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Operator: Good day, and welcome to Modiv Industrial, Inc. Fourth Quarter 2025 Conference Call. [Operator Instructions] On today's call, management will provide remarks and then we will open up the call for your questions. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Sara Grisham, Chief Accounting Officer. Please go ahead. Sara Grisham: Thank you, operator, and thank you, everyone, for joining us for Modiv Industrial's Fourth Quarter and Full Year 2025 Earnings Call. We issued our earnings release after market close today, and it's available on our website at modiv.com. I'm here today with Aaron Halfacre, Chief Executive Officer; Ray Pacini, Chief Financial Officer; and John Raney, Chief Operating Officer and General Counsel. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words or phrases. Statements that are not historical facts, such as statements about our expected acquisitions and dispositions and business plans are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would like to turn the call over to Aaron. Aaron, please go ahead. Aaron Halfacre: Thanks, Sara. Hello, everyone. I hope you're doing well. Crazy times. So I know I'm looking forward to this call. I'm sure you are, too. Let me start off by saying that Sara just read the standard preamble that everyone has that talks about forward-looking statements. And I spend the vast majority of my time thinking about forward things. But the historical things and the things that are measured, the accounting are really important. And I just -- this is a point in time because this is going to be Ray's last earnings call, even though Ray is going to be with us for the remainder of the year, it's his last official earnings call, and John is going to be taking over the helm. And I just really want to speak and thank our team. So Sara, John, Winnie, Lamont, Jason, all the accounting team, in particular, which is candidly more than half of our company, does such a good job and they make my job easier so I can spend all this time talking about the forward thinking things and dealing with these things that don't always have measurable outcomes. And that messy part of it that I do is that much easier because of how good they are. So I appreciate that they're all here and just wanted to welcome Sara to the call, even though she's always been there in the background, she's going to be part of the call now along with John going forward. And of course, Ray. So with that, let me sort of -- shifting gears. I'm sure we're going to have a whole host of interesting questions. I have no idea if I can answer your interesting questions, but I will do my best. But first, let's let Ray have the stage and do his thing. Ray? Raymond Pacini: Thank you, Aaron. I'll begin with an overview of our fourth quarter operating results. Rental income for the fourth quarter was $11 million compared with $11.7 million in the prior year period. The decrease in rental income reflects expiration of our lease with Costco on our office property in Issaquah, Washington, which was sold to KB Home on December 15, 2025, and expiration of our lease with Solar Turbines on an office property in San Diego, California, which we plan to market for sale upon receiving approval from the City of San Diego for a lot split. Fourth quarter adjusted funds from operations, or AFFO, was $4 million compared to $4.1 million in the year ago quarter. The $30,000 decrease in AFFO reflects a $554,000 decrease in cash rents, which was partially offset by a $299,000 decrease in cash interest expense, $138,000 decrease in preferred stock dividends, a $40,000 decrease in property expenses and a $15,000 decrease in G&A. AFFO per share decreased from $0.37 per share in the prior year period to $0.32 per share for the fourth quarter of 2025. The decrease in AFFO per share was primarily due to a 1.7 million share increase in diluted shares outstanding, which reflects previously disclosed issuance of operating partnership units during the first quarter of 2025, along with the issuance of common shares in our ATM and distribution reinvestment plan. Interest expense for the quarter was $1.1 million higher than the comparable period of 2024, primarily due to amortization of off-market interest rate swaps. With respect to our balance sheet and liquidity, as of December 31, 2025, total cash and cash equivalents were $14.4 million, and we had $30 million available to draw on our revolver. Our $262.1 million of consolidated debt outstanding consists of a $12.1 million mortgage on one property, excluding a $12.1 million mortgage on the Santa Clara property that was owned by tenants in common and therefore, not consolidated as of December 31, 2025, and $250 million of outstanding borrowings on our $280 million credit facility. Following the January 2026 extension of our credit facility, we do not have any outstanding debt maturities until July 2028. Based on interest rate swap agreements we entered into in January 2026, 100% of our indebtedness as of December 31, 2025, held a fixed interest rate with a weighted average interest rate of 4.15% based on our leverage ratio of 45.1% at quarter end and the January amendment to our credit facility. I'll now turn the call back over to Aaron. Aaron Halfacre: Thanks, Ray. Let's just -- operator, let's just go to questions, it'd just be easier. Operator: [Operator Instructions] And your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Gaurav Mehta: I wanted to ask you, I think in your -- in the press release, you talked about receiving multiple offers and spending some time on one of those and not pursuing it. So I just want to get some more color on what those reasons were for not pursuing the offer. Aaron Halfacre: I figured you'd ask that. And I don't really have an answer that I can give you other than to say that we, at that moment, didn't see a secure path forward. So we stepped back from discussions. And I think that -- I think fundamentally, there was -- the vast majority of the stuff there was good. It's just that we -- our job is to protect our investors and to make sure that we have put forward the requests that we need to make sure that our investors are going to get what they're going to get. And it was just a process. I think that it was a generally positive exchange. And sometimes these things happen where it's just like it's not quite flowing. So that's about all I could say. It doesn't give you much. But as it relates to that, we just -- in that particular moment, we didn't see a secure path forward. And so we stepped back from discussions. Gaurav Mehta: All right. Maybe on 2026, I was wondering as far as asset recycling, should we expect any -- are you guys expecting to sell any assets this year? And then maybe some comments on the acquisition environment that you guys are seeing? Aaron Halfacre: So yes, on a go-forward basis, the recycling will -- as I mentioned in January, we will start to pick up in earnest. I'd say the stuff that's happened in the last 2 or 3 weeks might -- is going to cause -- it's hard, right? It's hard for pipelines. It's hard for dispositions because you've got rates just gyrating all over, and that just really stings confidence for buyers and sellers in general. And I think appetite is always there, but it's hard. It's just hard. If you're a buyer, you're pricing in a huge margin of safety because you could be wrong. And if you're a seller, you don't want to sell and do a deal that you would regret literally 30 days later, right? And so the landscape has changed a lot. So I think -- the near term, it's a little bit harder, a little bit cloudier, but it's not -- candidly, it's not any different than before. But let's assume that the trend long term, barring $200 barrels of oil is that we will eventually find REITs returning to favor. I think all of us here on the call probably presume this at some point. It's certainly been long in the tooth, and we would have liked to see it sooner, but this is the narrative we have. So we will continue to honor our recycling. I think the way we're thinking about the recycling and this is a couple of different phases. The first phase is really looking at like we have some noncore assets, particularly office. Those are going to get -- we're going to get rid of those, right? There's only 2 office properties we have. One is Solar, which, as you know, went -- or not Solar. It's the property in San Diego that was formerly leased to solar turbines. They left at the end of September. That's why we had a little bit of falloff, which is inevitable in rents in the fourth quarter. That property is a great property to sell to an owner user. We've actually had quite a bit of interest for it. The interest has been above the appraised value of the property. The reason why we haven't sold it yet or the flip side, the reason why we haven't leased it is that it was or it is on the same technical parcel as our WSP property. So they're right next to each other. This is a property that was acquired by the prior legacy team. We've had it. We have been working through the bureaucratic process that is not uncommon in any county or city since 2021, 5 years now trying to get that parcel split in -- so that it has its own parcel and we can sell it separately. We are so close to that. We are at a final very detailed scrutiny like filing -- refiling parcel maps. I mean there could be little things like ADA slopes on things. All that stuff is done. We're super close to that. Once we have that in hand, then we will take that property to market. The reason why we haven't leased it is because, look, I think the owner -- the right user of that is an owner user or some sort of tenant who might want a 5-year lease or might want a gross lease or -- we want long-term industrial manufacturing tenants on that lease basis, you can't -- that's not going to fit that box. That box has a better use. So we will sell that one. That's an office property technically. It's really a flex space. If you look at it now from when it was before, it's like completely open, clean shell, it's ready to go, right? So that will get sold. My guess right now, if you were to put a gun to my head, that's like, call it, $7 million to $8 million, right? So it's not a huge number. The other office property is OES. OES has this purchase option. We're talking to them. They -- like it's a blue -- I mean that's an investment-grade tenant, but it's a government, right? That's got -- we think that's a super sticky asset, but it's not a net lease manufacturing asset. So we're going to -- and it is office. It's a balancing act we've waited. We don't -- if we sold it 2 years ago, I'd probably sell like a 10 cap. I mean who wants to do that when you've got really good rent that's coming in. And so we have to be patient. But at some point, you're like, okay, you got to should or get off the pot. And so we'll clean that one up. And that's -- that will happen ideally by the end of the year. I don't -- we're going to be thoughtful about the timing. We're not going to force it, but it's moving forward so no longer to wait. So that's the obvious part. People ask about the Kia dealership. It's a noncore asset. That one is -- the conundrum of that one, that is a layup to recycle, right? We've seen interest in that one, not offers, but interest at or below the cap rate that it's appraised at. It's a very attractive asset, but it's a big one. It's $70 million, call it, property. That was a 1031 -- I mean excuse me, an UPREIT transaction from about 5 years ago. So we have a really low tax basis on that one. So it's super sensitive. And so if you're going to sell it, you have to make sure you already know what to buy. And to buy, I don't want to buy a $70 million industrial manufacturing facility. I would be better served buying sort of 3 $23 million industrial manufacturing facilities and rolling it into it, right? And so that will be an accretive transaction because we'll talk about the forward pipeline here in a bit. But that cap rate that it's selling at, we would sell the Kia is at least and if not more, 100 basis points tighter than what we can redeploy it. So that would be generated. But we have to line that up because you can't just take it to market. You would get bids undoubtedly. A lot of those bids would be fast closing bids. And then you would be left with a short window to 1031 designate. So we're -- we'll be patient on that one in terms of noncore. That will happen when we find the right target to roll it into. So setting that noncore aside, obviously, we move the office. And then from there, we have a lot of short WALTs. And our short WALT philosophy is that we will do our darnest to see if they will extend. We will have conversations with them. We are starting to have those conversations if they're willing to extend and not just extend like 2 years, like they can really give us something that makes us decide we might want to keep it for longer term or if they don't, realizing that let's just clean up the WALT. Even though they're great tenants, I think our goal is -- our vision is let's get to a rock-solid portfolio long term. We understand that as leases get shorter and you see this in sort of O and W.Carey, that you get down to the option periods and CFOs and things like that typically just -- they just exercise 5-year renewals, 5-year renewals, they exercise their option periods. That's normal. But we have a period of time right now that we can positively -- have a positive arb by selling certain assets, even if they're shorter WALT and creating more AFFO by reallocating them into longer WALT and having a more solid portfolio. So we'll spend time this year looking at -- Northrop was one of those properties -- we got an unsolicited offer that came in. It was worth our time. It was worth our energy. We gave them -- we were patient with it. We were not in rush for them to do their due diligence. We were not in rush for them to close because we do need to roll it into a replacement property ideally. There's other uses for it, too. I won't get into that, but we could use that money fungibly, but that was one that is an example. That's a property that it's a short WALT. We got an offer that was compelling and we took it. So that's on the plate. We will see more of that activity. Separate from that phase is we have a few industrial credits that I would probably like to recycle through. There are nothing wrong with them. They're perfectly fine. They're just smaller. They're less institutional. And so they would -- I think recycling those at the right time, and that might be this year, it might be early next will allow us to just clean ourselves up that much more. And when I say clean up, it doesn't mean more dirty. It just means I want to polish it as best we can because I think the process that we've been through with these offers and the interest and -- it's helped us say, hey, if we do these things and extract the value for our shareholders, then we're going to be in a really solid position. Outside of that, we have a few -- and I mentioned this before in January, sort of some opportunistic assets that are great assets. They may not be manufacturing assets. They are certainly lower cap rate assets that at the right time, if we got ready or we had clearly identified things to buy, we would roll those as well, right? And so you will see more activity over the course of the year, barring something bigger and strategic happening, you'll see more activity in the course of this year. And yes, we're not -- those weren't just words, those were actions that we're going to take. I think the interesting thing about all this is they're all -- as I mentioned before, they're all tax sensitive in terms of we have low basis. If we don't redeploy them in 1031, investors are going to have taxable events. And we just -- that's not how you're supposed to manage the REIT. So we're trying to be thoughtful about that. But -- so the selling of the assets is actually pretty easy. You can happen pretty quickly and you -- a lot of brokers ready to go. If you put a property on there, you probably are sold in 60 days if you really wanted to, but comfortably 90. The problem is finding replacement properties that line up. And I'd say over the course of our journey, I've gotten and the team has gotten a lot more selective in the terms of you want really good manufacturing products. So the product that they're manufacturing has got to be really good. We've gotten that right. You want to make sure that the lease structure is really good. You want to make sure that the financials of that tenant are really good. You would ideally like that tenant to only have one source of manufacturing, which is your thing or you have control all their manufacturing so that you can't get rejection, make sure you proceeding, God willing if it ever happens, but you're addressing that through credit. And you'd also really like to have good location as best as you can. And then on top of that, a good cap rate. Those are a lot of fine wish list, and you can't be the princess and the pea about it. You have to really be compromised in marginal areas if you have to, but we don't have to right now, and we've been patient. But the pipeline has been episodic. It's been erratic. We started to see pipeline come out in January. Some of it is just like we still -- sometimes we're still waiting for the OMs, right? They're like, and it's like the OEMs haven't come out. Well, why? Because the person on the other end is concerned about selling, right? We might want to be bidding with a margin of safety. They're wanting to sell with security. But they know they're going to get -- this is a stable ground and that they go and go out in the market, they're going to execute on what they think they are and in fact, they're going to just change on them. So it's a little bit of weird time in that regard. And so we're looking at our box, the buy box, making sure we're looking -- we're looking at a lot of things. I'd say price talk about overall is interesting. If you go look at the $22.19 NAV per share we have, which like everyone has an NAV, right? Some people use a street analyst NAV. Most REITs have an internal NAV of some sort. We have -- our internal NAV happens to be done by a blue-chip appraisal firm, Cushman & Wakefield, and they've been doing it for, I don't know, 6 years. there's consistent history if you go piece it together. And so you're like, appraisals are full of s***, right? They don't -- they're not real, but they actually are pretty indicative. I would tell you that we have -- I can think of 3 properties in our portfolio in the last 6 months where we have received unsolicited offers that are at or below the cap rate that is implied in our appraisals. So -- and we've all -- I think we all understand, particularly now in this environment that there's a fairly large disconnect between private real estate and public real estate and public real estate is just taking it on the chin repeatedly. So we understand that. So that $22.19 NAV, I think round numbers, it's an implied 6.8% cap rate. First, you think, well, you're not trading anywhere near that, and we're not. And price talk, we've seen and the price talk is maybe like an appraisal, it is indicative of something. It doesn't mean it's transactional, but it's in the range of possible. There's a $200 million portfolio going out there today. It has a tenancy that's very similar to our largest tenancy in terms of the sector. And it's got -- they're talking 6.75% on that one. We saw another property where someone was talking 6.75%. Now that's broker talk. They're leading a little bit. Do I think it's going to trade there? Probably it's going to trade wider than that, might be 7%, might be 7.25%. But clearly, you're seeing stuff between 6.75% and 7.5% right now. You just got to find the right thing. Sometimes you'll find something that might -- if something is 7.5% and it's just dog doodoo, you don't want to pay 7.5%. If something is great and it's a 7%, then you can do it. But sometimes there's dog doodoo that 6.75% too. Everyone is trying to do their own thing. But I would say that the pipeline right now, and it's a little bit of a strobic effect when you see it, sometimes it's there, sometimes it's not, like back on, it's tighter than it was a year ago. It does feel tight to me. Whereas a year ago, I was probably saying 7.5% to 7.75%, now the talk has gotten tighter. I think that might be a little bit of the optimism that we saw 3 or 4 weeks ago. And now I'm not really hearing calls for the last 2 weeks, but I think everyone is kind of holding their breath, right? I mean the first weekend with the conflict, we were like, oh, is this going to be like the last time where we just bombed them and then we went back to our business. And then no, it's not extended. And then we've gotten all as a collective, gotten ADHD. We're like, oh, no, it's been an 18-day war. I mean, historically, we had wars that lasted for years. So I don't know if you can hold your breath on this one. It might be over soon, it might not be. It's certainly volatile, and you certainly got to stick to your knitting. But it's a long-winded way of saying that we see opportunity. We're looking at it. We're just being extremely thoughtful. It takes an inordinate amount of patience, which is very hard to do. It's very hard to do. It's not fun. It's not sexy. It's -- I wish I was an AI company. That would be fun. But we're not. So sorry for the long-winded answer. I hope that helps. Gaurav Mehta: I appreciate it. That's all I had. Operator: And your next question comes from the line of Jay Kornreich from Cantor Fitzgerald. Jay Kornreich: In line with a lot of your comments there, obviously, a lot of questions on the macro perspective at the moment. And I guess if we could just wrap up all those comments you just made about the transaction front and how you're thinking about that going forward. Do you still feel on track to get the portfolio to the 100% pure-play manufacturing industrial over the next 24 months? Or does maybe the time line shift just with everything that's going on at the moment? Aaron Halfacre: Yes, I do because I always like to underpromise and overdeliver whatever the phrase is. So that 24 months, I think if things are rosy and the market starts hitting its stride, that's a 12-month process, right? So it can be a lot tighter. Again, the bottleneck is having the right assets to acquire and the right assets to acquire will become much more evident when the market gets a little bit more stable. So -- and theoretically, just putting out our portfolio, I could -- if I identify the right portfolio of assets as an example, and I had the right timing to buy them, that I could almost in effect, do it in one fell swoop, right? So just mathematically, if you think about it, it's not going to happen likely because it's hard to find these things, but it doesn't mean it can't happen. It doesn't mean we are not looking. But if you found a $100 million portfolio of assets that you like that you could line up to purchase that met your box, and then you sold your -- you could take your assets out to market, they would all be reversed 1031 or forward 1031 designated exchange and you're done in one fell. It's the pipeline that matters. So yes, I do think 24 months is very realistic and doable. Jay Kornreich: Okay. I appreciate that. And then just one follow-up. And I recognize that there's a little commentary you can provide on the potential acquisition offers that you received. But can you maybe just from a different angle, talk about what's perhaps brought you more on the radar of others more recently as an acquisition target, maybe relative to a year ago? Is it the state of interest rates? Is it the progress you've done on the asset recycling efforts? Is it something else? Just what do you think has brought you more into the light of others looking for a portfolio like yours? And how do you expect additional potential inbounds moving forward? Aaron Halfacre: That's a good question. So I think, look, we've seen REIT M&A -- the discount for public REITs to private real estate has been persistent. We started to see REITs get picked off. In some ways, you could argue why hasn't there been more M&A volume, but there's still been a decent amount of M&A activity, right? So in our space, you obviously had the real germane thing you had sort of Fundamental, which was not public, but they got taken out by Starwood. You had Plymouth taken out. You had Peakstone taken out. Broader than that, you got Alexander & Baldwin, you just had the NSA deal. We've had a lot of different names get consumed. I think a lot of them were smaller cap names, which means that there's a greater buyer pool of people who can afford to take those out. So I think there's been a trend where for a while now, I mean, if you had raised a value-added opportunistic fund in '23, you've got a 3-year investment window maybe or you raised it in '24, you've got a 3-year deployment window that you had to get it deployed. At some point, people are starting to deploy and they were waiting and they're waiting. And I think we saw early signs -- we started seeing signs as early as the third quarter of last year where activity started to pick up, and we've seen a fair number of those things. And so once that starts happening, people start looking, right? If you're -- once you decide you're a seller, then you're potentially a seller, so that attracts buyers. But if you're starting a buyer, you start to look for things to buy, right? And so I think that's been the first thing. I think the near-term volatility in rates and global economic pictures, it's frustrating that on the margin. But again, I don't think it's changing directionally where things are at is that people see attractive positive leverage, long-term positive leverage opportunities in public real estate, either public to public or like we saw with Public Storage or it's a public to private, right? And we've seen this at different times. And look, there are probably too many REITs out there. There are too many undercapitalized REITs out there and we are in one of those buckets. We understand people say why did you ever go public? Well, we -- at the time we were a nontraded REIT, and we knew that we didn't provide immediate liquidity, we would be gating and no one wants to gate as BREIT, ask Starwood REIT that thing. They're much bigger, so they can afford to do it, but no one wants to do that. So we provide liquidity for that generation of investors, and we've recycled. And we've just been in a rough time. But we've created a valuable portfolio. I don't -- I can't -- off the top of my head, I would think our share price is a ridiculously wide cap rate to the assets. And so that's what's attracting people. They're like, hey, you've got 14 years, you've got 2.5% in place. You've got manufacturing tenants that don't have obsolete -- arguably that the real estate is already obsolete in the sense that it's not whizbang. It's been doing this stuff for 40 or 50 years. It's really good durable real estate, and it's still here, right? If you bought a 2018 vintage data center, it's already obsolete. You're already having to replace all the guts on it other than the shell of a box. If you bought a 1999 warehouse, it's obsolete, right? Our stuff arguably is not that sexy. It's older real estate, but it doesn't have any more obsolescence value. You're buying a core income-producing value. And with the EBITDA rent coverage and the fixed charge coverage ratio of our tenancy, it's a strong portfolio. And if you look long term and think, hey, long term -- not right now, though, because if you look at in the futures market, the ZB or the UB in the long bond area, they've sold off, right, which is counterintuitive in the short term with the war, they typically rally, but they sold off, which base rates gone up. But if you think longer term that we'll have a yield curve that suggests that long-duration assets with low leakage in terms of NOI and particularly the advent that we can start putting private capital into retired 401(k)s and things like that, there's a natural demand for this nice pool of portfolio. We are synergistic, right? I'll give you the color that the people looking at us, we're not looking for the team. They're looking at the assets. I wish they were looking for the team. It would be fun to do that, but they're looking at the assets. And you can -- this portfolio, you can strip out -- it's pretty simple. You can strip out the G&A and it becomes accretive. We're not opposed to selling. We're just wanting to make sure it's the right value for our investors because we're not desperate. We're not going to just give it away that might be a great payday for me because all I do is I have equity like everyone else, but we're going to do the right thing. And the right thing will come about. And in the meantime, we're going to pay that $0.10 a share per month and get done. But -- so I think the interest is because there's really good value coupled with there's people who have money and they're starting to decide they want to make allocation. I think the last element is, look, there are arguably 4 small cap industrial REITs that I can think of -- and maybe you can include ILPT in there, so maybe that's 5. But of those 5, ILPT and Gladstone are externally managed. So good luck with that, right, getting the whole of those. And the other 3 were Plymouth, Peakstone and us. And clearly, we're the smallest. And so I think that's part of it, too. There's just like if you want to pick up this sector or you like the space, there's not a whole lot you can do, right? So that's where we're at. Operator: [Operator Instructions] Your next question comes from the line of John Massocca from B. Riley Securities. John Massocca: So I know you kind of talked a lot about the inbound interest after the January '20 update. But I guess, given that you've seen that, does that maybe spark an interest in running a kind of strategic alternatives process earlier than that, I guess, maybe that kind of post 24-month time line that was kind of talked about in that update. Just kind of curious how that changes your mindset, if at all. Aaron Halfacre: I think that -- I think the interest suggests to me that people know there's value here and that they know that we can clean up the portfolio. And look, again, the portfolio is not dirty, but if it's more polished, it's going to be more valuable. And so they see a window of opportunity if they can take it out cheaper than what it will be in the future, that's their job. Their job is to try and take it -- keep the upside for themselves and give you a few shekels. I think what this suggests to me is that barring someone closing that value gap -- and again, closing that value gap does not mean $22. Let's just all be clear. No one is going to do that. No investor in the right mind or buyer in the right mind is going to do that. But there's no upside, right? They don't -- they want it bad. They just buy a bond, right? So they need upside, but our investors need upside. And so there's -- it's a dance of where that is. But what it suggests to us is that if we didn't have -- like if you look at -- if I'm going to go buy a used car, and that car has got a little bit of rim rash in the back wheel or there's a little bit of scratch. I'm going to use that to get lower price. But what we have the ability to do is clean that -- polish that portfolio up. And so that it's even more valuable. So if you flash forward in this environment, let's think about where we're at right now. We're in a super crazy rate environment, right, where people are dealing with inflation and bonds are doing this, it's crazy. And you're like, what do you expect if you went and ran a process now or in 6 months, right? If you did it where you flash forward, you clean up your portfolio, you're humming, you're good, the rate environment is stable. Maybe it's lower, but it's certainly stable. You've clearly gotten what it is. You know you can extract more value, and you've done that. And let's say that is in 24 months. Let's just put that hypothetical situation there. In that 24 months, our investors, assuming no change in our dividend, no increase or decrease in our dividend, which, look, I'm not going to decrease in the dividend, but let's assume no increase either. That's $2.40 of income in the next 2 years and a higher value of your portfolio to execute. So you would try to buff out the scratches. You would try to get rid of the rim rash. You would get yourself in an environment where your type of car that is for sale is in demand. And so doing so prematurely would suggest 1 of 2 things in my mind, would suggest doing so prematurely is running a shred process to be clear, which suggests either, one, your leadership doesn't want to do it or can't stomach it. And look, it's not fun sometimes, but we got -- we don't have weak stomach here. Or two, do you think you can't do any better? Otherwise, why would you do that? Why would you shortchange the investor? You just wouldn't. If there an opportunity comes along that closes the value gap and you say, well, okay, this is pretty good. This is going to give them a chance to redeploy their capital or this is going to be another public currency where they can get -- continue to get dividends and part in the REIT upside. There's a lot of different ways to look at this. If someone could do that better, we're all ears. But it doesn't mean just because you've gotten interest that you should not sell, right? If you've gotten really -- and if you did go into an offer unless it was an offer where you felt secure and there was no go-shop associated with it, you're effectively having a process there. So that's -- I think really thinking about it philosophically to think about what does the strat als process suggest. I think there's been a lot of REITs out there that have -- that are undergoing strat als processes, even if they're quiet or they're done some publicly. And there are -- I don't know if this is the right time to do that. Why are you trying to sell right now if you have to. If someone wants to, that's one thing. But why would you try to sell? John Massocca: Okay. That makes sense. Maybe on a more detailed level, and apologies if I missed this in the prepared material. What were the terms of -- or the potential terms of the Melbourne, Florida office sale? Or is that kind of TBD? Aaron Halfacre: The terms are well known, but I'm not to us. And I -- as a respect to that buying party and respect to us, I like to keep those silent until after the fact. Suffice it to say is we have slightly over $400,000 of earned money that's gone hard. And this has been a process. We've given them a long -- this was not a fast deal. It was an organized methodical one. And so once it closes, I'll inform you of what it was. And I'll tell you right now, just to be clear, what we don't have right now, and we're working on that, we don't have a replacement property identified yet. We don't need to worry about this one. So that's okay in terms of the tax sensitivity. Why is that? Well, because we're selling Kalera, and let's just all be honest, we took a loss on Kalera. And so that creates a tax loss that shelters the gain on this one. So we have a little bit of time to be thoughtful about the redeployment of that. But it's scheduled to close in the second quarter. And once it closes, which my guess is we will -- well, we will absolutely tell you what happens on it once it closes. John Massocca: Okay. And maybe with Kalera, the former Kalera property in mind, can you remind us what the kind of, I guess, cost of carry was for that in 4Q or kind of the OpEx costs associated with that asset in 4Q that's going to go away now that you sold it in January? Like roughly. Aaron Halfacre: Ray, do you know roughly on top of -- it's not -- it wasn't terrible... Raymond Pacini: Yes. I mean I think it was running about $20,000, $30,000 a month. John Massocca: Okay, that's it for me. And Ray, appreciate all the help over the years that you've shown on these calls. Operator: There are no further questions at this time. Please proceed. Aaron Halfacre: Everyone, thank you so much. I know we came out a little bit later. That was because of the aforementioned offers. I don't like to come out as late, but it didn't seem -- we are a pebble in -- causing a ripple in the ocean that is raging right now. So I appreciate all that did join. Wishing you the best of luck for your families and your portfolios and talk to you again for next quarter. Thanks so much. Operator: This concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Remgro Limited Interim Results Presentation. [Operator Instructions] Please note that this event is being recorded. I will now hand over the conference to Chief Executive Officer, Jan Durand. Please go ahead, sir. Jan Durand: Good morning, everybody. Thank you for joining us this morning, and welcome to our interim results presentation for the 6 months period ended 31st of December 2025. Today, we'll unpack our financial performance for the first half of this financial year. And has become our standard approach, we will also spend time on the performance of our key portfolio companies that continue to shape our overall results. With that in mind, the outline of today's presentation will be as follows. Firstly, I will give an overview of the salient features of our performance, including the wins that reflect our focused execution against our strategic priorities. Secondly, our Chief Investment Officer, Carel, will give an update on some of the key corporate actions that are central to our portfolio simplification and optimization journey. Then Neville, our CFO, will take you through the financial results in more depth. And finally, I will turn to updates from our major investments. The CEO of Mediclinic, Ronnie; and the CFO, Jurgens, will speak to Mediclinic's results and progress on strategic priorities. Then after that, the Managing Director of Heineken, Jordi and his newly appointed Chief Finance Officer, Radovan, will together do the same for Heineken Beverages. And then the CEO of Maziv, Dietlof will do the same for CIVH. And finally, the COO of RCL, Paul, will provide highlights of the results they reported on earlier this month. I will then close off the presentation by looking at our areas of focus going forward before opening the floor for questions. This morning, I'm extremely pleased to present interim results that show sustained strong earnings growth across our portfolio. Even more encouraging is that this earnings momentum has translated into strong cash generation at the center, enabling us to return value to our shareholders with a significant uplift in our interim dividend. For this period under review, headline earnings increased by 38.5%. And alongside this, cash earnings at the center strengthened materially with dividends received at the center up roughly about 34%, supporting an interim dividend increase of approximately 80%, a significant return of value to our shareholders. The main drivers of this earnings growth were stronger contributions from Mediclinic, CIVH, Rainbow and Heineken Beverages. Ignoring the distributions over the period, our INAV increased by 1.6% over the period, which is more modest than the growth of our earnings and a function of valuation movement across our listed and unlisted portfolio. But this is a good indication that the increase in the underlying earnings of our company substantially reflect our own valuation models. As I reflected on this marked progress, it is clear that these results demonstrate the resilience of our portfolio, the benefits of disciplined, focused execution and strong partnerships with our various management teams. By the same token, it would be remiss of us not to reflect on the impact of the operating environment, which we and our investee companies continue to operate, which I'm sure this audience is all too familiar with. Global trade tensions, geopolitical instability and muted domestic growth remain persistent headwinds. Although extensively analyzed the speed of changes and the resultant unpredictability make forecasting the impact difficult at this stage. Very importantly, for us, we must not forget about our colleagues of ours that work in the affected regions. Our thoughts are with them in these difficult circumstances, and we applaud them for the resilience and the courage that they show. Instead of dwelling what is outside our control, though, our focus remains where it matters most, managing what is within our control, strengthening the performance of our core businesses, progressing portfolio simplification and maintaining disciplined capital allocations. These have underpinned the gains we are presenting today. On this slide, I want to highlight a few of the positive outcomes that this strategic focus has yielded. I have spoken about the robust growth in earnings and sustained momentum, which we have now seen consistently over multiple reporting periods. This, we believe, speaks to the strategic clarity and disciplined execution. I am pleased with the commitment of our executive teams at the underlying investee companies, which in partnership with Remgro is actively driving performance, which can be seen in the strong contributions from our previously challenged investees. We're especially pleased with the long-awaited implementation of the CIVH/Vodacom transaction, which positions us to capture the growth potential we've articulated for some time. We've also made some strong progress in simplifying the portfolio, including the sale of our remaining interest in BAT, the distribution of our media assets and more recently, the monetization of part of our interest in FirstRand, which has significantly derisked our balance sheet. The proposed restructuring of the Mediclinic -- of the Mediclinic business further aligns this investment to our strategy and simplifies the group further. The results of all of these deliberate efforts can be seen in the cash generation profile I spoke of earlier, with our sustainable dividends received up by almost 34%. In addition to this incredible growth, special dividends received have also further strengthened our balance sheet and offer a strategic optionality to navigate the current volatility, but also in pursuing future growth opportunities. Ultimately, these results are a clear payoff from strategic clarity, focused execution and consistency. Very importantly, whilst we are and must celebrate these wins, performance optimization with a dynamic execution across our portfolio remains key to maintain this momentum, particularly with reference to some of our business that are still facing some challenges currently like RCL, especially regarding regulatory issues and the challenging market dynamics, but Paul will elaborate on this further. We also experienced some sharp focus on the volume pressures through aggressive pricing trends that we see in the overall beverage market that impacts Heineken Beverages. Jordi will also go into that in a bit more detail. Even so, we remain confident in the long-term growth potential of the portfolio. Today's results show that our focus is working, and our job is to remain sustain this momentum. The question of our capital allocation posture understandably featured prominently in all discussions. We think about capital allocation through 3 pillars: strengthening the balance sheet, supporting portfolio growth and delivering value to our shareholders. The strengthened balance sheet of us has created a solid foundation for growth while enabling a meaningful improvement in returns to our shareholders through higher dividends and other value-accretive returns of capital. We continue to consider and evaluate options to crystallize value and including -- that includes share repurchases. We are actively assessing new investment opportunities with greater emphasis on building our new business development pipeline. Key for us is that we view our strong balance sheet as a critical and strategic asset, particularly in this period of heightened volatility. We have been intentionally conservative in our cash preservation posture and believe that this positions us well to act on growth opportunities as they come. I will now hand over to Carel to provide an update on our key corporate actions. Carel Petrus Vosloo: Thank you, Jannie, and good morning, everyone. I wanted to provide an update on corporate actions at 2 of our investee companies. The first one of those is at CIVH, and shareholders would be familiar with the Vodacom transaction that we've been talking about for the last number of years now. So -- as shareholders would remember, Vodacom injected cash and shares into Maziv for a 30% shareholding in Maziv and then also acquired shares at the CIVH level for ZAR 1.8 billion, and that resulted in a pre-implementation dividend from Maziv and then -- from Maziv into CIVH and from CIVH ultimately to shareholders. As Jannie mentioned, we're very pleased to have got this transaction done towards the end of last year. Vodacom brings a very strong strategic partner to our business. It allows us to accelerate the scaling of the network, including to previously underserviced communities, also gives us greater balance sheet flexibility and really pleased to finally have got this done. The second transaction is the second leg of the Herotel acquisition. Again, we remind shareholders that Herotel is a service provider, mostly in secondary towns or secondary cities and rural towns. They've got an incredibly strong management team, a really great recipe for rolling out infrastructure in this segment of the market and a great complement to what we currently have in Vumatel. So again, very excited at the prospect of getting this transaction done. It increases our infrastructure, our economies of scale and improving unit economics. So just to reflect a little bit on the time line for these 2 transactions, where we've come from to where we are. It's now almost 5 years ago when we initially announced the Vodacom transaction at the back end of 2021 and fair to assume it had a fair run-up to get to that point of announcement. So it feels like we've been busy with this for a while. But soon after that, we announced the first leg of the Herotel transaction. So the acquisition of that first 48% that was in early parts of 2022. And then things took a little while, but very pleased in August last year to finally get the approval from the competition authorities for the Vodacom transaction. And then relatively soon after that, at the beginning of December, we implemented that transaction. Just to remind people, when Dietlof here to speak about the results for CIVH, that's up to the end of September. So it doesn't yet include the Vodacom assets in those numbers. But obviously, in time to come, we'll see the impact of that. Back to the time line then in December of last year, we were then also pleased to obtain the competition authorities approval for the second leg of the Herotel transaction. And the only CP that's outstanding there is the Casa approval. And we hope that would be imminently forthcoming. So to remind people what that then looks like in terms of the shareholding structure. Previously, CIVH used to own 100% of Maziv. Vodacom now is introduced alongside CIVH with that 30% interest. They obviously bring their assets and the cash or they brought their assets and cash and in the process of integrating those assets into Vuma and DFA. At the bottom of the slide, you can then also see whether the warehousing vehicle that trust sits as a shareholder in Herotel with a 49.9%. And when that transaction is approved, hopefully, Herotel would end up with 99.9% of -- Vuma would end up with 99.9% of Herotel. Maybe it's a slightly more interesting slide. Hopefully, we -- there are so many moving parts on the valuation of CIVH that we thought we should unpack them separately. And the first part that we thought would be useful to explain to shareholders is just the impact that the Vodacom transaction has on our valuation as existed at the end of last year, so at the end of June, our year-end, June '25. So this is not an updated valuation that you will see later, and Neville will talk to that. But just to give you an impression of the impact of the valuation on our the impact of the transaction on the valuation as it stood. So ZAR 15.8 billion was the INAV value that we attributed to CIVH. If you then add the Vodacom assets and shares that they brought and apply our pre-dilution interest to that, that increases the value by ZAR 7-odd billion. Vodacom rather CIVH then paid a pre-implementation dividend, which was upstream from Maziv. So Remgro's share of that was ZAR 2.66 billion. So that comes out of the value. And then, of course, we diluted by 30% alongside other shareholders for Vodacom's entry. That takes another ZAR 5.7 billion out. And then we applied the discounts that were embedded in our valuation to the Vodacom assets that were added, but we also slightly increased noncontrolling discount to the overall valuation. And after all of that washes out, you will see that the valuation ends up almost at exactly the same place where it started, the 15.8% after you take into account the dividend that's been received and now sits in cash in our hands. So just what remains for CIVH on these, let's call them legacy transactions. On the Vodacom side, investors would remember there was also a 5% option for Vodacom to buy an additional 5% in Maziv effectively directly from Remgro. That transaction, the price for the transaction is a fair market value that will be determined at that point in time, but there is an underpin to that price of ZAR 43.7 billion. That number might not sound particularly familiar, but just to explain that, the transaction value for the base deal was ZAR 36 billion, and that stepped up to ZAR 37 billion for this option. Then you have the ZAR 11 billion of assets and shares that came in from Vodacom less the pre-implementation dividend that came out of Maziv of ZAR 4.2 billion, and that gets you to the ZAR 43.7 billion. So that's the floor value, if you like, for the exercise of this option. We extended the option period to the end of March 2027. Then on the Herotel side, upon approval of the second leg on the acquisition of the 49.9% stake from the trust. CIVH will acquire those shares and then we'll inject those shares into Maziv for additional shares. The price for that, again, would be at fair market value as would be determined at that point in time, but again, with the underpin of ZAR 2.75 billion. Vodacom would likewise bring cash for that same amount. That's ZAR 8.25 million at the full price, and that cash would be upstream from Maziv into CIVH, and that would effectively restore CIVH or rather Vodacom's 30% stake in Maziv. So a few sort of complicated steps, but the only thing to tune into there is the end product would be that Herotel would sit inside or 99.9% of Herotel would sit inside Vuma and CIVH would have an additional ZAR 825 million round of cash. On to the second transaction that we -- or second [indiscernible] want to talk about, which is Mediclinic. Towards the end of last year, we announced the proposed transaction and the in-principle agreement that we reached with MSC to exchange our respective interest in Hirslanden and Mediclinic Southern Africa. So as per the announcement, what we had agreed is that after this exchange, Remgro would end up with 100% of Mediclinic Southern Africa and MSC with 100% of Hirslanden. And that will be done on a value-for-value basis, so basically exchange it for equal value. And we would continue as 50-50 owners of the rest of the business, which is our Middle Eastern business and then also the 29.8% stake that we own in Spire. An important feature of that transaction is that the exchange ratio or the values that we used were arrived at with the balance sheets as they existed at the end of June last year. So to keep the integrity of those valuations, we've got a lockbox in place on both the Southern Africa side and in Hirslanden. And simply what that means is that the value and the cash that accrues in those respective entities are trapped in those entities for the benefit of the future owners. So to the extent that there are dividends that need to flow out or capital injections that need to go into either of those businesses, that would be adjusted and then there would be a sort of cash equalization mechanism to cater for that. The future operating model is in progress, but what will ultimately happen is that the group services will be increasingly decentralized and we'll get to a point where each 3 of those regions can basically operate as independent businesses. We foresee that there would be some limited transitional services that would be provided. But substantially, the businesses will be able to operate on their own. Just to recap on the rationale, which we had set out in the announcement as well. We believe that aligning the shareholding with the markets where the respective shareholders have the deepest understanding and the greatest conviction on strategy that would improve the agility in execution. And certainly, from Remgro's point of view, we think that it aligns with our own investment thesis of having ownership, full ownership of a market-leading asset in our home market that we know and understand. Just to remind the audience what it is about Mediclinic Southern Africa that Remgro finds attractive. It's a large hospital group. We've got 20-odd percent share of the private hospital market, 50 hospitals, 15-day clinics, really strong management team, market-leading EBITDA margins and consistently healthy earnings and cash flow generator. The picture is not particularly complicated of how it will change. You'll see at the moment, our partners, MSC and ourselves own into a vehicle that owns -- that owns 100% of the 3 regions and then also the stake in Spire, as we mentioned, and that will simply change so that those 2 regions, Switzerland and Southern Africa are owned by the shareholders directly. A few more sort of steps and gymnastics to get there, but the picture in the end is quite easy to tune into. Hopefully, a slide that's helpful to for investors just to understand how we get to the answer. There's no new information on this slide. So this is information that is available either in the initial announcement and on the Mediclinic results announcement for September. But we thought helpful perhaps to step people through how one gets to sort of a value equality between these 2 regions. We announced in December that the implied EV/EBITDA multiples for Southern Africa and Switzerland were 6.3 and 9.4%, respectively. So if you apply those multiples to the last 12-month EBITDA as that existed at the end of September, and then you can calculate the enterprise value and just to look at the dollar enterprise values for South Africa, that means just short of $1.6 billion in the case of Hirstlanden that comes to $3.3 billion, almost $3.4 billion. So clearly, Hirstlanden is a meaningfully bigger business if you just look at the enterprise value. But then in the second last column, you can see we overlay the debt and other, which is mostly the noncontrolling interest. And that then reduces the equity value in both businesses to around $1 billion. Again, these are not the exact numbers as per our valuation. The main reason being that this is using balances as of the end of September as we published and also FX rates at the end of September. As I mentioned before, our valuation date was at the end of June. So the actual numbers are slightly different, but we still thought a useful indication to help people just to understand how one would get to roughly equal values. And then lastly, just to say what remains to be done. We're in the process of finalizing agreements and negotiating the final terms. We will hope to get that done as soon as is practically possible. That will obviously allow us to file the regulatory filings and get that process underway and also to continue to work on the separation and finalizing the operating models for the various businesses and then obtain the relevant third-party consents are required, none of which we think would be problematic. So we look forward to updating shareholders again in future on progress. But with that, I'll hand over to Neville to take us through the financial results. Neville Williams: Thank you, Carel, and good morning, everyone.The key message of this interim results announcement is that the earnings growth momentum experienced during the 2025 financial year continued during this first half of this current financial year, culminating in the strong growth in headline earnings. So for the period -- the 6-month period under review, Remgro's headline earnings increased by 38.8% from ZAR 3.7 billion to ZAR 5.2 billion, while headline earnings per share increased by 38.5% from ZAR 6.72 to ZAR 9.31. This graph depicts an overview of the main drivers of the increase in headline earnings and can be summarized as follows. The increase in headline earnings is mainly due to increased contributions due to improved operational performances from Mediclinic up by 55%, their contribution. Rainbow, up by ZAR 280 million, which is more than 100% due to the surge in profitability. CIVH up by more than 100%. And this represents a breakthrough to sustained profitability. And Heineken Beverages also in a positive turnaround phase, up by more than 100% from a low base. Also, there was an increased contribution from TotalEnergies, up by ZAR 330 million, mainly due to a once-off transit pipeline cost refund received during this period. And the increase was -- there was also lower finance costs due to the redemption of the preference shares during the prior period, and that's an increase of around ZAR 95 million. This increase was partly offset by a lower contribution from RCL Foods, down by 31%, largely driven by weaker performance from the Sugar business unit. We will provide more detail on these operational results during the presentation. This graph depicts the evolution of and growth momentum of dividends received at the center since financial year 2021. The bottom line is the interim period and the blue line is the full year momentum. Dividends received from investee companies is the main component of our cash flow at the center. In line with the growth momentum in cash flow and headline earnings during the 2025 financial year, Remgro experienced strong cash flow generation at the center for this period under review, mainly due to a 34% increase in sustainable ordinary dividends received from investee companies amounting to ZAR 2.4 billion. In the previous period, we've received ZAR 1.8 billion from investee companies. And this amount excludes the special dividends related to corporate actions, mainly the CIVH pre-implementation dividend. Just want to emphasize that the Board takes into account a full year view of cash flow at the center when considering the interim and the final dividends for the year. This graph provides an overview of the material changes in the valuations of our unlisted investments as well as the movement in market values of our listed investments during the period under review. Remgro's INAV per share increased by 1.6% from ZAR 292.34 at 30 June 2025 to ZAR 297.3 at 31st December 2025. And they will see the main drivers impacting positively on the growth in INAV includes an increase in net cash, up by ZAR 3.7 billion, increase in market value of our listed investments first rand up by 20% and Discovery up by 6% and Rainbow by 21% as well as increases in valuations of some of our unlisted investments, HeinBev up by 12% and Siqalo Foods up by 9%. These increases were partly offset by a decrease in the market value of OUTsurance, which was down by 8.5% and RCL Foods down by 8.2% as well as the unbundling of eMedia holdings. So if you look at the block there on overall, on average, the material unlisted investments valuations increased by 2.3%, while the listed market values decreased by 3.7% -- if you look at the block, the INAV before net cash and CDT actually decreased by 0.5% and from ZAR 0.5 billion to the ZAR 1.6 billion is the uplift in the cash balance from period to period. The net cash increased by ZAR 3.7 billion, mainly due to the CIVH pre-implementation dividend of ZAR 2.66 billion received upon the completion of the CIVH/Vodacom transaction in December 2025. Total increase in INAV is 3.4% if adjusted for distributions made during the period under review, which include the final dividend of financial year 2025 of ZAR 2.48 as well as the special dividend of ZAR 200 that was paid during this period under review as well as the unbundling of eMedia Holdings. The value was around ZAR 0.75 per share. I want to make a few remarks about our valuation methodology. We use standardized methodologies and apply them consistently ensuring the methodology is aligned to best practice. We continue to use the discounted cash flow methodology as our primary valuation approach and use calibrated peer multiples as reasonability checks of our outcomes. During the 6-month period, discount rates came down, but we were careful to also moderate the terminal growth assumptions to reflect lower implied long-term inflation. We believe the outcome is valuations which are reasonable but conservative and can stand up to scrutiny. The following graphs show the movement of the valuations and implied multiples of the 5 largest unlisted investments in Remgro's portfolio. These investments represent approximately 83% of Remgro's unlisted portfolio. Changes in portfolio valuations reflect a mix of different factors across the various investments. In most cases, changes have mainly been driven by lower cost of capital with some adjustments to financial forecast and a moderation of terminal growth assumptions, as noted earlier. Overall, looking at the multiples, they have remained reasonable when compared to a calibrated peer set. Moving into results overview per pillar. Similar to our year-end presentation and in addition to the INAV and headline earnings disclosure per pillar, we also disclosed the cash dividends received for the 6 months as well as the last 12 months headline earnings and dividend yield for improved transparency. The health care pillar consists of Mediclinic, which is the single biggest investment in Remgro's portfolio and contributes approximately 24% to INAV and approximately 26% to headline earnings. If you look at the valuation of Mediclinic, just remarks on the process. At year-end, we use a third party to perform an independent valuation, which is audited by EY's valuations team. At interim, our corporate finance team prepares the valuation, applying a methodology which is closely aligned with the third parties' methodology. Remgro's valuation of its 50% stake in Mediclinic Group increased by 7.4% in U.S. dollars. That's Mediclinic's reporting currency in the context of improved overall performance resulting from good execution on key business priorities in each region. With the rand strengthening by 6.6% over the 6-month period, that valuation increase translates to 0.2% in rand terms. The valuation is an aggregate of the DCF of the latest business plans for each of the 3 regions. The implied EV over EBITDA multiple is 9.5x, calculated using Mediclinic September 2025 published results. This represents a blend of the multiples of the 3 component parts, each of which we compare to a relevant peer set. Ronnie and Jurgens will unpack Mediclinic results later in the presentation. The consumer products pillar consists of RCL Foods, Rainbow, Heineken Beverages, Siqalo and Capevin and contributes approximately 16% to INAV and 29% to headline earnings. The platform showed mixed performance for the period. RCL Foods, Siqalo and Capevin saw a decline in headline earnings for the period with Rainbow increasing substantially. Dividends contribution also improved due to contributions by RCL Foods, Siqalo and Rainbow compared to the comparative period. RCL Foods contribution to headline earnings decreased, as I said, by 31%, while the underlying headline earnings from continuing operations decreased by just under 22%, largely driven by challenges experienced by the Sugar business unit during the period under review. Paul will elaborate in more detail on RCL Foods results later in the presentation. The contribution by Rainbow increased substantially by 110% to ZAR 535 million from ZAR 255 million in the comparative period. We are very pleased with Rainbow's results for the 6-month period, and Martin and his team do a great job unpacking those results in the recent webcast that is available on Rainbow's website. I would also encourage you to view that there. HeinBev's valuation for its 18%, Rainbow's valuation for its 18.8% interest in HeinBev increased by just under 12% over the 6-month period to ZAR 7.5 billion. In summary, the increase in the valuation is attributed to factors including improved operating margins and decreased cost of capital, offset by reduced terminal assumptions. HeinBev's contribution to headline earnings amounted to a profit of ZAR 155 million, delivering a turnaround from a loss of ZAR 11 million in the comparative period. This solid financial performance was underpinned by margin expansion and disciplined cost management. Jordi and Radovan will elaborate in more detail on Heineken Beverages' results later in the presentation. Siqalo Foods valuation increased by 9.1% over the 6-month period. Siqalo operates in a persistently challenging trading environment, marked by ongoing commodity cost pressures and constrained volume growth. The valuation benefited from a lower cost of capital, offset by slightly moderated financial forecast. The headline earnings contribution amounted to ZAR 237 million, representing a decrease of 6.7%. As said before, the trading environment remained challenging due to constrained economic growth with consumers still under financial strain. Their business volumes remained constrained and decreased by 2.7%, mainly due to the spirits category market volume declining by 2.1% over the last 12 months. The profit margins held steady due to a price increase implemented in March 2025. And by focusing on savings initiatives, the business managed to offset some inflationary costs and increase brand marketing investments. The financial services pillar contributes 21% to INAV, 15% to headline earnings and 17% to dividends received at the center. OUTsurance Group is the most significant investment here. Their contribution to headline earnings increased by 14.3% to ZAR 713 million, mainly due to OUTsurance Holdings normalized earnings increasing by 12.6%. The increase in earnings was driven by strong performance in South Africa and solid organic growth. OUTsurance Group released their interim results on the 11th of March 2026. The valuation of Remgro's 57% stake in CIVH increased by 2.7% from ZAR 15.8 billion at 30 June 2025 to ZAR 16.2 billion. This ZAR 16.2 billion excludes the CIVH pre-implementation dividend of just under ZAR 2.7 billion, which Remgro received. And on a like-for-like basis, including the dividend, the valuation increase is 19.6%. With the implementation of the Vodacom investment into Maziv in December 2025, Remgro's effective stake in CIVH's operating subsidiary, Maziv reduced from 57% to approximately 40%. It is pleasing to see CIVH's potential is now starting to deliver meaningful financial performance with strong structural fiber demand and expanding network and greater penetration, Maziv has delivered good revenue and earnings growth through increased subscribers and average revenue per user. The valuation benefited from a reduced cost of capital, partially offset by an increase in discounts as Dietlof will describe later, including those due to the capital structure changes. Given the valuation date of 31st December 2025, the valuation includes the Vodacom assets at acquisition cost with customary Remgro discounts applied rather than adding a forecast DCF for these assets. The 30 June '26 valuation will be done on a business plan with these assets fully integrated into the respective businesses of DFA and Vumatel. CIVH's contribution to headline earnings amount to a profit of ZAR 123 million, reflecting a sustainable breakthrough into profitability from a loss of ZAR 141 million in the comparative period. And these earnings is accounted for up to 30 September 2025. Dietlof will elaborate in more detail on CIVH results later in the presentation. The industrial pillar companies are mostly profitable on a sustainable basis and consistent dividend payers with high cash conversion ratios as seen in the contribution to headline earnings and dividends received, also with attractive earnings yields and dividend yields. The valuations are also not very demanding. Looking at Air Products valuation increased by 3.1% in the period. The small increase in value is largely as a result of a decreased cost of capital, offset by slightly lower financial forecast, reflecting the tough operating environment. Total Energies valuation reduced by 2.4% in the 6 months. The decrease in value was mainly driven by balance sheet changes, combined with a lower terminal growth rate applied. From a results perspective, Air Products' contribution to headline earnings increased by 11.4% to ZAR 380 million. This increase is due to moderate growth in tonnage and supply chain businesses strong performance in the pipeline business and improved volume and margins in packaged gases, driven by effective commercial management and ongoing cost discipline. TotalEnergies contribution to Remgro's headline earnings increased by more than 100% to ZAR 311 million, but this increase was mainly driven by a once-off transit pipeline cost refund, Remgro's portion being ZAR 218 million in this period and a good marketing performance, partly offset by lower sales due to refinery supply constraints experienced during this period. The net cash at the center increased by ZAR 3.7 billion to ZAR 12 billion over the reporting period and mainly due to the CIVH pre-implementation dividend of approximately ZAR 2.7 billion. In addition, to the FirstRand stake at the market value of -- on 31st December 2025, and that ZAR 6.8 billion is the after CGT valuation. The total liquidity at the center amounted to just under ZAR 19 billion. Since December 2025, ZAR 52 million FirstRand shares have been disposed of for an after CGT proceeds of ZAR 4 billion. I think the gross proceeds was just under ZAR 4.9 billion. As already said, Remgro experienced strong cash flows at the center for the period under review, mainly due to a 34% increase in ordinary dividends received from investee companies amounting to ZAR 2.4 billion. The comparative 6 months, the amount was ZAR 1.8 billion, and this excludes the pre-implementation dividend of ZAR 2.7 billion, which is included in the special dividends received bar of ZAR 2.8 billion. Remgro also sold its portfolio stake in BAT for net proceeds of ZAR 1.1 billion and paid a special dividend of ZAR 2 per share during the period under review, landing at an increase of ZAR 3.666 billion for the period under review. This graphs depict the evolution and steady growth in dividends paid since 2021. That's a low base because that year was impacted by the COVID pandemic. Remgro doesn't have a specific dividend policy, but the general guidance is a payout ratio of approximately 50% of the cash flow at the center or a 2x cover ratio. And that's depending on the specific circumstances impacting solvency at liquidity at the time of declaration and also considering the foreseeable future. You'll see that in 2025, the cover or the payout ratio was 50% -- and I think that conservative posture was at that stage in September when the Board decided on a dividend, the CIVH/Vodacom transaction hasn't yet been concluded. So the interim dividend, Board declared an interim ordinary dividend of ZAR 1.73 per share, up by 80.2% from the ZAR 0.96 per share in the comparative period. The rationale for this increase is that based on the strong liquidity position, the Board has adjusted the dividend cover to approximate 1.5x for the foreseeable future. In addition, also the weighting between the interim and final dividends have also been adjusted towards the interim dividend Therefore, the increase of 80% is more pronounced at this interim stage and is not an indication of future dividend increases. So this brings me to the end of my presentation. I will now hand over to Ronnie and Jurgens to talk through Mediclinic's results. Carel van der Merwe: Thank you, and good morning. Before I start, I would like to just mention that the conflict in the Middle East is top of mind for us at Mediclinic at the moment, and Jurgens will unpack the situation in a few minutes. To position our strategy and key priorities at Mediclinic, we will start by providing a fresh perspective on the market shifts that continue to take place and our strategical and tactical responses there too. Throughout our history and perhaps more importantly, as we move forward, Mediclinic's success will depend on our ability to adapt, evolve and consistently deliver expertise you can trust. That commitment continues to anchor our strategy. In setting our strategy, we consider the following key external pressures that impact on how we define our business. First of all, consumers. In the current and future environment, consumers expect same or next-day health care access, proactive communication and also convenient community-based or virtual care. Second is payers. As a consequence of the rising cost of health care globally for various reasons, payers are increasing tariff pressures and steering care towards lower care settings. And thirdly, competitors. In this dynamic environment, our competitors are consolidating the market and new competitors emerge, leveraging digital channels to capture the front door access to health care. And our response is to defend and strengthen our inpatient core while building a broader, cost-efficient health care ecosystem. In doing so, we aim to, first of all, strengthen our core business by establishing systemically relevant clinical powerhouses that anchors our reputation and also our service offering. Secondly, to expand our clinic -- outpatient clinic and day case networks and deepen our home care services as well as outpatient services, establishing a spectrum of service and operational footprint, also increasing the touch points with clients and driving scale. Thirdly, to invest in superior client experience, ensuring that clinical care is epic center of what we do and embed -- also embed digital solutions to facilitate access to coordinate care, to orchestrate referrals as well and thereby driving lifetime value for our clients. Our North Star remains clear. We aim to be the provider of choice, enhancing the quality of life in every interaction with our clients. Then moving on to progress on priorities. Our key priorities that are aligned with our broader strategy are aimed at focused and decisive execution to sustain growth while improving performance. With reference to the key priorities discussed in December of last year, we continue to make good progress. In our results for the 6 months ended 30 September '25, which we will discuss in more detail later, Jurgens will do that. We've seen strong volume growth across all 3 divisions as well as care settings. This growth has been complemented by a shift in specialty mix towards a higher acuity as well as continued growth across our continuum of care, reflecting in our strategic initiative towards clinical powerhouses as well as growth in related businesses. Alongside growth, we are optimizing performance improvement and driving operating margins through improved efficiency. As communicated before, we are in the process of our operating model review aimed at, amongst other things, driving cost efficiency, empowering our facilities to drive growth and being agile to respond to the market changes. We set ourselves a target of total savings of up to $100 million by the end of financial year '27. To achieve this, each division has set clear objectives through defined initiatives over a 1- and 2-year horizon. Up to the end of September '25, our combined progress reached $63 million of savings. We remain confident in our ability to reach and hopefully even surpass our target savings. Throughout the group and particularly in the Middle East, we are establishing clinical powerhouses supported by digital access to health care services. In September last year, we consolidated Mediclinic Al Noor Hospital and Mediclinic Airport Road Hospital in Abu Dhabi into a single integrated flagship medical powerhouse at an extended Airport Road campus. The consolidated 265-bed facility at more than 74,000 square meters and supported by an additional investment of AED 122 million represents a significant commitment to clinical excellence, advanced infrastructure and superior client experience. In November '25, we launched a new app in the Middle East, which has extended our referral network as well as our virtual platform in the region. Through a combination of growth and efficiency, together with disciplined capital allocation, we've reduced leverage and improved our return on invested capital. With the improvement in earnings, our return on invested capital has now reached 5.1% from 4.2% in March '25, while our leverage ratio has improved in the recent reporting periods to the current 3.1x. And then I'm handing over to Jurgens. Thank you. Jurgens Myburgh: Thank you very much, Ronnie, and good morning, everyone, and thank you for the opportunity. The group delivered pleasing results for the 6 months ended 30 September 2025, driven by underlying volume growth, particularly in the Middle East, a favorable specialty mix and continued implementation of the operating model review, as referenced by Ronnie. Revenue increased by 10% to $2.6 billion and is up 5% in constant currency terms, driven by strong growth in patient activity across all 3 divisions and care settings and a favorable increase in the specialty mix driving average revenue per admission. Adjusted EBITDA increased by 23% to $397 million, up 18% in constant currency terms. The group's adjusted EBITDA margin was 15.5%, supported by a combination of revenue growth and cost efficiencies. Adjusted earnings were up 91% at $159 million, reflecting the strong operating performance, together with the reduced depreciation and amortization and net finance charges. The group delivered cash conversion of 84%, impacted by low collections in Switzerland and Southern Africa, and we continue to target 90% to 100% conversion rate at year-end. Looking at this in more detail by division and starting with Switzerland, revenue was in line with the prior period at CHF 930 million, driven by an increase in underlying volumes, offset by the impact of ongoing negotiations on doctor tariffs in Western Switzerland, affecting our hospitals, in particularly Geneva and Lausanne. Inpatient admissions grew by 0.6% and general insurance mix increased to 53.3%. Adjusting for the impact of Geneva and Lausanne, inpatient admissions grew by 1.8% and the insurance mix was more in line with the prior period. The occupancy rate was 53.4%. Outpatient and day case revenue increased by 7% to CHF 211 million, contributing some 23% to total revenue during the period. As a direct result of the ongoing turnaround project, including the effective management of employee benefit and contractor costs, operating expenses declined by 2% compared with the prior period, delivering a 14% increase in adjusted EBITDA to CHF 122 million. The adjusted EBITDA margin increased from 11.4% to 13.1%. Adjusted earnings increased from a loss of CHF 1 million in 1H '25 to a profit of CHF 31 million in the first half of this financial year. In year-to-date trading, Switzerland continues to be impacted by the volume shortfall in Western Switzerland. This notwithstanding -- as a consequence of good volume growth across the rest of the business and continued progress in our turnaround project, we're targeting marginal revenue growth and stable EBITDA margins in this financial year on the back of what was already a very good second half of the previous financial year. The ongoing tariff disputes exacerbated by the change in outpatient tariff dispensation will impact our cash conversion in the region over year-end. Looking then at Southern Africa, revenue for the period increased by 8% to ZAR 12 billion. Compared with the first half of last year, paid patient days increased by 2% with day case growth exceeding inpatient growth. Occupancy remained stable at 69.9%. Average revenue per bed day was up 5.3% compared with 1H '25, reflecting year-on-year tariff increases and specialty mix changes. Adjusted EBITDA increased by 12% to ZAR 2.2 billion, resulting in an adjusted EBITDA margin of 18.5%. Adjusted earnings increased by 36% to ZAR 861 million. In year-to-date trading, the division has continued to see steady growth in bed days sold and this, together with disciplined cost management, is targeted at delivering revenue growth ahead of inflation and stable EBITDA margins. Finally, then in the Middle East, in trading up to the end of February 2026, the month before the conflict started, the Middle East experienced good revenue and EBITDA growth on what was already a strong comparative period in the second half of the previous financial year. The consolidation of our facilities in Abu Dhabi City has surpassed our expectations. Consequently, we were anticipating revenue growth for FY '26 in the mid- to upper single digits and an incremental improvement in the EBITDA margins. The onset of the conflict in Iran and its proliferation to the broader region has introduced significant volatility in the short term and uncertainty in the medium- to long-term performance of the business. Our primary concern, of course, lies with the safety of our people and patients, and we sincerely appreciate the resolve shown up to now. In the month to date, this is now for March of this year, trading has been extremely volatile with some days materially below and others above expectations and is further obscured by Ramadan and the Eid holidays. In the medium term, over the next 6 months, we're preparing for an impact on volumes due to the at least temporary movement of people out of the region. The longer-term impact on the performance of the business will depend upon the intensity and duration of the conflict indirectly and more directly on its impact on the population of the UAE and the broader macroeconomic environment. Our business in the Middle East is financially and operationally robust, and we will prepare ourselves for every eventuality depending on the outcome of the conflict. In the meantime, we closely integrated with the health care authorities and facilities in both Abu Dhabi and Dubai, seeking to provide care to those who need it and making sure we do so in a safe environment for our patients and staff. With that, I'll hand over to the Heineken team. Jordi Borrut: Thank you, and good morning, everybody. My name is Jordi Borrut, and I'm accompanied -- I'm the Managing Director of Heineken Beverages, and I'm here accompanied by Radovan Sikorsky, who's recently joined as our Finance Director, but who has been at Heineken for nearly 30 years. Moving to the presentation. Before I -- we go into the results, I'd like to highlight the macroeconomic environment and the opportunity for Heineken Beverages in the countries where we operate. If you look at the map, Heineken Beverages is a company that operates in 13 markets across the Southern Africa, as you can see, with the main markets being, of course, South Africa and Namibia, but also important markets like Kenya, Botswana, Uganda, Tanzania. And we have a strong local network of local productions in South Africa and Namibia and Kenya with in-market distributors and commercial operations. And like in some of the more developed markets where we see a muted growth in the alcohol consumptions, in the case of Heineken Beverages, the market and the footprint where we operate still offers a significant headroom for growth. And that's true for the international markets outside South Africa and Namibia because if you look at the key markets, we have a strong population of nearly 200 million inhabitants with a growth of about 2% to 3% per year and a significant headroom for alcohol consumption driven by low per capita of many of these markets. It is true that our main market remains South Africa, but there again, although the per capitas are higher there. As we said, the market remains resilient and continues to grow at about 2% to 3% per annum with significant opportunities for Heineken beverages in some categories like in beer, where our market share is still below 20%. Finally, we've got opportunities driven our multi-category portfolio, which allows us to tap into different consumer occasions segments and price points, leveraging our portfolio that we've now been able to manage and execute in a better way. And we have a capital-efficient organization. As we produce mainly in South Africa and Namibia for the entire African markets, allowing us to leverage the production capacities of this market. Moving to the next slide. I'd like to reflect on the 5 priorities, which if you recall from last year, these are the same priorities we highlighted a year ago. The difference is that post integration since September '23, the main focus for the company was, of course, the integration of the 2 of the 3 entities. And in that side, we focus on Pillar 4 and 5 which was about the efficiency, leveraging the synergies, driving down the fixed and variable expenses and also creating a one company from a people perspective. With that being achieved now with our case fill and service levels having improved significantly, the organization being now stable, our focus has shifted to the top line growth. And that's basically the top 3 pillars in our strategy. And looking at those 3 pillars, I'll start with the first one, winning in beer. This reflects mainly in the South African market, where, as I said, we have the biggest opportunity for growth, and it's the largest category in South Africa. Here, we want to continue to drive growth through our portfolio, mainly in Amstel and Windhoek in the mainstream categories and continue to premiumize Heineken post the shift from its nonreturnable to returnable bottle as well as to optimize the profitability of the category. If you look at the second pillar, build brands with power. This talks about our drive to build strong power brands at national level. We have, as Heineken beverages, more than 60 brands now across the different categories. So we've been very choiceful to select the 12 key brands such as Savanna, Bernini, Amarula, that we really want to drive nationally as power brands. But next to that, we want to complement and we are complementing this brands with local strong regional brands that have a very strong connection with consumers in those markets, such as Richelieu or Viceroy and that's the power of the combination of the strong national with local regional brands. The third pillar talks about customers and consumers and how we want to drive a closer connection with consumers and customers through partnership with our route to markets and