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Operator: Hello, and thank you for standing by. Welcome to the Nektar Therapeutics fourth quarter 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Vivian Wu from Nektar Therapeutics Investor Relations to kick things off. Please go ahead. Vivian Wu: Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. Today, you will hear from Howard W. Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; and Sandra A. Gardiner, our Chief Financial Officer. Dr. Mary Tagliaferri, our Chief Medical Officer, will also be available during the Q&A. They are subject to uncertainties and risks that are difficult to predict and many of which are outside of our control. Our actual results may differ materially from these statements. Important risks and uncertainties are set forth in our latest Form 10-Q available at sec.gov. We undertake no obligation to update any of these forward-looking statements whether as a result of new information, future developments, or otherwise. A webcast of this call will be available on the IR page of Nektar Therapeutics’ website at ir.nektar.com. With that said, I would like to hand the call over to our President and CEO, Howard W. Robin. Howard? Howard W. Robin: Thank you, Vivian, and good afternoon, everyone. 2025 was a pivotal year for Nektar Therapeutics, and we continue to build on the success with significant progress in 2026. In 2023, we unveiled our plans to focus on the advancement of our immunology and inflammation pipeline programs, which center around the biology of T regulatory cells. In October 2023, we began the first phase 2 study of our novel Treg biologic Respag Aldesleukin, in patients with moderate to severe atopic dermatitis. In early 2024, we began our second phase 2 study in with alopecia areata. And just last year, a third phase 2 study in type 1 diabetes was initiated with our collaborator TrialNet who is funding and sponsoring this trial. In the 2025, we saw the successful outcome of several years of hard work by our team as we achieved the first positive results from the two phase 2b studies of Rezpeg in atopic dermatitis and alopecia areata. Results validated that our novel regulatory T cell mechanism could produce clinically meaningful outcomes in two dermatological and inflammatory disease settings. And just last month, we reported on the long-term monthly and quarterly dosing results from the 36-week maintenance portion of Resolve AD in atopic dermatitis. These data showed a significant durability of efficacy, that was highly competitive to what is seen with other biologics and establishes what our novel Treg mechanism is capable of achieving. Monthly or quarterly dosing of ResVeg during the maintenance period showed a deepening of response with increases in EASI-75, EASI-90, and up to fivefold increase in EASI-100 scores. Both atopic dermatitis and alopecia areata are inflammatory dermatological diseases that impact a significant number of patients worldwide. In the U.S. alone, there are over 15 million people with moderate to severe atopic dermatitis. It is estimated that today, only 10% to 15% of patients are receiving biologic treatments for this chronic skin disorder. Driven by the rapid adoption of biologics, the atopic dermatitis market is expected to grow to $35 billion by the mid-2030s. Although Dupixent and IL-13s are the predominantly used therapeutics today to treat these patients, about 50% of patients fail to respond or lose treatment effect over time with IL-13 based approaches. This leaves a significant opportunity for a novel immune modulating mechanism like Rezbeg to enter the treatment paradigm. And the competitive landscape has recently narrowed for the late-stage novel MOAs being advanced to BLA filing. We believe this puts Respect in a lead position as a novel MOA, which could offer both a differentiated efficacy and safety profile with a better dosing regimen and the potential to offer patients complete clearance of disease over time. In alopecia areata, there remains a need for an efficacious and safe biologic with a better efficacy and dosing profile. Currently approved JAK inhibitors are effective at regrowing hair in some patients, but they carry a number of drawbacks, and more than half of physicians and patients are hesitant to use these agents because of the safety risks and the associated monitoring burden they pose. Importantly, the JAK class has poor durability, and nearly all patients lose their hair after treatment cessation. With the 36-week data from RESOLVE AA, establishing a clinical efficacy profile similar to low-dose JAK inhibitors in alopecia, we are looking forward to seeing the 52-week data from that study in April. For patients who enter the blinded 16-week treatment extension, we will be evaluating the potential of ResMed to deepen SALT reductions including zoo SALT 20 responses. Rizpeg's differentiated clinical profile and a safety database of over 1,000 patients treated to date equivalent to 381 patient-years of exposure, provides an exceptionally strong basis for advancing ResMed into phase 3 studies. In June, we will be randomizing the first patient in the phase 3 studies in atopic dermatitis. We now have alignment with the FDA on our phase 3 dose, the 24-week induction treatment period, and other critical phase 3 study design elements. Jay Z will review that in a moment. We expect to have the first data from phase 3 in mid-2028 and meet our goal to submit a BLA in 2029. We ended 2025 with $245.8 million in cash and investments and with no debt on our balance sheet. Since year-end, we have also raised approximately $476 million in additional net cash through both a public offering and exercising a portion of our ATM. Our very strong balance sheet now allows us to move quickly into phase 3. I will now turn the call over to Jay Z, who will share more on RespEG and our other immunology programs. Jay Z? Jonathan Zalevsky: Thank you, Howard. To start off, I would like to comment in more detail on the significant progress we have made with Respag. That Howard highlighted moments ago. Respag is a very unique Treg biologic that capitalizes on a critical immune pathway. As a highly selective agonist of regulatory T cells, it is designed to address the underlying immune balance of multiple inflammatory pathways. This past year, we have shown through our phase 2 clinical datasets that Respag is truly differentiated as a novel MOA and late-stage biologic candidate with a compelling efficacy profile and that it can also offer long-term extended dosing frequency. This phase 2 data adds to the 36-week off-drug disease control or remitted potential of Respact that we demonstrated in the earlier phase 1 trial. And now Respag is a phase 3 ready program. And we have one of the largest safety databases for agents in mid to late-stage development in atopic dermatitis, which is now established in over 1,000 patients spanning about 381 patient-years of exposure. In atopic dermatitis, our 16-week induction data reported last June established that ResMed has rapid onset of key efficacy metrics separating early from placebo after one or two doses on EASI-75, EASI-90, and itch relief. And notably, our induction data established Respag as the first novel MOA to show strong itch relief in conjunction with skin clearance without the need for topical corticosteroids. We know that itch relief is a major driver of improved sleep scores and better quality of life for patients with atopic dermatitis, and this translated into achieving statistical significance on these patient-reported outcomes in our study as well. At the high dose of 24 mcg/kg given every two weeks in induction, we also saw comparable efficacy data for both EASI-75 and EASI-90 in the moderate and severe patient populations enrolled in the trial. The study was stratified by vIGA baseline scores of four and three, and efficacy was comparable among both these populations. And this attribute emerges as a key differentiating aspect for what has been seen with Dupixent treatment. Respag has also shown promising positive results in treating atopic dermatitis patients with self-reported comorbid asthma. We reported this data for the ACQ-5 endpoints for Bresolve AD last year at ACAI. Outside of Dupixent, no other approved agent or agent in development has shown the ability to improve atopic dermatitis and comorbid asthma at the same time. In induction, Respag resulted in statistically significant and clinically meaningful improvements in ACQ-5 scores at 16 versus placebo in patients and a 75% improvement in these scores in patients with uncontrolled asthma at baseline. And approximately one in four atopic dermatitis patients also have comorbid asthma, and Respag is the only novel MOA to show improvements in this endpoint. With the 36-week maintenance data reported last month, we demonstrated two additional critical features of Respag that differentiated it from approved agents and those in development. First, we saw significant maintenance in efficacy, and we also saw deepening of response with continued treatment out to 52 weeks, including improvements in EASI-75, EASI-90, itch, and vIGA endpoints. Notably, we saw an up to fivefold increase at EASI-100, as Howard mentioned earlier, underscoring the potential for Respag to give patients complete disease clearance with extended treatment over time, and setting a new benchmark in atopic dermatitis. And second, we established that extended monthly and quarterly dosing could be used as a long-term treatment regimen with Respag after inducing responses. As I stated earlier, with over 1,000 patients treated to date, and about 381 patient-years of exposure, Respag has a well-established long-term and favorable safety profile. As seen in our reported data, we have generated a differentiated safety profile with no increased risk of systemic adverse events such as conjunctivitis, or infection or malignancy. The RESOLVE AD data informed our phase 3 program and we will start the first pivotal study in June. Following our end of phase 2 meeting, we now have alignment on plans for a phase 3 program to evaluate a single dose 24 mcg/kg twice monthly for the 24-week induction period. Patients who achieve EASI-75 or vIGA responses will then be rerandomized to monthly and quarterly regimens out to 52 weeks. The design of phase 3 will be similar to those studies used for registration of other biologics. Our plan is to utilize, as other phase 3 have, the primary endpoint of a vIGA-related endpoint required for U.S. registration and an additional EASI-75 endpoint to support EU approval. Our phase 3 program will evaluate both biologic-naive and treatment-experienced patients. Beyond atopic dermatitis, in December, we also established a proof-of-concept with the data from RESOLVE AA for Respag in severe to very severe alopecia areata. We were pleased that these data have been accepted as a late-breaking presentation at the upcoming AAD meeting at March. It is the only dataset in alopecia areata that was accepted for presentation in the late-breaking session. In the RESOLVE AA study, as we reported in December, Rezpeg demonstrates an efficacy response that met our target product profile expectations, which was to achieve efficacy similar to low-dose JAK inhibition at week 36 with every two-week dosing, and maintain a more attractive and favorable safety profile. We believe the data position RespEx as a potential first-in-class biologic in alopecia. As Howard stated earlier, the RESOLVE AA study also included a blinded 16-week extension for patients who reached week 36 in the study but had not yet achieved a SALT 20 score. We plan to report the data from this treatment extension in April. To that end, we will initiate a quiet period beginning April 1 until we unblind and report the data from the treatment extension. As a reminder, the only available systemic therapies that are FDA approved for the treatment of alopecia areata are JAK inhibitors. But these contain a number of black box warnings and laboratory monitoring requirements. Nearly all patients also experience hair loss after treatment cessation. With the limited treatment options available in alopecia areata, we believe there is a unique opportunity for a novel immune modulating Treg mechanism like Respec to offer attractive dosing as compared to a daily pill and a potentially more favorable safety profile. Following our 16-week treatment extension data, we expect to hold our end of phase 2 meeting with the FDA for alopecia areata in the second quarter of this year. And following that, we plan to share more about our plans for advancing into phase 3. Before I move on to our earlier antibody program, I want to mention our ongoing phase 2 study with Respag for type 1 diabetes. This study, sponsored and funded by TrialNet, is evaluating Respag in patients with new-onset stage 3 type 1 diabetes. Per protocol, patients will be randomized 2:1 versus placebo, and receive Respag every two weeks for six months. The study is broken into three cohorts beginning with adult subjects, ages 18 to 45, and moving into patients as young as 12, and then 8 years of age. We are excited to be working with TrialNet. This consortium of type 1 diabetes specialists in the U.S. also ran the first studies for Tisdale, also known as teplizumab, in type 1 diabetes. They have a strong commitment to finding and evaluating new therapies that can help patients with this devastating diagnosis. We believe and expect initial data from the trial that sponsored phase 2 sometime in 2027. One of the important paradigms of our work is that, by creating a first-in-class Treg targeting approach like RESTPAC, we have confirmed what we have always felt as immunologists, that Tregs were essential for so many different diseases and that they could be therapeutically targeted for disease treatment. Based upon low-dose IL-2, and Treg biology, either genetically or assessed clinically, we know that there are so many indications beyond what we are exploring in our current phase 2 studies that are potential opportunities for Respect. These include therapeutic areas such as our skin, and autoimmune diseases, THC such as food allergies, or asthma where we have already seen a signal, and chronic rhinosinusitis. It also includes skin disorders such as dermatomyositis, and also potentially immune diseases such as Sjogren's syndrome. As we advance Respag in phase 3, we look forward to the possibility of generating additional proof-of-concept data in additional indications which could expand the future label for RespEx. Moving on to our earlier pipeline programs. NKTR-0165 and NKTR-0166, our TNFR2 agonist and bispecific programs. We expect to present preclinical data from this program at a scientific conference in 2026. This molecule has a very high specificity for signaling through TNFR2 on Tregs to enhance and optimize their ability to regulate the immune system, which we believe could be impactful to multiple sclerosis, ulcerative colitis, vitiligo, and other I&I indications. In the first quarter, we announced an academic research collaboration for NKTR-0165 with Dr. Steven Hauser at UCSF to explore the potential role of TNFR2 agonism in the reduction of neurodegeneration, promotion of neuroprotection, and cell repair. The work being funded by UCSF will look at Nektar-0165 in patient-derived B-cell models of multiple sclerosis. We are looking forward to working with Dr. Hauser to inform future development work for this important molecule. Leveraging our learnings from the development of NKTR-0165, we have designed a bispecific molecule called NKTR-0166. This bivalent antibody incorporates a TNFR2 agonist epitope and an antagonist epitope that has been previously validated in the treatment of rheumatology diseases. As a dual agonist/antagonist of known pathways, NKTR-0166 has the potential to modify disease pathogenesis in a number of autoimmune disorders. And we are planning for IND submission for one or both programs in 2027. And with that, I will now turn it over to Sandy to cover the financials. Thank you, Jay Z, and good afternoon, everyone. Sandra A. Gardiner: On today's call, I will review our quarterly and full year 2025 financials and share our preliminary financial guidance for 2026. We ended 2025 with $245.8 million in cash and investments and with no debt on our balance sheet. In February, we completed an underwritten public offering for $460 million resulting in approximately $432 million in net cash proceeds for the company. We also accessed approximately $44 million of net proceeds to date from our existing $110 million ATM facility in 2026. We now have a strong balance sheet to invest in our pipeline and advance our phase 3 program in ResPay. I will now provide a quick review of our 2025 financials. Our revenue was $21.8 million for the fourth quarter and $55.2 million for the full year 2025. Our R&D expenses were $29.7 million for the fourth quarter and $117.3 million for the full year. Our G&A expenses were $11.2 million for the fourth quarter and $68.7 million for the full year. Our non-cash interest expense for the fourth quarter was $9.8 million and $26.2 million for the full year. And our net loss for the fourth quarter was $36.1 million or $1.78 basic and diluted net loss per share. For the full year of 2025, our net loss was $164.1 million or $9.73 basic and diluted net loss per share. We are providing very preliminary 2026 guidance on today's call. The guidance ranges are wide as we are still completing the planning and budgeting activities for the Respag phase 3 program. We began investing in startup activities for this program last year with production of drug supply and placebo. And as Howard stated earlier, we plan to randomize the first patient in June. We expect an updated 2026 budget at that time and will update our financial guidance as necessary. With respect to our 2026 P&L guidance, our non-cash royalty revenue for the full year of 2026 is expected to be between $40 million and $45 million. Based on our current forecast, we anticipate that full-year R&D expense could range between $200 million and $250 million, including approximately $5 million to $10 million of non-cash depreciation and stock-based compensation expense. We expect G&A expense will decline in 2026 over 2025 to a range of $60 million to $65 million. This includes approximately $5 million of non-cash depreciation and stock-based compensation expense. Our full-year non-cash interest expense is expected to be between $30 million and $35 million. Additionally, we do not expect any significant gain or loss on our equity method investment in 2026. Lastly, we expect to end 2026 with approximately $400 million to $460 million in cash and investments. And with that, we will now open the call for questions. Operator? Operator: Thank you. As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. In the interest of time, we do ask that you please limit yourself to one question at this time. And our first question will come from Yasmeen Rahimi from Piper Sandler. Your line is open. Yasmeen Rahimi: Good afternoon, team. Thank you so much for all the great updates. Maybe a quick question that is sort of two-part. One is, given congrats on presenting the RESOLVE AA study at the AAD, hope to understand, Jay Z, what type of new data we could see. Was it just more an opportunity to showcase it? And then part two is maybe help us frame what you hope to see in this blinded 16-week treatment extension period. What does the ResPEG need to show to be highly competitive both in regards to mean SALT reduction as well as SALT 20? Thank you, and I will jump back in the queue. Jonathan Zalevsky: Thanks, Yasmeen. So of the things that we will be presenting later and that is coming up in the future data presentation is remember that the way the study was designed is that it was a 36-week treatment period. However, patients that had begun to grow hair but had not yet reached a SALT 20, they were permitted to advance into a 16-week additional extension, which was also a blinded portion of the study where they could receive dosing all the way to week 52. And when we presented the data in December, we had already indicated that there were already three patients that had entered into that period as of the time of that December data cut when we presented the results last year that had already reached the SALT 20 after week 36. And those patients were not even considered in the week 36 numerator because their response happened afterwards. So, when you kind of then ask what is the tone of the presentation that we will be making, once we begin our quiet period in April and after we present the top-line results, we will be sharing the additional effect of treatment with Respag and the potential of additional patients to convert to achieving SALT 20 responses as well as deepening their SALT reductions over that additional 16-week treatment period. And I think you are kind of potentially starting to see a bit of a paradigm we saw in atopic dermatitis as we extended the duration of dosing to week two in maintenance. Patients treated with raspeg continued to develop additional efficacy and we think there is a potential that that could happen as well in alopecia areata as we have already seen three patients achieve response that way. So we will be sharing the totality of that patient population. All of the patients will have completed week 52 that entered into that extension period, and that will be the nature of the results. In terms of what we would like to see for what would be competitive, BEST PAC has already demonstrated quite a different profile from a JAK inhibitor. You consider all of the upsides of growing hair, but then balanced by the downsides, as both Howard and I mentioned in our presentation, there are really significant safety issues and risks that may make taking a JAK inhibitor chronically very challenging. And, particularly, it is a class of drug that is difficult for dermatologists to use owing to the laboratory monitoring and the additional work and risk that the patients have. And then when patients have to stop taking a JAK inhibitor for any reason, pretty much everyone loses all the hair that they might have grown when they were on the JAK inhibitor. So we would like to see an efficacy profile that reaches low-dose ILUMENTE. I think we have a very good shot of getting to that level. And then we would like to deliver all of the other things that Respect has already shown, which are a completely differentiated safety profile, a much more convenient dosing frequency relative to a once-a-day pill, and really an opportunity to provide a much better biologic that can be used chronically in this chronic indication. Thank you for the question, Yasmeen. Thank you. Operator: Thank you. Our next question comes from Julian Harrison from BTIG. Your line is open. Julian Reed Harrison: Hi, thank you for taking the questions and congrats on the progress. Regarding the phase 3 program in atopic dermatitis that is expected to initiate next quarter, would you expect the ACQ-5 data to make its way into the potential label from those trials? If so, I am wondering how enabling you would expect that to be commercially relative to dual labeling, both in atopic derm and asthma. And then sorry if I missed it. I am curious also what percentage of bio-experienced patients you plan to enroll in your atopic dermatitis trial that is upcoming. Is there a defined target there? Howard W. Robin: Sure. Mary, would you like to answer that? Mary Tagliaferri: Sure. Hi. So we are including the ACQ-5 in the phase 3 program, and we will look at this at baseline and through induction, and then we will also look at the ACQ-5 through maintenance. And we are going to power for, and we will control for multiplicity for the ACQ-5. And we will, you know, make every effort to include that in the label, and that is certainly a part of our plan. With respect to bio-experienced patients, we are anticipating roughly 25% of the patients in our phase 3 program will be bio-experienced and then 75% of the patients will be biologic/JAK inhibitor naive. Julian Reed Harrison: Very helpful. Thank you. Operator: Yep. Thank you. Our next question comes from Jay Olson from Oppenheimer. Your line is open. Sean (for Jay Olson, Oppenheimer): Hi, this is Sean calling for Jay. Thanks for taking the question, and congrats on the progress. Just on the AD part, I am just wondering for the phase 3 trial and also for future commercial launch, what are the formulation or device for RedfinQ right now? And, also, wondering if there are any protocol guidance or implementation of ISR mitigation strategy for your phase 3 or if you think that is necessary? Thank you. Jonathan Zalevsky: Yeah. Hi. So sure. So I can cover the question about the formulation, and then I will turn it over to you, Mary. So Respag is a very low-volume administered agent. So patients receive—most patients receive 1 milliliter, 2 mL max depending on their body weight. And then our plan is to run phase 3 in the same way that we ran the phase 2 where the drug was presented as a vial, and then at study site, it is drawn up and administered to the patient by staff at the study centers. But our plan for the commercial launch is to launch Respag in an auto-injector, coupled with an auto-injector device. And so for that, we will be switching to what is called weight-banded dosing. So we will not need to use weight-based dosing because patients will be dosed according to their body weight. And then we know that will have a lot of opportunities and also advantages. This will be a very straightforward self-administered product, very similar to all the biologics that are used in single-use pen devices. And then regarding some of the way we will run the phase 3, I will turn that over to Mary. Mary Tagliaferri: Yeah. Hi. So first, I think it would be a good idea to just review the ISR cases that we have seen across our program. And 99% of the ISRs were mild to moderate in severity, with the vast majority being mild and only 1% severe. And we do see a very, very, very low dropout rate due to ISRs. The reason for that is these ISRs are not like what we are experiencing in PULS. Was launched. We do not commonly see pain, do not commonly see pruritus. The vast majority of patients, 96% of them, are just having erythema, or redness. And, likewise, these patients are not having ISRs every time they receive an injection. In fact, we see, really, the vast majority of patients are really only having two or fewer during the course of treatment. In terms of how these are managed, patients use cold compresses with ice. And if need be, they can also use a topical corticosteroid. But since the vast majority of patients do not have pruritus, for the most part, patients are not needing to use a topical corticosteroid. We, you know, did have Dr. Jonathan Silverbirds on in our last presentation of the maintenance data. You know, he certainly underscored that the trade-off is an easy choice for patients. These patients, you know, are having severe itch, and with Rezpeg having that very rapid itch relief and resolution of atopic dermatitis, with the trade-off being an erythematous ISR, that, you know, overall, the risk-benefit highly favors ResTech as a treatment for atopic dermatitis. Sean (for Jay Olson, Oppenheimer): Great. Thank you very much. Operator: Thank you. Our next question comes from Roger Song from Jefferies. Your line is open. Roger Song: Great. Congrats for the progress and thanks for taking the question. My question relates, I think, the last data cut for the alopecia areata. You have three patients reach SALT 20, and then another seven patients reach SALT 30. Just curious, what are the dosing for those three and the seven patients? And then given if they are deepening the response, since you are getting towards high-dose ILUMEN, you know, based on your market research and then your adviser, will this efficacy reaching high-dose ILUMYA change the potential clinical adoption compared to the low dose? Thank you. Mary Tagliaferri: Yeah. Hi, Roger. Yeah. So thanks, Roger. Jonathan Zalevsky: No. Thank you for your question, Raj. So, you know, I just want to reiterate that the study is blinded. Right? And so when we share the results coming up very soon, in April, we will unblind, and we will present all of the results for all of the patients that made it through to the extension period. So that will be, you know, an update for us