivity is believed to drive many of the well-known limitations of reuptake inhibitors including treatment-emergent sexual dysfunction, insomnia, anxiety, appetite changes, and weight gain, and other off-target side effects that can impact tolerability and patient adherence. In contrast, ExuA represents a fundamentally different, more targeted approach specifically designed to engage the 5-HT1A receptor which is thought to be central to antidepressant efficacy. ExuA acts as a full agonist at presynaptic 5-HT1A autoreceptors to enhance serotonergic signaling and as a selective partial agonist at postsynaptic 5-HT1A receptors without any significant activity of receptors associated with sexual side effects or weight gain. This differentiated mechanism has potential implications across key brain regions involved in mood, anxiety, cognition, and stress. Thus reinforcing our belief that ExuA offers a novel and clinically meaningful advancement in the treatment of MDD. Next, Dr. Anita Clayton, who has focused her clinical practice and research on multiple psychiatric areas of unmet need, including major depressive disorder, in which she has been a principal investigator for essentially all the new antidepressants approved since 1991, highlighted how major depressive disorder remains a significant and growing public health challenge affecting an estimated 21 million US adults, with nearly 15 million experiencing severe functional impairment. Despite the widespread use of first-line SSRIs, 50% to 60% of patients fail to achieve remission, and even among those who do, many never fully recover key aspects of daily functioning such as cognition and workplace productivity. Nearly half of patients ultimately discontinue their initial therapy often driven by tolerability issues, most notably sexual dysfunction and weight gain, which affect a substantial portion of patients on traditional antidepressants. Against this backdrop, she discussed the important clinical implications for ExuA, which does not carry a warning for sexual dysfunction and demonstrated a neutral sexual profile in clinical studies with no sexual-related adverse event rates exceeding placebo and showed no clinically meaningful weight gain compared to placebo across pivotal trials. These attributes position ExuA as a truly differentiated option that directly addresses some of the most persistent unmet needs in the treatment of MDD. Finally, Dr. Christoph Correll, who annually is listed as one of the most influential scientific minds and among the top 1% cited scientists in psychiatry, discussed how ExuA's phase three clinical program demonstrated meaningful efficacy and a well-defined safety profile in adults with major depressive disorder. I once again, on this call, thank these three esteemed members of the psychiatry community for their participation and, again, encourage everyone to listen to their commentary on ExuA. Okay, now let's turn to the commercial launch plans for ExuA, which is being executed upon with a clear balance of efficiency and comprehensiveness with a focus on driving prescriber adoption and long-term brand growth. The core of this effort is a highly motivated and incentivized sales organization supported by metrics-based performance management, incentive-driven territory growth, and a strong sense of urgency around execution. In addition to our internal sales team, we are augmenting our reach through scalable and efficient initiatives, including a virtual sales team designed to broaden awareness and generate early customer leads, as well as a rolling contract sales organization model that allows us to flex in-person promotion in line with product performance and as profitability and cash flow allow. Our promotional strategy is intentionally targeted yet broad in scope, combining both personal and non-personal approaches to maximize impact. From a non-personal standpoint, we are deploying a focused, compliant, media-based consumer promotion strategy while ensuring our sales efforts remain concentrated on the highest value psychiatry practices. Targeting has been informed by detailed customer profiling and direct Salesforce input prioritizing high-volume antidepressant prescribers, prescribers with a demonstrated propensity to adopt branded therapies, and physician practices already familiar with Aytu through our ADHD portfolio and the RxConnect platform. The early wins we're seeing reinforce our confidence that this focused approach is resonating in the field. Patient access is a critical pillar of the ExuA launch, supported by our best-in-class Aytu RxConnect platform along with full retail distribution through national wholesalers to ensure nationwide pharmacy availability. RxConnect was purpose-built to remove uncertainty and friction for patients and prescribers by guaranteeing predictable coverage for commercially insured patients, thus minimizing administrative burden and capping patient out-of-pocket costs at no more than $50 per prescription for ExuA. Again, for all commercially insured patients. Importantly, patients also retain the flexibility to fill prescriptions outside the RxConnect network when preferred, ensuring broad access and choice for all patients. Finally, medical education and scientific engagement will underpin sustainable adoption. Our medical affairs team is rapidly expanding a robust KOL network and executing an active publication and medical meeting strategy as ExuA enters its first full year of commercial availability. Insights from more than 1,000,000 prescriptions filled through RxConnect continue to guide our payer contracting strategy covering approximately 60% of commercially insured MDD patients, with encouraging early coverage across Medicaid and Medicare populations. Overall, the ExuA launch is highly focused, data-driven, and designed to scale intelligently over time, aligning promotional investment with performance and cash flow to support durable growth. As we were really only a couple or few weeks into launch at most, the availability of data is sparse. Let me share a couple of data points we do have, which is largely derived from our insights from the RxConnect platform. Today, scripts for ExuA have been written from 27 states, including numerous states where we don't have sales reps, thus highlighting the very broad opportunity. Over 100 doctors have prescribed ExuA to date, which is exciting. With us just over thirty days since ExuA was first made commercially available, we're in fact already seeing our first set of refills come through the platform. And perhaps most importantly, the early feedback from patients on ExuA has been very good. While only a small number of patients have been on ExuA for a month or longer, they're reporting good tolerability and satisfaction with the product. So all signs are positive in the early days here post-launch. And to say the least, we are extremely excited to have ExuA fully underway in launch mode. And even more encouraged by the while still very early, our efficient yet comprehensive launch strategy is unfolding as planned. Our sales team is exceptionally well prepared. Our KOL network continues to expand. And we are already seeing validation of our commercial approach. I look forward to being able to share more with you in the quarters to come. Let's transition for a moment now to our ADHD portfolio. For the quarter, ADHD net revenue was $13.2 million, and this was just a slight decrease from the year-ago period and flat compared to Q1. Quite impressive in my opinion given the evolving dynamics of the Salesforce prioritization now geared towards ExuA and the recent introduction of generic competition. The evolution of the ADHD portfolio continues to perform above what I'll call standard expectations given similar circumstances. And we feel very good about the long-term prospects of the ADHD portfolio, given the protections afforded by RxConnect. As we previously discussed, Teva did in fact launch their ANDA for Adzenys back in mid-December. The early data on scripts continues to reinforce our long-term conviction in the enhanced stickiness and attractive economic value of the Aytu RxConnect platform, through which, again, I'll remind you, approximately 85% of our branded ADHD prescriptions are dispensed. The launch of our own Adzenys authorized generic has also served to limit the impact to date of the Teva generic. For the six-week period ending January 16, the Teva generic accounted for approximately 5% of prescriptions written. Over that same period, our authorized generic of Adzenys represented just under 20% of total prescriptions, with the remaining volume continuing to be branded Adzenys. While we do expect some continued transition from the brand to generics as we deemphasize our ADHD portfolio in favor of ExuA, we do believe that any incremental non-Aytu generic volume will largely come from the roughly 15% of the prescriptions dispensed outside the RxConnect platform in the near term as we expect relatively little erosion within the network. We've also taken a recent price increase, which will help to offset any script erosion via net pricing improvements we've seen over time. While time will ultimately tell, we believe the dynamics here will differ meaningfully from many comparable situations, and we do not expect the typical erosion trajectory to fully materialize in the way other brands have seen. Quickly on our pediatric portfolio before I turn it over to Ryan to review the financials in more detail. We saw a nice uptick in net revenue from the fiscal 2026 first quarter to our fiscal second quarter, coming in at $1.7 million compared to $715,000 in Q1. Part of this relates to reduced quantity of returns we experienced last quarter while we also saw relative stabilization of prescriptions. To be clear, given the broader commentary from the FDA around fluoride and to prioritize our largest growth driver, we of course continue to focus the bulk of our resources on ExuA. If there are changes with respect to the FDA, our approach may change, but to this point, our legacy pediatric products remain non-core for the company as we go forward. So with that, let me turn the call over to Ryan to go into more detail on the financials. I'll make a few closing comments, and then we'll look to address any questions you might have. Ryan? Ryan Selhorn: Thank you, Josh. Let's jump right into it. Let's start on the revenue line. Net revenue for the quarter was $15.2 million compared to $16.2 million for the prior year. Breaking net revenue down, the ADHD portfolio net revenue was $13.2 million compared to $13.8 million in the prior year period. The $13.2 million was also flat with the most recent sequential first quarter. The change from the year-ago quarter is attributable to a decrease in total prescriptions primarily due to broader deemphasis in marketing towards the ADHD portfolio as the company's marketing efforts have shifted towards ExuA, which is now the centerpiece of our commercial efforts, and some relatively small impact from the generic that entered the market. All of this was then partially offset by product price increases and improved gross to nets. The pediatric portfolio was $1.7 million for the first quarter compared to $2.7 million last year. And as Josh just mentioned, we had just $715,000 in the most recent sequential first quarter. The change in net revenue from the year-ago quarter is primarily attributable to the broader deemphasis in marketing towards the pediatric portfolio in lieu of ExuA, particularly given the recent commentary by the administration and the FDA around fluoride. Gross margin was 63.5% during the quarter compared to 66.5% last year. The decrease in gross profit percentage is primarily related to the decrease in net revenue given the focus on ExuA's launch as well as transition-related expenses associated with the ADHD authorized generic performance whereby there was a write-down of approximately $600,000 in inventory related to branded Adzenys. Excluding this write-down, gross margins would have been 67.4% for 2026. Turning to OpEx. Operating expenses, excluding amortization of intangible assets, and prior year restructuring costs, was $11.1 million in the second quarter compared to $10.2 million in the prior year period. This $11.1 million figure also includes about $300,000 in depreciation and stock compensation, so the cash OpEx number is about $10.8 million. The change is primarily a result of increased ExuA launch investments partially offset by improved operational efficiencies such as reduced facilities expense. We also incurred a one-time FDA PDUFA fee of $400,000 for Cotempla, which flowed through the income statement this quarter. For the quarter, we reported a net loss of $10.6 million or a $1.05 net loss per share basic compared to net income of $800,000 or $0.13 net income per share basic in the prior year period. The fiscal 2026 second quarter results were impacted by derivative warrant liability loss of $8.2 million while the year-ago period had a derivative warrant liability gain of $3 million. These changes in non-cash derivative warrant liabilities are primarily related to change in the company's stock price. We touched on this last quarter, but as a reminder, if our stock price increases, we incur a loss. If the stock price decreases, we incur a gain on these derivative warrant liabilities, which are a result of the prefunded warrants issued due to ownership percent blockers as part of the ExuA transaction and a previous financing as well as other standard warrants. On the balance sheet, those warrants are treated as a liability until they are converted to common shares, at which time they move to additional paid-in capital. During the quarter, there were 550,000 prefunded warrants exercised which effectively added $1.3 million to APIC. As we sit today, there are 10.7 million common shares outstanding plus an additional 8.8 million prefunded warrants outstanding which effectively puts us at 19.5 million shares outstanding. Finally, adjusted EBITDA was a negative $800,000 for 2026 compared to a positive $1.3 million in the year-ago period. The change primarily relates to the increased ExuA launch investments and broader deemphasis in marketing towards the ADHD and the pediatric portfolio impacting net revenue and gross profit. Turning now to the balance sheet. Cash and cash equivalents were $30 million at 12/31/2025. This compares to $32.6 million at 09/30/2025. There were no major movements on the balance sheet during the quarter with most changes in inventory, accounts receivable, accounts payable, accrued liabilities, and our revolving line of credit and other key items largely in line with normal operating procedures. Before I turn it back over to Josh, I just wanted to confirm a few assumptions largely pertaining to the ExuA launch as we enter the back half of the year. First, as we communicated to you last quarter, December was just a small initial product load-in, which was in line with expectations. With the launch now underway for the March 2026 quarter, we continue to expect to see a small initial ramp in ExuA net revenue due to our deliberate approach to remove early access barriers. As mentioned previously, through RxConnect, we deliberately eliminated that friction by offering a no-cost fourteen-day titration pack. For commercially insured patients, we are guaranteeing full coverage of both month one and month two of therapy regardless of the insurance outcome, ensuring patients can remain on treatment through dose optimization without interruption and allowing clinicians to evaluate ExuA based on true clinical response rather than payer-driven access challenges. As we ramp up, this will lower the net revenues recognized by Aytu until month three refills occur and these no-cost guarantees are removed, which will begin to occur during June and beyond. Simplistically put, we will see scripts grow ahead of net revenue in the early going. From a gross margin perspective, as a reminder, we have a 28% royalty on in addition to a true-up on cost of goods sold. Think of it in essence as about a 31% cost of goods sold or a 69% gross contribution margin. We do anticipate some fixed expenses to be incurred in cost of goods sold, however, the upfront fee, post-launch fee, and any milestone payments will be reported as an intangible asset and amortized to the operating expenses, which started in December 2025 after we launched ExuA. Finally, as I mentioned during the investor day, our initial launch investment budget for ExuA of $10 million has been reduced to under $8 million driven by execution efficiencies and tighter cost management without sacrificing commercial readiness. And of that, approximate $8 million about $3 million is projected to be one-time items such as training development, commercial and medical affairs consultants, and campaign and marketing materials development. So as we look forward for modeling purposes, we will see a continued uptick in the March for OpEx, likely in the $4 million to $5 million range, excluding depreciation and amortization. Beyond that, moving forward, we will adjust our spend as the ramp of ExuA continues but think about exiting the fiscal year at about $11.6 million quarterly normalized run rate with about half a million of that in non-cash expenses. Assuming gross margins in this mid- to high 60% range, that puts our breakeven at about $17.3 million of net revenue per quarter all in, including ExuA spend. Cash breakeven would be about $16.6 million per quarter. As always, happy to go over any details during Q&A. And with that, Josh, let me turn it back over to you. Josh Disbrow: Thanks, Ryan. This is truly an exciting moment in a pivotal time in the company's history as we are now fully engaged in the commercial launch of, again, a first-in-class treatment for major depressive disorder. We're already seeing prescriptions come through and are hearing strong enthusiasm from the field, reflecting the unique opportunity ExuA represents as the first and only 5-HT1A agonist approved for the treatment of MDD in adults, addressing a very large and a very meaningful unmet need with extremely encouraging early momentum. Our commercial launch plan is comprehensive with a clear focus on prescriber adoption and brand growth while maintaining efficiency and relative spend. What our team has accomplished in just over six months since acquiring ExuA's commercial rights is what often takes years in a large pharmaceutical corporation. Simply couldn't be more proud of what's been accomplished as we work to positively impact the lives of the approximately 21 million Americans living with MDD. As always, I want to thank everyone participating on the call and for your support. We'll now be happy to answer any questions that you have. Operator? Operator: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Thomas Flaten from Lake Street. Your line is live. Thomas Flaten: Hey, good afternoon, guys. Appreciate you taking the questions. Josh, you hinted at this a little bit in your prepared comments, but I'm curious in those 100 docs that have actually written prescriptions, do you have any anecdotal feedback from the sales team on, you know, why they made the decision to write, what was it that, you know, convinced them this would be a good alternative for the patients? Anything along those lines would be super helpful. Josh Disbrow: Yeah. As is often the case, particularly in psychiatry, Tom, and thanks for the question. It is mixed as you would expect. I mean, various motivations for physicians in those very early days to prescribe. It's a cross-section of patients that have been challenging for them, and challenging meaning not getting the response or robust response and or side effects that patients have been experiencing in the form of, as we would expect, sexual side effects or weight gain. There's definitely an interest in just the MOA. That in and of itself is attractive for physicians, psychiatrists particularly, to try something new for a patient that, again, is probably inadequately controlled on something. And then there's an element as well that, you know, given the relative ease through which they're able to prescribe through RxConnect, there's definitely an interest in being able to prescribe something new that has minimal barriers. So I'd say those are among the key things that are being sort of fed back to us. As we would expect in this early stage, you know, we will get some difficult-to-treat patients, and that's expected. Any new drug is gonna often get the problematic patients that have been on countless medications. And so we expect that, but we also expect as time goes on, patients will probably better identify patients that are perhaps not down to the full extent of having tried, you know, many, many medications. And start to position the product perhaps earlier in use. But that's at least the early feedback that we're getting. Thomas Flaten: Got it. Super helpful. And then, particularly in light of Ryan's comments around cash breakeven and real breakeven, you mentioned during your Analyst Day that, you know, you were contemplating a Salesforce expansion over time. First part of the question is, is there an expectation of any of that occurring in fiscal 2026? And then the second part of the question is what triggers are in place for that to initiate? Josh Disbrow: Yeah. Good question. I think the short answer is it would be unexpected to expand that quickly. I mean, we really need to get, as Ryan said, kind of through the trial periods into that sort of June time frame before we're sort of getting patients fully on their refills and, obviously, just getting more and more patients experience in general. And in the context of what will trigger it, it will be over attributing our internal forecast and getting the cash flow. We want to be clear that there's no plan to expand without cash on hand to support that. And we'll be very judicious in how we think about expansion. We have identified territories beyond the 44, as we've talked about. There's many multiples more that we could scale to, but again, it's gonna be the primary trigger with the board approval will be cash flow supporting it. There will not be any appetite to raise capital in the context of that specific piece for sure. So, yeah, we're definitely waiting for profitability and cash flow. Thomas Flaten: And then one more quick one, if I might. You mentioned in your press release that you were working on a kind of a direct-to-consumer campaign. Could you maybe provide a little bit of detail on specifically what that looks like? Josh Disbrow: It will largely be web-based as most things are. We don't anticipate broad-based, you know, quote media spend traditional over-the-air type of media, but we certainly have engaged in the early stages of search engine optimization and keyword search campaigns. So a lot of word search and things along that line as patients are looking for alternative therapies. We will continue to look at social media angles, although that can be challenging with respect to FDA regulatory compliance. Given the fact that all products in this category have a black box warning. But we have in the early stages of looking at, you know, chat room forums. And, again, we need to be obviously very conscientious and compliant with that. But forums like Reddit and so forth, there's a lot of chatter. In fact, we're already seeing some mention of ExuA for patients that have actually already tried the therapy and have been positive on it. So that'll be some of that's an example of the types of things that we'll explore. But to be clear, we want to be very efficient, you know, with our heavy spend. We'll be on the face-to-face interactions with the Salesforce and, you know, a far secondary piece of it will be sort of the consumer piece until we start to get some momentum and a higher level of awareness among the psychiatrists that obviously we're presenting the product to. Thomas Flaten: Got it. That's super helpful. Thanks. Josh Disbrow: Thanks, Thomas. Operator: Thank you. Your next question is coming from Nazibur Rahman from Maxim Group. Your line is live. Nazibur Rahman: Hey, everyone. Thanks for taking the questions and congrats on progress. Just two quick short questions. Because of the weather around so much in the United States the last couple of weeks, have you seen any delays or issues with scripts getting filled after they were written, or has that not been a problem? I realize it's been early days. And just kind of following up from that too. The scripts that have been filled, have they mostly been from RxConnect or, I guess, retail pharmacy? Like, do you know the mix there? Josh Disbrow: Yeah. Good question. Take the weather one first. Absolutely huge impact. You know, this is sort of two weeks of snowmageddon, so to speak. So we really haven't had a complete week in the field. When you take into consideration, we're at our launch meeting, you know, essentially, the first full second full week of January, essentially, the week of the twelfth. The next week was a holiday week shortened due to the Martin Luther King holiday. So that was really their first time into the field. And then really two solid weeks of weather affecting a huge chunk of our territories, the vast majority, in fact, and really with the exception of the Western territories, Western really meaning essentially, you know, California, I would say, every territory is affected at least in some way. So that not only impacted scripts getting filled, it affected shipments getting to pharmacies. It affected reps getting to doctors to, you know, present at appointments and meetings and so forth. So huge impacts, which is why we're even more encouraged because, frankly, we have not had any more close to a full week of productivity. In terms of the prescriptions that are being filled, yes, most are coming to RxConnect, but I'm actually very pleased that we're seeing prescriptions come in areas where we don't have sales representatives, and coming through regular way retail as well, but the majority are coming through our RxConnect partner pharmacies. And if you look at sort of a mix, you know, it is largely commercial as we would expect. Still very early, and the end is just too small to really see where it's gonna settle out. But it's shaping up to resemble, you know, the market at large in terms of split between commercial and government, which I'll remind you, generally speaking, is, you know, is in the 60/40 split in favor of commercial. We're not seeing quite that split. We're heavier towards the commercial piece as we would expect just given our footprint and, again, the early stage of launch. But that's generally how it's laying out. But, yeah, RxConnect is definitely doing its job, and that's where the, you know, substantial majority of prescriptions are being filled. Nazibur Rahman: Got it. Thanks for taking my questions. Josh Disbrow: Thank you. Operator: And once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Your next question is coming from Edward Woo from Ascendiant Capital. Your line is live. Edward Woo: Yeah. Thank you, and congratulations on the progress. My question is going also on the supply issue. You mentioned a little bit of weather issue that may have affected getting inventory into the channel. Has that been corrected now? And also, do you have any issues potentially in terms of how much you could ramp up if demand does increase faster than you expect? Josh Disbrow: Yeah. Good question. It has been corrected. I mean, when I think about delays from the distributors, for example, into the pharmacies, you know, we're talking, you know, a couple few days delay. We're not talking weeks necessarily. So they, you know, almost without exception kind of cleared the channel. And so we've got sort of adequate supply. In terms of can we do we have adequate supply to ramp? Absolutely. I mean, we were very prudent in how we organized the initial production runs to ensure that we've adequate for the very near term really through this entire calendar year and beyond. And we have API stateside at the manufacturer. We have componentry needed to produce multiples of what we've already produced, and so we have zero issues being able to scale appropriately if demand outstrips even our most optimistic forecast will be fine with the supply that we have already stateside at our contract manufacturer. Edward Woo: That's great to hear. Thanks for answering my questions, and I wish you guys good luck. Josh Disbrow: Thank you, Ed. Operator: Thank you. That does conclude our Q&A session. I'll now hand the conference back to management for closing remarks. Please go ahead. Josh Disbrow: Great. Thank you. And thanks again, everyone, for joining us on today's conference call. As mentioned, and hopefully you can hear this, we remain very excited and highly convicted about the market potential for ExuA and are already seeing in real time the tremendous interest from the psychiatry community. It's really been exciting. So looking forward to sharing more and speaking with you next quarter following what will be our first full quarter of actual commercial availability. So until then, again, thank you for joining us. Thanks for your interest, and have a good evening. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Considered as representing our views of any subsequent date. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements. A discussion of these risk factors is fully detailed under the caption Risk in our filings with the SEC. During this call, we will also refer to certain non-GAAP financial measures. For information regarding our non-GAAP financials and a reconciliation of GAAP to non-GAAP measures, please refer to today's press release regarding our first quarter fiscal 2026 results to the investor relations portion of our website, investors.sonos.com. After the call concludes, we will upload our revised supplemental earnings presentation, including our guidance, as well as a conference call transcript to the IR website. I will now turn the call over to Tom. Tom Conrad: Good afternoon, everyone, and thank you for joining us. Coming into fiscal 2026, my focus was straightforward. Build on the stability we reestablished in 2025 and start bending the trajectory of the business towards durable growth and profitability. I'm proud to say the fiscal year is off to a good start. We delivered Q1 revenue of $546 million with gross profit dollars growing 5% year over year. Adjusted EBITDA grew 45% year over year to $132 million. Revenue came in above the midpoint of our guidance range and on the bottom line we generated as much adjusted EBITDA in this one quarter as we did in all of fiscal 2025. That performance reflects the fiscal discipline and structural changes we put in place over the past eighteen months which have driven more than $100 million in run rate savings while still preserving room to invest in innovation. We're encouraged by the strength of Q1. But our ambition is far greater than one quarter. The work ahead is about building durable, repeatable growth over time. Returning our company to growth is not about a single quarter, single launch, or a single trend. It's about sustained coordinated action anchored in the power of the Sonos system. At the center of our strategy is a simple idea. Sonos is not a collection of products. It's a system that gets more valuable as you add to it, use it across more rooms, and rely on it over time. That system behavior is what drives repeat purchase, longer customer lifetimes, and ultimately more durable growth. So we're now executing across five growth dimensions each designed to strengthen that system advantage. The first growth dimension is product innovation. We are focused on creating new products that are genuinely differentiated deeply tied to the home, and designed to strengthen Sonos as a system rather than standalone devices. Our hardware and software roadmaps are tightly connected and the goal is simple. Products that work better together, unlock more use cases, and make the system more powerful with every addition. The second growth dimension is a return to customer advocacy. Built on excellence in performance, reliability, ease of use, and customer service alongside a broader and more coherent software platform. When the system works well, customers trust it expand it, and recommend it. System reliability is not just a quality metric for us, it's a growth driver. The third growth dimension is more intentional and effective marketing. With the arrival of our new CMO Colleen DeCourcy, we are rebuilding our go-to-market engine around a full funnel brand architecture that connects long-term brand storytelling with a clear, consistent system narrative. Sonos is the easiest way to build a sound system for the home, and it gets better as you add to it. That clarity is sharpening both how people enter the system and how quickly they expand once they're in. The fourth growth dimension is accelerating our success in geo expansion. We see a meaningful opportunity to expand our global footprint through the right mix of products, pricing, partnerships, and local relevance, while making it simple for new households around the world to start with Sonos and then grow their system over time. The fifth growth dimension is tapping demand from emerging external trends. Our system position allows us to explore new inaction models including conversational AI in the home and new modes of content interaction, ways that feel additive rather than uninvited or far afield. These are experiences that only make sense because a trusted system is already in place. Let me highlight a few areas where you can already see progress against these growth dimensions. Starting with product innovation. Our hardware and software roadmaps are now tightly aligned around the opportunities ahead. After an intentional pause in new hardware launches last year while we focused on strengthening our software foundation, are back to introducing new products with a lot planned for the rest of 2026. Last week, we unveiled Sonos Amp Multi, It offers our installer partners a powerful new building block combining flexible, best in class multi-zone amplification with simpler installation, configuration, and tuning. AMP Multi makes complex systems easier to design deploy, and manage while advancing both sound quality and reliability. More importantly, AMP Multi is a clear expression of our system strategy. This is what we mean by building products that don't just perform on their own, but make the whole home experience easier and better. As homes become more connected, Sonos can become the audio platform that underpins whole home experiences, and Amp Multi allows Sonos to be built directly into the architecture of sophisticated homes. This product is designed specifically for our installer and integrator partners. It helps them take on larger projects, work more efficiently, and grow their businesses with Sonos as a trusted system at the center. The relationships we built with professional installers over the past few decades are a real differentiator for Sonos. When our installers do well, Sonos does well, and we see meaningful opportunities to continue investing in products software, and support that help them scale with confidence. Turning to customer advocacy. We continue to make meaningful progress this quarter on system performance and reliability across 10 software upgrades. These improvements are showing up in higher customer satisfaction across all channels and measures, and better system performance accelerates everything we do. On marketing and demand creation, we are getting more precise about how people enter the Sonos system and how quickly they expand once they're in. One early decision we made was to reduce the price of Arrow 100. Recognizing its role as a critical gateway into Sonos. That move is paying off Q1 marked the third consecutive quarter of accelerating new customer growth among households that start with Arrow 100. Up more than 40% year over year. Arrow 100 is doing exactly what we designed it to do. Introduce new households to the Sonos system in a way that naturally leads to expansion across rooms and use cases. Expanding lifetime value within our installed base is another lever. Customers who start with Arrow 100 have historically shown strong repurchase behavior and that pattern continued this quarter with newer cohorts. We also saw growth in multi-product customer starts, which matters because customers who experience Sonos as a system from the outset build deeper, longer-lasting relationships with us. As a reminder, increasing lifetime value represents a significant opportunity within our existing installed base alone. If we move from today's average of almost four and a half devices per multiproduct household to six devices per household, that represents roughly $5 billion in incremental revenue. Converting single product households to current multi-product levels adds another $7 billion. That upside is driven by system behavior, when customers use Sonos across more rooms and moments they buy more over time and stay with us longer. Looking beyond our installed base, we currently hold about 6% of the $24 billion global premium audio market. There is substantial room to grow that share, particularly outside our core markets, while continuing to expand the sound system category that Sonos created. A great example of this is we saw another quarter of dollar share gain in premium home theater in both The US and EMEA. Finally, our platform positions us well to tap into new external demand trends. More than 53 million connected devices and over 17 million homes, Sonos is a trusted platform where services old and new can coexist giving households real choice anchored in a system they value. That puts us in a strong position to explore new interaction models including conversational AI in the home in ways that complement the people already love. As I've said before, our vision for Sonos is to be every dimension of sound for the home. Music, movies, stories, rooms, formats, conversations, and control all connected through a single cohesive and radically easy system. That idea of systemness is the lens through which we make decisions and the foundation of our long-term advantage. What ultimately drives all of this is the world we're building for our customers. A home that comes alive with sound, experiences that move naturally between moments, moods, spaces, where products and software work together and the whole becomes meaningfully greater than the sum of its parts. You'll see more of that vision come to life with the products we have planned for the second half of fiscal 2026. After a year inside the company, seeing the people, the craft, and the ambition up close, my conviction has only grown that Sonos has everything it needs to return to durable growth. Q1 mattered not just because of the results, but because it showed that the underlying business is getting healthier. We proved we can manage through tariffs with discipline, deliver profitability above expectations, and do it while continuing to strengthen the system. The second quarter will be quieter as it is often for us, but the first half as a whole reflects a business that stabilizing and beginning to turn. For the past year, as we focused on software performance and reliability, we've been operating without new products to bring new customers into the system or spark repurchase. That changes in the back half of the year. We are entering that period with the system performing better and more reliably than it has in many years. With customer sentiment improving and with a slate of new products designed to strengthen the system rather than just add devices. We're already gearing up for that moment now. With a solid Q1 behind us, modest growth expected at the midpoint of our Q2 guidance, and a clear line of sight to acceleration in the second half, we are executing against a clear plan to return Sonos to growth in fiscal 2026. With that, I'll turn things over to Sayori. Saori Casey: Thank you, Tom. Hi, everyone. In Q1, we generated revenue of $546 million above the midpoint of our guidance range. Marking our sixth quarter of execution delivering on our commitments. On a year-over-year basis, revenue was down 1% compared to guidance of down 7% to up 2%. While GAAP gross profit dollars grew 5%. Revenue in The Americas grew 1% year over year, while EMEA revenue declined by 4%. And APAC by 5%. We also saw continued momentum in our growth markets, which once again outpaced the rest of our markets. On a product basis, plug-ins deliver double-digit growth, driven by strong performance from ERA100. As Tom mentioned, Q1 was the third quarter of acceleration in new customer growth since we reduced the price of AR101 100 as part of our pricing strategy we've spoken about over the past few quarters. Q on GAAP gross margin was 46.5%, and non-GAAP gross margin was 47.5%. Both modestly above the high end of our guidance range. A nearly 300 basis points year-over-year improvement in gross margin resulted in gross profit dollars growing 5% year over year, driven by lower cost, FX, and some favorability in one-time items partially offset by unfavorable product mix. Consistent with expectations we outlined last quarter, tariff expense was an approximately 300 basis point headwind to gross margin, which we were able to offset with mitigation actions led by the pricing adjustments we made towards the September. Q1 GAAP operating expenses of $153 million decreased by 21% year over year while non-GAAP operating expenses of $137 million were down 19% year over year. As a reminder, Q1 operating expenses were unseasonably low due to timing of product launches and associated spend. Stock-based compensation was $15.2 million down 40% year over year from $25.3 million last year. Adjusted EBITDA was $132 million at the high end of our guidance range, representing growth of 45%, $91 million last year. As Tom mentioned, we generated as much adjusted EBITDA in Q1 as we did in all of fiscal 2025, reflecting how far we have come in our transformation journey. Adjusted EBITDA margin grew seven sixty basis points to 24.2% our highest in the last four years. Non-GAAP earnings per share grew 37% to $0.93 up from $0.68 last year. As I've said in the past, returning capital to shareholders is a key pillar of our capital allocation framework. Accordingly, we've spent $25 million on share repurchases in Q1 at an average price of $16.79, reducing our share count by 1.2%. We have $105 million remaining in our current share repurchase authorization. Our balance sheet remains strong as our net cash balance ended the quarter at $363 million which includes $51 million of marketable securities, as we hold some excess cash in short-duration treasury bills. Our period-end inventory balance of a $125 million to declined $16 million or 11% year over year. And 27% compared to last quarter. Our inventory consists of $111 million of finished goods, and $15 million of components. Q1 free cash flow was $157 million up from $143 million last year, primarily due to higher earnings. CapEx was $6 million, down from $13 million last year. Turning to our guidance. The Q2 outlook we're providing today reflects the trends that we have observed quarter to date and are our best estimates. We expect Q2 revenue to be in the range of $250 million to $280 million down 4% to up 8% year over year and up 2% at the midpoint. Please note that this does not include any revenue contribution from AMP multi which is not generally available until the 2026. Taken together with our Q1 results, we expect revenue in the 2026 to be $796 million to $826 million. Flat year over year at the midpoint. This represents a continued improvement from a 6% decline in the 2025 and a 3% decline in the 2025. Looking ahead, with AMP Multi and other yet to be announced products slated to launch in the 2026, we expect the further improvement in our year-over-year revenue trends returning us to growth. We expect Q2 GAAP gross margin to be in the range of 44% to 46%, with non-GAAP gross margin approximately two twenty bps higher than GAAP. This represents a year-over-year increase of 130 basis points at the midpoint of GAAP and 10 basis points for non-GAAP, implying gross profit dollar growth. 52%, respectively. Please note our gross margin guidance range embeds higher memory costs In Q2. While we are not immune to memory cost inflation, our products have modest memory requirements between 512 megabytes to two gigabytes, with many products containing one gigabyte or less. For the 2026, the midpoint of guidance implies that our gross profit dollars grow 5% year over year on a GAAP basis, 4% on a non-GAAP basis. We expect Q2 GAAP operating expenses to be in the range of $150 million to $160 million down 11% at midpoint from last year. As we comp over last year's reduction in force and its associated restructuring charges. We expect non-GAAP operating expenses to be lower than GAAP by approximately $16 million As previously mentioned, our operating expense seasonality this year reflects the timing of our product introductions in the 2026 Driving a modest sequential increase in operating expenses from Q1 to Q2. For the 2026, midpoint of our guidance implies GAAP operating expenses of $3.00 $8 million down 16% year over year, a decline of $60 million On a non-GAAP basis, implied operating expenses of $276 million will be down 9% year over year, a decline of $28 million. Bringing it all together, expect Q2 adjusted EBITDA to be in the range of negative $18 million positive $10 million implying first half adjusted EBITDA of $128 million, up 42% year over year, improvement of $38 million from $90 million last year. Our guidance for the first half shows that we're building momentum through fiscal 2026, while maintaining the financial discipline groundwork we laid in fiscal 2025, At the midpoint, we expect revenue to be flat, gross profit dollars to be up mid-single digits, non-GAAP operating expenses to be down 9%, adjusted EBITDA growing by 42% implying four seventy basis points of margin expansion. This significant improvement in our financial performance is the direct result of the progress we made in becoming leaner, execution-focused organization. With AMP Multi announced and additional new products planned for the 2026, we're increasingly confident in the trajectory of the business and our plan to return to growth in fiscal 2026. Our focus remains on returning to durable top-line growth balancing continued profitability improvements and disciplined reinvestments of our efficiency gains toward product innovation, customer advocacy, intentional and effective marketing, zero expansion, and tapping into the demand from external trends like proliferation of conversational AI in the home. With only a small fraction of the global market captured so far, we see a vast opportunity in front of us to expand our household base and improve customer lifetime value. After the call, we will update our earnings slides to reflect our Q2 guidance. With that, I'd like to turn the call over for questions. Thank you. Operator: We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. 1 a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is 1 to join the queue. And our first question comes from the line of Steven Frankel with Rosenblatt. Your line is open. Good afternoon, and thank you for the opportunity. I'd like to start by following up on the comments you made about memory cost. That's obviously an area where there's a lot of investor concern. I've gotten lots of questions. So could you address both what you're doing to deal with the rising cost and its impact on gross margins? And also, are there any availability issues? Do you feel like the ramp of new products in the back half could be somewhat gated by the ability to procure sufficient amounts of RAM. Tom Conrad: Hi, Steven. Thanks for joining us. Know, of course, memory pricing is a headwind across the entire hardware industry. But we have a a really great team on this, you know, and as last year's tariff mitigation demonstrated, they have a real track record of managing through these kinds of cost inflation, supply chain volatility. So as you can imagine, this team has been taking action on this for some time. I I think what's most important is ensuring that we have adequate supply to reduce reliance on spot market pricing. So the team has secured and certified additional memory suppliers. I think it's also important to highlight as as Thierry shared in her prepared remarks, our products have modest memory requirements between 512 megabytes and two gig gigabytes of RAM with many of our products containing a gig or less. And just as important as that is that, you know, relative to PCs and phones, customers don't buy Sonos products based on a memory configuration. They buy them for the experiences they deliver. So we are also actively driving cost efficiencies across our product architecture. To just to touch on the the the impact of the supply situation on the products we have planned for the second half of the year. I think I think we have the dimensions I just outlined well in control. And we should be good on that front. Steven Frankel: Great. And then in terms of the team, you've made some changes. When will we see the beginnings of choline's impact on marketing programs and our do you feel like the team is complete today, or should we anticipate a few more changes? Tom Conrad: I'll take the second part first. I'm super excited about the team that, I have around the table with me today. Just incredible folks to the last. And not least of all, Colleen, who has been with us for for just three weeks, but is already making great progress in how our marketing organization shows up. With respect to when you'll start to see the impact of her contribution, she already has work well underway aligning our creative and messaging and channel execution around a more consistent system, narrative, and she's, you know, really moving as quickly as she can to implement all of those changes and everyone should expect to see that activity to ramp relatively quickly. Broadly, our goal is to move away from the sort of episodic spikes that historically had been left tied to individual product launches and shift to a more sustained marketing presence that reinforces how the Sonos system works and why it matters. So you should see gradual compounding improvement starting right away rather than anticipate some single large brand advertising launch Super excited about the work that she's driving here. It's been a great first month for Steven Frankel: Great. So I won't be looking for a Super Bowl. Commercial, so that's good news. And and well, you you you keep talking about a which we understand and and you drop some hints about AI and where some of those fits. Could you flesh that vision out anymore? You talked a little bit about about it last quarter, but are you willing to share any more details on kinda how you see those two worlds intersecting and making life better for Sonos users. Tom Conrad: Yeah. So let's start with just systemness. You know, we really believe that the power of Sonos is that the whole is truly greater than the sum of its part. And we talk about that. What we're talking about is things like effortless multi device room behavior, radically easy control, a unified design system across hardware and software, context aware experiences that understand who you are and what you want before you even asked, ask. Kind of synchronized intelligence, things like true play and dynamic allocation of experiences across surround sound. All under the banner of a Sonos operating system that our customers understand. So, you know, we're at the at the opening stages of executing across all of those dimensions. But I think it's going to be the real differentiator as we've described for the product family going forward. As it relates to AI, I think there's a maybe three different dimensions to think about. Two in the product and one inside of our operations. The first is given the scale and breadth of our installed base and the role that we play in our customers' lives, I think we're in a really strong position to explore new interaction models with them, including conversational AI in the homes in ways that complement the experiences that people already love with Sonos and feel invited rather than tacked on. Second of all, I think artificial intelligence techniques are incredibly powerful, not just for conversations, but for anticipatory design, system features that just anticipate your needs and serve you exactly the right content and exactly the right setting with the smallest amount of input from you as a user. So in that world, AI can just make the Sonos system smarter, more personal, and even easier to use long before you even get to conversation. So the third category, of course, is how we're leveraging AI inside of And I think it's indisputable that since the last one time we were together on an earnings call, we've been through another rapid acceleration of the evolution of these AI productivity tools, particularly in the domain of software development. And we are at the leading edge of integrating those tools into our workflows And I'm really excited about the productivity gains that we're gonna build from these tools and how much it's gonna accelerate our ability to innovate on the system experiences for our customers. Steven Frankel: Great. Thank you, and I'll jump back in the queue. Operator: And our next question comes from the line of Eric Woodring with Morgan Stanley. Your line is open. Eric Woodring: Awesome, guys. Thank you for taking my questions. I have two as well. Tom, I wanted to maybe zoom out and just get your take on kind of the broader health of the of the premium home theater market amidst this kind of case economy. I understand that you guys are taking share, is what we want to see. But are there any green shoots that that you can point to or or the opposite, I guess, for that matter? And and geographically, anything that's stood out to you, obviously, America's up versus international down. Just would love to get your take a little more broadly, and then a a quick follow-up, please. Thank you so much. Tom Conrad: Sure. Yeah. Speaking specifically to home theater, as we described in our prepared remarks, we do continue to grow our share in Americas and EMEA, we have without question the best home theater products in the in the category by a wide margin. And we love what we're doing there. You know, you mentioned that the kind of k shaped macro demand that that the category is experiencing. I think that's consistent with our read of the market. Which is to say, growing demand for premium experience pulled down by diminishing demand for entry level experiences. Fortunately, our product portfolio is well positioned to take advantage of those trends, but we continue to watch it closely. And I think the you know, zooming in on home theater and it's it's quarter to quarter strengths and weaknesses, is just a good opportunity to say again that you know, we really don't think of the business going forward as category based, and and we think there's tremendous opportunity for us to differentiate Sonos itself, with an expression in home theater, but extending from that one venue in the home into all of the other spaces where people need music and and sound experiences and you know, I my ambition for the company is to disentangle us from all of these individual categories as we go forward. It's probably also a good time just to say something about the incredible power of the installer channel for us. As we talked about, we've we've released our second product in the last year, custom designed and conceived for that channel. It's a it's a business we've been building for for a couple of decades now. We have incredible relationships there. It's, you know, 22% of our business and growing, and we're we're excited to continue to partner with that channel and take advantage of of the opportunity to sort of build Sonos into the very architecture of the home. Eric Woodring: Awesome. Okay. That that's that was exactly what I was looking for and more so. Thank you, Tom. And then maybe, Sayori, just shifting over to you, obviously, really nice gross margin performance this quarter. That's probably an understatement and really nice guide. Just given the fact you're close to all-time high gross margin but you're doing this with tariff headwinds. I know you talked about the size of the tariff headwinds, believe. But can you just maybe help us bridge the gap from last December quarter's 44.7% non-GAAP gross margin to the mid-forty 7% number that you just put up in December quarter. What were the tailwinds most important to least important? And then what were the headwinds kinda most impactful to least impactful? Just added color on that would be really helpful. Thanks so much. Saori Casey: Yeah. Thank you, Eric. Yeah. No. We were very pleased with our gross margin percent results, both relative to our guidance and, you know, our expectation as well as on a year-over-year basis. Some have commonalities there. Certainly, our continued effort on reducing cost It resonates on both compares, that we're looking at. And, and then, you know, we have we also have a element of FX that is a tailwind for us right now. Now that's to say and then we as you as we talked about at the last earnings call, you know, we did increase price, in the middle of the the September as part of our price tariff mitigation efforts. And so those those are things that are tailwind. On the other hand, you know, some of it is to combat the headwinds that we have, namely the biggest impact this quarter being tariffs. And then we have product mix, you know, certainly in the holiday quarter as Tom also talked about in the prepared remarks. Had a really strong performance on 100. Is a lower price point product that tend to have lower gross margin as well. So that's a product mix headwind that we have. And, you know, last year at this time, we had launched Arc Ultra with associated channel fill, so we do have that compare as part of our headwind on a year-over-year basis. And, you know, as as we mentioned on the call, the price, mitigation or tariff mitigation, actions that we've taken, certainly, are working for us, and it's in line with what we had expected. We had come into this quarter thinking tariff will impact us on about 300 basis points. And our mitigation actions, the biggest one being pricing, had helped us mitigate nearly all of that. And then on a to a slider extent, we do have the memory headwind but that was more negligible in this quarter. But what as we said on the call, Q2 guidance range of 44% to 46% gap and 47 half non-GAAP, you know, certainly does embed that impact And as Tom also talked about earlier during the Q and A, we are doing everything we can to, mitigate the need to buy at this spot price. The market and securing our suppliers as much as we can. So those are some of the puts and takes we're looking at right now. Certainly, the the favorable impact is outpacing our unfavorable headwind that we have. Eric Woodring: Okay. Awesome. Thank you for that color, guys. Best of best of luck. Saori Casey: You, Eric. Operator: Our next question comes from the line of Brent Thill with Jefferies. Your line is open. Hi. Thank you. This is John Dion on behalf of Brent Thill. Just two questions. One maybe for Tom. You know, you've been CEO for a little over a year now, I guess. And so I wanted to see maybe if you could kinda review you know, what what are some of the biggest changes that that were made in your first year in in what are some of the the biggest initiatives you're looking for ahead for the next year? And then maybe we'll try again maybe on the geographic color in terms of America's being up versus international down. I if there's anything additional we can share there. For salary. Thank you. Tom Conrad: For remembering that that I just went through my one-year anniversary with the company. So as interim and then six months as the named CEO. It's been an incredible year for me as a person and and and for the company. Overall. You know, as you know, we spent a good chunk of last year making material progress around improving the core experience of Sonos performance, reliability, you know, just customer service experiences, honestly, just doing the hard work of of of winning back our customers as our advocates, and I'm I'm so proud of the progress that the team has made And so grateful for the patients that our customer showed us through what had been a very difficult chapter. And as I described at the top of the call, I'm just you know, incredibly excited to have that chapter behind us and now be focused on the work of of the next act for Sonos or return to growth and structural profitability. You know, you've heard me kind of say on the call that that our belief is that returning to durable growth is really about executing across multiple dimensions at once, product innovation, customer advocacy, marketing excellence, geographic expansion, capturing our place in emerging external trends. And what's exciting about these is that they're really compounding dimensions. You know, for example, as our marketing muscle develops it it it impacts positively our success in geographic expansion as customer advocacy improves makes it easier for us to launch new products into the market successfully. So really focused on on executing against those five dimensions, while, you know, returning to new product introductions in the second half of the year that will be an accelerant for us And yeah, just we've we've we've turned our we've turned our view towards the horizon and and it's exciting to be in a strategic moment for the company. Saori Casey: Just to add a a few more points specifically on the geographic color here. We we did show a slight growth for Americas know, certainly, that's our biggest, market that we serve. Notwithstanding our efforts to, focus, as Tom just mentioned, on the geographic expansion. And the the growth markets that we are expanding into is continuing to outpace the the growth of the rest of the markets that we're serving. That's continues to be our highlight here. Overall, from a product basis, you know, by geography across all of the geographic areas, we are seeing we saw strength in the plug-ins revenue or the AR 100 led growth that we're seeing ever since we have adjusted the price as part of our pricing strategy to drive more gross profit dollars, and, that is exactly what's serving for us at the moment. We did gain share in both on in both Americas and EMEA. For home theater. And lastly, you know, the our continued, expansion into some of the products that we we had the last NPI that we had launched in Q1 last year in Orc Ultra. So before those are, doing well, but we do have a difficult comp this year because there were channel fills that took place a a year ago. So that that's part of a headwind that's partially offsetting some of the strength that we're seeing. John Dion: Great. Thank you very much. Operator: And as a reminder, just star one if you would like to ask a question. And with no additional questions at this time, this will conclude our question and answer session as well as today's call. We thank you for your participation, and you may now disconnect.