retailers. We've been improving significantly our capabilities there with joint business plan with better insights and information, which we want to leverage to offer better propositions to these consumers and customers. Now the focus on this top line growth doesn't mean that we will abandon the 2 other pillars that remain critical to our business. And as you will see, by results explained by Ronnie, has been the main driver of our performance. So we will continue to drive efficiency in variable expenses, and we will continue to drive engagement score. Currently, our engagement score sits at 80%, and that's 12 percentage points better than 2 years ago post integration, which is a testimony of the good work and the unified culture of the company. By the way, we've been ranked the #1 top employer in the FMCG in South Africa recently. Now moving to the next slide, just to highlight on the key commercial activities continuing in the top line growth that we've executed throughout the peak season, specifically in this first half, 6 months. Without going into all the details, I would like to stress that our execution commercially has improved significantly in the last year. And that we measure in the way we execute the campaign compliance execution as well as the number of outlets we visit and execute against. It's important to say that the organization now is organizing channels. And that's reality for South Africa and for Namibia. And that's relevant because different channels have very different roles for consumers in the alcohol segment. The what we call fragmented channel is the most important one, and that's where we have the largest sales force. There, we do flagship activations, but we drive visibility and availability of our brands. Then we have the modern trade channel where -- the drive is to joint business plan with our retailers and drive shelf visibility and in-store execution and leverage the strength and the power of our portfolio. And finally, more than on-premise channel, which is not so relevant from a volume perspective, but it's very important from an image perspective, where our teams are focused on experiential execution and focus on the top-tier on-premise outlets to drive partnerships. With that visibility on the commercial key activities, I'll pass the word to Rado to give us a highlight on the financial performance of these first 6 months. Radovan Sikorsky: Thank you, Jordi. Good morning, everybody. Nice to be here at the Remgro Analyst Conference. Yes. So the result, it's a nice green picture for us, I have to say. We have nice revenue growth of 2% coming to over ZAR 31 million, which is nice to see. We see that the second half, the HBSA, the local South African operation is really coming to the fore. So that's nice to see as well. And if we look at the earnings, a really strong growth, right? So a strong performance overall. Now the margins have expanded very nicely in terms of our mix. But a lot of work has been done on productivity, on the variable costs in terms of driving efficiencies there as well by the supply chain team. And of course, we're getting the leverage of the revenue on our fixed cost which is driving a really strong bottom line performance, as you can see on the slide. In terms of our cash performance, also very strong cash performance coming through really strong in the peak, our cash flow management. So in the seasonality of our business, in the last 3 months, very strong cash flow performance, which has really helped us in terms of improving our net debt performance there as well. So if we go to the next slide, so just overall, a bit more on his summary. You can see in the waterfall, the ZAR 392 million increase in headline earnings, the profit before tax, that is really the underlying part of the business, which is now largely coming through in terms of the total performance of the business, but also in terms of the ZAR 370 million, which is a combination of the equity earnings that we are getting from some of our minority holdings, that's also coming through nicely as well. And we had a few one-offs that we are cycling from the previous year as well. And of course, there is the increase in our taxation with the improved result, bringing us to a reported headline earnings of ZAR 824 million and that adjusted for the IFRS amortization, we come to a total of just over ZAR 1 billion headline earnings for the 6-month period. Jordi Borrut: Thank you, Rado. Now moving to the final slides of our presentation. If you look at the revenue, as Rado explained, our revenue growth at 2%, still below our long-term ambition of revenue. But important to mention that revenue was mainly driven by the beer category, which performed significantly well with Amstel and Windhoek doing well and robust gains beer across the Africa regions in general. Ciders was resilient with Savanna being a resilient brand and Bernini as a standout performance. And then we have negative performance on wine and spirits, specifically on the boxed wine on the value wine and on spirits on the gin and spirits business, although important to reflect that on the brown spirit where we have our strength, we performed much better, brandy and whiskeys. If you look at the next slide, looking at the revenue contribution for market, what you will see is that South Africa remains the biggest contributor of revenue but Namibia has an important role to play in revenue and also in profitability. I want to remind the -- that Namibian breweries is stock listed in the Namibia Stock Exchange. And you can see the full results in their website. And finally, HBI, the international business outside South Africa and Namibia, delivered strong growth in top line. And as we said before, we see huge opportunities in the potential of these markets as we expand our footprint across many of these new opcos. In conclusion, moving to our last slide, the macroeconomic environment remains volatile with a slow economic in South Africa, although we see stabilization. And it's important to mention that the alcohol consumption, specifically in South Africa continues to be resilient, as I said before. And rather than being suppressed, it's shifting to different segments. So we see a consumer shifting to value and more premium. And the good news is we can play in both through our portfolio and price points. Of course, we are monitoring the conflict of Iran. It has a significant an impact in our HBI volume, which is not significant. The volumes we sell in the Middle East from a commercial perspective are not significant, are mainly in the non-beer and they are not very relevant in the scope of HBI and Heineken beverages, but the impact is more in the oil and the transport impact that it will have, it can have in our company and we're monitoring that very closely. Although we don't see any supply chain disruption at this stage and we don't see talking to our partners and suppliers. From an industry, the markets, as I said, continues resilient, but there's a heightened competition, both from the competitors and illicit market that is really affecting us, specifically on the spirits and on the white spirits. But we continue to see many opportunities, first, because of the strength of our portfolio. We have really broad portfolio that allows us to tap into different occasions and price points. Innovation continues to be a pipeline for growth as we have seen in the previous 6 months and we will continue to drive a disciplined cost and capital allocation, as we've shown in the results. Finally, we see a margin recovery, and we expect to continue delivering a margin recovery in the next years. Thank you so much. And now I'll pass on to Dietlof for CIVH. Dietlof Maré: Thank you, Jordi. Good morning, everybody. I would like to do the presentation in 3 steps, a little bit of a strategic overview, then a market analysis, and then the financial update. So I think close to our purpose, we believe in connecting South Africa, changing lives, giving data and abundance to South Africa. And I think with that, we're unlocking the scale and we play a part in this digital future of South Africa. And that's the purpose and our belief, and that's what we believe we must need to actually change our South Africa do business and compete with rest of the world. So if you look at it from a Maziv point of view, the focus was really to increase the free cash flow. And we did that in different ways. We monetize the assets. So we've got very strong consumer Vuma assets. So really looking at penetration rates. We looked at the value of it, we looked at ARPUs, generating as much cash on these assets as possible. Then we also looked at DFA, the enterprise side. We had to really monetize the network. And we took 12 million fiber kilometers of fiber out the grounds, and we rehabilitated the network to monetize basically that asset. The result of that was a 31% increase in free cash flow before CapEx of ZAR 1.5 billion. But I think more important, and we did touch on that was this positive momentum on the headline earnings across the group. And that's what we have to continue, and we obviously have to sustain that going forward. So from a DFA point of view, really the upgrades, the 12,000 kilometers that we replaced in the metros were key for us. We're future-proofing the network. We're getting closer to the end customer, getting closer to the premise of other end customers, giving us the ability to install quicker, to obviously look at the customer experience side and to create value for especially the fibre to the business sector in South Africa. What is very positive is also our fiber to the sites and fiber to the towers, that underpins our cash flow across the group and across the enterprise segment. This is linked to these blue-chip MNO companies, long-term contracts. And we're building the business around this sustainable revenue within the sector. So we still saw a 7% increase in linked growth across the enterprise segment. Although we slowed down a little bit linking stores because we were upgrading and rehabilitating the network a little bit. We had to obviously control that, that impact our revenue a little bit. And it did increase our cost a little bit because we had to do huge amounts of work on the stabilization and rehabilitation of the network. But we future-proof the network. So we've got a new fiber technology in very close on the DUDCs, which is this underground, dry underground cabinets very close to the premise of the businesses and buildings in South Africa. So we believe we'll see the benefit. We will see the short- to medium-term benefit of that. From a Vuma side, really focusing on the penetration rate. We took the penetration up to 44%. We also improved the economics network versus the revenue conversion, seeing a revenue growth of 15% across the group. And really, I mean, we started building because of the holding pattern of not building really under the Vodacom deal. We started slowly building again 200,000 homes over the period. But we slowly, slowly getting the uptake to go and getting the engine to move to obviously address the underserved areas in South Africa. From a massive Vodacom point of view, very positive news for us as a group. It took a little bit long for us to get the deal over the line, but the deal is over the line. I think we're seeing a strengthening of our balance sheet, and that will enable us to accelerate the growth and expand it scale throughout South Africa. What we love is that we've got this untapped, unconnected market in South Africa that we can actually play in with a huge demand for fiber. Enterprise growth, yes, we have to include and integrate the assets from Vodacom into the business as quickly as possible and then monetize on the assets and drive the additional EBITDA that comes in from the deal. I think that's the key focus for us on Vodacom. Really, if you look at the DFA side of the business, stable cash flows underpinned by obviously the fiber to the sites and fiber to the tower businesses. What we see in the market is 5G rollout, really, really accelerating across South Africa. And with 5G and 5G densification comes access to fiber. You can't densify 5G and roll out 5G across South Africa without fiber solution. And that plays into our hands a little bit on the site sides of the business. There's 47,000 sites across South Africa, long-term contracts, blue-chip companies, all the MNOs. And we have got that relationship with those MNOs. So we got 12,600 sites connected to fiber. It's a 1% growth. It's 120 sites that we connected over the time. It's a little bit linked to our metro coverage at this point. But as we expand, as we incorporate some of the Vodacom assets, I mean, that footprint will increase. But what this does is, as you chase towers, you will -- you also open up businesses to fiber-to-the-home, fiber to the business and additional revenue streams as you build out your network from the metros. So very positive segment for me within the DFA, stable at this point. From a business connectivity point of view, this is where we're seeing 400,000 customers across South Africa. And it's broken up in 2 parts. You've got a metro connection side, that's building the access within these metros out. And we're seeing -- even though we didn't connect so much, we were controlling the connections a little bit on driving our network because of the network rehabilitation. We still saw it grow by 4% year-on-year to 6,000 links. But interesting, and more exciting is the fiber-to-the-business connections where we see with modernizing the networks, we saw a growth of 9%, although we were controlling it a little bit. We saw 9% on links to -- just under 55,000 links across South Africa. So we're seeing the strong SME demand for affordability and reliable fiber. And I think that's the thing. Linked to customer experience, this is the critical thing that we believe we should get right to monetize the network from a business and a metro point of view. Vumatel, biggest fiber to the home provider in South Africa. Over 2 million homes passed. Uptake of increase -- uptake 44% across the base. So what we're seeing is very stable growth in the core. We're seeing Reach and Key also growing exponentially. But what we're seeing is there's also this expansion segment that we have to address because the need is there for connected South Africa. So we split that always into the 3 segments. The core segment, 2.2 million homes in that segment. It's quite a mature market. It's penetrated. It's 34% overbuilt. We got a very good market share in this of 41%. You can see there we didn't build a lot of homes as the market is quite penetrated. But we saw a stable 3% to 4% growth in subscribers. That uptake going to blend it across the base at 45%. But what we've seen more positively is that our early adopter areas, the areas that we built right in the beginning is touching 77%, 80% uptake, which is very positive. From a reach point of view, very good markets, 5.6 million homes, very little overbuilt. We got a big market share in this segment. 1.1 million homes we've passed in the segment. You can see we didn't build a lot over the last period, only 3% because we were in the holding pattern because of Vodacom, but we're slowly, slowly now driving that build out because of the stronger balance sheet and then also the deal that was confirmed. Subscribers grew by 21% across the base. And the uptake going to 43%, which is for us, a phenomenal story, which we will just build on monetizing this asset. What we're seeing is Key and Reach areas that's -- the only differentiation there of split there is the household income. That's under 5,000 and a month income in the key markets. But what we see is, as we go into the reach markets, which are becoming a little bit smaller, you're actually touching the key markets as well. So we're going to start combining these markets because if you pass the reach homes you have to connect the key homes as well because they're a little bit interlinked. So really, these are the markets. This is where we're going to expand. This is where we're going to build the 1 million homes that we committed at the commission. And this is where we believe that the future revenue growth will come from -- in the organization. If you look at it from a financial point of view, strong financial results, 11% revenue growth year-on-year, 11% EBITDA growth, but I think back to the headline story earnings story, positive in Vumatel, positive in CIVH, and DFA maintaining a positive headline story. And this is what we want to build on. So if you look at the revenue, 15% in Vumatel, 50% growth year-on-year to ZAR 2.1 billion and EBITDA, 18% up to ZAR 1.5 billion for the period under review. But more importantly, we're seeing very positive movement on operating earnings of 60% year-on-year of over ZAR 1 billion relating then back to a headline earnings of ZAR 254 million for the period, a 287% increase. DFA remained stable, 4% growth, I think, impacted a little bit by the links that we slowed down on a little bit of additional cost in the structure that will normalize going forward, but still a strong 4% growth year-on-year in revenue, 4% EBITDA growth, operating earnings 2% up ZAR 592 million, and then 10%, strong 10% growth on headline earnings to ZAR 219 million. From a CIVH point of view, revenue 11% up to ZAR 3.7 billion, EBITDA, ZAR 2.4 billion, also 11% up, but more positive is obviously the operating earnings 49% up and then a very, very positive movement on the headline earnings to ZAR 216 million for the period under review. So as I said, focused on free cash flow. So really, we saw a strong free cash flow coming in backed up by the EBITDA growth. We saw the 11% growth on EBITDA. But what you also see is cash after tax and interest also growing by 31% year-on-year. And I think that's very, very positive. And then if you look at the additional cash generated of ZAR 256 million year-on-year, giving us then a very positive net cash surplus for the year. If you look at the future, I think for the future, we will continue monetizing the asset, I think, really driving the uptake and the value propositions that we deliver on our current fiber-to-the-home assets. We have to capitalize on the network upgrades and rehabilitation that we do. And the segment that we're going to focus on really is the fiber to the business segment where we were seeing this huge demand of growth going forward. Then we're obviously going to integrate the Vodacom assets into the business quickly and monetize it as fast as possible. That's both metro fiber and the fiber-to-the-home type of assets. And then with a stronger balance sheet, we have to obviously start expanding, again, start building the way we used to build and really making sure that we keep our market share within the fiber-to-the-home space in South Africa. Lastly, I think we must keep executing on this positive headline earning story that we showed in this result presentation. Thank you. P. Cruickshank: Thanks, Dietlof. Good morning, everybody. Just moving into some headlines for RCL Foods. I will focus most of today's conversation on sugar and the dynamics that are playing out in that market and touch briefly on our other business units. But just few very briefly updates on progress against our top strategic priorities, and I'll just call out a few of the more material ones under right growth in Future Fit, which are our 3 strategic pillars. Starting with net revenue management, and that is the frequency and depth of our promotional activity across our brands, with savings exceeding our own internal targets in that space. so progressing well. We have some innovation projects in baking, which have been launched within the period and then also post the period, one being sourdough bread and buns in KZN, and Gauteng more recently, in March, our PIEMAN'S POCKETS innovation launch. And whilst early days in both, early signals are good, and those innovations are gaining traction. Building brand equity in a branded food business is crucial. Our equity scores across our brands have improved in the period. And despite our results, we continue to commit our investment into those brands to ensure that our equity remains strong and grows. And we don't start saving money against our marketing spend. Lastly, to call out as continuous improvements with low inflation and a consumer under significant pressure, which has been touched on in other segments of the presentation. Continuous improvement and savings targets remain crucial to protect the consumer from price increases that may come through. From a numbers perspective, we went through this in our results, but all numbers across the board are unfortunately negative, mainly driven by sugar, which I'll unpack in more detail, including our return on invested capital dropping below 10%. Just EBITDA performance, waterfall, and I'll just focus on the middle section. And the waterfall unpacks most of the reconciling items related to the prior period on the left with the one reconciling item in the current period being IFRS 9, which is immaterial. So EBITDA down 14.9%. Let me start with groceries. Improved performance in groceries driven by margin improvements in culinary, largely a result of continuous improvement in net revenue management activities, which I referred to earlier as well as improved volumes in our pet food business. Baking is a story of 2 halves, milling and breads volume under pressure and down in both of those segments, but being offset by improved performance in specialty and our PIEMAN'S business. and sugar the story that I'll unpack in a lot more detail, ZAR 250 million down on the prior year. Just to unpack the long-term historical performance, and this really is about putting context to the sugar result, but let me start with the gold bars at the bottom, and that reflects the other parts of the business, predominantly made up of groceries and baking. Steady improvement over the last 5 years, with the exception being F24 which was the load shedding year, which impacted our Randfontein plant significantly, but in that context, the other parts of the business continued their steady improvement, but overshadowed by the sugar performance of ZAR 387 million EBITDA for the period. The important context is we consistently said that '24 and '25 were record years, and that has unfortunately played out. But the ZAR 387 million, you can see the impact in context of the prior period, call it, '22 and '23 also significantly down. And I'll talk to you why in a minute. But it does give you a good indication of the volatility of sugar and the impact it plays on RCL Foods' portfolio. Just unpacking the sugar industry dynamics, and there's 2 parts here, the dollar-based reference price and Tongaat. I'll come back to why we talk about a competitor and why it's important in a minute in our results. But let me start with the dollar-based reference price. And effectively, that's the referral to the tariff that is in place to protect the sugar industry. Let me just start with why is the tariff important in sugar? And international sugar markets and prices is effectively a dump price. All international producers exceed their local supply. It's an economies of scale initiative and to make sure that you protect your local production for fluctuations in our agricultural performance, you generally oversupply, have excess supply than your local market. And as a consequence, the international price, which is often referred to in cents per pound is a dump price onto the market. All countries that are invested in sugar have a protection mechanism in place, including ours. Our challenge is ours is currently underwater. So it is cheaper to import because the dollar-based reference price has not moved with inflation since it was implemented in 2019. Detailed on the slide is some of the truing and fraying between ITAC and SASA. What I'll just focus on is that the second bullet ITAC is subsequently declined both applications in January '26 and launched their own investigation, which we think will speed up the review and hopefully arrive at an answer sooner rather than later, and we're optimistic in that regard. Delays have obviously had a significant impact. This has been going on since October '24. And to date, 160,000 tonnes of imports came into South Africa. Deep sea imports as we refer to them, coming through the ports a further 30,000 tonnes has come in subsequent to the 31 December cutoff for the period. And just to explain that, effectively, what happens is that tonnage displaces local sales and forces the industry to export that volume at a significant discount. So your revenue adjustment from the decrease price between local price and exports is effectively what displaces your profit and it flows straight to the bottom line, and that's how [ ZAR 250 million ] is made up. Just to talk about Tongaat and why it's important is that the industry works on a division of proceeds model. So all revenue that is sold, be it local or export is pooled and based on a formula is allocated between the millers and the growers with 64% of that proceeds going to the growers. This mechanism is put in place to ensure that there is fairness between millers and growers and to protect the growers in times of strife like we have now. So that is why Tongaat survival from a commercial perspective is important. They filed for provisional or the Business Rescue Partners filed for provisional liquidation on the 12th of February. That case will be heard in the middle of April, and there is significant activity and counter applications that are in place. So we are not sure at this point how that may actually play out. Just on the final point, I spoke about the commercial reasons for Tongaat to survive but there's also a social reason, and they have significant impact of KZN, particularly in the rural communities. And we are hopeful that a solution will be found as soon as possible. This is also been ongoing for many years, and they went into business rescue in October 2022. And then finally, looking forward, just to touch on one thing that's not on the slide, as we mentioned a couple of times in the presentation is the war in Iran and the impact from a food perspective on fuel and other fuel-related costs, particularly into packaging and supply of raw materials into our plants. At this point, and it's very difficult, almost impossible to control this to fuel supply. There's no indications of concern. We get regular updates and are monitoring that carefully. We do move significant volumes of raw materials around the country and obviously finished product. So it is worrying and it's something that we are monitoring closely. The impact of the oil price and its cost impact will be assessed as we go along with, obviously, price increases being a last resort to mitigate that impact across the group, and we'll monitor that as we go. Just I've spoken about sugar, so I'm not going to touch on that one. I'll just briefly touch on pet, and we refer to restoring service levels in our pet food business and the audience will be aware that subsequent to us reporting our results, we did recall pet product from the market, and we are busy getting our plants back up and running, which will hopefully be fully -- in full production soon. And then we move into a phase of rebuilding our brands and service levels as a consequence of that impact. And I think I'm handing over to Jannie. Jan Durand: Thank you, Paul. Earlier in this presentation, I touched upon the macroeconomic environment which we operate in currently and as you all are aware, Ronnie and Jurgens has spoken about our direct interest in the Mediclinic. And so it's really affecting us as well. And so in February, the global backdrop has become even more volatile with the Iran U.S. conflict now creating a genuine energy market shock, the sharp market swings we've seen reflect growing concern about sustained disruption in the region central to global energy flows and the potential for broader destabilization spill over. And I think nobody knows what's going to happen. I don't even think President Trump knows what he wants to do there exactly. And the degree of volatility seen in the market since reflects a market that is struggling to price the risk of sustained disruption in the region that remains central to global energy flow. You've all seen the chart 20% of oil flow through that. But the indirect impact on fertilizers, the agricultural sector is also a concern for us. This reinforces our concern that the consequences of a prolonged conflict may be broader and more destabilizing than the immediate headlines suggest. In contrast, the South African backdrop continued to improve since December with modest growth momentum, easing inflation and continuous progress in the reform agenda. Nonetheless, household remain -- pressure remains acute and global volatility for [indiscernible] these gains. This is actually the reality of the backdrop against we're actually operating with now. And also we're going to operate within the second half of the financial year. We expect some impact but our strength and fundamentals, consistent delivery and a resilient balance sheet position us well to navigate these uncertainties and challenges. As I round up, I want to pause and remind us of our strategic priorities with the execution of up until now has given us enough proof points of success. As you can see on the slide, our priorities remain unchanged. They are not short term. That requires a sustained and deliberate attention and today's results show clear progress in this regard. Looking at the year ahead, I'm excited to continue building on the progress of the current year. We will do this through continued active partnership with our management teams and co-shareholders to drive sustainable performance in our underlying portfolio. We'll keep sharpening and simplifying the Remgro portfolio as we've done now while pursuing disciplined value-accretive capital allocation opportunities in a manner that takes into account the risk posed by the current operating environment. Our sustainability priorities remain a key area of focus, and we are committed to improving disclosure, strengthening the ESG alignment across the group and advancing climate-related scenario analysis. We will be better placed to talk to our progress on this at the year-end. These remain the 3 key priorities for us as a management team, which we believe, done right, will aid our efforts in achieving our goal of crystallizing value for our shareholders. Beyond our portfolio, South Africa's muted GDP growth, strained consumers and high unemployed rates continue to pose challenges. The indirect effects of the current conflict will magnify this impact, the quantum which are difficult to predict right now. As I said earlier, our portfolio is certainly not immune from this impact. We are realistic about the scale of these challenges, but our team is energized, resilient and committed to applying creative solutions where needed. This will enable us to make a positive contribution for the benefit of our shareholders and the wider community in which we operate, and that is also in line with our purpose. I'm grateful for the tireless work of our teams and respective management teams and encouraged by what we've been able to deliver as reflected in today's good results. I really thank you for your time, and I thank you for my colleagues for their time for doing this presentation, and we will now open the floor for questions. Thank you very much. Operator: [Operator Instructions] I will now hand over to Lwanda to go through webcast questions. Lwanda Zingitwa: Thank you, and good morning. Lots of congratulatory messages Jannie and the team on a great set of results and particular excitement about the dividend level. Maybe just to get into some of the simpler questions before we go over to Ronnie and Jurgens on a lot of questions around the Middle East. The -- just on the cash buildup, and this is for you Jannie and Carel, how should we be thinking about the buildup in the group? Is it a question of special dividends to expect in the future? Or are we talking about potentially additional investments in the portfolio, appreciating that it's difficult at this stage to make assumptions around the market. Jan Durand: I think just on the cash buildup, I think in uncertain times, it's the optionality and also the defensiveness of sitting on the cash is quite -- give us some comfort. I mean, not long ago, we were sitting on debt. So we didn't time the war, but I think it's now for the time being, it's good to sit on that cash to have in reserve for what might happen going forward. I think what you will see, as Neville has explained in the dividend payout, we've reduced the cover ratio. And that is what we'll continue to evaluate. If we sit on a significant cash pile that we think is defensive, we might even look -- relook at some of those cover ratios and pay a higher dividends. Doesn't really matter if it's a special or a normal dividend. I mean, from our perspective, a dividend is capital return to the shareholders. But its also does nicely to link the normal dividend due to the underlying cash flow on a yearly basis, what you receive and what you pay out in an investment holding company. So I think we might see some increased dividend, but it depends on the circumstances going forward. And it's quite unsure of what might be happening going forward. I don't know if you want to add anything to that, Carel? Carel Petrus Vosloo: No, Jannie, I think you've covered it. Lwanda Zingitwa: And for you, Carel, can you just talk through the valuation of Capevin and whether there's been any further interactions with Campari on a way forward? Carel Petrus Vosloo: Yes. Certainly Lwanda. So the Capevin, just for context, is ZAR 1 billion, I think, that we're carrying it at roughly that sort of level. So a relatively modest exposure. But to give you a sense, we've taken the value down a little bit. I think we were at around [ ZAR 15.5 ]. Now we're at about [ ZAR 13.5 ]. So it's a bit lower than where it was. That's a long way away from the most recent meaningful transaction in the shares or specifically the Campari shares to get to that question. There's certainly many ongoing conversations with Campari, the fellow board member with us on the Board, so we engaged with them frequently, but certainly not on anything to do with our respective shareholdings. It is -- and now we'll be clear that the values at which we are currently carrying the stock, I don't think resembles at all, but we think the value of this investment is, we are very calm and reassured by very high-quality brands and assets that we have. This is a particularly difficult time for the spirits industry and we will be patient. I can't speak for Campari and their plans, but we're certainly focused on doing the right things for the business in the near term. Lwanda Zingitwa: Thanks, Carel. And while you're in valuations, do you anticipate any changes or material changes in how you think about valuations on the back of changes in bond yields that have taken place since December? Carel Petrus Vosloo: That's obviously something that's an important input into our valuations. So in the last 6-month period, bond yields came down a fair bit I think it was 170-odd bps that the risk-free rate came down. We were very thoughtful and careful not to get over our skis on taking the impact of that straight through the valuations. So we were -- we made sure that we also temper longer-term growth rates to reflect lower long-term inflation assumptions that are now embedded in the long-term yields and also where we thought it was necessary to apply a bit more moderation to forecast, we also did that. So firstly, to say that I think we were careful in not allowing the lower yields to run away with our valuations. Do we expect that, that could be a headwind going forward? So we did have a look at the impact of yields between the year-end and where we are now, and there's obviously been a bit of an uptick not nearly giving back all the gains that were made in the 6-month period. But certainly, some of it was given back. So I expect there will be a bit of a headwind, and we will need to assess that at the end of the year. Lwanda Zingitwa: Thanks, Carel. And Ronnie and Jurgens, I think Jurgens covered some of this in the presentation, but there's quite a number of questions on the Middle East and the impact of the war. And maybe if we group them into 3 themes, 1 being how do we think about the impact from an occupancy perspective? And then secondly, being the impact of your reliance on the expert community on your volumes? And then the last one being supply chain disruptions impacting hospital suppliers that you would ordinarily import into the Middle East? Carel van der Merwe: Thanks, Lwanda. I'm going to start, and then I'm going to hand over to Jurgens. I just want to make 3 broad comments. The first one is, first of all, the safety of our staff and our patients are of utmost important to us. That's priority number one. The priority number 2 is business continuity, which at the moment is a day-to-day affair basically because things change on a daily basis. And then point number 3 is scenario planning for the immediate short and medium term, which is what we're busy with. They have many moving parts currently. But to get into more of the detail of the questions, Jurgen's over to you. Petrus Myburgh: A couple of things. Firstly, when we talk about the significant volatility that we've had in March so far, just to give a little bit of context to that. Firstly, it's been Ramadan, and that in and of itself has a somewhat disruptive impact on the business. That was followed as is the case with the Eid holidays. There was a movement of the spring school break within the month as well. And then, of course, the war and the start of it in the beginning of the month and the continuance of it throughout the month. And so as I indicated when I spoke about this earlier is, obviously, at the start, we saw an impact on particularly our outpatient volumes. But as this has progressed, we've seen some days that are significantly below what we'd expect it to be and some days above where we expect it to be. And so qualitatively, we can talk about this as being a volatile environment and really difficult to predict at this point. And as a consequence, quantitatively saying that what we have in the Middle East is a financially and operationally robust business that's in the process of planning for every eventuality. And that's incredibly important because whatever that eventuality looks like, as Ronnie indicated, short, medium to long term, short term, we do expect people movements to take place, and we do expect that to impact our volumes, let's say, up to the end of what would be their summer to the end of August. But more medium to long term, how do we think about the growth prospects of this business and how does it impact some of our planning and how do we look at the balance between organic and inorganic growth within that context as well. So I think qualitatively, this throws up many considerations and all of which we're currently working through, but just quantitatively difficult to try and be predictive about this given the volatility that we're experiencing. Lwanda Zingitwa: A question for Jordi and Radovan online. Just the performance of Heineken since December, so how trade has been since the peak period and how you think about that in the context of the concentration of public holidays in the month of April? Jordi Borrut: Yes. Thanks. So as you can imagine that the first quarter of the year is difficult still to read, first, because in this first quarter, typically, all the companies increased prices following the excise announcement. And that price increase has changed significantly across different companies. And that has a big impact pattern in the buying of the route-to-market distributors. So there's a very significant change and differences in the price increases and the buying patterns and then Easter hasn't come forward, which means also the buildup of volume for the Easter holidays is also different. So in that sense, it's still a difficult quarter to rate. It would be much better to read it at the end of April. Having said that, what we see overall, the underlying trend is that the market, as I said before, remains resilient, which is good news, and we continue to operate at a trading level, which is in line with our expectations. So I think so far, that's what I would say. Lwanda Zingitwa: Thanks, Jordi. Similar question for you, Paul, on the food side and how trade patterns have been since December. And maybe a second question, while we're at it is whether we can expect sugar prices to rise with the potential rise of commodity prices on the back of the conflict? P. Cruickshank: Thanks, Lwanda. So a similar trend in food consumption demand over the last 2.5 months, which previously has been volatile, 1 month up, 1 month down, and we're seeing that trend continue. Volume remains challenged, and it is a bit of a fight to get to that volume amongst all the food producers. So no real change to what we saw in the first 6 months from a volume perspective. Jordi touched on the switcher Easter that obviously plays out in March in our world because most of the demand and power falls happening now. I touched on pets and that quantum is unknown. And obviously, we haven't been supplying the market fully over the last while. So that is having an impact. Then moving to the second question on sugar. So the international price of sugar has moved up from about $0.14 to $0.1570 per pound, somewhere around there. So that would have an impact on imports into South Africa. We have heard that Brazil is obviously switched to ethanol. That is the luxury that they present themselves with and we've heard that a number of supply contracts have been canceled out of Brazil for sugar. So that will play positively into the import situation in South Africa. Our sugar industry in South Africa has not taken a price increase for 18 months. And obviously, there is a lot of having a significant impact on the ZAR 250 million problem that we have between one period and the other. The price -- will there be a sugar price increase? In my mind, that is dependent on the tariff. Almost entirely, if the tariff comes, we will need to take a PI as industry. And there will be an agreement with that tariff on what that PI will be as there was with Masterplan 1, which was you can do multiple times a year, if you like, but it needs to be within the parameters of inflation. So that's what we expect to be part of that condition. Lwanda Zingitwa: Thanks, Paul. Ronnie and Jurgens, any guidance you can give on the plans to exit Spire as yet? Carel van der Merwe: So Spire has been under strategic review for a while, and there's a possible sale process going on. It was announced over the weekend on Monday that discussions with 2 parties have been -- came to an end or a possible sale, but there are still discussions with other parties going on. So that's on the one hand. On the other hand, we're working closely with management as well as with the Board to look at all sorts of scenarios and the eventualities. So in the instance if there is no sale at the moment, how do we reposition the business? How do we develop the business further from a strategic perspective? And how do we improve the performance of the business, given the current scenario in the U.K. market, where NHS commissioning has dropped significantly. Lwanda Zingitwa: Thanks, Ronnie. And the last question on the webcast, Carel, it would be strange if it didn't come up, but what is it that is holding back buybacks and given that the discount to INAV remains elevated and your cash levels are also elevated on the back of the first when stake sale? Carel Petrus Vosloo: So Lwanda, I think the same answer as Jannie gave earlier. So I think some of the things that we're concerned about and that caused us to be cautioned are things that are playing out in the market. Investors would have heard from -- even our Chairman of the AGM that there's a cautiousness about where we are. And I think that's reflected in our current posture on the capital structure. And that remains. If we had to ask what stands in the way, that's the biggest thing that stands in the way are sort of cautious posture at the moment. But we will obviously assess that as time moves on and events unfold. Lwanda Zingitwa: Thanks, Carel. Can we take questions on the Chorus call, please? Operator: Of course. The first question we have comes from Shane Watkins of All Weather Capital. Shane Watkins: Congratulations on a much improved performance. I must applaud you and your team. I really just wanted to follow up on what Ronnie was saying regarding Spire because the concern that I have is that what is good for the Spire Board may not be the same thing that is good for Mediclinic or indeed Remgro. And if I'm dead honest, it's not clear to me that the Spire board has shown themselves to have good judgment in the past. So I just wonder what you guys can do to clean up the structure and exit this investment. I don't think everyone's interest are necessarily aligned in the situation. Carel van der Merwe: Thank you, Shane. You're correct. Not everybody's interests are aligned of all the stakeholders that are in this situation. However, I just want to mention a couple of things. I think, first of all, as we've always been quite clear. We look at long-term value creation for shareholders in this instance, at Spire as well. We've never been interested in all sorts of short-term actions or activities. If it's not going to be in the long-term best interest of the business, its employees, its patients and its shareholders. So that -- having said that, we're working closely with the Board, with the Chair, the current Chair and with management on figuring out what are -- what's going to be the best way forward for this business, should there be no sale process at this point in time. And those are the things we have control over. So -- or not necessarily control, but we can give strong inputs into that. And that's what we're busy doing and we're making use of our own experiences and insights into health care in general to do so. It's a very difficult trading environment at the moment for all the reasons that have been outlined in the press and what I said about NHS commissioning. Shane Watkins: Ronnie, are the buyers that remain legitimate and serious buyers? And by when do you think the process may conclude either way? Carel van der Merwe: Cannot say. It's a process that we don't have access to at the moment, as you can imagine. Carel Petrus Vosloo: Shane just to add, there obviously very narrow timelines which we can comment on these sort of things. So even to the extent that Ronnie had insights, he might not be free to share those. I think we take that commentary on board, and we'll reflect on that as well. But I think difficult for us to be more specific than that. Shane Watkins: Okay. I mean I think the point that I was just making earlier was that for you, it's not so much important at what price you exit, but rather that the structure is cleaned up where there may be other parties that are more price-sensitive or sensitive as to how their role may change, if the transaction took place. Petrus Myburgh: Yes. Understood. Fair comment, Shane. We take it on board. But as Ronnie -- the operationally a couple of things going on. And then obviously, from a corporate transactional perspective, but then also what other value drivers are there within the business, transformational value drivers that we can pursue that drive sustainable long-term value for the business. And I think in that regard, we're aligned with the Board in how we think about that and the avenues through which we can seek to achieve that. So -- but thank you. Comment taken on board. Shane Watkins: Okay. Well, I just want to conclude by applauding the Remgro team on a significantly improved performance. It's great to see. Operator: At this stage, there are no further questions on the conference call. Jan Durand: If not... Lwanda Zingitwa: There are no further questions. Jan Durand: Nothing on the web. Okay. Then just thank everybody for attending, and thanks to all my colleagues for all the efforts and things that have gone into the results and the presentation. Thanks, everybody. Have a good day. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Good afternoon. Thank you for attending today's Q4 and Full Year 2025 Marchex Earnings Conference Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions]. I would now like to pass the conference over to your host, Frank Feeney, Chief Operating Officer at Marchex. Francis Feeney: Good afternoon, everyone, and welcome to Marchex's business update and fourth quarter and full year 2025 conference call. Joining us today are Russ Horowitz, our Chairman of the Board; Troy Hartless, our President, and Brian Nagle, our Chief Financial Officer. Before we get started, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements, including references to our financial and operational performance, and actual results may differ materially from those contemplated by these forward-looking statements. Risks and uncertainties that could cause these results to differ materially are set forth in today's earnings press release and our most recent annual or quarterly report filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements for subsequent events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The earnings press release is available in the Investor Relations section of our website. At this time, I want to turn the call over to Russ. Russell Horowitz: Thank you, Frank. I'm going to start off with a few thoughts and then hand the call over to Troy, Brian and then Frank again. The main item I'd like to reiterate is that we feel the company is at a very positive inflection point, both strategically and operationally. We've come a long way in expanding our customer footprint, evolving our product and technology capabilities and starting to create real sales momentum. With this progress and deeper strategic understanding, which is against the backdrop of the very real and very massive AI revolution, we've gained proprietary insight into what we believe may be a much bigger market opportunity, one where we evolve beyond mainly providing strategic analytics to vertical market-leading companies, to one where we accelerate delivering more comprehensive solutions that address high-value impact needs across the entire customer acquisition and optimization journey. At the end of the day, our customers fundamentally rely on our AI-driven strategic insights to more efficiently drive growth-oriented customer acquisition. We believe there is a significant opportunity for us to rapidly expand into highly measurable AI-powered bundled solutions, which provide the strategic insights our customers need, the automated actions those insights inform and the outcomes those actions achieve. We believe that there are significant untapped opportunities within our existing customer base and within each of our current verticals. We believe selling such bundled solutions across this entire customer value chain can accelerate our business and make us much more valuable within our vertical markets, as AI opens new product possibilities that can help businesses grow meaningfully while driving efficiencies. At Marchex, we view ourselves as a meaningful AI beneficiary, based on how rapidly we are now able to leverage AI to develop and deploy new products into our customer base that can deliver high customer value as well as new company revenue opportunities. In fact, we're being relied on to help many customers navigate the rapidly evolving and complex world of introducing AI and evaluating agentic possibilities to impact customer acquisition and retention. We see significant new business potential in introducing agentic workflows for customers who are integrated on the new Engage platform. Additionally, AI is making our business more agile and efficient to operate. The combination of these factors, including our vast amount of first-party data and vertical expertise are key elements in our improving outlook for meaningful business acceleration as we move through the year. With that, I'll hand the call to Troy to briefly discuss the fourth quarter. Troy Hartless: Thank you, Russ. In the fourth quarter, we achieved our goal of the primary completion of our technology platform migration by the end of the year. While this involved our migrating approximately 1,000 customers to the new platform and some resulting revenue dilution and offsets, we believe that we are now in a strong position with our ability to leverage new AI capabilities and more rapidly deliver innovative solutions to our customers. With this significant infrastructure project finally behind us, in 2026, we believe that we are well positioned to focus on accelerating our revenue growth and delivering margin expansion during 2026. Over the course of the past year, Marchex has significantly expanded our product platform capabilities for customers and prospects. Over this time, we have launched our new unified user interface across Marchex's product suite, new vertical AI capabilities and various other new products and features, and there is much more to come over the course of 2026 and beyond. In addition, with the previously announced proposed acquisition of Archenia. Marchex and Archenia have created a collaboration framework, and we have been jointly developing and selling initial products that reflect the combined capabilities of the two companies. Product examples of this collaboration, which leverage Marchex's data and AI signals and Archenia's AI tool sets and user interface, include conversational AI agents, which increase customer bookings and appointment rate and AI-verified outcomes, which drive increased revenue on a pay-per-event basis. We are currently in trials with a handful of customers and expect to launch more next month and beyond. While these combined selling efforts are early, we have had initial positive indications of adoption of the combined solutions for Marchex's existing customers in the Home Services and Auto Services verticals. We believe our ability to sell these and other combined solutions, which reflect the bundling of AI-driven insights, actions and outcomes to our installed customer base, will be a meaningful revenue growth catalyst in 2026 and beyond. As a reminder, we have a core focus on select very large vertical markets where the combination of our expanding AI capabilities, built on years of operating with first-party data across these verticals, give us the ability to deliver unique solutions for world-class market-leading companies. To that end, we deliver industry-specific AI solutions for automotive, auto services, home services, health care, advertising and media as well as other industries and sub-verticals. With that, I will turn the call over to Brian to provide an overview of the fourth quarter financial results. Brian Nagle: Thank you, Troy. Revenue for the fourth quarter of 2025 was $10.8 million, which is down from $11.5 million for the third quarter of 2025. We saw favorable impact of new sales and existing customer up-sells benefit the company in the quarter. We also saw some offsets to that growth due to migration activities from our legacy platforms onto our new Marchex Engage platform. For operating expenditures, we saw efficiencies throughout the business as we benefited from the realignment of the organization and the completion of certain technology platform initiatives during 2025. We anticipate that our gross profit margins can continue to improve over time as we are carrying an overall lower cost structure going forward, which could enable meaningful future operating and financial leverage for the business as new products and features sell through. On the balance sheet, cash decreased to $9.9 million from $10.3 million at the end of the third quarter of 2025. The decrease in cash was primarily due to the timing of customer payments at the end of the quarter. Moving to guidance. Revenue in the first quarter of 2026 reflects the migration revenue dilution from the final platform switchover in December 2025, which impacted revenue run rates entering 2026. With this noted, in the first quarter of 2026, we currently anticipate that revenue will be in the range of fourth quarter 2025 levels and that adjusted EBITDA will be $500,000 or more. Based on the growth initiatives previously noted by Troy and other positive factors, we currently anticipate that for the second quarter of 2026, revenue will sequentially increase as compared to the first quarter of 2026, with adjusted EBITDA potentially increasing to more than $1 million. In addition, with our ongoing product and feature launches on the new technology platform, we currently anticipate that we can see sequential quarterly revenue increases during 2026 and that over the course of the year, we can see revenue growth on a run rate basis in the 10% range from 2025 year-end levels. We also currently anticipate that in the course of 2026, the combination of anticipated increasing revenue growth, combined with lower overall operating expenses can lead to adjusted EBITDA margins of 10% or more. With that, I will hand the call over to Frank. Francis Feeney: Thank you, Brian. I would like to take a moment to provide an update on the Archenia transaction. In November 2025, Marchex announced that we had entered into an Agreement In Principle or AIP, to acquire 100% of the stock of Archenia from its stockholders. A special committee of Marchex's Board of Directors consisting solely of independent directors approved Marchex entering into the AIP because certain of the sellers are related parties. The AIP contemplates the parties entering into a definitive purchase agreement relating to the transaction. Conditions to entering into the definitive agreement include receipt of audited financial statements of Archenia for such periods as required by SEC rules and receipt of a customary fairness opinion by a financial adviser selected by the special committee. Archenia has engaged RSM US LLP to audit the Archenia financial statements and the special committee has engaged Craig-Hallum Capital Group, LLC as its financial adviser. Conditions to closing the transaction shall include approval of the transaction by a majority of Marchex's disinterested stockholders. The closing date, in the event a definitive agreement is entered into and the transaction is approved by disinterested stockholders, is anticipated to occur in June 2026. For your reference, Archenia is a performance-based customer qualification and acquisition company, which transforms consumer intent into AI-verified outcome-based results. Leveraging advanced AI signals, natural language analytics and automated decisioning, Archenia detects consumer intent and advertiser value in real time, optimizing customer acquisition campaigns dynamically across channels. With machine learning models that continuously refine qualification accuracy and ROI, Archenia enables its customers to pay for verified AI-validated outcomes such as appointments, sales and high-intent conversations. We believe that our potential combination with Archenia, if successfully consummated, would create a vertically-focused AI-driven customer acquisition and outcome optimization platform, integrating deep insights, automated actions and verifiable outcomes. Additionally, we believe that the expanded AI-driven product offerings across insights, actions and outcomes, could create more ways to win new business with the bundling of solutions could create customer value, stickiness and risk mitigation. We believe that the potential combined company could have the opportunity to achieve greater revenue scale and growth, higher margins, expanded market reach and enhanced strategic flexibility, which could include, first, a potentially expanded addressable market with opportunity to cross-sell and bundle. We believe the combined ability to sell insights, actions and outcomes would meaningfully expand our addressable market into a new large vertical markets. Additionally, we believe we could have the ability to relatively quickly offer or bundle Archenia's outcome-based solutions to many of Marchex's insights-based enterprise customers. Second, greater potential revenue, scale and growth. Marchex believes that revenue run rates for the potential combined company are approximately $15 million quarterly or approximately $60 million annualized, which could grow in the 15% to 20% range in the course of '26. Third, we see the potential for adjusted EBITDA expansion. We believe that our adjusted EBITDA margins are anticipated to trend up to 10% or more in 2026 and that Archenia could contribute additional positive adjusted EBITDA beyond these levels. And finally, Rule of 30 to Rule of 40 trajectory. For reference, the Rule of 30 to 40 metric represents the combination of annual revenue growth rates plus adjusted EBITDA margins. If we're able to achieve the anticipated revenue run rate growth in the 15% to 20% range and combine this with improving adjusted EBITDA margins of double digits, the combined company could be positioned to potentially achieve these Rule of 30 to 40 metrics over time, which we believe helps highlight the unique opportunity of the combined company if consummated. With that, I will hand the call back to Russ for closing remarks. Russell Horowitz: Thank you, Frank. I want to close out today's call by thanking all of our investors, partners and other stakeholders for your ongoing support. Additionally, I want to deeply thank our employees for their unique expertise, sense of urgency and continued commitment while we execute on what we believe is an increasingly dynamic opportunity. And with that, I'll hand the call back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Ross Koller with Koller Capital. Ross Koller: I have a few on the go-forward business. First, Russ, can you provide any color on how the selling efforts for the combined capabilities are going so far? What kind of feedback are you getting? Russell Horowitz: Yes. Look, so far, the joint sales calls have been very positive and very much strategically operational. We've so far prioritized creating and selling the products that bring together the best of the combined capabilities of both Marchex and Archenia and where the customer data clearly highlights how the customer problem, our unique solution to it and the value impact that we can deliver. And we've had just a short amount of time to get this started, we actually already have multiple orders in hand from the installed customer base for these new products. We're now focused on launching and scaling these opportunities, and we think as we grow the list of customers adopting these products and then start stacking the wins together, we're going to see a very positive cumulative revenue effect. In today's release, we specifically referenced that we're out there selling conversational AI agents and AI-verified outcomes on a pay-per-event basis into the auto services and home services verticals. This is going to be continuing expanding with additional customers and also move into other verticals as well. Ross Koller: Awesome. Russ, can you talk about the opportunity set inside the installed base? I mean, what percentage of the base could be targeted to the new capabilities? And how large can the company grow just inside that base? Russell Horowitz: It's a really good question, and it's one we spend a lot of time assessing. If you think about our business overall, our top 50 customers represent about 80% of our revenue. And when we look at the new product capabilities, we believe that they are very relevant and very applicable to the vast majority of those top 50 as well as other customers beyond the top 50. In the past, Marchex has stated our belief that we have a $100 million revenue opportunity overtime. On a combined basis, we believe that the $100 million revenue run rate is much more tangible and achievable much sooner even with just the existing customer base. The joint sales efforts so far are validating that these are the right initial revenue goals and the right prioritized approach. So with everything we've learned so far, we just view this all as a profitably focused sprint to $100 million in revenue run rate. Ross Koller: Awesome. And Russ, lastly, can you walk us through the IR strategy going forward and how you'll be reintroducing the story to investors? And how are you thinking about the current stock valuation? Russell Horowitz: Well, yes, I'll start with the second question first. Look, clearly, we don't -- we feel the current stock price doesn't reflect our value or even the incremental value we believe we're in the process of both creating and validating. But we understand it's up to us to deliver the financial results and provide the customer and product stories for people to understand our value impact and to start seeing us the way we're really now seeing ourselves, which is a dynamic and unique company. And specifically, we're an exciting emerging AI growth story. So we think we're at an inflection point. We know the burden is on us to prove it with our results. But getting to the first part of your story, kind of with all this in mind, we just recently hired a new IR firm, PondelWilkinson, to help us get a lot more active in reaching out to new investors and helping us tell our story and make sure that we're really landing this, in a way we think is differential and unique. So we're going to be much more active, particularly with the Archenia transaction potentially closing shortly. Beyond that, when we think about our stock, throughout our history, we've had times where we've done stock buybacks. We've done self-tender offers. We've declared regular and special dividends, and as a reminder, right now, we do have an existing $3 million share buyback program authorized. So we're going to continue to assess all of our options. But again, first and foremost, under any scenario, we know the best way to get our value recognized is to outperform and communicate well. So that's what we're focused on right now, particularly since our May reporting cycle is only 6-weeks away. And we're excited for May to come because we think we're in a position to hopefully reinforce with some of those stories and some of those points of progress and pointing to how the results can unfold through the course of the year. Appreciate those questions. Operator: The next question comes from Mike Latimore with Northland Capital Markets. Vijay Devar: This is Vijay Devar for Mike Latimore. A couple of questions. The first one, did bookings grow sequentially and year-on-year? Russell Horowitz: Yes. On the first one, bookings were similar to the prior quarter. And when you look at the seasonal impact, we view that as a favorable result. And when you look at the trajectory kind of beyond the quarter, but month-to-month, particularly as we're getting out there with new solutions, we see accelerations of bookings as we're ending Q1 and going into Q2 in a way that we think can potentially meaningfully move the math. Vijay Devar: Okay. And how about call volumes following normal seasonal patterns? Russell Horowitz: Yes. Right now, call volumes have been relatively consistent in the past at times, we've spoken about those as being a bit of a drag that we need to overcome as part of our growth. But right now, not as much the case as it has been historically. Right now, the primary variables are customer expansion, up-selling the new products and getting the benefits or stacking effect of what we're starting to see unfold based on the joint efforts to go sell the combined capabilities. Beyond that, we are having success with some up-sells, and I do believe that we are in a position to win more new customers on the traditional products. But the real catalyst that we see is with these products that really unlock the strategic insights into action and outcome-based products, and we're getting a lot of validation with the early sales efforts, and we see the opportunity to significantly expand within the existing base, which is the quickest way, again, for us to really favorably move the math on our financial results. Operator: There are currently no more questions remaining at this time. So I'll pass it back over to the team for closing remarks. Russell Horowitz: Look, I just want to thank everybody for participation in the call, the very thoughtful questions, and again, reiterate with our investors and stakeholders the appreciation for your ongoing support, and we look forward to seeing and hearing you again very shortly with our forthcoming May announcement as well. Thank you, everybody. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by for So-Young's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Mona Qiao. Please proceed, Mona. Mona Qiao: Thank you, operator, and thank you, everyone, for joining So-Young's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today on the call is Mr. Xing Jin, our Founder, Chairman and CEO, and Ms. Hui Zhao, VP of Finance. Before we begin, please refer to the safe harbor statements in our earnings release, which applies today's 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 on our Investor Relations website and filings with SEC. Please also note all figures mentioned in this call are in renminbi or otherwise stated. At this time, I'd like to turn the call over to Mr. Xing Jin. Xing Jin: [Interpreted] China's medical aesthetic industry structural adjustments as upstream capacity expanded and consumers become more value driven. Return to value has become the common theme. For institutions pursuing scaled and repeatable models, this offers a critical window to build long-term edge. In Q4, we continued to improve our investment and make progress in 3 directions. First, delivering scale breakthrough stand and operational improvements in our aesthetic center business; second, reinforcing medical service delivery capabilities to build a long-term trust-driven mode; and third, building our supply chain barriers to enhance brand and seize opportunities. We are pleased to see these choices are reflected in our financial results. The total revenue was RMB 451 million in Q4, up around 25% year-over-year, hitting a record high for quarterly revenue. Revenue from our aesthetic center business reached RMB 248 million, up over 205% year-over-year and about 10% above the high end of guidance. Our aesthetic center business has become our largest revenue contributing segment and growth engine with So-Young Clinic becoming the largest medical aesthetic chain in China by a number of centers. Now let me walk you through our progress in Q4 and our 2026 deployment, focusing on our aesthetic center business. -- our aesthetic center business has recently achieved 2 milestones. The first is our center footprint. By year-end 2025, we have opened 49 medical aesthetic centers, ranking first nationwide among all tiers by center count. The second is the treatment volume. In Q4, verified treatment visits exceeded 125,000, up 178% year-over-year. Verified aesthetic treatment performed exceeded 289,400, up 168% year-over-year. As of December end, our total active users surpassed 170,000. The growth in both treatment volume and user base validates the market demand and ongoing recognition from consumers. As we scale, center level operational efficiency continues to improve. In Q4, 25 centers achieved profitability and 39 centers generated positive operating cash flow. In 2026, we will accelerate the expansion, opening at least 35 new centers. We will deepen density in core cities, including Beijing, Shanghai, Guangzhou and Shenzhen, while also expanding our presence in second-tier cities. As our operations mature, we are confident in further improving profitability while maintaining expansion and driving the overall profitability at an early date. Second, we are enhancing our medical service delivery capability to build a long-term trust-driven mode. In Q4, we enhanced our service across 3 dimensions: physician team, compliance framework and data security. The improvements reinforced the user trust. Year-end 2025, our full-time physician team expanded to 211, up 41% from the end of Q3, ranking first nationwide among our peers by physician count. In terms of quality, all our physicians have a public hospital background and pass our regular internal certification before practicing. Over half of them hold attending physician qualifications or hires. On average, our team possesses over 6 years of clinical experience and those with a year or more and So-Young have delivered over 6,200 treatments per physician, reflecting our solid clinical capabilities. In 2026, we will launch a new physician initiative to accelerate recruitment and build talent pipeline. The program will provide industry-leading hands-on practice, systematic training and clear care path, enabling physicians to quickly achieve top-tier performance and our physician team's expertise deepens and user wordfmouth growth, we expect her physician productivity to grow, driving continued improvement in profitability. On compliance, we established a 6-pillar compliance framework and a regular inspection mechanism. With digital software, we deliver full process traceability of medical services. On data security, So-Young is the first in the industry to obtain the TIA certification, setting a benchmark for the industry. Our ongoing investments are reflected in user behavior. Core members have a quarterly rate of 80% and their average annual spending is around 16,500. The growing user trust is the foundation of our low-cost sustainable growth. we will continue to build on our supply chain, enhance and seize market opportunities. As of Q4, we worked with 18 top-tier domestic suppliers and have procured nearly 1,400 devices. For injectables, we have 42 top-tier upstream partners with a cumulative procurement of over 700,000 units -- in 2025, the upstream supply expanded sharply. The NMPA issued over 50 certificates for Class II medical devices, up over 60% year-over-year. For So-Young, this delivers a broader product portfolio, more durable procurement cost and enhanced user experience. Backed by the China's largest light medical aesthetic chain, we continuously enhance our supply chain layout capabilities. We have also built long-term partnerships with core suppliers and established a volume price linkage mechanism, securing the industry's best procurement prices. On our product layout in Q4, we launched a light version Merle PLLA version 3 printing, which lowers the customers' barrier to trail. We are also the exclusive distributor of [indiscernible] Biopharma's HP solution, now approved for marketing in China, which expands our portfolio. For BPL treatment, we improved bra influence and conversion through IP co-branding and immersive experiences. In Q4, we partnered with [indiscernible] and launched the Youth [indiscernible] Radiant campaign. The campaign leveraged multiple channels and formats, including celebrity treatment experience, pop-up events and in-store visits by bloggers on notes. Our corporate wins generated about 2 million on-site visits and total exposure on that note exceeded 40 million. This online and offline synergy reinforced our brand awareness and lead sales conversion for BBL, aligning brand building with revenue. Our product integration, new products launches and market activities reflect our commitment to the blockbuster strategy. In Q4, this blockbuster products delivered strong results contributing over 37% of revenue with sequential growth and remain a core engine for our aesthetic business. Meanwhile, our brands have been fully validated in off-line scenarios. To date, we have successfully established a presence in high-end shopping malls nationwide including Beijing H1, Guangzhou ICC Mall, Hangzhou Care Center, and so on. These premium shopping malls reinforce our brand recognition and help us reach target customer groups. Finally, let me share our outlook for the future. As the industry gradually shifts back to a regional quality-driven path, value distribution is being reset. We believe that in the long run, the industry will be led by the closest consumers and capable of delivering the most trusted services. For So-Young, 2026 is a turning point. We are moving from scale first to a engine of scale and efficiency. Our aim is not only to open centers, but also to prove the model is profitable as we expand. Our systematic capabilities over the past 2 years give us great confidence that our ambition is to beyond that. As our center network, supply chain and medical service delivery create a flywheel, we will lower access barriers and let more consumers enjoy safe, transparent and inclusive services while delivering sustainable returns to shareholders. We believe companies that create value will earn long-term recognition from the market. Now I'll hand it over to our VP of Finance, Ms. Hui Zhao, to walk through the financial results, followed by the QA session. Unknown Executive: Thank you, [indiscernible], and thank you, everyone, for joining us today. I'm [indiscernible], Vice President of Finance. On behalf of our CFO, I will walk you through our fourth quarter 2025 operating and financial results. For additional details on our fourth quarter and full year performance, please refer to the earnings release we issued earlier today. Unless otherwise noted, all amounts are in RMB. 2025 marked a transformational year for So-Young. The rapid scaling of our branded extent extended network fundamentally reshaped our business profile, and we are pleased with where we are today. Total fourth quarter revenues reached RMB 46.7 million, up 24.8% year-over-year. This was driven by continued expansion of our branded aesthetic center business. As of year-end, our cash position stood at RMB 936.4 million, providing solid runway to fund our expansion plans while preserving financial flexibility. Let me now walk you through performance by business segment. Our branded aesthetic center business sits at the core of our growth with our platform and upstream supply chain businesses serving as complementary dealers. Together, they form an integrated value chain across the medical aesthetics industry. Revenues from aesthetic treatment services reached RMB 248.1 million, up 205.3% year-over-year. This has been our largest revenue segment since Q2 and this quarter, it crossed the 50% revenue contribution threshold for the first time. Also, this marks our third consecutive quarter of exceeding the high end of our segment guidance. This strong performance was driven by both continued network expansion and improving cost center economic. As of December 31, we operated 49 So-Young clinics across 15 major cities, reflecting a net addition of 10 centers during the quarter. Now breaking down revenue by central development phase. Our 17 mature phase centers generated RMB 102.5 million in revenue or roughly RMB 8.4 million per center. Our 19 growth-based centers contributed RMB 89 million or roughly RMB 4.7 million per center. The 13 ramp-up phase centers contributed RMB 16.6 million Notably, average revenue per center nearly doubles as centers progressed from growth phase to maturity. With 19 centers currently in the growth phase, we see a clear built-in revenue growth driver as these centers continue to mature. And for their profitability, 25 centers achieved profitability during the quarter, including 15 mature phase centers generated positive operating cash flow as intense move through their development cycle, profitability has consistently followed. This gives us confidence in the financial trajectory of our newer centers. Turn to other statements. Information and reservation services revenues were RMB 125.7 million, down 26.8% year-over-year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform. Sales of medical products and maintenance services revenues were RMB 69.3 million down 19.9% year-over-year, primarily due to a decrease in the order volume for medical equipment. Other services revenues were RMB 17.7 million, down 40.7% year-over-year, primarily due to a decrease in revenues from So-Young Prime. I will now walk you through our financials below revenue in more detail. Cost of revenues was RMB 255.9 million, up 67.2% year-over-year, primarily driven by the expansion of our branded aesthetic centers to break this down further. Cost of aesthetic treatment services was RMB 189 million, up 189.9% year-over-year. Cost of information and reservation services was RMB 10.1 million, down 5.6% year-over-year. Cost of medical products sold and maintenance services was RMB 41.6 million down 4% year-over-year. Cost of other services was RMB 15.3 million, down or 7% year-over-year. Total operating expenses were RMB 327.7 million compared with RMB 815.2 million in the same period of 2024. Excluding the impact of goodwill impairment charges in both periods, total operating expenses increased moderately year-over-year, reflecting continued investment in scaling our aesthetic center business. Sales and marketing expenses were RMB 168.7 million, up 25.8% year-over-year. This was primarily driven by branding and user acquisition investments according branded aesthetic center growth. G&A expenses were RMB 101.9 million, up 3.5% year-over-year due to the business expansion of the branded aesthetic centers. R&D expenses were RMB 37.4 million, down 12.4% year-over-year due to improved staff efficiency. We also recorded an impairment of goodwill and longest assets charge of RMB 19.7 million based on our annual [indiscernible] impairment assessment. Income tax benefit amounted to RMB 0.6 million compared with income tax expenses of RMB 2.1 million in the same period of 2024. The net loss attributable to So-Young was RMB 108.8 million compared with RMB 607.6 million in the same period of 2024. Non-GAAP net loss attributable to So-Young was RMB 93.4 million, compared with RMB 53.2 million in the same period of 2024. Basic and diluted loss per ADS improved to RMB 1.08 compared with RMB 5.92 in the same period of 2024. As of December 31, 2025, our cash and cash equivalents restricted cash and term deposits, term deposits and short-term investments totaled RMB 936.4 million compared with RMB 1,253.2 million as of December 31, 2024. The decrease primarily reflects our accelerated investment in brand aesthetic center expansion. Looking ahead, the fourth quarter of 2026, we expect aesthetic treatment services revenue to be between RMB 258 million and RMB 278 million, representing year-over-year growth of 171.2% to 181.3%. This guidance reflects our confidence in the sustained momentum of our branded aesthetic center business. As of today, our standard network has crossed the 50 center milestone. In 2026, we will shift our focus from peer network expansion towards balancing growth with profitability improvement. We plan to add no fewer than 35 new centers in 2026, while leveraging our expanding scale to improve gross margins and drive efficiency gains across the network. This concludes my remarks. Operator, we are now ready for the Q&A session. Operator: [Operator Instructions] Our first question comes from [indiscernible] with Citi Securities. Unknown Analyst: [Interpreted] Let me briefly translate. I'm [indiscernible] from Citi Securities. So firstly, congratulations on the accelerating growth in Q4. And we are glad to see that there is improving gross margins in the aesthetic centers business and service business. So I have a question regarding the gross margin prospects. So could you share more about the gross margin plan and source further margin expansion. Xing Jin: [Interpreted] Thank you for your question. We believe that 3 core factors shape margin performance. The pace of center openings, consumable costs and seasonal promotions. Based on these factors, we have planned to enhance gross margin. First, we will continue optimizing the pace of center openings and the ramp-up efficiency of new centers. Upfront investments to new centers can create short-term margin pressure and license approval timing in our industry is often predictable. Going forward, we aim to adopt a more even cadence throughout the year combined with our integrated operating system. This accelerates each center's path to efficient operations and short-term ramp-up cycle. For 2026, new openings will represent a smaller share of total centers compared to last year. This will reduce margin dilution of concentrated new center investments. Meanwhile, the proportion and profit contribution from mature centers will rise, driving the overall gross margin levels. Second, we will optimize consumable costs. Currently, we have built deep collaborations with upstream partners, including [indiscernible] Biopharma, China Medical System [indiscernible] Farm and [indiscernible] Medical. This guarantees reliable supply and ongoing cost optimization. Looking ahead, we will strengthen empower with our partners and convert more high-quality upstream manufacturers in 2 long-term partners. At the same time, we will continue advancing our broad faster strategy. In the fourth quarter, our 4 major products accounted for over 37% of revenue as our core offering through the procurement cost panties will become more pronounced. Third, we will refine our seasonal promotions. Digital accounting remains a critical channel for user base expansion, customer conversion and building long-term user assets. Going forward, we will optimize our product mix and integrate campaigns more deeply with the membership system, targeting repeat transit among core members. We aim to transform short-term traffic into customers' LTV. This will drive gross margin. Operator: Your next question comes from John Wong with GF Securities. Unknown Analyst: This is John Wang from Guangfa Securities. Congratulations to the company on this outstanding performance. My question is about the development of So-Young Clinic in second-tier cities. And I would like to know whether the current operating performance of these centers has met management's expectations. Could management also share some operational updates on the several representative centers? Operator: Ladies and gentlemen, the line for the management has been disconnected. Please stay connected while we reconnect the line for the management. Thank you for patiently holding, ladies and gentlemen. The line for the management has been reconnected. Yes, please go ahead. Xing Jin: [Interpreted] From an industry perspective, while China's medical aesthetic market in second-tier cities have reached relative maturity, they like to have first-tier cities in medical service delivery capabilities and operational standards. We ensure that our centers in second-tier cities deliver the same level of medical service quality as is in first tier cities. Based on our operational track record, centers in second-tier cities are also growing well, both the traffic and per customer treatment are rising, and the revenue per center is close to first tier levels. As of December, mature centers in secondary cities such as Wuhan Tiandi Center and Changshu Center generated an average sales per square meter of RMB 7,000 per month. Among the opening in second-tier