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Operator: Good morning, and a warm welcome, dear ladies and gentlemen, to the analyst and investor web conference regarding the Stabilus results in the first quarter of fiscal 2026. [Operator Instructions] Let me now turn the floor over to your host, Dr. Michael Buchsner. Michael Büchsner: Hello, and welcome to our quarter 1 results call of the Stabilus Group. As always, you have our CFO, Andreas Jaeger; and myself, Michael Buchsner, being the CEO of the Stabilus Group in the call. And I'm happy to lead you through our results for the first quarter. And then for sure, we'll also have a Q&A session at a later stage. Yes, in a nutshell, I would say we hold our course in a very difficult market environment, as you can imagine, in the Automotive and also in the Industrial space. However, we had a very strong cash generation. If you compare that to the prior year, we've been doing particularly well and we've been doing particularly well in terms of our operational management of the cash flow. Our cash flow came out with EUR 23.9 million. And yes, like-for-like, last year comparison, we've been at EUR 8.9 million. So very positive development in that [ term ]. Our EBIT margin stayed strong with 10.1 percentage points. And as you all know, it's pretty much back-end loaded this year around because towards the second half of the year, our efficiency program and the new launches kick in. That's why the year will be for us back-end loaded in terms of the margin development and loaded on the second half of the year. Also, a good highlight was the EBIT margin we had in China. As you can imagine, and we always talked about it, the environment in China is getting tough, tougher in terms of competition. And this is why we also took the decision not to hunt for each and every business, but to concentrate also in these difficult times on the EBIT margin development, and we had an outstanding result. If you compare that also to the prior quarters and even the prior years, we had in the first quarter, a record EBIT margin in China of 18%. However, I said at the beginning already, we, for sure, are in a challenging market environment. And you see that forefront in our revenue for sure because the revenue was on EUR 291 million, which at the end of the day is 7% change versus the quarter 1 prior year, and it's becoming softer. So the first quarter is particularly kind of an impact we saw in predominantly China due to the fact that this consumer sentiment was particularly low. Then on the other hand, we also are -- as we are represented predominantly in the upper segment cars in the electromobility like Tesla, we also feel the market environment. On the other hand, there is a big FX impact of negative 3.7% year-over-year which at the end of the day is unfavorable for us. However, as I said before, the margin generation in China was particularly good and also the cash flow generation was on a very good level for us overall. And the EMEA and Americas region stay very strong in terms of organic development. The region we currently focus on is Asia Pacific, as you know. Our overhead reduction program is well on track. We started, as you know, this transformation program in the first quarter. So starting with October, we've been concentrating on cutting down costs on a second step in the overhead structure. You know that over the course of the past 2 years, we always have already concentrating on the reduction of our costs predominantly on the operations side. We've been doing automation projects in Koblenz, which materialize throughout this year and the years to come. And now as you already have been informed about quarter 1, means starting October last year, we started also to cut down on overhead costs. And this transformation program is basically a boost for us for the second half of the year and the years to come. And we're basically taking out already in 2027, EUR 19 million in terms of fixed costs on our P&L. And this is something which gradually kicks in, in the next quarters ahead of us. Net leverage ratio, it's important for us to stay around 3x. We have 4.5x as a covenant, but we want to stay well below that with our net leverage ratio. And we've been in the range of 3x, so 3.04x this time around as of December. And I would say, as I said at the beginning, we at the end of the day, start in a market environment, which is soft and challenging with a strong and good position predominantly on the cash flow. So with that, we will go into the next page, and I would like to draw your attention a bit more on the technical stuff, the growth drivers for here and now, the months, quarters to come and also the next years. We invested in the past years, as you know, on the Industrial Powerise. Why is that particularly important for us? We started the same thing with Gas Springs, right? We are a leading company for Gas Springs. We brought the Gas Spring on a very good position, nice quality, excellent cost into the market also for all kinds of industrial applications. So you find them everywhere. So now we are doing the same with Industrial Powerise, right? We started in the Automotive side, are producing on highest quality and best cost position, the Powerise now for the industrial space. We've been having revenues beyond EUR 5 million in the first 12 months of our doing last year. So it grows double digit. And this basically receives a lot of interest of our customers. It receives a lot of technical support by our customers, and they love this project -- product because it's very robust. It's built on automotive lines to a very nice cost position. And as I said, we already started after the market introduction, which happened early last year with EUR 5 million we've been generating in terms of revenue on a very exceptionally high margin. As you can imagine, Industrial Powerise, part of the industrial space and industrial business enjoys good margin at this point in time. Second position is here as a growth driver for us, the door actuation. Door actuation, a wonderful product to be a next generation of vehicle comfort, right? It opens and closes doors automatically. It's a must-have for all kinds of cars with autonomous driving, self-parking, but also it enjoys exceptionally good growth rates in China these days. So we are in Geely, in Korea, we are in Hyundai. Actually, we start Li Auto this year. And there is not a single customer who's not interested in this next-generation vehicle comfort. And this takes off in the second half of the year as our customers, predominantly BMW, but also Tesla once more and also Li Auto to Xiaomi will fill their pipeline for the upcoming launches, and we enjoy also good business wins there. And as I said before, yes, currently in China, the consumer sentiment is on a decline. We saw that October, November, December, but this technology enjoys very nice growth rates, and it basically goes off in the second half of this year and will greatly help us in terms of sales. Last not least, also the third growth driver for us is our automation and the automation synergies. As you can imagine, over the course of the last years, we've been working a lot on synergy generation in terms of sales and technology with our Destaco portfolio. And now here, I would like to highlight first time that we are working already also on humanoid robots and industrial robotics systems. We have not only gripping systems, which we tailored now to humanoids and to industrial robots, but also we are with one of our OEMs where we're already in a strong business relationship in the automotive side, who decides to produce or decided to produce humanoid robots big scale, U.S. company, U.S.-based company. We are working on electromechanical solutions for the hinges of humanoid robots. And this is a development project which we recently entered. And this project, along with industrial robotics, gripping systems, the opportunities we see also for us in the automation space materializes as we speak and helps us a lot also throughout the year to generate additional highly profitable margins business. So the 3 growth drivers, the growth sentiment remains unbroken and unchanged. The big growth drivers, Industrial Powerise, automation technologies, doors actuation, they are kicking in. And as you can imagine, along with the program we are driving to do a reorganization and restructuring on the overhead side, we take and use these days and times of softer business to actively shape our future. So that's the strategic points we've been achieving over the quarter, of the quarter 1, October, November, December. However, I would like to also go into the details of the financials with you before I hand over to Andreas for the details on the regional view. Overall, revenues, as I said, EUR 291 million in terms of euros. Organic growth was soft, minus 7%. FX impact around, about 4%. And then we see here this China impact, predominantly Europe, North America growing well. In China, consumer sentiment, upper segment cars, when inflation hits the fan, people decide to go for lower segment cars in difficult days. We are with our products predominantly on the top segment cars, and this leaves its marks for sure. But we assume that being a short-term effect, which at the end of the day, will recover in the second half of the year from our perspective. Destaco synergies well on track with EUR 1.7 million at this point in time. Our target this time around is EUR 10 million for a year. We will achieve that. Our forecast shows that. As I said, there is several elements in the pocket like the production of gripping systems for humanoid or other elements for autonomous and robotic systems. In terms of EBIT margin, our EBIT margin came in with EUR 29.3 million, so it's 10.1%, predominantly supported by a very strong industrial business, but also by China because we decided in China to go for EBIT margins, not necessarily grabbing all the businesses around there, well knowing that the door actuation business at the end of the day has a higher margin to begin with, we said we rather focus on the high-margin products and the door actuation systems in order to generate good margins for us, and this strategy materializes. It's basically an 18% EBIT margin in China, overall 10.1%. And this, at the end of the day, will also improve over the course of the year as our effects of our restructuring projects kicks in. For sure, Destaco cost synergies are still on track, and we monitor them on a quarterly basis, EUR 0.5 million. Here, the target is for the year, EUR 4 million, and this is absolutely what we will achieve. Net profits are impacted for sure by FX, FX losses. But however, also here, FX and tax expenses, they are kicking in early in the year. This is something which you will see develop positively over the course of the year. And then last not least, our free cash flow, which is exceptionally good. The free cash flow is on EUR 23.9 million. We already got a question beforehand, whether this be driven by programs we did on the financial structure, but this is basically a good management of the operational side, a good cost control, good control on the forecast all levels on the operations side, which drives that and less financing programs. So with that, I would hand over to Andreas for some details by region. Andreas Jaeger: Good. Thank you very much, Michael, and a very warm welcome also from my side. I go directly into the region, and I would start with Americas. In Americas, we see in euro, a minus of 5.7% in the revenue. But if we consider the FX or the effect from foreign exchange rate translation in America, the organic growth was only minus 0.5%. The EBIT margin at 4.7%, we are not really satisfied, and Michael already mentioned it briefly, and I will come back to that on the next slide. In EMEA, also in reporting currency, the revenue minus 1.4%. And if you also factor out here the FX impact, we are only 0.3% negative. The margin at a solid 10.8% and considering the slightly lower volume, we could even increase the EBIT margin by 1.9 percentage point that shows on one hand that we really took out fixed costs and that we also worked on flexing our cost basis. In Asia Pacific, in the reporting currency, minus 30.6% year-on-year. Michael already mentioned it, predominantly in China with a challenging market environment in automotive. But the EBIT margin, clearly the highest with 18.1%, and considering all the challenges and the lower volume, we could almost maintain the EBIT margin and in percentage point, it went down only by 1.3 percentage points. If I then go now more into the details for Americas, you see again on the revenue, the minus 0.5%. We grew organically in Automotive Gas Spring and in Powerise. And if we compare that slight growth in Automotive Gas Spring and Powerise with the latest S&P data from automotive, they were slightly negative. They told us minus 0.8%. So also, if we take the market as a benchmark, a solid development of the revenue. On the EBIT side, we are not fully satisfied with what we achieved in there. On one hand, we saw the volume impact. We also saw and we informed you at the year-end presentation already that we changed the allocation and the recharges of the intellectual property right. So that had a negative impact on the EBIT. But then also the challenges we had in Mexico, in the U.S. Gas Spring operation, where we had a higher turnover in the workforce and that drove additional cost for training and also hampered the efficiency in the operation. If we then move on to EMEA, we can show a different picture. In EMEA, we are almost at prior year level, if we look at the organic growth, we saw a slight decrease in Automotive Gas Spring and Industrial Automation. On the other hand, we grew in Automotive Powerise. Also, if we here, benchmark ourselves with the information that we received from the S&P automotive market with a minus 2.2%, we delivered better numbers than the S&P number told us. If you look at the EBIT, slightly lower volume, but it's clearly higher EBIT margin and even in absolute numbers, an increase of the EBIT that shows we really took out fixed cost in Europe, and we could also flex to the volume our production cost. The last region then that I will cover is then APAC. In APAC, we already saw the decline that Michael at the beginning told us, the major impact we saw in this minus 24.9% comes from China. It's a challenging market, as Michael already said. If we then look at the development of the EBIT, yes, in absolute number, it went down, but we maintained a very solid margin of 18.1% in a very challenging environment. If we then look at the development of the business segment by market segment on the next slide, you saw that we slightly could reduce our portion from automotive with 54%. In Q1, we were at 57%. And however, most of the segment showed a negative development. If I then continue with the net leverage and the net financial debt on the next slide. You see since 2024, we could decrease the net financial debt by 7.5%. And if you compare that what we achieved in Q1 '26, we could reduce the net financial debt by EUR 13.3 million and reducing the debt and bringing down the leverage ratio is a clear priority. And we also said we will bring it to 2.0 within the next 2 years. On the net working capital, Michael mentioned it at the beginning, and we talked about the cash generation. You see during the last 3 periods, the net working capital came clearly down, and we are now at EUR 218.6 million or if you compare it to the ratio and comparison to the revenue, it came down again to 17.3%. The investments, you see them year-over-year and then the first quarter, the first quarter was with EUR 18.1 million, a little bit on the lower side, if you look at the investment. However, this has more to do with the seasonality. For us, it maintains a priority to invest in the future and develop new and interesting product technology, smart door actuation, electric grippers and also the automation of our production facility remains a priority. And with that, I would give back to Michael for the outlook. Michael Büchsner: Thank you, Andreas. Yes, we -- as you know, and we know clearly and our main focus for the second quarter is to work on our restructuring project to continue to do the rollout, basically to manage our overhead costs, but also to further improve us on the operational side. And this is something which at the end of the day, will lead us into February and March, right? Over the first half of the year, we said we'll roll that program out. And then at the end of the day, we will harvest that fruit starting in the second half of the year. And this is something which at the end of the day helps us in terms of sales initiatives, right? Door actuation, continue to win business in terms of business on the Industrial side, it's Automation and the Industrial Powerise. That's what we're currently working on. And as Andreas said, also in the second quarter, we'll continue to work on improving our North American plant in order to deal with the fluctuation we had on hand, which drove a negative performance there. Overall, with all these measures, our forecast is still on track, right? Our forecast, and we confirm it will be at EUR 1.1 billion sales, up to EUR 1.3 billion sales for the year in euro. The EBIT margin will be in the range between 10% and 12%. And also the adjusted cash flow is on track with EUR 80 million to EUR 110 million free cash flow after all. So that are basically the points we are currently working on. And if we go on the next page, actually, here, a brief summary for you. The -- actually, we are impacted for sure by the market environment, no doubt about that. However, with the initiatives we have on hand, we clearly know what to concentrate on in the second quarter and thereby, the guidance is confirmed. For sure, with whatever we do, we work and continue to work with strong team efforts on our STAR 2030 initiatives, right? Andreas mentioned it as well. Our main priorities remain there to invest in new technologies. We have had great achievements in the first quarter, we have been winning door actuation business, Industrial Powerise businesses and also even up on the Automation side, to contract development contracts for humanoid robots. That's what we're working on currently. And yes, in the second quarter, you will see development in the restructuring program. Next quarter, we will give an outlook about where we stand, what we achieved and which further points are necessary in terms of cost management, right? It's -- we've been managing the big and low-hanging fruit, which for us is now the restructuring program rollout. It has been starting very well. But also the cost management, it is very, very important to us in all the different regions. And we will also put a strong focus on the improvement of the operations in North America and on top of the sales initiatives. Because there are 2 things which are important for us this year, it's the cost management and the sales initiatives in order to prepare for a continuous success in our industry. Yes, with that, we would hand over to you for questions. Operator: [Operator Instructions] So the first question is from Akshat Kacker of JPMorgan. Akshat Kacker: Akshat from JPMorgan. I have 3 questions, please. The first one starting on your China business. As you mentioned in the first quarter, the market environment wasn't supportive. We have seen organic growth declines of 20% to 30% across your business segments in the first quarter. Could you just give us more details in terms of a rough split between volumes and pricing? And in terms of how this year plays out, when do you expect volumes to start stabilizing in China, please? That's the first question. The second question is on the North America margin. You did talk about some operational inefficiencies, higher personnel and training costs. Could you give us an idea on what kind of impact can we expect on the business for this fiscal year? And how quickly can you turn around things in North America, please? And the third one is on your assumption of a second half recovery. I completely understand that you talked about new launches and benefits from underlying cost actions that you have taken over the last year. And also keep in mind, Q1 always has a seasonality for your business in terms of higher revenues and margins in China. So could you just give us some sense on how much of a pickup do you expect in the business second half versus first half this year, both from a revenue and margin perspective? Michael Büchsner: Thank you very much, Akshat, for your questions. I give it a start and then for sure, I hand over also to Andreas. Talking about the first quarter in China, which is an exceptional good EBIT margin of 18%. Your question was in terms of sales, how were sales developing and what were the pricing impact. You know out of the last year, over the year, we had 8% pricing kicking in. That's just a given. If you compare now last year's first quarter with this year's first quarter, you for sure see this 8%. We've been always talking about it that this 8% are exceptionally high. Typically, in the automotive industry, we can deal with 4%, 4.5% maximum in China because in China, also technical changes are easier to introduce. However, the big topic we saw last year is that the competitor for front engine did basically set new target prices. And this was something, and you mentioned it, was visible throughout the year in terms of the margin development in China in a very firm way. And this is something which we've been constantly working on. So the impact was 8% pricing out of the revenue decline because we kind of -- you have this carryover effect. And if you compare quarter-to-quarter, first quarter to first quarter, basically, the first quarter last year was October, November, December '24. This is when the pricing discussions start at bigger scale. And now this delta, as I said, is around, about 8%. As stated, we are able to deal with 4% typically. And now we have to take extra actions to improve our profitability. This is why you also see the profitability of China still being on a decent level this year around with wonderful 18% because apparently, we can deal with this, but it has a time delay until we can deal with such margin deteriorations or pricing pressure in the industry. So these were the first 8%. Then we had an FX impact, a couple of percentage points. And I'm sure Andreas will talk about that. I think it was in the range of 3% to 4%. And at the end of the day, then something in China -- in China, our business staggering is we have half of our business Western world OEMs, half of the business Chinese OEMs. So we are balanced very well. There is this consumer sentiment of China going down, which makes up around, about 4%, right? So the consumer sentiment after all went down 4. This is following the studies of market developments in China, where we have access to, and this is something which will lead us into the second half of the year. That's the strong belief of economists in China in a nutshell. And then there was, for sure, the impact that we, as Stabilus Group are operating on the top segment cars in both China's OEMs and Western world OEMs. And when there is high inflation and people feel financial pressure, they decide on a shorter term because we saw that in the past as well, on a shorter term to concentrate on buying lower segment cars where typically the fitment rate of electromechanical devices is less. So in a nutshell, coming back to your first question, the answer to that, 8% was pricing around, about. There was an FX impact of 3% to 4%. Then you see a consumer sentiment for the business of 4% and then the remainder is then something which goes in line with the different segment of the cars have been produced like the upper segment cars, which, by the way, we saw in all regions. But in Europe and North America, we've been better flexing that with industrial business as our industrial business position is bigger on a bigger scale than in China. This was more difficult this time around in China. And that's why particularly the Asia Pacific region was impacted by that. So that's your first question. Then North America. In North America, the performance-related points, they are basically affecting our 2 automotive plants. It's the one in Mexico, and it's the one in Gastonia. And these 2 plants basically did lose around, about EUR 2 million last quarter, I would say, plus or minus on the efficiency side. And this is something which we're currently working on. There will be an impact also in the second quarter. We expect that in the third and the fourth quarter, we have things back under control. And this is something that was, as Andreas said, people fluctuation related. So we lost some people predominantly in the workforce, concentrating on direct labor, but also maintenance people. And as you know and can imagine, maintenance people are basically the lubricant in the transmission and gearbox of such a plant, right? Because the maintenance people, they guarantee that the uptime of the lines is sufficient to serve the demand of the customer. Then you see a complete chain reaction, right? You lose some of the maintenance people, then you have less output, then you get into the mode of some premium freight, quality is impacted as well. And this is something which we've been working on. We took sufficient measures. We will get out of this position, but it actually takes a couple of months to get there. So this basically is what we're working on for the second half of the year. You will see out of the improvements of the restructuring program, 1 percentage point improvement in the second half of the year on our EBIT margin. And then fixing the operational issues in North America will add another percentage point. And this is something which then lift us in terms of EBIT margin so that we're getting closer to the margins we had last year and also getting us within our guidance ballpark. So Andreas, from your side, I mean I've been explaining intensively now the root causes and percentages, how they move up and down with our operational points. Because actually, it's very important to us that we have a clear picture of where we are suffering and how we're impacted by the current market circumstances. That's why it's important to talk about all these details. I understand that very well. But Andreas, are there any points you'd like to add? Andreas Jaeger: If I look at the 3 questions, I would say they are all covered, but we can double check that with Akshat. Did you receive what you were looking for? Akshat Kacker: Yes, that's very clear. Operator: The next question is from Klaus Ringel of ODDO BHF. Klaus Ringel: I actually have 2 and would take them one by one. One would be a bit more detailed coming to Akshat's question about the business momentum. If you can already share a bit of light on your expectation for Q2. I mean margins shall improve over the course of the year, but regarding top line, can we also already expect some pickup in Q2 versus Q1? Or shall we rather expect something going sideways? This would be the first one. Michael Büchsner: So in terms of revenues, our expectation that in the second quarter, it moves rather sidewards. Why is that? In the second quarter, there is the Chinese New Year, which for sure is something which we have in our budget and are planning already, and it's considered in the guidance. And in terms of North America and Europe, we see a rather flat business out there. We see in the automotive industry, not too much movement. And on the industrial side, typically, the time when you get directionally a better view on how business develops is the spring time because this is when the orders kick in for new launches and other stuff, that's too early to say. So I would say January, February, March is moving rather side from our business. But however, this is how we build our business plan this year. We said the first 2 quarters will be rather on the soft side. And then in the second half, it will be picking up. And then similarly, in the margin, and this is why at the end of the day, also, we confirm for sure our guidance because that's what we've been planning for to begin with. Klaus Ringel: Okay. Second one is on the additional point you're talking about humanoid. And I really appreciate that you also start talking about this. Some other players, yes, a bit more, much more vocal for a couple of months now. So I would be very interested how immediate this potential really is. I mean you have this big U.S. customer in automotive, which also has obviously big ambitions in the humanoid robots. Is this really a couple of, I don't know, hundreds, thousands or millions of revenues over the course of the next 12, 18 months? Or is it less? Is it more? So this would be great. And also in terms of margin, is it fair to assume that you can achieve a kind of industrial margin in this area? Michael Büchsner: Yes. Thank you very much for this question. First of all, you mentioned at the beginning of your sentence that some already -- some people already have been talking about humanoid robots and automation in a broader scale in a different way than we do. The point is, for sure, in this humanoid robots, this is a customer which we also have on the automotive side. And there, sometimes it's not kind of allowed to talk about such movements. On the other hand side, if I talk about the stake of volumes, sometimes there is restriction by governments to openly talk forefront about it because we need to meet all the regulations to deal with this in the first place, but also it's then, in many cases, restricted in terms of communication because it's military service. That's to begin with. But we will disclose as much as we can for sure, not jeopardizing our business model with basically infringing any agreement we have with our OEMs. That's something which we very strictly kind of meet. So -- and then the impact, there is 2 areas. There's electromechanical devices, which we're currently working on for hinges and stuff for humanoid. That's something which is in the development phase. You will not see sales -- too much sales this year. There's difference in terms of the gripping systems, which we do for humanoid and also for end-of-arm tools for cobot systems. This is a new development with Destaco with basically a smart gripping system. And these gripping systems, they are in place already, and this is a couple of hundred thousand already in the first half of the year, which we deliver to the customers, and we expect that this goes up because there are new solutions with electrified version plus also feedback from the parts. So it's basically intelligent gripping system, which we did offer to the market here lately, and that's perceiving very good feedback. These are the 2 elements which are leading to that business opportunity for us. I hope that answers your question. Operator: So the next question in the queue is from Yasmin Steilen of Berenberg. Yasmin Steilen: So first, coming back on the price erosion in China. So we have seen the headwinds in Q1. However, you stated during the last call that you expect price erosion in China to ease a bit. So what is your current view on the overall price headwinds in China for Powerise in FY '26? That's my first question. Then with regards to the door actuation -- door actuators, you just stated that the ramp-up should happen in H2. So can you provide more color on the expected sales volumes to impact the second half? And how should we think about the profitability here in the ramp-up phase? And the last one on Destaco. I might have overseen this in the interim report, but could you share any comments on the profitability, please? Michael Büchsner: So thank you very much for your questions. In terms of pricing in China, the pricing in China is in the range of 4% to 5%. That's what we assume this year. This is the pricing levels which we are used to. As I said before, last year, we saw this exceptional pricing of twice as much in the range of rather 8%. This year, we see that continuing with 4% to 5%. And that's something which we are in a better way, able to deal with because that's the typical price reductions you get out of efficiency and you get out of your bill of material with your normal doings in the business, and that's something which we definitely can deal with in a given business year. How do we do that? We take our suppliers and do supplier negotiations because in absolute terms and volumes, for sure, the volumes go still up. It's a pricing-related reduction. So the volumes go up. And then at the end of the day, we negotiate with the suppliers in a better way, and we get their contribution to our success in the first place. Then the second thing is that our operational efficiencies in the plant are main point of our concentration in terms of our improvements. So that's something we saw over the course of the first quarter and second quarter already happening that the price reductions for this year will be in the range of 4% to 5%. The second question you had, the door actuation system, the profitability and the launches. Actually, the launches in the second half of the year, they are filling the pipeline for main customers like BMW. There is also Tesla involved, there is Xiaomi involved and some others smaller scale. This is business which we, at the end of the day, won a couple of years back and the launches are planned this year. And the profitability is on good levels. It's comparable or even slightly higher than our margins on the Powerise side. This is driven predominantly by the good launch performance we already drove in Asia Pacific. In Asia Pacific, specifically with our customers in China and Korea, we could establish a good position to also be leading in the price negotiations with the suppliers. Because at the end of the day, we've been winning over the course of the past years in the range of 40, so 4-0 percent of all businesses out there in door actuation. And due to the fact that we invested a lot in not only capacity because we have in all the different regions now aligned. We also invested heavily in the area of building up our supply base and technology. So we are basically frontrunner in terms of developing the right software, integrating the sensorics, having the radar systems on hand and so forth. So that's very beneficial for us. And at the end of the day, I would also come back to Klaus' question because Klaus asked the profitability of humanoids and profitability on industrial elements. I did forget to mention that this is for sure, average and slightly above industrial margins to basically close also the question we had from Klaus before. And then last not least, you were talking about Destaco profitability. Destaco holds the profitability very good. There is 2 things to keep in mind. One thing, and this is something which also with Andreas, we can go in detail, there is a reshuffling of overhead costs in the organization due to the fact that now we distribute the complete overhead costs to the complete business we have. This is first time that we also burden Destaco with the company overhead rate across the board. So that means the like-for-like comparison at the end of the day is something which can be explained in detail, but it accounts for basically 2%, 2.5%, which we burden on the Destaco profitability. Other than that, the businesses we are taking in, considering the current industry weakness, we are absolutely fine with. I hope that answers your question. Yasmin Steilen: Yes. That was very clear. And the last one on the -- sorry, on Destaco. Michael Büchsner: Excuse me? Yasmin Steilen: So in terms of Destaco profitability, how should we think about it going forward? Michael Büchsner: This is what I meant. They're very stable in terms of the profitability. We did distribute first time this year to the Destaco business also the overhead costs. That means in the financial numbers, you will see now 2 effects. You will see a burden of the overhead -- related overheads to the Destaco business, which accounts for 2.5% around, about. And then you will also see that it's now coming together with other businesses like the synergy business we have on hand. And this is basically also impacting the position of Destaco. But overall, it remains on a very good level for us. So it basically holds the course, except this burden of the overhead rates, which we first time basically also distributed now to the Destaco business. Yasmin Steilen: Okay. So just to clarify, so the former indications you gave about 19% to 20% was ex-overhead costs? Michael Büchsner: This was without allocation of the overhead costs, indeed, yes. Operator: At the moment, there are no questions in the queue. [Operator Instructions] As of now, there seem no more questions to be on the line. Michael Büchsner: Yes. If there are no further questions, then thank you very much. One point is very important. We know exactly what to work on in the second quarter. It will be continuing the restructuring program, watch costs and for sure, use the drive levers we have to boost sales, which at the end of the day will kick in second half of the year, like our wonderful door actuation system where we have the launches coming in the second half of the year on the industrial side, the Industrial Powerise and then the automation system predominantly in the space of automation, but also humanoid robots, which we are in a long run working on. With that, thank you very much. I wish you a nice and successful week. Bye, everybody. Andreas Jaeger: Thank you. Have a good week. Bye.
Michael O'Leary: Good morning, ladies and gentlemen, and welcome to the Ryanair Q3 Results Conference Call. I'm Michael O'Leary, Group CEO. And as always, I'm joined by Neil Sorahan, the Group CFO. This morning, as you'll see, Ryanair reported a Q3 profit after tax of EUR 115 million, pre-exceptional. [indiscernible] As traffic rose 6% and fares in Q3 rose 4%, and an EUR 85 million exceptional charge has been made in the accounts. It's a provision of approximately 33% for the utterly baseless Italian AGCM fine, which was announced on Christmas Eve, which both we and our Italian lawyers are confident will be overturned on appeal. The highlights of the third quarter include traffic growth of 4% -- of 6% to $47.5 million. Revenue per passenger up 3%, very strong cost control as a result of which unit costs are flat in the quarter. We have 206 million -- 206 Gamechangers in our 643 aircraft fleet on the 31st of December. The last 4 aircraft will be delivered in February. We have announced 3 new bases and 106 new routes for summer '26, and these are already on sale. Fuel is 80% hedged for FY '27 at $67 a barrel, resulting in a very significant 10% saving in our fuel costs next year. And we'll touch briefly on the Italian AGCM baseless fine, which was levied and which we're confident will be overturned on appeal. Touching briefly on a couple of highlights. With almost all of our Gamechangers now delivered, other income in Q3 dipped due to the absence of delivery delay compensation in the prior year Q3. For Q4 of FY '26, our fuel is 84% hedged at about $77 a barrel, but we've now locked in hedging for FY '27 with 80% of our jet fuel requirements hedged at $67 a barrel. This will deliver significant cost savings next year. Over the last 3 years, Ryanair has generated a total shareholder return in excess of 150%, which puts Ryanair comfortably in the top quartile of the Stoxx Europe 600 Index TSR performers. I believe the group will continue to deliver disciplined and consistent capital allocation, and this is underpinned by our strong balance sheet as traffic grows to 300 million passengers by FY '34 with the benefit of our 300 MAX 10 order. Touching briefly on fleet. We have said we expect to receive the final 4 Gamechangers, bringing the total number of game changers to 210 in the fleet before the end of February. Because we're getting these aircraft deliveries early, this facility is facilitating slightly higher traffic growth this year, and we're now raising this year's traffic to 208 million what was previously 207 million. But it also means that we have all of the fleet in place in time for the Summer schedule, and that will allow us, we think, to deliver 4% traffic growth to 216 million passengers next year, FY '27. Boeing expect that the MAX 10 certification will take place this Summer, and they're increasingly confident. In fact, I was very confident they will meet their contract delivery dates to Ryanair for the first 15 MAXs in the Spring of 2027. And we -- that will be the first 15 of 300 of these very fuel-efficient aircraft, which have 20% more seats, but burn 20% less fuel and will enable us to grow profitably out to March 2034. This winter, we've allocated Ryanair's scarce capacity to those regions, countries and airports who are cutting aviation taxes and incentivizing traffic growth, such as Albania, regional Italy, Morocco, Slovakia and Sweden. And we're switching flights and routes away from high-cost uncompetitive markets where they have unjustified aviation taxes like Austria, Belgium, Germany and in regional Spain. This trend of this churn will continue into Summer 2026 as we operate over 160 new routes on sale, and -- we're opening 3 new bases in Rabat in Morocco, Tirana in Albania and Trapani in Italy. Touching briefly on Italy. In late December, the Italian AGCM Competition Authority levied a baseless EUR 256 million fine against Ryanair for our direct distribution to consumers policy in Italy, a policy that we've adopted all over Europe. This fine, we believe, will be overturned it in appeal as it ignores and indeed contradicts the Milan -- the precedent Milan Court of Appeal ruling in January 2024, which ruled that Ryanair's direct distribution model in Italy, one, undoubtedly benefits consumers by leading to lower fares; two, is economically justified in terms of containing operating costs and eliminating costs associated with distribution and ticket sales and the court ruled it contributes to a direct channel of communication for any possible need for information and updates on flights to consumers. And yet the AGCM 18 months later, comes up with this mythical fine alleging that Ryanair is abusing a dominant position when we're not dominant in Italy. Both we and our Italian lawyers are very confident that the Italian courts will overturn this manifestly wrong and baseless AGCM ruling on appeal. And that's why unusually, we normally provide 50% provision in our accounts for legal appeals. In this case, we have lowered that to 33%, which we think is reasonable. In fact, we could just as easily provide nothing for this given the -- our confidence that this ruling will be overturned. In terms of outlook, we now expect FY '26 traffic to grow 4% to almost 208 million passengers due to strong demand and these earlier-than-expected Boeing deliveries. We continue to expect only modest full year unit cost inflation as our Boeing Gamechanger deliveries, fuel hedging and effective cost control helps to offset the increases in ATC charges, higher enviro costs in Europe and the roll-off of last year's modest delivery delay compensation. While Q4 won't benefit from Easter, fares are trending modestly ahead of prior year, and we now believe that the full year fares will exceed our previous plus 7% growth guidance by maybe another 1% or 2%, 8% or 9%. At this stage, we're cautiously guiding full year profit after tax pre-exceptionals in a range of EUR 2.13 billion to EUR 2.23 billion. However, the final FY '26 outcome will remain exposed to adverse external developments in Q4, including conflict escalation in Ukraine or the Middle East, macroeconomic shocks and any further impact of repeated European ATC strikes and mismanagement. And with that, I'm going to ask Neil to take us through the slide presentation. Neil, over to you. Neil Sorahan: Thank you, Michael, and good morning, everybody. Ryanair has the lowest fares and the lowest cost of any airline in Europe, and our cost gap advantage continues to widen. We're #1 for traffic and are now increasing traffic targets to 208 million passengers this year, which is a 4% increase on last year. Thanks to our strong on-time performance and reliability, we've seen our customer satisfaction scores rise to 89% in the year-to-date, and we continue to be highly rated by all of the ESG rating agencies. With our 300 MAX 10 order book starting to come in from next year, this will underpin a decade of growth to 300 million passengers by FY '34. And that, of course, as always, is underpinned by our financial strength, our lowest costs, and this makes us the long-term winner in our sector. This is a snapshot of where we stand at the moment, including 3 new bases for Summer of 2026. So 208 million passengers in the current year, 300 million passengers by FY '34. Our costs, as I already said, continue to improve, continue to get better with a strong performance in Q3. And over the next number of years, with 300 MAX 10s coming in with 20% more seats, 20% more fuel efficiency, this advantage is only going to get better. On the quarter itself, we saw traffic increase by 6% to 47.5 million passengers at flat 92% load factors. Average fare rose 4%, thanks to a strong midterm break in October, but more importantly, close-in bookings for Christmas and the New Year also were strong. Revenue as a result, up 9% to EUR 3.21 billion in the quarter to the end of December. On costs, excluding the AGCM provision, which Michael has gone into in some detail, we saw unit costs remain flat or total costs increased by 6% to EUR 3.11 billion. And profit after tax, pre-exceptional, down 22%, primarily due to the absence of Boeing delivery compensation tanks and catching up on their order book. So coming in at EUR 115 million profit in the quarter and EUR 30 million after that AGCM fine provision for the 33% that Michael referred to earlier on. Balance sheet remains rock solid, a fortress balance sheet, BBB+ a strong investment-grade rating from Fitch and S&P, uniquely, almost 620 Boeing 737s fully unencumbered on the balance sheet. Liquidity remains very strong with EUR 2.4 billion gross cash and EUR 1 billion net cash at the end of the quarter. And that puts in a very, very strong position now as we move into the next financial year in April to pay down our final bond, the EUR 1.2 billion maturing bond in May 2026 from our own cash resources, effectively making the Ryanair Group debt-free. I'd just like to briefly focus on our total shareholder return. Over the past 3 years, we've delivered a TSR up 153%, which puts us firmly in the upper quartile of the Euro Stoxx 600. In fact, we're in a small club of 3 companies in Europe, which can boast a net profit in excess of 15%, investment-grade ratings, net cash and TSR over 150%, while at the same time, investing in growth, delivering consistent and disciplined returns to our shareholders. And we expect this model to continue for the years to come. With that, maybe, Michael, you will take us through current developments, please. Michael O'Leary: Okay. Thanks. So as we've set out, we expect FY -- we're raising slightly FY '26 traffic, up 4% to 208 million, thanks to the earlier Boeing deliveries and strong demand. We are using our constrained capacity to engage in more churn. So we're switching scarce capacity to those airports and regions who cut taxes and fees to grow. Our full FY '26 schedule is on sale from the end of March with 3 new bases and 106 new routes. Most exciting is the fact that we're -- we've hedged 80% of our fuel for FY '27 at just $67 per barrel, a 10% saving. There's an interim dividend of just over $0.19 per share payable in late February. And as Neil has said, we've completed 46% of the EUR 750 million buyback by the end of the third quarter. We are ready and have the resources to repay the final EUR 1.2 billion bond in May. Thereafter, we're essentially debt-free. And we are actively planning for the MAX 10 entry into service in the spring of 2027, and we now believe that Boeing will hit those delivery dates. And the critical thing about those aircraft is that they allow us to engage in a decade of low fare profitable growth of over 50% to 300 million passengers by FY '34. In terms of the Boeing numbers, as I said, we've already covered this off, with 206 Gamechangers in the fleet, 4 more coming in February, Boeing expect the MAX 10 certification to take place in late summer of 2026. We expect now to get the first 15 MAX 10s in the spring of '27. And that, as I said, gives us a decade of growth out to 2034. In terms of outlook, Neil, do you want to finish on that? Neil Sorahan: Yes. Thank you, Michael. So as Michael said, traffic marginally ahead of where we previously guided. So 208 million passengers, 4% increase on last year, primarily due to the earlier delivery of those MAX 8-200 aircraft and strong demand in the business. Fares now look like we'll be ahead of the 7% fare growth that we previously guided, possibly 1% or 2%, which is well ahead of the minus 7% fare decline that we suffered last year. So fully recovered and then some growth on top of that. Unit costs have performed well year-to-date. So we're sticking with our modest unit cost inflation for the current financial year. We'll continue to see the benefits of our fuel hedging offset rising ATC environmental and indeed, the unwind of the Boeing compensation with no Boeing compensation in the second half of this year. So putting that all together, we're now cautiously guiding profit after tax pre-exceptionals for the full year in a range of EUR 2.13 billion to EUR 2.23 billion. Beyond that, we're now in a very strong position to deliver 216 million passengers next year. That's a 4% increase. We'll see the benefit of our fuel hedges, 10% savings coming through on the jet price help offset some of the rising environmental costs. And importantly, with the MAX 10 now due to join the fleet in the spring of 2027, we're ramping up for a decade of growth to 300 million passengers over the next number of years. Thank you very much. Unknown Analyst: Michael, Neil, starting with your results. Ryanair reported Q3 PAT of EUR 115 million, pre-exceptional, down 22%. What were the key drivers? Neil Sorahan: With a strong operating performance in the business, we did, however, not have any Boeing delayed compensation in this quarter, having had it in the prior year comp. That's down to Boeing catching up on the deliveries and effectively no need for compensation. But if we look at the operating performance, very strong traffic up 6% to 47.5 million passengers at 4% higher fares, driven by strong midterms in October and strong close-in bookings for Christmas and the New Year. Ancillaries, as has been the trend all year, put in another solid performance, rising 7% or up 1% on a per passenger basis. And I'm particularly happy with the cost performance where we delivered flat unit costs pre-exceptional charges in the quarter. Unknown Analyst: You provided for 33% or EUR 85 million of the Italian AGCM fine. Will you provide for the balance of this fine in Q4? Michael O'Leary: No. In this case, normally, our policy is to provide about 50% for these kind of legal fines when they're under appeal. However, in this case, with the benefit of the Milan Court of Appeal precedent ruling, which was just less than 18 months ago, our lawyers and ourselves in Italy are highly confident that this AG -- manifestly wrong AGCM ruling will be overturned on appeal. In fact, we could, given the strength of the advice we have not made any provision at all, but I think that would have been a bit too ambitious. It seems to both me and the Board that it's sensible to provide about 33%, and we don't expect to be making any other provisions. In fact, we expect to be writing back that provision to the P&L sometime in the next year or 2, which is how long we expect the appeal will take. Unknown Analyst: Can you update on your hedging position? Neil Sorahan: Yes, we continue to be very well hedged. In the current quarter to the end of March, we're about 84% hedged at $76 a barrel. But more importantly, when we look into next year, we're 80% hedged on our jet fuel at $67 a barrel. So that's about a 10% saving. On operating expenditure, the euro-dollar exposure, we're locked in now for next year at about EUR 1.15, which compares favorably to EUR 1.11 in the current year. And we recently jumped on dips -- weakness in the dollar to extend our MAX 10 hedging from up to 40% on a euro-dollar rate of EUR 1.24. Unknown Analyst: How is Q4 trading? Michael O'Leary: Demand is good. As I said with the earlier Boeing deliveries, we're seeing -- we expect traffic to be modestly -- rise slightly faster than we had originally expected. So we expect to do 208 million passengers for the full year as opposed to previously 207 million. Pricing in Q4 is modestly ahead of the prior year despite the absence of any impact of Easter on Q4. But nevertheless, as we've always said, the final outturn is heavily reliant on there being no disruptions as we move through February and March. Unknown Analyst: Can you give any color on Summer trading and FY '27 costs? Neil Sorahan: It's a bit too early for that. We're still working through our budget. So it will be another month or 2 before the Board sign off. What I can say at this stage, however, is with all of the Gamechangers expected to be in the fleet by the end of February, we're now targeting traffic next year of 216 million. So that's marginally up on the 215 million that we had previously guided, 4% increase. And of course, we'll see the benefit of our fuel hedges coming through next year as well. Unknown Analyst: Moving to the balance sheet. What are the main callouts of your strong balance sheet? Michael O'Leary: I pretty much the same as it has always been. So we have a BBB+ credit rating. We have an unencumbered fleet of almost 620 737 aircraft. Strong liquidity, EUR 2.4 billion gross cash at the end of December, almost EUR 1 billion of net cash, which leaves us very well positioned to repay the remaining bond debt in May this year from internal resources. And it's that financial flexibility that widens our cost gap with most of our competitors in Europe who are heavily exposed either to the aircraft leasing costs or financing expenses. Unknown Analyst: What's FY '26 and FY '27 CapEx guidance? Neil Sorahan: At this stage, I think we'll finish FY '26 with CapEx somewhere close to EUR 2 billion. So that's marginally down on the EUR 2.2 billion that we had previously guided where we're seeing some timing issues with a couple of projects moving out 1 or 2 years. And then next year, not much hugely different to what we had previously said, now it depends on the final budget. I think it will come in close to EUR 2 billion, possibly just below EUR 2 billion. Unknown Analyst: How will you finance the MAX 10s? Michael O'Leary: As we've always done, we'll use a strong balance sheet and be opportunistic. I would expect mostly it will be from internally generated cash, but we'll also use bond or bank markets when it's opportunistic or low cost to do so. Unknown Analyst: Shifting to shareholder returns, how is the EUR 750 million buyback progressing? Neil Sorahan: Yes, it's going well. I mean this buyback is scheduled to run out to the end of the current year. So we're about 46% of the way through it at the end of December. Put that in context, that's about 13.1 million shares bought back at an average price of EUR 26 per share. All of those shares canceled. So about EUR 340 million spend up to the end of December. Unknown Analyst: When is the next dividend payable? Michael O'Leary: There's an interim dividend of just over EUR 0.19 per share. That's payable by the end of February. Unknown Analyst: Ryanair's TSR performance is market-leading. Has focus shifted from investing in growth to shareholder returns? Neil Sorahan: Well, you're right. It is. It's a phenomenal return of 150% over the past 3 years and putting us firmly in the upper echelons of the Euro Stoxx 600 TSR index. But no, our focus hasn't shifted, and we have no plans to shift our focus. We'll continue to invest in growth. The plans are to have 300 MAX 10s in the fleet and 300 million passengers by FY '34. We've got a very simple capital allocation policy in here. We will retain a strong investment-grade balance sheet. We'll continue to invest in growth. As I said, the MAX 10s, jumping in opportunities like we did last June where we were able to buy 30 spare LEAP engines at the right price, good use of capital for our shareholders. And indeed, we'll invest in engine shops over the next number of years to help widen Ryanair's cost base. But at the same time, as we've done in the past, if there's surplus cash, we'll return that. We already have a 25% payout of prior year PAT regular dividend program. And the Board have and will continue likely to deliver buybacks and ad hoc dividends from time to time over the next number of years. Unknown Analyst: On fleet in growth, when will you receive your final Gamechangers? Michael O'Leary: The final 4 Gamechangers will deliver in February, well ahead of the end March launch of the Summer '26 schedule. Kelly Ortenberg, Stephanie Pope and the team at Boeing are doing a great job at catching up those delivery delays, which is why we've seen a significant drop in supplier compensation in the Q3 numbers. But those earlier deliveries mean we can now facilitate 4% growth to 216 million passengers in the year to March 2027. Unknown Analyst: What's the latest update on MAX 10 certification? Neil Sorahan: Yes. Boeing are still talking about certification in the Summer of 2026, possibly in Q3 calendar. So that's the July, August, September time frame. And they're increasingly confident, as Michael already said, that we will be taking our first 15 MAX 10s in the spring of next year. Unknown Analyst: What's your views on European short-haul capacity? Michael O'Leary: It will continue to be very heavily constrained right out to at least 2030. The drivers are the huge backlog and delivery delays being faced by -- challenges being faced by Boeing and Airbus. The Pratt & Whitney engine repairs continue to be devil the Airbus short-haul fleet here in Europe, that will run on through our competitors, say that will run on into '26 and '27 as well. And industry consolidation, most recently, Lufthansa's acquisition of it, and it looks like TAP will be next, which is causing capacity withdrawal certainly in short-haul and domestic markets in Europe, as Lufthansa pivots the likes of Alitalia to feeding people into Munich and Frankfurt, but away from keep competing with Ryanair in the short-haul domestic and Italian domestic market. Unknown Analyst: Where is Ryanair most focused on growing? Neil Sorahan: Yes. We've been very clear. We've got limited growth. We're only growing by 4% this year, and we only plan to grow by another 4% next year. And so we're very focused on rewarding and giving growth to regions that are reducing aviation taxes, airports that are stimulating growth. And if you look at our summer 2026, the new bases are in places like Tirana in Albania, Trapani in Sicily as well and Rabat in Morocco. At the same time, we're pulling capacity out of markets where they're actually increasing taxes or at least not bringing them down the likes of Austria, Belgium, Germany, regional Spain. And we'll continue to do so while capacity remains constrained. Unknown Analyst: What's the latest update on your engine shop project? Michael O'Leary: Going well. We expect to announce the first of 2 sites pretty soon. I'd say we'll make an announcement before the end of March or April. Negotiations for spare parts and tooling to fit out those engine shops are at advanced stages. In fact, again, we expect to be signing contracts on those before the end of, I would say, the first quarter or the end of April. And we hope and expect to have the first shop operational overhauling or repairing Ryanair engines by late 2028, early 2029. The second shop will be opened probably in the early 2030s. And this will give us another point of cost differentiation between us and our competitors. While our competitors will be having their engines maintained in very scarce supply third-party engine maintenance facilities. We will have surplus capacity and I think a significant advantage in -- cost advantage in maintaining our engines over those of our competitors. Unknown Analyst: Lastly, on outlook, what's the group's FY '26 outlook? Neil Sorahan: Yes, we expect traffic now to finish at about 208 million passengers, 4% growth on last year, thanks to the earlier delivery of the Boeing aircraft and strong demand. On fares, we think we're in a position where we'll recover not only all of the 7% that we saw decline last year, but another 1% or 2% on top of that. So ahead of our previous guidance. On costs, performance has been good year-to-date. So we're sticking with our modest unit cost inflation for the full year, where we'll see the benefit of our fuel hedges continuing to offset air traffic control charges, increasing environmental costs and indeed, the roll-off of Boeing compensation with no delayed compensation in the second half of this year. So putting all of that together, profit after tax, pre-exceptional, the AGCM fine provision, profit after tax should be somewhere in the range of about EUR 2.13 billion to EUR 2.23 billion. And then beyond that, 4% traffic growth again next year to 216 million passengers. You see the benefits of our lower fuel hedging coming through. And then, of course, with the MAX 10 aircraft starting to deliver from the start of 2027, we'll have another decade of growth to 300 million passengers by FY '34. Michael O'Leary: Thanks, Neil. As you know, it's the Q3 results, so we're not having a formal roadshow, but there is an analyst call at 10:00 -- later this morning at 10:00 a.m. Dublin time. Everybody is welcome to dial in. And if you have any further follow-up questions, please put them to us during that call or feed them into the IR team here led by Jamie Donovan or through Neil and the finance team. Thank you very much. We look forward to seeing you all again.