Operator: Good afternoon, and welcome to Skyworks Solutions, Inc. First Quarter Fiscal Year 2026 Earnings Call. This call is being recorded. At this time, I will turn the call over to Rajvindra Gill, Vice President of Investor Relations for Skyworks Solutions, Inc. Mr. Gill, please go ahead. Rajvindra Gill: Thank you, operator. Good afternoon, everyone, and welcome to Skyworks Solutions, Inc.'s first fiscal quarter 2026 conference call. With me today for our prepared remarks is Philip Brace, our Chief Executive Officer and President, and Philip Carter, Senior Vice President and Chief Financial Officer for Skyworks Solutions, Inc. This call is being broadcast over the web and can be accessed from the Investor Relations section of the company's website at skyworksinc.com. In addition, the company's prepared remarks will be made available on our website promptly after their conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-Ks, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, today's discussion will include non-GAAP financial measures, consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I'll turn the call over to Philip Brace. Philip Brace: Thanks, Rajvindra, and welcome, everyone. Before turning to the quarter, I want to briefly address our previously announced combination with Corwell. We believe this transaction is highly strategic and transformative, bringing greater scale, deeper R&D, and a broader technology portfolio. Together, this combination is expected to reduce historical mobile volatility, strengthen our competitive position, enhance our broad market capabilities, and expand our TAM into dispense and aerospace, while creating a clear path to more than $500 million of synergies over time. As highlighted in our investor presentation on October 28, we believe this combination will deliver substantial financial benefits. We expect to achieve healthy gross margin through the cycles, in the 50% to 55% range, supported by significant operating leverage and enhanced earnings power. The combined company will generate robust free cash flow, underpinned by an extremely favorable capital structure with expected net leverage of approximately one at close. These advantages position us to drive long-term value for our shareholders and customers and support continued investment in innovation and growth. Since announcing the transaction on October 28, we've made solid progress. We've completed our initial regulatory filings, a shareholder vote has been scheduled, and our teams have begun integration planning. As is typical for a transaction of this scale, we expect a comprehensive regulatory review, and we are working closely with regulators around the world. We still expect the transaction to close in early calendar year 2027, subject to the receipt of required regulatory approvals, approval of both company shareholders, and the satisfaction of other customary closing conditions. I'd also like to recognize the Qorvo team for the constructive and collaborative approach brought to the integration planning process. We're off to a great start and excited about the opportunity ahead when we come together as one stronger organization. I want to emphasize that we are committed to closing the transaction and believe in the long-term value creation opportunity that the deal unlocks for our customers and shareholders. Beyond these prepared remarks, we will not be discussing the transaction, as today's call will focus on our results from the first fiscal quarter as well as our outlook for March. Turning now to Skyworks Solutions, Inc.'s performance for this quarter. We stayed focused on what we can control: operational execution, customer engagement, and disciplined investment in our product roadmap. Our strategy remains straightforward: focus on our customers, invest in our core technologies, and continue to grow broad markets. Broad markets remain a key growth engine for the company, growing faster than the corporate average. Our products are designed into high-growth areas across a wide range of end markets, including connected vehicles, enterprise infrastructure, satellite communications, data center networking, and emerging edge AI applications. This breadth supports durability and reduces reliance on any single program. Skyworks Solutions, Inc. delivered strong results, exceeding the high end of our guidance, driven by upside in mobile and broad markets. We posted revenue of $1.04 billion, delivered earnings per share of $1.54, generated $339 million of free cash flow, and paid $106 million in quarterly dividends. Revenue, gross margin, and non-GAAP EPS all came in above the midpoint of our outlook. In mobile, we outperformed expectations supported by healthy sell-through and strong execution on new product launches at our top customer. Smartphone replacement cycles, while still lengthy, are beginning to shorten. This trend is driving increased unit growth as consumers upgrade more frequently, especially with the rise of new AI-capable devices and more integrated features. While we are mindful of broader industry discussions around component pricing and availability, we have not seen an impact on demand to date. Reminder that the vast majority of our mobile revenue is tied to flagship and premium-tier devices. Channel inventory remains lean, and we continue to closely monitor customer forecasts. As we look ahead to future business at our top customer, we successfully defended key mobile sockets and gained where architecture changes created opportunities, with mixed dynamics potentially moderating some of that progress. Based on what we see today, we currently expect blended mobile content to be flat year over year. We will not be commenting on specific sockets, models, or launch timing. We remain bullish on the long-term drivers of RF content supported by accelerated replacement cycles, coupled with rising RF complexity, tied to AI-driven workloads and higher performance requirements. Broad Markets delivered its eighth consecutive quarter of growth with revenue up double digits year on year, reflecting strength across edge, IoT, data center, and automotive. In edge IoT, Wi-Fi 7 momentum continues to build, supported by bandwidth-intensive applications in the home and workplace. Wi-Fi 7's higher throughput, lower latency, and reliability position it as an important enabler as AI inference moves closer to the edge. Design win activity remains strong, backlog is healthy, and we're already engaged with customers on early Wi-Fi 8 programs, positioning us well for the next cycle. Automotive demand remains solid, driven by increased connectivity across telematics, infotainment, and software-defined vehicle architectures. Our pipeline is broad, global, and aligned with long-cycle platforms across multiple OEMs and tiers, giving us good visibility into fiscal 2026. In data center infrastructure, demand signals are improving across our customer base, supported by increasing design win activity. Timing and power management content is expanding as the ecosystem transitions to next-generation 800 gig and emerging 1.6 terabit architectures. We are seeing higher activity, particularly with cloud and networking customers that require tightening, timing accuracy, improved power performance, and better synchronization across high-bandwidth systems. Broad markets continue to expand its reach across a more diverse set of customers while consistently delivering margins above the corporate average. The demand drivers across these end markets are long-cycle and multi-year, positioning the business well as we move into fiscal 2026 and beyond. With that, let me turn the call over to Philip Carter for a discussion of last quarter's performance and outlook for 2026. Philip Carter: Thanks, Philip. Skyworks Solutions, Inc. delivered revenue of $1.035 billion, exceeding the high end of our guidance range. During the quarter, our largest customer accounted for approximately 67% of revenue, consistent with the prior quarter. Mobile represented 62% of total revenue and came in higher than our expectations, driven by healthy sell-through at our top customer. Broad markets also outperformed expectations, growing 4% sequentially and 11% year over year, driven by growth across edge IoT, data center and cloud infrastructure, and automotive. Gross profit was $482 million with a gross margin of 46.6%. Operating expenses were $230 million at the low end of our guidance range, reflecting disciplined cost control while continuing to invest in priority growth areas. Operating income was $252 million, translating to an operating margin of 24.3%. Other income was $6 million, and our effective tax rate was 10%, resulting in net income of $232 million and diluted earnings per share of $1.54, $0.14 above the midpoint of our guidance. We generated $396 million of operating cash flow, capital expenditures of $57 million, resulting in free cash flow of $339 million or a 33% free cash flow margin. We ended the quarter with approximately $1.6 billion in cash and investments, and $1 billion in debt, maintaining a strong balance sheet and ample flexibility to support our strategic and financial priorities. Looking ahead to 2026, we expect revenue to range between $875 million to $925 million. We anticipate mobile to decline approximately 20% sequentially, consistent with seasonality. We expect broad markets to be flat sequentially, representing 44% of sales, and up high single digits year over year. Gross margin is projected to be approximately 44.5% to 45.5%, reflecting seasonally lower volume. We expect operating expenses to be between $230 million and $240 million as we continue to fund key R&D initiatives while maintaining tight control over discretionary spending. Below the line, we anticipate approximately $4 million in other income, an effective tax rate of 10%, and a diluted share count of 151 million shares. At the midpoint of our revenue outlook of $900 million, this equates to expected diluted earnings per share of $1.40. With that, I'll turn it back over to Philip Brace for closing remarks. Philip Brace: Thank you, Philip. Before we wrap up, a heartfelt thank you to our employees, customers, and partners. Your dedication fuels our success and sets the stage for continued leadership and growth. Operator, let's open the line for questions. Operator: Thank you. If your question has been answered and you'd like to remove yourself from the queue, please press 11 again. Given time constraints, please limit yourselves to one question and one follow-up. Our first question comes from Harsh Kumar with Piper Sandler. Your line is open. Harsh Kumar: Yeah. Hey. First of all, congratulations, guys. We know this is a tough environment, but you guys are doing really well in mobile, specifically. Phil, I had a question for you. You mentioned things. You said you won't take specific questions on the deal, but you mentioned you will see increased scale, deeper R&D capability, broader technology suite, etcetera. Was wondering if you could hit upon what maybe specifically are color-wise what you expect to see out of this deal on these kinds of fronts. Philip Brace: Yeah. You know what I'm really excited about? Thanks for the question. You know, look. What's always impressed me is the complementary nature of our portfolios. In fact, it's pretty clear. I mean, Qorvo does a lot of the intensified of the house, which we don't really have at all. So I'm really excited about bringing those complementary technologies together. Particularly in the RF side, it should result in reduced volatility. It should increase our scale on the RF side, giving us the opportunity to innovate across the RF chain. Brings us lots of engineers that we think are highly valuable. And I just think there's just the future is super bright in how we do that. And then we bring the, you know, the combination together brings a fantastic, you know, broad market synthesis as well. So, you know, super, super bullish about that, and I hope that answered your question. Harsh Kumar: No. It does. Thank you for the color. And then as my follow-up, if I can ask you, you know, you will have a pretty broad set of auto products to address your largest customer need. I think that's the biggest customer around that you want to be playing with and, you know, you'll have kind of a pretty broad portfolio. So the question was, how do you see the combined company having the right kind of portfolio? What will you be focused on within that portfolio to address your customers' needs? Philip Brace: You know, look, I think that we bring a tremendous scale all the way from a lot of the antenna areas all the way back to the pads and a number of different critical RF technologies. And when we see the RF complexity evolving as AI workloads look more to the edge, there's more transmit capability coming down the pipe. From what we can see, having the broadest RF portfolio in the industry is going to be a really powerful opportunity for us. And then also, I think, keep in mind, it gives us an opportunity to innovate in a variety of other areas too. We talk about Wi-Fi, or some of the other areas as well. The world is connected wirelessly. There are billions of devices connected wirelessly, and I think it continues to give us a platform to invest in that for the future going forward. Operator: Thank you. Our next question comes from Karl Ackerman with BNP Paribas. Your line is open. Karl Ackerman: Yes. Thank you, gentlemen. Two, if I may. Your guide implies broad markets will grow on a year-over-year basis for, I think, at least six consecutive quarters. I think you said you eight on a sequential basis. Could you discuss you spoke a little bit about some of the design wins particularly around Wi-Fi driving demand for edge. But could you also address where you're seeing the most strength of broad markets in March? And then which areas of this business do you see that you have the most confidence in that can drive growth? Your long-term growth over the next two or three years? I have a follow-up, please. Philip Brace: Yeah. Thanks. I mean, look, you're at this mark, sir. Eighth consecutive quarter of sequential growth with double-digit year-over-year revenue expansion. So we feel really good about that. When I look at kind of underneath the covers, what you asked for, I would I guess, I would point to three major areas. Right? The first would be Wi-Fi. Right? Wi-Fi 7 adoption continues to be very strong. And there are some reasons for that. The increased bandwidth, the increased security, as really as AI moves continues to move out there to the edge, we see Wi-Fi continuing to be a major platform for that. And, you know, demand there remains robust. And, certainly, see a long, you know, push of innovation that leads out to Wi-Fi 8 and beyond. So I'm particularly excited about that one. You know, on the automotive stuff, for us, that's also been an area where we've seen good growth. And there's a lot of headlines in the news about auto markets, but we actually tend to be kind of in the sweet spot of the growth area because we're talking about vehicle-to-vehicle connectivity. We're talking about infotainment. And power isolation products, which are really kind of independent of the kind of combustion engine you use. And we've seen pretty broad-based wins across the board globally on that. So that seems to be some tailwind for us. And then finally, on the power and timing, which is really related to the data center side, I mean, we're seeing tremendous uptick in our activity, design wins, particularly as we have a really strong lead in what we call jitter attenuating clocks. Which are really important as the frequencies continue to go up to 800 gig or 1.6 terabytes. And then some of our power isolation products which really have to do with as the servers move to higher and higher voltage, you need to isolate the power that's coming in from the low voltage power of the actual silicon devices. So, I mean, I would characterize Wi-Fi, automotive, and then data center with power and timing as kind of being three tailwind things we have in our broad markets we're excited about. Karl Ackerman: Got it. Thank you for that, Phil. You know, during the prepared comments, you spoke about how you're seeing strengthening position, your 5G position in premium Android handsets, including the upcoming Galaxy S26 launch. At the same time, you spoke about how your overall content should be stable, if not maybe a little bit better than that, going forward. Having said that as kind of a backdrop, I guess, should we expect that, you know, fiscal 2025 should be the trough in content at your largest customer? And I guess more broadly, could you describe your positioning at your largest customer and whether AgenTik AI could drive higher RF content gains in its devices than in prior seller technology upgrade cycles as well? Thank you. Philip Brace: Yes. Thanks. Good question. Look, I think what I would say, look, we compete for business every single year at our large customer. I don't expect that to change. I'm pleased we defended our major sockets at all the mobile platforms. So I'm pleased we did that. I'm not satisfied that we did because I have the we have the opportunity to do even better than that. But I'm pleased we defended the sockets, and I think you know, I think some of our prepared remarks and from our largest customer suggest there's a strong tailwind with both upgrade cycles, AI demand pushing things to the edge. And we continue to see very strong demand cycles, not just on the mobile side, but pretty much broad-based right now as well. We're keeping a close eye on it just some of the commentary around component prices and things. But right now, we continue to see a very strong tailwind of unit demand. Operator: Thank you. Our next question comes from Edward Snyder with Charter Equity Research. Your line is open. Edward Snyder: Great. Thank you. A little confused, guys. Ed, we're having some difficulty hearing you. Edward Snyder: Sorry. Is that any better? Yeah. Guys. Yeah. So I'm a little confused. You mentioned that you defended your stock stock. You've got some good content gains, but you think they may offset by mix. And given what we know about basically, the mix here, I would've thought you'd have a little bit more of a tailwind in the second half of this year just from the sheer fact that you know, you've gained back some content and the mix of modems at least is favoring you over what you did last year. I thought two to I thought last year would be your trough. But and I know since CES, there's been a lot of you know, a lot of discussion about, oh, the worst is yet to come, etcetera. So maybe you can help clarify why do you think MiX is gonna offset your content gains? Philip Brace: Think, Ed, thanks for the question. I think that we've to be careful. It's difficult for us to really comment on specific models and launch timings and things like that. But I think that you know, suffice to say, some of the content varies between particular models, and it's really hard for us to predict what ones are gonna sell, when they're gonna launch, and how they're gonna do. So I think our best guess right now is our blended content should be flat. We defended our key sockets. We gained back some more architecture changes, and we think net overall could be flat. We do expect some tailwind with respect to some of the demand we're seeing. Right? I mean, it's very strong demand across the board. I'm happy that we did that. I'm not satisfied that we did. But I'm happy we did that, and we've got some more opportunities ahead. So hopefully, that we try our best to kinda answer that. That's kinda why we're projecting a blended flat. At this point. Edward Snyder: Okay. And then if I could just ask, do you have a socket in Japan? I know you're underutilized in a couple of your factories. Specifically with the filter factory in Osaka. Is that gonna improve in the second half of the year substantially, or should we expect you know, kinda status quo maybe a little bit better? Philip Brace: Yeah. Look. I think right now, it really depends on the technology base. We're not gonna talk about specific loading of specific factories. I would say that in general, in the products that are being utilized, we are definitely we are at capacity. Right? We are definitely hand to mouth from that. We are we're scrambling to meet the REIT demands. And right now, our demand exceeds our supply. And so we're continuing to work that. There are pockets of areas where, you know, we talked about example, a specific facility, and that really has to do with more technology changes than anything like that. So know, I think that our gross margin guide, if you're kinda going there, that really reflects what we have best knowledge today of balancing mix, costs, prices, and things where we wanna go. Right? It's something we keep a close eye on, and we're gonna continue to work that going forward. Operator: Thank you. Our next question comes from Timothy Arcuri with UBS. Your line is open. Timothy Arcuri: Thanks a lot. I think you have about a $1 billion left on your repo authorization. The stock has obviously come in. I think, you know, you sound super confident on these synergies and the deal, you know, closure being on track. So can you buy back stock? I think you can repo stock with Qorvo management approval. Was that right? Can you kind of talk about that? Philip Carter: Hey, Tim. Yeah. This is Philip Carter here. Yeah. So our free cash flow this quarter was $339 million, 33% margin, sitting with $1.6 billion in cash. A billion dollars in debt, we do have ample opportunity and cash to buy the stock. During the pendency period, there are some requirements but we are you know, we're constantly looking on how we can deploy our cash. We did announce the press release that we are paying a 71¢ dividend to our shareholders. But we are constantly looking at the optionality. We do have to go to the debt markets the next twelve months or so anticipation of closing this deal. So we do want to maintain some level of financial prudence as well. Timothy Arcuri: Okay. Thanks, Phil. And then there was a huge amount of focus on the earnings call for your biggest customer around, you know, memory pricing and, you know, for their margins. So it seems like maybe it's a risk that they push back on you on pricing. So you talk about that as a risk? You said content's flat, but is your price locked in with them? Because I would think that they are gonna try to you know, take everything out of all their suppliers that they can given these, you know, memory cost headwinds. Thanks. Philip Carter: Yeah. No. I think the I mean, first off, you know, when we talk about some of those wild swings in we've heard about the market, there's simply no way for any company like Skyworks Solutions, Inc. to be able to dampen that kind of volatility out there. So the short answer is no. There's always competitive pricing dynamics at our largest customer. You know? Having said that, as I mentioned, we are hand to mouth. We are scrambling for every part we can build at this point. And so, you know, we're not seeing any pressure associated with that. And, you know, I wouldn't really expect to either. Now could that change going forward? Maybe, but we're not seeing it right now. Operator: Thank you. Our next question comes from Peter Peng with JPMorgan. Your line is open. Peter Peng: Hey, guys. Thanks for taking my question. Just in terms of your the overall unit assumptions I should be thinking, think you talked about a pretty strong upgrade cycle going. At the same time, I think there's a lot of concerns about memory, and you guys historically have talked about low single-digit unit growth. Is that still the base case to assume for this year or because of some of the memory constraints that, you know, this could be more of a flat market? Maybe just you know, you can share some color on what you're seeing. Philip Brace: Well, look. I think that we're only really guiding one quarter out. But I would say, I think, consistent with what has been said publicly on prior calls, I mean, we are seeing very strong unit demand. And we're certainly seeing that. That's reflected in our numbers certainly about seasonality. And we're seeing very strong demand. So I'll leave it at that. I don't think we want to project demand going forward because we really don't know. We just take the input from the customers and go look at it there. So but we do expect to see stronger unit demand than perhaps you've seen publicly talked about before. Peter Peng: Got it. Thank you. That's very helpful. And then just on in terms of seasonality, given the, you know, potential, you know, different set of launches, and you guys have historically had a bigger footprint in certain screens. How do we think about seasonalities, you know, through, like, in the year? Is it we kinda just model based on historical seasonality or because of some of the different launch timing that, you know, we might just skew the seasonality a little bit. Philip Brace: Yeah. Obviously, we can't really talk about launch timing of our customers and what to do. I know there's been a lot of industry chatter on that, and that's not really something we are prepared to talk about nor, frankly, do we really know. Honest. It's not something they don't review their none of our customers review their particular plans with us. But I would say that, you know, as we look in the out quarters, I mean, I don't think we're kind of what I would characterize it as fairly normal. We're not seeing anything abnormal with respect to that. So I would just you know, nothing abnormal, just strong demand, and I wouldn't say there's anything not seeing anything unusual respect to that. Operator: Thank you. Our next question comes from James Schneider with Goldman Sachs. Your line is open. James Schneider: Good afternoon. Thanks for taking my question. Following on the prior comment, realizing you can't comment on your customers' product launch plans. But in principle, would what impact would seasonally more muted business cycle or product launch cycle have on the company operational, either in terms of production, factory loadings, overall gross margins or otherwise? Philip Brace: Well, gee, I you know, let me and look. Overall, I think obviously, being our large customer, right, any sort of swings in demand are impactful for us in terms of how we manage that. You know, right now, we are very constrained across the board. We're fighting hand to mouth for product and we continue to do that. I think we've done an effective job operationally managing that. I mean, having some peaks and valleys with respect to demands is not unusual for that customer as they ramp up and down through the cycles. And so you know, right now, I think that we tend to be in a situation where the demand is just very strong, and we've seen these situations before, and we're doing our best to manage them. And should signals change, then we'll deal with that accordingly. I mean, I'm not sure I can give you a better answer than that. James Schneider: That's fair enough. Thank you. And then maybe just as a quick follow-up. You talked about the sort of recovery in broad markets, I think is kind of consistent with what your peers have reported. Can you maybe talk about any sort of idiosyncratic product areas that you took as a drive sort of outsized market growth relative to the market for you this year? Philip Brace: Thank you. Yeah. I think I kinda mentioned them before. I mean, I know. Some of the areas that I'm excited about. I mean, we talked about Wi-Fi being a big driver there. We talked about being in the auto segment growing faster. The data center spiced with power and our timing products continues to be a good one. You know, longer term, you know, it doesn't that's not yet big enough to talk about, but I'm excited about what we're doing in satellite comms too. I mean, I just think we've got exposure in a number of areas. I mean, I just I try and remind everybody that I talk to. The world is connected wirelessly. We're in a very good spot for that, and some of our products that play in the data center, including timing and power, are also seeing a bit of tailwind. So, you know, I think we've got a lot of great stuff going on, and our broad markets continue to grow and continue to perform at a better and corporate average. I think that'll help that'll help us continue to get outsized earnings out in the future. Operator: Thank you. Our next question comes from Gary Mobley with Loop Capital. Your line is open. Gary Mobley: Hey, guys. Thanks for getting me in. I had just one question. In early December, you filed form S-4 in which you gave a revenue forecast specific to Skyworks Solutions, Inc.'s business out through 2030. And I believe that predates your down selection with your largest customer. Next-generation launch. So you know, given what you know today, on sort of your content in the upcoming launch, you still stand behind those revenue forecasts outlined in the S-4 filing? For 2026 and 2027. Philip Brace: Yeah. For the question. It's obviously difficult for me to, for a lot of reasons, can't specifically comment on specific filings moving back then. I just would say that I continue to be incredibly bullish about that combination going forward. I continue to believe in the strategic and financial benefits for that. We are committed to closing the transaction. Frankly, I can't wait to get it closed. Gary Mobley: Alright. Thank you. Operator: Thank you. Our next question comes from Christopher Rolland with Susquehanna. Hi, thank you for the question. This is Yasha on Christopher Rolland. And I had a question on gross margins. So maybe just looking forward a couple of quarters, are there any gross margin puts and takes we should consider just given the memory dynamics that was expressed by our largest customer? Any trends in mix, pricing, any additional color there would be helpful. Philip Carter: Yeah. So this is Carter. We don't give any guidance beyond one quarter. As we look to the next quarter guidance, we did guide margin down 160 basis points, and that's mostly due to typical seasonality, in mobile and lower volume in March. As well as a slightly higher mix of Android. We also have had three quarters in a row of exceeding the high end of our guidance range. And as a result, you know, you can imagine you're getting a little bit more input costs on expedite fees and things like that to meet our on-time delivery targets with our customers. But, yeah, other than that, I would say, you know, we're not seeing anything abnormal from typical seasonality. Yasha: Thank you. And then for Android, I believe last call, you provided a color. It was a little less than $100 million. So any update to that revenue and how should we think about seasonality here through the year? Philip Carter: Say for the current quarter, as we look at Android, it's down quarter to quarter. We are anticipating an increase from the current quarter Q1 into Q2. And so, yeah, as we look at that, it'll be actually double-digit growth from Q1 to Q2. But we do anticipate that to moderate as we go throughout the year, so we're not seeing huge Android growth throughout the year as we're very selective on the devices that we choose. Plan. Operator: Thank you. And our last question comes from Liam Pharr of BofA. Your line is open. Liam Pharr: Hi, guys. Thank you so much for taking my question. Really appreciate it. I just wanted to have a quick clarification. When you said that your content gains at your largest customer offset by mix, do you mean that you know, that offset is from the 17 becoming a greater part of the overall mix or by expected shifts between models of the same generation? Philip Brace: It's really did said it could be potentially moderate by mix because we don't really know. I mean, the issue is that we don't really know, and I don't even think the customer knows how the models are gonna sell, and that won't be clear for some time. And so I think that we're trying to give guidance one quarter at a time. We defended our key sockets. We made progress where we could. We're just making the best prediction of what we think we can, and we'll give guidance along the way as we go there. We think our content should be stable on a blended basis, and how it actually gets quarter to quarter is really gonna depend on how the models do, and we'll just continue to keep an eye on that as we go forward. Liam Pharr: Makes sense. Thank you. And then shifting to broad markets, I was wondering if you could touch on just in terms of data center progress. Is it still, you know, any any you know, is it growing faster or slower than the overall, you know, segment average? And in Wi-Fi, maybe, you know, I don't want you to touch talk too much about the deal, but in terms of how complementary those portfolios are and whether there's any for competition, you know, naturally between your two portfolios as you combine them? Philip Brace: Yeah. On the data center side, you know, one of the yes. The short answer is yes. That is growing faster than our overall broad markets. And let me give you an example of some of the power isolation products we have to put in context. Power isolation products, what they do is they provide they basically isolate the very high voltage from the actual lower voltage microcontroller. Controllers and GPUs and things. And so as you all the trends of the respect to having higher and higher voltage on the data center side, you need to have very specialty products that basically isolate those powers. Because you can imagine if you put four or 800 volt DC, a GPU, that's probably not gonna last very long. And so all of those products so we're getting lots of demand in that space. And then the timing products really around one point about 800 gig and 1.6 terabit with their low jitter jitter attenuating clocks are doing really well as well. So right now, right, those are going definitely faster than corporate average. The margins are better than the corporate average. We just wish there'd be a lot bigger. So we're continuing to work that and invest in those. Those are continuing to be core investment areas for us. You know, with respect to Wi-Fi, you asked about the combination. Right? I think that both of the products, you know, have their unique positions to do that. We'll evaluate that going forward in terms of what we wanna do. What we told the customers is, you know, we're continuing to, you know, keep our commitments to them going forward in time, and we're gonna make the best decisions on how we do that going forward. Liam Pharr: Thanks very much. Operator: Thank you. Ladies and gentlemen, that concludes today's question and answer session. I'll now turn the call back over to Mr. Brace for any closing comments. Philip Brace: Great. Thank you very much for joining the call today, and I look forward to seeing you in person at some of the upcoming conferences. Thanks again. