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MTX 2025 Q4 财报电话会议

Operator: Good morning, and welcome to the Minerals Technologies Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lydia Kopylova, Head of Investor Relations. Please go ahead. Lydia Kopylova: Thank you, Gary. Good morning, everyone, and welcome to our fourth quarter 2025 earnings conference call. Today's call will be led by Chairman and Chief Executive Officer, Doug Dietrich; and Chief Financial Officer, Erik Aldag. Following Doug and Erik's prepared remarks, we'll open it up to questions. As a reminder, some of the statements made during this call may constitute forward-looking statements within the meaning of the federal securities laws. Please note, the cautionary language about forward-looking statements contained in our earnings release and on the slides. Our SEC filings disclose certain risks and uncertainties, which may cause our actual results to differ materially from the forward-looking statements. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and in the appendix of this presentation, which are posted on our website. Now I'll turn it over to Doug. Doug? Douglas Dietrich: Thanks, Lydia. Good morning, everyone, and thanks for joining today. I'll start today's call by giving you a high-level overview of our performance for 2025, and then Erik will walk you through our fourth quarter and full year financial summary and -- as well as give you a first quarter outlook. I'll then take a couple of moments toward the end to give you an overview of how we see 2026 shaping up in terms of our end markets and the sales growth we expect to see over the year in each product line. After that, we'll open it up to questions. 2025 was a more challenging year for us, especially compared to the record year we had in 2024. Like other companies, we experienced the impact of a dynamic and at times volatile operating environment, including geopolitical uncertainty, changing tariffs and softer market demand. The ability to make the ongoing adjustments to these changing conditions, while at the same time, remaining focused on delivering the key drivers of our long-term strategy is a testament to the strength of our team. I'd first like to highlight that in 2025, the employees at MTI achieved a world-class safety performance and one that was the best ever in MTI's history. The health and safety of our people, partners and communities are our top priorities. And that we continue to reduce the number of injuries that occur at MTI, we still haven't reached our goal of eliminating them altogether. But the progress we made as a team this year is a positive step towards that achievement. Moving to our financial results. Full year sales came in at $2.1 billion, a similar level to last year. Full year operating income was $287 million and earnings per share was $5.52. Many of our key end markets either remained flat or weakened throughout the year. Our teams moved quickly to adjust to these conditions in our facilities by maintaining control of costs and managing inventories, while at the same time, navigating changing tariffs and remaining focused on quality, customers and safety. We also took proactive steps to improve our cost structure, including a company-wide cost savings program that we announced in the first half, which we will see the full year impact from this year. Despite the market and operating distractions, we meaningfully advanced the 3 pillars of our organic growth strategy in both of our segments, including expanding into higher-growth consumer-oriented markets, positioning ourselves in faster-growing geographies and introducing innovative higher-margin products. We outlined for you a few examples of the investments we've recently made to support this strategy, including upgrades to our pet litter facilities in the U.S., Canada and China, expanding our natural oil purification operations in Turkey, building several paper and packaging satellite plants in Asia and expanding our production of FLUORO-SORB. Each of these investments has led to significant new sales growth in 2026, and I'll give you details on this later in the presentation. It was also a strong year on the technology and new product development front. Sales of our newest products accounted for 19% of our total sales, which is the highest level we've achieved and points to both the strength of our innovation engine and ability to continue to bring new value to our customers through the application of our core technologies. Further, we remain strong stewards of our capital, returning $73 million to our investors through dividends and share repurchases while also maintaining a strong balance sheet that is well positioned to support both our organic and inorganic growth initiatives. With that, let me have Erik take you through our financials in more detail. Erik Aldag: Thanks, Doug, and good morning, everyone. I'll start by providing a summary of our fourth quarter and full year 2025 results, followed by a review of our segments, and I'll wrap up with our outlook for the first quarter. Following my remarks, I'll turn the call back over to Doug for additional perspective on 2026. Now let's turn to review our results. The fourth quarter played out largely as we expected. Sales, operating income and EPS were all roughly in the middle of the ranges we provided on our third quarter earnings call. Sales were $520 million, up slightly from prior year as 2% growth in Engineered Solutions offset a 2% decline in Consumer & Specialties. Operating income was $67 million and operating margin was 12.8% of sales. Operating margin for the quarter was impacted by lower residential construction and foundry volumes in the U.S. as well as lower productivity and fixed cost absorption at our plants serving those markets. Turning to the full year. Sales were $2.1 billion and operating income was $287 million. You can see in the sales bridge on the upper right that sales were 2% lower than prior year, driven by $74 million of unfavorable volume and mix impacts, which was partly offset with $21 million of selling price increases and an $8 million benefit from foreign exchange. You can see in the bridge on the bottom right that unfavorable volume and mix impacted operating income by approximately $27 million from the prior year. Our selling price increases completely offset inflationary impacts, including the impact from tariffs. However, we also experienced unfavorable productivity and fixed cost absorption, primarily due to volume challenges in the first and fourth quarters. And as we mentioned, we had some temporarily higher logistics costs associated with our cat litter plant upgrades. Operating margin was 13.9% of sales versus 14.9% in the prior year. Lower volume was the biggest driver of the change and was worth about 80 basis points. We see this margin reverting back towards 15% as volume improves, and we won't have these onetime cost impacts I just mentioned. Earnings per share, excluding special items, was $1.27 in the fourth quarter and $5.52 for the full year. Now let's turn to a review of our segments, beginning with Consumer & Specialties. Fourth quarter sales in the Consumer & Specialties segment were $274 million. Sales in our Household & Personal Care product line increased 2% sequentially to $133 million and were 1% below prior year. Momentum continued to build for our cat litter business with sales up 8% sequentially and up slightly from prior year. We also saw continued growth in edible oil and renewable fuel purification as well as animal feed additives. However, this growth was offset by lower Fabric Care sales as customers reduced their inventories in the fourth quarter. In our Specialty Additives product line, sales of $142 million, were 2% below prior year as higher sales to paper and packaging customers were offset by a pronounced slowdown in residential construction, which resulted in several customers taking unusually long downtime in December. These customers resumed ordering in January, but we are not expecting this market to improve significantly from the fourth quarter to the first quarter. Operating income for the quarter was $29 million, $9 million lower than prior year, driven by unfavorable volume and the associated impact on fixed cost absorption at our plants, particularly those serving residential construction. Turning to the full year. Consumer & Specialty sales were $1.1 billion. Household & Personal Care sales of $513 million were down 3% from prior year overall, but improved by 5% in the second half of the year compared with the first half. The improvement in the second half was driven by a positive trend in cat litter sales, which were 7% higher in the second half as we worked with our retail partners to drive higher volumes. We also continue to make solid progress on some of our key growth initiatives, with full year sales into edible oil and renewable fuel purification up 17% and sales of animal feed additives up 12%. Sales in Specialty Additives were $585 million, 4% below prior year. As I mentioned, one of the bigger macro challenges we faced in 2025 was a slowdown in residential construction, which impacted sales for this product line in both the third and fourth quarters. Overall volumes to paper and packaging customers were also lower than the prior year as our new satellites in Asia were offset by declines in North America and Europe, including 2 paper machine shutdowns that occurred over the past year in the U.S. Despite these market challenges, our sales to paper and packaging customers picked up in the second half of this year, increasing by 3% compared with the first half of the year as some of our newest satellites continue to ramp up and volumes in Europe and Latin America also ticked higher. As I mentioned, overall sales to paper and packaging customers returned to year-over-year growth in the fourth quarter. And with the capacity that has come out of the market in North America, operating rates at our customers are very healthy in the 90% range, which is positive for our volumes. Full year operating income for the segment was $134 million compared to $166 million last year, driven by unfavorable volume and mix and the associated unfavorable cost productivity as well as temporary cost increases related to our facility upgrades. Now let's turn to a review of our Engineered Solutions segment. Fourth quarter sales in the Engineered Solutions segment grew 2% from prior year to $245 million. Sales in High Temperature Technologies of $178 million, were up 1% from the prior year as higher sales to steel customers offset lower foundry sales in North America. As we expected, foundry customers in North America took extended seasonal outages toward the end of the fourth quarter. In the Environmental & Infrastructure product line, sales of $67 million were 7% higher than prior year. Sales growth was driven by infrastructure drilling, offshore services and environmental lining systems. This growth was partially offset by lower sales of waterproofing materials for the commercial construction market. Fourth quarter operating income was $40 million, representing another strong performance by the segment despite mixed market conditions. Turning to the full year. Segment sales were $975 million. Sales in High-Temperature Technologies were $705 million, representing a 1% decrease from prior year. We continue to see growth in our Asia foundry business, which helped to offset slower demand from foundries serving the agricultural equipment and heavy truck markets in North America. Sales to steel customers were relatively flat overall as growth in North America was offset by softness in Europe. Full year sales in the Environmental & Infrastructure product line were $270 million, up 2% from prior year, primarily driven by higher demand for infrastructure drilling products, environmental lining systems and offshore water treatment. The segment navigated mixed market conditions and tariff impacts to deliver record operating income of $163 million and record operating margin of 16.7% of sales. Now let me turn to a summary of our balance sheet and cash flow highlights. Fourth quarter cash from operations was $64 million, bringing the full year total to $194 million. We deployed $107 million of capital expenditure, which was a bit higher than the prior year, driven by the higher number of growth investments we've made. Overall free cash flow was $87 million for the year. After a slow start to the year, our free cash flow averaged 7% of sales from Q2 to Q4. And for 2026, we're expecting full year free cash flow in this more typical range of 6% to 7% of sales. We returned a total of $73 million to shareholders last year in keeping with our balanced approach to capital deployment. Our balance sheet remains solid, finishing the year with more than $700 million in liquidity and a net leverage ratio of 1.7x EBITDA. Now I'll summarize our outlook for the first quarter. Overall, we expect first quarter sales and operating income to be similar to the fourth quarter, which would represent approximately 5% growth over the prior year. In the Consumer & Specialties segment, we expect sales to be up mid-single digits versus prior year. In Household & Personal Care, we're building on the momentum we've generated in cat litter and other consumer-oriented products, and we expect this product line to be up mid- to high single digits year-over-year in the first quarter. We've also seen an uptick in Fabric Care orders after a slow fourth quarter. In Specialty Additives, we're expecting growth in Paper and Packaging to offset continued softness in residential construction. In Engineered Solutions, we're also expecting mid-single-digit growth in the first quarter. In High-Temperature Technologies, we see continued growth in Asia foundry and continued strong sales to steel customers in North America, which we expect to offset the softness we are seeing in North America foundry. Our North America foundry customers continue to be impacted by sluggish agricultural equipment and heavy truck volumes and a few permanent foundry closures have been announced for the first quarter. We expect most of the volume from these foundries to be absorbed by other foundries in the U.S. However, it will take some time for that volume to transition. In Environmental & Infrastructure, we're expecting continued growth in infrastructure drilling products as well as offshore water treatment. For the total company, we're facing $2 million to $3 million higher energy and mining costs in the first quarter versus the fourth quarter, which will have a temporary impact on our margins. We expect to offset these higher costs through pricing and improved productivity as we move through the quarter, and the margin impact should be limited to the first quarter. We expect overall sales and margins to improve as we move through the year, particularly as some exciting new growth opportunities begin to ramp up in the second quarter. With that, let me turn the call back over to Doug for some additional detail on these opportunities and some perspective on the year ahead. Doug? Douglas Dietrich: Thanks, Erik. Every first quarter, I'd like to give you a general perspective on our end market conditions for the year. And as Erik just mentioned, we're not currently seeing any significant changes in our end markets and expect them to largely remain stable at current levels through the first half. Several factors could change this outlook, such as lower interest rates, increased consumer confidence in home buying and remodeling and improvements in on- and off-highway vehicle builds. These factors could take hold this year, but the timing of the resulting inflections is hard to determine at this point. But independent of exactly how our markets play out, the growth investments we made last year were well timed, and we have captured significant sales growth for 2026 as a result. Let me take you through each product line and give you some examples. In Household & Personal Care, we're set up for what we expect to be a strong year. The result of the investments we made into the U.S. Our U.S. Canadian and Chinese cat litter facilities is that we've secured significant new business this year with major retailers, which will begin to ramp up at the beginning of the second quarter. We're also completing the expansion of our Bleaching Earth facility in Turkey to support the rapid growth of our edible oil and renewable fuel purification business. Regulatory changes driving increased use of sustainable aviation fuels worldwide are creating significant demand for our best-in-class bleaching earth products. We've also recently qualified our products at a large refinery in Asia, which opens this large market to us. Over the past 5 years, this business has grown at an average of 15% per year. And this year, we expect that growth rate to accelerate further. Lastly, we're expanding capacity for our animal health and fabric care products with new partnerships and products in development, and we expect to share more on these initiatives over the next 2 quarters. In Specialty Additives, we have 3 new paper and packaging satellite plants coming online this year in Asia, which will drive solid volume growth. We've recently shared details in a press release about our multiyear expansion in the region, which continues to provide a solid pipeline of opportunities for us and that will yield additional contracts and volume growth going forward. The main uncertainty this year in this product line is the residential construction market and the question of when it will begin to strengthen from its current condition. When it does, this will have a positive impact on our GCC and Specialty PCC volumes. Moving to the Engineered Solutions segment. Our High-Temperature Technologies product line is positioned for a solid year. Steel production in the U.S. remains stable, and we've seen some recent improvement in Europe. We're commissioning 6 additional MINSCAN units this year and continue to see strong pull for our latest high-performance refractory formulations. Foundry output in the U.S., however, remains relatively slow due to flat auto builds and weaker heavy truck and agricultural equipment demand. Asia presents a large addressable market for us, and we continue to see opportunities to expand our business there. The China foundry market proved to be resilient last year, and we expect to see continued strong volume growth there again this year. In the Environmental & Infrastructure product line, our commercial construction and large environmental lighting markets are beginning to trend in a positive direction. FLUORO-SORB continues its qualification track with hundreds of trials taking place at water utilities across the U.S. and in Europe. We have 10 new FLUORO-SORB water utility installations scheduled for this year, which will more than double our current footprint. We're also seeing continued strong demand for our infrastructure drilling products and expect this strength to continue throughout the year. In summary, the specific actions we took last year in support of our long-term strategy have put us in a position to deliver a strong 2026. With relatively stable markets, we see growth returning to the mid-single-digit range. Should the U.S. construction and foundry end markets improve this year, 2026 will turn out to be an even stronger year for MTI. Before I wrap up, I also want to let you know that we're planning another investor event this year, where we will highlight many of our newest technologies and update you on our progress against our 5-year targets. We also have some exciting new projects in our innovation pipeline that we hope to share with you. These projects are targeted at opportunities created by the regulatory and tariff-related policy changes around the world that are driving the increased importance of and demand for local mineral supply. We feel we are uniquely positioned with some of our technologies to turn these opportunities into significant new revenue streams for MTI. More to come on this, so stay tuned for details. Again, thank you for joining today, and thank you to everyone at MTI for your ongoing focus on safety. With that, let's open the call to questions. Operator: [Operator Instructions] Our first question today is from Mike Harrison with Seaport Research Partners. Michael Harrison: I wanted to start out with Consumer & Specialties segment. The operating margin performance there was the worst you've had in a few years. And I know you went through some of the fixed cost absorption issues there as well as maybe some of the inefficiencies associated with some of the work you're doing in pet care. But I was just curious, was the performance there worse than you expected? Or was it in line? And I guess maybe as we start to think about what margin could look like in that segment for 2026? Can you maybe give us some guidelines or puts and takes in terms of how we should think about that margin performance next year -- this year, I guess? Erik Aldag: Yes. Mike, this is Erik. Thanks for the question. So as far as -- and I'm assuming you're talking about the fourth quarter margins, so I'll start there. As far as that, I would say it was in line with what we were expecting apart from the softness. The softer-than-expected residential construction demand that we saw later in the quarter. And that had kind of a twofold impact on the margins in that segment. First, the residential construction products that we sell are relatively high contribution margin products. So there's an unfavorable mix impact that happens when that volume falls off. And then secondly, as I mentioned, the fixed cost absorption impact of a sharp drop off in volumes at these facilities. It's just hard to pull out the fixed and semi-variable costs from those facilities when you see a volume shift like that. So those were the main impacts in the fourth quarter. You mentioned the temporary impacts associated with the plant upgrades that we did. Most of that, I would say, was in the second and the third quarter, although we did -- we were starting to ramp up this facility that we just upgraded in the fourth quarter. So we didn't really see the full benefit of that upgrade yet in the fourth quarter. I would say going forward, the biggest thing that's going to drive margins up in that segment is volume. I showed you the MTI operating bridge and volume and mix is the biggest driver of the change in margin that we saw from '24 to '25. And a lot of that was in the Consumer & Specialties segment. I can say we've got -- we're feeling confident about the volume growth that we've got ahead for Consumer & Specialties, and that's going to drive the majority of the margin improvement in addition to not having those kind of onetime costs that we had last year. Michael Harrison: All right. Very helpful. And then I wanted to just dig in a little bit on the press release you put out recently talking about your paper PCC business. Some of the new satellites that have come on and are still to come on during 2026. I was hoping you could just give a little more color on how you're seeing the market? Presumably, North America still is maybe a little bit soft, but you would expect to see some growth in Asia. Maybe also talk about the pipeline of opportunities for future satellites as you see it right now. Douglas Dietrich: Yes. This is Doug. I'll start and then maybe I'll pass it to DJ to give you a little bit more color. We see that Asia presents and continues to present a good growth opportunity for us. It's a large market. Paper production relatively stable there. But what we're seeing is more -- we've always talked about what we call penetration. So PCC is the pigment being used in that market. That's -- we're probably about only 50% penetrated. We're in Europe and North America, it's pretty much 100% penetrated with the use of PCC in paper and packaging or paper in particular. And so we see a large opportunity to continue to drive our base PCC business in Asia. And that's going to occur through consolidation of smaller paper mills into larger mills and newer machines. And when you're doing that, you're going to continue. That's been going on now for a decade. So we see that continuing. But more so, it presents a great pipeline for us in other opportunities. And those opportunities like our new technologies like NewYield where we're repurposing some waste streams and movement into packaging, okay? So large and the packaging market is growing. It's growing in Asia. And so as we adapt our technologies and our products from kind of base printing and writing paper into packaging and into these new technologies, it presents an even bigger opportunity for us. So maybe I'll let DJ talk about that and then back to North America and what it looks like this year. D. J. Monagle: Glad to. So let's just expand on to what Doug was referring. So the announcements that we had, we talked about the 4 that came online in 2025. And then Doug in this presentation was highlighting 3 more that are coming on in '26. All Asia growth, a couple of those -- one of those, in particular, was an expansion in growth. So that's mostly China and India, and we see that continuing. And the pull that we're getting, so I'm going to shift a little bit to the pipeline. The pull that we're getting is we've got a little less than 2 dozen opportunities in the pipeline that I would call are very real. They are mostly in Asia, although there's a couple of other spots in what I'll consider the further developed regions. Big pull for NewYield that has taken -- has a lot of traction. And NewYield has evolved since we first chatted about it. It started off as a very singular product with a conversion of a waste stream. And now there's -- it's really more of a platform. There's quite a lot of adoptions we can do for the specific application, which is opening up further packaging applications for us. So before we were targeting printing and writing grades, and now we're finding opportunities to go in recycled packaging in Asia, in particular. And then augmenting that, we're also offering satellite ground calcium carbonate that has gotten a lot of pull from some packaging customers as well. So we see the pipeline remaining strong. I would say if I were hedging where the next 2 or 3 in addition to what Doug had highlighted, they are probably broader Southeast Asia opportunities, and that continues strong. On the base market, Erik highlighted really good operating rates. So we don't see much degradation. This is a rough year as some big volume came out. North America operating at 90% seems pretty sustainable for the future. Europe is slightly less than that, and the European market is dealing with penetration from Asia. But the customers that we are dealing with are pretty well situated within that market. So they're leaders in that area, in that region. And so I think that they'll be fine for the foreseeable future as well. So overall, bullish on continued expansion of the paper group with particular emphasis on growth in Asia, and that's primarily due to market penetration. Michael Harrison: All right. Last question I had is just kind of on capital deployment going forward. The balance sheet is still very strong. You guys have a good track record of free cash flow generation, and it sounds like maybe some further recovery in free cash flow in '26. Can you just talk about how you're thinking about spending cash during 2026 as you look at your M&A pipeline as well as I forget what you have left on the share repurchase authorization. But what should investors be expecting this year? Douglas Dietrich: Yes, Mike, I think we have -- we continue to call it kind of our balanced deployment of capital where we -- at these debt levels, we like to steer 50% of our free cash flow back to shareholders and keep some on the balance sheet for further opportunities. And that's after we support our organic growth. I think we have about $140 million left on our share repurchase program. So we intend to continue that at pace this year. And there's no time line on that. So we can -- we'll look for opportunities to make sure we maximize the use of that cash. But we do keep about 50% of that cash on the balance sheet for inorganic opportunities, and we think that there's a nice pipeline of things that we would be targeting and that we think that could help accelerate our growth strategy. They could be things that kind of are bolt-ons in different geographies to help move more into consumer products. And there could be some larger things out there that we feel we should own that could give the company some scale. So I think we've got the balance sheet in good spot. I think we continue to watch the market and make sure we're prepared for if something comes our way. I think we have the team in place that's able to do it, and we're just patient with it. So we'll see what happens. Hard to time some of these things, but we're going to continue to be active and look out there to see if there's some things that we should pick up. But short of that, we're going to continue with our balanced approach, and that's going to continue with that share repurchase and dividend structure, again, keeping with that kind of 50% of our free cash flow. Operator: The next question is from Daniel Moore with CJS Securities. Dan Moore: So just maybe clarification or drill down on a couple of specific products or end markets. Fabric Care, you called out customers managing inventories late in the year, not a shock. But is that largely behind you and talk about your visibility into Q1? Douglas Dietrich: Yes, we think so. I mean we've had -- it's been kind of a lumpy year from Fabric Care. Some of our larger customers has happened in the first quarter, they moved some orders from the first to the second. A little bit hard to forecast some of this. And then that happened late in the fourth quarter as well where they've kind of moved some things around from the fourth and we think the first. So as Erik mentioned, those orders have picked up. We think that, that volume is still there, but it does shift around from quarter-to-quarter from times. But more to the point, we think we have some good volumes ahead of us. I mentioned that we have some new technologies, some new things that we're working on. We hope to shed some light on that through the rest of this year that we think could be some new products that get developed and out there in the marketplace that can drive our Fabric Care business bigger. So I don't think there's really anything behind it other than some moving orders, at least in our current Fabric Care business, but we've got some things in our pipeline that we're hoping to get out this year that could grow that a little bit faster. Dan Moore: Got it. And then shifting to Pet Care. You gave the outlook. Just maybe take a step back. Obviously, early '25 was challenging in terms of market dynamics of discounting by branded players. How would you describe market conditions, both U.S. and Europe as we enter '26 and kind of underpinning that growth expectation? Douglas Dietrich: Yes. This year was a bit of a -- let's just start with the overall market. The markets were relatively flat this year for pet litter. I think they grew maybe 1% to 2% in total. And yes, we did see that discounting activity this year that we had to make some adjustments with our customers to deal with. We did that. We made those through the second quarter. And that's why I think Erik highlighted, we worked with them on promotions on making sure the value that private label brings on the shelf was seen and in kind of comparison to that discounted price from the branded customers. We made those adjustments, and we saw those volumes return. I think our -- as Erik mentioned, our second half kind of sales in pet care were -- pet litter were 7% higher than the first half. So we think those took hold. I do think that, that discounting is going to continue, but I think we've made those this year, that discounting is going to continue, but I think we've made those this year, and that's really North America type Phenomenon. But I think we've made those adjustments, and I think we're going to continue to see that base volume growth. I think on top of that, we've secured some significant business. We took some time. We took some cost, as you noted, this year to upgrade those facilities and start one up in China. Those are largely running right now and running as expected. And we did that to increase the capacity and the capability of those plants. So not only the throughput, variable cost structure improvements, but also the type of products they can make and the type of packaging configurations that they can deliver. And that has enabled us to secure some significant business. I think on our last call, we told you that was around $25 million, $30 million of business. And that's part of what Erik was talking about in terms of -- or what I was talking about in terms of return to high single-digit growth in that business. So that should start up in the second quarter. It looks good. We've gained some new business with retailers, and that should flow through this year, bringing that business back up into that high single-digit kind of growth rate. So we think it's a very strong year ahead for pet litter. We made the adjustments last year. That volume has returned to us, and now we've got some new business to start driving the growth rates back up. Dan Moore: Great. Very helpful. One or two more, I'll turn it over. Q1, 5% revenue growth, quite healthy. And I know you called out the higher mining and energy costs. So that's a chunk of it, but just wondering why we wouldn't expect to see maybe a little more operating leverage on that type of top line growth. Erik Aldag: Yes, Dan, this is Erik. Just -- so a couple of other things going on there. You mentioned the higher energy and mining costs. That's about $2 million to $3 million on a sequential basis. The mix impact that I mentioned in response to Mike's question, the softer residential construction that we're seeing in the first quarter versus last year, in particular, is having an impact on our margins. This is a relatively high contribution margin product and the market is just softer right now. Q4 and Q1 are usually soft for that market, but we're seeing it a little softer than last year so far at least. I'd say, the only other thing affecting margins in Q1 is lower equipment sales. We've got these equipment sales in high-temperature technologies. We had some in the fourth quarter, and we had some in the first quarter last year, and we don't have any in the first quarter this year. So that's affecting the margin as well. Dan Moore: That really helps. Last one for me. mid-single-digit growth this year, if I listened appropriately or heard correctly, which is a very healthy outlook. Obviously, 15% operating margin has been a goal for some time. You made great progress toward it. What would it take to get there from here in terms of organic top line growth? Is that achievable in '26? And what type of time frame should we be thinking about, if not? And I appreciate the color. Erik Aldag: Yes. So I think on the growth side, we do feel more confident about the growth this year. We've talked a lot about these growth investments that we've made that support about $100 million of new revenue. Right now, we're estimating about $50 million of that will come through in 2026, that's everything we've mentioned, the cat litter, the new cat litter business, new SKUs on the shelf, new distribution centers that we haven't served before. It's the bleaching earth expansion. It's the new satellites, it's new Min scans. That's about $50 million that we think is going to come through this year. And on top of that, we've got $20 million of pricing. So $70 million right there of things that we can tally up, and we feel very confident about. That's before we even start talking about things like the Asia foundry growth that we expect to continue, the refractory business, they've got new products. We expect those to continue to grow. Animal Health, FLUORO-SORB, the whole environmental and infrastructure product line has been on a pretty good trend recently. So look, markets could get weaker from here. But right now, we're not expecting markets to change very significantly. So that's why from where we sit today, we feel confident that we're going to have a strong year. If we get some help from the markets, particularly like construction, ag equipment, heavy truck, that's why we think we could have a really strong year this year. Douglas Dietrich: And Dan, I'll just add that, look, the base -- I think the company is built around a 15% margin. I know that Erik is giving you some of the temporary cost issues and some of the mix and volume declines that took about a percentage away. So last year, we were around that 14.9 around that 15% target. This year, 80 basis points came out just from the volumes. But I think with that growth, with at least the $70-plus or $100 million growth that we see coming through that single digits, it's going to take care of that absorption, that volume. And again, some of these are higher-margin products. And so I think that reverts this company. It might not happen in the first quarter, but on a run rate basis, I think we start getting back to that 15% this year as that revenue flows through and that volume flows through. That said, you've got half of the company right now at 16.7% margins, albeit a record, they had a good quarter, but that still doesn't even have the foundry in there. So I think there's room to grow on that side. And I think getting the consumer with this new higher-margin products starting to grow faster like bleaching, animal health, Fabric Care and the pet litter business, I think that reverts back up to 14%. Then I think you start seeing us getting over 15% margins, okay? So hard to time whether that market is going to help us this year, but I do think that this company, with what we have in the tank, with the investments we've made is going to start pushing that margin higher. Probably later this year, maybe into next, but I think it's above 15% right now is a structural kind of level for us. Dan Moore: And certainly progress toward it this year is what I'm hearing. Douglas Dietrich: That's right. Operator: The next question is from Pete Osterland with Truist Securities. Peter Osterland: First, just wanted to ask in Specialty Additives with sales being up year-over-year in the Paper and Packaging business during the fourth quarter. I was just wondering if you could break out that sales growth by region. And I was also wondering, is there a meaningful geographic mix impact on margins for sales into North America and Europe versus sales into Asia in that business? Erik Aldag: Yes. Thanks, Pete. So definitely, the growth is coming from Asia, and that's offsetting the softer volumes in North America. We mentioned a couple of shutdowns we have to overcome. But the growth in Asia did start to overcome that in the fourth quarter. And so that's the dynamic that you see. As far as margins go, on an operating income basis, yes. So we're bringing on new capital with these investments in Asia, and they've got a higher depreciation load than the assets in North America and Europe. And so on an operating income basis, there's a lower operating margin in Asia for the new satellites coming on than for some of the volume declines that we've seen in North America. On a cash flow return basis, we look at these investments on an IRR basis. We're getting the same level of returns that we expect around the world in Asia. And so as those assets depreciate, the operating margins will go up, but that's basically how the math works. Peter Osterland: Got it. And then just a clarification, I apologize if I missed it, but you talked about plans to implement pricing and productivity as offsets for some of the margin pressure you're seeing. Just given the breadth of end markets and businesses you have, where within your portfolio do you have relatively strong pricing power to implement increases? Douglas Dietrich: Yes. I think we have strong pricing power pretty much across the portfolio. in softer markets, that becomes a little bit more of a challenge. But I think as you saw back in kind of '23, '24 time frames, the company moved almost $250 million of price through across the board. So our ability to price is there. We work closely with our customers. We make sure that we generate the value from -- that our products deserve from our customers, and we're also conscious of the competitive environment that they're in sometimes. I think this year, there's some standard base price increases that go across the Specialty Additives business. I think in our high-temperature technologies, there's a lot of pricing power. We've managed to move largely last year through on tariffs, had to push that through. And so I think there's -- it's going to be kind of across the board. I think Erik mentioned about $20 million. I think it's coming -- I don't know if there's one product line more than the other, but I think it's pretty well spread across the business in terms of being able to keep up -- we also note that making sure that our pricing has to more than take care of our input costs to make sure we maintain our margins. So we're conscious of that as well, Pete. So no specific area, but we do have capability to push to move price as needed across the board. Peter Osterland: Very helpful. And then lastly, I just wanted to ask, you called out that you're expecting to have at least 10 installations of FLUORO-SORB later this year. I was just wondering what's the approximate revenue potential associated with those installations? And how long does that take to ramp? Douglas Dietrich: Yes. Maybe I'll start, and I'll let Brett talk a bit more about FLUORO-SORB, in general. These are probably smaller installations still. These are smaller utilities that are coming in place. They are I guess, we call tank renewals. So we're putting in the media into tank systems that will get renewed maybe a couple of times, 3 times per year. So those change-outs aren't super high revenue. But as we get them put in place, that kind of feeds more opportunities because they get more use and they get more storytelling around their capabilities. And so it's more of an indication of more of the acceleration of use of FLUORO-SORB. I think the revenue this year will probably grow a couple of million dollars from those installations. But I think more importantly is that the number of installations and trials that's going on right now, we're talking a couple of hundred, I believe, trials across the United States and into Europe. That really bodes well for as this accelerates towards some of the regulation changes. more quickly more installations and take-up of FLUORO-SORB over the coming years. So Brett, do you want to give any more color than that and what's going on specifically in the U.S.? Brett Argirakis: Sure, sure. Thanks, Pete. Yes, when we look at FLUORO-SORB right now, as Doug pointed out, we -- the progress continues to go pretty well for us. It's really despite the regulatory delays that we've seen. Full year growth of sales was around 20% year-over-year last year. We have 8 full-scale drinking water projects underway. And as Doug mentioned, we have a pipeline of 10 more wins that FLUORO-SORB has been selected for the absorptive media this year. So interest is not only in the U.S., Doug just mentioned, Europe is really picking up interest. What we're seeing now is in Germany, Sweden and the U.K. are actively piloting the FLUORO-SORB, and we're working with the German EPA to gain approval of the FLUORO-SORB for drinking water applications. France just recently added a full-scale drinking water pilot in Belgium and Sweden. They continue to pilot in situ PFAS remediation projects with our FLUORO-SORB. So we remain really confident in our product and its performance. And really, we fully expect it to continue to commercialize the FLUORO-SORB programs to remove the PFAS. So we're still really excited about it, and we anticipate a continual growth in this product line. Operator: The next question is from David Silver with Freedom Capital. David Silver: I'm going to follow up on a couple of areas first. But I did want to touch -- go back and just touch on your comments about pet litter. So I think for 2025 as a whole, maybe revenues were up, I don't know, low single digits, I'm guessing, slanted towards the back half of the year, as you pointed out. But in there, I guess there's a volume component and a price component. And as I recall, earlier in 2025, you did make some adjustments to support on price to support your customers there. So I was just wondering, firstly, could you just break down the pet litter growth in terms of delta on volume versus price? And then secondly, if you could make a comment about the pricing outlook for '26. In other words, is that customer support kind of still in place? Or are there prospects for recouping some of those reductions? Erik Aldag: Sure. Yes. The pricing was actually relatively minimal, the pricing impact. We did, in some instances, give on some pricing, but that would be in exchange for volumes. And so from a margin perspective, it's actually accretive to margins because getting more volume flowing through those plants can be very beneficial for us. So I would say some targeted pricing adjustments in some areas, but certainly not across the board. That's -- I guess the other part of the question was on volumes. Mostly volume. Douglas Dietrich: Yes. The challenge of the revenue this year was mostly volume, and it was due to kind of competitive -- the collapse of the delta between brand as they discounted in private label. And so we've made those adjustments. Like Erik said, some of that was price, but the majority of that we regained through promotions and packaging and working with our customers. Again, they are the retailers and making their product that we supply them more valuable on the shelf. And so mostly volume, David, a little bit of price. As we go forward, though, that -- what I referred to about $25 million, $30 million is pretty much all volume. That's coming through at average prices, I think, with these major retailers, but it's coming through all volume and different regions. And as Erik mentioned, hitting some new distribution centers that we hadn't had before. So we've secured that business. And yes, the customer has to buy it still, but we're pretty confident that, that volume is coming through. And that should solve some of the absorption challenges, the productivity challenges and start to fill up these plants that we just built. So we're excited about that. David Silver: Okay. Great. Second topic would be on the refractory side. I did take note that you had the 6 new MINSCAN to be commissioned. Just to focus on that, should I assume that, that 6 to be commissioned in 2026. And then secondly, there was a certain size on average of the previous batch of, I think, 5 MINSCAN commissioned, maybe $100 million of total revenue for. Are these -- is this batch of 6, is that similarly sized? Or how should we think about that? Douglas Dietrich: Well, let me take you through. I think the $100 million was kind of the addressable universe of what we think we -- there's -- I don't know, Brett, there's 130 different electric arc furnaces in North America and Europe that we're targeting. So there's a large addressable market for this. It's going to take some time, obviously, for customers to want to adopt this technology. It's largely been here in the United States and driven by safety concerns, being able to put the device in the plant on the furnace being able to remove anybody from near that furnace for safety concerns, but then being able to scan, measure and very efficiently deploy our refractory material through the machine. So we see a large market for it. We have -- each of these come with about a 5-year contract. I think we've secured over the 5-year period for these, it would be about $100 million. But -- so you're talking about 20 -- $17 million, $20 million a year from what's been installed. So it's a good business model, long-term contracts, there's a large addressable market. It's using our higher-performing refractory products, and I'm probably taking stuff that Brett should be talking about, so I'm going to pass it to him. Brett Argirakis: Thanks, Doug. David, I think Doug covered a lot of it. But as Doug mentioned, look, the program really was designed for safety and improved operations. I mean it's really customized application technology that has really grasped the industry. And it's for the electric furnace steelmakers. Over the past few years, we've signed 18 agreements and the value is probably, as Doug said, actually, it's $150 million over the life of the agreement. And the positive thing about this program is we're keeping the refractory business that's a daily program for 5 years at a minimum. So we do see a lot of runway in this technology. When you look at just Europe and the United States, which are our 2 largest markets. We see at least, as Doug mentioned, probably 130 targeted projects. And we have a pipeline in hand that continues. So we feel really good about it. You asked the question about installation. Yes, there are 6 additional units to be commissioned this year. Those units are going to go throughout the year. We have probably half of them going in, in the first quarter or first half of the year and then sometimes they move out a little bit. But yes, 6 will be commissioned. And one of those is in Europe. So 5 of those in the U.S., 1 in Europe. So again, our pipeline remains really strong. We feel really good about it. And we're bringing in products that adapt to it. I had mentioned before about banks and bottoms, these materials that don't -- aren't a gunning product. They actually go to the bottom where it's beneath the molten steel. These products were launched last year, early first half. By the second half, our momentum really -- the trajectory just skyrocketed it. So we doubled our growth business in the refractory group, and we expect to do that again this year. And it's because of these new products, not only in the furnaces, but also in the steel ladles, which carry the molten steel to the continuous caster. So we're really excited about this business, and it's doing very well. I hope that answers your question. David Silver: Yes. No, I appreciate all the color. And while I have you, Brett, I did want to maybe ask a follow-up question on FLUORO-SORB. Let's see. Earlier in 2025, I guess the EPA went and extended the time lines for drinking water authorities to make -- to pick a remediation plan and then another 2 years in effect to actually install it. And I'm just wondering how you are thinking about maybe the adoption curve in the wake of those extended time lines. So in other words, should we just push -- I assume there would be a certain rate of adoption that would start to spike as the deadlines approached. Is that still the right way to think about it, push out the growth maybe a couple of years? Or is this the case where you think there might be more early adopters since the number of potential customers have already been trialing it, thinking that there was a shorter time line. So in other words, should we just push out the growth curve for FLUORO-SORB 2 years? Or is there a reason to think that adoption might occur a little more quickly despite the lengthier time lines that the EPA established? Brett Argirakis: Yes. Great question, David. Look, the current U.S. EPA drinking water limits are set for 2029, and there has been some discussions about a reset to 2031. The timing could determine an inflection point for the takeoff of this product line. But to be honest with you, we've seen a lot of drinking water utilities -- although they've delayed major projects, the amount of trial activity and opportunities and inquiries has significantly increased. So I think what's happening is we're starting to see extra trial activity because of the extra time. So it could be benefiting us, although we'd like to see the sales take off immediately, it is allowing us to prove this product really well. So that's why I think we're starting to see more and more activity. But keep in mind, I mentioned earlier about the European activity, and that's starting to take off and there are different regulations there. So we're working with the German EPA. We're working with all these other countries just to continue to drive this product. So we're not slowing down regardless of the regulations. Maybe a trajectory point will be determined by when it is drawn in stone, but we're going to continue to blow forward and drive the sales. Douglas Dietrich: And I think as Brett mentioned, David, that the extra -- there could be an extra year delay, but that extra time is being used to really solidify FLUORO-SORB in these facilities. And so it's been a good thing from a trial activity. We think that, that's going to make it a really solid solution here in the United States as that inflects. And in the meantime, we're also working -- I'm just repeating, Brett, other countries. So we do think that the revenue trajectory with the breadth of the regions that we're addressing might actually be the same as what we thought 2 years ago. So even with the delay. David Silver: Okay. Great. And then last one for me would be on free cash flow. So when I look at the fourth quarter result there and full year 2025, I mean, I think free cash flow came in a little bit below what I was anticipating maybe early in '25 and middle of '25. I'm just -- we don't get a look at your cash flow statement just yet, but I'm just wondering if you could maybe highlight where you think compared to where you were a year ago, where you think the differences in your free cash flow generation were maybe working capital or CapEx above earlier projections. And should we think that there might be a little bit of drag extending into 2026 on that metric? Or will things rebound closer to your long-term targets? Erik Aldag: Yes. Thanks, Dave. So I think the biggest driver this year was just the income. If you look relative to expectations we had earlier in the year, the income was lower, and that had an impact on our cash flow. Working capital was, I would say, a little bit elevated at the end of the year. A lot of that was FX driven. And so with the weakness in the U.S. dollar that we saw, especially right at the end of the year, you saw an elevated impact on our working capital balances, but we'll realize the benefit of that as we collect that cash that was on our balance sheet at the end of the year in the receivables and as we sell that inventory that was on our balance sheet at the end of the year. So going forward, as I mentioned in the presentation, expecting free cash flow in that 6% to 7% of sales range for the full year. I guess the only other thing I'd mention for the full year last year is we got off to a pretty slow start. We're expecting this Q1 to be better than last Q1 from a free cash flow perspective. But as I mentioned, Q2, Q3 and Q4 last year were all at that 7% of sales range. So company -- nothing has changed in terms of the company's ability to generate free cash flow. Operator: The next question is a follow-up from Daniel Moore with CJS Securities. Dan Moore: I appreciate all the color and almost got away without asking -- without the question coming up. But any update on talc litigation? And we still feel like the reserves we've taken thus far are sufficient at this stage? Greatly appreciated. Douglas Dietrich: Yes, still sufficient, Dan. And look, I think we're making constructive progress. As you know, we're working toward establishing a 524G trust. And we're going to continue to work really hard at that. We're trying to work as expeditiously as possible, but -- and we're committed to the process. But I will say that we want to make sure that what we create is a fair outcome for everybody and also that it provides finality for the company. And so we're going to continue working until we feel that those 2 objectives have been met. And like I said, we're committed to the process, and we're working at it as fast as possible. But we're making constructive process. That's what I can give you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Doug Dietrich for any closing remarks. Douglas Dietrich: I just want to say thank you for everyone joining today. I also want to again reiterate to those at MTI. I really appreciate your work in this past year, more to do, and thank you very much on the safety front. Again, more work to do, but thank you very much for the efforts, and we'll talk to you in another 3 months. Thanks. Bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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FBIZ 2025 Q4 财报电话会议