cities, [indiscernible] stood out. These centers have maintained robust revenue growth with industry-leading CAGR. For example, goudaSuzhou Su Plaza broke 1 million in monthly revenue with 3 months since opening, proving that our model works in second-tier cities. In terms of profitability, mature centers in second-tier cities enjoyed slightly higher margins due to lower staff payroll and rental expenses compared to the first tier cities. [Interpreted] We believe that the fundamental advantage of a chain model line in reduced transaction costs and enhanced brand trust, scale and accessibility. At present, most players in secondary cities are single center operators without meaningful density. Based on how we involved in both tier cities and So-Young's live trust grows, customers will tend to to push out multiple treatments per visit. Looking ahead, we believe the process improvement, resource synergy and traffic management will drive continued gains in our second-tier centers and economics of scale will take effect across our network. We are confident that this will lead to stronger profitability and market competitiveness in second-tier cities. Unknown Analyst: And let me translate my question. This is Maggie Huang from CICC. Congratulations for our excellent performance. And we would like to know whether the competitive advantages in customer acquisition costs has been maintained amid its continued scaled expansion. And could management also share the customer acquisition strategy for 2026? Xing Jin: [Interpreted] Our edge in customer acquisition cost has been preserved and further strengthened. During the quarter, we opened a significant number of new centers and seize the opportunities brought by major shopping campaigns, including Double 11 and Double 12, bringing a new quarterly record for new customers. For the full year, our average CAC remained below 10% of revenue, a highly competitive benchmark in this industry. We sustained this advantage primarily through our customer referral model. Through our membership system and differentiated benefits, we will incentivize existing high-value users to refer new customers. This will not only lower CAC, but also improve the quality and retention rate of new users. Second, we will continue to optimize the mix of our public and private domain customer acquisition channels and enhance their LTV through refined operations. Meanwhile, we will continue to roll out co-branding initiatives with the world's top IP. Recently, we launched co-branding programs with 2 renowned IP, Little Print and Disney. Through brand storytelling, we reached a broader customer base and resonated with users emotionally, further amplifying our brand equity. As our footprint expands and user base grows, we anticipate further reductions in tax. Operator: Your next question comes from the line of David Chang with Haipeng International. Unknown Analyst: [Interpreted] I'll translate my question. Thank you management for taking my question. My question is about the user growth and the membership operations, especially for core members. Could management share the specific measures you will take to improve the LTV of core members going forward? Xing Jin: [Interpreted] For our core members, Level 3 and higher members continue to show solid growth momentum. Our user service show that core members still have significant room for growth in their annual medical aesthetic budgets, laying a foundation for us to boost user LTV. This quarter, revenue contribution from core members and their quarterly return rate both exceeded 80% with new core members surpassing 14,000. Consumer performances are shifting towards efficiency and clinical capabilities. Against this background, we will focus on, first, expanding our product portfolio. We will introduce more comprehensive product offerings, including standardized side treatments and mid- to high-end services. We expect this to elevate user value. Second, we will further optimize our membership system by offering differentiated benefits and service touch points so as to realize tiered user segmentation and provide corresponding services. This will strengthen co- members' perception of our brand value, building a positive feedback loop, which will drive their loyalty. These measures will lead to improved presenter profitability and provide strong momentum for our long-term growth. Operator: This concludes our question-and-answer session, and this concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Epsilon Energy Ltd. 2025 Year-End Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity for questions and answers. Please also note today's event is being recorded. At this time, I would like to turn the floor over to J. Andrew Williamson, CFO. Please go ahead. J. Andrew Williamson: Thank you, Operator. And on behalf of the management team, I would like to welcome all of you to today's conference call to review Epsilon Energy Ltd.'s full year and fourth quarter 2025 financial and operational results. Before we begin, I would like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon Energy Ltd.'s actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I would like to turn the call over to Jason P. Stabell, our Chief Executive Officer. Jason P. Stabell: Thank you, Andrew. Good morning, everyone, and thank you for joining us. With me today are J. Andrew Williamson, our CFO, and Henry Nelson Clanton, our COO. We will be available to answer questions later in the call. Epsilon Energy Ltd. delivered a standout year, growing adjusted EBITDA 75% and production 54% year over year. In the fourth quarter, we closed the acquisition of the PEEP companies, bringing us new production, more than 100 net high rate of return drilling locations, largely held-by-production undeveloped acreage, and a highly experienced Powder River Basin operating team. Through a combination of development drilling and the Peak acquisition, we achieved 69% growth in proved developed producing reserves, and an 86% increase in total proved reserves. The Board recently declared our seventeenth consecutive quarterly dividend and renewed the share buyback program covering up to 10% of shares outstanding, underscoring our commitment to returning capital to shareholders. Looking at 2026 to date, our portfolio is performing exceptionally well. In late January, we realized extremely favorable gas pricing in Pennsylvania, generating over $4,800,000 in net natural gas sales in a single week, including sales one day at over $66 per MMBtu. Our current PDP production is approximately 60% hedged for the rest of the year. But importantly, the incremental oil volumes we expect to add through the drill bit starting in the second quarter are unhedged, providing meaningful upside exposure. I would like to add that our past commentary on the acquired Powder River Basin assets has focused on the very attractive high rate of return Parkman inventory. But I need to remind investors that we also acquired several hundred locations in the Niobrara and Mowry formations that are the focus of activity for most of our offset operators in the basin. While the average expected returns in these formations are currently below the Parkman, this inventory represents a material wedge of value that we acquired at less than $250,000 per location. We expect the returns on this inventory to improve dramatically as we scale operations and extend lateral lengths, particularly if oil prices remain at levels above $70. Epsilon Energy Ltd. is now positioned as a unique multiyear organic growth story with strong visibility into per-share growth in EPS, EBITDA, and production over the next few years, while maintaining a fixed dividend and targeting an average annual leverage ratio below 1.5x. Thank you for your continued support. I will now turn it over to Andrew and Henry for additional comments. J. Andrew Williamson: Thanks, Jason. I will start by elaborating on the Peak closing that occurred on 11/14/2025, with the release of the contingent consideration occurring a few days later on the 20th. The BLM permitting issues on the acquired acreage in Converse County were resolved right around closing, and the BLM resumed their approval of drilling permits in the affected area. As it stands now, we have seven approved drilling permits that provide access to that acreage, which we believe holds some of the best inventory we have in the basin. We plan to start to develop there next year with some front-end facilities work this year. Now on to the year-end results. Jason mentioned the year-over-year growth in production and cash flow, which was primarily driven by higher volumes, up 65%, and better pricing with realized prices up over $1 per MMBtu year over year in the Marcellus. With wells coming online in the first quarter that were paid for the prior year, our operator has additional development planned this year and again in 2027 and 2028 at an accelerated pace. We expect the vast majority of these volumes will flow through the Auburn Gathering System when developed, driving strong capital-efficient cash flow growth on our midstream asset over that period. We have several one-off items that impacted earnings this year: transaction costs from the Peak acquisition, which were $6,900,000 in total, although half of these were expenses assumed from Peak that were unrelated to the deal and were adjusted for in the share consideration issued at closing. Also impacting the year were some impairments on our wellbores in Canada and New Mexico. The drivers were the oil strip we were required to use at 12/31/20, which was sub-$60 WTI; downward reserve revisions due to a frac hit in New Mexico—note the New Mexico interests are small with 10% in two wellbores—and, finally, well underperformance in Canada. In Canada, we have spent $11,000,000 over the past two years, including approximately $4,500,000 to earn into a large acreage position of over 100,000 net acres that we believe has great option value, although based on the results observed to date, the area does not currently compete for capital in our portfolio. The major adjustment was the loss on our sale of the Oklahoma assets. We also had a large tax basis there; when you combine cash received at closing with the cash tax savings, the deal generated over 8x the expected cash flow from those assets in 2026, so very accretive on a multiple basis. Also, we had no plans to allocate capital there; with the portfolio we have, it made sense to clear the decks and use those cash proceeds to pay down our debt balance, which we did in the first quarter by $5,000,000. Adjusting for the items I just described, the company earned $92 per share in 2025. We are doing a couple of things to increase liquidity over the next few months given the capital program this year across the portfolio. We are in the market selling an overriding royalty interest package in the Marcellus. We believe we can transact at an accretive multiple. We also have the Colorado office building we acquired with Peak under contract for $3,000,000. Overall, this is an exciting time for the company with several value-enhancing developments that are in progress or will be in the next 12 to 18 months. These include our operated high-return Parkman development in the Powder River Basin, accelerated Barnett development in the Permian, and steady development in the Marcellus with expected increases in gas production and midstream throughput in the 2027–2028 timeframe. We show the potential cash flow impact of some of these things in our first quarter 2026 corporate presentation, which is available on our website. Now to Henry for more detail on our investment plans this year and a look ahead to the next few years. Henry Nelson Clanton: Thank you, Andrew, and good morning to everybody. I would like to share more detail on our development plans for 2026. Beginning with our newly acquired operating assets in the Powder River Basin in Wyoming, we have initiated completion operations of two two-mile Niobrara DUCs, 0.7 net working interest to Epsilon Energy Ltd. The net CapEx for these two completions is expected to be approximately $6,000,000. This includes the pre-construction buildout of the production facilities to be ready to put the wells into service after flowback. The frac is currently scheduled for Q2. As Jason mentioned earlier, we are focused on the Parkman drilling inventory, with plans to drill three two-mile laterals, 2.8 net, beginning in Q3 with production online in Q4. Net capital for these three wells is expected to be approximately $22,000,000. In preparation for our 2027 and 2028 development plans in the Parkman in Converse County, Wyoming—12 gross wells—we will be building out a water supply and impoundment facility to support this program and drive development costs down. In our Permian Barnett asset, project management and operatorship has changed. Based upon discussions with the new operator, the project development will transition to three-mile laterals with four wells per pad development along a development corridor. In addition to the drilling program, the new operator informs us that planning is underway for a multi-well production battery and a water recycling facility within the main development corridor. We are aligned with the operator and support these changes to the development plan and the facility approach, which is expected to drive cost savings on the wells moving forward. This month, the first three-mile Barnett well was drilled on the position. The completion planning is in progress, and we expect the well online close to midyear. Net CapEx for the drilling and completion of this well is expected to be approximately $4,000,000. Based upon preliminary discussions with the new operator, an additional three wells, 0.75 net, are planned in the second half of the year. We expect this to include two Barnett three-milers offsetting our recently drilled well to minimize parent-child impacts. The third well is expected to be an appraisal test in the Woodford interval. A successful result there will increase our inventory meaningfully. Moving to the Marcellus, development activity is restarting. We have received well proposals for the drilling of five wells, 0.4 net, beginning in early Q2. Completions are currently scheduled for the second half of the year. Net CapEx for these five wells is expected to be approximately $4,000,000. We have also begun LOE optimization efforts in Wyoming. This program includes downsizing gas lift compressors—12 planned—focused efforts to reduce the treating cost per barrel from the production chemicals program, and reducing and optimizing power usage in the field. These efforts are expected to remove fixed costs and improve variable costs without impacting production. Monthly savings for these initiatives are estimated to be $50,000 to $100,000 gross per month. Currently, no 2026 activity is planned in Canada. And finally, to add to what Jason mentioned earlier, the company's total reserves increased to 156 Bcfe due primarily to the 78 Bcfe of additions related to the acquisition of the Powder River Basin assets. For those interested in more details on the year-over-year changes, I would refer you to the detailed reserves reconciliation information provided in the 10-K press release. Now I will turn it back to Jason. Jason P. Stabell: Thanks, guys. Operator, we can now open the lines for questions. Operator: At this time, we will begin the question-and-answer session. To withdraw your questions, you may press star then 2. Please pick up your handset prior to pressing the keys to ensure the best sound quality. Our first question today comes from Anthony Perala from Punch & Associates. Please go ahead with your question. Anthony Perala: Hey, morning, guys. Thanks for taking the question here. Just wanted to ask on looking at some of the details you gave around the Peak acquisition timing, and I think you had referenced a $65 oil level for returns and IRRs. Just curious, if we are looking at it through a lens of today—whether it is the kind of front month or even going back to you—the curve is in the mid-seventies going through the back half of 2026. Just curious what returns look like under those oil assumptions rather than $65. Jason P. Stabell: Anthony, Jason here. Thanks for the question. I will let Andrew address that one. J. Andrew Williamson: Yes. Thanks for the question, Anthony. So yesterday's forward averaged $77 through year-end 2027. We run price sensitivities on our type curves in $5 increments. So at $75 WTI, returns for our oil-weighted inventory increase meaningfully. I am going to add the Permian stuff alongside the question on the Powder. Barnett three-mile at $65, as mentioned in our corporate presentation, is a 45% IRR with a two-year payout, roughly 3.0x multiple on invested capital. And at $70, those move into the 60% range, with approximately 18-month payouts and 3.5x on the multiple. In the Powder, starting with the Parkman—and that is the focus of our development in the basin over the next 18 to 24 months—again, in the presentation, we talk about the Parkman split into two, the inventory across the two counties. So in Converse, which is the best stuff, a 150% return, 10-month payout, 2.5x. The Campbell County Parkman is in the 45% to 50% range with 20-month payouts. And at $75, those increase for Converse to over 200%, eight-month payouts, 3.0x, and in Campbell, increases to 80%, less than 18 months on the payout and over 2.0x. The largest component of the inventory in the basin in the Powder is the upper Niobrara. We are, at $65, in the 25% to 30% range, three-year payouts and 2.0x. At $75, that increases to 40% to 45%, two-year payout, and 2.5x. And we have 46 net locations there in the Niobrara. Anthony Perala: That is really helpful. Interesting, I guess. Between those you can see, but obviously the Parkman stands out. I am curious—it is a good problem to have—but just curious on how you guys look at how capital kind of competes with the variance of you controlling your own destiny with the Parkman and PRB locations, and then having the non-op working interest and kind of dealing with the operator in the Barnett, the new operator. Jason P. Stabell: Yes. I mean, it is going to go highest and best use. Right now, kind of looking at the portfolio, Anthony, we think about it as about 50% of our investment over the next two years is going to be Powder-focused, and then the remainder split between Marcellus and Barnett. So I think, with pricing doing what they do, I do not see a huge change to that. As we mentioned on the call, we are excited about the new operator that we have in the Barnett oil play. It is a large, scaled private operator that has pretty aggressive plans for ramping this year, but really stepping up next year. So we think, in addition to the PRB, that that Barnett asset is going to be a nice source of liquids growth for us. And as Andrew quoted, the returns, in a world $65 plus, those Barnett investments are quite attractive. And I think we get more excited thinking about a three-mile lateral world in the Barnett. We had our first well drilled there that we are going to complete, as we mentioned, mid this year. So I think it is all shaping up how we would have liked. We have got options. We have got our operated position that we can flex up and down depending on macro. We have got a lot of inventory there, Parkman-focused certainly. But as I mentioned, we want to remind people we have also got this pretty deep Niobrara inventory, which is where most of the industry in the PRB is currently focused its capital. Anthony Perala: So, yes. It is kind of funny looking back on when you first took the role, the difference in just investment opportunities—from primarily the Marcellus to now having a lot of different plays that compete for capital. On that Niobrara piece, which, as you lay out, it is probably 2028 before that really competes for capital given just the Parkman inventory. I am curious—like you had said—it seems like people are getting more active there, and it is being proved out more by larger scaled operators. I am curious what you are seeing and hearing from those that are really committing capital to the Niobrara and Mowry right now in the PRB. Jason P. Stabell: Sure. I will start maybe with some general comments, and Henry can fill in anywhere that he sees fit. Yes, around us in Campbell and Converse, there are a number of rigs right now. The big operators—and I will just name a few—Devon, EOG, Continental, Oxy—they are really focusing their capital on the Niobrara. I think what you are seeing there is similar to what you are seeing in other basins. We are going from a two-mile lateral world to—the standard right now in the Niobrara, I think, for this year and forward—is three- to 3.5-mile laterals, which enhances economics quite a bit. We even have an offset operator that we know is planning a four-mile lateral in the Niobrara, or a DSU of four miler. So I think the economics there, as you start to extend laterals, batch drill wells, you are going to see that the Niobrara in the PRB is competing for capital in much larger portfolios of the companies I mentioned. So we are encouraged by that. As we said, we are watching closely. I think our near-term focus is going to remain the Parkman, probably over the next two years. We will have some non-op opportunities in some of these Niobrara wells in some of that offset acreage as well that I think we would be interested in. So I will stop there and let Henry add. Henry Nelson Clanton: Yes. The only thing I could add to that is, we have got 12 rigs running in Campbell, Converse, and Johnson County around our acreage position, and 10 of those 12 are Niobrara-focused. So that gives you some color on how focused the big guys that Jason mentioned are in allocating their capital. Anthony Perala: Great. Thanks, Henry. That is very helpful. Just one final one for me here. If you could add a little bit more color—you had mentioned you are in the market looking at selling an overriding royalty package on the Marcellus assets. Just if you could give some more color to that and just how best to think about that for potential proceeds. Jason P. Stabell: Yes. I am not going to guide on proceeds, but it is a small amount of production. So we are talking somewhere, I think, less than 1,000,000 cubic feet a day of production. It represents a pretty small overall piece of our production. It sits outside of our core Auburn area. These are some overrides we have picked up over the years due to acreage trades with some other area operators. There is pretty robust interest, as we understand it, for override mineral interests, so we are doing a market test to see. We believe, as Andrew mentioned, we are going to have an opportunity to potentially sell it at a pretty attractive multiple. Nothing is locked in there until we get some bids next month and decide if it is something of interest to us or not. But just kind of pruning around the edges on the portfolio. As we talked, we moved the Anadarko assets last year. There was some cash we brought on the balance sheet, but also had some positive after-tax impacts for us. That office building that came in the Peak deal, we thought it made sense to explore sale of that, and as Andrew said, that is $3,000,000 that we have got under contract. So I expect that will close in the second quarter. So, just as we have expanded the portfolio, we are trying to make sure that it is optimized as best as possible, and we are creating opportunities to reinvest in what we think are our best sources of inventory. Feel good about it. Anthony Perala: That is great. Thanks for the color. I will get back in the queue. Operator: Thanks, Anthony. To withdraw your questions, you may press 2. It is showing no questions at this time. I would like to turn the conference call back over to Jason for any closing comments. Jason P. Stabell: Nothing to add, Operator, other than to thank everybody for joining us today. And as always, if people have additional questions, feel free to contact us here at the Houston office. Everybody have a good day. Thank you. Operator: With that, ladies and gentlemen, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen. Thank you for standing by and welcome to the Health In Tech, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. As a reminder, we are recording today's call. Now I will turn the call over to Lori Babcock, Chief of Staff for the company. Ms. Babcock, please proceed. Lori Babcock: Thank you, Operator, and hello, everyone. Welcome to Health In Tech, Inc.'s fourth quarter and full year 2025 earnings conference call. Joining us today are Mr. Tim Johnson, Chief Executive Officer, and Ms. Julia Qian, Chief Financial Officer. Full details of our results can be found in our earnings press release and in our related Form 10-Ks filed with the SEC. These documents will be available on our Investor Relations website at healthandtechinvestorroom.com. As a reminder, today's call is being recorded, and a replay will be available on our IR website as well. Before we continue, please note that today's discussion includes forward-looking statements made pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on information available as of today, and involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed or implied, including those discussed in our annual report on Form 10-Ks for the period ended 12/31/2025, filed with the SEC. Please review the forward-looking and cautionary statement section at the end of our earnings release for various factors that could cause actual results to differ materially from forward-looking statements made today during our call. Except as expressly required by federal securities laws, we undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events. We may also refer to certain financial measures not in accordance with generally accepted accounting principles, such as adjusted EBITDA, for comparison purposes only. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I will now turn the call over to our CEO, Mr. Johnson. Operator: Thank you, Lori, and good afternoon, everyone. We appreciate you joining us today. Tim Johnson: 2025 was a pivotal year for Health In Tech, Inc. It marked our first year as a public company. But more importantly, it was a year in which we demonstrated that our AI-enabled underwriting marketplace, distribution-led growth model, and technology platform can scale within a large, underpenetrated, self-funded health insurance market. For the full year 2025, revenue increased 71% to $333.3 million, reflecting strong execution across our core growth drivers. When we look at what drove this performance, three factors stand out: distribution expansion, platform advancement, and program innovation. First, distribution. Our business scales through distribution, with brokers and TPAs serving as the primary channel through which employers access self-funded health plans. As a result, the breadth and productivity of our distribution net are directly correlated with our growth trajectory. In 2025, we expanded our network to 858 brokers, TPAs, and agency partners, representing a 34% year-over-year increase. Importantly, we believe we remain at a very early stage of market penetration. There are approximately 1,100,000 insurance brokers in the United States, and even with over 800 distribution partners on our platform, our penetration remains well below one-tenth of 1%. Similarly, within an estimated $0.9 trillion self-funded health care market, our scale represents only a fraction of the total addressable opportunity. The key takeaway is that while we delivered strong growth in 2025, we believe that the long-term runway for expansion remains substantial, particularly as we continue to scale distribution and engagement across our partner network. Second, platform development. A core inefficiency in this industry is that underwriting remains highly manual, time intensive, and difficult to scale, particularly in the large employer segment. In 2025, we expanded our Enhanced Do-It-Yourself Benefit Systems, or EDIBS, to support employers with over 100 employees, extending our capabilities beyond the small-group market where we initially established strong product-market fit. This is a meaningful step up-market. Larger-group underwriting is characterized by long sales cycles, fragmented workflows, and significant operational friction. Our platform addresses these challenges by compressing underwriting timelines for larger employers from approximately three months to roughly two weeks, which enhances broker productivity, improves the client experience, and increases placement efficiency. We believe this speed and automation represent a durable competitive advantage, particularly as the market increasingly demands faster, data-driven decision-making. Before I move on, I want to address one of the most important questions we hear from investors: What is our AI advantage, and why is it not easily replicable? The short answer is that our advantage is not just the AI model itself. It is the combination of proprietary data and integrated workflow and distribution. On data, we have been applying AI within our platform since 2021, well before AI became a headline theme. Because we operate within employer-sponsored insurance, we have built a HIPAA-governed dataset tied directly to real underwriting activity and plan design structures, rather than relying on generic or publicly available healthcare data. As employer groups renew over time, we continuously incorporate new cohorts and real-world outcomes, which allows our models to improve through ongoing feedback loops embedded in actual production environments. On workflow, many solutions in the market focus on narrow point applications of AI, for example, automating a single administrative function or a discrete vendor process. While those tools can provide incremental efficiency, they do not address the broader structural inefficiencies in the system. What we have built is a fully integrated platform that connects underwriting, plan design, stop-loss, administration, and vendor coordination in a single workflow. This enables brokers to move from quote to bindable, execution-ready solutions significantly faster, while reducing fragmentation for employers. In other words, our AI is most valuable because it is embedded within an operating marketplace, not deployed as a stand-alone tool. On distribution, technology alone is not sufficient. Distribution is critical. We have established a growing network of brokers, TPAs, and carrier integrations actively using the platform, and that real-world usage drives continuous data generation, improves model performance, and increases platform stickiness over time. As we scale, the data becomes richer, the workflow becomes more efficient, and the competitive advantage compounds. Third, program development. We continue to advance our three-year rate stabilization program, which is designed to address one of the most persistent challenges in employer-sponsored healthcare: pricing volatility. Employers are increasingly focused on predictability, while brokers are seeking solutions to improve retention and simplify long-term planning. Our program is structured to provide greater pricing stability over a multiyear period, supported by a fixed remittance framework and stop-loss protection. Strategically, we believe this offering can deepen client relationships, improve retention, and support expansion into larger employer segments where budgeting stability is a critical decision factor. Now let's talk about 2026 strategic priorities and outlook. As we move into 2026, our priorities remain focused on scaling the platform and accelerating adoption. First, we will continue to expand our distribution footprint. Second, we are continuing to invest in platform development and AI capabilities, with a goal of evolving into a fully integrated marketplace that extends beyond underwriting to include claims administration, cost-containment solutions, and broader plan management capabilities. In January 2026, we enhanced the platform to offer more than 100 preconfigured, customized stop-loss programs, translating complex underwriting and plan design into a scalable, repeatable framework. This drives shorter sales cycles, improved conversion visibility, and greater scalability while maintaining flexibility for employer-specific needs. We are providing full year 2026 revenue guidance of $45,000,000 to $50,000,000, representing approximately 35% to 50% year-over-year growth. Our confidence is supported by our ability to compress time to revenue, enabling new features to scale within one to two quarters compared to 12 to 24 months in traditional insurance environments. We are also strengthening our technology foundation through our partnerships with Siclim, an AWS Advanced Tier Service Provider. We are building more integrated, AI-driven platforms. I will now turn the call over to Julia Qian, our CFO. Thanks, team. Julia Qian: Good afternoon, everybody. I appreciate you joining us today. I will work through our fourth quarter and the full year 2025 financial performance, then provide additional context around our operating model, margin profile, capital allocation priorities, and ongoing product investments. Before continuing to the numbers, I want to briefly address seasonality and timing dynamics. Employer decision cycles, particularly around renewals, do not always align cleanly with the calendar quarter, which can create some variance in quarterly results. As such, we believe year-over-year performance is a more meaningful way to evaluate the business rather than sequentially. On that basis, our trends remained strong throughout 2025. Importantly, our revenue model is contractually driven and recognized over a 12-month policy period, which supports forward-looking revenue visibility and an increased recurring revenue profile. Turning to revenue now. For the full year 2025, total revenue increased 71% year over year to $33,300,000. In the fourth quarter, revenue increased 53% to $7,500,000. This performance reflects continued adoption of our AI-enabled underwriting marketplace, supported by expansion in both distribution and enrolled employees. Our distribution network grew to 885 brokers, TPAs, and agencies, an increase of 34% year over year. Enrolled employees increased to 22,515, up 23% year over year. As more partners onboarded to the platform, we are seeing increased quoting activity, higher bind ratio, and improved conversion efficiency, reinforcing the scalability of our model. As Tim mentioned, we are providing full year 2026 revenue guidance of $45,000,000 to $50,000,000, representing about 35% to 50% growth year over year. This is supported by the visibility in how our recurring revenue flows through from the prior year and the remainder of the year, as well as strong distribution and fully deployed platform capability. When we look at profitability, we continue to demonstrate operating leverage as the business scales. Adjusted EBITDA for the full year was $4,100,000, which is about 12.3% of revenue, an increase of 81% year over year. Net income, our most comparable GAAP measure for the full year, was $1,200,000, representing about 4% of revenue, an increase of 91% year over year. For the fourth quarter, adjusted EBITDA was $300,000, compared to $500,000 in the prior year. Net income for the fourth quarter was negative $300,000, compared with negative $100,000 in the prior year. Again, our GAAP results and the reconciliation of GAAP to non-GAAP measures can be found in our earnings release. The fourth quarter reflects planned reinvestment in go-to-market initiatives, broker engagement, and program development, along with peak enrollment activity as well as investments supporting new product launches. Full year pre-tax income was $1,700,000. Fourth quarter pre-tax loss was $400,000, reflecting the timing of investments. Turning to operating expenses, we continue to drive improved operating efficiency while maintaining disciplined investment in growth initiatives. Total operating expenses were $19,400,000 for the full year, representing 58% of revenue, a 16% improvement year over year. In the fourth quarter, operating expenses were $4,300,000, or 57% of revenue. Breaking these down, for the full year, sales and marketing expenses were $4,200,000, about 13% of revenue, reflecting our efficiency in the distribution-led go-to-market strategy. General and administrative expenses were $13,700,000, 41% of revenue, improved year over year as we scale. Research and development investment included $3,200,000 in capitalized software development and $1,600,000 expensed, representing approximately 5% of revenue. Our R&D investments are focused on platform expansion, underwriting automation, and scalability across the marketplace ecosystem. As we think about growth beyond 2025, we are continuing to increase high-value capability into our existing platform. We plan to initiate the beta test of a new data-driven solution that integrates physiological and claims data to generate actionable value insights. We believe these represent a very meaningful step forward, enhancing decision-making across underwriting and plan management. More broadly, these initiatives reflect our strategy of building additional value-added services on top of an already commercialized, scalable platform, which we expect to support the durability of growth and increase operating leverage even further. AI remains a core investment initiative alongside our other programs. We believe that applying AI within a regulated employer-sponsored insurance environment can materially improve the speed, consistency, and decision quality across both underwriting and member-facing work. We will continue investing in AI-driven automation and underwriting support, while maintaining proper human oversight where it matters most. From a financial perspective, when these investments are directly aligned with our model, they support faster adoption, higher retention, improved efficiency, and greater operating leverage as we scale. Turning to cash flow and the balance sheet. For the full year 2025, we generated $3,100,000 of positive operating cash flow. Accounts receivable days reduced to 14 days in 2025 from an already efficient 29 days in 2024, demonstrating the predictability and efficiency of cash collection in our business model. We invested $3,200,000 in platform development software and still generated positive cash flow from operations, ending the year with $7,700,000 in cash and cash equivalents. With that, I now turn back to the Operator for Q&A. Tim Johnson: Thank you. Operator: We will now begin the question-and-answer session. The first question will come from Allen Klee with Maxim Group. Please go ahead. Allen Klee: Yes, hi. Good quarter. I wanted to start with your larger employer offering you have rolled out. Could you give us the feedback you have gotten and what you are hearing from your partners that are involved in selling it? Thank you. Julia Qian: Sure, Allen. I can cover that. Yes, Tim can talk about the business part, and I can talk about the financials. We announced the entry to the large employer space last year. The financial contribution is very fresh in 2025 because that is starting in the fourth quarter and officially launched this September, and you will see more benefits in 2026. So Tim can answer business-related questions. Tim Johnson: Yes. As Julia said, the sales cycles on those are pretty long, so we are just now really starting to pick up some sales through it. We have a product launch coming up at the end of next month where it really helps speed the process up for the large groups. Right now, we just agreed to underwrite large group, bring them in to make sure that we had a really good process, and then the system that we have built is coming up next month. We have tested it a lot with a lot of brokers and internally, and the speed with which it is performing is really helpful for anybody that uses it. Allen Klee: Okay. Thank you. And then for the three-year rate stabilization offering, which is extremely valuable in today's market, what is the feedback? You are in beta right now. So anything you can say about the feedback and how you're thinking about potential interest and when? When that interest—I know you said second half—but any thoughts of how you think about the inflection of how that might ramp? Tim Johnson: Yes. It is really an attention-grabber for government entities, municipalities, these entities that rely on budgeting heavily. So they have to understand, through a tax base, what they have to budget for. When you can do that for three years, there are a lot of cities, states, governments, counties—they are all interested in looking at it, and we are right now just starting to put together some information so we can gather some of their submission data, start to put some programs together for them, making sure that it looks right and fine-tune it. So there is a lot of attention around it. Seriously, we just got it started a month, month and a half ago, where we could go out and talk about it with our partner—our insurance carrier—that was putting it up and we are working with. So there is a lot of attention around it, but you are right. We have not really started the quoting process yet where we have got much going on that we can put some business on the books. Julia Qian: Yes. So, Allen, that is exactly what we said before. We anticipate it is going to go well. The beta test has a lot of traction. It should be officially launched and announced with all the partners involved in the second half of the year. I think it is still on track. Yes. We will try to see whether we can do a Q3. Allen Klee: Third quarter. Julia Qian: Hopefully the end of second quarter and the beginning of third quarter. This is something we are looking at. Allen Klee: Maybe just following up on my first two questions, what are your thoughts in terms of the amount of renewals you think will be available for both the large employer and the three-year rate stabilization? Do you think that most of it will come more at the end of 2026 when plans renew, or do you think that there is good opportunity in 2026? Julia Qian: So, Allen, today we do not have renewals in the large group business. Most of our business is small- and medium-sized groups, but we only started last year, September, and when we have functionality going on, we start to pick up some pace this year. So we do not really have a renewal from any prior-year business book, but we can see we gain share from other places. So we get new customers. Those will be all new customers. Allen Klee: Three-year both, three-year in the large group. Yes. But what I meant is that plans—if most plans renew in January—does that mean that there will not be a lot available that you can sell to? Tim Johnson: You are correct. July 1 and January 1 are, especially for municipalities, their effective dates. They start on July and January. So again, we are probably not going to get a lot of business on July with the municipalities in that. We will pick up some other clients. But January is clearly going to be the biggest effective date for us on that. Allen Klee: Okay. That is great. And then just one more, then I will get back in the queue. You mentioned you initiated beta testing of physiological data and claims data to get insights. Could you just expand on that a little more? Julia Qian: Yes. So physiological data is when people wear devices to track their physiological information—heart rate and blood pressure—and then we have, as claims data, a lot associated with individuals’ health information. So when we get the data, hopefully it can produce insights. We just got to the start and the beta test for this year. That is something the product will watch for. It can be very interesting. And on the data part, it will really help the user get more additional insights on the correlation of their health condition versus their medical condition. So we just got to the beta test, and we will share with the market the due cost. Allen Klee: Thank you so much. Operator: The next question will come from M Marin with Zacks. Please go ahead. M Marin: Thank you. So I am wondering, you were talking a little bit about your entrance now into the large organizations spectrum of sales. And the sales cycle, as you said, is long. Do you expect that there will be any difference versus smaller organizations in terms of stickiness or retention, or from what you know about the overall industry, do you think it will be pretty much comparable to what you have already experienced in your business? Tim Johnson: Yes, I think that the stickiness will come because of the ease of use of the system—the tool, EDIBS. It is extremely easy and efficient. It is easier for a broker to provide a submission to an underwriter through the system. The system uses a lot of AI technology to organize all of that and parses the data into an organized fashion for the underwriter. It is a layup for the underwriter to, when it eventually comes out the other end of the system, underwrite and do their job, which is all they want to do. So once we can show that the turnaround time on getting the information in, understanding the information, and then getting a proposal back—we are really trying to reduce that timeframe significantly. And if you are in this business, you know that a lot of times it takes a long time for various reasons. But the system that we have built, we really think we can dramatically—I say we are going to easily cut it in half, if not more. M Marin: Okay. And so I know it is very early in the process because you just really completed the beta testing not that long ago, but are you surprised at the level of interest or potential interest that you are expecting or seeing in your pipeline amongst that sector of the overall customer base? Tim Johnson: Yes. We were just talking about that earlier today. In fact, the way that we have positioned ourselves and the people that we are already talking to about it—just trying to get feedback and get through all the beta—you know, internally, my underwriter can now look at and quote up to 20 groups in a week. She used to be able to do that in a month, and now she does it in a week. And just conversations like that around other people in that space, in the underwriting space, they are very excited to see it and test it out. So yes, we hope it is going to be a big splash. M Marin: Switching gears a little bit, over the past several quarters you have announced a number of different partnerships or business affiliations to expand the services you can offer or expand distribution. Do you have an ongoing pipeline of other potential affiliations that you are looking at and considering in order to further expand your service offerings? Tim Johnson: Yes. The tool itself has really expanded who we traditionally thought our market was. So now, besides just brokers and TPAs using the system to quote groups, we are looking at other industries or other vendors within our industry that want to use the tool because it makes their job even easier. We are all in this business, and we designed the product to help us, because we underwrite—we do all these things. But it is expanding beyond just us to where other people want to use the tool. And that kind of goes back to my other answer on the other question you asked. But yes, it is expanding a lot. Julia Qian: Yes. That is multiple. We are looking at these as multiple different legs to grow for the company. So in terms of sales distribution, just to remind everybody, there are 1,100,000 of these sales agents in the country, and we only scratched the surface. So whatever works, we will continue to build a high-functional sales team, continue to acquire brokers, and provide education. One part of entering the large group space will help us to get the larger brokerage houses, because the more product offered, the more stickiness—people are more inclined to deal with one system to use it. So this is part of the strategy for us to offer more services and try to get more brokers onboard. We do not have some particular list, because now we consider the entire universe is 1,100,000, and there are particular things we want to think about and where our high-functional salespeople have the most relationships. Then we would go down the list of the rest in the country. We really do not have particular things. Additionally, the new functionality we are building, we are surprised to see, can be offered as additional sales to generate more revenue, as the capability is needed by other users as well. Mhmm. M Marin: Which would also further enhance your operating leverage, you think? Julia Qian: Yes, definitely. Look, when we started, I often say we are the Amazon selling the bookstore and sell the books at our bookstore, and then we realized people really like to put the store online. So we are like, okay. Now, with a lot of functionality we are developing for our own internal use—because we are part of the customer zero, using the functionality to deal with the manual process, make our automation, make that easier, simpler, use AI—and then we realized a lot of companies like ours on the market also suffer from the manual process. Then we can offer that as an additional service. M Marin: Okay. Thanks so much. Thanks for taking my questions. Operator: The next question is a follow-up from Allen Klee of Maxim Group. Please go ahead. Allen Klee: Yes, hi. You talked about how you want to expand to roll out cost containment and claims paying. Is the business model here that kind of what you said of the—like, you are the store, and these are the different things that get added—and you would take a fee or a percent? How do you envision—like, you are partnering with other firms—or how do you envision how you get paid on it? Julia Qian: So, Allen, we are building—we are the marketplace. So today, the marketplace does two things: create self-funded products, self-funded programs, and put programs together, and also does the underwriting and bundles together through the AI process. In the near future, as the marketplace function expands, we will offer that as a service for other carriers, other MGUs, other people who want to come to the marketplace—not just purchase the product. They also want to use the functionality doing their underwriting. They want to create their customized product. So these are the things we are thinking about, which we already get quite a lot of traction on. It has not launched currently, has not launched this year, has not been in the business model last year. But with more and more traction, we think we will make that available in the very near future. We have not thought about the pricing because there are so many different pricing models we can charge. We can have set pricing. We can have different features, different pricing. There are so many ways people are willing to pay for different functionality. So since this has not been launched and we have not finalized the price, we have a lot of ideas through the conversation with potential customers. Allen Klee: Okay. You announced a partnership on the prescription side, I think. Could you talk about what that can do for your offering? What I am referring to is the Vertical Art Administrators. Tim Johnson: Oh, yes. They are a TPA. They just happen to be owned by a PBM. So it is just another distribution source for us. Allen Klee: Okay. So on the prescription side, that is not an area of focus right now, I assume, right? Tim Johnson: Not really. I mean, we are going to do what we can to manage the drug costs, but as you recently saw, the government is stepping in to try to make some corrections. So it is kind of in flux right now. We do not want to commit to anything and then have something taken away from us. So we are just going to sit back and watch what happens for a while. Allen Klee: Okay. That makes sense. Is there any feedback on the conference you held in Davos and any relationships that you got out of it, or just thoughts on how it went? Tim Johnson: Yes. I thought it went great. We met a lot of good people. Those relationships are still fruitioning. We are trying to figure out how we take advantage of all of them. We got a lot of good attention from that. A lot of people are still talking about it, in fact. Tim Johnson: Okay. Allen Klee: And then maybe lastly on the AI side, just in terms of how you are looking to apply it in 2026, what would you say the biggest initiatives will be? Tim Johnson: The biggest initiatives for AI in 2026? Yes. It is going to be continually improving our own processes. We are really the proof of concept for a lot of these things, and we test it before we take it out. But our system continually needs improvement. We are talking about the claims—I want to clarify—those are the stop-loss claims. Those are not first-dollar TPA claims that we are looking at. We are looking at how MGUs intake claims, and how AI can be used to make that more efficient, because it is a very manual process. So everything we touch, we are looking at applying AI to it to see if we can solve the issue by speeding it up or eliminating intervention by having people get in the middle of it. There are all sorts of different ways that we are looking at AI, but it is improving that entire process of getting information: how you get it, when you get it, what you do with it, where it goes, and where it is stored, and how fast can I get access to it? Allen Klee: Okay. Great. Thank you so much. Tim Johnson: Thanks, Allen. Operator: Thank you. Seeing no more in the queue, let me turn the call back to Mr. Johnson for closing remarks. Tim Johnson: Thank you, Operator, and I thank all of you. I appreciate everyone joining the call today. If anyone has any follow-up questions, please do not hesitate to reach out to us. We appreciate your interest and look forward to keeping the dialogue open. Thanks, everyone. Operator: Thank you all again. This concludes the call. You may now disconnect.
Operator: Good afternoon, and welcome to today's Noodles & Company's fourth quarter 2025 earnings conference call. All participants are now in a listen-only mode. After the presenters' remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to introduce Noodles & Company's Chief Financial Officer, Michael Hynes. Michael Hynes: Thank you, and good afternoon, everyone. Welcome to our fourth quarter 2025 earnings call. Here with me this afternoon is Joe Christina, our Chief Executive Officer. I would like to start by going over a few regulatory matters. During the call, we may make forward-looking statements regarding future events or the future financial performance of the company. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are only projections and actual events or results could differ from those projections due to a number of risks and uncertainties, including those referred to in this afternoon's news release and the cautionary statement in the company's Annual Report on Form 10-Ks and subsequent filings with the SEC. During the call, we will discuss non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our fourth quarter 2025 earnings release. To the extent that the company provides guidance, it does so only on a non-GAAP basis and does not provide reconciliations of forward-looking non-GAAP measures. Quantitative reconciling information for these measures is unavailable without unreasonable efforts. I will now turn the call over to Joseph Christina, our Chief Executive Officer. Joseph Christina: Thank you, Mike, and good afternoon. As we reflect on 2025, the story is clear. We have built meaningful and sustained momentum across Noodles & Company, culminating in system-wide comp sales growth of nearly 7% in 2025 and further escalating to over 9% in 2026 thus far, with only a week remaining in the quarter. And profitability far exceeded the prior year in 2025 and as we have guided in 2026. That progress is not accidental. It is the result of disciplined execution and a clear focus on what matters most. 2025 was a pivotal year for the brand. We significantly elevated our food, with the launch of our most comprehensive new menu in the history of the company and the introduction of craveable limited-time offers, including Chili Garlic Ramen, one of our strongest LTOs in recent years, which we believe also introduced new customer groups to Noodles & Company. We leaned into strong value messaging with the launch of Delicious Duos, giving guests compelling meal combinations at an attractive price point that delivered balance, variety, and everyday affordability without compromising quality while also raising consumer awareness of our new menu offerings. We initiated a thorough review of our portfolio, resulting in the closing of underperforming restaurants, which have continued into 2026 and, importantly, has resulted in a material transfer of sales to nearby locations, resulting in a step baseline increase of average sales volume at those go-forward restaurants. Which also favorably impacted margins, as Mike will discuss in more detail shortly. And we strengthened operational excellence by introducing our Operational Excellence Review program, raising standards and driving greater consistency and accountability across every restaurant. Underpinning all of this was a renewed focus on the fundamentals. Throughout 2025, we tightened execution in our restaurants, improved food consistency, managed costs with discipline, and sharpened our marketing approach. When you consistently execute the fundamentals at a high level, performance follows. And that is exactly what we began to see in the back half of the year. But before I dive deeper into the progress we made in 2025, I want to highlight our first quarter comp sales performance to date as the progress we built last year has further accelerated into 2026, delivering sales increases, which we believe are the top of the fast casual industry. In the first quarter thus far, we have delivered continued increases in traffic and same-store sales, with system-wide comparable sales growth over 9% and traffic over 4%. March will mark our seventh consecutive period of traffic growth and, notably, period two of 2026 delivered one of the strongest comparable sales performances in the company's 31-year history. We kicked off the year by bringing back Steak Stroganoff as a limited-time offer, one of the most requested fan favorites ever. We leaned into that fandom with a creative AI-driven campaign that generated strong engagement and reminded guests why this dish has remained such an enduring classic. The Steak Stroganoff results exceeded prior launches of the LTO and cemented this great dish as a returning favorite craveable LTO over the winter months in the coming years. When you pair a comforting favorite like Steak Stroganoff with stronger restaurant execution and a great guest experience, it becomes even more craveable. The combination of great food and consistent operations is clearly resonating with our guests. We entered this year with clear goals and a sharpened focus, aligning the organization around four strategic goals: developing winning teams, igniting growth, driving guest satisfaction, and delivering strong financial results. These goals are shaping how we operate, how we invest, and how we measure success, and already, we are seeing that progress continue. With that context, let us recap progress we made in fiscal 2025 to build the foundation for our strong performance to start the year. Fiscal 2025 was about strengthening the core of our business and restoring consistency across the system. We started with the food. We sharpened our menu, elevated recipe standards, and improved execution at the restaurant level. Enhancing training and tightening operational controls drove better consistency bowl after bowl. Our limited-time offers were also more impactful and more focused, bringing energy to the brand and reinforcing our authority in noodles. A great example is Chili Garlic Ramen, which we introduced as a limited-time offer in October. Inspired by trending ramen hacks, this brothless bowl delivered the buttery, spicy, umami-packed flavors guests were already craving. It quickly became one of the strongest LTOs in our history. A new ramen dish not only resonated with our loyalty members, but also, we believe, introduced our brand to a new consumer who desired a ramen dish in a fast casual environment. We have just recently brought the ramen back along with a previous fan favorite, Indonesian Peanut Chicken Sauté, as we raised awareness of our Asian noodle collection on our menu. Furthermore, we are currently evaluating additional ramen recipes, as we believe a ramen section of our menu could be as equally successful as our collection of Macs. Together, these improvements strengthened guest confidence in our food and helped drive stronger engagement with the brand throughout the year. Operational excellence follows. The launch of our Operational Excellence Review, or OER, program introduced a more structured coaching accountability model across our restaurants. Area managers and regional leaders now use OERs to focus on root causes, develop clear action plans, and reinforce consistent execution across our teams. This approach has strengthened leadership alignment, improved training accountability, and raised operational standards across the system. We are seeing the results of that work in our guest experience. Over the course of the year, our OSAT scores improved, as measured by SMG, meaningfully, and we have steadily closed the gap with the fast casual category average. In January, our overall satisfaction reached 72%, the closest we have been to the fast casual benchmark since launching the program in early 2024. These improvements reflect stronger execution across the fundamentals of the guest experience, from cleaner restaurants and better hospitality to more consistent food quality and stronger dinner operations. Just as importantly, our teams are now operating with clearer expectations, stronger coaching, and a shared focus on continuous improvement across people, operations, guests, and financial performance. We also established a more thoughtful and sustainable approach to value. As we listened closely to our guests, it became clear that value is not simply about the price. Our guests want to feel good about the amount of food they receive relative to what they pay for. Value means balance, feeling satisfied, and leaving with the sense that you had a great dining experience. In addition, in the current macroeconomic environment, today's consumer has become more value-conscious, which we wanted to be able to address in our menu offerings, not through a temporary discount, but rather in an ongoing value-oriented option for our guests. That insight informed the launch of Delicious Duos. Rather than introducing a discount, we focused on elevating our value proposition by offering craveable combinations that deliver both variety and satisfaction at an accessible price point. The platform has resonated with guests, supporting traffic and frequency while maintaining the integrity of our heart. It also raised awareness of our new menu due to the combinations Delicious Duos offers and the marketing of that offering, which showcased those various menu offerings. Our marketing approach has become more disciplined, more data-driven, and more focused on the core of who we are as a brand. We returned to the foundation of our business, noodles. Our messaging leaned into craveability, variety, and the comforting, shareable occasions that define the Noodles & Company experience. As we often say internally, we know noodles. And our marketing is once again centered on celebrating that authority. At the same time, we evolved how we plan and manage marketing investment. We moved away from static annual plans toward an always-on, performance-optimized marketing engine. Using ad-supported data and channel-level performance input, our teams dynamically adjust investment based on return, incrementality, and audience response, allowing us to balance brand building with demand generation. As a result, we are managing media investment more actively across channels, reallocating dollars toward the highest return opportunity while refining audience targeting and leaning into markets where guest response is strongest. Combined with improvements in food, operations, and value, these efforts contributed to steady improvement in comparable sales trends, traffic stabilization, and eventual growth, and expansion of restaurant-level margins. At the same time, we strengthened the financial foundation of the business. We improved labor productivity through better scheduling and tightening operational management. We managed food costs with greater precision. And we increased efficiency in our marketing deployment. These actions, combined with leveraging the significant same-store sales increases, expanded restaurant-level margins in 2025 to 14.1%, an improvement of 290 basis points year over year. Our guidance for 2026 that Mike will discuss calls for improved margins for the full year of 2026 over 2025, due to all that I have mentioned. The result is a healthier system with stronger unit-level economics and a more resilient operating model. What gives me confidence today is the consistency we are seeing across the business. Food is better. Execution is stronger. Standards are clearer. And the results are following. The work we have done in 2025 created a solid foundation. We are now building on that foundation as we move through 2026. Before I turn it over to Mike, I would like to provide an update on the status of our previously announced review of strategic alternatives. As previously shared, our Board of Directors initiated a review of strategic alternatives to explore ways to maximize shareholder value. The process may include a range of potential actions such as refinancing existing debt or other strategic or financial transactions. No decisions have yet been made, and there is no set timetable for completion. Until the review is completed, we will not provide additional commentary. I will now turn the call over to Michael Hynes to walk through the financial details. Michael Hynes: Thank you, Joe. In the fourth quarter, our total revenue increased 0.8% compared to last year to $122,800,000. System-wide comp restaurant sales during the fourth quarter increased 6.6%, including an increase of 7.3% at company-owned restaurants and an increase of 3.8% at franchise restaurants. Company comp traffic during the fourth quarter increased 1.4% and average check increased 5.8%, inclusive of 2% effective pricing during the quarter. Company average unit volumes in the fourth quarter increased 9.9% to $1,440,000. As Joe mentioned, our sales momentum continued to accelerate in 2026. Our company comp sales in 2026 are positive over 9% year to date. We are extremely encouraged by the sales acceleration, especially against a tougher comparison in 2025, where comp sales were positive 4.7% and incorporated significant marketing of our new menu rollout in March 2025. Turning back to 2025, our sales acceleration in the fourth quarter delivered impressive bottom-line growth. Our restaurant contribution margin in the fourth quarter increased to 14.1% from 11.2% in 2024. Cost of goods sold in the fourth quarter was 26% of sales, a 120 basis point decrease from last year, which was driven by a combination of menu price, vendor rebates, and lower discounting, partially offset by higher food costs associated with our new menu offerings and modest inflation. Our food inflation in the fourth quarter was approximately 1%. Labor costs for the fourth quarter were 30.9% of sales, which was down 140 basis points to prior year, primarily due to the benefit of sales leverage, partially offset by wage inflation. Hourly wage inflation in the fourth quarter was 2.3%. Occupancy costs in the fourth quarter decreased to $10,700,000 compared to $11,400,000 in 2024 due to a reduction in our company-owned restaurant count over the last twelve months. Other restaurant operating costs increased 40 basis points in the fourth quarter to 20.1%. The increase in other restaurant operating costs was primarily driven by a combination of higher third-party delivery fees from higher third-party delivery channel sales and higher marketing expenses, which were mostly offset by sales leverage. G&A in the fourth quarter was $11,700,000 compared to $11,300,000 in 2024. Net loss for the fourth quarter was $6,800,000, or a loss of $1.16 per diluted share, compared to a net loss of $9,700,000, or a loss of $1.70 per diluted share last year. The loss in 2025 included a $5,600,000 non-cash impairment charge primarily related to our decision to close underperforming restaurants. Adjusted EBITDA in the fourth quarter was $7,600,000 compared to $4,000,000 in 2024, an increase of over 88%. In the fourth quarter, we closed nine company-owned restaurants and three franchise restaurants. Our fourth quarter capital expenditures totaled $2,300,000 compared to $3,800,000 in 2024. At the end of the fourth quarter, we had $1,300,000 of available cash, and our debt balance was $110,200,000 with over $11,000,000 available for future borrowings under our revolving credit facility. As a part of our restaurant portfolio optimization project, we closed a total of 33 restaurants in 2025, and have closed 20 restaurants year to date in 2026. We continue to see great results from this ongoing project. The most meaningful impact is the post-closure transfer of sales to nearby Noodles & Company restaurants, which is driving a significant increase to our company-wide restaurant-level profits. This is attributable in large part to our high mix of off-premise sales. In 2025, we estimate that the closures benefited comp sales by approximately 100 to 150 basis points. We forecast that the portfolio optimization project will positively impact 2026 comp sales by 200 to 300 basis points. We view the sales transfer from closed restaurants to nearby Noodles & Company restaurants as a permanent benefit to our baseline average unit volumes at those go-forward sites. Throughout 2026, we will continue to look for additional opportunities to optimize our portfolio of restaurants in an effort to increase restaurant-level profitability, including the benefit of sales transfer trends we have been experiencing. We currently estimate that we will close 30 to 35 restaurants in 2026. Turning to guidance. Our forecast for 2026 projects the following: comp sales of approximately 9% and adjusted EBITDA of $5,700,000 to $6,300,000, more than doubling prior year results. For the full year 2026, we are providing the following guidance: total revenue of $478,000,000 to $493,000,000, including comp restaurant sales growth of 6% to 9%; restaurant contribution margin between 14.7% and 16%; general and administrative expenses of $49,000,000 to $52,000,000, inclusive of stock-based compensation expense of approximately $2,500,000; depreciation and amortization expense of $24,000,000 to $25,000,000; interest expense of $10,000,000 to $11,000,000; adjusted EBITDA between $30,000,000 and $35,000,000; one to two new franchise restaurant openings; and we estimate total 2026 capital expenditures of $9,500,000 to $10,500,000. We expect to be free cash flow positive and have the opportunity to reduce our debt balance in 2026 by $5,000,000 to $10,000,000. For further information regarding our 2026 expectations, please see the business outlook section of our press release. With that, I would like to turn the call back over to Joe for final remarks. Joseph Christina: Thanks, Mike. We have built meaningful momentum by focusing on the fundamentals and executing with disciplines that elevate the guest experience. When great food, strong operations, and targeted marketing that connects with guests come together, performance follows. And that is what we have been seeing come to fruition. This is evidenced by the significant year-over-year increase in adjusted EBITDA in 2025 and our expectations for significant further growth in adjusted EBITDA in 2026. We are confident that the foundation we built in 2025 and the strong acceleration of sales in early 2026 position us for sustainable growth throughout 2026 and beyond. Thank you for your time today. I will now turn the call back over to the 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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment while we poll for questions. Our first question comes from the line of Todd Brooks with Benchmarkstone. Please proceed with your question. Todd Brooks: Hey. Thanks for the questions, and congrats on such a strong start to Q1 after a really great finish to 2025. So well done with that. Two questions, if I may. Thanks. Two questions, if I may. One is your way, maybe it is best looked at through the lens of the 2026 guidance. You talked about a Q1 contribution from sales transfer. You talked qualitatively about kind of a margin benefit of the sales transfer. If we can talk maybe, Mike, on the year-over-year improvement in both metrics in the 2026 guidance, how much is attributed to the sales transfer versus just the core underlying momentum that you are seeing in the business right now? Michael Hynes: Sure. If we look at the full-year guidance for 2026, $30,000,000 to $35,000,000 of adjusted EBITDA, if we just take the midpoint there, it suggests about a $10,000,000 EBITDA improvement year over year. Think about a little less than half of that will be due to closures, just under $5,000,000, with the rest due to core business improvement. Todd Brooks: Okay. Great. That is helpful. And we will just back that up the income statement for kind of the restaurant-level margin thoughts to get at what the improvements are from operational improvements and leverage then? Okay. Perfect. And then the second one that I had for you, the strength and the 9% numbers, pretty amazing considering the environment we are in. Joe or Mike, do you have any sense of any stimulative benefits from maybe some of the early tax refund activity benefiting the business or kind of to the other side over the last few weeks, any pressure that you have seen from activity and gas price increases? I am just trying to figure out how we get the 9% number to something that reflects where the consumer kind of is at at the baseline level, not some of these exogenous pressures and benefits. Thanks. Michael Hynes: Yes. Those are two pretty big factors in the industry, and they are both fresh. When we look at our performance year to date, outside of weather, we see a lot of consistency. It is not like we saw a big change in March when tax refunds would have started coming in or post the conflict. So we are not seeing an obvious impact on our end. And also, when we look at our performance versus industry, the industry has been hovering in the zero to 1% same-store sales range, and we have been consistently beating that, going back to early 2026, by over nine percentage points. So I do not think those things are showing up yet. Joseph Christina: Yes, and I think, Todd, also, I think, also, we have built a menu around what you have and what you are willing to pay. So as we leaned into Delicious Duos and then had great LTOs that drive more traffic into the restaurants, I think we have something for everyone. And that should sustain us through the coming months. Todd Brooks: And how do Delicious Duos mix, Joe? Joseph Christina: They mix depending on whether there is a strong LTO going on, because that gets factored into the Delicious Duos mix, but right around 5%, which is what we expect it to be since its inception back in late July last year. Todd Brooks: Okay. Great. Thank you both. Operator: Thank you. We have reached the end of the question-and-answer session, and this also concludes today's conference. You may disconnect your line at this time. We thank you for your participation. Have a great day.