Operator: Good morning, and a warm welcome, dear ladies and gentlemen, to the analyst and investor web conference regarding the Stabilus results in the first quarter of fiscal 2026. [Operator Instructions] Let me now turn the floor over to your host, Dr. Michael Buchsner. Michael Büchsner: Hello, and welcome to our quarter 1 results call of the Stabilus Group. As always, you have our CFO, Andreas Jaeger; and myself, Michael Buchsner, being the CEO of the Stabilus Group in the call. And I'm happy to lead you through our results for the first quarter. And then for sure, we'll also have a Q&A session at a later stage. Yes, in a nutshell, I would say we hold our course in a very difficult market environment, as you can imagine, in the Automotive and also in the Industrial space. However, we had a very strong cash generation. If you compare that to the prior year, we've been doing particularly well and we've been doing particularly well in terms of our operational management of the cash flow. Our cash flow came out with EUR 23.9 million. And yes, like-for-like, last year comparison, we've been at EUR 8.9 million. So very positive development in that [ term ]. Our EBIT margin stayed strong with 10.1 percentage points. And as you all know, it's pretty much back-end loaded this year around because towards the second half of the year, our efficiency program and the new launches kick in. That's why the year will be for us back-end loaded in terms of the margin development and loaded on the second half of the year. Also, a good highlight was the EBIT margin we had in China. As you can imagine, and we always talked about it, the environment in China is getting tough, tougher in terms of competition. And this is why we also took the decision not to hunt for each and every business, but to concentrate also in these difficult times on the EBIT margin development, and we had an outstanding result. If you compare that also to the prior quarters and even the prior years, we had in the first quarter, a record EBIT margin in China of 18%. However, I said at the beginning already, we, for sure, are in a challenging market environment. And you see that forefront in our revenue for sure because the revenue was on EUR 291 million, which at the end of the day is 7% change versus the quarter 1 prior year, and it's becoming softer. So the first quarter is particularly kind of an impact we saw in predominantly China due to the fact that this consumer sentiment was particularly low. Then on the other hand, we also are -- as we are represented predominantly in the upper segment cars in the electromobility like Tesla, we also feel the market environment. On the other hand, there is a big FX impact of negative 3.7% year-over-year which at the end of the day is unfavorable for us. However, as I said before, the margin generation in China was particularly good and also the cash flow generation was on a very good level for us overall. And the EMEA and Americas region stay very strong in terms of organic development. The region we currently focus on is Asia Pacific, as you know. Our overhead reduction program is well on track. We started, as you know, this transformation program in the first quarter. So starting with October, we've been concentrating on cutting down costs on a second step in the overhead structure. You know that over the course of the past 2 years, we always have already concentrating on the reduction of our costs predominantly on the operations side. We've been doing automation projects in Koblenz, which materialize throughout this year and the years to come. And now as you already have been informed about quarter 1, means starting October last year, we started also to cut down on overhead costs. And this transformation program is basically a boost for us for the second half of the year and the years to come. And we're basically taking out already in 2027, EUR 19 million in terms of fixed costs on our P&L. And this is something which gradually kicks in, in the next quarters ahead of us. Net leverage ratio, it's important for us to stay around 3x. We have 4.5x as a covenant, but we want to stay well below that with our net leverage ratio. And we've been in the range of 3x, so 3.04x this time around as of December. And I would say, as I said at the beginning, we at the end of the day, start in a market environment, which is soft and challenging with a strong and good position predominantly on the cash flow. So with that, we will go into the next page, and I would like to draw your attention a bit more on the technical stuff, the growth drivers for here and now, the months, quarters to come and also the next years. We invested in the past years, as you know, on the Industrial Powerise. Why is that particularly important for us? We started the same thing with Gas Springs, right? We are a leading company for Gas Springs. We brought the Gas Spring on a very good position, nice quality, excellent cost into the market also for all kinds of industrial applications. So you find them everywhere. So now we are doing the same with Industrial Powerise, right? We started in the Automotive side, are producing on highest quality and best cost position, the Powerise now for the industrial space. We've been having revenues beyond EUR 5 million in the first 12 months of our doing last year. So it grows double digit. And this basically receives a lot of interest of our customers. It receives a lot of technical support by our customers, and they love this project -- product because it's very robust. It's built on automotive lines to a very nice cost position. And as I said, we already started after the market introduction, which happened early last year with EUR 5 million we've been generating in terms of revenue on a very exceptionally high margin. As you can imagine, Industrial Powerise, part of the industrial space and industrial business enjoys good margin at this point in time. Second position is here as a growth driver for us, the door actuation. Door actuation, a wonderful product to be a next generation of vehicle comfort, right? It opens and closes doors automatically. It's a must-have for all kinds of cars with autonomous driving, self-parking, but also it enjoys exceptionally good growth rates in China these days. So we are in Geely, in Korea, we are in Hyundai. Actually, we start Li Auto this year. And there is not a single customer who's not interested in this next-generation vehicle comfort. And this takes off in the second half of the year as our customers, predominantly BMW, but also Tesla once more and also Li Auto to Xiaomi will fill their pipeline for the upcoming launches, and we enjoy also good business wins there. And as I said before, yes, currently in China, the consumer sentiment is on a decline. We saw that October, November, December, but this technology enjoys very nice growth rates, and it basically goes off in the second half of this year and will greatly help us in terms of sales. Last not least, also the third growth driver for us is our automation and the automation synergies. As you can imagine, over the course of the last years, we've been working a lot on synergy generation in terms of sales and technology with our Destaco portfolio. And now here, I would like to highlight first time that we are working already also on humanoid robots and industrial robotics systems. We have not only gripping systems, which we tailored now to humanoids and to industrial robots, but also we are with one of our OEMs where we're already in a strong business relationship in the automotive side, who decides to produce or decided to produce humanoid robots big scale, U.S. company, U.S.-based company. We are working on electromechanical solutions for the hinges of humanoid robots. And this is a development project which we recently entered. And this project, along with industrial robotics, gripping systems, the opportunities we see also for us in the automation space materializes as we speak and helps us a lot also throughout the year to generate additional highly profitable margins business. So the 3 growth drivers, the growth sentiment remains unbroken and unchanged. The big growth drivers, Industrial Powerise, automation technologies, doors actuation, they are kicking in. And as you can imagine, along with the program we are driving to do a reorganization and restructuring on the overhead side, we take and use these days and times of softer business to actively shape our future. So that's the strategic points we've been achieving over the quarter, of the quarter 1, October, November, December. However, I would like to also go into the details of the financials with you before I hand over to Andreas for the details on the regional view. Overall, revenues, as I said, EUR 291 million in terms of euros. Organic growth was soft, minus 7%. FX impact around, about 4%. And then we see here this China impact, predominantly Europe, North America growing well. In China, consumer sentiment, upper segment cars, when inflation hits the fan, people decide to go for lower segment cars in difficult days. We are with our products predominantly on the top segment cars, and this leaves its marks for sure. But we assume that being a short-term effect, which at the end of the day, will recover in the second half of the year from our perspective. Destaco synergies well on track with EUR 1.7 million at this point in time. Our target this time around is EUR 10 million for a year. We will achieve that. Our forecast shows that. As I said, there is several elements in the pocket like the production of gripping systems for humanoid or other elements for autonomous and robotic systems. In terms of EBIT margin, our EBIT margin came in with EUR 29.3 million, so it's 10.1%, predominantly supported by a very strong industrial business, but also by China because we decided in China to go for EBIT margins, not necessarily grabbing all the businesses around there, well knowing that the door actuation business at the end of the day has a higher margin to begin with, we said we rather focus on the high-margin products and the door actuation systems in order to generate good margins for us, and this strategy materializes. It's basically an 18% EBIT margin in China, overall 10.1%. And this, at the end of the day, will also improve over the course of the year as our effects of our restructuring projects kicks in. For sure, Destaco cost synergies are still on track, and we monitor them on a quarterly basis, EUR 0.5 million. Here, the target is for the year, EUR 4 million, and this is absolutely what we will achieve. Net profits are impacted for sure by FX, FX losses. But however, also here, FX and tax expenses, they are kicking in early in the year. This is something which you will see develop positively over the course of the year. And then last not least, our free cash flow, which is exceptionally good. The free cash flow is on EUR 23.9 million. We already got a question beforehand, whether this be driven by programs we did on the financial structure, but this is basically a good management of the operational side, a good cost control, good control on the forecast all levels on the operations side, which drives that and less financing programs. So with that, I would hand over to Andreas for some details by region. Andreas Jaeger: Good. Thank you very much, Michael, and a very warm welcome also from my side. I go directly into the region, and I would start with Americas. In Americas, we see in euro, a minus of 5.7% in the revenue. But if we consider the FX or the effect from foreign exchange rate translation in America, the organic growth was only minus 0.5%. The EBIT margin at 4.7%, we are not really satisfied, and Michael already mentioned it briefly, and I will come back to that on the next slide. In EMEA, also in reporting currency, the revenue minus 1.4%. And if you also factor out here the FX impact, we are only 0.3% negative. The margin at a solid 10.8% and considering the slightly lower volume, we could even increase the EBIT margin by 1.9 percentage point that shows on one hand that we really took out fixed costs and that we also worked on flexing our cost basis. In Asia Pacific, in the reporting currency, minus 30.6% year-on-year. Michael already mentioned it, predominantly in China with a challenging market environment in automotive. But the EBIT margin, clearly the highest with 18.1%, and considering all the challenges and the lower volume, we could almost maintain the EBIT margin and in percentage point, it went down only by 1.3 percentage points. If I then go now more into the details for Americas, you see again on the revenue, the minus 0.5%. We grew organically in Automotive Gas Spring and in Powerise. And if we compare that slight growth in Automotive Gas Spring and Powerise with the latest S&P data from automotive, they were slightly negative. They told us minus 0.8%. So also, if we take the market as a benchmark, a solid development of the revenue. On the EBIT side, we are not fully satisfied with what we achieved in there. On one hand, we saw the volume impact. We also saw and we informed you at the year-end presentation already that we changed the allocation and the recharges of the intellectual property right. So that had a negative impact on the EBIT. But then also the challenges we had in Mexico, in the U.S. Gas Spring operation, where we had a higher turnover in the workforce and that drove additional cost for training and also hampered the efficiency in the operation. If we then move on to EMEA, we can show a different picture. In EMEA, we are almost at prior year level, if we look at the organic growth, we saw a slight decrease in Automotive Gas Spring and Industrial Automation. On the other hand, we grew in Automotive Powerise. Also, if we here, benchmark ourselves with the information that we received from the S&P automotive market with a minus 2.2%, we delivered better numbers than the S&P number told us. If you look at the EBIT, slightly lower volume, but it's clearly higher EBIT margin and even in absolute numbers, an increase of the EBIT that shows we really took out fixed cost in Europe, and we could also flex to the volume our production cost. The last region then that I will cover is then APAC. In APAC, we already saw the decline that Michael at the beginning told us, the major impact we saw in this minus 24.9% comes from China. It's a challenging market, as Michael already said. If we then look at the development of the EBIT, yes, in absolute number, it went down, but we maintained a very solid margin of 18.1% in a very challenging environment. If we then look at the development of the business segment by market segment on the next slide, you saw that we slightly could reduce our portion from automotive with 54%. In Q1, we were at 57%. And however, most of the segment showed a negative development. If I then continue with the net leverage and the net financial debt on the next slide. You see since 2024, we could decrease the net financial debt by 7.5%. And if you compare that what we achieved in Q1 '26, we could reduce the net financial debt by EUR 13.3 million and reducing the debt and bringing down the leverage ratio is a clear priority. And we also said we will bring it to 2.0 within the next 2 years. On the net working capital, Michael mentioned it at the beginning, and we talked about the cash generation. You see during the last 3 periods, the net working capital came clearly down, and we are now at EUR 218.6 million or if you compare it to the ratio and comparison to the revenue, it came down again to 17.3%. The investments, you see them year-over-year and then the first quarter, the first quarter was with EUR 18.1 million, a little bit on the lower side, if you look at the investment. However, this has more to do with the seasonality. For us, it maintains a priority to invest in the future and develop new and interesting product technology, smart door actuation, electric grippers and also the automation of our production facility remains a priority. And with that, I would give back to Michael for the outlook. Michael Büchsner: Thank you, Andreas. Yes, we -- as you know, and we know clearly and our main focus for the second quarter is to work on our restructuring project to continue to do the rollout, basically to manage our overhead costs, but also to further improve us on the operational side. And this is something which at the end of the day, will lead us into February and March, right? Over the first half of the year, we said we'll roll that program out. And then at the end of the day, we will harvest that fruit starting in the second half of the year. And this is something which at the end of the day helps us in terms of sales initiatives, right? Door actuation, continue to win business in terms of business on the Industrial side, it's Automation and the Industrial Powerise. That's what we're currently working on. And as Andreas said, also in the second quarter, we'll continue to work on improving our North American plant in order to deal with the fluctuation we had on hand, which drove a negative performance there. Overall, with all these measures, our forecast is still on track, right? Our forecast, and we confirm it will be at EUR 1.1 billion sales, up to EUR 1.3 billion sales for the year in euro. The EBIT margin will be in the range between 10% and 12%. And also the adjusted cash flow is on track with EUR 80 million to EUR 110 million free cash flow after all. So that are basically the points we are currently working on. And if we go on the next page, actually, here, a brief summary for you. The -- actually, we are impacted for sure by the market environment, no doubt about that. However, with the initiatives we have on hand, we clearly know what to concentrate on in the second quarter and thereby, the guidance is confirmed. For sure, with whatever we do, we work and continue to work with strong team efforts on our STAR 2030 initiatives, right? Andreas mentioned it as well. Our main priorities remain there to invest in new technologies. We have had great achievements in the first quarter, we have been winning door actuation business, Industrial Powerise businesses and also even up on the Automation side, to contract development contracts for humanoid robots. That's what we're working on currently. And yes, in the second quarter, you will see development in the restructuring program. Next quarter, we will give an outlook about where we stand, what we achieved and which further points are necessary in terms of cost management, right? It's -- we've been managing the big and low-hanging fruit, which for us is now the restructuring program rollout. It has been starting very well. But also the cost management, it is very, very important to us in all the different regions. And we will also put a strong focus on the improvement of the operations in North America and on top of the sales initiatives. Because there are 2 things which are important for us this year, it's the cost management and the sales initiatives in order to prepare for a continuous success in our industry. Yes, with that, we would hand over to you for questions. Operator: [Operator Instructions] So the first question is from Akshat Kacker of JPMorgan. Akshat Kacker: Akshat from JPMorgan. I have 3 questions, please. The first one starting on your China business. As you mentioned in the first quarter, the market environment wasn't supportive. We have seen organic growth declines of 20% to 30% across your business segments in the first quarter. Could you just give us more details in terms of a rough split between volumes and pricing? And in terms of how this year plays out, when do you expect volumes to start stabilizing in China, please? That's the first question. The second question is on the North America margin. You did talk about some operational inefficiencies, higher personnel and training costs. Could you give us an idea on what kind of impact can we expect on the business for this fiscal year? And how quickly can you turn around things in North America, please? And the third one is on your assumption of a second half recovery. I completely understand that you talked about new launches and benefits from underlying cost actions that you have taken over the last year. And also keep in mind, Q1 always has a seasonality for your business in terms of higher revenues and margins in China. So could you just give us some sense on how much of a pickup do you expect in the business second half versus first half this year, both from a revenue and margin perspective? Michael Büchsner: Thank you very much, Akshat, for your questions. I give it a start and then for sure, I hand over also to Andreas. Talking about the first quarter in China, which is an exceptional good EBIT margin of 18%. Your question was in terms of sales, how were sales developing and what were the pricing impact. You know out of the last year, over the year, we had 8% pricing kicking in. That's just a given. If you compare now last year's first quarter with this year's first quarter, you for sure see this 8%. We've been always talking about it that this 8% are exceptionally high. Typically, in the automotive industry, we can deal with 4%, 4.5% maximum in China because in China, also technical changes are easier to introduce. However, the big topic we saw last year is that the competitor for front engine did basically set new target prices. And this was something, and you mentioned it, was visible throughout the year in terms of the margin development in China in a very firm way. And this is something which we've been constantly working on. So the impact was 8% pricing out of the revenue decline because we kind of -- you have this carryover effect. And if you compare quarter-to-quarter, first quarter to first quarter, basically, the first quarter last year was October, November, December '24. This is when the pricing discussions start at bigger scale. And now this delta, as I said, is around, about 8%. As stated, we are able to deal with 4% typically. And now we have to take extra actions to improve our profitability. This is why you also see the profitability of China still being on a decent level this year around with wonderful 18% because apparently, we can deal with this, but it has a time delay until we can deal with such margin deteriorations or pricing pressure in the industry. So these were the first 8%. Then we had an FX impact, a couple of percentage points. And I'm sure Andreas will talk about that. I think it was in the range of 3% to 4%. And at the end of the day, then something in China -- in China, our business staggering is we have half of our business Western world OEMs, half of the business Chinese OEMs. So we are balanced very well. There is this consumer sentiment of China going down, which makes up around, about 4%, right? So the consumer sentiment after all went down 4. This is following the studies of market developments in China, where we have access to, and this is something which will lead us into the second half of the year. That's the strong belief of economists in China in a nutshell. And then there was, for sure, the impact that we, as Stabilus Group are operating on the top segment cars in both China's OEMs and Western world OEMs. And when there is high inflation and people feel financial pressure, they decide on a shorter term because we saw that in the past as well, on a shorter term to concentrate on buying lower segment cars where typically the fitment rate of electromechanical devices is less. So in a nutshell, coming back to your first question, the answer to that, 8% was pricing around, about. There was an FX impact of 3% to 4%. Then you see a consumer sentiment for the business of 4% and then the remainder is then something which goes in line with the different segment of the cars have been produced like the upper segment cars, which, by the way, we saw in all regions. But in Europe and North America, we've been better flexing that with industrial business as our industrial business position is bigger on a bigger scale than in China. This was more difficult this time around in China. And that's why particularly the Asia Pacific region was impacted by that. So that's your first question. Then North America. In North America, the performance-related points, they are basically affecting our 2 automotive plants. It's the one in Mexico, and it's the one in Gastonia. And these 2 plants basically did lose around, about EUR 2 million last quarter, I would say, plus or minus on the efficiency side. And this is something which we're currently working on. There will be an impact also in the second quarter. We expect that in the third and the fourth quarter, we have things back under control. And this is something that was, as Andreas said, people fluctuation related. So we lost some people predominantly in the workforce, concentrating on direct labor, but also maintenance people. And as you know and can imagine, maintenance people are basically the lubricant in the transmission and gearbox of such a plant, right? Because the maintenance people, they guarantee that the uptime of the lines is sufficient to serve the demand of the customer. Then you see a complete chain reaction, right? You lose some of the maintenance people, then you have less output, then you get into the mode of some premium freight, quality is impacted as well. And this is something which we've been working on. We took sufficient measures. We will get out of this position, but it actually takes a couple of months to get there. So this basically is what we're working on for the second half of the year. You will see out of the improvements of the restructuring program, 1 percentage point improvement in the second half of the year on our EBIT margin. And then fixing the operational issues in North America will add another percentage point. And this is something which then lift us in terms of EBIT margin so that we're getting closer to the margins we had last year and also getting us within our guidance ballpark. So Andreas, from your side, I mean I've been explaining intensively now the root causes and percentages, how they move up and down with our operational points. Because actually, it's very important to us that we have a clear picture of where we are suffering and how we're impacted by the current market circumstances. That's why it's important to talk about all these details. I understand that very well. But Andreas, are there any points you'd like to add? Andreas Jaeger: If I look at the 3 questions, I would say they are all covered, but we can double check that with Akshat. Did you receive what you were looking for? Akshat Kacker: Yes, that's very clear. Operator: The next question is from Klaus Ringel of ODDO BHF. Klaus Ringel: I actually have 2 and would take them one by one. One would be a bit more detailed coming to Akshat's question about the business momentum. If you can already share a bit of light on your expectation for Q2. I mean margins shall improve over the course of the year, but regarding top line, can we also already expect some pickup in Q2 versus Q1? Or shall we rather expect something going sideways? This would be the first one. Michael Büchsner: So in terms of revenues, our expectation that in the second quarter, it moves rather sidewards. Why is that? In the second quarter, there is the Chinese New Year, which for sure is something which we have in our budget and are planning already, and it's considered in the guidance. And in terms of North America and Europe, we see a rather flat business out there. We see in the automotive industry, not too much movement. And on the industrial side, typically, the time when you get directionally a better view on how business develops is the spring time because this is when the orders kick in for new launches and other stuff, that's too early to say. So I would say January, February, March is moving rather side from our business. But however, this is how we build our business plan this year. We said the first 2 quarters will be rather on the soft side. And then in the second half, it will be picking up. And then similarly, in the margin, and this is why at the end of the day, also, we confirm for sure our guidance because that's what we've been planning for to begin with. Klaus Ringel: Okay. Second one is on the additional point you're talking about humanoid. And I really appreciate that you also start talking about this. Some other players, yes, a bit more, much more vocal for a couple of months now. So I would be very interested how immediate this potential really is. I mean you have this big U.S. customer in automotive, which also has obviously big ambitions in the humanoid robots. Is this really a couple of, I don't know, hundreds, thousands or millions of revenues over the course of the next 12, 18 months? Or is it less? Is it more? So this would be great. And also in terms of margin, is it fair to assume that you can achieve a kind of industrial margin in this area? Michael Büchsner: Yes. Thank you very much for this question. First of all, you mentioned at the beginning of your sentence that some already -- some people already have been talking about humanoid robots and automation in a broader scale in a different way than we do. The point is, for sure, in this humanoid robots, this is a customer which we also have on the automotive side. And there, sometimes it's not kind of allowed to talk about such movements. On the other hand side, if I talk about the stake of volumes, sometimes there is restriction by governments to openly talk forefront about it because we need to meet all the regulations to deal with this in the first place, but also it's then, in many cases, restricted in terms of communication because it's military service. That's to begin with. But we will disclose as much as we can for sure, not jeopardizing our business model with basically infringing any agreement we have with our OEMs. That's something which we very strictly kind of meet. So -- and then the impact, there is 2 areas. There's electromechanical devices, which we're currently working on for hinges and stuff for humanoid. That's something which is in the development phase. You will not see sales -- too much sales this year. There's difference in terms of the gripping systems, which we do for humanoid and also for end-of-arm tools for cobot systems. This is a new development with Destaco with basically a smart gripping system. And these gripping systems, they are in place already, and this is a couple of hundred thousand already in the first half of the year, which we deliver to the customers, and we expect that this goes up because there are new solutions with electrified version plus also feedback from the parts. So it's basically intelligent gripping system, which we did offer to the market here lately, and that's perceiving very good feedback. These are the 2 elements which are leading to that business opportunity for us. I hope that answers your question. Operator: So the next question in the queue is from Yasmin Steilen of Berenberg. Yasmin Steilen: So first, coming back on the price erosion in China. So we have seen the headwinds in Q1. However, you stated during the last call that you expect price erosion in China to ease a bit. So what is your current view on the overall price headwinds in China for Powerise in FY '26? That's my first question. Then with regards to the door actuation -- door actuators, you just stated that the ramp-up should happen in H2. So can you provide more color on the expected sales volumes to impact the second half? And how should we think about the profitability here in the ramp-up phase? And the last one on Destaco. I might have overseen this in the interim report, but could you share any comments on the profitability, please? Michael Büchsner: So thank you very much for your questions. In terms of pricing in China, the pricing in China is in the range of 4% to 5%. That's what we assume this year. This is the pricing levels which we are used to. As I said before, last year, we saw this exceptional pricing of twice as much in the range of rather 8%. This year, we see that continuing with 4% to 5%. And that's something which we are in a better way, able to deal with because that's the typical price reductions you get out of efficiency and you get out of your bill of material with your normal doings in the business, and that's something which we definitely can deal with in a given business year. How do we do that? We take our suppliers and do supplier negotiations because in absolute terms and volumes, for sure, the volumes go still up. It's a pricing-related reduction. So the volumes go up. And then at the end of the day, we negotiate with the suppliers in a better way, and we get their contribution to our success in the first place. Then the second thing is that our operational efficiencies in the plant are main point of our concentration in terms of our improvements. So that's something we saw over the course of the first quarter and second quarter already happening that the price reductions for this year will be in the range of 4% to 5%. The second question you had, the door actuation system, the profitability and the launches. Actually, the launches in the second half of the year, they are filling the pipeline for main customers like BMW. There is also Tesla involved, there is Xiaomi involved and some others smaller scale. This is business which we, at the end of the day, won a couple of years back and the launches are planned this year. And the profitability is on good levels. It's comparable or even slightly higher than our margins on the Powerise side. This is driven predominantly by the good launch performance we already drove in Asia Pacific. In Asia Pacific, specifically with our customers in China and Korea, we could establish a good position to also be leading in the price negotiations with the suppliers. Because at the end of the day, we've been winning over the course of the past years in the range of 40, so 4-0 percent of all businesses out there in door actuation. And due to the fact that we invested a lot in not only capacity because we have in all the different regions now aligned. We also invested heavily in the area of building up our supply base and technology. So we are basically frontrunner in terms of developing the right software, integrating the sensorics, having the radar systems on hand and so forth. So that's very beneficial for us. And at the end of the day, I would also come back to Klaus' question because Klaus asked the profitability of humanoids and profitability on industrial elements. I did forget to mention that this is for sure, average and slightly above industrial margins to basically close also the question we had from Klaus before. And then last not least, you were talking about Destaco profitability. Destaco holds the profitability very good. There is 2 things to keep in mind. One thing, and this is something which also with Andreas, we can go in detail, there is a reshuffling of overhead costs in the organization due to the fact that now we distribute the complete overhead costs to the complete business we have. This is first time that we also burden Destaco with the company overhead rate across the board. So that means the like-for-like comparison at the end of the day is something which can be explained in detail, but it accounts for basically 2%, 2.5%, which we burden on the Destaco profitability. Other than that, the businesses we are taking in, considering the current industry weakness, we are absolutely fine with. I hope that answers your question. Yasmin Steilen: Yes. That was very clear. And the last one on the -- sorry, on Destaco. Michael Büchsner: Excuse me? Yasmin Steilen: So in terms of Destaco profitability, how should we think about it going forward? Michael Büchsner: This is what I meant. They're very stable in terms of the profitability. We did distribute first time this year to the Destaco business also the overhead costs. That means in the financial numbers, you will see now 2 effects. You will see a burden of the overhead -- related overheads to the Destaco business, which accounts for 2.5% around, about. And then you will also see that it's now coming together with other businesses like the synergy business we have on hand. And this is basically also impacting the position of Destaco. But overall, it remains on a very good level for us. So it basically holds the course, except this burden of the overhead rates, which we first time basically also distributed now to the Destaco business. Yasmin Steilen: Okay. So just to clarify, so the former indications you gave about 19% to 20% was ex-overhead costs? Michael Büchsner: This was without allocation of the overhead costs, indeed, yes. Operator: At the moment, there are no questions in the queue. [Operator Instructions] As of now, there seem no more questions to be on the line. Michael Büchsner: Yes. If there are no further questions, then thank you very much. One point is very important. We know exactly what to work on in the second quarter. It will be continuing the restructuring program, watch costs and for sure, use the drive levers we have to boost sales, which at the end of the day will kick in second half of the year, like our wonderful door actuation system where we have the launches coming in the second half of the year on the industrial side, the Industrial Powerise and then the automation system predominantly in the space of automation, but also humanoid robots, which we are in a long run working on. With that, thank you very much. I wish you a nice and successful week. Bye, everybody. Andreas Jaeger: Thank you. Have a good week. Bye.
Operator: Good day, and thank you for standing by. Welcome to the Bank of Hawaii Corporation fourth quarter 2025 Earnings Conference Call. At this time, all after the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press 11 on your telephone. You'll then hear a lot of in messages by being a hand raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Chang Park. Please go ahead. Good morning, and good afternoon. Chang Park: Thank you for joining us today for our fourth quarter 2025 earnings call. Joining me today is our Chairman and CEO, Peter Ho, President and Chief Banking Officer, James Polk, CFO, Bradley S. Satenberg, and Chief Risk Officer, Bradley Shairson. Before we get started, I want to remind you that today's conference call will contain some forward-looking statements. And while we believe our assumptions are reasonable, the actual results may differ materially from those projected. During the call today, we'll be referencing a slide presentation as well as our earnings release. Both of these are available on our website, boh.com, under the Investor Relations link. And now I would like to turn the call over to Peter. Peter Ho: Thanks, Chang. Good morning or good afternoon, everyone. Thank you for your continued interest in Bank of Hawaii Corporation. We recorded yet another set of strong results in the fourth quarter. Fully diluted earnings per share was $1.39 per share, 63% higher than results from a year ago, and 16% higher than last quarter. Net interest margin improved for the seventh straight quarter, up 15 basis points to 2.61%. Return on common equity improved to 15%. Loans and deposits both grew modestly in the quarter. Importantly, noninterest bearing demand deposits grew 6.6% on a linked basis. Credit quality remained and remains pristine. I'll now touch on some operating highlights. Brad Shairson will briefly update you on credit quality, and Bradley S. Satenberg will dive a little deeper into the financials. As you know, Bank of Hawaii Corporation has a unique business model that creates superior risk-adjusted returns by leveraging our unique core Hawaii market, our dominant brand and market position, and our fortress risk profile. Our market-leading brand position is largely the driver of our market share outperformance, giving us both a robust and durable competitive franchise advantage. Our brand advantage is built on our 125-plus year history in the island, our physical branch system, and increasingly our digital service, marketing, and commerce capabilities. Over the past twenty years, Bank of Hawaii Corporation has delivered market share growth nearly four times greater than that of our next closest competitors. The market share growth continued in 2025, advancing another 40 basis points. We are the clear deposit market share leader in Hawaii. Interest bearing deposit costs improved by 20 basis points, and total cost of funds improved 16 basis points in the quarter. Also in the quarter, we remixed $659 million in fixed rate loans and investments from a roll-off rate of 4% and into a roll-on rate of 5.8%, helping to improve net interest margin. As I mentioned, Q4 was the seventh consecutive quarter of NIM expansion. In early 2025, we had a goal of achieving a 2.50 NIM by year-end based on fixed asset repricing, improving deposit remix, and rate cuts. We were gratified to see NIM result for Q4 well exceeding that goal. We believe NIM by the 2026 could come in near the $2.90 range. Our Fortress Credit position is a long-standing strength of Bank of Hawaii Corporation. The portfolio is diversified by product type, predominantly secured and possessing superior long-term loss experience. We dynamically manage our credit portfolio, actively managing off loan categories that we find not to meet our stringent loss standards. And now let me turn the call over to Brad Shairson, who will provide a brief overview on credit. Brad? Bradley Shairson: Thanks, Peter. I'll begin with an overview of our credit portfolio, and conclude with asset quality metrics. And as you will see, our performance has remained strong, consistent with prior quarters. Turning to our lending philosophy, the Bank of Hawaii Corporation is dedicated to serving our local communities, lending primarily within our core markets where our expertise allows us to make informed and disciplined credit decisions. Our portfolio is built on long-tenured relationships with approximately 60% of both our commercial and consumer clients having been with the bank for more than ten years. Geographically, our loan book is concentrated in markets we know well. Approximately 93% of loans are based in Hawaii, with 4% in the Western Pacific and just 3% on the Mainland, primarily supporting existing clients who operate both locally and on the Mainland. Our loan portfolio remains well balanced between consumer and commercial exposure. Consumer loans represent 57% of total loans, or approximately $8 billion. Within the consumer portfolio, 86% consists of residential mortgage and home equity loans with a weighted average LTV of 48% and weighted average FICO score of 799. The remaining 14% of consumer loans are comprised of auto and personal lending. Credit quality in these segments also remain strong, with average FICO scores of 730 for auto loans and 761 for personal loans. Turning to commercial lending, the portfolio totals $6.1 billion, representing 43% of total loans. 73% is secured by real estate with a weighted average LTV of 54%, reflecting our ongoing emphasis on collateral protection. CRE remains the largest component of commercial book, totaling $4.2 billion or 30% of total loans. And in Oahu, the state's largest CRE market, a combination of consistently low vacancy rates and flat inventory levels continue to support a stable real estate market. Across industrial, office, retail, and multifamily property types, vacancy rates remain below or close to their ten-year averages. Total office space on Oahu has declined by approximately 10% over the past decade, driven primarily by conversions to multifamily residential and lodging. This structural reduction in supply combined with the return to office trend has brought vacancy rates closer to long-term averages and well below national levels. Our CRE portfolio remains well diversified with no single property type exceeding 8.5% of total loans. Conservative underwriting practices continue to be applied consistently with weighted average LTVs below 60% across all CRE categories. In addition, diversification within each segment remains strong, supported by modest average loan sizes. Scheduled maturities are also well balanced, with more than 60% of CRE loans maturing in 2030 or later, reducing near-term refinancing risk. Looking at the distribution of LTVs, there isn't much tail risk in our CRE portfolio. Only 1.6% of CRE loans have greater than 80% LTV. C&I accounts for 11% of total loans. This portfolio is diversified across industries characterized by modest average loan sizes with very little leveraged lending. Turning to asset quality, credit metrics continued to perform exceptionally well. Net charge-offs totaled $4.1 million or 12 basis points annualized. That's up five basis points from linked quarter and two basis points higher year over year. Nonperforming assets declined to 10 basis points, down two basis points from linked quarter and four basis points year over year. Delinquencies increased to 36 basis points. That's up seven basis points from linked quarter and up two basis points year over year, and criticized loans increased to 2.12% of total loans, up seven basis points from linked quarter and two basis points higher year over year. Notably, 86% of criticized assets are real estate secured with a weighted average LTV of 54%. And as an update on the allowance for credit losses on loans and leases, the ACL ended the quarter at $146.8 million. That's down $2 million from the linked quarter. The ratio of our ACL to outstandings dropped two basis points to 1.04%. I will now turn the call over to Bradley S. Satenberg for a discussion of our financial performance. Bradley S. Satenberg: Thanks, Brad. For the quarter, we reported net income of $60.9 million and a diluted EPS of $1.39, an increase of $7.6 million and $0.19 per share compared to the linked quarter. These increases were primarily due to the continued expansion of our net interest income and our net interest margin. As Peter mentioned, this is the seventh consecutive quarter that we've expanded both our NII and NIM, and this quarter's expansion of $8.7 million and 15 basis points represents the most significant improvement during that stretch. Driving this expansion is the successful repricing of our deposits, a $200 million securities repositioning that we executed in early October, as well as the deposit mix shift, which is a positive $100 million this quarter. This is the first time since 2022 after the Fed started raising rates that the mix shift had a positive impact on our earnings. As a reminder, the mix shift represents deposits shifting from noninterest bearing and low yielding deposits to higher cost deposits. Mix shift peaked at $967 million in 2023 and has moderated since then. During the year, the average quarterly mix shift was $25 million compared to $340 million in 2024. During the quarter, the yield on interest earning assets declined modestly by one basis point. As floating rate assets repriced down in response to rate cuts during the latter half of the year. The impact of these rate cuts was almost entirely offset by the positive impact from our fixed asset repricing. While the yield on interest earning assets dipped modestly, the cost of our interest bearing liabilities improved by 19 basis points or 9% compared to the linked quarter. And was driven by the successful repricing of our deposits which declined by to 1.43% a 16 basis point reduction from the third quarter. In addition, our deposit beta improved from 28% to 31%. And I remain optimistic that we will ultimately achieve a beta that at least 35% after Fed funds hits its terminal rate. It's also important to point out that we ended the quarter with a spot rate on our deposits of 1.3%. Or 13 basis points lower than our average cost during the quarter. Based on the spot rate, I anticipate another solid improvement in the cost of our deposits during the first quarter. Additionally, our CD book continues to reprice down, and during the fourth quarter, the average cost of our CDs declined by 22 basis points to 3.18%. During the next three months, 52% of our CDs will mature at an average rate of 3.1%. The majority of these CDs are expected to renew into new CDs at rates ranging from two and a quarter to 3%. We made no changes to our interest rate swap portfolio during the quarter. We finished the year with an active pay fixed receive flow portfolio of $1.5 billion at a weighted average fixed rate of 3.5%. $1.1 billion of these swaps are hedging our loan portfolio, while $400 million are hedging our securities. In addition, we have $500 million of forward starting swaps at a weighted average fixed rate of 3.1%. $300 million of these forward swaps will become active during the 2026 while the remaining $200 million will become effective during the third quarter. At the end of the year, our fixed float ratio remained stable at 57%. I believe that we are well positioned for any interest rate environment. Noninterest income was $44.3 million during the quarter compared to $46 million during the linked quarter. As I discussed last quarter, noninterest income in the fourth quarter was impacted by an $18.1 million gain on the sale of our merchant services portfolio which was largely offset by a $16.8 million loss incurred in connection with the repositioning of our investment portfolio. The current quarter also includes a $770,000 charge related to a Visa conversion ratio change while the linked quarter includes a similar Visa charge. The third quarter also includes approximately $3 million of merchant services fee income that will not recur following the sale of that business. Adjusting for these normalizing items, noninterest income was essentially flat. My expectation is the first quarter normalized noninterest income will be between $42 million and $43 million. Noninterest expense was $109.5 million compared to $112.4 million during the linked quarter. Included in noninterest expense this quarter is a $1.4 million reduction in our FDIC special assessment as well as a nonrecurring $1.1 million donation to our Bank of Hawaii Foundation. The linked quarter includes a severance charge of $2.1 million and approximately $2.2 million of nonrecurring merchant services expenses. Compared to my previous forecast, actualized actual normalized noninterest expense was higher than expected mainly due to additional incentives that were recorded during the period. 2026, I am forecasting that expenses will increase by between three and three and a half percent from our 2025 normalized expenses. And I anticipate that our first quarter normalized noninterest expense will be approximately $113 million. The first quarter generally tends to be elevated as compared to the rest of the year, to seasonal payroll taxes and incentive related charges. During the quarter, we also recorded a provision for credit losses $2.5 million which is unchanged from the linked quarter resulted in a coverage ratio of 1.04%. Further, we reported a provision for taxes of $17 million during the quarter, resulting in an effective tax rate of 21.5%. I anticipate that our tax rate will be closer to 23% in 2026 due to the impact from forecasted discrete items. Our capital ratios remained above the well capitalized regulatory thresholds during the quarter with Tier one capital and total risk based capital improving to 14.5% and 15.5% respectively. And consistent with the linked quarter, we paid dividends of $28 million on our common stock and $5.3 million on our preferreds. Plus, we resumed our stock repurchase program in the fourth quarter and approximately $5 million of common shares at an average price of $65 per share. I'm currently planning to increase the level of our repurchases next quarter. At the end of the year, $121 million remained available under the current plan. Finally, our board declared a dividend of $0.70 per common share that we paid during the first quarter. Now I'll turn the call back over to Peter. Peter Ho: Thanks, Brad. This concludes our prepared remarks. Now we'd be happy to take whatever questions you might have. Operator: Answer session. As a reminder to ask a question, you'll need to press 11 on your telephone and wait for your name to be announced. Withdraw your question, please press 11 again. Now first question comes from the line of Matthew Clark of Piper Sandler. Your line is now open. Matthew Clark: Hey, good morning, everyone. Good morning. Just want to start on the noninterest bearing deposit growth this quarter. Good to see some strength there. Sounds like less mix shift, people seeking higher rate probably some seasonality too, but just you just drill down on that those balances there at the end of the year, whether or not that's sticky and what you're what your outlook is for growth, this year. Peter Ho: Yeah, Matt. I think I think the fourth quarter might be a bit outsized. I mean, it was a 6% pickup in an IBD, but I think directionally, we've seen growth in in that category for a few quarters now. And that's coming from a pretty balanced grouping of of business segments participating. So commercial, our consumer folks are doing a good job bringing in sticky low cost deposits. So we would anticipate this probably continuing would be my sense, but probably not at that same clip of six, you know, six plus percent. That's probably little bit overstated. And I think there's probably some seasonality in there as you as you to. Matthew Clark: Okay. Great. And then on the loan side, pretty much in line. Anything you're seeing there in the pipeline that would suggest any you'd you know, ideally like to get back to mid single digits? I don't know if that's realistic this year or not, just want to get a sense for the pipeline and your outlook there too. Peter Ho: I'll let Jim cover that too. Yeah. I I I feel generally better about where our pipelines are at, but until we can get both consumer and commercial kind of both contributing to to growth, I think we'd probably stick in the mid single you know, in the low single digits at this point. But I think there's opportunity to, improve as we work throughout the year. Yeah. But, I mean, I think to be clear, the you know, '25 was basically it it was a flat year from a end of period standpoint year on year. So I think that '26 at least from our forward vision into at least the first quarter, feels like it's going to be more of a kind of a mid single digit type of year for us. So, you know, a bit of an improvement, but still, you know, we we still love to see growth accelerate there, obviously. Matthew Clark: Okay. Great. And then just last one for me. Do you happen to have the your special mention in classified balances at the end of the year? Bradley Shairson: I will take a look and see if I can get that for you. I don't have that offhand. Might come back to you in a minute or so on that. Matthew Clark: Great. Thanks. Operator: We're going for our next question. And our next question comes from the line of Jeffrey Allen Rulis of D. A. Davidson. Your line is now open. Jeffrey Allen Rulis: Thanks. Good morning. A couple of questions on the margin. I just want to confirm that kind of update on the margin to reach near the two ninety range. That's a kind of end of year, not fourth quarter average of two ninety million Is that Is that correct? Peter Ho: That that's the way we're thinking about it, Jeff. That's right. Jeffrey Allen Rulis: Okay. And and do you happen to have the December margin average? Bradley S. Satenberg: Yeah. We we finished the year at, $2.67 so about six basis points above where we we, you know, finished the fourth quarter in. Jeffrey Allen Rulis: Great. And and just on the sensitivity, it seems like that margin has been almost absent fed hasn't really impacted. It's kind of a mechanical increase. Would you say the same sensitivities or or lack thereof? It it's a pretty from from your seat, looks like a pretty extended increase I guess, regardless of of rate. Rate moves. Upcoming. Peter Ho: Yeah. I I would agree with that. I mean, I would say that any rate cuts that we see as long as they're orderly and sort of telegraphed, I think, we'll see a benefit from that. And then also, you look at the mix shift. And to the extent that we can keep that either moderated at, you know, breakeven or even positive, I think that'll actually contribute to to margin as well. Peter Ho: Yeah. Let me let me just add a little bit to that, Jeff. I think you know, what what you saw in the quarter was the convergence of of a number of things that were supportive of the margin expansion. Obviously, as you pointed to, the fixed asset repricing is mechanical. I mean, we just have assets coming off at lower yields than they're going back onto, which is a good thing, obviously. But you know, rate cuts did have a positive impact for us to the extent we get rate cuts moving forward. Think that's going to continue to be a positive for us. And then also in the quarter, we had very strong as as as you know, we had strong deposit remix characteristics. So we're able to grow out the lower yielding NIVD in particular deposits. And if that if that continues to persist, that'll be another tailwind for us. And then finally, I'd say that I think that you know, certainly, effectively, there have been two you know, rate cut periods, twenty four and twenty five, I'd say that our ability to manage deposit pricing with the 25 vintage was materially better than 24. So I think team's gotten better at managing you know, a little more of a a rate reduction cycle. And that's coming through on our on our betas. Jeffrey Allen Rulis: Got it. Nice backdrop. If I could squeeze one more in just on the on the credit side with the ACL decline linked quarter, I I wanna read much into it, but is there any sort of indication of a mix change or macro improvement? You kind of outlined the CRE firming up, but I just wanna touch on credit and and potentially that reserve release if if we should take anything from that. Bradley Shairson: Sure. So and I will answer your other question as well. Related to special mention. Special mention, I'll start off with that and just say that special mention end of the fourth quarter was $63.4 million. That's actually a year over year change down $46.8 million. From the fourth quarter 2024. And then our total classified at $298.5 million. And, you know, as as Peter mentioned earlier, credit quality remains pristine. During the quarter, I will mention that we had a charge off of of just over $1 million related to a previously identified nonperforming asset. And as a result, you you can see our NPA is the declined while net charge offs experienced a modest uptick. This was obviously a idiosyncratic resolution rather than any sort of reflection of a a broader credit stress. That's very clear. Absent this charge off, our credit quality metrics would have been pretty much, very similar to last quarter's performance. We do continue to see very strong underlying portfolio performance overall. And our we have stable trends across delinquencies, criticized assets, and any early stage indicators. And in addition to answer your second question, you know, the most recent UHERO economic forecast for the state of Hawaii reflects an improved outlook for 2026, and that's really what supports that reduction in the ACL coverage during the quarter. So we feel really good about how we're positioned right now. Peter Ho: Well, an improved outlook coming off of what we previously had forecasted down Exactly. So they revised their downturn numbers up. Bradley Shairson: That's right. Yeah. Jeffrey Allen Rulis: Sounds good. Thank you. Peter Ho: Great. Let's see you, Jeff. Operator: Thank you. One moment for our next question. Comes from the line of Jared Shaw of Barclays. Your line is now open. Jared Shaw: Thanks. Good morning. Peter Ho: Morning, Jared. Jared Shaw: Hey. Maybe just sticking back with the the growth in DDA, it's a great quarter. Can you just give a little color on market share gain that you think from that versus just sort of improving customer backdrop? And then if we look at you know, the slide that shows the strength of sort of the market share gain over the last year and the last twenty years, is there a natural ceiling for that? Or do you think that you know, Bank of Hawaii Corporation can continue to you know, sort of take significant share here. Peter Ho: I'll I'll address the second part of the question first. I I like to believe that our historic performance is an indicator of what's possible for the future. We're you know, we we think of Hawaii as our core and primary market. And we're always trying to figure out ways to serve our clients better whether it's on the consumer side or the commercial side. That's been met with with pretty handsome market share pickups. So I I just I don't really see a condition that would lead me to believe that that's going to retard at all. Into the future. I mean, it's a competitive world. Things are changing. Products change. Consumer demands and sentiment changes. And today, we've been pretty good at understanding how that plays through here in this marketplace. And I'd I'd hope that continues to continue on. As relating to the demand deposits growth from the past certainly this quarter and the past couple of quarters, prior I I think it's this market feels like it's, you know, stable but not growing tremendously. So I don't know a lot of our operating deposits have come from just better economic outcome. That feels reasonably flat to me. I do think there's some cyclicality into the fourth quarter. And and I think, frankly, it's it takes a while for you know, the teams to really focus in on you know, whatever categories you're sending them to to focus in on. And, you know, DDAs and deposits and DDAs in particular is an area that we have obviously put a lot of emphasis into as as Fed funds has given that a good amount of profitability. I think we'll be able to see kind of the fruits of our labor there. Jared Shaw: Okay. Thanks. Appreciate that color. Yes. Shifting maybe to the other side of the balance sheet. Talking about the low single digit loan growth opportunity, Could you just give a little color on what you're seeing in terms of commercial pipelines and what sort of the backdrop on the residential mortgage side could look like? Sure. Jimmy, you wanna cover that? James Polk: Yeah. So maybe I'll start with commercial. You know, we've seen the pipeline build nicely through Q4. I think that's sets us up really, you know, in a more positive fashion in Q1. The activity's been on the commercial real estate side in our large commercial real estate business, but we've also seen some good growth in the pipeline in our middle market businesses. So I think it's it's more robust than just one area. We feel pretty good about that. On the resi side, you know, we had a really solid Q4 that was driven in part by an increase in overall purchase activity. Aided by, a couple projects that closed out during the quarter. Pipeline remains pretty good going into Q1. And so I think, you know, as I said earlier, I think we feel better about overall loan activity. And, you know, I think we see the opportunity to to move into the middle mid single digits as we work through the year. Jared Shaw: Great. Thank you. Operator: Thank you. One moment for our next question. And our next question comes from line of Andrew Tyrrell of Stephens. Your line is now open. Andrew Tyrrell: Hey, good morning. Peter Ho: Hey, Andrew. Andrew Tyrrell: If I could just start on the the margin, obviously, you know, another sounds like another year of a a really good margin expansion. I'm just curious. Is that mostly fixed asset repricing driven? Do you do you assume or contemplate any securities restructuring within there? And then you know, as we look out beyond just, you know, the fourth quarter or 2026, does the fixed asset repricing benefit continue in 2027? Or starts to diminish somewhat? Peter Ho: I'll let Brad touch on that. Yeah. I mean Generally, yes, but I'll let Brad once. Bradley S. Satenberg: Yeah. I mean, just to start with the fixed asset repricing, I we we we believe we've got couple years at least, of that. I mean, you know, we think we'll still see an impact of it. It may start start to diminish slowly, but, we'll continue to see that, you know, continue to have an impact over the next couple of years easily. As far as this quarter, I mean, did have fixed asset repricing and the securities repositioning, obviously. Had an impact, and then the rate cuts obviously, had an impact as well on the the decrease in our cost of deposits. And so looking into the first quarter, I mean, I think we're continuing that momentum. I think you'll see the NIM expand, maybe not to the same extent as you saw in the fourth quarter, but I I still think we'll see a nice expansion with the, you know, the spot rates and our cost of deposits and then the December NIM, you know, going into January at $2.67. You know, I think we'll continue to see some good momentum with our NIM. Andrew Tyrrell: Yep. Okay. And then just on the topic, do you have the the the total NI impacts of the the swaps in the fourth quarter inclusive of the terminated hedges? I think you guys terminated last quarter. Bradley S. Satenberg: The the impact on our net interest income. The it was about Yep. Just over a million dollars for the quarter. And that includes the impact of the amortization of the termination costs. Andrew Tyrrell: Got it. Okay. Thank you. And then last one for me, just sounds like you know, interested in in picking up the buyback a bit here in the in the first quarter, but growth also sounds a little stronger as well on the loan side. Just remind us for comfortable at from a capital standpoint. And then just on the repurchase front, should we expect that becomes a more more consistent part of the capital return story moving forward? Peter Ho: I think as as long as growth remains kind of in the in the tepid range, call it, We're gonna be looking to deploy capital into buybacks. We like you know, kinda where the price is from a from a purchase standpoint at least. So we were 5,000,000 last quarter I would anticipate that we'll be closer to the 15 to $20 million range moving forward per quarter. Andrew Tyrrell: Great. Nice quarter. Thanks for taking the questions. Peter Ho: Thank you. Take care. Operator: Thank you. One more for next question. And our next question comes from the line of Kelly Ann Motta of KBW. Your line is now open. Kelly Ann Motta: Hey, good morning. Thanks for the question. Most most of mine have been asked and answered at this point. But, one area I did wanna touch on was these. You mentioned on your October earnings call about on the potential opportunity in wealth and ahead. And I appreciate the Q1 guidance of forty two to forty three. As you look ahead, can you perhaps share a bit about the opportunity on the fee side and and kind of the cadence of potential pull through with that? Thank you. James Polk: Sure. Should we wanna touch on that? Yeah. Sure, Peter. So, you know, as we've mentioned, we've spent the last couple years really building into our wealth opportunity. We've started to see some, good traction in internally, educational wise, participation wise, calling wise with our clients. We're doing a number of different engagement activities with clients just from a seminar type of perspective, and I think those things are really starting to to to help us to build the overall momentum. You can look at, you know, quarter over quarter, we had a little over 2% growth in fees on a linked quarter basis. And so I think that, production in Q4 was one of our highest levels in a while. Pipeline remains, very strong from an investment perspective. So know, I think as we as we move forward getting into that 10 range, I think that was the guidance that we provided at the last call, even higher as we have more time to build into the opportunity. Think, you know, we feel pretty reasonable about that. Kelly Ann Motta: Got it. That's that's, that's really helpful. And then on the expenses, just a minor housekeeping question. On the three to three and a half percent increase, I just wanna make sure I'm using the right normalized expense base to have you at about $4.41 in 2025. Is that Is that the right number to kind of build off of given that there's been a couple onetime items, especially here in the second half? Bradley S. Satenberg: Hey, Kelly. This is Brad. Yeah. That's that's about right. I mean, I look at it somewhere between 40 $4.40 and $4.41. Kelly Ann Motta: Got it. Thank you so much. Peter Ho: Take care. Operator: You. I'm showing no further questions at this time. I'd like to turn it back to Chang Park for closing remarks. Chang Park: Thank you, everyone, for joining our call today. Thank you for your continued interest in Bank of Hawaii Corporation. As always, please feel free to reach out to me if you have any additional questions. Bradley Shairson: Thank you so much. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Baker Hughes Company Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Chase Mulvehill, Vice President of Investor Relations. Sir, you may begin. Chase Mulvehill: Thank you. Good morning, everyone, and welcome to Baker Hughes Fourth Quarter and Full Year Earnings Conference Call. Here with me are our Chairman and CEO, Lorenzo Simonelli; and our CFO, Ahmed Moghal. The earnings release we issued yesterday evening can be found on our website at bakerhughes.com. We will also be using a presentation with our prepared remarks during this webcast, which can be found on our investor website. As a reminder, we will provide forward-looking statements during this conference call. These statements are not guarantees of future performance and involve a number of risks and assumptions. Please review our SEC filings and website for factors that could cause actual results to differ materially. Reconciliations of adjusted EBITDA and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I will turn it over to Lorenzo. Lorenzo Simonelli: Thank you, Chase. Good morning, everyone, and thanks for joining us. First, I'd like to provide a quick outline for today's call. I will start with our strong fourth quarter and full year results, highlight key awards and discuss the macro environment. Following this, I will walk through the progress we are making as we further scale our power systems portfolio and capture growing demand in this space. I will then hand it over to Ahmed, who will present an overview of our financial results, followed by an update on the progress we are making on Chart integration planning. To conclude, I will summarize the main points before we open the line for questions. Let us now turn to Slide 4. We continued to execute at a high level, delivering another quarter of strong results. Adjusted EBITDA totaled $1.34 billion, surpassing the midpoint of our guidance range and contributing to a record full year adjusted EBITDA of $4.83 billion. This achievement demonstrates sustained momentum from our Business System and ongoing positive performance in Industrial & Energy Technology, which more than offset continued macro-driven softness in Oilfield Services & Equipment. Adjusted earnings per share rose to $0.78, resulting in a full year adjusted EPS of $2.60, a 10% increase from 2024. Adjusted EBITDA margins for the fourth quarter rose 30 basis points year-over-year to a record 18.1%. While OFSE margins declined due to prevailing market conditions, IET margins increased by 160 basis points to 20%. For the full year, company adjusted EBITDA margins increased by 90 basis points to a record of 17.4%. OFSE margins remained resilient even though revenue declined by 8%, while IET margins demonstrated another year of meaningful expansion, increasing 170 basis points to a historical high of 18.5%. Turning to orders. IET delivered strong fourth quarter order bookings of $4 billion, contributing to a record full year total of $14.9 billion, exceeding the high end of our guidance range. For the second consecutive year, non-LNG equipment orders represented approximately 85% of total IET orders. This performance highlights the end-market diversity and versatility of our IET portfolio, led by growth in power generation and New Energy alongside continued strength in energy infrastructure and LNG. IET achieved a record backlog of $32.4 billion at year-end, while book-to-bill exceeded 1x. During the fourth quarter, we generated robust free cash flow of $1.3 billion, contributing to a record annual free cash flow of $2.7 billion. This represents a free cash flow conversion rate of 57% in 2025, above our 45% to 50% target range. This strong performance was driven by enhanced working capital efficiency and higher customer down payments, which contributed to free cash flow for the year exceeding expectations. Now turning to Slide 5. As I highlighted, we maintained robust order momentum in IET throughout 2025. In LNG, we delivered another strong quarter of equipment orders, providing critical liquefaction technology for Train 5 at NextDecade's Rio Grande LNG facility and Commonwealth LNG's export terminal. In 2025, we booked $2.3 billion of LNG equipment orders. Looking ahead to 2026, we expect similar levels of LNG awards, including material orders outside of the U.S. Building on these achievements, we are further strengthening the durability of our life cycle model through major aftermarket service awards. This includes long-term service agreements for Cheniere’s Corpus Christi Trains 8 and 9 as well as iCenter remote monitoring and diagnostics for NextDecade's Rio Grande Trains 1, 2 and 3. In power systems, orders increased significantly to $2.5 billion in 2025, including $1 billion tied to data center applications, reflecting accelerating demand and growing customer confidence in our solutions. Capitalizing on this strong momentum in power systems, 2025 marked a milestone year for our NovaLT industrial gas turbines, booking approximately 2 gigawatts of orders across oil and gas, industrial and data center markets. In addition, during the fourth quarter, we secured a large slot reservation agreement for approximately 1 gigawatt of NovaLT capacity to support data center applications, which we expect to convert into a firm order in 2026. Additionally, our power systems business secured a major contract to supply over 40 BRUSH generators for gas-fired utility-scale power plants, which will collectively deliver approximately 7 gigawatts of reliable power and enhance grid resilience, highlighting the critical role our technologies play in strengthening U.S. energy infrastructure. We also continue to capture synergy opportunities across our power systems and compression businesses, highlighted by a significant award to supply an integrated solution for the Tengiz Gas Separation Complex in Kazakhstan. This project underscores the value of our integrated portfolio in delivering complex, large-scale infrastructure solutions. Further, we are seeing increased commercial synergy potential across the enterprise by combining complementary surface and subsurface OFSE technologies with our extensive IET portfolio, we are unlocking growing synergy opportunities across field management, offshore production, geothermal and CCS. This is most evident in New Energy, booking $434 million of orders in the quarter and a record $2 billion for the full year, well above our $1.4 billion to $1.6 billion target. During the quarter, notable New Energy awards included the supply of critical turbomachinery equipment for a blue ammonia project in the U.S., along with continued strength for geothermal orders in U.S. and Hungary. Looking forward, we are targeting $2.4 billion to $2.6 billion of New Energy orders in 2026. IET's Cordant solutions sustained robust momentum in 2025, achieving double-digit order growth for the third consecutive year and a 20% increase in software orders. During the quarter, the business continued to scale its digital software offerings, reinforcing recurring revenue and life cycle pull-through across our equipment installed base, while also increasing penetration of non-OEM equipment. As the global installed base of critical equipment continues to expand across energy, industrial and power sectors, we are unlocking additional pull-through opportunities for Cordant leveraging our comprehensive solutions to drive greater value for our customers. In OFSE, we continue to see strong customer demand across deepwater and Middle East markets, driven by brownfield and OpEx-led developments that leverage our digitally enabled production portfolio. These solutions directly lower operating costs and support recurring, production-led spending for our customers. During 2025, we secured approximately $3 billion of Production Solutions awards in the Middle East, including approximately $1 billion of multiyear contracts in the fourth quarter from Kuwait Oil Company, Petroleum Development Oman and ADNOC. The awards with KOC and PDO cover the deployment of advanced ESP systems and Leucipa in over 1,000 wells. In addition, the ADNOC contract includes the deployment of our AccessESP system in the offshore Umm Shaif Field, along with continuous digital monitoring services that support recurring revenue over the life of these assets. Momentum has also continued across subsea markets, driving a near record order quarter for Subsea & Surface Pressure Systems, with bookings of $1.1 billion and a book-to-bill of 1.4x. During the quarter, we were awarded a multiyear frame agreement for subsea production systems and services for the Coral North LNG project offshore Mozambique. Now turning to the macro on Slide 6. Despite the ongoing geopolitical and trade-related uncertainty, the global macro environment remained resilient through 2025. While these headwinds are expected to persist, we anticipate modestly stronger year-over-year GDP growth in 2026, supported by continued investment in generative AI, easing inflation and a supportive fiscal backdrop in several major economies. This economic resilience is mirrored by the evolving landscape of global energy demand. Long-term energy demand continues to rise driven by population growth, rising living standards and accelerating electrification. At the same time, digital infrastructure, AI and data centers are adding a new and durable layer of energy demand, reinforcing the need for reliable, scalable and dispatchable power. Industry estimates suggest that AI infrastructure spending totaled more than $500 billion in 2025 and is expected to approach $1 trillion annually in the late 2020s. Resilient power supply has emerged as a key bottleneck, which creates a significant opportunity for Baker Hughes as data center build-out increases demand for behind-the-meter power solutions, providing speed, reliability and scale. Against this backdrop, we now expect to book approximately $3 billion of data center-related orders between 2025 and 2027. Given its abundance, cost-effective reliability and comparatively lower emissions profile, natural gas continues to play a central role in powering data centers. Looking ahead to 2040, we expect global natural gas demand growth of approximately 20%. This strong growth in natural gas underpins accelerating investment in gas and power infrastructure, which we expect to represent an increasing share of our $40-plus billion IET order target during Horizon Two. For LNG, demand continues its strong growth trajectory, increasing by approximately 7% in 2025. Looking forward, LNG demand is expected to increase by at least 75% by 2040, driven primarily by growth across Asia. Reflecting this strength and near-term order visibility, we expect to exceed our 2024 to 2026 LNG FID outlook of 100 MTPA after reaching FID on 83 MTPA of projects over the last 2 years. This further reinforces our long-held view of 800 MTPA installed base by 2030 and advances progress toward our 950 MTPA outlook for 2035. Turning to oil. Against the backdrop of dynamic geopolitical risks, oil prices have remained somewhat volatile in recent months as markets weigh potential supply disruptions against rising OPEC+ and offshore production. We believe further reduction in idled OPEC+ supply, alongside more constructive oil supply and demand balances, is required before a broad inflection in oilfield services activity emerges. That inflection is likely a 2027 catalyst for the sector and may mark the beginning of an upcycle. Taking current macro factors into account, we expect low single-digit declines in global upstream spending in 2026. In North America, spending is expected to decline at a mid-single-digit rate as operators maintain both capital discipline and inventory preservation. However, our production-weighted exposure positions us to outperform the market. International spending is expected to be slightly down, with resilience in the Middle East and Africa offset by continued softness in other regions. Longer term, the outlook remains constructive, particularly internationally and offshore, where significant investment will be required to sustain production growth and meet rising global oil demand. We also see continued growth in OpEx-driven upstream investment, as operators focus on enhancing recovery rates and extending the life of existing assets that will leverage our differentiated Well Construction and Production Solutions portfolio. Moving to Slide 7 and 8. I want to discuss how Baker Hughes is positioned to capture a significant growth opportunity in global power infrastructure spend and how our power systems portfolio is enabling reliability, efficiency, flexibility and long-term decarbonization for customers. This portfolio builds on decades of aeroderivative and heavy-duty gas turbine technology development, complemented by deliberate organic investment in our NovaLT gas turbine platform, our acquisition of BRUSH Power Generation and the pending acquisition of Chart. Together, these actions have created differentiated capabilities that span power generation, grid stability and energy management. Looking ahead, we plan to continue advancing our power systems portfolio, with a clear focus on expanding our solutions offering across these 3 capabilities. These strategic efforts positions us strongly for what lies ahead. We believe that global power demand is entering a multiyear cycle. By 2040, global demand is expected to double to approximately 60,000 terawatt hours. This increase implies a compounded annual growth rate of over 4%, with gas-fired power generation playing a significant role in this expansion. These developments are being driven by several long-term structural trends that are transforming global power markets. First, digitization (sic) [ digitalization ] and AI-driven compute are fundamentally reshaping power demand. Data centers are rapidly growing source of energy demand, requiring uninterrupted and highly dependable power supply. Estimates project that data center power demand will increase by a 12% compounded annual growth rate through 2040 as AI workloads increase in scale. Second, the ongoing transition toward electrification in both transportation and industrial sectors is contributing to a structural increase in electricity demand. The adoption of electric vehicles is rising rapidly, with projections indicating that the global EV fleet will approximately triple by 2030 and increase nearly ninefold by 2040. Additionally, industrial companies are advancing their decarbonization initiatives by transitioning from fuel-based processes to electrically driven alternatives. This includes adopting advanced heat pump technologies and integrating electrified equipment into their industrial operations. Also, renewable integration, hydrogen production through electrolysis and carbon capture systems all require significant incremental power, even as they reduce overall emissions intensity. Collectively, these factors are expected to contribute to a prolonged period of growth in power demand, reinforcing the need for reliable, flexible and energy-efficient power solutions. This trend will drive continued investment across generation, distributed power and grid resilience and it highlights the requirements for mission-critical power systems solutions that can deliver both reliability today and transition ready capability for the future. This is where Baker Hughes is uniquely positioned. Through our power systems portfolio, which is highlighted on Slide 8, we sit squarely at the intersection of the key megatrends driving global power demand. Our strategy is deliberately built around fuel flexibility, electrification, digital integration and portfolio expansion, enabling us to deliver full life cycle power solutions across industrial, data center, grid, renewable and oil and gas markets. The portfolio addresses an annual market opportunity projected to exceed $100 billion by 2030 with solutions that are either currently available or under development, supported by ongoing organic investments. Let me briefly walk you through our power systems portfolio and how it differentiates Baker Hughes as we capture accelerating growth in global power infrastructure spending. Our power systems business is built around 3 core capabilities: power generation, grid stability and energy management, with digital, integrated systems and aftermarket services spanning across all 3. For power generation, we offer solutions across simple and combined cycle configurations, alongside clean power offerings that include geothermal, flex-fuel and our developing industrial-scale oxy combustion solution. This portfolio brings together a broad range of aeroderivative and heavy-duty gas turbines for the oil and gas sector, alongside industrial gas turbines, steam turbines, turboexpanders and generators that address a wide spectrum of power generation applications across diverse end markets. We are seeing the strongest growth in our NovaLT industrial gas turbines, engineered for distributed and behind-the-meter applications. The NovaLT is hydrogen-ready and capable of operating on natural gas, blended fuels and up to 100% hydrogen, with development plans in place to enable ammonia fuel flexibility. Its high efficiency, fast-start capability and low NOx performance make it particularly well suited for power generation across data centers, industrial facilities and the oil and gas markets as well as the mechanical-drive applications. Our core oil and gas markets also continued to drive strong demand for power generation. In 2025, we secured orders of approximately 3 gigawatts for oil and gas power applications, supporting distributed power across LNG facilities, FPSOs, refineries, petrochemical plants and oilfields. Beyond gas turbines, we bring differentiated capabilities in steam turbines and turboexpanders, supporting geothermal, biomass, waste-to-energy and pressure-recovery applications. With an installed base of more than 700 steam turbines and turboexpanders globally, we have proven our experience in delivering reliable, efficient power across both renewable and industrial markets. We continue to advance our leadership in geothermal, highlighted by a recent order to supply the 5 Organic Rankine Cycle power plants at Fervo's Cape Station power generation project, which is expected to deliver 300 megawatts of clean, reliable and affordable power to the grid. In addition to the surface scope, Baker Hughes is also providing differentiated subsurface expertise, reflecting our ability to integrate subsurface capabilities with surface power generation. By combining these capabilities, we are uniquely positioned to enable scalable, repeatable geothermal developments, delivering firm, renewable baseload power with attractive project economics for our customers. Through our BRUSH Power Generation brand, we also provide generators, electric motors and synchronous condensers, supported by life cycle services and digital remote monitoring. These capabilities are increasingly critical as grids become more reliant on intermittent power and require greater inertia, voltage control and resilience. Our controls, power electronics and digital platforms, including Cordant, enable real-time optimization, emissions monitoring and system-level reliability that enhance our power systems value proposition to customers. We also offer industrial heat pumps and grid-stabilization technologies, supporting electrification and decarbonization across industrial and power applications. Looking ahead, the pending acquisition of Chart will add differentiated thermal-management capabilities, further complementing our power generation portfolio and enabling the development of integrated trigeneration solutions for customers. To summarize, Baker Hughes offers a broad power solutions portfolio with capabilities spanning generation, grid stability and energy management that positions us to meet the diverse needs of customers across data centers, industrials, power, renewables and traditional energy markets. As global electricity demand accelerates and energy infrastructure evolves, Baker Hughes is delivering solutions that drive long-term growth, operational resilience and low carbon readiness, positioning us exceptionally well for the next phase of growth in the global power market. Before turning the call over to Ahmed, I want to reiterate the strength of our 2025 results. Despite macro-related headwinds in OFSE and tariff-related trade friction, we delivered 90 basis points of margin expansion driven by continued execution of the Baker Hughes Business System and a disciplined focus on pricing optimization and productivity enhancements. At the same time, the breadth and versatility of our portfolio supported a record year of IET orders, underscoring the durability of our strategy. These results demonstrate that Baker Hughes continues to execute and deliver for our customers and shareholders. With that, I'll turn the call over to Ahmed. Ahmed Moghal: Thanks, Lorenzo. I'll begin on Slide 10 with an overview of our consolidated results and then speak to segment details before summarizing our first quarter and full year outlook. As Lorenzo mentioned, we delivered very strong orders in the fourth quarter, with total company orders of $7.9 billion, including $4 billion from IET. Adjusted EBITDA of $1.34 billion increased by 2% year-over-year, driven by continued IET growth, while OFSE results were impacted by macro-driven headwinds. Adjusted EBITDA margins expanded by 30 basis points year-over-year to 18.1%, exceeding 18% for the first time. GAAP diluted earnings per share were $0.88. Excluding $0.10 of adjusting items in the quarter, diluted earnings per share increased 12% year-over-year to $0.78. We generated free cash flow of $1.34 billion for the quarter, supported by strong collections, customer down payments and results from our ongoing working capital efficiency efforts. Turning to capital allocation on Slide 11. Our balance sheet remains strong, with cash increasing to $3.7 billion, net debt-to-adjusted EBITDA ratio decreasing to 0.5x and liquidity increasing to $6.7 billion at year-end. In 2025, we returned $1.3 billion to shareholders in dividends and share repurchases. Our near-term priority is to maintain the strength of our balance sheet in preparation for the closing of the Chart acquisition. With regulatory reviews still underway in certain jurisdictions, we currently expect closing in the second quarter, understanding that the timing may evolve as those processes progress. As previously stated, our objective is to achieve a net debt-to-adjusted EBITDA ratio of 1 to 1.5x within 24 months following the close of the transaction. This reduction will be accomplished through a combination of ongoing free cash flow generation and proceeds from continued portfolio management initiatives, which are anticipated to yield $1 billion of incremental proceeds. Consistent with our portfolio management and capital allocation framework, we announced earlier this month the completion of the sale of the Precision Sensors & Instrumentation business as well as the formation of the Surface Pressure Control joint venture with Cactus. These strategic transactions have generated approximately $1.5 billion in gross cash proceeds, subject to customary closing adjustments. These actions reflect our disciplined approach to portfolio management and our commitment to maximizing long-term value creation for shareholders. We would like to express our sincere gratitude to the employees of PSI and SPC for their dedication and hard work and wish them continued success going forward. In parallel with these portfolio actions, we are making progress on our comprehensive evaluation. We are also executing incremental targeted cost-out initiatives with quick cash paybacks that are expected to support durable margin expansion as we move through 2026. As we further advance our comprehensive evaluation, our top priority remains closing the Chart transaction and executing a seamless integration, where we see compelling strategic and financial benefits. We're focused on delivering our integration priorities and capturing identified synergies, while positioning the combined companies to enhance customer value, strengthen our industrial portfolio and support sustainable, profitable growth. From an integration standpoint, we have now moved into high-level day 1 operating model design, placing strong emphasis on culture, integration and execution planning. Our 2 companies share significant commonalities, particularly in our highly complementary portfolios, which together enhance our solutions offering and deliver greater value for customers across the equipment life cycle. Let's now turn to segment results, starting with IET on Slide 12. During the quarter, we booked strong IET orders of $4 billion, primarily driven by continued power systems and LNG order momentum. For the full year, IET achieved a record $14.9 billion of orders, resulting in a book-to-bill of 1.1x and a record RPO of $32.4 billion. Notably, this marks the sixth consecutive year of IET RPO growth. Our fourth quarter results reflect outstanding performance in IET, with revenue of $3.81 billion exceeding the high end of our guidance range due to strong project execution and favorable project timing. EBITDA increased 19% year-over-year to a record of $761 million, resulting in significant margin expansion of 160 basis points to 20%. This exceptional performance was driven by strong backlog pricing, productivity gains and continued execution of the Baker Hughes Business System, reinforcing the operating leverage in the segment. For the full year, IET revenue increased 10% to $13.4 billion, while EBITDA rose 21% to $2.5 billion, with margins increasing 170 basis points to 18.5%, historical highs for all 3. This meaningful margin improvement was driven by strength across both Industrial Solutions and Gas Tech Equipment. In 2025, the recently divested PSI business contributed $374 million of revenue and $48 million of EBITDA. Turning to OFSE on Slide 13. We delivered another strong quarter of orders, with SSPS bookings of $1.1 billion. This was led by continued strength in subsea project bookings, where we captured approximately 25% of the global subsea tree market in 2025. As a result, SSPS orders increased by 13% year-over-year to $3.5 billion in 2025, with a strong book-to-bill of 1.1x, driving increased visibility and reflecting broadening customer penetration. Our fourth quarter OFSE performance reflected ongoing macro-related headwinds, while continuing to demonstrate solid execution and cost discipline. Revenue totaled $3.57 billion, and the segment delivered EBITDA of $647 million, resulting in 40 basis points of sequential margin decline to 18.1%, with all metrics effectively in line with the midpoint of our guidance range. Results were impacted by seasonal declines in the North Sea and Asia Pacific, continued softness in Mexico and weaker year-end product sales as customers remained cautious with capital deployment. These pressures were partially offset by improving activity in Sub-Saharan Africa, Brazil and Saudi Arabia, reflecting pockets of resilience across our international portfolio. For the full year, revenue fell 8% to $14.3 billion, while EBITDA of $2.62 billion resulted in resilient margins of 18.3%, effectively flat year-over-year despite the meaningful top line decline. This margin resilience reflects continued cost discipline and structural actions to remove duplication across the segment, preserving profitability through cycle downturns. In 2025, SPC contributed $627 million of revenue and $137 million of EBITDA. These results will be deconsolidated in 2026, with our 35% minority ownership accounted for as an equity investment. Next, I would like to provide an update on our outlook for the first quarter and full year 2026. The detailed guidance can be found on Slide 14, where both the ranges and midpoints are presented. For clarity, I'll focus on the midpoint of our guidance figures. Please note these figures exclude the recently divested PSI business and account for the deconsolidation of SPC results as both transactions were completed on January 1. Also, all references to organic metrics exclude the results of businesses that have been divested, deconsolidated or acquired since the beginning of 2025. Specifically, the results of PSI and SPC as well as the recently acquired Continental Disc Corporation business, are excluded from organic references provided below. This approach ensures that organic metrics accurately reflect the company's ongoing operations and provide a clear comparison by excluding the impact of such transactions. Following the closing of the Chart acquisition, full year guidance will be updated to reflect our outlook for the combined business for the remainder of the year. Starting with full year guidance, we anticipate company revenue of $27.25 billion and adjusted EBITDA of $4.85 billion, implying organic adjusted EBITDA growth rate in the mid-single digit range. Free cash flow conversion is expected to approach 50%, underscoring our progress to drive more durable free cash flow through cycles. The effective tax rate is projected to fall within the range of 22% to 26%, and we continue to pursue initiatives aimed at further optimizing our tax rate beyond 2026. In IET, we expect orders to remain at robust levels through this year, supported by continued momentum in LNG, a stronger year of FPSO and gas infrastructure awards and sustained strength for power systems. Against this favorable backdrop, we project $13.5 billion to $15.5 billion of IET orders in 2026, which is flat at the midpoint on an organic basis and would mark the fourth consecutive year with at least $13 billion in orders. We also remain confident in achieving our 3-year Horizon Two target of more than $40 billion in IET orders. Importantly, these anticipated orders will provide significant backlog visibility for our equipment businesses while also underpinning years, if not decades, of high-margin services growth. This outlook reinforces the durability and long-term value creation that is embedded within the company. Supported by record backlog levels, we expect full year IET revenue of $13.5 billion, reflecting steady organic growth. Additionally, we project EBITDA of $2.7 billion, positioning IET to achieve its 20% margin target this year. This margin outlook is supported by ongoing productivity improvements, disciplined cost management in Industrial Products and the conversion of higher-margin backlog within Gas Tech Equipment. For OFSE, we anticipate revenue to be slightly lower year-over-year, but flat on an organic basis. This stability is primarily driven by robust growth in our SSPS business which is anticipated to offset slight declines within the OFSE portfolio. Based on our current outlook, we expect $13.75 billion in revenue and EBITDA of $2.475 billion. When adjusted for the impact of the SPC transaction, this guidance implies relatively flat organic margins year-over-year. This resilient margin outlook is underpinned by ongoing productivity enhancements and continued efforts to rightsize our cost structure, which deliver quick cash paybacks. These cost actions are expected to offset higher tariff-related costs, unfavorable product mix and pricing variability across different markets. Notably, our disciplined approach to cost optimization is fully aligned with our ongoing comprehensive review, with each initiative prioritized to drive structural margin improvement and enhance long-term competitiveness. Now turning to first quarter guidance. We anticipate total company revenues of $6.4 billion and adjusted EBITDA of $1.06 billion. For IET, we expect results to demonstrate strong year-over-year EBITDA growth, led by Gas Technology. Overall, we expect IET EBITDA of $600 million. The major factors driving our guidance ranges for IET will be the pace of backlog conversion in GTE, the impact of any supply chain tightness, foreign exchange rates and trade policy. For OFSE, we anticipate results to reflect typical seasonality. Accordingly, EBITDA is expected to be $540 million for the quarter. Factors driving our guidance ranges for OFSE include execution of our SSPS backlog, near-term activity levels, trade policy, foreign exchange rates and pricing across more transactional markets. In summary, we are extremely pleased with the company's operational performance in 2025. IET once again delivered record results, while OFSE margins demonstrated exceptional resilience despite a challenging macro environment. Together, these results clearly demonstrate that the Baker Hughes Business System is driving execution, productivity and profitability across the organization. We remain firmly committed to structurally improving free cash flow and margins while also capitalizing on market opportunities through our differentiated solutions portfolio, with line of sight to our 20% company adjusted EBITDA margin target by 2028. All of this is focused on delivering sustained, long-term value for our shareholders. I'll turn the call back to Lorenzo. Lorenzo Simonelli: Thank you, Ahmed. To close, we delivered an exceptionally strong quarter and an outstanding year in 2025, highlighted by record performance in IET, resilient margins in OFSE, record free cash flow and consistent execution across the company. Looking ahead to 2026, we expect organic adjusted EBITDA to grow in the mid-single digit range, led by another year of solid margin expansion. These achievements reflect the significant progress we are making towards structurally improving margins, strengthening the durability of our cash flow and driving operating leverage through the Baker Hughes Business System. Further, the outlook for global energy infrastructure investment remains positive, particularly in key areas such as gas, LNG, power generation and industrial energy systems. Rapidly increasing demand from digitization (sic) [ digitalization ] and electrification is reinforcing the need for reliable, scalable and lower-carbon energy solutions. Baker Hughes is uniquely positioned to capitalize on these market dynamics, providing differentiated power systems and energy infrastructure solutions that meet the evolving needs of customers. Against this favorable market backdrop, we remain confident in achieving our 3-year IET orders target of at least $40 billion. As part of our comprehensive review, we have initiated further cost-out programs across the company that will result in quick paybacks and drive further margin expansion through 2026 and beyond. We have also made meaningful progress enhancing our portfolio, demonstrated by the 3 recently closed transactions and the pending Chart acquisition. As we move forward, our primary focus is on closing the Chart transaction and ensuring a seamless integration process. We continue to make substantial progress in integration planning for the Chart transaction and are increasingly confident in our ability to achieve the $325 million cost synergy target. Our commercial synergy initiatives are also moving forward, with the potential to generate incremental value over time. As the company moves into Horizon Two, these portfolio actions are positioning Baker Hughes to evolve into a stronger, more industrialized energy solutions company. This evolution is underpinned by an increasingly OpEx levered business mix and a differentiated life cycle portfolio, which are driving reduced cyclicality and enhanced cash flow durability. Accordingly, we remain confident in our ability to continue driving returns and margins higher for the company, with a path to achieving 20% company adjusted EBITDA margin by 2028. In closing, I would like to thank the entire Baker Hughes team for consistently delivering outstanding results. As we look to the future, we are energized by the opportunities that lie ahead and remain committed to our customers and employees, with a disciplined focus on creating long-term, sustainable value for our shareholders. With that, I'll turn the call back over to Chase. Chase Mulvehill: Operator, we can now open up for questions. Operator: [Operator Instructions] Our first question comes from Arun Jayaram from JPMorgan Chase. Arun Jayaram: Your prepared remarks underscored Baker's power systems capabilities across a broad range of end markets. You mentioned you booked $2.5 billion of power systems orders in 2025. I know the business has been a strategic focus, thinking back to the BRUSH acquisition and your organic growth opportunities from the NovaLT gas turbine line. Can you elaborate on your strategy for further enhancing your current capabilities or sustaining growth from power systems on a go-forward basis? Lorenzo Simonelli: Definitely, Arun, and thank you very much. And let me just start by reiterating that we believe that we're in a global power demand multiyear growth cycle. In fact, a demand decade, as we said last week, and we're very much in the early stages of that trend worldwide and in the United States. If you look at current projections indicate that power demand will double by 2040 driven by the factors such as data centers, digital infrastructure, artificial intelligence, widespread adoption of EVs, also the transition of industrial processes from fuel-based to electric power solutions, HVAC cooling across the board, a huge increase in demand. And this really is a critical need that then manifests itself for reliable and scalable energy systems. And we think that, in particular, on AI infrastructure, we expect to see a doubling in the investment and it's going to reach $1 trillion by the end of this decade, which presents a substantial opportunity for Baker Hughes. As you saw from the prepared pages, we've identified a market opportunity of $100 billion annually for power systems by 2030. And we've got a range of solutions available and also in development. And in 2025, power systems orders totaled $2.5 billion with $1 billion directly linked to data center applications. So you look at also what we laid out, we now see data center orders to total $3 billion between 2025 and 2027. And it represents over 150% growth compared to last year's power systems orders, which is a clear indication of the acceleration that we're seeing and also the customer adoption. So there's a large broad addressable market that is significant. And it goes beyond just the NovaLT, it really focuses on core capabilities around power generation, grid stability and energy management. And so as you look at some of the other things that are taking place, we also secured orders of 1.3 gigawatts for aeroderivative gas turbines within the oil and gas, including upstream gas infrastructure, FPSOs, refining, which demonstrates, again, the aspects of good prospects for distributed power solutions in our core market. Also, geothermal, as you look at the order with Fervo, 300 megawatts Organic Rankine Cycle unique position with ourselves as being the geothermal subsurface and surface power generation capabilities, the 40 BRUSH generators for gas-fired utility-scale power plants and collectively delivering approximately 7 gigawatts of reliable power. Synchronous condensers technology that address the multibillion-dollar market that is projected to grow as renewable energy integration increases. And so we're seeing lots of new opportunities as well as energy storage being able to leverage our turboexpander and generate a portfolio as we look to see more integrated power solutions, as you also saw in the Tengiz project in Kazakhstan. And not to forget also in the nuclear space where we provide steam turbine generators to support the small modular reactor projects and, on the overlay, the Cordant digital hardware and software solutions and the aftermarket service business. So you've got a lot of range of applications, end markets. And as we look to Chart, that's going to further strengthen the power portfolio by adding thermal management capabilities and deliver integrated trigeneration power solutions. So very excited. And I think in summary, you're looking at a multiyear cycle. It's driving long-term growth, operational resilience, low carbon readiness, and we've got a versatile portfolio that's going to add significantly growth for Baker Hughes going forward. Operator: Our next question comes from Scott Gruber from Citigroup. Scott Gruber: Lorenzo, you offered a very robust $14.5 billion IET order intake guide for '26. Can you walk through some of the moving pieces within that guide? Which segments are seeing some growth which may be down some? Sounds like LNG will be stable, but what are the moving pieces? And then inbound exceeded your initial expectations last year, what could drive upside this year? Would that most likely come from the power vertical? Lorenzo Simonelli: Yes, definitely, Scott. And again, I think as you look at the 2026 order outlook, it reflects the underlying strength that I mentioned previously as well across the broad and versatile IET portfolio. And it's really a strong start to achieving the 3-year $40-plus billion target for Horizon Two between 2026 to 2028. And I think if you take a step back and just reflect on the prior few years of Horizon One, that order strength has been highlighted as we've gone through the years of '23, '24 and '25. As you look at LNG being strong in '23, then in '24, gas infrastructure and last year, power systems. And since 2023, our non-LNG equipment orders have delivered a compounded annual growth rate of over 20% and really represent about 85% of the total IET orders for both 2024 and '25, which again further demonstrates the breadth and diversification of our offerings. Looking at 2026, again, it's going to be the aspect of strong pipelines in power systems. We see our $2.5 billion orders from last year as a foundation for further growth, also taking up our data center intake. And as you see from the 3-year data center order outlook going to $3 billion, reflecting a healthy and growing pipeline. Gas infrastructure, as you continue to see the growth in gas, we see continued increase in natural gas production to meet the global energy demands. As you look at new energy, we set a record in 2025 with $2 billion in orders and expect this trajectory to continue led by CCUS, flex-fuel power and geothermal solutions. And we've got a forecast for $2.4 billion to $2.6 billion and excited about geothermal as you heard from the Fervo example in '25 with our technology that we feel is very well positioned as well as then the legacy geothermal as well. And as we go forward, strength in really being able to seamlessly integrate subsurface expertise with subsurface power generation and the top side as well. So as we look at 2026, again, feel good about that. And overall, another robust year and there's potential to continue to have some upside. We've given our order guidance at the midpoint. There's a number of projects that, again, will materialize in '26, '27 and feeling good about that $40-plus billion over the 3-year order target. Operator: Our next question comes from Saurabh Pant from Bank of America. Saurabh Pant: If you don't mind, I want to pivot to the margin side of things a little bit. Clearly, very resilient margins, especially on the OFSE side of things. Ahmed, I think if I got you right you were talking about practically flat margins SPC consolidation, right. That's better than what I was thinking. And that's despite all the headwinds between mix and pricing and tariffs, if you don't mind just stepping through that and how it's cost out helping that? And if you don't mind, just the moving pieces on the IET margin outlook as well, please. Ahmed Moghal: Yes, for sure, Saurabh. Look, I find this always easier to build it up by segment. So starting with IET, the team's done a great job on the margin front, and we expect this trajectory to continue into 2026. So achieving 20% margin in 2026 would represent about 150 basis points year-over-year increase. And for context, of course, this is 500 basis points improvement since 2023 and that really has been driven by the success of both our commercial and operational efforts and as we continue to scale our business system across IET. So just breaking it down in terms of how we expect to drive towards that 20%, it's a few key drivers. First, I would say, is just the continued conversion of our higher-margin Gas Tech Equipment backlog. So that's going to be a foundational component. Growth in Gas Tech Services, we expect to outpace the broader segment. And then, Cordant, you saw the robust order momentum. We'll enter the year with higher margin backlog, and that business can drive quite a bit of operating leverage. And look, we're also going to continue to optimize cost in IET, in areas where we know margins have lagged, so there's opportunity there. And then just to round out this piece, the net impact of PSI and CDC, they're just very modestly accretive to margins in 2026. So with that context, I feel with the strong backlog visibility and the continued productivity actions we're going to drive, we're confident in achieving the 20% for IET in '26. So that's IET. So when you look at OFSE, the '26 outlook we gave really reflects a theme that you've seen, which is a resilient margin profile despite the headwinds on a macro scale. So at the midpoint of our '26 guidance and when you compare that actually to peak '24 results, our 2026 outlook actually implies only about 50 basis points of margin decline on roughly 10% declining revenue, and that's on our organic basis. So we've been able to achieve that through what you've seen us systematically do around cost actions, quick cash paybacks and structural changes to how we operate, which has resulted in that durability. So for '26, the modest year-over-year decline with organic margins expected to be flat. The major components, I'd say is, first, increased tariff costs, as you mentioned, impacting margins. That's going to be annualized impact carrying from '25 into '26. The second is a slight change in revenue mix with SSPS growing organically, while our higher-margin OFS business is projected to decline slightly. And the last thing I'd say is what I mentioned around overall market pricing variability in different markets, and that will have a modest impact. And just to round out, similar to PSI and CDC and IET for SPC, the deconsolidation will be modestly dilutive to OFSE margins in '26. So all of this, what we're doing for OFSE specifically is just to address the headwinds, just ongoing productivity, supply chain optimization, that's going to be very key and just those overall efforts, all with a line of sight to quick cash paybacks. So that will help us position OFSE in a very strong manner as market conditions improve later this year or into '27. So to round out total company, our guidance implies nearly 18% in 2026, which then implies 200 basis points improvement in achieving the 20% target by 2028. And we're confident in the strategy to reach this milestone, and that's driven by performance across both segments. So hopefully, that gives a bit of color, Saurabh. Operator: Our next question comes from James West from Melius Research. James West: So I was wondering if you could provide an update on the progress of your comprehensive strategic evaluation and beyond the targeted cost-out initiatives that you've mentioned, are there additional aspects of the evaluation that you can discuss kind of at this time? And then maybe additionally, can you elaborate on what investors, and we should expect from Baker Hughes in the near future regarding this announcement? Lorenzo Simonelli: Yes, James, I want to emphasize our comprehensive evaluation is a disciplined, ongoing process really designed to ensure Baker Hughes continues to create sustainable long-term value creation for shareholders. And the evaluation represents a strategic, operational and financial assessment through which we are considering a broad range of strategic options. The comprehensive evaluation remains closely aligned with our key execution priorities. These include the closure and integration of Chart, driving operational performance improvements, optimizing our portfolio and disciplined capital allocation. And these strategic priorities, combined with the evolving market conditions and the broader strategic landscape, help shape the Board's perspective of the company's long-term direction and the available strategic options. As we continue to advance our comprehensive review, our immediate focus is on completing the pending Chart acquisition and subsequently ensuring a disciplined value creative -- accretive integration. And in summary, I think our ongoing comprehensive evaluation is focused really to position Baker Hughes for stronger returns, sustainable growth and the creation of long-term value for our shareholders. And as we progress the evaluation, we'll provide timely updates. Operator: Our next question comes from Marc Bianchi from TD Cowen. Marc Bianchi: Could you describe your opportunity in Venezuela? Lorenzo Simonelli: Yes, definitely. And obviously, a lot happening in Venezuela at the start of the year with some of the political changes and the opportunity for incremental production out of the country. Unlocking that is going to require new investment in the country's oil and gas sector, and we're taking a prudent long-term view as we continue to evaluate opportunities and also the activity we have in the market. To give you a historical context because Venezuela is not new to us. And as you look at Baker Hughes, both from the oilfield services and equipment as well as the industrial energy technology segment side, we've generated in the past in 2012 as a reference point, $0.5 billion of revenue in Venezuela, and we've had a large presence in the country. We're one of the only American service companies that's maintained the ongoing presence in Venezuela, supporting the licensed operators with activities as they've gone forward. And we've got a large technology base and the largest installed base of oilfield power generation and more than 1,200 oil production systems as well as flexible pipe and other energy infrastructure. And as you think about Venezuela's production decline and aging infrastructure, we expect moderate production increases will require substantial investment in well integrity, off-grid power generation, equipment replacement, upgrades and services. And there's a significant ramp in oil production would provide opportunities across Baker Hughes enterprise on the oilfield services as well as the industrial energy technology standpoint. And as we go forward, we're obviously working with the authorities. Main consideration is the safety and being able to ensure the safetiness of our employees and the operating conditions and having also the clarity on legal and regulatory framework as we go in for the long-term aspects. And the incremental opportunity of revenue is significant, and we'll be obviously programmatic as we go back and there's a lot of work in progress, and we'll evaluate as we get clearer line of sight. And we look forward to the continued conversations as the opportunity emerges and we see the activity increase. Operator: Our next question comes from David Anderson from Barclays. John Anderson: A lot to digest today, Lorenzo. I wanted to focus on the NovaLT, if we could. You've now doubled your 3-year data center order target to $3 billion. Does this also mean you've expanded NovaLT capacity as well? I think it was about a year ago you announced a doubling of initial capacity. So are you sold out for '27 deliveries? And is this further capacity expansion? Is this related to that 1 gigawatt for the slot reservation for new data center that you showed in the presentation this morning? Ahmed Moghal: Dave, yes, it's -- I'll give some color on this. So as you said, we are on track to double our Nova capacity by the first half of '27. And the way to think about it is really as you include those planned capacity additions, our Nova slots are effectively full through 2028, which reflects, obviously, that strong and diversified demand you've seen across multiple end markets, including behind-the-meter power applications. So that incremental capacity will come online in the first half of '27 and will support the 2 gigawatts of Nova orders that we booked to backlog during '25. But going forward, we continue to monitor the market closely through our dynamic planning process. So you can be sure that any decision to further expand Nova capacity beyond the current doubling will be based on a disciplined assessment that we would carry out on medium- to long-term supply and demand fundamentals and, of course, guided by very clear return thresholds. So to sum it up, really, our current and planned NovaLT capacity is fully committed through '28, but we are prepared to respond quickly if market conditions and customer demand warranted. Operator: That was our last question. I will hand you back to Mr. Lorenzo Simonelli, Chairman and Chief Executive Officer to conclude the call. Lorenzo Simonelli: Thank you to everyone for taking the time to join our earnings call today, and I look forward to speaking with you all again soon. Operator, you may now close out the call. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Have a great day.