Operator: Good afternoon. Welcome to the First Business Financial Services Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to First Business Financial Services, Inc. CEO, Corey Chambas. Please go ahead. Corey Chambas: Good afternoon, everyone, and thank you for joining us. We appreciate your time and your interest in First Business Bank. Joining me today is our President and Chief Operating Officer, Dave Seiler; and our CFO, Brian Spielmann. Today, we'll discuss our financial performance, followed by a Q&A session. I'd like to direct you to our fourth quarter earnings release and supplemental earnings call slides, which are available through our website at ir.firstbusiness.bank. We encourage you to review these along with our other investor materials. Before we begin, please note this call may include forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's most recent annual report Form 10-K, and as may be supplemented from time to time in the company's other filings with the SEC, all of which are expressly incorporated herein by reference. There, you can also find information related to any non-GAAP financial measures we discuss on today's call, including reconciliations of such measures. First Business Bank finished 2025 with another outstanding quarter. Our team continued to produce high-quality growth, particularly on the deposit side. Core net interest margin remained resilient and our revenue streams were diversified and strong. Notably, our Private Wealth business continued to expand, delivering record and significant annuity-like fee income. And our focus on positive operating leverage again drove improved efficiency. These highlights contributed to strong profitability for the quarter and year as pretax pre-provision earnings grew nearly 15% over 2024, return on average tangible common equity was over 15% for the year. And most importantly for shareholders, tangible book value per share grew 14% from a year ago. I'd also like to draw your attention to earnings per share, which you can see on Slide 4 of our earnings supplement. EPS growth is perhaps the most universal metric across industries, and our track record is outstanding. First Business Bank's 2025 EPS grew 14% over 2024, exceeding our long-term annual goal of 10% earnings growth. Over the past 10 years, we've grown earnings per share at 12% compound annual rate. Going back to the year of our IPO in '05, our 20-year compound average annual EPS growth is 10%, a very long period of outstanding performance. We know how to execute to achieve our double-digit growth mandate, and we aim to continue doing so in 2026 and beyond. On the strength of these results and expectations for continued financial success, our Board of Directors approved a 17% increase to our quarterly cash dividend. We are very pleased with the positive momentum of fourth quarter results, which Dave will discuss more now. Dave? David Seiler: Thank you, Corey. In the fourth quarter, we again delivered growth, producing strong bottom line results that reflect consistent performance. We believe this is a differentiating strength of First Business Bank, and it is a direct outcome of our deep commitment to relationships and diversification. I would like to take a moment to address an isolated credit situation. During the quarter, we downgraded $20.4 million of CRE loans related to a single Wisconsin-based borrower with total loans outstanding of $29.7 million. You can see the impact of this on our asset quality ratios on Slide 12 of the earnings supplement. Obviously, this is disappointing. The strength of our underwriting, our markets and our deep relationships are notable here, however. This is a long-standing client. Over several years, they acquired a series of parcels for multifamily development. They were unable to advance these parcels to development phase, resulting in high carrying costs that exhausted their free cash flow. This client stress is isolated and reflects internal management challenges. The majority of the nonperforming loans are collateralized by tracks of land zoned for multifamily and located in Southeastern Wisconsin, mainly in the corridor between Milwaukee and Chicago. These are very healthy markets and land value appraisals exceed the carrying value of the loans. As such, a specific reserve was not recorded, which reflects our general philosophy of having two or more ways out of a loan. We did record a nonaccrual interest reversal totaling $892,000, and this compressed our net interest income and lowered our margin by 10 basis points in the fourth quarter. You can see this on Slide 7 of the supplement. The performing loans in this relationship consists of four stabilized multifamily projects, all of which are located in Wisconsin. On a full year basis, net interest income grew 10%, meeting our double-digit growth goal. We attribute this strength to our robust loan and deposit growth that continued to outpace the industry, along with disciplined pricing and management of funding sources and costs. Fourth quarter noninterest income displayed similar resilience. Private Wealth generated a record $3.8 million of fee income, up 11% year-over-year as we had added new relationships and expanded existing relationships. Service charges were up nearly 20% year-over-year, demonstrating real success in adding full banking relationships, which is a litmus test that illustrates growth of our business banking relationships. These trends bolstered revenues and moderated the impact of business-driven variability in other line items. These include lower SBA gains, which resulted from the government shutdown and lower swap and loan fees, which can be highly variable and decline from the third quarter. As a reminder, swap fees were unusually high in the linked quarter. We also recorded lower income from partnership investments in our other income line. This reflects a variable income stream from quarter-to-quarter, and this item was additionally affected by an accounting classification update during the fourth quarter, which Brian will cover. Our income diversification is by design, supporting our long-term double-digit revenue growth goals in a variety of market conditions. For full year 2025, this drove 10% operating revenue growth, which achieved our annual double-digit goal. Paired with operating expense growth of about 6.5% for 2025, we achieved positive operating leverage for the fourth consecutive year and by a wider margin than we would expect in future periods. This is also partially a function of the accounting classification update that Brian will explain. Moving to balance sheet growth. You can see the highlights on Slide 3 of the earnings call slides and our quarterly loan and deposit growth trends on Slide 5. Loan balances grew about $39 million or 5% annualized during the quarter and $261 million or 8% over the same period last year. On an average basis, loans grew 8% annualized compared to the linked quarter. We experienced elevated CRE payoff activity during Q4, contributing to our more moderate pace of loan growth compared to recent periods. I'll note that total payoffs in 2025 exceeded 2024 levels by almost $70 million. If we normalize for the $70 million, adjusted full year 2025 total loan growth would be about 11%. We continue to see solid loan demand in our bank markets and pipelines look strong for the first quarter. We would expect to see growth rebound to our typical double-digit pace in 2026. Our loan growth expectations are driven by continued positive trends in our business and the banking industry. Our largest markets in Southern Wisconsin benefit from a strong regional economy. Our clients in the manufacturing and distribution space are doing well. Commercial real estate occupancies have remained strong and steady, particularly in multifamily properties. We are also seeing signs that new development is picking up after a slight slowdown in 2024 and 2025. We are seeing tangible benefits from talent acquisition. Our Kansas City market, Northeast Wisconsin market and asset-based lending group, each have new presidents in place who joined over the past 18 months. Their sales and hiring efforts led to growth in Q4, and their pipelines continue to expand. We are also seeing some nice refinance opportunities in commercial real estate that we haven't seen in a while. Lower interest rates tend to create more activity and demand, and we are seeing that bear out. Additionally, we expect 2026 changes to federal tax policy should be a tailwind for our business clients and C&I portfolio. I'll note that we are seeing secondary market activity pick up in CRE, so that may drive some ongoing payoff activity. We also expect double-digit growth in core deposits will continue in 2026. Fourth quarter core deposit balances were up 12% from both the linked and prior year quarters. The majority of growth came from core interest-bearing and money market client accounts, and it more than offset runoff of higher cost CDs and wholesale deposits, bringing support to our net interest margin. On to asset quality. Outside of the new and isolated nonaccrual relationship, the balance of our portfolio continues to perform as expected, and we have no areas of particular concern. The transportation loans in our small ticket equipment finance portfolio continue to shrink and our CRE markets remain strong. You can see our performing portfolio on Slide 11 of the earnings supplement. Net charge-offs totaled $2.5 million and were primarily from previously reserved equipment finance loans. Now I'll hand it off to Brian. Brian Spielmann: Thanks, Dave. Fourth quarter net interest margin declined by 15 basis points to 3.53%, reflecting 10 basis points of compression from the nonaccrual interest reversal on the downgraded CRE nonperforming loan. Excluding this, net interest margin would have measured 3.63%. Even with the increase in nonperforming loans, our NIM target range remains 3.60% to 3.65%. You can see a breakdown of this on Slide 7 of our earnings supplement. On a full year basis, net interest margin remained relatively stable, declining 2 basis points from 3.66% in 2024 to 3.64% in 2025. We are pleased with our ability to maintain a strong and stable margin, and this again shows the value of our risk-mitigating match funding strategy. Looking ahead, our target range for net interest margin is unchanged. Our current outlook supports this in tandem with double-digit annual loan, deposit and revenue growth. Our balance sheet is essentially interest rate neutral, so the timing of any potential rate changes is not as consequential to our margin as it may be for others. Thus, our continued 10% targeted growth in net interest income is not predicated on additional interest rate cuts or hikes. While deposit pricing pressure has eased modestly since the Fed began cutting, the cost of acquiring a new deposit client remains extremely competitive, but we do not believe this is unique to First Business Bank. On the asset side, we continue to shift our loan mix toward higher-yielding C&I relationships, which also typically come with lower cost deposits. See Slide 6 of the earnings supplement. Our conventional and specialty lending teams are seeing strong pipeline activity. As C&I loans make up a larger share of our portfolio, we expect average loan spreads to improve, helping offset continued pressure on deposit pricing. On noninterest income and expense, we had an accounting classification change of note during the quarter. We have historically recorded revenue earned from our equity partnership investments and other noninterest income, while any expenses related to these investments were recorded in other expense. In the fourth quarter, we reclassified the expenses related to these investments to net against the related revenue and other fee income. This now presents the net benefit of all of our partnership investments, and we will continue this method on a go-forward basis. Specifically, during the fourth quarter, we reclassified $904,000 out of noninterest expense and into other noninterest income to net against the related revenue. This expense represents the bank's share of costs for the first 9 months of 2025 related to the latest round of limited partnership investments. Excluding this reclassification, income from partnership investments decreased $383,000 to $477,000 during the fourth quarter. I'll also note that when we exclude the $904,000 reclass from other noninterest income for Q4, the adjusted noninterest income number approximates a good starting point for quarterly fee income in 2026 with the expectation of 10% growth for the full year. Recall also that our third quarter results included $770,000 in nonrecurring fee income items. These include a $537,000 fee related to an exit of an accounts receivable finance credit and $234,000 in BOLI insurance proceeds during that quarter. Moving to expenses, which were well contained in Q4. Compensation expense decreased by about $291,000, mainly due to a decrease in annual cash bonus and 401(k) accruals. Looking ahead, we continue to have a higher level of open positions we are actively working to fill, and we are always looking for opportunistic hires. Compounded with increase in benefit costs, we expect 2026 compensation levels to grow a bit more than in 2025. I'll reiterate that our primary expense management objective is achieving the annual positive operating leverage. That is annual expense growth at some level modestly below our targeted level of 10% annual revenue growth. Our effective tax rate varies modestly quarter-to-quarter, in part due to the timing of tax benefits received from our investment in limited partnerships. Our 2025 effective tax rate of 16.8% was within our expected annual range of 16% to 18%, and we continue to believe this range is appropriate looking forward. Finally, our strong earnings have continued to generate excess capital to facilitate organic growth. Our increased dividend boost shareholder returns, and we continue to believe reinvestment in the growth of the company typically provides the best return for our shareholders. We do, of course, evaluate all capital management tools at our disposal to maximize shareholder returns. And now I'll hand it back over to Corey. Corey Chambas: Thank you, Brian. Our 2025 performance toward our long-term strategic plan goals was excellent and can be seen on Slide 15. These outcomes demonstrate the value of consistency and execution. We continue to achieve our above-industry growth by investing in talent, prioritizing profitable long-term client relationships, investing in technology to build out efficient, scalable systems and never losing sight of the criticality of prudent underwriting. We are very optimistic about the future and believe our focus, discipline and consistency will continue to serve First Business Bank and our shareholders well. I want to thank you for taking time to join us today. We're happy to take your questions now. Operator: [Operator Instructions] And the first question comes from Daniel Tamayo of Raymond James. Daniel Tamayo: Maybe just starting on that -- the CRE relationship that drove the increase in the NPAs. I appreciate the details that you gave in the prepared remarks. But maybe just digging a little deeper there, the timing of the appraisal that you referenced, just curious when that was done. And then if you have the current LTV and service coverage on the relationship as a whole? Corey Chambas: Okay. A couple of questions in there. Let me see if I can -- how much of that I can get at for you, Danny. Most of the appraisals, we just got several in just now at the end of the year. A couple of other ones are a little bit older. It's mainly land for development, as Dave said. And those are the ones where we have fresher appraisals, particularly any of significance in terms of size. This goes across seven properties. So the large properties, we've got fresh appraisals on. And the other question that you asked was the loan-to-value. The properties are all cross-collateralized. So overall loan-to-value across those seven properties is 72% on the LTV. I don't have a cash flow, again, because the biggest part of this is land. So approximately 2/3 or 3/4 of it is land because there's a couple of properties that are already developed, mainly for multifamily, I think, as we mentioned, in terms of four development and then there's a couple of multifamily properties in there as well. Daniel Tamayo: And then as it relates to credit cost -- I mean, credit expectations in the coming year, you guys have had a pretty good run here. There was obviously some charge-offs related to this loan in the fourth quarter. But how should we think about what needs to flow through now and then in terms of charge-offs and how that might move the NPLs as we work through the year? Corey Chambas: Sure. Just to clarify, the charge-offs that we had for the quarter were not related to this. So based on those appraisals, we didn't have to take any -- even any reserves on this. So no specific reserves, no charge-offs. Charge-offs that we had really for the quarter and for the year were pretty much all -- almost all related to the equipment finance, small ticket equipment finance, where we had that transportation portfolio that we've been grinding through. So a lot of those were already reserved for. A methodology there, just kind of going back in time is time-based on delinquency on that small ticket portfolio. And so things that are going to be charged off in that portfolio get reserved in advance as they go past due. And then as time expires on the clock, so to speak, then we charge those off. So that's where all the charge-offs came through for the quarter. So on this one, no credit cost at this point. We think we're in pretty good shape here based on the appraisals that we have. It's real estate. So that takes some time to work through, but it's a pretty straightforward process. We're still working with the borrower on multiple options of what we can do on this one. But ultimately, if things don't work out on real estate, as you know, there is a foreclosure process that's pretty straightforward. It does take some time to go through, but it's pretty straightforward. Daniel Tamayo: And then maybe just one on the fee income side. Just a clarification on your guidance, Brian. The 10% growth for overall fees. So we're pulling out the $537,000 reclass and then the $234,000 BOLI claim and then growing off of kind of that number into -- I guess, the best way to think of like annualize it or just go fourth quarter to fourth quarter. That's the way we should be thinking about it? Brian Spielmann: And when you're excluding those two items, you're talking about full year, right? So full year '25, excluding those two items and that grow off of that, yes, and full year 10% expectations there. Daniel Tamayo: Okay. And that includes a rebound in SBA gains, I'm assuming off of the fourth quarter level to something much more meaningful? Brian Spielmann: Correct. Operator: The next question comes from Jeff Rulis from D.A. Davidson. Jeff Rulis: Maybe just to clear on the last one. So like a $33 million base, is that fair on fee income? Corey Chambas: For '26? Jeff Rulis: The base to grow off of 10%. Corey Chambas: Sorry, '25. Yes. Sorry about -- that's a good start for fee income. Jeff Rulis: Got it. And back to the larger problem loan, it sounds like the question is the time line of resolution. It sounds like it might be a bit, but maybe just checking in on your expectations over the balance of this year or beyond. Corey Chambas: Yes, it does take some time if you kind of go all the way to the end of a foreclosure, getting the property, share of sale, all that process that you know. But we do think because that there are multiple pieces of real estate here that there can be shorter-term progress potentially with some pieces of this, even in the very near term. And kind of chipping away at it through the year. And potentially, if everything went well, it could be sooner than later. But likely toward the end of the year for full resolution on everything would be best guess and really is a guess because there's just a lot of variables on timing and what might happen. Jeff Rulis: Yes, that's a good detail. So we could see some smaller wins. It doesn't -- it's not a full all-in kind of recovery or not, it's a -- you could see sales and things that minimize the NPAs in short -- well, over the course of the year, we could see that come in? Corey Chambas: Correct. Over the course of the quarter, I wouldn't be surprised if there was something happening every quarter over the course of the year in terms of making progress on the different pieces. Jeff Rulis: Another quick one on that. Equipment finance, could you just remind us of the balance there, what that maybe is at the year-end and what that was the prior year and expectations for -- do you to keep that stable or keep shrinking it? Corey Chambas: Right. So that's the transportation segment of that equipment finance portfolio. I believe we were at $21 million at the end of the quarter. And I think that went down about $20 million over the course of the year. Going back when we initially started having issues with that, it was $61 million. So we're down to $20 million. Remember, these are 5-year deals generally, 5-year loans. So I believe we're getting to the point that the people who have made it through the really tough transportation economy this far are much more likely to make it going forward. Jeff Rulis: Got you. And one last one, if I could, Corey. Looking at Slide 15, a pretty remarkable progress on those goals, if not achieve them. You've had some wind at your back. But I guess, just strategically, do you revisit those a couple of years early? I mean, every bank, I guess, would hope to just maintain that. But any thoughts on how you look at those goals or it takes a lot of work just to stay there. Corey Chambas: Yes. Good point. We have made tremendous progress because a few of these things were at all times, we want to do are particularly things like the employee engagement score, our Net Promoter Score. Those were forever and always. But a few of these were the end of the plan in 2028 to hit the ROE goal on that, to hit the efficiency ratio goal. And as you alluded to, we hit that ROE goal of over 15% in '24 and '25. We're below 60% on the efficiency ratio of '25. So okay, now what are you going to do? So for us, I would say, I don't think we'll recast those. But given that we hit that ROE goal, we'd like to stay there. That's pretty darn good. So if we're in the ballpark of that over these next 3 years, we would consider that good. And efficiency ratio is one where it's kind of like your golf handicap, you want to just keep bringing that thing down. And our ability to -- also like a golf handicap, the lower you go, the harder it is to keep improving, but we would expect to continue to improve on that. We won't recast our goal to be different than to get below something lower than 60% by 2028. But at this point, I would say our goal will be to try to make improvement on that every single year going forward. And that's kind of our -- we've talked a lot. It's a little different than standard banks speak where everything is looking at efficiency ratio, we really look at operating leverage. So we're going to want to -- we had really big positive operating leverage this year with expenses growing significantly less than the growth rate in revenues, but we'll expect to continue to have positive operating leverage every year. That's kind of how we set our goal, our budgets every year. It's a key measure that we look at overall and for our different business units and lines and things like that. So we would expect to continue to make progress on that efficiency ratio. Operator: Next question comes from Nathan Race at Piper Sandler. Nathan Race: Brian, I was hoping you could maybe just help us with the starting point for the margin in the first quarter. I know that tends to depend on the production that's coming through the pipeline in terms of mix. So I would be curious if you could just comment on kind of what type of loans you're seeing in the pipeline these days, which sounds like it's pretty strong and maybe how that could translate into the margin starting point for the first quarter. Brian Spielmann: Yes. I'll actually have Dave maybe start on the mix of pipeline, and then I can talk about the margin. David Seiler: So the pipeline in Q4? Brian Spielmann: Going into Q1. David Seiler: Going into Q1 for this year. Yes, So I mean, we're really seeing right now our pipelines across our business lines are strong. So it's a mix of commercial real estate and C&I. I don't really have a great flavor for you on the mix, but I can tell you that our asset-based lending pipeline is particularly good, and those are higher-margin deals. Brian Spielmann: And so I would just add to that with the comment on ABL with our expectation of SBA picking up and just the success we've continued to have in other of those C&I areas. When you adjust for the nonaccrual interest in Q4, that resets us at 3.63%. And with that mix that we're seeing in the pipelines, we feel like it's a great place to be and within our range of 3.60% to 3.65%. We're going to continue to compete on both sides of the balance sheet, but we feel like we have the ability to maintain that. Nathan Race: Okay. Great. Really helpful. And then I'd be curious just in terms of what you're seeing from a deposit pricing competition. Now that we've had some additional rate cuts in the back half of last year. Just curious if you're seeing more kind of rational deposit pricing competition, particularly as some of the larger competitors in Wisconsin are expanding via M&A into other geographies. David Seiler: Right. As you know, I mean, particularly 6 to 12 months ago, it was extremely competitive for new deposits. It's still very competitive. Our sense is it's eased just maybe a little bit, but still competitive. Nathan Race: Okay. Great. Maybe one last one for me for Corey. Obviously, M&A optimism is continuing to build across the space. And I know you guys have a very kind of narrow strike zone in terms of the type of acquisition opportunities that would fit your model. But just curious if you're seeing any opportunities out there that could align or maybe kind of augment the franchise that you guys have today? Corey Chambas: If I had to give you a one word answer, I'd say no, but I'll give you more than that. We're so unique, as you know, with our model that there's just not many things that look like us. We don't value branch networks. So basically, everybody else has branches. So that's problematic. And additionally, we think as we've looked at things, I know it's counter to the industry and what's happening with M&A. But we believe that the best way to drive value for your existing shareholders is through organic growth. You're not diluting them by issuing shares to somebody else for their franchise, which you would -- I mean, it sort of makes sense that you think that franchise is less valuable than your franchise if you're the one buying them, but you're still giving their shareholders your valuable shares. So we're just big believers in organic growth as the best way to generate value for existing shareholders. Nathan Race: I appreciate the extra color, Corey. Operator: The next question comes from Damon DelMonte at KBW. Damon Del Monte: First question, I just wanted to, Brian, clarify on the comments on the margin. I think you said because of the strong ABL pipeline and SBA picking back up that the margin would reset in the 3.63% range. So is that implying that the delta between the 3.53% and 3.63% you'll benefit from next quarter? Is that how we should think about it? Brian Spielmann: No, I would start by saying that the delta between the 3.53% and the 3.63% is the 10 basis points of nonaccrual interest reversal that happened in the quarter from the real estate nonaccrual loan. So that alone, that was about 8 months of interest that we've reversed. So from that resetting, you're going to have a higher run rate closer to 3.63% right away in Q1. And then from there, the strong pipelines predominantly in C&I, I mentioned asset-based lending and others, that gives us the ability to maintain our spreads and hopefully increase our spreads while paying for those expensive deposits and then staying within our guide of 3.60% to 3.65% on net interest margin. Damon Del Monte: Got it. Okay. That's helpful. And then with regards to expenses, I think you had said comp is going to grow a little bit more than we saw this year. And I think this year it was around 7.5% or so percent. And how about like the rest of the expense base? What are you expecting for growth there? Brian Spielmann: Yes. I would say a modest increase. I mean we're expecting to grow 10% revenue as we continue to talk about, and we want that positive operating leverage. So if compensation is going to increase a little bit more than 7.5% this year, there's not much left for the rest of the expenses, and that's consistent with our approach to generating annual positive operating leverage. Damon Del Monte: Got it. Okay. Great. And then just lastly, if you look back over the last 8 quarters, I think 6 of them you guys came in, call it, 7% to 9% growth with linked quarter annualized loan growth. I guess, what gives you confidence that you can get back to a consistent double-digit type of growth rate in loan growth for '26? David Seiler: Yes. Damon, as we look at it, remember, we're trying -- our goal is 10% over the course of the year, right, over 12 months. And so we're saying that based on pipelines that we're seeing. And we're also looking at potential for some rate cuts, although that seems to be maybe that probability is decreasing a little bit. But also the potential benefits from the new tax policy is something that we think could spur some investment by our client base and create some loan opportunities, particularly in areas like equipment finance. Corey Chambas: And I would add to that, Damon. I think if you look back at our CAGR for '20 through '25 on loans and lease growth, it's 10%. So we've done it. There's been a little bit of softness as of late. But I'm reminded of -- I can't remember when it was, but there was a time when I actually remember sort of making an excuse about slowness in our loan growth, and this is maybe 10 years ago or something like that. And I was starting to like kind of imagine economic things that were going on that were causing this -- in the reality, as I saw over time was it was just some of our teams weren't that strong right at that time. And so I believe for us, it's about our people and our teams. And if we have the right teams in place, we're going to get our 10%. I'm just very confident. And right now, we feel really good about it. We mentioned ABL. We've really rebuilt that. We have a new leader there who's brought in a business development team, which is twice the size of the team that we had before, for example. And in our Northeast and Kansas City markets, we had really good growth in the fourth quarter. And I think it's probably the best growth -- those are our two smallest bank markets, and that was the best growth we've ever had out of those two markets. So -- and our Madison bank is kind of a machine that rolls along and our Milwaukee area bank is somewhat the same. So if we get -- if we have Kansas City and Northeast, those leaders are -- we've had new leaders there maybe 18 months ago or something like that, I think. The two people that are running those two bank locations came into place. They've worked on rebuilding teams. So again, we're in the people business. Best team wins, and we think we've got the best team we've ever had. So that's what gives me the confidence we can keep rolling at that 10% pace. David Seiler: Yes. And I'd just add one more thing, Damon, that it really isn't a new business volume issue for us. It was really higher than, I'd say, normalized payoff levels for us in the -- particularly in the second half of the year that impacted that growth number that you're referencing. Operator: The next question comes from Brian Martin at Janney. Brian Martin: I think it was Corey that said that last, I couldn't hear. Sorry, but the -- or maybe it was Dave, sorry. The payoffs versus the production this quarter, I guess. Just in general, can you just give -- I guess it sounded like from your last comment that it was more about the payoffs. Just, a, I guess, can you give us some context over the course of '25 what the payoffs and production look like? And then just how do you feel about the subsiding, if you will, of the payoffs as you enter '26? It sounded like that was more of the issue. I get they're sporadic, but just any context you can help provide on that would be helpful. David Seiler: Sure. So just starting from the payoff point of view, right? The payoffs, we think we're about $70 million higher than our, I'd say, our average payoff level if we look back on a quarterly basis, our last 8-plus quarters. So $60 million of that -- of those payoffs were in the last 2 quarters of the year. So if we add that $60 million to $70 million back in, we end up at an annualized growth rate of between 10% and 11%. So that's much closer to our target. The payoffs, I think a number of those payoffs were multifamily properties going into the secondary market. And those tend to be larger and lumpy. Corey Chambas: And piggybacking on that, Brian, on Dave's comment on that with the secondary market. It seems like there's a little bit of balloon activity, ballooning right now on commercial real estate. So think of deals that were done 5 years ago on a 5-year note. Because if we're going to get paid out on the commercial real estate loans by when we go to the secondary market, it's going to be at the end of term because they're not going to -- we have prepayment features in there or swaps or something that's going to cause them to wait until the end of that term. But on the other side of that coin is other banks have commercial real estate loans that they did 5 years ago that are now ballooning. And we're getting looks at things, and that's part of that pipeline that Dave was referencing before. And the beauty of those deals on the CRE side is they're fully funding. It's not like doing a construction loan. We love doing construction loans, but they take 18 months or 2 years to get fully funded. So we think there's going to be some opportunities kind of to have a little bit of offsetting penalties. It just depends which quarter you get the payoffs in and which quarter you get the new deals that you can get out there and win. Brian Martin: Got you. And those -- the payoffs were $60 million to $70 million, was that annually? It was that high -- much higher? Is that right? David Seiler: Right. We think we had an extra $60 million to $70 million of payoffs above what we consider normal payoff levels in this period. Brian Martin: Okay. And then just the production, production was pretty consistent this year, if you look at those last 8 quarters, pretty consistent year-to-year. David Seiler: Yes. I mean it was really at the rate we look for. Brian Martin: Yes. Understood. Okay. And then maybe just a little bit of comment about the specialty businesses, just kind of where on the C&I side, how did growth -- throughout the year in '25, how much did that contribute to growth and then just your outlook? I know you talked about ABL, but just in terms of moving up that percentage, just remind us where it's at today and just kind of how you're thinking over time, you see that trending? Corey Chambas: We're pretty flat in that over '24 in terms of some of those niche areas relative to the total balance sheet. We would expect that to lift because that's down -- our current level is down from where it had been at some point. So we have good growth in other segments that weren't in there over the last couple of years, and that's been a little slower. Because in the last, say, 2 years, ABL has been slow, accounts receivable finance has had some payoffs and been down a little bit. So that hasn't grown at the pace of the average balance sheet, and we would expect that to be picking up. Our Floorplan Finance business has grown steadily. So that's been a good performer there, and we think we will continue to be. But where the lift is going to come from, we think it's happening like already in ABL, good activity, good pipelines, booking deals, BDOs in place. And then we would think the accounts receivable finance business would grow more as we move forward. And again, just a reminder, those two business lines are countercyclical. We don't know what's going to happen in the economy. So those could get a lift there. But those along with SBA, we would hope to contribute more. So we would like to see that percentage move up. It's been as high as 25% of the total book. And ideally, we'd like to move it back there. David Seiler: And I would just say our equipment finance business leveled off a bit in '25, but we think there might be some good opportunities there in part due to the new tax law that could drive some activity there. Brian Martin: Got you. And just remind me just kind of where you're at percentage-wise versus kind of where you think it trends. I guess, I don't know if it's a multiyear kind of scale up. Kind of where do you see it moving to over time? Corey Chambas: Yes. On the specialty niches, at year-end, we're about 23%. And like I had mentioned, 25% had been our kind of the goal we were shooting for. We got to that and a little bit over that a couple of years ago. And so we want to get back there, and we'd like to get back there kind of in short order. And anything -- it all helps margin, helps strengthen margin. So we'd like to see that continue to grow. And if we could get that up to 30% over time, that would be really nice for us. Brian Martin: Got you. Okay. And then just one on the fee income side. Just kind of the area -- you talked about several areas there in terms of contributions. I mean where do you see the most lift in -- potential lift in fee income? And then just I don't know if you gave more details on the SBIC revenues, but just in terms of kind of how -- just annually, if we think about that, what they were in '25 versus how we think about the potential growth in that business in '26 would be helpful. David Seiler: So I'd say the two areas that we probably look at first are Private Wealth, right? So that's a business that we shoot for 10-ish-plus percent growth in. So that would be our goal there. And then the other area that we expect more pickup is in SBA gain on sale. And so as we look at that, I think last year, if you look at the 4 quarters, we averaged right around $500,000-ish in terms of gain on sale per quarter. And we'd expect that to grow some this year. Corey Chambas: And I also think we would see overall for that whole fee income category, we're looking for 10% growth. I think we would expect greater than 10% growth in the SBIC piece just because we've been investing. So there's a J curve on those businesses, those funds as they ramp up. And so we've been in the downside of the J curve on that a little bit. And we would expect more of that to be above the line in terms of the J curve and contributing more as we build that portfolio internally. Brian Martin: Got you. Okay. And then just one last one, I think was the -- you talked about the credit quality earlier, in particular, the one credit this quarter. The other credit that's been out there that's taking a little bit of time to work through the process. Can you just remind us where that stands? I mean, I guess in terms of the potential to come down, it sounds like you could see some wins on the one that came on this quarter, just given the sizing of the pieces there. But in terms of the other one that's out there, I mean, could we see some resolution on that in the near term? Or is that still a little bit a ways out? David Seiler: Right. That's the asset-based lending credit we have. It's been there since '23, I believe. So that one, it's all in the court system. I mean things can happen at any time. But right now, the court date is set for later in the year, later in '26. So that could be with us for a little while. And it's not -- from what we're being told, it's not really unusual in that state's court system. So unfortunately, it just takes way too long. Operator: We have no further questions. I will turn the call back over to Corey Chambas for closing comments. Corey Chambas: All right. Thank you all for joining us today. We appreciate your time and your interest in First Business Bank, and we look forward to sharing our progress again next quarter. Have a great weekend. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