Operator: Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun. Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy. Wendy Sun: Thank you, operator. Hello, everyone, and thank you for joining us today. Our fourth quarter 2025 earnings release was distributed earlier before this call and is available on our IR website at ir.baozun.com as well as on PR Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they are available for your download. . On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Ms. Catherine Zhu, Chief Financial Officer; Mr. Junhua Hao, Director and Chief Strategy Officer of Baozun Group, and Ms. Ken Huang, Chief Executive Officer of Baozun Brand Management. Ms. Qiu will first share our business strategy and company highlights. Ms. Zhu then will discuss our financial outlook, followed by Ms. Wu and Ms. Huang -- Mr. Wu and Mr. Huang, who will share more about our e-commerce and brand management segment, respectively. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Securities Act of 1933 as amended, the U.S. Securities Exchange Act of 1934 as amended and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve unknown risks, uncertainties and other factors, of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Exchange Commission and its announcement, notice or other documents published on the website of the Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date hereof and is based upon assumptions that the company believes to be reasonable as of this date, and the company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. In addition, we may elect to use adjusted in place of nongeneral accepted accounting principle on non-GAAP in order to reduce overall confusion that may arise from our discussion of our financials related to the GAAP brand. You may now turn to Slide 2 for the executive highlights for the quarter. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead. Wenbin Qiu: Thank you, Wendy. Hello, everyone, and thank you for joining us. I'm pleased that Baozun delivered a strong fourth quarter closing 2025 on a high note and successfully completing our 3-year strategic transformation. Over the past 3 years, we have rebuilt our company with focus and intention driving consistent sequential momentum throughout 2025. In the fourth quarter, our revenue increased 6% to RMB 3.2 billion while non-GAAP operating profit grew 91% to RMB 198 million. This was not just about short-term recovery. It was about fundamentally improving the quality and the potential of our business. BEC has become a sustainable cash engine. Through sharper execution and continued cost rigor, BECs are more agile and consistently profitable. We have moved from pursuing scale to focusing on value, prioritizing margin expansion and reliable cash generation. and most importantly, build alignment with BBM. BBM, meanwhile, has reached a defining inflection point. After 3 years of repositioning and localization, our brand management platform achieved its first quarterly breakeven in fourth quarter '25. This milestone validates the sustainability of our model. Importantly, scale is beginning to translate into tangible operating leverage, marking the transition from a turnaround to profitable growth. Our financial profile has strengthened alongside operational progress. Margins have expanded, profitability has improved meaningfully and our balance sheet remains solid. In addition, our operating cash flow more than tripled to RMB 420 million in 2025. These results validate that our business is not only growing. It is growing with better structure and healthier economics. In summary, 2025 marks the successful completion of the initial phase of our transformation. As we enter into 2026, our focus shifts decisively from rebuilding to scaling. Our priority now is to amplify the progress to accelerate in the next 3 years. We will do this by expanding BEC's margin, building scale and operating leverage in BBM and deepening the strategic synergies between BEC and BBM. Our ambition is clear, to drive the group's non-GAAP operating profit growth to RMB 550 million by 2028. With a stronger organization, a proven strategy and a highly focused execution culture, we are entering this next phase with confidence and the momentum. Now I will hand over the call to our team for a deeper dive in our financials and the business performance. Catherine Yanjie Zhu: Thanks, Vincent, and hello, everyone. Now let me provide a more detailed overview of financial results for the fourth quarter and full year of 2025. Please turn to Slide #3. While Group's total net revenues for the fourth quarter of 2025 increased by 6% year-over-year to RMB 3.2 billion. Of this total, e-commerce revenue grew by 2.5% in to RMB 2.6 billion, while Brand Management revenue rose by 24% to RMB 664 million. Breaking down e-commerce revenue by business model. Services revenue increased 3.1% year-over-year to RMB 2 billion. This increase was driven by revenue growth in digital marketing and IT solutions as well as strong performance in the luxury category within our online store operation services. BEC product sales revenue increased modestly by 0.5% year-over-year to RMB 574.5 million mainly driven by growth in Health and Nutrition category, which was partially offset by lower sales in appliance category as we continue to optimize category mix to prioritize profitability. BBM product sales totaled RMB 663.7 million, representing a 24% year-over-year growth. This growth was mainly driven by the strong performance of the GAAP. Please turn to Slide #4. From a profitability perspective, our blended gross margin for product sales at the group level was 36.5%, an expansion of 640 basis points year-over-year. Gross profit increased by 35.9% year-over-year to RMB 451.5 million for the quarter. Breaking this down by our key business lines. Gross margin for e-commerce product sales expanded to 18.4%, reflecting a 760 basis point improvement compared to 10.8% a year ago. This margin expansion was primarily driven by product mix optimization. Gross margin for BBM improved to 52.1% from 50.4% a year ago, reflecting the adaptiveness of its merchandising and marketing initiatives. Now please turn to Slide #5 for a walk-through of our OpEx. Sales and marketing expenses increased by RMB 181 million to RMB 1.2 billion. This included an increase of RMB 136.9 million for BEC which was mainly due to higher spending on creative content and market initiatives onto, in line with the growth in digital marketing revenue. BBM sales and marketing expenses increased by RMB 49.6 million, which was mainly driven by the expansion of offline stores and marketing activities during the quarter. Fulfillment costs for the quarter was reduced by 11.1% to RMB 683.4 million, reflecting ongoing efforts in cost optimization. Technology and content expenses decreased by 20.2% to RMB 116.9 million as we continue to enhance tech monetization efficiency. G&A expenses decreased slightly by 2% to RMB 187.9 million due to the company's continued efforts to implement cost control and efficiency improvement initiatives. Turning to bottom line items, please refer to Slide #6. During the quarter, our non-GAAP income from operations was RMB 197.7 million, an increase of 91.4% from RMB 103.3 million in the same period of last year. BEC's adjusted non-GAAP income from operations was RMB 195.9 million, representing 43% year-over-year increase compared with a year ago. BBM reported a non-GAAP operating income of RMB 1.8 million, a solid milestone as we achieved a very first breakeven quarter for the segment. Let us turn to a quick full year summary. The group's total revenue was RMB 9.9 billion, an increase of 6% year-over-year, of which e-commerce net revenues were RMB 8.3 billion, an increase of 2% year-over-year. BBM net revenues were RMB 1.8 billion, an increase of 25% year-over-year. Our adjusted operating income totaled RMB 126 million, a significant improvement compared with RMB 11 million in fiscal year 2024. As of December 31, 2025, our cash, cash equivalents, restricted cash and short-term investments totaled RMB 2.8 billion. We continue to improve working capital efficiency through back-end process optimization across inventory management, billing and cash collection. As a result, our adding operating cash flow reached RMB 420 million, representing a 315% year-over-year increase. Let me also briefly address our GAAP item recorded during the quarter. We recognized an investment impairment loss of RMB 230 million primarily related to preinvestments in the e-commerce sector as well as impairment provisions for certain equity investments. While these investments have at the time, today's macroeconomic environment, combined with our sharpened focus on developing our brand management business, make it prudent to recognize this impairment. These adjustments reflect our commitment to maintaining a focus and resilience business portfolio. Importantly, our remaining investment will be healthy, and we are confident in their long-term potential. Let me now pass the call over to Junhua to update you on BEC, our ecommerce business. Junhua Wu: Thank you, Catherine, and hello, everyone. I'm pleased to share we've closed 2025 with significant momentum. In the fourth quarter, we delivered 2% revenue growth and a 43% increase in non-GAAP operating profit, capping a year of progression from stabilization to accelerate performance. Throughout the year, we focus on driving sustainable, profitable growth while making strategic investments in high opportunity areas. Now let me quickly walk through some of our operational highlights in the e-commerce segment for the first quarter of 2025. Please turn to Slide #7, highlighting the continued quality improvement of our distribution model. During the quarter, BEC product sales gross profit increased 70.9% despite a largely flat top line. Notably, BEC's gross margin rose to 18.4%, setting a new record since our inception. This improvement was mainly driven by ongoing optimization of our category mix with strong growth from health and nutrition and beauty and cosmetics categories. In addition, our efforts to expand into nonstandard categories and are beginning to show results. Apparel delivered a strong contribution across sales, gross margin and profitability during the quarter. . Turning to Slide #8. Our services revenue grew 3% year-over-year in the fourth quarter, led primarily by strong performance of BBM and IT solutions, which includes 19%. We gained market share in key categories such as luxury, sports and outdoor. Our omnichannel capability remains one of the Baozun's core advantages and a focus of developing on going forward. During the quarter, we received 41 awards in Tmall ecosystem, including the Prestigious 2025 Tmall Ecosystem in Service Award. Douyin we were once again certified as a Douyin e-commerce diamond service partner, the platform's highest tier of accredition. Together, these recognitions affirm our sustained leadership and execution strength across major platforms. We also continue to focus on strengthening our bottom line. Across the organization, we are implementing a series of lean initiatives designed to streamline processes, reduce costs and enhance efficiency. Furthermore, we are expanding the use of artificial intelligence tools across a wide range of employees and business scenarios to enhance productivity. These efforts have significantly improved our profitability. With BEC's non-GAAP operating income increased 43% year-over-year to RMB 196 million in the fourth quarter of 2025. Overall, we are pleased with our performance in the final quarter of the strategic transformation, a period that certified our shift towards the sustainable and profitable operations. Moving forward, we will continue to deepen client engagement and stickiness, innovate our service models and enhance operational efficiency. For 2026, our priorities are clear. Deliver the numbers, deliver the strategy and deliver the talent. Delivering the numbers means maintaining our focus on profitable growth and ensuring that our operational progress continues to translate into strong financial performance. On strategy, we are advancing 3 key initiatives. First, we will expand our apparel distribution business leveraging the synergy between BEC and BBM to unlock the new growth opportunities and strengthen our brand ecosystem. Second, we will further enhance our digital marketing and the traffic acquisition capabilities. helping brands partners capture demand more efficiently across an increasingly complex omnichannel landscape. Third, we will deepen technology empowerment, accelerating the deployment of AI and digital tools to improve operational efficiency and elevate our service capabilities. Finally, delivering the talent remains essential. We will continue strengthening our leadership bench and reinforcing a strong execution culture with the right people and the capabilities in place. we are well positioned to scale the business and deliver sustainable growth in the years ahead. Now I'll pass to Ken for an update on BBM. Ken Huang: Thank you, team, and hello, everyone. Please turn to Slide #9 for BBM's performance in the fourth quarter of 2025. . The fourth quarter marks a defining milestone for BBM as we delivered our first breakeven quarter. This result reflects our structural improvements across merchandising, marketing, store productivity and networking expansion. In Q4, BBM revenue grew by 24% year-over-year to RMB 664 million, supported by a double-digit same-store sales growth and the continued contributions from new store openings. Gross margin improved by 170 basis points from a year ago to 52.1%, leading to a 28% increase in gross profit. Moreover, inventory turnover efficiency improved, reducing our inventory turnover days by 16% to 114 days. Merchandising was the core growth driver for the quarter. We entered the winter season with a balanced assortment architecture, reinforcing Gap's iconic categories, sweatshirts, denim and denim wear while sharpening segmentation across channels and consumer groups. Our partnership with the Forbidden City has maintained a strong sell-through in Q4. More recently, we launched a new IP collaboration with packing Oprah, showing case our ability to blend the Chinese culture storytelling with Gap's global DNA in a commercially effective manner. Since introduced our brand ambassador on September 15, we have collaborated closely to create authentic, engaging content that connects with our audience. We also launched the seasonal products and the limited styling collections aligned with the key moments in the retail calendar. This ambassador-driven initiatives have boosted social buzz leading to higher consumer engagement, increased brand visibility and a strong brand voice. Offline expansion continues to be a strategic priority for us. In the fourth quarter, we opened 7 new stores for a total of 29 new Gap stores in 2025, bringing our total store count to 164 by the year-end. Our new stores continue to outperform older locations, driven by better site selection and enhanced visual merchandising. For instance, our new image stores at Dongguan Min International Trade City and Shanghai Century Link Mall have delivered strong results. The improving in-store experience and the outfit-based presentation have driven a double-digit gain in sales productivity. This early performance indicators are highly encouraging and reinforce our confidence in our store expansion strategy. As a result, we are accelerating our store opening efforts to build on this momentum, and currently plan to open 50 stores in 2026 through a hybrid model that combines direct and partnership stores in line with our asset light approach. With these initiatives in place, we are confident in sustaining double-digit year-over-year revenue growth and achieving operating breakeven for GAAP on an annual basis in 2026. Turning to Hunter. The brand continued to strengthen its premium positioning in Q4, elevated store plantation created lifestyle storytelling are resonating with urban consumers seeking both function and fashion. In the fourth quarter, we launched 5 new Hunter locations and entered our national footprint into high potential Tier 2 cities, including Nanjing, Qingdao, Shenyang and Taiwan. We concluded 2025 with a portfolio of 177 stores under the BBM umbrella. This expanded physical network sets a solid foundation to enhance supply chain efficiency in the future. In summary, Q4 2025 represents a structure inflection point for BBM. We achieved our first breakeven quarter. This validates our strategy, strengthens partner trust and sets the stage for long-term double-digit growth. The direction is clear, BBM is well positioned to become an increasingly meaningful growth engine for Baozun Group. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from Chris with Huatai Securities. Chris: I have 3 questions. The first one is about the AI, and with the rapid evolution of AI technology, would the management share that -- what is the current status of our workflow transformation using AI agents? And have we observed any measurable gains in efficiency? The second question is about the AI to our mid- to long-term impact. This is -- what is our perspective on the mid- to long-term impact and opportunities that AI agents present for our e-commerce business and the brand management business? And my third question is about our business outlook to the mid- to long term. And I have noticed that in our report, we stated that in 2028, we will reach RMB 550 million on operating profit. So with the management share, what is the key driver behind this business outlook? Junhua Wu: Okay. This is Junhua. So let me address your first 2 questions regarding AI implementation in Baozun. So the first one is about the AI agent. So we have already leveraged a lot of AI agent technology from the beginning of last year. So most focused on our bottom line. In terms of the digital assets creating and uploading products, digital assets on to different platforms, saving a lot of operating people in terms of doing repeatable kind of works. We have already leveraged a lot of AI agents. . So AI agent technology is more focused on driving our efficiency internally more focus on the bottom line. In terms of the top line, we haven't having any very clear definition about the scenario in business case about how do we leveraging AI technology, increasing our top line. About the AI agent, the agentic platform and technology is very new in this industry. So we realize that in terms of the agentic kind of the technology right now is more focused on the GEO generic search engine optimization. So there is amount -- your DAU among the shopper APP is close to approximately about 850 million. And among them, the DAU of 300 million is on AI and all those apps in terms of the large-scale mode and AI agent APPs. So this is transforming the consumer behavior and reallocate the traffic structure. So we are closely focused on the trend of different big platforms and attracting all those changes of the traffic allocation, and we can share you more in the future quarters. The third one is regarding the business outlook. Wenbin Qiu: Yes. The -- we just talked about the 2028 operating profit goal. That will go to RMB 550 million is our planned target. The main driver for this is that we are -- firstly, is our strategy. We're turning the e-commerce business into a BEC plus BBM plus synergy model. And you can see, firstly, BBM is improving its profitability, especially GAAP, is getting more and more profitable in the coming years. And in the meantime, because we leverage the experience in this kind of apparel industry from BBM, we then add more brands into BEC with a franchise model. So this also expand our margin greatly. So combined by both BBM's growth and also margin expansion of BEC, we can see this result in 2028, but it's not the end of our acceleration. I think in the coming years, even beyond 2028, we can see a more clear sign of this improvement of our profitability. Operator: Next question comes from Alicia Yap with Citi. . Alicis a Yap: My first question is about the latest macro sentiment and would management share some color about latest macro Chinese New Year demand and the March promotional performance. And what is your expectation for 2026?. And my second question is about AI. How do you see generative AI and other advanced AI technology, changing consumer behavior and the e-commerce landscape? Would you elaborate on Baozun's strategy for integrating AI into your operations and service offerings? Are you developing -- are you developing your AI tools or partnering with leading AI firms? My last question is about Gap China. What is the growth expectation for Gap China this year? What is your long-term vision for the Gap business in China? And what do you see as the key growth drivers for the brand over the next 3 to 5 years? Junhua Wu: Okay. This is Junhua. Let me address the first 2 questions. And the first one, I will elaborate from the BEC perspective and Ken can just feedback some new sentiment kind of the forecast, aligned with the third question from the BBM perspective. So yes, we did have a very strong finish on the Chinese New Year campaign and the Queens day campaign on the March 3. So this is definitely very strong. And we had a late Chinese New Year this year. So from the online digital e-commerce growing, that was very promising. And we see the momentum of each category growing a lot, and the platforms are still compensating a lot of kind of coupons to the end consumers to increase the overall GMV growth. And the efficiency of the traffic quality is increasing. So yes, we believe that we had a very good, strong start. And the future quarters will be very promising from the BEC perspective. And the second one is also related to the AI in terms of the GEO and how does GEO really changing the consumer behaviors. Just like I mentioned that GEO is changing the consumer behavior, is changing from the DAU of 850 DAU shoppers from different APPs to 300 million from different kind of apps like, and Changan, those kind of the generating kind of AI large-scale mode. So consumers started to asking questions for their daily lives -- during their daily life and those kind of GEO can smoothly push a lot of information along with some kind of the reference with the brand-oriented right information such as a shopping link or such as a very emotion linkage from the brand's perspective, with the content, with short video clips or with a very comprehensive information. So we can foresee that the change of consumer behavior is slightly changed from the instant shopping category to different categories. So in terms of the instant shopping category, so the AI agent is becoming very promising. You can easily order a bubble tea from, for example, from the AI GEO systems. And -- but from different categories, it's still not in the business scenario. So we are closely tracking all those technology operation and make sure that we can share more in the future quarters. And in terms of the bottom line, so we definitely input a lot of efforts in the AI agent to increase our efficiency, especially those repeatable kind of systems. So those proprietary AI tools, so we're not a partner with any other leading AI firms for now. We still use some kind of the public services with our in-house engineering team to do a lot of Baozun customization for our leading brand partners. . Ken Huang: This is Ken. For the first question about the C&I consumer segment. For GAAP, we also see high increase in February and January in both months. The increased rate year-to-year is over 30% for Gap. So we can forgive actually, we continued our 20 to 30 increased rate in the last quarter and this quarter. . For the third question, the gross expectation for Gap, First, I think for 2026, we will still continue to keep the growth rates. In 2025 our growth rate is more than 20%. So we will keep this around 20% increase in 2026 by both same-store increase and new openings. We plan to open more than 50 stores, and we will also expand our e-commerce sales scale. For the long-term vision of Gap business, in 2027 and 2028, we plan to accelerate our growth rate from 20% to 30% so we'll be 25% to 30% in the next 2 years in the top line. And we were also trying to improve our operating profit from breakeven to 150 basis points increase per year. And the main growth driver for Gap in the next 3 years, I think we're coming from 3 areas. One is the same-store sales increase. driven by our product improvements, our vision merchandising, our store new images, which will, in the end, to improve our in-store traffic and commercial rates. And the second is the scale expansion, both offline and online. For example, offline also plan to open reenter some markets such as Hong Kong and Macau. And the third one is the supply chain efficiency. With the scale increase, we expect to gain our efficiency in our cost management and also in the expenses. That's all. Wenbin Qiu: Here is Vincent. We have some more things to say about the AI because AI application right now is one of the core strategy of the Baozun Corporate. So our goal is quite clear. We want to make the AI utilization and also application as the best practices for both e-commerce and also apparent industry. So we will be the best practiced AI for these two areas. So not only for the sales side, but also the supply side for BBM and also, of course, for the efficiency improvement. So it's quite important for us. And we are confident we'll be in a leading position in utilizing AI capabilities, yes. Operator: Our next question comes from Jiawei Yin with CITIC Securities. Jiawei Yin: I have 2 questions. The first is that we have seen many industry changes such as the compliance of e-commerce tax, the levy of traffic tax and the restriction of competition in the industry, which are generally beneficial to the sales of branded goods and are also accommodated by a narrowing growth gap between platforms. How does Baozun impact of such evolution on operational preference and strategies? And what's the brand's response to this change? And my second question is, has there been any change to Baozun's development strategy for the BBM business in 2026? And how view Baozun balance scale and profit what are your expectation for the growth pace and the long-term vision of each brand? Junhua Wu: Okay. So this is Junhua. Let me address the first question. So those policies really don't really affect our detailed operations and day-to-day because the government has signed up the direction about setting up a different sliding scale in terms of different kind of policies, and none of the term has really changed the allocation of the marketing fee of our existing brand partner, because after the pandemic, so all our brand partners are being very careful and very cautious about spending money, especially into the marketing spending, allocation and the others. So we want to help the brand partner to leverage all those money wisely and to drive a higher ROI as before. So in terms of that, so we are really within the range of all those policies. And in terms of the cutthroat competition in the industry, so Baozun is taking the lead of providing logistics and courier services. So we have already leveraged a lot of kind of the pricing efficiency and the cost efficiency for so many years. So that doesn't really just affect our day-to-day operations. So in terms of the brand repositioning between different platforms, so indeed, the brands are either diversifying view different kind of the strategy for different brands because for some kind of the leading live stream brand, to focus on GMV growth or treat those platform as a content creation platform and let those traffic exceeded to all those traditional transaction platforms is different strategies from different kind of categories. So most -- some kind of the categories of the brands, they choose to drive GMV from both categories, both Baozun platforms and some of the brands that treat the livestream platform as a content creation center and let them exceed all those content building the leakage to the traditional kind of via transactional platforms. So we are helping all those different brands in different categories to diversify their strategy across in different platforms. So there is no unified strategy in general in terms of that question. Wenbin Qiu: Here's Vincent. I will talk about the BBM strategy. I think the strategy is quite consistent with the past years. The only change is about the level of our confidence. We think we are much more confident right now than before that the transformation is already there, we can see the results. So we build a 3-year model. And we believe in the coming 3 years, BBM will grow -- we'll enter into acceleration phase. So we were quite excited about that. . And talking about -- especially for Gap, the biggest brands, we will see a very good trend and also the improvements or the capabilities also promising. For the premium brand like Hunter and others, I think we -- the most important thing for us is to build capability on merchandising and also marketing. So they will be also growing quite fast, but building capability is more important. And talking about the BD of the new brands, yes, I think we are -- now a lot of more brands come to us trying to work with us. It's a good sign. And right now, not only BBM can work with the brands in a very deep relationship and also BEC also have the capability to do more franchise business with brands, so in this case, we -- that's why we think the coming 3 years will be an acceleration phase. Thank you for that. Operator: Our next question comes from Wang with HSBC. Wang: I have 2 questions. The first one is on the growth outlook for 2026. And what are the key upside and downside risks you see based on your expectations? And the second question is how should we think about the capital allocation plan given the AI investment and other investment priorities this year? And can management share our stores how you think about shareholder return going forward? Junhua Wu: Sorry, the first 1 is about the overlook of the business growth in the future 3 years or 2026? Wang: 2026 for the group outlook. Junhua Wu: The group outlook. Okay. Wenbin Qiu: Yes. Maybe I try to say something, maybe Catherine, you can say more about that because it's expectation. Yes. I'd say, firstly, we are trying to make a positive year in terms of net income to ordinary shareholders, and -- so yes, it is quite exciting goal to achieve because that means we have more to contribute to our shareholders and investors. To achieve that, of course, we need to make all the aspects of our operation better than before. Our margin expansion needs to be improved as well. So in this case, we're not only to treat our customer or employee better and also give more return to our investment -- investors. Yes. In terms of numbers, can we share anything or... Catherine Yanjie Zhu: Yes. Okay. Thank you for your question. I think the management are quite confident and -- for the coming 2026. We think it's quite promising. Of course, we are doing a lot of initiatives, including like the easy part and also brand management segment. So regarding the revenue, we are expecting a certain number of increase and like BEC segment. If we split into 2 segments, BEC, we expect a single-digit increase. And for BBM part, we are expecting like a very good number to come. And regarding the non-GAP operating profit, we are also expecting like double the number compared with the 2025. And so we are expecting this -- we are doing all kinds of initiatives like I mentioned in the call, so I think the management are quite confident about that. Wenbin Qiu: And also Vincent here again. Talking about the AI right now, although it is still an initial phase for the industry to adopt the results, the development of the AI, but we are seeing this change very fast. So first we need to keep us very active and agile to keep our pace up to this development. So for us, along with the investment into IT and the internal process improvement every year, we put resources there. And this year, starting from this year, we have more initiatives from the corporate level. We have several very interesting and important initiatives. But doesn't require a lot of investments. So I think talent will be more important than investments. So that's why we are so confident that we will be the best practice for not only e-commerce but also apparel industry in China will be the -- we're quite committed to be the most advanced utilization of AI capabilities. Operator: The next question is from with CMBI. Unknown Analyst: My question is regarding your development strategy for overseas business. And can management share with us the update regarding your overseas strategies? And can management share with that your development plan regarding both International business? Wenbin Qiu: Yes. Let me first address some about the international business. Right now, for the priority, of course, BBM and BEC are contributing the major share of our business and also growth. So these 2 are very important. So that's why we talk more about these 2 sections. For BCI, I think recently, we have a very solid progress, but still, it's a minor contribution to the whole company and the growth. We are consolidated in outside the business outside of China. Hunter is already in Southeast Asia making progress. We have several major e-commerce projects improving and to be profitable in the region as well. We have opportunities in Korea and also South Korea and also several very big projects is going on in Hong Kong, in Taiwan. We are seeing this improving which is a promising future, and we are confident that the growth of the international business will be solid but we are not expecting a big contribution from international business yet in the coming 2 years. Junhua Wu: BBM new brands. Wenbin Qiu: Yes. I think you just talked about the new brands of BBM as well. Right now, I think we are in a very good situation because we are having quite big base of our brands from BEC. So when there's opportunity emerges in the market we'll be the first one to have the opportunity to work with them. Recently, we see a lot, yes. They trust us, and we have such a solid track record for BBM in the coming -- in the past 2 years. So people just want to work with us. But for us, I think we know what we need to have. So at least we will not have a lot more brands in the future. But definitely, during -- in the coming 3 years, I think we will have new brands, carefully selected, better profitable brands to add to our portfolio. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Wendy Sun for closing comments. Over to you. Wendy Sun: Thank you, operator. On behalf of the Baozun management team, I would like to thank you again for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us again. This concludes the call. Thank you. . Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, ladies and gentlemen, thank you for standing by for Viomi Technology Co., Limited's Earnings Conference Call for the second half and full year of 2025. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Claire Ji, the IR Director of the company. Please go ahead, Claire. Claire Ji: Hello, everyone, and welcome to Viomi Technology Company Limited's Earnings Conference Call for the second half and full year of 2025. As a reminder, this conference is being recorded. The company's financial and operating results [indiscernible] posted online. You can download the earnings press release and sign up for the company's e-mail distribution led by visits IR section of the company's website at ir.viomi.com. Participating in today's call are Mr. Xiaoping Chen, the Founder, Chairman of the Board of Directors and Chief Executive Officer; and Sam Yang, the Head of our Capital and Investment Department. The company's management will begin with prepared remarks, and the call will conclude with a Q&A session. Before we continue, please note that the company's discussion will contain forward-looking statements. made uncertain safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding statements and other risks and uncertainties is included in the company's annual report on Form 20-F and undergoing a sale with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required by law. Let's also note that Viomi's earnings press release and this conference call include discussions of noted GAAP financial information as well as unaudited non-GAAP financial measures. In addition, Viomi's press release contains the recognition of not unaudited non-GAAP measures to unaudited most directly comparable GAAP measures. I'll now turn the call over to our founder, Mr. Xiaoping Chen. Mr. Chen will deliver his remarks in Chinese followed immediately by English translation. Mr. Chen, please go ahead. Xiaoping Chen: [Foreign Language]. Claire Ji: Thank you, Mr. Chen, and I'll quickly translate our founder's remarks before discussing our financial performance. Hello, everyone. Thank you for joining us today on our earnings conference call for the second half and full year of 2025. In the second half of 2025, amid the phasedown of the national subsidy gain for home appliance trading and the company's strategic investments in overseas market dimensions, new product development and brand building, we delivered total revenue of RMB 951 million and the net income attributable to ordinary shareholders of the company of RMB 21.2 million. For the full year, our core business remained solid, achieving total revenue of RMB 2.4 billion, representing the year-over-year increase in 14.6%. Net income attributable to ordinary shareholders of the company stood at RMB 141.6 million with a net profit margin of 5.8%. Over the past year, our global water strategy has continued to achieve milestones, highlighted by the establishment of a multinational professional team covering North America, Southeast Asia and Europe, empowered by a global perspective across R&D and market expansion. We have constantly achieved technological breakthroughs addressing users diverse drinking water demand. By leveraging AI technology to enhance user experience, we are establishing Viomi as the world-leading water technology company. In the North American market, our Amazon channel delivered an outstanding performance in the second half, achieving triple-digit growth in sales on a sequential basis. During the back Friday promotional season our products ranked 19th in the water purifier category and fourth in under zinc RO segment. Our premium flagship product, the master 1 mine water purifier further enrich our product portfolio. In the Southeast Asia market, we continue to deepen our strategic cooperation with off-line channels in Malaysia through the launch of the compact in mineral water dispenser tailored for the local market and figuring both mineralization and cooling functions. On the brand building front, we are engaged [indiscernible] from different countries to serve as brand ambassadors. The participants in offline launch event and with our facilities, strengthening our brands, technology and health image. In April 2026, we will rebuild our new brand series at WA convention in Mimi showcasing our latest AI technologies and innovation as one of the most influential professional events in the global water treatment industry and presenting our redefined vision of better water to partners in North America and around the world. In manufacturing and R&D, we kept boosting our competitive edge. We achieved a key milestone in the global expansion of Viomi's water purifier Gigafactory, commencing full operations of our overseas premium production line. This production line integrates module functions such as instant heating and cooling and ice making, providing agile supply chain support to meet differentiated needs and the markets in North America, Europe and Southeast Asia. As of the end of 2025, our global patent application has surpassed 1,950, spanning 14 countries and regions. We have built highly competitive technology capabilities in areas such as AI-driven water quality, algorithms, precession mineral control and intelligent self-cleaning made on a solid foundation for the continued expansion of our global business. In terms of shareholder returns, we declared a special dividend of USD 0.088 per ADS in July 2025, in August of the same year. or core authorized a new share repurchase program of USD 20 million by the end of 2025. We had repurchased a total of 1.03 million amounting to approximately USD 2.5 million. In our recently purchased and published earnings release, we declared another special dividend of USD 0.066 per share with an aggregated amount of RMB 31 million for shareholder return as the gesture of gratitude for the long-standing trust and support of our shareholders. We deeply value the journey we take with our shareholders and remain committed to creating long-term value for them. In 2026, we will pursue our global water vision with greater determination, targeting breakthroughs in 4 key areas. First, for overseas markets, we'll deepen our process in core strategic markets, such as North America and Southeast Asia. We are actively expanding into more countries and regions, leveraging the activity of our water purifier giga factory. We will continue to launch new localized production, extending our brand influence into broader markets. Second, to advance our differentiation in the domestic market, we will further strengthen the health-centric positioning of the quant series with its alkaline mineral concept. Third, on the technology front, we will deepen the integration of AI across water purification scenarios, making technological innovation the core engine that enables Viomi to navigate market cycles and achieve sustained growth. Fourth, we will continue to strengthen collaboration with global strategic partners fully leveraged the scale effect of water purifier gigafactory to elevate both scale and efficiency through this committed long-term approach, Viomi will continue to create value for global users and deliver sustainable returns to you, our shareholders. Thank you. And that concludes our founder's remarks. I'll now turn the call over to our Head of Capital and Investment Department, Mr. Sam Yang, to discuss our financial performance. Thank you. Sam Yang: Thank you, Mr. Chen, and Claire. Thank you to everyone for joining us today. Let's take a look at our other financial results for the second half of 2025. We recorded net revenue of RMB 950.6 million, a decrease of 25.9% from RMB 1,282.4 million for the same period of 2024, primarily due to the decrease in the home water systems. Now let's look at the performance across 3 categories. Revenues from home water system were RMB 628.2 million a decrease of 32.1% of RMB 925.7 million for the same period of 2024, primarily due to the decline elution of the for water pure price. Revenues from consumables were RMB 112.2 million, a decrease of 17.9% from RMB 133.7 million (sic) [ RMB 136.7 million ] for the same period of 2024, and primarily due to the decreased sales of water purifiers to Xia. Revenues from teaching appliances and others were RMB 210.2 million a decrease of 4.5% from RMB 220 million for the same period of 2024, primarily due to the reduction in orders from Viomi as well as induction of Viamibrin product in this category. Gross profit were RMB 223.8 million compared to RMB 289.5 million for the same period of 2024. Gross margin was 23.5% compared to 22.6% for the same period of 2024. The slight increase in gross margin was mainly due to the elimination of the impact of one-off costs incurred during the diversement of certain IoT and home business and our assets. Total operating expenses were RMB 248 million revenue, an increase of 12% from RMB 221.5 million for the same period of 2024 due to increased selling and marketing expenses and partially offset by a decrease in G&A expenses. In greater detail, R&D expenses were RMB 76.3 million, an increase of 12.7% from RMB 67.7 million for the same period of mainly attributable to an increase of investment in new product development. Selling and marketing expenses were RMB 148.6 million, an increase of 29.8% from RMB 114.6 million for the same period of 2024, mainly due to an increase in brand promotion investment as well as higher personnel costs resulting from channel expansion. G&A expenses were RMB 23.1 million, a decrease of 41.2% from RMB 39.3 million for the same period of 2024, primarily due to a decrease of employee compensation costs allowances for having those loss. Net income was RMB 21.2 million and the non-GAAP net income was RMB 28.2 million. Additionally, our balance sheet remained healthy. As of December 31st, 2025, the company had cash and cash equivalent of CNY 806.6 million restricted cash of RMB 164.4 million, short-term deposits of RMB 258 million and short-term investment of RMB 82.6 million. Next, let's briefly discuss key financial results and audit for the full year 2025. Net revenues were RMB 2,428.2 million, an increase of 14.6% from RMB 2,119 million for 2024. Revenues from home water systems were RMB 1,686.6 million, an increase of 12.6% from RMB 1,298.4 million for Q4. Revenues from consumables were RMB 235.4 million, a decrease of 14.2% (sic) [ 15.2%] from RMB 277.7 million from 2024. Revenues from kitchen appliances and our orders were RMB 506.2 million, an increase of 47.6% from RMB 342.9 million for 2024. Gross profit was RMB 615 million compared to RMB 548.7 million for 2024. Gross margin was 25% -- 25.3% compared to 25.9% for 2024. Total expense -- total operating expenses were RMB 529.4 million an increase of 24.6% from RMB 424.9 million for 2024. In greater detail, R&D expenses were RMB 165.6 million, an increase of 15.9% in from RMB 142.9 million for 2024. Savings and marketing expenses were RMB 277.7 million, an increase of 31.5% from RMB 211.2 million for 2024. G&A expenses were RMB 86.1 million, an increase of 21.6% from RMB 70.8 million for 2024. Net income attributable to ordinary shareholders of the company was RMB 141.6 million revenue and non-GAAP net income attributable to ordinary shareholders of the company was RMB 155.7 million. Thank you. Claire Ji: Yes. This concludes our prepared remarks. We will now open the call for Q&A. Mr. Chen, our Founder; and Mr. Sam Yang will join this session and answer questions. Operator, please go ahead. Operator: [Operator Instructions] The first question today is from Jane Zhang from CICC. Jane Zhang: Okay. Good evening, welling from the management team, and thank you very much for hosting this earnings call and giving me the opportunity to raise questions. I have 3 questions covering brand development overseas strategy and profitability growth. So first and Poms,could you share the overall performance of the company sell owned brand Viomi in 2025? And additionally, what are the key investment priorities and initiatives for Viomi brand building this year. Thank you. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. And to answer your question, in 2025, our brand revenue was primarily from domestic online channels. And we have ranked the 10th place among annual brands listed on Jingdong and we overran 19 rate in sales on Amazon U.S., which is a great progress. And moving forward, we will adapt a differentiated strategy in North America by launching distinct brands and positioning on online and offline channels. in particularly, in April, we will participate in the world of coffee fair in San Diego, and we will debut our new brand series at WQA convention in Miami. And this marks the first step into North American off-line market and showcasing the partners across the U.S. and the world, our redefined vision of better water. Thank you. . Jane Zhang: It's very clear. So here, moving to my second question on overseas expansion. So Rami has successfully entered the U.S. and the Malaysia market. So what are the differences in your market strategies between these 2 regions? And what key challenges have you encountered? And how do you plan to mitigate them? And Also, could you outline the overseas expansion goals for 2026. Xiaoping Chen: [Foreign Language]. Claire Ji: And to answer your question, we have built local teams for both United States and Malaysia. And especially in the United States, we launched the Viomi branded under sink water purifiers on Amazon, which is the online channel. And next, we will bring new brands and products tailored for the U.S. off-line market in the second quarter. And this will cover not only the endorsing products, but also the whole health of nutrition systems. And in Malaysia, our focus is offline with countertop units of the main product format, adding features like eye and the cold water that match the local drinking habits and next will expand more offline partnerships and diversify our product lineup. But for the overseas market in total, in the future, there are still plenty of uncertainties overseas. -- and the geopolitical tensions continue to create headwinds. Still, we see strong opportunities globally, and we believe we are well positioned, that's why the global expansion will remain a key part of our long-term strategy. And for 2026, we expect a triple-digit growth in the overseas revenue. Jane Zhang: And so my last question comes to the company's profitability. Will we see the company's profitability improved notably in 2025 after focusing on the water business. So for 2026, or -- and moving forward, like next 2 to 3 years, what are the core pathways for further enhanced profitability and sustain this positive momentum. Thank you. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay, to translate the answers. There are 3 main paths. The first is expand overseas market and accelerate the growth in our Viomi-branded business. Currently, our margin is still on a low level, mainly because our Viomi-branded product still makes up a relatively small part of the business. So by pushing into the international markets and growing the shares of our own branded sales, we can improve the profitability. And the second path is about consumables revenue. The consumable revenue from our own branded products will be a long-term driver of the margin improvement. As more people are using Viomi purifier globally, the consumable revenues will start to kick in about 1 to 2 years after the equipment sale, and we start to see the trend. And third, we will broaden our product lineup, which is adding more countertop options like icemakers multifunctional countertop water dispensers and a higher-margin whole home nutrition systems. These new categories will troubles reach more customers and build a stronger, more complete product portfolio and for the global expansion. Thank you. Operator: We'll now take the next question. This is from Shi Xining from CMS. Shi Xining: [Foreign Language]. Claire Ji: I'll quickly translate the question first. Can you analyze the impact of the national fast reduction on the domestic market, especially when we see in the second half of 2025, the negative impact has caused revenue decline. And can you forecast the future impacts and offer us some guidance? And also, we recently noticed the EMS and the business development. Can you offer some heads-up about the top line contribution of our cooperation with China gas, this kind of business development. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. I'll quickly translate the answer. As you can see the impact of the national subsidy on water purifier is obvious in 2025. And due to the high base last year, domestic market will face challenges in the first half of 2026. For products like water purifier, however, where penetration is still relatively low. So the customer demand is still growing. We expect the 2026 return to the category's normal growth rate -- growth pace and remain relatively resilient even of consumer spending softness. As we see more and more people are choosing to use water purifiers, and we believe that trend is unreversible and starting in 2026, water purifiers are no longer covered by national subsidies. You may -- you might see some brands still offering 15% of online commerce platforms were destined. We didn't offer that percentage of and we have stayed in our product competitiveness. And to answer your questions about the cooperations with the gas companies, we recently reached a cooperation with the China gas and the ENN Energy companies like the companies like this. And the way we see is we are exploring new partnership models with this company. And their showrooms and service centers across the country, reaching over 50 million household users, and both our products highly relied on the installed elation service support and the production scenario as perfectly with undersink water purifiers and the product categories containment each other. This gives us an efficient way to enter lower-tier markets, and 2026 will be a pilot year for the partnership. This is expected to be a great opportunity for both parties, and we expect it will bring incremental growth. Thank you. Unknown Analyst: [Foreign Language]. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. I'll quickly translate the answer to a similar question to one of the previous questions. And the first one is we will expand our overseas market scale, especially in the United States and in Malaysia, and we will use more diversified products to entering more channels. For example, for the United States, we will have broad off-line channels for Versa with new brand and new products with higher margins. And the second strategy is to increase the consumable revenues. As you can see, the consumable revenues has very promising guarantee of the improvement of profitability. And we have our own branded water pure visa has increased during the past few years and we see the trend of consumable revenues to kick in after 1 to 2 years after the equipment sales. So this will be a long-term driven factors for the margin expansion. And thirdly is to improve our own brand revenue contribution by both overseas expansion and product portfolio expansion. And lastly, we will have more diversified product lines. As of today, we still -- most of our revenue comes from the under sink water purifier product format and our profit margin is within the industry level. However, we will expand more diversified products with higher profit margins and ASPs like the whole house water nutrition systems and the countertop products equipped with diversified functions like cooling, ice making and so on. Thank you. Operator: We'll now take the next question and this is from Brian Lantier from Zacks Small-Cap Research. Brian Lantier: Most of my questions have already been covered. I just wanted to say I'm encouraged by the move to off-line distribution in the U.S. And then just sort of big picture, looking out the impact of the subsidies is significant, obviously, in your 6-month results, but I think if you look year-over-year, you have a 14% top line growth rate. If I'm looking out over the next 3 to 5 years, is that sort of what you view as the normalized growth rate for the business, 10% to 15% top line. Claire Ji: [Foreign Language]. Xiaoping Chen: [Foreign Language]. Claire Ji: Okay. I will translate the answer to your question. According to our estimation, we see the industry's normal growth rate would be at a high-single-digit level. without the impact of the national subsidy and so on. And while the Viomi brand growth rate will be higher than the industry, mainly because driven by the enhancement of our brand strength and the expansion of our international market growth. However, another major part of our business revenue is our Major clients -- key clients of business, such as Xiaomi. This will be aligned with the key accounts, their business performance. And in the current environment, the growth is precious. So overall, we anticipate that the company has the potential to enter into a nominal growth rate of low-double-digit growth in 2027. Operator: Thank you. And that concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. . Claire Ji: Okay. Thank you once again for joining us today. If you have further questions, please feel free to contact us through the contact information on our website or our Investor Relationship Consultant, PSMT Financial Communications. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good evening, and welcome to MillerKnoll, Inc. Quarterly Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Wendy Watson, Vice President of Investor Relations. Please go ahead. Good evening. Wendy Watson: And welcome to our third quarter fiscal 2026 conference call. On with me are Andi Owen, Chief Executive Officer, and Kevin Veltman, Chief Financial Officer. Joining them for the Q&A session are John Michael, President of North America Contract, and Debbie Propst, President of Global Retail. We issued our earnings press release for the quarter ended February 28, 2026 after market close today, and it is available on our Investor Relations website at investors.millerknoll.com. A replay of this call will be available on our website within 24 hours. Before I turn the call over to Andi, please remember our safe harbor disclosure regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors which are detailed in today's press release. The forward-looking statements are made as of today's date and, except as may be required by law, we assume no obligation to update or supplement these statements. We also refer to certain non-GAAP financial metrics and our press release includes the relevant non-GAAP reconciliations. With that, I will turn the call over to Andi. Andi Owen: Thanks, Wendy. Good evening, everyone, and thank you for joining us. I want to begin our call by expressing my appreciation to our 10,000 associates across the globe for their hard work in delivering our third quarter results. Our team's dedication and focus on our strategy to drive long-term value delivered another solid quarter with continued sales and order growth and disciplined execution. Despite ongoing macroeconomic and geopolitical uncertainty, as well as the impact of severe weather during the quarter, we were able to deliver quarterly results within our expectations and we continue to be optimistic about the impact that our strategic initiatives can deliver. Before I move to segment-specific highlights from the quarter, I want to congratulate the operations team on the 30th anniversary of MKPS, our MillerKnoll, Inc. performance system used across our manufacturing footprint. We have successfully worked with Toyota for 30 years and remain a model for efficient and reliable production. MKPS is a significant competitive advantage for MillerKnoll, Inc., and enables us to produce all of our products efficiently, at the highest quality. So let's move to the current macro environment. From a tariff perspective, we do not expect the most recent developments to result in any meaningful changes to our approach, and we expect to continue to fully offset tariff costs for the remainder of this fiscal year as we did in the third quarter. Recognizing that things can develop quickly, however, we are very experienced in navigating tariff changes and continue to monitor both policy and rates closely. With respect to the Middle East, this region remains an important long-term growth opportunity for our International Contract business. In the near term, the current conflict is creating disruption, and we do expect some impact to fourth quarter sales and costs. Kevin will provide additional detail on this later in the call. Moving to some highlights and trends in our segments. In North America Contract, the power of this business as a cash generation engine was on display this quarter with gross margin and operating income strength building as deals continued to grow year over year. Industry benchmarks continue to show improving trends in Class A leasing, net lease absorption, and return to office. When looking at dynamics by industry sector, we saw order growth in most sectors and are pleased with the resiliency of demand as our customers continue to invest in their spaces and earn commute. With Design Day at our largest industry trade show coming up in early June, we are looking forward to showcasing launches for the workspace and health care from Herman Miller, Knoll, Geiger, NaughtOne, Hay, Muuto, and Maharam. Our marketing, product insights, and North America Contract teams are in full preparation mode, and we are looking forward to welcoming our customers and our dealers to Fulton Market. In International Contract, our advantage with the most desired product portfolio continues and we remain bullish about our ongoing opportunities in faster-growing, underpenetrated markets, as well as expanding our dealer share of wallet across these markets while generating enviable margins. As we have discussed in previous calls, another strength in our International business is our diverse regional footprint and localized production, where strong performance in certain regions can mitigate softness in others. With these varied regional dynamics, we can sometimes see quarter over quarter choppiness, and our team is both deliberate and nimble on where and how to target growth. In particular this quarter, we saw sales strength in India, China, Japan, Southern Europe, Germany, and the UK. In Global Retail, we continue to grow and take market share in the approximately $150 billion global premium home furnishings market. In the third quarter, segment comparable sales increased 5.5% and in the North America region, we had comparable sales growth of 3.9%. Our comp sales included both sales through e-commerce, as well as stores that have been open for 13 months. While adverse weather conditions across North America during the quarter resulted in lower traffic than normal as well as store closures, we were pleased to deliver comparable sales growth despite these headwinds. We continue to expand our store footprint in the third quarter, opening new DWR locations in Fort Worth, Texas and Pittsburgh, Pennsylvania, and a Herman Miller store in Phoenix, Arizona. We plan to open three to four more locations before the end of fiscal 2026, ending the year with 14 to 15 new stores in the US, executing on our strategy to approximately double our DWR and Herman Miller store footprint over the next several years. As a reminder, North American retail growth is being driven by four strategic levers: new store openings, expanded product assortment, e-commerce acceleration, and increased brand awareness. During the quarter, we executed several high impact brand campaigns designed to attract new customers and drive store traffic across our Design Within Reach and Herman Miller banners. We launched our very first Herman Miller seating campaign with engaging video and targeted in key regions around the world. During Modernism Week in Palm Springs, where our recently opened DWR store continues to perform well, we held an exhibition of modern seating from the MillerKnoll archives in partnership with the Palm Springs Art Museum, connecting us more deeply with the Palm Springs community and reinforcing our leadership in modern design. And just in the past few weeks, DWR unveiled a collaboration with Tracee Ellis Ross. Our designers worked directly with Tracee to transform her Pattern Beauty offices. The collaboration was covered in Vanity Fair, Forbes, Essence, and House Beautiful, and has generated more than 200 million media impressions. In summary, I am proud of our solid performance in the third quarter and continue to be optimistic about both our Contract and Retail businesses. Regardless of the macroeconomic and geopolitical landscapes, our team will continue to focus on our targeted initiatives, new product launches, and growing retail footprint. As Kevin will discuss, we made meaningful progress strengthening our balance sheet during the quarter, and we remain well positioned for profitable growth. We are focused on creating long-term value across our powerful collective of brands through our balanced strategy of sustained revenue growth, margin expansion, cash generation, and shareholder returns. Finally, I want to welcome Claire Spofford to our Board of Directors. Claire most recently served as President and Chief Executive Officer of J.Jill, and she brings a powerful combination of consumer insight, retail strategy, and governance experience that will enhance our Board as we continue to grow our global collective of brands and drive long-term value creation. With that, Kevin will discuss our financial results in more detail and share our outlook for the fiscal fourth quarter. Kevin Veltman: Thanks, Andi, and good evening, everyone. I will begin with a summary of our third quarter results and then discuss our outlook. In the third quarter, we generated adjusted earnings per share of $0.43 compared to $0.44 in the same quarter last year. Consolidated net sales for the quarter were $927 million, up 5.8% year over year on a reported basis and 3.8% higher organically. Orders for the quarter grew to $932 million, up 9.2% as reported and 7.2% higher on an organic basis, driven by growth in our North America Contract and Global Retail segments. Our consolidated backlog was $712 million at quarter end, up 3.7% from a year ago. Third quarter consolidated gross margin increased 20 basis points to 38.1%, driven by gross margin strength in our North America Contract segment. Turning to cash flows and the balance sheet, we generated $61 million in cash flow from operations in the quarter and reduced our debt by $41 million, lowering our debt to EBITDA ratio to 2.75x as defined by our lending agreement. This moved us meaningfully towards our mid-term goal of a net debt to EBITDA ratio in the range of 2.0x to 2.5x. We also finished the third quarter with $594 million in liquidity. In January, our Board of Directors declared a quarterly cash dividend of $0.1875 per share. The dividend is payable on April 15 to shareholders of record on 02/28/2026. At an annual indicated dividend of $0.75 per share, the yield is 3.9% based on yesterday's closing stock price. Our capital allocation priorities continue to balance our investments in growth with improving our debt to EBITDA ratio, retaining our commitment to our dividend, and maintaining a strong balance sheet. With that, I will move to the third quarter performance by segment. Net sales in the North America Contract segment were $489 million, up 4.4% on a reported basis and 4.1% higher. Orders increased to $491 million, up 13.1% on a reported basis and up 12.8% organically from prior year. Operating margin was 8.6% and adjusted operating margin was a strong 9.8%, up 70 basis points year over year, primarily from gross margin expansion driven by leverage on higher sales and operating efficiency. International Contract segment's net sales were $157 million, up 7.8% on a reported basis and up 1.9% organically. Orders were $160 million, up 0.7% versus prior year on a reported basis and down 4.3% organically, driven primarily by lower orders in Latin America and the Middle East, partially offset by strength in Asia Pacific. Third quarter reported operating margin was 7.7%, adjusted operating margin of 8.2%, down 110 basis points compared to prior year, primarily related to regional and product sales mix in the quarter as well as foreign currency impact. The Global Retail segment net sales were $281 million, up 7.1% on a reported basis and up 4.4% organically. Orders improved to $280 million, up 7.9% year over year on a reported basis and up 5.1% on an organic basis. Operating margin was 2.2% in the quarter. On an adjusted basis, margin was 2.8%, down 340 basis points year over year, primarily due to a freight benefit in the prior year, targeted promotional actions to offset adverse weather in the quarter, and the impact from opening new stores. As Andi mentioned, we opened three new stores in the third quarter. We expect to open three to four additional stores in the fourth quarter, and anticipate opening a total of 14 to 15 new stores in the full fiscal year. Turning to our Q4 guidance, this outlook incorporates our current best estimates for items that we believe will impact our fourth quarter sales and earnings from the conflict in the Middle East. In the fourth quarter, we expect net sales to range between $955 million and $995 million, up 1.4% versus prior year at the midpoint of $975 million. This includes an expectation that we will ship only a minimal amount of approximately $12 million in Middle East-related orders in the fourth quarter. Gross margin is projected to be between 37.5% and 38.5% and includes higher expected logistics costs from higher oil prices related to the conflict in the Middle East. Adjusted operating expense is expected to range between $311.5 million to $321.5 million, higher year over year primarily due to increased compensation, variable selling expense, new store costs, and the impact of foreign exchange. Adjusted diluted earnings are expected to range between $0.49 and $0.55 per share. This includes our current estimate that the direct impact of the Middle East conflict will be $8 million to $9 million in the quarter, or $0.09 to $0.10 per share. Included in our expectations for operating expense and EPS are approximately $3.5 million to $4.5 million in incremental year-over-year operating expense for new store locations and global initiatives. These investments are aligned with our strategy to expand our retail footprint and drive long-term profitable growth. For further details related to our outlook please refer to our press release. With that overview, I will turn the call over to the operator. As always, we welcome your questions and look forward to discussing our progress, outlook, and strategic priorities. Operator: We will now begin the Q&A session. If you would like to ask a question at this time, please press star one on your telephone keypad. Your first question comes from Doug Lane from Water Tower Research. Your line is live. Doug Lane: Yes. Hi. Good evening, everybody. Just want to clarify or maybe you could put some color on how the snowstorms and ice storms and all that weather we had earlier in the year impacted your business. Maybe, you know, do they the Contract versus the Retail? Andi Owen: Yes, Doug. Let me give you a kind of a high level. This is Andi, by the way. We definitely saw lower traffic than normal across our retail stores. We had quite a few closures during that frigid weather period. We had several plants that were also closed during that frigid weather period. So for us, we would say that the impact ranged. Kevin, you would probably give us— Kevin Veltman: Yes, when we look at relative to our guidance, obviously it did not incorporate the severe weather. Most of it was in our Retail business, which was when we look at where our miss was to guide on the top line, a little under half of it was related to our North America Retail business. Andi Owen: And I would say just from a Contract perspective, when you look at order patterns in the quarter, we certainly saw a slowdown in showroom visits and visits to kind of our corporate headquarters during that month of January. So the order patterns reflected that weather trend a little bit, but primarily in Retail is where we saw the biggest impact. Doug Lane: Okay. That makes sense. Just and then you know, I get that it is a volatile situation in the Middle East, and I can see the demand being impacted. That is pretty obvious. But I am wondering throughout the P&L, where else are you seeing potential cost pressures? Have you seen any movement on plastics or aluminum or some of these, you know, commodities that go through that part of the world? Has it begun to be impacted yet? I know it can take a while to work through your inventories. But what are you seeing? And what are you doing about the potential for elevated costs coming through? Andi Owen: Yes. You know, we are looking at a variety of things, Doug. Obviously, you know, we have not seen much except for increases in diesel and things that are really impacting oil-related fuel so far. But we anticipate we will see increases in the cost of plastics, foam, all the things where you see petroleum-related products. We have not seen it yet. This was a really hard quarter to take a look at because the situation is obviously very chaotic and moving every day. What we have tried to layer into this guide is what we know today, which has higher oil costs and potentially higher logistics cost. Shipping containers, we have really looked at that across all of our businesses, as well as our inability to ship orders we have directly into the Middle East. As we have done in the past with tariffs and the kind of changing environment around tariffs, we will watch the situation closely and we will continue to react as we can with pricing and surcharges if needed as we see other situations continue to develop. But we are looking at it every day and scenario planning as the situation changes. Kevin, what would you add? Kevin Veltman: You covered it very well. Doug Lane: Are you starting to build inventories just out of precaution, or is it just early to make any of those judgments? Andi Owen: You know, we are looking at—we have dual supply in a variety of places for most of our really important components. We learned that lesson in COVID. So we are looking at that right now. We do not see a lot of areas where we are going to need to take supply or inventory yet. We are being very cautious as we look at that, but so far not yet. Doug Lane: Okay. That is helpful. And just one last thing, if you could, you know, characterize the office environment. I mean, the tone has been fairly positive from a macro standpoint. And, again, I do not know if you are seeing anything shift here with all the geopolitics or you just see the underlying business continuing to firm as it has for the past several quarters? Andi Owen: You know, as it always is, Doug, it is a different story depending on what region of the world you are in. I have been on a plane a lot in the last couple of months. I would say in North America, and certainly John Michael can add color to this, we continue to see momentum. We continue to see architectural billings moving in the right direction. We continue to see lots of customer visits and demand and orders, and we are very pleased about that. I would say when you step out of the US, it really varies by region. I think we are seeing a little bit of price sensitivity. We are seeing a little bit of different reaction in different parts of the world. We are not seeing major pullbacks anywhere, but I think in places that are touched more closely, whether it is the conflict in Ukraine or whether the latest in the Middle East, we are certainly seeing a little bit more caution, but not necessarily reflected in order trends that have changed. Doug Lane: Okay. Fair enough. Thanks, Andi. Andi Owen: Thank you. Operator: Your next question comes from the line of Philip Bley from William Blair. Your line is live. Olivia Whittie: Good evening. This is Olivia Whittie on for Philip. So can you talk a little bit about the volatility, if any, that you have seen from the recent oil market volatility and rising gas prices? Do you have any concerns that the uncertainty could cause a bigger pullback or deferral in the Contract business that could be prolonged? And then what kind of impact does the market fall have on your traffic or conversion in the Retail segment? Andi Owen: Okay. Those are great questions. I would say from a Contract perspective, like I was telling Doug, I think we have built in some caution around oil prices and how that might impact trucking expense and diesel certainly in shipping containers, Olivia. So we are looking at that for the Contract business. We will continue to monitor component costs and costs that go into the products that we make. We have not seen any movement yet, but we anticipate we will if this is prolonged. And then from a Retail standpoint, you know, whenever you have a consumer that has seen prices rise, that could potentially see inflation go up, and also is paying more at the gas pump, we watch that carefully. So far we have a consumer that tends to be premium and tends to be rather unaffected by many of these changes. So we have a resilient consumer that continues to come back and continues to buy from us, but we are still making sure that we are balancing our price and our demand, and so that we are not beginning to kind of out-price the demand levers that we have in the business. Debbie, would you add anything from a Retail perspective or John in Contract? Debbie Propst: I would just add in Retail that I think we are well poised to continue to navigate macroeconomic conditions that are unfavorable as we have been. And we are well poised to do that because we have demand levers and initiatives that we are deploying such as assortment growth, which drove the majority of our comp demand growth in the quarter, such as our new stores and our e-commerce acceleration and our marketing funnel mix investments. So we continue to be optimistic that we can bend macroeconomic trend curve. John Michael: I would say from a Contract perspective, customers have become accustomed to the uncertainty and the geopolitical risk. So whereas maybe uncertainty a couple years ago would have—they would have put the brakes on—they are proceeding cautiously. So it maybe is slowing down timelines a bit, but activity still seems to be pretty robust. Olivia Whittie: Okay. Great. Thank you for all that detail. And then in the Contract business, I know government is not a huge contributor, but still a chunk of the North America business. So could you talk about recent trends here and how the partial shutdown could potentially impact spend there? Andi Owen: Yes. John, you want to take that one? John Michael: We came into this year expecting that the federal government business would be rather tough and would be down a bit year over year. I think we still saw there were sort of a number of agencies that still had a lot of activity. I think once the war started in Iran, we saw that sort of slow down because a lot of the agencies that were getting funded were now involved in supporting that conflict. So I think it has had an impact. On the other hand, there are a number of projects coming out of the ground for the federal government—buildings that are going to need to be filled with furniture. So it will be rather choppy with federal government for the next several months probably, but there is still activity there. Olivia Whittie: Okay. I see. Thank you. That is helpful. Operator: Thanks, Olivia. Your next question comes from the line of Reuben Garner from The Benchmark Company. Your line is live. Reuben Garner: Hi, Reuben. Evening, guys. Operator: Hello. Reuben Garner: Maybe to start, just a clarification. Kevin, the $8 million to $9 million, or $0.09 to $0.10 of earnings drag, is there something specific about the fourth quarter or how quickly this evolved that is kind of making the earnings impact a little bigger in the near term? Or is this more—if it drags out, is that kind of $0.10 a quarter the right way to think about it on an ongoing basis? Kevin Veltman: The sales that we do not expect to be able to ship in the quarter is pretty close to what our run rate has been, that $12 million that I mentioned. The cost side, that is the piece where initially you are seeing it in diesel prices and things of that nature. But some other elements of cost, if this becomes a prolonged situation, would not have fully flowed through yet, right? Think container rates or foam, resin-type costs. So not a huge impact to that. Mostly, it is logistics-related things that are reflected in what we see as the fourth quarter exposure. Andi Owen: But I would say just like tariffs, Reuben, when these things come up quickly, it is harder for us to cover them in the immediate quarter. We just—by the nature of the Contract business—we are not able to get that pull-through. So you will see it sort of gradually come through as we see what happens with cost. Kevin Veltman: Which gives us time to think about the different levers that we have as well. Reuben Garner: Great. And is this—know, is this an opportunity to use surcharges in a way given the abrupt nature of it and how it could very well be temporary, or do you not see a path to use that mechanism this go round? Kevin Veltman: It is a tool we have in the toolbox, and it is definitely one we will consider. But there are a number of other levers that we could look at as well. And as you know, our two segments operate on a little different cadence from a pricing perspective. So Retail is one where we can react without needing to think about surcharges. Reuben Garner: Got it. And then a lot of discussion in the market about AI and its implications on various industries. I think office furniture is one that has been topical of late. Just curious. I know you guys have had some insights in the past, you know, from your own board even, how you are thinking about that. What are you seeing today from your technology clients from an order perspective? Are they building out their offices in a bigger way? Any insights into kind of sector-specific growth within Contract would be helpful. Hi, Reuben. It is John. John Michael: Yes. The tech sector is very active right now, particularly in the Bay Area. As you might imagine, we have seen this significant uptick in activity in that area. And I think, you know, the other sort of tech-focused areas around the country, whether that be Austin or other areas like that, the activity is really robust. Andi Owen: And I think, Reuben, just like any other sort of technological step change, we are seeing, you know, some organizations that are talking about laying off certain types of employees and others that are adding on just as many of other types of skill sets. So we are really seeing it kind of balance out as AI impacts different parts of the economy and of businesses. But so far, we are seeing quite a robust tech business. John Michael: Reuben, one other item I would call out is we just look at some of the different sectors in the third quarter. General business services and insurance and financial are big categories of activity, and both of those were showing nice activity in the quarter. Reuben Garner: Great. Very helpful. And then last one for me. I do not know if you gave it. If I missed it, I apologize. But quarter-to-date order growth rate for Retail and North American Contract? Do you have those numbers, or did you already share them? Kevin Veltman: Yes. So let me unpack that with you. And you will recall this from discussions last year in the fourth quarter. At this time last year, we were starting to see some of the order pull-ahead related to the tariff surcharges and price increases we were putting in place. And so our comps are a little bit tricky early in the quarter. If you look at International and Retail, which did not have the surcharge scenario pushing through, those are both up here through the first few weeks of the quarter. NAC is down, but if you adjust for the estimate of the pull-ahead impact, it is more flattish. And so if you take that noise out, around 2% year-over-year growth at this point, with some normalization. Reuben Garner: Great. Thank you, guys, for the color, and good luck going forward. Operator: Thanks, Reuben. Your final question comes from the line of Greg Burns from Sidoti & Company. Your line is live. Greg Burns: I just wanted to clarify the $12 million shipped to the Middle East, was that what you are going to be able to ship or what you are not going to be able to ship? Andi Owen: It is what we anticipate we will not be able to ship. Greg Burns: Not be able. Okay. Perfect. Okay. And then in the Retail business, I know we are not into fiscal 2027 yet, but would you expect the pace of store openings to remain about the same next year, or do you expect to continue at the current pace and would that mean that the incremental cost per quarter will kind of remain the same into next year? Kevin Veltman: Yes. We are expecting next year's store openings to be in a similar zone to the 14 to 15 this year, maybe a touch higher based on our plans. And so I think that would be a good modeling assumption to assume you continue to have somewhat similar year-over-year OpEx growth, that kind of $3.5 million to $4.5 million that we had mentioned. Greg Burns: Okay. And then in terms of product assortment, could you just talk about maybe some of where you are adding to your product portfolio and maybe what areas are still opportunities for you to round out? Andi Owen: Yes. Debbie, I will let you take that one and give some specifics. Debbie Propst: Absolutely. So from a Retail perspective, we continue to grow what we call the lifestyle category, which is really our residential home furnishings. We have made significant progress in areas of upholstery, bedroom, storage, but we still have a lot more latitude in those areas. We are also continuing to invest in our gaming portfolio, which is continuing to show major traction. All of our categories were positive to last year, but the biggest opportunity areas continue to be rounding out the home furnishings areas of the home. Greg Burns: Okay. And why was the Retail gross margin down? Debbie Propst: Our gross margin was impacted versus last year by a couple of things, predominantly that we had a favorable freight true-up last year of just over a couple of million dollars, and then we had some incremental ship and revenue costs in Q3 as we pushed into some free shipping promos to try and adjust the trends during the time that we had weather impact. So those are the largest areas, but we also had a little bit of FX impact and variable incentive impacts at the OI line as well. Greg Burns: Alright. Great. Thank you. Operator: There are no further questions. We will now turn the floor back to President and CEO, Andi Owen, for any closing remarks. Wendy Watson: Thanks, everyone, for joining us on the call tonight. Andi Owen: We really appreciate your support, and we look forward to updating you again next quarter. Have a nice day. Operator: This concludes today's meeting. You may now disconnect.