Operator: Good day, ladies and gentlemen, and welcome to the Agilysys 2026 Third Quarter Conference Call. As a reminder, today's conference may be recorded. I would now like to turn the conference over to Jessica Hennessy, Vice President of Investor Relations and Operations at Agilysys. You may begin. Jessica Hennessy: Thank you, Lisa, and good afternoon, everybody. Thank you for joining the Agilysys Fiscal 2026 Third Quarter Conference Call. We will get started in just a minute with management's comments, but before doing so, let me read the safe harbor language. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor protections of the U.S. Private Securities Litigation Reform Act of 1995, including statements regarding our financial guidance. Although the company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially. Important factors that could cause actual results to vary materially from these forward-looking statements include our ability to achieve the provided guidance levels, increase implementation efficiencies, the company's ability to convert the backlog into revenue and the risks set forth in the company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission. As a reminder, any references to record financial and business levels during this call refer only to the time period after Agilysys made the transformation to an entirely hospitality focused software solutions company in fiscal year 2014. With that, I'd now like to turn the call over to Mr. Ramesh Srinivasan, President and CEO of Agilysys. Ramesh, please go ahead. Ramesh Srinivasan: Thank you, Jess. Welcome to the Fiscal 2026 Third Quarter Earnings Call. Joining Jess and me on the call today at our Atlanta headquarters is Dave Wood, CFO. I hope all of you are staying warm and safe. As is our usual practice on these calls, let me cover sales and selling success first before discussing revenue, profitability, guidance increase and other business updates. We measure sales in annual contract value, ACV, terms. Q3 fiscal 2026 was the second best Q3 October to December period sales quarter. This was the best Q3 sales quarter on record for the hotels, resorts and cruise ships, HRC sales vertical, highlighted by several significant new customer wins including Bolt Farm Treehouse in Tennessee, a 5-star luxury nature immersive wellness retreat property who selected Agilysys' property management system, PMS, Agilysys' web booking engine, Spa and 5 other Agilysys software solutions. To provide their guests the seamless exceed expectations experience we are looking for and [ Sands ] resort in Northern Myrtle Beach, South Carolina, who also selected various software solutions from our ecosystem of products, including PMS to help improve guest experiences at their Oceanfront Gateway property. Q3 sales also included a couple of big brand properties switching from a competing system to the Agilysys' POS platform ecosystem. Casino gaming, our strongest sales vertical for several years now witnessed a relative sales slowdown during the months of October and November, pulling down global sales levels during those 2 months but recovered well during the month of December. With respect to overall global sales, this was the best December month in our history. On a year-to-date basis, Foodservice management, FSM, sales over the first three quarters of fiscal 2026 is already higher than full year sales during each of the previous two years. Full fiscal 2026 may possibly end up being the best ever sales year or come close to it for FSM, which relies mostly on selling the point-of-sale, POS, family of products. While cumulative international sales over the first 3 quarters is already close to making fiscal 2026 the second best international sales year with one full quarter remaining, Q3 international sales were somewhat lackluster. International sales will continue to experience this sort of up and down trajectory as we continue to establish our reputation across the globe and steadily exchange our current reliance in international regions on hit or miss big deals to a more consistent mix of small, medium and big wins like we see in the domestic market. Cumulative subscription SaaS sales during the first three quarters of fiscal 2026 is already at 95% of previous best full year sales which happened to be last fiscal year. Fiscal 2026 year-to-date subscription sales is up 37% year-over-year. Calendar 2025 was the best calendar sales year in our history. Our win-loss ratio in competitive deals remains impressively high and far ahead of normal established enterprise software norms. During fiscal 2026 Q3 October to December, we added 16, 1-6, 16 new customers, excluding Book4time. All of them were fully subscription-based and involved an average of about 5 products per day. 9 of these new customers included purchase of PMS. In addition, 13, 1-3, 13 new customers signed up for Book4time Spa. We also added 91 new properties, which did not have any of our products before, but the parent company was already our customers. Of the 120 new properties added during the quarter, across new customers, new properties of current parent customers and Book4time, 118, meaning all but 2 were either partially or fully subscription-based. With respect to new product sales, there were 109 instances of sales to properties, which have at least one of our other products already in use. These 109 instances involved sales of a total of 248 new products. Before moving on to revenue details, a quick word on the Marriott PMS project. We are happy to report that this project is being expertly managed by customer personnel and is making good progress. PMS pilot property implementations have been completed successfully across the U.S. and Canada. We are now in the exciting process of getting going on the implementation waves, which are expected to keep increasing in size and scope during coming months. We continue to exclude the Marriott PMS project from all our sales and backlog numbers. Now with respect to revenue and profitability. Fiscal 2026 Q3 revenue was a record $80.4 million, 8-0, $80.4 million, the 16th consecutive, that is 1-6, the 16th consecutive record revenue quarter, 15.6%, that is again on 1-5, 15.6% higher than the comparable prior year quarter. Product revenue was $10.7 million, which was about the same as Q3 last fiscal year, slightly ahead of our expectations. Product backlog at the end of Q3 was at about 85% of the previous Q2 quarter exit value and almost double the level it was at the end of Q3 last year, giving us good visibility for the rest of the fiscal year. Fiscal 2026 Q3 October to December services revenue was $17.7 million, that is 1-7, $17.7 million, 22% higher than the comparable prior year quarter and in line with our expectations for this quarter. This quarter was a record high for normal projects implementation services revenue. The sequential quarter-to-quarter decline was mostly due to the Q3 holiday period quarter being typically more challenging than Q2. We saw significant improvement in the management of projects during this period compared to the holiday season last fiscal year. We continue to make good headway in improving software implementation efficiencies and finding ways to reduce customer implementation delays. Services revenue backlog at the end of Q3 was less than at the end of the previous quarter, which is a good indicator of improving implementation efficiencies. The quicker we implement the project signed up by sales, of course, the better off we are. Fiscal 2026 Q3 recurring revenue was a record $52 million 17.2%, that is 1-7, 17.2% higher than the comparable prior year period. Recurring revenue was 64.7% of total revenue this quarter. Within recurring revenue, subscription revenue was a record $34.9 million, 23.1% higher than the comparable prior year quarter. This was the 17th, that is 1-7, 17th consecutive quarter of subscription revenue year-over-year growth of at least 23%. Subscription revenue quarter run rate has doubled in the last 2.5 years and has increased from 63.8% of total recurring revenue Q3 last year to 67% of total recurring revenue this quarter, the highest percentage level reached so far. Annual maintenance revenue was also 6.8% higher than Q3 last year. The current subscription growth levels are coming, for the most part, from new incremental projects and are not dependent on cannibalization of annual maintenance generating on-premises installations. Subscription revenue pertaining to point of sale, POS and POS-related modules grew by 20% year-over-year, improving from the mid- to high teen growth levels reported during the past few quarters. We are taking normal growth strides again with our POS business with the modernized versions making an increasingly greater positive impact in the field. Subscription revenue pertaining to PMS and PMS-related modules grew by 30%, 3-0, grew by 30% year-over-year. Add-on modules across both PMS and POS, including Book4time constituted 37% of total subscription revenue. Despite all the challenges associated with the holidays filled October to December Q3 period, fiscal 2026 Q3 was the best quarter on record with respect to the sum of annual recurring revenue, ARR, of all subscription projects implemented. The extent of subscription ARR installed during fiscal 2026 Q3 was 40%, that is 4-0, 40% higher than during the comparable period last year. The increased velocity of project implementations has a lot to do with the modernized products becoming exponentially easier to implement over time, greater use of AI tools to improve implementation services efficiencies and far higher starting levels compared to the same time last year. While we continue to expand team sizes as business levels improve in areas like sales and services, we are currently well staffed for the most part to fuel continued business expansion during the short and medium term. In general, the use of AI tools continues to improve various business areas, including product development and quality assurance initiatives AI-driven product enhancements, implementation services efficiencies, marketing, sales initiatives, finance, customer support and legal. One other quick reminder, virtually all our software licensing is based on number of rooms for PMS and related modules, number of terminal endpoints for POS and number of sites or locations or profit centers within sites for inventory procurement for food and beverage products. Virtually all our software license structures are not based on number of users. As customers increase their operational efficiencies using AI and we ourselves continue to embrace AI tools more and more, all of that is great for our business. An excellent services implementation quarter has pushed down combined product recurring and services revenue backlog levels, excluding the Marriott PMS project to about 90%, that is 9-0, 90% of previous record levels, leaving us with considerable room to achieve our ongoing revenue and profitability growth goals. We started fiscal year 2026 with a full year revenue range expectation of $308 million to $312 million, then raised it to 3-1-5 to 3-1-8, that is $315 million to $318 million, and we now expect fiscal 2026 full year revenue to be 3-1-8, $318 million at the top end of the recent guidance range. Similarly, we started the year expecting subscription revenue year-over-year growth of 25%, then increased it to 27%, then again to 29% and we are currently expecting the year-over-year growth to be 29% as stated previously, not including any significant subscription revenue contribution from the Marriott PMS project. No change in the 20% adjusted EBITDA by revenue expectation, we started the year with. With that, let me hand over the call to Dave for further color on the business and financial details. Dave? Dave Wood: Thank you, Ramesh. Taking a look at our financial results, beginning with the income statement. Third quarter fiscal 2026 revenue was a quarterly record of $80.4 million, a 15.6% increase from total net revenue of $69.6 million in the comparable prior year period. Onetime revenue consisting of product and professional services was up 12.7% over the prior year quarter and in line with our expected 5% to 10% increase in onetime revenue for the fiscal year. Recurring revenue was up 17.2% on the back of strong subscription revenue growth. FY '26 year-to-date revenue is $236.4 million, up 17.4% over the prior year-to-date period. Q3 sales kept us on pace toward reaching the higher end of our annual revenue targets. Through the first 3 quarters of FY '26, subscription bookings have increased by 37% compared to the same period last year. Despite increasing subscription revenue growth guidance from the original 25% to 29%, the subscription backlog is still about 88% of it's all-time high. Thanks to our robust backlog and strong sales momentum, we continue to have considerable insight into our business for the final quarter of fiscal year 2026 and into fiscal year 2027. Professional services revenue increased 22% over the prior year quarter to $17.7 million as we continue to see year-over-year improvements in backlog deployment compared to the low point during Q3 fiscal year '25. Professional services revenue remains a good leading indicator for future subscription revenue growth as the vast majority of services revenue is contributed from normal implementation type projects and activities. Professional services performed much better than expected in Q3 fiscal year 2026. We expect Q4 FY '26 professional services revenue levels to return to the $18 million range like prior quarters. Total recurring revenue represented 64.7% of total net revenue for the fiscal third quarter compared to 63.8% of total net revenue in the third quarter of fiscal 2025. Subscription revenue grew 23.1% for the third quarter of fiscal 2026. Subscription sales and backlog remain at healthy levels, rising by 14% over the elevated FY '25 exit rates. Subscription revenue is trending comfortably towards our 29% subscription growth guidance with organic growth trending near 25%. Moving down the income statement, gross profit was $50.2 million compared to $43.9 million in the third quarter of 2025. Gross profit margin was 62.5% compared to 63% in the third quarter of fiscal 2025. Gross margin was down slightly due to margins associated with onetime revenue, while we continue to ramp up our newly hired professional services team members. Combined, the three main operating expense line items, product development, sales and marketing and general and administrative expenses, excluding stock-based compensation, were 41.2% of revenue in the fiscal 2026 third quarter compared to 42.1% of revenue in the prior year quarter. Excluding stock-based compensation for the third quarter of fiscal 2026, product development increased slightly to 19.3% compared to 18.2% of revenue in the prior year third quarter. General and administrative expenses reduced for the quarter year-over-year from 11.7% to 11.2% of revenue and sales and marketing decreased from 12.2% to 10.6% of revenue. Operating income for the second quarter of $11.7 million, net income of $9.9 million and gain per diluted share of $0.35 were all well above prior year third quarter income of $7.4 million, $3.8 million and a gain of $0.14. Adjusted net income, normalizing for certain noncash and nonrecurring charges of $12.2 million compares favorably to adjusted income of $10.7 million in the prior year third quarter and adjusted diluted earnings per share of $0.42 increased compared to the prior year quarter of $0.38. For the 2026 third quarter, adjusted EBITDA was $17.3 million compared to $14.7 million in the year ago quarter. FY '26 adjusted EBITDA continues to pace with our annual guidance of 20% of revenue. Through the first three quarters of the fiscal year, adjusted EBITDA of 19.5% of revenue and trending just north of 20% full year profitability guidance. Moving to the balance sheet and cash flow statement. Cash and marketable securities as of December 31, 2025 was $81.5 million compared to $73 million on March 31, 2025. As a reminder, we paid down our credit revolver by $24 million in the first half of the fiscal year, leaving us debt-free now. Free cash flow in the quarter was $22.7 million compared to $19.7 million in the prior year quarter. As we said in the past, adjusted EBITDA and free cash flow over a full fiscal year after normalizing the impact of CapEx, continue to be good proxies for the financial health of the business. For our fiscal year 2026, we are maintaining guidance for subscription revenue growth at 29% and based on our current backlog and sales momentum. This quarter, we are also raising our top line revenue guidance to $318 million. Adjusted EBITDA of 20% remains the same for fiscal year 2026 as we continue to evaluate various strategic growth initiatives. In closing, we are extremely pleased with how our business has performed during the first three quarters of fiscal year 2026 and how it's shaping up going into our last fiscal quarter. With that, I will now turn the call back over to Ramesh. Ramesh Srinivasan: Thank you, Dave. In summary, the business continues to march along the revenue and profitability growth paths we have created for ourselves like a relentless well-oiled machine. The modernized cloud-native product ecosystem and our top-notch sales leadership teams are opening up many exciting hospitality industry doors for us that were inconceivable a few years ago. The multiple growth path ahead of us are based on a solid foundation of a world-class product set and an ecosystem of hospitality software solutions that, taken together, has virtually no match in the industry. We only need some of these growth parts to work out well to feed our increasing revenue and profitability growth ambitions. What gives us our current growing competitive advantages has taken us several years of sustained high-quality product development work to build and will be very tough to duplicate anytime soon. We are not seeing any signs of anyone else even trying to create such an ecosystem. And our pace of innovation is only getting faster with the availability of AI-based tools that are increasing development speed and providing us with product enhancement possibilities, which did not exist before. And there is absolutely no question about the fact that the total addressable market remains huge relative to our size and growing. There are several PMS competitors whose installed base is currently many, many times our size. The extent of growth possibilities ahead of us in the coming years, especially on the PMS side of the business, which is completely software-based, is staggering. I could sit here and bore you with details of various sales successes accomplished during this quarter, including a global POS hunting license master sales agreement signed with one of the largest hospitality corporations in the world, major PMS and multiproduct ecosystem deals signed with several casino gaming corporations, including for a big water park project, expansion of business with several Ivy League universities in the SSM vertical, and I could go on. But for me, personally, the most heartening and promising highlight of the quarter was a couple of our best and biggest customers willingly taking reference calls with a couple of other big prospective customers. Talking about our development velocity, pace of innovation, willingness and ability to bring the product enhancement dreams of customers into reality in a matter of weeks and months, world-class levels of consistent customer service, thereby providing prospective customers the reasoning of why we are increasing the best technology provider partner any hospitality corporation can hope for. One other significant highlight during recent months has been two of our major customers currently using multiple Agilysys products, including POS and PMS are in the process of taking on a couple of major brand flags, but have turned down and refused to take on the brand's mandated PMS product insisting that they will need to stick with Agilysys' PMS even after the brand flag changes to be able to maintain the kind of experience that guests have become accustomed to in the recent past. [ New snuggets ] like this, which may appear minor details for now are significant indicators of a promising future that is just beginning to take shape. The competing PMS products have been influenced in the field for decades, but we are well and truly climbing the charts now. We remain confident in the current state of our business and our ability to continue driving top line growth while simultaneously improving profitability levels. It is highly likely that the next couple of fiscal years will turn out to be the most exciting ones in our history with increased top and bottom line growth expectations. We are excited and cannot wait to share fiscal 2027 guidance levels with you during the next earnings call, likely around the middle of May. With that, Lisa, let's open up the call for questions. Operator: [Operator Instructions] Our first question for today will be coming from the line of Mayank Tandon of Needham. Mayank Tandon: Ramesh, I wanted to start with your comments around some weakness that you saw in the gaming and casino space during the months of October, November. I wonder if that coincides with the government shutdown? And if that is the case, just given maybe some of the thought right now of a potential government shutdown in the next few weeks. Could that be something that might cause some of that December momentum to maybe slow down again? Just curious on some of your thoughts around that, what were the reasons and if that is the reason then something that we should be at least aware of as we go into the next few weeks and months? Ramesh Srinivasan: Yes. I wouldn't speculate, Mayank, about what -- it was only for a couple of months. I guess it was due to happen in -- casino gaming sales has had such a good run across so many years. And then it came back -- it came rolling back in December. So I mean, there are various different reasons, Mayank, that could have caused this, but we are not going to speculate. We can't put our finger on it. So I'm just going to assume this was just a temporary slowdown. Sometimes the holiday period can be a little bit easy for us. But it was back in December, and we are back to normal levels now. So I don't think I would speculate on any particular reason, Mayank. Mayank Tandon: Understood. Okay. I thought I would just ask just to get any insights into it. For my follow-up question, I wanted to just see how much you could share in terms of your expectation on the Marriott PMS mass rollout expectations? Do you have a sense of timing? I know it's underway in some capacity. And then also maybe if you could comment on, should we expect any impact on margins in the short term as you begin the mass rollout? Or has that already been absorbed into your expectations? Ramesh Srinivasan: Yes. So Mayank, as far as Marriott is concerned, we are a little shy about sharing too many details because all that should come from the customer, not from us. But I think what we can tell you is the pilot phase went off very successfully, our products work very well. And once again, I will never get tired of reiterating how well it is being managed. I've been in -- like you know, Mayank, I've been in enterprise software for close to 3 decades now. And this is one of the best, most collaborative projects that I've seen managed by a customer. So excellent job by Marriott personnel. So the pilot phase was successfully completed. So now we are into the process of implementation waves and these waves, meaning number of properties that go live each time will steadily increase over the coming months. So this is an exciting phase. So the rollout is going to get going now and we are very excited what this calendar year or the coming fiscal year is going to bring for us. Most of the costs and other elements are well provided for, Mayank. So all I will tell you, I don't want to get ahead of ourselves and give you profitability guidance for FY '27 yet. We are not in that stage. But it is fair to believe that if this year is going to be 20% adjusted EBITDA by revenue, next year is going to be better. That much I will assure you. But I won't go that far to tell you exactly how much more it will be better. But we do expect our profitability levels to continue increasing on a fiscal year basis. Here and there, there could be a quarter up or around, Mayank, when we are forced to invest in some infrastructure more than the other quarters. But if you take profitability of FY '27 as a full fiscal year compared to this fiscal year, it should definitely be higher. And this project will only be one of the contributing factors. Operator: Next question is coming from the line of Matthew VanVliet of Cantor. Matthew VanVliet: I wanted to narrow in a little bit on the international performance this quarter. You mentioned maybe a little lackluster. Curious if there was anything specific there, the holiday season, maybe just put more of an impact on selling than it historically has in the U.S.? Or are there more sort of selling capacity additions that you expect to make in the team maybe in local markets where you're seeing traction that could help revive the performance in the fourth quarter and into next fiscal year? Ramesh Srinivasan: Yes. Matt, so let me address the sales capacity frame. We have no sales capacity issues in any of our verticals, Matt. We have done a lot of sales hiring during last year. And sales capacity wise, we are in good shape. We are focused more on sales productivity increases. And in any of the verticals, including international, if we find that sales capacity reason, we will quickly hire. So we are ready to hire. We did a lot of hiring last year. But at the moment, there is no sales capacity issue, not only in international, but in any of our other verticals. So that's not an issue. Now as far as international, I wouldn't assign any particular reason to it, like holidays or anything. We are now working on more bigger-sized deals internationally than we've ever done before. We've never had this kind of a big customer in terms of multiproduct ecosystem. It's definitely working very well internationally. There are multiple bigger opportunities we are working on now. But it is going to be a little bit up and down quarter-wise internationally. We've had a great year so far. Like we told you just in three quarters, this is already almost our second best fiscal sales year. We are doing well but you should expect some of these quarter-by-quarter ups and downs because currently, international sales is still dependent on the bigger ecosystem deals where we have a significant competitive advantage, not enough singles and doubles, if you will, to even it out. So these kinds of ups and downs could happen, Matt. But overall, international sales, this is going to be a very good year for us. Matthew VanVliet: Helpful. And then as we get into the end of the year and you finalize all of the fiscal '27 outlook, curious on how you're doing at the very top of the funnel, how much of an impact have Joe and Terrie had since they've been in their roles now for a little bit in terms of generating that initial demand, generating the brand awareness that maybe was lacking in certain markets in the past? Ramesh Srinivasan: Yes, Matt. So when you think of our sales pipeline, Matt, you divide it into two broad categories. One is the singles, doubles and triples, right? That's what generally gets counted in the pipeline. That pipeline remains steady and continues to move forward. Now on the other hand, what we don't know how to include in the pipeline are some of these big doors that people like Joe Youseff have been so effective in opening for us. Those are all opportunities that are taking shape that are moving along the sales process. We don't include those in the pipeline because we just don't know what value to assign to them. These are the super big deals that we are working on. We announced one of those in the last quarter. So those doors -- those bigger doors are really opening up well thanks to Joe and his team and the sales team really opening them up. Now outside of those bigger opportunities, which is higher than we have ever seen in our company's history, the normal single double, triple pipeline continues to steadily move along and increase. Operator: And the next question is coming from the line of Allan Verkhovski of BTIG. Allan M. Verkhovski: Could you discuss how AI capabilities across the platform are resonating with customers? What shifts you're seeing in the competition as a result and maybe how that's potentially impacting sales cycles? And then I've got a quick follow-up. Ramesh Srinivasan: AI is permeating all through the business, Allan. I wouldn't say that -- first of all, we are not seeing anything from the competition that is related to AI, nothing significant at least. But given that we modernized our products and now these modernized products are anywhere from 2 to 4 years old, it gives us a good scope to permeate AI all the way through. So you divide any of the AI into a couple of areas. One, improving our own operations, where all across the -- we now have a dedicated team on and we have a dedicated couple of leaders who wake up every day to AI-ize the company, if you will, more and more. So that's our internal operations. But as far as our products are concerned, there are various different ways in which we're implementing AI. There is natural language processing in our data analysis tool. There's automatic voice recognition in a lot of our tools, which lends itself to that like when you go to book a spa reservation or you go to a Kiosk and order F&B items or you go to our web booking engine, where we have enabled guests to book multiple amenities at the same time. So there is a lot of ways in which we are beginning to use AI in our new product releases they are there. We can help with intelligent room upgrades. When you do it on your phone or you do it in a Kiosk and image recognition in our Kiosk. So there's a lot of different areas now where we are using AI, and we recently won an innovation award whereby -- when a resort does complex packages, instead of the guests calling the call desk and going through the process of what spa appointment they need, what golf appointment they need, how many rooms -- nights they need to stay in, an AI tool can manage all that. So these are all things that we are working on. Some of these have been released. Some of these have not yet been released. In general, they are increasing our competitive advantage. So I wouldn't assign things directly to AI as yet but it is permeating all our products, and it is making our competitive advantage a lot stronger. Allan M. Verkhovski: That's helpful color. And then as my follow-up, the reiterated guide for 29% subscription revenue growth for the fiscal year suggests about 20% growth in Q4. Can you just talk through what's driving that implied deceleration for Q4? And then as we think about growth for next year, excluding potential contribution from the Marriott, what would you highlight as we consider extrapolating that Q4 implied growth for next year? Dave Wood: Thanks, Allan. Yes, the implied growth will be a little bit north of 20% for Q4. And a lot of that is just related to the Book4time acquisition. The core business is still growing at north of 25% or 25%, but the Book4time year-over-year comps are kind of pulling that down into the lower 20% range. And really going into next year, I mean, no change to how we talked about the story in the past. I mean, we'll stay in the 20% range with obviously some of our larger projects on top of that. Operator: The next question will come from the line of Brian Schwartz of Oppenheimer. Brian Schwartz: Ramesh, I wanted to switch over to the POS business. That business seems to be improving here in the numbers that you're showing. And I know it's not like there's a lot of new opportunities that come up every year in the U.S. because those are longer duration contracts so it sounds like your win rates are going up there. My question for you is maybe you parse what's driving that? Is there something changing in the go-to-market you're doing? Is it the maturity of the POS? The modern product now? Or is it the reference ability like winning the Boyd Gaming that's having an impact on the win rates in POS? And then I have a follow-up. Ramesh Srinivasan: Brian, I wouldn't say that the waiting time or the sales process time is any higher for POS. If anything, it's actually a bit faster than POS than PMS. But our POS business, like we explained to you like a year, 1.5 years ago, went through a tough phase when we were going through the modernization process. When we had an old system, and we completely modernized it and we had to do it part by part. But that is all done. Now the modernized solution has been in the field for now pretty close to two years, probably a quarter short of two years. It has settled down well and we are one of the very few vendors, Brian, maybe a couple of vendors who are capable of providing guest facing and staff-facing feature sets where normally POS is a staff-facing system, but now more and more guest facing, like you can order food on your phone, you can go to a kiosk and all that for us, they are combined into one system. And when a waiter is carrying an iPad in the hand, so we support iOS, Windows and Android, all in one code base. There are no competing systems to that. Now this did not show up as an advantage till recently because the modernized system had to settle down. Now that it has settled down, it gives us a massive technology advantage over competing POS systems. So we do expect our POS business to continue to do well. The fact it has improved from subscription revenue growth rate used to be in the 15% to 19% for a year or so is now back to 20% is a good sign, especially in FSM. We are expanding the business to higher education and health care as well and not just depending on business and industry. So the POS opportunities are growing as much as our PMS opportunities are growing. The only difference is PMS carries with it a much larger ecosystem. There are about 20, 25 additional modules around PMS while POS has a smaller ecosystem, about 5 or 6 products around it. That's the main difference you're seeing in terms of PMS growing faster. Other way, there's a lot of promise in our POS business. We have turned the corner like Boyd Gaming, like in FSM, we are winning a lot of competitive deals now. And there is a lot of market share we still have to take from our competition in POS as well. So I wouldn't understate the promise of our POS business in any way. Brian Schwartz: And the one follow-up I had is maybe following up on Mayank's question in the beginning. Just kind of understanding on the gaming segment for the business. Is it your expectation that maybe the slower demand that happened in the beginning of the quarter that got caught up in the month of December, do you feel like all that demand got caught up in that December? Or is there opportunities that there still could be some catch-up demand in the gaming segment as we enter here the first half of the calendar year? Ramesh Srinivasan: Thank you, Brian. There is a lot of catch-up still left. All of it was not caught up in December. December was back to normalcy. December was a good sales month for gaming. And I wouldn't read too much into this October, November slowdown. I don't know the exact reasons behind it, and there is really no point wasting energy speculating with it. Gaming still remains a very strong sales vertical for us. It's done well for several years. Maybe it was due for a slowdown in October, November. We couldn't really pinpoint -- we have some guesses, but there is no point spending time on those speculations. But to answer your question, December came back to normalcy, but no, all of it was not made up. And just to be clear about one thing, Brian, it was not lost deals. We did not lose -- I mean, we do lose deals here and there in all our verticals, especially in the lower end. But in general, there was no major losses or anything like that. Just a lot of deals got postponed, part of which we made up in December, part of which we will make up during coming months. All of it was not caught up in December. Operator: Our next question will be coming from the line of George Sutton of Craig-Hallum. George Sutton: Ramesh, there was a good amount of discussion in your script on the implementations, and it sounds like that has started to improve. I know one of your challenges had been if you're out selling new business and you're behind on implementations, you have to push out the schedule of rollout. Now that you've done a better job on implementations, I'm curious, is that making its way into your ability to pitch new business? Ramesh Srinivasan: Yes. To a certain extent, yes, George, but it was never coming in the way of sales, right? Our implementation efficiencies, we've always wanted to improve it. Now AI is helping it a lot. A lot of the configurations, product to product integrations and all that can be done much faster using AI tools, and we are beginning to get all that into the field. Now to answer your question, what I would say is implementation efficiency is getting better is helping us with converting bookings to revenue faster. Normally, it's a one or two quarter gap between selling and implementing, which is what creates revenue. So that is becoming a bit faster because implementation efficiencies have increased. Now one other way it actually helps increase sales is when your implementation efficiencies increase and you can implement using lesser hours, our services costs decreased, and we become even more competitive because we are not the lowest priced vendor. So that way, it is contributing to improve sales. So just to summarize, implementation efficiencies increasing thus help increase sales because our services costs reduce. That is on the one hand. On the other hand, the fact we can implement faster, reduces the time it takes between booking and conversion to revenue. George Sutton: Got you. So you did discuss -- and I know in past calls, you've talked about reference challenges. You had relatively new products out in the market, therefore, didn't have reference customers. You specifically referenced that some of your largest customers were now taking reference calls. Can you just give us a little bit more of a picture of that process? Ramesh Srinivasan: Yes. The reference -- in general, the volume of customers willing to take reference calls, especially on our modernized solutions because we sort of lost hundreds of customers who would take a reference call on our older versions because we don't sell those older versions anymore for the last couple of years, and we sort of had to rebuild that world of reference customers which has now expanded in size, and it is expanding exponentially every month and every quarter. There are more and more customers who are willing to talk about our modernized solutions. So that is one aspect of it. The other aspect, George, if there are customers who are getting real value from the ecosystem. They used to be dealing with 7 or 8 vendors. Now they are dealing with 1 vendor and a lot of the things we've automated, the modernized solutions are producing real business results, and customers are more willing to talk about. That is the second aspect to it. The third aspect to it is the kind of customers who are now willing to take reference calls is becoming more and more prestigious. More and more, the prestigious big names are willing to take calls and talk about how good a partner we are and how easy it is to work with us. So in all those aspects, the need for reference customers is becoming better in the -- is becoming more and more fulfilled. So our reference customer situation is improving dramatically every month now. Operator: And our next question will be coming from the line of Nehal Chokshi of Northland Capital Markets. Nehal Chokshi: Yes. Thank you for the question. Just following up on that prior questioning here. As you know, your best and biggest customer's willingness to take prospective customer calls as similar size this past quarter was one of your biggest takeaways. Is this because it's a newfound wellness from these customers? Or is it because you now have these new big type of prospective customers are in your pipeline that necessitate getting these large reference customers to take those calls? Ramesh Srinivasan: I don't think it necessitates it, Nehal, but it is just a better situation we are in now. Because a lot of the successes we've had, Nehal, in the recent past, let's say, the last few quarters have involved ecosystem, multiple products working together has produced great value and by nature, they tend to be the bigger customers who have used our ecosystem products, and they are willing to take calls and tell them how much value they have created. So both the quality of the reference calls in terms of real value that they have got and also the prestige level of the customer, the bigger sized customer taking the calls are both being very helpful for us now. Nehal Chokshi: And is there anything to do with the indentation that you now have a lot more grand plan type of customers in the pipeline, too? Ramesh Srinivasan: Yes, generally, I mean, our pipeline involves both customers. There are some I wouldn't call it grand slam, there are some bigger sized customers, Nehal, in the pipeline, and there are also the single doubles and triples in the pipeline. So our pipeline continues to have a good mix of both. And the reference customer availability has increased now for our modernized solutions. Operator: Our next question will be coming from the line of Stephen Sheldon of William Blair. Matthew Filek: Matthew Filek on for Stephen Sheldon. It looks like professional services gross margins came in around the mid-20s this quarter, which was just a bit lower than we had expected. Curious if that was related to the use of more costly third-party labor to support product implementations or if there were other factors at play driving that compression? Dave Wood: Matt, there's -- no, it was really just with all the hiring we've had over the last year, we still have plenty of ramps and plenty of capacity left on that team. Obviously, with the holidays, billable hours and utilization is a little bit lower than some of the other quarters. So a little bit of seasonality in the number, but no third parties. I mean the far majority of all of our professional services is done by Agilysys' employees. So it was just mostly a utilization around the holidays. Matthew Filek: Okay. Perfect, Dave. And then just one more, if I may. In the past, I think you have talked about product development spend declining from the low 20s to mid-teens as a percentage of revenue over time. And given you're now seeing a boost in product development speed from leveraging AI, could that operational leverage materialize sooner than initially expected? Just curious on when exactly we may start to see that play out, especially in light of the AI efficiency benefits? Ramesh Srinivasan: Yes. Matt, as the AI efficiency benefits are increasing, so is the pressure, the innovation pressure from customers, right? So in general, a lot of the customers are using our modernized solutions are also coming up with a lot of new ideas, enhancement ideas, and we are able to get a lot more of them done that we've ever been able to do before because of AI tools, but the operating leverage in terms of using lesser R&D for the products is still a little bit of a moving target for us because the demand from customers -- because there are not many technology vendors innovating in this space. So that demand for innovation continues to be high. We are getting a lot more done than we have ever done before. And our products are 2 to 4 years in the field now. So they're fairly young. So that pressure continues to increase. So we think we will, in FY '27 and the year beyond that, we'll start increasing their operating leverage. But the pressure on us to continue innovating at a faster rate is reasonably high. Operator: Thank you. And this does conclude today's Q&A session. I would like to turn the call back over to Ramesh for closing remarks. Please go ahead. Ramesh Srinivasan: Thank you, Lisa. Thank you all for your interest in Agilysys and support. Best wishes to all of you for a very happy, healthy, safe and successful 2026. Look forward to catching up again around the middle of May when we will be reporting Q4 and full fiscal year 2026 result and providing guidance for fiscal year 2027. Thank you. Operator: Thank you all for joining today's conference call. This does conclude today's meeting. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Stanmore Resources Limited December 2025 Quarterly Activities Report Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Marcelo Matos, Executive Director and CEO. Please go ahead. Marcelo Matos: Thank you. Good morning, everyone, and happy new year. Thank you for joining us as we present December '25 quarterly activities report. With me here is Shane Young, our Chief Financial Officer. I'm pleased to say we had a very strong finish to the year with a high level of stripping and pit preparation in the third quarter, providing the foundation to deliver strong core flow and record operational results in the fourth quarter. This performance saw us achieve full-year saleable production of 14 million tonnes at the midpoint of the revised guidance and total sales of 14.1 million tonnes, a fantastic result, given the adverse weather and subsequent operational challenges in the first half of the year. Additionally, although we usually don't provide run-of-mine core guidance, I thought it would be interesting to point out that despite all the weather -- the wet weather impacts early in 2025, we delivered 20.5 million tonnes of ROM coal mined for the full year, which is actually ahead of our original plans and enabled us to finish the year with over 1.5 million tonnes of ROM coal inventories across the business. And this will help mitigate potential wet weather impacts in the current season, which, as we all know, have already been taken place. During the quarter, we unfortunately recorded two serious accidents. While these incidents were classified as series due to the need for hospital admission and we don't take any harm to our people lightly, it's reassuring that both instances were far from being incidents that could lead to a potential fatality. Our overall safety culture and performance remains strong with our 12-month serious accident frequency rate holding at 0.33, well below the industry benchmark. The market began to see some green shoots late in the quarter with the premium headline coking coal price finding report back above $200 per tonne in December for the first time since late 2024. More recently, supply concerns have intensified following the passing of the ex-tropical cyclone Koji in early January, causing supply disruptions and driving prices further up to around $250 per tonne for premium hard coking coal and $173 per tonne for PCI as of today. Record production and sales, coupled with these improved market conditions supported strong cash generation during the fourth quarter, with the business reducing its net debt position by almost USD 60 million over the quarter. I'll now move into the point of the report with a brief summary of the performance of each asset. Starting with South Walker Creek, we saw continued sequential growth in run-of-mine production with the ongoing ramp-up towards our expanded capacity. This translated to full year records across all metrics as a second half weighted production profile was supported by the upgraded CHPP delivering consistently above expectations and above nameplate capacity throughout the second half. Full-year saleable production concluded at [ 66 ] million tonnes at the midpoint of the guidance range, which remained unchanged despite the wet weather challenges early on. This caps off a strong year following the successful completion of the capital investment phase early in the year. Fourth quarter delivered an exceptional quarter to close out an exceptional year. We saw all-time records for both saleable production and sales, which each concluded at 5 million tonnes for the full year. This standout performance demonstrates the benefits of the investment into the ramp in earlier years and is also a reflection of the operational acumen and excellence of our site teams. For the fourth quarter, specifically, the strip ratio reduced significantly as anticipated after elevated stripping in the September quarter. This provided a baseline for the second highest quarterly ROM output on record, with operational performance also supported by record [ dozer ] push volumes and mine plan optimization to deliver high-yielding costs. Poitrel ended the year with almost 1 million tonnes in ROM inventories alone, containing a mix of thermal and met coals. Turning to the Isaac Plains Complex, which I want to remind you, was the most severely impacted asset by the wet weather early '25, it's been impressive to see the recovery of our teams -- that our teams have managed to achieve in the second half to ultimately deliver against the revised guidance range. ROM production totaled 2.2 million tonnes for the second half, comprising almost 60% of the full year total. Furthermore, December was a record-breaking month for the CHPP with the highest ever monthly feed of 425,000 tonnes. This was achieved despite additional constraints on prime dig unit availability, geotechnical challenges within the Isaac Down South and the Isaac Downs North overthrust pit areas and the completion of mining activities in Pit 5 North. Looking ahead, the Isaac Downs expansion project is progressing as planned with the focus remaining on the approvals work streams and the submission of the EIS in the first half of 2026. While we are tracking on schedule for all baseline studies within our control, groundwater modeling and impact assessments incurred weather delays early in '25 and remain on the critical path. We will continue to update the market on our progress on this front, and we remain very motivated to advance this critical life extension project for the Isaac Complex. Time now to hear from Shane on the fourth quarter financials. Shane Young: Thank you, Marcelo. Looking at the corporate section of today's update, Stanmore finished 2025 with a strong cash and balance sheet position. This was underpinned by the successful execution of our fourth quarter weighted operational plan. Total cash as of 31 December improved to USD 212 million, which is after the scheduled half yearly debt repayment of USD 35 million. As a result, net debt decreased to just $33 million as at year-end from a total of $90 million in the prior quarter. If we look over the full year, net debt increased just $7 million year-on-year, which is after $60 million in dividends, $85 million of capital expenditures and $24 million paid in Eagle Downs stamp duty, which remains subject to an objection process. This is a remarkable outcome and demonstrates the resilience of our platform, which generated positive operating cash flows despite cyclically low market conditions. Off the back of this operational strength, we also took the opportunity to upsize our bank revolving credit facilities during the quarter, which now totaled USD 200 million in undrawn credit. When combined with our closing cash balances and gear working capital facility, Stanmore finished 2025 with total liquidity of USD 482 million, a strong position for the platform to enter 2026. Moving on to a comparison of full year production and capital expenditure against market guidance. As Marcelo previously highlighted, the strong finish to 2025 delivered full year saleable production of 14 million tonnes, landing at the midpoint of our revised guidance range. Capital expenditure for the year totaled USD 85 million, also at the midpoint of our latest guidance. Notably, this range had been reduced by $25 million earlier in 2025 to support cash preservation. FOB cash cost performance relative to guidance will be reported as part of our full-year results next month, but it will finish within our expected guidance range as well. At that time, we will also release guidance for 2026, which will incorporate known impacts from the weather events experienced earlier this year. Aside from those potential weather impacts, we expect South Walker Creek to continue to produce towards its expanded capacity, while Poitrel is anticipated to deliver another solid performance. In contrast, Isaac Plains output is expected to decline sequentially year-on-year as parts of that mine approach their established economic limits and mining activities are optimized to maximize cash generation. This step-change was anticipated in our mine plans with the economic limit being geologically defined as mining activities approach a split in the [ life card ] seen around 2028. As we work through the approvals required to commence the next phase at Isaac Plains, the Isaac Downs extension, our focus will remain on value preservation and cost optimization at that mine. We look forward to providing further detail on 2026 guidance along with our full year 2025 financial results in February. With that, Marcelo will now look to provide a quick update on markets and conclude today's prepared remarks. Marcelo Matos: Thanks, Shane. During the quarter, we saw prices for premium hard coking coal improved to -- from $190 per tonne to $218 per tonne. As noted in the report, this improvement was underpinned by stronger demand from China following a recovery in domestic netback pricing along with a normalization of Mongolia imports that increased import appetite for seaborne coals. Indian demand also improved over the quarter, with buyers beginning restocking activities after operating with relatively low inventory days throughout the year and in preparation for Queensland's upcoming wet season. This expectation has been validated with supply scarcity becoming paramount after the recent passing of ex-tropical cyclone Koji in early January. The impact from this weather event are understood to be widespread around the northern and the Central Bowen Basin, highlighted by the Moranbah weather state recording nearly 160 millimeters of rain in a single day compared to 116 millimeters for the entire month of January last year. Nonetheless, we remain well positioned, supported by strong operational readiness, the implementation of lessons learned from last year's extended wet season. Overall, the improved market conditions are a welcome shift from last year, and we are encouraged by positive structural developments in demand landscape, including policy clarity from India regarding antidumping duties on coke imports and reaffirmed safeguard duties imposed on steel imports. That concludes the prepared remarks for today's call. I'll now hand over to the moderator so we can take your questions. Operator: [Operator Instructions] Your first question comes from Brett McKay with Petra Capital. Brett McKay: Just on the strip ratio, obviously, falling back quarter-on-quarter, I'd expected that they are seemingly lower on average over the last number of quarters. Just any kind of outlook around that strip ratio profile of sort of stepping back up across the asset base to a more normalized level? Or could we see this sort of lower set of numbers going forward for a quarter or 2 to come? Marcelo Matos: Brett, I think simple answer is no. We don't expect these very low levels going forward. I think Q4 was anticipated. As we said back in Q3, that was anticipated to be a very low strip ratio quarter, given that we've done a lot of that stripping in Q3 and it was also a quarter that was expected to have a strong cold flow, right? I think we always said there was a year with a strong back-ended profile, given all the recovery work. So going forward, I think the expectation is to go back to a more normal level as far as Poitrel and South Walker are concerned. And what we've indicated in the past was that that's going to be around the 8.5, for example, for prime stripping ratio for the 2 assets, where Isaac is, as we've also indicated in the past, strip ratio are just going up. Unfortunately, it's the profile of the pit mining. And as we said before, we're going to be reaching challenging economic conditions around 2028. So we are setting ourselves up in eyes to make sure that we have the right cost structure going forward, given the increased strip ratios. Brett McKay: Yes, guess on that point there on Isaac and the next question, I guess, so if you've got an update on the timeline for the extension to come online. I know we previously spoke about aligning the existing operations with the incoming coal from the extension. Do you still feel like that's the realistic target is there a shift into spreading the remaining life Down South to match that updated timeline? Marcelo Matos: Brett, I think at this stage, [ nothing ] has changed, okay? I think it is possible for us to, let's say, obtain the approvals needed, start development of the project and start ramping up in a way that minimize discontinuity, okay? So when I say it's possible, obviously, it will depend a lot on the approvals work stream and us not having any undesired surprises. Having said that, keep the Isaac Downs running at similar rates until that transition takes place, it's going to be uneconomic, okay? We're just going deeper. We're going to be seeing splitting, which will have also cost implications. So I think we are what we're doing is we're setting ourselves up, focusing on the drag line, making sure we are just, let's say, set ourselves to a number of trucks and excavator fleets to mine, call it, high strip ratio, which will be, let's say, uneconomic to keep those volumes at unchanged. So we are providing guidance shortly, right, in February when we do the full year results. And you guys are going to see that, that's already starting to be reflected this year and towards the end of life at Isaac Downs, which is probably around 28, which is where the economic limits are. I don't want to just bring forward the discussion in February. I think we are also going through a process of understanding the implications of this weather event so that when we provide guidance for Isaac, for example, for '26, we are taking consideration not only the selling of sales up right from a cost standpoint, but also the wet weather implications as well. Brett McKay: Good segue the obvious question, if you can provide an update on exactly where things are at currently. I mean you've got pretty healthy end-of-year inventory position? Are you watching coal and selling coal at the moment? And has mining restarted at any of the sites yet? Marcelo Matos: Yes, mining has been started. Yes, we are mining and selling coal. It's a recovery process, right, not very different than what we've been through last year. Last year was just a difficult year because we as we explained before, we were hit three times. As we were recovered from the previous event, we were hit again. So it just makes things very hard. Hopefully, this year will be different. So we were hit once and it was pretty harsh one. As I said, we were fortunate to have finished '25 with healthy inventories. Obviously, the inventories are now being consumed, okay, while we were in recovery mode. Not all mines are recording the same pace usually -- and as not different than in the past. Isaac, usually, it struggles a bit more simply because we have less flexibility and less active pits. South Walker and Poitrel, they are already a bit ahead compared