63天前Insight Analytics约5分钟阅读

WBTNF 2026 Q2 财报电话会议

Adrian Mulcahy: [Audio Gap] meet the CEO quarterly update with CEO, Coby Hanoch from Weebit Nano. So we're going to step through. I'll get Coby to make some introductory remarks with respect to the quarter, and then we'll work through your questions. We've got a pretty strict time line. So we're going to hopefully, we can conclude it in just around about an hour, but I'll be the timekeeper on this, Coby. So don't be concerned about that. But look, thanks, everybody, for joining us, a really big group that has joined us, Coby. So why don't I throw it to you for some opening remarks on the quarter to get us underway? Jacob Hanoch: Thanks, Adrian. So welcome, everyone. Glad to have everyone here and talk to you again. Yes, we had another good quarter, strong quarter. Obviously, the big highlight was at the end of the quarter with signing TI. I think that was a really important milestone for us. I think you can follow the trend that we went through from SkyWater. We grew an order of magnitude to DB HiTek, another order of magnitude to onsemi and now another order of magnitude to TI, and we're really now dealing with the biggest semiconductor companies. And this is really exciting. The reaction from the world in the semiconductor space and in general, has been remarkable. And I think with TI and onsemi and DB HiTek, people see that this is really catching. This is moving forward. I always said that each deal makes the next one a little easier. So it doesn't make it easy. It makes it easier. We're still pushing forward. We're still not in what I call the tornado, but we're really heading there. And it's really exciting, and we're hitting the ground running with them. We're having a big kickoff meeting next week and really pushing forward this project. So that's very exciting. We had a lot of other good things happened in the last quarter. We finished the qualification of DB HiTek. So now we saw that we meet all of the JEDEC requirements, et cetera. And it's in the hands of DB HiTek now to really take it and do all the final bureaucracies and work on officially announcing to their customers, et cetera. There still are several steps that they want to go through, but it's definitely going in that direction. We already have some product companies that are designing with our ReRAM planning to tape out at DB HiTek. So we're starting to see the light towards that mass production that everyone is waiting for. It's everything always takes so long with these fabs, but it's moving. And we actually got wafers from onsemi, which was kind of record timing. And in a year from when we signed with them, we got the wafers. We have the dies now being tested. We have good initial results with those dies. So that's another important step forward and they are already working obviously as an IDM, they're working on their products and things. And we're very excited about the partnership with onsemi. And I would say the last point, of course, to note is we had another quarter of record cash coming in. I repeat what I said last quarter. This is based on all kinds of milestones and sometimes you just have several milestones hitting together or things like that. So I don't want anyone to have the expectation that every quarter will be a record cash quarter or that this is an indication of the future, but it is very nice to have that. So we are maintaining the guidance of having over $10 million revenue in fiscal year '26. Yes, I guess that's -- I'll let you go to the question part. Adrian Mulcahy: Thanks, Coby. The question have started coming in. So what -- but one that's popped up straight away. I'll just get you to address, which is obviously part of the quarter and a good announcement. So Weebit has licensed, it's ReRAM technology to Texas Instruments. So can you talk us through the deal and the significance of the agreement for Weebit? Jacob Hanoch: So Texas Instruments or as everyone refers to them, TI, they are really one of the top, I would say, 5 IDMs and really a major player in the semiconductor space. I think everyone knows they've been around for ages, and they've managed to maintain their position. TI has over 80,000 products in their price book. Of course, a lot of them are variants of each other, et cetera, but they're a very big player. They're the #1 analog player in the world. And it was a very long process. Actually with TI, it was almost 3 years to close this. So when I was saying even 2 years ago that we're talking to the majority of the big players, I meant it obviously. And you can see just some of these deals really, really took a long time. Weebit insisted on terms that it should get. Obviously, it's very easy to say, "Oh, we want to get this big player on board, and we'll just cave in and give them all kinds of crazy terms just to have them signed," but we're building a company that needs to be a big and strong company moving forward and with strong future revenues and everything. So we are well aware of what we have in our hands and the fact that today, I think the fact that TI, and obviously, they were looking around trying to see if they can get another option, something else that won't be with royalties or all kinds of things like that. So the fact that we ended up closing the deal for me is a great sign that we really -- we have a great technology. They were definitely impressed by it. We really are the only supplier, only, let's call it, serious supplier. There's obviously all kinds of other small things or whatever. But if you look at anything that's really serious, and we're feeling very comfortable, very bullish with this. They wanted to push straight to advanced geometries. They're not allowing me to say which one, but they are starting with an advanced geometry. They obviously have the option, which I'm quite confident they will want to materialize of going to the additional geometries once the first one is working. So we have definitely high expectations of this deal. The relationship is really good. We already have delegations that went to Dallas and sat with their teams. And as I mentioned, next week, there's going to be a big kickoff with a lot of Weebit people going to TI and spending several days getting the project off the ground. So it is a very exciting agreement I was at CES in the beginning of January. And everyone was all over us with this announcement, the bankers, the different institutions. Of course, customers and the press and everyone. So it was very exciting, and I think we're off to a very good start for '26. Adrian Mulcahy: Just one question. Will we -- obviously, somebody is getting pretty enthusiastic. Will we see the same enthusiasm for Texas Instruments as we have from onsemi when it comes to tape-out time frames? Jacob Hanoch: Each company is different and has its own internal bureaucracy and things like that. So I can't really say right now, but I can tell you that the beginning is very exciting. They are excited about the technology. They are very -- now that the agreement is signed, it's really -- you can sense that they are going to be putting a lot into this, and this is going to be moving very nice and very fast. Adrian Mulcahy: Just another one on Texas. You mentioned in the past that a particular customer wanted an architectural agreement. Is Texas Instruments that customer? Jacob Hanoch: So I won't go specifically into these things. There were -- we've been going with many of the customers that we're talking to. We've been going through a lot of different business models. And sometimes they get excited and they say we want to have one type and then they go and they say, no, actually, we checked it. And financially, we prefer another type of agreement. I think also the architectural license -- when we refer to architectural license, there was one of the fabs that just wanted on day 1 to say, "I want access to everything on all geometries. Then there were all kinds of backtracking and so on. At the end of the day, both onsemi and TI, I mean they want to look at this for not just one geometry and that's what's important. I mentioned TI has the option to go to additional geometries, and I'm quite confident once they see the first one that they'll decide to expand to additional geometries. So the terminology and whatever is more of a technicality for me, what counts is really the fact that we're moving forward now, and I do expect to expand in both of these major players to other geometries. Adrian Mulcahy: Turning to AI. Is the new AI offering that's being led by Giddy and just storing weights in ReRAM? Or is it using in-memory or neuromorphic computing? Jacob Hanoch: The near memory compute is actually more of using ReRAM in kind of the traditional sense. So you basically have an embedded ReRAM that replaces the big SRAM that people have. But in essence, you don't really need something very special for it. The place where ReRAM really shines is when you move to in-memory compute and then to neuromorphic. And Giddy is really looking at those kinds of applications and how to really make our ReRAM easily accessible. There's going to be a lot around it. One of the best examples is when you look at how NVIDIA grew. NVIDIA had hardware and GPUs for a long time. I think what's really pushed NVIDIA forward was when it added also the user interface layer, the CUDA. And that really made it so much easier for people to use their technology and really it made the whole AI thing blow. And I think that's what we're looking at. We want to have both the hardware and the in-memory compute requires the ReRAM to be designed in a different way. And there are all kinds of ways to do it, and we need to really research and decide how exactly we want to do it. And then there will be the algorithms, the software layer interface and all of that. So we really want to do something that gives a real solution for customers and not just some basic hardware sales or something like that. I think this is a very fast-growing space in-memory compute has huge applications. When you think about it, and without going too much into technology. But in AI, one of the key activities, the thing that it does almost all the time is what's called multiply accumulated, it multiply matrices basically. So it's not a broad, I want to do anything and you don't need these very complex programming and being able to do a lot of different functions. It's really one main function that you do most of the time. And it turns out that -- and by the way, that function when you do it in a traditional computer, you basically have a processor and you have a memory and the processor keeps reading from the data from the memory and then writing data to the memory, and there's a lot going on. And that's where a lot of time and a lot of power are spent. When you do in-memory compute, you basically don't move the data. It's in the memory and it stays in the memory and it doesn't go anywhere. And that makes the whole computation, orders of magnitude faster and low power consumption. So ReRAM is an ideal solution. I obviously think it's the most ideal solution for this. There are other memories that you can do in-memory compute with but ReRAM has the additional value that it's just very cheap to manufacture. It's much lower cost to manufacture and makes it -- and it's easy. You manufacture it basically on a CMOS line on a standard manufacturing line. So that's the big advantage that we have, and we want to capitalize on it. And Giddy is the best person for it. He has such a background and such a broad understanding of this that I can't think of anyone better than him to lead this activity. Adrian Mulcahy: Next one. Last year, you spoke of possible future fab IDM customers, which may include a household name and an architectural agreement. Looking forward into 2026, are there any other descriptors which may describe future signings? Jacob Hanoch: Well, I think after we signed TI now, you can't really go a lot higher than that. It's kind of you're already, as I said, in the top 5 IDMs, and you're really in a good position. I think TI is very much a household name. I mean onsemi in many parts of the world is also pretty much or close to a household name. TI is definitely a household name. It was a disappointment for me that we didn't manage to close the third deal that we were talking about, onsemi and TI both under the category of between AGM '23 and the end of 20 -- I'm sorry, AGM '24 and the end of '25. We really believed and hoped that we would have a third one. Some of these agreements, again, they just drag. Now with the TI announcement, it did give others a certain push forward, and we are meeting these guys. We are going to push forward. I believe, I hope that this year, we'll see additional agreements with people big and small and I can't commit yet to who and what, but we're definitely going to see much more activity moving forward now. Adrian Mulcahy: With a lot of fabs selling out 100% of 2026 production. Will this reduce access to potential customer fabs and delay any deals with fabs and IDMs? Jacob Hanoch: That is actually one of the factors that's impacting us sometimes when a fab is at full capacity, and it sees that for the next year, it's going to continue to have a full capacity. They have less of an appetite to go and make this big investment now on ReRAM. And by the way, when they make that investment, it's also -- they need to run ReRAM wafers through the line at the expense of running stuff that generates revenue. So that has been over the years when we're in touch with some of these big guys. That has been one of the factors that delayed the negotiations or really -- a strong engagement, I mean there's been an engagement, but really progressing forward. With some of the guys, it's just that, hey, the fab is full. We can see that it's going to be full for another year. We just -- management wants us to focus on getting the money in, right? And it's normal, and I can definitely understand them. So we just wait for the moment that they can start seeing that they're going to have a downtime and that makes it much easier to engage. Adrian Mulcahy: Coby, here's kind of a simple question, but probably pretty important from a commercial perspective. So I'm hoping to get a better understanding of what Weebit Nano AI product offering may look like. What are the types of companies who would visit target market end users? And how does Weebit charge derive revenue? Jacob Hanoch: So we are -- we are in the process of defining what we're going to be doing in AI. That's kind of the initial task of Giddy is to really analyze the market, analyze all the requests that we've been getting and talk to the customers that we've already had engagements with and define what we want to offer them. So I think it's a little too early for me to say what exactly that offering is going to be. I want to let him go and do his analysis and come with. He'll probably have several options, and we'll have a brainstorming session on how do we prioritize and what we want to do first. It is -- I mean I've been talking in the AGM and different meetings about how in-memory compute is something huge and so many companies are interested in it, and it is reaching commercialization already. In-memory compute is something that it's really consumer -- or commercial companies are already looking at it and wanting to move forward with it. So we really want to get something good. We want to learn the market. And we'll be, I guess, hopefully, in the next months or year. Over the next year, we'll be releasing more information on what exactly the plans are and it's probably going to be obviously a staged plan where we'll have some initial offering, and then we'll improve on that and grow and add, et cetera. Adrian Mulcahy: Another very fundamental question. So your group suggested that ReRAM is forecast to increase 45-fold over the next 6 years, representing more than half of the USD 3.26 billion of embedded emerging NVM market by 2031. How does this directly relate to the TAM, total addressable market for Weebit that Weebit can address? For example, if Weebit gets 20% of the ReRAM market, would we get 20% of the $3.3 billion? Jacob Hanoch: So the old analysis always challenges me because Yole did not think of Weebit revenues or the revenues of the semiconductor IP companies. What we understand from Yole is that -- what they did was they basically said a key market is MCU, microcontrollers. And in an MCU, the nonvolatile memory takes about 10% to 15%. So if the MCU market is USD 30-something billion, then we expect the NVM part of it to be 10% of that, and that's how they got to the 3 -- whatever billion that they put there. Now that's obviously the emerging NVM that they're expecting to see there. I mean, they took the 10% of the of the MCU market and then they extrapolated how much is going to be emerging, what percentage, and that's how they got to those numbers. So for me, the old numbers are, first of all, an indication of just how rapid the growth is going to be. And that's what I think most people or people should be taking from it is this is a leading analyst and according to -- I mean, when they do an apples-to-apples comparison of what they think is happening now and what they think will happen in 2030, they're kind of seeing this huge growth, and that's what people really should take. If you want to start doing your own extrapolation and say, "Oh, wait a minute. So if $3 billion is 10% of the MCU market, and Weebit can get -- I mean, average numbers that people normally talk about are 1% to 3% royalty from that, then this is how much potentially royalties are going to be, and this is the market share that I'm expecting Weebit to have. And everyone can do their own research and analysis on that and then think about the fact that there's beyond MCUs, there are other markets and so on. And of course, there's going to be the AI market, which is an adjacent market, but that's one. So I mean people need to do their own research here. This is kind of roughly how the basics of what we understood from Yole in how they did their analysis. For me, the important thing is just the message this market is going to really grow rapidly. Weebit has to be very focused. A company undergoing such rapid growth it's so easy to make mistakes, and we need to be laser-focused on what we're doing. I'm very glad to say we have the team that knows how to do it. And we have the plan, and we have been setting the infrastructure this past year, the announcements that you didn't see are all of the infrastructure that we set up, bringing in all these different tools that help you manage projects in an organized way tracking even the simple things like how many hours did this engineer put into onsemi and how much how many hours did they put into DB HiTek or into the R&D work or whatever, being able to track what's going on, being able to have the management and everything in an organized tool where you can get easy snapshots. Having -- we have now a PMO that's defining all the internal processes and procedures and really defining how do you do this? How do you do that? How do you manage all these things? So I mean, the customer success team that we set up, all of these things are going to enable us to go through this massive growth, really crazy growth, and it's going to be a lot of fun. Adrian Mulcahy: Next one. Now the qualification at DB HiTek has been successfully completed. Can you explain expected time lines to earning license fees and/or royalties from that agreement? Jacob Hanoch: So we basically went through the tests and we showed that we're ready. Now it's really in DBH, DB HiTek's hands. They need to see how they bring it to the production line or to their customers. They have their internal procedures and their internal ways of dealing with things, working on things like yield, et cetera. And so we are obviously waiting to see this move forward faster. But foundries, as you can understand. And I think as people have already learned, they have their own pace and so on. So we -- I definitely expect that this year we'll be seeing getting to mass production. But it's not going to happen tomorrow. They still need to go through their procedures. And I hope it will be done faster and not just drag over a long period of time. Adrian Mulcahy: And Coby, just following on from that same kind of question. So the quarterly report mentioned that Weebit has several products in design and with the expectation of first product will tape out this year, is that through DB HiTek? Jacob Hanoch: Well, we definitely have designs that are in DB HiTek right now, and I think it is reasonable to expect that we'll have tape-out of designs at DB HiTek this year, yes. Adrian Mulcahy: Okay. Stepping back. So how far off are Weebit from signing deals with Tier 1 customers? Are we mainly dealing with smaller customers at this stage? Jacob Hanoch: No, we're dealing with all sizes. We are definitely engaged with big companies, I guess, order of magnitude of TI and also smaller ones, and there's -- I know people are tired of hearing me say we are engaged with the majority of the big guys, but it is true. And with TI, it took us 3 years to close. I hope that with -- others will start closing faster. There are other big guys that we're engaged with already for a long, long time. That's how it works in semiconductor. Weebit is -- I think the key message to the shareholders is we want to build a big, strong, solid company, and we are not caving in or agreeing to what I consider unacceptable terms just in order to be able to announce that we have yet another customer or whatever. I could have done things -- we could have agreed to different terms that have enabled us to get big-name customers a long time ago. But it's not how you build a strong company. And in the beginning, it's very tough, and there's nothing that I would have loved more than to come and tell the shareholders, hey, we have another customer. I mean this it uncomfortable situation that I have to keep telling everyone we are engaged with these guys and we are pushing forward and people roll their eyes already, okay, how many times are you going to tell me that, but this is the only way I know to build a strong company, is to hold your ground, to know the value of what you have and to end up -- these guys will be coming in. They will come in. They don't have another option. They need to work with us. Now they're seeing that their competitors are moving forward. And this is what will enable Weebit to be a very big and strong company, and that's my goal. Adrian Mulcahy: Yes. And Coby, I think it's probably fair, in this last quarter, there's evidence of investment in people, which is obviously a necessary pathway to executing on some of these opportunities. So I can encourage you on that. So next question. Outside of NDAs, does the partner section of the website list all product companies signed with Weebit? Or is there a lift maintained elsewhere? Jacob Hanoch: I have to admit I haven't looked at the website for a while, so -- but I would say, Weebit, I think the shareholders have already learned. I try to be as transparent as I can, and we -- the partners, we haven't signed any agreement that is not -- I mean, any final agreement, definitive agreement that is not public. I won't go into what level of NDA and MOU and whatever other types of agreements we signed with companies. Once we get to a definitive agreement, that's when we announce it, and I believe that that's what you're seeing on the website. Adrian Mulcahy: Sure. Next one, is testing of the demo chips at onsemi now complete? Or are there additional steps before qualification commences? Jacob Hanoch: Well, we actually just got them. I mean, again, as I said, it's really a record time in 1 year to finish, to get to the point where you take out and to -- you already have silicon in your hands. That in itself is just amazing. The first tests are positive, but we have a lot of testing to do, a lot of checks to do before we get to the point that we say we feel like we're ready for qualification. So it's just the very beginning of the testing phase. Adrian Mulcahy: Thanks, Coby. I think I know your answers to these questions. Did TI look at other ReRAM providers? And if so, what were the winning factor -- factors for Weebit? Jacob Hanoch: Well, it's a question to TI. I can tell you that from what we saw and we understood and actually, they even told us, I mean, they definitely and you would expect a company like TI to check the market, right? You wouldn't expect such a big company to just say, oh, we like Weebit. They -- Coby waves his hands in a nice way or whatever, and we want to work with them. They did a very, very, very thorough analysis. They talk to their customers. They did the market check. They looked around. I'm sure that they looked around to see what other ReRAMs were available. I guess I have indications that they looked around. And I think that, at the end of the day, the combination of -- I mean, our technology is here. It's qualified. It's qualified at AEC-Q100. It's qualified for very extreme situations. For analog dies, it's really a great solution. I believe that the onsemi deal was also something that helped give them a little bit more confidence, but they met our team. We -- as I said, we sent people over to their site. They were sitting there for days in conference rooms and reviewing the technology and analyzing it. I mean it was a very, very thorough analysis that they did, and I'm glad that they were impressed by the team. I think that's the key factor. They saw the quality, the unbelievable level of experience that the Weebit team has. They saw the results, the technology. And I believe that -- again, it's a question for TI, but I'm sure that those were the key factors that they were looking at. Adrian Mulcahy: Thanks, Coby. So what is the latest on the sub-22 Newton meters, 12, 14, 16 or teens process fab? Is this the fab that slipped from 2025 to 2026? Jacob Hanoch: I really can't go into that. I apologize. But as I said, we're in different steps with different companies at a very, very, very broad range of geometries. So from the teens up to the 130 and even 180 sometimes, so it's really a very broad range. And once something materializes, we'll announce it. Adrian Mulcahy: Thanks, Coby. Next one, how are discussions progressing with other foundries, IDMs? And have you seen an increased urgency from them since the TI deal was announced? Jacob Hanoch: I mean things are progressing. I think I can definitely say that the TI announcement did make an impact. People noticed it. And I think that it did give a nudge to some of the people. Let's see now how much we actually managed to really leverage that and push them to closure. So it will be very interesting. Adrian Mulcahy: A difficult one to answer here, Coby. But what sectors are you seeing the most customer interest from? Jacob Hanoch: Well, I think the first one is easy. You look at onsemi and you look at TI and even to a certain extent, DB HiTek, they're all very strong on the analog side and the power management, et cetera. So obviously, that's the first sector that has been moving forward. By the way, when you look at the whole analysis on the slide that we normally show on the right-hand side, you can see that the first market they expected to grow was analog and that prediction is true. We also see a lot of interest from automotive. I mean, especially when we did the AEC-Q100, we see a lot of interest from automotive. But we get a lot of interest from medical companies, from industrial, from IoT. We have had discussions, quite a few even, with companies in the aerospace. So it's pretty across the board. But the first ones are really the analog, power management, automotive. Those guys are -- they have such huge advantages with ReRAM and onsemi and TI or their direct competitors. So those guys are the ones that are now feeling the least easy in their seats right now. Adrian Mulcahy: Thanks, Coby. So recently, BM LABS ran a competition for their in-memory compute. Does that mean the Weebit product will optimize the ReRAM and include the algorithms? Jacob Hanoch: Yes, I mentioned earlier, we don't want to just look at the hardware side of things. We believe that in order to really be successful in this market, you need to have the software and the algorithms and give people a development kit. So I mentioned NVIDIA, and that's a great example of a company where the real growth came when they delivered CUDA. So I -- for me, that's kind of the example that I'm looking at, and that's what Giddy's role is, to define not just the hardware but what should be the package, the development kit, what makes it really easy for people to adopt the -- our ReRAM for in-memory compute that it won't be just bare metal and then they need to develop everything on top of it. Adrian Mulcahy: Thanks, Coby. Turning to the U.S., sort of the comments made with respect to the U.S. subsidiary. Can you provide some more details about the subsidiary in the U.S.? Is it aimed at building sales support? Or do you intend to build a technical team to support engineering projects, to accelerate commercial deployment as a result of a large number of engagements? Jacob Hanoch: Yes. So actually, I forgot to mention that already with all the stuff that happened last quarter. I forgot to mention it when I talked about the summary but definitely -- I mean, we're seeing significant interest in Weebit, in our ReRAM in the U.S., in North America. And it really became -- the time has come that we needed to set up already a local presence, a local subsidiary. It is focused on sales. Now sales is a very broad word. It's -- for me, sales means, more than anything, very, very strong customer support. I want every customer working with Weebit to be successful, to be happy. I've been doing sales for so many years, and I know that when people are happy, yes, they might tell a friend or so. When people are not happy, they'll tell the whole world, and you have a real problem. So I just want to make sure that we have really good success stories with these customers, that everything goes well. People know that when they come to Weebit, they get quality support. We definitely demand to be paid for it, but people will know they get a good technology, good support. We have already a lead technical person in the U.S. now who's setting up the technical support activity there. And then he is a very experienced person. He came from another ReRAM company and has done a lot of work there. So he's very experienced in ReRAM. He knows what we're doing. And I'm very happy to have him onboard. So yes, this is going to be a very strong sales organization. Adrian Mulcahy: Thank, Coby. Next one. The quarterly report says Leti have achieved many milestones this quarter. What are they? Jacob Hanoch: We talked about Leti milestones? I somehow don't -- I don't think we mentioned Leti milestones. We -- I mean, oh, okay. I think I know what you're talking about. So traditionally, when you look at the Weebit reports, and this thing comes up every year after December, Leti works according to the calendar year, and they kind of structure the different work packages. So many of them have a major milestone in December because they want to be paid before the end of their fiscal year or calendar year. So you can see it every year that the big expense that Weebit has on R&D is in the last calendar quarter. And that's what happened to us now. So we basically -- in the notes to the expenses, we mentioned that there was a big expense to Leti because of these payments. There wasn't anything special specifically in this quarter. We have very good cooperation with Leti. We have ongoing -- a lot of R&D work that we're doing with them. They are a great partner. I said that many times, and I'll say it again. We're very happy to work with Leti. And the payments just happen to always kind of somehow coincide in December. They really like us to pay us as much as we can in December. That's how their finances work. Adrian Mulcahy: So on AI now. Will the AI offering be aimed at the edge or data center? Jacob Hanoch: I think the edge is really where we see ReRAM shining at this point. The edge also in terms of capacity of memory, et cetera, we are able to address much easier. So I mean, it's really Giddy's job to define what he wants -- what he thinks we should be doing. And I want to give him his space to really analyze the market and come with his recommendations. So again, we'll just have to wait until -- by the way, we already hired a PhD in AI to work with him, and that's a team that we'll want to grow so that they can really do a good analysis and come with good recommendations. I don't want to just decide on what their conclusions will be before they do their studies. Adrian Mulcahy: Thanks, Coby. There are a couple of anonymous attendee questions, and we normally -- it's not really a great way to submit your questions, but let me just go through a few of them because everybody else has actually nominated who they are, which I think is really important for them. But Coby, just this one. Jacob Hanoch: I agree. Adrian Mulcahy: Yes. But some of these are interesting, so let me just go -- and I think probably this would be on the minds of some of the audience anyway. But the company previously targeted 3 new licensing agreements with fabs, IDMs by the end of 2025. With onsemi and TI secured, the third has slipped into 2026. Can you provide color on the status of negotiations for this third agreement? Jacob Hanoch: Actually, there have been several that were candidates to be the third. It's not just one. These things sometimes, as I said, drag out for all kinds of reasons. So we are continuing the discussions with these guys. I -- again, we'll announce when we close it, when we do because many times, there are surprises that just cause things to drag a little longer than we expect. So I don't want to just try to predict and then -- it's really in the hands of these fabs, the speed that we progress. Adrian Mulcahy: This is a question that I've had from a number of investors, Coby, and you have, too, but just probably worth sharing with this audience around DB HiTek qualification. So can you explain why this wasn't announced to the market via the ASX? And what are the next steps with DB HiTek, which I think you've spoken about already? Jacob Hanoch: Well, maybe it's a good opportunity. People know that I've been struggling, that was an understatement, with the ASX regulation, disclosure regulation, et cetera. I won't go here into the issues there. But sometimes, I joke that closing the announcement on TI was harder than closing the actual TI agreement, and it sometimes feels that way. So it is a challenge for us, the whole ASX regulation. I believe that, moving forward, many times, we will not be making ASX announcements. We'll just wait for the quarterlies to announce things. It will just be easier. There's just so much time and effort that I can spend on these things. And yes, let me stop at this point. Adrian Mulcahy: No, no, that's fair point. I can hear and feel your frustration, Coby. So just -- you may not be comfortable answering this question. But outside GF, have any opportunities been lost? Jacob Hanoch: I don't consider GF lost by the way. I don't -- I mean, I -- you can see, GF is right now struggling to try to make whatever they're doing work, and they haven't qualified it. I mean they are late on their schedules. But I don't want to go into GF. I believe that Weebit has and will definitely, in the future, have the best ReRAM technology in the market. This is our goal. We're investing a lot in R&D. You know how many people asked me in the last month, so when is Weebit going to be breakeven? And guess what, I can just stop the massive R&D investment and I'll be breakeven today, right? But that's -- I'm sure that that's not what the shareholders want. We are investing heavily in R&D. We want to continue to improve our product. We want to be -- to have undoubtedly the best ReRAM in the market hands down to the point where -- and I tell people, to me, it's a fact. I don't even consider it is an if. One day, someone will come and go to GF, go to TSMC, go to UMC and all these other guys and say, hey, guys, I want to manufacturer here, but Weebit has a much better ReRAM for my application, in my specific SoC or whatever. They give me better support, or I want to use Weebit, and that customer will be big enough to actually move the needle. And those fabs will agree because, at the end of the day, these fabs are making money off of selling wafers. They're not making money off of ReRAM. I mean the decision to try to develop a ReRAM at GF, that's something that you need to ask their CEO, what the logic was. I won't go into his considerations, and I don't understand his considerations. But all of these guys, all of them, I do look at them as potential customers. I don't look at any one of them as a lost opportunity. Adrian Mulcahy: Kind of coming to our final questions now, we seem to have exhausted the audience, and there's a bit of feedback saying thank you for the session, by the way. I just thought I'd share that with you. But just going back to the investment in the people, which, as I called out, is a really important initiative for your business. So which parts of the business have the new staff been appointed? And where do you expect new staff to be appointed over the next couple of years? Jacob Hanoch: So I think that right now, the place where we need more people is the whole -- the staff that supports sales, that supports customers. So we need -- on the design side with each new customer, especially when we start talking to product companies -- and maybe this is a good place to kind of explain a little bit how good IP company functions. A good IP company always wants to have a lot of royalties come in. And when you talk about the royalties, when you talk about the product customers, the goal is to have as many of them use your standard modules. So you want to have a certain set of modules that you develop. And then most people, the vast majority will take one of those, and you'll basically have 100% margin on those sales. So that's really where I'm focused. I -- we want to get to the point where the product company -- well, we have a lot of product companies coming onboard, et cetera. Obviously, that's not now. That's not this year, but it's going to happen. And we want to have that offering of these base designs or modules and then basically get very, very high margins on the royalties that we get there. But some of the customers will need additional tailoring, additional help. They will be paying us NRE so that we help them optimize the module in their SoC, and that will happen also. So right now, the work on the design side is where we need to have some growth as we -- especially the first product companies, they require more support. We don't have that big library of modules yet, so we need to develop it. And right now, we're going to have -- if I look at the budget for this year, the biggest growth is going to be on the design side and supporting the sales activities. Adrian Mulcahy: Thanks, Coby. So there is one other question here, a relevant question. Are there any plans to get additional broker coverage? I think I know the answer to this one. Jacob Hanoch: Well, it was challenging to start getting some of the brokers to cover us, and I'm very thankful for both UCP and MST now. I think they're doing, by the way, an amazing job. I have to give the complement to both [ Jona ] at UCP and Andrew with MST. It's unbelievable how they picked up. They both started from practically 0 knowledge of semiconductors, and they really went through very intensive studies in order to give coverage, but I think they're giving very good coverage. So I recommend people to actually go and look at that. And I really hope to see more coverage starting this year. Hopefully, now more people are realizing that this is an interesting technology and an interesting company. Adrian Mulcahy: That's very good. I'm sure that [ Jona ] and Andrew would love that, but they're both high-quality analysts as you and I both know, Coby. Here's a bit of a tongue-in-cheek question to finish the meeting. Coby, if I offer you a year of free ice creams and by the end of February, will you sign Analog Devices? Jacob Hanoch: Someone knows me. I don't know if that was anonymous or not, but someone knows me. Adrian Mulcahy: No, it wasn't. It wasn't. It's very good though. And just a final one. Just a final question, too, and then we'll get you to wrap up with some final comments, Coby, as well. So comparing Weebit to eMemory in terms of people, does -- Coby, do you forecast Weebit will have more design people? Jacob Hanoch: Well, I just mentioned we're going to be hiring. That's the team that's going to grow the most this year. So we do need more design people. I am, by the way, very, very cautious with hiring. I had someone make the comment to me that he was looking at another nonvolatile memory that was in Israel in the past called Saifun, and he said, you know that today with 40 people, you're managing to do what Saifun had 200 people doing. So yes, we are very cautious in the hiring. We hired very high-quality people, but I'm very, very cautious with the shareholder money. I know that the money that we have today is basically money that we got from shareholders, and I'm very cautious in how I spend it. So we're trying not to grow to huge numbers, but at the end of the day, when sales grow when you have more customers, you need to grow. So we're doing a very delicate balancing act between these 2 things. Adrian Mulcahy: No, that's good. I think investors always like to hear executives and boards talk about the discipline about deploying capital. So well done, Coby. So we've exhausted the audience, so wanted to throw back to you with any kind of closing remarks before we wrap up. Jacob Hanoch: Well, I think calendar year '25 was a really, really good year for Weebit. It was a transitional year. I mean it started a transition. We're now engaged with big-name customers, onsemi and TI. We built that infrastructure being ready for the big growth. I think we're going to start seeing that during this year. It's still going to be tough. These guys don't move so fast. So '26 is going to be a year of really getting things moving a little bit more, I think maybe '27, the way that I see it, is going to be the year where we really will have that big tornado happening. But it's very exciting. We're having a lot of fun in the company. The AI activity now is very exciting as well. So I'm looking forward for another amazing year in '26, and I wish all of our shareholders a great '26 and that we'll all celebrate together. Adrian Mulcahy: That's great, Coby. Thanks. It was great to share your insights with the group. And thanks, everybody, for joining us this afternoon. That's a wrap. Enjoy the rest of your day. Cheers. Jacob Hanoch: Thank you.

