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Thomas Larsen: Hello, everyone, this Thomas Kudsk Larsen from the Sanofi IR team. Welcome to the Q4 and Full Year 2025 Conference Call for investors and analysts. As usual, you can find slides on sanofi.com. Please turn to Slide #3. Here, we have the usual forward-looking statements. We would like to remind you that information presented in this call contains forward-looking statements, which are subject to substantial risks and uncertainties that may cause actual results to differ materially. We encourage you to read the disclaimer in our slide presentation. In addition, we refer you to our Form 20-F on file with the U.S. SEC and our French Universal Registration Document for a description of these risk factors. As usual, we'll be making comments on our performance using constant exchange rates and other non-IFRS measures. Numbers used are in millions of euros and for Q4 or full year 2025 unless stated otherwise. Please turn to Slide #4. First, we have a presentation, which is a little longer due to full year results, then we will take your questions. We aim at keeping it all to 1 hour, perhaps a little bit more, including questions. We appreciate other companies are also reporting today. For the Q&A, we have Olivier, Brian and Thomas to cover our global businesses as well as Roy, our General Counsel; and Brendan, Head of Manufacturing and Supply. [Operator Instructions] With all of this, I'll now hand you over to Paul. Paul Hudson: Well, thank you, and hello, everyone. In 2025, we continued to develop into an R&D-driven, AI-powered biopharma company. Our strategic progress was supported by the completion of the Opella transaction, allowing us to reinvest proceeds into business development and M&A opportunities while completing our EUR 5 billion share buyback program. We delivered strong performance with 9.9% sales growth and new launches reached EUR 5.7 billion in sales. We're pleased to have achieved another blockbuster milestone last year, ALTUVIIIO. We successfully launched 2 new medicines, Qfitlia for hemophilia and Wayrilz for ITP and one vaccine, Nuvaxovid to protect against COVID-19. We also achieved several positive Phase III results, including most of the amlitelimab program in AD and the SARCLISA, a subcutaneous formulation. Our innovation engine continues to make progress, replenishing Phase I, including 3 promising gene therapies, our entry into ophthalmology. Looking at Q4 performance on Slide 6, we delivered very strong results with EUR 11.3 billion in sales and 13.3% growth, supported, of course, by our key drivers. Turning to our launches on Slide 7. I'm pleased to report that our newly launched medicines and vaccines grew 34% in 2025. Beyfortus continued to deliver with EUR 1.8 billion in full year sales, demonstrating the critical need for RSV protection. ALTUVIIIO achieved blockbuster status, reaching EUR 1.2 billion in full year sales. Patient adoption continues to increase, with patients switching from both factor and nonfactor medicines. Of note, AYVAKIT reached $725 million in annual pro forma sales, slightly ahead of Blueprint's expectations from early 2025. Our newly launched medicines and vaccines demonstrate our commitment to innovation and the strength of our commercial organization. Moving to Slide 8. Dupixent reached EUR 4.2 billion in the quarter and EUR 15.7 billion in annual sales. Continued growth across anchor indications and expansion into COPD, CSU and BP drove a more than 30% increase in patients over the past year. This underscores Dupixent's standing as the #1 prescribed biologic across dermatologists, pulmonologists, allergists and ear, nose and throat specialists. The U.S. regulatory acceptance for the allergic fungal rhinosinusitis indication in November brings us closer to a potential ninth indication, further expanding Dupixent's reach. Turning to vaccines. We maintain our leadership in influenza and RSV despite a challenging environment. Full year sales reached EUR 7.9 billion. In influenza, we gained U.S. market share with the Fluzone High-Dose and Flublok, while Europe saw continued penetration of Efluelda and Supemtek. Beyfortus delivered a strong performance, growing 9.5% to EUR 1.8 billion, ahead of our anticipated modest growth and driven by geographic expansion across Europe and the rest of the world. With real-world evidence confirming 87% to 98% effectiveness, Beyfortus has protected more than 11 million babies in more than 45 countries, thus preventing an estimated 200,000 hospitalizations to date. We continue to strengthen our vaccines portfolio with strategic acquisitions that enhance our ability to protect older adults from serious diseases. In December, we completed the acquisition of Vicebio, adding a bivalent RSV plus human metapneumovirus vaccine candidate to our pipeline. This program complements our existing RSV franchise and leverages the innovative molecular clamp technology for vaccine antigen design. We also announced our proposed acquisition of Dynavax Technologies Corporation, which we expect to close in the first quarter this year. This acquisition adds HEPLISAV-B to our portfolio, the leading adult hepatitis B vaccine in the U.S. with a differentiated and convenient 2-dose schedule. It also brings a shingles vaccine candidate currently in Phase I/II studies, further expanding our pipeline in vaccines for older adults. These strategic additions reinforce our commitment to innovation in vaccines. Before moving to financials, I'm pleased to highlight Sanofi's key role in developing publicly available specification 2090 or PAS 2090, the first industry-wide global standard for measuring and reducing environmental impact of medicines and vaccines across their life cycle, recently published, by the way, in the British Standards Institution. We codeveloped this harmonized framework with industry to enable ecodesign for footprint reduction, accurate environmental reporting while addressing growing stakeholder demands for transparency. PAS 2090 marks an important moment for sustainable health care, showcasing how collaboration across the health care system can drive meaningful progress. True patient care means protecting not just individual health, but also planet health. The standard helps us to do both. Thank you. I'll now hand over to François, our CFO, for more details on the financials. François-Xavier Roger: Thank you, Paul, and hello to everyone. Next slide, please. I'm pleased to report that we achieved our strongest quarterly sales growth in Q4 2025. Net sales grew by 13.3% to EUR 11.3 billion. Dupixent delivered double-digit growth with continued penetration across all indications. Dupixent also benefited from a favorable basis of comparison due to gross to net price adjustments in the previous year. Business EPS growth was strong at 26.7%, reflecting our disciplined execution on operational leverage. Slide 14, please. Over the past 3 years, volume growth has accelerated and reached 34% on a compounded basis. Growth was driven by our successful launches and by Dupixent expansion across multiple indications, which continues to drive significant volume uptake 8 years after the launch. Our ability to expand market reach while growing our margins demonstrate the strength of our innovation and our strong commercial execution. To meet growing patient demand and deliver on our MFN commitment, we will continue investing in manufacturing capacity with a strategic focus on the U.S. Next slide, please. Our full year 2025 results showcase the power of our business model, delivering strong growth with increased profitability. Sales reached EUR 43.6 billion, representing 9.9% growth at constant exchange rates at the upper end of our guidance. This represents a higher underlying growth level than in 2024, given that we excluded hyperinflation impacts from our sales growth at the beginning of 2025. Business gross margin expanded by 1.8 percentage points to 77.5%, driven by favorable product mix and operational efficiencies. Operating expenses increased by 7.9% as we increased R&D investments and supported our new product launches through sales and marketing investments. OpEx has decreased as a percentage of sales to 39.9%, thanks to our efficiency programs. Business operating income increased by 11.9%, with BOI margin reaching 27.8%. Business EPS, excluding share buyback, grew by 12.2%, in line with our guidance. And including share buyback, our business EPS grew by 15%. This demonstrates our ability to grow EPS faster than sales while investing in future growth. Moving to Slide 16. Our free cash flow has returned to strong levels in 2025 at EUR 8.1 billion, representing 18.5% of sales. We aim to sustainably reach free cash flow of at least 20% of net sales in the medium term. This strong cash flow generation illustrates the quality of our earnings and the effectiveness of our working capital management. A key contributor to this performance was our inventory optimization as we reduced inventory by nearly 30 days. We are targeting a similar inventory reduction in 2026, which will help us to progress toward our 20% free cash flow target. This disciplined approach provides us with significant financial flexibility to execute our capital allocation strategy. Next slide, please. We ended 2025 with a strong capital structure, as highlighted by our low net debt, which increased slightly to EUR 11 billion. We maintained a conservative 0.8x net debt-to-EBITDA ratio. This conservative leverage provides flexibility for future external growth opportunities even while maintaining our AA rating. We successfully deployed the EUR 10.4 billion received from the Opella divestment into value-creating business development and M&A opportunities such as Blueprint, Vicebio, Dren Bio DR-0201, Vigil and some others as well. These divestments and acquisitions allowed us to accelerate our transformation as a biopharma company. Moving to the next slide. In 2025, we executed our capital allocation strategy across all 4 priorities. We significantly increased our organic growth investments in R&D, commercial capabilities, CapEx and digital transformation. These investments fuel both current and future growth. As I just mentioned, we deployed the Opella proceeds into strategic acquisitions. We proposed to increase our dividend for the 31st consecutive year to EUR 4.12, up by 5% from the previous year. Finally, we completed our EUR 5 billion share buyback program. We will pursue our capital allocation policy in 2026. Regarding share buybacks, we will execute a EUR 1 billion share buyback program in 2026. The consistency of this approach demonstrates our commitment to sustainable value creation and shareholder returns while investing in long-term growth opportunities. Slide 19, please. Looking ahead to 2026, we expect to deliver a year of profitable growth close to what we achieved in 2025. For the full year 2026, we guide for high single-digit growth in sales and for profitable growth, meaning business EPS growing slightly faster than sales. Be aware that this guidance is for the full year 2026 and does not necessarily apply individually to each and every single quarter in 2026. Sales dynamics include further portfolio optimization through divestments that will reduce sales by about EUR 200 million in 2026. We expect vaccine sales to slightly decline in 2026. Our gross margin expansion is expected to continue with minimal tariff impact following the agreement reached with the U.S. administration last December. Underlying R&D will increase moderately. In addition to this organic growth of R&D expenses, we have added a placeholder for potential future acquisitions, particularly for Phase I and Phase II assets. Sales and marketing expenses will increase to support growth and launches, while we continue to target stable G&A expenses. Our operating income is expected to include around EUR 500 million of capital gains from disposal. As a reminder, the profit sharing line in our P&L is increasing faster than sales growth by more than 10 percentage points. We now expect a decrease of around EUR 400 million in R&D reimbursement coming from Regeneron this year. This decrease will be more than offset by Amvuttra royalties, which are estimated at approximately EUR 1 billion based on the latest consensus. This results in a positive impact of around EUR 500 million to BOI. Our financial outlook includes an increase of our financial expenses this year, driven by increased net debt from both 2025 and 2026 BD and M&A activities. Finally, we expect a stable effective tax rate. I now hand over to Houman to provide an update on the progress of our innovative pipeline. Houman Ashrafian: Thank you, François. 2025 has been a year of significant delivery across our pipeline. I'll walk you through the highlights. On pipeline delivery, we achieved 12 Phase III readouts and 15 Phase II readouts and then added 10 new molecules to Phase I, including 3 gene therapies, emphasizing our greater focus on research, supported by business development to replenish our early-stage pipeline. On the regulatory front, we obtained 20 regulatory approvals and 22 acceptances, including 9 priority reviews, in addition to other designations, underscoring the progress we've made. Most importantly, we provided patients with 3 new medicines and vaccines: Qfitlia, the first RNAi antithrombin medicine in hemophilia approved in the U.S. and China; Wayrilz, the first BTK inhibitor in ITP approved in the U.S. and EU; and our recombinant COVID-19 vaccine with full approval in the U.S. and the EU. All these highlights represent meaningful progress in delivering transformative medicines and vaccines to patients worldwide. Please turn to the next slide. Turning to the Q4 highlights, where we received approvals, including Dupixent for CSU in the EU, Tzield for Stage 2 T1D in the EU, Wayrilz for ITP in the EU, Cerezyme for Gaucher disease Type 3 in the U.S. We strengthened our position in China with 4 approvals, something that I will return to again today. We received regulatory submission acceptance for Dupixent's AFRS in the U.S., Tzield Stage 2 T1D for children in the U.S. and SP0087 rabies vaccine in the EU. On Phase III readouts, amlitelimab delivered more positive results in atopic dermatitis and Dupixent met its primary endpoint in AFRS. Tolebrutinib did not meet its primary endpoint in the PERSEUS study for PPMS. As a result, we will not pursue its regulatory submission. Ending with pivotal Phase III starts, we initiated the second lunsekimig study for COPD, 2 duvakitug studies, each in Crohn's disease and in ulcerative colitis and in 1 Wayrilz in IgG4-related disease. Next slide, please. I start with amlitelimab, whose data -- recent data provides increasing confidence in progressive long-term sustained benefit and patient convenience. Data across COAST 1, COAST 2 and SHORE Phase III studies and the ATLANTIS open-label Phase II study demonstrated progressively increasing efficacy over time, with no evidence of plateau through week 24 to 52. This validates the potential for both monthly and quarterly dosing from start, offering significant patient convenience as either monotherapy or combined with topical corticosteroids, an important background therapy used in the real world. Amlitelimab was well tolerated with an acceptable safety profile. Much of our amlitelimab OCEANA global atopic dermatitis program has now been delivered, including Phase II and Phase III studies evaluating its efficacy and safety when administered in monotherapy and in combination. Remaining studies, AQUA in patients with background TCS and TCI with inadequate response to biologics or JAK inhibitors and ESTUARY, the randomized maintenance study. We expect both readouts in the second half of 2026, completing our comprehensive package for regulatory submission. Next slide, please. China remains a strategic priority with significant progress made by our regional team. We obtained approvals for global medicines, Cablivi, our anti-von Willebrand factor antibody for acquired TTP and Qfitlia. For China-only medicines, we received approvals for Myqorzo for obstructive hypertrophic cardiomyopathy and for Redemplo in patients with familial chylomicronemia syndrome. These approvals demonstrate our commitment to bringing innovative medicines and treatments to Chinese patients and to leverage Chinese innovation in doing so. Next slide, please. Now let me share an update on our key mid- and late-stage pipeline projects. Our immunology pipeline has been strengthened by having delivered most of amlitelimab's Phase III programs in AD and duvakitug having advanced to Phase III for CD and UC. And lunsekimig will provide data in asthma this half and has potential for life cycle opportunities. Brivekimig is now moving to Phase IIb. In neurology, tolebrutinib is still under review for the EU SPMS, frexalimab in Phase III for RMS and SPMS and riliprubart for Phase III for CIDP, the latter 2 with data already next year. In rare disease and oncology, Wayrilz is making progress with its life cycle planned beyond ITP, venglustat in Phase III for GD3 data coming very soon and Sarclisa expanding with a subcutaneous formulation. Our vaccines portfolio includes multiple programs across pneumococcal disease, yellow fever, meningitis, RSV and pandemic preparedness. Next slide, please. On my last slide, I'll cover the '26 and '27 news flow updates since December's year-end late-stage pipeline review. This year, we expect the remaining Phase III data for amlitelimab in AD and Phase II for lunsekimig in asthma and rare disease with venglustat Phase III readouts, if positive regulatory submissions will follow. We anticipate multiple regulatory submissions based on data we already received last and this year as well as regulatory decisions for medicines and vaccines under review. Next year, we will get the Phase IIb data for brivekimig in HS, followed by Phase III studies of frexalimab in RMS and riliprubart in CIDP. My sincere thanks to all Sanofi R&D colleagues who share my commitment to advancing our pipeline from research to regulatory approval. This represents a rich diversified news flow that we believe will continue to drive value creation for patients, society and of course, for Sanofi. Paul Hudson: So we'll now open the call to questions. [Operator Instructions] Now we'll take the first question. Please go ahead. Unknown Executive: The first question is from Zain Ebrahim from JPMorgan. Zain? Zain Ebrahim: Zain Ebrahim, JPMorgan. My first question is on the Dupixent rollouts in CSU and COPD, which sound like they've been particularly strong. But can you elaborate on how those rollouts are progressing and remind us of the biologic penetration in each of these indications and how Dupixent is faring against competition from RHAPSIDO in CSU and NUCALA in COPD? That's my first question. And my second question is a vaccines question. Just in terms of within your overall vaccines guidance, what you're assuming for Beyfortus in '26 in terms of growth and how that looks for the U.S. versus ex U.S.? Paul Hudson: Okay. Thanks, Zain. Brian, Dupixent? Brian Foard: Thank you, Zain, so much for the question. So I'll go a bit broader and then I'll focus in on a couple of those indications. So as you look at our performance in 2025, really strong performance, 25% growth year-over-year, and we culminated that with a really strong Q4, and I'll talk about that here in a minute, 32%. Now this was driven not just based on those 2 indications that you highlighted, but the foundation of our indications grew as well because it's a volume-driven growth story that we saw in 2025. Now of course, those were on our base indications, but the launch of COPD, the launch of CSU and the launch of BP were new sources of growth that were not in our base in 2024, which allowed us to accelerate growth, culminating in that Q4 that I talked about there just a bit. And again, I'll highlight COPD and CSU in just a minute. But that 32% growth that we saw at the end of the year is really a reflection of those not being in our base, but being strongly in Q4 performance that we saw. Now as we go forward into 2026, we expect that growth to normalize as we talked about, as we've seen before, and we're well on track to deliver our longer-term guidance by 2030 of greater than 22 -- around $22 billion sales. Now specifically on COPD and CSU, I've spoken about COPD quite a lot. It was an inflection point for this year, as you can see from the performance, which was, again, being the first biologic, really the first innovative therapy in more than 10 years in the COPD space, and we've seen a really good response from the physicians. Now remember, we were already in the pulmonologist offices with asthma and having the leading asthma therapy beforehand. So it was a really nice complement. CSU is a very similar story. We've seen a really rapid uptake in the CSU launch. But again, remember, we were also already the leader in the dermatologist offices and the allergist offices with multiple indications, now 8 indications in the U.S. So we've seen that those have contributed really nicely to our growth. Final point I'll make on CSU because you asked a question about the competitors, RHAPSIDO. We don't really zoom in on one. We think competitors across all the immunology indications are really good because the bio penetration rates are extremely low. AD is only 18% still to date, and it's more than 8 years into our launch. CSU, we believe, is in the low teens. So again, this is a place where you're going to continue to see the market growth as well, which is great when we have new competitors come in. Paul Hudson: Okay. Thomas? Thomas Triomphe: Thank you, Zain, for the question. So as it comes to Beyfortus specifically, first of all, let me say that we are happy about the 2025 performance with an increase of a bit more than 9% year-on-year. When you recall very well that on the Q2 earnings call, we had mentioned modest growth expectation for 2025. So happy about the performance. As you've noticed, it's a performance that's coming from broadening the reach to more and more countries, and Beyfortus is now available in more than 45 countries. So as it comes to 2026 outlook, it's a bit early to be very specific on the performance of the product. However, I can say a few words about the dynamics. I think what's very important to have in mind is that there is a little bit of a different dynamic between U.S. and non-U.S. I think that's included in your questions. On the U.S. front, you have seen the recent changes on the pediatric immunization schedule, still very recent. As you have seen from a recommendation perspective, nothing has changed for Beyfortus in terms of recommendation or coverage. Now will it create and to what extent confusion for parents and HCPs? Too early to say. We need to see that in the coming years and we'll be -- in the coming months, sorry, and we'll be able to tell you a bit more at Q2 earnings call more about Beyfortus in the U.S. As of outside of the U.S., we will expand the geographic coverage as we've done over the past 2 years. And the last point I will refer to on Beyfortus. For those that have not seen, there has been a very nice JAMA publication at the end of December 2025. This is the first real-world evidence head-to-head comparison between the use of either maternal immunization or passive immunization with Beyfortus. And you've seen that on very single endpoint, Beyfortus is doing better than the competitor. Thank you very much. Paul Hudson: Thank you for that, Thomas. Unknown Executive: Next question is from Ben Jackson from Jefferies. Ben? Benjamin Jackson: Brilliant. Just 2 for me, please. I guess, previously, you've spoken about a range or numbers of peak sales estimates around amlitelimab. And perhaps now that we've had some additional data, has your view on any of this changed at all? And Houman, perhaps if you could flesh that out. And you've had a little bit of time to talk to KOLs now and figure out how they're feeling. What is the feedback that you're getting on the additional results, not just kind of the positive parts on it, too, but if I can push you, what are the pinch points? What are the bits that they still got a little bit of uncertainty or questions over as well? And how can you address those? So just rounding that up would be brilliant. Paul Hudson: Thanks, Ben. Brian, do you want to give us a sort of broad view? Brian Foard: Yes. And thank you so much for the question, Ben. I think if you think about the broad view of this, and again, remember that we were always bullish on this from an AD perspective. And I think Houman will probably talk about that. As you think about this marketplace, it's still really developing. We talked about the bio penetration, I mentioned 18%. It will more than double. I'm confident that it will more than double. If you look at what psoriasis has done, this is a marketplace that's going to continue to grow. And if you look at it today, as new mechanisms come into the marketplace like we've seen, it actually accelerates the growth of the marketplace, much like psoriasis and so on and so forth. So having a new mechanism like this with a variety of areas in which to differentiate it, I believe -- I mean, we remain extremely confident about the opportunity in that big marketplace. Paul Hudson: And Houman, do you want to... Houman Ashrafian: Yes. Just to top and tell what Brian has said, I couldn't support more the importance of a novel mechanism in this space, which goes beyond a straightforward anti-cytokine blockade. Of course, that's an excellent mechanism in disease, but the addition of a T cell modulator with the promise, and I underline the word the promise of long-term immune normalization is obviously very attractive in the conversation. You are right to call out the importance of being more data-driven. And of course, we've consistently shown the difference between this molecule that has a Q4 and Q12 dosing optionality, which means down to after loading dose 4 injections a year, which not only provides optionality for patients but also site of injection, et cetera, which will matter. I'd also like to -- both of those are really important, but I'd like to not only underline the importance of the mechanism and the optionality, but that this molecule remains aligned with our initial benefit risk assessment, which is ever so important in this space, which is hugely biologically underpenetrated. And Brian, at the very beginning of the call outlined the importance of having options for these patients in terms of therapeutics. So finally, you asked discussions with prescribers. We did many hundreds of interviews over the last couple of years, including at the recent meeting in Paris. And I can genuinely say that there's enthusiasm about a novel mechanism of action in this space. Thank you very much for the question. Paul Hudson: Thank you. Unknown Executive: Next question is from Seamus Fernandez from Guggenheim. Seamus? Seamus Fernandez: Let's try it again. There we go. So just a couple of questions. First one is on the kind of Kaposi sarcoma case that we saw. Can you provide a little bit more detail on that as it relates to amlitelimab? And is this on mechanism in your view? Or is it more a reflection of the sort of specific patient profile in that particular case? And just wanted to confirm that there were no and have been no additional cases seen in the overall program for amlitelimab. The second question is on lunsekimig. I think you made a comment at a conference earlier this year, specifically that there's a contribution of -- that you believe there's a contribution of TSLP in some early atopic dermatitis data as it relates to lunsekimig. I was just hoping you could clarify and confirm that comment and your views and hope that lunsekimig in that formulation -- in that disease state could potentially have a role. Paul Hudson: Okay. Houman? Houman Ashrafian: Yes. Thank you. Multiple parts to that question. Number one, let me do the second one first. Just to very quickly take that off the table. Yes, there is existing data, not with our molecule, but other people's molecules that TSLP may indeed have a therapeutic benefit in the treatment of atopic dermatitis. Obviously, IL-13 is well established in this space, the combination of TSLP and IL-13 indeed may have an additive or indeed synergistic effect. We are testing that clinical hypothesis will be very data-driven. So we look forward to seeing the results of lunsekimig, not only in asthma and its related adjacencies, but also in atopic dermatitis. And then as you outlined in the amli question you composed to sarcoma, the answer to your question is that all immunomodulators come with a theoretical risk of infectious complications or increased infectious risk. Kaposi's sarcoma unequivocally is caused by herpes virus, HHVA, sort of a standard herpes virus. And it's not surprising that a herpes virus will be associated with an immunomodulator as they are with all other immunomodulators. There is some genetic evidence to suggest perhaps that with amlitelimab, there may be a differential sensitivity to some or other herpes viruses. So as you say, potentially on mechanism and the very first ID that we put out before we ever started the Phase III as this was anticipated and was not regarded as a significant issue of concern. The benefit risk profile with this molecule is in line with everything we've said. And as is our activity, we will continue to produce not just with Kaposi's sarcoma, but all the broader safety and benefit of this molecule as we continue to publish the data sequentially until the end of OCEANA studies. Unknown Executive: Next question is from David Risinger from Leerink. David Risinger: Yes. So congrats on the fourth quarter performance. I just have a couple of questions. First, Houman, in terms of the amlitelimab press release that you issued recently, when do you expect to disclose full results from those studies? And François, business EPS is expected to grow faster -- or slightly faster than sales this year despite losing R&D reimbursement from Regeneron during the third quarter. Could you just talk about the offsets to that? And looking forward to 2027, how you're thinking about prospects for growth and earnings as well? Paul Hudson: Thanks, David. Houman? Houman Ashrafian: Yes, a quick answer to your question. I think we committed to presenting the COAST 1 data AD, which I think at the end of March in Denver this year, subject to the -- on conference organizers, [ clement ] nature, we may be able to put COAST [ 2 ] and SHORE in there, that's still subject to discussion. So we hope to be able to present most of the data to you by the end of March. Paul Hudson: Okay. Thank you, François? François-Xavier Roger: Yes. David, as far as 2026 is concerned, to start with, indeed, you mentioned it, we will have a decrease of the R&D reimbursement by Regeneron of EUR 400 million this year. It was initially thought it would be EUR 300 million, but since Dupixent is growing faster -- even faster than we thought, we will accelerate this determination of the reimbursement earlier. So we have a negative impact of EUR 400 million this year, but it will be more than offset by the Amvuttra royalties, which are going to increase even further than we thought. So we had almost 0.5 billion of Amvuttra royalties in '25. It will be probably around EUR 1 billion in '26. So we'll have a net between the 2 items in terms of impact on the BOI of about positive EUR 100 million this year in '26. In '27, we had initially thought that we would have the full impact of the termination of the R&D reimbursement by Regeneron. We expected initially that it would be a decrease of BOI of about 800 million in '27. It will be a bit less, probably with what we see today, around EUR 700 million, as a consequence of what I said earlier. On Amvuttra, it should be probably around -- it's still early to say, but further increase of EUR 300 million. So the net between the 2 will be probably a negative in '27 at BOI level of minus EUR 400 million, which is a bit better than what we had said last time. Roy Papatheodorou: Next question from Simon Baker from Redburn. Simon Baker: Two if I may, please. Firstly, one for Houman. You've had a bit of a rationalization of your Phase II portfolio. I just wonder if you could talk us through any overarching principles that guided those decisions and future development plans? And then secondly, moving on to Dupixent. The main patent goes in March 31. But as far as we can tell, you've got about 40 patents which expire between late '31 and February 2045. So I just wonder if you could give us your thoughts on life after March 31 in terms of the potential LOE for Dupixent? Paul Hudson: Okay. Houman we'll get you and then, of course, quickly to Roy for a moment. Houman Ashrafian: Thanks for the question. The -- when I started 2.5 years ago, it was very clear that we have a dynamic allocation strategy. We are good stewards of capital, and we need to ensure that every dollar is well spent. So the overarching strategy, which François and I hold hands on, is that we will, on a regular basis, now on at least quarterly basis, guided by AI establishment of value, we will dynamically allocate -- reallocate resources. And what that means is there'll be some programs that stop. But of course, it also means that we will double down on some programs and we'll do the right things even if they're hard. So the overarching principle is very simply in relation of capital allocation to value. Paul Hudson: Thank you. Roy? Roy Papatheodorou: So Simon, thanks for the question. We do expect Dupixent to be protected by its patents beyond March 31 in the U.S. That's the reality. As you can imagine, lots of innovation, lots of indications and counting. These are being recognized by multiple -- and thank you for going through them, granted and to be granted patents ranging from [ '31 to '45. ] We believe we have a very strong patent portfolio, which we intend to vigorously defend. You'll understand, it's too early to speculate on specific dates of biosimilar entry, if and when patent fights commence, we'll be able to give you more details of what is being challenged and where, but we feel we're in a good place with multiple patents. Paul Hudson: Okay. Thanks, Roy? Roy Papatheodorou: The next question from Luisa Hector from Berenberg. Luisa? Luisa Hector: I wanted to ask on vaccines, please, because if we look at 2025, you deployed about EUR 3 billion on business development, M&A. So I wondered if you're putting that together with your R&D, is that a significant step-up in capital allocation to vaccines? And how should we think about the opportunity cost versus building your drug pipeline? And then perhaps a little more color on Dynavax. It looks like a neat deal. So how did you value it? Is this a U.S. opportunity mainly? Is it catch-up and then you move to an annual cohort eventually? And should we think about shingles as a booster opportunity in the over 70s? Paul Hudson: Thank you, Luisa. Thomas, 2 good questions for you. Thomas Triomphe: So I will start in the reverse order, Luisa, if you don't mind. So on Dynavax, let me first start by saying that the transaction is not closed yet. So as you know very well, we are still processing. But going back to your question, I can talk a little bit about the rationale. A few elements I'd like to highlight on this. First of all, it goes very well with what we have discussed before with the fact that we are very present on a significant part on the pediatric immunization schedule. But as we discussed in the past, we see, in terms of demographics, simply an increase on the older adult group and a decrease over the past few years on the pediatric and that's why our strategy is more and more focused towards the older adult group in terms of pipeline development. And the Dynavax proposed acquisition very well fits that profile, with [ HEPLISAV-B ] in mostly focused on the U.S. So that's really the cornerstone for this product with a very differentiated product, with a 2 doses regimen versus 3 doses for any other competitor. And you've seen the progress in terms of market share. And we believe, by adding our commercial muscle there, we can further improve the performance in this segment. In parallel, you have mentioned Shingles, very interesting Phase I/II data there on the Dynavax shingles candidate. We believe there's a great possibility in terms of marketplace if there is a candidate that comes with a significant similar efficacy than the current incumbent in that place. However, with a much better tolerability, and we believe that the Dynavax technology will enable that profile. Going back to the first part of your question on capital allocation. So if you look at it from the way you framed it, indeed, there has been an increase in 2025, but I'd like to maybe take a step back and explain to you how we look at it. We don't look at capital allocation or acquisition per TA. The way we look at it is what is the strategic fit of every single possibility in terms of acquisition or licensing it? Does it fit our portfolio? Does it fit our capabilities? Does it fit our long-term perspective on the business? We have a very strong long-term perspective on the vaccination business, where the fundamentals are very strong. We believe that the acquisition we have made, both early and later stage in 2025, do reflect and do fit well that perspective. So we are not looking at it partly. We are really looking at it -- what's the strategic fit, what is -- are we the best owners? Can we deliver significant added value? And if that's the case, at the right price, then we go for it. Roy Papatheodorou: Yes. Next question from Pete Verdult from BNP. Pete? Peter Verdult: Yes, Pete Verdult, BNP. Apologies if some of these questions have been asked, but we've had a rather long competitor call to finish off. So just 2 questions. Thomas, sorry to come -- to stay on vaccines. Can we spend some time on the outlook in light of some of the recent developments that you've already touched upon, particularly in the U.S., on the context in terms of the 10 billion target you set for 2030. So just looking for a little bit of a ballpark reminder. What percentage of your business today is exposed to these U.S. pediatric vaccination schedule changes? I know we're not expecting any imminent impact. But just to remind us what the ballpark exposure is. Could you flesh out a bit more some of the U.S. and ex U.S. Beyfortus dynamics? And then when it comes to flu, what's your sort of -- on a net basis, how are you thinking about the outlook? On one hand, you've got mRNA threats receding, but you've got investor concerns around risks from competitor preventative assets rising. So net-net, how are you thinking about flu? So that's the first question. And then much more succinctly, just Paul or François, just on capital allocation. Given the pipeline disappointments, is it fair to assume business development activity is set to accelerate significantly going forward? Any -- are you really not going to talk about specific assets, but just your intention to do BD. Is that set to step change? François-Xavier Roger: Okay. Thank you. Thomas and François? Thomas Triomphe: Yes. So welcome first, Pete. And indeed, there was a bit of a similar question at the front stage, so I'll be pretty fast. So on the outlook about vaccines, and I think to be clear and explicit, you're referring to the recent U.S. [ childhood ] immunization recommendation changes in the U.S. Maybe a few words about this and then we'll turn the page. So those recommendations, to be clear, have been pivotal in making sure that we can prevent life-threatening disease in U.S. citizens for many, many decades. The recent and sudden shift there has been in early January to a 3-tier childhood vaccination framework, full generate confusion for both parents and providers. We don't know that. We don't know yet if there will be a concrete impact in terms of this year, but it's way too early to look at that. A couple of points, though, in terms of dynamics I'd like to highlight. First of all, you've seen that every single medical society and by far, the very, very fast -- vast majority of HCPs have decided to stick to the previous immunization schedule, first point. Second point, you have not missed the fact that all vaccines remain covered by insurance or by Medicaid or Medicare, depending on the different products. So it's not a question of coverage. But Pete, you're right, there could be some confusion in terms of U.S. vaccination schedule. The way we look at it is what can we do and we are focused on our energy and our actions. We are engage proactively with HCPs with clinical societies in every single country, U.S. and non-U.S., we expand the benefits of our product, how they are differentiated from others, and we are focused on what we can do. So that's really for the situation in the U.S. You mentioned a couple of things on Beyfortus U.S., ex U.S., we mentioned that in the call before. But as I was mentioning, happy about the '25 performance, 9.5% increase. '26, too early to say. We expect to give more guidance on this as we move forward in the year, probably in the Q3 earnings call, we'll then a look at U.S. versus ex U.S. Your second point was on flu and how we look at the marketplace moving forward. You've seen that Q4, flu performance was significant. Maybe it's the opportunity for me to mention a couple of things. It's the second season in a row, 2 years in a row, 2 winters where there has been a massive increase in terms of influenza hospitalization across the northern hemisphere on this side of the Atlantic or on the other side, which is a very important reminder of the fact that these cases can be prevented pretty simply with the vaccination, including with differentiated flu vaccination. Happy about our 2025 performance, which ends up showing that our market share will increase, especially thanks to our differentiated products, Fluzone High-Dose, which has shown great data again this year clinically as well as Flublok [indiscernible], very important differentiator moving forward. Obviously, this comes in a very specific situation, i.e., a decrease in terms of VCR in the U.S. and a slight increase of influenza VCR in Europe, but you understand from a value perspective, these are very different markets. Moving forward, we'll probably give some more guidance on flu at the Q2 earnings call. MRNA on flu is not a concern for us for 2026. It will not be present. It may -- it's not a concern for us in 2027 neither, simply because as we discussed before, people are looking for the right profile in terms of efficacy and tolerability profile. So we think we are well positioned. We have the right products. More to come after the prebooking season, so probably around the Q2 earnings call. Paul Hudson: Thank you, Thomas. François? François-Xavier Roger: Yes, Pete, on the capital allocation question, well, first and foremost, I presented it earlier, we have a strong balance sheet that gives us flexibility. That being said, we will remain very disciplined. So we will use our capital essentially around 3 criteria in terms of external growth, BD and M&A. Strategic, essentially around our 4 existing main therapeutic area plus potentially some white spaces. We want to make sure that we bring scientific differentiation with best-in-class, first-in-class assets and differentiated assets, and we want to secure financial return as well. We are certainly not chasing growth for the short term and medium term. You saw our growth profile last year. You see our growth profile for 2026, which is at the upper end of the industry. So not chasing growth. But we are rather focusing on the longer term to complement our pipeline. So we have a certain number of assets in our pipeline. We know as well that we have -- we discussed it a few minutes ago, to manage the [ LOE ] of Dupixent at the earliest in 2031, we just discussed it. So as a consequence of that, we will try to focus essentially on Phase I, Phase II assets, which is our priority. We could as well, as we did last year, by the way, complement it with commercialized assets, which will probably, to a certain extent, mitigate the BOI/EPS impact. Anyway, we will remain very disciplined. And I would not say we have time because time flies, and we have a feeling of urgency. But once again, we will be super focused and super disciplined. Roy Papatheodorou: The next question is Steve Scala from TD Cowen. Steve? Thibault Boutherin: Two questions, please. First, I'm curious why Sanofi has not been as forthcoming as Regeneron on Dupixent life cycle extension programs. I'm referring specifically to what Regeneron shared earlier this month. My understanding is that you have similar rights as you do now. So are you simply not as confident in those programs? So that's the first question. Second question is, in the past -- in past quarters, Sanofi has noted on the Dupixent slide that Dupixent was #1 in new-to-brand Rx and #1 in total brand share in the U.S. Curious why that was left off this quarter. Is that due to competition, specifically from [ Ebglyss ]? Paul Hudson: Okay. Brian, 2 questions for you. Brian Foard: I'll start with the second one. Steve, thanks. That's a really nice setup. Sorry, we missed that on the slide. We are #1. We remain #1 in every single indication across each of our specialists. So apologies, I think we are now adding more things about new indications and whatnot. We probably left that off there, but no. And I don't foresee that changing anytime soon. Now as it relates to LCM and forthcoming this from a Regeneron standpoint. I'll build on what Roy said. First, it starts with our IP. First, I have to think about that, how are we going to continue to defend that long into the future. And so Roy gave a statement there. So we've got quite some time. But we've been building along with the alliance and LCM strategy, as you would imagine, and we will reveal it in due course. Most likely the first half of this year, you'll get an update on where we stand as far as what we're doing with Dupixent specifically. Might be formulation related, so on and so forth, but you'll get a bit of an update there as well. Additionally, we are working on the next-generation IL-4Ra with Regeneron. Regeneron talked about this a little bit at JPMorgan, but we continue to work on -- and collaborate on programs that we have across the alliance. And again, that could be really meaningful as a follow-on Dupixent and so on and so forth. But beyond that, given our success across the alliance for quite some time now, we're always open to and interested in considering future collaborations with Regeneron, as we said at JPMorgan. So I feel like we're in a really good spot right now, more to come in the very near future. Paul Hudson: Yes. Next question from Sachin Jain from BofA. Seamus Fernandez: Just 2 questions from me. Firstly, big picture, I guess, for Paul. There's a sentence in the press release that talked about midterm profitable growth for 5 years. And at a recent conference, you talked about potentially delivering, I guess, implied with teens EPS. So just a big picture from your side. What was the intent on that signaling and giving you consensus as large as their ex pipeline? So just thoughts as to inserting that commentary within the debate for investors. And then secondly, one for Houman. Do we get any further TL1A Phase II data through the course of '26 that further profiles the asset as we start looking to that Phase III data, I guess, into '28? Paul Hudson: I should maybe let François comment first on profitable growth. François-Xavier Roger: Yes, profitable growth. I think that we included that comment in the press release because we had a lot of questions. We just wanted to make sure that the market understands that we do expect to deliver an attractive level of growth to start with for the next 6 potentially years and that this will be coming with profitable growth as well because there was a question a couple of quarters ago about our capacity to deliver profitable growth each and every single year. I confirmed it a little bit earlier today. There was a question more specifically about '27 given the end of the R&D reimbursement with Regeneron, but it's not a defensive move, it's just a confirmation of the way that we see the outlook for the medium term. Houman Ashrafian: And your second question, the answer is simply, yes. We will have maintenance data for the TL1A, at some point this half. Roy Papatheodorou: Next question from James Gordon from Barclays. James? James Gordon: James Gordon from Barclays. One question was on business development. I know you've had some questions on this already, but a follow-up to those, please. I've seen some attributive comments this morning about the company having a EUR 14 billion to EUR 15 billion BD firepower amount for this year. And assuming that is right, that was the comment, what is the thinking there? Is it that you do -- you can really fire that immunology to get more assets that could complement a follow-on from Dupi? Or with immunology looking a bit crowded and you've got a lot going on in immunology anyway already and a bit more competition coming as well. Could you focus beyond Dupi and say, right, we're going to broaden out other areas of the business. So could it be like EUR 15 billion on one big deal? And if so, is it more likely to be trying to do even more immunology or could you diversify? So the second one I was just going to say as well. So [indiscernible] for AAT, I didn't see an update on the regulatory plans. Have you now spoken to the FDA? Or if not, when will you? And do you think you can file on the data you've got? Paul Hudson: Why don't we get François, then... François-Xavier Roger: No, I will just -- I will answer on the EUR 15 billion, which is I would say the upper limit of what we can do to maintain our [ AA ] rating. So it has nothing to do with where we can invest by TA and so forth. As I said, I mean we are interested fundamentally in strengthening. Our position in our 4 existing TAs plus potentially white spaces. We could always contemplate going further than that. But the EUR 15 billion was the, let's say, technical limitation to preserve our AA rating. Paul Hudson: Thank you. Houman? Houman Ashrafian: Yes. I'll follow Brian's lead. Thank you for the setup. We had excellent data, as we announced late last year. We'll imminently, certainly, this half of the year, go to the FDA to have broader conversations on the trajectory of that molecule as we previously suggested. Paul Hudson: Okay. I think was the final question, was it? Or there's next question? Roy Papatheodorou: Yes. Next question from James Quigley from Goldman Sachs. James Quigley: I've got 2, please. Hopefully, they haven't already been asked, but I'll give it a go anyway. So firstly, on -- following on from Steve's question on the Regeneron portfolio. The IL-13 assets were not in the alliance. So was that a Sanofi decision? So is it that you think lunsekimig is more attractive option for IL-13. Can you give us any color yet as to why you're excited about the IL-13 and TSLP combination for lunsekimig? And then secondly, on the hemophilia portfolio. ALTUVIIIO continues to show strong growth. What are your expectations here in terms of gaining additional share into 2026? Are you willing to give a peak sales forecast here now that you hit blockbuster status? And also for Qfitlia, the launch is progressing steadily. You've got China approval now. So what's the feedback been in terms of where Qfitlia is being used? Are there any lingering thrombosis concerns with the product that may be holding it back? Paul Hudson: Okay. Thank you so much. Okay, Brian, over to you. Brian Foard: Yes, James, thanks so much for the question. I briefly addressed it just before. So there's not a decision necessarily on the IL-13. I think we talked about this a little bit at JPMorgan not so long ago. But as I said before, we are -- it's not in the alliance currently, but we're always open to having conversations with Regeneron about potentially including it in the alliance. As I also said, we have a long-acting IL-4 RA that actually is in the alliance that we're actually working on right now as a follow-on asset to [ dupilumab ]. So again, long withstanding great partnership with Regeneron, so we'll always have conversations with them about what we might do next together. And as it relates to Qfitlia, you want me to tackle the Qfitlia one next. Qfitlia is again, it's still early days as far as the launch goes. We said from the very beginning, this is really a very cool therapy in the sense that it is a very targeted kind of precision medicine, if you will, come to the diagnostic as it relates to antithrombin levels. And again, what we said is we'll have a little slower ramp. I think it will be a lot stickier on the back end from a patient standpoint as physicians get really -- they can dial it up and dial it down as the patient presents and it's really more personalized by each patient. So far, we've heard really good feedback from the marketplace. No concerns as far as safety goes so far. But again, it's early days and promising. We'll keep you up to date in future calls. Paul Hudson: Okay. Thanks, Brian. And then I think there may be one more? Unknown Executive: Yes, one more question and last question from Graham Parry from Citi. Gram? Graham Glyn Parry: Apologies if it has been asked, I think it has. I just wanted to check on itepekimab. You're saying about looking at additional data for the path forward. So can you give us time lines on what it is you're looking on the data and the clarity and time lines on path forward for that molecule? And then tolebrutinib in the U.S., are we just correct to assume no path forward in the U.S.? If you could just comment on rest of world regulators' attitudes to the ability to monitor compared to the U.S., that would be very useful. Houman Ashrafian: Graham at Citi, and those that will know, no, I have made that point. Thank you for the question. The first question, let me do it in reverse, tolebrutinib's approach is pretty straightforward. We're waiting for regulatory comments from rest of world, as you say from EU. And we'll see where we take it from there. And then on itepekimab, as I consistently said, the next steps for itepekimab will be determined by interactions with the FDA predominantly to establish exactly the requirements for a replication study for Phase III going forward. As soon as we know, we will commit to sharing it more broadly in partnership with our successful alliance partners Regeneron. Paul Hudson: Okay. Thank you, Houman. Thank you, Graham. Well, thanks for this last question. In 2025, we achieved a strong year of profitable growth. Sales increased by 9.9% at constant exchange rates, while business EPS improved significantly faster by 15%. We launched 3 new medicines and vaccines: Qfitlia, Wayrilz, and Nuvaxovid. All this was made possible by the dedicated effort of all Sanofi colleagues worldwide. In 2026, we expect sales to grow by a high single-digit percentage and business EPS to grow slightly faster than sales. We anticipate profitable growth to continue over at least 5 years. Based on our pipeline, combined with external growth opportunities, our ambition is to pursue earnings growth into the next decade. With this, I would like to thank you for the interest in Sanofi, and we'll now close the call. Thank you.