to Isaac from a recovery standpoint. The port, if look at DBCT, the port has closed for almost a week, okay? So that will affect significantly the January shipments, hence our decision to declare a [ FM ]. I mean, we knew that we were prevented from performing obligations around some individual shipments as per -- as contemplated under the contract. So I think we thought it was the right thing, not only for us, but for our customers to be able to more objectively try to remedy and mitigate some of those impacts. And -- but the event now is concluded, we're actually lifting FM and now we try to adjust the shipping program to cater for that. So yes, we are mining. Yes, we're shipping. January will be a significantly lower amount than what we expected. That's going to probably going to have a flow-on impact on Q1 as a whole, okay? So not very different than last year. Probably there will be a reprofiling of production and shipments during the quarters to be able to adjust to this recent event. That's what we know for now, okay? So nothing that we cannot recover from, in our view, with the reprofiling needed to adjust to the potential impacts. Brett McKay: How far from fully understanding the impacts and having that recovery plan in place? Are you -- would you expect to release that update for the market in the nearer term? Or would you prefer to sort of wrap it all up into the 2026 guidance later in February? Marcelo Matos: Look, for now, they are well understood, provided, of course, that we are able to dewater the pits in line with our plans and back into the coal flow and all the sequence between washing and shipping in line with the plans. I think they are well understood as long as we are not hit again, right, Brett. So the wet season is not over yet. So fingers crossed, we don't get another Q1 like we had back in last year. But as I said, we will have a smaller Q1 for sure. I don't think there's anything that we are unable to recover. If we look at Poitrel and South Walker, as long as we get back to coal mining as we're planning, we shouldn't have any constraints to wash and ship the coals we need because we have enough washing capacity. South Walker was always -- is always a concern because we need to use all the washing hours we have. So we need to make sure that we don't run out of coal feed, okay, and that the plant has always coal enough run in front of it, which so far is the case. So hopefully, that doesn't change for the rest of the wet season. Brett McKay: All right. So can I just clarify, did you plan -- will you plan on putting a specific update out once everything is sort of being fully captured and presentable or do you think that, that's just going to roll into that FY '26 guidance update? Shane Young: Brett, it's Shane here. Yes, we'll plan to release guidance along with our financials at the end of February. I think, obviously, it will need to be processed in terms of any impact on costs as well. And so it's better just to wrap it up with all to one. Operator: Your next question comes from Tim Elder with Ord Minnett. Tim Elder: Just a quick one about Eagle Downs out like just wondering if you can provide an update on how those studies are progressing and whether the recent increase in met coal prices is kind of enough for you to look at accelerating that project? Or if the priority is really just the Isaac Downs extension? Marcelo Matos: I don't think anything has changed on Eagle Downs, Tim. We've been working on a pace of FID readiness by the end of this year, okay? That hasn't changed. I don't think that short -- I mean, this recent spike in coal prices justifies us brushing that work stream. I think it's a big project with -- we need to have a long-term view and a good level of confidence on the attractiveness of the project. So I think work is ongoing. Nothing has changed. On your point around priorities compared to Isaac expansion, Isaac expansion was always a top priority for us. It's a low capital project. It will be an attractive project, whichever way we look at it. And we said that before, I think we just need to make sure that it has the right level of resourcing efforts and happening in time to minimize the discontinuity, as we said. So yes, I think it's always a priority for us with Eagle Downs happening unchanged in terms of work streams. Operator: Your next question comes from Glyn Lawcock with Barrenjoey. Glyn Lawcock: Just a quick high-level question, Marcelo and Shane. I mean, obviously, lower volumes, higher costs, but you've also had a 25% jump in the price. I mean, at a very high level, I mean, are we looking at a net positive or a net negative impact on the business, given all those inputs? Just your thoughts. Marcelo Matos: If prices stay as they are today, I would say that despite any expected cost inflation -- let's put it like that, including a potential cost implication as a result of volume adjustment in Isaac, for example, I think we'll still have a net positive if prices stay where they are for sure. I think that's -- I mean, they are significantly higher today than they were right for the average of last year. So yes, I think simple answer is probably it's a net positive if they stay as they are. Where that shifts -- in terms of at which coal price that shift, I think it's something we need to look at. But yes, I think we -- hopefully, Glyn, let us wait to February when we will provide guidance and then we can have that chat in more details as well. Glyn Lawcock: Yes. No, I appreciate that. I appreciate that. And then just on Poitrel, I know you've talked a little bit about it in some of the earlier questions, but you've just called out another solid performance. So you've made a comment that strip ratio is going up. Is there anything else at Poitrel that we need to think about as to why I can't repeat another 5 million tonne year? Marcelo Matos: Poitrel finished last year with strong ROM. It's not different this year, but we are now starting to -- let's say, we haven't -- we are not depleting yet, but we're starting to transition mining Poitrel towards the north part of the mine. It is -- it was always contemplated in the life of mine. So we just had a few years where the overlapping of [indiscernible] North, which we just developed recently and the Southern pit still happening at the same time, and that explains a bit of the 2 very, very high years. We're going to now start to transition more towards the northern part with some of the southern pits depleting. So that explains a bit of us getting probably back to a more normal level. So maybe I'm just jumping here to the end of February, but no, I don't think we're going to be providing guidance that we're going to be doing a similar year to this year for Poitrel at 5 level. Still going to be a pretty robust year, but not at the [ 25 million ] level. Glyn Lawcock: Yes. No, understood. I don't want to jump too much in advance. And just, Marcelo, you called out on the call, you said the water studies are the critical path for Isaac Downs extension. What date do you need that by? I mean, obviously, again, you commented that you'd like to nose to tail would be perfect. But what's your current date for the water study so we kind of can sort of track your critical path? Marcelo Matos: Look, the delay that we faced last year was actually drilling the ball holes and getting on to site during the wet season. That was the key issue we faced. We are now already acquiring data, and we just need to get all the data acquisition and then all the groundwater modeling done. So that's just a sequence of work that's happening as we speak. So -- but there's another area, which is actually quite critical as well for Isaac, which is how we design the pit to minimize backfilling in the end of life. So in Queensland now, there's no restrictions about leaving non-use mining areas, okay, which depending on how you look at post-mining use of pit lakes and so on, you -- I mean, if it's not used, we will need -- you have a regulatory requirement to backfill. So we spent actually a lot of time in the past 6 months working internally and with the departments here in Queensland to try to work a plan that minimizes backfilling, which obviously improves the economics of the project. I think that was worth a time spent on that. I think we will pay in the long term, but it needed a bit more time. So that brought some small delays around concluding the plans and the work streams for the submission of the EIS, but things are on track now. I think we are looking at submitting everything by by the end of this first half. Glyn Lawcock: Okay. That's great. And then if I could just squeeze one final one in. Just you've obviously not hit the fact that you're looking to do and add more mines to the portfolio. Just what's the latest you can help us understand with the Anglo sales process from your perspective, where that might be at? Marcelo Matos: I'm a bit constrained about how much I can speak publicly. I think as far as I know, there's -- we started the process, and the parties seem to be involved, and they seem to want to get to an outcome sooner than later. And what we hear from rumors that probably even hopefully before they complete the tech transaction. So these are the rumors, but there's only as much we can talk about that. Operator: [Operator Instructions] Your next question comes from Craig Chapman with [ Manpack ]. Craig Chapman: Just given the results and the healthy inventory and everything else, is there going to be a likely return to dividends? Shane Young: Craig, it's Shane here. Yes. Look, I mean we've paid out dividends consistently over the last couple of years. I know that we -- the Board took the decision at the interim to hold off. But on final basis, dividends have been paid to shareholders each year. And I think the Board will strongly consider that again when they meet in February ahead of our results release at the end of February. So we do have a dividend policy that allows for 50% or target 50% of cash flows after debt service to be returned each year. But there's flexibility within that policy as well to consider the market outlook to consider the cash position and liquidity position of the business and other factors at play as well. And that's been proven as it was last year when the dividend was declared in the same time last year. Operator: There are no further questions at this time. I'll now hand back to Mr. Matos for closing remarks. Marcelo Matos: Thanks, everyone, for your questions and for joining today's call. Thank you to all our employees, contractors for their hard work and the commitment to safety discipline during the quarter. We look forward to continuing to engage with our shareholders when we release our financial results for 2025 next month. Have a good day. Talk soon. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Karin Larsson: Hello, and a warm welcome to the Epiroc Q4 and Full Year 2025 Results Presentation. My name is Karin Larsson, Head of IR and Media here at Epiroc. And by my side, I have our CEO, Helena Hedblom; and our CFO, Hakan Folin. As always, they will briefly present the results before we do a Q&A session. You know the drill. Helena, please go ahead. Helena Hedblom: Thank you, Karin, and hello, everyone. So I will start with the highlights for the year. So with 79% of our orders deriving from mining, I'm glad to say that the mining demand remained robust in 2025. The customer activity was strongest in gold, copper and zinc, while nickel was softer. Of our mining exposure, gold and copper now together represents 65% of orders. In the year, our customers continue to prioritize brownfield expansions and productivity upgrades as well as exploration, especially in gold and copper. Infrastructure, which is 21% of our orders received was more mixed. Drilling rigs and equipment for larger civil engineering projects showed stable demand, whereas attachments for use in construction work remained weak. On a positive note, the destocking among distributors for attachments came to an end towards the end of the year, and now we are positioning us for growth. Despite currency headwinds weighing on orders, revenues as well as profit, we managed to grow our orders organically in 2025 by 7% to SEK 63 billion and revenues by 2% to SEK 62 billion. And the adjusted operating margin for the year was 19.6%, somewhat lower than in the previous year, 19.8% and is explained by tariffs, product mix and some inefficiencies. So let me, however, be clear, in 2025, we had a strong focus on cost savings and increased efficiency. And in some areas, such as in attachments, we have done well, but in others, we are still working on improving. During the year, Epiroc delivered many, many innovations that enhance safety, productivity and sustainability for customers worldwide, reinforcing our leadership in automation, electrification and digitalization. And some are built on proven solutions like the new Epiroc PCD drill bits, which is the next generation of the popular Power X bit. And in this new version, we have seen customers going from 7 meters drilled per standard bit to 400 meters per bit and often more than that. And with an increased use of automation within drilling, we anticipate good future demand for these type of products. Other innovations that are not upgrades, but rather groundbreaking are these. So in 2025, we completed the conversion of the Roy Hill mines mixed fleet to driverless operation in Australia, creating the world's largest OEM-agnostic autonomous mine. So what began as a bold vision is now a reality. 78 haul trucks and around 250 ancillary vehicles operate now autonomously 24/7 in a mature production scale solution. Underground, we advanced mixed fleet automation at Newmont's Cadia mine also in Australia, fully automating one production level, 1,200 meters below ground using our OEM-agnostic deep automation system. And this integrates loaders, rock breakers, water cannons and inspection robots into a single platform, enabling complete remote operations from a surface control room. And the results in both these projects have been impressive, improved safety by removing personnel from dangerous zones, higher productivity through continuous operation and record-breaking daily tonnage almost every month. At year-end, we had more than 3,900 driverless machines, Epiroc and non-Epiroc machines in operation, which is an increase of 13% compared to 2024. Moving on to electrification and starting with a highlight that includes both automation and electrification. So in 2025, we won our largest order contract ever, SEK 2.2 billion over 5 years. We will deliver around 50 fully autonomous and electric surface blasthole rigs to Fortescue in Australia. And this includes cable-electric Pit Vipers, 271 E rigs and battery-electric SmartROC D65 BE rigs. And these driverless machines will be operated remotely from Fortescue's integrated operations center in Perth, which is more than 1,500 kilometers away and will increase productivity while also reducing carbon emissions. I would also like to highlight the 5-kilometer battery trolley line inaugurated at Boliden's Rävliden mine in Sweden based on our Minetrauck MT42 SG trolley solution, developed in close collaboration with ABB and Boliden. This innovation is delivering remarkable results. Productivity is up 23%, ramp speeds are up 50%, maintenance costs down by 25% and diesel consumption reduced by 80%. And the energy regeneration during downhill hauls further boost efficiency. Production officially started during the year and interest from other customers is high. In total, our electrification revenues amounted to 3.8% of group revenues in 2025. There are 40 mines globally that have ordered our BEVs, battery electric vehicles and the majority of our BEV orders in 2025 came from these pre-existing customers. They have seen that the electric solutions bring many advantages, including increased productivity as well as reduced ventilation cost. For example, in the Assmang Black Rock mine in South Africa, our BEV fleet has led to 11% more tonnes per hour and has reduced energy cost by 18%. So a final slide then of innovations in 2025 before moving into the quarterly results. So safety is at the core of everything we do. And in 2025, we took an important step forward by partnering with Hindustan Zinc to implement a digital collision avoidance system in all their mines in India. And the solution combines advanced sensor technology, real-time positioning and intelligent alerts to ensure operators have full situational awareness. It's designed to integrate seamlessly with Epiroc's existing automation and digital platforms, creating a connected ecosystem that enhance both safety and productivity. And on the attachment side, we have successfully launched the Epiroc Insight, a telematics solution engineered to transform fleet management of attachments. So by combining advanced asset tracking with real-time data insights, users get better control and visibility across their fleets. And already now, we have more than 5,500 connected attachments worldwide with more than 400 customers. And for us, it means valuable insights to further improve the product as well as to help our customers with proactive maintenance. So looking into the fourth quarter, we delivered a strong performance driven by robust customer activity within mining. Our orders received grew organically by 11% and mining activity remained high, particularly in gold. Organic equipment growth reached 22%, underscoring strong momentum. And our large mining equipment orders amounted to SEK 670 million compared to SEK 820 million last year, signaling continued widespread underlying demand. And also our service grew well organically at 6%. The growth in exploration demand was high, driven by a combination of a stronger exploration market and the leading offering of advanced exploration drill rigs and drilling tools. And demand in infrastructure and construction remained stable with a healthy activity level for larger civil engineering projects, whereas the demand for attachment was seasonally low. Our revenues grew 4% organically, and our adjusted operating margin came in at 19.6% compared to 19.7% last year. So despite currency and tariff headwinds, we managed to deliver an organic contribution of 0.6 percentage points. So we have been and we are taking actions to safeguard profitable growth, and I'm glad to see that our progress -- the progress in the quarter. So looking deeper then into orders. In total, orders declined 1%, but the decline is fully explained by currency. So organically, our orders increased 11% to almost SEK 16 billion. Again, within mining, customer activity remained high, while demand from infrastructure and construction customers remained stable. Sequentially, compared to the previous quarter, group orders increased 7% organically, driven by mining. Our aftermarket represented 63% of revenues in the quarter, which is the same as in previous year. We had a good demand for rock drilling tools and service for mining, while the demand for attachment used in construction was seasonally weak. As we are mainly exposed to the Northern Hemisphere in our attachment business, the first half of the year is normally stronger with Q2 being the best, while Q4 is normally one of the weaker quarters. Within service, which represents 41% of our revenues, we achieved the highest growth within our traditional parts and service business. In total, the organic service revenue growth was 4% in the quarter. Historically, since 2018, we have managed to grow our service business revenue by 8% per year, and we aim to return to these levels. We have had -- we have a large and aging fleet. It now sits at 8.6 years on average and an increased technological height on the fleet, which supports a good foundation for growth. In addition, we have initiatives in place to capture more of the customer share already in 2026. By working more precisely with pricing, leveraging our alternative offering as well as find other ways of sourcing, then we can increase this share. And if you are new to Epiroc, let me briefly explain the customer share. It's the proportion of Epiroc machines that we serve -- that we serve in some form or another. In the last few years, we have had a customer share north of 50%, whereas roughly 1/3 of the fleet has an actually service contract with us. So there is, in short, good potential to grow. Moving on to operational excellence. Over the past year, we have navigated a complex and demanding external environment. On almost daily basis, geopolitical decisions impact global trade. So we keep on taking decisive actions to strengthen our resilience and drive profitable growth. The negative net tariff impact on our operating margin was just below 0.5 percentage points in Q4, and our mitigating actions include optimizing logistics and distribution flows, leveraging our global manufacturing footprint and adjusting our supply base, including key inputs like steel. Of course, we're also implementing price increases to compensate. And we pay close attention to tariff news and regulations, and we are ready to act if or when things changes. We are also consolidating customer centers and production sites, and we have during 2025, consolidated sites in Germany, in U.S. and in South Africa, and we continue to consolidate. And this year, we are moving the tools manufacturing site in Canada to Mexico. So to become even more efficient in production, we invest further in India, which is now our fifth largest market when it comes to number of employees. We have more than 1,300 employees in India, and we are creating a global production and R&D hub for both surface and underground equipment. But it's not only about producing. India is a rapidly growing domestic market, and we are already growing at high double digits there. So our increased footprint can safeguard this growth and our deliveries onwards. Moving on to next slide then, people and planet. So safety first, of course, and we have had good progress during the year on safety. Among our 19,055 employees, the total recordable injury frequency rate decreased yet again to 3.9, down from 4.3 last year. And much of our focus is to increase safety awareness in our new entities as well as for external workforce in production and service. On the environmental front, we achieved a reduction in emissions in operations driven by renewable energy initiatives. However, transport-related emissions rose due to the increased air freight and route adjustments linked to tariffs. So Hakan, would you mind going through the financials? Hakan Folin: Yes, Helena, of course, thank you. Starting on a group level, our group revenues decreased 7% to SEK 16.1 billion, and that's an organic increase of 4%. And here, we have currency impacting negatively by 11%. Aftermarket represented 63% of revenues in the quarter, which was the same level as in Q4 2024. So no mix effect between equipment and aftermarket. The operating profit and EBIT amounted to SEK 3.2 billion, and this includes item affecting comparability of plus SEK 58 million, mainly relating then to an insurance settlement gain, but also cost for efficiency measures. And finally, we had a change in provision for the share-based long-term incentive program of minus SEK 4 million. Our operating margin was unchanged at 19.9%. The adjusted operating margin, then excluding item affecting comparability, decreased somewhat to 19.6% to compare with 19.7% in Q4 2024. And as Helena briefly mentioned, the margin was negatively impacted by tariffs with almost 0.5 percentage points. And this negative impact, despite then a lot of efforts ongoing to mitigate will remain in 2026, although at somewhat lower levels each quarter. However, despite the headwinds, we managed to achieve an organic profit improvement of 0.6 percentage points in the quarter, as you can see in the bridge on the right of the slide. If we then move on to the business area Equipment & Service. Orders here amounted to SEK 12.3 billion, which is actually a strong 13% organic increase and currency impacted negatively by 12%. And to repeat what Helena already said, there was a strong underlying growth within equipment, where we had plus 22% organic orders received increase. And the large orders, the ones that are above SEK 100 million were at SEK 670 million this quarter, which is actually down from SEK 820 million in Q4 2024. So with lower -- with such an increase, but large orders actually at a lower level, it indicates a really healthy and widespread underlying demand. For service, we have an organic increase of 6%, and we have here the strongest growth achieved in the traditional service operations. We don't often speak so much about regions, but today, I would like to do that. And in local currency, orders received increased with double digits in North America, in Asia, Australia, in Europe and in South America, so in most our geographies, while they actually decreased in Africa and Middle East, but that was against quite tough comparables. And the strong development in North America, which was up 29%, was supported by a large order of automated equipment, including then battery equipment. The nickel exposure, which impacted us quite negatively in the first 3 quarters of 2025, still remain in Q4 and still remains despite then the recent increased mineral prices for nickel. We still have many customers with mines under care and maintenance due to these depressed nickel prices. However, in 2026, we will meet easier comps throughout the year. If we look sequentially, we had an 8% orders received increase organic, and this was driven then by the mining. If we then turn into revenues and also profit for Equipment & Service. For revenues, we had SEK 12.5 billion, corresponding to an organic growth of 4% and also here then a rather negative impact from currency, minus 10%. And the organic increase in revenues for both equipment and service was 4%, respectively, which then means that the mix is the same as it was in Q4 2024. EBIT for Equipment & Service was SEK 2.7 billion, includes SEK 30 million in item affecting comparability in cost for mainly efficiency measures. If we move to the right-hand side of the slide, we have then the adjusted EBIT, that was SEK 2.8 billion and a margin of 22.1%. This is down from 23.6% last year. And here, we have a similar margin pattern as for the group, where tariffs are burdening the EBIT -- sorry, both currency and tariffs are burdening the EBIT and the margin in a negative way. If we instead compare to the previous quarter, so we compare with Q3, we had a small increase on the operating margin for Equipment & Service. Moving on then to the other business area, Tools & Attachment. Orders received here decreased with 7%, negative 11% coming from currency, which then implies that organically, we had a 4% growth for the business area. And in total, orders for Tools & Attachment were SEK 3.6 billion to be compared then with SEK 3.9 billion in the fourth quarter the year before. The organic growth was mainly driven by mining demand. As anticipated, the demand for attachment was seasonally weak and again, still being at a subdued level. Sequentially, we had a 1% increase in organic orders received. Next slide, and we're now at Slide 15. Revenues for Tools & Attachment increased 4% organically and were SEK 3.7 billion. And the operating profit, it increased actually as much as 65% to SEK 537 million, which is up from SEK 326 million in the previous year, and this is the highest EBIT ever achieved in this business area. The margin came in at 14.9% versus 6.4% (sic) [ 8.4% ] in the previous year, but we did get some help from an insurance settlement gain relating to the acquisition of STANLEY. So what was this then? Well, when large acquisitions are made, it's often standard that you have insurance for uncertainties in the valuation of the acquisition. And in this case, we could use this in our favor. If we instead look at the adjusted profit, then the margin was 12.3%. We compared with 8.4% a year ago. And this is then despite tariffs, currency and also continued weak construction market. The organic contribution to the margin was 5.2 percentage points. And much of this improvement is due to the hard work in adjusting the cost base within Attachments and also within STANLEY Infrastructure. Again, market is still at a low level, but what we see is that we're well positioned to capture market growth and also market share once the construction market turns more positive. And while we are on Tools & Attachment, I would like to mention already now that this business area has quite an exposure towards tungsten carbide, especially in tools. And the prices for tungsten have more than doubled in 2025. And even if the financial impact in Q4 for us is still low, we are anticipating a margin headwind in 2026 of a few tens of percentage points for this business area. Mitigating actions are already in place. For example, we have accelerated our drill bit recycling program. And we already communicated towards our customers that prices will be impacted, and we are working proactively with suppliers, both on price and on supply. Leaving the business areas and moving back on group level and coming to cost, net financials and tax. In total, the cost for admin, R&D and marketing were 3% lower, and this is due to lower expenses within marketing, while R&D increased somewhat. In percentage of revenues, it was 16.5% versus 15.9% last year, and we are continuously working on being more efficient on all of these cost items. Net financial items came in at SEK 115 million, which is meaningfully lower than last year. Explanation is partly due to lower interest net, but also due to exchange rate differences on interest -- on net financial items. We had a tax expense in the quarter of SEK 742 million, which is very much in line with last year and corresponds to an effective tax rate of 24.0% in the quarter, which also is then in line with our guidance of between 22% to 24%. Moving on to the cash flow. Our operating cash flow was strong at SEK 2.6 billion, however, clearly lower than the previous year's record level, which was SEK 4 billion in 1 quarter. In that quarter, we had more cash released from the working capital, but also in this quarter, we had somewhat lower profit as well as a bit higher paid taxes. The cash conversion rate is now 12 months rolling at 90%. It's not at the peak we had in last quarter of 105%, but still, it's at a very solid and good level for a company which has a quite strong organic growth. And then part of the cash flow, of course, is the development within working capital. If we compare to the previous year, net working capital decreased by 9% to SEK 22 billion, down from SEK 24.3 billion. However, if we exclude the effect of currency, the net working capital actually increased somewhat due to increased inventories, partly offset then by increased payables. However, what I find most relevant is to look at our working capital in relation to revenues. And in the last 12 months, it has decreased to 36.9% versus 37.4%, which means we are using the working capital in a more efficient way now than we were a year ago. Next slide then, #19, on capital efficiency. Our net debt decreased to SEK 11 billion, down from SEK 14.8 billion last year and then, of course, supported by our robust cash generation. Our financial position is strong. We have a net debt-to-EBITDA ratio of 0.73, which has improved from the end of 2024 when it was 0.93. Return on capital employed was 18.9%. It's down from 20.6%, and this is explained by higher intangible assets, including goodwill and also somewhat lower profit. And just as a reminder, these are rolling 12-month figures. At year-end, we had a cash position of SEK 9.6 billion, and I'm sure you wonder now what we will do with our cash. First of all, we will keep on investing in organic growth. That is a key priority for us. Then we will do bolt-on acquisitions close to our core. We have not been so active in 2025 on the acquisition front. So it's fair to assume then that there will be a higher activity in 2026, but remaining close to our core in the businesses we know best. And finally, we will distribute cash through regular dividend to our shareholders. And that brings me to my last slide of today on the dividend. And here, the Board of Directors proposes to the Annual General Meeting an ordinary dividend to shareholders of SEK 3.80 per share, which is the same as last year and equals SEK 4.6 billion in total. It also corresponds to 53% of our net profit, which is in accordance with our dividend policy. And the dividend policy says we should have stable or increasing dividend and it should be half of the net profit over the cycle. So very much in line with our policy. Dividend is proposed to be paid in 2 equal installments with the record date of May 7 and October 19 this year. And with that, thank you, and Helena, back to you. Helena Hedblom: Thank you, Hakan. So let me finish then with some highlights from Q4. So we had a strong last quarter and achieved 11% organic order growth. For equipment, we had an even higher organic growth of 22%, high growth in demand for exploration, driven by a combination of a strong exploration market and a leading offering. Health activity in larger civil engineering projects and stable but seasonally low demand for attachments and organic contribution to the margin despite currency and tariff headwinds, indicating that our efforts are starting to yield results. And what do we do expect onwards? Well, as we enter into 2026, we are well positioned to capture growth. Mineral prices are high for our main commodities, copper and gold. We are exposed to attractive performance-critical niches where our equipment and aftermarket makes a positive difference for productivity. Our customers show great interest in our solutions for automation, mixed fleet automation, digital safety solutions as well as for electrification. We have a comprehensive and market-leading offering within exploration and we have committed employees who make a positive difference. So in the near term, we expect mining demand to remain high, while demand from construction customers is expected to increase somewhat from a low level. So Karin, over to you. Karin Larsson: Thank you, Helena. Thank you, Hakan. So before we move into the Q&A session, I'd like to say 2 things. First, a big thank you to those of you that answered our analyst survey. Your input is much appreciated, and we will do our best to improve further based on your input. For example, and this leads me to my second point, we will try to provide more information on our margin progression at our CMD in June. It's going to be hosted in Örebro on June 8 to 9. And if you have not yet signed up, please do. The seats are filling up rather quickly. And for your information, Volvo AB will also host its CMD in -- when we do it, it's going to be on June 10 in Eskilstuna. It's just an hour away, and we are coordinating the logistics to make it easy and worthwhile to attend both events. So without further ado, let's begin the Q&A. Please keep the questions short. And operator, you may open the line. Thank you. Operator: [Operator Instructions] The next question comes from John Kim from Deutsche Bank. John-B Kim: I'm wondering if we could stay focused on margins for a second. Can you help us unpack the drop-through margins you're seeing in E&S and how we could think about the cadence of those as we go through kind of cost efficiencies in '26 and perhaps '27? Hakan Folin: You said E&S, right? John-B Kim: Correct. Hakan Folin: Okay. So what we see in E&S then if we compare with previous quarter, we see a slight improvement. We had -- and that improvement also includes then a positive organic flow-through. If we compare with previous quarter, we had somewhat worse mix within E&S because we had more equipment compared to service. But on the other hand, there are some of these efficiency actions that we are taking that are starting to yield some results as well within Equipment & Service. If we compare with last year, it was -- if you exclude currency then it was roughly the same. We have somewhat negative -- sorry, not roughly the same. If we exclude currency then we had also a negative organic flow-through. What I was going to say is that it was roughly in line with the headwinds that we are seeing from the tariffs. So I think we had 0.6% right, in negative organic development, and we have said that we have roughly 0.5 percentage point from the tariffs. John-B Kim: Okay. Super helpful. And if I could ask again just on kind of the cost efficiency programs where we are there within the division and what levers you're looking to throw from here? Hakan Folin: Yes. So in the BA Equipment & Service, it's -- they are not as large and as tangible as they are within the other BA where we are closing a number of factories. Within Equipment & Service, it's more general efficiency within our service operations. It's also making sure that we are efficient within our administration costs. And we are also working, as I believe we mentioned in the last call, we are consolidating a number of customer centers in order to make sure we are being as efficient in how we serve our customers as well. So they are not as large intangibles to say, now we close one factory, we're going to see a big impact from that. But we are not happy with where we are from a margin point of view for E&S, and therefore, we are taking a number of action there as well. So sorry, just to finalize on that. If you look at the development, the organic development for Tools & Attachment was, of course, very strong in the quarter. And we started with taking more actions in Tools & Attachment earlier where we had deteriorating margins, while we are -- you can say -- you can call it that we are a bit later in the same process for Equipment & Service. So there should be more to come in terms of efficiency improvements for Equipment & Service. Operator: The next question comes from Chitrita Sinha from JPMorgan. Chitrita Sinha: I have 3, please. So the first one is just on the new construction guide. Could you just give a bit more color on how this has changed sequentially, especially in attachments given your unchanged comments on a destock amongst customers? And then should we expect a quicker pickup in attachments and therefore, a shift of mix towards higher attachments in the next quarter? Helena Hedblom: So if we -- there has been clearly a slow demand for -- towards the construction market for almost 2 years now. And on top of that, we have had this inventory reduction happening in our indirect channels that we have seen gradually now during the year has come to an end, meaning then that we get the true demand picture into our factories and into Epiroc. What we have seen is that we -- the dealers are more -- slightly more optimistic. We are -- here, we -- of course, the big market for us here is U.S. and it is Europe. And we see a slight improvement in demand or we expect a slight improvement in underlying activity levels, but of course, from a low level. So that's how you should read it. It has been, of course, still it's a low level, but it's -- we start to see increased activities from a low level, which, of course, is good. Chitrita Sinha: Sorry. And then just a follow-up, just on -- is there a shift in attachments going forward, given the comments there? I mean -- or is it going to be a similar sort of rate of improvement? Helena Hedblom: No. So no, it's -- I would say, the offering we're having, so it's the same type of product. So it's the same I say, mix of attachments. But of course, that has been I would say, burdened the growth for us for quite some quarters. Of course, with a slight pickup in activity level, we should then get that demand into our factories, given that we're successful in capturing that growth, of course, but I think we are prepared for that now with the consolidation we have taken as well. Chitrita Sinha: Very helpful. And then my second question is on the T&A margin, similar to John's question on E&S. Could you please explain the moving parts sequentially? And then I guess, how should we think about a step-up in the savings from efficiency program coming through, especially in H1 as volumes recover? Hakan Folin: Yes. So within -- as I mentioned when we talked about Equipment & Service within Tools & Attachments, we have taken more actions earlier than we have done in Equipment & Service. And therefore, we are seeing more of the result in the P&L as well. I think if we look at it -- I know you asked sequentially, but if we look at year-over-year, that's when we see the really big improvements coming from that we have consolidated factories. We have significantly less under absorption in Q4 this year than what we had in Q4 2024. Then sequentially, of course, the difference is a bit smaller. We are now at 12.3%. We were at 12.9% in Q2, 11.6% in Q3. So it's not a huge difference, but it is that we are seeing a bit more of the savings coming through also in Q4 this year compared to Q3. Helena Hedblom: And then maybe we could say as well that the consolidation of Essen and Kalmar, that has happened now during Q4. And of course, part of those savings, we can see in the P&L, but not the full savings. So of course, that we should start to see now moving into 2026. Hakan Folin: But then just as a word on -- for T&A, I mentioned when I presented also the development of the tungsten prices, which then we expect to be a bit of a headwind for this business area. Chitrita Sinha: Perfect. And my final question is just a quick one on nickel. Do you expect any positive development outside Indonesia given the price move? Helena Hedblom: I think it has been, as I say, the prices have moved now recently, and that's, of course, good. What we have seen with the customers where we have existing fleet in nickel, those machines are still -- some of those mines are still under care maintenance. So part of the fleet is still parked. So we have not seen an uptick in activity levels so far in Q4. But of course, if prices stabilize and continues up even more, then, of course, more nickel mines will then start to be reactivated again. Operator: The next question comes from Edward Hussey from UBS. Edward Hussey: So yes, just first one, can you give us a bit more color on how material the impact from tungsten could be in 2026? Any color on the magnitude would be massively helpful. And then could you also just explain why this hasn't been a headwind so far? Is there some kind of lagged effect on input costs? Hakan Folin: If we start with the second -- yes, it's a lag effect. Prices have increased. But of course, we are sitting -- we have contracts and we are sitting on some inventory. So therefore, we haven't seen a material impact so far, but it will come now gradually starting basically from now. And then I mentioned that it will be a few tens of percentage points on the Tools & Attachment business area. That is our best estimate at the moment. It, of course, depends on our ability to raise prices with customers as well. But everyone is in -- all our competitors are in a similar situation. So we expect competition to act in the same way. Edward Hussey: Okay. That's very helpful. And then just my final question, just on service growth at 6%. So you achieved this, I mean, despite a large order headwind in the digital business. But I guess, at the same time, maybe the nickel headwind is perhaps dissipated and the DRC is abating. I guess the question is, I mean, if I look at Q1 to Q3, where you averaged 2% growth, if you were to have excluded the DRC and nickel impact, would sort of 6% or higher have been more the growth rate we should have thought about if those headwinds hadn't existed? Helena Hedblom: I think it's -- if we look on -- as we mentioned, the nickel started to go down already in Q4 2024, and we had impact throughout the year. And we shared the numbers there last quarter, of course, majority of that drop is aftermarket. So that's a couple of percentage if that would not have been the case. Then the seismic activities in DRC, Kamoa being our largest account in that country, of course, that has also had a material impact. So I think you're not that far off in those assumptions. And if I look on where we are right now, as I say, we still in Q4, see the headwind from the nickel activities is still -- has not improved. Last year, yes -- or 2024, yes, we had this large -- 2 large equipment or deals on digital. And I would say that the activity levels in DRC is coming back step by step. So that's -- it's going in the right direction. So that's the starting point right now. Operator: The next question comes from [indiscernible]. The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: Maybe I can come back to the E&S margin bridge, if that's okay. If we strip out Roy Hill from Q3, I think that margins are down sequentially 20 basis points as of today. I guess curious as what drove that effect. We know tariffs effectively, as I understand it, unchanged in impact. I know you guided previously that they would be less of a headwind in Q4 than Q3. And you've said that the mix in terms of E versus S has not changed. So I guess trying to understand why margins are down sequentially. Hakan Folin: Well, first of all, Christian, I would say they are up sequentially. And then your assumption on ASI Mining, we didn't specify exactly what it was. We said it was negative -- below average for Equipment & Service. But we also have a negative mix effect. If you compare quarter -- Q3 over Q3 -- sorry, Q3 over Q4, if we look year-over-year, we have the same share of equipment versus service. But if you compare Q4 to Q3, we have somewhat higher equipment than we have 47% equipment in Q4, and we have 45% in Q3. On tariffs, they are slightly lower in Q4. We said around 0.5% in Q3, and now we say slightly below 0.5%. So that's relatively unchanged. But mix is definitely one factor between equipment and service. Christian Hinderaker: Okay. But was mix not better because you said the strongest growth you saw in service was from parts and spares. So was the service mix not a positive? Hakan Folin: Now we're talking 2 things there, Christian. One is that we're talking about orders. That's when we said that orders for -- within service was more traditional service. And then that is comparing Q4 with Q4 last year. And if I heard you correctly, I think your question was Q4 versus Q3, correct? Christian Hinderaker: That's right. Hakan Folin: And the mix that I'm trying to say is on revenue. So in Q4 now, we had 47% revenue coming from equipment versus 45% in Q3. Christian Hinderaker: Okay. Maybe if we go to the tariff effect, I guess, I appreciate there's maybe a bit of decimal points here, but you guided last quarter, there would be less of an effect in the fourth quarter. I guess North American growth was the strongest by region. As we think about the book-to-bill or more specifically, you had 20% order growth in North America and 9% sales growth at the group level. On that basis, should we then be expecting an increased tariff effect as we look into 2026? Or do you think that you can mitigate that and so the tariff effect is either flat or down? Helena Hedblom: I don't think you -- North America, it's not U.S. So we have some -- Canada is contributing very strongly in the quarter as well. So I think you can -- it should not increase. It should go -- tariff impact should go down. Hakan Folin: If you look at tariffs as a percentage of revenue, it should be lower in 2026 than what it's been in the last 2 quarters of 2025. Christian Hinderaker: Okay. That's very helpful. And then maybe just a final short one. You mentioned the large service order already did on the fourth quarter of 2024. Can you just remind us when that -- has that been delivered or that's still to come in digital 2 orders? Helena Hedblom: That has been delivered. So that connectivity solutions. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: Hope you can hear me now. Just to follow up there on the service growth, looking at orders of 6% growth. You did that still despite having pretty big headwinds from nickel and DRC. And during the last conference call in October, we talked a lot about the issues with the slippage of customer share. Now we have 6% growth all of a sudden, which is nearly 8% to 9% ex nickel and DRC in my numbers. The customer share don't move that quickly. So I was wondering what happened? Was there any sort of easy comp in a certain country? Or is the 6% sort of a new level and then add back nickel and DRC? Helena Hedblom: We have been working on growing our customer share a long time. The nickel impact is still there, so that is still a headwind. DRC is coming back step by step. So that is moving in the right direction. But we have the strategy to capture customer share, we have a number of initiatives ongoing. So it's both to work on, of course, on the pricing side, to be more precise. We have developed an alternative offering to capture certain customer types and certain segments as well as sourcing them in a more optimal way to be, let's say, competitive for certain segments. So there's a lot of activities ongoing. And as I've been saying over the years to be more and more precise in how we run our, let's say, the service business and how to capture that potential that is there, the unserved part of the fleet that is a great opportunity for us. So I'm pleased to see the, I would say, the growth. So it's -- when I look at, let's say, the different countries or entities, it's nothing standing out as being extraordinary in these numbers. It's healthy, of course, healthy activity levels as well, especially towards copper and gold, of course, the activity levels is high, but also some larger rebuilds, et cetera. So I'm pleased to see that our efforts are giving results. Klas Bergelind: That's good to hear. So my second one is on capital allocation. You say that you will do bolt-ons and that you were not that active in '25, it will be higher activity in '26. I'm just trying to understand where the gaps are. Obviously, mine planning, for example, is an area where you could get stronger versus some of your peers. I'm just trying to understand the margin profile because when you say that you will do more M&A in '26, Helena, I was under the impression you to improve the margin in what you acquired first before doing more M&A? Or are you targeting more margin segments? I mean mine planning, for example, is one of those areas where the margins typically are quite high. So just understand a bit in terms of the margin profile of where you want to go. Helena Hedblom: Yes. No, it's more core products where there are some gaps close to the core that we have always had. So it's -- and aftermarket, I would say. There's always opportunities to capture customer share as well in the aftermarket. So it's more -- it's close to core, not maybe further out and maybe not so much related to new technologies. I think we have a very comprehensive offering. And there, to your point, we have -- we should leverage organic growth from all these acquisitions that we have done over the years and get the synergies from those acquisitions. It's more close to the core products -- physical products and aftermarket, say, parts and service. Klas Bergelind: Okay. That's good. A quick and final one is on the digital offering, just to sort of connect there. And obviously, you need more units here to scale that business and get the margin up. And having spent time with you on the road and from feedback from investor meetings recently, the message seems like that you underestimated how quickly you could ramp mixed fleet, Plan and Protect around Radlink, et cetera. You didn't have the right people in place to sell these solutions. That seems to be changing now to the better. You now have Jess Kindler running E&S. Can you please talk, Helena, how you think -- if you think that you're a pivot point in terms of being able to ramp the units higher here in digital. Certainly, it seems like there is a lot of interest from your customers, but curious to hear. Helena Hedblom: No. But this is, of course, one of the rationale as well behind creating the business areas that we have done because now we have one leader that can then make sure that we make sure that we bring in our digital offering into all the large tenders we have for equipment, for example, or where we have the largest fleet or the largest contracts already for parts and service. So a lot of the digital offering that we have built over the years, of course, first, it's a number of companies. And then from those companies, you develop an offering, and that is done now. So we have one offering now that is an Epiroc offering. And then to scale that through our customer centers and leverage the strength of the installed base we're having the strong customer relationship, the big deals, that's what I'm -- that's the task now of Jess Kindler. Operator: The next question comes from Alexander Jones from BofA. Alexander Jones: The first, if I can, just back on the Tools & Attachment margin. Clearly, quite a strong organic contribution to the profit bridge year-on-year. Are you able to give us a sense of how much of that was the efficiency measures compared to the drop-through volume growth or other organic elements in the bridge? Hakan Folin: I would say quite a large portion was related -- the majority of the portion was related to efficiency measures. Of course, we had organic growth in terms of revenue as well, but the majority was actually efficiency measure. I would say especially less under absorption given that the attachment business especially has been weak, most of the actions taken -- a lot of the actions relate to attachment and also then making sure we are more efficient in our production footprint, and that has yielded results now in the last few quarters. Alexander Jones: Okay. And then maybe one follow-up on the tungsten point. Can you give us a share of costs of the division, if that's a number that you have to hand of tungsten, just so we can sort of play with the sensitivities as the tungsten price continues to move around? Hakan Folin: No, I think we stick with what we said that our best estimation right now is that we are looking at the potential headwind of a few percentage points on the business area margin -- sorry, a few tens of percentage points during 2026. Operator: The next question comes from Magnus Kruber from Nordea. Magnus Kruber: Magnus here from Nordea. Continuing on the questions around the efficiencies in Tools & Attachments there, it's obviously a very solid tailwind you had now in this quarter, if that's right, majority of it coming from that. Can you help us a little bit with how we should expect this to develop in the EBIT margin bridge for the coming quarters? Is that tailwind going to ease here going forward? Or are we sort of having more to come from that? Helena Hedblom: But I think we -- if I look -- of course, some of the actions we have full effect in the P&L in Q4, for example. But there are those activity levels -- activities like the closure of Essen, for example, that happened physically, the move happened in Q4. Of course, we have -- you start to downsize a site earlier before you move the equipment, but that's an upside moving into 2026 now. So -- and then, of course, in -- we have also announced the closure of the Langley site that's also in this business area. So also that will happen even though it will be later this year. Hakan Folin: But if you mean, Magnus, if it's going to ease, like are we going to see 5.2 percentage points every quarter? No, we're not. But there's actually -- but if your question is more, is there more to come, yes, there's still some more to come given then the full impact of Essen, which should come and then later on, more rather 2027 also then this closure of the factory in Canada moving into Mexico instead. Magnus Kruber: Okay. Got it. And then separately, I noted you didn't have any sort of publicly announced orders in Q4, but still the large order is pretty healthy in that context. Could you talk a little bit about the outlook for large orders going forward? Is it improving? Or do you expect a stable development? Helena Hedblom: We expect a stable development. When I look at the business cooking, which is -- we measure it 18 -- the projects that are in the pipeline in the coming 18 months. It's a healthy number of projects across, I would say, the different commodities, a lot towards copper and gold, also replacement towards iron ore. But majority is brownfield expansion and replacement of existing fleet. Not that some greenfields, but majority, we don't see like a booming greenfields. I think that will happen step by step over the coming years, but a healthy pipeline. Magnus Kruber: And do you see the project economics of some of the more sort of easy greenfield projects? Is that sort of improving with the recent uptick in copper prices or... Helena Hedblom: Yes. Of course, if the price stays on this level, of course, it incentivize those type of decisions as well as gold. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: Can I just follow up on 2 topics. On the Equipment & Service margin, if you're down 60 bps organically and you mentioned the 50 bps tariff impact, it would sound to me like the majority of the decline related to that. I just wonder whether you think you can pass that on and what the timing of that would look like? And I guess tied to that, how is pricing? You talk about specific actions. But could you quantify whether order pricing has sort of moved up? Is this a lag that you're just behind the curve and you'll pass it on? Or is that demonstrative of actually facing some net negative? And then I'll tag on a second one, if I can. Helena Hedblom: But I think there is a price component, of course, when it comes to tariffs, there is a lead time in -- but it also depends on in a quarter, it can depend on how much you move into a country during that quarter, for example. So -- but of course, there is -- there has been a time lag in our ability really to increase prices even though we have compensated for part of the tariffs, but more work is ongoing. James Moore: Okay. And one other on Equipment & Service. Could you say whether the decline in margin was similar in service to equipment or whether one of them has come down more? Karin Larsson: On the tariffs, sir? James Moore: No, on the margin. Helena Hedblom: No, we will not comment on that. But we continue to focus on improving the overall performance of the business area of the segment. James Moore: Great. And if I could try one on Digital Solutions. Would it be possible to roughly quantify the organic order growth and organic sales growth for the full year of '25 for DS? And could you say whether the margin dilution that you had in the full year was similar to less than or more than that, that you had in 2024 when that was a topic. Helena Hedblom: So orders in 2025 was less than orders 2024. Hakan Folin: Partly because we have this, as we talked about before on the call, these 2 large connectivity orders in Q4. Helena Hedblom: Then a lot of -- on the efficiency, of course, there, we're working on efficiency as well. But I think for digital, it's more about scaling and making sure to leverage the, I would say, the different solutions now and leverage our footprint in -- among customers to really grow the top line. Karin Larsson: So with that, I have to interrupt unfortunately. James, you can give Alexander and myself a call later. We can further debate this. Thank you, everyone, for dialing in. We have taken a list of the names that are remaining. We will call you. Thanks very much, and don't forget to sign up for the CMD. Helena Hedblom: Thank you, everyone. Hakan Folin: Thank you very much.
