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Operator: Greetings. Welcome to inTEST Corporation's fourth quarter 2025 financial results conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note that today's conference is being recorded. At this time, I will now turn the conference over to Sanjay Hurry, Investor Relations. Please go ahead, Sanjay. Sanjay Hurry: Good morning, everyone, and thank you for joining us. With me on the call are Nick Grant, President and Chief Executive Officer, and Duncan Gilmour, Chief Financial Officer and Treasurer. The earnings press release was issued this morning as well as the slides that management will use during this call. Both can be found in the Investor Relations section of the intest.com website. Please turn to slide two for a review of the safe harbor statement. During this call, management will make some forward-looking statements about our current plans, beliefs, and expectations. These statements apply to future events that are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from what is stated here today. These risks, uncertainties, and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Also, as covered in slide three, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating the company's performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides. With that, I will turn the call over to Nick. Good morning, Nick. Nick Grant: Good morning, Sanjay, and thank you. Good morning, everyone. Thanks for joining us on our fourth quarter and year-end 2025 earnings call. We will begin today's discussion on slide four of the presentation. Our fourth quarter results represent a strong finish to a challenging year. Much of this challenge stemmed from customer hesitation to spend on capital projects driven by tariff and macroeconomic uncertainties as well as ongoing soft demand in our semi business. After seeing some pockets of customers move forward, with capital projects in the third quarter, we continue to see strong demand in the fourth quarter as our orders once again exceeded $37 million. As a result, we delivered revenue of $32.8 million that was above our guidance range, and we ended the year with a healthy year-end backlog of $53.9 million, representing a 36% increase over year-end 2024. I want to personally thank the entire inTEST Corporation team for their hard work and steadfast dedication. Revenue for the fourth quarter was at the highest quarterly level for the year, which benefited from approximately $2 million related to orders that slipped out from the third quarter. Demonstrating the effectiveness of our diversification strategy, fourth quarter revenue reflected strength in industrial, defense and aerospace, and life sciences end markets. In addition, growing market acceptance of our new products introduced over the past several quarters, particularly from Alphamation and from Archaeologic, contributed meaningfully to the top line and progressed us towards our Vision 2030 target of generating 25% of revenue from new products. During the fourth quarter, we benefited from the cost actions taken across the businesses throughout the year. We continue to execute manufacturing efficiency initiatives and further scaled our Malaysia operation to support customers in the region. Our efforts were further complemented by growing customer adoption of new products that drove incremental revenue and a margin lift. Through effective execution of our diversification strategy, we delivered gross margins of 45.4%. Notably, this was achieved without a significant contribution from our semi business, historically one of our highest margin end markets. Revenue diversification and new product innovation are two key pillars of our Vision 2030 growth strategy. With nearly 80% of fourth quarter revenue derived from non-semi end markets and momentum in new product sales contributing to revenue and gross margin, we believe our strategy is working. Market diversification is creating broader order opportunities for us and fertile ground for new product adoption, while our innovative new products are resonating with customers and earning their place in their purchasing decisions. With that context in place, let's go deeper on orders and backlog for the fourth quarter on slide five. After deferring spending plans due to tariffs and macroeconomic uncertainties in the first half of the year, we continue to see customers move away from a wait-and-see mode in the fourth quarter as they recognized that the cost of delay increasingly outweighed perceived market risk. The momentum in our order book demonstrated demand engineered through deliberate end-market focus. This strategy enables us to expand our addressable market and diversification into higher growth, less semi-correlated verticals. In fact, over the past five years, our non-semi revenues have grown at approximately a 20% CAGR, which is something we are quite proud of. Equally important, the momentum in our order book also reflects customer adoption in end markets where we are still in the early stages of penetration. During the fourth quarter, we saw continued strength in our life sciences orders as they tripled sequentially, reflecting strong bookings for new alkylation products. Encouragingly, semi orders were up about 18% sequentially as some customers began to move forward with plans to provision new test facilities, a trend that builds on the modest order growth recorded between the second and third quarters. Year over year, Q4 orders were up 22%, an increase of $800,000 versus Q4 2024. This improvement was broad based with strength in auto EV, life sciences, defense and aerospace, and safety and security, partially offset by continued softness in semi. On a full-year basis, life sciences orders were up 137% year over year, auto EV orders were up 89%, and industrial was up 53%. Touching on our semi business, year-over-year orders were down from a year-ago period and represented about 25% of total orders this past Q4, compared to 40% for 2024. This is a compelling testament to our deliberate market diversification strategy succeeding in lessening our exposure to the cyclicality of the semi business. We ended the year with a healthy backlog of $53.9 million, up 9% sequentially and 36% year over year. Backlog bottomed in 2025 and has steadily improved since. Approximately 60% of our backlog is expected to ship beyond 2026, providing forward visibility into the year. With a higher and more diversified backlog exiting 2025, we are in a solid position for recovering growth in 2026. With that, I will turn it over to Duncan to walk through the financial results in detail, starting with revenue on slide six. Duncan, over to you. Duncan Gilmour: Thank you, Nick. Starting on slide six, revenue in Q4 increased $6.6 million, or 25%, from $26.2 million in Q3 to $32.8 million, reflecting a gradual improvement in the capital spending environment and momentum in new product sales as well as about $2 million of revenue that slipped out of Q3. Sales in Industrial accounted for $3.3 million of the increase, followed by Defense and Aerospace at $3.2 million, Life Sciences at $2.1 million, and Auto EV at about $1 million. Partially offsetting these increases was a $2.9 million decline in semi. Compared to Q4 2024, revenue declined by $3.8 million, reflecting lower Auto EV, Semi, and Safety and Security revenue totaling $11.7 million. It was partially offset by increases in Industrial, Life Sciences, and Defense and Aerospace totaling $7.9 million. Although demand trends in 2025 dampened volume and revenue, roughly three quarters of the nearly $17 million decline between our 2024 revenue and our 2025 revenue was directly attributable to semiconductor market weakness. The remainder reflected a slower-than-anticipated capital spending recovery in our non-semiconductor end markets. Moving to slide seven. Gross margin expanded 350 basis points sequentially from 41.9% in Q3 2025 to 45.4% in Q4 2025. This improvement was driven by volume gains and higher sales of new Alphamation products, which provided a lift to consolidated gross margin as these differentiated, innovative solutions carry higher margin profiles relative to our legacy product portfolio. Notably, as Nick previously mentioned, we achieved Q4's gross margin level without a significant contribution from Semi. On a year-over-year basis, fourth quarter gross margin expanded by 570 basis points. The expansion was driven by the lapping of a $1.6 million one-time acquisition-related inventory step-up charge that pushed the Q4 2024 margin down 430 basis points, and the remaining 140 basis point increase reflected improved operating leverage because of cost reduction and manufacturing efficiency initiatives implemented throughout 2025. It also reflects a favorable product mix shift toward higher margin Alphamation products. On a full-year basis, normalizing for the 120 basis point full-year impact of the inventory step-up, full-year 2025 gross margin of 43% reflected a modest underlying decline versus the prior year, driven primarily by lower revenue volume in our Semi end market that reduced our ability to spread fixed manufacturing costs across a larger revenue base. Moving on to slide eight. Operating expenses for the fourth quarter were $13.6 million, an increase of $1.4 million sequentially, driven primarily by higher sales commissions and marketing activity commensurate with the higher levels of revenue in the quarter. We generated $6.6 million in incremental revenue while absorbing only $1.4 million in incremental operating expenses, which resulted in a reduction in operating expenses as a percentage of revenue to 41.5%. This reduction is the operating leverage profile we expect to see as revenue scales, and it reinforces our confidence that the cost discipline we have maintained throughout this cycle positions inTEST Corporation to expand margins as market conditions continue to improve. Fourth quarter 2025 operating expenses increased $1.2 million year over year, rising from $12.5 million in Q4 2024 to $13.6 million in Q4 2025. The comparison includes a nonrecurring $800,000 amortization credit recorded in Q4 2024 tied to the finalization of Alphamation purchase accounting, while Q4 2025 absorbed $200,000 of restructuring charges. Stripping out these nonrecurring and acquisition-related items, underlying operating expenses remained effectively flat year over year. Slides nine and ten collectively illustrate our Q4 profitability. Starting with slide nine, for the fourth quarter, net income was $1.2 million. Adjusted EBITDA was $3.2 million, representing an adjusted EBITDA margin of 9.7%. You can see here the improvements in adjusted EBITDA for Q4 2025 from the Q3 2025 trough of $400,000 at a 1.5% margin. This demonstrates our operational leverage as revenue recovers. For the full year 2025, net loss was $2.5 million. Adjusted EBITDA was $4.0 million, representing an adjusted EBITDA margin of 3.5%, compared to $10.8 million and an 8.3% margin in full year 2024. On slide 10, on a per-share basis, net income was $0.10 per diluted share. Adjusted EPS, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was $0.16 per diluted share. For the full year 2025, net loss was $0.21 per share. Adjusted net income, which adds back tax-affected acquired intangible amortization charges and restructuring charges, was $800,000, or $0.06 adjusted EPS. This compares to an adjusted EPS of $0.51 in the prior year. Slide 11 shows our capital structure and cash flow. We reduced debt by $1.4 million in Q4 and by $7.6 million in 2025. Total debt outstanding at the end of the year was $7.5 million. We ended the year with approximately $58 million in liquidity, including cash, cash equivalents, and restricted cash of $18.1 million. We also maintain full access to our $30 million delayed draw term loan facility and our $10 million revolver. Our ability to generate cash and maintain substantial liquidity even in a challenging macroeconomic environment positions us well to scale the business and achieve our Vision 2030 goals. With respect to the waiver on our term loan entered into last August, we expect to return to full compliance with our original covenant terms by midyear, with no anticipated impact on interest expense or reported profitability. Turning to slide 12 and our 2026 guidance. We entered the year with a healthy backlog, 60% of which we expect to ship after the first quarter. Combined with positive indications of a gradual broadening recovery in capital spending that began to take shape in 2025, we expect 2026 will be a year of returning growth. As a result, we are comfortable resuming our practice of offering guidance for the full year 2026 as well as the first quarter of the year. Against this backdrop—strong backlog, improving demand, a leaner cost structure, and growing new product contributions—we are well positioned for profitable growth throughout 2026. For Q1 2026, we project revenue of $31 million to $33 million, gross margin of approximately 44%—this is a step down from the 45.4% we delivered in Q4, primarily reflecting expected Q1 product and customer mix versus Q4's particularly favorable Alphamation contribution—operating expenses of $13.3 million to $13.7 million, Q1 operating expenses reflect the typical first-quarter annual compensation resets, and amortization of $800,000. Before walking through the specifics of our full-year guidance, I note that our guidance does not contemplate any material impact, positive or negative, from changes in tariff policy or the broader geopolitical environment. For the full year 2026, we project revenue of $125 million to $130 million. At the midpoint, this represents growth of approximately 12% over 2025, or $113.8 million. This guidance reflects the diversified demand, particularly in Industrial, Aerospace and Defense, Auto EV, and Life Sciences, supported by our growing backlog, but does not contemplate a meaningful rebound in Semi sales; gross margin of approximately 45%—this reflects the combination of higher volume, the capture of continued manufacturing efficiency, and the expanding contribution of new higher-margin products; and operating expenses of $53 million to $55 million, reflecting higher variable selling costs, amortization of $2.6 million, and interest expense of approximately $300,000, with an effective tax rate of approximately 18%. We expect amortization expenses to be higher in the first half of the year than in the second half as certain intangible assets reach the end of their amortization lives. And finally, we expect capital expenditures of 1% to 2% of revenue, consistent with our historical investment levels. With that, if you turn to slide 13, I will now turn the call back over to Nick. Nick Grant: Thanks, Duncan. In summary, the momentum we are seeing across new product and market diversification and geographic reach is the direct result of a deliberate strategy and disciplined execution. Our non-semiconductor business has grown meaningfully, improving inTEST Corporation's long-term earnings profile with less dependency on semi cyclicality. The establishment of our Malaysia manufacturing hub in 2023 and expanded European footprint due to the acquisition of Alphamation in 2024 positions us to better serve customers. They also enable us to deepen relationships in these regions that represent significant long-term opportunities. In addition, our operational excellence initiatives, which are a contributor to our margin improvement story, give us confidence that as conditions improve and we scale the business, we will realize greater operating leverage inherent in our business model. New product revenue contribution is trending in the right direction, reinforcing our confidence that we are on pace towards our Vision 2030 goal of generating 25% of revenue from new product sales. In Southeast Asia, in Europe, and in the U.S., a local presence enables the engineering collaboration that drives higher-value, long-cycle relationships. And increasingly, it is our new products themselves that are opening doors to customers who are discovering us for the first time and to others who are rediscovering inTEST Corporation. We enter 2026 well positioned for diversified growth as capital spending strengthens, with an expanding portfolio of highly valued engineered solutions, a growing in-region presence across key geographies, and a strong balance sheet. We are poised to translate the structural changes we have made to inTEST Corporation over the past two years into sustainable, profitable growth for our shareholders. With that, operator, please open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question at this time, you may press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Maxwell Michaelis with Lake Street Capital Markets. Please proceed with your question. Maxwell Michaelis: Hey, guys. Congratulations on the good quarter and the solid guide for 2026. First question is just around the semi space here. I was hoping you can elaborate a little bit. You talked about modest growth picking up in the back half of 2026. A lot of the companies that I am following have been talking about sort of a strong order rebound in the back half of 2026. Is your language in the press release sort of just a case of you guys being ultra conservative? Or, I mean, what else can you guys kind of provide us around the semi space? Nick Grant: Yeah. Hey. Hey, Max, and great to hear from you here. As we laid out, our guidance we provided there really is based on just modest recovery in semi, which, yeah, could be conservative. Semi certainly has come back strong historically and, you know, if we look at trends and what have you, I believe we are well positioned to capture that when and if it does happen again. But we just wanted to make sure we are providing the guidance we are confident we are able to achieve. Maxwell Michaelis: Okay. And then maybe we go back to last quarter, you talked about the 2027 automotive program. How is that progressing as we enter 2026 here? And then can you kind of touch on how we should expect auto orders to trend throughout the year? Nick Grant: Yeah. So auto has been a nice bright spot on our order pattern here the last couple quarters. We really did see customers start moving forward with some 2027 model year programs, making the investments in Q3, they continued to kick off more of those capacity additions in Q4 there. So we believe we are well positioned from an auto perspective with Alphamation to support these new model year programs. And, you know, across the board, I would say auto demand has not taken off or what have you. Inventories have been worked down. Mhmm. But, you know, I think we are well positioned now that as that demand comes back, these new model programs come out and create greater demand around the new tech in the cars and everything else. You know? That is only going to complement this kind of wave of buildout that we are seeing right now. Maxwell Michaelis: Great. Last one for me, guys. Life sciences has really taken off here. I mean, is there anything else you can share? I mean, pockets of strength that you are seeing in life sciences that is really driving this solid growth in orders and revenue? Nick Grant: Yeah. No. Life science is a bright spot for sure. And this really concentrated effort we have made to go after the med tech space, testing various technology in this area, and, you know, it is really broader across all the businesses, had really nice success with Alphamation diversifying them in the med tech space with some glucometer electronic testing. We did a press release on that in the second half last year and continue to see good momentum there. We have been winning applications at our Archaeologic group around med tech and, you know, even in process technology. We are gaining applications there around induction heating and imaging in the med tech area. So really pleased with the progress. It is one of the areas that we highlighted as, you know, still a low-penetration area for us, so we think it will be a good growth avenue for us. Maxwell Michaelis: Alrighty. Thanks, guys. Nick Grant: Thanks, Max. Operator: Our next question is from the line of Dick Ryan with Oak Ridge. Please proceed with your questions. Dick Ryan: Thank you. And also good job on a strong finish, guys. I have a—I want to go back to the semi side. If we can talk a little bit about the back end and your front end, and maybe it focuses more on the positioning, you know, up and down the line, semicap is talking about a strong WFE for this year. Your back end, you know, typically is kind of lagged back as back end test is a little bit out of sync with what happens in the front end. But nonetheless, you know, you brought automation into the back end. And how do you think you are positioned on your back end test with some of the new products you have rolled out, the automation? Nick Grant: Yeah. Very well positioned in that back end test space, not only from our traditional EMS business, but also on our thermal solutions supporting testing of chips and electronics back there. So, yeah, you are right. A lot of companies are out there talking about it, and we are well positioned to capture that growth as it materializes out there. And the new products we have been launching really have broadened our customer base, win back some competitive accounts. So I believe, you know, when that comes back, we are in a better position to benefit from the growth as the investments in these testing spaces take off. Dick Ryan: Okay. And probably more importantly, I am more interested maybe on the front end. You know, the comments coming out of the silicon carbide space is pretty encouraging. You know, one of the players saying that after the downfall, they are looking for a ramp in '26 with getting back to the '24 levels by '27. I mean, you guys generated, you know, a lot of revenue in that silicon carbide space in the payday '23, '24. How are you positioned there? And would you also, you know, kind of echo those comments that you are—you may be seeing some growth come back in, not necessarily '26, but '27 and beyond? Nick Grant: Yeah. We are very well positioned in that space. You know, we are really serving a number of players in the silicon carbide, gallium nitride space, not only on the crystal growth, but on the epitaxy side of things as well. And as those—we have been talking about it—as these technologies get adopted into new applications. You know, Duncan Gilmour: No. Agreed. As we said, modest increases in Semi baked in. The front end side has been slow. We think the outlook looks great, but we are really not banking on a great deal in 2026. Dick Ryan: Oh, that is encouraging. Good. Alright. Thanks, guys. Nick Grant: Thanks, Dick. Operator: The next question is from the line of Ted Jackson with Northland Securities. Please proceed with your question. Ted Jackson: Congrats on the quarter. So, Nick, Duncan, my first question, I want to jump over on gross margins and guidance and kind of just thinking it through. So, you know, you put up some—you showed improving margin as you have been putting a lot of in your business, and you are clearly scaling, and it is non-semi. And so, you know, like, if you look at your Semi—and Semi is your higher margin business—revenue, in prior periods, in some historical periods, you know, when you were hitting some of these revenue targets, your gross margin was actually, you know, not the—you know, almost close to 50%. And so my first question is, is the lack of Semi keeping you from getting to that? And then behind that is, you know, given that the margin is probably, you know, substantially better than it might have been, you know, for the non-Semi business, if Semi does tick around and turn, could we be seeing your margins through that next cycle, you know, not only, you know, retrace back to those, you know, kinda close to 50% margin levels, but maybe even exceed it? Duncan Gilmour: I think a lot of your observations are correct. We had a nice strong Q4 from a margin perspective, some favorable product mix within some of our businesses, so product lines within Alphamation in particular. The Semi contribution was low, as we have indicated, yet we still had a nice gross margin quarter. We do not have, as we said, tremendous growth baked into Semi. Our back end Semi in particular is where we command higher margins, so it is correct to assert that if that comes back in a strong fashion at some point, then we would expect margin to tick up. Whether it would tick up to the 50s, I think some of those 50s were when the business was much less diversified and much more dependent upon that business and smaller. But we would certainly expect positive margin contribution as and when back end Semi in particular bounces back up. So, I mean, summary, I would say almost yes, yes, and yes to what you have said. Albeit 50 would be probably spectacular. I am not going to say unachievable, but would require a high percentage of that back end Semi contribution. Ted Jackson: Okay. And then, going kinda into guide, and I am going to keep with this theme, is, you know, the guide you provided shows some, you know, nice solid year-over-year growth. Can you talk a bit about the cadence? Is it the kind of thing where we will see—you have given first-quarter guidance—that we will see continued sequential improvement as we roll through the year? Will there be any type of seasonality within it? And then going back into the revenue guidance, if it is going to be building over the year, and then the back half of the year is going to have more contribution from Semi, should we be thinking of, you know, a bit more of a step up in terms of margin improvement in 2026 vis-à-vis the first? Duncan Gilmour: Yeah. So we are cautiously optimistic about 2026. As we have mentioned, we have not built in a tremendous amount of Semi upside, and I think that is reflected in the guide vis-à-vis what we saw in Q4, what we are laying out for Q1. Q4 was—if we back out the $2 million of delayed shipments—we did see growth over Q3. We are projecting a similar quarter in Q1, a little bit of growth. And I would say we are expecting cautious sequential growth throughout the year with respect to our cautiously optimistic guide, if that is the best way to put it. As we mentioned a couple of times, if there was a really strong recovery in Semi in particular, we would expect to see the benefits of that. Just a reminder, our back end Semi business is squarely in the analog mixed-signal space, which is an area that I think a lot of people are cautiously optimistic about and seeing some green shoots of recovery. We have not seen the turn yet. Ted Jackson: Just—okay. Next question. You know, we are well into the first quarter. You have had two quarters in a row now of really nice bookings. Can you give us a little color in terms of what you are seeing with regards to bookings activity, you know, quarter to date and, you know, both in terms of momentum and maybe in terms of sector? Nick Grant: Yeah. So as noted, we have had really two strong quarters of bookings, and, let us say, really fueled by our automotive exposure at Alphamation on these 2027 model year programs. Our overall funnel is healthy, and, you know, but I would expect Alphamation's order rate to kind of moderate back a little bit. They have been running at, you know, $12–13 million the last two quarters. That business was, you know, in the $25 million when we bought it, kind of run rate there. So really strong quarters. I think, you know, they are going to continue to see nice booking levels, but more traditional for that kind of business. We also, in Q1, have a little bit of the Lunar New Year kind of impact on some activities out of Asia there. But slower. But for the most part, the funnels are healthy, and the opportunities are there. If customers move forward with spending as we believe they will here, you know, orders—we are well positioned to deliver on the year we have laid out. Ted Jackson: Okay. And then my last question is, you know, you come through a rough patch. It is just more because I have seen it with, you know, several companies I cover because it seems like everybody has been going through a rough patch. When you have laid out your guidance for OpEx, I mean, are you—I assume you guys have really dialed back on a lot of incentive comp over the last year. Are you factoring in your guidance into kind of a reinstatement of, you know, basically more variable comp and incentive, or is there another chance that if you, you know, kind of roll in and say you do better than this, you know, optimistic conservative guidance that we would see expense structure—excuse me—expense structure adjustment as you have to layer in and stuff? My last question. Duncan Gilmour: Yes. Yes, we have. And obviously, if we did a lot better than laid out, then there would be an operating expense impact from an incentive comp standpoint, reflective of the dynamic you are talking about. But yes, we have factored in the incentive comp side of the numbers that we have laid out with respect to the spending guidelines. Ted Jackson: Okay. Alright. Great. Thanks for the time, and, you know, congrats on the quarter and looking forward to 2026. Nick Grant: Same here, Ted. Thanks. Operator: At this time, if you would like to ask a question, you may press star 1 from your telephone keypad. Once again, if you would like to ask a question, you can press star 1 at this time. Thank you. At this time, I will turn the floor back to Nick for closing comments. Nick Grant: Thank you. We appreciate everyone joining us today. Thank you for your time and we welcome the opportunity to answer any additional questions you may have. Please reach out to our Investor Relations team to coordinate. On slide 14, please note the details regarding the replay of this call as well as our upcoming investor event schedule. We will publicize additional conference attendance as they arise via press release advisories and on our website. I want to thank everyone again for participating today, and I wish you all a great day. Thanks, everyone. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the RLJ Lodging Trust Fourth Quarter 2025 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance during the conference, I would now like to turn the call over to John Paul Austin, Director of Investor Relations. Please go ahead. John Paul Austin: Thank you, operator. Good morning, and welcome to RLJ Lodging Trust 2025 fourth quarter and full year earnings call. On today's call, Leslie D. Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, Chief Financial Officer, will discuss the company's financial results. Thomas J. Bardenett, our Chief Operating Officer, will also be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what has been communicated. Factors that may impact the results of the company can be found in the company's 10-K and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information which includes pro forma operating results for our current hotel portfolio for 2025. I will now turn the call over to Leslie. Leslie D. Hale: Thanks, John Paul. Good morning, everyone, and thank you for joining us today. We were pleased with our solid fourth quarter results which came in ahead of our expectations. Despite a choppy operating environment that was further constrained by the protracted government shutdown, our operating results benefited from the continued outperformance of the ramp of our completed high-occupancy renovations, as well as our robust growth in non-rooms revenue. These factors combined with disciplined cost management contributed to our better-than-expected bottom line results. The fourth quarter capped a highly productive year for us during which we delivered our Nashville conversion and continued ramping our completed conversions, which on average achieved RevPAR growth that was nearly 700 basis points ahead of our broader portfolio. We advanced the next phase of our pipeline, including the selection of the brand for our Boston conversion. We completed transformative renovations of several hotels in high-demand markets. We achieved robust non-room revenues well in excess of our RevPAR performance, validating investments in our ROI initiatives. We strengthened our balance sheet by addressing all of our near-term debt. We executed on opportunistic asset sales at accretive multiples and returned significant capital to shareholders in the form of dividends and share repurchases. The execution of these initiatives has strengthened our long-term growth profile and further bolstered confidence in our ability to deliver on our value creation initiatives even in an uncertain environment. With respect to our operating performance, our fourth quarter RevPAR decline of 1.5% came in better than what we had anticipated in the midst of the government shutdown. These improved top line results were driven by the relative outperformance of our urban markets, a stronger-than-expected acceleration of the ramp at our major renovations as the shutdown ended, as well as an overall stronger December which benefited from positive leisure demand despite a difficult year-over-year comparison for the month. Our urban hotels continue to be a key driver of our performance as they captured positive trends across a broad range of demand sources this quarter. Among our urban markets, San Francisco CBD was once again the top performer, achieving 52% RevPAR growth in the quarter, supported by growth from all demand segments, as well as the calendar shift for the Dreamforce conference into the fourth quarter. We are encouraged by the ongoing momentum in San Francisco's recovery, supported by a thriving tech economy, improving perception of the overall local environment, and a strong lineup of events this year, including the recent Super Bowl, which was wildly successful, as well as the upcoming World Cup games. From a segmentation standpoint, our non-government-related business transient revenues grew by 5% during the quarter, and with our highest-rated customer demand segment continuing to grow, corporate rates were up a solid 2%. Overall, non-government business travel demand continues to benefit from the resiliency of the economy and healthy corporate profits, especially in sectors such as tech, finance, and consulting, which continue to see positive momentum in return-to-office trends. However, government business demand was further impacted during the quarter by the shutdown, primarily affecting our DC and Southern California markets. Relative to group, our revenues were down 3% as in-the-quarter-for-the-quarter demand was artificially impacted by the shutdown in October and November. However, group dynamics remain strong as evidenced by the growth in our group ADR of 4% despite the soft demand. Regarding leisure, trends remain stable, and we were encouraged to see demand increase a healthy 1% during the quarter, although we continue to observe some price sensitivity among consumers. Our urban leisure once again saw stronger relative performance, achieving revenue growth ahead of our portfolio driven by strong demand around the holidays. Our leisure segment also benefited from our recently renovated hotel in Waikiki and Deerfield Beach, which achieved RevPAR growth of 12% and 10%, respectively, in December as they resume their ramp following the end of the government shutdown. Despite softer occupancy in the quarter, we achieved strong non-room revenue growth of 7.2%, exceeding our RevPAR performance by nearly 900 basis points, allowing us to generate positive total revenue growth. These results validate our strategy to drive high-margin out-of-room spend and underscore the success of our ROI initiatives aimed at growing profitable food and beverage, reconcepting underutilized space, and growing other ancillary revenues. Overall, better-than-expected RevPAR performance aided by contributions from the ramp of our completed conversions and renovations, robust non-room revenue growth, and continued disciplined cost containment drove much of the EBITDA upside relative to our expectations. Turning to capital allocation, we made significant progress on a number of fronts during the fourth quarter. We continue to ramp our completed conversions with our four most recently completed conversions achieving 15% RevPAR growth for the full year. We completed transformative renovations at our high-occupancy hotels in Waikiki and Deerfield Beach and are already seeing positive trends with both assets generating RevPAR growth of more than 10% in December. We made further progress towards our conversion of the Renaissance Pittsburgh and expect to relaunch this asset as part of Marriott’s Autograph Collection this year, and we advanced the programming of our Wyndham Boston Beacon Hill conversion to Hilton’s Tapestry Collection with construction slated to commence later this year. We remain on pace to deliver an average of two conversions per year and look forward to announcing our next conversion later this year. Additionally, during the quarter, we executed on the opportunistic sale of two hotels at accretive multiples and used the proceeds to pay down debt. Subsequent to the quarter, we completed a series of refinancing transactions which addressed all of our debt maturities through 2028. Our strong balance sheet and liquidity continue to support the optionality that we have. With respect to capital allocation, this year, we returned $120 million to our shareholders through share repurchases and a well-covered dividend. Now looking ahead, we are cautiously optimistic overall. While we acknowledge the lingering geopolitical uncertainty, we remain constructive on the setup of the broader economy given the tailwinds expected from moderating interest rates and tax cuts, which should have positive implications for travel demand. Relative to this setup, the lodging industry is expected to achieve slightly positive RevPAR growth this year driven by the ongoing positive momentum in non-government-related business travel, increased leisure demand, especially urban leisure demand, from several unique events, particularly the World Cup games, plus the 250th anniversary of America, in addition to healthy group demand. We believe that these trends will disproportionately favor urban markets, allowing them to continue to outperform the broader industry. Against this backdrop, we believe we are well positioned given our favorable geographic exposure, urban footprint, and high-impact capital investments, which should allow us to benefit from the broad-based growth across all the segments that urban markets are capturing; a favorable footprint with a number of World Cup games across nine of our markets, including prominent games in New York, Los Angeles, and Miami; the 250th anniversary of America with large-scale related events in the Boston, New York, DC, and Philadelphia markets; the favorable rotation of more major sporting events including the NFL Draft, the Major League Baseball All-Star Game, and the NCAA March Madness; a healthy group pace and strong group pricing, particularly in the second quarter, supported by these events; continued growth of non-room revenues driven by our successful ROI initiatives; the ongoing momentum in our Northern California market supported by the rapid growth of the AI industry that is stimulating business travel, events, and corporate investment; and the tailwinds from the ramp of our completed conversions and high-occupancy renovations. In aggregate, these tangible catalysts and the resiliency of our urban-centric portfolio underpin our positioning for this year. Our strong relevant positioning is further supported by our flexible balance sheet, which will allow us to execute on our key investments. Overall, we remain confident in the long-term outlook for the lodging sector, especially against an elongated period of limited new supply, which will disproportionately benefit urban markets, allowing our urban-centric portfolio combined with our value-creating initiatives to drive shareholder returns long term. With that, I will turn the call over to Nikhil. Thanks, Leslie. Nikhil Bhalla: To start, our comparable numbers include our 92 hotels owned at the end of the fourth quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold hotels during RLJ Lodging Trust’s ownership period. As Leslie noted, our fourth quarter results came in ahead of our expectations. Fourth quarter occupancy was 68.7%, average daily rate was $199, and RevPAR was $137, which translated to a 1.5% RevPAR contraction versus the prior year comprised of a 0.9% decline in occupancy and a 0.7% decline in ADR. The government shutdown weighed on our results in both October and November, which are seasonally the highest contributors during the fourth quarter, and December faced a uniquely difficult comparison from the prior year. Our urban markets outperformed our portfolio by approximately half a point, benefiting from robust growth in markets such as Northern California, Denver CBD, and New York City, achieving 18.5%, 10.1%, and 4.7% RevPAR growth, respectively. We were especially pleased with our non-room revenues growing by 7.2% over the fourth quarter of last year, which led our total revenues to grow by 0.2%, driven by solid growth in F&B, parking, and other revenues. With respect to expenses, total operating costs were up only 0.8% during the quarter and up 1.6% for the full year. Our fixed expenses during the quarter benefited from a favorable insurance renewal as well as $4.7 million in real estate tax benefits as a result of our successful appeals, which were not contemplated in our outlook. Excluding these tax benefits, our total expenses increased only 2.1% for the full year, reflecting the benefits of our lean operating model as well as relentless focus on enhancing productivity and managing expenses. Our ability to manage costs in a soft RevPAR environment allowed us to achieve fourth quarter comparable hotel EBITDA of $87.8 million and hotel EBITDA margins of 27%, which was only 44 basis points behind last year. This translated to adjusted EBITDA of $80.4 million and adjusted FFO per diluted share of $0.32 for the fourth quarter. Our team continues to work diligently to execute cost containment initiatives to minimize operating cost growth in response to the current environment. We continue to actively manage our balance sheet to create additional flexibility. During 2025 we proactively addressed all of our near-term debt maturities. Subsequent to the year, we executed four financing transactions which addressed our debt maturities through 2028 and expanded our capacity. These included the recasting of our $600 million revolver to extend maturity to 2031, upsizing and extending our existing $225 million term loan, the addition of a new $150 million term loan, and refinancing of our two mortgage loans maturing in April. The term loans created approximately $500 million of new capacity we intend to use under delayed draws to pay off $500 million of senior notes at maturity in July. The successful execution of these refinancing transactions will result in minimal increase to our annual interest expense despite refinancing our lowest-cost debt in a higher interest rate environment. As a result of these transactions, we have further laddered our debt maturity profile such that we will have no maturities due before 2029. Our balance sheet is well positioned with $600 million currently available under our undrawn corporate revolver, 84 of our 92 hotels unencumbered by debt, an attractive weighted average interest rate of 4.673%, and 73% of debt either fixed or hedged. We ended the fourth quarter with over $1.0 billion of liquidity and $2.2 billion of debt, and the company's weighted average debt maturity will be approximately 4.5 years post the payoff of the senior notes. We continue to leverage the flexibility offered by our healthy balance sheet to unlock embedded value across our portfolio through high-value conversions and renovations while remaining committed to returning capital to shareholders. During 2025, we advanced our Nashville and Pittsburgh conversions and executed four transformative renovations. Additionally, we sold three properties for $73.7 million in aggregate at a highly accretive multiple of 17.7 times projected 2025 hotel EBITDA including required CapEx. We recycled substantially all of these proceeds into the repurchase of 300,000 shares for $28.6 million and our refinancing efforts inclusive of the paydown of a first mortgage. Finally, we continue to pay an attractive and well-covered quarterly dividend of $0.15 per share. We will continue to make prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle while maintaining a strong and flexible balance sheet. Turning to our outlook. Based on our current view, we are providing full year guidance which, at the midpoint, assumes a continuation of the current operating environment. For 2026, we expect comparable RevPAR growth to range between 0.5%–3%, comparable hotel EBITDA between $344 million and $374 million, corporate adjusted EBITDA between $312 million and $342 million, and adjusted FFO per diluted share to be between $1.21 and $1.41, which assumes no additional repurchases. Our outlook assumes no additional acquisitions, dispositions, or balance sheet activity beyond what has been completed to date. We estimate capital expenditures will be in the range of $80 million–$90 million. Cash G&A will be in the range of $32.5 million–$33.5 million, and we expect net interest expense will be in the range of $101 million–$103 million. We also expect total revenue growth will outpace RevPAR growth due to the continuing success of our initiatives to drive out-of-room spend. With respect to the cadence for the year, we expect the first quarter to be the softest quarter as we lap difficult year-over-year comparisons in DC from the inauguration and increased demand at our Southern California hotels following the wildfires. January RevPAR was down 1.9%, reflecting these difficult comparisons. Based on our current visibility, we expect the contribution for the first quarter adjusted EBITDA to represent approximately 22% of our full year outlook. As we move beyond the first quarter, we expect the second quarter contribution to be similar to last year, with the balance of the contribution in the back half of the year. As you bridge between 2025 and 2026 adjusted EBITDA, please keep in mind the adjustments for the asset sales as well as non-recurring property tax credits of $4.7 million during the fourth quarter. Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information which will include comparable 2025 and 2024 quarterly and annual operating results for our 92-hotel portfolio. Thank you. And this concludes our prepared remarks. We will now open the line for Q&A. Operator? Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star then 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed. Josh Friedland: Hey, good morning. It is Josh Friedland on for Austin. How much benefit are you guys assuming from the World Cup and then separately from easier comps due to the government shutdown? And how much of the RevPAR growth this year are you expecting to come from rate growth versus occupancy? Leslie D. Hale: So, hey, good morning. Let me unpack all of our building blocks for what is embedded at the midpoint of our guidance based on your question. I would say, from a balance perspective, we are balancing rate and occupancy. We see it equally weighted at the midpoint. When we think about segmentation, we are assuming that BT is going to continue to improve on the strength of national accounts that continue to come back in terms of frequency and length of stay. We are also assuming that because our highest-rated customer is coming back that we are going to see rate growth on the BT side and that BT is going to benefit from the holiday calendar shift, which is having seen a lot of holidays on the weekends. Additionally, we are assuming that leisure demand is expected to increase in 2026 on the strength of the unique events. We think urban leisure is going to continue to outperform. We think that rate is going to be a key driver of growth in 2026 for leisure, which was not in 2025, and that our leisure is going to benefit from the ramp of our high-occupancy renovations that we did last year, which were in leisure markets. And group is going to see a pace ahead of 2025 in the second, third, and fourth quarter. And all of those things are going to benefit urban, which is going to continue to outperform the industry, particularly on the strength of San Francisco. And then if I drill down on the special events, for World Cup, we have got nine markets that are benefiting from World Cup with 63 games, and we have prominent games in Miami, New York, and LA, and that is translating into about 45 basis points of pickup for us. I would say additionally, as we mentioned last year, we were impacted by our high-occupancy renovations, and so this year, we are getting the benefit of that. In Waikiki, Deerfield, and Key West, that is going to translate into an incremental 40 basis points for us. And that is on top of the benefits from the special events; the 250th anniversary in DC, Boston, New York, and Philly; as well as more regional games that we are getting from March Madness. We also have the Final Four in our footprint this year as well. That is incremental to the Super Bowl that benefited San Francisco. In aggregate, those things are reflected in the midpoint of our range. Josh Friedland: Okay. Thank you for that. It is really helpful. And my second question, how are you prioritizing capital allocation today—asset sales and possible share repurchases—given where your stock is trading and what would need to change either in valuation or transaction markets for external growth to become more attractive? Leslie D. Hale: Yes. I think clearly, we were active this year. We recycled some capital from asset sales, we bought back shares, we executed on our conversions with our most recent conversions generating 15% RevPAR growth this year. We also took some actions to strengthen our balance sheet in the back half of the year as the environment softened. Clearly, the balance sheet is what gives us optionality. We want to be thoughtful about balancing between near-term opportunities and long-term resiliency. We are constructive on asset sales. We will look to recycle more proceeds in 2026 and take advantage of the arbitrage in valuation while also maintaining our balance sheet. And we are going to look to use all the tools that are available to us. These are not mutually exclusive. They have relative benefits based on the market conditions, and we want to drive value for our shareholders and grow earnings, and we think that buybacks are an important tool in our toolkit. Josh Friedland: Great. Thanks for the color. Operator: Our next question is from Tyler Batory with Oppenheimer and Company. Please proceed. Tyler Batory: First one for me just on the EBITDA side of things and EBITDA margin. 1% growth year over year at the midpoint when you make some adjustments. Just talk a little bit more what you are seeing on the operating cost side of things and your expectations for 2026? Nikhil Bhalla: Yes. I think in aggregate, our assumption is that expenses are going to grow about 3%. We think variable expenses are going to be about 2% and the fixed expenses are going to be about 4% excluding the tax benefit that we have. And I think from a wage perspective, we are assuming kind of 3% to 4% on wage and benefits growth. Tyler Batory: Okay. Perfect. Thank you for that. And then I wanted to double click on conversions and renovations. Just remind us what plans for 2026. I know there were some renovation disruptions that impacted 2025, and so I am not sure if there is anything that is going to be happening that we should be aware about in terms of 2026. And then talk a little bit about just conversions. I think you mentioned I think it was 15% RevPAR growth at your recent conversions. Just talk a little bit more about the ramp-up and just some of the performance at the hotels that you have converted recently. Leslie D. Hale: Sure, Tyler. Catch me if I missed part of your question. But I think in terms of, on a relative basis, recall that last year we mentioned that the types of renovations we did last year were high-occupancy renovations, and so by nature of the occupancy and how they performed throughout the year, you were going to have some level of disruption. That is not the case for this year, and you see we have lower CapEx for this year. That is also a function that these are smaller assets relative to what we did last year. The largest asset that we have on this year is really going to be Boston, which is going to be in the latter part of the year after all of the special events. And so we do not expect to indicate disruption as a headwind for us this year. I think as it relates to the conversions, we have completed seven conversions to date. We have two more that are underway. Obviously, Boston, which I just mentioned, will start later this year, and then our Pittsburgh—Renaissance Pittsburgh—which is going to be converted to an Autograph Collection, we will deliver that later this year. All of our conversions were up on average about 5% last year, with our four most recent ones being up 15%. And so they continue to ramp very well. We are very pleased in terms of the returns that we are generating and the overall production from our conversions. We remain on pace to continue to deliver two conversions per year. We look forward to announcing our second one at the latter part of this year. Tyler Batory: Okay. Great. That is all for me. Thank you for the detail. Operator: Our next question is from Michael Bellisario with Baird. Please proceed. Michael Bellisario: Just a few transaction questions. Good morning. Just transaction questions for you. Just first, what was the motivation and process like to sell Dallas and Houston? And was it more market or asset driven to sell those hotels? Leslie D. Hale: Yes, Mike. Those two assets—one was a function of where we saw the demand drivers going in that particular market coupled with the capital needs of the assets, and the other one was opportunistic; an alternative-use buyer was looking at that asset. What we have found in today’s market is that inbound calls are more credible today, and so we took advantage of some opportunistic opportunities. Michael Bellisario: Got it. That is helpful. And then just looking at Northern California, and sort of how do you balance some of the expected improvement in that market that sort of you and everyone expect with potentially selling some of the kind of non-CBD hotels? Yep. Is your fundamental view of San Francisco is going to benefit San Francisco, and is the improving demand profile going to make its way out to the outer rings? Leslie D. Hale: Yes. I think we were able to balance it by the breadth of our footprint, Michael. And so I think that there is opportunity for us to continue to benefit from the relative strength that San Francisco is seeing while, at the same token, being opportunistic on asset sales and just being thoughtful about how we prioritize which submarkets we would look to prune our portfolio in. Michael Bellisario: Helpful. Thank you. Operator: Our next question is from Gregory Miller with Truist Securities. Please proceed. Gregory Miller: Thank you. Good morning. I would like to start off on the AI front. A number of your franchisor brand partners have spoken about their consumer-facing AI efforts including towards the LLMs. Do you expect any material change in how your bookings from the brands will be sourced this year? Thomas J. Bardenett: Thanks. That is a good question, Greg. We are actively working with the brands to pass through when we think about how they are interacting with the consumer, and specifically on the front end when they are shopping, researching, and looking to book a business. The great thing we are continuing to see is brand.com continues to be the source of business that is the highest return, where people are booking through the brand, which the cost is less there than, let us say, the OTA channels. And so we are very supportive of all the initiatives around centralized services in regards to how they are thinking about rolling out to the consumer to be able to make it easier to get to brand.com, number one. The other thing that I would say is, when I think about what the brands are doing, there is an opportunity also to have savings through economies of scale, and whether that is through their AI tools, they are evolving meaningfully over the next few years, and they are doing a tremendous amount of beta testing. We sit on, as you know, owner advisory councils and have a voice as well as our peers. And so we are excited about the opportunity to enhance productivity not only through the cost side and labor and scheduling initiatives—everything related to how we can make sure that we are maximizing the opportunities that are ahead of us. And I think when we go down the road of our own work and what we are doing, we are really taking a look at data insights in regards to making our decisions from an asset management standpoint with our management companies and enhancing the tools there as well. So we are supportive and excited about the future and look forward to having the brands really lead the way when it comes to our industry. Gregory Miller: Thanks, Tom. So my second question, this is similar to Tyler’s question, but maybe a bit more granularity. As we think about modeling labor costs through the year, is there any change in the step-up we should assume in terms of cost growth in the third and the fourth quarters particularly given labor dynamics in New York City? Nikhil Bhalla: That is embedded in our overall blended expense growth. If you kind of look at the fourth quarter, we were up 0.8% in growth, and if you take out the tax benefit, we were up slightly over 2%. And so I think if we assume that trend line for the first two quarters and then, you know, the back half, you blend back to 3% for the full year. Thomas J. Bardenett: And the thing too beyond what your question was around New York City, when you think about the bigger picture, Greg, contract labor continues to be reduced. Productivity continues to improve. When we think about our portfolio specifically, you dig into the synergies that we continue to make sure that we are maximizing because of our footprint—whether it is operations, sales, food and beverage, and repairs and maintenance—making sure that we are building a business model that is sustainable. And so we feel very good about our management companies and how they are interacting with us around scheduling, back to what we talked about in regards to yielding that just as important as we are yielding revenue to be able to maintain the levels that Leslie referred to. Gregory Miller: I appreciate it. Thanks, Leslie. Thanks, Tom. Operator: Our next question is from Chris Woronka with Deutsche Bank. Please proceed. Chris Woronka: Hey, good morning, everyone. Thanks for taking my question. I wanted to ask, if I could, a longer-term strategic question. You know, if we look at the portfolio today, 92 hotels, you probably skew a little bit more full service at this point, particularly from an EBITDA perspective. But is there any thought to, as we potentially get more traction in the transactional markets going forward, is there any thought to do anything more significant in terms of reshaping the portfolio to maybe continue to de-emphasize select service, which you have kind of been doing on a measured basis thus far? Thanks. Leslie D. Hale: So, Chris, thanks for the question. I think in general, when it makes sense to be active externally, you are going to continue to see us lean towards lifestyle, thoughtful F&B-oriented assets which have a mix that are built right from a room count perspective. And you have seen our portfolio shift to the urban lifestyle as we made acquisitions and as we do our conversions. And so you will see our portfolio continue to move in that direction when it makes sense to execute on external growth. We do think that the transaction market will improve this year, particularly given the debt markets. There are a lot of players out there providing debt and expectations around rate cuts. We are constructive on more asset sales, and you will see us be active on that front more so this year. Thomas J. Bardenett: The last thing I would add too, Chris, and I think you can see it in our non-room revenue spend, when you look at our ROI initiatives and you look at our conversions and our renovations, we are leaning in heavily to trying to grow food and beverage margin with beverage-centric renovations that are driving that. And we continue at our urban properties to be able to enhance the capital initiatives around parking, which is also driving profitability. And then the last thing, whether it is select service or full service, we are seeing the fact that our margins are growing because of market expansion. So when you are in our lobbies, we are really putting more minds and efforts against how do we make sure that we have the grab-and-gos, if you will, which is really a playbook from select service, but also expanding into our full service hotels where the need is that a consumer looks to buy things when they are individually in a hurry. Chris Woronka: Okay. I appreciate all that color. Thanks, Leslie. Thanks, Tom. As a follow-up, I think we have heard from some of your peers, to varying degrees, that there is a little bit more and perhaps increased flexibility with the brands on things both related to CapEx and also sometimes operational efficiencies. Are you guys seeing that same trend? Are you more encouraged or less encouraged by what you see going forward in terms of, I do not know if pushback is the right word, but working with the brand collectively kind of give yourselves a little bit more margin and free cash flow conversion? Thanks. Leslie D. Hale: Look, I think in general we have very strong relationships with our brand partners and that we have a very healthy relationship. I think the brands are being very thoughtful around their renovation requirements and trying to be market-specific as it relates to that. I think they are also looking for ways to be able to give benefits to owners who deploy capital within their portfolios, of which we are one of those. And they are also looking for ways to help some of the fee dollars. So I think in general, I think the brands are being good partners, and we have very strong relationships that we have been able to benefit from. Chris Woronka: Okay. Very good. Thanks, Leslie. Operator: Our next question is from Rich Hightower with Barclays. Please proceed. Rich Hightower: Hi, good morning, guys. Leslie, if I go back, I think it was your answer to the first question. You know, it is sort of strength upon strength upon strength in terms of the building blocks for 2026. And I think just out of curiosity, when you add all of it up, and, you know, again, assuming that the world we think we know and understand today kind of plays out as expected, I mean, what is the likelihood of coming anywhere near the low end of guidance as we just think about the plausibility of the range? Leslie D. Hale: Rich, I think that you have to remember that our portfolio is 80% transient. We have a short-term booking window. So when you think about our range, our range is really just a reflection of either the strength or weaker production and some combination of the factors that we laid out relative to our baseline. At the high end of the range, you could have stronger production in World Cup or stronger production of the special events or in-the-year-for-the-year pickup, or urban markets may outperform better, or the ramp may be stronger. We think that if those things happen, it is going to translate into rate growth primarily, but the flip side is opposite for the lower end of the range. If we have weaker production from World Cup or any of the other combination of things from urban markets or special events or in-the-year-for-the-year pickup or slower ramp on our conversions, those types of things would lead you to the bottom end of the range. That would take the form of demand. So I think it is about relative strength. What we built at the midpoint is based upon what we can see today, but we are in an 80% transient business with a short-term booking window. Rich Hightower: That makes sense. That is helpful. My second question, I would like to dive a little bit deeper on the Wyndham Boston conversion to Tapestry in particular. So, you know, I know that asset reasonably well. You know, it really kind of is a demand category killer given location, you know, kind of on the campus of MGH and obviously in the Beacon Hill neighborhood. So I would assume it does pretty well on its own as a Wyndham. And so just help us understand the economics behind the Tapestry conversion, what that brand will do for the hotel, what the all-in basis per key, etcetera, might look like at the end of all that. Thanks. Thomas J. Bardenett: I will talk about the decision to move into that arena a little bit, Rich, and some of the things that we are doing that we think are going to be transformative. But you hit the nail on the head. We love the location. And in real estate, it is all about location, location, location. So just to add to your color, with $1.8 billion going into Mass General with two buildings literally adjacent to the hotel, those are going to be future demand generators above and beyond the location, as you mentioned, Beacon Hill, which is high-end residential, great community where you have universities, health care, education, as well as the attractions and walking distance to the Garden and things that we benefit from. So what we feel is by going into the Hilton system, specifically on the lifestyle side, we can make it that community-centric feel when people are walking into the hotel. And what has happened in our other conversions, Rich, as you know because you visited some of them, the mix changes. When that happens, you get more corporate base. You also get more Hilton contribution because of the lack of supply that Hilton has in that marketplace. We feel we enter into a place where we can really compete on the lifestyle and upper-end threshold of that clientele that is looking for locations as well as accommodations. We also have some meeting space on the highest floor that really has beautiful views over Boston. And having that mix of business will help us on the group, corporate, and base of what we find in our other conversions like Mills House when we went to a Curio, or Nashville where we went to a Tapestry, where we automatically see that shift in business. So we are pretty excited about, yes, it is a great hotel today because Wyndham does a super job for us in that location with the value buy, but we are going to be playing at a different level when we move into the Tapestry Hilton collection. And then I will kick it over to Leslie for returns. Leslie D. Hale: Yes. I think, Rich, we have been pretty clear on this asset. We believe that there is 40% upside in the EBITDA from converting it to a Tapestry for all the reasons that you articulated in the market demand there. This is an asset that is going to benefit from all of the demand drivers and segmentation, and we know that the rate is in the market because there are other assets already achieving the rate that we have underwritten for this asset and feel very good about what it can produce. And the overall renovation dollars are actually not that much more than what we would do in a normal renovation. And so the returns for the asset relative to the incremental capital are well north of 50%. Rich Hightower: Okay. Great. Thanks for the color, guys. Operator: As a reminder, press star then 1 on your telephone keypad if you would like to ask a question. Our next question is from Jack Armstrong with Wells Fargo. Please proceed. Jack Armstrong: Hey, good morning. Thanks for taking the question. How do you expect total revenue growth to outperform RevPAR in 2026? And how much of that is being driven by some of the F&B improvements you made across the portfolio? Nikhil Bhalla: Hey, Jack. This is Nikhil. How are you? Just to give some frame of reference, there are a number of things that are going into our non-room revenues, and one of them is the markets that Tom described earlier. If you look at the fourth quarter, our revenues were actually up in the high single digits, and consistently we have had very strong growth in that. So we are continuing to see very, very strong growth across that and we expect that to continue. If you see our prepared remarks, we did say that our total revenues will outperform room revenues. We expect somewhere around 50 basis points. Thomas J. Bardenett: And then on F&B, Jack, just to give you a little color there. We had about a 120 basis point improvement in margin in F&B full year and this year. And we continue to see the reason that is happening is because not only is group now having more corporate group, but they spend more money on banquets and beverage, and then many of our renovations as well as ROI initiatives have really been what I talked about earlier—more beverage-centric, having more seats at the bar, having our meeting space have reception areas where that is more an opportunity to have camaraderie in an outdoor area, whether it is an atrium or locations that are highly desirable to gather. And so we are seeing outlets grow. And lastly, on the community side, as Leslie stated earlier, trying to be attractive to folks not staying in the hotel. An example of that would be Mills House where we did the Black Door Cafe. We are getting 50% from our guests and 50% from the outside—just foot traffic—taking advantage of our locations. I think Boston is going to be a perfect example of that. Now people who are going to be in those locations are going to want a place to eat, and there is a significant crowd now literally next door who is going to be going back to office in those locations. So those are examples of that, and I will kick it to Leslie for one more. Leslie D. Hale: Yes. And I would just bolt on to Tom’s comments in the sense that every time we do this, we get smarter. And so the last comment that Tom made about being able to attract not just hotel guests to our F&B outlets, we are seeing that in all of our conversions. He mentioned Mills House. We also have done it in Santa Monica. We also did it in New Orleans as well, and he mentioned that we are going to be doing it in Boston, but we are also doing that in the Renaissance Pittsburgh that we are converting to an Autograph. And then the other asset that we will announce later this year will have the same concept as well. So we are really leaning into this thoughtful F&B with the beverage-centric mindset, and that is going to help us sustain that 50 basis points that Nikhil mentioned. Jack Armstrong: Helpful color there. Thank you. And then can you remind us what portion of your business was government-related in 2025? And then maybe contrast that with a more stabilized year without the impact of Liberation Day and the shutdown and what that would look like in 2026. Leslie D. Hale: Yes. I mean, what I would say is that in a normalized year, government was 3%, and when we think about how it performed last year, it was down about 20%. And we think that we saw a step down in Liberation Day. And as I mentioned previously, our range assumes no change in government demand. Jack Armstrong: Great. Very helpful. Thank you. Operator: Our next question is from Chris Darling with Green Street. Please proceed. Chris Darling: Thanks. Good morning. Going back to the capital allocation discussion, Leslie, you mentioned inbound interest from potential buyers being more credible these days, just a more constructive transaction market in general. As you think through potential dispositions, what are some of the main factors you consider when making that decision? Is it market-driven, asset-level consideration, something else? Just sort of curious how you internally think about these things. Leslie D. Hale: Yes. I mean, I think it is a combination of our view of a market and where the puck is going from a demand perspective. It is also whether or not we think we can get any return on the capital that we have to put in to sustain the asset. And then it is our perspective on any opportunistic calls that we get in to determine whether or not we think that that value is appropriate for relative assets. But I think that we are active portfolio managers and will consider looking at all aspects of our portfolio relative to a constructive disposition environment. Chris Darling: Okay. And, you know, related to this, in your mind, do you think there is appetite for larger-scale portfolio deals today? And if not, what do you think might change that story as we move through this year? Leslie D. Hale: Yes. I mean, I think it is a great question. I think that as we look at the market today, the most active buyers are owner-operators because they are able to consistently underwrite growth. And so that leans itself to more single assets. Having said that, we do think that there has been an increase in volume for larger single assets, which could then translate into liquidity for smaller pools of assets. I think a key ingredient of that is for the interest rate cuts to actually materialize and for buyers to be able to underwrite bottom line growth with conviction. Operator: Alright. I appreciate the time. That will conclude our question and answer session. I would like to turn the conference back over to Leslie Hale for closing remarks. Leslie D. Hale: Well, thank you, everybody, for joining us today. We look forward to meeting with many of you over the next couple of months. Have a good day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.
Operator: Good morning, ladies and gentlemen. Welcome to the Compañía de Minas Buenaventura S.A.A. Fourth Quarter 2025 Earnings Results Conference Call. At this time, all participants are in listen-only mode, and please note that this call is being recorded. I would now like to introduce your host for today's call, Mr. Sebastian Valencia Carrasco, Head of Investor Relations. Mr. Valencia Carrasco, you may begin. Good morning, everyone. Sebastian Valencia Carrasco: Thank you for joining us today to discuss our fourth quarter 2025 results. Today's discussion will be led by Mr. Leandro Garcia, Chief Executive Officer. Also joining our call today and available for your questions are Mr. Daniel Dominguez Vera, Chief Financial Officer; Mr. Juan Carlos Ortiz, Vice President of Operations; Mr. Aldo Massa, Vice President of Business Development and Commercial; Mr. Alejandro Hermoza, Vice President of Sustainability; Mr. Renzo Macher, Vice President of Projects; Mr. Juan Carlos Salazar, Vice President of Geology and Exploration; Mr. Aro... Guernæus, Chairman; and Mr. Raul Benavides, Director. Before I hand the call over, let me first touch on a few items. On Compañía de Minas Buenaventura S.A.A.'s website, you will find our press release that was posted yesterday after the market close. Please note that today's remarks include forward-looking statements that are based on management's current views and assumptions. While management believes that these assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. I encourage you to read the full disclosure concerning forward-looking statements within the earnings results that was issued on 02/26/2026. I will now turn the call over to Leandro Garcia. Leandro Garcia: Thank you, Sebastian. Good morning and thank you for joining us today to discuss the quarterly results of Compañía de Minas Buenaventura S.A.A. at the year end. On Slide 2 is our cautionary statement, important information that I encourage you to read. Today, we will talk about our 2025 performance, our main achievements, and our priorities for the year. After the presentation, we will be available for our Q&A session, where our team will be happy to answer your questions. The next slide, I will start by providing a summary of our strong results for the year. Copper production in the full year of 2025 reached 52,400 tons, down 8% year over year. This was mainly because Compañía de Minas Buenaventura S.A.A. processed stockpiles with higher precious metal content following a sharp increase in precious metals at El Brocal. Silver production reached 15,600,000 ounces, 1% higher compared to the 15,500,000 ounces produced during the same period last year, in line with our annual expectations. Gold production was 121,000 ounces, down 18% year over year, mainly due to lower output at Orcopampa and Tambomayo, consistent with the 2025 planned mining sequence. EBITDA from our direct operations in full year 2025 was $112,000,000, which represents an 88% increase compared to the $431,500,000 in 2024. Net income for the full year was $1,830,000,000 compared to $416,000,000 in 2024, which included $157,300,000 from the sale of Chaupi Loma. The year ended with a cash position of $530,000,000 and total debt of $710,000,000, resulting in a leverage ratio of 0.22x. Moving on to San Gabriel. As of now, San Gabriel has reached 99% overall progress. CapEx for the project in 2025 was $153,000,000, primarily allocated to the completion of the processing plant construction. After the quarter ended, on January 29, 2026, Compañía de Minas Buenaventura S.A.A. received $98,000,000 in dividends from its stake in Cerro Verde. Finally, the Board approved a dividend of $0.9904 per share. With this approval, total dividends declared over the past twelve months reached $1.0135 per ADS. Moving forward to our 2025 guidance. Regarding gold production, our primary focus is on San Gabriel, which is expected to become our main gold-producing asset in coming years, playing a key role in our long-term growth strategy. We anticipate stable copper and silver production at both El Brocal and Uchucchacua–Yumpa, maintaining consistent output levels. For 2025, we expect total CapEx of between $385,000,000 and $415,000,000. Around $200,000,000 to $220,000,000 will be sustaining CapEx, mainly focused on mine development, tailings, and ventilation upgrades at Uchucchacua and Yumpa, as well as readiness and ramp-up works at San Gabriel. Growth CapEx for 2026 is expected to be between $185,000,000 and $195,000,000, mainly focused on the completion of San Gabriel and advancing Trapiche and Algarróbos. Moving on to the cost applicable to sales trend. Copper cash costs increased in 2025, mainly due to higher personnel costs driven by improved profitability, increased cement consumption, and foreign exchange impacts at El Brocal. Silver cash costs increased due to higher commercial deductions at Yumpa, non-payable value, and escalators. Additionally, there was increased ore throughput, partially offsetting lower grades at Uchucchacua and Julcani. Gold cash costs have increased due to lower throughput, reducing the scale efficiency at Orcopampa and Tambomayo. On the next slide, we will present free cash flow generation. The fourth quarter cash position increased during the quarter, mainly driven by net cash inflows from operating activities. I would like to highlight a key milestone achieved last December. We produced our first doré bar at San Gabriel, and we have received the initial operating permit. The water license is expected in the coming weeks. For 2026, our production guidance is between 48,055 gold ounces. There are still some pending milestones to achieve full potential. This includes the expansion of tailings drying areas and upgrades to the ventilation system. We expect to complete these milestones to enable a stable 2,000 tons per day throughput in 2026 and continued ramp-up. San Gabriel's cumulative progress has reached 99% overall completion by April 2025, primarily driven by finishing 98% of advances. On the next slide, we are showing the processing plant's progress: the primary crusher mechanical works at 100%; the SAG and ball mechanical works are at 100% also; and finally, the sealed tanks mechanical works are at 100% completion. Moving on, we can see the progress of the main components of the plant. Moving on to Slide 9, we are showing the progress made at the filtered tailings plant, which is now complete. To conclude the presentation, I would like to share a few final thoughts. Consistent copper and silver output is supported by steady operations at El Brocal, Uchucchacua, and Yumpa, ensuring operational reliability. Solid performance from affiliate companies: Coimolache is operating at full capacity, while Cerro Verde distributed $98,000,000 in dividends attributable to Compañía de Minas Buenaventura S.A.A.’s stake. San Gabriel has entered its transition phase, moving from project execution to ramp-up during 2026, positioning the operation to achieve a stable 2,000 tons per day throughput in 2026. A supportive environment allows us to step up exploration investment to reinforce our reserves and resources base while advancing progressive closures to enhance efficiency. Strong cash flow generation, a solid balance sheet, and disciplined capital allocation enable us to return value to shareholders, reaffirming our commitment to investor returns. Thank you for your attention, and I will turn the call back to the operator to open the line for questions. Operator, please go ahead. Operator: Thank you. We will now begin the question-and-answer session. To ask a question, dial in by phone and press star then one on your telephone keypad. The first question comes from Carlos De Alba with Morgan Stanley. Sir, your line is live. Please proceed with your questions. Carlos de Alba: Yes, good morning, everyone. Thank you. So first one is maybe on CapEx. Leandro, significant increase on CapEx versus what expectations are in the sell-side consensus and also, and probably more intriguing, versus what you guys told us just a few months ago in your Investor Day. So maybe can you please provide some detail as to what happened those last months that led the company to significantly revise all the CapEx. I have a couple of other questions. Leandro Garcia: Thank you, Carlos, for your question. Mainly, primarily in San Gabriel, the pending works are related to earthworks and continuing for the ramp-up of the project. Maybe Renzo can explain the pending issues to be resolved and have the production steady. Renzo Macher: Yes, sure. Hi. Yes. Effectively, we have some remaining works on earthworks, especially after the rainy season, where all the water systems and the roads are starting to be tested with rain. So there are some minor semi-failures that we need to cover and fix, and some channels to redirect water that are going to need additional care. And we need to continue with the routing for the water dam, for the last part of the routing. So that, plus closing some contracts for some additional quantities and material in the plants. That is already finished. Carlos de Alba: And all these things, you just evaluated or discovered them as the ramp-up started? Renzo Macher: Well, when we finish the earthworks, it is still untested. We are currently in the middle of the rainy season. So you keep finding things that can be improved or that need some extra work to be finished. There are certain roads that are not working as expected, and we need to do alternative roads in some areas to be accessed with that. Carlos de Alba: But anything major? Okay. Carlos de Alba: Alright. Thank you. And then on San Gabriel, thank you for the color on the ramp-up. Just maybe what is behind the lower guidance for production this year? Similar, I guess, to CapEx, a little bit of a surprise given that just a few months ago, you guided to a higher number. Leandro Garcia: Yes, Carlos. As we anticipate, we continue working in the ramp-up and putting all the things in order to reach by phases the production of the design plant. We are going to reach the 3,000 tons per day next year. We are making all the efforts to reach this as soon as possible, but we foresee a production of 2,000 tons per day all this year. Actually, we have to improve the ventilation in order to work in the high-grade areas. We have a little flexibility in the higher-grade areas, so we are planning to work only in three galleries. Well, maybe Juan Carlos can give the exact explanation of the components of our production. Juan Carlos Ortiz: Yes, Leandro, thank you. Well, number one, as you mentioned, are all the components that are still pending for construction and permitting. We will finalize the construction and get the final operational permits by the second quarter of this year. At that time, we will have all the area for drying the tailings and for compaction of the tailings inside the reservoir all set up. We have partial permits already set up for commissioning, and we have to have the definitive permit by the second quarter of this year. In addition to that, the mine is really scaling the production plan because after the accident that we had late December last year, we need to redesign the ventilation sequence. We need to triple the amount of air pressure that we need to push into the galleries in order to dilute all the gases that we have underground. In order to do that, we are bringing more ventilators, more fans, more electrical devices in order to power this equipment. And the consequence of that, also, in order to have a higher control of the ventilation and the risk linked to gases underground, is that we are losing part of the flexibility that we expected to have in 2026. The flexibility in order to mine high-grade areas in six different levels—now we are to be restricted to mine only in three levels. So by throughput, it will be the same. By gold grade, it will be lower. We are not mining high-grade areas; we are going to be restricted to three levels in which we need to mine the high grade and the average grade to complete the throughput that we compromise with the processing plant. The main reason, therefore, is the lower grade that we are mining in this initial year 2026. Carlos de Alba: Thank you, Juan Carlos. Sorry. And then maybe one more: with a very significant increase in gold and silver prices—I mean, others as well—but is the company foreseeing any changes in the mining plan that was presented late last year, and maybe the guidance will change? Can you offer some color there? Leandro Garcia: No, we have reviewed the mining plans of all our operations. The only change we have realized is at San Gabriel. In copper, we still have the same objective, and silver also. Carlos de Alba: Thank you. I will get back in the queue. Thank you. Operator: The next question is from Tanya M. Jakusconek with Scotiabank. Please go ahead. Tanya M. Jakusconek: Great. Good morning, everybody. Thank you for taking my questions. Just if I could finish off on San Gabriel. I just want to make sure I understand. Of the growth capital of $185,000,000 to $195,000,000, how much of that is San Gabriel? And what is going to the earthworks and what is going to ventilation? Leandro Garcia: Thank you, Tanya. Thank you for your question. Maybe, Renzo, you can—you have figures there? Renzo Macher: Yes. Hi. Thanks for the question, Tanya. From that, in terms of Gabriel, it is going to be like $160,000,000. That includes the closing of all the contracts that we have—that is probably half of that—and the other half is additional work in the earthworks. I think the ventilation is more in the sustaining CapEx. Tanya M. Jakusconek: Okay. So you have put it there. Okay. Understood. And maybe if I could just get Daniel to just give me some more guidance. I found that exploration and G&A was lower than I expected in Q4. Can you give me some guidance on G&A for 2026, exploration, and dividends from Yanacocha, including the dividend payout, whether you are reviewing that with your board meeting in March? Daniel Dominguez Vera: Thank you for the question, Tanya. The G&A that we expect for the entire 2026 will be around $60,000,000 to $70,000,000, which is similar to what we reported in year 2025. This increase compared to previous years is because of the workers' participation in profits, number one, and number two, due to the stronger Peruvian currency. Then for explorations, we have the explorations in the mining sites, in the operating sites, which will be around $60,000,000 to $70,000,000. We have increased our budget in explorations because we are focusing on more labores in San Gabriel, El Brocal, and Uchucchacua–Yumpa. And also in the non-operating sites, we will be disbursing some cash for the other projects that we have—greenfield projects—and this will be around $20,000,000 to $30,000,000. Our total budget for explorations is between $90,000,000 and $100,000,000, compared to the $70,000,000 that we have been disbursing in the past. And finally, for dividends, what we expect to receive from Cerro Verde this year is around $200,000,000, a little bit higher than what we received in year 2025. And what we decided at the board meeting yesterday was that we were going to pay, for this time—as the prices are going well and our CapEx for San Gabriel has basically been completed—we will pay 40% of the net income of the previous year, from 2025. Remember that our dividend policy is not less than 20% of the net income of the year. We have increased that to 40%, and we will continue evaluating in the future depending on prices and also on our CapEx program. Tanya M. Jakusconek: Okay, thank you for that. And then just maybe my last question comes on permits and just on Cañariaco sulfides. So we are still looking for that study to come out in Q1 on the Cañariaco sulfide—no, I think it was H1—the conceptual study on the project. And then on the permitting side, just on San Gabriel, I know we are waiting for this water permit. What is taking so long? And then asset sales, if I could. Where is that going on some of your asset sales? Are we hoping to get those done this year? Leandro Garcia: Thank you, Tanya. For the first question, at Coimolache, we are just ending the study. We have to discuss internally with the sovereign and the escrow, which are the following steps. We should inform the market in the first half of this year what are the following positive news for the project. So we continue working on that, but we have to put it on the Board of Coimolache and get the approval to continue. In terms of San Gabriel, the authority has already visited us. We are just waiting for the permit to be signed. In the following couple of weeks, we hope to be granted this permit. And the last question about—The asset sale. Yes. We continue evaluating this asset. We are in the last part of making a decision, and as soon as we arrive at a conclusion, we will inform the market. Aldo Massa: Yes, Tanya, we will make a huge analysis about the asset sales. We have not taken a decision yet on whether we are going to sell or not. But you have to take into consideration that this increase in precious metals prices really makes you think a lot if you want to sell or not an asset right now. But we are still analyzing, and we will take a decision very soon. Tanya M. Jakusconek: Okay. Okay. Thank you. Operator: The next question is from Cesar Perez-Novoa with BTG Pactual. Please go ahead. Cesar Perez-Novoa: Yes. Good morning. My question relates to Yumpa and Uchucchacua. Could you comment on why cost applicable to sales rose 616% in the quarter? I believe you attribute this to larger throughput of a low-grade mineral, but also there are some commercial deductions, and you also mentioned increased non-payable value. Can you please explain what this is? And my second and final question would be regarding guidance. Thank you for G&A and exploration data, but it would be really useful if you could complement this, if possible, with revenues and EBITDA for 2026. Thank you. Leandro Garcia: Happy to count on your questions. Maybe I will explain a little bit about the deductions and the escalators. Aldo, please go ahead. Aldo Massa: Cesar, thank you very much for your question. We have two main reasons here. The first one is when you sell silver concentrates with less than 2,500 grams, usually the payable for that concentrate is between 60–70%. When you sell silver concentrate with higher than 2,500 grams, the payable is between 90–95%. In the last quarter, we produced more silver concentrate with lower grade. That is why the deduction is a lot more. And the other reason is the escalators. We have escalator clauses in our contracts, and due to a sharp increase in the price of silver, right now these escalators are applying to the contracts. What does it mean? If the upper range of the escalator is $50 per ounce and the price of silver is $100, you apply a percentage of the price. You understand? Cesar Perez-Novoa: Yes. Yes, I do. I do. Alright. Okay. So those would be the two main reasons why the cost is high. Early. Leandro Garcia: Does that answer your question, Cesar? Cesar Perez-Novoa: Yes. And if possible, could you provide some guidance for EBITDA or revenues? Daniel Dominguez Vera: Hello, Cesar. Thanks for your question. If we consider prices at levels of $4,500 for gold, $70 for silver, and $12,000 for copper, we should be in the range of revenues of $1,800,000,000 to $2,000,000,000. This includes close to $100,000,000 of sales from the concentrate that we buy from Cerro Verde from Freeport. And the EBITDA that we expect for the total year will be around $800,000,000 to $1,000,000,000. Cesar Perez-Novoa: Alright, Daniel. Thank you very much. Operator: The next question is from Fernando Gil with Ingheso Sao Paulo. Please go ahead. Fernando Gil: Hi, thank you for taking my questions. Just a quick question regarding the Investor Day targets. I remember you announced that three mines are under strategic review—Orcopampa, Tambomayo, and Julcani. Could you tell us what is the current status of these mines? And are you starting to do some action separately or together? And has there been any formal process for any kind of sale? Yeah, that would be it. Thank you very much. Leandro Garcia: Thank you, Fernando, for your question. Well, we already began the process and are analyzing the feasibility of selling these units, these mines. However, as Aldo explained minutes before, with the increasing prices of gold and silver, we are reanalyzing the possibility. We have continued advancing on this process. We are close to making a final decision, and if they will be sold each unit separately or as a whole. We are open to all the possibilities, but for now, the higher alternative—if we sell—is to sell them separately. Fernando Gil: Okay. Thank you. Operator: The next question is a follow-up from Carlos De Alba with Morgan Stanley. Please go ahead. Carlos de Alba: Yes, thank you. Just on dividends, like the $0.99 per share approved by the Board—when do you expect to pay that? And also the $200,000,000 in expected dividends from Cerro Verde—when do you expect you will get that money? Leandro Garcia: Yes. For this proposal of dividends, it has to be approved at the shareholders' meeting. But Daniel, please go ahead. Daniel Dominguez Vera: Yes, Carlos. The dividend payment should be for April. And regarding Cerro Verde’s dividend, we have already received in January $100,000,000 from Cerro Verde, and we expect $50,000,000 by July and another $50,000,000 by the fourth quarter of this year. Carlos de Alba: So that is $150,000,000, but I thought you said $200,000,000. Daniel Dominguez Vera: Yes. $100,000,000 in January, $50,000,000 in July, and in the fourth quarter another $50,000,000. Carlos de Alba: Okay, got it. Thank you. Operator: Ladies and gentlemen, with that, I would like to turn the floor back over to Sebastian Valencia Carrasco, Head of Investor Relations, for any webcast questions. Sebastian Valencia Carrasco: Thanks, operator. At this time, there are no further questions. I would like to turn the call over to Leandro Garcia. Leandro Garcia: Thank you, Sebastian. Well, before we conclude today's conference call, I would like to thank you for the time and effort dedicated to joining us today. Your participation and input are greatly appreciated. Thank you again and have a wonderful day. Operator: Ladies and gentlemen, that concludes Compañía de Minas Buenaventura S.A.A.'s Fourth Quarter 2025 Earnings Results Conference Call. We would like to thank you again for your participation. You may now disconnect.