very, very soon. And then in terms of the TPP, you know, one of the really important elements is that this is a biologic and it brings a completely different profile. And our objective was always to achieve the TPP of low-dose JAK inhibitor Lumant. And we believe we have already met that with the data that we have. We believe that 52 weeks is the correct duration of extension. So for example, in the phase 3 that we plan, we know we would be treating longer than 36 weeks. And we know that there is an opportunity with the additional treatment duration, you know, to potentially elicit even more efficacy of effect. I think there is just this really white slate kind of an opportunity because the first time a biologic moves into an autoimmune indication, it could have a very profound effect on prescribing patterns from physicians. Many doctors are much more comfortable prescribing a safer biologic as opposed to a more difficult-to-manage and potentially more challenging agent like a JAK inhibitor. So it is something we are very, very excited about. And then, you know, it is a data update that we are really looking forward to coming up. And it is a TPP that we think could be a really big opportunity for Respag in the future. Mary Tagliaferri: Got it. Thank you. Operator: Thank you. Our next question comes from Mayank Mamtani from B. Riley Securities. Your line is open. Mayank Mamtani: Yes. Good afternoon, team. Thanks for taking our questions, and congrats on the progress. So another alopecia question. Sorry if I missed this. What incremental data relative to the December update you would get at the conference? And if you could comment on any plans for releasing the off-therapy data for the responders that you had. I know you had efficacy responses still climbing as part of the 16-week extension, so was not sure at what point you would look at the off-therapy data. And then just a little high-level question for Howard, if I may. You know, the EASI-100 responder rate, how important do you think of that as a differentiator? I know if many agents get there. I also ask that in context of the initial framing of a large growing ATD market, you know, which could have multiple entrants around the time, you know, you get on in 2029. I understand the near-term launch landscape has certainly narrowed, but we are just thinking longer term. Howard W. Robin: Well, I will answer the last part of the question first, then turn it over to Jay Z and Mary. I think EASI-100 has not been looked at very closely, and it has not been reported very much because very few people attain the levels that we have been able to attain. So if you look at the maintenance data where we have achieved, you know, 30% or so, EASI-100 scores, again, I think that is very important, and it leads to essentially, it leads to effectively complete clearance of the disease in these patients over time. And it has not been talked about much, and people talk about 75 and 90. That is because it is really difficult to achieve EASI-100, and we have done it. So that I think says a lot about the potential for the Treg mechanism in general. I will turn the rest of the question over to Jay Z and Mary. Jonathan Zalevsky: Sure. Thanks, Howard. And, Mayank, you asked many, many questions in one question, 12-part. So let me just make sure I catch them all. So in terms of the AAD presentation, it is, you know, coming up in just a couple of weeks. So you can see, you know, all of the data that is presented, and it will be presented in the medical conference, right, by a physician. In terms of the rest of the study, we do have a catalyst later this year, which will be the 24-week off-drug period of evaluation from the alopecia areata study. But that is not going to be data that we touch on either at AAD or in the April data presentation, which just focuses on the end treatment at week 52. In the second part of this year, in the later part in the fourth quarter, we will present the results of the 24-week off-drug period. So those will be just future catalysts to look forward to for Respag in alopecia areata. Thank you for your question. Mayank Mamtani: Thank you. Jonathan Zalevsky: Thank you. Operator: And our next question comes from Samantha Cemenko from Citi. Hi, good afternoon. Thanks very much for taking the question. Let me ask one about the type 1 diabetes study. I am wondering if you could just share a little bit more about that trial. I know there is growing interest and development here. I am wondering how you see Respag potentially differentiating from other approaches in the clinic. And should that 2027 data include Samantha Cemenko: C-peptide preservation data? And then if I could squeeze one more in just more broadly, as you think about advancing ResPEG into additional indications. You mentioned quite a few in your prepared remarks, Jay Z. How do you think about prioritizing those for which ones might be the first to potentially advance into the clinic? Thanks very much. Jonathan Zalevsky: Alright. Thanks. Thanks, Sam. So, you know, in the type 1 diabetes, it was very interesting because TrialNet was actually looking for a regulatory T cell targeting approach. And, you know, and it was very exciting because there was a lot of sort of mutual drive for bringing that forward. And then it was also a very competitive process working with them because they have many things that they can choose from. We were very, very excited that they selected Respag to run the study. Now one of the underlying scientific themes is there is a well-known sort of theory about the role of regulatory T cells in this disease and that sort of how thymic antigens end up being, you know, bad for driving the autoreactivity against the islet cells and then a loss of Treg control, you know, really, really exacerbated that. So there was a goal in order to elevate Tregs in these patients in order to slow the progression of the disease and, ideally, you know, overcome it altogether. And so the first step in sort of achieving this long mission is this therapeutic intervention study. And this trial is really run very much in the same way that the first teplizumab studies were run. The big difference is that we are giving a six-month treatment, as opposed to just a short, you know, burst—just a few weeks—as how tefluncimab is dosed. And then the goal is, of course, to really slow down the rate of decline. There will be an opportunity for early data next year, and it is a little early to say the full extent of what that would be, Sam. However, yes, a mixed-meal tolerance test, right, with C-peptides is obviously one of the key endpoints in the study along with HbA1c levels and also insulin usage. And so those are the key activities that are being tracked in the patients. And it is a well-designed study with probably the most highly qualified team of people to do that kind of study in the TrialNet consortium. And then in terms of the other indications, it is still something that we are deciding on, which indications and which ways to go. But I think that we have seen so many examples of data from our own program that would really make some indications quite attractive. I think it is quite clear that this mechanism in both skin diseases and in diseases that have a TH2 drive has quite a lot of potential. And so seeing the results that we saw in patients with comorbid asthma was very exciting. That makes that a very, very interesting indication. And there are a number of allergic indications as well that are also potential. So this is something that we will give more updates on in the future in the coming month. Mary Tagliaferri: Yeah. And we just may want to add too, just in terms of the differentiation in type 1 diabetes, you know, Pezil is not an easy drug to give. It is administered as a 14-day course of IV infusion for the up-dosing schedule. And, you know, patients can commonly have cytokine release syndrome and so, you know, you do have to give enough number of other medications—an antipyretic, an antihistamine, maybe an antiemetic. And then clinicians have to monitor for lymphopenia, rash, and even elevated liver enzymes. So, you know, in contrast, an outpatient dosing regimen with ResTech where there is not routine monitoring and you do not see cytokine release syndrome, I think also affords a highly differentiated and more favorable safety profile as well as, you know, drug that is administered out as opposed to an IV infusion in an infusion center or even hospital. Samantha Cemenko: Thank you. Operator: Thank you. And our next question will come from Arthur He from H.C. Wainwright. Your line is open. Arthur He: Hey, Howard and team. Congrats on the progress. Can you guys hear me okay? Operator: Yes. We can. Yep. Arthur He: Oh, okay. Sounds good. So I have two questions. I know you are going to present the extension data from the AA study in April. But could you, if it is allowed, tell us how many patients complete the extension phase? And also, when the patient finishes the extension, do they have choice to continue on the drug, or does everybody go to the off-treatment period? That is question one. Question two is, could you give us a quick update on the LADY trial? Thanks. Howard W. Robin: JZ, why do you not take the part about the first question? Jonathan Zalevsky: Yeah. So really quickly. So as we announced in December, there were 23 patients that were ongoing in the 16-week extension. If you remember, Arthur, we had a waterfall plot, and they were the green dot people—patients—on that chart. So the data update that is coming in April will be when everybody completed the 52-week treatment. So those 23 people as well as anyone that had completed it prior. And then for this trial, all treatment stops for all patients at either week 36 or week 52 for the people that went into the extension. And afterwards, everyone is followed for 24 weeks after. And then for the second question, I will turn it over to you, Howard. Howard W. Robin: Yeah. Thanks, Arthur. Look, obviously, I cannot comment in detail on, you know, this type of litigation. Trial was scheduled for last year. It was—it's in federal court. So because of the government shutdown last year, it was moved to this year because the courts were shut down. This trial is scheduled for September 8, jury trial in federal court in San Francisco. And we are fully committed to pursuing this. And we, you know, we certainly think we were harmed. And let us see how this plays out in court. Hope that is as much as an answer as I can give you at this point. But thanks for the question. Arthur He: Awesome. Thanks for taking my questions. Operator: Thank you. Our next question comes from Andy Hsieh from William Blair. Andy Hsieh: Great. Thanks for taking our questions. Maybe just one on some of the macro developments in the last couple weeks. Galderma, they kind of talked about increasing confidence in the atopic dermatitis space. So I guess part one, I am curious if that could alter your market sizing guidance that was provided during Morgan, and then also kind of data update from Pfizer with its tri-specific asset in atopic dermatitis. Not a lot of numerical data, but, you know, kind of curious about your take on that. Thanks. Howard W. Robin: JZ, you want to answer that one? Jonathan Zalevsky: Sure. Yeah. So maybe I will start off on the Pfizer one, and then, Mary, you can touch on the Galderma update. So briefly covering—you know, Pfizer did present limited data in the press release covering a couple of molecules for multispecific molecules that were inhibiting either IL-4/13 and tislip or 4/13 and IL-33. And they showed some very encouraging placebo-adjusted efficacy data. One of the things that, you know, we—it is a very interesting question because sort of combining known mechanisms into multispecific agents, whether bi- or tri-specific, is one way of achieving a combination kind of strategy. But it is also a way of kind of bringing in all the known mechanisms into one thing. It has a potential to be helpful, but it is also kind of an incremental approach focusing on known and validated agents. We think there is an opportunity with the mechanism like Respag as a Treg targeting mechanism to provide the patient a much more holistic and potentially comprehensive kind of efficacy. Because, really, what a Treg is aiming to do is to fix the underlying pathology of the disease—not take away pathways that are disease drivers per se, but to fix what caused those pathways to be disease-driving in the first place. And that is why we think we have been observing, you know, in atopic dermatitis with ongoing dosing, such a growing level of efficacy, a deep maintenance, and the potential for patients to really do better. It is very interesting. I mean, most medicines you take, they tend to do worse for you over time. But in studies with Respag, we see that patients do better with time. So we think there is a lot of opportunity there. We also are very excited that Respag is much further ahead. Right? So when you think about the programs that are initiating phase 3, Respag is at a very competitive position and it is a novel MOA. And it has the opportunity to provide very differentiated opportunity for patients. Mary, let me turn it over to you for the Galderma question—summary. Howard W. Robin: Mary, before you jump in, let me just add to one thing JZ said. Look. It is a great question. I just think it is important to the size of this market. Market, as I said earlier, is expected to be, you know, by the mid-thirties, $35 billion. And, you know, only about 10% of patients who have atopic dermatitis are taking a biologic. So the potential for market growth is enormous. There is lots of room for various mechanisms of action here. So I do not think that becomes a real hurdle. I do think Jay Z is absolutely correct that we, as an agonist—taking a—as a Treg agonist, we are taking a very, very different approach than, you know, IL-13, IL-4, whatever blockade. So let us see how it all plays out, but we are dealing with a market that is very, very large. And I think there is room for a number of different opportunities here. Mary, you want to go ahead? Mary Tagliaferri: Yeah. No. I would just say that, you know, when we look at the Arcadia phase 3 data for—remember, those trials were in combination with topical corticosteroids. And, you know, patients really do not like to slab themselves with topical corticosteroids. You know, by the time they start a biologic, it is because they have already, you know, for a very long time, been using topicals, they have not controlled their disease. You look at those phase 3 programs, the EASI-75 ranges between 42% and 44% for enolizumab in combination with the topical corticosteroid. I would just point everybody to look again at our presentation from February. We showed those placebo patients who were the placebo patients from the induction and crossed over for both 16 weeks of treatment and 24 weeks of treatment, where the EASI-75 was higher than what we saw with nimo plus topical corticosteroids. It was 53% at week 16 and 58% at week 24. So I just think even, you know, we saw a very rapid itch relief. And then when, you know, you look head-to-head at 75, those tags seem to provide a deeper response than nalizumab plus a topical corticosteroid. So, you know, from, you know, perspective that Howard said, of course, this is a huge market, and there is lots of opportunity for multiple agents. I think when we stack up our data compared to nimo plus, you know, we have very, very compelling data which would really show that a physician would like to select an agent with a deeper EASI-75 for the benefit of their patients. So thanks for the question. Operator: Thank you. And I am showing no further questions from the phone lines. I would now like to pass the conference back over to Howard W. Robin for any closing remarks. Howard W. Robin: Well, thank you. And I want to thank everyone today for joining us and for your continued support. We really greatly appreciate it. And I want to thank our employees who tirelessly work on behalf of patients. And together, we have transformed our scientific hypothesis into real and potentially meaningful therapeutic options for patients. We look forward to initiating our phase 3 studies in atopic dermatitis in June and sharing our 52-week alopecia areata data in April. So stay tuned. Thanks, everybody. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Rubrik, Inc. Fourth Quarter and Fiscal Year 2026 Results 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 Thursday, 03/12/2026. I would now like to turn the conference over to Melissa Franchi, Vice President of Investor Relations. Please go ahead. Melissa Franchi: Hello, everyone. Welcome to Rubrik, Inc.'s fourth quarter and fiscal year 2026 financial results conference call. On the call with me today are Bipul Sinha, CEO, Chairman, and Co-Founder of Rubrik, Inc., and Kiran Kumar Choudary, Chief Financial Officer. Our earnings press release was issued today after the market closed and may be downloaded from the Investor Relations page at investors.rubrik.com. Also on this page, you will be able to find a slide deck with financial highlights that along with our earnings release includes a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full fiscal year 2027, our expectations regarding market trends, our market position, opportunities, including with respect to generative AI, growth strategy, product initiatives, and expectations regarding those initiatives we discussed in detail with our filings with the SEC. Rubrik, Inc. assumes no obligation to update any forward-looking statements we make on today's call. With that, I will hand the call over to Bipul. Thank you, Melissa. Bipul Sinha: And thank you all for joining us today. Let me start by saying we ended the year that significantly exceeded our expectations. A spectacular Q4. We accelerated net new subscription ARR growth to a record $115,000,000. For the full fiscal year, we generated tremendous free cash flow of about $238,000,000, which is more than 10 times the free cash flow for the prior fiscal year. This is a clear indication that we are indeed laying the foundation of a long-term, highly profitable growth business. With that, we have once again exceeded all guided metrics across top line and profitability. Here are five key numbers. First, subscription ARR reached $1,460,000,000, growing 34% year over year. Second, our subscription revenue was $365,000,000, growing 50% year over year. Third, our subscription NRR remained strong once again above 120%. Fourth, customers with $100,000 or more in subscription ARR reached 2,805, growing 25% year over year. And finally, on profitability, once again we made material improvement in subscription ARR contribution margin, up over 950 basis points year over year. We generated $70,000,000 in free cash flow this quarter. Accelerating growth while improving margins and growing free cash flow at our scale is not only very impressive, but a rare combination. Now let me explain why and how we got here. Enterprise AI and agentic work disruptions are creating significant opportunities for us, and we are leaning into it. Rubrik, Inc. is a multiproduct company built on a unique and highly differentiated platform that solves the most consequential problem across data, identity, and AI. We continue to deliver phenomenal results quarter after quarter because we are comprehensively winning against the competition and enabling enterprise AI acceleration. In fact, our competitive win rates have crossed 90% in Q4 as we continue to disrupt the data and identity protection market with our transformative products that deliver comprehensive cyber resilience. This is why we continue to accelerate our growth while our competition has stalled. At the same time, Rubrik Agent Cloud aims to deliver dynamic, real-time AI agent controls to accelerate enterprise AI transformation. I will talk about Rubrik Agent Cloud in a few minutes. But first, let me talk about why our products are transformative. We have built a single platform that understands data, identity, and application context. On top of this platform, we deliver two solution suites: Rubrik Security Cloud for cyber resilience, and Rubrik Agent Cloud for accelerated AI transformation. Let me start with Rubrik Security Cloud. In our platform, we have the unique ability to bring together time-series data and metadata across complex enterprise environments that span on-premises, sovereign cloud, SaaS, and identity providers. We have built a single policy engine to deliver uniform, policy-driven automation for complete cyber resilience, including protection, security, and cyber recovery. On top of this, we have built a proprietary preemptive recovery engine that precalculates the clean points of recovery across data and identity. These make up Rubrik’s PrO Mote. This is how we deliver record-fast recovery when our customers are compromised by ransomware and identity-based attacks. Our software architecture is hardware- and platform-optimized to deliver cyber resilience to thousands of our enterprise customers. This is why we are winning the cyber resilience market. Rubrik, Inc. is a true platform company, and we provide multiple independent paths for our customers to get started. Whether a customer buys a single product or the whole Rubrik Security Cloud suite, they get the same platform. In fact, our customers realize more value from our platform as they adopt more and more of our products, which is a testament of Rubrik’s true platform strategy. We were the first to recognize the need for cyber resilience and its subsequent evolution in enterprises, which is what underpins success. The trends are clear. Enterprise agentic AI transformation promises tremendous productivity gains. However, these agents also assume your identity and act on trusted data. If compromised, they can perform 10 times more damage in one-tenth of the time. That exposes companies to unprecedented risk. Moreover, cyber attackers are actively deploying AI to breach businesses and governments around the world. In essence, AI has made the world more dangerous. The best metaphor we can provide is protecting your home. You can close the windows and put on the lock, but ultimately, you need a bunker underneath your house to survive the doomsday so your cloud and AI transformation journey continues uninterrupted. Rubrik Security Cloud is that bunker for enterprises. When ransomware inevitably hits, an LLM or white code will not recover your business. Rubrik will. We can do this because we have years of cyber resilience and enterprise customer experience built into our platform. Rubrik not only understands the complexity of enterprise data and identities, but also delivers the minimal viable services that companies need to run their digital businesses 24x7. We help enterprises rapidly recover their services by quickly pinpointing the cleanest state of data and identity, all the while isolating the threat to prevent malware reinfection. The Rubrik bunker delivers complete cyber resilience across on-premises, sovereign cloud, and SaaS applications. Rubrik Security Cloud is powered by a unique and proprietary system of record of last resort of data and identity. This is our secret sauce. Let me provide two specific customer examples of legacy replacement in very large enterprises. First, Rubrik, Inc. secured a major win with a Fortune 500 global hospitality company this quarter. The company chose Rubrik, Inc. to enhance their cyber resilience and recovery speed from ransomware attacks, deploying our single platform across their hybrid and multicloud environment. This company displaced a deeply entrenched legacy provider and a cloud-native backup solution, and we also outcompeted several next-generation vendors. Furthermore, the move is projected to deliver multimillion-dollar savings by eliminating native backup cost. Second, a leading European financial services firm selected Rubrik, Inc. as their strategic cyber resilience partner to meet stringent DORA and ECB guidelines, replacing their multidecade legacy incumbent. Rubrik, Inc. was selected for our single unified platform providing data protection and resilience across their entire environment, including enterprise, cloud, and SaaS applications, as well as their mission-critical identity system. Speaking of SaaS applications, our SaaS protection had a particularly strong Q4, as customers look to Rubrik, Inc. for end-to-end risk and remediation across their mission-critical applications including M365 and identity services. In fact, over 50% of Rubrik, Inc. M365 bookings this quarter were attached to our identity solution. Let me give you one representative customer example. A major global logistics provider expanded Rubrik, Inc. to protect M365, Active Directory, and Entra ID, critical systems that run their mission-critical business operations. Rubrik, Inc. displaced an incumbent new-gen competitor because of our superior identity coverage and faster recovery time across these tier one applications, reducing considerable business risk in case of a cyberattack or operational disruption. Next, let us talk about our identity business. Our identity line of business continues to be highly successful in garnering budget from CISOs, extending Rubrik, Inc. beyond our traditional CIO and CTO buying persona. We have been rapidly disrupting the identity protection market with our identity recovery and resilience product. This quarter, we announced protection for Okta Identity, making Rubrik, Inc. the only identity recovery platform to expand Okta, Active Directory, and Entra ID. In just one quarter of selling, we have already seen notable deal activity for Okta Recovery, and we are excited about what is ahead. Let me give you two specific examples of identity customer wins. A Fortune 500 U.S. financial services firm added Okta Recovery in a significant expansion that also included Identity Resilience Suite, as well as protection for unstructured data and cloud data. This customer chose Rubrik, Inc. to meet a board-mandated less than 48-hour recovery time objective, displacing a cloud-native backup solution and a legacy protection vendor. Second, a major U.S. healthcare provider also expanded the Rubrik, Inc. partnership this quarter, adopting Identity Resilience and unstructured data protection for over 10 petabytes of data. This strategic move is expected to cut Active Directory and Entra ID cyber recovery time from over 30 days to under four hours, substantially reducing potential downtime losses estimated at tens of millions in revenue daily. Now let us talk about Rubrik Agent Cloud, which accelerates AI adoption with agent guardrail controls. Rubrik, Inc.'s mission is to secure and accelerate the world’s AI transformation. I have already discussed the security and cyber resilience aspects of our business. Let us focus on how Rubrik accelerates AI transformation. Agentic AI is now a business imperative. While agents promise 100 times more productivity, they also introduce 100 times more risk. Since agents autonomously execute business processes, the cascading impact of agent hallucinations, as well as cyber compromise, will result in catastrophic damage for enterprises. While AI gives you a better, faster car, you need an intelligent autonomous driving system for control to steer, change lanes, and brake safely. We believe enterprises need a comprehensive AI operations platform that can dynamically monitor, control, and remediate agentic actions. You need to have visibility into what agents, sanctioned or unsanctioned, exist in your environment and what they are doing. You also need real-time guardrails to dynamically authorize agentic interactions that comply with your company’s policies and industry regulations. If agents get compromised or hallucinate, then you need a rewind button to undo destructive action. Rubrik Agent Cloud is this comprehensive AI operations platform. This is the intelligent autonomous driving system that we provide so our customers can safely drive fast with AI agents. Our previous acquisition, which developed LLM fine-tuning and inference serving platform, provides the AI firepower required to dynamically govern agentic interactions. By leveraging AI to control agentic work, agents cannot leak sensitive data, cannot say wrong things, and cannot take wrong actions. AI controlling AI agents is key. After all, you cannot bring a knife to a gunfight. Redeemer is now integrated