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Emerson Electric Co. First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Doug Ashby, Director of Investor Relations. Thank you. You may begin. Doug Ashby: Good afternoon, and thank you for joining Emerson Electric Co.'s first quarter 2026 Earnings Conference Call. For those who do not know me, my name is Doug Ashby, and I am the Director of Investor Relations for Emerson Electric Co. Today, I am joined by Emerson Electric Co.'s President and Chief Executive Officer, Surendralal Karsanbhai, Chief Financial Officer, Michael Baughman, and Chief Operating Officer, Ram Krishnan. As always, I encourage everyone to follow along with the slide presentation, which is available on our website. Please turn to Slide two. The presentation may include forward-looking statements, which contain a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson Electric Co.'s President and CEO, Surendralal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Doug, and good afternoon, everyone. Thursday, February 5, marks my fifth anniversary as Chief Executive of Emerson Electric Co. Over the five years, I have found the work challenging, motivating, and rewarding. The execution of our vision to transform Emerson Electric Co. into the world's leading automation company has been incredibly gratifying. We aligned the company to important secular drivers, which will experience outsized growth well into the future. Our customer engagement teams now deliver an unequaled software-enabled technology stack to solve the industry's biggest challenges. I am surrounded by the best management team in industrial tech and by 70,000 talented, engaged colleagues all around the world. The Emerson Electric Co. management system will enable best-in-class execution led by growth, earnings, cash, and resulting in differentiated value creation. I remain ever grateful to Emerson Electric Co.'s Board of Directors, employees, and investors for their trust and support. Please turn to Slide three. In November, we hosted our first investor conference since completing our transformation. It was energizing to present Emerson Electric Co. as the global automation leader, executing on our vision to engineer the autonomous future. In addition to highlighting our technology advancements and innovation, we introduced our value creation framework, which guides how we operate the company. Beginning with organic growth, Emerson Electric Co.'s automation portfolio is aligned to powerful secular tailwinds: electrification, energy security, near-shoring, and sovereign self-sufficiency. We expect these to drive growth over the next three years and beyond. We are also delivering innovation that enables customers to unlock significant value from automation. Operational excellence is a hallmark of Emerson Electric Co., and we have plans to further expand adjusted segment EBITDA margins by 240 basis points by 2028. Importantly, we plan to return $10 billion or 70% of cumulative cash to shareholders through $6 billion of share repurchase and $4 billion of dividend payout. We remain confident in achieving our 2028 targets: the $21 billion top line, 40% incrementals that delivered a 30% adjusted segment EBITDA margin, $8 of adjusted EPS, and a 20% free cash flow margin. We believe this is a highly differentiated value creation framework, and we are excited for the future of Emerson Electric Co. Please turn to Slide four. 2026 marks the fiftieth anniversary of National Instruments, which was founded in Austin, Texas, in 1976 by James Truchard, Jeff Kodowski, and Bill Nolan. The trio was frustrated by the inefficient tools they encountered while working in a test lab at the University of Texas and believed connecting instruments to a computer could revolutionize electronic test and measurement. They developed LabVIEW while working out of Truchard's garage, and since its release in 1986, LabVIEW has redefined productivity and engineering workflows through software-defined test. Today, Emerson Electric Co.'s NI is the leader in test automation systems, and two recent developments demonstrate how Emerson Electric Co. is still driving tests forward through software. In January, our Nigel AI advisor was one of 13 products recognized as a 2025 product of the year by electronic product design and test. This UK-based trade publication focuses on electronic test validation and manufacturing, and their annual list highlights products that use innovation to achieve even greater levels of performance. Nigel provides intelligent workflows with AI-driven test design and orchestration to accelerate troubleshooting, optimize lab performance, and enhance decision-making. This award demonstrates Emerson Electric Co.'s leadership in AI-enabled test automation and reflects continued momentum as we move the industry towards autonomous test operations. Nigel.ai is purpose-built to support specific tasks engineers face throughout the different stages of the product life cycle. Today, Emerson Electric Co. released the next generation of Nigel.ai, strengthening our capabilities in AI-enabled test. These upgrades deliver step-changing performance by moving Nigel.ai from an AI assistant to an AI author, accelerating code development to make engineering workflows more efficient from design and validation through production. Processes that previously took hours can now be completed in minutes. For our customers, this means engineers spend less time navigating tasks and more time focused on improving test outcomes. This evolution marks a clear step along our roadmap towards AgenTeq AI, software increasingly enhances productivity, and we are seeing accelerated user adoption of LabVIEW since the first launch of Nigel in 2025. Please turn to Slide five. Robust demand continued in the first quarter, with underlying orders growth of 9%. Customers are deploying capital in longer cycle projects in our growth verticals, with momentum building in North America, India, and The Middle East and Africa. I will discuss more details on demand on the next slide. Emerson Electric Co.'s first quarter results reflect disciplined execution. Underlying sales met expectations and were up 2% year over year. Momentum continued in Test and Measurement, up 11% year over year, and our 20%, driven by the secular demand for power. Profitability exceeded expectations with an adjusted segment EBITDA margin of 27.7% and adjusted earnings per share of $1.46. Annual contract value of our software grew 9% year over year and ended the quarter at $1.6 billion. We remain confident in our plans for 2026, supported by a good start to the year and our proven track record of operational excellence. We are reiterating our guidance of 5.5% sales growth, 4% underlying sales growth, and an adjusted segment EBITDA margin of approximately 28%. We are also raising the bottom and midpoint of our adjusted EPS guide and now expect $6.4 to $6.55 per share. Emerson Electric Co. completed $250 million of share repurchase in the first quarter, and we are committed to our plans to return approximately $2.2 billion of capital to shareholders. Finally, I want to highlight multiple key developments in technology and innovation at Emerson Electric Co. In January, Emerson Electric Co. was named the 2026 Industrial IoT Company of the Year by IoT Breakthrough, marking the fourth time in the past five years we have received this recognition. Over 4,000 companies were nominated globally for the 2026 competition, and Emerson Electric Co. was selected for having the most complete industrial IoT technology stack. Additionally, we released DeltaV version 16, which advances our software-defined automation vision and is an integral piece of our enterprise operations platform. With flexible architecture and enterprise integration, DeltaV version 16 empowers customers to make smarter decisions by improving access and providing context to operational data to facilitate advanced analytics and AI optimization. Lastly, we strengthened our leadership position in life sciences through a strategic collaboration with Roche, underscoring how Emerson Electric Co. software dramatically improves and shortens the technology transfer process. The new DeltaV modality library enables life science customers to efficiently design, scale, and deploy new production processes with prebuilt and proven solutions that save months of development. Please turn to Slide six. Underlying orders were up 9%, marking four consecutive quarters of strong order growth. Breaking twelve-month orders are up 6%, providing the backlog to support sales in 2026 and into 2027. North America, India, and The Middle East and Africa continue to show robust demand, while we are seeing ongoing softness in Europe and China. Orders growth was most pronounced in our Software and Systems group, which was up 23% year over year. Broad-based strength in Test and Measurement drove orders growth of 20%, led by semiconductor, aerospace and defense, and the portfolio business. AI and digital transformation of manufacturing are leading customers to deploy significant capital towards greenfield and modernization projects for power generation, especially in The U.S. Orders in our Ovation business were up 74%, driven by large project wins, including behind-the-meter data centers and fleet modernizations for major utility customers. We expect growth in the mid-teens for the year. We are also seeing healthy investments in grid digitization with ACB and AspenTech's digital grid management suite up 25% year over year. Secular tailwinds are driving substantial long-cycle project activity, and Emerson Electric Co. won approximately $450 million of automation content from our project funnel in the quarter. 80% of these wins came from our growth verticals, led by power and LNG. Our funnel remains at $11.1 billion, replenished by new opportunities in our growth verticals, and I want to highlight a few projects that support our confidence in continuing to win at high rates. First, Emerson Electric Co. was chosen to automate on-site power generation for a new 1.7 gigawatt AI data center in The United States, helping to meet accelerated deployment timelines and mission-critical reliability. The project will leverage proven behind-the-meter power generation management software as part of the Ovation platform, enabling faster time to market for the customer. Emerson Electric Co.'s recently announced strategic collaboration with Prevalon Energy played an instrumental role in our selection for this project, as the collaboration brings together Emerson Electric Co.'s automation and control expertise with advanced energy storage to help data center operators improve reliance, resilience, reliability, and efficiency in increasingly power-constrained environments. Next, Emerson Electric Co. was selected for Sempra Infrastructure's Port Arthur LNG Phase two project, which will add 13 million tonnes per annum in capacity to The U.S. Gulf Coast facility. Emerson Electric Co.'s DeltaV control system and severe service control valves were chosen based upon our reputation for strong operational performance in LNG applications and our local presence and support. Lastly, Emerson Electric Co. won projects at multiple large new space customers. It will help develop, test, and validate complex communication links for their satellite-based programs to provide reliable, high-speed Internet around the world. The customers will use NI's leading test and PXI platform, which were selected due to their superior performance in reducing test times while providing best-in-class measurement accuracy. I will now turn the call over to Michael Baughman to discuss our results and 2026 guidance in more detail. Michael Baughman: Thanks, Surendralal. Please turn to Slide seven for a more in-depth look at our Q1 financial results. As a reminder, our first half financial results are adversely affected by a software contract renewal dynamic that we detailed in our November earnings call. This impacted our Q1 year-over-year sales growth by approximately one percentage point, adjusted segment EBITDA margin expansion by 70 basis points, and earnings per share growth by $0.06. For Q1, and including the one-point drag, underlying sales growth was 2% with all segments reporting growth. Growth was led by software and systems, which was up 36% without the software contract renewal dynamic, while Intelligent Devices grew 2% and Safety and Productivity was up 1%. I will provide more details on geographic and group performance on the next two slides. Price contributed three points to growth as expected. MRO for the company represented 65% of sales. Our backlog ended the quarter at $7.9 billion, up 9% year over year, and our book-to-bill was 1.13. Adjusted segment EBITDA margin of 27.7% came in above expectations. Favorable price cost and cost reductions, including synergies, outpaced inflation to benefit margin. Excluding the 70 basis point impact from the software dynamic, adjusted segment EBITDA margin was up 40 basis points. Adjusted earnings per share came in at $1.46, a 6% increase year over year. Q1 free cash flow of $202 million with a margin of 14% came in slightly better than expected, positioning us well for our expected full-year growth of approximately 10% at greater than 18% margin. Overall, Q1 was a very good start to 2026. Please turn to Slide eight for details on Q1 underlying sales by region. As expected, underlying sales were strongest in The U.S. and The Middle East and Africa, while China remained soft. The Americas were up 3%, and The U.S. remained strong, up 6% with sustained momentum in power and LNG while also benefiting from near-shoring with expansions in life sciences and semiconductor. North America's pace of business remained healthy with resilient MRO spend. Europe was up 3%, benefiting from the timing of projects in Eastern Europe, although the overall pace of business was subdued. 9% growth in The Middle East and Africa was driven by greenfield project activity. We are seeing broad-based momentum in our growth verticals, which collectively were up 14%. Power led the strength, up 17% with elevated activity across lifetime extensions, upgrades, and greenfield projects to support the unprecedented increase in electricity demand. Life Sciences also provided significant growth driven by GLP-one demand with greenfield and modernization products to support near-shoring and self-sufficiency in multiple regions. Ongoing strength in North America and The Middle East, as well as our growth verticals and sustained demand for automation, give us confidence in our full-year outlook. Please turn to Slide nine for details on sales and margin performance for our three business groups. Software and Systems underlying sales growth of 3% was led by broad-based strength in Test and Measurement, which was up 11% and helped offset a three-point drag from the software contract renewal dynamic in Q1. We saw significant growth in power, life sciences, semiconductor, and aerospace and defense. Software and Systems margin of 31.3% increased 20 basis points year over year, driven by strong profitability from Test and Measurement and the benefit of synergies offsetting a two-point headwind from the software contract renewal dynamic. Intelligent Devices underlying sales growth of 2% was led by Power, LNG, and North America MRO, offset by weakness in China. The pace of business in Europe and China was light, although Q1 growth in Europe benefited from the timing of projects. Intelligent Devices margin of 26.9% decreased by 70 basis points year over year, driven primarily by mix and headwinds from FX due to a favorable impact last year. Safety and Productivity was up 1% underlying, driven by electrical products and stable project activity in North America, while European markets remain soft. Safety and Productivity's margin of 20.9% was down 40 basis points year over year due to lower volume offset by benefits from price and cost reductions. Please turn to Slide 10, where I will bridge Q1 adjusted EPS from the prior year. Excluding the $0.06 impact of software renewals, operations delivered $0.10 of incremental EPS in Q1. Software and Systems contributed $0.08, reflecting strong operational execution, and Intelligent Devices added $0.02. Non-operating items added $0.04 from share count and tax rate benefits. Overall, adjusted EPS grew 6% year on year to $1.46. Please turn to Slide 11 for an overview of our Q2 and full-year 2026 guidance. We are reiterating our full-year guidance for sales, adjusted segment EBITDA margin, and free cash flow. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.4 to $6.55. We still expect to return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1 billion of share repurchase, of which we completed $250 million in Q1. Turning to the second quarter, sales growth is expected to be 3% to 4% with underlying sales growth of 1% to 2%. We expect adjusted segment EBITDA margin of approximately 27% and adjusted EPS of $1.5 to $1.55. I will provide additional details on guidance in the following two slides. Please turn to Slide 12 for our 2026 group underlying sales guidance. We expect Software and Systems to be flat in Q2 and up 4% for the full year. Test and Measurement is planned to have high single-digit growth in both Q2 and the full year, while the Control Systems and Software segment is expected to be down low single digits in Q2 due to a $65 million headwind from the timing of software contract renewals. As a reminder, this accounting dynamic adversely affects GAAP revenues by $110 million in the first half and $120 million for the full year. We continue to see robust adoption of our software and expect ACV to grow 10% plus in 2026. Intelligent Devices is projected to grow 2% to 3% in Q2 and 4% for the full year, with stable MRO led by strength in North America. Second-half growth is supported by backlog phasing and the timing of project shipments. Safety and Productivity is expected to grow 1% to 2% in Q2 and 2% to 3% for the full year. Growth is driven by North American markets and electric and utility strength, but offset by continuing weakness in European markets. Overall, Emerson Electric Co. expects to grow 1% to 2% in Q2 and approximately 4% for the full year. The second-half growth acceleration to approximately 6% is supported by our strong orders momentum and lapping of the software contract renewal dynamic. Excluding the impact of software contract renewals, Emerson Electric Co.'s growth rate is expected to be 3% to 4% for Q2 and 5% for the full year. Please turn to Slide 13 for additional detail on adjusted segment EBITDA margin and EPS guidance. For Q2 2026, we expect operations to contribute around $0.05 to EPS with another $0.09 from non-operating items, primarily off FX, to offset a $0.09 impact from the software contract renewal dynamic. As a reminder, Q2 2025 adjusted EPS of $1.48 benefited from about $0.04 from the Total Energy's project that we discussed in our Q2 2025 earnings call. The lower volume from renewals in the Total Energy Energies deal impacts Emerson Electric Co.'s adjusted segment EBITDA margin by approximately 150 basis points compared to Q2 2025. We are guiding our Q2 2026 adjusted EPS at $1.5 to $1.55. For the full year, we are raising the bottom of our EPS guide by $0.05, reflecting the good performance in Q1. The renewal dynamic reduces adjusted EPS by approximately $0.05 and adjusted segment EBITDA margin by approximately 40 basis points. We still expect operations to generate about $0.50 of incremental EPS with approximately 80 basis points of margin expansion from positive price cost and the continued benefit of synergy realization from AspenTech and Test and Measurement. With that, I would like to turn the call back to the operator. Operator: Thank you. We will now be conducting a question and answer session. We also ask each person in the queue to limit themselves to only one question and one follow-up to allow everyone a chance. Our first question comes from the line of Andrew Kaplowitz with Citigroup. Please proceed with your question. Andrew Kaplowitz: Good afternoon, everyone. Hi, Andrew. Surendralal, could you break down a bit more your 9% order growth in Q1 between process and hybrid? I think you said 74% Ovation growth, which was impressive. And I think you said the mid-teens growth in Power is expected this year. But could that higher level behind-the-meter power opportunities lead to a more extended run rate of power? And then generally, would you say your process in hybrid markets settling into sort of this mid-single-digit order growth rate despite some of the concerns that we hear out there? Surendralal Karsanbhai: Yes. No, look, we were very let me start with Power, very energized with what we saw in the marketplace. It's, as you know, started to develop in 2025. But we saw certainly an acceleration in orders in the first quarter. And it's predominantly driven by two areas today, but there'll be a third that think starts to pick up steam as we go forward into the year. And the two areas are modernization of existing facilities and behind-the-meter power generated capacity of data centers. That's generally what drove the investment in the power generating capacity. Of course, on the same line, we saw modernizations of the grid and investments in our and we saw that reflected in the ACV of our DGM business. Michael Baughman: At Aspen. What we'll see I think, develop a little bit more further longer cycle, Andrew, will be new generating capacity coming in. Surendralal Karsanbhai: We see plans being put forward. We're really, right now, evergreen modernizations and behind-the-meter work. I'll also highlight in terms of the order drivers, the activity at test and measurement. Orders were up 20% in the Q And Andrew, it was broad-based. Portfolio business, semiconductor and ADT all up between twenty percent and thirty plus percent. The one offset there continues to be the Transportation segment. Which which is relatively challenged. But overall, great momentum in that business and we've seen very steady, consistent growth there. Ram, anything to add? Ram Krishnan: Yes. Just to add, I'll give you geographic color. Michael Baughman: On the 9%. Surendralal gave it to you by business. But North America was up 18%, reflecting many of the Surendralal Karsanbhai: end markets that Surendralal described Michael Baughman: certainly power, LNG, many of the t m m T and M markets in North America were very strong. Middle East was up 6% for us. Latin America was up 9%. So those fundamentally drove the spring. India was up 22%. So consistent with the commentary where we thought we had strength, we demonstrated a lot of positive momentum that should continue. Certainly, Europe was down low single digits and China was down high single digits in the quarter from an orders perspective. Surendralal Karsanbhai: Then the last thing I'll add, Andrew, just Ram Krishnan: on the funnel and the projects. It was a significant, as we highlighted, 32,000,000 of wins that came from approximately 70 project wins. Onethree of those were in power. But they had heavy participation in LNG, and in semiconductor life science and ADG as well. With each of those, representing about 15% of the wins. So lots of broad-based activity, but of course, power generating transmission and distribution really driving the numbers right now. Andrew Kaplowitz: Surendralal, that's very helpful. And then ACV growth was 9% in the quarter. Are you still talking about expected 10% plus growth for the year. As you know, there's angst regarding AI's on software. So I think you already spoke about Nigel.ai. I know you've talked about the greater vision of balanced automation. So maybe you can remind us Ram Krishnan: why AI could be complementary to growth for you guys in ACV and Michael Baughman: margin in your your software businesses? Ram Krishnan: Yes. For us, from a software perspective, first off, all of our software offerings are built on first principle models. Very, very sticky and a lot of domain knowledge built into these simulation capabilities, not just at Aspen, but also our offerings. With Ovation, DeltaV and certainly the VI suite. So the threat of AI disrupting our software business is very minimal as we see it today. And really as a counterpoint, AI capability we're building into our software should frankly accelerate the growth. So we see AI and all the AI capabilities we launched, not just with Nigel, but also the capabilities, innovation and DeltaV should be a net accelerator for software offerings, and that's really what we expect to see with continued ACV growth. Andrew Kaplowitz: Helpful, guys. Operator: Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question. Nigel Coe: Thanks. Good afternoon. Ram Krishnan: Going back to the order commentary, you obviously caught up LNG caught up Surendralal Karsanbhai: power. Ram Krishnan: Obviously, these are two very long cycle Surendralal Karsanbhai: end markets. I'm just wondering if Michael Baughman: of the orders we've seen, especially in power, are pushing beyond this year and into sort of multiyear phases. Ram Krishnan: Yes, you're absolutely right. Certainly, it's given us the confidence not just in the back half of 2026 as we see the backlog timing. And but we start to gain confidence into our 2027 as we see those orders. And that timing of those shipments. But I also suggest, Nigel, that if you look at the test and measurement business, that's there are projects in that business, but there's a lot more of the short cycle activity, particularly in the portfolio business, and in elements of semiconductor as well. Nigel Coe: Okay. And then a quick follow-up myself. Quick follow-up on the I guess, the Sensors is the new name. The Sensors margins were down, I think, 200 basis points year over year. I think you talked about FX benefits in the prior. Year quarter. Is there any impact of memory chip inflation here? Because if there's one area of Emerson Electric Co. where you might see some of this accumulation, think it might be there. So just maybe just touch on the margin weakness and then talk about the memory chip inflation as well. Michael Baughman: Nigel, it's Mike. Yes, your memory is very good. We did last year have some FX benefits that were in that segment. That we don't have this year, which drove about one point of the year over year negative comparison of about two points. The other things going on there related to mix. There was geographic mix Operator: Ladies and gentlemen, please standby with the technical difficulties. Ladies and gentlemen, thank you for your patience. We will resume. And you may continue. Ram Krishnan: Nigel, that was such a great question. They just try to get in the call on that. Okay. It's Nigel. Seriously, I think I broke the system. Michael Baughman: So Nigel, where did we drop? So we can where did we drop? Nigel Coe: Think you were talking about geographic mix, and and then I went to Michael Baughman: Did I did I did I finish the DRAM explanation on Nigel Coe: or not? Michael Baughman: No. Not nothing on DRAM. Okay. Okay. Let let let let's go back to you. Michael Baughman: Let's go back to your question, Nigel, about sensors margins. And I was commenting that you were correct about the FX impact, which was about one point of the approximately two points that the sensor margin was down on a year over year basis. There was also some mix dynamics that the prior year had a stronger North America and some backlog dynamic going on that benefited them. And then there's some other regional mix that affected profitability that sensors business had a good quarter in Europe, which was largely project based, which which had a a negative effect on the comparisons as well in the net So that was about the other point of margin decline in that business. As we look out to the full year, we expect some improvement on the 28.6% that, that business reported in the in the prior year. As for the second part of your question around the DRAM, from a profitability perspective, no impact, but I'll pass it to Ram to talk a little bit about that. So Nigel, we're obviously watching that carefully. We buy about $8 million of Ram Krishnan: DRAMs that impact many product lines, but most in control systems and software and T and M The sensors, to your specific question, less than $1 million of DRAM exposure. Of that, most of our buy is really Gen three and Gen four, DDR3 and four. Where, yes, supply chains have extended. We're watching that carefully. We don't have a lot of exposure in Gen five DDRs, which is really the AI driven constraints and inflation that we're seeing. But net net for us, the margin impact from the price inflation is something very manageable. We'll manage that within the scope of our P and L. It's really the availability that we're watching very carefully and making sure that we're addressing this with our suppliers and ensuring that we have enough availability to cover the year and beyond. Nigel Coe: That's great color. Thanks, guys. Ram Krishnan: Thank you. Operator: Our next question comes from the line of Steve Tusa with JPMorgan. Please proceed with your question. Shigusa Kotoko: Hi, this is Shigusa Kotoko on for Steve. Thanks for taking my question. Just following up on the orders, the order trends are encouraging and the backlog is up quarter over quarter too. But just there's longer cycle orders in there too, as you mentioned, earlier. And so just how should we think about the cadence of these orders translating into sales? And what businesses specifically do as expect to hit the second half that supports the full year guidance? Ram Krishnan: Yes. I mean so if you looked at the phasing of the back backlog, they're very supportive of hitting our second half sales. So these backlogs translate into the mid single digit growth, tell the percent growth that we've guided for the second half. Our trailing twelve month orders at 6% also substantiate that. Our backlog at $7.9 billion which is up 9% also phase into the second half and into the 2027. The backlog build is frankly across the board, certainly in our control systems and software business, both in power as well as our Delta V business. In Final Control, we have a balanced backlog position in our sensor business to support the second half. So the build is across the board. Operator: Thank you. Our next question comes from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your question. Jeff Sprague: Thanks. Good afternoon, everyone. Well, congrats five years. Can't believe it. That's amazing. Time does fly. Sure, it only seems like four and a half to you. Right? Ram Krishnan: Just a just a couple quick ones from me. Mike, thanks for all those bridge items. One thing I was curious about, though, is just the drop in sequential margins Q1 to Q2 on what should be Michael Baughman: maybe a couple 100,000,000 higher revenues sequentially. Give us a little bit of insight on what would be driving that? Ram Krishnan: Yes, go ahead. Yes, it's Michael Baughman: primarily the impact of the software renewal dynamic even sequentially. I mean, the 65 over the 45 and the dilution driven by that is the fundamental driver. And frankly, unfavorable mix. And totality of the Jeff, that came through that was Michael Baughman: another boost to the barrier that won't that won't be there. Jeff Sprague: And thank you for that. Michael Baughman: And those software numbers have moved around a little bit, right? I think you were thinking $50 million in Q1 and it's $40 million It like Q2 went up a little bit. Think you were saying $60 million That's correct. So just, yeah. Yes, just a little bit of movement there. Could you just also just address sort of the weak verticals and do you see stabilization? I'm thinking chem probably most notably, but some of these areas that have been just under a lot of secular pressure pressure and this whole deindustrialization trend that's ongoing and Europe chemicals. Do you see any bottom there? Is that eroding your MRO activity? And I don't know if there's any other verticals to kind of kind of talk about also. Ram Krishnan: Yes. Certainly, Jeff, you hit a very important point here. We're seeing continued flat activity in Europe for the year. Certainly, are industries such as automotive packaging, but certainly chemicals. In in places like Benelux in in Germany that are still very challenged. And then our outlook on China has turned a little more bearish as we navigated another quarter. We now believe that we'll be down low single digits for the year. Based, again, on lackluster activity in particularly the chemical sector. There are some green shoots in China, of course. There's activity that Test and Measurement is seeing that's very encouraging. There's power generation activity. But a large chemical business, which we've had for and foster for many years, continues to be And we have not seen challenging and we've not seen recovery in that business in either one of those large world areas. Michael Baughman: And then certainly, the automotive segment, which is not as big as chemical for us, but certainly a meaningful part of Ram Krishnan: parts of safety and productivity and T and M is Michael Baughman: continues to remain soft in both Europe and China. Jeff Sprague: Yeah. Ram Krishnan: Yeah. Jeff Sprague: Okay. Great. Thanks for the color, guys. Good luck. Thank you. Operator: Thank you. Our next question comes from the line of Julian Mitchell from Barclays. Please proceed with your question. Julian Mitchell: Hi, Ram Krishnan: Maybe just wanted to understand kind of your own perspectives on the order strength. So I guess, first off, was Michael Baughman: it a surprise to you what those orders did or it was sort of in the plan based on what you knew of the dollar value of orders a year ago that we really see on the outside? And I said I'm asking that just because you didn't change your organic sales guide for the year. In the second quarter, we don't seem to see a sort of short cycle pull through into intelligent devices revenue growth, for example, from these orders? Ram Krishnan: Yes. I mean, I think what this now, obviously, I I I we didn't expect a Michael Baughman: plus 9%. So there were some projects from Q2 that we got into Q1. But certainly, Ram Krishnan: the last 44%, plus 4%, plus 6%, plus nine on a trailing three month plus 6% is consistent. The mid single digits is consistent with how we thought about how first half of this year will unfold. And provide the needed momentum to deliver on the second half shipments. So I wouldn't say we're necessarily surprised by the level of order activity. It's consistent with how the funnel has manifested and these growth initiatives in LNG power semis, aerospace and life science is playing out. Michael Baughman: I think you bring up a good point in intelligent devices, Julien. We've been certainly, we had a phenomenal year as we worked through backlog in that business in in 2024 and 2025. We're now at a point where we've been a little challenged over the last few quarters in the business. We'll see that accelerate in the second half. As we work our way out of it, but it will be another softer quarter in Q2, and that will be largely behind us. Julian Mitchell: Thanks very much. And then just my follow-up on the margin. So you've clarified second quarter, but second half of the year, I think you're dialing in kind of 40s type operating leverage year on year. So just wanted to make sure that that's roughly the right ballpark and when you're thinking about that, is there any risks to it around price cost for example? Or do you think that's a good kind of you're confident in it and it's a good run rate going