Operator: Good evening, and welcome to Dyadic International, Inc. Full Year 2025 Conference Call. Currently, all participants are in a listen-only mode. As a reminder, this conference call is being recorded today, 03/25/2026. I would now like to turn the call over to Mrs. Ping Wang Rawson, Dyadic International, Inc.'s Chief Financial Officer. Please go ahead. Ping Wang Rawson: Thank you, operator. Good evening, and welcome, everyone, to Dyadic International, Inc.'s full year 2025 conference call. I hope you have had the opportunity to review Dyadic International, Inc.'s press releases announcing financial results for the year ended 12/31/2025. You may access our release and Form 10-Ks under the Investors section of the company's website at dyadic.com. On today's call, our President and Chief Operating Officer, Joseph P. Hazelton, will review our full year 2025 business and corporate highlights, and provide a commentary on the strategic direction of the business. Our CEO, Mark A. Emalfarb, will provide an update on our biopharmaceutical programs. And I will follow with a review of our financial results in more detail, after which we will hold a brief Q&A session. At this time, I would like to inform you that certain commentary made in this conference call may be considered forward-looking statements, which involve risks and uncertainties, and other factors that could cause Dyadic International, Inc.'s actual results, performance, scientific or otherwise, or achievements to be materially different from those expressed or implied by these forward-looking statements. Dyadic International, Inc. expressly disclaims any duty to provide updates to its forward-looking statements, whether because of new information, future events, or otherwise. Participants are directed to the risk factors set forth in Dyadic International, Inc.'s report filed with the SEC. It is now my pleasure to pass the call to our President and COO, Joseph P. Hazelton. Joe? Joseph P. Hazelton: Thank you, Ping, and thank you everyone for joining. Since I stepped into the President's role in June 2025, our focus has been very clear: to accelerate Dyadic International, Inc.'s transition from a development-stage platform company into a commercial, product-driven biotechnology business with multiple paths for revenue. Over the past nine months, we have made significant progress executing against that strategy. We have completed a corporate rebrand to Dyadic Applied Biosolutions, aligned the organization around commercialization, strengthened our technological capabilities through CRISPR licensing, secured manufacturing through our expanded partner Fermox partnership, and most importantly, we began moving products into the market. And I want to emphasize this point upfront. Our reported revenues today still reflect the company in transition; the underlying business has clearly advanced towards commercialization. In less than one year, we have matured from early-stage product development to commercial product launches, distribution agreements, initial product sales and multiple revenue-generating partnerships. Life sciences is our most advanced business, with the clearest near-term product revenue and repeat purchasing. We are building a portfolio of recombinant animal-free proteins for use in cell culture media and molecular biology workflows. These are not speculative markets. They are large, established and growing markets that support biologic manufacturing, cell and gene therapy, cultivated meat, as well as diagnostics and research. These markets are rapidly shifting away from traditional animal-derived inputs towards state-of-the-art recombinant, high-quality, consistent, and scalable alternatives, which aligns directly with our production platform. I want to highlight recombinant albumin as our leading example of progress in life sciences. Albumin is one of the most widely used proteins in biotechnology, critical for stabilizing biologics, supporting cell growth, and improving formulations across diagnostics, therapeutics, and research. Traditional human and animal-derived sources introduce variability and supply limitations. However, through our partnership with ProLiant Health and Biologics, we are now producing recombinant human albumin which was commercially launched in early 2026. The Prolyte product, recombinantly produced using Dyadic International, Inc.'s production platform, delivers consistent, high quality, and scalable supply while avoiding the risks associated with animal-derived products. The Proliant collaboration is a profit-sharing arrangement in which Dyadic International, Inc. participates directly in commercial success as ProLiant expands commercial sales through their already established global sales channels. This is our first example of a Dyadic International, Inc. platform-enabled product reaching commercial scale with recurring revenue potential driven by our partner’s sales growth. Now turning to our animal-free recombinant transferrin. Transferrin is a critical component of serum-free cell culture media, delivering iron essential for cell growth and viability. It is widely used across biopharmaceutical manufacturing, cell and gene therapy, and cultivated meat. We are developing both bovine transferrin for cost-sensitive, high-volume markets like cultivated meat, and human transferrin for higher-spec applications, such as cell and gene therapy and biopharmaceutical production. A high-value recurring consumable, transferrin demand scales with customer production, directly linking their growth to our revenue. We have further advanced our commercialization capability through an OEM distribution agreement with IVT BioServices, enabling global sales of our animal-free recombinant products, such as DNase I and transferrin, through IVT's established distribution channels. This accelerates market penetration while supporting both near-term revenue and positioning us for long-term volume growth as products are adopted into customer workflows. DNase I is a widely used, high-value enzyme with applications across bioprocessing and molecular biology workflows. DNase I is used to remove residual DNA and is essential in areas such as cell and gene therapy manufacturing, biologic production, RNA workflows, and research and diagnostics. We have completed production validation and, together with Fermox, launched recombinant RNase-free DNase I as our first product commercialized under our expanded partnership with Fermox. As adoption grows, we expect progression from sampling to qualification to routine purchasing, driving steady volume growth. We are also advancing growth factors, specifically fibroblast growth factor, or FGF. FGF stimulates cell growth and is a key cost driver in cell culture systems, particularly in cultivated meat and advanced therapeutic applications. In 2025, we achieved our first sales of FGF, an important milestone reflecting technical validation and initial revenue. Growth factors are typically among the higher-value inputs in cell culture systems, and as a result can generate meaningful revenue even at modest volumes. We view this as the start of a broader portfolio targeting both high-volume, cost-sensitive markets like cultivated meat and premium applications such as cell and gene therapy. Our life science development has evolved into a multiproduct portfolio serving large, recurring end markets with multiple revenue channels, including direct product sales, distribution partnerships, and profit-sharing arrangements. These are markets where product adoption typically progresses from sampling to follow-up and into scaled use, and we are now entering the early stages of that curve. As these products move into routine use, we expect to see increasing repeat orders and revenue growth through 2026 and beyond. Turning to Food and Nutrition. This segment represents a significant opportunity driven by the global shift towards sustainable animal-free proteins and functional ingredients. Our strategy here is to leverage our DAPIBUS platform for large-scale, cost-effective production of proteins that replicate the nutritional and functional properties of traditional dairy and food ingredients, while partnering with companies that have established market access and application expertise. Another important development in 2025 was our agreement with RigBio to develop and commercialize animal-free recombinant bovine alpha-lactalbumin for global health and nutrition markets. Alpha-lactalbumin is a key whey protein naturally present in human breast milk, which is essential for early childhood development due to its high nutritional value and amino acid composition. Demand is increasing for scalable, non-animal-produced recombinant alpha-lactalbumin to better replicate the benefits of human milk. This program includes funded development, milestone payments, and revenue participation, which aligns with our capital-efficient model of near-term funding and long-term royalties in a large, growing market where even modest market penetration can translate into meaningful revenue, given the scale of global demand. We are also advancing our human lactoferrin program where we have established a stable production strain and are now optimizing yields and performance. Lactoferrin is a high-value functional protein used in infant nutrition, dietary supplements, and wellness products due to its antimicrobial and immune-supporting properties. Compared to traditional sources, recombinant animal-free offers improved consistency and scalability. We see potential for both direct sales and partner-driven revenue as we move towards commercialization. Another product approaching commercialization is recombinant bovine chymosin with our partner, Incyte, targeting the 2026 launch. Chymosin is a key enzyme in cheese production, enabling the coagulation of milk proteins into curds. To date, we have received upfront access fees and milestone payments with potential royalties during commercialization. This program reflects our capital-efficient partnership model of generating upfront fees and milestones while building long-term royalty streams without assuming downstream commercialization risk. More broadly, our Food and Nutrition pipeline continues to expand across non-animal dairy proteins and food enzymes, supported by growing demand for sustainable and functional ingredients. As these programs advance towards commercialization, we expect increasing milestone achievements and product launches with more meaningful contribution from recurring revenues beginning in 2026. In the Bioindustrial segment, our focus is on scaling our technology into large-volume applications through strategic partnerships with an emphasis on capital efficiency and manufacturing leverage. A key component of this strategy is our expanded collaboration with Fermox Bio, which provides access to commercial-scale manufacturing and additional product development opportunities in multiple markets. This enables faster commercialization without investing significant capital in our own large-scale infrastructure, an important advantage in cost- and volume-driven markets. One example is N3xi, an enzyme cocktail produced using our DAPIBUS platform that converts agricultural residues into fermentable sugars for biofuels and other industrial applications. Fermox has fulfilled its first large-scale order and is expanding sampling and commercial activity, including in the Asia Pacific region, demonstrating both performance and scalability in industrial settings. From a business model perspective, our collaboration with Fermox is structured around participation in product economics, typically through profit-sharing arrangements. This provides exposure to high-volume markets with scalable revenue potential while limiting our capital exposure. More broadly, our DAPIBUS platform is being applied across industrial segments including biomass conversion, pulp and paper processing, sustainable materials and bio-based manufacturing, such as microcrystalline cellulose and advanced nanomaterials. These markets are increasingly focused on efficiency and sustainability, where enzyme performance and cost profile are key drivers of adoption. We are also leveraging the platform's advantages of speed, yield, and cost efficiency from the bio within biopharmaceutical applications through partner-funded programs, enabling continued development without impacting near-term commercial execution. With that, I will now turn the call over to Mark A. Emalfarb, Dyadic International, Inc.'s CEO, to provide an update on these collaborations. Mark? Mark A. Emalfarb: Thank you, Joe, and good evening, everyone. We continue to advance our partner-funded biopharmaceutical collaborations applying our C1 platform into vaccines and antibody development through a non-dilutive, capital-efficient model. Across multiple programs, including infectious disease vaccines and monoclonal antibodies, we are seeing consistent expression, proper protein folding, and functional activity, supporting performance comparable to mammalian and insect cell production systems. To highlight a few efforts, our Gates Foundation collaboration continues to progress, with approximately $2,400,000 received to date under a $3,100,000 grant. Early data shows C1-derived monoclonal antibodies targeting RSV and malaria are comparable to CHO-produced material, supporting further development. In our CEPI collaboration, with the Fondazione Biotecnologie Senese, we are advancing recombinant vaccines, including scale-up towards GMP manufacturing, with an H5 avian influenza antigen currently in preclinical evaluation. We are also working with leading domestic and international organizations, including the NIAID, NIH, the Scripps Research Institute, Oxford University, UVAX Bio and NVAC, and the European Vaccine Hub, supporting a growing number of vaccine and antibody programs. These collaborations continue to generate an expanding body of data that not only validates the performance of our C1 platform across diverse targets, but also reinforces the scalability and broad applicability as we move into our product development and commercial execution. Within these efforts, we are advancing respiratory vaccine antigen programs, including ongoing RSV work with UVAX Bio, and separately, we have initiated a new collaboration with the Scripps Research Institute focused on pre-fusion antigens and multivalent vaccine candidates targeting RSV, human metapneumovirus (hMPV), and parainfluenza virus type 3 (PIV3). Early preclinical studies indicate that C1-produced RSV pre-fusion antigens performed comparably to mammalian-produced antigens while demonstrating potentially improved neutralizing antibody responses relative to insect cell production-based systems. These respiratory indications represent a large global vaccine opportunity where scalable manufacturing remains a key constraint. Our C1 platform is designed to address this through high-yield expression and efficient production of complex pre-fusion antigens, potentially enhancing efficacy while also improving cost efficiency and shortening overall development timelines. Overall, these collaborations continue to validate our C1 technology while building value through potential licensing, milestone payments, and royalties, which is incremental to our near-term product-driven revenue model. With that, I will now turn our call over to Chief Financial Officer, Ping Wang Rawson, who will walk through our full year 2025 financial results. Ping Wang Rawson: Thank you, Mark. I will now go over our key financial results for the year ended 12/31/2025 in more detail. You can find additional information in our earnings press release and Form 10-Ks which we filed earlier today. For the year ended 12/31/2025, total revenue was $3,090,000 compared to $3,500,000 in 2024. The decrease was primarily driven by lower R&D collaboration activity and reduced license and milestone revenue, partially offset by a $1,860,000 increase in grant revenue from the Gates Foundation and CEPI. Cost of R&D revenue declined to $600,000 compared to $1,200,000 in 2024. Gates and CEPI grant-related costs totaled $1,720,000 in 2025 compared to $0 in 2024. Internal R&D expenses increased modestly to $2,160,000 in 2025 from $2,040,000 in 2024 as we continue to invest in advancing our internal product pipeline towards commercialization. G&A expenses decreased to $5,760,000 in 2025 from $6,130,000 in 2024, driven by lower compensation and insurance costs. As a result, loss from operations was $7,190,000 in 2025 compared to $5,900,000 in the prior year. Net loss was $7,360,000, or $0.23 per share, compared to a net loss of $5,810,000, or $0.20 per share, in 2024. We ended the year of 2025 with approximately $8,600,000 in cash, cash equivalents, restricted cash, and investment-grade securities. Our net cash used in operating activities was approximately $5,700,000 in 2025. Looking ahead to 2026, we expect disciplined cash usage while prioritizing high-impact R&D programs and grant-funded activities. We also anticipate growth in product revenues across our life sciences, and food and nutrition markets, driven by new product launches in cell culture media while maintaining operating expenses generally in line with 2025 levels. Based on our current operating plan, we believe our existing cash resources provide a runway into 2027. However, we will continue to evaluate additional capital resources, including strategic partnerships and capital market activities, to further strengthen our balance sheet and support long-term growth. Next, I would like to briefly address the rationale for establishing an ATM facility. This is primarily about flexibility. The ATM gives us the ability to access capital opportunistically, depending on market conditions, pricing, and trading volume, rather than being forced into a larger, more dilutive transaction. It is also a more efficient financial tool used by the majority of micro-cap biotech companies with lower cost, narrower risk, and less market disruption. Importantly, putting an ATM in place now allows us to be proactive and prepared if favorable market windows open. That said, this does not mean we will use it. The ATM simply provides optionality and we will only access it if and when it makes sense. Overall, it is a common and flexible tool that complements other financing and partnership opportunities, and we intend to use it prudently with a focus on shareholder value. With that, I will now ask the operator to begin our Q&A session. Each caller will be allowed one question and one follow-up question to provide all callers with an opportunity to participate. If time permits, the operator will allow additional questions from those who have already spoken. I will ask the operator to begin our Q&A session, after which Joseph P. Hazelton will provide closing remarks. Operator? Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Matt Hewitt with Craig-Hallum. Please proceed. Matt Hewitt: Obviously, a very successful start to the year given the number of new partnerships and collaborations that you have announced. I am just curious, as we think about some of these product launches, how should we be thinking about the timing and kind of how the ramp of product revenues will progress over the course of this year, and quite frankly, more importantly, as we get into 2027 and 2028. Joseph P. Hazelton: Hey, Matt. It is a great question. And it is kind of a balance, right? It is a balance of how much inventory do we try to produce versus what the current needs are in the market. Obviously, having distribution agreements set up through IVT, and we are pursuing others, we are trying to balance the needs we have currently with the market expectations that we anticipate later this year. So we do, I guess, look at it as a slow ramp because the products do need to be into the market and qualified for use in the workflows that they are being ordered for. So while some, if it is like a research type of a use, that is usually a quicker pickup and a quicker conversion than something in the cell and gene therapy. So it kind of depends on use case as well. Right now, I would anticipate it is kind of a slower start, but as these companies get used to the products and as they get into the market and get established in the workflows, you can see that significantly start to pick up. And obviously, our goal is to sign more distribution agreements, so we can have larger product volume opportunities rather than just with individual companies. Matt Hewitt: Got it. And on the license front, obviously, and you just noted this, that you are looking to sign more collaborations. Do you anticipate that those collaborations, those new agreements, would incorporate some type of an upfront license fee? Or is it more important to get the correct distribution and having the agreement in place than necessarily getting upfront cash? Joseph P. Hazelton: That is another great question because I hate to give this answer because I always hate when I get it, but it depends. It depends on the product. And it also depends on the market. In certain cases, with alpha-lactalbumin, when we have existing strains that we have characterized at least to a certain extent, we do expect and drive for some upfront revenues. There are other markets that are a little more exploratory in the food nutrition space or in the bioindustrial; maybe we do not have a strain already developed. In those cases, it may be dependent on how far along we are in the progress of the product. But typically, we try to push for larger upfront access fees when the products are further along in their development phase. Those that are a little bit earlier in the development phase are a little more difficult because the customer has to fund additional work in development, which makes them a little reticent to provide larger upfront fees. We are trying to accelerate some of that through our own internal R&D development like transferrin. We are moving that through rather rapidly in terms of doing cell proliferation assays and other technical validation of the product that we feel will enable us to maintain or even drive some of those higher revenues. But every product is a little bit different. Every market is a little bit different. The further along we can take them, I mean, it is the same thing in biopharmaceutical, right? If you get to Phase 1, the product is worth more than preclinical. Phase 2, it is worth even more. It is similar in this; it is just you can achieve those milestones a little quicker. We can get them to technical validation a lot faster in the research and diagnostic space than we can with, just say, the GMP space. Matt Hewitt: Got it. All right. Thank you. Operator: Thank you. Our next question comes from the line of John D. Vandermosten with Zacks. Please proceed. John D. Vandermosten: Great. Thank you. So you guys have announced several new expansions of existing agreements and new arrangements since the last quarter's report. How are you making changes internally, I guess, to manage that with internal sales and marketing function? My next question is on pricing. How much control does Dyadic International, Inc. have over pricing with all of the various arrangements that you have signed? And I guess I am thinking of that in two ways. One, is that maybe these are just market prices and it is take it or leave it. And then secondly, perhaps how competitive can you be since you have a lower cost structure than some of the other products out there? Joseph P. Hazelton: John, first of all, another great question and thanks for being on tonight. The key thing for us is that the expansion of partnerships actually increases our own capabilities in some cases. Fermox has a dedicated business development team. They obviously have dedicated manufacturing. IVT, same thing. They have a designated sales team that supports their products across their distribution channels in the markets. So every time we do a deal, we do try to evaluate what other capabilities these partners bring into the mix and, like I said, Fermox expands our own capabilities. And then obviously, something like IVT gives us additional kind of boots on the ground, which is important for us as well because we do not have that. And then you have deals like with ProLiant. ProLiant, and I do not know if you have seen some of what they have been putting out, but they have done a very good job of putting a good data package around their recombinant albumin product which is Albufree DX. And as you can see, they have not only just a large media presence, but they also have a large infrastructure presence in terms of a global distribution and customer network that has now been engaged. So all of our partners we try to evaluate based on what else they can bring to the table and how quickly they can help us commercialize and accelerate these products. Another great question. In our partner programs, obviously, we have some visibility into that process, but it is partner-led. But in things like the distribution agreements, we obviously built our margins in ahead of time. So regardless of what the product ends up being in the market for, we have already made our money on that and made our revenue. So again, depending on the segment we are looking at or partner you are looking at, at times we have more control, like through a distribution agreement or through the growth factors that we are selling into, but it also depends on the market. So when negotiating with cultured meat companies, they are obviously much more price-sensitive than someone looking at using our transferrin for cell culture media applications in cell and gene therapy. So we have flexibility in terms of the markets that we are going into. We have greater flexibility with products that we control. But obviously, in certain cases, like with albumin, it is not as price-sensitive of a market right now. It will be increasingly so, as every market ends up being. But for the most part, they do tend to be market-driven. But the ones that we are able to control further are the ones that we have the greatest opportunity to improve our margins on. Mark A. Emalfarb: Yes. Well, John, think also that there is a big drive in all these industries and these applications for animal-free proteins. And as you can see from ProLiant and the data, as Joe talked about, they are comparing the natural albumin to the animal-free product that they are putting out, and the data is quite compelling. So, you know, the regulatory agencies and these industries like pharmaceuticals, even food and nutrition, there is a drive towards removing animal components both in the media and as the final product. So we are seeing a big push in that direction. And in some of the strains, as Joe talked about, we have very hyper-productivity and a lot of margin to play with. But we are not going to give up margin if we do not have to. In the snow-wash industry way back, we made something for $1, sold it for $8, obviously became more competitive as it did, we had the margin to reduce the price but still be competitive for the long term. So I think those are the things that you need to think about, and the market in general; animal-free proteins are exploding on a worldwide basis. John D. Vandermosten: Okay. Thank you, Joe. Thank you, Mark. Operator: Our next question comes from the line of Louis Titterton, a private investor. Please proceed. Louis Titterton: Hi guys, how are you? Good. How are you? Good. Good. This is probably an impossible question to answer, but in your planning, your financial planning, when do you think you might hit breakeven? Joseph P. Hazelton: That is always the million-dollar question. And you are right, it is not something I can answer definitively. The short answer is obviously we want to do it as quickly as possible. But we also have to be realistic and feasible in our approach. We do not want to make bad decisions that seem like maybe they can help us in the short term, but ultimately may not be in the best interest of the organization. And I will give an example of something like transferrin. Transferrin, we know it is an extremely valuable product. And while if we did something rather drastic sooner, we could bring in probably a nice chunk of money, it is not what is best for the company in the long term. The longer we continue to control these products, the better off we are going to be. But the goal, obviously, is to be as revenue-positive as quickly as possible. And I think the products that we have give us the ability to do that. We just need more of them. We need to get them commercialized and into the system. But as you look out into the future, I do not think it is going to be an extremely long time, but I cannot give you a definitive answer. Louis Titterton: No problem. Thank you very much. Appreciate it. Thank you. Operator: Our next question comes from the line of Tony Bowers with IntroAct. Please proceed. Tony Bowers: Hi, Joe. It is probably difficult to know at this point what a sustained higher energy environment might mean. I can see it could make cultured food much more attractive versus farm-raised. But do you feel any buzz about that when you were at recent conferences? And then the second question for Mark. On the biopharmaceutical programs. Great that you have so many people engaged now. If they get comfortable with the benchmarks, is the result that they just put this on the shelf and wait for a pandemic to hit? Or do you see opportunities to actually start making at least some seasonal vaccines? Joseph P. Hazelton: Sure. So it is actually interesting you say that, but there are actually a lot of different factors that are pushing this drive in the food space and not just energy. But obviously there is a larger push on the regulatory and the consistency aspect. I think that is probably the larger push, Tony, in that space. There has been greater variability in, just say, naturally produced products than there has been previously. And I do not know whether that is due to just differences in the process or if it is that they are trying to make too much too quickly. But the biggest topic that was at this conference was really the regulatory scrutiny around plant- and animal-derived products because the FDA, as well as other regulatory organizations, are looking into how you are extracting these resources from both animals and plants and the materials that go into it. So there is obviously an energy component to that, but there is also a regulatory component in terms of safety. And I think that is probably the bigger one that I see moving the food nutrition category. As well as the ability to have specialized nutrition. So, like you are seeing in the biopharmaceutical space, they talk about individualized medicine. That is now starting to be talked about in these alternative protein conferences as, can we make things obviously specifically geared towards elderly patients with diabetes or children with certain genetic ailments. It is very interesting. I think we are still miles away from seeing those on the market. But we definitely do see a shift towards these more efficiently scalable non-animal proteins for these uses. Mark A. Emalfarb: Well, I think if you think about it, alpha-lactalbumin and lactoferrin are made in such small amounts from milk. So even if you wanted to make it, it is not affordable. It is not accessible. And so somehow it has got to be made in an alternative manner if you want to have infant formula with the nutritional benefits or an adult health drink since we all age, right? So those are great opportunities where the margins—if we can produce these at the right levels at the right cost with DAPIBUS—the gates are just wide open for applications. Now it is going to take time from a regulatory perspective for some of those things, like an infant formula, to get put on the market. But as Joe pointed out, just like with ProLiant, so many partners we have, they have been in these industries for decades. They have the application knowledge, experience, the market access. So if we hit these things at the right yield and right cost with DAPIBUS, we are right in the game. On the biopharmaceutical side, it is not about just pandemic preparedness. People are now waking up and recognizing that, for example, the work we did with UVAX on the RSV and the pre-fusion, they have a better structure of the complexity of the antigen design. Same thing with Scripps with the other RSV, the hMPV, and the PIV3 potential trivalent. These things are huge needs out there in the world. And if we can just get the funding to move those forward, not just with Scripps and these institutes; there are people out there that we are talking to that potentially can fund some of these things. These are multibillion-dollar opportunities. So it is not just about pandemic. The pandemic gave us the opportunity to get into humans to show safety, efficacy, and tolerability in the vaccine space, or in the non-human primate space. So all these things, whether it is Gates, CEPI, they are opening the gates and the doorways to future products. It could be shingles, it could be HPV, there are all kinds of opportunities out there to drive these things forward. And those are all being funded independently. And the same technologies and those benefits not only apply to pharma; we will be able to use some of that for DAPIBUS to make even a better production strain for higher productivity and vice versa on both sides of the equation. Tony Bowers: That is great. Question for Ping on the recognition of grant revenue. Is it straight-line recognition or does it become a little bit more profitable at the end? Ping Wang Rawson: It is not a straight line, Tony. It is basically based on GAAP that we are recognizing the revenue as a percentage of the cost incurred for the entire project. So, basically, it is really a percentage of completion if you are into how it is calculated? Tony Bowers: Got it. Thank you. Operator: Our next question comes from the line of John D. Vandermosten with Zacks. Please proceed. John D. Vandermosten: So Joe, bigger picture, what is the utilization rate right now for manufacturing in the United States? And I know it was tight a few years back and then with tariffs and onshoring, and probably some new builds as well, has it changed materially? Joseph P. Hazelton: As far as capacity in the U.S. versus ex-U.S.? John D. Vandermosten: Correct. Yeah. Joseph P. Hazelton: I think you are right. I have not seen a drastic shift, but it is shifting. Not just the onshoring, but obviously the safety components and obviously tariffs and the political environment is driving some of that. But obviously not having to ship very expensive products worldwide is also attractive. And if you can make them here at home—I mean, ProLiant, obviously, is a great example, right? If they can manufacture here in the U.S. where they do their upstream rather than somewhere else, you obviously lower your risk in terms of bringing that product into the country. So I definitely have seen an uptick. There is definitely a lot of new things going in. We actually talked with a CDMO that is not even complete yet, but has a three-year wait in terms of manufacturing capacity. So I think the need is there. The question for me is going to be, can we ever hit true cost metrics to produce some of these GMP products here in the U.S. at the price point that these other countries will be? Like if you are producing it in the U.S., could you actually meet some of the cost metrics in Europe that you are going to need to hit? And that, I do not know. I do not know if it is going to change whether or not the whole reason that there is not a lot here today is just the cost. And I do not know if that is going to really change just because we have more capacity. Hopefully, it will drive the cost down, but I still do not know. Mark, do you have any thoughts on— Mark A. Emalfarb: Well, I think the efficiencies with a cell line that can pump out more product and yields can help drive the, let us say, difference between the costs because it is not labor intensive. And with AI and all these process optimizations, you could get to the point where really in the U.S. you could produce things at very near the same cost you can overseas because you are taking labor out. So to be honest with you, I think that we are heading in the right direction. Not only from a government regulatory perspective on pursuing onshoring the supply chain. And one of the things that we deal with all the time, for example, with BARDA recently, and there are a couple of conferences coming up, is the supply chain disruption. It was just not—you could see it with oil, right? Now it is constantly occurring and it is rearing its head. It is in the fertilizer, it is in the oil. It was in the pandemic. So people are realizing now that we have to have onshore capacity. Again, we are global. To be honest with you, we can pop our strain in India, could be China, it could be Europe, it could be in South Africa, could be in Bangladesh, it could be in America. But with AI and automation, that difference is going to just close the gap. So we will not have, per se, the gap that we have had in the last 20, 30 years with India and China; we are going to close that gap through innovation. That is why people are looking at faster-growing cell lines that can produce more for less, with cheaper media. John D. Vandermosten: Okay. Thank you. Operator: Thank you. There are no further questions at this time. I would like to pass the call over to Dyadic International, Inc.'s President and COO, Joseph P. Hazelton. Joseph P. Hazelton: Thank you. As we close, I want to take a step back and put our progress into context. Over the past year, we have made a definitive transition from a development-focused organization to one that is now executing on commercialization. We have restructured the business, secured manufacturing, expanded our partner network and, most importantly, began launching products and generating early revenue across multiple channels. While our reported financials today still reflect that transition phase, the underlying business has changed meaningfully. We now have commercial products in the market, manufacturing and distribution in place, a growing number of opportunities moving from sampling into qualification and toward repeat purchasing. Looking ahead, our focus is execution. We are focused on scaling product sales in life sciences, advancing partner-led programs in food and nutrition, expanding our bioindustrial footprint through Fermox, and continuing to leverage our platforms to create additional revenue opportunities. As these efforts progress, we expect to see increasing conversion and product sales, repeat orders, and a broader base of recurring revenue through 2026 and beyond. We believe the foundation is now in place, and our priority is to build on that foundation to deliver sustained revenue growth and long-term value creation. Thank you for your continued support and we look forward to updating you on our progress. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Operator: Good afternoon, ladies and gentlemen, and thank you for your patience; your conference will begin shortly. Once again, thank you for your patience; your conference will begin shortly. Good afternoon, and welcome to WidePoint Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Matthew, and I will be your operator for today's call. Joining us for today's presentation are WidePoint Corporation's President and CEO, Jin Kang, Chief Revenue Officer, Jason Holloway, and Chief Financial Officer, Robert George. Following their remarks, we will open the call for questions from WidePoint Corporation's publishing analysts and major investors. If your questions were not taken today and you would like additional information, please contact WidePoint Corporation's investor relations team at wyy@gateway-grp.com. Before we begin the call, I would like to provide WidePoint Corporation's Safe Harbor statement that includes cautions regarding forward-looking statements made during this call. The matters discussed in this conference call may include forward-looking statements regarding future events and future performance of WidePoint Corporation that involve risks and uncertainties that could cause results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Finally, I would like to remind everyone that this call will be made available for replay via a link in the Investor Relations section of the company's website at https://www.widepoint.com. Now I would like to turn the call over to WidePoint Corporation's President and CEO, Jin Kang. Sir, please proceed. Jin Kang: Thank you, operator, and good afternoon, everyone. Thank you for joining us today to review our financial and operational results for the fourth quarter and full year ended 12/31/2025. To begin, I would like to immediately address the topic that is top of mind for all stakeholders, provide some clarity, and reaffirm WidePoint Corporation's competitive positioning for the Department of Homeland Security CWMS 3.0. As many of you are aware, the timing of the CWMS 3.0 award has experienced continued delays that are out of our control. It is important to emphasize that these delays are entirely the result of broader federal government headwinds over the past several months, including government and DHS shutdowns, funding disruptions, and DHS leadership changes, and are not indicative of any change to WidePoint Corporation's competitive standing or prospect for our work. Competitive strengths we offer DHS continue to distinguish us from other competitors in the award process. Some of our competitive advantages include our FedRAMP authorized status, robust past performance, ITMS being the command center platform and system of record for DHS, small business classification, facility security clearance, alignment across a new statement of work, and the best value to government. Our confidence and positioning remains unchanged, and we firmly believe WidePoint Corporation is the most qualified partner for DHS. As discussed during last quarter's call, we received a six-month extension under the CWMS 2.0 contract, consisting of a two-month base period followed by four one-month option periods. This extension provides DHS flexibility to select the CWMS 3.0 award winner or issue an additional extension. When all current and pending task orders are considered, approximately $80 million in contract ceiling remains under the CWMS 2.0 contract. As such, we expect to see some form of an update from DHS by the middle of the second quarter, whether it be the CWMS 3.0 award announcement or another extension period under the CWMS 2.0 contract. We believe WidePoint Corporation is well positioned under either outcome. An extension would allow us to continue performing our work under this existing CWMS 2.0 contract with no material impact on our day-to-day operations. If an award decision is announced during the quarter, we continue to believe WidePoint Corporation is the best positioned to win the recompete. In the meantime, WidePoint Corporation will continue to operate business as usual. Rest assured, we will remain fully engaged and proactive in supporting DHS, and CWMS 3.0 will remain a top priority for our organization as we navigate these uncertain times. WidePoint Corporation's operation and business continuity remains resilient, as we successfully weathered the government shutdown in late 2025 and the current DHS shutdown. With the current DHS shutdown, we are still seeing activities ongoing for operations and administration at DHS. Invoices are still being processed, contracts and task orders are continuing to actively be modified, and we have not seen any material slowing of administrative activities. While we have no insight into how long this current shutdown will persist, WidePoint Corporation remains well equipped to adapt. Moving on to some Q4 highlights. We ended on a high note following some of the headwinds experienced during 2025. As outlined in our Q3 earnings call, the strategic steps taken to stabilize our cost structure while maintaining staff levels and continuing to invest back into the business position us to deliver stronger results during 2025. Q4 revenues were $42.3 million, adjusted EBITDA was approximately $460,000, and free cash flow was $335,000, representing the 34th consecutive quarter of positive adjusted EBITDA, ninth consecutive quarter of positive free cash flow, and growth on a sequential basis. Sequential growth is a trend we expect to continue, especially as we begin to recognize revenue under the SaaS carrier contract and begin to land our DaaS opportunities in the pipeline. Q4 presented a glimpse into our robust margin-accretive contract pipeline. Back in November, we were awarded a $40 million to $45 million SaaS contract to deploy our ITMS platform for a major mobile telecom carrier. We are progressing through the implementation process at this stage, and we continue to remain on track to begin recognizing the margin-accretive SaaS revenue under this contract starting in 2026. As we begin to scale the number of devices managed under this contract, we expect to see notable quarterly enhancements to our margin profile and growth across our bottom-line results. Additionally, last October, we announced a managed mobility contract with the U.S. Customs and Border Protection under the CWMS 2.0 contract. This award has a period of performance of one base year and one option period, extending through December 2026, with total task order ceiling exceeding $27.5 million. We are pleased to announce superior performance under this contract started in October, which has supported our Q4 results and will continue to do so for future quarters. We remain confident in CBP eventually extending the period of performance beyond the one-year base period. An important development over the past several months has been our initiative to transition select existing clients towards an as-a-service model. Jason will expand on the strategy behind this initiative, but we are pleased to share that we are currently working to migrate two IT MSP clients to our DaaS model, which we expect will enhance revenue visibility. While delay in contract award can be frustrating, they are typical in working with large enterprises that are prospective customers for WidePoint Corporation. However, we recognize that these processes can take time, often longer than expected, and we remain flexible and responsive as we work to meet our potential future customers' needs and requirements. We remain hopeful and cautiously optimistic about landing a number of opportunities in our pipeline throughout 2026. We are fully committed to working through any potential headwinds, whether timing-related delays or other external headwinds, and demonstrating to our shareholders the strength and depth of our pipeline. With that, I will now hand the call over to Jason, who will provide additional insight into our sales and marketing initiatives. Jason? Jason Holloway: Thanks, Jin, and good afternoon, everyone. Over the past several quarters, we continue to highlight the depth and quality of WidePoint Corporation's commercial and government pipeline. As we have discussed, the SaaS contract with one of the three major carriers awarded in Q4 served as a major accomplishment and shows the types of opportunities currently in our pipeline. Implementation under this agreement continues to progress. We recently completed a portion of the minimum viable product, or MVP, functionality testing and are currently awaiting additional datasets from the carrier to complete further functionality testing. Overall, progress remains very positive, and we expect material growth under this agreement over time. Device as a Service continues to present immense upside potential, and we believe will deliver a compelling ROI as these opportunities materialize. Q4 marked the official opening of our DaaS facility in Columbus, Ohio. Since then, we have begun supporting large mobile equipment configuration and accessory sales, depot maintenance for IT as a Service customers, and device recycling activities. We are pleased to have the infrastructure in place and ready to execute, and we are now awaiting final approvals from the prospective client to move forward and begin contract performance. As we have consistently emphasized, these discussions are with large commercial and government enterprises, including several Fortune 100 organizations. While timelines can be extended, we remain cautiously optimistic that a number of these opportunities will convert, which will allow us to finally demonstrate the scale and potential of our DaaS offering. Additionally, WidePoint Corporation's DaaS offering has the potential to play a role in the upcoming LA 2028 Olympic and Paralympic Games. We are actively in discussions with CDW regarding how WidePoint Corporation can support their efforts as a subcontractor for this large-scale event. As a longtime strategic partner, WidePoint Corporation recently supported CDW's activities at the Winter Olympics in Italy, and our solutions align seamlessly with their needs. We look forward to continuing to build on this longstanding partnership and supporting LA 2028 when called upon. We remain confident that our DaaS pipeline will materialize, especially given the value that our solutions provide. Mobile Anchor continues to grow with a number of clients. Specifically, HUD OIG is entering into its second year and expanding our WidePoint Corporation-derived credentials. We are also in a Mobile Anchor pilot with the DOJ to upgrade their derived credentials to WidePoint Corporation's capabilities. Phase one of the pilot is for 1,000 credentials with a goal of growing up to 130,000 credentials by 2027. Mobile Anchor is close to getting another pilot with Treasury, duplicating the same scope as the DOJ, with the potential for 120,000 derived credentials. We are progressing nicely with the FAA with the goal of getting to 90,000 credentials. Additionally, we are in early discussions with the Department of Energy, consisting of multiple national labs and technology centers. Stay tuned for additional updates. Lastly, as Jin mentioned, we have begun engaging select clients to begin shifting them towards an as-a-service delivery model. We are receiving very positive feedback from our current customer base that are wanting to make the switch. With WidePoint Corporation opening its DaaS logistics facility, this gives us several additional offerings that are once again being very well received by the current customer base. Stay tuned for additional information on future calls regarding this exciting extension. With that, I will now turn the call over to Bob to discuss our financial results. Bob? Robert George: Thanks, Jason, and thanks to everyone for joining us today. I am pleased to share the details of our financial results for the fourth quarter and the full year ended 12/31/2025. Total revenue for the quarter was $42.3 million, an increase of $4.6 million, or 12%, from the $37.7 million reported for the same period last year. Our full year revenue was $150.5 million, an increase of $8.0 million, or 6%, from the $142.6 million reported last year. I will now provide a further breakdown of our fourth quarter and full year revenue. Our carrier services revenue for the quarter was $26.8 million, an increase of $2.2 million compared to the same period last year. Carrier services revenue for the year was $91.9 million, an increase of $5.1 million compared to last year. The increase was primarily due to a new task order we received in the fourth quarter from Customs and Border Protection, or CBP, for 30,000 new lines of service. Our managed services fees for the quarter were $10.5 million, an increase of $1.1 million from the same period last year. This increase was also partially driven by the new CBP task order. For the year, our managed services fees were $39.1 million, an increase of $3.3 million from last year. The increase was primarily a result of implementing a new commercial contract for a U.S. government end customer late in 2024, compared with a full twelve months reflected in 2025, and the task order with CBP in 2025. Billable services fees for the quarter were $1.1 million, and for the year, $5.4 million, both relatively consistent with 2024. Reselling and other services in the fourth quarter was $3.9 million, a $1.2 million increase from last year. The increase reflects underlying growth partially offset in the prior year by nonrecurring adjustments. For the year, reselling and other services were $14.2 million, a decrease of $728,000 from the same period last year. The decrease was driven by a partial termination of a software resale contract by a customer. The company has since received a corresponding vendor credit for the refund issued to the government customer. Reselling and other services are transactional in nature, and the amount and timing of revenue may vary significantly from period to period. Gross profit for the fourth quarter was $5.8 million, or 14% of revenues, compared to $4.8 million, or 13% of revenues, in the same period in 2024. Gross profit for the year was $21.0 million, 14% of revenues, compared to $19.0 million, or 13% of revenues, in 2024. The higher gross margin as a percentage of revenues is related to increased gross margin experienced in our managed services. The more significant metric of gross profit percentage excluding carrier services was 38% in the fourth quarter compared to 36% in the same period last year. For the year, gross profit percentage excluding carrier services was 36% compared to 34% last year. Our gross profit percentage will vary from period to period based on our revenue mix. Sales and marketing expenses in the fourth quarter were $747,000, or 2% of revenue, compared to $560,000, or 1% of revenue, in the same period last year. Sales and marketing expenses for the year were $2.7 million, or 2% of revenue, compared to $2.3 million and 2% of revenues last year. We expect to see further dollar increases here as we continue to invest in sales and marketing efforts, though we expect sales and marketing to be lower as a percentage of revenues in the future. General and administrative expenses in the fourth quarter were $5.2 million, or 12% of revenues, compared to $4.3 million, or 11% of revenues, in the same period of 2024. General and administrative expenses for the year were $19.7 million, or 13% of revenue, compared to $17.6 million, or 12% of revenue, last year. The dollar increases primarily relate to increases in employee compensation and health insurance costs. We expect general and administrative expenses to increase as our business grows but to remain constant or lower as a percentage of revenue. In the fourth quarter, depreciation expense was $648,000 compared to $233,000 in the same period last year. This was driven by a catch-up adjustment identified through a routine asset review where we determined that certain items previously classified as construction in process should have been placed in service earlier, so we aligned depreciation timing accordingly. As a result, the fourth quarter is not indicative of our ongoing run rate and should not be annualized when modeling 2026 depreciation. Depreciation expense was $1.3 million for the year 2025, compared to $1.0 million last year. Adjusted EBITDA, a non-GAAP measure, for the fourth quarter was $460,000 compared to $631,000 for the same period last year. Adjusted EBITDA for the year was $1.1 million compared to $2.6 million last year. The decrease in adjusted EBITDA compared to last year is primarily a result of sales pipeline opportunities shifting to the right. While most of the significant items in the pipeline were ultimately realized, free cash flow for the quarter, which we define as adjusted EBITDA minus capital investments, was $335,000 compared to $593,000 in the same period last year. Free cash flow for the year was $814,000 compared to $2.5 million in the same period last year. Net loss for the quarter was $849,000, or a loss of $0.09 per share, compared to a net loss of $356,000 and a loss of $0.04 per share for the same period last year. Net loss for the year was $2.8 million, a loss of $0.28 per share, compared to a net loss of $1.9 million and a loss of $0.21 per share in the same period last year. Our annual adjusted EBITDA and free cash flow results were impacted primarily by 2025, during which we experienced headwinds as several SaaS and DaaS opportunities were pushed to the right. As Jin and Jason have discussed throughout the call, while we have encountered timing-related delays, these opportunities remain firmly present within our pipeline and have the potential to materially impact adjusted EBITDA, free cash flow, and ultimately position WidePoint Corporation to achieve positive EPS over time. In response to these delays, we took deliberate steps to stabilize our cost structure while maintaining staffing levels and continuing to invest in the business, which drove a meaningful improvement in both adjusted EBITDA and free cash flow during the second half of the year. For context, during the first six months of 2025, adjusted EBITDA and free cash flow totaled $276,000 and $155,000, respectively, as compared to adjusted EBITDA of $804,000 and free cash flow of $659,000 in the second half. Additionally, we are encouraged by the continued implementation progress under our carrier SaaS contract. While there will be a ramp-up period, our goal is to be fully scaled by 2026. As Jin mentioned, revenue recognition on this contract is expected to begin during 2026, where we expect to see positive impact toward our margin profile. Lastly, moving to the balance sheet. We ended the year with $9.8 million in unrestricted cash. We also have additional liquidity options available with our revolving line of credit facility providing us with $4.0 million in potential borrowing capacity, although we do not anticipate having to rely on this facility. In addition, WidePoint Corporation has plans to file a prospectus to establish an at-the-market offering program, or an ATM. This step is a strategic measure designed to enhance financial flexibility and to provide optionality as we continue to execute our growth initiatives. Importantly, we have no current plans to utilize an ATM program at prevailing market valuations, which we believe do not fully reflect the company's long-term prospects. Further, the establishment of an ATM should not be interpreted as an indication of near-term capital use. Any potential use of the program would be evaluated carefully and undertaken only in connection with clearly defined, value-accretive opportunities that support our long-term strategy and enhance shareholder value. This completes my financial summary. For a more detailed analysis of our financial results, please refer to our Form 10-K, which was filed prior to this call. With that, I will turn the call back over to Jin. Jin Kang: Thank you, Bob, and thank you, Jason. To close out the call, I would like to outline where we will continue to invest time and resources in, which we believe will serve as a key catalyst for future growth. Our near-term focus will continue to remain centered on CWMS 3.0. As DHS operations eventually resume, funding disputes are resolved, and ultimately, as the award is announced, we remain confident that WidePoint Corporation will be called upon for the third time. CWMS 3.0 carries a $3.0 billion contract ceiling over ten years. This offers the potential for significant revenue visibility over the next decade. In the interim, we will continue to support DHS under the CWMS 2.0 contract, including any additional extension periods that may be issued should the CWMS 3.0 award be delayed. Additionally, our ultimate goal is to further improve our margin profile. We believe our SaaS and DaaS pipeline will play a significant role supporting this objective, and through our new initiative to expand as-a-service delivery model within our existing client base, we are proactively driving future margin expansion. In the near term, continued progress on the implementation of our carrier SaaS contract will be critical. Our team remains optimistic about what 2026 may hold for us and will diligently work to showcase exactly what our pipeline holds for WidePoint Corporation. This concludes our prepared remarks. We will now open for questions. Operator, will you please open the call for questions? Operator: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press 1 on your phone. Your first question is coming from Barry Sine from Litchfield Hills Research. Your line is live. Barry Sine: Hello. Good evening, gentlemen. Jin Kang: Hi, Barry. Good to hear you. Go ahead. Likewise. Barry Sine: Couple questions, if you do not mind. But the first, I want to clarify what you have been talking about on the transition on the DaaS awards, and just clarify in, you know, straightforward language. What exactly are you doing? Looks like you have built a new warehouse in Columbus, Ohio. What were you doing previously for those customers? What are you doing in the future? The other question I have on that is the press releases; you have begun proactively engaging with existing clients, and I thought in the script you said that you have already begun the conversion process with two clients. So I am a little confused on a couple of points on that. Jin Kang: Sure. No problem. I will address those points here. In terms of what we are doing with DaaS, we have a lot of opportunities in our sales pipeline that are very close, but they have pushed to the right. We thought several of these we were going to capture in 2025, which is now pushing into 2026. One of the big ones that we talked about is the LA 2028 Olympics and the Paralympics. That is a large opportunity for us with our partner CDW. While we are waiting for these opportunities to close, we are in the process of converting some of our IT as a Service customers to a Device as a Service customer. And what that means is that we will be able to smooth out the revenue streams so that we can have better visibility into those streams as well as making them more predictable, also making them a little bit more profitable. So we are doing that. And the reason why we are able to do that is because we have invested in our logistics space, our DaaS space that we leased out in the beginning of last year, and we have now, you know, phase one, which is getting all of the construction done and all of the electricity and the computer systems in there, and moved our logistics department into that facility. And we finished that, and we had a ribbon-cutting ceremony at the end of last year. And now we are prepared to start doing all of the depot maintenance, all of the logistics services, software configuration, imaging, recycling; all of those things are now moved into that facility. And so we are converting some of our existing customers to the DaaS model to, one, get more predictability in revenue, as well as making them more profitable. Barry Sine: So just to drill down a little bit more, previously, when it was IT as a Service, it was purely software licensing, and so there was nothing physical involved. Now it will actually be physical devices provisioned out of your Columbus warehouse. Is that correct? Jin Kang: Sort of. So, the IT as a Service did include hardware, but a lot of the hardware was like a single purchase, very lumpy devices that we had actually purchased on behalf of our customers, and we implemented them, we managed them, and maintained those devices. But now what we are doing is that we have this depot maintenance capability and have all of the hardware, and so we are managing 360-degree support services for all of the hardware that we now will provide for our IT as a Service customer. Barry Sine: And is that lower margin or higher margin now that you are handling more devices? Jin Kang: It will be higher margin, slightly higher. And it will be more predictable because we are not doing tech refreshes on, you know, like, every 12 months or every 18 months. We will do these tech refreshes on behalf of our customer, and we will maintain those devices, and we will not have that lumpiness in our hardware sales. Barry Sine: Okay. My second question is around Spiral 4. You won a major, major contract. You were one of several carriers with the United States Navy. That was some time ago. We did not hear too much about that in today's earnings call. Could you give us an update where we are on Spiral 4? Jin Kang: Yes. We did win that major contract, the Spiral 4 contract. And since then, we actually captured eight contracts, eight new task orders underneath it. I believe the total contract value is $3,031,000,000 in top line. So we are in the performance on that, and we are in various stages of various task orders that we put proposals in. So we are bullish that we will capture more task orders in 2026. Barry Sine: And they are still coming in at a, you know, a somewhat regular basis? The task orders? Jin Kang: Yes. As an IDIQ contract, as old contracts expire, they will put it out for bid, request for quotes, and then we will put in our quotes against other winners. I think that there were six other winners, and so we will put our proposals in when those RFQs come out and, many times, hopefully, we will win more contracts than our competitors. Barry Sine: Okay. And shifting gears, my last question is more around the balance sheet. You seem to have a high-class problem, that you have got almost too much cash. You are almost at $10 million in cash on the books. On a per-share basis, that is pretty high. My, you know, you obviously you are not going to do a draw on the ATM, which is a very smart idea at the stock price. My guess would be uses of cash either acquisition; you have done acquisitions in the past, but you have been pretty cautious on pulling the trigger. Or buybacks. Am I, you know, it does not sound like this one. It sounds like capital expenditures are going to go down, so we can kind of rule that out. What should we think about the cash? How can we turn that asset on the balance sheet into value for shareholders? Jin Kang: Yes. So we do have a reasonable amount of cash, and we have been sort of slightly increasing our cash balance over the years. And, as you say, we did do an acquisition of ITA back in 2020 with cash that we generated from operations. As you know, the federal government has a tendency to shut down every now and then. And so what we have been able to do is to weather those shutdowns by having, you know, what I think Jamie Dimon may have said before, a fortress balance sheet, if you will. And so what we want to do is we want to make sure that we have enough working capital, and I think we do. We have not had to draw down on our line of credit in recent memory. But if there is a protracted shutdown of the federal government, or if there is a slowing of invoice payments as a result of that, we may need the cash. But you are right. We are not going to be using our capital like drunken sailors. We will be, excuse me, we will be judicious about our capital and how we spend it. In terms of, you mentioned ATM, we do not have any plans to go out and execute any of the sales under that plan because, exactly as you say, we have plenty of net working capital. And we put that out there as a good housekeeping item in case that we can be opportunistic. When certain catalytic events happen, we want to be prepared to be able to raise capital for purposes of acquisition or building a fortress balance sheet. Barry Sine: It sounds like you got an angry phone call from a drunk sailor with that comment. The last question is cash flow during a government shutdown. Do you still get paid? I know you are still providing the services, and they are extending you. But does cash flow in, or is that what you are getting at when you are saying you want a fortress balance sheet? Jin Kang: Yes. During government shutdowns, sometimes the nonessential personnel—and that usually equates to some administrative staff or people that are processing invoices—and sometimes there is a slowing of the invoice payment. Although we have not experienced that. You know, Bob, did you want to add anything to that? No. It is good. Robert George: Pretty much say what you said, Jin. I mean, we have not seen—I mean, we are monitoring cash daily, and we are seeing the same level of inflows there. You know, we are just being really careful because you never know if somebody ends up not going to work and not processing something. So it is a pretty long cycle, right, in terms of creating a bill and sending it. So it could have a downstream effect, so we are just being really careful. Jin Kang: Yes. We want to make sure we can weather any of these slowdowns from the government. Barry Sine: And just continuing on the cash balance, it seems to me in the past what you have said is that you are still expecting that there may be another large acquisition, so you want to keep your powder dry for that. And you have not been as aggressive on share buybacks. Is that posture still correct? Jin Kang: Yes. I mean, the first order of business is making sure that we have enough working capital. Two, we want to keep our powder dry in case there is an accretive acquisition that we need to act quickly upon. And I think being prepared for those headwinds in terms of various government shutdowns, we want to be prepared for that. We want to be resilient, and hopefully, we will be able to continue to add to that balance as we continue to operate here. As we close on some of these new opportunities, we should be able to put more cash onto our balance sheet. And we are looking around for potential acquisitions, but they are far and few in between. So, Bob, you want to add? Robert George: I would also add, you know, growth takes working capital. Right? So, I mean, we do not want to be hamstrung if, when some of these large DaaS opportunities come, there is not a huge amount of initial investment, but, you know, just the general working capital drain on growth. We want to make sure we are prepared to deal with that. Barry Sine: Okay. Thank you very much, gentlemen. Those are my questions. Jin Kang: Great. Thank you, Barry. Always a pleasure. Operator: Thank you. Your next question is coming from Casey Ryan from WestPark Capital. Your line is live. Casey Ryan: Good afternoon, gentlemen. Pretty good update for what felt like maybe a little bit of a treacherous quarter. Activity. So I just wanted—carrier services popped up quite a bit, and maybe there were some one-time items, Bob, that you were laying out. But I just wanted to ask about why it was a little bit bigger in the quarter, and it seems like a positive. But I just wanted to understand that number a little bit better to start off with. Robert George: Yes. A lot of the quarter was driven by CBP. And, you know, there is a command services component and a carrier services component. So, you know, that is—I do not know the exact number, but most of that sequential growth is CBP. Casey Ryan: Okay. Great. Jin Kang: Yes. Customs and Border Protection. Yep. Yep. Casey Ryan: Right. And just for those of us who are trying to be good civic students, where does CBP fall? I know it is part of DHS, I think, but is it part of ICE, or no, it is separate? Jin Kang: No. Customs and Border Protection is a separate component of DHS, and their mission is to handle various customs-related issues versus immigration issues. Casey Ryan: Got it. Okay. Thank you. I also, just going through the 10-K as we are looking, commercial revenues looked strong in the quarter, and, you know, it did grow 6% year over year in total. That is an exciting metric, and I think, obviously, it is sort of—that is the category where we see these higher-margin contracts flowing going forward, I think. Is that the right way to think about that line item, sort of commercial? Jin Kang: Yes and no. I mean, our efforts have been continuing to increase our revenues on the commercial side, but at the same time, we are also looking at growing the revenues on the federal government side. So as we said in the past, we have now paid for our fixed costs. So any new customers that we add on as we go forward are going to be that much more profitable. Like the carrier contract that we signed with one of the big three, that will be all commercial revenue, and it will be fairly high margin as well. We are also adjusting some of our rates on our federal government customers as well to adjust for the various inflationary things that happened over the last four or five years. And so as we add on new customers, we will be that much more profitable. Our gross margins—our goal has always been, for non-carrier services revenue, to get to near 50% in gross margins. And so it was good to see that our gross margin went from, you know, 33 and change to, like, 38%, I believe, in Q4. So we are continuing to make progress towards that. Casey Ryan: Yeah. Well, no. And that is kind of, I guess, what I am really focusing in on. It is really tremendous progress. So if we track this commercial revenue line, do you feel like 2026—not to put guidance out there—but it feels like if some of these things break your way, it could be a pretty strong growth year for that revenue line, commercial revenue specifically? Jin Kang: Yes. And Bob just reminded me that the commercial line is one of these large integrators that we are doing our identity management for. And so we should see more of that as Jason mentioned about the Mobile Anchor opportunities. And those things will be—some of them will be—commercial. Of course, all of the carrier contracts that we have are going to be commercial. So we should see continued increase in our commercial revenues. And, of course, we have got the CWMS 3.0 that, again, if that happens this year—hopefully, it will happen in the next couple, three weeks—hopefully, the DHS will be back, they will be fully funded, and, you know, the award announcement made. And if that happens as well as some of these DaaS opportunities, it will be a great 2026. Casey Ryan: Yeah. Well, I mean, certainly, just playing with Excel, we can get ourselves in trouble, but we can see that the margin contributions will be very positive. Right? Jin Kang: Right. Casey Ryan: So just to be quick, if the government shutdown ends—I know in the past you guys have tended to put out annual revenue guidance and sort of backed away from that just given the uncertainty around this—but if it all settles down, then we get back to a more normalized period. Do you think it would be your preference to kind of reinstate that at some point, say, Q1 or Q2, to sort of offer out sort of a full-year annual guidance number? Jin Kang: Yes. That is a great question. And our normal process had been to provide guidance in our Q1 call, usually May, middle of May. We are planning to do so, and we are hopeful that by May, Congress would have acted and would have approved the DHS full funding for DHS. And then the CWMS 3.0 award announcement will be made, and we will be able to provide a pretty accurate guidance. But, in absence of that, we may have to delay full-year guidance until, you know, perhaps after Q1. And so, but we are hopeful to provide guidance, as I said, in our Q1 call. Casey Ryan: Okay. Okay. Great. And then, sorry for the long list of questions. I just wanted to ask actually about a press release you guys put out—I think it is dated February 18. It was for a bottler, but it was for managed services, sort of enterprise hardware and software contract. I just wanted to ask about that and see. Is that sort of for mobile devices only, or is that sort of broader and more inclusive? Because I thought it was a real exciting commercial type win. Jason Holloway: Hey, Casey. No. It is not for mobile devices. That is under our IT MSP, or as-a-service group. So it is a mix of a number of things. And as we said in our prepared remarks, we are going back, and we are actually trying to get some of these folks to make the switch over to the Device as a Service. So we are very excited about that opportunity, and we have a lot of momentum in that area. But, yeah, so just stay tuned because that particular account is scheduled to grow in the second half of 2026. So we are cautiously optimistic that it is moving in the positive direction. Casey Ryan: Okay. Terrific. And, sort of the contract award in this segment, is that kind of a one-year, or is it a type? Just so we understand what the duration is like. A lot of your government contracts, right, are sort of much longer in duration, but maybe on the commercial side, it is just one year, or maybe it is three years. I do not know. Jason Holloway: No. This particular contract is a one-year, but our typical commercial contracts are anywhere between three or five years. But this particular one is a one-year, and, like I said, we hope to grow this in the second half. And if we do, then that will turn into a multiyear award. Casey Ryan: Yeah. Well, it is just a great proof point over on the commercial side for what you guys are able to do. So I just thought it was worth digging into a little bit. It seems very positive. Jin Kang: Yes. We are making—that is one of our priorities—to continue to grow our commercial side, so that as we diversify our revenue sources from commercial and government, when there is a shutdown or some other things that happen on the federal side, we can weather those things a little bit better. And so we made a conscious effort to continue to push to grow the commercial side as well as grow on the government side. Casey Ryan: Yeah. Well, thank you for taking my questions. I think with all the headwinds, it is a really super quarter. I mean, the outlook looks very positive for 2026. So thank you. Jin Kang: Great. Thank you, Casey. Operator: Thank you. At this time, this concludes our question and answer session. If your question was not taken, please contact WidePoint Corporation's IR team at wyy@gateway-grp.com. I would now like to turn the call back over to Mr. Jin Kang for his closing remarks. Jin Kang: Thank you, operator. We appreciate everyone taking the time to join us today. As the operator mentioned, if there were any questions that we did not address today, please contact our IR team. You can find their full contact information at the bottom of today's earnings release. Thank you again, and have a great evening. Operator: Thank you for joining us today for WidePoint Corporation's Fourth Quarter and Full Year 2025 Conference Call. You may now disconnect.
Operator: Good day, and welcome to the Navan, Inc. Q4 fiscal 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Ryan Burkart, Vice President of Investor Relations. Please go ahead. Ryan Burkart: Thank you, operator. Good afternoon, everyone, and welcome to Navan, Inc.'s fourth quarter fiscal 2026 earnings conference call. With me on the call today are Ariel Cohen, our Chief Executive Officer and Co-Founder; Aurelien Nulf, our Chief Financial Officer; and Michael Sindosich, our President. Before we begin, during the course of today's call, we may make forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks and uncertainties described in our earnings press release, our quarterly report on Form 10-Q filed with the SEC on 12/15/2025, and our other filings with the SEC. In addition, on today's call, we will refer to non-GAAP income and loss from operations, non-GAAP operating margin, non-GAAP gross margin, and free cash flow, which are non-GAAP financial measures that provide useful information for investors. Reconciliations of these non-GAAP financial measures to their corresponding GAAP financial measures, to the extent reasonably available, can be found in our earnings press release. With that, it is my pleasure to turn the call over to Navan, Inc.'s CEO and Co-Founder, Ariel Cohen. Ariel Cohen: Hi, thanks everyone for joining. I hope that you had the time to read our prepared remarks. And I have one thing to say, we are doing it. We just closed a very good Q4 and a year with incredible results. Our NPS in Q4 is at 47. This is an all-time high. Our CSAT is at 96 and maintained very high, and this is a proof point for meeting our mission: to make travel easy for every traveler by being the best travel agency on the planet. The 35% Q4 year-over-year revenue growth and the non-GAAP operating profit in the quarter are demonstrating the leadership position that we are at. We are executing very well on both our motion and our PLG motion. So if you think about it, in Q4, we signed net new GBV that is over 50% more compared to Q4 in the previous year. This is a huge growth rate. We are displacing legacy players because we offer great user experience, real savings, and proven AI value to date. This also brings us very close to the rule of 40 for the first time in our history. And the icing on the cake, we actually turned free cash flow positive for the first time in our history, and a year ahead of our plan. Now I want to take a step back and talk about AI because as an AI leader in the travel space, I am getting a lot of questions. What does it mean for travel, for the space? So I want to really take the moment and explain. So first of all, we, Navan, Inc., are a travel agency. It means that we care about every step of the travel experience, from the moment that you are planning your trip, while you are on the go and something happens, until you return home and you need to expense the trip. We care about travel for travelers, for the executive assistant that needs to support you, for the business travel managers that are managing the entire travel program in an organization, for CFOs, for accountants, for everybody that is involved in travel. Travel is a huge part of the OpEx, and it means that a lot of people will care about it. And Navan, Inc. is the best solution for you. So that is the first thing. Second, we have created in the last ten and a half years the best real-time travel infrastructure on the planet. We call it Navan Cloud, and it is our connectivity to everything in the travel world through software. It requires global licenses, suppliers' contracts, and massive financing for the payments business. And then the most important part is our agent orchestration platform. When you interact with us, we seamlessly orchestrate an AI agent that can book your trip, change your trip, get your money back, give you any information about your trip with human agents. In fact, we basically married human intelligence and judgment with artificial intelligence to create the best experience for our customer. The proof points are in our high NPS and CSAT, ongoing gross margin expansion, and the acceleration of gaining market share. The reason and the most exciting release of Navan Edge, our latest breakthrough in agentic AI, is bringing the power of a hyper-personalized executive-level travel assistant to the unmanaged travel market, which we estimate at $57,000,000,000 of TAM. The bottom line here is only we are a leader in the AI travel space, and it is very clear that we and our customers are a huge beneficiary of AI. We also recently announced the migration of the Reed & Mackay customers to our AI platform, so they will be able to enjoy the benefits of both worlds: their really amazing high-end VIP service that can step in when you are stuck in an airport, with everything that our AI platform is creating. For FY 2027, we are going to focus on high growth, scaling in all channels, and with all of our offerings, accelerating our innovation, which means that we will continue to invest in AI and to release new products and capabilities using our AI platform, and we will continue to demonstrate financial discipline. And with that, before I turn over the call to Aurelien, who will talk about our results, I am actually very excited to have Aurelien as part of the team. I have been working with Aurelien in the last three weeks, and it was just amazing. And I am actually happy that he has the opportunity to talk with you on this historic quarter for us. So thank you. Aurelien Nulf: Awesome. Thank you. Thank you so much. Ariel, it is such a great privilege for me to join Navan, Inc., the Navan, Inc. team. Such a great moment. Such a great momentum in the business. As you know, I saw the power of our platform firsthand when I was a customer myself. And I know it is not just a layer on top of an old tech. It is clearly a clean-sheet redesign that addresses a huge market of $185,000,000,000. Looking at the numbers, Q4 revenue was $178,000,000, up 35% year over year, while our GBV reached $2,300,000,000, up 42% year over year, a growth acceleration driven by an incredible go-to-market momentum and faster than expected enterprise onboarding and ramps. Addressing the GAAP figures, this was mainly driven by a strategic one-time move. You will notice our GAAP operating margin was negative 50% in Q4. We decided to retire the Reed & Mackay brand for new sales, resulting in a $36,200,000 non-cash amortization charge. As Ariel just mentioned, this is a very intentional move that will ultimately deliver the power of the Navan, Inc. platform to the Reed & Mackay customers. Our non-GAAP operating margin was breakeven, a remarkable 1,100 basis points improvement over last year. We are driving leverage across the board, with our non-GAAP operating expenses being down as a percentage of revenue, even as we invest in more product innovation and our incredible go-to-market strategy. We ended the year with a very strong balance sheet: $741,000,000 in cash and short-term investments against just $125,000,000 in debt, mainly related to our expense business. We expect this great momentum to continue in fiscal 2027. And from a guidance perspective for the full year 2027, we expect revenue between $866,000,000 and $874,000,000, or 24% growth at the midpoint, and a non-GAAP operating profit between $58,000,000 and $62,000,000, a 7% margin at the midpoint. For Q1 fiscal 2027 specifically, we expect revenue between $204,000,000 and $206,000,000, which represents 30% growth as we head into a seasonally strong spring, with non-GAAP operating profit expected to be in the range of $4,500,000 to $5,500,000. Navan, Inc. is proving that we can grow fast when we are becoming a disciplined and engine, have an incredible mission, the right product, and the right team to execute. And with that, we will open it up for questions. Operator: Thank you. As a reminder, to ask a question, please press. To withdraw your question, please press 11 again. Due to time restraints, we ask that you please limit yourself to one question and one follow-up. And our first question will come from the line of Steven Enders with Citi. Your line is open. Steven Enders: Okay, great. Thanks for taking the questions here. I guess just to start, I want to get a better understanding for the bookings momentum that you are seeing in the business. I think you called out 50% growth in bookings there. Just how do you view the sustainability of that growth and what you are seeing in the sales pipeline? And I guess as we think about that 50% number, I mean, I guess, it kind of implies an acceleration versus the 42% GBV growth we saw this quarter. So just how should we think about the potential for overall GBV growth to excel further from here? Aurelien Nulf: Great. Hi, Steve. I am going to tag in with Michael on this one, but I am going to start with highlighting the 42% GBV growth we saw in the fourth quarter, right? So incredible momentum. And Michael is going to speak to why we are seeing this momentum with our customers so far. But, clearly, this acceleration of our booking growth is very, very exciting. What I just want to really clarify here is the 50% I mentioned is the new signed GBV. So the new signed GBV is something we are looking at internally. It is a data point we are looking at internally; it is the total annual travel spend that we exchange from new customers that we just signed during the quarter. So it is what we know is going to fuel our revenue going forward, and we are seeing great momentum there. So we believe we are going to keep seeing very strong booking growth going forward. Michael Sindosich: Yeah, and maybe I will give a little bit of color on what we are seeing. First of all, I do not know how many people on the call here have been in sales before. But what I can say is it feels so damn good to be able to walk into any room at any size of customer around the globe and believe in our bones that we can support their travelers better than anyone else on the planet. And so we take that energy into these customers, and we really explain what we deliver. And when we think about what matters to our buyers, first of all, we deliver 15% median savings off of your current travel budget compared to whatever you are currently using. That is huge. Travel budgets are big, and at a time now, people are really focused on being able to save money. Next, if we can tell you that through AI and through our products, we can book in seven minutes or less on average, compared to forty-five minutes. Think about how many travelers are booking day in, day out. They are really employees that need to go win customers or drive the business forward. And we are saving a ton of time. More than 70% of our expenses are automated. We just launched the Expense AI agent where you can just drop in your receipt and it will automatically code your expenses. And then, you know, we have a saying internally: when it rains, Navan, Inc. shines. We just had massive storms. There are wars going on. And your employees or customers' employees are typically waiting on hold or sending emails to get a hold of their travel agent, when 50% of our support is completely automated with Ava. And then you can also call in 24/7/365 in a bunch of different languages. Ultimately, it is a really high NPS. It is really high feedback. Showing really new AI capabilities that are actually launched and deployed that travelers are using every single day. And then everyone loves the system, so they use it. You can actually manage from a duty-of-care perspective. And when things are crazy, the thing that you need is visibility on where your employees are and then people who can support them. So I think that is kind of why we win. And then we see a lot of tailwinds in the industry. We eliminate frankly cobbled-together solutions, legacy booking tools, legacy TMCs. We have our customers that are happy talking in back rooms and really sharing why they are buying Navan, Inc. because people would rather listen to their friends; they do not want to listen to our sales team, so that is a big tailwind for us. And then lastly, there is a lot of consolidation in the space. We have seen that consistently over the last couple of years. And so there is a lot of turmoil, while we are steady. We are growing fast. We have happy customers. And all those things ultimately result in our RFP volumes increasing hundreds of percent, which we saw and told you earlier. So I think that is the confidence that we use when we walk into a new sale. Steven Enders: Okay. That is great to hear. I guess just to follow up, you mentioned some of the uncertainty out there, conflict, war out there. Just maybe what impact has that had on what you are seeing from bookings activity or from the impact that is having on the business? And I guess on the other side of that, just how are you incorporating that ongoing conflict into the outlook here? Aurelien Nulf: Yeah. It is a great question. So far, we have seen very minimal impact. We have a very, very low volume exposed to the Middle East. In fact, low single-digit volume exposed to the Middle East. So we are not seeing any significant impact at this point. It is very hard for me to sit here today and say that I can predict everything that is going to happen in the world. But what I can tell you is during our Q4, we saw actually a lot of disruption to travel. When you think about the winter storms on the East Coast, we had this war in the Middle East, TSA also has been disrupted recently. And that is exactly what Michael just mentioned. That is when our platform really stands out as being the right tool for people to use. But what I would say from a guidance perspective, our forecast today assumes what is a typical amount of disruption we are expecting to see in the world. Nothing more, nothing less. Disruption is part of the business. That is something we know and manage very, very well. Yeah, that is the color I can provide. Steven Enders: Okay. Perfect. Appreciate you taking the questions. Steven Enders: You bet. Thank you. Operator: One moment for our next question. That will come from the line of Samad Samana with Jefferies. Your line is open. Samad Samana: Hi, good evening. Thanks for taking my questions. Great to see the strong close to the fiscal year and the strong outlook for fiscal 2027. Just a couple of things. Maybe first, on the Reed & Mackay transition, can you help us maybe think through what the benefit of that will be going forward beyond the branding component? Should we expect maybe better unit economics there? Should we think about that it makes it easier to sell so that you are not describing it separately? Just help us think about both the financial impact and then the selling impact there. And then I have one follow-up question. Ariel Cohen: Yeah. Hi, Samad. So first of all, we actually always, always, always in Navan, Inc. work it back from our customer. So the main reason for accelerating the integration of Reed & Mackay into the Navan, Inc. platform is that that is what our customers want. We have endless discussions with customers that are telling us on one side, I do want to have the ability to sometimes talk with an agent and a really, really, really good travel agent, especially if I am stuck, especially if it is an extremely complex trip. Sometimes I just want to offload the entire thinking to somebody else. I am actually willing to pay for it. So that is on one side. On the other side, I see a lot of things in your platform that I cannot get with a travel agent. For example, the level of access to content that we have: different types of airlines, low-cost carriers that even VIPs want to use when they are in Europe, the ability to change stuff instantly, to book stuff immediately. These are things that we are hearing from our VIP customers, the C-level, the executive assistants that they want to see. So basically, bringing a solution that marries the two together, we see it as a huge upside. We see it as an upside for the sales organization, for our sales organization to upsell Reed & Mackay for all of our 12,000 customers. So definitely an upside. And there is another upside here: the economics of our AI platform—gross margin, unit economics—are completely different than the economics of the Reed & Mackay platform. The Reed & Mackay platform, think about it as very, very similar to any kind of travel management company that you are familiar with, while in the Navan, Inc. platform, it is really an AI-driven platform. So there are mainly two benefits here. On the top line, we will see more people using our VIP offering. And then from a unit economics perspective, it is definitely a higher gross margin business. Aurelien Nulf: And maybe some financial color that I can add here. You can see in the prepared remarks that we just published that the Reed & Mackay business is roughly 20% of our total revenue for FY 2026, and they had a growth rate that was significantly lower than the core Navan, Inc. platform. In fact, the core Navan, Inc. platform grew in the high forties from a GBV perspective and just above 40% from a revenue perspective. So there is clearly a very, very different dynamic there. And what I would say, to wrap on this topic, is the net revenue retention rate for Navan, Inc. overall in 2026 was 107%. So it was slightly lower than 110% we have seen in the past, and it was fully driven by the Reed & Mackay dynamics, because the core Navan, Inc. platform’s net revenue retention was 110%, very stable there, and if you add the ramp of our new customers, it was even above 120%. So we are seeing very strong retention in our core business, but it was a little bit offset by this dynamic within the Reed & Mackay business. It is the reason why we are very excited about migrating those customers to the Navan, Inc. platform. Samad Samana: Really helpful. And then maybe just as a follow-up, if I unpack the fiscal 2027 guidance, very good growth. Just can you help us get some context around how you are thinking about GBV growth versus usage yield, especially given the context of the usage yield in the fourth quarter was much better than investors were expecting? Thanks again for taking my questions. Aurelien Nulf: Yeah. Absolutely. So we guided to 24% revenue growth. We are seeing a lot of acceleration in the business right now, and the platform is growing very, very nicely with a great momentum Michael just described with our customers. But it is very, very early days in the year, and so we have a prudent approach to our guidance with those 24%. I am expecting bookings to grow slightly faster than revenue. So that means we may see a 30-basis-point year-over-year change in 2027 versus what we saw in 2026. And that will be mainly driven by the Reed & Mackay dynamic that we just described, but also a mix across the different channels and across the different customers. We now have a very diversified base of customers and they all have different characteristics. The enterprise business has a slightly lower yield than a smaller company for many different reasons we discussed. But we have a lot of opportunities to also optimize this yield percentage with our payment business, with meetings and events. And so, I am very excited to see the momentum from a bookings perspective and this great guidance we are able to share on the revenue side as well. Operator: Thank you. One moment for our next question. And that will come from the line of Gabriela Borges with Goldman Sachs. Your line is open. Noah: Hi, this is Noah on for Gabriela. Thanks for taking the question. Given the expense control, cash expense control that you guys have managed to show, we were wondering if that impacts at all your strategy for payments. You noted in the prepared remarks that financing that you have for that side of the business, that is a moat that you have versus some of the nascent companies. So we were just wondering are you more willing to move into that space in terms of the terms you offer and things like that? Thank you. Aurelien Nulf: Yeah. We are growing the payments business. In fact, we were up 19% year over year in Q4. So there is meaningful growth here. What I would add to that is that coming out of our IPO, we have a very, very clean balance sheet. We have a very strong balance sheet with $741,000,000 of cash, cash equivalents, and short-term investments, and small debt, and that is going to help us over time grow this business as we are upselling customers. This is a huge opportunity for us, and frankly, I think we are only scratching the surface of what we can do with this business. So you should expect us to keep being very aggressive from the SaaS perspective there, and really lead to more upsells in the marketplace. Noah: Great. Thanks. Thank you. Operator: One moment for our next question. And that will come from the line of Sitikantha Panigrahi with Mizuho. Your line is open. Sitikantha Panigrahi: Great. Thanks for taking my question. I want to go back to the fiscal 2027 guidance to understand the factors you have embedded into it. We see a lot of different factors. You know, airlines, mainly Delta, talked about strong corporate travel momentum for this year, and then we see some kind of offset with the war. And also, internally, you are seeing a lot of strong momentum. I am just wondering what are the puts and takes you have embedded into your guidance? Aurelien Nulf: Yeah. That is a great question. As we have said, we are seeing great momentum in the business. Again, 42% GBV growth in Q4, very strong momentum. We have not seen any impact from any geopolitical tensions right now in