Thomas Larsen: Hello, everyone, this Thomas Kudsk Larsen from the Sanofi IR team. Welcome to the Q4 and Full Year 2025 Conference Call for investors and analysts. As usual, you can find slides on sanofi.com. Please turn to Slide #3. Here, we have the usual forward-looking statements. We would like to remind you that information presented in this call contains forward-looking statements, which are subject to substantial risks and uncertainties that may cause actual results to differ materially. We encourage you to read the disclaimer in our slide presentation. In addition, we refer you to our Form 20-F on file with the U.S. SEC and our French Universal Registration Document for a description of these risk factors. As usual, we'll be making comments on our performance using constant exchange rates and other non-IFRS measures. Numbers used are in millions of euros and for Q4 or full year 2025 unless stated otherwise. Please turn to Slide #4. First, we have a presentation, which is a little longer due to full year results, then we will take your questions. We aim at keeping it all to 1 hour, perhaps a little bit more, including questions. We appreciate other companies are also reporting today. For the Q&A, we have Olivier, Brian and Thomas to cover our global businesses as well as Roy, our General Counsel; and Brendan, Head of Manufacturing and Supply. [Operator Instructions] With all of this, I'll now hand you over to Paul. Paul Hudson: Well, thank you, and hello, everyone. In 2025, we continued to develop into an R&D-driven, AI-powered biopharma company. Our strategic progress was supported by the completion of the Opella transaction, allowing us to reinvest proceeds into business development and M&A opportunities while completing our EUR 5 billion share buyback program. We delivered strong performance with 9.9% sales growth and new launches reached EUR 5.7 billion in sales. We're pleased to have achieved another blockbuster milestone last year, ALTUVIIIO. We successfully launched 2 new medicines, Qfitlia for hemophilia and Wayrilz for ITP and one vaccine, Nuvaxovid to protect against COVID-19. We also achieved several positive Phase III results, including most of the amlitelimab program in AD and the SARCLISA, a subcutaneous formulation. Our innovation engine continues to make progress, replenishing Phase I, including 3 promising gene therapies, our entry into ophthalmology. Looking at Q4 performance on Slide 6, we delivered very strong results with EUR 11.3 billion in sales and 13.3% growth, supported, of course, by our key drivers. Turning to our launches on Slide 7. I'm pleased to report that our newly launched medicines and vaccines grew 34% in 2025. Beyfortus continued to deliver with EUR 1.8 billion in full year sales, demonstrating the critical need for RSV protection. ALTUVIIIO achieved blockbuster status, reaching EUR 1.2 billion in full year sales. Patient adoption continues to increase, with patients switching from both factor and nonfactor medicines. Of note, AYVAKIT reached $725 million in annual pro forma sales, slightly ahead of Blueprint's expectations from early 2025. Our newly launched medicines and vaccines demonstrate our commitment to innovation and the strength of our commercial organization. Moving to Slide 8. Dupixent reached EUR 4.2 billion in the quarter and EUR 15.7 billion in annual sales. Continued growth across anchor indications and expansion into COPD, CSU and BP drove a more than 30% increase in patients over the past year. This underscores Dupixent's standing as the #1 prescribed biologic across dermatologists, pulmonologists, allergists and ear, nose and throat specialists. The U.S. regulatory acceptance for the allergic fungal rhinosinusitis indication in November brings us closer to a potential ninth indication, further expanding Dupixent's reach. Turning to vaccines. We maintain our leadership in influenza and RSV despite a challenging environment. Full year sales reached EUR 7.9 billion. In influenza, we gained U.S. market share with the Fluzone High-Dose and Flublok, while Europe saw continued penetration of Efluelda and Supemtek. Beyfortus delivered a strong performance, growing 9.5% to EUR 1.8 billion, ahead of our anticipated modest growth and driven by geographic expansion across Europe and the rest of the world. With real-world evidence confirming 87% to 98% effectiveness, Beyfortus has protected more than 11 million babies in more than 45 countries, thus preventing an estimated 200,000 hospitalizations to date. We continue to strengthen our vaccines portfolio with strategic acquisitions that enhance our ability to protect older adults from serious diseases. In December, we completed the acquisition of Vicebio, adding a bivalent RSV plus human metapneumovirus vaccine candidate to our pipeline. This program complements our existing RSV franchise and leverages the innovative molecular clamp technology for vaccine antigen design. We also announced our proposed acquisition of Dynavax Technologies Corporation, which we expect to close in the first quarter this year. This acquisition adds HEPLISAV-B to our portfolio, the leading adult hepatitis B vaccine in the U.S. with a differentiated and convenient 2-dose schedule. It also brings a shingles vaccine candidate currently in Phase I/II studies, further expanding our pipeline in vaccines for older adults. These strategic additions reinforce our commitment to innovation in vaccines. Before moving to financials, I'm pleased to highlight Sanofi's key role in developing publicly available specification 2090 or PAS 2090, the first industry-wide global standard for measuring and reducing environmental impact of medicines and vaccines across their life cycle, recently published, by the way, in the British Standards Institution. We codeveloped this harmonized framework with industry to enable ecodesign for footprint reduction, accurate environmental reporting while addressing growing stakeholder demands for transparency. PAS 2090 marks an important moment for sustainable health care, showcasing how collaboration across the health care system can drive meaningful progress. True patient care means protecting not just individual health, but also planet health. The standard helps us to do both. Thank you. I'll now hand over to François, our CFO, for more details on the financials. François-Xavier Roger: Thank you, Paul, and hello to everyone. Next slide, please. I'm pleased to report that we achieved our strongest quarterly sales growth in Q4 2025. Net sales grew by 13.3% to EUR 11.3 billion. Dupixent delivered double-digit growth with continued penetration across all indications. Dupixent also benefited from a favorable basis of comparison due to gross to net price adjustments in the previous year. Business EPS growth was strong at 26.7%, reflecting our disciplined execution on operational leverage. Slide 14, please. Over the past 3 years, volume growth has accelerated and reached 34% on a compounded basis. Growth was driven by our successful launches and by Dupixent expansion across multiple indications, which continues to drive significant volume uptake 8 years after the launch. Our ability to expand market reach while growing our margins demonstrate the strength of our innovation and our strong commercial execution. To meet growing patient demand and deliver on our MFN commitment, we will continue investing in manufacturing capacity with a strategic focus on the U.S. Next slide, please. Our full year 2025 results showcase the power of our business model, delivering strong growth with increased profitability. Sales reached EUR 43.6 billion, representing 9.9% growth at constant exchange rates at the upper end of our guidance. This represents a higher underlying growth level than in 2024, given that we excluded hyperinflation impacts from our sales growth at the beginning of 2025. Business gross margin expanded by 1.8 percentage points to 77.5%, driven by favorable product mix and operational efficiencies. Operating expenses increased by 7.9% as we increased R&D investments and supported our new product launches through sales and marketing investments. OpEx has decreased as a percentage of sales to 39.9%, thanks to our efficiency programs. Business operating income increased by 11.9%, with BOI margin reaching 27.8%. Business EPS, excluding share buyback, grew by 12.2%, in line with our guidance. And including share buyback, our business EPS grew by 15%. This demonstrates our ability to grow EPS faster than sales while investing in future growth. Moving to Slide 16. Our free cash flow has returned to strong levels in 2025 at EUR 8.1 billion, representing 18.5% of sales. We aim to sustainably reach free cash flow of at least 20% of net sales in the medium term. This strong cash flow generation illustrates the quality of our earnings and the effectiveness of our working capital management. A key contributor to this performance was our inventory optimization as we reduced inventory by nearly 30 days. We are targeting a similar inventory reduction in 2026, which will help us to progress toward our 20% free cash flow target. This disciplined approach provides us with significant financial flexibility to execute our capital allocation strategy. Next slide, please. We ended 2025 with a strong capital structure, as highlighted by our low net debt, which increased slightly to EUR 11 billion. We maintained a conservative 0.8x net debt-to-EBITDA ratio. This conservative leverage provides flexibility for future external growth opportunities even while maintaining our AA rating. We successfully deployed the EUR 10.4 billion received from the Opella divestment into value-creating business development and M&A opportunities such as Blueprint, Vicebio, Dren Bio DR-0201, Vigil and some others as well. These divestments and acquisitions allowed us to accelerate our transformation as a biopharma company. Moving to the next slide. In 2025, we executed our capital allocation strategy across all 4 priorities. We significantly increased our organic growth investments in R&D, commercial capabilities, CapEx and digital transformation. These investments fuel both current and future growth. As I just mentioned, we deployed the Opella proceeds into strategic acquisitions. We proposed to increase our dividend for the 31st consecutive year to EUR 4.12, up by 5% from the previous year. Finally, we completed our EUR 5 billion share buyback program. We will pursue our capital allocation policy in 2026. Regarding share buybacks, we will execute a EUR 1 billion share buyback program in 2026. The consistency of this approach demonstrates our commitment to sustainable value creation and shareholder returns while investing in long-term growth opportunities. Slide 19, please. Looking ahead to 2026, we expect to deliver a year of profitable growth close to what we achieved in 2025. For the full year 2026, we guide for high single-digit growth in sales and for profitable growth, meaning business EPS growing slightly faster than sales. Be aware that this guidance is for the full year 2026 and does not necessarily apply individually to each and every single quarter in 2026. Sales dynamics include further portfolio optimization through divestments that will reduce sales by about EUR 200 million in 2026. We expect vaccine sales to slightly decline in 2026. Our gross margin expansion is expected to continue with minimal tariff impact following the agreement reached with the U.S. administration last December. Underlying R&D will increase moderately. In addition to this organic growth of R&D expenses, we have added a placeholder for potential future acquisitions, particularly for Phase I and Phase II assets. Sales and marketing expenses will increase to support growth and launches, while we continue to target stable G&A expenses. Our operating income is expected to include around EUR 500 million of capital gains from disposal. As a reminder, the profit sharing line in our P&L is increasing faster than sales growth by more than 10 percentage points. We now expect a decrease of around EUR 400 million in R&D reimbursement coming from Regeneron this year. This decrease will be more than offset by Amvuttra royalties, which are estimated at approximately EUR 1 billion based on the latest consensus. This results in a positive impact of around EUR 500 million to BOI. Our financial outlook includes an increase of our financial expenses this year, driven by increased net debt from both 2025 and 2026 BD and M&A activities. Finally, we expect a stable effective tax rate. I now hand over to Houman to provide an update on the progress of our innovative pipeline. Houman Ashrafian: Thank you, François. 2025 has been a year of significant delivery across our pipeline. I'll walk you through the highlights. On pipeline delivery, we achieved 12 Phase III readouts and 15 Phase II readouts and then added 10 new molecules to Phase I, including 3 gene therapies, emphasizing our greater focus on research, supported by business development to replenish our early-stage pipeline. On the regulatory front, we obtained 20 regulatory approvals and 22 acceptances, including 9 priority reviews, in addition to other designations, underscoring the progress we've made. Most importantly, we provided patients with 3 new medicines and vaccines: Qfitlia, the first RNAi antithrombin medicine in hemophilia approved in the U.S. and China; Wayrilz, the first BTK inhibitor in ITP approved in the U.S. and EU; and our recombinant COVID-19 vaccine with full approval in the U.S. and the EU. All these highlights represent meaningful progress in delivering transformative medicines and vaccines to patients worldwide. Please turn to the next slide. Turning to the Q4 highlights, where we received approvals, including Dupixent for CSU in the EU, Tzield for Stage 2 T1D in the EU, Wayrilz for ITP in the EU, Cerezyme for Gaucher disease Type 3 in the U.S. We strengthened our position in China with 4 approvals, something that I will return to again today. We received regulatory submission acceptance for Dupixent's AFRS in the U.S., Tzield Stage 2 T1D for children in the U.S. and SP0087 rabies vaccine in the EU. On Phase III readouts, amlitelimab delivered more positive results in atopic dermatitis and Dupixent met its primary endpoint in AFRS. Tolebrutinib did not meet its primary endpoint in the PERSEUS study for PPMS. As a result, we will not pursue its regulatory submission. Ending with pivotal Phase III starts, we initiated the second lunsekimig study for COPD, 2 duvakitug studies, each in Crohn's disease and in ulcerative colitis and in 1 Wayrilz in IgG4-related disease. Next slide, please. I start with amlitelimab, whose data -- recent data provides increasing confidence in progressive long-term sustained benefit and patient convenience. Data across COAST 1, COAST 2 and SHORE Phase III studies and the ATLANTIS open-label Phase II study demonstrated progressively increasing efficacy over time, with no evidence of plateau through week 24 to 52. This validates the potential for both monthly and quarterly dosing from start, offering significant patient convenience as either monotherapy or combined with topical corticosteroids, an important background therapy used in the real world. Amlitelimab was well tolerated with an acceptable safety profile. Much of our amlitelimab OCEANA global atopic dermatitis program has now been delivered, including Phase II and Phase III studies evaluating its efficacy and safety when administered in monotherapy and in combination. Remaining studies, AQUA in patients with background TCS and TCI with inadequate response to biologics or JAK inhibitors and ESTUARY, the randomized maintenance study. We expect both readouts in the second half of 2026, completing our comprehensive package for regulatory submission. Next slide, please. China remains a strategic priority with significant progress made by our regional team. We obtained approvals for global medicines, Cablivi, our anti-von Willebrand factor antibody for acquired TTP and Qfitlia. For China-only medicines, we received approvals for Myqorzo for obstructive hypertrophic cardiomyopathy and for Redemplo in patients with familial chylomicronemia syndrome. These approvals demonstrate our commitment to bringing innovative medicines and treatments to Chinese patients and to leverage Chinese innovation in doing so. Next slide, please. Now let me share an update on our key mid- and late-stage pipeline projects. Our immunology pipeline has been strengthened by having delivered most of amlitelimab's Phase III programs in AD and duvakitug having advanced to Phase III for CD and UC. And lunsekimig will provide data in asthma this half and has potential for life cycle opportunities. Brivekimig is now moving to Phase IIb. In neurology, tolebrutinib is still under review for the EU SPMS, frexalimab in Phase III for RMS and SPMS and riliprubart for Phase III for CIDP, the latter 2 with data already next year. In rare disease and oncology, Wayrilz is making progress with its life cycle planned beyond ITP, venglustat in Phase III for GD3 data coming very soon and Sarclisa expanding with a subcutaneous formulation. Our vaccines portfolio includes multiple programs across pneumococcal disease, yellow fever, meningitis, RSV and pandemic preparedness. Next slide, please. On my last slide, I'll cover the '26 and '27 news flow updates since December's year-end late-stage pipeline review. This year, we expect the remaining Phase III data for amlitelimab in AD and Phase II for lunsekimig in asthma and rare disease with venglustat Phase III readouts, if positive regulatory submissions will follow. We anticipate multiple regulatory submissions based on data we already received last and this year as well as regulatory decisions for medicines and vaccines under review. Next year, we will get the Phase IIb data for brivekimig in HS, followed by Phase III studies of frexalimab in RMS and riliprubart in CIDP. My sincere thanks to all Sanofi R&D colleagues who share my commitment to advancing our pipeline from research to regulatory approval. This represents a rich diversified news flow that we believe will continue to drive value creation for patients, society and of course, for Sanofi. Paul Hudson: So we'll now open the call to questions. [Operator Instructions] Now we'll take the first question. Please go ahead. Unknown Executive: The first question is from Zain Ebrahim from JPMorgan. Zain? Zain Ebrahim: Zain Ebrahim, JPMorgan. My first question is on the Dupixent rollouts in CSU and COPD, which sound like they've been particularly strong. But can you elaborate on how those rollouts are progressing and remind us of the biologic penetration in each of these indications and how Dupixent is faring against competition from RHAPSIDO in CSU and NUCALA in COPD? That's my first question. And my second question is a vaccines question. Just in terms of within your overall vaccines guidance, what you're assuming for Beyfortus in '26 in terms of growth and how that looks for the U.S. versus ex U.S.? Paul Hudson: Okay. Thanks, Zain. Brian, Dupixent? Brian Foard: Thank you, Zain, so much for the question. So I'll go a bit broader and then I'll focus in on a couple of those indications. So as you look at our performance in 2025, really strong performance, 25% growth year-over-year, and we culminated that with a really strong Q4, and I'll talk about that here in a minute, 32%. Now this was driven not just based on those 2 indications that you highlighted, but the foundation of our indications grew as well because it's a volume-driven growth story that we saw in 2025. Now of course, those were on our base indications, but the launch of COPD, the launch of CSU and the launch of BP were new sources of growth that were not in our base in 2024, which allowed us to accelerate growth, culminating in that Q4 that I talked about there just a bit. And again, I'll highlight COPD and CSU in just a minute. But that 32% growth that we saw at the end of the year is really a reflection of those not being in our base, but being strongly in Q4 performance that we saw. Now as we go forward into 2026, we expect that growth to normalize as we talked about, as we've seen before, and we're well on track to deliver our longer-term guidance by 2030 of greater than 22 -- around $22 billion sales. Now specifically on COPD and CSU, I've spoken about COPD quite a lot. It was an inflection point for this year, as you can see from the performance, which was, again, being the first biologic, really the first innovative therapy in more than 10 years in the COPD space, and we've seen a really good response from the physicians. Now remember, we were already in the pulmonologist offices with asthma and having the leading asthma therapy beforehand. So it was a really nice complement. CSU is a very similar story. We've seen a really rapid uptake in the CSU launch. But again, remember, we were also already the leader in the dermatologist offices and the allergist offices with multiple indications, now 8 indications in the U.S. So we've seen that those have contributed really nicely to our growth. Final point I'll make on CSU because you asked a question about the competitors, RHAPSIDO. We don't really zoom in on one. We think competitors across all the immunology indications are really good because the bio penetration rates are extremely low. AD is only 18% still to date, and it's more than 8 years into our launch. CSU, we believe, is in the low teens. So again, this is a place where you're going to continue to see the market growth as well, which is great when we have new competitors come in. Paul Hudson: Okay. Thomas? Thomas Triomphe: Thank you, Zain, for the question. So as it comes to Beyfortus specifically, first of all, let me say that we are happy about the 2025 performance with an increase of a bit more than 9% year-on-year. When you recall very well that on the Q2 earnings call, we had mentioned modest growth expectation for 2025. So happy about the performance. As you've noticed, it's a performance that's coming from broadening the reach to more and more countries, and Beyfortus is now available in more than 45 countries. So as it comes to 2026 outlook, it's a bit early to be very specific on the performance of the product. However, I can say a few words about the dynamics. I think what's very important to have in mind is that there is a little bit of a different dynamic between U.S. and non-U.S. I think that's included in your questions. On the U.S. front, you have seen the recent changes on the pediatric immunization schedule, still very recent. As you have seen from a recommendation perspective, nothing has changed for Beyfortus in terms of recommendation or coverage. Now will it create and to what extent confusion for parents and HCPs? Too early to say. We need to see that in the coming years and we'll be -- in the coming months, sorry, and we'll be able to tell you a bit more at Q2 earnings call more about Beyfortus in the U.S. As of outside of the U.S., we will expand the geographic coverage as we've done over the past 2 years. And the last point I will refer to on Beyfortus. For those that have not seen, there has been a very nice JAMA publication at the end of December 2025. This is the first real-world evidence head-to-head comparison between the use of either maternal immunization or passive immunization with Beyfortus. And you've seen that on very single endpoint, Beyfortus is doing better than the competitor. Thank you very much. Paul Hudson: Thank you for that, Thomas. Unknown Executive: Next question is from Ben Jackson from Jefferies. Ben? Benjamin Jackson: Brilliant. Just 2 for me, please. I guess, previously, you've spoken about a range or numbers of peak sales estimates around amlitelimab. And perhaps now that we've had some additional data, has your view on any of this changed at all? And Houman, perhaps if you could flesh that out. And you've had a little bit of time to talk to KOLs now and figure out how they're feeling. What is the feedback that you're getting on the additional results, not just kind of the positive parts on it, too, but if I can push you, what are the pinch points? What are the bits that they still got a little bit of uncertainty or questions over as well? And how can you address those? So just rounding that up would be brilliant. Paul Hudson: Thanks, Ben. Brian, do you want to give us a sort of broad view? Brian Foard: Yes. And thank you so much for the question, Ben. I think if you think about the broad view of this, and again, remember that we were always bullish on this from an AD perspective. And I think Houman will probably talk about that. As you think about this marketplace, it's still really developing. We talked about the bio penetration, I mentioned 18%. It will more than double. I'm confident that it will more than double. If you look at what psoriasis has done, this is a marketplace that's going to continue to grow. And if you look at it today, as new mechanisms come into the marketplace like we've seen, it actually accelerates the growth of the marketplace, much like psoriasis and so on and so forth. So having a new mechanism like this with a variety of areas in which to differentiate it, I believe -- I mean, we remain extremely confident about the opportunity in that big marketplace. Paul Hudson: And Houman, do you want to... Houman Ashrafian: Yes. Just to top and tell what Brian has said, I couldn't support more the importance of a novel mechanism in this space, which goes beyond a straightforward anti-cytokine blockade. Of course, that's an excellent mechanism in disease, but the addition of a T cell modulator with the promise, and I underline the word the promise of long-term immune normalization is obviously very attractive in the conversation. You are right to call out the importance of being more data-driven. And of course, we've consistently shown the difference between this molecule that has a Q4 and Q12 dosing optionality, which means down to after loading dose 4 injections a year, which not only provides optionality for patients but also site of injection, et cetera, which will matter. I'd also like to -- both of those are really important, but I'd like to not only underline the importance of the mechanism and the optionality, but that this molecule remains aligned with our initial benefit risk assessment, which is ever so important in this space, which is hugely biologically underpenetrated. And Brian, at the very beginning of the call outlined the importance of having options for these patients in terms of therapeutics. So finally, you asked discussions with prescribers. We did many hundreds of interviews over the last couple of years, including at the recent meeting in Paris. And I can genuinely say that there's enthusiasm about a novel mechanism of action in this space. Thank you very much for the question. Paul Hudson: Thank you. Unknown Executive: Next question is from Seamus Fernandez from Guggenheim. Seamus? Seamus Fernandez: Let's try it again. There we go. So just a couple of questions. First one is on the kind of Kaposi sarcoma case that we saw. Can you provide a little bit more detail on that as it relates to amlitelimab? And is this on mechanism in your view? Or is it more a reflection of the sort of specific patient profile in that particular case? And just wanted to confirm that there were no and have been no additional cases seen in the overall program for amlitelimab. The second question is on lunsekimig. I think you made a comment at a conference earlier this year, specifically that there's a contribution of -- that you believe there's a contribution of TSLP in some early atopic dermatitis data as it relates to lunsekimig. I was just hoping you could clarify and confirm that comment and your views and hope that lunsekimig in that formulation -- in that disease state could potentially have a role. Paul Hudson: Okay. Houman? Houman Ashrafian: Yes. Thank you. Multiple parts to that question. Number one, let me do the second one first. Just to very quickly take that off the table. Yes, there is existing data, not with our molecule, but other people's molecules that TSLP may indeed have a therapeutic benefit in the treatment of atopic dermatitis. Obviously, IL-13 is well established in this space, the combination of TSLP and IL-13 indeed may have an additive or indeed synergistic effect. We are testing that clinical hypothesis will be very data-driven. So we look forward to seeing the results of lunsekimig, not only in asthma and its related adjacencies, but also in atopic dermatitis. And then as you outlined in the amli question you composed to sarcoma, the answer to your question is that all immunomodulators come with a theoretical risk of infectious complications or increased infectious risk. Kaposi's sarcoma unequivocally is caused by herpes virus, HHVA, sort of a standard herpes virus. And it's not surprising that a herpes virus will be associated with an immunomodulator as they are with all other immunomodulators. There is some genetic evidence to suggest perhaps that with amlitelimab, there may be a differential sensitivity to some or other herpes viruses. So as you say, potentially on mechanism and the very first ID that we put out before we ever started the Phase III as this was anticipated and was not regarded as a significant issue of concern. The benefit risk profile with this molecule is in line with everything we've said. And as is our activity, we will continue to produce not just with Kaposi's sarcoma, but all the broader safety and benefit of this molecule as we continue to publish the data sequentially until the end of OCEANA studies. Unknown Executive: Next question is from David Risinger from Leerink. David Risinger: Yes. So congrats on the fourth quarter performance. I just have a couple of questions. First, Houman, in terms of the amlitelimab press release that you issued recently, when do you expect to disclose full results from those studies? And François, business EPS is expected to grow faster -- or slightly faster than sales this year despite losing R&D reimbursement from Regeneron during the third quarter. Could you just talk about the offsets to that? And looking forward to 2027, how you're thinking about prospects for growth and earnings as well? Paul Hudson: Thanks, David. Houman? Houman Ashrafian: Yes, a quick answer to your question. I think we committed to presenting the COAST 1 data AD, which I think at the end of March in Denver this year, subject to the -- on conference organizers, [ clement ] nature, we may be able to put COAST [ 2 ] and SHORE in there, that's still subject to discussion. So we hope to be able to present most of the data to you by the end of March. Paul Hudson: Okay. Thank you, François? François-Xavier Roger: Yes. David, as far as 2026 is concerned, to start with, indeed, you mentioned it, we will have a decrease of the R&D reimbursement by Regeneron of EUR 400 million this year. It was initially thought it would be EUR 300 million, but since Dupixent is growing faster -- even faster than we thought, we will accelerate this determination of the reimbursement earlier. So we have a negative impact of EUR 400 million this year, but it will be more than offset by the Amvuttra royalties, which are going to increase even further than we thought. So we had almost 0.5 billion of Amvuttra royalties in '25. It will be probably around EUR 1 billion in '26. So we'll have a net between the 2 items in terms of impact on the BOI of about positive EUR 100 million this year in '26. In '27, we had initially thought that we would have the full impact of the termination of the R&D reimbursement by Regeneron. We expected initially that it would be a decrease of BOI of about 800 million in '27. It will be a bit less, probably with what we see today, around EUR 700 million, as a consequence of what I said earlier. On Amvuttra, it should be probably around -- it's still early to say, but further increase of EUR 300 million. So the net between the 2 will be probably a negative in '27 at BOI level of minus EUR 400 million, which is a bit better than what we had said last time. Roy Papatheodorou: Next question from Simon Baker from Redburn. Simon Baker: Two if I may, please. Firstly, one for Houman. You've had a bit of a rationalization of your Phase II portfolio. I just wonder if you could talk us through any overarching principles that guided those decisions and future development plans? And then secondly, moving on to Dupixent. The main patent goes in March 31. But as far as we can tell, you've got about 40 patents which expire between late '31 and February 2045. So I just wonder if you could give us your thoughts on life after March 31 in terms of the potential LOE for Dupixent? Paul Hudson: Okay. Houman we'll get you and then, of course, quickly to Roy for a moment. Houman Ashrafian: Thanks for the question. The -- when I started 2.5 years ago, it was very clear that we have a dynamic allocation strategy. We are good stewards of capital, and we need to ensure that every dollar is well spent. So the overarching strategy, which François and I hold hands on, is that we will, on a regular basis, now on at least quarterly basis, guided by AI establishment of value, we will dynamically allocate -- reallocate resources. And what that means is there'll be some programs that stop. But of course, it also means that we will double down on some programs and we'll do the right things even if they're hard. So the overarching principle is very simply in relation of capital allocation to value. Paul Hudson: Thank you. Roy? Roy Papatheodorou: So Simon, thanks for the question. We do expect Dupixent to be protected by its patents beyond March 31 in the U.S. That's the reality. As you can imagine, lots of innovation, lots of indications and counting. These are being recognized by multiple -- and thank you for going through them, granted and to be granted patents ranging from [ '31 to '45. ] We believe we have a very strong patent portfolio, which we intend to vigorously defend. You'll understand, it's too early to speculate on specific dates of biosimilar entry, if and when patent fights commence, we'll be able to give you more details of what is being challenged and where, but we feel we're in a good place with multiple patents. Paul Hudson: Okay. Thanks, Roy? Roy Papatheodorou: The next question from Luisa Hector from Berenberg. Luisa? Luisa Hector: I wanted to ask on vaccines, please, because if we look at 2025, you deployed about EUR 3 billion on business development, M&A. So I wondered if you're putting that together with your R&D, is that a significant step-up in capital allocation to vaccines? And how should we think about the opportunity cost versus building your drug pipeline? And then perhaps a little more color on Dynavax. It looks like a neat deal. So how did you value it? Is this a U.S. opportunity mainly? Is it catch-up and then you move to an annual cohort eventually? And should we think about shingles as a booster opportunity in the over 70s? Paul Hudson: Thank you, Luisa. Thomas, 2 good questions for you. Thomas Triomphe: So I will start in the reverse order, Luisa, if you don't mind. So on Dynavax, let me first start by saying that the transaction is not closed yet. So as you know very well, we are still processing. But going back to your question, I can talk a little bit about the rationale. A few elements I'd like to highlight on this. First of all, it goes very well with what we have discussed before with the fact that we are very present on a significant part on the pediatric immunization schedule. But as we discussed in the past, we see, in terms of demographics, simply an increase on the older adult group and a decrease over the past few years on the pediatric and that's why our strategy is more and more focused towards the older adult group in terms of pipeline development. And the Dynavax proposed acquisition very well fits that profile, with [ HEPLISAV-B ] in mostly focused on the U.S. So that's really the cornerstone for this product with a very differentiated product, with a 2 doses regimen versus 3 doses for any other competitor. And you've seen the progress in terms of market share. And we believe, by adding our commercial muscle there, we can further improve the performance in this segment. In parallel, you have mentioned Shingles, very interesting Phase I/II data there on the Dynavax shingles candidate. We believe there's a great possibility in terms of marketplace if there is a candidate that comes with a significant similar efficacy than the current incumbent in that place. However, with a much better tolerability, and we believe that the Dynavax technology will enable that profile. Going back to the first part of your question on capital allocation. So if you look at it from the way you framed it, indeed, there has been an increase in 2025, but I'd like to maybe take a step back and explain to you how we look at it. We don't look at capital allocation or acquisition per TA. The way we look at it is what is the strategic fit of every single possibility in terms of acquisition or licensing it? Does it fit our portfolio? Does it fit our capabilities? Does it fit our long-term perspective on the business? We have a very strong long-term perspective on the vaccination business, where the fundamentals are very strong. We believe that the acquisition we have made, both early and later stage in 2025, do reflect and do fit well that perspective. So we are not looking at it partly. We are really looking at it -- what's the strategic fit, what is -- are we the best owners? Can we deliver significant added value? And if that's the case, at the right price, then we go for it. Roy Papatheodorou: Yes. Next question from Pete Verdult from BNP. Pete? Peter Verdult: Yes, Pete Verdult, BNP. Apologies if some of these questions have been asked, but we've had a rather long competitor call to finish off. So just 2 questions. Thomas, sorry to come -- to stay on vaccines. Can we spend some time on the outlook in light of some of the recent developments that you've already touched upon, particularly in the U.S., on the context in terms of the 10 billion target you set for 2030. So just looking for a little bit of a ballpark reminder. What percentage of your business today is exposed to these U.S. pediatric vaccination schedule changes? I know we're not expecting any imminent impact. But just to remind us what the ballpark exposure is. Could you flesh out a bit more some of the U.S. and ex U.S. Beyfortus dynamics? And then when it comes to flu, what's your sort of -- on a net basis, how are you thinking about the outlook? On one hand, you've got mRNA threats receding, but you've got investor concerns around risks from competitor preventative assets rising. So net-net, how are you thinking about flu? So that's the first question. And then much more succinctly, just Paul or François, just on capital allocation. Given the pipeline disappointments, is it fair to assume business development activity is set to accelerate significantly going forward? Any -- are you really not going to talk about specific assets, but just your intention to do BD. Is that set to step change? François-Xavier Roger: Okay. Thank you. Thomas and François? Thomas Triomphe: Yes. So welcome first, Pete. And indeed, there was a bit of a similar question at the front stage, so I'll be pretty fast. So on the outlook about vaccines, and I think to be clear and explicit, you're referring to the recent U.S. [ childhood ] immunization recommendation changes in the U.S. Maybe a few words about this and then we'll turn the page. So those recommendations, to be clear, have been pivotal in making sure that we can prevent life-threatening disease in U.S. citizens for many, many decades. The recent and sudden shift there has been in early January to a 3-tier childhood vaccination framework, full generate confusion for both parents and providers. We don't know that. We don't know yet if there will be a concrete impact in terms of this year, but it's way too early to look at that. A couple of points, though, in terms of dynamics I'd like to highlight. First of all, you've seen that every single medical society and by far, the very, very fast -- vast majority of HCPs have decided to stick to the previous immunization schedule, first point. Second point, you have not missed the fact that all vaccines remain covered by insurance or by Medicaid or Medicare, depending on the different products. So it's not a question of coverage. But Pete, you're right, there could be some confusion in terms of U.S. vaccination schedule. The way we look at it is what can we do and we are focused on our energy and our actions. We are engage proactively with HCPs with clinical societies in every single country, U.S. and non-U.S., we expand the benefits of our product, how they are differentiated from others, and we are focused on what we can do. So that's really for the situation in the U.S. You mentioned a couple of things on Beyfortus U.S., ex U.S., we mentioned that in the call before. But as I was mentioning, happy about the '25 performance, 9.5% increase. '26, too early to say. We expect to give more guidance on this as we move forward in the year, probably in the Q3 earnings call, we'll then a look at U.S. versus ex U.S. Your second point was on flu and how we look at the marketplace moving forward. You've seen that Q4, flu performance was significant. Maybe it's the opportunity for me to mention a couple of things. It's the second season in a row, 2 years in a row, 2 winters where there has been a massive increase in terms of influenza hospitalization across the northern hemisphere on this side of the Atlantic or on the other side, which is a very important reminder of the fact that these cases can be prevented pretty simply with the vaccination, including with differentiated flu vaccination. Happy about our 2025 performance, which ends up showing that our market share will increase, especially thanks to our differentiated products, Fluzone High-Dose, which has shown great data again this year clinically as well as Flublok [indiscernible], very important differentiator moving forward. Obviously, this comes in a very specific situation, i.e., a decrease in terms of VCR in the U.S. and a slight increase of influenza VCR in Europe, but you understand from a value perspective, these are very different markets. Moving forward, we'll probably give some more guidance on flu at the Q2 earnings call. MRNA on flu is not a concern for us for 2026. It will not be present. It may -- it's not a concern for us in 2027 neither, simply because as we discussed before, people are looking for the right profile in terms of efficacy and tolerability profile. So we think we are well positioned. We have the right products. More to come after the prebooking season, so probably around the Q2 earnings call. Paul Hudson: Thank you, Thomas. François? François-Xavier Roger: Yes, Pete, on the capital allocation question, well, first and foremost, I presented it earlier, we have a strong balance sheet that gives us flexibility. That being said, we will remain very disciplined. So we will use our capital essentially around 3 criteria in terms of external growth, BD and M&A. Strategic, essentially around our 4 existing main therapeutic area plus potentially some white spaces. We want to make sure that we bring scientific differentiation with best-in-class, first-in-class assets and differentiated assets, and we want to secure financial return as well. We are certainly not chasing growth for the short term and medium term. You saw our growth profile last year. You see our growth profile for 2026, which is at the upper end of the industry. So not chasing growth. But we are rather focusing on the longer term to complement our pipeline. So we have a certain number of assets in our pipeline. We know as well that we have -- we discussed it a few minutes ago, to manage the [ LOE ] of Dupixent at the earliest in 2031, we just discussed it. So as a consequence of that, we will try to focus essentially on Phase I, Phase II assets, which is our priority. We could as well, as we did last year, by the way, complement it with commercialized assets, which will probably, to a certain extent, mitigate the BOI/EPS impact. Anyway, we will remain very disciplined. And I would not say we have time because time flies, and we have a feeling of urgency. But once again, we will be super focused and super disciplined. Roy Papatheodorou: The next question is Steve Scala from TD Cowen. Steve? Thibault Boutherin: Two questions, please. First, I'm curious why Sanofi has not been as forthcoming as Regeneron on Dupixent life cycle extension programs. I'm referring specifically to what Regeneron shared earlier this month. My understanding is that you have similar rights as you do now. So are you simply not as confident in those programs? So that's the first question. Second question is, in the past -- in past quarters, Sanofi has noted on the Dupixent slide that Dupixent was #1 in new-to-brand Rx and #1 in total brand share in the U.S. Curious why that was left off this quarter. Is that due to competition, specifically from [ Ebglyss ]? Paul Hudson: Okay. Brian, 2 questions for you. Brian Foard: I'll start with the second one. Steve, thanks. That's a really nice setup. Sorry, we missed that on the slide. We are #1. We remain #1 in every single indication across each of our specialists. So apologies, I think we are now adding more things about new indications and whatnot. We probably left that off there, but no. And I don't foresee that changing anytime soon. Now as it relates to LCM and forthcoming this from a Regeneron standpoint. I'll build on what Roy said. First, it starts with our IP. First, I have to think about that, how are we going to continue to defend that long into the future. And so Roy gave a statement there. So we've got quite some time. But we've been building along with the alliance and LCM strategy, as you would imagine, and we will reveal it in due course. Most likely the first half of this year, you'll get an update on where we stand as far as what we're doing with Dupixent specifically. Might be formulation related, so on and so forth, but you'll get a bit of an update there as well. Additionally, we are working on the next-generation IL-4Ra with Regeneron. Regeneron talked about this a little bit at JPMorgan, but we continue to work on -- and collaborate on programs that we have across the alliance. And again, that could be really meaningful as a follow-on Dupixent and so on and so forth. But beyond that, given our success across the alliance for quite some time now, we're always open to and interested in considering future collaborations with Regeneron, as we said at JPMorgan. So I feel like we're in a really good spot right now, more to come in the very near future. Paul Hudson: Yes. Next question from Sachin Jain from BofA. Seamus Fernandez: Just 2 questions from me. Firstly, big picture, I guess, for Paul. There's a sentence in the press release that talked about midterm profitable growth for 5 years. And at a recent conference, you talked about potentially delivering, I guess, implied with teens EPS. So just a big picture from your side. What was the intent on that signaling and giving you consensus as large as their ex pipeline? So just thoughts as to inserting that commentary within the debate for investors. And then secondly, one for Houman. Do we get any further TL1A Phase II data through the course of '26 that further profiles the asset as we start looking to that Phase III data, I guess, into '28? Paul Hudson: I should maybe let François comment first on profitable growth. François-Xavier Roger: Yes, profitable growth. I think that we included that comment in the press release because we had a lot of questions. We just wanted to make sure that the market understands that we do expect to deliver an attractive level of growth to start with for the next 6 potentially years and that this will be coming with profitable growth as well because there was a question a couple of quarters ago about our capacity to deliver profitable growth each and every single year. I confirmed it a little bit earlier today. There was a question more specifically about '27 given the end of the R&D reimbursement with Regeneron, but it's not a defensive move, it's just a confirmation of the way that we see the outlook for the medium term. Houman Ashrafian: And your second question, the answer is simply, yes. We will have maintenance data for the TL1A, at some point this half. Roy Papatheodorou: Next question from James Gordon from Barclays. James? James Gordon: James Gordon from Barclays. One question was on business development. I know you've had some questions on this already, but a follow-up to those, please. I've seen some attributive comments this morning about the company having a EUR 14 billion to EUR 15 billion BD firepower amount for this year. And assuming that is right, that was the comment, what is the thinking there? Is it that you do -- you can really fire that immunology to get more assets that could complement a follow-on from Dupi? Or with immunology looking a bit crowded and you've got a lot going on in immunology anyway already and a bit more competition coming as well. Could you focus beyond Dupi and say, right, we're going to broaden out other areas of the business. So could it be like EUR 15 billion on one big deal? And if so, is it more likely to be trying to do even more immunology or could you diversify? So the second one I was just going to say as well. So [indiscernible] for AAT, I didn't see an update on the regulatory plans. Have you now spoken to the FDA? Or if not, when will you? And do you think you can file on the data you've got? Paul Hudson: Why don't we get François, then... François-Xavier Roger: No, I will just -- I will answer on the EUR 15 billion, which is I would say the upper limit of what we can do to maintain our [ AA ] rating. So it has nothing to do with where we can invest by TA and so forth. As I said, I mean we are interested fundamentally in strengthening. Our position in our 4 existing TAs plus potentially white spaces. We could always contemplate going further than that. But the EUR 15 billion was the, let's say, technical limitation to preserve our AA rating. Paul Hudson: Thank you. Houman? Houman Ashrafian: Yes. I'll follow Brian's lead. Thank you for the setup. We had excellent data, as we announced late last year. We'll imminently, certainly, this half of the year, go to the FDA to have broader conversations on the trajectory of that molecule as we previously suggested. Paul Hudson: Okay. I think was the final question, was it? Or there's next question? Roy Papatheodorou: Yes. Next question from James Quigley from Goldman Sachs. James Quigley: I've got 2, please. Hopefully, they haven't already been asked, but I'll give it a go anyway. So firstly, on -- following on from Steve's question on the Regeneron portfolio. The IL-13 assets were not in the alliance. So was that a Sanofi decision? So is it that you think lunsekimig is more attractive option for IL-13. Can you give us any color yet as to why you're excited about the IL-13 and TSLP combination for lunsekimig? And then secondly, on the hemophilia portfolio. ALTUVIIIO continues to show strong growth. What are your expectations here in terms of gaining additional share into 2026? Are you willing to give a peak sales forecast here now that you hit blockbuster status? And also for Qfitlia, the launch is progressing steadily. You've got China approval now. So what's the feedback been in terms of where Qfitlia is being used? Are there any lingering thrombosis concerns with the product that may be holding it back? Paul Hudson: Okay. Thank you so much. Okay, Brian, over to you. Brian Foard: Yes, James, thanks so much for the question. I briefly addressed it just before. So there's not a decision necessarily on the IL-13. I think we talked about this a little bit at JPMorgan not so long ago. But as I said before, we are -- it's not in the alliance currently, but we're always open to having conversations with Regeneron about potentially including it in the alliance. As I also said, we have a long-acting IL-4 RA that actually is in the alliance that we're actually working on right now as a follow-on asset to [ dupilumab ]. So again, long withstanding great partnership with Regeneron, so we'll always have conversations with them about what we might do next together. And as it relates to Qfitlia, you want me to tackle the Qfitlia one next. Qfitlia is again, it's still early days as far as the launch goes. We said from the very beginning, this is really a very cool therapy in the sense that it is a very targeted kind of precision medicine, if you will, come to the diagnostic as it relates to antithrombin levels. And again, what we said is we'll have a little slower ramp. I think it will be a lot stickier on the back end from a patient standpoint as physicians get really -- they can dial it up and dial it down as the patient presents and it's really more personalized by each patient. So far, we've heard really good feedback from the marketplace. No concerns as far as safety goes so far. But again, it's early days and promising. We'll keep you up to date in future calls. Paul Hudson: Okay. Thanks, Brian. And then I think there may be one more? Unknown Executive: Yes, one more question and last question from Graham Parry from Citi. Gram? Graham Glyn Parry: Apologies if it has been asked, I think it has. I just wanted to check on itepekimab. You're saying about looking at additional data for the path forward. So can you give us time lines on what it is you're looking on the data and the clarity and time lines on path forward for that molecule? And then tolebrutinib in the U.S., are we just correct to assume no path forward in the U.S.? If you could just comment on rest of world regulators' attitudes to the ability to monitor compared to the U.S., that would be very useful. Houman Ashrafian: Graham at Citi, and those that will know, no, I have made that point. Thank you for the question. The first question, let me do it in reverse, tolebrutinib's approach is pretty straightforward. We're waiting for regulatory comments from rest of world, as you say from EU. And we'll see where we take it from there. And then on itepekimab, as I consistently said, the next steps for itepekimab will be determined by interactions with the FDA predominantly to establish exactly the requirements for a replication study for Phase III going forward. As soon as we know, we will commit to sharing it more broadly in partnership with our successful alliance partners Regeneron. Paul Hudson: Okay. Thank you, Houman. Thank you, Graham. Well, thanks for this last question. In 2025, we achieved a strong year of profitable growth. Sales increased by 9.9% at constant exchange rates, while business EPS improved significantly faster by 15%. We launched 3 new medicines and vaccines: Qfitlia, Wayrilz, and Nuvaxovid. All this was made possible by the dedicated effort of all Sanofi colleagues worldwide. In 2026, we expect sales to grow by a high single-digit percentage and business EPS to grow slightly faster than sales. We anticipate profitable growth to continue over at least 5 years. Based on our pipeline, combined with external growth opportunities, our ambition is to pursue earnings growth into the next decade. With this, I would like to thank you for the interest in Sanofi, and we'll now close the call. Thank you.