63天前Insight Analytics约5分钟阅读

CHD 2025 Q4 财报电话会议

Richard Dierker: Okay. I think we're ready to get started. So thank you for coming out today, especially in a cold, blistery New York City day. I really appreciate it. I want to walk you through a quick 170 slides and the management team is going to come up and talk as well. But we're just a ecstatic to be here, and we finished the year with momentum, in 2026, the future looks bright. So just as a reminder, we have a safe harbor statement. We're going to make forward-looking statements today. So please check this out on our website. So who's going to be presenting. I'm going to start and end the presentation. Lee is going to come up and talk about our financials and our outlook. And then Chuck will talk about our brands and the categories; Andrea is here, Founder of Touchland. She's going to talk about that business and how excited we are about it. Carlos is innovation. Surabhi is all things digital, and then Mike Read will talk about international and SPD. I'll also go through some of the growth initiatives today as well. I'll just walk through the agenda. I already told you welcome. So let's look back at 2025. We grew faster than all of our categories across all 3 divisions. That is quite the accomplishment in a tough and rugged 2025. 4 of our 8 power brands grew share. 4 of 7 if you exclude Vitamins. Hero and TheraBreath are growing double digits. Strong innovation and marketing spend supports these brands and growth. And then we acquired Touchland this year. Tariff response and mitigation. These 3 bullets are really important to me. I would say our tariff mitigation and response wasn't just industry-leading, I would say it's just leading. I was super impressed with how the company reacted to that. Portfolio. Portfolio changes were executed. We divested Spinbrush and Vitamins. We shut down Flawless and Showerheads. There is a lot of momentum because of the portfolio changes we were able to make in 2025. So we also have a strong balance sheet, 1.5x levered. You know this, right? Our long-term investors know this. We have been able to acquire businesses. We have the ability to identify, acquire, integrate and grow brands and the future is bright for that as well. Joe, can you just let them know they switched the prompter up here. It doesn't have anything on it anymore. It's fine. But -- this is one of the most important things to understand about the business portfolio. In 2025, our brands grew about 1% consumption. If you strip out all the businesses and portfolio changes we made, it would have grown 3.5%. What a great resilient portfolio to have the wind at our back for 2026 and beyond. Lee will talk about the Evergreen model in detail. I will tell you that Evergreen model is alive and well. You saw how we had those brackets in our outlook today for 2026. There's a lot that goes into this, but this is the output. We have to make sure we have innovation and brands consumers love. We have to make sure we have productivity programs, the right advertising. All those things are the inputs. And we have a strong track record of TSR. If you look back at 3, 5, 10 years, we're always near the top. 2025, we went backwards and we're off to a great start in 2026. What's our winning formula? We have a balanced and diversified portfolio. We have low private label exposure. This is going to be my new favorite slide. You're going to see the updated one in a few minutes. We have online success and strong, consistent category-leading innovation. Half of our growth to fleet comes from innovation. And again, we're an acquisitive company. We know how to identify, acquire, integrate and grow brands. Church & Dwight is about a $6.2 billion company, 77% domestic, 18% international and 5% SPD. 7 brands make up 75% of our sales and profits. And we have a balanced and diversified portfolio. About half of our portfolio is personal care, the other half is household. 64% premium, 36% value. low private label exposure. So for many years, we've been showing this slide that weighted average exposure to private label across all of our brands, across all of our categories is around 12%. And it's been very consistent 12% year after year after year. And why is that? We don't have private label exposure, for example, in laundry. But look what the portfolio reshaping did to that stat. We're down to 5%, right? Vitamins was an extremely large private label business. So we went from 12% to 5% because of portfolio reshaping. Online success, all things digital. We went from laggard to leader, 2% to 24%. Surabhi and her team are doing a fantastic job. Strong and consistent category-leading innovation. About -- again, half of our growth is typically tied to new products. We measure this maniacally, incremental net sales growth, not gross sales, stand-alone but incremental net sales growth. And this drives our brands. It creates value for the consumer. Acquisitive company, #1 or #2 share brand is one of the first things that we always want to make sure when we buy a brand or a business. Number two, high growth and high margin, fast moving consumable, that's what we're focused on. Asset-light, leverage our manufacturing skill set and then deliver a sustainable competitive advantage. And we're as excited today about acquisitions, both in the U.S. and probably also internationally, right? I think that's the nuance. It's always been the U.S. It's an and. Now we're talking about international as well. And why is that? Like this company has been transformed through acquisition, and I'll show you in a few minutes. We have a slide, $6 billion, $2 billion is really the ARM & HAMMER brand, $4 billion is from the brands we've built and bought over the many years. And that tranche started back in 2004. We go from $1.5 billion to almost $3 billion. And then you go from $3 billion to $5 billion. And now we're about $5.5 billion go into what? We're $6.2 billion this year, and we think that's going to continue to grow through acquisitions. Okay. So here's the new news. We haven't talked about this before. I think the reality in the world that we live in is categories have decelerated, right? Our categories have grown for a decade or longer at 3%. And if you look back at 2024, it was closer to 4%. And then in 2025, the first half grew 2%, the second half grew 1.3% and the full year grew 1.8%. That was not just us, that was everybody. Many categories were doing the same thing. Bad things happen and you have people to react to it. Consumer sentiment is weak, right, 5-year lows on consumer confidence. So we have to be able to control our own future. And so what are we doing about it? We're focused on these 3 aspects of growth internally to help drive results in the future. So that if categories slow, we can still hit our Evergreen model. If categories don't slow, we can do even better. So grow ARM & HAMMER from $2 billion to $3 billion. There's 3 or 4 pillars behind that. Number one is continue to do what we've been doing, grow the core, ARM & HAMMER laundry, ARM & HAMMER litter. Good, better, best. We can round out our portfolio for good, better, best across the ARM & HAMMER sub-brands. In-house licensing. We're going to consider that more of an incubator, and I'll talk through that in a few minutes. And then new categories. So we're going to launch a couple of new categories this year. But over the next few years, you're going to see a handful of other categories. And those are going to be fewer, bigger, better. We're not going to go everywhere to every one. That's not the strategy, is to make sure that we're in the right category where ARM & HAMMER can play and win. Drive oral care expansion through TheraBreath, really behind TheraBreath from $1 billion to $1.5 billion. And then to scale our international business. We've been doing a great job doing that for many years, and now it's a little bit double down on M&A. We have the scale. We have the infrastructure to do it. So that would go from $1 billion to $2 billion over time. Here's the slide that we've shown before. This is the makeup of the $6.2 billion over time, $4 billion is really from acquisitions. But I'm going to talk about it in the inverse for a second. It means that we've gone for ARM & HAMMER from $1 billion to $2 billion over the last 25 years. Our aspiration is to go from $2 billion to $3 billion a heck of a lot faster than that. And again, this is the core, grow the core. Look at the stair step up over time for liquid laundry and for clumping cat litter. We have a great brand. It's the innovation behind laundry, the marketing behind laundry. We're hitting the consumer right where they are. And year after year, we continue to gain share. What are some reasons to believe in the ARM & HAMMER strategy? Well, number one, we've proven over time that we can go into other categories. And it's not 1846 anymore, but baking soda was founded back in 1846 with Church & Dwight. Laundry was in 1970. Toothpaste was in 1980s. Deodorant and cat litter were in the 1990s. We know we can do this. We've been in large categories before. Our equity is fantastic. Our brand stacks up with other brands like Nike and McDonald's in terms of awareness. And then the last one, which I believe is a competitive advantage is the ARM & HAMMER brand has a halo effect on advertising. If we advertise cat litter, baking soda and laundry benefit. If we advertise laundry, ARM & HAMMER toothpaste benefits. That's a unique position and capability that we have. ARM & HAMMER is known for cleaning, deodorization, cooking, laundry, the list goes on. It's a premium in some categories, it's a value in others. It's personal care in some categories, it's household in others. There's very few brands. I can't name one that has the ability to do that. It's also uniquely extendable. It's in more aisles of the grocery store than almost any other brand through either our owned brands or licensees. There's over 100 uses of baking soda. It's used everywhere. It's in the laundry room, of course, it's in the kitchen. It's in the bathroom. It's everywhere. So there we go. So grow the core we talked about. Good, better, best. Again, there are subsegments within the ARM & HAMMER portfolio that can get rounded out. We've proven time and time again that we're good at ARM & HAMMER doing good, better, best. I'm going to show you those 2 examples. I'm not going to go through them today, but there are new categories that are ripe for ARM & HAMMER. And then number four is the in-house licensed brand concept to be an incubator, to be able to say, here are some categories that we may want to go into. How do we explore that? How do we get a business up to $10 million or $20 million or $30 million. And then when it makes sense, to actually buy that back and be able to scale it like we normally do. So here are the 2 examples that I would tell you are just textbook for good, better, best. First one is litter. Orange box is good, black box is better and then HardBall is best. And HardBall is known for the best, we're trying to make that the best lightweight litter. We think that might be the best litter period, full stop. We also have laundry, good, which is the ARM & HAMMER model, better, which is ARM & HAMMER plus Oxi and then the best, which is deep clean. We have almost $1 billion of licensing and retail sales out there with partners. There are many categories in which ARM & HAMMER has already proven that can play in. And once we decide that we think that we can be a better owner at some point in time with the right partner, then we believe we can scale it and take it to the next chapter of growth, like we did for Hero and TheraBreath. Okay. Next pillar of growth is really oral care. Now as we grow, we want to make sure we're focused on the right large categories. And mouthwash and toothpaste are huge categories. On the far right, $2.4 billion and $4.8 billion. We would much rather have a share point in toothpaste and even in dry shampoo as an example. So we're laser-focused on mouthwash and toothpaste. And what's uniquely different about us is TheraBreath gives us a great entry point for oral care now, right? ARM & HAMMER is always to a select subset of the market because of the taste profile and for baking soda, but TheraBreath can reach and penetrate a lot more households. Speaking of penetration, TheraBreath is 12% household penetration. Mouthwash is 65%. Chuck is going to go through more details, but we have a lot of room to still run. We have aspirations to be the #1 mouthwash. Number 2 is toothpaste, huge category, almost $4 billion. We have been playing in toothpaste for quite some time. And collectively, we're a small player, if you add up all of our brands. We think TheraBreath has a unique right to win. We think there's a loyal following for TheraBreath. It hits on best-in-class performance. It's better for you. It has superior flavor. So all those things come together to make this a great chance for TheraBreath to become a meaningful brand in toothpaste. Last but not least is International growth. And Mike will walk you through the reasons to believe as well. But we have a long track record of organic growth. This has been a fantastic story for Church & Dwight and for International. And there's a lot of room to run. We're underpenetrated, our company versus most other multinationals. And we've done a fantastic job taking businesses even faster than our history, I would say, and applying those distribution gains. So Hero, TheraBreath, Touchland, they have all expanded rapidly, and a large part of that is because of international. And so today, I'm just saying we're doubling down M&A within our international business. It doesn't mean we're doubling down less in the U.S. It's just an and, not an or. But we want to acquire brands because we already have a great footprint or we want to shortcut like we did with Graphico in Japan, right? We added our OxiClean distributor, and now we can start to add some of the brands that we have into that infrastructure. All right. With that, I will ask Lee to come up and talk about the financials. Lee McChesney: Thank you. All right. Good afternoon. For those of you who haven't met, I'm Lee McChesney. I have the privilege of being the CFO for Church & Dwight. And with that, we probably to dive into some numbers. So we'll do that quickly. So we obviously, this morning released our 4Q and '25 results, came in at 3.9% total sales, a bit higher than our outlook. Certainly, Touchland was a big driver of that performance. Organic was 0.7%, a little bit lighter than our outlook, but that was really driven by the VMS business, they now exit the VMS business and then just the category itself was a little bit lighter. I try to give you also this perspective in the release as well. You take out the VMS business in the fourth quarter, organic sales were 1.8%. So some nice momentum as you started thinking about '26. We had another great quarter with gross margin, 90 basis points higher than last year. higher than our outlook. Really great work from the team across the globe to bring this to life. First half of the year, gross margin was going back for 50 basis points in the back -- in the first -- back half, it was up 50 basis points. So some really good momentum there. So that favorability in the sales, favorability in gross margin rate, we put more into marketing, and then really helpful for the brand today, but also as you think about '26. Ultimately, that led to an EPS of $0.86 higher than our outlook and up 12% over the prior year. So overall, a really nice quarter. And obviously, if we pivot to the full year, that all flows through. Again, you see the overall total sales of 1.6%. And then again, organic for the year was 0.7%, but when you adjust out VMS, it was 2% organic growth. So again, that's kind of the entry point as we go into '26. I mentioned, obviously, the progress on gross margin and we continue to invest in SG&A. The other element is cash flow. We had a great cash flow year. We upped our outlook throughout the year, and we actually exceeded that in final form at $1.2 billion. So really just a ton of strength again, on the sales side, gross margin, EPS and cash flow, all higher than when we put out our outlook on Halloween early in '25. So that's the numbers. But I also wanted to just reflect a little bit on what we did beyond the numbers. And because it also is a good starting point when you start thinking about '26. So once again, we continue to have the strength of brands to grow 4 of our 8 brands. We changed the portfolio. And hopefully, you saw in the release some of that insight. But moving away from those 4 brands, we now have a portfolio that has the ability to grow at a faster rate, has a higher gross margin rate. I mean those are all going to be -- you see those in the outlook -- walk through '26 in a second here. We had another year of incredible productivity, record levels of good to great productivity. And then we faced into tariffs early on. So liberation Day in early April. And by the end of April, we told you what our plans were. So $190 million of tariff exposure that we've now moved down to $25 million and continuing to decline from there. It's -- you see it in the outlook for '26 here, and we get through a second. And then the cash flow I talked about, we had great cash flow. But this year, we bought Touchland, we returned $900 million to our shareholders. And we still have the same debt-to-EBITDA ratio. So we have tons of optionality as we move here into '26. So I have an observation since March. And I just think this is really our culture coming to life. Things come at us. We quickly assemble the facts, we come up with actions and we execute. And we all did this in '25. And again, all this momentum carries us into '26. And certainly, I think you'll see that when we go through the outlook. With that said, let's run to '26. So you know Church & Dwight, you know our Evergreen model. This is the foundation. This is what's running through the organization. When we get together, when you think about the plan, people know what's expected of them. So you're going to see this certainly coming to life as we walk through the outlook. So again, this morning, we put out a release, 3% to 4% organic growth range for the year. Reported sales will be down negative 1.5% to 0.5%. That's solely the business exits. I'll walk you through that in more in a second here. Gross margin improvement of about 100 basis points, continue to invest in marketing at 11%. And ultimately, that's an EPS outlook of 5% to 8% for '26. And then again, we expect to have another strong year with cash flow, $1.15 billion. So I know you're going to ask a lot of questions later, but I'm trying to get some of those out of the way here with some of the tailwinds and then the headwinds as well. So I think you're going to see on display from really everyone presenting today, a lot of the reasons behind this. Again, the brands are still performing well. You're going to see a ton of innovation from us. I mentioned the portfolio change. Again, this is helping us on the organic growth, it's helping on gross margin. We get to reallocate our focus as a leadership team to use faster-growing value brands and premium brands that we have in our portfolio. I mentioned Touchland. Touchland is 2 quarters now, really strong results. You're going to hear more about where Touchland's going in the future today. And then as Rick just mentioned, we have the growth initiatives. So again, it's an extension of already what we have going on in the portfolio driving us here. And then I make the comment here that in 2025, if you look at almost every metric it got better year-over-year in the second half than the first half. And that's our entry point as we go into the year here. So sure, the categories, we're not expecting them to transform. We're still expecting kind of 2% category growth. There's going to be inflation, but also behind that outlook is we do have these exited businesses. It's $400 million of sales that have come out of the portfolio. We've worked through the stranded costs. That's all covered in the outlook for '26. So let's go from there, just walk through a couple of extra details here. So again, organic growth, the Evergreen model calls for 4%. Our range is 3% to 4%. We have a 10-year history of 4.1%. I mentioned the reported sales. I just want to give some color here. So again, $6.2 billion of sales in 2025. Our outlook refers to $6.1 billion to $6.2 billion. You have the $400 million coming out from the exited businesses. And then with Touchland and the core businesses growing, we almost fully mitigate that on a reported sales basis. But obviously, underneath that is the organic growth of 3% to 4%. And I'd also note in our outlook just the importance of volume. So our organic growth is driven on volume growth. It's not driven on price, it's driven on winning at a unit level with the brand. That's what we've been doing historically, and that's obviously the foundation also of what we're planning to do here in '26. It's a volume-driven organic growth outlook. So I mentioned gross margin. I don't think we typically show 100 basis points of improvement in gross margin. The Evergreen model is 25 to 50 basis points. And so let me walk you through some of the drivers to that. So on this page here, you really see what we try to bring to life every day. So whether it's good to great productivity, supply chain optimization, whether it's bringing NPD to life, that's obviously good for growth. That's typically also good as a mix element. And then we buy acquisitions that are higher gross margin levels and then we expand them. It gives us positive mix. Those are usually the elements that drive the 25 to 50 basis points. We're looking for an Evergreen. And then as I mentioned, the portfolio change is also enabling us to go from that 25 to 50 up to 100 here in '26. And hey, there is inflation, I call it's 160 basis points. But all those actions I just talked to you through are offsetting that. So sure, we have natural gas is up, ethylene, things like that. We're going to have a normal batch of labor inflation. We have some capacity improvements. We're covering that. That's what we do with our good to great productivity and all those other amounts we drive normally in the Evergreen model, okay? Talked about marketing. This has been 11% is called out in the Evergreen model. That's what we're looking at again here in '26. And this has been an important formula. We invest in the brands. And when we have opportunities like we just did in the fourth quarter, we'll even invest more here to support the brands. Just to note, marketing will be based on this outlook, a few basis points lower than it was in '25 because the Vitamin business had a higher marketing rate than the core portfolio. SG&A, I mentioned earlier, is going to be a bit higher. Really just a couple of drivers there. Certainly, we have a half a year of Touchland's SG&A and there's amortization. So that will be a pressure point in the first half of the year. And then we don't have the same leverage of the portfolio because we have the business exits and then we have a bit of stranded costs. But again, that's all factored into the outlook. We're still continuing to invest in the international business in e-commerce. And then those growth initiatives we just talked about, that's all still going on within SG&A. So all that, again, brings an outlook of 5% to 8% in EPS. The Evergreen model is 8%. So certainly, that's within the range here. Today, obviously, we're talking to you thinking about that as a midpoint perspective, but you obviously have a 10-year history of what we've done there. We'll certainly focus on bringing that to life. Now we noted also in the release, it's a bit of a first half, second half. So the second half is a little bit higher. But just to give you a color there, I mean, the growth perspective for the year is similar. The gross margin improvement is similar to the year. But again, you do have that Touchland SG&A and amortization in the first half of the year. And then when we look at our marketing programs, they're more heavily weighted to the first half than the second half. And that's solely the driver and the difference. So I think Rick said last time, when he was a CFO, this is his favorite chart. I think as CEO, it's still his favorite chart. And when you look at the free cash flow conversion, right? I mentioned, obviously, the cash from operations, but 127% in '25. This gives us so much optionality as we look to invest in the business here. That obviously shows up in the debt-to-EBITDA ratio Again, we did Touchland. We did the share buybacks and we basically have the same level of debt-to-EBITDA. So all that firepower we had in the past is still there for us. And that certainly shows up here. It's over $5 billion. I think this is almost the exact same chart as last year despite all those things we did with the portfolio, how we've added to it and how we've returned dollars to the shareholders. This speaks to the cash flow capability of the organization. So what do we use the cash flow for? This chart hasn't changed. We've seen it in the past. Number one, TSR-accretive M&A. So the Touchlands, the TheraBreaths, the Heroes, finding the next version of that domestically or internationally and bringing that to life. That's the #1 goal. That's certainly what we're out in the marketplace to do. And again, we have all that capability financially and organizationally to add to the portfolio today. Next up is certainly CapEx for organic growth and productivity. Number 3 is NPD. Number 4 is debt reduction. But at this point, we paid down all our variable debt. So this is just -- we're just sitting at the fixed that we have today, and then returning cash to shareholders. And on that note, we also announced today that we have a 4.2% dividend increase from the Board in '26, our 125th consecutive year of paying dividends and our 30th year in a row now of increasing our dividend. Again, another great example of the cash flow coming to life. So what should come through here for '26 and what you're going to hear from the rest of the team today is our confidence in the outlook we put out there. So whether it's the strength of the brands you're going to hear about in a second from Chuck, the innovation from Carlos. You're going to hear from Andrea on Touchland. You're going to hear from Surabhi on what we're doing in e-commerce and how that continues to be a great story. You're going to hear from Mike on the international business and now even more focus under our growth initiatives there. And then that cash flow giving us so much ability to invest in acquisitions or organically in the business. So with that said, I'll move away from the numbers and then let the team walk you through some of the stories behind that. So I'm going to pass you on to Chuck. Charles Raup: So as Rick and Lee have talked about, we have great optimism in our future and our ability to grow. And as we look at the U.S. business, we're targeting a strong 3% growth rate. And that's going to put us in a great position to continue to win share in the categories that we compete. And this growth is going to be driven by our 7 power brands. And the great thing about these power brands is they compete in categories that have been resilient and traditionally deliver growth. And in fact, when we look at 2025, 7 of the 8 categories that we competed delivered growth, a little bit under 2%. And that's despite a suppressed consumer environment. And as we take a look at share, we grew share in about half of the categories that we compete, so 4 of 8. And the drive going forward, of course, is to accelerate the momentum in categories where we're strong. And in categories where we fell a little bit short, we have powerful plans to return to share growth. So let's take a look at some of these power categories. First, laundry detergent. We had a great year in laundry detergent. We outpaced the category by 1%, growing about 20 bps a share. Now why is that? Well, a big reason is the performance of the value sector. So if we look at the value sector, that's what's winning and that's what's growing share of the category. And importantly, this is where ARM & HAMMER thrives. We delivered that great performance and a great value at accessible price points. And in fact, when we look at 2025, we won a record share of 14.5%. That is in an environment where competition is increasing and promotional levels are up. And I'm very proud to say that we are now -- that the ARM & HAMMER brand is now #1 in wash loads. So what are the implications for moving forward? Well, we're going to embrace what's special about ARM & HAMMER. And that really is delivering that great performance at these accessible price points. And the way that we're going to do this is by embracing and driving forward on our good, better, best strategy. So in that good tier offering that good basic ARM & HAMMER clean. And then as we move up price tiers, adding value like things like OxiClean and odor blasters and greater cleaning efficacy with problems with products like Deep Clean in our best tier. Now moving along to another ARM & HAMMER power brand, cat litter. And we had a strong year in cat litter as well. We grew 20 basis points of share, and we also outpaced the category by about 1%. And we have room to grow in cat litter, especially in the lightweight segment. So if we look at the lightweight segment, we're only at an 8.5% share. But we're a 27% share in traditional weight. And that's where a product like our HardBall SKU comes into play. This is a product that is our best performing. It's in that best tier for us. And it averaged -- and has a 48% repeat rate, which is 14 points higher than the category average. So we have high confidence that this product can drive growth and continue share momentum. Now as Rick pointed out, we don't just play in laundry detergent and litter. We play across multiple categories that can -- that really cover a number of consumer benefits. And so as we drive forward, we're going to expand on this strength as we move from $2 billion to $3 billion for ARM & HAMMER. And as we do that, what we need to do is we need to evolve the relationship that we have with our consumers, and we're evolving our consumer communication. So I'm going to share with you guys the update that we're doing to our ARM & HAMMER campaign. And the idea behind this campaign is that we're not just bringing the HAMMER, ARM & HAMMER is bringing the whole darn arm. And what that really means to our consumers is no matter what they're facing during their day, as long as they're with ARM & HAMMER, they've got this. [Presentation] Charles Raup: Now a little bit of my background. I came from Hershey. And I can tell you, you can't do all that with a peanut butter cup. And so it's just this incredible brand, and we have great optimism that we can drive it forward and meet new consumer needs and occasions. And we're very happy with the performance of this campaign. So we saw share gains across the categories that we are playing, and we saw important movement in consumer metrics. So consideration and purchase interest also went up double digits when we showed this campaign. Now moving on to another brand that has tremendous upside for growth and that's TheraBreath. And TheraBreath didn't just outpace the category, it actually drove category growth. And TheraBreath is now the #2 mouthwash and we clearly have aspirations to be the #1 mouthwash, and we attained a record share of just a little under 22%. And there's room to run in our rinse business. So as Rick mentioned, we're about 1/5 of what the category penetration is. So there's tremendous headroom there. Additionally, there's upside in building our on-shelf presence. And so if you look at TheraBreath's share and then you compare it to what we have on shelf, we want to continue to drive our TDP growth because competitors are having 1.5 to almost 2x what we have on shelf. So a focus on distribution growth is going to be key as we move forward. And then paste. We're very excited about our paste launch. Now why is that? Well, it's a $4 billion category, and it's the third largest category in which we play. Additionally, we know that consumers will spend more on premium oral care products even in a suppressed environment. Additionally, we had the great brand momentum that I talked about, that double-digit growth. And when we talk to TheraBreath consumers, it's pretty amazing. A little under 90% said they're interested in buying this product. And we have an outstanding proposition. So first, what it really lets us do strategically is expand further into our consumers' oral care routine, which is a big deal. We have 8 clinical studies that confirm the efficacy of this product, and it really delivers on the TheraBreath brand. And so what I'm going to do now is I'm going to share the launch advertising that really captures the essence of TheraBreath, which is great tasting products that deliver epic long-lasting fresh breath. [Presentation] Charles Raup: Okay. I think you'd be hard-pressed to find a consumer that's more excited to brush their teeth. Moving on to another brand that really has high growth potential, and that's Hero, our acne brand. In 2025, Hero grew at about 3x the rate of the category. And Hero is not only the #1 patch brand, it's the #1 acne brand, and we attained a record share in 2025 at 19%. And much like the TheraBreath, Hero has a ton of room to run. So if you look at our penetration, we're about 1/3 of the category. And again, we're the #1 in share. So tremendous headroom. And from a shelf perspective, it's the similar dynamic to TheraBreath. When we look at our share in our performance, we see that other competitors have 2x the average weekly TDPs. So we'll continue to focus on realizing that upside for Hero. And what gives us even more confidence in how Hero can grow is we're not just a patch brand, right? What we're going to be about is really owning the acne life cycle, which opens up a tremendous number of occasions. And so if you take a look at where we play, first, in that pre phase in preventing acne or when it just starts to develop, we've got our cleansers launch, which is going to be a huge launch for us in the back half of this year. Then as we move on, when you start having that first red bump, we have things like our MicroPoint that helps address that phase. When we move on to, as we say, the full on it, we have Mighty Patch original, and that really does a great job in getting it cleared up quick. And then there's always the aftermath from having the pimple. And so cleaning up dark spots and things like that. So as you look at it, it really is a tremendous opportunity to meet consumer occasions. Additionally, it opens doors for innovation, right? And so there's different ways that we can meet consumer needs across the span and Carlos Linares is going to talk a bit about some of the innovation that we have planned for Hero. Moving to BATISTE. So BATISTE, to be clear, didn't have the year that we wanted in 2025, declined about 2.5 share points. But what I want to emphasize is it's still a leading brand. It's #1 in category share, and it's #1 in loyalty. And as we added some support to BATISTE in the back half, we did see some results and some return of some momentum. And so dollars flattened out from more steep declines in the front half, and we started to grow share, which is very important. And as we take a look at what we intend to do to support and accelerate this momentum, there's really 3 areas that we're focused on in 2026. First, stronger, more consumer-relevant innovation. And so products like powders that fulfill a category need for non-aerosol products, fragrance-free, which we know there is a segment that's very interested in these products, a renovation of our colors line for better performance. And then we'll also be delivering custom items that drive interest among our key retailers. Additionally, we're going to be leveraging our price pack architecture to deliver against new occasions, right? And so we have things like our mini travel size, which moves us into a more of an on-the-go occasion. And then there's also a jumbo SKU that will be coming out that meets a more heavy user need. All of this will be encompassed with the brand recharge, right? And so we're going to be looking at really revitalizing the brand. And you'll see this in consumer communications, and you'll see it in store and you'll see it on pack. Now as Rick has talked about, we really have evolved our portfolio, and we are seeing that we're playing more and more on this intersection of personal care and beauty. And as we evolve our portfolio, we also have to evolve the way we're structured and the way we're working. So I'll share an example of this. And so what we've created to accelerate brands like Hero and BATISTE and Touchland is we've created what we call the specialty hair and skin pod. And what this does is this creates an environment for focus and acceleration. And so as you think about it, what we do is we've dedicated all of our consumer and customer-facing resources just to these categories, okay? So think marketing, sales, innovation. What that enables us to do is to mine insights faster and to get better insights quicker. That then results in our ability to deliver relevant and on-trend consumer communications with agility. Additionally, we're significantly cutting our innovation time line to develop new products. So we can deliver on emerging trends and be right there where our consumers are at. Additionally, as we've established this pod, it's enabled us to attract talent from the beauty and personal care space who can come in and complement our Church & Dwight talent. And then finally, I want to just talk a minute about growing share. Obviously, that's key. Whether you're winning or losing, that's the ball game. And we have seen intense competition. And we have seen the rise of value brands. Some of these getting to $1 billion, which is big. So we're maniacally focused on 5 areas that really give us confidence that we can continue to grow share. The first 2 are about driving consumer equity and differentiation. And so media plans that focus on driving awareness and engagement and penetration. And then equity campaigns that are involved to not just talk about the efficacy of our brands, which is very important, but also build that emotional connection. As we like to think our advertising needs to clarify and it needs to inspire. And then, of course, insight-driven innovation. That's just such a lifeblood of our company. And so consumer relevant information and always being a step ahead is a critical area of focus. Using price pack architecture, we are committed to delivering the right item at the right price, at the right channel, at the right time to the right consumer. And so that will play a big role as we move forward. And then finally, an omnichannel mindset, omni in everything that we do, and we'll talk a bit more about this later. But we are going to be with our consumer from discovery all the way to purchase. So when we take the focus on these areas and we look at the incredible brands that we have, when we look at the incredible team and heritage that we have in Church & Dwight, we're really confident in our future and very optimistic. And so with that, I'm going to turn things over to Andrea, who is going to talk about our exciting and newest brand, Touchland. Andrea Lisbona: Good morning, everyone. My name is Andrea Lisbona, and I'm the Founder and CEO of Touchland. I'm here today to talk a little bit more about the brand. I'm sure some of you already have used our products. They are amazing. Here are some stats about the brand. The brand has been distributing for 5 years hand sanitizer and we recently launched our second category, which is the body and hair mist. Last week, it was published that our Power Mist, which I have here was #2 in sales in Sephora.com. We recently made it to the 2025 Time 100 most influential companies. The brand has a lot of success in social media. So today, we have over 1.2 million followers between TikTok and Instagram. We have been distributing in the U.S. for most of our life and we've recently launched in Canada and Middle East this past year in 2025. We're being distributed in 4,800 doors. And we currently have a premium distribution outlook with partners like Sephora, Sephora Kohl's and Ulta Beauty. And also, we've received over 15-plus awards in the industry. We have today 5 Allure Best of Beauty, just as a fun fact, Allure didn't have Best of Beauty Award for hand sanitizer. They inaugurated for us because of our approach to being in beauty into personal care. Our vision for the brand is to lead the future of on-the-go sensorial essentials and really elevate those staples of modern life. We're building the next global lifestyle brand by blending design, fragrance and innovation. And our goal is to really deliver this movement of micro joys because we are all living in rush and always living under stress and having the capability to disconnect and find micro joys in the every day is our purpose. And one of the things that excites us is that it's a company and it's a brand and a movement that is embraced across generations. We intentionally decided to start our journey with hand sanitizer. And you would ask why? And we thought that if we could transform the most commoditized dilitarian category of the mall into something that everyone is excited about, we would have the customer permission and the strongest validation to elevate the ordinary into the extraordinary. And this is, again, how we've been able to get to where we are today, and it's our innovation framework. We've been extremely disciplined when it comes to our 4 core pillars of innovation. And it helps us know where do we innovate and how do we innovate. These principles ensure us that we create best-in-class products every time that bring excitement and delight to be every day. The first pillar when we think about innovation is it has to be on the go, and it really helps us to define our innovation pipeline. The second element is it's not just about design, it's also about form factor. If you know how the category was used before, it used to be a gel that you would have to squeeze. We truly not just transform how it looks, we transform how it applies. We created this micro spray, micro-joy that really delivers a different application. The third element is that we believe that you can get the best of both worlds, right? We never thought that we could get a hand sanitizer that actually takes care of your skin. We really believe in blending skin care into everything that we do. Our recent category, we launched a body and hair mist. It's usually a fragrance. We decided to bring skin care into fragrances to bring these 2-in-1 experience. And the fourth element, which we spend a lot of time on is sensoriality at the core of everything that we do. From how it feels in your hand, the sound, the smell, the -- how it feels in your skin, we deploy many, many months and years and to make sure that it's a full-on 360 experience when you try our products. And this is a clear example of how we did it, right? We have been the only brand that has been able to premiumize at a scale hand sanitizer category. As you will see here, these are the 4 pillars and how we've transformed them from how it smells, we all know how it smell before Touchland to the design and how sleek and modern it is compared to how it was before. The formula, again, being able to create a skin care forward experience that at the same time is non-sticky, which was very important at the core of sensorially and then the application, right? This micro-mist, micro-joy that you can ensure you can apply the right amount every time. This slide is really showing our current portfolio and how we've been able not only to innovate within the category, but inside the category, how we've been able to expand ourselves. So we started with the Power Mist, which is the one that I have here. It's our core line, it's a hydrating line. And then we decided because we need the customers of Touchland had appetite for premium formulas to launch 2 formulas that are the advanced formulations. We have the Gentle Mist and the Glow Mist. They are revitalizing and ultra soothing formulas. We then launched 2 years ago, these programs of seasonals. They come back every year. They sell out always. They are very successful. This year, we launched this. We had salted caramel, spiced pumpkin-tini and gingerbread -- cinnamon gingerbread, which were really, really talked to by every generation. And then we also brought in something that really enables us to have fun, which is collaborations, and we will talk more in detail later and accessories. In February 2025, we introduced our second category, the body and hair mist. And we really brought the same core pillars of innovation to everything that we do. So we also brought the power essence and the accessories because you may have seen people not only want to have Touchland in their packs, they want to have it outside showing as a charm. So when it comes to collaborations, we really think collaborations bring a playful twist into the every day. We have been able to partner with legacy brands, best-in-class brands like Sanrio with Hello Kitty, Disney Mickey, Crocs case, which launched in July this year. And you may have tried to get it in stores. It's always sold out. It has been an amazing experience to take the DNA of these brands and joining with Touchland create products that bring delight and joy to our consumers. And then the last piece is accessories. You may have seen it with the phones. Like people have cases for the phones and so on. We really wanted to create accessories that really enable people a tool of self-expression. You see a lot of trends in TikTok of matching my Touchland to my outfit, matching my Touchland to my makeup. This has become really successful for us, and it has become a way to really enable that self-expression through the brand. And then, an image speaks more than a thousand words. This is a little bit of some of the faces that have organically talked about the brand in their social media platforms, in interviews for what's in my bag in bulk and so on. And it is incredible to see the span of generations and celebrities and these makers that have supported organically the brand. It always makes me very happy that sometimes it pops randomly. The latest one was Celine Dion, which was an incredible surprise. And these are our current distribution partners. They are brand building partners, Sephora, Kohl's, Ulta. We started at Travel Retail recently, Amazon and TikTok. And then here are some TikToks where you can see, for example, here it's our beautiful Sephora, it's colorful, clean, and minimalistic, and it really shows all of our products in an incredible way. It's across different points in stores, so you cannot miss to get out of Sephora without buying Touchland. This is Crocs, and it is a very exciting partnership because it's not just, again, to create a product together, but you can actually find Touchland in some Crocs stores and Crocs.com, which really enables us to really maximize these partnerships. This was in Times Square. This is me, very excited because we got the time -- the Times Square, the top part of the store of Sephora to display our products for a month. I think that was one of my most iconic moments in Touchland. I couldn't even speak, but that was an incredible day. And then the last is this is in the Middle East. We did Sephora truck activation. It was very fun. I was there, then seeing with our customers. And it really shows like the tagline of the brand is move your moat. It's that capability of a brand of really driving that excitement and moving your moat. When it comes to growth drivers for us, the first growth driver is invest in marketing to increase the brand awareness and household penetration. We all have the feeling that we're just getting started, and there's so much to do still when it comes to brand awareness and household penetration. Second is select distribution opportunities in the U.S. The third is international expansion. We're very happy to be partnering with the Church & Dwight team to really bring the brand everywhere. We've received and you will see a lot of letters from all over the world asking us to bring Touchland to their countries. So we're very excited about it. And then the last piece, innovation and continue to bring unexpected delight everyday moments of care, like we know that our commitment with our customer is to deliver those micro-joys and really fuel that innovation. And I'd like to close my slides with my favorite part of my job. Every week would receive dozens of letters from customers from all over the world, from all ages sharing their experience with Touchland. In digital era where everyone is texting and using their phones, to receive hand-written letters is a testament of how much the brand is loved and how much it's changed people's lives. So this is my favorite part of what I do. And now I'll pass it over to Carlos. Carlos Linares: Thank you. Good afternoon. Glad to be back with you guys again. Last year, I presented a little bit of how we innovate and talked about the transformation that we've been going on through. Today, I'm going to just recap that a little bit, and then spend most of the time on a very exciting 2026 lineup. Two takeaways of how we innovate differently I would say it's unique and is sustainable. So those are the 2 takeaways -- 2 words to take away from this slide. So this is your new model. It's really 5, 6 different sources of innovation. But what's unique about it is that they're really interdependent, they're connected. The behavior in the company is really about teamwork. They're not competing, which is very different than other places that may have 1 or 2 dominated sorts of innovation. And as you can see from the bottom, as we've transformed this, most of our innovation, more than half of it is coming from some of these new sources that we put in, in the last several years. The sustainable part comes in -- when we put the program together, we were at the 1% to 1.5%. And this again, as Rick mentioned, this incremental net sales. So we had a target of going up to the 1.5% to 2%. So the good news is over the last 3 years, we've been at this yellow bar very, very consistently. 