Karin Larsson: Hello, and a warm welcome to the Epiroc Q4 and Full Year 2025 Results Presentation. My name is Karin Larsson, Head of IR and Media here at Epiroc. And by my side, I have our CEO, Helena Hedblom; and our CFO, Hakan Folin. As always, they will briefly present the results before we do a Q&A session. You know the drill. Helena, please go ahead. Helena Hedblom: Thank you, Karin, and hello, everyone. So I will start with the highlights for the year. So with 79% of our orders deriving from mining, I'm glad to say that the mining demand remained robust in 2025. The customer activity was strongest in gold, copper and zinc, while nickel was softer. Of our mining exposure, gold and copper now together represents 65% of orders. In the year, our customers continue to prioritize brownfield expansions and productivity upgrades as well as exploration, especially in gold and copper. Infrastructure, which is 21% of our orders received was more mixed. Drilling rigs and equipment for larger civil engineering projects showed stable demand, whereas attachments for use in construction work remained weak. On a positive note, the destocking among distributors for attachments came to an end towards the end of the year, and now we are positioning us for growth. Despite currency headwinds weighing on orders, revenues as well as profit, we managed to grow our orders organically in 2025 by 7% to SEK 63 billion and revenues by 2% to SEK 62 billion. And the adjusted operating margin for the year was 19.6%, somewhat lower than in the previous year, 19.8% and is explained by tariffs, product mix and some inefficiencies. So let me, however, be clear, in 2025, we had a strong focus on cost savings and increased efficiency. And in some areas, such as in attachments, we have done well, but in others, we are still working on improving. During the year, Epiroc delivered many, many innovations that enhance safety, productivity and sustainability for customers worldwide, reinforcing our leadership in automation, electrification and digitalization. And some are built on proven solutions like the new Epiroc PCD drill bits, which is the next generation of the popular Power X bit. And in this new version, we have seen customers going from 7 meters drilled per standard bit to 400 meters per bit and often more than that. And with an increased use of automation within drilling, we anticipate good future demand for these type of products. Other innovations that are not upgrades, but rather groundbreaking are these. So in 2025, we completed the conversion of the Roy Hill mines mixed fleet to driverless operation in Australia, creating the world's largest OEM-agnostic autonomous mine. So what began as a bold vision is now a reality. 78 haul trucks and around 250 ancillary vehicles operate now autonomously 24/7 in a mature production scale solution. Underground, we advanced mixed fleet automation at Newmont's Cadia mine also in Australia, fully automating one production level, 1,200 meters below ground using our OEM-agnostic deep automation system. And this integrates loaders, rock breakers, water cannons and inspection robots into a single platform, enabling complete remote operations from a surface control room. And the results in both these projects have been impressive, improved safety by removing personnel from dangerous zones, higher productivity through continuous operation and record-breaking daily tonnage almost every month. At year-end, we had more than 3,900 driverless machines, Epiroc and non-Epiroc machines in operation, which is an increase of 13% compared to 2024. Moving on to electrification and starting with a highlight that includes both automation and electrification. So in 2025, we won our largest order contract ever, SEK 2.2 billion over 5 years. We will deliver around 50 fully autonomous and electric surface blasthole rigs to Fortescue in Australia. And this includes cable-electric Pit Vipers, 271 E rigs and battery-electric SmartROC D65 BE rigs. And these driverless machines will be operated remotely from Fortescue's integrated operations center in Perth, which is more than 1,500 kilometers away and will increase productivity while also reducing carbon emissions. I would also like to highlight the 5-kilometer battery trolley line inaugurated at Boliden's Rävliden mine in Sweden based on our Minetrauck MT42 SG trolley solution, developed in close collaboration with ABB and Boliden. This innovation is delivering remarkable results. Productivity is up 23%, ramp speeds are up 50%, maintenance costs down by 25% and diesel consumption reduced by 80%. And the energy regeneration during downhill hauls further boost efficiency. Production officially started during the year and interest from other customers is high. In total, our electrification revenues amounted to 3.8% of group revenues in 2025. There are 40 mines globally that have ordered our BEVs, battery electric vehicles and the majority of our BEV orders in 2025 came from these pre-existing customers. They have seen that the electric solutions bring many advantages, including increased productivity as well as reduced ventilation cost. For example, in the Assmang Black Rock mine in South Africa, our BEV fleet has led to 11% more tonnes per hour and has reduced energy cost by 18%. So a final slide then of innovations in 2025 before moving into the quarterly results. So safety is at the core of everything we do. And in 2025, we took an important step forward by partnering with Hindustan Zinc to implement a digital collision avoidance system in all their mines in India. And the solution combines advanced sensor technology, real-time positioning and intelligent alerts to ensure operators have full situational awareness. It's designed to integrate seamlessly with Epiroc's existing automation and digital platforms, creating a connected ecosystem that enhance both safety and productivity. And on the attachment side, we have successfully launched the Epiroc Insight, a telematics solution engineered to transform fleet management of attachments. So by combining advanced asset tracking with real-time data insights, users get better control and visibility across their fleets. And already now, we have more than 5,500 connected attachments worldwide with more than 400 customers. And for us, it means valuable insights to further improve the product as well as to help our customers with proactive maintenance. So looking into the fourth quarter, we delivered a strong performance driven by robust customer activity within mining. Our orders received grew organically by 11% and mining activity remained high, particularly in gold. Organic equipment growth reached 22%, underscoring strong momentum. And our large mining equipment orders amounted to SEK 670 million compared to SEK 820 million last year, signaling continued widespread underlying demand. And also our service grew well organically at 6%. The growth in exploration demand was high, driven by a combination of a stronger exploration market and the leading offering of advanced exploration drill rigs and drilling tools. And demand in infrastructure and construction remained stable with a healthy activity level for larger civil engineering projects, whereas the demand for attachment was seasonally low. Our revenues grew 4% organically, and our adjusted operating margin came in at 19.6% compared to 19.7% last year. So despite currency and tariff headwinds, we managed to deliver an organic contribution of 0.6 percentage points. So we have been and we are taking actions to safeguard profitable growth, and I'm glad to see that our progress -- the progress in the quarter. So looking deeper then into orders. In total, orders declined 1%, but the decline is fully explained by currency. So organically, our orders increased 11% to almost SEK 16 billion. Again, within mining, customer activity remained high, while demand from infrastructure and construction customers remained stable. Sequentially, compared to the previous quarter, group orders increased 7% organically, driven by mining. Our aftermarket represented 63% of revenues in the quarter, which is the same as in previous year. We had a good demand for rock drilling tools and service for mining, while the demand for attachment used in construction was seasonally weak. As we are mainly exposed to the Northern Hemisphere in our attachment business, the first half of the year is normally stronger with Q2 being the best, while Q4 is normally one of the weaker quarters. Within service, which represents 41% of our revenues, we achieved the highest growth within our traditional parts and service business. In total, the organic service revenue growth was 4% in the quarter. Historically, since 2018, we have managed to grow our service business revenue by 8% per year, and we aim to return to these levels. We have had -- we have a large and aging fleet. It now sits at 8.6 years on average and an increased technological height on the fleet, which supports a good foundation for growth. In addition, we have initiatives in place to capture more of the customer share already in 2026. By working more precisely with pricing, leveraging our alternative offering as well as find other ways of sourcing, then we can increase this share. And if you are new to Epiroc, let me briefly explain the customer share. It's the proportion of Epiroc machines that we serve -- that we serve in some form or another. In the last few years, we have had a customer share north of 50%, whereas roughly 1/3 of the fleet has an actually service contract with us. So there is, in short, good potential to grow. Moving on to operational excellence. Over the past year, we have navigated a complex and demanding external environment. On almost daily basis, geopolitical decisions impact global trade. So we keep on taking decisive actions to strengthen our resilience and drive profitable growth. The negative net tariff impact on our operating margin was just below 0.5 percentage points in Q4, and our mitigating actions include optimizing logistics and distribution flows, leveraging our global manufacturing footprint and adjusting our supply base, including key inputs like steel. Of course, we're also implementing price increases to compensate. And we pay close attention to tariff news and regulations, and we are ready to act if or when things changes. We are also consolidating customer centers and production sites, and we have during 2025, consolidated sites in Germany, in U.S. and in South Africa, and we continue to consolidate. And this year, we are moving the tools manufacturing site in Canada to Mexico. So to become even more efficient in production, we invest further in India, which is now our fifth largest market when it comes to number of employees. We have more than 1,300 employees in India, and we are creating a global production and R&D hub for both surface and underground equipment. But it's not only about producing. India is a rapidly growing domestic market, and we are already growing at high double digits there. So our increased footprint can safeguard this growth and our deliveries onwards. Moving on to next slide then, people and planet. So safety first, of course, and we have had good progress during the year on safety. Among our 19,055 employees, the total recordable injury frequency rate decreased yet again to 3.9, down from 4.3 last year. And much of our focus is to increase safety awareness in our new entities as well as for external workforce in production and service. On the environmental front, we achieved a reduction in emissions in operations driven by renewable energy initiatives. However, transport-related emissions rose due to the increased air freight and route adjustments linked to tariffs. So Hakan, would you mind going through the financials? Hakan Folin: Yes, Helena, of course, thank you. Starting on a group level, our group revenues decreased 7% to SEK 16.1 billion, and that's an organic increase of 4%. And here, we have currency impacting negatively by 11%. Aftermarket represented 63% of revenues in the quarter, which was the same level as in Q4 2024. So no mix effect between equipment and aftermarket. The operating profit and EBIT amounted to SEK 3.2 billion, and this includes item affecting comparability of plus SEK 58 million, mainly relating then to an insurance settlement gain, but also cost for efficiency measures. And finally, we had a change in provision for the share-based long-term incentive program of minus SEK 4 million. Our operating margin was unchanged at 19.9%. The adjusted operating margin, then excluding item affecting comparability, decreased somewhat to 19.6% to compare with 19.7% in Q4 2024. And as Helena briefly mentioned, the margin was negatively impacted by tariffs with almost 0.5 percentage points. And this negative impact, despite then a lot of efforts ongoing to mitigate will remain in 2026, although at somewhat lower levels each quarter. However, despite the headwinds, we managed to achieve an organic profit improvement of 0.6 percentage points in the quarter, as you can see in the bridge on the right of the slide. If we then move on to the business area Equipment & Service. Orders here amounted to SEK 12.3 billion, which is actually a strong 13% organic increase and currency impacted negatively by 12%. And to repeat what Helena already said, there was a strong underlying growth within equipment, where we had plus 22% organic orders received increase. And the large orders, the ones that are above SEK 100 million were at SEK 670 million this quarter, which is actually down from SEK 820 million in Q4 2024. So with lower -- with such an increase, but large orders actually at a lower level, it indicates a really healthy and widespread underlying demand. For service, we have an organic increase of 6%, and we have here the strongest growth achieved in the traditional service operations. We don't often speak so much about regions, but today, I would like to do that. And in local currency, orders received increased with double digits in North America, in Asia, Australia, in Europe and in South America, so in most our geographies, while they actually decreased in Africa and Middle East, but that was against quite tough comparables. And the strong development in North America, which was up 29%, was supported by a large order of automated equipment, including then battery equipment. The nickel exposure, which impacted us quite negatively in the first 3 quarters of 2025, still remain in Q4 and still remains despite then the recent increased mineral prices for nickel. We still have many customers with mines under care and maintenance due to these depressed nickel prices. However, in 2026, we will meet easier comps throughout the year. If we look sequentially, we had an 8% orders received increase organic, and this was driven then by the mining. If we then turn into revenues and also profit for Equipment & Service. For revenues, we had SEK 12.5 billion, corresponding to an organic growth of 4% and also here then a rather negative impact from currency, minus 10%. And the organic increase in revenues for both equipment and service was 4%, respectively, which then means that the mix is the same as it was in Q4 2024. EBIT for Equipment & Service was SEK 2.7 billion, includes SEK 30 million in item affecting comparability in cost for mainly efficiency measures. If we move to the right-hand side of the slide, we have then the adjusted EBIT, that was SEK 2.8 billion and a margin of 22.1%. This is down from 23.6% last year. And here, we have a similar margin pattern as for the group, where tariffs are burdening the EBIT -- sorry, both currency and tariffs are burdening the EBIT and the margin in a negative way. If we instead compare to the previous quarter, so we compare with Q3, we had a small increase on the operating margin for Equipment & Service. Moving on then to the other business area, Tools & Attachment. Orders received here decreased with 7%, negative 11% coming from currency, which then implies that organically, we had a 4% growth for the business area. And in total, orders for Tools & Attachment were SEK 3.6 billion to be compared then with SEK 3.9 billion in the fourth quarter the year before. The organic growth was mainly driven by mining demand. As anticipated, the demand for attachment was seasonally weak and again, still being at a subdued level. Sequentially, we had a 1% increase in organic orders received. Next slide, and we're now at Slide 15. Revenues for Tools & Attachment increased 4% organically and were SEK 3.7 billion. And the operating profit, it increased actually as much as 65% to SEK 537 million, which is up from SEK 326 million in the previous year, and this is the highest EBIT ever achieved in this business area. The margin came in at 14.9% versus 6.4% (sic) [ 8.4% ] in the previous year, but we did get some help from an insurance settlement gain relating to the acquisition of STANLEY. So what was this then? Well, when large acquisitions are made, it's often standard that you have insurance for uncertainties in the valuation of the acquisition. And in this case, we could use this in our favor. If we instead look at the adjusted profit, then the margin was 12.3%. We compared with 8.4% a year ago. And this is then despite tariffs, currency and also continued weak construction market. The organic contribution to the margin was 5.2 percentage points. And much of this improvement is due to the hard work in adjusting the cost base within Attachments and also within STANLEY Infrastructure. Again, market is still at a low level, but what we see is that we're well positioned to capture market growth and also market share once the construction market turns more positive. And while we are on Tools & Attachment, I would like to mention already now that this business area has quite an exposure towards tungsten carbide, especially in tools. And the prices for tungsten have more than doubled in 2025. And even if the financial impact in Q4 for us is still low, we are anticipating a margin headwind in 2026 of a few tens of percentage points for this business area. Mitigating actions are already in place. For example, we have accelerated our drill bit recycling program. And we already communicated towards our customers that prices will be impacted, and we are working proactively with suppliers, both on price and on supply. Leaving the business areas and moving back on group level and coming to cost, net financials and tax. In total, the cost for admin, R&D and marketing were 3% lower, and this is due to lower expenses within marketing, while R&D increased somewhat. In percentage of revenues, it was 16.5% versus 15.9% last year, and we are continuously working on being more efficient on all of these cost items. Net financial items came in at SEK 115 million, which is meaningfully lower than last year. Explanation is partly due to lower interest net, but also due to exchange rate differences on interest -- on net financial items. We had a tax expense in the quarter of SEK 742 million, which is very much in line with last year and corresponds to an effective tax rate of 24.0% in the quarter, which also is then in line with our guidance of between 22% to 24%. Moving on to the cash flow. Our operating cash flow was strong at SEK 2.6 billion, however, clearly lower than the previous year's record level, which was SEK 4 billion in 1 quarter. In that quarter, we had more cash released from the working capital, but also in this quarter, we had somewhat lower profit as well as a bit higher paid taxes. The cash conversion rate is now 12 months rolling at 90%. It's not at the peak we had in last quarter of 105%, but still, it's at a very solid and good level for a company which has a quite strong organic growth. And then part of the cash flow, of course, is the development within working capital. If we compare to the previous year, net working capital decreased by 9% to SEK 22 billion, down from SEK 24.3 billion. However, if we exclude the effect of currency, the net working capital actually increased somewhat due to increased inventories, partly offset then by increased payables. However, what I find most relevant is to look at our working capital in relation to revenues. And in the last 12 months, it has decreased to 36.9% versus 37.4%, which means we are using the working capital in a more efficient way now than we were a year ago. Next slide then, #19, on capital efficiency. Our net debt decreased to SEK 11 billion, down from SEK 14.8 billion last year and then, of course, supported by our robust cash generation. Our financial position is strong. We have a net debt-to-EBITDA ratio of 0.73, which has improved from the end of 2024 when it was 0.93. Return on capital employed was 18.9%. It's down from 20.6%, and this is explained by higher intangible assets, including goodwill and also somewhat lower profit. And just as a reminder, these are rolling 12-month figures. At year-end, we had a cash position of SEK 9.6 billion, and I'm sure you wonder now what we will do with our cash. First of all, we will keep on investing in organic growth. That is a key priority for us. Then we will do bolt-on acquisitions close to our core. We have not been so active in 2025 on the acquisition front. So it's fair to assume then that there will be a higher activity in 2026, but remaining close to our core in the businesses we know best. And finally, we will distribute cash through regular dividend to our shareholders. And that brings me to my last slide of today on the dividend. And here, the Board of Directors proposes to the Annual General Meeting an ordinary dividend to shareholders of SEK 3.80 per share, which is the same as last year and equals SEK 4.6 billion in total. It also corresponds to 53% of our net profit, which is in accordance with our dividend policy. And the dividend policy says we should have stable or increasing dividend and it should be half of the net profit over the cycle. So very much in line with our policy. Dividend is proposed to be paid in 2 equal installments with the record date of May 7 and October 19 this year. And with that, thank you, and Helena, back to you. Helena Hedblom: Thank you, Hakan. So let me finish then with some highlights from Q4. So we had a strong last quarter and achieved 11% organic order growth. For equipment, we had an even higher organic growth of 22%, high growth in demand for exploration, driven by a combination of a strong exploration market and a leading offering. Health activity in larger civil engineering projects and stable but seasonally low demand for attachments and organic contribution to the margin despite currency and tariff headwinds, indicating that our efforts are starting to yield results. And what do we do expect onwards? Well, as we enter into 2026, we are well positioned to capture growth. Mineral prices are high for our main commodities, copper and gold. We are exposed to attractive performance-critical niches where our equipment and aftermarket makes a positive difference for productivity. Our customers show great interest in our solutions for automation, mixed fleet automation, digital safety solutions as well as for electrification. We have a comprehensive and market-leading offering within exploration and we have committed employees who make a positive difference. So in the near term, we expect mining demand to remain high, while demand from construction customers is expected to increase somewhat from a low level. So Karin, over to you. Karin Larsson: Thank you, Helena. Thank you, Hakan. So before we move into the Q&A session, I'd like to say 2 things. First, a big thank you to those of you that answered our analyst survey. Your input is much appreciated, and we will do our best to improve further based on your input. For example, and this leads me to my second point, we will try to provide more information on our margin progression at our CMD in June. It's going to be hosted in Örebro on June 8 to 9. And if you have not yet signed up, please do. The seats are filling up rather quickly. And for your information, Volvo AB will also host its CMD in -- when we do it, it's going to be on June 10 in Eskilstuna. It's just an hour away, and we are coordinating the logistics to make it easy and worthwhile to attend both events. So without further ado, let's begin the Q&A. Please keep the questions short. And operator, you may open the line. Thank you. Operator: [Operator Instructions] The next question comes from John Kim from Deutsche Bank. John-B Kim: I'm wondering if we could stay focused on margins for a second. Can you help us unpack the drop-through margins you're seeing in E&S and how we could think about the cadence of those as we go through kind of cost efficiencies in '26 and perhaps '27? Hakan Folin: You said E&S, right? John-B Kim: Correct. Hakan Folin: Okay. So what we see in E&S then if we compare with previous quarter, we see a slight improvement. We had -- and that improvement also includes then a positive organic flow-through. If we compare with previous quarter, we had somewhat worse mix within E&S because we had more equipment compared to service. But on the other hand, there are some of these efficiency actions that we are taking that are starting to yield some results as well within Equipment & Service. If we compare with last year, it was -- if you exclude currency then it was roughly the same. We have somewhat negative -- sorry, not roughly the same. If we exclude currency then we had also a negative organic flow-through. What I was going to say is that it was roughly in line with the headwinds that we are seeing from the tariffs. So I think we had 0.6% right, in negative organic development, and we have said that we have roughly 0.5 percentage point from the tariffs. John-B Kim: Okay. Super helpful. And if I could ask again just on kind of the cost efficiency programs where we are there within the division and what levers you're looking to throw from here? Hakan Folin: Yes. So in the BA Equipment & Service, it's -- they are not as large and as tangible as they are within the other BA where we are closing a number of factories. Within Equipment & Service, it's more general efficiency within our service operations. It's also making sure that we are efficient within our administration costs. And we are also working, as I believe we mentioned in the last call, we are consolidating a number of customer centers in order to make sure we are being as efficient in how we serve our customers as well. So they are not as large intangibles to say, now we close one factory, we're going to see a big impact from that. But we are not happy with where we are from a margin point of view for E&S, and therefore, we are taking a number of action there as well. So sorry, just to finalize on that. If you look at the development, the organic development for Tools & Attachment was, of course, very strong in the quarter. And we started with taking more actions in Tools & Attachment earlier where we had deteriorating margins, while we are -- you can say -- you can call it that we are a bit later in the same process for Equipment & Service. So there should be more to come in terms of efficiency improvements for Equipment & Service. Operator: The next question comes from Chitrita Sinha from JPMorgan. Chitrita Sinha: I have 3, please. So the first one is just on the new construction guide. Could you just give a bit more color on how this has changed sequentially, especially in attachments given your unchanged comments on a destock amongst customers? And then should we expect a quicker pickup in attachments and therefore, a shift of mix towards higher attachments in the next quarter? Helena Hedblom: So if we -- there has been clearly a slow demand for -- towards the construction market for almost 2 years now. And on top of that, we have had this inventory reduction happening in our indirect channels that we have seen gradually now during the year has come to an end, meaning then that we get the true demand picture into our factories and into Epiroc. What we have seen is that we -- the dealers are more -- slightly more optimistic. We are -- here, we -- of course, the big market for us here is U.S. and it is Europe. And we see a slight improvement in demand or we expect a slight improvement in underlying activity levels, but of course, from a low level. So that's how you should read it. It has been, of course, still it's a low level, but it's -- we start to see increased activities from a low level, which, of course, is good. Chitrita Sinha: Sorry. And then just a follow-up, just on -- is there a shift in attachments going forward, given the comments there? I mean -- or is it going to be a similar sort of rate of improvement? Helena Hedblom: No. So no, it's -- I would say, the offering we're having, so it's the same type of product. So it's the same I say, mix of attachments. But of course, that has been I would say, burdened the growth for us for quite some quarters. Of course, with a slight pickup in activity level, we should then get that demand into our factories, given that we're successful in capturing that growth, of course, but I think we are prepared for that now with the consolidation we have taken as well. Chitrita Sinha: Very helpful. And then my second question is on the T&A margin, similar to John's question on E&S. Could you please explain the moving parts sequentially? And then I guess, how should we think about a step-up in the savings from efficiency program coming through, especially in H1 as volumes recover? Hakan Folin: Yes. So within -- as I mentioned when we talked about Equipment & Service within Tools & Attachments, we have taken more actions earlier than we have done in Equipment & Service. And therefore, we are seeing more of the result in the P&L as well. I think if we look at it -- I know you asked sequentially, but if we look at year-over-year, that's when we see the really big improvements coming from that we have consolidated factories. We have significantly less under absorption in Q4 this year than what we had in Q4 2024. Then sequentially, of course, the difference is a bit smaller. We are now at 12.3%. We were at 12.9% in Q2, 11.6% in Q3. So it's not a huge difference, but it is that we are seeing a bit more of the savings coming through also in Q4 this year compared to Q3. Helena Hedblom: And then maybe we could say as well that the consolidation of Essen and Kalmar, that has happened now during Q4. And of course, part of those savings, we can see in the P&L, but not the full savings. So of course, that we should start to see now moving into 2026. Hakan Folin: But then just as a word on -- for T&A, I mentioned when I presented also the development of the tungsten prices, which then we expect to be a bit of a headwind for this business area. Chitrita Sinha: Perfect. And my final question is just a quick one on nickel. Do you expect any positive development outside Indonesia given the price move? Helena Hedblom: I think it has been, as I say, the prices have moved now recently, and that's, of course, good. What we have seen with the customers where we have existing fleet in nickel, those machines are still -- some of those mines are still under care maintenance. So part of the fleet is still parked. So we have not seen an uptick in activity levels so far in Q4. But of course, if prices stabilize and continues up even more, then, of course, more nickel mines will then start to be reactivated again. Operator: The next question comes from Edward Hussey from UBS. Edward Hussey: So yes, just first one, can you give us a bit more color on how material the impact from tungsten could be in 2026? Any color on the magnitude would be massively helpful. And then could you also just explain why this hasn't been a headwind so far? Is there some kind of lagged effect on input costs? Hakan Folin: If we start with the second -- yes, it's a lag effect. Prices have increased. But of course, we are sitting -- we have contracts and we are sitting on some inventory. So therefore, we haven't seen a material impact so far, but it will come now gradually starting basically from now. And then I mentioned that it will be a few tens of percentage points on the Tools & Attachment business area. That is our best estimate at the moment. It, of course, depends on our ability to raise prices with customers as well. But everyone is in -- all our competitors are in a similar situation. So we expect competition to act in the same way. Edward Hussey: Okay. That's very helpful. And then just my final question, just on service growth at 6%. So you achieved this, I mean, despite a large order headwind in the digital business. But I guess, at the same time, maybe the nickel headwind is perhaps dissipated and the DRC is abating. I guess the question is, I mean, if I look at Q1 to Q3, where you averaged 2% growth, if you were to have excluded the DRC and nickel impact, would sort of 6% or higher have been more the growth rate we should have thought about if those headwinds hadn't existed? Helena Hedblom: I think it's -- if we look on -- as we mentioned, the nickel started to go down already in Q4 2024, and we had impact throughout the year. And we shared the numbers there last quarter, of course, majority of that drop is aftermarket. So that's a couple of percentage if that would not have been the case. Then the seismic activities in DRC, Kamoa being our largest account in that country, of course, that has also had a material impact. So I think you're not that far off in those assumptions. And if I look on where we are right now, as I say, we still in Q4, see the headwind from the nickel activities is still -- has not improved. Last year, yes -- or 2024, yes, we had this large -- 2 large equipment or deals on digital. And I would say that the activity levels in DRC is coming back step by step. So that's -- it's going in the right direction. So that's the starting point right now. Operator: The next question comes from [indiscernible]. The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: Maybe I can come back to the E&S margin bridge, if that's okay. If we strip out Roy Hill from Q3, I think that margins are down sequentially 20 basis points as of today. I guess curious as what drove that effect. We know tariffs effectively, as I understand it, unchanged in impact. I know you guided previously that they would be less of a headwind in Q4 than Q3. And you've said that the mix in terms of E versus S has not changed. So I guess trying to understand why margins are down sequentially. Hakan Folin: Well, first of all, Christian, I would say they are up sequentially. And then your assumption on ASI Mining, we didn't specify exactly what it was. We said it was negative -- below average for Equipment & Service. But we also have a negative mix effect. If you compare quarter -- Q3 over Q3 -- sorry, Q3 over Q4, if we look year-over-year, we have the same share of equipment versus service. But if you compare Q4 to Q3, we have somewhat higher equipment than we have 47% equipment in Q4, and we have 45% in Q3. On tariffs, they are slightly lower in Q4. We said around 0.5% in Q3, and now we say slightly below 0.5%. So that's relatively unchanged. But mix is definitely one factor between equipment and service. Christian Hinderaker: Okay. But was mix not better because you said the strongest growth you saw in service was from parts and spares. So was the service mix not a positive? Hakan Folin: Now we're talking 2 things there, Christian. One is that we're talking about orders. That's when we said that orders for -- within service was more traditional service. And then that is comparing Q4 with Q4 last year. And if I heard you correctly, I think your question was Q4 versus Q3, correct? Christian Hinderaker: That's right. Hakan Folin: And the mix that I'm trying to say is on revenue. So in Q4 now, we had 47% revenue coming from equipment versus 45% in Q3. Christian Hinderaker: Okay. Maybe if we go to the tariff effect, I guess, I appreciate there's maybe a bit of decimal points here, but you guided last quarter, there would be less of an effect in the fourth quarter. I guess North American growth was the strongest by region. As we think about the book-to-bill or more specifically, you had 20% order growth in North America and 9% sales growth at the group level. On that basis, should we then be expecting an increased tariff effect as we look into 2026? Or do you think that you can mitigate that and so the tariff effect is either flat or down? Helena Hedblom: I don't think you -- North America, it's not U.S. So we have some -- Canada is contributing very strongly in the quarter as well. So I think you can -- it should not increase. It should go -- tariff impact should go down. Hakan Folin: If you look at tariffs as a percentage of revenue, it should be lower in 2026 than what it's been in the last 2 quarters of 2025. Christian Hinderaker: Okay. That's very helpful. And then maybe just a final short one. You mentioned the large service order already did on the fourth quarter of 2024. Can you just remind us when that -- has that been delivered or that's still to come in digital 2 orders? Helena Hedblom: That has been delivered. So that connectivity solutions. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: Hope you can hear me now. Just to follow up there on the service growth, looking at orders of 6% growth. You did that still despite having pretty big headwinds from nickel and DRC. And during the last conference call in October, we talked a lot about the issues with the slippage of customer share. Now we have 6% growth all of a sudden, which is nearly 8% to 9% ex nickel and DRC in my numbers. The customer share don't move that quickly. So I was wondering what happened? Was there any sort of easy comp in a certain country? Or is the 6% sort of a new level and then add back nickel and DRC? Helena Hedblom: We have been working on growing our customer share a long time. The nickel impact is still there, so that is still a headwind. DRC is coming back step by step. So that is moving in the right direction. But we have the strategy to capture customer share, we have a number of initiatives ongoing. So it's both to work on, of course, on the pricing side, to be more precise. We have developed an alternative offering to capture certain customer types and certain segments as well as sourcing them in a more optimal way to be, let's say, competitive for certain segments. So there's a lot of activities ongoing. And as I've been saying over the years to be more and more precise in how we run our, let's say, the service business and how to capture that potential that is there, the unserved part of the fleet that is a great opportunity for us. So I'm pleased to see the, I would say, the growth. So it's -- when I look at, let's say, the different countries or entities, it's nothing standing out as being extraordinary in these numbers. It's healthy, of course, healthy activity levels as well, especially towards copper and gold, of course, the activity levels is high, but also some larger rebuilds, et cetera. So I'm pleased to see that our efforts are giving results. Klas Bergelind: That's good to hear. So my second one is on capital allocation. You say that you will do bolt-ons and that you were not that active in '25, it will be higher activity in '26. I'm just trying to understand where the gaps are. Obviously, mine planning, for example, is an area where you could get stronger versus some of your peers. I'm just trying to understand the margin profile because when you say that you will do more M&A in '26, Helena, I was under the impression you to improve the margin in what you acquired first before doing more M&A? Or are you targeting more margin segments? I mean mine planning, for example, is one of those areas where the margins typically are quite high. So just understand a bit in terms of the margin profile of where you want to go. Helena Hedblom: Yes. No, it's more core products where there are some gaps close to the core that we have always had. So it's -- and aftermarket, I would say. There's always opportunities to capture customer share as well in the aftermarket. So it's more -- it's close to core, not maybe further out and maybe not so much related to new technologies. I think we have a very comprehensive offering. And there, to your point, we have -- we should leverage organic growth from all these acquisitions that we have done over the years and get the synergies from those acquisitions. It's more close to the core products -- physical products and aftermarket, say, parts and service. Klas Bergelind: Okay. That's good. A quick and final one is on the digital offering, just to sort of connect there. And obviously, you need more units here to scale that business and get the margin up. And having spent time with you on the road and from feedback from investor meetings recently, the message seems like that you underestimated how quickly you could ramp mixed fleet, Plan and Protect around Radlink, et cetera. You didn't have the right people in place to sell these solutions. That seems to be changing now to the better. You now have Jess Kindler running E&S. Can you please talk, Helena, how you think -- if you think that you're a pivot point in terms of being able to ramp the units higher here in digital. Certainly, it seems like there is a lot of interest from your customers, but curious to hear. Helena Hedblom: No. But this is, of course, one of the rationale as well behind creating the business areas that we have done because now we have one leader that can then make sure that we make sure that we bring in our digital offering into all the large tenders we have for equipment, for example, or where we have the largest fleet or the largest contracts already for parts and service. So a lot of the digital offering that we have built over the years, of course, first, it's a number of companies. And then from those companies, you develop an offering, and that is done now. So we have one offering now that is an Epiroc offering. And then to scale that through our customer centers and leverage the strength of the installed base we're having the strong customer relationship, the big deals, that's what I'm -- that's the task now of Jess Kindler. Operator: The next question comes from Alexander Jones from BofA. Alexander Jones: The first, if I can, just back on the Tools & Attachment margin. Clearly, quite a strong organic contribution to the profit bridge year-on-year. Are you able to give us a sense of how much of that was the efficiency measures compared to the drop-through volume growth or other organic elements in the bridge? Hakan Folin: I would say quite a large portion was related -- the majority of the portion was related to efficiency measures. Of course, we had organic growth in terms of revenue as well, but the majority was actually efficiency measure. I would say especially less under absorption given that the attachment business especially has been weak, most of the actions taken -- a lot of the actions relate to attachment and also then making sure we are more efficient in our production footprint, and that has yielded results now in the last few quarters. Alexander Jones: Okay. And then maybe one follow-up on the tungsten point. Can you give us a share of costs of the division, if that's a number that you have to hand of tungsten, just so we can sort of play with the sensitivities as the tungsten price continues to move around? Hakan Folin: No, I think we stick with what we said that our best estimation right now is that we are looking at the potential headwind of a few percentage points on the business area margin -- sorry, a few tens of percentage points during 2026. Operator: The next question comes from Magnus Kruber from Nordea. Magnus Kruber: Magnus here from Nordea. Continuing on the questions around the efficiencies in Tools & Attachments there, it's obviously a very solid tailwind you had now in this quarter, if that's right, majority of it coming from that. Can you help us a little bit with how we should expect this to develop in the EBIT margin bridge for the coming quarters? Is that tailwind going to ease here going forward? Or are we sort of having more to come from that? Helena Hedblom: But I think we -- if I look -- of course, some of the actions we have full effect in the P&L in Q4, for example. But there are those activity levels -- activities like the closure of Essen, for example, that happened physically, the move happened in Q4. Of course, we have -- you start to downsize a site earlier before you move the equipment, but that's an upside moving into 2026 now. So -- and then, of course, in -- we have also announced the closure of the Langley site that's also in this business area. So also that will happen even though it will be later this year. Hakan Folin: But if you mean, Magnus, if it's going to ease, like are we going to see 5.2 percentage points every quarter? No, we're not. But there's actually -- but if your question is more, is there more to come, yes, there's still some more to come given then the full impact of Essen, which should come and then later on, more rather 2027 also then this closure of the factory in Canada moving into Mexico instead. Magnus Kruber: Okay. Got it. And then separately, I noted you didn't have any sort of publicly announced orders in Q4, but still the large order is pretty healthy in that context. Could you talk a little bit about the outlook for large orders going forward? Is it improving? Or do you expect a stable development? Helena Hedblom: We expect a stable development. When I look at the business cooking, which is -- we measure it 18 -- the projects that are in the pipeline in the coming 18 months. It's a healthy number of projects across, I would say, the different commodities, a lot towards copper and gold, also replacement towards iron ore. But majority is brownfield expansion and replacement of existing fleet. Not that some greenfields, but majority, we don't see like a booming greenfields. I think that will happen step by step over the coming years, but a healthy pipeline. Magnus Kruber: And do you see the project economics of some of the more sort of easy greenfield projects? Is that sort of improving with the recent uptick in copper prices or... Helena Hedblom: Yes. Of course, if the price stays on this level, of course, it incentivize those type of decisions as well as gold. Operator: The next question comes from James Moore from Rothschild & Co Redburn. James Moore: Can I just follow up on 2 topics. On the Equipment & Service margin, if you're down 60 bps organically and you mentioned the 50 bps tariff impact, it would sound to me like the majority of the decline related to that. I just wonder whether you think you can pass that on and what the timing of that would look like? And I guess tied to that, how is pricing? You talk about specific actions. But could you quantify whether order pricing has sort of moved up? Is this a lag that you're just behind the curve and you'll pass it on? Or is that demonstrative of actually facing some net negative? And then I'll tag on a second one, if I can. Helena Hedblom: But I think there is a price component, of course, when it comes to tariffs, there is a lead time in -- but it also depends on in a quarter, it can depend on how much you move into a country during that quarter, for example. So -- but of course, there is -- there has been a time lag in our ability really to increase prices even though we have compensated for part of the tariffs, but more work is ongoing. James Moore: Okay. And one other on Equipment & Service. Could you say whether the decline in margin was similar in service to equipment or whether one of them has come down more? Karin Larsson: On the tariffs, sir? James Moore: No, on the margin. Helena Hedblom: No, we will not comment on that. But we continue to focus on improving the overall performance of the business area of the segment. James Moore: Great. And if I could try one on Digital Solutions. Would it be possible to roughly quantify the organic order growth and organic sales growth for the full year of '25 for DS? And could you say whether the margin dilution that you had in the full year was similar to less than or more than that, that you had in 2024 when that was a topic. Helena Hedblom: So orders in 2025 was less than orders 2024. Hakan Folin: Partly because we have this, as we talked about before on the call, these 2 large connectivity orders in Q4. Helena Hedblom: Then a lot of -- on the efficiency, of course, there, we're working on efficiency as well. But I think for digital, it's more about scaling and making sure to leverage the, I would say, the different solutions now and leverage our footprint in -- among customers to really grow the top line. Karin Larsson: So with that, I have to interrupt unfortunately. James, you can give Alexander and myself a call later. We can further debate this. Thank you, everyone, for dialing in. We have taken a list of the names that are remaining. We will call you. Thanks very much, and don't forget to sign up for the CMD. Helena Hedblom: Thank you, everyone. Hakan Folin: Thank you very much.
Operator: Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead. Steven Crockett: Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. The related earnings press release and earnings slide deck presentation issued earlier today are available on the News & Events section of our website, spfi.bank. Please refer to Slide 2 of the presentation for our safe harbor statements regarding forward-looking statements. All comments expressed or implied made during today's call are made only as of today's date, and are subject to those safe harbor statements in the presentation and earnings release. In addition, please refer to Slide 2 of the presentation for our disclaimer regarding the use of non-GAAP financial measures. A reconciliation of these measures to the most comparable GAAP financial measures can be found in our presentation and earnings release. I'm joined here today by Curtis Griffith, our Chairman and CEO; Cory Newsom, our President; and Brent Bates, City Bank's Chief Credit Officer. Curtis, let me hand it over to you. Curtis Griffith: Thank you, Steve, and good afternoon. I'm very pleased with the results that we delivered over the past quarter and the full year and would like to thank our employees for their hard work and commitment to City Bank and our customers. Their efforts are the key to our success, and they demonstrate every day the culture that we have developed over many years. At South Plains, our core purpose is to use the power of relationships to help people succeed and live better. I believe that we're here to help enhance lives by creating a great place to work help people achieve their goals and invest generously in our communities because there is nothing more rewarding than helping people succeed and live better. This also helps us to attract the best employees, develop deep relationships with our customers and ultimately, deliver strong financial results for our shareholders. This can be seen by our achievements for the full year of 2025, as outlined on Slide 4 of our presentation where we delivered a 17.8% increase in diluted earnings per share, loan growth in line with our guidance, 33 basis points of NIM expansion as our NIM was 4% for the fourth quarter. Tangible book value per share growth of more than 14% to $29.05, and as previously announced, we entered into a definitive agreement to acquire BOH Holdings and its banking subsidiary, Bank of Houston. While I am very proud of our results, I'm even more excited with the opportunities that I see ahead as we continue to execute our strategy to enhance our earnings. It is focused on expanding our lending team across our high-growth Texas markets as well as pursuing accretive M&A opportunities. Through the past year, we made great strides on both initiatives, highlighted by our definitive agreement announcement in December to acquire Bank of Houston. As highlighted on page -- on Slide 5, we believe Bank of Houston will complement our existing Houston team and bring both meaningful scale and deeply entrenched customer relationships to South Plains in one of the fastest-growing metropolitan markets in the country. More importantly, the Bank of Houston team, led by Jim Stein, holds similar values to those that we hold dear at South Plains, deep customer relationships, disciplined credit standards and a genuine focus on employees and communities. As we have consistently said on these calls, finding an acquisition partner with similar culture and values is a necessary factor to a successful merger, and I believe we found that in Bank of Houston. I'm looking forward to partnering with Jim, who will continue to lead his team once the merger is consummated, while also joining the Boards of both South Plains and City Bank. Jim will provide important continuity and leadership depth as we work to further scale our presence in the Houston market. Looking deeper into the Houston market, our existing team has worked hard to build a strong presence in Houston as our loan portfolio has grown at a 34% compound annual rate over the last 5 years. By bringing BOH into the South Plains family, we are projected to have more than $1 billion in loans in the Houston region which is significant to us. Importantly, both institutions share a focus on commercial real estate lending, a segment where Bank of Houston has built a high-quality portfolio and where Bank of Houston and City Bank's credit culture and underwriting discipline are closely aligned. We believe the merger is a good strategic fit with low execution risk and a platform that enables us to both deepen and expand our customer relationships. Financially, this merger is also compelling, as we expect it to be approximately 11% accretive to our earnings in 2027 with an attractive tangible book value earn back of less than 3 years. We believe that BOH is a highly efficient, profitable company that has demonstrated consistent performance and that the transaction is structured to provide that we are very much aligned. I look forward to officially welcoming the Bank of Houston team when the merger is completed which we expect to occur early in the second quarter of 2026. While we expect BOH to be a tailwind to our growth. I'm also very encouraged with the progress we've made in recruiting talented lenders to South Plains as we continue to benefit from the dislocation that is occurring across our markets from the mergers that have taken place over the last 2 years which Cory will touch on. Taken together, we expect our loan growth to accelerate to a mid- to high single-digit growth rate in 2026 which should also drive a nice acceleration to the earning power of South Plains. To conclude, we believe we are in a strong capital position that will allow us to benefit from many opportunities that we have in front of us. Given our capital position, we remain focused on growing City Bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. Last week, our Board of Directors authorized a $0.17 per share quarterly dividend which will be our 27th consecutive dividend. Now let me turn the call over to Cory. Cory Newsom: Thank you, Curtis, and hello, everyone. Starting on Slide 6. Our loans held for investment increased by $91 million to $3.14 billion in the fourth quarter as compared to the linked quarter. The increase was primarily due to organic loan growth in multifamily property loans, direct energy loans and other commercial loans. I would note that our average loan balances were down slightly in the fourth quarter because the majority of our loan growth came on later in December, which should provide a lift to our net interest income in the first quarter. Our yield on loans was 6.79% in the fourth quarter as compared to 6.92% in the linked quarter. It's important to point out that our loan yield was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to resolution of credit workouts. Additionally, our loan yield was also boosted by 23 basis points in the second quarter due to a $1.7 million interest recovery from the full repayment of a loan that had been on nonaccrual. Excluding these onetime gains, our yield on loans was 6.84% in the third quarter and 6.76% in the second quarter, representing a relatively steady loan yield over the last 9 months. While we have not yet experienced a material impact to our loan yields from the series of FOMC 25 basis point reductions in their target interest rate in September through December, we do expect our loan yields to moderate in the quarters ahead. That said, we remain optimistic that we can continue to reprice our deposits and manage our margin as market rates decline. Accelerating our loan growth has been our #1 strategic priority over the last year as we focus on expanding our lending platform. We've been selectively recruiting experienced lenders to City Bank across our growth markets while also benefiting from the dislocation created by our competitors' acquisitions. We ended the year having completed about 50% of our expected hiring occurring across our Dallas, Houston and Midland markets. We expect our new lenders will bring the high-quality long-term customer relationships that they have built in their successful careers to South Plains, which we expect will drive an acceleration to our loan growth to the mid- to high single-digit range in 2026. In fact, we are already seeing an acceleration given the strong loan growth that we delivered in the fourth quarter as well as a nice pickup in our major metropolitan markets of Dallas, Houston and El Paso, where loans increased by $15 million or 5.8% annualized to $1.03 billion as outlined on Slide 8. Given our thoughtful expansion in these markets, we expect loan activity to continue to improve and are also excited to close our pending merger with BOH, which will increase our scale in the high-growth Houston market. That said, we do still expect some headwinds in the first quarter of 2026 from several expected payoffs in our multifamily property portfolio. Turning to Bank of Houston. They had approximately $772 million in assets, $633 million in loans and $629 million in deposits as of September 30, 2025, which will provide us with a substantially expanded platform in the Houston market. Importantly, Houston's Harris County was the #1 fastest-growing county in the U.S. in 2024 while also being the top relocation destination. The economy is dynamic, and we should see our commercial and private banking relationships expand across the Houston market. More importantly, we took time to get to know BOH's management team, employees and their culture. I personally spent time getting to know Jim Stein, and I really appreciate his philosophy for running Bank of Houston and quickly came to realize that our cultures were very similar. I can say that our banks would work well together and that our teams were like-minded which should minimize potential disruption and risk from the acquisition and its integration. I'm even more confident on that today. At South Plains, we built a great business in Houston with a strong team and BOH should nicely complement our growth strategy and provide important scale in a terrific market. Skipping to Slide 11. Our indirect auto loan portfolio totaled $241 million at the end of the fourth quarter, which is relatively unchanged as compared to $239 million at the end of the linked quarter. As we discussed on our third quarter call, we have been carefully managing this portfolio with a focus on maintaining its credit quality over the last 2 years which has resulted in a decline in loan balances of $55 million since the third quarter of 2023 when the portfolio was $296 million. Over this time period, we have seen competitors become more aggressive at the higher end of the credit spectrum while volumes have declined. More recently, we've tied our loan to value requirements to further ensure that we are proactively managing this portfolio in the current economic environment as well as any potential challenges to come. It's also important to highlight that this consumer portfolio comes primarily through auto dealers who are in our markets. To further improve the transparency on this portfolio, given some of the challenges in the sector, we have updated our indirect auto disclosure. What you can see is that 94% of our current indirect auto portfolio was originated in the super prime or prime categories with an additional 5% originated in the near-prime categories. This allows for normal credit deterioration to occur over time with the majority of the portfolio remaining super prime and prime. In fact, from the origination to the end of the fourth quarter of 2025, we have experienced only modest deterioration with the portfolio now 87.7% super prime or prime with 5.6% near prime. The strong credit profiles of our consumer borrowers can further be seen in the credit metrics of this portfolio as our 30-plus days past due loans which totaled approximately $464,000 improved another 5 basis points to 19 basis points in the fourth quarter. We continue to believe that our past due status is the best early indicator to any potential signs of credit stress in this portfolio and believe our tightened credit standards will further protect City Bank and the credit profile of our indirect auto portfolio as we look forward. Additionally, our net charge-offs for all consumer autos were approximately $382,000 for the quarter as compared to $160,000 in the third quarter. Turning to Slide 12. We generated $10.9 million of noninterest income in the fourth quarter, which was relatively flat as compared to $11.2 million in the linked quarter, the modest decline from the third quarter was primarily due to $185,000 decrease in mortgage banking revenues, mainly due to the typical seasonal decline in mortgage volumes through the fourth quarter as can be seen on Slide 13. Overall, we are pleased with our mortgage business is performing in the slow transaction and interest rate environment and believe we are well positioned for eventual upturn in volumes. For the fourth quarter, noninterest income was 20% of bank revenues essentially flat with the linked quarter. Continue to grow our noninterest income remains a focus of our team. I would now like to turn the call over to Steve. Steven Crockett: Thanks, Cory. For the fourth quarter, diluted earnings per share were $0.90 compared to $0.96 from the linked quarter. This decrease was primarily a result of a larger provision for credit losses as we experienced strong loan growth in the quarter, though the majority of those new loans funded later in December, coupled with the onetime interest income items in the linked quarter. Starting on Slide 15, net interest income was $43 million for the fourth quarter, in line with the third quarter's results. Our net interest margin calculated on a tax equivalent basis was 4% in the fourth quarter as compared to 4.05% in the linked quarter. As already mentioned, we had loan interest and fee items related to credit workout that positively impacted our NIM in both the third quarter and the second quarter of 2025. The third quarter impact was 6 basis points or $640,000, while the second quarter impact was 17 basis points or $1.7 million, excluding these onetime items in both periods, we delivered steady NIM expansion over the course of the past year. So that expansion slowed in the fourth quarter to just 1 basis point. As outlined on Slide 16, deposits held steady from the linked quarter at $3.87 billion at the end of the fourth quarter, while we experienced strong growth over the full year with deposits rising $253 million or 7% from year-end 2024. Noninterest-bearing deposits modestly decreased by $26 million in the fourth quarter, which led to a slight decline in our noninterest-bearing deposits to total deposits ratio to 26.4% as compared to the linked quarter. Importantly, we grew our noninterest-bearing deposits by $88 million for the full year 2025 and which drove a slight increase in our noninterest-bearing deposits to total deposits ratio as compared to year-end 2024. Our cost of deposits decreased by 9 basis points to 2.01% compared to the linked quarter as we have been repricing our deposit base lower following the FOMC series of 25 basis point reductions in September through December. Looking forward, we expect a modest decline in our cost of funds in the first quarter given the Fed's most recent pet in December. Turning to Slide 18. Our ratio of allowance for credit losses to total loans held for investment was 1.44% at December 31, 2025, relatively stable from the end of the prior quarter. We recorded a $1.8 million provision for credit losses in the fourth quarter compared to $500,000 in the linked quarter. As I previously mentioned, the increase in provision was largely attributable to the strong loan growth that we delivered in the fourth quarter. Skipping ahead to Slide 20. Our noninterest expense was $33 million in the fourth quarter, unchanged from the linked quarter. During the quarter, we had an increase of $1.1 million in professional service expenses related primarily to approximately $500,000 in acquisition-related expenses in addition to consulting on technology projects and other initiatives, which were largely offset by a decrease of $1 million in personnel expense. Looking to the first quarter, I would expect noninterest expense to trend modestly higher. Moving to Slide 22. We remain well capitalized with tangible common equity to tangible assets of 10.61% at the end of the fourth quarter, an increase of 36 basis points from the end of the third quarter. Tangible book value per share increased to $29.05 as of December 31, 2025, compared to $28.14 as of September 30, 2025. The increase was primarily driven by $12.7 million of net income after dividends paid and by an increase in accumulated other comprehensive income of $3.4 million. This concludes our prepared remarks. I will now turn the call back to the operator to open the line for any questions. Operator? Operator: [Operator Instructions] Our first question comes from Woody Lay with KBW. Wood Lay: Wanted to start on the NIM outlook. And I know if you adjust for some of those workout fees, NIM was relatively stable quarter-over-quarter. As you think about the strong growth you expect in 2026, do you think the NIM can remain relatively stable? Or is that higher growth going to come on at lower spreads and you could drive the NIM down a little bit? Steven Crockett: Yes, I'll start Woody. This is Steve. I mean NIM outlook, I mean, you're exactly right. We do -- we want to have the loan growth and that should be helpful to us. We just know there's a lot of factors that go into it and I hate to say that we can expand it from where we're at. I mean there's still some loans repricing up from floors but there's some of the loans that were done fairly recently that -- or not recently, but in the last year or 2 that have come down with some of the Fed movement. So a lot of moving pieces. We're going to do our best to keep NIM in a similar place to where it is today. But I mean, just given how much loan growth we can put on and any additional deposits we may bring on, it will be a little tough, and there's just a lot of competition still out there and trying to match what or at least compete with what they're doing on the deposit side. Some of them are not coming down quite as fast on some of those funds. So all that being said, again, I don't know that expansion is where we'll be, trying to keep it where it is. But I mean, you could see a little bit of compression. Cory Newsom: Woody, there's definitely going to be some exposure to some compression. We just got to -- we've got to see if we can be as good at managing the cost of deposits as we have been. But we'd be a little bit naive not to think that we had some pressures there. Wood Lay: Yes. And then how do you think about the deposit growth during the year? Because I know that you're expecting strong growth and then also with the pending BOH acquisition, they've got jumbo CDs as around 30% of deposits. So it would feel like you could flex your legacy markets a little bit on the deposit side. So how are you thinking about deposit growth throughout the year? Curtis Griffith: Woody, this is Curtis. And yes, you're hitting on the point there. I do think, and realize BOH has actually got pretty good NIM themselves right now. But we do believe that over time, we can reduce their deposit -- effectively the deposit cost of their deposit base as we kind of bring them into higher structure. That could kind of offset some of the other NIM pressures, but the big question is how fast can we do it? Wood Lay: Got it. And then just last for me, shifting to M&A, you put in the release that you're open to additional deals that look similar to BOH. So would your preference be to add more scale in Houston? Are you looking all over the footprint. And just would you be comfortable announcing a deal with BOH pending? Or do you kind of need to see that deal close and get through integration first? Cory Newsom: Woody, this is Cory. I think the first thing is look, we're not out trying to be a serial acquirer, and we're trying to be very thoughtful about what we're doing. And so for us to -- BOH is a perfect example. I mean we did a lot of study of BOH before we ever really started trying to reach out and figure out if there was something that really worked there. And that's the way we're approaching all of them, looking at all of these things. We're not just dialing up so that everybody gets a phone call from us just to see what's happening. We're trying to be very thoughtful and very methodical. Would we be afraid of something being announced in there? No, we wouldn't be afraid. But I mean, we're pretty thoughtful. And I think it's taken us this long since we did the last one that -- I think we've proven that we're not somebody that's just going to shoot from the hip. So I mean, Houston is a great market. We have no problem in the Houston market. Are we tied completely to only look in there? Absolutely not. It has to make sense. Operator: The next question comes from Brett Rabatin with Hovde Group. Brett Rabatin: Wanted to talk a little bit about payoffs, which has been a topic that has slowed loan growth the past few quarters. It didn't seem like it did at all in 4Q. And so I was just curious if there were really no payoffs in the fourth quarter and then just the expectations, it sounds like you might have some in the first quarter. How are you guys thinking about net versus growth for '26 with this mid- to high single-digit growth expectations? Brent Bates: This is Brent. I'll kind of start by addressing your question on the payoffs. You're right, the fourth quarter was lighter on early payments than the prior 3 quarters. And that did help the net growth number, we do think there are a few more that timing is uncertain but we think they're going to see long-term fixed-rate financing. And so we factored that into our estimates for what we're hoping for on growth side. But it's hard to predict them all, but we've got a pretty good handle on the ones we think we'll ultimately see long-term fixed rate. Cory Newsom: Brent, but I want to make 1 comment. This is Cory. I mean, we went through a period where we had some exits that we wanted to make. We're kind of past that. I mean we're going to have the normal -- I mean, give and take with between payoffs and fundings that are to come along. There's nothing that -- just like the ones we talked about that will be coming in the first quarter. There's nothing about those that are unexpected and they're kind of just following their life cycle of where they should be. I mean, we think that we've kind of got past the ones that where we felt like that we needed to do a separation from. Brett Rabatin: Okay. And then I appreciate the additional -- guys, I remember that really focused on your indirect auto book. I kind of felt like it was pretty high quality. But the additional color, kind of made me curious about 1 topic in particular, the migration from origination to the small, pretty small piece, less than 4%, but the deep subprime credit of $9.2 million. How are you guys monitoring that? How do you see it going from wherever it was super prime or prime to that level? Are you seeing customers that may have lost a job or how do they get to deep subprime? And then if they're not past due, what -- is it because their balances are higher or what's driven them to be a deep subprime credit? Cory Newsom: You go first, Brent. Brent Bates: Yes, this is Brent. What we found in our studies because we did study kind of some of the details and Oftentimes, it might have been a mispayment, it might have been even some small medical collection that really drove their score down. I don't think we kind of surprised student lending didn't have anything to do with it from what we saw, but definitely -- I mean, there's a part of that portfolio that their credit score increased. And then as part of that portfolio that their credit score declined and it's pretty marked on both sides. So not too big of a surprise given everything you read about the consumer right now, and they're being a little bit of K-shaped the trends and -- but overall, we feel really good about the quality and feel good about our strategy of going into that higher credit score much heavier than probably most that are in this business into that higher credit score bucket to begin with, and it's kind of proven itself out. And the way I see it, the past due ratio is a pretty good indicator of the quality. We've got that portfolio. So... Cory Newsom: And Brett, here's what we really hope to claim out of this because we did give you extra color. We've kind of set around and talked about the fact that we kind of get probably more color than we would normally do or probably normally should do. Here's what we really hope that you looked at and saw, there's -- it's still an incredibly good condition. I mean, it ends up being such a nonevent for our portfolio and the amount of exposure that you really can shake it all the way down to, we were really excited to put these numbers out there just so you can see how stable it really, really is. Brett Rabatin: Okay. That's helpful. Yes, I haven't really been worried about that piece of the book, but it's the color kind of made me curious about a few topics on it. So I appreciate the color on that. Cory Newsom: We talked about that because we were a little concerned -- I mean, still -- I mean, it's still so small in the whole scheme of things. Brett Rabatin: Yes. Last question for me. Just was hoping for -- I've had some other banks talk about getting maybe more aggressive with hiring some mortgage lenders, mortgage banking is 20% of revenue, which has been fairly consistent. How do you -- I know there's a rate component to this answer in terms of what happens from here. But are you guys doing anything different in mortgage? Do you want to develop that further in the coming quarters? And just any thoughts on fee income drivers, if not mortgage in '26? Cory Newsom: Yes, I would tell you there's no question. We're trying to hire producers right now because it's all about the volume that's there. We've been very thoughtful in trying to make sure that we don't put out -- that we put this thing into a negative position. We've been trying to just tread water until it picks back up. Trying to get -- trying to find good producers is probably what we're most focused on right now. We've kept our infrastructure in place, and we like that. So yes, we're still trying to hire some producers. Operator: The next question comes from Joe Yanchunis with Raymond James. Joseph Yanchunis: So I was hoping to start with the Bank of Houston. How much revenue upside you see beyond the announced cost saves, particularly from cross-selling or balance sheet optimization? Steven Crockett: Yes, that's a good question, Joe. I'll start and then let anybody else pick up. I mean, we like where they're at. I mean, we do believe that there's some additional products that we can help bring to them. I don't know that there's at this point, this same thing we would love to try to quantify as to whether it's our wealth management area which would include trust services. I mean, we're going to push for those things. But as far as any of the modeling we did, that's not necessarily built into any of our numbers but we will certainly try to push for bringing those type products to them. Cory Newsom: Yes. I think -- look, I think Houston is a great bank, and we know that they've done a really good job up to this point. We do have a little bit more scale than they do. And so I think we'll be able to leverage some of the stuff that we have to help them. And quite frankly, I think treasury is going to be 1 of the biggest ones that we'll be able to help them with. They've done a good job of figuring out how to fund that bank and it's based on what -- the theory that we've said about everything else we do. I mean, they've built strong relationships just like we try to do and go leverage them. We think that we can help them even more with what we have. But there's definitely some opportunities there, and we will try to take advantage of those. Joseph Yanchunis: I appreciate it. And I certainly understand revenue synergies not being baked into the model. Just trying to see -- or kind of get a sense for how much leverage there is within fee income from expanding to the starters presence in Houston. And then aside from the upcoming integration, are there any other technology investment priorities for 2026 you guys are looking at? Cory Newsom: I would probably go a little bit -- I mean we're always doing something on technology, trying to make sure that we stay pretty relevant in that area. But I think 1 of the things that we're really trying to make sure of is that between -- we've got [indiscernible] conversion that's coming up so that we can implement some better workflows and do some stuff on the credit side for the loan operations. But we're also focused on trying to make sure that we continue to enhance the credit side of the bank to make sure that we're prepared to bring on a bank that -- I mean, their average loan size is probably a little smaller than ours. If you look at what they're doing, we've got to be smart. I mean, you hear about all these different acquisitions that come along and they kind of don't pan out like everybody thinks. Well, we've -- you've got to make sure that you're putting as much effort into embracing what they're doing so that we don't go scrip what they've already built. And we had done a lot of that. And if you go back to your other question about the different synergies and stuff that we can bring to the table. You really don't know until you start getting there and meeting the quality of the talent and everything that they have. I think we're quite impressed with what we're seeing. And we see opportunities that make us very, very pleased with the decision that we made to go into an acquisition with these guys. Jim has built -- I mean he's built a good team. And there's quite a bit of talent out there. And we think if you take some of the stuff that we have to offer and with the team that they have in place, I think that we can work well together. Joseph Yanchunis: That was very helpful. And I just have a couple of ticky-tack modeling questions here. Kind of starting off to piggyback off Woody's question on the NIM. Do you have a sense for what new loan yields were in the fourth quarter? Steven Crockett: I mean, we're going to all let you look that up. I mean, I think the by and large, have been in the mid-6s. Brent Bates: And that's what I was going to say. Steven Crockett: Maybe a little bit higher, but mostly in the mid-6s. Curtis Griffith: 6.5%, 6.75%. Cory Newsom: I mean we kind of had to build in some of that stuff to try to make sure that people are seeing some of the rates coming down so that we could stay competitive. But I think we've done a pretty good job in locking some of that stuff in. Joseph Yanchunis: No, absolutely. That's high 6 is pretty good. And then lastly for me, I was hoping you could kind of disaggregate the $500,000 that you guys called out in acquisition-related expenses and the -- and then what you spent on consulting? Is there a way to break that down to get more of a core number? Cory Newsom: Can you do the breakdown? Steven Crockett: As far as the $500 million? Joseph Yanchunis: Correct. Correct. Steven Crockett: Yes. I mean, the $500 million being the acquisition expenses, that's going to be in -- it's going to be in legal and professional services and then really the -- the bulk of the remaining is going to be in -- A lot of it still in the professional services line item as we've got consultants going with us through some of the projects Cory was talking about. That's going to be several hundred thousand dollars that's in that line item. Cory Newsom: Definitely think once we get through this year, we'll have a bit more expense -- should come in -- I mean those will go away. Steven Crockett: Yes, we'll have -- yes, once those projects are done, I mean we may have a little bit -- we'll have some amortization expense coming on from some of the items that are capitalized, but the consulting expenses will go away. Operator: [Operator Instructions] Our next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: I'm curious from an expense perspective, I think, Steve, I think I heard you say maybe expect expenses to be up a little bit, modestly higher in the first quarter from the fourth quarter. But how do you think about full year expense build, and what sort of additional new hire activities kind of built into those expectations? Steven Crockett: Yes. I mean full year. Well, let's back up for '25, I mean noninterest expense, we did -- overall, kept it pretty flat right around the $33 million a quarter. I mean we've got just normal salary adjustments that will kick in. We still got a little bit of the hiring initiatives, Cory talked about as far as looking for some mortgage lenders but also loan producers on the commercial side as well. So really just as far as the commercial lender side, kind of back to what the initial outlook was for that, we're about halfway through what we had originally planned. So there's still several folks we got added in for that. We do have -- again, some of these technology projects, we think we'll be getting towards the end of some of that additional expense but we will see some of that some of the capitalization of a few of these projects, and I'll start kicking in as we get a little bit later on, maybe halfway through the year. Cory Newsom: We were pretty thoughtful about the approach that we were taking on the hires that we were doing. We got about halfway through that. We'll continue on with that. I anticipate seeing another 1 or 2 in the first quarter. I think we'll kind of finish up the year like where we thought we would be. But it's about 9 new lenders that we would -- over a 2-year period, that's what we thought we would do. And I think you couple that with the production team that we got with BOH coming on here in the early part of the second quarter. I think those will play nicely together. But expense-wise, keep in mind what we've always said is, I mean, we're chasing a 6 months or sooner breakeven point on any of the lenders that we're trying to hire. Stephen Scouten: Yes. No, for sure. And the expense management, to Steve's point year-over-year was really good. That's helpful. And then from a deposit beta perspective, if my math is right, it looks like total deposit betas for the for the hikes we see, I mean, for the cuts so far have been around the 30% range. Is that kind of the right way to think about deposit betas moving forward? Or could that be more difficult just as deposit costs on an absolute basis move to the lower end? Steven Crockett: It's probably the tad higher. We've got a number of the public funds that don't reprice until the first day of the month. So we that lags a little bit. So I mean it's probably closer to 35%, maybe not 40%. But I mean, we're focused on monitoring that and keeping it kind of consistent with those levels. If there's certain places we can do a little more, we will. If not, we'll we don't want to see a runoff on deposits in any area. So we just are trying to be mindful of what else we're seeing out there, but that's a close beta but maybe just a little bit low from what we actually would see. Cory Newsom: Just keep in mind is what we've always said that we do. I mean we still do exception-based pricing. We do it on both sides of the balance sheet and which tells you we're not afraid to make the cuts that we need to make, but we might have some adjustments that come back in there around a little bit of that. But we're pretty focused on trying to make sure we keep these costs down and so that we can protect our NIM as much as we possibly can. Stephen Scouten: And then maybe just last thing for me. The loan growth guide is encouraging up there, mid- to high single digits. What gives you confidence kind of in that degree of ramp kind of from what has been the net growth over the last couple of years? Is it BOH? Is it the new hires? Is it just better customer demand or combination of all of the above, kind of -- any color you can give there would be great. Cory Newsom: I think it's all of it. I mean, if you look at where BOH has been, I mean, let's be very realistic. I mean, the likelihood that we would even get an opportunity to have done something with BOH, if they had tons of liquidity. I mean, he has talent in place. I mean we were able -- that's 1 of the things we're able to bring to the table to help them augment their liquidity to some extent so that they don't have as much of a cap that they're having to deal with. But you look at the hires we've done. I mean the organic growth is what we're as focused on our organic growth. Acquisition is nice, but we love the organic growth. And we love the team that we have in place and the team that we've assembled and the relationships that they've been able to build. One of the things we've been very upfront about is we've got a couple of projects and 1 of them is making sure that we keep the approval processes and everything working like it should, so that we continue to scale this company in a good but safe manner. And a lot of that is making sure that -- I mean, we're timely, that we're responsive and that we can actually meet the needs that our customers actually have and the stuff that these lenders are trying to bring to the table. It is not just through an acquisition. It is definitely with some of the organic opportunities that I think we have on our own plate. Stephen Scouten: That's great. Congrats on a great end of 2025 there. Operator: This now concludes our question-and-answer session. I would like to turn the call back over to Curtis Griffith for closing comments. Curtis Griffith: Thank you, operator. And thanks to everybody who participated in today's call. Concluding, we delivered some pretty strong results over the past year, while positioning South Plains for accelerating the growth in the year ahead. We've recruited outstanding lenders across our markets, and we believe they're going to bring new relationships to City Bank. We also entered into a definitive agreement to acquire Bank of Houston which will provide important scale in the fast-growing Houston MSA. We've laid the foundation to be a larger community bank, which making -- includes making the necessary investments in technology, systems and processes to grow efficiently. We've accomplished much, but we're not standing still. We continue to look for other attractive franchises. We believe we have the capacity to acquire maybe another bank of a similar size range but we will also selectively recruit high-quality lenders in our market. And as Cory just said, really push for organic growth. I'm very excited for what lies ahead for our employees, our customers and our shareholders. Thank you again for your time today. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines and have a wonderful day.