into the Rubrik platform, which uniquely understands the data, identity, and application layer to deliver the first-of-its-kind enterprise control layer for managing and guardrailing AI agents. Last quarter, we shared that Rubrik Agent Cloud was in beta. Just a few weeks ago, we made Rubrik Agent Cloud generally available, and we have a number of POCs ongoing across early AI adopters, as well as Fortune 500 companies. While we are still in the early innings of a multiyear effort to scale our Rubrik Agent Cloud suite, we believe that we are building the most consequential security and AI operations company for the AI era. We look forward to sharing more details about our traction with Rubrik Agent Cloud in the coming quarters and years. I could not be more happy with this quarter and annual result, and I am excited about what is ahead. We are squarely focused on advancing our mission to secure and accelerate the world’s AI transformation. In closing, I will leave you with three key takeaways. First, Rubrik, Inc. is winning the cyber resilience market across data and identity. Second, we have accelerated our business growth while the competition has stalled. And third, we are defining the enterprise AI market with our unique and differentiated agent control and guardrail solution. To our shareholders, thank you for your trust. We are just getting started. And once again, to all Rubrikans around the world, I cannot be more appreciative of all the hard work and reserve we are creating. With that, I am pleased to pass it over to our Chief Financial Officer, Kiran Kumar Choudary. Kiran Kumar Choudary: Thank you, Bipul. Good afternoon, everyone. Thank you for joining us today. I am pleased to note that we conclude this year with an exceptionally strong performance. This included record net new subscription ARR with accelerated growth and continued improvement in subscription contribution margin. This robust financial outcome demonstrates our focused execution and solidifies our leading position in the mission-critical cyber resilience market, a market that is benefiting from the ramping AI transformation. I will start by briefly recapping our fourth quarter fiscal 2026 financial results and key operating metrics, and then I will provide guidance for the first quarter and full year fiscal 2027. All comparisons, unless otherwise noted, are on a year-over-year basis. We are very pleased to have ended Q4 with subscription ARR of $1,460,000,000, growing 34%. We added over $115,000,000 in net new subscription ARR, another record amount for Rubrik, Inc. Continued adoption of Rubrik Security Cloud resulted in $1,290,000,000 of cloud ARR, up 48%. We are at the tail end of our cloud transition, with cloud ARR now representing 88% of subscription ARR as of Q4. We continue to see strong subscription net retention rate, which remained over 120% in the fourth quarter. We are very proud of the high customer retention and expansion dynamics of our business. Expansion occurs through data growth in existing applications, securing more applications or identities, or adding more security products. In fact, adoption of additional security products contributed over 45% of our subscription net retention rate in the quarter, up from 34% in the year-ago period. In the fourth quarter, we saw significant growth in our largest accounts, with the number of customers contributing $100,000 or more in subscription ARR rising 25% to 2,805. These large customers now represent 87% of our subscription ARR, an increase from 84% a year ago. Furthermore, we added a record 32 customers with subscription ARR of $1,000,000 or more, driving over 50% growth in our over-$1,000,000 subscription base. For our fourth quarter, subscription revenue was $365,000,000, up 50%. Total revenue was $378,000,000, up 46%. Revenue in Q4 primarily benefited from our strong ARR growth. However, we again had tailwinds from our cloud transformation resulting in higher nonrecurring revenue that is accounted for as material rights. Material rights contributed approximately $18,000,000 to revenue this quarter, modestly higher than our expectation. Revenue growth normalized for material rights was approximately 43% in the quarter. Turning to the geographic mix of revenue, revenue from the Americas grew 45% to $268,000,000. Revenue from outside the Americas grew 51% to $109,000,000. Before turning to gross margins, expenses, and profitability, I would like to note that I will be discussing results on a non-GAAP basis going forward. Our non-GAAP gross margin was 84% in the fourth quarter, compared to 80% in the year-ago period. Our gross margin benefited from the revenue outperformance, including higher nonrecurring revenue and greater efficiency in hosting costs. As a reminder, we look at subscription ARR contribution margin as a key measure of operating leverage and believe the improvement in our subscription ARR contribution margin demonstrates our ability to drive operating leverage and profitability at scale. Subscription ARR contribution margin was 12% in the last twelve months ended January 31, compared to 2% in the year-ago period, an improvement of approximately 950 basis points. When normalizing for the $23,000,000 in employer payroll taxes associated with the IPO in the prior period, the improvement was approximately 730 basis points. The improvement in subscription ARR contribution margin was driven by higher sales, the benefits of scale, and improving efficiencies and management of costs across the business. Free cash flow at $70,000,000 compared to $75,000,000 in 2025. Free cash flow for fiscal 2026 was $238,000,000 compared to $22,000,000 for fiscal 2025. This increase was driven by higher sales, improved operating leverage, and optimizing our capital structure. Turning to our balance sheet, we ended the fourth quarter in a strong cash position with $1,700,000,000 in cash, cash equivalents, restricted cash, and marketable securities, and $1,100,000,000 in convertible debt. Let me now provide some context on our guidance. We are confident in our outlook fueled by the robust cyber resilience market, a differentiated technology platform, and scaling up emerging products such as identity security. This momentum, coupled with our consistent and effective execution, positions us to achieve robust growth in subscription ARR. We plan to continue making operational investments across two key areas. First, we will continue to invest in R&D to accelerate innovation in the large but developing markets of data, security, and AI. Second, we will invest in our go-to-market, specifically targeting regions and verticals that offer the most attractive ROI. These go-to-market investments will also focus on scaling our newer innovations, such as Identity Resilience, platform, and Rubrik Agent Cloud. Now turning to guidance for the first quarter and full year fiscal 2027. In Q1, we expect revenue of $365,000,000 to $367,000,000, up approximately 31% to 32%, or approximately 36% to 37% when normalized for material rights. We expect material rights related to our cloud transformation to contribute $4,000,000 to revenue in Q1. We expect non-GAAP subscription ARR contribution margins of 10% to 11%. We expect non-GAAP earnings per share of negative $0.04 to negative $0.02 based on approximately 204,000,000 weighted average shares outstanding. For the full year fiscal 2027, we expect subscription ARR in the range of $1,829,000,000 to $1,839,000,000, reflecting a year-over-year growth rate of approximately 25% to 26%. We expect total revenue for the full year 2027 in the range of $1,597,000,000 to $1,607,000,000, up approximately 27% to 28% when normalized for material rights. We expect material rights related to our cloud transformation to contribute approximately $10,000,000 to revenue in fiscal year 2027. As we have always communicated, subscription ARR is the primary top line metric to evaluate our business performance, as it is not impacted by accounting dynamics related to our cloud transformation. In terms of profitability, we continue to stay focused on taking advantage of the market in cybersecurity and AI, while balancing growth with improved efficiency. Based on our current investment plans, we expect non-GAAP subscription ARR contribution margins of approximately 13% for the full year fiscal 2027. We expect non-GAAP earnings per share of $0.07 to $0.27 based on approximately 232,000,000 weighted average shares outstanding for the full year. We expect free cash flow of $265,000,000 to $275,000,000. As always, we have included some additional modeling notes in our investor presentation. In closing, we are pleased with our strong performance in fiscal 2026 while exceeding our financial targets across the board. Looking ahead, we are excited about the opportunities awaiting us in fiscal 2027 and beyond. We plan to share more about our ambitious vision throughout the year, including at our Forward user conference in Las Vegas. Please note that our inaugural investor day will be held on June 10 during the conference. More details on that event will follow. With that, we would like to open up the call for any questions. Operator: Thank you, ladies and gentlemen. We will now begin the question-and-answer session. To join the queue, please press star one on your touchtone 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. In the interest of time, we ask you please limit yourselves to one question each. Thank you. One moment, please, while we assemble the queue. Your first question comes from Matthew Martino of Goldman Sachs. Please go ahead. Matthew Martino: Hey, good afternoon. Thank you guys for letting me ask a question here. Bipul, you mentioned ongoing Agent Cloud POCs with the Fortune 500 and AI startups. Can you help us understand what those two customer sets are each trying to solve for, and whether the early pull is showing up more around the monitoring and guardrail side or around remediate and rewind? Thank you. Bipul Sinha: Thanks, Matt. So as you would anticipate, customers first are trying to understand how many agents they have in the SaaS system, both sanctioned ones as well as shadow IT unsanctioned ones. So first understanding of all the agents in the platform, then they want to understand what these agents are actually doing. And then once they have understanding of this kind of monitoring observability, then the second step for them is to understand how they control it. And this is where the real-time dynamic guardrail that Rubrik, Inc. has developed, which is a unique solution, we are actually demonstrating to our customers as how you can stop agentic interactions in real time. The rewind piece will be a day-two problem, so to say. Once the customers get fully operationalized at scale with agents, then they will work on agentic rewind and how you undo the effects of unwanted action. But I think the first and the second piece is the high priority right now. Thanks a lot. Melissa Franchi: Thanks, Matt. Operator: Your next question comes from Fatima Boolani of Citi. Please go ahead. Fatima Boolani: Good afternoon. Thank you for taking my question. Bipul, I wanted to talk to you about the sovereign cloud opportunity and the release of a Rubrik sovereign cloud. We have in principle seen this notion of sovereignty and data sovereignty up in other pockets of software and other domains of cybersecurity. So I wanted to get to the bottom of what has been the customer impetus in order for you to formalize and really build a dedicated product effort around this. And, you know, bringing that into kind of the numbers and how we think about the incremental opportunity, what is that incremental or new TAM that is now capturable as a result of this form factor or flavor of RSC being available? Thank you. Thanks, Fatima. Very, very insightful question. Bipul Sinha: What has really happened is given the geopolitics of the world and how things have evolved in the last, call it, five to ten years, every country is concerned about containing the supply chain, containing the economic infrastructure, which is data center, compute infrastructure, and actual data within their own borders. And so they have two kinds of requirements. The requirement number one is where they want the government infrastructure to be totally sovereign and constrained and in their own data center, controlled by very high ring-fenced security. So that is one. And then the second one is the public cloud infrastructure located in their country but with additional control of what data can go out and what can come in within those infrastructures. So the two flavors of sovereign kind of infrastructure or cloud, if you can call so. And AI is adding a new angle to this. In many countries, they are also thinking about creating AI infrastructure in a way that they can rent it out to other countries. And that AI infrastructure will be about like a digital embassy. And that digital embassy will run the AI infrastructure plus a sovereign way. So this is a new space. It is a fast emerging space. There are significant product changes, development, adaptation required because of the additional control and on-premises data center nature of it. But we are engaged with a number of customers on this. We are watching this market. TAM is still evolving. I do not have a good sense of how big the TAM would be. But whether it is net new, it is also unclear because before the sovereign concept, the customers were consuming IT services, but in a more shared way or cloud way. So it is also unclear if it is net new. But this architectural shift will require modernization of infrastructure, maybe cloud transformation. We believe that it is an interesting opportunity for us, and we are actively working on it. Thank you. Operator: Your next question comes from John DiFucci of Guggenheim Securities. Please go ahead. John DiFucci: Thank you. Bipul, I have a question for you. So I listened closely to your prepared remarks. And Rubrik, Inc. sort of redefined its core market, right? Not only with the new modern architecture that was needed because of shifts in the IT infrastructure of the world, but you also expanded it beyond its traditional boundaries from backup and recovery to security against ransomware to be what became what you guys defined as cyber resilience platform. And it sounds like you are doing it again from an identity perspective. So my question, though, is on AI. It is something I do not like to ask about because I think it is asked too much and I think people talk about it too much. But should we be thinking about AI as another technology shift that will need the IT infrastructure of the world to adjust, which would require something you have talked about all the time, and that is continuous innovation to address not simply the application of old technology, which I think is sometimes what is happening out there. I guess, in other words, is there more to come from Rubrik, Inc. on this topic, and even others from a technology perspective that have similar DNA to adjust to a changing world? I am sorry for the long-winded question. Bipul Sinha: No, that is a good question, John. Thank you so much. Rubrik, Inc. is not a traditional company. Rubrik, Inc. is a living and breathing entity that has no finish line, and we are always thinking about how we help our customers as they adopt newer technology. They go through their own platform transition, and how we are two miles ahead of them, not 200 miles ahead of them, but positively surprise them with newer and newer solutions. And our original vision was that natural disaster and human error does not happen every day, but cyber disaster is the biggest problem in our industry, and we built Rubrik, Inc. to solve for cyber disaster in terms of cyber recovery and cyber resilience. And we created that market. We are dominating that market. And then we saw that identity-based attacks had become a real problem for our customers. And if you look at the recent attacks with BlackCat/ALPHV and Scattered Spider, they are attacking identity-based systems. So we built an identity solution, the most comprehensive identity recovery, identity resilience set of products. And I am very happy to report we crossed 900 customers in Q4, just on identity. So in just three, four quarters of selling, we have now crossed 900 customers. In Q3, we had reported that we had crossed 400 customers. Now we have crossed 900 customers. And it is the fastest-growing product in the history of our company. Identity we built two years ago. We are now building a new S-curve in AI. Because our customers want to adopt AI. They are concerned about the risk of AI because if the agents get compromised, then somebody can be controlling their business sitting in North Korea. And they do not want that. So they want agentic guardrails. The guardrails to be in real time. For example, even if you have an agent that has access to sending emails, you do not want them to send an email to everybody in Guggenheim all the time. So every agentic action has to be judged and stopped or allowed based on every action. We are building a very comprehensive platform for agentic operation for management, control, and rewind of AI agents. And we believe our platform’s unique ability around data, identity, and applications gives us a very natural position to really create the most important solutions to accelerate enterprise AI adoption. I always am a huge believer in non-consensus ideas, and we are building the most important AI company that nobody is focused on. And we will continue to build Rubrik, Inc. into where our customers are going and where our markets are going, and continue to be on the leading edge. John DiFucci: That sounds exciting. We will be watching, but one subtle thing in everything you said was I at least I take away from it is listening closely to your customers. Thank you very much. Operator: Your next question comes from Eric Michael Heath of KeyBanc Capital Markets. Please go ahead. Eric Michael Heath: Hey, thanks for taking the question and nice set of results here and guidance as well. Kind of taking a different direction in the question here. And obviously, broader outside of Rubrik, Inc. and software, there are some concerns on memory pricing. So, Kiran, I wanted to get some of your thoughts and feedback on how we should think about your indirect exposure to memory pricing. Are there any risks from higher memory pricing, or longer lead times affecting customers procuring Rubrik, Inc.'s appliances through your partners, or willingness to engage in infrastructure modernization projects? So just high level, how should we think about it? And then if there are any assumptions embedded in the guide, just curious to hear any thoughts there. Thanks. Kiran Kumar Choudary: Eric, this is Kiran. I will take that question. So we are obviously a software company, and we are in the business of selling software to our customers, whether self-hosted or in the cloud. But all software runs on some powered hardware, which requires components, including memory. So far, we are watching the situation closely, and we have not seen a significant impact on our business. Obviously, there is a portion of our business where customers self-host and they procure hardware, and we work with our customers when needed to ease for them. But, so far, we have not seen any material impact on our business as reflected in the results. Now coming to your question on guidance, I can again make some broad comments there, beyond just the assumptions on weighted hardware. But we have been very pleased with our Q4 and fiscal year 2026 results. It was a quarter of record net new ARR in terms of $115,000,000 as well as acceleration of growth. And when you look at our guidance, the subscription ARR metric, which is the key metric in which we measure success and momentum in our business, the net new growth guide was higher than the start of last year, and that is really a reflection of the momentum we see in the business. I will also add that we talk about our company in terms of three businesses. One is the largest business: data protection and cyber resilience business, which is mission critical, large, still growing, and we believe is largely underpenetrated. And we are very well positioned competitively there. So that is going to be a key driver for growth when you look at this year. We talked about the identity business earlier on the call. Lots of momentum there. That is our business where we sell products more so to the CISO, and lots to build there. The assumption on AI, while we are very excited, is we have not assumed much when we talk about fiscal 2027. The feedback is promising, but we will have to see how the year goes. We have also considered the overall environment, business macro environment, as well as the hardware supply issues you mentioned, and we have taken into account what we see right now and do not see a lot of impact at this very point. In terms of guidance, our approach has been similar. We want to put forward numbers based on all the inputs we have today, but want to put forward something we feel really good about in terms of delivering. And as we have progressed in the public markets, and now entering the third year, it is natural as in other software businesses that the results will tend to converge a little bit closer to guidance over time, and you would expect to see that as well. Hopefully, that has given you context on how we thought about guidance. Eric Michael Heath: Yep. Very thorough. Thanks, Kiran. Operator: Thank you, Eric. Next question comes from Brad Zelnick of Deutsche Bank. Please go ahead. Brad Zelnick: Great. Thank you so much and congrats on just a blowout Q4 and a phenomenal year. Kiran, I guess my question is for you. I appreciate all the reasons why the handoff in go-to-market leadership to Jesse Green should be seamless. But how should we think about the possibility of any pause, you know, any interruption, and the extent you may have contemplated this in your guidance? Thanks. Bipul Sinha: Brad, thank you so much for the question. Let me give you a little bit of a sense of how we thought about it. We hired Jesse almost three years ago with this in mind, that he will start as leader of Americas, then over time will be the successor for Brian. And so he has been a CRO in training for the last almost three years. Because he was running Americas in MongoDB, so he came to Rubrik, Inc. with this kind of clear path to be the CRO. So it was a very natural and easy transition for us. Obviously, we are always paranoid about every aspect of our business and keep thinking about what are different risks. But the transition has gone very smoothly. The team is stable and in place and executing. And again, the opportunity in front of us with respect to three lines of business—data protection, identity resilience, and AI—all three are very exciting, and we have six, seven different ways to land our platform to our customers. Customers do not have to buy our core product or first product to start with Rubrik, Inc. They can buy either just cloud, just identity, just on-prem. So our sellers see multiple different ways to succeed, and now they are selling a true portfolio of products, which actually creates opportunities for them and also stability in the team. Brad Zelnick: Very helpful. Thank you. Operator: Next question comes from Gregg Steven Moskowitz of Mizuho. Please go ahead. Gregg Steven Moskowitz: Great. Thank you for taking the question. So really terrific identity momentum and certainly an exciting opportunity ahead with Agent Cloud. That being said, Bipul, at a time when seemingly every investor is questioning the durability of their software portfolios, have any concerns about data recovery and resilience being meaningfully automated by AI over time, potentially impacting your core business value prop or wallet share with customers over the long term? It would just be helpful to get your perspective on this. Bipul Sinha: Rubrik, Inc. is a very large and complex piece of software, and it is an enterprise-scale boat with about a dozen years of soaking time with thousands of customer feedback and customer use cases in a large enterprise environment that has been built into this. And so it is not something that you can wipe code on, an LLM can solve. And we are the system of record of last resort around data and identity. When a large bank or large hospital faces a ransomware attack, at that time, Rubrik, Inc. is there to help their business come back online and get going. Moreover, as I said in my prepared remarks, Rubrik, Inc. is a hardware-optimized, platform-optimized software. And we have a thousand engineers working on it on a daily basis to enhance it and take customer feedback and soak in time with our product. So I do not believe that we have any disruption risk at all from AI. The second important thing is we are also not an orchestration application software. We are a data infrastructure company. And, you know, system of record, data management is the most important capability you need for this AI transformation. Because if you have no data or the integrity or confidence in the data or the availability of the data, then you have no AI. Data is the foundation of AI. And Rubrik, Inc. is the foundation data infrastructure software. We do not price our product based on number of employees in the company. We price our product based on the size and volume of the data. So Rubrik, Inc.’s importance only grows with the growth of AI and AI transformation of the enterprise. And we want to accelerate that transformation. That is why we introduced Rubrik Agent Cloud. Rubrik, Inc.’s stated mission is to secure and accelerate the world’s AI transformation. Because when the world goes through more AI transformation, it has more data, more software, more cyber threat, larger surface area of attack. More agents means more surface area of attack, more cyber compromise, you need more cyber resilience. You need more cyber recovery. We believe that our opportunity is only growing, and that is reflected in our result. If you look at our result, we deliver the most clean and complete results of any cybersecurity company. And that is not an accident. Gregg Steven Moskowitz: That is very helpful. Thank you. Operator: Thank you very much. Appreciate it. Your next question comes from Todd Adair Coupland of CIBC. Please go ahead. Todd Adair Coupland: Yes. Good evening, everyone. You had record net new in the quarter. As we think about the coming year, any, I guess, pull forward in Q4? Looks like the Q1 guide is seasonally lower by quite a bit. Could you just talk about those dynamics and whether or not you had any pull forward in Q4? Thanks a lot. Kiran Kumar Choudary: Todd, this is Kiran. I will take that one. So we had a very strong Q4, $115,000,000, accelerating growth. But I would say there is broad momentum across the quarter, both large and small deals. And, you know, we have spoken about earlier, you always have some deals which close earlier, close later. That is the nature of the enterprise software business. That is why we look at our business from a net new add on an annual basis. I am very pleased with the 20% growth there. And I will not call out anything from Q4 impacting Q1. Just a reminder that last year, Q1 was fairly unique. When you look at Q4 in the previous year versus Q1, there was a small dip. So it is a tougher compare when you look at growth rate, but from an overall scale perspective, and again, if you look at it on a full-year net new ARR basis, the starting point for the guide is stronger than, in terms of growth, than last year. Operator: Thank you, Todd. We will take our next question from Junaid Siddiqui from Truist. Please go ahead. Junaid Siddiqui: Great. Your growth shows that you are continuing to take market share and making significant inroads in displacing these legacy vendors, as you cited. You know, how much of a runway do you think is left in displacing that legacy base? And maybe if you could just touch upon the competitive environment in the quarter. Thank you. Bipul Sinha: Thank you, Junaid. We are very early in legacy replacement. This is a very large and deep market. And as we are doing cyber resiliency transformation, specifically for the data center environment, we have a tremendous opportunity to continue to displace legacy vendors. Our win rate against the data protection vendors across the board is, I will repeat, north of 90%. North of 90% in Q4. The only deal that we are