2026 is no exception. We're at the high end to deliver, again, half of the Evergreen model in growth. So I'm going to kind of take you through this. And one of the challenges of doing it within a few minutes is selecting which ones we have, because we have such a pretty strong pipeline for the year. But let me kind of go through that. The first one will start -- we'll start with the personal care portfolio. You've heard a little bit or maybe a lot of the toothpaste launch. We're very excited about this launch. It's very important to us. It ties into Rick's strategy around TheraBreath and oral care and how do you drive that. We had a lot of interest from the customer, from the consumer internally to go do this really, really quickly. And we actually kind of held it back a little bit, we want to get this right. We want to do the Church & Dwight way from an innovation perspective. And what does that mean? So one was we wanted to understand what does this TheraBreath user really want? Chuck mentioned 89% are interested in buying the toothpaste, but we wanted to define what that is. Reality, they want efficacy, they want a natural taste and they want a great experience. We also then put all of our science together. Some of the -- we can do toothpaste. We've been doing toothpaste for a while. But we had some upstream future works as we call it, technologies that we wanted to deploy in this particular toothpaste. So we did that, 8 clinical studies. We actually have 12 hours of fighting bad breath, which is, I think, pretty unique in the category. I've not seen anybody else make that claim before. So it's really performing. And then the consumer experience, the taste, the flavor, the texture, and you see that 4.7 average, which obviously is pretty good. You'll see that number again later on in the presentation. We're hitting a pretty high marks on some of our consumer experience in our NPD. Then let's talk a little bit about Hero, our other more recent acquisition. We have 2 innovative launches in the year. The first half, we're doing Mighty Shield, which is a liquid patch. Chuck talked about the pimples cycle. Obviously, you want to -- you have pimple, you want to zap it, but it's also a little bit of protecting the pimple, right? So if you think about it in the morning, there's dirt, there's debris. You want to protect that because the perception is that may make it worse. So this is a liquid product that turns into a patch. You put it out in the morning, you're protecting the pimples from debris, dirt and even makeup. You can makeup on top. Again, the perception is maybe makeup may make the pimple even worse. So you protect it and it goes on top of it. So at the end of the day, it's become a patch. So you apply it in the morning as a liquid. It becomes the patch, you peel it off just like a patch. Obviously, the exciting part is it's another occasion in the acne journey that we're offering a product for. The second half, we're introducing the cleanser line that was mentioned previously. It's designed specifically for acne-prone skin. So you got the efficacy of OTC formulas, but it's gentle enough for skin that may be irritated. We typically don't present second half products here. We hold them back because of the confidentiality, but we're really excited about this one. As Chuck mentioned, this gets us into another part of the skin care routine for the acne-prone consumer. So you're adding to the routine and adding to the regimen, which is incremental growth for us. And then not to forget about our other personal care brands that are a little bit older in our portfolio on Trojan. So Trojan, we've had a long history of innovation in Trojan, but this is actually our best condom ever. We actually -- it's our new-to-world material. We haven't done this type of innovation in 20 years in Trojan. So we're very excited about what this is. It is a patented non-latex material. Trojan is basically about -- and condoms -- they're about protection and they're about intimacy. This takes the intimacy to the next level. This is clear, orderless. The ratings are incredible. One of the interesting unique things is even feeling your partner's body heat. So we're feeling really, really good about this innovation. I mentioned the 4.7 stars that you see it again. We're very proud of this one. This is a brand-new innovation that I think is going to take Trojan to the next level. So let me kind of jump then to the household part of the portfolio. You've heard a little bit about ARM & HAMMER, the good, better, best strategy. This is our portfolio, but I kind of take you through a couple of launches in each of these segments here. On the good side, we're introducing a baking soda fresh detergent, 10x the baking soda we had before, our highest level of baking soda in any of our liquid detergent portfolio. On the better portfolio or segment, we're actually having a lot of success in sheets. We're the #1 brand in sheets. We're actually twice as big as the next competitor now in sheets. So we've taken that convenient form and now putting it into the better segment with ARM & HAMMER plus OxiClean. So you're going to get the same convenient, very consumer desirable form of sheets with premium cleansing, premium freshness and a premium design. If you look at that sheet, it looks very different, very unique, and I think it's going to take the -- our sheets business even further than it is today. And another better innovation that we're introducing, we're expanding this year is the ARM & HAMMER odor blasters. You're probably aware odor is a big unmet need in laundry. And you're also probably very aware that rinses have become a new category in laundry category. So we introduced this last year in select stores. In the stores that we're in, we're actually #2 brands. There's 3 others that are competitors, we're actually #2. So we're taking this nationally in 2026. Our other main laundry brand is OxiClean. And OxiClean has been a leader in additives for a long time. We want to make sure we maintain that leadership and kind of keep our advantage against both competitive entries and private label. So Max Force is our subline within OxiClean is the most powerful, highest performing line that we have on the brands. So we're actually taking that brand and I would say, almost revamping it. We've got a better powder, more concentrated, more powerful. We've got a new liquid with a new bottle that differentiates it from the rest of the segment. So it's very clear that this is an additive from OxiClean. And as you can see, the product in the Max Force is spread across all of our forms, powder, liquid and sprays. So we think both the ARM & HAMMER and OxiClean is going to give us some good momentum into the laundry category in '26. And then last but not least is litter. Chuck talked about ARM & HAMMER. The HardBall, it's not here, but we feel really, really good about HardBall. It's got a lot of momentum, and that's in our best category. But this year, we're also introducing innovation into our better, which is dual defense. So again, this is another one of those categories that it's all about odor control. So this product gives the odor control in 2 different ways. One is the ARM & HAMMER order control technology that kind of clumps and seals in the odor. But now we're introducing the Microban, which is an antimicrobial technology that prevents the odor growing bacteria from developing orders over time. So you actually have both a dual short-term and a long-term order control performance. So before I hand it over to Surabhi, I think generally, I've gone maybe 9 innovations in less than 9 minutes here, I've gone very quickly. But I'd say, overall, we're very proud of the team, very proud of the innovation. We've got category-leading innovation. We've gone into new segments with this portfolio, and we've upgraded some of the core to give us a competitive advantage. So with that, I hand it over to Surabhi. Surabhi Pokhriyal: Good afternoon, everyone. Good to see you all again. I'm Surabhi Pokhriyal. I do all things digital, e-commerce, media and a bit of AI now. So as you are familiar and as Rick and Lee introduced, e-commerce has been a fantastic growth driver for us as a company for several years now. I feel really proud to say that we went from 2% to 24% in under a decade. And for those of you who track a lot of other of our CPG peers, I'm sure that pops out as a head, shoulder, torso about all things e-commerce and digital in the consumer goods sector. I also want to reiterate, right, that we are not in the business of telling the consumer where to buy from, right? Our job is just to make sure, like Chuck was saying, we clarify the intent of our product, and we impress them and inspire them to buy. And that's what we do on the online channel. Sometimes it can be misperceived that e-commerce is just Amazon or pure-play channels. We have seen it, and I'm sure you see that as you do retailer earnings. There are retailers like Walmart, Target, Kroger, Sam's Club, name a retailer, everybody is doubling down on the power of digital, and that's what we call omnichannel. We saw above 14% growth for all of our brands, not just the flagship brand of ARM & HAMMER, but also our newer acquisitions like Hero and TheraBreath. International, as Mike will speak shortly, is a huge growth driver and priority for us as a company, especially as we compare to our peers, that's one area we want to double down super intentionally. In international, I always say, right, any market that has a cell phone and Internet penetration, that's right for e-commerce. And as you see by the flags on this chart, markets like Canada and China have always done well with respect to digital, but newer markets like Mexico, which traditionally have been nascent in terms of digital, have done really, really well for us, and that speaks to our double-digit growth there. Finally, in emerging, right? For those of us who cannot keep our cell phone more than a foot away from our hands and the next generation also, TikTok Shop is emerging as a major growth driver in terms of impressing the consumers where they spend a lot of their time. You might have heard of the trend, TikTok made me buy it a couple of years back, where people would get inspired in their discovery journey on TikTok and then go and buy in store. Now the platform is compressing that journey. You can see it, want it, click it, have it right on within the platform. And we are leaning into that in a very meaningful way with several of our brands. Fun fact for you, TikTok Shop is actually bigger in the U.S. in terms of GMV ahead of a couple of large beauty retailers already. So that just tells you how the consumer buying behavior is shifting online. This is our growth mindset, right? This is what I call as the how of what we do things at Church & Dwight, especially in terms of digital. We always engage, right? Like I was saying, we want to be there engaging with the consumer at the zero moment of truth being available, mentally available to the consumer. Then we always optimize in terms of test and learns, right? In the age of AI, we want to dip into how we drive our content and creative and continually test to see what works well. And because we are a lean company, we do not have much headcount. We are very intentional about scaling things really fast and scrapping things that do not work. And finally, that's what I call our secret virtuous cycle of innovation and the gift that keeps giving. These are a couple of examples. We are leaning into AI in a meaningful way. The good news is because there's no dearth of tools to be used there, be it on retailer platforms or from the large media platforms, you can make all things from cute cat videos, which are really thumbstopping to making sure our product lifestyle shots show up really, really well. I call this the age of disposable content, right? As you know from your own behavior, you will never have a day where you said, I finished my Instagram today, right, because the doom scroll just keeps going. What that means is we, as brands have to make sure there is disposable, bite-sized, snacky content that engages the consumer in a meaningful way and inspires them to buy us. And the next leg of that is we want to make sure there is productivity by making sure that content can translate and go across markets, and that's what we are leaning into doing now. Built for AI discovery. Some of you who shop on Walmart and Amazon might be familiar with Sparky as the agent or Rufus. All things said, right, that is one area we are leaning into because we already do a great job on making sure our product detail pages show well. Our content there shows well. The consumer loves us, and we see that in terms of the reviews that Carlos was speaking to. All of that makes sure that our products pop up on Sparky and Rufus. So technically, we have to do nothing special than what we are doing. Just make sure the product content is clean and our reviews are clean and the products show up where they need to show up. In terms of media buying and AI, we also want to make sure that we are adjacent and speak to our consumers who are our high-value consumers and the technology helps us by placing those advertisements to the right consumers at the right daypart and the right times of the day. Finally, I'm sure in the analyst world, you're familiar with the tax of retail media. I'm proud to say that we do not consider that as a tax because we are steadfast in making sure that the retail media we invest in really works its worth, and we get great ROIs out of that, much ahead of industry-leading benchmarks. As Carlos was speaking, we are super intentional about how we do our innovation. Online and digital, in particular, has been a great platform for us to launch products, create category creators/category disruptors. And once we have made it right on online, gather the feedback from the consumer, tweak the product as needed, that's when we call and we go make it big. Based on the products that you see on the screen, we launched laundry sheets online first and gained great momentum in a handful of months. We launched the premium baking soda that became #1 in just 3 months. And very recently, we launched the much loved TheraBreath toothpaste that's already topping all our category benchmarks expected from our any earlier toothpaste launches. In terms of capabilities, I already spoke about the social content, and this doesn't have audio, but you'll get a sense of how the bite-sized snacky content works in the social realm. And you'll notice something at the bottom called as the engagement rate, right? Brands typically have different variety of metrics in the marketing world because everything is measurable these days, which is fantastic. But engagement is what tells you how are the consumers talking back to you. They're not just following you, they're engaging with you, liking you, commenting you, resharing your post, and that's the metric we use. And some of our power brands do really, really well. The typical engagement rates are 2%. We do double-digit engagement rates for some of our larger brands. On the right, you'll see something interesting. We have a lot of experience in making sure we follow consumer search trends. What are they searching on Google and Amazon and other online sites. Recently, we are trying to lean into what is the consumer speaking about us and the category on Reddit, which is a great source for following organic chatter, which is unpaid. Similarly, because these things give us the leading surfacing of emotions and their intent, and that helps us define not just how to talk to them in a marketing world, but also tells us how to innovate and build products that they are searching for. On the right, you'll notice with the help of AI, we are leaning in to find where are the emerging brands across the world. Given in M&A, we are building tools internally to figure out what could be acquisition targets that are right for us globally and not just in the U.S. And sometimes it may not be an acquisition, it may be a brand doing really well in a category or an adjacent category, and we learn from that to innovate differently. With that, I feel really proud to say we are at the cusp of saying we are future-proofing our growth, digital or non-digital. I call it the era of we are just in the business of doing commerce. The E in e-commerce has become silent. And we are super proud to say we are always in the race of going towards where the puck is going to be and where it is not. On that Canadian reference, I'll pass it on to my international partner, Mike Read. Michael Read: Good afternoon. I have the privilege of representing our international and Specialty Products employees all over the globe. Let me just start with international. So international is about $1.1 billion size business. We kind of operate in 2 different ways. 2/3 of our business is through our subsidiary. We have 7 subsidiaries now, Canada, U.K., France, Germany, Mexico and Australia. And middle of the way through 2024, we acquired our long-standing partner, Graphico in Japan to form our seventh subsidiary. The other 1/3 of our business is done through value distributor partners all across the globe. We have 5 regional offices to support that, Shanghai, Singapore, Panama, London and Mumbai. And we operate through almost 400 distributor partners and have commercial operations in about 100-plus countries. We've had a long track record of growth in organic. This year, no exception, 5.5% organic growth. If you look over the last 3 years, we're averaging 8% CAGR, which is right on our Evergreen model. So really proud of the team's efforts and a long track record of growth with lots of opportunity ahead of us. We have -- our brands travel extremely well. We support dozens of brands across the globe. But similar to our U.S. domestic business, we're laser-focused on our core set of brands. And this is kind of how we think about our business and our core priorities. One is we have kind of U.S. scale brands, ARM & HAMMER, Waterpik, OxiClean, where we leverage assets and NPD pipelines to commercialize across the globe. We will modify as it makes sense. But generally, we're borrowing off U.S. scale brands and taking them globally. That's complemented with a fairly internationally based portfolio that's largely personal care and OTC, headlined by BATISTE, Sterimar, Femfresh and others. And then thirdly, and probably most importantly, kind of more in recent times is we've really started to accelerate our acquisitions. So we've had a long history of taking brands internationally. I think Hero, TheraBreath and now Touchland give us such a great opportunity to scale and enter markets with real purpose, and I'll give you a couple of headlines on that in a second. As I say, our brands travel extremely well. I'm proud to say 6 of our 7 track power brands have grown share in 2025. It's a really strong result. We don't track market share across all our brands. So in addition to that, our ARM & HAMMER business has grown almost 6% and Femfresh also grew positively in 2025. So really strong results across the portfolio and market share growth across the board. Just to double-click on some of our acquisitions. We launched Hero a couple of years ago. We're now in more than 75 countries. We'll be on our way to over 100 by the end of 2026. We have the #1 share position in acne patches across all our track subsidiaries. And very similar to the U.S., we have -- we're #1 in acne in a couple of those with still lots of room to grow. Similarly, on TheraBreath, we're now in over 50 countries. It's the fastest-growing mouthwash and retail in Canada, Mexico, U.K. and Australia. We have a #1 online position in several countries that we launched in. So we're really proud of these 2 acquisitions. And the next in line is Touchland. So you heard from Andrea, really strong results, obviously, in the U.S. We've launched in Canada and the Middle East. There's a ton of pent-up demand for this brand all around the world. So we're really excited about how we take the learnings from Hero and TheraBreath and apply it to the Touchland playbook. So this will be our third big one in a short period of time that we're pretty excited about. One of the things that we're really focused on as we continue to mature as a global business is just to get much, much deeper into our local consumer insights and region-led innovation where appropriate. We try to borrow assets and leverage them across the world, but where appropriate, we do make nuances and changes. Here's a couple of examples. Just recently launched a harmonized line of BATISTE into China and Japan. Again, using some of the properties and core equities of BATISTE, but softer fragrances, smaller sizes, less intense spray, less white residue, things that are fit for purpose for the consumer and to compete more effectively in that market. Another example is we've had a long-standing business of powders and OxiClean, our Japanese market where we're the #1 position in powders, the largest segment is liquid. So we've done some regional innovation and launched a strong liquid lineup that we launched last year, and it's performing extremely well. So again, where it makes sense, we will kind of make local adaptations and innovation. Just to keep going on the Japan theme. We bought that business in Q3 of 2024, talked a little bit about our #1 position in powders and OxiClean and moving it into liquid. That was the primary brand that we had in Japan. I think most notably is now that gives us a platform to introduce the rest of our portfolio. So we've already launched BATISTE and The Breath Co, Hero is soon to come and others to follow. So we've got a strong team there. We're starting to make more progress on the OxiClean brand and also widen the portfolio. And as Rick said, just to close on international is while we've had a really strong track record of taking U.S. brands and mobilizing them across the globe, we're also looking at international M&A to add to that. So that's either scaling up in current subs and/or entering into new geographies of interest. So with that, I'll switch to Specialty Products. Specialty Products is about a $300 million business. The lion's share is in our Animal Nutrition, which is a long-standing part of the business. About 1/3 is in our -- what we call specialty chemicals and the remainder in our commercial and professional products. From an Animal nutrition point of view, we've been traditionally prebiotics, probiotics, nutritional supplements for the dairy cow segment. We've expanded into poultry and also into swine. I think when we've talked about the kind of the business growth, we focused on a few areas. Number one is taking what has been largely a U.S.-centric proposition to growing it globally. We're now at 30% sales internationally. We've built a team and have been really focused on driving innovation in the space. We've had some really strong innovations, particularly in the poultry sector that's now starting to drive some major growth there. And we're investing in tools to make sure that we're interfacing with our customers and just selling better and improving our service. This is one example of the CRM that we've applied here and then also the other parts of the division. The other 2 performance products. So we're taking solutions into the bakery, water treatment, kidney dialysis, a whole section of different opportunities there. And then the last and the smallest segment is taking our consumer brands into things like hospitality, foodservice and JanSan. So those 3 segments together make up about $300 million worth of growth. 2025, we had another positive year of growth, 2.6% organic growth off the back of 7.1%. We've had 8 consecutive quarters of positive growth. But most importantly, I think we're really set up well for growth to the future. We've got a strong team and a really core portfolio that's working well in the marketplace. And with that, I will pass over to Rick Dierker for closing comments. Richard Dierker: All right. So we'll wrap up with how we operate, and then we'll go through Q&A. We have 5 operating principles: leverage brands, friend of the environment, leverage people, leverage assets and leverage acquisitions. So leverage brands, you heard Mike just talk about it. You heard Chuck talk about it. You heard Carlos talk about innovation. You heard Surabhi talk about how we do digital. So all those things come together, and we do a great job with our brands. Friend of the environment. We have a long track record of being a friend of the environment from the 1800s all the way through present day. And it's not just us saying it, it's many other third-party agencies recognizing that effort. Leveraging people. Highest sales per employee in the industry. And I think this is missed so many times by so many people when people evaluate the company. This isn't about the stat. It's not about trying to make that number go up. It's all about having the agility, speed of decision-making, being able to be nimble in a complex world. And so because of that, we believe that's one of our competitive advantages versus the industry. We have a simple compensation structure as well, 5 metrics for 20%. Everybody is tied into that, but gross margin is 20% of everyone's bonus. It's easy to say, but hard to do, but we believe it adds growth and margin expansion are 2 very important metrics. They lead to cash flow generation, just like Lee presented, right? That's how you get free cash flow conversion. That's how you get optionality to go buy businesses and do that virtuous cycle in the model again and again and again. Leverage assets. We're not a capital-intensive company. Again, it ties back to free cash flow conversion. That's due to our footprint, right? We have third-party manufacturing in many ways. We have distributors that are our partners internationally. And then we leverage acquisitions. We make good shareholder returns, great shareholder returns because time after time, we can have a great core business and then add on acquisitions. So to close, we have confidence in our future. You heard it from the management team. There's a lot of things going right. There are more tailwinds and headwinds even in an environment like we're sitting in today. We have portfolio changes. We have growth initiatives that support a healthy evergreen model. We expand household penetration, especially for businesses that we've recently bought. We have a great high and sustainable growth rate for international. We have great innovation, consistent and really industry-leading. Digitally savvy, and then we focus on domestic and international M&A. And with that, I'll invite the ELT, our executive leadership team to come up, and we'll answer a few questions. Richard Dierker: And Jill has the microphones. Why don't we go with Nik Modi. Why don't we go with Nik? Nik Modi. Nik Modi: Great. I really don't this thing. But -- so just 2 questions, Rick, on the ARM & HAMMER kind of from $2 billion to $3 billion. Much of that is international, and it's not, why not, given the value positioning and the credibility, the credentials that the brand has? And then just the second question was you had this initiative of smaller teams kind of working on a subset of brands, I think that you were going to focus on. I didn't hear about that today. So I was just curious what's going on with that, if you could just give us an update. Richard Dierker: Yes. So 2 questions, and then I'll let Mike kind of add on to the ARM & HAMMER. So the bulk of the ARM & HAMMER growth is domestic. But ARM & HAMMER is a great brand alive and well globally. I think it's just -- it's a longer curve as you grow a brand globally because you go to Europe and baking soda and ARM & HAMMER's not really recognized as much. We tried to plant the seed in China to some degree for fruit washing and other clean and cleansing and freshness attributes. But I'd say the bulk of it is in the U.S., although there is a great -- it's a sizable business internationally, and we expect growth there as well. And nothing but the initiatives we do in the U.S. is going to help with international. Unknown Executive: Just to add, it's actually a single largest brand for international. So it's just broken up into a few different pieces. But we have a strong litter business in China as an example, we've baking soda that's growing quite rapidly across the globe. And we do think that while laundry probably doesn't play as much of a role globally, most of the other segments will. So we're pretty excited about what ARM & HAMMER can do and it's absolutely part of the growth story. Richard Dierker: Yes. Litter in particular, this might surprise you, but the litter business internationally is larger than you would think and definitely in China as well, right? And so we're looking at how do we make that business even a faster growth business. The second question you had is really on a group that we call TAG internally. It just -- it's not ready for -- we've created it. It's called the Accelerator Group. It reports up through, Surabhi. And there's a couple of brands that we believe have every right and obligation to be hundreds of millions of dollars. And we're going to just manage those differently, let it be a little bit of an incubator in itself. And we'll probably report back once we see progress. In my mind, they're going to come into the incubator. We're going to -- some will do better, some will accelerate, some won't. And then they'll graduate back into the company and be managed more of as a traditional brand. But this is our chance to really take a flyer in a few key brands. Surabhi, do you want to add anything to that? Surabhi Pokhriyal: No, I think you got it. Richard Dierker: Okay. Javier? Javier Escalante Manzo: A quick one for me on Vitamins. Richard Dierker: Javier, we sold the Vitamins business. Javier Escalante Manzo: I know. Richard Dierker: I'm just kidding. Go ahead. Javier Escalante Manzo: I know. But a lot of it has been done in terms of what it means to growth. I wanted to see whether you can speak of what it meant for the cost side. It was up against Nestle in the drug stores, all the effort that you made to stabilize. So what does it mean to leave that behind and refocus those resources against all the innovation that you have? Richard Dierker: Yes. I think it's one of the single biggest -- we're going to look back in a few years, and I think one of the biggest strategic pivot points in our company history is when we acknowledge that we couldn't turn the Vitamin business around. And the amount of mind share that management had on Vitamins, which I talked about private label exposure. I mean, think about that. I mean, going from 12% to 5%, that is a private label heavy industry. And brands are having a very tough time in that industry. Competitive advantages that we thought were sustainable were not. So there's nothing but tailwinds from a growth perspective for the company now, margin. We were overinvesting in marketing. But more than anything, it was the amount of time, effort and energy that we had to divert to doing all the right things. We were. We did all the right marketing. We did all the right consumer research, all the innovation. But every minute we spent on Vitamins was a minute we weren't spending on ARM & HAMMER growing from $2 billion to $3 billion and for the rest of our business to grow. So I think that's going to serve us very well when we look back. Rupesh? Rupesh Parikh: So 2 questions on Touchland. So first, on the international expansion, so far in Canada and Middle East, how is that going? And then as you think of Touchland, like how do you think about the phasing of international expansion? And do you think you can get it to 100-plus countries somewhere here over time? Richard Dierker: Yes. I'll make a couple of comments and then either Brian or Andrea and then Mike can make a comment. We're really happy with the Touchland business. We talked about just a double-digit grower. But more than anything, you saw from Andrea today, it's not just a hand sanitizer business. Over the long term, it's a brand, and she's built a great brand. International has done well. I would say it's hitting or beating all of our expectations. We believe there's a path forward. Mike and our regulatory team with Carlos is working hard on getting to 20, 30, 40 countries just so that we have the optionality to go when it makes sense. The unique piece with Touchland is we're going to be more picky on what partners we go with, right? We're being very purposeful on what channels we participate in the U.S. We'll be very purposeful outside the U.S. as well. Brian or Andrea, anything you want to add? Brian Buchert: No, that was pretty good. Yes, we're trying to launch as fast as we can. It's alcohol-based. So there's some regulatory challenges to get it out in some markets in the world. But we're full steam ahead. We're going to have a handful of markets here this year. We started with Sephora in Canada and in the Middle East. That was part of the reason why we ended up in those 2 markets. And when you asked the question about being 100 over a longer period of time, potentially. But like Rick said, we're going to be purposeful which retailers and who we partner with in each of these countries. Richard Dierker: Peter? Peter Grom: Just a couple of questions on the guidance. So maybe first, the 3% to 4% organic sales growth. Can you maybe outline what you're expecting in terms of U.S. international SPD? And then you're -- in a couple of weeks here, you're going to start to lap this inventory destocking component. That was a big drag on sales last year. I think it was 300 basis points in the first quarter. So can you maybe just help us understand what's embedded in the guidance as you lap that this year? Richard Dierker: Yes. Sure. Lee, do you want to take that? Lee McChesney: Yes, sure. So just within the outlook, 3% to 4%, you have the U.S. business is 3% growth for the year. International is 8% and then SPD is 5%. And yes, as you talked about in the first quarter, we definitely had inventory destocking last year. This year, just simply, we have the Oxi loss at Costco. That's really a headwind we have in the first quarter. But as I said a little bit earlier, our outlook for all those businesses are relatively consistent throughout the year for growth. We just got to get through that last piece of that comp. Richard Dierker: Bonnie? Bonnie Herzog: I have a question on promotions. They've really been elevated in a lot of the HPC categories, and we're seeing a fair amount of negativity on price mix. So love to hear sort of your thoughts on the environment right now. And essentially, what is factored into your guidance? Where do you expect this promotional environment to land this year? And if you do expect it to remain elevated, how should we think about that in the context of your price mix? Richard Dierker: Yes. No, good question. I think what you're seeing is when consumers are pressed and categories start to decline on volume, then competitors price promote to gain share. But the value of the brand matters in a big way. Like in Q4, ARM & HAMMER laundry was the only one who grew share. And we're not outspending the category at all. The value segment is the only segment that's gaining share. So the macro is helping the ARM & HAMMER brand more so than most, I would say. That's true in cat litter, too. Cat litter competition is spending an awful lot on promotion. We're not. We're well below the industry average, and we're gaining share. So brands matter. You just can't promote yourself your way to growth. And so all the advertising that we're doing, the innovation, remember, it's a combination of value that you're giving to the consumer. So we've been very, very happy with that. I do think that promotional levels will drift back to normalcy. Like we're probably -- the category is under long-term historical levels for promotion, but we're well positioned. We're doing well. Mark, any other comments you'd like to make? Mark Magazine: Yes. I totally agree. I think one of the things we do is to build a great promotional plan with retailers, but we do watch it every week, right? And we continue to monitor how we're doing. To Rick's point on laundry, we feel really good. And we'll continue to do that. And if the category heats up, we'll make the right moves. Richard Dierker: Ana? Ana Garcia: Yes. I wanted to ask on your longer-term gross margin potential. You've historically said that your mix of business is around 40% value, 60% premium. And then with the last 2 acquisitions and the growth premium kind of ticking up here, we are seeing value now around 36%. So I wanted to ask if that's a driver of longer-term gross margin expansion -- sorry, behind, I guess, the premium side of the business. And if that should tick up slightly over time or revert back to that 40%, 60% split between value and premium? Richard Dierker: Yes. It's a great observation and question. I would say our acquisitions recently have been higher-margin personal care businesses, and that bodes well for that. Give us a year or 2 before think about changing the Evergreen model. We just got out of tariff control, and we have another year of 3% inflation. But I would say the problem with long-term gross margin guide is the world changes rapidly. But a lot of confidence in our gross margin expansion. I think to put up 100 basis points in this year amidst everything that we're going through is phenomenal. I think having flat gross margins in 2025 when we were faced initially with $190 million of tariffs is jaw dropping. Lee, anything you want to add? Lee McChesney: I think to Rick's point, it's -- things evolve. That outlook, obviously contemplates what we know now but we don't know what's going to come this year, just like what happened in '25. Richard Dierker: Chris? Christopher Carey: So just on Touchland, One of the things I hear about a lot is the risk of over distributing the brand, going to channels like mass, where you lose the cache of the brand. I think there was some activity at Costco in calendar Q4, where there was a debate about whether you're kind of blowing out distribution, and yet I hear there's a ton of growth runway. Can you just talk about -- maybe, I don't know if careful is the right word, but how do you think about keeping that brand exclusivity and -- but also having the ability to deliver really strong growth rates, if that makes sense, like staying in the channels that you need to be in, but still delivering strong growth? And if I just could, going to the back half of this year, Lee, I think you said the growth rates should be fairly similar through the year, but Touchland is going to enter the base into the back half and presumably, it's still growing quite quickly? Is that a phasing thing? Is there some conservatism in that? But any context on maybe how Touchland could be entering into the next 12 to 18 months? Richard Dierker: Yes. I think -- I mean, we were pretty public a quarter or 2 ago, even when we announced Touchland that we were going to be very careful and selective on what channels we go to because exactly the point you're making, there's a cache of the brand, and we have great partners. Sephora and Ulta have been great partners and Andrea has developed and nurtured that relationship. So we've said there is no plan in the near term to go into mass as an example. Club, we believe, is a different channel. It's a more premium channel. It's too early to tell now what we're going to do. I don't want to front run that. But I would say it's a little bit more unique than the traditional mass channel. Andrea or Brian, anything you want to add? Brian Buchert: Sure. We did do a quick test at holiday test in Costco. It went very well. That was purposeful to do it as a test to see how it did there. And so we're evaluating channels all the time. We're evaluating the existing channels. The important thing here that is a little different is that Touchland was not a Sephora-born brand as a lot are. It was born in Ulta and Target and Amazon and Sephora pulled us in, okay? So it's not just -- so we have more degrees of flexibility in terms of some of those channels, but they're a great partner. They're doing everything that we've asked of them, and we monitor it each quarter, 6 months, a year. And the day the support doesn't meet our expectations that we want Touchland to be in everyone's hands in the world. Richard Dierker: Yes. I think the other nuances when we did that club test, remember at stores at Ulta or Sephora, they're selling 100-plus units per store per week. It's very, very high-velocity units. We didn't see that drop off at all even when we were doing the club test. So that was encouraging. There was another question on the back half growth, Lee. Lee McChesney: Yes. I mean again, the range is 3% to 4%. So there's obviously some degree of freedom. You're right, Touchland does turn into a positive organic in the back half. The offset that you also have the TheraBreath and the Hero is growing at the rates they were growing this year. Obviously, they're going to keep growing, but I just think there's a balance to that outlook right now. Richard Dierker: Rob? Robert Moskow: Lee, I hate to keep asking about the guidance for organic growth. But did I get it right that the exit rate for the business, excluding Vitamins, is 1.8%. And therefore, does that assume that the business has to get better like right away? Most companies, you take the exit rate and that's the growth for next year, but this is a little bit different. And then I had a follow-up on ARM & HAMMER. I did the 25-year CAGR math, and I think the math is like 2.8% growth rate for ARM & HAMMER. But you think you can do better than that going forward. Is it going to do better than that this year? Like or is this year kind of like a similar pace of growth for ARM & HAMMER? Richard Dierker: Yes. So I'll take the second one first. My belief is ARM & HAMMER growth will be accelerating in 2026, '27, '28 and '29. Like I think the plans are being -- are in place for 2026. Plans are being laid for '27, '28, '29. And so I do think ARM & HAMMER accelerates from where it's at today. Your other comment on -- your first question was really on growth, right? And I think you got to be careful taking just Q4 and rolling it forward because you got to remember how high 2024 Q4 growth was. But I think the overarching comment would be we believe categories are going to grow 2%. We believe that ex the portfolio changes, we would have been growing 3.5% in 2025. We tend to take share over time. And so when you kind of add those 2, 3 things together, the absence of headwinds like not just Vitamins, not just Flawless as we wound down those businesses. But we did get delisted from Costco last year for OxiClean, that was a big headwind. We didn't make a big stink about it, but we overcame all that. And so when you layer all that in, that's why we have a lot of confidence in 3% to 4% next year. Andrea, then Steve. Andrea Teixeira: Andrea Teixeira, JPMorgan. So I wanted to still stay on the Touchland. The U.K., I was curious, usually brands go and fly to the U.K. and especially because you have BATISTE there, why the U.K. expansion didn't happen yet, I think, if I'm not mistaken, Canada and the Middle East is where you already have the brand. And then in terms of line extension, should we see line extensions within Touchland this year? Or this is something more long term? Richard Dierker: Yes. We're not going to comment anything on line extensions yet. I would just say that our plans would say that we believe the brand can be bigger than just hand sanitizers. You saw Andrea's slide, and it was about convenience. It was about the sensorial experience. It was about convenience. All those things come together, and there are other categories that, that could apply to. As to the U.K., remember, this is a team of -- for a long time of 12 or 13 people, okay, managing a business that now is almost $200 million. So I know for like -- for the company, for our company, we would be like, yes, we're going to go to U.K. on Thursday, and we're going to go to Portugal on Friday. For them, they were just trying to keep their head above water, and they're doing a great job. And so we're adding a lot of resources on regulatory, right, to lay the groundwork to do the next 20, next 30 countries. Regulatory is usually the answer with this product on where you can go and how fast you can go. Stephen Robert Powers: Okay. So 2 questions for me. The first one on the ARM & HAMMER aspect, $2 billion to $3 billion. Are you just calling that out to kind of quantify it, make it a priority or -- and be more intentional about it? Or I guess, to what extent are you doing something different going forward versus how you've been managing that brand, the center of your portfolio for a while? And then the second question is on just TheraBreath and moving that into paste. Maybe size the prize as you think about the incremental growth of the overall franchise, how much is oral rinse versus how much is paste? And just how you're thinking about bringing that to market? Are those going to be marketed and promoted separately, together, you're going to bundle the product? Is the -- are they individual initiatives? Or are they -- are you marketing paste to the rinse consumer? Or is it independent, I guess, is the question? Richard Dierker: So I'm going to -- on your first one, it was really about what are we doing different on ARM & HAMMER. And I would say that slide had 4 pillars. The first pillar is what we're doing today. And what we're doing today is doing a great job on innovation, on marketing, on promotional, on pricing, on sizing, all those things, and that's what's been driving our share on laundry and litter for many, many years. I expect that to continue. That's a core competency of the company. The good, better, best, we've done that really well in laundry and litter. I'm saying to you today that there's a few subsegments that we haven't been doing that. We haven't had the focus there. We're going to put a little bit more focus there. And so I think that's an incremental opportunity. The third one was incremental categories. That's incremental. Like where does ARM & HAMMER have the right to play and win, and we want to make sure we're very picky about that. But you're going to start seeing that over the next couple of years, I would say. I don't want to front-run any comments on where we would go or whatnot. And then the fourth one was, again, there are certain brands that we license today that when they get to critical mass, we should take them back and we can scale a lot faster. So that's really like an incubator or a test ground for us. There's also probably categories that we may want to get into, and that's a great test environment to do so. So those are what's new about it. I would say the numbers, $2 billion to $3 billion, I want to make meaningful progress over the next 4 years is what I would tell you. Chuck, do you want to take the TheraBreath discussion on how we're marketing it together? Charles Raup: Yes. We see tremendous upside. And so it's a balance of -- there's room to run in rinse, as I showed before, and penetration in paste. So there will be some individual efforts. But as we look at this, what we're really thinking about this is penetration of the consumers' oral care regimen. So where we can, certainly between online promotions, those type of things, looking to pull it together. And in our early results, what we are seeing is we are having a high conversion rate of rinse users going over to the paste. So it is going across that -- the oral care needs. Richard Dierker: Olivia? Olivia Tong Cheang: So value is obviously still a very big driver. So can you talk about your confidence in ability to capitalize on that value-seeking consumer while also thinking about the impact on margins? That's number one. And then your full year organic sales growth targets clearly are ahead of a lot of your peers, but you have the highest exposure to right now, the lowest growth market. So as you think about the opportunity in front of you to capitalize on international markets, how can -- what's the pace to be able to do that to kind of offset -- to capitalize on some of that international opportunity while also being mindful of the fact that the U.S. consumer is pretty challenged. Richard Dierker: Yes. I'll take the second one first. So I would just say, you're right, the U.S. market is a slower growing market these days than many of the international markets. We're doing really well internationally. We're growing, but not all the international markets are fantastic. We're growing above market rates internationally as well. Even though categories for us only grew 1.8% last year, like I said before, ex our portfolio changes, our brand consumption was 3.5%. So in a tough environment, our brands and consumers bought those brands, and that's pretty strong growth. So that gives me a lot of confidence. Your first question was -- remind me, Olivia, I lost it. Margin and value. Well, it's kind of my answer to what I said to Bonnie. Despite the promotional environment, the brand matters, right? And what's unique about ARM & HAMMER? We talked about it a little bit, but we have a halo effect for advertising. So even though we're a value detergent, we're advertising everywhere. And most competitors in value and anywhere else can't advertise at the same rate we can, but it just doesn't work. So that's number one. Number two is we kind of gloss over it quickly, but Carlos Ruiz and his supply chain team and Carlos Linares, who supports it with R&D, our productivity numbers are just astronomical. And we have a muscle there. Carlos Linares walked you through our innovation muscle on NPD and had 5 different vectors. And that's why we, over time, can innovate and do 2% of sales or half of our organic growth rate. We have that same -- and maybe we should tell that story next year. We have that same story on productivity to be able to have productivity year after year after year, guess where most of that productivity comes from? High moving throughput on widgets, which is fabric care and home care. It helps everywhere, but it really over-indexes on households. So that helps offset any inflation we have or pressure we have on gross margin typically. Filippo Falorni: Filippo Falorni, Citi. I wanted to ask on the laundry category. Rick, you showed us the chart that shows the value part of laundry outperforming the premium. Like it's been going on for a couple of quarters. What is your expectations heading into 2026. And as you think about innovation, you made a bet on the laundry sheet as an alternative way of laundry. One of your competitors coming in with a different format. How are you thinking the competitive dynamic will evolve in '26 on that part of the category? Richard Dierker: Yes. So yes, you're right. Proctor's coming out with Tide EVO. That does nothing but bring more awareness to a different form in the laundry category, fantastic. We are going to be a value to Tide EVO in a big way. Our efficacy actually is really good, especially with the better sheet that Carlos just went through. So we're the #1 brand right now in that smaller subsegment, which is probably around $100 million plus if you include kind of off-channel sales. So I feel really good, continued about that. It's still a small part of the category, okay? So just to give perspective out there. And then what was your first question? How long do we think the value piece? Look, I think there's a -- that's more of a macro -- more than anything, it's more of a macro environment question. And I think the consumer continues to get pressed. Consumer confidence continues to be shaky. And yes, the club class of trade and the high-end consumers feel good because of the stock market. But the everyday consumer, the share of wallet going to purchases is still high. You might not have the same year-over-year inflation, but that share of wallet is still impactful. And so I believe that they're going to continue to make choices on value period the end. And so I would expect that to continue is what I would say. Unknown Analyst: Yes. So gross margins performed quite well in 2025 and in the year stronger than you had anticipated and have a strong guide for 2026. But we didn't get the gross margin bridge like we normally get. So I'm wondering if we can hear what the drivers were of that, but also maybe how gross margins are performing when you exclude Touchland kind of in the base business. And then second, I saw quite a few mentions of an ERP transition. I think a lot of people tend to get nervous around ERP transitions. I'm wondering if there's maybe a sell-in that we need to be contemplating as we work through the model. Richard Dierker: Yes. So I'll let Lee walk you through the gross margin bridge. We wouldn't go through details on margin, excluding Touchland, but he'll give you some color on that. And then maybe Ray can give you some color on our SAP go-live. I would tell you that we are not -- I know a competitor had a massive sell-in, we are not contemplating something like that. Lee McChesney: Yes. So for '25, just give you a perspective, again, kept margin flat. The commodity pressures, things like that, plus the tariffs are actually close to 200 basis points of pressure. The productivity offset a large portion of that. And then you have the benefit of the mix of the acquisitions kind of closing that gap to keeping it flat year-over-year. As you said, for '26 here, we kind of have the normal -- all those elements coming to be in that kind of 25 to 50 basis points. And then it's really the portfolio change that drives the rest up to 100 basis points. Richard Dierker: Yes. And then we have gone -- Kevin Gokey is here too, our CIO, and Ray is our new CTAO. And we've gone through SAP go-live. My first job at the company was the Director of Operations Finance, and I was on the project of going live with the SAP reinstalled. And we have a great supply chain and finance team and IT team that are just full-time dedicated to that project. We have a lot of confidence in it. But I'll let Ray talk about his thoughts. Ray Bajaj: So the larger strategy out here is we are digitizing our core so that we can do faster M&A and we can grow organically. Our S4 transformation is on track, we have a great team and we are getting up for go-live in our SAP transformation. And you will see, like our business processes improve as we build this robust platform, and it's going to be the engine of growth in the future. Richard Dierker: Yes. The only other comment I would add on that is, a lot of times when you see ERP transitions that really, really struggle is they're going from something -- nothing to something. We are doing our upgrade. We've been an SAP shop for a long, long time. Not to say there's not risk, but we have a lot of confidence in it. Okay. Well, again, I just want to thank everyone for coming out on the cold, blistery day in New York City. As you can tell, the management team has a lot of confidence. I have a lot of confidence. The company's portfolio has never been stronger as we look forward, and we're looking forward to executing well in 2026. So thank you.