Operator: Greetings, and welcome to the National Health Investors, Inc. Fourth Quarter 2025 Earnings Webcast and Conference Call. At this time, all participants are on a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note this conference is being recorded. I will now turn the conference over to your host, Mr. Dana Hambly, VP of Finance and Investor Relations. Sir, the floor is yours. Dana Hambly: Thank you, and welcome to the National Health Investors, Inc. conference call to discuss the results for 2025. On the call today are D. Eric Mendelsohn, President and CEO; Kevin Carlton Pascoe, Chief Investment Officer; John L. Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer. The results, as well as notice of the accessibility of this conference call, were released after the market closed yesterday in a press release that has been covered by the financial media. Any statements in this conference call which are not historical facts are forward-looking statements. NHI cautions investors that any forward-looking statement may involve risks or uncertainties that are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI in its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-K for the year ended 12/31/2025. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I will now turn the call over to our CEO, D. Eric Mendelsohn. D. Eric Mendelsohn: Good morning, and thanks to everyone for joining us today. We completed the year with a solid fourth quarter that generated normalized FFO per share growth of 8.9% compared to last year. The SHOP platform is central to our investment thesis, and was a core contributor to the quarter as total NOI increased by 125% year over year and 48% sequentially. Cash rental income from our triple net portfolio increased by approximately 7% primarily due to acquisitions while interest income declined by 19% in the fourth quarter due to loan payoffs and pay downs. Reflecting on the full year results, we delivered growth in normalized FFO per share of 10.6%, and total FAD growth of 13.7%. This exceeded the midpoints of our initial 2025 guidance by approximately 6% and 5%, respectively. SHOP NOI increased by approximately 57% compared to 2024 with 7.6% same-store growth and $6 million from transitions and acquisitions. Our cash rental revenue increased by approximately 10% year over year with contributions both internally and externally. We announced investments of $392 million in 2025, which was well above our initial guidance of $225 million and was our most active year since 2016. This included investments of $218 million in the fourth quarter alone, setting the company up nicely for strong acquisition growth in 2026. In fact, we have already closed on one deal this year for $105.5 million, our largest SHOP acquisition to date. We have an active pipeline of over $488 million with an additional $111 million under signed letters of intent. The industry tailwinds for senior housing have never been more favorable, and there is little evidence to suggest that this will change in the next several years. According to NIC MAP, there were fewer than 25,000 units under construction in the fourth quarter, which represents just 2.2% of total inventory and the lowest level since 2012. This shows no signs of reversing as new unit starts are less than 1% of inventory, the lowest level since NIC MAP started reporting this information in 2008. Meanwhile, demand is accelerating as the first baby boomers turned 80 this year. NHI is well positioned to capitalize on this long-term generational growth. We continue to methodically invest in our SHOP capabilities as we significantly expand our presence in private-pay senior housing operations, where we see the greatest risk-adjusted returns. We are adding to talent rapidly. We currently have 35 employees which is a 46% increase from our average employee count in 2022 when we established our SHOP platform. Including the recent February acquisition, we have increased our SHOP investment by 106% in the last 12 months to approximately $740 million. This has increased our annualized SHOP NOI contribution to 12% of total annualized NOI from 4.5% at the end of 2024. As outlined in our guidance, we expect that 70% of our investment activity this year will be allocated to SHOP which, coupled with strong organic growth, should continue to drive SHOP NOI contribution exponentially higher. Similar to our approach in the triple net portfolio, we are targeting SHOP investments at need-driven senior living communities in secondary suburban markets where we have a better understanding of the local dynamics that most impact operations. We are seeking partners that have demonstrated an ability to deliver outstanding resident satisfaction which we believe is achieved by attracting and retaining mission-driven employees. Frankly, we have been overwhelmed by the interest in partnering with NHI which creates a larger talent pool for us and lowers new investment risk. From a financial standpoint, our target markets tend to see fewer buyers than the primary markets, allowing NHI to find stabilized properties at attractive yields in the 7% to 8% range. We expect near-term NOI growth in the first few years in the high single-digit to low double-digit range, which produces strong rates of return in the low to mid-teens. This is very conducive to supporting growth. NHI's financial strength is bolstered by our fortress balance sheet. Our leverage is less than four times net debt to adjusted EBITDA and we have plenty of dry powder. Our demonstrated ability to access attractive debt and equity capital creates a real competitive advantage for NHI in maintaining and growing the pipeline as market participants can be confident in our ability to finance deals quickly and with limited closing risk. Regarding our 2026 outlook, we issued guidance last night that included normalized FFO per share growth of 1.2% at the midpoint. This is clearly not where we view the core growth rate of the company. Recall that in 2025, results benefited from several items that we do not view as recurring, which John will address in more detail. When adjusting for these items, we estimate that our normalized growth rate is in the 5% to 6% range. The midpoint of our 2026 NFFO per share guidance implies a two-year CAGR of approximately 6%. Further, this year's guidance includes approximately $111 million of dispositions of nonstrategic assets. While we are continually reviewing the portfolio, the early-year timing and unusually large size of the dispositions impact this year's growth by an incremental and estimated 1.5%. From a big-picture perspective, NHI is in great position to drive exceptional long-term FFO per share growth and create sustained value for shareholders. We are investing in the people and resources necessary to scale our future growth, particularly in SHOP, with estimated NOI growth of over 105% in 2026 before consideration for new investments. Our financial strength gives us flexibility to pursue significant external growth. And the senior housing industry fundamentals have never been more attractive. In short, we are as enthusiastic as we have ever been. Before I turn the call over to Kevin, I want to welcome our newest board member. We announced this week that Lily Donahue has joined the NHI Board of Directors. As many of you know, Lily served as the CEO of Holiday Retirement from 2016 to 2022, overseeing a portfolio of more than 300 independent living communities in 46 states. She brings an extensive and diverse set of skills to the NHI Board. Her deep experience in senior living operations obviously makes her a great fit for us in these early stages of our growing SHOP platform. I will now turn the call over to Kevin. Kevin? Kevin Carlton Pascoe: Thank you, Eric. Starting with investment activity and the pipeline, NHI had a great year in 2025 with $392.4 million in investments at an 8.1% average initial yield. As Eric noted, the fourth quarter was particularly active, with investments of $217.5 million, and 2026 is off to a solid start. In February, we announced our largest SHOP acquisition to date of $105.5 million for nine properties in Kentucky, South Carolina, and Tennessee. We expect an initial NOI yield for the first year in the high single-digit range when including routine CapEx. Allegro Living Management is the new manager for these properties, so we expect some transitional impacts in the first year but forecast solid double-digit growth in year two. Allegro is an affiliate of Spring Arbor Management, whom we have worked with since 2024, and has extensive experience in these suburban markets that Eric described earlier. Our total investment with Spring Arbor is now $227 million, and we are looking at opportunities to continue to grow with them. On that note, the pipeline is as active as ever which gives us confidence that we can meet or exceed last year's total investments. We currently have $110.6 million under signed letters of intent, primarily in SHOP, and we are evaluating an incremental pipeline of $488 million, all in senior housing. This figure excludes any portfolio deals, but I will add that we are reviewing several of these large potential investments. We expect that the acquisition environment will remain incredibly strong for several years which necessitates that we understand how each of our properties either fit or does not fit within NHI's strategic outlook. As a part of this ongoing process, we have planned dispositions of seven buildings with six different operators. These properties are not strategically important, so we believe that we can better reallocate our resources to focus on relationships with much more growth potential. Turning to our operating performance, total SHOP NOI increased by 124.9% compared to 2024 due to the transition of seven properties on August 1 and the acquisition of four properties on October 1. The same-store NOI on the 15 legacy Holiday properties declined by less than 1% year over year but increased 8.7% sequentially from the third quarter. For the year, our same-store NOI increased by 7.6%, and our 2026 guidance contemplates a 7% to 8% increase, which is more heavily weighted to the second half of the year as occupancy recovers and the 16 units we discussed last quarter come back into service in May. The 11 properties that we transitioned and acquired contributed $4.1 million to the fourth-quarter SHOP NOI and are performing in line with expectations. We expect double-digit NOI growth from this group as it enters the same-store portfolio later this year and early next. Across the triple net portfolio, we are generally experiencing the continuation of solid trends with no rent concessions, continued collection of deferred rents from Bickford in excess of expectations, stable occupancy, and EBITDARM coverages. Cash lease revenue increased approximately 7.2% year over year driven primarily by acquisitions, successful transition of properties formerly operated by SLM, and annual escalators. Deferral collections of $1.9 million actually decreased by 17% compared to the fourth quarter of last year, which we regard as a success as our outstanding balances have largely been collected at this point, and we do not expect to report on this metric going forward. While total collections declined, the Bickford repayment increased by 38% to $1.5 million in the fourth quarter, and they had an outstanding balance of $7.6 million at December 31. We continue to expect that Bickford's cash rental revenue will increase in total dollars at the April 1 rent reset, and we will be able to provide more details on the next conference call. The pipeline continued to be active with triple net senior housing deals as we do not think every property is a fit for SHOP. We are also getting more creative with certain targeted lease underwriting to maintain flexibility for potential SHOP conversions. As an example, we purchased a property in Jamison, Pennsylvania for $52.1 million, which is now operated by Priority Life Care. Priority is a new relationship for NHI, but they are a well-established operator with over 60 properties across 12 states. The lease is unique as it is a five-year lease at an initial yield of 8%, plus a revenue participation feature that could add another 25 to 50 basis points. There are also provisions in the agreement that would convert the property to SHOP, which we anticipate potentially triggering. That concludes my remarks, and I will now turn the call over to John to discuss our financial results and guidance. John? John L. Spaid: Thank you, Kevin, and hello, everyone. This morning, I will provide details on our fourth quarter and full-year results, review our financial strength, including our updated leverage policy, and conclude with our financial outlook for 2026. I will be using average diluted common shares for all per-share results. For the quarter ended 12/31/2025, our net income per share was $0.80, a decrease of 15.8% from the prior year. Recall that in the prior-year period, we recognized a $6.3 million noncash gain related to derivative accounting for forward equity sales agreements, as well as a $5 million gain on sales of real estate. For the twelve-month period ended 12/31/2025, our net income per share was $3.02 compared to $3.13 in the prior year. Our NAREIT FFO results per share for the fourth quarter and full year compared to the prior-year periods decreased 1.6% and increased 2.2% to $1.22 and $4.65 per share, respectively. The prior-year period's NAREIT FFO benefited from the aforementioned $6.3 million gain from derivative accounting. Our normalized FFO results per share for the fourth quarter and full year increased 8.9% and 10.6% to $1.22 and $4.91 per share, respectively, compared to the prior-year periods. Several one-time items helped us achieve these strong normalized FFO results. During the year, we recognized gains from equity method investments of $3.7 million, up from $400,000 in the prior year. We also recognized a $3.4 million benefit to our credit loss reserves compared to a credit loss expense of $4.6 million in the prior year. Finally, we recognized $3.9 million in cash rental income upon lease terminations, which excludes noncash write-offs of straight-line rents receivable and excludes noncash rental income related to operations transfers attributable to the third-quarter SHOP transition properties, which benefited both normalized FFO and FAD. FAD for the fourth quarter and full year compared to the prior-year periods increased 11.1% and 13.7% to $57.9 million and $232.1 million, respectively. As Kevin noted, NOI from our 26-property SHOP segment for the quarter ended December 31 increased 124.9% to $7.3 million compared to the prior-year period. Our 15-property same-store SHOP portfolio NOI declined 0.9% to $3.2 million from the prior-year fourth quarter but was sequentially up 8.7% from the third quarter. Subsequent to the end of the year, we added an additional nine properties to our SHOP segment, which brings our total investment in SHOP to $740 million. Our 2026 guidance released last night included our NOI expectations for these properties to be $39.6 million at the midpoint. We believe that the 5.4% yield on our current in-place SHOP invested capital continues to represent substantial NOI growth upside for the company. I will talk more about our 2026 guidance in just a moment. Interest expense for the fourth quarter was down 6.4% year over year, while weighted average common diluted shares were up 5.4% to 47.9 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. Cash G&A increased 39.9% to $6.6 million compared to the year-earlier period, while legal expense declined $400,000. During the quarter, we closed on new investments totaling $217.5 million. For the year, we made $392 million in new investments, the highest level since 2016. This volume reflects both the success we have with converting existing loans into fee simple ownership as well as the redeployment of over $93.3 million in other loan investment payoffs during the year. Our net deployment of new investment capital represents a 42% increase year over year. During the quarter, we settled approximately 600,000 common shares from our Q2 2025 forward ATM equity activity with proceeds of approximately $46.2 million at an adjusted forward price of $71.87 per share after fees and forward costs. At 12/31/2025, we have remaining escrowed forward equity proceeds of approximately $44.5 million available to us in exchange for the future delivery of 600,000 common shares at an average price of $69.23 per share. We ended the year with $19.6 million in cash on our balance sheet, $496 million in revolver capacity, and also had $315.8 million available on our ATMs assuming the settlement of our forward equity sale agreements. Our balance sheet ended the fourth quarter in great shape. Our net debt to adjusted EBITDA ratio was 3.8 times for the quarter, and our available liquidity was approximately $875 million attributable to the cash on our balance sheet, excess revolver, forward equity, and additional ATM capacity. We are also announcing today a change in our leverage policy. We are lowering our leverage policy from a range of four times to five times to a range of three and a half times to four and a half times net debt to adjusted EBITDA. Our lower leverage policy reflects the importance we place on our investment grade rating, and also reflects the changes to our debt service coverage ratio in this higher-for-longer interest rate environment. Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for shareholders of record 03/31/2026, payable 05/01/2026. Last night, we introduced our full-year 2026 guidance, and I previously touched on some of our SHOP expectations. For 2026, we expect NAREIT FFO and NFFO per share at the midpoint to grow 6.9% and 1.2%, respectively. We expect total FAD at the midpoint to grow 7.8% to $250.2 million. Our full-year 2026 guidance includes $230 million in additional future investments, at an average NOI yield of 7.8%, comprised of approximately 70% SHOP investments, which we believe is a conservative assumption for the year. Excluded from our guidance is any assumption for the early resolution of our NHC lease, which matures 12/31/2026. Negotiations are ongoing; we expect to have more to report as the year progresses. Capital markets activity in our initial 2026 guidance currently only reflects the settlement of our remaining forward equity and the retirement of our upcoming debt maturities using proceeds from our revolver. However, we expect our capital markets activity to adjust as required to meet the company's liquidity needs due to changes in the timing and the amount of our investments and dispositions. So once again, thank you for joining our call today. That concludes our prepared remarks. Operator, please open the lines for questions. Operator: Thank you. At this time, we will be conducting our question-and-answer session. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Farrell Granath with Bank of America. Farrell Granath: I first just wanted to start off with a question on the same-store SHOP guidance for 2026. I know that last quarter, there was some commentary around taking corrective measures and that we could potentially expect double digits in 2026 in that same-store portfolio. So curious if this initial guidance is reflective of just what you are seeing today? And how should we think about the timing of these corrective measures, which could potentially provide upside to that guidance? Kevin Carlton Pascoe: Sure. This is Kevin. I would tell you overall, the way we conduct ourselves is we want to deliver something that we feel very confident that we can achieve, and there should be opportunity within the portfolio from there. So it is a bit of an under-promise, over-deliver. We do have some things that are going to take place in the back half of the year. We mentioned that we have one building where 16 units are coming online. That building is nearly 100% occupied. So that will be additive. Those units do not come on until May, and then we expect that it will grow through the balance of the year. We are not expecting everybody to move in all at once. We have got a number of things that we are focused on with the portfolio. We are focused on sales pipeline, building the funnel. Typically the first part of the year is a little bit softer with holidays and coming out of the winter. So we do expect better results in the second half of the year. Farrell Granath: Great. Thank you. And also just touching on your SHOP pipeline, especially seeing the momentum that you picked up in the second half of ’25 and then now what we have seen under LOI and in the pipeline for ’26. Is it fair to expect that momentum can continue going forward into ’26 at the level that you are potentially able to achieve now? Kevin Carlton Pascoe: That is our expectation. We give you guidance based on what we have and what we feel like we have reasonable visibility into and what we can execute on. But as you noted, we outpaced the expectation that we set at the beginning of last year and we are working to do the same this year. Operator: Thank you. Our next question is coming from Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is live. Austin Todd Wurschmidt: Just, Eric, I wanted to go back to NHC, and I am wondering if it feels like the lease negotiations with the group are moving forward and maybe more importantly, constructively moving forward? And what is the probability that you think you will reach a resolution in the next, you know, three to nine months? D. Eric Mendelsohn: Hey, Austin. This is Eric. We are in the thick of it right now, so I would describe our posture as we are in a quiet period regarding NHC. Austin Todd Wurschmidt: Understood. Appreciate that. And then from the SHOP challenges that you guys have faced, and you have talked about where you would have expected annualized NOI to restabilize a couple of years ago. Has that changed your approach to either underwriting new deals or how you are structuring management agreements to provide any added flexibility moving forward? Kevin Carlton Pascoe: Sure. This is Kevin. I would say it definitely impacts the way we think about deals, but we are also focused on more senior housing campus-style products, ones that have assisted living and memory care. You recall these are former Holiday properties that we are not the only ones that have had some issues with. But making sure that we have a bit of that continuum—where the need-driven component is a part of the deal—is something that we are focused on. As you touched on, our management agreements are such that we do have flexibility should we need to make a change. That is never our desire. Changes are very disruptive to the property, but if we need to, then we have that ability. Austin Todd Wurschmidt: Got it. And then just last one. Eric, you had highlighted the targeting of secondary suburban markets for deals. What is the long-term growth profile for those markets just given the demand and affordability? And how would you characterize the labor pool for the markets that you are focused on? D. Eric Mendelsohn: Thanks. Great question, Austin. We definitely pay attention to labor. For example, we tend to avoid Indiana because it has a tough labor market, and the buildings there tend to run a lot of agency labor. But it is no secret that there is a lot of migration from coastal areas to places like Tennessee and other places in the Midwest where housing and cost of living are more affordable. So for the time being, as we look at Bickford and other Midwestern operators, they are able to staff their buildings with full-time employees and not have to utilize any agency labor. Austin Todd Wurschmidt: And just from a growth profile perspective for those types of assets, how do you think about that over time? D. Eric Mendelsohn: When you look at our pipeline, we are pleasantly surprised at the number of deals and opportunities we are seeing now that we are gung-ho on SHOP and RIDEA. So growth for us is more of an issue of managing it and underwriting it responsibly rather than trying to find it. Austin Todd Wurschmidt: Okay. Thanks for the comments. Operator: Thank you. Our next question is coming from Juan Sanabria with BMO Capital Markets. Your line is live. Juan Sanabria: Good morning. Just hoping you could help us think about the SHOP growth and the guidance for ’26. Recognizing there are some struggles with the ex-Holiday portfolio, can you compare and contrast what is not in the same-store pool and how that is performing versus the same-store pool, and kind of the expectations on occupancy and rate so we can get a more holistic picture rather than just focus on same-store? Kevin Carlton Pascoe: Sure. This is Kevin. I will try and address your question—if I miss something, please re-ask. When we are looking at what is not in same store right now, recall that two of them are transitions: one transitioned from triple net to SHOP, and another is a transition to a new operator. We did have some transitional impacts through the second half of 2025, and on the newest we will have some transitional impacts that we experience in 2026. There has only been one of those that retained the current manager, and that group is performing to expectation. We feel very good about where they are at from an operations standpoint. Overall, we are making sure they are putting in the right systems and people. We feel like they have done a very good job of that. They are building their funnels. We are able to pass through some rate increases, but we are doing that responsibly to make sure that we are not losing occupancy while we go through these transitions. If we look at this, it is more of a forward look—there might be a little bit of noise in the near term. Overall, the transitions have gone pretty well. Pulling one out, the transition we did last year performed better than expectation through the second half of the year. We just finalized our budgeting process and have some solid growth expectations for them this year. You will see those roll into the same-store starting fourth quarter of this year. So you will have a little more incremental visibility on that piece here in the next couple of quarters. Juan Sanabria: That is helpful. And maybe going back to Austin's question in a different way: Holiday is maybe a unique situation, but what have you learned that you think prepares you better to deal with the growing pains in SHOP or under transitions, etc., that should give us confidence about investment activity in SHOP as you look to grow pretty significantly with the compelling supply/demand opportunity? D. Eric Mendelsohn: Hey, Juan. This is Eric. I would just remind everyone that the Holiday SHOP was more of a science experiment that we backed into when Holiday sold to Atria and Welltower. We have put a lot of CapEx in those buildings. We have changed managers. And as we compare them to the same Holiday buildings that are at Ventas and Welltower, from what we are able to surmise, we are doing as good or better than they are with those buildings. Our new SHOP portfolio, the not-same-store group, I feel very positive on. I would also point out that it is assisted living and memory care, not just independent living. And these buildings are performing well from the get-go. We look at them with an eye towards double-digit growth, and we verify that with the operator when we do our pro formas and budget for year two growth. As Kevin said, I think you will start to see our same-store perk up in the third and fourth quarter when the one Holiday building has units that come online and when the Sinceri buildings become same store. Juan Sanabria: And just last question for me. How should we think about the pricing power and the ability to drive rate in some of these secondary markets? I am not sure about the affluence around some of these assets or the ability to drive pricing with the target customers. Kevin Carlton Pascoe: Sure. This is Kevin again. Every market is different. We are underwriting the local market fundamentals of each building that we are looking at, so each one is different and it is hard to generalize. One thing I will say is based on the margins where they are at, if you can increase rates 5% a year and hold your expenses to less than four, that is going to be 7% to 8% growth. We think that is very achievable, and we think there is potential for additional growth beyond that on the revenue line in a lot of these. We like our chances here. We are building a very good portfolio. We like our operating partners and their ability to pass through those increases, if not more. That is kind of in line with what we have seen with our triple net portfolio as well. So I think we can do as good or better. As John mentioned in his comments, we can continue to get some margin expansion as we grow the SHOP segment. That is going to add additional growth for us. Juan Sanabria: Thanks for that. Appreciate it. Operator: Our next question is coming from William John Kilichowski with Wells Fargo. Your line is live. William John Kilichowski: Good morning. This is Jesus on for John. Thanks for taking the question. Just to switch gears a little bit on the $111 million of dispositions in guidance. It looks a little bit higher than what we were expecting. Can you walk us through what is driving the higher volume, specifically what assets are being sold? And is it primarily capital recycling going to SHOP, or including other non-core assets? Kevin Carlton Pascoe: This is Kevin. It is really an operator relationship situation coupled with the underlying asset not being core to NHI. The profile of the communities is largely senior housing, but they are not relationships we are going to grow. They are triple net in nature. And they are intensive from an asset management standpoint. We feel if we can move the capital to the relationships where we are going to have additional growth—not only from a triple net or a SHOP deal that we do from the proceeds, but also where we are going to get additional volume out of that customer—and be less intensive from an asset management standpoint, that gives us a little more efficiency. We have hired a fair amount of folks for asset management. We are building out our bench and our analytics competencies. We feel good about where we are at, but we need to make sure we are focusing them on the pieces that are going to be meaningful to NHI. And that is really what these dispositions are born out of. Generally, we like to hold on to income, but I think this is the right decision to make sure that we are focusing our team. William John Kilichowski: That is great. And just a quick follow-up on NHC to the extent you are able to comment. If you do renew the lease, how does that impact what you could reposition or sell versus earlier discussions where you were talking about rotating into SHOP from this portfolio? Would it be an all-or-nothing scenario? D. Eric Mendelsohn: Could you ask that again? So if we do renew the lease, then what? William John Kilichowski: How does that impact what you could reposition versus sell, I guess? Because you were talking about some dispositions potentially being involved with this and rotating some capital. D. Eric Mendelsohn: Fair question. If we were to sell some of the buildings, those proceeds would be redeployed, and the answer is yes, it would be redeployed into SHOP. William John Kilichowski: Thanks, guys. Operator: Thank you. Our next question is coming from Rich Anderson with Cantor Fitzgerald. Your line is live. Rich Anderson: Hey, team. Thanks. Good morning. So the 7% to 8% SHOP same-store NOI guidance—just to clarify, that is still just the 15 legacy Holiday assets. Is that correct? Kevin Carlton Pascoe: Yes, Rich. Yes, that is correct. Rich Anderson: Okay. And I think you said your longer-term view on SHOP growth is sort of high single-digit, low double-digit. Is that also correct? You sort of get a step up after you address some of the issues that are going on in the legacy portfolio. Is that the right way to think about it? John L. Spaid: Yes. Rich Anderson: Okay. I am obviously leading up here. So at 9.3% of the portfolio today, SHOPs as of the end of the year, what is your target in terms of how big SHOP can become as a percentage of the total? And do you still think, from a growth perspective—because you are seeing SHOP growth approaching 20% from some of your larger peers. That has a lot to do with occupancy lift. Is your same-store offering more of a rate growth versus expense growth phenomenon and less about occupancy lift? How are you approaching the same-store profile of SHOP going forward and how big it could be in a couple of years from now? D. Eric Mendelsohn: In terms of growth of NOI for the company, we have told people that last year we doubled from five to roughly 10. And this year, we could easily double that again to 20, with an eye towards getting it up to 30 or beyond in terms of percentage of SHOP. I still feel like that is achievable and on track. I understand we have some catching up to do, but as you can see by our pipeline numbers, it is easier to find new deals when you are looking for SHOP and RIDEA, not so much with leases. In terms of same-store growth, I think the opportunity is one of margins. We see on the Holiday portfolio a lot of margin opportunity, and on the new not-same-store portfolio, rate opportunity and, frankly, experienced operators taking over from mom-and-pop operators who are not getting the margins that they could. Rich Anderson: Okay. So it is a—again, a lot of your peers are getting this occupancy lift, which is not a forever situation. Yours is more of a stabilize and margin story, and something in the 10% range on a foreseeable future type of— Kevin Carlton Pascoe: That is fair. John L. Spaid: Okay, Rich. This is John. Let us just be honest about the makeup of our SHOP portfolio. It was comprised of the Holiday assets, which Eric touched on before. It is also comprised of these assets that we transitioned away from Discovery to Sinceri. That was the whole point of my discussing the return on invested capital that we are currently experiencing. We strongly believe in the potential of these assets. We have to unlock the margin to improve that, and that is why we are talking about that. And at the same time, growth will help us improve our metrics over time as well. Rich Anderson: Switching gears. On the outlook for this year, and the $7.6 million of remaining Bickford rent repayment left. Do you expect that all to be paid back in the next year or two? What is the cadence of that payback? Kevin Carlton Pascoe: What I would have you think about is once the rent reset happens, there is less cash flow overall to pay at least at the same rate. It is not something that we are just going to let go for free. We will be discussing with them what type of alternatives there are to pay that remaining balance or various other things that we can negotiate over that give NHI value. It would probably still take them a handful of years to pay that off if we just reset the rent and then revise the formula and have it pay out. We are not looking to take every last dollar from them. They still have to make sure they pay their people and invest in the company. We are going to be mindful of that, but it is not going to just go away. NHI will get value out of it. John L. Spaid: Kevin, that is April, right? The next one? Kevin Carlton Pascoe: That is correct. Rich Anderson: Lastly, DOC is drawing some attention to CCRCs these days. When you think about your entrance fee CCRC portfolio, are you seeing any more activity on the ground in terms of transactions and renewed interest in the space? Any comment there? Kevin Carlton Pascoe: The answer for us is it has been a very good portfolio, and we very much appreciate working with our operating partner there. It did wonders through COVID and continues to perform very well. It is always been something that we have had an eye on. We are mindful of our concentrations there and want to make sure we do not get upside down. We will continue to look at those opportunities. There are a few in the marketplace that we have been looking at, but we are also going to make sure we are rigorous with our underwriting criteria. So it is on the table, not necessarily a direct focus, but something that we will approach opportunistically. We have some great operating partners that do that space very well, so it is something I think we should continue to look at. Rich Anderson: Okay. Got it. Thanks very much. Kevin Carlton Pascoe: Thank you. Operator: Thank you. As a reminder, ladies and gentlemen, if you have any questions or comments. Our next question is coming from Omotayo Tejumade Okusanya with Deutsche Bank. Omotayo Tejumade Okusanya: Yes. Good morning, everyone. Quick question again on the Bickford deferred rent. When you talk about getting value for the remaining amount of deferred rent, could it be— I know in the past, you guys have done this structure where rather than getting the rent, you just lowered the value of any acquisitions you were buying from Bickford. Could it be something like that that you continue to do to make sure you get value for that remaining deferred rent? Kevin Carlton Pascoe: Sorry, Tayo. I missed part of your question there. You were asking what value we can get from Bickford in lieu of cash. That is the question? Omotayo Tejumade Okusanya: Yes. Exactly. So I know in the past, sometimes with the deferred rent, rather than get the rent, you just lowered the valuation of an acquisition that you were making from Bickford. Is that more of what we should expect to see? Kevin Carlton Pascoe: I do not want to guide you to anything specifically. We have the reset coming up April 1, so we will be finalizing where rent sits going forward this month. But yes, you are on the right track in terms of what value is out there. We have built several buildings with Bickford. There is still another one remaining that could have some value like that. There were some other developments that we had looked at in the past. There is some reimagination of the portfolio, whether we prune a little bit—I would not think those are going to be huge numbers of buildings—but there is potentially some addition by subtraction that could help us get additional rent. We have a number of options, but there is a formula in place in terms of how rent gets set. That will be the baseline. We believe that we are going to continue to get the aggregate number of rent that Bickford paid and then some going forward. And just as a reminder, they paid $5.3 million last year. They have been really moving down that repayment number at a steady clip. We are happy with where we are at with them. We have got a little more work to do, but we are in a pretty good spot. Omotayo Tejumade Okusanya: Gotcha. And then one follow-up. With the reset, at some point there was also the option of going with another operator and potentially looking at that option. Is that still on the table at this point, or are we firmly in the world of renegotiating with NHC? D. Eric Mendelsohn: I would say that we are in a quiet period. We are in the thick of it right now, Tayo. I just have to be careful what I say. Omotayo Tejumade Okusanya: Fair enough. Alright. Thank you. Kevin Carlton Pascoe: Thanks, Tayo. Operator: Thank you. As we have no further questions on the lines at this time, I would like to turn the call back over to Mr. Mendelsohn for any closing remarks. D. Eric Mendelsohn: Thanks, everyone, for joining today and for your interest, and we will see you at a conference sometime soon. Operator: Thank you. Ladies and gentlemen, this does conclude today's call, and you may disconnect your lines at this time. We thank you for your participation.
Robert Blum: From the company are Fei Chen, Chief Executive Officer, and David Kowalczyk, the company's Chief Financial and Chief Operating Officer. Before I turn the call over to management, let me remind listeners that there will be a Q&A session at the end of the call. To ask a question through the webcast portal, simply type your question through the Ask a Question feature in the webcast player. Before we begin with prepared remarks, we submit for the record the following statement. This conference call may contain forward-looking statements. Although the forward-looking statements reflect the good faith and judgment of management, forward-looking statements are inherently subject to known and unknown risks and uncertainties that may cause actual results to be materially different from those discussed during the conference call. The company, therefore, urges all listeners to carefully review and consider the various disclosures made in the reports filed with the Securities and Exchange Commission, including risk factors that attempt to advise interested parties of the risks that may affect the company's business, financial condition, operations, and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, the company's actual results may vary materially from those expected or projected. The company, therefore, encourages all listeners not to place undue reliance on these forward-looking statements, which pertain only as of this date and the date of the release and conference call. The company assumes no obligation to update any forward-looking statements to reflect any events or circumstances that may arise after the date of this release and conference call. With that, I would like to turn the call over to Fei Chen, CEO of LiqTech International, Inc. Fei, please proceed. Fei Chen: Thank you, Robert, and good day to everyone on the call. 2025 represented a meaningful step forward for LiqTech International, Inc. For the whole year, revenue increased 13%, driven by a 49% increase in total systems and aftermarket revenue, and we made improvements to drive efficiencies across much of our business. That shift toward higher value system sales is central to our long-term strategy and reflects growing adoption of our silicon carbide membrane technology across multiple end markets. We were a few shy of our original revenue guidance. This was primarily due to continued delays with a large OEM in the gas order that remains active in our pipeline. The project is still under discussion, but as we have consistently communicated, the timing of large oil and gas projects is difficult to predict. That said, we understand that we cannot be unpredictable. Our focus needs to be, and is, on building a diversified systems portfolio with stronger visibility and an improved margin profile going forward. In many ways, this has been consistent with our approach since I took over as CEO: to focus on more predictable parts of our business, such as swimming pools, which will be a key driver going forward. We are certainly amplifying this approach in terms of how we allocate our resources. Our commercial pool business was a standout performer in 2025 and delivered the strongest year in the company's history. We shipped 34 pool systems during the year, a new record for LiqTech. Of those, 24 systems were delivered in 2025, with the remaining 10 scheduled for delivery in early 2026. Pool system revenue totaled $2.6 million for the year and was the percentage driver of growth within our systems segment. All systems shipped during the year were based on our proprietary ClariFlow commercial pool filtration platform. ClariFlow is designed to meet the increasingly complex operational, regulatory, and space requirements facing modern aquatic facilities. Compared to conventional media filtration, our system delivers stable and reliable water quality while enabling greater automation and operational efficiency. Its compact and modular design makes it particularly well-suited for retrofit installations where equipment room space is limited—an increasingly important consideration for operators upgrading aging infrastructure. The required number of system sales reflects growing customer acceptance and increasing confidence among both operators and distribution partners. We see clear momentum as facilities prioritize water quality, automation, and space efficiency, and ClariFlow is emerging as a compelling alternative to traditional filtration methods. We have also made structural improvements to the pool system itself. Our newer modular design is standardized and cost efficient, which improves gross margins and simplifies installation. Unlike oil and gas systems, which often are highly customized to specific customer needs, pool systems are increasingly becoming repeatable, off-the-shelf solutions. This makes the market segment both more scalable and profitable. From a distribution standpoint, we recently expanded our relationship with Bandwidth in the UK into an exclusive distribution agreement, subject to minimal annual system volumes. In addition, we are seeing interest from US-based swimming pool companies. In these days, we are working on the final details for the first US swimming pool project. We see the potential opening of a very attractive growth market. All told, we have shipped pool systems in six different countries in 2025 and look to extend that this year. Based on the guidance we have provided, we expect pool revenue of approximately $5 million to $6 million in 2026, which compares to $2.6 million in 2025, reflecting continued mass adoption and delivery of systems already in backlog. Turning to water for energy. Oil and gas remains an opportunity, but it continues to present timing challenges. We are engaged with multiple providers, both large and small, and the delayed order that impacted 2025 guidance remains under discussion. As mentioned, these systems are typically highly customized, which not only makes timing unpredictable, but also impacts our margin profile. While we continue to pursue this segment and see potential opportunities with partner companies such as NASA in the Middle East, and ongoing trials through Razorback Direct in North America, we are going to be disciplined in how we allocate resources, and we are no longer basing our operating plan on difficult-to-predict customer timing, no matter how promising they may be. Where we are seeing encouraging and increasing tangible traction is within broader water-for-industry applications. The successful delivery and commissioning of our advanced membrane-based filtration system for oily wastewater at North Star BlueScope Steel has been a key proof point. The system was designed to resolve recurring filtration disruptions of polymer membranes caused by high oil content and variability in wastewater, which has given our customer costly and difficult experiences. Our system has demonstrated strong performance. This project has reinforced our belief that industrial wastewater treatment can become a larger and more stable contributor to our business. Industrial systems tend to be more standardized than oil and gas projects, which supports better margins and shorter sales cycles. We are seeing increased interest across multiple industry verticals, and to support this growth, we added dedicated sales resources to expand our industry presence in the US. In further support of our US growth strategy, we also opened a dedicated service center in Texas in partnership with Halo Systems this past November. This facility enhances our ability to support customers in the water-for-energy and water-for-industry segments by providing certified technicians, spare parts availability, remote and on-site technician support, and system maintenance and repairs. To scale in the US market, localized service is critical. The service center not only strengthens customer support but has already begun to contribute to new business development by increasing customer confidence in our long-term commitments to the region. Going ahead, we believe we will see strong contributions from the industrial side of the broader energy segment, with upside opportunities from the more specific oil and gas markets. In total, we are expecting water-for-energy and water-for-industry-related revenue of $5 million to $8 million. This compared to $4.1 million for this market segment in 2025. We are happy to see that our marine segment is building momentum, particularly through our joint venture in China. During 2025, we broke ground on a new marine-focused R&D center in Mentong and completed a regional spare parts warehouse to strengthen service capabilities for our growing marine customer base. These investments are designed to support the development and localization of marine silicon carbide membrane water treatment units for dual-fuel engine vessels, on-board water purification, and reuse. By increasing local assembly and sourcing within China, we are improving supply chain resilience and cost competitiveness in the market. We strongly believe that silicon carbide membrane technology will continue gaining adoption in new marine vessels equipped with dual-fuel engines, driven by its durability, chemical resistance, and energy efficiency. We ended the year with three marine orders for eight commercial vessels in backlog, scheduled for delivery throughout 2026. Marine revenue, including service sales, was approximately $1.5 million in 2025, and we are targeting approximately $4 million in 2026, reflecting good market adaptation of our membrane filtration technology. Looking at the broader systems business, including pool, water for energy, water for industry, and the marine side, our expectation is that we will generate revenue of $14 million to $18 million. This would be up from $8.2 million in systems revenue in 2025, showing growth of about 70% to 120%. This is a key reason why we are so excited about the future. Beyond our systems business, we also have our legacy DPF and membrane business and the plastics business, which remain stable contributors to our operations. Combined, this segment represented approximately $8 million in revenue in 2025. We expect this part of our business to remain reasonably stable in 2026, and in a cautious outlook, anticipating total revenue from the two groups combined to be slightly increased to $9 million in revenue. Looking at 2026, we expect revenue in the range of $23 million to $27 million and positive full-year 2026 adjusted EBITDA in the middle to high range of the revenue guidance, assuming constant currency. Growth is expected to be driven primarily by continued expansion in pool systems, industry applications, and marine. The range in our revenue guidance largely reflects the continued unpredictability of oil and gas project timing. Our strategic focus remains clear: scale standardized, higher-margin system platforms. We are maintaining disciplined cost control and operational efficiency with the goal of near-term profitability. Let me now turn the call over to David to review the financials in more detail. I will then make a few closing comments and look to open the call for your questions. Robert Blum: David? David Kowalczyk: Thank you, Fei, and good day, everyone. Let me take some time diving into the financial results in a bit more detail and add some color to what was in the press release. Please note that I will keep my remarks focused primarily on the year-over-year changes. Let us start with revenue. Revenue for the year came in slightly above $16.5 million, up from $14.6 million a year ago. Broken down by verticals, sales for the year were as follows: systems and aftermarket sales of $8.2 million compared to CHF 5.5 million in the prior year; DPF and ceramic membrane sales were $4.0 million, down from $5.6 million in the prior year; and finally, plastic components revenue came in at $4.1 million compared to $3.4 million last year. The increase was mainly due to increased deliveries of systems to pool, energy, industry, and marine water treatment, and components plastics, partly offset by decreased sales of filters. The increase in deliveries of system was mainly driven by increased deliveries within pool filtration industry systems. The increase in components mainly within machine building for the food industry. The decrease in sales of filters was primarily driven by a refocusing of our strategy to capitalize on subsegments where we see increased future demand for DPF outside automotives. As Fei mentioned, the delta between our recent expectations for 2025 and actual results was primarily due to the delay in a larger oil and gas system, which remains in our pipeline that we have not yet received the purchase order for. Turning to gross margins, margins for the year were 7.6%, compared to 1.7% in 2024. As we continue to be below our optimal revenue level, we continue to have fixed production costs that are not being fully absorbed, and thus lower-than-normalized gross margins. A couple of key notes are that part of the increase in gross margins was due to the higher level of overall revenue, as our contribution margins are typically on average in the 40% area. We do have some fluctuations between market segments, as you know, however, this was offset by the investment of resources into deliveries of containerized oil and gas systems to the US, which contributed to lower-than-usual margins, reflecting a strategic decision aimed at demonstrating the validation of our value proposition associated with our technology and seeding the market for future growth. As we move forward, a key focus will be on leveraging our standardized systems, which inherently are higher margin. This means more focus on pools, industrial applications, marine applications, and membrane sales. Turning to OpEx. Total operating expenditures for the year were $9.6 million compared to €9.7 million last year. Breaking it down, selling expenses for the year were CHF 2.7 million compared to CHF 2.7 million last year. This development was partly driven by full-year effects of savings made in 2024, lower accounts receivable write-offs and provision needs. These effects were partly offset by costs associated with our newly formed joint venture in China, costs for outbound distribution including tariffs to the US, and expenditures related to external sales consultancy services, which also increased in 2025. General and administrative expenses for the year ended December 2025 were $5.7 million compared to $5.7 million in 2024. Underlying development in local currencies, Danish kroner, was a 4% improvement compared to 2024. This development was due to savings made in 2024, partly balanced by filling the CFO position and other open positions. Research and development expenses for the year were $1.2 million compared to $1.4 million in 2024. The decrease was primarily due to a more focused R&D strategy, with fewer ongoing projects and reduced average number of employees engaged in external research and development activities. For the year, adjusted EBITDA was negative $5.0 million compared to negative CHF 6.1 million last year. Turning to our guidance for 2026, we are expecting revenue to be in the range of $23 million to $27 million. As we break this down, we are anticipating that our broader water-for-energy and water-for-industry business will be between $5 million and $8 million. We believe our pool business will be in the range of $5 million to $6 million. Our marine business would be about $4 million, of which 60% will be from new systems and 40% from our recurring service business. And finally, our legacy DPF and plastics business will be about $9 million. We target a positive full-year 2026 EBITDA in the mid to high range of the revenue guidance, assuming constant currencies. And finally, from a cash perspective, we ended the quarter with £5.1 million in cash. Everything else was pretty much in line with our normal operating procedures from a balance sheet perspective. And with that, let me turn it back to Fei. Fei Chen: Thank you, David. To close things out before I turn over to questions, our silicon carbide filtration platform is central to how we address increasingly complex global water challenges. Built on advanced ceramic membrane technology, our solutions are designed to operate reliably in some of the harshest and most demanding treatment environments, from produced water in energy applications to commercial pool systems and heavy industry wastewater streams. As European customers meet strict environmental regulation while lowering water usage and energy intensity, we provide practical, high-performance solutions that support long-term sustainability goals. The momentum we generated in 2025, including record pool system sales, progress in produced water, marine system deployment, and industry installations such as our project with a major steel producer, demonstrates the expanding global recognition of our technology's value. As we look ahead, our direction is well defined. We are prioritizing growth in our most attractive verticals, particularly food industry applications and marine. We are remaining disciplined in execution across the organization. At the same time, we remain firmly focused on scaling the business to achieve profitability and positioning LiqTech International, Inc. for durable, profitable growth over the long term. Again, thank you everyone for your support. This week, as Robert said, we would be happy to take any questions. Robert Blum: All right. Thank you very much, Fei and David, for those prepared remarks. I want to remind everybody that is listening to the webcast player: to ask a question, simply type in your question through the Ask a Question feature in the player there. We will do our best to get to as many questions here as possible. There are a few already in the queue here, Fei and David. So the first one here is: when can we expect revenue from the large oil and gas order pushout to be booked? David Kowalczyk: That is a good question. And, of course, as we mentioned, it is a bit, you can say, in the hands of the customer. But we definitely would expect, you can say, the oil and gas project to materialize in this year, essentially, 2026. We do not know the precise timing, but ideally Q2 finalization. Robert Blum: Okay. Very good. The next question here is: do tariffs affect your US oil and gas business? Are your products competitively priced? Fei Chen: This is a very good question, and because the tariffs are a moving target, we really have our focus on that. Up to now, we have been able to have very good discussions with our customers, so we do not need to take all the tariffs on ourselves alone. Going forward, we are definitely looking at what is the best way for us to handle the tariffs and how we are able to keep our competitiveness. As we mentioned before, we are working very focused on the cost reduction of our product and also on standardization and efficiency, and that will somehow balance the tariff impact on our technology. Robert Blum: Okay. Very good. Again, a quick reminder to everyone: simply type your question into that Ask a Question feature in the webcast player if you do have any questions here. A couple of questions here pertaining to your need for capital here in 2026. Fei Chen: As you have heard today, we actually have laid out a very clear growth plan with a revenue guidance of $23 million to $27 million in 2026. So we are definitely evaluating how we are able to support this strong growth plan, and that means we are working at different financial options. Robert Blum: Okay. Very good. And it looks like this may be the final question, barring any last minute ones that may come in. And I think you have touched on this a few times, but to reiterate, what are the drivers of your 2026 revenue outlook of $23 million to $27 million? Fei Chen: This is a very good question also, as we used some time in our earnings call about this. What we really have to say to ourselves is we have to be really focused on a broader and diversified perspective and also work more on the verticals which have more risk visibility and higher predictability. So we are actually looking at growth in basically all our system segments. The pool system will have $5 million to $6 million coming this year, and the marine will grow from $1.5 million to $4 million. We said water for energy and water for industry will be $5 million to $8 million. There is a bigger range there because the oil and gas projects are more difficult to predict the timing. And the DPF and plastics plus the membrane area, we expect a slight increase from $8 million to $9 million. So, as you can hear now, the drivers are from the different verticals, and this gives us much more reliable, predictable revenue growth compared with before. Robert Blum: Okay. Very good. I am showing no further questions in the queue. So with that, I would like to turn the call back over to Fei Chen for closing remarks. Fei Chen: I would like to say thank you to all of you for being with us today. We look forward to communicating with you soon again. Thank you. Robert Blum: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the DiamondRock Hospitality Company Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Briony R. Quinn, Executive Vice President and Chief Financial Officer. Please go ahead. Briony R. Quinn: Good morning, everyone, and welcome to DiamondRock Hospitality Company's fourth quarter 2025 earnings call and webcast. Joining me today is Jeffrey John Donnelly, our Chief Executive, and Justin L. Leonard, our President and Chief Operating Officer. Before we begin, let me remind everyone that many of our comments today are not historical facts and are considered to be forward-looking statements under federal securities law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ materially from what we discussed today. In addition, on today's call, we will discuss certain non-GAAP financial information. A reconciliation of this information to the most directly comparable GAAP financial measure can be found in our earnings press release. We are pleased to report that we finished 2025 ahead of our most recent guidance estimates. For the full year 2025, we delivered corporate adjusted EBITDA of $297,600,000 and adjusted FFO per share of $1.08. Our free cash flow per share, defined as adjusted FFO less CapEx, was $0.69, a 6% increase over 2024 and a 22% increase since 2023. Full-year comparable total RevPAR grew 1.2% and comparable hotel adjusted EBITDA grew 1.1%. Turning to the fourth quarter, corporate adjusted EBITDA was $71,900,000 and adjusted FFO per share was $0.27. Comparable RevPAR declined 30 basis points in the quarter, slightly exceeding our expectations. The fourth quarter represented our most difficult comparison of the year, with RevPAR growth of 5.4% in 2024. Against that backdrop and the impact of the federal government shutdown in the quarter, we are certainly pleased with the portfolio's performance. Occupancy declined 130 basis points year-over-year while ADR increased 1.6%. By segment, business transient revenue led the quarter with 2.5% growth while group revenue declined 1% and leisure transient revenue declined 2.5%. We are particularly proud of the results achieved by our recently renovated assets, including The Cliffs at L'Auberge, now fully integrated into L’Auberge de Sedona, and the Kimpton Palomar Phoenix. In addition, our hotels in Destin, the Greater San Francisco market, New York, and Denver delivered standout results. Out-of-room spend proved more resilient than we anticipated. Total RevPAR increased 0.6%, representing a 90 basis point outperformance relative to RevPAR. This strength was concentrated in our resort portfolio, where out-of-room revenue per occupied room increased nearly 7%, the strongest quarterly growth of the year. Notably, out-of-room revenue per occupied room at our resorts accelerated sequentially throughout 2025, from 4% growth in the first quarter to nearly 7% growth in the fourth quarter. Food and beverage was a bright spot again for the third consecutive quarter. Food and beverage revenues increased 1.4%, with banquets and catering up over 2% and outlets up 0.5%. Food and beverage margins expanded by 120 basis points, aided by just a 50 basis point increase in labor costs. In practical terms, food and beverage profits increased by over 5% on just 1.4% revenue growth. Additional contributors to out-of-room revenue growth included spa, parking, and destination fees, each of which increased in the mid- to high-single digits, partially offset by slightly lower attrition and cancellation fees. Turning to portfolio segmentation, our urban portfolio, which accounts for 62% of annual EBITDA, delivered 0.3% RevPAR and total RevPAR growth in the fourth quarter. November was the softest month of the quarter when the impact of the federal government shutdown was most pronounced. The strongest RevPAR growth among our urban hotels was achieved by the Hotel Emblem San Francisco, the Denver Courtyard, Kimpton Palomar Phoenix, and Courtyard Fifth Avenue, all of which posted double-digit gains. At our resorts, RevPAR declined 1.8% while total RevPAR increased 1.1%. We remain optimistic about the trajectory of our resorts in aggregate, as the fourth quarter experienced the lowest year-over-year RevPAR decline among all the quarters. In fact, resort RevPAR would have been flat but for the renovation displacement at Havana Cabana, and below average snowfall in Vail, which impacted the Hyatt. During our third quarter call, we noted the material spread in RevPAR growth achieved between properties with rates over $300 versus those under $300. In the fourth quarter, that spread widened, with a 580 basis point spread in RevPAR growth between the two rate groups and a 1,230 basis point spread in EBITDA growth. On the expense side, total hotel operating expenses declined 0.5% in the quarter, resulting in an 82 basis point expansion in hotel EBITDA margin. This margin improvement was the largest quarterly gain this year, yet it was on our lowest total RevPAR improvement of the year. Wages and benefits, which represent nearly half of total expenses, increased just 0.6% in the quarter, reflecting continued productivity gains. This is a testament to our asset management team working closely with our operators to ensure we rightsize expenses for this operating environment. Before turning to the balance sheet, I will make a few comments on our group segment. Group room revenues declined 1.1% in the quarter, with rates up 2.6% but room nights down 3.6%. The federal government shutdown disrupted our typical cadence of short-term group pickups in November, contributing to the fourth quarter demand headwind. Looking to 2026, we enter this year with $149,000,000 of group room revenue on the books. This is the same as 2025, which was a peak for DiamondRock, but we expect more in-the-year-for-the-year pickup from a greater volume of tentatives and leads. Although cancellations from East Coast winter storms in January and February, limited snowfall in our ski markets, and a slower start to the year in Chicago have put downward pressure on our first quarter pace, we are confident we will see improving prospect conversion to firm group business. Turning to the balance sheet, on December 31, we redeemed our Series A redeemable preferred shares utilizing cash on hand. Net of lower interest income, that capital allocation decision will generate a $0.03 tailwind to our FFO per share in 2026. Following the amendment of our senior unsecured credit facility in July, repayment of our last piece of outstanding property-level debt in September, and the redemption of our preferred shares, DiamondRock Hospitality Company's capital structure is exceptionally simple. We have three fully prepayable term loans, are not encumbered by secured debt, have no joint ventures or off-balance sheet encumbrances, and with extension options, we have no debt maturities until 2029. Inclusive of interest rate swaps, 70% of our debt is floating rate, which we believe is appropriate in order to take advantage of the declining interest rate environment. We paid a common dividend of $0.80 per share in each quarter of 2025 and a stub dividend of $0.04 per share in the fourth quarter, equating to an annual FFO per share payout of 33%. Our payout percentage is below our historic levels as we continue to utilize our net operating losses to offset our tax income, in line with our capital allocation strategy. For 2026, we expect to declare quarterly dividends of $0.90 per share, with the potential for a fourth quarter stub dividend depending on full-year results. In 2025, we utilized our free cash flow to repurchase 4,800,000 common shares at an average price of $7.72 per share, and an implied cap rate of 10% on consensus estimates. We continue to review share repurchases as a highly attractive use of capital in this environment. I will wrap up my comments with our 2026 guidance. We expect 2026 RevPAR growth of 1% to 3% and total RevPAR growth 25 basis points higher. We expect adjusted EBITDA to be in the range of $287,000,000 to $302,000,000 and FFO per share to be in the range of $1.90 to $1.06. In addition, we expect to spend $80,000,000 to $90,000,000 on capital expenditures this year, which Jeffrey will detail in his remarks. Based upon the midpoint of our guidance, this would imply a 4% increase in our free cash flow per share in 2026. The first quarter will be our toughest comparison of the year, and we expect first quarter RevPAR to be essentially flat to 2025. Taking this into account and the weighting of special events in the second and third quarters, you should expect our first quarter 2026 EBITDA and FFO as a percentage of the full year to be below the percentage we realized in 2025. With that, I will turn the call over to Jeffrey. Jeffrey John Donnelly: Thanks, Briony, and thank you all for joining us this morning. On Wednesday, the company announced that our chairman, Bill McCarten, will not be standing for reelection and will retire from the board in late April at the conclusion of his term. Bill founded DiamondRock Hospitality Company almost 22 years ago, served as our first Chief Executive Officer, and has provided the steady, thoughtful leadership this company needed throughout its evolution. His judgment, perspective, and commitment to doing what is right for shareholders have left an enduring mark on DiamondRock Hospitality Company, and he will be deeply missed by all of us. With Bill's retirement, the board has selected Bruce Wardinski to serve as DiamondRock Hospitality Company's next chairman. Bruce has been a member of our board since 2013, and for most of his tenure, he has served as our lead independent director. He has a deep understanding of the lodging industry and brings a history of creating value for shareholders across the numerous companies he has led and later sold. I worked closely with Bruce for many years and look forward to partnering with him as we continue to execute our strategy and create long-term value for our shareholders. 