Operator: Welcome to the Fourth Quarter and Full Year 2025 Stryker Earnings Call. My name is Leila, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question and answer session. This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release as an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir. Kevin Lobo: Welcome to Stryker's fourth quarter earnings call. Joining me today are Preston Wells, Stryker's CFO, and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I will provide opening comments followed by Jason, with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding our results and guidance before opening the call to Q&A. Our 2025 results were outstanding for both Q4 and the full year across all key financial metrics. Against double-digit comparatives from the prior year, organic sales growth was 11% for Q4 and 10.3% for the full year, surpassing $25 billion in sales. Globally, for the full year, our neurocranial endoscopy instruments, and trauma and extremities businesses all delivered double-digit organic sales growth, demonstrating continued robust demand across our product portfolio. Full-year U.S. organic sales growth was an impressive 11.2%, and international organic sales growth was 7.5%. International results were led by strong performances in our emerging markets, South Korea, and Japan. These countries and our other international markets continue to represent significant growth opportunities for us, and we look forward to launching products internationally that have already demonstrated success in the United States. We also had excellent earnings and cash flow performance in 2025. While managing tariff headwinds, our teams delivered a second consecutive year of at least 100 basis points of adjusted operating margin expansion. This performance demonstrates strong operational execution and earnings power that we have been building up over time. Preston will cover cash flow, which was also a standout for us in 2025. Overall, our financial results reflect the durability of our high-growth offense, with the following structural components: exceptional talent and culture, active M&A, a steady cadence of product launches, and systematic specialization by creating new business units and splitting sales forces. The new SmartCare business unit within medical combines Vocera and Care AI, and we have split multiple sales forces in the past two years. One example is the new breast care sales force within endoscopy, that launched in 2025 and has contributed to their terrific growth. We have momentum entering 2026 and expect to continue delivering growth at the high end of medtech, which is reflected in our full-year 2026 guidance. Our financial position remains strong, providing firepower to execute on M&A in 2026. I would like to thank our teams for another terrific year fueled by their commitment to our mission and unwavering dedication to our customers. With that, I will now turn the call over to Jason. Jason Beach: My comments today will focus on providing an update on the current environment as well as a few other highlights. Procedural volumes remained healthy in the fourth quarter, and we continue to expect the markets will remain strong in 2026, underscored by the continued adoption of robotic-assisted surgery, favorable demographics, and durable demand for our capital products. Our U.S. capital-related businesses delivered robust performance in the quarter, helping to drive double-digit organic sales growth for Q4 in our instruments, medical, and endoscopy divisions. Hospital CapEx budgets remain healthy, and our capital order book continues to be elevated as we enter 2026. Next, powered by Mako 4, we delivered a stunning quarter and year of Mako installations with yet another record quarter both in the U.S. and worldwide. Our installed base now includes more than 3,000 Mako worldwide. Alongside our record number of installations, we also continue to see steady increases in utilization, bolstering our number one position in U.S. knees and hips. As we exited the year, over two-thirds of our knees and over one-third of our hips were performed on Mako in the U.S. Globally, utilization rates were approximately 50% for knees and over 20% for hips. We have significant momentum heading into 2026 and continue to receive very positive feedback on the latest Mako applications, including advanced primary with revision hip, spine, as well as shoulder, which will launch on Mako 4 mid-year. Finally, Inari, which is now known as our peripheral business, had a strong finish to the year, highlighted by robust procedural growth in the high teens that was partially offset by destocking, which will be minimal in Q1. We are set up for success in 2026 as the business approaches its one-year anniversary as a part of Stryker. As a reminder, peripheral vascular is reported as part of our vascular division results. With that, I will now turn the call over to Preston. Preston Wells: Thanks, Jason. Today, I will focus my comments on fourth-quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release. Organic sales growth was 11% for the quarter compared to 10.2% in 2024, with the same number of selling days in both periods. Pricing had a slightly favorable impact, and additionally, foreign currency had a 1% favorable impact on sales. For the full year, our organic sales growth was 10.3% against a strong comparable of 10.2% in 2024. The impact from price was favorable by 0.4%, while foreign currency had a 0.5% favorable impact and 2025 had one fewer selling day than 2024. Our fourth-quarter adjusted earnings per share of $4.47 was up 11.5% from the same quarter last year, driven by sales growth and operating margin expansion, partially offset by tariffs, higher interest expense, and a higher effective tax rate. Foreign currency translation had an unfavorable impact of $0.02. Our full-year adjusted earnings per share of $13.63 was up 11.8% from 2024, driven by our outstanding sales growth and a return to pre-COVID adjusted operating margins with a second consecutive year of at least 100 basis points of expansion. Our margin expansion included improvements in gross margin from business mix and cost improvements despite the impact of tariffs. For the year, foreign currency translation had a favorable impact of $0.01. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had an exceptional organic sales growth of 12.6%, including U.S. organic growth of 13% and international organic growth of 10.9%. Instruments had U.S. organic sales growth of 19.1%, with high teens growth from both our organic orthopedic instruments and Surgical Technologies businesses. Performance was fueled by strong capital demand in power tools, SteraShield, smoke evacuation, and Neptune waste management. Endoscopy had U.S. organic sales growth of 11.1%, led by robust double-digit performances in our sustainability and sports medicine businesses and high single-digit growth of our core endoscopy portfolio. We continue to see strong demand for our sports medicine shoulder in the 1788 video platform. Medical had U.S. organic sales growth of 13.6%, that included strong double-digit performances in acute care and Sage businesses. From a product perspective, Medical's fourth-quarter growth was driven by 35, Procuity, Oceara, and Sage products. We do not expect the supply constraints we experienced in 2025 to negatively impact growth rates in 2026. Vascular had U.S. organic sales growth of 4.3%, reflecting a strong double-digit performance in our hemorrhagic business that was powered by the recent launch of our Surpass Elite flow diverting stent. This performance was offset by competitive pressures in our ischemic business. As a reminder, Vascular's organic sales growth figures do not include our Peripheral Vascular business. And finally, Neurocranial had U.S. organic sales growth of 9.9%, led by an outstanding double-digit performance in our IBS business and near double-digit performance from our cranial maxillofacial business. Internationally, MedSurg and Neurotechnology's organic sales growth was 10.9%, led by double-digit growth in our endoscopy and neurocranial businesses. Geographically, a slower capital environment in Europe during the quarter was offset by robust demand in other international markets, including very strong performances in Australia and New Zealand, our emerging markets, and South Korea. Orthopaedics had organic sales growth of 8.4%, including U.S. organic growth of 9.6% and international organic growth of 5.4%. Our U.S. Knee business grew 7.6% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from recent Mako installations. Our U.S. Hips business grew 5.6% organically, highlighted by the enduring success of our Insignia HipStem and continuing adoption of our Mako robotic kit platform with expanded ability to address more difficult primary hip cases as well as hip revisions. Our U.S. Trauma and Extremities business grew 8.5% organically in the quarter, led by double-digit growth in our upper extremities business as our multiyear strong shoulder growth trajectory continued throughout the year. Additionally, our core trauma business had solid high single-digit growth against a very high prior year comparable. Core Trauma's performance continues to be driven by Pangaea, our differentiated plating portfolio, as well as our market-leading position in nailing. Our U.S. Other ortho business grew 28.7% organically, driven by robust installations in the quarter led by momentum from the successful launch of Mako 4 in the U.S. Internationally, orthopedics had an organic growth of 5.4% against the double-digit comparable in the prior year. Growth was led by strong performances in Canada and many of our emerging markets. As a reminder, our international results include a nominal amount of spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets. Now I will focus on certain operating and non-operating highlights in the fourth quarter. Our adjusted gross margin of 65.2% was 10 basis points lower than the fourth quarter of 2024, reflecting the impact of tariffs that were mostly offset by business mix and cost improvements as we continue to optimize our supply chain and manufacturing processes. Our adjusted operating margin was 30.2% of sales, which was 100 basis points favorable to 2024, driven by lower adjusted SG&A as a percentage of sales primarily due to our ongoing focus on operational excellence and margin expansion. Adjusted other income and expense of $107 million for the quarter was $56 million higher than 2024 due to increased interest expense from debt issuances early in the year and lower interest income. For 2026, we expect our full-year other income and expense to be approximately $420 million. The fourth quarter had an adjusted effective tax rate of 16.1%, reflecting the impact of geographic mix and certain discrete tax items. For 2026, we expect our full-year effective tax rate to be in the range of 15% to 16%. Turning to cash flow, our year-to-date cash from operations was $5 billion, an increase of $820 million from 2024 that was primarily driven by higher earnings and year-over-year working capital improvements. As a result, we delivered free cash flow as a percentage of adjusted net earnings this year, 81% compared to 75% last year. Consistent with the long-range plan we presented at our Investor Day, we will continue to target a range of 70% to 80% for free cash flow as a percentage of adjusted net earnings. And now I will provide full-year 2026 guidance. Given our strong exit from 2025, our presence in healthy end markets, sustained procedural volumes, and strong demand for our capital products, we expect 2026 organic net sales growth to be in the range of 8% to 9.5% and adjusted net earnings per share to be in the range of $14.90 to $15.10. Our full-year 2026 sales guidance includes a modestly positive impact from price. Additionally, if foreign exchange rates hold near year-to-date levels, we anticipate a slightly favorable impact on both sales and adjusted earnings per share. Compared to 2025, we will have the same number of selling days in each quarter during 2026. Finally, we expect the seasonality of our sales to be similar to 2025. In addition, we expect full-year tariff impacts to be approximately $400 million, which includes an incremental $200 million compared to 2025 that will be realized in the first half of the year. With that, I will now open up the call for questions. Operator: At this time, we will open the floor for questions. If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself at any time by pressing 5 again. We would like to remind callers to please limit themselves to one question and one follow-up question so we can accommodate as many participants as possible, and we'll pause just a moment. Okay. Our first question will come from Larry Biegelsen with Wells Fargo. Your line is now open. Please go ahead. Larry Biegelsen: Good afternoon. Thanks for taking the question, and congratulations on a really strong end to the year and a strong 2025. Kevin, you're guiding to 8% to 9.5% organic growth for 2026 versus 8% to 9% to start last year. You know, what's giving you the confidence to start this year slightly higher? And at the Investor Day in November, you seemed to believe it was possible to grow in 2026. 10% given the market conditions at the time. Is that still the case? And I had one follow-up. Kevin Lobo: Thanks, Larry. As you saw, this is our fourth consecutive year of double-digit organic sales growth. At some point, you start to think maybe the comparatives will catch up to us. But given the order book, given the strength of the Mako performance we had in the fourth quarter, which, of course, then contributes to implant growth in the future, we really feel more positive, I'd say modestly more positive this year than we did one year ago, which gives us the confidence to start the year with that range. Little wider range, but a little on the higher end. And as I said at this call a year ago, 10% is certainly possible. But it does depend on a lot of things that are in the macro environment procedure growth. But we do have a strong order book. We do feel good about procedures, and certainly possible that we could do our fifth year in a row. Larry Biegelsen: That's helpful. And for my follow-up, Kevin, you elevated Spencer Stiles to president and chief operating officer in December. It's not the first time, you know, Stryker has had a president. I think, you know, Tim Scannell had that role until 2021. So can you please talk about, you know, why this was the right time for this change? Know, what it means for Stryker? You know, and perhaps, you know, what it means for you going forward. Thanks for taking the question. Kevin Lobo: Yeah. Yeah. Thanks, Larry. As you as you know, we did it before. And I think Spencer clearly is ready for a challenge. He's been a group president for some time now. It provides him really a tremendous platform to lead our global commercial organization. It also enables a cascade of other promotions, including Dylan Crotty, to head up orthopedics and then a ripple down throughout the organization. So this is really a great chance for our fantastic leaders to assume more responsibility, and I look forward to partnering with Spencer to lead the company as we continue to grow. $25 billion in sales and clearly, with momentum behind us, does enable us to have additional leaders running large businesses. Operator: Your next question will come from Robbie Marcus with JPMorgan. Your line is now open. Please go ahead. Robbie Marcus: Oh, great. Thanks for taking the questions. I'll add my congratulations on a nice quarter. Two for me. Maybe to build on Larry's question on just sort of the confidence going forward, clearly, the capital equipment market ended on a really strong year in '25. Kevin, how are you thinking about pricing both for your capital business and your implant business in 2026 and your expectations for the capital environment capital in 2026, U.S. and outside the U.S.? And then I have a follow-up. Preston Wells: Yeah. Hey, Ravi. Just on the pricing piece of it, you know, we talked about pricing before. It's something that we certainly have been focused on the last few years, and I think you've seen that reflected in our price gains that we've been able to deliver over the last couple of years. And now as we see the numbers, we're building, you know, price gains on top of price gains from before. And so expect that to be something that continues in the next year just given the muscle that we've developed and the focus that we have. So if we think about 2026, we expect 2026 to look pretty similar a price standpoint to 2025. Jason Beach: Hey, Ravi. It's Jason. Just as it relates to kind of the overall capital environment, I mean, you said it well. We had a strong finish to the year if you think about our capital businesses. And then if you just consider similar to what I said in some of my prepared remarks, from an elevated backlog perspective, the environment's pretty good. And so we feel really good about the capital environment as we go into 2026. Robbie Marcus: Great. Maybe looking at the quarter, there were a couple of businesses that did particularly well. You mentioned Mako, the other number was particularly strong as was endoscopy and instruments. And one that stood out on the opposite side or two, trauma and extremities and vascular. I was hoping you could just give us a little more color on what happened there. Is there stocking, destocking, and, you know, just a little more? Appreciate it. Thanks. Kevin Lobo: Yeah. Well, that was a lot of questions, Robbie. So let me just say on the positive side, endoscopy and instruments and Mako were absolutely on fire at the end of the year. I mean, instruments included power tools as well as the products Preston mentioned in his remarks. And OSFI was a really amazing performance if you think sports and sustainability did well, but the camera has is a few years into its launch. And unlike prior years, if you look at our prior launches, our growth would start to wane a little bit. Our camera is just phenomenal. With fluorescence imaging, we're continuing to solve that very, very well. And Mako was this transition to Mako 4 has been incredible. This is the first time we've had a change of the actual robot to a new robot. Since we bought Mako. And to be honest, coming into the year, I wasn't sure how this new transition would go, and the team has done a phenomenal job. But the extra application certainly helps. The feedback has been terrific. On the other side of the fence, I mean, I'm still extremely bullish on trauma extremities. We had a monster comp from the prior year because Penguin was really gaining steam. And we still don't have Pangaea in Europe and some other markets. Shoulder continues to be on fire. Our foot and ankle business was a bit soft this year, and we are now on a new total ankle called Encompass. With much better reimbursement from CMS, which is pretty exciting. That we won't see much of that impact in the first quarter, but starting in the second quarter, that will start to really kick in. So I don't feel in any way, shape, or form as that business is slowing down. It's just a question of comps and over the course of the year, you're gonna see them have another really strong year in 2026. On the vascular side, I think we commented that the ischemic sector has been tough for us. It's not just new for the fourth quarter. That's been going on for the last couple of years. We did launch a new large bore catheter called Broadway. It's a point zero eight four lumen. That was a big gap in our portfolio. That feedback has been very positive, but it's the early days of that launch in the U.S., and then we'll be launching that around the world. So I think over time, that'll start to improve somewhat. But our hemorrhagic business continues to be very strong, and we are now the largest neurovascular player in the marketplace. We took over leadership roughly about a year ago. And have continued to be the largest player. Operator: Your next question will come from Joanne Wuensch with Citi. Your line is now open. Please go ahead. Joanne Wuensch: Good afternoon, and thank you for the quarter. There's a number of different pieces of the competitive landscape that's changing for you, and I'd love to get some commentary or thoughts, the number being bought Boston Scientific, J and J announcing the spinout of their ortho business. How do you think about either those moves specifically or just sort of generally on how the land may or may not be changing? Jason Beach: Hey, Joanne. It's Jason. I'll take a run at this. But I would say first off, you know, in terms of our strategy and how we go to market, absolutely no change. We have tremendous teams on both of those businesses, and certainly like our chances here in 2026. Joanne Wuensch: Okay. My second question, not quite a follow-up, is there's a fair amount of concern about patient volumes sort of, with changes in the Affordable Care Act coverage. Is there anything that you can comment on that or what you're seeing or what you expect for patient volumes throughout the year? Thank you. Jason Beach: Joanne, it's Jason again. What I would say is, as we ended the year and certainly starting off 2026, volumes continue to be robust. Tough to speculate, obviously, as you go into later in the year, but we continue to believe, as you think about the ortho markets, are gonna be mid-single-digit growing markets, and we're gonna outperform the markets in 2026 just like we did last year. Operator: Your next question will come from Ryan Zimmerman with BTIG. Ryan Zimmerman: Thank you. And let me echo congratulations on the quarter of the year. So this may be a little in the weeds, but there's actually a local coverage determination this morning around total joint arthroplasty and robotics. I think specifically with CGS. It wasn't very impactful, but it would appear to me that there's been some efforts to get incremental reimbursement for the use of robotics. I could be wrong in that assumption. And in the response, some of the MACs argue that the evidence may not be sufficient to warrant this. I'm curious if you have any thoughts about what's going on here whether this does create any risk in your view from payers or, alternatively, you know, an opportunity to get incremental reimbursement for robotic usage, specifically for specific robotic systems. In the market in orthopedic. Kevin Lobo: Well, I'm not familiar with that particular case that you're citing, but what I can say is in other parts of the world, there is extra reimbursement for robotic procedures, whether it's in Japan, or in other markets around the world. We have examples where we do get extra reimbursement. And we love the opportunity for that. In fact, in Australia, there are studies that are showing that Mako outperforms other robotic systems as well as navigation as well as manual. So it kind of stands on its own in Australian data that has been peer-reviewed and published. So we love our chances of being able to demonstrate that data. We've been in the market for long enough now. That the data is starting to come out and would support potentially extra reimbursements. I can't imagine or don't foresee any reduction in reimbursement. And certainly, you can see with the uptake of robotics and over two-thirds of our knees being done robotically, surgeons aren't gonna be going backwards. It's only gonna continue. Ryan Zimmerman: Yeah. Okay. Fair enough, Kevin. And I'll maybe zoom out a little bit then. I on operating margins and turn this to Preston. But 150 basis points, I think, through 2028 was the target, Preston. At the Analyst Day not too long ago. You know, as you sit here today, just given the performance, that we have seen, you know, how would you characterize that trajectory would you characterize your confidence to achieve that? I think if I look at kinda where numbers are, you know, that was kind of in the range of possibilities. But I think we are still kinda left wondering kind of the pace at which you may have achieved that tar those targets. Thank you. Preston Wells: Yeah, Ryan. Good question. So as we think about it, the confidence is the same. You know, we gave you those that guide for the next three years. Because we believe very much in the ability to go out and achieve it based on the activities and actions that we have going on internally. Focused on operational excellence, particularly with areas like lean and other elements with regards to, like, shared services and things of that nature. But, you know, when we think about what we gave you for '26 here, we gave you a lot of the different pieces in terms of our overall growth of what we expect from an EPS standpoint. I think if you plug that in, you'll see it's a healthy margin that we're planning for '26 that really leads you down that path. For that expectation of delivering one fifty and above potentially as we go through the next three years. Operator: Your next question will come from Travis Steed with Bank of America. Travis Steed: Hey. Congrats on a good quarter. I wanted to focus on MedSurg. Kind of bigger picture. Like, if you put the numbers against all the markets in med tech, your med surg business actually is probably one of the fastest growing medtech markets. At the moment. And just curious, like what's driving that growth? How do you have the confidence to keep doing that longer term? Like, it's just, like, surprising how good the growth is in that med surg business. Kevin Lobo: Yeah. I kind of alluded to some of that in my prepared remarks. And I think it's something that's not fully understood. First, it starts off with our tremendous market share. So we have incredibly high market shares across our Medford portfolio, very strong position. We are constantly upgrading these products, launching next generations, of each of these products. And then we fill in little acquisitions that are very fast growing. If you remember, acquisitions like Nico, that just continues to fuel extra growth of our business. And on and on, and then we specialize sales forces and split sales forces continually. A couple of examples. We split our CMS Salesforce a couple years ago. Into an oral maxillofacial sales Salesforce. And a neural Salesforce. We split our Sage Salesforce into an infection Salesforce. And an injury Salesforce. And I can go on and on. We created a separate Salesforce for law enforcement within our emergency care business. So we don't talk about all these publicly for competitive reasons. But this is part of the offense is we bring those constant innovations add in little tuck-in acquisitions, split sales forces, and then that just fuels continual growth. And we already have a number of Salesforce splits that we're contemplating for the next couple of years. We had the if you think about the Virto's deal, that enabled us to add specialized pain salespeople. Because today, the IVS business sells to interventional oncologists as well as pain docs. So that's really part of the formula, secret sauce, if you will, high market shares, continual internal innovation, constant tuck-ins, which enable us sometimes to even create separate business units. If you recall, we split surgical a while ago back in 2019-2020, into orthopedic instruments and surgical technologies. And surgical technologies crossed a billion dollars this year. So it just would have never happened if we had not split the business units. So those are the kind of things we do in med surg, and it's totally continually sustainable. As you look over the last five, six, seven years, this is our offense, and we expect that to continue going forward. Travis Steed: That's helpful. And, Kevin, how do you think about tuck-ins in 2026 or maybe chunkier tuck-ins? And then Preston, how do you think about protecting margins with potential deals in 2026? Kevin Lobo: Yeah. We have really a strong balance sheet right now. And so we're on offense right now looking at deals. The deal pipeline is very healthy. Of with tuck-ins and even looking at other adjacencies as we always do. So we're excited about the potential to do acquisitions in 2026, but I'm not gonna say more than that right now. Preston Wells: Yeah, Travis. From a tuck-in standpoint, you know, we've generally said that tuck-in type deals, those are elements that we try to build into our margin expectations. But as we do each of these deals, certainly, it's something that we would communicate back to you all in terms of what our expectations are. Operator: Next question will come from Vijay Kumar with Evercore ISI. Your line is now open. Vijay Kumar: Congrats on a nice sprint here. Kevin, maybe one on innovation for you. I think in the past, you've spoken about product super cycles. What are you excited about when you look at '26? Feels like some of these super cycles were probably in second or third year. So what is incremental? What are you excited about? Kevin Lobo: Yeah. Thanks, Vijay. I'd say, look. There's a ton of innovation always going on in this company. And even if you think of something like Procurity, that's in its, whatever, third or fourth year, but it's still ends our long-term cycle. That it we that still behaves like a new product. In our hands because it's just a long buying cycle. But we have a number of other exciting launches. We have the Mako RPS, the handheld robot. Initial cases started this month. They're going extremely well. That's a brand new segment for us. Between our manual power tools and Mako. We have the Vocera sync badge that launched, you know, towards the latter part of last year, which is getting you know, tremendous feedback. We have all kinds of OptiPly PVNA and IVS. The encompass total ankle, which I talked about. We have Artyx, which is a new arterial product within Inari. I can go on and on. Could go on for another ten minutes, but there aren't, right now, this let's say, the new power tool the new camera. Those are sort of flagship products in the past that we would always focus on. But the reality is as we become much more diversified, even those launches become a little bit less important to the overall company as the split of CMF is driving CMF to double-digit growth and all these other tuck-ins like Aniko and all these all these little products contribute to really high growth. And then when you have those other new bigger platforms launch, that gives you just an extra jolt. But the fact that Endoscopy posted these kind of numbers with a camera that's three or almost three to four years into its cycle, is really impressive. And, of course, we do have eighteen eighty-eight in development. And you'll be hearing about that at the right time. But I would tell you, I feel great about the health of our R&D pipelines across the company. Vijay Kumar: Yeah. That's helpful, Kevin. And maybe one follow-up on, you know, you did bring up some destocking. So just talk about visibility on, you know, what gives us the constant destockings or any Salesforce disruption, you know, that perhaps impacted numbers here in Q4? Jason Beach: Yeah. Vijay, it's Jason. As it relates to the sales disruption, I would tell you we are beyond that at this point. You know, and I even made the comment in my prepared remarks as it relates to destocking. Minimal in Q1. I will tell you Q4, we had a little bit more destocking than maybe we anticipated. But good visibility as we move into 2026 knowing it'll be minimal in Q1. And then, obviously, we start to get to organic growth rates as you get into late Q1 into Q2. Operator: Next question will come from Matthew O'Brien with Piper Sandler. Matthew O'Brien: Thanks so much for taking the questions. Just I'd love to double click a little bit on the Mako commentary. Just given how strong it was. If you wouldn't mind talking a little bit about the U.S., OUS strength on the record placement side. And is it fair to think after a period of trialing, with some competitive systems that it's kind of over in terms of some of that trialing or even thoughts about using something outside of Mako and that you guys are winning a disproportionate number of these RFPs and, you know, I guess what I'm really trying to get at is the durability of your implant strength, which has been great for several years. I do have a follow-up. Kevin Lobo: Yeah. Thanks. Listen, Mako-four is been an absolute home run. We already felt like we had the best robot on the market, and we've just only added to that with these additional applications that the feedback on revision hip one surgeon actually told me he thought it was a cheat code. For revisions. Those were his words. It just makes a very hard procedure very easy to do. Providing tremendous value to the surgeon. So these extra applications make it totally compelling a great investment for a hospital, I think we're in, obviously, a clear leading position. And there's still a lot of hospitals that only have one Mako, and they're starting to add more and more and more. I think we're up to 30% to 40% now have more than one Mako, but that every operating room for us is an opportunity for a Mako to be installed. And we have clearly the wind on our backs on that. And we're seeing it start to take off in international markets, Japan being the most important one where it took a while, first of all, to get the regulatory approval. They're obviously very data conscious there. But now Japan is really starting to take off. In fact, even other countries in Asia Pacific are starting to really drive the incremental growth. So we're very bullish on this. I think the shoulder is going to be really exciting. When we bring that to the market. Our limited launch has been on the Mako three robot. But we so that's why we're staying in a limited mode because we really wanna get that on the Mako four robot, which, again, will be sometime in the middle of the year. And, obviously, the shoulder business continues to grow exceptionally well without Mako. But, again, hard procedure to do. Every time, the harder the procedure is, the more Mako brings value. So we are we're in the pole position, and we're gonna continue to press our lead. Matthew O'Brien: Thanks for that. And then you mentioned RPS. Kevin, why go with an X-ray the imaging versus CT? It's just been so successful with traditional Mako? And how do we frame up how big that could be for you guys between ASCs, international, etcetera? Thanks. Kevin Lobo: Yeah, look. This is a really great solution for some surgeons that aren't ready to go through the change management of Mako. Mako requires a lot of change for the surgeon, as well as for the staff. And if you think about this handheld, it really is very simple, very easy use. Doesn't require the surgeon to go through that type of transition. This launch is just for total knee. So if you want a robot that can do multiple applications, obviously, that's not possible with this. If you think about in the ASC some surgeons not wanting the complexity of Mako, I think it's gonna open up new customers for us that weren't ready for Mako but want something better than using the manual instruments. And have the visualization. And we're using the intellectual property from Mako to provide some haptic boundaries, and the feedback has been incredible. From the surgeons using it, like, this is easy to use. It provides tremendous value. So I do believe this will be an extra accelerator for our knee business. And something that will live between Mako as well as our manual instruments. And it will be sold by the same Salesforce that sells Mako. So that positioning it's really about meeting the surgeons where they are, and providing the value that they're looking for. And right now, we understand our customers very well, and we believe there is a home for this. And it's under the Mako name, so you can believe we feel very good about the performance. We would never wanna tarnish the performance of the Mako brand, so we know this product can sing. Operator: Next question will come from David Roman with Goldman Sachs. David Roman: I wanted to be at the analyst meeting, you introduced, I think, in video form the form factor for a handheld version of Mako or that I think you had planned to provide more details on over the course of this year. Maybe any latest thinking on just your robotics strategy from a portfolio standpoint as you roll out Mako four and any updates you can provide on the handheld instrumentation? Kevin Lobo: Yeah. I think I just mentioned that we started cases on the handheld. They're going very well. It will be on display at Academy. So it'll be in the booth. You'll be able to see it. You'll be able to talk to our people about it. That's the coming out party. Mako RPS will be AOS. It's not very far from now. So I'd say just stay tuned. You'll get the chance to really see it in full color. David Roman: Okay. Then maybe just a follow-up. As Spencer moves into this role as president, and I think you kind of talked about this in Larry's question. But as he takes on perhaps more some of the day-to-day operational responsibilities, Kevin, are there priorities where you can now allocate more time or that might require more of your focus or that's on the strategy, M&A, or long-term growth side? Kevin Lobo: Of the business? Yeah. Obviously, you know, when you have somebody in this role that can handle the overall commercial part of the business, it allows me, frankly, to spend more time with our operations team, spend more time with our we have a brand new leader for information technology and AI. I really wanna make sure we are an AI forward company. We've done a terrific job on AI for customer solutions, but we really haven't made a lot of progress yet on productivity with AI. We've done a great job on lean and a much better job on inventory, but there's a lot of work we can do to drive productivity in AI. And that, I can now spend a bit more of my time engaging in those other parts of the business that, in the past, would sort of gravitational pull would be towards the commercial size of the business. So I'm excited about the division of labor that we're gonna have in this job and the freedom that'll afford me to spend on these other areas. And, of course, looking at adjacencies, BD will always be a big part of my job. But having Spencer involved in that as well will be terrific for when he's running ortho group, his head is down running ortho. And for him to be able to have a little bit more bandwidth there together with me will be, I think, will be excellent for Stryker. Operator: Your next question will come from Caitlin Roberts with Canaccord Genuity. Caitlin Roberts: Hi. Thanks so much for taking the questions, and congrats on a great quarter. You know, as you end the year, any update on the percentage of hips, knees, shoulders, flowing through the AC channel for you guys? Jason Beach: Yeah. Kayla, it's Jason. As you know, we did not disclose that in our prepared remarks. I think we've said recently that hips and knees are kind of in the high teens. And we've, you know, ticked up quarter after quarter in that. So very happy with the ASC performance. Caitlin Roberts: Great. And then just some more color on Triathlon Gold and if that has launched already. Kevin Lobo: Yes. Triathlon Gold is in limited launch right now. Feedback is extremely positive. You can do it both cemented and cementless, which is a huge draw for surgeons. As you know, so many of our knees are now cementless, and that percentage of cementless continues to grow and the ability to do both is really tremendous. And that will also be on display at AOS. You'll be able to see that and be able to interact with our people as they can explain that product to you. But we are extremely pleased with the design. Again, it's an unlimited launch. We always like when these implant launches, we want to have a limited launch for the number of surgeons. Make sure everything's going smoothly with the instrumentation and the actual performance. But so far, so good. This should be a winner for us. Operator: Your next question will come from Matt Miksic with Barclays. Matt Miksic: Hey. Thanks so much for taking the question and congrats on a really, really impressive performance, everybody. So one on growth and one on margins for Preston, if I could. So on the growth side, you know, was hoping you could maybe talk a little bit about the differences in the way you know, the growth drivers in the U.S. and the growth drivers OUS. Obviously, U.S., you've got, like, you know, bigger contribution of ASCs and maybe robots or making different kinds of contributions, different part of the life cycle in U.S. versus OUS. And then maybe just as part of that, I get the question sometimes about the recurring nature of your business, some of the you know, I don't know if you've ever carved it out and talked about it, but there's clearly parts of the business roll up being one of them where you're if it's a recurring model, you know, any color you can give us as to how big or important or where the strengths are there? And as I mentioned, one quick follow-up for Preston. Thanks. Kevin Lobo: Sure. I'll start with that question. The dynamics internationally are not different than the United States. We have premium products that we sell through specialized sales forces. The reason that we're experiencing higher growth in the U.S. right now versus these markets primarily is because of the timing of launches. So we get these approvals early in the U.S. Europe, in particular, with EU MDR, has been extremely frustrating, and it's taking us Insignia, Pangaea. These life packs just got approved. These products aren't yet on the market, and they're really important products. And then Mako has taken longer for us to really get that going, and that's not unusual where these international markets tend to want to wait to see more data. Before they'll start to grow. But aside from the last two years, we had about five years in a row where international was growing faster than the U.S. We've now stepped up our U.S. growth rate really significantly but the opportunity in international is significant. And as these products do reach these markets, you should expect to see a pretty similar dynamic as to what you see in the United States. Obviously, pricing and margins can vary by country, some being as good as the U.S., some being a little less. But we don't see the growth opportunity being really much different outside the U.S. than it is in the United States. Jason Beach: Was helpful. I'll take the Any kind of recurring. Yeah. I'm gonna I'll take that. No. No. No problem. This is Jason. I think the way I would characterize that, and you've heard us kinda say this in the past, is you know, 25% ish of our revenue is capital related. And of that split, 15% of the capital is more closely tied to procedures, so the smaller capital. And then the 10% revenue, the larger capital, so booms, lights, beds, etcetera. And then kind of that 75% I would say, you know, procedurally driven, whether it's reoccurring in disposables, the implants, etcetera. Matt Miksic: Got it. Thank you. And then for Preston, just you know, there's a couple of questions on margins, the one that we often wonder at this point in the year is, is you've got a range for the top line and a chance to beat the top end of the range. You know, how should we think about the flex in the model if in possibly when you break through the higher end of the range where, you know, thinking about OpEx investment versus drops to the bottom line. Thanks. Preston Wells: Yeah. Absolutely. So we have a range on the top, as you said. And, certainly, as we deliver that if we were if we're able to deliver towards the top end of that range, it does drop some additional margin or additional profits down. It also remember, there's some costs that come with that in terms of obviously, tariffs are fluctuating with our business. And then also just the investment that it takes for us to put back in to have those growth rates. So it's something that we balance as we look at the entirety of our P&L and obviously with both the growth rates, but then funding for future growth rates as well. When we look at what we drop down from a margin standpoint. Kevin Lobo: But I think you could look at this year as a good example. Right? So we moved up our top line this year. We also moved up our bottom line. This year. So that could be a good proxy for you to see that if we start moving the top line up, we're not gonna just reinvest all of it. There will be an amount that we drop through. If we see some opportunities for we're always looking to sort of self-fund reinvestment but this is a good you could look at 2025 as a good proxy for what hopefully will happen in 2026. Operator: Next question will come from Chris Pasquale with Nephron Research. Chris Pasquale: Thanks. And then one on pricing and then one on Inari. So the pricing benefit you reported for MedSurg this quarter, I think it was the smallest we've seen since 2022. Was there anything, sort of quirky about this quarter that drove that? And since MedSurg has been the primary driver of the net, positive price across the broader business, are you expecting to see that go back up here as we go '26? Preston Wells: Yeah. There was one deal in particular outside the U.S. that drove some negative pricing on the MedSurg side. But overall, the fundamentals still remain the same, and we would expect to continue to see a pretty steady cadence of price coming through from that business in 2026. Chris Pasquale: Okay. That's helpful. And then on Inari and the clinical pipeline there, we saw one competitor's pulmonary embolism trial readout back at TCT. Gonna see another one at ACC in late March. Clinicaltrials.gov right now has Peerless two wrapping up this year. Is that still accurate? And when should we expect to see your data? Jason Beach: Hey, Chris. It's Jason. No. It's actually gonna be closer to the middle of next year. In terms of results. Operator: Next question will come from Danielle Antalffy with UBS. Danielle Antalffy: Hey. Good afternoon, guys. Thanks so much for taking the question. Congrats on a really strong 2025. Just following up on excuse me, Chris' question on pricing. I just at a higher level, curious. I know you guys had talked about, you know, broadly speaking, that you saw over the last two years starting, you know, you're expecting that to wane. It sounds like that's reflected in guidance. But I'm just curious about how you're seeing potentially your hospital customers, ASP customers are they changing the way they're contracting at or on price? I'm just curious because, obviously, one of the narratives is with ACA subsidies expiring. You know, hospitals could be more constrained from a budget perspective. And as we move further away from the change in purchasing patterns during COVID. Thanks so much. Preston Wells: Yeah, Daniel. Thanks for the thanks for the question. In terms of price, I mean, price has always been something that's been a negotiation in terms of where we've been trying to gain price, and it's something we, quite frankly, have gotten better as we've talked about. Over the last few years. And, certainly, as we look at contracting, that's an element of where we've really improved over the last few years. And so I think our ability to go out and make sure that we are working those contracts appropriately across our entire book of business has really helped us in terms of that pricing element and we expect that to continue into 2026. And as you said, it built into what our expectations are from a top line and guidance standpoint. Kevin Lobo: See, I think overall, for the full year, you should expect a pricing result that's not that different than what we had in 2025. You know, from quarter to quarter, it may move a little bit. But we expect something pretty similar in '26 as we experienced in '25. Danielle Antalffy: Okay. Thank you. Operator: Your next question will come from Patrick Wood with Morgan Stanley. Patrick Wood: Beautiful. Thanks so much for the question. ASCs, obviously, we've all talked about hips and knees a fair bit, but you know, CMS moved the back end of last year to really delete all the rest of the inpatient-only list. And it seems kind of clear what the direction is going. From your perspective, like what are the implications for that if any, with an endoscopy and everything else? Is your share in some of these categories high enough that it's like, hey, it's just a change of side of care or is this like a marginal change that actually matters business? Kevin Lobo: Yeah. I think you answered it well. Our high market share just it's just a new it's just a new site for us. But I think what really can help us is, again, if they're to have new construction of ASCs, it just gives us, if new procedures are added, and start being done in ASCs, procedures where we have implants, that only helps us to provide a more full offering to the ASC. We already have the broadest offering by far in the industry, which is why we win at a very high rate, new construction and big rebuilds of ASCs. So the more procedures that go, the more that provides we provide that full service, and they need financing for their capital equipment in these ASCs, unlike hospitals that have the capital, balance sheets to be able to provide to buy capital. So, we look forward to this change as things move to the ASC, which I think will continue clearly. You can see CMS is pushing it. We've seen this trend happening. Our sports business tends to be a big beneficiary, and they had an absolutely phenomenal year. Again. They continue to grow extremely well and benefit from this push to the ASC because if they're doing orthopedics, hips and knees, they always do sports as well, and they tend to be a big part of these contracts. So we look forward to the change of procedures moving to AAC, and I think it only helps Stryker just given the breadth of our portfolio. Patrick Wood: Great. And then just very quickly on the M&A side of things. If I remember correctly, when you guys did NARE, you sort of referenced it as part of a maybe a launch pad or something to that degree. It was clear that channel and vascular in general was something you wanted to continue to build out. Is that still the case? Would you look at things like calcium management and other things that are sort of ancillary to that? Is that still a key focus area or not so much? Kevin Lobo: Yeah. Listen. Whenever we buy a business, that enters a space, we never are one and done. We're gonna continue to build all around that business and fortify the PV business and obviously, that links to a broader vascular set. Of customers that, once we start to get to know a customer, we wanna help solve their problems. So, yes, that's now part of our acquisition set. That previously wasn't the case. And then same thing with HIT. So we did Dosera, then we did Care AI, Don't be surprised if we do more acquisitions in the health IT space. So we're constantly on the hunt. Every time we buy something, it opens up new windows for us. And, we are definitely looking, in at the broad universe in that vascular world. Operator: Your next question will come from Mike Matson with Needham and Company. Mike Matson: Yes. Thanks for taking my questions. You know, just a couple more on Mako's. So with Mako four, are you getting pricing increase relative to the older version? And then, you know, similar question with as you start to launch Mako shoulder and spine, are there I seem to remember you talking about some upgrade fees the customer would have to pay even if they have an existing Mako system that they wanna add that capability to. And are these things that could become, you know, meaningful drivers for that part of the business? Kevin Lobo: Yeah, listen, we're not going to get into pricing for competitive reasons. We're not going to disclose our pricing at least for the base robot. But every time you have extra applications, you have to pay software fee or license, if you will, be able to use the new software. So every if they buy the Mako four, for knees and hips, but then they wanna add shoulder, then there is a charge for that a one-time charge that upon the installation of that software. That's been consistent throughout our makeover approach. Mike Matson: Okay. Got it. And then just on the tariff impact, the $200 million this year. Last year, you said you would fully absorb that. Is that the case again this year? And, you know, is there any ability to mitigate any of the impact so that, you know, the $200 million, can that come down over time with mitigation efforts? Thanks. Preston Wells: Yes. So what you see with that $200 million really is the net result of mitigation activities that we've been taking for the past year as this whole tariff item has really come to bear over the last year. So that is reflective of the annualization, really, of all the work and activity that's been done. And as you'll look at our guidance that we gave, you can see when you do the work around the margin pieces of it that we have, in fact, built that into our expectations. Kevin Lobo: Yeah. A total of $400 million and we're still driving margin expansion. We drove it a significant amount this year with $200 million. We've got another $200 million and you'll do the math your models. You'll see we're gonna drive meaningful op margin expansion in the face of this extra $200 million. So our margin muscle is really good. This is not something I could have said, you know, seven, eight years ago. I think if we had had this level of tariffs, you would not be seeing us continue to drive expansion to the level that we are. So we have built some earnings power in our company. Operator: Your next question will come from Shagun Singh with RBC. Shagun Singh: Great. Thank you so much. One on Mako, you guys shared some metrics two third, one third of knees and hips on Mako, and then utilization rate, and 20%, respectively. Where do you think these metrics go over time? And what are the key drivers there? And then as we think about market penetration of Recon Robotics, anything you can share with respect to, you know, where we stand from a procedure and then a capital placement standpoint? Thank you for taking the question. Kevin Lobo: Well, as it relates to robotics, I don't think there's any limit. I think robots can become standard of care at some point in time. I don't it's not like cementless where you know, I don't think cementless knees will get to a 100 because of bone quality. In the case of robotics, I don't see a limit. To how much can be done. And we're over two-thirds in the U.S. and over a third. And then what I like is I see the hips starting to inflect upwards. So with the launch of Mako four, that the new software is called the five-point o software for hip. Which is really amazing for revisions. But once the surgeon starts to Europe for revisions, they start to realize it could be very good for primaries also. So, very bullish on that potential. Is there a second question, Jill? Okay. Thank you. Operator: Your next question will come from Richard Newitter with Truist. Richard Newitter: Hi. Thanks for taking the questions. I just wanted to go back to the price comment. I hear you loud and clear, Kevin, your overall price assumption is not dramatically different from last year for 26. But just within the components, so just want to kind of reconcile with some comments I think I've heard you make in the past between med surg and ortho. And just tell me, if you can, if this is directionally correct, my understanding was that med surg is, you know, over the long-range plan, I would presume in 'twenty-six as well. About positive 100 to 200 basis points. And then your ortho, I think, has tended to be in a negative 1% to negative 2% range. And maybe that's a little bit more towards the negative 2% part of that range. Then you net those two out. They're somewhere you know, you're somewhere similar ish to last year. Is that the right way to think about it? Sorry to get so specific, but I think it would be helpful to investors. Kevin Lobo: Yeah. Look. I'm not gonna be that specific. I think your outer ranges are probably a little high on both sides. On both the implant side as well as the med surg side. But med surg will be positive. The orthopedics will be slightly negative. And the two will net to something similar to what we experienced this year going forward. It's you know, I'm not excited or worried at all about our price. We have a really good offense. We understand what happens quarter by quarter. We feel like we're in a pretty stable pricing environment. And keep in mind, these are just like-for-like products. Right? So this does not include when we launch a new product, we obviously launch at a higher price. And those products don't show up in price for at least another year. Until it anniversaries. So I just wanna make sure you remember that as well. Richard Newitter: Got it. And then maybe just on Triathlon Gold. This sounds like a pretty interesting incremental opportunity for you to kind of gain back some share in an area where you just didn't have a product. Could you just quantify kind of what percentage of the market this potentially just gives you reaccess to and, you know, how we should think about that and if that's the right way to think about it. Kevin Lobo: Yeah. Look. It's an important product that is actually premium priced versus a standard implant. It's roughly 5% of the market, but we didn't have an offering. So we would have Stryker loyal surgeons that would actually switch to a competitor to be able to do this if they had a metal-sensitive patient. And frankly, what my hope is, that you can do this cementless and if the product performs really well, that 5% might actually grow. It's not just for metal sensitivities. This is let's call it, an advanced bearing implant. So I'm not gonna promise that, but there is the potential for this to continue to grow and grow the market beyond 5% of the total implants. It's really a wonderful product. The feedback so far has been very positive. But it's roughly 5%. We were not playing at all. Stryker surgeons were not using our products. So this was an important gap in our portfolio that we've now filled. Operator: Your next question will come from Johnson with Baird. Johnson: Preston, just one question. You pointed in your prepared remarks to a softer capital environment in Europe. Could you flesh that out a little bit, number one? And number two, Kevin, you pointed to some of the challenges of the MDR stuff. In Europe. Obviously, that's not new for you guys. Did that have any impact on the med surg business in Europe? And with the new proposal to simplify some of that MDR stuff. I know they're not going to vote on it in Europe until later this year, but could that accelerate some of your product approval there? Thanks. Kevin Lobo: Yes. I'll take the second part of the question on UMDR. Yeah. We're really excited. Europe has woken up. To the reality that they are stunting innovation and not giving patients access to products in a timely manner they, in many ways, overreacted to some a couple of safety issues that occurred in Europe. So we welcome the changes, and that will help us accelerate the launch of our products. It's frankly a little bit even more important on the implant side than it is on the med surg side. With products like Insimia and Pangaea taking longer to get to the market. But it affects the entire portfolio, not just for us, but for the entire industry. Jason Beach: Yeah. Jeff, it's Jason. On the capital environment in Europe, I'm not gonna get overly specific here. But what I would say you know, like our capital businesses in the U.S., there are some, you know, quarter to quarter where you get ups and downs in the capital business just based on purchasing cycles. So as we move into 2026, look, the order book here is healthy, and I think we'll have a good 2026 there in. Operator: Next question will come from Matt Blackman with TD Cowen. Matt Blackman: Hi, everyone. It's Drew Ranieri on for Matt. Just a couple questions, one for Kevin and one for Preston. Kevin, you brought up the breast care opportunity. That you have a specialized sales force. Can you just talk about what that might mean for the Endo business? Are you going to be able to push more through your installed base? Or is this about utilization? Kevin Lobo: Yeah. Thanks. First of all, the breast care Salesforce is within our endoscopy business. So we were already calling on them, but we didn't have a focus. And the acquisition of Moly, the marker in addition to NOVADAF, the exoscope, in addition to the tissue from NOVADAQ, in addition to the Invuity retractors, we the Invuity was bought by our instruments business, but we moved it over to endoscopy because it's absolutely perfect for those procedures, breast reconstruction procedures. So a combination of acquired products and our obviously, our internal products within endoscopy created enough of a basket to have a dedicated sales force. It was really successful in year one. And, yes, we look to continue to expand within breast care. We could potentially do additional acquisitions. To fill out the bag continue to add more specialized salespeople. But this is what we do at Stripe. You know, we did this in GI, if you recall, when we launched Neptune s. We created a GI Salesforce. We did the acquisition of the palm, the mask, procedural specific mask. As well to add into that Salesforce. We do this all the time in our med search business. As it's part of the fuel for growth, and that's why we stay so high in our growth rates is we just don't sit still. We either bring in these tuck-in acquisitions, cobble them together, create a specialized sales force, at some point, if we do a big enough deal, we could create a separate business unit as we've done with SmartCare and as we've done with other business units in the past. Drew Ranieri: Thanks. And appreciate that. And maybe Preston on the free cash flow, really great growth this year. Hear you on the conversion range, but can you just talk about what you're expecting for CapEx? It was flat year over year. Expecting a 26. Like, holdback on spending? Preston Wells: Yeah. So from a free cash flow standpoint, I said before, I mean, we're still gonna in that same range of 70 to 80. That's been the range that we've been targeting for the last few years. We feel like that's a good place for us so we can balance investment with also, obviously, being more productive with from a cash perspective. When it comes to capital, I mean, really, our capital focus is around how do you support growth. So whether that's investments we're making in our plants or all investments we're making in our IT systems restructure as well as in terms of how we run our business. So there's really no change in our overall approach that we're thinking about from a cash flow standpoint. We are looking at how we improve areas like working capital, which give us even more flexibility from a cash standpoint as we move forward. Operator: Your next question will come from Jason Bedford with Raymond James. Jason, your line is open. Please feel free to proceed. Well, we have no further questions after Jason. So now hand the call over to Kevin Lobo for closing remarks. Kevin Lobo: So thank you all for joining our call. As you can see, we have strong momentum entering 2026, and we look forward to sharing our first-quarter results with you in April. Operator: Thank you. This concludes the fourth quarter and full year 2025 Stryker earnings call. You may now disconnect.