63天前Insight Analytics约5分钟阅读

DSNKY 2025 Q3 财报电话会议

Kentaro Asakura: Ladies and gentlemen, thank you very much for your patience. Now we would like to start FY 2025 Third Quarter Financial Results Presentation. I am from Corporate Communications. My name is Asakura. I will be facilitating today's session. In this presentation, we are going to use Japanese and English. We have simultaneous interpretation service available. [Operator Instructions] We have uploaded Japanese and English presentation material in IR library on our corporate website. Whenever necessary, please feel free to download the material. Today's presenters are Mr. Ogawa, Senior Executive Officer, CFO; Mr. Abe, Head of R&D Division; and Mr. Ken Keller, Head of Global Oncology Business. Now Ogawa and Abe are going to take you through the financial results for the third quarter FY 2025, and then we are going to open the floor for the Q&A. Today's session will be recorded. I would like to ask for your cooperation. Now Ogawa-san, please. Koji Ogawa: This is Ogawa. Thank you for participating in Daiichi Sankyo's earnings briefing today despite your busy schedule. Now I will explain the consolidated financial results for the third quarter of fiscal year 2025 announced at 15:00 today based on the materials. Please look at Slide 3. The content I will discuss today is as follows. Fiscal year 2025 third quarter consolidated financial results, business update, research and development update. The research and development update will be explained by Abe, Head of R&D Unit. We will take your questions at the end. Please look at Slide 4. These are the highlights of the current earnings. Our flagship products, the anticancer agents, ENHERTU and DATROWAY continued to grow steadily and revenue increased significantly. The cost of sales ratio improved compared to the second quarter and core operating profit increased by 8.8% year-on-year. No additional major temporary expenses were incurred in the third quarter. There are no changes to the fiscal year 2025 consolidated earnings forecast from the October announcement. Please note that as reference information, the latest sales forecast for each product are listed in the supplementary earnings materials. Although there are some movements in individual products, there is no change in total revenue from the October announcement. Please look at Slide 5. This slide shows an overview of the fiscal year 2025 third quarter consolidated financial results. The revenue was JPY 1,533.5 billion, an increase of JPY 165.9 billion or 12.1% year-on-year. Cost of sales increased by JPY 13.8 billion year-on-year. SG&A expenses increased by JPY 93.7 billion, and R&D expenses increased by JPY 38.1 billion. As a result, core operating profit was JPY 249.2 billion, an increase of JPY 20.2 billion or 8.8% year-on-year. Operating profit, including temporary income and expenses, was JPY 233.8 billion, a decrease of JPY 14.5 billion or 5.9% year-on-year and profit attributable to owners of the company was JPY 217.4 billion, an increase of JPY 8.8 billion or 4.2% year-on-year. Regarding actual exchange rates, the dollar was JPY 148.75, yen appreciation of JPY 3.81 compared to the same period last year and the euro was JPY 171.84, yen depreciation of JPY 7.02 compared to the same period last year. Please look at Slide 6. From here, I will explain the factors for increases and decreases compared to the same period last year. Revenue increased by JPY 165.9 billion year-on-year, and I will explain the breakdown by business unit. First, for the Japan business unit and others. Sales of DATROWAY, Belsomra for the treatment of insomnia and Lixiana, direct oral anticoagulant and Tarlige, the pain treatment drug increased. On the other hand, sales of Inavir, influenza treatment drug decreased. And unrealized profit on inventory of Daiichi Sankyo Espha was recorded as realized profit in the previous period, resulting in a revenue increase of JPY 10.7 billion. The actual increase or decrease in the vaccine business, which is affected by seasonal demand after provision for returns was an increase of JPY 300 million. Next, I will explain the overseas business units. Here, the foreign exchange impact is excluded. Oncology business increased by JPY 113.3 billion due to growth in sales of ENHERTU and contribution of at DATROWAY sales. American region decreased by JPY 24.3 billion due to the impact of generic entry for the iron deficiency anemia treatment, Venofer, and the impact of price competition for Injectafer. EU Specialty business increased by JPY 13.6 billion due to growth in sales of Nilemdo/Nustendi for the treatment of hypercholesterolemia. ASCA business, responsible for Asia and Latin America increased by JPY 35 billion as ENHERTU grew mainly in China and Brazil. Contract upfront payments and development sales milestones related to partnerships with AstraZeneca and U.S. Merck in the third quarter resulted in an increase of JPY 20.9 billion. We received development milestone income from AstraZeneca associated with approval for first-line treatment of HER2-positive breast cancer in the U.S. for DESTINY-Breast09 and received a second upfront payment from U.S. Merck for R-DXd, which were recorded as sales revenue. The foreign exchange impact on revenue decrease was JPY 3.3 billion overall. Slide 7 shows the factors for increase and decrease in core operating profit. I will explain the JPY 20.2 billion increase by item. As explained earlier, revenue increased by JPY 165.9 billion, including a foreign exchange impact decrease of JPY 3.3 billion. Next, regarding the cost of sales and expenses. Excluding the foreign exchange impact, Cost of sales increased by JPY 12.4 billion due to increased revenue and the recording of inventory valuation losses for ENHERTU and others in the second quarter. SG&A expenses increased by JPY 100.3 billion, mainly due to an increase in profit sharing with AstraZeneca. R&D expenses increased by JPY 42.6 billion due to increased R&D investment associated with development progress of 5DXd ADCs. The expense decrease due to foreign exchange impact was JPY 9.7 billion in total and the actual increase in core operating profit, excluding the ForEx impact was JPY 13.8 billion. Next, on Slide 8, I will explain the profit attributable to owners of the company. As explained earlier, core operating profit increased by JPY 20.2 billion, including the impact of ForEx. Regarding the temporary revenue and expenses, again, as explained at the second quarter briefing in late October, same period last year included temporary income from the sale of shares in Daiichi Sankyo Espha. However, this year, we don't have such impact. Although there were incomes related to litigation with former shareholders of Ranbaxy, overall income decreased. Furthermore, there was a JPY 34.7 billion negative impact due to CMO compensation fee associated with the change in the launch timing of HER3-DXd as well as write-down of inventories of DATROWAY and HER3-DXd. Financial income and expenses contributed positively to earnings by JPY 9.5 billion, mainly due to improved FX gains and losses. Income taxes and so on decreased by JPY 13.9 billion, reflecting lower pretax income and the lower effective tax rate compared to the same period last year. As a result, profit attributable to owners of the company increased by JPY 8.8 billion year-on-year to JPY 217.4 billion. Next is business update. Please turn to Slide 10. This slide shows the sales performance of ENHERTU. Global product sales for the third quarter of FY 2025 increased by JPY 102.4 billion year-on-year to JPY 506.8 billion. New patient share remains #1 in all major countries and regions for existing indications such as breast cancer, gastric cancer and lung cancer. Regarding the new indications, we've started promotion for first-line treatment of HER2-positive breast cancer in the U.S. last December, driving growth in new patient share. In China, we've initiated promotion for hormone-positive HER2 low or ultra-low chemo-naive breast cancer patients in December, followed by promotion for second-line treatment of HER2-positive gastric cancer in January. The NCCN guideline has seen new additions and updates for multiple cancer types. First, ENHERTU has been newly added as a Category 1 recommendation for adjuvant therapy in HER2-positive breast cancer with high recurrence risk. For HER2-positive metastatic breast cancer, HER2 monotherapy was already recommended as first-line therapy based on data from the DESTINY-Breast03 trial, a second-line trial, which demonstrated extremely high efficacy. Additionally, based on data from the DESTINY-Breast09 trial, combination therapy with pertuzumab has been newly added with a category 2A recommendation. For HER2-positive uterine cancer, in addition to existing recommendations for endometrial cancer, ENHERTU has been newly listed with a Category 2A recommendation for endometrial carcinosarcoma. For HER2-positive esophageal and gastric cancers, the recommendation level has been elevated from Category 2A to category 1. ENHERTU is already listed in the NCCN guidelines for numerous cancer types and is recommended for use. We'll continue to generate data to pursue further new listings and category updates. Next, I will explain the sales status of DATROWAY. Please refer to Slide 11. Global product sales for the third quarter fiscal 2025 reached JPY 31.6 billion, representing 83.8% of the October forecast. In addition to steady market penetration for the breast cancer indication in Japan and in the U.S., the lung cancer indication rapidly gained market traction in the U.S., significantly increasing the number of new patients. Globally, prescriptions were issued to over 3,000 cumulative patients, approximately 1.5x more than the end of the previous quarter. Sales growth significantly exceeded expectations in both the U.S. and Japan with lung cancer indication, particularly driving sales in the U.S. Given these circumstances, we've updated our full year forecast to JPY 47 billion, up by JPY 9.2 billion from the October forecast. For both breast cancer and lung cancer, prescriptions have expanded beyond the projections. This is primarily due to much higher-than-expected unmet needs, especially in the third line and later, leading to prescriptions for more patients than expected. Additionally, awareness among health care professionals regarding AE management such as stomatitis and dry eye, an area where we have focused on since the launch has increased and experience is being accumulated. Furthermore, DATROWAY has seen new additions and updates in the NCCN guidelines. For triple-negative breast cancer, it's been newly added as a Category 2A recommendation for first-line treatment. For EGFR mutated NSCLC, recommended EGFR mutation coverage has been expanded from the existing category to existing, widening the opportunity for DATROWAY to make further contribution. We'll continue to pursue further market penetration in existing sales regions and expand into new countries and regions while advancing efforts to obtain new indications. We are committed to delivering ENHERTU and DATROWAY to as many patients as possible who need these medications. Slide 12 shows an update on Seagen U.S. patent dispute related to our ADC. Last December, the U.S. Court of Appeals for the Federal Circuit issued a ruling reversing the District Court's decision that ordered us to pay damages and royalties to Seagen, finding that Seagen's U.S. patent was invalid. The court issued a ruling affirming the U.S. Patent and Trademark Office decision that Seagen's U.S. patent is invalid, dismissing Seagen's appeal. We highly value this ruling by the court. Slide 13 is information about the briefing session. On April 8, Japan time, we will hold the sixth 5-year business plan briefing. Once details are finalized, we will inform you. From here, this is the R&D update. I will hand it over to Abe, Head of R&D. Yuki Abe: Thank you. This is Abe. I will talk about the R&D update. First, I will explain about 5DXd ADCs. Next slide, please. In December last year, ENHERTU in combination therapy with pertuzumab obtained approval for the first-line treatment of the patients with HER2-positive unresectable or metastatic breast cancer in the U.S. As you know, this indication based on the DB09 study was approved under breakthrough therapy designation, priority review and real-time oncology review program. Regulatory filings have also been accepted in Japan, China and Europe. And through Project Orbis, multiple regulatory authorities are proceeding with reviews. Next, please. I will talk about the final analysis results of the DESTINY-Breast03 study presented at the San Antonio Breast Cancer Symposium in December last year. This is a Phase III study that compared and verified the efficacy and safety of ENHERTU and T-DM1 for second-line treatment of HER2-positive breast cancer. As you can see in ENHERTU group, the median OS was 56.4 months and estimated 5-year survival rate was 48.1%, showing long-term significant efficacy compared to the T-DM1 group's median OS of 42.7 months and estimated 5-year survival rate of 36.9%. In addition, no new safety findings were observed through long-term follow-up. And the incidence rate of ILD adjudicated to be drug related in the ENHERTU group was 17.5% with no Grade 4 or 5 ILD observed. This indication has already been approved and launched in many countries and regions, including Japan, the U.S. and Europe. But these results reconfirmed ENHERTU's consistent sustained efficacy and long-term safety and substantiated its contribution to improving survival. Next, please. This slide summarizes updates toward expanding indications for ENHERTU. ENHERTU is making steady progress in expanding indications in various countries and regions centered around breast cancer. And in December last year, based on the results of DB05 for post neoadjuvant therapy for HER2-positive breast cancer with high recurrence risk, it received breakthrough therapy designation in the U.S. Also in December, based on the results of DB06, approval was obtained in China for the indication of chemotherapy naive hormone receptor positive and HER2 low or HER2 ultra low breast cancer. And this month, based on the results of DG04, approval was obtained in China for the indication of second and later line treatments for HER2-positive gastric cancer. Previously, in China, third-line treatment for HER2-positive gastric cancer had conditional approval. But with this approval, full approval has been obtained for second and later-line treatment. Next, please. This slide shows the progress of each ENHERTU study. Aiming to contribute to more HER2-expressing cancers, we started DESTINY-Lung06 in October last year, targeting first-line treatment of HER2 overexpressing non-squamous NSCLC. And in December last year, we started the randomized phase of DESTINY-Ovarian01 targeting first-line maintenance therapy for HER2-expressing ovarian cancer and DESTINY-Endometrial-02 evaluating adjuvant therapy for HER2-expressing endometrial cancer. Next slide, please. From here, this is the progress of DATROWAY. Data from the TROPION-Breast02 trial targeting TNBC not eligible for PD-1, PD-L1 inhibitor treatment was presented at ESMO in October last year. Based on this data, filings for approval were submitted in Europe and China and were accepted in December last year. Procedures toward filing are also progressing in other countries and regions. For TNBC, as shown in the table on the left, in addition to the TB02, 3 Phase III studies are ongoing in early stage and recurrent metastatic stage. Next, please. This slide introduces new Phase III trial. The TROPION-Lung17 trial compares DATROWAY monotherapy with docetaxel in patients with non-squamous NSCLC in second line or later setting. Building on insights from prior studies such as TROPION-Lung01, we target at patients with TROP-2 NMR biomarker positive. This trial aims to expand the treatment opportunity for DATROWAY monotherapy in NSCLC. Next slide. This slide introduces the latest status of the ongoing DATROWAY trials. The first is the TROPION-Lung07 trial, which targets first-line treatment for non-squamous NSCLC with PD-L1 expression below 50%. This trial had not previously applied the TROP-2 NMR biomarker, but following a protocol amendment, PFS and OS in the TROP-2 NMR-positive population were newly added as primary endpoint. The second is the TROPION-Lung12 study. This is an adjuvant therapy trial for Stage 1 NSCLC with ctDNA positive or high-risk pathological features evaluating combination therapy with rilvegostomig. Regarding this trial, due to complexity of study operation, we've decided to discontinue patient recruitment. No new safety concerns were identified, and there is no impact on other DATROWAY trials. Next slide, please. From here onward, I would like to talk about the progress of next wave. For EZHARMIA, we are preparing a Phase I trial combining darolutamide with EZHARMIA for metastasic CRPC. Regarding DS-9606, a modified PBD ADC targeting Claudin 6, we've decided to discontinue its in-house development following a strategic portfolio review. Meanwhile, DS-3610, a STING agonist ADC introduced at last year's Science and Technology Day commenced its first in-human trial in November last year. This slide shows that EZHARMIA received Prime Minister's award. EZHARMIA was approved in Japan 2022 for the treatment of relapsed/refractory adult T-cell leukemia lymphoma and in 2024 for relapsed or refractory peripheral T-cell lymphoma. Japan was the first in the world to obtain approval. This time, in combination of health care -- in recognition of health care contribution through establishing a new cancer therapy targeting EZH1/2 epigenetic regulation, we've received the Prime Minister's award at the 8th Japan Medical Research and Development Awards following Enhertu's award at the 6th ceremony. We are extremely pleased that the drug independently developed by Daiichi Sankyo is contributing to patients' treatment and that its achievement has been recognized by the society. Finally, news flow from now onward. Regarding upcoming regulatory decisions, we anticipate review results for DESTINY-Breast11 trial from the U.S. FDA in the first half of next fiscal year. As for the upcoming key data readouts, for the DESTINY-Lung04 trial of ENHERTU for the first-line therapy of HER2-mutated NSCLC, data is expected in the first half of next fiscal year. For the TROPION-Lung07 and Lung08 trials of DATROWAY for first line of NSCLC, data is expected in the second half of next fiscal year. Furthermore, AVANZAR trial data is now expected in the second half of calendar year 2026. Additionally, data from TROPION-Lung 15 trial, which targets EGFR mutated NSCLC after osimertinib is still expected in the next fiscal year as previously planned. Slide 29 and onwards are appendix. Please take a look at those slides later. That's all from myself. Operator: [Operator Instructions] The first question is from Yamaguchi-san, Citigroup. The sound is back now to the translation line. Sorry, we missed the question from Yamaguchi-san. Unknown Executive: Well, regarding 9606, we stated that our in-house development will be discontinued. As we proceeded in our development, we had the result. And regarding mPBD itself, its utility was confirmed. Hidemaru Yamaguchi: And then how should we do moving forward? Unknown Executive: We may have an option taking partnership with other companies who may be interested in out-licensing of this asset, but in-house development will be discontinued. Therefore, regarding mPBD technology, its usefulness has been confirmed. Therefore, the subsequent researches are ongoing. Therefore, changing the targets, the clinical programs will continue. That is our policy. Hidemaru Yamaguchi: So I'm sorry. But including the competition, for clothing -- regarding 9606, given the strategic value, you decided not to do it on your own. Is that right? Unknown Executive: In giant cell tumor, we had a positive result. So there is a room of making more development in that area. But given the portfolio perspective, we decided not to continue the in-house development in this field. I see. Hidemaru Yamaguchi: Another question is ENHERTU marketing. First, starting from December, promotion started. And I'm sure if it's already appearing quantitatively in the numbers, but what is your feeling in the market, DB09 marketing promotional activities, how effective the activities are producing the results? Unknown Executive: Thank you for your question. Regarding DB09 current status, Ken Keller is going to give you a comment, please. Joseph Kenneth Keller: Yes. Thank you very much for the question. So DESTINY-Breast09, which is the first-line HER2-positive metastatic breast cancer indication, it's been launched in the U.S. The team is now educating our oncology customers in the U.S. The data, as you know, is really outstanding. It's being received very, very well. I would expect the adoption to be very, very quick. At this point, the oncology community knows ENHERTU very well. They're comfortable with it. And with this data, I think they will embrace it very quickly. Hidemaru Yamaguchi: Do you have some sense of penetration rate as of today or it's too early to say? Joseph Kenneth Keller: It is too early to say what it is. We just launched it really just a little while ago. And so we'll be able to provide you with more information in about a quarter from now. Operator: Next question is from Daiwa Securities, Hashiguchi-san. Kazuaki Hashiguchi: This is Hashiguchi speaking. My first question is related to ENHERTU Japan, your sales situation. So this time, you have made a downward revision of your forecast slightly compared to the original forecast, what's going -- what is going differently? What is the background for you to take your forecast downward? Can you explain about the reason and the background for that? Unknown Executive: Yes, I would like to make one comment first, and then I would like to ask Ken Keller to make some additional comments. In Europe, we are seeing some adjustment. When we look at the quarter-on-quarter situation in Europe, there has been a change to the ERP system. As a result, we had to do some shipment in the second quarter, and that was affecting the quarterly sales. But I would like to ask Ken Keller to comment on the situation in Europe and sales from a full year sales perspective. Joseph Kenneth Keller: Thank you very much. When we look at ENHERTU in Europe, we're in a situation where all of the countries have launched the HER2-positive second-line metastatic breast cancer indication. And the market share, the penetration has already achieved a very, very high level. And so we see continued growth in that setting. But now as we look forward, we're going to see substantial growth in Europe as the different countries obtain access for the HER2-low indication. We've got the HER2-low indication in most countries in Europe, but now we're working through the typical reimbursement approval. As these occur, you'll see an acceleration of growth in Europe. Kazuaki Hashiguchi: For Japan, what's the situation in Japan? Unknown Executive: Yes. Let me respond to that question regarding Japan. Last year, in April, we had seen some impact. NHI drug price revision just before -- just before the start timing in April, we had seen some last minute on demand and that impact still lingered. Overall, ENHERTU future growth trajectory in Japan remains unchanged. Kazuaki Hashiguchi: Next, DATROWAY NSCLC Phase III trial progress, that's what I would like to understand. Avanzar study was changed from the first half to the second half in terms of the timing. And for TL07, your disclosure was always saying that FY 2026, but AstraZeneca is saying first half of the calendar year. And in your fiscal year, latter half, you've made a timing change to the latter half of your fiscal year. And what is the reason behind this timing change? Unknown Executive: Thank you very much, Mr. Hashiguchi. First, regarding AVANZAR, enrollment has been complete. And with the event -- with the incidence of event, we understand that there has been change made, and that's all we know. And for TL07, 08, we've disclosed second half of this fiscal year. So it's still being in line with our initial plan. Kazuaki Hashiguchi: Regarding 07, primary endpoint was added this time. And so when you get the overall primary endpoint data, I guess you are going to make a disclosure. Is that the case? Or if you collect -- can collect the data on already set endpoint, are you going to disclose those endpoints first or like all of them altogether? Unknown Executive: Thank you very much for your question. Regarding 07, NMR biomarker has been added to primary endpoint, as we have explained. And next year, second half, the PFS data is expected to be disclosed. So whenever we have event, we are going to make a disclosure. And as we have experienced at AVANZAR, when event becomes long or takes longer, then the timing of the disclosure may come later. But when that happens, we are going to communicate to you. This time it's protocol amendment, with regard to that, we've had a lot of sufficient discussion. And what's more important here is that is that we are going to get the positive study results. So we do our best, and we continue this study. Operator: Next question is Sakai-san from UBS. Fumiyoshi Sakai: This is Sakai, UBS. My first question is about the follow-up question of TL-07. There are 4 primary endpoints now. Is that right? And then what is the hierarchy of the statistical analysis? And how should we consider the alpha? And TL-08 and 10, don't you have to change their primary endpoints? Unknown Executive: Thank you for your questions. Whether or not in total, there are 4 endpoints in ITT and NMR positive population, PFS and OS will be evaluated as primary endpoints. And as a result, how we will be leading to the filing, we will consider risks and benefits, taking a look at the study results and make a strategy for filing. Therefore, at this point in time, which is going to be included or not, I may have to expect that anything is not yet definite. Therefore, I'd like to reserve my comment this time. But based upon data, we will proceed our filing. Fumiyoshi Sakai: What about 08 and 07. Unknown Executive: regarding TL-08, we are also having discussion. And we are currently considering to include NMR as of today. And if we decide and add to this change, then we will also let you know. Concerning TL10, we don't have any idea at the moment to make such an aggressive change. Fumiyoshi Sakai: Second question is the inventory write-down on the balance sheet. I think it was towards the end of the year, and it increased remarkably. What are the items contributed to that increase? And like the past case, don't we have to worry about any potential write-off of inventories? Unknown Executive: Thank you for your question. At this point in time, there is no potential impairment we anticipate. So that's one point. And for ENHERTU and DATROWAY, overall, they are accelerating the growth globally. And especially the stock takings are accumulating in the U.S. for the purpose of growth, and that is affecting most. Operator: Next question is from BofA Securities, Mamegano-san. Koichi Mamegano: I am Mamegano from BofA Securities. I would like to make one clarification on IDX. Phase III trial received a clinical hold, but I heard that this clinical study was reconvened -- recommenced. Is that the case? And for this, I think it was a trial to support the filing. And can you tell me like whether you've made -- you've submitted the filing already or not? Unknown Executive: Yes. Thank you very much for your question. And sorry that we've concerned you I-DXd, we've received a partial clinical hold, and it's been lifted already. However, I would like to explain the current situation. ED8-Lung-02 study shows ILD series serious, may have ILD serious cases and our R&D team came to realize that and we stopped the patient recruitment, and we made a report to the FDA. And then FDA has issued partial clinical hold and that's been already disclosed -- sorry, that's been already lifted. But in a meantime, ourselves and Merck decided to have a more strict risk management for ILD. So ILD high-risk patients are now excluded from the trial, and we have more strict inclusion criteria. Independent data monitoring data is looking at the safety and efficacy data more frequently. And on top of that, participating investigators and clinical site staff are receiving additional education and updated training amendment of protocol, ILD symptoms and ILD management are now more thoroughly implemented with those partial clinical hold has been lifted. Koichi Mamegano: And for ED801 study submission. What is the impact on the filing? Unknown Executive: There is no impact on such filing. So we are having a discussion with the regulatory authorities in different countries and regions. And we stick to the original time line. That's all. Koichi Mamegano: One more question. You're going to announce MTP, midterm business plan in April. And that's -- with regard to DATROWAY, I'm sure this is a growth driver for you. But now you have a AVANZA trial. And in the second half, you're going to have top line result. And in midterm business plan, DATROWAY's assumption. How should we expect DATROWAY's assumption to be laid out in the MTP? Unknown Executive: Thank you very much for your question. Well, we would like to make a detailed presentation on MTP when we make announcement. So I can't make a detailed comment at this point of time. But DATROWAY study result such as AVANZA study result and the others will make a big difference in coming 5 years business. So when we make announcement of MTP, we will explain about the assumptions and the scenario on which MTPs being formulated. We would like to offer you as much explanation as possible. Operator: Next question is from Ueda-San, Goldman Sachs Securities. Akinori Ueda: This is Ueda, Goldman Sachs. I have a question about clinical trials of DATROWAY. This time, TROPION-Lung07, which biomarkers were used. As a result, enrollment increased in terms of number of patients and the data affect to the data announcement timing? Or do you think that you still need to review all those? And also for 08 study, biomarker usage is now under review. And if you decide to use it, then should we anticipate that the timing of announcement will be changing. Unknown Executive: Thank you for your question. Regarding the timing, this time, the enrolled patients numbers have been increased and already we completed enrollment. Therefore, there is no delay anticipated. It's already complete. But as we experienced with AVANZAR, if any events happen and causing any delay, we will let you know. So for the enrollment of the patients compared to the original plan, we added on NMR, and we have already completed the enrollment. Did I answer to your question? Akinori Ueda: Yes. And it's the same situation for 08? Unknown Executive: Regarding 08, as of today, I'm sorry, I cannot comment in details, but a similar strategy is taken to move forward. Akinori Ueda: I understood. My second question is about ENHERTU indication expansion impact. First, in the first-line treatment, as you expand the indication more, I think the sales will be accelerated. And already in the U.S. DB09 positive results has been disclosed. And as a result, do you see already some positive impact in the clinical practice? Or can we expect more acceleration of the sales expansion? And DB05 and 11, those approvals are also expected. And number of patients seems to be big. But given the number of cycles of treatment, I may consider 09 contribution may be big or if actual the target population expands and if the clinical practices are conducted more efficiently, then there will be also a major contribution expected from 11's result. Which way do you consider? Unknown Executive: For this question, Ken Keller will answer to your question. Joseph Kenneth Keller: So if I heard the question correctly -- we're already seeing some spontaneous use in DESTINY-Breast09, from almost the moment when that data became public. So we are seeing people adopting it and using it already, even though commercially, we've launched this just a little while ago. As we project out to the early-stage breast cancer settings of DESTINY-Breast11 and 05, in these early settings, the goal is cure. And both of these studies provide standard of care changing new data. And I expect them and everything we're hearing from the community is that they will -- it will be embraced very, very quickly. Did that answer your question? Operator: Next question is from JPMorgan Securities, Mr. Wakao, please. Seiji Wakao: This is Wakao from JPMorgan. My first question is as follows. This time, you didn't have a temporary expense. But wasn't there any special factor? And then for the CMO compensation fee, I thought that there is something which is still under negotiation. What's the status right now? Unknown Executive: Temporary expense that we disclosed. And on top of that, is there anything else? The answer is no. And going forward, with regard to the CMO compensation fee, we did -- if we scrutinize the situation and when something comes up, we are going to disclose. But at this point of time, we don't -- we haven't identified any outstanding remaining compensation fee that we need to pay to CMO. Seiji Wakao: When are we going to see the conclusion of this? Unknown Executive: We are having an ongoing discussion with CMO and we cannot determine when is the expected timing of the conclusion of this negotiation. Seiji Wakao: TL-07 and 08, you are now adding NMR marker -- biomarker. And can you explain about the background why you've decided to do so? I understand that you are trying to improve the probability of success. But if you are confident in the result of Dato, I don't think it was necessary, but what's the reason behind? Unknown Executive: Thank you very much for your question. We've had a lot of internal discussion on that. And at one point of time, we thought that this biomarker is not necessary. But pembrolizumab and Dato-DXd, as we have experienced in breast cancer, these 2 are good match. And for lung cancer -- in lung cancer, patients are hetero as based on our experience. So NMR biomarker in lung cancer is very critical. That's one of the reasons. And although you haven't asked this, but TL-17 NMR biomarker study is going to take place. So in the area of lung cancer, with the existence of biomarker, we can offer better benefit to the patients. And in 07, 08, by using biomarker, we can enhance the probability of success. That's why we've decided to add biomarker in the protocol. Seiji Wakao: So I understand that you've discussed with FDA on this. And for NMR-positive population, if you meet endpoint, I would understand that you can successfully make submission and of course, depending on the data, but I think you can get the approval from FDA. Unknown Executive: Yes, we've consulted with FDA before we amended protocol. And it all depends on how good our clinical trial result is. MTP is to be announced in April. The other day, in the JPMorgan Healthcare Conference, CEO mentioned regarding the profit outlook into 5 years. So in 5 years from now, you have a sales milestone for ENHERTU, and you have cliff with Lixiana. So the profit somewhat may decline. However, if things go well, you can make some growth. Seiji Wakao: And I think that's the outline of the message of you. But can you explain about that once again? Unknown Executive: Well, with regard to the next MTP to be announced in April, I am very sorry, but we cannot offer you any detailed comment because we are having an ongoing discussion to formulate MTP. Lixiana, LOE, Injectafers being impacted by generic, you understand those things quite well. Those would be the downside factor, negative factors. So with 5 ADC growth, we are hoping to catch up or compensate those decline as much as possible. And that's all I can tell you for now, but we are still committed to improve profitability and that's the baseline for the next MTP. Operator: Next question is Muraoka-san, Morgan Stanley MUFG Securities. Shinichiro Muraoka: I'm Muraoka from Morgan Stanley. I have a follow-up question about Wakao-san's conference-related item. I'd like to understand the wording exactly. Did you say decline or a slight decline? And I think it depends on how much inclusion you assumed. And if you included Dato conservatively, is it a decline or slight decline? Could you share that part once again with us? Unknown Executive: In terms of wording, the word we used is slight decline. And overcoming the factors against the profit, we will be putting ourselves back on track for growth. And in that context, this wording was used. But how much -- I'm sorry, we cannot talk about it specifically. But at any rate, there would be some directions, negative direction putting us downside, but we would like to recover from that as much as possible and all those measures will be incorporated in our 5-year business plan. So if it is a slight decline, then I think naturally thinking you should be able to achieve a V-shaped recovery after that. Shinichiro Muraoka: Another question is smuggling point, are you going to make acquisition by the time of next 5-year business plan? And how many deals at what the scale? Unknown Executive: Well, excuse me, what you're asking about is to acquire external assets? Shinichiro Muraoka: Yes, yes. Unknown Executive: At this point in time, we don't have anything that we can talk about. But again, in our 5-year business plan, we look at our pipeline, especially in early-stage pipelines, if there are anything which we can expect working as a complementary, we would like to pursue toward the growth during the 5-year business plan and beyond, we'd like to explore externally any good candidates of assets. So that strategy is unchanged. And before the announcement of April, the announcement of the 5-year business plan, nothing is now moving at the moment in this regard. Shinichiro Muraoka: And just one more point. Well, actually, your stock price went down much, but it came back quite quickly. Did you conduct a buyback, share buyback? It is a sharp decline and recovery. So I think probably in the next week, you will disclose whether you conducted the share buyback or not. But could you comment regarding share buyback, as we have been talking about it. Unknown Executive: We will take into the stock price and others, and we make a comprehensive review and make a decision. And so far, on a monthly basis, we have the timely disclosure in the first operating day. And on that timing, we will continue disclosing the information. Operator: Next question is from Bernstein, Sogi-san. Miki Sogi: Regarding TL-07 and TL-08, I have question. NMR biomarker is now added in the primary endpoint. And I think this is a good news. Regarding this, I have 2 questions. Regarding 07, 08, it was a combination with KEYTRUDA and you use NMR and then this will increase the probability of success. And I think it will have a big commercial impact because you can combine with standard of care KEYTRUDA. 07, 08, for those 2 studies, I think you are done with the patient recruitment. And within 12 months, the result will be presented. So you have come to this end. Now you're making amendment. But you've got the kind of like consensus from the FDA. Does that mean that FDA understands the significance of NMR as a biomarker? Unknown Executive: Thank you very much. In terms of the marketability, I would like to ask Ken Keller to make some comment. And I would like to respond to your second part of your question, whether -- how FDA sees the significance of NMR. Well, this relates to the discussion of contents of FDA, so I can't make any comment. But by including biomarker, our intention is to improve the probability of success of this trial. That was the main intention, and please allow me to repeat that point once again. And depending on the result, study result, we will consult with FDA and figure out how we want to do with the filing. Joseph Kenneth Keller: And the question in terms of adding in and working with the standard of care, you are absolutely correct. KEYTRUDA is clearly the market leader, and we've got a number of first-line non-small cell lung cancer studies with KEYTRUDA. And also, to remind you, we've got the AVANZAR study with Imfinzi which is AstraZeneca's I/O drug. So we feel that whatever the preference is of that specific oncologist, we're adding DATROWAY in a way that is very convenient, and it should lead to very quick confidence in our drug adding to whatever they prefer. Miki Sogi: Next, regarding MTP, regarding health care conference hosted by JPMorgan. I know you're announcing MTP in April, so you can't talk much about it now, but slight decline, as you say, with regard to profit, It's not margin. Are you talking about absolute amount? Is that correct, not margin? And also when the profit declines, the driver behind is, I guess, the aggressive R&D cost assumption. So in your case, 5 ADC has many trials and you have partners. So with regard to the R&D cost, I would assume that with AstraZeneca, Merck, you've already, I guess, made alignment on the cost. And I don't think you alone cannot make adjustment or changes by yourself, correct? Unknown Executive: With regard to the future R&D spending, splitting R&D cost between us and the partner has been determined. So we stick to that. Which study is to be dealt by who. This is different in different trial. And when we've made agreement and then we just stick to the cost split structure we've predetermined with the partner. During the MTP period, how are we going to control R&D cost? I think that's what you wanted to understand. So to that end, we have trials where we work with partners, and we have development that we take care of all by ourselves. So in coming 5 years, what are going to be -- which projects are we going to prioritize. That project prioritization and the resource allocation needs to be well managed. Miki Sogi: Okay. I have a follow-up question. In next 3 years -- well, in next 3 years, not 5 years, am I correct to understand that you've already had a lot of discussion with your partners as to what kind of trials are going to take place for what product. Unknown Executive: Yes, depending on the product, we are in a different stage. And for each product, we have formulated joint team. So rest assured, we have sufficient discussion going on between us and our partner through the joint team. And we stick to the priority that we decide on. Operator: The last question is from Tony Ren from Macquarie. Tony Ren: So I want to go back to your Claudin 6 ADC, the decision to discontinue DS-9606. My question is about the construct of the modified PBD construct. You mentioned its clinical utility has by now been established. Can I confirm that the decision -- because I also noticed your peer company, Chugai also discontinued a Claudin 6 T cell engager in October. Can I confirm that it might be an issue with the target of Claudin 6. Can you also give us any sense about the toxicity of the modified PBD construct? So that's my first question. Unknown Executive: Thank you for your question. Regarding mPBD. In terms of technology, yes, we confirmed that technology utility, as I mentioned earlier. And the reason we selected Claudin 6, there are several reasons. Therefore, we expected in this asset, but there are things that turned out as it's expected or unexpected. And in terms of science contents, we'll be discussing it in some medical conferences. So allow me not to touch upon those. But in terms of utility in the giant cell tumors, if we can confirm the efficacy, then technology-wise, it should be very good. And for that point, we could confirm. And also side effect was manageable as well. Therefore, amongst the difficult challenging technology with PBD, we believe that our technology utility level is high. And talking about the Claudin 6 in, giant cell tumors, can't it be developed for this particular type of tumor. Well, I think it is possible. Therefore, any companies interested in this may consider development, including in-licensing. But what about the business viabilities or in terms of portfolio. Well, given our business portfolio overall, we decided to discontinue. That is the background reason. Did I answer to your question? Tony Ren: Yes. Yes, answered very well. I was mostly concerned about the toxicity. My second and the last question is about your CapEx plan. So Nikkei Asia reported that you guys were considering spending JPY 300, that is close to USD 2 billion on CapEx, right, in 4 different countries, Germany, Japan, U.S. and China. This obviously feels pretty big in relation to the JPY 800 billion in CapEx you guys already disclosed in the last 5-year plan. Can I confirm that this JPY 300 billion is in addition to above and beyond the JPY 800 billion already committed? Unknown Executive: Thank you for your question about our CapEx. Well, it is not a new additional investment. So what we announced is as we have been explaining so far within the range that we have been already talking about, this spending will be incurred. Therefore, there is nothing new, nothing additional to the CapEx that we have already announced. Tony Ren: Okay. So it is part of the JPY 800 billion already announced? Unknown Executive: Yes. Sorry. I'm not familiar with the articles detailed content. But yes, your understanding is correct. Operator: Thank you very much. So with that, we would like to conclude today's earnings call. Thank you for your participation today.