2025 is an exciting year for DiamondRock Hospitality Company. We celebrated our twentieth year as a publicly traded REIT, we achieved a company record FFO per share of $1.08, and our shares outperformed the peer average by over 1,300 basis points. Those results reflect the hard work and discipline of the DiamondRock Hospitality Company team and our partners, and I am proud of what we have all accomplished together. Less than two years ago, we introduced DiamondRock 2.0 with a simple but deliberate strategy: drive outsized free cash flow per share growth, and total shareholder returns will follow. That playbook works across other sectors, and we believe lodging should be no different. The lodging REIT sector is inherently more complex than other real estate classes. Between owner, operator, often franchisor, and sometimes ground lessor, there can be many cooks in the kitchen. We believe it is important to remember who owns the kitchen. We are the stewards of your capital, and we take that role very seriously. Disciplined capital allocation is our most important responsibility, for it is the foundation of total shareholder returns. We invest capital into our assets when underwriting supports appropriate risk-adjusted returns, acquire assets when they enhance free cash flow per share, and we sell assets when their ability to be additive to our free cash flow per share growth is at risk or when a buyer's view materially exceeds that of our own. Discipline matters on all three fronts. Accordingly, today, I will present to you our five-year capital expenditure program and update you on intentions to recycle capital within the portfolio in 2026. First, let us talk about the CapEx program. We believe our capital expenditure program is a key distinction and a critical reason we are a free cash flow per share growth story and not a short-term RevPAR headline story. What distinguishes our intentional approach is the stability of our well-planned spending and an appropriate level of total investment. These two key differentiators increase certainty for shareholders, generate solid risk-adjusted returns, and support our hotels' outsized RevPAR index scores and strong EBITDA margins. Over the next five years, our CapEx program will annually equate to 7% to 9% of total revenues, not 10% to 11%, which is the peer average, and certainly not the mid-teens several have been spending, but 7% to 9%, or about $80,000,000 to $100,000,000 per year for the next five years. In absolute dollars, the difference in the capital we are spending versus what we would be spending at the peer average rate is cumulatively over $100,000,000, or $0.50 per share. That is not an amount we are underinvesting, rather, that is the increment we do not believe provides an appropriate risk-adjusted return and, therefore, will be redirected to where we see superior returns. As fiduciaries of your capital and shareholders ourselves, that is paramount to us. We expect to undertake four to five meaningful renovation projects annually, and the remainder of the portfolio will benefit from more focused improvements. To be clear, our portfolio has improved steadily and thoughtfully every year to support or enhance competitive positioning. Consistent with the past, improvements are managed to maintain earnings disruptions to about $2,000,000 to $4,000,000 per year. You will hear us say repeatedly, as owner, we are best positioned to determine the optimal balance between operating performance, capital expenditure magnitude, timing, and value creation. We believe DiamondRock Hospitality Company has found that right balance. Through the experience and integrated work of our in-house design and construction team and asset managers, we have determined that our hotels, on average, do not require full renovations on the rigid seven-year cycle. Each asset's value, age, relative performance, profitability, prior renovation quality, and the care provided by our operating partners all matter. When renovations are determined to be the best course forward, cost discipline is paramount. Every improvement is evaluated through its impact on productivity and profitability, and every fixture and finish is scrutinized for cost, durability, and necessity. Our Kimpton Palomar Phoenix is a clear example of an appropriately timed and right-sized renovation. The hotel was nine years old when we undertook its first renovation in 2025. It was well built, well maintained. By our determination, its competitive positioning within the downtown market would be enhanced through investing just over $20,000 per key. We completed the renovation in the third quarter, and by the fourth quarter, EBITDA had increased nearly 20%, with a 15-point gain in RevPAR index by December. That is the balance of an appropriate capital investment and resulting operating performance gain at work. This does not mean we shy away from ROI projects. To the contrary, we believe ROI projects can be among the very best risk-adjusted uses of capital to drive long-term earnings growth, provided returns are conservatively underwritten and time to stabilization is defendable. ROI projects are included in our five-year CapEx plan, and we are excited about what is ahead. Our next project will likely commence in 2027. We will share more in the coming quarters. Our projects are appropriately scaled. We prefer to hit singles and doubles because, as in baseball, getting on base is far more important to winning than striking out chasing the occasional home run on a riskier, large, complicated, multiyear project. That philosophy is reflected in our most recently completed ROI project at L’Auberge. We hosted the majority of our covering analysts in early December and were thrilled to show off the integration of the two properties into one unified luxury resort, a new elevated pool and F&B experience, and expanded event space overlooking Sedona's iconic Red Rocks. In its first quarter subsequent to the completion of the renovation, L’Auberge delivered 15% RevPAR growth and over 25% EBITDA growth, reflecting its top-line tailwinds and efficiency gains of operating as a single integrated resort. It is still early, but results are ahead of our expectations, and based on booking pace, we remain comfortable the product will achieve at least a 10% yield on cost at stabilization. On to capital recycling, the transaction market is showing signs of improvement. Higher quality single assets and portfolios are coming to market, buyer and seller expectations are moving towards a more rational equilibrium, and debt capital is available at attractive pricing. The acquisition strategy of DiamondRock 2.0 is straightforward. We are looking for situations where we believe we have the fundamental and asset-level flexibility to create value. Basis is critical. In an AI-enabled economy, we expect demand will increasingly favor assets that deliver authenticity, emotional connection, and differentiated experiences with irreplaceable travel. We prefer supply-constrained markets. We prefer to avoid ground leases, because asset value transfers to the ground lessor like a leak in a boat. And we prefer to partner with independent operators and lean into situations where our best-in-class asset managers can meaningfully drive free cash flow growth. We have nothing to report at this time, but we remain active underwriters as our team is always cultivating opportunities through our extensive network of independent owners. That said, it is increasingly likely that DiamondRock Hospitality Company will be a net seller of hotels in 2026. Early last year, we were engaged in active discussions around the potential disposition of several DiamondRock Hospitality Company properties, largely driven by inbound interest. The uncertainty introduced by Liberation Day understandably paused many of those conversations. Over the past six months, however, most of those discussions have resumed. To be clear, we do not expect every asset under review will be sold, nor do we feel any pressure to sell. The breadth of interest has been wide, spanning both smaller and larger assets across urban and resort markets. We will only transact when doing so advances our strategy to drive value through increasing free cash flow per share over the medium to long term. Our shares currently trade over a 9% implied cap rate. At this time, we believe our shares are the best use for recycled capital. Turning to our view on 2026, multiple forces are aligning in our favor. We should benefit from easier year-over-year comps following Liberation Day and the 43-day federal government shutdown in 2025, as well as a holiday calendar that is more favorable for incremental business and leisure travel. Our portfolio is well positioned in markets expected to participate meaningfully in the country’s 250th anniversary celebrations and aligns closely with FIFA's World Cup games, incrementally so as the tournament progresses. In addition, we expect to benefit from outsized renovation tailwinds from L’Auberge de Sedona, Havana Cabana, and Kimpton Palomar Phoenix, while not experiencing material renovation disruption in 2026. Finally, our higher-end portfolio continues to benefit from the resilient spending patterns of affluent customers who have experienced disproportionate wealth gains in recent years and remain avid travelers. Spring break demand is developing favorably, supported by solid rate growth across a broad range of our urban and resort hotels. With respect to FIFA World Cup and July 4 bookings, we have some early observations. For World Cup, we are seeing impressive rate growth in our host markets, but it is still very early. We will have more clarity on pace by our next earnings call, as most transient bookings are likely to occur 30 to 60 days out. Turning to the 250th anniversary of the United States on July 4, rates for the holiday weekend are 20% higher than last year. While major urban markets such as Boston and New York are typically top of mind for these celebrations, the strength we are seeing today is actually coming from our resort portfolio. We view 2026 as an exciting time for our hotels, but we have provided a RevPAR and total RevPAR outlook that we deem to be appropriate and measured given the inherent uncertainty of the macroeconomic environment. As we think about our guidance, greater confidence lies in what we can control: converting top-line performance into FFO per share and free cash flow per share growth. We do that through disciplined expense management aligned with the demand environment, a balance sheet positioned to benefit from declining interest rates through floating rate debt exposure, and a highly disciplined capital expenditure program. In 2025, with just 0.4% RevPAR growth, our FFO per share increased 4%, and our free cash flow per share increased 6%. Said differently, our FFO per share margin was over 350 basis points better than our full-service peers in 2025. Based upon the midpoint of the guidance Briony provided earlier, in 2026, we expect our RevPAR to increase 2% and our FFO and free cash flow per share to increase approximately 4%. We were among the very few full-service lodging REITs in 2025 to deliver free cash flow per share in excess of 2018. We view the relative TSR performance of our shares in 2025 as a validation of our strategy. With continued discipline and execution, we believe the momentum we built in 2025 is repeatable in 2026. Momentum matters, because at DiamondRock Hospitality Company, we believe excellence compounds. Thank you for your time this morning, and we are happy to answer your questions. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. You may then rejoin the queue. In the interest of time, we ask that you please limit yourself to one question and one follow-up. Please standby while we compile the Q&A roster. Operator: Our first question comes from Smedes Rose with Citi. Your line is open. Good morning, Smedes. Smedes Rose: Hi, thanks. Good morning. Morning. Thanks for those opening remarks. That is helpful. I wanted to ask you maybe a little bit more about your thoughts around pace of labor and benefits, just overall wages in 2026 at the property level. And then I do not know if you can share anything about how you are thinking specifically about your New York exposure given the upcoming contracts in midyear? Briony R. Quinn: Yep. Good morning, Smedes. The midpoint of our guidance implies that labor costs will be up around 3% next year, and that is inclusive of, as you noted, the contract renewal in New York. We have three limited-service hotels in New York, and that represents about 7% of our overall labor cost. So that will provide a little bit of pressure in the back half of the year. As a reminder, this year, our labor costs were up a little over 1%, essentially flat in our resorts and up about 2.5% in our urban portfolio. Jeffrey John Donnelly: And a lot of the success in labor for us is really around productivity. So I think while we are continuing to try to find incremental ways where we can get less hours worked throughout the portfolio, I think we found a lot, probably some of the lowest hanging fruit, so that is why we think our guide in terms of total labor cost is probably going to increase this year. Smedes Rose: Okay. Thank you. And then I just wanted to ask you, Briony, I guess, your remarks about first quarter RevPAR, sounds like that might be the weakest for the year, kind of in line with what we are hearing from a lot of other companies. But anything you can provide on sort of the cadence of earnings through second through fourth quarters? Briony R. Quinn: Yeah. You are right. First quarter will be our toughest for the reasons I mentioned in my remarks. I think when we think through the remainder of the quarters, our group pace is sort of weighted between the growth in second and fourth quarter. We have a little bit of a headwind in the third quarter with respect to our group pace, but we think, obviously, transient should more than offset that in the third quarter given the special events that are happening. Smedes Rose: Alright. Thank you, guys. I appreciate it. Briony R. Quinn: Thanks, Smedes. Operator: Our next question comes from Cooper R. Clark with Wells Fargo. Your line is open. Cooper R. Clark: Great. Thanks for taking the question. And I appreciate that Western Seaport earnings impact may be more of a 2027 event, but just curious how we should be thinking about that franchise expiration this year within the context of some of your prepared remarks and what possible outcomes are on the table that we should be considering? Justin L. Leonard: Sure, Cooper. I think, you know, we still have not come to a finalized contractual deal on that, but we have been pleased with the level of interest that we have gotten from multiple brands and, frankly, the flexibility around both contract term, stabilized fees, and termination clauses. So I think as we continue to work through that, we will keep everybody apprised. But we think we have a pretty interesting option on the table that we are sort of working on finalizing. Cooper R. Clark: Okay, great. And I appreciate the color on the World Cup and recognize it remains early with respect to the 30 to 60 day window you spoke to in the prepared remarks. Just curious if you could provide some additional color on the RevPAR lift currently embedded in guide from World Cup demand and what you are seeing kind of quarter-to-date on the World Cup as it relates to some of the rate strength you spoke to, group booking trends, or maybe markets or specific assets where you are already seeing an outsized impact? Briony R. Quinn: Yeah. I would say the amount that has been embedded in our guide is about 20 basis points when we look at how we structured our 2026 guidance. I would say that what we are seeing at the market level is there is decent strength in the rates; you are just not seeing the volume of room nights come into play yet. It is still early, and that is why we think that you begin to see some acceleration when you are about 30 to 60 days out from the event. So I would love to give you more color, but at this point in time, that is what we are seeing through our hotels. Cooper R. Clark: Great. Thank you. Appreciate it. Operator: Our next question comes from Michael Bellisario with Baird. Your line is open. Michael Bellisario: Hi. Thanks. Good morning, everyone. Could you dig into the out-of-room spend outperformance a little bit more? I guess sort of two parts: just, one, why should you not be able to do more than 25 basis points on total RevPAR above RevPAR? And then, sort of related to that, any update on whether you are still in a group-up strategy, and if you are seeing any change in booking windows for either group and transient? Thank you. Jeffrey John Donnelly: I mean, I think, Mike, we are cautiously optimistic we can move the needle, but I think it is also just partly run rate. Right? I mean, we look at sort of what the run rate of out-of-room spend has been. And so, you know, it is not that we are saying that is necessarily going to decelerate, but if the underlying RevPAR accelerates relative to what we saw last year, if that stays stable, then the margin contracts. Michael Bellisario: Anything on group-up and booking window? Briony R. Quinn: Oh, in terms of the booking window for groups? I mean, I think last year, frankly, was a bit of a struggle. Given Liberation Day, you did not see as much conversion of leads into firm contracts. I am optimistic that as we move through this year, we will see a little bit of a recovery there, because when you look at our leads and tentatives for this year versus last year, we are up about 10%. So I am encouraged that we will continue to see good growth on the group side. Jeffrey John Donnelly: I think that is right, because we really saw, as you might imagine, a pretty significant drop off in leads when we got to April. So as we progress through the year, we think those stats will continue to get better just in terms of the margin of lead volume over same time last year. Operator: Our next question comes from Chris Jon Woronka with Deutsche Bank. Your line is open. Chris Jon Woronka: Hey, good morning, guys. Thanks for taking the questions. First of all, Jeff, you have talked about some, I guess, DiamondRock-specific wins on kind of CapEx, and part of that is working with your brand partners. I am curious as to whether you have kind of any—what you might have on the agenda for '26 in that sense and whether it continues to skew a little bit more towards some smarter CapEx, or whether maybe there could be some operational things that you are hoping to accomplish with them as well? Thanks. Jeffrey John Donnelly: I mean, it is a couple of fronts, Chris. I would say that, as Justin mentioned, as it relates to the Western Seaport, for example, I think there is a situation that you will not see the results of that in 2026, but I think in '27, we are optimistic that if we are able to bring that deal to conclusion, I think it will be beneficial to that hotel, and I think it could be felt by DiamondRock Hospitality Company overall next year. So I think those wins certainly are out there, but they do not happen necessarily as frequently. We have a lot of control over our hotels at the operating level, just because they are largely third-party managed. So I think that is throughout the year. I would say on the CapEx side is probably where we have that sort of larger success because the brands, whether they are franchised or managed, do have standards for what they want their hotels to be like. And I think that is where we really distinguish ourselves versus the marketplace in just really value engineering those and making sure that the expenditures that we make are appropriate for each hotel and not necessarily the same for all hotels, if that makes sense. Does that help? Chris Jon Woronka: Yeah, that is super helpful. Thanks, Jeff. As a follow-up, is there any—can you maybe share with us what might be embedded in your guidance for kind of ramp up of recently completed renovations? So I guess Sedona, I think Phoenix, maybe even Havana Cabana. Is there any lift, you know, much less expected this year? And then as we think to '27, do you think the potential lift from the things you are finishing in '26 is more or less than the lift you get in this year in '26? Briony R. Quinn: Yeah. I mean, really the one that we have called out is Sedona. It is about 25 to 50 basis points in the year for RevPAR growth. There will be some benefit—I do not have a specific number for you—but for Havana Cabana, fourth quarter, because we ended up accelerating some work at that property that we had in future years and just taking advantage of the opportunity of the softness that we were seeing in Florida during the summer to do some of that work in third quarter and fourth quarter. You can see it in the disruption of the property's EBITDA. We had probably 60% of the rooms out of service in that period of time, so there will be some recovery of that EBITDA as we get into the back half of this year. I apologize. I do not have a specific percentage for you, but I think it will be $1,000,000 or $2,000,000, I guess. Jeffrey John Donnelly: I think that is right. And we set our '26 renovation projects to kind of align up with the timing of the projects we did in 2025. So if you think about sort of the year-over-year, some of that disruption that we will have in '26 might sort of offset some of the gains that we have from headwinds from '25. Chris Jon Woronka: Okay. Very good. Makes sense. Thanks. Thanks, Jeff. Thanks, Briony. Operator: Our next question comes from Duane Thomas Pfennigwerth with Evercore ISI. Your line is open. Duane Thomas Pfennigwerth: Hey, good morning. Thank you. Your commentary on the transaction markets is encouraging. It sounds like you are maybe more optimistic on the sell side, but maybe neutral on the buy side. Correct me if that premise is wrong. And I just wondered, in terms of acquisitions, is that a function of the quality of what is on the market or pricing? Jeffrey John Donnelly: It is a good question. I think that is a fair characterization. I think we are more inclined to be sellers at this time. And I just think the reason for the neutrality on acquisitions is that right now our shares look to be a better investment than the options that we see out there. I think a lot of the deals that are coming to the market—and this is very early on in the last, say, two to three weeks—they tend to skew towards very large luxury assets. So from a ticket price and size and pricing, it just does not necessarily align with what we chase, but I think it is the type of asset that is going to end up setting some favorable comparisons in the marketplace and I think begin to provide the market with some visibility in where asset prices are. Duane Thomas Pfennigwerth: That is helpful. And then just maybe you could play back just the payoff of the preferreds. What are the net impacts to the P&L and cash flow? And as you look at your capital structure, it feels pretty clean at this point. Is there anything left to kind of, you know, higher cost to pay down that would compete favorably with buyback? Thank you. Jeffrey John Donnelly: No big pieces of capital out there that are competing with buyback. I would say one of the reasons that we looked at it—and Briony can give you some of the pieces that drive the earnings impact that we see from this—but one of the reasons that we looked at that is that was an opportunity to invest almost $120,000,000 at effectively an 8.25% yield. You know, share repurchases were certainly competitive with that, but the ability to get that much stock in such a short period of time would be difficult. So this was one where we thought it cleaned up our balance sheet a little bit more, and it was an efficient use of just removing a costly piece of capital. Briony R. Quinn: Yeah. When you offset the—You know, we obviously had some significant cash balances that we held for a portion of the year last year. So when you offset through the lower interest income in '26 with the benefit of paying off our preferred, it provides about a $0.03 tailwind to FFO per share this year. Duane Thomas Pfennigwerth: Thank you. Jeffrey John Donnelly: Thanks, Duane. Operator: Our next question comes from Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is open. Austin Todd Wurschmidt: Thanks. Good morning, everybody. Jeff, just going back to your comments specifically about the improving kind of debt capital availability and cost, I thought that was particularly interesting given sort of the varying size of hotels you have discussed selling on prior calls. I guess, does that comment really open the door for potential larger sales this year? And just given the maturity profile—I think you said nothing coming due until 2029 or so—what is sort of the intended use of proceeds, and how much do you really think you can do from a share repurchase perspective? Jeffrey John Donnelly: Yeah. That is a thoughtful question. I would say that I think it is beneficial that you are getting some declines in rates, but I also think lenders are—early days—but beginning to get a little more aggressive on proceeds. And that is what I think is going to be beneficial, because if you look in the year or two when interest rates were more volatile and, frankly, a little bit higher, it was hard to get some spread between your borrowing cost and the ultimate price someone was purchasing at. So now that you are getting some of that spread, I think it is providing some positive leverage to investors out there. And that is what I think is going to be helpful, provided there are not any other unforeseen macroeconomic events, to maybe facilitating some dispositions. As I mentioned, I think our shares are appealing right now. It depends on the size of the disposition. I think if something was very large—again, it depends on pricing and what have you—but I think our inclination is to lean into share repurchases, but it is something that you have to make a determination on at that time. Austin Todd Wurschmidt: I appreciate the thoughts there. And then just going back to The Cliffs at L’Auberge, you have talked about this 25 to 50 basis points tailwind this year. Can you just remind us, is that just getting back the disruption that you saw at that hotel last year and then, in the spirit of flow-through being more impactful, what does that imply from a hotel EBITDA perspective in terms of what was lost last year but what you anticipate to get back in 2026? Thanks. Briony R. Quinn: Yeah. I was going to say we look at that as an investment that will ultimately provide north of a 10% unlevered yield on our investment. So the idea is that when it stabilizes, call it two to three years from completion, we will earn more EBITDA than we were earning before. It was not just an investment to disrupt and then recoup what we had just lost. Jeffrey John Donnelly: I do not have off the top of my head the precise number. I think, round numbers, we went about $1,000,000 in EBITDA backwards last year, and I think from an independent resort perspective, it usually is a multiyear stabilization process. So my guess is we get $2,000,000 to $3,000,000 of that back this year. So we will see $1,000,000 to $2,000,000 of incremental and then kind of continued progression along that trend line for a few years. Austin Todd Wurschmidt: And then just following back, if I can squeeze in one more related, that hotel had a pretty material outperformance, I think it was in 2022, certainly a unique period of time. But is it possible from a stretch goal perspective that you could get back to that level with some of the efficiency gains as well as ADR upside that you have highlighted? Briony R. Quinn: Yeah. I think that is certainly possible. It is hard to appreciate unless you are standing there, but I think because those two hotels were adjacent but fairly different in their quality level that I think now unifying them really opens up the opportunity for that hotel down the road to bring in more group events and different types of guests than it had before, because of its increased scale. Austin Todd Wurschmidt: Thanks for the time. Jeffrey John Donnelly: Thanks. Operator: As a reminder, to ask a question, please press *11. Our next question comes from Rich Hightower with Barclays. Your line is open. Rich Hightower: Hey, Jeff. I got a little nervous thinking ahead and star one. So, Jeff, I want to go back to your thoughtful ruminations on CapEx and where it sort of fits into the longer-term plans for DiamondRock Hospitality Company. And I think, even going back prior to COVID, when you think about why hotel REIT stocks generally never went up over long periods of time, I think CapEx is a big part of that. So now that you have sort of re-sought what that strategy should be for the company, what do you think a sustainable—absent major macro disruption—sort of return on equity profile should be for a hotel REIT? And how do you expect to get there? Jeffrey John Donnelly: You mean like a levered return on equity? Rich Hightower: A levered return on equity, yeah. Cash flow return to equity owners in the company. Jeffrey John Donnelly: The way we framed it to our board—and maybe I am not precisely answering your question—but I think the responsibility that we have in order to outperform is that we need to be effectively surpassing what I was calling sort of the growth and the yield, like FFO growth and dividend yield combined, as sort of a loose proxy of total return. We have to be beating the broader equity REIT average probably by about 200 basis points as a sector, in order for people to feel that there is a reason to be looking at lodging vis-à-vis other sectors. And I think if you look over periods of time, probably at any of the comp sheets out there, a lot of the equity REITs historically are providing sort of a 6% to 9% combination of FFO growth and dividend yield. And I think we have to be above that range as an industry, and for us within it, leading that in order to be attracting capital. Rich Hightower: I think that is helpful. I guess maybe just to follow up on one element there. Briony, you mentioned you still have some NOLs to burn off before increasing the dividend payout. So what does that schedule look like? And when do you sort of revert to, I guess, a more normalized payout ratio? Briony R. Quinn: Yeah. I mean, the goal is for us to sort of spread those NOLs out as long as we possibly can. So that is sort of the trajectory of being able to steadily increase our dividend over time, maximizing our NOLs over the next year or two and then not having to have this big spike in a dividend payout. So I would anticipate, given our strategy, that it will probably take another three to four years before we fully burn off those NOLs. Rich Hightower: Alright. Great. Thank you. Jeffrey John Donnelly: Thanks, Rich. Operator: Our next question comes from Christopher Darling with Green Street. Your line is open. Christopher Darling: Thanks. Good morning. Jeff, you spoke about the bifurcation in consumer trends, how that has been benefiting DiamondRock Hospitality Company as well as other high-end owners. What is your forward-looking view as it relates to this dynamic? Do you think that relative strength at the high end will persist for the foreseeable future, or do you envision more of a broad-based recovery unfolding throughout the industry? Jeffrey John Donnelly: Yeah. I would say it is—you know, I think when you look at it, it is hard to base upon just our portfolio because, in the grand scheme of things, we have 35 assets. We are not representing a huge swath of the economy. But I do feel like that affluent consumer is going to continue to be a spender. My sense is that, despite the volatility in the stock market, there has been a lot of wealth created, and I do not see that disappearing very quickly. I think there have been some other headwinds on the economy in terms of international inbound travel that necessarily will not change on a dime. But I think if you think over the next two to three years, I am hard pressed to see how it continues to erode. So I would like to think that that more well-heeled traveler will continue to improve. The lower level we do not have as great visibility on, candidly. I think there is certainly a lot of pressure on consumers. But I think that is where politicians certainly seem to be more intently focused. It is a little outside my pay grade to predict easily, but I would like to believe that there are some tailwinds there down the road. Christopher Darling: Okay. That is helpful thoughts. And then maybe just more broadly, can you speak on the state of business transient travel, how that segment has sort of progressed, and your expectations for the coming year? And maybe within that answer, you could touch on government travel specifically, whether you see that segment as a tailwind or a headwind this year. Jeffrey John Donnelly: Yeah. BT, I think late last year we were seeing sort of mid-single-digit growth. I think our expectation for BT is somewhere around that level. So it feels like it is holding in fairly well and delivering sort of consistent growth. On the government side, we do not do a tremendous amount of government business. It is a very, very low single-digit contribution. I do not know, Justin, if you have anything else to add on those two. Justin L. Leonard: Yeah. I mean, I think the two, in some cases depending on the market, are somewhat intertwined. And so we actually see, if you go to like a San Diego, you will see a drop off in BT during the government shutdown period because a lot of that business is government contract related. So we are hopeful with a little bit more normal kind of, you know, a little bit more stability in our government and kind of government budget process that some of the BT falloff we saw last year that sort of averaged us down to that mid-single digits will abate, and we will be able to continue that trend line or better. Christopher Darling: Alright. I appreciate the time. That is it for me. Jeffrey John Donnelly: Thanks, Chris. Operator: Our next question comes from Patrick Scholes with Truist. Your line is open. Patrick Scholes: Great. Good morning, everyone. Justin L. Leonard: Hey. How are you doing? Patrick Scholes: I am doing well. Thank you. Jeff, regarding your five-year plan for lower CapEx, I am curious—I assume you have probably run it by your property managers or franchisors—and if so, any difference in the type of feedback that you are getting or pushback, say, versus the major brands versus the independents in your portfolio for that lower level of CapEx? Thank you. Jeffrey John Donnelly: Yeah. I guess I would say that when you think about the hotels that are independent, we do not really have to run it by anybody. That is what we want. And it does not matter. Now, that said, we do have folks managing those hotels, and we always want their feedback on whether or not we are spending appropriately. And as it relates to franchised or managed—Justin, if you want to chime in—but we do look at brand standards, but you see those are guidelines effectively, and you are trying to manage the timing of the expenditure and the magnitude. And as I talked about in my remarks, emulating the design standard, but you do not have to do it precisely with the exact nightstand or the exact lamp that they want. There are ways that you can value engineer that and deliver the refined experience that they were looking for, but do it more cost effectively rather than just strictly following their literal blueprint, if you will. Patrick Scholes: Okay. I am just curious if any of the major brands gave you a—you do not have to list them by name—but a particularly difficult time, you know, sometimes in this industry, we know there are different interests of different parties. So I am just curious about that. Thank you. Jeffrey John Donnelly: No. I would just say they are always happy when you are offering to spend more. I think we are just focused on being treated equitably amongst the entire spectrum of owners. I think in today’s world, especially as transaction volume has fallen off and there are a lot fewer change-of-control bids being executed, historically, given the public companies are not single-asset levered typically and have a lot of capital, there often is more focus or reliance upon them to maybe renovate in a greater amount or in quicker succession than what the private owners do. And I think we are just focused on being a franchisee like everyone else in the universe, doing things on a similar cadence to the overall hotel investment market. Patrick Scholes: Okay. And then maybe a little more granular, just a follow-up question. Maybe just a specific, real hotel example of if you were investing 6% versus 10% or 11% previously, what might be a real example of, “Hey, this is something that if we were at that prior level of CapEx, we would have done today. We do not think we need to do it.” Something specific. Thank you. Jeffrey John Donnelly: Trying to think if Palomar in Phoenix would be an example. Justin L. Leonard: Yeah. I think it really goes down into the minutiae of, as opposed to coming in and saying we are doing a rooms renovation, we are essentially going to start over and replace everything. I think Phoenix is a good example where we kind of looked at corridor carpet as an example and said, we do not really feel like this needs to come out. Existing wall vinyl in the rooms, aesthetically, works with what we are doing. I think maybe one piece of furniture we kept. It is not really carte blanche throughout the portfolio, but I think it is really just assessing the utility of the existing stock and making sure that we are only touching the things that need to be touched, as opposed to just holistically changing everything every time we go in and do a renovation. Patrick Scholes: Great. I think what you are doing here is great as far as being really on top of cost and everything. Thank you. Jeffrey John Donnelly: Thank you. Operator: I am showing no further questions at this time. I would now like to turn it back to Jeffrey John Donnelly for closing remarks. Jeffrey John Donnelly: Thanks, folks, and we look forward to seeing you all on the road, and we will be certainly meeting with many of you at the Citigroup real estate conference next week. Operator: Safe travels. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings. Welcome to Fulgent Genetics, Inc. Fourth Quarter 2025 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Lauren Sloane, Investor Relations. Thank you. You may begin. Lauren Sloane: Good morning and welcome to the Fulgent Genetics, Inc. Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. On the call are Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing the financial results is available on the Investor Relations section of the company's website, ir.fulgentgenetics.com. A replay of this call will be available shortly after the call concludes on the Investor Relations section of the company's website. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views, expectations, and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it makes today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events included in the company's actual future results may be materially different than what is described in or implied by these forward-looking statements. Please review the more detailed discussions related to these forward-looking statements, including the discussions of some of the risk factors that may cause results to differ from those described in the forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-Ks for the year ended 12/31/2024, and subsequently filed reports, which are available on the company's Investor Relations website. Management's prepared remarks, including discussions of profit, loss, margin, earnings, and earnings per share, contain financial measures not prepared in accordance with accounting principles generally accepted in the United States, or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but these measures should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the fourth quarter 2025 for more information, including the description of how the company calculates non-GAAP income and loss, non-GAAP earnings and loss per share, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating profit and loss and margin, and adjusted EBITDA, and a reconciliation of these financial measures to income and loss, earnings and loss per share, and operating margins, the most directly comparable GAAP financial measures. The company does not provide reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures because the information necessary to calculate such reconciliations is unavailable on a forward-looking basis without unreasonable effort. With that, I would now like to turn the call over to Ming. Please go ahead. Ming Hsieh: Thank you, Lauren. I am pleased with the progress we have made this year as we execute our strategic objectives in both our laboratory services and therapeutic development business. In 2025, the laboratory services business sustained momentum as we delivered growth and executed our strategic and product innovation roadmap. We have implemented the best-in-class technology across our platform and the investment we have made in digital pathology and AI are paying off. We are seeing the advantage of moving to digital and using AI-enabled workflow with increased quality, turnaround time, and throughput. We have launched our own proprietary imaging management system EZOPAS, which integrates the best-in-class AI tools developed in house, giving us even greater control of the technology services. We also accelerated our product innovation in 2025 with the launch of RNA-integrated whole genome sequencing and ultra-rapid whole genome sequencing. The investment in AI and digital pathology solutions coupled with our innovations across our laboratory service platform, we believe, drove revenue and margin improvement in 2025. We see 2026 as a transition period as our business adjusts to the impact from our largest customer moving significant volume in house. We believe our technology platform will continue to get stronger, and the strategic investment and the innovations we have made will continue to work at an accelerated pace, offering new and expanded opportunity for growth and improved operating leverage in future. We also accelerated the progress of our therapeutic development pipeline in 2025 and expect continued progress this year. Starting with our first clinical candidate, FID-7 advanced through Phase 2 with 46 patients enrolled. The trial enrollment closed on time on 12/29/2025. We are encouraged by the early efficacy and safety data. FID-7 combined with cetuximab demonstrated meaningful anticancer efficacy and a favorable tolerable profile at both dose levels for the second-line treatment of recurrent metastatic head and neck squamous cell carcinoma. Phase 3 protocol development is ongoing with the trial initiation planned as early as 2027. This year, we are trying to submit a request to FDA in 2026 and hope that the Phase 2 meeting with FDA is in 2026. We anticipate presenting our interim findings at ASCO in June 2026 and expect a full data readout by 2027. We are encouraged by our clinical trial progress achieved so far and believe entering into the Phase 3 registration trial will further increase the probability of the success of commercialization of FID-7 for the treatment of recurrent metastatic head and neck squamous cell carcinoma patients currently having very few effective treatment options. Our second clinical candidate FID-22 is progressing through the Phase 1 dose escalation with the first dose level successfully completed in December 2025 and the second dose level successfully completed on 01/28/2026. The third dose level begins on 02/02/2026. We expect to finish the study and determine the maximum tolerated dose level later this year. FID-022 is a nano-encapsulated SN-38 for the treatment of solid tumors, including potentially colon, pancreatic, ovarian, and bile duct cancers. Overall, I am pleased with the progress we have made this year. Our pharma R&D efforts are progressing faster, better, and more cost effective than planned. Additionally, our laboratory service business has greatly benefited from our investment in AI technology which makes our service more efficient and precise. And although our revenue for 2025 was slightly short of our updated expectation, we exceeded our non-GAAP EPS guidance. I am proud of the progress we have made and believe our business is intact. As we look to 2026, we believe the first half of the year will be impacted by our largest customer moving a significant one of its work in house, but also the strategic initiatives we have made may help offset this impact over the long term. I would like to thank our employees, partners, and stakeholders for your hard work and loyalty in a great quarter for our business. We look forward to further progress in 2026. I will now turn the call over to Brandon Perthuis, our Chief Commercial Officer, to talk more about our laboratory services business. Brandon, thanks. Brandon Perthuis: We ended the fourth quarter at $83,300,000, an increase of 9% year over year and a slight decrease quarter over quarter. Looking at how we closed the year, total revenue came in at $322,700,000, which was an increase of approximately 14% year over year. Looking closer at our three areas of business, Precision Diagnostics for the fourth quarter was $48,200,000, an increase of 11% year over year; however, down 5% sequentially, driven primarily by lower-than-anticipated volume from our largest customer who has begun transitioning the testing in house. AP revenue for the fourth quarter was $27,000,000, an increase of 3% year over year and up 4% sequentially. For biopharma services, revenue was $8,100,000, an increase of 32% year over year and 10% sequentially. For the year, Precision Diagnostics revenue was $190,500,000, a 14% increase over 2024; AP revenue, or anatomic pathology revenue, was $106,400,000, an increase of 10% over 2024; and biopharma services was $25,800,000, a 58% increase. Overall, we are pleased with the performance in 2025, delivering double-digit year-over-year growth. During the quarter, we announced our intention to acquire Bako Diagnostics and StrataDx, pending regulatory approvals, for a total purchase price of $55,500,000. This proposed acquisition will add new anatomic pathology services, proprietary PCR tests, and a national client base. Bako Diagnostics is a premier national provider of specialty laboratory testing services which offers a comprehensive testing menu, including complete anatomic pathology services, proprietary molecular genetic testing, and peripheral neuropathy immunohistochemical testing. Bako Diagnostics is CLIA certified, CAP accredited, and licensed by the Georgia Department of Public Health. StrataDx is a premier national provider of dermatopathology testing services. StrataDx is CLIA certified, CAP accredited, and licensed by the state of Massachusetts. With these acquisitions, we will further strengthen our laboratory services business by adding new products and services and further expand our national client base, national sales team, and team of expert pathologists. We expect to close the transaction in March. We are excited to announce that during the fourth quarter, we received approval from New York State for both our proprietary NIPT offering, Nova, as well as our whole genome sequencing test. These are significant approvals and a high validation of our quality services. These approvals open a new market for us to commercialize these tests in New York, and we look forward to servicing New York clients and patients in both the rare disease and reproductive markets. We mentioned on previous calls the investments we are making in digital pathology, specifically our new in-house developed platform, Ezeopath. Digital pathology is changing the dynamics of our laboratory, enabling remote reading, remote consults, and most importantly, the use of AI modules for certain disease subtypes. As of today, we are approximately 100% digital across all of our cases, and they are being read on Ezeopath as we transition off our previous third-party platform. In AI development, we have launched several internally developed modules, including tissue region detection, eosinophil counting, eosinophilic esophagitis, and lymphocyte ratio in duodenal intraepithelial lymphocytosis. Ezeopath also supports third-party AI modules, such as Paige AI Prostate and MyNP for HER2 in breast cancer. In our 2026 AI R&D pipeline, we have a dozen AI modules planned, and we expect to significantly improve our medical team's operational efficiency once deployed. Fulgent Genetics, Inc. has always viewed itself as a technology company, and we have developed most of the systems that support our business. Ezeopath is just another example. With in-house clinical AI, R&D, and software engineering teams, a large group of medical pathologists across various specialties, and most importantly, clinical data with diagnostic outcomes, we believe Fulgent Genetics, Inc. is well positioned to become a major player in the AI-enabled digital pathology field. Within our oncology business, we see great potential in leveraging AI technology to improve clinical diagnosis for patients. Fulgent Genetics, Inc. is one of the very few companies that provide end-to-end diagnostic services for cancer patients, including flow cytometry, IHC, FISH, cytogenetics, and NGS. Our team is currently working on a project to develop AI modules that analyze data across multiple modalities and provide summary diagnostic information for our medical team to review before final reporting. We believe this could be a game changer in cancer diagnosis. Overall, we are pleased with our progress in 2025. We believe the investments we have made in our technology and capabilities will continue to pay dividends as we strive to expand our market reach. I would like to thank our employees for their hard work and dedication throughout the year, and I am thankful to have such a strong team in place as we kick off the new year. I will now turn the call over to our Chief Financial Officer, Paul Kim. Paul? Paul Kim: Thank you, Brandon. Full year revenue for 2025 totaled $322,700,000, growing approximately 14% compared to revenue of $183,500,000 in 2024, which fell slightly short of the updated guidance we provided on last quarter's earnings call but ahead of the original guidance we provided at the start of 2025. Revenue in Q4 2025 totaled $83,300,000 compared to $84,100,000 in Q3 2025. The decrease in our Q4 revenue was primarily the result of lower-than-anticipated volume from our largest customer who has begun transitioning the test in house. Gross margin for the fourth quarter on a non-GAAP basis was 41% and on a GAAP basis was 39.1%. Full year gross margins improved year over year due to streamlined operations and from the enhanced efficiencies we achieved as a result of our investment in scaling and centralizing lab operations. Now turning over to operating expenses. Total GAAP operating expenses were $68,800,000 in the fourth quarter, which increased when compared to $50,900,000 in the prior quarter. The increase in operating expenses was partially driven by acquisition-related costs, payroll-related expenses, and a one-time professional liability expense. Non-GAAP operating expenses totaled $43,100,000 compared to $40,700,000 in the previous quarter. We remain committed to R&D spending to support both our laboratory testing services and our clinical studies and to sales and marketing spending to expand the sales team. Non-GAAP operating margin decreased sequentially to minus 10.7%. Our GAAP loss in the current quarter was $23,400,000, an increase from the prior quarter GAAP loss of $6,600,000. Adjusted EBITDA for the fourth quarter was a loss of approximately $4,500,000 compared to a gain of $700,000 in Q3 2025. On a non-GAAP basis, and excluding equity-based compensation expense, intangible asset amortization, acquisition-related costs, and a one-time professional liability expense, income for the quarter was approximately $5,200,000, or $0.16 per share based on 31,700,000 weighted average diluted shares outstanding. Looking at the full year 2025 on a non-GAAP basis, and excluding equity compensation expense, intangible asset amortization, acquisition-related costs, and a one-time professional liability expense, income was approximately $200,000, or $0.42 per share based on 31,100,000 weighted average shares outstanding, beating the updated guidance we provided on last quarter's earnings call. Turning to the balance sheet, we ended the fourth quarter and full year with approximately $755,500,000 in cash, cash equivalents, restricted cash, and marketable securities. The decrease in cash from the previous quarter is driven by the purchase of income tax credits and capital expenditures. As of year-end, we have not yet received $106,000,000 in federal income tax refund, which has been delayed due to the government shutdown in 2025. Excluding the delay in the income tax refund, we beat the updated cash guidance we provided on our last quarter's earnings call. Before providing our guidance for 2026, I would like to talk through certain drivers shaping our expectations for the first and second half of the year and the anticipated impact from the acquisition of Bako and StrataDx. As Ming mentioned, we expect revenue in the first half of the year to be impacted by a significant decrease in volume from our largest customer moving their testing capabilities in house. We anticipate revenue from this customer, which was $70,800,000, or 22% in 2025, to decline sharply quarter over quarter through Q2 2026 and potentially stabilize in the second half of the year. The revenue from our largest customer in 2025 was all classified as Precision Diagnostics. We believe this decrease in revenue will be partially or fully offset by the anticipated contribution of approximately $50,000,000 to $55,000,000 from the acquisition of Bako and StrataDx, which we expect to close in March 2026, contributing to overall revenue growth in the second half of the year. Bako's revenue is expected to primarily be categorized as anatomic pathology. So assuming we are able to close Bako and StrataDx acquisitions in a timely manner and that these acquired businesses perform as we currently expect, we are forecasting that in 2026 no single customer will account for more than 10% of our total revenue, reflecting an improvement in our customer concentration profile. We would also expect total revenues to be approximately $350,000,000 for 2026, representing 8.5% year-over-year growth. Excluding our largest customer's revenue and assuming that Bako and StrataDx acquisitions timely close and acquired businesses perform as expected, the net estimated growth is 31% from 2025 to 2026, and our pipeline for customer opportunities with Precision Diagnostics would remain strong. With these acquisitions, 2026 anatomic pathology revenue would be expected to increase to an aggregate of $162,000,000, up 53% from $106,000,000 in 2025, largely driven by the Bako acquisition. Biopharma revenue is expected to decrease from $25,800,000 to $20,000,000, reflecting a long sales cycle as we see in this area. As we move through the year, we expect to see continued momentum from our laboratory service business as it continues to benefit from the investment in AI and anatomic pathology, which is making our services more efficient and precise. We expect non-GAAP gross margins for the full year to be slightly above 40% as the product mix shifts with the changes in our customer composition. We anticipate the gross margins to be lower in the first half of the year due to the impact of cost of sales charges being allocated across a smaller revenue base. We expect non-GAAP operating margins to decrease from minus 8% to minus 18% for the year, largely driven by the incremental expenses from the Bako and StrataDx acquisitions, our continued investment in expanding our sales team, and our ongoing commitment to research and development for both our laboratory services business and therapeutic development business. Our strategy for success centers on scaling efficiently and driving innovation across our service offerings, while carefully managing spend and integrating our expected strategic acquisitions effectively. The anticipated spend for the therapeutic development business is approximately $26,000,000 in 2026 as we continue advancing clinical trials for FID-22 and FID-7. We will continue to invest in business expansion, further improving our laboratory operations, and upgrading laboratory facilities. We believe that our foundational technology platform supports a strong long-term margin. Using an average share count of 32,000,000, we expect our full year 2026 non-GAAP EPS guidance to be a loss of $1.45 per share, excluding stock-based compensation, impairment loss, acquisition-related costs and amortization of intangible assets, as well as any one-time charges. Finally, our cash position continues to be strong. We remain confident in efficient capital allocation to support future growth as we invest in key initiatives and look for opportunities to expand. Assuming the close of Bako and StrataDx acquisition with the purchase price of approximately $56,000,000, capital purchases of approximately $12,000,000, spend on our therapeutic development business of $26,000,000, $14,500,000 for the one-time professional liability expense, and excluding any future stock repurchases or other expenditures outside the ordinary course, which could include other M&A, we anticipate ending 2026 with approximately $606,000,000 to $685,000,000 of cash, cash equivalents, restricted cash, and investments in marketable securities. This number assumes receipt of approximately $106,000,000 in tax refunds which have been delayed as a result of the Q4 2025 government shutdown. Overall, we are proud of the organic growth that we have achieved over the past couple of years, and we believe that with our strong technology platform we are well positioned for longer-term growth, and our strategic investments and innovations deliver value. Thank you for joining our call today. Operator, now you may open it up for questions. Operator: Thank you. And for participants using speaker equipment, it may be necessary to pick up your handset. We will now open for questions. Our first question is from Lu Li with UBS. Please proceed. Lu Li: Great. Thank you for taking my question. I think the first question on your largest customer. So if I am doing my math correctly, I think the revenue loss for that customer is about 70% for 2026. I am just wondering if you can confirm the math and then also how conservative is this, like any risk that they can come back in house more. Paul Kim: Yes. Thank you for that question. I will take through the numbers, then I will turn it over to Brandon who can give further color into the dynamics regarding this customer. So, you are correct. The revenue from our largest customer was $70,800,000 in 2025. And when we lay out the plan for 2026, the $350,000,000, we assume that we are going to be getting about $11,800,000 from this customer. So $70.8 minus $11.8 is $59,000,000. So the impact of the loss of this customer was a decrease of $59,000,000 to our business, and then you add to that the impact of the Bako acquisition which should provide approximately $50,000,000 to $55,000,000 of revenues for the year. So for 2025, we achieved $322,000,000 of revenues, and in 2026, we are guiding to $350,000,000. So that minus $59,000,000 plus the partial or almost all offset from the Bako still provides a nice organic growth for our business, including Precision Diagnostics. I will turn it over to Brandon who can comment on this customer taking this testing in house. Brandon Perthuis: Yes, Lu, thank you for the question. I think Paul did a good job there describing the impact. I think in terms of what we have modeled for 2026, we have pretty good visibility into that. So we think that is a number that we can live with and that our customer has committed to. There are some contractual arrangements that still need to be met for the year. So, again, we have pretty good visibility into that number. Lu Li: Got it. And then just a follow-on to that. So you talked about there are some ways to mitigate by growing your customer pipeline. Just wondering, can you give a little bit more color in terms of how you can kind of grow your own brand diagnostic? And then related to that, the other companies' assays? Can you also size how much of your business right now is actually running? Brandon Perthuis: Yes. I mean, certainly, I can talk about some of the drivers. Panel out there now with over 1,000 genes, we continue to improve our connectivity with EMRs, so we still see a lot of momentum that would otherwise be missed in the absence of having that RNA data. We have expanded the sales team some in 2025. We continue to do so in 2026. And we think we are going to continue to gain market share for whole genome sequencing with RISE, our RNA-integrated sequencing evaluation, looking on a sort of a month to month as well. As we have mentioned, we have MolDX approval for our somatic assay, which we branded Lumira. And we are starting now to incorporate our somatic testing into our pathology business and learning and operationalizing how to leverage our somatic testing with our AP business. Our somatic test, great coverage, great turnaround time. It has all the right genes. So we think we are going to see some pretty significant improvement in our somatic oncology volume in 2026. And another area, you sort of see just genetics taking a bigger role in health care. You are seeing ASCO announced that patients that are going through certain chemo need to be treated with DPYD testing. Well, that is a gene that we offer. That is a service we provide. And that seems to be something that is going to drive some demand in 2026. So we see several different drivers for Precision Diagnostics, and we think we are going to deliver a pretty nice growth year. Paul Kim: Lu, this is Paul. As Brandon mentioned, the richness and the diversity of the offering, we feel more excited than ever for 2026. The incorporation of technology into our businesses, combined with the additional scale we are going to be getting particularly in the second half of the year with the incorporation of Bako. And what does that mean in terms of percentages and numbers? Well, to take an example, the gross margins, you know, with the impact of this large customer, yes, we are anticipating gross margins to be slightly lower in Q1 2026, but as we end the year, particularly in 2026, our forecasted gross margins should be pretty consistent with the record levels that we have achieved in 2025. Ming Hsieh: So, Lu, as both Paul and Brandon mentioned, we do need to take the lessons for losing this customer. We still have a reasonable relationship with the customer, and they still order other tests from us. But in addition, we have been accelerating the internal R&D development. We will introduce new products, and new techs will be the differentiator for the market, so we are feeling pretty strong at the present time. Given the technology and R&D effort we have, we do believe we will recover from this loss. Lu Li: Great. That is very helpful. Final question from me. I am just wondering what will be your kind of capital allocation strategy. I think in the prepared remarks, you kind of framed like you could have some potential M&A. So just wondering what kind of areas that you are planning to target after your acquisition of Bako and StrataDx? Are you going to do more in Precision Diagnostics? And then how does that balance with your organic investment that you just mentioned? Thank you. Ming Hsieh: Yes. I think, Lu, it would be an area of AI. We have a lot of capability internal. We also would be looking for the synergies we may have in the field for the companies who just provide us the AI-enabled discoveries. Operator: Our next question is from David Westenberg with Piper Sandler. Please proceed. David Westenberg: Hi. Thanks for taking the question. And I am just going to actually expand on some of Lu's questions. Can you confirm I think you actually said that this could be a gross margin headwind, the loss of the customer. And, I believe, secondly, you did do a ton, I thought, of carrier screening for this customer. And you have Beacon, which is a great product on your own. I just want to see if there would have been any loss of cost synergies associated with running that plus your own carrier screening project. And then I just wanted to follow on. I think there was a question about, like, if there is a second Compass customer that is anywhere the size of this, like, still outstanding, just kind of think about. And then I have a couple questions unrelated. Thank you. Brandon Perthuis: Gross margin headwinds. Paul, do you want to take that? Paul Kim: Yes, I will take the gross margin headwinds. In addition to the revenues we anticipate for the first half of the year compared to the second half, of the $350,000,000, we anticipate in the first half of the year revenues would be approximately $158,000,000 to $159,000,000. The second half of the year, we anticipate revenues to be approximately $191,000,000 to $192,000,000. And the reason why it is back-end loaded is because in the second half of the year, we anticipate increased momentum for our organic growth excluding this largest customer, combined with the fact that we are going to be getting the full impact of the Bako acquisition. The reason why it is lower in the first half of the year is because of the fast decline of the impact of the loss of this customer. And what that does to our gross margins is on a non-GAAP basis, we posted gross margins of approximately 41% in 2025. We anticipate that to go down by approximately four points in the first quarter, about two points in the second quarter, but have it rebound in the third and the fourth quarter, and the rebound being quite significant. We anticipate that the gross margins on a non-GAAP basis would be in excess of 41% in Q3 and then rising even higher than that in Q4. I will turn it over to Brandon who can address your other question. Brandon Perthuis: Yes, David. Thanks for the question. No. We do not have another customer that would be greater than 10%. We do not. David Westenberg: Got it. Okay. No. Thanks, Paul. That was an incredibly good amount of transparency and detail there. So thanks so much. Just in terms of the acquisition of Bako, you kind of mentioned this sales synergies or additional sales reps that you might be taking on. Are there additional sales synergies to sell your existing products? And I think you have traditionally been, and correct me if I am wrong, a lot more oriented on selling to the overall institution more than kind of on a physician-physician, pathologist-pathologist basis. With this additional scale, do you have opportunity to diversify the way you are going after the sales approach? Brandon Perthuis: Yes. Thanks for the question, David. You know, on the anatomic pathology side, it is more physician-level sales versus large system sales. That said, our AP team has been subscale. We know that team was not big enough, so this does get us somewhere between 20 and 30 new sales representatives. And the cross-selling synergies are absolutely there. We will be able to use our existing team to sell Bako products, and the Bako team to sell Fulgent Genetics, Inc. products. A lot of the call points are very similar. And at the end of the day, this gives us more boots on the street which is really what we need. I mean, there are a lot of call points for anatomic pathology, whether it is surgery centers, dermatologists, other types of practicing physicians. We have just been subscale there. So with the investments that we have made in AI, we have been able to tackle any capacity constraints which is always an issue in pathology, especially back when you were reading glass slides and microscopes. Capacity has always been an issue. The investments we have made in digital pathology and AI have allowed us to really expand that capacity. So we are really looking forward to having this much larger sales team, nearly double the size in 2026, and really setting them loose to go out there and sell. David Westenberg: Got it. Other than that, one last one on precision oncology here. How did Beacon carrier screening do in the quarter? I mean, should we view that as a continued area of strength, and do you see that as a continued area of strength in 2026? And thank you very much. Brandon Perthuis: Yes, we do. I mean, Beacon has been doing very well for us. Some of the Beacon volume has been impacted by this large customer dropping off faster than we anticipated. But our organic Beacon volume and the pipeline for Beacon opportunities remains very strong. So it is still one of the most important tests within the company. But to the oncology side of things, what we are doing with Lumira post MolDX approval and getting our pricing and approvals there, and how we are going to begin to leverage that across our pathology division. We are often the laboratory that is making the initial diagnosis of cancer. I mean, that biopsy, whether it is a breast biopsy, colon biopsy, skin biopsy, that is coming to our laboratory. We are performing H&E staining. We are making a cancer diagnosis. Now we are going to try to take it to the next level where we are going to do NGS. We are going to profile that tumor, not just perform pathology, and we have been talking about bridging our divisions together for some time. I think 2026 is going to be the year that it actually happens, and we are going to be able to provide better cancer diagnosis, better care, and timelier care for these patients. Operator: Our next question is from Andrew Cooper with Raymond James. Please proceed. We have just lost Andrew. Andrew, if you would still like to ask a question, please press. Okay. Here we go. Go ahead, Andrew. Your line is live. Andrew Cooper: Hey, everybody. Sorry, not sure what happened there. Appreciate the questions. Maybe first, a little bit of a numbers question here. So just thinking about the cash burn and cash dynamics you talk about, if my math is right, you are looking at sort of the core business ex CapEx, ex the acquisitions, and ex kind of the moving parts you have called out burning about $33,000,000 for the year. So just kind of curious is that math right? And how do we think about sort of the change here given that is a little bit bigger than we would have expected, I think, even with the customer loss just giving you net to a pretty similar revenue number overall. Paul Kim: Yes. I think your math is largely correct. And the reason why we are burning slightly more than we anticipated is because our operating expenses are going to be slightly to nominally higher as a result of the Bako acquisition. That is a fully functioning asset that we are very, very happy with in terms of what it would do to our product profile, our reach for the markets, as well as our overall capabilities. So our intention is to keep those businesses, to invest in those businesses because we anticipate additional growth and momentum to come from that as well as our overall business into 2027. But taking a step back and looking at our cash burn, we ended the year with approximately $800,000,000 if you include the receivables we are going to be getting from the IRS tax refund. And now we are forecasting our cash at the end of 2026 to be $185,000,000. But a huge chunk of that delta of $115,000,000 are costs and a cash outlay that is not associated with the laboratory services business. So for example, of the $115,000,000, at least $56,000,000 is going to be associated with the cash outlay that we have for the Bako acquisition. We have another $26,000,000 of outlay that is associated with the spend for our biotech asset, FID-007 and FID-022. We also have capital purchases of approximately $12,000,000, and the one-time professional liability settlement of $14,500,000. So if you take a step back, and even if you take into account the impact of the loss of this customer, our laboratory services business is going to be using cash, but not that much, which leaves a lot of cash for us to deploy for M&A and investment in our overall business as well as other opportunities that can serve the shareholders. Andrew Cooper: Okay. Helpful. And touching on something you touched on there at the start of that answer. The digital pathology piece, and I assume, I guess, that Bako and Strata are not maybe as far along as you are at basically 100% digital at this point. So what sort of additional kind of volume are those two or volume capacity capabilities are those two deals adding? And how much incremental volume will you be able to handle thanks to that digital pathology and AI capability without needing to add materially more pathologists that I know are expensive to add at this stage. Brandon Perthuis: Yes. Thanks for the question, Andrew. I do not know that anyone is where we are when it comes to digital pathology. I think we are significantly ahead of the game here, especially developing our own in-house developed viewer and image management system. Really proud of our R&D team and how quickly we have accelerated our AI and digital pathology reach here. You are correct. Bako is not highly digital yet. But this stuff is quite portable. There are some protocols that we need to improve based on certain sample types and certain biopsies. But it is mostly portable. So we will do our best to bring them up to speed in terms of digital, in terms of using AI. It is a nice improvement in efficiency, ultimately leading to capacity. You are right. For a long time, often your bottleneck of capacity was hiring pathologists and getting enough in the office to read. Remote does two things. It makes them more efficient but also allows us to hire pathologists all across the country. We do not need to relocate these people to Dallas or Boston or now perhaps Alpharetta once we close the acquisition of Bako. So it really has changed the game in how we run our business, and we are going to hopefully be able to bring a lot to Bako to help them as well. And again, these sales teams, a lot of synergies exist within the sales teams. So now we have one that is roughly twice the size that can sell products for both Fulgent Genetics, Inc. and Bako. Ming Hsieh: Yes. Adding to Brandon's point, the digital pathology toolkit allows more efficiency, and it also helps us to reduce the errors. In addition, all these pathologists' work becomes strong data for us to continue to train the AI and make it even better. So we do see a lot of synergies between the acquisition, and also we do see the benefit of AI for how pathology works. Andrew Cooper: Okay, helpful. And maybe just one last one. With this large customer in housing, do you have an opportunity to maybe shrink whether it is physical footprint or at least kind of pull down the labor spend component of things given, call it, 20% of revenues, I assume a pretty big chunk of volumes are coming out of that Precision Diagnostics business? I know you want to grow the remaining piece, but just would love a sense for whether you are right sized for the business at this stage once they are out of the equation. Paul Kim: Yes. So for the 2026 plan, excluding Bako, the overall headcount for the organization we kept relatively flat. We have some nominal increases, particularly at the sales organization. And the reason why we did that instead of having it go deeper or considering cuts is because we view the impact of this customer as a one-time event. We fully believe in this market. We believe in our capabilities. And we will get back to growth. We believe a decent trajectory. So combined with the fact that when we take a look at our laboratory services business, as I mentioned, even with the impact of this customer, it is not consuming that much cash. So we like where our organization sits, and we look to return to accelerated growth here in the future. Andrew Cooper: Okay. I will stop there. Thank you. Operator: Thank you, Andrew. There are no further questions. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Paul Kim: Thank you.
