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Jordan: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2025 IRIDEX Corporation Earnings Conference Call. All lines have been placed on mute; there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Trip Taylor, Investor Relations. Please go ahead. Thank you, and thank you all for participating in today's call. Trip Taylor: Joining me from the company are Patrick Mercer, IRIDEX Corporation's Chief Executive Officer, and Romeo Dizon, the company's Chief Financial Officer. Earlier today, IRIDEX Corporation released financial results for the quarter ended 01/03/2026. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact, including, but not limited to, statements concerning our strategic goals and priorities, product development matters, sales trends, and the markets in which we operate. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place reliance on these statements. For a discussion of the risks and uncertainties associated with our business, please see our most recent Form 10-Ks and Form 10-Q with the SEC. IRIDEX Corporation disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 26, 2026. I will now turn the call over to Patrick. Patrick Mercer: Thank you, Trip. Good afternoon, everyone, and thank you for joining us. Today, I am proud to share our fourth quarter and full-year results, which represent a successful year and a positive transformation for IRIDEX Corporation. In 2025, we achieved our goals to streamline our operations, reduce costs, and put IRIDEX Corporation on a path to sustainable profitability. For the full year 2025, we grew revenue by 8% and reduced operating expenses by 22% compared to the prior year. This leverage helped deliver positive adjusted EBITDA for the first time in the company's recent history. Further, we closed out the year by generating positive cash flow from operations in the fourth quarter. I believe it has been made clear that we have done the work to create a new financial profile capable of generating positive cash flow from operations in 2026 and beyond. For the full year, revenue was $52.7 million, representing 8% growth year over year versus 2024. Notably, we saw growth across every major product category—Cyclo G6, medical retina, surgical retina—as well as across both our U.S. and international businesses. Fourth-quarter growth was even stronger. The 16% increase marked the strongest quarterly growth rate of the year. I want to take a moment to highlight some of the important contributors to our strong Q4 performance. On the cost side, we are continuing to right-size the business to be more in line with revenues. We have continued to make meaningful progress with the relocation of certain general and administrative functions out of California. We expect this initiative alone to generate approximately $165,000 in quarterly savings beginning in Q1 2026. We also plan to relocate our headquarters later in 2026, which will further reduce our fixed cost base by approximately $600,000 on an annualized basis. Also, as part of our continuing efforts to reduce our cost structure, we are in active discussions with contract manufacturers as part of a multiyear initiative to transition production away from our Mountain View facilities and toward lower-cost third-party manufacturing. We expect to begin meaningful transfers in 2026, which will incrementally lower our cost of goods as the year progresses. Full implementation is expected to be completed in 2027, and will prove a further meaningful reduction to our cost of goods. This initiative is expected to be a significant driver of gross margin improvement over the coming years. Turning now to take a closer look at our commercial results. For the fourth quarter, beginning with our glaucoma business. In the United States, our strategy remains centered on leveraging our substantial installed base of Cyclo G6 systems and driving higher procedural utilization. Medicare LCDs introduced last year continue to create drivers for G6 adoption earlier in the continuum of care for mild- to moderate-stage patients. Our team is focused on educating our physician users on this opportunity, including highlighting our robust clinical data supporting the IOP-lowering efficacy of the procedure and updated sweep speed procedural technique. Using MedScout, our relatively new sales enablement software platform, we are identifying accounts in the mid-range of utilization to engage with clinicians and reiterate the benefits of our repeatable, incisionless procedure. In an extension of this effort, we are also now targeting high-volume MIGS surgeons who, based on their case volumes, have the potential to adopt the procedure at meaningful utilization levels. Pricing tailwinds based on the enhanced value of our procedure also contributed positively to Q4 glaucoma revenue. Physician relocations drove a number of system sales in the quarter as the new practice locations acquired their own dedicated G6 systems. With a growing installed base, higher ASPs, and increasingly effective commercial targeting through MedScout, we are well positioned to drive meaningful G6 growth throughout 2026. In total, in the fourth quarter, we sold 15,900 probes versus 13,300 in the prior-year period, and 44 G6 systems versus 47 in Q4 2024. For the full year 2025, we sold 57,800 Cyclo G6 probes compared to 55,400 in the prior year, and 133 G6 systems compared to 125 in 2024. International glaucoma was also strong across multiple geographies. In Europe, Middle East, and Africa, glaucoma probe sales grew for the third consecutive quarter, supported by fulfillment of several GPI orders, a meaningful milestone for the region. It is important to note that the conflict in Iran is impacting sales in the Middle East materially today. In GmbH, G6 probe sales remain stable with existing customers, and we believe our GmbH utilization is well positioned to absorb incremental volume as we work through distributor transitions in the region. In Asia, the region continued to experience volatile and operational challenges. Despite continued demand, shifting macroeconomic conditions continue to impact our commercial activity. The evolving tariff uncertainty with China continues to challenge sales and forecasting. In Japan, current headwinds continue to weigh on near-term results. Our partnership with Topcon remains, and we are monitoring the macro environment closely and expect conditions to improve over time. In Latin America and Canada, the region showed steady utilization in G6 probes, reflecting solid adoption of our technology in Canada and across key markets. Now turning to our retina portfolio, our top priorities continue to be capitalizing on the ongoing upgrade cycle, driving PASCAL adoption, both domestically and internationally, and securing additional regulatory approvals for our next-generation retina platforms to capitalize on our global distribution network. In the United States, PASCAL is firmly established as our flagship system, and we are seeing consistent trends of existing PASCAL customers upgrading to our newer platforms. Additionally, newly graduating ophthalmologists are choosing IRIDEX Corporation's PASCAL systems, in part due to our efforts to ensure PASCAL is the preferred system used in university and training programs. Medical and surgical retina revenue performed well. Surgical retina was a particular standout, exceeding the plan for the quarter. EndoProbe sales held steady throughout Q4, demonstrating consistent performance. Turning to international retina. In Europe, Middle East and Africa, the region continued to perform in line with expectations. PASCAL's performance in the Middle East and Africa was somewhat softer in Q4 following the fulfillment of several large orders in Q3. We are also making progress in expanding our E&C business in the U.K. with notable increases in ENT probes and IQ 532 XP systems. Italy remains stable and we continue to manage distributor quality and service in that market. Middle East sales of retina products are also being materially impacted by the conflict in Iran. In GmbH, capital equipment sales faced a slowdown in part due to purchase order delays. However, we completed our first IQ 532 XP sales in Germany. We believe this represents a promising new model for expanding our business. Our GmbH team has secured PASCAL Synthesis orders and continues to build a pipeline for placements with newer models pending MDR certification. In Asia, our retina business was affected by the same macro dynamics impacting glaucoma across the region, including the China tariff situation and currency pressures in Japan. Despite these headwinds, underlying demand for our retina products across Asia remains solid, and we believe the region represents meaningful upside as operational uncertainty is clarified. In Latin America and Canada, the region continues to stabilize, supported by consistent PASCAL sales driven by renewed distribution engagement in Chile and Colombia. Representative of our comprehensive commercial efforts, it is important to call out that clinician interest in our glaucoma and retinal laser platforms was very apparent at the American Academy of Ophthalmology annual meeting. Our booth location saw substantial foot traffic. We are pleased to see the growing attention to our industry-leading technology and have come out of the meeting with a large number of high-quality leads. More importantly, on the execution front, our sales team did an exceptional job converting those leads into orders, with close to $1,000,000 in business stemming directly from that meeting. We expect to continue to execute on our strategic initiatives and extend our commercial momentum with our glaucoma and retina platforms to drive revenue growth in 2026. For the year, revenue is expected to range from $51,000,000 to $53,000,000. This guidance contemplates no sales in the Middle East. When adjusted to exclude Middle East revenue in 2025, our guidance represents 2026 growth of 1% to 5%. I will now turn the call over to Romeo Dizon to discuss our financial results. Romeo Dizon: Thank you, Patrick. Good afternoon, everyone. Thank you for joining us today. Before I review the financial results for the quarter, please note that the fiscal year 2025 was a 53-week year, with the fourth quarter spanning 14 weeks compared to 13 weeks in the prior-year period. As we noted in our press release and in Patrick's comments, our total revenues for 2025 were $14,700,000, representing a 16% year-over-year increase compared to $12,700,000 in 2024. Growth was driven primarily by higher retina sales, including PASCAL sales, and glaucoma probe sales. Retina product revenue increased 22% in 2025 to $8,900,000 compared to 2024, driven primarily by the higher PASCAL system sales and medical and surgical retina system sales. Product revenue from the Cyclo G6 glaucoma product family was $3,800,000, representing growth of 15% year over year, driven primarily by higher probe sales. Other revenues decreased $100,000 to $2,000,000 in 2025, compared to $2,100,000 in 2024. Gross profit in 2025 was $5,500,000, or a gross margin of 37%, a decrease of $100,000 compared to $5,600,000, or a gross margin of 44%, in 2024. The decline was primarily due to an increase in overall manufacturing costs, including increased product costs associated with tariff developments throughout the year, and lower capitalization of manufacturing overhead as our inventory levels declined. Operating expenses were $5,500,000 in 2025, a decrease of $600,000, or 10%, compared to $6,100,000 in 2024, due to expense reduction measures taken in late 2024. Net loss for 2025 was $200,000, or $0.01 per share, compared to a net loss of $800,000, or $0.05 per share, in the same period of the prior year. Net loss for 2025 included a provision for income tax of $100,000 and interest expense of $100,000. Non-GAAP adjusted EBITDA for 2025 was $817,000, an improvement of $200,000 compared to non-GAAP adjusted EBITDA of $611,000 for 2024. The improvement is driven primarily by the expense reduction measures implemented in late 2024. Cash and cash equivalents totaled $6,000,000,000 at the end of the fourth quarter 2025, an increase of $400,000 compared to $5,600,000 at the end of 2025. In 2025, cash use was $2,100,000, an improvement of 71% compared to 2024. We are very pleased with our reduction in cash usage and expect cash use to continue or improve from these levels. While gross margin is a key driver to improving our financial profile, we experienced a decline in 2025 mainly due to an increase in overall manufacturing costs, including increased product costs associated with the tariff developments throughout the year, and lower capitalization of manufacturing overhead as our inventory levels declined. For the full year 2025, our gross margins also declined due to inventory write-downs, coupled with the reasons for the decline in the fourth quarter. We expect gross margins to improve as we progress through the manufacturing transition to third-party contract manufacturers in 2026 and 2027. Operating expenses continued their favorable trend in the fourth quarter, reflecting the sustained impact of the cost reduction initiatives implemented beginning in Q4 2024. For the full year 2025, operating expenses were reduced 22% year over year. The relocation of certain G&A functions out of California, commencing in 2026, is expected to generate approximately $165,000 in quarterly savings beginning in Q1 2026. We are very pleased to report that we achieved positive adjusted EBITDA for the full year 2025, consistent with the commitment we made at the outset of the year. In 2025, we achieved positive cash flow, another key milestone. Cash and cash equivalents at the end of the fourth quarter reflect our meaningfully reduced cash burn, and we expect to maintain this trajectory in 2026. As a reminder, in general, our cash usage is highest in the first quarter of the fiscal year, resulting from payments of accrued compensation and other accrued expenses and liabilities. For the remaining quarters of the year, we expect to generate cash, and for quarterly cash generation to improve sequentially as we sell through inventory and collect receivables on increased revenues. Cumulatively, this will result in positive cash flow for the fiscal year 2026. As Patrick mentioned, we are initiating our 2026 guidance. We expect to generate revenues of between $51,000,000 and $53,000,000. As a result of the market disruption from the ongoing conflict in the Middle East, this guidance does not include revenue from that region. On a pro forma basis, adjusted to exclude Middle East revenue in 2025, guidance represents 2026 growth of 1% to 5% compared to 2025. We also want to reiterate the seasonality we experience in our business. The first quarter on average represents 22% of our annual revenue and is the lowest quarterly total revenue for the year. From the total dollar perspective, the second and fourth quarters are seasonally stronger than the first quarter, with the fourth quarter being the strongest quarter of the year, and the third quarter is generally a sequential decline from the second quarter. We have provided the expectations for our adjusted operating expenses, which exclude depreciation and amortization and stock compensation, to be in the range of $19,000,000 to $19,500,000. And with that, I will turn the call back to Patrick. Patrick Mercer: Thank you, Romeo. As I reflect on the past year, I am proud of what the IRIDEX Corporation team has accomplished. When we began this transformation in Q4 2024, we set out to grow revenue, reduce operating expenses, improve our financial profile, and position the business for sustainable profitability. We are proud to say that we have delivered on all four. Looking to 2026, our priorities are clear. On the growth side, we are focused on expanding our G6 user base, targeting high-volume MIGS surgeons using MedScout intelligence, while continuing to drive utilization among our existing installed base. For retina, we are pursuing international regulatory approvals to unlock new geographies and accelerating our PASCAL installed base replacement cycle domestically. On the cost side, we will continue our transition to contract manufacturing, minimize production at our headquarters, and advance our facility relocation. We thank you for your continued support of IRIDEX Corporation and look forward to updating you on our progress next quarter. Thank you. Jordan: As a reminder, if you would like to ask a question, press star one on your telephone keypad. Your first question comes from the line of Scott Henry from Alliance Global. Your line is live. Scott Henry: Thank you, and good afternoon. Just a couple of questions. First, when thinking about your 2026 guidance, how large is the Middle East in terms of revenues? What percent of the revenue base? Patrick Mercer: Hi, Scott. It is 5% of our total revenue base and 10% of U.S. Scott Henry: Hi, Patrick. Thank you. So larger than typical for that geography. Looking at Q4 also, I noticed the other was down sequentially. Is that just typical variability, or any trends going on, kind of down from Q3, in the other segment? Romeo Dizon: Segment? Say that again, Scott. When you say other segment, what do you mean? Scott Henry: The other revenue line. It is about $2,000,000. It was, I think, $2.2 million last quarter, $2.2 million before—I mean, not big numbers—but Romeo Dizon: This is basically dependent on the service product lines, and not really—one month we will just get a bunch of service to provide. Others, there is just, you know, it is pretty flat. It is staying around within that same level, plus or minus $100,000. Scott Henry: Okay. Fair enough. And then when I was looking at G6, we do not have—I will get the specific breakouts, but just based on the general statement—it looks like pricing was down a little bit from the past couple quarters relative to the systems sold and the probe utilization. Is that fair, and is that a trend or just, you know, quarterly noise? Romeo Dizon: No. If anything, if you are looking to consolidated numbers, that must have been the OUS driving that down because in OUS and in the U.S., we have actually increased ASPs on the probes. And the volume as well has picked up and has continued to pick up as of this quarter. Patrick Mercer: Yes. We have increased ASPs last year and this year on both the probes and the system for global—in the U.S. Scott Henry: Okay. I guess I will just take a look at that when the K is filed as well. Final question. When you look at the retina segment, and, I guess, a little bit the G6 segment, how do you think of organic growth rates, particularly on the retina segment? How should we think of kind of a steady-state or organic growth rate for that segment? Romeo Dizon: Scott, I guess, you know, when we were talking back four, five years ago, we always expected the revenue to decrease, like, 1% to 2%. Well, after I left, the company has acquired or merged with the Topcon and we have acquired the PASCAL systems. So I think in my own mind, in terms of the size of this distribution model plus the product itself, PASCAL, which is really becoming our product flagship in the U.S., has just really contributed to either a small growth in the product business the last couple years. Scott Henry: Okay. So, I mean, it sounds like you are—if I think about the category growing at about 4%, do you still think you are gaining share in the retina segment? To put it differently? Patrick Mercer: Absolutely. We, you know, with our PASCAL, we have a lot of momentum moving forward with that product. It is faster than the competition. It is serviced in the field. And it is doing really well. And as we get more MDR approvals globally, we are going to see that pick up. It has already taken off in the U.S., and as we get more approvals, it will definitely pick up. We expect to see that increase. Scott Henry: Okay. Great. Thank you for taking the questions. Romeo Dizon: Thanks, Scott. Jordan: There are no further questions. I would like to turn the call over to Patrick Mercer for closing remarks. Patrick Mercer: Great. I appreciate everyone's time. We will continue to update you on our business and appreciate the questions. Thank you. Jordan: That concludes today's meeting. You may now disconnect.
Operator: Good day, and welcome to the Xos, Inc. Fourth Quarter and Full Year 2025 Earnings Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the call over to David M. Zlotchew, General Counsel. Please go ahead. David M. Zlotchew: Thank you, everyone, for joining us today. Hosting the call with me are Xos, Inc.'s Chief Executive Officer, Dakota Semler, Xos, Inc.'s Chief Operating Officer, Giordano Sordoni, and Xos, Inc.'s Chief Financial Officer, Liana Pogosyan. Today, after the close of regular trading, Xos, Inc. issued its fourth quarter and full year 2025 earnings press release. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as commentary on the quarter and year ended 12/31/2025. Management's statements today reflect management's views as of today, 03/26/2026 only, and will include forward-looking statements, including statements regarding our fiscal year 2026, management's expectations for future financial and operational performance, and other statements regarding our plans, prospects, and goals. These statements are not promises or guarantees, and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Additional information about important factors that could cause actual results to differ materially, including, but not limited to, Xos, Inc.'s ability to access capital when needed, continue as a going concern, Xos, Inc.'s ability to implement business plans and identify and realize opportunities, potential supply chain disruptions and/or economic downturns as a result of trade policies and tariffs or war in Iran and shortages of access to oil, energy, and other key industrial inputs, is included in today's press release and in our filings with the SEC, including our most recently filed Annual Report on Form 10-K, and subsequent filings. We undertake no obligation to update forward-looking statements except as required by law. You should not put undue reliance on forward-looking statements. Further, today's presentation includes references to non-GAAP financial measures and performance metrics. Additional information about these non-GAAP measures, including reconciliations of historical non-GAAP measures to the comparable GAAP measures, is included in the press release we issued today. Our press release and SEC filings are available on the Investor Relations section of our website at www.xostrucks.com/investor-overview. With that, I now turn it over to our CEO, Dakota Semler. Dakota Semler: Good afternoon, everyone. 2025 was the year Xos, Inc. proved something that many doubted was possible: that a young electric vehicle company operating with discipline, under real constraints, and without the luxury of unlimited capital could deliver a full year of positive free cash flow, grow its customer base, diversify its product portfolio, and emerge stronger on the other side. That is exactly what happened, and it did not happen by accident. For the full year, Xos, Inc. generated $46 million in revenue on 328 units delivered, more units than any year in our history. Our GAAP gross margin was 5.9%, marking our second consecutive full year of positive GAAP and non-GAAP gross margins. Full year operating loss narrowed 28% to $33.1 million, the lowest since we went public, and our adjusted EBITDA loss improved 33% to $23.5 million. But the number that I am most proud of is this: we generated $5.4 million of positive free cash flow for the year, compared to negative $49.1 million in 2024. That is a $54 million swing. And in Q4, we delivered our third consecutive quarter of positive free cash flow, the fourth time we have achieved that milestone since going public. Those are not just numbers; they are proof that our model works. In Q4 specifically, we shipped strip chassis already on their way to upfitters for a major customer program. Revenue recognized in the quarter was $5.2 million on 34 units, with the balance to be recognized in coming quarters as vehicles are completed and delivered. The signal is clear: demand is real, customers are returning, and scale is growing. Let me step back and put this year in context, because I think the arc of 2025 tells the real story of where this company is headed. We entered 2025 with a clear mandate: grow the business, protect margins, and manage liquidity with discipline. Every quarter, we executed on that mandate, and every quarter, the results compounded. Even amidst a tumultuous environment with frequent tariff changes and complex macroeconomic factors, we prevailed. In Q1, we set the foundation. We continued growing hub production at our Tennessee plant. At the same time, we strengthened our balance sheet and sharpened our cost structure. Q2 was a breakthrough. Revenue hit $18.4 million, the highest quarterly revenue in our history. We delivered 135 units, secured the orders for the largest production program in company history at over 200 units, and proved that national fleets are not experimenting with Xos, Inc. anymore. They are committing to us at scale. Q3 sustained that momentum. Revenue held strong at $16.5 million on 130 units. Our operating loss dropped to $7 million, the lowest since the company went public, and we achieved our second consecutive quarter of positive free cash flow, demonstrating that this was not a one-time event but a structural shift in how the business operates. And Q4 capped the year with continued execution. While Q4 is seasonally our lightest quarter, the team kept delivering, fulfilling our 200+ unit program, scaling Blue Bird powertrain production, and preparing the hub platform for its next chapter. Each quarter built on the last. That is what momentum looks like when it is earned, not inherited. Much of our 2025 volume went to organizations like UPS and FedEx ISPs, fleets that do not forgive unreliability, that do not tolerate downtime, and that do not adopt new technology unless they have deep confidence in the engineering and provider's ability to deliver at scale. Their confidence in Xos, Inc. is earned. It is validated by millions of miles on the road, with several customers now exceeding 1,000,000 miles across their Xos, Inc. vehicles, and evidenced by repeat orders that have grown in size. Our 200+ unit program represents the shape of the future for Xos, Inc.: deeper relationships, larger programs, repeatable volume. These large fleet agreements may compress margins in the near term, but they are the foundation of a durable industrial business. They create the volume and the credibility needed to expand margins over time. I want to personally acknowledge the Aldermay Automotive Company, whose support of Xos, Inc. has been unwavering. Together, we amended the repayment structure of the convertible note, moving from a single August 2025 maturity to quarterly installments through February 2028. This is not just a restructuring; it is a change that allows us to operate from a position of focus rather than constraint. Aldermay is now our largest shareholder, a strong signal of their conviction in our long-term trajectory. Our collections execution was exceptional this year. Accounts receivable came down from $26.9 million to $6 million, driven by $14 million in Q4 collections alone, including the $9.9 million from UPS. Liana will walk you through the full liquidity picture, but the takeaway is this: we ended the year with $14 million in cash, up from $11 million, while simultaneously paying down obligations and investing in growth. Even as the step van continues to drive substantial revenue, our strategy has never been limited to a single product. In 2025, we deliberately expanded into higher margin, less competitive categories, and that strategy is now delivering real results. Our powertrain business had a breakout year. We delivered 15 powertrain systems to Blue Bird Corporation in Q4 alone, and since Q2, we have received nearly 100 additional orders. School districts are electrifying, and our technology—modular, reliable, and highly serviceable—is becoming the backbone they trust. Gio and I attended the Blue Bird Dealer Meeting last year, and the engagement from dealers and districts is exciting, and we believe it will translate to a robust pipeline that we expect to convert over the next one to three years. And finally, 2025 saw the emergence of our flagship Xos, Inc. Hub product line, which we are expanding in 2026. Grid constraints are not a theory. They are the single largest friction point in North American fleet electrification. The hub addresses this head-on. It is not a prototype. It is deployed. It is working, and its impact is expanding far beyond transportation. In 2025, we deployed hubs to utilities, fleet operators, and industrial users. We showcased the hub at RE+, the largest renewable energy conference in North America, where it drew significant attention from energy developers and utilities looking for mobile power, resilience, and peak-shaving solutions. The response confirmed what we already knew: the hub addresses a problem almost no one else in the market is addressing effectively. We are now preparing the 2026 hub update, offered in three size configurations ranging from 210 to 630 kilowatt-hours, delivering greater power resilience, energy cost optimization, and advanced load balancing capabilities. This is not just a charging product. It is a mobile energy platform capable of serving industrial users who require temporary power, peak shaving, and resilience where grid infrastructure is delayed or nonexistent. That dramatically widens our total addressable market and positions Xos, Inc. as an energy company, not just an electric vehicle company. As we look to 2026, the opportunities in front of us are expanding. Order sizes are increasing as customers experience the real-world cost advantages of our trucks and our charging solutions. Our product pipeline—the upgraded hub, our powertrain expansion with Blue Bird, and the continued growth of our step van business—align with secular markets that will grow regardless of political cycles, incentives, or noise. I believe 2025 was the year Xos, Inc. proved it could build a durable industrial business. 2026 will be the year we scale it. And while some may perceive a pullback in the U.S. EV market, Xos, Inc. keeps pulling forward. We are not just enabling cleaner delivery vans carrying packages. Xos, Inc. also provides cleaner and more efficient transportation of school children through Blue Bird’s powertrains, enables unloading of cargo vessels in ports with Wiggins, and charges fleets of autonomous rideshare vehicles. There is even a Xos, Inc. ice cream truck in Sacramento. The breadth and variety of our deployments underscore the foundational strength of our technology and the enormous opportunity that lies ahead. With that, I will turn it over to Gio to walk through the operational highlights of the quarter and the full year. Giordano Sordoni: Thanks, Dakota. 2025 was a year defined by focused execution, operational discipline, and continued progress towards scalable production. I will walk through our fourth quarter performance and then zoom out to highlight our full year operational achievements across manufacturing, engineering, and the supply chain. In the fourth quarter, we continued to demonstrate consistent production execution across our core product lines at the factory in Tennessee, while also executing on the launch of new powertrain kit variants for Blue Bird and preparing for the launch of new mobile charging hub variants. At our Birdstown, Tennessee facility, the team continued building and delivering against our over 200-unit UPS program, maintaining a steady production cadence and reinforcing our ability to execute on large fleet commitments. We expanded our manufacturing capabilities by adding a dedicated production line within our facility for Blue Bird kit development, which began producing kits in the second quarter of last year. This expansion of our kit production line marks an important step in scaling our powertrain systems business and supporting external OEM partners like Blue Bird. We also initiated the development of a more robust production line for the next generation of our mobile charging hub. We are now offering it in three size configurations, ranging from 210 kilowatt-hours all the way up to 630 kilowatt-hours. This new line layout allows for scaled production at higher volumes in 2026, while producing several variants on the same production line. From an engineering perspective, our team was focused on developing new powertrain variants for Blue Bird, as well as improved versions of our charging hubs and improvements on our chassis. At the same time, our supply chain organization remained focused on navigating tariff dynamics while continuing to drive direct material cost impacts where possible. We resourced some components, localized others, and negotiated with our supply base to share in the cost of the new tariff impacts that we saw in 2025. Stepping back to the full year, 2025 marked a meaningful step in building a more efficient, scalable, and margin-focused operating platform. Our engineering, supply chain, and manufacturing groups worked together to build and deliver over 328 units while reducing operational and direct material costs throughout the year. We also engineered and launched new product variants while improving on existing products, all the while contributing to reductions in overall operating expenses of 28% that Dakota mentioned. In 2025, the engineering team enhanced our vehicle product offering and introduced improvements like galvanized frame rails, which improve long-term corrosion resistance and durability for our fleet customers. These types of targeted upgrades reflect our focus on delivering higher quality, longer life vehicles. The engineering and supply chain groups collaborated to reduce the bill of materials cost of the strip chassis by making changes to our design and sourcing strategy. We expanded our engineering and product capabilities, including the development of five distinct powertrain kits to support Blue Bird’s school buses. This work further establishes Xos, Inc. as a flexible electrification partner for OEMs looking to benefit from battle-tested powertrains that have driven millions of real-world miles by our fleet customers. At the plant in Tennessee, our manufacturing team established a production line for powertrain kits and expanded our hub production line. The team built vehicles more efficiently than ever before, reducing the labor hours per vehicle, while building at a rate of three units per day at certain points throughout the year. Building at these volumes for UPS is evidence of Xos, Inc.'s ability to ramp up our supply chain and manufacturing capability to meet high volumes for large national fleet customers. We were also able to negotiate the termination of the Mesa, Arizona lease that we inherited from our merger with LeXoR Mechanica, which resulted in a total cash savings of $20.7 million. From a supply chain perspective, 2025 was defined by disciplined execution in a volatile environment. The team successfully navigated tariff uncertainty through a combination of strategic stockpiling, cost restructuring, and proactive planning, while also implementing shared-risk supplier agreements to help absorb tariff impacts and protect margins. At the same time, we strengthened our battery sourcing strategy by onboarding a top-tier global supplier for our hub programs and locking in pre-tariff pricing through 2026. This approach gives us both cost stability and supply continuity as we scale production. We also made meaningful progress in how we manage working capital and inventory. The team introduced a more robust annual procurement and inventory planning process, improving forecast accuracy and better aligning spend with our production needs without compromising supply reliability. In parallel, we advanced our supplier strategy by expanding dual sourcing and geographic diversification across critical components, reducing dependency risks while increasing supplier competitiveness and flexibility across the supply base. Importantly, these initiatives translated directly into financial performance. The supply chain team delivered meaningful direct material cost reductions across key components, contributing to the company achieving positive gross margins. During the year, we were able to maintain or reduce direct material costs despite headwinds from tariffs, and at the same time, we maintained strong supply continuity despite variability in schedules and ongoing supplier constraints, proactively managing lead times, inventory levels, and delivery commitments to keep production running smoothly. Overall, 2025 was a year where we improved our product, strengthened our cost structure, and laid the foundation for scalable growth across trucks, powertrains, and our hub platform. We maintained positive gross margins despite changes in product mix and reserves and write-downs in 2025. We achieved a 28% cost reduction in operating expenses. We improved our cash position with faster inventory turns. As we look ahead, our focus remains on continuing to drive cost discipline and seek margin expansion, scaling efficient production across our core multiple product lines, and preparing our operations to support increased demand in 2026 and beyond. With that, I will turn it over to Liana to walk through the financial results. Liana Pogosyan: Thanks, Gio. Before getting into the details, I want to take a moment to highlight the meaningful progress we made in 2025. This was a year of execution and important milestones across the business, from achieving positive free cash flow for the full year and improving liquidity to driving substantial reductions in operating losses and expenses. At the same time, we took decisive actions to strengthen our balance sheet, optimize working capital, and position the company for more sustainable, long-term growth. For the full year of 2025, revenue totaled $46 million on 328 units, compared to $56 million on 297 units last year. We delivered more units year over year, reflecting strong demand, though the shift in product mix—driven largely by our strip chassis product and powertrains—resulted in a lower average selling price and a decline in total revenues. For the fourth quarter 2025, revenue was $5.2 million on 34 units, down from $16.5 million on 130 units last quarter and $11.5 million on 51 units a year ago. Revenue is down as a result of our reduced deliveries during a slower time of the year as the company began shifting focus and allocating resources to powertrain and hub production. This quarter's deliveries were mainly driven by our hub and powertrain product lines, including 100 units between 2025 and 2026. Turning to gross margin, we continue to make meaningful progress in building a more sustainable and scalable business. For the full year, GAAP gross margin was $2.7 million, or 5.9%, compared to $4 million, or 7.1%, in 2024. Performance for the year reflects product mix, including a higher volume of low-margin strip chassis units under the UPS order, as well as certain inventory write-downs associated with our commercialization strategy. Tariffs reflected in cost of goods sold were a meaningful headwind to margins this year. Non-GAAP gross margin for the year was $4.1 million, or 8.8%, compared to $10 million, or 18%, in the prior year, driven by the same mix dynamics and normalization of inventory-related adjustments. Importantly, this marks our second consecutive full year of positive GAAP and non-GAAP gross margins, underscoring the structural progress we have made and our clear path towards margin expansion over time. For the fourth quarter, GAAP gross margin was a loss of $2.6 million, primarily driven by discrete items, including additional inventory reserves and write-offs due to a shift in the commercialization strategy and warranty reserve updates. Excluding these items, non-GAAP gross margin was a profit of $300,000, or 5.2%. While down sequentially, this marks our tenth consecutive quarter of positive non-GAAP gross margin, reinforcing the consistency of our underlying performance and the strength of our margin foundation as we continue to scale. Turning to expenses, our full year 2025 operating expenses were $35.8 million, down $14 million, or 28%, from $49.8 million last year. These sustained reductions reflect the structural impact of actions we have taken and underscore our disciplined approach to managing the business. Fourth quarter operating expenses were $7.1 million, representing a $2.4 million, or 25%, reduction from prior quarter and a $3.8 million, or 35%, decrease from the fourth quarter of last year. Fourth quarter operating expenses benefited from $1.7 million of nonrecurring favorable adjustments related to a settlement of finance equipment leases and certain vendor payables. Excluding these items, operating expenses would have been $8.8 million, reflecting continued sequential improvement from the third quarter and a more normalized run rate. We made strong progress on operating performance in 2025, with operating loss narrowing by approximately 28% to $33.1 million from $45.9 million last year. Non-GAAP operating loss improved by approximately 24% to $24.3 million, reflecting continued momentum towards profitability. Operating loss for the quarter was $9.7 million, higher than the third quarter mainly due to the discrete items mentioned, but significantly improved from $14.6 million in 2024. Non-GAAP operating loss improved to $4.6 million, compared to $4.8 million in the third quarter and $6.4 million in the fourth quarter of last year. Our full year EBITDA loss was cut by more than half, improving to a loss of $21 million from $42.2 million in 2024. Adjusted EBITDA improved to a loss of $23.5 million from $34.8 million, a 33% improvement, reflecting the compounding benefits of cost discipline and operational efficiency. As we have said, our focus this year has been on execution, financial discipline, and strengthening the foundation for sustained growth, and in 2025, we made meaningful progress across each of these areas. We took a series of strategic actions to strengthen our balance sheet and extend our financial runway, ending the year with $14 million in cash and cash equivalents, up from $11 million at the end of last year. This improvement in liquidity was driven by several key factors. First, accounts receivable declined significantly to $6 million at year end from $26.9 million last year. This was driven by another year of very strong collections—approximately $66 million of collections from customers and state grant program administrators. Second, we successfully launched our ATM program during 2025, generating $2.4 million in net cash proceeds during the year. Third, we continued to execute on strategic inventory management, with inventory declining to $25 million from $36.6 million last year. This reflects strong unit sales outpacing production, as we moved more units from existing inventory while positioning ourselves to support upcoming deliveries. Fourth, we amended our $20 million convertible loan note, extending principal payments to begin quarterly in Q4 2025 through Q1 2028, enhancing liquidity and providing greater financial flexibility. Lastly, in Q3 2025, we reached an agreement to terminate our Mesa facility lease we had assumed as part of the EMV acquisition. This action is expected to generate approximately $21 million in cash savings through 2026. While the agreement requires 18 monthly payments through March 2027 totaling about $2.8 million, it significantly reduces our long-term obligation. As part of the termination, we also recognized a $9.9 million gain in nonoperating income along with related GAAP adjustments, including the removal of the associated operating lease liabilities. We continue to actively manage our liquidity position throughout the fourth quarter while advancing additional opportunities to further strengthen it. Together, these actions reflect our disciplined approach to capital management and reinforce our commitment to enhancing financial flexibility and positioning Xos, Inc. for long-term stability and growth. Beyond the balance sheet, we continue to execute well. We generated positive free cash flow of $5.4 million for the year, a significant improvement from negative $49.1 million last year. Fourth quarter free cash flow was $2.4 million, compared to $3.1 million last quarter and $3.3 million in the same period last year. This marks our third consecutive quarter of positive free cash flow and the fourth time we have achieved positive free cash flow since going public. This consistent performance highlights the strength of our execution and the durability of our operating model. We are building a business that is increasingly self-sustaining, with disciplined capital deployment and a clear path to continued improvement in cash generation. Finally, turning to the guidance for 2026, we anticipate revenue to fall within the range of $40 to $50 million, unit deliveries to be within the range of 350 to 500, and non-GAAP operating loss to be in the range of $11.9 to $13.3 million. With that, I will turn the call back over to Dakota. Dakota Semler: Thank you, Liana. To close, I want to step back to what 2025 really represented for Xos, Inc. A year ago, the question many had was whether a company like ours could sustain itself—whether we could grow, manage costs, and generate cash in a market that was still sorting itself out. The answer is in the results: positive free cash flow for the year, our lowest full year operating loss since going public, our second consecutive year of positive gross margins, a product portfolio that is broader, stronger, and more relevant than at any point in our history. None of this happened by accident. It happened because this team questioned assumptions, executed with discipline, and refused to accept that building an industrial company from scratch required cutting corners on quality, on service, or on the ambition of what Xos, Inc. can become. Stepping into 2026, our priorities remain clear: accelerate growth, reinforce liquidity, and continue expanding margins. The foundation is built. Now it is the time to scale. With that, I will hand it back over to the operator for questions. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Please press star then 2. Our first question comes from Craig Irwin with ROTH Capital. Please go ahead. Andrew (for Craig Irwin): Hey, guys. It is Andrew on for Craig. Congrats on the progress, and thanks for taking my questions. The first one for me is on the new hub products you guys announced you are starting to develop in 2026. Can you kind of talk about the opportunities, especially these larger products have with customers outside of the typical EV charging opportunity? Dakota Semler: Yeah, thanks for the question, Andrew, and I appreciate you joining. I think there is a little bit of background noise coming from your line, so if it is possible, maybe just to mute, that would be helpful. But in regards to the question on the hub, we really have been focusing on listening to customers over the last year and a half to two years since we rolled out our first units. What we learned is that there are a variety of different use cases that people have been using them as. Some have been using them as a direct replacement for large DC charging infrastructure sites. Like our autonomous car fleet, they charge sometimes up to 80 vehicles a day with a single hub unit—so very high-throughput power discharge and charge application. Some folks have been using them for remote power. One of our utility customers, a big water utility in Southern California, utilizes it for when they do pipeline shutdowns. They will roll out a hub, and all of their EV equipment can charge out in the field when they have a few-day kind of pipeline shutdown. Then we have got other utilities using them for disaster preparedness. When hurricanes or storms come, they will roll one out into the field for customers, and it dramatically expands their existing DC charging infrastructure when people are looking to evacuate a specific zone within their territory. So a ton of different use cases, different sizes of vehicles being charged, and different kinds of applications. Some are remaining plugged into the grid, some are completely off-grid, some are using mobile gensets to power them. The next iteration was really designed to address those different use cases. The first element that we have incorporated is these new energy storage capacities. We started with a slightly smaller energy storage capacity for really light-duty Class 1, Class 2 pickup trucks—fleets that are not going to see a ton of throughput on a hub—to be able to offer a more competitive price point, and that product can really be used in lieu of traditional DC fast chargers. We have a lot of customers that are deploying them in fixed applications because it is much more cost effective than deploying conventional DC fast chargers with their energy storage systems. We have our new kind of mid-tier, what we are going to be calling our flagship variant, which is our 420 kilowatt-hour version, and that is going to replace the last version, which was 280 kilowatt-hours. Competitively priced in the same territory as our previous unit, but you are getting basically another 30–40% additional energy storage capacity on that unit, and you are still able to keep that unit sub-10,000 pounds, so you do not need a CDL to drive it around. It can be rapidly deployed with a pickup truck, just basically building better capabilities—more energy capacity for our customers—but doing it at the same price point. And then that third largest variant, the 630 kilowatt-hour configuration, is really designed for our larger battery capacity operators—customers that are running medium-duty or heavy-duty trucks that need rapid power deployment. That is really going to be for your medium-duty trucks—Class 5–6 trucks like ours—as well as getting into Class 7 and 8 electric zero-emission vehicles and off-highway products. We actually have a customer now building a large data center in Indiana, and they have inquired about some of their zero-emissions construction products utilizing this larger capacity unit. So it is a perfect application for both on-highway traditional applications that we have been serving for the last year and a half or so, but also a lot of new off-highway construction, agricultural-type applications too. That is just the first variant and first kind of product launch that we announced earlier this year. We have got several more announcements and several more upgrades to the hub product that are really exciting about the capabilities and configuration that we are going to be talking about probably in Q2 and Q3, the end user markets that these new versions will address, which are going to be potentially even larger than the markets that we are serving today. Andrew (for Craig Irwin): Great. I appreciate the detail. I am looking forward to those announcements later in the year. Second one from me, kind of a similar question—you were talking about exploring new designs for your powertrain product. Can you kind of just talk about how that may expand the opportunity set as you ramp that business unit? Dakota Semler: Yeah, and specifically in regards to the powertrain products? Talking about looking at new designs for the powertrain products. Yeah. One of the things we have been able to do over the years is take all the learnings from deploying thousands of our own vehicles on the road and apply that to our other segments, including the hub product and the powertrain product. We are not starting from scratch; we are building upon a foundation of engineering that we have invested in over the last ten years. Now those variations that we are selling are being sold into a wider variety of products. We talked a lot about our school bus partnership and relationship. We are developing several configurations there, addressing the traditional Type C school buses, which is the largest part of the market and represents anywhere from 70% to 85% of the market on an annual basis. But we are also developing a rear-engine configuration that we are in production with now for traditional Type D buses, which is in use in places like California and some other markets. We have really done a lot to focus on commonizing our platforms to drive reliability and service performance in the aftermarket. These buses and trucks are expected to run ten to fifteen years in most cases, but also driving cost competitiveness, and that is a key attribute that our customers are interested in. They do not want another premium product that is entirely dependent upon incentives. Everybody wants to be able to scale without being reliant on incentives, and so the focus is driving cost competitiveness to eventually achieve parity with diesel. By commonizing components, commonizing parts, and building supply chain synergies across our product portfolios, we are able to achieve scale even in segments that might be considered niche. A lot of work has been done by our engineering team to achieve that and particularly our supply chain team to realize those synergies. That work is continuing this year. We have got a couple new variants that we are working on that will hopefully ship into production by probably Q4. Operator: Our next question comes from Ted Jackson with Northland Securities. Please go ahead. Ted Jackson: Hey, thanks for taking my questions. First, just out of curiosity, are you going to file your K? Liana Pogosyan: We are. Okay—good. Oh, sorry, not the K. We filed the 8-K. The 10-K is going to be filed likely on Monday. Ted Jackson: Okay, so I will not have a cash flow statement from you until Monday, basically? Liana Pogosyan: No—you will be able to reconcile it on Monday. Ted Jackson: Okay. Then there is a bunch of data in there that typically is not available, but I want to maybe dance around it unless you want to tell me, because I wanted to bring it forth into 2026. So, you know, typically, you break out the revenue within, or units within, kind of step vans and powertrain and other. Can you talk with regards to what that mix was in the fourth quarter? And then when we think about that mix in 2026, how would we think about it? I would assume that there is going to be a shift to a greater number of units coming from powertrains and hubs, given what is going on with Blue Bird and all the effort you are making with hubs, but maybe a little discussion about how you see your unit mix evolving from what we have seen in the fourth quarter—really, I guess, 2025. That is my first question. Thanks. Liana Pogosyan: Thanks for the question. The details of the unit mix will be disclosed in our 10-K that we are planning to file on Monday. But I would say directionally for 2025, the majority of the units were predominantly step vans, and hubs and powertrains made up the remainder of the mix for the full year. For the fourth quarter, powertrain and hubs drove the significant volume, with step vans being less significant. Ted Jackson: And then when we think about 2026, whether it is the—given the focus of the company—we should expect to see a pronounced shift to more powertrains and hubs relative to that? Dakota Semler: Appreciate the question, Ted. When we are talking about 2026, we do not guide to the ranges. However, the rate of growth that we are seeing in both the hub business and the powertrain business is high double digits and could easily exceed triple digits this year. The relative rate of growth is increasing significantly as compared to step vans. We still anticipate step vans will grow and sustain a lot of our core customers, but overall, we expect the other two to grow increasingly. We do not want to put too rough of a number on it, but there is a general consensus that we are seeing a lot of demand, particularly with the new variants of the hub that we have released, and then also a lot of demand with the school bus powertrains that we are building today. Ted Jackson: And those are your higher margin products, and you did kind of a lead in terms of your discussion of that last quarter that you are making strides. You will—just to share some of the tariff costs with your customers—you know what I mean? On those higher margin products, it will not show up per se 100% through to you. But can you talk a little bit about how you would see—you know what I mean? Because if you look at gross margin this quarter, and I am going to talk GAAP because it is what I have in front of me—but your gross margin for the year was down. Would we see a pronounced improvement with regards to gross margin because of the mix? I mean, could you get yourself north of what you did in 2024, or is that too much? Dakota Semler: Yeah, that is a great question. We did have some one-time impacts to gross margins that hit last year that we do not anticipate will be recurring. In regards to gross margins across the portfolio, I would say the hub is probably the strongest margin one. The powertrains are comparable to what we see in the step van realm. The reason for that is there is a lot of engineering effort and investment that goes into development for those new platforms. A lot of that gets amortized over the overall revenue that we generate from that segment. Comparable to step vans, for hubs, and powertrains and step vans, we do an annual pricing exercise where we try to realign pricing with all of the factors from the previous year taken into consideration. I do not want to communicate what is going to happen with tariff strategy or tariff policy in the next twelve months, but I think things have slowed down and have become a bit more stable in terms of tariff volatility and tariff changes. So we anticipate that our 2026 pricing, which factored in a lot of the tariff impacts that we were aware of from last year, will allow us to achieve those target margin ranges without having to go back to the customer and have them make concessions or share in any additional tariff exposure. The way we see it, we are very transparent with these customers around the tariff exposure and the tariff cost structure. It is not benefiting either of us. It is increasing your cost basis for the products that we are both building together. A high degree of transparency is shared with those customers, and I think that level of transparency creates appreciation for them in order to be able to share in some of that exposure and cost. But our 2026 pricing does have it factored in. Ted Jackson: Shifting over to the UPS program. So the 200-unit program—you have been putting units out to it. Can you give us some kind of sense in terms of that program? How many units have you shipped and how many are left, and the time frame? Dakota Semler: Yeah, the vast majority of them have shipped. There are only a few units that will hit this quarter that we will be recognizing revenue for, which have actually already been delivered, but we still need to meet all of the other revenue recognition criteria. Most of those units are on the road and operating every day delivering packages. You probably cannot tell that they are a Xos, Inc. truck. There are no markings or logos on them, but if it says “electric vehicle” on the side, there is a very high likelihood that it is a Xos, Inc. truck. They are running in California, Texas, Pennsylvania, New York, New Jersey—all over the place. It is very likely that if you are in one of those major states or cities, you will see them on the roads. Ted Jackson: Well, that is exciting. I will not see them up here in Minnesota, but maybe someday. How about on powertrain? You shipped 15 to Blue Bird this quarter; I think it was 10 last quarter. You had orders of 100 since the second quarter. Is it fair to assume that three-quarters of the volume that you have gotten from Blue Bird is on the come, if you will? Dakota Semler: Yeah, it is a good question. We do a lot of close work with their production planning team and coordinating and organizing to ensure that we are meeting their demand forecast. But they are also selling a number of other buses and their other fuel powertrains, so it does vary and fluctuate quarter to quarter, and it really comes down to their build schedule. We do anticipate that business will grow, as I was saying before, probably double digits, if not triple digits in terms of percentage this year. We have already started to see that demand come in with that order of 100 units since our last quarter. The great thing about that business is there is still very, very strong interest in that market. School buses are an ideal application to go electric. They do very short routes, generally driving twice a day. Even for some of the longer-range vehicles, they are doing field trips and other activities. They are not long-range vehicles. We also announced in Q1 an accomplishment that the newer vehicles will actually have V2G capability on them, which is becoming critical for obtaining funding and public incentive funding for procuring or acquiring these vehicles for school districts. Really, for us, we see that application continuing to grow over time. We have been very fortunate to have such an incredible partner like Blue Bird that has invested in us, continued to grow with us, and continues to share in several of these opportunities, because I think they see the reliability and durability that our platform has brought to them, and they see the cost competitiveness versus some of the other solutions that are out there in the market. Ted Jackson: So you provided a good segue into my next question, which is on the two-way charging capabilities that you announced in the quarter. Given that a battery system has so many cycles of charge and discharge, when you put something like that in place, does it change the lifespan of that infrastructure? Is there much of an impact for that? And is there any kind of resistance because of it? Dakota Semler: Yeah, that is a great question. Any use of the battery or any component in the powertrain is going to have an impact on the overall lifespan. In the context of V2G, the discharge rate for most V2G chargers and V2G vehicles is not nearly the most intense use of the battery pack. The most intense use is often fast charging. If you are doing 1C charging on the vehicle—that is 1C or 2C charging depending upon the battery system. When you are doing V2G charging, for instance, a typical bus battery for us might be around 200 kilowatt-hours. A typical V2G power connection is usually only about 60 kilowatts, so it is equivalent to like a 0.3C charge rate. Without getting too much into the technical specifics, it is a much lower charge demand. It still does create some degradation and it is utilizing the pack, but it is not a very intense use case like you have with fast charging. All of that is factored into our long-term warranty. We warrant on usage as well as on duration of when the vehicle is deployed. So we have warranty programs depending upon what the customer wants and what our suppliers want, that will extend that. We have done a ton of work in qualifying the batteries and characterizing them to make sure that we can hit those warranty periods. That is largely in part due to the newer battery chemistry that we have been using for the past four years or so, which is our lithium iron phosphate battery pack that enables us to achieve those higher extended life cycles. Ted Jackson: Is there an ability for you to retrofit any of your installed base with that capability? I would imagine you would be interested if you could. Dakota Semler: Yeah, for some of our later-generation vehicles that we have recently delivered, we have explored the potential to install the V2G capability. It is a pretty simple hardware change and a software change. We have not determined whether it is enough opportunity to pursue and commercialize and offer it to customers, but from a technical feasibility standpoint, it is something that we have evaluated and feel that we could do. Ted Jackson: Let me ask one more, and then I will get out of line. I am going to cycle back in if there is time. Going back to Blue Bird and the hub—you have a really strategic opportunity there. Are they interested in the hub? Is there any chance that you have them as a distribution partner for you for the hub? Or do they bring you in for sales and such? It seems like a logical place for the hub to go. Dakota Semler: Yeah, it is a great question. Blue Bird itself has obviously been very interested in the product, but they have an incredibly robust dealer network that they partner with, which is crucial in their distribution of their products. We have actually already started building relationships with several of their dealers who have been delivering the buses with Xos, Inc. powertrains in them. Those folks have been a great touch point to socialize the product for the end school district fleets, so we have already had several of those conversations. We do think there is a tremendous opportunity in those school bus fleets. Oftentimes, they do not have the adequate power in their yards because they have not had EVs in their fleet before, just like most of our customers. The hub is a perfect application. Generally, a lot of these sales—the average sale of a school bus transaction—is very low volume; it can be single-digit units. The hub really is a perfect product to be able to support those smaller deployments that do not currently have infrastructure in place. We are looking to expand that distribution segment with our existing hubs commercial team. Ted Jackson: And so you would be going into that distribution network with the blessing of Blue Bird. Blue Bird would not be, like, OEM reselling your product into it themselves? Dakota Semler: That is correct. Ted Jackson: I have a couple more questions. On the new hubs, you said they would start becoming available in April, which is next month. Is that still on track? Dakota Semler: Yeah, actually the first 420 kilowatt-hour variant shipped this quarter. We have a couple units that are going out, and everything after this will be all of the new options. Ted Jackson: Well, that is exciting. Thanks. This is a working capital question. The improvement in working capital that you guys have done in 2025 is unbelievable—amazing. But if I look at the balance sheet in the fourth quarter and I see your receivables and everything, I am hard-pressed to see that there is much more improvement that you can get. When you think about 2026 and your ability to generate cash, is there more cash you think you can get off the balance sheet, or is it going to be more based on access of the ATM and revenue growth and margin improvement? Dakota Semler: It is a great question. The first thing I would start with is on the working capital utilization standpoint. We still have about $25 million in inventory, and not all of that—only a very small portion of that—is finished goods, but that usable inventory is the primary means of generating more cash for working capital in the year. We are continuing to focus on the longest segments of our inventory conversion process to optimize and cut those down to make sure that we can turn that inventory. We want to be really, really lean. We want to get to multiple inventory cycles per year, which we still have yet to do. The first thing we are working on is optimizing that inventory, turning it over quicker, building to order, delivering products faster, delivering more strip chassis as opposed to step vans, and delivering more hubs, which is a complete assembly that we build. Same with powertrains—it is a completed assembly, so we recognize revenue as soon as it is delivered. So the product mix will favor that and help that, as well as just our improved processes internally to order, spec, and get vehicles delivered. We do hope to be able to utilize the ATM in the year ahead. We are going to figure out when there is an optimal time to be able to do that. That is why we have that facility outstanding. We are going to be selective about it, and we do not want to overly dilute the cap table and impact investors, particularly where the stock is today. I think there are other things that we can continue to do and improve. We have taken a pretty hard look at OpEx, and we do not believe OpEx is going to be restructured that heavily in 2026, but there are some expenses that will continue to reduce and burn down through the year, which will be favorable for working capital. Lastly, growth in new segments—having products such as the hub and the powertrains that we do not ever have to deliver as a partially assembled vehicle, where it is sitting in somebody else's hands, which could be for months on end—will dramatically enable us to reduce that inventory count and value over time and speed up our inventory turns. Ted Jackson: That is a good point. Then jumping back over to the hub, last quarter you talked about going into some new avenues with the hub—power and resiliency—and you mentioned that you would be able to provide some more color. Can you maybe give a little update on what is going on with regards to your efforts to position the hub for that and penetrate? Dakota Semler: Yeah, it is actually a big area of focus for the engineering team as well as our sales and business development team right now. We think that there is a niche that is not being serviced right now in the power reliability and power resiliency markets, not just for mobile applications but also for fixed applications. I can talk about it at a high level, but with the influx of data center demand creating huge demands on the grid for power, every industrial power user is now competing with the likes of those customers, which are willing to pay premiums for power delivery and they are willing to pay premiums for power reliability and resiliency. Now folks that operate a 3PL warehouse or a cold storage facility or any other kind of industrial power consumer are going to be competing with the likes of Google and Facebook and many of these other larger companies that are incredibly well capitalized, looking to buy power or even establish behind-the-meter infrastructure. Our focus is on solving the niche segment, which is going to be power reliability, power resiliency, and being able to provide those industrial power users that are focused on keeping their operations going and continuing to grow. Data centers are one application, but we believe that is one segment of many that will need power reliability in this current industrial grid environment that we are in today. Ted Jackson: Okay. And then my last one, just more for clarity. When we talk about powertrains, it is kind of almost interchangeable—powertrain business and Blue Bird. You talked last quarter about 10 of shipments to Blue Bird, this quarter 15. Is there other customers other than Blue Bird that are taking powertrains, or is Blue Bird right now kind of the only thing and something you want to build off of? Dakota Semler: There are a few other customers. The customer diversity is not nearly what it is in the vehicles business, but it is something that we are working on—diversifying and building up new customers there. I think with our latest powertrain platforms that we have been developing, we should have a lot more interest coming from some other off-highway customers and other segments that we have not really gotten the best penetration in previous years. Ted Jackson: Okay. Alright. That is it for me. Thanks for all the time. I appreciate it. Dakota Semler: Thanks, Ted. I appreciate all the questions. Operator: This concludes our question and answer session. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to Worthington Steel, Inc.'s third quarter fiscal year 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now hand the call over to Melissa Dykstra, vice president of corporate communications and investor relations. Please go ahead. Melissa Dykstra: Thank you, Operator. Good morning, and welcome to Worthington Steel, Inc.'s third quarter fiscal year 2026 earnings call. On our call today, we have Jeff Gilmore, Worthington Steel, Inc.'s president and chief executive officer, and Timothy Adams, vice president and chief financial officer. Before we begin, I would like to remind everyone that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested. We issued our earnings release yesterday after the market closed. Please refer to it for more detail on factors that could cause actual results to differ materially. Unless noted as reported, today's discussion will reference non-GAAP financial measures which adjust for certain items included in our GAAP results and are presented on a standalone basis. You can find definitions of each non-GAAP measure and GAAP-to-non-GAAP reconciliations within our earnings release. Today's call is being recorded, and a replay will be made available later today on worthingtonsteel.com. I will now turn the call over to Jeff Gilmore. Jeff Gilmore: Good morning, and thanks for being with us today. It has been a memorable few months for us to say the least. As most of you know, in January, we announced our proposed acquisition of Kloeckner, which will be the largest in our history and a meaningful strategic step for the company. I appreciate that even with an announcement of this size, and the work that goes with it, our team stayed anchored in what matters: safety, serving customers, and improving the business every day. Thank you to the entire Worthington Steel, Inc. team. This quarter, I will start with an update on the Kloeckner acquisition. The combination of our two organizations will create a larger, more diversified metals processing platform with meaningful opportunities to generate value and capture synergies through Worthington Steel, Inc.’s proprietary base business improvement program that we call the transformation. This transaction is being executed through a voluntary public tender offer in Germany and remains subject to the tender process and required regulatory approvals. Since our investor call in January, the voluntary tender offer has been launched. We have submitted requests for regulatory approval in the required jurisdictions, and we are beginning to see approvals come through. Overall, the process is progressing well. Today is the final day of the initial acceptance period of the tender offer process, and we are confident we will secure enough shares to meet the 57.5% minimum threshold. We continue to expect the transaction to close in the second half of the calendar year. In preparation for closing, we have begun and focused on integration, governance, and day-one readiness. We are doing that responsibly and deliberately with an eye toward maintaining our high-performing cultures, unlocking value, and accelerating growth. Most importantly, this deal is about combining two great companies that share the same values. I have had the opportunity to spend time with several of our future Kloeckner teammates, and it reinforced our view that Worthington Steel, Inc. and Kloeckner are culturally aligned and fit together very well. Furthermore, since our announcement, the response from customers, suppliers, and investors has been overwhelmingly positive. As a reminder, the German public company takeover process is highly structured, and we will continue to provide updates as we reach key milestones. With that, let us turn to our results for the third quarter. Net sales were $769.8 million, adjusted EBITDA was $41.6 million, and adjusted earnings per share were $0.27. On a macro level, the third quarter of our fiscal year was volatile and uneven, with galvanized spreads remaining compressed and the effects of the holidays and winter weather dampening and delaying industrial activity. While direct volumes were up over the prior year, overall conditions were stable to soft, keeping customers’ inventory disciplined and highly sensitive to interest rates and uncertainty. Even with those headwinds, our execution remains strong where it matters most: safety, customer service, and transformation. Commercially, the team continued to win the right work and capture high-value opportunities, including building on our momentum in the automotive market. Our direct shipments in Q3 to the Detroit Three increased by approximately 13%, significantly outpacing the reported 3% growth in Detroit Three production for the quarter. As discussed last quarter, the outlook for the automotive market heading into calendar year 2026 remains cautiously optimistic. Conditions appear to be moving toward a more robust market later in the year. That view is supported by growing confidence that a USMCA agreement will be completed in 2026, removing a significant amount of market uncertainty. Turning to agriculture, we believe we are nearing the trough of the market cycle, and that a slow rebound will begin in late calendar year 2026. On a positive note, our team has been able to secure new business with a key customer in this market, which will continue to ramp up over the next few quarters. In construction, conditions remained flat in most segments. We expect to see data center growth continue, and as lower interest rates take hold, we believe we will see some expansion in 2026 due to pent-up demand. In heavy truck and trailer, as we expected, the market started off slowly in calendar year 2026. We are more confident about the back half of this year, where we expect to see a pickup in both the Class 8 truck sector as well as the trailer market. Looking ahead, we are still cautiously optimistic about the second half of calendar year 2026. Overall, the backdrop looks modestly encouraging as key economic indicators show a return to expansion. With that market context, let me turn to our strategic priorities. We continue to make progress in the areas that matter most: investments in electrical steel growth, innovation, and transformation. In electrical steel, we advanced the projects that underpin our longer-term growth strategy. In Canada, we have shifted some production to our new facility and are shipping from both locations. We will finish moving the existing equipment and production to the new facility over the next few months. We have more than 60% of the increased capacity sold for the facility. We are sequencing the startup to protect performance and service levels, and we expect to fill the balance relatively quickly as the facility ramps up. Our traction motor lamination facility expansion in Mexico is also on track and will begin shipping production parts this quarter. Almost all the OEMs tied to the expansion are experiencing some type of OEM delays. Previously, we expected to reach full production levels in fiscal 2028. However, the OEMs have pushed out a number of the programs for a variety of reasons. While timing is shifting on production starts for some of our new programs, when these platforms reach full production volumes in fiscal 2029, we will be at 75% capacity, based upon current contracts. These delays are not surprising as many automotive OEMs are rethinking their electrification strategy. With the elimination of the fuel economy mandate and the elimination of the $7,500 federal tax credit, the market is clearly pivoting away from a government-driven BEV mandate to a consumer-led demand for hybrids. The data is quite clear. Year-over-year, hybrid sales in the U.S. increased 18% in 2025, and the same trend is happening in early 2026. Sales and production of hybrids are both up more than 10%, and the shift to hybrids is expected to continue. We are also seeing reports of increased consumer interest in hybrid and full electric vehicles due to rising oil prices and geopolitical tensions. While it is too soon to see if this will translate into sales, we will be watching closely and are well positioned to capitalize on this renewed interest. From a commercial standpoint, we have seen a slowdown in quotes for pure BEV opportunities, but the quote activity related to hybrids is picking up. We are excited by the growth in hybrids, as we have the opportunity to produce the electrical steel laminations for a hybrid traction motor as well as the specialty cold-rolled steel used in the powertrain for the hybrid’s internal combustion engine. We continue to improve our business using the Worthington Business System and artificial intelligence. In one notable project, we used our transformation process to implement a lean flow operating model at our Delta, Ohio, facility that aligns material release, production, purchasing directly to customer demand, replacing a forecast-driven push process with a more disciplined pull approach. This allows us to tighten our purchasing windows and drive down inventory. The work has led to 60% fewer coils held in our work-in-process bay and an overall reduction of six days of inventory over the past 26 months. As the next step in the process, we will be adding predictive AI tools to ensure our flow is not only disciplined, but also predictable. That means spotting problems earlier and moving more quickly to remedy them. Predictive flow helps us stabilize performance as we run leaner, enabling faster, more consistent decisions at lower working capital levels. Further, we will use what we learn at Delta, package what works, and build scalable solutions we can use across our footprint. We also continue to make progress transforming our administrative functions. When we stepped back and looked at where we started about a year ago, a few themes stood out. There was a significant amount of manual repetitive work, a fair amount of variation in how processes were executed across functions and facilities, and much of the work was being managed through email, spreadsheets, and manual follow-ups. We are addressing that in a couple of ways. First, we see discrete opportunities to remove manual effort; we move quickly using automation and AI. For example, we are developing an AI agent for daily cash posting in our finance group that is expected to eliminate a significant amount of manual data entry and free up about 30 hours per month of analyst time. We have also deployed automation in accounts payable that is reducing manual invoice interventions and should remove roughly 150 hours of work per month as the models continue to improve. In our order-to-cash process, robotic automation that reconciles shipping notices with customer portal data has helped accelerate cash collection and reduce past-due balances. Second, for workflows that are more interconnected, we are using AI to assist us in mapping processes, establishing standard work, and removing waste. For instance, in indirect purchasing, we redesigned the sourcing workflow and then layered in analytics and AI tools that allow the team to focus more on strategic sourcing rather than repetitive tasks. We are still early in this part of the transformation journey, but what we are building is a repeatable capability that allows us to apply automation and AI across more functions over time, structurally improving efficiency and scalability across the organization. To close, while this was a challenging quarter from a macroeconomic standpoint, our team remained focused on executing the business, advancing our electrical steel strategy, and moving the Kloeckner process forward in a disciplined way. At the center of that is a culture that puts safety first and reflects the dedication of our people across the organization. To our employees, thank you. The discipline, care, and commitment you bring every day are what turn our strategy into action. I will now turn the call over to Timothy Adams for more detail on the financials for the quarter. Timothy Adams: Thank you, Jeff. Good morning, everyone. Our third quarter was a disciplined quarter in a more challenging environment. While we saw softer demand in certain markets and continued pressure in Europe, we executed well, generating strong free cash flow, gaining share in key markets, and maintaining a strong balance sheet. That consistency and execution, particularly in more challenging environments, is a hallmark of how we run the business. We also took an important strategic step forward with the proposed Kloeckner transaction, which we believe will strengthen our long-term positioning. For the third quarter, we reported earnings of $10.4 million, or $0.20 per share, as compared with earnings of $13.8 million, or $0.27 per share, in the prior-year quarter. There were several nonrecurring items that impacted comparability in the quarter, including a number of Kloeckner-related items which are primarily transactional and timing-related, and not indicative of our ongoing operating performance. First, the current-quarter results include $15.4 million of pretax SG&A expense, or $0.24 per share, for advisory, legal, and regulatory fees incurred in connection with the previously announced acquisition of Kloeckner. Additionally, we recognized $9.1 million of pretax miscellaneous income, or $0.14 per share, related to a foreign currency forward contract designed to hedge a portion of the Kloeckner purchase price. Unrelated to the Kloeckner transaction, we recognized a $6.0 million pretax restructuring gain, or $0.06 per share, on the sale of real estate and equipment associated with our previously announced Worthington Samuel coil processing plant closure in Cleveland, Ohio. Finally, in the quarter, we recognized a $1.5 million pretax impairment of certain internal-use software, or $0.03 per share. The prior-year quarterly results included several nonrecurring items, including a $7.4 million pretax impairment of assets, or $0.07 per share, primarily related to the operational consolidation of our Worthington Samuel coil processing facility in Cleveland into WSCP’s remaining facility in Twinsburg, Ohio. Additionally, we recognized pretax restructuring expenses of $0.9 million, or $0.01 per share, related to a voluntary retirement plan and our Taylor-Worthington Blanking joint venture. Excluding