losing is the fight that we are not in. We are figuring out how we get in more fights, more routes to market, more parts of the world, and continue to disrupt this market. While we are disrupting the legacy space, we are opening up markets around cloud, around M365, around identity, and with AI, this new Rubrik Agent Cloud. So not only have we disrupted the legacy backup and recovery data protection market, but we have vastly expanded this market and completely redefined it to position this towards AI. And we are leaning into that AI and agentic disruption to really create, again, as I said, the most important security and AI operations company. Thank you. Operator: Your next call comes from Keith Frances Bachman of BMO. Please go ahead. Keith Frances Bachman: Hi, many thanks for taking the question. Bipul, this is also for you. I wanted to go back to the Agent Cloud. Seems like a very interesting opportunity as we look out over the horizon, but I wanted to get your perspective on a few things. A, who do you see as the competition? There are lots of companies that you talk about the monitoring control plane, if you will, of agents. And, therefore, who do you see as your competition for this particular sector? And B, how do you think about how your go-to-market may transition? So, for instance, at BMO, the folks who buy Rubrik, Inc. for our backup, they are not the same people who would be buying a tool for monitoring and controlling agents. And just wondering how you think about how you might need to make, if any, any changes to go to market. And then C, when do you think we would be in position to talk about contribution of Agent Cloud to your results, even at any kind of metrics you may be able to provide? When do you think that will be? That is it for me. Many thanks. Bipul Sinha: Thank you, Keith. So let me take the first question about this market. This agent control and governance market is a new market, and it is still very early days of this market. And as you can imagine, everybody with a mother is jumping into this market. And most of the cybersecurity observability, ML observability companies are now repositioning themselves as agentic observability, agentic governance model. My belief is that the traditional cybersecurity companies or people in those cybersecurity companies will not be suitable for this market because traditional cybersecurity is all about rule-based platforms, and they are not in the real-time control of action. This market is about dynamic control. And you need to bring in AI to control agentic action. And AI requires model engineers. And most of the cybersecurity companies, probably none of the cybersecurity companies or these startups have any model engineering. We brought Predibase to solve this problem. And we have what we believe is a unique solution to control agentic action with AI, to really drive intent-based understanding of action and stopping it. So the market is very crowded, a lot of noise. But we believe that we have a unique perspective and solution in this market. Time will tell how this develops, how we grow, but we are excited. In terms of the buyer, again, this is a new market. Somebody under the CIO organization will be the buyer. CIO is our ultimate buyer for our data protection business. So we have some convergence with the ultimate buyer. Some organizations we see chief data officer, chief AI officer interested in this space. Some organizations we see engineering teams interested in this space. We will figure out how it all develops. But we like what we see so far, and we will keep updating you as we make progress in this space. Keith Frances Bachman: Okay. Many thanks, Bipul. Kiran Kumar Choudary: Thank you. Operator: Your next question comes from James Fish of Piper Sandler. Please go ahead. James Fish: Hey, guys. Thanks for the question. Bipul, for you, with the increasing tech workloads and data being created, are you seeing an exponential increase in the amount of data, even more so than that sort of traditional workload, and how you are able to kind of compress this down so that enterprises just are not overwhelmed with the data? And then just as a follow-up on the go-to-market side, you guys talked that up. How much capacity are you guys looking to add, and how did productivity finish for the year? Bipul Sinha: Thanks, James. Obviously, AI requires data, and there is definitely data growth associated with AI. Having said that, agentic deployment in the enterprise is still early, and the main hurdle has been governance and security. And that is the problem we are solving. So I anticipate when the enterprises get fully operational on agents, they will have again more usage and production of data. So we remain very excited about this market. In terms of how much we are going to add from this, again, this is early days for Rubrik Agent Cloud. We are still learning and going through our process, just like what we did for identity last year, where we went to work with the customer to understand their problems, understand how tuned our solution was before actually scaling. And we are going through that learning process right now. Operator: Your next question comes from Srini Nandury from Baird. Please go ahead. Srini Nandury: Hey, and thanks for taking my question. So, Bipul, I know you said time will tell, but you guys have been framing these products as the S-curve, and it already feels because identity recovery has moved from proof point to real growth factor, and I know you said it reflects multiple years of work versus Agent Cloud still early. Of course, I wanted to ask you just if you have to characterize where identity fits today versus your original expectations around the S-curve, and then how should we think about the difference overall from an S-curve perspective in terms of timing, relative magnitude, and size. Again, I mean, I know it is still early, but just curious how you are thinking about those. Bipul Sinha: Sure. Thank you. If you look at our history, Rubrik, Inc. is a multiproduct platform company. And as I said before, the value from the platform increases as our customers adopt more of the Rubrik platform. And over the years, we have multiple products that we have scaled to $100,000,000-plus ARR in a short period of time. And as I said, identity was the fastest-growing product for us. In fact, it did exceed our expectation of how fast the product has scaled. And also, our engineering team did a tremendous job of building an amazing product and also building an amazing set of capabilities, not just Identity Recovery but Identity Resilience, which is both before and during attack, plus also creating an Okta solution, which we are seeing, again, early, high interest from our customer base. So we are committed to building a long-term company. The long-term company can only be built by stacking S-curves. We are always looking over the horizon and thinking, what else should we be building, how else we can serve our customer better, how do we become a long-term strategic partner to our customers, so that we learn from them, we build for them, we serve them in a way that creates a multidecade partnership with them. Srini Nandury: Great. Thanks a lot. Operator: There will be no further questions at this time. I will now turn the call back over to Bipul Sinha. Please go ahead. Bipul Sinha: Thank you so much, everyone, for your time today. As I said on the call, we remain very excited about the opportunities in front of us. Both cyber resilience and AI resilience and AI operations remain strong opportunities in front of us. Our team is dedicated to making sure that our customers go through AI transformation in a low-risk, risk-free manner and really take advantage of the productivity promised by AI. Thank you so much again for your trust. See you in a quarter. Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance Corp. Fourth Quarter and Fiscal Year Ended 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead. Quinlan Abel: Thank you, operator. Good evening, everyone, and welcome to the Runway Growth Finance Corp. Conference Call for the Fourth Quarter and Fiscal Year Ended 12/31/2025. Joining us on the call today from Runway Growth Finance Corp. are David Spreng, Chief Executive Officer; Greg Greifeld, Chief Investment Officer of Runway Growth Capital LLC, our investment adviser; and Thomas B. Raterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance Corp.'s fourth quarter and fiscal year ended 2025 financial results were released just after today's market close and can be accessed from Runway Growth Finance Corp.'s investor relations website at investors.runwaygrowth.com. We have arranged for a replay of the call to be available on the Runway Growth Finance Corp. web page. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, market conditions caused by uncertainties surrounding interest rates, changing economic conditions, and other factors we identify in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance Corp. assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David. David Spreng: Thank you, Quinlan, and thanks, everyone, for joining us this evening to discuss our fourth quarter and full year 2025 financial results. Today, I will discuss our highlights for the quarter and the year and provide an update on our pending acquisition of SWK Holdings. Then Greg will discuss our portfolio activity and share our outlook on the current market backdrop, and Tom will conclude with a deep dive into our financial performance. In the fourth quarter, Runway delivered total investment income of $30 million and net investment income of $11.6 million. During the quarter, we completed seven investments in new and existing portfolio companies across the high-growth verticals of technology, health care, and select consumer sectors, representing $42.9 million in funded loans. Taking a step back, 2025 was a dynamic year shaped by several market-moving events and volatility, including ongoing tariff uncertainty, evolving interest rate policy, geopolitical conflicts, and increasing attention to AI-driven disruption. In times like these, it is critical to stay disciplined in our investment process and diligent in our approach to portfolio construction, traits that have defined our company since its founding. We believe our consistent performance across cycles reflects this philosophy. That said, we are not complacent and remain focused on executing against the initiatives we have discussed in recent quarters, which include further enhancing the risk profile of our portfolio through diversification and smaller position sizes, expanding our suite of financing solutions, and maximizing the value of our existing commitments through robust monitoring and diligent risk mitigation. As a part of the BC Partners credit ecosystem, we have made steady progress on these objectives. We have also leveraged their combined resources and network in evaluating attractive and complementary portfolios, as demonstrated by our announced acquisition of SWK Holdings in the fourth quarter. As an update on timing, the transaction with SWK is now expected to close in early April. Our confidence in closing this transaction remains unchanged. One key aspect of our transaction with SWK is the diversification it will bring to our portfolio. While we remain confident in our current asset mix, increasing our exposure and strengthening our capabilities in health care and life sciences will enhance our portfolio and drive optionality moving forward. In the coming quarters, we believe there could be attractive opportunities across all of our areas of focus: technology, health care, and select consumer sectors. Greg will provide additional detail on how we think about software investing, with the takeaway being we have strong conviction in our underwriting and disciplined investment framework, which we believe positions us well to consistently identify and execute on attractive opportunities in the sector. By broadening exposure across sectors and maintaining an allocation to software companies that meet our high standards, Runway is better positioned to generate consistent, attractive, and risk-adjusted results for our shareholders. Before I turn the call over to Greg, I will conclude with an update on our originations in the first quarter. Although this is seasonally our slowest quarter, activity thus far is encouraging, and our pipeline is stronger than it was at this point last year, giving us measured optimism for the remainder of 2026. As we take advantage of enhanced origination channels through BC Partners and SWK throughout the remainder of the year, we will apply the same rigor to new opportunities and act thoughtfully in making any additions to our portfolio. I will now turn it over to Greg for a more in-depth look at our portfolio activity. Greg Greifeld: Thank you, David. Tonight, I will recap our portfolio activity during the quarter, provide an update on our progress against our portfolio optimization initiatives, and discuss how we are competitively positioned for the year ahead. Before I turn to our portfolio activity, I think it is important to reiterate some of what David described about our approach in deploying capital. At our core, Runway upholds a credit-first investment discipline with a preference for less economically sensitive business models. Combined with our focus on first-lien senior secured investments to late-stage companies, we aim to generate durable growth and attractive returns on a risk basis. As it pertains to software specifically, we are confident in our current portfolio and continue to be positive on the sector as an investment opportunity. We believe the best companies will not only be able to coexist with AI, but will be able to leverage AI as a tool to optimize their operating models and accelerate penetration in the markets they serve. As our investment team has evaluated deals over the last several years, finding companies that fit this mold has been a key priority. While this is easier said than done, we believe our dedication to process, our deeply experienced team, and our longstanding relationships across the venture ecosystem allow us to identify the right opportunities to grow our portfolio. More specifically, if you look at our existing portfolio, our software companies share the following characteristics: mission-critical functions with a long diligence and implementation cycle; strong moats defined by domain expertise and high switching costs; and customer diversification, which we believe meaningfully de-risks revenue growth projections. Further, the founders we partner with are forward thinking and always looking for ways to optimize their businesses. This includes using AI to improve operations, lower cost structure, and extend cash runways. From a credit perspective, our software portfolio metrics are on solid footing. The software companies in our portfolio are delivering consistent revenue growth and maintaining stable LTVs. Lastly, we always actively monitor our portfolio companies, remaining in close contact with our borrowers and their sponsors. This allows us to have continued confidence in the outlook for our software portfolio and our portfolio at large. Turning now to our portfolio activity during the fourth quarter, Runway completed seven investments in new and existing portfolio companies for a total of $42.9 million funded. These investments included completion of a new $20 million investment to a fast-growing mobility company offering a seamless, all-inclusive car subscription service, funding $20 million at close; completion of a new $10 million investment to a special purpose vehicle formed by an experienced consumer products investor and operator to support their latest investment, funding $10 million at close; completion of a new $20 million investment to Shield Therapeutics, funding $2 million at close; Shield Therapeutics is a commercial-stage specialty pharmaceutical company focused on delivering innovative therapies to address significant unmet needs in patients with iron deficiencies. We also completed follow-on investments with an aggregate amount of $10.9 million to four existing portfolio companies, including BlueShift, Bombora, Autobooks, and Marley Spoon. Looking at the year ahead, we will continue to focus our opportunities to efficiently scale our portfolio while maintaining our defensive profile. We have a strong funnel featuring contributions from BC Partners and expect the pending acquisition of SWK to be additive to our sourcing capabilities, particularly within health care. Now I will turn the call over to Tom for a review of our financials. Thomas B. Raterman: Thank you, Greg. Turning now to the fourth quarter results, we generated total investment income of $30 million and net investment income of $11.6 million in 2025, a decrease compared to $36.7 million and $15.7 million in 2025. Our weighted average portfolio risk rating increased to 2.45 in 2025 compared to 2.42 in 2025. Our rating system is based on a scale of one to five, where one represents the most favorable credit rating. Our total investment portfolio had a fair value of $927.4 million, a decrease of 2% from $946 million in 2025. To reiterate, we have structured our portfolio to be comprised almost exclusively of first-lien senior secured loans, reflecting our focus on risk mitigation and diligent portfolio management. We delivered $0.32 per share of net investment income in the fourth quarter. Our base dividend in the fourth quarter was $0.33 per share, and at the end of the year, we had spillover income of approximately $0.65 per share. Prepayment fee income during the quarter declined sequentially, returning to more normalized levels, which contributed to the decline in NII. For the first quarter, we expect a $0.02 headwind related to a one-time charge stemming from the full redemption of our 8% notes and partial redemption of our 7.5% notes, both of which were due in 2027. As we evaluated the SWK transaction, a key benefit was its ability to stabilize our asset base amid recently elevated prepayments and the deliberate portfolio optimization we have taken, including exiting or resizing certain positions. We continue to expect this outcome upon closing; however, the modest delay in timing will contribute to some softness in Q1 2026 earnings. With respect to the dividend, we believe it is set at a sustainable level. Our board will continue to evaluate and approve future distributions, knowing how important consistency is to our fellow shareholders. Our debt portfolio generated a dollar-weighted average annualized yield of 14.2% for 2025, decreasing from 16.8% quarter over quarter and decreasing from 14.7% in the comparable period last year. The sequential decline was the result of lower prepayment income in the quarter. Moving to our expenses, total operating expenses were $18.4 million for 2025, a decrease from $21 million in 2025. We recorded a net realized loss on investments of $377,000 in 2025 compared to a net realized loss on investments of $1.3 million in 2025. During the fourth quarter, we experienced two full repayments and one partial repayment totaling $60.6 million and scheduled amortization of $2.2 million. As of 12/31/2025, we had only one loan on nonaccrual status, and that is Domingo Healthcare. The loan has a cost basis of $4.8 million and fair market value of $2.4 million, or 50% of cost, representing just 0.25% of the total investment portfolio at fair value as of 12/31/2025. As of 12/31/2025, Runway Growth Finance Corp. had net assets of $484.9 million, decreasing from $489.5 million at the end of 2025. NAV per share was $13.42 at the end of the fourth quarter, a decrease of 1% compared to $13.55 at the end of 2025. At the end of 2025, our leverage ratio and asset coverage were 0.90x and 2.11x, respectively, compared to 0.92x and 2.09x, respectively, at the end of 2025. As of 12/31/2025, our total available liquidity was $395.2 million, including unrestricted cash and cash equivalents; we have borrowing capacity of $377 million. As of 12/31/2025, we had a total of $145.5 million in unfunded commitments, which was comprised of $122.8 million to provide debt financing to our portfolio companies and $22.7 million to provide equity financing to our JV with CADMA. Approximately $32.4 million of our unfunded debt commitments are eligible to be drawn based on achieved milestones. Subsequent to quarter end, we took steps to enhance our balance sheet and reduce our cost of funds by launching an underwritten public offering of $103.25 million in aggregate principal amount of unsecured notes due in February 2031 at 7.25%. We also redeemed a portion of our 7.5% notes and all of our 8% notes, which were due in 2027, taking advantage of an attractive rate and spread environment as well as extending our debt maturity ladder. Before we conclude, I would like to take a moment to reflect on the progress we have made over the last eighteen months and reiterate our confidence in the transaction with SWK and its anticipated benefits. Prior to our acquisition by BC Partners, Runway was operating in a venture ecosystem facing a valuation reset and muted sponsor activity, so we intentionally looked for ways to strengthen our competitive position. This included the BC Partners transaction, which has meaningfully widened our deal funnel. Now the SWK transaction will expand health care and life sciences exposure and widen our opportunity set further. Through this process, we have meaningfully enhanced the portfolio's earnings power, optimized portfolio composition, and navigated periods of elevated repayments. At the same time, we are reducing the risk profile of the portfolio. Following the close of the SWK transaction, which should be on or about April 6, we expect to reduce our average position size to $23.5 million, or 2.2% of the portfolio. This compares to $30.3 million, or 3.1% of the total portfolio before the BC Partners transaction, marking tangible progress against our portfolio enhancement initiatives. As we have discussed before, other benefits of the transaction include enhancing our financial profile, expanding our shareholder base, generating run-rate net investment income accretion in the mid-single digits, and supporting modest ROE expansion as well as improved dividend coverage. In tandem with the enhanced earnings power and lower risk profile the deal brings, we are potentially expanding our access to new debt financing markets, including ABS and other secured lending markets. We look forward to the deal closing in early April. I will conclude with an update on our capital allocation initiatives. Due to the pending acquisition of SWK, we were not able to utilize our stock repurchase program during the quarter and will not be able to do so until after the transaction closes and we are outside of our normal blackout periods. Our existing stock repurchase program will expire before the blackout window opens; however, in general, we continue to view stock repurchases as an important tool in delivering shareholder value. Finally, on February 25, 2026, our board declared a regular distribution for 2026 of $0.33 per share. While we face some fluctuation in earnings quarter to quarter based on timing of the SWK deal and other factors, we are confident that our earnings power is aligned with the current distribution level on a full-year basis. With that, operator, please open the line for questions. Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We will now open for questions. Our first question comes from the line of Erik Edward Zwick with Lucid Capital Markets. Your line is now open. Erik Edward Zwick: Thank you. Good afternoon, guys. David, in your prepared comments, you noted that the pipeline is stronger than it was at this point last year. I am wondering if you or Greg, if you wanted to weigh in as well, just talk about maybe how it looks today in terms of new versus add-on opportunity, if there are any particular industries that are more heavily weighted at this point, and then I think you mentioned also in the back half of the year that you could see some additional growing or growth from the benefits of BC Partners and SWK and whether you would think that broadens the mix. I think you mentioned some new products as well, so just kind of curious an outlook there. David Spreng: Great. Thanks, Erik. I can start, and then Greg can add on. The comment really represents the impact that BC primarily is having on our deal flow. We are seeing a lot of really interesting opportunities from them, and we have done several deals together already, and I expect we will do at least one deal together per quarter going forward. And SWK represents a huge opportunity to upsize loans that they have to their base. And then on top of that, just our normal deal flow, excluding BC and SWK, is pretty strong, and so I think we do believe that we have got good momentum. That can change at any time, and as I think all three of us said in prepared remarks is that we are going to remain conservative in our approach to underwriting, and we are going to continue to look for the strongest companies. The problem is that when we like something, somebody else usually loves it and offers very, very aggressive terms, and, unfortunately, we just, at some point, have to back out and just say it is not worth it. But there are getting to be some really interesting opportunities with very juicy returns, particularly in software and in consumer. We have never been ones to chase after returns. We would rather have a slightly lower return that comes with a lot less risk. But it is interesting to note that the competitive dynamic in those two sectors is offering pretty good returns. Greg, anything else you want to add? Greg Greifeld: I would definitely echo those sentiments. I think that our core pipe of the volume definitely increased year over year, and one thing I would point to is there has definitely been uncertainty in the public market. With fewer providers in the private market, that is a benefit. What I mean by that is, if I am going into the beginning of the year in terms of the potential for IPOs this year, obviously some big blockbusters maybe, I do not know if that would be all, the IPO window for companies overall. That seems to not be happening, which leaves companies to look for a definitive solution themselves with the IPO option being off the table. That would have led to an increase in our core pipeline. And while SWK has not closed yet, I would say that the general craft that we are seeing supports our health care opportunity set, and we have been involved in health care since 2020. But this deal— Erik Edward Zwick: Great color. Thanks, guys. And my question for Tom, do you have a pro forma leverage number after the first quarter actions, or is it materially different than it was at 12/31, and just how are you thinking about the appropriate level of leverage today for the portfolio? Thomas B. Raterman: Thanks, Erik. Post-SWK we will be just under 1.2x. We will each strike our NAV two days before the closing, which should be April 6. And so, as we think about then moving forward, we still want to run between 1.2x and 1.3x and consider that our fully levered run rate, if you will. One of the things that we will consider, and a lot of it will depend on the economic environment and volatility in the capital markets. With the prepayments over the last, call it, eighteen to twenty-four months, we have seen it is very difficult during a portfolio reconstruction period or reset period. We are putting up smaller amounts on a per-deal basis, so we might get $60 million back or $50 million back. We want to put that out in two or three deals. So we may, in the short term, as we have line of sight to either scheduled maturities or anticipated prepayments, run a little high one quarter, knowing that in the coming quarter we are going to see a prepayment. We would not run generally, purposefully, above 1.35x in that scenario. But we may, in the short term, try to protect the core earnings power of the portfolio from some of those prepayments. If it is one thing that we have seen over the last eighteen to twenty-four months it is that it is harder to put that money to work in smaller pieces given the competitive environment and our overall level of picking and choosing our transactions. Erik Edward Zwick: That is helpful. Thanks. And last one for me, is there any new updates on the CADMA JV to communicate? Thomas