63天前Insight Analytics约5分钟阅读

4568.T 2025 Q3 财报电话会议

Kentaro Asakura: Ladies and gentlemen, thank you very much for your patience. Now we would like to start FY 2025 Third Quarter Financial Results Presentation. I am from Corporate Communications. My name is Asakura. I will be facilitating today's session. In this presentation, we are going to use Japanese and English. We have simultaneous interpretation service available. [Operator Instructions] We have uploaded Japanese and English presentation material in IR library on our corporate website. Whenever necessary, please feel free to download the material. Today's presenters are Mr. Ogawa, Senior Executive Officer, CFO; Mr. Abe, Head of R&D Division; and Mr. Ken Keller, Head of Global Oncology Business. Now Ogawa and Abe are going to take you through the financial results for the third quarter FY 2025, and then we are going to open the floor for the Q&A. Today's session will be recorded. I would like to ask for your cooperation. Now Ogawa-san, please. Koji Ogawa: This is Ogawa. Thank you for participating in Daiichi Sankyo's earnings briefing today despite your busy schedule. Now I will explain the consolidated financial results for the third quarter of fiscal year 2025 announced at 15:00 today based on the materials. Please look at Slide 3. The content I will discuss today is as follows. Fiscal year 2025 third quarter consolidated financial results, business update, research and development update. The research and development update will be explained by Abe, Head of R&D Unit. We will take your questions at the end. Please look at Slide 4. These are the highlights of the current earnings. Our flagship products, the anticancer agents, ENHERTU and DATROWAY continued to grow steadily and revenue increased significantly. The cost of sales ratio improved compared to the second quarter and core operating profit increased by 8.8% year-on-year. No additional major temporary expenses were incurred in the third quarter. There are no changes to the fiscal year 2025 consolidated earnings forecast from the October announcement. Please note that as reference information, the latest sales forecast for each product are listed in the supplementary earnings materials. Although there are some movements in individual products, there is no change in total revenue from the October announcement. Please look at Slide 5. This slide shows an overview of the fiscal year 2025 third quarter consolidated financial results. The revenue was JPY 1,533.5 billion, an increase of JPY 165.9 billion or 12.1% year-on-year. Cost of sales increased by JPY 13.8 billion year-on-year. SG&A expenses increased by JPY 93.7 billion, and R&D expenses increased by JPY 38.1 billion. As a result, core operating profit was JPY 249.2 billion, an increase of JPY 20.2 billion or 8.8% year-on-year. Operating profit, including temporary income and expenses, was JPY 233.8 billion, a decrease of JPY 14.5 billion or 5.9% year-on-year and profit attributable to owners of the company was JPY 217.4 billion, an increase of JPY 8.8 billion or 4.2% year-on-year. Regarding actual exchange rates, the dollar was JPY 148.75, yen appreciation of JPY 3.81 compared to the same period last year and the euro was JPY 171.84, yen depreciation of JPY 7.02 compared to the same period last year. Please look at Slide 6. From here, I will explain the factors for increases and decreases compared to the same period last year. Revenue increased by JPY 165.9 billion year-on-year, and I will explain the breakdown by business unit. First, for the Japan business unit and others. Sales of DATROWAY, Belsomra for the treatment of insomnia and Lixiana, direct oral anticoagulant and Tarlige, the pain treatment drug increased. On the other hand, sales of Inavir, influenza treatment drug decreased. And unrealized profit on inventory of Daiichi Sankyo Espha was recorded as realized profit in the previous period, resulting in a revenue increase of JPY 10.7 billion. The actual increase or decrease in the vaccine business, which is affected by seasonal demand after provision for returns was an increase of JPY 300 million. Next, I will explain the overseas business units. Here, the foreign exchange impact is excluded. Oncology business increased by JPY 113.3 billion due to growth in sales of ENHERTU and contribution of at DATROWAY sales. American region decreased by JPY 24.3 billion due to the impact of generic entry for the iron deficiency anemia treatment, Venofer, and the impact of price competition for Injectafer. EU Specialty business increased by JPY 13.6 billion due to growth in sales of Nilemdo/Nustendi for the treatment of hypercholesterolemia. ASCA business, responsible for Asia and Latin America increased by JPY 35 billion as ENHERTU grew mainly in China and Brazil. Contract upfront payments and development sales milestones related to partnerships with AstraZeneca and U.S. Merck in the third quarter resulted in an increase of JPY 20.9 billion. We received development milestone income from AstraZeneca associated with approval for first-line treatment of HER2-positive breast cancer in the U.S. for DESTINY-Breast09 and received a second upfront payment from U.S. Merck for R-DXd, which were recorded as sales revenue. The foreign exchange impact on revenue decrease was JPY 3.3 billion overall. Slide 7 shows the factors for increase and decrease in core operating profit. I will explain the JPY 20.2 billion increase by item. As explained earlier, revenue increased by JPY 165.9 billion, including a foreign exchange impact decrease of JPY 3.3 billion. Next, regarding the cost of sales and expenses. Excluding the foreign exchange impact, Cost of sales increased by JPY 12.4 billion due to increased revenue and the recording of inventory valuation losses for ENHERTU and others in the second quarter. SG&A expenses increased by JPY 100.3 billion, mainly due to an increase in profit sharing with AstraZeneca. R&D expenses increased by JPY 42.6 billion due to increased R&D investment associated with development progress of 5DXd ADCs. The expense decrease due to foreign exchange impact was JPY 9.7 billion in total and the actual increase in core operating profit, excluding the ForEx impact was JPY 13.8 billion. Next, on Slide 8, I will explain the profit attributable to owners of the company. As explained earlier, core operating profit increased by JPY 20.2 billion, including the impact of ForEx. Regarding the temporary revenue and expenses, again, as explained at the second quarter briefing in late October, same period last year included temporary income from the sale of shares in Daiichi Sankyo Espha. However, this year, we don't have such impact. Although there were incomes related to litigation with former shareholders of Ranbaxy, overall income decreased. Furthermore, there was a JPY 34.7 billion negative impact due to CMO compensation fee associated with the change in the launch timing of HER3-DXd as well as write-down of inventories of DATROWAY and HER3-DXd. Financial income and expenses contributed positively to earnings by JPY 9.5 billion, mainly due to improved FX gains and losses. Income taxes and so on decreased by JPY 13.9 billion, reflecting lower pretax income and the lower effective tax rate compared to the same period last year. As a result, profit attributable to owners of the company increased by JPY 8.8 billion year-on-year to JPY 217.4 billion. Next is business update. Please turn to Slide 10. This slide shows the sales performance of ENHERTU. Global product sales for the third quarter of FY 2025 increased by JPY 102.4 billion year-on-year to JPY 506.8 billion. New patient share remains #1 in all major countries and regions for existing indications such as breast cancer, gastric cancer and lung cancer. Regarding the new indications, we've started promotion for first-line treatment of HER2-positive breast cancer in the U.S. last December, driving growth in new patient share. In China, we've initiated promotion for hormone-positive HER2 low or ultra-low chemo-naive breast cancer patients in December, followed by promotion for second-line treatment of HER2-positive gastric cancer in January. The NCCN guideline has seen new additions and updates for multiple cancer types. First, ENHERTU has been newly added as a Category 1 recommendation for adjuvant therapy in HER2-positive breast cancer with high recurrence risk. For HER2-positive metastatic breast cancer, HER2 monotherapy was already recommended as first-line therapy based on data from the DESTINY-Breast03 trial, a second-line trial, which demonstrated extremely high efficacy. Additionally, based on data from the DESTINY-Breast09 trial, combination therapy with pertuzumab has been newly added with a category 2A recommendation. For HER2-positive uterine cancer, in addition to existing recommendations for endometrial cancer, ENHERTU has been newly listed with a Category 2A recommendation for endometrial carcinosarcoma. For HER2-positive esophageal and gastric cancers, the recommendation level has been elevated from Category 2A to category 1. ENHERTU is already listed in the NCCN guidelines for numerous cancer types and is recommended for use. We'll continue to generate data to pursue further new listings and category updates. Next, I will explain the sales status of DATROWAY. Please refer to Slide 11. Global product sales for the third quarter fiscal 2025 reached JPY 31.6 billion, representing 83.8% of the October forecast. In addition to steady market penetration for the breast cancer indication in Japan and in the U.S., the lung cancer indication rapidly gained market traction in the U.S., significantly increasing the number of new patients. Globally, prescriptions were issued to over 3,000 cumulative patients, approximately 1.5x more than the end of the previous quarter. Sales growth significantly exceeded expectations in both the U.S. and Japan with lung cancer indication, particularly driving sales in the U.S. Given these circumstances, we've updated our full year forecast to JPY 47 billion, up by JPY 9.2 billion from the October forecast. For both breast cancer and lung cancer, prescriptions have expanded beyond the projections. This is primarily due to much higher-than-expected unmet needs, especially in the third line and later, leading to prescriptions for more patients than expected. Additionally, awareness among health care professionals regarding AE management such as stomatitis and dry eye, an area where we have focused on since the launch has increased and experience is being accumulated. Furthermore, DATROWAY has seen new additions and updates in the NCCN guidelines. For triple-negative breast cancer, it's been newly added as a Category 2A recommendation for first-line treatment. For EGFR mutated NSCLC, recommended EGFR mutation coverage has been expanded from the existing category to existing, widening the opportunity for DATROWAY to make further contribution. We'll continue to pursue further market penetration in existing sales regions and expand into new countries and regions while advancing efforts to obtain new indications. We are committed to delivering ENHERTU and DATROWAY to as many patients as possible who need these medications. Slide 12 shows an update on Seagen U.S. patent dispute related to our ADC. Last December, the U.S. Court of Appeals for the Federal Circuit issued a ruling reversing the District Court's decision that ordered us to pay damages and royalties to Seagen, finding that Seagen's U.S. patent was invalid. The court issued a ruling affirming the U.S. Patent and Trademark Office decision that Seagen's U.S. patent is invalid, dismissing Seagen's appeal. We highly value this ruling by the court. Slide 13 is information about the briefing session. On April 8, Japan time, we will hold the sixth 5-year business plan briefing. Once details are finalized, we will inform you. From here, this is the R&D update. I will hand it over to Abe, Head of R&D. Yuki Abe: Thank you. This is Abe. I will talk about the R&D update. First, I will explain about 5DXd ADCs. Next slide, please. In December last year, ENHERTU in combination therapy with pertuzumab obtained approval for the first-line treatment of the patients with HER2-positive unresectable or metastatic breast cancer in the U.S. As you know, this indication based on the DB09 study was approved under breakthrough therapy designation, priority review and real-time oncology review program. Regulatory filings have also been accepted in Japan, China and Europe. And through Project Orbis, multiple regulatory authorities are proceeding with reviews. Next, please. I will talk about the final analysis results of the DESTINY-Breast03 study presented at the San Antonio Breast Cancer Symposium in December last year. This is a Phase III study that compared and verified the efficacy and safety of ENHERTU and T-DM1 for second-line treatment of HER2-positive breast cancer. As you can see in ENHERTU group, the median OS was 56.4 months and estimated 5-year survival rate was 48.1%, showing long-term significant efficacy compared to the T-DM1 group's median OS of 42.7 months and estimated 5-year survival rate of 36.9%. In addition, no new safety findings were observed through long-term follow-up. And the incidence rate of ILD adjudicated to be drug related in the ENHERTU group was 17.5% with no Grade 4 or 5 ILD observed. This indication has already been approved and launched in many countries and regions, including Japan, the U.S. and Europe. But these results reconfirmed ENHERTU's consistent sustained efficacy and long-term safety and substantiated its contribution to improving survival. Next, please. This slide summarizes updates toward expanding indications for ENHERTU. ENHERTU is making steady progress in expanding indications in various countries and regions centered around breast cancer. And in December last year, based on the results of DB05 for post neoadjuvant therapy for HER2-positive breast cancer with high recurrence risk, it received breakthrough therapy designation in the U.S. Also in December, based on the results of DB06, approval was obtained in China for the indication of chemotherapy naive hormone receptor positive and HER2 low or HER2 ultra low breast cancer. And this month, based on the results of DG04, approval was obtained in China for the indication of second and later line treatments for HER2-positive gastric cancer. Previously, in China, third-line treatment for HER2-positive gastric cancer had conditional approval. But with this approval, full approval has been obtained for second and later-line treatment. Next, please. This slide shows the progress of each ENHERTU study. Aiming to contribute to more HER2-expressing cancers, we started DESTINY-Lung06 in October last year, targeting first-line treatment of HER2 overexpressing non-squamous NSCLC. And in December last year, we started the randomized phase of DESTINY-Ovarian01 targeting first-line maintenance therapy for HER2-expressing ovarian cancer and DESTINY-Endometrial-02 evaluating adjuvant therapy for HER2-expressing endometrial cancer. Next slide, please. From here, this is the progress of DATROWAY. Data from the TROPION-Breast02 trial targeting TNBC not eligible for PD-1, PD-L1 inhibitor treatment was presented at ESMO in October last year. Based on this data, filings for approval were submitted in Europe and China and were accepted in December last year. Procedures toward filing are also progressing in other countries and regions. For TNBC, as shown in the table on the left, in addition to the TB02, 3 Phase III studies are ongoing in early stage and recurrent metastatic stage. Next, please. This slide introduces new Phase III trial. The TROPION-Lung17 trial compares DATROWAY monotherapy with docetaxel in patients with non-squamous NSCLC in second line or later setting. Building on insights from prior studies such as TROPION-Lung01, we target at patients with TROP-2 NMR biomarker positive. This trial aims to expand the treatment opportunity for DATROWAY monotherapy in NSCLC. Next slide. This slide introduces the latest status of the ongoing DATROWAY trials. The first is the TROPION-Lung07 trial, which targets first-line treatment for non-squamous NSCLC with PD-L1 expression below 50%. This trial had not previously applied the TROP-2 NMR biomarker, but following a protocol amendment, PFS and OS in the TROP-2 NMR-positive population were newly added as primary endpoint. The second is the TROPION-Lung12 study. This is an adjuvant therapy trial for Stage 1 NSCLC with ctDNA positive or high-risk pathological features evaluating combination therapy with rilvegostomig. Regarding this trial, due to complexity of study operation, we've decided to discontinue patient recruitment. No new safety concerns were identified, and there is no impact on other DATROWAY trials. Next slide, please. From here onward, I would like to talk about the progress of next wave. For EZHARMIA, we are preparing a Phase I trial combining darolutamide with EZHARMIA for metastasic CRPC. Regarding DS-9606, a modified PBD ADC targeting Claudin 6, we've decided to discontinue its in-house development following a strategic portfolio review. Meanwhile, DS-3610, a STING agonist ADC introduced at last year's Science and Technology Day commenced its first in-human trial in November last year. This slide shows that EZHARMIA received Prime Minister's award. EZHARMIA was approved in Japan 2022 for the treatment of relapsed/refractory adult T-cell leukemia lymphoma and in 2024 for relapsed or refractory peripheral T-cell lymphoma. Japan was the first in the world to obtain approval. This time, in combination of health care -- in recognition of health care contribution through establishing a new cancer therapy targeting EZH1/2 epigenetic regulation, we've received the Prime Minister's award at the 8th Japan Medical Research and Development Awards following Enhertu's award at the 6th ceremony. We are extremely pleased that the drug independently developed by Daiichi Sankyo is contributing to patients' treatment and that its achievement has been recognized by the society. Finally, news flow from now onward. Regarding upcoming regulatory decisions, we anticipate review results for DESTINY-Breast11 trial from the U.S. FDA in the first half of next fiscal year. As for the upcoming key data readouts, for the DESTINY-Lung04 trial of ENHERTU for the first-line therapy of HER2-mutated NSCLC, data is expected in the first half of next fiscal year. For the TROPION-Lung07 and Lung08 trials of DATROWAY for first line of NSCLC, data is expected in the second half of next fiscal year. Furthermore, AVANZAR trial data is now expected in the second half of calendar year 2026. Additionally, data from TROPION-Lung 15 trial, which targets EGFR mutated NSCLC after osimertinib is still expected in the next fiscal year as previously planned. Slide 29 and onwards are appendix. Please take a look at those slides later. That's all from myself. Operator: [Operator Instructions] The first question is from Yamaguchi-san, Citigroup. The sound is back now to the translation line. Sorry, we missed the question from Yamaguchi-san. Unknown Executive: Well, regarding 9606, we stated that our in-house development will be discontinued. As we proceeded in our development, we had the result. And regarding mPBD itself, its utility was confirmed. Hidemaru Yamaguchi: And then how should we do moving forward? Unknown Executive: We may have an option taking partnership with other companies who may be interested in out-licensing of this asset, but in-house development will be discontinued. Therefore, regarding mPBD technology, its usefulness has been confirmed. Therefore, the subsequent researches are ongoing. Therefore, changing the targets, the clinical programs will continue. That is our policy. Hidemaru Yamaguchi: So I'm sorry. But including the competition, for clothing -- regarding 9606, given the strategic value, you decided not to do it on your own. Is that right? Unknown Executive: In giant cell tumor, we had a positive result. So there is a room of making more development in that area. But given the portfolio perspective, we decided not to continue the in-house development in this field. I see. Hidemaru Yamaguchi: Another question is ENHERTU marketing. First, starting from December, promotion started. And I'm sure if it's already appearing quantitatively in the numbers, but what is your feeling in the market, DB09 marketing promotional activities, how effective the activities are producing the results? Unknown Executive: Thank you for your question. Regarding DB09 current status, Ken Keller is going to give you a comment, please. Joseph Kenneth Keller: Yes. Thank you very much for the question. So DESTINY-Breast09, which is the first-line HER2-positive metastatic breast cancer indication, it's been launched in the U.S. The team is now educating our oncology customers in the U.S. The data, as you know, is really outstanding. It's being received very, very well. I would expect the adoption to be very, very quick. At this point, the oncology community knows ENHERTU very well. They're comfortable with it. And with this data, I think they will embrace it very quickly. Hidemaru Yamaguchi: Do you have some sense of penetration rate as of today or it's too early to say? Joseph Kenneth Keller: It is too early to say what it is. We just launched it really just a little while ago. And so we'll be able to provide you with more information in about a quarter from now. Operator: Next question is from Daiwa Securities, Hashiguchi-san. Kazuaki Hashiguchi: This is Hashiguchi speaking. My first question is related to ENHERTU Japan, your sales situation. So this time, you have made a downward revision of your forecast slightly compared to the original forecast, what's going -- what is going differently? What is the background for you to take your forecast downward? Can you explain about the reason and the background for that? Unknown Executive: Yes, I would like to make one comment first, and then I would like to ask Ken Keller to make some additional comments. In Europe, we are seeing some adjustment. When we look at the quarter-on-quarter situation in Europe, there has been a change to the ERP system. As a result, we had to do some shipment in the second quarter, and that was affecting the quarterly sales. But I would like to ask Ken Keller to comment on the situation in Europe and sales from a full year sales perspective. Joseph Kenneth Keller: Thank you very much. When we look at ENHERTU in Europe, we're in a situation where all of the countries have launched the HER2-positive second-line metastatic breast cancer indication. And the market share, the penetration has already achieved a very, very high level. And so we see continued growth in that setting. But now as we look forward, we're going to see substantial growth in Europe as the different countries obtain access for the HER2-low indication. We've got the HER2-low indication in most countries in Europe, but now we're working through the typical reimbursement approval. As these occur, you'll see an acceleration of growth in Europe. Kazuaki Hashiguchi: For Japan, what's the situation in Japan? Unknown Executive: Yes. Let me respond to that question regarding Japan. Last year, in April, we had seen some impact. NHI drug price revision just before -- just before the start timing in April, we had seen some last minute on demand and that impact still lingered. Overall, ENHERTU future growth trajectory in Japan remains unchanged. Kazuaki Hashiguchi: Next, DATROWAY NSCLC Phase III trial progress, that's what I would like to understand. Avanzar study was changed from the first half to the second half in terms of the timing. And for TL07, your disclosure was always saying that FY 2026, but AstraZeneca is saying first half of the calendar year. And in your fiscal year, latter half, you've made a timing change to the latter half of your fiscal year. And what is the reason behind this timing change? Unknown Executive: Thank you very much, Mr. Hashiguchi. First, regarding AVANZAR, enrollment has been complete. And with the event -- with the incidence of event, we understand that there has been change made, and that's all we know. And for TL07, 08, we've disclosed second half of this fiscal year. So it's still being in line with our initial plan. Kazuaki Hashiguchi: Regarding 07, primary endpoint was added this time. And so when you get the overall primary endpoint data, I guess you are going to make a disclosure. Is that the case? Or if you collect -- can collect the data on already set endpoint, are you going to disclose those endpoints first or like all of them altogether? Unknown Executive: Thank you very much for your question. Regarding 07, NMR biomarker has been added to primary endpoint, as we have explained. And next year, second half, the PFS data is expected to be disclosed. So whenever we have event, we are going to make a disclosure. And as we have experienced at AVANZAR, when event becomes long or takes longer, then the timing of the disclosure may come later. But when that happens, we are going to communicate to you. This time it's protocol amendment, with regard to that, we've had a lot of sufficient discussion. And what's more important here is that is that we are going to get the positive study results. So we do our best, and we continue this study. Operator: Next question is Sakai-san from UBS. Fumiyoshi Sakai: This is Sakai, UBS. My first question is about the follow-up question of TL-07. There are 4 primary endpoints now. Is that right? And then what is the hierarchy of the statistical analysis? And how should we consider the alpha? And TL-08 and 10, don't you have to change their primary endpoints? Unknown Executive: Thank you for your questions. Whether or not in total, there are 4 endpoints in ITT and NMR positive population, PFS and OS will be evaluated as primary endpoints. And as a result, how we will be leading to the filing, we will consider risks and benefits, taking a look at the study results and make a strategy for filing. Therefore, at this point in time, which is going to be included or not, I may have to expect that anything is not yet definite. Therefore, I'd like to reserve my comment this time. But based upon data, we will proceed our filing. Fumiyoshi Sakai: What about 08 and 07. Unknown Executive: regarding TL-08, we are also having discussion. And we are currently considering to include NMR as of today. And if we decide and add to this change, then we will also let you know. Concerning TL10, we don't have any idea at the moment to make such an aggressive change. Fumiyoshi Sakai: Second question is the inventory write-down on the balance sheet. I think it was towards the end of the year, and it increased remarkably. What are the items contributed to that increase? And like the past case, don't we have to worry about any potential write-off of inventories? Unknown Executive: Thank you for your question. At this point in time, there is no potential impairment we anticipate. So that's one point. And for ENHERTU and DATROWAY, overall, they are accelerating the growth globally. And especially the stock takings are accumulating in the U.S. for the purpose of growth, and that is affecting most. Operator: Next question is from BofA Securities, Mamegano-san. Koichi Mamegano: I am Mamegano from BofA Securities. I would like to make one clarification on IDX. Phase III trial received a clinical hold, but I heard that this clinical study was reconvened -- recommenced. Is that the case? And for this, I think it was a trial to support the filing. And can you tell me like whether you've made -- you've submitted the filing already or not? Unknown Executive: Yes. Thank you very much for your question. And sorry that we've concerned you I-DXd, we've received a partial clinical hold, and it's been lifted already. However, I would like to explain the current situation. ED8-Lung-02 study shows ILD series serious, may have ILD serious cases and our R&D team came to realize that and we stopped the patient recruitment, and we made a report to the FDA. And then FDA has issued partial clinical hold and that's been already disclosed -- sorry, that's been already lifted. But in a meantime, ourselves and Merck decided to have a more strict risk management for ILD. So ILD high-risk patients are now excluded from the trial, and we have more strict inclusion criteria. Independent data monitoring data is looking at the safety and efficacy data more frequently. And on top of that, participating investigators and clinical site staff are receiving additional education and updated training amendment of protocol, ILD symptoms and ILD management are now more thoroughly implemented with those partial clinical hold has been lifted. Koichi Mamegano: And for ED801 study submission. What is the impact on the filing? Unknown Executive: There is no impact on such filing. So we are having a discussion with the regulatory authorities in different countries and regions. And we stick to the original time line. That's all. Koichi Mamegano: One more question. You're going to announce MTP, midterm business plan in April. And that's -- with regard to DATROWAY, I'm sure this is a growth driver for you. But now you have a AVANZA trial. And in the second half, you're going to have top line result. And in midterm business plan, DATROWAY's assumption. How should we expect DATROWAY's assumption to be laid out in the MTP? Unknown Executive: Thank you very much for your question. Well, we would like to make a detailed presentation on MTP when we make announcement. So I can't make a detailed comment at this point of time. But DATROWAY study result such as AVANZA study result and the others will make a big difference in coming 5 years business. So when we make announcement of MTP, we will explain about the assumptions and the scenario on which MTPs being formulated. We would like to offer you as much explanation as possible. Operator: Next question is from Ueda-San, Goldman Sachs Securities. Akinori Ueda: This is Ueda, Goldman Sachs. I have a question about clinical trials of DATROWAY. This time, TROPION-Lung07, which biomarkers were used. As a result, enrollment increased in terms of number of patients and the data affect to the data announcement timing? Or do you think that you still need to review all those? And also for 08 study, biomarker usage is now under review. And if you decide to use it, then should we anticipate that the timing of announcement will be changing. Unknown Executive: Thank you for your question. Regarding the timing, this time, the enrolled patients numbers have been increased and already we completed enrollment. Therefore, there is no delay anticipated. It's already complete. But as we experienced with AVANZAR, if any events happen and causing any delay, we will let you know. So for the enrollment of the patients compared to the original plan, we added on NMR, and we have already completed the enrollment. Did I answer to your question? Akinori Ueda: Yes. And it's the same situation for 08? Unknown Executive: Regarding 08, as of today, I'm sorry, I cannot comment in details, but a similar strategy is taken to move forward. Akinori Ueda: I understood. My second question is about ENHERTU indication expansion impact. First, in the first-line treatment, as you expand the indication more, I think the sales will be accelerated. And already in the U.S. DB09 positive results has been disclosed. And as a result, do you see already some positive impact in the clinical practice? Or can we expect more acceleration of the sales expansion? And DB05 and 11, those approvals are also expected. And number of patients seems to be big. But given the number of cycles of treatment, I may consider 09 contribution may be big or if actual the target population expands and if the clinical practices are conducted more efficiently, then there will be also a major contribution expected from 11's result. Which way do you consider? Unknown Executive: For this question, Ken Keller will answer to your question. Joseph Kenneth Keller: So if I heard the question correctly -- we're already seeing some spontaneous use in DESTINY-Breast09, from almost the moment when that data became public. So we are seeing people adopting it and using it already, even though commercially, we've launched this just a little while ago. As we project out to the early-stage breast cancer settings of DESTINY-Breast11 and 05, in these early settings, the goal is cure. And both of these studies provide standard of care changing new data. And I expect them and everything we're hearing from the community is that they will -- it will be embraced very, very quickly. Did that answer your question? Operator: Next question is from JPMorgan Securities, Mr. Wakao, please. Seiji Wakao: This is Wakao from JPMorgan. My first question is as follows. This time, you didn't have a temporary expense. But wasn't there any special factor? And then for the CMO compensation fee, I thought that there is something which is still under negotiation. What's the status right now? Unknown Executive: Temporary expense that we disclosed. And on top of that, is there anything else? The answer is no. And going forward, with regard to the CMO compensation fee, we did -- if we scrutinize the situation and when something comes up, we are going to disclose. But at this point of time, we don't -- we haven't identified any outstanding remaining compensation fee that we need to pay to CMO. Seiji Wakao: When are we going to see the conclusion of this? Unknown Executive: We are having an ongoing discussion with CMO and we cannot determine when is the expected timing of the conclusion of this negotiation. Seiji Wakao: TL-07 and 08, you are now adding NMR marker -- biomarker. And can you explain about the background why you've decided to do so? I understand that you are trying to improve the probability of success. But if you are confident in the result of Dato, I don't think it was necessary, but what's the reason behind? Unknown Executive: Thank you very much for your question. We've had a lot of internal discussion on that. And at one point of time, we thought that this biomarker is not necessary. But pembrolizumab and Dato-DXd, as we have experienced in breast cancer, these 2 are good match. And for lung cancer -- in lung cancer, patients are hetero as based on our experience. So NMR biomarker in lung cancer is very critical. That's one of the reasons. And although you haven't asked this, but TL-17 NMR biomarker study is going to take place. So in the area of lung cancer, with the existence of biomarker, we can offer better benefit to the patients. And in 07, 08, by using biomarker, we can enhance the probability of success. That's why we've decided to add biomarker in the protocol. Seiji Wakao: So I understand that you've discussed with FDA on this. And for NMR-positive population, if you meet endpoint, I would understand that you can successfully make submission and of course, depending on the data, but I think you can get the approval from FDA. Unknown Executive: Yes, we've consulted with FDA before we amended protocol. And it all depends on how good our clinical trial result is. MTP is to be announced in April. The other day, in the JPMorgan Healthcare Conference, CEO mentioned regarding the profit outlook into 5 years. So in 5 years from now, you have a sales milestone for ENHERTU, and you have cliff with Lixiana. So the profit somewhat may decline. However, if things go well, you can make some growth. Seiji Wakao: And I think that's the outline of the message of you. But can you explain about that once again? Unknown Executive: Well, with regard to the next MTP to be announced in April, I am very sorry, but we cannot offer you any detailed comment because we are having an ongoing discussion to formulate MTP. Lixiana, LOE, Injectafers being impacted by generic, you understand those things quite well. Those would be the downside factor, negative factors. So with 5 ADC growth, we are hoping to catch up or compensate those decline as much as possible. And that's all I can tell you for now, but we are still committed to improve profitability and that's the baseline for the next MTP. Operator: Next question is Muraoka-san, Morgan Stanley MUFG Securities. Shinichiro Muraoka: I'm Muraoka from Morgan Stanley. I have a follow-up question about Wakao-san's conference-related item. I'd like to understand the wording exactly. Did you say decline or a slight decline? And I think it depends on how much inclusion you assumed. And if you included Dato conservatively, is it a decline or slight decline? Could you share that part once again with us? Unknown Executive: In terms of wording, the word we used is slight decline. And overcoming the factors against the profit, we will be putting ourselves back on track for growth. And in that context, this wording was used. But how much -- I'm sorry, we cannot talk about it specifically. But at any rate, there would be some directions, negative direction putting us downside, but we would like to recover from that as much as possible and all those measures will be incorporated in our 5-year business plan. So if it is a slight decline, then I think naturally thinking you should be able to achieve a V-shaped recovery after that. Shinichiro Muraoka: Another question is smuggling point, are you going to make acquisition by the time of next 5-year business plan? And how many deals at what the scale? Unknown Executive: Well, excuse me, what you're asking about is to acquire external assets? Shinichiro Muraoka: Yes, yes. Unknown Executive: At this point in time, we don't have anything that we can talk about. But again, in our 5-year business plan, we look at our pipeline, especially in early-stage pipelines, if there are anything which we can expect working as a complementary, we would like to pursue toward the growth during the 5-year business plan and beyond, we'd like to explore externally any good candidates of assets. So that strategy is unchanged. And before the announcement of April, the announcement of the 5-year business plan, nothing is now moving at the moment in this regard. Shinichiro Muraoka: And just one more point. Well, actually, your stock price went down much, but it came back quite quickly. Did you conduct a buyback, share buyback? It is a sharp decline and recovery. So I think probably in the next week, you will disclose whether you conducted the share buyback or not. But could you comment regarding share buyback, as we have been talking about it. Unknown Executive: We will take into the stock price and others, and we make a comprehensive review and make a decision. And so far, on a monthly basis, we have the timely disclosure in the first operating day. And on that timing, we will continue disclosing the information. Operator: Next question is from Bernstein, Sogi-san. Miki Sogi: Regarding TL-07 and TL-08, I have question. NMR biomarker is now added in the primary endpoint. And I think this is a good news. Regarding this, I have 2 questions. Regarding 07, 08, it was a combination with KEYTRUDA and you use NMR and then this will increase the probability of success. And I think it will have a big commercial impact because you can combine with standard of care KEYTRUDA. 07, 08, for those 2 studies, I think you are done with the patient recruitment. And within 12 months, the result will be presented. So you have come to this end. Now you're making amendment. But you've got the kind of like consensus from the FDA. Does that mean that FDA understands the significance of NMR as a biomarker? Unknown Executive: Thank you very much. In terms of the marketability, I would like to ask Ken Keller to make some comment. And I would like to respond to your second part of your question, whether -- how FDA sees the significance of NMR. Well, this relates to the discussion of contents of FDA, so I can't make any comment. But by including biomarker, our intention is to improve the probability of success of this trial. That was the main intention, and please allow me to repeat that point once again. And depending on the result, study result, we will consult with FDA and figure out how we want to do with the filing. Joseph Kenneth Keller: And the question in terms of adding in and working with the standard of care, you are absolutely correct. KEYTRUDA is clearly the market leader, and we've got a number of first-line non-small cell lung cancer studies with KEYTRUDA. And also, to remind you, we've got the AVANZAR study with Imfinzi which is AstraZeneca's I/O drug. So we feel that whatever the preference is of that specific oncologist, we're adding DATROWAY in a way that is very convenient, and it should lead to very quick confidence in our drug adding to whatever they prefer. Miki Sogi: Next, regarding MTP, regarding health care conference hosted by JPMorgan. I know you're announcing MTP in April, so you can't talk much about it now, but slight decline, as you say, with regard to profit, It's not margin. Are you talking about absolute amount? Is that correct, not margin? And also when the profit declines, the driver behind is, I guess, the aggressive R&D cost assumption. So in your case, 5 ADC has many trials and you have partners. So with regard to the R&D cost, I would assume that with AstraZeneca, Merck, you've already, I guess, made alignment on the cost. And I don't think you alone cannot make adjustment or changes by yourself, correct? Unknown Executive: With regard to the future R&D spending, splitting R&D cost between us and the partner has been determined. So we stick to that. Which study is to be dealt by who. This is different in different trial. And when we've made agreement and then we just stick to the cost split structure we've predetermined with the partner. During the MTP period, how are we going to control R&D cost? I think that's what you wanted to understand. So to that end, we have trials where we work with partners, and we have development that we take care of all by ourselves. So in coming 5 years, what are going to be -- which projects are we going to prioritize. That project prioritization and the resource allocation needs to be well managed. Miki Sogi: Okay. I have a follow-up question. In next 3 years -- well, in next 3 years, not 5 years, am I correct to understand that you've already had a lot of discussion with your partners as to what kind of trials are going to take place for what product. Unknown Executive: Yes, depending on the product, we are in a different stage. And for each product, we have formulated joint team. So rest assured, we have sufficient discussion going on between us and our partner through the joint team. And we stick to the priority that we decide on. Operator: The last question is from Tony Ren from Macquarie. Tony Ren: So I want to go back to your Claudin 6 ADC, the decision to discontinue DS-9606. My question is about the construct of the modified PBD construct. You mentioned its clinical utility has by now been established. Can I confirm that the decision -- because I also noticed your peer company, Chugai also discontinued a Claudin 6 T cell engager in October. Can I confirm that it might be an issue with the target of Claudin 6. Can you also give us any sense about the toxicity of the modified PBD construct? So that's my first question. Unknown Executive: Thank you for your question. Regarding mPBD. In terms of technology, yes, we confirmed that technology utility, as I mentioned earlier. And the reason we selected Claudin 6, there are several reasons. Therefore, we expected in this asset, but there are things that turned out as it's expected or unexpected. And in terms of science contents, we'll be discussing it in some medical conferences. So allow me not to touch upon those. But in terms of utility in the giant cell tumors, if we can confirm the efficacy, then technology-wise, it should be very good. And for that point, we could confirm. And also side effect was manageable as well. Therefore, amongst the difficult challenging technology with PBD, we believe that our technology utility level is high. And talking about the Claudin 6 in, giant cell tumors, can't it be developed for this particular type of tumor. Well, I think it is possible. Therefore, any companies interested in this may consider development, including in-licensing. But what about the business viabilities or in terms of portfolio. Well, given our business portfolio overall, we decided to discontinue. That is the background reason. Did I answer to your question? Tony Ren: Yes. Yes, answered very well. I was mostly concerned about the toxicity. My second and the last question is about your CapEx plan. So Nikkei Asia reported that you guys were considering spending JPY 300, that is close to USD 2 billion on CapEx, right, in 4 different countries, Germany, Japan, U.S. and China. This obviously feels pretty big in relation to the JPY 800 billion in CapEx you guys already disclosed in the last 5-year plan. Can I confirm that this JPY 300 billion is in addition to above and beyond the JPY 800 billion already committed? Unknown Executive: Thank you for your question about our CapEx. Well, it is not a new additional investment. So what we announced is as we have been explaining so far within the range that we have been already talking about, this spending will be incurred. Therefore, there is nothing new, nothing additional to the CapEx that we have already announced. Tony Ren: Okay. So it is part of the JPY 800 billion already announced? Unknown Executive: Yes. Sorry. I'm not familiar with the articles detailed content. But yes, your understanding is correct. Operator: Thank you very much. So with that, we would like to conclude today's earnings call. Thank you for your participation today.