Sylvia: Thank you for standing by. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Internet Bancorp Earnings Conference Call for the Fourth Quarter and Full Year 2025. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note that this event is being recorded. It is now my pleasure to turn the call over to Julia Ferrara from ICR. You may begin your conference. Julia Ferrara: Thank you, operator. Hello, everyone, and thank you for joining us to discuss First Internet Bancorp's Fourth Quarter and Full Year 2025 Financial Results. The company issued its earnings press release earlier this afternoon and it is available on the Citi website at www.firstinternetbancorp.com. In addition, the company has included a slide presentation that you can refer to during the call. You can also access these slides on the website. Joining us from the management team today are chairman and CEO, David Becker, president and COO, Nicole Lorch, and executive vice president and CFO, Ken Lovik. David and Nicole will provide an overview, and Ken will discuss financial results. And then we'll open up the call for your questions. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Internet Bancorp that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement and not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures. At this time, I'd like to turn the call over to David. David Becker: Thank you, Julia. Good afternoon, and thank you for joining us on the call today. We are pleased to close 2025 with strong fourth quarter results that demonstrate the power of our differentiated digital banking model. Our core business fundamentals remain robust with quarterly revenue up 21% over the prior year period. Our digital-first approach and disciplined expense management enabled us to navigate challenging credit issues related to two of our loan portfolios, while capitalizing on opportunities across our diverse business lines. Before I provide an update on credit, which I know is top of mind for the investment community, I would like to briefly touch on 2025 key accomplishments. We delivered strong results for the year, including 30% net interest income growth year over year, consistent expansion of net interest margin throughout 2025, and actively managed expenses to drive improved operational efficiency. We successfully completed the strategic sale of approximately $850 million in single tenant lease financing loans to Blackstone, strengthened our capital position, enhanced our rate risk profile, and accelerated our progress towards achieving a 1% return on average asset. This transaction reduced our exposure to lower-yielding fixed rate and provided significant balance sheet flexibility. Our banking as a service initiatives achieved remarkable growth, generating over $1.3 billion in new deposits for 2025, more than tripling the amount from the prior year. We also processed over $165 billion in payments volume, an increase of over 225% from 2024. Maintained strong deposit relationships that enhanced our funding flexibility. These partnerships have evolved to become true strategic revenue drivers through recurring transaction fees, program management fees, and interest income. In our SBA business, despite industry challenges, including a government shutdown, we maintain our position as a top 10 SBA 7(a) lender with nearly $580 million in funded originations during 2025. Our enhanced underwriting standards and improved servicing capabilities strengthened our competitive position while we navigated temporary process improvements required by evolving SBA guidelines. Additionally, we expanded and strengthened our SBA leadership team to drive long-term business growth. We promoted David Beige to senior vice president government guaranteed lending to oversee all aspects of our SBA operations. Also added talent and depth to our credit underwriting and portfolio management teams. We maintain solid capital discipline while returning $7 million to shareholders through dividends and share repurchases, demonstrating our commitment to balanced capital allocation. During the quarter, we executed our share buyback program by purchasing 27,998 shares at an average price of $18.64 per share, capitalizing on temporary market dislocation. Turning to credit, I want to address the credit challenges and the proactive measures we have taken to remedy the two problem loan areas, primarily our small business lending and franchise finance portfolio. As such, I want to emphasize several critical points. First, I want to reiterate our credit issues are isolated to two specific portfolios, SBA and franchise finance. The remainder of our lending verticals maintain solid credit quality with our overall level in nonperforming loans in line with peer institutions. Second, our enhanced risk management processes and prudent underwriting standards are yielding positive results. In addition, we've implemented advanced analytics that provide deep portfolio intelligence, enabling proactive borrower engagement. Third, after further evaluation of the problem loans, we are guiding to a higher provision for 2026 than we initially estimated. This is designed to clean up our remaining problem portfolios and position us for improved performance going forward. We expect credit to improve gradually in the second half of the year as the problem loans come to resolutions and are replaced with higher quality loans. Fourth, we have solid capital and liquidity positions to weather any credit-related challenges. Our regulatory capital ratios remain well above minimum requirements, with a total capital ratio of 12.44% and a common equity tier one ratio of 8.93% as well as substantial liquidity coverage. Most importantly, we believe credit will stabilize as we progress through 2026 as problem loans are resolved and enhanced underwriting standards take effect with new Despite the isolated credit issues related to two portfolios, our core revenue engine remains robust with multiple growth drivers. We have strong loan and deposit pipelines across our commercial lending verticals and vast partner partnerships. Net interest margin continues as we benefit from higher loan yields and declining deposit costs. Our technology investments, including AI-powered origination, underwriting support, and customer support having greater efficiency while maintaining conservative credit management practices. Looking ahead, our digital-first model positions us advantageously for continued growth. Our interest rate neutral balance sheet structure, disciplined loan pricing, and diversified revenue streams provide multiple growth vectors over the long term. We expect continued net interest margin expansion, robust fintech partnership growth, credit stabilization, and the benefits of our strategic balance sheet to drive improved profitability. We remain confident in our ability to deliver strong financial performance while building long-term shareholder value through disciplined execution of our strategic priority. I'll now turn it over to Nicole for operational highlights, including SBA, BAT, and credit. Nicole Lorch: Thank you, David. Despite the longest federal government shutdown in history, we've successfully netted $8.6 million in secondary market sales for SBA loans through November and December, demonstrating the resilience of our operations and market position. Looking ahead to 2026, we are strategically realigning our SBA production with our enhanced and more stringent underwriting guidelines. This deliberate shift prioritizes credit quality over volume, positioning us for sustainable long-term performance. As a result, we anticipate production of approximately $500 million for the year, a more measured approach that reflects our commitment to prudent risk management. Given our focus on attracting higher credit quality borrowers, we expect to offer more competitive rates, which will naturally lead us to retain a larger portion of our production on balance sheet in 2026. As a result, we estimate gain on sale revenue in the range of $19 million to $20 million compared to $29.4 million in 2025. While this represents a decrease in fee income, it will generate a positive impact on net interest income and prove accretive to our net interest margin. Our BaaS platform continues to demonstrate growth and diversification. As a sponsor bank, we support deposit program, payment processing, including card, ACH, and real-time payments, and lending programs across our fintech partner network. Importantly, none of our partners depend on card interchange as their sole or primary revenue source, which provides stability and allows us to scale our partnership model as our balance sheet grows. Demand for our sponsorship and program oversight capabilities remains robust. We are fielding interest from potential partners with use cases for real-time payments, which we support through both the RTP network and FedNow, where we served as a pilot institution. First Internet Bank is committed to standing at the forefront of payment innovation, but we also excel at good old ACH. I'm pleased to note that First Internet Bank was a co-winner of the award for payments innovation of the year from American Banker for our work with INCREASE to deliver high fidelity ACH, a tech solution that brings greater reliability to ACH transactions. Our payment processing volumes continue to reach impressive scale. We facilitated $65 billion in payments for our fintech partners in the fourth quarter, which was up over 40% from volumes processed in the third quarter. As of 12/31/2025, we maintained almost $2 billion in deposits with a significant portion strategically positioned off balance sheet where we earn attractive spreads reported as noninterest income. Turning to credit performance, as David mentioned, our overall loan book remains strong and continues to perform in line with industry trends. Regarding our franchise and SBA portfolios, we took decisive action throughout 2025 to address credit issues, including tightening and refining underwriting standards, implementing streamlined processes for earlier problem loan detection, and improving collection processes. Our franchise finance portfolio continues to show noticeable progress due to several strategic factors. We ceased purchasing loans in this space, allowing the portfolio to naturally decrease in size, and the remaining borrowers tend to be stronger, multiunit operators with greater operational experience and financial resources. Our collection efforts are further supported by Pie Capital serving as an intermediary and providing valuable brand support. For our SBA loan, credit remains challenging, but with an encouraging outlook in 2026. Our SBA lending has been primarily in the area of business acquisition, which has elevated levels of transition risk as new owners take over. Our internal analysis, which is supported by external data and analytics as well, suggests there may be more pain to come as we work through loans originated in late 2024 and early 2025 under previous guidelines. I would like to give a special mention to our special asset team that worked diligently on the franchise finance and SBA portfolios throughout 2025. They have done an outstanding job staying on top of our workouts, offering alternatives when possible, and they have had some pleasant surprises for us on a handful of loans where recoveries in the fourth quarter and into January came in higher than expected. We have significantly strengthened our organizational capabilities throughout 2025 to enhance our operational depth and customer reach. Beyond personnel, we have refined our credit guidelines to better identify transaction risk, and we've strengthened our processes to improve both credit quality and the borrower experience. Most notably, we are implementing an AI-driven solution to standardize our document collection process, reduce origination times, and create a more seamless experience for our clients. Our investments in portfolio predictive analytics represent a transformational advancement in our risk management capabilities. This technology enables us to identify potential issues earlier in the credit life cycle and take proactive measures to protect our portfolio quality. This comprehensive approach to credit management, operational excellence, and strategic partnership development positions us exceptionally well for continued success and sustainable long-term growth. I will now turn it over to Ken for additional insight into our fourth quarter performance and 2026 outlook. Ken Lovik: Thanks, Nicole. We delivered solid fourth quarter results with net income of $5.3 million or $0.60 per diluted share. Our results for the quarter included a pretax loss of $400,000 on the sale of an additional $14.3 million of single tenant lease financing loans to fulfill our commitment related to the large sale in the third quarter. Excluding the impact of the loan sale, adjusted net income was $5.6 million and adjusted earnings per share was $0.64. Adjusted total revenue for the quarter was $42.1 million, a 21% increase over 2024, and when combined with well-managed expenses, adjusted pre-provision net revenue totaled $17.9 million, up 66% year over year. These results reflect strong operational execution and sustained business momentum across our core segments. Net interest income for the fourth quarter was $30.3 million or $31.5 million on a fully taxable equivalent basis, up about 29% year over year, respectively. Net interest margin improved to 2.22% or 2.3% on a fully taxable equivalent basis, both up 18 basis points from the prior quarter and 55 basis points year over year. The yield on average interest-earning assets for the quarter rose to 5.71% from 5.52% in the prior year period, driven primarily by a 46 basis point increase in loan yields as higher rates on new originations more than offset the impact of three Federal Reserve rate cuts during 2025. We also saw a meaningful decline in funding costs during the same period, with the cost of interest-bearing deposits falling to 3.68% from 4.3% in the prior year period. The rising yields on interest-earning assets in conjunction with declining cost of interest-bearing deposits demonstrate delivery on our years-long effort to reposition the balance sheet and optimize our mix of earning assets. Adjusted noninterest income for the quarter totaled $11.8 million, down from the prior quarter due to the large volume of SBA loan sales in the third quarter and up from $11.2 million in the prior year period. As Nicole mentioned in her comments, gain on sale revenue from SBA loan sales remained solid during the quarter and was supplemented by higher net loan servicing revenue as we began servicing the portfolio we sold to Blackstone. Additionally, fee revenue from our fintech partnerships increased during the quarter, continuing a trend of quarterly growth throughout the year. Noninterest expense for the quarter totaled $24.2 million compared to $24 million in the prior year period. The slight increase over the prior year period was due primarily to continued investment in tech and AI to enhance both front and back office operations and costs related to working out problem loans, offset by lower incentive compensation. Turning to credit, in the fourth quarter, we recognized a provision for credit losses of $12 million, which consisted primarily of $16 million of net charge-offs partially offset by a net decrease in specific reserves as $3.5 million of loans charged off during the quarter had existing reserves. Nonperforming loans increased to $58.5 million in the fourth quarter, and the ratio of nonperforming loans to total loans was 1.56%, compared to 1.48% in the linked quarter. However, the increase in nonperformers consisted almost entirely of SBA guaranteed balances and fully collateralized SBA unguaranteed balances. Excluding guaranteed balances, the ratio of nonperforming loans to total loans was 1.2%. At quarter end, the allowance for credit losses was 1.49% of total loans. Excluding the public finance portfolio, the ACL to total loans increased to 1.67%. Additionally, the small business lending ACL to unguaranteed balances was 7.34%. Total loans as of 12/31/2025 were $3.7 billion, an increase of $143 million or 4% compared to the linked quarter and a decrease of $424 million or 10% compared to 12/31/2024. The increase over the linked quarter reflects strong origination and funding activity in single tenant lease financing, construction, and small business, partially offset by lower public finance and franchise finance balances. The decline from the prior year period was driven by the large single tenant lease financing loan sale offset by strong growth in construction, commercial and industrial, and small business lending. Total deposits as of 12/31/2025 were $4.8 billion, representing decreases of $76 million or 2% and $93 million or 2% compared to 09/30/2025 and 12/31/2024, respectively. As David mentioned earlier, we experienced tremendous growth in fintech deposits throughout 2025, allowing higher cost CDs and broker deposits to mature. Furthermore, the ability to move fintech deposits off balance sheet enhanced our ability to manage the size of the balance sheet following the large loan sale in 2025. Now turning to our full year 2026 outlook, we expect continued loan growth in the range of 15% to 17% driven by strong pipelines across our commercial lending verticals as well as a lower base coming off the balance sheet repositioning trade in the third quarter. Net interest margin expansion should continue, reaching 2.75% to 2.8% by 2026 as we benefit from ongoing deposit repricing and optimized asset mix. We anticipate fully taxable equivalent net interest income of $155 million to $160 million for the full year. Noninterest income is projected at $33 million to $35 million, reflecting lower SBA originations as well as lower gain on sale revenue as we retain a greater amount of guaranteed balances but partially offset by continued BaaS growth and increased loan servicing revenue. Operating expenses are projected at $111 million to $112 million, representing controlled growth that includes continued investment in tech and AI to support our revenue risk management initiatives while maintaining operational efficiency. With regard to the provision for credit losses, as David mentioned earlier, we are guiding to a higher provision to capture net charge-offs and additional reserves related to problem loans, and estimate $50 million to $53 million for the full year, which should moderate as we progress through 2026 and problem loans are resolved. We expect provision for the first half of the year to remain elevated with first quarter provision expected in the range of $17 million to $19 million and second quarter provision in the range of $14 million to $16 million. We expect the provision to improve in the second half of the year. This guidance translates to earnings per share of $2.35 to $2.45 with a midpoint of approximately $2.40 per share. 2025 was a year of disciplined execution and strategic investments in people, process, and technology setting us up for much stronger financial performance in 2026, particularly in the second half of the year. As shareholders ourselves, we remain laser-focused on building long-term shareholder value. With that, I'll turn it back to the operator for questions. Sylvia: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch tone phone. You will hear a pop that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Brett Rabatin from Healthy Group. Please go ahead. Brett Rabatin: And I might need a little bit of help walking through some of the variables. The two key ones might be just on SBA. You know, how much of that will you have on the balance sheet do you think maybe an average or, you know, how you see that progressing throughout the year and at what yield that would positively impact that 6.39 loan yield in the fourth quarter? And then secondly, on the funding side, I know you've got about $2.4 billion of CDs that cost $4.19. In the fourth quarter. Know we've talked in the past about what's repricing. I might need an update on repricing opportunities on the first half of year, particularly on the CD side. Thanks. Ken Lovik: Sorry, Brett. We didn't catch the very first part of your comments. Brett Rabatin: Okay. Sounds like you're about NII and net interest margin. Ken Lovik: Yes. Correct. Sorry. It's might have a bad connection here. But, yeah, I'm just trying to Ken, trying to get a better understanding of the NII guidance. And just wanted to understand on the SBA side, how much of that goes on the balance sheet and at what yield throughout the year. And then just trying to make sure I understand the repricing opportunities on the funding side of the equation. Ken Lovik: Yes. Well, I'll start with the funding side of the equation first because a lot of that is, to be honest with you, somewhat mechanical. We do expect to see continued decrease in deposit costs throughout the year. Now we'll probably see a larger on a quarterly basis, a larger impact in the first quarter. Because we will reap the benefits of, you know, two rate cuts in the fourth quarter. That will kind of play their way through, and we'll have full run rate on Fed funds types, Fed funds index deposits, other money markets that go down with a, you know, a decent beta on rates. And obviously, we bring down our CD rates as well. And just as a reminder, we're not forecasting any rate cuts in our forecast for next year. But we do expect to see deposit costs go down. Again, like I said, more in the biggest quarterly basis will be in the first quarter. Just kind of as an indication of that, and I'll give you some ideas on some CD repricing. But, you know, our fintech deposits far as, like, repricing so for example, on December 31, the spot rate on our on balance sheet fintech deposits was 3.52%. Today, the spot rate is 3.35%. So there's nice, you know, nice, a nice drop there. In terms of just looking at CD maturities, we got about $850 million of CDs maturing over the six months. With a weighted average cost of 4.15%. The current weighted average cost of CDs coming in the door today is 3.65%, you know? So that's, you know, that's a pickup of 50 basis points there. And even if we push that out to deposit CDs that mature over the next twelve months, that's almost $1.4 billion, and the weighted average cost on that is 4.11%. So, again, almost a 50 basis point pickup on those. So just by virtue of CDs rolling off the balance sheet and either being replaced by fintech or, you know, being renewed or new CD production, there's a nice pickup there on CD costs. On the lending side, you know, it's kinda continuing to do what we have been doing here for the past year. I mean, new loan production, you know, new loan rates that new new new origination rates in the fourth quarter were about 6.85%, getting close to seven. We're just which is above the portfolio yield as a whole. So when we think about what we where we expect to see growth over the next coming year, we're you know, we do expect to see our kind of our combination of construction and investor commercial real estate continue to grow. We expect growth in C and I lending as well. We've had success in some of these some of these kind of we'll call them, emerging verticals that we've started to get into with wealth advisory lending, equipment finance is doing well, and these are all yields kind of in the high sixes to low sevens on that. And then, again, with SBA, with our intention to retain a greater percentage of our guaranteed originations we expect, you know, that we'll be holding an additional almost $94 million of those on the day on the on the balance sheet, kind of priced it, you know, call it prime plus one and a half. So, yeah, all of the the the lending verticals that were rigid, you know, all the new yields coming on the balance sheet are just obviously higher than what the current yield is in the portfolio today. So it's really just kind of a continuation of what we've been doing over the last, you know, twelve to eighteen months. Brett Rabatin: Okay. I wanted to you know, there's a there's a lot of questions embedded in the credit stuff, but wanted to see if you had an updated number for criticized loans. I think believe, there were a $139 million. Last quarter. Just wanted to see what those did, particularly in the SBA bucket. And the franchise finance bucket. And then it sounds like the issue is you're kind of expecting some more business acquisition oriented SBA credits to maybe migrate and just wanted to see if there was any commonality you know, time in business or anything else that, you know, you seem to be hitting on that is impacting that piece of the portfolio? Ken Lovik: Yeah. The total criticized loans probably increased about call it, $16 million or so. So that was up, call it, 10, 11%. Yeah. I would say it's probably, you know, the it's probably a a a mix predominantly, SBA in there, there's probably some in franchise. And obviously, keep in mind that these are loans that these aren't necessarily substandard loans. These are loans just may have been downgraded from a six to a seven. That are still performing. We continue you know, we're we're actively monitoring loans in that bucket and working with borrowers on that. Kind of on we did see some in the franchise excuse me, well, in both, in franchise and in SBA roll off as we charged off some loans as well. But, yeah, we saw a a little bit of an uptick. Most of it, though, was in special mention category, not substandard. Yeah, that's a question. If we are seeing some commonality into issues about the only thing we've got, Brett, is on the SBA portfolio in that twelve to eighteen month window. Is kinda where if they're gonna run into a problem, they run into it. It's kinda getting through that first year of business. You're in closeout and stuff that so we got very aggressive during the fourth quarter calling people think we reached out. Nicole can probably hundred borrowers. We've talked over 400 borrowers that are currently okay. And just did a touch base to see, hey. You know, how's the year end shaping up for you any we can do. Trying to get a little bit ahead of the game. But as as we've said time and time again, there is no given vertical, no given business type that's getting into trouble, but if there's any commonality to them, they seem to hit in that twelve to eighteen month window is when they kinda hit the wall or start to go south. So we're trying to get ahead of that and stay on a proactive with them before they get to that window. So in some cases, it's just a matter of a shortfall of some cash. They get pretty frustrated, and they wanna get out. So we can know, help them make a payroll or something to keep things afloat. We're very much on a positive play with them at the current time. Brett Rabatin: Okay. I appreciate the color. Thanks, guys. Ken Lovik: Thank you. Sylvia: Your second question comes from Nathan Race from Piper Sandler. Please go ahead. Nathan Race: Yes. Hi, everyone. Good afternoon. Thanks for taking the questions. Ken Lovik: Hi, Nate. I was curious. Nathan Race: Curious if there are any interest reversals that impacted the margin in the fourth quarter? And just given the credit cost outlook for this year, which is really helpful. So you for that. Just curious if that contemplates any additional interest reversals just as you continue to work through VSBA credit quality factors. Ken Lovik: Yeah. We we do we do model in, you know, interest reversals into our assumptions. On net interest income as part of our forecast. With some of the, you know, the the migrate you know, some of the the net charge offs, we probably had don't know, maybe three to 400,000 of probably interest reversals there. Which is, you know, I call that three to five basis points or so, probably consistent with what we've seen in prior quarters. Nathan Race: Okay. So that kind of explains the NII margin shortfall relative to the guidance from last quarter. Ken Lovik: Yeah. That's that's a little bit of it. And and some of it too, if if you know, we probably following the, you know, following the the the large single tenant transaction, we're able to move deposits off the balance sheet. But sometimes, the fintech deposits can be a little bit volatile. So we probably carried higher cash balances. Average cash balances throughout the quarter. That certainly probably impacted the margin a few basis points as well. Nathan Race: Understood. That's helpful. And then Ken or Nicole or Dick I'm trying to understand kinda what's the embedded net charge off expectations relative to the provision guide for this year of 53 to I'm sorry. 50 to 53 million. I I Sorry. We have to Ken Lovik: Yeah. I mean, I I understand the provision guidance and but I'm also trying to how much more you need to provide you know, relative to charge offs just given that you're expecting GROW loans 15 to 17% this year? Ken Lovik: Yeah. No. There's yeah. There there's I would say, of that, you know, probably you know, half or so are are going to be assumptions on charge offs and specific reserves, probably half charge offs half charge offs and and some additional specific reserves above that. I mean, we kinda do, you know, as we you know, Nikola talked about in her comments. Right? And, David, we have a number of different methodologies we use to kind of try to target what we think. Potential losses may be from a forecasting perspective. And I think we you know, our our bias on on this quarter and and looking forward into '26 was to, you know, let's let's go with the highest you know, the the higher estimate of the different methodologies we look at. But, yeah, I think that's to the point that we talk about in terms of the provision. Like, we expect to hit the bulk of that will be reflected in the first and the second quarter. And our expectations are, as sit here today is that as we get into the third and the fourth quarter, the provisions will move more in line kinda with what the perhaps even a little bit lower near the end of the year, but in in line with kinda, like, where the estimates are today. Nathan Race: Okay. To add a little color to what Ken was talking about with that, Nate, The different models that we've run, I mean, we have data from Lumos on our SBA portfolio as well as Redwood data. That gives us some predictive analytics around what our portfolio might do. We've also done a lot of vintage analysis internally. Because we continue to refine our credit guidelines as we have been growing our portfolios, we made significant changes to our guidelines in the second half of this year. So I would imagine that we're through the 2021, 2022, and even the 2023 vintages, I think, in terms of feeling the most pain. We are currently working through 2024 loans, and likely, we will even have elevated levels of charge offs compared to what we might like to see on the 2025 vintage that were underwritten under the previous guidelines. But then going forward, and that's the twelve to eighteen months that David referenced, we think we're going to be in a much better place once we get through the the earlier vintages, and we're able to work with credits that are underwritten to current guidelines. Nathan Race: Okay. Understood. That that's really helpful. And I apologize for trying to oversimplify it, but just in terms of net charge off expectations for this year and where you see the reserve ending up relative to the loan growth, target? Just any thoughts in terms of a range there? Ken Lovik: Well, in terms of, like I mean, we we expect you know, obviously, in we expect the allowance to continue to grow throughout the year. Again, some of it's gonna be driven by specific reserves. Some of it's gonna be driven by loan growth. But, you know, we got you know, right now, we could you know, you know, the the provision or excuse me. The ACL could be up by, you know, by the fourth quarter, you know, be up anywhere from, say, I don't know, call it, somewhere between 20 and $30 million. And I know that's a wide range, but sometimes it's you don't you don't know exactly whether something's gonna be a charge off or you're gonna take a a specific reserve on on on a credit. But that would be kind of the range of growth I'd I'd forecast us to to experience in you know, by year end in the ACL balance. Nathan Race: Okay. Understood. Apologies for the analyst question there, but I appreciate that. And then maybe just lastly on the tax rate within your expectations for two thirty five to two forty five in EPS this year. Ken Lovik: Yeah. I think because of the way that we've talked about the provision and if you work through it, and probably one thing that we didn't talk about in the second quarter as we kind of shift to holding more SBA loans in in the second quarter. That really will kinda go into effect in in earnest in the second quarter where we'll probably see a decline in gain on sale revenue there. I mean, the first two quarters of the year is is where earnings are really depressed. So if you think about those two quarters, we have into our models now a tax rate of somewhere, call it, seven to eight and a half percent in the first and second quarter. And then as earnings improve throughout the year, we have that kind of ramping up to like kind of a 10% to 12% in the third and fourth quarter. Nathan Race: Okay. That's really helpful. I'll step back. Thank you for all the color. Ken Lovik: Alright. Thank you. Sylvia: Your next question comes from George Sutton. From Craig Hallum. Please go ahead. George Sutton: Just wanna walk back to last quarter and we had talked about really pulling some of the challenges forward in terms of loan issues. You did the pro audit. You had implemented the Lumos technology. And I'm not really clear what so I would have anticipated a much cleaner look coming out of this quarter. What changed in this quarter? What were the dynamics that you saw that might have been different than you expected? Nicole Lorch: I can I can take a quantitative look at or a qualitative look at that, for you? George. In terms of SBA, I think we've been looking at kind of what was right in front of us and the problems that we knew of at the time. And as we have been spending more time with the Lumos data and spending more time with our vintage analysis, analysis, we've gotten a clearer picture not just of what's right in front of us, but also what's what's out on the horizon. I kind of think of it like a bathtub and we knew how much water was in the tub, and and there's a drain. But we also had water flowing in because we continue to originate loans. And so we've had a better capability to measure both the the drain as well as the inflows. So that gives us a better picture. Of of what we're dealing with. And I think we wanna create a really realistic view of things for you. So I think we're we're doing a better job of looking at at what is to come rather than just what's right in front of us. George Sutton: Understand. On the, the BaaS side, so you saw a pretty material increase in payments quarter over quarter. Where where are we seeing that in the income statement dynamics? Ken Lovik: That's gonna be in in other noninterest income. George Sutton: Okay. And other non interest income fell quarter over quarter. So I I just wasn't clear. Ken Lovik: Yeah. Well, that's what that's if if you if you have our new slide deck. So we revised did not. It grew thirty percent. Sorry. Okay. Quarter over quarter. So that's where we're seeing that impact. And then the Fintech other income is the dollars bringing in for deposits that you've pushed off to third parties. Is that correct? Ken Lovik: Yeah. Some of that's in there. I think if you in in our in our revised slide deck, we tried to, you know, kinda break out the fintech, a little bit more clearly because fintech hits a couple of different line items. There's program, there's transaction fees, those are going to be another non interest in the other line item on the GAAP finance on income statement. There is the gain on sale we have on the embedded finance loans we originate for JARIS. So that's that's in the gain on sale line item. And then there is kind of a a little about, but it's growing the fee income we make on the on the deposits we push off the balance sheet. So if you look at page 16 of our new slide deck, which has kind of we've kind of simplified or kind of sliced the the noninterest income a different way. You'll see a bar in there for fintech. So you'll see almost $9.9 million. Okay. You got that. So we're we're gonna provide this to give give the analysts more color on on where the fee income what the fee income is coming from our fintech efforts. George Sutton: Great. Last question for David on just M and A in general as we're starting to see more bank M and A. You know, you're an interesting duck out there and that you're a online platform trading at a pretty significant discount to tangible book. What is your thought process if approached? David Becker: Well, being honest, I can say we have been approached three or four times here over the last half of last year. We entertain all inquiries. We speak and talk. We've had a couple international organizations are wanting to put hold here in The United States that are interested in us. We found some folks that have some fintech issues in their world and BSA AML that need to get cleaned up and operational and they love what we're doing. So we're chatting with a lot of people, George. It's probably the most activity. We've seen more activity in the last months than we have the last five years put together. So we'll entertain and talk to anybody. We've not got anything remotely close at this point, but we're talking on on both sides, looking at opportunities from our side and some specialty lending programs and services as well as institutions looking at us. George Sutton: Alright. I appreciate the clarity of the response. Thanks, guys. David Becker: Thank you. George Sutton: George. Sylvia: Your next question comes from Emily Lee from KBW. Please go ahead. Hi, everyone. This is Emily stepping in for Tim Switzer. For taking my question. Emily Lee: Hi. So going back to just the fintech and BaaS pipeline, I was wondering what the impact earnings been so far and how much of deposit growth is driven by the current customers versus, new onboarding on the fintech platform. Ken Lovik: On on the deposit side, the vast majority is driven by fintechs that we've we've been working with now for a few years. Right? RAM, that's the biggest piece. That's that's the biggest source of deposits for us. We have two programs for them of business savings. And a bill pay product, which is really more of a payments engine. And then we have deposits with our our platform partner, Increase, with their program. And we've been, you know, we we've been doing these deposit providing, you know, deposit services for for both of these for, you know, a couple years now. Right? The but we have seen during 2025, we did see what I would call explosive growth in them. Right? When they rolled out, they rolled out as pilots and there was there was, you know, some modest growth there. But but we've seen a we we've seen quite a bit of growth over the past twelve months predominantly in the ramp program and, to a lesser extent, an increase. And then really, with all of our fintech you know, partners, we do have varying degree you know, varying amounts of deposits, some ranging from you know, $8,090,000,000 down to 2 or $3,000,000. But the the the bulk of it are are from the the from from ramp and from increase. Nicole Lorch: We have been, Emily, we've been deliberately in bringing aboard new programs over the last couple of years, and we've had terrific growth from our existing programs. So we've been able to grow the the program and even add new programs with existing partners, which has been a great way to extend existing relationships. So it hasn't necessarily been necessary for us to grow out and attract new relationships. That said, we're getting calls all the time, and we have a great pipeline of new opportunities. But we are looking for programs that we think offer something special. We're really excited to bring pool money live in the next couple of days. They've been growing their wait list. It offers a chance to offer a group deposit account, and so we're excited to work with pool. We think that they will be a good program for us to work alongside. So we will continue to add new opportunities, but it hasn't been something that we've necessarily had to be adding dozens of new programs because our existing partners have been so successful. Ken Lovik: Yeah. And to come back to the I'm sorry. I was I was gonna just answer your revenue question. So we have if you look at the the chart on the that we have in the deck on fintech revenue, you'll see that on a quarterly basis throughout the year, it's gone up quite a bit. But when you add in interest income that we make from lending efforts with our partnership with Jaris, we had about $6.7 million of gross revenue from that that was up you know, that was up more than double over last year. So the fintech effort is is is producing results in terms of increased revenue, you know, year over year, both between the between non income and and the interest income line items. Emily Lee: Great. It's Altam here. Thanks for taking my question. Ken Lovik: Of course. Thank you. Sylvia: We have a follow-up question from Nathan Race from Piper Sandler. Please go ahead. Nathan Race: Yeah. Thanks for taking the follow-up. Just going back to the balance sheet growth expectations, particularly appreciate the 5% to 17% loan growth guidance. Is the expectation that, you know, deposit growth is largely gonna follow and fund that? Or just trying to think about some of the dynamics to fund that pretty strong loan growth outlook. Ken Lovik: Yeah. Well, some a combination. Right? So we're we're we're modeling, you know, right now, we'll call it somewhere between 810%. Loan, excuse me, deposit growth there. Obviously, we're, you know, we're I wouldn't say we ended the year with a huge amount of excess cash, but there were cash balances that we were know, higher than we'd like to be carrying. So some of it is just deploying cash on the balance sheet. And then some of it is just you I'll call it, like, securities cash flows. Funding that as well. So between the between the three of those, it's just kinda going from different parts of the of the asset side into into into the loan side. David Becker: Part of the plane? Nate. Our our loan to deposit ratio is probably at an all time low for us. In in our history. So it's Ken said we've got a lot of flexibility to move some stuff around there. And what's off balance sheet is primarily the BaaS fintech deposits at a cost to us of about 150 basis points. If we putting it back out the door, particularly, we pick up some of the SBA loans, about 20% of our new originations that are prime plus one and a half, we're gonna fund that at max with those vast deposits. If we run out of cash on the balance sheet, we just pull that back in. So we've got a great spread in there, probably one of the best we've had in the history of the bank. So from a deposit cost as well as loan origination opportunities, we're kinda at all time low on the deposits and all time high on loan origination. So we got an awful, awful lot of flexibility built in over the next twelve months. Nicole Lorch: And I would be remiss if I didn't remind everyone that we have an award-winning small business checking account. We won the best in biz award this last quarter. And we're improving our win rate as we're going out and talking to SBA borrowers about the opportunity to grow the full relationship with First Internet Bank. So I want to thank our team for the effort that they've put in there to work collaboratively, and we continue to add features to that product, including Zelle for business so they can make business payment kind of business to business or even business to consumer payments. So it's it's been exciting to watch that program grow. Nathan Race: Yep. I noticed that. Congratulations on that. Well deserved. And then, Ken, just any thoughts on the starting point for the margin in the first quarter? I appreciate the guide getting up to two seventy five to two eighty by the end of this year, but just any thoughts on the first quarter? Ken Lovik: Yeah. The way that I think about the margin throughout the year is it's probably call it, 10% to 15 basis points of expansion per quarter. With probably a little bit more in the first quarter pursuant to my comments about the, you know, kinda getting a full quarter's run rate of two Fed rate cuts in there? Nathan Race: Mhmm. Okay. Gotcha. And just as I'm going through that, it appears that you guys would be unprofitable based on the guidance in the first quarter. Is that accurate? Ken Lovik: No. No. Nathan Race: Okay. I'll have to follow-up offline. Ken Lovik: With you, Kenneth. That's alright. Thanks. Yeah. That's fine. No. I mean, in Nate, in the first quarter, we still we expect we still expect to have a a fair a a decent level of noninterest income because we do have you know, we we still have a pretty healthy balance of loans held for sale on the balance sheet. So we still have a lot of SBA loans to sell before we kind of start retaining more balances. That's probably gonna be more of, like, I think I said earlier, more of a second quarter impact. So I think the the the the noninterest income line item for the first quarter should be kind of in line where we've kind of been historically in the first quarter in the past. Nicole Lorch: Boring a government shutdown. Ken Lovik: That's gonna bring up. Yeah. That's right. I forgot about that. David Becker: Yep. Good point, Heather. Nathan Race: Yeah. I'll leave it there. Thank you. Ken Lovik: Thank you. Sylvia: There are no further questions at this time. Will now turn the call over to David Becker for closing remarks. David Becker: Thank you much, guys. We appreciate all your time this evening and the great questions. I hope you if you have any feedback, we obviously changed up the deck significantly, kinda did a refresh on that and and trying to give you a little more detail. And insight as to where we're going and what we're doing. Please reach out to Ken, Nicole, or myself or all of us we're happy to go through that with you. And we do appreciate the adjustment on the time frame that made it a much easier pull together for us with all the year end issues coming around, and we'll continue this going forward. Hopefully, we will see some of you next week at either bank directors conference and some of our investors at the Janney conference, which follows on. So thank you very much for your time, and we're kicking off, I think, a great 2026. We appreciate it. Thank you. Sylvia: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings and welcome to the Axos Financial Second Quarter 2026 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Johnny Lai, Senior Vice President of Corporate Development and Investor Relations. Thank you, Johnny. You may begin. Johnny Lai: Thanks, Alicia. Good afternoon, everyone and thanks for your interest in Axos Financial, Inc. Joining us today for Axos Financial, Inc. Second Quarter 2026 Financial Results Conference Call are the company's President and Chief Executive Officer, Gregory Garrabrants, and Executive Vice President and Chief Financial Officer, Derrick Walsh. Gregory Garrabrants and Derrick Walsh will provide prepared remarks on the financial and operational results for the quarter ended December 31, 2025, then open up the call for Q&A. Before I begin, I would like to remind listeners that prepared remarks made on this call may contain forward-looking statements that are subject to risks and uncertainties, and that management may make additional forward-looking statements in response to your questions. Please refer to the Safe Harbor statement found in today's earnings press release and in our investor presentation for additional details. The call is being webcast, and there will be an audio replay available in the Investor Relations section of the company's website located at axosfinancial.com for thirty days. Details for this call were provided on the conference call announcement and in today's earnings press release. Before handing the call over to Gregory Garrabrants, I'd like to remind listeners that in addition to the earnings press release, we also issued an earnings supplement and 10-Q for this call. All of these documents can be found on axosfinancial.com. With that, I'd like to turn the call over to Gregory Garrabrants. Gregory Garrabrants: Thank you, Johnny. Good afternoon, everyone, and thank you for joining us. I'd like to welcome everyone to Axos Financial's conference call for the quarter ended December 31, 2025. Thank you for your interest in Axos Financial. We had an outstanding quarter across a variety of growth, credit, and profitability metrics. We generated $1 billion of net loan growth linked quarter with broad-based growth across several asset-based lending areas, commercial specialty, and equity finance verticals. A 19 basis point linked quarter increase in net interest margin, a linked quarter improvement in our nonperforming assets and net charge-off ratios, and a 23.3% year-over-year increase in earnings per share. We continue to generate high returns as evidenced by the over 17% return on average common equity and the 1.8% return on assets in the three months ended December 31, 2025. Other highlights in the quarter include net interest income was $331.6 million for the three months ended December 31, 2025, increasing by approximately $41 million linked quarter or 14%. Net interest income growth benefited from balanced growth across single-family mortgage warehouse, commercial specialty real estate, equipment finance, and fund finance. We had one FDIC loan prepaid this quarter resulting in approximately $17 million of interest income benefit. Excluding that benefit, net interest income was up $23 million or 8% from fiscal Q1 2026 to fiscal Q2 2026. Net interest margin was 4.94% for the quarter ended December 31, 2025, up 19 basis points from 4.75% in the quarter ended September 30, 2025. Excluding the impact from the early payoff of an FDIC purchased loan and the impact from the Verdant balance sheet securitization, our net interest margin was 4.72% roughly flat from the prior quarter. We continue to maintain our best-in-class net interest margin with or without the benefit of the accretion from loans purchased from the FDIC. Non-interest income increased by approximately $21 million quarter over quarter due to higher banking service fees, broker-dealer fee income, and prepayment penalty fees. This was the first quarter with non-interest income and non-interest expense contributions from Verdant. Non-interest income from Verdant was approximately $18.9 million in the quarter ended December 31, 2025. Total nonaccrual loans to total loans declined 13 basis points linked quarter resulting in our nonaccrual loans to total loan ratio improving from 74 basis points as of September 30, 2025, to 61 basis points as of December 31, 2025. Nonperforming assets declined in single-family mortgage, multifamily, and commercial mortgage and stayed roughly flat in commercial real estate and C&I non-real estate lending categories. Net income was approximately $128.4 million in the quarter ended December 2025, up 22.6% from $104.7 million in the prior year second quarter. Diluted earnings per share was $2.22 for the quarter ended December 31, 2025, compared to $1.80 in the prior quarter, representing a 23.3% year-over-year increase. Total originations for investments excluding single-family warehouse lending were $5.6 billion for the three months ended December 31, 2025, representing an increase of 35% linked quarter nearly 140% annualized. Commercial real estate specialty lending, equipment leasing, asset-based, and single-family warehouse had strong organic originations and net loan growth this quarter. Single-family mortgage ending balances were roughly flat, an improvement from net attrition we experienced over the past three years. Average loan yields from non-purchased loans for the three months ended December 31 were 7.63%, roughly flat from the prior 7.66% in the prior quarter. Average loan yields for purchased loans were 23.32% which included the accretion of our purchase discount. Purchase loan yields for the quarter ended December 31 benefited from one FDIC loan prepayment resulting in approximately $17.1 million purchase discount accretion that we recognized in interest income. The FDIC purchased loans continue to perform and all loans in that portfolio remain current. Ending deposit balances of $23.2 billion were up 44.3% linked quarter and up 16.5% year over year. Demand, market money, money market, and savings accounts representing 96% of total deposits as of December 31 increased by 17% year over year. We have a diverse mix of funding across a variety of business verticals with consumer and small business representing 52% of total deposits, commercial, cash, treasury management, and institutional representing 22%, commercial specialty representing 15%, 5%, and Axos Securities, which is our custody and clearing representing 5%. Average non-interest-bearing deposits were approximately $3.5 billion in the quarter ended December 31, compared to $3 billion in the prior quarter. Client cash sorting deposits ended the quarter around $1.1 billion up modestly from the September. In addition to our excess security deposits on our balance sheet, we had approximately $460 million of deposits off balance sheet at partner banks. We remain focused on adding non-interest-bearing deposits from our custody clearing fiduciary services and commercial cash and treasury management verticals. Our consolidated net interest margin was 4.94% for the quarter ended December 31 compared to 4.75% in the quarter ended September 30. We closed the Verdant acquisition on September 30, adding approximately $430 million of loans and leases and approximately $780 million of on-balance sheet securitizations. While the leases are generally accretive to loan yields, the financing had a three basis point negative impact on our net interest margin in the quarter ended December 31. One FDIC purchased loan paid off in the December. The net impact from the early FDIC purchased loan payoff and the secured financing was a 22 basis point boost to this quarter's net interest margin. Given the payoffs and maturities in our FDIC purchase loans, we expect net interest margin accretion from the FDIC purchase loans to be 10 to 15 basis points going forward. The diversity of our lending channels provides us with the flexibility to maintain strong loan growth and credit performance while managing our best-in-class interest margin. Verdant had a strong quarter as part of Axos, contributing approximately $130 million of net new loans and operating leases in the December. We have already identified several opportunities to deepen our relationships with existing Verdant vendors and dealers as well as accelerate growth in a few existing verticals that were previously constrained by capital and size limitations when Verdant was under private ownership. Demand in our commercial specialty real estate fund finance and lender finance real estate and non-real estate verticals remain strong. We are making steady progress growing our loan pipelines in newer lending verticals such as floor plan and middle market lending. Taking all these factors into consideration, we are confident that we will generate loan growth by low to mid-teens on an annual basis this year. Given the robust loan growth in the December, we entered January with approximately $800 million higher starting loan balances than the average balances from the prior quarter. Also expect to grow loans in the $600 to $800 million range this quarter. This strong organic loan growth is allowing us to offset the lower level of accretion that we expect to receive going forward on the FDIC purchase loan portfolio. As a result of strong prepayments and scheduled maturities, the level of regular accretion we expect going forward per quarter on the signature FDIC loan purchase is approximately $6.5 million. Excluding the one-time gain on the signature prepayment in this quarter, we received approximately $9 million of signature FDIC accretion in the December, resulting in a forward-looking reduction of scheduled accretion of approximately $2.5 million. In essence, we have replaced a significant percentage of our signature loan accretion income with stable core net interest income. Additionally, the March has two fewer days resulting in approximately 2% net interest income reduction as compared with the three other quarters. Finally, we achieved around a 90% downward beta managing the last 50 basis points of rate cut resulting in a potential five to six basis point reduction in our signature adjusted margin in the March relative to the December. Although some of this reduction may be offset by non-renewals of lower margin loans and slightly higher average margin of new originations given the robustness of our loan demand. We had a strong increase in non-interest income as a result of the acquisition of Verdant's operating leases. While we expect that the Verdant loan balance growth is going to be approximately $150 million per quarter, the percentages that are operating leases, which will generate incremental fee and income rather than interest income, fluctuate from quarter to quarter depending on the structure of the individual transactions. The credit quality of our loan book continues to be strong and our historical and current net charge-offs remain low. Total nonperforming assets improved by approximately $19 million linked quarter representing 56 basis points of total assets compared to 64 basis points in the prior quarter ended September 30. Nonperforming assets declined by approximately $9.7 million in multifamily and commercial mortgages and by $11.9 million in single-family mortgage. Total nonaccruals and C&I lending were largely unchanged from the prior quarter. We do not anticipate a material loss from loans currently classified as nonperforming in our single-family, multifamily, or commercial real estate loan portfolios. Net charge-offs to total assets were down seven basis points linked quarter and six basis points year over year to four basis points for the three months ended December 31. We remain well reserved from our current loan levels for credit loss with our allowance for credit loss to nonaccrual loans equal to 215.8% at December 31. Axos Securities, which includes our Correspondent Clearing and RIA custody business had a good quarter. Total assets under custody or administration increased by $43 billion at September 30 to $44.4 billion at December 31. Net new assets for our custody business were nearly $1 billion in the December and $2 billion for the first six months of fiscal 2026. Strong organic asset growth and operational improvements contributed to operating income from the Securities segment improving from $7.8 million in the second quarter to $9.7 million or $7.8 million 2025 to $9.7 million in 2026. We continue to expand the scope and scale of artificial intelligence across the firm to a wide range of businesses and functional units. We are well positioned to use artificial intelligence to increase operating leverage across the enterprise. We are deploying artificial intelligence throughout the software development life cycle. These AI-enabled tools allow us not only to review, document, and update code at a faster pace with fewer resources, but they will also allow our team to take on more projects concurrently without the need to increase the pace of new hires or offshoring. Our commercial lending team has expanded the use utilization of AI in various credit underwriting and portfolio management workflows significantly improving the productivity of manual repetitive tasks. We are enhancing our ability to perform more robust compliance and risk monitoring at reduced costs. We continue to evaluate M&A opportunities to augment growth from existing businesses and team lift-outs. We successfully completed the acquisition of Verdant Commercial Capital, a vendor-based equipment leasing company at the end of the September. Verdant's focus on originating small and mid-ticket leases nationally in six specialty verticals is a great addition to our commercial lending franchise. Strong risk-adjusted returns, history of low credit losses, tech-enabled service model, and the entrepreneurial spirit of the team members are a great strategic fit for Axos. We are making good progress integrating the team's systems and processes. We also spent time with the vertical and functional leaders to identify and prioritize strategic and operational initiatives that will help deepen our relationship with their clients and increase revenue growth and profitability. Over the next six to twelve months, we will more systemically develop cross-sell opportunities for deposits and floor plan lending to a larger set of strategic dealers and OEMs. With a strong start and a solid pipeline, we expect Verdant to achieve EPS accretion at the mid to high end of our initial projection of 2% to 3% accretion in fiscal 2026 and 5% to 6% accretion in fiscal 2027. I'm excited about the opportunities that we have to maintain our positive momentum in fiscal 2026 and beyond. Our strong and growing capital, diverse lending, deposit and fee income capabilities, operational and credit risk management culture, position us well to capitalize on organic and inorganic growth opportunities. As we make additional progress on various technology and process enhancement initiatives, I remain optimistic that we can deliver positive operating leverage while investing in businesses, systems, and people. Now I'll turn the call over to Derrick Walsh, who will provide additional details on our financial results. Derrick Walsh: Thanks, Gregory. A quick reminder, that in addition to our press release, our 10-Q was filed with the SEC today and is available online through EDGAR or through our website at axosfinancial.com. I will provide some brief comments on a few topics. Please refer to our press release and our SEC filing for additional details. Non-interest expenses were approximately $184.6 million for the three months ended December 31, 2025, compared to $156.3 million in the three months ended September 30, 2025. Verdant added approximately $7.8 million in salaries and benefits expenses and $14.8 million in depreciation and amortization expenses. Separately, we had a $7 million increase in other general and administrative expenses related to an accrual for the Core Clearing acquisition. Excluding the Verdant-related expenses and the one-time accrual, non-interest expenses were roughly flat quarter over quarter. We are committed to keeping our salaries and benefits and professional services expense growth at 30% of our revenue growth or lower on an annual basis. As we mentioned last quarter, we acquired approximately $1 billion of loans and leases and $213 million of fixed asset operating leases in the Verdant acquisition, which closed on September 30, 2025. As of December 31, $702 million remain on as on-balance sheet securitizations. For the quarter ended December 31, 2025, we recorded $24.3 million of interest income from loans and leases and $14.1 million of non-interest income from the operating leases. Turning to the consolidated entity, total non-interest income for the three months ended December 31, 2025, was $53.4 million, an increase of 65% from the $32.3 million in the prior quarter. Aside from the $18.9 million non-interest income from Verdant, we saw growth in both broker-dealer and advisory fee income compared to the quarter. Provisions for credit losses were $25.25 million in the quarter ended December 31, 2025, compared to $17.1173 million in 2026. The primary driver of the quarter-over-quarter increase in provision for credit losses was robust loan growth across our commercial lending categories, which carry a higher provision for each dollar of net loans added compared to single-family and multifamily mortgages. We also added approximately $2.8 million to our provision for unfunded commitments related primarily to our commercial real estate specialty and C&I lending businesses during the quarter. I'll wrap up with our loan pipeline growth outlook. Our loan pipeline remains healthy at approximately $2.2 billion as of January 23, 2026, consisting of $598 million of single-family residential jumbo mortgage, $75 million of single-family gain on sale mortgage, $200 million of multifamily and small balance commercial, $82 million of auto and consumer, and $1.2 billion across commercial. We expect the combination of strong originations from our commercial lending businesses, growing contributions from incubator businesses such as floor plan and middle market lending, and slowing prepayments in our multifamily lending businesses, and the incremental contributions