B. Raterman: We continue to work actively with CADMA. We have got a couple of deals in the JV right now. It has been a little difficult to build that up given the aggregate deal flow, but when we sat down just recently with our partners at CADMA, I think there is a renewed effort to really build that portfolio and juice up the earnings power there. We do expect the first distribution from the JV in Q2, so you will see that flow through the Q2 income statement. Erik Edward Zwick: Great. Thanks for taking my questions today. David Spreng: Thanks, Erik. Operator: Our next question comes from the line of Casey Jay Alexander with Compass Point Research and Trading. Your line is now open. Casey Jay Alexander: Good afternoon. Thanks for taking my questions. Tom, is there any way that you can update us as to the—there had been some changes in the SWK Holdings portfolio after you announced the deal, and I am just wondering if you could update us as to what the balance of their loans and the number of loans you expect to have coming over on April 6 is going to be. Thomas B. Raterman: Sure. Subject to a little bit of modification, there will be 13 loans with a fair value of around $235 million. There is equity in addition to that, so there is an equity portfolio of some stock positions and warrants, and there are a couple of remaining royalties that will come across. Those are generally not yielding right now, or yielding very low. The aggregate yield on that portfolio, the total portfolio, is about 14%. The debt-only portfolio is about 16%. Casey Jay Alexander: Okay. Thank you for that. And, Greg, I do not know, when you were answering the last question, at least to me, you were breaking up quite a bit. I do not know if you are on a speaker or what. But I do have a question for you. If I was a member of the media, I would just ask you when are you going to mark the software portfolio at zero, right? Because that is what the media expectation is at this point in time. But I did want to ask, you have had one loan at the end of the third quarter that was marked at a reasonable discount to par, I think around 82%. And when I read the Las Vegas Sun, I see that Circadence closed a new investment round and is talking about strong revenue growth, and so I was wondering if you could update us on that particular credit because it seems as though things may have turned for the better. Greg Greifeld: Yes, and hopefully this is better sound-wise. I do not know if you need me to repeat anything, but as you pointed out, it successfully closed on an equity round as well as signed a substantial contract with the Defense Department. In combination, those will lead to an increase in performance for them. So it is one that we do continue to monitor. Casey Jay Alexander: Alright. Great. Thank you for taking my questions. Operator: Thank you. As a reminder, to ask a question at this time, please press 11 on your touch-tone telephone. Our next question comes from the line of Richard Shane with JPMorgan. Your line is now open. Richard Shane: Hey, guys. Thanks for taking my questions this afternoon. First, in terms of—and actually, both related—when you announced the SWK transaction, you announced an accretion level from an NII per share perspective, I assume. Given the movements in the stock price and the relative performance, how should we be thinking about that? And are there any floors or collars on the equity component that you are providing, the $75 million? Thomas B. Raterman: Well, thanks, Richard. Thanks for the question, and welcome to your first earnings call with us. We are glad to have you as part of the coverage team. So the amount of equity is set at $75.5 million. That will not change. The number of shares will change modestly based on the calculation of NAV. There will still be meaningful accretion. There is some accounting that happens that actually increases the NII contribution as we—as the SPAC declines. It is kind of counterintuitive, but it, in effect, increases the discount at which we are buying the portfolio, and as I said, it is fixed in terms of the dollar amount. The share count changes based on the NAV. Richard Shane: Got it. But presumably, that means that the deal becomes more dilutive because you are giving more shares in order to provide the $75 million of stock consideration? Thomas B. Raterman: That is correct. But we are talking about an insignificant change in terms of the change in NAV. If you look at the 12/31 NAV versus the 9/30 NAV, it is about 1%-ish, so it is not a meaningful amount, and at least at the moment, the preliminary calculations are that that will largely be offset by the increase in the discount that we are purchasing at because of the decline in the stock price. Richard Shane: Got it. Okay. Very helpful. And then, look, you guys have a history of repurchasing shares. You did not repurchase shares this quarter. You mentioned the fact that you do see that as an attractive opportunity. I am curious if one of the considerations in terms of just forestalling that during the fourth quarter was the impact of the acquisition, and is that something that post-acquisition lifts and you will start to go back to the market and be repurchasing shares again? Thomas B. Raterman: We have done that in the past, and that is our plan to discuss with the board. If history repeats itself, I would think the board would view it, and has consistently with the management team, that it is a good use of capital. But we were not legally able with the pending acquisition. When we were under LOI, we could not use the stock repurchase program. When we had the N-14 pending, we could not use the stock repurchase program. In general, the first time we would be able to do it would be two days after the closing. However, that is in our blackout period for Q1, so the first time that we can be back in the market is probably May. And so, as we look at capital allocation, it is a balancing act between new deals and the long-term core earnings power that that brings to the table versus the immediate accretion from buying at such a discount. We recognize the financial impact to our shareholders on that. Richard Shane: Got it. Okay. Great. That is very helpful, and that was kind of what I was trying to understand. And then very briefly, last question. What is remaining under your repurchase authorization from before? Thomas B. Raterman: It is effectively—there is a number, but we cannot use it. So we will revisit the whole number come April, early May, when we have our board meeting, and we will have much better details on the portfolio. Richard Shane: I appreciate that. A lot of moving parts for the new guy. I appreciate it very much, guys. Thank you. Thomas B. Raterman: That is all right. We appreciate the questions, and, again, welcome. We are glad to have you on board. Richard Shane: Thanks. Fun to be here. Operator: Thank you. Our next question comes from the line of Sean-Paul Aaron Adams with B. Riley Securities. Your line is now open. Sean-Paul Aaron Adams: Hey, guys. On the merger, I understand that you have proxy deadlines and the shareholder meetings, but was there any reason that kind of prevented the mail-outs from going out a little bit sooner in the quarter? Thomas B. Raterman: Nothing to do with us. Technically, the SEC has thirty days to respond to your filing, and we filed November 19, which would have meant a December 19 date for the initial comments back. Unfortunately, with the shutdown and the backlog that the SEC had, and this was not a typical investment company-to-investment company transaction; it was the acquisition by an investment company of an operating company. So I would say there was a little more to digest for the SEC. But the reality is it took seventy-two days to get the majority of the comments and seventy-seven days for the last comments. They were not particularly difficult, and once we had them, we turned them and filed as quickly as possible. But there are absolutely no underlying business issues. It was really just getting through the queue at the SEC, and once they— I have to say, once they gave us their comments and they recognized that we had a deadline embedded in the merger agreement, they were very good to work with and very attentive. Sean-Paul Aaron Adams: Got it. Appreciate the color. Operator: Thank you. I am currently showing no further questions at this time. I would now like to turn the call back over to David Spreng for closing remarks. David Spreng: Great. Thank you, operator, and thank you all for joining us today. We look forward to discussing our first quarter 2026 financial results with you in May. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Please stand by. Your meeting will begin. Hello, and welcome, everyone, to today's Open Lending Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one on your telephone keypad. Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Ryan Gardella, Investor Relations. Please go ahead. Ryan Gardella: Thanks, Leo. Prior to the start of this call, the company posted their fourth quarter and full year 2025 earnings release and supplemental slides to its investor website. In the release, you will find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures discussed on this call. Before we begin, I would like to remind you this call may contain estimates or other forward-looking statements that represent the company's view as of today, 03/12/2026. Open Lending Corporation disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to today's earnings press release and our filings with the SEC for more information concerning factors that could cause actual results to differ from those expressed or implied in such statements. Now I will pass the call over to Jessica to give an update on the business and financial results for the fourth quarter and full year 2025. Jessica Buss: Full year as CEO. From day one, my focus has been clear: stabilize the business and position it for durable growth. That meant improving profitability, reducing volatility in our profit share revenue, growing total revenue and customer retention, strengthening operational execution, and building a culture of accountability. I am pleased to report that one year in, we believe we have made meaningful progress on executing these goals. We have improved the stability of our profit share unit economics, strengthened underwriting standards, and expanded our platform through Apex One Auto. With that launch, we are evolving from a single-product company into a full-spectrum decisioning and dynamic pricing engine. We believe this progress is reflected in our full year results and, more importantly, in the stronger foundation we have built to drive higher-quality growth in the years ahead. Over the past year, we have also strengthened the leadership team by bringing in new executives and elevating internal leaders across the organization as we position Open Lending Corporation for the next phase of growth. Before jumping into our results, I want to put a finer point on the strategic reasons behind the significance for maintaining tighter underwriting standards and appropriately pricing risk, both of which contributed to our CERT results in the fourth quarter. As an experienced executive coming from the underwriting and insurance industry, I believe that we have positioned ourselves to deliver disciplined, profitable growth to our stakeholders over multiple credit cycles, not just the one we currently find ourselves in. Trust, relevance, and discipline combined with our unique product offering define Open Lending Corporation. As I have said many times in the past, we are, at our core, an auto credit pricing and decisioning engine. The name of our flagship product, Lenders Protection Program, is not branding; it is our operating philosophy. When we look at the current commercial credit environment, the importance of this discipline is clear. Over the last few years of volatility, we have seen several auto lenders go out of business, largely due to overextension, loosened underwriting standards, and rates that were not balancing the actual risk. When economic pressures and delinquencies rose, they could not sustain the losses they had at the prices they were charging. I mention this to say that we have clearly chosen a different path for our company, our employees, and our stakeholders. The decisive changes made in 2025 and the strategic initiatives we have put into place and outlined on all of the earnings calls since I became CEO have all contributed to our continued relevance in the near and non-prime space. We believe that these changes are working and driving real value for our stakeholders in the form of sustainable, profitable growth regardless of the changing macroeconomic environment. With that as a backdrop, I would like to move on to results. For the full year, we facilitated 97,348 certified loans and recorded total revenue of $93.2 million, resulting in adjusted EBITDA of $15.6 million. For the fourth quarter, we facilitated 19,308 loans, generating revenue of $19.3 million and adjusted EBITDA of $2.8 million. We believe that our deliberate tightening of lending standards will result in a higher-quality book, and we have already observed improved 2025 vintage performance as compared to prior year vintages. For vintage year 2025, the over-60-day delinquency at twelve months on book is approximately 200 basis points lower than both the 2023 and 2024 vintages. In the fourth quarter, our certified loan shortfall compared to guidance was driven by a temporary headwind in conversion rates as we actively managed risk and made targeted adjustments to how retail vehicle values were treated in our pricing models. As new information became available, we tested price elasticity, measured the response results, and then refined our response accordingly. After reviewing the performance of the quarter, we determined that certain rate increases implemented were creating unnecessary obstacles in our certified loan pipeline. After rolling back a subset of the changes in phases, concluding the week of January 16, we are now seeing improved momentum and sustainable growth while credit performance remains strong. This is disciplined risk management: test, measure, and refine. Exercising this process and creating this muscle memory is essential not just to our LPP product, but for our Apex One Auto platform and the full spectrum of credit products. Ultimately, our decision to maintain a tighter credit box and appropriate pricing was deliberately done to reinforce the strategic principles we have emphasized all year of discipline in our underwriting and pricing. We believe this approach reduces exposure to elevated defaults, rising delinquencies, and adverse loss ratios over time. While that discipline may have resulted in fewer certified loans in the fourth quarter, intentionally avoiding business that we believe is mispriced or inconsistent with long-term profitability is ultimately in the best interest of Open Lending Corporation and our stakeholders. While we were not happy with the impact on CERTs, the silver lining is that our controls and feedback loops are working as intended. I am also pleased to report that since February 1, we have averaged 353 CERTs per business day compared to 293 CERTs during the impacted period. Importantly, the 353 level is consistent with the average CERTs per business day we experienced in the sixty days prior to the change being implemented. Additionally, through February, our application flow was approximately 20% up year over year. We are getting more at-bats with the business we want, which is direct evidence that our lender profitability initiatives and newly launched dashboards are working and that our customers see tangible value in the full life cycle of the Open Lending Corporation relationship. Now I would like to move on to talk about our ongoing initiatives across the company. First, as discussed on our prior earnings call, we have been actively working with our third-party modeling partner on a more sophisticated real-time simulation engine that we have internally called Project Red Rocks. Once completed, we expect Red Rocks will allow us to instantly see the impact of any proposed rate or credit box change on volume, loss ratio, and profitability before we implement it. It will also serve as a safety valve and control check on the trade-off between rate and market acceptance, which we believe will prevent future headwinds like we experienced in the fourth quarter. We remain committed to disciplined pricing and building more sophisticated models to predict our actions on the market. Understanding the dynamics of price elasticity, volume, and profitability is critical to being best in class, and we believe Project Red Rocks will deliver that for us. This project is running on time and on budget, and we are seeing preliminary benefits as we roll components of the model quarterly. We also entered 2026 with a strengthened go-to-market engine. Anthony Capazano joined us early in the first quarter as Chief Growth Officer. His first four priorities are clear. One, increase wallet share with existing credit union partners and continue to focus on existing customer retention. Two, penetrate larger credit unions, banks, and other institutions which we have historically underserved. Three, build the go-to-market strategy around Apex One Auto platform and the additional product and credit spectrums we now service with this introduction. And four, reorient and expand the sales team with additional hunters focused on new logo acquisition and deeper penetration. Anthony will also begin exploring opportunities to organically expand our platform into additional credit products, leveraging our proprietary data and analytics to extend the reach of our model. Anthony has hit the ground running and quickly made an impact in the sales organization. We have been operating without a Chief Growth/Revenue Officer for several months and believe there are significant opportunities for Anthony to help us accelerate our growth throughout the year. Now I would like to report on the impacts of our initiatives to improve profitability and drive CERT volume growth. Mas will do a deeper dive into the fourth quarter and full year results, but our profit share unit economics for the 2025 vintage continue to be booked at a constrained 72.5% loss ratio, and we believe will perform at our target loss ratio of mid-60%. For the full year, our profit share change in estimate resulted in a $400,000 positive impact to adjusted EBITDA or, in essence, was non-volatile and flat. Our Apex One Auto platform was launched in the fourth quarter with two customers in the prime credit auto segment, making us a full credit spectrum dynamic pricing auto solution. Applications flowing through the platform from customers and our pilot partners are already in the mid–five figures, all in a subscription-based minimum volume model. The pipeline has more than doubled since launch, with several new potential customers in various stages of diligence. Importantly, because Apex One Auto sits on top of the prime credit funnel, it seamlessly routes declined prime loans into our core LPP product and increases application flow. Not only does Apex One Auto operate on a subscription-based, recurring revenue model, but it increases stickiness with customers and gives us an opportunity to capitalize on the $500 million prime decisioning market. The introduction of Apex One Auto platform also means we now have exposure to the entire spectrum of credit scores. Given the massive amount of historical data we have access to, we believe we are well positioned to find new ways to leverage and monetize that across the full spectrum of credit and markets that rely on this data to price loans. Next, on to OEM 3. The ramp-up continues as planned. Volume has grown steadily through Q4, and we are now deploying in Southern California and Texas, which make up a substantial portion of the opportunity. Longer term, we see a substantial opportunity in non-branded business for OEM 3 dealers, where we will become the first-look decisioning engine. Early performance is in line with credit union loss ratios, and we expect OEM 3 to contribute positively to both channel mix and overall book quality in 2026. Credit union health also continues to improve. Share growth, deposit recovery, and lending capacity are all trending positive. I recently attended the Governmental Affairs Conference in Washington, DC, and sat with many of our credit union customers and prospects. One message was clear: they are looking to grow, looking for solutions, and have the capital to do it. Credit unions have seen improved strength with loan-to-share ratios at 83.2% in 2025. We believe this supports an environment where our platform and relationships are poised to organically grow more products and solutions, driving a deeper relationship. Our responsibility is to ensure that growth occurs with the right loans, at the right price. Without that discipline, the industry risks repeating the performance challenges seen in 2021 and 2022 vintage years. Discipline is precisely why they trust us. Moving on to our customer retention efforts, we lost zero customers in the fourth quarter and four in the full year of 2025. We added six new logos in the fourth quarter and 46 in the full year, and saw existing clients send us materially higher application volumes. The lender profitability dashboards have been universally well received and are driving deeper engagement. We are also prioritizing annual profitability reviews with each customer, which is an initiative championed by our new Chief Growth Officer. Our increased same-customer application flow is another proof point that our retention efforts are driving more stickiness. We are of the opinion that the auto refinance market remains an opportunity across the credit union ecosystem, particularly following the elevated interest rate environment of the past several years. While auto loan rates remain higher than pre-pandemic levels, they have begun to moderate following the Federal Reserve's 75 basis points of cumulative easing that began in 2025. Historically, this type of rate environment has driven increased rate refi activity. As borrowers who originate loans during peak rate environments seek payment relief, we expect the refinance channels to show renewed momentum. Against this backdrop, we believe Open Lending Corporation is well positioned to capture incremental certification and partner expansion within the credit union market if rates decline further in 2026. We are actively working with our credit union partners to appropriately and timely loosen ROA targets in response to rate drops to remain competitive. The next area I want to address is our book mix and full-year impact of credit builders and super thin files. As we discussed on prior calls, we virtually eliminated our exposure to super thin files following underwriting guideline changes implemented in 2024. At one point, these represented approximately 11% of quarterly certifications, and today, we underwrite none, making them a negligible part of our portfolio. With respect to credit builders, they remain a relatively small portion of the book. As a reminder, we took a more blunt approach initially with approximately 100% insurance premium rate increase to ensure appropriate risk-adjusted returns. In 2025, credit builders represented approximately percent of our new certifications and are performing as expected. Each quarter, we continue refining our definitions and segmentation of credit builders across cohorts, and we are confident in our ability to screen, price, and underwrite these applications with increasing precision, allowing us to responsibly grow this segment while maintaining strong profitability. Much of this has been made possible by the model enhancements we are already seeing from Project Red Rocks. Next, we turn to the elements of our business that we considered in shaping our outlook for 2026. We feel strongly that our conversion rate headwind from the fourth quarter has been completely solved at this point, and we believe we are well positioned for growth in 2026. However, we believe that growth will compound over each quarter in 2026, or, said another way, will be greater in the latter quarters and is likely to increase incrementally each quarter. This is also impacted by the fact that we had super thins and credit builders in 2025, and we have to replace that volume with growth that we want, which is why we believe our 2025 vintage is performing better than expected. We believe our new models, sales strategy, and underwriting clarity will drive that. In addition, we believe the strength of our go-to-market strategy will improve customer retention and drive new logos in 2026. We believe these factors, coupled with the expected impacts of the refinance market and the anticipated ramp of OEM 3, will be drivers that position us for growth in 2026. As we discussed earlier, due to the increased health of credit union partners, we believe credit unions are in one of the strongest capital positions they have been in over recent years and are seeking responsible growth. Lastly, with the introduction of Apex One Auto, we now have full credit spectrum dynamic pricing and decision capabilities that we believe will help facilitate additional certified loans. This enables customized growth strategies aligned with each institution's risk appetite, with and without insurance, while preserving our core commitment to protecting lenders and serving the underserved. We plan to continue to innovate and deepen our relationships. Taken together, we are providing full-year certified loan guidance of 100,000 to 110,000 for 2026, with between 21,000 and 22,000 expected in the first quarter, and full-year adjusted EBITDA guidance of $25 million to $29 million for 2026. We believe introducing annual guidance for the first time since 2022 reflects our confidence in the growth trajectory of our business in 2026 following the strong execution on improving profitability we delivered in 2025. On the capital allocation side, in the fourth quarter, we paid down approximately $50 million of our senior secured term loan, which, based on projected forward interest rate curves, will result in quarterly interest expense savings of approximately $575,000. With our strong cash balance, partially due to favorable profit share cash flows, our Board of Directors and management team ultimately decided that this was the best use of capital for our shareholders. We also repurchased approximately 564,000 shares in the quarter at an average price of $1.66 per share. We will continue to evaluate capital allocation strategies each quarter and focus our priorities where we believe we are driving the best strategic returns for our shareholders. I would like to conclude with this. By all accounts, 2025 was a successful year for Open Lending Corporation. We set the company on the right course with largely flat CIEs, or back book adjustments, we generated meaningful revenue and adjusted EBITDA in our core business, and we reinforced the strategic pillars of our business and cut unnecessary costs out of our organization. By remaining disciplined in our underwriting and pricing, we believe we have avoided the fate of those who overextended and prioritized volume over building a durable, cycle-agnostic business. As a result, we believe we are positioned to capitalize on future opportunities from a position of strength. And, importantly, we are protecting our carriers, our credit union partners, and our broader financial institution relationships. I am personally excited about the future. We believe this positions us well for growth in 2026, but growth in the right business at the right price and within the right risk framework. This philosophy is embedded in our full-year guidance. Our number one priority is ensuring the durability of our portfolio in order to grow responsibly. Making disciplined decisions in challenging markets is what sustains long-term relevance and long-term shareholder value. We have remained relevant and intend to keep it that way. We have the models, data, and talent to grow profitably at a time when others have lost their way. This is the definition of opportunity. I will now turn the call over to Mas to discuss the financials in detail. Mas? Massimo Monaco: Thanks, Jessica. Before walking through the results, I will highlight a few key financial