63天前Insight Analytics约5分钟阅读

005380.KS 2025 Q3 财报电话会议

Michael Yun: Hello. This is Michael Yun, Head of IR Group. Welcome, everyone, to Hyundai Motor Company's 2025 Q3 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for participating in today's call. Please refer to the presentation HMC 2025 Q3 business results on our IR website. This presentation includes quarterly key messages, sales performance and profit analysis and for quarterly summarized cash flow statement and detailed regional sales breakdowns, please refer to the appendix. First, Q3 key messages. Despite concerns over tariff impact and the resulting slowdown in demand, strong sales performance led to the highest third quarter revenue on record. Particularly in the U.S. market, we reached a record high quarterly market share of 6.3% post-COVID, driven by strong sales of volume models and hybrids such as the Palisade. This led to an all-time high hybrid sales mix of 20.4%. Finally, following the previous quarter in which the combined share of hybrid and Genesis sales surpassed 20% for the first time ever, this third quarter also recorded 29%. Next, the sales performance. In the third quarter of 2025, global wholesale records recorded 1.04 million units, an increase of 2.6% compared to the previous year, while retail sales also reached 1.04 million units, reflecting a 4.8% increase year-over-year. Next, I will go over details about the increase or decrease in the wholesale sales through key market summaries. In the U.S. market, sales increased by 2.4% year-over-year, totaling 257,446 units. We continue to see strong growth led by SUV and hybrid sales and especially hybrids accounted for a record high 20.4% of total sales. Sales of eco-friendly vehicles, including EVs and hybrids, rose 16.4% year-over-year, reaching 70,680 units. Due to concentrated demand ahead of the termination of EV subsidy programs, EV retail sales surged 90.3% year-over-year. Going forward, we will leverage the launch of the new Palisade hybrid to drive incremental growth and strengthen our market share. In Europe, sales increased 8.3% year-over-year, totaling 150,123 units. Growth in key markets such as the U.K. during the September peak season as well as Turkiye and Spain contributed to the overall sales expansion in the region. Sales of eco-friendly vehicles rose 41.6% year-over-year, reaching 73,990 units, driven by a strategic increase in the share of electrified models. Despite reductions in EV subsidies across major markets, we continue to expand our EV sales mix, reaching 49.3%, driven by the strong performance of the in-store. We will pursue our annual sales targets through strategic allocation of new models such as the Inster and IONIQ 9 alongside optimized sales strategies tailored to each market. In the domestic market, sales increased by 6.3% year-over-year, totaling 180,558 units. Driven by the new model effects of the Palisade and IONIQ 9, we maintained a high proportion of the SUV sales. Sales of eco-friendly vehicles reached 69,259 units, a 28.7% year-over-year increase, supported by the strengthening of our EV lineup. Despite intensified competition from rival hybrid model launches, strong sales of the Palisade Hybrid drove hybrid sales to grow 22.6% year-on-year. Next, I will explain the sales analysis by vehicle types. Global SUV sales, including Genesis, totaled 659,024 units, accounting for 63.5% of total sales. Global passenger vehicle sales reached 327,099 units, representing 31.5% of total sales. The trend of a high proportion of SUVs continues, supported by the enhancement of our key SUV lineup, including the new Palisade. Eco-friendly vehicle sales increased by 24.8% year-on-year, driven by a shift towards eco-friendly models in Europe to meet emission regulations and strong sales in the U.S. market. EV sales rose 24.6% year-on-year, supported by robust EV growth in Europe, while hybrid sales continued their strong momentum, growing 22.9% year-on-year. This concludes the discussion on sales, and I will now provide an explanation regarding profits and losses. This page first summarizes our income statement. Consolidated revenue increased by 8.8% year-over-year to KRW 46.7 trillion, and operating income decreased by 29.2% year-over-year to KRW 2.5 trillion. The Automotive Division's revenue increased by 7.9% year-over-year due to favorable FX environment and expansion in high-value segment, especially hybrid vehicles. The operating profit decreased by 48.7% year-over-year with tariff impact in the U.S. market and general increase in incentives. Revenue from finance division increased by 10.7% year-over-year due to continuous growth in the U.S. market penetration rate and asset size. Operating profit increased by 32.4%. Net income decreased by 20.5% year-over-year to KRW 2.5 trillion. Next is quarterly revenue and operating income analysis. Revenue benefited from favorable exchange rates contributing KRW 849.3 billion and increased global wholesale sales added a volume effect of KRW 617.8 billion. Additionally, an improved mix driven by higher hybrid and Genesis sales contributed KRW 1.23 trillion. Combined with growth in the Financial segment, total revenue rose 8.8% year-on-year. Despite a record high third quarter revenue, unfavorable business conditions negatively impacted our profitability, including the full effect of tariffs, negative foreign exchange impact on sales warranty provisions due to quarter end exchange rate increase and higher incentives driven by intensified competition in key markets. Although contingency plan partially offset tariff effects, the operating profit decreased by 29.2% year-over-year. Our Q3 cost of goods sold ratio recorded 82.3%, a 2.1 percentage point increase year-over-year. SG&A recorded KRW 5.7 trillion, which is a 16.9% increase compared to last year due to the increase of marketing-related expenses and warranty. Finally, our net profit decreased by 20.5% to KRW 2.5 trillion. That concludes the end of the presentation of the 2025 Q3 business results. Thank you. Next, Executive Vice President, Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results in Q3. Seung Jo Lee: Good afternoon. This is Executive Vice President, Seung Jo Lee, Head of the Finance Division. I will now present Hyundai Motor Company Q3 2025 business performance and Q3 dividend and shareholder return policies. Sales revenue reached KRW 46.7 trillion, an increase of KRW 3.8 trillion compared to the same quarter last year. This was driven by strong sales in the North American market and an overall increase in sales volume. Additionally, the rising proportion of hybrid vehicle sales contributed to the growth along with increased sales of high-value models. Operating profit saw a KRW 1.8 trillion decline due to the full impact of tariffs. However, the tariff impact was partially offset by the proactive implementation of contingency plans. Moreover, due to the rising trends in average market incentives across major regions, incentives increased by KRW 212.1 billion compared to the same quarter last year. Despite a KRW 26 increase in the average won-dollar exchange rate compared to the same period last year, a sharp rise in the exchange rate at the end of the quarter resulted in a negative FX effect of KRW 280.7 billion. Nonetheless, the combined share of hybrid and Genesis vehicle sales based on wholesale volume reached 21%, surpassing the 20% mark for the second consecutive quarter of first in history. This improvement in fundamentals, along with active efforts to mitigate tariff impacts enabled the company to achieve operating profit of approximately KRW 2.5 trillion and an operating margin of 5.4%, in line with market consensus. For the full year 2025 performance, in line with the updated annual guidance shared during the recent CEO Investor Day, we expect to achieve a sales growth rate of 5% to 6% and an operating margin of 6% to 7%. Next, let me address the dividend for the third quarter of 2025. In accordance with the value of program announced in August 2024, we plan to distribute a quarterly dividend of KRW 2,500 per share for both common and preferred stocks. The record date for the Q3 dividend is November 30, and the payment date is December 31st. Next, I would like to elaborate on our approach for our shareholders' return policy, which targets a TSR of at least 35%. This shareholder return policy or TSR also reflects a dividend policy with a minimum payout ratio of 25%. And the basis for calculating TSR similar to the payout ratio is annual net income attributable to controlling shareholders. Accordingly, at the time of Q4 earnings call in January 2026, we plan to disclose the final dividend amount that meets the minimum TSR of 35%, along with plans for share repurchases or cancellations. Considering the timing required to calculate TSR based on final net income after the annual closing, we will provide further details then. We intend to maintain the same approach going forward. While share purchases and cancellations may be executed at any time during the year through Board resolutions, given the nature of our shareholder return policy, which is based on profit, the portion of share repurchases and cancellations required to meet the TSR target of 35% will be finalized at the time of annual results announcement. Despite an increasingly uncertain business environment driven by tariff impacts and other factors, we have been making every effort as an individual company to maximize profitability and strengthen fundamentals. This includes implementing contingency plan to actively offset the tariff impact. Additionally, the final agreement on a 15% tariff will reduce the burden compared to previous levels. In the mid to long term, we anticipate that this will contribute to achieving the annual operating profit target ranges outlined during the CEO Investor Day in September. We will provide additional communication to the market as soon as possible. We sincerely appreciate the continued support of our shareholders and investors. Thank you for listening. Michael Yun: Next, Vice President, Hyungseok Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q3 results for the finance business. Hyungseok Lee: Good afternoon. I'm Hyungseok Lee, Head of Finance at Hyundai Capital. Let me now present the finance sector's Q3 2025 performance and Q4 outlook. In the first quarter, Hyundai Capital and Hyundai Capital America continued to support vehicle sales as the group's captive finance companies, delivering solid results. I will now continue with the detailed performance by company. First is Hyundai Capital. Despite sluggish domestic demand and weakened consumer sentiment, we expanded collaboration with the group and launched specialized financing products for SUVs and Genesis models, driving active sales efforts. As a result, new car installment volume rose 40.1% year-over-year, leading to a 2.7% increase in product assets. The share of auto finance within total assets rose to 83%. Although loan interest income declined due to regulatory impact, lease interest income and gains on sales of loans receivable increased, resulting in a slight year-over-year growth in operating revenue, excluding FX effect and derivatives. We have achieved 75% of our annual funding target and including Green bonds in April, sustainability-linked bonds in July and social bonds in September, 21% of our domestic bonds were issued as ESG bonds. We also continued efforts to reduce funding costs through a diversified portfolio, including overseas bonds and ABS, leading to a 2.8% year-over-year decrease in interest expenses. In terms of asset soundness, while the capital industry overall saw deterioration due to real estate PF and unsecured loans, Hyundai Capital maintained a sound portfolio centered in auto finance and actively sold distressed debt. As a result, our delinquency rate hit a record low of 0.77% in Q3 and credit loss expenses also declined. Operating expenses fell 2.1% year-over-year and operating profit rose 34.7%. And including equity method gains from overseas subsidiaries, pretax profit increased 44.6% year-over-year. In the fourth quarter, we will continue our efforts to defend profitability through cost and funding efficiency, while proactively securing liquidity to strengthen financial stability amid rising market volatility. We also plan to ramp up operations at our newly launched Indonesian subsidiary in September and diversify our auto finance offerings to further support the group's global vehicle sales. Next is Hyundai Capital America or HCA. In the third quarter, supported by strong vehicle sales across the group, HCA's acquisition rate rose to 75.1%. Combined with expansion of EV lease volumes, total product assets grew 18.6% year-over-year. Driven by growth in eco-friendly vehicle leases and rising product interest rate, operating revenue increased 7.3% compared to the same period last year. On the funding side, HCA successfully issued USD 2 billion in bonds in September, achieving 88% of its annual funding target. Despite volatility in the U.S. financial market, cumulative bond issuance reached $11.3 billion this year. As a result, total borrowings increased and interest expenses rose 16.9% year-over-year in Q3. In terms of asset soundness, over 85% of customers are prime rated and less than 1% are subprime, reflecting our strict credit management. This contributed to a decline in delinquency rate. However, additional provisions were made in response to macroeconomic uncertainty and asset growth led to a 6.3% increase in operating expenses. Reflecting this, our operating profit rose 28% year-over-year. Looking ahead to Q4, we expect a challenging environment due to continued inflation, reduced consumer purchasing power, the termination of IRI subsidies and slowing demand. However, HCA has secured $19 billion in liquidity as of the end of September and is actively managing residual value risk through remarketing efforts. We will continue to strengthen business synergies with this group through sales finance collaboration, closely monitor market conditions and respond flexibly. This concludes my presentation. Thank you for listening. Michael Yun: With that, we will conclude the presentation and take your questions. Operator: [Operator Instructions] The first question will be provided by Paul Hwang from Citi Securities. Paul Hwang: [Interpreted] I am Hwang Paul from Citi Securities. I have two questions. First regarding tariffs, next regarding performance. So going on to my first question, so just today, to confirm that tariff will be 15%. You might not be able to give us much details, but what would be the overall direction now that you know that the tariff is set to 15%? For example, what would be the mid- to long-term strategy, and what will be the direction that Hyundai Motors will be taking? So if there's anything concrete or details that you could share, that would be appreciated. My second question is regarding performance. You did mention in Q3 that the effective tariff, what that was. But what are the non-tariff effects that will take into -- that you need to take into account? You said that you were able to buck off tariff by 40% in Q3 and mitigated by 5%. But is there any more room to further mitigate the impact of tariffs? And how can you quantify that effect by what? So is there an example that you give us? And finally, the effect of the mix -- the product mix, what do you see the changes in that in terms of Q4 and for the next year? Unknown Executive: [Interpreted] Thank you for your question. To answer your first question regarding tariffs, yes, we did see a good news regarding the 15% agreement on tariff. So that's very good news for us. But regarding specific numbers, the detailed numbers for the future, we still are in the process of calculating these numbers because the government has recently announced that it will be retrospectively reflected as of 1st of November. But the specific date and what direction the government is going to take has not been announced. So -- and I think the government is still in the process of trying to see how we can maximize the benefits on this. So my answer to your question would be that the numbers are still being calculated. So with the government's efforts making fruitful results, right? I think the biggest win for us was that the unclearness, the uncertainties regarding tariff is now cleared. We now know what the conclusion is. So that would -- we know -- we now know how to operate in the future, and we now have a clearer direction on which way we need to operate. So that will be the biggest benefit impact for us regarding non-price factors. Regarding what we can share in terms of any specific number strategies or our response, we have been emphasizing from the very beginning of the year that with the cost going up due to tariffs, this will be taken as an opportunity for us to re-diagnose what our core competitiveness is, what our capacity is and also an opportunity for us to change our fundamentals so that we can secure our future competitiveness. And as part of that process to improve our fundamentals, we are looking into identifying various collaborative projects that are out there, and we are regularly checking what performance are being made through these projects. So I will give you a couple of examples. I mean we do have plans for all of these projects, but we cannot share everything. So just to point out some of the key examples. In the past, we focus our cost saving efforts on new models. Of course, some efforts are being made for models that are already being produced. However, as of this year, we will be making same efforts for cost reductions, for not just the new cars, but also the cars that are already in production by improving the R&D competitiveness. And also with hybrid becoming ever more important, and we're also expanding sales of our hybrid models, and we are able to, through this effort, secure profitability that is pretty much on par with ICE vehicles as well. So we believe that improving and securing the cost competitiveness of hybrid systems are extremely important. And now we have made this opportunity where we can review the mid- to long-term cost structure of our hybrid model. Another example would be in the past, we were emphasizing how we are going to expand the commonization of parts, common use of parts. And now that is just a given. That is something that we need to do. But from now on, we're also trying to expand the common use and commonalities for manufacturing itself, how we can share the manufacturing cost and competitiveness is something that we're focusing on. So all the efforts that are currently in progress regarding these projects, we believe that the outcome and the actual performance will be seen as of next year. And you all know that during COVID-19, we were one of the key OEMs that were able to continue growth and take the prices as an opportunity for opportunity. So we do have that experience. And even right now, we believe that it will be a big chance for us to reflect on our key competitiveness and also to continue strengthening our competitiveness. Now to address your second question, what were some of the non-price efforts that were made to offset the tariff. Actually, we've already offset the tariff impact by 60% and a majority of the efforts that we have made are -- were non-price efforts rather than price, for example, saving the material costs and also regarding the current account. I think, we saved over KRW 700 billion in terms of the final effect. We also are looking to all other areas, for example, the product mix as well as the service areas. So I cannot really pinpoint out a specific area that we are looking into because we are covering everything in all areas regarding how we can save cost. As for the price area, like we said that we are trying to take the fast follower strategy, so we are closely monitoring the market to see what actions we can take and the decision will be made later on with that kind of monitoring result is seen. However, our key fundamental is not to hurt the customer value. And you also asked regarding what will be the mix impact for Q4 in next year. You already know that we are continuously trying to expand our sales proportion for hybrid and Genesis. So that effort will continue. And next year, we will be aggressively launching new cars, which will allow us to go into a golden model cycle. And with the launch of new cars, the incentive will obviously go down. So next year, we will continue to improve our mix. Operator: [Interpreted] The following question will be presented by Ji-Woong Yoo from DAOL Investment & Securities. Jiwoong Yoo: [Interpreted] I'm Yoo Ji-Woong from DAOL Securities. I have two questions. My first question is regarding the EV strategy in the U.S. market. As we see the fourth quarter, the sales volume will go down and then the incentives will go up, which will obviously help you to improve your profitability. However, someday when the subsidies are gone, then there should be a new strategy for you to make a reentry into this market. So I was wondering what kind of short term and also the long-term strategy in the coming years in 2027 and 2028. My next question is regarding our key models such as Palisade. So I know that you are currently making export to the U.S. market for our key models like Palisade and other SUVs. And like you said, the current situation of tariff rate going down from 25% to 15% is indeed favorable to HMC. However, if you see our competitors -- your competitors that in the mid-SUV segment, a lot of them are locally producing vehicles in the U.S. So I was wondering what kind of response strategy you have for the key models that you are not producing in the U.S. market? Unknown Executive: Let me answer your first question about profitability and the third -- when we look at the profitability in the third quarter performance, of course, with the IRA subsidy gone in September, in order to retain our inventory level in the U.S., we have increased our promotional activities, which has resulted in EV sales going up. So like you said, in fourth quarter, the incentive level will go down. In the coming years, in 2027 and 2028 in the EU, obviously, we need to ramp up our EV sales in order to respond to the emissions regulations. And in the U.S., we have originally designed the HMGMA plant as an EV dedicated plant. However, we are trying to produce all the different kinds of model, not just the EV models. So therefore, when we think about the U.S., the EV will not make up a significant growth in the short period of time. But in the long term, from 2030 or so on, the EV volume will likely recover. That may be a little bit slower than the two years that have been initially expected with the EV chasm going up, but we are expecting EV volume to recover in the long run. And I'm not pretty sure I understood your question regarding the incentive improvement and reentry into the market, but you said in the fourth quarter, if there will be a decrease in the volume, then the incentive will likely improve, and you may think about the reentry into the U.S. market. And I'd like to clarify that we have never backed off from the market. So we will continue to increase our sales volume going forward. And about the competitiveness enhancement activities, although I have not shared you all the details due to time constraints such as PE parts, but we are actually engaging in various activities to enhance competitiveness and PE part is one of them. And for PE parts activities, we can say that batteries and motors and other EV dedicated parts are included. And previously, we only focused on reducing the raw material cost of these parts, such as battery and motors. But now we are examining all the different types of parts because irrelevant of how costly or non-costly it is, I think in the long run, all the parts are important for the competitiveness of our [ SUVs. ] So that is why we are reviewing all the different activities. So regarding your second question, like you said, we are not currently locally producing our mid SUV segment, but we are locally producing Tucson. And like we have mentioned at our CID, we are increasing our proportion of U.S. local production. And from the fourth quarter, the new Palisade hybrid model will be launched, and we'll start selling that model. And thanks to the good news of yesterday of rate decrease from 25% to 15%. Since Palisade is a very profitable model, we will likely to improve our profit on this model as well. And regarding the local production of Palisade hybrid model in the U.S., we are internally reviewing this matter. And although nothing has been confirmed as of yet, we will likely increase the production incrementally of this model like we said in -- at the CID. Operator: [Interpreted] The last question will be presented by Theo Hadiwidjaja from JPMorgan Asset Management. Theo Hadiwidjaja: I have two questions. So the first one is, I think, following up on earlier question about your U.S. EV strategy. You mentioned that you are not planning to break down on your original plan. So can you confirm that it is the plan for you to continue with your EV strategy in the U.S.? And also, I guess, in relation to this, I understand that you also have a number of JVs in the U.S. producing batteries. What are your general plans on those JVs producing batteries for EVs in the U.S.? Zayong Koo: [Interpreted] Hi, Theo, this is Zayong Koo. Basically, on your first question, I think our CFO has actually answered many of that before. Basically, our EV strategy will continue. As we earlier mentioned, I think the timing is a bit pushed back, but nevertheless, we do believe that the EV will continue to grow. In the past, we had anticipated that will be maybe in the next 2 or 3 years. However, as we had pointed out in the CEO Investor Day, we are looking more at hybrids at least for the short to medium term, but EV from a longer term is on schedule basically from that perspective. Again, although it is a bit delayed. And your second question was on the battery JV. Yes, as you know, we do have two battery JVs, one with LG and the other is SK. That is actually continuing -- we don't have an exact timetable, but it will hopefully be in the next -- in the short term. Basically, I cannot give you an exact timing, but nevertheless, we are -- we will be working with LG and SK in acquiring or getting the batteries for the U.S. market. And again, this is a little bit more related to the timing of the EVs in general. So I mean, we are definitely moving along -- moving ahead with the joint venture. But nevertheless, the exact timing, I cannot give you, as I mentioned earlier. Michael Yun: [Interpreted] That ends the Q3 2025 earnings call for Hyundai Motor Company. Thank you for your time. Operator: [Interpreted] If you have any questions, please contact Hyundai Motor Company's IR group. Thank you very much for your attention. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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