these items, we generated adjusted earnings of $0.27 per share in the current-year quarter compared with $0.35 per share in the prior-year quarter. In the third quarter, we reported adjusted EBIT of $20.0 million, which was down $5.3 million from the prior-year quarter adjusted EBIT of $25.3 million. The year-over-year decrease was driven primarily by lower toll processing volumes, higher SG&A largely related to compensation, and unfavorable results in Europe, partially offset by higher direct volumes and higher equity earnings from Serviacero. Total shipments were approximately 818,000 tons, down 64,000 tons, or 7% year over year, as lower toll volumes more than offset volume growth in direct sales. Direct sale volume made up 63% of our mix in the current-year quarter compared with 57% in the prior-year quarter. Direct volume increased 4% compared with the prior-year quarter. The year-over-year increase was split evenly between the legacy business and the addition of CEDIM compared to the prior-year quarter. Our increased shipments to the automotive market remained a bright spot. Direct shipments to automotive increased 10% year over year. Similar to last quarter, the increase in automotive volume reflects share gains from new programs plus the impact of a key automotive OEM customer returning to a more normal build schedule after curtailing production last fiscal year. This growth in the automotive market reflects the strength of our longstanding customer relationships and our collaborative, proactive approach to assisting customers to meet their needs. Outside of automotive, agriculture volume was up 9%, primarily due to improved OEM equipment demand, and container volume was up 11%. As Jeff mentioned earlier, we won additional business with a key OEM customer in the ag sector. These gains were partially offset by lower shipments to a number of other markets, including energy, which was down 22% year over year, largely driven by project-based solar programs; construction, which was down 7%; service center, where we saw some increased competition, which was down 21%; and heavy truck, which was down 12% due to ongoing market weakness. Toll processing volumes declined 22% year over year, due to a combination of closing our Cleveland-area Worthington Samuel coil processing facility in fiscal 2025 and near-term demand headwinds. We view the softer market conditions in toll processing as cyclical, not structural, and expect toll volumes to improve as end market demand recovers, excluding the impact of the Cleveland facility consolidation last May. Direct spreads were relatively flat year over year, excluding the impact of the CEDIM acquisition, which closed in June. Direct spreads were impacted by a $3.3 million favorable swing in pretax inventory holding gains. In the current-year quarter, we had estimated pretax inventory holding gains of $2.1 million compared to estimated pretax inventory holding losses of $1.2 million in the prior-year quarter. After stabilizing around $800 per ton in the fall, the price for hot-rolled coil increased $175 per ton in our third quarter to approximately $975 per ton. We expect the market price for steel to remain volatile in the near term, with expected mill outages, extending lead times, and a tightening market. Given that many of our contracts use lagging index-based pricing mechanisms, we estimate in our 2026 pretax inventory holding gains will fall within a range of $15 million to $20 million. Turning to the other drivers for adjusted EBIT this quarter, SG&A expense, excluding the $15.4 million impact of the Kloeckner-related acquisition expenses, was up $7.5 million primarily due to increased compensation expense in the legacy business and $4.8 million of incremental SG&A with the addition of CEDIM. It is worth noting that our Q3 results include increased headwinds in Europe. As expected, CEDIM EBIT prior to minority interest decreased $8.4 million during the quarter. This performance reflects challenging economic conditions in Europe, particularly in the electrical steel and automotive end markets, where demand remains weak and competition, especially from China, has intensified. While expected, we are actively addressing these headwinds through cost actions and operational adjustments, and our team in Europe is moving with urgency to improve performance. Although near-term conditions remain challenging, we are focused on positioning the business to return to profitability and to capture share as the market recovers. Finally, equity earnings from Serviacero, our Mexico-based joint venture, increased $3.5 million due to higher direct spreads, inventory holding gains, as well as the favorable impact of exchange rate movements. Turning to cash flows and the balance sheet, for the quarter, cash flow from operations was $63.0 million and free cash flow was $33.0 million, with both metrics benefiting from a reduction in working capital. Capital expenditures were $30.0 million in the quarter, related to several projects, including the previously announced electrical steel investments. We expect CapEx for fiscal 2026 to finish in the range of $110 million to $115 million as several of our large capital growth projects transition from the build phase into startup production. In addition, we are pursuing maintenance projects that keep our key assets market ready. We take a disciplined approach to capital allocation, balancing investment in growth with maintaining balance sheet strength. On a trailing twelve-month basis, we generated $81.0 million of free cash flow. We increased borrowings during the current quarter on our ABL to purchase approximately 8.3 million, or 8%, of Kloeckner shares for $101.0 million. We ended the quarter with $90.0 million of cash and net debt of $161.0 million, up sequentially driven primarily by the purchase of Kloeckner shares. Earlier this week, we announced a quarterly dividend of $0.16 per share, payable on June 26, 2026. In summary, this was a disciplined quarter in a more challenging environment. We are gaining share in key markets, generating consistent cash flow, and maintaining a strong balance sheet. At the same time, we are taking actions to address underperformance in Europe while continuing to advance our strategic priorities, including the proposed Kloeckner transaction. This reflects how we manage the business: staying focused on execution and positioning the company to perform through cycles. We believe these actions position Worthington Steel, Inc. to navigate the current environment and continue creating value over the long term. I want to thank our entire Worthington Steel, Inc. team for their continued focus on safety, customer service, and execution this quarter. We will now be happy to take your questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Samuel McKinney with KeyBanc Capital Markets. Your line is open. Please go ahead. Samuel McKinney: Good morning. With direct volumes for the third quarter only up 3% year over year, surprised to hear you say the direct auto shipments increased by 10%. Assuming much of this was owed to the market share wins you have outlined, can you talk through some of those wins and the impact they are having? Okay. Thanks. That is helpful. And then on to Kloeckner, how should we think about the over $100 million of short-term debt you used to purchase their securities? Just any other color you could give on that equity investment in the context of meeting the threshold would be helpful. Like Tim said, that is about 8% of Kloeckner shares. Okay. Thanks. And then last one for me. Steel pricing has remained hot in recent weeks. Can you give us a sense of the net working capital expectation for the fourth quarter in the context of the $15 million to $20 million of inventory holding gains? Jeff Gilmore: Yes, Sam, this is Jeff. I will take that. Clearly, positive impact. If you look at automotive as a whole, it was down maybe 1% or 2% year over year. If you look specifically at the Detroit Three, their production was up 3%, and ours were up 13%. If you look at the difference in the gap, that really is that market share gain that we have been speaking about the last several quarters. Fortunately for us, we have continued to win market share with those customers mentioned as well as several others, so that is something that you will continue to see layered in. The beginning of your question was being up 13% there, but only 3% as a whole. As you are aware, weather in the Midwest was quite challenging in late January, specifically for a week, and that disrupted the entire supply chain, whether it was the mills trying to ship out to us, receiving in, and then us trying to ship to our customers. The impact there was probably 10,000 to 15,000 tons. The mills are extremely busy right now. They have extended lead times. Their on-time delivery performance has been challenging. We just were not able to make up for that backlog during the month of February. We did some, but probably could have shipped closer to 15,000 additional tons. Fortunately, those are not orders lost. We will make up that backlog and are starting to do so already this month. Timothy Adams: Yes, Sam, this is Tim. We had the ability through antitrust—right, we had to look at the regulations of antitrust as far as how much we could buy. We could buy in the open market 10%, and we used that opportunity when the tender offer was announced to buy in the open market. So we increased our ABL by $126.0 million, and we used $101.0 million of it to buy shares in the open market. As long as the price stays below the tender offer of $11, we can buy shares. You have seen the price of Kloeckner rise a little bit. That shut us out of the market. We bought shares early in the quarter, and we have not bought much since. On working capital, we are definitely going to see some upward pressure. You can look at the percentage price increase and translate that into how much working capital should go up, but you will see some upward pressure on working capital in Q4 for sure. Operator: Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Your line is open. Please go ahead. John Tumazos: Thank you. The German stock market is down 8% year to date, and their economy is more vulnerable to the energy escalation, as they are almost entirely an energy importer. Is your view of the amount of debt level that you want to hold post-acquisition or the degree of exposure to Europe changed given our incursion into Iran and the subsequent events in the last four weeks? Following up on what you just said, would you then want to have more equity in your financial structure and less debt? Jeff Gilmore: John, good question. Thanks for calling in. We went into this acquisition with eyes wide open and a clear understanding on Europe and the current challenges. A few things: first, their economy—I think they are doing their own things to increase, I will call it, protectionism, which certainly will help their economy. Specifically, I think aimed at China. I think they have increased spend on defense pretty significantly over the last six to twelve months, which should benefit the business environment, specifically manufacturing. What we did not predict was a war with Iran and the impact on oil prices. Right now, it is not having a major impact on the business here or in Europe. But if this is prolonged, then we certainly are concerned about their economy, and we are equally concerned about the economy here. Obviously, higher energy prices, higher gas prices are not going to be good for either economy. So that is really our position on it right now. No, we are comfortable with the capital structure where we are moving forward right now. We are quite comfortable with the debt level that we will be carrying forward. To be more transparent, it is because we are very confident in our plan and how we will go about paying that debt down over time. We have not had any serious discussions about reducing the debt and increasing equity as part of capital structure, and I think we are going to be in very good shape. Operator: There are no further questions at this time. I will now turn the call back to Jeff Gilmore, president and CEO, for closing remarks. Jeff Gilmore: From a macroeconomic standpoint, there were some challenges with the business. During last call, I addressed the overall market as well as some of the challenges in spreads, specifically hot rolled and coated, and hot rolled and cold rolled, but at that time, I mentioned I felt like the quarter would be the trough, and I feel strongly that is the case, and that is what we have seen. I think the tightness in the market in the U.S. and where we are seeing prices headed, along with being cautiously optimistic now on all markets, that we are starting to see recovery, and that is the sentiment across the market. We are no different. We can start to see signs of growth, not just with market share gains in automotive, but other key markets as well. Certainly, those markets will increase demand for galvanized as well as cold rolled, and we start to see some of that spread pressure alleviate gradually over time. More importantly, we could not be more well positioned to continue to grow as a company. We have a great deal of confidence in us achieving the threshold goal for Kloeckner, and that puts us in a position to accelerate growth moving forward. The business is in great shape. I look forward to what is to come. Thank you again for listening in today. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to Enerpac Tool Group Corp. Second Quarter Fiscal 2026 Earnings Call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question during that time, press the appropriate keys on your telephone keypad. I would now like to hand the call over to Darren Kozik, CFO. Please go ahead. Darren Kozik: Thank you, operator. Good morning, and thank you for joining us for Enerpac Tool Group Corp.'s earnings call for 2026. Joining me on the call today is our President and Chief Executive Officer, Paul Sternlieb. The slides referenced on today's call are available on the Investor Relations section of the company's website, which you can download and follow along. A recording of today's call will also be made available on our website. Today's call will reference non-GAAP measures. You can find a reconciliation of GAAP to non-GAAP measures in the press release issued yesterday. Our comments will also include forward-looking statements that are subject to business risks that could cause actual results to be materially different. Those risks include matters noted in our latest SEC filings. I will now turn the call over to Paul. Paul Sternlieb: Thanks, Darren, and thank you, everyone, for joining us this morning. As we look back at our 2026 performance, there was a lot to be pleased about. Within our Industrial Tools and Service segment, or IT&S, product sales accelerated, growing 6% organically year over year. That represents the highest growth in products that we have enjoyed in 10 quarters since 2023. Through February, we saw some strengthening in the U.S. market, with the PMI reflecting two consecutive months of expansion in the manufacturing sector. Likewise, U.S. industrial distributor survey data through February suggests improving sentiment. At Enerpac Tool Group Corp., we continue to see favorable trends, with overall product order rates growing mid-single digits and gains in each of our three geographic regions. Within our services business, which represented approximately 20% of the IT&S segment in fiscal 2025, we took decisive action to address a market slowdown in the EMEA region that has weighed on overall growth and profitability. With the announced restructuring, we are rightsizing our HydroTite service operation in the region and reducing headcount to align with current market conditions. The restructuring will also support our strategic transition toward higher margin service business and profitable growth objectives. At the same time, we are very pleased to announce a five-year contract award with a major oil and gas company operating in the U.K. North Sea. Under that contract, which is worth several million dollars annually, we will provide maintenance and pipeline service work. I am particularly proud of the fact that we were able to secure this win against significant competition. Much like the premium Enerpac tool brand, our HydroTite brand on the service side is synonymous with superior technical know-how, value-added support, and world-class job performance. In fact, the customer indicated that HydroTite was selected for this critical work, as they felt we are the only ones who could ensure reliably leak-free results. With that, let me turn the call over to Darren, who will provide more detail on our second quarter performance as well as geographic and end market trends. Then I will come back to talk about our progress on the innovation front and our successful presence at CONEXPO. Darren? Darren Kozik: Thanks, Paul. As seen on slide four, Enerpac Tool Group Corp.'s second quarter revenue of $155,000,000 expanded 2% on an organic basis. IT&S sales increased 1% organically, as a 6% gain in product sales was offset by a 17% decline in service revenue. And while there is still softness in the industrial MRO end market, we continue to enjoy growth in power generation, infrastructure, and defense end markets on a global basis. At Cortland, shown in the Other segment, we continue to capture exceptional growth of 27% in the second quarter due to its ongoing success generating new projects. Turning to slide five, which shows our performance by geography. We delivered solid 4% growth in the Americas, year-over-year growth of nearly 6% on the product side, with particular strength in standard products but somewhat offset by an 8% decline in service revenue. On the product side, we were particularly pleased with gains we made with national accounts. Turning to the EMEA region, let me first draw your attention to the pie chart on slide five, which shows the revenue breakdown between product and service for each region in fiscal 2025. Of note, it illustrates the greater relative importance of service in the EMEA region and how its performance significantly affects overall results. As such, while product revenue expanded 7% in the EMEA region, with gains for both standard product and HLT, second quarter revenue in the region was down 1% due to a 21% decline in service revenue. Geographically, on the product side, while conditions were soft in Northern Europe, Southern Europe enjoyed good performance, including some project work on the power generation side. In Asia Pacific, we resumed modest growth, led by our products business. While we continue to experience weakness in China, there were several bright spots. In India, we had another strong quarter, growing double digits due to strength in steel, process industries, and heavy equipment manufacturing. And in Australia, we continue to benefit from recovery in the core mining sector, as well as healthy demand from oil and gas. Turning to slide six, gross margins declined 410 basis points year over year. While gross margins in the product side remain at healthy levels, overall gross margins were under pressure due to lower volume in our service business. On the other hand, SG&A expense continued to reflect disciplined cost management and benefit from moving resources to our low-cost shared service model. As such, adjusted SG&A declined to 26.4% of revenue, compared with 28.3% in the year-ago period. As a result, the adjusted EBITDA margin was 21.3%, compared with 23.2% in the year-ago period. We enjoyed margin improvement in the products business. However, that benefit was offset by pressure in the service business, and to a smaller extent, an FX impact of roughly 50 basis points. On a per-share basis, we reported earnings of $0.31 in 2026, versus $0.38 in the year-ago period. On an adjusted basis, earnings were $0.39 in both periods. In the second quarter, we booked a restructuring charge primarily related to the service business totaling $3,300,000. We expect to see the initial benefit of the savings in the third quarter and anticipate a payback period of about one year. Turning to the balance sheet shown on slide seven, Enerpac Tool Group Corp.'s position remains extremely strong. Net debt was $89,000,000 at the end of the second quarter, resulting in a net debt to adjusted EBITDA ratio of 0.6 times. Total liquidity, including availability under our revolver and cash on hand, was $499,000,000. Cash flow was strong, with year-to-date cash flow from operations of $29,000,000 compared with $16,000,000 in the year-ago period. In addition, year-to-date free cash flow expanded by $18,000,000 from $5,000,000 in 2025 to $23,000,000 in 2026. During the quarter, we returned significant capital to shareholders, repurchasing $51,000,000 worth of stock. Out of the $200,000,000 authorized by our Board in October 2025, approximately $135,000,000 remains, and we will continue to opportunistically repurchase stock. Looking ahead, while our product business remains strong, the service side of our business continues to experience pressure in the near term. Additionally, we recognize that the evolving conflict in the Middle East could have a direct impact on our business in the region, as well as potential ramifications as it relates to global inflation and economic growth. As such, we have narrowed the guidance range for fiscal 2026. We are now guiding to a full-year net sales range of $635,000,000 to $650,000,000. That represents organic sales growth of 1% to 3%. But keep in mind that growth rate is composed of solid product growth in the mid-single-digit range or even a bit better, which is offset by projected service contraction in the low- to mid-teens range. We are now guiding to adjusted EBITDA of $158,000,000 to $163,000,000 and adjusted EPS of $1.85 to $1.92. We held free cash flow guidance at $100,000,000 to $110,000,000 given our strong cash flow generation year to date. As we look forward, restructuring and rightsizing of our EMEA service operations will establish a more competitive cost structure and a platform for growth. In addition, through the execution of Powering Enerpac Performance, or PEP, we see further opportunities to improve operating efficiency, with our continued focus on procurement and the productivity of our manufacturing footprint, which supports our healthy product business. With that, let me turn it back to Paul. Paul Sternlieb: Thanks, Darren. As you may know, we recently exhibited at CONEXPO, North America's largest construction trade show. Attendance and engagement were extremely strong. At the event, we demonstrated our latest infrastructure lifting and smart transport solutions, including several newly launched innovations. The conversations with customers were very productive, resulting in some meaningful orders booked at the show itself. And this was the first major U.S. trade show where we exhibited our DTA automated guided vehicles. Among featured solutions included on slide nine were a new line of split flow pumps. The diesel-powered split flow pump, which we added with the recent acquisition of the Hydropack assets, enables operation without an external power source. As such, it provides greater mobility and application flexibility, which can be a significant advantage for customers across many end markets, including infrastructure and power generation. We also introduced our battery split flow pump. Not only does it allow for operation without a power source, but it also enables use in enclosed spaces by eliminating emissions and significantly reducing noise. And we also showcased and launched our IntelliLift 2.0 wireless gantry controller. With this controller, Enerpac Tool Group Corp. has introduced the world's first software-defined, wireless, and scalable heavy lift control platform capable of operating up to eight hydraulic gantry legs in synchronous fashion from a single control unit. It also provides the foundation for recurring software updates, multi-application expansion, and long-term ecosystem value. In addition, we launched our new cribbing rooms, our updated skid track system, and a new lightweight tow jack. These products are just a sample of what has come from our increased and more focused investment in innovation, an effort that continues to respond to our customers' needs and build the strength of the Enerpac brand. Before we open the call to your questions, I would like to thank our team across the globe. I applaud their talent and dedication. I also appreciate each and everyone's role in building a culture of ownership, accountability, and teamwork here at Enerpac Tool Group Corp. Particularly rewarding on a personal note is the way our employee engagement scores have improved every year since 2022 and now exceed industrial manufacturing industry benchmarks. It is our people and shared culture that make Enerpac a premier industrial solutions provider. With that, we will now open for questions. Operator: We will now open for questions. Your first question comes from the line of Will Gildea of CJS Securities. Your line is now open. Will Gildea: Hi, Paul and Darren. Good morning. Can you talk about how much of your business comes from the Middle East, and are you seeing an impact in the region due to the current conflict? Paul Sternlieb: About 10% of our total revenue for the company. What I would say on impact—I mean, we do not obviously know how long this conflict will last and if it would materially impact our outlook for the year. But certainly, it does create a greater level of uncertainty, no doubt. We have seen, since the conflict with Iran, some pause in service work in the Middle East, mainly due to inability to access facilities, customers shutting sites, deferring work. And I would say largely we believe that is work that has been pushed to the right. Work will need to take place. In some cases, given some of the damage to facilities, there will be more work post the conflict. But beyond the Middle East itself, of course, there are impacts more broadly from higher oil prices, inflation, general economic headwinds that the conflict has created. So what I would say, and what I have said to our team, is we are working on what we can control, which is obviously keeping our people safe in the region, which we are doing and have done, and certainly trying to proactively identify additional commercial opportunities on a global basis to mitigate any impact to our business. Will Gildea: Thank you. That is super helpful. And on the updated guidance, can you provide some more detail on your expectations and maybe talk about how you are thinking about the cadence from quarter to quarter? Darren Kozik: Sure, Will. As we look at revenue, I would say in the first place, as we talked about, our product business is very strong. IT&S product in the first half is up 5%. We expect to see mid-single-digit growth for that business for the total year, so we have been very pleased with that performance. On service, we have continued pressure in the third quarter, but we expect to see a little bit of a rebound in that business in Q4. As you saw in our prepared remarks, we think that business for the total year will be down a decline of the low- to mid-teens. So that is the framework from a revenue perspective. As we look at gross margin, we expect to see sequential improvement into Q3 and then into Q4. That is coming off of roughly 46%, just north of that in Q2. So we expect to see that improvement in the second half. SG&A—our goal is simple: maintain or improve SG&A as a percent of sales for the year. So I think that is the framework we have on the lines of the P&L. From a free cash flow perspective, strong performance—$23,000,000, up $18,000,000 year over year—so we held that guidance. And as we step back, I think we look at the business and still see opportunities to improve the margins. We are looking at the service business. We have ongoing initiatives in procurement and at our manufacturing footprint, and obviously we have PEP running to improve those margins in the second half. That is kind of the framework and how we think about the business. Will Gildea: Thank you. Darren Kozik: Thanks, Will. Operator: Your next question comes from the line of Ross Sparenblek of William Blair. Your line is now open. Sam Carlo: Good morning. This is Sam Carlo on for Ross. Thanks for taking my question. I guess, starting on the HLT business, I am curious specifically, have you seen any project slowdowns as a result of the macro uncertainty over the past month or so? Paul Sternlieb: No. Nothing to date, Sam. In fact, our HLT business remains, I would say, quite strong and healthy. Good backlog. It is a product line where I would say we are extremely differentiated. We continue to see really robust engagement with customers, good order rate activity. We are also encouraged by activity we see particularly for HLT in the data center end market. Although still a relatively small portion of our overall revenue as a company today, we do see good upside opportunities. We did have good engagement with customers at the CONEXPO show in Las Vegas specifically around data centers, including some repeat orders. Sam Carlo: Got it. That is good to hear. I guess, switching gears a little bit. We noticed there is an incremental M&A cost as well as some sizable share repurchases in the quarter. Can you give us an update on what your M&A pipeline looks like, and maybe update us on your near-term capital allocation priorities? Paul Sternlieb: Yeah. Absolutely. I can talk about some of the M&A, and Darren can talk more broadly around capital allocation. But I think, clearly, value-creating M&A remains a very key focus and key part of the overall growth strategy for the company. We continue at any point in time to evaluate interesting opportunities that we think could be value creating and could have synergies and good strategic and financial fit with our company. Yes, we did incur some more significant costs in the quarter related to different opportunities that we have been evaluating. I would say that we continue to have and cultivate a fairly robust funnel, and at any point in time, we are having a good number of ongoing discussions at various stages of evolution with different target opportunities. Obviously, we cannot really comment more specifically. But I do feel that the M&A environment overall is robust, that our funnel is extremely robust, and that we are spending certainly appropriate time engaging on that in the marketplace and with particular targets. And, of course, as you know, we have a balance sheet to support, from a capital perspective, really anything that we think would be appropriate for the company and our shareholders. Darren Kozik: Yeah, thanks, Paul. I would just add from a capital allocation perspective, our first priority is obviously investing organically back in the business. You will see our CapEx trends there. We want to improve our operations, whether it be IT or in the factory footprint. We are doing that CapEx in the first priority. I would say then, secondly, when we see an opportunity in the market for share repurchase, we will take it. We obviously saw some of that in Q2. But that does not prohibit us from other activities. You can see our leverage at 0.6 times. You can see we have not tapped the revolver, so we have plenty of firepower left for M&A. So we are really consciously balancing all those activities across those three priorities. Sam Carlo: Got it. That is good color. And then quickly, one more. Maybe comment on the size and strategic fit of the Hydropack acquisition. It sounds like you guys have added some products using that platform. Paul Sternlieb: We did. That was really effectively a small tuck-in. It was an asset purchase—really not material in terms of the cost for us to acquire that. But it is a partner we have worked with for a long time. And that particular product line is very additive to what we do. It is a specific gap we had in our portfolio on split flow pumps powered through alternative sources—in this case, diesel—for portability and remote site applications. So we were extremely pleased to get that across the finish line and to be able to announce and show it at CONEXPO, where we actually did get quite a degree of interest. It has been a product that has been in the market, and successfully so, for quite a number of years, but we do believe with Enerpac Tool Group Corp.'s global presence, distribution network, and the strength of our brand overall that we can continue to grow that product line much more. So we were super excited to get that over the line. Sam Carlo: Got it. That is good color. I will leave it there. Thanks, guys. Darren Kozik: Thanks. Operator: Your next question comes from the line of Tom Hayes of ROTH Capital Markets. Your line is now open. Tom Hayes: Morning. Paul Sternlieb: Morning, Tom. Tom Hayes: On the service business, I know you guys have taken—I think you mentioned two restructurings in the past year. Can you maybe just talk about scope, the payback, and kind of where you have the service business positioned now? Darren Kozik: Sure, Tom. We did take two. Our first was in 2025. That was roughly a $6,000,000 charge, but only about $4,000,000 of that was related to people. That was really global reductions, and some of those activities just take time to mature for the business. So as you saw in Q2, our SG&A was rather favorable versus prior year, so we are starting to see some of that come through. Overall, that restructuring had about a 12-month payback. Then just in this quarter, we announced another restructuring just over $3,000,000. That was primarily tied to our service business. We have seen some pressure there, specifically in Europe and the Middle East, so we did make those adjustments. What I will say is that the benefit of that will flow through both direct cost and SG&A given the nature of our service business. From a service perspective, we think we have the right footprint now. Obviously, you heard Paul talk about the big deal we have won. And even in our guidance, we think Q3 is going to be tough, but Q4 should be a rebound in our service business. So we think we are in a good spot. Tom Hayes: Okay. Appreciate the color. And then it was really nice to catch up with you guys at CONEXPO. The booth was great and seemed busy for the days that I was there. But I was just wondering, can you provide a little bit more detail on the pace of the introductions of the new products, and should we expect some impact to the top line this year, or is it more of a next year contribution from the new products? Paul Sternlieb: Thanks, Tom. We were extremely pleased with the team's progress on innovation and our ability to launch quite a number of new products at the CONEXPO show—six in total. Those are all really new-to-market opportunities not only for Enerpac Tool Group Corp., but in most cases, to the world in terms of differentiation on the product lines. Some of these are really exciting, extremely differentiated technology that just is not available to customers today until we launch. The team has done a great job there. You can see that we are picking up and accelerating the pace of innovation. Last year, we launched five new products in fiscal 2025. I think we said last quarter we hoped to come close to doubling that. Obviously, we are well on pace in the first half of the year with six already launched. We do have more products planned for launch in the back half of this fiscal year, so stay tuned on that. That is the benefit of our very focused investment we have been making in innovation—the investments we made behind our innovation lab here at our headquarters in Milwaukee, our prototype facilities, etc.—that is really allowing us to dramatically increase the pace of innovation and reduce the time to market, with the ability to do prototyping on the fly and in real time and effectively overnight in many cases on parts. In terms of the incremental revenue, as typical for our markets and Enerpac products, most new products we launch frankly take multiple years to ramp for a few reasons. One, it is just the nature of our end markets—seeding these products and customers taking time to understand them and then to trial them and then ultimately buy them in bigger quantities. Secondly, of course, we globalize them over time and commercialize them in different regions where we are operating. That does take time for us to be able to, in some cases, get certifications and get inventory levels at the appropriate amounts depending on the country or the region. Even with products that we have launched over the last two or three years, we continue to see those ramp commercially quarter over quarter. So we will see some revenue benefit, I believe, in the second half of this year from these products launched, but it is not going to be hugely meaningful. Again, we expect to see more significant benefit over the next 12, 24, 36 months. Tom Hayes: Is there anything you can talk about a little bit about the new U.K. service contract—maybe timing of when that is going to begin and any expected financial impact? Paul Sternlieb: We were, again, very pleased with that. Very competitive process. Great customer. And as we referenced, this is a five-year award that we were given that is worth several million dollars per year, and we were awarded really on the basis of our technical proficiency and world-class performance. That is extremely exciting. We do expect to start to see revenue flow from that contract in Q4 of this fiscal year. And, of course, that is not the only thing in that market we have been working on. As we referenced in last quarter's call, although we have had our challenges in the service business in EMEA, our team commercially has been hard at work on trying to offset that with additional wins, and this is just one great example we wanted to highlight that we thought was quite meaningful. Tom Hayes: Great. Appreciate the color. Thanks. Paul Sternlieb: Thanks, Tom. Operator: If you would like to ask a question, please press star followed by 1 on your telephone. Your next question comes from the line of Steve Silver of Argus Research. Your line is now open. Steve Silver: Thanks, operator, and thanks for taking my questions. Paul, it was great to hear about the strong leads and the industry response coming out of CONEXPO. I am curious, including the new leads that you have also previously discussed coming out of the DTA acquisition, can you discuss a little bit about the current lead pipeline versus any historical trends there? Paul Sternlieb: Good morning, Steve. Thanks for the question. I would reference back to our Enerpac Commercial eXcellence, or ECX, program, and that has really been the foundation that we have set for commercial excellence and how we drive lead management and lead cultivation here at Enerpac Tool Group Corp. globally across all our regions. We have really seen that significantly strengthen over the past year. That is a program that we built proprietary for Enerpac. We first rolled out in the Americas region and then over the last year or so more globally. We use that to manage our funnel process and drive lead conversion with our CRM. We use salesforce.com to track all of our leads globally. We can get real-time dashboards on the quantity and quality of leads, conversion rates, days in stage—all sorts of interesting stats that give us some leading indicators around the health of our pipeline. Broadly, that is looking quite favorable. And then, of course, you see that more as a lagging indicator in order rates, which we referenced in our prepared remarks. The order rates in the quarter were strong, with strong growth in every single region year over year. I am really encouraged by the progress that our team has made commercially on ECX. I think it is having a real impact for us. It is driving focus on our commercial team, and it is making sure that we follow up in a timely manner as we generate new leads. We also have some interesting opportunities where we are piloting some implementation of AI in our business, specifically on the front end around lead generation, and I think we will see that continue to bear some additional fruit for us in terms of new lead identification and qualification over the next few quarters. Steve Silver: Great. Thanks for the color. And one more, if I may, for Darren. The tax rate—the tax guidance range for fiscal 2026 is fairly wide at this point. While you narrowed the guidance range operationally, is there anything you can discuss in terms of jurisdictions or any puts and takes around the tax guidance range at this point of year? Darren Kozik: From an overall tax guidance perspective, we have kept the range. There is obviously tax planning that is underway, and it is always difficult to determine when some of those things will happen, so we do keep that range a little bit wider. From a one big beautiful bill perspective, we do not see a significant impact on rate. A little bit of benefit on cash there, which we baked into our guidance. But we did hold that rate at 21% to 26%. Steve Silver: Fair enough. Thanks so much. Operator: Thank you. I would now like to hand the call over to Paul for final remarks. Paul Sternlieb: Thank you again for joining us this morning, and if you have any follow-up questions, please feel free to reach out directly to Darren, and have a great day. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.
Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Pony AI Inc. American Depositary Shares Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded, and a webcast replay will be available on the company’s Investor Relations website at ir.pony.ai under the News and Events section. I will now turn the call over to your host, George Shao, Head of Capital Markets and Investor Relations at Pony AI Inc. American Depositary Shares. Please go ahead, George. George Shao: Thank you, operator, and hello, everyone. We appreciate you joining us today for Pony AI Inc. American Depositary Shares’ fourth quarter and full year 2025 earnings call. Earlier today, we issued a press release with our financial and operating results, which is available on our Investor Relations website, and an earnings presentation, which we will refer to during the conference call, can also be accessed and downloaded on our IR website. Joining me today on the call are Dr. James Peng, Chairman of the Board and CEO; Dr. Tiancheng Lou, CTO; and Dr. Liu Wang, CFO of the company. They will provide the prepared remarks followed by the Q&A session. Before we begin, please refer to the safe harbor statement in our earnings release, which applies to this call as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release available on our Investor Relations website and filings with the SEC and Hong Kong Stock Exchange. I will now hand over to our Chairman and CEO, Dr. James Peng. Please go ahead. James Peng: Thank you, George. Hello, everyone. Thank you for joining our earnings call. 2025 is an amazing year for us. This was defined by multiple remarkable milestones. First, our top-line growth significantly accelerated. Looking at Q4 last year, our robotaxi revenues surged 160% year-over-year and fare-charging revenues skyrocketed by over 500%. Second, since our Gen-7 robotaxis’ debut last April, we moved straight into mass production and commercial deployment. Our fleet has now surpassed 1,400 units. Third, we are expanding our footprint, launching services in new cities, in both China and globally. This has massively broadened our reach. In fact, we have now crossed the 1,000,000 user mark in China alone. Fourth, we have proven our business model actually works. We achieved UE breakeven in both Guangzhou and Shenzhen, and we will replicate this success in more markets. Looking ahead at 2026, it will be a year of hypergrowth for Pony AI Inc. American Depositary Shares. We are riding a perfect wave of industry momentum built on five pillars: fully driverless technology, policy support, mass production, large-scale operation, and ecosystem maturity. Last year, we used China’s tier-one cities as a strategic blueprint to deploy Gen-7 robotaxis. From official debut to mass production, regulatory validation, and rigorous testing, we achieved commercially fully driverless operations within just six months. Last quarter, we set our robotaxis fleet target to over 3,000 units for this year. Bolstered by the financial firepower from our successful Hong Kong IPO, and also with Toyota bZ4X Gen-7 model already in SOP, we now have greater visibility and are confident in even exceeding this target. Our excellent virtual driver is the key to support this confidence. Proven mastery of highly complex urban scenarios and a superior safety record have earned deep trust from policymakers and partners, driving rapid user adoption. This directly translates into positive UE. Since we hit UE breakeven in Shenzhen last month, growth momentum continues. This March, we are seeing peak daily revenues of RMB 394 per vehicle and daily orders at 25 per vehicle. We will certainly replicate this success globally. By year-end, we plan to deploy robotaxis in over 20 global cities. As the go-to partner, we have forged strategic alliances with industry leaders like Tencent and Uber. Together, we will propel global expansion, powering accelerated top-line growth and more than tripling our robotaxi revenues for 2026. Let me elaborate on how we will drive this hypergrowth. We are executing a dual-engine strategy. That means we are all in on both China and global markets. Our proven business model in China gives us a solid foundation to replicate success internationally, and we are already seeing great results that position us for our next growth phase. In China, we have earned clear leadership across tier-one cities, scaling further and pushing deeper into busy downtown areas. Take Shenzhen, for example. Our robotaxis satisfied surging demand in traffic hubs such as Nanshan and Baoan during Chinese New Year. The paid orders in the first two months this year alone have already surpassed that of the whole year 2025 in Shenzhen. We also entered University Town in Guangzhou, the business campus zone in Southern China. This sets the stage for more launches in multiple cities across the Greater Bay Area. In March, we also entered Hangzhou and Changsha, top tier-two cities. This is just the start, and we will have more cities to follow soon. Now turning to overseas markets. Our presence in Europe, the Middle East, East Asia, and Southeast Asia now covers a population of 100,000,000. We are aiming for nearly half of our 20-city target to come from overseas by the end of this year. Recently, we teamed up with Uber and Verne, which is a Rimac Group company, to enter Croatia, working together to launch Europe’s first commercial fare-charging robotaxi service. In the Middle East, we rolled out our first fare-charging service with Karwa in Doha, and we are gearing up for fully driverless operations after approval later this month in Dubai, UAE. In Singapore, we have launched the public debut of autonomous driving services with ComfortDelGro. We are confident overseas revenues will grow rapidly in 2026. Ecosystem maturity is a critical pillar in executing our dual-engine strategy. Our successful business model makes us a go-to partner. Partners are now lining up to join our joint deployment model. Essentially, it is a model where they will fund the vehicles and we can share success together. This will empower us to achieve fleet acceleration, reduce cost, and improve capital efficiency. We have a robust pipeline of new partners ready to jump on board. Toyota is the first to adopt our joint deployment model. Their bZ4X Gen-7 robotaxis will account for a significant portion of our 3,000-vehicle target in 2026, and we have already secured 1,000 units. As a long-standing strategic partner, our collaboration with Toyota extends far beyond just manufacturing. Together, we will commercially deploy robotaxis to drive market penetration by leveraging our OEM partners’ mature supply chain and extensive after-sales service networks. Our enhanced partnership with both Beijing Auto and Guangzhou Auto further reduces our vehicle cost. In addition, we will jointly deploy robotaxi vehicles into more overseas markets. To reach a broader user base, we also partnered with Tencent by integrating with WeChat Mobility, unlocking access to hundreds of millions of users to call our local taxi services. We are also deepening strategic partnerships with OnTime Mobility in Guangzhou and ATB in Beijing to accelerate adoption of our joint deployment model. Overseas, our global partnership with Uber enables us to access users across multiple continents starting from Europe. Our regional alliances strengthen our market penetration with partnerships established with ride-hailing platform Bolt and also automaker Stellantis. Now let me turn to robotruck. Over the past few years, we made huge technological leaps by using our proven L4 tech stack. It has been translating into commercial breakthroughs. We are now covering major logistic routes connecting industrial hubs, ports, and consumption centers across China. To seize the opportunity, we introduced our Gen-4 robotruck in 2025, reducing the ADK BOM cost by 70%. We target mass production of Gen-4 robotrucks and deployment this year. In 2025, we have deployed fully driverless robotrucks at the Jiangmen Port in Guangdong Province and tested the 1+N driverless platooning in extreme weather conditions in Northwest China. With this proven stack, we will deploy robotrucks in more ports and mine-haulage scenarios. Lastly, our licensing and applications business delivered robust growth. Last year, autonomous domain controllers (ADC) sales actually reached sixfold the level of 2024. We have also expanded our application scenarios to low-speed deliveries, robust sweepers, logistics, and humanoid robotics. Strong customer demand and growing market recognition of our technology will continue to drive growth. In summary, we have hit a major inflection point, as we validated our business model through 2025 achievements such as fleet expansion, new city launches, and UE breakeven. 2026 is poised as a year of hypergrowth. We are confident we will triple our robotaxi revenues, grow our fleet to over 3,000 vehicles, and deploy robotaxis in more than 20 global cities. Powered by our dual-engine strategy, we are speeding towards autonomous mobility everywhere. I firmly believe every effort we make today will not only reshape the future of human mobility but also drive a revolution in transportation. This will be a revolution where safety, efficiency, and accessibility redefine how the world connects, commutes, and thrives. I will now turn the call over to our CTO, Dr. Tiancheng Lou, who will go over our technology strategies. Tiancheng, please go ahead. Tiancheng Lou: Hello, everyone. Looking back at our journey in 2025, it was a landmark year. We proved the commercial viability of our robo-taxi, achieving positive unit economics in Guangzhou and Shenzhen. Today, our sites have surpassed 1,400, with large growth throughout the year. Robotaxi is the first commercial application of physical AI validated by real-world operations and user adoption. Overall, our amazing tech architecture, built on years of R&D, has earned the trust of policymakers and established first-mover advantage to capture multiyear growth. As highlighted in the previous quarter, world models are now the widely recognized tech path, a domain where we hold a firm leading position with the Pony world model. But technology is only the foundation. The key to success is who can deliver reliable driverless robotic service at scale. I will walk you through how our technology drove commercial results in 2025 across three dimensions: scale, efficiency, and user experience. First, scale. Through strong execution on mass production, we surpassed our 2025 fleet target, and this momentum positions us to reach over 3,000 units by 2026. Since mid-2025, we began mass production of two Gen-7 models with Guangzhou Auto and Beijing Auto, both now ramping up to full capacity. In February, the bZ4X Gen-7 robotaxi co-developed with Toyota rolled off the production line. This strong generalization of our overall car-driving stack enables us to efficiently adapt across different vehicle platforms. This multi-OEM network enables rapid scaling while strengthening local partnerships and broadening our robotics vehicle offerings. This scale is backed by a comprehensive ODD that validates our technology’s stability to generalize across diverse urban environments. Today, our fully driverless fleet operates 24/7 in many cities across the globe, serving the public during peak rush hours and severe weather conditions. Achieving this required rigorous engineering validation, and the breadth of our fleet and ODD reflects the maturity and robustness of our autonomous driving stack. Our overseas expansion further validates its generalization capability. In Zagreb, we are operating across a large area in the city’s urban core, handling complex urban traffic rather than limited low-complexity routes. Such ability to deploy in demanding environments from day one demonstrates both the relevance of our technology and the commercial potential of our global expansion. This gives us strong confidence in reaching our target of more than 20 cities worldwide. Second, efficiency. We have established a clear cost advantage, driving a twofold improvement. On hardware, we optimized the design in Gen-7 robotaxis, effectively lowering BOM costs through adopting more cost-effective components. Our operations and safety record create significant leverage, dramatically reducing insurance fees and improving remote efficiency. Altogether this enables us to scale positive unit economics. Beyond that, our tech is building a powerful operation model. We have developed a highly generalized AI driving capability to build comprehensive and scalable operational workflows. This deep know-how makes us the go-to partner across the mobility ecosystem. It perfectly positions us to execute our joint deployment model, allowing us to scale fleet much faster with better capital efficiency. Third, user experience. Our technology enables robotaxis to serve consistently in high-value, high-difficulty scenarios, exactly in high-frequency ride-sharing hotspots where demand peaks and users are willing to pay a premium. This differentiates our service, supports our pricing strategy, and directly drives UE improvement. For example, in Shenzhen, our 24/7 driverless robotaxi covers high-traffic urban zones such as the Nanshan high-tech area to fulfill daily commuting needs. During rush hours, our AI virtual driver navigates not only major main roads, but also narrow streets where commuters actually need to pick up and drop off, providing convenient portal coverage that truly addresses real-world commuting needs. In Beijing, during a heavy snowstorm in early March, getting a ride became a major pain point for users, with long waiting times and limited availability. Despite the extreme conditions—snow-covered sensors, reduced visibility, and unpredictable road conditions all demanding significantly high driving capabilities—our robotaxis continued operations throughout the snowstorm, capturing substantial order volume growth during that period. Beyond handling extreme conditions, we have significantly improved ride comfort. Our Gen-7 robotaxi delivers smoother acceleration, braking, and signaling, significantly reducing motion sickness—a pain point that users care about most. This underscores the fundamental point: technology leadership is not just an engineering milestone; it is the core engine of our commercial success. Outstanding user experience earns user preference and repeat usage organically without relying on discounts. Beyond the robotaxi business, our proven L4 technology enables us to capture commercial opportunities across the broader autonomous driving industry. Our platform’s generalization enables 80% of the tech stack to be shared between robotruck and robotaxi. We have achieved true full-scenario, all-weather, 24/7 operational capability. Our operations now span from complex highway segments to unique scenarios like port logistics, with cumulative mileage exceeding 60,000,000 kilometers. We also unlock synergy in the licensed application segment through leveraging our advanced autonomous driving domain controller design, capitalizing on the rapid growth trend in low-speed delivery, robust sweepers, logistics, and robotics. We effectively fulfill our customers’ demand in robotics. Looking ahead to 2026, we will increase our investment in R&D and AI talent to strengthen our competitive position. Specifically, we are focused on advancing our Pony world model to further strengthen our top driving capabilities, reducing cost through continued hardware and software optimization, and improving operational efficiency to lower per-vehicle operating cost. These improvements are designed to fuel faster commercialization, expanding our robotaxi operations to more than 20 cities globally by year-end and delivering faster revenue growth. We will more than triple the robotaxi revenue versus 2025. As we have demonstrated already, technology leadership directly drives commercial performance, and this investment will further widen our advantage. This concludes my prepared remarks. I will now pass the call over to our CFO, Dr. Liu Wang, for a closer look at our financial results. Liu, please go ahead. Liu Wang: Thank you, Tiancheng. And hello, everyone. This is Liu. I will focus on year-over-year comparison for the fourth quarter unless otherwise noted. For full year 2025 and fourth quarter detailed financials, please refer to our earnings release. 2025 marked an inaugural year of large-scale commercialization for our robotaxi operations. The robotaxi segment continues to act as the core growth engine for the group, delivering exceptional top-line growth. In the fourth quarter, robotaxi revenues surged 160% to $6.7 million. For full year 2025, robotaxi revenues reached $16.6 million, growing 129%. This remarkable acceleration was primarily driven by our fare-charging service, where we saw Q4 fare-charging revenues skyrocket by 501% with a full-year growth rate of nearly 400%. More importantly, within just four months of Gen-7 robotaxi launch, we are thrilled to see consecutive UE turn positive in both Guangzhou and Shenzhen, the two most valuable cities in China. This milestone was built on two unique pillars that are exceptionally difficult to replicate by others. First, our clear cost advantages in both vehicle and robotaxi operations. Second, our exceptional AI driving capabilities. Being capable of navigating highly complex urban environments 24/7, we deliver a consistent, reliable, and high-quality service which helped us capture robust user demand. With the foundation of positive UE, and as vehicle density improves, we are seeing a clear network effect. Improving fleet density shortens wait time, boosts utilization rates, and drives the number of orders per vehicle. This in turn enhances overall passenger experience and further stimulates ride-hailing demand. Specifically, year-to-date of 2026, our users have nearly tripled year-over-year and reached 1,000,000. In February, we successfully delivered unit economics positive in Shenzhen, with an impressive average daily orders of 23 and RMB 338 average daily net revenue on a per-vehicle basis. As a matter of fact, this strong upward trend is continuing right now. In March, we hit a new daily peak of RMB 394 net revenue and 25 orders per vehicle. More excitingly, our paid orders in the first two months of 2026 in Shenzhen have already surpassed the entire order volume for the full year of 2025. Looking ahead, we remain highly confident in the growth trajectory of our robotaxi business. As James mentioned, our dual-engine strategy will drive rapid expansion into more than 20 cities in China and overseas. We are confident that our robotaxi revenues will at least triple this year. Simultaneously, we are enhancing our revenue quality by adding high-margin recurring revenue streams through robotaxi joint deployment with our partners such as OnTime Mobility. This model will lower the CapEx requirement on initial fleet deployment from our end and also gives us leverage to expand faster and more efficiently into new regions. From a technology perspective, as Tiancheng mentioned, our advanced AI driver capability directly empowers a premium user experience, providing safe, reliable, smooth, and efficient rides for passengers. This superior experience strengthens our pricing power and deepens user mind share, which can further boost top-line growth. On the cost side, we have proactively secured procurements for critical vehicle components and hardware, including high-demand memory modules. Therefore, we expect minimal impact from supply chain pricing fluctuation. Meanwhile, with greater fleet scale, continuous tech reiteration, and deepening OEM collaboration, we have high confidence in continuously reducing our vehicle BOM and further improving operating efficiency. Together, the high gross margin profile of the robotaxi segment is fundamentally elevating our revenue quality and actively contributing to the group’s future profitability. Now let us move on to robotruck. By leveraging our proven robotaxi stack, our next-gen robotruck achieves a 70% cost reduction. Furthermore, our transition to EV trucks will continue to drive down per-kilometer operating cost. Looking ahead to 2026, our shared expertise in robotaxi will accelerate our robotruck mass production, enabling us to begin deployment within 2026, as we aggressively deepen our route coverage across major logistic corridors and expand into more scenarios such as dedicated lines and port operations. We expect to see accelerated growth in revenues beginning in 2025. We are seeing strong client demand for our autonomous domain controller (ADC) product, with the ADC volume growing to six times the level of 2024. Looking ahead, we are seeing a solid order pipeline from existing customers and are actively expanding into new use cases. On the overall profitability front, we achieved a historical financial milestone in the fourth quarter by achieving our first-ever quarterly GAAP-level net profit. This historical pivot to profitability was primarily driven by gains from our strategic equity investments, which strengthen our broader ecosystem positioning and unlock business synergies. In 2025, our expenses were slightly widened. This was a deliberate front-loaded investment to accelerate Gen-7 mass production, expand into new cities, and strengthen our tech stack. Such investments are already starting to drive strong top-line growth. In the era of AI, we anticipate continuous investments into AI technology and talent to help us secure a long-term competitive edge. Beyond the technology benefits, our joint deployment model will also be a powerful lever for CapEx efficiency. By collaborating with partners to share the initial investment, we are able to scale our fleet rapidly while maintaining a lean balance sheet. Looking ahead, we expect revenue growth to outpace the growth of operating expenses as we capitalize on our fleet scale and capture the virtuous cycle of positive UE. Finally, we closed the year with a highly robust balance sheet with substantial cash reserves of over $1.5 billion following our successful Hong Kong IPO. This solid capital position gives us the firepower to invest decisively into R&D, SG&A, and go-to-market capabilities. We are confident that the stepped-up investment will accelerate our pace on large-scale commercialization and deliver faster revenue growth in 2026. Looking ahead, we are crystal clear on our strategic priorities: tripling our robotaxi revenue, expanding our fleet target to over 3,000 vehicles, and deploying robotaxis to more than 20 cities globally by 2026. We have ample dry powder to support these initiatives, and we will drive progress through our dual-engine growth strategy combined with our joint fleet deployment model that optimizes capital efficiency. We are well positioned to accelerate these targets and turn our operational momentum into sustained, profitable, and long-term growth for our shareholders. I will now turn the call over to the operator to begin our Q&A session. Thank you. Operator: We will now begin the question-and-answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, for the benefit of all participants on today’s call, if you have more questions, please reenter the question queue. If you ask questions in Chinese, please repeat them in English. The first question today comes from Ming-Hsun Lee with Bank of America. Please go ahead. Ming-Hsun Lee: Hi. This is Ming from Bank of America, and thank you for giving me the opportunity to ask a question. My only question is that since you already have a target of over 3,000 robotaxi fleet by 2026, can you share your production ramp-up and deployment plan? Now that you have achieved the UE breakeven in Shenzhen and Guangzhou, how do you think about the future UE trajectory? Thank you. James Peng: This is James. I will take this one. In my opinion, hitting the UE breakeven is a huge win for the whole industry, not just for us. It proves that our technology actually works in the real world. It also shows that robotaxi is not just feasible, but profitable at scale. Right after the UE breakeven in Guangzhou, we did it again in Shenzhen. This shows that our model is replicable, and we achieved this breakeven by focusing on service value, not discounting. What we have seen is that on the regulatory front, we see a policy tailwind to support the whole industry. In China, there are coordinated efforts between the central and local governments to bring robotaxi services to many cities. In our existing markets of the tier-one cities, we have seen more licenses issued to facilitate a larger fleet. Globally, many countries learn from the progress in China and the U.S. to clear the policy hurdles and come up with regulations to support accelerated deployment. So the regulatory momentum gives us confidence to replicate our current success in many more markets both globally and in China. Therefore, to capture the market, two things we are focusing on this year: one is ramping up production, and the other is launching robotaxis in many more markets. On the fleet ramp-up, over the last two months, we have been focusing on producing the Toyota bZ4X, and we are also continuously producing more vehicles with Beijing Auto and Guangzhou Auto. With all three vehicles, we are confident we will hit over 3,000 units by year-end. Then on the ODD extension, we are pushing deeper into downtown hubs, and we are also expanding into new cities such as Hangzhou, Changsha, and many cities across the Greater Bay Area. In terms of UE, since fares in China are relatively low compared with many global markets, and in China we already deliver positive UE and are continuing to improve UE, we expect better earnings in our existing markets and definitely a lot better margins overseas. We plan to expand this year into 20 cities, which will give us a very strong first-mover advantage. Our joint deployment model will also lower our CapEx expenditures, which can help us accelerate fleet growth and at least triple our robotaxi revenues this year. With this, I will get back to the operator. Operator: The next question comes from Tim Tsao with Morgan Stanley. Please go ahead. Tim Tsao: Hi. This is Tim from Morgan Stanley. Thanks for taking my questions. I just have a follow-up question about Pony AI Inc. American Depositary Shares’ latest operation. Based on the dual-engine strategy management just mentioned, regarding expansion strategy to enter over 20 cities this year, could you share details about which cities you plan to enter and what is the split between China and the overseas market? Separately, with geopolitical tensions escalating in the Middle East, are you seeing any challenges or headwinds to your operation? That is my question. Thank you. James Peng: This is James again. I will take this one. Strategically, we are using our success in China as a blueprint for our global expansion. Because our technology and business model are proven, we can replicate quickly and broadly in global markets. In fact, we expect nearly half of the 20 cities we are targeting this year to be overseas, spanning Asia, Europe, and the Middle East. In terms of go-to-market strategy, we are teaming up with industry leaders to improve our joint deployment model, which can greatly reduce our CapEx expenditure. This helps us scale efficiently while at the same time building strong local networks. We are already launched in Zagreb, Doha, Dubai, and Singapore, partnering with global giants like Uber, Bolt, and Stellantis. One example is that together with Uber and Verne, we have launched the first commercial robotaxi services in Europe. Looking ahead, we are exploring more European cities and also doubling down in Asia, such as South Korea and Singapore. Regarding the last part of your question, our efforts in the Middle East—first and foremost, risk mitigation remains our high priority. So far, we have not seen any material impact to our business from the current geopolitical tensions. We are still charging along with our efforts in the GCC region. We expect to roll out fare-charging services with Mowasalat in Doha, Qatar, and we are getting ready for fully driverless operations in Dubai after approval later this month. Back to the operator. Operator: The next question comes from Liu Yu with CLSA. Please go ahead. Liu Yu: Hi. Good evening, management. My question is on technology. So the world model and autonomous driving stack are now operating in multiple cities across different countries. Could you please tell us more about how the technology generalizes to new environments where the conditions could be very different from China? And what role does the world model play in accelerating your expansion plan? Thank you. Tiancheng Lou: This is Tiancheng. I will take this one. First and foremost, the key insight is that driving is about interaction and negotiation with the agents around it. There is no difference whether you are in Guangzhou, Shenzhen, or Zagreb. Different cities and countries are essentially different combinations of similar scenarios. What varies is the probability distribution, not the fundamental nature of the challenges. Some example corner cases are reckless lane changes without checking mirrors or a fallen bicycle in the road. These corner cases occur everywhere. Our technology has already been validated in the most demanding conditions, operating at scale across all peak hours and all weather in dense urban cores in China’s major cities. This means that when we enter a city like Zagreb, we are not starting from scratch. We are deploying our system that has already mastered a superset of the scenarios it will encounter. This is why we can operate directly in Zagreb’s urban core, which carries significant commercial value. Regarding the second part of your question, our world model plays an important role in accelerating this process. It enables us to model the interaction and negotiation dynamics between our vehicle and the surrounding agents, and to generate large-scale simulated scenarios that reflect the specific traffic patterns of our new markets. By reinforcement learning within this simulated environment, our system continuously improves its driving policy, allowing us to validate and fine-tune efficiently without needing to collect massive amounts of data in a new city. The enablers for reaching 20 cities are clear. Our multi-OEM network provides locally suitable vehicle platforms. Our operational playbook—from remote assistance to fleet management—is highly standardized and repeatable. Our technology’s broad ODD coverage means we can operate in complex urban environments, not just limited to low-difficulty routes. Together, this gives us strong confidence in achieving our target of deploying robotaxi services in more than 20 cities worldwide by year-end 2026. With that, back to the operator. Operator: The next question comes from Xinyu Feng with UBS. Please go ahead. Xinyu, your line is open. You may now ask your question. Xinyu Feng: Hi. Can you hear me? Hi. Yes. Hi. Thank you for taking my question and congrats to the solid results. My question is about the joint deployment model. For vehicles Pony AI Inc. American Depositary Shares plans to add this year, can you elaborate a bit more on how you will apply the joint deployment model? And how should we think about the benefit of this model for the company and our value chain partners? Thank you. Liu Wang: This is Liu. I will take this question. As you can see, we have hit the critical milestone of UE breakeven in Guangzhou and Shenzhen. After that, we have seen a lineup of partners in the whole ecosystem that want to join the robotaxi market, and we are their go-to choice. In this joint deployment model, our partner funds the vehicle CapEx and starts to tap into the whole robotaxi value chain—for example, ground operations, vehicle maintenance, and charging. We consider this a win-win situation for both of us. Our partner gets growing revenue from deployed vehicles, and we essentially are in an asset-light model to expand our fleet rapidly. In this year, we expect nearly half of our new vehicles to come through this model, led by Toyota. Not only do we improve our capital efficiency in our expansion through this model, but it also creates an additional revenue stream through recurring direct income in the form of revenue sharing or AI driver license fees. This revenue stream, combined with our self-owned fleet fare-charging revenues, will help us to achieve more than triple robotaxi revenue in 2026. Beyond that, with the current lineup of our partners such as Toyota, OnTime Mobility, and ATB, we expect even more partners will jump on board this year. I will get back to the operator. Operator: The next question comes from Purdy Ho with Fubon Securities. Please go ahead. Purdy Ho: Thank you for taking my questions and congratulations on your results. Regarding the 1,000 robotaxis already contracted with Toyota, how are you planning to deploy these vehicles? And do you expect any future scaling up or strategic initiatives with Toyota down the road? Thank you. James Peng: This is James. I will take this one. In terms of Toyota, I consider them not just a partner; they have been with us since 2019 as our largest strategic shareholder. The relationship between us goes way beyond just an auto supplier. It is a deep, strategic, long-term collaboration. In terms of the mass production of robotaxi vehicles, we have jointly launched several robotaxi models on Toyota platforms since 2019. In 2026, we are adding 2,000-plus new vehicles, and nearly half will be the new Toyota bZ4X Gen-7 vehicles. This model is jointly developed with Toyota Motor Company and GAC Toyota. The mass production is already live on Toyota’s assembly lines. There is great synergy between us. Their manufacturing capability and top-line platforms blend perfectly with our L4 technology and operational know-how. Besides jointly developing vehicles, Toyota is also the first partner to adopt our joint deployment model, funding the fleet to help us scale capital-efficiently. This shows their incredible confidence in Pony AI Inc. American Depositary Shares, and together we are rolling out commercially starting from China’s top-tier cities. With this, I will get back to the operator. Operator: The next question comes from Yuchian Ding with HSBC. Please go ahead. Yuchian Ding: Thank you. This is Yuchian from HSBC. I have two. The first question is about the competition dynamics. How do you see the automakers getting into the robotaxi segment? And the second question is about the competitive edges. The market narrative is shifting more into scaling with more entrants getting in. What is Pony AI Inc. American Depositary Shares’ most unique leading advantage? Thank you. James Peng: I will take the first one, and I will hand over to Tiancheng for the second part. Certainly, we have seen that especially lately there are many announcements about new players already entered or planning to enter the robotaxi business. Those new entrants include automakers, ride-hailing companies, tech giants, and startups. In general, I think this new entrance to the robotaxi space validates the long-term potential for our industry, and I very much welcome the new players. Essentially, they can make the whole ecosystem even larger. But in reality, L4, especially robotaxi, is such a complex system that it requires an integrated solution. As I mentioned in my prepared remarks, there are five pillars for the robotaxi industry—technology, policy, mass production, operation, and partnerships. These five pillars are intertwined; simply throwing resources at them will not accelerate the development process. Over the years, we have developed a unique advantage across all aspects of the robotaxi industry. Regarding some of our competitive moats, I will hand over to Tiancheng to elaborate. Tiancheng Lou: Thank you. Technically, I do not think automakers have an advantage in L4 robotaxi just because they are strong in manufacturing or in L2 systems. The key point is that L2 and L4 are fundamentally different. They are not just two points on the same path. In L2, as the mild system intervention increases, the accident rate can increase. Partial automation can create a false sense that the system is almost good enough until it fails in a situation where the human is no longer ready to take over. That is why the L2 path does not naturally lead to L4, especially when we are talking about a driverless fleet at scale. One unique advantage we have at Pony AI Inc. American Depositary Shares is our long-term investment in our world model and our L4-native virtual driver training approach. The reason this matters is that L4 robotaxis need to be significantly safer than human drivers, and that cannot be achieved by simply imitating human driving behavior. To reach that level of safety, the system has to keep improving through large-scale trial and error in a virtual environment, which is why our world model is essential. In other words, the key to training an L4 virtual driver is building a virtual environment with strong enough sim-to-real capability, especially when it comes to interaction between vehicles. That is also why the L4 approach requires many years of investment in AI, and it does not improve mainly by collecting more real-world data. The second unique advantage is that we have a real robotaxi fleet in operation, and those fleets continuously help us see where the world model is still different from the real world. The hardest part of L4 is not the first 99%. It is the last 1%: the long tail of rare, critical corner cases. We handle those cases safely, but it is not enough to look at the well-recorded trajectory. What really matters is understanding how the other vehicles may behave across many different intentions with the AI driver. This is exactly why the world model is so important. Only a world model can give you enough coverage of the full combination space of different intentions in the corner cases, and that kind of coverage is what L4 safety ultimately requires. At the same time, only fully deployed robotaxis can keep narrowing the gap between the world model and the real world. Real-world robotaxi operations let us observe and understand the actual behavior patterns of vehicles and pedestrians in those scenarios, where human driving data cannot observe interaction with robotaxis. This is also aligned with the fact that new players typically can only start with a very small fleet. Regulators understand this logic as well, so they are naturally very cautious about granting permits at early stage. To summarize, automated entrants confirm the size of the opportunity. But L4 robotaxi is not something you get by extending L2. Pony AI Inc. American Depositary Shares’ unique advantage comes from two things: a world model built for L4 and a real robotaxi fleet that continuously helps to improve it. Together, they create a closed loop that keeps both the model and the product moving forward. With this, back to the operator. Operator: The next question comes from Joel Ying with Nomura. Please go ahead. Joel Ying: Thanks for taking my question. This is Joel from Nomura. I would just like to understand how management views the impact of NVIDIA launching their open-source model for smart driving as Level 4, which we just saw at GTC this year. Thank you. Tiancheng Lou: For this question, I think the key is to distinguish between a model and the real product. An open-source autonomous driving model can be a good starting point but not the end product. There is still a very big gap between a model and a robotaxi fleet that is commercially deployed, safety-proven, government-approved, and operating at scale. Closing that gap is exactly where our core advantage lies. At Pony AI Inc. American Depositary Shares, our strength comes from years of full-stack in-house development and real L4 deployment at scale. That includes not just the software or the model, but also the vehicle architecture, sensor redundancy design, domain controller, operating system, validation, and the commercialization capability needed to run actual robotaxi services. For example, sensor customization, redundant design, direct functional safety, manufacturability, and BOM cost. Our OEM partnerships are also very different from a plug-and-play approach; they give us better system integration, higher reliability, and lower overall system cost. We view progress from NVIDIA as moving the ecosystem forward. At the same time, we believe the real barrier to entry remains very high. And, of course, NVIDIA is an important partner of ours on domain controllers. We maintain a strong collaborative relationship. With this, back to the operator. Operator: The next question comes from Tianyu Liu with CITIC Securities. Please go ahead. Tianyu Liu: Hi, this is Tianyu from CITIC Securities. Thanks for taking the question and congratulations on rapid growth in your robotaxi service. I have one question. How do you plan to allocate your Hong Kong IPO proceeds? And given your accelerated development targets, do you expect any upward revisions to the 2026 cost and expenditures? Liu Wang: This is Liu. I will take this question. As I mentioned earlier, we have ample cash reserves, about $1.5 billion as of December 2025, which was driven by our Hong Kong IPO proceeds. We received proceeds of more than $800 million. This definitely secures long-term capital to fuel multiyear growth. For us, the 2025 achievements in terms of Gen-7 deployment and UE breakeven made us a clear industry leader. Looking forward, we look for accelerated top-line growth to widen our leading position and push the whole industry towards the next stage. Hence, we need to strategically increase our investments. We have significantly scaled up the number of robotaxis operating across China’s tier-one cities, especially in Shenzhen and Guangzhou. We also recently entered new cities in China such as Hangzhou and Changsha, and internationally in Croatia, and plan to deploy in more than 20 cities by this year. In order to support the multiple market expansion, we will invest in business development, operations, and marketing. As we scale our robotaxi deployment, we are expanding our robotaxi fleet through joint deployment models as well as investing in self-owned vehicles. We would also recruit AI talent and invest in AI infrastructure to further improve our virtual driver capability. We think this will allow us to consistently meet the public’s high expectations for safety, reliability, and quality to offer a trusted robotaxi service. James already mentioned that this is a critical period to expand market share, which we think requires necessary investment to solidify our technological and operational moats. We believe the strategic increase in investment is a value-driven trade-off to secure long-term market leadership. With disciplined capital allocation and the benefits from the joint deployment model, we believe this will pay off with much faster growth, city expansion, and fleet size, and will also lead the whole industry into a much advanced phase. Thank you. I will now get back to the operator. Operator: The next question comes from Kai Shao with CICC. Please go ahead. Kai Shao: Thank you. This is Kai from CICC. I have one question regarding raw materials information such as memory. Could you share your view on how inflation impacts your production plan and cost items? Thank you. Liu Wang: This is Liu again. I will take this question. Thank you for asking this important question. As I mentioned earlier, the impact on both vehicle and ADK BOM cost is very limited. We think this resilience is driven by our proactive supply chain strategy and inventory management with our ADC domain controller business. Through this approach, we secured our memory even before the market went into price inflation and shortages. We are very confident that we can fully support this year’s robot production target of over 3,000. Thanks to the supply chain measures and our continuous scaling, we remain on track to achieve a 20% reduction in ADK BOM cost for 2026 compared to Q2 2025 levels. We will carry out ongoing hardware and software optimization, and this will further reduce our overall cost down the road. Thank you, and I will get back to the operator. Operator: There are no further questions at this time. I would like to now turn the call back over to the company for closing remarks. George Shao: Thank you once again for joining the earnings call today. If you have any further questions, please feel free to contact our IR team. We look forward to speaking with you in the next quarter. Operator: This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your line.