Operator: Greetings, and welcome to the Alpha Metallurgical Resources, Inc. Fourth Quarter 2025 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin. Emily O'Quinn: Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's fourth quarter 2025 earnings release and the associated SEC filing. Please also see these documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha Metallurgical Resources, Inc.'s Chief Executive Officer, Andy Eidson, and our President and Chief Operating Officer, Jason E. Whitehead. Also participating on the call are J. Todd Munsey, our Chief Financial Officer, and Daniel E. Horn, our Chief Commercial Officer. With that, I will turn the call over to Andy. Andy Eidson: Thanks, Emily, good morning, everyone. Today, we released our definitive fourth quarter financial results, which include adjusted EBITDA of $28,500,000 and 3,800,000 tons shipped. This closes out a year that presented a number of challenges and continued market weakness. However, 2025 was also a year of markedly improved cost performance across the company and resilience in the face of difficult circumstances. Now in 2026, we look to build on that perseverance and continue improving. Since our last earnings call, we issued 2026 guidance and announced 3,600,000 tons in sales commitments to domestic customers. We have since added another 500,000 contracted tons, bringing Alpha Metallurgical Resources, Inc.'s domestic commitments to a total of 4,100,000 tons for the year at an average price of $136.30. Especially in volatile times like these, having a solid base of committed tons to North American customers supports cash flow planning and business needs since the rest of the sales book is subject to market risk, which carries uncertainty. As we stated in our preliminary announcement and again today, recent upward movement in coal markets has been largely concentrated within the Australian Premium Low Vol (PLV) Index. Much of the shift was due to supply-related issues resulting from flooding that occurred in Queensland in December and January, meaning the impacts were likely isolated and temporary. This conclusion is further supported by the significant divergence between the Aussie index and those priced on the U.S. East Coast as well as the trend lower in recent weeks. Additionally, growing oversupply of high-vol coal seems to be contributing to the widening spread between low-vol and the high-vol A and B coals. Given our usual quality mix, if the current pricing environment for high-vol persists, it would likely exert downward pressure on our realizations for the year. In light of these supply-related forces, we continue to look for durable improvements to global steel demand as the catalyst needed to improve met markets across the quality spectrum in a sustainable way. All of this is important market context as we look at what is ahead for 2026. While the high-vol market remains crowded on the supply side with incremental tons coming from Alabama and Northern Appalachia, we are looking forward to completing development at the Kingston Wildcat low-vol mine, which Jason has additional detail to share about shortly. As always, we are going to do everything we can to mine coal safely and efficiently, and our sales team will aim to maximize the value of every pound of coal that we mine. However, we are also clear-eyed about the persistent market weakness, especially with regard to high-vol, and are maintaining our focus on a strong balance sheet and safe, efficient operations as a recipe for success in these challenging times. I will now turn the call over to Todd for additional information on our fourth quarter financial results. J. Todd Munsey: Thanks, Andy. Adjusted EBITDA for the fourth quarter was $28,500,000, down from $41,700,000 in the third quarter. We sold 3,800,000 tons in Q4, down from 3,900,000 tons in the third quarter. Met segment realizations increased quarter over quarter with an average realization of $115.31 in Q4, up from $114.94 in the third quarter. Export met tons priced against Atlantic indices and other pricing mechanisms in the fourth quarter realized $106.13 per ton, while export coal priced on Australian indices realized $114.96 per ton. These results are compared to realizations of $107.25 per ton and $106.39 per ton, respectively, in the third quarter. The realization for our metallurgical sales in Q4 was a total weighted average of $118.10 per ton, up from $117.62 per ton in Q3. Realizations in the incidental thermal portion of the met segment decreased to $77.80 per ton in Q4, down from $81.64 per ton in the third quarter. Also, coal sales for our met segment increased to $101.43 per ton in the fourth quarter, up from $97.27 per ton in Q3. Lower coal volumes in the fourth quarter, along with the reduction in coal inventory value, were the primary drivers of the increase. SG&A, excluding non-cash stock compensation and nonrecurring items, decreased to $10,900,000 for the fourth quarter as compared to $13,200,000 in the third quarter. Reduced professional services spend and lower labor costs were the primary contributors to the reduction. Moving to the balance sheet and cash flows, as of December 31, we had $366,000,000 in unrestricted cash, and $49,600,000 in short-term investments, as compared to $408,500,000 of unrestricted cash and $49,400,000 in short-term investments as of September 30. We had $183,700,000 in unused availability under our ABL at the end of the fourth quarter, partially offset by a minimum required liquidity of $75,000,000. As of December, Alpha Metallurgical Resources, Inc. had total liquidity of $524,300,000, down from $568,500,000 as of September. CapEx for the quarter was $29,000,000, up from $25,100,000 in Q3. Cash provided by operating activities was $19,000,000 in Q4, down from $50,600,000 in the third quarter. As of December 31, our ABL facility had no borrowings and $41,300,000 of letters of credit outstanding. In terms of our committed position for 2026, at the midpoint of guidance, 37% of our metallurgical tonnage in the met segment is committed and priced at an average price of $134.20. Another 53% of our met tonnage for the year is committed but not yet priced. The thermal byproduct portion of the met segment is 77% committed and priced at the midpoint of guidance at an average price of $73.17. I will now turn the call over to Jason to provide an update on operations. Jason E. Whitehead: Thanks, Todd, and good morning, everyone. At the end of each calendar year, we evaluate every Alpha Metallurgical Resources, Inc. operation against a set of criteria to determine the David J. Stetson Best in Class awards. These winning teams meet or exceed certain thresholds measuring their safety, environmental stewardship, and efficiency throughout the year. I am pleased to congratulate our Raven Mill Prep Plant and Marmet River Dock on their selection as 2025 Best in Class winners. We appreciate all the hard work and daily attention to detail that contributes to these successful operations. I want to also recognize the good work accomplished at the remaining mines in our operating portfolio. Even though 2025 was a challenging year, our teams came together to overcome obstacles and continue pushing each other to be better. That drive for continuous improvement is inherent in our culture of safe production. Turning to our new low-vol mine, Kingston Wildcat, I want to remind everyone that in September 2025, our Wildcat slope intercepted the Sewell coal seam. Since then, we have continued to make progress in underground development production while installing key infrastructure in and around the mine and the Mammoth preparation plant. At Wildcat, the two-mile power line and tap construction is complete and the mine is now on its permanent utility power. The stockpile reclaim tunnel and raw coal railroad loadout are complete, and the overland belts that serve the loadout from the mine stockpile are expected to wrap up in Q2. The mine ventilation shafts have both been bored, and the lining and ventilation work continues. At Mammoth, the railcar off-loaders are complete and functioning, and the raw coal transfer belts that report from the rail to the plant are also complete. We are forging ahead as planned, and we currently expect to produce roughly 500,000 tons from the mine this calendar year as we ramp up Wildcat's full productivity capacity, which we believe is nearly 1,000,000 tons per year. With that, I will now turn the call over to Dan for some details on the market. Thanks, Jason, and good morning, everyone. Daniel E. Horn: As Andy mentioned, supply-related issues, including the December and January flooding in Queensland, Australia, impacted metallurgical markets in recent months. Due to constraints on Australian met coal supply, a divergence between the Australian-linked indices and the U.S. East Coast markets significantly expanded, with spreads also widening between the premium grade low-vol coal and high-vol coals. Despite these supply-related shifts in the indices, the global metallurgical coal markets are still structurally influenced by steel demand as linked to economic conditions, policy decisions, geopolitical tensions, tariffs, and ongoing trade negotiations, all of which could impact met coal pricing. Metallurgical coal markets experienced varied movements across the indices during 2025. Of the four indices that Alpha Metallurgical Resources, Inc. closely monitors, the Australian Premium Low Vol Index represents the largest jump, an increase of 14.6%. The Australian Premium Low Vol Index increased from $190.20 per metric ton on October 1 to $218.00 per metric ton on December 31. The U.S. East Coast Low Vol Index rose from $177.00 in October to $185.00 per metric ton by December, an increase of 4.5%. The U.S. East Coast Low Vol averaged roughly $178.00 over the course of the fourth quarter. By contrast, the U.S. East Coast High Vol A index was effectively flat during the quarter, dropping slightly to $150.50 per metric ton at the end of the year, and the U.S. East Coast High Vol B index was similarly flat, ending the quarter at $144.20 per metric ton. Since the quarter close, all four indices have increased, although to very different degrees. The Australian PLV has increased to $237.00 per metric ton as of February 26, a 9% increase, while the U.S. East Coast Low Vol index was $196.00 per metric ton, an increase of 6%. High Vol A and High Vol B indices measured $159.00 and $149.00 per ton, respectively, as of the same date. In the seaborne thermal market, the API2 index was $94.55 per metric ton as of October 1 and increased to $96.90 per metric ton on December 31. Since then, the API2 has increased to $106.75 per metric ton as of February 26. Turning to logistics, Dominion Terminal Associates will undertake a four-week planned outage beginning in March during which portions of the terminal will be unusable while significant equipment upgrades occur. Similar to past outages, DTA management has carefully planned the order of events so as to disrupt operations as minimally as possible. Our team within Alpha Metallurgical Resources, Inc. has also been planning for this downtime, and we do not anticipate any material negative impacts from the outage. Rather, we look forward to these important terminal upgrades to strengthen our shipping capabilities for the future. With that, operator, we are now ready to open the call for questions. Operator: Thank you. We will now open for questions. Our first question comes from Nick Giles with B. Riley Securities. Your line is now live. Nick Giles: Maybe my first one is more of a clarifying nature. Could you just help us understand your mix within your domestic tonnage versus more seaborne-based tons? I am really just trying to kind of better capture your sensitivity on the low-vol side with your uncommitted tons? Daniel E. Horn: Yes, Nick, this is Dan. Good morning. On the domestic, I cannot give you exact numbers, but on the domestic side, probably half of our domestic volume is high-vol, while the other half of it would be low and medium vol. And then on the seaborne side, we have some of our existing low-vol production available to sell into the seaborne market. And then as the, when the 1,000,000 tons or so of low vol that would be available for that market as well. Nick Giles: Perfect. Dan, that is really helpful. I appreciate it. Maybe my second question is just on the cost side and how should we kind of think about cost cadence over the course of the year? I know volumes will be slightly lower here in Q1, which is pretty typical. Just any kind of incremental color you can give us on cost progression as the year goes on? Andy Eidson: Hey, Nick. It is Andy. Good morning. I will hit at a high level and Jason can add any detail he would like to. But Q1, as we mentioned, we had some weather impacts and it is going to be a slightly lower productive cadence for the quarter. So that will lead to elevated costs. Second and third quarters are typically when we are all systems go. Fourth quarter is typically the same issue as the first: a little bit of weather, but you have got miners’ vacation and holidays that tend to bring down our output just a bit. So, usually, it is kind of a barbell: first and fourth will be your higher cost quarters; in the middle we do a little bit better. Although this ’25 was, I think, an exceptional quarter from a cost perspective. So it just depends on how that works out. But typically, that has been the trend. Nick Giles: Got it. Thanks for that, Andy. Maybe one more if I could and I can jump back in the queue. But, Dan, would just be great to get some more color on the broader market. How are you seeing things in kind of more traditional markets like Europe or South America? And do you think that any upcoming recovery is really dependent on incremental demand from South Asia, or do you think there will be other important contributors as well? Daniel E. Horn: I guess the steel market globally is still pretty weak, with the exception of the U.S., and even the U.S., the volumes there—steel pricing here in our markets are good, but the volumes probably could be better. There are still some blast furnaces that could ramp up here. Atlantic Basin, though, yes, I think we see probably a little more optimism than we had the last couple of years in Europe, South America, that the effect of the global trade wars is starting to sink in and different governments are beginning to take some action that I think will benefit met coal exports to those markets. Asia remains kind of tough. It is tough even in the best times; it is a very competitive market when the Australians are producing well. We have that to compete with. And of course, Andy mentioned the increased production; we are seeing more competition along the high-vol coal. So I hope that answers your question. Nick Giles: That does. I appreciate it, Dan. Guys, I will turn it over for now, but thanks a lot and continue the best of luck. Operator: Our next question comes from Nathan Martin with The Benchmark Company. Your line is live. Nathan Martin: Thanks, operator. Good morning, everyone. You know, I am thinking about total liquidity, over $500,000,000 at year-end, nice cushion over your minimum target of $250 to $300 million. Obviously, the market was quite weak last year. Maybe things are at least seemingly moving in a positive direction the last few months. I guess, Andy, maybe it would be great to get your thoughts on what you see as the best uses for Alpha Metallurgical Resources, Inc.’s cash at this stage. Andy Eidson: Yes. Hey, Nate. Good to hear from you. That is a great question. I mean, particularly in markets like this where we are dealing with such volatility, the question still goes back to how sustainable is the recent bump in the PLV and when do we start seeing a collapse of the massive margin that is built between Atlantic Basin and the Australian pricing. Because, again, we have got a good portion that goes on Aussie pricing, but the vast majority of our coal is going on Atlantic Basin, which has remained relatively depressed for a while now. So we think that having that buffer, that liquidity, is very good to just keep the balance sheet strong. We are still utilizing some of that cash for the share buyback to keep that moving along at a measured pace. And we remain hanging around the hoop on all kinds of different opportunities that may arise. I mean, as usual, I like to kind of be cagey around any M&A comments. But there are some things available out there. Some of them are attractive, some of them maybe not. But we continue to keep our eyes open and will look at literally anything that comes across the desk to see if there is a way that we can add value to the enterprise without bringing extra risk to what we have already built. Nathan Martin: Alright. That is very helpful, Andy. Nathan Martin: I guess, the cost side of the business. You guys put your guidance out originally in December. You know, I know usually you kind of assume, you know, a forward curve for your price within that guidance. I mean, that has probably improved about $10 or so since then. So any thoughts on what net price range you are assuming in that guidance? And then you talked as well about the 45X tax credit. What kind of benefit does that represent in your guidance range? Andy Eidson: Yes, I will answer the first part of that, and I will let Todd cover the 45X piece. Yes, our guidance when we put it out in December was, of course, as it is every year, it is informed mostly by the strip for the following year, which was a bit lower than where we have actually landed in January and February. So that is contributing to higher sales-related costs rolling through Q1, and so that would contribute to something above the upper end of our guidance likely for Q1. We do think that that will normalize—the trend typically winds off a little bit; we get into the quote-unquote shoulder season rolling into the second quarter. So I think our cost guidance is still pretty solid, even though coming out of the gate we will probably be a little bit above that. Todd, 45X impact? J. Todd Munsey: Yes. Hey, Nate, the range we gave out previously, I think if you look at the midpoint of our volume, you will get around, call it, $2 per ton benefit, maybe a little bit more. I mean, it is a new calculation. We are still working through what qualifying costs mean. But as we work through the year, we will get more precision around that. But I would say a good way to think about that is it is around $2 a ton. Nathan Martin: Great. Makes sense, guys. And then maybe one more. You know, appreciate seeing the tonnage now for committed and priced volume. I do not really remember seeing that before. And, Andy, you mentioned adding, I think, roughly half a million tons of domestic commitments since last guidance. Only a small decrease in average price there. As we look at what is open, do you guys think there is any more opportunity for domestic sales out there, or do you expect the rest of your open tons to go export? Daniel E. Horn: Yes, Nate, I think it is fair to assume most all of them will go export. If the aforementioned blast furnaces would ramp up and our need to produce a little more coke here in North America, they might come out and do a little more shopping. I think largely that domestic market is put to bed. So the answer would be go seaborne. Nathan Martin: Got it then. Alright guys, very helpful. I will leave it there. Appreciate the time, and good luck in ’26. Operator: Thank you, Nate. Our next question comes from Nick Giles with B. Riley Securities. Please proceed with your question. Nick Giles: Hey, thanks for taking my follow-up. Andy, I just found your comments interesting there around the M&A piece and just wanted to clarify: would you only be looking at met opportunities, or, just given some of the kind of constructive thermal dynamics going on, would you be willing to look at thermal coal as well? Andy Eidson: Yes. I do not know that anything is off the table necessarily. Look, we are a met coal company and that is kind of strategically where we made our move. We made that move for some obvious reasons. We exited a couple of our largest thermal assets that did not quite fit what we were wanting to accomplish. But the world changes. So again, when I say we will kind of look at anything, we really will, but it does have to fit certain categories. And, you know, those categories are not necessarily related to the fundamental nature of what the asset is, but it is more around guarding against unnecessary risk and also seeing upside to make the juice worth the squeeze, so to speak. Nick Giles: That makes sense. I appreciate that. Maybe one last one, if I could. Just anything from a U.S. supply perspective that you have seen over the past few months? I mean, I know that I have heard rumblings of some smaller operations curtailing over the past year. And curious if you have any updates on that front and whether you think there is really that much more supply that could come offline, or if those that are still able to operate today might be better positioned from a balance sheet perspective and kind of the higher-cost players are probably out of the market at this time? Andy Eidson: Yes. It is always hard to tell because, particularly with smaller producers, we do not have a lot of visibility into how strong their balance sheets are. But we have all seen, even in the past couple, three weeks, we have seen some furloughs of operations that are going into care and maintenance—could be prepping sale, could be doing any number of things—but those mines are not currently producing in Central Appalachia. So if you kind of add up those numbers, you get to, you know, 1,000,000, 1,500,000, maybe 2,000,000 tons of potential annual production that is coming offline. For Central App, that is a decent number. Globally, it is not necessarily a needle mover. And then that does not take into account the ramp-ups of other mines that are out there. And again, when we look at Alabama and Northern Appalachia, a lot of those mines have not hit their stride yet. So there is potential for even more tons to come online. So at this point, it still feels like there are probably some folks out there, the smaller producers, that at this market level—these prices—probably will not be able to continue producing for much longer. But I do not know that it is enough to hit critical mass and make a material impact to the market. Nick Giles: Got it. Understood. And I lied. I will sneak in one more, if I could. I think maybe just another high-level question around pricing. I think when investors look at prices on paper, I think realizations in the market can be a very different story. So do you think there is maybe a better way that pricing could be reflected, whether for users of coal or investors? Or are there any improvements out there that could kind of add transparency, if you will? Andy Eidson: Well, let me ask you a clarifying question. Are you talking about the presentation of the indexes, or the derivation of the indexes, or how we all individually refer to our realizations? Because I think there is more so industry— Nick Giles: Yeah. Sorry. Yeah. I mean just on the indices. Yeah. Daniel E. Horn: Nick, yes, the indices—we sell coal into liquidity truly around the world using five, six, seven, eight different indices. The buyers largely dictate which indices you use. In Asia, the Asian buyers prefer to use the Aussie-linked indices; in the Atlantic Basin they use the U.S. East Coast indices. As I have said on this call before, in a good market, a strong market, a seller’s market, we can sell at a premium to those indices, and in a weaker market we sell at a discount to those indices. When I started in this business we did fixed price for a year and we did three- and five-year contracts. A lot of the coal that we sell, we still have contracts, but we sell more and more a vessel at a time. And that is largely driven by the way the Asian customers prefer to buy the coal. And so it is a challenge for us to say the least. And I always say the ton of coal at Hampton Roads does not know where it is going. And we, I guess, feel that our coal can be undervalued at times. People refer to the spread between High Vol A and Low Vol, for example, in that relativity. I am not a disciple of that, frankly. Each coal has its own value and has its own drivers. So I guess the answer is, could there be a better way? Possibly, but, you know, the customers largely dictate how we sell our coal. Nick Giles: Understood. I really appreciate the perspective, as always. I will turn it over, but thanks again. Good luck. Operator: Our next question comes from Matthew Key with Texas Capital. Please proceed with your question. Matthew Key: Hey, good morning, everyone. Most of my questions have been addressed, but I will ask a quick one just on the macro. We also got some announcements on the U.S. tariffs recently. While it sounds like those will be replaced by, you know, other means, does that impact the macro thesis on met coal at all, in your view? Or is it kind of just continuation? Andy Eidson: I think the challenge—Matthew, it is good to talk to you, by the way—I think the challenge here is the constant state of flux in the tariff structures. I think it has got a lot of buyers, a lot of people who could be doing infrastructure projects or big buildings or any kind of development that could require a lot of steel—I think it has got a lot of people sitting on their hands waiting to see where things fall out before they make big moves. And that degree of lethargy is part of the problem. You look at this market—there is just not a lot of, not enough volume flowing in any discernible direction, being able to predict where that goes. So I think a lot of folks are continuing just to wait and see where it lands so they can really derive the cost of whatever projects they are wanting to do. And that leaves us—we are the tail end of the cycle for that—and that leaves us in a state of uncertainty. Matthew Key: Got it. No, that is helpful color. That is it for me. Best of luck moving forward. Andy Eidson: Yes. Thank you very much. Operator: We have reached the end of the question-and-answer session. I will now turn the call over to Andy Eidson for closing remarks. Andy Eidson: We appreciate everyone's time this morning. Thank you for joining us, and we hope everyone has a great weekend. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and thank you for joining us today for Concentra Group Holdings Parent, Inc. earnings conference call to discuss the fourth quarter and full year 2025 results. Speaking today are the company's Chief Executive Officer, Keith Newton, and the company's President and Chief Financial Officer, Matt DiCannio. Management will give you an overview and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities, and other statements that refer to Concentra Group Holdings Parent, Inc.'s plans, expectations, strategies, intentions, and beliefs. You are hereby cautioned that these forward-looking statements may be affected by the important factors, among others, set forth in Concentra Group Holdings Parent, Inc.'s earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. These forward-looking statements are based on the information available to management today, and the company assumes no obligation to update these statements as circumstances change. At this time, I would like to turn the conference over to Mr. Keith Newton. Keith Newton: Thanks, Operator. Good morning, everyone. Welcome to Concentra Group Holdings Parent, Inc.'s fourth quarter 2025 earnings call. Hopefully, everyone had a chance to review our prerelease that we furnished to the SEC on January 28, which included certain operational and financial results for the fourth quarter and 2025 fiscal year, including visits, rate, revenue, adjusted EBITDA, net income, and EPS, amongst others. We have no material changes to report to any of our previously released financial or operational metrics. Q4 earnings prerelease was published at the same time as our fiscal year 2026 guidance in our investor book. The detailed investor book provides a comprehensive primer on our business and industry. We recognize that Concentra Group Holdings Parent, Inc. is a unique company and therefore may necessitate additional foundational information for some investors to gain a better understanding of our fundamentals. We touched on everything from the patient journey in our centers to customer value proposition to our company performance through various economic cycles, to the workers’ comp ecosystem and rate setting mechanisms, to financial highlights, including cash conversion and return on invested capital, and much more. We have gotten positive feedback on it thus far and expect that it will continue to resonate with the market. I would also like to add that we recently completed additional validation studies on workers’ compensation claims that we treated that support and validate our considerable value proposition to our employer customers and ecosystem partners. The additional studies produced strong results consistent with our previously published studies. Adding the results to the previously published data, we now have reviewed and analyzed more than 550,000 claims from 2020 to 2025, in partnership with employers and payers, and we have found that the average total workers’ compensation claims cost for those treated by Concentra Group Holdings Parent, Inc. is 25% lower than non-Concentra providers, and that the average claim duration is 65 fewer days when treated by Concentra Group Holdings Parent, Inc. We believe our specialized clinical approach and fully integrated medical model drive these strong outcomes for injured workers and their employers. With our unmatched nationwide access, technological capabilities, data interconnectivity, and excellent patient satisfaction metrics, which are at all-time highs, we continue to prove to employers why we are the best solution for creating the most value for all their occupational health needs. Moving on to our financial results. We had a strong finish to an overall solid year for the company, exceeding the high end of the range of our previously issued full year 2025 guidance for both revenue and adjusted EBITDA, as well as coming in better than our guidance on leverage. Solid growth in both visits and rate within the Occupational Health Centers operating segment, prudent cost management across G&A and cost of services, and continued double-digit organic growth in the On-Site business operating segment all contributed to the outperformance during the fourth quarter. Total company revenue was $539.1 million in Q4 2025 compared to $465.0 million in Q4 of the prior year, representing 15.9% growth year-over-year. Excluding contributions from the Nova and Pivot acquisitions, revenue was $493.8 million in Q4 2025, resulting in a 6.2% increase over the prior year. For the full year 2025, revenue was $2.2 billion compared to $1.9 billion in 2024, representing 13.9% growth year-over-year despite one less revenue day. Excluding contributions from Nova and Pivot, 2025 revenue was $2.0 billion, resulting in a 6.4% increase over the prior year or a 6.8% increase on a per-day basis. Total patient visits increased 9% to more than 51,000 visits per day in the fourth quarter, which is always our lowest volume quarter of the year due to the seasonal holidays and colder weather. Our workers’ compensation visits per day increased 9.1%, and the employer service visit volume increased 9.4% relative to prior year. Excluding the impact from the acquisition of Nova, total visits per day increased 2.6% in the fourth quarter. Workers’ compensation visits increased 3.4% and employer service visits increased 2.3%, both continuing the strong momentum from 2025. I would note that we were largely unimpacted by the government shutdown during the quarter, given limited exposure to the federal government from an employer customer standpoint. Full year 2025 visits per day increased 7.7% year-over-year to over 53,000. Workers’ compensation visits increased 7.7% and employer services visits increased 8.1%. Excluding the impact from the acquisition of Nova, total 2025 visits per day increased 2.2% with increases in workers’ compensation visits of 2.8% and employer service visits of 1.8%. We sustained relatively strong performance over the course of 2025 despite a lot of debate around the state of the broader labor market. Following the recent BLS jobs revisions to 2025, we now know that across the economy, the U.S. labor market grew at a relatively anemic clip, up 0.1% in 2025. However, the blue-collar economy, which largely encompasses production and nonsupervisory workers, which represent about 80% of the private labor market and is more indicative of the labor force we serve in our occupational health centers, added more than 450,000 net jobs over the course of the year according to the BLS and grew at a rate of 0.4% in 2025. We remain positive on the long-term outlook for the U.S. labor market. According to the most recent employment projections by the BLS published in August 2025, the U.S. is expected to add 5.2 million jobs from 2024 through 2034, with a large subset of these jobs in physically demanding occupations with higher incidence rates. Additionally, we anticipate that there will be upside to those employment projections if the proposed capital commitments made in conjunction with the broader reshoring initiative continue to be converted into large construction projects and more manufacturing jobs are added to the economy. Overall growth in employment combined with a stable injury incidence rate across industry sectors and an aging workforce with increased comorbidities that result in increased severity of injuries should continue to provide strong tailwinds to our business over the long run. With respect to our rates, revenue per visit grew 3.1% during the fourth quarter relative to the prior year. This growth was driven by a 4.1% increase in workers’ compensation and a 1.2% increase in employer services revenue per visit. Compared to earlier quarters in 2025, year-over-year growth in employer services rate in Q4 2025 was down primarily due to a shift in mix between the lower dollar drug screens and higher dollar physicals. For full year 2025, revenue per visit was 4.3% higher than 2024, with workers’ compensation revenue per visit increasing 5.3% and employer services revenue per visit increasing 2.7%. Adjusted EBITDA was $95.3 million in the quarter versus $77.5 million in the same quarter prior year, or a 22.9% increase. Adjusted EBITDA margin increased 100 basis points from 16.7% in Q4 2024 to 17.7% in Q4 2025. For the full year 2025, adjusted EBITDA was $431.9 million compared to $376.9 million in 2024, representing 14.6% growth year-over-year despite one less revenue day. We are really happy with the results that we have seen over the last eighteen months. Since our IPO in July 2024, we have grown adjusted EBITDA by approximately $67.0 million, constituting an 18% increase. While the Nova and Pivot acquisitions certainly contributed, the majority of this growth has been organically driven, which again is a testament to the continued execution of our entire team. For full year 2025, adjusted EBITDA margin increased to 20.0% from 19.8% in 2024. As with previous quarters, we are comparing against prior year margins that were burdened with less public company and separation costs, indicating even greater margin performance if you were to compare on an apples-to-apples basis. With respect to the separation with Select, we are tracking very well and have hired more than 80% of the total expected FTEs, including all senior level positions. We expect to finalize hiring and complete the majority of the remaining separation activities by the summer, well ahead of the November 2026 expiration of the transition services agreement with Select Medical. Adjusted net income attributable to the company was $36.1 million and adjusted earnings per share were $0.28 for the fourth quarter 2025, representing significant growth over prior year adjusted net income attributable to the company and adjusted earnings per share of $22.2 million and $0.17, respectively. Adjusted net income attributable to the company was $176.0 million, and adjusted earnings per share was $1.37 for full year 2025. For full year 2024, adjusted net income attributable to the company was $168.5 million and adjusted earnings per share was $1.48. During the fourth quarter, we opened two additional de novo sites in Southern California and Miami, resulting in seven total de novos in 2025. We have a strong pipeline heading into 2026, having already opened another new location outside of Atlanta in January, executed leases on another five locations across Arizona, Florida, Missouri, and Idaho, which will be a new state for us, and identified several other attractive sites that could push us into the high single-digit de novo openings in 2026. On the M&A front, we plan to continue with smaller bolt-on acquisition opportunities. We have often said that these deals are highly accretive for us due to the top line and cost synergies we are able to achieve. The acquisition of the three net incremental centers in California in January aligns with this approach. I will now turn the call over to Matt to provide additional details on our financial results for the quarter and our growth outlook for 2026. Thanks, Keith, and good morning, everyone. I will start by going through some more details on our Q4 results and our three operating segments. Matt DiCannio: In our Occupational Health Center operating segment, total revenue of $490.6 million in Q4 2025 was 12.2% higher than the same quarter prior year. Total visits per day increased 9.0% over the same quarter prior year. Revenue per visit increased 3.1% from $145 in Q4 2024 to $150 in Q4 2025. Workers’ compensation revenue of $328.5 million in Q4 2025 was 13.6% higher than prior year. Work comp visits per day increased 9.1% from prior year during the quarter, and work comp revenue per visit increased 4.1% versus prior year during the quarter. Within employer services, revenue of $151.9 million increased 10.7% in Q4 2025 from prior year. Employer services visits per day increased 9.4% from prior year during the quarter, and employer services revenue per visit increased 1.2% versus prior year during the quarter. As with past quarters, here are the same stats for Q4 excluding the impact of Nova to help isolate core business from our Q1 2025 acquisition. Total revenue within the Occupational Health Center operating segment was $461.9 million in Q4 2025, a 5.7% increase over the prior year. Total visits per day increased 2.6% over the same quarter prior year, and revenue per visit increased 3.1% from $145 in Q4 2024 to $150 in Q4 2025. Workers’ compensation revenue of $309.0 million in Q4 2025 was 7.2% higher than prior year. Work comp visits per day were 3.4% higher than prior year during the quarter, and work comp revenue per visit was 3.7% higher than prior year during the quarter. Within employer services, revenue of $142.2 million in Q4 2025 increased 3.7% from prior year. Employer services visits per day were 2.3% higher than prior year during the quarter, and employer services revenue per visit was 1.3% higher than prior year during the quarter. Moving on from our Occupational Health Centers, our On-Site Health Clinics operating segment reported revenue of $36.2 million in Q4 2025, a 112% increase from the same quarter prior year. This was largely driven by the acquisition of Pivot On-site Innovations in Q2 2025. Excluding the impact from Pivot, organic growth in our On-Site Health Clinics operating segment was 14.6% year-over-year during the quarter, the third consecutive quarter with double-digit organic growth. For the full year 2025, our On-Site Health Clinics operating segment reported revenue of $110.2 million, a 72% increase over full year 2024. Excluding the impact from Pivot, the On-Site operating segment revenue grew 11.6% over full year 2024. We have a robust prospective On-Site customer pipeline and expect to continue to see strong organic sales growth in this operating segment in 2026. In particular, our advanced primary care product offering has gained a lot of traction within the broader market, and we expect that to serve as a key growth driver for the business. And finally, Other Businesses generated revenue of $12.3 million in Q4 2025, a 12.6% increase against the same quarter prior year. For the full year 2025, Other Businesses grew 8.7% over full year 2024. Now moving on to expenses. Cost of services was $398.4 million, or 73.9% of revenue, in Q4 2025, an improvement from 74.2% of revenue for the same quarter prior year. For the year, cost of services was 71.7% of revenue, a decrease from 72.2% in 2024. The improvement year-over-year is really a testament to our operators and staffing efficiencies they were able to garner within the centers. The year-over-year improvement is also despite headwinds from one-time integration costs we incurred as a result of the Nova transaction, which totaled more than $2.0 million over the year. Our total general and administrative expenses were $50.8 million, or 9.4% of revenue, in Q4 2025 compared to 9.8% of revenue in the same quarter prior year. Excluding items that are added back for the purposes of calculating adjusted EBITDA, including equity compensation expense, one-time Select separation costs, and M&A transaction costs, G&A expense was $45.8 million for the quarter, or 8.5% of revenue, compared to 9.4% of revenue in the same quarter prior year. The year-over-year outperformance in Q4 2025, despite incurring additional separation costs, was partially driven by the reduction in certain nonrecurring expenses that we incurred in Q4 2024. For the full year 2025, G&A expense as a percent of revenue was 9.4% compared to 8.2% for the full year 2024. Excluding items that are added back for the purposes of calculating adjusted EBITDA, including stock comp expense and one-time transaction costs, G&A expense as a percentage of revenue was 8.4% in 2025 compared to 8.0% in 2024. The year-over-year increase was largely due to incremental costs resulting from our separation from Select and emergence as a stand-alone public company in July 2024. Adjusted EBITDA margin increased from 16.7% in Q4 2024 to 17.7% in Q4 2025, and adjusted EBITDA margin increased from 19.8% for the full year 2024 to 20.0% in full year 2025. We are pleased to have achieved margin improvement year-over-year despite the incremental separation and public company costs. Again, I would highlight the strong efficiency gains within cost of services as well as the smooth execution of our separation hiring plan within G&A as key drivers of the improvement we saw in 2025. Now to touch on cash flows. In Q4, our seasonally strongest cash flow quarter within any given year, we generated $118.7 million in operating cash flow. This compares to $93.7 million in 2024, with the year-over-year increase resulting from materially higher earnings in 2025. For the year, we generated $279.4 million in cash flow from operations, which represented a slight improvement over 2024 cash flow from operations of $274.7 million, despite significantly more cash interest expense incurred in 2025 due to the IPO recap in July 2024. Investing activities used $20.1 million of cash in the fourth quarter and were driven by investments in center de novos, relocations, renovations and maintenance, as well as IT investments. The year-over-year increase from $16.7 million of spend in Q4 2024 was largely due to an additional $4.0 million of one-time CapEx related to the Nova integration. We expect to incur minimal incremental capital cost in the Nova integration going forward since most of the work was finalized as of the end of the third quarter. For the year, we used $414.9 million in cash from investing activities, as we executed business combinations totaling $303.3 million and invested $82.3 million in CapEx over the course of the year. This was a significant increase over cash used in investing activities in 2024 of $71.3 million when we did not have larger acquisitions like Nova and Pivot. Free cash flow, or cash flow from operations less cash flow from investing activity excluding business combinations and acquired customer relationships, totaled $98.6 million, an increase from prior year fourth quarter free cash flow of $77.0 million. For the full year, we generated free cash flow of $197.8 million. Free cash flow conversion, which we define as free cash flow divided by net income, remained healthy for the year at 114%, about the same conversion rate we have seen on average over the course of the past five years. Finally, financing activities during the quarter resulted in cash outflows of $68.6 million as we repaid the entirety of the $35.0 million outstanding balance under our credit facility, executed share repurchases totaling $22.4 million, and paid $8.0 million in dividends in conjunction with our standard dividend program. Over the course of 2025, we made principal payments on our senior debt totaling $92.1 million, including $7.1 million of mandatory amortization payments and $85.0 million in payments on our revolving credit facility. We also executed share repurchases totaling $22.4 million and made dividend payments of $32.1 million. The remainder of the free cash flow was largely used in conjunction with M&A activity. We will continue to be opportunistic executing on our share repurchase program in 2026 while simultaneously working towards our year-end 2026 leverage target of approximately 3.0x. At the end of the fourth quarter, we had approximately $80.0 million authorized by the Board of Directors remaining under the repurchase program. We ended the quarter with a total debt balance of $1.57 billion and a cash balance of $79.9 million. Our net leverage ratio per our credit agreement at December was 3.4x. We expect to continue making meaningful progress towards our 3.0x target following Q1. I would just note that Q1 is our seasonally slowest free cash flow quarter due to coming off our seasonally lowest visits quarter in Q4, interest payments associated with our bonds in Q1, and typically elevated working capital requirements in Q1. Next, I would like to touch more broadly on the forward outlook. With respect to our growth efforts, we are largely through the integration process for both the Nova and Pivot acquisitions and have captured the majority of synergies that we expect to capture at this point. In fact, we have come in comfortably ahead of underwriting in terms of total synergies achieved across the two deals. As Keith mentioned, we are going to continue to stay active on the de novo and bolt-on M&A front. We are targeting seven to nine de novos in 2026, which would be a record for us, and potentially double-digit new sites in 2027. As a reminder, these are very accretive for us with payback typically occurring in under three years. With respect to M&A, we are not anticipating any larger deals over the near term, but are continuing to work our pipeline of small one to five center deals. We recently finalized the Reliant acquisition from MBI in January, and our goal is to continue developing the pipeline and executing on smaller M&A. Switching gears to developments out of the state of New York related to their workers’ compensation fee schedule. If you recall, we have no centers in the state due to their exceedingly low fee schedule but believe we could add dozens of locations or more across the state if the fee schedule is revised sufficiently higher. The state board published revised rates in mid-January that increased evaluation and management codes, which generally cover primary injury care, excluding physical therapy, by approximately 50%. This is a good first step. However, both the proposed E&M and PT workers’ comp codes are still below where we feel they should be in order to commit the capital to enter the state in a meaningful way. The public comment period, which we will be actively participating in, goes through mid-March and we expect new rates to be implemented starting around 01/01/2027. In our On-Site Health Clinic operating segment, we will continue to evaluate inorganic growth opportunities of both occupational health-focused on-site groups like Pivot as well as advanced primary care-focused groups. Valuations in that space have remained elevated, with platforms largely trading based on revenue multiples over recent years. We will continue to patiently monitor the market and look for ways to be opportunistic here in the future at attractive valuation. Moving on to our full year 2026 guidance, which we released at the end of January. We have set our revenue target at a range of $2.25 billion to $2.35 billion, our adjusted EBITDA target at a range of $450.0 million to $470.0 million, our CapEx target at a range of $70.0 million to $80.0 million, our free cash flow target at a range of $200.0 million to $225.0 million, and our leverage target remains approximately 3.0x by the end of 2026. In our January 2026 investor presentation, we laid out our key assumptions, including approximately 3% rate growth within the Occupational Health Centers operating segment. We have a relatively high degree of confidence around rate guidance since the majority of states, including our largest states like Texas, California, Florida, and Pennsylvania, have now finalized their 2026 fee schedules. We also stated we are assuming low single-digit visit growth, excluding Nova. Included in our guidance is the January three-center acquisition and six de novo sites with executed leases as of the guidance date. On the cost side, we are anticipating stickiness with efficiency gains captured in our centers over the course of 2025, and cost of services as a percentage of revenue to remain relatively consistent with 2025. With respect to overhead, we will incur incremental separation costs in 2026 relative to 2025 as we hire the remaining colleagues in 2026 and annualize the impact of colleagues hired in 2025. All in, we expect adjusted EBITDA margin in 2026 to remain relatively constant with 2025 at around 20%, with potential for additional margin expansion thereafter once the separation is fully complete. We expect an overall decrease in CapEx in 2026 relative to 2025 as approximately $15.0 million in one-time Nova integration CapEx rolls off. As a reminder, the majority of our typical annual CapEx spend is related to positive ROI projects, including de novos, IT investment, relocations, and strategic renovations. A small portion constitutes true maintenance capital. Finally, we are pleased to announce a continuation of our dividend this quarter with Concentra Group Holdings Parent, Inc.’s Board of Directors declaring a cash dividend of $0.0625 per share on 02/25/2026. The dividend will be payable on or about 03/19/2026, to stockholders of record as of the close of business on 03/12/2026. Now back to Keith for a few closing comments. Keith Newton: Thanks, Matt. Another strong quarter to cap off a great year. We have good momentum heading into 2026 and are confident in our ability to deliver on our outlook. That concludes our prepared remarks, and we thank everyone for the time today. We would like to turn it back over to the Operator and open the call for questions. Operator: Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question for today is from Benjamin Rossi with JPMorgan. Benjamin Rossi: Hey, all. Good morning. Thanks for taking my questions here. I appreciate the details on your 2026 outlook. You have the steady volume growth in the low single digits, steady rates, maybe some lift during 1Q from last year. It is no big deal. Follow-through, maybe some similar contribution in February from Pivot, you have the de novos and any additive M&A. Just thinking about your guidance impacts, how are you contemplating things like weather or potential elevated respiratory activity to start the year? Keith Newton: I will take it, Matt. This is Keith Newton. I would say from a weather standpoint, we have weather every year. It has not really impacted us this year. We definitely had some weather last year, so I think it kind of flushes out. So we are not anticipating much of an impact from that perspective. As far as the respiratory, that would typically impact our urgent care visits, which are basically less than 1,000 a day out of the 50,000 visits a day we see. So it is not going to be material either way if it does tweak up or tweak down. So I am not anticipating really any impact from that either. Benjamin Rossi: Understood. This as a follow-up, this might be a little bit more close-up, and I know I might be asking to look under the hood here a bit. But I have noticed your preference to highlight return on invested capital in that low teens range when you are evaluating new opportunities to deploy either for de novos or M&A. Could you just walk us through your thought process here on maybe how you assess projects and things like hurdle rates in consideration of break? Matt DiCannio: Yeah. Sure. Good morning, Ben. So we obviously follow that very closely, the ROIC metric. We know it is very important to investors. And we look at all sorts of return hurdles and valuation metrics when we are looking at de novos and acquisitions, and I think as we have stated publicly in some of our materials, we have had a long track record of successful M&A and de novo execution. And so, typically, all of those types of transactions are accretive and have strong ROICs. Benjamin Rossi: Great. Thanks. Operator: Your next question for today is from Ann Hynes with Mizuho Securities. Ann Hynes: Great. Thank you so much. Thanks for all the detail on the New York opportunity. Can you give us a little bit more detail about what you were looking for and what was not in the rule and maybe what you are fighting for? And if it does change, how fast could you get into the market and start developing? Thanks. Keith Newton: I can take that one. Really, what they focused on so far was just the evaluation and management codes, which is really what the physicians actually utilize as far as coding and charging. But there are a lot of other codes that impact the total reimbursement, physical therapy being a big one, and then a lot of others that they did not necessarily address on this go-around. So what we are looking at is more of a full comprehensive look at the fee schedule, not just one component of that. That said, they did take a good first step wherein we are in a period of being able to have a discussion period, and before they publish the final rule, they may address some of that. If not, then that will be the focus to continue to push on that going forward. As far as how quickly we can move, we feel we can move very quickly. We have spent quite a bit of time evaluating where we want to be. We can initiate discussions if necessary. But a lot of the workers’ comp treatment that is taking place in that state right now is in ERs, hospital-based facilities, things like that. There are some transactions that could take place that we can move pretty quickly on. But I could see us doing a lot of just de novo projects. We have been very successful at that. It allows us to put the center exactly where we want it to maximize the opportunity, build it like we want our center to be built, versus trying to retrofit an existing facility. But we have spent a lot of time, so I think we are in a position to move pretty quickly once that happens. Ann Hynes: Great. Thank you. Operator: Your next question is from Justin Bowers with Deutsche Bank. Justin Bowers: Hi, good morning everyone. So just in terms of the 2026 outlook, can you call out any specific items or seasonality or days dynamics that we should be thinking about and the cadence for the year, any divergence from last year? That is number one. And then number two would just be how you are thinking about de novo investments for 2026 as well. Thank you. Matt DiCannio: Yeah. Sure. Good morning, Justin. So from a guidance standpoint, we outlined the visits and the rate assumptions included, and also made some comments about cost of services and G&A. We have got the Reliant transaction that was closed included in the guidance, and we have six de novos. There is pretty good potential that we will have more than six de novos this year. They will be pretty spread throughout the year. We are working through permitting and construction and things like that, but we will try to spread them out throughout the year. In terms of seasonality, pretty similar to prior years. The only real exception is that we have a pickup in Q1 from Nova and Pivot when we did not have both of those assets in the prior year. So we closed the Nova acquisition on March 1, so January and February we will have a pickup. And then we closed Pivot on June 1, so we will have a pickup there through most of the first half of the year. As far as days, it is the same number of days in 2026 versus 2025. So there are no changes there. Hopefully, that helps. Justin Bowers: Yeah. It is helpful. Thank you. Appreciate that. And the updated investor book as well. Operator: Your next question for today is from Benjamin Hendrix with RBC Capital Markets. Benjamin Hendrix: Thank you very much. Just to follow-up on that last question, is there any gains consideration related to the expiration of the Select Services Agreement? I know you mentioned that you had the pull-forward of hiring. Is that additive or anemic to margins in terms of that timing? And then do you expect to get any kind of margin pickup in the in 4Q as that agreement rolls off? Matt DiCannio: Thanks. Yeah. Sure. Good question, Ben. And I think that is really the only thing I would touch on from my prior comments with Justin. So, yes, we are hiring the remainder of the FTEs that we need to complete the separation process. As of today, we are slightly above 80% of our hires. And we made some hires in Q3 and Q4, obviously, to close out the year. So from now through, call it, May or June, we will complete the remainder of the hires. And then we will work with Select and reduce the TSA cost. So we expect the TSA cost to ramp down close to zero by, call it, mid-year 2026. And so the net of both of those will be some incremental cost early part of 2026. So that is all part of our guidance. And we are obviously close to the finish line with the separation process. Benjamin Hendrix: Thank you very much. Operator: Your next question for today is from Stephen Baxter with Wells Fargo. Stephen Baxter: Hi. This is Mitchell on for Steve. What are you seeing on the labor front in your clinics? How is retention trending and what type of wage inflation is built into the guide? Thank you. Keith Newton: As far as our labor, pretty much normal as we have talked about in the past. Our labor force from wage inflation trends pretty similarly to inflation, 2% to 3%. We are not a hospital, so we do not feel quite the impacts that have been felt and seen within those industries. So far, it is pretty much in line with what we have experienced historically. So really nothing unusual from that standpoint. Matt DiCannio: Yeah. And Stephen, I will add just from an openings and hiring and turnover standpoint. We are trending in a favorable direction. Our turnover is coming down, fewer open positions, and so we like what we are seeing to have more stability with the workforce. Stephen Baxter: Got it. Thank you. Operator: Your next question is from Joanna Gajuk with Bank of America. Joanna Gajuk: Hi, good morning. Thanks so much for taking the questions. So first one, the workers’ comp organic volumes were at 3% this year, or the 25% rate. Then employment services organic growth was also pretty good in 2% in 2025. So those growth rates are about where you would think the industry may be growing. So my question is, who are you taking market share from, and is that a kind of sustainable growth? And I guess how much of that 3% to 2% was from de novo? Keith Newton: Well, as far as the market share component, we did a lot this last year relative to our go-to-market and how we are trying to capture additional customers. We developed additional technologies or deployed additional technologies within our sales group both for identifying potential customers out there and also creating better efficiency and higher output by our sales folks. So we think that is really starting to gain some traction for us. We feel good about where we are heading with that group, and I think that is really supported the growth. We have developed some tools and we are in the process of continuing to modify those tools relative to retention itself of existing customers and deeper penetration of those, not just necessarily going after incremental new customers, but how do we identify potentially customers that had reduced their usage of us and try to project those-type customers. We are trying to deploy some AI initiatives in that area to help us identify, for lack of a better description, early warnings of existing customers that we need to engage with quickly. A lot of our customer base are very small and it is very tough to touch them consistently from an account management standpoint. So what we are trying to do is identify through technologies how we can better support those smaller customers that utilize us very sporadically and make sure that we stay engaged with them, because we typically do not lose customers as a result of service issues. Probably one of the biggest reasons we lose a customer is because of turnover at the customer decision maker where the new decision maker comes in and is not really aware of Concentra Group Holdings Parent, Inc. And so we have to figure out better ways to make sure that we stay engaged, identify when those trends potentially are going to take place, and engage appropriately. Matt DiCannio: On de novos, they contribute less than 1% on both of those. And keep in mind, we are only doing a single-digit number of de novos per year, and they start at zero visits. So it takes a little bit of time to ramp. Joanna Gajuk: Thank you. And a follow-up on the topic around New York, so that just brings a question. Are there any of your existing states where you would expect some changes to rates or reimbursement or such? I mean, I know California has that link to the physician fee schedule, but give us maybe a little bit of color if any outliers or if all these states are tracking along with sort of inflation. Thank you. Matt DiCannio: Yeah. I can take that one, Joanna. So California is definitely going to be a good rate year for us. And for the rest of the country, all those are tracking in line with our expectations. So there is no real outlier across the rest of the country. And back to New York, just a couple comments I wanted to add on that. It is a step in the right direction. We are going to continue to work with the state and provide our public comments. But we have a full pipeline across the rest of the country—30 different locations that we are looking at to fill out the rest of our pipeline for 2026 and for 2027. So plenty of growth opportunities, but we are excited about the potential down the road in New York as well. Joanna Gajuk: Thank you. Operator: Once again, if you would like to ask a question, please press 1. This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Globalstar, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Rebecca S. Clary, CFO. Please go ahead. Rebecca S. Clary: Thank you, operator, and good morning, everyone. Before we begin, please note that today's call contains forward-looking statements intended to fall within the safe harbor provided under the securities laws. Factors that could cause results to differ materially are described in the Risk Factors section of Globalstar, Inc.’s SEC filings, including its most recent Annual Report on Form 10-Ks and its other SEC filings, as well as today's earnings release. Also note that management may reference EBITDA, adjusted EBITDA, free cash flow, or adjusted free cash flow on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in the earnings release, which is available on our website. Today, I will walk through our fourth quarter and full year 2025 financial results, then discuss liquidity and our 2026 guidance. Starting with the full year, total revenue reached a record $273,000,000, a 9% increase over 2024 and in line with our guidance. This marks our fourth consecutive year of record revenue. Service revenue was $257,300,000, up 8%, driven primarily by increased wholesale services. Subscriber equipment revenue was $15,700,000, up 24%, reflecting a higher volume of commercial IoT device sales. Turning to profitability, we generated income from operations of $7,400,000 compared to a loss of $900,000 in 2024. This improvement was due to higher revenue, as previously discussed, partially offset by increased operating expenses, including personnel costs to support our next-generation buildout, continued investment in XCOM RAN development, and higher legal and professional fees. During the year, operating expenses benefited from $3,900,000 in employee retention credits received under the CARES Act, which were allocated between cost of services and SG&A. Net loss improved to $7,600,000 from $63,200,000 in 2024. This improvement was due primarily to the prior year reflecting a non-recurring non-cash loss on extinguishment of debt related to the paydown of the 2023 13% notes. We also benefited from favorable foreign currency remeasurement on intercompany balances and non-cash gains on the quarterly mark-to-market adjustment of our derivative asset. These items were partially offset by higher non-cash imputed interest related to the 2024 prepayment agreement. Adjusted EBITDA reached a record $136,100,000, representing a 50% margin, in line with our guidance. This increase over 2024 reflects higher revenue, partially offset by higher operating expenses, primarily due to investment in growth opportunities. Specifically, while we continue to enhance and develop our XCOM RAN product and service offerings, we incur costs in advance of revenue. Turning to Q4, total revenue was $72,000,000, including $67,400,000 of service revenue and $4,600,000 from equipment sales. Service revenue increased 17% and equipment revenue increased 31% compared to Q4 2024. The revenue increase was driven primarily by wholesale services, including performance bonuses earned in the quarter and additional service fees associated with network cost reimbursement. We also saw contributions from growth in commercial IoT subscribers and device sales and revenue under our agreement with Parsons, partially offset by Duplex and SPOT subscriber churn and lower XCOM RAN sales. Q4 loss from operations was $400,000, a meaningful improvement from a $4,200,000 loss from operations in Q4 2024. I would also note that cost of subscriber equipment sales included a $1,100,000 charge related to tariffs on equipment imported and then re-exported to foreign subsidiaries where previously recorded duty drawbacks are no longer deemed probable of recovery. Q4 net loss was $10,600,000 compared to $50,200,000 in the prior year, with the improvement largely attributable to the same non-cash activity that impacted the full year period. Q4 adjusted EBITDA was $32,400,000, up 7% from the prior year's quarter. Turning to the balance sheet, we ended the year with $447,500,000 in cash and cash equivalents, up from $391,200,000 at year-end 2024. Operating cash flows during 2025 were $621,700,000, which included $430,600,000 received in connection with the infrastructure prepayment. Capital expenditures were $550,400,000, primarily related to our commitments under the updated services agreements for the deployment of the replacement satellites as well as the extended MSS network, which includes a new satellite constellation, expanded ground infrastructure, and increased global MSS licensing. Adjusted free cash flow for the year was $171,500,000, up from $131,900,000 in 2024. 2025 benefited from $45,000,000 in accelerated service payments and higher ongoing service fees, partially offset by increased operating cost. Our principal debt balance was $410,000,000 at year-end, down modestly from $417,500,000 at the end of 2024, reflecting scheduled recoupments of $34,600,000 under the 2021 funding agreement, partially offset by $27,100,000 in new issuance under the 2023 funding agreement. Looking ahead to 2026, we expect total revenue between $280,000,000 and $305,000,000 with an adjusted EBITDA margin of approximately 50%. This outlook reflects our confidence in the continued growth trajectory of the business as we scale our next-generation infrastructure and expand our commercial opportunities. With that, I will turn the call over to Paul. Paul E. Jacobs: Thanks, Rebecca, and good morning, everyone. Great to be with you today, and I appreciate everyone joining us for our fourth quarter and full year 2025 update. 2025 was a transformational year for Globalstar, Inc. We closed the year with record full-year revenue of $273,000,000, representing a 9% increase year over year, and delivered an adjusted EBITDA margin of 50%. These results reflect strong execution, operating discipline, and continued progress across every major dimension of our business. Throughout the year, we focused on scaling the core business while laying the foundation for our next phase of growth, and we believe our financial performance clearly reflects that balanced approach. From a strategic perspective, we made meaningful advances across product innovation, infrastructure expansion, regulatory progress, and market diversification. One of the most important milestones during the year was the launch of two-way satellite IoT capabilities and the completion of the commercial rollout of our RM-200MS module. This represents a significant expansion of our IoT portfolio, moving beyond one-way monitoring to enable reliable command and control for enterprise, government, and industrial customers. Two-way IoT meaningfully expands our addressable market, strengthens our partner-led go-to-market model, and enables higher-value use cases where resilience, reliability, and confirmation are mission critical. At the same time, we continue to accelerate diversification across end markets. During 2025, we secured early government and defense wins, expanded our presence in agriculture, wildfire response, industrial IoT, and public safety, and built momentum across multiple verticals. This diversification strategy is intentional and increasingly important as it reduces reliance on any single market while positioning Globalstar, Inc. to serve a broad range of customers with complex connectivity requirements. In the government and defense sector specifically, we achieved several important milestones. With our partner Parsons, we completed a successful proof of concept, began customer trials, and are expanding our relationship to include private 5G solutions for the federal market. We also completed and are continuing to invest in XCOM RAN-based 5G research to evaluate high-capacity private wireless architectures for defense applications. Additionally, we are also pleased to highlight a recent development validating the strength of our broader connectivity platform. Fireworks, which was formerly XCOM Labs, was awarded a Phase II Small Business Innovation Research contract worth $1,900,000 from the Office of the Undersecretary of War to develop an advanced 5G system for challenging RF environments. As part of that effort, Fireworks selected Globalstar, Inc. as a technology partner, leveraging our XMRI5 platform. This collaboration underscores the growing relevance of our technology beyond traditional satellite services and reflects the confidence in our ability to support mission-critical communications. These initiatives reinforce the relevance of our architecture for defense and government use cases and demonstrate growing confidence in our ability to support high-priority mission requirements. Taken together, we believe these efforts are a meaningful expansion of our government and defense footprint, and we expect this area to become an increasingly important contributor to our business over time. More broadly, we continue to see steady demand for our products and services, with new customers and emerging use cases coming online as we execute against a clearly defined go-to-market strategy focused on scalable long-term growth. That growth is underpinned by our continued investment in our infrastructure. During the year, we made significant progress expanding our global ground station network across multiple continents. We believe these investments will strengthen capacity, improve redundancy, and enhance readiness for our next-generation services, including our C3 constellation. In parallel, we advanced our ITU financial commitments, completing 50% of the investment we pledged. These efforts are foundational and are expected to prepare our network to support future satellite capacity and expanded service offerings. We also continue to advance the XCOM RAN ecosystem. Boingo completed a proof-of-concept trial demonstrating the ability for XCOM RAN to support next-generation private 5G deployments, and we believe the integration of our platform into Boingo's private network portfolio highlights growing partner engagement and commercial relevance. From a team standpoint, momentum remains strong throughout the year. Average commercial IoT subscribers increased 6% year over year, while IoT hardware sales revenue grew 50% year over year. This growth reflects sustained demand across asset tracking, monitoring, and safety applications, as well as increasing adoption of higher-value solutions enabled by two-way connectivity. We believe these trends demonstrate both the durability of our IoT business and the upside potential as new capabilities continue to scale. The progress we made in 2025 reflects disciplined execution across multiple fronts, from infrastructure and regulation to product innovation and market expansion. We are moving decisively from groundwork to growth, and we believe we have a strong foundation in place as we enter 2026. Looking ahead, we remain confident in the strength of our strategic roadmap and our ability to execute against it. With key authorizations for C3 and continued progress across our ground network, commercial momentum for two-way IoT capabilities, and growing traction for XCOM RAN, we believe Globalstar, Inc. is uniquely positioned to deliver differentiated connectivity solutions that combine satellite innovation, licensed spectrum, and proprietary wireless technology. Finally, there has never been a more exciting time to be in space and the broader connectivity ecosystem. As demand continues to grow for resilient, interoperable solutions that bridge satellite and terrestrial networks, we believe Globalstar, Inc. is ideally positioned to benefit from the convergence. One factor became increasingly clear last year: proprietary, globally harmonized spectrum matters. Our licensed MSS spectrum remains a core differentiator and a foundational asset as the market evolves. Whether it is traditional satellite communications, IoT, or D2D, our dedicated global space spectrum can enable flexibility, reliability, and resiliency. The progress we achieved in 2025 reflects the talent and dedication of our global team, and we are energized by the momentum we are carrying into the year ahead. Thank you again for joining us today and for your continued support of Globalstar, Inc. We look forward to updating you on our progress in quarters to come. I will now turn the call back to the operator for Q&A. Operator: Thank you. We will now open for questions. Please press *11 on your telephone and wait for your name to be announced. Operator: And our first question comes from Edison Yu of Deutsche Bank. Your line is open. Edison Yu: Thank you for taking our questions. Congratulations on progress, and apologies about any background noise. First, I want to bring up a topic to you, Paul. There has been a lot of excitement about data centers in space. I think it is probably something maybe not something you would tackle directly as a company, but just curious on your thoughts about the idea of doing this and potentially some ancillary opportunities that could evolve from that. Paul E. Jacobs: I mean, obviously, we are very focused on direct-to-cell and IoT and not really on the data center side. And obviously, with all the demand for compute and AI and the difficulties people are having building data centers and power being an issue, I understand why people are excited about it. And it certainly creates another reason for needing launch capacity, which there is going to be increasingly more launch capacity as new vendors come online. So I understand how the industry is excited about it. I think there are a lot of technical challenges to it. Obviously, maintenance is a lot harder, upgrades are a lot harder, cooling and so forth are hard in space. But this is a great technical challenge for people and certainly an interesting thing. And if you are a science fiction fan, it kind of maps out to a lot of things people have talked about over the years about what humanity will do in space. So it is exciting, but it is definitely not our focus area. Edison Yu: Understood. And then switching gears, what should we think about as the next milestones for the C3 constellation? Is there anything this year that you would call out that would be of particular importance? Paul E. Jacobs: We just did the critical design review, so that is a very important portion of making sure that the system design, and holistically the entire system, is designed well. We will continue to do a lot of work in terms of ground network buildout. Obviously, there is a lot of work going on on the regulatory side, and discussions are advancing well, and regulators are excited about the capabilities that Globalstar, Inc. has already brought to market either by ourselves or our partners. There are a lot of SOS and emergency capabilities, and it has been demonstrated over and over. So as we go to C3, things only get better: more capabilities and more satellites in orbit. We are continuing to tick off and grind away on all these items. It is not a high-level thing; you have to be on top of every single little detail, and that is what the teams have been doing. It is not one thing; it is many, many things across the board to get done. Edison Yu: Indeed. And last one for me, just on XCOM RAN. You made some progress since last quarter with Boingo. Can you remind us what specific customer KPIs were validated or that you found to be very encouraging as part of this process? And is this giving more confidence in getting future pipeline? Paul E. Jacobs: The kinds of things that people are looking for include the ability to get a lot of throughput in a dense environment. That was the thing that we always touted about the technology in the beginning. With Boingo, one of the other things that is really cool is that we can run the system over DAS—distributed antenna systems—so we can overlay that. A DAS system generally just gives you more coverage, but not more capacity, but because we can process the data from each radio node or head, we can actually increase the capacity in the system as well. Then there are other things that we have demonstrated in warehouse automation in terms of ease of deployment and the fact that if you cluster users in a given area, it does not take down the capacity of the whole system; it still shares the capacity of all the radio nodes that are there. Those kinds of capabilities and KPIs are important. And then, obviously, just getting to commercial hardening. We have been testing the system under difficult circumstances, and we have been able to prove to very demanding customers that this system is commercially ready. In terms of the pipeline, we focused on warehouse automation, and now we are looking at what are the other use cases. Is it with CBRS, is it military use cases, and with Boingo, we are talking about other stadiums, convention centers—places where there is high density of users—and not to mention military bases as well. The pipeline is one we are excited by, as are the go-to-market partners that we have. Edison Yu: Thank you. Paul E. Jacobs: Thank you. Operator: Thank you. Our next question comes from Mike Crawford of B. Riley Securities. Your line is open. Mike Crawford: Thank you. Good morning. Could you help walk through the utility of having both MSS and terrestrial 5G flexibility with your S-band spectrum and as well as perhaps maybe how we should think about any potential interference issues? Paul E. Jacobs: We have talked about the fact that in the future, there is a lot of synergy between warehouse automation and the fact that you can track using IoT—satellite IoT—anywhere you go and cover a complete supply chain and logistics. Those kinds of things are interesting, but it is also the fact that because of a global system, we have spectrum globally, and so for companies and partners that are looking to have some kind of terrestrial capability anywhere in the world, the fact that we have that spectrum means we really believe that we can go get those opportunities to the extent that our partner is interested in that as well. It is a nice synergy due to the global, harmonized nature of it. From an enterprise standpoint, the idea is that if you are in cellular coverage or running a terrestrial network on that spectrum, if a device is not immune, we can manage which frequency bands are being used, which time is being used, and what system data the end user needs to use at a given time. Our satellite modem started out—the first version of the two-way modem does not have multimode capability—that is what we are working on right now. That is going through certification, and they will have multimode capability very quickly and be able to manage both and, of course, support terrestrial modes. Mike Crawford: Okay. Thank you, Paul. Actually, it is a little difficult to hear you because your line is breaking up a little bit. I will just ask one final question. Can Globalstar, Inc. share any targeted launch windows for the replenishment satellites this year? Paul E. Jacobs: We are not updating beyond saying second quarter this year for the first launch and second half for the second launch. Mike Crawford: Excellent. Thank you. Paul E. Jacobs: Thank you. Operator: Thank you. As a reminder, if you have a question, please press *11. Operator: And our next question comes from Gregory R. Pendy of Clear Street. Your line is open. Gregory R. Pendy: Hey, guys. Thanks for taking my question, and congrats on 2025. I just wanted to zero in on the IoT offering. Can you remind us when your services went live for two-way communications? I believe it was somewhat mid-quarter. And, in addition, it looks like from your ARPU, you have not changed pricing. Is that correct, and is that likely to continue going forward? Thanks. Paul E. Jacobs: What is going on with the two-way system is that our customers are actually building out their solutions right now, so you will not see revenues from two-way IoT in any significant amount right now. These customers are in process of validating their end-to-end systems and so forth. The module went commercial; it is tested, it is hardened, it is in mass production now, and we are waiting on customers to finish their applications because these are built into some other device. Gregory R. Pendy: So is it fair to say that that was not benefiting the subscribers in the quarter because you had decent growth? Paul E. Jacobs: That is still one-way systems predominantly. Gregory R. Pendy: Okay. Very helpful. Thanks a lot. Paul E. Jacobs: Sure. Operator: Thank you. Operator: And our next question comes from Logan W Lillehaug of Craig-Hallum. Your line is open. Logan W Lillehaug: Hey, guys. Logan on for George here this morning. You mentioned the contribution from Parsons in the quarter. I was hoping you could just talk kind of broadly about how the government pipeline has shaped up over the past few quarters and just what you are seeing there. And on that note, as we think about the longer-term guidance, how would you frame what is considered in there in terms of government contribution? Paul E. Jacobs: The pipeline has two aspects. There are things that we are already talking about and working with them on, and then there are newer opportunities that we are still in the process of evaluating and contracting. The pipeline is very large, and I am really busy, pretty much with a focus on the near-term opportunities there. We have not made any announcements about new awards beyond what we have said. The near-term revenue comes from the idea that we will expand over other regions, and we get payment as other regions come online. That is the near-term. Then, as they shift their solution into the devices, we get the revenue from that. Predominantly today, it is the buildout of the network to support other regions of the world. Logan W Lillehaug: Got it. Just one other really quick one. Can you remind us where you are on the upgrade of the ground infrastructure for the longer-term MSS network? Paul E. Jacobs: We committed to the ITU to spend $2,000,000,000 on extending the network, and we are halfway through that. That includes money that went into the satellites as well, but it gives you a sense of how far along we are. Those buildouts are going quite well on the ground side. The company is experienced in doing these kinds of things. We had to do it for the original launch of the original wholesale business for our current customer. We know how to do this pretty well, and we have been making continuous announcements as different countries come online. You can see a list if you look through the press releases of all the places that are up and going now. Logan W Lillehaug: Yep. Okay. Got it. Thank you. Paul E. Jacobs: Sure. Thank you. Operator: Thank you. I am showing no further questions at this time. I would like to turn the conference back to Paul E. Jacobs for closing remarks. Paul E. Jacobs: Thanks, everybody, again for joining us. It was a great year, a lot of stuff going on, and I really want to say thank you to our partners, our customers, and to all the employees at Globalstar, Inc. You have done an excellent job this year, really focused on getting stuff done, and that obviously reflects results that our investors are looking for. We will continue to execute and look forward to talking to you about progress and our growth going forward. Thanks, everybody, again. Operator: Thank you. We apologize if you experienced any technical issues today. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Frontline Ltd. Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be the question and answer session. To ask a question during the session, you need to press star 11 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Lars Barstad, CEO. Please go ahead. Lars Barstad: Thank you very much. Dear all, thank you for dialing in to Frontline Ltd.'s quarterly earnings call. In discussions with the market actors in recent weeks, a recurring phrase has been heard, people basically saying, what a time to be alive. Frontline Ltd. has been around through many cycles, but the tanker markets do actually evolve over time. We will argue that we have never been in a cycle like this, where indices and freight derivatives weigh so heavily in the freight pricing mechanism. This fuels almost violent moves as we proceed. For every $200,000 per day fixture done physically, there is an exponential number of contractual obligations that are triggered, giving this market a new dimension and very exciting dynamics. Before I give the word to Inger, I will run through the TCE numbers. So let us move to Slide three in the deck. In the fourth quarter of 2025, Frontline Ltd. achieved $7,074,200 per day on our VLCC fleet, $53,800 per day on our Suezmax fleet, and $33,500 per day on our LR2/Aframax fleet. So far in 2026, 92% of our VLCC days are booked at $107,100 per day, 83% of our Suezmax days are booked at $76,700 per day, and 67% of our LR2/Aframax days are booked at $62,400 per day. Again, all numbers in this table are on a load-to-discharge basis, with the implications of ballast days at the end of the quarter this incurs. However, for the VLCCs, there is little mystery left with such a high percentage in the book. I will now let Inger take you through the financial results. Inger Klemp: Thanks, Lars. Ladies and gentlemen, good morning and good afternoon. Let us then turn to Slide four. We report profit of $228,000,000, or $1.20 per share, and adjusted profit of $30,000,000, or $1.03 per share, in 2025. The adjusted profit in this quarter increased by $188,000,000 compared with the previous quarter, and that was primarily due to an increase in our TCE earnings from $248,000,000 in the previous quarter to $424,500,000 in this quarter, and that again was a consequence of higher TCE rates. We also had some decrease in finance and ship operating expenses, and also some calculations in other income and expenses. Ship operating expenses, in particular, decreased $7,100,000 from previous quarter, mainly due to an increase in supplier rebates of $7,100,000. Let us then look at the balance sheet on Slide five. The balance sheet movements this quarter were mainly related to ordinary items and also prepayment of debt under revolving reducing credit facilities. Frontline Ltd. has a solid balance sheet and strong liquidity of $7.00 $5,000,000 in cash and cash equivalents, and that includes undrawn amounts of revolver capacity, marketable securities, and also minimum cash requirements as of 12/31/2025. We have no meaningful debt maturities until 2030. In January 2026, we sold eight of our oldest first-generation eco VLCCs for a total sales price of 831,500,000.0, and after commissions and repayment of existing debt on the vessels, the transaction is expected to generate net cash proceeds of approximately $477,000,000. In parallel, we acquired nine latest-generation scrubber-fitted eco VLCC newbuildings from an affiliate of Herman for an aggregate purchase price of 1,000,000,224 billion dollars. We will pay approximately 25% of the purchase price in 2026 and 75% is due upon delivery of each vessel. The company intends to finance this acquisition with cash and then 60% long-term debt financing. Let us then look at Slide six. That is the fleet composition and cash breakeven rates and OpEx. Our fleet consists of 41 VLCCs, 21 Suezmax tankers, and 18 LR2 tankers, has an average age of 7.5 years, and consists of 100% eco vessels, whereof 57% are scrubber fitted. We estimate average cash breakeven rates for the next twelve months of approximately $25,000 per day for VLCCs, $23,700 per day for Suezmax tankers, and $23,800 per day for LR2 tankers. That gives a fleet average estimate of about $24,300 per day. This number includes drydock cost for five VLCCs, two Suezmax tankers, and eight LR2 tankers, and the fleet average estimate excluding charter cost is about $23,300 per day, or $1,000 less. We recorded OpEx, including drydock, in the fourth quarter of $9,600 per day for VLCCs, $7,600 per day for Suezmax tankers, and $12,400 per day for LR2 tankers. This number includes start-up of three VLCCs and three LR2 tankers. The Q4 2025 fleet average OpEx excluding drydock was $7,600 per day. Lastly, let us look at Slide seven, cash generation. Following that, we entered into one-year time charter agreements, and we also had fleet renewal in the first quarter. The spot days for the next twelve months is about 24,400 days. Frontline Ltd. has substantial cash generation potential with 27,700 earnings days annually. As you can see from this slide, the cash generation potential basis currently, TCE, rates and TCE as of February 27, is $2,800,000,000, or $12.51 per share, which provides a cash flow yield of 34% basis to the current share price. And a 30% increase from this current spot market will increase the cash generation potential to $3,700,000,000, or $16.84 per share. Likewise, a 30% decrease from current spot market will decrease the cash generation potential to $1,800,000,000, or $8.19 per share. With this, I leave the word to Lars again. Lars Barstad: Thank you very much, Inger. So let us move to Slide eight and look at the current market highlights. Oil demand seems to be growing healthily outright but with key focus on non-sanctioned molecules, creating substantial year-on-year changes in trade, as shown on the illustration or the graph on the right-hand side of the slide. We have a very politically laden market environment. We talk about U.S.-India trade, U.S.-Iran-Israel discussions, and U.S.-EU-Ukraine-Russia talks. With an earlier liberation and further pressure on Russia in addition to Iran tension creates strong tailwinds for us operating in the compliance market of oil transportation. We are also in an environment where weakening U.S. dollar is supportive of global oil demand, and the inflationary economic environment is supportive of the commodities in general. Asset prices for ships are appreciating firmly. Order books are building materially in 2029 and onwards, but with the twenty-year age cap observed, future supply remains manageable. Let us move to Slide nine and look at the flow. Global crude oil in transit continues to be at elevated levels. On the graph on the right, we have added the TD3C Baltic index that some refer to as the Dow Jones of the freight market, and there you can see how sensitive this index seemingly is to the oil trading on the seven seas. In this picture, we see sanctioned crudes moving slower, particularly for the Russian barrels, or being stored, particularly for the Iranian barrels. This creates an increased dark fleet utilization, and the dark fleet then needs new capacity or attracts new capacity into the dark vessel pool. These vessels are pulled out of the compliant fleet. OPEC Middle East exports are growing firmly, and that also adds to this increased demand for compliant and approved tonnage. But despite the oil, water, and freight levels we are facing right now, we see very few charters, in fact none, breaking this twenty-year age cap. This supports the case that we have been arguing for years. Strong import growth to Far East and India contradicts the energy transition narrative and especially for China. I think people are starting to get familiarized with the energy addition, not transition, term. Long-haul ARBs are challenged, and just to explain what an ARB is, that is basically the price difference between one continent to another in respect of oil, which basically, if it is at a wide enough point, a trader or an oil major can make a profit moving the oil over long distances and selling it in a different market. Freight is, of course, the key component in this, and by example, if the freight for a VLCC from U.S. Gulf to China is $18,000,000, the charterer is actually exposed to $9 per barrel freight, and basically, this spread between the two oil markets needs to accommodate that. This has put some pressure on these ARBs, and we have seen fairly little volume moving from the U.S. to the Far East. But, again, if oil needs to move, or when it needs to move, these differentials will just have to price to accommodate this spread. The incremental marginal barrel is now compliant. We have also discussed this in previous calls, that we do not see any kind of fantastic production growth in Iran. We do not see any kind of fantastic production growth coming out of Russia. But we do see compliant oil production and exports growing. The big factor is, of course, OPEC reversing cuts, but then you have countries like Brazil and Guyana performing extremely well, and these are the new molecules coming to market, and they need compliant ships. Let us move to Slide nine and look a little bit at the fleet development. The order book continues to grow. We are basically in the market where decades-high prices for modern tonnage, if tonnage is even there for sale that is on the water, meaning that the vessel can trade straight away, are so high that it pushes actors into the yards. Other asset classes such as LNG and containers continue to pop yards' order books, but we do see tanker ordering accelerating for 2029, especially in China. As the chart on the top right-hand side indicates, it shows basically the efficiency loss of a vessel as it ages, and the curve starts to dip around 10 years of age and then further deteriorates into almost ignorable when it gets to 20 years. With this in mind, as we move forward and move into 2029, we are going to meet the generations of ships that were delivered around 2010 and onwards, and this is a large population of ships that then again will be 20 years of age and exposed to this deteriorating efficiency curve. With that in mind, although ordering is accelerating and we have a high amount of ships expected to come in 2029, and it is basically being added for every day, it is not alarming with this in mind considering the age of the fleet and the fleet profile. We see it as we have two to three years of a very good runway before the supply could become a worry. We also expect going forward that yard capacity will grow, and especially in China. It is not necessarily new yards, but it is yards that have not built tankers or at least not been specialized in tankers, but they are now adding berths in order to cater for this industry. We believe there is another trend that will evolve as we proceed here, considering or assuming this rate environment is sustainable, that Korea and Japan will increase their focus on building tankers in general, and VLCCs in particular, as the margins on these contracts start to compete with what they can achieve for containers or LNGC. Let us move into Slide 11, where we have the familiar tables. I am not going to spend too much time on this slide, only to say that in our methodology, and we try to be consistent, we use data that is based on when an IMO number is registered. This means that these statistics will always be a little bit slow to react. The general assumption in the market is that the order book-to-ratio for VLCCs is probably already at 20%, but this will become more and more evident as these contracts are being registered and the IMO numbers are being created. With that, I think we move on to the summary. I have changed the headline here. So we also see take the center stage, Suezmax and Aframax to follow, question mark. It is actually not much of a question mark because the Suezmaxes are already on the way, and the Aframaxes are boiling. We are in a fundamentally tight market condition that yields extreme volatility. Oil demand and supply are developing positively but especially for compliant molecules. The global tanker fleet age profile and efficiency loss tighten the supply-demand balances. Asset prices are on the move, and both spot and period markets support the investment decisions. The volatile political landscape fuels energy insecurity, conditions where tankers tend to thrive, and Frontline Ltd.'s efficient business models tend to produce material shareholder returns as we proceed. Thank you very much. We will now open for questions. Operator: Thank you so much. Dear participants, as a reminder, if you wish to ask a question, please press 11 on your telephone keypad and wait for your name to be announced. We will now open for questions. We are going to take our first question. It comes from the line of Jonathan Chappell from Evercore ISI. Your line is open. Please ask your question. Jonathan Chappell: Good afternoon. Thanks very much. Lars, so many things to ask you, but I am not going to be greedy. I will keep it to two. So the first thing is, obviously, we are in a parabolic situation right now. We have seen this once or twice before, but as you said, the underlying factors seem to be very different this time. But rates do not go to the moon. There is a certain point where there is a ceiling. So what is the catalyst to provide a plateau and maybe a little bit of an easing from here? Is that a geopolitical event? Is it a seasonal event? Is it a Sinacor event? What takes a little bit of the frost out of the market, which would still be very fantastic rates but maybe lower than where they are moving this week? Lars Barstad: It is an extremely good question. I think the answer is kind of seasonality. There is also normal seasonality. We are actually not unused to having fairly poised markets during this time of the year, many times due to U.S. refineries going into turnaround allowing for more barrels to be exported, and we are kind of actually going into that phase now. So there will be potentially a few more months where we actually can sustain these rates, depending on how the flows work. But then there is going to be a summer low, and it is almost inevitable. But whether it is a summer low that moves from $200,000 per day to $100,000 per day, that is almost impossible to gauge. Also, I think one needs to know that there is one major importer in this market, being China, and they have built an enormous amount of inventory over the years. They could, for any reason, choose to basically turn down the speed a little bit for a period of time, and this will also create volatility. I expect this to occur, but it is extremely difficult to say when something like that might happen. Jonathan Chappell: Definitely. Thanks for that. The other one is also maybe a bit difficult, but it is just something I have been wondering about. Nobody has done what your Korean friends are doing right now for, like, seemingly 50 years, and that includes your shareholder who many people probably would have anticipated would have been the one to try this. Why has not anyone tried to corner the VLCC market in the past and where could it go spectacularly wrong for them? What are the risks, I guess? And the final thing is how do you position Frontline Ltd. so that you are not affected if it does go spectacularly wrong for this player? Lars Barstad: It is a good question, and you are right, it has not really been done in a material manner in the tanker market for at least longer than I can remember. But there is a parallel story from the mid-2000s involving a certain person from Taiwan, but this was in the dry bulk space. Key to his success in dry, and the potential key to the success that the Korean actor might have, is actually that you go in a market that is already fundamentally tight, and then you do not need much to weigh or to slow the supply side of tanker capacity before you get these violent moves. Also, as most people are familiar with, if you look at how freight prices just empirically, the minute you go from 90% utilization to 95%, the moves are exponential. That would be my explanation for why this is possible. I am not going to comment on why Mr. Fredriksen has not looked at this, but the thing is, we are a stock-listed public company. This is, of course, easier to do if you are a private entrepreneur in this market and, of course, willing to risk a substantial amount of money in such a game. Where can it go wrong? In these situations, and we have seen them before, potentially to a smaller scale, it ends up being a game of chicken, who can hold the longest. This is what makes me extremely excited over the months to come and the summer and so forth because we will see some very interesting dynamics come to play, but one thing I am 100% certain of is that there will be volatility. Jonathan Chappell: That is all very helpful. Thank you, Lars. Operator: Thank you. We are going to take our next question. The next question comes from the line of Sherif Elmaghrabi from BTIG. Your line is open. Please ask your question. Sherif Elmaghrabi: It seems like charterers are seeing what you are seeing and willing to take more ships on term. Would you say that is the case and the TC market is more active, or is it just that rates have risen to a level that shipowners are more comfortable with? Oh, that is very interesting. Something else that I thought was interesting was your comments specifically about new tanker yard capacity coming online, and so I apologize if you have mentioned this and I missed it. Do you have a sense of what the turnaround time on these projects might be and when first ships might hit the water? Lars Barstad: I think, as I touched upon in the introduction today, this market has evolved quite a lot in the last 20–25 years. If you, by example, look at the Middle East market for VLCC transport from the Middle East to Asia, this market used to have a lot of physical liquidity. What happened over the years is that more and more actors are using the index itself to price the freight, basically doing floating contracts that price off the Baltic index quote, to the point where very little liquidity is actually transacted in the market. So price visibility has been quite difficult sometimes. To do a parallel, for every physical barrel of Brent oil that is produced, it tends to trade tenfold on paper, and we have seen a little bit of the same tendency or trend in freight. This becomes a problem if everybody is pricing their freight off an index that runs out of control, and then suddenly you need to hedge and you need to access the paper market, or you need to buy back hedges for the guys who have taken ships on time charter and basically hedged parts of the curve in that exposure and so forth, and you end up with a very vibrant FFA market, which every FFA broker today would testify to. You get these ebb and flows out on the curve, from panic to some sort of quiet until the panic kicks in again. Over the last couple of weeks, you see the index is just relentlessly printing what is physically being done, but it is not like 10 cargoes are fixed a day; it is two to three cargoes maybe fixed a day, but the amount of pricing exposure around that quote is enormous, and this triggers this almost self-propelled move going forward. I think it is important to note, this is not manipulation, but the market is fundamentally extremely tight. You could argue that maybe freight rates are moving ahead basically due to this tightness as the panic ebbs and flows. As for new tanker yard capacity coming online, it is 2029. A yard that is now marketing a new berth that they are going to build—it is not like a greenfield because the yard exists—but they are just introducing a new berth that can accommodate the VLCC build. That is 2029, so three years. Sherif Elmaghrabi: Got it. Lars, thank you for your time. Thank you. Operator: Thank you so much. Dear participants, now we are going to take our next question. It comes from the line of Devon Sangoy from Tetch Investments. Your line is open. Please ask your question. Devon Sangoy: Hi, Lars. I just want to ask you, what will be your strategy on spot versus time charter as you go through these interesting times? That is my first question. The second is regarding the dark fleet which we have been struggling with, and finally it is coming with sanctions and whatever was needed to be done has been done now. In this, though the probability is 50%, if Russian crude oil and if the war stops and the sanctions are lifted, it is also going to get into a compliant fleet. Do you foresee in such a scenario what will happen to the market? And the last problem is that if this sustains and, obviously, and you do the best to make out of the cash, it becomes a cash pile. Obviously, you are paying out a large part of it. But do you think at what point in time you will start deleveraging the balance sheet, or will you stay levered? Lars Barstad: It is a good question. As we said before, our proposition to our investors is to give you spot returns, so basically you do not have to buy a ship; you can just buy Frontline Ltd. At times we will choose to use elevated markets to try and secure revenues. We do not have a policy or anything, but we have a golden rule of one-third, so in theory, our board would be comfortable under certain conditions that we get up to time charter coverage of 30%. As you have seen from the stuff we did, we reported the seven one-year time charters. In the report today, we also reported another one that was done a week later. We are in this modus operandi to try and secure some longer-term income. But we are so constructive about this market that we are not really engaging yet, at least in the longer term, maybe because we actually do believe that there is still some to go for the longer-term contract, but they are also appreciating quickly. I am not going to exclude anything, but you will not find Frontline Ltd. in a situation where we have put 50% of our exposure on time charter because that is not really what our investors are after, we believe. If you asked me this in September 2022 regarding sanctions and the dark fleet, I would have said it would be an immediate bearish proposition, but so much time has passed. If the Russian barrel becomes a compliant barrel, you will probably get half of the capacity back into the compliant fold on the shipping side, but the other half will actually be disqualified basically due to age, and this is the same for servicing the Iranian oil. There are a lot of ships, yes, but these are ships that were supposed to be recycled years ago basically due to age, so very few of them are actually going to come back into compliant trade. Also, the scrutiny in the compliant market on a ship's history is extremely tough, so it is not very easy to whitewash a tanker that has been involved in illicit trades. One point I need to make: we have actually seen this before when sanctions were eased towards Iran in 2016. They have a national tanker company, NITC, and any part of a sanctions-lifting solution will also involve nationally controlled shipping companies. For Russia, that would be Sovcomflot and potentially others. But again, just analyzing those fleets, age is the problem. So, actually, we would welcome these molecules into the compliant fold. As for leverage, our intention is to stay levered because for every share you buy in Frontline Ltd., you get a 1.4 ship exposure equivalent basically due to our leverage. We still believe that is the model. Obviously, I cannot rule anything out, but we have no inclination to delever apart from what actually happens when you pay down debt. The point of cash is actually going to you. Devon Sangoy: Okay. Congratulations, and all the best for the future. Lars Barstad: Thanks very much. Operator: Thank you. Dear participants, just a quick reminder, if you would like to ask a question. Dear speakers, there are no further questions for today. I would now like to hand the conference over to your speaker, Lars Barstad, for any closing remarks. Lars Barstad: Thank you very much for listening in, and I hope you are as excited as I am about what the future is going to bring. I think it is the tanker market's turn now, so let us enjoy the ride. Thank you very much. Operator: This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.