from the Verdant equipment finance business to drive loan growth in the low to mid-teens year over year over the next year. With that, I'll turn the call back over to Johnny Lai. Johnny Lai: Thanks. Alicia, we're ready to take questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, key. One moment please while we poll for questions. Our first question comes from the line of David Bernini with Jefferies. Please proceed. David Bernini: Hi. Thanks for taking the questions. So I wanted to start with the net interest margin outlook. I think I heard you right that the normalized level was 4.72% and that you expect a six basis point decline, so that would imply 4.66%. Just wanted to confirm that I heard that right. Was the first part. And then could you also talk about how much the average remaining life of the FDIC purchase loans? Gregory Garrabrants: Yes. So with respect to the first question on net interest margin, that's correct. I do think because we've had so much robust loan demand as I said, that I've been able to kinda push up average spreads a little bit. But I think a good conservative approach would be to assume that you're gonna have that five to six basis point decline in the adjusted margin just based on the robust growth we had. We did well on the deposit side, but we, you know, we did, I think, pretty well on the down beta. But that's, that's where that is. And then with respect to the signature side, it's almost like three or four more years. Right? Correct. Yeah. About three or about three or four more years. You know? So that's, you know, that's six and a half. You know, it's it's it's relatively steady. Right? It's a little more it's it's because of just the way the accounting is. So obviously, we could have you know, either theoretically, you could have a loss in the portfolio, which we haven't had yet, but you could. Or you could have a prepayment, which would then accelerate that, and then we would describe what the what the otherwise then you know, new level of accretion would be per quarter. David Bernini: Great. Thanks for that. And in terms of, you alluded to potential team lift-outs. Can you talk about a pipeline there and and what you're seeing? Gregory Garrabrants: Well, you know, I think we've we've done a number of team lift-outs. And in a lot of cases, teams are now adding people where they see opportunities on a more individual basis. So although, you know, we clearly we look for we look at acquisitions. We look at teams. I think we've really done a lot there in the last year, you know, the floor plan team, the tech team, some other geographic teams. And and and so I think we're probably more likely now in the coming quarter to be a little more focused on developing or the coming quarters, a little more focused on developing those teams, adding where necessary. So we've kind of made those investments, wanna see them kind of come to fruition, get a little more mature. David Bernini: Great. And then last one for me is just on the portfolio acquisition front. Similar question. Is there much of a pipeline there? Or are you seeing many portfolios for sale? Gregory Garrabrants: On the loan side, we have such robust organic growth through our own channels. And that we'll we'll see we'll see small ones, but I I don't really think that's gonna be a massive part. I haven't really seen a lot of those. And when they are, they come up. They're sort of a bunch of low rate multifamily loans where people are trying to pretend that they're not as marked as they should be or whatever. But you know, there's always interesting deals that we're across the spectrum going on, and we, you know, are always spending our time thinking about those and and making sure we're in a deal flow. David Bernini: Great. Thank you. Operator: Thank you. Our next question comes from the line of Kyle Peterson with Needham and Company. Please proceed. Kyle Peterson: Great. Good afternoon, guys. Thanks for taking the questions. I want to start off on the growth outlook. Great to hear the commentary and good to see the balances in the pipelines both, you know, looking really good. But, you know, in terms of moving forward to kinda support that low to mid-teens, outlook here, should we expect more of the same some of the strength, whether it's series specialty warehouse, leasing, and some of these other things. Is it more of the same, or are there other parts that you you are thinking will become more attractive or or you see additional opportunities in in the next couple quarters here? Gregory Garrabrants: Yes. I think that, obviously, Crestle was having growth this quarter. We don't expect that we expect it to be a little more balanced next quarter. Fund finance continues to do well. We expect non-real estate lender finance, maybe that little bit better quarter. Floor plan will kick in. Floor plan will start to kick in. Yeah, I think I think it's gonna be pretty balanced, and I think Verdant is they're a bit of a seasonal business. They tend to have a bigger fourth quarter. And first quarter is slower. It's just the way that leasing business is. But I we still expect that they're gonna, you know, be one fifty, 200 growth. Including all their segments. At least that's what their current projection is. So I think it's gonna be pretty balanced. I I feel really good about the balance we have, across the groups now. Kyle Peterson: Got it. You know, that's really helpful. And then, you know, as a as a follow-up, one to, you know, touch on on fee income. I know there's some pieces moving around. You know, with Verdant. So I think there's some seasonality from, you know, some paper statements and stuff. But I guess stripping out that seasonality from that is is this a good run rate moving forward for for fee income with Verdant in the fold. Obviously, I know there can be some some moving on rates, but in a more stable rate environment would this quarter be a good jumping off point? Derrick Walsh: Yes. I think that's right, Kyle. I think the we did have the paper statement fee. That was about $1 million this past quarter. So impactful, but not overly impactful by any means. And but as the as the Verdant income, we expect to be generally consistent through that non-interest income line item. And maybe some small growth there as they they grow originations. But it's it's only about 20% or even a little shy of that of their portfolio. So that come through in operating leases and there's there's nuances to that with the accounting and as far as the classification as to what hits operating and what hits the the net interest income line item. But I think you're this is a good jumping off point. Kyle Peterson: Okay. That's really helpful. Thanks for taking my questions, and nice quarter, guys. Gregory Garrabrants: Thank you. Thank you. Operator: Our next question comes from the line of David Feaster with Raymond James. Please proceed. David Feaster: Hey. Good morning, everybody. Or good afternoon, I guess. Hey, David. How are you? Yeah. Long night for you. Gregory Garrabrants: I know. David Feaster: I Greg, I I got a high level one for you. I mean, you guys have more going on than any other bank that I know. I mean, you got a ton of growth engines. You got a lot of irons in the fire. If you will, that you're you're developing, businesses that you're incubating. I'm like, from your standpoint, what are you most excited about today that you're working on that you think could be maybe most impactful to the business? Gregory Garrabrants: Yeah. It's an interesting question. I mean, I'll dodge it then I'll answer it. I think I think one of the reasons that we have continued to do well as we have for as long as we have is that we do have that balance. And so that balance allows us to have strong growth but not actually have rushed growth in anything. So if you really look at the underlying businesses, any one of those businesses, isn't growing at a a crazy speed usually, but the combination of all of those businesses together end up generating, you know, a reasonable level of growth. So in a lot of respects, a lot of the infrastructure that's necessary for for those businesses. To succeed and to grow and to get operating leverage. You know, really rely on a common data infrastructure you know, common, you know, Salesforce platform that allows us to track going on with our teams and all those kind of things. So there's a balance that's been created intentionally as a result of that diversity. That being said, I think where I'm really excited is that I've always felt like we've had so many better ideas technologically. Than we were able to fund and that a lot of our, you know, fintech competitors because of the nature of how they were able to run money losing operations for such long periods of time. And were measured by clicks or eyeballs when when, you know, we would be measured by oh my gosh, a penny here and a penny there. That right? And and then and then now with what I'm seeing with the with the with the platforms, just with respect to AI and code development, I really do see a bending of that cost curve with respect to our ability to do a lot more development. So the ability to to be able to rapidly respond to customer needs through really staying close to the customer, from a platform perspective and then being able to react in more real time to those needs on the on those platforms. I think, are just gonna be really impactful. And it's not it's I can I can feel and taste it in a way that I haven't been able to just based on what I see the speed of some of the things that we're able to do in the new AI software development life cycle? So I think that's what I what will be the biggest change and the most exciting change because then you know, you really can innovate in in interesting and unique ways, and that's, that's something that really a lot of that innovation has not been limited by our ideas, but it's more been limited by you know, just kind of attempting to balance all the different cost structure factors with the other growth in the businesses. David Feaster: Okay. That's helpful. Yeah. And I also wanted to touch on on the expansion in Crestle this quarter. Obviously, growth was massive. You alluded to don't run rate this this level of growth this next quarter. I I can you just touch on what changed to drive that? Like, was this just a lot of demand? Did payoffs and paydowns slow? Or did you move upstream a bit and have a few larger deals? I just kinda curious if you could talk about what what drove the strength. Gregory Garrabrants: There was the the pay down issue was significant, and what had really happened there is we're still you think about these deals as three-year kind of average lives. There was still we had, we had just done some kind of you know, pulling back in certain areas around that time. And so there were some gaps, and you could see it and you could kind of predict the enhanced, prepays. Right? And so you think about those COVID time frames, think about the length of the deals. There was just time frames where we were where we just weren't sure where things were going, and we were more cautious. But then you just ended up having little prepay bulges throughout there. So that's one. And then, you know, sometimes this just happens There were some deals that got pushed in different quarters, and some went early and it ended up being you know, larger than it was. Derrick, if you have anything you wanna mention. Derrick Walsh: No. I think, yeah, the the repayments that headwind that we had talked about for the last year slowing is basically the the one word answer of repayment. Yeah. Yeah. David Feaster: That's great. And then, you know, look. When you've got that kind of growth, I mean, funding it is not easy. And so your ability to to to fund loan growth has been really impressive. It looks like it was primarily, you know, within specialty deposits and commercial where you were where you were able to drive a lot of deposit growth. Could you touch on maybe what like, within those segments, where are you seeing the most opportunity and where are having the most success driving driving that growth? Gregory Garrabrants: Sure. Well, we did have a good deposit growth quarter and we we're a little sensitive about being maybe as aggressive with the rate reductions. That we would normally drive because we've been we've been driving not all too not only to a 100% beta but to an actual neutral NII we were able to achieve that pretty much on every rate decline to date. And we I think we did a pretty good job here on that side too, but I did advise you know, on that. I think that when we look forward, you know, a a seven, 800, even maybe little bit more, you know, growth number, that number feels good for us from what the organic side looks like. And probably comes sixty sixty ish percent from consumer and then you know, the rest of it from the commercial and security side with really balance across a lot of different areas. You know? Everything from HOA and title and escrow and just regular operating deposits and all those things, they're all you know, contributing, and those are continuing to allow us to grow. So, I mean, frankly, dealing with down rate environments, when you're doing, as aggressive deposit repricing as we are. With respect to, you know, prior neutralization of NII ish difference and then 100% plus betas that are associated with that. That does make growth a little harder but I think, you know, having a little bit of stability there even if it's for a few quarters, know, will be helpful. I don't think it's absolutely necessary. We could still handle rate declines, but that'll be helpful. And obviously, growth this quarter was above what we expect to achieve. We given numbers that it's going to be half that roughly or something or around that. So that obviously, is much more in line with what our our organic capabilities are on the on the funding side. David Feaster: Okay. That's helpful. Thanks, everybody. Great quarter. Gregory Garrabrants: Thank you. Thanks, David. Thank you, Dave. Operator: Thank you. Our next question comes from the line of Gary Tenner with D. A. Davidson. Please proceed with your question. Gary Tenner: Thanks. Good afternoon. Just wanted to ask a follow-up on the Verdant impact on the fees and expenses. It sounds like the addition on the fee side, was there a greater percentage of their existing assets over Class as operating leases than maybe expected? That that drove that larger fee component this quarter? Derrick Walsh: I don't think so. I think we had referenced we had the $200 million a little over $200 that we classified as operating leases last quarter. I think the if if reflecting back what we might have done was given a net kind of impact of the impact between the depreciation and the fee income. And not the gross impact. And so I probably could've done a better job breaking that gross impact in those line items out for for everyone. So that might be I'm not sure if that's what you're referring to, Gary. Yeah. Yeah. That might be a third. So then as we're I know you gave kind of the the expectation that you're kinda looking to hold expense growth to about 30% of revenue growth. But as we're thinking about the interplay Verdant specifically between the fee and expense side, that pace of depreciation and amortization growth relative to the pace of fee growth what would be is there to be thinking about on how that'll how those move together? Yes. And just to clarify that, the 30% refers to the salaries and related costs and professional services combined. So those two segments of the non-interest expenses. So that's where that doesn't incorporate the depreciation aspect. But the depreciation will be relatively consistent as we look forward here maybe maybe a small amount of growth just from new assets that are originated and that that will align generally with increases as well on the fee income side. But that the run rate of that depreciation line item, this is kind of that new run rate for it. Gary Tenner: Got it. And and then one other expense question, Derrick. You mentioned a $7 million increase to G and A. What was that related to? I missed the comment there. That was related to the we'd have subordinated loans that we made a claim on back to the clearing matter about seven years ago, and our claim on that was denied And so that's where the the additional seven is is our estimate of of expense that we expect to incur as a relation to that. And that's a one-time item that was, you know, related back to that issue we had all those years ago. Gary Tenner: Okay. Sorry. I appreciate the color there. And then Gregory, just in terms of the Qualia partnership that you announced a short while ago, either kinda characterize the opportunity that you see through that partnership. Gregory Garrabrants: Yeah. I think it's significant. They've been a really great partner We've been exploring just different ways to work together. They're a very innovative financial technology company. And so they they obviously are a leader in the escrow space. Which helps us And they they have a financial technology and that's utilized by a significant part of the industry. And so we have a couple of territories that are exclusive right now to that. And I couldn't get too much into that. But you know, I think it'll, it'll be helpful on the deposit side, and that's an interesting specialty deposit vertical. And they're quite an innovative company. And got some ideas of stuff to do with them. Gary Tenner: Appreciate it. Thank you. Gregory Garrabrants: Yeah. Thank you. Operator: Our next question comes from the line of Kelly Motta with KBW. Please proceed. Kelly Motta: Hi. Good afternoon. Thanks for the question. Maybe circling back to the loan growth guidance I appreciate that this is particularly strong and to not run rate this Crestle. Strength. But with your low low mid-teens guidance reiterated, I just I just wanted to clarify that I think that was supposed to be for the the balance of the year ex Verdant, you know, off of this very high level of growth. In your second quarter. Just does your guidance imply a slowdown in the second half? Seems like pipelines are strong. So just trying to square that thing out. Gregory Garrabrants: No. That's you know, I understand where you're going with that. I mean, I think we we also said, just try to be a little more clarity. You know, we think it's around $608,100 this quarter. Could it be a little higher? Yeah. I think I think lower is unlikely. But that would be not a bad you know, number range. And I, you know, I don't really think we'd think that's gonna change in the next quarter after that. But you know, it's always hard to have visibility out that far, but I mean, I think we feel pretty good about that. And that does include Verdant. And it also includes me being able to be a little bit tougher on lower rate deals, which is you know, a potential, but I think it's a difficult upside to quantify and maybe one that doesn't materialize with respect to margin. So I wouldn't put it in the numbers, but it's potentially there. Because, frankly, I mean, this is more about where we want to grow from a capital perspective, where we want to grow from a liquidity perspective. And so all that comes together, and I think you know, that 800 ish, you know, kind of range, a little lower. Or more. You know, around where we think we can be. Kelly Motta: Got it. That's that's really helpful. Thank you for the clarity. It seems like Verdant has been a a really nice home run. With with those folks producing really well. And and you you touched on some of the synergies you expect from there. I mean, would would you expect their their pace of growth to kinda continue at the strength that's been been here? Just maybe talking a bit more about if the flexibilities or balance sheet is enabled them to, you know, be more active or if there's kind of a a culture of that pipeline? Thanks. Gregory Garrabrants: Yes. Thank you, Kelly. Yes. Well, I do believe that for some of their clients, really great clients they have. Mean, there's some big corporations and folks that have really great credit profiles, big municipalities, things like that. They were very limited with respect to their ability to serve those clients at the capacity that they have the capability of doing. And so we do add that. There it is a little bit of a cyclical business just from a standpoint of the fourth quarter tends to be a little heavier. And, you know, in general, I think that sentiment is right. You know? The the teams are are getting along extremely well. They're a good cultural fit. I think they see the benefit of being here and integrating with the team. Not only are they getting you know, more tech support and help, but you know, they were able to become immediately profitable based on the refinancing of of their sub subordinated debt and of of their lines of credit, which were, you know, from JPMorgan, other big banks. So and to get deposit funding is obviously really helpful. So yeah, and then I think also I mean, frankly, I did not expect this. They've been enthusiastically selling deposits and that's actually been working, which I'm kinda surprised by, which is cool. I, you know, thought that but, you know, you know, that I I think they're not only going full bore first, but it helps to add it to the comp plan, I guess. And then, and then, yeah, then, I think that, obviously, the floor plan business, they've introduced some floor plan transactions because mean, they've got a lot of salespeople out there talking to a lot of dealers, and those dealers also have floor plan needs. So that's really beginning. We've got a couple of referrals there, but I do think that that ability to think about that technologically over time can result in some interesting synergies because, obviously, they're part of the same ecosystem on a supply chain side with you know, what's being housed on a floor plan line is eventually sold to a client that could be financed through Verdant. So I think that's an interesting you know, exactly how that works and how we bring that together, we're working through, but but it is I think it's a it's a there are a couple of cool synergistic businesses there. Kelly Motta: Got it. Thanks for the color. I'll step back. Gregory Garrabrants: Yeah. Thank you, Kelly. Thank you. Operator: There are no further questions at this time. I'd like to pass the call back over to management for any closing remarks. Johnny Lai: Great. Thanks for everyone's interest, and we will see you at the upcoming conferences. Take care. Gregory Garrabrants: Thanks, everybody. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon, and thank you for standing by. Welcome to AppFolio, Inc.'s Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please be advised today's conference is being recorded, and a replay will be available on AppFolio's Investor Relations website. I would now like to hand the conference over to Lori Barker, Investor Relations. Thank you. Lori Barker: Good afternoon, everyone. I am Lori Barker, Investor Relations for AppFolio. I would like to thank you for joining us today as we report AppFolio's fourth quarter and full year 2025 financial results. With me on the call today are Shane Trigg, AppFolio's President and CEO, and Timothy Eaton, AppFolio's CFO. This call is simultaneously being webcast on the Investor Relations section of our website at appfolioinc.com. Before we get started, I would like to remind everyone of AppFolio's safe harbor policy. Comments made during this conference call and webcast contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections, future market conditions, business performance, or future product enhancements or development, is a forward-looking statement. AppFolio's actual future results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. AppFolio assumes no obligation to update any such forward-looking statements except as required by law. For greater detail about risks and uncertainties, please see our SEC filings, including our Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on February 6, 2025. In addition, this call includes non-GAAP financial measures. Reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our fourth quarter earnings release posted on the Investor Relations section of our website. With that, I will turn the call over to Shane Trigg. Shane, please go ahead. Shane Trigg: Thanks, Lori, and welcome to everyone joining us today. Our fourth quarter caps off a year of AI-powered innovation and accelerating unit growth at AppFolio. Fourth quarter revenue reached $248 million, a 22% year-over-year increase, while non-GAAP operating margin was 24.9%. For the full year, revenue was $951 million, representing 20% year-over-year growth, and non-GAAP operating margin was 24.7%. Our focus on new business grew our units on the platform to 9.4 million. Our strong financial performance earned us recognition on Forbes' America's Most Successful Mid-Cap Companies and Time Magazine's America's Growth Leaders. These accolades are never the primary goal, but they validate our strategy and the momentum we have as a business. As we look ahead, our new property management benchmark report suggests professionals are entering 2026 with confidence. While 81% of managers feel positive and 77% expect to increase unit counts, up from 65% a year ago, this optimism is tempered by a persistent performance gap. Rising operating costs and pressure on occupancy rates continue to challenge the bottom line. Operators are turning to technology, but half of AI users in the industry report they cannot rely on the AI features embedded in their core property management system. By contrast, 98% of AppFolio's customers are already actively using one or more AI capabilities included in our performance platform. A drive to unlock better performance is shaping how operators approach technology. 45% of survey respondents say they plan to consolidate their software solutions, underscoring the value of a unified platform that reduces fragmentation and delivers a cohesive experience. AppFolio is uniquely positioned to lead this transition. Our AI-native performance platform reimagines the traditional PMS by unifying the systems of record, action, and growth. By embedding agentic AI directly into daily operations, we enable our customers to evolve from property managers to performance managers. To maximize this opportunity, we organize our efforts around three strategic durable pillars, starting with "Differentiate to Win." This pillar defines how we leverage our unique value to secure our advantage and, more importantly, the advantage of our customers. Last quarter at Future, our flagship industry event, we introduced our first three RealmX performers. With performers, we have moved beyond traditional automation to agentic, goal-driven AI that transforms the performance of our customer's business. Demand for our agentic AI capabilities has translated into rapid adoption across the platform. With the transition from smart maintenance to RealmX Maintenance Performer, large and complete, and leasing performers seeing accelerated adoption that outpaces our previous generation of leasing tools. Because these tools are built directly into the workflows they rely on, customers can rapidly realize performance gains. We continue to introduce new workflows through RealmX Flows, that allow customers to codify and automate more aspects of their business, such as rent recovery. As we expand the capabilities of the AppFolio stack, we are bringing partners directly into the user experience, allowing RealmX Flows to trigger actions within integrations, such as our new rent recovery partner, Genesys. Supporting these integrations, our system of action becomes a single pane of glass partner integrations in one place where customers can manage complex operations and ensuring they never have to leave AppFolio to get the experience and value they expect. An example of this orchestration in practice is AppFolio customer Advanced Management Company, which is reshaping their workflows and achieving exceptional outcomes across 12,000 multifamily units throughout Southern California. Since switching to AppFolio in 2023, they have adopted many of our AI-native features, from RealmX Messages and Flows to FolioGuard Smart Ensure and FolioScreen Trusted Renter, and are currently in the process of implementing our Leasing Performer across their entire portfolio. According to Danielle Holloway McCarthy, President, "Before, we were relying on nine separate systems to manage our properties, which made it impossible to deliver a truly seamless resident experience. AppFolio's AI-native platform changed all of that. By consolidating our data and automating our core workflows, we freed up our teams to focus instead on creating meaningful connections with our residents. With a unified system, we are not just improving productivity; we are building an environment where everyone can thrive." This focus on thriving through technology leads directly into our second strategic pillar, "Deliver Performance Efficiently." We continue to win in the market, expanding the value we deliver to our existing customers while effectively capturing new market share. In fact, in 2025 alone, we added over 500,000 units onto our platform. Adoption of our premium tiers Plus and Max has exceeded 25%, which speaks to our growing success with both SMB and upmarket customers. At the same time, we are extending the power of AppFolio through our system of growth, helping property managers grow and protect their business while giving their residents and investors access to services within one unified experience. With Resident Onboarding Lift, co-created with Second Nature, we have delivered a seamless move-in experience that activates resident services and drives new revenue opportunities. Our newest service within Resident Onboarding Lift is group rate internet, allowing property managers to offer their residents fully managed high-speed internet at an attractive rate. Resident Onboarding Lift and our other products and services connect back to one goal: delivering measurable performance to our customers. We recently asked new customers who switched to AppFolio about their experience. 96% said switching to AppFolio has improved their overall business performance. 94% said AppFolio has improved their resident satisfaction. Outcomes like these directly contribute to strengthening our position as the preferred platform in real estate. AppFolio has been named the overall leader on the G2 Grid, recognition based on the feedback of our customers and their firsthand experiences with our platform. We make sure customers can grow their businesses alongside AppFolio because we win when our customers win. Our third strategic pillar is "Great People and Culture." Our vision is to power the future of real estate, and our people are the catalyst that makes this possible. Earlier this month, we presented AppFolio's strategic priorities to our employees at AppFolio Kickoff 2026 and acknowledged the start of our twentieth year in business. During the event, we had a chance to hear from AppFolio customers about the impact our technology has on their businesses and lives. One of those customers, Joe Remsen, President of Charlotte-based TR Lawing Realty, managing nearly 3,000 units on Plus, had this to say, "We could not do what we do without AppFolio. The reliable platform, with its support, innovativeness, and ability to make our lives easier, truly allows us to do our jobs, be more professional, productive, and transparent, and provide the five-star customer service our owners and residents expect." Joe's experience is a powerful reminder of why we do what we do. At the end of the day, the innovation we deliver is in service of customers like him. And it is the dedication of our great people and culture that brings our deep customer partnerships to life. 2026 marks another defining moment for AppFolio. When I joined in 2020, we set a goal to reach $1 billion in revenue. This year, we are poised to hit that milestone. It is a testament to what is possible when we stay focused on our customers, deliver industry-leading innovation, and maintain operational discipline. With the right vision, strategy, and team in place, we will continue to inspire customers to choose and grow with us. I will now turn the call over to Timothy Eaton for more detail on AppFolio's financial results. Timothy Eaton: Thank you, Shane. We ended 2025 on a high note, rounding out a successful year marked by strong revenue and unit growth. We are well-positioned to continue delivering customer performance through our investments in areas such as AI and the resident experience. I am pleased to report in the fourth quarter, we delivered revenue of $248 million, growing 22% year over year. Full year revenue was $951 million, 20% growth year over year. Core revenue, which we are renaming to subscription services revenue going forward, was $56 million in the fourth quarter, a 17% year-over-year increase, driven by winning new customers, growth in total units under management, and more customers choosing our Plus and Max premium tiers. At the end of the quarter, we managed approximately 9.4 million units from 22,096 customers, compared to 8.7 million units from 20,784 customers a year ago. This represents an 8% increase in units and a 6% increase in customers. For the full year, subscription services revenue was $211 million, representing 17% growth year over year. Fourth quarter revenue from value-added services grew 20% year over year to $185 million. This increase reflects greater use and adoption of our FolioGuard risk mitigation services, FolioScreen offerings, and online payments, as well as growth in units under management. Resident Onboarding Lift through our Second Nature partnership and LiveEasy are also beginning to contribute to value-added services. Full year value-added services revenue was $722 million, representing 19% growth year over year. In the fourth quarter, non-GAAP operating margin was 24.9% compared to 20.2% last year. Full year non-GAAP operating margin was 24.7% compared to 25.2% last year. This full-year decline was primarily due to the performance levels we attained under our 2025 corporate incentive plan, which resulted in an additional expense of $15 million or 1.6% of revenue. Excluding the impact of this over-attainment, full-year non-GAAP operating margin was 26.3% of revenue. Cost of revenue, exclusive of depreciation and amortization, in the fourth quarter was 36% of revenue compared to 37% last year. For the full year, cost of revenue increased from 35% to 36%, driven primarily by payments mix, additional data center spend to support our customers' growing usage of our AI product capabilities, and the additional expense from the 2025 bonus plan over-attainment. As a percent of revenue in the fourth quarter, combined sales and marketing, R&D, and G&A expense was 38% compared to 41% last year. For the full year, scale and operational efficiencies offset the impact of the bonus plan over-attainment, and operating expenses as a percent of revenue were 38%, comparable to 2024. We exited the quarter with 1,702 employees, an increase of 4% from 2024. This reflects growth in most functional areas as we continue to invest in innovation and sales capacity. Now turning to our 2026 financial outlook. Our 2026 guidance for annual revenue is $1.1 to $1.12 billion, for a full-year midpoint growth rate of 17%, fueled by adoption of our premium tier offerings, growth in new business units, and increasing adoption of our products and services. Timothy Eaton: Including AI-native performers and new resident services. We anticipate 2026 revenue seasonality to be mostly consistent with 2025. We expect to deliver non-GAAP operating margin between 25.5% and 27.5%. Cost of revenue, exclusive of depreciation and amortization, is expected to be relatively flat as a percentage of revenue compared to 2025. Diluted weighted average shares outstanding is anticipated to be between 36 million and 37 million for the full year. I am proud of our 2025 results, made possible by the relentless focus on innovation and execution by our team. We are acquiring, growing, and retaining customers, and our investments in AI and the resident experience are translating into meaningful performance outcomes for our customers. We are well-positioned for success in 2026 as we continue to deliver on our mission of building the platform real estate comes to do business. Thanks to all of you for your support and interest in AppFolio. Operator, this concludes today's call. Operator: And thank you for participating in today's conference. You may now disconnect.
Operator: Good day, and welcome to the Sandisk Corporation Second Quarter Fiscal 2026 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ivan Donaldson, Head of Investor Relations. Please go ahead. Ivan Donaldson: Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our technology and product portfolio, our business plans and performance, market trends and opportunities, and our future financial results. We assume no obligation to update these statements. Please refer to our annual report on form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website. With that, I'll turn the call over to David. David V. Goeckeler: Thanks, Ivan. Afternoon, and thank you for joining Sandisk Corporation's fiscal second quarter earnings call. In the quarter, revenue was $3 billion, up 31% sequentially, with non-GAAP earnings per share of $6.20. Artificial intelligence continues to drive a step change in demand, with data center and edge workloads expanding system complexity and storage content requirements. This shift, along with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Let me frame the NAND industry's evolution before discussing our end markets. NAND is now recognized as indispensable to the world's storage needs, driving a foundational shift in how commercial relationships between suppliers and customers are structured. Supply certainty, longer planning horizons, and multiyear commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market. As a result, we are engaged in discussions with customers to evolve from quarterly negotiations towards multiyear agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns. These changes would better align our planning cycles with customers' demand profiles to our mutual benefit. Accordingly, our supply plans will continue to be designed around predictable, long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continued innovation and disciplined execution. Our products are enabled by decades of sustained investment in R&D and innovation across NAND and system solutions supported by substantial capital investments in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. David V. Goeckeler: Turning to our end market highlights. During the quarter, we continued to execute against our roadmap, advancing next-generation product innovations and qualifications across the business with key customer programs progressing on schedule. In data center, we are at the center of a broad expansion in AI infrastructure. Enterprise SSD demand is accelerating across the ecosystem as AI workloads scale, with inference in particular driving a meaningful increase in NAND content per deployment. This momentum reflects deepening engagement with a wider range of customers building and deploying AI at scale and reshaping our data center business, which we expect to grow meaningfully in both the near and long term. We are seeing strong adoption across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a critical enabler of these deployments, delivering the performance characteristics required for optimized AI infrastructure. The breadth of customer adoption across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. Within hyperscalers, we have completed qualification of our PCIe Gen Five high-performance TLC drives at a second hyperscaler and are on track to complete qualification at additional hyperscalers over the coming quarters, with Bix Eight TLC solutions soon thereafter. This product is driving significant revenue growth across our data center portfolio, which was up 64% sequentially. Our BICS Eight QLC storage class product, code-named Stargate, continues advancing with two major hyperscalers and is expected to begin shipping for revenue within the next several quarters, providing an additional tailwind for data center growth. In edge, demand meaningfully exceeded supply, as replacement cycles in AI adoption across PCs and mobile devices drove richer configurations and higher storage content per device. In this allocation environment, we are partnering with key edge customers to prioritize their mission-critical needs and optimize product mix within our available supply ensuring the best long-term returns across our portfolio. In consumer, mix shifted toward premium products and higher-value configurations, supporting storage content growth and profitability. We introduced a breakthrough in the USB form factor with the launch of our Sandisk Extreme Fit, our smallest high-capacity USB-C flash drive. This breakthrough stay-put product gives our customers a seamless and affordable way to significantly expand storage on their PCs and smartphones. We expanded key licensing initiatives with global household names like Crayola and FIFA, bringing full circle the commitments underscored last February with the debut of colorful Sandisk Crayola USB-C flash drives and officially licensed FIFA World Cup 2026 product. This strong momentum continued through the holidays with demand driven by targeted gaming-led initiatives, including our "Don't Delete Your Games" campaign. At CES 2026, we introduced the Sandisk Optimus lineup, rebranding WD Black and WD Blue NVMe SSDs to sharpen brand architecture and reinforce performance leadership. Together, these actions reflect our continued focus on driving demand through brand innovation and disciplined go-to-market execution, reinforcing Sandisk's leadership across gaming, creator, and everyday consumer segments. These wins across our end markets reflect the agility of our operations and the resilience of our broad portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, which requires careful allocation planning and alignment with our customers. We remain focused on disciplined execution through the Bix Eight transition, supporting average long-term bit growth in the mid to high teens while maintaining our capital expenditure plan. We are working diligently to support customer demand while ensuring profitability supports the substantial R&D and capital investment required to deliver some of the world's most advanced semiconductor technologies. With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance. Luis Visoso: Thank you, David. Before diving into the financials, I would provide a brief market overview. We believe that the NAND market is going through structural evolution catalyzed by AI. The evolution is more pronounced in data centers, where data growth is accelerating as the temperature of data is rising, token intensity is accelerating, and storage is a critical enabler for inference. As a result, NAND is an increasingly critical component of the AI infrastructure. Higher demand for NAND in data center impacts other markets, which are also growing as NAND flows to the most attractive markets. It is our view that this structural evolution is sustainable and should reduce the cyclicality of our NAND business, creating higher average long-term margins and returns. In December, we experienced a clear and significant improvement in conditions across end markets, which led to higher pricing. During the quarter, we made strategic allocation decisions as demand for our products continues to exceed supply. The framework we use to allocate bits is to maximize value creation. We prioritize supply for our strategic customers, those who recognize the value we can create together. These are the customers with whom we intend to build valuable partnerships, thus establishing sustainable multiyear business practices with high predictability of demand, returns, and capital deployment. Given the strength of the market, we were unable to fulfill the demand for our customers this quarter. We're evolving how we define strategic engagement, prioritizing customers with multiyear supply frameworks and shared planning commitments over transactional short-term demand signals. We continue to be prudent and are not changing our capital spending plans, which support mid to high teens bit growth through the Bix Eight transition. Our investment posture remains focused on serving attractive sustained demand and healthy profitability levels. Any material increase in capital deployment would require high confidence that demand at attractive pricing levels is durable over a several-year horizon with financial commitments. In the current environment, we're committed to supplying our three end markets as we believe that diversification maximizes value creation. We plan to continue to build strategic relationships with our diversified customer mix within these markets, allowing us to have a deeper understanding of their long-term needs. In the quarter, we continue to make progress with customers in establishing shared commitments that improve the predictability of the business. Customer commitments and agreed commercial terms are the most effective mechanisms to deliver supply certainty and return on invested capital predictability, allowing us to more prudently manage our capital-intensive business across geographies. With that context, I will dive deeper into the quarter results. Revenue for the second quarter was $3.025 billion, up 31% quarter over quarter and 61% year over year. This compares favorably to our guidance of $2.55 billion to $2.65 billion. The revenue over-delivery came from higher prices across segments, which strengthened during the quarter. Bids were up 22% year over year and low up low single digits quarter over quarter. In the second quarter, we saw strong sequential demand across all end markets. Edge revenue came in at $1.678 billion, up 21% sequentially. Consumer came in at $907 million, up 39% quarter over quarter. And data centers came in at $440 million, up 64% sequentially. Our non-GAAP gross margin for the second quarter was 51.1%, up from 29.9% in the prior quarter. This compares favorably to our guidance of 41 to 43%. The gross margin over-delivery came from higher pricing. Unit cost reductions came in as expected, reinforcing margin improvements. In the second quarter, we incurred $24 million in startup costs. Excluding this cost, non-GAAP gross margin would have been 51.9%. Non-GAAP operating expenses for the second quarter were $413 million and represented 13.7% of revenue. This compares favorably to our guidance range of $450 million to $475 million, reflecting a non-recurring benefit from changing how we manage new product introductions. As a result, non-GAAP operating margins at 37.5% are up from 10.6% in the prior quarter. Non-GAAP EPS for the second quarter was $6.20, up from $1.22 in the prior quarter. This compares favorably to our guidance range of $3 to $3.40. The non-GAAP EPS beat reflects higher than expected revenue and lower costs. Key GAAP to non-GAAP reconciliation items include $52 million in stock-based compensation, net of taxes, which represents 1.7% of revenue. $93 million related to certain legal matters. Moving on to the balance sheet. We closed the quarter with $1.539 billion in cash and cash equivalents and $603 million in debt. During the quarter, we paid an additional $750 million of debt and closed the quarter with a net cash position of $936 million. Moving on to free cash flow. During the quarter, we generated $843 million in adjusted free cash flow, which represents a 27.9% free cash flow margin. This includes $1.019 billion from operations, partially offset by $176 million from net cash capital spending. Our gross capital spending totaled $5.255 billion and represented 8.4% of revenue. Earlier today, we announced that we have reached an agreement with Kyoccia to extend the Yokaiichi joint venture through 12/31/2034. With this extension, the Yokaiichi and Kitakami JVs will have the same expiration date. Building on more than twenty-five years of partnership, we believe that the JV reflects the scale of our operations and the significant mutual value created over time. The JV enables both companies to design and manufacture the highest performing, lowest cost nanotechnology that powers the world's infrastructure. As part of this extension, Sandisk Corporation agreed to pay for the manufacturing services that Kyoccia will provide, enabling continued availability of product supply a total of $1.165 billion. This amount will be paid between calendar years 2026 and 2029. The cost will flow through the cost of goods sold over the next nine years. Moving on to guidance. For the third quarter, we expect revenue between $4.4 billion and $4.8 billion. We anticipate the market to be more undersupplied than it was in the second quarter. We expect bids to be down mid-single digits due to a lower than historical seasonality as we benefit from accelerating strength in data centers. Our forecast for non-GAAP gross margin for the third quarter is between 65-67%. For the third quarter, we expect non-GAAP operating expenses between $450 million and $470 million. We expect non-GAAP interest and other expenses between $25 million and $30 million and non-GAAP tax expenses between $325 million and $375 million. We forecast non-GAAP EPS for the third quarter between $12 and $14, assuming a 157 million fully diluted shares. With that, let me turn the call back to David. David V. Goeckeler: Thank you, Luis. In summary, we continue to successfully navigate these early stages of a far-reaching evolution in our business. In addition to its central role in technology we use every day—PCs, smartphones, tablets, the cloud, cars, gaming devices, robotics, and on and on—NAND is a critical technology enabling the development and proliferation of artificial intelligence. For the first time, data centers are expected to become the largest market for NAND in 2026. Driven by some of the world's largest and well-capitalized technology companies, fueled by the performance our technology delivers, customers across all our end markets are increasingly seeking business practices built around shared commitments and agreed financially attractive terms aligned with our preexisting supply plans. Our supply plans will remain aligned to such attractive, real, and sustainable long-term demand. With this backdrop, margins are expected to reset at a structurally higher level, delivering fair returns on the substantial innovation and investment required. Our technology and product portfolios intersect these changing market dynamics at the perfect moment, positioning us to manage a balanced portfolio and deliver industry-leading financial performance. With that, let's open up for questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. The first question will come from Mark Newman with Bernstein. Please go ahead. Mark Newman: Hi. Thanks so much, and congratulations on fantastic numbers today. Really, really great numbers, especially the third quarter guidance. So clearly, what's happening is that prices are rebounding. Extremely at unprecedented rates. I guess my question is going to Dave's comments at the beginning. How, you know, how are you thinking about long-term agreements? Obviously, there's pros and cons in long-term agreements, because long-term agreements lock in the prices. When prices are going up so fast, you actually don't want so many long-term agreements, I guess. But I guess I'd just like to understand how you are thinking about that, how we should think about that in terms of your portion of agreements that are going longer-term, and how that may impact going forward. That'd be great. And if you could also just touch on the supply-demand balance longer-term. If, you know, in this very, very huge what seems to be quite a sharp undersupply situation at the moment, if there's any plans to be adding supply or how you're thinking about that would be also great. Thanks very much. David V. Goeckeler: Thanks, Mark. Appreciate the comments. So let me say a few words about what's happening in the business, and then we'll move on to the LTA. So there's a number of things happening in the dynamics of our business that are contributing to the results you're seeing. So first of all, it starts with the portfolio and innovation. Our Bix Eight node, which we've started ramping now and continue to ramp, is just a fantastic node. The performance, the QLC performance, the two-terabit die. There's a lot of things that just position us very, very well. Customers are responding very strongly to that fundamental NAND technology we're producing. By the way, I'll just note that, you know, we extended the JV, which we're very happy about, with that's gonna continue for now another decade. That's enabling very strong enterprise SSD portfolio. You know, this is something we've been driving for a while. I talked last quarter, we're gonna see growth of that throughout the fiscal year. We saw, I think, 29% sequential growth in the first fiscal quarter. Now we just saw 64% sequential growth in the second fiscal quarter, and I think you'll see that accelerate from here in the second half of the fiscal year. So that the third leg of kind of major business innovation is happening in the consumer business, quite frankly. A lot of new product introduction. This extreme fit product that we announced this year is really a breakthrough product. It's allows our customers to very seamlessly and affordably increase capacity storage capacity of their devices. You know, it's kind of an innovation in the USB space. You wouldn't think that would happen anymore, but it's not a removable product. It's designed just to plug in and stay. You see our the agreements we're doing with you know, people like FIFA, which could be the biggest event of this entire year. We have great Crayola branded products there. We look at our consumer business, we saw 50% year over year growth in the consumer business. So really strong performance there. This improving portfolio innovation-driven excellence in the product is allowing us to just have a better portfolio mix. And if we look back over the last several quarters, we're literally able to trade out the lowest margin business for now the highest margin business, and that provides significant tailwind to the business as well. Then, on top of all of that, you've got the supply demand dynamic, which is pushing the entire market forward. So it's really a combination of all of these that's driving the business forward. It's not simply just pricing. Although, you know, obviously, it's it's great to be in a a strong pricing environment. Moving on to LTAs, I'll talk a little bit about this and then I know Luis will have some great comments about this as well. So as we reach points where, you know, we believe we're getting a more fair return for our technology, and customers, quite frankly, are looking for more supply assurance. I mean, I think one thing to note on the market right now, this is a completely demand-driven, you know, phenomenon, what's going on in the market. We've been very transparent for well over a year what our supply plans are. We're we're investing heavily in this market. We're investing hundreds of millions of dollars of R&D to push the roadmap forward. We're investing billions of dollars of CapEx and we've been very clear we're going to drive mid-teens to high-teens bit growth on a sustained basis, which we think is a great market. And what's happening is we're just not getting enough visibility into what the demand side really is. I mean, if we look at data centers we've had three forecast cycles now. Last quarter, we went from mid-20s to mid-40s growth in that market. Now we're looking at high 60% exabyte growth in that market for 2026. I think our customers realize this, especially in the data center market. Their numbers are big, what they're gonna need in 2026, 2027, 2028. We're even talking to some of them about 2029 and 2030. You know, they're doing their own planning. The amount of exabytes they're gonna need are substantial. And so the long-term agreements are about coming up with a model where we can get confidence in supplying that level of demand on a sustained basis. For us, it's not about what demand is next quarter or the quarter after that. There's not much we can do about that given the dynamics of our business. We want to get the long-term growth rate aligned behind where the long-term sustained demand is to your point at attractive financials. Let me turn it over to Luis with that. Luis Visoso: Yeah. I mean, David covered most of it. What I would say, Mark, is we're seeing customers across end markets reach out to us across geographies. So this is not just a few. We're really seeing a broad base, which is it's very interesting for us. And we're making significant progress. We're making significant progress with several of our customers who really want us to prioritize or assure supply to David's point, that they see that as a critical enabler for their business, and that's what they're looking for. Now to your point, we're being very thoughtful. On how do we define a few metrics. One is the length of the agreement, the price at which we will transact, the quantities, how much of our business we want to put in there, and any prepayment component of that. So we're being super thoughtful and this should be a value accretive and not the opposite. Mark Newman: Great. Thanks very much. And any quick comments on how you're thinking about supply-demand longer term and any flexibility to add supply? David V. Goeckeler: No. I mean, Mark, we've got our supply plans. We've been again, we've been very clear on what our CapEx plans are, what our bit growth plans are. That's what they are. It's about meeting our customers at that supply level and understanding how we allocate that. And then, as we said, it's about you know, all of us picking up our head and looking a little further out on the horizon. As to what demand is really gonna be in this market, and what sustained demand is going to be. And, you know, we just really need to get out of this idea that this is a transactional market where we only get a strong signal a quarter at a time. I mean, we we get demand signals from our customers in all fairness on a yearly basis, but we really only transact that. We negotiate price every quarter, that just makes it very, very difficult to increase any kind of spending because we just don't have visibility to the economics of it. And again, especially as the market transitions to data centers, I think the data center customers are more willing Luis said, it's across all of them. I think the data center customers, given their demand profiles and how how big they're growing, quite frankly, are kind of a little more proactive in engaging in that conversation. And really wanting to understand supply assurance several years out and how do we come up with what are the business practices we can put around that? And, you know, that that's a as I said in the prepared remarks, that when I say we're early in this transition, that's where the early part is. I think the business practices are gonna change and I think that's all for the good. We've got to get through those conversations over the next couple of quarters. Mark Newman: Thanks very much. Congrats again, guys. David V. Goeckeler: Thanks, Mark. We appreciate it. Operator: The next question will come from Joe Moore with Morgan Stanley. Please go ahead. Joseph Moore: At the Consumer Electronics Show, Jensen talked about this key value cache and, you know, gave some numbers in terms