Courtney Howe: Good morning, and welcome to the Soul Patts' financial results presentation for the first half of financial year 2026, being the 6-month period ending 31 January 2026. My name is Courtney Howe, I'm responsible for Corporate Affairs and Investor Relations at Soul Patts, and I'm pleased to introduce our presenters for today. Todd Barlow, Managing Director and CEO, will address performance highlights; and David Grbin, our Chief Financial Officer, will cover group financial results before handing back to Todd, who will step through portfolio performance. Todd will round out the presentation with a look at the core principles behind our capital allocation process as well as the current priorities. We will respond to questions at the end, starting with analyst questions on the line. As usual, there is the option for written questions to be submitted at any point during the webcast, and you will see a question box on the right-hand side of your screens. Please provide your name when you submit your question. Over to you, Todd. Todd Barlow: Thank you, Courtney, and welcome to everybody joining us today. Soul Patts is a diversified investment house with a unique position in the Australian market. Our total portfolio is now valued at $13.8 billion. We operate as one portfolio that houses multiple asset classes. We have generated strong risk-adjusted returns through a disciplined approach for many years. The 6-month period ended 31 January 2026 was a continuation of this track record, and we are pleased to discuss the first half results today. I'd like to spend a moment talking about what sets Soul Patts apart and our differentiated approach. Our mandate is completely unconstrained. What this means is that we can invest wherever we find the most attractive risk-adjusted returns, up and down the capital stack, listed or unlisted, onshore or offshore. There are very few listed investment companies in Australia that can operate with our kind of flexibility. We have the ability to design bespoke capital solutions for a particular situation where a standard approach would not work. This opens up many different types of deals we can do. Our approach is diversified and uncorrelated. Diversification to us is not simply owning lots of things. It's about owning assets that behave differently across industries, asset classes, geographies and risk profiles. They don't all move in the same direction at the same time. So when one part of the portfolio falls out of favor and we have exposure, our portfolio can absorb it. That is by design. We also have permanent capital, investing our own balance sheet. That means we can have strong conviction behind our investment decisions at times going against the grain with a contrarian view. We can hold our positions for the long term and compound great returns for shareholders. These are structural advantages that are genuinely hard to replicate. And lastly, our structure is totally aligned with shareholders. When you invest with Soul Patts, you are not just buying a portfolio of assets. You are buying into an embedded investment company with a strong purpose, deep capability, networks and competitive strengths that have been built over 100 years. Our principles run deep and have been shaped over multiple generations of the founding family, carried forward today by our Chairman, Rob Millner. Our team is invested in the outcome with incentives tied to growing portfolio value and cash flow, not growth in funds under management. The compounding effect of all of that put together is what you see in our long-term track record. Over the last 5 years, our portfolio has evolved considerably. Back in January 2021, the portfolio was $5.2 billion and heavily concentrated in equities, mainly Brickworks, New Hope and TPG. By early 2023, the portfolio was starting to see the benefit of the Milton merger, which had completed about 18 months prior. We had begun the exercise of repositioning the equities portfolio we acquired from Milton into private asset classes. It was strategically important for derisking the portfolio by shifting more capital into these uncorrelated and diverse asset classes such as credit and private companies. Over the last 3 years, we have grown our credit book by more than 8x. Credit is uncorrelated to equity markets and exhibits more defensive qualities. We have the internal capabilities to originate, structure and manage these investments in a way that generates a good return for the level of risk being taken. Private companies have grown nearly 4x over the same period. These are high-quality businesses that benefit from our capital insights and long-term support. Today, we have a $13.8 billion portfolio spread across 5 distinct asset classes. The key message I want to reinforce is this: by recycling and redeploying capital, we are actively managing risk. We are building the capacity to deploy this capital into higher conviction opportunities as and when they emerge. The Soul Patts portfolio has always managed risk well. Today, we are even more diversified and less correlated than ever before. Against that backdrop of evolution, the strategy itself remains entirely consistent. We have always measured ourselves against 3 clear objectives. First, we aim to increase cash generation from the portfolio to underpin dividend growth. The interim dividend has now grown every year for the past 28 years, and the compound annual growth rate over that period has been 10.4% per annum. This track record is unmatched in the Australian market. Second, we aim to grow the portfolio and outperform the market on a total return basis over the long term. Over the past 25 years, the annualized total shareholder return has been 12.9%, which is 4.6% higher than the market. Third, our objective is to deliver strong financial returns while actively managing investment risk. This is fundamental. It means that we are constantly looking for outsized returns for the risk we are taking in any asset, and we construct a portfolio to protect shareholder capital on the downside. With a truly diversified portfolio, each asset class performs differently through the cycle, which adds resilience. Over the past 25 years, whenever the market has had a negative month, Soul Patts has outperformed by around 2% on average per month. This is how our company is structured to both grow and protect shareholder capital through market cycles. Turning now to the first half. We had a very strong performance against each of those key objectives. On cash generation, net cash flow from investments of $334 million is up 15.4% on the prior corresponding period. This strong cash flow enabled the Board to declare an interim dividend of $0.48 per share fully franked, marking our 28th year of consecutive dividend increases. On portfolio growth, the net asset value of $13.8 billion is an increase of $1.8 billion on the prior period. On a per share basis, the portfolio returned 9.7% in the half, outperformed the ASX 200 Index by 6.6%. And on risk management, we executed $4.3 billion in transaction activity during the half with $2.1 billion in new investments. What these numbers tell you is that we are actively rebalancing the portfolio towards greater liquidity in what remains a volatile environment. I'll come back to this point later in the presentation. We've been positioning the portfolio to be more resilient through challenging markets, and we ended the period with $472 million in available cash, which gives us strategic optionality. We also have undrawn debt facilities of around $1.2 billion, which gives us further flexibility. I'll hand over to David Grbin, our CFO, to take you through the group financials in more detail. David Grbin: Thanks very much, Todd. And it's a real pleasure to present a solid set of results, which is the first set of results for the merged entity. On each of our key measures of performance, we've exceeded the prior period or the balance at the previous financial year at the end of 2025. And we have an even stronger balance sheet post merger. Gearing is low, and we have ample liquidity to take advantage of any market dislocation. If we look at the group financial results now for the half, statutory or reported NPAT was $2.3 billion. A little over $2 billion of that are nonrecurring or we don't expect to happen in further periods. They are as a result of the merger and the tax reset that took place at the time of the merger. So around $2 billion are nonrecurring items. $1 billion of that comes from these one-off accounting gains and tax costs reset as a result of the Brickworks merger. During the half, we sold some shares in Tuas and Aeris and took a profit on those of around $300 million. And we, as a result of those sell-downs, no longer account for those investments as equity accounted investments. They now go to be set at market value. And on accounting, there's another $400 million gain from that reset. And finally, there's a couple of hundred million dollars in that nonregular item of $2 billion resulting from unrealized gains from some of our trading stakes in the emerging companies portfolio. This really illustrates the difficulty of using profit as a measure of overall portfolio health. To try and guide people with that, we do provide an underlying profit number, and that's the regular NPAT number, which you can see on the bottom of the slide there, a little over $300 million, up nearly 7% on the prior corresponding period. That's arisen through 2 events. Firstly, we've got some fair value gains that came through in the portfolio, both in the emerging company and an extra contribution from real assets, offset by lower results coming out of New Hope. Overall, underlying profit up nearly 7% for the half. If we turn now to our preferred measure of portfolio health, which is net cash flow from investments. And for the half, it was $334 million, a little over 15% up on the prior corresponding period. And if we take into account the larger capital base, because we raised more equity at the time of the merger, it's up 12.5%. On any measure, a very strong result on the prior corresponding period. Over the last 3 years, net cash flow from investments has compounded at a little over 9% per annum, from $0.68 per share in the first half of 2023 to now at $0.89 per share in the most recent half. That consistent delivery of cash flows and consistent growth in cash flows really underpins the ability for us to continually increase the dividend that we pay to shareholders. And we've been increasing that dividend to shareholders every year for the last 28 years. We always like to remind shareholders that Soul Patts has never missed paying a dividend since becoming a publicly listed company in 1903. And this includes major periods of disruption, including the global financial crisis, world wars, great depressions and even most recently, COVID. If we now look to the net asset value of the portfolio. The total NAV on a pretax basis was $13.8 billion, up $1.8 billion on the prior corresponding period, and as Todd mentioned, delivered close to 10% return for the half. The portfolio outperformed the ASX 200 Index over that period by nearly 7%. And on a 12-month trailing basis, when we adjust for dividends, that return was 14.3%. This is an exceptionally strong outcome for our shareholders against a very volatile market climate. The primary drivers of the recent NAV growth were our equity holdings in stocks like NexGen, Tuas, New Hope, and Aeris, which all performed strongly for the half. The merger that took place with Brickworks in September was accretive to NAV, and that's around 2% of that return. So even if you back that 2% out that comes from the merger, we've still got substantial outperformance for the half. And when we adjust for dividends, NAV has compounded at over 11% per annum for 3 years. If I finally now turn to capital management. So as Todd mentioned, we have, at the half, nearly $500 million in available cash, and that reflects some of the equity raising proceeds that we raised back in September and also the cash generation over the last 6 months. We've got available debt of $1.2 billion. So we've got ample liquidity to take advantage of any of those market dislocation. Importantly, one of the outcomes of the merger was that we're able to reset the tax cost base for all of the investments across the whole portfolio. So both in the old Soul Pattinson portfolio and the Brickworks portfolio, and they've been able to be reset to market values at the time of the merger. This now means that going forward we're not burdened with assets that have large unrealized capital gains tax liabilities. They've been reduced now because we've been able to reset up to market as at the date of the merger in late September. This structural improvement in the balance sheet means that the investment team can rebalance the portfolio, make changes to the portfolio, and there will be minimal tax friction. Importantly, the franking balance of both Soul Patts and Brickworks could be merged together and it now stands at a little over $1.1 billion. I'll now hand back to Todd, who will walk through the individual asset classes and our strategic direction. Todd Barlow: Thanks, David. Let's now go through each part of the portfolio in turn. The portfolio, as I said, is now genuinely multi-asset class. Each of these asset classes plays a specific role, whether this is to generate uncorrelated income streams, compound value or provide exposure to structural growth tailwinds. Increasingly, we're diversifying the portfolio to include more international investments, which now accounts for 18% of the total portfolio value. And what we do with each of those international investments is put them into the relevant asset class bucket that you see on this slide. So it's not a separate asset class. I'll move through each of the asset classes and their contribution to the group result. Listed companies now represents 32% of the total portfolio. That's down from 57% in the prior corresponding period. So in the last 12 months, that's reduced. That reflects the removal of Brickworks as a listed equity following the merger. Brickworks is now sitting across private companies and real assets. On performance, the total return for the half was 5.9%, that outperformed the ASX 200 Total Return Index. Our performance was driven by our overweight position in energy sector, which is predominantly our investment in New Hope. Net cash flow from investments was $150 million, down 23.9% on the prior period, which is a reflection of the reduced size of the portfolio. Listed companies has a long legacy of strong performance built around businesses that generate cash and compound value over time. We look for businesses with durable competitive advantages, run by quality management teams with a long-term orientation. And there's no better example of that than Apex Healthcare, a founder-led leading pharmaceutical group headquartered in Malaysia and one of the leading players in this market. Apex shows what patient, high conviction investing can deliver. Over the past 20 years, our investment has compounded at 20% per annum. And it began with a decision that had nothing to do with returns. It began with people. In the 1950s, our former Chairman, Jim Millner, arranged for Kee Tah Peng, the founder of Apex, to do his pharmaceutical apprenticeship with Soul Patts. A decade later, Kee Tah Peng established the first Apex pharmacy in Malaysia. He would then go on to expand the business into distribution and manufacturing, establishing a joint venture with Soul Patts under the name Xepa-Soul Pattinson. Picture on the right is the first manufacturing plant in Malaysia and its official opening ceremony attended by Jim Millner. When Apex listed on the Kuala Lumpur Stock Exchange in 2000, Soul Patts retained approximately 30% alongside the founding family. Kee's son, Kirk Chin, stepped up as the CEO. At the same time, Soul Patts' Chairman, Rob Millner, joined the Apex Board and was instrumental in establishing Apex's long-term track record of dividend payments. Apex was a phenomenal growth story. From a MYR 65 million company at IPO to a MYR 1.9 billion business at the time of privatization. We supported that process and helped bring in a new partner to take Apex into its next chapter. And our stake was divested for over AUD 200 million. Emerging companies is now 21% of the total portfolio, up from 16% in the prior period, and the performance for this half was exceptional. Total return was 36.7%, outperforming the Small Ords benchmark by 19.4%. Net cash flow from investments came in at $81 million, up 161% on the prior period, driven by strong trading gains. The outperformance was driven primarily by early high conviction exposures to energy, communication services and defense. Soul Patts has had a strong track record of backing emerging high-growth companies. Large positions in this portfolio today include Tuas, EOS, and NexGen Energy. This portfolio capitalizes on our flexibility to invest in both listed and unlisted opportunities, a variety of industries as well as jurisdictions. The chart on the right reflects that breadth. Credit is 12% of the total portfolio. The net asset value grew 36.5% to $1.6 billion. Net cash flow from investments was $103 million, up 9% on the prior period. And this was a pleasing result because the prior period was elevated by the timing of loan repayments, mainly EOS who repaid one of their previous loans ahead of time in first half of '25. We deployed $383 million of new capital during the half, including $67 million offshore, and had $474 million of loans repaid, a healthy sign of a book that is actively turning over. To offset these repayments, we need to keep writing new loans, and this is the biggest challenge we have. Returns from this asset class are driven by the quality of our borrowers, the way we structure each loan and the interest we earn for the risk we are taking. Soul Patts is structurally different to other credit funds in that we are deploying our own balance sheet, and we don't need to worry about duration mismatch. Our book is built through direct relationships. The majority of the loans in this book have been sourced by our team. So our reputation gives us a meaningful advantage in this regard. And with a preference for bilateral deals, this enables us to have a lot more control over deal structure, setting the terms and maintaining active oversight. The pipeline remains active, both onshore and offshore, with $367 million in undrawn but committed funds to offshore credit partnerships. We see the current environment as being potentially attractive for continued offshore deployment. Private credit is a deep asset pool and in recent times has seen significant growth. However, we have all heard of the many large funds being in outflows, and this should create a better environment for future investment. Private companies now makes up 11% of the total portfolio. The net asset value grew 49% to $1.6 billion following the addition of Brickworks Building Products and other new investments. These other new investments were predominantly offshore with $50 million deployed into strategic partnerships. While this is still a very small proportion of the overall portfolio, we believe that allocations to partners in offshore markets gives us access to unique opportunity sets and specialist expertise. Net cash flow from investments increased 32% to $37 million for the half. What is unique about our approach to private companies investing is our flexible mandate. We have the ability to hold minority and majority positions, and we do not have a requirement to exit the investment quickly. Our edge is the access we get to these types of deals before anyone else sees them. This is evidenced by the current portfolio where 94% of the current assets in that portfolio were sourced through a proprietary deal origination. It tells you that we have high-quality relationships and a reliable reputation as a long-term capital partner. When founders or business owners are choosing who they want as an investor, they want someone who will be there through cycles, who won't force a short-term exit and who can add genuine value alongside them. We work alongside management to actively shape strategy and unlock value, and we are continuing to build and grow these businesses as we constantly regenerate the portfolio. Now I mentioned that the newest addition to private companies was the Brickworks Building Products business. The integration of Brickworks has gone extremely well. We've reduced the structural complexity in the business and enhanced financial flexibility. In addition, the management of Brickworks are taking the opportunity to simplify the operating model. These are tangible improvements that make the business easier to manage and position it better for the cycle ahead. Building Products is our second largest asset in the private companies portfolio and one that we believe will perform well over time. The current market environment remains challenging. While we are starting to see some recovery in the Australian market, particularly in multi-residential demand, the U.S. market remains soft. For example, the nonresidential market that Brickworks services is 27% below where it was 3 years ago. We knew that Building Products is a cyclical industry, but we have conviction in the quality of the underlying assets and the structural dynamics of the market they operate in over time. Real Assets are now 22% of the portfolio, which is a large increase from the prior period. The increase in NAV reflects the addition of the industrial property joint venture with Goodman Group, which came across through the Brickworks merger. Net cash flow of $24 million was driven by distributions from some of our existing property assets, which are exposed to industrial and residential development tailwinds. The attraction of real assets is the combination of income generation and long-term capital growth with defensive characteristics that provide resilience through different market environments. Industrial property, data centers, agriculture and water rights are tangible assets tied to positive structural shifts in the economy. They benefit from demographic tailwinds such as the growth of e-commerce, the demand for data infrastructure and Australia's high-quality agricultural land. I'll now touch on how we think about capital allocation, and I think it's important to understand the principles that drive investment decisions, not just the outcomes. There are 3 principles at work in how we construct and manage this portfolio. The first is a bottom-up portfolio construction approach. Capital follows our highest conviction ideas. We are not allocating by filling buckets or trying to hit sector targets. Every asset is in constant competition with every other idea in the pipeline. If something better comes along, the capital moves, and we manage risk dynamically, not by preset targets, but by considering the portfolio as a whole. If the market changes or the opportunity set changes, we have the flexibility to respond. The second is protecting shareholder capital. That means owning assets that exhibit strong fundamentals and resilience through cycles. We have a bias to companies with strong cash flows that are low cost, have high-quality management and strong balance sheets. We are also seeking asymmetric positions where the upside is meaningfully larger than the downside. The question we are always asking is the same, does the return we can generate more than compensate for the risk we are taking. That discipline never changes regardless of market conditions. The third is we want to use our structural advantages. We seek to exploit our permanent capital and our flexibility to generate alpha. These advantages only compound in value over time and create more access to opportunities. Right now, we are being deliberate about building more liquidity in the portfolio because the world is very uncertain. But uncertainty creates volatility and opportunities for mispricing. In this kind of environment, permanent capital and flexibility are significant advantages. This slide here shows you those principles in practice. During the recent half, we transacted over $4.3 billion, and that excludes the corporate activity around Brickworks. That is a significant level of transaction velocity and reflects the dynamic nature of how we manage risk. The number is carved up between buying and selling. We invested $1 billion into emerging companies, $0.5 billion into large-cap equities, $400 million into credit and circa $100 million into private companies. On the other side, we divested around $700 million from emerging companies. We sold $1 billion from large-cap equities and had circa $500 million of credit loans repaid. So you can see that the credit portfolio is slightly decreased in size because we had more repayments than we could make new investments, but we did substantially reduce the size of the large-cap equities book through the period. That rotation in and out, rebalancing, recycling is active portfolio management, and it's how we maintain the quality of the portfolio over time. We ended the period with a strong cash balance for strategic deployment. In the period since the end of the half, we've continued to increase the liquidity across the portfolio. It means that when the right opportunities emerge, be they mispriced assets, countercyclical plays or high conviction new positions, we'll be ready to act. Acting on behalf of shareholders is our team and a strong culture that comes with 92 years of combined service to Soul Patts. We've made a couple of changes to our executive leadership team during the half that I'd like to share. Dean Price, who first joined Soul Patts in 2008, was recently promoted to the Investment Team Leader in addition to his current role as Managing Director. As the portfolio grows, Dean ensures we are constantly collaborating across all investment teams to keep across emerging opportunities. Brent Smith, who also first joined in 2008, was recently promoted to Managing Director. A more recent appointment in January was Andrew Switajewski as Managing Director. Andrew brings a diverse investment skill set from experience in Australia and internationally, spanning private equity, listed equities and M&A. Former CIO, Brendan O'Dea, departed the company to pursue other endeavors late last year, and we thank him for his contribution to the business, wishing him well for the future. We often get asked about how we maintain a strong culture. This is a culture that has been passed down from generations of family oversight of the business. We are stewards of shareholder capital, and that duty is front of mind. And that culture has strengthened over time. Following our most recent culture survey, we received a very strong engagement score that outperformed the top 10% of companies operating within the financial services industry. We have very low staff turnover with a rolling annual attrition rate of less than 1%. Our team is a one-to-one balance between investment and enablement staff, generalists and specialists working alongside each other as one team. Our team is a huge part of our competitive advantage. The portfolio is in good shape, and we've been preparing for this kind of environment for some time. The current priorities are: first, to actively manage liquidity. We are increasing the liquidity profile of the portfolio and managing cash. This includes ensuring that we have leverage available to us for additional flexibility. At the same time, we are allocating to more defensive and liquid strategies. Second, to reposition the portfolio. We are continuing to ensure that the portfolio is resilient in what remains a highly volatile environment. And we are continuing to increase our international exposure where we see strong risk-adjusted returns and partnerships that can benefit from the current environment. Third, to allocate opportunistically. We will continue to look for mispriced risk. We are prepared to be countercyclical and contrarian. We need to be in a position where disciplined analysis can generate outsized returns in periods of dislocation. It is in these environments where our structural advantages perform best. Our permanent capital and unconstrained mandate allow us to take a long-term view when others are worried about liquidity and short-term performance. In closing, a recap of the key performance highlights for the recent half. The portfolio grew 9.7% per share over the first half, significantly outperforming the broader market. Net cash flow from investments grew by 15.4% on the prior corresponding period, underpinning a fully franked interim dividend of $0.48 per share, which is up 9.1% on the prior year. And we continue to maintain liquidity and optionality with available cash close to $500 million and significant undrawn leverage, and rebalanced the portfolio with over $2 billion of new investment ideas made during the half. Over the longer term, our strong performance has enabled the Board to continue increasing dividends, which have increased for 28 straight years and compounded at nearly 12% per annum for the last 5 years. Looking at total shareholder return, we have delivered an average return of 12.9% per annum over 25 years, outperforming the ASX 200 by 4.6% per annum, which means that over 25 years, an investment in Soul Patts has multiplied by around 20x, which is triple an investment in the ASX 200 Index alone. That is the compounding effect of a consistent philosophy and disciplined execution. Thank you. Courtney? Courtney Howe: Thank you, Todd. Thank you, David. We will now open up to the Q&A part, and we will start with analyst questions that may be on the line. Thank you, moderator. Operator: [Operator Instructions] Your first question today comes from Steven Sassine with Morgans. Steven Sassine: Congratulations on another strong result. I've got 3 questions. I might just ask them one at a time, if that's okay. I'll start with the private credit portfolio. I mean, Todd, you spoke to that quite a fair bit in your opening remarks. Look, it's quite topical at the moment, and we're starting to see some sort of pockets of stress emerging globally. And obviously, there's elevated scrutiny. Can you maybe just talk to any concerns you have about this becoming more of a systemic issue? And I guess, your overall confidence around the quality of your existing credit investments? Todd Barlow: Sure. Thank you. So my view on the private credit market is we haven't seen any real indications of structural stress in the system. We haven't seen the defaults increasing. What we're seeing is people's expectations of higher defaults. I mean to date, what we've seen is a few select examples, whether people call them cockroaches or otherwise. But they are a few examples of fraud rather than structural issues. Now you could argue that there's a structural issue that perhaps there has been too much money coming into private company -- sorry, private credit land and people have had to deploy that quickly and maybe their credit standards has dropped and maybe that's why they were exposed to some of that fraud. But I think the broader issue that people are concerned about, in particular, in the U.S. is the exposure to SaaS and software loans. Now what I always say, if you're worried about defaults of credit, then you should certainly be worried that the equity is more than impacted, because at the moment where people can't repay loans, the equity has gone to 0. So I think to some degree, we haven't seen how that's going to play out. But I would say that it is net positive for us, because what we've been seeing in the general environment is a rush of funds into private credit. And what that has meant is that those funds have to be deployed. And so generally speaking, we've seen loosening credit terms, and we've seen tightening spreads. And so what you saw with our portfolio in the last 6 months is less deployment than repayments. So we were in net outflow. Now that wasn't because we were choosing to allocate less to this asset class. It was because we couldn't find as many good opportunities to replace the repayments that we were seeing. Repayments are a great thing, because it shows that we provided loans to the right companies. They're now in a position to refinance them with cheaper money. So getting repaid is healthy. And the fact that we didn't chase the market down and provide lower quality loans, I think, is an important discipline. So I don't think our thesis on private credit has changed. We're not seeing any stress in our book. The kinds of managers that we are partnering with offshore will do better in this environment where we will see less money coming into private credit funds. And in fact, we're going to see outflows, and that should be very beneficial for the type of people that we invest alongside. Steven Sassine: Great. That makes perfect sense. And my second question is probably more of a broader question actually. Clearly, the portfolio performs pretty well in volatile markets, and we can see that with the uncorrelated returns and the current defensive positioning. But I mean, if we assume things normalize from a geopolitical sense, if you think sort of 6 to 12 months out, like how are you positioning the overall portfolio for growth? Like where are the actual opportunities at the moment? Todd Barlow: Well, I mean, we've fortunately been heavily invested in the right thematics, and I think that those thematics will be enduringly positive for some time. So we've always been tilted towards energy for a long time, because we believe that there was significant growth in energy required for the electrification of everything and growing populations and urbanization and all those sorts of things. Then we saw the growth in energy demand as a result of the data centers and AI. And now what we're seeing is energy dislocation from the war. So that's the theme that we think is enduringly positive for us. And so I imagine that we're going to do quite well out of that for some time. Fortunately, the other parts of our emerging companies portfolio is telco. So we've got Tuas in the emerging companies and TPG in the listed companies. I think they are very defensive companies in that people are not going to switch off their mobile phone if they get into a more sort of recessionary or low-growth environment. So I think that they are high-quality assets. We've got exposure to real assets. Now that's still generating a positive return for us, but it also has the additional benefits of being defensive and resilient in inflationary low-growth environment. So I think everything that we've been positioning ourselves towards has done very well. But the reason why we're sort of just getting a little bit more liquidity is because the environment is so uncertain at the moment that we want to be in a position to be able to strike wherever we see that next opportunity. And I don't know what that's going to look like, but I suspect the opportunity set looks better in a stressed environment than what it has in the last couple of years where there's been lots of money flushing around the system and everyone has been risk on. Steven Sassine: Great. And just my final one, 18% of the portfolio off the top of my head, I think, is allocated to offshore investments. Todd Barlow: That's right. Steven Sassine: What sort of appetite is there to ramp that up? Like is there a target? Or will it be sort of more opportunity dependent? And I guess, secondly, if that does ramp up, can you just maybe touch on your internal capability to manage these? Like is there going to be additional headcount required? Todd Barlow: Yes. So I mean, like everything, we don't have a desired target of how much we want to allocate to these strategies. But it takes time. You can't just allocate all of it at once, firstly, because you need to find and develop the relationships with the right managers. But secondly, you want to sort of average into different vintages and not pick -- when you're investing in a fund, you're sort of taking a 5- to 10-year view. So it's better to do that over time rather than all at once. So we're being disciplined about the way that we're allocating it, and it's probably increasing by sort of circa $500 million per annum. The way that we're managing that internally is we think of an allocation to a manager in the same way that we think of an allocation to a company. The difference being that we can't get to the underlying companies offshore, because we don't have boots on the ground. We recognize that by the time we see that opportunity, it's probably being passed over all of the established people in the market. And so what we're doing is that's why we're partnering with people who do have that expertise, but they think like us. And so the approach that we're taking from our team is to think about it just in the same way that you would an allocation to a company, where we are hands on, we're deciding that, that team is aligned with our way of thinking and they're good people to back. But we're also learning from all of their experience and on-the-ground expertise that we can then apply back here. So it's completely additive. I mean, not only are we getting them to make the investments, but we're also getting a lot of access to great quality data along the way. Operator: [Operator Instructions] There are no further questions from the analysts on the line at this time. I'll now hand back to Courtney Howe for any written questions on the webcast. Courtney Howe: Thank you, moderator. And we do have quite a number of questions that have come through on the webcast, Todd. Picking up on the credit thematic, which I know Steven asked you about, but there's a couple of follow-up questions to that. Firstly, can you comment on the mix of the current loan book in terms of the security, the spreads, whether there are defaults and the covenants? Todd Barlow: Yes. So we've avoided any kind of covenant-light structure. Most of the book that we have has senior security. I would say, probably 60% of it is senior secured, 15% is asset-backed, about 15% is sort of junior in security, and then there's other stuff like pref equity and other instruments in there. But mostly, we are looking at ways where we get elevated above substantial amount of equity in the liquidation preference, ensuring that we have really strong controls around covenants and information and rights to step in if things get into trouble. Courtney Howe: And another follow-up question on credit. A shareholder is asking, are you able to state which global credit funds that Soul Patts is invested in to give shareholders more transparency in terms of the industry and the risks associated with global credit managers? Todd Barlow: Yes, there's a fairly long list of our exposures to credit and private equity funds. But if I'm just looking at credit -- and I think maybe next time around, we'll have a separate bit of information around our approach to international investments. But I would say, to answer that in terms of credit, I would say that our focus is more around either funds that do well in distressed environments like special sits or distressed funds or asset-backed financing. We have tended to avoid the sort of generic leveraged buyout lenders, leveraged finance lenders. A lot of those are the ones that in the U.S. are going to be exposed to some of those SaaS companies and things. Our exposure to that is limited to nil. Courtney Howe: Thank you. Moving on now to franking credits. David, I might ask you these questions. We have a couple of them. So franking credits highlighted as $1.1 billion. Could you comment on the Board's intended franking strategy, meaning buffer versus deployment, and what constraints might limit franking utilization? David Grbin: So at the moment, and we said in the presentation, there's about $1.1 billion of franking credits available. If you gross that up to say, well, how much of a dividend we could pay to eliminate that balance, it's about $2.6 billion. So that's the first point. In terms of being able to use that, I think most of the constraints are not ours. They do come from restrictions that the various federal governments have put in over the last sort of 15 years. So it becomes very, very difficult to -- other than if you want to take on a fair way to gearing and then pay that out as a dividend, that is an option. But we don't see the need to do that given that we'd prefer to use that gearing to reinvest into the portfolio. What we are doing and what Todd mentioned in terms of putting more of the portfolio offshore, we can do that in a manner that earns higher post-tax returns and then attach franking credits to those earnings. Because they're offshore, they're not subject to tax in Australia, and we can then continue to attach franking credits to continue to use that balance and try and wear that down over time. Courtney Howe: Thanks, David. Turning back to International. There's a question here about where Soul Patts is seeing the most attractive opportunities for the marginal dollar. And in framing itself as a listed family office, shouldn't there be a larger slice allocated to listed global equities, Todd? Todd Barlow: So the marginal dollars are going into strategies that we think will perform over the next 3 to 5 years. So as I said, there is a bias in some of our deployment offshore to those funds that will do well in dislocation. And these are funds that have still managed to do quite well even in good times. So in the last sort of 5 years, they might have been able to still do 10% to 13%, but they will do much, much better in periods where there's a bit more distress. The second part of the question was? Courtney Howe: In framing us ourselves as a listed family office... David Grbin: About the global equities. Todd Barlow: Yes. Well, I mean, when we did the analysis a few years ago, we looked at where -- even though we had a lot of ASX-listed companies, the proportion of international revenue in those companies was very, very high. And if I think about things like New Hope as an example, it has almost all of its demand and revenue from offshore. And so we have always had an international flavor to the business. But I think that we are being a little bit more active now in thinking about how we can get exposure to offshore equities. Particularly in emerging markets, I think, is probably the one where we have a bit of interest right now. And I think that gives us a fair amount of liquidity at the same time. So I think that, that is an opportunity for us to grow a bit more. Courtney Howe: And with a portfolio that has greater allocation to private assets, does the liquidity advantage that Soul Patts has reduce over time as the listed equity position reduces? Todd Barlow: It's a good point because a lot of those private companies are illiquid. But at the same time, and when I talk about having liquidity and increasing liquidity across the portfolio, I don't mean the whole portfolio. I mean, it would be silly for us to give up on the advantage that we have with our permanent capital and give away that sort of premium for illiquidity by having the whole book capable of being liquid. So we want to be thoughtful about it. But what we are doing is in the listed part of the book, we're increasing the liquidity. So we're broadening out the book and reducing some of the sizes of what we have, and that just gives us more flexibility. But you can see that the direction of travel has been to increase our exposure to private markets, but at 50-50, that is by no means compromising the liquidity that we have. Courtney Howe: And in a follow-up to that question, you talked about the lower risk that you are taking and yet continue to generate excellent returns. Could you give a couple of examples of this low risk in practice? Todd Barlow: Well, I think there's lots of examples. I mean, credit as an example, is, in my mind, a defensive asset class in the sense that when something goes wrong, equity is going to experience much, much more downside before even $1 of its debt is impacted. And so we think of the equity in those companies as being our buffer. And so we've got $1.6 billion in credit, but it's been generating sort of 14% return for the last 4, 5 years fairly consistently. Now that's better than the long-term returns available to equity markets. So you're getting the best of both worlds. You're getting outsized performance, but lower risk. And so I think that's probably the easiest example to point to that where we can find opportunities that are lower risk, but generating still very strong returns. Courtney Howe: Thank you. And a question here on how you think about the disconnect in the first half between the strong NAV outperformance, which was 6.6% above market, and our share price underperformance. Todd Barlow: Yes. I think, I mean, there's a couple of things at play there. I mean the share price frequently has a little bit more volatility than the portfolio does, and that's dictated for a range of reasons. But in the last 6 months, we had an elevated starting position because we had already announced the Brickworks merger. So some of that was being reversed. But also, I think the market probably hasn't been aware of the quality of the underlying performance. And some of the traditional share price to NAV that we usually trade at, the premium has been eroded. So we've seen a little bit of share price weakness in the last 6 months, but hopefully, that will have washed through. Courtney Howe: Thank you. And I've got a question here on the team. Can you provide a bit more information about the depth of the team and the intelligence resourcing to support a totally unconstrained investment mandate across multiple asset classes that includes private credit? Todd Barlow: Well, the private credit team is -- I mean, it's one team looking after one portfolio. And where we do best is when we share ideas and market intelligence across the firm. So it's extremely powerful in terms of the network effect that we can generate from seeing new opportunities and learning about what's happening in the market because we're not focused on one asset class, we're focused on lots of asset classes. So I would say that's actually additive rather than being difficult for people to understand more information, because I think more information is always better. And so with that information, we become really high-quality generalists that are capable of understanding what's happening in the market, but also analyzing what an investment in one asset class looks like relative to what we could be getting in another asset class. So I think that our team does particularly well in that environment. As I said, we don't have high turnover. There's roughly 56 people, 28 investment professionals. The biggest team is in credit, because it does require some specialist skills. We've recruited people with insolvency and restructuring backgrounds. There's probably 3 or 4 people in the team who have those backgrounds. That's a fairly unique attribute and something that will be particularly valuable in this market. But when you team up that kind of knowledge with people who have the expertise in M&A, private companies, equity investing, then we can put all of that together, and it's a very powerful combination. Courtney Howe: Thank you. And now a question on Tuas, just whether we have any concerns with no longer having Board representation. Todd Barlow: No, I think that's a business that is obviously overseen by David Teoh. He has been an exceptional telecommunications investor and manager of businesses, so someone who we are very comfortable with. And there was nothing more for us to add in doing that. Rob Millner is trying to focus more on what's happening with Soul Patts. When you think about the amount of activity that we are doing here, he's focusing his attention there and less on the satellite companies, particularly those that are performing well and we don't need to have oversight on. Courtney Howe: Thank you. I've got a question for you now, David. A question here about tax. How much tax is payable on recent asset sales? David Grbin: So very little, if any. And the reason for that is that the rules for tax consolidation meant that at the time of the merger, we could reset all the tax cost bases of the assets up to their market value at the date of the merger, which was late September 2025. So any subsequent sales after that, the cost base of the assets is restated up to that market value. And if we sell it at a profit, sure, there'll be a little bit of -- there could be some tax to pay, but we also have capital losses and some revenue losses that we can use to offset that. So for the next sort of foreseeable future, there shouldn't be very much tax friction attached to the investment portfolio. Courtney Howe: Thanks, David. I think we have time for one more question. Todd, we've been getting quite a few about the situation in the Middle East and questions about how Soul Patts is managing its business in this context. Are we going more into cash? Are we looking at buying more equities, more distressed assets? Would love your thoughts on that. Todd Barlow: Well, we're in a period of peak uncertainty. And even before the war, every day or every week you were reading about some industry that was going to be significantly disrupted by AI. We were already at a point where we were late in the cycle, asset prices were fully valued. And so it was a pretty tough environment to invest into, but it's only gotten worse. Now with the oil price shock and inflation that was already present, but now being added to, I think it's a very difficult time. But this is the environment that we've been preparing ourselves for 5 years. We've been saying for 5 years now that we're going to broaden out the portfolio. We're going to add uncorrelated assets. We're going to increase the diversification. We're going to remain defensively positioned, and we're increasing our liquidity, and we've always had cash and we've been net cash. So rather than being geared through that part of the cycle, we want to be geared when the opportunities get a lot better, and that's when we can deploy capital. So we've been preparing ourselves for this. We typically have always done better in more volatile markets, and you can see that play out in the last 6 months, in fact. But I think if things get worse from here, we've built in mechanisms for our portfolio to be resilient, but also ways for us to take advantage of those situations. Courtney Howe: Thank you very much, Todd. We're at time. So apologies if we didn't get to your question, but there will be a recording of today's presentation on our website shortly. And Todd, I'll throw back to you for any closing remarks. Todd Barlow: Well, I think we've summed it up. Lots of great questions. I think it's covered everything that I wanted to say, but I really appreciate people's focus on us and their time today. Courtney Howe: Thank you.
Heinrich Richter: Good morning, and welcome to Gemfields 2025 Full Year Results Shareholder and Investor Webcast. Sean Gilbertson, CEO; and David Lovett, CFO, will present Gemfields financial results. At the end of the presentation, we will go into Q&A. [Operator Instructions] Before we start, please take a note of the important information in our disclaimer on Slide 2, with a full disclaimer in the appendix. And with that, I'll now pass you on to Sean. Sean Gilbertson: Thank you very much, Heinrich. Good morning, and welcome. Thank you for your time and interest in what was an extremely difficult year for Gemfields, Ignoring the COVID year of 2020, 2025 saw us deliver our weakest annual auction revenues since 2013, more than a decade and only 41% of the peak auction revenues, which we achieved in 2022, which was the height of the post-COVID so-called revenge spending boom for us. I think it's worth recapping on what transpired in getting us to this situation. First, buoyed by the post-COVID boom, we paid out $80 million in dividends to shareholders between May '22 and May '24, and we also did a $10 million share buyback. We then went on to initiate a growth strategy, which included the largest CapEx project Gemfields has ever undertaken, being our second processing plant at MRM in Mozambique at a cost of $70 million. Then in the second half of 2024, we saw the deterioration of the Chinese economy and a marked decline in China's share of luxury goods consumption. That was followed by the contested general election in Mozambique in October '24, giving rise to civil unrest in many parts of the country and a direct attack on MRM on the 24th of December 2024, leading in turn to significant illegal mining incursions during the first quarter of 2025 and multiple disruptions. We also experienced decreased premium ruby production from our Mugloto area at MRM. In the third quarter of '24, One of our emerald competitors started selling considerable quantities of emeralds at low prices, damaging the emerald market. And in January 2025, of course, we saw the Zambian government's surprise introduction of a 15% export duty on gemstones and resulting in our suspending Kagem's exports entirely until the issue was nimbly remedied by the government just a couple of months later in March '25. All of those prevailing circumstances led us to suspend mining at Kagem altogether from January through May of 2025. And at the same time, we were experiencing significant logistics and work permit delays in Mozambique, affecting particularly the specialist electrical installations that were required for MRM's second processing plant. April of 2025 infamously saw President Trump's tariff shocks and their considerable jolts to the luxury and jewelry sectors. And we suffered in '25 from being unable to recover meaningful proportions of the VAT owed to us by the governments of Zambia and Mozambique and which reached circa $45 million at peak. And finally, we had the impact of widespread geopolitical instability arising from Israel, Gaza, Syria, Ukraine and now, of course, Iran. Despite that long list of excuses and save, of course, for the potential impact of the latest round of Trump-induced turbulence, our overall position as Gemfields is, of course, markedly better than where we were just 12 months ago. In addition, MRM, our ruby mine, has so far in the first quarter of this year already exceeded by a modest $3 million, the whole of 2025's mega $50 million of ruby revenue. With that scene now set, I'll pass you on to David to lay out the VFX. David Lovett: Thank you, Sean, and good morning, everybody. I won't repeat the overview of 2025 that Sean has just given, but the financial results you'll see over the next few slides certainly show how tricky a period it has been for Gemfields. Both revenue and cash generation came in significantly below expectations, largely due to the delayed year-end ruby auction, but the actions taken in 2025, both operationally and strategically have materially strengthened the group's footing heading into 2026. I will now take each of the key financial metrics in turn on the next slide. Starting at the top left, we have revenues. Group revenue came in at $135 million, which is down sharply from the strong levels seen in '22 and '23 and from the $199 million we achieved in 2024. This was driven primarily by weaker ruby production throughout the year and the postponement of the planned December ruby auction. On the cost side, operating expenses were down by approximately 17% to $129 million, reflecting cost discipline and the pause in operations at Kagem in the first half of the year. This then resulted in an EBITDA of $6.25 million, a significant reduction year-on-year, and adjusted earnings per share of negative $0.013 and a free cash outflow of $29 million, driven primarily by the reduction in revenue and the CapEx spending at MRM. Finally, on this slide, we had net debt, which closed the year at $39 million. If you include the auction receivables, this falls to $19 million. There's no doubt that this is a weaker position than we would have liked, but the heavy investment in PP2 is now behind us. And as PP2 stabilizes, we should see our cash position improve. Looking at revenues in more detail. Here, we have our rolling 12-month auction profile. This highlights the decline since the post-COVID peak we saw in 2022 and the core challenge we're facing at MRM. On the next slide, we split out Kagem and MRM separately. On the left, you see Kagem's auction track record. We generated $78 million in 2025, which is in line with 2024 despite the pause in mining activity in the first half of 2025. Our next Kagem auction is expected in May this year. On the right-hand side, MRM tells quite a different story. Revenues were significantly lower than the previous year at $50 million. The reduced recovery of premium quality rubies had a clear impact through the postponement of the year-end auction and the reduced revenues seen earlier in the year. This graph is a clear example of why PP2 and general improvements in operational stability at MRM are key for both MRM and Gemfields. It's worth noting that the MRM's auction in February generated $53 million, and we expect the next ruby auction to take place in Q3 of this year. Moving on to CapEx. This slide shows rolling 12-month CapEx at both Kagem and MRM on an actual cash cost basis. At Kagem, on the left-hand side, CapEx remained controlled, reflecting the focus on disciplined capital allocation at that operation. On the right-hand side, MRM CapEx has been elevated because of the new plant. As we move into 2026, CapEx spending is tapering as the project moves towards completion, but it should be noted that there is still some mining fleet purchases to come in 2026. Looking at operating costs. Here, we have the cash cost operating for Kagem, MRM, the U.K. Corporate and the development assets. At Kagem, we made material reductions in the year, but that is largely due to the pause in mining operations in the first half. The bars will start to move back up as mining activity starts to normalize. At MRM, operating costs have reduced somewhat, but security concerns and increased operations to feed the new plant will see these costs tick up in 2026. Corporate costs, again, made some progress, but it should be noted that they were impacted by one-off costs relating to the capital raise in the year. And finally, on development project costs, they continue to fall as we wind down activity in almost all of those projects. Cost control remains a key focus as we move through 2026. Finally, from my side, we'll have a look at the net debt position. At the year-end, we reported gross cash of $64 million and gross debt of $103 million, which gives us a net debt position of $39 million. As we said earlier, if you include the auction receivables of $20 million, that net debt reduces to $18.7 million. Still plenty of work to do here, but we're certainly in a stronger position than we were at the end of 2024. I'll hand back to you now, Sean. Sean Gilbertson: Thank you very much, David. On Slide 12, while competitor behavior, the 15% export tax and the ensuing suspension of mining at Kagem from January through April of 2025 were serious issues, the mine actually had a pretty solid year with auction revenues of nearly $80 million at $78 million. Kagem yielded almost $40 million after deducting operating costs and CapEx. Of course, that's due to the great team we have at Kagem, but it was also greatly aided by good production and an improved market for emeralds in the second half of '25. MRM's woes are well documented. And combined with everything else we were facing, the group completed a $30 million rights issue in June of '25, and we sold Fabergé for $50 million in August of '25. Keen observers and those with eagle eyes will note that the amount from the rights issue, together with the proceeds from the sale of Fabergé equal precisely the amount of cash that we paid out as dividends to shareholders between May '22 and May '24. Turning to Slide 13. Gemstones in the premium category are what matter in our business. And with only its processing plant running from January through April of '25, it's clear to see that Kagem got off to a slow start. But as shown on the left-hand graph, the second half of the year was super. Across the way at MRM, shown on the right-hand side, headline premium ruby production actually looked pretty good from a headline perspective. However, these included fewer rubies from our long-standing Mugloto area, which underproduced and more rubies from the newer Maninge Nice area. While there are some really super gems from Maninge Nice, including the third most expensive ruby we've ever sold, the overall value per gram or per carat of Maninge Nice's rubies is lower than what we have achieved historically from Mugloto. Ruby prices do vary enormously based on slight variations in color, saturation, tone and, of course, internal imperfections. On Slide 14, in the next broad quality category down, simply called Emerald at Kagem and Tumble at MRM, both mines produced in line with recent years. Slide 15 shows a very interesting comparison of rubies from the older Mugloto area on the left and rubies from the newer Maninge Nice area on the right-hand side. This image is taken on a blue backlight and shows the same effect as one would see under ultraviolet light. While all rubies fluoresce, some do fluoresce a great deal more than others, as can clearly be seen in the photograph. And while Mugloto produces a tiny proportion of more fluorescent material, Maninge Nice produces a very considerable amount of fluorescent material. For interest, the famed Burmese rubies are very well regarded and renowned for exhibiting high fluorescence. While we are still garnering price information given the material from the newer Maninge Nice area, and it's only been offered at 2 of our regular mixed quality auctions, we have seen this fluorescent material command a premium in some size fractions and a discount in others. Our customers are very familiar with the long-standing Mugloto material, which we have auctioned for more than a decade, but are very much like us, still learning about how Maninge Nice material cuts and sells. On Slide 16, the final commissioning of our second processing plant at MRM, or PP2 as we call it, is significantly behind schedule. When the project was first announced, we expected final commissioning by the end of June of '25. Encouragingly, PP2 has demonstrated its ability to attain and even exceed the 400 tonne per hour design throughput rate in the wet circuit. And that can be seen in the graph on the left-hand side, which charts the weekly data since PP2 started operating. However, and while I want to stress that there are no known fatal flaws, we have experienced a number of teething and commissioning issues, which mean that the second processing plant is not yet attaining the target number of operating hours each day, which is 20 hours. As a result, ore processing and ruby production is materially constrained. Those issues exacerbated by the wet season include, but aren't limited to choking and blinding, which require shoot, liner and screen reconfigurations and also the presence of organic and inorganic material reaching downstream pumps and screens. PP2 was built on a fixed price contract by Consulmet, South Africa, and who are still very much on site, working very closely with our own team in remedying these issues. While we anticipate considerable improvements with the arrival of the dry season from May of this year, we now expect final commissioning of PP2 only in Q3 of 2026. On Slide 18, our priorities are to stabilize the business after all the turbulence we've been through, particularly, of course, ironing out the final commissioning issues with PP2, and then to rebuild our auction revenues, particularly in rubies, followed by our profitability and then, of course, deleveraging our balance sheet. On Slide 19, and touching on auctions, we presently have a higher quality emerald auction scheduled for May of this year in Bangkok. And as David indicated, probably in the third quarter for rubies. And while the emerald market looks satisfactory, it's too early to tell what the fallout from the war in the Middle East will be. Our ruby demand has been a little bit more muted, especially in the lower quality segments, but the best gems consistently do well. And so as we assess what's happening in Iran, we'll balance production with market considerations and maintain a flexible approach to the number and size of the auctions that we run during the course of the second half of this year. We will obviously work hard to keep a lid on costs. But clearly, the Iran war may have a significant impact, including on fuel, where we are already seeing prices of diesel increase in our operations. And from past experience, that clearly then has a knock-on impact on to everything delivered at mining operations, including, for example, food and beverage. And with that, I'll pass back to Heinrich to run the question-and-answer session. Heinrich Richter: Thank you, Sean. [Operator Instructions]. First question received is as follows. In terms of Nairoto and Sedibelo, what are your optionalities in terms of commercializing those assets? Sean Gilbertson: Thanks for the question, Heinrich. We took the decision during the course of late '24 and '25 issues and cash constraints to shut down Nairoto. And so we have removed all personnel and equipment. And the reality is Nairoto, therefore, is not a project that we're going to bring back into business. It is, of course, a gold project and doesn't fit with our core business of emeralds and rubies. And insofar as Sedibelo is concerned, that clearly has seen a shot of life in the form of the increases in precious metals prices. We have obviously historically written that down to 0. And if there are any interesting inquiries, we will obviously progress them. But the reality is that's also been written down to 0. Heinrich Richter: Thank you, Sean. That's very clear. [Operator Instructions] On to the next question. Please advise what the fuel supply is looking like in the countries which you operate? How dependent is Gemfields' business continuity on stable fuel supply? And what contingency measures are you pursuing? Sean Gilbertson: Very topical question. We are obviously critically dependent on the ongoing supply of fuel, particularly diesel. We have circa 300,000 liters of storage capacity at MRM and approximately twice that across the way in Zambia at Kagem. The reality is we are already seeing some increases in the price of fuel. And there have been a couple of warning signs in Zambia as to a lack of the ability to guarantee ongoing fuel supplies post April. We are particularly dependent on diesel generators in Mozambique, where the second processing plant eats up a huge amount of power. And we do have a pretty good relationship with our supplier there after something of a reset about 18 months ago. But the reality is, it's very difficult to ascertain precisely what's going to happen with supply at this stage. Our team is obviously working on some mitigations, and that might go so far as to literally have additional tanks set up and source fuel. But it's a tricky pinch point if this market gets worse. Heinrich Richter: And with that, we have no further questions. We'd like to thank you all for joining us this morning. If you have any further questions or would like to speak one-on-one, please reach out to us at ir@gemfields.com. Enjoy the rest of your day. We will close the call. Thank you very much.