our business. In fact, we believe historically, business travel has been pretty resilient. It is a category where you see people traveling; they need social interactions with their customers, with their coworkers. So people are really craving those in-person interactions, and so we keep seeing corporate business travel to be a very strong category. In fact, the GBTA index right now is showing growth in mid- to high-single digits year over year, way faster than the TSA checks, which are more in the low single-digit range of growth. So we think corporate travel will be very strong. But on top of that, we are getting share. Our bookings are growing fast; they are accelerating. And so no matter what happens in the industry, we are getting share. And so we are seeing a lot of momentum—more customers joining our platform, onboarding faster than ever. And so we believe that the combination of a very strong industry, very strong dynamics, and the momentum we have in our business right now is going to help us grow the business very significantly in 2027. Ariel Cohen: I want to add something to this. You should think about the two storms that we had in January, which really created huge interruptions in the eastern part of the U.S. Business travelers obviously cannot travel when the airport is closed. There is no question about that. But they will travel the week after. And if you support them well during the storm and really help them to reschedule the trip, this trip is going to happen. This is why you actually do not see any impact on our business when these things are happening. This is how much business travel is way more stable than any other type of travel. And to add to what Aurelien was talking about, the SLG channel, we just gave you a number of 50% growth year over year in one quarter. This feeds our system for the next years to come. So that is one thing. PLG—this is people coming to us from Instagram, from TikTok, and starting to be a customer—is going extremely fast. And we have just released a very important release that is based on our agentic platform, which is Navan Edge, which we have huge expectations for. And although it is early, we see really good signs there. So we are actually very, very confident about our forecast. And we are very aware of the various interruptions that are out there. Aurelien Nulf: And we are prudent, right? As I said, it is very early days. We know we just grew our revenue in Q4 by more than 30%. We guided to a 30% growth in Q1, 24% for the year. But we are prudent; very early days. Sitikantha Panigrahi: Yeah. That is great. And I was going to ask this Navan Edge question. And specifically on the demand side that you are seeing right now, are you seeing travelers from your unmanaged market that are signing up now independently, or is this primarily from your existing Navan, Inc. corporate customers, where they are extending that usage to their employees for unmanaged travel? What kind of trends are you seeing on the Navan Edge side? Ariel Cohen: Yeah. It is actually an amazing question. So first of all, Navan Edge targets non-Navan, Inc. users and customers. So that is the targeting there, and everybody that is using the platform right now are non-Navan, Inc. customers and users. So that is basically a completely new market for us. And we are only targeting that market, and we see better signs than what we thought we were going to see. But again, very early days, but very, very, very promising. So that is one side. On the other side, because we are running on an agentic platform—and what does it mean, agentic platform? You have capabilities. This is our connect to everything that happens. And then all of the knowledge. Some of the knowledge is in our actual code. Some of our knowledge is in a travel agent’s head, and the ability to capture these skills and marry them together with capabilities and deliver it as an agent. We are an agentic platform. That is what we have been building here in the last three years. So once you see an agent—an AI agent—that is doing something extremely well in the Navan Edge platform, let us take booking a restaurant for you, we are actually taking this agent and providing it in the main Navan, Inc. platform. So our customers are actually benefiting from the development of agents in the Navan Edge and in the Navan main platform. So both are benefiting from it. The platforms are feeding each other with different AI agents, and different human agents, by the way, in both platforms. But the target from a go-to-market perspective and the users on the Navan Edge platform are only non-Navan, Inc. customers from the unmanaged segments. Operator: Thank you. One moment for our next question. And that will come from the line of Scott Berg with Needham. Your line is open. Scott Berg: Hi, everyone. Really nice quarter here. I guess, two questions for me. I guess in the shareholder letter that was written there, the prescripted remarks, you talked about adding restaurant bookings to the platform. That is obviously new to the Navan, Inc. platform. How should we think about the economics, maybe the inventory that is available there? And any implications in terms of your guidance from that new offering this year? Ariel Cohen: Yeah. So the way that we are thinking about Navan, Inc., and think about it also where everything is going. People really care about meeting face to face, about being there. But they also care about their experiences. So it is no longer just a transaction: I need to book a trip. When I am planning the trip, I want to feel that you know who I am, you know how I am thinking about this trip, what kind of hotel I want to be at, the type of airline that I like, who I am loyal to. My loyalty is a really, really big component in travel. But then I am arriving, and I am taking my Lyft, my Uber, my black car, and I am getting to the hotel. And now it is night, and I can have a business dinner. I can meet with a coworker. We see this as part of the trip. In fact, in Navan, Inc., we see every aspect of being there as part of the entire journey. Part of this is obvious: you book stuff. Part of this, we really care to match what you want and what you need with our platform, and then how you pay for it. So this is the payment business. This is the expense management business, and so on. So basically from every direction. So getting into restaurants was a very obvious move for us, and this is actually when AI is important. We can build an endless amount of things. Travel is endless. You can think about it as Amazon. Ariel Cohen: It is just endless. You can sell flights, you can sell cars, you can sell hotels, but there are red flags, so experiences while you are on the go—it just ends it. And because AI is so powerful, we are actually accelerating our roadmap across the board. So you are going to see us releasing more and more offerings—basically AI agents—to our customers across the board; restaurants is one of them. Aurelien Nulf: And I would add, since you asked about the economics, Navan Edge is not a significant contributor to our 24% year-over-year revenue guidance. It is early days. It is a new category that we want to redefine here. We have a completely new product. We are very, very excited. We are ahead of our expectations from an acquisition perspective and a conversion perspective, but it is still early days. Although it is the biggest part of our addressable market—$56,000,000,000 is the size of the addressable market, what we call the unmanaged market—so very, very exciting. Scott Berg: Understood. Thank you. Very helpful. And then from a follow-up perspective, the new premium offering that is going to replace Reed & Mackay there, what is different about that, whether it is experience or maybe some of the products offered there? Help us understand if there are really any differences or if it is going to be something similar. Ariel Cohen: Yeah. We first of all call it now Navan Pro. So that is part of the change of the brand, and it is part of the Navan, Inc. platform. And it is really, as I talked about at the beginning, this focus on orchestration of when we deploy AI—when we are actually having a really good, highly personalized discussion with you with an AI agent—and when we are deploying a real agent. And all of us, I am sure, have experienced them both in their life. And you have this thing that there is a point that you are starting to yell at the voice representative. And that is not the experience that we have created here. The experience here is so amazing. It is so seamless. The seats are there, the satisfaction is almost the same as a human being, and in a lot of cases, people will prefer it because it is faster and never makes mistakes. So this is an AI platform and the benefit from that. But when you marry it with really the best, most experienced VIP agents that you can think of, and you marry the two together, you are getting a really, really good experience when you plan your trip, when you are at the airport, when you are coming back, and that is really what we are doing here. I have mentioned AI earlier. I can do today way more things with our engineering department, with our product department, with our designers. And that is why you will see us accelerating delivery of stuff to our customers in the years to come. That is what you are going to see from Navan, Inc. Operator: Thank you. One moment for our next question. And that will come from the line of Jed Kelly with Oppenheimer. Your line is open. Jed Kelly: When we listen to the airlines on recent conferences and everything, they are really leading with how corporate travel is leading the results and driving a lot of their growth. Is there something they are doing with direct investment with NDC and leaning into corporate travel and then that is benefiting? And can you just explain how you are benefiting from some of the growth we are seeing with the benefit of corporate travel for the airlines? Ariel Cohen: Yeah. 100%. First of all, Navan, Inc. is the leader in that, which means that we connect to airlines, sometimes, actually a lot of the cases, directly through the NDC protocol. We are also using GDSs. We will sometimes connect to airlines with GDSs. As I said earlier, we took the decision eleven years ago to connect to everything, and it is about trust. It is about the trust with our travelers, with our customers, to tell them that 100%, if it is out there, you are going to see it in the platform. What NDC gives you is the ability to merchandise, to take it farther, to buy stuff together. I do not know how many of you have stepped in an airplane and suddenly you do not have the Wi-Fi, and you need to kind of in a very slow way buy Wi-Fi for the flight. So that is an example of something that you can attach if you are going through NDC. You can attach it at the time that you are buying the ticket, when you are selecting the seat, and so on. And it is just one example of merchandising, of assuring the right price at that moment, the right class, etcetera. So the experience that NDC is giving to our customers is extremely good. It is part of what I was talking about earlier, Navan Cloud. And when you are marrying that ability to connect to the airline directly with the knowledge of what to book for you—that is basically the skills of the agent—you are creating a really, really good experience for the traveler, but also for the company, because you are assuring the right price. Therefore, you are making sure that nobody is overspending on the travel expense. Jed Kelly: Great. That is helpful. And then just as a follow-up, we recently saw OpenAI pull back from within their app, and Walmart cited that they were not seeing great results. Are there any parallels to what we saw with OpenAI and just the complexity of all the underlying travel technology and just how hard it is to complete travel transactions, even if you think in just a normal LLM AI experience? Thanks. Ariel Cohen: 100%. The reason that I took the time at the beginning of this discussion to explain our platform—the first complexity when you are a travel agency is not just to connect to stuff. Obviously, we are connected to everything. And, by the way, there is no travel agency on this planet that took the time, the effort, the money to connect to everything globally. I am talking in China, in India, obviously in Europe, in the U.S., everywhere in the world. So that is the first thing. But connectivity is just one thing. It is about knowing the airline rules about everything that you do. There are various internal classes. What happens when you cancel a trip? How exactly you are going to get the credit back? How you are going to apply it later? It is actually very complex per airline, per hotel, per any type of inventory that is out there. And what I have just described, this is I would say a third of what our platform does. Then there is all of the knowledge. The knowledge means that when you want to book this flight, I know exactly what type of airline class I will book for you. What type of room—there are endless amounts. You think a hotel that has 100 rooms, there are 100 rooms. The amount of permutations there is endless, which means that there are a lot of skills that you need to marry with that. And we have said it time and again, we are basically creating a seamless orchestration between people—real live agents that sometimes are working in the back, sometimes are talking with you—with AI agents. The reason is travel is so complex, and business travel is even more, but payment is extremely complex. So the complexity level here requires a combination of AI—and we think that we are one of the leaders in this space—when it comes to travel with the agreements that I have talked about earlier, the airlines’ agreements, the licenses that you need to get, the amount of money that you need to raise in order to provide credit in the credit card business, and so on. So the level of complexity here is huge. And I have been saying it in the past: everybody can create nice demos. To actually doing it—the only one that is doing it in the AI world is Navan, Inc. Operator: One moment for our next question. And that will come from the line of Keith Weiss with Morgan Stanley. Your line is open. Keith Weiss: Sitting in for Christopher Quintero. Congratulations on a really solid quarter. Maybe two questions, if I may, bringing Aurelien Nulf into the conversation, it is always very interesting to hear from a CFO when they first join the company. I think CFOs look at companies very similar to how we and investors do. And particularly at this point in time when there is so much uncertainty and so much investor concern around software companies broadly, including Navan, Inc. So maybe what was it that got you comfortable and got you excited about joining Navan, Inc. as CFO at this point in time? And maybe that will help us get more comfortable with the durability of this story. Aurelien Nulf: Yeah. That is a great question. First of all, I would say I do not see ourselves as a software company, so maybe that helps answering that question a little bit. When Ariel and I discussed me taking the role, we really discussed how we can transform an industry. We are a travel agency, and we are doing it very, very well because we are leveraging very cutting-edge technology, which is obviously something that got me excited. But really, the mission—people are mission-driven here. And when you walk in the door, like day one, I met a lot of people that are very passionate about our travelers and how they can make their traveling experience seamless and frictionless. So that is super important to me—joining a company of people that are so excited about what they are doing and their mission is obviously super important. The size of the addressable market is huge—$185,000,000,000—huge opportunity. I think we are only scratching the surface today, although we are getting share and we see so much momentum in the business, it was very clear to me that given the quality of the sales team, the quality of product, the quality of our marketing, and the passion of the team, we had something very, very special here that we can take pretty far. So I would say those are the different things that I have been really looking at. And then on top of that, a clear vision of how we are going to drive profitability, generate free cash flow, etcetera, is also top of mind for us as a company, and I think it is something that got me very, very excited. Keith Weiss: Got it. And maybe a follow-up on that. Earlier in the commentary, you guys talked about approaching rule of 40, not quite there yet. As we are modeling out the company over the next couple of years, should we be thinking about that as a north star in terms of how we should be looking at where Navan, Inc. is going to be heading? Aurelien Nulf: I would not say it is a north star. I think it is a good benchmark that people have been using across many different industries. Honestly, I do not see that as a limiting factor. We have a lot of ambition. And when we see, again, the momentum in this business and how differentiated our platform is versus what our competition is offering, I do not see that as a ceiling, to be very clear. We have guided to strong growth for next year. As I said, we are prudent and it is very early in the year. We also guided to margin expansion, which is pretty awesome given the level of growth we have seen in the business. We are extending our margin. And on top of that, we turned free cash flow positive one year earlier than we initially anticipated. So I think the rule of 40 is interesting and is a good benchmark. But clearly, that is not a ceiling for us. Operator: And one moment for our next question. That will come from the line of Patrick Walravens with Citizens. Your line is open. Patrick Walravens: Oh, great. Thank you, and congratulations on all the success. Ariel, I have three trips I need to book after this call, so I hope I can do them all in seven minutes on Navan, Inc. My question is about the RFPs. Michael, you were talking about, I forget exactly what you said, but I think you said hundreds of percent. So I was wondering if you could just give us more details about what you are seeing in the RFPs, where you are seeing them from, how that is different from maybe a year ago, and whether being public is helping drive those inbound inquiries. Michael Sindosich: Yeah. Great question. And by the way, you will definitely book your trips in less than seven minutes. So let me know if you cannot. But really, thank you so much for being a customer. It really means a lot. When I think about RFPs—so who runs an RFP? It is typically a larger company. So our commercial segment and our lower mid-market segment, oftentimes we can make a switch without going out to an RFP, but the larger and more global the company, they will typically run an RFP to do that. So to answer your question directly, where do we see the acceleration of the RFPs? It is upmarket. That does not mean it is not an indication of the increased demand downmarket as well. As Ariel mentioned, the PLG segment is growing extremely fast. And 50% growth in new GBV from our SLG market includes commercial, mid-market, and enterprise. So we see it across all segments. And RFPs come from larger customers. Patrick Walravens: Cool. And does being public—are you noticing that make a difference? Michael Sindosich: Yeah. Yes. Sorry, I was just going to answer that. Thanks. We do. There are a lot of smaller travel agencies or expense management platforms or payments platforms that are not public today. And that level of transparency is something that we see as an advantage because it means that we are durable. It means that we are not hiding anything. When we were private before, we would have to talk about questions about revealing our finances and things like that. And today, we are at a state where we can say, hey, just go listen to the last earnings call or look at our press release. So I think it is giving a lot of confidence, one, on our numbers, but then, two, on the durability of us. When we engage in an enterprise deal, typically, they might have been on their incumbent for twenty years. And when we are pitching someone, we want to be their incumbent for the next twenty years and beyond. And if you think about a couple hundred thousand employees, travel and expense, it is not just a feature that you launch to some subset of the employees. It is a full rip and replace globally for all employees. And so while we do the implementations extremely fast, it is something that requires change management; someone does not want to switch in two years, if that makes sense. Ariel Cohen: Yeah. Great. Thank you very much. Operator: Thank you. One moment for our next question. And that will come from the line of Andrew DeGasperi with BNP. Your line is open. Ari Friedman: Hey, this is Ari Friedman sitting in for Andrew. I just had one question. In terms of investments, we are noticing a meaningful uptick in hiring in your salesforce. What is the typical ramp for a sales rep before they are fully productive? And do you guys know how much more productive approximately a fully ramped rep is? Thanks. Michael Sindosich: Yeah. It is a good question. So we are hiring across our different go-to-market channels. So the ramp time is usually pretty correlated to the segment that the rep is starting at. We have a lot of SDRs, which are the ones that are pipeline generation. They are doing a lot of cold calls and emails for the sales reps. They get promoted into the commercial segment. And if someone is internally being promoted, we see that ramp time a little bit faster because they know the company, they know the system, the value props, etcetera. So that is a pretty fast ramp. And then if we were to hire from the outside someone like an enterprise rep, you start thinking about those deal cycles, which can be relatively long. So a big enterprise company—maybe it is a six-month sales cycle. And then with the whole RFP, and then it is an implementation and a launch a little bit later. So it can extend from, let us call it a year until really ramped in all the knowledge, to a couple of weeks down-market for us. So that is how we think about it, and we are growing across all the different segments. Operator: One moment for our next question. And that will come from the line of Blair Abernethy with Rosenblatt Securities. Your line is open. Blair Abernethy: Just wanted to ask you, as we are entering 2027, how are you thinking about the expense management subscription business and driving further penetration into your base, and how you are looking at driving new customer adoption going forward. Ariel Cohen: Yeah. First of all, we are actually thinking about it as an end-to-end solution. So customers that are using our expense management business as well as the payments business basically see better results in terms of an ability to understand what is their total travel and expense budget, how much they are spending, are they spending it correctly, can they save money there, etcetera. Also their employees—and if you think about who is traveling, the employees that are traveling are usually the most important employees in the organization. This is your enterprise sales team. This is your corporate team. This is your entire C-level. So saving their time is critical. When you use our payments and expense business, you swipe a card and that is it. Nobody else needs to do anything. On top of this, nobody needs to sit in the finance team and reconcile. And from a saving money perspective, you get immediately the feedback—was that in policy or not, was this expense exaggerated or not, and so on. It is actually really part of our offering and really what supports our end-to-end solution. We have mentioned in the past that we had some constraints in this business because of our payments business. And the IPO actually unleashed this constraint, and you can see that we returned to growing in these two businesses: the payments business and the expense business. And remember that in all of our businesses, there is some lag between sales and what you are actually seeing. So we are extremely bullish on the expense business. We are extremely bullish on the payments business. But we really see it as an end-to-end solution for our customers. And we just think that they will benefit more if they are using the entire suite. Blair Abernethy: That is great. Thank you. Operator: One moment for our next question. And that will come from the line of Dan Jester with BMO Capital Markets. Your line is open. Dan Jester: Great. Thanks for taking my question. And maybe just a follow-up on that last one. Are you seeing at time of initial sale, are you seeing customers take more offerings as you release innovation in the expense management space, as you release innovation around meetings and events? Are you seeing customers take those at the beginning, or are these still things that we should expect will be cross-sold over time? Ariel Cohen: I will take the beginning of it, and then Michael, who is in the field all day long, will continue. The first thing that I would say—and I kind of alluded to this earlier—once we move to be an agentic platform, it actually allows us to develop faster. So that is really, really important. But the second thing, we can reuse. I will give you an example of a feature that we recently released on the expense management side. There is an expense agent there that if you did not use our credit card, you just did it manually with your own credit card, you have a manual expense. You can actually take 20, 30, 100 receipts, put them in an upload to the system, which takes less than, I do not know, ten seconds. We automatically analyze the entire thing. We reconcile each for you. We reconcile it for the finances. It looks like magic. I do not think that anybody in the expense management world is doing something that is even close to that level of technology. But that was developed in the expense management team. And we think that that kind of capability, this agent, is actually relevant all over our platform. In fact, we even think that it is relevant in Navan Edge. So you will see this functionality coming across the board. I can say the exact same thing about our focus on meetings and events. Meetings and events was an off-platform service, and you saw that we recently announced our BoomPop integration to actually allow meetings to be on-platform. So what you will see from us from a technology and product perspective is that the offering is becoming stronger and stronger by coming together. And I will let Michael maybe provide more color, but the reasons that we are doing it are driven by the requests and what we are seeing in the field. Michael Sindosich: Yeah. And to answer your question, are we selling more products at the time of the first sale for the customer? The answer is yes. So we approach our sales in a couple of ways. One is, we have a sales rep that goes and finds a new customer, and we understand what products they need and want us to supply to them. That might be just travel. That might be travel and payments. It might be travel, payments, expense, meetings and events, VIP, all the suites that we have. And then they go and they launch and they have a great experience. We also have an upsell team. And so that upsell team is working very, very closely with the account management, who are constantly talking to the customers every single day, week, or month, or even during quarterly business reviews with the account. And then we bring those solutions to those as well. So we do see us attaching more products at point of sale, but we also see a lot of success in upselling the various solutions that we have for the customer. Dan Jester: Great. Thank you very much. Operator: One moment for our next question. And that will come from the line of Mark Schappel with Loop Capital. Your line is open. Mark Schappel: Hi. Thank you for taking my question. Ariel, could you discuss the legacy displacement opportunity, which appears to have accelerated this quarter, and maybe where you are seeing the strongest traction? Ariel Cohen: Yeah. Definitely. I think generally, we see this growth accelerating on all channels. So this means when we displace—that is what we call the managed segment—but also in our PLG channel, when we are new, when it is the first time that this customer is managing travel. I think the best person to describe exactly how we see it in the field is Michael. So Michael, maybe you can take it. Michael Sindosich: Yeah, if I caught the question correctly, you are saying the acceleration in the legacy space—is that correct? So, I kind of described it earlier. We walk into a room almost confused why the customer has not come to Navan, Inc. yet. And usually, the customer starts to see that once we are talking to them. If we are going to save you 15%, we are going to have you book in less than seven minutes versus forty-five. We are going to deliver this NPS and the CSAT and all the things that we have talked about before. Usually, it is about making sure that we prove that we have reached a scale to support that customer and that we are global enough to do that. And we have done a lot of work to continue to expand upmarket and globally using acquisitions that we have made around the world, and we have built partnerships to be able to support these customers. And so what do we see on the other side that is driving customers to us? There was a big acquisition with CWT, which is a big player in the space. There used to be three big travel agencies: Amex, BCD, and CWT. So CWT was acquired. And then you saw Egencia, which is more of the online booking platform that was built out of France, was also acquired. And then, I am sure you can read headlines, but there are other companies that are having some turmoil. And so we think that has created quite a lot of tailwinds for us. People are saying, oh, let me go check out this new Navan, Inc. platform. By the way, my CEO and everyone on my board is telling me to start using AI in my platform, and I want parity in my company, and I want to start transforming my finance operations to be more efficient. And so if we can prove the savings and the time, we can prove that we are global and we can support customers, and we can give them five references to go talk to that are similar to them—that they have made the transition to Navan, Inc. and they will never look back. It is a really compelling story. And I think that is why we are winning specifically in the legacy managed space. Mark Schappel: Thank you. Operator: Thank you. And today’s final question will come from the line of John Roberts with Feet Partners. Your line is open. John Roberts: Hi, guys. Thank you for taking my question. Just to start, I wanted to ask a quick one. What was net revenue retention for you guys exiting or just for the fiscal year 2026? I did not see that in the presentation. And then just regarding product attach, can you maybe stack rank which of these three additional products are most commonly being attached? And then maybe how long on average is it taking for customers to get to this level? Just any commentary here would be super helpful. Thank you. Aurelien Nulf: Sure. Hey, John. This is Aurelien. So on net revenue retention, I just mentioned on the call earlier that it was 107% for 2026. So we are seeing very stable revenue retention on the Navan, Inc. platform side—stable at 110%—which is even above 120% when we include the ramp of the new customers joining the platform. But it was 107% for 2026, and that slight contraction is mainly due to the Reed & Mackay dynamics that we discussed on the call. Maybe Ariel or Michael, do you want to take the second part of the question? Ariel Cohen: Yeah, sure. So I can take it. I think the question was around attach and then stack ranking. Michael Sindosich: So the product that we have first and foremost and is attached everywhere is our travel. So our transient travel product, which is the employees traveling for the company. Then the next product is we see a big attach into what we call leisure. So a lot of people are booking personal travel on our platform. It is a separate experience. It does not show up in the admin dashboard. You cannot use the company card. But what you can use is the rewards that we give the traveler. So we actually pay the traveler rewards when they save the company money, which is part of how we get to that 15% savings. And so if I am going on a work trip to New York and I want to stay for the weekend, I can actually book that leisure trip in the Navan, Inc. platform, which we see good attach there. The next we build into is actually our travel payment. So this is getting into our payments product. I can put a Navan, Inc. corporate card, log into the platform. It is actually not one card, but we create a unique credit card number—16 digits—for every new booking, and it perfectly reconciles your travel bookings and those expenses for your admins, and a traveler will never have to do an expense report for a flight or a hotel or a rail that was booked in our platform. So we see a lot of adoption there. That then naturally leads into our expense platform. You can then buy our expense platform, and now we own the entire context whether someone is traveling or not. We actually see more than 70% of employee expenses are in some way, shape, or form tied to a trip. I am either booking that trip, or I am on the trip and I am at a restaurant or a taxi or however you spend the money. So we expand into that product. Then there is also the VIP product, which Ariel talked about as part of our Navan Pro offering with Reed & Mackay. So that is a product that we would upsell or sell at the point of sale to the C-suite or people who need VIP level of support. And then the last product that I can think of at least right now is our meetings and events. So as we gain that customer, we manage their corporate travel. A lot of times, they might have an exec off-site or an FKO or a customer conference, and they will leverage our meetings and events services. So off the top of my head, I am pretty sure that is the exact order of the penetration and the percent of adoption that we have of the various products. Operator: Thank you all. This concludes today’s program. You may now disconnect. Goodbye.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Precigen, Inc. Full Year 2025 Financial Results and Business Updates Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, 03/25/2026. I would now like to turn the conference over to Steven Harasym. Please go ahead. Steven Harasym: Thank you, operator, and thank you to all those joining us. For our fourth quarter and year-end 2025 update call. Joining me today are Helen Sabzevari, our President and CEO; Phil Tennant, our Chief Commercial Officer; and Harry Thomasian, our CFO. Before we begin our prepared remarks, I remind everyone that we will be making certain forward-looking statements. These statements are based on our current expectations and beliefs. We encourage you to review the slide in the presentation and in our SEC filings, which include risks and uncertainties that could cause actual results to differ from today's forward-looking statements. With that, I will now turn the call over to Helen. Thank you, Steven. Helen Sabzevari: I would like to extend a warm welcome to all those joining us for our update call today. In the short time since the early and full approval of Pap smear in August, the standard of care first-line treatment for adults are our peak We are seeing a tremendous progress with the first ever therapeutic commercial launch in RRP. These substantial advancements constitute a pivotal milestone for all stakeholders impacted by RRP including patients, their families, healthcare providers, and the RRP Foundation. As we commenced commercial sales in Q4, Precigen, Inc. has completed the transformation from an R&D company to a product revenue-generating commercial biotech company. Phil will detail the specifics of the launch progress later in the call. But I wanted to highlight the accelerating trajectory we are seeing in the revenue growth. We do not plan to provide the revenue guidance on a regular basis, but instead focus on indicators we believe are important for gauging progress of the launch trajectory from a long-term perspective. That said, as we are only a few days away from completion of Q1, which is the first full quarter of Papzimia's commercial sales, we think it is helpful to provide investors with color on the Pap smear itself ramp up. As reported in our 10-K, net product revenue for Q4 2025 was $3.4 million with shipments commencing in November. As prescribers at major medical centers and community practices continue to add Pap smear to their practice, we are seeing a strong momentum in Q1. As a result, based on the commercial activity to date, we expect revenues in Q1 to exceed $18 million. This is a clear sign of the enthusiasm we are seeing from patients and physicians alike, leading to a robust uptake in the therapy. I will now provide a brief recap on the reasons we believe we are seeing such a strong interest in Pap smear. Papzimias received full FDA approval with a broad label for adult RRP with no restriction based on the number of prior surgeries. This reflects the truly transformative clinical data including unmatched efficacy, a strong and durable ongoing responses, and a pivotal study powered by prospectively defined primary endpoint of complete response rate. Thanks to its mechanism of action, Tapsinis also offers the potential for redosing if needed which is being evaluated in the clinic now. With the full approval powered by unmatched efficacy, we have significantly raised the bar for any future competitor entering the adult RRT space. Let's examine the key facts which led to FDA's approval. Proximus directly addresses the root cause of RRP by eliciting a targeted immune response against HPV 6 and 11. To be clear, we enrolled and treated more severe RRP patients and achieved an unmatched complete response rate with an impressive durability of responses with more than three years of follow-up, which is echoed and appreciated by physicians in the field. It not only surpassed the highest statistical bar using the most rigorous efficacy endpoint ever evaluated in RRP but produced the strongest data demonstrated in the field to date. Given the underlying cause of RRP, these results readily extrapolate to less severe patients as reflected in the FDA's broad label approval for Pap smear. In contrast, extrapolating results from a less severe population to a more severe cases is far more challenging and less reliable. What I just detailed has been supported by landmark consensus paper sponsored by the RRP Foundation, and authored by 16 leading U.S. physicians specializing in RRP published in Laryngoscope, a top peer-reviewed journal in the field. The paper recommends Papsimians as the first immunotherapy which is the newest standard of care and preferred first-line treatment for adults with recurrent respiratory papillomatosis, or RRP. These developments represent a pivotal advancement for the RRP community, prioritizing medical therapy over repeated interventions to improve patient outcomes. I will now turn the call over to Phil for details around our commercial launch. Phil? Thank you, Helen, and hello, everyone. Phil Tennant: I'm delighted to share the most recent highlights of our launch efforts with comments on Q4 results, but also bringing everyone up to speed on the exciting progress we are making with the PapSimius launch in Q1 of this year. As mentioned earlier, we made great progress in Q4 in setting the platform for accelerated brand uptake. This included continued progress in expanding payer coverage, further activation of accounts across the country, and the initial prescriptions for Papsenius. As we speak today, I can give you more granularity on some of the leading indicators of strong launch performance. Our patient numbers continue to grow. As of J.P. Morgan in mid-January, we had over 200 patients in the Precigen, Inc. patient support hub. As of today, that number is well over 300, indicative of the pent-up demand for the new standard of care for adults with RRP. Payer coverage continues to expand. In early January, we had approximately 170 million lives covered which has now increased to approximately 215 million including nearly all major payers across commercial, Medicare, and Medicaid. Including regular Medicare and Medicaid fee-for-service lives means that we now have approximately 90% of insured lives covered in the U.S., which is phenomenal progress for a rare disease drug like Pap smear. Brand utilization is accelerating across the country in both the large institutions and academic centers as well as in the community setting. Pleasingly, we are seeing utilization across a range of patient severities, which speaks to the broad label of the brand. And finally, as Helen mentioned, the publication in January of the expert consensus paper clearly positioning patsymia as the first choice for adult patients with RRP is a significant statement of intent from the KOL community and a testament to the strong efficacy and safety profile of the drug. The significant increase in revenues anticipated in Q1 that Helen mentioned clearly shows how the healthcare system is embracing the first and only approved medicine to treat adult RRP. We are very pleased with the momentum we are seeing and will, of course, provide final revenue numbers during our Q1 earnings call later next quarter. In terms of outlook, we expect these trends to continue, assisted by the assignment of the permanent J-code from April 1, and supported by the continued durability of response that we are seeing in patients. We expect continued institutional activation as well as significant utilization within community practices. We look forward to sharing further progress with you at the Q1 call as we continue to drive this fundamental transition of a debilitating condition that has been surgically managed for over 100 years into one that is now therapeutically managed. I'll now turn the call over to Harry for an overview of our financials. Harry? Thanks, Phil. Harry Thomasian: We sure are exciting times for both Precigen, Inc. and the RRP community as a whole. I want to spend a couple of minutes discussing our results for the year ended 12/31/2025 and our financial position as of that date. Revenue for the year totaled $9.7 million versus $3.2 million in 2024, resulting in an increase of $5.8 million or 149%. This increase was primarily driven by the commencement of Pepsimio's product revenue which totaled $3.4 million in 2025. It should be noted that the first sale of Pepsimios was recorded in November 2025, thus revenue for the year only reflects a partial first quarter of the Pepzymyos launch. While speaking of revenue, I do want to reiterate that the 2026 is showing a tremendous ramp of Papzymyos revenue from the 2025. As Helen mentioned, based on our commercial activity to date, we expect revenue for 2026 will exceed $18 million. We're thrilled with the early launch results and encouraged by the launch trajectory. I also want to repeat that we do not plan on providing forward-looking revenue projections in the future. Due to the timing of our year-end earnings call being close to the first quarter end, which provides us an understanding of where we believe first quarter revenue is trending, we feel we can provide this guidance as a help to our investors' understanding of the Paximios launch trajectory. Continuing with expenses on our statement of operations. Research and development expenses decreased by $11.7 million, or 22.1%, compared to the year ended 12/31/2024. The decrease was primarily driven by a $9.4 million reduction in costs as a result of the strategic prioritization of the company's pipeline announced in 2024. In addition, the company, upon FDA approval of Pepsimios, began classifying manufacturing-related costs to inventory, which ultimately will be recorded as costs of products and services when the related inventory is sold. Manufacturing costs related to Papsimios were recorded as research and development expenses prior to the FDA approval of Pepcimios. Selling, general, and administrative expenses increased by $28.8 million, or 69.8%, compared to the year ended 12/31/2024. This increase was primarily due to a $27.3 million increase in costs incurred related to Pepsimio's commercial activities. Our net loss attributable to common shareholders was $429.6 million, or $1.37 per share, for the year ended 12/31/2025. These results include two large noncash items related to our preferred stock-related warrants in 2025. In 2025, the preferred stock was converted to common shares and the warrants were reclassified to equity. Thus, such items will not recur in the future. These noncash items hold $318.5 million, or $1.02 per share, of the $1.37 loss per share reported. Turning to the balance sheet. We ended the year with $100.4 million of cash, cash equivalents, and investments. Based on our current projected business plans, we believe that these funds plus anticipated cash to be received from Pepsimio sales will fund operations through cash flow breakeven, which we currently expect to occur by the 2026. For more information on our financial statements, I refer you to today's press release and our 10-Ks which were filed with the SEC after market closed this afternoon. With that, I'd like to turn it back to Dr. Sabzevari. Helen Sabzevari: Thank you, Harry. I wanted to briefly provide other portfolio updates. Are actively advancing plans to commence a papillomial clinical trial in pediatric RRP population. We hope to have this initiated in the fourth quarter of this year. Additionally, we have begun efforts for geographic expansion. This is seen with the validation of the marketing authorization application to the EMA for Papsenia. Of note, we are seeing positive feedback from thought leaders in Europe on the prospects of a new medical standard of care. To that end, we are also pleased to announce that we will be sponsoring activities around the third annual RRP Awareness Day in June. This will present another opportunity to help spread global awareness of this disease and the newest standard of care for its treatment. Other than capsidium, we continue to advance the platform with PRGN-2009. This program utilizes the same AdenoVerse technology as pap smears. PRGN-2009 is designed to activate the immune system to recognize and target HPV 16 and 18, the root cause of HPV-associated cancers such as head and neck and cervical cancers that represent almost 5% of all global cancer. Patients. PRGN-2009 is currently being investigated in combination with pembro in multiple Phase 2 clinical trials in head and neck cervical cancer. I'm very excited about the prospects of this program and look forward to updating you in our upcoming Q. With that, I will now turn the call over to the operator for Q&A. Operator? Operator: Thank you. Ladies and gentlemen, we will now begin the and answer session. Should you have a question, please press the star key followed by the number 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 the star key followed by the number two. One moment please while we assemble the queue. Your first question comes from Jason Butler of Citizens Bank. Your line is now open. Jason Butler: Hi, thanks for taking the questions and congrats on the progress. Specifically, really thanks for giving the 1Q guidance. That's really helpful. Two questions for me. First, can you help us think about how you guys are planning the flow of patients from the hub to receiving reimbursed drug? Do you expect the majority of the 300 patients to ultimately get reimbursed treatment? And then what kind of time frame, understanding it's still early in the launch? And then second question, are you now at the point where patients are starting to get their second dose in the treatment regimen? And can you give us any color about, like, you know, the proportion of patients that are that are eligible or are getting the second treatment? Thank you. Helen Sabzevari: Hi, Jason. Thank you for the questions. And definitely, I think for the first question, I'm going to defer it to Phil. Phil, maybe you can go through that. Phil Tennant: Yeah. Well, obviously hi, Jason. We are obviously very pleased about the continued recruitment of patients into our hub. And just a reminder that that is not the complete picture because we are seeing significant conversion of patients from our hub, but we are also seeing utilization from patients that are not in our hub as we have talked about previously. That is not the complete picture, the Precigen, Inc. support hub. So we are pleased that we are seeing patients being treated from both sources. In terms of that conversion speed, you know, clearly the patients that are in our hub, that is a clear intent from the market that those patients are in need of treatment. And we want to make sure that the vast majority, if not all of those patients, are converted onto treatment. That is obviously our goal. In terms of the speed at which that is being that will happen and the patients will be converted, it really will vary by patient by patient and institution by institution. What we have done in the fourth quarter and continue to do in the first quarter is get all the pieces of the puzzle in place. In particular, the payer coverage and obviously the identification of patients. Now it is really up to the IDNs to continue to be activated. And once you have all of those things in place, the actual prior authorization with the payer should only take a matter of weeks. But really it is about the activation of the IDNs, and that is, for some patients, the rate-limiting step. But we have made great progress throughout Q4 and into Q1 in terms of converting those patients. I was just going to make another point about the hub because, obviously, we mentioned we will have the permanent J-code as of April 1, and that will streamline and smooth the whole process by which patients pass through from our benefit verification, institutional readiness, and then prior authorization with the payers. So that is going to be a help as we go into Q2. Helen Sabzevari: RHOP, clearly, the patient keep coming in, and you are absolutely correct that they are converted. And but this is a continuous process for the hub. It is not a onetime thing that the patient comes as patients get basically prepped and treated, then new patients are entering to our hub. But it is very important to stress what Phil mentioned. That our hub is not the only source for the patients. There are a number of other hubs that, for instance, large centers, they have their own hubs. And they can be entering, and we have seen that for the enrollment. In regard to the second question that you had as far as have the patient moved from the first treatment to second, absolutely. The patients are moving through all their treatments, and some of them that have started last year, for instance, they have moved through their last treatments. So this is, as I mentioned, is a very fluid momentum in the hub that patients enter. They get prepped, and Phil can speak further to that. And as they go through their treatment, other patients walk in. Jason Butler: Great. Thanks again and congrats again on the quarter. Helen Sabzevari: Thank you. Operator: Your next question comes from Swayampakula Ramakanth of H.C. Wainwright. Please go ahead. Swayampakula Ramakanth: Thank you. Good afternoon, Helen and team. It's great great to notice that not only the launch is going well, but certainly this year this year or this quarter, actually has ramped up quite bit. Having said that, just trying to understand a little bit more of of the of the nuances. Especially with the you know, with with the flow of patients. Through the through the hub into the into the conversion And, also, how is the J-code you know, how how is that helping out in terms of adding more patients? You know, not only in the in the the in in this quarter, but also getting them up for the next quarter. I would think that it takes a certain amount of time between the patient coming into the into the clinic and then getting the the therapy. Phil Tennant: Okay. Thanks for the question. So it is Phil here. The J-code really does simplify the workflow and billing process from both provider perspective and a payer perspective. We are looking at some analogs of rare disease launches that some payers have been hesitant to take on the financial risk and you know that accords with our experience. But now with the permanent J-code, that sort of disappears, and it is a streamlining of the administrative process and it increases certainty and, of course, speed at which these patients should be processed. Helen Sabzevari: Yeah. And maybe I can add that RK. This is not specific to Papsenius. This is for any drug that is out there, including all the checkpoint inhibitors. There is always that transition. And then it would be the streamlining and making it easier on some of the centers to do that. And I think this is the trajectory that we see which we are extremely excited to go from Q4 to Q1 exceeding, as we have said, $18 million. It is very important in the preparation that the team did at the early onset of approval after approval. And really, appreciating the number of the payers that the team got in the first in beginning of the fourth quarter. Because as we all know, for patients entering to the hub and even in the other hubs, the reality of the situation stands with the payers, making sure that all of the elements for getting treated is there, and big part of that was the payers' approval. And now with more than 200 million lives covered, which is an amazing amount. This is why you are seeing the trajectory of very fast acceleration from the Q4 to Q1 going from where we were in Q4 to excess of $18 million in Q1. And I think this is quite exciting, and we are having now all of the components of the commercialization in place the payers, the hubs, the institute coming in, and finally, the J-code. This just makes it for the next trajectory as we move to the Q1, Q2, and Q3, and Q4. Swayampakula Ramakanth: Perfect. No. I certainly sense the excitement and what you are experiencing. Thinking about the MAA and also the European potentially, European launch. You know, in terms of your discussions with the with the regulatory body there, you know, where are things now? And do you do you expect the approval you know, in the '27, or should we assume it is going to be later? And also, in terms of of of the launch, you know, so should we send the Phil back to Europe and, you know, get that launch going over there? Helen Sabzevari: Yeah. So as, you know, we had submitted our EMA application as we shared with the market last year. And it has been the application is under review. So we are excited about that. And I think from for instance, what we are receiving, from physicians across Europe. And, we just had a presentation at UroGen, which is one of the major conferences in the field of HPV and especially on RRP. There has been a tremendous enthusiasm from the physicians, really looking forward to having this first line and a standard of care of therapy, which is now at the U.S., also to be applied in Europe. So we are looking forward, obviously, as the CLA undergoing review in Europe, and we obviously will not it will be I think, your assumption around the time. It is it perhaps is a good guess, but we will leave it to the European authorities when they have decision and they communicate we will definitely share with market. So we look forward to that as well. Thank you. Thanks for taking my questions. Sure. Operator: Your next question comes from Brian Cheng of J.P. Morgan. Please go ahead. Brian Cheng: Hey, guys. Thanks for taking our questions this afternoon. A couple from us. Can you clarify on the 18,000,000 revenue guidance here? Is the 18,000,000 guidance inclusive of collaboration and service revenues? In addition of Pepsi news product revenue. It's 18 only referring to Pepsi meals product revenue? Harry Thomasian: Hey, Brian. This is Harry. Good to talk to you. Yeah, that $18 million which you said, we expect revenue to exceed includes only FAFSAM. No other Brian Cheng: Okay. And can you talk about the 18,000,000 projection Is there a stocking effect that accounts into the projection compared to patients that have received Pepsi meals. And then maybe just on top of that, can you talk about the number of doctors that are now actively prescribing a Pepsi And how effective is the conversion rate from your patient hub compared to the academic hub? Yes. Thanks, Brian. Phil Tennant: In terms of the stocking, so there is very little stocking that we see. We do see a range of orders in terms of the vials that are ordered. Remember, each institution can order one vial at a time. Or they can do all four vials at a time. We do see some fours and twos, but predominantly, it is ones, but we do see a mix. So but very little stocking as such from the institutions. In terms of the number of doctors, I mean, obviously, the number of prescribers is increasing and we have all for all the reasons that we have talked about and we see that increasing momentum as we hit in Q1. We have obviously still got more work to do and more prescribers to bring on board, but we are very excited by the response that we are getting from the institutions and the prescribers. And that number is increasing consistently. Helen Sabzevari: Yeah. And maybe what I can add, Brian, to this is clearly the consensus paper is really has now make it very clear that pap smear is is the first and only standard of care for RRP and for all adult RRP, which is actually very interesting because we see the enrollment of the patient or treatment of the patient across the severity of the disease. And this is another important point that we have said according to the label that was given to Pap smear which is for broad RRP patients regardless of severity, and that is exactly what we are seeing as far as the treatment is concerned and how the physicians are taking up this treatment. Phil Tennant: Hey, Brian. Just your question on hub versus versus versus non hub. I mean, what I would say there is that we are seeing conversion from both sides. And, you know, patients that are in our hub and patients who are not in our hub, and we are seeing, you know, a significant contribution from both. Brian Cheng: Thank you. Operator: Your next question comes from Michael Dufour of Evercore. Please go ahead. Michael Dufour: Hi, guys. Thanks so much for taking my questions and congrats on the obvious products progress you have had in the launch. Two questions for me. You called out community uptake as a pleasant surprise, like I know it is early, but as the community channel develops, what have you learned about what different differentiates community sites that become repeat prescribers versus those that adopt more of a wait and see approach? And I a follow-up. Phil Tennant: Yes. Thanks, Michael. It is Phil here. Look, we always had community in our sites. That was an obvious part of our strategy. I think what we saw when we were soon out of the blocks after the approval was the extreme interest from the community in utilizing Atsymeos. And we have various mechanisms in place so that we can for a low cost, provide them all the logistics they need to use an uptake the drug. So we actually think the community is going to be a significant contributor to our overall business as we go forward for those reasons. And the initial experience is very positive. Rutul Shah: And I can add this is Rutul, Mike. I can add to it. As Phil pointed out, what we have done is in in addition to our end-to-end cold chain validated logistics in place, as Phil pointed out, we have multiple solutions now available for community practices who may not have cold chain storage to acquire them at very low cost as well as just-in-time shipments to essentially completely avoid need for the cold storage. So that is also aiding in our efforts to get them on board and continue to prescribe, Papadimias. Michael Dufour: I see. Very helpful. And my last questions are, if there is any color you could add on the current channel mix of U.S. payers and how we should think about gross to net cadence for the balance of the year? Thanks. Phil Tennant: Yes. I will let Harry talk to gross to net. In terms of the payer mix, it is pretty much as we expected and we communicated prior to launch, which was about 60% to 65% commercial. And that is indeed what we are saying. Then the rest Medicare, Medicaid and it is on the government channel. So, yeah, 65% or so is commercial. Harry Thomasian: Hey, Mike. This is Harry. On the gross to net we have historically guided and we continue to guide. We anticipate the gross to net will be in the high teens, low twenties. And we have seen those play out as we have seen revenue to date. Michael Dufour: Excellent. Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Dr. Saba Zavari. Please continue. Helen Sabzevari: Thank you again for joining us for our year-end 2025 update call. As you can see, we are making tremendous progress on the pepsinius commercial launch. We are looking forward to providing the full Q1 results and detailed commercial progress in May. Have a good evening. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Unknown Executive: Good morning, investors and analysts. Welcome to the 2025 Annual Results Announcement of China Oilfield Services Limited. On behalf of the company, I would like to thank you all for taking the time to attend. First, allow me to introduce the representatives from the Board of Directors and Management attending this event. They are Mr. Zhao Shunqiang, Chairman and CEO; Ms. Chiu Lai Kuen Susanna, Independent Nonexecutive Director; Mr. Sun Weizhou, Executive Vice President and Board Secretary; Mr. Qie Ji, CFO. China Oilfield Services is one of the world's largest integrated oilfield service providers, boasting a comprehensive service chain and a robust fleet of offshore oilfield service equipment as well as a well-established R&D system and service support system. The company focuses on 5 key development strategies: technology-driven, cost leadership, integration, internationalization and regional development. During the 14th 5-year plan period, the company has achieved continuous breakthroughs in key core technologies, significantly enhanced the profitability of its large-scale equipment and continuously strengthened its core competitiveness in oilfield services. The company remains committed to reestablishing its cost advantage and strengthening its cost control capabilities. It is dedicated to deepening its expertise in the marine energy resources sector, firmly upholding the philosophy of creating value for clients. COSL excels at integrating its operations into clients' value chains to generate added value, thereby enhancing clients' investment efficiency and returns. Today's event is divided into 2 parts. First, Mr. Qie Ji, CFO, will present the 2025 annual results and the company's future development outlook, followed by a Q&A session. We now invite Mr. Qie to take the floor. Ji Qie: [Foreign Language]. Unknown Executive: Thank you, Mr. Qie. We will now move on to the Q&A session. [Operator Instructions] The consecutive interpreter will provide interpretation between Chinese and English for both questions and answers. Please allow sufficient time for the interpreter. Thank you. Unknown Analyst: My question is about the Middle East. Right now, we are in the middle of Middle East conflict. So I would like to know how much impact or what kind of impact has that been on your Technology segment and on your Drilling segment? And before the conflict in the Middle East, how many rigs or platforms were operating in the Middle East? And how many of them have been suspended because of the conflict? Unknown Executive: Let me talk about our current operation and equipment being used in the Middle East. So we are now in basically 3 countries in the Middle East. First of all, in Iraq, we have 23 equipment for maintenance and also operations. And then in Saudi Arabia, we have 3 jack-up rigs or platforms; in Kuwait, 2 jack-up platforms. Regarding our 5 jack-up rigs or platforms, there has been no impact on their operations. That means that there is no suspension or no termination of the operation of this equipment. As regards in the landlord site, well, they are still making arrangement in relation to the work and operations, and they are also continuing their payments of fees as well. However, in Iraq, in relation to the repair and maintenance machines and equipment, because in Iraq, basically, the business is integrated business. And so there has been 3 equipment and machines being affected by the integrated equipment suspension. Unknown Analyst: So first of all, my question is, under the current situation about geopolitics, well, how do you see the oil price trend in the year 2026? And also, I would like to know, in these circumstances, so what will be some adjustments or changes to your development plan? Unknown Executive: I believe that the question or issue about oil price is a big issue. And in fact, we are not an expert in this area, but I can still share a couple of points in my opinion. So first of all, in relation to the demand and supply situation, right now, there is still an excess capacity, whereas demand is relatively weaker and softer. Under the influence of geopolitics, there is an imbalance or a lack of balance between demand and supply on a regional basis. And that has led to the volatility or changes in the oil price. But then the overall trend is not really changing. In the future, we are still cautiously optimistic, and we are not going to change our internationalization strategy as a result. And we believe that we will continue to benefit from the insights and experience that we have already accumulated from the previous 5-year plan period. Despite all the geopolitical changes and also fluctuations, so actually, this year, because of that oil price has been affected. So right now, we are in the process of war. We don't know how long this war will last, and we don't know how intense or how severe this war is going to turn out. But then, of course, no country would like to see a war happening. We believe that this war may not really take a very, very long time, but we actually can't tell when it is going to end. So definitely, our internationalization strategy as a whole will stay. But the trend of our internationalization will be subject to some impact, especially during the short term. But in the long term, the direction is going to remain the same. Unknown Analyst: My question is about the drilling rigs. Actually, we have seen that there is an increase in profitability. So I want to understand the reasons behind the profitability growth. And regarding the domestic as well as overseas profit in this segment, how much is the relative contribution from domestic and overseas business? And in the future, in the coming 1 year, what kind of breakthroughs can we expect in this particular business segment? Unknown Executive: Before I answer your question, I would like to share with you 3 big trends. First of all, we have seen acceleration of our internationalization strategy. So this is reflected quite clearly, if you refer to our revenue, our profit and also our management work and efficiency. And the second trend is that the increase in production within our country is continuing. So we have already completed the previous 7-year action plan, and very soon, we are going to see the coming 10-year plan, which is a new one. And we can see that there is strengthening of domestic supply and expansion. And the third trend is that during the 14th 5-year plan period, our company has been increasing utilization of large-scale equipment. And in fact, in the year 2025, all large-scale equipment have been put into use. In the year 2025, there were 2 M&A projects. The first one is between ADS and Shell, and the second one is Transocean and another company. So in relation to the rig and platform operation, we can see that the overall integrated capability and also bargaining power for the larger companies have increased. So it is getting more and more difficult for the smaller companies to survive well. So for the large contractors and companies, we can see that the profit margin is rising. However, for the smaller contractors, many of their rigs and platforms have been suspended. So during the 15th 5-year plan period in relation to large-scale equipment, we believe that it is in a tight balance situation. So we will put in more effort to acquire or integrate with the equipment of the smaller contractors. So in the future, we believe that the oil companies will see quite a lot of difficulties in relation to technical development resources as well as spatial development. So they really need the more competent contractors with more capabilities and expertise to be able to deliver professional and expert services to them. Unknown Analyst: The first question is about the Marine Support segment in relation to the vessels. So all along, it has been based on market -- marketized pricing mechanism. So is there going to be any change to this pricing mechanism? And what will be the trend in the daily rates? The next question is, under the current situation and concern regarding energy security, many big oil companies, including CNOOC, is expanding the work in terms of exploration. So when it comes to offshore oil fields, in the coming few years, how much will be your CapEx? And then the third question is, given the decline in your gearing ratio, in the future, are you going to increase dividend payout? Unknown Executive: So in fact, the questions that you have asked have touched upon the pain points in our operation. Regarding the pricing of vessels, this has been an old issue that has been dwelling for 10-odd years. Well, basically, this is a matter which both parties have to reach an agreement. During the 15th 5-year plan period, we have changed our strategies. And we are of the view that it is better to put higher requirements on ourselves than to making requests with other parties. So first of all, given the current tight condition between demand and supply of resources, what we need to do is to change the structure. So we want to change customer base structure and also the structure of market revenue. We need to also make sure that we can achieve precise asset and resource allocation, and then we have to continue our internationalization strategy. So these are some strategies and measures to tackle this issue. So we are using the certainty of our own work to solve the uncertainty condition in terms of pricing. And then we are also expanding our fleet. We keep on making adjustments to our overall structure, hoping that demand can be used to determine pricing relatively more. So in the future, we can anticipate that the energy autonomy will be a more and more important strategy and policy of our country. So every year, when it comes to consumption of oil, it amounted to 750 million to 760 million tonnes, of which 500 million tonnes are imported. So this is the current situation. Unknown Executive: Let me answer your third question concerning optimization of our debt and liabilities. Basically, we now see 3 major opportunities. First of all, there is a swap in terms of our total existing debt because some of our debts are going to expire. And then the second point is that there is right now a gradual decline in terms of the high interest rates of U.S. dollar. And for RMB, interest rate is relatively lower. So there is a difference -- an interest rate differential. And then thirdly, in terms of the currency mix, in the past, basically, it is mainly about expenses overseas. Because there were some M&As overseas, so foreign currencies were used for these transactions. And right now, actually, domestic expenses account for a bigger percentage. So that is also the third opportunity in relation to optimization of debt. So actually, starting from 2024, we have been making plans and preparation for debt optimization, because in June to July 2025, there was the expiry of USD 1 billion debt. And then actually in mid-March, we had already issued a RMB 5 billion debt at 1.95% interest rate for a tenure of 3 years. So overall speaking, we have decreased the scale of our debt, and financing cost is also coming down. So what we have to do is that we need to continue to reduce the scale of our debt and optimize the structure. During the 15th 5-year plan period, we are going to increase our investment into equipment. And we want to make sure that our gearing ratio will maintain stable and sustainable. So in terms of our debt and liabilities, we will make long term -- we are going to make arrangements by considering our overall long-term development. Regarding dividend, we have to consider the operational needs of our company, the company's future cash position in making decision. And then we also want to make sure that we can seize future development opportunities. But then if you look at our dividend payout in 2025, in fact, it is in a very good position. Unknown Analyst: So my first question is concerning exchange rate gain and loss. So in the second half of the year, there was quite a large impact arising from that. So what are the reasons behind? My second question is about your Technology segment. So in terms of the profit from this segment, so its share has been quite big all along. And last year, in the first half of the year, there was some change to that trend. Is there going to be -- or was there some improvement in the second half of the year? And in 2026, how much will be the profit margin? Unknown Executive: During the 14th 5-year plan period, we have been continuously increasing our R&D expenses, and we have strengthened our R&D system as well. If you look at our R&D expenses every year, for example, in 2021, the amount was RMB 1.6 billion. And last year, it had already risen to RMB 2.2 billion. So it accounted for 4% of our total revenue. And in fact, the input/output ratio in relation to our R&D expenses and investment has been increasing. In 2021, it was RMB 1 to RMB 2.5. In 2025, it was RMB 1 to RMB 3.1. Technology coverage in 2021, it was 59%. In 2025, 86%. So we are strengthening the overall strength of our Technology segment. In the 14th 5-year plan period, our revenue strength and also the contribution into total revenue and profit is also big and increasing. In 2025, from the Technology segment, it accounted for 55% of revenue and 72% of profit. For overseas business, during the 14th 5-year plan, the strength of our Technology segment has also been enhanced. So the contribution to both revenue and profit has risen. In 2021, it accounted for 14% of total overseas revenue, and in 2025, 24%. So if we look at the operating profit margin of the segment in 2025, it was 16%. We are better than other peers in the industry, even though there is some slight decline on a year-on-year basis. However, we also need to exclude the nonoperating gains and losses. So for actually most of the segments, we saw very stable, even slight increased trend with only the exception of the cementing segment. So at the end of last year, we won a contract with our Shenzi with a Thai petrol company. So the total contract value was USD 8 million. So this shows that our self-researched and developed technology has won international recognition. This is because of our R&D investment over the years as well as the work that we have done to strengthen our overall R&D system. Recently, perhaps you are also aware that we have also won a contract from the Kuwait National Petroleum Company. Total contract value was actually RMB 400 million in terms of contract value. So you can see that we have achieved breakthrough in different regions and also different countries with our Technology segment. Our Technology segment is such that our value has been released on a continuous basis and our strength has been improving. We have won more and more recognition from customers. In the future, with our 1+2+N market layout of our company, right now, in terms of our overseas business, we are in the 5 major continents in 13 countries, and we have 120 operation sites. So in terms of both profitability and also revenue and shareholder return, we are seeing future improvements. So in 2025, actually, we have seen fluctuations and volatility in the exchange rate of RMB. Last year, at the beginning of last year, it was in the range of around RMB 7.1. And then in April, it became RMB 7.4. Towards the end of the year, it was at RMB 6.8, RMB 6.9 roughly. So all these fluctuations have caused much impact to our exchange rate loss or gains. During the 14th 5-year plan period, for our exchange rate loss, it was relatively flat. In the year 2022 to 2023, in fact, there was a year when there was a big exchange rate gain, but then there was also another year with a big exchange rate loss. For our country, it is actually trying its best to maintain a reasonable range in relation to exchange rate fluctuations. And in the short run, we believe that there are challenges in terms of exchange rate gain or loss. But then in the long run, we are going to put in more effort to strengthen management of our exchange rate loss and gain and also enhance the position, overall speaking. There's only limited time, so I can only briefly give some explanation to the technical dimension of this question. So on one hand, within Mainland China, the expenses are mainly in RMB. But then when it comes to overseas business and also external payment, the usual habit is for USD to be used. So that's why we will be subject to impact from the fluctuations and volatility. So just now we answered a question about debt structure optimization. So last year, we increased our RMB debt and we used it to repay some of the high interest rate USD debt. As a result, the interest rate has come down because of this swap. Well, for USD debt, the interest rate was 4% and we changed that into RMB debt at an interest rate of 2%. So there is this interest rate differential. But then at the same time, there is also depreciation in interest rates. So these 2 movements are offsetting each other. Unknown Analyst: I have 2 questions. The first question is concerning your rig platforms. Utilization rate has been high. And then we know that there is a tight demand and supply situation concerning the semisubmersible rigs. So do you have any plan to build new semisubmersible rigs? My second question is related to the Technology segment. So we understand from the market that there is overseas development plan for this particular business segment. And now that there is the war and conflict in the Middle East region, so will this plan about achieving breakthrough in the Middle East be affected? Unknown Executive: So first of all, in relation to large-scale equipment, during the 14th 5-year plan, we have seen a rapid development stage. And then we believe that in the 15th 5-year plan, it would be in a tight balance or tight equilibrium position. So we are actually expediting our development and also R&D in this regard, hoping to achieve low-cost construction and highly efficient construction as well. So our principle is one of productization. So we are going to capitalize on our self-developed design, our own R&D, our self-construction in our platform and rig construction work. So we will make sure that we can come up with our own design and own research and development. And we believe that there are a few characteristics of the rigs and platforms that we develop and construct, namely that they are reliable, they are highly efficient, intensive and also there would be a high degree of integration. So we believe that we are able to make quite a lot of improvement in such a way that all such equipment construction work can be replicated and can be further promoted, so that they would be enough to support our future development for the coming 5-year plan period. Unknown Executive: So let me comment on our Technology segment. During the 14th 5-year plan period, we have seen changes in the overseas market. First of all, in terms of regions, we have newly added Uganda, Kuwait, Brazil, Canada and Thailand. And then in terms of customers that we serve, we have also acquired new customers, including Kuwait National Petrol, customers in Saudi Arabia, in France and also in the U.S. As I mentioned earlier, we are operating in the 5 major continents in 13 countries, and we have 120 operation sites. So we have already diversified our market and also our customer mix. This is also a good testimony that our technology and our management is well recognized by our customers. We are even better able to withstand and control risk. During the 14th 5-year plan period, especially at the beginning of that period, we have already established our 5 major strategies, of which the strategy about being technology-driven and also the strategy of integration have helped us enhance our overall competitiveness, especially in our overseas market and overseas development. So these 2 strategies have already accounted for 40% to 50% of our revenue in the 14th 5-year plan period. For these 2 strategies, integration and technology-driven, we have also diversified our businesses. And as a result, we have enhanced our overall competitiveness, and we are able to balance out market risk as well. So we are of the view that the war is going to be temporary in nature and also it is rather local in nature. And we will keep on diversifying our market as well as our customer base. Our direction of technology development is already very clear. Competitiveness is improving. With the market foundation, technology foundation and management foundation that we have already built, we believe that our future development is going to get better and better. Unknown Analyst: The first question is about the optimization of structure. So just now, we heard from your answers that especially for overseas business, there is now industrial integration. And during the 15th 5-year plan period, you are going to increase your equipment resources. So regarding this increase in equipment resources, I would like to know how you are going to do it. Are you going to consider new equipment resources within China or the mature equipment resources, or are you going to consider overseas M&A? I think this is related to the structure optimization between domestic and overseas that you have been talking about. And my next question is that your current business model is already different from your old past business model. You have already got the long-term agreement in place in the North Sea area, and the daily fee rates are sort of fixed. And is there any mechanism for the passing on of the oil price increase back to, for example, the oil companies and other companies, because in the past, costs have been controllable. But now that there has been a big surge in oil price, is there any way that you can pass on such oil price increase impact? Unknown Executive: During the 14th 5-year plan period, as we are increasing our large-scale equipment resources, basically, there are 4 methods for us to do that: leasing, self-construction, transfer, and purchase or acquisition. So right now, we are increasing our development in our internationalization strategy. And as mentioned earlier, the large-scale equipment capability within China is also rising. So earlier, I mentioned the tight balance between resource demand and supply. So we have already commented on the self-construction of equipment. And for the buy or purchase strategy, we will consider that when we see resources with high value for money. And for leasing, it has to be left for a later stage, because right now, we believe that we are going to increase our self-owned vessel fleet in order to support our future development and growth. As regards to the price, pass-through mechanism for North Sea, if such mechanism can be put in place, it is good. But then right now, we believe that our customers also encounter much difficulty. We have got the long-term agreement signed for the North Sea region. It is actually because of the energy management system, we are able to lower cost for the operators. And at the same time, we can enhance efficiency. So it is actually a win-win situation for both the operators as well as ourselves. So this is also one of our key competitiveness when we operate in this particular segment. Last year was the final year of the 14th 5-year plan period, and this year, we will see the start of the 15th 5-year plan period. During the 14th 5-year plan period, our integrated overall capability, our innovation capability and our management capabilities have improved significantly. And we have the confidence that we will be developed into a global energy resources and technology company. So we have a lot of courage and confidence in achieving this goal. During the 15th 5-year plan, we have actually got 4 main points in relation to our overall development. First of all, even though there has been some changes in our strategy, but then we have already consolidated and solidified many of our development strategies. So our future development is going to be centered around all these established strategies. So even though there is a lot of uncertainty in our development environment, but we will still be firmly adhering to our strategy. Secondly, we will rely on the drive from our technology and equipment products and services to continue our business development. The third point is that there would be some solidification and changes in our development methods and approaches. In the past, we focused a lot on the major elements input. And this is going to be changed into a knowledge-based approach. And then finally, we will deepen our reform. Many of our reform initiatives started in the 14th 5-year plan period. And in the 15th 5-year plan period, we are going to refine them. So under the leadership of our Board of Directors, we believe that we will see many friendly customers with very close relationship. We will be focusing on our core strategies and business segments. We will also center around our efficiency improvement and value improvement. So with all these, we believe that we can gradually develop ourselves into a first-rate global energy technology management company. Thank you all for spending time with us today. Unknown Executive: Thank you for all the questions and answers. Thank you, investors, friends for attending COSL's 2025 annual results announcement today. The company will continue to maintain communication with you through various channels. Today's session is now concluded. Should any investors wish to engage in further dialogue, please feel free to contact our IR team. We look forward to seeing you again next time. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. Any member of our team will be happy to help you. Operator: Good morning, and welcome to Paychex, Inc.'s third quarter fiscal 2026 earnings call. Participating on the call today are John B. Gibson and Robert Lewis Schrader. Following the speakers’ prepared remarks, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press 2 on your telephone keypad. As a reminder, this conference is being recorded. Your participation implies consent to our recording of this call. I would now like to turn the call over to Robert Lewis Schrader, Paychex, Inc.'s Chief Financial Officer. Robert Lewis Schrader: Thank you for joining us to discuss Paychex, Inc.'s third quarter fiscal 2026 results. Our earnings release and presentation are available on our Investor Relations website and we plan to file our Form 10-Q within a couple of business days. This call is being webcast live and will be available for replay on our Investor Relations portal. Today’s call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations. We will also reference non-GAAP financial measures. A description of these items, along with the reconciliation of non-GAAP measures, can be found in our earnings release. I would now like to turn the call over to John B. Gibson, Paychex, Inc.'s President and CEO. John B. Gibson: Thanks, Bob. Hello, everyone. I will cover this quarter's operational highlights, and Bob will come back and discuss our financial results and outlook, and then we will open it up for your questions. We delivered a strong quarter with revenue up 20% and adjusted operating income up 22% year over year, driven by effective execution and progress advancing our strategic priorities, most notably the Paycor integration and acceleration of our transformational AI initiatives. In this very dynamic environment, financial strength is important, and our free cash flow generation continues to be robust, as Bob will highlight later. Amid a dynamic macro backdrop, our clients’ workforce levels remained stable, supported by our solutions that help manage costs and source talent in a tight labor market. In a highly regulated industry, our compliance depth, advisory expertise, and award-winning platforms provide a clear competitive advantage in navigating a constantly changing and complex regulatory environment. As we embed AI into our expert-enabled technology, we are strengthening that advantage by leveraging our vast data to scale our expertise, enhance productivity, and elevate client outcomes. As you all know, we operate in HR, benefits, and payroll, some of the most mission-critical aspects of a business. And we are honored that 800,000 clients rely on us for trusted support and advice. For many of our clients, we effectively serve as their HR department, managing a foundational part of their business. Their people. Errors paying employees, withholding taxes, and administrating benefits carry significant regulatory and reputational risk, driving demand for trusted compliance solutions where accuracy matters most. Demand for our comprehensive advisory and benefit solutions remains strong, differentiating us from the tech-only providers. Clients are increasingly turning to our HR professionals for strategic advisory expertise and assistance over routine transactional support. Robust revenue growth in retirement, ASO, and PEO highlights the durability of our model and reinforces our expectations of a long secular growth runway for these businesses. Our ASO and PEO worksite employee growth continues to outpace the industry, reflecting our value in navigating regulatory complexity and ensuring compliance, often for clients with no or, as I said, limited HR support. Our PEO business remains strong with high-single-digit worksite employee growth, driven by robust demand and record retention rates. Our PEO solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies, aiding talent attraction and retention in a tight labor market. January enrollment in our at-risk 40 MPP medical plan went well and in line with our expectations, helping drive sequential revenue growth. We received positive feedback on the new AI-driven benefits intelligence we embedded in the enrollment workflow this year. It leverages employee-specific data to recommend plan choices and streamline benefits selection. We continue extending our SMB benefit leadership with Paychex Perks, our award-winning digital marketplace offering affordable, transferable benefits to our clients’ employees. Perks is a compelling growth opportunity that empowers our clients to offer meaningful benefits with no added cost to the employer or administrative burden. In the first 18 months, Perks has grown to over 25 benefit offerings, with purchases from nearly 350,000 unique employees, creating a direct end-user relationship with portable benefits that they can keep if they change employers. By bringing enterprise-level benefits down market, we are enabling our clients to better compete for talent and addressing a historically underserved market. The Paycor integration continues to progress well. We remain on track to exceed our fiscal 2026 synergy targets we discussed last quarter. Leading indicators such as bookings and broker referrals have reaccelerated to pre-acquisition levels, and we are adding sales headcount to capture the demand we see. We are gaining momentum cross-selling Paychex, Inc. ASO, PEO, and Retirement Solutions to Paycor's clients, and we continue to win larger-than-expected ASO deals and broker-referred PEO opportunities. This momentum reflects the hard work and alignment of our teams and positions us well going into fiscal year 2027. Our Paychex Flex and Paycor platforms were recognized as industry-leading HCM solutions with two 2026 Lighthouse Tech Awards. This achievement underscores our commitment to empowering businesses with modern AI-powered solutions that simplify HR processes and drive business outcomes. Integral to our growth strategy, we continue to accelerate embedding AI into our workflows. This amplifies our expertise with human-in-the-loop oversight and strong governance. We now have over 500 AI-powered capabilities and agents that can drive higher productivity and smarter decisions and outcomes. Our generative AI-powered employment law and compliance platform processed tens of thousands of inquiries this quarter, helping clients and Paychex, Inc. HR experts navigate complex and always-changing wage and employment law. Internally, we are expanding AI use cases to enhance the client experience and sales effectiveness. Following successful pilots last quarter, we are scaling the use of our voice and email agents for payroll processing, enabling service teams to focus on proactive higher-value advisory support. We also expanded our agentic AI sales and service tools to the entire sales team with a goal to drive revenue growth and efficiency. AI agents orchestrated real-time information across service and product systems, equipping thousands of service personnel to support clients more effectively. This agent swarm architecture really removes prior friction and serves as a foundational capability to future agentic developments. Our strategic AI investments are bolstering our leadership in HCM innovation. We are moving from insight and efficiency tools to proactive agents that leverage our vast and growing dataset to complete work to drive business success. Payroll and HR, as we know, are mission critical and highly regulated functions where accuracy and compliance matter more than automation alone. We believe Paychex, Inc.'s proprietary payroll data, regulatory expertise, and advisory relationships create a sustainable advantage that will enable us to responsibly embed AI into our solutions while maintaining a durable competitive moat. In our business, trust is critical. It is not just what you do, but how you do it that matters to prospects, clients, partners, employees, and key stakeholders. That is why I am proud that Paychex, Inc. was once again named one of the World’s Most Ethical Companies by Ethisphere for the eighteenth time. This rare achievement highlights our unwavering commitment to ethical operations and corporate responsibility. Supporting communities is also integral to our identity, and I am pleased that Paychex, Inc. was recognized as a leading corporate partner by United Way Worldwide, reflecting our commitment to making a positive impact where we live and work. Lastly, I would like to thank our team for the exceptional hard work during this busy year-end season and through a very, very challenging year of integration. The work that they have done to support our clients to come together is truly exceptional and I think really is positioning us well as we move into fiscal year 2027. I will now turn the call over to Bob to discuss our financial results and outlook. Robert Lewis Schrader: Thank you, John. I will start with our third quarter financial results, then provide an update on our outlook. Total revenue increased 20% over the prior year to $1.8 billion. This represents an acceleration in the organic growth of the business relative to the first half of the year. Management Solutions revenue grew 23% to $1.4 billion driven by product penetration and price realization. Paycor contributed approximately 19 percentage points to growth. PEO and Insurance Solutions revenue increased 9% to $398 million, driven primarily by strong growth in the number of average PEO worksite employees as well as an increase in PEO insurance revenues. Interest on funds held for clients increased 33% to $57 million, largely due to the addition of Paycor balances. Total expenses increased 24% to just over $1.0 billion, primarily driven by the Paycor acquisition. Excluding Paycor, we estimate that expenses grew in the low single digits during the quarter. Operating income margin was 43.8%, and adjusted operating income margins increased approximately 80 basis points to 47.7% driven by increased productivity and cost discipline while increasing our investments in AI. Diluted earnings per share increased 9% to $1.56 per share, and adjusted diluted earnings per share increased 15% to $1.71 per share. Our financial position remains strong with cash, restricted cash, and total corporate investments of $1.8 billion and total borrowings of approximately $5.0 billion as of the quarter close. Our cash flow generation continues to be a strength of our model. Operating cash flows were nearly $2.0 billion year to date, and our free cash flows increased 27% year over year. After the quarter closed, we repaid the initial $400 million tranche of debt from our Oasis acquisition that matured in March. Our recent $1.0 billion stock repurchase authorization underscores our commitment to delivering long-term shareholder value. We returned $463 million this quarter and over $1.5 billion year to date to shareholders in the form of cash dividends and share buybacks, and our 12-month rolling return on equity remains robust at 41%. Shifting to our guidance for FY 2026, which is based on current market conditions, we reaffirm our prior fiscal 2026 outlook except for raising our interest on funds held for client expectations. Interest on funds held for clients is now expected to be in the range of $200 million to $210 million. All other guidance metrics remain unchanged. Turning to the fourth quarter to provide you a little bit of color, we would anticipate fourth quarter growth to be approximately 12% with an adjusted operating margin of 41% to 42%. The fourth quarter growth rate reflects a couple of dynamics. First and foremost, I think most of you know we anniversary the Paycor acquisition during the quarter, and to a lesser extent Q3 benefited modestly from the timing of certain items relative to Q4. However, our second half outlook remains consistent with our expectations and the organic revenue growth acceleration we saw in Q3. We believe Paychex, Inc. has never been better positioned to succeed in the AI era of HCM to deliver shareholder value. Our business fundamentals remain strong. As the best operators, we have unrivaled operating and free cash flow margins with an opportunity for further expansion. Our financial strength and the durability of our business model are evident in our consistent performance as a Rule of 50 company. We are committed to returning capital to shareholders and confident in our ability to deliver sustained value through continued revenue and earnings growth. I will now turn the call back over to John for questions. John B. Gibson: Thank you, Bob. We will now open the call to questions. Operator: Thank you. If you would like to ask a question, press 1. To leave the queue at any time, press 2. We do ask that you limit yourself to one question and one follow-up. Once again, that is 1 to ask a question. And our first question comes from Bryan C. Bergin with TD Cowen. Your line is now open. Please go ahead. Bryan C. Bergin: Hi, guys. Good morning. Thank you. Bob, can you put some finer points, just first on the level of organic growth in the third quarter and then bridge that forward to your commentary on the fourth quarter. If you can kind of unpack that 12% growth across the business, I think that would help. Robert Lewis Schrader: Yeah. Bryan, I think consistently, even if you go back to Q4 of last year, the organic growth of the business has been a bit weaker. I think a lot of that had to do with comparability issues, particularly in the PEO business with our MPP plan in Florida. But if you go back to Q4 of last year, I think we have seen sequential improvement each quarter in the organic growth of the business. So if you look at first half total revenue organic growth, it was roughly 4% and that improved from Q1 to Q2. And then when you look at the back half, whether it is Q3 or Q4 combined, we would expect it accelerated in Q3, and we would expect to see similar organic growth performance in Q4. And so you are now getting to a back half organic growth rate that is closer to 6%. And then when you put the two of those together, it is roughly 5% on a full-year basis. And so again, I think there are a couple drivers of it. One, to be fair, is the easier compare on the PEO business. I mean, I think you will see that the headline PEO number sequentially went from 6% last quarter to 9%. There are some timing things there, but there is certainly a strength in the underlying operating performance of the business, particularly in the PEO, and we can get into that probably in maybe some later questions. But we did anniversary the headwind from the MPP enrollment. So that is why you are definitely seeing the combination of an easier compare and stronger operating performance driving accelerated organic growth in the back half of the year. Bryan C. Bergin: Okay. As far as the 4Q exit rates that are implied, as we think forward into fiscal 2027, any important considerations that you want to share? Robert Lewis Schrader: Yeah. I will maybe head off the question that I am probably going to get. As it relates to next year and guidance, we are in the early stages, I would tell you, of our operating plan and are going to finalize that over the next six to eight weeks. And I know we kind of established a precedent coming out of COVID in providing maybe some more details around what we were thinking for the year. I think we needed to do that given some of the uncertainty in the environment back then. Our preference now is to build the plan, come out in Q4 like we historically did and consistent with what our competitors do, and provide guidance at that point in time. That being said, we obviously have visibility to what is out there in the models and FactSet. And when I look at that, I really do not see any reason that I need to steer you in one direction or another. I am fairly comfortable with what is out there. And I think, Bryan, what you will see is the organic growth rate, whether it is Q3 or Q4—we are really looking at the back half because there are some timing differences, particularly in the PEO, between Q3 and Q4—when we look at the organic growth rate in the back half of this year, it pretty much aligns with what is assumed from a consensus standpoint for next year. Operator: Thank you. And we will take our next question from Mark Steven Marcon with Baird. Your line is now open. Mark Steven Marcon: Thanks for taking my questions, and nice performance this quarter. I am wondering if you could talk about a couple of things. One, you did mention that Paycor was seeing new broker engagements or a renewal of some of the broker engagements and that pipeline. I was just wondering if you could talk about new sales, generally speaking, during the core selling season. What did you end up seeing this year, and how would you describe the competitive environment, win rates, etc.? John B. Gibson: Hey, Mark. This is John. I would say the competitive environment is stable and the same. It is competitive. I would not say I have seen much change there. From a sales perspective, I am very pleased with our performance in Q3, not only in line with our expectations but, quite frankly, we were accelerating PAR and bookings growth in the third quarter. And we have kind of seen that sequentially as we come out of the disruption, as you know, at the start of the year with the integration of teams, continuing to grow there. PEO, double-digit bookings; Paycor, double-digit bookings as well. We actually see bookings in the PAR referral continuing to accelerate back to pre-acquisition levels. We are actually adding headcount in the enterprise space. Again, remember, Paycor for us is a brand for the enterprise market, 100 plus, and we think that is a great opportunity for our HR outsourcing services as well as technology solutions. And so we are going to continue to go after that as well. So we continue to gain momentum, I think, across the board, and we feel good about where we are positioned going into 2027, both in terms of our competitive positioning and our headcount. And I think you really look at it. We are entering 2027 with all of the integration work behind us that we did early in the beginning of this fiscal year, and we are entering with not only an aligned team, but really the most comprehensive and, I think, flexible and innovative set of solutions in the marketplace, and so I feel good about where we are. Mark Steven Marcon: That is great to hear. And then I thought the gross margin performance was particularly impressive. You know, when we take a look before defining gross margin as revenue minus the direct costs, and part of that was obviously the higher interest income off of the float. But beyond that, it looks like it is doing extremely well. How much of that is related to some of the AI initiatives that you have put in place in terms of embedding AI across your service infrastructure and making them more productive versus, you know, other initiatives that you put in place in terms of perhaps shifting some of your costs to lower-cost labor markets like India, and how much more can we do there? Because it has been fairly impressive. I am wondering if this is basically setting us up for, you know, continued margin expansion for multiple years. John B. Gibson: Mark, I think that we have a long track record of being able to drive, as the best operators, margin expansion as we grow revenue in the business. And I think you are going to continue to see that. We use every lever imaginable to do that. I think that when you look at AI, as you know, we have been using AI in predecessor-type models for many, many years, since I have been here. And now with this new technology that almost every day something new is coming out, what we are seeing is pretty impressive. It is pretty incredible. Some of the things we are doing in terms of generative AI models, which we have now released to scale after the pilots—doing voice payroll, doing email payrolls. What we are seeing early stages in our beta groups in sales using our sales guru tool and what we are seeing from a service perspective. So I feel good about what the opportunities are. Look, if we grow the top line, we are going to be able to grow margins and expand margins over time. Then when you look at these new tools that we can put in our arsenal, as the best operator I really feel good about where we are. And I would say that on 2027, we are just getting in. That is a big debate right now. I think that is the big question—how do you begin to quantify the real positive impact from sales productivity, the way we are using it in marketing, what the potential is from a service perspective. So I can assure you we are going to have some very lively discussions next week during our planning sessions about exactly the potential that this technology has both to drive the top line but also to continue to expand margins. So I think there is more room ahead. And every year, something new comes out. And we are innovators in that regard. We are going to grab every tool we can to continue to drive efficiency. Thank you. Operator: We will go next to Tien-Tsin Huang with JPMorgan. Your line is now open. Tien-Tsin Huang: Hey, thanks. Hi, John and Bob. I wanted to ask on the advisory work that you talked a little bit about. I think that is probably underappreciated in terms of what Paychex, Inc. does there. How AI-proof is the advisory side of the business? You know, because I get the question quite a bit that, you know, can rules-based advice from AI come in and supplant what Paychex, Inc. does on the advisory side? But I am guessing that a lot of your advisory work is centered around compliance and very complex data issues that only Paychex, Inc. has. Can you maybe elaborate on that? John B. Gibson: Yeah. Look, Tien-Tsin, I think this is something I think is extremely interesting for people to understand. For the vast majority of our clients, we are their HR department. Right? So not only do we provide them the advice, we literally are talking to them and holding their hand when they are making some of these decisions and supporting them. You look at our PEO, the most comprehensive part of our model, we are actually in a co-employment arrangement. We are actually helping represent them and deal with their employee situations, which are numerous, I may add, in today’s world. And so we are actually doing so much more that there is no way that I think technology is going to replace that, at least that I see in the short term. Now to your point, we actually own the patent on using agentic AI in a mesh form and structured and unstructured data to answer HR and compliance status. Why is that? Because we have a huge compliance regulatory team that is constantly keeping that system up to date. What I will tell you is the changes in Akron, Ohio are not automated. Someone has to go onto Akron’s website, has to look at it, has to interpret it, has to watch what is going on in Ohio courts to understand how it is being interpreted, and then put that into a system to be able to respond to a client who is asking a question about whether or not they can terminate a client in Akron, Ohio or not. So I think that part of it—both the AI-embedded tools, now we have actually launched those tools inside of our HR generalists—we are actually seeing pretty significant productivity improvements since we have done that. Our clients—we are embedding that into our platforms so our clients can gain access to that. I think that is going to drive more efficiency. But at the bottom line, for most of our clients, and increasingly upmarket, we are becoming the HR department and HR partner for helping people manage people. So as long as our clients have people, they are going to need Paychex, Inc. holding their hand and helping them understand how to work with those people, in my opinion. Tien-Tsin Huang: Yeah. Well, I will say your opinion is very important, John. That is why I am asking. And so thank you for going through that. Maybe just as a follow-up, thinking about these agents as they get deployed and, as you said, the proprietary data that you have, does this get monetized through your normal way—pricing that you typically would put through in the spring—or do you think of this as a new monetizable opportunity for Paychex, Inc.? John B. Gibson: Well, I think we have been monetizing our data and providing insight going back to the early days. We won the 2022 best use of AI in HCM with our retention insights. That was before all this AI madness fell us. And the fact of the matter is that we have been doing that. We monetize that with our clients and actually provide them insights about how to retain their clients. I think what you are seeing today is we are applying it into our products and services to improve the user experience. We are putting it in there to be able to improve insights that we can provide in other areas such as benefits. We mentioned what we are doing in the PEO, which was just phenomenal—the way the tool helped advise clients’ employees on what benefits package was right for them. So I think you are going to continue to see us use it to really drive better outcomes. And you made a critical point. In order for AI to work, you have to have a large, robust dataset. And the other thing that we have learned, particularly when we are building the agentic AI models for payroll, you had to have a constantly moving set of data. And so the way I look at it is this flywheel effect. Now that we are capturing every interaction that we have from an HR, payroll, and compliance perspective with our clients through every form of communication, every interaction we have with them or one of their employees adds to our dataset. And with our tools constantly looking and doing the analysis around what are common trends, we are getting more insights. And those insights are allowing us to be more proactive with our clients. So as the transactional work gets automated, it frees up our time to be able to gain more insights, and then the system is proactively giving our HRGs a list of insights that they can then call clients and make recommendations on, whether that is compensation, whether that is retention, whether that is workplace trends that we are seeing in specific geographies that they need to be aware of. So I think it is just going to continue to improve the value that we have, and I think it is also going to improve the outcomes that our clients see. Operator: Thank you. We will move next to Brian Keane with Citi. Your line is now open. Brian Keane: Yeah. Hi. Good morning. Was hoping you guys could just talk a little bit about the strength of PEO insurance. It jumped above the range at 9%. Can you talk a little bit about some of the drivers and some of the sustainability as we head into the fourth quarter? Robert Lewis Schrader: Yes. Maybe I will start and then John can add some color. I think it is twofold, Brian, as I alluded to earlier. Think strength in the underlying operating performance of the business. So we saw double-digit demand for PEO. We continue to see record WSE retention in PEO. We saw high-single-digit worksite employee growth. You know, this business is all about worksite employees, and we continue to outpace the competitors in that space with our ability to drive worksite employee growth. So the underlying operating performance is strong. January is the big annual enrollment, so we anniversary two things. We anniversary the tougher compares from the prior year when MPP was down. We got through that annual enrollment. And I would tell you, enrollment in our MPP is up modestly. So you have an easier compare, we drove the enrollment. And then when you zoom out a little bit, and you look at medical enrollment across all the PEO—not just the at-risk business in Florida, but across the entire PEO space—our medical enrollment was up high-single digits, near double digits, as we went through this annual enrollment period. And I think that is the strength of the PEO value proposition: the ability for us to offer to our small business clients the ability to offer medical insurance and workers’ comp insurance, leveraging our scale to be able to offer affordable benefits to them. You know, we had a pretty good year-end enrollment related to that. So it is really a combination of all those factors. I would also just say, and I have alluded to this a little bit, on the agency side we had some timing benefit. You get some timing between Q3 and Q4 between carrier bonuses. SUI revenue can be a little bit stronger in Q3, a little bit weaker in Q4. And so relative to our expectations, there was a little bit of timing that came into Q3, but all in all, really strong performance and pretty much what we planned in the back half of the year, and it is nice to see that coming to fruition. John B. Gibson: Yeah. I just want to add to this. I mean, the PEO performance is amazing, outpacing the industry, I think, rather significantly. Double-digit revenue growth, double-digit bookings, seeing success upmarket. I think this is another point—again, I will make it. It is going to be interesting. We are having success with the Paycor sales team into the broker channels positioning PEO upfront. So this is one of those what I call revenue geography problems. So a Paycor rep is out and they are talking to a broker. What would have normally been, because all they have was HCM to sell, an HCM sale— all of a sudden, the discussion comes about what the problem is, and we have got multiple solutions. And now we are selling a PEO. And we had some, and it is larger deals than what we typically would see coming in. So in January, that was another big positive that, quite frankly, I think is going to continue to help us and move forward. I would also say, because I do want to say this, look, the agencies were certainly still a drag in the quarter to the segment. But we saw sequential improvement. And I would actually say even in bookings, which is the precursor to revenue moving, we actually saw solid bookings there in the quarter. And so I am pleased with the teams—made a lot of changes there. We have made some changes in the agency. We are trying to be more innovative because the market is the market. Health care issues are health care issues. Soft workers’ comp is soft workers’ comp. We are building strategies to work around those situations, and the team is making some progress there. So that also contributed a little bit as well. Other thing that I think is that I would point out for you guys to go back and look at, and I think it is probably a story that we plan on duplicating in the enterprise space. If you go back and look at our PEO success, and you go back to 2020 to 2025 and look at those five years, I think you are going to find that our CAGR of worksite employee growth is in the double digits and far surpasses any of the other providers that I am aware of, both public and private, in terms of growth. Now what was the setup for that? 2018, we make an acquisition of Oasis. Prior to that, we made a decision that strategically we were going to position the company as an HR advisory company, that we believe there was more than technology that our clients were going to need and want. We started to really grow our business organically. We then went and made an acquisition. One year after that acquisition, we are growing that business at industry, and we are gaining share in that industry. I think that is exactly what you should expect us to try to do, and we are doing, with the Paycor acquisition. We saw the opportunity to take HR advisory solutions upmarket. We wanted more capability to be able to do that, more distribution. And now we are a year into it, and I think we are well positioned to duplicate the story that we did in PEO in the enterprise space. Brian Keane: Got it. Got it. And just a quick follow-up, Bob. The 12% revenue growth you called out for Q4, I think that is a point below the Street. Yeah. But it sounds like some timing—maybe there was a slight benefit, some of the stuff you just talked about, obviously, in the PEO business from Q3 to Q4. But organically, the organic growth does not move much. Maybe just talk about some of the benefit maybe if Q3 should be stronger organically than Q4. Robert Lewis Schrader: No. I think you would probably see a slight uptick, a continued acceleration in the organic growth of the business in Q4 relative to Q3. So we should see sequential improvement there. And I mean, as you guys know, we do not give quarterly guidance. I am trying to give you some color each call to help you with your models going forward. I would tell you, we were intentionally conservative last quarter when we kind of provided some color on Q3. Obviously, Q3 is a big quarter for us. You have year-end. You have selling season. We have our year-end processing fees, which is a lot of money and margin that hits in the month of January. We had our large enrollment in the PEO. So we were intentionally conservative. I would tell you Q3 was in line and a bit better than our expectations. And as I mentioned, there were some puts and takes between Q3 and Q4, and largely the back half of the year was in line with our expectations. And again, you will continue to see some sequential improvement in the organic growth of the business, assuming we deliver the forecast and guidance. You will continue to see some sequential improvement in the organic growth of the business, which I think positions us well, as John mentioned, as we move into FY 2027. Operator: Thank you. We will move next to Andrew Owen Nicholas with William Blair. Your line is now open. Daniel Jester: Hi, guys. Good morning. This is Daniel on for Andrew today. Thank you for taking my questions. Real quick, just turning back to the revenue timing. It sounds like that was mostly concentrated in PEO. Is there any way you can size how large that was, and looking forward, can sequential growth in PEO specifically continue into the fourth quarter off of that? Robert Lewis Schrader: Yeah. I think the growth rate in Q4 will be lower because of some of those things. I do not have the exact percentage. And I think, again, if we look at it, the two quarters combined, Daniel, you will see a sequential—or if you look at back half—because of some of those puts and takes between the quarters, you will see a fairly significant lift in the organic sequential growth of the PEO and Insurance in the back half relative to the first half. But the overall growth rate, I think, when you start doing the math, you will see that the math is going to show you that the growth rate is going to be a little bit lower in Q4 than Q3. But when you put the two of them together, it is a fairly big step up in the sequential organic growth relative to the first half of the year. Daniel Jester: Great. And then for my follow-up, going back to the mention of a reacceleration of referrals and bookings to pre-acquisition levels. Can you add any incremental detail on specific areas of momentum there and maybe just level set, after a few quarters of integration, where the lion’s share of the synergy opportunities now sit, whether that is on the revenue or the cost side. John B. Gibson: Yeah. Yeah, Daniel. What I would say is very pleased with the acceleration we have seen each quarter. As we came through the first quarter when we did all of the reorganization, as we talked about, we made a conscious decision when the deal closed almost a year ago now—April a year ago—that we were going to get the hard work out of the way. And we saw the opportunity rather than dragging it out. So we took—we did that. And, of course, from the time you announced the deal in January of last year to the time that we closed the deal in April, as you can imagine, a lot of competitive noise in the market, a lot of questions from brokers about what is going to happen, and we could not say much. As we have gotten our story out there and gained momentum, continued to build momentum each of the quarters. And as we said, we have gotten ourselves back to where we were pre-acquisition, both in terms of bookings volume—was double digits, again, year over year—and broker engagement. So I would say it is getting back to kind of where we were, except for now we have the cross-sell opportunity. So I would say expense synergies are pretty much behind us at this point in time. We have taken those actions. We have exceeded the expectations that we laid out. Part of the deal model. Now you are in what I call normal DNA, best operators, continuing to improve the model of both companies and look for opportunities. Where the opportunity is now, and we continue to build momentum, is around the cross-sell inside the client base—401(k)s, ASO, PEO, all of our other products and services. You will be seeing us putting our Perks product into the Paycor ecosystem as well. So that is where we see the opportunity as we roll into fiscal year 2027. Operator: Thank you. We will go next to Kevin McVeigh with UBS. Your line is now open. Kevin McVeigh: Great. Thank you so much. Hey, I wonder, can you just remind us what the initial Paycor revenue and expense synergies were and where we are today on those? Because it seems like you have been doing a nice job on the integration. But just remind us what, again, the revenue and expense synergies were—I guess we are bumping up on a year. I think that that would help. Robert Lewis Schrader: Yeah. Kevin, if you go back to, I think, when we originally announced the deal—and now I am kind of losing track of the quarters—but at one point in time, I think the expense synergies were in the $80 million to $90 million range. I think the last update that we gave was that we expected those to be in the $100 million range. And as John said, now we are kind of moving into BAU. We will continue to look for opportunities, and we have not stopped even though we kind of exceeded our target. And I think we have ideas, certainly in areas around procurement and things like that. I think there are additional opportunities. But that was kind of the last update on the expense synergy. And then I think the update we gave on revenue synergies was a current-year update. We expected it to contribute 30 to 50 basis points of growth this year. I would say we are probably on the high end of that. And as John said, we are building momentum. And really, listen, I think that the expense synergies are not why we did the deal. I think they probably justified the purchase price, but really the value creation opportunity longer term with this deal is the cross-sell. We know we are extremely effective and have driven a lot of growth in our model selling and expanding the share of wallet within our existing client base. When we look at where that growth has come from—our higher-value solutions, ASO, PEO, retirement solutions—those, as John mentioned, play well more upmarket. And so, listen, I think we are excited about the opportunity. Paycor average client size is quite a bit larger than ours, and those clients are more apt to have some of the needs that those solutions meet. We are trying to be intentional and cautious and thoughtful in going after the opportunity. We know that we are extremely effective at doing it. It might not always be the best client experience, and so we are trying to go after it the right way, and we are building a lot of momentum there. And as we move forward, we expect to continue to be able to capitalize on that opportunity. Kevin McVeigh: Helpful. And then just a real quick follow-up. John, you had some great commentary on AI opportunity. As you think about AI across a 100-person client as opposed to an 8, is the go-to-market strategy on that different in terms of the consumption patterns, or how are you positioning for—because, obviously, you serve a terrific market from kind of micro to medium. Just any thoughts on the shift in the go-to-market through an AI lens? John B. Gibson: Well, I think, Kevin, I will take a shot at it. As I said, for the vast majority of our clients, we are their HR department. And you mentioned the eight-man company—they do not have an HR director. Right? Probably do not have any payroll person. I think the thing that you find with our ASO and our PEO business is that a lot of the clients are foregoing building that capability. Right? So what they are saying is, why would I build a department when I can leverage Paychex, Inc. at scale—their technology, now you get their datasets and our insights and our HR expertise and depth of knowledge—and, oh, by the way, we have actually employment lawyers on staff that support those people. So you are getting a lot more capability. So people are avoiding building HR departments. So I think the value proposition there is I am going to leverage something at scale. And AI really makes—if you are a scale player—really makes a big difference, is what I will tell you. Because I have a lot more insights about what restaurants are paying in Rochester, New York or San Francisco. I have got that data. I can bring that together and now present it in a way to give you advice. If you had your own HR director, you are not going to get that. So those are things we can do. When you get into 100 plus, and I would actually say even larger than that, what has been a pleasant surprise to us as we have had more conversations with the Paycor client base is how much they are looking for our support. So now you are talking at a 250- or 500-person company that does have an HR department that is probably understaffed and underequipped, and we can bring our expertise, our technology, our additional support staff, and begin to augment their HR organization and allow their people to spend more time on strategic HR activity. So I think when you start looking at companies trying to figure out how do I become more efficient, what I think you are going to find companies ask themselves is, yeah, do I apply AI into my HR department and try to make it a little more efficient? Or should I really radically think about my HR department differently? Right? Should I go and leverage someone who can provide both the tools and the people and have the breadth of the data we have to provide the insights? Is that a better alternative? And that is a, you know, traditional enterprise HR outsourcing value proposition. I think AI allows us to do that at scale. And do it at all sizes of market. So one of the things we have actually begun to introduce at Paycor that they have is a managed payroll and a managed benefit offering. So now, you know, where typically the tech players say, here is the tool, knock yourself out, we are now—and we are getting clients that are asking us—would you mind doing it for us or doing it with us? And so now we are approaching that market with either you can buy our tech and get technical support, or you can come and we can do it for you. So I am really excited about the opportunity here. And I think at scale, AI takes large datasets. We have large datasets, and I think we can add value to our clients and their HR departments regardless of whether they are eight people or 100 people. Operator: Thank you. Our next question comes from Samad Saleem Samana with Jefferies. Hi, good morning, and thanks for taking my questions. Samad Saleem Samana: Good to hear it sounds like trends are getting pretty good. You had mentioned recently that maybe the initial land per client was a little bit smaller than historical or fewer add-on modules at the point of sale. I am curious if you have seen that trend change as well. Was that a onetime kind of occurrence—what you saw last quarter—and if that has improved. And then I have one question. Thank you. John B. Gibson: Yes. So I would say that the market has been relatively stable in that regard. I think we probably had higher expectations going into the year about the number of modules that we would be able to add, and I would say that did not change much in Q3 selling season from what we saw before. Samad Saleem Samana: Understood. And then in the PEO business, I think that as we all try to figure out what is happening under the hood in terms of different verticals and what the employment outlook looks like there. Can you remind us what the kind of vertical exposure inside of the PEO business is broadly speaking versus, let us call it, white collar, blue collar? And then related, just as you think about that high-single-digit PEO WSE growth, how much of that is driven by net new deals versus headcount growth within the installed base? Thank you again. John B. Gibson: Yeah. So on the industry thing, again, as big as we are, we take every—we are very broad in terms of where we are. Now I would say that when you look at our aggregate business, because we did an analysis on this, and you look at the actual job codes of our employee bases across the business, I would say there is not a major variance in the PEO business. We skew a little bit more towards the blue and gray than what you would see in the general workforce. Again, some of that has to do with your large enterprises are more white collar. So get above 5,000-10,000, you have more white-collar type of jobs. So a little bit more blue and gray across the business, and I think that applies to the PEO. We had good net new client and worksite employee gain in the PEO. Robert Lewis Schrader: I would say that is the entire driver. I mean, headcount within the installed base has been relatively flat, and it is most years. I mean, it is driven by the double-digit demand that we talked about, Samad, as well as the record retention. So it really is net new that is driving the growth in worksite employees. Operator: Thank you. We will go next to Ramsey El-Assal with Cantor Fitzgerald. Your line is now open. Ramsey El-Assal: Hi. Thank you for taking my question this morning. I wanted to ask about something you mentioned, which was that Paycor bookings had reaccelerated to pre-acquisition levels. How should we think about the bookings conversion to revenues for Paycor relative to legacy Paychex, Inc.? Do the larger clients translate into sort of a slower conversion process or not so much? John B. Gibson: Yeah. It is a little longer than what we are used to. I think that that is a fair—so there is a couple-quarter lag, as near as I can tell. Again, just what I see in the data is a couple quarters. Obviously, depends on the size of the client, but it is much longer than ours where you could sell them and implement them in the same day, same week. So yep. Ramsey El-Assal: And is that the same for—I mean, I would understand that would be the case for sort of a new client implementation, but does that also apply to cross-sell or new product attach? Or is that something that you can kind of turn on more quickly? John B. Gibson: Yeah. That is far more quickly. I mean, again, those cadences—if you recall, one of the things again that we did is to drive all the disruption upfront. And we integrated all of our ancillary products within, I think it was probably the first quarter post the acquisition. So those things are very similar to the legacy Paychex, Inc. Operator: Thank you. Our next question comes from James Eugene Faucette with Morgan Stanley. Your line is now open. James Eugene Faucette: Great. Thank you very much. I wanted to ask a quick macro question and I guess tie it to a margin question. You mentioned that you still see kind of a tight labor environment. Just wondering if you can provide any anecdotes or color on that comment. And then as it relates to margins, I know you said that you expect there is some margin expansion to go. Just wondering how we should think about the Paycor integration and how that matures and, you know, getting past some of these acquisition-related costs because they still look elevated. Just looking for a little color on the timing around those couple things. Thanks a lot, guys. John B. Gibson: Okay. Well, I think on the macro side, what we said is and what we see is that it has been relatively stable. It is really a low-fire and a low-hire type of environment right now. We have not seen a significant change in this fiscal year in terms of the small business index that we report. And, again, I think we are in a dynamic environment right now where, again, what we hear from clients—particularly in the small end of the market, less than 50—is continued inability to find qualified people for the jobs that they have open. We are doing a lot of things to try to support them there. Then I think you have got a degree of potential hesitancy to add in this uncertain environment as you move upmarket. But, again, when we look across the business, it has been relatively flat in payment levels. Robert Lewis Schrader: Yeah. And just on the integration-related stuff question as it relates to margin, James. I mean, we are backing a lot of stuff out, so that is really not included in the adjusted operating margins. You know, I think if you were to look at our margins from a GAAP standpoint, they are still pretty high, probably in the 40% range. But I think John hit on it. I think we still think there is room as we move forward as we continue to embed AI in all of our processes across the company. We feel like there is still plenty of room to expand margins. That is certainly part of our DNA, and we are always trying to make that trade-off of trying to find ways to be more productive and more efficient so we can expand margins, continue to deliver the strong earnings growth that our investors have become accustomed to, and at the same time make sure that we are investing back into the business, which is a priority for us to make sure we have a sustainable model as we move forward. So, you know, we will continue to—that has been our model. That is how we go about our business here. And I think today, adjusted margins are high from a non-GAAP standpoint, but given some of the advancements in technology, we feel like we still have a runway to be able to shuffle all those different priorities and expand margins. James Eugene Faucette: Thanks so much, John. Thanks, Bob. Operator: Yep. Thank you. Our next question comes from Daniel Jester with BMO Capital Markets. Your line is now open. Kyle Aberastri: Hey, good morning. This is Kyle Aberastri on for Dan Jester. Thank you for squeezing me in here. Just a quick one from me. I was wondering if you guys quantified how much impact the annual form filing revenue had on the business in the quarter? Thank you. Robert Lewis Schrader: How much impact they had? I mean, it is always a large number in Q3. I would say probably consistent with maybe where it was in prior years. Obviously, it is pretty high-margin revenue, so that is why you see the higher margins in Q3 relative to the rest of the year. I would say the one comment related to the year-end filing, definitely saw a little bit better price realization. The discounting on that was better than what we had seen historically and certainly a little bit better than what we had assumed in our forecast. That is a lever that sales reps can use, particularly as they are getting towards the end of the calendar year and selling new deals. That is kind of a discounting lever that they use. And we fly a little bit blind in finance because we do not really know how that is going to come through until it actually bills in January. I would tell you that the discount on it and the price realization was a bit better than what we assumed. But not a big growth driver year over year and similar performance probably to what we have seen in past years. Operator: Thank you. Our next question comes from David Grossman with Stifel. Your line is now open. David Grossman: Good morning. Thank you. I think last quarter, your bias was the low end of the revenue growth range. And I am just wondering, in reiterating the guide, are we still favoring the low end? Or just given some of your commentary about the third quarter and going into the fourth quarter, are you feeling better about the business and feeling maybe we are better than the low end? Robert Lewis Schrader: Yeah. I think we would stay where we are at, David. That is why we reiterated, as we mentioned. Listen, I think we were a little bit conservative in what we guided towards in Q3. There were some puts and takes. I mean, obviously, we feel good about the business. We felt good about the business last quarter as well. It is nice getting through Q3 and putting up the quarter that we had. John mentioned a lot of positive momentum. I would have to say it is probably one of the stronger selling seasons that I have seen in a while, and we have a lot of momentum in a number of businesses. So we feel good. Obviously, that translates into the P&L further down the road, particularly when you are talking about the enterprise space. And so I would say largely the back half, as I mentioned, is in line with our expectations, and that is why we are kind of leaving it where we had said it was going to be last quarter. David Grossman: Got it. And sorry to kind of stick on the financials here, but just—you did make a general comment about a certain level of comfort with where consensus was for next year. And I know you do not want to make any specific comments about next year, but is there anything now that you are a combined company about how we should think about pays or pricing in Management Solutions going into next year? Particularly given now that we have got Paycor in the base? I know it sounds like pays look like they are, you know, pretty stable, but I thought I should just ask the question. Anything you want to call out there in either pays or pricing? John B. Gibson: No. David, I do not think there are any changes that we are making in any of our assumptions. I think, as you know, we had clients of all sizes before we had Paycor. We have added more upmarket. But I think relative to our assumptions and what we are expecting, we are expecting a very similar macro environment that we are seeing right now in a very uncertain time. And that is the other thing that I am sure Bob and I are going to be having a lot of conversations about. And by the time we consult with the board in a few months, and we come back to you, hopefully, we have even more certainty about the external environment and what the risks are going into 2027. So we are trying to be prudent here. As you can imagine, this is a very unique time on a macro basis. And every day something could change that could impact where we are. Right now, we feel in good shape. What we are seeing is a stable macro environment, no signs of recession in any of our data or indicators—nothing that would indicate that we would change what we are thinking in terms of pays on any of our segments at this point in time. Operator: Thank you. Our next question comes from Jacob Smith with Guggenheim Securities. Your line is now open. Jacob Smith: Quick one—just, you are a second company in the mid-market through Paycor really talking about expanding headcount to capture opportunity. Just what are you seeing out there that is giving you conviction? John B. Gibson: Well, I think the key thing is going into that, we have a list of—we know who the clients are and prospects are, and we have territories, and we have open territories that we want to fill. And we are continuing to expand that. I think before we bought Paycor, they were expanding headcount because they saw more opportunity. And we believe now with our comprehensive offerings that we have, the opportunity has expanded. And so that is what gives us confidence to be able to expand the headcount and go after and capture the upmarket not only for HCM, but as I said, really bringing our entire HR advisory value proposition to the enterprise market. Jacob Smith: Great. Thanks for taking my question. Operator: Thank you. Our next question comes from Ashish Sabadra with RBC Capital Markets. Your line is now open. Ashish Sabadra: Thanks for taking my question. I was wondering if you could provide some color on the year-on-year growth in Paycor in the quarter. And if you could quantify the contribution for form filings for Paycor in the quarter? Thanks. Robert Lewis Schrader: Yeah, Ashish. I mean, I think as we have talked about in the past, the lines are somewhat blurred and have become increasingly blurred between what is Paycor and what is Paychex, Inc., based on our early-on decision to integrate those two businesses. And so I think if we look at it, our best estimate is if you were to look at the organic growth of the Paycor business, it was consistent in Q3 with what we saw in the first half of the year, which is in that upper-single-digit range. I would tell you what is less blurred—and this is how we will talk about the business as we move forward—is when we look at our enterprise business. So when we look at our client base above 100, irrespective of which sales organization sold it, which platform that it was on, that business has been growing. I would tell you in the first half of the year, it was growing upper single digits. And in Q3, it grew around 10%. And so that is how we are managing the business. That is how John and I are thinking about it. That is how we are going to market. And as we move forward, after we anniversary the acquisition and we provide color on the different areas of the business and how they are performing, that is how we are going to be looking at it. And, again, I think that is similar and maybe not too different than what the other assets in that space are growing at. And our expectation would be that we would prospectively be growing at or above the other assets in that segment of the market. And that is currently where that space performed in Q3. Ashish Sabadra: That is very helpful color. I was just wondering if you had some initial thoughts on pricing for next year and how does that trend compare to your historical range? And also maybe a quick one on discounting. You made some comment around discounting was much lower—I think that was specifically for forms filing. I was wondering if you could comment on discounting for ASO in general. John B. Gibson: Thanks. Yeah. So I want to say this. We are going into our budget meeting. This is where we discuss competitively how we want to position ourselves going into the next market. We have a tradition of being able to drive value to our clients and get price accordingly. So I am not going to make any comments on how we are going to set pricing going into next year at this time. So I do not want to give anybody a heads up. But I think our model and our long-term model is still in existence and viable. But we are not going to talk about the exact ranges we are looking at. Operator: Thank you. Our next question comes from Scott Darren Wurtzel with Wolfe Research. Your line is now open. Scott Darren Wurtzel: Hey, guys. Thanks for squeezing me in. I will limit it to one. Just going back to the PEO—I mean, it sounded like your commentary on enrollment sounded pretty positive. And I remember, I think, you guys made some changes to benefits offerings and everything. But I also wonder, is there any element of—you think that employees are maybe just sort of adjusting to this higher health care premium inflation environment, and that could also be, you know, kind of helping to drive some of this enrollment growth that we have seen as well? Thanks. John B. Gibson: Yeah. Yeah, Scott. I think everyone is adjusting. I think we adjusted our plan designs. I think employees are adjusting in terms of what they are going to do, and employers are adjusting how they are going. You know, I mentioned the use of AI. I will say this. In tests where AI was used and where it was not, the choices that employees made, I think, improved their outcomes and improved our outcomes. So what do I mean by that? As you know, you can immediately go to the cheapest plan. But given your circumstances or what you spent last year or changes that may have happened in your life relative to dependents, that may not be the most economic plan for you to participate in. These AI tools’ ability to model that for you—to maybe make the middle plan choice versus the lower plan choice—is, like I said, a better outcome for the participant and, of course, that impacts benefit for us as well because it is a higher-priced plan. Scott Darren Wurtzel: Great. Thanks, guys. Operator: Thank you. Our next question comes from Kartik Mehta with Northcoast Research. Your line is now open. Kartik Mehta: John, you talked about Paycor revenue synergies as we go into FY 2027 and the opportunity to really take advantage of that. I am wondering how the Salesforce alignment is going because I am guessing that is part of the revenue synergies that you would be able to capture. John B. Gibson: Yeah. So on the alignment question, just so everyone is kind of clear, Kartik—and this is, I think, the challenge and that, you know, hopefully, we do not talk about Paycor anymore going forward—because Paycor for us is a brand that we are using to go and target the enterprise market, as we are designing 100 plus. And we have taken all the assets of the company regardless of where they were, and we have placed them in that business unit for that unit to focus on that particular market. We are doing marketing there specifically for that target segment. So now we are spending marketing money in that segment. We are putting sales reps into that segment to go after that segment. And we are going to capture as much of the market as we can at 100 plus. Now once, let us say, a lead comes in digitally from marketing spend at Paycor, and we look at that lead and we go, hey, that looks like a great PEO opportunity, we are going to move that over to the PEO. Right? And so now all of a sudden, you have got an expense that is on the Paycor side of the equation. Same thing is happening with our reps as well. So we have got this segment—if this is your question—the segmentation of the Salesforce is clear. How we are going to market from a brand perspective is clear. And then what we are doing is, both in terms of using our AI and also our incentives for all of our sales reps, making sure we have every sales rep in the market looking and representing the entire capabilities of the company. And so that goes back to every rep is representing the comprehensive capabilities of the company, whether that is technology, whether that is the platform, whether that is do it yourself, do it for you, or do it with you. We are offering every rep in every market the capability to do that, if that makes sense. Kartik Mehta: Yeah. And then just a follow-up question, Bob. And this might be crazy considering it is Paychex, Inc., but I thought I would ask anyway. Any thought about potentially using a little bit of leverage to buy back stock considering the stock price is? Robert Lewis Schrader: Yeah. I mean, Kartik, listen. I think you saw—we just recently announced a new share buyback authorization significantly larger than what we have had in the past. And when you look at—you know, there is obviously, at least in my opinion, a disconnect between the underlying fundamentals of the business and the valuation, and that obviously, you know, I was always taught to buy low and sell high. And so you have seen us be a little bit more opportunistic there. I would tell you, I do not think we have necessarily changed our overall philosophy around share buybacks, but we know we are going to have to buy shares back in the future to offset dilution. And we have done more of that this year than what we normally would have, as you guys can see in some of the disclosures. So, you know, I do not ever want to say never. Our leverage is pretty low. That is obviously a board-level decision. And as you can imagine, I am assuming a lot of CEOs and CFOs in this market are having these conversations with their board on a regular basis, and John and I are certainly doing that. And so we will continue. We have lots of priorities from a capital allocation standpoint. Certainly, we want to continue investing in the business. But we will continue to have those conversations. So I do not want to say never, but it is something that we will continue to evaluate. Operator: And our next question comes from Jason Alan Kupferberg with Wells Fargo. Your line is now open. Jason Alan Kupferberg: Thanks, guys. Good morning. I wanted to ask about Management Solutions specifically. I think the organic growth was 4% in the quarter. I think that is the same as we saw last quarter. Do we expect that to accelerate in Q4? And if so, is that because you will start to lap Paycor during the quarter? Or would there be other accelerants we should be considering? Thanks. Robert Lewis Schrader: Hey, Jason. Yes. I would say, you know, I think it was 4% in Q2 and 4% in Q3. I would tell you, one was around up and one was probably around down. So you are also seeing sequential improvement in the organic growth of Management Solutions as well. Part of it is when you get to Q4, we would expect that to continue and maybe accelerate a little bit. To the point that you are making, you are anniversarying the acquisition, so now we have a scale business that is growing faster than the overall growth of the business. So that would be accretive to the organic growth. And then we are continuing to build momentum on the synergy opportunity, and I think that showed up in the Q3 selling results, and that will eventually make its way into the P&L. And so you should see improvement in Management Solutions organic growth as we move into Q4 as well. Jason Alan Kupferberg: Okay. Understood. And then just a clarification. I know we are not changing EPS guidance, but we did up interest income guide a little bit, which I would have thought would have lifted the EPS—I do not know—maybe a percent or so. I mean, there is only a quarter left in the year. So just curious, is it just some conservatism there leaving the EPS guide as is? Or are you going to reinvest some of that upside? Slight combination of both? Robert Lewis Schrader: I think we are certainly going to look for opportunities as we move through the balance of this year to invest. We want to get out of the gate strong when we get into next fiscal year. So it is always balancing those trade-offs, Jason. You know, John and I will manage through that as we go through the quarter and see where the opportunities are. But it is really a combination of maybe a little conservatism and where we may potentially want to take advantage and make some investments as we end the year. John B. Gibson: Yes. The great position we find ourselves in is we have plenty of opportunities for investment coming out of the third quarter that have the opportunity to both accelerate growth and accelerate margin expansion. And that is—you know, we have got a lot of decisions to make over the next couple weeks as we go through our planning process. And anything that we are thinking is a good investment in the first quarter in 2027, I do not think we want to wait to make that investment. So we are certainly trying to contemplate that as we go into our planning session next week. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to John B. Gibson. John B. Gibson: Okay. Well, thank you, everyone. Just to highlight, we delivered strong double-digit revenue and earnings growth, continuing to reflect, I think, very strong execution and focus of the teams. I do want to call out, you know, we are approaching a one-year anniversary mark of the acquisition of Paycor. And I want to call out the Paycor team in particular. The group has been through a lot. If you think back a year ago this day and what we were starting to prepare for and take the organization through, and I think the way that we have responded and the way we have continued to come together and build momentum at this fiscal year has come together has been just really impressive. I said it a year ago: we will be better together. And we are better together. And, you know, I point you to the example of what we did in the PEO industry and how we focused on that strategically many years ago. I think that is a good model for us to replicate as we go into fiscal year 2027 and beyond in the enterprise space. So I think Paychex, Inc. has never been better positioned than it is today. I think we have differentiated ourselves in the marketplace repeatedly. I think in this new AI era, our scale, our breadth, our capabilities from an expertise perspective, and the fact that we are dealing in mission-critical type of work where errors are costly—I think that you are going to continue to find more and more clients of all sizes turn to Paychex, Inc. to be their HR department and to provide them leading-class technology and advisory solutions in the years ahead. So I like where we are positioned, and I want to thank you for your interest in Paychex, Inc. Thank you. Operator: This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Crissa Marie Bondad: Hi, everyone. Good morning. Welcome to the full year results briefing of D&L Industries. To discuss the results, here with us today is Mr. Alvin Lao, President and CEO. I now turn over the floor to Alvin. Alvin Lao: Hi, everyone. Good morning. Thank you for joining us today for the discussion on the full year results of D&L Industries. So the highlights, we did better than we expected. 2025 was not an easy year. So we managed to have net income increase by 10.6% versus the previous year. And very encouraging is, as you see there compared to fourth quarter of the previous year, net income was actually up by 20%. Second bullet point, we did see good growth in volume across almost all segments, and we'll go into more details later. Despite the big surge in coconut oil prices. So we did see margins also starting to improve. Gross margins in the fourth quarter doing better versus the previous quarter. We also saw our CapEx continuing to trend lower. Even though coconut oil prices peaked last year, they have started to ease, and it does give us a lot of room to -- with lower working capital to be able to allow us to be able to reduce debt going forward. So bullet point number 5, of course, we are faced with a lot of things going on outside the country, which is affecting everyone. But we are continuing to look for these silver linings as we always do. And essentially, hopefully, these are opportunities for us, to continue to present ourselves as a solid supplier and partner to work with our customers. So here's a look at the change or how our net income has been over the last couple of years. So you can see there, our net income actually peaked in 2022 at around PHP 3.3 billion and comparing 2024 to last year, they received a 10.6% increase. With -- on the right side there, you can see the breakdown. So Chemrez Group being the biggest contributor of net income, followed by specialty plastics, wood coming 1/3 and consumer products ODM in fourth place. So here's a look at how our Batangas plant has been doing. So it's still profitable. But -- and it is not -- it's not as steady as we hope, but it is still at least keeping its head above water. As we roll out the utilization, we should continue to see improvements in the income from the Batangas plant. Here's a look at the condensed income statement. So there, you can see a very big jump in revenue. But again, just as we have mentioned in previous quarters, a lot of this increase in revenue is tied with higher commodity prices. So a better way to measure our growth, how we're doing is really looking at the volume change. But what we've highlighted there in the green box is really how net income has changed. So year-on-year, up by 11% quarter-on-quarter, up by 15%. And then just fourth quarter year-on-year, up by 20%. So a look at our export sales in the next slide, you can see that our exports did go up, value went up by 16%. But in terms of -- so what's been happening is last year was the first full year of the 3% blend for biodiesel. So that had a very big impact in terms of adding volume to our domestic sales. So it made the growth in exports look smaller. So we actually saw a decrease in exports as a percent of total sales. But it's really more a factor of our domestic business growing much bigger. And so we can see that also here in this slide. So in the previous periods, I remember, I think it was last year and the year before, we would see revenue and net income -- or sorry, gross profits from exports outpacing that for the domestic business. But it wasn't the case for last year. So biodiesel was one factor with this. However, if you take a look at the bottom of the slide, you do see that as far as our profit margins are concerned, the profit margins for exports still do still performed much better than the domestic business, 16.4% versus below 12% for the domestic business. The next slide is our volume, how volume has changed across the different businesses, and then we split it between high margin and commodity. So almost all segments saw increases with the exception of the food commodity segment. So that was down by a little bit down by 2%. Everything else was up. the biggest increase coming from by diesel, which is a 36% increase in volume for Oleochemicals commodities. Overall, for the company, volume increased by 8%. And then overall, high-margin volume was up by 9%. So I would say we did pretty well considering for our Food Ingredients business, the commodity side, that's actually the lowest margin category we have in our business. We will talk about more details with that in the next -- in the upcoming slides. So just looking at high-margin specialty products. So volume for this, as was mentioned in the previous slide, for the year, was up by 9%, although it was down a little bit in the fourth quarter. So comparing fourth quarter 2025 versus fourth quarter 2024 volume was down by 4%. But for the year, it was up by 9%. So the -- even though we did see a slight drop, it was more than offset by the big increases we saw in the first and the third quarters, so that made up for that slightly weaker fourth quarter. Here's a closer look at the high-margin Specialty Products segment. Revenue up by 22%. And on the right side there, you can see Foods, the biggest contributor of revenue for high margins. On the bottom left there, you can see our margins for the last 12 years. And for the year 2025, high-margin specialty products margins were lower compared to the year before, coming in at 18.5%. However, if you take a look at the box in the dotted line there. It's a breakdown of margins across 4 quarters of last year. And you can actually see that there is an improving trend. The fourth quarter margins came in at 20.1%. So versus third quarter, which was at 17.6%. So it's not -- so there is a bit of a silver lining in the sense that there is that improvement as far as the quarterly margins are concerned. Next is the commodity closer look at the commodity segment revenue up by 64%. For the commodity segment, it's much easier for us much quicker to pass on price changes, so you can see that margins dipped a little from 8.7% to 7.5%, but still more or less in that midpoint between -- so the low for commodity margins would come in at around 4% and the high usually comes in at around 10%. So at 7.5%, we're just at that midpoint where we expect commodity margins to be at. So a look at our revenue mix. So there's that increase in the biodiesel blend. So that started October of 2024. So from 2%, it went up to 3%. We were a big beneficiary of that increase. And that is the biggest reason why we did see commodities as a bigger share of our revenues last year. However, we do expect the trend to approach that, meaning before COVID, it was roughly 2/3, 1/3 blend, meaning 2/3 coming from high margin, 1/3 coming from commodities. Long term, we still expect that direction or trend to be what we will see in the business. The next slide. So a couple of things going on here. In the middle, you see our 2 most used commodity raw materials, coconut oil and palm oil. Together, they make up approximately 60 -- roughly 60% of the raw materials that we used as a company. And you can see there on the right, coconut oil prices year-on-year were still up, we're up by about 62% versus palm oil, which is up by just 6%. And coconut oil prices actually peaked in August last year. So not -- you can kind of tell in the chart. So we hit $3,000 a tonne for coconut oil around August of last year. Currently, we're at roughly 2,3 -- between $2,300 and $2,400 versus the low -- so from this chart, you can see that the low is roughly at around $1,000 a couple of years ago. So it has been very volatile period for coconut oil prices. Below that, of course, is the dollar-peso exchange rate. So we ended the year at PHP 57.63. But of course, we're at the PHP 60 level today. So that has also been affecting our costs. But above that, you see there the change in margins don't so much reflect what's happening in the prices of our raw materials. And it's actually more a closer pattern to the change in our product mix that we showed in the earlier slide. So it's really the product mix that's driving our margins much more than the changes in the underlying prices of our raw materials. Next slide, our condensed statement of cash flows. So with coconut oil prices up by 62% and with coconut oil making up, I think still over -- sorry, over 30% of the raw materials we used. That's another big effect on our working capital. So more cash tied up in inventory and receivables even more than last year, up close to PHP 6 billion, as you can see. So -- but you also see that CapEx is lower versus the previous year. But we're still ending the year with negative free cash flow at negative PHP 1.2 billion. But as I mentioned earlier, coconut oil prices have been trending lower and it doesn't look like it's going to hit the high that we saw last year. So assuming working capital is much steadier this year because of steadier raw material prices, then that should be a very big change in -- not just our working capital, but in our free cash flow as well for 2026. So this slide, this is our -- how our CapEx has been. So end of 2018, we started construction of our Batangas plant, CapEx peaked in 2022 and since then, has been trending lower. So we ended the year at PHP 767 million in CapEx. So that -- I would say that's pretty close to the stable CapEx level, we would have going forward, meaning not much costs -- not much CapEx anymore tied to the big construction in Batangas. It's really more things like maintenance CapEx and upgrading of a couple of lines, but not as big compared to what we saw in the last couple of years. So this will be another factor, which will contribute to better cash flows for the group as well. So this is jump into more details into each segment. So here, you can see the contribution for each of our 4 major divisions in terms of revenue as well as net income. So in terms of revenue, food is still our biggest followed by Chemrez, third specialty plastics, fourth consumer products ODM. But in terms of net income contribution, Chemrez was #1, followed by Specialty Plastics. Both at or over PHP 1 billion in net income. Food ingredients at #3 and Consumer Products ODM at #4. So dive into our Food Ingredients business. So we saw volume up by 4% and revenue up by 34%. However, a lot of changes happening, especially. So first of all, we did see volume growth across all the high-margin segments in food. So -- in the 4 boxes that you see at the bottom, especially fats and oils, specialty ingredients, food safety. These have been our high-margin performers for food. It's only that second box, refined vegetable oils, which is low margin. As you can see, they're coming in at 4.8% gross profit margins. So in terms of revenue coming in at the same level of revenue increase as the overall food segment at 35%. But you can see there the volumes started to drop. Volume is actually down by 2%. And this is 1 segment that grew a lot during COVID. For those of you who have been following us for the last couple of years, during COVID, we saw a massive jump in our commodity refined vegetable oil segment because it was really a market share gain. A lot of our competitors were not active in this category. And so it was just an opportunity for us. We had the facilities. We have the access to our suppliers, so we were able to gain market share. However, we are starting to give a lot of that market share back. So you will -- so we did see volumes drop in this segment last year. You will continue to see volumes drop in this segment. The overall effect on margins and profits is not as big because it is -- the margins in this segment are quite low at below 5%. So you should see overall margins for this segment go up in the next couple of years as we trim that volume or that market share in the commodity segment. For the next slide, so that's Chemrez. And the big driver of change in this segment is really coming from biodiesel. So 2025 was the first full year of a 3% blend. We only had 2% -- sorry, we only had 2 months of the 3% blend in 2024 because it really started October. But in 2025, it was a full 12 months of the 3% blend. So there, you can see the big jump in volume, revenue as well as net income. Overall, margins were lower because biodiesel is a lower-margin business compared to the other businesses of Chemrez. But still, overall, Chemrez, the biggest contributor of net income for the group for the year. In terms of more details of the -- just a little bit of history. So the law, the biofuels law passed in 2006, 1% blend started in 2007, went up to 2% in 2009. It was only 15 years later that the blend increased to a further 3%. So that was in October of 2024. We do not know yet when the next increases will happen and our attitude even before, it's something we don't really price in or we count on our projections. It's just a bonus if it does happen. But what we have seen in the past, every time there is an increase in the blend, Chemrez does benefit. So here specialty plastics. So this segment -- it's the steady eddy of our business, doing -- continuing to do well. Even if volume was flat, revenue was up by 4%. Net income was up by 9%. And margins were higher as well by 0.6%. And this is a segment that doesn't really cater much to single-use plastics. It's really the plastic materials that we see replacing more materials that we use in our lives, everything from cars, cabling in buildings, appliances and so on. So still a lot of development going on, and we believe still a lot of growth coming going forward. And then fourth, Consumer Products ODM. So this was a business, especially personal care that really suffered during COVID. I remember it was just something that just looked like it fell off a cliff 6 years ago when COVID started. So it's still continuing to make a comeback. We have also started to see exports in this segment as well. So still a relatively small business, but now I believe it's contributing 8% of net income for the group. So becoming relevant. Next page. So our asset-light model. So on the left side, you can see there -- the group -- if you look at the balance sheet, it doesn't own a lot of fixed assets. So things like property, warehouses, barges and so forth. These are not -- D&L doesn't have any of these in the balance sheet. It's all leased from affiliate companies. So that cost usually comes in at between 1% and 2% cost and expenses. And then -- so these are related party expenses. On the right side, you see there D&L as a service company to the group performs a lot of what we call management and shared services. So everything from HR, admin, accounting and finance, legal, IT, and so it charges the sister companies and that charge is really the party income for D&L. So helping to offset the related party expense. Next slide, cost structure. So our biggest cost by far is still raw materials. So for 2025, it was 84% of costs and expenses just coming in from raw materials. Number two, is labor; number three, depreciation and rental. So our fixed costs are pretty much labor depreciation and rental and maybe some of the utilities and maybe half of others. So a little over 10% of our costs classified as fixed, almost 90% of our costs classified as variable. This is something which makes us very different from almost every other manufacturing company. It makes us -- in terms of our business model, this is what allows us to survive and be nimble every time there's a crisis. On the right side there, you can see the breakdown of raw materials. So coconut oil at almost 40%, palm oil, 22% together, 61%. And there, the text on the right side, roughly 31% of the raw materials we use are important. So if you do the math, you can kind of figure out that our -- the amount in terms of raw materials we use is almost exactly the same as the dollar amount of our exports. In fact, I believe our exports are already slightly ahead of our importations. So that means on a net basis, we're not a dollar user anymore. We are adequately hedged and over time, as our exports increase, we will likely be a dollar -- a net dollar earner already. Bottom left, you can see there, technology spend, so this R&D as well as IT and this is something that we have seen increasing gradually over time. So we are continuing to invest in R&D and technology. Next slide. So our balance sheet. So we did have to bring on more debt to finance the higher working capital needs. So that was in the cash flow slide that we showed earlier. So debt ratios have gone up. But in terms of book value per share, return on equity as well as return on invested capital, we have seen increases as well versus the previous year. Next slide shows you capital structure. So the yellow bar there is debt, so that has gone up. Net gearing is now at 96%. So still not -- I would say it's not -- we're not heavily geared. Interest cover is at 3x. Net debt is at PHP 21.9 billion. Average cost of debt at roughly 6%. This includes the cost of documentary stamp tax. And then the next slide. So this is our effective interest rate and net debt as well as interest cover over the last 10 years. Next slide is our working capital cycle. So big improvement from 139 days in 2024, we're down to 110 days, inventory at 74 days, an improvement over the previous year's 107 days. Payables is at 9 days. So this is something we are continuing to work on because it was 21 days the year before. We also saw an improvement in receivables. So 45 days now for our AR days. Okay. Next slide. So the family has been continuing to buy back shares. Even in 2026, we have bought back shares. So since the IPO, we've bought back roughly 9% of the company. So every time we saw the price drop to a level where we felt it was a good bargain, we would buy. We have stopped buying the last few days because we're in a trading ban because we are disclosing our results today, but once the trading ban is lifted, you can be assured as that price stays low, the family will continue to buy back. Okay. Next, so we are continuing to participate in various conferences, both domestic as well as internationally. And the previous one was with the PSE last week at the Grand Hyatt. And yes. So one reason why we like buying our shares back is just we know that the dividends are coming in pretty good. And yes, that's it in terms of what I wanted to present. So we're open to Q&A. Crissa Marie Bondad: Okay. Thank you, Alvin. [Operator Instructions] I have a couple of questions lined up here. So let me just meet them. Okay. The first question comes from Dan Brian. Okay. First question, what is your outlook on palm and vegetable oil given the recent surge in petroleum prices? Second question, how are your F&B related orders currently amidst the oil prices? Third question, how are your nonfood-related orders currently amidst the oil crisis? And he has a follow-up question, which I would also read now. Could you please remind us what products encompass the food commodity segment? Alvin Lao: Okay. So first question, outlook on palm and vegetable oil. Typically, there is a correlation. So the way it works normally from what I understand, crude