into the following fiscal year? Michael Baughman: Yes. We feel good about that leverage. You're correct, it's the expectation for the year is in that high 30s which again is affected by by the the software renewal dynamic. But we we do feel good about that. The leverage for the quarter of 20% when you adjust for that software renewal is back up in the mid-30s. So, yeah, I think as we move forward and think about the profitability and the growth and the leverage that we should see from the growth, we we feel good about the expected leverage for the year in the back half. Ram Krishnan: And the other way to look at the leverage is obviously on a sequential basis, half two to half one will be up mid to high single digits from a growth perspective, and that should lever in the forties. So you you you can look at it year over year. You can look at it sequentially, and I think you'll calibrate that the second half margins will trend towards that 28% plus in terms of EBITDA margins. Julian Mitchell: Thank you. Operator: Our next question comes from the line of Andrew Obin with Bank of America. Please proceed with your question. Andrew Obin: Yes, good afternoon. Hi, Andrew. Hey, how are you? Just on the 3% pricing Michael Baughman: what should we be thinking about for the second half? Ram Krishnan: How should it flow? Michael Baughman: 2% approximately in the second half or about 2% for the full year. Andrew Obin: Got you. Thank you. And just going back to this 18% North America order number, it's very, very impressive. Can we just I know you've sort of talked about it, but it's just a nice acceleration and you know, I know you sort of talked about sort of pull forward and people have tried to see what's going on. But maybe can you just describe to us how did it go through the quarter? What are we seeing? Are we seeing this rate of orders sustainable? And what do you think has changed in North American economy to drive orders like this? And I appreciate that you have behind the meter. I understand that you're a number of sort of high growth industries. And there are sort of idiosyncratic stories, but 18% is just very, very impressive. Ram Krishnan: Thank you, Andrew. I'll try to give a little color and Ram can jump in as well. So look, I believe and we're seeing it reflected in the customer activity that the industrial policy of the administration is benefiting five specific sectors that just happen to be our growth verticals. Electrification and power generation data centers, investments in AI, modernization of our grid and generating capacity, near shoring impacting life sciences, and semiconductor, a robust open energy policy that enables the development of shale gas and the export of LNG to our partners. And lastly, a defense policy that continues to modernize the American military apparatus, and we benefit from that through NIH. So that industrial policy as holistically falls incredibly well in The United States and aligns to our technology stack serves incredibly well. Michael Baughman: Yes. And just to break it down, Ram Krishnan: on the 18%, a large majority of the $450 million in project wins came in North America from a power and LNG perspective. We indicated our Ovation business was up 74% in orders. A lot of it was in North America. T and M was up 20% in orders up close to 30% in North America. So the elements of LNG power semiconductors, aerospace, defense, life sciences, augmented with a strong MRO, which was up mid to mid to high single digit from an orders perspective drove the strength in North America. Now we don't expect the 18% to continue through the quarter, but I think we're very confident that high single digit growth in North America is something we would bake into the plan. Andrew Obin: Thank you for the full year. Ram Krishnan: Thank you very much. Thank you. Operator: Our next question comes from the line of Scott Davis with Melius Research. Please proceed with your question. Scott Davis: Hey, good afternoon guys. Scott, how are you? Ram Krishnan: I'm good. Scott Davis: I have to ask this question even though I'm not sure Michael Baughman: going to be able to answer it with much precision. But on the opportunity out there in Venezuela and there's to be just a lot of old aging equipment in there that needs a refresh. But not sure if you guys have any color you could provide on that opportunity or whether you're already talking to customers about potentially having some boots on the ground there or what you can do to kind of make sure you can benefit from a rebuild? Ram Krishnan: So I appreciate the question, Scott. Certainly, a subject that we've we've renewed here in the walls of our company with our teams. We have a long established history in Venezuela. And relationship with Pineda Vista that goes back for decades. We estimate to have approximately $1 billion of installed base in the country. And largely, many of our channel partners, believe it or not, are still intact in the country, although we are not we've not been transacting in Venezuela since the sanctions. Have been transacting over the last two years directly with Chevron but sub million dollars a year. So we have a plan. We We've mobilized and thought through what investments we need to put back into the country. We'll watch to and see what happens with the with the national oil laws that need to be amended to enable foreign investment. Into Venezuela. But we believe that a market and you're absolutely right, there has been that it's been underinvested, lacks talent, is right for growth. So we'll see how things develop and we'll be ready to go in there and provide technology into those installations. Michael Baughman: Just to add to that, interestingly, as we looked at it, the first area that will probably go will be power. And so they'll they'll have to work on the power situation there, and there's an opportunity there for us as well. Scott Davis: And and that's what I was gonna ask as a follow-up really is I'm thinking about traditional upstream Ram Krishnan: and perhaps Scott Davis: maybe not thinking as much about some of the other stuff including downstream or even other industries. I don't know Venezuela well enough to know if there's any infrastructure out there otherwise. But is there a wider TAM out there than perhaps just what we're talking about in oil and gas? Ram Krishnan: Yes. I think Mike's point on power generation is a valid one. But the biggest challenge the country is gonna have, Scott, is that there's been an incredible brains rain that's impacted Venezuela over the last twenty years. Lack of engineers, technical knowledge, And and a lot of that has to be reestablished. Security situation needs to be improved. And investment capability needs to be enabled by their Congress. So we're ways away, but we'll watch it very carefully. And we're at least and to be honest, much like we did in Iraq after the Gulf War, becoming prepared so that we can hit the ground running. Scott Davis: Okay. Sounds good. Thanks guys and best of luck the rest of the year. Ram Krishnan: Thanks Scott. Operator: Thank you. Our next last question will be from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Deane Dray: Thank you. Good afternoon, everyone. Thanks for fitting me in. Just a couple of quick ones. Any update on tariffs mitigation activity any color there? Ram Krishnan: Yeah. I mean, obviously, a tariff perspective, the positive news on China, Aipa tariffs there, fentanyl tariffs going from twenty to ten. Now we did get some tariffs from where, you know, countries that don't have a trade agreement with Mexico and importing into have tariffs. So that's a little bit of headwind. But net net, I and obviously, the development today, it early. But with India, has a meaningful impact. So I would say more favorability. We still haven't quantified versus we built in. I mean, we built in don't know if we've shared the number, Doug, on on the amount of tariffs we built in about a $130 million of tariffs into the plan We are seeing relief to that number, but it's early to quantify how much. But it will be a net positive for the year versus what we've baked into the plan. Got it. That's helpful. And then China's come up a couple different times I know it's not a new region of softness, but, Lyle, you mentioned it could be some green shoots. So, you know, what's the latest there? What's the opportunity? What are those green shoots you were referencing? Ram Krishnan: Yes. We've seen really good activity in the test and measurement space in a broad portfolio business. You know, we don't participate in the aerospace defense segment there. The semiconductor, where we allow to with the various sanctions and certainly in portfolio, And that business is up in the high double digits. So we feel very good about that. There are great opportunities and continue to be great opportunities in power generation. Again, there is a dynamic in China that very much aligns in The U.S. Around data center build out, AI infrastructure, and power generation needs. We're seeing new capacity come online as opposed to that wave hitting The U.S. There were 25 ethylene coal fired power plants last year. There's a bunch of nuclear work to be done. As well as behind the meter work. So that's where we see the activity. But overall, still, I continue just overall concern that we'll be in a low single digit negative growth. By the time we're set and done this year. Deane Dray: Understood. Thank you. Operator: Thank you. And ladies and gentlemen, we have we reached the end of the question and answer session. And this also concludes today's conference, and you may disconnect your line at this time. We thank you for your participation. Have a great day.
Julianne: My name is Julianne, and I will be your conference facilitator today for the Amgen Inc. Q4 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session at the conclusion of the last speaker's prepared remarks. In order to ensure that everyone has a chance to participate, we would like to request that you limit yourself to asking one question during the Q&A session. I would now like to introduce Casey Capparelli, Vice President of Investor Relations. Mr. Capparelli, you may now begin. Casey Capparelli: Thank you, Julianne. Good afternoon, everyone, and welcome to our fourth quarter 2025 earnings call. Bob Bradway will lead the call today and be followed by a broader review of our performance by James E. Bradner, Murdo Gordon, and Peter H. Griffith. Through the course of our discussion today, we will use non-GAAP financial measures to describe our performance and have provided appropriate reconciliations within the materials that accompany this call. We will also make some forward-looking statements which are qualified by our Safe Harbor statement and please note that actual results can vary materially. Over to you, Bob. Robert A. Bradway: Okay. Thank you, Casey, and good afternoon, everyone. Thank you for joining us today. Today, we'll cover full-year results for 2025 and provide a preview of what to expect from us in 2026. Amgen Inc. delivered strong operational performance across the board in 2025, and you can see that in the breadth of our business. Note that 14 of our products achieved blockbuster status with sales of a billion dollars or more. 13 products delivered double-digit sales growth, and 18 products achieved record results for us. The strength of that broad portfolio enabled us to post double-digit growth in revenues and earnings per share for 2025. Looking to 2026, I would highlight six areas of momentum. Three of these, Repatha, Evenity, and TestSpire, all grew by more than 30% year over year in 2025. These medicines have a few important things in common. First, they're highly effective, innovative therapies that address important public health needs. Second, they're leading products in their fields. And third, while each of these products represents a multibillion-dollar global franchise already, they address areas of large unmet medical need where there are millions of patients yet to be treated. In this sense, they represent growth drivers not just for 2026, but for the rest of the decade. In rare disease, our portfolio generated more than $5 billion in sales in 2025. Here too, many of our medicines are early in their life cycle and positioned as leaders in their respective categories. Growth has been fueled by reaching new patients, expanding into additional geographies, and launching new indications. We see further opportunity ahead as we scale these therapies. Uplisna exemplifies this growth opportunity with approvals in IgG4-related disease and generalized myasthenia gravis in 2025. Our innovative oncology portfolio grew at 11% year over year in 2025, driven by our BiTE or bispecific T cell engager medicines. Particularly excited about Imdeltra, which has rapidly become the standard of care in patients with second-line or later small cell lung cancer, supported by unprecedented survival benefits. We're an industry leader in biosimilars. Our biosimilars portfolio has contributed more than $13 billion in sales since the launch of our first medicine there in 2018. With $3 billion in 2025 sales, this business is an important contributor to our organization and poised for growth with the next wave of biosimilar launches. You can appreciate the depth of our business through the lens of our research and development activities. 2026 will be a year of disciplined data generation. From a number of exciting phase II and phase III programs that will pave the way for long-term growth at Amgen Inc. Our confidence continues to build in Meritide as a differentiated treatment for obesity, type two diabetes, and obesity-related conditions. In a field featuring dozens of potential daily oral and weekly injectable medicines, Meritide stands alone as the only therapy in late-stage development to offer the paradigm-changing prospect of strong efficacy and favorable tolerability at monthly, every other month, or even quarterly dosing. In addition to Meritide, we remain excited about opaziran and what it might represent for patients with elevated Lp(a), a heritable risk factor for cardiovascular disease. We see opaziran as an opportunity to build on our leading positions in cardiometabolic disease. It shouldn't be lost on any of us that Repatha, opaziran, and Meritide together would represent a very compelling set of cardiometabolic medicines to expand our leadership in the treatment of serious chronic diseases well into the next decade. Beyond the pipeline, there's a great deal of enthusiasm about the convergence of technology and life science. And based on what we're seeing at Amgen Inc., we believe that enthusiasm for convergent innovation is well placed and will have a significant impact on how we discover, develop, and commercialize medicines. As always, I thank my Amgen Inc. colleagues around the world for supporting our mission to serve patients. And with that, let me turn over to Jay for an update in R&D. James E. Bradner: Thank you, Bob, and good afternoon, everyone. The fourth quarter capped off a year of strong disciplined execution across R&D. Throughout 2025, we advanced multiple late-stage programs, delivered five key regulatory approvals, and strengthened the evidence base supporting our marketed medicines. Taken together, these contributions demonstrate real scientific rigor and illustrate the breadth of opportunity ahead. Let me begin with Meritide, which continues to develop in meaningful and very encouraging ways. The Maritime Phase III program is rapidly advancing. With strong enthusiasm from investigators and participants. Both of our Phase III chronic weight management studies are fully enrolled and our ASCVD and heart failure outcome studies are progressing well. In parallel, we continue to expand the clinical landscape of Meritide across obesity-related conditions as we begin enrollment of our two Phase III sleep apnea studies in adults with and without positive airway pressure therapy. Altogether, we now have six global phase three studies underway with Miratide. Collectively designed to deliver a comprehensive evidence base. In addition, as we shared last month, we've completed part two of the VERITIDE Phase II chronic weight management study, We also completed the first 24 weeks of the Phase II Type II diabetes study that enrolled participants with and without obesity. Results from these two studies further increased our confidence that Meritide can represent a new paradigm in obesity, type two diabetes, and other obesity-related conditions. We believe Meritide has the potential to expand what's possible for patients. Availing an opportunity for monthly or less frequent dosing. Meritide's strong efficacy, infrequent dosing, and excellent tolerability at target dose have the potential to further enhance the patient experience and therefore treatment persistence. A major unmet need in the field. Beyond obesity and general medicine, the fourth quarter brought a landmark contribution to cardiovascular health from Repatha. In November, full results from the Phase III Vesalius CV trial were presented at the American Heart Association Scientific Sessions and simultaneously published in the New England Journal of Medicine. This study enrolled more than 12,000 patients without a prior heart attack or stroke testing the impact of Repatha for LDL-C lowering when added to optimize lipid therapy. Namely statins, with a median follow-up of approximately 4.5 years. In Vesalius CV, we're demonstrated a 25% relative risk reduction in the composite of coronary heart disease death heart attack, or ischemic stroke. And delivered a 36% reduction in heart attack. With no new safety signals observed. These data clearly demonstrate that intensive LDL-C lowering with Repatha can meaningfully reduce the risk of a first cardiovascular event reinforcing its role across the full continuum of cardiovascular risk. Turning to opasiran our potentially best-in-class small interfering RNA medicine targeting Lp(a) the fully enrolled OCEAN A outcome study continues to progress. As previously discussed, this is an event-driven study and the aggregate endpoint accrual rate remains lower than initial predictions. As the study matures, we will update on the date for primary analysis as appropriate. Our conviction in olpasiran to reduce cardiovascular risk conferred by elevated Lp(a) remains strong. Grounded in compelling genetic, and epidemiologic evidence that establish elevated Lp(a) as an independent risk factor for heart disease. Moving to rare disease, the fourth quarter was highlighted by important regulatory momentum for APLISMA. In November, the European Commission approved APLISNA for the treatment of adults with active IgG4-related disease And in December, the FDA approved Eplizna for the treatment of generalized myasthenia gravis. In adults who are anti-acetylcholine receptor or anti-MuSK antibody positive. These approvals built on strong Phase III data demonstrating durable efficacy, a steroid-sparing benefit with every six-month dosing. This research further extends the impact of CD19-directed B cell depletion across serious autoimmune diseases. More broadly in B cell depletion, where we have a number of proof of concept studies underway, we expect to initiate two pivotal studies this year. The first is for patients with autoimmune hepatitis a serious disease, characterized by persistent liver inflammation that can lead to progressive scarring, loss of liver function, ultimately liver failure. The second studies chronic inflammatory demyelinating polyneuropathy or CIDP. A disabling immune-mediated neuropathy that damages peripheral nerve myelin resulting in worsening strength, worsening sensation, and for many patients substantial impairment in daily activity. For the plasma, are targeting these diseases at their root cause, by depleting pathologic B cells that drive disease through secreted autoantibodies. Given the strong efficacy of aplism in other settings, we're excited about the potential to bring a meaningful new option to patients with these two devastating conditions. We are also advancing desodoliveb, our CD40 ligand targeting biotherapeutic with both Phase III studies in Sjogren's disease now fully enrolled and study completion expected in 2026. We're pleased today to announce positive Phase II data with daxdilimab a first-in-class plasma cycloid dendritic cell depleting monoclonal antibody targeting ILT7. For the immunoglobulin-like transcript seven protein. This study in patients with primary discoid lupus erythematosus, met both primary and key secondary endpoints with an attractive safety profile. Encouraged by these data, we are working to advance Daxilimab to the next phase of development in this setting. In inflammation, the test by our Phase III program continues to advance, with ongoing studies in chronic obstructive pulmonary disease and eosinophilic esophagitis. Where we expect study completion in the second half of this year. We recently announced the decision to terminate the role rocotinlimab development and commercialization collaboration with Kewa Kirin. With significant breadth and depth across all four therapeutic areas, we took a portfolio decision to focus resources on other late-stage programs. Rocotinlimab will return to our partners at Kewa Kirin who will assume full ownership of the program. Turning to oncology. In November, the FDA granted full approval to IMDELTRA for the treatment of adult patients with extensive-stage small cell lung cancer. With disease progression on or after platinum-based chemotherapy. This approval represents a meaningful advancement for patients facing a disease that has seen very little innovation for decades. To extend the impact of Andeltra, we are presently advancing this medicine as combination therapy in frontline extensive-stage small cell where we observed unprecedented survival in early phase clinical trials. Further, we are also advancing INVELTRA with an ongoing Phase III study of limited-stage small cell lung cancer. It's a joy to see Imdeltra, like BLINCYTO, becoming a standard of care in the management of advanced cancer. Our first-in-class STEAP1 directed bi T cell engager zalaritamab continues to advance through Phase III development in prostate cancer. Beyond prostate cancer, we have recently initiated a Phase 1b study in relapsed or refractory Ewing sarcoma. A rare malignancy with high STEP-one expression and patients in an urgent need for targeted therapy. Across indelstrom, lincyto, zalaritamab, we continue to see meaningful long-term impact from our bispecific T cell engager platform. We remain committed to bringing transformative and innovative therapies like these to patients with cancer. To close out oncology, given the previously announced results from FORTITUDE-one hundred one and FORTITUDE-one hundred two, we have decided not to pursue regulatory approval for bimirtuzumab. Our FGFR2b targeting monoclonal antibody in first-line gastric cancer. Though overall efficacy did not meet our expectations, we observed an emerging signal of putative survival benefit in a subset of biomarker-defined patients. We expect to share these findings with the scientific community in the future. As with rocotinlimab, we took a portfolio decision to focus resources on our other late-stage programs. Across biosimilars, both ABP-two zero six and ABP-two thirty four biosimilar candidates to Opdivo and Keytruda respectively have completed enrollment in each of their comparative clinical studies. Supporting continued progress of the next wave of our biosimilar portfolio. Before closing, as described in our press release, we are engaged in an ongoing dialogue with the FDA regarding TABNIO's. Our medicine for the treatment of a rare and severe disease ANCA associated vasculitis. We will update you on those discussions as necessary. Now let me finish by saying that 2025 was a year of consistent execution, real scientific progress, and disciplined decision-making. We expect 2026 to bring another year of strong execution disciplined data generation, and new scientific advances as we continue to progress our robust pipeline. I want to thank our colleagues across Amgen Inc. for their continued focus on patients, and their commitment to advancing innovative medicines for serious diseases. With a broad and deep pipeline, we are well-positioned to deliver sustained long-term growth. I'll now turn it over to Murdo for the commercial update. Murdo Gordon: Thanks very much, Jay. In 2025, we delivered 10% sales growth with 13 products achieving double-digit or better performance. 14 products exceeded $1 billion in annual sales and 18 products achieved record sales. These results underscore the strength and growth potential of our portfolio and demonstrate the disciplined execution of our teams serving patients globally. Starting with general medicine, Repatha sales grew 36% year over year in 2025 surpassing $3 billion. This performance was driven by growing urgency to treat patients in both secondary and primary prevention. Today, more than 100 million people around the world still need effective LDL cholesterol lowering. Repatha remains the first and only PCSK9 inhibitor with outcomes data for patients in both high-risk primary and secondary prevention. As Jay mentioned, the landmark VACILIA CV trial showed a reduction in the risk of first major cardiovascular by 25% in high-risk patients. These data strengthen Repatha's position as the most evidence-backed therapy in the PCSK9 class. And support this critical role in earlier and more intensive LDL cholesterol management. Given these results and our leadership in this category, we believe there is now a clear opportunity to update clinical guidelines and quality measures. We expect these changes will encourage cardiologists and primary care physicians to manage LDL cholesterol more proactively. Alongside lifestyle modification, and reduce cardiovascular risk in both primary and secondary prevention. In The U.S., we continue to improve patient access to Repatha with broad formulary coverage and the launch of Amgen Now, our new direct-to-patient program. Amgen Now offers a simplified lower-cost cash pay option for patients to access Repatha. Following a successful launch, we've announced plans to expand this program to additional medicines and we're excited to make our therapies available through Trump Rx, helping improve affordability for Americans. Evenity sales increased 34% in '25 reaching $2.1 billion in sales. EVENITY remains the only treatment that simultaneously builds new bone and reduces bone resorption. A dual mechanism that is proven to rapidly reduce fracture risk in postmenopausal women. In The U.S., Evenity sales grew 41% driven by higher volumes from both established and new prescribers. Evenity leads the bone builder segment with over 60% market share and is now growing faster than the category overall. To date, approximately 300,000 U.S. Patients have been treated with EVENITY. With a 33% increase of new patients in just one year. Increased investment has helped accelerate this growth which we expect to continue. Despite strong progress, nearly 90% of the 2 million women at very high risk of fracture remain untreated. Presenting a clear opportunity for EVENITY to drive growth and impact. Prolia delivered $4.4 billion in sales in 2025, an increase of 1% year over year. In 2026, we expect accelerated sales erosion driven by increased competition as multiple biosimilars have launched globally. Our rare disease portfolio grew 14% year over year to nearly $5.2 billion 19% in the quarter. With strong performance across the portfolio. EPLISMA sales increased 73% year over year to $655 million reflecting growing patient demand across all three approved indications. In December, Eplisna received FDA approval for the treatment of generalized myasthenia gravis marking an important milestone for patients with this chronic debilitating disease. Early physician response has been strong across both bio-naive and switch patients. Prescribers have noted the benefits of aplizumab upstream B cell mechanism targeting the root cause of the disease and it's also has demonstrated safety profile and the convenience of his twice-yearly dosing. Uptake of aplisna for use in IgG4-related disease continues to grow. Since the launch in The U.S., nearly 500 specialists, including rheumatologists, gastroenterologists, among others have prescribed Vuplisna. In addition to the more recent launches, continues to lead in NMOSD and remains the most prescribed FDA-approved Therapy In The U.S. For this condition. Supported by consistent new patient growth, and strong adherence across treatment cycles. TEPEZZA grew 3% to $1.9 billion in '25 driven by higher net selling price. Over 25,000 patients have received treatment since launch in The U.S. With growing interest from both new and returning prescribers. We continue to see increased prescribing by endocrinologists and a broadening base of specialists. In Japan, approximately 1,200 patients have been treated since launch, reflecting growing awareness of the burden of thyroid eye disease among both patients and prescribers. We plan to launch TEPEZZA in additional markets in 2026, expanding access to this important therapy globally. TADNIA sales were $459 million in 2025, an increase of 62% year over year driven by strong volume growth. More than 7,000 patients with ANCA-associated by vasculitis have now been treated with Tamios, with over 4,000 healthcare professionals prescribing the therapy since its launch in 2021. Anchor-associated vasculitis is a serious potentially life-threatening disease that can cause significant organ damage if not well controlled. And has limited therapeutic options. We remain confident that Tavneos is an important and effective medicine based on clinical data, real-world evidence, and its favorable benefit-risk profile. In inflammation, TestBio sales grew 52% year over year to nearly $1.5 billion for the full year. Taspire is well-positioned to reach more patients in The United States due to its differentiated TSLP mechanism that targets multiple inflammatory pathways driving severe uncontrolled asthma. Including in those with coexisting chronic rhinosinusitis with rhinosinusitis with nasal polyps, TestBiR substantially reduced the need for surgery in this population reinforcing its value in eosinophilic disease. TESSPIRE is now the leading therapy for new-to-brand patients amongst allergists in severe uncontrolled asthma. Fueled by strong prescriber confidence and continued expansion across respiratory specialties. Otezla sales increased 7% year over year to nearly $23 billion for 2026, We expect sales erosion driven by unfavorable pricing in The U.S., and generic launches particularly in The EU. Our innovative oncology portfolio, which includes BLINCYTO, INVELTRA, LUMICRAZ, VECTOBIX, KYPROLIS, ENDLATE, and XGEVA grew 11% year over year, generating $8.7 billion in full-year sales. Imdeltro delivered $627 million in full-year sales fueled by strong clinical conviction and rapid adoption across care settings. Over 1,600 U.S. Sites now administer IMDELTRA with the majority of doses provided in the community setting. Imdultra was granted full FDA approval in the fourth quarter, supported by compelling data from the Phase III DELPHY-three zero four trial. NCCN guidelines also recognize Imdeltra as the highest recommended therapy. And it has become the standard of care in the second-line setting. Reinforcing its leadership position in small cell lung cancer. BLINCYTO grew 28% year over year to over $1.5 billion in full-year sales. Driven by broad prescribing across both academic and community segments. BLINCYTO is widely recognized as a standard of care in combination with multi-agent chemotherapy for patients with Philadelphia chromosome-negative b cell ALL. Our biosimilar portfolio delivered another strong year with sales increasing 37% to $3 billion. Our expanding biosimilar portfolio provides meaningful top-line growth durable cash flow and broad patient access to high-quality cost-saving biologic medicines. PAV Blue, a biosimilar to EYLEA continues to gain momentum reaching $700 million in sales in 2025. Adoption continues to build among retina specialists who value the product's ready-to-use prefilled syringe format and the reliability of Amgen Inc.'s manufacturing and supply chain. We delivered strong results in 2025 with continued momentum across our priority growth brands. And we look forward to serving even more patients with Amgen Inc. products in 2026. Now I'd like to hand it over to Peter. Peter H. Griffith: Thank you, Murdo. We're pleased with our execution and performance in the fourth quarter and for the full year 2025. And we remain on track with our long-term objectives. The financial results are shown on Slides 34 to 36 of the slide deck Murdo has covered our strong revenue growth across the portfolio. For the full year, we delivered a non-GAAP operating margin of 46%. We continue to invest in advancing our pipeline with non-GAAP R&D spending increased 22% year over year for the full year to a record $7.2 billion. This reflects increased spending on an unprecedented number of opportunities in our late-stage pipeline. Including continued investments in Meritide, opaciran, zalutamide, and rare disease, In addition, we closed several business development transactions in the third and fourth quarters. Resulting in roughly $300 million in incremental R&D spending. Full-year non-GAAP other income and expense