Kirill Kuznetsov: Dear ladies and gentlemen, welcome to the Solidcore Resources Full Year 2025 Financial Results Webcast. Joining us today are Vitaly Nesis, Chief Executive Officer; and Evgenia Onuschenko, Chief Financial Officer. [Operator Instructions] Vitaly, over to you. Vitaly Nesis: Thanks a lot, Kirill. Welcome to the traditional financial results call for Solidcore Resources. Today, we will cover the results for financial year 2025, and we'll provide an update on our strategic projects and outlook for 2026. I will start with the conventional disclaimer on forward-looking statements. Please take care to read it carefully. And I will start with the key figures for 2025. Obviously, this year -- the last year rather, was quite successful for the company despite a material decrease in payable production, of which more later, Solidcore managed to demonstrate substantial improvements in all measures of profitability. Obviously, this was mostly due to very favorable gold price environment. But nonetheless, we are pleased to report a very strong set of results. And I think the -- probably the most important result in 2025 was the fact that the company reported no lost time injuries among our employees and our contractors. We also had 0 days lost to work-related injuries. And we are proud to report that 2025 was the eighth consecutive year with no fatalities at Solidcore's operation in Kazakhstan. In terms of highlights for 2025, production went down, payable production went down mostly as a result of inventory accumulation at Amursk POX in Russia, but we managed to report a 37% increase in adjusted EBITDA on only 13% rise in revenue. So the margins have improved quite strong. In terms of cost performance, I will just briefly note that the dynamics was almost fully due to external factors. And as a result, our underlying net earnings increased by 40%. Net operating cash flow suffered again as a result of inventory accumulation, but that is a temporary phenomenon, which will be reversed this year. CapEx continued to grow, plus 23% as has been highlighted many times earlier, Solidcore is ramping up our very aggressive CapEx program and 2025 indicated the move in that direction. In terms of net cash, it increased. So our leverage levels are very comfortable. We are very well funded for our CapEx program. Turning to ore reserves and mineral resources. The year was marked by relatively stable dynamics. We did not replace all of our reserve and resource base through reevaluation, but we continue to expect material increases as we remain very consistent and persistent in our exploration. In terms of production, annual payable gold equivalent output was 395,000 ounces, and that was mostly driven by the decrease of payable gold production at Kyzyl due to delays in third-party concentrate processing. More or less mine level output was more or less stable at 508,000 ounces of gold. And the difference between payable production and mine output was almost fully tied up in inventory at Kyzyl operations. Turning to inventory specifically. We are now substantially -- we have substantially went down the path of winding down the excess payable metal inventory, mostly at Kyzyl. In the middle of the last year, the inventory was 258,000 ounces. Now it's 158,000 ounces. So we still have approximately dependent on the month of the year, 80,000 to 100,000 ounces of excess payable gold inventory tied up in concentrate as of the end of the last year. We have continued to bring those levels down in 2026. I would like to highlight the start of commercial operation with Kazakhmys, where we have started to ship our concentrate for Tau processing in December of last year. We expect that the operation with Kazakhmys will further 2 strategic goals of Solidcore. First of all, the reduction of dependence on Russian POX processing. And secondly, the sustainable and quick reduction of concentrate inventory levels. So far, the amount of concentrate processed through Kazakhmys is significantly lower than what we do in Russia at POX. But we are optimistic about the dynamics later this year and hopeful that this step will unlock other strategic opportunities for Solidcore. So overall, not yet fully done with the reduction in working capital, but making good progress on this very important front. And I pass the presentation to Evgenia, who will take you through the detailed analysis of financial statements. Evgenia Onuschenko: Thank you very much, Vitaly. So as Vitaly mentioned, thanks to the favorable gold price environment, our revenue rose this year to $1.5 billion, up by 13%. So at Kyzyl, revenue increased 4% to $892 million. So higher gold prices more than compensated 34% drop in volumes. And at Varvara, revenue jumped 48% to $608 million on stable volumes and also stronger pricing. The remaining excess of Kyzyl concentrate inventories are expected to be released during 2026, which will drive our production guidance and sales guidance to 540,000 ounces. Next, please. So in terms of the total cash costs, they were 17% up to $1,100 per ounce. And the 3 main drivers behind the increase were the Kyzyl sales deferrals spreading cost over a few ounces, domestic inflation above 12% and higher mineral extraction tax linked to the gold price. The tenge depreciation by 11% provided a partial offset of this increase. In terms of the total cash cost by mine, at Kyzyl, TCC rose 8% and at Varvara, the increase was 13% to $1,556, basically driven by the same factors, as I mentioned before. On the next slide, you can see the cost breakdown. So 30% is price-linked mineral extraction tax in dollars and then 30% is the dollar and oil-linked cost and 30% of our costs that then get denominated. So that means that the gold-linked mining tax is becoming an increasing share as prices rise and the mineral extraction rate increased to 11% from 7.5% starting from the January 2026. All-in sustaining cash costs were slightly above $1,500 per ounce, and the 18% increase was driven by the same factors which were driven total cash cost plus higher sustaining capital expenditure and SG&A expenses. At Kyzyl, all-in sustaining cash cost was flat at roughly $1,000 per ounce as lower sustaining CapEx offset inflation and demonstrated an incredible free cash flow generation at current gold prices. At Varvara, all-in sustaining cash costs rose 15% to slightly above $2,000 per ounce, reflecting investments in tailings storage construction as well as railroad spur at Komar and fleet upgrades. In terms of the adjusted EBITDA, which grew 37% to $972 million. So Kyzyl contributed almost $700 million to the group EBITDA and Varvara contributed $332 million. The EBITDA margin expanded to 65%, up from 54%. And in the bridge, you can see that higher gold prices added more than $500 million and partially offset by $231 million from lower sales volumes and $69 million from higher unit costs. So turning to the net cash position. Net cash increased 24% to $464 million. We generated net operating cash flow of $600 million and deployed it towards capital expenditures, so $255 million went to CapEx. And we spent $150 million on M&A and other investments. This included also the mandatory share buyback. So the gross debt was reduced to $267 million, and the average cost of debt was 5.7%. I would like to say that we are advancing negotiations with several international banks for up to $600 million to $700 million financing for Ertis POX construction. So in February, we signed an indicative term sheet with KfW, which is a German development bank, another $300 million is expected to be provided by European Bank for construction and development and another $300 million by a club of international lenders. We expect the main facility agreement to be signed in the second -- at the end of the second quarter this year. And with that, Vitaly, over to you in terms of capital expenditure. Vitaly Nesis: As I have mentioned already, CapEx has continued to increase on the upward path. Clearly, the single most important project for Solidcore in 2025 was Ertis POX, which claimed more or less half of total capital expenditures for the company. But we continue to invest in other initiatives as well. Against the background of very favorable commodity prices, we ramped up investments in same business capital, including tailings storage facilities upgrades, fleet renewals and other sort of improvement initiatives. We have done so consciously. It's been a long-standing corporate policy with Solidcore to invest more in stay in business projects during the periods of positive market conditions with a view to be able to reduce discretionary CapEx spending if in the future, the market conditions deteriorate. So we spent quite a lot on stay in business and in -- also on the green energy initiatives. The capitalized stripping on the other hand is going down as the life of the open pit at Kyzyl is approaching its end, and this year will mark the first year of heavy spending on Kyzyl underground. And on balance sheet, Evgenia will continue the presentation. Evgenia Onuschenko: So at the year-end, we held $731 million in cash and $135 million of undrawn credit lines. We also invested roughly $100 million in short-term investments. So it's a very strong liquidity position. And overall, we feel comfortable in the current environment. And over to you, Vitaly, in terms of capital allocation. Vitaly Nesis: Nothing really changes in terms of capital allocation priorities. We continue to advance our long-term capital-heavy projects, the POX, Syrymbet and potentially Besshoky. M&A, to be frank, we have not been able to be really that active in M&A in 2025. The market for assets has been overheated from my perspective, given the dynamics in gold and actually copper price. So M&A remains an important direction, but I'm not sure how much we will be able to allocate to that. We continue to step up the exploration effort. And as I have mentioned, invest in business efficiency. Clearly, the one question that preoccupies the Board of Directors very much is the dividend issue or rather capital distribution, speaking more broadly. We have set out 3 preconditions to kind of unblock that allocation of capital. We have successfully addressed what I believe is the single most difficult issue, which is the blocked shares in NSD. The mandatory buyback of those shares held under Euroclear has been successfully completed. In terms of third-party concentrate calling legal risks, as I've mentioned again, we have made some progress in terms of diversifying the processing of concentrate away from POX in Russia, but we are still some way off kind of full protection or full derisking from that risk. We also are in the process of requesting the extension of the comfort letter to continue cooperation with Amursk POX from OPEC. I think as we ramp up cooperation with Kazakhmys and maybe with other non-Russian dollars of our concentrate, and we receive OPEC extension and we see continued progress towards the completion of our own POX facility in Kazakhstan, this red cross will start to move into check. In terms of sufficient financing, this is really work in progress. Evgenia outlined our recent advances in terms of project financing for EPOX. We also have started discussions on project financing for Syrymbet. So I think this third precondition is unlikely to be a blocking issue for capital distributions. To ramp up, we are not yet there. The company is not yet ready to seriously consider a dividend. That's why the Board did not recommend dividend based on the results of 2025. But the general feel is that we are making steady albeit slow progress towards resolution of this vaccine issue. And I do hope that we will see that resolution in 2026. Turning to 2026 guidance. As has already been mentioned, we expect a big jump in payable production, but that actually will be driven by the inventory release in terms of the mine level production. It will be more or less flat, a couple of percent increase from 2025. Total cash costs, I expect it to increase sharply. There are 2 factors that drive our expectation of this jump. First of all, the new mineral extraction tax rate is now linked to gold prices in a staggered manner with the maximum rate now set at 11% and that kicks in at relatively low price levels. So we expect almost doubling of MT in 2026. And secondly, Kazakh tenge has appreciated sharply against U.S. dollar in the second half of 2025 and continue to strengthen in 2026. So we expect the strong headwinds from domestic currency and strong headwinds from the continued persistent strong domestic inflation in Kazakhstan, definitely above 10%. So almost 20% expected increase in TCC and the corresponding increase in all-in sustaining cash costs. However, the biggest jump we will see in CapEx, 2026 will be one of the 2 peak CapEx years for Ertis POX and we will start spending heavily on Syrymbet and to a lesser extent, on Kyzyl underground, while maintaining a heavy pace of investment in exploration. So almost doubling of CapEx we expect in 2026, fully in line with our strategy to invest to increase the size of the CapEx. Turning to sensitivity. Just to give you a sense of how external parameters impact our profitability measures. Clearly, gold price is crucially important. But increasingly, Kazakh tenge plays a big role, then tenge per dollar movement doesn't look on this page to produce a big impact. But just to give you a sense, the rate was hovering about KZT 550 per dollar 6, 8 months ago, but now it's KZT 470, 480. So we are talking about a pretty significant impact even before we take into account the inflationary impact. Turning to projects update. I will briefly walk you through 3 key projects. At Ertis POX, engineering and contracting of key equipment and contractors is more or less fully completed, autoclave delivered and installed. We have successfully completed the public hearings process and are very near the completion of international environmental and social impact assessment. Those things are the prerequisite for signing definitive documentation with the consortium of international banks. So the project is moving along nicely. At Syrymbet, engineering is 60% complete. The statutory documentation is under development. This will be the first project, which will be designed fully in-house by Falco Engineering as opposed to Ertis POX, where the Canadian engineering firm Hatch is taking the lead on engineering. The definitive feasibility study on Syrymbet is nearing completion, and we target Board approval of the project together with the full financial model in September. And in terms of Besshoky, the flagship project of Bai Tau Minerals, where we have a stake. Exploration is ongoing. We expect the mineral resource update in May and final investment decision is still targeted for the second half of 2026. Just a couple of picture slides. This is the POX building at Ertis POX construction site. As you can see, the structural steel for the building house in the autoclave is completed. We have started to put on the roof and sidings and the autoclave itself is now fully grounded in the final position. At Syrymbet, we have started site preparation ahead of the final investment decision. We are quite confident that the Board will approve the project. Just to give you a sense of why I'm so positive, the base case feasibility study is done at $30,000 per tonne of tin with a conservative scenario of $25,000 per tonne of tin, whereas the spot price is now close to $45,000 per tonne. So I think this project will be a huge beneficiary of positive market conditions. And with this, I will wrap up the presentation, and we'll turn to questions. Vitaly Nesis: We'll start with online questions. Can you please provide some additional information about your growth projects such as production, CapEx or industry cost level? Furthermore, is there any news of Bai Tau or POX? In terms of Ertis POX, I think all of the relevant information you can find on our site in section with historical presentations. The financial and production details for Syrymbet will be released after the Board approves the project, hopefully, in September of this year. [ Besshoky ] has been stalled somewhat by the permitting process by about 6 months as we resolve agricultural land usage issues with our farming neighbors, but we still expect first production closer to the end of this year, maybe early next year. And for Tokhtar, we are still awaiting the government approval for the transaction. And judging from the multiple recent transactions in the Kazakhstan mineral extraction industry, it's not unlikely that we will need to discuss this project, not with the previous owner, but maybe with the new owner. So now, Tokhtar is fully on ice. Could you please comment about your thinking about opportunities in Middle East, North Africa, including Oman becoming recently more attractive due to geopolitical uncertainty and pricing volatility. Well, we continue to push ahead in Oman, and we actually have signed a couple of term sheets in that country and hopefully transitioning to documentation stage and closing of the transactions in the second quarter of this year. We also are looking at other countries, but I think the recent upheaval related to Iran is not likely to have an immediate impact on availability and dueability of budget. So we continue to press ahead at our own pace. You have talked about $400 million, $500 million CapEx for 2026, 2028 in your recent orders. This is a massive expansion versus the original guidance. Can you explain this? Yes. This is very easily explained. Previously, we have not included Syrymbet, and this is probably the single largest contributor to the increased guidance. We also now factor in our investment outside of Kazakhstan, first and foremost, in Oman and also realistically with the strengthening of Kazakh tenge, we will also see some CapEx inflation within the same scope. So those would be the 3 factors. The company is currently trading at 3.5x LTM EBITDA multiple. Why is this? What is the company doing to improve its valuation? I think this is already a big improvement compared with 12 months ago. I personally continue to view limited liquidity as the key restriction on the company's valuation. And we are pursuing multiple paths to improvement in liquidity. One of the key obstacles is the limitations related to AIX infrastructure. Solidcore will lead the discussion on the ways AIX can improve its performance at the mine expo in Astana in mid-April. We're in very active and constructive dialogue with the exchange on what they can do to improve the infrastructure. So I'm hopeful this concerted effort will lead to better liquidity and better valuations. In terms of dividends, there are several questions on that. I think I have covered this issue during the basic presentation. Just to wrap up, we are moving towards that goal, but not yet there. When are we going to relist on a major exchange? This is a great question. We have had private discussions with regulators and exchanges in multiple locations. The unpleasant answer to that is as long as reliance on U.S. sanctioned POX facility remains in place. This is probably not on the books or at least, let me put it this way, the freedom from the Russian POX should be reasonably close at hand to ensure a smooth passage through the regulatory approvals at the Exchange. We do not provide updates on interim financial positions. So we'll need to wait until the release of our first half financial statements. What are the legal risks you're referring to regarding third-party concentrate law? With the legality of this not clarified and guaranteed prior to signing the divestment of Russian assets. It is clarified and guaranteed on the Russian side. But I would like to remind you that we operate under a 1-year comfort letter issued by OFAC, and that letter permits Solidcore to continue commercial and production interaction with Amursk POX. This comfort letter will last until late May of this year. We need an extension. And obviously, we are quite optimistic about receiving this extension. But the risk that it's not received or it's not received promptly weighs pretty heavily on our valuation of legal risks, which are important for Solidcore. What are CapEx levels expected for 2027 and '28. What is maintenance CapEx for Kyzyl and Varvara going forward. CapEx levels, I think, should stabilize at around $500 million per year for the next -- for this year and next years. And maintenance CapEx for Kyzyl, the key driver will obviously be an underground mine project, we will need to spend about $200 million to $250 million on starting this year and completing in 2029. Varvara, on the other hand, will be relatively light. Is the high gold price encouraging refractory gold project developments in the region that may offer potential concentrate feed for EPOX. Absolutely, this is spot on. We are seeing huge activity in Kazakhstan. The interest in the gold sector has skyrocketed. On the one hand, this reduces our own ability to find and execute attractive M&A transactions. On the other hand, the optionality of POX over the last couple of years has increased tremendously, and we are seeing a lot of preliminary interest from those would be producers of refractory POX. Over the long term, what capital structure do you consider optimal? Maybe you can provide any range in terms of debt to equity and net debt to EBITDA. Historically, 5, 6 years back, we indicated the comfort range from about 1 to about 2x net debt over EBITDA over the cycle. I still think this is a pretty reasonable target. But to move towards those parameters, we need to have unrestricted access to international capital markets, which we currently don't. So this is still some way off in the future, and we need a substantial liquidity cushion maintained as we move forward with our aggressive CapEx program. What are the milestones for your Kyzyl plant construction and the time line for these milestones? What are economics of gold being processed by Kazakhmys compared to Amursk. In terms of the milestones, I think the key milestone is the completion of permitting process, full completion, which we are targeting for the first quarter of 2027. The second substantial milestone is the completion of physical construction and transition to the completion of the engineering systems. Those would be fourth quarter of 2027. And then the start of commissioning, which should be late -- in terms of the economics of Kazakhmys versus Amursk, given the strength in tenge and ruble, Kazakhmys is actually better, mostly because of a significant reduction in transportation costs, not hugely what we are talking about maybe $30, $50 per ounce. Kazakhmys is better, but the throughput is so. That's why we continue to rely on Amursk for the majority of our concentrate. In terms of updated production guidance and CapEx guidance, as I have said, both CapEx and production should be quite stable 2026 to -- what is driving the shift towards selling most of the gold domestically in Kazakhstan? Well, we sell all of our gold domestically in Kazakhstan. This is the policy of the Central Bank. We process concentrate in Amursk, Kazakhmys and then we sell the rate domestically. This is a state policy. Has there been any recent changes in the taxation regime? As I have mentioned, the mineral extraction tax or more or less the world rate has increased substantially and is now dependent on the gold price. It's difficult to forecast whether this regime will be stable. We obviously see substantial tightening of tax administration, and we have recently gone through a 3-year tax audits at Kyzyl and Varvara. And we definitely see that tax authorities are taking a much more muscular approach on contentious issues and on the great areas in regulation. So nothing positive should come from taxation. I will ask Evgenia to answer the question about the cost of funding. Evgenia Onuschenko: Sure. So our average cost of funds last year was roughly 5.5%. We are still benefiting from the low rate loans that we attracted several years ago. But if you -- I mean, speaking of our cost of funds today, I think any new funding will come at a cost of, I don't know, SOFR plus 2% or plus 3%. So we will see a gradual increase in our cost of debt going forward. Vitaly Nesis: Will you disclose the operating inputs of Syrymbet this year? Well, Syrymbet will be no operations there this year, it's just the start of construction. Did you already pay any money to previous top shareholders? No, we did not. But we have spent some money on exploration and metallurgical evaluation of the deposit. This money is notionally linked to the asset. So we are waiting for the clarification of the government's position vis-a-vis this asset. Mr. Nesis, I enjoy your role presently. Any aspiration to continue as CEO indefinitely? I think I definitely don't have any aspiration to continue as CEO indefinitely. But I feel both moral obligation and objective necessity to continue at least to see both POX and Syrymbet fully ramped up and operation to design capacity. So for the next 5 years, I see myself with Solidcore for sure. What is the potential structure of investments in Oman? Those would be classical permian joint ventures targeted or focused on late-stage exploration properties. So we invest to drill and perform other studies. And by completing these activities, we gain a certain percentage of ownership in the asset. Then as the asset progresses further, we fund the pre-feasibility study to earn. So relatively clean vanilla permian. What is the sensitivity of AAC with respect to crude oil price, which oil benchmark is relevant to Solid. I think the euro is the relevant benchmark because the bulk of diesel price fuel is exported from Russia. Local diesel is mostly reserved for agriculture and other socially important activities. We -- I would say that the doubling of oil price should have approximately $50, maybe $60 per ounce impact on our TCC. M&A seems very active in Kazakhstan. How could this impact Solidcore's corporate strategy? It's a great question. It has already impacted our corporate strategy by focusing our M&A aspirations more on other less travel jurisdictions. I've mentioned Oman, we have opened a representative office in Tajikistan. We are looking at other kind of less conventional jurisdictions. Kazakhstan is -- has received a huge amount of attention from the global mining industry. And as a result, it's extremely difficult, as I have already mentioned, to find interesting and value accretive deals. Can you update us on current processing operations on Russian POX? Is everything running okay. Well, we have no transparency on processing operations on POX. What I can say that -- what I can say is that there is no accumulation of material. So whatever we send there, we receive back reasonably regularly and without delays. However, I have to admit that without Kazakhmys trading the free, it would have been difficult to wind down the accumulated stockpile. So the Russian POX is treating the current flow nicely and Kazakhmys is instrumental in reducing the accumulated -- could you please provide your assessment of probability of closure of Tokhtar. I personally think that the deal we have submitted for government approval has next to zero chances of closing. And I would venture to say that probably we'll need to negotiate something from the scratch with most likely the new. Then the total CapEx for Ertis POX spot remains estimated at $1 billion. Yes, we see so far no scope. And given the fact that imported equipment and materials represent a very hefty chunk of CapEx, the appreciation of Kazakh tenge will have an impact on CapEx, but not very dramatic. I think for the other hand, assuming that where we'll try to get as much CapEx as possible domestically, the impact of strong tenge will be materially more significant. And as a result, the original CapEx figure of $250 million is likely to be reestimated high. So we are done with questions from the webcast. Kirill, do we have any other sources of questions? Kirill Kuznetsov: No, there are no other sources of questions. Vitaly Nesis: Ladies and gentlemen, thank you very much for your active participation in the webcast. Please do not hesitate to direct further questions to our IR team. We'll respond promptly. Again, thank you very much.
Anne-Sophie Jugean: Good evening, and welcome to Quadient's Full Year 2025 Results Presentation. I am Anne-Sophie Jugean, Quadient's Head of Investor Relations. Today's presentation will be hosted by Geoffrey Godet, CEO; and Laurent Du Passage, CFO. The agenda for today's call is on Slide 3. As usual, there will be an opportunity to ask questions at the end of the presentation. You can submit your questions in writing through the web or ask questions live by dialing into the conference call. Thank you very much. And with that, over to you, Geoffrey. Geoffrey Godet: Thank you, Anne-Sophie. Good evening, everyone. So let me start by setting out the market context for Quadient. Over the past few years, we've been operating in an environment shaped by powerful structural trends. In 2025, these trends did not change in nature, but they accelerated simultaneously reaching a new level of momentum. So the first one is there is, in '25, a marked step change in artificial intelligence. Rapid advances in AI are accelerating digitalization across industries and reinforcing the long-term demand for software solution. This is not a short-term phenomenon. AI is fundamentally reshaping how enterprise automate, secure and scale mission-critical workflows, well beyond any single use -- sorry, any single use case and regulatory cycle. What customers increasingly require our software platform that can deliver value quickly, integrate AI natively, including agents and responsibly into system of records and reliably operate within complex legal, regulatory and data security environment. In this context, AI-driven digitalization spans our entire digital portfolio from CCM to AP and AR and of course, compliance-driven workflows, which enhance both the value of our solutions and the breadth of use cases we can address. The second trend also contributing to the future acceleration in digitalization is the upcoming rollout of e-invoicing rules across Europe with regulatory deadlines now clearly in sight, notably in France in September 2026 and later in other markets, including newly the U.K. These mandates are important catalysts for the digital adoption. But most importantly, they represent only one dimension of a much broader transformation of transactional and financial workflows. And lastly, in 2025, we also observed an acceleration in the structural decline of the Mail market and this following a long period of resilience. These trends reflect both regulatory developments and changing customer behaviors. More importantly, they highlight the relevance of our long-standing decision to pivot towards digital. Quadient did not start preparing for this transition in 2024, 2025. The ability to offset the decline in Mail with a strong digital offering is at the very core of our strategy and the foundation of our digital division. For both business and financial communications automation and now e-invoicing, we have long been supporting our customers in the automation of transactional processes that sit at the heart of their own operation. So based on these 3 trends, we have updated our long-term financial assumptions. Regarding digital, we have raised our 2030 revenue ambition to around EUR 550 million from above EUR 500 million previously. And of course, we maintain our EBITDA margin ambition, which remains at 30% for 2030. As a result, digital is expected to become Quadient's largest segment by 2030 and both in terms of revenue and EBITDA contribution. Now regarding Mail, we have lowered our 2030 revenue ambition to around EUR 500 million compared with around EUR 600 million previously. And there's no change to our EBITDA margin ambition for Mail, which remains between 20% and 25% for 2030. The updated Mail long-term financial assumption also led us to record a one-off impairment charge of EUR 124 million against goodwill, and that's in the Mail business. And there's, of course, no cash impact. Finally, our 2030 ambition for lockers remain unchanged. Moving to the next slide. Having in mind these accelerated trends just outlined and thanks to Quadient's strategic foresight, we are now in the best position than we have ever been to be able to capture the opportunities they are creating. First, we already operate from a position of strength with a best-in-class digital automation platform that is consistently recognized by industry analysts. And this is not a recent achievement. It reflects years of disciplined investment and execution. 2025 alone, Quadient was ranked #1 globally by industry analyst IDC. And we were also recognized by another industry analyst, QKS, as the most valuable pioneer for AI maturity. These are clear third-party validation of both our technology leadership and our ability to operationalize AI at scale. Second, Quadient benefits from a mature, highly predictable business model. At the end of 2025, our annual recurring revenue, ARR reached EUR 250 million, a level that few SaaS companies can claim and 84% of that total revenue is now subscription-based. This provides us with a strong confidence in our future revenue trajectory. This model is built on a scalable SaaS platform, serving a large and diversified customer base also across regulated industries with very strong customer stickiness. We now support around 17,000 customers worldwide, right, with a well-diversified geographic footprint. And most of these customers are in regulated industries. These foundations were built up proactively and purposely for many years. Today, they allow us to shift our focus decisively towards scaling execution. First of all, we're expanding the use of AI-powered capabilities across our customer base. Currently, around 60% of our customers use daily such capabilities, and our aim is to increase these to 100% as soon as possible. Secondly, we're building a pan-European leader in financial automation driven in particular by the upcoming application of e-invoicing mandates. With the acquisition of Serensia, the final accreditation from the French tax authorities, which we received in mid-December and already more than 10% market share in France. So with both, we're strongly positioned at the start of a long-term digital growth cycle that will unfold progressively across Europe. And lastly, we are, of course, sharpening our competitive position in customer communication also, as highlighted by the recent acquisition of CDP Communications in 2025. This enabled us to add differentiating accessibility and compliance features to our existing range of capabilities in which consolidated our CCM market share in regulated industries. Moving to Slide 7. To support the next chapter of our Quadient growth, I have taken a clear decision to align our leadership team with our operational priorities. As a result of our digital automation platform reaching a scale like EUR 250 million in ARR, it has reached such a maturity that I am now placing our digital automation platform at the very heart of our company under my direct leadership to further accelerate growth and innovation. As part of this evolution, we have now 4 senior leaders from our digital automation platform organization that will be part of the Executive Committee. This reflects our determination to deepen software expertise and accelerate innovation where it matters the most. And this marks the next steps in Quadient's evolution as a global software and AI-driven technology leader. Moving to Slide 8. In addition, over the past few years, we have executed a complete legal reorganization, transitioning from an integrated multi-entity, multi-country structure to a very simple business aligned organization. This legal organization is now in its final stages and provide us with the structural flexibility that we wanted. This opens up multiple options to support our business development, financing initiatives and broader value creation opportunities. With that said, I will now hand it over to Laurent, who will walk you through our 2025 financial results. Laurent? Laurent Du Passage: Thank you, Geoffrey. Good evening, everyone. Let's move to the next slide for our key financials for 2025. So year 2025 ended with a revenue growth acceleration and EBITDA margin expansion in both Digital and Lockers, while Mail profitability remained very resilient. Starting with Digital, revenue grew strongly at 8% with an acceleration in Q4. Subscription-related revenue continued to expand at a double-digit pace, supporting further EBITDA margin improvement, reaching 18% for the year. In Mail, 2025 was marked by the low point of the U.S. renewal cycle, which weighed on the hardware revenue throughout the year. And despite those headwinds, Mail delivered a very solid EBITDA margin at 27.1%. Finally, Lockers recorded another year of strong momentum with 11.4% organic revenue growth and a solid increase in subscription-related revenue. The profitability of Lockers improved significantly at 5%, confirming the trajectory to exceed the 10% EBITDA margin in 2026. At group level, revenue reached EUR 1.036 billion. It's down 3.2% organically. It's in line with the guidance we updated in September. The profitability remained resilient with a recurring EBIT margin of 13% and an EBITDA margin of 22.2%. All Solutions EBITDA are on track to meet the 2026 EBITDA targets, and we will continue to deleverage towards the 1.5x target, excluding leasing. Let's move now to Slide 11. Looking at the bridge of revenue compared to last year. From left to right, you can see the Package Concierge, Serensia, CDP scope effect for EUR 16 million, main contributor being Package Concierge. Digital with an 8% growth is adding EUR 22 million of revenue. Lockers also contributed positively with more than 11% organic growth or EUR 12 million of additional revenue. Digital and Lockers both accelerated in Q4, delivering organic growth of 8.4% and 16.8%, respectively, in the final quarter of the year. Mail declined by around 9.5%, reflecting both market headwinds and the [indiscernible] softness in the U.S. renewal cycle. The currency impacts were quite significant this year, notably from the USD weakening against euro with an adverse impact that you can see of EUR 37 million on the right-hand side. Overall, the group posted an organic revenue decline of 3.2%. Moving now to Slide 12. When looking at the breakdown of revenue, we see the continued shift towards subscription-related revenue across the group, moving from 68% to 74% from 2020 to 2025. Despite headwinds in the Mail business in '25, Quadient still has shown a positive growth on the subscription-related revenue. On the right-hand side, Digital and Lockers penetration within the subscription-related revenue has surged from 23% to 41% over the same period. Moving now to Slide 13. Here, you can see the bridge of current EBIT from last year to this year. We started from EUR 146 million last year. Scope is almost neutral with Package Concierge offsetting this year impact on current EBIT. Digital delivered a solid contribution of EUR 8 million, adding EUR 8 million, thanks to the strong revenue growth and obviously the continued margin expansion. Lockers also contributed positively with an additional EUR 6 million, reflecting both the acceleration in subscription revenues and the improvement of profitability overall. These gains were offset by Mail, which saw, as you can see, EUR 20 million decline in the EBITDA due to the EUR 70 million drop in revenue, which was clearly offset by strong savings. Depreciation and amortization remained broadly stable, decreasing by EUR 3 million and last currency effect had an EUR 8 million negative impact, largely driven again by the euro-dollar evolution. Overall, this led to current EBIT of EUR 135 million for 2025, representing an organic decline of 2.2% compared to last year. Back to you, Geoffrey, on the business review. Geoffrey Godet: Thank you, Laurent. Turning to Slide 15. So let me start by taking a step back and looking at the long-term track record of our Digital business. Starting with revenue on the top left of the slide, the message, I think, is very clear. Steady growth quarter after quarter, driven by the continued adoption of our digital automation platform by customers. Over this period, subscription-related revenue has grown at an average rate of 17% per year, reflecting the strength and relevance of our offering. This momentum has been accompanied by a decisive shift to SaaS. The share of subscription-related revenue has increased from 59% in 2020 to 85% today, fundamentally transforming the quality and predictability of our revenue base. And the same dynamic is visible in the annual recurring revenue or ARR shown at the bottom left of the slide. ARR has grown from EUR 109 million to EUR 250 million over the period, which represents a 15% compound annual growth rate. This is obviously a forward-looking indicator, and it underlines the durability of our subscription growth engine. At the bottom right, share of SaaS customers has grown significantly, reflecting naturally the change to our SaaS digital automation platform. Now turning to the EBITDA evolution. On the top right of the slide, you can see a low point in early 2022, and this reflects a deliberate phase of transition and the impact of the business model shift at the time, combined with a targeted investment in account payable and accounts receivable following the acquisition, if you remember, of YayPay and Beanworks at the time. What matters most, however, is what come after. Since then, we have delivered a regular and sustained improvement in EBITDA margin, driven by 3 clear factors: the continued growth of our subscription platform, the steady productivity gains across our teams and the fact that both our enterprise and SMB segments are now operating at scale. Together, these trends demonstrate the strength of our digital model, not just its growth, but its ability to scale profitably over time. Now let's move to another topic, and let me address AI head on because our position is generally differentiated on the market. In an AI world, the real question isn't who can generate content or automate a task. The questions are who produce unique data and who can execute reliably inside the system that actually run the enterprise and who can do it with control, adaptability, compliance and accountability. Quadient operates where the bar is the highest. We sit inside mission-critical workflows that are embedded into system of records such as ERPs, CRMs, billing systems, finance and regulatory environments of the company. In this workflow, mostly right is just not good enough. Invoices, audits, compliance, they all require near 70, not probabilities. And that's exactly the space we were built for. And this is why we are the trusted execution layer where AI must integrate. AI engine will proliferate across enterprise workflows, and they will still need a trusted execution arm, a platform that can securely connect to systems of records, enforce governance, produce auditable outcomes and execute with reliability and such at scale. AI agents rely on us. They don't replace us. And let me be clear on the human element. Relationships don't get replaced by AI. So just give you some context, right, many of our workflows, credit, collections, disputes, exceptions, these are nuances, right? They require nuanced context, judgment, and they cannot be safely automated away, particularly in a regulated environment. So our approach is human-centered. We use AI to strengthen those relationships and make workflow smarter, faster and more consistent, not to remove accountability from the process. We're truly built for this moment for 3 very concrete reasons. The first one is that our platform is agentic ready by design with APIs already enabling interaction with third-party software and most importantly, AI agents. Second, our pricing model is already aligned with where the industry is going. We operate largely on volume and outcome-based economics, not seat-based pricing. So we're not exposed for the AI replacing seats pressure that many software companies face. The third one is enterprise-grade execution is just not an add-on for us. It is our baseline. We deliver compliant, auditable, high reliability workflows, sorry, in regulated industries and such with deep integration, governance and again, scale, and they all are acting as very structural barriers for us. And this is not theoretical. AI is already operational across our digital platform and again, at scale. We have more than 60% of our digital customers that use AI-powered capabilities today from our platform and such every day. Another key number, roughly 40% of the new code generated for our applications are now AI generated, and we also have 0% AI-related customer churn. So the way I see AI is quite simple. It reinforce a mission, it reinforce the structural barriers and it increases the value we deliver and precisely because we sit at the intersection of automation, compliance and trusted execution. Moving to Slide 17. And with that said, let me turn to a few concrete examples of how AI is already embedded across Quadient Solutions. Let me be clear. AI for us is not a future ambition, as I mentioned, it's something that is already driving tangible value for our customers today and that both across our financial automation and customer experience management capabilities. Our AI capabilities are built on 3 Quadient core strengths: our integrated in-house AI-enabled components. The second one is our ability to connect and to connect seamlessly with customer systems of records, especially around the ecosystem. And the last one is our long-standing experience supporting, again, highly regulated mission-critical processes in industries such as financial services, insurance and the public sector. These are the foundations that make our AI capability not only powerful, but trusted in the most demanding environments. If I take the example on the financial automation side, you'll see on the left of the slide, we have shared an example for the account receivable solution. AI improves cash flow performance, and it gives finance teams far greater predictability. And by tapping directly into the ERP and the accounting systems, our models today score risks and forecast late payments with a high degree of accuracy. AI also provides real-time insight into buyer payment behaviors and identifies the patterns and the root cause behind these delays. So when it comes to execution, AI orchestrates the full collection workflow, choosing the right channel, optimizing timing, automating follow-ups and escalating when needed. So taken together, that drives what matters most for finance leaders, faster, more reliable cash conversion with less manual effort. Now on the CXM side, if we take another example, we have the same foundations, right, that apply, integrated AI, strong connectivity to system of records and a deep understanding of how communication requirements in regulated industry can enable organization to create and deliver communication, obviously, much faster and with far more consistency and both across regions and channels. Now AI accelerate, in particular for us, migration from legacy platforms can support secure use of customer selected AI models, their choice and speed up the development of what we call very complex business workflows. It also enhance naturally content creation, right, including translation at scale and also provides dynamic recommendation to improve message clarity and the effectiveness of those messages. So if we look at the impact for our customers, it's very tangible, up 50% faster content creation and as much as twice the communication output without any additional headcount. So in conclusion, whether it's in finance or customer communication, right, our use of AI is already delivering measurable productivity gains, operational confidence and some stronger business outcomes for our customers. Where does our next major opportunity lies in the transition to mandatory e-invoicing, right? That is a change that is set to reshape how company manage their business and financial workflows. And here again, Quadient is ahead of the curve. Moving to Slide 18. Our Serensia platform has now secured final accreditation from the French tax authority, meaning that we are fully ready for the 2026 reform in France. This places us among a very few select group of certified providers able to support companies through what will be one of the most significant business process transformation in recent years, in particular for Europe. Our leadership is also recognized today by analysts, right? In January 2026, Quadient was named a leader in QKS Group's SPARK Matrix for e-invoicing solution. This highlights the strong combination of technology excellence that was recognized, customer impact that was recognized as well and our regulatory readiness. And all of that is underscoring the strategic importance of our digital automation platform at the most pivotal time. Let's talk about our commercial traction. It's accelerating sharply. Booking related to financial automation and invoicing in France and Benelux for our region, increased more than tenfold. Just me repeat this, increased more than tenfold between the first and fourth quarter of 2025. This is a clear sign that customers preparing early are choosing Quadient as their long-term partner. And importantly, if we look at the addressable market, it remains largely untapped. We've got a study from OpinionWay that was recently shared that showed that only 7% of French companies are fully compliant today, meaning that the vast majority still need help to equip themselves. And let's not forget that France is just the start for us. The 2026 reform mark the first phase of a broader European transition to mandatory e-invoicing. Several countries are preparing similar frameworks than the one we've seen in France for the years ahead. And the U.K. is the last one that just announced their program for 2029. So this creates a multiyear growth runway in market -- in the market, sorry, where Quadient has already secured accreditation, recognized leadership by third party, a solid market share and strong commercial momentum. Moving to Slide 19. On our financial side, for the full year 2025, our digital automation platform delivered double-digit subscription-related revenue growth. And as I mentioned, with strong momentum and such, in particular, in our North American region and the U.K. and in particular, for the last quarter of the year. ARR reached EUR 215 million, representing 10% organic growth and such despite the currency headwinds. We also recorded a record Q4. It's our largest quarter ever in bookings, and it was driven by several multimillion euro wins and also reinforced by the solid cross-selling from our Mail customer base. Now if we move to profitability, our EBITDA grew 9% year-on-year and the margin expanded to 18% overall for the year despite the temporary dilutive effect that the Serensia integration impacted us. The margin for the second semester, right, the progression of that margin clearly shows the trajectory. We are on track to exceed the 20% EBITDA margin in 2026. With that said, over to you, Laurent, for the Mail business update. Laurent Du Passage: Thank you, Geoffrey. Moving to Slide 20. In light of Mail's 2025 performance, we have reassessed our long-term assumptions for the Mail business, notably with lower machine placements. With the transactional Mail volume still anticipated to decline by around 7.5% CAGR, the Mail market itself is now anticipated at minus 6% CAGR compared to minus 5% before. We have revised our 2030 revenue ambition for the Mail segment to approximately EUR 500 million compared to the EUR 600 million previously. The assumptions are particularly true in Europe, as illustrated by concrete developments such as the end of nationwide letter delivery in Denmark and ongoing regulated debates in the U.K. We also see companies actively preparing for the rollout of invoicing mandate in Europe, accelerating the shift away from physical mail. In [indiscernible], we still anticipate an improvement but starting off from a smaller installed base. Reflecting this update assumption, as Geoffrey has already indicated at the beginning of this presentation, this adjustment is a prudent fact-based response to structural market evolution, and it allows us to align our long-term ambition with the realities of the market while continuing to manage Mail with a strong focus on profitability and cash generation. Moving now to Slide 21. Let me come back briefly to what we've seen and what we are seeing as we enter 2026. This chart shows quarterly year-on-year Mail market revenue growth based on year-on-year growth weighted with our competition as well as Quadient performance on the other side. It shows that market was under pressure, notably from Q3 and Q4 '24 onwards and that there is a slight improvement materializing on the market at the end of '25 that we are seeing now at Quadient on early '26 at the beginning of Q1. While past year has been difficult on Mail, it is important that we also have a true capability on the cross-sell, which has increased by 19%, including a triple-digit year-on-year in Financial Automation booking boosted by invoicing mandate in Europe, as mentioned by Geoffrey. In addition, our SimplyMail SaaS solution, which enables small businesses to send physical mail and parcels in just a few clicks directly from their existing digital environment saw a strong momentum in '25 with more than 1,100 contracts signed. And in spite of the market condition on hardware, we also had major production Mail wins with our DS-1200 flagship solution that delivered double-digit growth in '25, confirming its strong market traction. Let's now move to the next slide on the Mail financials. Overall, Mail declined by 9.5% in '25, mainly due to the slowdown in U.S. equipment placements linked to the renewal cycle. This trend was slightly higher in Q4 at minus 10.9%, while we saw a very slight improvement on hardware side. The good news is that despite the top line pressure, Mail continues to deliver a very high profitability with a margin above 27%, supported by the contribution of Frama and our proactive response to tariff changes in the U.S., including price actions and strategic inventory buildup at the end of 2024. Margin performance was further supported by strong cross-sell execution with our digital business and a disciplined agile cost structure. Now moving to Lockers. The first slide give a clear picture of how we've successfully scaled growth in the Locker solution over the past 4 years. On the left-hand side, you can see the steady growth in revenue since '22, representing a compound annual growth rate of 11% from 2022 to 2025. A second key trend in the increasing weight of subscription-related revenue, which accounted for 65% of total Locker revenue in 2025. In absolute terms, subscription revenue grew at double-digit rates every single quarter. In terms of margin, we can see the rapid expansion over the same time frame on the right-hand side with a confirmed inflection to profitability in 2025, delivering a 5% EBITDA margin. This puts the Locker business on a strong financial footing and positions it for scalable, profitable growth going forward. Let's move now to Slide 24. Turning now to commercial highlights for the Locker business. 2025 was another year of strong expansion supported by both solid demand and targeted product innovation. In Q4, we secured a multimillion euro service deal to refresh the design of an existing network covering more than 1,700 locations. This demonstrates the confidence of our customers and the long-term value of our installed base. We also expanded our product range with the launch of Premier Locker in the U.S., a premium design-driven solution tailored for upscale multifamily communities. This enhancement strengthens our ability to address a broader set of customer needs in that market. Operational execution remains strong with more than 2,300 lockers deployed in '25, including more than 600 in Q4 alone. This brings our installed base to approximately 27,700 lockers at the end of the year. Let's now turn to Slide 25 to look at how this commercial momentum translates into the growth of our installed base and usage over the past 2 years. On the left, you can see the steady acceleration in our pace of installation across Europe. Over the past 2 years, our installed base has grown roughly fourfold, supported by continued expansion in the U.K., including partnerships with Evri, Shell Service Stations and The Range. Meanwhile, in the U.S., placements remained steadily driven by continued momentum in the multifamily and the higher education segments. On the right-hand side, we can see the usage in Europe has increased dramatically over the same period, around 20-fold with the U.K. once again a major contributor. As you can see on the chart, there was a temporary dip at the end of Q4 and the start of Q4 due to lower volumes recorded by Evri with Vinted, followed by a strong rebound as we can see as well later in the period. Lastly, in Japan, volumes increased month-to-month in Q4, signaling growing traction. Let's now take a look at Lockers financial on Slide 26. Lockers delivered another year of strong growth with 11.4% organic growth and more than 22% reported, reflecting the strong subscription revenue, of course, and the full year contribution of Package Concierge. We recorded a sharp acceleration in Q4 and more importantly, our profitability inflection is confirmed. EBITDA margin increased by 4.4 points to 5% with H2 reaching 6.3%. We remain firmly on track to exceed a 10% margin in 2026, supported by growing recurring revenue and high utilization rates across the networks. Let's now review the group financials and turn to Slide 28, which is a summary of the financials. So if you can -- as you can see, we summarize here the performance of all the 3 solutions. Again, digital growing strongly 8%, margin expansion to 18%. Mail declined 9.5%, but maintained a very solid 27% margin. Lockers grew 11.4%, as we just saw with profitability improving to 5%. At group level, revenue reached EUR 1.036 billion, and our current EBIT margin remains resilient at 13% despite the mix effect and the decline in Mail. Moving now to Slide 29, where we see the P&L. Starting from the top, obviously, revenue I just mentioned it, but EBITDA stands at EUR 230 million, which is maintaining a healthy 22.2% margin. The current EBIT is EUR 135 million. It's broadly stable margin-wise, reflecting the operational resilience of our business. The key item this year is the EUR 124 million noncash goodwill impairment, which is exclusively related to Mail in Europe. This is the main consequence of the new assumptions of the Mail market trajectory, as I explained on Page 20, and hence, the mechanical noncash effect on our goodwill -- Mail goodwill assessment. This brings reported net income to minus EUR 66 million. Excluding this one-off impairment, net income would be EUR 58 million, which highlights the underlying strength of our operations as well. Moving now to the cash flow statement on Page 30. The free cash flow for the year came in at EUR 47 million, impacted by several one-off elements. The adverse effect of working capital, we mentioned that earlier due to the timing of [indiscernible] payments, the EUR 19 million impact, cutoff of VAT payment and employee debt at the end of the year, but this was fully offset by EUR 30 million of cash generated by the leasing portfolio. The higher interest and tax payment is notably due to the [indiscernible] tax and the bond refinancing that we already mentioned during H1. Cash flow from operation reached EUR 132 million and the CapEx decreased to EUR 86 million, driven by lower Mail placements as we will see on the next slide. To be noted also that our free cash flow was impacted by the negative change impact of around EUR 7 million. At the bottom of the free cash flow from an acquisition standpoint, Serensia and CDP have been acquired in '25 compared to Frama and Package Concierge in '24. Moving now to next slide on CapEx, Slide 31. CapEx levels reflect the nature and maturity of each platform. Digital remains stable, focused on the R&D and ongoing platform enhancement. Lockers continues to invest materially supporting the rapid expansion of open networks, notably in the U.K. And net CapEx declined significantly due to the lower hardware placements in '25, notably in North America, where the year before it had the certification. Overall CapEx decreased from EUR 98 million to EUR 86 million, consistent with our disciplined capital allocation. On Slide 32, as you can see, the net debt has significantly declined to EUR 682 million, notably thanks to a large ForEx impact on our USD debt due to the weak level of the dollar at the end of the fiscal year. The leverage ratio, excluding leasing stands at 1.6x, maintaining our trajectory towards a 1.5x target in 2026. We also maintained a solid liquidity position supported by healthy cash generation and tight balance sheet discipline. On Slide 33, as you can see from a debt management standpoint, we have reimbursed our bond in Q1 and as well as EUR 29 million of Schuldschein, and we successfully raised EUR 50 million of private placement in July. As of January '26, we hold EUR 115 million of cash, and we have EUR 300 million of undrawn on our credit facility. And we maintain obviously a EUR 533 million still customer leasing portfolio that you can see on the right-hand side. This positions the group with strong liquidity and financial flexibility to support the ongoing execution. Over to you, Geoffrey, for the conclusion of this presentation. Geoffrey Godet: Thank you, Laurent. Moving now to Slide 35. So for 2025, Quadient proposed a dividend of EUR 0.75 per share for the full year 2025. This represents a 7% increase compared to the full year 2024 dividend and a year-on-year increase of EUR 0.05. Just to be noted, this marks the fifth consecutive annual dividend increase. This proposal corresponds to roughly now a 46% payout ratio of net income, excluding obviously the goodwill impairment and this is up from 36% last year. And this is well above the minimum of 20% payout ratio that was defined in our dividend policy. So naturally, subject to the approval of the Annual General Meeting on June 18, 2026, the dividend will be paid in cash in one installment in August 6, 2026. This proposed dividend reflects naturally our confidence in Quadient's future cash generation, our confidence in debt deleverage and our commitment to it and our continued commitment to delivering sustainable returns to our shareholders. Turning now to our guidance for 2026. As you know, we continue to operate in a very challenging macroeconomic environment and also geopolitical. We have some ongoing uncertainties and particularly around potential supply chain impact. Now against this backdrop, Digital and Lockers are expected to continue naturally to delivering sustained growth and further EBITDA margin expansion. Mail remains naturally also a little bit less predictable at this stage given the limited visibility on the market conditions. That being said, our cost optimization initiatives remains in place, and they will support the resilience of our high mail margin. As a result, we expect organic revenue growth from full year 2026 to range between minus 2% and plus 2%. And this range reflects the current level of visibility that we have on the Mail business. In parallel, we confirm our EBITDA margin trajectory and such across all solutions. So with expected full year '26 margin for EBITDA above 20% in Digital, above 25% in Mail and above 10% in the Lockers. Moving to Slide 37. As explained at the beginning of the presentation, we have updated Quadient's long-term financial assumptions to reflect the profound acceleration of the market trends that we are seeing today. For Digital, we have raised naturally our revenue ambition to approximately EUR 550 million from above the EUR 500 million we had stated previously. And for the Mail, we have revised our 2030 revenue ambition to approximately EUR 500 million compared with around EUR 600 million previously. And naturally, our ambition for Lockers remain unchanged and well above the EUR 200 million in revenue by 2030. We also reconfirm our 2030 EBITDA margin ambition for each of our 3 solutions, around 30% for Digital, a range of 20% to 25% for Mail and around 20% for the Lockers. So taken together, these updated ambitions reflect a clear reality. By 2030, Digital is expected to become Quadient's largest solution and such, both in terms of revenue and EBITDA, and that directly supports our ambition to position Quadient as a global software and AI leader. Thank you. And I think that with the team, we are ready to take your questions. Laurent and Anne-Sophie? Operator: This is the Chorus Call conference operator. [Operator Instructions] First question is from Flavien Baudemont, Bernstein. Flavien Baudemont: Congratulations for the results. I have 2 questions on my side. For the first, I'm a bit puzzled about your Digital sales guidance upgrade for 2030, while in the meantime, you suspended your Digital 2026 sales guidance back in September. I don't really get how you can [indiscernible] expectation and upgrade your midterm guidance at the same -- nearly at the same time? And if I do the math, you need to grow by 14% per year by 2030 to get to the objective. And you grew by 10% in Q4, which means that it's going to be tricky to get 14% of Digital top line growth in 2026. So is it possible to have more element to support your guidance and preferably with numbers such as how much sales you are expected to generate truly for Digital invoice this year, for instance? And the second is more straightforward. Can you just update us on the Italian local rollout strategy? Geoffrey Godet: Thank you, Flavien. Good evening, and thank you for your question. I can take this question if you want, Laurent. On the Digital side, it's a good reminder for me to share with everybody, the long-term upgraded guidance we gave in terms of revenue, right, to move from EUR 500 million to EUR 550 million is without the help of any acquisitions, right? These are organic assumptions that we have, right? So it's really coming from the growth of our existing customer base on the one hand, and we see the acquisition of new customers, new logos that we're expecting in the coming years. We have had in the last few years, a steady increase of our annual recurring revenue, and we have also our subscription growth rate that has been always around 10% or more actually in all the past years. We finished the year with an ARR growth around 10% -- at 10% actually organic growth, which basically is a forward-looking view for 2026. And you're right, when you do the math, we do anticipate in the coming years, an acceleration of the recurring and the ARR, right, subscription growth on a yearly basis on the average over the period. Now this increase has not come linearly. In 2026, we're likely to be around where we've been able to achieve in the past few years but we're going to be able to benefit from the acceleration starting in 2027 and we'll continue to accelerate further in 2028, notably and for the rest of the plan. Where is this acceleration coming from, it is coming from the benefit of the acquisition of Serensia that we did not plan for when we did our Capital Market Day in 2024, right? So Serensia is related to the accredited platform that we have in France. And we have embarked on the contract bookings, right, existing contracts that are not generating yet revenue. I think we shared in our last -- the third quarter presentation with you that we have now probably secured more than 10% of the numbers of invoice that is expected to be produced digitally through those accredited platforms. So we have a strong leadership position that we anticipate that will generate revenue, and we're not over yet, right? So we have continued actually to sign at the beginning of the year additional contract. It will continue until September '26 to embark customers that have not yet made the decision. And as we shared earlier today, there's still the vast majority of customers in France that have not selected yet an accurate platform. So we have more contracts, more booking that we expect to be able to embark. And we also believe that this will not stop in September '26, which is the deadline for some of the enterprise in the market to start operating with the government platform. We believe that some of them likely will be late, which has been always the case when those mandate gets rolled out into other countries. So there's our expectation there will be a tail of customers that will be quite strong, probably getting into the beginning of '27. Now as it relates to how this translate into revenue generation and accelerate growth for us. Because the mandates starts in 2026 and only for some category of customers, I remind you that they are deadlines for large enterprise in September '26, then for mid-enterprise and then small enterprise that spent from '26 to '28. Not all of those contracts will generate revenue right away in 2026 and not on a full year basis. So we'll likely start to have some benefit by the end of '26, mostly in Q4, have a full year benefit of that increase in 2027 and even further in 2028. And as just to take into account the revenue that we will generate and it will accelerate our growth for the French mandate. In addition to the French mandate, we're also getting ready for additional mandates for other European countries in Belgium, in Germany, in the U.K. but we also have the ViDA standard that is going to be a European-wide standard that will generate the same kind of anticipation by the companies to select the right accredited platform for themselves, getting ready and being able to produce the invoice. And there will be a delay, naturally a gap from the moment they sign those contracts to the moment we generate those invoices on our platform. And that's mostly what drives the increase in our ambition based on actual data and the numbers of contracts we have secured obviously, up to now. So at the end of 2025, we had more than 10% of those invoices on the market, right, that we expected on the volume. So we estimate the market to be between EUR 2 billion and EUR 2.5 billion of invoices. So that gives you a sense of the sheer size and the big size of invoices that we expect to be able to produce on our platform and that will generate the increase in revenue starting in Q4 and then progressively in '27 and '28. Laurent Du Passage: Maybe one just complement, I think because you made a calculation, and you mentioned the 14% CAGR. I just want to remind you that the numbers we are showing for 2030 at fiscal year '23 rate just to make it comparable to what we said to the Capital Market Day, not -- you should not take as a starting point, obviously, the reported figures for digital because, obviously, the dollar has impacted significantly the revenue side. So in reality, the CAGR should be below that mark that you mentioned. Geoffrey Godet: The second question you had, Flavien, which I also -- was a good question. I'm happy to give you some color. We have studied the deployment of our Italian Lockers in the Italian market. Mostly in 2025, there was the year for us to be able to set up the team, hire the different key leaders, the sales organization, starting to identify the strategic location that we felt would be the most promising one, securing contracts ahead of the deployment of the Lockers, notably with Carriers but a few other players as well and non-carrier related. So that's what we've been doing in '25. So we do expect the rollout, though it has started, to start pick up steam during the rest of the year. Operator: [Operator Instructions] There are no more questions from the conference call. The floor is back to Ms. Anne-Sophie Jugean. Anne-Sophie Jugean: Thank you. So we can now move to the questions submitted in writing. So we have 2 questions on Digital. And I think that part of them have already been answered by Geoffrey and Laurent. Looking at organic growth for digital plus 8% in both 2024 and 2025. Good figures but below the target of 10% CAGR for the 2023-2026 period. Do you expect to accelerate Digital growth rates above 10% in 2026? And what is driving the decision to raise the revenue target to EUR 550 million by 2030? Is it the need to offset the decline in Mail volume? Is organic growth expected to accelerate beyond 10% average on the 2025-2030 period? And have you identified any additional M&A opportunities? Geoffrey Godet: So I believe we have mostly responded to that question. So just maybe just try to add a little bit more color and Laurent you are free also to add additional comments as necessary. The subscription growth rate and the ARR rate, which are -- one is the forward leading indicator of the next one because we recognize the revenue of the next year year has always been poised as a target to be around that 10%, right? That's how we have calibrated our long-term strategic plan for the software business, which is really around the 10% growth rate on the subscription and 30% EBITDA margin because when you combine both 10% on the ARR growth rate and 30% on the EBITDA margin, the total makes 40%. And that's kind of the golden rule, obviously, for the SaaS and software companies in terms of credentials and in terms of being the best practice and top of the class in this market. And why the 10% for us because we have identified and calculated and our estimations are that the market in average, the markets that we're operating in to, so the different geographies and the different mix of segments both on the enterprise and the SMB with some different weight on both the customer communication and the financial automation side. We estimate that market growth to be at around 10%. So for us, that 10% is not just what we can do and not do, is to ensure that we keep up with the market because we believe we are one of the leading, if not the leading platform, with our EUR 250 million ARR in this market segment. So we want to make sure that we keep track with the market growth. That's the first element on how we have decided to set the level of acquisition cost for us for the coming years. So yes, we do expect naturally 2026 to be around the 10% for the subscription growth rate in ARR as we get into the first year. For the coming years, we do expect an acceleration. And as I responded earlier, driven by the new benefits and future benefits from the acquisition of Serensia related to the invoicing market that was not accounted for when we initiated our early 2030 guidance. Anne-Sophie Jugean: Thank you, Geoffrey. The next... Geoffrey Godet: Sorry, maybe, Anne-Sophie, on the acquisition. As I again mentioned earlier, no, we did not identify the particular acquisition that would be needed to achieve those targets. We've got 17,000 customers, and we do expect the upsell and the expansion from the existing customer base in addition to the ongoing already a new logo acquisition engine that we have to be able to allow us to meet the target. Anne-Sophie Jugean: So thank you, Geoffrey. And next question is on CapEx. So how will CapEx evolve in 2026? And how will it be spread between the 3 businesses? Laurent Du Passage: Yes, this one is for me. So we -- I think we mentioned this year, the CapEx level was EUR 86 million, Jean-Pierre, you need to think that it will not be significantly different, I think, in the coming years. So we expect something around the EUR 90 million. Obviously, we don't necessarily break it down. But if you think about it, Mail has an overall tendency to decline. I think it's part of the explanation also where we have lower placements in machine means lower CapEx on the franking machine in particular. Lockers still will continue to be quite dynamic and positively oriented, I guess, with the rollout that we mentioned in the U.K. and Italy and the last portion of Digital. Digital is in the scaling phase. The improved profitability is also the scalability of the R&D, so I don't expect a huge increase on the R&D side. So overall, not significantly different, potentially slightly up, but that's what I can say for next year. Anne-Sophie Jugean: Thank you, Laurent. Next question is on Mail. So is the Mail market reaching the cliff drop that we have been fearing? Could we see an even larger decline in 2026 than the one seen in 2025? How confident are you that the 2025 decline was a one-off? Geoffrey Godet: So we are clearly not anticipating a cliff in terms of the decline of the Mail market. We have updated our 2030 ambition for the Mail. It will remain a large part of our success for the 2030 guidance. And we do expect the Mail to still contribute EUR 500 million in revenue in 2030 at that time. Really, if you were to look at the numbers, we're changing a little bit the annual growth rate that we're expecting. We were expecting a decline around potentially 3% to be better than the 5% of the market, 3% to 5%. And we still expect to be able to do better than our anticipation of the market decline over that period of time. The big difference is, over the coming years, maybe 1 or 2 points of further decline per year of the market, right? So it is a degradation, but it's a predictable degradation. Our anticipation on the underlying Mail volume, the volume of letters is barely changing from now in 2030. This is what Laurent has explained to you, so it's around at 7.2%, 7.5%, right? So the Mail volume will remain resilient, declining, but predictable decline over that period of time. So with that context in mind, we're coming off 2 different impact in 2025 that have combined themselves an acceleration of the decline in Europe driven by some of those investment mandate and we do expect those to continue and to accelerate and we have taken that into account. And the impact that we had on the U.S. market, mostly driven by the post-decertification effect that we have experienced as a market, right, it's the entire market that have seen that in 2025. We have also seen at the end of '25 that market to start picking it up, which is a good news. And we do anticipate for Q1, our own performance into that market to improve versus '26. So at this stage, even though we have some uncertainty, and we have factored into our range of revenue for the Mail performance to improve in 2026. Anne-Sophie Jugean: Thank you, Geoffrey. Next question. So can you give some trends on revenue by segment in 2026? Specifically, how do you see Mail revenue after the decertification base effect? Laurent Du Passage: I can take this one. So specifically, we don't guide by solution on the revenue side by year because otherwise, it's a lot of different items that we've always being asked. I think the guidance is quite clear. We are aiming for the minus 2% to plus 2% revenue evolution. Obviously, what we factor in this minus 2% to plus 2% is obviously still some uncertainty. Geoffrey mentioned that, on the Mail side, and we've been we've been seeing the difficulty to predict on 2025. So we want to be cautious. The start of the year is obviously showing good signs, better than the trend we had again in Q3, Q4 of 2025. So we believe that the market will positively evolve notably because we get further away from the decertification in the U.S. And that basically, we have a comparison base. It's obviously slightly more favorable, but we get also new customers that get back to renewing their machine, which is normal. But you have an underlying trend that mentioned by Geoffrey in Europe, in particular, where you have a further decline than when we had shared back in the CMD. And I think we need to consider the market has evolved and now it's back to minus 6% on CAGR, but we are aiming to more kind -- if you do the math, kind of minus 5% CAGR in the coming years. We are currently at minus 10%. So basically, what it means that from minus 10%, you will come back to a trajectory that is closer to that minus 5% or even above if we can, obviously. But we factor that uncertainty within the minus 2% to plus 2% range, I think, for the total revenue level. Digital and Lockers being much more predictable, I guess, and as we mentioned, notably on the subscription part. Anne-Sophie Jugean: Thank you, Laurent. Still on Mail. Does the underperformance of this segment mean you lose market share? Or is it a geographical effect? Laurent Du Passage: So on the market share, the question is fair. Because we can see on the slide that we did slightly underperformed the market at the end of the year because before that, we are very similar. We believe that, yes, the geographical effect is part of it, meaning, basically, if you look market by market, we don't believe we lost market share in the past quarters. That being said in the past, we used to win a lot of market share on one specific market, which is in NorAm one. Our understanding is also that when we win, it's when we gain new logos. And after all decertification, the opportunity for gaining new logos is obviously scarcer because you have less basically a customer up for renewal. But our belief is that coming back to a phase where you have more customer of renewal also after the post COVID effect, which is part of the answer, basically, where we will be able to hopefully, again, make the differentiation. But if you look market by market, today, we're not losing market share. Geoffrey Godet: So a strong geographical mix. Laurent Du Passage: Yes, it's a big chunk of the explanation, yes. Anne-Sophie Jugean: Thank you, Laurent. And moving on to Mail profitability. Could you remind us how you really managed to contain the decline in Mail profitability? Is it mainly HR reduction or anything else to think about? And are these reductions due to natural attrition or the results of restructuring? Geoffrey Godet: Either way. Laurent, you can take it. Laurent Du Passage: I'm more than happy to take it. I think it's an overall approach. So you have obviously a reduction in cost because we have a very variable production engine. I mean, we source a lot externally and basically we can easily adjust the cost of sales, notably to the revenue. That's part of the answer. But yes, the rest will be mostly on the OpEx side. We have a population on which we have obviously some natural attrition because some gets retired. And notably on the segment, we have a range of people that we not necessarily then when they lead to retirement that we smartly don't replace because we know we need to progressively adapt that structure. We also contemplate when needed restructuring, and that's what we did this year, notably in France. And it's the overall approach that I think we've been successful in delivering the 27.1% EBITDA this year, and that's all this lever that we are pushing on. Last portion I didn't mention is obviously the cross-sell. I did mention that in the side of portability, but obviously, we using more our salespeople on the Mail side to sell more Digital, which they've been very eager to do so because of the invoicing coming up and slightly lower traction on the franking machine side, notably has been delivering also some savings with some contracts and some costs being basically Digital ones. Geoffrey Godet: I think to complement what you said rightfully on the synergies. We also have the synergies with the Lockers where the Mail technicians are also now supporting most of the installation in support of our Lockers base, notably in the U.S. but also in the U.K. So these are all contributing factors. And I think the best point of what you said, Laurent, and I think we have a tremendous track record, right? Because when you look at the combination of the viable cost structure the team has put in place, the favorable age pyramid that you mentioned, you could see that even in a difficult year where we lost more than EUR 70 million of revenue, right, almost 10% decline, we've been able to have a very high margin and stabilize it. So I think it's a credit to our commitment to maintain high margin and protect and favor, obviously, the cash generation of this business in the coming years. Anne-Sophie Jugean: Thank you both. And moving now to Lockers. When is the 5,000 units rollout in the U.K. will be completed? What are the ambitions of Lockers in Italy? Geoffrey Godet: So on the Lockers in the U.K., it's a very good question. We always say that for us, the first milestone is to be and obviously, it could depend on different configuration in each of the countries we can operate. But a Locker business, an installed base at scale would be around 2,000, 3,000 lockers minimal, right? So that's our first milestone that we're trying to reach. And hopefully, in 2026, or soon in 2027, we should be able to reach that first milestone. This is what we're focusing on. Now from now, and the end of '26 or the beginning of '27, we will obviously keep the flexibility to either accelerate or slow down those rollout based on the market condition that we see. For us, what is really important at this stage is maintaining that we always go for prime locations, which means we are going to have a good long term and high utilization of the network. As you could see that what Laurent shared with you, we've been able to manage the deployment of the base and making sure that, that deployment was with a high usage. So that's really for us the freedom that we take, right, based on market conditions, when do we need to accelerate the deployment and we need to slow down a little bit. So it's not a target per se, it is making sure that over a longer period, we can achieve those targets. And obviously, we could go beyond the first 3,000 and reach the 5,000 or more potentially. Just as a reminder, we've got 7,000 lockers installed in the Japanese market. And we have -- I forgot the exact number, 14,000, I think, in the U.S. now. And for the Italian one, specifically the same thing. We don't want to rush too early to deploy lockers or on the other hand, not take too long. So we will update you on the progress we make in the Italian market along next year. Always market context driven, that's really what we've learned over the past years to be efficient in our rollout. Laurent Du Passage: I think U.S. is 16,000. Geoffrey Godet: 16,000. Thank you, Laurent. That is the acquisition of Package Concierge in addition. Anne-Sophie Jugean: Thank you, Geoffrey. Moving back to Mail. So how much restructuring expense did you have for Mail in 2025? Laurent Du Passage: In 2025 is the bulk of what we have in the restructuring. So we have about 20 -- if I'm not mistaken -- you have about EUR 20 million. So just shy of EUR 20 million, and the bulk of it is the French RCC that we did this year, which represent probably a bit more than half of it, and the rest being other countries and for some also still a little bit of the buildings, notably footprint. So the bulk of it is for Mail. Anne-Sophie Jugean: Thank you, Laurent. So moving on now to questions on Digital. You have increased your revenue target for Digital. Customer acquisition can be expensive for SaaS companies. What makes you confident that you can improve your margin to 20% in 2026 and to 30% in 2030? Same question on Lockers. How confident are you that margins can improve? You are still in the Lockers rollout phase, notably in the U.K. and in Italy? Geoffrey Godet: So I suggest we share, we split the question Laurent, you take the one on the Lockers, I take the one on the software. Laurent Du Passage: Okay. Geoffrey Godet: And actually, thank you for this question. It's a relevant question on the software side. Our assumptions and belief today is that we did structure our go-to-market engine that brings us between 2,000 to 3,000 new logos every year. And you're right, in a subscription business model and for the type of offering that we offer to our customers, the sales acquisition cost that we expense and we incur in a given year doesn't get its full payback in the first year, right? Basically, from the moment we have the sales team engaged to sign a contract. We recognized the booking value, but not -- we don't recognize the revenue, right? Because we could have the full sales expense of the year, sign a contract in December or January for the last month of the year for us. So we'll get the benefit moving forward, but with 0 revenue creation, the first year, which is an extreme case. Obviously, in average, we sign contracts every month from the first month to the last month. So naturally, we intend to maintain that new logo acquisition engine and potentially to increase it a little bit over the years. But it's true that there's a second benefit that we expect and we see already actually in the last few years, which is the revenue coming from the expansion of the base. More simply put, is the capacity to upsell an existing customer from one solution to another solution. And this is where we're starting to be really good at. And naturally, when you have an existing customer, they already signed a contract, they use the platform. We have a customer success agent that discuss with them. And naturally, the capacity for ourself to convince that customer to use more of the application actually on the usage. It's also applicable or to be able to buy additional capabilities is much less expensive than acquisition of new logo. So it's really that second go-to-market engine that is kicking in and taking a greater impact and greater shares of the booking contribution for the coming years. And naturally, the efficiency of producing that revenue that booking is coming from that. So this is definitely a key lever for us. And I would just add maybe another level on the go-to-market is the contribution also that we get from partners at our scale, at our size on the market today and being recognized as the leader in much of the segment that we operate into, we are having the benefits of having partners that are happy to work with us and happier to work more and more with us. So it's also part of being more efficient on the go-to-market because naturally, we'll have the benefit of having leads and having customer contracts that are not coming just from our direct sales team, but from an increasing and richer partner ecosystem. We have now more than 500 partners that we work with every day, and we could see that their contribution is going to be beneficial also moving forward in terms of cost efficiency of the new logo acquisitions. Laurent Du Passage: And so for the second question, I guess, the Lockers side, I think, yes, rollout process for sure, I mean, you mentioned the U.K. and the Italian network. You need to think that we have a strong improvement also on the recurring side. The scalability, obviously, the R&D platform on the Locker is also one criteria. The level of investment, I think that we've have recognized up to now, notably in sales, in marketing to find new sites and to roll lockers. We have clearly learned from the past. And I think the level of efficiency we have also placing these new lockers is strong. So in the end, it's mostly tied to how much of recurring revenue you generate and that recurring revenue flows quite naturally like for the Digital part to the bottom line regardless of the team that you have that still continue to expand, but this team doesn't have to expand as fast as the top line. So you have clearly a scalable software and process of rolling out lockers that allows you to increase significantly the margin. We saw that this year, plus 4.5 points, 6.3% just on EBITDA on H2. It's nothing to do with what we had 2 years ago, and we've been rolling out plenty of lockers in the meantime. Anne-Sophie Jugean: Thank you, Laurent. So next, we have a couple of questions on Digital and AI. So do you see a change in the competitive landscape for Digital due to AI? And are you losing deals against AI companies? Geoffrey Godet: It's a very good question, very relevant question, something, obviously, we look carefully at, and I can answer very directly today that we have not lost any deals related to an AI competitor. So we've got 0 churn neither related to any AI competition. So we are obviously, I think, getting the benefits of what I have, I think, tried to summarize for you is the type of solution, the type of platform we provide today, which cannot be replaced by an AI platform at this stage. And this is why I don't believe we see AI competitors being able to replace us, right? We provide data that are required from a legal proof, right? Whoever sends the invoice, it's become a legal document at the time it is issued. It becomes the reference for different tax institutions in different countries, the basis of any compliance and audits. And we do that obviously on many type of documentation. So our system is a system of records, integrates with the system of records. And we see AI not as a competition that replaces, but as a benefit where we could augment the capabilities, the benefit, the information that we share and we can give to our customers and the outcomes they can get from it because AI agents have need to access our platform, our backbone, and this is why also we build our own capabilities on top of AI naturally. So we see that more as complementary and not as a direct competition at this stage. Anne-Sophie Jugean: Thank you, Geoffrey. And still on the Digital business, you mentioned peers transactions at 10x revenue in the past. Do you think that multiple is still relevant? And if not, what may be the new norm? Geoffrey Godet: Well, that's a very difficult question to answer, and I don't know if I'm in the best position considering that probably more financial specialists could be there. What I would look at is that there's been very few transactions on the M&A side. Since the last month or so or 2 that we had seen some of the publicly traded company in SaaS being impacted recently. And I would add another caution is that, obviously, those impact seems to have been very recent. So we need to see obviously the longer-term impact. And I think just in the past few weeks as companies are trying to clearly explain themselves. I think we could see even recently that there's a lot of software SaaS companies that are what we could call them SaaS winners naturally because like with us, our software, our SaaS solutions are not being impacted, not being intended to be replaced by AI, but could benefit from it moving forward. So I would be surprised that some SaaS companies could be impacted naturally, the one that may have their business model related to seat usage as AI could potentially automate what certain people could do. So if your business model is ready to seat, it could be the case. It's not the case for us, and it's not the case for a lot of other SaaS companies that operate in the same kind of vertical and specialized environment that we do. So that's, I think, my note of cautions and not projecting any multiple numbers. We have been, at times, naturally like for Serensia or CDP more recently, looking at acquisitions. So we obviously keep an eye, obviously, on the M&A market. And I think that could represent an opportunity for us if we were to find companies that would be less valuable than they were before and could augment obviously the benefit that we see on the market. But at this stage, I think it's way too early to be able to anticipate what multiple or variable impact -- valuation impact it could have on the entire segment and the entire industry. Laurent, if you have anything, you probably know this much better than me. Laurent Du Passage: I agree with what you said, Geoffrey. Anne-Sophie Jugean: So thank you, Geoffrey. Last question we have for this Q&A session is on capital allocation. Are you considering starting a new share buyback program in 2026? Geoffrey Godet: I can take that one. As you know, every year, we have a rolling 18 months of buyback capabilities that we -- from which we have a role to do in the general assembly. We just need to keep in mind that we have several targets for 2026. For sure, the first one is that we will pay a dividend that will be higher this year than the one before. We are talking about EUR 26 million of dividend overall, which is up by EUR 1.5 million to EUR 2 million compared to last year with the suggestion we will do, obviously, at the general assembly, would be subject to vote. And we have also that leverage at 1.5 that we are committed to meet and that I mentioned we were today at 1.6. We mentioned the CapEx. So that's the overall allocation of capital. Would there be room for any share buyback and an opportunistic price point for the shares? For sure, we would trigger that. But we need to meet the overall envelope of what we've allocated to each of the priorities of the company. Anne-Sophie Jugean: So we have no further questions at this time, so we can close the call. And thank you very much for attending this presentation and for your questions. Our next call will be on the 21st of May for our Q1 2026 sales release. And in the meantime, we look forward to meeting some of you in the coming days during our roadshows. Thank you, and have a good evening. Geoffrey Godet: Thank you. Have a good evening, too. Laurent Du Passage: Thank you. Geoffrey Godet: Thank you, Laurent and Anne-Sophie.