Operator: Thank you for standing by, and welcome to the Stanmore Resources Limited December 2025 Quarterly Activities Report Investor Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Marcelo Matos, Executive Director and CEO. Please go ahead. Marcelo Matos: Thank you. Good morning, everyone, and happy new year. Thank you for joining us as we present December '25 quarterly activities report. With me here is Shane Young, our Chief Financial Officer. I'm pleased to say we had a very strong finish to the year with a high level of stripping and pit preparation in the third quarter, providing the foundation to deliver strong core flow and record operational results in the fourth quarter. This performance saw us achieve full-year saleable production of 14 million tonnes at the midpoint of the revised guidance and total sales of 14.1 million tonnes, a fantastic result, given the adverse weather and subsequent operational challenges in the first half of the year. Additionally, although we usually don't provide run-of-mine core guidance, I thought it would be interesting to point out that despite all the weather -- the wet weather impacts early in 2025, we delivered 20.5 million tonnes of ROM coal mined for the full year, which is actually ahead of our original plans and enabled us to finish the year with over 1.5 million tonnes of ROM coal inventories across the business. And this will help mitigate potential wet weather impacts in the current season, which, as we all know, have already been taken place. During the quarter, we unfortunately recorded two serious accidents. While these incidents were classified as series due to the need for hospital admission and we don't take any harm to our people lightly, it's reassuring that both instances were far from being incidents that could lead to a potential fatality. Our overall safety culture and performance remains strong with our 12-month serious accident frequency rate holding at 0.33, well below the industry benchmark. The market began to see some green shoots late in the quarter with the premium headline coking coal price finding report back above $200 per tonne in December for the first time since late 2024. More recently, supply concerns have intensified following the passing of the ex-tropical cyclone Koji in early January, causing supply disruptions and driving prices further up to around $250 per tonne for premium hard coking coal and $173 per tonne for PCI as of today. Record production and sales, coupled with these improved market conditions supported strong cash generation during the fourth quarter, with the business reducing its net debt position by almost USD 60 million over the quarter. I'll now move into the point of the report with a brief summary of the performance of each asset. Starting with South Walker Creek, we saw continued sequential growth in run-of-mine production with the ongoing ramp-up towards our expanded capacity. This translated to full year records across all metrics as a second half weighted production profile was supported by the upgraded CHPP delivering consistently above expectations and above nameplate capacity throughout the second half. Full-year saleable production concluded at [ 66 ] million tonnes at the midpoint of the guidance range, which remained unchanged despite the wet weather challenges early on. This caps off a strong year following the successful completion of the capital investment phase early in the year. Fourth quarter delivered an exceptional quarter to close out an exceptional year. We saw all-time records for both saleable production and sales, which each concluded at 5 million tonnes for the full year. This standout performance demonstrates the benefits of the investment into the ramp in earlier years and is also a reflection of the operational acumen and excellence of our site teams. For the fourth quarter, specifically, the strip ratio reduced significantly as anticipated after elevated stripping in the September quarter. This provided a baseline for the second highest quarterly ROM output on record, with operational performance also supported by record [ dozer ] push volumes and mine plan optimization to deliver high-yielding costs. Poitrel ended the year with almost 1 million tonnes in ROM inventories alone, containing a mix of thermal and met coals. Turning to the Isaac Plains Complex, which I want to remind you, was the most severely impacted asset by the wet weather early '25, it's been impressive to see the recovery of our teams -- that our teams have managed to achieve in the second half to ultimately deliver against the revised guidance range. ROM production totaled 2.2 million tonnes for the second half, comprising almost 60% of the full year total. Furthermore, December was a record-breaking month for the CHPP with the highest ever monthly feed of 425,000 tonnes. This was achieved despite additional constraints on prime dig unit availability, geotechnical challenges within the Isaac Down South and the Isaac Downs North overthrust pit areas and the completion of mining activities in Pit 5 North. Looking ahead, the Isaac Downs expansion project is progressing as planned with the focus remaining on the approvals work streams and the submission of the EIS in the first half of 2026. While we are tracking on schedule for all baseline studies within our control, groundwater modeling and impact assessments incurred weather delays early in '25 and remain on the critical path. We will continue to update the market on our progress on this front, and we remain very motivated to advance this critical life extension project for the Isaac Complex. Time now to hear from Shane on the fourth quarter financials. Shane Young: Thank you, Marcelo. Looking at the corporate section of today's update, Stanmore finished 2025 with a strong cash and balance sheet position. This was underpinned by the successful execution of our fourth quarter weighted operational plan. Total cash as of 31 December improved to USD 212 million, which is after the scheduled half yearly debt repayment of USD 35 million. As a result, net debt decreased to just $33 million as at year-end from a total of $90 million in the prior quarter. If we look over the full year, net debt increased just $7 million year-on-year, which is after $60 million in dividends, $85 million of capital expenditures and $24 million paid in Eagle Downs stamp duty, which remains subject to an objection process. This is a remarkable outcome and demonstrates the resilience of our platform, which generated positive operating cash flows despite cyclically low market conditions. Off the back of this operational strength, we also took the opportunity to upsize our bank revolving credit facilities during the quarter, which now totaled USD 200 million in undrawn credit. When combined with our closing cash balances and gear working capital facility, Stanmore finished 2025 with total liquidity of USD 482 million, a strong position for the platform to enter 2026. Moving on to a comparison of full year production and capital expenditure against market guidance. As Marcelo previously highlighted, the strong finish to 2025 delivered full year saleable production of 14 million tonnes, landing at the midpoint of our revised guidance range. Capital expenditure for the year totaled USD 85 million, also at the midpoint of our latest guidance. Notably, this range had been reduced by $25 million earlier in 2025 to support cash preservation. FOB cash cost performance relative to guidance will be reported as part of our full-year results next month, but it will finish within our expected guidance range as well. At that time, we will also release guidance for 2026, which will incorporate known impacts from the weather events experienced earlier this year. Aside from those potential weather impacts, we expect South Walker Creek to continue to produce towards its expanded capacity, while Poitrel is anticipated to deliver another solid performance. In contrast, Isaac Plains output is expected to decline sequentially year-on-year as parts of that mine approach their established economic limits and mining activities are optimized to maximize cash generation. This step-change was anticipated in our mine plans with the economic limit being geologically defined as mining activities approach a split in the [ life card ] seen around 2028. As we work through the approvals required to commence the next phase at Isaac Plains, the Isaac Downs extension, our focus will remain on value preservation and cost optimization at that mine. We look forward to providing further detail on 2026 guidance along with our full year 2025 financial results in February. With that, Marcelo will now look to provide a quick update on markets and conclude today's prepared remarks. Marcelo Matos: Thanks, Shane. During the quarter, we saw prices for premium hard coking coal improved to -- from $190 per tonne to $218 per tonne. As noted in the report, this improvement was underpinned by stronger demand from China following a recovery in domestic netback pricing along with a normalization of Mongolia imports that increased import appetite for seaborne coals. Indian demand also improved over the quarter, with buyers beginning restocking activities after operating with relatively low inventory days throughout the year and in preparation for Queensland's upcoming wet season. This expectation has been validated with supply scarcity becoming paramount after the recent passing of ex-tropical cyclone Koji in early January. The impact from this weather event are understood to be widespread around the northern and the Central Bowen Basin, highlighted by the Moranbah weather state recording nearly 160 millimeters of rain in a single day compared to 116 millimeters for the entire month of January last year. Nonetheless, we remain well positioned, supported by strong operational readiness, the implementation of lessons learned from last year's extended wet season. Overall, the improved market conditions are a welcome shift from last year, and we are encouraged by positive structural developments in demand landscape, including policy clarity from India regarding antidumping duties on coke imports and reaffirmed safeguard duties imposed on steel imports. That concludes the prepared remarks for today's call. I'll now hand over to the moderator so we can take your questions. Operator: [Operator Instructions] Your first question comes from Brett McKay with Petra Capital. Brett McKay: Just on the strip ratio, obviously, falling back quarter-on-quarter, I'd expected that they are seemingly lower on average over the last number of quarters. Just any kind of outlook around that strip ratio profile of sort of stepping back up across the asset base to a more normalized level? Or could we see this sort of lower set of numbers going forward for a quarter or 2 to come? Marcelo Matos: Brett, I think simple answer is no. We don't expect these very low levels going forward. I think Q4 was anticipated. As we said back in Q3, that was anticipated to be a very low strip ratio quarter, given that we've done a lot of that stripping in Q3 and it was also a quarter that was expected to have a strong cold flow, right? I think we always said there was a year with a strong back-ended profile, given all the recovery work. So going forward, I think the expectation is to go back to a more normal level as far as Poitrel and South Walker are concerned. And what we've indicated in the past was that that's going to be around the 8.5, for example, for prime stripping ratio for the 2 assets, where Isaac is, as we've also indicated in the past, strip ratio are just going up. Unfortunately, it's the profile of the pit mining. And as we said before, we're going to be reaching challenging economic conditions around 2028. So we are setting ourselves up in eyes to make sure that we have the right cost structure going forward, given the increased strip ratios. Brett McKay: Yes, guess on that point there on Isaac and the next question, I guess, so if you've got an update on the timeline for the extension to come online. I know we previously spoke about aligning the existing operations with the incoming coal from the extension. Do you still feel like that's the realistic target is there a shift into spreading the remaining life Down South to match that updated timeline? Marcelo Matos: Brett, I think at this stage, [ nothing ] has changed, okay? I think it is possible for us to, let's say, obtain the approvals needed, start development of the project and start ramping up in a way that minimize discontinuity, okay? So when I say it's possible, obviously, it will depend a lot on the approvals work stream and us not having any undesired surprises. Having said that, keep the Isaac Downs running at similar rates until that transition takes place, it's going to be uneconomic, okay? We're just going deeper. We're going to be seeing splitting, which will have also cost implications. So I think we are what we're doing is we're setting ourselves up, focusing on the drag line, making sure we are just, let's say, set ourselves to a number of trucks and excavator fleets to mine, call it, high strip ratio, which will be, let's say, uneconomic to keep those volumes at unchanged. So we are providing guidance shortly, right, in February when we do the full year results. And you guys are going to see that, that's already starting to be reflected this year and towards the end of life at Isaac Downs, which is probably around 28, which is where the economic limits are. I don't want to just bring forward the discussion in February. I think we are also going through a process of understanding the implications of this weather event so that when we provide guidance for Isaac, for example, for '26, we are taking consideration not only the selling of sales up right from a cost standpoint, but also the wet weather implications as well. Brett McKay: Good segue the obvious question, if you can provide an update on exactly where things are at currently. I mean you've got pretty healthy end-of-year inventory position? Are you watching coal and selling coal at the moment? And has mining restarted at any of the sites yet? Marcelo Matos: Yes, mining has been started. Yes, we are mining and selling coal. It's a recovery process, right, not very different than what we've been through last year. Last year was just a difficult year because we as we explained before, we were hit three times. As we were recovered from the previous event, we were hit again. So it just makes things very hard. Hopefully, this year will be different. So we were hit once and it was pretty harsh one. As I said, we were fortunate to have finished '25 with healthy inventories. Obviously, the inventories are now being consumed, okay, while we were in recovery mode. Not all mines are recording the same pace usually -- and as not different than in the past. Isaac, usually, it struggles a bit more simply because we have less flexibility and less active pits. South Walker and Poitrel, they are already a bit ahead compared to Isaac from a recovery standpoint. The port, if look at DBCT, the port has closed for almost a week, okay? So that will affect significantly the January shipments, hence our decision to declare a [ FM ]. I mean, we knew that we were prevented from performing obligations around some individual shipments as per -- as contemplated under the contract. So I think we thought it was the right thing, not only for us, but for our customers to be able to more objectively try to remedy and mitigate some of those impacts. And -- but the event now is concluded, we're actually lifting FM and now we try to adjust the shipping program to cater for that. So yes, we are mining. Yes, we're shipping. January will be a significantly lower amount than what we expected. That's going to probably going to have a flow-on impact on Q1 as a whole, okay? So not very different than last year. Probably there will be a reprofiling of production and shipments during the quarters to be able to adjust to this recent event. That's what we know for now, okay? So nothing that we cannot recover from, in our view, with the reprofiling needed to adjust to the potential impacts. Brett McKay: How far from fully understanding the impacts and having that recovery plan in place? Are you -- would you expect to release that update for the market in the nearer term? Or would you prefer to sort of wrap it all up into the 2026 guidance later in February? Marcelo Matos: Look, for now, they are well understood, provided, of course, that we are able to dewater the pits in line with our plans and back into the coal flow and all the sequence between washing and shipping in line with the plans. I think they are well understood as long as we are not hit again, right, Brett. So the wet season is not over yet. So fingers crossed, we don't get another Q1 like we had back in last year. But as I said, we will have a smaller Q1 for sure. I don't think there's anything that we are unable to recover. If we look at Poitrel and South Walker, as long as we get back to coal mining as we're planning, we shouldn't have any constraints to wash and ship the coals we need because we have enough washing capacity. South Walker was always -- is always a concern because we need to use all the washing hours we have. So we need to make sure that we don't run out of coal feed, okay, and that the plant has always coal enough run in front of it, which so far is the case. So hopefully, that doesn't change for the rest of the wet season. Brett McKay: All right. So can I just clarify, did you plan -- will you plan on putting a specific update out once everything is sort of being fully captured and presentable or do you think that, that's just going to roll into that FY '26 guidance update? Shane Young: Brett, it's Shane here. Yes, we'll plan to release guidance along with our financials at the end of February. I think, obviously, it will need to be processed in terms of any impact on costs as well. And so it's better just to wrap it up with all to one. Operator: Your next question comes from Tim Elder with Ord Minnett. Tim Elder: Just a quick one about Eagle Downs out like just wondering if you can provide an update on how those studies are progressing and whether the recent increase in met coal prices is kind of enough for you to look at accelerating that project? Or if the priority is really just the Isaac Downs extension? Marcelo Matos: I don't think anything has changed on Eagle Downs, Tim. We've been working on a pace of FID readiness by the end of this year, okay? That hasn't changed. I don't think that short -- I mean, this recent spike in coal prices justifies us brushing that work stream. I think it's a big project with -- we need to have a long-term view and a good level of confidence on the attractiveness of the project. So I think work is ongoing. Nothing has changed. On your point around priorities compared to Isaac expansion, Isaac expansion was always a top priority for us. It's a low capital project. It will be an attractive project, whichever way we look at it. And we said that before, I think we just need to make sure that it has the right level of resourcing efforts and happening in time to minimize the discontinuity, as we said. So yes, I think it's always a priority for us with Eagle Downs happening unchanged in terms of work streams. Operator: Your next question comes from Glyn Lawcock with Barrenjoey. Glyn Lawcock: Just a quick high-level question, Marcelo and Shane. I mean, obviously, lower volumes, higher costs, but you've also had a 25% jump in the price. I mean, at a very high level, I mean, are we looking at a net positive or a net negative impact on the business, given all those inputs? Just your thoughts. Marcelo Matos: If prices stay as they are today, I would say that despite any expected cost inflation -- let's put it like that, including a potential cost implication as a result of volume adjustment in Isaac, for example, I think we'll still have a net positive if prices stay where they are for sure. I think that's -- I mean, they are significantly higher today than they were right for the average of last year. So yes, I think simple answer is probably it's a net positive if they stay as they are. Where that shifts -- in terms of at which coal price that shift, I think it's something we need to look at. But yes, I think we -- hopefully, Glyn, let us wait to February when we will provide guidance and then we can have that chat in more details as well. Glyn Lawcock: Yes. No, I appreciate that. I appreciate that. And then just on Poitrel, I know you've talked a little bit about it in some of the earlier questions, but you've just called out another solid performance. So you've made a comment that strip ratio is going up. Is there anything else at Poitrel that we need to think about as to why I can't repeat another 5 million tonne year? Marcelo Matos: Poitrel finished last year with strong ROM. It's not different this year, but we are now starting to -- let's say, we haven't -- we are not depleting yet, but we're starting to transition mining Poitrel towards the north part of the mine. It is -- it was always contemplated in the life of mine. So we just had a few years where the overlapping of [indiscernible] North, which we just developed recently and the Southern pit still happening at the same time, and that explains a bit of the 2 very, very high years. We're going to now start to transition more towards the northern part with some of the southern pits depleting. So that explains a bit of us getting probably back to a more normal level. So maybe I'm just jumping here to the end of February, but no, I don't think we're going to be providing guidance that we're going to be doing a similar year to this year for Poitrel at 5 level. Still going to be a pretty robust year, but not at the [ 25 million ] level. Glyn Lawcock: Yes. No, understood. I don't want to jump too much in advance. And just, Marcelo, you called out on the call, you said the water studies are the critical path for Isaac Downs extension. What date do you need that by? I mean, obviously, again, you commented that you'd like to nose to tail would be perfect. But what's your current date for the water study so we kind of can sort of track your critical path? Marcelo Matos: Look, the delay that we faced last year was actually drilling the ball holes and getting on to site during the wet season. That was the key issue we faced. We are now already acquiring data, and we just need to get all the data acquisition and then all the groundwater modeling done. So that's just a sequence of work that's happening as we speak. So -- but there's another area, which is actually quite critical as well for Isaac, which is how we design the pit to minimize backfilling in the end of life. So in Queensland now, there's no restrictions about leaving non-use mining areas, okay, which depending on how you look at post-mining use of pit lakes and so on, you -- I mean, if it's not used, we will need -- you have a regulatory requirement to backfill. So we spent actually a lot of time in the past 6 months working internally and with the departments here in Queensland to try to work a plan that minimizes backfilling, which obviously improves the economics of the project. I think that was worth a time spent on that. I think we will pay in the long term, but it needed a bit more time. So that brought some small delays around concluding the plans and the work streams for the submission of the EIS, but things are on track now. I think we are looking at submitting everything by by the end of this first half. Glyn Lawcock: Okay. That's great. And then if I could just squeeze one final one in. Just you've obviously not hit the fact that you're looking to do and add more mines to the portfolio. Just what's the latest you can help us understand with the Anglo sales process from your perspective, where that might be at? Marcelo Matos: I'm a bit constrained about how much I can speak publicly. I think as far as I know, there's -- we started the process, and the parties seem to be involved, and they seem to want to get to an outcome sooner than later. And what we hear from rumors that probably even hopefully before they complete the tech transaction. So these are the rumors, but there's only as much we can talk about that. Operator: [Operator Instructions] Your next question comes from Craig Chapman with [ Manpack ]. Craig Chapman: Just given the results and the healthy inventory and everything else, is there going to be a likely return to dividends? Shane Young: Craig, it's Shane here. Yes. Look, I mean we've paid out dividends consistently over the last couple of years. I know that we -- the Board took the decision at the interim to hold off. But on final basis, dividends have been paid to shareholders each year. And I think the Board will strongly consider that again when they meet in February ahead of our results release at the end of February. So we do have a dividend policy that allows for 50% or target 50% of cash flows after debt service to be returned each year. But there's flexibility within that policy as well to consider the market outlook to consider the cash position and liquidity position of the business and other factors at play as well. And that's been proven as it was last year when the dividend was declared in the same time last year. Operator: There are no further questions at this time. I'll now hand back to Mr. Matos for closing remarks. Marcelo Matos: Thanks, everyone, for your questions and for joining today's call. Thank you to all our employees, contractors for their hard work and the commitment to safety discipline during the quarter. We look forward to continuing to engage with our shareholders when we release our financial results for 2025 next month. Have a good day. Talk soon. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the W.R. Berkley Corporation Fourth Quarter and Full Year 2025 Earnings Call. This conference call is being recorded. [Operator Instructions] The speaker's remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, believes, expects or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K for the year ended December 31, 2024, and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. W.R. Berkley Corporation is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. I would now like to turn the call over to Mr. Rob Berkley. Please go ahead, sir. W. Berkley: Kevin thank you very much, and good afternoon all, and let me echo Kevin's welcome to our fourth quarter call, and we appreciate everyone finding the time to tune in and certainly are grateful for your interest in the company. On this end of the call, you also -- in addition to me, you have Rich Baio and Bill Berkley. And we are going to be following our typical pattern as we have in the past, where I'm going to offer a couple of quick sound bites, and we're going to hand it over to Rich, he's going to do the heavy lift as far as walking us through some highlights on the quarter and the year, then I will trail behind him with a few more sound bites and then, of course, we're very pleased to entertain questions. Before we get rolling here though, it seems like perhaps the most appropriate place to start would be with a few words of gratitude. Those of you that have had an opportunity to review the release. And certainly, as you hear Rich's comments, I think it will come into sharp focus that 2025 was yet another great year for the company. As I've shared with some in the past, these type of outcomes. They don't happen on their own. They happen because people make it happen, people go above and beyond to achieve a goal. And I just wanted to express my gratitude and heartfelt congratulations to approximately 7,600 people that all come together to really deliver a great outcome for the good, not only of our shareholders, but to all stakeholders that we serve. So again, thank you, and congratulations. A couple of macro observations, not particularly insightful, but perhaps it will invite some conversation a little bit later on. Number one is, I think it is clear today that the world is moving at an ever-increasing pace. The world is becoming ever more complicated. And in my mind, and I think the minds of many others is the simple question whether this industry is going to be able to keep up with that pace of change. We are not an industry that has been able to embrace change. In fact, I think the industry has really struggled with the change of our generations, but the challenges before us. Clearly, one of the areas that is creating some of the greatest challenge and is driving this trajectory of change to be so steep and the velocity to be so significant is technology. And the tip of that spear without a doubt these days is AI. There's a lot of discussion around AI and what it means for the industry. Much of the conversation appropriately is focused on the adoption. How will the industry adopt these tools? What will it mean from an operational perspective? And these are certainly questions that we are grappling with actively, and we are well on our way to be utilizing many of these tools throughout our organization. But from our perspective, that's not the only question. One also needs to be grappling with the question of what does this mean for us as underwriters? How do we think about these new technologies and the impact they're having on society, the impact that they're having on our insurers, what it means for risk and our ability to fully understand that risk so we can control it, select it and price for it. We, as an organization, are particularly well situated or quite frankly, built for this type of change. We have the best of both worlds. We have the scale, to be able to participate at any level. At the same time, because of our structure, we have the agility to be able to pivot quickly. And in addition to that, we have the benefit of not putting all of our chips on red or black. In fact, we have 60 different incubators where we're able to experiment, learn and then cross-pollinate. Another area of great change is the topic of distribution. There is no doubt that customers are changing, customers' priorities are changing. But in addition to that, the relationship between traditional distribution and carriers is without a doubt evolving. Once upon a time, it was a very simple, straightforward relationship. One was the factory. The other was the distributor. But today, traditional partners. Traditional distribution oftentimes is not just a partner but is actually a competitor. Furthermore, we are actively looking at changes, as I mentioned a moment ago, in the behaviors of customers. Customers are much more comfortable with a self-serve model. and it is becoming increasingly clear that convenience is more important to many customers than price. Please do not misunderstand my comments. We are very committed to our partners. At the same time, it is not lost on us that the customer is clean or [indiscernible] and that we, as an organization, are going to do what we need to do to meet them where, when and how they wish to be met. Let me Move on to a couple of comments about the marketplace more specifically. Let me start with the ugly auto liability is something that we have been talking about, I don't know, Rich, it's got to be a couple of years at this stage. It continues to be a challenge. And from my perspective, while we did speak about possibly seeing some green shoots, I guess it would have been early in '25. That proved to be a mirage. As it's turned out, their market has continued to find new lows and our hope is as we make our way towards the end of '26, we find a bottom. In addition to that, we -- I think last quarter and perhaps the quarter before, but certainly last quarter, we talked about large account property, particularly Sheraton layered. I would suggest to you that this market is a feeding frenzy -- at this stage and furthermore, I would tell you that London particularly Lloyd's is perhaps the hotspot for the speeding frenzy. On the topic of property reinsurance maybe a little forward-looking because it relates to 1/1. A data point for you all as it relates to our property cat treaty, our main treaty. Our rate -- risk-adjusted rate decrease was 19%. So from my perspective, I think that speaks volumes to the challenges in the market and perhaps what will be waterfalling and making the marketplace more competitive. Let me also suggest that we are seeing early signs that the competitiveness in the property cat market would seem to be spilling over into the casualty market. I think many participants are struggling quite frankly, with getting to their premium targets on the property front. And as a result of that, are trying to lean into the casualty to try and hit their top line. The big difference is the property cat market had a bounce a couple of years ago. So they are starting from a different altitude, casualty never really had that bounce. Moving over to Professional. As we've talked about in the past, D&O remains a challenge, and I would add A&E architects and engineers. Some of the brighter spots because it is not all doom and gloom, I would suggest, is the casualty market. In particular, I would tell you that the smaller end of town and the excess and umbrella market are both offering opportunity for meaningful rate. E&S also stands out, but there is clearly opportunity in the standard market as well. I would also flag within the A&H space, medical stop loss continues to be an attractive place from our perspective. Berkley One, our private client operation continues to see great opportunity to grow as they continue to be a preferred alternative in the marketplace. And finally, last but not least, what we've been talking about for some extended period of time, workers' compensation, while it is not rosy at this stage, there are early signs that are coming into focus that perhaps participants in the California market are starting to come to grips with reality and that there is some early signs of a backbone reemerging. So I went on a lot longer than I promised, but that's not the first time that's happened. But that's just because after they listen to you, Rich, they all tune out. So I got it off my chest, and why don't you go ahead and run with it, please. Richard Baio: Okay. Great. Thanks, Rob. Good evening, everyone. As Rob mentioned, the fourth quarter closed out an outstanding 2025 full year with record quarterly operating earnings of $450 million or $1.13 per share growing 9.5% over the prior year with a 21.4% return on beginning of year equity. Net income of $450 million or $1.13 per share also resulted in a 21.4% return on beginning of year equity. Record quarterly pretax underwriting income and strong net investment income from our core portfolio contributed to the excellent quarterly results. Beginning first with our underwriting performance, continued rate improvement, lower catastrophe losses and prudent expense management resulted in record quarterly pretax underwriting income of $338 million, an improvement of 14.9% over the prior year. Current accident year cat losses in the current quarter declined to $48 million or 1.5 loss ratio points. The expense ratio improved to 28.2%, driven by record net premiums earned of $3.2 billion as well as operational efficiencies arising from investments in technology, business process outsourcing and a nonrecurring benefit for commission-related accruals. We expect that our expense ratio will continue to be comfortably below 30% in 2026, barring a meaningful change in the marketplace. The current accident year loss ratio, excluding cats for the quarter, was 59.7%, slightly better than the 2 preceding sequential quarters. The shift from one quarter to the next is largely driven by each operating unit's contribution to the whole, which is influenced by where we may be growing or pulling back based on market conditions. In sum, the current accident year combined ratio ex cats is 87.9% and the calendar year combined ratio was 89.4%. By segment, current accident year loss ratio ex cat for insurance improved to 6.6% and remained relatively flat to the full year results for 2024 and 2025. The Reinsurance & Monoline Excess segment was 53.9%, resulting in a strong current accident year combined ratio ex cat of 83%. Strong operating cash flows of nearly $1 billion for the quarter and $3.6 billion for the full year have contributed to the increase in our invested assets which grew 11.4% during 2025 to $33.2 billion, reaching a record level. The combination of investable assets like cash and short-term assets as well as the roll-off of fixed maturities at book yields below the new money rate positions us well for future growth and investment income. This improvement was evident in our investment income attributable to the fixed maturity portfolio, which grew 13.3% quarter-over-quarter to $346 million. Partially offsetting this growth in the fourth quarter of 2025 was investment fund losses of $32 million, bringing our overall pretax net investment income to $338 million. The credit quality of the investment portfolio remains very strong at AA- while the duration of our fixed maturity portfolio, including cash and cash equivalents increased to 3 years. As a reminder, the duration was 2.6 years as of year-end 2024 and has been increasing throughout 2025, yet remain shorter than the average life of our liabilities. The effective tax rate in the fourth quarter was 20.5% and benefited from a lower effective tax rate relating to foreign earnings and the utilization of foreign tax credits. We expect the annual effected effective tax rate will approximate 23% for the full year of 2026. Turning to capital management. We returned $608 million of capital to investors in the fourth quarter, comprising special and regular dividends of $412 million and share repurchases of $196 million. Earlier in the year, we returned an additional $363 million made up of dividends and share repurchases, bringing the total for the year to $971 million. Besides bringing more than -- beside returning more than 10% of stockholders' equity to investors, we grew stockholders' equity by 15.6%. We continue to thoughtfully manage our capital position, which is further evidenced by our historically low financial leverage ratio of 22.6% with the next scheduled maturity in 2037. In summary, 2025 was an outstanding year with record top line, both gross and net premiums written of $15.1 billion and $12.7 billion, respectively. Underwriting income of $1.2 billion net investment income of $1.4 billion, operating income of $1.7 billion and net income of $1.8 billion. These record results culminated in growth in book value per share before and after dividends and share repurchases of 26.7% and 16.4%, respectively. Rob, I'll stop there and pass it back to you. W. Berkley: All right. Thanks, Richie. That's tough to follow. So just a couple of more sound bites and then as promised on to Q&A. Regarding the top line, First off, unpacking that a little bit for folks. I think it's worth noting that October and November from a growth perspective, were particularly disappointing, I would call it flattish. And December, I don't have the net number in front of me. I left it in my office, unfortunately, but the net and the growth track pretty closely and the GWP was up 7% in December. So I would caution people not to lead to the conclusion that what you saw for the quarter is the new reality. I think it's quite the contrary in all likelihood. And to that end, early returns on January, again, we haven't even gotten to the end of the month, but we are seeing some encouraging signs as it relates to the top line there. You would have seen the rate ex comp just a little bit over 7%. I would tell you that they are -- given what we're seeing in some of the more recent years, granted it's early, but how they seem to be developing out, we are not feeling across the board the same level of pressure to keep pushing on rate. I think we will continue to be diligent. We will continue to stay on top of it. We are not interested in our margins eroding, but we think that we're in a pretty good place, and we are looking at that carefully. The expense ratio, again, I'm not going to do a deep dive on that. Rich touched on it already. But I would tell you that the 28.2%, excuse me, a very comfortable number. That having been said, we are going to be making some pretty meaningful investments some we've already made, but we're going to be leaning into it a bit harder, both on the tech side and the broader banner, both data, AI, et cetera, and that will come at a price, but we're confident that these are going to be investments that generate very good returns. I think one of the things that's worth noting about this organization, and it's something that we talk about from time to time is the consistency of the results. We are not an organization that looks to have a lumpy performance. We are an organization that is very focused on hitting base hits every day consistently. From our experience, assuming that one of the leading goals is to build book value through making a good underwriting margin, we look to manage volatility through thick and thin. So we are very pleased with the results that we've delivered in the quarter and the year. But again, part of what distinguishes us is the consistency of those results. Rich talked about the investment portfolio. I would just highlight that the AA is teetering on almost becoming a AA. And in addition to that, yes, while we have pushed the duration out to neutral for us is probably closer to just inside of 4. If you look at the average duration of our loss reserves or I should say the average life of our loss reserves. Still room if you compare what's rolling off the portfolio over the foreseeable, call it, give or take, 4, 6 is coming off, and we're still able to put money to work, you call it 5. So when you look at the situation, the business is really firing on all cylinders. We are generating very strong returns. We already had a surplus even after the capital management of capital that would be measured in 10 figures. And quite frankly, given the returns and the market conditions, well, we would love to have an opportunity to put the capital to work right now, we're generating capital more quickly, and we can utilize it, and you should expect us to continue to look for thoughtful ways to return the excess capital to those that it belongs that being our shareholders. So I will pause there. And Kevin, at this time, if we could please open it up for questions. Operator: [Operator Instructions] W. Berkley: Kevin, you run a tight ship. One question per person. All right. We'll see if anybody pays attention. Operator: Your first question comes from the line of Elyse Greenspan with Wells Fargo. Elyse Greenspan: I thought you said one question and one follow-up, but we'll see. I guess my first question was just in terms of premium growth, Rob, I appreciate the color on October, November and then also on January. But just given your view of the market, right, your -- just the growth you saw in the quarter, I think you also said, right, that there is probably perhaps less of a need to continue to push for the same amount of price. How are you seeing this all translating into premium growth, I guess, with your expectation that '26 is better than the fourth quarter, maybe weaker than the full year '25. How does this all come together in your mind? W. Berkley: I think it's likely that the insurance activities will primary and perhaps an excess. We'll likely do better than what the total number was in the fourth quarter. I think that the reinsurance marketplace, some version of history may be repeating itself. A little early to declare that, but it would seem like the table is being set. Elyse Greenspan: And then I guess my second question is on the expense ratio. You guys guided to comfortably below 30% in '26. It sounds like '26, based on commentary, you described it like an investment year if saying that correctly, you can correct me if I'm wrong. So would you expect like the AI and the tech type investments, I guess, would be higher in '26 and then we start to see a return on those investments in '27? Or how are you thinking through the moving pieces there? W. Berkley: I think it's exactly what Rich and I alluded to that we are going to be making meaningful investments in '26, and I expect we will continue to make meaningful investments in '27. I mean this space, and it's in part what I was alluding to earlier in the call, Elyse, I just did it in a very clumsy way, was that this is a trajectory of how the tools are coming to be available and how we, as an organization, are adopting them. And it's not a one and done. This is just an ongoing process. So do I think that when are the benefits going to show up? I would like to think that we're going to start to see benefits certainly in '27. And I think it will scale from there. But it's going to -- it certainly does take some time because it's not just you drop it in, it's a more complicated process than that. Operator: Your next question comes from the line of Tracy Benguigui with Wolf Research. Tracy Benguigui: I always appreciate hearing your market commentary. You sounded it's had more constructive on workers' comp. You were mentioning that while it's not rosy now, California is coming to grips. But if we zoom out of California, one of the large brokers had said at their Investor Day that medical inflation is rampant and it'll show up in rate. Are you seeing something similar? I mean can you also comment about the reduction in premiums just in 4Q, if that was largely exposure based? W. Berkley: Yes. So a couple of things there. So first off, as far as medical trends and how that ties in with severity, I think that's something that we've been talking about at least as long as we've been talking about auto liability. And I think it's finally coming into focus for many. From our perspective, we think the medical costs. And just quite frankly, claims activity in general within the space of workers' comp has been somewhat artificially suppressed because of how it gets -- the benefits get priced and reimbursement gets priced in many, many states. Regarding our growth in the quarter, it was primarily exposure based where we -- as there were certain pockets where we didn't see the opportunity at those rates. Tracy Benguigui: Got it. And also, in your press release, you were talking about exceeding 15% ROE and maybe 15% not new, that's a longer-term goal throughout the cycle. And some estimates are well above that. How should we think about a nearer-term ROE given your comments about returning excess capital? W. Berkley: I think that we believe that the company is firing on all cylinders at the moment. And we got a lot of momentum, and that momentum is both on the underwriting side as well as the investment side. So I can't promise you that the return will be this or that. But I can tell you that this is the nature of the business, barring the unforeseen event, and now to a great extent, '26 is almost the results, again, barring the unforeseen event, they're kind of cooked, right, because of how the premium earn through and the way the investment portfolio unfolds. So again, I can't sit here and promise you what a return will be. But barring the unforeseen event, it's not that hard to connect the dots, so it should be another very good year. And with every passing day, we're setting the table for '27. . Operator: Your next question comes from David Motemaden with Evercore. David Motemaden: Sorry, guys. Can you guys hear me now? W. Berkley: Yes. Thank you. David Motemaden: Yes. Sorry about that. Just wanted to just go back just on the PYD. And so it looks like a little bit under $11 million in insurance of adverse offset by about $13 million of favorable in reinsurance. Could you just talk a little bit about what is driving the adverse on the insurance side, any different accident years, you would point to just sort of keeping in mind your comment, Rob, on maybe not seeing the same level of pressure to keep pushing on REIT. Just trying to understand that given what's going on, on the PYD side in the insurance business. W. Berkley: Yes. So if you don't mind maybe -- I don't have the answers in front of me just because in the scheme of 18-point-something billion of reserves, I didn't do a deep dive on the $11 million. But if you wouldn't mind, we'll have Karen and/or Rich a follow-up with you tomorrow, and we'll give through all the detail that we're able to. David Motemaden: Got it. Okay. That would be great. And then also -- just trying to get the right jump-off point on the expense ratio. Rich, I think you mentioned a nonrecurring benefit for commission-related accruals that helped the expense ratio this quarter. Could you just size that benefit? Richard Baio: Sure. That was about 30 basis points impact on the expense ratio. Operator: And your next question comes from Bob Huang with Morgan Stanley. Jian Huang: Thank you for just the detailed commentary there. Maybe just a follow-up on pricing and what you said about pricing trend in casualty. I understand that some lines are softening. But you -- are there any lines of business right now where you feel within casualty or you feel the pricing trend is beginning to not make sense anymore. In other words, are there any lines of business where you feel like you might need to start cutting exposure as we go forward into 2026 and 2027? W. Berkley: Yes. I mean auto liability would be one where if you look at what our top line is and relative to our rate, we are clearly shrinking the business from an exposure perspective. So that would probably be a leading example. Jian Huang: Got it. And then in other businesses, you don't feel the other lines of business are as bad or as obvious. Is that a fair statement? W. Berkley: We certainly have some concerns and reservations about some of the professional lines that I alluded to earlier. And I think that also we don't do a lot of it. So it doesn't really move the needle for us in a huge way, but the large account property stuff, the Sheraton layered stuff, we're that's getting pretty tight. Jian Huang: Got it. I really appreciate that. My follow-up is your -- the next stage of the AI growth. It is very clear that you're really leaning into the capabilities here. I think previously, you've talked about early stages of hybrid model where both the group-wide and individual tools can be implemented. And then that's been -- like are there any things going into the rest of the year and next year where you feel that are somewhat of a low high-end fruit where the payoff realization can happen relatively quickly? Or are there any specific capabilities you feel that are more closer to reality in today's environment that gets you really excited? W. Berkley: I think probably what is underway now if we focus on the underwriting side, we can talk about claims separately. But on the underwriting side, what's here and now and happening is on the intake side, where we are able to utilize certain technologies, and they are enabling us to increase our efficiency dramatically. So we are able to get to more business and we are able to effectively prioritize. Yes. So said differently, we -- people's time is utilized much more effectively. Operator: Your next question comes from Brian Meredith of UBS. Brian Meredith: So 2 questions here. First, Rob, I wanted to dive into your comment about maybe laying off rate a little bit, but keeping margins, I think, is what you also said. And I'm wondering if that implies you think that trend is starting to moderate some here. And then as we look into 2026, that maybe loss picks are kind of stable then if you don't want margin to deteriorate? W. Berkley: So my take on that is it's premature to reach any conclusions with confidence but some of the activity that we are seeing or lack of activity in some of the more recent years would suggest that we're in a comfortable place. I think as we've discussed in the past, Brian, a trend is a moving target. So I don't think it's that we take our foot off the pedal, but maybe the foot doesn't have to be stepping down on the pedal quite as hard selectively. Brian Meredith: Got you. And then just with respect to loss ratio loss picks? W. Berkley: I'm sorry, I didn't hear you. I beg your pardon? Brian Meredith: No. I mean with respect to your kind of jumping off point here with respect to loss picks, if you're going to keep margins stable and it sounds like your expense ratio is going to be flat to up a little bit. It would imply that loss ratio is going to be pretty stable, too. W. Berkley: We are looking to preserve our margins to the best of our ability as long as the market will allow us to. And right now, we think we can do that. [indiscernible] to be in the insurance business, I think the reinsurance marketplace is probably going to become more challenged more quickly. Brian Meredith: That makes sense. And then just quickly going back to your comments about distribution and distribution competing with you a little bit now, and customers want simplicity. Does that mean that perhaps one you may lean into a little bit more utilizing MGAs and/or buying MGAs and that maybe that's a quicker way to kind of get to where you want to get to with respect to distribution? W. Berkley: No. The short answer is, I don't think we're going to necessarily be leaning into or acquiring. Generally speaking, I think as we've torqued you all in the past, we have a real caution around delegated authority. And quite frankly, the valuations of some of these businesses, we think have gotten to the point where oftentimes it's irrational. And there's a lot of private equity money still trying to figure out how they're going to make it all work. But in the meantime, we're pleased to continue to partner with traditional distribution. But I think the point is it's not lost on us that some of the traditional distribution is looking to have the pen or, in some ways, have a different relationship with capital. We're aware of that. We are responding to it. And it also means that we're thinking about distribution maybe a little bit in a way that we wouldn't have thought about it 5 years ago. Operator: And your next question comes from Alex Scott, Barclays. Unknown Analyst: All right. So first one I had is just a follow-up on the technology improvements you're working on. How would you characterize the way you're thinking about that over the medium term? Is that something that as you bring the expense ratio down, some of it can drop to the bottom line? Or is this something that is going to potentially just help to make it more competitive? You might be able to get back on price a little bit, get a little more competitive and improve growth. I'd just be interested in how you're approaching those investments. W. Berkley: I think the answer is all of the above. I mean, ultimately, we certainly are looking to have efficiency and savings. And how much of that we hold on to versus how much gets passed on to the customer in part depends on the marketplace and quite frankly, competitors what they are doing and what kind of efficiencies they're capturing and what they're passing on to customer. So look, when the day is all done, I appreciate that a lot of the focus may be around pricing and margin. But I would suggest to you that a lot of these tools, it's not just about dollars saved it's also about value creation. And I think that, that's an additional way to consider these tools, how they will be incorporated and how they will attack the business that the 3 of us work for. Unknown Analyst: That's helpful. And I guess just looking at the growth and thinking about increased competition. I was just interested if you could talk about to any degree you're seeing a flow back into admitted at this point? Like is that something that's affecting the growth rate at all? Or is it more just competition within the E&S market? W. Berkley: I would tell you in the very, very small end of town as far as account size. You might see a standard market slip in there a little bit. But by and large, they are, for the most part, for the moment, staying within their swim lane. That having been said, national carriers in particular, but some of the regional carriers on the standard side. within their swim lane, they are being remarkably aggressive at this stage of the game. Operator: And your next question comes from Rob Cox with Goldman Sachs. Robert Cox: First question, could you just unpack some of your comments on the property cat environment leaking into casualty dynamics a bit. Just curious how that is playing out, how meaningful you think it is? And if you think the strong net investment income contributions are contributing to that as well? W. Berkley: The answer is, I think we'll know more when we all have an opportunity to reflect on Q1 and see who did what. But my sense is that, again, a lot of people that have a lot of capital and they feel pressure to put it to work, and they're trying to hit budgets and so on. And as a result of that, when the premium is coming in short on the property cat, they're looking to try and figure out what other levers they can pull. And casualty would appear to be one of them or a liability, including the professional. So we'll have to see over time. Do I think investment income is a component of it? Yes, probably. Can I quantify for you how much is one versus the other? No, not with any confidence, but I do think that -- I think that one proved to be more competitive. And from our perspective, it seemed to spill over into the casualty lines more than we would have anticipated. Now having said that, we buy a lot of reinsurance and that's not a bad thing for us. Where we assume we'll deal with it just as we have in the past. Our colleagues are interested in making money not writing business. Robert Cox: Rob, that's helpful. The follow-up on home insurance I think you mentioned Berkley One is one of the good places to grow right now where you see some opportunity. Curious of your views on the excess profit discussions from regulators and particularly the New York state in the -- with regards to the 2-year look back. Is that something you think is rational? And do you have any views on the rationality of that? W. Berkley: I think that regulators tend to focus on a moment in time, and I think that they need to look at historical results, particularly given the volatility that exists in the homeowners line in particular. I think that as far as Berkley One goes, it's less high on a regulator's radar screen perhaps because, for the most part, regulators don't give a s*** about rich people. Operator: And your next question comes from the line of Yaron Kinar with Mizuho. Yaron Kinar: Can you hear me? W. Berkley: Yes, we can. Yaron Kinar: Great. Thanks, here. In insurance, I'm trying to connect the dots. It sounds like the slowdown opinions in October, November was more driven by increased competition. And I think you're so cautioning not to read too much into that. Is that because you see competition flattening out here? Or are you seeing greater appetite emerging for the company itself to go after more premiums? W. Berkley: I think the point that we are trying to make is a couple of fold. One is that October and November are just 2 months, and we would -- while they sort of shine brightly through in a quarter, we would caution people to [indiscernible] on to that too much, particularly given the data point to December and what we are seeing in January. In addition to that, we offered the comment earlier that from our perspective, there are certain pockets of our portfolio, certain parts of the market where given the early returns on the reserves, we are thinking that perhaps it is a more comfortable place than we appreciated. Yaron Kinar: Okay. And then I had another question on the tech investments here, specifically on the AI side, machine learning, I've always thought of that as being very data-driven. And I'm just trying to think how this plays out in a company that has always prided itself in having 50 different operating units plus/minus, how do you consolidate that run that efficiently and have the data to apply across the 50 units? W. Berkley: Just because we have more than 50 different businesses doesn't mean that we're not able to aggregate and use the data amongst the businesses and make it available to the businesses within the group. So I think the notion perhaps that you had that each one is a self-contained island, and there is no way for them to work together on things such as data or for us to aggregate or for us to build tools and try and leverage them across the broader organization. I would encourage you to maybe think about that a little differently. Yaron Kinar: Maybe we can take this offline. I'm trying to understand how more than the concept of whether you can. W. Berkley: Yes. We would be very happy to try and give you a little more color. Please just call at your convenience. Operator: And your next question comes from Andrew Kligerman with TD Cowen. Andrew Kligerman: Great. Can you hear me? W. Berkley: Yes, sir, we can. Andrew Kligerman: Rob, I'd like to -- on the premium question. In the past, you've -- let's say, going back 2 years ago, your outlook was for double-digit more recently, you had talked about 8% to 10% for the year. Maybe big picture, how are you thinking about 2026 in terms of growth potential because of those kind of disparities between October, November versus December and January? What are you thinking this year? W. Berkley: I'm thinking that I don't get rewarded for providing estimates and these kind of forward-looking statements. That having been said, from my perspective, as mentioned earlier, I think the insurance business, both excess and primary should have an opportunity to grow more than what you saw us do in the quarter. And as I suggested, I think the reinsurance business, while we remain optimistic, we are even more so disciplined, and we can't control the market. So we'll have to see how that unfolds, but that seems to be becoming more challenging more quickly mean for [indiscernible]. Andrew Kligerman: Fair enough, Rob. And then maybe just drilling into detail as I look at the net written premium. It looked like short tail lines grew a little more than the others. Could you share with us which areas of short tail that worked out well and... W. Berkley: The big drivers there are A&H as well as our private client business, Berkley One. Andrew Kligerman: I see. And then... W. Berkley: If you look at the Commercial Lines piece, particularly some of -- the commercial lines piece is it's not worth coming from at all. Andrew Kligerman: Got it. That makes a lot of sense. And then just the workers' comp piece, you touched on. i guess it sounded like you were writing fewer accounts because you didn't get the rate you wanted. This was an area about a year ago. There was some excitement just higher risk stuff. So maybe just a little color on what you're seeing... W. Berkley: Yes, we try to bifurcate the fact, Andrew, that there's sort of a more complex, higher hazard as you alluded to versus the Main Street stuff. I think the other piece with this, there was not a huge amount, but there was a bit of a timing issue with this as well. Rich, you want to talk about that for a minute. Richard Baio: Sure. So we had a couple of our operations, if you will, that renewals had transpired at different time periods relative to the fourth quarter of this year so that was the other reason for the change from the decline, if you will, in the workers' comp space. Andrew Kligerman: I see. So that might reverse a little bit in the next quarter. Richard Baio: Over time, yes, that's the expectation. . Operator: Your next question comes from Josh Shanker of Bank of America. Joshua Shanker: So when you think about pricing business, sometimes you imagine that you need a certain amount of rate because loss costs rise at a certain trajectory. Sometimes you need rate because the loss cost trend has changed, and therefore, the way you're pricing it previously needed some correction. As you talk about the softening, we're not really seeing you or any competitors out there really talk about a different loss picking, we're not even seeing it in the paid loss trends, although we haven't seen the fourth quarter triangles yet. Are loss conditions changing beneath the industry's feat right now? Or is the industry unable to get the necessary price increases with the general trajectory that one would expect from where losses are supposed to go? W. Berkley: Was there a particular part of the market that you were focusing on or it's in general? Joshua Shanker: You say something like casualty, that's a very broad class, right? There's a lot of different kinds of casualty out there. So I guess, I mean, we can start broad, but maybe there's something specific going on that you want to highlight? W. Berkley: Okay. So here are a couple of sound bites. And if I'm missing the mark, please tell me. But I would tell you that in the excess and umbrella space, it seems like there is a reasonable amount of discipline and trend continues, and we and others are getting that. I think auto liability, as we discussed earlier, continues to be a problem and the marketplace is taking rate, though, I'm not convinced at this stage that it's enough. As far as property goes, people have super short memories and the notion of making sure you have an appropriate cat load I think, is a fading concept. Do you want me to keep going? Or is that enough? Joshua Shanker: I'm just -- what I'm hearing from you is rate doesn't feel enough. You're not seeing paid trends change in such a way that demand a different view. It's just like, look, things are going at a base we understand, and we're not getting the rate forward, I guess. W. Berkley: I think what I'm suggesting is, Josh, that different product lines are in different places, and you need to use a pretty fine brush in my opinion. I think that there are certain product lines where I would tell you there is a green light and it would be advisable to try and lean into it more. There are certain that are amber and there are some that are red. And ultimately, it's -- one makes a judgment as to what do you believe the loss pick is given what you're able to charge, how do you feel about that? And what is your confidence in that. And every day, we go through that process. Obviously, there are certain characteristics such as length of incurred tail that can make it that much more complicated. So I would tell you that from my perspective, there are certain product lines where, again, for the comment I made earlier about rate, what we're feeling as though what we're in a pretty good place, maybe we don't need to be pushing quite so hard on rate. There are other places where we are dead serious about the rate that we need. And if the choice is you write it, if you don't get -- or get the rate or not, if you don't get the rate, don't write it. That's why you see certain parts of our business exposure-wise shrinking. So it's very difficult to have a one size fits all. But philosophically, that's how we think about the business. I don't know, for like 50 years, and we're still thinking about it that way. Joshua Shanker: And are there parts of the market that are earning, let's say, 91% to 94% combined ratio that you could write and you could grow, but that's not good enough? Or are there not these pockets that are worse than your 89% or 87% depending on how you want to call it, but it's just done out there to be found? W. Berkley: Maybe to answer the question a little differently is, please understand we are a return-driven business, not a combined ratio driven business. We figure out what type of combined we need in order to achieve the return. Joshua Shanker: Okay. And so there's not a pocket that just are track -- are marginally attractive. I mean look, 2% growth, it's not terrific given what we're used to. But there might be nothing out there for you, I guess. W. Berkley: I think that the answer is that there are different parts of the market that are in different places in the cycle. And my colleagues to their credit, understand very clearly what the goal of the exercise is to make money, make good returns, not to issue insurance policies. And there are certain product lines that are in a moment of transition. In fact, all product lines are in some sense of transition but some more than others. And we are navigating and responding to market conditions and also responding to the data that we have as to how we see the margins that currently we are in place. Operator: And your next question comes from Meyer Shields of KBW. Meyer Shields: You can hear me? W. Berkley: Yes, sir. Meyer Shields: Fantastic. Rob, you mentioned -- I just want to go back to the comments where you talked about how reevaluating recent accident years suggests less of a need to push for rate. I know in the past, we've talked about some fame made claim frequency coming in below expectations, and that's actually translated into some reserve releases, lines of business where the claims didn't happen. Is that what you're talking about is this is the same subject? W. Berkley: So it's really across the board, where even where there is some tail to it, and we have tail factors and how we would expect it to develop that there are certain early indications that in some of the more recent years, that even the lines that have some tail to it, it would seem as though the underwriting actions and the rate actions are having the impact plus that we had hoped for. Meyer Shields: Okay. No, that's very helpful. Is there any way breaking down... W. Berkley: Just to give you a little bit more, it is not limited to the claims made form. So again, we're not going to get ahead of ourselves, but we're watching it. Meyer Shields: Okay. No, that's helpful. I was wondering if there's a way of breaking down whether that's positive emergence on the frequency side or on the severity side? W. Berkley: I would invite you to give Rich a call and he can torture you with all kinds of data. Meyer Shields: Okay. I look forward to it. And last question, does any of that initial more changing viewpoint impact the full year '25 acting your loss picks for the relevant lines? W. Berkley: Sorry, could you once more, I beg your pardon there? Meyer Shields: Yes. So let me rephrase it. If there's more optimism about how these recent years are going, did that show up in the [indiscernible] '25 loss picks for the exposed lines? Or did you maintain the loss picks and then just feel less need for pricing? W. Berkley: No, we did not touch them. Operator: And your next question comes from Katie Sakys of Autonomous Research. . Katie Sakys: Just a quick one for me. I just kind of like to break down your philosophy on capital return going into the new year here. I think the size of the buyback this quarter was perhaps a bit higher than expected in the context of some of your commentary last quarter. Was this quarter... W. Berkley: Well, I say last quarter. Katie Sakys: I think you had kind of phrased it as not necessarily seeing like a huge opportunity for buyback, and I recognize that can change over time. So would you say that the 4Q repurchase was opportunistic? Or do you anticipate continuing to repurchase at these higher levels as long as you continue to access more capital than you feel you can put to work? W. Berkley: Okay. Well, I have good news for you. The gentleman who is the Head of our repurchase desk and also the Head of our Capital Management Committee. And I don't know, you probably have some other fancy titles. Do you want to take that one? Unknown Executive: Sure. I think that we're constantly looking what to do our excess capital, how much you generate and how much we can use for various things in our business. So it's really constantly changing opportunities. when the opportunity arose is advantage of it. I can't tell you how and what we'll do on the next day. We think that our business returning 20-plus percent of capital, which candidly, I'm optimistic that we'll continue to be able to do that. At the moment, it's a pretty good investment from my point of view. So I would expect that we'll continue to look if opportunities present themselves to buy back stock. The alternative is to give stock -- give money back to our shareholders and special dividends. I don't think we have a rule. The judgment as move through the year. And as we look at opportunities and what we're going to do. We still had a huge amount of excess capital that we generate. And one of the things people don't understand is we become a very much more financially conservative company. We've gone from 35% debt to equity to 22% debt to equity. We've got lots of capacity to do lots of things and that gives us a lot of flexibility. So it's not just the cash we generate, it's the balance sheet we have, the risk we have in here and running the business. Then we look at the opportunities with those things together. And we're a very much more conservative company. So I can't give you an answer, but I can tell you we -- we have lots of opportunities. And our job is to run the business is now we own the whole thing and how would we use our count most effectively for the owners of the business. And we'll make that decision on a constantly evolving and changing basis. Operator: And your next question comes from Ryan Tunis of Cantor. Ryan Tunis: First question just on the investment fund returns, bit a bit mix. Just curious, maybe you could go into a little bit more detail there. Is that individual fund specific, just I don't know, peel back the onion a little bit on what's going on in the investment funds. W. Berkley: Long story short, the noise that you saw in the financial category was primarily driven by one fund, and it was a disappointing result. And quite frankly, it's been a disappointing relationship. We do not expect that to be the norm going forward. Ryan Tunis: Sure. Got it. And then I guess just a follow-up. Yes, here in the aftermarket, a few of these big managed care companies like you and are getting woodshed and these stocks on Medicare Advantage of CMS proposal on 2027 rate increases of supposed legs being flat. Apparently, they need more than that. If memory serves, workers' comp pricing has some relationship to these Medicare price indications. I don't exactly remember how that works. Maybe you could refresh your memory. W. Berkley: So workers' comp rates in several states, prices off of multiple -- I think it's Medicare, not Medicaid schedules. Not all, but in many. And I think we all know that Medicare quite frankly, plays not just below market, but below cost. So comp has benefited from a multiple of that. Now what you're starting to see happen and you saw maybe a year or 18 months ago or something like that in Florida. And I think you're starting to see it in some other states is where they are going back and reviewing what the multiple is because the underlying Medicare rates are just so below market that is basically enriching the comp writers and they're looking to adjust that. I think you're going to see that more and more. I think, quite frankly, medical trend is going to prove to be a bigger and bigger challenge. Certainly, pharma is a piece of that in spite of the efforts from the administration, and I think it's going to be not just pharma. So that's how we think about it. And hopefully, that's helpful as far as the relationship between and Medicare. Operator: Your next question comes from the line of Mike Zaremski of BMO Capital Markets. Michael Zaremski: Just kind of going back to the competitive environment in the insurance cycle. And you and Bill, Rob have a lot of experience in terms of seeing a lot of past cycles. Does -- I know you wouldn't say that based on your commentary, that's rational for casualty pricing to start decelerating given social inflation levels remain an issue. But I guess -- but from just -- as a competitor, though, have you seen this kind of cycle before that until there's real pain and ROEs start eroding off high levels that the trajectory of casualty could be biased south a bit for the foreseeable future? W. Berkley: We're not seeing any -- as far as GL or excess and umbrella, we are not seeing that. I think we probably tortured the topic of auto liability enough. But as far as GL and the access an umbrella, we're not seeing signs of what you're referring to. Will it come eventually? Yes, absolutely. It's still a cyclical business. But is it here today? Certainly not something that we're observing at the moment. Michael Zaremski: Okay. Got it. And my follow-up is, Rob, in your prepared remarks, when you're talking about kind of meeting the customer where they -- where it's most convenient for them. I guess I was initially thinking you were talking about direct to consumer or direct to business insurance online. But in your follow-up to a question later, you talked about just doing different types of business with existing traditional insurance bookers. So I don't know if you're willing to just be more -- add a little more color. W. Berkley: Yes, maybe yes, a little more color, sure, Mike. I think the point that we were trying to make is that the sacredness of the relationship between carrier and distribution is not universally sacred anymore. There's been a lot of change that has occurred, whether it be the nature of the ownership of the distribution, whether it be consolidation, whether it be distribution getting into the underwriting business. It's evolved. Simultaneously, you have a meaningful shift in customer behavior. And while perhaps it's not particularly pronounced amongst large accounts, in the small part of town is much more akin to personal lines. So we, as an organization, are of the view in the end that we exist to serve the customer, and we are respectful of our partners, but we are going to meet the customer wherever she or he wishes to be met in the way they choose to be met. So we certainly have businesses that are solely dedicated to wholesale. We certainly have businesses that are solely dedicated to retail. We also have businesses in the group that are going direct to customer. We have a new venture that is going to start to get its sea legs during '26 called Berkley Embedded, where it's point of sale. So there's a whole host of different things that we're doing not looking to undermine partners but making sure that we are there to meet the customer how she or he wishes to be met. And what is becoming more and more apparent, I think I may have said this, if I didn't -- my mistake, is that the customer, of course, they care about price, almost every consumer does, but customers are more preoccupied with convenience, and they are more open to a self-serve model, and we need to be conscious of that and responsive to that. Operator: And your final question comes from the line of Maxwell Fister with Truist Securities. Unknown Analyst: I'm on for Mark Hughes. In the other liability line, you mentioned a pivot in your portfolio last quarter. Where do you stand with that now? And then separately, how did pricing in that line trend through the quarter maybe on a monthly basis if you have that level of granularity? W. Berkley: Honestly, maybe it's just the hour and a bit of a long day, but I do not have a clear recollection of what you suggested. We said around a pivot and other liability last quarter, I'm sorry. Is there any additional context you could offer, please? Unknown Analyst: You had just mentioned that you're pivoting the portfolio maybe you different states or exposures. So I just wanted to see if you had an update for us there? W. Berkley: Maybe, again, I apologize, it's not ringing a bell. Maybe we could pick this up off-line, if you don't mind. And we can sort of try and unpack it a little bit more as to what the context was. But it's not striking a cord. Unknown Analyst: Absolutely. That works. How about the pricing in other liability through the quarter, monthly, did it accelerate? Or how did you see that? W. Berkley: Yes. We don't, generally speaking, break out that type of detail by product line. But as we suggested earlier, on the liability side, we are feeling comfortable about where things are and how we see the market opportunity at least at this moment. Unknown Analyst: Understood. And then separately on property. Any stabilization there in pricing? Or are you still seeing incremental pressure there? W. Berkley: Well, I think -- as we have suggested earlier, I think with the larger account stuff, we're seeing more than incremental pressure. Unfortunately, for us, that's not a big part of what we do. On the smaller property accounts, quite frankly, we're still seeing opportunity there. And again, if you wish to follow up on that, please just give us a shot whenever you like. Kevin, was there anything else? Or are we through? Operator: There are no further questions at this time. I'll now turn the call back to you, Mr. Rob Berkley for closing remarks. W. Berkley: Kevin, thank you very much for your hospitality this evening. Thank you to all participants for your time and your interest in the company. Again, I think a solid quarter to say the least, yet another great year and the momentum continues for the most part, to be in our favor. So we look forward to catching up with you sometime in early April. And we wish you a good evening. Thank you again. Good night. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, January 26, 2026. I would now like to turn the conference over to Paige Melching, SVP of Investor Communications. Please go ahead. Paige Bombino: Thanks, [indiscernible]. Good afternoon, ladies and gentlemen, and welcome to Sanmina's First Quarter Fiscal 2026 Earnings Call. A copy of our press release and slides for today's discussion are available on our website at sanmina.com in the Investor Relations section. Joining me on today's call is Jure Sola, Chairman and Chief Executive Officer. Jure Sola: Good afternoon. Paige Bombino: And Jon Faust, Executive Vice President and Chief Financial Officer. Good afternoon. Before I turn the call over to Jure, let me remind everyone that today's call is being webcasted and recorded and will be available on our website. You can follow along with our prepared remarks in the slides provided on our website. Please turn to Slide 3 of our presentation and take note of our safe harbor statement. During this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We caution you that such statements are just projections. The company's actual results could differ materially from those projected in these statements as a result of factors set forth in the safe harbor statement. The company is under no obligation to and expressly disclaims any obligation to update or alter any of the forward-looking statements made in this earnings release the earnings presentation, the conference call or in the Investor Relations section of our website, whether as a result of new information, future events or otherwise, unless otherwise required by law. Included in our press release and slides issued today, we have provided you with statements of operations for the first quarter ended December 27, 2025, on a GAAP basis as well as certain non-GAAP financial information. A reconciliation between the GAAP and non-GAAP financial information is also provided in the press release and slides posted on our website. In general, our non-GAAP information excludes restructuring costs, acquisition and integration costs, noncash stock-based compensation expense, amortization expense and other unusual or infrequent items. Any comments we make on this call as it relates to the income statement measures will be directed at our non-GAAP financial results. Accordingly, unless otherwise stated in this conference call, when we refer to gross profit, gross margin, operating income, operating margin, tax, net income and earnings per share, we are referring to our non-GAAP information. I'd now like to turn the call over to Jure. Jure Sola: Thanks, Paige. Good afternoon, ladies and gentlemen. Welcome, and thank you all for being here with us today, and Happy New Year and all the best to all of you. First, I would like to take this opportunity to recognize our employees and Sanmina leadership team for doing a great job. So to you, Samina team thank you for your dedication hard work and delivering excellent service to our customers. Please turn to Slide #4. Ladies and gentlemen, I can tell you that I'm very pleased with our performance for the first quarter. Overall, we are executing according to our plan. Revenue came in at $3.19 billion non-GAAP operating margin at 6% and non-GAAP diluted earnings per share of $2.38, and we delivered strong cash flow from operation of $179 million. Again, I'm excited about the future opportunities that we have in front of us. So now let's go to our agenda for today's call. We have John, our CFO, to review details of our results for you. I will follow up with additional comments about the results and future goals. Then Jon and I will open for question and answers. And now I'd like to turn this call over to Jon. Jon? Jonathan Faust: Great. Thank you, Jure, and good afternoon, ladies and gentlemen, and thank you for joining today's earnings call. Before I review our financial results for the quarter, I want to acknowledge the entire Sanmina team for their focused execution and thank them for delivering a solid start to the new fiscal year. Now please turn to Slide 6, where I'll speak to the financial highlights. We're very pleased with our first quarter results, which as you can see, either met or exceeded all of our outlook commitments. Our revenue of $3.19 billion and our non-GAAP operating margin of 6.0% each came in towards the high end of our outlook. In regards to revenue, both the core Sanmina business and the ZT Systems business came in near the high end of their respective outlook ranges. Also, our non-GAAP diluted earnings per share of $2.38 and exceeded our outlook. These results represent a great start to fiscal 2026 and sets us on the right path towards achieving our growth and margin expansion objectives for the year. Now please turn to Slide 7, where I'll speak to the P&L performance. As I just mentioned, we delivered revenue of $3.19 billion which was up 59% compared to the same period a year ago. This was driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the VT Systems business, which Jerry will speak to in more detail as part of his prepared remarks. Non-GAAP gross profit was $298 million or 9.3% of revenue up 30 basis points compared to the same period a year ago. This was driven by favorable mix as well as operational efficiencies. Non-GAAP operating expenses were $106 million or 3.3% of revenue, down 10 basis points compared to the same period a year ago. We continue to make targeted investments to drive future growth, but are doing so in a very structured and disciplined manner. Non-GAAP operating profit was $192 million or 6.0% of revenue, up 40 basis points compared to the same period a year ago and at the 6% level for the second quarter in a row. This is a result of revenue growth, favorable mix and strong operational discipline. Non-GAAP other income and expense was a net expense of $19.1 million which was $3.9 million favorable to our guidance, driven by our strong cash generation. Non-GAAP diluted earnings per share came in at $2.38 and based on approximately 56 million shares outstanding and up 66.1% compared to the same period a year ago. As we mentioned on our prior call, we expect fiscal 2026 to be a growth year, and our results for the first quarter represent a solid start towards achieving that objective. Now please turn to Slide 8, where I'll speak to the segment results. IMS revenue came in at $2.79 billion, up 72% compared to the same period a year ago. driven primarily by growth in the communications networks and cloud and AI infrastructure end markets for the core Sanmina business and the addition of the ZG Systems business. IMS non-GAAP gross margin was 8.7%, up 80 basis points compared to the same period a year ago. This was due primarily to favorable mix, including the impact from the addition of ZT Systems revenue and operational efficiencies in both the core Sanmina and ZT Systems businesses. CPS revenue came in at $434 million, up 4.3% compared to the same period a year ago. CPS non-GAAP gross margin was 12.9% and up 40 basis points compared to the same period a year ago. That being said, the 12.9% is lower than our recent performance, and that's due to multiple investments that came online to support new programs which we expect will deliver margin accretive growth in the near future as well as a few program transitions. While we executed well, we continue to see opportunity for further improvement in both revenue growth and margin expansion, which we will continue to focus on going forward. Now please turn to Slide 9, where I'll speak to the balance sheet highlights. We maintained a very strong balance sheet in the first quarter. Cash and cash equivalents were $1.42 billion. At the end of the quarter, we had no outstanding borrowings on our $1.5 billion revolver leaving us with substantial liquidity of approximately $3.6 billion to support the expected growth of the business. We ended the quarter with inventory of $2.2 billion, net of customer advances which is up 74% versus the same period a year ago, driven by the ZT Systems acquisition. Inventory turns, net of customer advances were 5.3x for the quarter down from 5.8x in the same period a year ago, driven by the ZT Systems acquisition. It's also important to note that, that Q1 calculation only includes 2 months of ZT systems cost of goods sold. Now that being said, core Sanmina inventory turns, net of customer advances improved for the quarter, both sequentially and versus the same period a year ago. While we're pleased with these results, we believe there is still room for improvement. Our non-GAAP pretax ROIC was 32.1% for the quarter, well above our weighted average cost of capital and a sizable improvement from the 23.5% from the same period a year ago. We continue to have one of the strongest balance sheets in the industry with a net leverage ratio of 0.8x. This ratio is calculated conservatively by annualizing our Q1 EBITDA results as using the pro forma trailing 12 months for ZT systems wouldn't accurately represent the current run rate of the business. Our long-term net leverage target remains 1.0x to 2.0x and we expect our leverage to increase into this range over time as we invest in working capital to support the growth of the ZT Systems business. I want to emphasize our commitment to maintaining a healthy balance sheet, which means carefully managing the liquidity needed to invest in the business and capitalize on the strategic opportunities that further excel our position in the market with strong financial policies to guide our decision-making process. And to be clear, our goal remains to achieve investment-grade ratings over time. Now please turn to Slide 10, where I'll speak to the cash flow highlights. As a result of the team's disciplined working capital management, our first quarter cash flow from operations came in at a solid $179 million. Capital expenditures were $87 million for the quarter, slightly above our outlook. As I've mentioned before, we will continue to make strategic investments in the technologies and capabilities needed to strengthen our position in the market and to support our growth expectations, and we expect to fund these efforts through our strong cash flow generation, in line with our capital allocation strategy. To that end, we anticipate ongoing targeted investments in both capacity and technologies across our operations in the United States, India and Mexico, to drive further growth and margin expansion across all of our end markets. Free cash flow was $92 million, enabled by our strong working capital management and operational discipline. During the quarter, we repurchased 516,000 shares for approximately $79 million to offset dilution for the year. At quarter end, we had approximately $160 million remaining on our current share repurchase program. Our strong cash flow performance has provided us with the financial flexibility to allow for continued investments in the business while also returning CAP to shareholders, all within a disciplined and balanced capital allocation framework. Now please turn to Slide 11, where I'll speak to our capital allocation strategy. When it comes to capital allocation, it's incredibly important to have a clear strategy and a well-defined set of priorities when making decisions. As we shared with you before, our first priority is to invest in our business to drive long-term organic growth and margin expansion. We evaluate all investments with discipline and take a structured ROI-based approach. Second, we continuously evaluate strategic acquisition and partnership opportunities, which need to meet our ROI expectations to help accelerate our growth. Third, we carefully manage our balance sheet and liquidity position with a focus on our long-term net leverage target as well as our long-term goal of achieving investment-grade ratings. And finally, when appropriate, we return capital to shareholders through share repurchases, subject to maintaining a strong balance sheet and liquidity position. We have and will continue to execute on this strategy by utilizing these options, which enables us to take advantage of opportunities to grow our business. Now please turn to Slide 12, where I'll provide our outlook for the second quarter, which is based on current customer forecasts, a full quarter of the ZT Systems business and taking into account ongoing market uncertainties stemming from tariffs and the geopolitical landscape. Our second quarter outlook is as follows: We expect revenue between $3.1 billion to $3.4 billion. At the midpoint of $3.25 billion, that reflects 62% growth compared to the same period a year ago. We continue to expect the core Sanmina business to grow high single digits this fiscal year. As for ZT Systems, the business is performing well and in line with our expectations as we work through the transition period, and we're very excited and focused on the opportunities and future ahead. Non-GAAP operating margin of 5.7% to 6.2% dependent on the mix of the business. We expect other income and expense to be a net expense of approximately $26 million as it now includes a full quarter of our new debt structure. We expect our non-GAAP effective tax rate to be between 21% to 23%. We estimate an approximate $3 million noncash reduction to our net income to reflect our India joint venture partners' equity interest. Non-GAAP diluted earnings per share in the range of $2.25 and to $2.55 based on approximately 56 million fully diluted shares outstanding. At the midpoint of $2.40, that represents a 66.7% increase compared to the same period a year ago. Capital expenditures are expected to be around $95 million as we continue to invest strategically to support our future growth expectations. And finally, depreciation of approximately $45 million. In summary, fiscal 2026 is off to a great start. We remain focused on driving revenue growth, margin expansion and cash generation while maintaining a healthy balance sheet and making investments that further support our strategic objectives. Based on our Q1 performance and our outlook for the second quarter, combined with the demand signals from our customers, we continue to expect fiscal 2026 to be a growth year. There's a lot of work ahead of us. but we are very excited about our future. And with that, let me turn the call back over to Jure. Jure Sola: Thank you, John. Ladies and gentlemen, let me add a few more comments about our results for the first quarter. and the rest of the fiscal year '26 and beyond. So please turn to Slide 14. As you heard from John, we delivered strong results for the first quarter. We delivered revenue and non-GAAP operating margin at the high end of our outlook, and non-GAAP diluted earnings per share exceeded our outlook. Most important, fiscal year '26 is on tracking to our expectation, the way I would say it, great start to fiscal year 2026. As you can see, our consistent execution is driving our financial performance. Also, I can tell you this is exciting time to be in Sanmina. Please turn to Slide 15. Let's look at the revenue by end market for the first quarter 2026 for communication networks, cloud and AI infrastructure, that came in around 62% in total. Sanmina core business in this segment grew year-over-year approximately 20%. ZTE revenue came for our plan at the high end of our guidance in total of $1.964 billion. For industrial, energy, medical, defense and aerospace, automotive and transportation, that was 38% of our revenue or $1.226 billion. That was slightly down year-over-year, about 3%. The way I would review this segment is very consistent and stable. This is a heavy regulated market that we participate, and we focus on mission-critical and advanced technology products. and I'll talk more about it later on about the future by this segment. As you can see, Sanmina is well diversified within market leaders. Bookings continues to be solid, over 1% -- over 1 I should say, solid demand on existing business and strong pipeline of new projects. At this time, we're seeing very positive trends across the majority of our focused end markets. To tell you more about it, please turn to Slide 16. Now let me talk to you about -- more about end markets, the way we see it today. overall, it's a very positive trend for us as we look at the fiscal year '26 and beyond. For communication networks and cloud infrastructure, we are well positioned for growth in this segment. For Communications segment, we participate mainly in a high-density high-performance networks. We see strong demand for high-performance switches and enterprise storage. We're also growing and expanding our optical advanced packaging products business. We do high-performance network systems from 400, 800 gig, and we're starting to ship 1.6 terabytes. For cloud and AI infrastructure, we see a strong demand -- strong growth opportunities, and we are well positioned in cloud and AI end market. We expect strong -- we see a strong pipeline of new projects to drive the growth for second half of calendar year '26 and calendar year '27 and beyond. Now let me talk to you about industrial and energy. For industrial and energy, we have a great base of customers. We have strong demand for power products to support AI data centers and solid demand for safety and surveillance equipment. We see solid new projects in the pipeline to drive future growth. Industrial and Energy is the very strong segment for us. So let me tell you more about our expansion of new state-of-art factory in Houston, Texas for our energy business. Outlook for electricity demand is very positive. There are several areas for these power markets were [indiscernible] plays such as distribution, transmission and storage of electrical power. In Energy segments such as distribution, we're going to focus on medium voltage transformers. For transmission, we're going to focus on grid scale transformers. And for storage, storage battery storage systems. Here, we basically get involved in early stage of product design to full system and utilizing our vertical integration such as electronics, machining, fabrication, bus bars, et cetera. On this extension, I should say, of this energy business, we've been working for the last couple of years. So we made a decision to to basically grow this business because as I said earlier, the outlook for electricity demand is very positive. For these projects, we partnered with a company called Contra out of Europe, Croatia, to co-design custom medium voltage transformers for our customers plus other opportunities for U.S.A. market. We have a long-term commitment from our customer. This is a large industry-leading strategic customer for Sanmina. We're ramping up this facility right now, and we are planning to ship a few units in late 2026 and be ready for full production in calendar year 2027. It's exciting opportunity for our energy business and also for Sanmina. Let me tell you more about the medical Medical is well diversified within a market that we participate in. We're starting to see a recovery in this medical segment. We expect medical drug delivery devices to grow in fiscal year '26 and '27. An overall medical business for us, we see solid opportunities in pipeline. For defense and aerospace, we continue to see strong demand for the next few years. This segment continues to do well. We see strong opportunities in pipeline for next few years. For our more in transportation, this business for us, starting to become more stable. We do have a great customer base. And what we see for next year is that we have new programs that will drive that growth for us. So for industrial and energy, medical, defense, aerospace, automotive transportation, overall, we see solid opportunities in this segment. and we expect to see more growth in the second half of fiscal year 2026. Now please turn to Slide 17. Now let me tell you more about Sanmina T system AI business. I can tell you that we are executing to the plan. Integration is on track and is doing well. Good thing about this acquisition is it's immediately accretive to our EPS. ZT system margins is in line with our core Sanmina, as John told you. And most important, we do have strong management and technical team in place. So where do we go from here? We expect more growth in the second half of calendar year driven by new projects. As I said before, and we're saying this again, the goal is to double Samina revenue in the next 2 years. And what we see today, the AI opportunities are on track to deliver a $16-plus billion in our calendar year '27. We're also pursuing vertical integration opportunities for AR. As you see on this slide, on the right side of the slide, when we talk about full system integration for AI data center at the scale. So you can see all the way from design to the full system. Our capabilities for AI data center are industry-leading for components from components and liquid cooling racks to full system integration at scale. Please turn to Slide 18. Let me talk about our priorities. Number one, we are focused on our customers as we always did. The focus is to continue to broaden and deepen our customer partnership. And we are also adding new market-leading customers to our base. Number two, continue to focus on leadership in technology. Our technology is a competitive advantage in the high-technology markets. Our capabilities are in place from design to full system at scale, and we are planning to do more for the future. Number three, how to execute on ZT system opportunities. ZT systems is working on large opportunities for AI data center business, mainly new projects driven. Sanmina is well positioned. We are investing in AI data center and continue to expand capacity for the future requirements for fiscal year '27 and 28 in -- and of course, number 4 is to continue to drive profitable and sustainable growth. In Sanmina, we call this building big for the future, while staying through to our core values focusing the margin expansion, continue to diversify to higher and sustainable margin business. I can tell you that we are forecasting steady improvements in operating margin. Short term, we're forecasting 5.7% to 6% operating margin. And longer term, we expect to improve those margin from 6 to 7-plus percent. So overall, our strategy is to build bigger as stronger Sanmina for the future and always maximize shareholder value for our investors. Please turn to Slide 19. I -- in summary, we are focused on sustainable and profitable growth. As John mentioned, this is a great start to our fiscal year 2026. We expect core Sanmina to grow in the high single digits. -- and we expect strong demand from AR hardware in the second half of calendar year '26, '27 into 28, all driven by new platform, new technology projects. We have capacity and power requirements to support customer demand for present demand, but we are continuing to invest for the future. We focused on market diversification with higher margin opportunities. Our manufacturing footprint is well aligned with our customer requirements, and we do have strong U.S.A. presence. The key to our strategy, again, to continue remain focused on Sanmina's strategy and to be a partner of choice with the market leaders. So ladies and gentlemen, now I would like to thank you all for your time and support. Operator, we're now ready to open the lines for questions and answers, and thank you again. Operator: [Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America. Ruplu Bhattacharya: Can you help me parse through the sequential revenue guidance for the March quarter? Looks like revenues at the midpoint are guided up $60 million. If I think about it, ZT, you should have a full quarter of revenues, which is about $1.4 billion. That means that DT itself is contributing, say, $0.5 billion of incremental revenues 2 months versus 3 months in the March quarter. So is something weaker sequentially? Like any color you can give us on revenue from legacy Sanmina versus ZT non-accelerated versus T NVIDIA? How are you seeing the trends in those different buckets of revenue? Jure Sola: Okay. First of all, actually, our business is improving in the second quarter. So let me explain that. Yes, you're right. We only had 2 months I don't think it's -- you cannot take 2 months divided by 2 multiple by 3 because the transition of our business, this business is mainly all businesses being transitioned, and we're now strictly focus what we call base business that's going to stay with us. and the future business. So if you really look at it today from our perspective, we're only guiding 1 quarter at a time. But if -- but overall, if you look at the Street expectation, we feel comfortable with that. We're just guiding 1 quarter. For the first quarter, we should be more than a 3% expectation by approximately $100-plus million. So as we're guiding to $3.1 million to $3.4 million, Sanmina business itself, the core business will grow quarter-over-quarter and will grow double digits year-over-year, okay? And we expect ZT system to grow quarter-over-quarter. So overall, we expect a strong quarter. Most importantly, I think we are positioning the company for the new product, new platforms that are going to be coming up in the end of the fiscal year and calendar year and we're investing for that. So we're really excited about the future about that. So that's all I have to say, Jon, anything else you want to add to that? Jonathan Faust: I mean I think you covered it well, Jure, I mean First and foremost, just talking about the Q1 results, Ruplu, both parts of the business. Core Sanmina and ZT Systems performed well at the high end of the range. And we did provide specific guidance in that first quarter, but we're very pleased to see both parts of the business do well. And yes, just like Gary was saying, ZT Systems is effectively in line with our expectations. You go all the way back to May 19 what we said and pretty much everything we've said and committed about the business has been happening the way that we expected, including in Q1. So very excited about the future. The transition is taking place like we expect, and we're just focused on executing those new opportunities. Jure Sola: As you can add to that up, I think we have a lot of interest from existing customers and future customers what's going on. And as I said in my prepared statement, the most importantly, I think the more learn about site's management. I'm very comfortable, very excited with the team, what they can do. It's -- they're basically self-sufficient going forward. So we're excited, a great acquisition for Sanmina, and this will transform Sanmina. I mean there's no way we could get to in '27 without a potential that we have and the new platforms coming out. Ruplu Bhattacharya: Okay. I appreciate the details there. Can I ask a conceptual question about as I see the business, there are really 3 parts to the business, right? There's the non-accelerated part, which would be just non-GPU servers or racks. Then there's the accelerated part and there's some legacy NVIDIA business you would have. And then obviously, you're going to be ramping with AMD in the second half of the year, as you said. As we think about this total revenue, I think last quarter, we were talking about high $5 billion to $6 billion and the guidance implied something like $5.7 billion, does that $5.7 billion kind of factor in some decline in the NVIDIA part of the business whereas as you ramp AMD, you're going to be focused more on that, and so that will ramp. So any thoughts on how fast that transition can occur this year? Like do you think that you will % AMD in time for any offset to the NVIDIA business that might decline? Jonathan Faust: Yes. Good question, [indiscernible], this is Jon. So just to verify and a reminder for everyone, the -- back in May '19, we said when we closed the transaction, we'd expect the revenue run rate to be between $5 billion to $6 billion. right? So that was implying that we had a point of view on how that transition was going to occur with the accelerated compute component of the portfolio and they pretty much landed right in our expectations, right? You annualize our Q1 guide to 2 months and you get to $5.7 billion. But we're still going through that transition right now. And a lot of the old platforms at this point now have rolled off. So we're really just focused about the future. But that's why we wanted to be clear at the time we were just guiding the Q1 number that we did, and now we're guiding Q2. But the opportunity, like Jure was saying for accelerated compute specifically is is huge. And that's what we're focused on right now and doing our part of that to be able to execute on that demand and on that opportunity. And that really comes towards the end of our calendar -- at the end of calendar 2026. Jure Sola: Yes. If I can add to that, we really -- opportunities utilizing AMD partnership is huge for us and all the investments being made to be able to support future required. So Ruplu, I would just say is, you know us, we like to guide 1 quarter at a time. We feel very comfortable about our guidance. As you can see, we are increasing our earnings per share. This is the second quarter that we delivered 6%. I think we can expand margins, both on Sanmina side and ZT site in the future. Those are exciting things. and there's a lot of vertical integration opportunities that we're starting to kind of work on that. It's going to take some time. But in a year from now, we should be able -- that part of the business when it comes to vertical integration around the AI data center will improve. And then our core business around data center is doing really well. So we are -- we like what we have. As I said in my prepared only few businesses is that automotive was down, but it's getting stable, but everything else starting to move in the right direction. Ruplu Bhattacharya: Can I -- can I ask a clarification Jure, I know you're not guiding for the full year, but one thing you said in your prepared remarks is that when you look at consensus estimates, you're comfortable with that. If I look at incentives for 2026, right now, it's about $14 billion of revenue. And I think your last guidance for ZT was kind of in that high $5 billion to $6 billion range. Are you still comfortable? Is that the message today [indiscernible] Jure Sola: The message is -- if you look at the first call, we believe we have a very good chance of hitting $14 billion. Ruplu Bhattacharya: $14 billion okay. I understand. And then can I ask... Jure Sola: As much as I hate to tell you on a yearly basis, let me just put -- I'm personally more excited about some front of what opportunities we have today than in May when we did a deal and even a lot stronger than 90 days ago, a lot of work in front of us, but we're not afraid of work. Ruplu Bhattacharya: Right. If I can sneak one last one in. Jure, let's move beyond data center. If you look at the communications market, right, I mean from an optical and networking, how are you -- that market has been going through many years of inventory correction -- how do you see that recovering? What is happening? Can you give us what happened in the December quarter and how you see the March quarter in terms of the overall communications market, whether it's optical or networking or whatever the part you play in. Jure Sola: Yes, very strong. I mean, very strong today. I mean we have some material shortages out there around memory and some of the special ASIC customer ASIC but very strong demand, and we expect -- first of all, it was very strong in the December quarter. It will continue to be strong in March quarter. I think it will be very strong for the rest of the year. But Ruplu, 1 quarter at a time, but we're excited about the year and the future. Operator: Your next question comes from the line of Steven Fox from Fox Advisors. Steven Fox: I guess just off of all that, maybe you can tie that into the operating margin. It looks like the operating margin was a little bit better in the quarter. It looks like it could even be flattish this quarter. Can you talk about some of the things going on, puts and takes and why you're able to hang on to that like 6 handle maybe not only this quarter, but next quarter? And then I have a follow-up question. Jonathan Faust: Yes. Steve, this is Jon. So very pleased with the operating margin for the quarter. As I was saying in my prepared remarks, pretty consistent with where we exited last year in Q4. And it's largely dependent on mix. That was a big factor in our business. But it's also the same levers that we're always focused on, that we're talking about. So just to be clear and to reiterate that, but we're always looking to drive operational efficiencies within both of our businesses or within both of our segments, both IMS and CPS. Clearly, the addition of ZT it helped out as well. We're always looking for opportunities we're efficient with our SG&A cost structure, too. And we're really focused on growing those businesses that are accretive to the overall margin profile. Last year, Jure and I talked a lot about investments that we were making in CPS in particular, that would be margin accretive. And we're starting to see some of those investments coming online. So that created a little bit of short-term pressure in CPS in particular, but long term, the opportunity is there. So it's the same set of levers that we're always executing on, and that's what we're going to continue to do going forward. Jure Sola: [indiscernible], I can add to that. And investments that we are making, especially as you look at in the '26, '27 a year, it's a lot of it in the businesses that can deliver the higher margin. for us. So the key for us, that's why we feel -- of course, you've got to take one day at a time, one quarter at a time, but we are positioning company to really push for the higher-margin business, something that is sustainable, not just for 1 quarter, but is sustainable for many quarters. As you can see, our business is becoming more technology driven. It requires a higher return on investment to be able to make investments for the future. Steven Fox: And just to be clear, when we're talking about mix here, John, are we talking about mix of components, products and services or mix across served markets. Jonathan Faust: [indiscernible], I was referring more to across components, products and services, Steve. I think at the end of the day, I think the key important thing to remember here is that even with the acquisition of ZT Systems, our core strategy hasn't changed. What Sanmina wants to focus on. Clearly, that added to the overall IMS part of the portfolio. And that's great. It's essentially an extension of the TAM more broadly into the data center end market or as we call it the cloud and AI infrastructure end market. But the core strategy of always trying to get better on all the programs across all of our businesses hasn't changed and then also our focus on our cost structure and just growing CPS to be a bigger component of the overall mix. So core strategy hasn't changed, excited about and just on XT, they've been executing well, pretty much everything that we said back to May, we've executed on to date. And now we're focused, as Jure was saying, on all the opportunities we've got ahead of us in that business. Unknown Analyst: Got it. And then just as a follow-up, can you just help us a little bit more on the ZTE wins for later in the year? It sounds like you have confidence in these wins that you've won some substantial stuff -- but I'm wondering if you can give us color as to is it all accelerated computer-related legacy technology too. How would you sort of describe what and why you're winning that you have confidence in doing like $14 billion [indiscernible] $16 billion in [indiscernible] Jure Sola: I think number one, why we're winning is execution. This is a great team. They are known to execute. They have a very strong relationship with existing customers. And the way we are structuring for the future and the technologies that are coming out, these are very difficult systems. And I believe that we are positioned our customers believe that we're positioned to win. We still have to work on it and deliver opportunities [indiscernible] are there. I mean, opportunity is not an issue. I think it's all about timing and making sure that we do what we said we're going to do as we're making commitments to our customers. Anything else, Jon? Jonathan Faust: The only thing I would add to that, Steve and Ruplu talked about it earlier, but there's multiple components to the ZT business and all of them we're interested in and we're investing in accelerated compute is certainly the part of it that has the most growth potential, but we're focused on all aspects. Jure Sola: And I think what I would just to set, we don't talk too much about it, but I think we're able to there was a lot of talk. We're not going to be able to retain all customers. I think our team is doing a great job, and we have a high confidence that those customers will grow in the future, and we're going to be adding new customers to that. So from an opportunities point of view, that's not an issue. I think the demand for at least what we see today, what we hear from our customers, like I said, there's a lot of opportunity. We are investing for the future. As you just heard from John earlier, we spent, what, over $85 million last quarter $87 million, and we're going to be spending around 90 plus. And that's all for future. That's -- 90% of that is really for '27 or '28. Operator: [Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti. Anja Soderstrom: So within Industrial Medical, our understands where -- what was the pocket of weakness there to [indiscernible] Jure Sola: Well, I think as I said in my prepared statements, I think we had some weakness in the last couple of quarters in automotive, transportation, part of the way we measure it. They're starting to stabilize, and it's mainly driven with some of the new programs that are coming that we won. And so I would say that business is going to be a short-term stable, but the longer term, I think, will start recovering. Medical is starting to recover pretty nicely. We're pretty well diversified there. Defense and Aerospace, it's pretty stable. It's all about these are long-term programs and just that sometimes they don't move as fast, but the demand for those are solid Industrial, I just talked about earlier, that's a very good market for us. We talked about expansion down in Houston, Texas. We do have orders and the books already for what we call medium voltage transformers that we codesign with the Croatian European company. We're very excited about that. Actually, customer wants the product today. So overall, that segment, we expect it to grow more growth in the second half of our fiscal year, calendar year. Anja Soderstrom: Okay. And did you say you expected that to grow sequentially in the second quarter? Jure Sola: Yes, we're going to see some growth in the second quarter, but we'll see more growth in the second half of of our fiscal year '26. Anja Soderstrom: And then in terms of the cash cycle days, you said there were some things going on in this quarter that drove that up. Do you think we'll see a drop in the second quarter? Or is that going to be taking some time to get that down? Jure Sola: Yes. What I was referring to there, Anja, is that whether it's our -- I was talking primarily in my prepared remarks about inventory turns. And in that calculation, you've got the full amount of inventory that came over from but only 2 months of the cost of goods sold. So it somewhat distorts the calculation. Same thing applies for the cash conversion cycle, but that also applies to revenue as well. So I think we'll be a little bit better. But all in all, we're pleased with performance of the business on that front. And it's per our expectations. As I mentioned for core Sanmina, we drove improvement on inventory turns, and that's been the big area that we've been focused on for the last couple of years. So we continue to do well on that front, but more work to be done. In ZTE, once we've got a full quarter in there, I think you'll get a more realistic view of inventory turns, cash conversion cycle. But as always in our business, that's always going to be an area of focus of where can we optimize, how can we do better? Operator: There are no further questions at this time. I would like to turn the call back to Jure Sola for closing comments. Sir, please go ahead. Jure Sola: Well, ladies and gentlemen, again, thank you for your time you spent with us today. Hopefully, we answered most of your questions. If not, please contact us and looking forward to talking to you, if not in the near term, 90 days from now. Thanks a lot. Bye-bye. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
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