takeaways from the quarter. First, the business delivered stable financial performance as we continue to move beyond last year's change in estimate adjustment. Second, we made good progress on expense discipline while continuing to invest in key growth initiatives. And third, we strengthened the balance sheet through debt reduction and ongoing share repurchases. Now let me walk through the numbers for the quarter and guidance before Jessica and I open it up for Q&A. During the fourth quarter, we facilitated 19,308 certified loans compared to 26,065 certified loans in 2024. As Jessica mentioned, the shortfall in certified loans was driven by a temporary headwind in conversion rates as we tested pricing adjustments in response to emerging credit trends. These adjustments had an outsized impact on certain segments. Select changes were rolled back in phases and completed by mid-January. Based on current trends, we do not expect this issue to create any ongoing disruptions. Certified loan volume in the quarter also reflected typical seasonal patterns along with further strategic implementation of enhanced underwriting standards aimed at building a higher-quality loan portfolio. Looking ahead, we expect volumes to accelerate throughout 2026, as anticipated in our guidance. We believe the business is well positioned to capitalize on new growth channels such as the Apex One Auto platform and the continued rollout of OEM 3. We are also placing increased emphasis on CERTs from our credit union and bank partners, which typically carry higher program fees and more attractive unit economics compared to OEM CERTs. Total revenue for the fourth quarter was $19.3 million compared to a negative $56.9 million in the prior-year period. The current quarter included an insignificant change in estimate profit share revenue, compared to an $81.3 million reduction in 2024. As a reminder, 2024 included a significant negative change in estimate adjustment driven by macroeconomic factors and unexpected performance issues in certain newer vintage cohorts. Breaking down total revenues in the current quarter, program fee revenues were $10.9 million, profit share revenues were $6.2 million, and claims administration fees and other revenue were $2.3 million. As a reminder, profit share revenue represents our share of the expected earned premiums less the expected lifetime claims and program expenses. Open Lending Corporation receives 72% of net profit share, and any losses in the net profit share are accrued and carried forward for future profit share calculations. When cash consideration previously received is in excess of the expected profit share revenue, the amount of excess funds and the forecasted losses are recorded as an excess profit share receipt liability. Profit share revenue in 2025 associated with new originations was $6.2 million, or $322 per certified loan, as compared to $8.2 million, or $314 per certified loan, in 2024. As we have previously mentioned, we have taken steps to reduce volatility and future change in estimate adjustments by booking more conservative unit economics at the time of certification. At this level, initial booking reflects an implied loss ratio of approximately 72.5%. Based on our current pricing actions and expected credit performance, we believe these vintages will ultimately perform closer to a mid-60s percent loss ratio. Operating expenses were $13.9 million in the fourth quarter compared to $15.4 million in 2024, representing a decrease of 9.3% year over year. As I mentioned last quarter, one of my priorities moving forward will be to closely monitor and control operating expenses. I continue to find efficiencies in our spending. Net income for the fourth quarter was $1.7 million compared to a net loss of $144 million in 2024. Diluted net income per share was $0.10 in the fourth quarter compared to a net loss of $1.21 per share in 2024. Adjusted EBITDA for the quarter was $2.8 million compared to a negative $75.9 million in 2024. Beginning in the quarter ended 06/30/2025, we updated the presentation of adjusted EBITDA to exclude interest income to better align our definition with comparable companies. In addition, beginning in the quarter ended 09/30/2025, we updated the presentation of adjusted EBITDA to exclude certain other nonrecurring expenses that do not contribute directly to management's evaluation of its operating results. Prior periods have been conformed to the current period presentation. A reconciliation of GAAP to non-GAAP financial measures can be found at the back of our earnings press release. Turning to cash flow and balance sheet, for the full year 2025, our cash flow from operating activities was a negative $3.2 million. However, excluding the one-time payment of $11 million made to Allied in Q3, cash flows from operating activities were $7.8 million, inclusive of approximately $16.8 million in profit share cash received. We exited the fourth quarter with $230.7 million in total assets, of which $176.6 million was unrestricted cash. We had $161.7 million in total liabilities, of which $84.8 million was outstanding debt. During the quarter, we used $50 million in cash to pay down a portion of our senior secured term loan. In conjunction with our board, we determined that reducing leverage represented the most prudent use of capital at this time. While the remaining debt continued to carry attractive terms and favorable cost of funds, this action strengthens the balance sheet, reduces leverage, and preserves financial flexibility going forward. Importantly, we remain disciplined in how we deploy capital and continue to prioritize investments that support organic growth and long-term shareholder value. Based on current interest rate expectations, this paydown is expected to reduce quarterly interest expense by approximately $575,000. We believe this will allow further value to accrue to shareholders in the future. In the fourth quarter, we repurchased approximately 564,000 shares for a total consideration of approximately $900,000. We have approximately $20.1 million remaining on our current share repurchase program, which expires in May 2026. Our capital allocation priorities remain consistent: first, investing in the organic growth of the platform; second, maintaining a strong balance sheet; and third, returning capital to shareholders through share repurchases when appropriate. Finally, I wanted to address our guidance. For the first quarter, we are expecting total certified loans to be between 21,000 and 22,000 units. For the full year, we are expecting total certified loans to be between 100,000 and 110,000. At the midpoint of our guidance, this represents an 8% increase over our 2025 results. We are also expecting adjusted EBITDA for the full year to be between $25 million and $29 million. We intend to maintain our dedication to quality over quantity in our book of business, ensuring that this growth rate is additive to our loan portfolio. We believe our strategy and performance have become increasingly strong and predictable, striking the right balance between growth and profitability as we continue to scale Open Lending Corporation and deliver consistent results for our stakeholders across the market cycle. Most importantly, as we move into 2026, we believe the strength of our platform and the investments we have discussed continue to deepen our relevance with partners and position us well for the opportunities ahead. With that, we will open it up for questions. Operator? Thank you. If you would like to ask a question, press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. And we will pause for just a moment to allow everyone a chance to join the queue. Operator: Thank you. Our first question comes from Madison Soor with Raymond James. Please go ahead. Your line is open. Madison Soor: Hi. Good afternoon, and thanks for taking the questions. I wanted to start here just at a very high level. Obviously, there is a lot of concern in the marketplace around AI and AI disruption across both software and payments and all kinds of technology names. So, with that context, I would love to just hear your high-level thoughts about how you view AI both from an opportunity standpoint and then what risks you are assessing as it relates to potential AI threats. Jessica Buss: Hi, Madison, and thank you for your question today. You know, we, as a technology company, obviously use many forms of AI in our tools and in our models, not as much in our pricing mechanisms, but certainly in the build-out of Red Rocks. And so, where we are going as a company, we have built AI—you have probably seen in some of our press releases—and some of the mechanical tools resolved in our claims process as well. Now, we do have humans in the loop, and we are obviously validating those AI processes as we bring them on board. But, again, we believe that our models and what we have built, which are primarily using machine learning, and the data that we have is far superior to what you could build with just a straight AI tool. So we believe the combination of what we have in AI, what we have in terms of proprietary data, what we have built with our machine learning tools and our Project Red Rocks is superior to what anybody else has out in the market. Madison Soor: Okay. Thank you for that. And then I did want to ask on the CERT outlook both for 1Q and 2026. So, obviously, 1Q implies that CERTs are going to be down in the mid-20% range. You mentioned full year up in the high single digits. Can you just help us kind of bridge how we get from the down mid-20s? I know there were some pricing changes and things of that nature that have since been rolled back. But can you just help us frame how we get from kind of that down mid-20s to up high singles? And kind of how quickly do you think the business can return to CERT growth as 2026 progresses? Thank you. Yes. Jessica Buss: That is a great question. So first quarter compared to first quarter last year, if you had been following in 2025, you would know that the first quarter of last year contained a high number of credit builders and super thins, which we had, in essence, eliminated all super thins in 2025 and significantly reduced the amount of credit builders that we approved by implementing almost a 100% rate increase. And then, also, we took a tighter credit stance and put a tighter credit box in our OEM. So that is sort of influencing the change quarter over quarter. Now, the good news is that we do believe that incrementally, quarter over quarter, we are going to experience the growth that we have in our CERT projection, and that is going to come from a variety of different things that I would like to outline for you. So one, we are already seeing application volume up 20%. Second thing is that we have now found, through our Project Red Rocks, a solution to write credit builders at a profitable level. And credit builders currently represent about 30% of our applications. We believe that they are here to stay. We believe that we can price the good ones correctly and write those and not be adversely selected against. We have been monitoring the performance and, again, based on our new model, have additional applicant data that we believe is a better predictor. We have our strategy that we are implementing with OEM 3. We have seen that certification volume jump significantly quarter over quarter, of 76% in the fourth quarter over the third quarter. So OEM 3 will be a driver. We believe if rates continue to go down, refinance. But, as importantly, both Apex One and our new go-to-market strategy and engine with what we are doing with retention tools, with additional hunters, with our profitability tools, is something that is also going to drive growth. So we have many tailwinds, I believe, to our growth story. We believe those will start to ramp up, as I say in my script, incrementally, and get stronger quarter over quarter. It will be, sort of, third and fourth quarter loaded. We did have the issue that was the headwind in the fourth quarter that was reversed on January 16. So the first quarter is slightly impacted by that. But, again, we have a new Chief Growth Officer. We will start to see that in the second quarter. And then from the third and fourth quarter on, we believe those fundamentals will really drive growth for us. Madison Soor: Okay. I appreciate all the color. Thank you so much. Operator: Thank you. We will move now to Joseph Vafi of Canaccord. Your line is open. Joseph Vafi: Hey, everyone. Thanks for taking my questions this afternoon. Nice to see an outlook showing some sequential increases here in Q1. Maybe we just start with that on the CERT line. Maybe could you walk us through a little bit, you know, maybe Q4 to Q1 on kind of a CERT walk? You know, there is OEM 3—would be interested in some commentary on, you know, also how OEM 1 and 2 are doing in terms of stability—and then if you wanted to just drill down a little bit more into health of the credit union channel with some more comments, that would be appreciated. Jessica Buss: Sure, Joe. So I would be happy to do that. So our walk from fourth quarter to first quarter—again, we have the sort of reversal of the headwind, the rate issue that we discussed. That will help. We have OEM 1 and OEM 2 that remain stable and flat to where they have been in the last couple of quarters. We will see a ramp-up in OEM 3. I think you may have heard us talk on prior earnings calls and even in the current script that they will be launching two of our largest states sometime at the end of the first quarter, beginning of the second quarter. So while we are seeing pretty large increases, as I mentioned, 79% fourth quarter over third quarter, we would expect that to continue. We will see that sort of magnify as they add those states on throughout the year and even in the first quarter. So we are excited about that piece as well. We will have the solution to the credit builders that will probably impact more of the second quarter. But, again, we have seen significant increases in applications, the hiring of our Chief Growth Officer. I think all those things will have the impact going from Q4 to Q1. And then if that is kind of the cadence you are looking for. Joseph Vafi: That is great. Thank you, Jessica. And then just want to double click on the health of the credit union channel and, you know, how you see that—potentially, you know, how that could evolve if we get another 50 bps here in 2026 on rate cuts. Jessica Buss: Yes, that is a great question. So, you know, I just spent four or five days in Washington, DC, with our credit unions at GAC, as I mentioned in my script. And one of the messages that was clear is that their loan-to-share values are—and I will not say at all-time lows—but lower than they have been probably the last couple of years, to the 80% mark, and they are looking to grow. They are looking to grow in the auto space, and they are looking to do it in a disciplined way. A lot of their boards are concerned, obviously, with what is going on in consumer credit. That is why our tool is even more important, and our insurance carriers and the credit projection they provide with our insurance product is even more important. That is why we are expanding our conversations with Apex One, which allows us to do both prime and near-prime decisioning and pricing with and without insurance. So the health of the credit unions is good. They have gotten more sophisticated. They are looking to grow. Now with rates, one of the other interesting things that we are working on is working with our credit unions to be more nimble in reducing their ROA targets. Typically, it takes them a little bit longer than, let us say, a sophisticated bank to react to rate changes. We have been working with them to bring those down quicker. As those begin to come down, both with rate cuts from the Fed and with our working with them on their ROA targets, we believe that there is a very large refinance opportunity for us in the future. And we have been opening up and continuing to open up refi channels with our credit union partners. So we are really excited about that as an opportunity for 2026 as well. Joseph Vafi: Great. Thank you for that color, Jessica. Operator: Thank you. And once again, if you would like to ask a question, please press 1 on your telephone keypad now. We will now move on to Mike Grondahl with Northland Securities. Please go ahead. Your line is open. Keaton Chokey: Hi. This is Keaton Chokey on for Mike. You have made a lot of moves in the management with the new Chief Growth Officer, new CFO, and becoming a new CEO. Is the team built out now, or are there any more that you would be expecting for 2026? Jessica Buss: Thank you for the question, and I am really excited to talk about our management team. I think the most important thing to having a great business is having a great team, and the people that we have brought on board and all of the key management positions, all of my direct reports, with most recently the addition of Anthony, as you mentioned, Mas earlier this year or at the end of last year, are all key players to how we are going to be able to execute on these priorities. At this point, all positions are—all sort of senior executive positions that report to me and have accountability for running all aspects of our business—are now filled. I can tell you that team is working very well together. And I think that you can see that sort of in the execution that Open Lending Corporation has been able to deliver this year. The first time, we delivered a new product. Increased our EBITDA. We have had flat CIE. We are in the process of implementing Project Red Rocks. Those are things that were not possible before. And that is really a tribute to our senior management team and all of our employees as well. We spent a lot of time on culture and breaking down silos and focusing on getting four things right this year, and I feel like we have delivered on those promises to our shareholders. Keaton Chokey: Great. And then, I was hoping to get a little more color on your current outlook for delinquencies or credit quality for auto loans in your book. Jessica Buss: So I will start, and I will let Mas jump in here. I think I said in my script that the delinquencies that we are seeing on our most recent vintage are running about 200 basis points better at the sixty-day delinquency mark than they were in vintage years 2023 and 2024. We do not participate in the full subprime market. We are near and non-prime. So we actually feel like we are pricing correctly for the delinquencies. We are seeing better-than-expected outcomes. So we are excited about that. Again, it had to do with our tighter credit underwriting and our pricing mechanism we put into place, and investments that we have made into models. But I will let Mas add any color that he wants. Massimo Monaco: I think you covered most of it. We are seeing it across all measures of delinquency—30-day delinquency, 60-day, 90-day. Every measure that we look at shows favorable improvements in vintage year 2025. So we are very comfortable with where we are pricing our book today. We look forward to a strong performance into the future. Jessica Buss: And I guess the only other piece of color I would add that is sort of an indicator of that is that we have had a flat change in estimate—in essence, a positive $0.4 million for the year in total—on our back book of business, which would indicate that we have correctly sized, we believe we have correctly sized, the delinquencies for our back book as well. Keaton Chokey: Awesome. Thank you for that. I will return to the queue. Operator: Thank you. And once again, that is star one if you would like to ask a question. We will now move on to Peter Heckmann with Davidson. Your line is open. Peter Heckmann: Hey. Good afternoon. Thanks for providing the guidance for full year 2026. I think that is helpful for investors to think about how management is thinking about the full year. Wanted to see if you could maybe give a range about thinking about the conversion from EBITDA to free cash flow for 2026. I know you have a few working capital needs in the form of the excess profit share receipts. But I guess, could you give us a little bit of additional detail to maybe give us some pieces that can help us get to a—maybe even if it is a wide—free cash flow range. Jessica Buss: Sure, Peter. This is Jessica. Nice to hear from you. So first off, again, we are really excited and feel confident in providing our full-year guidance. And that was a nice thing to be able to do after years of not being in a position to do that. So thank you for recognizing that. In terms of free cash flows, we obviously do not provide guidance on free cash flows. And I will let Mas jump in here in a minute. I would say that we did collect profit share this year. We do not have a capital allocation or capital set-aside for the liability you are referring to in terms of a cash flow mechanism. If you remember, that would be collected from the future cash flows, yes, but that is not a cash flow set-aside. Again, so we are not actually predicting that. What we can tell you is what we have talked about before in terms of profitability, in terms of how we are booking our loss ratio at a more constrained level, how we think that book is actually performing, and that sort of drives how our cash flows from profit share come in. But I do not know, Mas, do you want to add anything to that? Massimo Monaco: Yes. Hey, Peter. How are you? I think, as we have mentioned in the past, it is difficult for us to predict when the losses will come in with that book. But as the forecast stands right now, the free cash flows would be relatively in line with the EBITDA guidance we are giving. Peter Heckmann: Okay. That is great. Massimo Monaco: Again, I do caution that it is difficult to forecast the losses—the timing of the losses. Peter Heckmann: Right. Right. Okay. I appreciate it. I look forward to seeing the ramp through the year. At this time, there are no further questions in queue. I would be happy to return the call to Jessica for closing comments. Jessica Buss: Thank you all for your time today, and thank you to our shareholders, investors, credit unions, and insurance carriers for your continued support. I would also like to thank the entire Open Lending Corporation team for their dedication over the past year. We laid the foundation for sustainable, profitable growth in 2025, and we believe we are well positioned to build on that momentum in 2026 while maintaining disciplined risk management. We appreciate your confidence in our strategy and look forward to updating you on our continued progress on our next call. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the APEI 4Q 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Shannon Devine, Investor Relations. Please go ahead. Shannon Devine: Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss fourth quarter and full year 2025 results. Joining me on the call today are Angela Selden, President and Chief Executive Officer; Edward Codispoti, Executive Vice President and Chief Financial Officer; and Gary Janson, Chief Strategy and Growth Officer. Materials for today's call are available in the Events and Presentations section of APEI's website. Statements made during this call and in the accompanying presentation regarding APEI and its subsidiaries that are not historical facts may be forward-looking statements that are based on management's current expectations, assumptions, estimates and projections. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, such as those identified in our Form 10-K under the heading Risk Factors, including those related to potential impacts from government shutdowns or changing federal or state government policies, practices and laws, including impacts on revenues or the timing of receivables. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially, project, should, will, would and similar or opposite words. Forward-looking statements include, without limitation, statements regarding expectations for registration and enrollments, revenue, earnings and adjusted EBITDA and other earnings guidance, our foundation for growth, the planned combination of our institutions, government, governmental and regulatory actions, their impacts and our response to those actions, changing market demands and our ability to satisfy such demands and other company initiatives. The call and the presentation contain references to non-GAAP financial information. A reconciliation between each non-GAAP financial measure we use and the most directly comparable GAAP measure is located in the appendix in today's presentation and in the earnings release. Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations and should only be considered in addition to and not a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. I'd now like to turn the call over to APEI's President and CEO, Angela Selden. Angie, please go ahead. Angela Selden: Thank you, Shannon, and good afternoon, and thank you all for joining today's call about American Public Education's Fourth Quarter and Full Year 2025 performance. At the beginning of 2025, we set out to simplify and strengthen APEI. Today, I am very pleased to share the following results and highlight how our 2025 achievements create a strong jumping off point for our 4-year growth strategy, which we introduced at our recent Investor Day. First, APUS delivered full year 2025 revenue growth, even with the fourth quarter registration interruption. APUS' student base, including veterans, extended military families and military service members across all branches demonstrated demand in line with our expectations. The underlying business is strong and the numbers reflect that. Second, our nursing and health care institutions both had outstanding years. Rasmussen's full year 2025 revenue increased 14% and Hondros' full year revenue increased 11%. Third, APEI's full year consolidated revenue grew 4% to $649 million versus 2024. That growth was achieved even with the midyear sale of Graduate School USA, the announced closure of 2 Rasmussen campuses in Wisconsin and a registration interruption at APUS in the fourth quarter that affected TA registrations for 43 days. For context, by excluding Graduate School from both 2024 and 2025, consolidated revenue would have increased about 7% when compared to the prior year. These results reinforce the strength of our diversified portfolio. Fourth, APEI's full year adjusted EBITDA reached $85.7 million, up 19% as compared to 2024, beating not only our revised guidance, but also beating the top end of our initial 2025 guidance. We trimmed costs across the enterprise, specifically at APUS and in APEI Technology, and these savings have reset the cost baseline for 2026 and beyond. Finally, we did what we said we were going to do. At the beginning of 2025, we committed to redeeming our preferred equity, selling some corporate buildings and having the Department of Education lift the $25 million letter of credit and lift the 6 years of growth restrictions that prevented new campuses and new programs at Rasmussen before APEI's acquisition. Achievement of these commitments has simplified and strengthened our business for 2026 and beyond. And we delivered on these commitments while simultaneously growing enrollment, expanding margins and strengthening our balance sheet. Our teams demonstrated resilience, tenacity and confidence in overcoming obstacles and delivering remarkable results. So now let's turn our attention to APEI's fourth quarter 2025 consolidated revenue. We delivered $158.3 million, and we exceeded our most recently stated guidance across all key financial metrics, including revenue, net income available to common stockholders, EPS and adjusted EBITDA. Our nursing and health care institutions demonstrated significant strength during 4Q '25. Rasmussen grew 16% and enrollments increased 9% year-over-year to approximately 15,900 students, representing our sixth consecutive quarter of year-over-year enrollment growth. What's particularly exciting is that our Fill the Back Row strategy of maximizing capacity utilization is working. Our nursing programs continue to show broad-based strength with particularly strong performance in our nursing programs. Our allied health programs, including surgical tech and radiological tech are also performing well. The most are at capacity, which creates opportunities for our planned expansion initiatives. By maximizing capacity utilization at our existing campuses, we are driving significant operating leverage and demonstrating impressive margin expansion. Hondros continues to deliver strong results with fourth quarter 2025 enrollment of 4,000 students, a nearly 10% year-over-year revenue increase and 9% year-over-year enrollment growth. This performance demonstrates the durability of demand for pre-licensure nursing and our ability to effectively reach students in our local markets. In fourth quarter 2025, APUS successfully navigated the 43-day federal government shutdown, which created an active duty military student registration interruption. As we have previously shared, it has been 12 years since the Defense Appropriations Bill, which funds Military Tuition Assistance, or TA, had remained unsigned by October 1, the beginning of the federal government's fiscal year. With the Defense Appropriations bill still unsigned by our November start, all 4 major military branches began utilizing their portion of the $100 million of tuition assistance funds authorized under the One Big Beautiful Bill Act to enable active duty military students to continue their education. Importantly, once the government reopened in December, we saw a 41% increase in TA registrations as compared to December 2024, which demonstrates resiliency in demand for education from our military students even in the face of funding disruptions. Because most APUS students take one course at a time, this simply delayed their progression rather than stopping their progression entirely. Additionally, an important bright spot in APUS' fourth quarter performance was the continued momentum in both our veteran and military families channels, where we continue to see high-teen registration growth. Now let's turn our attention towards 2026. I want to highlight 2 key first half 2026 developments. First, we are making important progress on our institutional combination. In late February, the Higher Learning Commission approved a key step in our institutional combination. And on March 2, we combined the 3 institutions legal entities into one. Now we are working with the Department of Education and HLC to complete the remaining steps to combine our 3 institutions into one system with one OPE ID. We are targeting an expected effective date in the beginning of the third quarter of 2026 to become effective for the 2026 financial aid award year. In addition, today, we are formally announcing that we have 2 reporting segments, APUS Global and RU Health+ for fiscal year 2026 and beyond. Second, we are launching 2 campuses in 2026, Rasmussen campus in Orlando, which is already enrolling students for 2Q '26 and Hondros campus in Detroit, which we anticipate will be prepared to enroll students in Q1 '27. Both represent important expansion into markets that have already demonstrated strong demand for our programs. In our next earnings call, we'll provide more details and progress on these first half '26 developments. As we look to 2026 overall, we believe we have clear visibility into our revenue growth and our margin expansion drivers, including continued enrollment momentum at Rasmussen and Hondros to build on 2025 strong performance and our Fill the Back Row and leverage the ladder initiatives. We anticipate revenue synergies we gain from the Rasmussen and Hondros integration process. We plan for growth acceleration at APUS as government funding normalizes and marketing flexibility increases for military and veteran enrollment post combination. And we believe we will anticipate and experience improved profitability and cash flow due to the new refinancing of our debt and the cost savings associated with that. In view of these and other factors, we are providing full year 2026 guidance as follows: APEI 2026 revenue will be between $685 million and $695 million. Adjusted EBITDA will be between $91.5 million and $100.5 million. And as for Q1 '26 guidance, because of where we are in the quarter this year, the timing of this earnings call gives us full visibility to all university enrollments. As a result, APEI revenue will be between $173 million and $175 million, and please note that the 1Q '25 comparable period includes $3.7 million of Graduate School revenue, which obviously is not included in 2026 due to its sale in July of 2025. And adjusted EBITDA will be $25.5 million to $27.0 million. Ed Codispoti, our CFO, will provide more details in his remarks, including Q1 enrollment and registration results, the refinancing of our debt and authorization of a new $50 million share repurchase program. We are very clear about what the next 4 years require. It is all about execution. The foundation is built, our business is simplified, and we are operating with a strong balance sheet. We've developed a strategy, we are strengthening the team. And now it's about doing what we say we're going to do quarter after quarter. That's what you experienced in 2025, and that's what you should expect going forward. With that, I'll turn the call over to Ed to discuss our financial results and 2026 guidance in detail. Edward Codispoti: Thank you, Angie. I'll begin with our fourth quarter results, then review our full year 2025 performance and conclude with our outlook for the first quarter and full year 2026. Total revenue in the fourth quarter was $158.3 million, down $5.8 million or 3.5% compared to $164.1 million in the prior year period. Despite the federal government shutdown impact at APUS, we exceeded our most recently stated guidance. Now let's break down revenue by segment. At APUS, fourth quarter revenue was $71 million, down 13.8% compared to $82.4 million in the prior year period. The decline reflects the impact of the federal government shutdown during October and November. Net course registrations for the quarter were 82,200, down 15.3% year-over-year. However, the underlying business fundamentals remain strong. At Rasmussen, fourth quarter revenue was $66.6 million, up 15.9% compared to $57.5 million in the fourth quarter of the prior year. This strong performance was driven by 8.9% enrollment growth, bringing total students to 15,900. At Hondros College of Nursing, fourth quarter revenue was $20.7 million, up 9.2% compared to $18.9 million in the prior year period. This reflects continued enrollment momentum with 4,000 students, an increase of 8.1% year-over-year. Now turning to profitability for the quarter. Fourth quarter net income available to common stockholders was $12.6 million or $0.67 per diluted share compared to $11.5 million or $0.63 per diluted share in the prior year period. This represents a 9.6% increase in net income and a 6.3% increase in diluted EPS. Fourth quarter adjusted EBITDA was $28.7 million compared to $31.4 million in the prior year period, representing an adjusted EBITDA margin of 18.1%. While down year-over-year due to the APUS shutdown impact, we exceeded our most recently stated guidance, demonstrating strong operational execution. Turning now to our full year results. For full year 2025, consolidated revenue was $648.9 million, representing 3.9% growth over 2024 despite the federal government shutdown impact and the sale of Graduate School USA. Excluding Graduate School USA, revenue from -- if you exclude that revenue from both periods, revenue growth would have been approximately 7% APUS revenue was $319.8 million, up 0.9% year-over-year. Rasmussen revenue was $246.2 million, up 13.9% year-over-year. This growth was driven by sustained enrollment momentum and our successful Fill the Back Row growth strategy. Importantly, Rasmussen delivered segment income from operations of $4.1 million compared to a loss of $21.8 million in 2024. This represents a swing of nearly $26 million, demonstrating strong enrollment growth and significant margin expansion. Hondros revenue was $75 million, up 11.4% year-over-year, reflecting continued demand for pre-licensure nursing education. Full year adjusted EBITDA reached $85.7 million, an increase of $13.4 million or 18.6% compared to $72.3 million in 2024. This represents a significant accomplishment and demonstrates the strength of our business model as our adjusted EBITDA margin expanded 164 basis points to 13.2% in 2025. Net income available to common stockholders for the full year was $25.3 million or $1.36 per diluted share compared to $10.1 million or $0.55 per diluted share in 2024. This 152% increase in net income reflects our operational execution, the absence of preferred dividends following our second quarter redemption and margin expansion. We also ended 2025 with a very strong balance sheet. As of December 31, 2025, our cash, cash equivalents and restricted cash totaled $176.5 million compared to $158.9 million at December 31, 2024, an increase of $17.6 million or 11%. Total debt was $96.4 million, and our net cash position was $80.1 million. We further strengthened our balance sheet and liquidity position last Monday, March 9, when we refinanced our debt. Through the refinancing, we reduced our borrowing rate by approximately 375 basis points at current leverage levels and lowered our principal balance from $96.4 million to $90 million. The lower borrowing rate, combined with the reduction in principal is expected to generate $3.7 million in annual interest expense savings, excluding the amortization of debt issuance costs. For modeling purposes, you should expect our interest income to be roughly equivalent to our interest expense in 2026, given our strong cash balances and improved borrowing rate. Also, we will recognize a noncash write-off of approximately $1.6 million related to deferred financing costs associated with our previous loan. Our strong balance sheet and cash generation provide us with significant financial flexibility for growth investments. This liquidity position was also a key factor in our ability to navigate the government shutdown without operational disruption. In addition, this week, our Board of Directors authorized a $50 million share repurchase program. We expect the program to be used primarily to offset dilution from share-based compensation while also providing flexibility to opportunistically repurchase shares depending on market conditions and other factors. The authorization reflects the Board's confidence in the company's long-term strategy, our strong cash flow profile and our commitment to disciplined capital allocation. Repurchases may be made from time to time through open market transactions or other permitted methods and the timing and amount of any repurchases will depend on market conditions, share price and alternative uses of capital. I'll now discuss our guidance for first quarter and full year 2026. Our guidance for first quarter 2026 is as follows: revenue between $173 million and $175 million, net income available to common stockholders between $11.1 million and $12.2 million, adjusted EBITDA between $25.5 million and $27 million and diluted earnings per share between $0.58 per share and $0.64 per share. When considering this guidance, keep in mind that our results are subject to seasonality. The first quarter is typically our second strongest quarter of the year. For full year 2026, our guidance is as follows: revenue between $685 million and $695 million, net income available to common stockholders between $41.3 million and $47.6 million, adjusted EBITDA between $91.5 million and $100.5 million, diluted earnings per share between $2.15 per share and $2.47 per share and CapEx between $28 million and $32 million. In summary, 2025 was an excellent year for APEI. We exceeded our guidance despite external challenges, strengthened our balance sheet and positioned the company for accelerated growth in 2026. Our 2026 guidance reflects continued enrollment growth, improving margins and the benefits of our strengthened balance sheet, and we believe we are well positioned to achieve these targets. With that, I'll turn it back to Angie for closing remarks. Angela Selden: Thank you, Ed. In closing, we have spent the past year setting ambitious yet achievable financial and operating goals. Our RU Health+ segment comprised of Rasmussen University and Hondros College of Nursing are delivering consistent positive enrollment growth and improving profitability. Our APUS Global segment, with the exception of temporary enrollment disruptions from the federal government shutdown continues to deliver growth and strong margins. I want to reinforce the multiyear growth framework we outlined at our November 2025 Investor Day. At that event, we introduced our vision through 2029 with 5 key value creation initiatives at APUS Global and 4 at our RU Health+ Healthcare division. Those growth drivers remain fully intact. These value creation initiatives build on each other and create a foundation for sustained growth. Our multiyear growth framework projected organic revenue of $890 million to $925 million by 2029, representing an 8% to 9% revenue CAGR with adjusted EBITDA margins at 20% to 21%. With strategic investments in new campuses and potential tuck-in acquisitions, we see a potential path to $1 billion in revenue by 2029. Our APEI organization is purpose-built to deliver affordable and accessible education opportunities in fields which are in high demand and resilient to disruption. Nursing education prioritizes in-person bedside care, and our military service members continue to be critical to U.S. defense strategies, especially in these heightened times in the Middle East and Latin America. We believe that careers that require judgment are AI resilient and will continue to need humans to operate. Our platform and sector tailwinds position APEI to accelerate growth and bring more educational opportunities to a greater audience. We are as optimistic today as we have ever been about the long-term potential of our company. Before we move to questions, I want to acknowledge the valuable feedback we've received from many of you. In our ongoing effort to continue to be more transparent with our investor community, we are committed to providing you with clear insights into our performance, our strategic initiatives and the long-term value creation opportunities ahead of us. Importantly, I also want to take a moment to honor Sergeant First Class, Nicole M. Amor, a Rasmussen University graduate who is 1 of 6 killed in Kuwait on March 1, while serving her country. Nicole embodies everything we believe in at APEI, and we are deeply grateful for her service and sacrifice. Our thoughts are with her family and fellow military service members. With that, I would now like to hand the call back to the operator to begin our question-and-answer session. Operator: [Operator Instructions] Your first question comes from the line of Griffin Boss with B. Riley Securities. Griffin Boss: Spectacular results amid what was a tough macro with the government shutdown in the fourth quarter. So I just want to start off on the CapEx cadence and step-up given these new campus openings. So is that going to be linear throughout the year? Or is that going to ramp towards the back half of the year as that Hondros campus gets ready to start enrollment? Gary Janson: Griffin, we would -- we expect on the campus openings that most of the CapEx related to the new campuses would be in the fourth quarter, maybe a little bit in the third quarter. But a good question. It will be mostly in the second half of the year. Griffin Boss: Okay. Great. And then just on that note, too, can you just remind us -- I know you spoke about it on your Investor Day, but it would be helpful, I think, here to remind all of us about the economics of these new campuses. What's the expected revenue per new campus once it's ramped, margin expectations and when you expect to be cash flow breakeven? And I apologize. I don't know if there's background noise on my end. I'm hearing a little bit of that, but I could repeat the question if you could. Angela Selden: You're good. Yes. Gary Janson: We don't hear that. So I think as we said, our campuses are relatively CapEx light. We expect them to be -- cost about $3.5 million to open, take about 18 months before we turn cash flow positive. And I think the economics we said at scale, we would expect the campus to do about $12 million in revenue and have about a 35% EBITDA margin. Angela Selden: I was just going to say, and we're still on a pace to open 2 campuses per year. That's the current plan that was baked into the 4-year plan we shared at Investor Day. Griffin Boss: Right. Yes. And so I guess before I get to my last one, just to follow up on that. So we could expect kind of a heightened level of CapEx, at least above the '25 levels going forward beyond '26. I know you're not guiding to that, but is that a reasonable expectation? Gary Janson: Yes. I think what Ed guided to in his comments for the full year this year is kind of our standard number we would use, which includes about $7 million for new campus openings. Is that fair? Edward Codispoti: Fair -- the range between $28 million and $32 million. So $7 million of that would be for campus openings. Griffin Boss: Sure. Okay. Makes sense. And then just last one before I hand it off, hop back in the queue. I understand going forward, there's just going to be 2 operating segments. But is there any chance you could break out kind of the expectation for the first quarter for Rasmussen and Hondros for us before we start to model just kind of 2 divisions going forward? Angela Selden: We are moving towards this 2-segment combination. And as a result, we won't be breaking it out for the investor community going forward, no. Operator: Your next question comes from the line of Luke Horton with Northland Securities. Lucas John Horton: Congratulations on a very nice quarter here. I guess I kind of want to dive into the marketing strategy and how this sort of shifts after the institution combination kind of takes effect. Could you just kind of talk through kind of marketing strategy there? Angela Selden: Yes. Great question, Luke. Let me start by saying Rasmussen's brand and Hondros' brand will continue to be present in their local markets. And so the marketing strategy will continue to attract students to those campuses with those brand names. So -- but what we are doing is we are bringing the better practices from each of the 3 education units to each other. So the best practices from APUS' online to Rasmussen Online, the best practices from Rasmussen campuses to Hondros and vice versa. So we are continuing to optimize our marketing spend. The difference between what we do digitally, primarily for online students and what we do in a more scrappy on-the-ground fashion for our campuses but we will continue to be enrolling students in each of those brands for 2026. Lucas John Horton: Okay. Great. That's helpful. And then lastly, just on the course registrations at APUS. I think you said it was up like 41% in the month of December year-over-year. I guess was there like when the government was shut down and the funding was paused, was there like a wait list where students could like sign up to for course registration once funding was returned? Or I guess what was kind of the leader of the big bump in course registrations for December? Angela Selden: Yes, great question. I'll have Gary answer that question. Go ahead. Gary Janson: Yes, I was going to say, I think we were pleasantly surprised. We didn't know how much we would bounce back or whether it would just be a permanent kind of loss, but we saw that significant bounce back from the military students, I think that indicates that there was good demand and without the ability to have the funding in place, they were just sitting on the sidelines. So it was a combination of new students and continuing students came back, which we didn't have a good indicator there. So that was a nice surprise for us in December. And obviously, that helped to start the year off as well. Angela Selden: So keep in mind that those 20,600 TA registrations in October and November ended up getting dropped. So those were students that were already enrolled in class, and we had to drop them for nonpayment. So when you say, was there a waitlist or what have you, they had already intended to take their courses in October and November. So when funding became available again, they jumped right back in, and we were really pleased. And we were pleased that December, which is of the quarter, the lighter of the enrollment month just because it's the holidays, et cetera, didn't seem to slow them down and wanting to jump back in and take their courses. Operator: Your next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Eric Martinuzzi: Yes. I also wanted to dive in on the enrollments at APUS, but more focused on the non-TA side. seeing Q4 up 11% for the non-TA. I was just curious, could you remind me how did that compare with the first 9 months of the year? Was that an acceleration? Angela Selden: Great question. I'm going to let Eric turn that over to Gary for him to answer. Gary Janson: Yes. I think we are very pleased with the nonmilitary segments. And we saw -- I think Drew mentioned it, that we saw high teens in both the veterans and the extended family markets. Our -- the other category was a little bit lighter, but the combination of the non-military active duty segment was about 11% growth combined. Eric Martinuzzi: Okay. And then for the first quarter, that 4% year-on-year that you saw, was that -- did you see that sustain in the first quarter? Gary Janson: Yes, we'll probably give more color on that in our next call. But yes, we did see that same trend continue, which we're very pleased with. And then we think there's good momentum there, which is what we were hoping to see and certainly very pleased with the outcomes. The team has worked really hard to build the extended families and the veterans as they take more courses on average and have a little bit higher tuition rate. So it's pacing out nicely despite a little bit of a softness in the active duty due to a partial shutdown in Q1. Eric Martinuzzi: Got it. And then my last question has to do with the use of cash, the priorities here. You've obviously come out with the new repurchase plan, the $50 million. You talked about sort of absorbing stock-based comp, the dilution from that. Just what is the priority? Is it anything beyond that, we're going to focus on debt paydown? Or is the current stock price appetizing to you guys? What's the focus? Angela Selden: Yes. Great question, Eric. I'm going to turn it over to Ed for him to answer that. Edward Codispoti: Yes. Look, from a priority standpoint, we're always going to focus initially on organic growth. That's going to be our #1 priority. And we want to do so while we maintain a conservative balance sheet. M&A is something that will continue to look at. It has to be opportunistic in nature. There are reasons why we might want to expand geographically a deal that might make sense in terms of its footprint. And when all of that is said and done, then we turn to the return of capital to shareholders. In the case of this $50 million authorization, as you said, we're very focused on the dilution of stock-based comp and mitigating that. And then in the event that there are market events or changes in stock price that would make sense for us to be opportunistic to repurchase more, then we'd execute from that perspective as well. Operator: Your next question comes from the line of Jasper Bibb with Truist Securities. Jasper Bibb: Maybe following up on an earlier question. I wanted to ask what your '26 guidance envisions as far as on-ground health care growth or maybe any additional detail on what you're seeing in health care student demand this year would be great. Angela Selden: Jasper, thanks very much for the question. I'll start by saying we continue to see strong interest in our campus programs and specifically our nursing -- pre-licensure nursing campus programs. I'll turn it over to Gary, and he'll give you a little bit more detail on that. Gary Janson: Yes. I think we said we would see somewhat linear growth in relation to our longer-term strategic plan. So I think we're targeting, call it, high single-digit growth in our health care platform entirely. And obviously, we intend to grow -- not obviously, but we intend to grow our campuses at a slightly faster rate than the online in the Healthcare division. So that is our target rate. And then obviously, getting APUS to be growing at a similar rate, maybe lower -- slightly lower than the health care platform. Jasper Bibb: And then it's probably too early to say, but could you frame for us on whether the Iran war is having an impact on the behavior of your active duty students at APUS or maybe historically, how that part of your student population behaves when military activity picks up? Angela Selden: Great question, Jasper. -- great question. So Yes. Presently, we don't know what the exact troop count is. But primarily, those being deployed are in the Navy, the Air Force, cyber and some regional base personnel. And so our largest enrollment population is the Army and the boots-on-the-ground deployment hasn't happened yet. With the March start, which was a really important checkpoint for us to see what kind of impact, if any, we would experience, we had really no difference in our start rate for March, even with the Middle East war. And we don't anticipate a significantly positive or a significantly negative registration impact just based on what we've seen over the years with military deployments. So sometimes people suspend their education because they're deployed and aren't sure they will have access to a computer. And we see others ramping up their education because they are deployed but are -- have a free time and connection to the Internet and a computer, and so they decide to take courses. So it all kind of balances out in the end. So right now, we don't think there will be any impact in a meaningful way at APUS on registrations in 2026. But we'll certainly keep you posted as we learn more. Operator: Your next question comes from the line of Rajiv Sharma with Texas Capital. Rajiv Sharma: And great results and solid guidance. This has been a pleasure to -- I had a couple of questions. How do you specifically plan to fill in the back seats? Any -- I know you had talked at the Analyst Day. Can you numerate certain specific tactics? Angela Selden: Yes. Great question, Raj, and thanks for the compliments. So we are really honing in on our marketing strategies that are attracting the students to the programs that have the -- not just the biggest supply-demand gap, but also the biggest employment demands in the local markets. And so we are refining our marketing approaches. And in some markets, we are actually investing more marketing dollars than we had originally planned because we're seeing great yield and great results. So we're looking at being thoughtful, but also being aggressive about how we take EBITDA outperformance at Rasmussen in particular, and investing some of those dollars into the marketing so we can continue to grow and Fill the Back Row growth. So we are just going to continue to do what we did in 2025, which delivered great results. I'll turn it over to Gary for more commentary. Gary Janson: I'd also say that we plan to -- at campuses, cross-pollinate programs. So we have a nice portfolio. Not every campus has the same programs in nursing and allied health. So part of the strategy, by example, in the new campus in Orlando, we're offering an LPN program in that market that we didn't have before. And that becomes another opportunity for us as we look at campuses. So it's a combination of just continuing the marketing, but also creating -- using the campuses and expanding programs that they may not have in their portfolio. And we've got a very detailed plan campus by campus on what programs we plan to roll out over the next 4 years. Rajiv Sharma: Got it. That's very helpful. And then you've guided fiscal '26 to top line revenue of a little over 6%. I think in your remarks, you just said -- is it right to assume that nursing and Hondros are going to be high single digits then through the year growth and... Angela Selden: I'm sorry, I mean to cut you off. Sorry, finish your question, Raj, sorry. Rajiv Sharma: No. Just that you break out the nursing and the APU. Is it that high single digit and low single digit? Angela Selden: Yes. I do want to just first remind all who are looking at comparative year-over-year results that we do