Operator: Good day, and thank you for standing by. Welcome to the H&M 3-month Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joseph Ahlberg, Head of Investor Relations. Please go ahead. Joseph Ahlberg: Good morning, and a warm welcome, everyone. Today, we present the first quarter results for 2026 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, I'd like to share this morning's setup. Daniel will share a short summary of our results, walk you through selected highlights from the quarter and provide a brief outlook. We will then open up for a Q&A session where Daniel, our CFO, Adam Karlsson and I will be available to answer your questions. So with that, please welcome, Daniel. Daniel Erver: Good morning, everyone, and thank you so much for joining us today. In the first quarter, we continued to make important progress in a quarter marked by a cautious consumer and large currency translation effects. Overall, our profitability continues to improve. The rolling 12-month operating margin increased to 8.4%, up from 7.0% last year. Looking at sales, sales decreased with 1% in local currencies during the quarter. This was mainly driven by weaker demand in December following strong Black Friday sales in November, combined with around 4% fewer stores and a continued cautious consumption in several of our key markets. In addition, sales in SEK were negatively impacted by a currency translation effect of 9 percentage points. As the quarter progressed, we have seen a positive reception of our spring collections so far, contributing to improved sales development in February and in March. For March, we expect the group sales to increase by 1% in local currencies compared to the same month previous year. Turning back to profitability. We continue to see improvements. Gross margin increased to 50.7% and operating margin improved to 3.0% from 2.2% last year. We continue to see positive effects on gross margin from supply chain improvements and reduced markdowns as a result of increased precision in inventory planning. And combined with good cost control, this supports overall profitability. So overall, this reflects a disciplined execution across several areas of our business. All in all, we are on the right path and continue to build a strong foundation. As said, we focus on strengthening our customer offering through product, experience and brand, while we maintain good cost control. At the same time, we continue to remove layers, shorten decision-making paths and move decisions closer to the customer, initiatives that both increase speed, but also relevance in how we operate. Starting off then with our focus on product. Shorter decision-making paths together with closer supply collaboration allows us to increase the share of in-season buying, something that also helps us to respond more quickly to customer demand and market trends and to create a more relevant assortment. Combined with improved demand planning, this has contributed to higher inventory productivity at the highest level in 10 years in relation to sales and reduced working capital during the quarter. As we now move into the spring, we see that the inventory composition is good. Moving on to our focus on the customer experience. We continue to optimize our store portfolio and roll out store updates. As one milestone, we will reopen our iconic flagship store on Hamngatan here in Stockholm on April 10. At the same time, we also continue to expand, for example, in Latin America, where we will open in Rio de Janeiro in April and later on this year in Paraguay. On the digital side, we continue to develop our digital store, improving search, ranking and checkout to make it easier for our customers to find what they want and what they are looking for. We are also making progress within AI, increasing the speed of core production and automating how we interpret and integrate data. All together, this enables faster, smoother and a more personalized customer experience across our digital channels. Turning then to our third focus, brand and marketing. We continue to strengthen relevance through strategic initiatives and collaborations. Examples that we have seen in this quarter includes H&M REDSTAGE, the collaboration with Stella McCartney and the custom H&M design worn by Jihoon Kim at the Academy Awards. And just yesterday, we saw a fantastic fashion show from COS in Seoul. In parallel with these branding initiatives, we continue to increase the precision of our marketing investments. And now before we move on, I would like to share some of the highlights from the quarter. Please enjoy. [Presentation] Daniel Erver: So let me also touch on our sustainability work. Today, we are publishing our annual sustainability report. And as we mentioned in the last quarter, we continue to make steady progress towards our targets. Our absolute Scope 3 emissions decreased by 34.6% in 2025, keeping us on track towards our 2030 targets. This is supported by an increased use of lower impact materials and strong long-term supplier partnerships. The share of recycled materials increased to 32% and 91% of the materials are now from recycled or sustainably sourced sources. Moving on to a brief recap of our financial outlook. The financial outlook for the year remains, and we would like to highlight that for the second quarter, we estimate the overall effects of external factors on the gross margin to remain somewhat positive compared with last year, although current geopolitical instability in the Middle East could, if extended, result in slightly additional cost pressure. We do not intend to continuously push gross margins beyond the normalized levels of 54% to 55%, which we are now approaching. We will reinvest where it makes the biggest difference, for example, in quality improvement, in in-season bearing and in competitive pricing to stay really competitive and relevant for our customers. We expect the cost of price reductions as a percentage of sales in the quarter to be somewhat higher than the same period last year. And we see that the improved inventory productivity and good inventory composition enable us to lower end of season sale. We also, at the same time, see a more cautious and selective consumer and their behavior triggers us to increase the need for using temporary activations and deals. On SG&A and as previously communicated, we have the ambition to grow SG&A at the low single digit in local currencies for the full year 2026. Here, with the implementation of new tech infrastructure that will result in a somewhat increased cost pressure throughout the year, while our focus remains on enabling good cost control through efficiency measures, including a continued work on the store portfolio optimization, implementation of a more efficient organization, warehouse network optimization and a disciplined allocation of resources to the areas of the highest business impact. So to summarize the outlook, we continue to take important steps in the right direction. We make selective investments in product, brand, infrastructure and store portfolio while we maintain good cost control and always with a customer in focus so that we can offer a relevant and current fashion at the best value for money. With our global footprint, a solid balance sheet and a diversified supplier base, we have the resilience to adapt quickly to changing conditions. And we continue to build the foundation for long-term profitable and sustainable growth. Thank you for listening, and I will now hand you back to Joseph for the Q&A. Joseph Ahlberg: Thank you, Daniel. We will now start the Q&A. [Operator Instructions] Over to the operator, please facilitate the questions. Operator: [Operator Instructions] And our first question today comes from the line of Daniel Schmidt from Danske Bank. Daniel Schmidt: Daniel, Adam and Joseph, hope you can hear me. Daniel Erver: Yes. Daniel Schmidt: Maybe just -- I think you surprised everyone a little bit both on the gross margin and then the OpEx and the cost control there. You did say in the Q4 report and you reiterated that today that you expect OpEx in local currencies to grow low single digits and sort of that, of course, related partly to the platform rollout that's going to be gradual throughout the year. Have you so far been able to neutralize that effect? Or hasn't it come yet through lower handling costs given the inventory level? Or what's the reason for OpEx being down also in this quarter? Adam Karlsson: Adam here. Yes, I mean, you're right. We see the inventory productivity, of course, supporting operational cost and particularly within the logistics side. So that is supporting us. But to your first question, then we don't see the effects of these platform investments to show up yet, but rather as we spoke last time towards the second half of the year. So positive effects of good inventory productivity, particularly within the supply chain. And then the full year guidance is somewhat then half year too heavy connected to the platform investments. Daniel Schmidt: Okay. And that productivity, could that be something that could play out also in Q2? And then as we get into the second half of this year, that's going to be neutralized by the tech investments. Is that how to view it? Adam Karlsson: Yes, exactly. I mean we see one of the benefits of, of course, the work that we've done throughout the supply chain with higher precision is that we also not only over time, will reduce stock levels, but it also affects productivity. And we see that it has during the first quarter, and we estimate that it will continue to do so coming quarter. Daniel Schmidt: Okay. And then my second question is on the Middle East. I know your exposure is very small. I think it's 3% of your store network and maybe even less of sales. But still has that been sort of something that has been rocking the boat a bit when it comes to March trading? Daniel Erver: So this is Daniel. First, it's important for us to recognize the severity of the situation, and we are being working closely with our partners, of course, to protect the safety of customers and colleagues in the region. As you mentioned, our exposure with that said, is fairly small. You're right, 3% of the number of stores in the region. We also have a low share of air freight in our full supply chain. So that has also had a minor impact so far. On a global scale, we don't see any significant impact on the consumer behavior at this point in time, although we are very aware of that the consumer has been under high inflationary pressure for a long period of time and increasing energy prices will have a spillover effect, and we see that, that could have -- if the conflict is sustained, a significant impact on the consumer behavior. But we are not in a situation where we can make predictions about that at this time. But for the current trading of March, we don't see any major impact apart from the effect in the affected region. Operator: We will now go to the next question. And the question comes from the line of Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: Maybe first a follow-up on the last question on demand, but more maybe pinpointing the U.S. market and current trading, whether -- I guess I'm curious to hear whether you've seen any signs of market demand weakening during the last few weeks as a result of all the geopolitical events and inflation worries and et cetera, et cetera. Daniel Erver: No, we don't see any short-term effects that are worth to point out. We do see that there has been a surprisingly strong demand in the U.S. for the full of 2025, and that has also continued into 2026, where we had a prudent planning going into the this year as of the leaving April and the tariff situation. So we have not been supplying fully to the demand that we could see in the U.S. We worked on making that sort of increasing the supply to meet the customer demand, but we've also been through a period of sale and end of season clearance so we also had a low supply in the U.S. So -- but we have seen -- that's more things that are within our hands. We have seen a solid consumer demand in the U.S. that has been stronger than we estimated in the middle of 2025. Fredrik Ivarsson: Okay. Good. And second one on the Q1 gross margin. Approximately how much of the 1.6 percentage point expansion was due to external tailwinds and how much was more, I guess, related to supply chain work and all that? Adam Karlsson: Majority was based on our work within the supply chain and the sourcing excellence approach that we have with consolidating suppliers and creating a stronger partnership with the top suppliers. But then, of course, we have other effects then going against us, such as the duty now fully in there, and then we have currency starting to trickle in as positive. But the majority is based on our own work within the supply chain. Fredrik Ivarsson: Okay. And a short follow-up, if I may, on that. And I heard what you said before, but I guess, how should we think about the ongoing gross margin progression as we look into the rest of the year, I guess, given that you guide for negative markdowns in Q2 despite the low inventory situation. And I guess, external tailwinds are becoming less positive as well. Adam Karlsson: I think as Daniel said in the outlook, we are sort of targeting the interval, and we believe that the sourcing excellence efforts give us a good shot at reaching that target interval, and we intend then to reinvest any sort of further upsides that may come from currencies and other external factors. And then, of course, need to balance it in the other way with the increased uncertainty regarding freight prices and energy prices. So looking ahead, we call out then that the net effect of these external factors will continue to be somewhat positive for Q2. So a fairly similar outlook compared to Q1 with the extended uncertainty, of course, of how the world around us evolves, particularly connected to transportation. Operator: Your next question today comes from the line of Niklas Ekman from DNB Carnegie. Niklas Ekman: Can I ask a little bit about current trading and more specifically about your still the biggest German market, where as far as I can see, we've had 6 months of very weak statistics that have recently turned surprisingly positive in the last 3, 4 weeks. Is that something that you have seen in your sales as well? And any just granularity on differences in different markets? Are you seeing any markets that are improving more than others at the moment or vice versa? Daniel Erver: We agree with your view on the last 6 months of the German market that has been a tough market situation and tough consumer conditions. We see and assess that we have gained market share during this period of time in Germany, but of course, it's still a challenging market. Then -- on the short-term fluctuations, we also saw a stronger beginning of March. We have -- weather plays a big role during these months where you can have short-term fluctuations. We also see this year that Ramadan is 10 days earlier than it was last year. So that falls in the beginning of March. It comes towards the end of March this year. So there are some factors that make the single month difficult to comment on. But for the large scale, it's been a muted demand, and we see that we have gained market share for Germany. Otherwise, the call out, we see Southern Europe has been strong for us. We are happy with the development in Southern Europe, and we also see India as another example, doing well. We're also happy with sort of the performance of South America. So there are some call-outs of positive developments. Niklas Ekman: Very clear and thanks for the granularity there. On input costs, your -- or external factors, your comment about expecting a slightly positive effect in Q2, is there any way you can put that in relation to the effects you've seen in the last 3 quarters? Are you expecting more or less? And do you think there's a chance that some of this could linger into H2 as well even when comparisons start to get more difficult? Adam Karlsson: I mean if we try to decompose it somewhat and just look at where we are today, we see that currencies with the U.S. dollar weakened relative to euro will continue, but that will sort of start to fade out when second half starts. We see fairly as of yet, neutral material prices, but that's also, of course, connected to how input costs may vary with the energy prices. So that we sort of see as fairly neutral. And then the last piece is the shipping and the transportation questions that we see a big hike in air transport costs right now. But as we have a fairly low share of that, we feel that we are not particularly hard hit on it. And then we just need to wait and see how the situation unfolds. So the net effect of all of these is a slightly positive, and it's mainly driven by the currency effect that will then over the second half of the year slightly taper off as comps get tougher. Operator: Your next question comes from the line of Mia Strauss from BNP Paribas. Mia Strauss: First one is maybe just on your inventory position, which has obviously improved quite significantly. Do you have a target of sort of inventory days that you want to achieve over time? Daniel Erver: Yes. So we aim to continue to progress, although the pace that we have had over the last quarters is maybe not what we see moving forward. It needs to be built on structural improvements to our supply chain to improve the tech infrastructure and so on to make sure that we really improve the productivity while maintaining good availability and makes it easy for the customers to find what they're looking for. So that's the job that will continue. Long term, we aim to be in the span of 12% to 14% as a share of sales, and that we see is something that continues to be an important target for us to continue to move on. But the pace of progress would need to be matched with the capability building of increasing proximity sourcing, taking data decisions, increasing precision in the supply chains through a stronger tech infrastructure, but also a stronger supply chain network. Mia Strauss: Great. That's clear. And then maybe just on your -- if you can give us some color on your performance by category because I think you previously said womenswear has been doing well, but menswear was a bit lagging behind. Is there any update to that? Daniel Erver: So looking at the quarter, we are not satisfied with the top line performance. We had higher expectations and had higher plans, and that goes for -- across the board for all the customer groups, including womenswear we had a higher expectation for this quarter. The improvements that we made around how we develop, how we really create an attractive competitive assortment, all of that work started within womenswear, and we are taking that work to the other customer groups as well, and we see first good indications of getting traction also in the other customer groups. But as the quarter is weaker than our own plans, that also goes for womenswear. Mia Strauss: Okay. That's helpful. And then just finally, on agentic AI, how do you see H&M's position in the sort of agentic commerce world? Daniel Erver: It's a very interesting topic, which we are spending a lot of time on. We will have to learn and see how the world develops. It's still very early days. We have been active on sort of integrating with the big large language models for transaction as well. And we can see that there is a consumer interest, but it's a very, very early stage and a very, very minor part of the organic traffic that comes that way today. But we are exploring it. We believe that there is -- we know that our customer and all customers find fashion not always easy and that you need guidance, you need clarity, you need help to pick what's right for you to express your personal style and the way you want to look. And there, agentic AI can be a fantastic help. And we are exploring it how it can support our own experience in our own channels, how we can, with agentic AI help you to dress in the way you want to express yourself in the way you want to find the pieces that are good for you, but also how we will interact with agentic players that are brand agnostic and how we show up there. And there we believe the most important thing is that we provide an outstanding value for money so that we become the #1 choice for more customers than only the ones who are in our ecosystem today. Operator: Your next question today comes from the line of Vandita Sood from Citi. Vandita Sood Chowdhary: Just one for me, please, but it's a slightly longer question. When I look at the dollar move, I see that the FX tailwind should actually be a very significant tailwind in the upcoming quarter and peaking in that quarter. But you only say that external factors should be slightly positive. So just wondering what else are you building in that is like offsetting this? Is it tariffs still -- are you planning to do some price investments and that's also built in sort of your net expectation? This is going back to your comment on pricing. You said earlier that you don't sort of intend to indefinitely keep growing the gross margin. So yes, just trying to understand what the offsetting factors are because I think FX should be quite a big tailwind. Joseph Ahlberg: Thank you for the question, Vandita. This is Joseph. So when we look at our guidance for the second quarter for external factors, we guide for a somewhat net positive effect for the second quarter. This is a similar guidance as the outcome that we have seen in the first quarter and also in last quarter in Q4 of 2025. The main negative factor affecting us in Q1 is the cost for tariffs, which is the main year-over-year drainer. This is now expected to be at more or less a full impact, but also when looking towards Q2, a negative impact of similar magnitude. So that is on the negative side, the main factor. Then on the positive factors, we have the transactional FX support expected to support mainly on the positive side in Q2, I'd like to point out, based on the buying that was done during -- to a large part during 2025 at attractive dollar exchange rates towards our major selling currencies. So this is the key moving parts explaining our guidance. Vandita Sood Chowdhary: Okay. And sorry, just one clarification. So if you were planning to do any price investments, that wouldn't feature as part of your external factor commentary, right? Because that's an internal decision. Joseph Ahlberg: That is correct. That's one of the internal decisions, one of many which are affecting the outcome on the gross margin. What we guide on is the external factors. Operator: [Operator Instructions] And your next question comes from the line of Adam Cochrane from Deutsche Bank. Adam Cochrane: A couple of questions, please. When we're talking about your increase in promotional intensity, I just want to confirm that's really because of the customers maybe a bit uncertain looking for a bargain. That is you having to put selective markdowns on current season product more than you anticipate rather than having to clear through old inventory. Is that correct? Joseph Ahlberg: Yes, that is correct. Adam Cochrane: And is there any big differences in that by region? Is there certain areas where the customer is becoming more, let's call it, price sensitive than others? Or is this more of a sort of global thing that you're seeing? Daniel Erver: It's linked to -- across the globe, there's been a strong inflationary pressure on the consumer for many years. But then, of course, there are certain markets where we see a higher pressure on the consumer spend and a weaker consumer market. And then we are -- it's more towards those areas, but it's a general consumer and our customer base have had a lot of inflationary pressure for quite some time. So that is obviously the need to activate and the customer looking for making a good deal and part of the customer base really wanting to find an attractive bargain, that piece of the customer base, we see a need to activate with the temporary activations and tactical deals. Adam Cochrane: Because over the last couple of years, it feels like the H&M stores have become less inventory density in the stores, they've looked cleaner, neater, tidier. You've got a philosophy, I think, of making the store experience better. But how are you going to try and manage that with increasing the promotional intensity in store? Because it felt like you've been trying to move towards more of a full price, more fashion-led type customer base. But have you sort of had to balance that with a certain bit of your customer who only reacts to buying on promotion. It feels like it's quite hard to balance those 2 bits within the improving estate that you're aiming for. Daniel Erver: It's correct. We're working very hard with -- throughout the organization to really create an outstanding value for money, and that's many pieces. It starts with and the most important thing is the product and what kind of product we develop that that's relevant, that it works with the best suppliers, the best materials, the trims, the components to really create an attractive product, then put that in an environment that it deserves an elevated experience that really shows the customer the value for money, but also helps the customers navigate and find their piece regardless whether it's a physical store or digital. And that work is ongoing, and we see that is having a positive effect. With that said, we have a very large portfolio. We are into very wide demographies and managing this change is equally important to always be aware about the consumer spending power and what consumer base we have in which location, and that's what we look at when we try to navigate the right level of activations. Operator: We will now take the next question. And the question comes from the line of James Grzinic from Jefferies. James Grzinic: Just a question around de minimis in the U.S. and potential learnings there for what is to come in Europe really in the coming months. I guess it's been 7 months since the exception has been removed in the U.S. So it would be great to hear from your perspective, what do you think that's done to the U.S. market competitively? And as you look into, I guess, more next year in EU, what is to come in a few weeks' time means from your perspective, given the lessons learned from the U.S. Daniel Erver: So the U.S. as the market globally is very, very fragmented with no single player having a large share. So even if there are big impact on single players. It still has -- there is still a very, very fragmented market and the total effect of the market is not significant. We do see that we have had a strong underlying demand in the U.S., which part can be contributed to that the low-price offer is under more pressure due to the de minimis being removed. We see also that some of these competitors have shifted investments towards Europe to a large extent, which is a sign that it's probably a bit more challenging market in the U.S. So we are monitoring it and following it and seeing it as an opportunity for us. But at this point, we don't do any forecast or quantification of that effect. Operator: [Operator Instructions] And the next question comes from the line of Andreas Lundberg from SEB. Andreas Lundberg: Just a few quick ones about nearshoring. Could you elaborate a little bit on how much have you moved to Europe? And also on the same topic of your Morris, call it, strategic partners, how many of those are located in Europe? Daniel Erver: We continue to make efforts to really shorten the lead time and that all the way from product development, fashion forecasting to the production to shipment and nearshoring is one of the important pieces of that puzzle. But the key for us is to shorten the full supply chain to take later decisions to provide a more relevant customer offer and here. We are ramping up the efforts at a high pace. We do it mainly towards the current fashion pieces of the assortment. We do it in womenswear and menswear. We're also exploring it for kidswear, but it's really on the most current fashion piece of the assortment where we have a high pace of progress. Shifting to nearshoring is one piece of that, but it also comes to which suppliers we work with, which mode of transport that we use and how we shorten also the development lead times to make these decisions at a later stage to become more relevant. Andreas Lundberg: But do you have any strategic partners in Europe? Adam Karlsson: This is Adam. Yes, we do. And -- but sort of the partnership, it's a model where we then also have the benefit of having suppliers open factories and production units in multiple countries. So when we speak about partners, there are 30 of them. They are, of course, headquartered in different parts of the world, and that reflects sort of our general sourcing pattern. But we then have the opportunity for them to -- under this partnership umbrella to expand their business together with us to ensure that we have a healthy, robust and very flexible supply chain infrastructure. So we do have partners in Europe as well. But more importantly, it's how we, together with them, expand and collaborate both for speed, proximity and, of course, price quality and sustainability. Andreas Lundberg: Cool. I have a follow-up there. You said shortened lead times, obviously a key thing. Could you give some maybe example or some context where is it today versus, say, 3 years ago? Daniel Erver: In 2 aspects. One is the actual lead time where we now have capability to within -- get the garment from idea to shelf in 4 to 6 weeks. That is a capability that we built up with to a larger extent than what we have in the past. And then it's -- even more importantly, it's how we change the operating model for how we do design, product development to really make sure that we have a high level of flexibility in the decisions that we make so that we can make those decisions at a later stage and having then a vast network of strategic partners with units in areas where we can take late decisions, but also with capability to help us to shorten the lead time is tremendously important, and that work is ramping up at a high pace during end of '25 and '26. Operator: Your next question today comes from the line of Daniel Schmidt from Danske Bank. Daniel Schmidt: Just a follow-up, Daniel. You talked about -- you mentioned a surprisingly strong U.S. market, maybe on the back of what you feared sort of, I don't know, April, May last year. But at the same time, if you just look at the numbers for Q1, Americas is actually down a little bit more than the group in local currency. Is that -- how does that stack up? Is that due to you not being able to cater to that demand? Or is it -- what's the explanation simply? Daniel Erver: So we went into the second half of 2025 with a very prudent plan for the U.S. given everything that was going on. And then we could see more resilience from the consumer than we expected, which led us to have a low supply to the demand. And then Q1 is a quarter with a big impact on end-of-season sale in December and January. And that's where we also said that we had far less end-of-season sale impact in the U.S. market given that we have had a low stock level, a low supply to the demand. So that's the explanation for Q1. Daniel Schmidt: Okay. And do you still see in that number for the entire Americas, you are seeing South America growing? Daniel Erver: Yes, we see positive development in South America. Daniel Schmidt: Yes. And the second question maybe, you mentioned increased precision in your marketing investments. Does that also implicitly mean that you had less costs for marketing spend in the first quarter? Daniel Erver: Yes, slightly less spend on marketing. This is 2 shifts. One is shifting more of the investments towards media and then the way we optimize media, both between markets and between different channels and how we optimize the content per channel is where we drive the efficiency. But as a level of spend, it was slightly less than the year before. Daniel Schmidt: And do you see that efficiency continue into the coming quarters? Daniel Erver: Yes, we do. At the same time, as we evaluate cases for growth opportunity and where we want to invest, but the efficiency work we see has potential for the rest of the year. Operator: Your next question comes from the line of Erik Sandstedt from Kepler Cheuvreux. Erik Sandstedt: Yes. Sorry, I had some technical issues. So I apologize if these questions already have been asked. But firstly, it seems that depreciation cost was quite low in the quarter. What is driving that? And how should we think about the level going forward? Adam Karlsson: Yes, Adam here. I mean there are multiple factors. The underlying sort of core of the depreciation is attributed to investments primarily in our store portfolio. And as we've had a couple of years of lower investment levels during COVID, one could sort of assume that, that sort of core part will continue over the year. But as it's also related then to IFRS 16 and how we then value our leases and currency effects. It's difficult to predict, and we don't want to give guidance on it. But at the core of it is that we've had a lower investment level into our portfolio during the COVID year, and that sort of funnels through in this. Erik Sandstedt: Perfect. Also, can you say whether the online business is contributing to the higher EBIT margin that you are reporting year-over-year? Adam Karlsson: Adam here. Yes, it does. We have the benefit of having 2 profitable channels creating a stronghold, but we see that an increasing share of online is good for long-term profitability expansion. Erik Sandstedt: Okay. And then just finally, can you say anything specifically on the performance in the Nordic regions and more specifically, whether you think you are gaining market share in that region in the quarter? Joseph Ahlberg: In the Nordics, we started to see a slight improved trend in the fourth quarter. But in the first quarter now as similar to other regions, we saw a sequentially lower demand pattern. We saw a strong Black Friday period in many of the Nordic markets like other European core markets with a slower demand situation at the beginning of Q1. So that pattern has been consistent across several markets, including the Nordics. Operator: There are currently no further questions. I will now hand the call back to Daniel Erver, CEO, for closing remarks. Daniel Erver: Thank you so much, and thank you to everyone for attending today's telephone conference and for your continued engagement with the H&M Group. To summarize the quarter, we are making important progress. Profitability levels are improving, supported by good cost control and improved gross margin despite this being a quarter marked by a cautious consumption and large currency translation effects. So for us, this confirms that we are on the right path. We continue to build the foundation for profitable and sustainable growth. As we move forward, we remain laser-focused on delivering the outstanding value for money by doubling down on product experience and brand for our consumers at the same time as we continue to increase the flexibility and the precision across our operations all with the aim to really truly offer our customers relevant fashion and current fashion at the best value for money. So once again, thank you for listening. And from here, we wish you all a wonderful day. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the H&M 3-month Report 2026 Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Joseph Ahlberg, Head of Investor Relations. Please go ahead. Joseph Ahlberg: Good morning, and a warm welcome, everyone. Today, we present the first quarter results for 2026 for the H&M Group. My name is Joseph Ahlberg, and I'm Head of Investor Relations. Before I hand over to our CEO, Daniel Erver, I'd like to share this morning's setup. Daniel will share a short summary of our results, walk you through selected highlights from the quarter and provide a brief outlook. We will then open up for a Q&A session where Daniel, our CFO, Adam Karlsson and I will be available to answer your questions. So with that, please welcome, Daniel. Daniel Erver: Good morning, everyone, and thank you so much for joining us today. In the first quarter, we continued to make important progress in a quarter marked by a cautious consumer and large currency translation effects. Overall, our profitability continues to improve. The rolling 12-month operating margin increased to 8.4%, up from 7.0% last year. Looking at sales, sales decreased with 1% in local currencies during the quarter. This was mainly driven by weaker demand in December following strong Black Friday sales in November, combined with around 4% fewer stores and a continued cautious consumption in several of our key markets. In addition, sales in SEK were negatively impacted by a currency translation effect of 9 percentage points. As the quarter progressed, we have seen a positive reception of our spring collections so far, contributing to improved sales development in February and in March. For March, we expect the group sales to increase by 1% in local currencies compared to the same month previous year. Turning back to profitability. We continue to see improvements. Gross margin increased to 50.7% and operating margin improved to 3.0% from 2.2% last year. We continue to see positive effects on gross margin from supply chain improvements and reduced markdowns as a result of increased precision in inventory planning. And combined with good cost control, this supports overall profitability. So overall, this reflects a disciplined execution across several areas of our business. All in all, we are on the right path and continue to build a strong foundation. As said, we focus on strengthening our customer offering through product, experience and brand, while we maintain good cost control. At the same time, we continue to remove layers, shorten decision-making paths and move decisions closer to the customer, initiatives that both increase speed, but also relevance in how we operate. Starting off then with our focus on product. Shorter decision-making paths together with closer supply collaboration allows us to increase the share of in-season buying, something that also helps us to respond more quickly to customer demand and market trends and to create a more relevant assortment. Combined with improved demand planning, this has contributed to higher inventory productivity at the highest level in 10 years in relation to sales and reduced working capital during the quarter. As we now move into the spring, we see that the inventory composition is good. Moving on to our focus on the customer experience. We continue to optimize our store portfolio and roll out store updates. As one milestone, we will reopen our iconic flagship store on Hamngatan here in Stockholm on April 10. At the same time, we also continue to expand, for example, in Latin America, where we will open in Rio de Janeiro in April and later on this year in Paraguay. On the digital side, we continue to develop our digital store, improving search, ranking and checkout to make it easier for our customers to find what they want and what they are looking for. We are also making progress within AI, increasing the speed of core production and automating how we interpret and integrate data. All together, this enables faster, smoother and a more personalized customer experience across our digital channels. Turning then to our third focus, brand and marketing. We continue to strengthen relevance through strategic initiatives and collaborations. Examples that we have seen in this quarter includes H&M REDSTAGE, the collaboration with Stella McCartney and the custom H&M design worn by Jihoon Kim at the Academy Awards. And just yesterday, we saw a fantastic fashion show from COS in Seoul. In parallel with these branding initiatives, we continue to increase the precision of our marketing investments. And now before we move on, I would like to share some of the highlights from the quarter. Please enjoy. [Presentation] Daniel Erver: So let me also touch on our sustainability work. Today, we are publishing our annual sustainability report. And as we mentioned in the last quarter, we continue to make steady progress towards our targets. Our absolute Scope 3 emissions decreased by 34.6% in 2025, keeping us on track towards our 2030 targets. This is supported by an increased use of lower impact materials and strong long-term supplier partnerships. The share of recycled materials increased to 32% and 91% of the materials are now from recycled or sustainably sourced sources. Moving on to a brief recap of our financial outlook. The financial outlook for the year remains, and we would like to highlight that for the second quarter, we estimate the overall effects of external factors on the gross margin to remain somewhat positive compared with last year, although current geopolitical instability in the Middle East could, if extended, result in slightly additional cost pressure. We do not intend to continuously push gross margins beyond the normalized levels of 54% to 55%, which we are now approaching. We will reinvest where it makes the biggest difference, for example, in quality improvement, in in-season bearing and in competitive pricing to stay really competitive and relevant for our customers. We expect the cost of price reductions as a percentage of sales in the quarter to be somewhat higher than the same period last year. And we see that the improved inventory productivity and good inventory composition enable us to lower end of season sale. We also, at the same time, see a more cautious and selective consumer and their behavior triggers us to increase the need for using temporary activations and deals. On SG&A and as previously communicated, we have the ambition to grow SG&A at the low single digit in local currencies for the full year 2026. Here, with the implementation of new tech infrastructure that will result in a somewhat increased cost pressure throughout the year, while our focus remains on enabling good cost control through efficiency measures, including a continued work on the store portfolio optimization, implementation of a more efficient organization, warehouse network optimization and a disciplined allocation of resources to the areas of the highest business impact. So to summarize the outlook, we continue to take important steps in the right direction. We make selective investments in product, brand, infrastructure and store portfolio while we maintain good cost control and always with a customer in focus so that we can offer a relevant and current fashion at the best value for money. With our global footprint, a solid balance sheet and a diversified supplier base, we have the resilience to adapt quickly to changing conditions. And we continue to build the foundation for long-term profitable and sustainable growth. Thank you for listening, and I will now hand you back to Joseph for the Q&A. Joseph Ahlberg: Thank you, Daniel. We will now start the Q&A. [Operator Instructions] Over to the operator, please facilitate the questions. Operator: [Operator Instructions] And our first question today comes from the line of Daniel Schmidt from Danske Bank. Daniel Schmidt: Daniel, Adam and Joseph, hope you can hear me. Daniel Erver: Yes. Daniel Schmidt: Maybe just -- I think you surprised everyone a little bit both on the gross margin and then the OpEx and the cost control there. You did say in the Q4 report and you reiterated that today that you expect OpEx in local currencies to grow low single digits and sort of that, of course, related partly to the platform rollout that's going to be gradual throughout the year. Have you so far been able to neutralize that effect? Or hasn't it come yet through lower handling costs given the inventory level? Or what's the reason for OpEx being down also in this quarter? Adam Karlsson: Adam here. Yes, I mean, you're right. We see the inventory productivity, of course, supporting operational cost and particularly within the logistics side. So that is supporting us. But to your first question, then we don't see the effects of these platform investments to show up yet, but rather as we spoke last time towards the second half of the year. So positive effects of good inventory productivity, particularly within the supply chain. And then the full year guidance is somewhat then half year too heavy connected to the platform investments. Daniel Schmidt: Okay. And that productivity, could that be something that could play out also in Q2? And then as we get into the second half of this year, that's going to be neutralized by the tech investments. Is that how to view it? Adam Karlsson: Yes, exactly. I mean we see one of the benefits of, of course, the work that we've done throughout the supply chain with higher precision is that we also not only over time, will reduce stock levels, but it also affects productivity. And we see that it has during the first quarter, and we estimate that it will continue to do so coming quarter. Daniel Schmidt: Okay. And then my second question is on the Middle East. I know your exposure is very small. I think it's 3% of your store network and maybe even less of sales. But still has that been sort of something that has been rocking the boat a bit when it comes to March trading? Daniel Erver: So this is Daniel. First, it's important for us to recognize the severity of the situation, and we are being working closely with our partners, of course, to protect the safety of customers and colleagues in the region. As you mentioned, our exposure with that said, is fairly small. You're right, 3% of the number of stores in the region. We also have a low share of air freight in our full supply chain. So that has also had a minor impact so far. On a global scale, we don't see any significant impact on the consumer behavior at this point in time, although we are very aware of that the consumer has been under high inflationary pressure for a long period of time and increasing energy prices will have a spillover effect, and we see that, that could have -- if the conflict is sustained, a significant impact on the consumer behavior. But we are not in a situation where we can make predictions about that at this time. But for the current trading of March, we don't see any major impact apart from the effect in the affected region. Operator: We will now go to the next question. And the question comes from the line of Fredrik Ivarsson from ABG Sundal Collier. Fredrik Ivarsson: Maybe first a follow-up on the last question on demand, but more maybe pinpointing the U.S. market and current trading, whether -- I guess I'm curious to hear whether you've seen any signs of market demand weakening during the last few weeks as a result of all the geopolitical events and inflation worries and et cetera, et cetera. Daniel Erver: No, we don't see any short-term effects that are worth to point out. We do see that there has been a surprisingly strong demand in the U.S. for the full of 2025, and that has also continued into 2026, where we had a prudent planning going into the this year as of the leaving April and the tariff situation. So we have not been supplying fully to the demand that we could see in the U.S. We worked on making that sort of increasing the supply to meet the customer demand, but we've also been through a period of sale and end of season clearance so we also had a low supply in the U.S. So -- but we have seen -- that's more things that are within our hands. We have seen a solid consumer demand in the U.S. that has been stronger than we estimated in the middle of 2025. Fredrik Ivarsson: Okay. Good. And second one on the Q1 gross margin. Approximately how much of the 1.6 percentage point expansion was due to external tailwinds and how much was more, I guess, related to supply chain work and all that? Adam Karlsson: Majority was based on our work within the supply chain and the sourcing excellence approach that we have with consolidating suppliers and creating a stronger partnership with the top suppliers. But then, of course, we have other effects then going against us, such as the duty now fully in there, and then we have currency starting to trickle in as positive. But the majority is based on our own work within the supply chain. Fredrik Ivarsson: Okay. And a short follow-up, if I may, on that. And I heard what you said before, but I guess, how should we think about the ongoing gross margin progression as we look into the rest of the year, I guess, given that you guide for negative markdowns in Q2 despite the low inventory situation. And I guess, external tailwinds are becoming less positive as well. Adam Karlsson: I think as Daniel said in the outlook, we are sort of targeting the interval, and we believe that the sourcing excellence efforts give us a good shot at reaching that target interval, and we intend then to reinvest any sort of further upsides that may come from currencies and other external factors. And then, of course, need to balance it in the other way with the increased uncertainty regarding freight prices and energy prices. So looking ahead, we call out then that the net effect of these external factors will continue to be somewhat positive for Q2. So a fairly similar outlook compared to Q1 with the extended uncertainty, of course, of how the world around us evolves, particularly connected to transportation. Operator: Your next question today comes from the line of Niklas Ekman from DNB Carnegie. Niklas Ekman: Can I ask a little bit about current trading and more specifically about your still the biggest German market, where as far as I can see, we've had 6 months of very weak statistics that have recently turned surprisingly positive in the last 3, 4 weeks. Is that something that you have seen in your sales as well? And any just granularity on differences in different markets? Are you seeing any markets that are improving more than others at the moment or vice versa? Daniel Erver: We agree with your view on the last 6 months of the German market that has been a tough market situation and tough consumer conditions. We see and assess that we have gained market share during this period of time in Germany, but of course, it's still a challenging market. Then -- on the short-term fluctuations, we also saw a stronger beginning of March. We have -- weather plays a big role during these months where you can have short-term fluctuations. We also see this year that Ramadan is 10 days earlier than it was last year. So that falls in the beginning of March. It comes towards the end of March this year. So there are some factors that make the single month difficult to comment on. But for the large scale, it's been a muted demand, and we see that we have gained market share for Germany. Otherwise, the call out, we see Southern Europe has been strong for us. We are happy with the development in Southern Europe, and we also see India as another example, doing well. We're also happy with sort of the performance of South America. So there are some call-outs of positive developments. Niklas Ekman: Very clear and thanks for the granularity there. On input costs, your -- or external factors, your comment about expecting a slightly positive effect in Q2, is there any way you can put that in relation to the effects you've seen in the last 3 quarters? Are you expecting more or less? And do you think there's a chance that some of this could linger into H2 as well even when comparisons start to get more difficult? Adam Karlsson: I mean if we try to decompose it somewhat and just look at where we are today, we see that currencies with the U.S. dollar weakened relative to euro will continue, but that will sort of start to fade out when second half starts. We see fairly as of yet, neutral material prices, but that's also, of course, connected to how input costs may vary with the energy prices. So that we sort of see as fairly neutral. And then the last piece is the shipping and the transportation questions that we see a big hike in air transport costs right now. But as we have a fairly low share of that, we feel that we are not particularly hard hit on it. And then we just need to wait and see how the situation unfolds. So the net effect of all of these is a slightly positive, and it's mainly driven by the currency effect that will then over the second half of the year slightly taper off as comps get tougher. Operator: Your next question comes from the line of Mia Strauss from BNP Paribas. Mia Strauss: First one is maybe just on your inventory position, which has obviously improved quite significantly. Do you have a target of sort of inventory days that you want to achieve over time? Daniel Erver: Yes. So we aim to continue to progress, although the pace that we have had over the last quarters is maybe not what we see moving forward. It needs to be built on structural improvements to our supply chain to improve the tech infrastructure and so on to make sure that we really improve the productivity while maintaining good availability and makes it easy for the customers to find what they're looking for. So that's the job that will continue. Long term, we aim to be in the span of 12% to 14% as a share of sales, and that we see is something that continues to be an important target for us to continue to move on. But the pace of progress would need to be matched with the capability building of increasing proximity sourcing, taking data decisions, increasing precision in the supply chains through a stronger tech infrastructure, but also a stronger supply chain network. Mia Strauss: Great. That's clear. And then maybe just on your -- if you can give us some color on your performance by category because I think you previously said womenswear has been doing well, but menswear was a bit lagging behind. Is there any update to that? Daniel Erver: So looking at the quarter, we are not satisfied with the top line performance. We had higher expectations and had higher plans, and that goes for -- across the board for all the customer groups, including womenswear we had a higher expectation for this quarter. The improvements that we made around how we develop, how we really create an attractive competitive assortment, all of that work started within womenswear, and we are taking that work to the other customer groups as well, and we see first good indications of getting traction also in the other customer groups. But as the quarter is weaker than our own plans, that also goes for womenswear. Mia Strauss: Okay. That's helpful. And then just finally, on agentic AI, how do you see H&M's position in the sort of agentic commerce world? Daniel Erver: It's a very interesting topic, which we are spending a lot of time on. We will have to learn and see how the world develops. It's still very early days. We have been active on sort of integrating with the big large language models for transaction as well. And we can see that there is a consumer interest, but it's a very, very early stage and a very, very minor part of the organic traffic that comes that way today. But we are exploring it. We believe that there is -- we know that our customer and all customers find fashion not always easy and that you need guidance, you need clarity, you need help to pick what's right for you to express your personal style and the way you want to look. And there, agentic AI can be a fantastic help. And we are exploring it how it can support our own experience in our own channels, how we can, with agentic AI help you to dress in the way you want to express yourself in the way you want to find the pieces that are good for you, but also how we will interact with agentic players that are brand agnostic and how we show up there. And there we believe the most important thing is that we provide an outstanding value for money so that we become the #1 choice for more customers than only the ones who are in our ecosystem today. Operator: Your next question today comes from the line of Vandita Sood from Citi. Vandita Sood Chowdhary: Just one for me, please, but it's a slightly longer question. When I look at the dollar move, I see that the FX tailwind should actually be a very significant tailwind in the upcoming quarter and peaking in that quarter. But you only say that external factors should be slightly positive. So just wondering what else are you building in that is like offsetting this? Is it tariffs still -- are you planning to do some price investments and that's also built in sort of your net expectation? This is going back to your comment on pricing. You said earlier that you don't sort of intend to indefinitely keep growing the gross margin. So yes, just trying to understand what the offsetting factors are because I think FX should be quite a big tailwind. Joseph Ahlberg: Thank you for the question, Vandita. This is Joseph. So when we look at our guidance for the second quarter for external factors, we guide for a somewhat net positive effect for the second quarter. This is a similar guidance as the outcome that we have seen in the first quarter and also in last quarter in Q4 of 2025. The main negative factor affecting us in Q1 is the cost for tariffs, which is the main year-over-year drainer. This is now expected to be at more or less a full impact, but also when looking towards Q2, a negative impact of similar magnitude. So that is on the negative side, the main factor. Then on the positive factors, we have the transactional FX support expected to support mainly on the positive side in Q2, I'd like to point out, based on the buying that was done during -- to a large part during 2025 at attractive dollar exchange rates towards our major selling currencies. So this is the key moving parts explaining our guidance. Vandita Sood Chowdhary: Okay. And sorry, just one clarification. So if you were planning to do any price investments, that wouldn't feature as part of your external factor commentary, right? Because that's an internal decision. Joseph Ahlberg: That is correct. That's one of the internal decisions, one of many which are affecting the outcome on the gross margin. What we guide on is the external factors. Operator: [Operator Instructions] And your next question comes from the line of Adam Cochrane from Deutsche Bank. Adam Cochrane: A couple of questions, please. When we're talking about your increase in promotional intensity, I just want to confirm that's really because of the customers maybe a bit uncertain looking for a bargain. That is you having to put selective markdowns on current season product more than you anticipate rather than having to clear through old inventory. Is that correct? Joseph Ahlberg: Yes, that is correct. Adam Cochrane: And is there any big differences in that by region? Is there certain areas where the customer is becoming more, let's call it, price sensitive than others? Or is this more of a sort of global thing that you're seeing? Daniel Erver: It's linked to -- across the globe, there's been a strong inflationary pressure on the consumer for many years. But then, of course, there are certain markets where we see a higher pressure on the consumer spend and a weaker consumer market. And then we are -- it's more towards those areas, but it's a general consumer and our customer base have had a lot of inflationary pressure for quite some time. So that is obviously the need to activate and the customer looking for making a good deal and part of the customer base really wanting to find an attractive bargain, that piece of the customer base, we see a need to activate with the temporary activations and tactical deals. Adam Cochrane: Because over the last couple of years, it feels like the H&M stores have become less inventory density in the stores, they've looked cleaner, neater, tidier. You've got a philosophy, I think, of making the store experience better. But how are you going to try and manage that with increasing the promotional intensity in store? Because it felt like you've been trying to move towards more of a full price, more fashion-led type customer base. But have you sort of had to balance that with a certain bit of your customer who only reacts to buying on promotion. It feels like it's quite hard to balance those 2 bits within the improving estate that you're aiming for. Daniel Erver: It's correct. We're working very hard with -- throughout the organization to really create an outstanding value for money, and that's many pieces. It starts with and the most important thing is the product and what kind of product we develop that that's relevant, that it works with the best suppliers, the best materials, the trims, the components to really create an attractive product, then put that in an environment that it deserves an elevated experience that really shows the customer the value for money, but also helps the customers navigate and find their piece regardless whether it's a physical store or digital. And that work is ongoing, and we see that is having a positive effect. With that said, we have a very large portfolio. We are into very wide demographies and managing this change is equally important to always be aware about the consumer spending power and what consumer base we have in which location, and that's what we look at when we try to navigate the right level of activations. Operator: We will now take the next question. And the question comes from the line of James Grzinic from Jefferies. James Grzinic: Just a question around de minimis in the U.S. and potential learnings there for what is to come in Europe really in the coming months. I guess it's been 7 months since the exception has been removed in the U.S. So it would be great to hear from your perspective, what do you think that's done to the U.S. market competitively? And as you look into, I guess, more next year in EU, what is to come in a few weeks' time means from your perspective, given the lessons learned from the U.S. Daniel Erver: So the U.S. as the market globally is very, very fragmented with no single player having a large share. So even if there are big impact on single players. It still has -- there is still a very, very fragmented market and the total effect of the market is not significant. We do see that we have had a strong underlying demand in the U.S., which part can be contributed to that the low-price offer is under more pressure due to the de minimis being removed. We see also that some of these competitors have shifted investments towards Europe to a large extent, which is a sign that it's probably a bit more challenging market in the U.S. So we are monitoring it and following it and seeing it as an opportunity for us. But at this point, we don't do any forecast or quantification of that effect. Operator: [Operator Instructions] And the next question comes from the line of Andreas Lundberg from SEB. Andreas Lundberg: Just a few quick ones about nearshoring. Could you elaborate a little bit on how much have you moved to Europe? And also on the same topic of your Morris, call it, strategic partners, how many of those are located in Europe? Daniel Erver: We continue to make efforts to really shorten the lead time and that all the way from product development, fashion forecasting to the production to shipment and nearshoring is one of the important pieces of that puzzle. But the key for us is to shorten the full supply chain to take later decisions to provide a more relevant customer offer and here. We are ramping up the efforts at a high pace. We do it mainly towards the current fashion pieces of the assortment. We do it in womenswear and menswear. We're also exploring it for kidswear, but it's really on the most current fashion piece of the assortment where we have a high pace of progress. Shifting to nearshoring is one piece of that, but it also comes to which suppliers we work with, which mode of transport that we use and how we shorten also the development lead times to make these decisions at a later stage to become more relevant. Andreas Lundberg: But do you have any strategic partners in Europe? Adam Karlsson: This is Adam. Yes, we do. And -- but sort of the partnership, it's a model where we then also have the benefit of having suppliers open factories and production units in multiple countries. So when we speak about partners, there are 30 of them. They are, of course, headquartered in different parts of the world, and that reflects sort of our general sourcing pattern. But we then have the opportunity for them to -- under this partnership umbrella to expand their business together with us to ensure that we have a healthy, robust and very flexible supply chain infrastructure. So we do have partners in Europe as well. But more importantly, it's how we, together with them, expand and collaborate both for speed, proximity and, of course, price quality and sustainability. Andreas Lundberg: Cool. I have a follow-up there. You said shortened lead times, obviously a key thing. Could you give some maybe example or some context where is it today versus, say, 3 years ago? Daniel Erver: In 2 aspects. One is the actual lead time where we now have capability to within -- get the garment from idea to shelf in 4 to 6 weeks. That is a capability that we built up with to a larger extent than what we have in the past. And then it's -- even more importantly, it's how we change the operating model for how we do design, product development to really make sure that we have a high level of flexibility in the decisions that we make so that we can make those decisions at a later stage and having then a vast network of strategic partners with units in areas where we can take late decisions, but also with capability to help us to shorten the lead time is tremendously important, and that work is ramping up at a high pace during end of '25 and '26. Operator: Your next question today comes from the line of Daniel Schmidt from Danske Bank. Daniel Schmidt: Just a follow-up, Daniel. You talked about -- you mentioned a surprisingly strong U.S. market, maybe on the back of what you feared sort of, I don't know, April, May last year. But at the same time, if you just look at the numbers for Q1, Americas is actually down a little bit more than the group in local currency. Is that -- how does that stack up? Is that due to you not being able to cater to that demand? Or is it -- what's the explanation simply? Daniel Erver: So we went into the second half of 2025 with a very prudent plan for the U.S. given everything that was going on. And then we could see more resilience from the consumer than we expected, which led us to have a low supply to the demand. And then Q1 is a quarter with a big impact on end-of-season sale in December and January. And that's where we also said that we had far less end-of-season sale impact in the U.S. market given that we have had a low stock level, a low supply to the demand. So that's the explanation for Q1. Daniel Schmidt: Okay. And do you still see in that number for the entire Americas, you are seeing South America growing? Daniel Erver: Yes, we see positive development in South America. Daniel Schmidt: Yes. And the second question maybe, you mentioned increased precision in your marketing investments. Does that also implicitly mean that you had less costs for marketing spend in the first quarter? Daniel Erver: Yes, slightly less spend on marketing. This is 2 shifts. One is shifting more of the investments towards media and then the way we optimize media, both between markets and between different channels and how we optimize the content per channel is where we drive the efficiency. But as a level of spend, it was slightly less than the year before. Daniel Schmidt: And do you see that efficiency continue into the coming quarters? Daniel Erver: Yes, we do. At the same time, as we evaluate cases for growth opportunity and where we want to invest, but the efficiency work we see has potential for the rest of the year. Operator: Your next question comes from the line of Erik Sandstedt from Kepler Cheuvreux. Erik Sandstedt: Yes. Sorry, I had some technical issues. So I apologize if these questions already have been asked. But firstly, it seems that depreciation cost was quite low in the quarter. What is driving that? And how should we think about the level going forward? Adam Karlsson: Yes, Adam here. I mean there are multiple factors. The underlying sort of core of the depreciation is attributed to investments primarily in our store portfolio. And as we've had a couple of years of lower investment levels during COVID, one could sort of assume that, that sort of core part will continue over the year. But as it's also related then to IFRS 16 and how we then value our leases and currency effects. It's difficult to predict, and we don't want to give guidance on it. But at the core of it is that we've had a lower investment level into our portfolio during the COVID year, and that sort of funnels through in this. Erik Sandstedt: Perfect. Also, can you say whether the online business is contributing to the higher EBIT margin that you are reporting year-over-year? Adam Karlsson: Adam here. Yes, it does. We have the benefit of having 2 profitable channels creating a stronghold, but we see that an increasing share of online is good for long-term profitability expansion. Erik Sandstedt: Okay. And then just finally, can you say anything specifically on the performance in the Nordic regions and more specifically, whether you think you are gaining market share in that region in the quarter? Joseph Ahlberg: In the Nordics, we started to see a slight improved trend in the fourth quarter. But in the first quarter now as similar to other regions, we saw a sequentially lower demand pattern. We saw a strong Black Friday period in many of the Nordic markets like other European core markets with a slower demand situation at the beginning of Q1. So that pattern has been consistent across several markets, including the Nordics. Operator: There are currently no further questions. I will now hand the call back to Daniel Erver, CEO, for closing remarks. Daniel Erver: Thank you so much, and thank you to everyone for attending today's telephone conference and for your continued engagement with the H&M Group. To summarize the quarter, we are making important progress. Profitability levels are improving, supported by good cost control and improved gross margin despite this being a quarter marked by a cautious consumption and large currency translation effects. So for us, this confirms that we are on the right path. We continue to build the foundation for profitable and sustainable growth. As we move forward, we remain laser-focused on delivering the outstanding value for money by doubling down on product experience and brand for our consumers at the same time as we continue to increase the flexibility and the precision across our operations all with the aim to really truly offer our customers relevant fashion and current fashion at the best value for money. So once again, thank you for listening. And from here, we wish you all a wonderful day. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Heinrich Richter: Good morning, and welcome to Gemfields 2025 Full Year Results Shareholder and Investor Webcast. Sean Gilbertson, CEO; and David Lovett, CFO, will present Gemfields financial results. At the end of the presentation, we will go into Q&A. [Operator Instructions] Before we start, please take a note of the important information in our disclaimer on Slide 2, with a full disclaimer in the appendix. And with that, I'll now pass you on to Sean. Sean Gilbertson: Thank you very much, Heinrich. Good morning, and welcome. Thank you for your time and interest in what was an extremely difficult year for Gemfields, Ignoring the COVID year of 2020, 2025 saw us deliver our weakest annual auction revenues since 2013, more than a decade and only 41% of the peak auction revenues, which we achieved in 2022, which was the height of the post-COVID so-called revenge spending boom for us. I think it's worth recapping on what transpired in getting us to this situation. First, buoyed by the post-COVID boom, we paid out $80 million in dividends to shareholders between May '22 and May '24, and we also did a $10 million share buyback. We then went on to initiate a growth strategy, which included the largest CapEx project Gemfields has ever undertaken, being our second processing plant at MRM in Mozambique at a cost of $70 million. Then in the second half of 2024, we saw the deterioration of the Chinese economy and a marked decline in China's share of luxury goods consumption. That was followed by the contested general election in Mozambique in October '24, giving rise to civil unrest in many parts of the country and a direct attack on MRM on the 24th of December 2024, leading in turn to significant illegal mining incursions during the first quarter of 2025 and multiple disruptions. We also experienced decreased premium ruby production from our Mugloto area at MRM. In the third quarter of '24, One of our emerald competitors started selling considerable quantities of emeralds at low prices, damaging the emerald market. And in January 2025, of course, we saw the Zambian government's surprise introduction of a 15% export duty on gemstones and resulting in our suspending Kagem's exports entirely until the issue was nimbly remedied by the government just a couple of months later in March '25. All of those prevailing circumstances led us to suspend mining at Kagem altogether from January through May of 2025. And at the same time, we were experiencing significant logistics and work permit delays in Mozambique, affecting particularly the specialist electrical installations that were required for MRM's second processing plant. April of 2025 infamously saw President Trump's tariff shocks and their considerable jolts to the luxury and jewelry sectors. And we suffered in '25 from being unable to recover meaningful proportions of the VAT owed to us by the governments of Zambia and Mozambique and which reached circa $45 million at peak. And finally, we had the impact of widespread geopolitical instability arising from Israel, Gaza, Syria, Ukraine and now, of course, Iran. Despite that long list of excuses and save, of course, for the potential impact of the latest round of Trump-induced turbulence, our overall position as Gemfields is, of course, markedly better than where we were just 12 months ago. In addition, MRM, our ruby mine, has so far in the first quarter of this year already exceeded by a modest $3 million, the whole of 2025's mega $50 million of ruby revenue. With that scene now set, I'll pass you on to David to lay out the VFX. David Lovett: Thank you, Sean, and good morning, everybody. I won't repeat the overview of 2025 that Sean has just given, but the financial results you'll see over the next few slides certainly show how tricky a period it has been for Gemfields. Both revenue and cash generation came in significantly below expectations, largely due to the delayed year-end ruby auction, but the actions taken in 2025, both operationally and strategically have materially strengthened the group's footing heading into 2026. I will now take each of the key financial metrics in turn on the next slide. Starting at the top left, we have revenues. Group revenue came in at $135 million, which is down sharply from the strong levels seen in '22 and '23 and from the $199 million we achieved in 2024. This was driven primarily by weaker ruby production throughout the year and the postponement of the planned December ruby auction. On the cost side, operating expenses were down by approximately 17% to $129 million, reflecting cost discipline and the pause in operations at Kagem in the first half of the year. This then resulted in an EBITDA of $6.25 million, a significant reduction year-on-year, and adjusted earnings per share of negative $0.013 and a free cash outflow of $29 million, driven primarily by the reduction in revenue and the CapEx spending at MRM. Finally, on this slide, we had net debt, which closed the year at $39 million. If you include the auction receivables, this falls to $19 million. There's no doubt that this is a weaker position than we would have liked, but the heavy investment in PP2 is now behind us. And as PP2 stabilizes, we should see our cash position improve. Looking at revenues in more detail. Here, we have our rolling 12-month auction profile. This highlights the decline since the post-COVID peak we saw in 2022 and the core challenge we're facing at MRM. On the next slide, we split out Kagem and MRM separately. On the left, you see Kagem's auction track record. We generated $78 million in 2025, which is in line with 2024 despite the pause in mining activity in the first half of 2025. Our next Kagem auction is expected in May this year. On the right-hand side, MRM tells quite a different story. Revenues were significantly lower than the previous year at $50 million. The reduced recovery of premium quality rubies had a clear impact through the postponement of the year-end auction and the reduced revenues seen earlier in the year. This graph is a clear example of why PP2 and general improvements in operational stability at MRM are key for both MRM and Gemfields. It's worth noting that the MRM's auction in February generated $53 million, and we expect the next ruby auction to take place in Q3 of this year. Moving on to CapEx. This slide shows rolling 12-month CapEx at both Kagem and MRM on an actual cash cost basis. At Kagem, on the left-hand side, CapEx remained controlled, reflecting the focus on disciplined capital allocation at that operation. On the right-hand side, MRM CapEx has been elevated because of the new plant. As we move into 2026, CapEx spending is tapering as the project moves towards completion, but it should be noted that there is still some mining fleet purchases to come in 2026. Looking at operating costs. Here, we have the cash cost operating for Kagem, MRM, the U.K. Corporate and the development assets. At Kagem, we made material reductions in the year, but that is largely due to the pause in mining operations in the first half. The bars will start to move back up as mining activity starts to normalize. At MRM, operating costs have reduced somewhat, but security concerns and increased operations to feed the new plant will see these costs tick up in 2026. Corporate costs, again, made some progress, but it should be noted that they were impacted by one-off costs relating to the capital raise in the year. And finally, on development project costs, they continue to fall as we wind down activity in almost all of those projects. Cost control remains a key focus as we move through 2026. Finally, from my side, we'll have a look at the net debt position. At the year-end, we reported gross cash of $64 million and gross debt of $103 million, which gives us a net debt position of $39 million. As we said earlier, if you include the auction receivables of $20 million, that net debt reduces to $18.7 million. Still plenty of work to do here, but we're certainly in a stronger position than we were at the end of 2024. I'll hand back to you now, Sean. Sean Gilbertson: Thank you very much, David. On Slide 12, while competitor behavior, the 15% export tax and the ensuing suspension of mining at Kagem from January through April of 2025 were serious issues, the mine actually had a pretty solid year with auction revenues of nearly $80 million at $78 million. Kagem yielded almost $40 million after deducting operating costs and CapEx. Of course, that's due to the great team we have at Kagem, but it was also greatly aided by good production and an improved market for emeralds in the second half of '25. MRM's woes are well documented. And combined with everything else we were facing, the group completed a $30 million rights issue in June of '25, and we sold Fabergé for $50 million in August of '25. Keen observers and those with eagle eyes will note that the amount from the rights issue, together with the proceeds from the sale of Fabergé equal precisely the amount of cash that we paid out as dividends to shareholders between May '22 and May '24. Turning to Slide 13. Gemstones in the premium category are what matter in our business. And with only its processing plant running from January through April of '25, it's clear to see that Kagem got off to a slow start. But as shown on the left-hand graph, the second half of the year was super. Across the way at MRM, shown on the right-hand side, headline premium ruby production actually looked pretty good from a headline perspective. However, these included fewer rubies from our long-standing Mugloto area, which underproduced and more rubies from the newer Maninge Nice area. While there are some really super gems from Maninge Nice, including the third most expensive ruby we've ever sold, the overall value per gram or per carat of Maninge Nice's rubies is lower than what we have achieved historically from Mugloto. Ruby prices do vary enormously based on slight variations in color, saturation, tone and, of course, internal imperfections. On Slide 14, in the next broad quality category down, simply called Emerald at Kagem and Tumble at MRM, both mines produced in line with recent years. Slide 15 shows a very interesting comparison of rubies from the older Mugloto area on the left and rubies from the newer Maninge Nice area on the right-hand side. This image is taken on a blue backlight and shows the same effect as one would see under ultraviolet light. While all rubies fluoresce, some do fluoresce a great deal more than others, as can clearly be seen in the photograph. And while Mugloto produces a tiny proportion of more fluorescent material, Maninge Nice produces a very considerable amount of fluorescent material. For interest, the famed Burmese rubies are very well regarded and renowned for exhibiting high fluorescence. While we are still garnering price information given the material from the newer Maninge Nice area, and it's only been offered at 2 of our regular mixed quality auctions, we have seen this fluorescent material command a premium in some size fractions and a discount in others. Our customers are very familiar with the long-standing Mugloto material, which we have auctioned for more than a decade, but are very much like us, still learning about how Maninge Nice material cuts and sells. On Slide 16, the final commissioning of our second processing plant at MRM, or PP2 as we call it, is significantly behind schedule. When the project was first announced, we expected final commissioning by the end of June of '25. Encouragingly, PP2 has demonstrated its ability to attain and even exceed the 400 tonne per hour design throughput rate in the wet circuit. And that can be seen in the graph on the left-hand side, which charts the weekly data since PP2 started operating. However, and while I want to stress that there are no known fatal flaws, we have experienced a number of teething and commissioning issues, which mean that the second processing plant is not yet attaining the target number of operating hours each day, which is 20 hours. As a result, ore processing and ruby production is materially constrained. Those issues exacerbated by the wet season include, but aren't limited to choking and blinding, which require shoot, liner and screen reconfigurations and also the presence of organic and inorganic material reaching downstream pumps and screens. PP2 was built on a fixed price contract by Consulmet, South Africa, and who are still very much on site, working very closely with our own team in remedying these issues. While we anticipate considerable improvements with the arrival of the dry season from May of this year, we now expect final commissioning of PP2 only in Q3 of 2026. On Slide 18, our priorities are to stabilize the business after all the turbulence we've been through, particularly, of course, ironing out the final commissioning issues with PP2, and then to rebuild our auction revenues, particularly in rubies, followed by our profitability and then, of course, deleveraging our balance sheet. On Slide 19, and touching on auctions, we presently have a higher quality emerald auction scheduled for May of this year in Bangkok. And as David indicated, probably in the third quarter for rubies. And while the emerald market looks satisfactory, it's too early to tell what the fallout from the war in the Middle East will be. Our ruby demand has been a little bit more muted, especially in the lower quality segments, but the best gems consistently do well. And so as we assess what's happening in Iran, we'll balance production with market considerations and maintain a flexible approach to the number and size of the auctions that we run during the course of the second half of this year. We will obviously work hard to keep a lid on costs. But clearly, the Iran war may have a significant impact, including on fuel, where we are already seeing prices of diesel increase in our operations. And from past experience, that clearly then has a knock-on impact on to everything delivered at mining operations, including, for example, food and beverage. And with that, I'll pass back to Heinrich to run the question-and-answer session. Heinrich Richter: Thank you, Sean. [Operator Instructions]. First question received is as follows. In terms of Nairoto and Sedibelo, what are your optionalities in terms of commercializing those assets? Sean Gilbertson: Thanks for the question, Heinrich. We took the decision during the course of late '24 and '25 issues and cash constraints to shut down Nairoto. And so we have removed all personnel and equipment. And the reality is Nairoto, therefore, is not a project that we're going to bring back into business. It is, of course, a gold project and doesn't fit with our core business of emeralds and rubies. And insofar as Sedibelo is concerned, that clearly has seen a shot of life in the form of the increases in precious metals prices. We have obviously historically written that down to 0. And if there are any interesting inquiries, we will obviously progress them. But the reality is that's also been written down to 0. Heinrich Richter: Thank you, Sean. That's very clear. [Operator Instructions] On to the next question. Please advise what the fuel supply is looking like in the countries which you operate? How dependent is Gemfields' business continuity on stable fuel supply? And what contingency measures are you pursuing? Sean Gilbertson: Very topical question. We are obviously critically dependent on the ongoing supply of fuel, particularly diesel. We have circa 300,000 liters of storage capacity at MRM and approximately twice that across the way in Zambia at Kagem. The reality is we are already seeing some increases in the price of fuel. And there have been a couple of warning signs in Zambia as to a lack of the ability to guarantee ongoing fuel supplies post April. We are particularly dependent on diesel generators in Mozambique, where the second processing plant eats up a huge amount of power. And we do have a pretty good relationship with our supplier there after something of a reset about 18 months ago. But the reality is, it's very difficult to ascertain precisely what's going to happen with supply at this stage. Our team is obviously working on some mitigations, and that might go so far as to literally have additional tanks set up and source fuel. But it's a tricky pinch point if this market gets worse. Heinrich Richter: And with that, we have no further questions. We'd like to thank you all for joining us this morning. If you have any further questions or would like to speak one-on-one, please reach out to us at ir@gemfields.com. Enjoy the rest of your day. We will close the call. Thank you very much.
Anne-Sophie Jugean: Good evening, and welcome to Quadient's Full Year 2025 Results Presentation. I am Anne-Sophie Jugean, Quadient's Head of Investor Relations. Today's presentation will be hosted by Geoffrey Godet, CEO; and Laurent Du Passage, CFO. The agenda for today's call is on Slide 3. As usual, there will be an opportunity to ask questions at the end of the presentation. You can submit your questions in writing through the web or ask questions live by dialing into the conference call. Thank you very much. And with that, over to you, Geoffrey. Geoffrey Godet: Thank you, Anne-Sophie. Good evening, everyone. So let me start by setting out the market context for Quadient. Over the past few years, we've been operating in an environment shaped by powerful structural trends. In 2025, these trends did not change in nature, but they accelerated simultaneously reaching a new level of momentum. So the first one is there is, in '25, a marked step change in artificial intelligence. Rapid advances in AI are accelerating digitalization across industries and reinforcing the long-term demand for software solution. This is not a short-term phenomenon. AI is fundamentally reshaping how enterprise automate, secure and scale mission-critical workflows, well beyond any single use -- sorry, any single use case and regulatory cycle. What customers increasingly require our software platform that can deliver value quickly, integrate AI natively, including agents and responsibly into system of records and reliably operate within complex legal, regulatory and data security environment. In this context, AI-driven digitalization spans our entire digital portfolio from CCM to AP and AR and of course, compliance-driven workflows, which enhance both the value of our solutions and the breadth of use cases we can address. The second trend also contributing to the future acceleration in digitalization is the upcoming rollout of e-invoicing rules across Europe with regulatory deadlines now clearly in sight, notably in France in September 2026 and later in other markets, including newly the U.K. These mandates are important catalysts for the digital adoption. But most importantly, they represent only one dimension of a much broader transformation of transactional and financial workflows. And lastly, in 2025, we also observed an acceleration in the structural decline of the Mail market and this following a long period of resilience. These trends reflect both regulatory developments and changing customer behaviors. More importantly, they highlight the relevance of our long-standing decision to pivot towards digital. Quadient did not start preparing for this transition in 2024, 2025. The ability to offset the decline in Mail with a strong digital offering is at the very core of our strategy and the foundation of our digital division. For both business and financial communications automation and now e-invoicing, we have long been supporting our customers in the automation of transactional processes that sit at the heart of their own operation. So based on these 3 trends, we have updated our long-term financial assumptions. Regarding digital, we have raised our 2030 revenue ambition to around EUR 550 million from above EUR 500 million previously. And of course, we maintain our EBITDA margin ambition, which remains at 30% for 2030. As a result, digital is expected to become Quadient's largest segment by 2030 and both in terms of revenue and EBITDA contribution. Now regarding Mail, we have lowered our 2030 revenue ambition to around EUR 500 million compared with around EUR 600 million previously. And there's no change to our EBITDA margin ambition for Mail, which remains between 20% and 25% for 2030. The updated Mail long-term financial assumption also led us to record a one-off impairment charge of EUR 124 million against goodwill, and that's in the Mail business. And there's, of course, no cash impact. Finally, our 2030 ambition for lockers remain unchanged. Moving to the next slide. Having in mind these accelerated trends just outlined and thanks to Quadient's strategic foresight, we are now in the best position than we have ever been to be able to capture the opportunities they are creating. First, we already operate from a position of strength with a best-in-class digital automation platform that is consistently recognized by industry analysts. And this is not a recent achievement. It reflects years of disciplined investment and execution. 2025 alone, Quadient was ranked #1 globally by industry analyst IDC. And we were also recognized by another industry analyst, QKS, as the most valuable pioneer for AI maturity. These are clear third-party validation of both our technology leadership and our ability to operationalize AI at scale. Second, Quadient benefits from a mature, highly predictable business model. At the end of 2025, our annual recurring revenue, ARR reached EUR 250 million, a level that few SaaS companies can claim and 84% of that total revenue is now subscription-based. This provides us with a strong confidence in our future revenue trajectory. This model is built on a scalable SaaS platform, serving a large and diversified customer base also across regulated industries with very strong customer stickiness. We now support around 17,000 customers worldwide, right, with a well-diversified geographic footprint. And most of these customers are in regulated industries. These foundations were built up proactively and purposely for many years. Today, they allow us to shift our focus decisively towards scaling execution. First of all, we're expanding the use of AI-powered capabilities across our customer base. Currently, around 60% of our customers use daily such capabilities, and our aim is to increase these to 100% as soon as possible. Secondly, we're building a pan-European leader in financial automation driven in particular by the upcoming application of e-invoicing mandates. With the acquisition of Serensia, the final accreditation from the French tax authorities, which we received in mid-December and already more than 10% market share in France. So with both, we're strongly positioned at the start of a long-term digital growth cycle that will unfold progressively across Europe. And lastly, we are, of course, sharpening our competitive position in customer communication also, as highlighted by the recent acquisition of CDP Communications in 2025. This enabled us to add differentiating accessibility and compliance features to our existing range of capabilities in which consolidated our CCM market share in regulated industries. Moving to Slide 7. To support the next chapter of our Quadient growth, I have taken a clear decision to align our leadership team with our operational priorities. As a result of our digital automation platform reaching a scale like EUR 250 million in ARR, it has reached such a maturity that I am now placing our digital automation platform at the very heart of our company under my direct leadership to further accelerate growth and innovation. As part of this evolution, we have now 4 senior leaders from our digital automation platform organization that will be part of the Executive Committee. This reflects our determination to deepen software expertise and accelerate innovation where it matters the most. And this marks the next steps in Quadient's evolution as a global software and AI-driven technology leader. Moving to Slide 8. In addition, over the past few years, we have executed a complete legal reorganization, transitioning from an integrated multi-entity, multi-country structure to a very simple business aligned organization. This legal organization is now in its final stages and provide us with the structural flexibility that we wanted. This opens up multiple options to support our business development, financing initiatives and broader value creation opportunities. With that said, I will now hand it over to Laurent, who will walk you through our 2025 financial results. Laurent? Laurent Du Passage: Thank you, Geoffrey. Good evening, everyone. Let's move to the next slide for our key financials for 2025. So year 2025 ended with a revenue growth acceleration and EBITDA margin expansion in both Digital and Lockers, while Mail profitability remained very resilient. Starting with Digital, revenue grew strongly at 8% with an acceleration in Q4. Subscription-related revenue continued to expand at a double-digit pace, supporting further EBITDA margin improvement, reaching 18% for the year. In Mail, 2025 was marked by the low point of the U.S. renewal cycle, which weighed on the hardware revenue throughout the year. And despite those headwinds, Mail delivered a very solid EBITDA margin at 27.1%. Finally, Lockers recorded another year of strong momentum with 11.4% organic revenue growth and a solid increase in subscription-related revenue. The profitability of Lockers improved significantly at 5%, confirming the trajectory to exceed the 10% EBITDA margin in 2026. At group level, revenue reached EUR 1.036 billion. It's down 3.2% organically. It's in line with the guidance we updated in September. The profitability remained resilient with a recurring EBIT margin of 13% and an EBITDA margin of 22.2%. All Solutions EBITDA are on track to meet the 2026 EBITDA targets, and we will continue to deleverage towards the 1.5x target, excluding leasing. Let's move now to Slide 11. Looking at the bridge of revenue compared to last year. From left to right, you can see the Package Concierge, Serensia, CDP scope effect for EUR 16 million, main contributor being Package Concierge. Digital with an 8% growth is adding EUR 22 million of revenue. Lockers also contributed positively with more than 11% organic growth or EUR 12 million of additional revenue. Digital and Lockers both accelerated in Q4, delivering organic growth of 8.4% and 16.8%, respectively, in the final quarter of the year. Mail declined by around 9.5%, reflecting both market headwinds and the [indiscernible] softness in the U.S. renewal cycle. The currency impacts were quite significant this year, notably from the USD weakening against euro with an adverse impact that you can see of EUR 37 million on the right-hand side. Overall, the group posted an organic revenue decline of 3.2%. Moving now to Slide 12. When looking at the breakdown of revenue, we see the continued shift towards subscription-related revenue across the group, moving from 68% to 74% from 2020 to 2025. Despite headwinds in the Mail business in '25, Quadient still has shown a positive growth on the subscription-related revenue. On the right-hand side, Digital and Lockers penetration within the subscription-related revenue has surged from 23% to 41% over the same period. Moving now to Slide 13. Here, you can see the bridge of current EBIT from last year to this year. We started from EUR 146 million last year. Scope is almost neutral with Package Concierge offsetting this year impact on current EBIT. Digital delivered a solid contribution of EUR 8 million, adding EUR 8 million, thanks to the strong revenue growth and obviously the continued margin expansion. Lockers also contributed positively with an additional EUR 6 million, reflecting both the acceleration in subscription revenues and the improvement of profitability overall. These gains were offset by Mail, which saw, as you can see, EUR 20 million decline in the EBITDA due to the EUR 70 million drop in revenue, which was clearly offset by strong savings. Depreciation and amortization remained broadly stable, decreasing by EUR 3 million and last currency effect had an EUR 8 million negative impact, largely driven again by the euro-dollar evolution. Overall, this led to current EBIT of EUR 135 million for 2025, representing an organic decline of 2.2% compared to last year. Back to you, Geoffrey, on the business review. Geoffrey Godet: Thank you, Laurent. Turning to Slide 15. So let me start by taking a step back and looking at the long-term track record of our Digital business. Starting with revenue on the top left of the slide, the message, I think, is very clear. Steady growth quarter after quarter, driven by the continued adoption of our digital automation platform by customers. Over this period, subscription-related revenue has grown at an average rate of 17% per year, reflecting the strength and relevance of our offering. This momentum has been accompanied by a decisive shift to SaaS. The share of subscription-related revenue has increased from 59% in 2020 to 85% today, fundamentally transforming the quality and predictability of our revenue base. And the same dynamic is visible in the annual recurring revenue or ARR shown at the bottom left of the slide. ARR has grown from EUR 109 million to EUR 250 million over the period, which represents a 15% compound annual growth rate. This is obviously a forward-looking indicator, and it underlines the durability of our subscription growth engine. At the bottom right, share of SaaS customers has grown significantly, reflecting naturally the change to our SaaS digital automation platform. Now turning to the EBITDA evolution. On the top right of the slide, you can see a low point in early 2022, and this reflects a deliberate phase of transition and the impact of the business model shift at the time, combined with a targeted investment in account payable and accounts receivable following the acquisition, if you remember, of YayPay and Beanworks at the time. What matters most, however, is what come after. Since then, we have delivered a regular and sustained improvement in EBITDA margin, driven by 3 clear factors: the continued growth of our subscription platform, the steady productivity gains across our teams and the fact that both our enterprise and SMB segments are now operating at scale. Together, these trends demonstrate the strength of our digital model, not just its growth, but its ability to scale profitably over time. Now let's move to another topic, and let me address AI head on because our position is generally differentiated on the market. In an AI world, the real question isn't who can generate content or automate a task. The questions are who produce unique data and who can execute reliably inside the system that actually run the enterprise and who can do it with control, adaptability, compliance and accountability. Quadient operates where the bar is the highest. We sit inside mission-critical workflows that are embedded into system of records such as ERPs, CRMs, billing systems, finance and regulatory environments of the company. In this workflow, mostly right is just not good enough. Invoices, audits, compliance, they all require near 70, not probabilities. And that's exactly the space we were built for. And this is why we are the trusted execution layer where AI must integrate. AI engine will proliferate across enterprise workflows, and they will still need a trusted execution arm, a platform that can securely connect to systems of records, enforce governance, produce auditable outcomes and execute with reliability and such at scale. AI agents rely on us. They don't replace us. And let me be clear on the human element. Relationships don't get replaced by AI. So just give you some context, right, many of our workflows, credit, collections, disputes, exceptions, these are nuances, right? They require nuanced context, judgment, and they cannot be safely automated away, particularly in a regulated environment. So our approach is human-centered. We use AI to strengthen those relationships and make workflow smarter, faster and more consistent, not to remove accountability from the process. We're truly built for this moment for 3 very concrete reasons. The first one is that our platform is agentic ready by design with APIs already enabling interaction with third-party software and most importantly, AI agents. Second, our pricing model is already aligned with where the industry is going. We operate largely on volume and outcome-based economics, not seat-based pricing. So we're not exposed for the AI replacing seats pressure that many software companies face. The third one is enterprise-grade execution is just not an add-on for us. It is our baseline. We deliver compliant, auditable, high reliability workflows, sorry, in regulated industries and such with deep integration, governance and again, scale, and they all are acting as very structural barriers for us. And this is not theoretical. AI is already operational across our digital platform and again, at scale. We have more than 60% of our digital customers that use AI-powered capabilities today from our platform and such every day. Another key number, roughly 40% of the new code generated for our applications are now AI generated, and we also have 0% AI-related customer churn. So the way I see AI is quite simple. It reinforce a mission, it reinforce the structural barriers and it increases the value we deliver and precisely because we sit at the intersection of automation, compliance and trusted execution. Moving to Slide 17. And with that said, let me turn to a few concrete examples of how AI is already embedded across Quadient Solutions. Let me be clear. AI for us is not a future ambition, as I mentioned, it's something that is already driving tangible value for our customers today and that both across our financial automation and customer experience management capabilities. Our AI capabilities are built on 3 Quadient core strengths: our integrated in-house AI-enabled components. The second one is our ability to connect and to connect seamlessly with customer systems of records, especially around the ecosystem. And the last one is our long-standing experience supporting, again, highly regulated mission-critical processes in industries such as financial services, insurance and the public sector. These are the foundations that make our AI capability not only powerful, but trusted in the most demanding environments. If I take the example on the financial automation side, you'll see on the left of the slide, we have shared an example for the account receivable solution. AI improves cash flow performance, and it gives finance teams far greater predictability. And by tapping directly into the ERP and the accounting systems, our models today score risks and forecast late payments with a high degree of accuracy. AI also provides real-time insight into buyer payment behaviors and identifies the patterns and the root cause behind these delays. So when it comes to execution, AI orchestrates the full collection workflow, choosing the right channel, optimizing timing, automating follow-ups and escalating when needed. So taken together, that drives what matters most for finance leaders, faster, more reliable cash conversion with less manual effort. Now on the CXM side, if we take another example, we have the same foundations, right, that apply, integrated AI, strong connectivity to system of records and a deep understanding of how communication requirements in regulated industry can enable organization to create and deliver communication, obviously, much faster and with far more consistency and both across regions and channels. Now AI accelerate, in particular for us, migration from legacy platforms can support secure use of customer selected AI models, their choice and speed up the development of what we call very complex business workflows. It also enhance naturally content creation, right, including translation at scale and also provides dynamic recommendation to improve message clarity and the effectiveness of those messages. So if we look at the impact for our customers, it's very tangible, up 50% faster content creation and as much as twice the communication output without any additional headcount. So in conclusion, whether it's in finance or customer communication, right, our use of AI is already delivering measurable productivity gains, operational confidence and some stronger business outcomes for our customers. Where does our next major opportunity lies in the transition to mandatory e-invoicing, right? That is a change that is set to reshape how company manage their business and financial workflows. And here again, Quadient is ahead of the curve. Moving to Slide 18. Our Serensia platform has now secured final accreditation from the French tax authority, meaning that we are fully ready for the 2026 reform in France. This places us among a very few select group of certified providers able to support companies through what will be one of the most significant business process transformation in recent years, in particular for Europe. Our leadership is also recognized today by analysts, right? In January 2026, Quadient was named a leader in QKS Group's SPARK Matrix for e-invoicing solution. This highlights the strong combination of technology excellence that was recognized, customer impact that was recognized as well and our regulatory readiness. And all of that is underscoring the strategic importance of our digital automation platform at the most pivotal time. Let's talk about our commercial traction. It's accelerating sharply. Booking related to financial automation and invoicing in France and Benelux for our region, increased more than tenfold. Just me repeat this, increased more than tenfold between the first and fourth quarter of 2025. This is a clear sign that customers preparing early are choosing Quadient as their long-term partner. And importantly, if we look at the addressable market, it remains largely untapped. We've got a study from OpinionWay that was recently shared that showed that only 7% of French companies are fully compliant today, meaning that the vast majority still need help to equip themselves. And let's not forget that France is just the start for us. The 2026 reform mark the first phase of a broader European transition to mandatory e-invoicing. Several countries are preparing similar frameworks than the one we've seen in France for the years ahead. And the U.K. is the last one that just announced their program for 2029. So this creates a multiyear growth runway in market -- in the market, sorry, where Quadient has already secured accreditation, recognized leadership by third party, a solid market share and strong commercial momentum. Moving to Slide 19. On our financial side, for the full year 2025, our digital automation platform delivered double-digit subscription-related revenue growth. And as I mentioned, with strong momentum and such, in particular, in our North American region and the U.K. and in particular, for the last quarter of the year. ARR reached EUR 215 million, representing 10% organic growth and such despite the currency headwinds. We also recorded a record Q4. It's our largest quarter ever in bookings, and it was driven by several multimillion euro wins and also reinforced by the solid cross-selling from our Mail customer base. Now if we move to profitability, our EBITDA grew 9% year-on-year and the margin expanded to 18% overall for the year despite the temporary dilutive effect that the Serensia integration impacted us. The margin for the second semester, right, the progression of that margin clearly shows the trajectory. We are on track to exceed the 20% EBITDA margin in 2026. With that said, over to you, Laurent, for the Mail business update. Laurent Du Passage: Thank you, Geoffrey. Moving to Slide 20. In light of Mail's 2025 performance, we have reassessed our long-term assumptions for the Mail business, notably with lower machine placements. With the transactional Mail volume still anticipated to decline by around 7.5% CAGR, the Mail market itself is now anticipated at minus 6% CAGR compared to minus 5% before. We have revised our 2030 revenue ambition for the Mail segment to approximately EUR 500 million compared to the EUR 600 million previously. The assumptions are particularly true in Europe, as illustrated by concrete developments such as the end of nationwide letter delivery in Denmark and ongoing regulated debates in the U.K. We also see companies actively preparing for the rollout of invoicing mandate in Europe, accelerating the shift away from physical mail. In [indiscernible], we still anticipate an improvement but starting off from a smaller installed base. Reflecting this update assumption, as Geoffrey has already indicated at the beginning of this presentation, this adjustment is a prudent fact-based response to structural market evolution, and it allows us to align our long-term ambition with the realities of the market while continuing to manage Mail with a strong focus on profitability and cash generation. Moving now to Slide 21. Let me come back briefly to what we've seen and what we are seeing as we enter 2026. This chart shows quarterly year-on-year Mail market revenue growth based on year-on-year growth weighted with our competition as well as Quadient performance on the other side. It shows that market was under pressure, notably from Q3 and Q4 '24 onwards and that there is a slight improvement materializing on the market at the end of '25 that we are seeing now at Quadient on early '26 at the beginning of Q1. While past year has been difficult on Mail, it is important that we also have a true capability on the cross-sell, which has increased by 19%, including a triple-digit year-on-year in Financial Automation booking boosted by invoicing mandate in Europe, as mentioned by Geoffrey. In addition, our SimplyMail SaaS solution, which enables small businesses to send physical mail and parcels in just a few clicks directly from their existing digital environment saw a strong momentum in '25 with more than 1,100 contracts signed. And in spite of the market condition on hardware, we also had major production Mail wins with our DS-1200 flagship solution that delivered double-digit growth in '25, confirming its strong market traction. Let's now move to the next slide on the Mail financials. Overall, Mail declined by 9.5% in '25, mainly due to the slowdown in U.S. equipment placements linked to the renewal cycle. This trend was slightly higher in Q4 at minus 10.9%, while we saw a very slight improvement on hardware side. The good news is that despite the top line pressure, Mail continues to deliver a very high profitability with a margin above 27%, supported by the contribution of Frama and our proactive response to tariff changes in the U.S., including price actions and strategic inventory buildup at the end of 2024. Margin performance was further supported by strong cross-sell execution with our digital business and a disciplined agile cost structure. Now moving to Lockers. The first slide give a clear picture of how we've successfully scaled growth in the Locker solution over the past 4 years. On the left-hand side, you can see the steady growth in revenue since '22, representing a compound annual growth rate of 11% from 2022 to 2025. A second key trend in the increasing weight of subscription-related revenue, which accounted for 65% of total Locker revenue in 2025. In absolute terms, subscription revenue grew at double-digit rates every single quarter. In terms of margin, we can see the rapid expansion over the same time frame on the right-hand side with a confirmed inflection to profitability in 2025, delivering a 5% EBITDA margin. This puts the Locker business on a strong financial footing and positions it for scalable, profitable growth going forward. Let's move now to Slide 24. Turning now to commercial highlights for the Locker business. 2025 was another year of strong expansion supported by both solid demand and targeted product innovation. In Q4, we secured a multimillion euro service deal to refresh the design of an existing network covering more than 1,700 locations. This demonstrates the confidence of our customers and the long-term value of our installed base. We also expanded our product range with the launch of Premier Locker in the U.S., a premium design-driven solution tailored for upscale multifamily communities. This enhancement strengthens our ability to address a broader set of customer needs in that market. Operational execution remains strong with more than 2,300 lockers deployed in '25, including more than 600 in Q4 alone. This brings our installed base to approximately 27,700 lockers at the end of the year. Let's now turn to Slide 25 to look at how this commercial momentum translates into the growth of our installed base and usage over the past 2 years. On the left, you can see the steady acceleration in our pace of installation across Europe. Over the past 2 years, our installed base has grown roughly fourfold, supported by continued expansion in the U.K., including partnerships with Evri, Shell Service Stations and The Range. Meanwhile, in the U.S., placements remained steadily driven by continued momentum in the multifamily and the higher education segments. On the right-hand side, we can see the usage in Europe has increased dramatically over the same period, around 20-fold with the U.K. once again a major contributor. As you can see on the chart, there was a temporary dip at the end of Q4 and the start of Q4 due to lower volumes recorded by Evri with Vinted, followed by a strong rebound as we can see as well later in the period. Lastly, in Japan, volumes increased month-to-month in Q4, signaling growing traction. Let's now take a look at Lockers financial on Slide 26. Lockers delivered another year of strong growth with 11.4% organic growth and more than 22% reported, reflecting the strong subscription revenue, of course, and the full year contribution of Package Concierge. We recorded a sharp acceleration in Q4 and more importantly, our profitability inflection is confirmed. EBITDA margin increased by 4.4 points to 5% with H2 reaching 6.3%. We remain firmly on track to exceed a 10% margin in 2026, supported by growing recurring revenue and high utilization rates across the networks. Let's now review the group financials and turn to Slide 28, which is a summary of the financials. So if you can -- as you can see, we summarize here the performance of all the 3 solutions. Again, digital growing strongly 8%, margin expansion to 18%. Mail declined 9.5%, but maintained a very solid 27% margin. Lockers grew 11.4%, as we just saw with profitability improving to 5%. At group level, revenue reached EUR 1.036 billion, and our current EBIT margin remains resilient at 13% despite the mix effect and the decline in Mail. Moving now to Slide 29, where we see the P&L. Starting from the top, obviously, revenue I just mentioned it, but EBITDA stands at EUR 230 million, which is maintaining a healthy 22.2% margin. The current EBIT is EUR 135 million. It's broadly stable margin-wise, reflecting the operational resilience of our business. The key item this year is the EUR 124 million noncash goodwill impairment, which is exclusively related to Mail in Europe. This is the main consequence of the new assumptions of the Mail market trajectory, as I explained on Page 20, and hence, the mechanical noncash effect on our goodwill -- Mail goodwill assessment. This brings reported net income to minus EUR 66 million. Excluding this one-off impairment, net income would be EUR 58 million, which highlights the underlying strength of our operations as well. Moving now to the cash flow statement on Page 30. The free cash flow for the year came in at EUR 47 million, impacted by several one-off elements. The adverse effect of working capital, we mentioned that earlier due to the timing of [indiscernible] payments, the EUR 19 million impact, cutoff of VAT payment and employee debt at the end of the year, but this was fully offset by EUR 30 million of cash generated by the leasing portfolio. The higher interest and tax payment is notably due to the [indiscernible] tax and the bond refinancing that we already mentioned during H1. Cash flow from operation reached EUR 132 million and the CapEx decreased to EUR 86 million, driven by lower Mail placements as we will see on the next slide. To be noted also that our free cash flow was impacted by the negative change impact of around EUR 7 million. At the bottom of the free cash flow from an acquisition standpoint, Serensia and CDP have been acquired in '25 compared to Frama and Package Concierge in '24. Moving now to next slide on CapEx, Slide 31. CapEx levels reflect the nature and maturity of each platform. Digital remains stable, focused on the R&D and ongoing platform enhancement. Lockers continues to invest materially supporting the rapid expansion of open networks, notably in the U.K. And net CapEx declined significantly due to the lower hardware placements in '25, notably in North America, where the year before it had the certification. Overall CapEx decreased from EUR 98 million to EUR 86 million, consistent with our disciplined capital allocation. On Slide 32, as you can see, the net debt has significantly declined to EUR 682 million, notably thanks to a large ForEx impact on our USD debt due to the weak level of the dollar at the end of the fiscal year. The leverage ratio, excluding leasing stands at 1.6x, maintaining our trajectory towards a 1.5x target in 2026. We also maintained a solid liquidity position supported by healthy cash generation and tight balance sheet discipline. On Slide 33, as you can see from a debt management standpoint, we have reimbursed our bond in Q1 and as well as EUR 29 million of Schuldschein, and we successfully raised EUR 50 million of private placement in July. As of January '26, we hold EUR 115 million of cash, and we have EUR 300 million of undrawn on our credit facility. And we maintain obviously a EUR 533 million still customer leasing portfolio that you can see on the right-hand side. This positions the group with strong liquidity and financial flexibility to support the ongoing execution. Over to you, Geoffrey, for the conclusion of this presentation. Geoffrey Godet: Thank you, Laurent. Moving now to Slide 35. So for 2025, Quadient proposed a dividend of EUR 0.75 per share for the full year 2025. This represents a 7% increase compared to the full year 2024 dividend and a year-on-year increase of EUR 0.05. Just to be noted, this marks the fifth consecutive annual dividend increase. This proposal corresponds to roughly now a 46% payout ratio of net income, excluding obviously the goodwill impairment and this is up from 36% last year. And this is well above the minimum of 20% payout ratio that was defined in our dividend policy. So naturally, subject to the approval of the Annual General Meeting on June 18, 2026, the dividend will be paid in cash in one installment in August 6, 2026. This proposed dividend reflects naturally our confidence in Quadient's future cash generation, our confidence in debt deleverage and our commitment to it and our continued commitment to delivering sustainable returns to our shareholders. Turning now to our guidance for 2026. As you know, we continue to operate in a very challenging macroeconomic environment and also geopolitical. We have some ongoing uncertainties and particularly around potential supply chain impact. Now against this backdrop, Digital and Lockers are expected to continue naturally to delivering sustained growth and further EBITDA margin expansion. Mail remains naturally also a little bit less predictable at this stage given the limited visibility on the market conditions. That being said, our cost optimization initiatives remains in place, and they will support the resilience of our high mail margin. As a result, we expect organic revenue growth from full year 2026 to range between minus 2% and plus 2%. And this range reflects the current level of visibility that we have on the Mail business. In parallel, we confirm our EBITDA margin trajectory and such across all solutions. So with expected full year '26 margin for EBITDA above 20% in Digital, above 25% in Mail and above 10% in the Lockers. Moving to Slide 37. As explained at the beginning of the presentation, we have updated Quadient's long-term financial assumptions to reflect the profound acceleration of the market trends that we are seeing today. For Digital, we have raised naturally our revenue ambition to approximately EUR 550 million from above the EUR 500 million we had stated previously. And for the Mail, we have revised our 2030 revenue ambition to approximately EUR 500 million compared with around EUR 600 million previously. And naturally, our ambition for Lockers remain unchanged and well above the EUR 200 million in revenue by 2030. We also reconfirm our 2030 EBITDA margin ambition for each of our 3 solutions, around 30% for Digital, a range of 20% to 25% for Mail and around 20% for the Lockers. So taken together, these updated ambitions reflect a clear reality. By 2030, Digital is expected to become Quadient's largest solution and such, both in terms of revenue and EBITDA, and that directly supports our ambition to position Quadient as a global software and AI leader. Thank you. And I think that with the team, we are ready to take your questions. Laurent and Anne-Sophie? Operator: This is the Chorus Call conference operator. [Operator Instructions] First question is from Flavien Baudemont, Bernstein. Flavien Baudemont: Congratulations for the results. I have 2 questions on my side. For the first, I'm a bit puzzled about your Digital sales guidance upgrade for 2030, while in the meantime, you suspended your Digital 2026 sales guidance back in September. I don't really get how you can [indiscernible] expectation and upgrade your midterm guidance at the same -- nearly at the same time? And if I do the math, you need to grow by 14% per year by 2030 to get to the objective. And you grew by 10% in Q4, which means that it's going to be tricky to get 14% of Digital top line growth in 2026. So is it possible to have more element to support your guidance and preferably with numbers such as how much sales you are expected to generate truly for Digital invoice this year, for instance? And the second is more straightforward. Can you just update us on the Italian local rollout strategy? Geoffrey Godet: Thank you, Flavien. Good evening, and thank you for your question. I can take this question if you want, Laurent. On the Digital side, it's a good reminder for me to share with everybody, the long-term upgraded guidance we gave in terms of revenue, right, to move from EUR 500 million to EUR 550 million is without the help of any acquisitions, right? These are organic assumptions that we have, right? So it's really coming from the growth of our existing customer base on the one hand, and we see the acquisition of new customers, new logos that we're expecting in the coming years. We have had in the last few years, a steady increase of our annual recurring revenue, and we have also our subscription growth rate that has been always around 10% or more actually in all the past years. We finished the year with an ARR growth around 10% -- at 10% actually organic growth, which basically is a forward-looking view for 2026. And you're right, when you do the math, we do anticipate in the coming years, an acceleration of the recurring and the ARR, right, subscription growth on a yearly basis on the average over the period. Now this increase has not come linearly. In 2026, we're likely to be around where we've been able to achieve in the past few years but we're going to be able to benefit from the acceleration starting in 2027 and we'll continue to accelerate further in 2028, notably and for the rest of the plan. Where is this acceleration coming from, it is coming from the benefit of the acquisition of Serensia that we did not plan for when we did our Capital Market Day in 2024, right? So Serensia is related to the accredited platform that we have in France. And we have embarked on the contract bookings, right, existing contracts that are not generating yet revenue. I think we shared in our last -- the third quarter presentation with you that we have now probably secured more than 10% of the numbers of invoice that is expected to be produced digitally through those accredited platforms. So we have a strong leadership position that we anticipate that will generate revenue, and we're not over yet, right? So we have continued actually to sign at the beginning of the year additional contract. It will continue until September '26 to embark customers that have not yet made the decision. And as we shared earlier today, there's still the vast majority of customers in France that have not selected yet an accurate platform. So we have more contracts, more booking that we expect to be able to embark. And we also believe that this will not stop in September '26, which is the deadline for some of the enterprise in the market to start operating with the government platform. We believe that some of them likely will be late, which has been always the case when those mandate gets rolled out into other countries. So there's our expectation there will be a tail of customers that will be quite strong, probably getting into the beginning of '27. Now as it relates to how this translate into revenue generation and accelerate growth for us. Because the mandates starts in 2026 and only for some category of customers, I remind you that they are deadlines for large enterprise in September '26, then for mid-enterprise and then small enterprise that spent from '26 to '28. Not all of those contracts will generate revenue right away in 2026 and not on a full year basis. So we'll likely start to have some benefit by the end of '26, mostly in Q4, have a full year benefit of that increase in 2027 and even further in 2028. And as just to take into account the revenue that we will generate and it will accelerate our growth for the French mandate. In addition to the French mandate, we're also getting ready for additional mandates for other European countries in Belgium, in Germany, in the U.K. but we also have the ViDA standard that is going to be a European-wide standard that will generate the same kind of anticipation by the companies to select the right accredited platform for themselves, getting ready and being able to produce the invoice. And there will be a delay, naturally a gap from the moment they sign those contracts to the moment we generate those invoices on our platform. And that's mostly what drives the increase in our ambition based on actual data and the numbers of contracts we have secured obviously, up to now. So at the end of 2025, we had more than 10% of those invoices on the market, right, that we expected on the volume. So we estimate the market to be between EUR 2 billion and EUR 2.5 billion of invoices. So that gives you a sense of the sheer size and the big size of invoices that we expect to be able to produce on our platform and that will generate the increase in revenue starting in Q4 and then progressively in '27 and '28. Laurent Du Passage: Maybe one just complement, I think because you made a calculation, and you mentioned the 14% CAGR. I just want to remind you that the numbers we are showing for 2030 at fiscal year '23 rate just to make it comparable to what we said to the Capital Market Day, not -- you should not take as a starting point, obviously, the reported figures for digital because, obviously, the dollar has impacted significantly the revenue side. So in reality, the CAGR should be below that mark that you mentioned. Geoffrey Godet: The second question you had, Flavien, which I also -- was a good question. I'm happy to give you some color. We have studied the deployment of our Italian Lockers in the Italian market. Mostly in 2025, there was the year for us to be able to set up the team, hire the different key leaders, the sales organization, starting to identify the strategic location that we felt would be the most promising one, securing contracts ahead of the deployment of the Lockers, notably with Carriers but a few other players as well and non-carrier related. So that's what we've been doing in '25. So we do expect the rollout, though it has started, to start pick up steam during the rest of the year. Operator: [Operator Instructions] There are no more questions from the conference call. The floor is back to Ms. Anne-Sophie Jugean. Anne-Sophie Jugean: Thank you. So we can now move to the questions submitted in writing. So we have 2 questions on Digital. And I think that part of them have already been answered by Geoffrey and Laurent. Looking at organic growth for digital plus 8% in both 2024 and 2025. Good figures but below the target of 10% CAGR for the 2023-2026 period. Do you expect to accelerate Digital growth rates above 10% in 2026? And what is driving the decision to raise the revenue target to EUR 550 million by 2030? Is it the need to offset the decline in Mail volume? Is organic growth expected to accelerate beyond 10% average on the 2025-2030 period? And have you identified any additional M&A opportunities? Geoffrey Godet: So I believe we have mostly responded to that question. So just maybe just try to add a little bit more color and Laurent you are free also to add additional comments as necessary. The subscription growth rate and the ARR rate, which are -- one is the forward leading indicator of the next one because we recognize the revenue of the next year year has always been poised as a target to be around that 10%, right? That's how we have calibrated our long-term strategic plan for the software business, which is really around the 10% growth rate on the subscription and 30% EBITDA margin because when you combine both 10% on the ARR growth rate and 30% on the EBITDA margin, the total makes 40%. And that's kind of the golden rule, obviously, for the SaaS and software companies in terms of credentials and in terms of being the best practice and top of the class in this market. And why the 10% for us because we have identified and calculated and our estimations are that the market in average, the markets that we're operating in to, so the different geographies and the different mix of segments both on the enterprise and the SMB with some different weight on both the customer communication and the financial automation side. We estimate that market growth to be at around 10%. So for us, that 10% is not just what we can do and not do, is to ensure that we keep up with the market because we believe we are one of the leading, if not the leading platform, with our EUR 250 million ARR in this market segment. So we want to make sure that we keep track with the market growth. That's the first element on how we have decided to set the level of acquisition cost for us for the coming years. So yes, we do expect naturally 2026 to be around the 10% for the subscription growth rate in ARR as we get into the first year. For the coming years, we do expect an acceleration. And as I responded earlier, driven by the new benefits and future benefits from the acquisition of Serensia related to the invoicing market that was not accounted for when we initiated our early 2030 guidance. Anne-Sophie Jugean: Thank you, Geoffrey. The next... Geoffrey Godet: Sorry, maybe, Anne-Sophie, on the acquisition. As I again mentioned earlier, no, we did not identify the particular acquisition that would be needed to achieve those targets. We've got 17,000 customers, and we do expect the upsell and the expansion from the existing customer base in addition to the ongoing already a new logo acquisition engine that we have to be able to allow us to meet the target. Anne-Sophie Jugean: So thank you, Geoffrey. And next question is on CapEx. So how will CapEx evolve in 2026? And how will it be spread between the 3 businesses? Laurent Du Passage: Yes, this one is for me. So we -- I think we mentioned this year, the CapEx level was EUR 86 million, Jean-Pierre, you need to think that it will not be significantly different, I think, in the coming years. So we expect something around the EUR 90 million. Obviously, we don't necessarily break it down. But if you think about it, Mail has an overall tendency to decline. I think it's part of the explanation also where we have lower placements in machine means lower CapEx on the franking machine in particular. Lockers still will continue to be quite dynamic and positively oriented, I guess, with the rollout that we mentioned in the U.K. and Italy and the last portion of Digital. Digital is in the scaling phase. The improved profitability is also the scalability of the R&D, so I don't expect a huge increase on the R&D side. So overall, not significantly different, potentially slightly up, but that's what I can say for next year. Anne-Sophie Jugean: Thank you, Laurent. Next question is on Mail. So is the Mail market reaching the cliff drop that we have been fearing? Could we see an even larger decline in 2026 than the one seen in 2025? How confident are you that the 2025 decline was a one-off? Geoffrey Godet: So we are clearly not anticipating a cliff in terms of the decline of the Mail market. We have updated our 2030 ambition for the Mail. It will remain a large part of our success for the 2030 guidance. And we do expect the Mail to still contribute EUR 500 million in revenue in 2030 at that time. Really, if you were to look at the numbers, we're changing a little bit the annual growth rate that we're expecting. We were expecting a decline around potentially 3% to be better than the 5% of the market, 3% to 5%. And we still expect to be able to do better than our anticipation of the market decline over that period of time. The big difference is, over the coming years, maybe 1 or 2 points of further decline per year of the market, right? So it is a degradation, but it's a predictable degradation. Our anticipation on the underlying Mail volume, the volume of letters is barely changing from now in 2030. This is what Laurent has explained to you, so it's around at 7.2%, 7.5%, right? So the Mail volume will remain resilient, declining, but predictable decline over that period of time. So with that context in mind, we're coming off 2 different impact in 2025 that have combined themselves an acceleration of the decline in Europe driven by some of those investment mandate and we do expect those to continue and to accelerate and we have taken that into account. And the impact that we had on the U.S. market, mostly driven by the post-decertification effect that we have experienced as a market, right, it's the entire market that have seen that in 2025. We have also seen at the end of '25 that market to start picking it up, which is a good news. And we do anticipate for Q1, our own performance into that market to improve versus '26. So at this stage, even though we have some uncertainty, and we have factored into our range of revenue for the Mail performance to improve in 2026. Anne-Sophie Jugean: Thank you, Geoffrey. Next question. So can you give some trends on revenue by segment in 2026? Specifically, how do you see Mail revenue after the decertification base effect? Laurent Du Passage: I can take this one. So specifically, we don't guide by solution on the revenue side by year because otherwise, it's a lot of different items that we've always being asked. I think the guidance is quite clear. We are aiming for the minus 2% to plus 2% revenue evolution. Obviously, what we factor in this minus 2% to plus 2% is obviously still some uncertainty. Geoffrey mentioned that, on the Mail side, and we've been we've been seeing the difficulty to predict on 2025. So we want to be cautious. The start of the year is obviously showing good signs, better than the trend we had again in Q3, Q4 of 2025. So we believe that the market will positively evolve notably because we get further away from the decertification in the U.S. And that basically, we have a comparison base. It's obviously slightly more favorable, but we get also new customers that get back to renewing their machine, which is normal. But you have an underlying trend that mentioned by Geoffrey in Europe, in particular, where you have a further decline than when we had shared back in the CMD. And I think we need to consider the market has evolved and now it's back to minus 6% on CAGR, but we are aiming to more kind -- if you do the math, kind of minus 5% CAGR in the coming years. We are currently at minus 10%. So basically, what it means that from minus 10%, you will come back to a trajectory that is closer to that minus 5% or even above if we can, obviously. But we factor that uncertainty within the minus 2% to plus 2% range, I think, for the total revenue level. Digital and Lockers being much more predictable, I guess, and as we mentioned, notably on the subscription part. Anne-Sophie Jugean: Thank you, Laurent. Still on Mail. Does the underperformance of this segment mean you lose market share? Or is it a geographical effect? Laurent Du Passage: So on the market share, the question is fair. Because we can see on the slide that we did slightly underperformed the market at the end of the year because before that, we are very similar. We believe that, yes, the geographical effect is part of it, meaning, basically, if you look market by market, we don't believe we lost market share in the past quarters. That being said in the past, we used to win a lot of market share on one specific market, which is in NorAm one. Our understanding is also that when we win, it's when we gain new logos. And after all decertification, the opportunity for gaining new logos is obviously scarcer because you have less basically a customer up for renewal. But our belief is that coming back to a phase where you have more customer of renewal also after the post COVID effect, which is part of the answer, basically, where we will be able to hopefully, again, make the differentiation. But if you look market by market, today, we're not losing market share. Geoffrey Godet: So a strong geographical mix. Laurent Du Passage: Yes, it's a big chunk of the explanation, yes. Anne-Sophie Jugean: Thank you, Laurent. And moving on to Mail profitability. Could you remind us how you really managed to contain the decline in Mail profitability? Is it mainly HR reduction or anything else to think about? And are these reductions due to natural attrition or the results of restructuring? Geoffrey Godet: Either way. Laurent, you can take it. Laurent Du Passage: I'm more than happy to take it. I think it's an overall approach. So you have obviously a reduction in cost because we have a very variable production engine. I mean, we source a lot externally and basically we can easily adjust the cost of sales, notably to the revenue. That's part of the answer. But yes, the rest will be mostly on the OpEx side. We have a population on which we have obviously some natural attrition because some gets retired. And notably on the segment, we have a range of people that we not necessarily then when they lead to retirement that we smartly don't replace because we know we need to progressively adapt that structure. We also contemplate when needed restructuring, and that's what we did this year, notably in France. And it's the overall approach that I think we've been successful in delivering the 27.1% EBITDA this year, and that's all this lever that we are pushing on. Last portion I didn't mention is obviously the cross-sell. I did mention that in the side of portability, but obviously, we using more our salespeople on the Mail side to sell more Digital, which they've been very eager to do so because of the invoicing coming up and slightly lower traction on the franking machine side, notably has been delivering also some savings with some contracts and some costs being basically Digital ones. Geoffrey Godet: I think to complement what you said rightfully on the synergies. We also have the synergies with the Lockers where the Mail technicians are also now supporting most of the installation in support of our Lockers base, notably in the U.S. but also in the U.K. So these are all contributing factors. And I think the best point of what you said, Laurent, and I think we have a tremendous track record, right? Because when you look at the combination of the viable cost structure the team has put in place, the favorable age pyramid that you mentioned, you could see that even in a difficult year where we lost more than EUR 70 million of revenue, right, almost 10% decline, we've been able to have a very high margin and stabilize it. So I think it's a credit to our commitment to maintain high margin and protect and favor, obviously, the cash generation of this business in the coming years. Anne-Sophie Jugean: Thank you both. And moving now to Lockers. When is the 5,000 units rollout in the U.K. will be completed? What are the ambitions of Lockers in Italy? Geoffrey Godet: So on the Lockers in the U.K., it's a very good question. We always say that for us, the first milestone is to be and obviously, it could depend on different configuration in each of the countries we can operate. But a Locker business, an installed base at scale would be around 2,000, 3,000 lockers minimal, right? So that's our first milestone that we're trying to reach. And hopefully, in 2026, or soon in 2027, we should be able to reach that first milestone. This is what we're focusing on. Now from now, and the end of '26 or the beginning of '27, we will obviously keep the flexibility to either accelerate or slow down those rollout based on the market condition that we see. For us, what is really important at this stage is maintaining that we always go for prime locations, which means we are going to have a good long term and high utilization of the network. As you could see that what Laurent shared with you, we've been able to manage the deployment of the base and making sure that, that deployment was with a high usage. So that's really for us the freedom that we take, right, based on market conditions, when do we need to accelerate the deployment and we need to slow down a little bit. So it's not a target per se, it is making sure that over a longer period, we can achieve those targets. And obviously, we could go beyond the first 3,000 and reach the 5,000 or more potentially. Just as a reminder, we've got 7,000 lockers installed in the Japanese market. And we have -- I forgot the exact number, 14,000, I think, in the U.S. now. And for the Italian one, specifically the same thing. We don't want to rush too early to deploy lockers or on the other hand, not take too long. So we will update you on the progress we make in the Italian market along next year. Always market context driven, that's really what we've learned over the past years to be efficient in our rollout. Laurent Du Passage: I think U.S. is 16,000. Geoffrey Godet: 16,000. Thank you, Laurent. That is the acquisition of Package Concierge in addition. Anne-Sophie Jugean: Thank you, Geoffrey. Moving back to Mail. So how much restructuring expense did you have for Mail in 2025? Laurent Du Passage: In 2025 is the bulk of what we have in the restructuring. So we have about 20 -- if I'm not mistaken -- you have about EUR 20 million. So just shy of EUR 20 million, and the bulk of it is the French RCC that we did this year, which represent probably a bit more than half of it, and the rest being other countries and for some also still a little bit of the buildings, notably footprint. So the bulk of it is for Mail. Anne-Sophie Jugean: Thank you, Laurent. So moving on now to questions on Digital. You have increased your revenue target for Digital. Customer acquisition can be expensive for SaaS companies. What makes you confident that you can improve your margin to 20% in 2026 and to 30% in 2030? Same question on Lockers. How confident are you that margins can improve? You are still in the Lockers rollout phase, notably in the U.K. and in Italy? Geoffrey Godet: So I suggest we share, we split the question Laurent, you take the one on the Lockers, I take the one on the software. Laurent Du Passage: Okay. Geoffrey Godet: And actually, thank you for this question. It's a relevant question on the software side. Our assumptions and belief today is that we did structure our go-to-market engine that brings us between 2,000 to 3,000 new logos every year. And you're right, in a subscription business model and for the type of offering that we offer to our customers, the sales acquisition cost that we expense and we incur in a given year doesn't get its full payback in the first year, right? Basically, from the moment we have the sales team engaged to sign a contract. We recognized the booking value, but not -- we don't recognize the revenue, right? Because we could have the full sales expense of the year, sign a contract in December or January for the last month of the year for us. So we'll get the benefit moving forward, but with 0 revenue creation, the first year, which is an extreme case. Obviously, in average, we sign contracts every month from the first month to the last month. So naturally, we intend to maintain that new logo acquisition engine and potentially to increase it a little bit over the years. But it's true that there's a second benefit that we expect and we see already actually in the last few years, which is the revenue coming from the expansion of the base. More simply put, is the capacity to upsell an existing customer from one solution to another solution. And this is where we're starting to be really good at. And naturally, when you have an existing customer, they already signed a contract, they use the platform. We have a customer success agent that discuss with them. And naturally, the capacity for ourself to convince that customer to use more of the application actually on the usage. It's also applicable or to be able to buy additional capabilities is much less expensive than acquisition of new logo. So it's really that second go-to-market engine that is kicking in and taking a greater impact and greater shares of the booking contribution for the coming years. And naturally, the efficiency of producing that revenue that booking is coming from that. So this is definitely a key lever for us. And I would just add maybe another level on the go-to-market is the contribution also that we get from partners at our scale, at our size on the market today and being recognized as the leader in much of the segment that we operate into, we are having the benefits of having partners that are happy to work with us and happier to work more and more with us. So it's also part of being more efficient on the go-to-market because naturally, we'll have the benefit of having leads and having customer contracts that are not coming just from our direct sales team, but from an increasing and richer partner ecosystem. We have now more than 500 partners that we work with every day, and we could see that their contribution is going to be beneficial also moving forward in terms of cost efficiency of the new logo acquisitions. Laurent Du Passage: And so for the second question, I guess, the Lockers side, I think, yes, rollout process for sure, I mean, you mentioned the U.K. and the Italian network. You need to think that we have a strong improvement also on the recurring side. The scalability, obviously, the R&D platform on the Locker is also one criteria. The level of investment, I think that we've have recognized up to now, notably in sales, in marketing to find new sites and to roll lockers. We have clearly learned from the past. And I think the level of efficiency we have also placing these new lockers is strong. So in the end, it's mostly tied to how much of recurring revenue you generate and that recurring revenue flows quite naturally like for the Digital part to the bottom line regardless of the team that you have that still continue to expand, but this team doesn't have to expand as fast as the top line. So you have clearly a scalable software and process of rolling out lockers that allows you to increase significantly the margin. We saw that this year, plus 4.5 points, 6.3% just on EBITDA on H2. It's nothing to do with what we had 2 years ago, and we've been rolling out plenty of lockers in the meantime. Anne-Sophie Jugean: Thank you, Laurent. So next, we have a couple of questions on Digital and AI. So do you see a change in the competitive landscape for Digital due to AI? And are you losing deals against AI companies? Geoffrey Godet: It's a very good question, very relevant question, something, obviously, we look carefully at, and I can answer very directly today that we have not lost any deals related to an AI competitor. So we've got 0 churn neither related to any AI competition. So we are obviously, I think, getting the benefits of what I have, I think, tried to summarize for you is the type of solution, the type of platform we provide today, which cannot be replaced by an AI platform at this stage. And this is why I don't believe we see AI competitors being able to replace us, right? We provide data that are required from a legal proof, right? Whoever sends the invoice, it's become a legal document at the time it is issued. It becomes the reference for different tax institutions in different countries, the basis of any compliance and audits. And we do that obviously on many type of documentation. So our system is a system of records, integrates with the system of records. And we see AI not as a competition that replaces, but as a benefit where we could augment the capabilities, the benefit, the information that we share and we can give to our customers and the outcomes they can get from it because AI agents have need to access our platform, our backbone, and this is why also we build our own capabilities on top of AI naturally. So we see that more as complementary and not as a direct competition at this stage. Anne-Sophie Jugean: Thank you, Geoffrey. And still on the Digital business, you mentioned peers transactions at 10x revenue in the past. Do you think that multiple is still relevant? And if not, what may be the new norm? Geoffrey Godet: Well, that's a very difficult question to answer, and I don't know if I'm in the best position considering that probably more financial specialists could be there. What I would look at is that there's been very few transactions on the M&A side. Since the last month or so or 2 that we had seen some of the publicly traded company in SaaS being impacted recently. And I would add another caution is that, obviously, those impact seems to have been very recent. So we need to see obviously the longer-term impact. And I think just in the past few weeks as companies are trying to clearly explain themselves. I think we could see even recently that there's a lot of software SaaS companies that are what we could call them SaaS winners naturally because like with us, our software, our SaaS solutions are not being impacted, not being intended to be replaced by AI, but could benefit from it moving forward. So I would be surprised that some SaaS companies could be impacted naturally, the one that may have their business model related to seat usage as AI could potentially automate what certain people could do. So if your business model is ready to seat, it could be the case. It's not the case for us, and it's not the case for a lot of other SaaS companies that operate in the same kind of vertical and specialized environment that we do. So that's, I think, my note of cautions and not projecting any multiple numbers. We have been, at times, naturally like for Serensia or CDP more recently, looking at acquisitions. So we obviously keep an eye, obviously, on the M&A market. And I think that could represent an opportunity for us if we were to find companies that would be less valuable than they were before and could augment obviously the benefit that we see on the market. But at this stage, I think it's way too early to be able to anticipate what multiple or variable impact -- valuation impact it could have on the entire segment and the entire industry. Laurent, if you have anything, you probably know this much better than me. Laurent Du Passage: I agree with what you said, Geoffrey. Anne-Sophie Jugean: So thank you, Geoffrey. Last question we have for this Q&A session is on capital allocation. Are you considering starting a new share buyback program in 2026? Geoffrey Godet: I can take that one. As you know, every year, we have a rolling 18 months of buyback capabilities that we -- from which we have a role to do in the general assembly. We just need to keep in mind that we have several targets for 2026. For sure, the first one is that we will pay a dividend that will be higher this year than the one before. We are talking about EUR 26 million of dividend overall, which is up by EUR 1.5 million to EUR 2 million compared to last year with the suggestion we will do, obviously, at the general assembly, would be subject to vote. And we have also that leverage at 1.5 that we are committed to meet and that I mentioned we were today at 1.6. We mentioned the CapEx. So that's the overall allocation of capital. Would there be room for any share buyback and an opportunistic price point for the shares? For sure, we would trigger that. But we need to meet the overall envelope of what we've allocated to each of the priorities of the company. Anne-Sophie Jugean: So we have no further questions at this time, so we can close the call. And thank you very much for attending this presentation and for your questions. Our next call will be on the 21st of May for our Q1 2026 sales release. And in the meantime, we look forward to meeting some of you in the coming days during our roadshows. Thank you, and have a good evening. Geoffrey Godet: Thank you. Have a good evening, too. Laurent Du Passage: Thank you. Geoffrey Godet: Thank you, Laurent and Anne-Sophie.