Tiffany Sammis: Forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures are included in our fourth quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. I will now turn the call over to Craig Nunez, our President and Chief Operating Officer. Craig Nunez: Thank you, Tiffany, and good morning, everyone. Natural Resource Partners L.P. generated $46 million of free cash flow in the fourth quarter and $169 million of free cash flow in the full year 2025. All three of our key commodities—metallurgical coal, thermal coal, and soda ash—continue to struggle with sales prices that are near or below our operators' marginal cost of production. Metallurgical and thermal sales prices are at cyclically low levels, and soda ash prices are at generational lows. We do not yet see any catalyst on the horizon that is likely to change this outlook in the foreseeable future. In 2025, softening global economic activity and subdued demand for steel weighed on metallurgical coal pricing, while low natural gas prices and mild weather pressured thermal coal. While sentiment toward thermal coal is benefiting from the rise in electricity demand from data centers, we have yet to see any material market improvement. Until we see clear evidence of a structural market shift, we remain disciplined in managing the partnership under the assumption that demand for North American thermal coal remains in long-term secular decline. As we said over the course of last year, 2025 was a very challenging time for the global soda ash industry. We believe 2026 will be worse. While we were early to warn about the potential for excess capacity hitting the market, the extent and potential duration of the downturn is exceeding even our expectations. International prices are currently below the cost of production for most producers. We believe supply rationalization is not a question of if, but when. However, we also believe rebalancing global supply and demand will take time, and we expect it could be several years before a healthy bid returns to the market and prices return to historical levels. We anticipate further pressure on Sisecam Wyoming's financial performance. We have not received distributions from the joint venture for the last two quarters, and we do not expect distributions to resume for the foreseeable future. Our managing partner is retaining cash to support investments in safety, operational integrity, and to shore up the capital structure. Additionally, earlier this month, we agreed with our partner to invest capital in the venture to reduce outstanding amounts under its bank credit facility and better position it to compete in the current environment. Natural Resource Partners L.P.'s share of this investment is $39 million, and we evaluated it as we would any other capital allocation decision, with the goal of maximizing Natural Resource Partners L.P.'s intrinsic value per unit. Regarding carbon-neutral initiatives, leasing interest for underground carbon sequestration remains lackluster, as political, regulatory, and market uncertainties pose significant hurdles for developers contemplating large capital investments for these types of projects. We continue to work on multiple geothermal, solar, and lithium opportunities, and we are making small-scale progress on several initiatives, but have nothing material to report. In conclusion, coal prices remain at cyclical lows and global soda ash prices are at generational lows. Our coal lessees are operating at or near their cost of production, and our soda ash investment—one of the world's lowest cost producers—is managing through what may be the worst bear market in its sixty-plus-year history. Despite this, Natural Resource Partners L.P. continues to generate robust free cash flow and make progress toward our goal of retiring all outstanding debt. We retired $109 million of debt in 2025 and finished the year with $33 million of debt and no other financial obligations outstanding. Our timeline has been to retire all debt and significantly increase unitholder distributions in August, although we have cautioned that extended bear markets for all three of our key commodities would increase the likelihood that some event would occur that could push that timing back. The $39 million investment in Sisecam Wyoming is one such event and will push the distribution increase we had expected to occur in August back to a subsequent quarter. I will now turn the call over to Christopher J. Zolas for more details. Christopher J. Zolas: Thank you, Craig. In 2025, Natural Resource Partners L.P. generated $31 million of net income, $45 million of operating cash flow, and $46 million of free cash flow. For the full year 2025, Natural Resource Partners L.P. generated $136 million of net income, $166 million of operating cash flow, and $169 million of free cash flow. Of these consolidated amounts, our Mineral Rights segment generated $40 million of net income, $49 million of operating cash flow, and $50 million of free cash flow in the fourth quarter, and $166 million of net income, $182 million of operating cash flow, and $185 million of free cash flow in the full year 2025. When compared to the prior-year fourth quarter, our Mineral Rights segment net income, operating cash flow, and free cash flow each decreased $13 million. When compared to the full year, our Mineral Rights segment net income declined $41 million, while operating and free cash flow each decreased $60 million. These decreases were primarily due to weaker metallurgical coal markets resulting in lower sales prices and volumes. Regarding our metallurgical/thermal coal royalty mix, metallurgical coal made up approximately 70% of our coal royalty revenues and 45% of coal royalty sales volumes for the fourth quarter, and 65% of our coal royalty revenues and 45% of our coal royalty sales volumes for the full year 2025. For our soda ash segment, net income for the fourth quarter and full year of 2025 decreased $3 million and $15 million, respectively, when compared to the prior-year periods. Operating and free cash flow for the fourth quarter and full year of 2025 each decreased by $11 million and $31 million, respectively, as compared to the prior-year periods. These decreases were primarily due to lower international sales prices driven by new natural soda ash supply from China, as well as weak glass demand from the construction and automobile markets. We have not received a distribution from Sisecam Wyoming since 2025 and do not expect distributions from Sisecam Wyoming to resume until soda ash demand rebounds or there is a significant supply response to this weakened market, most likely from higher-cost synthetic production. Moving to our Corporate and Financing segment, Q4 2025 net income, operating cash flow, and free cash flow each improved $3 million as compared to the prior-year period. Full-year net income improved by $9 million, while operating and free cash flow each improved $8 million as compared to the prior-year period. These improvements to the Corporate and Financing segment were due to significantly less debt outstanding, resulting in lower interest costs and less cash paid for interest. We used the free cash flow generated from our business segments in 2025 to repay $109 million of debt. Even including the impact of our planned $39 million capital investment into Sisecam Wyoming, we remain on track to accomplish our deleveraging goal this year. Regarding our quarterly distributions, in November 2025, we paid the third-quarter distribution of $0.75 per common unit. In February, we paid a distribution of $0.75 related to 2025. In addition, today, we announced a special distribution of $0.12 per common unit to help cover unitholder tax liabilities associated with owning Natural Resource Partners L.P.'s common units in 2025. I will now turn the call over to the operator for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Our first question comes from David Spier with Nytor Capital Management. Your line is open. Please go ahead. David Spier: Hi. How are you? Just to better understand the capital contribution to the soda ash JV, is there any way to provide how much bank debt was outstanding and whether the JV is now debt-free following the contribution? Craig Nunez: The JV is not debt-free. The JV has $50-plus million of debt remaining after the contribution. David Spier: So is there any plan or intention to continue making contributions to pay down the remaining debt? Is that on the table? Craig Nunez: We do not have that—that is not our plan right now. What I will say is that this is a very difficult soda ash market. We were early, and we were right on the downturn, but we have been wrong on the extent, the depth, and the duration of the downturn now that we are in it. If things get worse, there could be situations where we would elect to put more capital into the soda ash venture. That is always a possibility, but that is not what we are planning at the moment. David Spier: And just lastly, was this a requirement, or was it your election—an option? Craig Nunez: It was our election. David Spier: Got it. Okay. I appreciate the color. Thank you. Craig Nunez: You bet. Thanks. Operator: Our next question comes from Dan Adler. Your line is open. Please go ahead. Please unmute yourself locally so we can hear your question. Dan Adler: My question was related to the capital investment as well. I had lowered my hand, but not in time. Operator: Thank you. Our next question comes from Philip Kramer with BATS Wireless. Your line is open. Please go ahead. Philip Kramer: Yes. Congratulations on the foresight and great moves by significantly deleveraging the partnership over the last years. Do you anticipate that we will be in a position to substantially increase distributions in the May quarter? Craig Nunez: No. Not in May. If you do the math, you take our run rates that we are generating in free cash, you take into account the $39 million contribution we are making to the Sisecam Wyoming joint venture, the timing would say it is probably in November. Philip Kramer: Thanks for the clarification. Craig Nunez: You bet. I want to say what we have said before, though, in prior calls, and that is that the longer the bear market continues for all three of our key commodities, the greater the likelihood something happens that pushes that timing back. But that is what the timing looks like right now. Operator: If you would like to ask a question, please press 1. Our next question comes from Alberto Vedilla with Fruit Tree Capital. Your line is open. Please go ahead. Alberto Vedilla: Good morning. I attended the Pure Land Management sales auction of mineral rights for two of Warrior’s lines, and I was just curious why you guys did not bid. Thank you. Craig Nunez: Good question. Let me just tell you that the opportunities to acquire passive interests in natural resource assets at attractive prices—which are what we try to do—do not come along often. Auctions are typically not places where you come away with attractive opportunities for mineral-type assets, so you are not likely to see us participate in auctions. Furthermore, I will tell you, we are still on our path to delever, and our goal is to essentially pay off all of our debt and then focus primarily on returning capital to unitholders in the form of distributions. So those are the reasons we were not there. Alberto Vedilla: Thanks a lot. Operator: There are no further questions at this time. I will now turn the call back to Craig Nunez for closing remarks. Craig Nunez: Thank you, operator, and thank you, everyone, for participating in this call, and thank you, all of you, for your support of Natural Resource Partners L.P. Have a good day. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Good day, everyone, and welcome to the Global Partners LP Fourth Quarter and Full Year 2025 Financial Results Conference Call. Today's call is being recorded. With us from Global Partners LP are President and Chief Executive Officer, Mr. Eric S. Slifka; Chief Financial Officer, Mr. Gregory B. Hanson; Chief Operating Officer, Mr. Mark Romaine; and Chief Legal Officer, Ms. Kristen Seabrook. At this time, I would like to turn the call over to Ms. Seabrook for opening remarks. Please go ahead. Kristen Seabrook: Good morning, everyone. Thank you for joining us. Today's call will include forward-looking statements within the meaning of federal securities law including projections and expectations concerning the future and operational performance of Global Partners LP. Assurances cannot be given that these projections will be attained or that these expectations will be met. Our assumptions and future performance are subject to a wide range of business risks, uncertainties, and factors which could cause actual results to differ materially as described in our filings with the Securities and Exchange Commission. Global Partners LP undertakes no obligation to revise or update any forward-looking statements. Now it is my pleasure to turn the call over to our President and Chief Executive Officer, Eric S. Slifka. Eric S. Slifka: Thank you, Kristen, and good morning, everyone. Before I begin, I want to welcome Kristen to our first earnings call as our Chief Legal Officer. Kristen brings valuable business and legal experience including her leadership roles at Pilot, and she has already made a strong impact. Her judgment and perspective will be important as we continue to execute our strategy and position Global Partners LP for the future. We are very pleased to have her on our team. Our full year performance in 2025 reflects disciplined execution of a strategy we have built and refined over many years. Higher volumes across our terminal and wholesale network, along with a double-digit increase in wholesale segment product margin, demonstrate the benefit of investments that expand capabilities and enhance the performance of our integrated network. Our GDSO segment delivered solid results. Strong fuel margins helped partially offset a decline in volumes and lower station operations contribution due in part to a reduced site count related to site optimization efforts. As we have said before, different parts of our business will experience different conditions at different times. What defines Global Partners LP’s performance over time is the strength of our diversified and integrated platform. Our business spans supply, terminals, wholesale distribution, bunkering, and retail operations, providing multiple sources of earnings that help balance performance across cycles. What is important is how these segments work together. Our ability to source product, move it efficiently through our terminals, supply our customers, and ultimately serve guests through our owned and operated retail sites allows us to capture value across the system and deliver consistent, durable results. Our strategy remains focused on acquiring strategic assets, investing in our existing network, and continuously optimizing our portfolio. On the acquisition front, the Providence terminal marked its first full year as part of our network in 2025 and has already exceeded our expectations. This asset expanded our storage, marine, and truck rack capabilities and strengthened our service footprint across key Northeastern markets, enhancing connectivity and flexibility across our system. We also expanded our bunkering business into the Houston market through a lease at the Texas City terminal, providing access to one of the largest refining and fuel hubs in the world and establishing a strong platform for future growth. We continue to invest in strengthening our existing portfolio. Our wholesale segment benefited from the continued growth of our terminal network, where we expanded capabilities and grew third-party volumes. We also strengthened our data and analytics infrastructure, improving operational visibility and enabling more informed and timely decision-making across the business. At the same time, we remain focused on optimizing our portfolio. During the year, we divested non-strategic retail locations and converted sites to higher-value formats and positioned the business. These actions improve overall portfolio quality for more consistent performance over time. As an owner, supplier, and operator of critical infrastructure, we manage Global Partners LP with a clear understanding of how each part contributes to overall performance. This perspective allows us to allocate capital with discipline, strengthen our platform, and focus on long-term cash flow generation and returns. Looking ahead, our priorities remain clear. We will continue to execute with discipline, invest in capabilities that enhance our platform, and build on the strong foundation we have established. Supported by a strong balance sheet, consistent cash flow generation, and a network built thoughtfully over time, we believe Global Partners LP is well positioned to deliver sustainable value for our unitholders. Turning to our distribution, last month, the Board approved a quarterly cash distribution of $0.76 per common unit, our seventeenth consecutive increase. The distribution was paid on February 13 to unitholders of record as of the close of business on February 9. I will now turn the call over to Greg for the financial review. Gregory B. Hanson: Thank you, Eric, and good morning, everyone. As we review the numbers, please note that, unless otherwise noted, all comparisons will be with 2024. Adjusted EBITDA for the fourth quarter of 2025 was $94.8 million compared with $97.8 million. Net income for the fourth quarter was $25.1 million versus $23.9 million. Distributable cash flow was $38.4 million for the fourth quarter, compared with $45.7 million, and adjusted DCF was $38.8 million versus $46.1 million. The variance between 2025 versus 2024 primarily reflects less favorable market conditions in our wholesale and commercial segments, partially offset by a stronger fuel margin environment in our GDSO segment. We continue to maintain a solid distribution coverage of 1.56x as of December 31, or 1.5x after including distributions to our preferred unitholders. Turning to our segment details, GDSO product margin increased $17.7 million in the quarter to $231.3 million. Product margin from gasoline distribution increased $19.9 million to $165.0 million, primarily reflecting higher fuel margins year over year. On a cents-per-gallon basis, fuel margins increased by $0.09 to $0.45 in Q4 2025 from $0.36 in 2024, as volatility in RBOB prices during the quarter provided a favorable fuel margin environment. Station operations product margin, which includes convenience stores, prepared food sales, sundries, and rental income, decreased by $2.2 million to $65.7 million in the fourth quarter due in part to a lower company-operated count as a result of the sale and conversion of certain company-operated sites. At year-end, our GDSO portfolio of fueling stations and c-stores totaled 1,524 sites. In addition, we operate or supply 67 sites under our Spring Partners retail joint venture. Turning to our wholesale segment, fourth quarter product margin decreased $21.5 million to $58.3 million. Product margin from gasoline and gasoline blendstocks decreased $10.5 million to $28.1 million, primarily reflecting less favorable market conditions in gasoline. Product margin from distillates and other oils decreased $11.0 million to $30.2 million, driven by less favorable market conditions. In our commercial segment, product margin decreased $2.6 million to $6.0 million, primarily due to less favorable market conditions in bunkering. Operating expenses decreased $3.5 million in the fourth quarter to $124.6 million, while SG&A increased $1.5 million to $80.9 million. Interest expense was $33.3 million in the fourth quarter compared with $34.4 million in the same period in 2024. CapEx in the fourth quarter was $38.8 million, consisting of maintenance CapEx of $22.6 million and expansion CapEx of $16.2 million, primarily related to investments in our terminal and gas station business. For full year 2025, we had $54.0 million in maintenance CapEx and $37.5 million in expansion CapEx. For full year 2026, we expect maintenance CapEx in the range of $60.0 million to $70.0 million and expansion CapEx, excluding acquisitions, in the range of $75.0 million to $85.0 million. Our current CapEx estimates depend in part on the timing of project completions, the availability of equipment and labor, weather, and any unforeseen events or opportunities that require additional maintenance or investment. Our balance sheet remains strong at year-end, with leverage, as defined in our credit agreement as funded debt to EBITDA, at 3.59x and ample excess capacity in our credit facilities. As of December 31, we had $226.1 million of borrowings outstanding on our working capital revolver and $103.5 million outstanding on our $500.0 million revolving credit facility. On our IR calendar, next week, we will be hosting one-on-one meetings at the JPMorgan Leveraged Finance Conference. For those of you participating, we look forward to seeing you in Miami. Now let me turn the call back to Eric for his closing comments. Eric S. Slifka: Thanks, Greg. As we look ahead, the message is simple. Global Partners LP is built for durability. Our integrated footprint, scale across the liquid energy value chain, and disciplined approach to capital allow us to manage through uneven markets, adjusting as conditions evolve and leaning in when opportunities emerge. Early-year cold weather conditions in the Northeast have supported solid wholesale fuel demand, and our footprint is well positioned to meet that demand and serve customers reliably. With strong fundamentals, a proven operating model, and a clear strategic framework, we remain focused on disciplined execution and on enhancing value over time for our unitholders. As we start 2026, we have never felt more confident about the ability of our complementary assets to drive growth. With that, Greg, Mark, and I will be happy to take your questions. Operator, please open the line for Q&A. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, while we poll for questions. Thank you. Our first question comes from the line of Selman Akyol with Stifel. Please proceed with your question. Selman Akyol: Thank you. Good morning, everybody. I would like to start on the site optimization you guys referenced several times. Should we think of that as being completed? I know you are always doing some fine-tuning, but for the most part, is that done? Eric S. Slifka: Selman, it is Eric Slifka. Look, we continue to optimize. We continue to look at what we believe is the most efficient way to run all of our locations. That is a continual process. The goal here is really to be as efficient as we possibly can throughout the entire organization. I would say that is a never-ending process. Selman Akyol: Okay. And then pivoting over to your CapEx, you called out it is going to be in terminals and GDSO. Is there a way to break that out between the two and maybe just thoughts on where you want to be investing or how much? Gregory B. Hanson: Yes. I think, hey, Selman, it is Greg. I think on the maintenance side, you will see a little bit of an uptick year over year versus last year. That was primarily related to the terminals and the terminals we acquired over the last couple of years. So that is up a little bit overall. But I think our goal is to be conservative in that maintenance CapEx range we gave for guidance. We have a lot of efforts to drive down our capital spend through procurement on the maintenance side. And then on the expansion side, we have three raze-and-rebuilds that we are working on on the GDSO side. It is a decent part of that. But then the major potential spend, I think, is more on the terminaling side. We are looking at some projects for expanding the capabilities of our terminals, expanding the throughput, expanding the logistics of them. Some of that is going to be uncertain due to timing on permitting and contracts, but we are seeing a real opportunity, especially around some of the terminals we have acquired in the last three years, to really expand the capabilities there, either through logistics efforts or just expanding the actual capacity of the terminal. Selman Akyol: That is great to hear. Eric, in your comments, you talked about looking for growth in the Houston bunkering market. Can you expand on that? And does that tie into potentially some of your comments in terms of the capital? Eric S. Slifka: In terms of Houston, we think we have found a little bit of a niche location, and that is specific to what we are trying to do there. Obviously, we are in that business throughout the Northeast, so this is an expansion. We have tankage, and we have barges, and whatnot. We think we are in a good position to deliver to the needs of that market in the specific location that we are at. Gregory B. Hanson: The only thing I would add to that, Selman, is on the CapEx side related to that, it is pretty CapEx-light. It is leased barges and leased terminals. Where there are CapEx opportunities in Texas is around the Motiva acquisition and our other seven terminals that we have in the Texas market that we acquired through the— Selman Akyol: Got it. And then you also referenced data analytics, and I presume that results more in cost savings than it does in revenue gains. But is there anything to expand on that? Mark Romaine: Yes. Good morning, Selman. It is Mark. I think it is both. Well, actually, I think it is a few things. First of all, we generate a tremendous amount of data from our business, whether it be through our stores or through our terminals. Part of this is just building the infrastructure to organize that data better and make it accessible to the people running the business. Our expectation on the benefit of that is twofold. One, it should, and it is already, providing efficiencies for the business and also enhancing decision-making. And then the second part of that on the analytics side is using that data to drive better business decisions and perhaps even embedding some AI capabilities into some modeling to help us with some of the decisions we have to make on a day-in, day-out basis. Gregory B. Hanson: And the other thing I would add to that is we are very excited about the future potential there. I will say as it relates to 2025, some of the SG&A increase you see year over year in SG&A is related to salaries and labor related to that effort and also an uptick in licensing subscription fees for software related to that too. That is somewhere where we have invested some of our SG&A dollars to, hopefully, get to significant cost savings in the future and potentially help our margins too. Selman Akyol: Got it. And then last one for me. It sounded like weather was favorable for you in Q1 in the wholesale segment. I get there is a lot of volatility and always difficult to know, but any way to frame up what 1Q looks like and how we should be thinking about it? Gregory B. Hanson: I do not think we are going to frame up from a guidance perspective anything. I think we just really want to recognize that January into February was extremely cold in the Northeast, which led to a lot of heating degree days, which, as you know, historically is very helpful for our rack wholesale business in general and should give us a decent tailwind to start the year. Selman Akyol: Got it. Alright. Thank you very much. Operator: Thank you. Thank you so much. Mr. Slifka, I would like to turn the floor back over to you for closing comments. Eric S. Slifka: Thank you for joining us this morning. We look forward to keeping you updated on our progress. Thanks so much. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2025 Arbor Realty Trust, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead. Paul Elenio: Okay. Thank you, Angela, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust, Inc. This morning, we will discuss the results for the quarter and year ended 12/31/2025. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risks and uncertainties including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations of our future performance taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor Realty Trust, Inc.’s expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of today. Arbor Realty Trust, Inc. undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. I will now turn the call over to Arbor Realty Trust, Inc.’s President and CEO, Ivan Kaufman. Ivan Kaufman: Thank you, Paul, and thanks to everyone for joining us on today's call. Today, we will focus on how we closed out 2025 as well as our outlook for 2026, especially in the first half of the year. As we discussed in the past, we believe we are in the bottom of the cycle and are working very hard to accelerate the resolution of our nonperforming and subperforming loans into performing assets and improve our rate of income for the future. This is a top priority for us as these loans are having a tremendous drag on our earnings. In fact, as Paul will lay out in more detail, we estimate as we resolve these loans we will add back as much as $100,000,000 of income to our annual run rate, or about $0.48 a share. This is an important point and we believe we have a clear path to resolving the majority of these loans over the next few quarters, which will put us in a position to start to build back up our run rate of interest income. Additionally, we also have a very active originations business with several diverse platforms and will continue to contribute to growing our income streams and increase our future earnings. We ended the year with $570,000,000 in delinquencies and around $500,000,000 of OREO assets for total nonperforming assets of roughly $1,100,000,000. These numbers are down by over $130,000,000 from the last quarter, an 11% reduction. This is strong progress in one quarter. And again, our goal is to continue to accelerate the resolution of our non-interest-earning assets and redeploy the capital into performing loans and grow our run rate of income. In fact, we have a line of sight into roughly $100,000,000 to $150,000,000 of delinquencies that we expect to resolve by March end and another $100,000,000 to $150,000,000 we believe will resolve in the next 90 days. Also, we are very optimistic we can reduce our REO assets to around $250,000,000 to $300,000,000 by the 2026 even after adding an additional $100,000,000 to $200,000,000 of REO assets along the way, mostly all of which are already reflected in the $570,000,000 of delinquent loans reported by year end. This estimated pace of resolutions will go a long way towards significantly reducing the drag on earnings and increasing our run rate of income for the future. We continue to focus heavily on legacy assets, which currently sit around $5,000,000,000. $570,000,000 of these loans are delinquent that we are actively working through and $1,500,000,000 is performing in accordance with the original terms. The other $3,000,000,000 have been modified to pay and accrue structures. Roughly half of these loans, we are currently accruing the full rate of interest; on the other half, we are being more conservative and only recording the pay rate of interest. We generated around $2,000,000,000 of runoff in 2025 in our balance sheet loan book, approximately $1,500,000,000 of which is related to the legacy book. Given these and given where rates are today, we believe we will experience similar runoff in 2026, which will continue to reduce our legacy book down to a much smaller number by year end. Certainly, if rates come down even further, we could accelerate the runoff process as well as further reduce the legacy book. We are closely monitoring the performance of these assets. And while we believe we will experience some additional delinquencies as we work through the bottom of the cycle, we are seeing steady progress on the bulk of this portfolio, which we believe indicates that the worst is behind us. One of the ways we are resolving our legacy book is by resetting the rates to current market, which puts these loans in a position to positively cover debt service from property operations without a shortfall. This, combined with having the right guarantees and requiring the borrowers to commit significant additional capital to support their deals, gives us comfort about how these loans will perform going forward. This strategy does temporarily affect our earnings; we are resetting these loans to lower rates. However, this will result in improved terms from our line lenders and greatly limit the potential risk of future losses, which is very important and will allow us to preserve our book value. As Paul will discuss in more detail, we produced distributable earnings of $0.22 a share in the fourth quarter. As stated earlier, our earnings are being greatly affected by the significant drag from our non-interest-earning assets, which is something we are working very hard to chip away at over the next several quarters. And we continue to make progress resolving our legacy issues and grow our new business volumes. It is very important to highlight that despite the significant drag we are currently experiencing, we still produced strong earnings of over $200,000,000 last year and have managed through this very long elevated rate environment without a material decline in book value, unlike the rest of our peers who have experienced significant book value deterioration. Despite these accomplishments, we are trading at a significant discount to book value. We believe our stock is substantially undervalued, especially in light of our extremely valuable agency business and diverse and growing business platforms compared to most of our peers with monoline businesses. One of the opportunities available to us right now is to resolve nonperforming assets and use a portion of those proceeds to buy back stock at a significant discount to book value. This is a tremendous trade for us, as it allows us to actually grow our book value and generate mid-teens returns on our investment. We have approximately $120,000,000 left in our buyback plan, and in the fourth quarter, we entered into a 10b5-1 plan that allows us to purchase stock in a blackout period. We purchased roughly $20,000,000 of stock in the few months under this program at an average price of $7.40, or 64% of book value. We will continue to evaluate the strategy in the future as it is highly accretive to both earnings and book value at these levels. Turning now to the production numbers of 2025 with our different business lines. We had a very active, strong fourth quarter in our agency platform with $1,600,000,000 origination volume, which puts us at $5,000,000,000 for the year. This is a 13.5% increase from our 2024 production numbers in what was a very challenging rate environment for the majority of the year. We are extremely pleased with these results and believe this is a real testament to the value of our franchise and the resiliency of our originations, having worked with a loyal borrower base that we have cultivated over many years. We have a large pipeline, which combined with the current rate environment and the fact that the agencies have increased their caps by 20% for 2026, gives us confidence in our ability to produce very strong volume numbers again in 2026. As we talked about in the past, our servicing portfolio, which is now over $36,000,000,000 and grew another 8% in 2025, generates a very predictable and growing annuity of over $128,000,000 a year of income. This annuity, combined with the earnings on our escrow balance, generates about $200,000,000 a year in annual cash earnings. This is in addition to the strong gain-on-sale margins we generate from our originations platform. It is extremely important to emphasize our agency business generates approximately 50% of our net revenues, the vast majority of which occurs before we even turn the lights on every day. In the balance sheet lending business, we originated $340,000,000 of volume in the fourth quarter, closing out 2025 with $1,200,000,000 of production. This business continues to be incredibly competitive and with consistent concessions being given on credit and structure. This is not something we will sacrifice to win a deal, and as a result, we are being very highly selective and are focusing our attention on larger deals with higher quality sponsors. This will likely result in originations similar to 2026 volume of approximately $1,000,000,000 to $1,500,000,000, which we can easily scale up as the landscape becomes more constructive throughout the year. The bridge lending business is a very important part of our overall strategy as it generates strong levered returns on our capital in the short term, while continuing to build up a pipeline of future agency deals. And with the significant efficiencies we continue to see in the securitization market and with our line lenders, we are able to produce strong returns on our capital despite the competitive landscape. We continue to do an excellent job in growing our single-family rental business. We originated approximately $580,000,000 in new business in the fourth quarter in 2025. We also had a very strong pipeline, giving us comfort that we will be able to produce approximately $1,500,000,000 to $2,000,000,000 in volume again in 2026. This is a great business as it offers returns on our capital through construction, bridge and permanent lending opportunities and generates strong levered returns in the short term while providing significant long-term benefits by diversifying our income streams. And again, with the enhanced efficiencies we are seeing in the securitization market and in our bank lines, we are generating mid to high teens returns on our capital, which will contribute to increased future earnings, especially as we continue to scale up this business. Over the last several months, we received a lot of questions from investors on how the President’s potential ban on institutional single-family home purchases would affect our SFR business. First of all, we are not entirely sure what, if anything, transpires and that it is just the political noise ahead of the midterm elections. Clearly, there is a serious housing shortage in the country, and we applaud any effort to address this very important issue. We want to make it clear that we do not traffic in scattered-site single-family businesses like Invitation Homes. We focus on build-to-rent business, which we believe is actually being excluded from this proposed ban. These are 200 to 300 homes in communities that are built by experienced developers and are commercial properties more akin to multifamily. Therefore, we believe we will not be affected by any efforts to ban large institutions from buying and aggregating single-family homes and that this build-to-rent business will continue to be a very attractive solution when dealing with supply issues in the market. In the construction lending business, we are having great success in growing out this platform with a real influx of new opportunities that we are seeing due to larger loans on high-quality assets with very experienced developers. We closed out the year with around $500,000,000 of production, and also a very large pipeline, giving us the comfort that we can meaningfully grow this platform and produce between $750,000,000 and $1,000,000,000 of production in 2026. And so between our agency business, bridge lending business, SFR and construction platform, plus our mezz and PE businesses, we originated $8,500,000,000 in volume in 2025 in a very difficult environment for the majority of the year. And again, we are confident in our ability to produce consistent volumes in 2026 and potentially even some room for growth depending on how the market conditions evolve over the balance of the year. In summary, we had a very active and productive year with many notable accomplishments. Clearly, the outlook for the interest rate environment has improved from where it was at this time last year, and we are feeling more optimistic as a result. We believe this will allow us to continue to grow our origination volume and generate strong returns on our capital from the significant improvements in efficiencies we continue to create on the right side of our balance sheet. We have also done a great job on preserving our book value even in the face of an unprecedented elevated rate environment and reductions in property values that we have experienced over the last several years. We believe we have ring-fenced the majority of our delinquencies and have a clear path to resolving these assets over the next few quarters, which again will allow us to significantly reduce the drag on earnings and grow our future run rate of income. I will now turn the call over to Paul to take you through the financial results. Paul Elenio: Okay. Thank you, Ivan. In the fourth quarter, we produced distributable earnings of $46,300,000, or $0.22 per share, excluding one-time realized losses of $12,400,000 from the resolution of certain delinquent and REO assets that were previously reserved for, and $7,300,000 of income we generated through reduced tax expense in the fourth quarter from the sale of the Homewood asset. On our last quarter's earnings call, we guided to $15,000,000 to $20,000,000 in realized losses in Q4 depending on how quickly we could liquidate certain assets. We had $12,400,000 in the fourth quarter, and have liquidated two other assets in January for approximately $10,000,000 in losses for 2026, all of which had been previously reserved for. On our last call, we discussed how our decision to accelerate the resolution process of certain loans resulted in a temporary increase in our delinquencies. We guided that this would reduce our fourth quarter earnings by approximately $0.05 to $0.06 a share. This, combined with a few new delinquencies as well as some reduced rates on modified loans, resulted in an additional $0.02 of drag for Q4, which was in line with our expectations. And although we expect to have some delinquencies as we work through the bottom of the cycle, we are working very hard to continue to resolve more delinquencies than new ones that come on. This process takes time, which could temporarily affect our earnings; however, we are making meaningful progress and have a clear line of sight to resolving the bulk of these assets over the next few quarters, which will increase our run rate of income for the future. As disclosed in our press release, we have roughly $600,000,000 of delinquencies and $500,000,000 of OREO assets on our books at 12/31/2025. Currently, these assets are not producing income, and some of the REO assets are actually generating negative NOI as we work through the process of stabilizing these assets and improving occupancy. We estimate that these assets are creating a temporary drag between $80,000,000 to $100,000,000 annually, or roughly $0.40 to $0.48 a share, which translates into $0.10 to $0.12 a quarter of additional income that we are optimistic we will be able to create as we resolve the vast majority of these assets over the next several quarters. With respect to accrued interest on modified loans, in the fourth quarter, we reversed approximately $4,000,000 of previously accrued interest on new delinquencies during the quarter, which, as we discussed earlier, is reflective of where we are in the cycle. This adjustment, combined with $7,000,000 in back interest collected on a loan payoff in the fourth quarter, has resulted in total accrued interest on modified loans remaining relatively flat quarter over quarter, even after accruing an additional $10,000,000 in interest on modified loans that are performing in accordance with their terms. In the fourth quarter, we reported an additional $20,500,000 of impairment on our REO book to properly mark these assets to where we think we can effectuate a sale as we look to dispose of certain of these assets quickly and create interest-earning assets for the future. This puts our reserves at roughly $75,000,000 life to date on our REO book. As Ivan mentioned, we are expecting to take back roughly another $100,000,000 to $200,000,000 of assets as we work through the bottom of the cycle, $50,000,000 to $75,000,000 of which will likely happen by the end of the first quarter. Most of these assets are already reflected in the $600,000,000 of delinquencies we reported at year end. And we are working very diligently to dispose of these assets quickly, which we believe will put our REO book at between $250,000,000 and $300,000,000 by the 2026. We also booked another $3,000,000 specific reserve on a new delinquency in the fourth quarter, which was offset by a $9,000,000 recovery of a previous reserve on the Homewood asset that we sold in the fourth quarter. We expect to book a similar level of reserves and impairments over the next few quarters, which is consistent with our strategy of accelerating the resolution of our problem loans as we look to mark certain loans that we are marketing for disposition to where we think we can execute a sale. In our agency business, we had another outstanding quarter with $1,600,000,000 originations, and $1,500,000,000 in loan sales, which generated $21,000,000 in gain-on-sale income in the fourth quarter. The margin on this business was 1.36%, up from the prior quarter due to some large off-market portfolio deals we were able to cap in the third quarter, which contained lower margins and smaller servicing fees. We also recorded $20,000,000 of mortgage servicing rights income related to $1,600,000,000 of committed loans in the fourth quarter, representing an average MSR rate of around 1.24%. Our fee-based servicing portfolio grew 8% in 2025 to approximately $36,200,000,000 at December 31, on very strong 2025 originations. This portfolio has a weighted average servicing fee of 35.6 basis points and an estimated remaining life of six years and will continue to generate a predictable annuity income going forward around $120,000,000 gross annually. In our balance sheet lending operation, our investment portfolio grew to $12,100,000,000 at December 31, from originations outpacing runoff for the fourth straight quarter. Our all-in yield on this portfolio was 7.08% at December 31, compared to 7.27% at September 30, mainly due to a decline in SOFR. The average balance in our core investments was $11,840,000,000 this quarter compared to $11,760,000,000 last quarter, from growth in our portfolio. The average yield in these assets increased to 7.38% from 6.95% last quarter, mainly due to the significant nonrecurring adjustments we booked in the third quarter, including reversing $18,000,000 of accrued interest, which was partially offset by a decline in SOFR in the fourth quarter. Total debt on our core assets was approximately $10,500,000,000 at December 31. The only cost of debt was approximately 6.45% at 12/31 versus 6.72% at 9/30, mainly due to a reduction in SOFR, which was offset slightly by the new unsecured debt we issued in December. The average balance on our debt facilities was approximately $10,100,000,000 for the fourth quarter compared to $10,000,000,000 in the third quarter, mainly due to funding our fourth quarter growth. The average cost of funds in our debt facility was 6.66% in the fourth quarter compared to 6.88% for the third quarter, excluding interest expense from levering our REO book, the debt balance of which is separately stated on our balance sheet, and therefore not included in our total debt on core assets. This decrease is mostly due to a reduction in SOFR. And our overall spot net interest spreads were up slightly to 0.63% at December 31 compared to 0.55% at September 30. So in summary, we had a productive year and have made considerable progress and have a clear line of sight to resolving the vast majority of our delinquencies over the next few quarters, which, when completed, will significantly reduce the drag on our earnings. This, combined with the growth in our origination platforms, will go a long way towards allowing us to grow our run rate of income in the future. That completes our prepared remarks for this morning. I will now turn it back to the operator to take any questions you may have at this time. Angelo? Operator: Thank you. So others can hear your questions clearly, please ensure you are unmuted. We will take our first question from Chris Moeller with Citizens Capital Markets. Your line is now open. Chris Moeller: Hey, guys. Thanks for taking the question and congrats on a really solid quarter here. So I guess on the GSE business, your guys' full year originations in 2025 were about $5,000,000,000, but the FHFA increased caps pretty substantially Ivan mentioned in his prepared remarks. So I guess how are you guys thinking about 2026 GSE originations relative to that $5,000,000,000 number? Ivan Kaufman: I think that a lot will be dependent on interest rates and also the GSEs’ increase in the cap. Also, they have a parallel match on affordability. So you have to be able to originate at least overall certain affordability percentages to be able to get to that cap. I think we are feeling fairly comfortable. Our pipeline is fairly strong. And I think targeting similar levels that we had last year, if these levels remain in this space, would be something that we feel comfortable with. Chris Moeller: Got it. And then I guess looking at the servicing portfolio, fees have compressed a little bit there. Do you expect that dynamic to continue into 2026? Or are servicing fees starting to bottom out? And can you just talk about what's driving that compression? Paul Elenio: Sure. Hey, Chris, it is Paul. So a couple of things. There are two components that are driving the compression in the servicing fees. One, obviously, rates have gone up over the last two years; there is a lot more five- and seven-year product being done in the agencies versus traditionally what was 10-year, 9.5-year yield maintenance product. So it is a little bit shorter on the curve, and therefore, the servicing fees are changing over that period of time. Secondly, during the COVID era, servicing fees were very, very high from the agencies. They have cut them back pretty substantially to more in the range of 45 to 50 basis points on Fannie. But I think it is just a matter of getting some higher servicing fee loans back from the pre-COVID days running off, and then the new products coming on the shorter part of the curve, it is also coming on at the more normalized servicing fees. We have run a model. We think this starts to bottom out towards the end of the year and then kind of levels off. So I think it compresses a little bit for the balance of the year as you flush out some of those higher servicing fee loans that are older and you are putting on the product that is more in today's market. But I think by the end of the year, we will start to see that level off and then you do not have that compression anymore. Chris Moeller: Got it. That is very helpful. Thanks for taking the questions and congrats again on a great quarter. Paul Elenio: Thanks. Thanks, Chris. Operator: Thank you. And we will take our next question from Gabe Poggi with Raymond James. Your line is now open. Gabe Poggi: Hey, guys. Good morning. Thanks for taking the questions. I want to ask a little bit about your SFR book. You obviously made a lot of loans in the fourth quarter. Who knows what happens out of D.C. Have you seen any credit issues in your build-to-rent borrowers? And if so, any geographic color? Or is everything kind of just been holding and pretty good on that front? And I have got a follow-up to that. Ivan Kaufman: I mean, I will give you the overall view. Our SFR book is really outstanding. It is probably the best performing book we have. The loans generally have institutional backup behind the sponsors. They are not syndicated loans and are usually lower leverage. Paul Elenio: Yes. I do have some stats. So as Ivan said, it has been an exceptional book for us. Obviously, the levered returns are real high, Gabe, on that book. We have done a nice job of putting together a first-of-its-kind securitization on the build-to-rent business earlier in the year. So we have been at the cutting edge of how to lever these things appropriately and get strong returns. I mean the returns are mid-teens on this business. And as I look at the book, not a single delinquent loan or a loan on our watch list is one of this type of product. So this product has been spotless from a credit perspective. And like we said, it is a great business that we are able to scale. Gabe Poggi: Thank you. And then a quick follow-up. Just on the delinquent/REO book, is there any kind of geographic color that you can provide where you may be seeing more pockets of weakness? And I know the Sun Belt has gone through a lot. Is there any state, city, MSA, etc. that is weaker or stronger than the other? Any color there would be helpful. Ivan Kaufman: Yes. I would say that there are certain markets that are soft like Houston. And that is a factor of the history of Houston being boom and bust. But more significantly by it being very adversely affected by the issues with immigration. That got hit on both sides. First, under the prior administration, you had a significant number of immigration centers next to a lot of properties, took over the properties, damaged those severely. And then under the current administration, you are seeing a lot of ICE raids in those areas. You are seeing that in areas of Texas, eastern primarily, San Antonio a little bit and even in Dallas, which is shocking. So you are seeing properties that were 90% occupied. Next day, they are back down to 65% to 70%. Also seeing a little bit of that in the Atlanta area too, and in certain pockets of Florida. But those would be the markets that have the most significant softness. Gabe Poggi: Thank you. Ivan Kaufman: Thank you. Operator: We will move next to Jade Rahmani with KBW. Your line is now open. Jade Rahmani: Thank you very much. About credit, you mentioned you expect another tough couple of quarters, but the worst generally seems to be behind the company. At the same time, in this year-to-date economy, multifamily fundamentals have been pretty weak looking at new lease growth, and then the economy is sending a lot of mixed signals with weak trends on the hiring side and the K-shaped recovery with the low end of the consumer suffering. So are you seeing any additional headwinds year to date? How have the trends been so far in 2026? Ivan Kaufman: So we have seen tremendous headwinds over the last couple of years due to higher interest rates and distress on borrowers and due to the softness in the economy and bad credit and just poor operations. We think we are at the bottom. We are seeing a firming up of economic occupancy. We are seeing the properties stabilize. And in our case, what we have made a decision is anytime I am not pleased with an operator or they do not have enough capital, we are stepping in and we are seeing good results with our efforts. We are also seeing liquidity return to the market. And when we do market a distressed asset, when we get it back, we are seeing multiple, multiple bids. We are seeing pretty good price discovery. So we think we are in a bottom. We are being very aggressive, and we are pleased with the results when we get our hands on these properties. Jade Rahmani: Thank you. In terms of the current earnings level, you mentioned there is $0.48 in untapped earnings trapped inside of these NPLs. Yet earnings remain below the dividend. Could you give any thoughts as well that the dividend was maintained, but that was for the 2025. Are your thoughts around the likelihood of the dividend being maintained in 2026? Ivan Kaufman: Yes, I will let Paul answer most of that. But our goal is to facilitate the resolution of the drag on earnings. The quicker we do that, the quicker we will have line of sight. And every day and every month matters. What used to take us 90 days to resolve a loan, it is taking more like 120 days. So it takes us about 90 days to get on-site the property. And then the marketing process takes us around 90 days. We are marking our book, and we took additional marks because we are trying to market to a level where we think we can get rid of these assets quickly. So the whole concept is how quickly we can get to that resolution, how fast we can take that drag on earnings as to how they are returning. Paul, do you want to give some comments? Paul Elenio: Sure. Jade, so Ivan is correct. Just to level set, we look at the dividend and the Board looks at the dividend from a more long-term perspective. So obviously, we have purposely accelerated the resolution of these delinquencies to put them behind us and get our run rate back up. That has temporarily certainly hit our earnings, and I laid out in my commentary it is about $80,000,000 to $100,000,000. It will all determine how long it takes us to get that resolved. We have clear line of sight right now. We did resolve $350,000,000 of delinquent loans and REO loans in Q4. We put on another $270,000,000, which was the wave, the one more wave we said we were going to have in the fourth quarter. We think the lion's share of this is behind us, and now our job is to continue to resolve those assets at a quick pace. If we can resolve them very quickly, the run rate will get up quicker. If it takes a little longer, it takes a little longer. But again, we look at it more long term. A couple of other things I will mention is, yes, we put up $0.22 today. The good news is we have seen our net interest income level here. So we have gotten good net interest income for Q4. I am kind of projecting that to probably stay in that range for Q1 and then hopefully it starts to run up in Q2, Q3 and Q4 when we start resolving a lot of these loans. The first quarter could be our low watermark though. As we have mentioned in the past, the agency business is very seasonal. We did do a pretty large number of volume in Q4 of $1.6. The first quarter is normally much lighter; if you go back and look at last year's numbers, we did $600,000,000 in Q1. I think we will do $750,000,000 to $800,000,000 in Q1 this year, and then run back up. So we will see a couple of penny drag, the gain-on-sale number being lower in Q1 just because of seasonality. But nothing to do with further delinquencies. We think we have ring-fenced everything, and we think that we have got a clear path to resolution. So again, we look at it long term. We expect to be able to resolve these things quickly. If we are right, our numbers will get up quicker. If it takes a little longer, it will take a little longer and we will evaluate it. But again, it is too early for us to say that we are not going to be able to earn that back in a reasonable period of time. Jade Rahmani: Fair enough. Thanks for taking the questions. Ivan Kaufman: Thank you. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Ivan Kaufman for any closing remarks. Ivan Kaufman: Well, thank you, everybody, for your time today. It has been a bouncy road a little bit. And we do feel that we have ring-fenced our issues and have clear line of sight to how to resolve those issues and get back to getting rid of the negative variable earnings. It is just a matter of what the timing is. We are aggressive, and we will look to facilitate that. And once again, thank you, and everybody have a great weekend. Bye. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you all for your patience. The conference call titled Amneal Pharmaceuticals, Inc. Fourth Quarter and Full Year 2025 Earnings Call will begin shortly. During the presentation, you will have the opportunity to ask a question by call. Good morning, and welcome to the Amneal Pharmaceuticals, Inc. fourth quarter and full year 2025 earnings call. I will now hand the call over to Amneal Pharmaceuticals, Inc.’s Head of Investor Relations, Anthony DiMeo. Go ahead, please, sir. Anthony DiMeo: Good morning, and thank you for joining Amneal Pharmaceuticals, Inc. Fourth Quarter 2025 Earnings Call. Today, we issued a press release reporting Q4 results. The earnings press release and presentation are available at www.amneal.com. Certain statements made on this call regarding matters that are not historical facts, including but not limited to management's outlook or predictions, are forward-looking statements that are based solely on information that is now available to us. Please see the section entitled “Cautionary Statements on Forward-Looking Statements” for factors that may impact future performance. We also discuss non-GAAP measures. Information on use of these measures and reconciliations to GAAP are in the earnings release and presentation. On the call today are Chirag K. Patel and Chintu Patel, Co-Founders and Co-CEOs; Anastasios G. Konidaris, CFO; our commercial leaders, Andy Boyer for Affordable Medicines, Joe Renda for Specialty; and Jason Daley, Chief Legal Officer. I will now hand the call over to Chirag K. Patel. Chirag K. Patel: Thank you, Anthony. And good morning, everyone. 2025 was a defining year of excellent execution and portfolio expansion at Amneal Pharmaceuticals, Inc. As a diversified biopharmaceutical company across specialty, complex products, injectables, and biosimilars, we are building category leadership positions in large and growing markets. In 2025, revenue grew 8%, adjusted EBITDA increased 10%, and adjusted EPS rose 43%. 2025 marks our sixth consecutive year of growth in our industry. That consistency of growth stands out. What is most exciting is not only what we have achieved so far, which we are truly proud of, but the even greater opportunity that lies ahead. We entered 2026 with a strong foundation and exciting strategic growth opportunities. Whether we are advancing the standard of care with innovative therapies like Trexon or expanding access to affordable complex medicines, our mission is clear: to become America’s number one affordable medicines company. Since our founding over 20 years ago, Amneal Pharmaceuticals, Inc. has always been driven by the deep passion and responsibility to serve the millions of patients who rely on our medicines every day. And we are just getting started. Let me begin with our largest segment, Affordable Medicines. The business continues to grow year after year, driven by an expanding portfolio of complex, differentiated, and durable products. 2025 was an exceptional year for approvals and launches, particularly in complex generics and injectables. These launches are not one-time events; they are multi-year value drivers. As a result, we expect meaningful acceleration in our Affordable Medicines segment revenue growth in 2026 and 2027. In injectables, we are executing with a clear ambition to become a top five player in the U.S. institutional market. Over the years, we have significantly expanded our R&D and manufacturing capabilities, adding the technical capabilities required for long-term leadership. Our strategy focuses on providing differentiated offerings for hospitals, including ready-to-use specialty injectables. With over 40 products and a pipeline of differentiated launches, we expect this business to scale substantially over time. In biosimilars, we are building a long-term growth engine. We began with in-licensing and creating a strong commercial platform. In December, we received approval for our adenosuba biosimilars, our fourth and fifth products. With biosimilars ZOLAR in review, we remain on track to have six biosimilars in the U.S. market by 2027. Strategically, our goal remains to be vertically integrated in biosimilars across development, manufacturing, and commercialization, which we believe is essential for long-term success. From a macro perspective, the opportunity is remarkable. Over the next decade, about 234 million of biologic sales will lose exclusivity, more than double the prior 10 years, and only about 10% of those products have biosimilars in development. This creates a significant long-term opportunity to dramatically expand patient access and drive very meaningful growth for our company. Next, in GLP-1s, our collaboration with Pfizer is progressing well, and both teams are working together. We are here to assist Pfizer in a meaningful way. This initiative builds on what we do best: develop, manufacture, and commercialize complex medicines at scale, and positions us to play a meaningful long-term role in one of the largest and fastest growing therapeutic categories in healthcare. Now let us turn to the specialty segment. We are very pleased with the take of Krexone. At the end of 2025, about 23,000 patients were on therapy, reflecting over 3% market share one year post launch. For context, Rytary reached 42,000 patients and 6% market share 10 years after launch. In December, interim Phase 4 data reinforced what physicians and patients are already seeing: Taxon delivers more good on time than other therapies. We remain confident in peak U.S. sales of $300 to $500 million for Trexon, which we believe is setting a new standard of care for Parkinson’s patients. In the fourth quarter, we launched Breqia, a first and only auto-injector for severe migraine and cluster headache patients. For many of these patients, the prior option was an emergency room visit. Plinkia gives them control, delivering the same hospital medication in a ready-to-use auto-injector. Recap is our next growth catalyst in specialty, with expected peak sales of $50 to $100 million. Lastly, healthcare continues to provide diversification and strategic advantage. Through government and distribution channels, healthcare strengthens our direct access to key end markets and provides an efficient path for new launches, including biosimilars, complex generics, and specialty products. Overall, we are building a diversified biopharmaceutical company that expands access and provides new therapies for patients and delivers consistent growth for investors. With that, I will turn it over to Chintu. Chintu Patel: Thank you, Chirag, and good morning. I will begin with gratitude and thank the global Amneal Pharmaceuticals, Inc. team for their dedication and hard work, which continue to drive our company's success. The formula for strong execution remains the same: operational excellence, robust innovation, and a differentiated portfolio. First, on operations, our global manufacturing network and leading technical capabilities remain a core strategic advantage. We continually enhance efficiency through digitization, automation, and AI, which will drive cost efficiencies. In GLP-1s, our collaboration with Pfizer is progressing very well. Our manufacturing buildout of two new GLP-1 facilities remains on target—one for large-scale peptide production and one for advanced sterile fill-finish manufacturing, designed to support all dosage forms. We are well positioned to participate meaningfully in the long-term GLP-1 market with a scalable and flexible manufacturing platform. In Affordable Medicines, we look to launch 20 to 30 new products each year. Importantly, it is not just the number of launches, but the value and complexity of these products that matter. In that regard, 2025 was an exceptionally strong year. For years, we have strategically prioritized development of complex generics, including injectables, ophthalmics, inhalation products, and other advanced drug-device combinations. As a result, we are now in the midst of one of the most concentrated and impactful waves of high-value Affordable Medicines launches in Amneal Pharmaceuticals, Inc.’s history. During the fourth quarter, we meaningfully expanded our portfolio with a series of important late 2025 approvals and launches across multiple areas. Highlights included risperidone extended release, our first long-acting injectable; sodium oxybate; bimatoprost; and cyclosporine in ophthalmates; the first generic for iohexol; and multiple other injectables for hospitals, including several epinephrine products. Notably, we also announced approval and are now launching our first two inhalation products: beclomethasone dipropionate and albuterol sulfate. This reflects a decade of hard work by the team and marks our new entry into inhalation, which is a new growth platform starting this year. With this level of activity, we are reaching an inflection point in complex innovation. We have 59 ANDAs pending, products with 64% classified as complex, and 52 more products in development with 94% complex. We look to file 10 to 15 key complex programs in 2026, including several more injectables and inhalation programs. This complex portfolio evolution positions us very well for sustainable growth. In biosimilars, we continue to build our business deliberately over time. Our next major milestone is biosimilar Xolair, which represents our sixth potential biosimilar and our largest opportunity to date. Xolair was one of the first blockbuster allergy biologics, and we expect to be among the first biosimilars in this over $4 billion U.S. market next year. We are very proud of the progress we have made in building a biosimilar business. As Chirag noted, we see a very significant opportunity ahead with the upcoming wave of biologics LOEs. Access in this space will require vertical integration, from cell line development and R&D to manufacturing and commercial capabilities. That is what will be needed to be a long-term leader in biosimilars. In specialty, Krexone continues to perform exceptionally well and we believe it has the potential to become the standard of care for all people living with Parkinson's disease. For decades, the foundation of treatment has been immediate-release carbidopa/levodopa, a therapy that dates back to the 1970s. IR CD/LD is limited by fluctuating symptom control, frequent dosing, and significant off time as the disease progresses. Kraxant represents a meaningful advancement in therapy designed to address these long-lasting limitations by delivering more consistent symptom control with fewer daily doses. In 2024, we initiated a Phase 4 real-world study of approximately 225 patients, converting them from Rytary, IR CD/LD, and IR CD/LD with COMT inhibitors to Kraxant. In December, we shared the first interim result from this open-label study, which demonstrated clear and clinically meaningful differentiation. Patients treated with taxon experienced substantially more good on time, less off time, and longer intervals of continuous good on time. Importantly, patients converted from IR to Krexone showed over three hours more good on time per day, a result that is highly meaningful for Parkinson's patients. taxon effectiveness. We look to generate further evidence to demonstrate and expect to share more data for 2026 and 2027. In addition, internationally, we have filed the products in a number of key countries, including India, Canada, and in Europe. Beyond Kraxon, we plan to expand our specialty over time with products in areas like CNS and others where differentiated delivery, real-world performance, and patient convenience matter. Brekia auto-injector is a clear example, combining a proven therapy with a differentiated drug delivery system that improves how patients receive care. Specialty represents a multiproduct growth engine for Amneal Pharmaceuticals, Inc., and we will share more on our pipeline as it evolves. In summary, we are executing well, driving operational excellence, advancing innovation, and expanding a differentiated portfolio across Affordable Medicines, specialty, and biosimilars. The progress we made in Q4 reinforces our confidence in the path ahead. With that, I will turn it over to Tasos. Anastasios G. Konidaris: Thank you, Chintu, and good morning, everyone. The fourth quarter completed another terrific year for Amneal Pharmaceuticals, Inc., with strong top and bottom line growth, as Q4 revenues grew 11%, adjusted EBITDA grew 13%, and adjusted EPS grew 75%. Our consistent performance reflects our strategic choices, relevancy of our broad portfolio, prudent capital allocation, and strong execution. In addition to strong top and bottom line growth, we also delivered strong full-year operating cash flow of $340 million, reduced net leverage to 3.5x, and our successful refinancing extended maturities to 2032 and substantially reduced interest costs. So all in all, an excellent finish to the year. Over the next few minutes, I will cover in more detail our fourth quarter and full year 2025 results and move on to our 2026 guidance. Starting with the fourth quarter, total company revenues grew 11% to a record $814 million. First, our Affordable Medicines segment was essentially flat at $437 million, reflecting the timing of key products and new launches. Second, specialty revenues were very strong again in Q4, up 38% year over year to $167 million due to strong demand across our key brands such as Krexone, Rytary, Unithroid, and some small initial sales of our newest branded product, PreKey auto-injector for cluster headaches. Third, AvKARE revenues grew 24% to $211 million, driven by strong growth in the government channel. Our Q4 revenues continued to benefit by approximately $50 million associated with one significant new product launch, which accounted for approximately $100 million in new revenue for the full year 2025. Fourth quarter adjusted EBITDA of $175 million grew 13%, driven by top line growth and limited operating expense growth. Q4 earnings per share of $0.21 grew 75% due to adjusted EBITDA growth and lower interest expense due to our favorable refinancing earlier in 2025. Let me now shift to our full year 2025 performance, where we exceeded all our financial guidance metrics. Total company revenue of $3 billion increased 8%, driven by growth across all of our business segments, as Affordable Medicines grew 4%, specialty grew 19%, and AvKARE grew 12%. We are also very pleased by the growth of our adjusted gross margin, which expanded by 50 basis points to approximately 43%. It is worth noting that last year’s 2025 adjusted gross margin increased in excess of 400 basis points due to our concerted efforts to prioritize profitability. On the bottom line, full year 2025 adjusted EBITDA grew 10% to $688 million, and adjusted EPS grew 43% to $0.83. In addition to our strong financial performance in 2025, we feel great about the actions we have taken to strengthen our balance sheet. First, we have reduced net leverage from 7.4x in 2019 to 3.9x at the end of 2024 and finally to 3.5x at the end of 2025. Second, we fully refinanced our debt last summer, and in January, we repriced our Term Loan B to further lower interest rate expense. As a result, our weighted average cost of debt is down from 10% in 2024 to about 6.8% in 2026, and maturities have been extended out to 2032. Accordingly, interest expense in 2025 was $217 million compared to $256 million in 2024, and as importantly, we expect a further reduction in 2026. I will now turn to our full year 2026 guidance which, in summary, reflects another year of growth across all financial metrics. In summary, we expect top line growth between 1% and 4%, adjusted EBITDA growth between 5% and 10%, and adjusted EPS growth between 12% and 20%. Let me provide a bit more detail on each of our guidance metrics. Starting with total company revenue of $3.05 billion to $3.15 billion, up 1% to 4%. As I mentioned, we expect the growth to be driven by our largest business segment, Affordable Medicines, where we expect growth between 7% and 8%. This is an acceleration from 4% growth in 2025, but in line with our prior three-year average. Our growth expectation is rooted in the robust cadence of new product launches we received from the FDA in the last couple of months. As a result, we enter 2026 with the highest number of product approvals, which de-risks our growth expectations. In our specialty segment, we expect 2026 revenues to be about flat to 2025. This temporary pause in growth simply reflects the continued growth of Krexham and our other brands, offset by the expected generic erosion of Rytary. As we look forward to 2027 and beyond, we expect our specialty business to resume its strong growth trajectory as the growth of Craigsson and our multiple other branded products overcomes the loss of exclusivity of Red Ari. In our AvKARE segment, we expect revenue between $625 million to $700 million in 2026 compared to $745 million in 2025 and $663 million in 2024. While the year-over-year revenues will be down in 2026, our expected profitability is flat year over year, as we continue our successful efforts to focus on the more profitable segments of the business. For some of the newer audience in our call, it is worth noting that it has been about six years since we acquired 65% of AvKARE, and over that time, top and bottom line have increased by over three times. We are very excited about AvKARE’s growth potential, given the strong fundamentals of an expanding population of more than 20 million pet veterans and federal government workers, as well as a growing portfolio of new launches such as biosimilars, complex generics, and specialty products. Overall, AvKARE remains a highly strategic direct platform for Amneal Pharmaceuticals, Inc., and we expect it to continue generating substantial profits and cash flow over time. Moving down the P&L, we expect 2026 adjusted gross margins of over 44%, which reflects approximately 100 basis points of gross margin expansion, driven by the continued mix shift in our business as the higher margin parts of our business are growing faster. As a result, we expect 2026 adjusted EBITDA between $720 and $760 million, up between 5% and 10%. From an EPS perspective, we expect 2026 adjusted EPS between $0.93 and $1.03, which reflects 12% to 20% earnings growth driven by strong adjusted EBITDA growth and lower interest expense. In terms of quarterly phasing for 2026, we expect a gradual build over the year for a couple reasons. First, the revenue associated with many new Affordable Medicines launches as well as correction will build throughout the year. And second, some launch-related investments are more front-end loaded to support key launches such as Brachia auto-injector. Moving on to cash, we expect robust 2026 operating cash flow between $325 million to $375 million compared to approximately $340 million in 2025, and CapEx of approximately $110 million or 3% of revenue. Lastly, we are pleased to be added to the S&P small caps 100 index a month ago. It reinforces the consistency of our operating and financial performance over time. We believe this inclusion enhances our visibility with the investment community and continued expansion of our institutional investor base. In summary, we enter 2026 in our strongest position yet, with a wind in our backs. We expect sustained top and bottom line growth, supported by our diversified portfolio and multiple growth drivers, including new branded launches such as correction and breakia, new biosimilar launches, and a very strong wave of new Affordable Medicines. Combined with our disciplined focus on profitable growth, operating efficiencies, and strong balance sheet, we see a clear path for substantial value creation. With that, I will turn the call back to Chirag. Chirag K. Patel: Thank you, Tasos. Our strong 2025 results and 2026 guidance reflect the momentum across our diverse business. We remain focused on the disciplined execution of our strategy as we progress towards becoming America’s leading affordable medicines company. Let us now open the call. Operator: Thank you. As a reminder for our audience, if you would like to ask a question, you may do so by pressing star followed by the number 1 on your telephone keypads. Again, that is star followed by the number 1 on your telephone keypads, please. And we now have our first question here from Chris Schott from JPMorgan. Your line is open. Chris Schott: Great. Thanks so much for the questions and congrats on all the progress. Maybe just to start out on Crexone, post the Phase 4 data for the product, can you just elaborate a little bit more on the response you are seeing in the market from these results? And maybe as part of that, as we think about 2026, how should we think about either revenue or market share targets for the product? Just had one follow-up after that. Chirag K. Patel: Excellent. Well, I will start and have my brother on to this as well. So the Phase 4 is interim result, showing 3.13 hours of good on time, which is what we have been hearing from physicians and the experience of patients. It is a huge uptake. 80% of the IR patients are converting to Crexone. And the Phase 4 continues, Chintu will give more details on it. And we also have another study which he will share as well. Market share, we would double it in 2026. More than double the revenue. Anastasios G. Konidaris: Percent of AvKARE. Since then, we have more than tripled the revenue, gross margins, and EBITDA. So it is great because we were able to leverage both the unique assets Amneal brought to the transaction as well as the inherent growth in that business. So as we talked about, when you look at 2025 versus 2024, in 2025, the total revenue of AvKARE was about $745 million, and in 2024, the revenue was $663 million. So that grew about a total of about 12%. About 50% of the revenue is between—about 40% goes into the government channel, 60% of the revenue goes in the distribution channel. So when you think about this 12% growth in 2025 versus 2024, the distribution part of the business declined, while the government business grew. The distribution declined—it was purposefully done, because that is what we talked about, because we decided to not chase businesses with 1% or 2% gross margin. So as a result of that pivot, leaning hard into the government channel, the gross margin of our AvKARE business grew over 400 basis points. So the gross margin in 2025 of AvKARE was $147 million compared to about $100 million in 2024, and the operating income in 2025 was $94 million compared to $57 million. So essentially, ’25 versus ’24, revenue up 12%, gross margin up 41%, operating income up 65%. So great performance. So now as we look into 2026, there are two things that are happening. We continue to expect the distribution business to be declining. But because it is such a low profitability part of the business, it does not hurt the bottom line. The government business is going to be down slightly, not because of anything fundamental that is happening, but in 2025 there was such extraordinary growth because we had this one generic product, essentially generic Entresto, where we were essentially the only ones in the market. That product had $100 million worth of revenues, as I mentioned before, in 2025. In 2026, as it always happens, it will have some additional competition. So that is why in 2026 revenue is declining—because of our pivot away from distribution, number one, and not having that exclusivity, if you want to call it that, of generic Entresto impacting the government business as well. That is what is going to drive the decline and what we like to call almost a reset level for 2026. But the bottom line is not going to be impacted, because for a couple reasons: A, there are other more profitable parts of the business to which we will be allocating resources; we will also be laying on some of the operating expenses. So these are the dynamics that are happening in AvKARE. Essentially it creates this reset revenue in 2026 before we resume top line and bottom line growth in 2027 and beyond. So I know I said a lot, Chris. Let me know if that was helpful. Chris Schott: That was perfect. Thank you so much. Appreciate it. Operator: Thank you for that question, Chris. Moving on, we now have Matthew Michael Dellatorre from Goldman Sachs. Go ahead, please. Your line is now open. Matthew Michael Dellatorre: Great. Good morning, guys, and thanks for the question. Maybe on the Pfizer GLP-1 obesity partnership, could you just share your latest update on the status of that partnership? And then how should we think about potential outcomes—you know, for example, if they do end up buying you out, would that be a complete, for instance, return of all rights and economics? Or are there other scenarios where maybe you do not manufacture for developed markets, but you keep emerging market rights? And then if it is a complete buyout, what would be the plan for the new facilities in India and the cash you would receive? And then maybe just on business development, could you share your latest thoughts on strategy, areas of interest and capacity, and then how you are thinking about the potential vertical integration of biosimilars? Thank you. Chirag K. Patel: Thank you. So good morning, Matt. With Pfizer collaborations, continue such as we had it with MedCerra. Both teams are working together. Facilities actually accelerated in manufacturing. And several levels of C-level meetings have been already conducted with Pfizer. So we expect nothing much to change. Right now, it is all waiting for starting the Phase 3 and getting the products and, you know, the demand is global. And we have built, building such a remarkable, highly automated fill-and-finish facility with latest and greatest equipment. So Pfizer is very excited about that. And also, we are making great progress on our peptide manufacturing, which you know is in shortages. With solid phase technology, we are also introducing hybrid in the future. So our teams are working with Pfizer on those aspects as well. And we continue to have the marketing rights for 18 countries, including India and Southeast Asia. So we are excited about the entire partnership, and there are no plans to think about right now. It is moving great. Yes. So as we have been saying it since the last couple of years, time is now to do the vertical integration. Biosimilar opportunities are awesome. Regulatory is streamlined. And we are very familiar with the market. So very excited—that is where the capital allocation will go first. And then, as I said previously, 2027 and onward, we will be more focused on specialty assets, and keep building our pipeline there. Remember, organically, we are very strong in our R&D pipeline, so we keep our pipeline full. More complex products, a great team in-house we have, so we will continue to invest in our own R&D, our own CapEx, which is—strategically, we have been investing and are very excited about the future. And next five years is going to be tremendous growth, more than what we have even witnessed in the last five years. Operator: Thank you for that question, Matt. Moving on, we now have David A. Amsellem from Piper Sandler. Go ahead, please. Your line is now open. David A. Amsellem: So just a few for me. Wanted to get your thoughts on the generic Omnipaque opportunity and what has been built into your ’26 expectations regarding that opportunity. Talk about barriers to competition, potential approval of additional strengths, and the extent to which you think that is going to be a limited competition product for the foreseeable future. So I know that is a bunch, but that is number one. And then secondly, I had a question on Xolair—similar set of questions—but wanted to get your thoughts on the extent to which that could be a limited competition market. I believe there are only two or three others. So talk about how big of an opportunity that could be in ’27 and beyond. Thank you. Chirag K. Patel: Great. Thank you, David. On iohexol, you know, the supply chain is complicated. They will be entering the market. GE has the huge market share, so we will be making inroads. The we have spoken to, they are very excited, but expect that as a ramp-up. Because of the difficulty in the supply chain. So over the years, as we introduce more strengths, it will pick up. So great achievement from our R&D team. And complexity of manufacturing, both we have achieved. So excited over time on iohexol. On Xolair, very excited right now with Celltrion and us in ’26. Large market, growing market. Very well set about—we expect 65% to 70% to go through the private label, which, you know, gives us immediate bump in the sales, rather than ramp-up over market share over one, two, three years. So exciting opportunity. And as you know, Amneal Pharmaceuticals, Inc. is well positioned to do business with these large buying groups as we have been doing business with them over 20 years—great relationship, number one pipeline in the country for them, and they appreciate our high integrity, the quality standards we have. So we expect tremendous partnership with these private label side of the business, which I expect about—going forward would be almost 70% would go through private label which would make the biosimilar penetration very effective. It would not have to wait for three, four years to get to 30% to 40% market share. It would jump to higher market share immediately in year one. And 20% to 30% will continue on a buy-and-bill, which we are well positioned for as well. So very excited on Xolair as well. Chintu, you wanted to add anything on ibexel? Chintu Patel: Yeah, David. So on iohexol, you had a question on additional strengths. So by end of the year, we will have approval for the missing strength. So by end of the year, we will have the entire Omnipaque, all the strengths. It is a very large opportunity for us. We have been working on strengthening our chain and increasing our capacity. ’26, we will start, but ’27 onward, it would be a meaningful revenue contribution. And from a competition perspective, it is a tough product. Supply chain perspective, manufacturing, it is a unique bottle. You know? So all those things put together, I think we do not foresee a lot of competition in multiple strengths. So we are very excited, and by end of the year, we will have all the strengths approved. Operator: Okay. Great. That is very helpful. Thank you, David. Moving on, we now have Leszek Sulewski from Tourist Securities. Go ahead please. Your line is now open. Leszek Sulewski: Good morning. Thank you for taking my questions. First one on Crexone. Can you quantify the persistence at perhaps month three or six versus your internal expectations and versus VITARI? Any sort of signal around discontinuation? And how should we think about the gross-to-net evolving as you broaden access, and what is kind of a steady state gross-to-net you are expecting at peak? And then second on the DHE order, what is the early patient profile? Is it migraine versus clusters and the switches from prior DHE exposure versus naive? Thank you. Chirag K. Patel: Thank you, Leslie. Good morning. Craig Sondors is right. Obviously, Crexone is performing much better, as Rydery took almost 10 years to get to 6% market share. First year, we have 3% market share, 23,000 patients on it. Testimonials are amazing, and we get letters in our office—literally written letters—from patients. Providers are—so physicians are so excited about the product as well. And now our aim is to make that a first-line therapy over time. So no patient has to take the old Sinemet, which is giving them a lot of fluctuations every hour and a half, two hours. So this is clearly a seven, eight hours of good on time every day. Amazing stories. No comparison with the. It is—we are doubling or more than doubling market share this year, so we will reach 6% plus this year, which would be above. And we learned the pricing side, we learned everything. We had about 35% of patients who could not fill their prescription due to the pricing on a dietary. We have really worked on it and have put the pricing out there; that number has been reduced now. And our gross-to-net runs is typical in this category, about 40% to 45%. We are very excited about TEXA. Break here, Joe, you want to—it is also the breakouts for cluster headache as well as severe migraine. So we are treating two segments, and all the excitement is amazing. Joe Renda is here. He just came back from our national sales meeting. Would you like to shed some light on— Joe Renda: Sure. Yes. So thanks so much for the question. And yes, the response from the field team so far has been fantastic on both Krepsmont and Berkey auto-injector because what we are seeing in the market from the key KOLs has been very favorable. I would say with regards to your question about Crexant with persistence and adherence, it continues to improve as we continue to see more and more patients on the product. And right now, it is surpassing that of Rytary, and we continue to anticipate that to go up because we are seeing patients return to therapy at a higher rate with Crexant than they did with Rytary. So that has been very favorable. With Berkey auto-injector, our strategy has been to focus on the key migraine treatment centers across the United States and key KOLs. And the response has been beyond our expectations so far. So we have been very pleased. We are about 90 days into the launch. And having come back now from our sales and marketing meeting—our national meeting—this week, I am maybe even more further convinced that we are going to continue to drive growth for both of those products. The team is trained and ready, and we are going be executing this year. So excited about that. Thank you. Operator: Thank you, Leszek. We are now clear on the Q&A queue. With that, I will hand the call back to Chirag K. Patel for closing remarks. Chirag K. Patel: Well, thank you, everyone, for joining the call today. Have a great Friday and weekend. Thank you. Chris Schott: Thanks, everyone. Operator: Thank you, everyone. This concludes today’s call. You may now disconnect your lines, and have a great weekend.