oil, meaning petrochemical crude oil usually affects soybean oil prices in the U.S. because soybean oil is fuel substitute. And then the effect on soybean oil has the domino impact on palm oil and then eventually, it reaches coconut oil as well. So crude oil prices have gone up a lot. But from what I can see so far, coconut oil prices have not gone up that much. Crissa I'm not sure if you have a recent slide to show. Crissa Marie Bondad: We do have. Let me just... Alvin Lao: Sure. So okay. So while Crissa is pulling that up. So thank you. There you go. So this is as of, I think, a couple of days ago. Yes, okay. So as you can see there, there is a slight uptick but it's not as significant as what we saw happening with crude oil. And I think a big factor here is that we're still near extremely high price levels for coconut oil. We're not at high levels for palm oil. But from what I understand, there's no -- there's really no shortage in terms of supply for both of these oils. So with prices having -- especially for coconut oil peaked in August of last year at $3,000 a ton. It just went up too much. And so -- so the outlook is they may go up, but not as much as what's happened with petrochemical crude oil. So that's the first question. Second question was how our F&B related orders are currently amidst the oil crisis. I would say it's too early to tell because the war in Iran started 25 days ago on February 28. But I have been hearing from business owners that they have seen a decrease in business. So not just F&B, hotels and other nonessential, non like travel and so forth. Volume seems to be lighter in the month of March. That's what I have been noticing. What I heard was that January and February for the hotel. So the hotel industry is actually one industry that has been lagging in terms of recovery from COVID. So the lockdowns ended in 2022, but our international arrivals in the Philippines was only at around the 6 million level last year, 6 million, 6.5 million versus -- it's still down 20%, 30% versus the peak we saw in 2019 before COVID. So we were supposed to see continued recovery for international arrivals, especially for the hotel industry. January and February were supposed to be really good. March may not have done as well, we'll see. But in general, it's usually the case. Every time prices go up, especially for crude oil, that really sets the pace it affects everything -- the price of everything. And so there will likely be a dampener effect on the economy. That is very typical. And the F&B and even nonfood, we will see some impact as well. It's just how the way it is when costs go up, people spend -- they're not able to spend as much because more of their disposable income is tied up with essential goods. So that's question 2 and 3. Question 4 products at Encompass, food commodity segment. So that would be -- so we do trade coconut oil as well as palm oil, refined coconut oil, refined palm oil. Biodiesel is also a commodity. But when it comes to just food ingredients, it's really just what we call straight oils. So yes, you can see here in the slide more details. Refined usually means RBD. That means refined, bleached, deodorized and could be palm oil and other variants also as coconut oil. Crissa Marie Bondad: Okay. Next question comes from Dario Actually, he has 3 questions. First question for the commodities business is interest expense a cost pass-through with clients? Second question for Batangas plant. Could you elaborate more on why net profit had been trending down over the past few quarters? What has been performing above expectations? And what has not been performing quite up to expectations? Last question, I believe you touched on this, but in case you want to add something else. So how do you see higher oil prices impacting the business? Alvin Lao: So first question about commodity business. Yes, we do pass on interest expense to our customers. So every time we price a product for sale, we look at all of the costs, logistics, cost of money, insurance, so on and so forth. And interest expense is part of that. In terms of the Batangas plant, so yes, the income has been trending lower. I would say it's really a function of us varying the production between the Batangas plant and all the other plants. So Batangas plant is our biggest plant, but it's just 1 of 7 plants that we have. And it's normal for a company to tweak what we make across the different plants. Well, the other factor here is that -- we don't make any biodiesel in the Batangas plant. And with the Batangas -- sorry, with biodiesel being our biggest volume driver last year, it's -- we just saw more profits coming from the biodiesel plant, but Batangas didn't benefit from that. So that's another factor. But yes, that's -- I would say -- since the plant has already been operation for 3 years, maybe we don't need to focus so much on how the Batangas plant is doing, I mean at least not focusing so much on the income from the plant. I think what we've been able to show is that we reached profitability earlier than we projected, and it's already accretive to our business. And I think that's the most important point. In terms of how higher oil price is impacting us. So it's actually not just higher -- of course, higher prices for oil impacts everything eventually. That means our costs go up. But for us, since we do price pass-throughs, the effect is we're able to pass it on. I think a bigger worry for a lot of companies, including us, is with the closure of the Strait of Hormuz and the closure of a lot of petrochemical producing assets in the Middle East, will that reduce supply? And that, I would say, is probably the bigger worry a lot of companies have. And I am aware the government has been making a lot of statements to reassure everyone, not to worry about supply, but it is a common discussion point across many industries, many companies, many countries I would say that is as big a factor, not just price. Crissa Marie Bondad: All right. The next question comes from Martin [indiscernible]. So you mentioned margins are more driven by product mix than raw material prices. Can you quantify mix impact versus raw material price impact in full year 2025? If mix is the key driver, why did margins still compress significantly during the coconut oil spike? Alvin Lao: If you overlay this chart, so this is our product mix chart. If you overlay this against the -- I think it's the next slide, with the margins, there you go. You can really see the trend. So of course, the product mix is not the only factor affecting our margins. The high price of coconut oil last year, I mean we definitely are able to pass on price changes. If not, you would see much bigger volatility and fluctuation in our margins compared to what's shown here. I mean coconut oil prices going from $1,000 to $3,000 a tonne. That's a huge change. And I don't care what business you're in, if your raw material price goes up by 3x, your margin is going to be impacted. But -- so there is a change, but we're not seeing that level of volatility. I guess the other factor here is that when prices change, we do see a lag for commodity, which is roughly half of our business now, the general rule, when prices change in the market, our selling price changes immediately. But for our high-margin product, there is usually that 30- to 45-day lag because our customers typically order between 30 to 45 days ahead, we agree on the volume, but we also agree on the selling price. And we fix that price. What happens is when the raw material price goes up, we tend to lose out because prices went up. But after that 30-, 45-day period, we can adjust. So it's not a perfect pass-through, but effectively, it still is a pass-through, it's just a lag. I'd say, though, again, looking at where coconut oil prices were, looking at how prices peaked last year, hitting $3,000 a tonne level. And I'd say one big -- so let's compare coconut oil to how not just crude oil has moved. Let's go with jet fuel, for example. For those of you who track crude oil prices, you probably -- you're aware, there is no one benchmark crude oil price. The 2 most quoted are West Texas Intermediate, WTI, which is the U.S. benchmark and then Brent, which is the benchmark in Europe. But the Philippines actually doesn't use WTI or Brent for its pricing. It uses Dubai. You've got -- then you've got jet fuel price as well, which is another benchmark altogether. I mean -- so jet fuel from what I saw yesterday is at or around $200 a barrel. So that's I believe that is why yesterday, we were hearing news about the possibility that the Philippines and other countries might have issues as far as refueling planes. So compared -- the reason I bring this up, if you look at how coconut oil has moved, however, it's probably moved less than 10% from the [ $200, $250 ] level, it's now at [ $230, $280. ] So what's that, maybe a 5% change. It's not -- they're just I think it's accepted in the market, the prices really went up too much. So -- so that is, I would say, positive for us. It's good for our margins going forward. It's also good for our cash flows going forward. Crissa Marie Bondad: All right. Next question comes from Rainier Yu. Given current events, any risk for the biodiesel blend to be pulled back to 2%? Also, any supply challenges in resins? Alvin Lao: So for people who don't see the breakdown of how our pump prices are calculated, it's very tempting to just drop everything that's more expensive. So you've got excise tax that is actually bigger. I believe that at 12% -- I mean you can do the math. It's huge. Excise tax, I think, is at PHP 6 per liter. Biodiesel, I think, it's maybe PHP 1 effect currently or maybe less actually with pump prices as high -- I believe the DOE yesterday's guidance was as high as PHP 134 per liter for diesel. That's actually higher than the price of biodiesel now. So I don't think it would make sense to reduce the blend of biodiesel because it's actually a cheaper fuel compared to regular diesel now. So actually, it would make more sense to increase the blend. So I'd say there's a lot of knee-jerk reaction, drop the price because we don't want prices as high now because it has so much negative effect. But I believe we need to look at the details more closely. It's not as simple as just dropping everything. Sorry, and then the other question was about supply challenges in resins. Definitely, there are supply challenges. I mentioned earlier with shutdowns and blockages, it affects supply. And that is a concern we have. Crissa Marie Bondad: Okay. Next question comes from Clark. Is the lower inventory days due to lower volume stock for raw materials? If so, which raw materials? Alvin Lao: Lower inventory base is -- well, so we saw -- when we saw prices of coconut oil, not just coconut oil, almost everything prices went up last year. And when things are more expensive, it's more expensive for us to carry them. So it's just part of our efforts to be a more efficient company to try to reduce the cash that's stuck in inventory. So I would say that's the bigger factor. It's not -- and I think there was no worry about supply before February 28. So it was really a price game. You could buy as much as you wanted. You just have to pay the price. I don't think that's the case anymore. There is -- I don't think there's a lot of commodities now that's in unlimited supply. Things are not as fluid in terms of supply now for a lot of industries. Crissa Marie Bondad: Okay. Next question comes from Peter Wang. So coconut prices seem to stabilize at still a high level about $2,500 per metric ton. How will this impact our margins going forward, especially for a supposedly high-margin business segment like food ingredients. And by the way, in the last quarter, had the profit after tax for food ingredients turn around from losses in the past quarters? Alvin Lao: Good observation, Peter. I thank you for continuing to follow us very closely. So yes, our Food segment is doing better. And it did better in the fourth quarter compared to the previous -- to the second and the third quarter. Are margins going forward? So I did touch on this earlier, but I don't mind repeating this. When prices of raw materials go up, our capability to pass on price changes is something that we've been able to -- because that's really our business model. That's really how we are as a company. And it is something we can do. But -- if you look at the breakdown of what we sell -- the bulk of what we sell is not petrochemical related. So Crissa, could you go back to the breakdown of revenue by the 4 major divisions? There you go. So what's petrochemical-related here? So that's 100% of specialty plastics to 6%. Consumer Products ODM, you've got packaging let's just assume everything there is petrochemical-related even if it's not, but it's not food, okay. Then you've got everything else, 91%. So part of Chemrez is petrochemical related, but a big chunk of it is biodiesel as well as oleo chemicals. And -- so we've got probably 75% or 3/4 of our business in non petrochemical. I guess this is the benefit of being a kind of diversified company being in several different segments. So petrochemical margins will be challenging definitely. But as I mentioned earlier, it's really supply that's a bigger worry because if you have supply, you can really dictate prices. And that's something we saw in previous crisis. So our company has been around since 1963. We've been through the first oil crisis in 1973, the second oil crisis in 1979. I don't think Crissa was born yet then, but I was already around, but I was still in short pants in grade school. But I've heard the stories. I -- and other crises as well in the '80s, in the '90s, in the 2000s, and of course, we had COVID recently. And then when Russia attacked Ukraine, I think we're still going to be okay just because we do have that business model that allows us to survive. So yes, our high-margin segments should still be okay. And again, our worry is not really the margins because most of what we sell is actually not petrochemical based. And the costs are not going up as much. The bigger worry we have is really making sure we can maintain supply. And of course, on what's happening with the economy, that would be, I would say, the bigger worry. Crissa Marie Bondad: All right. Next question comes from Denise Joaquin. How exposed is B&L to supply chain disruptions from the war and which raw materials or inputs are or could be the most affected? Second question is management looking to provide an earnings guidance for the year? Alvin Lao: So I can go to that second question because it's easier to answer. All our budget forecasts that we made last year, having thrown up the window because things have just changed so much. All our assumptions, interest rates, dollar peso exchange rate, price of crude oil, economic growth, nothing is the same anymore. So we are not in a position to forecast net income or earnings guidance. What we can say is that we have seen a lot of crises before. And -- like if you look at how we did in 2022, when Russia attacked Ukraine, that was actually a record year in terms of net income. Of course, you had other factors like the reopening of the economy and so forth. But if you look at how we did in past crisis, I'd say we didn't do too badly. So it's just how our business model is and how we are as management in terms of how we run the ship. So your original question, how exposed are we to supply chain disruptions in the war and which raw materials or inputs are affected. It's not as -- so what I'm hearing from -- so luckily, we have a lot of people in the company who still remember what happened in the '70s. So I've been interviewing them. And I've been reading reports as well from what I understand, Things have not gotten as bad compared to -- in the '70s, I heard there was rationing, people were literally pushing their cars to the gas station because the cars didn't have gas anymore. You had coupons. So to buy gas at the pump, you need a coupon, things like that. We're not there yet. So things are not that valued. I think -- what's happened is access to media, especially social media, the day it happened, we saw videos of Dubai airport smoke coming out. We saw buildings, exploding and things like that. Media just has accelerated that fear that we have. I would say that's been the biggest impact so far, and that's what's driving all the sentiment. But we're nowhere at least from the conversations I've had with various people, we're nowhere near the effects that we saw from a lot of the past crisis. So yes, I'd say it's still early days. There will be impacts, but I think everyone is just pricing everything in now even in stock prices. It's just how the market is at the moment. Crissa Marie Bondad: Okay. Next question comes from Brian. What percentage of revenue or how much of revenue is coming from Batangas plant? So I can actually take this around 25%. Okay. I saw someone earlier raising his hand. Let me just check. Okay. I think this question has been answered already. I don't see anyone raising his hand. Okay. That's all the questions that I can see from my end. [Operator Instructions]. Okay. I got a question here from Peter Wong. Among the 4 business segments. In terms of profitability, which segments you will be most bullish on and vice versa. It seems to me that the profitability for specialty plastics will be significantly impacted by the war. What about the other major 2 business segments? Alvin Lao: Great question. That's something we have been discussing a lot in the last few weeks. Unfortunately, war, if things don't improve, it will really impact all our businesses. There -- I don't think any of our segments will be spared. And it's not just lack of supply. It's not just expensive raw material costs. It's really the effect on the overall economy. Our company provides a lot of very basic essential raw materials to industry in the country. If the economy does slow down, we're just going to be impacted. That's really how we are positioned as a company. So still early, but I don't think there's any probability that any of our businesses will not be impacted. Yes. Crissa Marie Bondad: All right. Thank you, Alvin. I don't see any more questions from my end. So if no more questions, that concludes our full year briefing. Again, if you have further questions later on, you can always reach out to us. So thank you very much for attending our full year briefing, and we'll see you next quarter. Alvin Lao: Thanks, everyone. Good morning.
Operator: Good morning, and welcome to Reed's Fourth Quarter and Full Year 2025 Earnings Conference Call for the 3 and 12 months ended December 31, 2025. My name is Joelle, and I will be your conference call operator for today. We will have prepared remarks from Neal Cohane, Reed's Interim Chief Executive Officer and Chief Operating Officer; and Doug McCurdy, Reed's Chief Financial Officer. Following their remarks, we will take your questions. Before we begin, please take note of the company's cautionary statements. Today's call will include forward-looking statements, including statements about Reed's business plans. Forward-looking statements inherently involve risks and uncertainties and only reflect management's view as of today, March 25, 2026, and the company is under no obligation to update them. When discussing results, the presenters may refer to non-GAAP measures, which exclude certain items from reported results. Please refer to Reed's fourth quarter and full year 2025 earnings release on Reed's investor website at investor.reedsinc.com and its annual report on Form 10-K for the 2025 fiscal year for the period ended December 31, 2025, expected to be available on the website soon for definitions and reconciliations of non-GAAP measures and additional information regarding results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. I will now turn the call over to Mr. Cohane. Neal Cohane: Thank you, Joelle, and appreciate everybody joining us today for the call, the fourth quarter and full year 2025 results. Before diving in to our results, I'd like to briefly address the leadership transition. As announced in our earnings press release, Cyril Wallace has stepped down as CEO. I will assume the additional role of Interim CEO while continuing as Chief Executive Officer -- as Chief Operating Officer, and I will also join Reed's Board of Directors. On behalf of the entire Reed's team, I want to thank Cyril for his contribution and wish him all the best in his future endeavors. I'm honored to step into this role at an important time for the company. Reed's is a strong brand with long heritage, a loyal consumer base and robust operational foundation. Having spent many years with the business and recently returning as COO, I have a clear understanding of both the opportunities ahead and the work required to improve execution and performance. The Board has initiated a search for a permanent CEO. And in the interim, I am focused on advancing the operational priorities necessary to support profitable growth. Let's turn to our results. We made important strides during the fourth quarter to stabilize the business and reinforce the operational framework needed to support sustainable growth. We also saw sequential improvements in net sales, gross margin and net loss, which we view as early indicators that the actions we have taken are starting to gain traction. We saw encouraging sequential sales improvements across several channels, including natural specialty, grocery, mass and e-commerce. This was driven by a combination of increased sales velocity and seasonal product launches during the quarter. A couple of the retailers helping to drive this growth with Sprouts, Costco, Walmart and our Amazon and Shopify business. While we're still early in the process, these results reflect meaningful progress in improving execution. We are rebuilding and expanding distribution relationships, strengthening our presence on the shelf and driving greater efficiency across our supply chain and product portfolio to support more consistent performance over time. From a production and supply chain standpoint, we're making meaningful progress in driving efficiencies and reducing costs across the business. This includes optimizing our manufacturing network, improving plant productivity and implementing tighter operational controls to better align production with demand. We're also enhancing our sourcing strategy by leveraging scale, renegotiating key supplier relationships and improving procurement discipline. At the same time, we are actively identifying additional opportunities to lower our per unit cost structure, including packaging optimization, freight and logistics efficiencies and SKU rationalization. As we continue to streamline the supply chain and improve throughput, we expect these initiatives to expand margins, improve service levels with our retail partners and position the business for more scalable and consistent performance over time. Looking ahead in 2026, we are focused on expanding our presence in under-penetrated channels, particularly food service and convenience, which represent meaningful white space opportunities for the Reed's brand. These channels are highly complementary to our core retail business, enabling us to reach consumers in new consumption occasions and drive incremental trial and brand awareness. I'd like to share a few updates on our product portfolio. First, we are launching the Reed's -- new Reed's Ginger Ale Cranberry and Blackberry in Q2 2026 as a line extension to our #1 selling SKU, which is the Reed's Ginger Ale. The core item, the Reed's Ginger Ale, remains the #1 premium ginger ale in total U.S. and continues to grow and is plus 13.7% in dollar sales over the past 52 weeks. Second, we are expanding into high-growth adjacent categories with the launch of nonalcoholic mixers in early Q3 2026, providing incremental sales opportunities in the back half of the year. Third, we are amplifying visibility at the digital shelf. In March 2026, we went live across Instacart, walmart.com and albertsons.com, reaching over 4 million targeted shoppers monthly through sponsored search, sponsored product and banner advertising. Finally, we launched a social media strategy in Q1 2026, targeting over 100,000 viewers per month. We partner with recognizable talent, including a retired NFL player, Hayden Hurst, alongside a network of high-reach influencers. This approach is designed to authentically integrate Reed's into our culture, driving awareness, engagement and trial in a scalable, cost-efficient manner. Overall, these initiatives reflect a deliberate multipronged growth strategy, building on our core and expanding into high potential agencies and fully supporting the brand through digital and cultural relevance. Now let me take you through a couple of the fourth quarter operational highlights. During the quarter, we continued our efforts to evaluate and manage finished goods inventory, including actions to address slower moving and obsolete product as part of our effort to simplify the portfolio and focus on higher-performing items. On the logistics and supply chain front, we continued executing our rebalancing initiatives to optimize inventory placement across regions and improve overall delivery efficiency. These efforts are focused on reducing freight distances, enhancing service levels and minimizing out of stocks in key markets. We are beginning to see the tangible benefits from these actions with delivery and handling expenses declining 35% year-over-year in the fourth quarter. While still early in the process -- while still early, the process reinforces that we are moving in the right direction, and we remain focused on further refining our logistics network to drive continued efficiency gains and cost reductions over time. We continue expansion into the Asian market and we'll be exhibiting at the sugar and wine trade show in Chengdu, China, one of the biggest food and beverage trade events in the world. We will be launching our latest take on new modern energy drink called [ U Oxygen ], Reed's U Oxygen. U Oxygen will be making its debut for the first time, introducing innovative flavors to key industry retailers and distributors. Reed's U Oxygen builds on Reed's natural ginger base and innovatively integrates the classic eastern herbs of astragalus and ginseng to deliver clean, balanced energy for today's health-conscious consumer. During the fourth quarter, we completed a $10 million underwritten public offering and uplisted our shares to the New York Stock Exchange American, marking a significant milestone in the evolution of Reed's. This transaction strengthens our balance sheet and enhances our financial flexibility providing additional capital to support key growth initiatives across the business, including distribution expansion, brand investment and continued operational improvements. Additionally, uplisting to the New York Stock Exchange American meaningfully elevates our visibility within the investment community and broadens access to institutional investors while improving overall trading liquidity for our shareholders. As we continue to execute against our strategic priorities, we believe this enhanced capital markets platform, combined with our stronger financial foundation, provides Reed's to accelerate growth and drive long-term value creation. Looking ahead, our priorities remain centered on improving overall operating performance and driving more consistent, profitable growth. We see a clear path to margin expansion through a combination of more disciplined trade spend, improved pricing and promotional effectiveness and continued operational efficiency gains across our supply chain and organization. We're also continuing to invest in our international expansion in Asia, where we see a significant long-term opportunity to extend the reach of Reed's brand and capture incremental growth. We believe the combination of these initiatives will enable us to execute our growth and profitability objectives ahead. Before wrapping up with closing remarks, our CFO, Doug, will cover financial highlights and fourth quarter and full year in more detail. Doug? Douglas McCurdy: Thank you, Neal. Turning to our results. All variance commentary is on a year-over-year basis, unless otherwise noted. Net sales for the fourth quarter of '25 were $7.5 million compared to $9.7 million in the year ago quarter. The decrease was primarily driven by lower volumes with recurring national customers and higher promotional and other allowances. Gross profit for the fourth quarter of 2025 was $1.5 million compared to $2.9 million in the year ago quarter. Gross margin was 20% compared to 30% in the year ago quarter. The decrease in gross margin was primarily driven by inventory write-offs and higher cost of goods sold. Delivery and handling costs were reduced by 35% to $1.1 million during the fourth quarter of 2025 compared to $1.7 million in the year ago quarter. As a percentage of net sales, delivery and handling costs were 14% or $2.46 per case in Q4 2025 compared to 17% or $3 per case in the year ago quarter. Selling, general and administrative expenses were reduced by 19% to $4.0 million compared to $4.9 million in the year ago quarter. The decrease was primarily driven by lower contract proceedings and asset impairments. Net loss during the fourth quarter of 2025 improved to $3.8 million or negative $0.44 per share compared to $4.1 million or negative $1.33 per share in the year ago quarter. EBITDA was negative $3.6 million in the fourth quarter of 2025 compared to negative $3.1 million in the year ago quarter. For the fourth quarter of 2025, we used $3.8 million of cash from operating activities compared to cash used of $3.9 million in the year ago quarter. As of December 31, 2025, we had approximately $10.4 million of cash and $9.3 million of total debt, net of capitalized financing fees. This compares to $10.4 million of cash and $9.6 million of total debt, net of capitalized financing fees at December 31, 2024. I will now turn the call back to Neal for closing remarks. Neal Cohane: Thanks, Doug. Our fourth quarter reflects important strides in stabilizing the business and reinforcing the operational foundation needed to support sustainable growth. While there is still work to do, we are encouraged by the sequential improvement in several key financial metrics and remain focused on executing against our priorities to drive profitable growth for our shareholders. With that, Joelle, we're ready to open the line for any questions. Operator: [Operator Instructions] Your first question comes from Aaron Grey with Alliance Global Partners. Unknown Analyst: This is [ John ] on for Aaron. So how best is it to think about the cadence of distribution gains in 2026 and whether the spring resets have presented any opportunities? Neal Cohane: John, thanks for the question. I think we have some work to do when it comes to getting placements right now. We're working on it as we speak. We have the sales team aligned. We're bringing on people to help and support, picking up and gaining more placements, and we're also working on velocities, to improve velocities at store level. So we're going to be completely focused in 2026 on the customer and on our distributors. And it's going to be all about velocities and increasing shelf placement. Unknown Analyst: Okay. Great. And how should we think about the path to profitability and some of the margin initiatives you have in place starting to flow through the P&L? Neal Cohane: The path to profitability is -- Doug and I have been meeting extensively on this. And we're looking at a couple of things here. It's one, we're looking to reduce expenses, which we are doing year-over-year, quarter-over-quarter, we're reducing expenses. But at the same time, we're driving -- we're going to be driving growth this year. So I think what you see today is going to look a lot different than in, say, Q4 of this year. But it's going to be a combination, like I said, of reducing expenses and driving volume at store level. Unknown Analyst: Okay. Great. And then just lastly, is there any additional detail you can provide on the timing of the Smarter Soda (sic) [ SodaSmarter ] launch or color on learnings from the past launch to improve the product, flavor, packaging or otherwise? Neal Cohane: On which launch, I'm sorry? Unknown Analyst: The SodaSmarter. Neal Cohane: Yes. The SodaSmarter launch right now is -- that is one of the first things that I spoke with our flavor house that helps us with launches as I want to improve flavors. But at the same time, we're launching our new mixer line. And our new mixer line, which I think is going to be a great addition to what we're all about as a Reed's brand, we're working on that line and that launch at this moment. And then we're coming back to the SodaSmarter, and we're going to be looking at improving flavors, improving formulas, and then we're going to improve execution on that at the same time. Operator: There are no further questions at this time. I will now turn the call over to Mr. Cohane for closing remarks. Neal Cohane: Well, thank you, everybody. I appreciate everybody joining today. We appreciate your continued interest in Reed's. We look forward to updating you on our progress, and we'll do that on further calls. We have a lot of work to do, and we're getting it done. But thanks for everybody and their time today. Operator: Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Andean Precious Metals Fourth Quarter and Year-End Conference Call and Webcast. [Operator Instructions] Thank you. I would now like to turn the call over to Amanda Mallough, Director of Investor Relations. You may begin. Amanda Mallough: Thank you. Good morning, everyone, and thank you for joining Andean Precious Metals Conference Call to discuss our financial and operating results for the 3 and 12 months ended December 31, 2025. Our press release, MD&A and financial statements are available on SEDAR+ and on our corporate website at andeanpm.com. Before we begin, I would like to remind listeners that today's discussion will include forward-looking statements. Please refer to our cautionary language in our filings. Joining me on the call today are Alberto Morales, Executive Chairman and CEO; Yohann Bouchard, our President; Juan Carlos Sandoval, our Chief Financial Officer; and Dom Kizek, our Vice President of Finance and Corporate Controller. Following prepared remarks, we will open the line for questions. And with that, I'll now turn the call over to Alberto. Alberto Morales: Thank you, Amanda, and good morning, everyone. 2025 marked a step change for Andean where we delivered focused financial -- record financial results and fundamentally strengthened our balance sheet. We achieved record revenue, adjusted EBITDA and net income alongside with strong free cash flow generation and exited the year with a record $167 million in liquid assets. This level of cash flow generation fundamentally changes our positioning as a company. We entered 2026 with a strong balance sheet and the financial flexibility to fund growth initiatives and evaluate opportunities to expand our asset base. Operationally, both assets contributed to this performance. At San Bartolome, the operation delivered consistent production and strong margins, supported by efficient processing and strong silver prices. At Golden Queen, production strengthened into the fourth quarter, supporting higher consolidated gold production and contributing to our record financial results. For the year, we maintained a balanced production profile with approximately 57% of revenue coming from silver and 43% from gold. Looking ahead, we expect several important milestones in 2026, including our planned New York Stock Exchange listing and the updated technical report at Golden Queen. Overall, 2025 demonstrated the strength of our platform, a business capable of generating meaningful cash flow, maintaining strong margins and positioning itself for the next phase of growth. With that, I will turn it over to Yohann. Yohann Bouchard: Well, thank you, Alberto, and good morning, everyone. For the fourth quarter, Andean produced 27,777 gold equivalent ounces, bringing full year production slightly below 100,000 gold equivalent ounces. While production finished near the low end of guidance, both operations delivered strong cost performance and margin generation, supporting record financial results. At San Bartolome, the operation continued to perform consistently. For the year, the operation delivered 4.5 million ounces of silver, contributing to a total of gold equivalent production of 53,854 ounces. Operational performance remained strong for the full year with cash gross operating margin of $16.11 per silver ounce and gross margin ratio of 42.75%. These results reflect continued efficiency in ore sourcing, stable throughput and strong realized silver prices. At Golden Queen, the operation produced 45,311 gold equivalent ounces in 2025, comprised of 41,627 ounce of gold and 331,000 silver ounces. Production improved into the fourth quarter, supporting stronger consolidated results. For the year, cash costs were $1,698 per gold ounce and all-in sustaining cost was $2,194 per gold ounce. The operation continued to focus on optimizing stacking, blending and recoveries, which are expected to support improved performance going forward. From an operational perspective, both assets are well positioned heading into 2026 with stable production and strong margins. Production is expected to be weighted approximately 45% in the first half of the year and 55% in the second half, driven by mining sequence at Golden Queen and ore delivery timing at San Bartolome. With that, I will turn it over to J.C. Juan Sandoval: Thank you, Yohann, and good morning, everyone. From a financial perspective, 2025 was a record year across all key metrics. In the fourth quarter, we delivered strong results across the board, including revenue of $134 million and adjusted EBITDA of $47 million. For the full year, revenue reached $359 million, adjusted EBITDA was $133 million, and net income was $118 million or $0.78 per share. Free cash flow totaled $36 million in the fourth quarter and $59 million for the year, reflecting strong cash generation. Our balance sheet strengthened significantly over the year. Total assets increased to $434 million, while total liabilities declined to $170 million, reflecting debt repayment and strong cash generation. We ended the year with $167 million in liquid assets, a record for the company. This was comprised of $79 million in cash and cash equivalents, $38 million in treasuries and money markets and $49 million in strategic equity investments. During the year, we fully repaid our legacy credit facilities and established a new $40 million revolving credit facility with National Bank further enhancing our financial flexibility. This positions the company with strong liquidity and financial flexibility moving into 2026. With that, I'll turn it back to Yohann for an update on our exploration programs. Yohann Bouchard: Thank you, J.C.. Our exploration programs are focused on extending mine life and supporting long-term production across both operations. At Golden Queen, exploration remains focused on expanding known mineralization and supporting mine life extension. In 2025, we completed 47 core drill holes aiming at extending the existing mineralized zone. While the drilling program met our expectations, turnaround times at the independent assay lab were longer than anticipated. Consequently, we have decided to postpone the release of the technical report by a few months to include this new information. Looking ahead to 2026, our primary objective is to advance infill drilling to convert inferred resources into the measured and indicated categories. Our second objective is to follow up on the zone drilled in 2025 with additional infill drilling, which is intended to further extend mineral reserves along the trend of the existing mining areas. Postponing the release of the technical report by a few months ensure the market receives a clearer and more complete picture of the asset long-term value. At San Bartolome, exploration is focused on securing additional oxide resources to support long-term plant feed. We continue to advance exploration across multiple targets with the objective of increasing available resources and maximizing utilization of the plant capacity. Overall, these programs are designed to enhance production, extend mine life and support long-term value creation across both operations. With that, I will turn it back to Alberto, who will talk to the 2026 guidance. Alberto Morales: Thank you, Yohann. As we look ahead to 2026, we have already provided detailed production, cost and capital guidance to the market. We expect consolidated production to be in the range of 100,000 to 114,000 gold equivalent ounces, with production expected to be weighted approximately 45% in the first half of the year and 55% in the second half, reflecting mine sequencing and ore delivery timing. At Golden Queen, we expect cash cost between $1,500 and $1,800 per gold ounce and all-in sustaining costs between $1,850 and $2,150 per gold ounce. At San Bartolome, we expect cash gross operating margins between $20 and $35 per silver ounce and gross margin ratios between 35% and 45%. Overall, this positions the company to continue generating strong margins and cash flows across the range of a commodity price environment. Our capital program for 2026 is aligned with our strategy of driving long-term value while maintaining financial discipline. We expect sustaining capital of approximately $17 million to $24 million and growth capital of approximately $21 million to $30 million. At Golden Queen, capital will focus on leach pad expansion, development and infrastructure, equipment additions supporting mine life extensions. At San Bartolome, capital will be directed towards processing improvements, plant optimization initiatives and sustaining infrastructure. Overall, 2026 plan is designed to enhance operational flexibility, support mine life extension and positions the company for continued free cash flow generation and long-term growth. To close, 2025 marked a significant step forward for Andean. We delivered record financial results, generated meaningful free cash flow and transformed our balance sheet. As we move into 2026, we are focused on delivering against our guidance, continuing to generate strong margins and cash flow and advancing key initiatives across both of our operations. We are entering 2026 from a position of strength with a clear path to continue scaling the business and delivering long-term value for the shareholders. With a strong balance sheet, a clear operating plan and upcoming catalysts, including our planned New York Stock Exchange listing, we are well positioned to execute on the next phase of growth. Thank you, everyone, for your continued support. And operator, I would like to please open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Justin Chan with SCP Resource Finance. Justin Chan: Congrats for cash generating year. Just my first question is on the, I guess, the timing of the updated resource at Golden Queen. I guess maybe can you give a bit more color on -- will you be doing more drilling in the first -- I guess, will drilling from the first quarter of the year go into the update? Like what's the cutoff for data going into it? And then if you could give us kind of the flow of timing from cutting off drilling data and then when you expect to release it? Yohann Bouchard: Yohann here, and thanks for the question. So the main reason for postponing by, say, 3 to 4 months, the technical report is really to make sure that we include all of the information from 2025, which is pretty exciting. I mean we got 47 holes that we drilled in the extension, and we believe that everything can make its way into resource, but -- and we feel that by rushing the report, I mean, we're not giving full value to that report basically. I would say postponing the report has very little to do with drilling that we're doing in 2026. We're going to try to include some of those holes if we can, but this is not the end game here. The end game is really to include all the information that we have drilled in 2025, which is meaningful, I think, for the operation. Justin Chan: Understood. Got you. So it's not like you need to do any more infill. It's just a matter of enough time to actually model up the data you already have. Yohann Bouchard: Absolutely. We are very satisfied with the drilling of 2025. Again, I mean, this is out of our control. I mean, the lab was quite busy, and we had some delay with that. And I believe that everybody is winning by postponing a little bit and providing something that can give a clearer picture to the market. Justin Chan: Got you. And then I have a question on just the marketable securities. And I guess there was some movement overall, I'd say, especially this quarter in terms of the FX impact on your cash and also, I think, quite a bit like about $10 million worth of revaluation of the marketable securities. Could you give us a bit more color on -- it sounds like you have a mix of treasuries and also or money market, let's call it, debt instruments, but also equities. I'm just curious, I guess, how that revaluation might work in future periods. Juan Sandoval: Yes. Thank you, Justin. It's J.C. So yes, as you know, as part of our cash management strategy, we hold 3 things: cash, marketable securities, which is mostly composed of treasuries, whether it be short term or up to 3 years and then our strategic equity investments, right? Yes, as you -- as we have seen over the last few weeks, there has been more volatility, especially in mining companies. So yes, we've seen a reduction in the valuation of our equity investments. However, we believe that when we present our first quarter numbers, we will compensate some of that loss that we have seen on the market overall. Justin Chan: Got you. And just -- and the equities themselves, they're accounted for as part of the marketable securities short and long term. Is that right? Juan Sandoval: Yes, that's correct. Justin Chan: Okay. Got you. And then just the last one, and I'll free up the line. I mean I would expect less impact given where your operations are, but just, I guess, good housekeeping that I've been asking on other calls. Given the volatility in global supply chains, oil prices, et cetera, I'd imagine your locations are less impacted, but can you just flag any impacts that we should consider? Juan Sandoval: Yes. So obviously, everyone is being impacted. If oil prices remain above $100 per barrel, it will have an impact. We are working on that. But yes, as you say, at least in the U.S., it will be less of an impact compared to the international markets. But yes, I mean, right now, we don't really know where it's going to end up, but it's -- again, if oil prices continue to be where they are, yes, it will have an impact on our overall bottom line. Justin Chan: Okay. Got you. But it sounds like it's limited to more just the price of oil as opposed to like supply of any consumables or anything else? Alberto Morales: Energy-driven inflation basically. Juan Sandoval: It's mostly diesel and fuel, but some of the consumables might also be affected as well. But it's mostly fuel and diesel, Justin. Justin Chan: Yes. And it's a pricing rather than availability issue? Juan Sandoval: Correct. Yes, absolutely. Operator: Your next question comes from the line of Ben Pirie with Atrium Research. Ben Pirie: Congrats on another strong quarter and closing out 2025. Just going -- piggybacking off Justin's question there with the resource. Can you just confirm -- so now this is being pushed to the end of Q2, early Q3? Or is it 3 months further than that? Yohann Bouchard: The way I see it, I mean, there's going to be pushed towards the end of Q3. Ben Pirie: Okay. Okay. Understood. And then at the Golden Queen, can you just touch on the increase in costs between Q3 and Q4 of 2025? And then going beyond that, we're looking at the AISC guidance, $1,850 to $2,150 for 2026. Can you just touch on what's sort of going to change from Q4 '25 to bring those costs back down to that range and just sort of give investors some confidence around the cost going forward here? Dom Kizek: Ben, it's Dom here. This is the question. Q4, we had some catch-up costs, including some inventory adjustments there. But going forward, we have reiterated our guidance. So we do expect those costs to be within that guidance as of today. Juan Sandoval: And all-in sustaining costs increased as well during Q4 because if you look at the CapEx, we accelerated some CapEx in that fourth quarter. So that's why for that fourth quarter, all-in sustaining costs did increase a bit, but it was mostly related to that CapEx allocated during the fourth quarter. Ben Pirie: Okay. Understood. And then just, I guess, lastly, I don't have too much. But on San Bartolome, can you just talk to us about how the volatility in the gold price over the last couple of months might impact margins just given it is a margin business? Juan Sandoval: Yes. So bear in mind, Ben, that we have a processing facility, right? Part of our feed is coming from long-term contracts and part of it is coming from spot purchases. On the spot purchases, yes, we are paying ore at market prices, obviously, higher prices. But as we've mentioned in our guidance, we have a very profitable margin. And then on the fixed contracts, well, it's a fixed price per ton. So on those contracts, we are more exposed to commodity prices. So in this high price environment, we're -- it's becoming more profitable. But the combination of both, as I have said, still make it a very profitable business, but less risky overall because on the spot purchases, we have sort of like a natural hedge, right? Ben Pirie: Yes. And so in a sharp sort of decline like we saw with gold over the last couple of weeks bouncing back this morning, there's a little bit of a margin compression in that environment. But again, the trend has been up and to the right for the gold price has been benefiting you with this business as of late. Juan Sandoval: That is correct. Ben Pirie: Okay. Great. Well, again, congrats on a strong year and that's all I have today. Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Eric Lakin: Good morning, everyone, and welcome to our full year results presentation for 2025. I'm Eric Lakin, CEO, and I'm joined today by our interim CFO, Richard Webb. Very happy to be with you all again for my first full year announcement at TT. 2025 has been a year of transition for TT Electronics. It was a year where we faced clear operational challenges, but also one in which we took swift action to address them. Our focus has been on restoring operational control, strengthening our balance sheet and creating a solid platform for future growth. While there is a lot of work still to do, I'm pleased that we have delivered a stable performance and we enter 2026 with a much stronger operational and financial foundation. Let's start with a look at the headlines for the year. Despite the macro headwinds we faced, we delivered results in line with expectations with momentum notably strengthened in the second half. We saw improved operating profit, margins and cash flow, driven by better execution and strict cost discipline across the group. Notably, our cash generation was very strong. We have significantly reduced our net debt and strengthened the balance sheet, which Richard will detail shortly. We have successfully restored operational control following the conclusive actions we took earlier in the year, particularly at the Plano and Cleveland sites, and I'll cover this in more detail later. Performance was mixed by region, but for clear reasons. Europe performed strongly, driven by structural growth in aerospace and defense. Meanwhile, North America materially improved, and we have ceased production at Plano, as we complete the closure of that site. Asia was impacted by softer macro driven demand in EMS, but we view the region as better positioned operationally as we enter 2026. The next slide breaks down the specific actions taken during the year to build the stronger platform. First, Plano, production is ceased and the site was closed according to plan. We saw a benefit in the second half from last time buy activity, but importantly, the closure removes a significant drag on our earnings going forward. Second, Cleveland optimization. We deployed specialist operational support to the site and results are clear. We have improved yield, productivity and customer service levels, including quality and on-time delivery. The site is now stabilized and on track to return to profitability, more on this shortly. Third, our components review. We conducted a strategic review, which concluded that the components business could potentially be worth more under different ownership. So we'll be testing that. We have separated its management to ensure more focus and oversight, and the Board is currently evaluating a value-led disposal process, but it is not a commitment to divest as it is subject to market conditions. This is a solid business. And with the changes implemented, we are confident that it will be a positive contributor to the group. And finally, balance sheet stability. Working capital discipline has materially improved, and we delivered strong cash conversion in part due to successful inventory reduction initiatives in 2025. This work culminated in a significantly reduced year-end net debt and leverage positions. Focusing specifically on our Cleveland site on the next slide. In 2025, we launched a business improvement project targeting operational performance with a focus on rework hours and productivity, and I'm pleased with the progress made. As the charts illustrate, we have seen sustained improvement with overall productivity levels now consistently above our higher target levels and rework much better than expectations. On-time delivery, yield and cost of poor quality have also all improved. Crucially, the Cleveland site is stabilized and its financial and operational performance has materially improved throughout the second half. There is still opportunity to drive further improvements and the current focus is on the sales growth from existing and new customers to utilize the capacity available and further absorb overheads. Turning now to our next phase. As we look to the year ahead, our focus shifts from stabilizing the business in 2025 to a more proactive agenda for value creation. On this slide, we have outlined the four clear priorities that will define this next phase. We have established a disciplined framework designed to drive sustainable growth and margin expansion built around four key pillars, which are: one, a realignment of the business to focus on divisions as opposed to regions. Two, a targeted cost reduction program, delivering material savings. As announced this morning, we expect to deliver approximately GBP 3 million of net benefit in 2026 and annualized savings of double this figure to deliver significant benefit in future years. Third, a sales transformation plan to upgrade our commercial capabilities. And fourth, portfolio optimization to improve synergies and margins across the group. I will take you through each of these in turn in more detail later. But for now, I will hand over to Richard who will talk you through our financial results. Richard Webb: Thank you, Eric, and good morning, everyone. I'll now take you through our 2025 financial results. Starting with our group performance. Against the backdrop of mixed market conditions, we have delivered a resilient financial performance that highlights the benefits of the operational actions Eric just outlined. Revenue and profit figures are presented on an organic basis. This reflects performance at a constant currency and with the impact of the quarter 1 2024 Project Albert divestment removed from the prior year comparative. Revenue for 2025 was GBP 481.4 million, down 2.7% organically, reflecting the strong growth in European Aerospace & Defense, which largely offsets the softer demand we saw in the EMS markets for North America and Asia. Despite the lower revenue, adjusted operating profit increased by 2.2% to GBP 37.2 million, demonstrating in large part the success of the turnaround actions undertaken in North America. Consequently, our adjusted operating margin expanded by 30 basis points to 7.7%. This margin progression was driven by the turnaround in North America gaining traction, continued progress in Europe and tighter cost controls across the group, more than offsetting the decline in Asia. Adjusted profit before tax is up 5.5% to GBP 28.7 million benefiting from the lower interest costs associated with our reduced debt levels. Adjusted EPS is 6.9p, down 37.3% year-on-year, reflecting the impacts of the higher effective tax rate of 57% as we cannot currently recognize a deferred tax asset for the U.S. On a normalized basis, if we had been able to recognize deferred tax assets, the adjusted effective tax rate would have been 25.4%, and the adjusted EPS would have been 12p. Finally, we significantly strengthened our balance sheet reducing leverage to 1.1x from the 1.8x this time last year, driven by net debt being reduced by almost GBP 30 million. Turning to the revenue bridge and focusing on the organic performance in the year. Europe was the standout performer, delivering robust growth. This was driven by sustained demand in aerospace and defense, where we're seeing structural shifts that are supportive to the business. This was offset by North America and Asia, where we faced volume reductions. In North America, the decline mainly reflects the EMS and components end market softness. In Asia, the reduction was primarily due to ongoing geopolitical uncertainty impacting customer order timing, particularly for the automation and electrification sector. Now turning to operating profit. The operating profit bridge tells a positive story of execution. Despite revenue headwinds, adjusted operating profit increased to GBP 37.2 million, up 2.2% year-on-year. Overall, we delivered GBP 0.8 million of net organic profit growth. This is the result of operational gearing in Europe, where higher volumes and favorable mix dropped through to profits and the turnaround actions in North America where the stabilization of Cleveland and the elimination of losses from Plano were critical. These actions allowed us to return the region to profitability in the second half. Plano, which was significantly loss-making in the first half, generated around GBP 3.5 million of profit from last-time-buys in half 2 and contributed approximately GBP 1 million to the group adjusted operating profit for the full year. Revenue at the site was GBP 13 million in 2025. Production ceased at the end of the year, and this contribution will not repeat in 2026. The progress in North America helped offset the impact of lower volumes and transition costs in Asia, where we have been investing to support the transfer of production from China to Malaysia. Now I'd like to focus on the balance sheet, which is the highlight of these results. We've delivered a strong cash performance this year. Free cash flow increased to GBP 29.9 million, up 7.9%. This was driven by a significant step-up in cash conversion, achieving 150% compared to 117% last year. The primary driver here was our disciplined focus on working capital, specifically inventory reduction. We have successfully executed inventory initiatives across the group, resulting in a GBP 14.8 million contribution to cash flow. When combined with the GBP 12.8 million inventory reduction in 2024, that reflects the very pleasing GBP 27.6 million reduction over the last 2 years. This strong cash generation has directly strengthened our financial position as we've reduced net debt by almost GBP 30 million to GBP 50.3 million and leverage down to 1.1x. Balance sheet discipline will continue to be a key focus. Earlier this month, we extended the expiry dates of our revolving credit facility to June 2028 and reduced the size from GBP 162 million to GBP 105 million. This facility is only drawn by GBP 10 million currently and in the next few months will be completely undrawn. Before I move into the regional performance, I will reiterate that from our next set of results, we'll be moving to a divisional reporting structure, which better reflects how we manage the business. This means a realignment away from regions into 3 clear divisions, Power, EMS and Components. Eric will talk about this in more detail shortly. And you can also find pro forma revenue and adjusted operating profit under this new structure for 2024 and 2025 in the appendix. Turning now to regional performance and starting with Europe. Europe performed well during the year, continuing to be a structural growth engine for the group. Revenue grew 7.4% organically to GBP 144.4 million, driven by our sustained demand in our aerospace and defense markets. Adjusted operating profit increased 13.9% to GBP 22.1 million, with strong operational leverage, expanding margins by 90 basis points to 15.3%. We are seeing strong order intake across A&D, and the trends are set to continue into 2026. Turning to North America. Revenue declined 3.7% organically to GBP 173.1 million. This reflects the volume reduction both at Cleveland and in the Components businesses. However, operational performance improved during the year and the region returned to profitability. Adjusted operating profit was GBP 1.2 million compared to a loss of GBP 2.7 million in the prior year. Margins recovered to 0.7%, a 220 basis point improvement. The operational turnaround was driven by 2 main factors. As Eric highlighted earlier, actions taken to stabilize Cleveland, improved yield, productivity and execution, materially reducing losses in the second half. In addition, production at the Plano site ceased at the end of '25, removing a structurally loss-making site from the group with last-time-buy activity, also supporting regional profitability during the year. We entered 2026 with a recent operational base in North America, which positions the business in this region for further improvement. And finally, to Asia. Revenue declined 9.2% organically to GBP 163.9 million. This was due to ongoing reduced demand from EMS customers in the health care and A&D sectors with continued geopolitical uncertainties, delaying customer ordering. Operating profit fell to GBP 21.6 million, with margins compressing to 13.2%. This performance reflects lower volumes and some transition costs as we transferred a major customer from our facility in China to Malaysia, which is now complete. Completing this transfer strengthens our resilience against geopolitical uncertainty, better positioning the region moving forward. On the next slide, we have broken down revenue by our end markets. Aerospace & Defense was the standout, growing 12% to GBP 152.8 million. This highlights our increasing exposure to structurally attractive markets where defense spending continues to rise. Automation & Electrification softened by 13%, reflecting the macro intrapolitical uncertainty that caused customers to be cautious with order placement. Healthcare was down modestly by 4.3%, primarily reflecting reduced U.S. research grants and funding though our pipeline in medical and life sciences is healthy, and this remains an attractive market for TT. Distribution declined 4.7%, which was expected as component demand continues to normalize post-COVID. Overall, the strong growth and positive structural trends we are seeing in aerospace and defense give us confidence. Whilst other end markets have not performed as well as we would have liked, this largely relates to macro-driven softness of demand. We entered 2026 in a better, more stable position. Thank you, everyone, and I'll now hand back to Eric. Eric Lakin: Thank you, Richard. I think we can all see there is an improving picture and a stronger financial base for TT. I will now return to the 4 priorities for our next phase before touching our customer base and finally, look at the outlook for 2026. First, our divisional realignment. As we have mentioned, from this year, we are shifting how we organize and present the business away from our current regional structure managed as Europe, North America and Asia, to a product-led divisional structure. The group will be aligned around 3 clear divisions, Power, EMS and Components. Why are we doing this? It aligns us better with our customers' capabilities and markets. It enables us to develop and deliver more coherent strategies aligned to divisions that have different technologies, characteristics and routes to market. It also creates clear accountability for product development, sales and planning. As part of this reorganization, we will devolve further responsibilities to the operating companies to enable a more agile business with faster decision-making being made by those closest to the customer. This also facilitates a simplification of the organization structure including an element of delayering and increasing the accountability of performance to the sites. As mentioned, pro forma divisional breakdowns are available in the appendix. Second is our cost reduction program. To support this leaner operating model, we have initiated a targeted cost reset to permanently reduce our structural overheads. We expect this program to deliver around GBP 5 million of gross benefits in FY 2026, which will be a net benefit of approximately GBP 3 million after implementation costs. Looking further out, we anticipate annualized savings to be around double this year's level. This is a program that directly supports our margin progression goals, and we will share more information as the year progresses. Third is sales transformation. We're upgrading our commercial capabilities and bench strength, particularly in North America and Asia, and investing in business development talent, tools and processes aimed at delivering improved pipeline, order intake and pricing discipline. In particular, there is a renewed focus on new customers and new product introductions with these activities already bearing fruit as there's been a significant increase in new business wins in recent months, especially in North America. And finally, portfolio optimization. And as a management team, we continue to review the group's portfolio on an ongoing basis to ensure it remains aligned with our strategic priorities and areas of competitive advantage. Our strategic review of the components business is now complete. The Board is actively evaluating a range of options, including a value-led disposal process. But as mentioned earlier, we are not committed to a sale. Our current focus is on improving margin quality and returning the business to being a value accretive part of the group. Looking further out, we have restarted early-stage prospecting activity for targeted strategic bolt-on acquisitions that strengthen our core capabilities and reach, especially in the power electronics sector in which we have developed a strong capability and market position. All in all, we see these 4 priorities as being key to the next stage of TT's growth and delivering value for all our stakeholders. I would like to spend a bit of time looking at some of our customer relationships. During my first year at TT, I've been able to see our client relationships in action and understanding the significance of these relationships gives me great confidence. We serve some of the world's most respective and demanding companies across our core markets. And these companies choose us because we operate in the mission-critical space. Whatever the requirement, our customers rely on TT for precision, reliability, engineering capability and production excellence. These are not transactional relationships. They are deep multiyear engineering partnerships we seek to solve customer needs typically in regulated markets for demanding specialist applications. This diverse blue-chip customer base provides us with resilience against market cycles and is a foundation upon which we will build our future growth. I want to highlight what one of our partnerships looks like in practice on the next slide. So Edwards is a customer we have supported for more than 15 years. They supply solutions to the semiconductor capital equipment market and we provide a full tier EMS solution spanning PCB assembly through to complex high-level assemblies and specialist testing for vacuum technology. They operate in a highly demanding sector where precision and reliability are nonnegotiable. By providing everything, from comprehensive test development support to supply chain transparency, we give Edwards the confidence to meet their own commitments. It is this level of deep rooted reliability that allows us to grow alongside our most specialist global clients. I recently met with the team at Edwards, and they conveyed the importance of our ongoing relationship to their success and the future growth of the business. As this example illustrates, our partnerships with customers go well beyond the supply vendor dynamic, and we are deeply integrated with their processes to help create value over the longer term. Finally, turning to outlook. TT enters 2026 on a firmer operational and financial footing. We have taken swift action to improve operational performance and are aligned on a clear strategy moving forward underpinned by the growing strength of our balance sheet. We have high exposure to the A&D market, which supports growth and margins across Europe and North America in what will now become a significant portion of our Power division. While we do expect some continued softness in EMS markets, I remain mindful of the ongoing geopolitical uncertainty. Our focus is firmly on what we can control. The operational and cost actions we have taken are expected to continue driving margin improvement and better execution across the group. The North America turnaround is now becoming a tailwind with losses in the first half turning to profits in the second half. The significant improvement in the region, together with the cessation of production at Plano, give us a cleaner, more stable earnings base moving forward. Cash generation also remains a key priority. We will continue to focus on working capital discipline and operational efficiency to support strong cash conversion. With leverage now reduced to 1.1x and our financing facilities extended, we have significantly strengthened the balance sheet and increased our financial flexibility. So we expect 2026 revenue and adjusted operating profit to be in line with current market consensus. And this reflects a more stable, higher quality and more resilient business following the actions taken during the year. 2026 is about consolidating the operational progress we have made, maintaining margin discipline and continuing strong cash generation as we build a stronger platform for a return to growth better placed to capitalize on opportunities as they appear. While there is still more work to do and the remain external factors and market uncertainties, we entered the year with a more focused business, a stronger financial position and the greater confidence in our ability to deliver further progress. So thank you very much for your time this morning. I hope you'll agree that this is an exciting time for TT, and we are looking forward to showing our progress moving forward. Richard and I are now very happy to take any further questions you might have. Mark Jones: Mark Davies Jones from Stifel. A few things, please. On the change in divisional structure, does that effectively get us back to where we were before the move to the regionals? Or is there a difference in what allocation you do between those divisions? And if you're devolving more responsibility to the operating units, are there implications for the divisional management teams? Are you retaining the current team and new people coming in? And then the other one is the step-up in sales investment. Does that consume some of the benefits of the cost savings plans? And what sort of investment financially does that involve? Eric Lakin: Thanks, Mark. I'll take those 3. The new divisions are very similar to but not identical to the previous divisions. I think there's a couple of differences. For example, Sheffield is power, not components as it was before. And Fairford is also power not part of EMS, which it was before or GMS in the previous name, but broadly similar. But the divisional structure we've got now is really designed to put all the sites with similar characteristics together. And so it's much more coherent. And the Components division is, therefore, what we've separately been running internally already, but without the Plano production. Mark Jones: So the whole scope of that is within the review. Eric Lakin: Correct. correct. And in terms of the impact of what was the regional teams, I mean, in fact, it's part of -- the cost reduction program is separate, but partly facilitated or enabled by the divisional reorganization. So for example, with the executive team, we've gone effectively from 4 regions, so 3 components to 3 divisions. So that's 4 to 3. And the divisional teams will be significantly smaller than what was previously regional teams. So there's that element of delayering. So it puts a point around putting more responsibility to the site teams and leaders. Much of the saving is around what was previously the group functional costs. So support, particularly in the sort of non-primary functions, supporting what was the regions and the teams, those responsibilities are covered affected by the sites, and so there's been a lot of reduction in that area. And then your... Mark Jones: The cost of the investment on the sales? Eric Lakin: Yes. So I think there is some net increase in cost for BD. It's really important that we don't -- with all the short-term benefits of cost cutting, we don't forget really, our mission is to grow the top line and drive profitable growth. There are some -- so I mean overall, the actual change in the business development function, including sales, commercial teams won't be materially different from prior year because we've also had some evolution of the sales team. So part of the sales transformation is a high-performance culture. And so as you expect in that culture of sales team, there will be some people coming in, some people going out. There'll be a net increase in head though. And so there'll be a modest absorption of some of the net savings, but it's quite small compared to the headline savings. And it certainly should pay for itself. Andrew Simms: It's Andrew Simms from Berenberg. Just a couple of questions around pricing initially. I mean you talked about sales transformation. It would be good to get maybe a little bit of a feel for where you're seeing the benefits of pricing coming through? Maybe some examples of how that's coming through there, that would be great. And then following on from that, in terms of new business, in terms of new logos as well, how should we think about gross margins and that business coming through, how that supports medium-term operating margin ambitions? Eric Lakin: Thanks, Andy. On pricing, there's 2 parts to it. It's existing contracts and new contracts. So with the former, we've done a review of a large customer and contract margins, in particular, around Cleveland. So we did customer product profitability analysis covering close to 100 different contracts and that was quite insightful. And that revealed really, so you can pareto these things, a handful of opportunities where the margins are not what we need or expect and some are very low in a couple of cases, actually negative. There's a legacy there and part of it is getting the right standard cost and rigor around bids. With the visibility we have in some of these cases, a contractual ability to increase prices with existing contracts, particularly in the aerospace and defense, we've got the right to have a transparent cost review and apply appropriate margin. So we've had 2 quite significant successful price negotiations and outcomes at the back of last year, which will have ongoing benefit this year. So that's been helpful. And it actually shows -- these aren't easy discussions to have, but the customer chose their value and need our ongoing support. Going forward, it's a point around sort of bid and pricing discipline. We've got a good -- a rigorous bid, no-bid structure in place. And so we make sure that we make the right decisions. And it's much about pushing the highest prices. For components, for example, we had a sort of a particular mandate, not accepting margins below x percent. And actually, we turned away some business that would have been contributing to our bottom line. So in some cases, by exception, we take a different view for certain contracts where it's making a positive contribution. You certainly want to cover at least all the variable costs, direct costs, and actually and get some scale and cover the overheads. So it depends on the circumstance. But overall, we're tracking that and there's a big important part of it. In terms of new logos and the impact on margin, I mean, it varies, I mean, particularly some EMS contracts. I mean overall, the margins will never be as high as, say, in other parts of the business. And you'll see that come through in the new divisional structure, and that is the nature of it. I mean you look at our peer groups, typically in EMS margins, and they're typically mid- to high single-digit percent. And as we get new logos, we're still pricing them to ensure we get profits from day 1. We're not doing any sort of cost entries. A couple of examples recently. We've got our first new logo in North America in agricultural drones, another one in data centers. And we are quite well aligned to meet their needs and make profits. There is business out there. We could win, but we'd lose money out. And we've been very disciplined to focus on profitable growth, not just top line. Alexandro da Silva O'Hanlon: Alex O'Hanlon from Panmure Liberum. Just a couple of questions from me. Firstly, just on the Cleveland productivity improvement. It's a good chart that you have in the deck, and you can see how that's progressed over the year. It's interesting to see that the improvement has tracked the, I guess, better targets throughout the year. Are we at the target level that you want to see now? Or is there further progress to go? And the second question is just on capital allocation. You mentioned the possibility for bolt-on acquisitions in the future. I was just wondering, on the dividend, what do you still want to see in terms of progress before you're reinstated? Eric Lakin: Thanks, Alex. In terms of productivity improvements, I mean, right, it's very pleasing when you implement initiative and you can see the evidence of that. And so productivity, I mean, the way we define it is, it's total hours spent on a product divided by total standard hours expected. And you're always going to have -- we set it at 75%, we're excess of that, which is good. I mean in practice, the way that is measured, you're always going to have some element of training time, vacation, what have us. So the similar measures of efficiency, and it's equivalent to that as more like 90% or so. So it's where we expect it to be. Could we push it harder? We're always trying to do more and more. And by getting higher productivity, that manifests itself improved profits by either having more capacity to do more or we can reduce headcount. So I think it's where I'd like it to be. I think if we're; going to sustain at that level, it'll be a good outcome because there's many other factors as well, including quality and the ability to also -- there could be a period where we have a slight impact. So we're bringing in new product introductions, and that has an impact as we get the standard costs delivered. And then in terms of capital allocation, I mean, look, a priority last year was absolutely a focus on balance sheet strength, resilience getting the gearing down and the refinancing. And Richard and team and Kirsty is here with us as well, Head of Tax and Treasury, done an excellent job resolving that. So it's nice to be getting these questions now. Looking forward, I think we're very mindful, obviously, a lot of uncertainty at the moment, are very mindful of maintaining a strong balance sheet. So the dividend position, the Board will continue to review that going forward, and we may well have an update at the interims and make sure we're making the right decisions in the medium to long term as well for shareholders. So I mean there's other options available, of course, whether it's share buybacks or acquisitions. On the acquisition point, it's too early. We need to be good stewards of the business, prove that being more reliable and consistent in our delivery against promises and prove we are a good owner of businesses. But it's also true cultivating targets can take a long time. So we're right to start that now. And there's definitely a runway of opportunities out there that could be additive to our business. So it partly depends on opportunities that arise and then we make the best decisions at the time. Mark Jones: Sorry, can I come back for one more, which is around the moving parts of this year and the guidance you're giving, because obviously, there's a lot of underlying progress. But the guidance you sort of stood behind this morning, the top end of that is flat year-on-year in profit terms and the bottom end of it is obviously a step down. So you've got a GBP 1 million headwind in terms of the full year contribution from Plano, you've got strong growth in Europe in the A&D business ongoing. You've got presumably better underlying performance in the U.S. we should have year-on-year, and we've done the big transfer in Asia. So can you talk through the other headwinds? Is it just volume in EMS? Eric Lakin: Yes, Richard, do you want to pick that one? Richard Webb: So one aspect is margins in Europe is now power. So there was -- there's some beneficial mix within 2025 that won't repeat in 2026. There will be some softening of power margins as we go into next year. But yes, the ongoing softness in EMS continues to be an area where we're being cautious for the 2026 outlook. That is the kind of primary driver of why you don't see 2026... Mark Jones: And it could be by end market within the... Eric Lakin: I mean I'd just add, big picture, there's obviously a lot of uncertainty. And it's too early to call what the impact would be with the current situation in Middle East. There's likely to be some level of inflationary impact. We've not yet seen any constraints on raw material and supply chain, but they might occur and they could have an impact. Obviously, we've got energy price rises, which could ultimately impact some of our fabrication costs, particularly where we use furnaces and so on. But it's early days. We don't know, and it's unclear what the impact would be in terms of customer demand patterns as well. But I think there's a broader caution around inflation and the impact of that on the business, which we're obviously taking countermeasures to that with the cost reduction. I mean, by division, the components business, we're two months in, so it's early, we're showing signs of good resilience, which is encouraging, but the lead times there are quite short, so we don't get the visibility of that division as we get for power or EMS. But in terms of end markets, we're seeing clearly ongoing strength in A&D. I think we have good growth in '25, I think sort of continued growth in '26. But we're not -- a lot of the very large contracts we won last year, a multiyear contract, so it's just temper enthusiasm we're talking. Single-digit growth in '26, not necessarily double digit. And look at the various markets across EMS. Health care remains somewhat subdued, and we're expecting, hopefully, to pick up towards the second half of the year, particularly around health care spend and that feeds into R&D and specific programs. Semiconductor CapEx is a very interesting one. That was down last year, which might be surprising, given the trend in that sector, but there's two elements to that. One, specifically to us, there was some additional safety stock ahead of the transition from Suzhou to Kuantan. So that had an impact year-on-year for '24 to '25. And actually, our customers who provide equipment for fabrication facilities. It's a little bit of a soft market because it's really about upgrade to new facilities rather than the production itself rate of semi chips. But we are seeing signs of improvement in that sector with the conversation we're having now with a couple of our customers encouraging. So we should see a pickup in that. Obviously, it starts with pipeline and then orders and then that feeds into revenue. So I'd be interested how that pans out through the course of this year. And then other general industrials, it's a mixed bag, whether you're looking at specialist industrials, rail and a number of other sectors we have we serve in EMS. It's sort of a mixed bag. But a key point around EMS because I think we would -- overall, we're not expecting to see growth in EMS this year. But this pivot to regional supply chains and moving and investing in regional and domestic sales is looking like it will pay off, particularly for China, regional sales. So we'll see, hopefully, as we progress that through the year, but we're sort of cautious at this point in the year. Kate Moy: We've got a question from online from Joel at Investec. Can you quantify the costs associated with the customer transfer from China to Malaysia impacting the APAC division? Is that process now complete? And are there any signs that the rate of APAC revenue decline is stabilizing or are you planning on it being lower in 2026? Eric Lakin: Do you want to cover the cost base? Richard Webb: Yes. So the overall cost was around about GBP 1 million to OpEx and then some limited CapEx investment as well, and that transfer is now complete. Eric Lakin: Thanks for your question, Joel. And I think it's complete. We've had success. It was a crucial project last year for a large customer and all of the first article inspections have gone through well. So we're now in the process of spinning up volume production. So that will be key next stage of that process this year. I think overall, we still expect for APAC region a reduction in the decline we saw in '25. So as I mentioned earlier, we're not expecting a return to growth this year because APAC is really driven by the EMS market. But we're seeing a level of stabilization as in anticipating a reduced decline this year. And crucially, the lead indicators we have is what does the order intake look like in pipeline to drive growth, certainly beyond this year and potentially see that coming through in the second half. But overall, we're being conservative around our forecast assumptions for '26. Kate Moy: Thank you. There are no further questions from the webcast. So over to you for any closing remarks. Eric Lakin: Okay. Well, look, thank you all for coming. It's good to see a full room. Thank you for your interest and time, and appreciate it, and look forward to seeing you all at the interims, if not before. So thanks very much. Have a good day.