Operator: Good morning, and welcome to the Lucid Diagnostics Inc. Fourth Quarter 2025 Business Update Conference Call. At this time, lines are in listen-only mode. If at any time during this call you require immediate assistance, please press 0 for the operator. Please note this event is being recorded. I will now turn the conference over to Matthew Riley, Lucid Diagnostics Inc.’s Vice President of Investor Relations. Please go ahead. Matthew Riley: Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics Inc., along with Dennis M. McGrath, Chief Financial Officer. The press release announcing our business update and financial results is available on Lucid Diagnostics Inc.’s website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release, and conference call all include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities and Exchange Commission. For a listing and description of these and other important risk factors and uncertainties that may affect future operations, see Part I, Item 1A, entitled “Risk Factors,” in Lucid Diagnostics Inc.’s most recent Annual Report on Form 10-K filed with the SEC and any subsequent updates filed in Quarterly Reports on Form 10-Q and subsequent Forms 8-K. Except as required by law, Lucid Diagnostics Inc. disclaims any intention or obligation to publicly update or revise any forward-looking statements to reflect changes in expectations, or events, conditions, or circumstances on which the expectations may be based, or that may affect the likelihood that actual results would differ from those contained in the forward-looking statements. I will now turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics Inc. Lishan? Dr. Lishan Aklog: Thank you, Matthew, and good morning, everyone. Thank you for joining us today and for your continued engagement and support. Let us begin with some key highlights for the fourth quarter and in recent weeks. We will start with some key highlights from the commercial side. Our EsoGuard test volume in the fourth quarter was 3,664. That exceeds our target range that we have articulated regularly of approximately 2,500 to 3,000 tests per quarter, and that represents a 29% increase from 2025. Revenue came in at $1,500,000 for the fourth quarter, about a 24% increase from 2025. We continue on the commercial side to engage our team in transitioning to target both Medicare, which we have talked about before, but now also the VA, which we will discuss in more depth. We are continuing our event-based testing to maintain the volume as prescribed. We are entering 2026 with significant momentum as we await Medicare coverage. Let us talk about the VA. It was a really important milestone for us that we were awarded a U.S. Department of Veterans Affairs, the VA, contract for EsoGuard. This was issued under the VA Federal Supply Schedule, or FSS, which centralizes ordering and includes pricing aligned with our established Medicare rate of $938. That was a great accomplishment. The VA, as most of you know, operates 170 medical centers across the country and serves approximately 9,000,000 enrolled veterans annually. This is a very clinically relevant population. Veterans have a higher risk of GERD and esophageal disease and a higher risk of having the risk factors recommended for esophageal precancer testing. We believe a significant portion of those 9,000,000 patients will be recommended for testing. We believe that our ability to secure this and to secure it at the Medicare rate is a testament to the strength of our clinical evidence. The VA is, in many ways, similar to Medicare in terms of how they view the clinical evidence and in approving this. We will discuss the business implications of this and the rollout from a commercial point of view in a bit more detail in the models. We are also very excited that we announced positive data from the largest reported real-world experience of esophageal precancer testing. This manuscript, which is now in the process of being peer-reviewed for publication, evaluated EsoGuard and EsoCheck in nearly 12,000 HET BRICK patients, and the results were outstanding. The study confirmed excellent technical test performance, rapid cell collection times, and appropriate physician use across the board. More specifically, the technical success rate for EsoCheck cell collection was 95%, and 95% of procedures were completed in under two minutes. It is important that we compare that to the historical alternative to EsoCheck and to explain this in contrast. The sponge-based tassel devices, which are 30 years old and somewhat antiquated, take at least 10 minutes or greater to do so. Being able to do this in a minute or two really provides an opportunity for us to roll this out in a variety of clinical settings. It was also 100% safe, in contrast to previous sponge-based devices, which have been plagued by Class I recalls as a result of unattached sponges. This data across a large number of patients—12,000 in a real-world setting—really confirmed the scalability and the viability of EsoGuard on samples collected with EsoCheck. It sets a very high standard that any clinically viable, widespread precancer screening tool must meet. We are quite skeptical that other technologies in this space will be able to reach that high standard. So, EsoGuard and EsoCheck clearly work in real life, in real patients, and at real-world scale, and the study demonstrates our preparedness for broad access. It has been extremely useful for us even in the preprint form in our engagements and discussions with commercial payers and even in our side conversations with Medicare. Before turning it over to Dennis, I wanted to provide more in-depth updates on two key aspects related to reimbursement and provide some additional context on the VA. Let us start with reimbursement. We are all anxiously awaiting the publication of a draft LCD for Medicare, and we remain highly confident that this is close. We have had ongoing engagements, in person and otherwise, with the leadership of MolDx. We continue to feel strongly and to understand and believe that the MolDx group and others view the CAC meeting, the Contractor Advisory Committee meeting, that occurred in September, as being a home run—with 11 clinicians unequivocally, in somewhat unprecedented fashion, all aligning with the clinical validity and clinical utility evidence that we demonstrated. We believe the fact that we are still waiting for this is related to logistical delays. There have been other LCDs that have been held up. We have some positive signs in that several LCDs that were in the CAC meeting process in the late summer of last year have started to come across the finish line, and we believe that we are next. The next steps, to remind everybody, once we get the publication of this draft LCD that proposes coverage for EsoGuard, there will be a mandatory 45-day comment period. After that public comment period, which includes the public meeting, there will be a publication of a final LCD and an official notice and register of EsoGuard coverage. Once that final LCD and that official notice are complete, then Lucid Diagnostics Inc. will be eligible for payments going back on Medicare claims dating back one year. While we are awaiting Medicare coverage—as everybody else is—I want to make it clear that we are continuing to push forward on two other very important fronts on the reimbursement, on the commercial side. As we hinted at last time, and now it has become clearer, we have some very positive engagements with several of the large payers. The most notable one is with UnitedHealthcare. As we noted at our last meeting, UnitedHealthcare included in their coverage policy for endoscopy for EGD in this condition the fact that a positive EsoGuard test was an appropriate indicator for coverage of the EGD, and we viewed that—and our consultants and others viewed that—as a sign of de facto coverage. We are viewing it as that and proceeding accordingly. We have entered into the credentialing process with UnitedHealthcare, and that positions us to enter into contracting discussions once that is secured. There are some other examples where that is also the case, though a little bit more complicated, including Cigna and potentially Anthem. We believe that we have the opportunity to leverage policies related to endoscopy to secure in-network coverage of EsoGuard, and we are pursuing those aggressively. What that allows us to do is to have an alternative pathway that is not typically available for molecular diagnostics tests. Molecular diagnostic tests typically have to work through the laboratory benefit management groups, the LBMs, and secure coverage through those groups that work on behalf of other payers and issue coverage policies accordingly. That is not to say that we do not remain deeply engaged with the LBMs—we do. In the situations where we have a pathway to securing in-network payment and contracting through the EGD policies, we will continue to do that, but we will also continue to engage with the laboratory benefit managers. Those engagements have been very positive. There has been very positive feedback on our clinical evidence, on our clinical validity, on our clinical utility data, and all of that. The one additional challenge with the commercial payers in general is that, unlike Medicare, they do look at cost-effectiveness data. We believe we have solid data already existing on that, but we are continuing to supplement that with more sophisticated modeling on cost-effectiveness that will be available for us to supplement these discussions in the coming quarters. We believe we have secured our first LBM positive policy coverage. We cannot disclose that yet. That will be coming up in the next couple of months. We had a very good conversation with the largest LBM recently and feel like we have a pathway forward for coverage on that front. We also continue to have extensive engagement with the Blue Cross Blue Shield Association, which is the umbrella organization of multiple Blue Cross Blue Shield plans. Those conversations continue to be in-depth and engaged, and we think they will result in future positive coverage policies from regional Blue Cross plans. In addition to that, we also remain engaged with IDNs, with integrated delivery networks. There are several large networks across the country, and one of them—a large one on the West Coast—we have had very good engagements with. We have good clinical champions within those. Engagements tend to be somewhat different than the engagements with the traditional commercial payers because they involve a more integrated, multifaceted engagement with both clinicians as well as the administrators. Those look good, and we feel like we will have some positive news on that front in the near future. Again, to reiterate, as we are waiting for Medicare, we are continuing to work hard on the commercial side. We believe that there are some near-term wins there and that the pipeline with our upgraded team is now very robust, and we will continue to start seeing some wins over the coming quarters. Let us talk about the VA system. We could not be more excited about this. This was an important win for our team. Getting on the FSS was important. Getting on the FSS without discounting relative to Medicare, acknowledging and validating the Medicare price and our clinical evidence, was a big win. What that now allows us to do is allows our team to engage with individual VA medical centers. We have a very robust pipeline of such engagements with individual centers across the country. Those engagements have been positive. We have been able to leverage the fact that we have solid data in a VA population. That is the Dr. Greer study from the Louis Stokes VA Center in Cleveland that is published, part of our clinical evidence package. Being in the VA population is very powerful as we engage. We know that the dynamics within the VA are different than they are at other centers—that the VA can often be resource-limited with regard to procedures. EGD resources in particular are limited. The wait times and timelines to get an EGD, particularly a screening EGD, can be high. EsoGuard really fits in nicely within this clinical ecosystem as a test that will allow for broader screening and triaging only those who are positive on EsoGuard—only those who have the highest yield—to EGD. The process is fairly straightforward. Since we are on the FSS now, we can engage, find clinical champions at that center, engage contracting, and have a PO issued. We do need to coordinate cell collection at these sites, and we have a variety of pathways to do that. We have also figured out how to allocate our commercial resources accordingly. As we have talked about before, prior to the VA, when it became clear that Medicare coverage was imminent, we made some changes to our commercial team to shift them and their incentives towards enhancing our Medicare volume so that once we get Medicare, we can put our foot on the gas and drive that Medicare business. We are reallocating our existing resources in the same way. We are not increasing our resources—we are very cognizant of our cash burn and our OpEx right now—but we are reallocating resources to make sure we are taking advantage of the opportunity with the VA. We have appointed one of our senior leaders on the commercial team to be a National Director for the VA, and he is working in close collaboration with our VP of Market Access to drive these engagements with the VA, turn them into contracts, turn them into POs, test volume, and ultimately revenue. That happens both at the senior leadership level and in the field. Everybody in the field within their region is incentivized to not just engage with primary care physicians or gastroenterologists or their call points or even with fire departments, but they are also incentivized within their region—and every region has a VA—to develop relationships with physicians and identify clinician champions that they can hand over to the senior leadership team on the more strategic side. All of this activity on the commercial team, all of the adjustments we have made for the Medicare side and now are making on the VA side, we are looking forward to those bearing fruit in the coming weeks and quarters. To summarize from a commercial point of view, throughout 2025 we demonstrated there is a market for EsoGuard, that we can maintain a steady volume that allows us to remain engaged with commercial payers, and that engaging with the commercial payers is starting to pay off into progress towards securing in-network coverage. We have demonstrated that we know how to generate demand. We know how to get physician adoption. We are increasingly improving our ability to engage with health systems, and our ability to engage with health systems will be accelerated dramatically once we get Medicare, because the lack of Medicare is an obstacle to engaging with health systems. All of that groundwork has been laid nicely, culminating in the data that will be published soon and has been publicly released on the real-world experience. That foundation—2025 was a really important year for us in laying that foundation. As we move into 2026, our focus is on converting the lessons that we have learned, converting our ability to generate that demand, into revenue, and the focus is on the VA right now and then on Medicare once we secure that coverage. Progress with the VA, with our commercial payers, and with Medicare puts us in a great position to turn the corner with regard to our commercial experience and track record and to ultimately put our foot on the gas and drive test volume and revenue accordingly. Everything we have done to date, all the real-world experience that we have been able to document, and our full body of clinical evidence puts us in a great position to do so. One aspect that comes up regularly, and the timing for this is perfect because we believe we are at an inflection point, has to do with EHR integration. In order, in 2026, for a molecular diagnostic test to be implemented clinically, it is not sufficient just to get physician adoption. Having EHR integration—which facilitates not only the ordering of the test but delivery of the test results, and in our case, facilitating the identification of patients through identification of risk factors—is a major boost to commercial activity. In addition to the work on the commercial side, the VA side, and on Medicare, we have started to push some resources to work on EHR integration. At this stage, we are doing so using systems that are more cost-effective to us, but that still allow us, when we engage with a health system, to engage in such a way so that the EHR—the Epic instance or whatever other system that that health system happens to be using—we can actually offer ordering physicians the ability to order the test and the ability to receive the results. Once we are in a position where we have accelerated volume and we are further along, we are prepared to invest in the most aggressive way to pursue EHR integration, which is to actually engage with Epic directly on Epicor, and we are well positioned to do that at the appropriate time. Again, we are all waiting for Medicare. Hopefully, that is any day now, but hopefully you get a sense of the extensive work this team has put in over the last quarter to set us up for a lot of success this year—what we are doing now and once we get it. I will now turn the call over to Dennis for the financial results. Dennis M. McGrath: Thanks, Lishan, and good morning, everyone. The summary financial results for the fourth quarter and the year were reported in our press release that has been distributed. On the next three slides, I want to emphasize a few key financial highlights from the fourth quarter, but I encourage you to consider these remarks in the context of the full disclosures covered in our Annual Report on Form 10-Ks. With regard to the balance sheet—cash at year-end December 31 was $34,700,000. The average burn rate, including cash interest on the debt for 2025, was $11,100,000 per quarter, with the fourth quarter a bit higher as we made investments in our sales team and market access staffing—about $500,000 in the fourth quarter—and we settled some annual compensation obligations during the period. You will recall that in 2024, we refinanced our convertible debt into a $22,000,000 five-year note, interest only, at 12%, with a $1 conversion price, which is held by long-term shareholders. The fair value of the convertible notes in the amount of $24,000,000 at year-end is the only other substantive change from the previously reported balances at the end of the third quarter. The fair value increase of $1,700,000 reflects a mark-to-market quarterly adjustment in parallel with the common stock price changes between the periods. The fair value increase is also a substantial part of the fourth quarter expense charge of $2,400,000 reflecting other income in the P&L. For the year, the year-over-year change of $5,400,000 reflects a 33% increase in the stock price over the year and also drives a similar noncash expense charge to the annual P&L in the amount of $7,700,000. Shares outstanding, including unvested RSAs and conversion of the Series B preferred as of last week, are approximately 177,000,000. After the conversion of the Series B on March 13, there were approximately 13,000,000 common shares held in abeyance due to the 4.99% ownership blockers in the Series B Certificate of Designation. If these abated shares had been issued, common shares outstanding would be about 190,000,000. The GAAP outstanding shares as of December 31 of 131,000,000 are reflected on the slide as well as on the face of the balance sheet in the 10-Ks. GAAP shares do not reflect unvested RSA amounts. At present, PAVmed continues to be the single largest common shareholder of Lucid Diagnostics Inc. with ownership of approximately 18% of the common shares outstanding. Dr. Lishan Aklog: Although PAVmed no longer has voting control of Lucid Diagnostics Inc., PAVmed together with the Board and management still have a significant influence over Lucid Diagnostics Inc. with approximately a 25% voting interest. Lucid Diagnostics Inc.’s Series B-1 preferred securities convert to common shares in a couple of weeks on May 6. Including the dividends owed on the Series B-1, an additional 16,800,000 common shares will be issued, subject to the 4.99% beneficial ownership blocker in the Certificate of Designation. Dennis M. McGrath: With regard to the P&L, this slide compares this year's fourth quarter to last year's fourth quarter and year-over-year on certain key items. I trust you will review the information and my comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly on non-GAAP information. Our sales team sold over 3,600 tests for the fourth quarter, with a billable value over $9,000,000, resulting in recognized revenue of $1,500,000, reflecting a sequential 29% increase in test volume and 24% sequential recognized revenue for the period. With new investors once again joining our call, it is worth repeating what we have communicated in past quarters about revenue recognition. The key determinant in how revenue is recognized at this point in our reimbursement journey is the probability of collection, and therefore, the fact that we are in the transitional stages of our reimbursement process means revenue recognition for the majority of our claims submitted to traditional government or private health insurers will be recognized when the claim is actually collected versus when the patient report is delivered, invoiced, and submitted for reimbursement. As you will see in our 10-Ks, this is called variable consideration under GAAP’s ASC 606 revenue recognition guidelines, and presently, there is insufficient predictive data to reflect revenue from all of our quarterly test volume at the point where the test report is delivered to the referring physician. For billable amounts contracted directly with employers and that are fixed and determinable, revenue will be recognized when our contracted service is delivered—generally, that means when the report is delivered to the referring physician—which will be the case with the VA. It is important to note that a pending Medicare approval decision impacts 40% to 50% of our addressable patient population and therefore will have a significant impact on our future revenue recognition analysis. Furthermore, for tests performed on Medicare patients with dates of service within 12 months of a final positive Medicare policy, we will also get paid within a reasonable time frame after the final policy is issued. With regard to the remainder of the P&L, the variation analysis for the fourth quarter substantively aligns with the year-over-year analysis, so I will focus my comments on the annual changes and happily answer any specific questions on the last quarter in the Q&A. On a non-GAAP basis, total operating expenses increased from $44,300,000 in 2024 to $48,700,000 in 2025, an increase of $4,400,000, comprised of the sum of commercial expenses—largely increases in sales personnel and market access staff—in the amount of $1,600,000, with the remainder in G&A, which includes approximately $1,600,000 in financing costs together with $1,800,000 in annual compensation expenditures. Our non-GAAP loss for the year of $44,000,000 versus $40,000,000 in the prior year is largely related to the same items I just mentioned. The non-GAAP net loss per share of $0.10 in the fourth quarter and $0.43 for the year is better by almost half versus the same periods in 2024. With regard to the operating expenses, this slide is a graphic illustration of our operating expenses after eliminating noncash expenses for the period you collected. Non-GAAP operating expenses of $14,100,000 are higher than the average $11,600,000 for the last four quarters, largely related to the compensation expenses related to increased personnel in sales and market access and annual compensation-related plans. Let me close with a few reimbursement highlights for the fourth quarter as we have done in past quarters. In the fourth quarter, we sold over 3,600 tests, reflecting about $9,000,000 pro forma revenue. During the fourth quarter, we recognized revenue of about 17% of that amount, or $1,500,000. Of that amount, about 49% was from claims submitted in prior quarters, with the longest-dated item from over two years ago. Of the claims submitted in the fourth quarter, about 76% were adjudicated and 24% are pending. Out of the 76% that have been adjudicated, about 50% resulted in an allowable amount by the insurance company with an average of $16.23 per test, which bumps up against the Medicare rate. Of those denied, most fit into one of three buckets: medically not necessary or deemed to be not medically necessary, require a prior authorization, or, lastly, additional medical records. The balance are considered to be non-covered. With that, operator, let us open it up for questions. Operator: Thank you. Ladies and gentlemen, we will now open for questions. If you have a question, please press star followed by one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Mark Anthony Massaro with BTIG. Your line is now open. Mark Anthony Massaro: Good morning, and thanks for taking the questions. I wanted to start with the nice increase in volumes sequentially. It is about 800 up sequentially. I am wondering how much of that might have come from the VA versus any other targeting efforts that might have been new in the quarter. Do you think that this could be a new run rate, or should we continue to think of volume trajectory in that 2,500 to 3,000 range? Dr. Lishan Aklog: Thanks for the question. I think we might see that as a new run rate, but it is not because that represents the VA. We are in the early stages of engaging with individual VAs, but we do believe that we will start seeing some meaningful volume come from the VA on top of the volume we have already established. As we said in previous quarters, the quarter-to-quarter volume in our prior paradigm, which was heavily focused on event-based testing, tended to be variable based on the size of testing events. I would not discount two things: first, the productivity of our team as we become more established continues to improve over time; second, as we transition with our current commercial resources toward the Medicare population and now increasingly the VA, we will see the fruit of those efforts. That 800 increase is not directly attributable to VAs; it was too soon for that. Mark Anthony Massaro: Understood. You made an interesting comment about health plan coverage, including with UnitedHealthcare. You indicated that you view this as coverage given the coverage policy that they updated. Is there any change to how you have been submitting claims to them previously, and can you give us any sense for discussions or dialogue you are having with them about perhaps formally signing a contract? Dr. Lishan Aklog: This is a little tricky, so let me work through it. It has not changed how we have submitted claims; we have continued to do so. The reason why this is on the radar now is because of our prior strategy of making sure we had sufficient volume, and United has been one of the payers where we have submitted a significant number of claims. It is not a positive coverage policy specifically for the EsoGuard test. What we have learned since discovering that United—and, as I said, other plans have followed in almost verbatim identical fashion—have included EsoGuard as an appropriate indication for an EGD within their endoscopy guidelines for Barrett’s. On deep analysis of that, internally and externally, and in consultation with different medical directors, we concluded that we can use the term de facto coverage. Much of being in-network through credentialing and contracting happens outside of explicit written positive coverage policies. United operates a lot within guidelines. This is within the guidelines for how they assess claims related to endoscopy. It is our conclusion that we can go directly to credentialing and subsequently to contracting based on EsoGuard being included in the EGD guidelines as an appropriate indication because, by definition, if you say that it is an appropriate indication for an EGD, then it is not experimental. There is sufficient support to justify a positive test as being a triage tool for EGD. Practically, our team has initiated the credentialing process—the process by which you become an in-network provider. Once we achieve that threshold, which we think will be shortly, we are prepared to enter into, and have solicited the opportunity to enter into, contracting discussions directly with United. Mark Anthony Massaro: Understood. You have talked about reallocating resources to Medicare lives. Can you give an example or two? As we think about 2026 progressing, is there a time this year where you think we can start measuring productivity of these reps? Dr. Lishan Aklog: From a strategic point of view, we have taken the position that we want to maintain test volume. We want to make sure we continue to have engagements with the individual commercial plans so that we can have meaningful conversations with them, like we have seen with United and with many other plans. That volume previously has been heavily dominated by event-based testing—fire departments and so forth—because that was a highly efficient way for us to execute on that strategy while maintaining our operating expenses and our cash burn at a level consistent while we await broader coverage for Medicare and others. Since the fall, we have been taking our commercial team—which has been incentivized to drive volume and event-based testing, increasingly event-based that is subject to contracting—and steadily moving them toward engaging with physicians, physician practices, and health systems to drive our Medicare volume up. The examples are different at every site. A couple of examples on the Northeast and on the Atlantic Coast: high-productivity teams in the field that were doing well with fire department volume and increasingly getting those events fee-contracted are shifting toward engaging with physicians. We are seeing that manifest as our Satellite Lucid Test Center activity at individual practices and health systems. We will suddenly see a practice that one of our field members has engaged with schedule testing events. The SLTC model is where we bring our nurses to the physician practice, co-locate them on scheduled days to test patients. We had one recently where our clinician tested 30 patients in a day, and the vast majority were Medicare patients. That process of turning the ship while maintaining our volume and revenue is working because of a carefully designed incentive plan and training program. I am not sure by the end of this year that we will be ready to start reporting productivity on a rep-by-rep basis, but that is something that will be coming next year. Dennis, do you want to comment on timing? Dennis M. McGrath: I think more fulsome reimbursement across the states will contribute to the timing in terms of when we start reporting that, so that an individual account can go in and really test their entire base rather than just solicit Medicare patients or VA. As we publish additional coverage policies, that is probably a metric that ultimately we will start publishing. The end of the year is as good a guess as any. Mark Anthony Massaro: Great. Thanks so much for the time. Dr. Lishan Aklog: Thanks, Mark. Operator: Your next question comes from Kyle Mikson with Canaccord. Your line is now open. Kyle Mikson: Good morning, and thanks for the questions. Could you talk about the Medicare mix over the last two to three quarters? In the recent past, it was maybe 10% to 15% of claims. As we think about the ability to turn on Medicare and then receive payment from claims going a year back, it would be helpful to know how much of this volume has been Medicare. Related to this, Dennis, on the $9,000,000 that you called out as being billable in the quarter, could you reconcile—is that literally the 3,600 or so claims times the payment rate? Because that would be $7,000,000. I did not understand the math there. Dennis M. McGrath: The Medicare rate—our standard billable amount—is $2,499, and we have actually increased that ASP by another couple of hundred dollars. That is what we bill and we collect. Obviously, we have not billed anything to Medicare yet. As far as the Medicare component, that has grown sequentially in the fourth quarter versus the third quarter by about 28%, as we started to direct the focus towards this effort. The percentage of test volume is around 16%. That is up from 10% to 12% from the prior quarters. If you go back into early 2024, we were probably as high as 25%. It reflects, post-CAC meeting in September, that in the fourth quarter we started directing that effort. We expect as we move through 2025, as a percentage of our test volume, beneficiaries under Medicare will be higher as well. Dr. Lishan Aklog: A couple of reminders on that, Kyle, for the listeners. Based on the epidemiology of the risk factors of patients recommended for testing, about 40%, probably closer to 50%, of patients would be in the Medicare population, but our goal is to drive that in the early phases above that. The numbers Dennis offered reflect less than one quarter of activity after the CAC meeting and after transitioning the team and adjusting incentives, so it reflects the early stages. Qualitatively, the process of shifting toward a greater Medicare portion of our mix is going very well. Kyle Mikson: Just to clarify, Dennis, the 28% was a quarter-over-quarter increase—Medicare claims? Dennis M. McGrath: Yes, the sequential increase in the fourth quarter from the third quarter was around 28%—Medicare claims. Kyle Mikson: Understood. You also talked about the LBM—the first positive coverage there, which you will be press releasing soon. As that turns on, what does that afford you in terms of additional volume and maybe ASP uplifts and gross margin as well from that deal? I feel like the LBM could unlock a lot of value. Dr. Lishan Aklog: Even though we feel like there is a really interesting path that United has brought forth—and a couple of others may be in the mix—with regard to using the EGD guidelines essentially separate from the LBM process, it is important to emphasize that the LBM process remains the main path towards positive coverage policy. Many or most of the plans outsource the technical assessments and the drafting of policies. Ultimately, the plan decides the policy, but the technical assessment is typically outsourced to the LBM. The LBMs range in size from smaller to the largest, and the number of covered lives they reach varies. As I said, we have had positive discussions with the largest LBM that covers the most and the largest plans, and then all up and down the chain. The one we will announce—we obviously cannot announce it until it is posted publicly—aligns closely with the existing guidelines. As you may recall, the proposed LCD also aligns with existing guidelines. There is a nice consistency across the board. The LBM has engagements with its clients, which are a set number of plans and covered lives. We will be able to use that information, know where those are geographically, and target those. It is not going to happen immediately in terms of translating a coverage policy toward volume and revenue in that target coverage area, but it is the first step. After coverage policy, you still need to engage in contracting discussions and agree on pricing. Being in-network following a coverage policy is an important step. Kyle Mikson: A housekeeping question on your broader commercial strategy. Sales and marketing expense increased $1,000,000 quarter-over-quarter—a 25% increase. You were at a pretty consistent run rate previously. Should we expect $5,000,000 or so a quarter going forward, or could this increase quite a bit in 2026? Dennis M. McGrath: I think that is a reasonable level going forward. The fourth quarter is also burdened by some annual compensation expenses—truing up sales teams and non-sales personnel in the support side of sales and marketing as well—so the fourth quarter is a little higher than the previous run rate. It is a reasonable number to look at moving forward over the next couple of quarters. Kyle Mikson: Perfect. Thanks. Dr. Lishan Aklog: Thanks, Kyle. Operator: Your next question comes from Michael Stephen Matson with Needham. Your line is now open. Michael Stephen Matson: With regards to the VA, how does your sales rep geographic coverage align with their facilities? Dr. Lishan Aklog: It is really a two-level process, as hinted at in my prepared remarks. At a national level, we have a National Account Director and a National VP of Market Access who work hand in hand in bringing individual health systems across the finish line through contracting, PO submission, and then the team implements the launch within that center. We view our entire sales team as the tip of the spear for early engagement. With any of these individual centers, you still need to have a physician champion and a commitment from the physicians—typically the gastroenterologists in partnership with primary care/internal medicine—to launch within that center. Initial engagements will often be from the local team in that region, and once a champion is identified, that gets handed over to the national team who can quickly move toward executing and establishing cell collection and so forth. We also have positive engagement with the national clinician leaders, particularly over GI. After we have had a number of these sites in place—and given that we have published research and ongoing clinical trial data within the VA—the VA being research-centric bodes well for potentially launching a national program in the future. As a reminder, VAs tend to be linked with academic medical centers. The physicians that staff the VAs often hold faculty and clinical positions at affiliated academic medical centers. That is helpful to us in both directions. Where we have already engaged with a large academic health system, identifying the physician within that group who works at the VA gives us an immediate clinical champion. Vice versa, any success at a VA center gives us an entry point to the associated academic center. Michael Stephen Matson: A question for Dennis on OpEx. It stepped up a little in the fourth quarter; it sounds like that is related to sales and market access investments. Is it reasonable to assume that level continues in 2026? Dennis M. McGrath: There is some annual compensation triggered in there, but the market access team, clinical service team, and the commercial team are a baseline that we should plan for as we move forward. Particularly as the volume increases and revenue increases, the variable compensation plans will kick in as well. Michael Stephen Matson: Got it. Thanks. Operator: Your next question comes from Jeremy Perlman with Maxim Group. Your line is now open. Jeremy Perlman: Good morning, and thank you for taking my question. I want to circle back on the testing volume. It was a really strong quarter. You said it was not due to any significant increase in VA testing. Is it higher utilization in existing accounts, new accounts signing up, event-driven, or team productivity improving over time? Is this why you said this could be a better run rate for testing volume going forward? Dr. Lishan Aklog: I think it is a mix of all of the above. I want to give kudos to the team that we grew volume during a quarter where we were asking them to make a significant transition away from the more efficient event-based testing—not away from those entirely, but toward more traditional engagements to drive Medicare and VA volume. It is a combination of those factors, but still driven by productivity because that increase in volume, despite the structural changes, was driven by the same number of people. We have not increased the meaningful numbers in the field. The potential to continue to sustain somewhat higher volume than our target could be driven by the opportunity to start seeing volume in the VA, and, once we get Medicare, pushing volume more aggressively there. Jeremy Perlman: On the VA, you mentioned it serves 9,000,000 lives, and the patient population has a higher risk of GERD, making it a strong target population. How are you viewing the total addressable market there, and what are you hoping to see in 2026 in terms of testing volume run rate exiting the year? Dr. Lishan Aklog: If you start with 9,000,000 patients, the proportion recommended for testing by existing guidelines is at least a couple of million patients—call it 20% to 25% of that population based on the most conservative subset of risk factors for testing, for example, over 50 with three risk factors based on the ACG. A couple of million times the Medicare rate gives you the addressable market within the VAs. Jeremy Perlman: Understood. You have mentioned numerous times the one-year look-back period for Medicare billing. We were hoping to get the draft letter by the end of 2025. Now it is the end of the first quarter, so hopefully it is imminent. What is holding you back from signing on more sales reps and pushing Medicare since you still have the look-back? Dr. Lishan Aklog: I do not think we are nervous. I think it is prudent to be cautious. It is not due to any concern about the likelihood of us getting Medicare or the likelihood of us getting paid for that amount. It is general prudence regarding being super careful about our OpEx in the current capital markets environment. Dennis? Dennis M. McGrath: Eighty percent of our billable amounts are not being collected. We have been judicious about our spend, and you see that we have started to spend more. We are not going to turn the faucet on completely until we have the ability to collect a good chunk of the test volume that we bill for. That will be the gating factor. Could we put more salespeople on, particularly to go after Medicare patients? Yes, but anytime they walk in the door, there will be commercial patients as well that they are attracted to. Having a Medicare draft policy in place and knowing the timing would give us clarity as to when to step on the gas even further. We have started to and are being judicious about it, and we will accelerate once we know the timing. Jeremy Perlman: Do you have an estimate of how many of these Medicare tests over the past year you would be able to bill? Dennis M. McGrath: It is rolling—couple million dollars. Obviously, it changes every day that we are delayed in getting this towards a final policy, but as a rule of thumb, it is a couple million dollars of collections that we will be able to get soon after we get the final policy. Jeremy Perlman: Great. Thank you for taking my questions. Have a nice day. Dr. Lishan Aklog: Thanks, Jeremy. Operator: There are no further questions at this time. I will now turn the call over to Dr. Lishan Aklog for closing remarks. Dr. Lishan Aklog: Thanks, operator, and thank you all for taking the time and for your attention this morning. We appreciate, in particular, the thoughtful and informed questions from our analysts and hope all the listeners find that back and forth enlightening. We believe this is going to be a big year for Lucid Diagnostics Inc. Last year established a solid commercial foundation and a really solid evidence base with the addition of our large real-world study. Medicare is coming. It is a matter of when, not if. Our activity today, while we are waiting for Medicare—with the VA, with Medicare patients, and our continued progress on the commercial side with payers and laboratory benefit managers—continues to lay a strong foundation for future growth. We are also excited on the commercial side to be moving into in-network and contracting for the first time with a large payer. We hope that will be a transformational event in the coming weeks and quarters. As always, we encourage you to keep abreast of our progress. Please follow our news releases, our quarterly update calls, as well as our website and social media, and feel free to reach out to us if you have any questions. Thanks again, everybody. Have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. Thank you for participating, and we ask that you please disconnect your lines.