Operator: Good day, and thank you for standing by. Welcome to the Q4 2025 MasTec, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Mecray, Vice President of Investor Relations. Please go ahead. Chris Mecray: Good morning, and thank you for joining us for MasTec, Inc.’s fourth quarter full year 2025 financial results conference call. Joining me today are Jose Mas, Chief Executive Officer, and Paul DiMarco, Chief Financial Officer. We have prepared slides to supplement our remarks, which are posted on MasTec, Inc.’s website under the Investors tab and through the webcast link. There is also a companion document with information and analytics on the quarter and a guide summary to assist in financial modeling. Please read the forward-looking disclaimer contained in the slides accompanying this call. During this call, we will make forward-looking statements regarding our plans and expectations about the future as of the date of this call. Because these statements are based on current assumptions and factors that involve risks and uncertainties, actual performance and results may differ materially from our forward-looking statements. Our Form 10-Ks include a detailed discussion of risks and uncertainties that may cause such differences. In today’s remarks, we will be discussing adjusted financial metrics reconciled in yesterday’s press release and supporting schedules. We may also use certain non-GAAP financial measures in this conference call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measures can be found in our earnings press release, slides, or companion documents. I will now turn the call over to Jose Mas. Good morning, and welcome to MasTec, Inc.’s fourth quarter earnings call. First, some quarterly and full year highlights. Jose Mas: Revenue for the quarter was just shy of $4 billion, a 16% year-over-year increase, bringing the full year to $14.3 billion, also a 16% increase for 2025 and a new record high. Adjusted EBITDA was $338 million in the fourth quarter, a 25% year-over-year increase, which was an acceleration from the 20% growth in the third quarter. We exceeded guidance with strong operating execution across segments. Full year EBITDA of $1.15 billion was an increase of 14% from the prior year. Adjusted earnings per share was $2.07, a 44% increase versus $1.44 in the prior year quarter. In summary, we exceeded guidance again in revenue, EBITDA, and EPS, highlighting another strong execution quarter and year for MasTec, Inc. This strong result is in part a testament to the scale and diversification MasTec, Inc. has achieved over time, and we are excited about our outlook for 2026 and beyond given the clear long-term positive market conditions across all of the end markets we serve. While I am proud of our financial results, I would like to highlight a few positive developments both in the fourth quarter and in early 2026. First, it is important to highlight our significant backlog growth. On a full year basis, backlog was up over $4.5 billion, a 33% annual increase. Sequentially, backlog was up over $2 billion, representing a 1.6 times book-to-bill. More importantly, we see our business and the opportunities in front of us accelerating. As impressive as the total number is to me, I am more excited about the backlog mix. While every segment was up considerably year over year, our pipeline segment saw backlog slightly drop sequentially. Yet, I would argue that our visibility in that segment is as good as it has ever been. While we expect double-digit growth in 2026 in our pipeline segment, we have been very vocal about our expected growth acceleration of that business in 2027 and beyond, reaching and hopefully surpassing historical high revenues in that segment. That potential, coupled with the continued backlog growth across all of our non-pipeline segments, positions MasTec, Inc. for considerable long-term multi-year growth. Our long-term visibility is better than it has ever been, and coupled with the margin opportunities we have, MasTec, Inc. is in a great position to deliver consistent long-term earnings growth. I am also pleased to report that included in our fourth quarter backlog growth there is nearly $1 billion of data center-related work. These awards include the type of work we have been doing over recent years and also include our first construction management agreement of a turnkey site. While most of the work on that project, which started in the fourth quarter, will be subcontracted, the opportunity for MasTec, Inc. will be our ability to self-perform a greater scope of work on future jobs. Demand for both the skill set that MasTec, Inc. has developed in construction management coupled with the capabilities we have in civil, power, telecom, and maintenance provides us the opportunity to exponentially grow this part of our business. We believe these opportunities are a result of our customer solution approach where we can provide a range of services from full-scale EPC to a specific function on any project. In addition to our backlog growth, while we have focused heavily on organic growth over the last couple of years, our strong cash flow generation gives us the ability to allocate capital to further enhance our growth profile. Accordingly, I would like to welcome the NV2A family to MasTec, Inc., which we acquired during the fourth quarter. NV2A is a construction management services firm whose principals we have known for decades, with a preeminent reputation for construction management of complex commercial projects, and well known for its work on aviation and C Corp projects. Prior to the acquisition, NV2A was our joint venture partner on our $600 million Miami Airport expansion project, which is the first phase of an estimated $9 billion construction program. NV2A deepens our expertise in construction management capabilities as we grow this sector, including data centers, and other mission critical facilities. During 2026, MasTec, Inc. also acquired McKee Utility Contractors, a third-generation family business and leading water infrastructure service provider. We believe water infrastructure is another structurally growing theme and are very excited about both McKee’s near and long-term prospects. I would like to welcome the McKee family to MasTec, Inc. These deals complement and enhance our existing infrastructure capabilities, and represent exactly the type of transactions that we target over time: firms led by strong management teams who see the value in joining MasTec, Inc. to scale their platform and enhance the solutions they can offer customers. We are excited to welcome our new partners to the MasTec, Inc. family, and expect them to hit the ground running and contribute to MasTec, Inc.’s near-term success. Turning to some segment highlights. In our Communications segment, fourth quarter revenue increased 23% year over year and EBITDA increased 16%, all organic, bringing our full year growth rates for revenue and EBITDA to 3241%. The telecommunications infrastructure market continues to evolve, with MasTec, Inc.’s customers pivoting rapidly with significant investments to support broadband delivery to enable enhanced artificial applications, while still working actively to support residential and commercial customer demand for broadband access via wired fiber optic and wireless mobility delivery nodes. Fourth quarter revenue was solidly above plan, including contributions from multiple top customers with robust funding for infrastructure deployment nationally, including upside in both wireless and wireline construction. The margin rate for the quarter was moderately below our expectations due largely to ongoing start-up costs on certain programs. We are confident that the trajectory of profit rates will be positive in 2026, in part due to the maturity in new programs and initiatives during the coming year. Turning to Power Delivery. Fourth quarter segment revenues increased 13% year over year and EBITDA grew by 9%, all organic. EBITDA margins were moderately below prior year at 8.2% versus 8.5% in 2024, which included mix headwinds from lack of storm-related revenue in 2025 and lower than planned Greenlink project volumes due to permitting-related delays that persisted through year end. Regardless, we are pleased with overall Power Delivery results for the full year of 2025, where we saw 16% top-line growth and solid 12% EBITDA growth despite those headwinds. We have strong confidence in the Power Delivery market outlook and for our ability to deliver strong growth in 2026. Fourth quarter backlog for Power Delivery increased an impressive 17% versus the prior year and 9% from the third quarter, ending the year at $5.6 billion, which is a new MasTec, Inc. record and continues a positive trend of unbroken backlog increases in Power Delivery since 2023. Additionally, and probably most importantly, during the first quarter, we received the go-ahead to restart the portion of the Greenlink project that has been stalled by permitting delays. This restart is happening earlier than we anticipated, and coupled with last quarter’s announcement that our Transmission and Sub group was awarded its second largest project ever, it provides us great visibility and confidence in achieving strong double-digit organic growth in this segment. Turning to our Clean Energy and Infrastructure segment, fourth quarter revenue and EBITDA were slightly ahead of our expectations in the quarter. For the full year, revenue growth was a strong 15% and EBITDA margins grew by 110 basis points to 7.4% versus 6.3% in the prior year. Total Clean Energy and Infrastructure backlog at year end increased 30% sequentially to $6.5 billion, which is also a step change of 53% higher than the prior year and book-to-bill 2.1 times. For the renewables group, we saw a tenth straight sequential increase in backlog, which increased by double digits in the fourth quarter. Turning to our Pipeline Infrastructure segment. We saw revenue increase 50% year over year for the quarter as business volumes continued to ramp sequentially since 2025, including an uptick from third quarter’s typically seasonally strong period. Also as expected, fourth quarter saw continued sequential margin improvement with an 18.5% margin, representing a 310 basis point lift from the third quarter, on strong operating execution and overall positive business mix. Finishing the year strong, we have confidence that 2026 will see further increases in both volume and profit dollars, and we are really excited about the market opportunity and pipeline for years to come. I said last quarter that I expect 2026 to be a solid growth year versus 2025, and our guidance includes this assumption. I remain even more excited, however, about the volume opportunities developing for 2027 based on current capacity planning discussions with our customers. With that, I will reiterate that we are very pleased with both our fourth quarter and full year results, and we are excited about the outlook for this year given the breadth of demand drivers for MasTec, Inc.’s businesses. While last year was successful overall, we remain committed to margin optimization on our existing business base and our 2026 guidance reflects this. We assume double-digit margins in Communications this year, around 100 basis point improvement in both Power Delivery and Pipeline, and fairly stable margins in Clean Energy and Infrastructure even with the inclusion of significant construction management volume in that segment this year. So further improvement in the core margins there as well. We are excited about the opportunity for MasTec, Inc. and our investors over the coming years, and thank you for your continued interest and participation. As always, our success as a company depends first on the commitment and dedication of our team, and I would like to thank the entire MasTec, Inc. team for their continued embrace of our corporate values of safety, environmental stewardship, integrity, and honesty, and for their focus on serving our customers with integrity and diligence to ensure great results. We win together. I will now turn the call over to Paul DiMarco for our financial review. Thank you, Jose, and good morning. As Jose mentioned, we are pleased with our strong fourth quarter results driven by continued organic revenue strength and solid execution across our operating segments. Looking ahead, our customers are increasingly relying on MasTec, Inc.’s broad service offerings to meet their rapidly expanding infrastructure development goals, giving us high confidence in the growth trajectory that we are outlining today and guidance for 2026. What is really compelling for us now is that our customer growth and investment plans intersect across virtually all of MasTec, Inc.’s businesses, and this reinforces our positive outlook. A few more notes on the fourth quarter and 2025 segment performance. Our Communications segment continued its trajectory of strong revenue growth in the fourth quarter, exceeding guidance by $139 million with 23% year-over-year growth for Q4 and 32% for the full year. This was driven by broad-based strength across both wireless and wireline, and included some contribution from middle mile work that we expect to further develop positively into 2026 and beyond. Fourth quarter EBITDA margin was 8.5%, a slight pullback from last year’s 9% result, reflecting our prior comments on the short-term impact of ramping new business volume. We are confident that as these investments mature they will translate to positive margin outcomes as reflected in our initial 2026 guidance, with double-digit Communication margins. Despite ongoing growth this year, we are beginning to mature some of these new businesses that came on stream in 2025. Fourth quarter Communications backlog totals $5.5 billion, which is an 8% sequential increase and a notable 20% year-over-year increase. Clearly, growth visibility is strong and continues to improve. Telecommunications end market broadly has numerous demand drivers, and our focus is on being selective with the opportunities we pursue to optimize returns. Success for MasTec, Inc. is no longer a function of just volume sourcing, but increasingly a focus on growth management. In that regard, as we grow our Communication service offerings, we are careful to nurture our legacy customer relationships while creating the space to serve new customers and new opportunities. This includes both residential and commercial end user markets, and making sure we are allocating resources efficiently. Jose provided a good overview of our Power Delivery performance that I will not repeat, but I would add a couple of points. First, we see a clear path to margin expansion in 2026 and currently expect year-over-year margin expansion in each quarter. Our base utility and distribution business continues to perform well, providing a solid foundation on which we can build operating leverage as volume grows. Second, our Power Delivery segment is contributing meaningfully to our supportive data center infrastructure, working for utility clients, data center developers, and hyperscalers on this front. We also expect Power Delivery to be a key beneficiary of our new role leading turnkey data center construction. The Clean Energy and Infrastructure segment, total Q4 revenue of $1.3 billion represented a 2% increase from the prior year inclusive of solid double-digit growth in the renewables business and slightly exceeded our segment guidance. Infrastructure and Industrial revenue was also in line with expectations, and we saw significant new business development for this group during the quarter to provide a very notable volume pivot for 2026. On a full year basis, revenue for CE&I was $4.7 billion, or a 15% year-over-year growth rate, including even stronger renewables growth for the year. Fourth quarter CE&I EBITDA margin was in line with our expectations at 7.2%, but somewhat lower than 8.3% in the prior year, which benefited from favorable project closeouts in our Industrial that were not repeated in 2025. Renewables margin was stable sequentially and up slightly year over year, as expected at the high single-digit levels, while Industrial and Infrastructure also saw solid overall performance. As Jose noted, CE&I saw a step function increase in backlog during the fourth quarter, reflecting significant contract signings across the segment. Infrastructure drove the 2.1 times book-to-bill achieved in the quarter with multiple large project wins, including the data center general contractor award discussed by Jose. These projects are expected to deliver substantial revenue contribution in 2026, also now factored into our guidance. The data center project will be executed under our general buildings vertical, still within the CE&I segment, but we may refer to this group’s results more specifically in the future. Renewables also continued its impressive streak of backlog growth, which now stands at over $3 billion for the eighteen-month period. Our visibility for renewables project activity extends much further, with projects under contract for work beyond the next eighteen months or under limited notice to proceed totaling over $4 billion incremental to our backlog. Although acquired backlog contributed approximately $300 million to the year-end CE&I totals, organic book-to-bill was still an impressive 1.9 times. Regarding the Pipeline Infrastructure segment, fourth quarter revenue of $644 million represented our highest quarter in the past two years. We finished the year with $2.1 billion in total revenue for the segment, which was notably stronger than our initial guide of $1.8 billion as the business inflected positively earlier in the year. EBITDA for the quarter of $119 million was driven by strong overall execution and project mix. Fourth quarter EBITDA margin of 18.5% is indicative of the steady-state margins this segment is able to generate in an expansion cycle. Regarding our overall progress with margins, we are pleased to have finished at a consolidated margin of 8% for 2025, with our non-pipeline segment generating margins of 8.2% versus 7.6% in 2024. As a reminder, full year 2025 margins reflected a slower start to the year, particularly in Pipeline, as well as certain headwinds we noted in the back half, particularly with Power Delivery. We still accomplished a strong outcome last year and met our guidance objectives. We regard this as a testament to our focus on execution and the strategic diversification and scale of MasTec, Inc. Everything does not have to go right in every period to deliver on our overall goals. We have highlighted a midterm goal of double-digit consolidated EBITDA margins; we are pleased that 2025 sets us up positively for further margin performance in 2026. As a side note, we are adding meaningful volumes to construction management contracts, including the new data center business we won in the fourth quarter. This business mix represents lower margins, but a high return-on-capital opportunity that we are very proud to execute. We also expect to subcontract many of the construction activities internally at margins comparable to work performed with external clients. We will work to provide some level of visibility into the margin progression of the base business from 2025 to the extent that our mix evolves materially going forward. In addition to the margin expansion efforts, over the past few years, we have highlighted our increased focus on return on invested capital, and we are proud to see this metric meet our weighted average cost of capital hurdle for the first time since 2021. We believe the growth and margin expansion opportunities presented by our portfolio of service offerings, coupled with disciplined capital allocation, will continue to drive returns higher in the years ahead. We generated cash flow from operations of $373 million in the fourth quarter and free cash flow of $306 million in the period, bringing the full year total to $546 million and $342 million, respectively. This was somewhat below guidance due primarily to our revenue beat for the quarter and associated working capital investment, as well as higher capital expenditures also to support accelerated growth. We ended the year with total liquidity of approximately $2.1 billion and net leverage of 1.7 times, well within the terms of our financial policy and criteria to maintain our investment grade credit ratings. We are pleased that our strong balance sheet provides ample flexibility to pursue a disciplined, return-focused capital allocation strategy. We plan to support our best-in-class organic growth opportunities, execute opportunistic and accretive acquisitions that complement our existing service lines, and deploy capital to share repurchases opportunistically, as has been our longstanding practice. We believe the recent M&A transactions are consistent with this approach and our multi-decade track record of solid M&A execution. Moving to our 2026 guidance. A supplemental guidance document for segment and other financial details is now posted to our IR website. For 2026 full year, we expect revenue of $17 billion, or about 19% growth this year on top of the 16% growth produced in 2025. Notably, organic growth is still expected in the mid-teens. Our 2026 revenue profile includes strong results from all segments, with meaningful growth in CE&I of around 35% driven in part by the expansion of our data center work. Pipeline Infrastructure is expected to grow revenue by 17%, Power Delivery about 11%, and Communications just under double digits, coming off the approximately 30% organic growth achieved in 2025. For adjusted EBITDA, we are forecasting $1.45 billion, or an 8.5% margin, representing 26% year-over-year profit growth and 50 basis points of margin expansion on a consolidated basis. This reflects margins of low double digits for Communications, mid-teens for Pipeline Infrastructure, approaching double digits for Power Delivery, and fairly steady margin at the high single digits for CE&I, with improving renewables margin performance offset by the higher percentage of construction management services. Adjusted EPS is forecast to be $8.40, an increase of almost 30% versus the $6.55 in 2025. Our guidance assumes acquisitions contribute approximately $500 million of revenue at high single-digit EBITDA margins for 2026. Cash flow from operations is anticipated to exceed $1 billion for 2026, consistent with our stated target of 70% EBITDA conversion. We expect about $200 million of net cash capital expenditures in 2026 as we continue to procure additional equipment to support planned growth. Our 2026 first quarter outlook reflects the concerted efforts we have made to continue to improve Q1 performance, with revenue expected to grow by 22% and adjusted EBITDA margins of just over 7%, 130 basis points higher year over year. We currently expect sequential revenue growth from Q2 and Q3, followed by the typical seasonal revenue decline in the fourth quarter. Q2 and Q3 should be our highest adjusted EBITDA margin quarters for the year. This concludes our prepared remarks. I will now turn the call over to the operator for Q&A. Operator: Press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. And our first question will come from Julien Dumoulin-Smith of Jefferies. Brian Russell: Yeah. Hi. Good morning. It is Brian Russell on for Julien. Good morning. Good morning. Hey. I was just wondering if you could elaborate on the new language on Power Delivery segment of approaching double-digit margins. What initiatives are ongoing to get there? Is it enhanced MSA or project work, or is it just a contribution of these higher margin transmission projects? Paul DiMarco: We have been consistent that we think the goal for our Power Delivery segment is double-digit margins. So this is just a continued progress towards that. There has been a lot of focus on execution of the base business, which, as I mentioned, is performing well. And then we had some starts and stops last year that obviously caused some inefficiency and eroded some of the margin appreciation that is achievable. So we are not foreseeing those this year. We think the base business is performing well. I think we will get operating leverage as some of the larger projects begin to materialize in a more meaningful way. And we think it is the natural step towards our stated goal of consistent double-digit margins for the segment. Brian Russell: Okay. Great. And then just second on CE&I and the turnkey data center project. Could you elaborate? You mentioned $1 billion, but over what time frame? And, you know, who is kind of the customer, and is this the first of many to come? Jose Mas: Yeah. Sure. So a couple things. The $1 billion was not all the turnkey jobs. So we have been doing a lot of other data center work. Right? So we have really focused on our civil power infrastructure businesses that have been doing data center work for years. So, you know, hundreds of millions of the billion were related to that. Obviously, the turnkey site helped move that. We are not in a position to be able to disclose much details around the project or the customer. We expect that job to be concluded in 2027. So between 2026 and 2027, those revenues will be earned. And we do think it will, you know, as the job progresses, we think there is tremendous opportunity for us to continue to grow on that type of business, and we think the market for that right now is incredibly strong. Brian Russell: Great. Thank you very much. Operator: Our next question will be coming from the line of Andrew Kaplowitz of Citi. Andrew, your line is open. Andrew Kaplowitz: Good morning, everyone. Morning, Jose, so it seems like you are still as or more confident regarding your pipeline business. But, obviously, as you said, going to be more book and burn moving forward. So just did you see any delays in terms of project timing versus what you have been thinking? And then on the margin side, given the second half 2025 performance in pipeline and the higher estimated revenue in 2026, is not mid-teens margins for 2026 conservative? You know, if the market kind of develops as you think? Jose Mas: Yeah. I will start with the second part of the question. Right? I think we have always guided mid-teens in our pipeline business. I think that is the appropriate level to come out with the guide. I think our objective is to beat that. I think historically, we have outperformed that and hopefully, the opportunity is there to do it again. As it relates to revenue with pipeline, I would argue that the our visibility is actually improving. So to me, the number of opportunities, the number of verbal awards, the number of negotiations that we are in the middle of, I think every quarter that passes, our confidence just grows in our ability to continue to grow that business and see a really much longer term of elevated levels than we probably initially expected. Andrew Kaplowitz: It is helpful then. Obviously, you are still putting out strong growth in Communications and expect to do so in 2026. When you think about breaking down that growth between sort of traditional fiber to the home, do you have anything in BEADs for 2026? And, you know, how should we be thinking about that fiber to the data center opportunity or middle mile broadband? Is that also getting to be bigger than you expected? Is that in 2026 at all? Jose Mas: The short answer is yes. Right? I think, you know, breaking it down we do not have tons of BEADs built into 2026. I think BEADs, I think what we are seeing there is we are becoming more bullish on BEADs. I think BEADs is going to be much larger than we had originally anticipated, and the opportunity is going to be larger for us. But I think that will predominantly be 2027. One of the opportunities that we have is some of that stuff does push into 2026. That could be very constructive to the business. But, you know, look, we are seeing every one of our customers pursue multiple business strategies. Obviously, everything that is happening around data centers and connectivity to data centers is an important driver for that. We are getting our share of that, and we think that the market is growing substantially for that as well. So very broad-based opportunities. We had an incredible year of growth in Q2 2025. We are assuming a more moderate growth profile in 2026. But, you know, we were surprised in Q4 with the level of activity. I think revenues were about 20% higher than what we guided for Q4. So, you know, got a lot of good opportunity to outperform in 2026. Andrew Kaplowitz: Thanks, Jose. Jose Mas: Thanks, Andy. Yeah. Operator: And our next question will be coming from the line of Jamie Cook of Truist Securities. Your line is open, Jamie. Jamie Cook: Hi, good morning, and congratulations on multiple fronts. I guess two questions for you, Jose. The first question is just the visibility that you have beyond the eighteen-month backlog that you report. You know, I am just trying to understand how great that is and which segments do you have above-average visibility. And then I guess my second question, I think on the call you mentioned that you saw the pipeline business being able to achieve or exceed prior peak, which I think was $3.5 billion. Under what time frame do you think that would be reasonable? Thank you. Jose Mas: Sure. Thank you, Jamie. So a couple things. I would say, you know, maybe with the last part of the question first, we have talked about hitting historical highs in pipeline revenue as early as 2027, so in the near term. Again, we see that business shaping up incredibly well. When we think about backlog in general, right, I think Paul alluded on his prepared remarks about the $4 billion of notice to proceeds that we have in renewables that are not in backlog. Right? So we actually have more in LNTPs than we do in actual backlog, which is a remarkable statistic. And I think that visibility is amazing. Right? I think even within stated backlog, we have projects. I think we won our largest project ever in the renewables business at the end of last year. Only a portion of that project is in backlog, only the eighteen-month portion of it. When we think about Comms and, you know, what we are currently seeing in BEADs and the potential there, I think it is going to lead to significant backlog expansion as we think about 2026. In Power Delivery, the level of transmission jobs that we are seeing and the demand for transmission is just off the charts, which I think is going to also lead to some pretty sizable increases in backlog as the year progresses. So overall, when we look at all the segments, we are just really optimistic again, not just about 2026, but what the future holds. Jamie Cook: Thank you. Operator: Our next question will be coming from the line of Philip Shen of Roth Capital Partners. Your line is open, Philip. Philip Shen: Hey, guys. Congrats on the great results here. Wanted to talk about Greenlink and to get a little bit more color there. Jose, could you share, like, the relief that you got, was that all that you are looking for? Meaning, this project is a full go now, or are there other milestones that we should be thinking about in terms of permitting relief or milestones in general? Thanks. Jose Mas: Sure. So on Greenlink, in 2025, obviously the first portion that we really started on ended up being delayed with permitting. Those permits have been fully cleared. So the beauty of that is we get to go back to work on that initial phase that we were supposed to start. It is a long-term job, so not all permits are in. So there are some permits for the latter part of the jobs that still have to come in. I think the level of confidence around those, especially with clearing this issue, has increased significantly. So we feel really good about the progress on that job, what we think needs to happen for us to ultimately complete that on time. And I think this is just, again, it happened a little bit earlier than we thought in the year, so we are excited about it. And I think it bodes really well for, again, not just 2026, but how that job is going to set up for the next few years. Philip Shen: Great. Thanks, Jose. And then back on the data center job, of the billion dollars, how much do you think you guys self-perform versus outsource? And then just as a follow-up, you know, how much more is there behind this? I know you may have touched upon this a little bit earlier, but do you think we could see more of these billion-dollar general contractor jobs later this year, or do you think we have to wait till next year? Thanks. Jose Mas: Yes, so a couple of things. I would say that, again, you take the $1 billion, you break it out between what we have historically done, which is a couple of hundred million dollars. I would say all of that is self-perform, which is the work that we have been doing. When you look at the balance of that on this particular project, we were brought in kind of late where a lot of the actual work functions had been selected with different contractors, so we kind of took them over. So our ability to self-perform on this first project was somewhat limited. Again, we think, you know, one of the beauties of this is we think we have got a huge competitive advantage and we are one of the very few contractors in the U.S. that has significant experience in construction management and civil and power and telecom and maintenance and all of the attributes that you need to make up a data center job. So I think that, you know, customers are beginning to see that. We are getting a lot of opportunities related to full turnkey work with the ability to self-perform, which really changes the margin profile of those jobs on a go-forward basis. I think we are going to responsibly grow into it. This is hopefully the first of many. And we do expect further wins in 2026. Philip Shen: Great. Thanks, Jose. Jose Mas: Thanks, Phil. One moment for our next question. Operator: Our next question will be coming from Sangita Jain of KeyBanc Capital Markets. Your line is open. Sangita Jain: Can I ask a question on the large transmission project that you booked in the fourth quarter? Can you help us with some details on how long you think that project will take to burn? I know for Greenlink that target was four years. I am just trying to see if it is a similar duration or shorter. Jose Mas: Hi, Sangita. So it is a smaller project. It will be a shorter duration. It starts, you know, probably the second part of the summer in this year, and it will probably go on for about two years. Sangita Jain: Got it. Helpful. And then on a broader level, can I just ask about margins? Your revenue growth has obviously been very strong. Margins are expanding, but they are kind of lagging your expectations. So I am wondering if there is a structural barrier that prevents operating leverage from coming through. If it is labor productivity or I do not want to prejudge. I want to, but I would love some color from you. Jose Mas: Yeah. Look. We have talked a lot about it during the year. I think, which I think is one of the positives as well, right, is that most of our growth in 2025 was organic. And when you grow organically, it takes a lot to open new offices, to build, to grow your workforce base, to invest in not just working capital, but in the equipment necessary to grow. So, you know, we think we put up, you know, mid-teens growth rate both for 2025 and even on an organic basis what we expect 2026. Even if you back out the acquisitions in 2026, we are expecting, you know, mid-teens organic growth in our business. Those create challenges. They create challenges to optimize margins in a period. I think as we get bigger and we see some of those initial businesses start to mature, which we are already seeing, margins kind of take care of themselves. So we are very bullish about our ability to improve our margins in things like telecom, which, quite frankly, you know, again, we beat fourth quarter revenue by 20% versus our guidance, which is just, again, another remarkable number, but that slightly impacted margins negatively. Right? When we look at this year with some of the things that we were expecting to happen on Greenlink and did not come through, it slightly impacted the margin capabilities we had in that business. But when you look at 2026 guidance for both of those, you know, strong growth years from a margin perspective in both of those. Our CE&I, right, I think is progressing incredibly well. We were up 110 basis points on a year-over-year basis from 2024 to 2025. If you take the base business, we are expecting further margin gains in 2026, but it is offset by some of the construction management and data centers. And then when you look at Pipeline, right, it is all a function of size and how we are going to build up to where we think we can get to. If you take just Pipeline growth, if we get back to historical highs in revenues, quite frankly, you know, it almost, because of the mix, it almost takes us to double digits as a total company. Now, you know, total company margins on the longer term are going to be somewhat dependent on mix, are going to be somewhat dependent on how much we grow certain portions of our business and where they land. And we are paying a lot of attention to that. Right? And we are really trying to maximize the returns on our investment and our ability to execute at a high level. But look, as happy and as excited as we are about the growth story, we are super focused on the margin improvements across the company. And I think we have got real potential. I think we have got real potential to significantly impact those. And I think that creates as much, if not more, value than the revenue growth that we are going to deliver. Sangita Jain: Perfect. Thank you, Jose. Thank you. Operator: Our next question will be coming from the line of Steven Fisher of UBS. Your line is open. Steven Fisher: Thanks. Good morning and congrats on a successful 2025. And just to follow up on Sangita’s question there, but keep it more specifically focused to the Communications segment. Could you just give a little bit more detail on the better margin expectations you have there? I know you mentioned about certain elements of the business that are maturing. Can you talk about which aspects of the Comms opportunities are seeing that maturing? Is that overpull work? Or is it the BEAD work? Or, I guess you say you do not have a lot in there. But what are the key initiatives that you are talking about that could really help margins? And what are you doing with the hiring in the Comms business? Because it seems like maybe some of the absorption there is maybe a bit of a drag. Jose Mas: Yes, Steve. I would push back a little bit. Right? Because I would say if we look at Comms in 2025, the business was up on a full year basis. We were up 32% in revenue, organically. The most mature business in MasTec, Inc., the longest business in MasTec, Inc., was up 32% organically in revenue in 2025. And margins improved 60 basis points year over year on 32% growth. Now we would have liked to have seen margins improve more, no question about it. But we still saw improvement. When you look at 2026 guidance versus where we ended up in 2025, we have got just shy of a 100 basis point improvement in that business yet again, on what will be strong growth. So, you know, I would argue that we have done a really good job of managing the growth and improving margins along the way. But this is where we have made significant investment, opened new offices, and it takes time for some of those businesses to mature. This is why we are starting to see the maturity of those businesses. We are starting to see the improvement of those margins, which on a year-over-year basis, margins improved 60 basis points. Yes, fourth quarter was a little lighter than we expected, but, again, we beat revenue expectations there by 20% versus what we guided. So I think we are well on our way. I think the business mix is perfect. I think, you know, we have got, again, tremendous opportunities. And, by the way, we talked about BEADs being a huge opportunity going forward. I think we see that in 2027. I think we have yet another really, really strong growth year in 2027, probably much stronger than 2026 because of what is going to happen in BEADs. But we are super focused on margin appreciation there. I think we delivered some of that in 2025, and we will deliver more of that in 2026. Steven Fisher: Okay. That is fair. And then just in terms of the overall 2026 plan and how it is covered in backlog, obviously, you had some really good backlog growth here. Just curious, how well covered do you think on your 2026 plan you are covered at the moment? Where do you think you still need to see more bookings? I know we have talked about on the Pipeline business, it is sort of closer to the burn when you book it, but just kind of what still has to happen to deliver the plan? Jose Mas: I mean, when we look back for, you know, as far back as I can remember, I do not think we have ever been in a better position going into a year based on revenue guidance versus where we stand with backlog. So I would argue that this is, you know, I am not going to use the word conservative, but I think this is one of the best big plans that we have got relative to what our revenue expectations are with what we currently have in hand. Steven Fisher: Sounds good. Thank you. Operator: And our next question will be coming from the line of Justin Hauke of Baird. Your line is open. Justin Hauke: Oh, great. I have got one more on the margin questions. I guess, to add the mix. But, you know, overall, you are calling for 50 basis points of margin expansion. I guess I was just curious. I mean, you are going to tell me all your segments are, you know, going to see expansion this year. But is there anything, you know, in particular, you know, mix-wise, you would say, you know, some higher and some lower, you know, given the moving pieces, maybe the construction management stuff on the data center work that you said, you know, lower margin. Anything to kind of help think about, you know, the trajectory in 2026 with the segments. Thanks. Jose Mas: Yeah. So again, I mean, we expect, you know, Comms and Power Delivery to be up on a year-over-year basis from a margin. I think we have been very specific as to what the, you know, what the opportunities are in 2026 versus what it was in 2025. The Pipeline business is obviously growing. Again, we have a step change function there in 2027 from a revenue perspective. So while margins will be good in 2025, they will not be optimal because we will be making a lot of investments—oh, I am sorry—in 2026 we will be making a lot of investments into what is coming in 2027. So that is kind of why we have guided to where we have guided. Then when we think about, you know, Clean Energy and Infrastructure, I mean, we are not, that is probably the one business where we are not calling out, you know, margin appreciation on a year-over-year basis. It is more flattish. While the base business is improving, the construction management business will be a drag on that relative to the total margins of the segment. So I think, you know, keeping margins there flattish is a good story with the opportunity of, you know, further growing our self-perform opportunities around that new business and then enhancing through that. So I think that is how 2026 is going to shake out. Justin Hauke: Yep. Perfect. No. That is helpful. Second one, pretty easy one here, but I just want to clarify. In the guidance, there is a big uptick in the non-interest. I assume that is the water/wastewater acquisition you did post quarter, but I just wanted to clarify that there was not anything else that was driving that. Paul DiMarco: That is the change for 2026. Yes. Justin Hauke: Perfect. Thanks. Jose Mas: Thank you, Justin. One moment for our next question. Operator: Our next question will be coming from Ati Modak of Goldman Sachs. Your line is open. Ati Modak: Hey, good morning. Jose, can you talk about the vision you have with these acquisitions, the NV2A, how that integrates into the data center market? And then the decision to step into water infrastructure, what is your vision with that? You know, how big is it today? How big could it get? And should we expect you to remain acquisitive in these areas? Jose Mas: Yeah. So let us start with NV2A. Well known to us. They were our partner on a big project we currently have. You know, it was an opportunity that presented itself where one of the partners was interested in selling, and that started a dialogue where we ended up deciding to acquire the entire business. Tremendous opportunities on the current projects we have with the size of what those projects will be in the future. That in and of itself made an enormous amount of sense for us to pursue those acquisitions. And then I think as that develops, you know, obviously, some of these other construction management opportunities presented themselves, and we think they have incredible depth and strength and bring a lot to the table that are going to help us there as well. So we think fundamentally, just based on their historical business, it was a great deal. And when you look at all the complements that we get in addition to that, we think it is going to be a fantastic deal for MasTec, Inc. On the water side, look, we think water is a theme that is going to grow like crazy. I think we are going to have all kinds of issues this year with, you know, some of the snow patterns and where they fell and where, you know, there are going to be a lot of markets that are going to have water issues. A lot of what we are seeing around data centers across the country are demanding more water use, which is forcing municipalities to rethink how they are providing water and the revenue opportunity for them to provide water into new projects. When we look at their business, they have had tremendous growth. But, quite frankly, when you look at their outlook and the opportunities that they are chasing, their growth potential is probably as good or better than anything else we have in all of MasTec, Inc. And we are going to support them and help them achieve that, and we are super excited. We think it is a great management team that has built a great company. And we are really looking forward to supporting them. I think that, you know, again, we think it is a great theme. As the theme develops, as we get a better understanding of that market, I think there are going to be a lot more opportunities there to grow off of. Ati Modak: Very helpful, Jose. And then what would you highlight in terms of the expectations we should have with the Investor Day in May? Jose Mas: Look. We are excited to do it. We have not done one in a really long time. I think we are going to talk a lot more about, you know, longer-term outlooks, maybe longer-term targets relative to what we do on these calls. So, you know, we are excited to do that. You are going to get an opportunity to meet a significant portion of our management team and really understand, you know, how we are thinking about the mid and long term as a business. Ati Modak: Awesome. Thank you. Operator: And our next question will be coming from Manish Samaya of Cantor Fitzgerald. Your line is open, Manish. Manish Samaya: Thank you. Good morning. Jose, first question for you. You gave us your margin outlook for 2026. And I was wondering, you know, when you look at your daily, weekly dashboard, what are some of the things that you are looking at by segment to ensure that everything is on track? Jose Mas: Yeah. Look. At the end of the day, our business is not that complicated. Right? Everything starts at a field level. It starts with a widget that is getting installed. And our ability to enhance the productivity of those widgets is what really changes profitability as an entity. So, you know, how we measure and how we incent at that level is the most important thing that we do as a company. I think, you know, Paul has talked a lot about a lot of the technological advancements that we are trying to make to further provide better information, more real-time information, which I think makes a big difference. But, you know, that is our team’s focus every single day. And I think that, again, you know, we have got a lot of balls in the air. We are growing very rapidly from a top-line perspective, but we cannot take our eye off what, you know, makes us money each and every single day. And I think our team is doing a great job of being focused on that and are really trying to improve that on a day-to-day basis. Manish Samaya: Second question for you and Paul. Paul, maybe if you can just help us bridge the operating cash flow from 2025 to 2026. And then, Jose, obviously, you are guiding to leverage in the low 1s. How should we think about capital allocation between, obviously, tuck-in acquisitions, as well as share buybacks and other initiatives you might have? Paul DiMarco: Yeah. So on the operating cash flow question, Manish, it is really just going to follow the cadence of revenue growth. And we expect to have, as I mentioned, you know, sequential growth Q2 and Q3 followed by a fall-off in Q4. We are not assuming any major change in DSO from year end at 65 days for 2025. And so it is just the expectation around working capital investment relative to the revenue generation. And the year-over-year impact really from Q4 2025 to Q4 2026 is, you know, a big piece of that. So there is not a major change in our expectations from where we finished the year. It is just about timing of current expectations of revenue timing that drives the $1 billion cash flow from operations. And, again, it is consistent with what we have stated for a long time, which is that we think we can do 70% EBITDA conversion to operating cash flow consistently. You know, this year, the growth, the timing of the growth, put a little bit of headwind on that, and we think it normalizes in 2026. Jose Mas: Yeah. Maybe to the second part of the question, you know, I would say, look, first and foremost, we are focused on taking advantage of the organic growth opportunities in front of us and investing in those. I think that when we think about, you know, really adding to the platform of MasTec, Inc. and bringing in partners, there is tremendous opportunity. Right? I think there is so much demand in our industry today that our ability to meet it enhances with looking at M&A and, you know, I think we are going to continue to do that. I think we took a period of a couple of years post some very large acquisition for us in Infrastructure and Energies—Henkels & McCoy and IEA—where, you know, a lot of our focus was consumed on the integration of those acquisitions. I think that is well past us. I think we have demonstrated that. And I think that, you know, we are in a position today where we can take that on and really make that additive to MasTec, Inc. So if anything, I think you will see us be more acquisitive rather than less, and for sure more than the last couple years. It has been part of our story since inception and something that, you know, you will probably see us do more regularly than you have in the last couple of years. Manish Samaya: Any specific segment, Jose, as far as tuck-ins? Jose Mas: Yeah. Look. Again, I think there are areas of every segment that we are in that we think make sense for us. So it is measuring the opportunity, quite frankly, versus being opportunistic in those. So, you know, the values are also high. Right? People’s expectations of values have increased significantly. So finding the right balance between those two is what we are going to try to achieve in MasTec, Inc. Manish Samaya: Okay. Thank you. Thank you. Operator: Our next question will be coming from Joseph Osha of Guggenheim Partners. Your line is open. I am sorry. Guggenheim Partners. Joseph Osha: Hello. Can you hear me? Operator: Yes. We can hear you. Joseph Osha: Yep. Yeah. Hey. Good morning. Thanks. Two questions. Following a little bit on some previous ones, looking at the data center opportunity in particular, I am wondering if there are any particular skill sets or capabilities you feel like you might want to fill in? And then looking at Communications, there has been some wireless infrastructure rip and replace in that segment in the past. I am wondering how much of that is there going forward, or whether we are mostly looking at FTTH and obviously BEAD in 2027. Thank you. Jose Mas: Yeah. So a couple of things. On the data center side, obviously, we do not have the functions today to self-perform everything. But I think that we have the ability to self-perform a lot, more than most, I think, again, gives us a tremendous advantage. To the extent that the opportunity is there to consider doing more there, we would. On the wireless side, you know, I think we are in the midst of that rip and replace for our large customer. I think we are going to see a lot more deployment starting in 2027 relative to new spectrum, which is going to help that industry considerably. So we are, you know, we are still as excited about wireless as we have always been. Joseph Osha: Okay. Thank you. Operator: And our next question will be coming from Brian Brophy of Stifel. Your line is open, Brian. Brian Daniel Brophy: Yeah. Thanks. Good morning, everybody. Thanks for squeezing me in here. I guess I will just go with a quick one. CapEx is notably lower than a year ago. Can you talk about the drivers there? Or the 2026 expectation, excuse me, is notably lower than a year ago. Paul DiMarco: Yeah. I mean, I think it is just a function of where the growth is coming from. We talked about investing a lot in Pipeline ahead of the cycle. A lot of the jobs we are working on right now kicked off in the back half of 2025 and current equipment related to those. Clean Energy segment, where we are seeing the highest growth in 2026, is the least capital intensive. So some of it is just a function of that. You know, we are obviously prepared to continue to invest, and that is our view today. To the extent that project needs or demand opportunities require more CapEx, we have got the flex to do it. Brian Daniel Brophy: Appreciate it. I will pass it on. Operator: Our next question will be coming from the line of Mark Strouse of JPMorgan. Your line is open, Mark. Mark Strouse: Yes. Good morning. Thanks for squeezing me in here. Maybe just on that last point on renewables. Clearly, you are seeing very strong growth. Just curious, can you talk about your market share, your win rates? Is this a function of kind of just the number of opportunities increasing? Or do you think kind of a function of projects getting bigger and more complex that you are taking share as well? Thank you. Jose Mas: I think it is a little bit all of the above. Again, coming off of the IEA acquisition, we took a lot of time to really focus our efforts around going after customers that we thought we could build meaningful relationships with that would matter over time, and I think we have done that. You know, we have got alliance agreements now with what we think are some of the best developers in the business that have, you know, long-term plans that are very solid, and our ability to have integrated within their systems and really build an expectation of both our labor and their work over a long period of time gives us tremendous visibility. So I think that has helped us. Right? I think today we are a top-tier contractor for both wind and solar. And we are very bullish about the long term of that business. Obviously, at times, it becomes very political. We think there is tremendous visibility through 2030. And we think that as we see the prices and what some of the new generation is pricing at, we actually think that renewables are going to be competitive on a price basis long after 2030. So we think it is a great market. We think it is a market that has got tremendous potential and, again, as Paul alluded to earlier, we have got, you know, a ton of what we would call shadow backlog, which is backlog we know we are going to convert. So, you know, we actually think backlog in that business could increase in 2026. Operator: And our next question will be coming from the line of Liam Burke of B. Riley Securities. Your line is open. Liam Dalton Burke: Thank you. Good morning, Jose. Jose Mas: Good morning, Liam. Liam Dalton Burke: Jose, your projects have become larger and more complex. Are you seeing less competition and better, more favorable terms as you renegotiate or enter into some project agreements? Jose Mas: Well, I think the whole industry is. Right? Customers understand the challenges that they face relative to labor. I think, you know, obviously, we have always said we think terms improve before pricing does, and I think we have seen terms improve considerably over the last few years. And I expect that to continue and, you know, as we are all dealing with the demand, I think pricing is also getting better. So I think we are in a good place as an industry. Liam Dalton Burke: Great. Thank you. And really quickly, you highlighted middle mile activity in the telecom segment. Is that data driven, or what is driving that activity? Jose Mas: Yeah. Look. I think our customers are looking to grow. Our customers are looking for all the opportunities in front of them. So some of it is data center driven. Some of it is onshoring driven. There is, you know, lots of demand for connectivity. And to the extent that our customers win that demand, it requires large infrastructure buildouts for them, and that is kind of what we are talking about. Liam Dalton Burke: Great. Thank you, Jose. Thank you. Operator: And our last question will be coming from Maheep Mandloi of Mizuho. Your line is open, Maheep. Maheep Mandloi: Hey. Thanks for squeezing me in. Congratulations on the quarter here. Maybe just two quick ones. First, just on Communications. Can you maybe guide how much of that would be exposed to office buildings or commercial customers? And secondly, on M&A, it kind of laid out pretty well on previous questions here. But just curious if you have any thoughts on spending some of the equipment yourself which might be in tight supply in the market here? Jose Mas: Yes. So relative to office buildings and commercial buildings, obviously, they are customers of our customers. So I think, you know, I do not think that has been a key driver of the business. I do not think there have been large expansions of either of those across the country over the last couple years. But, obviously, connectivity is important for everybody and to the extent that anybody needs connectivity, it is a potential customer for our customers. From an M&A perspective, look. We have not looked at getting into manufacturing. We think, you know, our business has been strong. We have really strong demand and really good partners that can support us in that. So we have not seen the need to do that. Maheep Mandloi: Appreciate it. Thank you. Operator: And I would now like to turn the conference back to Chris Mecray for closing remarks. Chris Mecray: All right. Thank you, everybody. That concludes today’s call. Thanks for participating. And as a reminder, visit our Investor website for a replay and transcript, which will be posted when available. Have a great day. Operator: And this concludes today’s program. Thank you for participating. You may now disconnect.
Operator: Good day, everyone, and welcome to the Calumet, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to John Kompa, Investor Relations. Sir, please go ahead. John Kompa: Thanks, Jamie. Good morning, everyone. Thank you for joining our call today. With me on today's call are Todd Borgmann, CEO; David A. Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, President, Specialties. You may now download the slides that accompany the remarks made on today's conference call. The slides can be accessed in the Investor Relations section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours. Turning to the presentation, on slide two, you can find our cautionary statements. I would like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. As we turn to slide three, I will now pass the call to Todd. Todd Borgmann: Thanks, John. Good morning, and welcome to Calumet’s fourth quarter 2025 earnings call. 2025 is a defining, high-impact year here at Calumet. We began the year with a credible plan and large potential amidst deep market uncertainty. Throughout the year, risk was aggressively managed and execution of our strategy turned Calumet’s potential to actualized results. We opened the year with a mandate to demonstrate critical strategic objectives. First, we needed to demonstrate that our Specialties business would consistently generate durable free cash flow amidst large market uncertainty. Second, Montana Renewables needed to prove stand-alone financial resilience and a structural advantage. Third, we needed to receive the transformative DOE loan at Montana Renewables. And last, accomplish material deleveraging of the balance sheet. As we reflect on 2025 today, I believe Calumet achieved each of these strategic milestones. Over the course of the year, we reduced financial risk, expanded our structural earnings power, and repositioned Calumet for long-term value creation. Let me walk you through some of the highlights, and we will start with the balance sheet. We ended 2024 with restricted group leverage standing above 8x. We faced near-term maturities and elevated cash interest costs. Montana Renewables was awaiting DOE funding and the broad equity markets were hesitant to engage with fundamental value plays like ours. Today, that picture is very different. For full year 2025, we delivered $293 million of adjusted EBITDA with tax attributes, nearly a 30% increase year over year. We reduced restricted debt by more than $220 million. Net recourse leverage improved from 8.2x to 4.9x. We eliminated our 2026 and 2027 debt maturities, and Montana Renewables successfully closed its DOE loan, removing roughly $80 million of annual cash debt service while also improving its leadership position in this industry. The outcome was a fundamental shift in financial durability. This outcome was driven by structural improvements. Across the system, we dramatically reduced costs and drove increased reliability. Fixed costs were down over $40 million. Water treatment costs at Montana Renewables were down over $20 million, as were our crude transportation costs in the Specialty business, greatly enhancing feed flexibility and our ability to dial in specific specialty products for our customers. And as a result of improved reliability and fewer repairs, capital spending was also reduced by roughly $20 million. At the same time, our ops team increased production by roughly 1.3 million barrels on the year. Results like this come from an entire organization working towards a common goal. And I thank our employees for accepting the challenge to responsibly attack costs, including our 900-plus teammates in the field; our ops excellence team, which is relatively small but pound-for-pound exceptional; our finance team that made a step change in partnering with our sites and making information readily available; and more broadly, everyone who leaned in to owning and accomplishing this company-changing priority. Looking ahead, I believe there is more opportunity on both cost and reliability. Our company has been operating the current asset base for a little over three years, and during each of these, our team has delivered stronger production and lower operating costs. We expect that to continue in 2026, despite what is going to be a very heavy turnaround year. Let us turn to slide four. The operational improvements we just discussed are more than just volume and costs. Layering that capability on top of our leading commercial platform that has been built out over decades provides our sales team more volume and flexibility to support customers. We produced record levels of product in our Specialty Products and Solutions segment in 2025, and our commercial engine more than kept up, as we sustained material margins above historic norms despite softer macro conditions in the broader specialty chemicals industry. Our team places material successfully to new homes consistently. Specialty sales volumes exceeded 20,000 barrels per day during every quarter of the year. The continued results in this business reflect years of investment, commercial excellence, culture and talent, integration of Performance Brands, targeted reliability and mix improvement initiatives, and disciplined capital deployment. Our integrated asset network and ability to dynamically shift production into the highest value markets continues to be an advantage. And our extremely high customer experience scores are the result of a differentiated passion for customers, which is a core Calumet value. Turning to slide five, we see that Montana Renewables also enters 2026 in a much different position than a year ago. Throughout last year, we reached a new level of operational reliability and cost competitiveness, demonstrating a financial leadership position in one of the most compressed renewable diesel margin environments on record. Operating costs averaged $0.41 per gallon in the second half of the year, a 60% improvement over two years ago. Further, we monetized more than $90 million of production tax credits, which was essentially everything we made, and we are pleased to see the 45Z regulations progress in early 2026. On a strategic front, two quarters ago, we announced our streamlined MaxSAF 150 expansion would be bringing 120 to 150 million gallons of annual SAF capacity online at a fraction of the originally contemplated cost. In last quarter’s remarks, we mentioned roughly 100 million gallons of new SAF contracts at $1 to $2 per gallon premium over renewable diesel in final review with the DOE. These contracts are now complete, with more in process that will lay in to support our volume ramp. These contracts are all multiyear and they include increased take-or-pay volumes from existing customers, new physical SPK off-takers, book-and-claim, and blended SAF off-takes combined with contracts for scope 1 and scope 3 credits, which opens up premium renewable markets globally that complement the strong local markets we serve in Illinois, Minnesota, the Rockies, Canada, the Pacific Northwest, and California. Montana Renewables will begin its turnaround and MaxSAF 150 project next week and remain down through late April, at which point we will rebuild inventories and begin ramping up SAF production and serving these new customers. The regulatory environment for biofuels also continues to improve. I mentioned the 45Z rules are now clarified out for final comment. Further, and with plenty of press, the new Renewable Volume Obligation is expected imminently. We anticipate that a stronger RVO will improve industry utilization and margin improvement as idle facilities are expected to be required to restart to meet increased mandates. Restarting production to meet demand volume is a very different and much improved market dynamic than one where companies are hanging on at variable costs while waiting for the rules to shift. In fact, we have already seen improvement in the index margin on both the back of this expectation and the 2024 RIN carry-forward overhang drifting into history. An increased base level of industry RD margins would be a welcome change for all. At Montana Renewables, we are excited to stack on top of that the added margin from increased SAF as we complete our project in the second quarter. With that, I will turn the call over to David. Thanks, Todd. Turning to slide six. David A. Lunin: Overall, our quarter and full year results were strong both financially and strategically. We generated $69.3 million of adjusted EBITDA with tax attributes in the quarter and $293.3 million for the full year 2025. Each segment contributed meaningfully to our financial results. We saw continued momentum and record production both in our SPS segment and Montana Renewables, as well as continued outperformance and growth in our Performance Brands segment. Our strong earnings results during the quarter also allowed us to reduce restricted group indebtedness by nearly $80 million in addition to the $220 million that was reduced for the full year 2025. Before I get into more details, I wanted to highlight our planned capital expenditures for 2026. We are forecasting total CapEx of $115 million to $145 million for all of Calumet, of which $70 million to $90 million is in the restricted group. This is $30 million to $40 million higher than normal, primarily due to a heavy turnaround year, which is scheduled maintenance at Shreveport, Cotton Valley, Princeton, Karnes City, and Great Falls. Despite this, we expect total company production to increase year over year on the reliability improvements implemented over the past few years. Looking at our Specialty Products and Solutions segment on slide seven, both our quarterly and full year results reflected the continued benefits of our commercial excellence initiatives and totaled $88.5 million for the quarter and $291.8 million for the full year. The team continues to leverage the inherent optionality in our manufacturing network to place volumes where they can generate the most value while serving our diversified customer base. In fact, more than 50% of our customers buy more than one product line from Calumet, and many are long-term customers because of our unique ability to meet their product specifications. Both our quarter and full year reflect a favorable product mix. Even with certain specialty markets demonstrating some softness, our sales team has continued to place our products at over $60 per barrel margin. The benefits of our past reliability investments can also be seen in our strong operations, as we have had five consecutive quarters of specialty volume greater than 20,000 barrels per day. It was also the second consecutive quarter of record production. With our cost reduction initiatives and increased production, our fixed cost per barrel declined by over $1 per barrel versus the prior-year period. Finally, our steady production environment again enabled us to capture a stronger crack environment as fuel margins increased significantly year over year, which we view as upside to our integrated model. As I mentioned last quarter, we gained access to a new crude oil chain earlier this year, including the ability to target specific segregated or blended crudes in Cushing and further north in the DJ Basin, and at the same time, reduce our pipeline count. In 2025, this improvement drove about a $19 million decrease in transportation costs and provides even further ability to dial in our assets and feed to a specific use. In our Performance Brands segment on slide eight, we also saw the benefit of our commercial excellence initiatives, strong and growing brands, and integration capabilities. Adjusted EBITDA was $5.4 million for the quarter and $47.9 million for the full year 2025. Keep in mind that fiscal year 2024 includes a full year of Royal Purple Industrial results and that the Royal Purple Industrial business was sold in 2025. Adjusting for the divestiture and insurance proceeds received, 2025 was the third consecutive year of growth in the segment as we offset the lost contribution from RPI through growth and cost reduction. One of our standout product lines is once again our TruFuel business, which posted another record year. This ready-to-use fuel engineered for outdoor power equipment is available for four-cycle and two-cycle engines, and the product continues to resonate with consumers and first responders considering its proven ability to protect small engines from the corrosive nature of ethanol while ensuring peak performance of the equipment. Moving to slide nine, our Montana Renewables fourth quarter 2025 adjusted EBITDA with tax attributes was negative $5.4 million and positive $31.3 million for the full year 2025. On the MRL side, the company worked through trough renewable fuel industry conditions for most of the year and also the quarter was burdened with disproportionate transaction costs related to the $65 million of PTCs that we sold during the quarter. We expect to monetize our production tax credits more ratably as the market is now normalized. On a full year 2025 basis, adjusted EBITDA with tax attributes for MRL was nearly breakeven even as margins remained compressed by the low 2025 RVO, offset by our significant cost reduction efforts. Notably, the full year results do not reflect an additional $8.4 million of 2025-generated PTCs, which occurred after final regulations were posted after quarter end. Our MaxSAF 150 plans remain unchanged, and we are set to begin the project as we head into March and combine the required changes to our kit with a turnaround. We expect to complete the expansion in the second quarter and then steadily ramp volumes moving into the third quarter to meet new customer contracts, including the notable agreement we announced recently with World Energy, the previously announced contract with EPIC, and an increase in offtake with Shell, amongst others. Finally, on the Montana Asphalt side, both the fourth quarter and fiscal year results improved on the strength of improved asphalt margins and cost reduction initiatives following years of site reconfiguration. Further, we are seeing a widening of the WCS differential into 2026. With the site back at a reasonable cost level and more normalized WCS, we expect the site to continue producing in the $30 million to $50 million of EBITDA range we have discussed routinely. Let me now turn the call back to Todd for his concluding remarks. Todd Borgmann: Thanks, David. We are entering 2026 with the same high level of energy and excitement as a year ago, but with a much improved underlying fundamental. In Specialties, we expect the cost discipline embedded over the past two years to be durable, along with our continued commercial leadership position. While 2025 was another step change in operational excellence, we believe further opportunity remains to expand earnings through incremental reliability gains and customer-focused growth. In addition to that, David mentioned a heavy turnaround year, and I will highlight that turnaround excellence is the next step in our evolution. Our operations team has been planning these for some time, and during these events, we are making critical improvements that will underpin the next step change in operational performance. At Montana Renewables, our objectives are clear. First, execute MaxSAF 150 safely, on time, and on budget in the second quarter. Second, continue improving our already strong cost levels. And third, continue to leverage our early-mover advantage in SAF as we grow. We expect that accomplishing these will drive a step-change financial improvement even in past trough market conditions, and will be increasingly exciting if the market’s growing assumptions surrounding an improved RVO play out as expected. Last, on the back of these key items, we will continue to evaluate strategic pathways and unlock long-term value as the platform demonstrates sustained performance. Across Calumet, our capital allocation priorities remain disciplined and consistent. We expect to continue to drive durable free cash flow that underpins enhanced deleveraging. We plan to grow both our Specialties, widening our competitive moat, and execute our MaxSAF 150 strategy at Montana Renewables. And we plan to execute this strategy and continually develop it with an eye towards mid-term shareholder value creation. With that, thank you for your time today. I will turn the call back to the operator and see if we have any questions. Operator? Operator: Ladies and gentlemen, we will begin the question-and-answer session. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality. At any time your question has been addressed, to withdraw your questions, you may press 2. Our first question today comes from Alexa Petrick from Goldman Sachs. Please go ahead with your question. Alexa Petrick: Hey. Good morning, team, and thank you for taking our question. We wanted to ask two parts, maybe. First, can you talk about the macro setup from here? There is still, you know, some uncertainties, but we got a bit of an update yesterday. And then from there, talk about what you are doing at an operational level. What are the gating items at MaxSAF? And what should we expect from here? Bruce Fleming: Oh, hey, Alexa. It is Bruce. Look, the regulatory uncertainty, as a lot of us call it, is just a feature of the landscape. You know, the global energy transition is a regulated market. But it is collective governments, many, many governments acting directionally. And, you know, we feel like that is a very robust framework. We also feel like it adds the equivalent of a lot of margin volatility on top of kind of the base energy. So with that said, you know, if you want to survive in that environment, be a low-cost provider, be well positioned, be able to shift gears quickly, and we think we are all three. Todd Borgmann: And, Alexa, it is Todd. Maybe I will pile on a little bit. One of the things that we think is so important and exciting about our MaxSAF project at Montana Renewables is that it adds an element of, you know, just durability on top of the RD margin volatility that Bruce mentioned. So you can kind of think about it a lot like our Specialties business relative to fuels in the other half of Calumet. So, you know, we have contracted volumes with meaningful margin in them that, even if we kind of rewind the clock to last year, were generating pretty meaningful free cash flow at Montana Renewables with the addition of the SAF volume and the contracts that we have. So, you know, like Bruce said, then you get to layer on the improvements that we are expecting from the RVO, and it creates a really nice dynamic. But there is kind of the risk-reward; I would say both sides of that coin are really improved with the SAF project. So thanks for the question. Alexa Petrick: Thank you. That is very helpful. Sounds like a good setup. I will turn it back. Operator: The next question comes from Conor James Fitzpatrick from Bank of America. Please go ahead with your question. Conor James Fitzpatrick: Good morning, everybody. It looks like we are in the phase of the RINs market and demand step-up progressing where we should sometime soon begin to see producers ramp utilization. And I think one way to glean that is from moves in feed prices. And they have gone up, but a lot of that is raw soybean cost pass-through through the crush spread. So I was just wondering, there has not been a lot of press releases of idled plants coming back online. There is not a ton of evidence of utilization coming back within the overall market. I was wondering if your views are similar or different as it relates to—and it is particularly important to our views of the cost of producing RINs at 2026 demand levels. Bruce Fleming: Hey, Connor, it is Bruce. Thank you for the question. Let me answer with a concept of time scale. So we think the industry is running at variable margin now. People are not covering fixed costs. And the half of the group that is in the high-cost structure have been closing. We have been running full. So you have got to be tactical on where you stand in the supply stack exactly. So that ghost capacity, which exists in biodiesel plants that can come back quickly, and renewable diesel plants that are online and can speed up, that is available, but it is not going to be called into the market until we see the RVO come out. We are all waiting for that. We feel good about what we are hearing, and, you know, let us see what the facts are shortly, we hope. Todd Borgmann: Yeah, and I would add, Connor, it is Todd. The likelihood that people turn back on, you know, when they are covering fixed costs by a penny after some of the decisions made more broadly in the industry over the past couple of years, we think is very favorable to the market. And I have talked about this kind of the couple quarters in the prepared comments, but like Bruce said, as we float on variable margin, you know, you do not incur—our normal kind of supply stack does not govern today, because people are not making long-term rational economic decisions. They are hanging on based on expectations that they are going to recover the investments in the fixed-cost losses in the near term. As we see people have to restart and make that decision to restart to cover increased demand, we do not think that they are going to do that for a penny. We think that people are going to be very thoughtful and cautious and, you know, it creates quite a constructive outlook if you believe that. So, you know, we will see what the final RVO is. I know there is a lot of rumors going around out there. When we do, we do not think that the industry just kind of ramps up overnight. We think it is going to be kind of a very thoughtful volume ramp-up over time that will be beneficial to those who are in and operating every day. Conor James Fitzpatrick: Thanks. That is good color. And for what it is worth, you know, if you look historically at the changing marginal producer back in time, that producer tends to earn, like, $0.20 to $0.30 per gallon, just if you do some rough math on it. And then I guess my follow-up question was just moving parts for fourth quarter Montana Renewables margin. There were some—and market margins were pretty fluctuant; they were up for some weeks and down for other weeks. I was wondering just how that translated into margin capture for the business and operations? Bruce Fleming: So we are—Connor, it is Bruce again. We are pretty good at shifting gears there. Our inbound and outbound supply chains are pretty short in terms of days of shipping. And, you know, we do track capture. We do not publish it, but I will tell you that we capture more than 100% of the renewable diesel index margin, and that is because of our ability to shift gears quickly. Now, it is worth noting the fourth quarter managed to hit the lowest renewable diesel index margin ever recorded in the history of the world. And we are very much looking forward to the current administration restoring, you know, reasonable industry structure through their proposed RVO. We are bullish on that, and I think that is going to break things back to historical. Remember that these margins were $2 to $3 a gallon on an index basis as recently as three years ago. You know? So we just need to resume that kind of environment and we are going to have an entirely different view of, you know, our success here. Conor James Fitzpatrick: Thanks. That is all I have. Operator: Our next question comes from Samir Yoshi from C. Wainwright. Please go ahead with your question. Samir Yoshi: Hey, good morning. Thanks for taking my questions. So this capacity expansion that I think Todd said will start next week and is likely to complete by late April. When should we see capacity ramp up at full scale? And does this bring along with it, of course, capacity expansion, but also operational savings? Like, would you be lower than 41 gallons—sorry, $0.41 per gallon? Todd Borgmann: Hey, Sudhir. It is Todd. Good questions. I think we are on—on—I will start at the end. On the cost curve, we are obviously heading in the right direction and just continue to, almost every quarter, see improvement over the previous. So we expect to just continue the incremental improvement there. We are going to keep getting more efficient over time and, yes, as we increase our volume, then, you know, we will see more unit efficiencies drop to the bottom line as we progress. So I do not think there is anything in this specific MaxSAF project that would say, hey, there is a major, major cost out. But we are certainly going to be making more margins. We continue to look to improve our costs regardless of the project, just in a steady state. And to the extent that we are ramping up volume, like I said, it helps kind of at the unit level on the bottom line. So that is, you know, probably one side of your question. I guess the other on the ramp-up: We have previously guided to 120 to 150 million gallons annually, and that is where we expect to stay. So we are not naive enough to say that everything goes perfect and we come out of this thing in May and the very first day we are producing at a 150 million gallons, but we also do not have too technically challenging of a turnaround. This is pretty well controlled, it is pretty well designed, and it is implementing and expanding equipment that we know a lot about and is not a major kind of risk, I would say, like the last major project that we have going on. So I think what you will see is coming online, we will have a really nice strong volume. We will ramp up accordingly. Exactly how long it takes us to get to the, you know, 120–150 million gallons run rate, we do not think it is going to be too long. So we will come up in May and keep everybody up to speed on where we are, and I am thinking the second half of the year that we are going to be at that level. Samir Yoshi: Got it. Thanks for that color. And then I think you mentioned 100 million gallons of contracts with multiyear contracts, and they are indexed at $1 to $2 premium over RD premium. Will you help us or remind us how does the feedstock pricing play into this, and how is that likely to impact pricing—I mean, profitability? Bruce Fleming: Here is the merits first. So it is worth noting that we are performing now under the SAF contracts, but until we deconstrain the unit during this upcoming turnaround, we cannot get our rate up to where we want it. So we are going to have the acceleration Todd mentioned. As we lean into that, the book of business that our marketing guys have created is very interesting. We have intentionally executed contracts one by one which are different than the other contracts. In other words, we are trying to have a portfolio that is robust to some of the dynamics we talked about with Alexa a minute ago. And, you know, with that in mind, I think the expectation should be that all of that feathers in. If we can hit the high end of the engineering ranges, you know, then we will get towards the 150. And if we hit the lower end, it will be towards the 120. But the contract volume, the differential that you asked about, that is in, and we have had those folks lifting already. Todd Borgmann: And I would add a little bit more, Samir, on the feedstock you asked about. We have been pretty successful linking those to the contracts. So, again, we are in a location in Great Falls where we have access to a broad range of feedstocks, including all of the low CI ones that the SAF market typically wants. So we have been pretty successful landing those on long-term contracts as well. And we feel quite confident in our ability to both continually add offtake and volume as we ramp up, but to match that with contracts on the feed side just given kind of robustness around the number of options that we have in the region. Samir Yoshi: Sounds good. Thanks for that color. Congrats on the progress operationally and as well as deleveraging. Thank you. Todd Borgmann: Thank you. Operator: To withdraw your questions, you may press 2. Our next question comes from Jason Daniel Gabelman from TD Cowen. Please go ahead with your question. Jason Daniel Gabelman: Yes. Hey, good morning. Thanks for taking my questions. Shifting over to the base business, the specialty margin was strong once again, above $60 a barrel. What is going on in the business that is enabling you to sustain those higher levels, and do you see that to continue to move higher over time? And then, conversely, if you could just comment on the Performance Brands weakness in the quarter. Scott Obermeier: Hey, Jason. Scott here. So a few answers. You know, in terms of the strength of the specialty piece within SPS, you know, this has not just been, like, a one-quarter or one-year high performance. I think if you—you have covered us for a while, you have seen the progression over the past, you know, five years and, frankly, the transformation of the business. Todd talked about it in the prepared remarks. You know, really, at the end of the day, our commercial excellence focus and the initiatives that we have done over the years, and couple that with our integration and the optionality, has proven to be highly successful, highly durable for really almost any type of market. And then the improving production reliability as well as adding the volumes to it. So we remain, you know, really positive and constructive overall within that piece of the business. As we look heading into the early part of this year, you know, we expect our high performance to continue. Certainly, we have got some headwind early on in 2026 with the crude oil run-up, some short-term headwind. But overall, we feel really good about the business and the work that has been done in that business that is going to continue to outperform the market. I think on the Performance Brands, we are really pleased with the year. You know, we think we are essentially at a place now, Jason, where we have essentially offset—even as we said that we would do—offset the Royal Purple Industrial sale and the margin that went away with that. So feel really good about the year overall. We did see in the fourth quarter, though, as you pointed out, a lot of the customer base, retail in particular, that really destocked late in the year. So some challenges there, but we are feeling good about the start of this year and the orders that we are seeing. So we are optimistic about the ’26 results. Jason Daniel Gabelman: Got it. And just on the ’26 outlook, you mentioned the turnarounds, but you should have higher volumes despite that. Is there any impact to the margin outlook given those turnarounds and perhaps having to produce a different slate of products than you typically do? Scott Obermeier: Yeah. I would say the simple answer is no. There should not be much of an impact despite turnarounds and some of the volatility going on. Jason Daniel Gabelman: Got it. And my follow-up is just going back to the SAF contracts because I think one of the items we struggle with is just the confidence around that $1 to $2 per gallon premium that you have cited. And so I was hoping you could just clarify kind of how the contracts are structured. Is it—when you talk about a premium over renewable diesel, are you indexing the contract to the renewable diesel margin including, you know, the RIN, the LCFS credit, the PTC, or is it more nuanced than that? Bruce Fleming: Hey, Jason. Bruce. I will give you a framework for that. Great question. Looking backwards, it was fully indexed. I mentioned earlier we were intentionally diversifying the contract structures. Collectively, we want them to be different. So, for example, FEG is a scope 1 and 3 emissions certificate that we pull off. So that means we take that SAF, we sell it, we get all of the credits, you know, RIN, LCFS, etc., producer’s tax credit. And on top of that, we get the certificate. So that stacks up a little differently. And, you know, I could go around the table, and as I said, each one is intentionally designed to act differently in different market conditions. We think the portfolio will be more robust and more stable to, you know, prospective regulatory changes and evolution. So with that said, you know, the guidance—we really do not want to start identifying specifics here. But the guidance has held for a long time, and one of the reasons for that is real simple. SAF is an excellent renewable diesel blend component—super high-quality properties—and it cannot go into the market below RD. It cannot. Every once in a while, I pick up some publication where somebody calculated—you know, we used to call this dry lab back in the chemistry class—somebody calculated that SAF is lower than diesel, and that is crazy. Because the operator is going to take the SAF tank, pump it into the diesel tank, and capture that arb this afternoon on the day shift. Right? So it is always more, and we are just arguing how much. Todd Borgmann: And I think if I could add just a little bit, to your question around, can we just depict that, are the underlying components similar? Like Bruce said, we are intentionally diversifying. At the same time, we are quite confident in the $1 to $2 per gallon range just because of how these contracts come together. So a little more color on that: our largest customers—now, your question around underlying the premium—if you looked at their contracts underlying the premium, it looks a lot like RD contracts plus the fixed premium on top of that. So in that group, we are quite excited to have the exposure to the upside on the RD plus a fixed premium, which you were kind of alluding to earlier. That fixed premium plays out even in scenarios—if we were going back to last year and looked at kind of trough index margin environments. And then the other thing I would say is, like Bruce highlighted on the scope 1 and scope 3 credit sales, there is a naturally quite a correlation. We want diversification. We want exposure to those markets, and I think I have said in the past, we see it a lot like our Specialties business where we can do some things that others probably do not want to when we are transacting in truckload volumes, controlling quality, and, you know, transloading and doing those types of things that require a little bit more hands-on service. So it fits us really well. That being said, there is obviously a high correlation between the value of those credits and the fixed premium that other customers are willing to pay. So it is no coincidence that as we look at both of those, they lie comfortably in the $1 to $2 per gallon range we have talked about. And I will highlight these are fixed contracts. Right? And I think that was probably part of your question. But, you know, this is not a spot gasoline rack. These are contracts. They are multiyear contracts. They have commitments to perform on both sides, and,you know, we are quite confident in the ability to capture that margin. Jason Daniel Gabelman: Great. Thanks. I appreciate all the color. Todd Borgmann: Thank you. Operator: With that, we will be concluding today’s question-and-answer session. I would like to turn the floor back over to John Kompa for closing remarks. John Kompa: Thank you, Jamie. On behalf of Todd and the entire management team, I would like to thank everyone for their interest today in Calumet. Have a great rest of the day. Thanks. Operator: The conference has now concluded. We do thank you for attending today’s presentation. You may now disconnect your lines.