of, I think, terabytes per GPU. Seems like a pretty big market. Are you getting indications around that? Do you think there's should take that as kind of straight math? Does everybody have different implementations? And just the ramifications for what happens to data center NAND? David V. Goeckeler: Yeah, Joe. We're working through that right now. You know, we're working through it with NVIDIA and kind of how they're thinking about it. And, of course, then we'll work through it with our customers about how they're gonna configure it in deployments. So it's still a bit early. I'll say a couple things about it. First of all, none of that demand is in the numbers we're talking about. Demand numbers at this point. I think it's a perfect example about how we all need to collaborate a little bit more on what future demand is going to be. Secondly, our initial looks at it when we look at let's say, 2027 demand, we think, you know, that's you know, roughly maybe 75 to 100 additional exabytes. And then a year after, that you can you can double that. So it is a significant amount of demand, and I think it is again, just another example of you know, NAND is just front and center in the AI architecture that's very, very clear. At this point, if it wasn't before. The AI architecture is changing. Right? And that's not a surprise. Any any kind of technology that's this profound and is being deployed at this much scale, we're gonna continue to see innovation and evolution of the architecture. We're gonna stay very close to that. You know, NAND is just gonna be a big part of that architecture. It's the most scalable storage tech semiconductor storage technology, or maybe the most scalable semiconductor technology at all. And, you know, so we're looking at those configurations. It's very real demand. We're just trying to get our arms around it. And then we'll put it in the numbers, probably for the back half of this year going into 2027 and 2028. Joseph Moore: Great. Thank you. And then as a follow-up, the enterprise SSD opportunity, how does that break down between TLC and QLC at this point, and how is that changing going forward? David V. Goeckeler: You know, I think we're roughly tracking the market right now. It's predominantly TLC. I would say it's tilted towards TLC, especially for us. And then, you know, we haven't launched our Stargate product yet for the storage-based QLC. It's in qualification. We'll start shipping that for revenue in the next couple of quarters, which we're excited about, providing another tailwind to growth to our data center portfolio. And that will that will up the mix of QLC. But at this point, I think the overall market in our portfolio is tilted towards TLC. Joseph Moore: Great. Thank you. Great numbers. David V. Goeckeler: Thanks, Joe. Appreciate it. Operator: The next question will come from C. J. Muse with Cantor Fitzgerald. Please go ahead. C.J. Muse: Yeah. Good afternoon. Thanks for taking the question. I guess first question, is there a way to quantify incremental demand for NAND related to AI infrastructure build-out? I'm not including KV Cache, but, you know, we were mid to high teens before, and and I'm curious now based on your conversations with customers, and the demand trends that you're seeing, where do you think the new demand growth CAGR is, you know, looking out 2026, 2027, 2028? David V. Goeckeler: I think the best proxy we have for that right now, CJ, is just what we're seeing in exabyte demand in the data center. As I said earlier, I mean, two two cycles ago, were looking at you know, call it mid twenties exabyte growth in 2026 for data center. Last quarter, we were talking about we upped that to mid-40s given the CapEx cycle that went on. We're now looking at high 60% exabyte growth in data centers are our forecast. And that doesn't include any CapEx raises on this earnings cycle. So you know, significant increase just quarter over quarter in demand. And we think most all that is driven by AI obviously. C.J. Muse: Perfect. Thanks. And then I guess, you paid down a considerable amount of debt in the quarter. You only have $600 million outstanding. Probably can pay that down this quarter. So curious, you know, when you're in a completely, you know, cash position. You know, how should we think about, you know, capital return, particularly around share repurchases over the coming quarters? Luis Visoso: Yeah. We feel very proud of the progress we've made reducing our debt. Remember, we started with $2 billion and it's coming down very, very quickly, $600 million this quarter, and we'll continue to take that down. CJ, our priority is to continue to invest in the business as we have been doing and to build a prudent cash resource. You know, this is a business where having cash on hand is helpful. We're not gonna waste your cash. Don't worry. But we're gonna build prudent cash reserves, and we'll continue to reduce our debt at the right time, we'll continue to expand and give you an update. But so far, those are our priorities. C.J. Muse: Thank you. David V. Goeckeler: Thanks, CJ. Operator: The next question will come from Jim Schneider with Goldman Sachs. James Schneider: Good evening. Thanks for taking my question. First of all, on the supply side, I was wondering if you could give us a snapshot of the factory network across Yokaiichi and Kitakami and kind of where things stand now? I'm assuming utilizations are basically flat out, but as you think more tactically sort of beyond this year about the high teens, bit growth outlook, how do you expect to sort of ramp your JV factory network over, say, the next eighteen months or so? And then maybe give us any kind of view on your view on the sort of industry greenfield capacity expansions that you see possible given some of the announcements of some of your competitors recently? David V. Goeckeler: So, first of all, you know, we have as you said, we have two major sites, Yokaiichi and Kitakame. I think a big step forward this quarter is what we announced in extending the JV agreements around Yokaiichi to coincide with the agreements in Kitakami so they now all run through 2034. So that gives us really good supply assurance for the next nine years. And we'll keep talking about what happens after that. But this has just been an unbelievable relationship with Kyoccia for decades now, and it's gonna go on, you know, quite some time into the future. So we feel like we're in a really good position there. Look. We haven't had any under-utilization in the fab for a couple quarters now. Yeah. You know, we got past that a couple quarters ago. There may be a little bit of some of the costs flowing through. I guess those were all last quarter. We're done. So they're running at, you know, full capacity. Kitakami is where we're expanding. You know, we just opened the K2 fab. And so we have additional space there. I think we've just JV you know, led by Kyoccia on this part of it has just done really good capacity planning and has good plans about how we're able to now expand into the Kitakami site as needed over the next many years. So we feel really good about how we're positioned there. Know, as far as the rest of the industry, You know, it's as you know, it's a long lead time. You know, we see some announcements recently. I would consider those kind of normal course. We're all constantly building clean room space. You know, as we as I talked earlier, this is a market on the supply side where we've been very consistent. We're gonna grow bits. You know, in the mid to high teens rate. We're gonna do that through innovation. We're gonna do that through you know, that innovation is gonna take additional clean room space. That's all in the plan. I would expect to see continued spending to meet that number, but we don't see anything that that's out of the ordinary. And, you know, I think as all of us know, if you wanna start building a new fab, you're talking years before you have that up and running and have production coming out of it. So just a little bit of how we see the market. And final comment, all of this is factored into our numbers when we talk about supply and demand. James Schneider: Thank you. And then maybe as a follow-up, could you maybe address clearly you mentioned the qualification with another enterprise SSD hyperscale customer. Exiting this calendar year, for example, how large do you expect your enterprise SSD exposure to be as a percentage of the total revenue? Thank you. David V. Goeckeler: Yeah. We're not gonna put an exact number around that just yet, but I would say just stay tuned. I think we said this our business is gonna continue to grow in this market. You know, we we've seen 29% sequential growth, followed by 64% sequential growth without getting into too much detail. I think you're gonna see a substantial step-up next quarter as well. So feel really good about where the portfolio is. Like I said, the reception from customers and not just hyperscalers across the entire ecosystem of people that are building out AI infrastructure, the compute-focused TLC product we have in the market is really driving that growth right now. We're going to see our BICS A QLC product start shipping for revenue here in the next couple of quarters, which is gonna be another tailwind for growth. And as we've talked about, the PIX A QLC performance has been extremely well received. So we continue to see very high interest in those products and work through the qualifications. And, you know, we'll look forward to continued growth and it'll be part of the balanced portfolio we always talk about of how we're gonna allocate our supply into that part of the market. But we're excited about where we're at and where we're headed. James Schneider: Thank you. David V. Goeckeler: Thanks, Jim. Operator: The next question will come from Mehdi Hosseini with SIG. Please go ahead. Mehdi Hosseini: Yes. Thanks for taking my question. Two follow-ups for me. And this is for the team. When I look at your guide for the March fiscal year, assuming low single-digit bit growth, there's a big jump in ASP and blended. What I wanted to ask you is how should we think about the mix that impacts the ASP? Obviously, as you scale your SSD, there is a higher premium. There is more than bits, and a premium that you capture or economic value that you capture. Is there any way you can help me understand? Because just thinking about the ASP absolute may give us a wrong impression. So any help you can provide will be great, and I'll have a follow-up. Luis Visoso: Yeah. So the mix impacts that we have are less related to changes in our end market and more related to the customers. Right, and how we serve the market. So I talked a little bit about this in my prepared remarks, and what you've seen is we're driving a better mix. We're partnering with those customers that value our relationship, that value our products. And therefore, we're getting, you know, much better gross margin as a result of that. So there is a mix component in that to your point, Mehdi, and there is some pricing as well. Now, we believe that the market will go ahead. Sorry. Mehdi Hosseini: Oh, I was just gonna say just a quick follow-up. Is there any mix breakout you can offer us so that we're not so fixated with the raw NAND ASP trends? Luis Visoso: Yeah. We will provide that to you when we report next quarter. I don't have anything to share with you at this point on the guide, Mehdi. Mehdi Hosseini: Okay. Great. And and one question for David. Look. We're sitting here, and there is an increased shortage. It's intensifying. You and your peers are involved in discussions for a multiyear contract. And as you highlighted, these projects take several years. Building a fab and putting equipment is a very long process. Why isn't there more urgency? Why aren't your customers your customer's customer aren't willing to commit more? They're committing investment throughout the AI supply chain, but when it comes to memory or NAND, I don't get a sense of urgency. And it is it's gonna wait till the second half of this year, that means the shortage is gonna intensify unless the SSD exabyte growth of 60% maybe just a short list. How can I reconcile it to? David V. Goeckeler: I have lots of thoughts on that, Mehdi. I mean, first of all, I mean, I would argue that there actually is a fair amount of urgency and things are changing rather dramatically rather quickly. Alright? I mean, you're talking about a market that's operated the way it's operated for arguably decades. And the way that market has operated is there's essentially been a quarterly auction for NAND that goes on that sets the price, and then we all talk about what the price was every quarter. And then on the supply side, we've tried to get it right on how much we supply and often get it wrong. And when you get it wrong, the economics just completely crater. So we're trying to navigate out of that world. There's a lot of reasons why we're navigating out of that world. There's a lot of technology reasons and all kinds of stuff we talked about in the past. We could talk a lot about. But like, the change behavior on something you've been doing for a decade and just wake up and within a quarter decide to completely change the business practices of an industry is almost like really hard to do. So but I do think it's happening. I do think that customers are starting to look, like I said, they're starting to look further down the horizon especially on the data center. I don't think this can be underestimated, this idea that now data center is the largest market in NAND. I mean, is a market that's been dominated by or not dominated, but where the primary customers are then smartphones, PCs. I kind of view that as what traditionally been the commodity NAND market. I hate that term, but that's what people think about it. The data center is not that market. Like, the data center is not a commodity NAND market. The data center is NAND is a highly strategic product part of a very sophisticated AI architecture And I need extraordinarily high performance and I need innovation and I need, you know, a specific enterprise SSD that fits my configuration, it's kinda way on the other side of you know, I just need the same product and I can plug in any one from, you know, five different suppliers. That's not you know? So that market now becoming the primary market and especially the primary growth engine is really, I think, starting to challenge the business practices of the way the market has traditionally worked. Again, I'm actually quite optimistic that this is happening pretty quickly. And we'll see how quickly. I mean, do we actually get to the point where we're announcing contracts? We're not quite there yet. We've got you know, some that are coming along. But, you know, from my perspective, on a relative basis, it's going pretty quick. For a market this big, talking $150 billion maybe this year. A market this big, this many players, this much business transacted every quarter. To see it change as fast as it's changing is pretty remarkable. Actually. Mehdi Hosseini: Got it. Thank you for the details. David V. Goeckeler: Sure thing. Thanks, Mehdi. Operator: Again, if you have a question, please press star then 1. Please limit yourself to one question. The next question will come from Wamsi Mohan with Bank of America. Please go ahead. Ruplu Bhattacharya: Hi. It's Ruplu filling in for Wamsi. Can I ask Luis a question? This quarter OpEx came in lower. You said you had a benefit from how you're managing NPI. Can you just elaborate on that what that benefit was? And can you talk about capital allocation plans? How much are you expecting to spend on HBF and data center expansion? And as well as any capital return plans or M&A plans? Thank you. Luis Visoso: Yeah. So let me try to unpack the the OpEx question because I thought somebody was gonna ask. So we made a recurring change to how we sell our products. Right? And basically, we're now moving into charging for our qualification units. So in the past, we used to record cost as they were incurred. Right? They were period cost. And this is the non-recurring element, which is a gain of one a one-time gain as we move from period cost into inventories as we're now selling this qualification unit. Does that make sense? Ruplu Bhattacharya: Yes. That's clear. Luis Visoso: Good. So we're gonna get an ongoing saving as we charge our customers for this qualification unit, and there is a one-time benefit as we do the transition and we go through inventory. On the capital allocation question, now as I said earlier, you know, our capital allocation strategy is unchanged. We will continue to invest in the business. We will build prudent cash reserves, which are very helpful for this business. Particularly given still where we are. We believe we need to continue to build our cash reserves, and we'll continue to reduce our debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. We're fully funding the business. You know, we're funding the business from a Bix Eight transition. We're funding our OpEx. We feel that we're properly funding the business itself. Ruplu Bhattacharya: Are there any underutilization charges in the guide? Luis Visoso: No. Not on the guide and not on actuals either. Ruplu Bhattacharya: Alright. Thank you so much. Operator: The next question will come from Vijay Rakesh with Mizuho. Please go ahead. Vijay Rakesh: Hi, David and Luis. Awesome quarter here. Just phenomenal numbers. Just wondering on the 2026, '27, what you're looking at in terms of bit growth and obviously, ASP pricing has been on a tear, but just wondering how the price trends have been across the different segments, you know, from the data center to retail to consumer SSDs. If you can give us some color. Thanks. Luis Visoso: Yeah. So the bit growth that we're seeing across 2026, 2027, and 2028 is consistent with what we talked, you know, at the very February. We're still talking about mid to high teens bit growth every single year. And unless we we we we see that demand is the area sustainable and profitable, we're not gonna change our assumptions. So still, our planning is our plan of record is that kind of high-high teens number for bit growth year over year. On pricing across what we call end markets, it's very interesting. Right? What you see is prices are moving not identically, but pretty much at the same pace. Now we're seeing what happens is that NAND can flow to any market at the end of the day. So NAND will naturally flow to the markets that are most attractive. So when prices go up in data centers, they do have an impact in other markets, to give you an example. Right? So that's what we're seeing across markets. Prices go up. Pretty much across the board. Operator: The next question will come from Karl Ackerman with BNP Paribas. Please go ahead. Karl Ackerman: Hi. Thank you for taking my question, and congratulations on the very good quarter. I'm going back to the roadmap. I think now your data center mix has reached 15%. And Nanoflash is now increasingly being attached to AI compute. So I think it's creating new requirements for performance. So can you update us with your production roadmap to meet these new requirements? Like, I think they are high IOPS SSDs and you have engagements with on the HEF. So how do those new products look like? David V. Goeckeler: Yeah. So I think this is a very good example of the amount of innovation that's going on and being driven out of data centers, kind of what I was referring to before. So you're right. You know, what we call the compute focus, the TLC high-performance drive is what's driving the portfolio at this point. As I said, we just saw 64% sequential growth, so we continue to see, you know, really strong pull for those high-performance products. As I said, we feel like we're extremely well-positioned as we start to migrate those to Bix Eight. But there's a whole bunch of new innovation going on, as you said. There's, you know, I think the the innovation engine is alive and well across the whole industry, which is how are we gonna satisfy the demands for the storage of AI. Models get bigger, more tokens get generated, caches get bigger. You know, this is naturally a thing where you start to think about NAND, and its tremendous scaling properties. And you're right. There's a lot of innovation there. There's the high IOPS enterprise SSD, which of course, something you could imagine we're working on. You know, we we had our own ideas about this. Two years ago, and we talked about it at our Investor Day that we believe that there was a chance to rearchitect NAND to bring it into AI. We trademarked that high bandwidth flash. I think over the last year, that's become a more recognized path forward. And you know, there's now lots of folks working on that and we continue to work on it, by the way. We're very happy with the progress. We're deep in conversations with customers on use cases. We're designing the NAND die. We're building the controller, so that continues to go forward. Obviously, we'll have more to say about it as we go forward and plans firm up. But you know, I think this is just an example of there is tremendous opportunity for innovation as the AI architecture continues to scale. And you know, it's just incredibly exciting that we're just in the very early innings of driving this technology and scaling it around the globe. And we have, you know, the industry, you know, the technology industry at large is incredibly well-positioned to do that. There's some of the most, largest most capable technology companies in history. They're obviously putting an enormous amount of resources into how they drive this technology and scale it around the world at a very rapid pace. And and I think that is incredibly exciting. I think this is gonna go on. I think we're super early in this, and I think this is going to go on for a very long time. Operator: The next question will come from Aaron Rakers with Wells Fargo. Aaron Rakers: Hi, guys. Thank you. This is Michael Sadloff on behalf of Aaron. I wanted to go back to the LTA discussion. Have you guys finalized any of these agreements yet? And if so, have partial or full prepayments been been a part of any finalized agreements, or is that something that we should expect moving forward? I know you kind of alluded to it. Luis Visoso: Yeah. We've signed and closed one agreement so far. We're not disclosing the terms. There was a prepayment component of it, which we think is important in this type of agreement. But that's what I would say, Michael. So we have one and several in the queue. Operator: The next question will come from Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great. Thanks for taking my question, and great results here. David, last quarter, I think you shared some thoughts on how you thought about the edge market, PCs, smartphones, maybe even the consumer market. Just given the fact that, you know, memory's on allocation, talks about PC and smartphone units being down. Just how you're thinking about and what signals your customers, your OEM customers are providing to you regarding those markets and how that changes kind of your demand outlook through probably the 2026 and into 2027. And if I can squeeze one in for Luis as well, you know, structurally, NAND is going through this dynamic where, you know, obviously, it's a highly strategic product. How are you thinking about your true cycle margins, gross margins seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here structurally? Thank you. David V. Goeckeler: Okay. Thanks, Asiya. So look, couple of thoughts on this. So, first of all, on the consumer market, I'm like, I think we're very happy with where the consumer portfolio is. As I said, we just turned in over 50% year over year growth. I think the work we're doing there on how we're thinking about the branding, the innovation, the portfolio, you know, that's been a long-term market for us. It will be a long-term market for us. We think we're able to drive value there with the value of the Sandisk brand. So, you know, we think that's a great business. And we'll continue to be and we'll continue to invest in it. You know, in some of the other markets, like, I think this is one of the thing. Yeah. I look at, I was looking at the numbers. Obviously, as we were preparing, you look just look at 2026, we've got PCs at 285 million units. I don't think anybody would have picked that number at the beginning of the year. So just continued very strong results. In these markets, in unit growth, content growth across those markets. So look. As we go into 2026, or we're in 2026 now, we're gonna see some base effect of that, of some declines in units. You know, I think we're still getting very strong signals from our customers in those markets and wanting supply. I mean, very strong signals on a continuous basis. We're working with them as closely as we can. I think in this period of the market, it's extremely important to stay close to our customers and we're doing that. But you're gonna get some base effects there on units. Mean, there's been a lot of discussion on mix in the market. I just think that's normally how this market works. Of course, configurations are gonna change as components change. And we quite frankly saw it in 2023 You know, all of a sudden, the component mix went way up because prices went way down. And all of a sudden, a one-terabyte drive became quite and all of a sudden started showing up everywhere. And as the market goes a little bit in the other direction, you're gonna see that change. I think that's a natural way this market works. I don't think it's something to be overly concerned about. Those are still strong markets. Customer relationships are very good. I expect us to still be heavily engaged in those markets. We've had a strong edge presence for a long time, and we'll we'll continue that. And, you know, just big picture, this is one of the reasons why I think this business is so valuable is because we just play across every single device every single piece of technology touches we touch we touch it or sell NAND into it. And now with you know, just the AI deployments in the cloud and that market becoming the largest market in NAND is just changing the dynamics of the way this whole industry works. And as we said in the prepared remarks, we've been we've invested an enormous amount of R&D over the last twenty-five years. To get to where we are and we've invested an enormous amount of capital to get to where we are so that we can manufacture all this front-end and back-end. And I think we're finally starting to get to the point where the value of that intellectual property, the value of that intensity is being recognized in our own results. Luis Visoso: Yeah. And I think the way I would answer your question about, you know, through cycle margins is similar to what where David left it, which is in a high CapEx, high R&D industry or company, frankly, 35 is is not is not where we would like to be. Right? So we're not gonna give you a new number today. But, clearly, that's not where we want to be. What I'll tell you is this is the first quarter, right, that we are above 35% with 51. We're guiding, call it, midpoint of 66. So we're making progress and and we're getting to a place where we believe we can justify the CapEx. We can justify justify the investments in R&D that the business requires. Operator: The next question will come from Tom O'Malley with Barclays. Please go ahead. Matthew Pan: Hi. This is Matthew Pan on for Tom O'Malley. Just a quick one for me. Apologies if you mentioned, just hopping around on the call. Wondering if you said the ESSD percentage of total bits in the quarter? David V. Goeckeler: I don't think we said that. But it's in that high teens range. Yeah. Operator: The next question will come from Blayne Curtis with Jefferies. Blayne Curtis: Hey, guys. Congrats on the and thanks for squeezing me in. I just wanna talk about the model. Obviously, I mean, doubling sales over two quarters, I wanna just make sure I understand how you're gonna handle OpEx. You know, I think the percentage of revenue is now in half. Right? So, are you gonna accelerate the way you look at investing in R&D? And then, you know, tax rate as well, which is just dramatically higher profitability. Is there anything to think about in terms of the tax rate? I think you were talking about it maybe going to 20 at some point. Is that sooner than later? Luis Visoso: Yeah. So in terms of OpEx, the first thing you should know is about 75% of our OpEx is R&D. Right? So that's where we're putting our money. And why do we do that? Because this is a technology company where life innovation is our lifeblood. That's what we believe, and that's where we're putting our dollars. So you should not look at this quarter's OpEx as an indication of where we should be because that, as I mentioned earlier, it has a nonrecurring benefit. If you wanna quantify that number, that number is around $35 million. So you can you can you can use that number for your modeling. We think OpEx should not go significantly higher from where we are today. We believe that the run rate is healthy. We will always be looking at where we need to invest and make sure that we fund innovation. But we're also on the other side looking at efficiency all the time and how do we make sure that there's no waste in the system. A long way of saying, you know, the level of spending we had last quarter, what we're guiding this quarter, those are kind of more sustainable levels, for now. The tax rate is kind of interesting. Right? Because we had a lot of prior-year losses, accumulated in Malaysia, which we consume very quickly. You know, that's what happens when you start generating profits. So I think you should see our tax rate to hover around a little bit above where it is today, maybe in the fourteen, fifteen kind of percent on an ongoing basis. That's what I would, I would model for now. Operator: This concludes our question and answer session. I would like to turn the conference back over to David for any closing remarks. David V. Goeckeler: All right. Thanks, everybody, for joining us. We'll talk to you throughout the quarter. Have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by, and welcome to NewtekOne, Inc. Fourth Quarter 2025 Earnings Conference Call. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. I would now like to hand the call over to Barry Sloane, President and CEO. Please go ahead. Barry R. Sloane: Thank you very much, operator, and welcome, everyone, to the Fourth Quarter 2025 Financial Results Conference Call. Joining me today on the call is Frank DeMaria, Executive Vice President and Chief Financial Officer of NewtekOne. For those of you that would like to follow the presentation online, go to newtekone.com and navigate to the investor relations section. The PowerPoint presentation for today's event is available there. Now, I would like to ask everybody to go to slide number two of that presentation and note the forward-looking statements. To begin our presentation today, we are happy to report the results of Q4 2025 and the annual achievements for 2025, including celebrating the three-year anniversary of NewtekOne owning and operating an OCC chartered bank. We are extremely pleased about the acquisition that was done in January 2023. It's a very interesting slide on '24, which actually names several competitors in the space, SoFi, Livov, Triumph, Northeast Bank, and Axos. If you take a look at those charts, you'll see how their stock price action moved over the first several years of their operation and then started to change direction. We will talk about that later in the presentation. We are also celebrating today opening up 9,000 new depository accounts and 34,000 active depository accounts. We are celebrating the technology that we have built, particularly our digital account opening and our lending operating systems, as well as the Newtek advantage. All of these off-balance sheet technological innovations are really important to serving our clients and being able to offer a true technology-enabled financial institution for independent business owners all across the United States to work with. We are celebrating our leading status as a lender to independent businesses. We refer to our lending programs as an adult loan. Loans that have repayment of principal over ten to twenty-five years, not the six-month to twenty-four-month paybacks with 30% to 80% interest charges or effective yields to the customer. Lower monthly payments and patient capital make these loans exceptionally affordable to our clients. We are celebrating many new hires that were added to the senior management team: Greg Devaney, Chief Credit Officer of the bank; Chris Lucas, Chief Compliance Officer of the bank; Frank DeMaria, Chief Financial Officer of the bank; Andrew Kaplan, Chief Strategy Officer of NewtekOne, our holding company. We are also celebrating record earnings and revenue growth. I would like to report that as a financial holding company, net income before taxes for 2025 is approximately $80 million, up 16.4%, and our total revenue, defined as the sum of net interest income and noninterest income, is $284 million, up 10.6% over the 2024 number of $257 million. We are very pleased with how we did. With all that, I guess we can go right to the Q&A. Just kidding. Let's go to Slide number three. On slide number three, we particularly and historically have talked about the company's focus, which has been on the independent business owner, on SMBs. It's extremely important that the marketplace understands that this is our demographic. It is an underserved demographic, and it's been Newtek's primary focus from its inception as a private company in 1998 and a publicly traded company in September 2000. We believe we have better loans with long amortizations and more flexibility. We believe we have a better banking product with absolutely zero fees, no asterisks, no ifs, ands, or buts, better payroll solutions that are integrated into our bank account, with a dedicated concierge person that you can get on camera. Our insurance agency offers a frictionless opportunity for our clients to access all forms of insurance, both personal and business. Going to slide number four, we talk about our financial structure and product solutions. Obviously, in our history, from 2000 to 2014, we were a 1933 Act company. In November, we converted to a BDC. And in 2023, when we acquired National Bank of New York City, a $180 million total asset bank that today is approximately $1.415 billion. With the HoldCo consolidated assets at $2.425 billion, we have grown significantly. But it's important to note that we have changed our financial structure, and with that, you've had turnover of equity shareholders as well. The HoldCo is regulated by the Federal Reserve. The bank is regulated by the OCC. We utilize proprietary and patented advanced technological solutions to acquire customers cost-effectively and to manage our business. We have a full menu of best-in-class on-demand business and financial solutions for independent business owners. Our trademark: no branches, no traditional bankers, no brokers, no BDOs. A very cost-effective way to service our customers on demand. Let's go to slide number five. We talk about our target market. At the end of the day, the SBA defines this as 36 million businesses in the United States, 43% of non-farm GDP, and we believe this market is typically unfarmed, untapped, and we offer our best-of-breed solutions to this customer base, and we're very excited about what we've been able to do in the first three years of operating the OCC Charter Bank. And we're very excited about our future. On slide number six, we'll talk about the annual and quarterly highlights. The EPS for the quarter is 65¢, either basic or diluted, which aggregated up to a 2025 number of basic $2.21. Diluted $2.18, up 1211% over the 2024 results. We're pleased to offer our 2026 guidance with a midrange of $2.35. Quite interesting at a $14 stock price handle what our multiple is compared to some of those other competitors in the marketplace. Then I would also call technology-enabled banks with a disruptive business plan and new entrants into the market but began many years before we did. The bullet point number three on slide number six is important. Tangible book value. We've been able to materially grow our tangible book value, which ended the year 2025 at $12.19. When we began, I think it was approximately $6.92. In addition, we've also paid a dividend during that period of time, which we'll talk about on a future slide. 2026 got off to a great start. On January 21, we closed our largest securitization, what we refer to as our alternative loan program. Also known as C&I loans held for sale. Or C&I LA, meaning longer amortization. These are basically business loans with long AMPs. And this is what we have experienced well over two decades in making these types of loans, whether it was in a 7(a) program or in the ALP program. We started originating these loans in 2018 and 2019. The deal that we kicked off in 2026 was 10 times oversubscribed, 38 institutions subscribing, 32 institutions purchasing notes, after we repriced after the IPT, and really pleased that 10 of the 32 purchasing institutions were new to our securitizations. We have a lot of AOP momentum growing, and the credit quality matrix overall on the entire portfolio on a consolidated basis, including the bank, including the old NSPF portfolio with the holding company and all loans, as we have indicated in prior press releases, seems to have stabilized. NPLs have declined for two consecutive quarters, the 7.3 to 7.1 and the 6.9% for 2025. Slide number seven. We talked about this a little while earlier, and that's deposit growth. I remember one of the things in acquiring the bank, people said, how are you gonna grow deposits? Well, with our alliance partners and relationships, 9,000 deposit accounts in the fourth quarter, surpassing our previous record. Business deposits increased, and these are the important ones because they're at a lower cost, like $34 million in a quarter and $164 million for the year. So very, very nice growth. Obviously, consumer deposits are growing materially as well. $167 million in the quarter. $293 million for the year. We have a nice big deposit base going into the first quarter to be able to deploy in business loans. Since the acquisition of Newtek Bank, roughly 50% of Newtek's bank business lending clients have opened up a business deposit account. In addition, we started initiating the offering of life insurance, Keyman Life, to Newtek Bank business lending clients, and 25% of borrowers have now purchased life insurance through the Newtek agency. We continue to capture operating leverage. The efficiency ratio at the HoldCo declined from 63.2 to 58.3 with assets up 33%. So we're very, very pleased about our efficiency ratio. At the bank, I believe the efficiency ratio is in the forties, like approximately 47%. Our return on average assets for the calendar year is 2.78% at the holding company. Also important to note, the earnings headwinds, which we'll talk about this a little deeper in a further slide, from our NSBF lending subsidiary, continue to decline. We had a $28.7 million loss in 2024. And it should be approximately $20 million in 2025. We expect the NSBF loss will continue to materially decline throughout 2026. On slide number eight, we talk about our tangible book value growth. I think it's really important to analyze. Obviously, we pay $2.24 of dividends during our period of time as a bank holding company. Although we don't look like a bank holding company, and we don't look like a lot of the other community banks that we're compared to. And a $4.76 share of tangible book value since conversion. So we're very, very pleased at how we've been able to deliver value to shareholders through growth, intangible book value, and dividends. Slide number nine. We talked about the alternative loan program. We'll drill down a little deeper here. I think it's important to note, and I have been asked by several investors, the credit quality for ALP loans is much stronger than the 7(a) loans. We'll show that on the next slide. And the AOP loans are originated with the intention to sell them into a joint venture or securitizations. They have great margins on them. They have prepaid penalties, so they last for a longer period of time. So the spread that we get on them is enjoyed by the benefit of our shareholders and our earnings. I think it's important to note that similar to 7(a) loans, there is a structural similarity to the AOP loans. Ten to twenty-five-year AMPs, no balloons, they're typically fixed for five years, with a spread over the five-year treasury curve of approximately 950 basis points at origination, and then they adjust their floor at that initial rate, and they could adjust up based upon changes of rates. So we give the borrower flexibility in amortizing the principal over a longer period of time. So we're basically giving them equity. We give them flexibility on distributions. We give them flexibility on borrowing. We give them flexibility in doing acquisitions. But that trade-off is for joint and several personal guarantees for every 20% equity owner or greater. And liens on business, and in many cases, personal assets, and much stronger guarantors. We're very pleased that in the January month, we brought our fourth ALP securitization to the market. And as I mentioned, it was extremely successful. On slide number 10, you can get a feel for the matrix or what the underlying loans look like in these securitizations. So the total amount of nonperforming ALP loans is $27.6 million, on a current origination balance of $694 million. But total originations, I believe, is $820 to $830 million. So we've actually had low levels of nonperformers and very low levels of charge-offs. I believe total charge-offs are about $6 million to date. Weighted average LTV at origination, 48%. Debt service coverage, 3.3. Very high coupon, very high spread. Now the spread is important because the spread is protected with the call protection of 5% prepays through thirty-six months and 3% in month thirty-six through '48. You could see we're big believers in the diversification of geography and industry. On slide number 11, the economics of this securitization is discussed further. On slide number 11, you could see that the gross spread before the 1% servicing fee on the last two deals was about $6.65 to $6.70. Net about $5.65 to $5.70. Barry R. Sloane: Now these are match funded in a securitization. I should say match funded by the durations. Important to note that although the liability arguably is more expensive than in a deposit gathering sense, it is match funded for term and there's no cost from a depository perspective. Obviously, take deposits in a bank. You've got a lot of different costs to service the loan, to help the customer, etcetera, etcetera. But here, you've got a 565 basis point spread. Set it and forget it. Clip the coupon, and you could see that on slide number 12, these securitizations pay down very quickly. And they pay down quickly because the excess servicing goes to pay down the senior bonds. And the overcollateralization that you see on slide 12 on 2026-1, 2025-1, 2024-1 happens rather quickly. And as that's happening, what's occurring is the book value where the loans in the special purpose vehicle versus the amount of debt keeps growing. Matter of fact, on average, the book value should equal the fair value of these in approximately three to three and a half years. Extremely important when it comes to being comfortable with our valuations. Slide number 13, our nonbank lending subsidiaries, the payments business, which we've owned since 2002, growing materially contributed about $16.8 million of adjusted EBITDA in 2025, and forecasted to do $17.9 million in 2026. Our insurance agency is growing nicely, but particularly as it's been positioned with the bank and uses automatic processes to make insurance available to people that are borrowing money. And we've contributed $740,000 of pretax income in 2025. And we think it'll be about $1.06 million in 2026. Payroll contributing $450,000 of pretax net income. We expect to generate $6.30 million. We have high hopes and expectations for both of these businesses as they are particularly payroll and payments, connected to the bank account. All of NewtekOne's business lines have and should continue to contribute growth to business deposits. We've talked about the new triple play offering, which includes merchant, payroll, line of credit, and a bank account. We're continuing to polish up this offering. Enhance the client experience, one application, three approvals. Slide number 14. Newtek Small Business Finance is the legacy nonbank SBA lender that's got the uninsured loan participations that are sitting in securitizations. And are paying down. The remaining loans are from the tougher vintages of 2021, 2022, and '23 and had tremendous stress as rates went up three to five points during that period of time. So in addition to having their debt service almost double, we all know that during that prior administration's period, we had a lot of inflation. Labor costs going higher. Insurance costs going higher, rent going higher. So this is a fairly stressed portfolio. However, we have reported that we see stabilization in credits both at the HoldCo and in the bank. Nonaccruals at fair value, you can see on slide 14 leveling off. Net increase in nonaccruals ticked up a little bit, but still a fairly low number. Notes issued in securitizations, only $127 million left. Those notes are capturing the cash flow until they get paid off. So we look forward to eliminating those notes as the loans pay off. The loans that are in the NSBF portfolio not too long ago represented 32% of the total balance sheet. It's now down to 13%. So as we said earlier, the loss declined in NSPF to approximately $20 million from $28.7 million the year prior. The accrued portfolio is down $88 million over the course of the last year. 100% of NSBF loans are now aged three months or more, so they're through the tough part of the default curve. Also on slide number 15, we talk about some of the creditworthy aspects at the bank. You could see our delinquency or currency ratio. The delinquency ratio is down precipitously. Chart provision for credit losses are covering charge-offs, NPLs to total loans, stabilizing and declining, all good metrics. For NewtekOne and its shareholders. With that, I would like to pass the baton to Frank DeMaria, our CFO, who'll go over some financial performance metrics for the company. Frank DeMaria: Thanks, Barry. The next seven slides will guide into the details of the highlights that Barry touched on. Turning to slide 17, we have our financial highlights for 2025. We are particularly proud that we're able to concurrently generate balance sheet growth, earnings growth, efficiency, and strong profitability while maintaining healthy capital ratios. All while our nonbank lender NSPF continues to run off. Slide 18 runs through Newtek Bank's highlights, which paint a similar picture of balance sheet growth, earnings growth, efficiency, and profitability. Important to note, the overall downward trend in our cost of deposits as we continue to see a shift in the deposit mix. With the growth in business deposits throughout the year. And while our ACL to loans held for investment coverage ratio remains healthy, we are starting to see a leveling as we've built the ACL over the last three years. And start to see the bank's portfolio begin to season. On the next slide, Newtek's deposit story continues to be a good one. We're growing both business and consumer deposits. And offering what we believe to be tremendous value to both consumer and business depositors. As I briefly mentioned, the cost of deposits at Newtek Bank declined roughly 16 basis points sequentially coinciding with lower market rates. As Barry mentioned earlier and as noted on this slide, we're finding success in lending clients opening bank accounts with roughly half of the borrowers opening at least one bank account since we acquired the bank in early 2023. We expect that penetration rate to grow over time. We also believe we're creating sticky deposit relationships given our competitive market rates on deposits, our integrated business portal, and our insured deposit rate, which currently sits at 74%. Shifting to Newtek Bank's held for investment portfolio on slide 20. The held for investment portfolio increased roughly 44% in 2025, with the portfolio mix largely unchanged throughout the year. Unguaranteed portions of SBA 7(a) loans comprise roughly 60% of the held for investment book. While the allowance for credit losses related to the unguaranteed 7(a) portfolio makes up the bulk of the bank's ACL. Which resulted in the previously mentioned coverage ratio of just over 5% at the end of the year. On the next slide, we show the operating leverage continues to be a meaningful contributor to our financial performance. We have consistently stated that our technological and operational was designed to support a much larger balance sheet and organization. And we continue to deliver on those statements. Annual operating expenses were up just 2% in 2025, against 33% growth in assets, which supported that year-over-year decline in the efficiency ratio. From 63% to 58%. We included the next slide in our Investor Day presentation a few weeks ago. We have maintained fairly stout regulatory capital ratios, and we've grown the balance sheet, strategically layering in capital along the way. I'll conclude my portion of today's discussion with Newtek's financial projections for 2026 on slide 23. Relative to diluted EPS of $2.18 for 2025, we have established an EPS guidance range of $2.15 to $2.55 for 2026. A midpoint of $2.35. Estimates incorporate $1 billion of SBA 7(a) originations, $500 million of ALP or long amortizing C&I loan originations, $175 million of SBA 504 originations, and $150 million of net growth in the combined C&I and CRE portfolios. Projected originations and net growth reflect step-ups from 2025 levels. We've included a quarterly EPS view for 2026, which reflects the recently closed NALP 2026-1 transaction in the first quarter and a projection for a second securitization this year in the fourth quarter. And with that, I'll turn it back to Barry for the last few slides ahead of Q&A. Barry R. Sloane: Thank you, Frank. Slide number 24, which we talked about at the beginning of the presentation, this kind of represents a lot of what NewtekOne and Newtek Bank National Association are trying to do. We don't look like a community bank. We don't act like a community bank. We basically have built a financial institution to service our customers. Utilizing technology, we're able to provide a frictionless environment to exchange information, have customer service and business service specialists be on a camera, and be available on demand. We give our business clients the ability to send and receive money at the lowest cost with the greatest amount of data and the greatest amount of analytics to run their business. We actually give them loans that are valuable. Not I'll fund you in twenty-four to forty-eight hours. And forget what the rate is, but you gotta pay me back the principal in six to twenty-four months. From a branding perspective, we disagree that being able to charge those high rates for quick money really provides great brand value. We do provide great brand value. Yes. We have larger provisions. Yes. We have greater allowance for credit losses, cover the amount of losses that we'll achieve. We have accurately forecasted what our charge-offs are, what our losses are, and we have that reserve. And on top of that, we have ROAAs at the HoldCo of 2.7%, and ROTCEs at the HoldCo approximately 20%. So we're able to earn greater returns with greater margins on a net basis. We're an organization that manages credit risk, not avoids it. And when you look at the other organizations in the market that were also disruptors, some of them for consumer, some of them for online deposits, Axos. Almost five years on slide number four before the stock started to move higher. Now trades 11 times consensus. 207% of book value. Why about bank? Five years before the stock started to move. Trades at 13 times 2026 consensus, 164% of book, TFIN, six years before the stock started to move. Hope this doesn't take six years. It's trading at forty percent 2026 EPS. SoFi, two and a half to three-year period, sideways to low before the stock making a move. It just takes a while before investors get comfortable, get a feel for how the business works, test the model. You see it in Northeast Bank. You see it in LendingClub. These are all good markers for us. They're all technology-enabled banks that have been able to service their client base in similar ways to what we are. But we obviously got this positioning and expertise with SMBs, SMEs, and we refer to as independent business owners, a very viable and valuable demographic in the marketplace that we've developed this level of expertise over the course of two decades. And with that, we appreciate the opportunity to present our Q4 and annual results. And operator, we'd like to go to the Q&A. Operator: Question. You will need to press 11 on your telephone. To remove yourself from the queue, you may press 11 again. My first question comes from the line of Tim Switzer of KBW. Question, please, Tim. Timothy Switzer: Hey. Good afternoon, guys. Thanks for taking my question. Barry R. Sloane: Thank you, Tim. You too. Timothy Switzer: Yeah. Barry, you fooled me for a minute. Beginning, I thought I thought we're getting this question and answer session within a few in the first five minutes. Barry R. Sloane: I was ready to go. Timothy Switzer: That would have made everybody happy, but it was a half an hour. We're getting better, Tim. We're practicing. Barry R. Sloane: Good work. So my first question is something in the press release. You mentioned that you increased deposit account openings by about 50% this quarter. And I know there's something you talked a little bit about on the Investor Day. But it just seems like a pretty sizable increase in one quarter. Could you maybe talk about what was driving that? And you know, what your expectations are going forward? Because it seems like there's some pretty good trends. Barry R. Sloane: Thank you, Tim. Look. First of all, you know, we believe that the ability to access us digitally from your home in a frictionless manner for business deposits as well as consumer is important. And I think there's plenty of people that do it well for consumer. Little harder to do for business. Harder to acquire, harder to manage. And we've been blessed. We've gotten through three years of audits, and it's worked out well. I think that we've got very good margins in our business. I believe the NIM at the bank it's got a five handle on it. I gotta go dig it out here. I think it's Frank, what is it? Like, 5.3, 5.4? Frank DeMaria: Yeah. Five and four. Barry R. Sloane: Right. So we're able to offer a generous rate and no fees, no asterisk, no way. So the rates are generous. Now some people say, oh my god. Those are really risky deposits. I think 78% of them are insured. The important part is they're at a market rate. Those people aren't going anywhere. So our portfolio can afford to pay that deposit base. I think that's a point of than one that is at zero. So we're paying a healthy rate. We don't see the attrition. Clients are sticking with us. They're not leaving. And we're getting more and more deposits. It's an interesting interest rate environment whether you think the Fed's gonna drop rates, The recent Fed meeting says they're gonna stick. So I think that's the fact that it's frictionless. The fact that our alliance partners are appreciating what we're doing, We're bringing on more alliance partners. And we're gonna continue to be able to grow deposits to fuel good loan growth. Timothy Switzer: Awesome. Okay. That yeah. That's good to hear. And if I'm looking at the noninterest income detail, here, gain on sale was maybe just a little bit light relative to what we had expected. It was flat quarter over quarter, but could you maybe talk about some of the trends there and what we should expect to next year given your guidance for about you know, a billion dollars of SBA originations? Barry R. Sloane: Well, we do expect seven, eight business to pick up again. It was a bit of a shift. There's been a lot of changes in the SBA world. Some of these, I didn't expect to be as dramatic such as the citizenship issue, was dramatic. The inability to refinance MCA product is dramatic. Recently, I think this is gonna be somewhat helpful. The SBA is going away from the SBSS score. They know, we're waiting for some further guidance on this, but they're asking us to use our own scoring methodology. That SBS score will stick until the thirty-first. So I think that our volumes will do better. I think you've seen entities like BaitFirst get out of the business, a few others that I won't mention that seem to be having financial struggles that were of the fintech variety. One of the other changes, I think is important, is the SBA is clearly requiring forecasting of debt service coverage over time. And most of the competitors in the fintech space, these are technology companies that are not credit. Lay them off to other participants. They've gotta change their whole front-end intake. We don't. So I think we're better positioned competitively. We've always been a five c's of credit lender. We take liens. We spread financials. And our technology and our AI covers this. I think some of our competitors have gotta put that in place, scramble, do it rather quickly, and it's also untested. Timothy Switzer: Okay. Got it. That's really helpful. I have a few cleanup questions. If you can entertain me real quick. The first one is what were the net charge-offs for the bank subsidiary? I might have missed it, but I couldn't find it in the earning materials. Barry R. Sloane: Right. Frank DeMaria: Frank, total charge-offs on all loans held for sale and investment at $12.31 was about 2.2%. Timothy Switzer: That's right. And at the bank, Tim, to answer your question was $8.2 million for the quarter and $23 million for the year. Timothy Switzer: Okay. Alright. That's helpful. And then are you able to provide the breakdown you guys have in the 10-Q for the gain on loans accounted for under the fair value? Are you able to give us kind of what portion of that was from the ALP loan? Versus the SBA loans. Barry R. Sloane: So it'd say about go ahead, Baris. Yeah. You're talking about the unrealized gain between ALP and the 7(a)? Timothy Switzer: Yeah. What you guys report. It was 20 the combined number was $25.6 million this quarter. Barry R. Sloane: Have that breakout, Frank? Frank DeMaria: Yeah. It was about 35% on the ALP with the remainder on the 7(a) that we're holding. Timothy Switzer: Okay. With a slight loss in the NSBF. Right? Barry R. Sloane: Correct. Timothy Switzer: Okay. So I'm calculating NSBF with the $20 million loss for the full year. That's close to, like, a $67 million loss this quarter. So it stepped up a little bit. Barry R. Sloane: That's right. That's correct. Timothy Switzer: Okay. Alright. That's all for me. Thank you, guys. Barry R. Sloane: Thank you. Operator: Our next question comes from the line of Steve Moss of Raymond James. Please go ahead, Steve. Stephen Moss: Good afternoon, guys. Barry R. Sloane: Steve. Stephen Moss: Just circling back to the SBA originations. You know, I hear you in terms of the changes in the rules being a big disruptor. I know you'd indicated and kind of touched on it, Dare. This call in terms of, like, the challenges a lot of businesses faced. Kind of what are you seeing for business confidence and business activity these days versus maybe six or twelve months ago? Barry R. Sloane: Yeah. I think it's a good question, Steve. I think that the rate cuts of about one and a half percent from the high have been helpful. But it is absolutely 100% k-shaped economy, haves and have-nots. And businesses servicing the lower end of the market are as a customer. They're struggling. And businesses that are serving the middle market or the upper end are doing well. So you really you know, you kinda need to pick your spots here. I think we're all hoping that in 2026, productivity kicks in. And, therefore, the inflation numbers push things down. Not sure we're seeing that, to be honest with you, Steve. We're seeing commodity prices going high. I think oil picked up today. The Fed's probably not gonna do anything until you get a chairman change. But overall, the confidence of businesses is good. Spending money. The stock market is making people feel good, people that have portfolios, which is a lot bigger number today than it was forty years ago. So I think business confidence is pretty good. Businesses are willing to invest. Particularly in technology to make their business more efficient and reduce their expenses. Stephen Moss: Okay. Great. And then maybe just on the AOP originations, just kinda curious you had another good quarter here. Do you expect that kind of continued cadence throughout the year or a step up from these levels? Or do we maybe think about some weakness here in the first quarter? Barry R. Sloane: The first quarter is always a tough quarter for lending, and I can't explain why the first quarter is always great in the fourth quarter. First quarter is weak in the fourth quarter is great. I mean, I could tell you the industry reason is people blow out their loans at the end of the year, and people borrow at the end of the year, then they're exhausted. And go into the first quarter. I mean, it happens every year. It's our weakest quarter. Respect to ALP loans, I think it's important to note business owners don't come to us for a 7(a) or an ALP. They come to us for a loan, which is why these daily debit MCA players make a lot of loans because people go to them for the money. Whether it's costing them a 30 or 50 or a 70, they make the money and make it readily available, and they grab it. What we do is we try to actually give them a good product. We lower the payment. It's massively different than for loans that are in that that we're competing against because of the long amp. We take longer. We're more thorough, but it's a better product for them. And by adding the ALP or the hell what I refer to, health for sale C&I, or C&I long m. We're developing a reputation. And if you're a business owner, and you want a loan that's not MCA or daily debit, which dominates this industry, and you want a low payment because you have an interest rate in the high single digits or low double digits, we're the place to come to. To get that long-term patient capital. So very bullish on ALP or what we're gonna call C&I held for sale because it's gonna go into a securitization. And when people come to us, I mean, you can't I say there's always guard because you never know what sneaks in there. I don't think you could find SBA on our website. And we don't wanna be known as the SBA lender. It was obviously with our history, it's one of the few things that we did. But we make all kinds of loans to businesses. Including shorter-end loans with a full covenant package, balloons, and short repayments, which are more traditional, for borrowers that insist on having a lower rate. Right. Stephen Moss: Okay. That's helpful. And then in terms of, you know, the expense side here of the equation, just kind of curious, you guys did do a good job on expenses there. I hear you in terms of, you know, continuing to upgrade systems and make things more polished. Just kinda curious, you know, how you're thinking about investments and maybe that cadence of expenses here. Barry R. Sloane: It's an interesting question, Steve, because I've had a lot of conversation with expenses and expense control. There's always a push and pull on the expense line. I think that we're continuing to grow the business. Putting expenses particularly into business deposit functionality and gathering. On a good note, I feel very good about the C suite. With the ads. The team is very much new tech culture, new tech eyes. So I think that's pretty rock solid and pretty steady. I would like to add some executives in the biz dev area to help grow the business. And to help Andrew Kaplan, our chief strategy officer, who's done a fabulous job for us. But I don't think you'll see explosive expenses. Expense growth. I think we're in good step. Obviously, if you look at our revenue growth versus the expense line, I think we had a good year last year. We have a lot reserved for, you know, for next year in the expense line. So it should be very comfortable for us. Stephen Moss: Got you. I appreciate all that color there, and I'll step back here in the queue. Thank you very much. Barry R. Sloane: Thank you, Steve. Operator: Thank you. Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann and Company. Your question, please. Christopher. Christopher Nolan: Hey, guys. Thank you for taking my questions. Looking at the forward guidance, it looks like the efficiency ratio is projected to, you know, total revenues percent expenses percentage of revenues. To the state, pretty flat with current level, 55% to 56%. Assuming that's true, what do you see as the leverage for EPS growth in 2026? Barry R. Sloane: Well, Chris, I hope I beat that expense line. But, you know, we've got that out there. I see the big leverage in continuing to grow business deposits from payroll from merchant services, to lower that cost of funds so that, you know, the dollars that we're spending to build out more inexpensive deposits will give us a lower reoccurring liability cost going forward. In addition, the ALP loans or the C&I loans held for sale, they're bigger and they're larger. I won't say they're easier to do, but we're seeing more flow there. So it's gonna be easier to get volume from my mouth to God's ears in that particular space and grow it. Versus the SBA business where the average loan size is, call it, $400,000. The average loan size in ALP is, you know, $4.5 to $5 million. So that's, I think, where we see the leverage. Now the other thing that's important is there's leverage and expense ratio with the bank and at the HoldCo. Look. We need to continue to watch the expense line. I am hopeful that we beat the expense line. This year versus what's projected, but I appreciate you pointing that out. Christopher Nolan: Okay. Great. That's it looks like margin expansion hopefully, will be the leverage there if I heard you correctly. Barry R. Sloane: Should be on a Christopher Nolan: And I guess as a follow-up and congratulations on the deposit growth because I know that's something that you guys were aiming for for a long time. Have you guys put in some sort of new mechanism where you know, you deposit the loan into a new tech deposit account for that client or something which, you know, is sort of, you know, helping goosing along the deposit growth? Barry R. Sloane: Yeah. So when you applied for a loan, the data used to apply for the loan automatically populates the application for a bank deposit, which goes through KYC AML BSA Group, so that the deposit account is approved without a separate application. But using the data that we get from a loan. So that's made that a lot more automatic, and we are going forward. And it's been this way, I think, for about six or seven months. We are requiring the borrowers to make the loan payments out of that Newtek account. Christopher Nolan: Oh, okay. Great. And that generally is a low interest-bearing account. It's a core deposit account. So correct? The 1%. Yeah. So you're just basic that's gonna be a driver for lower deposit cost. Okay. Yeah. And we got that that that increase the utilization. So if my staff is listening, and hopefully they are, they've got to diligently talk to customers and explain that this is, we think, one of the best accounts out there with zero fee for ACH, zero fee for wire. Higher cost, move your money back and forth between savings and checking. How's that sound, Chris? Christopher Nolan: Sounds great. Okay. Thanks, Barry. Future for me. Thank you. Appreciate it. Bye. Operator: Thank you. Again, to ask a question, please press 11 on your telephone. Again, that's 11 on your telephone to ask a question. Our next question comes from the line of Dylan Hines of B. Riley Securities. Your line is open, Dylan. Dylan Hines: Hey. Thanks for taking the question. I was wondering could you share your perspective on how Newtek's SBA loans are performing versus the many others in the SBA sector that don't have your underwriting and other business services offerings that create better long-term customer relationships. Barry R. Sloane: I appreciate it. I think if you go to sba.gov, what you'll basically see is that, you know, our five-year and ten-year charge-off rates are about industry average. And that's kinda where we'd like to be. Right in that particular right in that particular bucket. I mean, number one, it fulfills our mission of making loans to business owners all over the United States, whether they're big loans or small loans and whatever whether it's a woman or a man or a people with green or yellow, whatever they are. So we put the product out there. We're very quick to prequalify the customer. And then take in all that other information. So I would say we're average. I think now if you look at our margins, they typically dwarf some of our big competitors in the space. So I would strongly suggest that you look at our margins versus some of our competitors with respect to ROAA, ROTCE, and gain on sale. Once again, we believe that being able to put the loan out, treat the customer well, you can get a full margin loan. You don't have to be prime plus one or prime plus one and a half. Dylan Hines: Got it. Thanks for the color. Thank you. Operator: I would now like to turn the conference back to Barry Sloane for closing remarks. Sir? Barry R. Sloane: Well, we appreciate that, and we appreciate the questions. And we're appreciative of the hard work the team has done to make this better and more concise. We look forward to being able to continue to drive results in 2026 with the growth rates that we had in 2025. We've got some challenges, but good momentum at our back, and we wanna follow in the footsteps of other disruptors in this industry. But within our category of serving, SMEs, SMBs, and independent business owners because it's pretty untapped, and we've got a two-decade head start on most of the players in the space. So we thank everybody for attending and look forward to reporting in 2026. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings. Welcome to the FinWise Bancorp Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Press 0 on your telephone keypad. Please note that this conference is being recorded. It's now my pleasure to turn the conference over to Juan Arias. Thank you. You may begin. Juan Arias: Good afternoon, and thank you for joining us today for FinWise Bancorp's Fourth Quarter 2025 Earnings Conference Call. Earlier today, we filed our earnings release and investor deck and posted them to our investor website at investors.finwisebancorp.com. Today's conference call is being recorded and webcast on the company's investor website as previously mentioned. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Forward-looking statements represent management's current estimates, expectations, and beliefs, and FinWise Bancorp assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements, including factors that may negatively impact them, contained in the company's earnings press release and filings with the Securities and Exchange Commission. Hosting the call today are Kent Landvatter, Chairman and CEO, James Noone, Bank CEO, and Robert Wahlman, CFO. Kent, please go ahead. Kent Landvatter: Good afternoon, everyone. FinWise delivered a strong 2025, growing net income 26% and posting a steady fourth quarter that demonstrates how our multiyear investments are gradually translating into tangible, sustainable results. The meaningful progress we've made in expanding and diversifying our revenue streams underscores both the durability of our business model and the momentum behind our long-term strategy. Specifically, during the fourth quarter, we delivered healthy revenue growth driven by balanced contributions from both fee and spread income. Additionally, our disciplined approach to expense management further strengthened profitability and supported continued growth in tangible book value per share, reinforcing the long-term value we are delivering to shareholders. Loan originations totaled a solid $1.6 billion in the fourth quarter, exceeding our initial guidance of $1.4 billion. This brings full-year 2025 originations to $6.1 billion, representing a healthy 22% year-over-year growth. Key drivers during the fourth quarter included strong originations from established partners and continued ramp in the maturation of programs launched in recent years. Partly offsetting this was the expected seasonal deceleration from our largest student lending partner. While quarterly loan originations will fluctuate with typical seasonality in certain quarters, we believe we have reached a higher and more sustainable level of quarterly production supported by robust contributions from long-standing partners and newer relationships that continue to scale. We also experienced strong uptake of our credit-enhanced product, ending the quarter with balances of $118 million, exceeding both the $115 million outlook provided on our third-quarter earnings call and our initial guidance of $50 million to $100 million. This product is a core component of our lower-risk asset growth strategy, supported by a structure that requires fintech partners to maintain a deposit account at FinWise against which charge-offs are recovered. Turning to our BIN and payments business, although ramp-up has been more measured than we initially anticipated, we remain confident in the long-term value proposition. Integrating these capabilities under one roof enhances our ability to win new partners, expand cross-sell opportunities, and deepen strategic relationships over time. While strategic partnerships with a lending focus remain our most profitable relationships, we are generating increased interest by also offering BIN and payment solutions. For example, some clients use our award-winning payments optimizer, MoneyRails, to process salary deduction repayments on FinWise-originated loans, while others are leveraging MoneyRails to fund transactions through RTP and FedNow, demonstrating the expanding utility and appeal of the platform. Ultimately, these ancillary services enable our partners to innovate faster, operate more efficiently, and compete more effectively, reinforcing FinWise as a true strategic partner, not just a regulatory gateway. We are also pleased to share that DreamFi, a strategic program agreement we announced last quarter, has officially launched. DreamFi is a startup financial technology company that will provide financial products and services to underbanked communities. Overall, our pipeline remains healthy, and we remain in active discussions with several additional prospects. As we've mentioned before, the pace of new agreements can appear lumpy, and timing may fluctuate, particularly with larger strategic opportunities. That said, each strategic partnership we secure has the potential to create outsized value. Under this one-to-many framework, a single can drive substantial growth in portfolio balances and revenue, underscoring the inherent scalability and strength of our platform. On the AI front, given the high cost and rapid pace of change associated with early-stage AI development, a disciplined adoption approach remains the most effective strategy for FinWise. While we have already been using AI in areas such as coding, quality assurance, and BSA AML, the advances in generative AI are opening new opportunities for efficiency and automation. We are actively exploring opportunities to broaden the deployment of these capabilities across the company to drive efficiency and long-term value with a disciplined focus on safeguarding sensitive data through secure and controlled implementation. Lastly, while we will be disciplined in managing near-term performance, our priority remains building durable long-term growth by pursuing opportunities that significantly enhance the company's future. We are confident in the outlook ahead and in our ability to deliver lasting value for our customers and shareholders. With that, let me turn the call over to James Noone, our bank CEO. James Noone: Thank you, Kent. I'll shift now to provide an update on our credit quality and our SBA business. Overall, credit trends remain stable, with performance aligning with our expectations, and we remain disciplined and proactive in managing the portfolio. On the SBA side, production pipelines remain healthy, secondary market premiums continue to be attractive, and we're executing operationally to support continued growth. Specifically, during the quarter, we further refined our servicing and standards, which resulted in accelerated classification of certain loans to nonperforming status and earlier recognition of related charge-offs. As part of this refinement, we increased borrower thresholds required to qualify for a one-time short-term deferment. Management views these adjustments as a prudent forward-looking enhancement to our risk management framework. Our portfolio continues to be strong and exhibits good performance. Quarterly net charge-offs were $6.7 million in Q4, compared to $3.1 million in the prior quarter. $1.5 million of the total NCOs were attributable to our credit-enhanced balance sheet program. However, these losses are guaranteed, and FinWise is reimbursed for any losses from the cash reserve each partner is required to maintain at FinWise. Of the remaining $5.2 million in NCOs, $1.2 million was due to the updated servicing standards that we implemented in the quarter. Provision for loan losses was $17.7 million for the fourth quarter, compared to $12.8 million for the prior quarter. The increase was driven primarily by growth in the credit-enhanced loan portfolio as well as higher net charge-offs resulting from our updated servicing standards, which led to the accelerated classification of nonperforming loans and charge-offs. As a reminder, the provision for credit losses associated with the credit-enhanced loan portfolio is different from the core portfolio provision because it's fully offset by the recognition of future recoveries pursuant to the partner guarantee described as credit enhancement income in our noninterest income. This quarter, we included a new table in the earnings press release that breaks out the total provision between the core portfolio and the credit-enhanced portfolio. Positively, during Q4, the net increase to our NPL balance was less than a million dollars, bringing our total NPL balance to $43.7 million at the end of the quarter. This modest increase was mostly due to SBA seven Watchlist and special mention loans migrating to classified status and compares to our guidance on our prior call that $10 million to $12 million in balances could migrate to NPL during Q4. The lower-than-potential migration reflects the team's proactive efforts in disposing of collateral securing NPLs. Of the $43.7 million in total NPL balances, $24.2 million or 55% is guaranteed by the federal government, and $19.5 million is unguaranteed. Quarterly SBA seven a loan originations decreased quarter over quarter, primarily due to extended SBA processing delays resulting from staffing cuts at the SBA, with additional impact from the government shutdown. During the quarter, we took advantage of attractive secondary market premiums to increase sales of the guaranteed portion of our SBA loans, particularly after the government's reopening in November, which contributed to elevated gain on sale income. We will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. Following the government's reopening in late November, the environment for SBA loan originations has normalized, with turnaround times returning to more typical levels. Notably, our SBA guaranteed balances and strategic program loans held for sale, both of which carry lower credit risk, collectively accounted for 34% of the total portfolio at the end of Q4, underscoring the lower-risk composition of our loan book. I will now turn the call over to our CFO, Robert Wahlman, to provide more detail on our financial results. Robert Wahlman: Thanks, Jim, and good afternoon, everyone. FinWise reported net income of $3.9 million for the fourth quarter and diluted earnings per share of $0.27. Key drivers during the fourth quarter included a notable increase in loan originations and a significant rise in credit-enhanced balances, both greater than our expectations. Fourth-quarter results were also impacted by an increase in net charge-offs, in part stemming from the previously mentioned refinement of our servicing and administration standards. The higher net charge-offs resulted in a higher provision for credit losses on our traditional banking portfolio, which negatively impacted our Q4 net income by $1.1 million after taxes. Net interest income grew to $24.6 million from the prior quarter's $18.6 million, primarily due to the increase in the bank's credit-enhanced balances in the held-for-investment portfolio of $76.5 million. The credit-enhanced loans carry a higher contractual interest rate. The higher interest income is partly offset by higher average balances in the certificates of deposits used to fund the loan portfolio growth. Net interest margin increased to 11.42% compared to 9.01% in the prior quarter. The increase is largely attributable to the credit-enhanced portfolio growth of $76.5 million. As a reminder, suggest thinking about our net interest margin in two distinct ways: including and excluding excess credit-enhanced income. When including excess credit-enhanced income, we anticipate the margin to increase, supported by the continued expansion of the credit-enhanced loan portfolio and strategic efforts to lower our cost of funding. Conversely, excluding excess credit-enhanced income, we anticipate a gradual decline in margin consistent with our ongoing risk reduction strategy. The effect of the credit-enhanced income on net interest margin is included in our GAAP to non-GAAP disclosures at the end of the earnings release. We also posted solid non-interest income of $22.3 million compared to the prior quarter's $18 million. The growth was primarily due to increases in credit enhancement income driven by our higher credit-enhanced loan balances outstanding at year-end 2025. Partly offsetting the rise in noninterest income was a decrease in strategic program fees due to lower origination volume. As a reminder, credit enhancement income offsets the provision for credit losses on credit-enhanced loans dollar for dollar. As a result, when the provision expense and the credit enhancement income are considered together, they offset and result in no effect on our profitability. Noninterest expense was $23.7 million compared to $17.4 million in the prior quarter, primarily due to increases in credit enhancement guarantee and servicing expenses resulting from the growth in the credit-enhanced loan portfolio. As a reminder, credit enhancement guarantee and servicing expenses are amounts FinWise owes to the strategic partners with credit-enhanced programs for their servicing and guarantee activities. Reported efficiency ratio for the quarter was 50.5% versus 47.6% in the prior quarter. Importantly, we continue to generate solid balance sheet growth with total end-of-period assets reaching $977 million. The increase is primarily due to continued growth in the company's cash balances deposited at Fed, loans held for investment, and an increase in the credit enhancement asset. Average interest-bearing deposits were $567.4 million compared to $523.9 million in the prior quarter. The increase was primarily in certificates of deposit, which were added to fund loan growth, and an increase in noninterest-bearing demand deposits, primarily related to collateral deposits by certain strategic programs that anticipated increased volumes due to typical seasonality student loan fundings in January 2026, increased our balance sheet liquidity. Let me provide forward outlook on some key metrics as we've done in prior quarters. Loan originations for Q1 2026. Originations through the first four weeks of January are tracking at a quarterly run rate of approximately $1.4 billion. Loan originations for full year 2026. We remain comfortable using $1.4 billion in quarterly originations as our baseline, as it normalizes for student lending seasonality. Annualizing this level and applying a 5% growth rate provides a reasonable outlook for originations for full year 2026. Credit-enhanced balances for full year 2026. We remain comfortable with organic growth in credit-enhanced balances of $8 million to $10 million on average per month for 2026, but could see some variability between months. SBA loan sales. While we don't provide a specific outlook, we will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. Quarterly net charge-offs. We anticipate that approximately $3.5 million in net charge-offs for our non-credit-enhanced loans is a good quarterly number to use in your models. Nonperforming loan balances for Q1 2026. We think there is potentially as much as $10 million in watch list loans that could migrate to NPL in Q1 2026. We continue to expect a gradual moderation in NPL migration as loans underwritten in lower interest rate environments continue to season, though the migration may be lumpy. Net interest margin. We remain comfortable with our prior outlook that when including credit-enhanced balances, the margin is projected to increase, supported by the continued expansion of our credit-enhanced loan portfolio and strategic efforts to lower our cost of funding. This upward trend is expected to persist until growth in these balances begins to moderate. Conversely, excluding excess credit-enhanced income, we anticipate a gradual decline in margin consistent with our ongoing risk reduction strategy. Efficiency ratio. We remain focused on driving sustainable positive operating leverage with a long-term goal of steadily lowering our core efficiency ratio. That said, there may be periods in which the efficiency ratio may rise. Tax rate. While multiple factors may influence the actual tax rate, we suggest using 26% in your modeling. With that, we would like to open the call for Q&A. Operator? Operator: Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 to remove yourself from the queue. For any participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question comes from the line of Brett Rabatin with Hovde. Please proceed with your question. Anya (on behalf of Brett Rabatin): Hey, guys. This is Anya speaking on behalf of Brett. You know, I was just wondering if you guys feel there's any opportunities to lower CD funding costs in the next few quarters. Robert Wahlman: In regards to CD funding cost, as we've noted, we are dependent upon wholesale funding. That wholesale funding cost tends to move with the Fed and the Fed's movement of the interest rate. So as the Fed reduces interest rates, we would expect to see a like-type decrease. That'll be blended in over time because we tend to run with CD maturities between three months and one year. So we would expect to benefit from those decreases, but at a gradual rate. And we should be blending in some benefit from past rates over the next couple of quarters yet too. Anya (on behalf of Brett Rabatin): Thank you. And, you know, do you guys have any thoughts on the progression of MoneyRails and the BIN sponsorship potential later this year? Kent Landvatter: Yes. As far as let me speak first to the deposits since Bob kind of teed that off. We're still very confident in our strategy on BIN payments, though the timing may be pushed out beyond our initial expectations. But just as a reminder, we never want to rely or over-rely on just one partner as a source of funding, so regardless of who they are, our policy limits concentration on funding from one party, which means there were chunks of the broker deposits that we were replacing, but only to a certain concentration limit. So we don't think it's gonna be hugely impactful this year. We think more of that will come through next year. Anya (on behalf of Brett Rabatin): Thank you. And last one for me, but any thoughts on the SBA business this year and whether management might be more or less aggressive with origination given the environment? James Noone: Yeah. Hey, Anya. This is Jim. You know, SBA demand continues to be really solid. In the pipeline. And versus last year, originations for us were down a little bit in the quarter. But that was really just a timing delay from the shutdown rather than a demand issue. And we had a nice pickup in closings already in January. So, overall, I'd say we have good demand. From everything we see, small business confidence is stable to rising. So we feel good about the SBA business right now. Anya (on behalf of Brett Rabatin): Thank you. Appreciate it. That's all for me. Operator: Thank you. And our next question comes from the line of Joseph Yanchunis with Raymond James. Please proceed with your question. Joseph Yanchunis: Good afternoon. Robert Wahlman: Hi. Joseph Yanchunis: There you go. So I was hoping to kinda circle back with deposits here. So it looks like period-end, guidance-bearing deposits increased pretty nicely this quarter. Well, average balances declined a bit. Was the surge in deposits related to credit enhancement loans kinda coming on at the end of the period? Robert Wahlman: The surge in deposits resulted from certain of our strategic partners that are making student loans in anticipation of increasing on the student loans and the requirement to maintain collateral equal to the hold that we have on those loans. But they deposited significant funds at the end of the quarter. So those funds will be held during the period of time that they have the higher origination volume. And then as that origination volume goes down, we expect that they will take those funds back away from us. Joseph Yanchunis: Okay. That's helpful. And then did I hear you correctly on your strategic or, I'm sorry, your origination guidance? It was, you know, annualized $1.4 billion, which is kind of the quarter-to-date run rate and kind of grow it by 5%. Because if so, that kind of points to a decline year over year. I was just wondering what you would kind of attribute that to. James Noone: Yeah. That's the baseline, Joe, that we put out as far as modeling guidance was once you strip away the seasonality associated with student lending, $1.4 billion is a good baseline and then apply a 5% growth factor on that. That's what we put out there because it takes away the seasonality of student lending. Joseph Yanchunis: Is there any reason to think that seasonality in student lending wouldn't return in 2020 where you would get that big three q uptick? James Noone: There is no reason to think that the seasonality would not return. So very likely would continue in the same seasonal fashion. Joseph Yanchunis: Okay. I appreciate that. Switching over to kinda recontracting. I was hoping you could discuss that a little bit. How was the recontracting process gone with existing partners? And is there any, like, slug of notable contracts up for renegotiation this year? James Noone: Yeah. Recontracting, just historically, gone really well at FinWise. You know, we've got 15 lending partners. Think you know, since we started this business in 2016 and have been operating without interruption, any type of regulatory issues, you know, since that time. I think we've had three partners in total that for one reason or another, kinda matriculated out of their partnership. Two of them were during COVID. They were commercial lenders that kinda went into COVID, you know, I would say, challenged and closed. So it wasn't anything in the partnership. It was really a business model and a business model issue for them. The third was one of our original partners back in, like, 2017 that we just never saw eye to eye on what the sponsorship relationship looked like. So we've been very fortunate in the partners that we've selected and I think have generally had really good relationships with them. You know, those contracts are generally three to four-year initial terms with two-year renewal terms on each of them. And so they're staggered. Every year, there's a handful that come up for renewal. But there's nothing I would point you to as far as concerns. Joseph Yanchunis: Okay. And then last one for me here. There's been increasing discussions around fintech sitting around bank charters. And you know, what's your take on this trend and how it could impact both FinWise and the sponsored bank industry as a whole? Kent Landvatter: Yeah. I'll take that one. We watch that pretty closely actually. There's a lot of fintech charters out there as you know. There's also some here in Utah, some applications as well. But as we've said in the past, a banking charter is not really the best option for all fintechs. You know, of course, larger, well-established fintechs would be more interested than smaller fintechs, but any fintech looking at considering a charter would have to go through seriously how that would impact their vision on call culture, innovation cycles, and so forth. But for FinWise specifically, we've always thought of our partners in terms of a bell curve. Some of the most successful partners continually are those kind of in the middle of the bell curve, where they put up results and really good results year after year, but probably aren't interested in growing to a size where they would need a bank charter. Of some of those partners that are in the right side of the bell curve that are outperformers as far as volume goes, yeah, I would imagine some of those are some of them are looking at those. But one thing that we've tried to impress on everyone in the past is we've built a scalable platform that allowed us to continually pursue new partnerships. And so, you know, we just plan for partners going away and partners coming on. And as Jim said, right now, we've got 15, and we feel good about two to three years. Joseph Yanchunis: Okay. And then, you know, one more for me here. So I understand that you'll continue to add two to three new partners a year. But can you talk a little bit about the success or, you know, planned initiatives to try to cross-sell products with existing partners? And then just to kinda piggyback off that and I may have missed this in the materials, how much volume is currently running through MoneyRails? Kent Landvatter: Okay. We don't disclose that. It's the last question. We don't disclose that. But it's becoming more meaningful. Usually, the way a partner launches is we get the launch going and then it scales over the next three quarters or so, let's say. And so we're seeing decent volumes, but from a couple partners, but, you know, we anticipate those will grow. But what we're finding in this space right now and especially as regards BIN and payments is for this to make sense as a standalone product, unique partners that can generate significant volumes. And the sales cycles for these guys just take more time. But what we've really found that's a nice surprise is how providing these capabilities to existing partners doesn't require the same levels of scale since the add-on products have incremental income, and they already fit within our oversight regime here. And one of the things we're really excited about is we're attracting newer or different partners that have a greater need for all these products. For example, Tali, we signed last year, and they've been a big contributor, but we signed them as a card sponsor partner, but we're also adding the credit-enhanced balance sheet flexibility for them, which really gives us upside and allows them to operate better regarding their funding. And so does that help? Joseph Yanchunis: Yeah. That was very helpful. Well, thank you for taking my questions. Operator: Yep. Thank you. And our next question comes from the line of Andrew Terrell with Stephens Inc. Please proceed with your question. Andrew Terrell: Hey. Good afternoon. James Noone: Hey, Andrew. Andrew Terrell: If I could start just on the you guys referenced $10 million of watch list loans that you were contemplating could maybe migrate to non-performer here in the first quarter or so. I guess the question is, would this require an incremental provision expense? Or do you feel like those were already kind of taken care of as part of the, you know, SBA kinda cleanup that occurred this quarter? James Noone: Yeah. So let me hey, Andrew. This is Jim. Let me just, like, break them up into two things. So you've got the so credit trends generally are stable. We continue to see really good performance kind of across all segments of the portfolio. Bob mentioned in the prepared remarks that we did have a change to the servicing at the '4. Historic let me just give you some color on what that was. So, historically, you know, we followed SBA guidelines, and our procedures allowed a single three or six-month deferment to stressed borrowers. In October, after having completed a review of the performance of those borrowers, we updated the servicing requirements to require full re-underwriting at the time of the deferment request in order to qualify for that. So as a result, the level of NCOs in the quarter accelerated. It was appropriate to implement that proactively after we got the results of the back test and to kind of proactively manage any of those stressed accounts. But we do not expect that level of NCOs from the core portfolio again in the near term and continue to believe that $3.5 million is the right number for modeling. I would just point back that, you know, it is lumpy. When you asked about the $10 million potential migration in Q1, we've kinda guided, you know, over the last probably eighteen months or so, kind of that $10 to $12 million number, and you've had quarters come in well below that, and you've had a couple quarters that were closer to the actual number. It's lumpy. And so the number that we're guiding to right now is up to $10 million. But like you saw in this most recent quarter, you know, just shy of a million dollars migrated even though we guided to 12. Andrew Terrell: Got it. Okay. No. I appreciate all the extra color there. Just on overall kind of net balance sheet growth, I know you guys guide the Credit Enhance $8 million to $10 million a month, maybe a little bit of lumpiness in there. I guess, like, I was surprised that the SBA was down so much this quarter and kinda offsets some of what was, you know, really strong growth in credit enhanced. I'm just trying to get a sense of, like, when we think about overall balance sheet growth, is this a floor in the SBA book? Will you look to build it from here alongside the credit enhanced? Or should we think about that as, you know, stable, to decline, just help us get a sense of, like, where the net net balance sheet goes. Robert Wahlman: So hey, Andrew. This is Bob. So I think the net balance sheet will continue to grow. The fourth quarter was a bit of an aberration. For different reasons and because of the market conditions, we accelerated and stepped up the SBA loan sales. I think that looking towards the future, that we expect the SBA loan sales to more or less be approximate equal to the origination volume. So the overall SBA level should stay flat on the guaranteed side. As it relates to the rest of the portfolio, we will continue to see growth in leasing and our other products. But we'll see most of the growth coming from we expect to see most of growth coming from the credit-enhanced portfolio along the lines that Jim had talked about earlier, the $8 to $10 million per month organic growth. Andrew Terrell: Yep. Okay. And okay. So more of a stable SBA portfolio. Yeah. And maybe this is too technical of a question, but the I'm just comparing the net interest income, you know, up six or so sequentially. The credit-enhanced guarantee and servicing expenses were up, you know, a kinda commensurate amount. I'm assuming that the kinda mismatch here is just the onetime maybe aberration or SBA loan stepping down and not reflective of just a significantly lower level of in the credit-enhanced business. Is that fair? Robert Wahlman: I'm not fully sure I understand the follow-up question. I would note that the credit-enhanced portfolio did grow significantly during the period to over $70 million. And that the level of profitability that we generated from this remained constant. You know, the real event for the income for this year is the it will for this quarter, was the 1 and a half million dollar charge to the provision account related to the, what we call, the core four that would include the SBA portfolio that included the that considered the higher charge-offs as well as the and the factors as it related to the servicing and administration of that portfolio that Jim had talked about at length. That was the real drag in the period. Andrew Terrell: Okay. Fair enough. And then on the expense side, you know, it sounds like you guys are looking at or maybe have some opportunities on the technology kinda implementation front. And, you know, with that or even outside of that, I'm just curious how you're thinking about, you know, pace of expense growth holding aside the guarantee expense and kinda servicing expense, just kinda the core core expense lines? Robert Wahlman: So as it relates to expense lines, we think that the $16 million would be a good starting point from a quarterly run rate for the noncredit enhanced operating expenses. So as we go into 2026, and then we would as we expand the business, as you would see the assets grow, you know, it may be that we need to hire some additional people but we do think that, our revenues will increase, you know, two times two roughly two times faster than our expenses. So I have a positive operating leverage ratio. That's kind of how we're seeing those factors. Andrew Terrell: Okay. Well, thank you guys for taking the questions. Operator: Thank you. I will now turn it over to Juan Arias as there seems to be few questions that came in via email. Juan Arias: Thank you, operator. Yeah. We did get two questions via email. The first one can you clarify if the impact from what you are describing as refinement of servicing and administrative standards is a onetime item and this cost you approximately 8¢ in earnings per share in Q4? Robert Wahlman: Certainly. The after-tax net income the way that we're looking the way that we calculate it, but the after-tax income from that increase revision related to these changes that Jim had gone through was down $1.1 million. On that provision for loan losses on that core portfolio or 8¢ a share. The $1.1 million after-tax provision resulted primarily from, as I said before, the higher charge-offs. And then, again, as Jim explained in his comments, the driver for the four q's increased provision was that acceleration of the charge-offs because of the changes in the servicing and administration standards that were applied to that core portfolio, particularly the SBA portfolio, in Q4 and should be viewed as a onetime event. Juan Arias: Okay. And the second question was can you please provide additional examples of how you're using AI? Kent Landvatter: Yeah. I'll take that one too. We're actually pretty excited about the possibilities of AI right now. Especially now that the cost entry point is so much lower than it has been in the past few years. But as mentioned on the calls, we've been using AI for coding, quality assurance, BSA, AML, and so forth. But with the recent advances in generative AI, with lowering the cost entry point, we think there's some additional lifts that we can find in compliance, operations, and areas where automation can drive efficiency. So we're focusing really intently on that area, you know, specifically things such as policy alignment and regulatory compliance. Is something that would really be helped through AI as well as cybersecurity fraud detection. But I think most importantly right now, analyzing and automating workflows. At the bank. Juan Arias: Alright. Operator, that was the last that came in via email. Operator: Okay. Great. Well, thank you, and thank you, ladies and gentlemen. This does now conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time. And have a wonderful day. Kent Landvatter: Thank you.
Operator: Hello, and welcome, everyone, to the SkyWest, Inc. Fourth Quarter and Full Year 2025 Results Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead. Rob Simmons: Thanks, Audra, and thanks, everyone, for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer, Wade Steele, Chief Commercial Officer, and Eric Woodward, Chief Accounting Officer. I'd like to start today by asking Eric to read the safe harbor. Then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results, then Wade will discuss the fleet and related flying arrangements. Following Wade, we'll have the customary Q&A session with our sell-side analysts. Eric? Eric Woodward: Today's discussion contains forward-looking statements that represent our current beliefs, expectations, and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement whether as a result of new information, future events, or otherwise. Actual results will likely vary and may vary materially from those anticipated, estimated, or projected for a number of reasons. Of the factors that may cause such differences are included in our most recent Form 10-K and other reports and filings with the Securities and Exchange Commission. And now I'll turn the call over to Chip. Chip Childs: Thank you, Rob and Eric. Good afternoon, everyone, and thank you for joining us on the call today. Today, SkyWest reported net income of $91 million or $2.21 per diluted share for the 2025 fourth quarter and full year net income of $428 million or $10.35 per diluted share. These results reflect the challenges of the fourth quarter as well as the overall improved production in 2025 compared to the previous year. For the 2025 year, our model converted a growth of 15% in production to a 31% increase in pretax income, reflecting the strong operating leverage within our model. We're also pleased to announce extensions on key flying agreements, 40 E175s with United and 13 E175s with Delta. These agreements continue to strengthen our partnerships and demonstrate the ongoing long-term demand for our product. Our fleet flexibility has never been more important. And while our E175 flying agreements are further solidified, we continue to leverage our extensive CRJ assets. Our ongoing investments in and the diversity of our fleet ensure we're well-positioned to adapt to future market demands. I'm humbled and honored that SkyWest was named a Fortune World's Most Admired Companies for 2026. A distinction our people helped us earn for the third time now. SkyWest was named in the top 10, the only regional airline on the list. This is an outstanding accomplishment, and I'm so proud of our exceptional team. Throughout 2025, SkyWest Airlines achieved more than 250 days of 100% controllable completion, a solid team accomplishment during the year, we regularly reached over 2,500 daily scheduled departures. The fourth quarter was unusually challenging starting out with the government shutdown, and mandatory flight reductions and leading right into the peak holiday season travel. I want to thank our team of over 15,000 aviation professionals for their continued teamwork and dedication to excellence. As expected, we were disproportionately affected with more canceled flights than our major partners during the mandatory flight reductions, and we experienced a modest impact from the shutdown. Rob will talk more about that in a minute. We continue executing to derisk our model. The contract extensions we announced today with United and Delta deliver ongoing revenue stability. With all of our dual-class fleet, both CRJ and ERJ now under contract, we have no major E175 contract expirations until late 2028. Additionally, over the past three years, we've reduced our debt by $1 billion. All this work continues to place us in a solid position of long-term strength. The investments we're making today set us up well for 2027 and beyond. SkyWest continues to lead our segment of the industry in service and in value of our diverse assets. Remain disciplined and steady. As we execute on our growth opportunities by delivering on significant pro rate demand investing and fully utilize our existing fleet and preparing to receive our deliveries in the coming years for a total of nearly 300 E175s by 2028. We spent years strengthening our balance sheet and fleet flexibility. As well as reinvesting in our future growth. Continue to play the long game and invest in our fleet and our future to ensure we're in the best possible position to respond to market demands in a way that no one else can. Rob will now take us through the financial data. Rob Simmons: Today, we reported a fourth quarter GAAP net income of $91 million or $2.21 earnings per share. Q4 pretax income was $125 million. Our weighted average share count for Q4 was 41.3 million, and our effective tax rate was 27%. Let's start today with revenue. Total Q4 revenue of $1 billion is down seasonally from $1.1 billion in Q3 2025, and up 8% from $944 million in Q4 2024. Q4 revenue includes contract of $803 million, down from $844 million in Q3 2025 and up from $786 million in Q4 2024. Pro rate and charter revenue was $167 million in Q4, flat with Q3 2025 and up from $126 million in Q4 2024. Leasing and other revenue was $54 million in Q4, up from $39 million in Q3 and up from $32 million in Q3 2024, driven by discrete maintenance services provided to third parties. For comparability purposes, the mandated flight cancellations from the government shutdown in November negatively impacted our Q4 2025 results by $7 million or $0.13 in earnings per share. Additionally, these Q4 GAAP results include the effect of recognizing $5 million of previously deferred revenue this quarter, down from the $17 million recognized in Q3 2025. And $20 million recognized in Q4 2024. As of the end of Q4, we have $265 million of cumulative deferred revenue, that will be recognized in future periods. As we close out 2025, here are a few financial highlights to recap our 2025 year. Our pretax income in 2025 of $506 million was up 31% from 2024 on a 15% increase in block hours reflecting the strong operating leverage in our model. Our EBITDA for 2025 was $982 million, up over $100 million from 2024. Our free cash flow for 2025 was over $400 million, providing the liquidity to invest in our long-term CRJ fleet initiatives and other accretive capital deployment opportunities. We've repaid $492 million of debt in 2025 part of a 10% reduction to our debt balance since 2024, including the effect from seven new E175s we financed in 2025. We ended Q4 with debt of $2.4 billion down from $2.7 billion as of 12/31/2024. We used $85 million in 2025 for share repurchase doubling our investment from 2024. We bought nearly 850,000 shares in 2025, up 50% from the shares bought in 2024. Now let's discuss the balance sheet. We ended the quarter with cash of $707 million down from $753 million last quarter and down from $802 million at Q4 2024. The ending cash balance for the quarter included the effects from repaying $155 million in debt investing $214 million in CapEx, including the purchase of five E175s and buying back 268,000 shares of SkyWest stock in Q4 for $27 million. As of December 31, we had $213 million remaining under our current share repurchase authorization. Cash flow is obviously an important driver of our capital deployment strategy. Over the last two years, we generated nearly $1 billion in free cash flow and deployed it primarily to delever and derisk the balance sheet to the benefit of our partners, our employees, and our shareholders. Our balance sheet and liquidity are powerful tools as we pursue a variety of growth and capital opportunities for 2026 and beyond, including acquiring and financing 29 additional E175s, by 2028 and continuing to pay down our debt. As we remain focused on improving our return on invested capital, we'd like to highlight the following. Both our debt net of cash and leverage ratios continue at favorable levels and are at their lowest point in over a decade. Our total debt level is $1 billion lower today than it was at the end of 2022 in spite of acquiring and debt financing 14 E175s. During that time. The total 2025 capital funding our growth initiatives was approximately $580 million, including the purchase of seven new E175s. CRJ 900 airframes, and aircraft and engines supporting our CRJ 550 opportunity. We expect to take nine new E175s during 2026. And we anticipate approximately $600 to $625 million in total CapEx in 2026 approximately flat with 2025, except for two incremental 175 deliveries. Consistent with our practice, we're not giving any specific EPS guidance today. Let me update you on some commentary on 2026. We gave last quarter. For 2026, we now expect to see mid single digit percentage growth in block hours over 2025, moderately up from the color we provided last quarter. We also now anticipate our earnings per share for 2026 will be in the mid $11 area up modestly from our expectation last quarter. In addition to this full year EPS color, we would expect sharper quarterly seasonality a bit more like pre-COVID patterns with our Q1 2026 EPS being flat to down from Q4 2025 GAAP EPS and with Q2 and Q3 being the strongest quarters of the year. For modeling purposes, we anticipate our maintenance activity in 2026 will continue approximately at current rates as we invest in bringing more aircraft back into service. We also anticipate our effective tax rate will be approximately 24% for 2026, similar to 2025, including a lower expected rate in Q1 than the remaining quarters. We are optimistic about our growth possibilities going into 2026, including the following three focus areas. First, growth in our ability to increase service to underserved communities driven partially by the redeployment of approximately 20 parked dual-class CRJ aircraft and strong utilization of the existing fleet. Second, good demand for our pro rate product. And third, placing nine new E175s into service for United and Alaska by the end of 2026 and six new E175s for Delta in 2027 and 2028. We believe that we are positioned to drive long-term total shareholder returns by deploying our strong balance sheet and free cash flow generation against a variety of accretive opportunities. Wade? Wade Steele: Thank you, Rob. Today, we announced a multiyear extension of 40 E175s with United and 13 with Delta. These extensions continue to solidify our flying agreements with United and Delta through the end of this decade. We now have no contract expirations on E175 until 2028. During the quarter, we took delivery of five new E175s for United. We currently have 69 E175s on firm order with Embraer, including 16 for Delta, eight for United, and one for Alaska. We expect delivery of nine new E175s this year. Let me talk a little more about our firm order of 69 aircraft. Of the 69, 25 aircraft are allocated to our major partners. And 44 are not yet assigned. Our long-term fleet plan has positioned us well and continues to be an important part of that strategy. This order locks in delivery slots starting in 2027 through 2032. However, the order is structured with good flexibility to defer or terminate the aircraft in the event we don't arrange for a partner to take them. After we finish the Delta deliveries expected in 2028, our E175 fleet will be nearly 300. Continuing to enhance SkyWest's position as the biggest E175 operator in the world. Last quarter, we announced an agreement with United to extend up to 40 CRJ200s into the 2030s. These aircraft were set to expire at the end of 2025, and we're pleased with the continued strength of our United agreement. As we previously announced, we have a multiyear flying agreement for a total of 50 CRJ 550s with United. As of December 31, we had 27 CRJ 550s in service and expect the last 23 entering service later this year. We have begun a prorate agreement with American. We are currently operating four aircraft under this agreement. With up to nine aircraft expected by the end of 2026. We are excited to expand our relationship with American. Let me review our production. For the full year 2025, we increased block hours by 15% compared to 2024. We anticipate that our 2026 block hours will be up mid single digit percentage compared to 2025. For 2026, we delivery of nine new E175s, placing 23 CRJ 550s into service capitalizing on strong prorate demand, and anticipating an increase in fleet utilization. These increases are offset by the return of 19 Delta owned CRJ900s over the next couple of years to Delta. We anticipate the return of these aircraft will be at a slower cadence than we originally anticipated. Our revenue seasonality has returned to the model as utilization improves during the strong summer months. We still have approximately 20 parked dual-class CRJ aircraft that will be returned to service. Many of these aircraft are currently under flying agreements and will begin operating in 2026. We also have over 40 parked CRJ200s further enhancing our overall fleet flexibility. Also during the quarter, we canceled approximately 2,000 flights and 3,000 block hours due to the government shutdown. These cancellations decreased our results by approximately $7 million. This is net of any reimbursements from our major partners. As we shared during the year, we continue experiencing challenges in our third-party MRO network. Including labor and parts challenges. We expect our 2026 maintenance expense to be consistent with our 2025 levels. As we continue to bring aircraft out of long-term storage and service the current fleet as production continues to increase. As you would expect, the maintenance expense will before the aircraft goes back into service. As far as our prorate business, demand remains extremely strong. With great community support, we are seeing opportunities to return SkyWest service to several communities. And we will continue to work with airports we serve on the best way to expand our service. As we discussed last quarter, the increase in our prorate business results in an increasingly seasonal model consistent with the typical industry seasonality, we expect Q1 production will be flat to down from Q4. We feel good about our ongoing efforts to reduce risk and enhance fleet flexibility and remain committed to continuing our work with each of our major partners to provide strong, innovative solutions to the continued demand for our products. Rob Simmons: Okay, operator. We're ready for our Q and A now. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. We'll take our first question from Savi Syth at Raymond James. Savanthi Syth: Hey. Good morning. Hey. Good afternoon, everyone. Just on the FAA cuts in the last quarter, I was kinda curious on how that was handled in. I know usually when there are weather events, that know, there's a lot more coverage of of the coffee incurred. So I was wondering if you can expand a little bit more on on, you know, why there was that level of impact. Chip Childs: Savi, this is Chip. I think I think you're thinking about weather is kind of consistent with the government shutdown. Obviously, as we said on our script. You know, we had a fairly strong cancellation relative to what happened in the industry. And honestly, we're okay with that. We have, you know, various provisions in our contract to help mitigate that. But in the partnership spirit that we have with these partners, know, we're gonna do things together to get through some of these challenges. And extensive as the last one was, certainly, it had an impact on us. But, you know, again, this is something that you work with your partners with and make sure that you do what you need to to take care customers and crews and partners and everything. And so it worked out well. And we don't wanna do it again, obviously, but but from that perspective, the way you're thinking about it being like a a a weather and IROP event was extensively longer, but consistent within the contract. Savanthi Syth: Understood. I wonder if I can on the extensions that that are happening this year, I'm guessing a lot of those are aircraft that are coming you know, fully paid in the next year or two. Wondering if you could provide kind of a update on your on unencumbered assets and kinda where they are today and and, you know, where you see them kinda going by maybe the end of this year and and next year? Rob Simmons: Yes. Savi, this is Rob. In terms of unencumbered assets, we have a very strong portfolio of those. That can be converted into debt, obviously, very easily. But we have know, somewhere in the neighborhood of $1.5 billion of unencumbered, equipment at this point. Savanthi Syth: And does that step up quite a bit? This year, next year, or is it just a kind of a maybe a steady increase? How should we think about as those E175s start coming off contract. Chip Childs: Yeah. I think, Savi, that you're you're exactly right. It's certainly increases as more of them become paid off. We're in a great position today with our unencumbered assets. And as we discussed and as Rob discussed about the debt repayments and stuff that those obviously, the or number of assets unencumbered continues to increase relatively aggressively. Over the next several years as E175s become paid for. Savanthi Syth: Awesome. Thank you. Operator: We'll move next to Duane Pfennigwerth at Evercore ISI. Duane Pfennigwerth: Hey. Thank you. With respect to your order book, and I think you have capacity out to 2028, maybe some availability 2027. Can you speak to how discussions are evolving around placement of the next kind of slug of new aircraft you can take delivery of? Wade Steele: Yeah, Duane. This is Wade. So, yeah, we have an order of 69 aircraft currently on order with Embraer. 24 of those are under contract with our major partners, 16 for Delta, eight for United, and one for for Alaska. So we we're always talking to them about, the order book. So our orders the the deliveries that are coming in '27 are all spoken for. The majority of them in '28 are spoken for. So after that, it's really twenty nine, thirty, 31. And beyond that we're still working with our major partners. But those conversations are ongoing, and we're very optimistic about continuing to to work with them and place them. Duane Pfennigwerth: Thanks. And then, I'm sure there was noise around shutdown and maybe some weather, but can you speak to the underlying trend in utilization and kind of what your target is? And where you're at relative to that target in terms of utilization recovery? Thanks for taking the questions. Wade Steele: Duane. That's a that's a great question. So, yeah, we've seen positive trends in in aircraft utilization for sure. And as we are looking at our schedules going into the '26, those trends are continuing to, be be extremely positive for us, honestly. And so we will get better utilization out of our assets. We are seeing that. It's it's slightly higher than what we had anticipated last quarter. That's why the guidance on block hours did go up. That's one of the reasons. And so yeah, we're we're optimistic about the increased utilization on our fleet and where and where it's going. Duane Pfennigwerth: Thank you. Operator: We'll move next to Catherine O'Brien at Goldman Sachs. Catherine O'Brien: Hey. Good afternoon, everyone. Thanks for the time. Just one more on the E175 renewals. It's really helpful to know your next renewal isn't until the 2028. Could you provide any color on on how the terms of these renewals compared to the prior purchase CPAs that they were on. You know? Was there any impact in the rate discussions to the fact that, you know, you guys don't there's no already debt associated or or or that didn't factor in and and the terms look pretty similar. Thanks. Chip Childs: Yeah. Katie, this is Chip. I I would I would basically say that the contracts, as you continue to go through the maturity of the life of the aircraft, certainly evolve. Certainly, certain things, contracts, because this is such a dynamic industry change. Various things that we thought were important five years ago have changed to other things are more important today. So I won't I will I will certainly underline that there's a lot of evolution that takes place mostly due to market conditions. In large, I think you're mostly asking about, you know, economics and that type of stuff with the renewals. I would only say that everything is roughly economically very similar to what we've you know, experienced in the past. Although there's some things embedded within the contract that evolve for, you know, just changing market conditions that help both of us as partners. The dynamics of the conversation is good because of the outstanding demand that's in the marketplace right now. So in all honesty, we try to be very transparent very present with our partners all the time, and the conversations you know, are very, very good. Particularly, as you know, this is a tough industry to be in, and you have to be in that mode with your partners all the time to be dynamic and and being able to evolve. And I don't know of anybody in the industry that can evolve as as well as we can. So that's kind of the kinda how the contract conversations go, and we're gonna continue to prepare for future ones to to make it even easier. So Catherine O'Brien: That's great. Maybe just one quick follow-up if you allow just to make sure. I don't wanna put words in your mouth. But on the economics, under the terms of the agreement, that looks pretty similar to, okay, this is now you know, thirteen year old aircraft versus a brand new aircraft. Like, the if there were I don't and I actually don't know if there's a step down usually when you move from the first contract to a contract under a CPA agreement. But, like, whatever that normal step between contract one and contract two, that's what it looks like here for these. Is that right? The the the rate economics are very Wade Steele: consistent with where they were before. So we we will see a a very consistent level of revenue continuing on with these airplanes in the future. Catherine O'Brien: Oh, that's great. Then just for my second question, you know, maintenance elevated here you know, around the industry, we're seeing that. Not not surprised. Rates, slots are tight. Can you walk us through how much of the maintenance is on aircraft under contract? And what is for aircraft that are, you know, currently parked not on contract? And on that second group of air of aircraft, like, how like, you know, you're you're putting in the work now. You talked about being flexible. That's a competitive advantage. Are you pretty advanced in conversations around some of these aircraft you're working on now that you might have an MRO slot for, or or this is really just, like, if a partner calls, you could answer. Just trying to understand, you know, much you're investing and and what you think the prospects are for return on that investment. Thanks. Wade Steele: No. That that's a great question. So as as I talked about a little bit in my script, we have 20 aircraft that are currently parked or have been parked that are in heavy maintenance. That are going to be done very shortly that are going into contracts that are the contracts are signed. They're ready to go. They're just waiting for the airplane to be done with its maintenance cycles. And so, obviously, the maintenance come comes in advance of the airplane being returned to service. And so there are 20 airplanes that will be going through that that return of maintenance right now. That's the 20 dual class airplanes. We also have some CRJ200s. That I said we have 40 of those parked, and we are returning some of those to service. And we do believe you know, we we know very good opportunities in the marketplace for those. And, we're very optimistic that we will find a very good revenue model for those. Catherine O'Brien: Thanks so much. Operator: We'll go next to Mike Linenberg at Deutsche. Mike Linenberg: Yeah. Hey. Yeah. Talking about a very good revenue model. I mean, I we're sort of watching the build out of Chicago and it does seem like a lot of the growth at least at that hub over the next several months is going to be driven by regional flying. Are you able to capitalize on both of your relationships with those carriers to to grow into that market or is it one-sided? Wade Steele: Yeah. Mike, that's a that's a great question. We work with each of our major partners. As as you know, under these capacity purchase agreements, they dictate the schedule. They dictate where these aircraft fly. They tell us where to go. And so we are working with each of our major partners on the deployment of where they would like these airplanes, and we will operate these at the extreme highest levels of reliability. That that that are out there. And so we will work with each of our major partners where they wish to deploy those, and we will and that's how the CPAs work. Mike Linenberg: Okay. And then just, my second question, Rob, on the the revenue piece, you know, the revenue recognized in excess of fixed cash payments. Obviously, that came down quarter over quarter. How is that trending? Are we back to sort of $5 million a quarter as we march through 2026? Or is there, like, how should we think about that with respect to modeling? Thanks for taking my question. Rob Simmons: Yeah. Sure, Mike. No. I I think, you know, Q4 was a little down as we extended some of the contracts and pushed out some of the recognition of deferred revenue. But in 2026, for modeling purposes, you know, I would suggest, you know, you're probably in the 20 to $25 million quarter, area for you know, recognizing the you know, deferred revenue that remains. And, again, there's $265 million of deferred revenue that remains to be recognized. Mike Linenberg: So Rob, to clarify, the the extension was you know, the and what was announced today, right, I guess, maybe that drove part of it, right, to extend the E175 flying with both Delta and United? That's right. Yeah. Those those contract extensions, you know, all Rob Simmons: push out the timing of the recognition of the deferred revenue. Mike Linenberg: Alright. That's what I thought. And then just lastly, one other piece. I when and it may have been Chip or you know, or you who talked about this seasonality where earnings will be down March over Q4, obviously, because, you know, now we're getting back more normal seasonality with respect to your pro rate business. When we think about down, are we thinking down on the reported Q4 number? Or should we think down from a Q4 number that would not be impacted by government shutdown? I'm just again, this is modeling. Rob Simmons: Just to make it easy, I mean, it's just the gap number that we reported You know, we do expect that it'll be flat to down. In Q1, again, because of the sharper seasonality in the model. Mike Linenberg: Okay. Makes sense. Alright. Thanks for taking my question. Wade Steele: Mike. Operator: We'll move next to John Godden at Citi. John Godden: Hey, guys. Thank you for taking my question. I wanted to to sensitize and and brainstorm a bit about the eleven fifty. You guys mentioned operating leverage a few times in the prepared remarks. We're seeing that in the numbers. If in a couple quarters, eleven fifty is becoming 12, you know, What happened? Just help us kinda sensitize that a bit and and and I'd love to just kind of you know, hear your thoughts. Rob Simmons: Yeah, John. And, again, welcome. The, you know, the the guidance for the for next year, the mid 11 guidance, I think, is something that we always look at there being a possibility of of, you know, coming in either ahead of that or or behind it. But as as Wade mentioned, you know, in his in his script, you know, we see strong demand in various areas of our of our model right now, in know, including prorate and contract. And so, you know, as things play out, we'll continue to you know, update the street on on how we're seeing the year evolving. But, you know, right now, we were you know, bringing up both our expectation around production and our expectation around earnings for the year compared to what we were seeing a quarter ago. John Godden: Mhmm. Do you think that prorate would be the biggest swing factor? Wade Steele: So the there's three or four things, you know, that will affect our block hours. Pro rate being one of them. I would say the the more meaningful one is probably the increase in utilization that we are anticipating and and seeing from from each of our major partners. Then also just the return to service of some of our airplane of the that have been parked over the for a while. So those those are really the three drivers that that will help us increase production, which in in turn increases the profitability. John Godden: Got it. And and if I could ask about the balance sheet. Certainly moving in the right direction. For for some time. I think you guys mentioned no contract extensions for for a bit. It it seems like we may be know, in a window here where we can potentially deploy the balance sheet more more offensively, more strategically. I'm curious if that's how you think about it. Could there be a change to the attitude toward buybacks? Or maybe there's other calls for cash that you think are even more exciting. Rob Simmons: Yeah, John. I I think, you know, when it comes to the sort of topic of capital allocation or the balance sheet, You know, I think we're comfortable enough and confident in our free cash flow generation going forward that feel like we're in sort of an all of the above position where know, we can continue to invest in the fleet like we have been, which we love doing. We can continue to delever and derisk you know, the model and the balance sheet as, you know, as we talked about you know, we've been paying down our debt you you know, with a good cadence over time. And finally, you know, as we've proven, you know, we've you know, we're strong believers in the value creation possibilities of share repurchase. And so I think we're in a position with the balance sheet that's got the liquidity and the strength and the leverage that will allow us to do all of the above. John Godden: Got it. Thanks, guys. Appreciate it. Operator: We'll go next to Tom Fitzgerald at TD Cowen. Tom Fitzgerald: Hi, everyone. Thanks so much for the time. Was a pretty big jump in lease airport services and other revenue this quarter, and I was just kind of curious what drove that. Was that maybe third party engine overhaul work or or something else? Rob Simmons: That's right. I mean, and it you know, there's a piece of it on the revenue side and another piece in maintenance. So yeah, it was it was a engine deal with the third party. Tom Fitzgerald: Okay. Great. That's that's really helpful. And then just as any any updates on the charter business as as you look out into 2020 And I don't know if that could be a driver of incremental positivity for the year, maybe around the World Cup or this summer or maybe not, just given that else is going be utilized in the core business? Thanks again for the time. Chip Childs: Yeah. Tom, this is Chip. Yeah. It's real quick. It's a great question about SkyWest Charter. You know, we've got a lot of leeway and permission to do a lot of very cool things with that. Certainly, we're seeing as of right now significant demand with sports teams and everything. In fact, it's demand that we can meet honestly, because of aircraft availability. We're we're seeing certainly a very strong demand for SkyWest Airlines aircraft at this time that we're we're trying to fulfill with our major partners. As you know, that's that's the core of what our business is is try to take care of these four customers of ours. So it does put, some of our initial objectives with SkyWest Charter on the back burner. We're not saying that it's never gonna happen. We mentioned on the call several times, we have a lot of CRJ 200 aircraft available. And there's a lot of and we've also talked about MRO. Availability and getting these aircraft available to us. So I would not say that 2026 is going to be a, you know, historically huge year for Charter because of the backlog of supply chain issues we have with certain MROs and the fleet that we have. But we still have the same long-term objectives that we've always had with that the demand and the things that we can do with that enterprise are still extraordinarily promising. But I think you can get a tone on the call. There's just a lot of demand, and we're trying to get as much you know, aircraft resources in place to meet that demand for 2026. So hopefully, we can do some other things, in '27 or '28 with that with that enterprise. Operator: Next, we'll take a follow-up from Savi Syth at Raymond James. Savanthi Syth: Hey. Thanks for the follow-up. Just wondering you know, operationally, you've been kinda executing really well and and know, as your partners need extra lift, I think you've been able to step in from time to time. Was curious, and I think the industry as a whole, the operational execution has kinda taken a leg up maybe versus kinda ten, fifteen years ago. Curious how you stack up compared to some of these kinda internal partners at at your, you know, mainline like the internal regional airlines, how how do you stack up in terms of performance and execution? Wade Steele: Hey, Savi. This is Wade. That's that's a great question. Question. You know, SkyWest, you you can look at some of the DOT data. SkyWest is always a very high performer on on our a 14, our completion percentages. So you know, that is one thing that we emphasize around highly is just our execution to our mainline partners and then also ultimately their customers. And so know, we we put a lot of emphasis around that, and we are typically the one of the top tier performers. So yes. Chip Childs: I I I would add just one thing also, Savi. I think I think you have to have the utmost respect to our people and certainly our management team because we're one of the only airlines in the world that has four customers that strategically, at times, operate for completely different ways, yet we have to consolidate that operation into exceptional overall performance in our own way. So we're we're we're used to this challenge. We've been doing it for decades. And to that end, our our people are fantastic at making sure that they meet our objectives and what we wanna do and also meet the needs of our partners. But I can tell you, the level of effort and talent that it takes to go as many days as we indicated with, you know, zero with a 100% controllable completion over 250 days this last year is exceptional. And to that end, you know, we're doing it in a in a way which we're trying to to make four partners happy along way, which we do a pretty good job of, which is why they keep giving us contract extensions and more flying. So, from that perspective, on a micro level and a macro level, we're pretty proud of the efforts that our people put forth in those endeavors. Savanthi Syth: That's helpful. And if I might just follow-up on John's question about use of you know, the how you're thinking about the use of cash. Any are there any kind of liquidity targets or leverage targets that you want to stay within? Rob Simmons: So, Savi, you know, as we've said in the past, we really have a a bright line number But, again, you know, we wanna be careful that we have the liquidity in the balance sheet. Capacity to make sure we can monetize all the opportunities that are in front of us. And, again, those opportunities are numerous right now in terms of you know, investing in this in the the the fleet and and other other ways that we can deploy the balance sheet. So I think as you see the progress that we've made over the past few years, we're in a great place from a balance sheet leverage standpoint. We haven't been in a lower leverage position in a decade. We're in a great position in terms of liquidity. We've got plenty of you know, unpledged collateral if we were to need it. And so, you know, again, I think that that that provides the for us to to look at all of our accretive opportunities and and monetize them. Savanthi Syth: Got it. Thank you. Operator: And we'll take a follow-up from Catherine O'Brien at Goldman Sachs. Catherine O'Brien: Hey again. I just I was thinking about your answer to that question on the CRJ opportunities. And so a follow-up there. You know, on those 40 CRJs you're investing in, you noted that you know of good opportunities for those. Are any of those slated to come out of the shop this year? And and if they did and you execute on one of the opportunities you noted, would that be incremental to your current mid single digit block hour growth rate? Thanks. Wade Steele: That's a great question. A lot of that is baked into our our operating plans already. Obviously, if we do have ups upside especially for the summertime, a lot of that, we know what's front of us. We know the opportunities right there. And so if we do get the air out quicker, then there could be sooner opportunities for us. We are looking at opportunities in the fall, and we are looking at, those opportunities right now. And so potentially, you know, eight, nine months from now, for sure, there could be some additional opportunities that that we're looking at. But things that are know, for the summer, six months in advance of us, that's all pretty much in our operating plans right now. Catherine O'Brien: Great. Thanks for the extra time. Operator: And that concludes our Q&A session. I will now turn the conference back over to Chip Childs for closing remarks. Chip Childs: Thank you, Audra. Again, thank you all so much for your interest in SkyWest. We are very proud of what's happened in 2025, but mostly we're very focused and, grateful for the opportunities which we have and put ourselves in a good position with our people in '26 and beyond. And we look forward to giving the first quarter update in three months from now. So thanks for your interest. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the MaxLinear Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Leslie Green, Investor Relations. Thank you. You may begin. Leslie Green: Thank you, Diego. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's fourth quarter 2025 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take your questions. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the first quarter of 2026, including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense, GAAP and non-GAAP income taxes and basic and diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including, without limitation, statements concerning future financial and operating results, opportunities for revenue and market share across our target markets, new products, including the timing of production and launches of such products, demand for and adoption of certain technologies and our total addressable market. These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factors section of our recent SEC filings, including our Form 10-K for the year ended December 31, 2025, which we filed today. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The fourth quarter 2025 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including, but not limited to, gross margin, income or loss from operations, operating expenses, interest and other expense and income tax on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations in the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future changes, including stock-based compensation and its related tax effects as well as potential impairments. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. We are providing this information because management believes it is useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast, and the replay will be available on our website for 2 weeks. And now let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore? Kishore Seendripu: Thank you, Leslie, and wishing you all a very happy New Year and good afternoon. For MaxLinear, 2025 marked a clear inflection year with resurgent growth. We delivered 30% revenue growth year-over-year, driven by strong execution and accelerating adoption of our newest products across multiple high-growth end markets. We delivered profitability and positive cash flow ahead of plan. During the fourth quarter, we repurchased $20 million worth of our common stock, reflecting our confidence in our sustained growth expectations and market momentum. Bookings remain robust, visibility continues to improve, and we are entering '26 with strong momentum across our portfolio. We are executing against a focused strategy that is working and will drive sustained strong growth in '26 and '27, investing in high-value multiyear growth markets where performance, power efficiency and integration matter most. These include data center connectivity, wireless infrastructure, storage acceleration, PON broadband access, Wi-Fi 7 and Ethernet end markets. Our infrastructure business is scaling rapidly. Revenue grew 30% for the full year and 76% in Q4 year-on-year, driven by strong growth in data center optical interconnects, wireless infrastructure and early but meaningful contributions from storage accelerators. Importantly, multiple new design wins are now entering production, positioning us to grow faster in '26 than we did in '25. In 2026, we expect to achieve a significant and exciting milestone. Our infrastructure category should emerge as the single largest contributor to our overall revenues. In high-speed data center optical interconnects, our Keystone PAM4 DSP family is now ramping at major hyperscale data centers in both the U.S. and Asia, supporting 400-gig and 800-gig deployments, both for scale-up and scale-out applications. Additional customer ramps are expected throughout the year. Based on this improved visibility, we expect Keystone to generate about $100 million to $130 million in revenue in '26 with potential upside along with a further step function increase in run rate as we move into 2027. Power efficiency has been a defining competitive advantage for MaxLinear, and we are extending that leadership with Rushmore, our next-generation family of PAM4 TIAs and 200-gig per lane DSPs targeting 1.6 terabit interconnects. Rushmore is foundational for next wave of data center optical architectures, including LRO, electrical retimers, AECs, LPOs and co-packaged optics. With Keystone validating our execution performance leadership, customer engagement for Rushmore is accelerating faster than expected. We expect Rushmore production revenue ramp starting at the end of 2026. We expect a strong showing at OFC in March this year. Also, cloud data centers are now deploying 10-gigabit XGS-PON as a robust dedicated fail-proof control plane conduit for managing high-speed data traffic between data centers. In Q4, we secured our first PON data center design win addressing this application with a major Tier 1 U.S. OEM provider to Tier 1 data centers in this next-generation design. Recently, we also won analog serial transceiver and bridge interface designs for rack management in AI servers at two major U.S. data centers. This is further evidence of how MaxLinear's broad and deep technology portfolio comprising optical interconnect storage accelerators, PON and analog offerings is growing inside the AI data center. Within infrastructure, our Panther hardware storage accelerator SoC family continues to gain design win traction with Tier 1 network appliance and cloud service providers. Ongoing storage and hybrid memory constraints for AI scale-up and compute are reinforcing the value of Panther's hardware-based compression, high throughput and ultra-low latency memory data access. In Q3, Q4, we started sampling Panther 5 to leading customers and our partners, including Advanced Micro Devices or AMD. Panther 5 delivers unprecedented ultra-low latency at 450 gigabits per second throughput and PCIe Gen 5 connectivity. Based on our engagements, we expect strong accelerator revenue to at least double in 2026 versus 2025 and potentially again in 2027. In wireless infrastructure, increasing carrier CapEx spending is expected to drive sustained demand through 2026 and beyond as the need for cloud and edge AI functionality continues to grow. Additionally, our Sierra 5G wireless access single-chip radio SoC and our millimeter wave and microwave backhaul transceivers and modems are seeing robust OEM customer design-in activity and deployments in multiple Tier 1 carriers are going as per plan. Moving to broadband and connectivity. We delivered another strong revenue quarter across fiber PON, cable DOCSIS and Wi-Fi, driven by the early increases in service provider CapEx spend and continued booking strength and incremental demand. In Q4, we began the large-scale deployment of our single-chip fiber PON and 10-gigabit processor gateway SoC plus tri-band Wi-Fi 7 solution with a second major Tier 1 North American carrier. This was a significant competitive win that expands content per box, fiber PON revenue and market share in 2026. In cable broadband, after a strong 2025, we expect a seasonally soft first half and cable revenue to be down in '26 as the industry transitions and pending a multiyear DOCSIS 4 upgrade cycle starting at the end of 2026. Additionally, in the stand-alone Ethernet market, we expect 2026 to be strong as our 2.5 gigabit Ethernet switch and PHY portfolio expands into commercial, enterprise and industrial applications. In summary, we entered 2026 with multiple growth engines ramping simultaneously, driven by expanding customer adoption and secular market trends moving in our favor. Our investments over the past several years have uniquely positioned MaxLinear to deliver sustained growth, operating leverage and long-term shareholder value. We are excited about the opportunities ahead and confident in our ability to execute. With that, let me now turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steve? Steven Litchfield: Thanks, Kishore. Total revenue for the fourth quarter was $136.4 million, up 8% from $126.5 million in the previous quarter and up 48% from $92.2 million in the fourth quarter of 2024. Infrastructure revenue for the fourth quarter was approximately $47 million. Broadband revenue was approximately $58 million, connectivity revenue was approximately $18 million and industrial multimarket revenue was approximately $14 million. GAAP and non-GAAP gross margins for the fourth quarter increased to approximately 57.6% and 59.6% of revenue. The delta between GAAP and non-GAAP gross margin in the fourth quarter was primarily driven by $2.6 million of acquisition-related intangible asset amortization. Fourth quarter GAAP operating expenses were $93.5 million and non-GAAP operating expenses were $59.2 million. The delta between GAAP and non-GAAP operating expenses was primarily due to stock-based compensation and performance-based equity accruals of $28.1 million combined and acquisition-related costs of $6 million. GAAP loss from operations for Q4 2025 was 11% and non-GAAP income from operations in Q4 was 16% of net revenue. GAAP and non-GAAP interest and other expense during the quarter was $2.9 million and $2.8 million. In Q4, net cash flow from operating activities was approximately $10.4 million. As Kishore mentioned, we were active in our buyback program in Q4, repurchasing approximately $20 million of our common stock. As such, we exited Q4 of 2025 with approximately $101.4 million in cash, cash equivalents and restricted cash ahead of our 2025 plan. Our days sales outstanding was down in Q4 to approximately 31 days. Our inventory was down by approximately $8 million versus the previous quarter with days of inventory improving to approximately 130. This concludes the discussion of our Q4 financial results. With that, let's turn to our guidance for Q1 of 2026. We currently expect revenue in the first quarter of 2026 to be between $130 million and $140 million. Looking at Q1 by end market, we expect to see growth from infrastructure, but some seasonal declines in broadband connectivity and industrial multi-market. We expect first quarter GAAP gross margin to be approximately 56% to 59% and non-GAAP gross margin to be in the range of 58% and 61% of revenue. We expect Q1 2026 GAAP operating expenses to be in the range of $85 million to $90 million. We expect Q1 2026 non-GAAP operating expenses to be in the range of $58 million to $64 million. We expect our Q1 GAAP interest and other expense to be in the range of approximately $2.1 million to $2.7 million. We expect our Q1 non-GAAP interest and other expense to be in the range of approximately $2 million to $2.6 million, with FX volatility being the primary risk. We expect a $4 million tax provision on a GAAP basis and a non-GAAP tax provision of approximately $0.8 million. We expect our Q1 basic and diluted share count to be approximately 88 million and 91 million, respectively. In closing, with strong bookings and improving visibility, we expect to see solid growth in 2026, driven by new design wins and expanding content opportunities across our product portfolio. We believe we are well positioned, well in large and growing markets that will be transformative to our business as well as continue to innovate on high-value solutions for our customers that solve next-generation challenges. We will continue to focus on our investment in areas of strategic importance and confident that we will build a solid foundation to deliver sustainable growth and profitability in 2026 and beyond. With that, I'd like to open up the call for questions. Operator? Operator: [Operator Instructions] And your first question comes from Tore Svanberg with Stifel. Tore Svanberg: Congrats on the results here. Kishore, I was hoping you could talk a little bit more about the PAM4 DSP business. So there's obviously a lot of headlines and things out there on LPO and CPO, but you seem to be seeing more and more traction, more and more design wins. It sounds like Rushmore is getting pulled in somewhat. So can you just walk through some of those dynamics because obviously, that will give us better confidence about the continuous growth of PAM4 in '26 and '27. Kishore Seendripu: So thank you, Ross -- sorry, thank you, Tore, for the question. Obviously, this is a pretty significantly confidence boosting growth that we are seeing. We were guiding to $110 million to $130 million. That's a very positive statement about our traction. And we are in the initial phases of the ramp of our 800-gig product solution and need to really pick up more steam and energy in the second half. The market as a whole is still a pluggable market, which is growing very, very fast. And the LPO deployments as such are very nichey right now. And I really look at the LPOs per se as a very small fraction of the market and not long term. The LROs, for example, I think they have got some traction, but there'll be a market that is substantially pluggables, and there'll be a fraction of the market in LROs, and LPOs will be sort of in a very, very controlled environment, limited deployments potentially in 800 gig, but less so on 1.6 terabits. So that's our view of the marketplace. Obviously, there's a market that's also beyond that, which is the -- as the scale-up continues, there will be electrical retimers, and that's going to be a huge volume on -- in the scale-up world as well. Talking of CPOs, people are doing CPOs today as sort of your feet in the market, but it still is early innings for CPO. And in the long term, there will be a market that is going to be more varietal than just pure CPOs, the O in the CPO being many number of ways of doing it. Obviously, there's a silicon play within the CPO market as well. That is what I call a wide IF fast throughput through the optical, and we expect ourselves to be a player as the market evolves. As MaxLinear, we're going to be very focused and disciplined and PAM4 is a huge growing market. We are developing a strong foothold, though we are not the incumbents. But I think today in the world, we are the -- we can safely claim with the top 3 deployers of PAM4 DSP. And as the market strengthens, we hope to branch out and diversify our offerings of what you all know is a very, very robust technology portfolio. I hope that gives you some sense of our technology positioning. From a growth point of view, this year, we expect that there could even be upside depending on how the ramps proceed beyond the one that we feel fairly confident on the visibility and the outlook we have based on the bookings so far in 2026. I hope that answers your question. Tore Svanberg: Yes. No, that's great color. And as my follow-up, I had a question on the broadband business. And how should we think about the trajectory there as we move throughout the year? You did mention you expect it to be down year-over-year because of the sort of transition to DOCSIS 4.0 or the industry waiting for 4.0. What type of decline are we talking about? I know you guided to be down seasonally in Q1, but will it sort of decline every quarter this year? Is it going to be more of a modest decline? Any more color there would be very helpful. Steven Litchfield: Maybe, Tore, I'll take that one. So we did mention that the seasonality certainly plays a role. We're also seeing the upgrade cycle, right, in DOCSIS 4.0. That probably starts the latter half of the year. And so it will come down in the first half of the year and then probably start to build in the second half. So overall, for the year, I do expect it to be down. We did talk a lot about the PON business, right, and the win that we have there. So we are excited about that. But even with that, it's still early days in it. And so that's why we do expect to see the broadband business down for the year. Kishore Seendripu: Yes. I think the PON is a substantial opportunity, the new Tier 1 that's ramping. And based on the ramp itself, there is potential for not to see a downturn, so to speak. And PON is going very nicely, and we're grabbing market share. And we have many number of designs that we did not have before that will really kick steam in '27 as well. Operator: And your next question comes from David Williams with Benchmark Company. David Williams: Congrats on the solid execution. I guess maybe first, just around the data center opportunity. Obviously, the DSP is doing really well, but you've got other components that are going into that segment as well. Can you help us kind of understand maybe what the magnitude of opportunity within the data center is and where you're playing and kind of how you think that plays out through the year in addition to the DSP? Kishore Seendripu: So David, this is early innings for us, right? I mean we have to say that. And the big entree is right now with the PAM4 transceivers. And this year, we could do anywhere between 4 million to 6 million units of PAM4 transceivers, right? So -- but the other hand, the data center is not just a PAM4 world. There are compute tracks. There are communications between data centers. And that market itself will grow as the data center clusters increase and the number of data centers increase as well. So we talked about this exciting design win with the Tier 1 OEM who is supplying to Tier 1 data centers and of using PON as a control play layer, not where the data itself is going through between data centers. And there, we are clearly the leaders in the PON silicon offering. And so we should be very well positioned. So that could be a few -- that market size, some of these OEMs have talked about hundreds of millions of dollars of value for the silicon play. So that's one opportunity. So it won't happen in 1 year. It will roll out over the next 2 years. Hopefully, we'll start seeing in '27 and then it grows beyond that. And then there's the other thing where these racks have become really -- these compute racks and server racks have become very, very, very sophisticated. They have their own telemetrics. Even the racks are being controlled with microcontrollers and so on and so forth. So you need industrial quality sort of transceivers, serial bridges and so on and so forth and even smart power management and stuff and then overall control in the rack. So the rack itself is a huge beast by itself. So we are beginning to start getting design wins in that, and that could be a pretty huge play per rack, if you will. So at this point, I am not very what I call -- I don't want to provide market sizing at a level that we need to ascertain. But that market is very, very huge. There are a number of players, but we have the portfolio depth to participate in all the big spend that is happening as data centers are being built out. David Williams: And then maybe just secondly, for you, Steve. Just looking at the share repurchase authorization, that clearly signals some confidence, I think, in the growth trajectory, but also on the potential arbitration there. So maybe if you could just kind of speak around the share repurchase authorization and how we should be thinking about that and what you're telegraphing to the Street. Steven Litchfield: Yes, David, absolutely. No, I think the Board took some actions last quarter, authorizing $75 million of buyback, took action on it in the quarter, felt the stock was a good place that we wanted to act on it. But frankly, I think the Board really wanted to just convey the confidence in the balance sheet. The cash flow improvement, we've talked about it running ahead of plan. It has run ahead of plan now for 3 quarters in a row. Revenue stability and the outlook that we have from the business continues to improve. And so I think our actions kind of follow that and including the mention of the arbitration as well. Operator: Your next question comes from Ross Seymore with Deutsche Bank. Ross Seymore: Congrats on the strong end to the year and beginning of this one. Kishore, on the optical side, a couple of different questions have already been asked. But the competitive landscape, how are you envisioning that going from Keystone to Rushmore? Do you think your positioning gets even stronger? Are there -- the different technologies coming in create more competitive pressure? Just how do you think MaxLinear is positioned as we look forward? Kishore Seendripu: Thank you, Ross. I won't call it Tore, but just joking here. Very, very good question. Both of you are complimented. So the strengthening is absolutely a word I love on the next-generation 1.6 terabit, our position is strengthening. We're gaining some ground and strengthening versus the competition. And I really feel that we are actually now speeding up a bit relative to where we were. And we are now -- we feel that we will really start pulling our weight as 1.6 terabit rolls out. And beyond that, what we call our big [ Sky ] product, 4 gig, 400 gigabit per lane, I think we show our capabilities, our strong low-power implementation capabilities, integration and very, very well-developed RF mixed signal skills. I think we will strengthen our position, and we are strengthening in certain geographies and 800 gig, we are -- we have strengthened our relative position. Within the U.S., just the timing of our product offerings, we got late as the #3. And from there, fighting to get to the #1 or #2 takes a little bit of a taller order and incumbency has incredible value. So I hope that puts things in perspective. Ross Seymore: It does. And I guess pivoting over to Steve, just on the margin front, it sounds like you guys have a strong growth year, especially on the infrastructure side coming in 2026. How should we think about both gross margin trajectory just directionally and OpEx? Steven Litchfield: Yes. I mean, look, on the gross margin side, I mean, we've been talking about the improvement. We've been demonstrating that over the last 4 quarters. So we're seeing some upticks there. As you're aware, the product mix is kind of moving in our favor as infrastructure products typically drive a higher gross margins. I remain confident that we can exit the year at kind of starting with a 6% versus a 5%. We did guide to the 59.5% at the midpoint of our guidance. I mean you've got some headwinds with cost increases that are out there. But that being said, I think the mix longer term throughout the year will move in our favor, and we'll see some nice improvements. With regard to the OpEx question, look, I don't want to necessarily guide for the whole year. But I mean, I think you've heard from us in the past, typically, we want to grow OpEx about half the rate of the top line. That being said, I don't think we necessarily -- we've been really dialing things back a little bit. We're seeing some nice improvements in efficiency for lots of reasons. And so I actually think we'll see a little bit lower than that. So maybe it's in the 4% to 5% increase this year. Operator: And your next question comes from Tim Savageaux with Northland Capital Markets. Timothy Savageaux: Congrats on the numbers. And first question was where did we end up '25 in terms of optical DSP revenue? I think you were guiding $60 million to $70 million. And can you give us any color there? Steven Litchfield: Yes. So Tim, I think -- so as you know, we don't break out these numbers. I think what we're consistent with what we've delivered over the last 2 to 3 years, I think the guidance that Kishore shared earlier is kind of evidence of what you've seen over the last 3 years of this doubling that we saw. I mean, keep in mind, 3 years ago, we were doing less than $20 million of revenue. And so I think we're really pleased with the progress we've made and very excited about where we're at. I would probably maybe take the opportunity to -- I mean, some of the background of where we exited the year, where we're entering this year. I mean we mentioned in the prepared remarks about the visibility that we have, the backlog that we have. It's in a much better position. I mean, just across all of our businesses, but particularly in the optical side. As you know, we've got 28-week lead times. And really confident in this kind of first half of the year where you've already got backlog, we're pushing to get some upsides in here, and we've already seen a lot of success on that front. Timothy Savageaux: Okay. Great. I think we might have talked a little about this last quarter, but just based on the comments early in the call, I just want to make sure I'm hearing this right. So do you guys think you can grow faster than 30% overall in '26? Was that the comment? Because I think the comment was grow faster in '26 than '25? Or is there some more nuance or detail around that? Steven Litchfield: So Tim, I mean, look, as you know, we don't guide the whole year, and we're not going to do it here. We're not going to start today, I guess, I would say. But clearly, you see from the -- mainly the infrastructure growth, but we're seeing a lot of good traction on the PON side. We're seeing industrial multi-market really see a nice recovery this year. So I'm confident that we can outgrow the industry in 2026. Operator: And your next question comes from Karl Ackerman with BNP Paribas Asset Management. Samuel Feldman: This is Sam Feldman on for Karl Ackerman. On optical DSP, do you expect the ramp to be linear throughout the year? And the reason for the $30 million range? Steven Litchfield: Sam, so I mean, actually, just to kind of follow on what I was just speaking about. I do think it will grow throughout the year as we have new programs that will come on, and we have share gains that will continue to gain traction throughout the year. But I would also say that it will be very strong right out of the gate in Q1 and Q2 because we do have really good visibility, and we have a few customers that are ramping right now. Samuel Feldman: Got it. And a follow-up. Can you discuss the timing and growth within broadband for the second major Tier 1 North American carrier in calendar '26? Steven Litchfield: Yes. So it will -- look, we've already started shipping some products. We mentioned that we had even started in Q4. It will be still pretty minor in Q1 and start more in earnest in Q2 and Q3. Kishore Seendripu: Obviously, we have good visibility based on the lead times of the supply chain and the bookings that we have in place. Operator: And your next question comes from Christopher Rolland with Susquehanna International Group. Christopher Rolland: So in your press release and also in your prepared remarks, you talked about gaining market share. I think it was a general comment across your product set. But I was wondering if there are some specific kind of needle-moving opportunities like in broadband? Are you gaining share versus Broadcom? Like what were you specifically trying to highlight there as actual revenue moving opportunities? Kishore Seendripu: Chris, that's a very good question. It's a very broad statement. I think it's broadly true as well across the various categories, honestly. I mean if you look at optical transceivers, our revenue forecast reflects that we are gaining share, right, in some form. If you just go by the units, I mentioned 4 million to 6 million units of transceiver opportunities. Then you see that on the PON side, it's a very, very large Tier 1 player is beginning to ramp. And we -- in that particular category, we are gaining share versus our competition. On cable as well, we're beginning to gain share that many years ago was ours. We're gaining share against the competition. And then when you go to storage accelerators is a completely new market that we are paving the path forward with hardware acceleration compression. So that we have established incumbency has and that market itself is poised to grow both on the cloud side and the appliance side. And then what else? I mean it's broadly a correct statement, but actually, now that you asked the question, I think about it and say, you know what, damn right. So that would be my response to you. Christopher Rolland: Excellent. And then back to DSP, we track the transceiver market pretty closely, and we underestimated growth in the market there. It's, I think, growing faster than anyone expected, at least in terms of expectations for '26. You did suggest that there could be upside to your optical number, but why don't you even have more confidence there just given the upside in demand? And then maybe paired with that, are there any supply chain constraints that you're seeing out there that would lower your outlook? Steven Litchfield: Chris, so look, I mean, I think we're very excited about the ramps that are underway, right, that have already started and we're picking up traction. I mean Kishore spoke about the share gains, I mean, where we've won against the competition. So we're seeing that in the beginning of the year. So really excited about those. Great visibility into future ramps that are coming with some of the new customers, new wins. You mentioned supply chain. Yes, certainly, there's supply chain tightness out there. We're not concerned about that. I mean we're working with our suppliers. We've seen improvements thus far. So we haven't had any trouble. As you also know, even outside of the optical world, 80-plus percent of our business is really not exposed to that tightness. So that's good. Optical side certainly is. But we've had a lot of success there, and we're very confident in the outlook for this year. Operator: Your next question comes from Quinn Bolton with Needham & Company. Quinn Bolton: I'll offer my congratulations as well. I guess, Kishore, I just wanted to ask, I think in the past, you guys have sort of said your DSP wins were more for front-end networks. As you start to ramp the 800-gig products here, are you starting to see some of those designs moving into the scale-out networks? Or do you think we need to wait for the Rushmore 1.6T product before you start moving into scale out? Kishore Seendripu: It's very, very hard to parse usually what is scale up and scale out. They are broad categories, right? There are short reaches and long reaches and mid-reaches. And usually, the short reaches are in what you would call the scale-up network and the longer ones are usually on the scale-out side. So that's happening on the 800 gig side. So yes, we are shipping in the scale-up side now. But I still feel that most of it is still in the scale-out network -- the traditional scale-out network. Quinn Bolton: Sorry, just so we're clear, you're shipping in, I guess, what I would call front-end networks that the sort of the storage networks driven off the GPU? Or are you starting to ship in the GPU to GPU scale-out? Kishore Seendripu: That's a more detailed question, but I would just say -- I'll leave it here. It's -- just leave it as scale-up networks and it is a smaller portion of the revenue that's starting and most of it is scale-out networks. Quinn Bolton: Okay. And then I guess, Kishore, you gave us some numbers, both revenue forecast for '26 for optical DSP and you said that could equate to 4 million to 6 million units. If I just do the math, it seems like it could imply an ASP sub-$25, which seems pretty aggressive. Can you just talk about the pricing environment? Do you guys feel like you're pricing below some of the other peers in the market? Is that helping you to gain share? Do you think you're pricing in line with others in the market? Kishore Seendripu: I mean that's -- I think your conclusions are what you're going is absolutely not true. We try to be very competitive in the marketplace, and we try to ride the product competitiveness of our product, right? So I don't think in this market, you win by pricing, you win -- your performance is a must. And if there's such an exciting worldwide great phenomenon that's going on, pricing is the last thing that they would make decisions on, especially in a very, very sophisticated technology. So I think anybody says they're winning on pricing, they really are not looking in the right market. Operator: Your next question comes from Alek Valero with Loop Capital Markets. Alek Valero: I wanted to ask, what do you see as being the biggest opportunities for gaining market share in 2026? Kishore Seendripu: I think it's very, very clear, right? We started with optical transceivers as a category that is very meaningful. We have talked about our gains in the storage accelerators for the infrastructure market. We've talked about -- I'm listing the sequence of the value, right? Then what -- where the growth is coming in the PON market share -- market revenues increases. And the fourth part is the wireless infrastructure growth. I mean I'm exactly laying down the sequence of where the big growth in absolute dollars are coming. And I think they'll roughly track the percentages as well. Alek Valero: Got it. Super helpful on that. And just a quick follow-up. You sparked my curiosity on scale-up. I know you mentioned it's small for now, but I wanted to ask you if you can maybe provide some more color on the opportunity there for scale-up. Kishore Seendripu: Look, it's a very, very concentrated market from a scale-up point of view, right, if you really look at it. However, it's a huge opportunity inside the rack, if you will, right, the compute systems. And the scale-up opportunity will span not just PAM4 interconnects, but there are PAM4 Ethernet retimers and so on, on those things, so -- which we have not hit upon. At the OFC, we will be announcing our electrical retimers for the Ethernet product category. And then there is the CPU opportunities as well, right? So it's a whole play for us. It's very, very early innings. And right now, let's stay focused and it's a heavy growth engine for us, and we are very excited about it. Operator: Your next question comes from Tore Svanberg with Stifel. Tore Svanberg: Just two quick follow-ups. And yes, this is Tore, not Ross, and I'm a big Ross fan. So first of all, the connectivity segment, how should we think about the puts and takes there this year? Because obviously, part of connectivity is tied to cable or broadband, yet you also have the Ethernet business, obviously, that's doing quite well. So should we think of connectivity as also being down this year? Or does it have other subsegments growing fast enough to actually make it a growth segment in '26? Steven Litchfield: Tore, yes, connectivity certainly grows this year. Wi-Fi will grow this year as we -- as WiFi-7 starts to ramp. And then a lot of our Ethernet products that are transitioning 2.5 gig certainly grow this year as well. So both of those. Tore Svanberg: Very good. And my last question is... Kishore Seendripu: I just want to remind that the -- sorry, Tore, I want to let you know that cable is a huge part of the market that we have revenues that is not paired with Wi-Fi. So they are like the sort of the dissociation and the association. So it depends on how that trends as well. Tore Svanberg: Understood. And my last question is sort of going back to the opportunities beyond DSPs. So you've talked about having products for AECs. Obviously, you have the high-speed analog products to go after LPO, LRO and so on and so forth. But you continue to call those out as very niche markets. So I guess my question is, if you do see those segments getting more traction, how long would it take for you to become a more material player in some of those areas? Kishore Seendripu: Very good question, Tore. So I just want to lay the landscape of the sort of what I call the derivative product road map, right? You start with the PAM4 DSP products. And I know LRO is not an analog product. It is a DSP product. So the LRO is a natural derivative. It doesn't take us long to get there, and we will be pursuing that opportunity. And in a short while, we'll have something to show as well. And I think there is some traction because in the marketplace for LROs because it has legs beyond just one particular speed node, if you will, like. So with the LPOs have limited niche nature to it because the amount of reach that the LPOs can reach is quite constrained and has to be very structured and controlled. So I do believe that, that is a sequence in which it works out for us, at least. And I think that the market revenues in LROs grows much stronger as the speeds increase and the power benefits that LROs will deliver. And I think there are some data center people who are beginning to try them out and then there'll be a follow-through on that. So for us, the next 12 months is a place where we will start taking advantage of the product offerings and do these derivative product offerings. Operator: And we have reached the end of the question-and-answer session. I'll now turn the floor back to Leslie Green for closing remarks. Leslie Green: Thank you, Diego, and thank you all for joining us. This quarter, we will be presenting at a number of financial and industry conferences. Details will be posted to our Investor Relations site, and we look forward to speaking with you again soon. Operator: This concludes today's call. All parties may disconnect.