Kirill Kuznetsov: Dear ladies and gentlemen, welcome to the Solidcore Resources Full Year 2025 Financial Results Webcast. Joining us today are Vitaly Nesis, Chief Executive Officer; and Evgenia Onuschenko, Chief Financial Officer. [Operator Instructions] Vitaly, over to you. Vitaly Nesis: Thanks a lot, Kirill. Welcome to the traditional financial results call for Solidcore Resources. Today, we will cover the results for financial year 2025, and we'll provide an update on our strategic projects and outlook for 2026. I will start with the conventional disclaimer on forward-looking statements. Please take care to read it carefully. And I will start with the key figures for 2025. Obviously, this year -- the last year rather, was quite successful for the company despite a material decrease in payable production, of which more later, Solidcore managed to demonstrate substantial improvements in all measures of profitability. Obviously, this was mostly due to very favorable gold price environment. But nonetheless, we are pleased to report a very strong set of results. And I think the -- probably the most important result in 2025 was the fact that the company reported no lost time injuries among our employees and our contractors. We also had 0 days lost to work-related injuries. And we are proud to report that 2025 was the eighth consecutive year with no fatalities at Solidcore's operation in Kazakhstan. In terms of highlights for 2025, production went down, payable production went down mostly as a result of inventory accumulation at Amursk POX in Russia, but we managed to report a 37% increase in adjusted EBITDA on only 13% rise in revenue. So the margins have improved quite strong. In terms of cost performance, I will just briefly note that the dynamics was almost fully due to external factors. And as a result, our underlying net earnings increased by 40%. Net operating cash flow suffered again as a result of inventory accumulation, but that is a temporary phenomenon, which will be reversed this year. CapEx continued to grow, plus 23% as has been highlighted many times earlier, Solidcore is ramping up our very aggressive CapEx program and 2025 indicated the move in that direction. In terms of net cash, it increased. So our leverage levels are very comfortable. We are very well funded for our CapEx program. Turning to ore reserves and mineral resources. The year was marked by relatively stable dynamics. We did not replace all of our reserve and resource base through reevaluation, but we continue to expect material increases as we remain very consistent and persistent in our exploration. In terms of production, annual payable gold equivalent output was 395,000 ounces, and that was mostly driven by the decrease of payable gold production at Kyzyl due to delays in third-party concentrate processing. More or less mine level output was more or less stable at 508,000 ounces of gold. And the difference between payable production and mine output was almost fully tied up in inventory at Kyzyl operations. Turning to inventory specifically. We are now substantially -- we have substantially went down the path of winding down the excess payable metal inventory, mostly at Kyzyl. In the middle of the last year, the inventory was 258,000 ounces. Now it's 158,000 ounces. So we still have approximately dependent on the month of the year, 80,000 to 100,000 ounces of excess payable gold inventory tied up in concentrate as of the end of the last year. We have continued to bring those levels down in 2026. I would like to highlight the start of commercial operation with Kazakhmys, where we have started to ship our concentrate for Tau processing in December of last year. We expect that the operation with Kazakhmys will further 2 strategic goals of Solidcore. First of all, the reduction of dependence on Russian POX processing. And secondly, the sustainable and quick reduction of concentrate inventory levels. So far, the amount of concentrate processed through Kazakhmys is significantly lower than what we do in Russia at POX. But we are optimistic about the dynamics later this year and hopeful that this step will unlock other strategic opportunities for Solidcore. So overall, not yet fully done with the reduction in working capital, but making good progress on this very important front. And I pass the presentation to Evgenia, who will take you through the detailed analysis of financial statements. Evgenia Onuschenko: Thank you very much, Vitaly. So as Vitaly mentioned, thanks to the favorable gold price environment, our revenue rose this year to $1.5 billion, up by 13%. So at Kyzyl, revenue increased 4% to $892 million. So higher gold prices more than compensated 34% drop in volumes. And at Varvara, revenue jumped 48% to $608 million on stable volumes and also stronger pricing. The remaining excess of Kyzyl concentrate inventories are expected to be released during 2026, which will drive our production guidance and sales guidance to 540,000 ounces. Next, please. So in terms of the total cash costs, they were 17% up to $1,100 per ounce. And the 3 main drivers behind the increase were the Kyzyl sales deferrals spreading cost over a few ounces, domestic inflation above 12% and higher mineral extraction tax linked to the gold price. The tenge depreciation by 11% provided a partial offset of this increase. In terms of the total cash cost by mine, at Kyzyl, TCC rose 8% and at Varvara, the increase was 13% to $1,556, basically driven by the same factors, as I mentioned before. On the next slide, you can see the cost breakdown. So 30% is price-linked mineral extraction tax in dollars and then 30% is the dollar and oil-linked cost and 30% of our costs that then get denominated. So that means that the gold-linked mining tax is becoming an increasing share as prices rise and the mineral extraction rate increased to 11% from 7.5% starting from the January 2026. All-in sustaining cash costs were slightly above $1,500 per ounce, and the 18% increase was driven by the same factors which were driven total cash cost plus higher sustaining capital expenditure and SG&A expenses. At Kyzyl, all-in sustaining cash cost was flat at roughly $1,000 per ounce as lower sustaining CapEx offset inflation and demonstrated an incredible free cash flow generation at current gold prices. At Varvara, all-in sustaining cash costs rose 15% to slightly above $2,000 per ounce, reflecting investments in tailings storage construction as well as railroad spur at Komar and fleet upgrades. In terms of the adjusted EBITDA, which grew 37% to $972 million. So Kyzyl contributed almost $700 million to the group EBITDA and Varvara contributed $332 million. The EBITDA margin expanded to 65%, up from 54%. And in the bridge, you can see that higher gold prices added more than $500 million and partially offset by $231 million from lower sales volumes and $69 million from higher unit costs. So turning to the net cash position. Net cash increased 24% to $464 million. We generated net operating cash flow of $600 million and deployed it towards capital expenditures, so $255 million went to CapEx. And we spent $150 million on M&A and other investments. This included also the mandatory share buyback. So the gross debt was reduced to $267 million, and the average cost of debt was 5.7%. I would like to say that we are advancing negotiations with several international banks for up to $600 million to $700 million financing for Ertis POX construction. So in February, we signed an indicative term sheet with KfW, which is a German development bank, another $300 million is expected to be provided by European Bank for construction and development and another $300 million by a club of international lenders. We expect the main facility agreement to be signed in the second -- at the end of the second quarter this year. And with that, Vitaly, over to you in terms of capital expenditure. Vitaly Nesis: As I have mentioned already, CapEx has continued to increase on the upward path. Clearly, the single most important project for Solidcore in 2025 was Ertis POX, which claimed more or less half of total capital expenditures for the company. But we continue to invest in other initiatives as well. Against the background of very favorable commodity prices, we ramped up investments in same business capital, including tailings storage facilities upgrades, fleet renewals and other sort of improvement initiatives. We have done so consciously. It's been a long-standing corporate policy with Solidcore to invest more in stay in business projects during the periods of positive market conditions with a view to be able to reduce discretionary CapEx spending if in the future, the market conditions deteriorate. So we spent quite a lot on stay in business and in -- also on the green energy initiatives. The capitalized stripping on the other hand is going down as the life of the open pit at Kyzyl is approaching its end, and this year will mark the first year of heavy spending on Kyzyl underground. And on balance sheet, Evgenia will continue the presentation. Evgenia Onuschenko: So at the year-end, we held $731 million in cash and $135 million of undrawn credit lines. We also invested roughly $100 million in short-term investments. So it's a very strong liquidity position. And overall, we feel comfortable in the current environment. And over to you, Vitaly, in terms of capital allocation. Vitaly Nesis: Nothing really changes in terms of capital allocation priorities. We continue to advance our long-term capital-heavy projects, the POX, Syrymbet and potentially Besshoky. M&A, to be frank, we have not been able to be really that active in M&A in 2025. The market for assets has been overheated from my perspective, given the dynamics in gold and actually copper price. So M&A remains an important direction, but I'm not sure how much we will be able to allocate to that. We continue to step up the exploration effort. And as I have mentioned, invest in business efficiency. Clearly, the one question that preoccupies the Board of Directors very much is the dividend issue or rather capital distribution, speaking more broadly. We have set out 3 preconditions to kind of unblock that allocation of capital. We have successfully addressed what I believe is the single most difficult issue, which is the blocked shares in NSD. The mandatory buyback of those shares held under Euroclear has been successfully completed. In terms of third-party concentrate calling legal risks, as I've mentioned again, we have made some progress in terms of diversifying the processing of concentrate away from POX in Russia, but we are still some way off kind of full protection or full derisking from that risk. We also are in the process of requesting the extension of the comfort letter to continue cooperation with Amursk POX from OPEC. I think as we ramp up cooperation with Kazakhmys and maybe with other non-Russian dollars of our concentrate, and we receive OPEC extension and we see continued progress towards the completion of our own POX facility in Kazakhstan, this red cross will start to move into check. In terms of sufficient financing, this is really work in progress. Evgenia outlined our recent advances in terms of project financing for EPOX. We also have started discussions on project financing for Syrymbet. So I think this third precondition is unlikely to be a blocking issue for capital distributions. To ramp up, we are not yet there. The company is not yet ready to seriously consider a dividend. That's why the Board did not recommend dividend based on the results of 2025. But the general feel is that we are making steady albeit slow progress towards resolution of this vaccine issue. And I do hope that we will see that resolution in 2026. Turning to 2026 guidance. As has already been mentioned, we expect a big jump in payable production, but that actually will be driven by the inventory release in terms of the mine level production. It will be more or less flat, a couple of percent increase from 2025. Total cash costs, I expect it to increase sharply. There are 2 factors that drive our expectation of this jump. First of all, the new mineral extraction tax rate is now linked to gold prices in a staggered manner with the maximum rate now set at 11% and that kicks in at relatively low price levels. So we expect almost doubling of MT in 2026. And secondly, Kazakh tenge has appreciated sharply against U.S. dollar in the second half of 2025 and continue to strengthen in 2026. So we expect the strong headwinds from domestic currency and strong headwinds from the continued persistent strong domestic inflation in Kazakhstan, definitely above 10%. So almost 20% expected increase in TCC and the corresponding increase in all-in sustaining cash costs. However, the biggest jump we will see in CapEx, 2026 will be one of the 2 peak CapEx years for Ertis POX and we will start spending heavily on Syrymbet and to a lesser extent, on Kyzyl underground, while maintaining a heavy pace of investment in exploration. So almost doubling of CapEx we expect in 2026, fully in line with our strategy to invest to increase the size of the CapEx. Turning to sensitivity. Just to give you a sense of how external parameters impact our profitability measures. Clearly, gold price is crucially important. But increasingly, Kazakh tenge plays a big role, then tenge per dollar movement doesn't look on this page to produce a big impact. But just to give you a sense, the rate was hovering about KZT 550 per dollar 6, 8 months ago, but now it's KZT 470, 480. So we are talking about a pretty significant impact even before we take into account the inflationary impact. Turning to projects update. I will briefly walk you through 3 key projects. At Ertis POX, engineering and contracting of key equipment and contractors is more or less fully completed, autoclave delivered and installed. We have successfully completed the public hearings process and are very near the completion of international environmental and social impact assessment. Those things are the prerequisite for signing definitive documentation with the consortium of international banks. So the project is moving along nicely. At Syrymbet, engineering is 60% complete. The statutory documentation is under development. This will be the first project, which will be designed fully in-house by Falco Engineering as opposed to Ertis POX, where the Canadian engineering firm Hatch is taking the lead on engineering. The definitive feasibility study on Syrymbet is nearing completion, and we target Board approval of the project together with the full financial model in September. And in terms of Besshoky, the flagship project of Bai Tau Minerals, where we have a stake. Exploration is ongoing. We expect the mineral resource update in May and final investment decision is still targeted for the second half of 2026. Just a couple of picture slides. This is the POX building at Ertis POX construction site. As you can see, the structural steel for the building house in the autoclave is completed. We have started to put on the roof and sidings and the autoclave itself is now fully grounded in the final position. At Syrymbet, we have started site preparation ahead of the final investment decision. We are quite confident that the Board will approve the project. Just to give you a sense of why I'm so positive, the base case feasibility study is done at $30,000 per tonne of tin with a conservative scenario of $25,000 per tonne of tin, whereas the spot price is now close to $45,000 per tonne. So I think this project will be a huge beneficiary of positive market conditions. And with this, I will wrap up the presentation, and we'll turn to questions. Vitaly Nesis: We'll start with online questions. Can you please provide some additional information about your growth projects such as production, CapEx or industry cost level? Furthermore, is there any news of Bai Tau or POX? In terms of Ertis POX, I think all of the relevant information you can find on our site in section with historical presentations. The financial and production details for Syrymbet will be released after the Board approves the project, hopefully, in September of this year. [ Besshoky ] has been stalled somewhat by the permitting process by about 6 months as we resolve agricultural land usage issues with our farming neighbors, but we still expect first production closer to the end of this year, maybe early next year. And for Tokhtar, we are still awaiting the government approval for the transaction. And judging from the multiple recent transactions in the Kazakhstan mineral extraction industry, it's not unlikely that we will need to discuss this project, not with the previous owner, but maybe with the new owner. So now, Tokhtar is fully on ice. Could you please comment about your thinking about opportunities in Middle East, North Africa, including Oman becoming recently more attractive due to geopolitical uncertainty and pricing volatility. Well, we continue to push ahead in Oman, and we actually have signed a couple of term sheets in that country and hopefully transitioning to documentation stage and closing of the transactions in the second quarter of this year. We also are looking at other countries, but I think the recent upheaval related to Iran is not likely to have an immediate impact on availability and dueability of budget. So we continue to press ahead at our own pace. You have talked about $400 million, $500 million CapEx for 2026, 2028 in your recent orders. This is a massive expansion versus the original guidance. Can you explain this? Yes. This is very easily explained. Previously, we have not included Syrymbet, and this is probably the single largest contributor to the increased guidance. We also now factor in our investment outside of Kazakhstan, first and foremost, in Oman and also realistically with the strengthening of Kazakh tenge, we will also see some CapEx inflation within the same scope. So those would be the 3 factors. The company is currently trading at 3.5x LTM EBITDA multiple. Why is this? What is the company doing to improve its valuation? I think this is already a big improvement compared with 12 months ago. I personally continue to view limited liquidity as the key restriction on the company's valuation. And we are pursuing multiple paths to improvement in liquidity. One of the key obstacles is the limitations related to AIX infrastructure. Solidcore will lead the discussion on the ways AIX can improve its performance at the mine expo in Astana in mid-April. We're in very active and constructive dialogue with the exchange on what they can do to improve the infrastructure. So I'm hopeful this concerted effort will lead to better liquidity and better valuations. In terms of dividends, there are several questions on that. I think I have covered this issue during the basic presentation. Just to wrap up, we are moving towards that goal, but not yet there. When are we going to relist on a major exchange? This is a great question. We have had private discussions with regulators and exchanges in multiple locations. The unpleasant answer to that is as long as reliance on U.S. sanctioned POX facility remains in place. This is probably not on the books or at least, let me put it this way, the freedom from the Russian POX should be reasonably close at hand to ensure a smooth passage through the regulatory approvals at the Exchange. We do not provide updates on interim financial positions. So we'll need to wait until the release of our first half financial statements. What are the legal risks you're referring to regarding third-party concentrate law? With the legality of this not clarified and guaranteed prior to signing the divestment of Russian assets. It is clarified and guaranteed on the Russian side. But I would like to remind you that we operate under a 1-year comfort letter issued by OFAC, and that letter permits Solidcore to continue commercial and production interaction with Amursk POX. This comfort letter will last until late May of this year. We need an extension. And obviously, we are quite optimistic about receiving this extension. But the risk that it's not received or it's not received promptly weighs pretty heavily on our valuation of legal risks, which are important for Solidcore. What are CapEx levels expected for 2027 and '28. What is maintenance CapEx for Kyzyl and Varvara going forward. CapEx levels, I think, should stabilize at around $500 million per year for the next -- for this year and next years. And maintenance CapEx for Kyzyl, the key driver will obviously be an underground mine project, we will need to spend about $200 million to $250 million on starting this year and completing in 2029. Varvara, on the other hand, will be relatively light. Is the high gold price encouraging refractory gold project developments in the region that may offer potential concentrate feed for EPOX. Absolutely, this is spot on. We are seeing huge activity in Kazakhstan. The interest in the gold sector has skyrocketed. On the one hand, this reduces our own ability to find and execute attractive M&A transactions. On the other hand, the optionality of POX over the last couple of years has increased tremendously, and we are seeing a lot of preliminary interest from those would be producers of refractory POX. Over the long term, what capital structure do you consider optimal? Maybe you can provide any range in terms of debt to equity and net debt to EBITDA. Historically, 5, 6 years back, we indicated the comfort range from about 1 to about 2x net debt over EBITDA over the cycle. I still think this is a pretty reasonable target. But to move towards those parameters, we need to have unrestricted access to international capital markets, which we currently don't. So this is still some way off in the future, and we need a substantial liquidity cushion maintained as we move forward with our aggressive CapEx program. What are the milestones for your Kyzyl plant construction and the time line for these milestones? What are economics of gold being processed by Kazakhmys compared to Amursk. In terms of the milestones, I think the key milestone is the completion of permitting process, full completion, which we are targeting for the first quarter of 2027. The second substantial milestone is the completion of physical construction and transition to the completion of the engineering systems. Those would be fourth quarter of 2027. And then the start of commissioning, which should be late -- in terms of the economics of Kazakhmys versus Amursk, given the strength in tenge and ruble, Kazakhmys is actually better, mostly because of a significant reduction in transportation costs, not hugely what we are talking about maybe $30, $50 per ounce. Kazakhmys is better, but the throughput is so. That's why we continue to rely on Amursk for the majority of our concentrate. In terms of updated production guidance and CapEx guidance, as I have said, both CapEx and production should be quite stable 2026 to -- what is driving the shift towards selling most of the gold domestically in Kazakhstan? Well, we sell all of our gold domestically in Kazakhstan. This is the policy of the Central Bank. We process concentrate in Amursk, Kazakhmys and then we sell the rate domestically. This is a state policy. Has there been any recent changes in the taxation regime? As I have mentioned, the mineral extraction tax or more or less the world rate has increased substantially and is now dependent on the gold price. It's difficult to forecast whether this regime will be stable. We obviously see substantial tightening of tax administration, and we have recently gone through a 3-year tax audits at Kyzyl and Varvara. And we definitely see that tax authorities are taking a much more muscular approach on contentious issues and on the great areas in regulation. So nothing positive should come from taxation. I will ask Evgenia to answer the question about the cost of funding. Evgenia Onuschenko: Sure. So our average cost of funds last year was roughly 5.5%. We are still benefiting from the low rate loans that we attracted several years ago. But if you -- I mean, speaking of our cost of funds today, I think any new funding will come at a cost of, I don't know, SOFR plus 2% or plus 3%. So we will see a gradual increase in our cost of debt going forward. Vitaly Nesis: Will you disclose the operating inputs of Syrymbet this year? Well, Syrymbet will be no operations there this year, it's just the start of construction. Did you already pay any money to previous top shareholders? No, we did not. But we have spent some money on exploration and metallurgical evaluation of the deposit. This money is notionally linked to the asset. So we are waiting for the clarification of the government's position vis-a-vis this asset. Mr. Nesis, I enjoy your role presently. Any aspiration to continue as CEO indefinitely? I think I definitely don't have any aspiration to continue as CEO indefinitely. But I feel both moral obligation and objective necessity to continue at least to see both POX and Syrymbet fully ramped up and operation to design capacity. So for the next 5 years, I see myself with Solidcore for sure. What is the potential structure of investments in Oman? Those would be classical permian joint ventures targeted or focused on late-stage exploration properties. So we invest to drill and perform other studies. And by completing these activities, we gain a certain percentage of ownership in the asset. Then as the asset progresses further, we fund the pre-feasibility study to earn. So relatively clean vanilla permian. What is the sensitivity of AAC with respect to crude oil price, which oil benchmark is relevant to Solid. I think the euro is the relevant benchmark because the bulk of diesel price fuel is exported from Russia. Local diesel is mostly reserved for agriculture and other socially important activities. We -- I would say that the doubling of oil price should have approximately $50, maybe $60 per ounce impact on our TCC. M&A seems very active in Kazakhstan. How could this impact Solidcore's corporate strategy? It's a great question. It has already impacted our corporate strategy by focusing our M&A aspirations more on other less travel jurisdictions. I've mentioned Oman, we have opened a representative office in Tajikistan. We are looking at other kind of less conventional jurisdictions. Kazakhstan is -- has received a huge amount of attention from the global mining industry. And as a result, it's extremely difficult, as I have already mentioned, to find interesting and value accretive deals. Can you update us on current processing operations on Russian POX? Is everything running okay. Well, we have no transparency on processing operations on POX. What I can say that -- what I can say is that there is no accumulation of material. So whatever we send there, we receive back reasonably regularly and without delays. However, I have to admit that without Kazakhmys trading the free, it would have been difficult to wind down the accumulated stockpile. So the Russian POX is treating the current flow nicely and Kazakhmys is instrumental in reducing the accumulated -- could you please provide your assessment of probability of closure of Tokhtar. I personally think that the deal we have submitted for government approval has next to zero chances of closing. And I would venture to say that probably we'll need to negotiate something from the scratch with most likely the new. Then the total CapEx for Ertis POX spot remains estimated at $1 billion. Yes, we see so far no scope. And given the fact that imported equipment and materials represent a very hefty chunk of CapEx, the appreciation of Kazakh tenge will have an impact on CapEx, but not very dramatic. I think for the other hand, assuming that where we'll try to get as much CapEx as possible domestically, the impact of strong tenge will be materially more significant. And as a result, the original CapEx figure of $250 million is likely to be reestimated high. So we are done with questions from the webcast. Kirill, do we have any other sources of questions? Kirill Kuznetsov: No, there are no other sources of questions. Vitaly Nesis: Ladies and gentlemen, thank you very much for your active participation in the webcast. Please do not hesitate to direct further questions to our IR team. We'll respond promptly. Again, thank you very much.
Operator: Good morning, and welcome to the REX American Resources Corporation Fourth Quarter and Full Fiscal Year 2025 Conference Call. As a reminder, today's call is being recorded, and at this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. I would now like to turn the call over to Doug Bruggeman, Chief Financial Officer of REX American Resources Corporation. Please go ahead. Doug Bruggeman: Good morning, and thank you for joining this morning's call. I have joining me on the call today Stuart Rose, REX Executive Chairman, and Zafar Rizvi, our Chief Executive Officer. We will get to our presentation and comments momentarily, as well as your questions. But first, I will review the safe harbor disclosure. In addition to historical facts or statements of current conditions, today's conference call contains forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the company's current expectations and beliefs but are not guarantees of future performance. As such, actual results may vary materially from expectations. The risks and uncertainties associated with the forward-looking statements are described in today's news announcement and in the company's filings with the Securities and Exchange Commission, including the company's reports on Forms 10-K and 10-Q. REX American Resources Corporation assumes no obligation to publicly update or revise any forward-looking statements. I would now like to turn the call over to Stuart Rose, our Executive Chairman. Stuart Rose: Good morning, and thank you to everyone for joining us today. Fiscal 2025 was an exceptional year for REX American Resources Corporation, highlighted by outstanding operational performance and meaningful progress on our strategic growth initiatives. We demonstrated not only the resilience and scalability of our business model, but also the strength and capability of our team. Our ethanol sales volume reached record levels in 2025, driven by strong export demand and favorable industry conditions. In a dynamic commodity pricing environment, our team's operational excellence and market expertise enabled us to deliver strong financial results while maintaining our leadership position in the industry. While we expect these conditions to persist in the near term, our long-term success is rooted in discipline, execution, efficiency, and, most importantly, teamwork—qualities that allow us to perform consistently even in more challenging environments. On the strategic front, 2025 was a transformative year. We are encouraged by the initial implementation of the 45Z tax credit with its impact on fiscal 2025 and expect it to positively impact our results going forward. We also made significant progress on our capacity expansion at the One Earth Energy facility, which is nearing completion and will allow for increased annual production capacity to 200,000,000 gallons. In addition, we continue to work diligently on our carbon capture and storage initiative at the One Earth facility, reinforcing our commitment to sustainability and long-term value creation. Our financial position remains exceptionally strong after reporting record EPS for fiscal 2025. We concluded the year with a solid balance sheet, substantial cash reserves, and no bank debt. This financial flexibility, combined with our operational strength, positions us well to pursue continued growth and deliver enhanced shareholder value. Looking ahead to the remainder of 2026 and beyond, we are confident in our ability to build on this momentum. Our expanded capacity, tax credit eligibility, and strong financial foundation provide multiple avenues for sustained growth. As always, our success is driven by our people. The dedication, market insight, and attention to detail demonstrated by the REX team truly set us apart. Whether operating our facilities at peak efficiency or strategically managing our commodity positions, our employees continue to perform at the highest level. With that, I will turn the call over to CEO Zafar Rizvi, who will provide additional details of our operations, achievements, and strategic initiatives. Zafar Rizvi: Thank you, Stuart. Fiscal 2025 was a landmark year for REX American Resources Corporation, highlighted by exceptional execution across all aspects of our business and meaningful progress against our growth strategy. I am pleased to report that we are making strong progress toward completing the capacity expansion project at our One Earth Energy ethanol production facility, which will increase capacity to 200,000,000 gallons per year. We expect testing and commissioning to begin upon completion, with the facility becoming fully operational in fiscal 2026. In addition to increasing potential sales volume, this expanded capacity positions us to capture greater market share and benefit from the strong export demand environment that characterized 2025 and continues into 2026. This additional production also enhances our ability to maximize benefits under the 45B tax credit program. Turning to the 45Z program, as Stuart mentioned, we successfully positioned REX to capitalize on near-term opportunities under the 45Z tax credit program during 2025. We completed assessments with multiple independent experts to establish carbon intensity scores across our facilities. As anticipated, our score came in below the required threshold with the purchase of energy credits, enabling us to qualify for and begin recognizing 45Z tax credit benefits. Looking ahead, our carbon capture facility would further reduce our CI scores. This would allow us to qualify for higher credits, potentially increasing the financial benefits from the program. Our carbon capture and sequestration projects continue to await permitting for the Class VI well and associated carbon dioxide connector pipeline. We remain actively engaged with the EPA and the Illinois Commerce Commission throughout this process. As of fiscal year-end 2025, we have invested approximately $166,000,000 in our carbon capture and ethanol expansion projects combined, and currently remain within our previously stated total budget range of $220,000,000 to $230,000,000. I will now turn the call over to our CFO, Doug Bruggeman, to discuss our operational and financial results. Doug Bruggeman: Thank you, Zafar. I will begin with our operational results. REX ethanol sales volumes during fiscal year 2025 were 290,000,000 gallons, a slight increase over fiscal year 2024 sales volumes of 289,700,000 gallons, and represented an all-time high for REX. Volumes in 2025 were 70,100,000 gallons versus 74,600,000 gallons in 2024. Average selling price for our consolidated ethanol volumes was approximately $1.74 per gallon for the full fiscal year 2025 and $1.72 for the fourth quarter. Dry distillers grain sales volumes during fiscal 2025 totaled 612,000 tons, a 3% decrease over fiscal 2024 volumes of 632,000 tons. Volumes during the fourth quarter were approximately 151,000 tons, a decrease of approximately 9% over 2024. Average selling price for dry distillers grains was approximately $144.06 per ton for the full year and $147.25 per ton for the fourth quarter. Modified distillers grain sales volumes were 81,900 tons in fiscal 2025 compared with approximately 70,000 tons in fiscal year 2024. For the fourth quarter, modified distillers grain volumes totaled approximately 19,700 tons, an increase of approximately 1% over the same period in 2024. The average selling price for modified distillers grain was approximately $65.82 per ton for the full year and $67.92 per ton for the fourth quarter. Corn oil sales volumes in fiscal year 2025 were particularly strong, coming in at approximately 97,000,000 pounds compared to 88,100,000 pounds sold in fiscal year 2024, an increase of approximately 10%. For the fourth quarter, corn oil sales volumes totaled approximately 25,200,000 pounds, an increase of 7% over fourth quarter 2024. Average selling price for REX’s corn oil product was approximately $0.54 per pound for the full year 2025. Gross profit for fiscal year 2025 was $93,700,000 versus gross profit of approximately $91,500,000 for fiscal year 2024. Gross profit in Q4 2025 was $28,900,000 compared to $17,600,000 in Q4 2024. The fourth quarter benefited from both improved ethanol pricing and reduced corn cost, the two largest drivers of gross profit. Our SG&A expense increased to $32,600,000 for fiscal year 2025 versus $27,100,000 in 2024. SG&A in the fourth quarter increased to approximately $12,300,000 versus $6,200,000 in 2024. The fourth quarter increase was primarily due to increased incentive bonus based on company profitability levels. Interest and other income was $15,000,000 in 2025, down from $19,200,000 in fiscal year 2024. We reported interest and other income for the fourth quarter of approximately $4,500,000 versus $4,200,000 for the same period in 2024. Income before taxes and noncontrolling interest for 2025 was approximately $88,600,000, a 5% decrease from $92,900,000 in 2024. During the fourth quarter, we reported approximately $27,400,000 in this metric versus $17,900,000 during the same period in the previous year. Net income attributable to REX shareholders for the year was $83,000,000 compared to $58,200,000 in fiscal year 2024. For the fourth quarter 2025, this equaled $43,700,000 compared with $11,100,000 for the fourth quarter 2024. The fourth quarter benefited from the recognition of approximately $28,000,000 in 45Z tax credits as the regulations became more clear. On a per share diluted basis for the full year, this amounts to an all-time high of $2.50 per share of net income in 2025 compared to $1.65 per share in 2024. And for the fourth quarter 2025, diluted net income per share was $1.32 compared to $0.31 per share for the same period the previous year. We ended the fiscal year with total cash, cash equivalents, and short-term investments of $375,800,000 compared with $359,100,000 for fiscal year-end 2024. This net build in cash was primarily due to cash from operations offset by capital expenditures primarily related to the plant expansion project at the One Earth Energy facility. REX American Resources Corporation ended the year without any bank debt. I would now like to turn things back to Zafar. Thank you. Zafar Rizvi: Thank you, Doug. I would now like to provide additional context around our priorities for 2026 and the key factors expected to influence our business throughout the year. We are well positioned as we enter fiscal 2026 with expanded production capacity expected to come online this year, contribution from the 45G tax credit expected to benefit our bottom line, and favorable market tailwinds so far. We anticipate another year of strong performance and continued growth. Our strategy and execution remain guided by our three P’s: profit, position, and policy. Profit: We have now delivered 22 consecutive quarters of profitability, a testament to our team's discipline, operational excellence, and market expertise. We expect a profitable first quarter. Earnings of 2026 are expected to benefit from expanded capacity, a continued laser focus on our core business, and expected contribution from the 45Z tax credit. Position: We expect to complete the Monarch Energy expansion this year while continuing to advance our carbon capture initiative. These projects will enable us to increase production at lower carbon intensity and enhance our comparative position, allowing us to capture additional value from both the 45Z tax credit and our core business. Policy: The policy environment remains favorable. The 45G tax credit program provides meaningful near-term benefits, which would further increase with our carbon capture facility at One Earth. We also continue to monitor developments related to year-round E15 blending, which could drive incremental ethanol demand while reducing gasoline prices and emissions. Ethanol export demand remained exceptionally strong throughout 2025, with U.S. exports reaching record levels once again. We expect this strength to continue into 2026, bolstered by growing global demand for lower-carbon fuel, increased fuel blending, and the cost competitiveness of U.S. production. On the input side, corn supplies remain favorable, which should support manageable input cost and expected healthy gross margin. Looking ahead, as we progress through 2026, we remain focused on maximizing the performance of our core business, capturing the benefits of expanded production capacity, and continued efforts on our carbon capture facility. At the same time, we will continue to drive operational excellence across all aspects of our business. Our strong balance sheet, zero bank debt, and multiple growth drivers position us well for another year of value creation for our shareholders. In closing, I would like to thank our dedicated team for their hard work, innovation, and commitment to excellence, which continue to drive our success. We are excited about the opportunities ahead and confident in our ability to deliver sustained strong performance. Thank you to all of our stakeholders for your continued support. With that, I will turn it over for questions. Operator? 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 keys. One moment while we poll for questions. Thank you. Our first question comes from the line of Peter Dastreich with Water Tower Research. Please proceed with your question. Peter Dastreich: Thank you. So, good morning, gentlemen, and congratulations on yet another quarter of better-than-expected results at REX. It is also great to see the One Earth expansion fully on track, and you have continued with the strong share buybacks. But my first questions are regarding 45Z. For that $28,000,000, is that just for Q4, or does that represent a catch-up on previous periods? And also, how should we think about 45Z in terms of the future run rate? Doug Bruggeman: That is for the full fiscal year of 2025. You know, going forward, this is good through 2029. So we remain optimistic that we will continue to be able to claim these 45Z tax credits in the future years. Stuart Rose: Also, if we get the carbon capture project completed, that will significantly increase the amount of 45Z credits that we will receive over and above this. Peter Dastreich: Okay. Great. And just to follow up on that, are you able to disclose by how much that would improve your CI score with the CCS? Zafar Rizvi: I think at this time we have not disclosed that publicly. Maybe in the future, if it is required, we will. It will be significant. Let us just leave it that it will be significant if we can get it. That is why we are working so hard on it. Peter Dastreich: Okay. Great. Very good. And regarding the CCS permitting, so the Illinois pipeline moratorium, I believe, was set to expire July 1. Just wanted to confirm where we are on the Class VI injection permit. I recall it was expected to be finalized in June. Is that still the case? Zafar Rizvi: Yes. We have several— Doug Bruggeman: It has been moved to September on the EPA website at this point. Zafar Rizvi: It has moved on the website, but we have had several different conversations with the EPA over the last few months and even the last few weeks, and we are at the final stage of technical review at this time. We have all the documents which they requested; we have provided them. But, as you know, government agencies move a little bit slower than expected, and that is what they posted on their website, but that does not mean that will be the latest we will get. We are having regular meetings with them. Peter Dastreich: Okay. Great. Thank you. Just a couple of questions before I get back in the queue. Just regarding tariffs and the geopolitical situation. So, the first one on tariffs: How would you characterize the impact that tariffs are having on your operations for both ethanol and corn oil in the fourth quarter and looking into this year? Zafar Rizvi: As far as tariff impact, we are pleased to see that there is no impact on our exports of ethanol. As you know, last year, 2025 export was the best export ever, and even though we have a great relationship with Canada at this time, Canada imported approximately 792,000,000 gallons, and so there seems to be no impact whatsoever at this time. Actually, the tariffs may help us to really export because we can see that Brazil is back in the business now. Last year, they only exported 49,600,000 gallons, and this year, first month of the year—it is January 2026—they imported about 36,400,000. Also, the export for January was the best five months since a long time. So we certainly see the export is increasing, and there is no other impact whatsoever on our business at this time. Stuart Rose: Adding on to that, the high oil prices that we are currently experiencing should only be good for our business, both export and domestically. We are much greater value than we ever were, as far as I can recall anyway. The differential between the price of ethanol and the price of gasoline made from oil is significant. So, assuming that oil prices stay high, that should be very, very good for the ethanol business. Peter Dastreich: Okay. That is great. Actually, that was exactly what my fourth question was going to be about. Thank you very much, and I will get back in the queue. Stuart Rose: Thank you. Thanks for the question. Operator: As a reminder, if you would like to ask a question, please press 1. Our next question comes from the line of Mason Born with AWH Capital. Please proceed with your question. Mason Born: Good morning. A couple of questions from me. I guess to start on 45Z, a nice surprise there. Could you talk about, on a per-gallon basis, what you are recognizing now? It seems like it is roughly $0.10 per gallon if you think about it in terms of your total gallons. But is there mix within that where some are more, some are less than what you are currently working? Doug Bruggeman: Your estimate is correct at this time. Mason Born: Okay. So it is $0.10 on all of your gallons. Doug Bruggeman: Correct. Mason Born: Okay. And then are there other things within 45Z outside of carbon capture that you view as opportunities for increased credits, or is it mainly just carbon capture? Zafar Rizvi: I think, as you can see, and as Stuart mentioned, once the carbon capture facility is completed, that will reduce further our CI score at least 30 to 35 points more, so that will really make a significant effect on our— Mason Born: Do you still view the full $1 as achievable on any of your plants, or is that more aspirational? Zafar Rizvi: I think it is possible, once we have the carbon sequestration facilities completed and our construction is completed at the One Earth Energy level, that we may be able to achieve $1 a gallon at that location. Mason Born: It seems like your language and your commentary around carbon capture being operational in 2026 is maybe different than last time. So are you more optimistic now? Is that fair to say as you have gotten further into discussions with EPA? Zafar Rizvi: No. I think my conversation is about the completing of the construction of our facility at One Earth Energy. You know, carbon capture facility is already complete. It all depends on the permits when we receive them from EPA and IEPA and ICC, Illinois Commerce Commission. So it depends on the permits. But as far as the facility for the carbon capture, it is complete. But to be clear, we do not— Doug Bruggeman: —expect to capture 45Z credits due to carbon capture in 2026. If that was construed that way, that would not be correct. Mason Born: Okay. I guess just the last thing for me. On the E15, there has been a lot of commentary there or speculation that maybe you could see some progress. I know there is a waiver just, I think, this week on a temporary basis. But what are your thoughts higher level on the likelihood of a nationwide E15 in a more sustainable manner? Stuart Rose: Nationwide E15 would be great, but I do not expect that to happen. The oil companies are too powerful. But I do expect more and more independents to put in E15 pumps, and the E15, at least in our areas—I think in the whole country—significantly lessens the price to the consumer, significantly less than E10. Also, the retailers have a chance to make more money. So I expect that to happen. It should happen, and with more pumps of E15, I believe more consumers will use them, and it will benefit us in that way. I do not expect nationwide E15. That would be great, but I do not think that is going to happen. Mason Born: Great. Thank you. Operator: Thank you. It appears we have no further questions at this time. Mr. Rose, I would like to turn the floor back over to you for closing comments. Stuart Rose: I would like to thank everyone for listening. As always, I would like to attribute our record year—and it is a record year in both earnings per share and after-tax earnings—to having the very, very best people, starting with our CEOs of our REX team and all the way down to the plant level. We just have excellent people, and our results speak to that. I think we are among the top, if not the top, in the industry, and it is truly due to having the best people. We feel we have the best people in the industry. Again, I would like to thank everyone for listening, and we will talk to you next quarter. Bye. 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 standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the H.B. Fuller Company Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Scott Jensen, Investor Relations. Please go ahead. Scott Jensen: Thank you, operator. Welcome to H.B. Fuller Company's first quarter 2026 Investor Conference Call. Presenting today are Celeste Mastin, President and Chief Executive Officer, and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question and answer session. Before we begin, let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP. We believe that these measures are useful to investors in understanding our operational performance and to compare our performance with other companies. Reconciliations of non-GAAP measures to the nearest GAAP measure are included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue, and comments about EPS, EBITDA, and profit margins refer to adjusted non-GAAP measures. We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call, and the risk factors detailed in our filings with the SEC, all of which are available on our website at investors.hbfuller.com. I will now turn the call over to Celeste Mastin. Celeste? Celeste Mastin: Thank you, Scott, and welcome to today's call. In the first quarter, we delivered on our profit commitment and executed with discipline in a challenging operating environment. We continued to expand margins by leveraging our global sourcing strengths and maintaining a focused approach to cost and portfolio management. To start today's call, we will cover our consolidated results in the first quarter. We will also spend significant time discussing the impact on supply chains resulting from the recent events in the Middle East and the actions we are taking to successfully navigate this new operating environment. In the first quarter, organic revenue decreased 6.6% year on year as positive pricing was offset by lower volume. From a profitability perspective, EBITDA of $119,000,000, which was at the higher end of our guidance range, increased 4% year on year, and EBITDA margin expanded 90 basis points to 15.4%. This was primarily driven by continued restructuring savings from Quantum Leap and the positive impact from price and raw material cost actions that more than offset the impact from lower volumes. Now let me move on to review the performance in each of our segments in the first quarter. EA organic revenue increased approximately 3% in the first quarter, excluding the impact of exiting the lower margin solar business, driven by continued strength in electronics and aerospace. Organic revenue declined 2% in the first quarter, including solar. EBITDA increased 9% in EA, and EBITDA margin increased 120 basis points year on year to 19.9%. Favorable net pricing and raw material cost actions and the benefit from restructuring drove the year on year margin expansion. In HHC, organic revenue declined 10% year over year, reflecting a challenging environment and a tough comparison to 2025 when the business delivered 4% organic growth. We saw customers maintain tighter inventory levels, and consumers continue to shift away from premium products to lower-cost alternatives and smaller package sizes as they manage ongoing affordability pressures. Through disciplined cost management, EBITDA margins were 13.9%, up 120 basis points versus last year, reflecting pricing and raw material cost actions as well as strong expense control. In BAS, organic sales decreased 5.1% year on year, consistent with our expectations. The team executed well even under challenging weather conditions. EBITDA for BAS decreased 1% year on year, and EBITDA margins were flat as positive price and raw material actions as well as restructuring savings were offset by volume declines. Geographically, Americas organic revenue was down 4% year on year. Declines in HHC were partially offset by 8% year on year growth driven by continued strength in the aerospace and general industries market segments. In EIMEA, organic revenue declined 11% year on year, primarily driven by tighter customer inventory management in HHC, a weak construction market in BAS, and a tough comparison to 2025 when HHC revenue grew over 10%. Asia Pacific organic revenue was up 2%, excluding solar, lower than trend due to the timing of Chinese New Year. Total organic revenue decreased 6% year on year including solar. Now let's turn to the developing supply chain impact resulting from the conflict in the Middle East and its implication for our business. This is a critical development for our industry. This conflict is already creating significant constraints on raw material availability with impacts that extend across feedstocks, intermediates, logistics lanes, and energy inputs. We have received over 40 force majeure letters from suppliers in recent weeks, clear evidence that this is a major disruption. Chemical production capacity has decreased significantly and tanker routes have been disrupted and repositioned. Even if this conflict were resolved tomorrow, we would expect supply chain aftershocks to persist throughout the year as inventories rebalance, transportation and logistics normalize, and plants work through restart cycles. As a result, there will likely be significant broad-based inflationary pressure and raw material shortages. While the magnitude will vary by region and technology, it is clear the system is under stress and volatility will remain elevated. We are taking swift and decisive action by deploying the full scope of our global sourcing and supply assurance infrastructure. Our global sourcing organization was an industry first mover, leveraging our long-established strong relationships with suppliers and strategic category management. Since the conflict began, they have taken mitigating actions in securing raw materials ahead of the broader market, reallocating volumes across regions, and pursuing qualified substitutes where available. These are the same capabilities that differentiated H.B. Fuller Company in 2021 and 2022 when we navigated unprecedented volatility and successfully supported our customers. We have already taken swift pricing action to reflect the increase in raw material prices, announcing a minimum 10% price increase across all product lines globally effective April 1, with significantly higher price adjustments for certain technologies and regions where cost escalation is more acute. These steps are designed to offset supply shock inflation and protect customer service levels. Importantly, the adhesive industry is traditionally one where gaining market share is a function of bringing solutions for new applications. It is more difficult to take share from established business allocation given the high performance requirements of products and the natural aversion to change. In current conditions, many competitors are now confronting real supply uncertainty, creating an opening for H.B. Fuller Company. In summary, this disruption creates a unique opportunity to support existing customers and gain market share, positioning us for improved volume growth in the future. Now let me turn the call over to John Corkrean to review our first quarter results in more detail and our updated outlook for 2026. John Corkrean: Thank you, Celeste. I will begin with some additional financial details on the first quarter. For the quarter, organic revenue was down 6.6% year on year, with pricing up 0.6% and volume down 7.2%. Currency had a positive impact of 3.6%, and acquisitions increased revenue by 0.7%. Adjusted gross profit margin was 31.3%, up 170 basis points versus last year as positive pricing and raw material actions as well as restructuring savings more than offset volume declines. Adjusted selling, general, and administrative expense was up 4% year over year. Excluding the impact of acquisitions and foreign exchange, SG&A was down slightly year on year, reflecting diligent expense management. Adjusted EBITDA for the quarter was $119,000,000, up 4% versus last year, as favorable pricing and raw material actions and restructuring savings more than offset the impact of lower volume. Adjusted earnings per share of $0.57 was up 6% versus the same quarter in 2025, driven by higher operating income and lower shares outstanding. Cash flow from operations improved $49,000,000 year on year. As previously communicated, operating cash flow for 2026 is expected to be weighted to the second half of the year. Net debt to adjusted EBITDA was 3.1 times, consistent with fiscal year-end 2025 and down from 3.5 times at the end of the first quarter of last year. With that, let me now turn to our guidance for the 2026 fiscal year. As a result of our year-to-date performance and our response to the supply chain disruptions Celeste outlined earlier, we are updating our previously communicated financial guidance for fiscal 2026. Net revenue is now expected to be up mid-single digits and organic revenue is now expected to be up low single digits versus fiscal 2025, reflecting updated pricing actions and anticipated market share gains. We now expect foreign currency translation to positively impact revenue by 1% to 2%. Adjusted EBITDA for fiscal 2026 is now expected to be in the range of $645,000,000 to $675,000,000. And adjusted EPS is now expected to be in the range of $4.55 to $4.90. Net revenue for the second quarter is expected to be up low single digits and adjusted EBITDA is expected to be in the range of $175,000,000 to $185,000,000. We have updated our short-term capital allocation priorities given the current petrochemical market disruption and uncertainty. While M&A remains a cornerstone of our growth strategy and we continue to evaluate strategic acquisitions, we will pause on closing deals in the near term, focusing more cash deployment on share repurchases while we deliver on our commitment to achieve our target of 2.5 times to 3.0 times net debt to EBITDA. Let me turn the call back over to Celeste to wrap us up. Celeste Mastin: Thank you, John. Our operational focus is on controlling what we can, leveraging our global sourcing advantage, maintaining commercial discipline, and executing our strategy with consistency. The current disruption further reinforces the importance of a resilient supply chain and manufacturing network. Against this backdrop, Project Quantum Leap is progressing well and remains on track. Our redesigned plant and supply chain network will strengthen our long-term competitiveness and deliver improved profitability. We have provided context today on what we expect from the developments in the Middle East. Most importantly, our primary focus remains on our employees, our customers, and those affected by the ongoing conflict. I particularly want to thank and recognize our leaders in the region who have stepped up to ensure the continued safety and well-being of our employees. Our agility, decisiveness, and collaborative approach ensure we will continue to serve customers reliably and differentiate ourselves from our competition while generating sustainable value for shareholders. That concludes our prepared remarks for today. Operator, please open the line for questions. Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Patrick Cunningham with Citigroup. Your line is open. Patrick Cunningham: Hi. Good morning, Celeste and John. Thanks for taking my question. Celeste Mastin: Good morning, Patrick. Patrick Cunningham: Good morning. I just wanted to start off on the 10% price hike and the guidance raise. I guess, given this announcement and pretty sudden raw material constraints and pricing, does your price-cost assumption still hold? Are you baking in additional benefits from price here? Just wondering how the cadence of net price translates to raising the full-year guide here. Celeste Mastin: Yeah. So, Patrick, we are baking in additional price and raw material benefit, but also negative volume benefit. But I think it is important to take that question in the broader backdrop of what is happening in the industry. So there are a couple of things going on here that I think are really important. I tried to reference them in the script. But the first thing is that as we look at the landscape that we are now in, this is a very different adhesive market environment, and one where our ability to gain share is enhanced. I say that because when you think about how we usually win business, it is by winning new applications with customers that are introducing a new product or upgrading a product, or maybe working with a customer that has a problem on their line or a performance problem in their existing adhesive. But those latter things do not happen very often. So normally, our share gains happen through the winning innovation that we bring to solutions for new products. Now what has happened today is that as it relates to the current adhesive allocation, everything has changed. We have competitors that are unable to get raw materials. We have customers that are seeking those raw materials. We are out aggressively doing everything we can to increase allocations, to go after raw material provisions with other suppliers. So that pricing comes in the context of an environment where the market is really squeezed. But on top of that, the opportunity to bring solutions to customers directly relates to share increase. On top of that, we believe this market reset is a very sustainable place for us to be. I say that because today, if you look at the overall raw material supply base, what you see is that our suppliers have really thin margins. They are below their reinvestment economics. There is capacity coming out of the system because their profitability is so low. So what we expect to see is those raw material suppliers also use this as a market reset to raise the underlying, underpinning cost structure within our raw material environment. And thus, we felt the need to get out quickly with price, not only because we do not think that underpinning raw material cost structure is going to go away, we do not think that is going to decline over time, but also we knew we had to be out paying suppliers to get more raw material share than anyone else. Because on this journey to greater market share, the most important part of that journey today is making sure we have raw materials to satisfy our customers with. The second part of that journey that is also really important is that not only do we have those raw materials, which are going to remain scarce, but that we are choosing those customers that want to work with us and innovate with us as partners to use those scarce raw materials with. So we are being very selective about where to gain share and how to use those precious resources. John Corkrean: Understood. I mean, if it takes a little more context as it relates to how we thought about the rest of this year. Perfect. You are right. The impact of pricing, raws, and volume is driving probably two-thirds of the change we are making to our guidance. Just to put it in context, we are now expecting organic growth to be up low single digits, which is roughly sub high-single-digit pricing because we will be probably averaging roughly 10% or more pricing in for the rest of this year. But we have taken our volume assumption down. We were assuming volume would be sort of flat to down 1%. Now we are assuming it will be down 5%. But I would say the way we expect to manage pricing and raws and the expectation that we will get some market share gains, that is probably delivering maybe $10,000,000 of additional favorable EBITDA impact this year. The rest of the increase is a number of things. We are making more progress more quickly on our restructuring actions. FX is a little favorable. But hopefully, that gives you some context as to how we are thinking about the impact of pricing, raws, and volume. Patrick Cunningham: No. That is very helpful. And maybe just topical with the lower volume outlook. I think HHC previous quarter, you called out some inventory in December, some tighter inventory management. Did that get worse in January and February? Did it start to trend better? I am just wondering, I think the organic growth was maybe a bit sharper decline than we expected. So any additional color on what is going on in HHC? And maybe within that? Celeste Mastin: Yeah. In the HHC business, we are seeing a lot of pressure on the consumer. So a few things are happening there. To your point, the inventory management is real. It is occurring at big customers, but also we really see it in distributors as well. And when you think about it, they are serving the smaller customers. Those smaller customers are really being impacted by tariffs and other inflationary measures. So we are seeing that inventory control for sure. The other thing we are seeing is that the consumer is switching away from what I will call more premium products, and with a premium product, you usually have more adhesive usage. There are more features and benefits on those products. So when the consumer switches down, then we are selling less adhesive for the end good that they are buying. And they are buying smaller package sizes. Again, smaller packages mean less glue, and you see all of that in the HHC space. Patrick Cunningham: Thank you so much. Operator: Your next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open. Celeste Mastin: Good morning, Mike. Good morning, Andre. Mike Harrison: Congrats on a nice start to the year. I was hoping that you could talk a little bit. I feel like on the fourth quarter call and when you initially gave guidance, there was an expectation that the timing of Lunar New Year was going to be a headwind in Q1 and a tailwind in Q2. And so I was wondering if you can help us quantify how much that Lunar New Year timing played into the 7% year on year volume decline. And then maybe also just talk about how you have seen activity in China and other parts of Asia coming out of the Lunar New Year and curious how they responded to kind of the initial impacts of the Middle East conflict. Celeste Mastin: Yeah. So we experienced about a $15,000,000 to $20,000,000 revenue impact from Chinese New Year in Q1. You will see that that is already in our guide for Q2. So that ended up just getting pushed out into the second quarter. And as we looked at overall Asia’s performance, we had seen China bounce back to double-digit growth. If we extract that impact of Chinese New Year, we would have had another double-digit quarter in Asia in Q1. I was just there in January for a couple of weeks, so to answer your question about what I saw while I was there and in the region, I see a very motivated population base. In fact, I think the tariff impact in Q2 and Q3 of last year really caused a pause, but the country was able to quickly renew export markets for their goods, and in fact, in Q1, our HHC business did very well in Asia Pacific. It was the best performing region. And part of that was because there has been such an increase in the exportation of a lot of these hygiene products out of China. So we have focused business in China in HHC away from the lower-cost baby diapers, as I have mentioned before. But we have also, at the same time, redirected that capacity to more higher-end femcare and adult incontinence products, and that is where we saw a lot of growth in China in Q1. John Corkrean: Mike, I can just give, and just to maybe build on that because you had, I think, asked kind of are we seeing this flow through in Q2 as expected? I would say, yes, the impact to Q1 and I think the impact to Q2 will be as expected, which is roughly $20,000,000 of revenue. So as we look at the first few weeks of our, what is our period for Q2, we certainly see an increase in activity and volume in China. We actually see a little bit of a step in all regions. I think this is in part customers trying to get out ahead of some of these supply challenges. And I do think we are also getting some additional share because we have been able to secure material. So I would say Q2 in China is certainly playing out as we expected. And we saw a little bit of a step up here that is probably related to concerns over supply availability. Mike Harrison: Alright. Very helpful. And then just in terms of the raw material slate, I know that your slate skews towards specialty chemicals, and a lot of those are several steps removed from oil and gas. But just curious if you can talk about any specific materials or buckets or regions where you are starting to see some concerns about supply availability. And maybe help us understand a little bit better the timing of some of this inflationary impact on the P&L. Celeste Mastin: Sure. So as I mentioned in the script, we have already received over 40 force majeure notices. Now a lot of those, Mike, are coming from the Asia Pacific region. Reason for that is because so much of the crude in use in Asia Pacific and in China comes from the Middle Eastern region. So the materials that are impacted, when I mentioned that we were quick to raise price to try to get on top of these material increases, I will tell you, it is because we are already experiencing higher raw material costs. And in some cases, those price increases that I mentioned, they extend from the base level of 10% on up to 40% to 50% on some of our finished goods. There are examples that abound on different material categories and increases. VAM is a good example. The spot market in Europe for VAM was up 300% just recently. We have relationships in that particular material class where we have negotiated caps, negotiated extended availability, etc. And it goes like that in all materials. We do buy specialty chemicals mostly. Eighty-seven percent of what we buy is a specialty chemical. Normally, prices are influenced by the supply-demand balance within any one of those material classes. But this is a case where everything is impacted, and it is because so much of the crude feedstocks and even LNG availability has been impacted by this event. Mike Harrison: Very helpful. Thanks very much. Operator: Your next question comes from the line of Lucas Beaumont with UBS. Your line is open. Celeste Mastin: Good morning, Lucas. Lucas Beaumont: Thanks for taking my question. So I was, yeah, I just wanted to follow up on the raw materials to start. So, I mean, kind of the way we have been looking at this at a high level is we sort of see oil up 25% to 50% on an annualized basis. Now, eventually, that is going to flow back down to kind of those tech chem intermediates. And for you guys, raws are 50% of your sales. So directionally, that would sort of seem to point to needing to get kind of 10% to 20% of pricing over time to kind of fully offset that. So, I mean, it is great you guys have gone out proactively with the first sort of 10%. So I was just wondering, is the right way to frame this that that is kind of a first step in the process, and then as we get further into this year, you will look to kind of go again as you need to. Celeste Mastin: Yeah. That is absolutely right, Lucas. So we knew we needed to get out early to get raw materials. Our team has been working on material acquisition for the last three weeks very aggressively. They saw everything was inflating, and it is not just raw material. It is also energy. It is also freight costs. And so what we knew was that 10% was a minimum that we needed to do across all materials. The team is also, as we speak, negotiating supplements for various raw material classes on top of that today. Now again, we want to be responsible in our pricing. We want to make sure we can acquire material for our customers. That is what it is all about right now: their supply security. And so we will likely have other instances throughout the year when we need to reconsider our pricing and look at these underlying material categories and see where we need to do more. But we are right now just at the first step. Lucas Beaumont: Great. Thanks. And then, I guess, just as we look at the updated outlook for the year, it sort of seems like it is kind of implying pricing up seven to eight and sort of volumes down sort of five to six as you guys talked about. Could you give us a bit more kind of detail on what you are expecting across the segments on that front? Any areas where you are seeing more or less pressure on the volume side and more or less benefit on the pricing side? Thanks. Celeste Mastin: Yeah. So let me just talk about volume really quickly because I think that is going to be the most difficult part of this equation. So when we think about volume, on the plus side, we know we are going to be taking share. In fact, we have already, just last week, had three large global customers, existing customers, come to us and ask us if we could supply another application in their end product because they were unable to get their other supplier to supply them. So that share gain is real, and it is, like I said, an unusual time for us because we get to have a chance to see the existing market reallocated. That is on the plus side, but certainly the challenging thing on the volume side on the negative side will be what is going to happen as it relates to overall demand as this inflationary environment persists. And secondly, what we are considering is how much impact will there be from customers that cannot get other substrates or other raw material that go into their end product. They may have the adhesive from us, but they are going to have to get films and other components. And so that is the uncertain part of the equation. John Corkrean: Yeah. And I think, Lucas, just to build on that a little bit, I think the impact is going to be relatively similar across the GBUs in terms of the impact on volume. And certainly, if we look at our pricing actions, they are very consistent. Celeste mentioned in her remarks at the beginning the similarities to 2021 and 2022. And I think it would be really helpful for people to go back and look at that period. If you look at the results during that period, we were delivering mid-teens organic growth, about two-thirds from pricing and a third from volume, and it was very consistent across all three GBUs in terms of seeing improved volume and improved pricing. We are, in this environment, not counting on that improvement in volume. We know we will pick up some market share, but we are assuming that will be offset by overall demand destruction. But definitely the pricing actions being taken by all three GBUs sort of support a similar outcome. Lucas Beaumont: Thanks very much. Operator: Your next question comes from the line of Kevin McCarthy with Vertical Partners. Your line is open. Kevin McCarthy: Yes. Thank you, and good morning. Celeste, can you elaborate on where you see the greatest opportunities to gain share either by product line, SBU, or region of the world, I guess, would be one question. And maybe related to that, as you suggested a lot of these FM declarations are coming out of Asia, which tends to be more of a spot market. And so I was wondering if you could talk through how you can achieve these share gains on a more durable basis rather than a transitory basis? Thanks. Celeste Mastin: Absolutely. So let us start with that last part. The way our sourcing organization works is, at the beginning of every year, we more heavily contract our raw materials and leave a lower portion of our raw material sourcing to spot buying. So we have very durable relationships, long-term relationships with the supply base, including and especially the supply base in China. And in fact, interestingly enough, while the U.S. and Europe have very strict rules on how materials are allocated in force majeure situations, that is not the case in other countries like China. And so as we have gone forward, we are committing long term to these suppliers that are able to supplement our needs today. And these are suppliers that over the long haul, whether we are talking about the U.S. or Europe or Asia, that we work closely with, and we have very strong relationships with. And so I see this as an opportunity to continue to partner with those suppliers, to continue to partner with our customers, and we will experience an environment where we are going to have a more healthy industry going forward. So if you look at the different business units and where the opportunities are, again, we buy specialty chemicals, but this impact has occurred across the board. And so I do see quite a number of opportunities to gain share in HHC, certainly, particularly because a lot of the raw material base for HHC comes out of China and is being highly and directly impacted. But we have also been very selective and thoughtful about how we use this opportunity to increase our position in those faster-growing higher-margin spaces, the opportunity where we have a greater opportunity to differentiate ourselves, like in EA or in BAS. And so the team does have targets as it relates to how they are thinking about this as an opportunity to grow their business, and they are doing it quite intentionally. John Corkrean: Kevin, I will just add one thing because your question around how do you make the share gains more durable. So we have, as Celeste said, situations where new customers and a lot of times previous customers have come to us and asked us to help out during this period of supply shortage, and we are happy to have old customers back. We are asking them to sign longer-term agreements. I think that is only fair that if we are helping them out in the situation that they are signing up. The other thing that it really does change, as Celeste alluded, it really does change the playing field. Because with this supply shortage, it is hard to be the low-cost supplier in this market because you cannot get the materials, and so it kind of collapses the playing field a little bit, which helps out those companies like us that compete based on quality and innovation and premium service. So those are the two things that I think are keys around making these share gains more durable. Celeste Mastin: I would think of it, Kevin, like a window of opportunity. A window in time. Because right now, while there are unmet needs, unfilled capacity, customers need material. All the barriers are down to getting share in the existing market. Now what will happen over time is the Middle East conflict will end. Material will be more available again. And, however, at the same time, that barrier wall goes back up because once a customer chooses an adhesive, it works online, they are likely not to change it unless there is a performance problem or a manufacturing problem because it is just not worth the risk. Kevin McCarthy: That is very helpful. As the second question, John, I was wondering if you could provide some updated thoughts on your cash flow prospects for 2026 given everything that we have talked about. You have got some upward tension from earnings, but possibly some downward tension from working capital. So maybe you could just kind of talk through how you see the basket shaping up. John Corkrean: Sure. Yeah. So we did have a good start to the year from a cash flow standpoint in terms of performance relative to last year. Obviously, higher income. We are seeing better working capital performance in the first quarter than we did last year. So that is positive, and we are taking some very intentional actions. So we are confident. We are comfortable with our guidance. It is something we will watch. I think managing inventory will be a little trickier in this environment, and I think we are willing to live with a little higher inventory if it means helping secure supply assurance. But right now, I feel comfortable with it, but it is something we are monitoring. I would say that the biggest question will probably be around inventory management. We are doing a good job. I think we will continue to do a good job, but we will need to be a little flexible. Kevin McCarthy: Great. Thank you. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open. Jeff Zekauskas: Thanks very much. Celeste Mastin: Morning, Jeff. Hi. Good morning. Jeff Zekauskas: It sounds like you are doing very well with your price initiatives. You did change your volume expectations for the year, I think, from something like negative one to negative five. Can you expand on the meaning of that change? That is, is it global economies slowing down? Is it something specific to the Health and Hygiene and Consumables segment? Why has your volume outlook changed so much? Celeste Mastin: Yeah. It is a balance, Jeff, of three things. So one is the positive impact of gaining share, the second is the negative impact of our customers potentially not being able to get other materials, other substrates to produce their product with, and then the third is some erosion in global demand in this inflationary environment. And so we believe the three of those things are likely more net negative than what we felt like coming into the year and also given this uncertainty. I think we need to be cautious as it relates to volume. Jeff Zekauskas: So, obviously, Europe has been the geography where natural gas prices have really risen, and fuel prices have lifted. Is Europe the area of particular concern, or is it more broad based? Celeste Mastin: No. It is broad based. I would say it is broad based. I do think that given the strides that the U.S. has made in becoming more energy independent, it may not be as bad here as it will be in certainly Europe. And Asia is still a question. Again, getting feedstocks in Asia is the most difficult right now. So, Jeff, one other thing to keep in mind when I say this, again, on average, we produce 97% of what we sell in a region for the region. And in the U.S., that is 99%. So, again, I feel like the U.S. is going to be a little more self-sufficient than some other parts of the world. But I would not say that any part of the world looks very good right now. Jeff Zekauskas: And then lastly, can you comment on two more issues? Celeste Mastin: Sure. Jeff Zekauskas: Which are your overall cost reduction aspirations, both what you had achieved in the first quarter and what you expect for the end of the year, and then secondly, can you comment on your solar-related revenues and what the decrements are there, if that is the right way to describe it? Celeste Mastin: I will take the cost reduction question. John, maybe you can address solar. So on the cost reduction question, we came into the year with $10,000,000 of benefit from Quantum Leap. We are increasing that to $15,000,000 this year given this reduction in volume and our decisions that are underway right now to continue to reduce costs to offset that. John Corkrean: Yeah. And, Jeff, you had asked about the impact of solar, which was about $12,500,000 of revenue in the quarter, and that is probably down 40%. So I think the impact from an overall company standpoint is about 1%. And for Engineering Adhesives, it was about a 4% impact. And then I apologize. I forgot what the other item was you asked about. Oh, I answered it. No. You got it. Okay. Okay. Good. Jeff Zekauskas: Thank you. John Corkrean: Thank you so much. Sure. Operator: Your next question comes from the line of David Begleiter with Deutsche Bank. Your line is open. Emily Fusco: Hi. This is Emily Fusco on for David Begleiter. Could you maybe just give some more color on order trends exiting FQ1 into March and kind of what you are seeing in terms of visibility given the uncertainty? I know you mentioned some uptick in China, but have you observed any pull-forward in demand or prebuying in other regions or anything to call out by segment? Thanks. Celeste Mastin: Sure, Emily. So in March, what we are seeing is higher revenue. So we have a good start on March. And we are also seeing improved margins in March. Now, of course, some of that is related to Chinese New Year and the bounce back that happens afterwards. I would say we are seeing customers that are anxious to get their orders in. We are avoiding filling orders far in excess of prior year’s demand. So the team has been really judicious about ensuring that we are not facilitating any hoarding. So I do not think we are seeing that yet, but it has been a robust month. Operator: Your next question comes from the line of Ghansham Panjabi with Baird. Your line is open. Josh Vesley: This is actually Josh Vesley on for Ghansham. Maybe if I could just ask one quick one here. I think in response to Jeff’s question, you talked about some of your customers not being able to procure raws to build some of their products. Can you just give some color on what specific GBU might be seeing an impact there more so relative to others? And yes, just any color there would be great. Thank you. Celeste Mastin: So, Josh, we are not seeing it yet. We are anticipating it. And I say that because when you think about polyethylene, polypropylene, they are in such a variety of goods. And so we have not heard yet of an instance where we have a customer that is unable to get their substrates, but we are anticipating that there will be some impact of that. And, again, that is an environment where we work very closely with our customers because the likelihood when they change their substrate is that they are going to need a different adhesive because adhesives are really so substrate-specific. So we are anticipating that we will see that and that we will be working closely with customers to reformulate our products or support them by introducing new products to be able to enable them to get a finished good to market. Josh Vesley: Okay. Great. That is perfect. Thank you very much. Operator: Your next question comes from the line of Rosemarie Morbelli with Gabelli Funds. Your line is open. Rosemarie Morbelli: Thank you. Good morning, everyone. Celeste Mastin: Good morning, Rosemarie. Rosemarie Morbelli: So one area we have not touched on is your latest acquisitions. So if we look, could you give us an update on the medical grade and the performance of the last acquisitions? And then this is a category that you are adding to previous acquisitions. So could we also have a ballpark number for the size of this entire entity? Celeste Mastin: So I will speak just to the medical business, Rosemarie, in Europe in particular this quarter. It was another good strong quarter. Our medical business in Europe was up almost 20%, again, organically. So we continue to see performance out of that business. We do not identify the size of any one of our market segments. And admittedly, the medical business is still small. But you can see it is growing rapidly with performance like that. Rosemarie Morbelli: I expected that particular category to be affected by the price of oil. Or it is so specific that it will not make a difference. Celeste Mastin: You know, the amount of material used in those goods is really small. So it is a lot of cyanoacrylate. The raw material base is significantly comprised of cyanoacetates. And compared to the industrial use of those products, the medical use is much smaller. So that is one area where we are going to see less of an impact. Rosemarie Morbelli: Okay. And then if I may follow up on a couple of questions, the solar comparison. When are you going to be at the level where it does not make any difference, so you have reached the bottom of that particular business. Celeste Mastin: Yeah. We will be wrapping that around by third quarter. Rosemarie Morbelli: Okay. And should we expect similar impact in the next two quarters then? Celeste Mastin: Yeah. We are already at the trough revenue we expect there. So it will run rate at about this level. Rosemarie Morbelli: Okay. And if I may, that 20% EBITDA margin that you are targeting, in this environment, can you still get to it by 2029? Or maybe it has been pushed out another year? Celeste Mastin: We can still get there. Rosemarie Morbelli: But no timing. Okay. Thank you. Celeste Mastin: No. We are still really right on track, Rosemarie. And our objective for this year is to maintain margin. So we got out really early to make sure we were not going to see a big raw material margin lag impact. So we are really working hard to deliver on that 20% commitment over time. John Corkrean: I think we said by 2028, and I think that is still our target. Celeste Mastin: It was 2028, Rosemarie, not 2029. Rosemarie Morbelli: See, I was already giving you a year. Celeste Mastin: I know. I should have run with that, but no. Rosemarie Morbelli: Alright. Thank you very much. Celeste Mastin: Thank you. Operator: I will now turn the call back to Celeste Mastin, the President and CEO, for closing remarks. Celeste Mastin: Thank you all for joining us this morning. We look forward to speaking with you again next quarter. Operator: Ladies and gentlemen, that concludes today’s call. Thank you for joining. You may now disconnect.
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The board of governors voted 3-2 to cut the overnight interest-rate target by a quarter of a percentage point to 6.75%, resuming monetary easing.
Michael Saylor, Strategy co-founder, joins 'Power Lunch' to discuss the company's new product launch, the stated dividend and much more.