Operator: Good afternoon. My name is Audra, and I will be your conference call operator today. I would like to welcome everyone to Solventum's Fourth Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the program over to your host for today's conference, Amy Wakeham, Senior Vice President of Investor Relations and Finance Communications. Please proceed. Amy Wakeham: Thank you. Good afternoon, and welcome to Solventum's Fourth Quarter Fiscal Year 2025 Earnings Call. Joining me on today's call are Chief Executive Officer, Bryan Hanson; and Chief Financial Officer, Wayde McMillan. A replay of today's earnings call will be available later today on the Investor Relations section of our corporate website. The earnings press release and presentation are both available there now. During today's call, our discussion and any comments we make will be on a non-GAAP basis unless they are specifically called out as GAAP. The non-GAAP information discussed is not intended to be considered in isolation or as a substitute for the reported GAAP financial information. You are encouraged to review the supporting schedules in today's earnings press release to reconcile the non-GAAP measures with the GAAP reported numbers. Additionally, our discussion on today's call will include forward-looking statements, including, but not limited to, expectations about our future financial and operating performance. These statements are made based on reasonable assumptions. However, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ from any forward-looking statements made today. Following our prepared remarks, we'll hold a Q&A session. [Operator Instructions] I'd like to now hand the call over to Bryan. Bryan Hanson: All right. Thanks, Amy, and to all of our shareholders and everyone else that's interested in the Solventum story. I just want to say thanks for joining us today as we review our fourth quarter and our full year results, along with our 2026 guidance. Well, we closed 2025 with solid momentum, making significant progress in our first full year as a stand-alone public company. Looking back at the year, I'm very proud of what we accomplished. We formally launched our long-range plan and prioritize 5 growth drivers that are expected to now deliver more than 80% of our future growth. We built an experienced leadership team with strong med tech experience but also strong transformation experience, solidified our mission and culture, revamped our innovation process, restructured our global sales organization and through our SKU rationalization program, sale of our Purification & Filtration business, and acquisition of Acera, we rapidly advanced our portfolio strategy as well, all while managing the separation process from 3M. And inside of that, throughout the year, we consistently delivered on our strategic, operational and financial commitments. We improved volume growth, outperformed expectations and tripled our annual sales growth from a year ago. I think it's clear that we are moving toward our long-range revenue targets faster than expected, and have programs in place to overcome external headwinds and execute against our margin targets as well. This team's capacity to deliver results while navigating ongoing separation efforts, ERP implementations and acquisitions and divestitures is a testament to the strong talent and culture we've already built. And building on the foundation of our sales force restructuring project, our revitalized innovation process has meaningfully increased our vitality index. And as a result, we now expect a solid cadence of new product launches in our growth driver areas to drive further momentum with this more optimized sales team. And as our separation progresses, we are gaining full ownership of our IT systems and freeing up needed resources to drive greater overall savings and efficiencies. Our Transform for the Future program was built to capture this opportunity and its impact is reflected in our 2026 operating margin outlook. Okay. Moving to our quarter results. Well, the fourth quarter reflects another quarter of progress and provides a solid foundation as we head into the new year. And during the quarter, we announced and closed our first tuck-in acquisition, Acera Surgical, which not only opens the door to the fast growth synthetic tissue market, it also very well complements our existing technology categories and our call points. And as we move forward, portfolio optimization will remain a key lever for value creation here at Solventum. In other words, we will continue evaluating attractive assets to acquire and assessing our current assets for go-forward fit, and our business performance and resulting healthy balance sheet now provide flexibility to return capital to shareholders. And during the quarter, we announced a $1 billion share repurchase program, which we began executing in January of this year. We see this as a clear and important step in achieving a more balanced capital plan. Okay. Moving to our business performance in the quarter. Overall, we delivered solid sales growth with Dental Solutions and MedSurg performing better than expected. Starting with MedSurg, we continue to leverage our existing brands, our new product innovation and newly specialized sales teams and are seeing traction in each of our growth driver areas, which, as you probably remember, our negative pressure wound therapy, IV site management and sterilization assurance. In our Advanced Wound Care business, we saw continued growth in negative pressure wound therapy, supported specifically by double-digit growth in Prevena and ongoing expansion of our innovative V.A.C. Peel and Place dressing. As mentioned earlier, we recently closed the Acera acquisition, which will now be a part of our Advanced Wound Care business. We're obviously very early in the integration process, but sales teams across our newly combined business will now have access to an expanded suite of technologies to offer our joint customers. And with our combined clinical differentiation, our robust DME and differentiated infrastructure and proprietary technology, we have a meaningful runway for growth acceleration in this business. In the Infection Prevention & Surgical Solutions business, we saw better-than-expected growth supported by our 2 growth driver areas: sterilization assurance and IV site management. Inside sterilization assurance, our strong brand equity continues to provide a solid foundation for our dedicated sales force and early momentum from our [ 3 ] Attest sterilization product launches will continue to support the team's momentum to drive growth going forward. In IV site management, demand for Tegaderm CHG remains strong and our global launch continues to gain momentum. We have meaningful clinical differentiation and our specialized sales teams are focused on converting customers from standard films to this high-value solution that reduces the risk of infection. Tegaderm CHG is still significantly underpenetrated, providing a clear runway for continued growth. And in our Dental Solutions business, our core restoratives growth driver was again a key component of our performance in the quarter. And was supported by our strong existing brands, recent new product launches and the sales force specialization that we put into place in 2025. From a new product launch perspective, we continue to see strong demand for products like ClinPro Clear and Filtek Easy Match, and overall new product sales are driving the majority of our underlying business growth. And building on last quarter service improvements, the Dental team once again significantly reduced back orders, which also contributed to growth in the quarter. Our Health Information Systems business delivered another solid quarter, supported by its growth driver, revenue cycle management, and we continue to see adoption of 360 Encompass progress against our international expansion efforts and gains in autonomous coding. And relative to autonomous coding, our strong automation and acceptance rates are further positioning us as the largest, and importantly, most capable autonomous coding vendor. Over decades, we've built deep rules and algorithms designed to ensure accurate and compliant reimbursement coding. This, combined with our vast data sets and proprietary workflows, uniquely positions us to leverage AI-driven autonomous coding, our customers can trust. And in summary, we finished the year building on the success and the momentum we achieved in the first 3 quarters. And it's clear to me that we have the right team and strategy and our momentum will continue into 2026 and beyond. And with that, I want to thank our global team for their hard work and ongoing commitment to our mission. It's you that are making a difference every single day by delivering for our patients, our customers and our shareholders. And with that, I'll turn the call over to Wayde to review our financial results and our 2026 guidance. Wayde, I'll just pass it to you. Wayde McMillan: Thanks, Bryan. We reported another solid quarter as we completed our first full year as an independent public company. We made progress across both our transformation phases and turning around the business. Our commercial improvements yielded a significant increase in our organic sales growth, putting us on an accelerated path to reach our long-range plan sales growth target. During the year, we were able to absorb tariff headwinds and expand operating margins off of the Q4 2024 baseline, while continuing to invest in commercial enhancements and innovation. We also moved quickly on portfolio optimization, resulting in accelerated execution of our capital plan to pay down debt. Our progress to date, combined with our planned strategies positions us well to deliver our long-range plan margin and free cash flow targets. I'll start with an update on our separation activities, status of portfolio moves and then transition to our quarterly and full year financial performance, concluding with the discussion of our 2026 full year guidance. Overall, our work to complete the separation from 3M is going very well. Thanks to the dedicated separation management teams at both 3M and at Solventum. We are progressing well on major milestones, as we have now exited over 40% of our transition service agreements from 3M and remain on track to exit approximately 90% by the end of 2026. The ERP deployments continue to roll out with a plan to be complete this year. We've just gone live with our latest ERP deployment earlier this month across Asia Pacific, including China, and additional countries in Europe. We have also transitioned approximately half of the more than 1,000 systems to gain system independence from 3M, which is a significant step in our separation. Regarding supply chain, we've taken further steps to separate from 3M and have now reduced our distribution center network to 55 locations, progressing towards our goal of 45. The P&F divestiture activity continues to progress as planned with the target completion at the end of 2027. There is close collaboration to ensure business continuity from Solventum to support the buyer's integration efforts across the nearly 200 transition service agreements. Shifting to our recent Acera acquisition. Our early integration efforts are off to a good start following the close at the end of December. Our main focus is sustaining and accelerating the momentum that the team has generated in recent years. Now turning to our Q4 results. Starting with top line performance. Sales of $2 billion, increased 3.5% on an organic basis compared to prior year and declined 3.7% on a reported basis, which reflects the first full quarter impact of the P&F divestiture following the sale in September 2025. Foreign exchange was a 170 basis point benefit to reported growth, while the net impact of the P&F divestiture and Acera acquisition represented an 890 basis point net impact on our reported growth. Overall, we had stronger-than-expected sales growth driven by MedSurg and Dental. Volume remains the main driver of growth, and pricing remains within the expected range of plus or minus 1%. Our SKU rationalization program also remains on track with 70 basis point impact in the quarter bringing the full year impact to 60 basis points. Moving to the segments. MedSurg delivered $1.2 billion in sales, an increase of 3.2% on an organic basis. Within MedSurg, the Advanced Wound Care business grew 1.7%. Solid performance in our negative pressure wound therapy growth driver was partially offset by headwinds in the separate advanced wound dressings category, which was impacted by SKU exits and back orders. Infection Prevention & Surgical Solutions continues to outpace our expectations, delivering 4.2% growth that was driven by strong business performance partially offset by the remaining reversal of first half volume timing and the SKU rationalization program. Our Dental Solutions segment delivered higher than expected $343 million in sales, an increase of 5.9% on an organic basis. Growth was driven by core restoratives, which benefited from further back order improvement. During 2025, the supply chain team led multiple efforts that helped reduce back orders to historic lows. On a normalized basis, Dental grew closer to 3%. Our HIS segment also contributed to our performance with $348 million in sales, an increase of 3.2% on an organic basis, driven by revenue cycle management software solutions and performance management solutions. Together, this growth more than offset expected declines in clinician productivity solutions. Looking down the P&L. Gross margins were 53.5% of sales, a 230 basis point sequential reduction, which reflects higher logistics costs and timing of manufacturing performance. Higher logistics costs were mainly driven by ERP and distribution center cutover mitigation efforts in the quarter. These headwinds were partially offset by the benefit of the P&F divestiture. On a normalized basis, gross margins were closer to 55%. Sequentially, operating expenses reduced to $672 million from $739 million, which reflects the P&F divestiture, timing of project spend and cost management. In total, we delivered adjusted operating income of $397 million, or an operating margin of 19.9%, below expectations due to gross margin headwinds, partially offset with lower operating expenses. Moving down the P&L to nonoperating items. Our net interest expense and other nonoperating spend improved versus Q3, driven by a $30 million reduction in interest expense and higher interest income. These improvements are due to the full quarter benefit of the P&F divestiture, which resulted in a $2.7 billion debt paydown and a higher cash balance. Lastly, our effective tax rate of 16.6% was favorable due to an end of year release of tax reserves and a regional tax provision in combination with favorable geographic mix. We delivered earnings per share of $1.57, driven by sales outperformance as headwinds in gross margin were partially offset with operating expense savings. Shifting to our balance sheet. We ended the quarter with just under $900 million in cash and equivalents and net debt of $4.2 billion. This includes funding the $725 million Acera acquisition, which closed on December 23rd. We're in a healthy position to accelerate our capital allocation strategy as indicated by our recent $1 billion share repurchase authorization and maintain flexibility to pursue tuck-in M&A. We generated cash flow of $33 million, below our expectations due to higher divestiture costs, the earlier than expected close of the Acera acquisition as well as higher costs to support the ERP and distribution center cutovers. Now moving to full year 2025. We delivered 3.3% organic sales growth ahead of our expectations of 2% to 3% when normalizing for SKU exit impact and mainly the benefit of backorder improvement in Dental, our growth was approximately 3.5%. Operating margins finished at 20.5% within our assumptions of 20% to 21%, while absorbing 65 basis points of tariff impacts that were not contemplated at the beginning of the year. We also completed the Solventum Way restructuring program, exceeding expectations and delivering annualized savings of approximately $125 million at a lower total cost of $90 million. Our adjusted tax rate of 19.1% was also better than our assumption of 20% to 21%. At the bottom line, we generated non-GAAP earnings per share of $6.11, also ahead of our expectations of $5.98 to $6.08. Free cash flow was negative $10 million, below our expectations of $150 million to $250 million due to higher Q4 costs to support portfolio moves and ERP cutovers. Excluding these, we were in line with our expectations. When adjusting for the P&F divestiture and separation costs during 2025, free cash flow would have been approximately $1 billion for the year. Now turning to our 2026 guidance. Starting with our top line. We are guiding to an organic sales growth range of 2% to 3%. This translates to 3% to 4% excluding the continued estimate of 100 basis point impact of SKU exits for '26. While not reflected in our organic sales growth outlook for 2026, we expect our recent Acera acquisition to contribute meaningfully to our reported growth going forward and will roll up as part of Advanced Wound Care sales. We also expect a modest 100 basis point tailwind for foreign exchange, mostly in the first half. Looking down the P&L. We estimate operating margins of 21% to 21.5% for the year, expanding from the 20.5% full year 2025. Underlying, the 50 to 100 basis points of margin expansion is a combination of sales leverage, programmatic savings for supply chain and our Transform for the Future program. We expect portfolio optimization for divestiture and acquisition activity to be neutral to operating margins. Regarding tariffs in place, before last week's Supreme Court ruling, we estimate full year impact of $100 million to $120 million. Given the evolving nature of the environment at this time, we are assuming the impact under any new tariffs will be within a similar range. For earnings per share, we are guiding to a range of $6.40 to $6.60. For free cash flow, we are expecting approximately $200 million in 2026, excluding mainly the impact of costs to separate from 3M as well as payments due to 3M and costs to support the recent divestiture, we would expect to be closer to $1 billion. As a reminder, separation costs reduced significantly in 2027 as we complete the separation from 3M. Other considerations for 2026, include capital expenditures of $400 million to $450 million, an effective tax rate between 19.5% to 20.5% and nonoperating expenses of $300 million primarily due to net interest expense of around $270 million. To provide some additional color related to our first quarter 2026, remember we had a tough comparison given the approximately 180 basis points of additional sales volume benefit in the prior year. And on gross margins, Q1 will reflect the typical sequential seasonal pressure while year-over-year will reflect the additional tariff impact headwinds. All in, we anticipate operating margins will again be the lowest of the year. In conclusion, we delivered another strong quarter to complete our first full year post separation. We're making great progress on our separation from 3M and on our portfolio moves to divest P&F and integrate Acera, and we're moving with urgency towards our long-range plan goals of accelerating sales growth to 4% to 5%, operating margins of 23% to 25%, growing earnings per share at a 10% CAGR, and free cash flow conversion rate above 80%. We want to extend our gratitude to all Solventum team members for their hard work and commitment to our values and mission, enabling better, smarter, safer health care to improve lives while consistently delivering or exceeding on our financial goals. With that, we'll hand it back to the operator for the Q&A portion of the call. Operator: [Operator Instructions] We'll take our first question from Travis Steed at Bank of America. Travis Steed: I guess first on margins. Wayde, I don't know if there's anything onetime in Q4. It was a little light versus the [ Street ] in the quarter. And then on 2026, if you can maybe elaborate a bit more on kind of what's assumed in that 50 to 100 basis points? How much of the $500 million cost savings is baked into that? And anything else that you kind of frame up for the margins in '26? Wayde McMillan: Sure, Travis. So margin is obviously an important part of our story. As we think about Q4 first, approximately 150 basis points of the cost in our gross margins was onetime in nature. So you'll see in our prepared remarks that we shared more normalized gross margin of 55% is more of what we would have expected. And we saw a lot of separation activity in Q4. So it ended up just costing us more. If we think about operating margins, certainly lower than we expected, but really just driven by that headwind in gross margins. We were able to offset it partially with some savings in our operating expenses. And then as we think about 2026, first of all, I'll just say we are committed to growing our sales as well as expanding operating margins each year. And so in that theme, we're now planning to expand operating margins 50 to 100 basis points in 2026, as you mentioned. A couple of things that are important here. Certainly, tariffs are a headwind for us again in 2026. People may recall that we have a very fast inventory turn. And so we had approximately 2 quarters of impact of tariffs in 2025, and so we'll annualize that in 2026. You'll see from our prepared remarks, it's about a doubling of the tariff headwinds for us. And so with that in mind, it's a pretty significant margin expansion. The drivers of that are sales, leverage, as we continue to drive sales on an accelerated basis as well as our programs within gross margin. We've talked about programmatic savings. We gave a lot of detail at our Investor Day. And we've got significant effort to drive favorable gross margins over time. And then as you mentioned, Travis, our more recently announced Transform for the Future restructuring project which is a longer-range project that is targeting several areas of efficiency, and we will start to see some of that in 2026, but it will benefit us more over the long term. So you put all that together, we do think we've got a nice operating margin expansion story again in '26 despite the tariff estimate that we have in the numbers at this time. Travis Steed: Okay. And I guess my follow-up question, since there's been more focus on the health care IT business and some of the AI stuff that's going on, just would kind of love to give you the opportunity to kind of maybe explain that and explain your business a bit more for investors. Bryan Hanson: Yes. Thanks, Travis. I'll probably answer that one. And I assume seeing your note that you might ask that question. So we're actually betting which question you would ask first and you asked both questions. Travis Steed: You know me well. Bryan Hanson: I know you pretty well. So I would just say, first of all, I think it's important to state right out of the gate. We actually see AI as an opportunity more than we do a threat. I think that's -- you could probably end the statement there, but I think that's a really important statement to make. And then there's probably 3 vectors to look at it, which I think could be helpful to people. Number one, I think we see artificial intelligence as a lever to drive autonomous coding. That's why we've been spending so much in that area, and that's what's driving us in autonomous coding. But we don't see it by itself as the answer to autonomous coding. I think that's important, by itself is not the answer. It's just a piece of the equation. And we really don't see AI again by itself as a competitor, we see it as a tool. We see it as a tool, a variable in the equation to solve for autonomous coding. Remember, autonomous reimbursement coding, not computer coding, right? And then three, and this is important because AI will be available to anybody who wants to use it in autonomous coding or revenue cycle management. We truly do believe that we're differentially capable of using AI because, number one, we've been in the market for decades. And as a result of that, we have vast number of proprietary. I'm going to call it algorithms and rules that we have around reimbursement coding, actually close to 1 million plus of those rules and algorithms, which is substantial. And of course, because we have been working at scale with the hospitals, we have very vast data sets as well. So we really believe that what we have available to us allows us to train AI in ways that others can't. So we actually look at this as an opportunity more than we do a threat. But I appreciate you asking the question because there's a lot of folks that may not see it that way. Operator: We'll move next to Jason Bednar at Piper Sandler. Jason Bednar: Wayde, I wanted to come back to some of the guidance points we're making. I appreciate all the color around the first quarter. Maybe I wanted to give you an opportunity to talk if there's any other sequential callout. Last year, '25 was lumpy. It was a good lumpy, but lumpy in that you had the ERP cutover, the DC cutovers that just created some volatility in the volumes. So anything else you'd call out as we try to model throughout the year? And then within that also in the first quarter, should we be considering any headwinds tied to just some of the weather dynamics that may or may not have impacted volumes for your businesses in the first quarter here? Wayde McMillan: Jason. Yes, I can certainly start that one for you. And I'm glad you picked up on the Q1 comments that we had in our prepared remarks because it is the one quarter for us that's a little more challenging. The other quarters in the year look more stable. So maybe I'll just summarize the information that we shared and it's really in the 3 areas: sales, gross margin and OpEx. So for sales, we had 180 basis points of tough comp, and that's put a lot of pressure on our Q1 sales here. And so if you just take the full year guide of 2% to 3% and you take the midpoint, 2.5% if you use the 180 basis points of headwind, you get just under 1%. And so that's how we'd like people to think about the first quarter, and I think that would be a reasonable place to start. If you move down the P&L, operating margin is setting up to be the lowest of the year in Q1, sequentially down from Q4 '25 to Q1 '26 but that's similar to what we experienced last year in 2025. So a very similar setup to last year, and that's really driven by gross margins, which relative to the normalized 55% we gave for Q4, we would expect to see some normal sequential seasonal headwind to that moving from Q4 '25 to Q1 '26. So same set up again as last year. Keep in mind, tariffs are a headwind in the first half as well before we annualize them. And then when you move down operating expenses, kind of similar here. We'll have higher OpEx in Q1 as we have some seasonally higher expenses than Q4 '25. And Q4 '25 was a little unnaturally low as we had some favorable project timing. And then just given the gross margin pressures we were having in the quarter, we did some cost reduction initiatives that gave some favorable OpEx in Q4 as well. We don't have any weather specific things to that specific question, Jason, nothing that we would call out. And then again, I would just say, for the remainder of the year, the setup looks more consistent other than I would just highlight, and it was really the driver of that volume in Q1. This first half, second half impact of IPSS. We had a lot of volume mainly in the first half last year. These were mostly ERP timing-driven impacts. But the good news is they're all contained within the year. So first half, second half dynamic, mostly Q1 additional volume, Q3 give back. But the good news, the story actually gets quite simple at a full year basis, but there is that trade-off, particularly in IPSS between mainly Q1 and Q3. Jason Bednar: All right. Super helpful. Bryan, I wanted to shift over to you, bigger picture question. You mentioned product pipeline that's expanded within some of the core growth categories you've identified or you identified at your Investor Day. Can you give us a sense as to some of the things you're more excited about or expected to be more impactful when we look out this year and also next year? Really to help bridge to that 4% to 5% growth target, knowing that you're targeting 3% to 4% underlying growth this year. What helps accelerate you that last 100 basis points to get to those LRP targets you have out there? Bryan Hanson: Yes. Yes. I appreciate the question. And I would say maybe first, just taking a step back because I have a feeling some of our Solvers are listening to this call as well. And I just want to say that I appreciate the work that they put into revamping and revitalizing our innovation process, and it's paid dividends. As we talked about in the prepared remarks, vitality index has gone up and the cadence is more focused to products that we're going to see. I'm not going to speak specifically about any individual product, as you know, competitive reasons. But maybe I'll give you some color, that I think could at least help, we've got close to 20 new products that we're going to be launching now over the next 2 years relatively evenly over those 2 years. So it's not back-end loaded. And those, as you would expect, just given the size of MedSurg, almost half of those are going to be in MedSurg. The other half is split between HIS and Dental. And as you would expect, a decent portion of those are going to be inside of the growth driver areas. But it's not just those. I kind of look at it as a 3-legged stool, right? You've got this opportunity for new products in that revitalization of innovation that I've been talking about. But we also have existing products and brands that are really strong in the marketplace. And I think some people underappreciate the fact that they're also underpenetrated. So with the new specialized sales organization, we can get after that underpenetration even with existing brands. And the third leg of the stool is just the commercial enhancements we've made. And those really have 3 components to it. First is specialization, which is probably the most important. But we're also training those individuals now to being more clinically at depth, which is very important when you have clinically differentiated technology. And the final one is just to make sure that we have a sales operations team that is best-in-class to focus the organization and to make sure that they have the tools to be successful in the field. So it's all 3 of those really that's driving the growth. Operator: We'll go next to Kevin Caliendo at UBS. Dylan Finley: This is Dylan Finley on for Kevin. Maybe for a minute, could you guys talk about the strong outperformance in Dental this quarter. Again, you grew organically nearly 6%, how much of that was volume expansion versus price capture related to or not related to tariffs? And what do you think a normalized growth rate looks like in Dental, controlling for any sellouts or unusual comps? Bryan Hanson: Okay. Yes. So again, that was another one we thought we'd probably get a question on because it was pretty standout quarter again for Dental. So again, because I know they're listening to the call, congratulations, great quarter. And I would say that probably the -- well, I know the biggest underlying reason for growth is new products. They have done a nice job of revitalizing innovation, launching new products, and that's really what's driving our underlying business performance. Now in the quarter, I think we said in the prepared remarks, that another factor was back order recovery. That's the second quarter in a row. They've done a really good job of capturing back order recovery, and that's boosting us. That's more of a onetime thing. I wouldn't think about that as a go-forward opportunity, but it definitely helped us in the quarter. When we think about the market because I know that's probably inside of your question as well because I'm sure you're covering other companies in Dental. We kind of look at it the same as what you're hearing from others. It's a stable to maybe slightly improving market, but that's really the way we look at it. Stable market, slightly improving, we would expect that to go forward in 2026. But really, the momentum here is the new product development. They're just doing a great job with a specialized sales organization driving it right now. Did you have another one? I didn't want to cut you off there. Sorry about that. Dylan Finley: Sorry, yes, if I had a moment. Looking at the $500 million, the Transform for the Future program, and apologies if this was hit on earlier. But what should we contemplate regarding the phasing of those -- both the costs going into the restructuring and the timing of the benefits? Is that really a big growth driver discretely as we look at the benefit for 26? Or is the phasing more '27 and thereafter? Wayde McMillan: Bryan, I can start that one, if you want. So obviously, a very important program for us. It is a multiyear program from starting this year, 2026 into '29 and '30. Maybe just to highlight, as you said, it's a $500 million cost takeout program. It's meant to support both margin expansion as well as opportunities to meaningfully invest for growth. We want to make sure that we're driving efficiencies that despite things like tariffs, we've got enough efficiencies going so we can continue to reinvest for growth given the importance of us continuing to drive and accelerate that sales growth line. Maybe just a little bit more about the program itself. It's targeted at transforming our cost structure, I mentioned the operational efficiencies and then repositioning us for that profitable growth. We'll be looking at streamlining systems, increasing automation, it's a really comprehensive program. To your question on the phasing, we haven't given details on that. We're still developing the program. As I said, it's a multiyear program. But I would say just generally, we will start to benefit from the program in '26, but the majority of the benefits will be in 2027 and beyond as it just takes time to put the programs together and then execute on them. Bryan Hanson: One other thing maybe to add to that too, what's very important about this program is it is a cultural shift for our organization, all around the concept of continuous improvement. We've got this mantra here that we can be satisfied. We can be happy, but we can never be satisfied, right? So we can be happy and celebrate success, but we can always get better. And that's what this program is, it really is the concept of Transforming for the Future through continuous improvement. And it's not just at the senior level of the organization. This -- it transcends the organization, we're asking everybody to get involved in the program. So it really is a cultural event, not just a savings program. Operator: We'll take our next question from Ryan Zimmerman of BTIG. Ryan Zimmerman: Just following up on the HIS comments, and there's been a lot of investor focus on this, late. I appreciate your answers earlier, Bryan. I got to dig a little deeper, though, and just kind of ask, is there any guardrails that you want to put around this? If this is up for a competitive bidding or competitive entrants and so forth, I mean, how should we think about maybe what's contractually obligated over a certain time period or any other additional details, I think you can give that, again, kind of isolates what impact there may or may not be around the HIS business? Bryan Hanson: Yes. So I would tell you 2 things here. Number one, we have pretty long contracts, multiple year contracts. And so we feel comfortable. And I don't want to rest on that because I do believe we have significant differentiation here. We're a leader today. We absolutely expect to be a leader in this transformation in the future. There's no question in our minds. We do have contractual obligations in our favor and there's switching costs associated with this. It doesn't happen overnight. And I think very importantly for people to remember here is you make mistakes, even small ones in your reimbursement model, in your coding. Not only do you lose revenue, you have the risk of compliance concerns, and there's a trust factor that goes into that. As a matter of fact, we look at autonomous coding competitors, as risking autonomous coding because we don't think they're going to do it the way we would do it, right? Again, using all those rules and all those algorithms that we have that are proprietary to us. So we truly do believe we're going to win. We're going to transform. We're already leading. We feel like we're going to continue to lead. And we do believe -- we really do believe that that's just the way it's going to be. I don't see this at this point in time as a risk. I see it as an opportunity and the contractual piece helps, but we're not going to rest on that. Ryan Zimmerman: Yes. No, that's helpful. I appreciate the color there. And then maybe turning to Acera, what are you embedding for expectations on Acera, if you can provide any high-level commentary around it? I mean I think it was doing, call it, $90 million at the time of acquisition. And so where can that sustain once it turns organic and from a contribution to growth standpoint? Bryan Hanson: Well, I'll tell you, we wouldn't have bought the asset if we didn't believe that it had a real opportunity to help Advance Wound Care and MedSurg and the total business from a revenue growth standpoint. So we feel like it's a great starting point, but it is just a starting point. And to give you some perspective on it, if they're in $1 billion market, growing 10% right now. And they're in a subcategory synthetics inside of that market that's more attractive, and they've got differentiation in that space. So it is a healthy double-digit grower for us. And I want to continue to remind people, it's in the space we already play and have commercial infrastructure. So we have a force multiplier effect given our 2 organizations coming together from a commercial standpoint, but also eventually from an innovation perspective. So I feel really good about this as a separate growth avenue for Advanced Wound Care for the total business, and it's profitable. It's really nice profitability. Operator: We'll move next to David Roman at Goldman Sachs. David Roman: Maybe I could just go into the Dental dynamic in a little bit more detail here. And I think last quarter, there was some more set of dynamics at play here. But maybe, Bryan, if you kind of maybe template Dental as one of the businesses where you have to -- I think you said in the follow-up last quarter that it is a good example when you have new products, what can happen to the top line, but you're seeing kind of that impact in one of those slower-growing categories that you serve. So maybe you could just extrapolate the experience in Dental to when we could -- when you think it's reasonable to expect that same dynamic to play through in MedSurg and HIS? And I just had a follow-up on the buyback. Bryan Hanson: Yes. David, thanks for the question. I agree. I think Dental laid out the road map that was pretty clear to people, but you're already seeing it in MedSurg. It's not just the commercial enhancements that we've made. We are launching new products in both MedSurg and HIS. Just to recap, I'll give you some of -- not a full list of them, but V.A.C. Peel and Place was a big one. Tegaderm CHG was launched in the U.S., but now it's on a global launch. So we're rolling that out around the world. We've had CHG in Ioban as well, which is a new product that we use in [indiscernible] surgical procedures. We've had 3 in test sterilization products, the eBowie-Dick was also launched. So we've got a number of products launched in MedSurg. And in HIS, you've seen various applications in autonomous coding and a lot of applications for Encompass 360 when we look at outside the U.S. implementation. So they're not having product launches right now. The key thing that's driving those product launches is the commercial enhancements. We didn't have those before. And as a result, those products are being launched into a void, if you will, general sales organization. So we're already beginning to see the momentum from those new products. And as I said before, we've got almost 20 new products coming over the next 2 years. David Roman: Got it. And then maybe, Wayde, it looks like the share count still stepped up on both the year-over-year and sequential basis that you obviously announced a large buyback authorization in November. How are you thinking about deploying the buyback? I think that there was quite a bit of volatility in the stock over the past several months. So maybe what -- what's sort of the strategy behind the buyback? And what are the factors that would drive you to deploy it either on a programmatic or more significant basis? Wayde McMillan: Sure, David. So I think directionally, it's reasonable to think about the authorization as offsetting the impact of our stock-based comp dilution and holding that share count relatively flat. I think that's one of the objectives that we have, as you said, without a share repurchase in place over the previous year, our share count went up. And so one of the major goals here is to, number one, offset that stock-based comp. And then over time, it is an opportunity for us. We've got room within the authorization if we see a need or a reason depending on performance of the share price to potentially purchase more shares. Obviously, if we do something like that, we have to work it through with our Board and make those decisions as well. But I think just taking a step back, we're very happy with the accelerated capital plan over the last year, with our ability to pay down debt. And remember back from our Investor Day, that was the primary objective. Most spins spin with a pretty significant amount of debt, and one of our primary goals was to pay down that debt. We did that in an accelerated fashion. And now we're in a position to have more balanced return and returning capital to shareholders via this authorization. So as Bryan said in his prepared remarks, we started that in January. This is our first quarter and we're pretty excited to be moving in this direction as well. Operator: Our next question comes from Brett Fishbin at KeyBanc Capital Markets. Brett Fishbin: First, just wanted to ask on the overall organic revenue guidance of 2% to 3%. And I was curious if you could just directionally provide any commentary on how you're thinking about that across the different segments, whether we should expect any material departure from what we've seen on a normalized basis in 2025? And then also, if the 100 basis point impact from SKUs would be more pronounced in any specific quarter? Wayde McMillan: Bryan, I'm going to start that one. Bryan Hanson: Maybe to rephrase that question on any specific quarter, you could maybe answer that, but also any specific business. Wayde McMillan: Yes. Yes, that's the key. So yes, maybe we'll start there. We don't see a significant difference across the quarters from the program at this time. And so nothing to share there. But as Bryan just highlighted, we do see a significant more impact within MedSurg and particularly, the IPSS business. So as we move from 60 basis points of impact in 25 to 100 basis points of impact in 2026, we'll see the majority of that 100 basis points hitting in the IPSS and MedSurg business. And then back to the front end of your discussion, and Bryan can start with that one. We obviously put a lot of thought into this guidance. And I'm glad you brought it up because it gives us an opportunity to talk a little bit about it. We did intentionally share that for 2025, our sales growth rate on a normalized basis was about 3.5%. And that's important stake in the ground for us. It's really normalized for both the SKU program as well as mainly the dental back order. And so with that 3.5% in mind, the way we looked about our guide for 2026 is we put that at the midpoint of our ex-SKU guide, we're 2% to 3% guide for '26 on a 100 basis point SKUs, we're guiding 3% to 4%. So what that really means is if we continue to perform at an accelerated rate here in 2026, we had big step-up in our growth in 2025. And if we continue that momentum, continue to perform at that level, we'll be at the midpoint of our guidance for 2026. And of course, at the high end, more 4% on an executed basis will be above last year's strong performance. And we're very focused on getting to that because then that would put us on an accelerated basis getting to the low end of our 4% to 5% target for our long-range plan. And so on an ex-SKU basis, the high end of our guidance is already touching the low end of our long-range plan guidance for 2028. So we do feel that 2025 was a very strong year where we really accelerated the sales growth rate. We shared some of that detail in our prepared remarks, so I won't repeat it here. But that's some color in behind the full year. You did call out segments as well. As you know, we don't guide at the segment level, but I can provide a little bit of color here. Overall, we expect all segments to improve their underlying growth year-over-year. And again, the momentum that we see in the business, if it continues, we'll be at the high end. Bryan Hanson: [indiscernible] Because it would be MedSurg is going to be impacted more by SKU and obviously, Dental is going to be impacted by the back order recovery comp. But outside of that, no major impacts to the businesses. Brett Fishbin: All right. That was super helpful. And then just for my follow-up question, I wanted to ask, during the fourth quarter, you announced some changes to the management structure and I was hoping you could just touch on your decision to implement a Chief Commercial Officer position, and any thoughts on how that impacts the broader strategy for Solventum? Bryan Hanson: It's funny because that feels like old news to me already. I was looking at [indiscernible]. Yes. So as you know, we brought Heather in -- to be the primary leader of our businesses. So she is the Chief Commercial Officer now. And I feel very fortunate to be able to bring Heather in. She and I have a history of work at Covidien together. She's worked with me in the past. She's a very strong operator. So it was just serendipity that she became available at the same time that Chris was going to be exiting the organization. So very lucky to get her. But it was really just the continuation of the strategy, which would have been to combine the businesses under a leader. Chris, for his own reasons, couldn't do that and Heather was available, and we were able to get her, which is fantastic for us. I wouldn't read anything else into it, other than the fact that we've got a great operator now looking at synergies across our businesses. Operator: Our next question comes from Vik Chopra at Wells Fargo. Lei Huang: It's Lei calling in for Vik. My first one is on ERP. I think you have another ERP implementation coming this year. Last year, when you had the European one, there was some pull forward buying in the first half. Is that something you should consider for 2026? And I have a follow-up. Wayde McMillan: Yes. So ERPs, obviously, we've got a lot of work going on in this area. We did share in our prepared remarks that we are planning to be done with the 3M separation ERPs in 2026. And so by definition, we've still got several ERPs to go. We've got a couple of large ones both in the first half and the second half of this year. I did share in my prepared remarks that we've started another wave here in February. We've got about 16 countries involved in that wave, and that's off to a really good start. And so we will have several more waves as we go along through the year, but planning again to be done by the end of the year. Regarding volume, we're not [indiscernible] out at this time. It really is dependent upon at what point in the quarter it falls, sometimes if it's early in the quarter, most of the inventory changes have washed out within the quarter. To the extent we see them and if we see additional volume either buying ahead or being delayed as relative to the ERPs, we'll call that out in our actuals, but very difficult to predict those. So we don't call them out. Lei Huang: Got it. That's helpful. And then for my follow-up, you talked about pricing being plus/minus 1% in Q4. Anything we should think about as far as pricing for '26 either for the overall company or across segments? Wayde McMillan: Yes. So as we've shared before, our focus for growing the sustainability of the business is all in volume. Our new products, our commercial efforts, all focused on -- I shouldn't say all, almost all on volume. We certainly have pricing capability, and we've got people looking at price. We do have several areas in the business where we have the ability to raise price than we do. But what we've shared is we expect price to be in a more normalized range of plus or minus 1%. We saw that again in Q4. And that's where we're expecting it to be again in 2026. So we don't see price being an outsized driver of the business again in 2026, more in that normalized range. And our growth will really be on sustainable volume growth. Operator: We'll go next to Rick Wise at Stifel. Frederick Wise: Bryan, just maybe reflect a little bit more on your updated thinking on your M&A strategy? Is it another deal possible? What are you prioritizing it with making so much progress towards, to quote Wayde, on an accelerated path to your long-term targets? Is it more likely we're going to see additional tuck-in growth-enhancing, margin-enhancing deals sooner rather than later? Bryan Hanson: I probably won't speak to the timing, but I was pretty intentional and have been for a while. It was in our prepared remarks and every time I probably talk to you and others is -- it is definitely a lever we will continue to flex for value creation. So portfolio optimization to me and the reason why I'm leaning on it so much is, I don't want people to think because we've done so much so fast that we're finished. This will be a perpetual lever that we're going to continue to flex in the organization, which will include acquiring companies on a tuck-in basis in a serial fashion to be able to drive revenue growth and profitability. It's a requirement. It's got to be mission-centric first and foremost. It's got to be an attractive market with strong profitability in areas that we think we can win. And we'll continue to do that. I won't speak to the timing of that, but we do have the financial flexibility to do them. So that's probably all I'll say on that. But it clearly is a continued lever for us. Frederick Wise: Okay. And just reflecting -- sort of stepping back and reflecting on the increasing probability that your increasing confidence in '28 goals on sales and margins and EPS, et cetera. Maybe just -- I'd be curious to hear maybe Wayde for you, it's like -- is it the SKU program being done as the debt coming down? Is it the exit of the TSA agreement? I mean what's the relative importance over the next 12 months in terms of observing that progress and building confidence in -- as you approach '27, '28? Bryan Hanson: Maybe I'll start on the revenue side, revenue growth line, and you can speak more to the margin. So I'd say proof is kind of in the pudding, right? I mean at the end of the day, you look at our growth rates, and even though when we normalize them, it's 3.5%, as we said, as Wayde just referenced. That's pretty darn good, right? Out of the gate, that's almost 3x, better than what we had in our base a couple of years before the spin. And that's great traction that we're seeing. It's coming from the commercial enhancements that we've made. It's coming from the brands that we already have, and it's coming from those new products that we've talked about. But that is giving us confidence. It was only a short period time ago in March of 2025 that I had people questioning whether we could ever get to the LRP targets that we are providing. I think it's pretty clear we'll not only get there, but we might do it faster than expected. Hopefully, we do it this year. That's the goal. So I think it's really just all the things that we put into place are coming together and the team is making it work even in the face of all of the challenges we continue to throw at them, acquisitions, divestitures, ERP cutover, separations, you name it. This team has stayed focused and delivered. And again, I'll compliment the team that I know is listening, congratulations for that. On the margin side, we've had a lot of headwinds come our way as well since we put that LRP target out but we still feel like we've got the programs in place to deliver on those margin targets. And I think it's important when you think about us versus the organization before spin, we've got like 300 basis points of pressure that we're going to be feeling that we did not have before spin, looking at raw material increases, looking at tariffs that we didn't have before spin. And so that '23 to '25 is really like a '26 to '28 when you look at benchmarking where we were before the spin. So I'm pretty proud of the team leading in there as well. I probably just took everything you were going to say Wayde, so I apologize again on the call there. Wayde McMillan: No, no, I think you covered it really well, Bryan. Maybe just to the sort of second part of your question, Rick, on what are the milestones or things that we need to clear along the way. You touched on a couple of important ones. In order to achieve those margin targets, Bryan mentioned, we do need to clear our separation from 3M. We are very excited. As I shared in my prepared remarks, 90% of the TSAs we plan to have done here in '26. We plan to be through the ERPs here in '26. So '26 is a very important year for us, but we are pretty excited to get to 2027 and put most of that separation work behind us and move a lot of our resources, a lot of our best and brightest focusing on the business versus on the separation. And then maybe, Bryan, I'll just clear a couple of the other metrics we put out earnings per share to 10% CAGR. We are very confident with the initiatives that we have in place that will be supporting that sales growth that Bryan touched on, achieving those operating margins and then driving that 10% EPS CAGR. And then the last thing is the free cash flow conversion over 80%. And we've got these transient issues that we're dealing with today around the separation costs, divestiture costs. And again, we can't wait to be complete -- mostly complete with the separation in '26 and shed a lot of these additional costs starting in '27. And so once we do get beyond those, we will have very strong -- we are a cash -- very strong cash operating company, without, again, those special projects around separation and divestiture. If you clear those out of the way, we're already at our free cash flow conversion targets. And so we're very confident in hitting all those metrics. As Bryan said, sales growth with all the initiatives we have in place, operating margins with the initiatives we have there, including Transform for the Future, will lead us to that EPS 10% CAGR. And then we get beyond these transient projects, and we'll be at our 80-plus percent free cash flow. So very confident on our path to hitting our long-range plan targets by 2028. Operator: And next, we'll move to Steven Valiquette at Mizuho Securities. Steven Valiquette: I guess at this point, it's probably more of a follow-up question, but just to come back on that topic on the TSAs and exiting 90% by the end of '26. For the 10% that's still going to be left, just remind us again, is that really more on the supply side? And then you've talked about you have those 2027 headwinds, there was like a $100 million step-up in inventory costs from 3M or might have been quantified under basis points as well, but is that the piece that would still be kind of hanging out there? Or does some of that dissipated with your progress? Just want to just tie the -- connect the dots around all those components. Wayde McMillan: Yes. Great question, Steven. And that will help us clarify because we do get this question quite a bit. I'll just start on the 90% of TSAs is primarily around separating our systems and our ERPs as well as our distribution centers, and our -- the manufacturing that we do for 3M and the 3M does for us. And so we'll have mostly rebranding work and some supply chain work to do in 2027, that remaining 10%. But I do want to just specifically differentiate between the raw materials work that we do. And that's the additional step-up that you're talking about that 3M gave themselves a contractual option to again step up our cost in 2027, and we've shared that, that's about a 100 basis point headwind for us if that in fact happens. We don't have any updates to share at this time, but we are working with 3M to see if there's a better solution for both companies, frankly, than going that road. So that will be an update down the road. So with that in mind, we've got most of the separation work done in 2026. We do have some rebranding, some supply chain that we'll carry over into 2027. Bryan, if there's anything to add. Bryan Hanson: I think maybe the only other one because sometimes there's confusion on the raw material piece. I just want to make sure that it's clear that with those raw materials, most of that is including intellectual property that we have access to. Actually, we own. There was a concern that we didn't have that intellectual property. We have full ownership rights in our field of use, and it is transferable. We can continue to buy from 3M as a raw material supplier with that intellectual property or we can go to another chemical manufacturer to use them as well. So I just want to be clear that even though we have that long-term supply agreement with 3M, we do have the option because we own the rights to the intellectual property to go elsewhere. Operator: And that concludes the question-and-answer session. I'll now turn the call back over to Amy for closing remarks. Amy Wakeham: Awesome. Thank you, Audra, and thank you, everyone, for listening. We appreciate all your questions. If you do have any follow-ups or need to clarify anything, please don't hesitate to reach out to the Investor Relations team. Audra, you can go ahead and close the call. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the Mesoblast financial results for the half year ended December 31, 2025. An announcement and presentation have been lodged with the ASX and are also available on the Home and Investor pages at www.mesoblast.com. [Operator Instructions] As a reminder, this conference call is being recorded. Before we begin, let me remind you that during today's conference call, the company will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's announcement and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. In addition, any forward-looking statements represent the company's views only at the date of this webcast and should not be relied upon as representing the company's views of any subsequent date. The company specifically disclaims any obligations to update such statements. With that, I would like to turn the call over to Paul Hughes. Paul Hughes: Thank you. Welcome, everyone, to the Mesoblast financial results call for the period ending 31 December 2025. My name is Paul Hughes. I'm Head of Corporate Finance and Investor Relations. In the room with me today is our CEO, Silviu Itescu; our CFO, Jim O'Brien; and our CCO, Marcelo Santoro. We have a presentation to run through highlighting the financial results and the operations for the period, and then we'll have some time for questions at the end. So now I'll hand over to Silviu to begin. Silviu Itescu: Thank you, Paul. We could go to Slide 4, please. This slide highlights the corporate priorities for 2026. We intend to continue to show strong growth in Ryoncil sales driven by market adoption. We will build a strong cash flow with judicious use of funds for operations and an optimal capital structure. Cultural transition is critical so that we can move to an efficient commercial organization. We will expand Ryoncil label indications and obtain approval -- seek to obtain approval for remestemcel-L products, our second-generation platform. Our manufacturing focus will seek to increase diversification, capacity and cost efficiency for our platforms, and we will continue to focus on appropriate commercial partnering backed by demonstrable value drivers, including FDA approvals, strong revenues and advanced clinical programs. Next slide, please. This year was marked by a very successful product launch. We initially received FDA approval for Ryoncil in December 2024. Ryoncil is the first and only FDA-approved allogeneic mesenchymal stromal cell product. The product was launched in April of 2025 with revenues growing quarter-on-quarter. There is significant unmet need for continued uptake and increasing market adoption. And our net revenue from Ryoncil was USD 49 million in the first half of FY '26. Next slide, please. Paul Hughes: Thanks, Silviu. Jim will take us through the financial slides. Thanks, Jim. James O’Brien: Thank you, Paul. Hi, everybody. I'd like to now review our first half fiscal 2026 operating results. And I should mention that all figures are in U.S. dollars. Total revenues for the period were $51.3 million, driven by the successful launch of Ryoncil. Our net product revenues, as Silviu mentioned, were $49 million, and we had a gross margin of a strong 93%. Our R&D expenses for the period were $46.1 million (sic) [ $46.2 million ] compared to what we reported last year of $5.1 million. Now last year's numbers were a bit skewed because we had a $23 million reversal of the inventory provision once we got approval of Ryoncil. Without that adjustment, the prior year number would have been about $18.1 million. So -- I'm sorry, we would have grown about $18.1 million over the prior year. And again, the spending in the period really related to our adult GVHD trials, back pain and also our LVAD program as well as getting ready for the BLA and some manufacturing work. Our sales and general and administrative expenses were $28.5 million compared to $18 million in the prior year. And that increase really related to the sales and marketing effort that Marcelo and the sales team did in terms of driving sales growth. The loss during the period this year was $40.2 million compared to $48 million in the prior year period. Again, as I mentioned a few moments ago, that prior year loss was impacted by the $23 million worth of reversal on inventory. And -- but for not those items, we were down -- we were up about -- we were down on a net loss of about $30 million year-over-year. Just in terms of our operating spend and our cash flows for the first fiscal quarter -- first fiscal half of the year, excuse me, we were at $30.3 million. As we look to the second half of the year, we expect our operating cash flow usage to decline when compared to the first half of fiscal '26 based upon our projected cash receipts from revenues as well as maintaining disciplined cost control measures and efficiencies in the operation. And on the next slide, just to point out our profitability and growth pipeline from Ryoncil. As I mentioned, we had strong revenues for the period. Gross margin, excluding amortization expense would have been about $44.2 million. Our direct selling costs were $7.7 million. And again, we have strong operating performance that allows us to invest in our R&D programs and our life cycle extensions. And we do have a very robust pipeline, and we continue to invest in our manufacturing footprint as well as building inventory where needed and getting our second-generation products to market. On Page 9, next slide, please. We had $130 million worth of cash at the end of December of this year, which you can also note that the reduction in our net spend over the year, as I said, will decline over the second half of this year. On December 30, 2025, we entered into a $125 million nondilutive credit line facility. The first tranche of which is $75 million was drawn at closing and enabled Mesoblast to replay in full its prior senior secured loan. We also partially repaid the subordinated royalty facility, which will continue to be reduced from ongoing revenue and will be fully repaid by the middle of 2026. The second tranche of $50 million is available to be drawn on our option through June of 2026. The new facility has a lower cost of capital for the company, freed up its major assets to provide flexibility for strategic partnerships and commercialization. In addition, the new facility can be repaid at any time without incurring early prepayment or make-whole fees. It does not include any exit fees and does not cover any of Mesoblast assets, which is a very strong point for the reason why we did this. This is terrific for the company. And we have no restrictions on doing additional unsecured debt or any licensing activities. We're very pleased with this line of credit and believe it will strengthen our balance sheet to support an exciting growth period for Mesoblast. On the next slide, looking ahead to the second half of 2026, we anticipate full year Ryoncil net revenues to range between $110 million and $120 million on a full year basis. With that, I'll turn the call back to Silviu for additional comments. Silviu Itescu: Thanks, Jim. If we can go to Slide 12, I'd like to bring Marcelo Santoro, our Chief Commercial Officer, please. Marcelo Santoro: Thank you very much. Next slide, please. So good afternoon, good morning, everyone. We are extremely pleased with the performance of the launch to date, and I couldn't be proud of the work, the commitment and the passion that our colleagues at Mesoblast demonstrate every single day towards these children. We have treated numerous patients since we launched and Ryoncil is having a transformational impact in the treatment of these children according to the feedback we received from treatment centers and treatment teams. In fact, we are on track to achieve 20% market share by the end of year 1 in the market. The commercial performance to date has been exceptional. This holds true not only against our initial expectations, but also when benchmarked against other successful rare disease launches. We have been laser-focused on building the infrastructure needed to ensure Ryoncil reaches its full potential. I am very happy to report that we have onboarded 49 treatment centers to date. In addition, Ryoncil is now listed on the formulary of 30 of those centers, a number that continues to grow steadily as more P&T committees review and approve its use. Formulary inclusion is critical, as you know, as it streamlines the adoption and use of Ryoncil when it's selected for a patient. Having these many formulary approvals in less than 1 year demonstrates the outstanding value of the product and the tireless commitment of the team to build the appropriate infrastructure to expand utilization. In addition, 13 hospitals have opted to use Optum Frontier, our specialty pharmacy partner, virtually eliminating their financial responsibilities with the product. On the payer side, we have also made exceptional progress. Ryoncil is now covered by insurance plans, representing over 280 million lives across both commercial and government payers. Medicaid coverage is in place in all states and a specific J-Code for Ryoncil, J3402 went into effect on October 1, allowing for more efficient billing and reimbursement for both sites of care and payers, along with CMS published rates. Commercial payer support has also been very strong. All major payers, including Aetna, Cigna, UnitedHealthcare, Anthem, Humana and Prime Therapeutics covering all Blue Cross plans have issued favorable coverage policies for Ryoncil. Notably, these policies do not require step therapy, which simplifies patient access significantly. All of this has occurred within the first 6 months post launch. Next slide, please. From a strategic priority standpoint, the Ryoncil team is 100% focused on 3 key strategic pillars. The first is to proactively identify and prioritize appropriate patients who may benefit from Ryoncil therapy. The second to reinforce our superior patient outcomes in first-line treatment right after steroids. And the third is to empower caregivers to demand Ryoncil for their children. We have been working with several advocacy groups and will soon launch a comprehensive campaign dedicated to supporting both caregivers and patients. With that, let me turn back to Paul. Paul Hughes: Thanks, Marcelo. I'll hand over to Silviu, who's going to take us through the rest of the deck before we open it up to Q&A. Thanks. Silviu Itescu: Thank you. If we could move to Slide 14. This slide summarizes our plans for label expansion of Ryoncil into adults. A pivotal study of Ryoncil as part of second-line treatment regimen in adults with severe steroid-refractory graft versus host disease is underway with our partners at the NIH-funded Bone Marrow Transplant Clinical Trials Network. The basis for this trial is that 50% of adults who have severe GVHD fail existing second-line treatment, including predominantly ruxolitinib. These patients who fail have a 25% abysmal survival at 100 days. We have previously used Ryoncil under expanded access in patients aged 12 and older, in many adults as well, 18 and older who have failed ruxolitinib or other second-line agents and use of our product in this patient population was associated with 76% survival at day 100, a remarkable result. As a result of these results, the final protocol design for the registrational study in adults has been locked down and has been worked through with the FDA recently in a meeting with the FDA agency. We expect that following Central Institutional Review Board approval coming up in March, site initiation and patient enrollment will commence. Next slide, please. Further extension strategy for Ryoncil is focused on various opportunities in pediatric and adult inflammatory diseases. The team is currently evaluating multiple indications to unlock value, including in the inflammatory bowel, neurodegenerative and respiratory conditions. Our portfolio will be prioritized to maximize shareholder return by utilizing either internal investment strategies versus external partnership initiatives. Next slide, Slide 16. Now I'll be updating you on our second-generation platform, rexlemestrocel-L currently being developed for discogenic chronic low back pain and chronic ischemic heart failure. Slide 17, our Phase III chronic low back pain program, a first 404-patient randomized controlled Phase III trial has already completed, and that included about 40% of patients who are opioid dependent. We met with the FDA recently and received positive feedback on potential filing of a BLA based on achieving a clinically meaningful reduction in pain intensity at 12 months between the treatment arm and placebo arm. The robust result in opioid reduction from at least one adequate and well-controlled trial could be included according to our meeting with the agency as part of product labeling, which is a very, very, very important outcome. We, in fact, do already have an RMAT, Regenerative Medicine Advanced Therapy designation for rexlemestrocel-L as a potential opioid-sparing therapy in chronic lower back pain. Next slide. The confirmatory Phase III trial is recruiting currently 300 patients across 40 sites in the U.S. with a primary endpoint, 12-month reduction in pain. As I've mentioned on multiple occasions, FDA has confirmed that, that is an approvable endpoint. The enrollment of these 300 patients is expected to be completed in March or April. Data readout and BLA filing are expected in calendar year 2027. We have, at the same time, undergoing commercial manufacturing in order to leverage our existing capacity and cost efficiencies. I will reinforce that there are many patients who are suffering from this terrible disease. Over 7 million patients across each of the U.S. and EU5 are due to generative this disease, patients who are otherwise have run out of options other than surgery. This is a large unmet need for a potential blockbuster opportunity. Next slide, Slide 19. Now I'd like to update you on Revascor, our product based on our rexlemestrocel-L platform that is being developed for chronic heart failure with reduced ejection fraction and persistent inflammation in either patients with Class II/III heart failure or very end-stage heart failure patients who are being kept alive with a ventricular assist device in the left ventricle. We can go to Slide 20. LVAD implantation improves overall survival in these end-stage patients, and that's well established. However, the underlying causes of heart failure in these patients, notably inflammation, persists. And whilst the left ventricle improving the left side -- the LVAD is improving on the left side of the heart, the right ventricular pump function remains vulnerable and continues to deteriorate. Therefore, progressive right heart failure continues to occur in up to 30% of patients and is the primary cause of multi-organ failure and death in this group of patients, mortality occurring within the first 12 months. In addition, life-threatening major mucosal bleeding due to progressive right heart failure and portal hypertension occur in about 30% of patients and is the major morbidity in this group, the main cause of recurrent hospitalization. Next slide. Now we performed 2 randomized controlled studies in this patient population. The more recent study was called LVAD Study II, and that randomized 159 patients in a 2:1 randomization to provide primary evidence of Revascor's efficacy in reducing major bleeding events. A second study, LVAD Study I, an earlier study, is a supportive study for LVAD II, randomized 30 patients in a 2:1 fashion and provided supportive evidence also of Revascor's efficacy in reducing major bleeding events. Intramyocardial injections in both of these studies of either Revascor or control were performed at the time of LVAD implantation. Importantly, both trials, both randomized controlled trials showed the Revascor reduced cumulative incidence of major bleeding events, life-threatening GI bleeding, the trial's primary efficacy and safety endpoint and related hospitalizations through 6 months, both were significant. We go to the next slide, Slide 22. This provides you with some new data that we have not previously presented. This slide demonstrates the total number of major bleeding events resulting in hospitalizations over 6 months on the left-hand side and over 12 months compared to controls in the entire study LVAD II. As you can see both on the left-hand side and the panel B on the right-hand side, Revascor reduced major bleeding events and hospitalizations by about fivefold, a very significant reduction throughout a 12-month period compared to MPC treatment compared to control treatment. Next slide, please. Now moreover, particularly in the ischemic group of patients, what you can see is that on the left-hand side, in controls, in red, the ischemic controls had approximately a three to fourfold increase in hospitalizations due to right heart failure. The non-ischemics had a very low incidence and risk of heart failure hospitalization. In contrast, on the right-hand side, by 12 months, you can see that the MPC treatment reduced the right heart failure hospitalization events in ischemic patients back to background levels, the same levels as I see in non-ischemic controls. And again, those reductions of hospitalization from right heart failure were significant. Next slide, please. This slide focuses on the risk of death from right heart failure in controls on the left, and in Revascor-treated patients on the right. As you can see in Panel A on the left, amongst patient controls who have at least one hospitalization from right heart failure, the presence of -- sorry, amongst controls, the presence of right heart failure hospitalization, at least 1 right heart failure hospitalization in red was associated with a mortality risk and a hazard ratio of 7 or more than 7 compared to patients who did not have right heart failure. So in controls, particularly early within the first 4 months after LVAD implantation, the presence of a right heart failure hospitalization was a very strong predictor of death. In contrast, what you can see on the right-hand side, amongst Revascor-treated patients, the risk of death, particularly in that early period 4-month period is almost completely abolish. And you can see that the overall survival over a 12-month period in Revascor-treated patient was the same, irrespective of whether they had a right heart failure hospitalization or not. So what this means is that Revascor not only reduces the incidence of hospitalization rates, but protects these patients against death from right heart failure. If you go to the next slide, please. So the summary of these new data, data that I haven't shown you here, but we have also observed is that Revascor reduces the inflammatory cytokines and through inflammation reduction protects the at-risk right ventricle in these patients, the same right ventricle that continues to fail despite the fact that there's an LVAD in the left ventricle. The strengthened right ventricle reduces hospitalization rates in the intensive care unit due to right heart failure and improves survival. The strengthened right ventricle decreases the risk of portal hypertension and therefore, decreases GI bleeding events. This leads us to think very carefully about how Revascor beyond its potential use in patients with left heart failure problems, also has the potential to be used to improve right heart failure function in patients not only with ischemic heart disease, but other causes of right heart failure, including primary pulmonary hypertension and chronic lung diseases. Next slide, please, Slide 26. So let me give you an update on our CHF program, particularly our plans to file for approval. With these new data and our existing orphan drug designation for treating this group of high-risk patients with high mortality as well as FDA's stated preference for randomized controlled trials, Mesoblast is moving from filing for an accelerated approval to filing for a full approval. Unlike an accelerated approval, full approval does not require a confirmatory study. Aligned with FDA on items required for filing the BLA regarding CMC potency assays for product release and commercial manufacturing, we now have these activities well and truly underway, and we expect to file our BLA for full approval for this indication in the next quarter. Let me summarize our highlights and our upcoming milestones. Ryoncil is the first and only FDA-approved MSC product. It delivered net revenues of USD 49 million in the first half of FY '26. As you heard, 49 centers have been onboarded, 64 centers account for 94% of the entire pediatric bone marrow transplant population, so well underway to achieve that in record time. We're initiating label expansion to adult acute GVHD, a market that is 3x larger than the pediatric market. We are currently prioritizing our portfolio, which includes the potential to go into the inflammatory bowel disease, neurodegenerative diseases and respiratory conditions, and we will update the market as we focus on certain areas in priority over others. Our second-generation rexlemestrocel-L is enrolling the second trial in back pain with full enrollment expected to complete by the end of March or end of April. BLA filing next quarter is in line for full approval for patients with right heart failure and end-stage heart failure with LVAD. And we're actively optimizing manufacturing logistics to support commercialization, both of the rexlemestrocel-L pipeline and obviously, to have further inventory for the projected growth in Ryoncil sales. With $130 million in cash on hand as of December 31 and the new credit line that you heard about, which still has the potential for $50 million available to draw down, we're in a very strong financial position. And as you heard earlier, we are projecting full year fiscal 2026 Ryoncil net revenue to range between USD 110 million and USD 120 million. And I think I'll stop there. And hopefully, there are some questions that we can all address. Thank you. Paul Hughes: Operator, if you could please open the lines for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Edward Tenthoff with Piper Sandler. Edward Tenthoff: Congrats on all the great progress across the board. Could you just repeat the guidance you broke up a little bit for this coming year? James O’Brien: Yes. Yes. What we're projecting for the full fiscal year are net revenues ranging from $110 million to $120 million again, on a full year fiscal basis 2026 hitting June 2026. Operator: Your next question comes from Olivia Brayer with Cantor Fitzgerald. Olivia Brayer: I have a few, if you don't mind. Maybe just first on Ryoncil in peds. You all mentioned potentially hitting 20% penetration of that pediatric population by the -- I think it was by the end of your fiscal year, if I heard that correctly. So can you maybe just run through what those assumptions include to get to that 20%? And how high of penetration do you think you can realistically reach in this specifically peds population over time? And then I've got a couple more on your pipeline programs. Marcelo Santoro: Yes. So thank you. So let me start with the second one and then go to the first, right? So the second one, we assume a 40% peak share. And you have to understand, we believe it should be 100%. This is a product that should be used by everyone. But let's be responsible and realistic, a 40% share is reasonable, right? So if you assume a range of patients, and obviously, that's dynamic of 375 patients, that's what the 20% is based on. It's 20% until the end of our fiscal year. That's what we aim on achieving at that point. Olivia Brayer: And is that specifically for the fourth quarter of your fiscal year? Like if I'm kind of doing the math. Silviu Itescu: Yes. Olivia Brayer: Okay. That's helpful. And then for your Revascor BLA next quarter, how is the FDA viewing the ischemic versus non-ischemic phenotypes? And have they given any input on to or around potential labeling language around the ischemic etiology or inflammation biomarkers? Silviu Itescu: Well, so I think it's important to note that in the 159-patient trial, we achieved the principal endpoint of -- in overall in the full patient population without having to go to any subgroups in terms of the cumulative incidence of major bleeding events over 6 months. Also, we achieved a significant reduction in hospitalizations for major bleeding events across the entire patient population without having to go to subgroup. So our position is that we will be seeking a label for the entire patient population, especially given that the confirmatory study, LVAD I, also achieved the same endpoint across all patients. There's no question that the patients at greatest risk are those with ischemic etiology. And those patients have a higher level of inflammation, they have a higher risk for bleeding, right heart failure and death. And interestingly, we saw the very same sort of thing in the larger trial in Class II/III heart failure, where, again, we saw patients with ischemic heart disease as an etiology had high levels of inflammation, greater risk of 3-point MACE and greater treatment benefit. So we will be providing the FDA with the totality of the data that confirm the supportive trials, demonstration that ischemic patients are at greater risk and treatment with our cells is even more effective in that subgroup, but we've achieved the endpoint around the prespecified bleeding endpoint and hospitalization endpoint across the entire population. So that remains to be negotiated. Olivia Brayer: That's helpful. Understood. And then last question is just on the chronic back pain. Can you just clarify what data you're submitting to the FDA? Is it just a new analysis of the pre-existing data? And is your ongoing Phase III not actually going to be part of that submission package? Maybe just some clarity around that update because I do think that is a new disclosure. Silviu Itescu: No, no, no. I didn't mean to say that we wouldn't be submitting the data from the new trial. The new trial, the second trial, which completes enrollment by over the next month to 6 weeks is the plan to complete enrollment. That trial becomes the primary data set and the previous trial becomes a supportive data set. That's certainly our intention. We have spoken with the FDA about looking at the subgroup of patients who are opioid dependent and that's a discussion that is ongoing with the agency. But with respect to the primary endpoint in all comers of pain reduction, we will be using the 2 trials to present full data sets. Olivia Brayer: Okay. But that additional Phase III readout is coming in 2027, correct? Silviu Itescu: That's correct. Olivia Brayer: So will you -- you're kicking off filing before actually having that data? Silviu Itescu: No. The objective is to complete that trial, get the readout and move to a filing with those data in the primary file. Operator: Your next question comes from Madeleine Williams with Canaccord. Madeleine Williams: Just in regards -- just going back to the pediatric Ryoncil and just the FY '26 guidance. Can you speak a little bit to sort of how you're seeing repeat utilization among centers or just how that kind of shakes out over the remaining of the year and sort of just trying to dig into more. Marcelo Santoro: Yes. No, we'd be happy to do that. Yes. So we see the continuous growth in the centers, continuous adoption, not only by more centers, but also repeated use by the current centers we already have, which shows that they are finding utility in the products and repeating the treatment in other children, right? So that's one component. The second component, we're also seeing very big, very large centers coming on board, which will substantially increase our confidence in this guidance. And it's a reality that is happening every day. Silviu Itescu: And I would add to that, I think a major additional components moving forward is continued physician education. We've shown both in our previous Phase III trials and in the real-world data that the earlier this product is used, the greater the survival. it's unquestionable. And so a lot of the effort by the team will be to educate physicians. Physicians have their own practice habits. And they all believe that their particular way of doing things is standard. Nothing is standard in this disease, especially given that only Ryoncil is approved by FDA for treatment of children. So I think a major focus and an area of growth is to educate the majority to use the product as early as possible after steroid failure. Do you agree, Marcelo? Marcelo Santoro: For sure. And I would add 1 more, right? So as a father, unfortunately, my child had something like this horrible disease, I would like to know that this option is available. So it's our obligation to empower them to empower the caregivers, make sure that they understand that this product is available and it's the only FDA-approved product so that they can talk to their treatment teams and ask for this as a potential therapeutic option for their child. Madeleine Williams: That's helpful. And just maybe 1 more for me. Just in regards to Revascor and the full approval -- filing for full approval rather than accelerated. I'm just interested, you've obviously discussed the additional data, but I'm assuming there's sort of been some sort of constructive discussions with the FDA. And just sort of if you can provide more color about what your confidence is in receiving that full approval? Silviu Itescu: Well, we've had multiple discussions with the agency. We understand what they wanted to see and the data that I've highlighted to you today, particularly as it relates to mortality is the #1 area of focus. And the recent guidance by the agency to focus on randomized controlled trials rather than single-arm trials where major endpoints are being targeted like mortality give us the sort of confidence that particularly in an orphan disease indication where a single trial should be viewed as sufficient for approval, full approval. Operator: [Operator Instructions] Your next question comes from Michael Okunewitch with Maxim Group. Michael Okunewitch: Congrats on all the progress. I guess just to kick things off, there's obviously been a lot of changes at the FDA since you first launched the Phase III in chronic lower back pain. So I wanted to see if you've received confirmation from the current FDA administration that the 12-month pain-only endpoint is sufficient for approval? Silviu Itescu: Yes, we have. Absolutely. That's exactly why we had the meeting recently to gain confirmation from the current administration that, that endpoint is an approvable endpoint, and that's exactly what we received. Moreover, the recent guidance from the FDA that a single well-conducted randomized controlled trial is sufficient for approvals in various indications also gives us great confidence that if we achieve that endpoint, this is an approvable trial and approval endpoint. Michael Okunewitch: And then just 1 more for me, and I'll hop back in the queue. I wanted to ask when it comes to the upcoming filing in the Class IV heart failure programs, are there any outstanding items that FDA has requested that you need to finalize before you can submit that next quarter? Silviu Itescu: Well, commercial manufacturing is always a very important component of this. And that is something that we are heavily engaged in. The product rexlemestrocel-L and its Phase III trials was all made at Lonza in the same facility where Ryoncil was made and which was approved for Ryoncil. And we believe that the vast majority of the manufacturing process is quite similar to the Ryoncil process. So I think that will be an advantage in our filing, but that remains -- we need to get some more confirmation from the agency. Nonetheless, we expect that the long history of manufactured product for back pain trials, cardiac trials will hold us in good stead. Operator: That brings us to the end of today's call. I'll hand back to Paul, please. Paul Hughes: Thank you. As you heard today, we're in a strong position with a number of significant milestones in this current second half through the period. We look forward to keeping you updated on the progress and the achievements. I'd like to thank everyone for their interest in Mesoblast and participation in the call today. Thank you, and have a great day. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to Rocket Labs Fourth Quarter and Full Year 2025 Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Morgan Connaughton, Vice President, Marketing and Communications at Rocket Lab. Thank you. You may begin. Morgan Bailey: Thank you. Hello, and welcome to today's conference call to discuss Rocket Lab's Fourth Quarter and Full Year 2025 financial results, business highlights and other updates. Before we begin the call, I'd like to remind you that our remarks may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance, and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update these statements. Our remarks and press release today also contain non-GAAP financial measures within the meaning of Regulation G enacted by the SEC. Included in such release and our supplemental materials are reconciliations of these historical non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP. This call is also being webcast with a supporting presentation, and a replay and copy of the presentation will be available on our website. Our speakers today are Rocket Lab's Founder and Chief Executive, Sir Peter Beck; as well as Chief Financial Officer, Adam Spice. They will be discussing key business highlights, including updates on our launch and Space Systems programs. We will discuss financial highlights and outlook before we finish by taking questions. So with that, let me turn the call over to sir Peter. Peter Beck: Thanks very much, Morgan. So I'm going to start today by stealing some of Adam's thunder and sharing some of the financial highlights upfront. We had a new annual revenue record in 2025 coming in at $602 million, which represents 38% growth year-on-year compared with 2024. We also had a record quarter in Q4 with revenue coming up at $180 million, which was up 36% from Q4 last year. At the end of Q4, our backlog sat at a record $1.85 billion, which is up 73% from the same time in 2024. And finally, we also achieved record gross margins in Q4 at 38% GAAP and 44% non-GAAP. As you tend to say on launch day, that's greens all across the board and a great result. It comes down to one thing, and it's simply relentless execution from the Rocket Lab team across our launch and Space Systems programs. Here are some highlights from that execution. I won't labor on these now as we'll go into more detail in the up-and-coming slides. But ultimately, we launched and signed a record number of electron missions and led the way on hypersonics testing with haste and achieved some significant qualification and development milestones on Neutron. On the Space Systems front, we were awarded the largest contract in Rocket Lab's history, successfully delivered the ESCAPADE mission in Mars for NASA, and we had record growth across all of our Space Systems component businesses. On acquisitions, we welcomed Geost in 2025, which officially marked our entrance into payloads and followed this up in Q1 2026 with the acquisition of Optical Support, Inc., which further strengthens our optical systems offering. We also expanded our machining and manufacturing footprint with the acquisition of Precision Components Limited, which actually just closed today and will ultimately support continued scaling of the components manufacturer for both Launch and space systems. More on these in the slides ahead. So on to some quick highlights for Electron and HASTE. Rocket Lab remains the small launch leader globally as the only rocket delivering reliable and high cadence launch opportunities for SmallSat. We launched 21 missions across Electron and HASTE in 2025, which was a new company record. We also launched 7 missions in Q4, our highest number of launches in a single quarter to date. Meanwhile, there were no successful orbit launches of a new U.S. or European small launch vehicle in 2025 at all. And it's very clear when small cell operators need a dedicated ride to orbit, they come to Rocket Lab, and we're proud to hold the title and look forward to expanding it again the record again even further this year. The U.S. government has made no secret of the fact that faster and more frequent hypersonic testing is an urgent need and a national priority. Rocket Lab is the only credible provider that has demonstrated the ability to deliver this capability right now, not years into the future. In 2025, we conducted 3 successful HASTE missions, and the next one is on the pad in Virginia now just days away from launch. This kind of cadence and reliability positions us well for programs like Golden Dome. With more HASTE missions on the books this year, we'll be rapidly building that moat even further. It was a record year for launching missions, but also for signing them. We added more than 30 new launches to the manifest across Electron and HASTE. They came from a nicely diversified customer base spanning the U.S., NASC and defense, commercial constellations and international organizations. We had many returning customers sign new contracts often for bulk buys and multiple launches, but also added new names too, which demonstrates that our small launch customer base continues to expand. In Q4 alone, we signed a new multi-launch deal with BlackSky for 4 new launches, which brings the total number of missions they booked with us to 17. We also signed a contract with a new confidential customer in support of national security. As always, our pipeline for Electron and HASTE remains strong, and we're excited to continue signing new and novel missions as well as a standard repeat and mission profiles in 2026. Now on to Space Systems. Rocket Lab is not new to being a prime contractor, but in Q4, we made an announcement that highlights our substantial growth in satellite market and further cements our position as a preferred disruptive prime. The Space Development Agency or SDA, awarded us an $816 million contract to build an advanced constellation of 18 spacecrafts, equipped with advanced missile warning, tracking and defense sensors to provide global and persistent detection and tracking of emerging missile threats. It's the largest single contract in Rocket Labs history. What's more as a leading merchant supplier into the other Tranche III prime contractors, there are additional subsystem opportunities that could total capture -- could add a total capture value to approximately $1 billion for supplying payloads, solar power reaction wheels and star trackers software and other solutions from our broad portfolio of capabilities. It's important to point out that the acquisition of Geost played a significant role in securing this award. Rocket Lab is the only commercial provider producing both the spacecraft and payloads in-house for SDA and for the tracking layer Tranche III, supporting the government's goals for speed, resilience and affordability in space-based missile defense. This award follows on from our previous prime contract award for SDA's transport layer Beta Tranche II program. With the 2 programs combined, we now have more than $1.3 billion in contracts signed with the SDA. I think an important takeaway from this announcement is not just that we won a significant contract, it's that Rocket Lab is repeatedly winning large awards that have historically been the exclusive legacy -- exclusive to the legacy aerospace primes. We're seeing a new world order established in the defense world with the rise of companies like Anduril and Palantir playing leading roles in disrupting slow bloated traditional players. Rocket Lab is clearly doing this in space and unseating the old guard. Okay. On to Mars. In Q4, the ESCAPADE mission launched and the twin satellites we built for NASA and UC Berkeley are now well on their way to the red planet. With ESCAPADE, we've proved that it's possible to deliver decade-class missions on a drastically shortened time lines and for significantly smaller budgets than typical interplanetary missions. We made this possible through vertical integration, maintaining strict control over schedule and budget. With both spacecraft now successfully commissioned and in a Loiter trajectory near L2, that's a Lagrange point, around 1.5 million kilometers from Earth, Rocket Lab's primary role in the mission will soon be complete when we hand it over to the team at UC Berkeley next month. Even once control has been transferred, we'll be chairing Blue and Gold along as they arrive in Mars orbit in September next year. Our role in ESCAPADE might have reached mission success, but we're not quite finished yet with Mars yet. We've made no secret of the fact that we think Rocket Lab is the strongest contender to deliver NASA's Mars telecommunication Orbit program. An NTO will be fundamental to everything else on Mars, enabling science now and human exploration in the future. We'll make it possible with a rare combination of proven spacecraft, deep space mission experience, reliable rockets and end-to-end space systems capability as a vertically integrated mission provider. Our hardware and our software has enabled some of the most ambitious and successful Mars missions in history, including the Mars Insight Lander, Perseverance Rover, Ingenuity Helicopter, Mars is in our DNA and Rocket Lab has more hardware and on orbiting Mars than just about any other company today. Okay. On to programs. We had a key milestone for LOXSAT, which is our launch plus spacecraft mission to build and deploy an on-orbit cryogenic fuel depot for NASA. This spacecraft is now complete and we will be marching steadily towards launch later this year. Okay. We also have an exciting development to share from our Space Solar business. It requires some background on kind of the state-of-the-art of space solar power, so bear with me a little bit on this one. The satellite industry is rapidly expanding and projected to grow 7x by 2035. Those satellites will all need solar power. Rocket Lab is the world leader in solar space power. So it should come as no surprise that we're the best positioned to serve this growing market. In addition, ambitious opportunities are on the horizon from space-based data centers. As AI and compute demand saw data centers on earth reach their limits, companies are beginning to seriously explore moving data centers to orbit where they can take advantage of the cool conditions and infinite solar energy. But rapid market growth of this size, both for typical constellations and futuristic projects like space-based data centers will be hampered if traditional solar cells are the only option. So it's against this backdrop that I'm proud to announce that Rocket Lab is introducing a space-optimized silicon solar arrays. While silicon is not new in space, it's always suffered from low radiation tolerance and very low life expectancy with poor performance. Our team are the experts in space solar, having developed some of the most complex cells for flagship missions to the Sun and most of the missions on Mars today. The team has produced a silicon array that is a game changer. By harnessing silicon, we're able to deliver a really low cost per watt at industrial scale, enabling gigawatt class power generation and space at kilometer size scale using mass manufacturable lightweight and modular systems. We've also taken the additional step of developing a hybrid solar array solution that incorporates both high-efficiency cells and silicon cells, an approach that leverages the benefits of both technology. When size, weight and power or performance are at a premium, traditional high-efficiency cells are enabling. When cost schedule or cost constellation scale are required, silicon cells can meet that demand. When these factors must be traded off and balanced, hybrid arrays enable a combination of the 2 to deliver an optimal performance at a compelling value. So for new products, we move into new acquisitions. On the top of acquisitions, no doubt, everybody is interested in an update on Mynaric. The German government is still working methodically through the regulatory review process. So there's not much to add at this stage while that sort of runs its course as expected. But we look forward to providing an update once that's concluded. There are a few stories floating around in the media with different theories on how the transaction is progressing. All as I'd say there is don't believe everything you read in the media and online. Otherwise, this month, we have welcomed Optical Support, Inc. to the Rocket Lab team. OSI is a Tucson-based leader in the design and manufacture of custom high-precision optical and electro-optical mechanical instruments. OSI's technology is a key enabler for national security and commercial satellites. They are a key subsystem in Rocket Labs payloads for space protection, space domain awareness, missile warning and tracking defense. The vertical integration opportunities here are clear while we look forward to scaling production and capabilities to serve our customers and our own programs as we've done with many of our other successful acquisitions. And last but not least, we've also acquired Precision Components Limited in New Zealand, again, a known and trusted supplier to us that's now part of the family. With this acquisition, we have established a new precision machining complex that enables a huge increase in machining capacity. So I think it's worth spending just a quick moment here on the strategic importance of our recent optical-focused acquisitions. Vertically integrated high-performance RF and optical payload technologies unlock high-value opportunities for national security and commercial customers. They are key to unlocking programs like Golden Dome and other proliferated mission architectures. Owing to the payload chain enables -- owning the payload chain enables discriminating performance plus greater control over schedule, cost and especially for high-volume constellations. We've already seen this strategy in the action with SDA Tranche III award, and we expect to deliver more value and opportunities to us this year and beyond. We received another strong vote of confidence in our ability to deliver critical national security and defense programs when we were recently selected by the NDA for Shield. In short, we're now onboarded to the program, which has a contract value up to $151 billion, giving us the opportunity to compete for future launch and space systems contracts that deliver these capabilities to the war fighter with increased agility. All of the above ultimately points to one thing, Rocket Lab is a disruptive leader in building the future for space and defense. This was driven home by a recent visit to our facilities in Long Beach by the Secretary of War, Pete Hegseth, during the arsenal of Freedom Tour. The visit highlighted the critical support we already delivered to the war fighter today and showcased our capability to meet ever-evolving needs in the future. And last but not least, before Adam digs into the financials, here's the latest on Neutron. We've got lots of progress to share across Neutron, but I'll start with the topic on everyone's mind, I'm sure, which is the Stage 1 tank update. In January, we shared that Neutron's Stage 1 tank had ruptured during a hydrostatic pressure test at Space Systems complex in Middle River. Now failures aren't uncommon during the qualification phase of any rocket development program, but I do want to point out that this was unexpected. And ultimately, we had anticipated that this tank would pass qualification. Now the tank did meet its anticipated flight loads, but as we prepared to open up the test bound and push the pressures and loads beyond this to understand the margins in the structure, the tank let go earlier than we expected. The post-test review process identified that a manufacturing defect introduced a reduction in the strength at a critical joint in the structure, specifically around the tank closeout, which is an autoclave produced part that interfaces with the bulk composite laminate of the tank and the [indiscernible]. The review of the hardware and test data suggested that the tank otherwise performed as expected. The first tank was handlaid by a third-party contractor while we're getting the automated fiber placement machine up and running. And it's in this handlaid process that a defect was introduced. Now the decision to work with a third-party contractor was ultimately driven by schedule as it would allow us to produce the first tank rapidly while simultaneously commissioning the AFP machine for future tank production. And it's not uncommon for us to run parallel development paths like this to accelerate schedules as it can be a cost-effective way to iterate prototypes and first articles while also standing up long-term production capability to enable fast scaling down the track. Now the next tank is already in production. This time, it's being built on the AFP machine, completely eliminating the possibility of this hand defect reoccurring. It's worth pointing out that Neutron's second stage was largely produced -- was entirely internally passed and qualification -- sorry, -- it's worth pointing out that Neutron's second stage was produced entirely and internally and passed qualification comfortably. Beyond changing the manufacturing process, we also are making some minor design changes to the first stage tank to introduce more margin and improve manufacturability. To be clear, we're happy with the overall tank design. But since we're making a new one, we thought we'd always take the opportunity to tweak things a little bit and optimize it. Once completed, the new tank will undergo an extensive test and qualification campaign to verify flight readiness, and we're going to take a time of that process. The priority will always be to bring a reliable rocket to market even if it means taking a few extra months. Ultimately, the combination of the new tank and the production design tweaks and the test and qualification campaign will adjust Neutron's time frame a little bit. As such, Neutron's first launch is now targeted for Q4 2026. Neutron is still scheduled to come to market in an incredibly aggressive time frame. And what's more, we'll be bringing a robust and thoroughly tested vehicle to the pad. We look forward to sharing more development progress as we run through the final development phases this year. Okay. So on to some milestones in the Neutron program over the past quarter. You would have seen over the next few slides why I'm dubbing this the quarter of qualification. We've taken massive strides in Q4 as well as Q1 so far, successfully qualifying critical flight hardware from large structures through to component level systems. In Q4, the Hungry Hippo fairing successfully passed qualification and then on into Q1, it made its way to wallops. It's an exciting time in Virginia as Neutron flight hardware starts arriving and we can get into the final assembly and integration and test phase. For the Hungary Hippo specifically, that looks like fluid systems and installation of canards and thermal protection systems and then, of course, end-to-end testing. While we work through that in preparation for the first flight, we have the second Hungary Hipo in production for the next Neutron launch vehicle as well. Another successful qualification on the board is Neutron's thrust structure. This is a really complex part of Neutron. It must be able to withstand 2.1 million pounds of thrust, which is more than 44 electrons simultaneously lifting off to give everybody kind of a sense there. The structure is now officially on to final integration, which is the final hurdle before we get into integrated system checkouts, cryogenic proof tests, vehicle hot fires, wet dress and then, of course, launch. It will go through avionics and fluids and subcomponent integration before shipping out to LC-3. Meanwhile, at Middle River, Neutron's interstage is undergoing its own qualification campaign before being shipped to LC-3. Neutron's second stage is hung inside this during flight and then passes through the mouth of the Hungary Hipo and carried orbit. Like the Hungary Hipo, the interstage remains attached to the first stage and reuse. So it needs to undergo a robust testing program so we can assure that it can withstand the forces of launch and landing multiple times. And then Stage 2 is in its final integration and getting ready for its debut on the test standard LC-3. This is a specially built rig on the top of the LC-3 launch mount, where we'll go and conduct a barge of integrated test before ultimately moving into hot fires on the stand. That will be L3's first taste of what of an Archimedes engine and a huge milestone for the development program. So we look forward to testing that soon. Which brings me to the last but not least, Archimedes. Right now, the engines are in boot camp. We are not been nice to them at all. It's all well and good to test engines to expected bounds. But through experience, I've learned that space flight has a way of throwing things at you that aren't expected. Rocket engines don't tend to fail when everything is boring and when you can rely on analysis and simulation to bound and then truly understand performance. Ultimately, engine reliability is gained via testing. There's just no substitute. So that's what we are doing, and we're really pushing them through the edge cases, backing right off the inlet pressure, inducing cavitation and generally doing really nasty stuff to them. Ultimately, you want to know how the engines are going to perform in a really wide range of scenarios on the ground before you put them in the air and find out in flight. Too many rocket companies have not done this, and it typically doesn't end well. This is the same kind of process we undertook when developing Rutherford, the engine on Electron. And right now, we're flying more than 800 of those engines successfully to space. So we'll be bringing the same level of reliability and rigor to Archimedes. Beyond the Stage 1 tank, we've had a really positive quarter for Neutron progress, and this gives you a snapshot of just how much progress we've seen and made on the path to first launch. Major structures and subsystems are passing qualification. And for the first time, we have hardware and final integration. These are the final steps before we go into integrated testing on the pad with hot fire stage tests and then wet dress and then, of course, launch. Beyond the vehicle itself, we have established all the supporting infrastructure to enable first launch and beyond. OC3 has obviously stood up plus production and test facilities are all humming while the regulatory work is all tracking along as we expect. The things to look out for the next few months to know that we're marching steadily towards launch, including more hardware making its way to the launch site, we will be conducting extensive testing of flight hardware and then obviously, that will lead up to Neutron's first flight. So that wraps up the operational highlights. So I'll hand over to Adam for the financial overview and outlook. Adam Spice: Thanks, Pete. Fourth quarter 2025 revenue was a record $180 million, coming in at the high end of our prior guidance range and representing an impressive year-over-year growth of 36%. This strong performance was driven by significant contributions from both of our business segments. Sequentially, revenue increased by 16%, underscoring the continued momentum across the business. Our Space Systems segment delivered $103.8 million in revenue in the quarter, reflecting a sequential decrease of 9.1%. This decline was primarily stemmed from our Satellite Platforms business and our Solar businesses, both of which continue to perform exceptionally well despite the time-to-time programmatic nonlinearity of revenue recognition under ASC 606 and related subcontractor progress. We're fortunate that the growing diversification across Space Systems and Launch can often provide more predictable top line growth despite underlying volatility at the individual product line level. This was one of those quarters where strength in Launch Services more than offset the declines in Space Systems, generating $75.9 million in revenue, representing an 85% quarter-over-quarter increase due to the increase from 4 to 7 launches during the period, including 1 HASTE mission. On a full year basis, 2025 revenue was $602 million, an impressive 38% growth year-on-year. Now turning to gross margin. GAAP gross margin for the fourth quarter was 38%, at the center of our prior guidance range of 37% to 39% and an increase of 100 basis points quarter-over-quarter. Non-GAAP gross margin for the fourth quarter was 44.3%, which was also in line with our prior guidance range of 43% to 45% and an increase of 240 basis points quarter-over-quarter. The sequential improvement in gross margins was primarily driven by an increase in Electron fixed cost absorption due to the increased launch cadence within the quarter, paired with increased contribution from our higher-margin Space Systems components businesses. On a full year basis, GAAP gross margin was 34.4%, an increase of 780 basis points year-over-year, while non-GAAP gross margin was 39.7%, an increase of 770 basis points year-over-year. Relatedly, we ended Q4 with production-related headcount of 1,244, up 46 from the prior quarter. Now before moving on to backlog. I want to take a moment and zoom out and provide perspective on the progress we have made towards our long-term financial model since our NASDAQ listing in 2021. Revenue has grown nearly 10x, achieving a compound annual growth rate exceeding 76%. Gross margins have increased each year, more than doubling the contribution from each dollar of revenue. This expansion highlights our strong and disruptive competitive position in the industry as well as our highly valued and differentiated products and services across the business. The combination of this revenue growth and margin expansion has put the company on a solid foundation and path towards achieving meaningful operating leverage and long-term cash flow generation. Lastly, I thought it's important to call out our SG&A spending as a percentage of revenue as I'm encouraged to see this continue to trend downward as we scale the business. We are constantly driving the business to be fiercely efficient, and I believe that we're positioned to drive even more growth and efficiency in 2026 and beyond. Now turning to backlog. We ended Q4 2025 with approximately $1.85 billion in total backlog, an impressive 69% growth sequentially, primarily due to our recent SDA Tranche III tracking their contract award, which we announced last December. As we've mentioned before, Space Systems backlog in particular, can be lumpy given the timing of these increasingly larger needle-moving program opportunities. But once awarded, they can significantly derisk revenue growth for several years. We continue to cultivate a strong pipeline that includes multi-launch agreements across Electron, HASTE and Neutron as well as large satellite platform contracts across government and commercial programs. Currently, Launch backlog accounts for approximately 26%, while Space Systems represents approximately 74%. Looking ahead, we expect approximately 37% of our current backlog to convert into revenue within the next 12 months, which includes preliminary Tranche III revenue recognition estimates, which we believe will prove to be conservative which, in addition to the healthy sales pipeline are expected to drive incremental top line contribution beyond the current 12-month backlog conversion. Turning to operating expenses. GAAP operating expenses for the fourth quarter of 2025 were $119.3 million, below our guidance range of $122 million to $128 million. Non-GAAP operating expenses for the fourth quarter were $104.5 million, which were also below our guidance range of $107 million to $113 million. The sequential increase in both GAAP and non-GAAP operating expenses were primarily driven by continued growth in prototype and headcount added spending to support our Neutron development program. Specifically, investments ramped up in propulsion as we continue to test Archimedes engines as well as test and integration of mechanical and composite structures at our facility in Middle River, Maryland. In R&D specifically, GAAP expenses increased $8.1 million quarter-over-quarter, while non-GAAP expenses rose $7.7 million. These increases were driven by the ramp-up of our committees production and testing along with higher expenditures related to composite structures and fluids, as just mentioned. Q4 ending R&D head count was 1,012, representing a decrease of 7 from the prior quarter. In SG&A, GAAP expenses decreased $5.1 million quarter-over-quarter, while non-GAAP expenses declined $1.3 million quarter-over-quarter. These decreases were primarily due to a reduction in transaction-related legal and other professional services fees related to M&A and capital markets transactions, paired with a slight reduction in marketing expenses. Q4 ending SG&A head count was 389, representing an increase of 4 from the prior quarter. In summary, total head count at the end of the fourth quarter was 2,645 up 43 heads from the prior quarter. Turning to cash. Purchase of property, equipment and capitalized software licenses were $49.7 million in the fourth quarter of 2025. And an increase of $3.8 million from the $45.9 million in the third quarter. This increase reflects ongoing investments in Neutron development as we continue testing and integrating across the pad at LC-3 in Wallops, Virginia and Middle River, Maryland, expanding capabilities at our engine development complex in Long Beach, California and build-out of the return on investment recovery barge in Louisiana. As we progress towards Neutron's first flight, we expect capital expenditures to remain elevated as we invest in testing, production scaling and infrastructure expansion. GAAP EPS for the fourth quarter was a loss of $0.09 per share, compared to a loss of $0.03 per share in the third quarter. The sequential increase to GAAP EPS loss is mostly attributable to the $41 million tax benefit we recorded during the third quarter, which was due to the partial release of the valuation allowance against our corporate deferred tax assets as, a result of acquiring an equal amount of deferred tax liabilities emanating from the Geost acquisition purchase price accounting. GAAP operating cash flow was a use of $64.5 million in the fourth quarter of 2025, compared to $23.5 million in the third quarter. The sequential increased use of $41 million was almost entirely due to the timing of employee equity program related tax payments. Similar to the capital expenditure dynamics mentioned earlier, cash consumption will remain elevated due to Neutron development, longer procurement for SDA, investments in subsequent Neutron tail production and infrastructure expansion to scale the business beyond the initial test flight. Overall, non-GAAP free cash flow, defined as GAAP operating cash flow less purchases of property, equipment and capitalized software in the fourth quarter of 2025, was a use of $114.2 million compared to a use of $69.4 million in the third quarter. The ending balance of cash, cash equivalents, restricted cash and marketable securities with $1.1 billion at the end of the fourth quarter. The sequential increase in liquidity was driven by proceeds from sales of our common stock under our at-the-market equity offering program. which generated $280.6 million during the quarter. These funds are primarily intended to support acquisitions, such as the announced pending Mynaric acquisition, the recently consummated acquisitions of Optical Support, Inc. and Precision Components Limited as well as other targets in our robust M&A pipeline, along with the general corporate expenditures and working capital. We exited Q4 in a strong position to execute on both organic and inorganic growth initiatives and further vertically integrate our supply chain, expand strategic capabilities and grow our addressable market, consistent with what we've done successfully in the past. Adjusted EBITDA loss for the fourth quarter of 2025 was $17.4 million, which was below our guidance range of $23 million to $29 million loss. The sequential decrease of $8.9 million in adjusted EBITDA loss was driven by significant revenue and gross margin improvement, partially offset by increased operating expenses related to Neutron development. With that, let's turn to our guidance for the first quarter of 2026. We expect revenue in the first quarter to range between $185 million and $200 million, representing 7% quarter-on-quarter revenue growth at the midpoint and growth of 57% from the year ago quarter. We anticipate slight slip down in both GAAP and non-GAAP gross margins in the fourth quarter with GAAP gross margin to range between 34% to 36% and non-GAAP gross margin to range between 9% to 41%, with a modest sequential decline driven by a greater mix of Space Systems versus higher-margin Launch and a weaker margin mix within our Space Systems segment. We expect first quarter GAAP operating expenses to range between $120 million and $126 million and non-GAAP operating expenses to range between $106 million and $112 million. The quarter-over-quarter increase were primarily driven by ongoing Neutron development and spending related to Flight 1, including staff costs, prototyping and materials. However, we expect to see a shift in spending from R&D and into flight to inventory throughout 2026, which is an encouraging sign of progress as we move closer toward Neutron's transfers flight and adjusted EBITDA positivity as a result. I'm optimistic that with the impressive strides we've made towards this milestone and currently expect Q1 to mark peak Neutron R&D spending. We expect first quarter GAAP and non-GAAP net interest income to be $8 million, which is a function of higher cash balances as well as conversion of approximately $117 million of convertible notes since December 31. We expect first quarter adjusted EBITDA loss to range between $21 million and $27 million and basic weighted average common shares outstanding to be approximately 605 million shares, which includes convertible preferred shares of approximately 46 million and reflects the conversion of approximately 23 million shares from our outstanding convertible notes thus far in Q1. We there remains only 7.5 million shares or 11% of the original $355 million issuance outstanding. And when taken into the additional context of the retirement of the Trinity equipment line on Q4, we have substantially eliminated -- we have eliminated indebtedness from the business. Lastly, consistent with prior quarters, we expect negative non-GAAP free cash flow in the first quarter to remain at elevated levels, driven by ongoing investments in Neutron development and scaling production. This excludes any potential offsetting effects from financing activities. Last but not least, here are some of the upcoming investor events that we'll be attending in the next few months. And with that, we'll hand the call over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Adam, maybe I want to start with the backlog. I'm wondering if you can maybe help us build drill a bit deeper in it. And maybe remind us what is included in here, does this include the 40% of revenue from SDA Tranche II 10% of maybe the Tranche III? And what are you including from Neutron and Electron here? Adam Spice: I don't know how much you caught that -- so the -- all of the SDA contracts were added to backlog. So what remains for SDA Tranche II transport layer is still in the backlog. Obviously, what's been recognized as revenue is no longer there. Through the end of Q4, we hadn't recognized any of the Tranche III contract awards. So all of that value is currently in backlog, and that will start to convert into revenue and come out of backlog obviously in that process. As far as Neutron is concerned, I think we've spoken before that we have several flights that are representative in our Launch backlog that's reflected in our filings. So hopefully, that answers your question on backlog composition. Andres Sheppard-Slinger: Yes. That's helpful. And maybe just as a follow-up. So on Neutron, with the shift to Q4 now with the first launch, how should we think about cadence? Will you still target maybe 3 launches within the first 12 months after the first one? How confident are we in the development of the second tank and wondering if maybe we should expect any step-up in CapEx now with the second tank in production. Peter Beck: And I can answer a couple of those and maybe you and summer as well. Andres, so with respect to the tank, I think it's well understood what needs to be done there. And we had built a lot of the second stage tank on the machine. So that really solves that problem. And the way to think about just sort of follow-on flights is it's not quite as dire as like moving all of the follow-on flights 12 months or to the first flight because as you've seen in the presentation, we're already building flat out additional Neutron tail numbers. So it will probably be a slightly faster convergence into subsequent flights because none of the other hardware that's qualified as being halted, obviously, it's just that tank and the AFP machine enables us to build a tank just way more rapidly than with a hand lay process. So I think we'll be in better shape there. Adam Spice: Yes. And Andres, I guess with regards to your question as far as CapEx and so forth related to the second tank that's replacing the first 1 that ruptured I mean the benefit now, as Pete said, of being on the AFP is not only can we produce it faster, but the actual cost to produce that second tank is quite low. The first tank was expensive because as Pete mentioned earlier, it was a hand-laid up tank. It took a long time, this will be much quicker. And also, since we've now commissioned the AFP, we're really just talking about variable costs related to the tank materials, more than anything else because the existing labor is already kind of in the model. So there won't be any increased CapEx and the impact to R&D as a result of the tank failure is actually not -- the tank itself is actually not that significant. Operator: Our next question comes from Edison Yu with Deutsche Bank. . Xin Yu: Wanted to ask a question on space data centers. And I think you had alluded to a lot of interest. I think it's obviously become a topic in the industry. Can you give us a sense on how these kind of early discussions are going with potential customers interested in doing this? And is it realistic to see some type of Rocket Lab content in a space data center, let's say, within the next 2 or 3 years? Peter Beck: So thanks for the question. So I think, look, we're early with data centers. If you look at some of the models, there's a number of things that sort of have to come into focus before they become the logical choice versus terrestrial. But we never want to miss an opportunity and we've been developing the silicon arrays and power solutions for a while now focusing on mega constellations and there's high-volume power applications. But if you stand back objectively and you think about what are all the challenges with putting data centers in orbit, it boils down to really 3 things. One is cost and cadence of Launch to be able to make the model close. And then 2 is heat rejection through various means. And 3 is just sheer power, like there's a gigawatt of electricity, electrical power. So solar arrays of multi kilometers in scale are what's needed. So we wanted to make sure that whether they leave this Earth or not, there'll be Rocket Lab logos all over that stuff. So as far as I'm aware, there's nobody else has a silicon solution quite like we've developed. Xin Yu: Understood. And to your point on heat rejection, I guess, the rate eater, is that a capability you have in-house that you need to develop over time? Or is that something inorganic? Just curious on what needs to be kind of technically done there. Peter Beck: Yes. I mean, look, all of that spacecraft have radiators, I mean, you generate heat, you have to reject it. So there's various kind of ways of doing that piping heat around the spacecraft radiator. So I don't see that as a huge technical challenges just on the scale, that scale required hasn't been achieved before. So that's the challenge there. But to be clear, I mean, I don't foresee us building massive AI data centers any time soon, but those who are at least experimenting with it and looking to go down that path, I think we have a lot of compelling solutions. Xin Yu: Got you. If I could just sneak one quick one in. In terms of just the discussions, can you give us a sense of like the flavor of customers? Are these kind of new customers, nontraditional customers kind of exploring this idea with you? Peter Beck: Yes. I mean we have to be a little bit careful here, but I would say that there's certainly more nontraditional looking at this kind of solution than traditional players. Operator: Our next question comes from Ronald Epstein with Bank of America. Alexander Preston: This is Alex Preston on for Ron. So I know you talked a little bit about progress on the Mynaric acquisition, but I was a little more interested maybe broadly in the environment in Europe and more generally, right? It seems like there's a growing appetite for, call it, indigenous launch in national security space capabilities. And I'm interested if you sort of see this trend yourselves or how you see this developing. I know Pete mentioned no other small launch provider has really succeeded in the last year, but it's still, I think, focus for a lot of people. Peter Beck: Alex, it's a great question. Look, one of the reasons why we like Mynaric and why we think it's important, Europe and Europe more in general, is exactly that point is that -- there's a lot of space nations there that have very little capability with giant aspirations and really short time frames. And I think it's always everybody's desire to build domestic capabilities. But the reality is, if you want to stand up these kind of capabilities really, really quickly. You don't have the decades that it takes to build often these sovereign capabilities. They're very specialist often equipment and facilities and also intellectual property and knowledge. So we see Europe as a great opportunity for us and a real expansion beachhead we can provide solutions at the component level. We can provide solutions at the complete system with respect to a satellite. We can provide launch, and you've seen even European space agencies procure Launch from us now. And once we have a footprint in Europe proper, being eligible for participating in your European programs becomes possible. So I think it is -- it's a great opportunity. There's literally billions and billions of dollars of well-funded government programs underway right now, and the time lines associated with those are conducive or, I would say, not conducive necessarily always to creating sovereign capability. Alexander Preston: Got it. And then I guess it would sound like the attitude is still broadly constructive from what you said versus maybe Europe starting to get a little more distant from U.S.-based providers? Peter Beck: No, I think it's very constructive. I think naturally Europe is looking to create sovereign capability, but often also the conversations we've had, they're very pragmatic and realistic that the capability they're looking to create takes a long time. So working with, for example, a Rocket Lab Europe is a great way to move forward. Alexander Preston: And just real quick, would you characterize is that the same on launch as you went on Space Systems where I think there's a bit more existing indigenous capability in Europe already. Peter Beck: Yes, they're certainly giving it a good college try but not having tremendous success, I would say, -- but that is just how difficult launch is. But I think launch is just so strategically important. You can build all the satellites you want, but if you can't put them in all, but it's kind of pointless. So this is the reason why you have the European Union and ESA launch vehicles that on the face of it aren't that commercially competitive, but they will never go away because the nations need access to orbit. So, I would expect to see that persist for some time and continued investments made in -- into Launch for the -- for Europe. But in saying that everyone is pragmatic and if you need to get stuff all but then pick up the phone. Operator: Our next question comes from Erik Rasmussen with Stifel. Erik Rasmussen: Yes. Maybe just back on Neutron. I appreciate the sort of the update on cadence. And it sounds like with the pushout, naturally, you continue to sort of build out some of those more capabilities in just Neutron infrastructure around Neutron. But post sort of test flight, and we think that sort of Q4 and if it's late Q4, I don't know the timing, but what you think then that first revenue flight? What do you think the timing around that could be? And also when considering that, that probably needs to have a higher level of reliability. And then with that, are you still targeting this as a recovery mission? Peter Beck: Erik, thanks for the question. So the timing of Flight 2 will always depend on the results of Flight 1. If flight 1 goes swimmingly, then the time to get the second vehicle on the pad, we'll endeavor to make it short as possible. If the things to fix this kind of things to fix. But nominally, the timing remains consistent to what we've kind of talked about. And the vehicle will be outfitted with all of its kind of requirements for Flight 1 even for a down range lending, we'll attempt to do the reentry and landing burden space it down. Once again, if all that goes well, then the next one we would intend to slip a barge under. If we pull drive it into the ocean, then we'll probably go to a Flight 2 and get that soft landing right before we go and put infrastructure under that, could be costly to them if we damaged. Erik Rasmussen: Great. And maybe just on Electron. You had a nice launch campaign in 2025, 21 successful launches. What does the manifest and internal planning suggests or this year? And then maybe just the mix between your standard Electron missions and HASTE? Peter Beck: Yes. I mean I'm not sure how much we've disclosed about that. But I mean, certainly, this year, we're looking for more launch than last year. As you saw the bookings and manifest are bulging and we're being in electrons out every sort of 11 or 13 days now. So that's going extremely well. But I'll pass over to Adam, if he wants to comment on -- you want schedule for the year. Adam Spice: Yes, Erik. So I think consistent with prior discussions, we see good growth opportunities in Electron. And when I say electron, I mean Electron and HASTE. So I think you'd expect increase in both standard Electron launches plus growth in the HASTE side of the business. We've normally point people towards kind of 20% growth, I think is a pretty kind of I would say a reasonable estimate for where we see this business growing over the near and intermediate to maybe long term. So I would say we've certainly given the production team direction to produce significantly more rockets in 2026 than in 2025. And as Pete mentioned on the call earlier, we booked over 30 Electron launches in '25. And we always get turns orders. So look, I think if you kind of nominally assume a 20% growth in kind of the Launch business, excluding Neutron, of course, I think that's probably a pretty good place to be. Operator: Our next question comes from Trevor Walsh with Citizens. Trevor Walsh: Peter, maybe first for you, some of your prepared remarks around the OSI acquisition made it sound like that was even further enabling you with the customer as far as just attractiveness for your services and your capabilities, even though it sounds like from the announcement that OSI was actually already in the chain of suppliers with Geost. So is the customer that focused really then, can we assume on just the vertical integration aspect? Or is there also just capabilities, functionality features of that acquisition from a systems perspective that are also attractive? Just trying to gauge kind of how you think customers are really looking at this, if that makes sense. Peter Beck: Yes. No, that's a great question, Trevor. And to be fair, the customers probably don't care that much, other than the fact, what they really care about is, does this sensor arrive on time at a cost and a performance capability that they've never seen before. And that's what we're delivering. And in order for us to be able to guarantee we deliver that, the most critical element of many of these optical systems are, in fact, the optics, bringing and owning that optics in-house really, really drives certainty for us around cost and schedule and innovation. And it's -- yes, they were a supplier to Geost, that's for sure. And when we acquired the Geost business, the first thing we sat down with the leadership team there and said, right, we are the critical supply chain elements that might trip us up and been able to deliver really disruptive and affordable parts or programs for our customers, and this was the #1 thing. I think this makes us very unique amongst the other suppliers of payloads who are outsourcing optics. And it is the most expensive, the most longest lead item in any of these explicit optical payloads. So it was important to own it. Trevor Walsh: Terrific. Super helpful. Adam, maybe just a quick follow-up for you. for your prepared remarks commentary around the backlog and how Tranche III is going to -- sounds like it's maybe conservative in terms of what's going to be recognized in that first 12-month period. Can you just maybe walk us through a little bit of the puts and takes of how -- what's, I guess, influencing that Tranche III rev-rec? Is it just customer timing of when they want deliverables? What's the -- just give us maybe one level deeper, that would be terrific. Adam Spice: Yes. So I think we've articulated previously that typically when you win one of these programs, you can recognize revenue kind of like 10% in the first 12 months after award, then 40% in the second 12 months, 40% in the third 12 months, in the last 12 months, it's about another 10%. So you got a pretty kind of normal bell curve. What I would say is that with -- what really gates our ability to kind of move faster is really our subcon deliveries, right? So would really either kind of helps us accelerate and get through these gates and milestones and rev-rec quicker is our subcons ability to deliver on time. And so I think that, that all goes back to what Pete was talking about earlier and the importance of vertical integration. So to the extent that we can just own more of the platform, we have greater control. And that allows us to have more predictability to how we kind of time revenue recognition and so forth. So I would say that a big job for us in 2026 is across our engineering and production teams is to really make sure we stay on top of what parts are still coming from third parties, make sure that they stay on their deliverables so we can kind of, again, get the program accelerate as much as possible and get more of that revenue recognized. So again, we go into it pretty conservative. I think what we've -- what -- if you look at the pure conversion at 37%, I think that was mentioned earlier of backlog converting, I mean, obviously, a portion of that is Launch but the portion that's related in Space Systems. Some of that is coming from the components and subsystems completely unrelated to SDA Tranche II and Tranche III. But what is in there for Tranche III is, again, assuming some pretty conservative delivery dates from our subcons, and hopefully, we can work with them to do better. Operator: Our next question comes from Ned Morgan with BTIG. Andres Sheppard-Slinger: Actually got Andres on, I don't know what happened there, but all good. I wanted to ask about Space Systems. It seems like it came in a little bit weaker than what consensus might have expected at first. So, I just wanted to know the puts and takes there. I know you explained it, but why might have consensus gone a little bit ahead here in the quarter? Adam Spice: Yes. I don't know that consensus does a great job in breaking out the various pieces of the business, even differentiating much between Launch and Space Systems. And then certainly within Space Systems, I'm not sure they really look at between kind of our platforms business versus the subsystems business. So one of the things I mentioned this in my prepared remarks, is that it is difficult to I would say -- I mean you can't -- to the extent that you can control the execution for your rev-rec requirements under ASC 606. It just depends on how well your subs are executing, right? And how tightly you're working with them to make sure they stay on track. And to your best efforts, I think we've all seen in some fairly public venues customers of these programs talking about how there's been some snags in the supply chain, including from those, for example, like from the optical terminal providers. And so if you look at what we do is we continually look for ways, as Pete mentioned, to just reduce any kind of dependency on third parties as much we can. That's why if you look at Electron, how vertically integrated that vehicle is Neutron will be very similar. We're getting that way more and more with our Space Systems platform offerings where very little is still, I would say, outsourced to third parties. So it's really just a function of, again, you work with them and get them to deliver as aggressively as you possibly can, while not sacrificing quality or cost where we can. So yes, I wouldn't read too much into the granularity that people may have expected from our Space Systems business because 1 of the benefits that we have now from being -- having such a diversified businesses, we really just look at the top line, how can we deliver that sequential growth of the business and sometimes more of it's going to come from Launch. And sometimes the word is going to come from Space Systems and within Space Systems, platforms can have a great quarter and components can be weak and vice versa. And then just gets that much better, and we'll have that many more tools at our disposal when we have Neutron coming online, which is why, obviously, getting that first flight off is so important, why we're all looking so forward to that. Andres Sheppard-Slinger: Yes. No, that's super helpful. I guess to stick with you. I mean, around the 2 acquisitions that were just announced, are there any financials that you can give any kind of color as to what they were doing on a performance basis? And I guess, just how much cost we might be able to see taken out as a result of them being brought in-house? Adam Spice: Yes. Our pipeline is always kind of interesting. It's got a mix of kind of more needle-moving deals from a financial perspective as far as revenue contribution and so forth. These particular deals really much more strategically around, again, vertical integration, reducing risk versus, I would say, providing big access to large external third kind of TAMs, if you will, or adjacent markets. So these are really more, I would say, reducing some margin stacking and also just taking greater control over the programs. So I wouldn't say there's not a, I would say, a material amount of revenue contribution that's going to move the needle from the deals that we just announced. Clearly, Mynaric is -- would be a different story if and when that deal gets approved because that would come with a significant backlog and revenue opportunity. And again, our pipeline also has lots of other deals that have a mixture of just, again, elimination of margin stacking and in some cases, also more meaningful revenue contribution. But these 2, I don't think you need to change your models at all for the impact for these 2 relatively small deals. Operator: Our next question comes from Guatam Khanna with TD Cowen. Gautam Khanna: I was wondering on the Neutron tank failure. Have you guys -- are you high certainty that it was that manual layup process. And therefore, the new process is not going to have the same anomaly? Or is the study still ongoing of what happened? Peter Beck: Yes. No, we undertook a complete pastry analysis, and we're able to find the piece of tank that caused the initiation of the failure. We're able to reproduce the results through analysis and then also through coupon testing as well. So no, we're very, very confident. We understand that value extremely well. Gautam Khanna: Okay. That's great to hear. And then you mentioned some areas where you'd like to take more in-house vertical integration. Can you describe some of those product areas that might be of interest? Peter Beck: Yes. I think if you look across the space craft these days, the areas that we still don't have 100% control of are starting to get smaller and smaller. We have a great RF team, but I think that's an area and we will look to bolster. And we'll seek opportunities to add scale where possible. But I think -- this is just going to be bread and butter for us to constantly make sure that we don't get stung with suppliers that aren't able to deliver for us and continue to vertically integrate. But as Adam pointed out, our M&A pipeline is pretty full, and there's a range of opportunities there from these kind of things that important, don't add huge revenue bottom lines, but they kind of guarantee revenue because we're not going to miss milestones. But they're ranging through to some real needle movers that are much more transformational and as Adam also pointed out, we're always making sure that we have plenty of capital reserves to go and do those more meaningful acquisitions. Operator: Our next question comes from Ryan Koontz with Needham & Company. Ryan Koontz: I want to ask about backlog, Adam, your commentary there as you think about the opportunities ahead over the next, say, 12, 18 months? Obviously, the SDA has been very, very active. And how you think about the composition of your backlog relative to DoD versus commercial, just in terms of the next 12, 18 months? Adam Spice: Yes, all fortunate spot, where traditionally, government business has not really been ever viewed as a hockey stick. I think for us since we're coming in, in such a disruptive way -- and were disruptive, but also the whole architecture where you've gone from Geo to Leo and the number of satellites that are required to support that architecture has just been so strong. We've got so many things that are pushing us in the back as far as kind of where the opportunities are. But I'd say, overall, we've got really big commercial opportunities that we continue to chase even though for me, I was given the choice of chasing a government hockey stick or a commercial hockey stick, I would take the government hockey stick because even though they may not be as dynamic in some cases at a program level as commercial, they always pay their bills. They're pretty clear cut how you work with them. And in that government market, we're just competing with people that seem to be fighting with their hands tied behind their backs, right? So we move much more quickly. We have a lot more tools at our disposal because of our vertical integration. So I love the mix as it's trending towards government. I do think it's also very comforting to have this big commercial hockey stick opportunity out there as well. But I would say that it's -- the pipeline -- when you look at the pipeline of kind of business opportunities, forget the M&A side, it's a pretty balanced set of opportunities between commercial and government. I mean I'll let Pete kind of provide his view, but it seems like we don't just have a choice of kind of taking one fork or the other in the road where we can try to think about how do we take both of those things. And I think we've done a pretty good job balancing, but maybe Pete want to speak about that. Peter Beck: I think you've said it perfectly, Adam. Yes, Mike, I can't add anything better than that. Ryan Koontz: Great. Maybe just a quick follow-up. As you think about Golden Dome and timing and PWSA fitting into that architecture, any updated thoughts on your role there or opportunities when you think that emerges as a truly viable business opportunity for you? Peter Beck: Yes. I think Golden Dome is quite a complex one is obviously, it's a huge program, but it's -- a lot of it is also classified. So it's very difficult to discuss too much. But I would say that in multiple fronts, I think we are well positioned to have a good chunk of this, whether it be launch or satellites, optical terminals, a lot of the optical payloads, the SDA, when the Tranche III SDA win is a clear missile track payload, which is very complicated pallet obviously and critical for the Golden Dome. So as that program formulates and continues to grow, I think we're pretty key piece of that foundation. Operator: Our next question comes from Michael Leshock with KeyBanc Capital Markets. Michael Leshock: I wanted to ask a longer-term question on a potential future Rocket Lab, satellite constellation, just given some of the recent announcements across the industry. And as you mentioned in the presentation, the significant growth in satellites that's expected over the next decade, have there been any changes to your approach on a future constellation of your own or what potential applications you may target? Or is this still a longer-term growth opportunity that really won't be a priority until Neutron is launching consistently? Peter Beck: Yes. Thanks for the question, Michael. I think what's kind of call here is that you've all heard me say that it's going -- space is going to get blurry. It's going to be difficult to determine what is the space company and what is something else company. And that continues -- that thesis really continues to firm now that you look at data centers and all these other kind of opportunities that are growing in space. It's like it is -- the large successful companies are going to be blurry. Are they going to be a space company, are they telecommunications company are they data services company. And your point is really accurate until kind of Neutrons online, and we have multi-ton reusable launch capability. I think that's the time that we can really lean into deploying infrastructure. But in saying that, we're not sort of sitting back and sitting on our hands, thinking about what we could do. I think you can see in just about every avenue, we at least have knowledge or components or exposure. When I say revenue every kind of opportunity that potentially being thought about or used in space today. So it's still too early, Michael, but it's not on a day that doesn't go by where there's not an internal discussion about it. Michael Leshock: Great. And then maybe on the Stage 1 tank rupture, I don't know if I missed it, but how fast can you produce the second tank now with the new AFP machine? And then will that get even faster as you repeat this process over time? Peter Beck: God, look, it's ridiculous. The AFP machine is just is totally ridiculous. I can't remember the exact time line to lay out a dome. But we measure a dome manufacturer on the AFP in days. Actually, the longer pole in the tent dear for a tank manufacturer is not actually laying up and curing the components. It's the joining of the various domes and tanks and barrels together and all the tabs and details of baffles and all those kinds of things actually take the time, but a new tank, we're talking months here not for a complete tank. But from an actual manufacturing of the oral components, it's ridiculously fast. And also that to Adam's point, it's like now that it's all automated, really the only cost of the raw material that's going in there. Operator: Our next question comes from Jan Engelbrecht with Baird. Unknown Analyst: I'd like to get your -- just go back on PWSA and just get your sort of your high-level thoughts about that program. It does seem like your focus will shift more towards the tracking layer given that's really impressive when the Geost acquisition, just how you're thinking about the future of that for Rocket Lab. And then also just we've heard a lot of government reports being issued on the transport layer piece, like how difficult would it be for a commercial variant like Starshield with MILNET to sort of act as the transport area. It seems like there's a lot of things that would stand in the way of that because a commercial Starshield orbits at much lower altitudes than the transport of tracking layer. So there would be a lot of redesign work. But I'll stop there and just to get your overall thoughts there. Peter Beck: I mean we could dig out about this for days, Jen. So yes, it was intentional for us to move up the value chain, if you will. Not the transport layers elementary by no means is a entry, but it's an order of magnitude more difficult and more valuable to be able to doing the tracking stuff. And the tracking stuff is critical for things as things develop for Golden Dome and other kind of programs. So that's the high-value stuff where you want to be, that there's really only a few people in the nation that can successfully execute on. With respect to the transport layer going away, I mean we haven't heard or seen any evidence to that. Obviously, there's a lot of discussion about other providers. But the whole point of the SDA program is kind of all of the spacecraft are integrated very closely with each other, even though they're from other providers, there's a set of requirements that we all must meet for interoperability. So I think your point is a good one. It becomes more difficult to have interoperability when you have something that's quite different. But it will be interesting to see how it all shakes out. But I think for the tasks that SDA is trying to achieve, to me, at least, it makes more sense to have a dedicated transport layer and then the other layers, of course, tracking and then custody and so on, on top of it. Unknown Analyst: Very helpful. And then just a quick follow-up, if I may. I want to be respectful of the Mynaric deal, let that play out as it will, but on optical terminals, sort of at which point, and again, hoping like it works out well here, but at which point do you potentially look at not maybe an alternative supplier of OCTs or does Geost or the new acquisition, OSI have any capability that you could look towards developing these optical terminals over time? Peter Beck: Yes. So Geost has developed some optical terminals. And obviously, we have the optics now in-house as well. But there's just it's incredibly difficult to do. And as we look across the landscape of all of these optical terminal suppliers, of which there's really only 3, Mynaric just stood out as the absolute best with respect to technology. Now they're stuck at other things like running their business, but they make the best terminals. So to go out and develop your own terminal, yes, totally feasible. It's just a time thing. And it would just take longer to do that than it would to acquire. Operator: Our next question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Unknown Shareholder: This is Daniel Hischman on for Jeff Van Rhee. On Mars Telecommunication Orbiter, the $700 million, $750 million there about wondering, it looks like earlier this week, NASA put out an RFP for Mars Telecommunications Network. So a little bit of a name change there. It sounds like that might be a multi-satellite architecture where previously, they were just looking at that one single orbiter. But what can you tell us just about how the competition and market lines positioning for that's been evolving? Peter Beck: Thanks, Jeff. Great question. Yes, so the MTO, as you pointed out, there's a slight change there to network. And as more infrastructure is built on Mars, then, of course, the network will need to be created. The MTO was always intended to be the first of water to come. Look, obviously, we think we're well positioned here. There's -- we have the experience. We have a lot of the capabilities and a lot of the demonstrated capabilities, but I think we'll put our best foot forward there. And of course, others think they can do the job, too. That's the great thing about competition and we'll see who wins. Unknown Analyst: And then Adam, one for you just on the gross margins, which obviously are growing tremendously, I think, what, 8 points up in 2025. And then the guide for Q1 '26 has those stepping back down a few hundred bps and you called out the Space System mix shift, is there anything persistent about that mix shift either in terms of the new business coming online potentially with the SDA transport layer that it's going to have some persistent margin pressure? Or should we be assuming in our models that we'll be getting right back to that more normal cadence of a few hundred bps of expansion as we get back into the later half of the year? Adam Spice: Well, I think gross margin is a -- there's a lot of things that are going on underneath the surface there. So as we continue to grow, there's a call -- a question earlier from Erik about the Electron launch cadence, so I mentioned a 20% launch growth in that. To the extent that we can do better than that, which I think there's opportunities to grow faster in 2026, then that's going to be a positive upward bias to margin. These larger, longer-term programs like SDA Tranche II and Tranche III, they typically come in at relatively at the low end of our gross margin mix, but they have really good operating margin kind of characteristics to them or contribution margin because of the fact that there isn't a tremendous amount of incremental R&D that's kind of outside of the programs. So I would say that in a quarter where you've got a lot more contribution from the big programs like Tranche II and Tranche III, that will put downward pressure, offset hopefully by growth from -- increase in the Electron contributions. The Components business has a quite interesting range of margins. You have some products in there that are more towards, say, 30 points in non-GAAP gross margin, other ones that are kind of north of 70 points of non-GAAP gross margin. So there's a widespread and mix is hard to predict that far out in the year. I mean I do think there will be a supportive trend towards gross margin, but I think it's difficult to really get a lot of granularity kind of much more than, I'd say, maybe 1 or 2 quarters out. But overall, I think as we continue to kind of grow that components mix of the business, more Electron in the mix, it's all going to be positive. Now I think the 1 caveat to that is, as we bring Neutron into production, it will have a margin expansion curve, probably not too dissimilar to what we've experienced on Electron which has been incredibly, it's been a great margin expansion story. But when you bring a new product like a rocket to market, you do things like block upgrades and then that all helps bring down cost, increase performance, so you can sell out more capacity on the rocket, which is helpful to ASP and so forth. But I think the most important thing in the Launch business is rate, right? So it's all about absorbing your fixed overhead or fixed costs related to that program or product. So I think that you're going to see what we'll start to do, our plan is to give you guys as much clarity as we can or break out between Electron, for example, and Neutron as that comes into production. So you can see that continued expansion and kind of that Electron business operating at model and then the trends as Neutron ramps as that goes towards target model as well. Hopefully, it's a bit quicker to get to target model, target margins on Neutron because it's a reasonable launch vehicle, but it will still take several years. So you'll start off with fairly kind of low to even maybe negative gross margin for some of the early flights. But then again, you'll see just like Electron to pop back up and become pretty positive pretty quickly and get to target model. So it's a long-winded answer. I do think, again, the trends are supportive of gross margin expansion, but it could be a little bit kind of volatile and hard to predict quarter-to-quarter when you get more than 1 or 2 quarters out. Operator: Our next question comes from Suji Desilva with Roth Capital. Suji Desilva: Just real quick on the Electron launches. Are there any ASP trends to not add on any tailwinds in the second half? Or are they fairly steady next couple of quarters? Adam Spice: I think that we're going to continue to see a march towards, I'd say as we increase more of the mix towards HASTE, that's helpful to the ASP. I think margins are relatively consistent because even though HASTEs are priced higher, there's a lot more mission assurance and other things go along with them. So absolute dollars are higher. The gross margin percentage is relatively consistent across HASTE and Electron. And then -- so I would say, overall, we've seen a very nice expansion in ASP over the last several years because of the increased mix from HASTE, and I don't see that changing. In fact, we continue to grow that subsegment of the business quite nicely. And again, I just given the things that Pete has talked about earlier regards the Golden Dome and the importance of the hypersonics test capabilities, that's a really strong area of growth for us going forward. So I think overall, a positive bias towards higher ASP per launch. just as we've seen over the last several years. Sujeeva De Silva: Okay. And a follow-up question maybe is for Pete. Pete, maybe you can reflect on versus a few years ago to get to the launch cadence, the customers' payload readiness was something that was variable. Has that changed? Has the nature of the customers changed where you can feel more comfortable that you can hit a 11- to 13-day cadence? Is it just a higher number of customers coming in that you can kind of load them off? Or just any color there would be helpful. Peter Beck: Yes. Thanks, Suji. I would just say that we've probably got better at looking like a duck where it's just on a glassy pond and it looks normal and there's legs flat out underneath it. And with a higher cadence gives us the ability to move customers around. So I would say that, that's just the reality of the Launch business, payloads are ready until they're not. I think we've just got way better at managing those customers having more rockets integrated, ready to go and managing that. So it's great to hear that it looks smooth, but behind the scenes, as everyone's flat out, mixing and matching and making sure that it all looks smooth on the outside. Operator: Our next question comes from Kristine Liwag with Morgan Stanley. Unknown Analyst: This is Justin Lang on for Kristine. Pete, can you just back on the Neutron time line, how do you not run into the Stage 1 tank issue? Would the program have met the earlier goal of getting to the pad here in 1Q? It sounded like from your earlier comments, there was a good volume of qualification work completed in the quarter. So, just trying to assess whether there are other factors that play in this new time line or are really isolated to the Stage 1 tank issue? Peter Beck: Yes. Thanks, Justin. It's kind of hard to say because when the tank let go, like the reverberation went through the test stand and the entire business. So at the moment that happened, everybody just stopped what they were doing and a lot of sense to get on to the tank to figure out what went wrong. So we moved a lot of resources around from lots of parts of the business. So I'd have to go back and have a look and see if we played everything forward with what that time line would have looked like. But sort of hard at this point because we had an anomaly. Adam Spice: I would add one more thing to that. I think if there's a silver lining to the tank anomaly is the fact that because of what happened, it just has given the other kind of subsystem teams, the opportunity to really kind of fully exercise all the demos, if you will, much more than they could have under the compressed time schedule we were working towards. So in some ways, the tank letting go will create certainly a lower risk test flight when that happens later this year. So I think yes, it's -- nobody is ever happy when you have an anomaly. It's something that wasn't planned and certainly wasn't anticipated, but I think it does help us bring down the overall kind of risk stance of the program as we move towards that first test launch. Unknown Analyst: Got it. That makes sense and helpful. And Adam, actually, just one for you back on the SDA award. Curious if you could speak a little bit more to the cash profile in particular and how that lines up against the revenue build curve that you sketched out earlier? Adam Spice: Yes. So actually kind of interesting with these types of programs because of the way that you do the accounting and the rev-rec so under ASC 606, you -- we model these things, though, you always have to be in a positive cash position. So you -- when you kind of work out your milestones and how you're flowing out dollars to your subs and so forth and spending money in the program internally, you always need to be in a position of positive cash in order to be able to recognize revenue along the way. And so this program is consistent with that. We've gotten some questions as to whether or not the partial government shutdown has impacted our customer, in this case, ability to pay as they know. In fact, we got a very large payment from that customer. So the money is still flowing and everything seems to be green lights right now. Operator: There are no further questions at this time. This does conclude the program, and you may now disconnect. Everyone, enjoy the rest of your day.