was $2.1 billion. We continued to strengthen our balance sheet. With $6 billion of debt retired in 2025. Our non-GAAP tax rate increased 1.4 percentage points year over year to 15.9% for the full year primarily due to changes in earnings mix. We generated $8.1 billion in free cash flow for the full year reflecting operational momentum across the business, and rigorous management of working capital, all while continuing to invest in innovation. We're leveraging AI across the value chain to accelerate therapeutic discovery and late-stage development. Optimize manufacturing, and improve customer engagement. Allowing us to drive productivity at speed and scale. We executed capital expenditures of $2.2 billion in 2025. Our capital expenditures reflect significant investments across The United States. Including Ohio, North Carolina, Puerto Rico, Rhode Island, and California. To support continued volume growth in our commercial brands, and to prepare for pipeline product launches including Meritat. In addition, we returned capital to shareholders through competitive dividend payments of $2.38 per share in the fourth quarter representing a 6% increase compared to 2024. Let's turn to the 2026 outlook on Slide 37. We expect our 2026 total revenues in the range of $37 billion to $38.4 billion and non-GAAP earnings per share between $21.6 to $23. Our revenue range reflects continuing strong performance from our six key growth drivers. Repatha of Entity, TESSPIRE, our rare disease, innovative oncology, and biosimilars portfolios, positioning 2026 as a springboard year for future growth. We expect this growth in 2026 to more than offset anticipated declines from increased denote biosimilar competition. Price declines for certain other products in 2026, and continued increases in 340B program utilization. As you model the 2026, consistent with historical trends, tied to the annual United States health insurance cycle we expect a seasonal headwind to sales driven by benefit plan changes, insurance reverifications, and higher patient co-pay obligations. We also expect Otezla and Enbrel to follow their historical pattern of lower sales in the first quarter relative to subsequent quarters and expect additional impact from denosumab biosimilar competition in Q1. Additionally, note that we saw roughly $250 million of inventory build in 2025, that could potentially impact first-quarter sales. For total company revenues, we expect lower mid-single-digit year-over-year growth in the first quarter. For the full year, we expect other revenue in the range of $1.6 billion to $1.8 billion reflecting our commitment to investing in the best innovation while also driving execution excellence efficiency and prioritization across the organization, we project the full-year non-GAAP operating margin as a percentage of product sales to be roughly 45% to 46%. This guidance does not include any potential business development that may occur throughout the year. We expect non-GAAP R&D expense to grow low single digits excluding the roughly $300 million of business development in 2025. We continue to execute six global Phase III clinical trials for miratide advance additional late-stage assets, and invest in the best innovation. While maintaining disciplined resource allocation. In line with lower product sales in the first quarter, we expect Q1 non-GAAP operating margin to be the lowest of the year and roughly the same as 2025. We anticipate non-GAAP other income and expense to be about $2.3 billion to $2.4 billion in 2026. We expect a non-GAAP tax rate of 16% to 17.5%. We expect share repurchases not to exceed $3 billion in 2026. We expect capital expenditures of about $2.6 billion in 2026. This is consistent with our capital allocation priority to invest in our business and scale manufacturing capacity for volume growth. Including preparing for Miratide's launch. We remain focused on delivering sustained long-term growth and creating value for patients and shareholders by doing what we said we would do, advancing innovation in areas of high unmet medical need and maintaining rigorous financial discipline. I'm grateful to work with all of our colleagues worldwide in serving patients, This concludes the financial update. And now I'll hand it back to Bob for Q&A. Robert A. Bradway: Okay. Thank you, Peter. And as I hope you all appreciate now, I think we ended '25 with our track record intact for having delivered against the objectives that we set for you at the beginning of the year. We're determined to do the same now in 2026. We're entering the year with momentum, excited about what we see ahead. Let's open up the call to questions, Julian. We'd be happy to entertain any of our callers now. Julianne: Thank you. If for any reason you would like to remove that question, please press star followed by one. Again, to ask a question, press star 1. Our first question comes from Michael Yee from UBS Financial. Please go ahead. Your line is open. Michael Yee: Hey, guys. Good afternoon, and thanks for all the color and looks like guidance is growth, for the year despite the, the biosimilars. Obviously, is top of mind for everybody and you've disclosed some information on Meritide recently. I was wondering, and to ask your view of the portfolio overall in obesity given that folks like today are disclosing combinations with monthly or monthly and then combinations and how you see this playing out given you're focused on Meritide, but not so sure about the rest of the portfolio there. Thank you. Robert A. Bradway: Okay. Thank you, Michael. We'll take a stab at answering your questions. Connection wasn't great, but I think we got most of what you were trying to ask. Jay, you want to kick off? James E. Bradner: Yeah, I'd be happy to. Thanks, Michael. Amgen Inc.'s really made for this moment. Of developing Meritide across so many different indications, a leading cardiovascular company, all a leading respiratory disease company, there are so many opportunities there for Meritide. We've been in obesity, as you know, a long while, all the way back to the leptin days. And enjoyed stable discovery leadership team since that time. Internally, we have another clinical stage asset, called AMG five thirteen. We have yet to disclose the mechanism of that medicine as progressing in phase one clinical investigation. And preclinically, we have a rather exciting set of rising programs that are both incretin based as well as non-incretin based. Of both injectable as well as oral medicines. And the aperture is always open. For innovation on the outside. I think you should expect us to be competing broadly in the field, Michael. Okay, let's move on. Next question. Julianne: Thank you, Michael. Our next question comes from Yaron Werber from TD Cowen. Please go ahead. Your line is open. Yaron Werber: Great. Thanks so much. I have a question actually about dasodilumab for primary Sjogren's syndrome. It looks like studies are now fully enrolled, and you're saying completion the second half. You're the only company with both the systemic and the symptomatic study in phase three based on the phase twos. Should we expect the data this year? And do you want to give us any color on the reliability of the Phase II into the Phase III, just given it's a tough condition? Thank you. James E. Bradner: Thanks, Yaron, and thanks for noticing about tesotali about This is a very exciting medicine in the portfolio. This is a CD40 ligand targeting biotherapeutic. And the CD40 pathway has long been postulated to be driving the inflammatory cascade in Sjogren's syndrome The challenge is only that the biology is somewhat ambiguous, and so we take a really nice and incisive approach with case of polyvaptanous disease As you noted, the two phase III's that we have open in Sjogren's syndrome will be in moderate to severe symptomatic activity. That's our population one. As well as in patients with a very high symptom burden that's population two. Sjogren's has been very challenging for drug development. But we find this hypothesis quite compelling. The second study has already completed enrollment of patients. This is the moderate to high symptom burden group with low systemic disease activity. And we expect completion of the trials later this year, and we'll inform later about our plan to communicate this information. As for reading through the reliability of phase two into phase three, there have been historic challenges here. But the performance against this SI score which is the clinically utilized as well as regulatory paradigm for approval, you know, was one of the first medicines ever to improve an STI score in that disease space. So we're confident going into Phase III and can't wait to look at the results. Julianne: Thank you, Yaron. Our next question Our next question comes from David Amsellem from Piper Sandler. Please go ahead. Your line is open. David A. Amsellem: Hey, thanks. So I had a couple of PlozNet related Can you talk about the extent to which the underlying IgG related disease population is larger than what literature has suggested historically and what that means for the underlying opportunity. And then secondly, I know it's early in gMG, but can you just can you talk about how the product is being used to date and what kind of role do you think it's going to have in the admittedly more crowded treatment armamentarium? Thanks. Robert A. Bradway: Let me tackle this in two parts. Jay, if you take the first part then maybe Murdo, you can jump in on the second. Go ahead. You know, there is in medicine, an experience where the availability of a targeted therapy a really effective therapy, can actually increase the incidence of a disease through awareness of the disease. Why take a diagnosis unless you have reason to intervene effectively? And that may in the fullness of time be the case here. Limiting a precise description of the epidemiology even over the last five to ten years, is the lack of really coherent registry data as well as appropriate coding that would allow such an analysis from electronic medical record data? And so I think it's a good question. I think it's a moving object. And we'll have better precision on that in the few years to come. Myrtle, what are your instincts? Murdo Gordon: I think that's a very clear description, Jay. I think the the availability of the ICD 10 coding as you alluded to is really about a three-year presence in the market. Right now, we estimate the diagnosed population to be in the neighborhood 35,000 And that could grow as you outlined. There are mentions in the literature of higher numbers However, we're obviously focused on those that are already diagnosed already in care, and we're trying to build that awareness that you spoke of. James. So far so good. The Plasma is doing extremely well in its uptake. In IgG4-related diseases. We see a nice breadth of prescribing across a number of different specialties that see these patients because of the end organ involvement in the inflammatory condition. And we'll continue to make sure that we do our part to improve that awareness, improve diagnosis These patients undergo a very complicated patient journey in that this disease can masquerade as many other things. But so far so good and we're happy to be able to help these patients finally get a treatment, the only one FDA approved that can help with their symptoms and obviously the long-term health outcomes particularly for their target organs. Just on Neplizumab and gMG, we're very pleased with initial uptake. As you said, Dave, it's very early in the launch, but what we're pleased about, and I I mentioned this in in my opening remarks is that roughly half of the patients who are being treated are bio-naive patients. And the other half coming from switches from other therapies As we've said before, this is a large, but still quite dissatisfied category where the current treatments have limitations whether that be dosing inconvenience, whether that be duration, of efficacy and perhaps some waning efficacy in this category. And so far what we've seen is a very strong interest in the Plasma for its mechanism. As well as for the convenience that it represents for patients. So so far so good. Excited about Aplisna overall. In the broader rare disease portfolio. Okay, thanks. Let's go to the next question. Julianne: Thank you, David. Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead. Your line is open. Just follow-up here on Neplinza. Walk us through what's given you confidence here in moving forward with a Phase three study in CIDP and the opportunity in that indication? And if you could also just separately touch on Repatha and how you're thinking about potential impact from the launch of Merck's oral PCSK9 and how you're adapting your commercial strategy there? Thank you. With two ends of the spectrum there from the very rare to the very common. Robert A. Bradway: So let's do Jay, you do the first question and then Murdo, you can take a sec. James E. Bradner: Okay. I'll take Salveen. We are, as Murdo shared, very bullish about aplisna. Specifically, this unique mechanism of action that targets and depletes the CD19 pathologic B cell. These, as you surely know, CB19, the B cell compartment, is evident on mature B cells like CD20 targeted by rituximab and other medicines of that type. But also the pre B cells. The more naive B cell, the cell that expands and elaborates many of these autoantibodies. And so now seeing efficacy of aplisna in so many immunoglobulin related disorders like IgG4 related disease, like myasthenia gravis, the chance to bring it to additional autoantibody mediated immune conditions is just a great chance to help patients with these severe diseases. In some cases there are signals from CD20s that we intend to follow-up with a broader more active, and hopefully much more convenient aplisna. Autoimmune hepatitis, which I mentioned earlier, is associated with autoantibodies. You see ANA, you see anti smooth muscle, you see anti actin, you see anti LC1. And the same is true, though, to a lower proportion. With CIDP as well, where maybe five percent to ten percent of patients will have autoantibodies to what are called paranodal proteins. NF155 CNTM1, I could go on for a long time. And so this biology being driven by the compartment that a plasma targets makes for a really great chance to extend the benefits of targeting B cells in both of these conditions. Murdo? Murdo Gordon: Yeah, just the size of the opportunity here is interesting. Rough the prevalent pool in The U.S. is estimated to be about thirty five thousand maybe seven thousand to ten thousand incident new diagnosed cases per year in The U.S. So hopefully, we can develop this drug and offer some benefit for for these patients. Which is yet another steroid intensive condition and we believe that we can do better than that. So let let's let's hope for that best. Outcome in those clinical trials. On Repatha, I alluded to what our strategy is in my opening remarks. We are excited by the landmark data that were revealed at the American Heart Association last year in November. Where we can now clearly promote Repatha for the prevention of first heart attack or first stroke in a high-risk patient population and or a high-risk primary prevention population. And so that is our focus right now and we are the only PCS that has both secondary and primary prevention data in our label. The Vesalius data are being met very positively by both cardiologists and primary care physicians in particular for the primary care physician for the diabetes patient. That were enrolled in the trial who did very well. So we are focused on making sure there's high awareness of these data. Repatha enjoys great access, broadly preferred on national template formularies by PBMs and health plans around the country. And around the world. And of course, we know that there's an immense amount of trust now in the profile by prescribers. And for the millions of patients that have received treatment and are taking Repatha, there's strong acceptance that a every two-week injection to lower cholesterol to the forty-five milligrams per deciliter target dose that was achieved in the Repatha arm in Vesalius. So that patients can reduce their cardiovascular risk. So we've got a lot to talk about. We've maintained all along that there is a lot of room in this market for other therapies to come in, but they will not have the data package and profile that Repatha has established and we'll continue to remind prescribers and others about that. Okay. Let's go to the next question. Julianne: Thank you, Salveen. Our next question comes from Mohit Bansal from Wells Fargo. Please go ahead. Your line is open. Mohit Bansal: Great. Thank you very much for taking my question and congrats on all the good progress here. Maybe like, just again, the question on PCSK nine and at this point. So Murdo, can you please remind us what percentage of your prescriptions are coming from primary care at this point? And with the Vesilius data, like how do you see the primary case segment of the market evolving over time? Thank you. Murdo Gordon: Yeah, thanks Mohit. I put a number out before the Vesalius data promotion started where roughly 40% of our prescriptions were coming from patients who were considered primary prevention, patients who have not yet had an event. Where physicians were looking to lower those patients' LDL cholesterol. I would imagine that that will increase and grow over time. What we're seeing is equal interest quite frankly from cardiologists who are excited by the Vesalius data and the consistency of both the primary endpoint, the secondary endpoint the MI subgroup, quite frankly the overall incidence of death in the trial was also something that attracted attention. From specialists. So the cardiology group has seen this as an affirmation of what they were already doing and being aggressive in treating LDL cholesterol. And primary care physicians, as I mentioned, are much more intent and aligned to adding Rupatha to the optimized statin therapy that most patients are on. As for how much we don't give product specific guidance. But hopefully you can tell I am extremely excited about the momentum that we have on Repatha right now. I'm really pleased with the execution of our teams around the world. We've made incremental investments in advance of the opportunity of promoting the Vesalius data and I expect that momentum to continue. Okay. Thank you. Let's go to the next question. Julianne: Thank you, Mohit. Our next question comes from Louise Chen from Scotiabank. Please go ahead. Your line is open. Louise Chen: Hi, thanks for taking my question. I wanted to ask you about TEPEZZA and your thoughts on another potential competitor coming to market and then also where you stand with AMG seven thirty two for TED. Thank you. Robert A. Bradway: Okay, great. Maybe again we could do this in two chunks. Jay, you want to talk about the clinical piece and then Mirko talk about the commercial piece? James E. Bradner: Thanks, Louise. TEPEZZA is proving to be just a very important medicine. For the management of thyroid eye disease. We have established a very strong evidence base in both the high clinical activity score and lower clinical activity score patient populations that are quite proud of this data generation, and also the apparent impact that it's having on patients being treated today. We have an ongoing subcutaneous Phase III clinical study in moderate to severe active TED. Fully enrolled, as we have shared and we expect to complete this study in the second half of this year. So we have a really terrific medicine that's increasingly a standard of care that's helping a lot of patients and a strong data set that it sits on top of before handing off to Myrtle, I'll just quickly comment. On AMG seven thirty two. Thank you for noticing. This is an IGF-1R targeting monoclonal antibody. Also achieves subQT administration. Phase two studies enrolling, initially studied in moderate to severe and active TED. And we'll have more to say on that in the future. Murdo Gordon: Yep. Thanks, Jay. As Jay mentioned, we're expanding our treatment for patients with thyroid eye disease into the lower clinical activity score patient population who tends to be managed by different specialists than the higher clinical activity score patients. We have historically been able to drive very strong penetration with oculoplastic surgeons and general ophthalmologists we are expanding our prescribing base to include endocrinologists. We made investments at the beginning of last year and those investments are starting to return now by an increased base of endocrinologists prescribing So that's in The U.S. And we expect that we'll continue to broaden our treatment of the low clinical activity score patients while maintaining our share of the higher clinical activity score patients. But also our international launches, our launch in Japan has gone extremely well. We're seeing nice uptake there. We're seeing a very well-received product for higher clinical activities for patients, and we're in the process of launching in multiple markets around the world as we speak. So overall, TEPEZZA will be a a good growth driver for us this year. Thank you. Let's go to the next question. Julianne: Thank you, Louise. Our next question comes from Terence Flynn from Morgan Stanley. Please Terence Flynn: Hi, thanks for taking the question. I had one on the Miratide Phase III program. Appreciate all the details today, but just was wondering if you have any update in terms of how to think about the design of the Type II diabetes CVOT trial, particularly the control arm as I know that's something that you guys were debating here post the, you know, seeing some of the data from some of the competitors but just wondering how you're thinking about Control Arm in that setting. Thank you. Robert A. Bradway: Sure. Jay, you want to? James E. Bradner: Sure. Happy to share, Terrence. We're just thrilled by the opportunity to develop Miratide for patients with type two diabetes. This is really where we see a potential paradigm shift in the management of that disease. In my medical training, practice with insulin and insufficient orals and titrating dosing and here we have a medicine that can be dosed monthly We've seen efficacy and chronic weight management bimonthly. We've recently described maintenance approach using quarterly dosing. This is just a new paradigm. In management of diabetes. We've shared the major insights at JPMorgan from the phase two type two diabetes study, which is ongoing. There are additional parts to this trial. It's importantly given us an experience with low BMI patients and also seeing A1c across the dose range. And so the robust findings of this trial position us very well to start to pursue Phase III clinical investigation. The specific design of these studies control arms and the patients recruited, will be a subject for a future engagement. Okay, thank you. Let's go to the next question. Julianne: Thank you, Terrence. Our next question comes Chris Schott from JPMorgan. Please go ahead. Your line is open. Chris Schott: Great. Thanks so much. Just another merited question and just on the topic of less frequent than monthly dosing. It certainly seems like there could be a trade off here where even more infrequent dosing, you know, would obviously be a huge benefit even if it was associated with a bit less weight loss. I guess, so as you're thinking about just pushing the program beyond monthly, what profile do you think you'd need to see for that to have a role in the market? Are there minimum efficacy bars you're looking at? And just in general, is your confidence about the ability to push this beyond monthly? Thanks so much. Robert A. Bradway: Okay. That's an interesting question. Murdo, do you want to take shot at what we think we see in the marketplace and why we believe Meritide has a potential to address what is emerging as a very large unmet need in the field? Murdo Gordon: Yeah. I'll make a few comments here, Bob. Thanks for the help opportunity. I think it's pretty clear as we look at the market as it exists today that there's dissatisfaction with the weekly GLP ones. And I think you can actually see that in a fairly dramatic way with the advent of oral sema and how rapidly it's been taken up in the market that tells you that clearly patients and prescribers are looking for other opportunities. Now what I like is the opportunity that we have to deliver what has been mentioned a couple of times in this call as a paradigm-changing therapy. And that's the ability to come into a weekly market bring a monthly therapy, that can achieve similar weight loss in a very well-tolerated regimen. And then for those patients, who achieve their weight goal, for them to convert to every eight-week or every twelve-week dosing regimen to maintain that weight and or the metabolic benefits of their therapy. And I think that's a pretty compelling offering. I think that we're targeting that kind of profile and we'll have multiple ways of generating data to that effect. Robert A. Bradway: Chris, maybe we'll have Jay just address a piece as well. James E. Bradner: Yeah, Chris, thanks for the question. You don't mind, I'm going reject part of the premise of your question, this idea of less frequent dosing being an absolute tradeoff for efficacy we're not certain that we will see that. Having observed the large majority of patients maintaining weight, on low dose and on quarterly dosing, In the field of obesity they call this the defended fat mass. And the capacity to avoid weight regain is a sign that the reset of body weight has been achieved. We've seen with all medicines to date dose ranging effects on weight loss, and here we might expect to see schedule ranging effects on weight loss. Would be individualized for patients. And so I wouldn't necessarily assume that we'll see a big tradeoff with less frequent dosing of miratide. Okay. Thank you. Let's go to next question. Julianne: Thank you, Chris. Our next question comes from Umer Raffat from Evercore ISI. Please go ahead. Your line is open. Umer Raffat: Hi, guys. Thanks for taking my question. I'm really, really lost today. I'm trying to figure out what happened all of a sudden. Why did FDA decide to ask you to pull the ChemoCentryx drug? Was there some litigation or some correspondence? Like, what prompted it in the first place? And then if I dig in a little more specifically, they're saying that nine patients need to be readjudicated Is that referring to the primary endpoint on week 26 remission or the week 52 sustained remission? I asked because week 26 endpoint was not inferior anyway. So even if you readjudicate those, it's still not inferior. So I'm just really lost today. Robert A. Bradway: Okay. What's Jay, go ask Jay. You addressed the question. You may wanna just start at the high altitude, remind people what Tavneos is say a few words about the disease that it addresses. It's obviously a very small product in our portfolio relative to the other things we have going on. But it may be a medicine that's less familiar to most of our callers. James E. Bradner: Yes, sir. Thanks, Umer. And just by way of background then, ANCA-associated vasculitis is a group of very serious rare, and destructive inflammatory illnesses that targets blood vessels and can therefore damage vital organs like kidneys, lungs, skin, nerves, even heart The prior treatment paradigm for tabnios was quite toxic. Cyclophosphamide chemotherapy with azathioprine and rituximab accompanied by long-term steroid use And chronic use of steroids proved very common but also very challenging. Hyperglycemia, dystrophy, bone health, mood disorders, immune suppression, And then enter tabnios or avacopan, This is an oral complement factor five a receptor blocker, and so it blocks complement mediated destruction. We acquired Tavneos from ChemoCentryx in 2022 after it had been on the market market for a year. Based on approval. For the ADVOCATE Phase III study that you referenced as published in the New England Journal. This established the efficacy of tabnios over prednisone steroid tapering for sustained remission out to fifty-two weeks when it was added to induction therapy with at that time, standard of care rituximab. And cyclophosphamide. As we shared, the FDA requested a voluntary withdrawal on January 16. We were surprised by this. There were concerns raised about a process followed by ChemoCentryx to readjudicate primary endpoint results for nine of the three thirty-one patients. And We're in discussions with FDA and we'll answer questions as we talk with them. Okay. Let's go on to the next question. Julianne: Thank you, Umer. Our next question comes from Alex Hammond from Wolfe Research. Please go ahead. Your line is open. Alex Hammond: Hey, guys. Thanks for taking the question. So you had a strong quarter with Pav Lu. I guess, how do you kind of expect to maintain this leadership position when other manufacturers launch biosimilars in the second half of the year? I guess, essentially, can you kind of help level growth expectations for this year? Robert A. Bradway: Well, obviously, we're not giving guidance on an individual product Alexander. But Murdo, go ahead and talk a little bit about the strong performance that we've observed so far with our biosimilar to Pat. Murdo Gordon: Yes. I think what we've been able to do thus far is establish good inroads with the largest national retina retina specialist networks. And the I think what what I would say is they they tend to want to pick a product that they know allows them to manage their patients effectively. We think we've got a great device that helps them do that. We obviously are competing effectively against the innovator and given that we have a lot of biosimilar experience, we'll we'll compete effectively when others enter the market, whenever that may be. Okay. We'll take one last question as we're right up against the bottom of the thirty-minute mark here of the hour. So why don't we take one last question and then as always, Casey and his team will be around to answer questions if we didn't get to you on this call. Julian, last question. Julianne: Thank you, Alex. Our last question will come from Courtney Breen from Bernstein. Please go ahead. Your line is open. Courtney Breen: Okay, Courtney. Fantastic. Thanks so much for squeezing this in. I am going to bounce you back to Maritide and just as we think about maintenance and that kind of less frequent dosing opportunity, can you describe how you might think about the role of this product in the market? Is it only post maritide weight loss? Or how should we be thinking about that switching opportunity and the type of data that you might demonstrate for that positioning over time. Thanks so much. Robert A. Bradway: Yeah, I can imagine there's probably a lot of interest in that. Murdo, do you want to share any thoughts at this point? Murdo Gordon: Well, thanks Courtney. Obviously, we think we've got as has been said now, many times and I'll repeat it again, a product that changes the paradigm of weight loss diabetes, ASCVD, heart failure management, And we see it as both an effective product to start patients on to get to weight goal and also for patients who to receive the medical of their treatment need to be on these therapies for multiple years. This opportunity for maritide's profile to deliver a convenient, well-tolerated, efficacious regimen that could be monthly, could be every eight weeks, and could be quarterly. We think that's that's really exciting. And then, of course, as you hinted at, there may be patients out there on other therapies that want to switch to something as convenient and as well tolerated as Maritide. So the answer is all of the above. Okay. So again, thank you all for your interest. We appreciate you joining our call. I'll just reiterate, if we didn't get to you, please reach out directly to Casey and his team. In the meanwhile, I hope we've left you confident the momentum that we're carrying into 2026. Again, I would just reiterate that we're excited about the year that we have in prospect here. A year which as Peter has described, we view as a springboard to the future growth here at Amgen Inc. So excited about the hand that we have and look forward to sharing it with you during the course of the year. Thank you. Julianne: This concludes our Amgen Inc. Q4 2025 earnings conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the InnovAge Holding Corp. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations. Ryan Kubota: Good afternoon, and thank you all for joining the InnovAge Holding Corp. 2026 Fiscal Second Quarter Earnings Call. With me today is Patrick Blair, CEO, and Ben Adams, CFO. Today, after the market closed, we issued an earnings press release containing detailed information on our fiscal second quarter results. You may access the release on the Investor Relations section of our company website, Innovh.com. For those listening to the rebroadcast of this call, we remind you that the remarks made herein are as of today, Tuesday, 02/03/2026, and have not been updated subsequent to this call. During our call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings press release posted on our website. We will also make statements that are considered forward-looking, including those related to our 2026 fiscal year projections and guidance, future growth prospects and growth strategy, clinical and operational values, Medicare and Medicaid rate increases, the effects of recent legislation in federal budget cuts, enrollment and redetermination processing delays, seasonality of cost trends, the status of current and future regulatory actions, and other expectations. Listeners are cautioned that all of our forward-looking statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors and other discussions included in our annual report on Form 10-K for fiscal year 2025 and any subsequent reports filed with the SEC, including our most recent quarterly report on Form 10-Q. After the completion of our prepared remarks, we will open the call for questions. I will now turn the call over to our CEO, Patrick Blair. Patrick Blair: Thank you, Ryan, and good afternoon, everyone. I'd like to start by thanking our colleagues, our participants, and their families, our government partners, and our investors for joining us today and for their continued support. We appreciate the opportunity to share an update on our fiscal 2026 second quarter results and the progress we are making against our strategic priorities. Our second quarter results reflect continued momentum across the business and disciplined execution across our clinical, operational, and financial initiatives. For the quarter, we reported total revenues of $239.7 million, center-level contribution margin of $52.8 million, Adjusted EBITDA of $22.2 million, and net income of $11.8 million. To put those results in context, we generated $39.8 million of adjusted EBITDA in the first half of the fiscal year, exceeding our full-year fiscal 2025 adjusted EBITDA of $34.5 million. Two years ago, at our Investor Day, we outlined an intermediate-term adjusted EBITDA margin target of 8% to 9% over a two to four-year horizon. This quarter, for the first time, we achieved that target, delivering an adjusted EBITDA margin of 9.2%. It's important to emphasize that this level of margin is consistent with what's required to sustainably operate a full-risk, investment-intensive, highly regulated healthcare delivery model and to continue reinvesting in our people, infrastructure, and the quality of care we provide to our participants. As we talk about the strength of our first-half results, I want to be clear about how we think about this performance and what's driving it. Over the past several years, InnovAge Holding Corp. operated from a very different financial position as we worked through operational, compliance, and organizational challenges. The progress we are seeing today reflects a deliberate effort to rebuild and strengthen the foundation of the business across every dimension: our talent, clinical model, service delivery, operational discipline, compliance capabilities, and growth engine. Importantly, financial performance is not the result of any single action or short-term lever. It's the natural outcome of delivering higher quality, more consistent care to a highly complex population, improving day-to-day utilization management, and operating with greater rigor and accountability. When the model works as intended, quality improves, outcomes improve, costs are better managed, and financial results follow. This progress also reflects our commitment to being a strong, reliable partner to our federal and state regulators. As we strengthen our financial position, we are better able to invest in our people, our centers, and our participants, and to serve more seniors in a model of care that improves quality while lowering total cost to the system. When InnovAge Holding Corp. performs well, our government partners benefit as well because more vulnerable seniors are cared for in a setting that delivers better outcomes and better value for taxpayers. We see this quarter as further evidence we are delivering on the commitments we've made to government partners, participants, and investors, and that the model is increasingly operating as designed. Let me spend a few minutes on what drove our second-quarter performance and why we exceeded expectations. First, we made meaningful progress strengthening revenue integrity, particularly around Medicaid eligibility and redeterminations. As discussed on prior calls, we encountered challenges last year that led to elevated revenue reserves and write-offs. Over the past few quarters, we've taken a comprehensive approach, investing in people, improving workflows, strengthening data and reporting, and upgrading technology. As a result, we've improved timeliness and accuracy, reduced reserves, and reinstated coverage for a number of participants where outcomes had been previously less certain. While there's more work to do, we're encouraged by the progress and the visibility we now have. Second, we continued to demonstrate strong medical cost management in an environment where many healthcare organizations are under pressure. This reflects the strength of the PACE model and the daily decisions made by our interdisciplinary teams. We saw particular strength in managing inpatient and skilled nursing utilization through proactive care coordination, earlier interventions, better length of stay management, and appropriate side of care decisions. It's about delivering the right care at the right time in the right setting. Third, we're operating our centers more efficiently as the platform matures. We've improved consistency in staffing models, scheduling, and throughput while maintaining a strong focus on quality, service, and participant experience. These gains come from standardizing best practices, better leveraging Epic, and strengthening local execution, not from one-time actions. Fourth, our SG&A performance reflects the structural work we've done to simplify the organization and improve accountability. The spans and layers work over the past year clarified roles, streamlined decision-making, and reduced unnecessary complexity. We're now seeing the benefit in a cost structure that better supports frontline care delivery. Stepping back, I want to touch briefly on the rate environment across both Medicaid and Medicare. On the Medicaid side, we're experiencing a slightly more favorable blended rate environment this fiscal year relative to our initial assumptions. This reflects state-specific dynamics and timing and is consistent with our conservative approach to forecasting, which assumes variability rather than relying on rate upside. On the Medicare side, I want to address the CMS advance notice for calendar year 2027 Medicare Advantage rates released last week. PACE is subject to the same core Medicare payment as Medicare Advantage, including county rates, risk adjustment changes, coding intensity adjustments, fee-for-service normalization, and underlying cost trends. As a result, changes to Medicare Advantage policy do affect PACE. At the same time, PACE includes unique elements, most notably the frailty adjuster based on activities of daily living, which recognizes that diagnosis-based risk adjustment alone does not fully predict costs for a highly frail population. CMS has also proposed a blended risk score for calendar year 2027 using 50% of the 2017 CMS HCC model and 50% of the proposed 2027 model, accelerating the transition relative to the prior timeline. As we look ahead, we continue to have a robust portfolio of clinical and operational value initiatives that we believe can unlock additional value across participant experience, quality, compliance, efficiency, and revenue. One key area is participant experience. We're working to more clearly define the InnovAge Holding Corp. participant experience end-to-end, from enrollment and onboarding through ongoing care, with a focus on early engagement, systematic feedback, consistent service recovery, and continuous improvement. We believe a more intentional experience will drive higher satisfaction, stronger engagement, and better retention over time. Another significant opportunity is reducing unwarranted variation in provider practice patterns. Physician decision-making sits at the center of the PACE model, influencing nearly every aspect of care delivery. While this has always been actively managed, we see an opportunity to further improve consistency and appropriateness across the platform. This work will take time and thoughtful change management, but we believe advances in AI can increasingly support physicians with peer benchmarks and evidence-based guidance, augmenting, not replacing, clinical judgment. We've also stabilized our pharmacy insourcing and are now positioned to pursue additional opportunities across pharmacy distribution, utilization management, and care coordination. With greater visibility and control, we believe pharmacy can continue to improve outcomes, efficiency, and total cost of care. Finally, we see continued opportunity to optimize center productivity, capacity, and care delivery while strengthening participant retention. We're exploring the application of advanced analytics and AI to scheduling and transportation, areas central to the PACE operating model. This work is early, but our confidence is increasing that there is meaningful value to be unlocked. Taken together, these initiatives reinforce our belief that there is still substantial opportunity ahead. The progress we've made gives us confidence, not complacency. With that context, I want to briefly touch on how our governance is evolving to support the next phase of execution and oversight. As we strengthen the operating, clinical, and compliance foundations of the company, we've continued to evolve our governance to support the next phase of execution. As part of that evolution, Tom Scully returned to the role of chairman of the board, and Pavitra Mahesh and Sean Trainor rejoined the board, effective January 28. I also want to recognize Jim Carlson for his leadership as chairman since June 2022. Jim provided steady, thoughtful guidance during a very critical period, helping InnovAge Holding Corp. navigate operational, compliance, and strategic change. We're grateful for Jim's leadership and pleased that he'll continue to serve as an independent director. Together, this governance structure strengthens oversight, reinforces alignment, and positions the company well to continue delivering for participants, regulators, and shareholders. Before turning to guidance, I want to briefly share how we think about pacing and expectations. As a full-risk, value-based care organization, quarter-to-quarter results can be influenced by timing, rate dynamics, and the maturation of initiatives. We therefore focus less on any single period and more on sustained trends across multiple quarters. With that context, the results we delivered through the first half of the fiscal year give us increased confidence in our outlook for the remainder of fiscal 2026. We believe the platform is increasingly operating as designed while still recognizing inherent variability in the model. As a result, we are raising our full-year fiscal 2026 guidance. We now expect member months between 92,900 and 95,700, total revenue between $925 million and $950 million, and adjusted EBITDA between $70 million and $75 million. To close, we're encouraged by the progress we're making and proud of how the organization is performing. These results reflect a company executing with greater consistency, accountability, and purpose in service of a highly complex senior population. We have strengthened the foundation of the business and are seeing the benefits across quality, compliance, participant experience, and financial performance. We remain grounded in the realities of a full-risk, highly regulated model and committed to managing the business with a long-term mindset. InnovAge Holding Corp. is better positioned today than at any point in recent years, not because the work is finished, but because the platform is working as designed. We're committed to executing responsibly, investing thoughtfully, and aligning the interests of participants, government partners, and shareholders. With that, I'll turn it over to Ben for more detail on the financials. Ben Adams: Thank you, Patrick. Today, I will provide some highlights from our second quarter fiscal year 2026 financial performance and insight into some of the trends we are seeing in the current quarter. Starting with census, we served approximately 8,010 participants across 20 centers as of 12/31/2025, which represents growth of 7.1% compared to 2025, and sequential quarter growth of 1.5%. We reported 23,960 member months in the second quarter, an increase of approximately 7.9% compared to 2025, and an increase of approximately 2% over 2026. Our second-quarter census growth exceeded expectations, driven primarily by our continued success in reinstating participants who had previously lost Medicaid coverage. Total revenues of $239.7 million increased 14.7% compared to $209 million in 2025, driven by an increase in member months and capitation rates. The increase in member months was primarily due to growth in our existing California, Florida, and Colorado centers. The increase in capitation rates was primarily due to an annual increase in Medicaid and Medicare capitation rates, partially offset by revenue reserve. Compared to 2026, total revenues increased 1.5% due to an increase in member months. We incurred $112 million of external provider cost during 2026, an increase of 3.8% compared to 2025. The increase was driven by the increase in member months, partially offset by a decrease in cost per participant. The decrease in cost per participant was primarily driven by a decrease in permanent nursing facility utilization and a decrease in pharmacy expense associated with the transition to in-house pharmacy services. This decrease in cost per participant was partially offset by an annual increase in assisted living and permanent nursing facility unit cost, an increase in assisted living utilization, and an increase in inpatient unit cost. Compared to 2026, external provider costs increased 2.9%. The increase was primarily driven by the increase in member months and a modest increase in cost per participant due to seasonal growth in inpatient admissions. Cost of care, excluding depreciation and amortization, was $74.9 million, an increase of 16.9% compared to 2025. The increase was due to an increase in cost per participant coupled with an increase in member months. The total increase in cost was primarily driven by a net increase in salaries, wages, and benefits due to higher wage rates and costs associated with organizational restructure, partially offset by a reduction in headcount. Higher third-party fees and shipping costs associated with in-house pharmacy services, and higher fleet costs inclusive of contract transportation. Cost of care, excluding depreciation and amortization, decreased 1.3% compared to 2026. The decrease was primarily driven by reduced headcount associated with organizational restructuring and the timing of benefits and supply expense, partially offset by higher contract transportation costs. Central level contribution margin, which we define as total revenues less external provider costs and cost of care, excluding depreciation and amortization, includes all medical and pharmacy costs, was $52.8 million in the quarter, compared to $37.1 million for 2025. As a percentage of revenue, central level contribution margin of 22% increased approximately 430 basis points in the quarter compared to 17.7% in 2025. Compared to 2026, central level contribution margin increased 2.7% from $51.4 million. As a percentage of revenue, increased 20 basis points compared to 21.8% in the same period. Sales and marketing expenses of approximately $8.1 million increased 4.9% compared to 2025, due to higher wage rates. Sales and marketing expenses increased by approximately 6.2% compared to 2026, driven by marketing spend timing. Corporate general and administrative expenses of $26.6 million decreased 5.3% compared to 2025. The decrease was primarily due to a decrease in legal and consulting fees. Corporate, general, and administrative expenses decreased 12.1% compared to 2026, primarily due to reduced headcount associated with organizational restructuring, lower contracts and consulting costs, decreased legal expenses, and the timing of software license fees. Net income was $11.8 million for the quarter, compared to a net loss of $13.5 million in 2025. We reported net income per share of 8¢, and our weighted average share count was approximately 136.4 million shares for the quarter on a fully diluted basis. Adjusted EBITDA was $22.2 million for the quarter, compared to $5.9 million in 2025, and $17.6 million in 2026. Our adjusted EBITDA margin was 9.2% for the quarter, compared to 2.8% in 2025, and 7.5% in 2026. We do not add back losses incurred by our de novo centers in the calculation of adjusted EBITDA. De novo center losses are defined as net losses related to preopening and start-up ramp through the first twenty-four months of de novo operations. For the second quarter, de novo losses were $4.7 million, primarily related to our Tampa and Orlando centers in Florida. This compares to $4 million of de novo losses in 2025 and $3.9 million of de novo losses in 2026. Turning to our balance sheet, we ended the quarter with $83.2 million in cash and cash equivalents, plus $42.8 million in short-term investments. We had $69.9 million total debt on the balance sheet, representing debt under our senior secured term loan revolving credit facility and finance leases. For the second quarter, we recorded positive cash flow from operations of $21.4 million and had $2.4 million of capital expenditures. Building on the strength we saw in 2026, I would now like to walk through our updated fiscal year 2026 guide. Based on information as of today, we are revising our fiscal year outlook from the guidance we shared in September, except for our ending census, which remains unchanged. We expect our ending census for fiscal year 2026 to be between 7,900 and 8,100 participants. In member months, to be in the range of 92,900 to 95,700. We are projecting total revenue for fiscal year 2026 in the range of $925 million to $950 million, and adjusted EBITDA in the range of $70 million to $75 million. And finally, we anticipate that de novo losses for fiscal year 2026 will be in the $11.5 to $13.5 million range. As we look toward 2026, we have increased our guidance based on the following factors. First and foremost, we are seeing continued improvement in the operations of the business each quarter, as our operational and clinical value initiatives produce results. Second, we have had success in reinstating participants who had previously lost Medicaid coverage, which reduced the impact on member months and top-line revenue relative to our original expectations. Third, Medicaid rates for the fiscal year are higher than our original estimates. And fourth, Medicare risk scores were less affected than we originally anticipated due to the phased-in implementation of risk adjustment model version 28 effective January 1. Overall, these factors contribute to improved visibility and give us more confidence in our performance for the remainder of fiscal year 2026. In closing, we remain focused on disciplined execution for the remainder of the fiscal year. We believe our updated guidance more closely reflects our stronger-than-expected performance to date in our current view of the operating environment. Operator, that concludes our prepared remarks. Please open the call for questions. Operator: Thank you. Press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And our first question comes from Benjamin Rossi with JPMorgan. You may proceed. Benjamin Rossi: Hi. Afternoon, everyone. Thanks for taking my questions. So just on the back half EBITDA progression following the raise, in context of your year-to-date adjusted EBITDA margin coming in north of about 8%, my math here kind of suggests back half margins are coming maybe closer to a mid-seven EBITDA margin as you move forward with these restructured operating costs. Just walk through some of the variables going into those margin expectations and maybe how you're thinking about margin progression for the remainder of the year? Ben Adams: Yes. Yeah. Hey, Ben. It's Ben Adams. How are you? Yeah. What I would say is remember that the third quarter for us is always the soft quarter, and there are probably a couple things going on in there. One is when we go through the open enrollment period at the end of the year, we often have slower enrollment gains in the first couple months of the third quarter. You've seen that happen over the last several years. And I think our expectation is you'll probably see something similar like that evolve this year. The other thing I think to be mindful of is the flu season, which has been, you know, particularly bad this year. We were talking earlier about the fact that the vaccine was only partially effective against the flu. And saw a relatively high incidence of the flu going into year-end and in through January. And so our expectation is we may see a little additional pressure on that side in Q3. You know, it's all, you know, it's all preliminary at this point because the data is just coming in. But because of that, I think what you'll see is, you know, sort of the softer third quarter that we typically exhibit. And then you'll see a return to a more normalized Q4 growth rate that you've seen. So that will just play through the margins just naturally. Patrick Blair: Then I might add to that just the continued work we're doing on the Medicaid redeterminations. You know, as I shared in my prepared comments, we made a tremendous amount of progress and some aspects of that work have worked out better than expected, but it's still a work in progress. Still a continued effort to ensure that our enrollment and our enrollment applications are being processed in a timely fashion. And so I think we were also cognizant of that as we put the guidance forward. Benjamin Rossi: Great. Appreciate that. And I just I'm kinda flipping over to with the shift in v28 beginning earlier this year. I know you're only a month in. But just hoping to better understand your thinking on the impact to your maybe your raw risk scores and how that might flow through to subsequent graph scoring for some of your members. I appreciate there's a lot of variables in here with some of the changes to the HCC for conditions like dementia and CKD, and you might have the frailty score come in there. Just following the guidance raise, can you just maybe help us understand how any of the back half guidance factors, those changes flowing through? I know it's only 10% at this point, but just trying to get an idea of how that maybe impacts your rates, how that could be impacted maybe overall by rates and when that on the other set of the variables. Patrick Blair: Yeah. I mean, I'll start with more of kind of a macro view, and then let Ben talk about the flow through to risk scores. You know, I think the first point is we share more in common with, you know, the Medicare rate adjustment model than we share differences. You pointed out, you know, a couple differences. You know, but I also just remind folks that only about 45% of our total per member month premium is actually Medicare. And so for that reason, and the fact that v28 is a phase-in for PACE, it has moved from a five-year phase-in to a three-year phase-in, but still is a phase-in. So we're sort of structurally less exposed to v28, you know, when comparing to other MA plans. And when you think about the frailty adjustment, you know, that is not inconsequential. You know, as it were. It is one of the some of the beauty of the system for PACE is that it, you know, it captures the disability and functional status that wouldn't otherwise be reflected, you know, in a diagnosis alone. You know, someone can have a severe set of functional disabilities that relates to bathing, dressing, eating, you know, using the toilet, walking, without necessarily having a dramatically different diagnosis than someone that say has fewer diagnoses. So there is a real opportunity for us as it relates to the differences that exist. And, you know, there actually is a floor on that frailty adjuster of, I think it's point one two nine. So, you know, I just want to point out that we do share a lot of the same challenges that the rate notice revealed. Preliminary rate notice revealed last week. But at the same time, there are some notable differences. And I'll let Ben maybe share through how he thinks about the flow through. Ben Adams: Yeah. You know, I think that Patrick pretty much hit it. I think the one thing I would say is that when we went through and did a reforecast of the business, we factored in our latest thinking about what the impact is going to be over the next two quarters till we get to the end of our fiscal year. And we think we've kind of captured appropriately in the guidance. Benjamin Rossi: Appreciate the additional color there. Thanks. Operator: Our next question comes from Matthew Gillmor with KeyBanc. You may proceed. Matthew Gillmor: Hey, thanks. Quick question. Good afternoon. I guess I wanted to start off on the census growth that was, you know, I think a bit stronger than at least we expected, and there was some commentary around being better in terms of the work you've done on Medicaid return redeterminations and improving your processes. I thought I might just ask sort of where you're seeing more success. Is that on your side and your processes, or has there been some success in just the processes at the state level and getting approvals through? Patrick Blair: Thank you. I'll let Ben kind of clean me up here. But, you know, I think there's a couple of ways to break this apart. You can think about the processes for which we sort of have complete control of. And, you know, that involves a very sort of rigorous let's call it kind of a patient accounting system. Where we can really match someone's eligibility to the premium that we receive. And we can reconcile that and we can track that throughout the company and in some ways, think of it as sort of a workflow management process as well where we're constantly sharing data between our finance organization, our enrollment organization, and our local centers on where follow-up is needed, etcetera. I think our progress in the first half, first couple quarters of the year has been on what we control. The other part of this is at some point, we're essentially handing files off, enrollment files off to the state. And depending on the state, there can be, you know, different levels of work that's required on their end. I think going forward, I think our caution is, you know, not to be overly confident about what we've accomplished internally, but we have to be mindful of where the states are and the resource challenges they're grappling with and how do we ensure that we're being as sort of collaborative as we can, timely as we can. And producing very high-quality data that allows them to do their job very effectively. That's kinda how we break it up. I'll let Ben kind of... Ben Adams: Sure. Yeah. No. I think Patrick hit it pretty well. I guess what I'd say you may remember from our prior earnings calls that we had a number of cases at the end of the fiscal year where people had lost their Medicaid coverage. And we had assumed that there'd be some attrition in our census over the first six months of this year as that happened. As we said, I think before we ended up getting a lot more of those folks re on Medicaid than we originally anticipated. Right? So that provided us a little bit of an enrollment cushion in the first six months of the year. The other thing that's nice about it is because a lot of them got reestablished relatively early, you kind of get that compounding effect of the member months. So that gave us a little bit of a member month cushion going in. You know, we're through most of that now as of the end of the fiscal year. And now we're on what I think of as our regular glide path of enrollments. And so we're seeing gross enrollments that are doing pretty well, coming in generally in line with what we'd expect. We're probably seeing a little bit more in disenrollments than we'd like, and so we're spending a lot of time on that. But you know, as we said in the beginning of the year, there are a lot of factors that are kind of coming into play into enrollment numbers this year because of the washing through of some of the changes I talked about before. But I think we seem to be tracking okay. Matthew Gillmor: Got it. That's very helpful. And then just as a quick follow-up, how does that influence the reduction in you mentioned there's a reduction in revenue write-offs. Any sense for the magnitude of that and was there some was there any sort of one-time pickup, or is that just a better go forward you think about some of the improvement in these processes? Ben Adams: Yeah. I mean, I can tell you sort of conceptually how it all works. Which is we go through a process that's pretty rigorous on the revenue write-offs. Where we look at individual participants, where they are in the redetermination process or even the enrollment process in some cases, and we come up and we look at historical write-off patterns and then we also go through and risk score them depending on where they are in the process. And compare those two results to figure out how we actually set our revenue reserves. The good news is we built a new system we didn't have last year so we can actually do this in a much more methodical fashion than we could in the past. And that was the patient accounting system, which Patrick referenced before, which is built in Salesforce for us. It's been a great tool for us. So we can track those people going through a lot more easily than we could before. So it's a much tighter process. So when we go through and set our monthly revenue reserves, we can be much more precise in the way they play out. And we can put in what I would think of as sort of an appropriate level of conservatism. Without being, you know, overly conservative. So I think the process has worked really well for us in the last six or seven months. I think we're pleased with the way it's going. I'm not sure we'd be ready to draw any conclusions yet about how far ahead we are in revenue reserves because those patterns tend to adjust month by month. But right now, I would say we're tracking to expectations. Matthew Gillmor: Got it. Thanks a lot. Operator: Thank you. And as a reminder, to ask a question, please. And our last question comes from Jared Haase with William Blair and Company. Jared Haase: Yes. Hey, guys. Thanks for taking the questions and congrats on the results. Maybe just unpack a little bit more, and I guess this is a little bit related to the question that Matt just asked. But, you know, the comment, Patrick, that you made on participating participant experience, I'm curious if you could unpack just a little bit more, you know, some of the specific areas within that patient journey that you believe could be the most impactful? And then I guess a related question, you sort of alluded to potential improvement in patient retention. You know, I'm wondering if there's any way to contextualize just where you sit today from a retention standpoint and, you know, where that might go, as you implement some of these initiatives. Patrick Blair: You know? Yeah. Let me just maybe start with just kinda giving you the order of magnitude. And we talked about kind of voluntary disenrollment, it's about 6% annualized on an annualized basis. So, you know, just gives you a sense of kind of what we're the magnitude of sort of what we're faced with as our as the denominator, our census grows. And so where we see some of the opportunities, you might expect not unlike other service providers, we're very interested to understand how what people expect when they enroll, how does that line up to what they experience once they come to the center and experience, you know, sort of the day in a life of a PACE member. And as we dig into data like that process, it sort of covers everything from the sales process through sort of onboarding communications to onboarding them physically in the center. And we've identified there's our example where people will disenroll within a short period of time. So there could be a misalignment between what they expected and what they experienced. And so tackling that end-to-end onboarding experience really isolating the moments of that experience that matter most, and then understanding, you know, where there may be misalignment or opportunity and then sort of defining that and determining if we can't build kind of the InnovAge Holding Corp. way one single way that if you walked into any center of in the country, you'd get the exact same sales experience. You get the exact same onboarding experience, etcetera. And so you could take onboarding as a part of that. You could go further to think about, you know, grievances. In the world of PACE, grievance means something very different than a typical, say, managed care or health plan model. Grievances are kind of our eyes and ears on where participants are satisfied or dissatisfied. As we dig in, have better data, we're able to profile and trend grievances and identify specific opportunities for improvement that exist. And so using grievance data to define could be another great example. How do we create a better experience to avoid that in the future? Service recovery. If something goes bump in the night, how do we respond to it? How quickly do we respond to it? Do delays in response, can they impact disenrollment? So think about it as we're sort of analytically breaking down that entire experience all the way through with another offering. To the point that one of our participants is approached, say a Medicare Advantage offering, a special needs plan offering, how do we if we lose people there, what kind of an experience can we create so that we don't lose as many people? So it's a big opportunity for us to get our arms around it. You know? I think everything we're doing today to improve the core operations of the business better execution, better accountability. Allows us to now tackle that. And so as we look forward, to where's the potential value unlocks for the company, think participant experience is one. And this notion of, I'll call it, ordering variation. Practice pattern variation. You know, that's another where the data clearly shows us meaningful variation in ordering patterns, intensity, duration of services across clinicians, across markets. Some of that variation is clinically appropriate. Some of it's not adding value to the participant. So in terms of magnitude, that in participant experience, these are not one-time levers and it's not a small and it's not a small one. We think of it as an opportunity to create more durable multiyear opportunity within our model and we're now ready as a business to take on those bigger challenges. And so as we look forward, those are some of the opportunities we see for the company. Jared Haase: Got it. I really appreciate all the detail. That's super helpful. You know, as I think about sort of the implications of, let's say, retention and patient experience, one follow-up that comes to mind. I assume you typically see sort of MLR improve as patient cohorts mature over time. So are you kind of explicitly thinking about this as, you know, if we can drive that retention better by, you know, whatever number, 50 basis points, 100 basis points, whatever number, that that kinda directly flows to MLR by just, you know, further increasing the mix towards those more tenured? Is that fair to say? Patrick Blair: It is fair to say. It's an astute question. And, you know, Ben and team are spending a lot of time right now really trying to understand those cohorts. You know, in our model, we kind of roughly say, tenure and pace is like high school. Have freshmen, sophomores, juniors, and seniors. And we're starting to look at each of those cohorts and the resources they consume, the needs they have, and really trying to understand, you know, back to this notion of kind of elevating our consumer centricity model understanding each of those cohorts, their needs, and their contribution financially is something that we're really digging into. And so to your point, for many members, there is a period of time as they progress from a freshman to a senior, there are points in time where contribution is greater. There's also points in time where, let's say, an assisted living facility may become the most appropriate solution for that person. You might see an impact contribution. And so we're really starting to dig into that data, see some really interesting opportunities to create a much more informed participant experience that's dialed in to the needs of specific cohorts. At the same time, trying to understand how the mix of those cohorts can impact the company going forward. And that's where there's a lot of work. Ben, anything to add? Ben Adams: No. I think that encapsulated it really well. You know, the nice thing about pace rates, obviously, is they're set to basically take care of a portfolio of participants who are at all different places along their journey. Right? So as long as you maintain the right proportions in your mix, the rates work very effectively. And so as we see steady enrollment growth over periods of time, the mix is much more predictable and more closely aligns with what goes on on the rate side. Probably the only thing I'd add to the disenrollments is the interesting thing about voluntary disenrollments because they really happen in the first six months of a participant's experience with us. So when we're going through and developing programs to make sure that we minimize those voluntary disenrollments, there's really a discrete period of time. Because we know once people have been with us for six or nine months, they're sort of stable in the program and they like the program and they stay. It's during that first six months or so they're getting comfortable with the PACE program, getting used to how to use it in a slightly different set of expectations versus they had before. That's the period that we really need to focus on. And today, we've got roughly probably 10% to 12% of voluntary disenrollments over the course of the year. If we can bring that down a couple of points through a bunch of these initiatives, it's very beneficial to the health of the organization. Jared Haase: Perfect. Once again, I appreciate all the detail, and I'll go ahead and leave it there and hop back in queue. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: You're holding for today's conference. We are still many additional participants and the call should begin shortly. We do thank you for your patience and please continue to stand by. Please stand by. Good day. And welcome to the Key Tronic Corporation FY 2026 Q2 Investor Call. Today's conference is being recorded. After the presentation, we will begin the question and answer period. At this time, I'd like to turn the call over to Tony Voorhees. Please go ahead. Tony Voorhees: Good afternoon, everyone. I am Tony Voorhees, Chief Financial Officer of Key Tronic Corporation. I'd like to thank everyone for joining us today for our investor conference call. Joining me here at our Spokane, Washington headquarters is Brett Larsen, our president and chief executive officer. As always, I would like to remind you that during the course of this call, we might make projections or other forward-looking statements regarding future events or the company's future financial performance. Please remember that such statements are only predictions. Actual events or results may differ materially. For more information, you may review the risk factors outlined in the documents the company has filed with the SEC. Specifically, our latest 10-K and quarterly 10-Qs. Please note that on this call, we will discuss historical financial and other statistical information regarding our business and operations. Some of this information is included in today's press release. During this call, we will also reference slides that accompany our discussion. The slides can be viewed with the webcast and the link can be found on our Investor Relations website. In addition, the slides, together with the recorded version of this call, will be available on the Investor Relations section of our website. We will also discuss certain non-GAAP financial measures on this call. Additional information about these non-GAAP measures and the reconciliations to the most directly comparable GAAP measures are provided in today's press release, which is posted to the Investor Relations section of our website. For the 2026, we reported total revenue of $96,300,000 compared to $113,900,000 in the same period of fiscal 2025. Revenue for the 2026 was adversely impacted by reduced demand from a long-standing customer and the transition of an end-of-life program. However, this impact was partially offset by new program wins and an increase in demand from other long-standing customers. As in other recent quarters, we believe customers continue to face uncertainties in the global economy and volatile trade policies. In addition, we continued ramping the consigned materials program that was previously announced. For the first six months of fiscal 2026, our total revenue was $195,100,000 compared to $245,400,000 in the same period of fiscal 2025. In line with our long-term strategic plan, mitigation strategies, we proactively advanced our near-shoring and tariff to reduce costs while maintaining the diversity and flexibility of our key locations and operational capabilities. During the 2026, we initiated a wind-down of our manufacturing operations at our China-based facility. With our strategic initiatives designed to better align organizational structure and resources, including filling the capacity recently created in Vietnam, we expect to complete this wind-down in our fourth quarter, at which point we anticipate saving approximately $1,200,000 per quarter. We also continue to further reduce our workforce in Mexico. As we intend to have that facility focused on higher volume manufacturing, once these reductions are fully implemented during our third quarter, we would expect to save approximately $1,500,000 per quarter moving forward. These strategic initiatives resulted in charges for severance, inventory write-offs, and other related expenses of approximately $10,500,000 for the quarter, which had a significant adverse impact on our margins. Gross margin was 0.6% and operating margin was negative 10.7% in the 2026, compared to 6.8% and negative 1% respectively, in the same period of fiscal 2025. Excluding the charges related to the China closure and the Mexico workforce reductions, the adjusted gross margin was 7.9% for the 2026. As top-line growth returns, we anticipate margins to be strengthened by improvements in our operating efficiencies and the positive impact of our strategic cost savings initiatives. We also believe the recent cost savings initiatives have made us more competitive when quoting new program opportunities. As production volumes increase and our operational adjustments take full effect, we expect to see greater leverage on fixed costs, enhanced productivity, and a more streamlined supply chain, all contributing to stronger financial performance. The wind-down of China production severance charges and the reduction in revenue had a significant impact on our bottom line. Our net loss was $8,600,000 or $0.79 per share for the 2026, compared to a net loss of $4,900,000 or $0.46 per share for the same period of fiscal 2025. For the first six months of fiscal 2026, the net loss was $10,900,000 or $1 per share compared to $3,800,000 or $0.35 per share for the same period of fiscal 2025. Our adjusted net income was breakeven, or $0 per share for the 2026, compared to an adjusted net loss of $4,100,000 or $0.38 per share for the same period of fiscal 2025. For the first six months of fiscal 2026, the adjusted net loss was $1,100,000 or $0.10 per share, compared to an adjusted net loss of $1,300,000 or $0.12 per share for the same period of fiscal 2025. Turning to the balance sheet, our inventory for the 2026 is down $12,300,000 or by 12% from a year ago. Our current ratio was 2.0 to 1 compared to 2.8 to 1 from a year ago. At the same time, accounts receivable DSOs were at 77 days, compared to 99 days a year ago, reflecting stronger collection on receivables. Total cash flow provided by operations for the 2026 was approximately $6,300,000 as compared to $1,300,000 in the same period of fiscal 2025. Our continuing ability to generate cash from operations has allowed us to reduce our debt year over year by approximately $13,400,000. In the second quarter, capital expenditures were approximately $3,300,000 bringing year-to-date total capital expenditures through the second quarter to approximately $6,500,000. We expect CapEx for the full year to be around $8,000,000 to $10,000,000 largely spent on new innovative production equipment and automation. While we are keeping a careful eye on capital expenditures, we plan to continue to invest selectively in our production equipment, SMT equipment, and plastic molding capabilities. Utilize leasing facilities and make efficiency improvements to prepare for growth and add capacity. As we move further into fiscal 2026, we continue to face a lot of global economic uncertainties and volatile trade policies. Nevertheless, we are pleased to continue to see our new programs gradually ramping and our cost and efficiency improvements from our recent overhead reduction taking hold. We also expect to see growth in our US and Vietnam production. Have a strong pipeline of potential new business, and remain focused on improving our profitability. Over the longer term, we believe that we are increasingly well-positioned to win new programs and profitably expand our business. Due to the uncertainty of timing of new products ramps, in light of the continued macroeconomic uncertainty, we are not providing forward-looking guidance in the 2026. That's it for me. Brett? Brett Larsen: Thanks, Tony. During the 2026, we continued to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth. We are excited about the significant investments made to our US and Vietnam locations. During the quarter, we witnessed the increasing number of customer program starts in Springdale, Arkansas. Started a new production line in Corinth, Mississippi in support of a growing consignment customer. And we shipped our first batch of medical products from Da Nang, Vietnam. Due to ongoing geopolitical tensions and tariff uncertainties, we began to execute our long-term strategy to wind down manufacturing operations at our China facility and continue to rightsize our Mexico facility. Demand from a specific long-standing customer has declined in recent periods, but we believe that recently won programs more than offset the loss in revenue in future quarters. Moreover, the continued market uncertainty and shifts of tariffs have unfortunately impacted the timing and launch of new programs. But those programs continue to slowly proceed. We are doing our best to work with suppliers and with our customers on options for manufacturing their products from different locations in mitigating the impact of tariffs. Our changes made to our manufacturing footprint and reductions have enabled us to offer improved mitigation options, particularly when our customers consider the varying implications of current and future potential tariffs. As part of our long-term strategy and in recognition of the continuing geopolitical tensions, tariff uncertainties, and increasing costs associated with China-based productions, we have begun winding down our facilities there and transferring several programs to Vietnam. As part of our global strip sourcing strategy, we will continue to operate in China with a small team focused on sourcing critical components locally. Over the past eighteen months, we have also reduced our total headcount by approximately 40% in Mexico. And have begun transferring some of the programs from Mexico to the US and Vietnam. Our Mexico facility continues to offer a unique solution for tariff mitigation under the existing USMCA tariff agreement. Given the sustained trend of continued wage increases in Mexico, we have streamlined our operations, increased efficiencies, and invested in automation in order to be more cost-competitive in the market. Due to the successful cost reductions and streamlining production processes, we have recently seen an increase in the quoting volume and probability of landing new programs manufactured within our Mexico facilities. We've also seen an influx of new customer visits and audits of our Juarez campus as of late, that demonstrates we are competitive for a growing variety of quoting opportunities. Our improved cost structure in Mexico is anticipated to lead to new programs and growth over the longer term. We are very excited about the recent investments made in the US and Vietnam to build out capacity and new capabilities to meet evolving customer demand. You will recall that we opened our new technology and research and development location in Arkansas during the 2026. Our US-based production provides customers with outstanding flexibility, engineering support, and ease of communication. We expect double-digit growth in our facility in Arkansas during the latter half of this fiscal year. You also recall that we have recently doubled our manufacturing capacity in Vietnam, which now has the capability to support medical device manufacturing. Our Vietnam-based production offers the high-quality, low-cost choice that had been associated with China in the past. In coming years, we expect our Vietnam facility to play a major role in our growth. We anticipate these new facilities in the US and Vietnam will enable us to benefit from customer demand for rebalancing contract manufacturing and mitigate the severe impact and uncertainties surrounding the tariffs on goods and critical components. By the end of fiscal 2026, we expect approximately half of our manufacturing to take place in our US and Vietnam facilities. These initiatives reflect both the long-standing customer trend to nearshore as well as derisk the potential adverse impact of tariff increase and geopolitical tensions. During the 2026, we won new programs in automotive technology, pest control, and industrial equipment. As already noted, we continue to ramp our recently announced manufacturing services contract with a data processing OEM that's consigned its materials to our Corinth, Mississippi manufacturing facility. As we discussed, the consigned material model is new for us at this scale. And if successful, we'll considerably improve our profitability in coming quarters. It has the potential to grow to over $25,000,000 in annual revenue, roughly the equivalent of a $100,000,000 turnkey program. Despite the many uncertainties and disruptions in global markets, our strong pipeline of potential new business underscores the continued trend towards onshoring and the dual sourcing of contract manufacturing. We expect the global tariff wars and geopolitical tensions will continue to drive OEMs to reexamine their traditional outsourced strategies. Over time, the decision to onshore production is becoming more widely accepted as a smart long-term strategy. We believe our manufacturing footprint and cost competitiveness will allow us to take advantage of these opportunities. The combination of our flexible global footprint and our expansive design capabilities continues to be extremely effective in capturing new business. Many of our manufacturing program wins are predicated upon Key Tronic Corporation's deep and broad design services. And once we have completed the design and ramped it into production, we believe our knowledge of a program-specific design challenges makes that business extremely sticky. We anticipate a continued increase in the number and capability of our design engineers in coming quarters. We also continue to invest in vertical integration and manufacturing process knowledge, including a wide range of plastic molding, injection, flow, gas assist, multishot, as well as PCB assembly, metal forming, painting and coating, complex high-volume automated assembly, and the design, construction, and operation of complicated test equipment. We believe that this expertise will increasingly set us apart from our competitors of a similar size. While the global market uncertainties have created some delays to new product launches for us, our suppliers, and our customers, we believe geopolitical tensions and heightened concerns about tariffs and supply chains will continue to drive the favorable trend of contract manufacturing returning to North America, as well as to our expanding Vietnam facilities. We are expecting revenue growth in the coming quarters from new programs launching in the US, Mexico, and Vietnam. We move forward with a strong pipeline of potential new business, and we are anticipating significant improvements in our operating efficiencies. Over the long term, we remain very encouraged by our cost reductions made over the past few years to become more price competitive. Our increasing cash flow generated from operations, enhanced global manufacturing footprint, and the innovations from our design engineering. All of these initiatives have increased our potential for profitable growth. This concludes the formal portion of our presentation. Tony and I will now be pleased to answer your questions. Operator: Thank you. If you would like to signal with questions, please press 1 on your touch. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is 1 if you would like to signal with questions. 1. And our first question will come from Matt Dane with Titan Capital Management. Matt Dane: Great. Thank you. I was hoping to delve a little bit more. You referenced earlier in the call that can you hear me? Tony Voorhees: Yes. We can, Matt. Matt Dane: Okay. I'm sorry. I thought maybe this one was a saying they could not hear me. So wanted to circle back around like I was saying, the increased demand for existing customers. I was hoping to get a little bit more color on how significant that is. Is it across a wide variety of customers? And what do you sense is driving that increased demand? Brett Larsen: Yeah. I would say that, you know, the large part there it's predominantly two specific long-standing customers. One is product maturation, particular design. Just, you know, the fact that there's a need for a refresh of this that had a rough order of magnitude, probably about a $20,000,000 hit to our overall quarter revenue. I think the next was essentially an end-of-life program. They're looking at replacing it down the road, but that one too roughly about a $7,000,000 reduction from last year's fiscal. Of course, offsetting that, those large decreases in revenue are some of the ramping new programs. Matt Dane: Okay. So you're not really seeing a ramp from existing customers that the ramp is really coming from new programs then? Is that am I hearing you correct then? Brett Larsen: Yeah, Matt. We do have a few customers that we're seeing some increased demand on. I would say it's around a half dozen that are, you know, kind of impacting that increase from long-standing customers. Matt Dane: Okay. No. That's helpful. And then you also in the press release referenced the three new programs that you won. I was just hoping to get a rough size estimate of each and the timing of the ramp and then also where you're gonna be manufacturing each of those. Brett Larsen: Sure. I think the first, we'll start with the automotive. That one will be manufactured down in Mexico. That will rough order could be up to $5,000,000 when fully ramped. I think the pest control to $2,000,000. I think that was actually in our US facility in Vietnam, and that could be up. And then the industrial equipment is also in our US location 2 to $5,000,000. Matt Dane: Okay. No. That's helpful. And then final question I'd like to ask. You folks have referenced in the past and again on this call today, that you have a number of tariff mitigation strategies. I don't think I've ever actually delved in and tried to better understand when you say that, well, what are you actually doing behind the scenes, and what can you do to help us understand better what you're doing there? Brett Larsen: Yeah. I mean, that really gets to the core of our strategy, our long-term strategy to essentially have a lower-cost Asian facility that could eventually replace our China facility. You know, one of the biggest reasons we're winding down China is now that we've ramped Vietnam. We feel confident in the new technology and the new production equipment that we now have online. It really is ready now to essentially resolve the, you know, the China to US tariff situation and then also, you know, some of the geopolitical tension that we have. That's one piece. The other piece is that we offer either a US-made opportunity for those that would require that. But we also still offer, you know, the production down in Mexico. That currently you still can take advantage of the USMCA agreement that allows you to build things down in Mexico and bring it back up into the US and even consume it in the US under that agreement and avoid certain tariffs as well. You know, it's a complex algorithm that really we help our customers with coming up with the best solution. A lot of that is dependent on how much labor is required, where the components are currently being supplied, where could they be supplied from possibly using some more North American-centric suppliers that we have. And then basically, coming up with various price points of a total cost to our customer and saying, here's where we think it's advantageous to build your product. We feel confident based on our locations and footprint that we can offer, you know, a suite of different answers to our customers that really could mitigate tariffs regardless of where they end up. Matt Dane: Okay. Okay. And so whenever a prospective customer is coming to you looking to have you quote a new product or program, do you usually go back to them? And if they're agnostic where it comes from, do you go back to them and offer them pricing if we were to build it in Vietnam, this would be your price? US price and then a Mexico price, do they really have the full choice in spectrum and is that really how you approach it oftentimes? Brett Larsen: It really is. And that I think that's one of the unique things that we can offer as Key Tronic Corporation is we can easily quote and offer from all three of those locations that you provided. And, you know, our customer, this is what the lead time would be required. Here's what your price is. You know, here's the pros and cons from building in each of those locations and really offer that to our customer to ultimately make that decision of where they want the product built. Matt Dane: Okay. Great. That's helpful. Appreciate the answers, guys. Brett Larsen: You bet. Operator: As a reminder, if you would like to signal with questions, please press 1. And our next question will come from George Melas with MKH Management. George Melas: Great. Thank you. Let me just pick up the phone. How are you guys? Brett Larsen: Doing well, George. Thank you. George Melas: Good. Great. Just wanna review a little bit the gross margin. On an adjusted basis, it's roughly 7.9%. Which is better than a year ago, but it's down a bit sequentially. And I'm just trying to see if there's anything unusual in the quarter in the gross margin, something positive like the high level of tooling or engineering services or maybe something negative with some disruptions and the transition of the end-of-life program or other things like that. Brett Larsen: Yeah. Just to mention a few, and I'm sure Tony will fill in as well. But I think some of the negative, some of the headwind we had during the quarter was, you know, we still are transferring programs from Mississippi up into Arkansas, the new facility. And, of course, with that comes some additional costs. I'd also mention that in our second quarter, as always, we really lose out on a week of production just due to the holidays. Our, particularly in particular, our Mexican facility was closed for a full week over Christmas. And then, of course, our domestic sites are closed for at least a half a week. So you lose some production time but, you know, that helps explain some of the sequential drop in the adjusted gross margin. We really need volume. And looking forward prospectively is in order to really increase our gross margin prospectively, we need to drive sales volume and utilize some of the excess capacity that we have in each of our sites. Tony, anything you'd add? Tony Voorhees: There was just to add to that, there were some slight mix changes that negatively impacted gross margin quarter over quarter. George Melas: Potentially? And mix changes Tony, do you mean different programs or different locations? Tony Voorhees: Primarily just different programs. George Melas: Okay. Great. Okay. Maybe another question on sort of you guys redoing the expectation to be net income breakeven and the June quarter, so just two quarters away? And with interest expense sort of remaining, let's say, $2,300,000 or in that range, you need. If we think of OpEx, normalized OpEx, that roughly $7,400,000. You need a roughly 10.7 in my basic calculation. Of gross profit. And that implies both revenue growth and margin expansion, I think. Some of the margin expansion will come from the consignment program in Mississippi. But can you comment on that and how you think that you're able to both grow revenue and margin? Brett Larsen: Yeah. I think we would stick with that same. You know, we still anticipate achieving somewhere breakeven by the end of the fiscal year. You know, we mentioned a bit about that consignment program that to ramp nicely. It's definitely not to the level of revenue that we expect it to be exiting this quarter or even in their fourth quarter. There's more growth there that is required. But as we mentioned earlier, I think with that consigned program, as large as it is, you will also see some uptick in the gross margin percentage. So you'll see both. Our expectation is some additional revenue, but then also improvement in the gross margin percentage. George Melas: Okay. Any just a follow-up on that, Brett. Any particular reason for the program sort of ramping up maybe slower than you expected? Because it seems like it's a very important program for you guys. Brett Larsen: No. You know, we expected that it would be a slow grow. You know, some of that required some additional equipment. We were able to procure that. It had some lead time to it. We actually ended up installing some of that over the Christmas holiday. And then, you know, unfortunately, down in Mississippi this quarter, you know, they got hit with some bad ice storm. So we are recovering from that. I think that'll have a slight impact into our third quarter. But won't disrupt the momentum of growing that consignment model. It just may delay it by a week or two as we get through this ice storm. But we fully anticipated that that would be a slow role to get to its peak. George Melas: Okay. And then just to try to understand, in Mexico, you expect growth in Mexico. Going forward? So does that mean that Mexico has hit sort of a bottom and that you restructured Mexico into let's say, a lower service but full capability, but maybe slightly lower service, but low cost. Operation. How would you characterize that? Brett Larsen: George, I think I would kind of like what we mentioned is that we have found that we were not market competitive. We needed to increase our efficiency. We needed to invest in some automation. We really needed to be far more competitive in our pricing down in Mexico. I hope that we're at a bottom. You know, I can't don't have a crystal ball. But my expectation based off of just the recent history, just the recent visits that we've had down in Mexico and some of the quoting opportunities that we've been down selected to take it to the next round. I feel like we're more competitive in Mexico than we were. So, yeah, over the longer term, we're still expecting Mexico to grow. We don't have anticipated additional reductions in headcount other than those that we've already accrued for in our second quarter. But as you know, things change. We are looking forward to the review of the USMCA that is to occur midyear this year. And hoping that most, if not all, of that continues. As part of the trilateral agreement between us, Mexico, and Canada. You know? But things do change. But for now, yes, we based on the volume our expectation is that Mexico will grow. Of quotes and the recent visits by potential customers. George Melas: Okay. Great. And then just one quick final question for Tony. You mentioned the $1,200,000 savings per quarter once the ramp down or the wind down of the channel manufacturing operation is completed. That $1,200,000 is that the impact on cost of sales? Is it the impact on the EBIT line? How does that $1,200,000 flow through the P&L? Tony Voorhees: Well, yeah, it's a good question, George. So that $1,200,000 really is kind of taken into consideration the entire wind down of the manufacturing portion of our China operations. So it's across the board. It's up in COGS as well as certain SG&A as well and OpEx. So, you know, as we see and we expect to have that done by our fiscal year end. So at which point, is when we'd see that $1,200,000 begin to take full effect in our results. I would say the bulk of it is in cost of goods, but to Tony's point, there is also some OpEx that will be reduced based off of that wind down. George Melas: Okay. And that $1,200,000 in savings, what would be the impact on the EBIT line? Brett Larsen: I would take the $1,200,000. George Melas: But if you have some COGS, wouldn't there be some revenue attached to the COGS that so the 1.2 is a net number, basically. Brett Larsen: It is. Sorry. Yes. It is a net number. George Melas: Okay. Brett Larsen: Sorry. I know. Okay. We know now what you're asking. Sorry about that, George. George Melas: Yeah. I just had to ask three times because I couldn't find the way to do it. I'm not surprised by that. Brett Larsen: No. Thank you, George. George Melas: Great. Okay. Great. For your hard work. It seems like you're really doing a lot of stuff to make the operation better. So thank you very much. Operator: And once again, if you would like to signal with questions, please press 1. Again, that's 1 if you would like to ask questions. We'll pause for a moment. And that does conclude the question and answer session. I'll now turn the conference back over to Brett Larsen for closing remarks. Brett Larsen: Thank you again for participating in today's conference call. Tony and I look forward to speaking to you again next quarter. Thank you. Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.