have Graduate School revenue in the first half of 2025. So we put on the Q1 guidance page, the fact that the Q1 revenue includes $3.7 million of Graduate School. We did -- I can see now we did not put the total Graduate School revenue to be able to deduct from the 2025 as a year-over-year comparison. So that, if you were to do an apples-to-apples comparison, our growth rate is approaching 8% at the midpoint. And then certainly, when you get to full year, you will also have the opportunity to see that we would likely be able to recover the enrollment that we had to forgo in October and November as a result of the government shutdown. And so we think that there are some puts and takes in those numbers that would signal that the midpoint of our full year is probably closer to 8% with -- yes, with APUS, as you were calling out in the mid-single digits and our health care schools in the high single to low double digits, yes. Rajiv Sharma: That's really helpful. And then just following on that last question. With the increase in the revenues at Rasmussen and Hondros, you've achieved incremental margins, right? I think last year, fiscal '24 and '25 was greater than 50%. And this year, it seems to be implied with fiscal '26 guidance, the incremental profit margins are implied at 25%. Do you expect healthier incremental profit margins than the guidance would indicate? Gary Janson: So obviously -- this is Gary. I think we are obviously tracking to that. We are making some strategic investments to make sure that we can hit those numbers, as Angie mentioned in some marketing. Last year, we saw -- I think it was 75% flow-through margins at Rasmussen is what we ended up doing full year. We'll continue to monitor that, but -- and it will progress throughout the year. I think we're right now making sure that we stay focused on a healthy top line growth to Fill the Back Row, and that may mean some additional S&M spend and some faculty ahead of that. And don't forget the campuses as we go, they will suppress the margins a bit, not as much in 2026, but in out-years. Rajiv Sharma: The new campuses. Gary Janson: New campuses, sorry. Angela Selden: Which we didn't have. Yes, in the Rasmussen numbers in '25. Operator: Your next question comes from the line of Stephen Sheldon with William Blair. Stephen Sheldon: You have Matt Filek on for Stephen Sheldon. Congrats on a strong finish to the year. I wanted to start with a quick follow-up on filling the back row. I think you have previously said that nursing campus utilization is currently around 60%, but your target is closer to 90%. And I was wondering if you can share anything on the rough time line and cadence to getting to that 90% target level across your nursing campuses. Angela Selden: Yes. Matt, great question. It's our favorite topic. So we signaled when we did Investor Day that we would be approaching that 90% when we get to year 4. And we also signaled that we expect a rather smooth progression over the 4 years. So we think that, that's just going to be basically consuming capacity and adding students on a rather smooth trajectory over the next 4 years. Stephen Sheldon: Got it. Yes. That makes a ton of sense. And then just had a quick one on teacher capacity. How do you feel about your current teacher capacity across educational units? And are there any areas where you may be slightly over understaffed? Angela Selden: Great question. I think if you remember at the Investor Day meeting, we talked a little bit about making sure we're not just enrolling students, but we're also making -- managing those constraints, right, and making sure that we have all the necessary resources in place, which includes faculty, availability of clinicals, et cetera, right? So the good news is since we are far past COVID now, the availability of faculty has really not been a constraint in our markets of late, which is really good news because that is certainly one of the things that makes it difficult for you to enroll at the paces that we were enrolling at. So we don't have any campuses right now where we have a faculty shortage. And in fact, we have all of our Dean positions filled at all of our Rasmussen and Hondros campuses. So we really feel like we're in very strong shape from a talent and faculty perspective going into '26. Operator: Your next question comes from the line of Alex Paris with Barrington Research. Alexander Paris: I'll add my congratulations on the strong finish to the year. A couple of dogs and cats here. On the government shutdown impact on revenue in the fourth quarter, I think you had sort of guided that the impact would be between $20 million and $24 million. Can you quantify the actual impact on Q4? Edward Codispoti: We think that after having gone through Q4 and December was better than we expected, we ended up probably $12 million to $15 million short from the government impact. Angela Selden: This is below what you had said, Alex. Alexander Paris: Yes, $20 million to $24 million is what you signaled on the Q3 call, I think. Correct. Angela Selden: That's right. Alexander Paris: But you said a really strong December. Angela Selden: Well, it was -- yes, it's certainly the strong December, both, as we mentioned in the materials that we saw a rebound of our October and November active duty enrolling in TA classes in December. And -- and we also had stronger than we had seen in prior quarters momentum from our veterans and our military families. So that's a segment that's growing and gaining momentum. So December was a very strong quarter -- December was a very strong month in that quarter for us. Alexander Paris: Great. And then I think Gary said in response to a previous question that there was some impact from the partial shutdown here in Q1. Can you expand on that? Angela Selden: Yes, I'll start. So for those of you who follow, and I know, Alex, you do, the Department of Homeland Security is where the Coast Guard gets their TA funding. And the Department of Homeland Security is still not funded. And so consequently, some of the Coast Guard, which is the smallest by far of all of our branches, students are still waiting for their funding. They have been using some of the One Big Beautiful Bill Act funds to allow those students to take courses. So that was one very small blip, but that's factored into the numbers we shared with you because our Q1 for APUS is an actual, which is unusual. It's just because of where the call landed on the calendar that we have all of Q1 for APUS in. And then the second small blip was during that very small period of time when they were not funded, the Army reservists who were not deployed on military activities were also not funded. So these are very, very small populations of students. So we didn't make a big point of calling them out. But it was -- it did have about a 1% to 1.5% impact on APUS' potential registration actuals for Q1, had everyone been able to fully enroll. Alexander Paris: That's very helpful. And then just to be clear on segment reporting going forward, this was the fourth quarter, so you reported APUS, RU and Hondros. The guidance just gives APUS Global and then RU Health+. So that's going to be the way it's going forward. This is the last of the 3 segments being reported specifically. Angela Selden: That's right. And we will -- as we move into that new rhythm, we'll certainly be showing you the comparison by combining Rasmussen and Hondros, right, into the RU Health+ segment. That's really the only thing that's changing other than in the first half of '26, as I mentioned, a few folks before you. The first half of '26 still includes revenue from Graduate School. So we'll do a better job of explaining how to think about what that baseline comparison for 2025 should be in the first half of '25 versus the first half of '26 because obviously, we don't have access to that revenue any longer. Alexander Paris: Got you. And you did say what the Q1 of '25 revenue was for. Angela Selden: We did. Yes. I -- when I was looking at the PowerPoint, I realized we didn't give that equivalent number for the full year. So that was -- yes, it was $3.7 million of Graduate School revenue that one would deduct from the $164.6 million in order to create more of an apples-to-apples comparison. Alexander Paris: Got you. Helpful. And then lastly and related, once you do complete the combination of the institutions in OPE ID number, you'll still be reporting the 2 segments though, because that's the way you look at it. Angela Selden: Yes, we absolutely will. Yes. That concludes our question-and-answer session. Operator: Ladies and gentlemen, this concludes the APEI Fourth Quarter 2025 Earnings Call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by, and welcome to ServiceTitan's Fourth Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the call over to Jason Rechel, Investor Relations. Please go ahead. Jason Rechel: Thank you, operator. Welcome, everyone, to ServiceTitan's Fiscal Fourth Quarter 2026 Earnings Conference Call. With me are ServiceTitan's Co-Founder and CEO, Ara Mahdessian; Co-Founder and President, Vahe Kuzoyan, and CFO, Dave Sherry. During today's call, we'll review our fiscal fourth quarter and full year fiscal 2026 results. We'll also discuss our guidance for the first fiscal quarter and full fiscal year 2027. Before we get started, we want to draw your attention to the safe harbor statement included in today's press release and emphasize that information discussed on this call, including our guidance is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. All statements other than statements of historical fact could be deemed to be forward-looking. Forward-looking statements reflect our views as of today only, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please take a look at our filings with the SEC for a discussion of the factors that could cause our actual results to differ. We also want to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to our GAAP financial measures are included in our earnings release, which we have furnished with the SEC and is available on our website at investors.servicetitan.com. Unless otherwise stated, all references on this call to platform gross margin, total gross margin, operating income, operating margin, free cash flow and related growth rates are on a non-GAAP basis. Finally, we've posted an updated investor presentation that can be found on the Investor Relations website at investors.servicetitan.com, along with a replay of this call. And with that, let me turn the call over to Ara. Ara? Ara Mahdessian: Thank you, Jason, and thank you for joining us. This quarter, we celebrated the 1-year anniversary of our IPO and surpassed a $1 billion of annualized revenue run rate. In fiscal year 2026, we delivered $961 million in total revenue, growing 24% year-over-year, led by 26% year-over-year Subscription revenue growth. We achieved these results by delivering 36% incremental operating margins and a meaningful change in free cash flow. When Vahe and I founded ServiceTitan, our vision was to transform the lives of hard-working contractors by helping them grow revenue and margins through automation. From day one, we imagine the world where technicians focused on serving customers in the field, owners focused on business outcomes and ServiceTitan increasingly handled the operational complexity in between. Running the trades business is like optimizing a multistage funnel. Contractors must generate demand, book appointments, dispatch the right tech, diagnose issues, present solutions, follow-up on unsold opportunities, manage inventory, process payroll and constantly analyze performance to improve probability. So, we built a singular end-to-end operating system, spanning every major workflow in the trades, from demand generation to call booking, dispatch, quoting, payments, inventory, payroll and supplier integrations. And we embedded best practices that drive revenue and profitability directly into the software, including marketing ROI tools to double down on the highest-performing campaigns, call analytics to improve appointment booking rates, good, better, best proposal systems to increase average tickets, pipeline tracking and outbound dialing to recover unsold estimates and more. And contractors who leverage these capabilities consistently drove significant revenue and profit expansion, but two constraints limited how far we could take them. First, utilization. Customers still have to manually execute many of these best practices. And second, deterministic software should only automate what was rules based. Much of the work still happens in ServiceTitan, but it remains manual, because they required judgment. AI removes both of these constraints. Because ServiceTitan is already where the work happens and where decisions are made, we are naturally the context layer and the orchestration layer, which allows us to automate work directly inside our platform with AI. And because for more than a decade, nearly every meaningful workflow in the trades has run inside ServiceTitan, we have amassed the deepest end-to-end proprietary data set in the industry, including marketing campaign performance tied directly to revenue and margin, call booking rates by call type and process, test productivity, close rates and average ticket by job type and folds generated, dispatch decisions linked to outcomes and more. This is structured transactional outcome level data across millions of jobs and over 80 billion in transaction volume over the past 12 months alone. Our execution layer puts this uniquely proprietary data into action and every additional job improves that intelligence, creating a flywheel where the system continuously learns and gets smarter, allowing us to deliver differentiated customer outcomes. What used to require a group of people manually coordinating across an operation, can now be orchestrated by the system itself, with humans and AI agents working together seamlessly where each player does what they do best, an AI agent that detects available capacity and automatically modulates demand generation to fill the board, virtual agents that answer inbound calls and book appointments with a human call center manager ready to step in with full context exactly when a customer demands it. A human tech who walks into a home, looks to a homeowner in the eye and diagnoses the problem, armed with an AI agent that automatically generates the right quotes. The work gets done faster, smarter and more reliably, not just because you can get AI to do some of the work through point solutions, but because data from adjacent workflows makes each decision smarter. And every handoff between players in the workflow is seamless on a singular platform. This is what an operating system for the trades looks like in this new world of AI. The Agentic operating system. First announced as the pilot program at Pantheon last fall, Max is the initial deployment of our Agentic operating system, bringing together the power of our core product, our existing Pro products and new AI capabilities, all orchestrated together. And the results from our first set of customers speak to the potential of Max. A customer in Southern California, [ team Router ], told me that instead of pockets of automation with Pro products, Max delivered an integrated end-to-end automation engine. In three months since migrating to Max, [ team Router ] has experienced a 50% increase in average ticket size, leading to an acceleration in total revenue growth, record revenue in December and greater than 50% year-over-year revenue growth in January. Best of all, [ team Router ] told me that they expect further improvements as they reach full utilization of Max. A separate residential plumbing customer told me that only months after going live with Max, EBITDA margins improved from 18% to 30%. The automated marketing, call booking, dispatching and capacity planning allowed them to reduce office staff from 7 to 2 for 19 techs in the field, all while increasing technician salaries, eliminating weekend work and even reducing end-customer pricing. These powerful results are possible because we are now automating and orchestrating the work already being done in ServiceTitan. On average, customers on Max will about double their monthly subscription revenue when fully ramped, and it is behind the power of these collective outcomes that we plan to meaningfully expand Max throughout the year, starting with the doubling of capacity in Q1. In addition to Max, we are seeing healthy ongoing growth of our existing AI native Pro products and early promising signs from our recently launched Virtual Agents. We're leveraging our massive proprietary data sets, entrenched an expanding ecosystem, brand leadership and distribution across more than 10,000 high-performing contractors to capitalize on our largest opportunity yet and bring this reality to life for the best operators. And our internal leverage of AI tooling is allowing us to accelerate development velocity to create more value faster than ever before. This is a landmark value creation opportunity. Bringing all of this for the year ahead, we have three core goals for FY '27, to continue executing on our multiyear growth factors, to bring our vision to life with the Agentic operating system for the trades, and to make a step function change in the velocity at which we execute for our customers. Vahe and I have made ServiceTitan, our life's work. With the benefits of AI, our vision is now unfolding faster than we could have ever imagined. I am inspired by the performance of our customers and by watching Titan's execute on the Agentic operating system for the trades. Let's hear about this execution from my Co-Founder, Vahe. Vahe Kuzoyan: Thanks, Ara. This really is an exciting time to be in the game. As we build the Agentic Operating System for the trades, there are some important stepping stones along the way. Today, I will highlight our performance in Q4 and talk about how we're accelerating our organizational velocity. We made substantial progress in FY '26 against each of our four major growth initiatives. Beyond the updates that are shared, I'd like to provide specific updates today on Commercial and Roofing. The Commercial capabilities we introduced at Pantheon, specifically construction and commercial CRM have been well received and have laid the foundation for go-to-market execution in FY '27. We are now positioned to seamlessly optimize the way the platform works together and to enter complementary new trades that we believe will build on progress towards becoming the market standard in commercial in FY '27. In Roofing, we made considerable progress over the past 12 months, as summarized by our outstanding partner, Vertex in the press release this afternoon, we helped a lighthouse customer in this market skyrocket to over $600 million in revenue in less than three years since being founded. Said Vertex's CEO, Dennis Elliott, "ServiceTitan has been a great strategic technology partner that has moved as fast as we do to design, build and implement a scalable platform that delivers consistent and great customer experience across the country". Our Roofing implementation playbook, insurance and estimating workflows and brand within roofing are each maturing as we lay the foundation for durable growth in exteriors. Shifting to our organizational velocity nothing Ara and I have said will be achievable without us being able to capture the magic of AI, both in how we build our products and generally run the business. This is an area I'm very passionate about and personally driving. Over the past few weeks, in particular, I've spent hundreds of hours deep in the matrix. I've touched it, smelled it, wrestled with it and know is here and that it's real. Every department and every role is expected to use AI to increase quality, efficiency and speed. I have personally witnessed mountains being moved when the right people are unleashed on the right problems. ICAI as an opportunity to improve and accelerate every process in the business, ultimately allowing us to accelerate the ROI we deliver to our customers. In fact, the ability to capture the magic of AI, was the primary skill we were looking for when searching for our Chief Technology and Product Officer, and I'm thrilled to report that we brought in quite a wizard. Our new Chief Technology and Product Officer, Abhishek Mathur joined us last month from Figma, where he oversaw AI research and the development of Figma Make and Figma AI. Abhi previously led product and engineering teams at Meta and Microsoft and will partner closely with me to make a step-function improvement in our velocity over the course of FY '27. The continued success that we are seeing in our primary growth vectors, the clear opportunity for ServiceTitan to deliver the Agentic Operating System for the trades and the notable improvements I've already seen in our internal velocity each contributes to my excitement for the year ahead. It is inspiring to see the acceleration in our vision, and I want to thank Titans everywhere for delivering value to our customers every day and our customers for your partnership and trust. With that, I'll turn it over to Dave to run through the financials. Dave? Dave Sherry: Thanks, Vahe. I'm proud of our execution to close out our first full year as a public company. Today, I'll run you through Q4 financial results and provide guidance for Q1 and for the full fiscal year 2027. For more detailed financial results, including details for the full fiscal year 2026, please refer to our press release issued earlier today. Q4 gross transaction volume, or GTV, was $19.8 billion, representing 16% year-over-year growth. GTV contribution from new customers remain consistent with prior periods. The combination of one fewer business and unusual weather led to about 300 bps lower GTV growth contribution from existing customers against a notably more challenging year-ago comparable. Q4 total revenue of $254 million grew 21% year-over-year. Subscription revenue of $192 million grew 23% year-over-year, led by strong growth in Pro, Commercial and New Trades. As a reminder, Q4 FY '25 Subscription revenue grew materially faster than prior periods, partially driven by the roughly $1.5 million benefit from atypical linearity and other onetime items. Usage revenue grew 22% year-over-year to $53 million. FinTech utilization remained strong again this period. We also benefited from monetization of our partner ecosystem, which does not directly correlate with GTV and from early growth in Virtual Agents revenue. Looking forward, we believe that growth from these factors could lead Usage revenue to grow more quickly than GTV in FY '27. Total platform revenue for Q4, the sum of Subscription and Usage revenue grew 23% year-over-year to $245 million. Q4 Professional Services revenue was $8.9 million. Net dollar retention was greater than 110% for the quarter. Gross dollar retention was greater than 95% for the full fiscal year 2026, and we exited the year with approximately 10,800 total active customers, up 14% year-over-year. Q4 Platform gross margin was 80%, an improvement of 330 basis points year-over-year. As a reminder, roughly 200 bps of this improvement resulted from the allocation of certain customer success expenses to sales and marketing. Total gross margin for Q4 was 73.8%, up 360 basis points year-over-year. Q4 operating income of $27.1 million resulted in operating margin of 10.7%, an improvement of 740 basis points year-over-year. Our FY '26 incremental margins of 36% outperformed our target due to the timing of hiring and Usage revenue overperformance. Q4 free cash flow was $35 million up from $11 million for the prior year fourth quarter. FY '26 free cash flow was $85 million, up from $15 million in the prior year. Due to our expectations for ongoing strength in free cash flow, we paid down the approximately $107 million term loan that was outstanding during Q4 and amended our revolving credit facility to retain and improve financial flexibility. A quick reminder of the seasonality in our business. We pay our annual cash bonuses in Q1, which leads to a negative free cash flow in the period. As always, we expect Q2 to be our seasonally strongest period on GTV, and we will host our annual customer conferences during Q3, which will elevate sales and marketing expenses in that period. With regards to business days, GTV will benefit from one additional business day in Q1 and also from one additional business day in Q2. Q3, we'll have one fewer business day, and Q4 will have a comparable number of business days with the prior year. Now shifting to formal guidance. Following stronger-than-expected incremental margins in FY '26, we expect to continue our 25% incremental operating margin framework over the full year FY '27. How we achieve these results this year may differ from prior periods on two dimensions. First, as we've said before, we don't manage our incrementals on a quarterly basis. And second, the mix of line item expenses may modestly shift relative to prior periods as we invest more aggressively in AI inference and internal tooling. For the first quarter, we expect total revenue in the range of $255 million to $257 million. We expect to generate operating income in the range of $27 million to $28 million. For the full fiscal year 2027, we expect total revenue in the range of $1.11 billion to $1.12 billion. We expect to generate operating income in the range of $128 million to $133 million. Underpinning our outlook is a sustainably high ROI that we deliver to our customers who operate in resilient trades that keep our economy running. We continue to perform well across our growth priorities while building the Agentic Operating System for the trades with greater operational velocity than ever before. With that, I'll turn the call back to the operator for Q&A. Operator? Operator: [Operator Instructions] Our first question comes from the line of Josh Baer of Morgan Stanley. Josh Baer: Congrats on a strong finish to the year. I wanted to ask about weather which kind of anecdotally or just from personal experience, pretty extreme so far in 2026. So I was hoping you could unpack a little bit of what you saw in Q4 results as far as January as well as what's in Q1 guidance, how much impact there was from cold weather and extreme weather so far this year? Ara Mahdessian: Thanks Josh and great question. There's really two parts to this. First, overall Q4 this year was quite warm. The NOAA state-level data recorded the third warmest period from November to January as compared to the 15th warmest last year. Second, there was a large ice storm in the last week of the quarter across much of the U.S. that kept technicians off the road. And while I don't want to get into the practice of discussing in-quarter GTV performance, but what I can say is that the way we size the impact of the storm was in part based on the results in early February as the latent demand from the storms was met. Josh Baer: Okay. Got it. And then just wanted to follow up on the incremental margin commentary this year, 36% that's way above the 25% target. I know you mentioned timing of expenses and top line out-performance. Any context for the mix of the two and really why shouldn't this level of type of incremental margin continue looking ahead? Ara Mahdessian: I'll take this one also, Josh. I think the incrementals this year were really driven by, as I said, those two factors, the overperformance in Usage and being behind in hiring. I think that there was an interplay between the two of them. By being a bit behind the hiring, it was harder for us to reinvest the capital that came off from the over-performance. As we look forward into FY '27, I think it's going to be the large investment yet in R&D. And I think that we have a lot of opportunities to do so with the AI. Also with [indiscernible], I feel pretty excited about our ability to attract world-class talent to deliver against the massive number of opportunities in front of us. Operator: Our next question comes from the line of DJ Hynes of Canaccord. David Hynes: And I'll also offer my congrats on next quarter. Dave, I'm going to keep pulling on that last thread. Josh asked about incremental margins and CAC payback kind of running ahead of plan. You talked about investments in R&D. I'm going to take the other side and ask about sales capacity investments that are planned for '26. Do you feel like the business could grow faster with more sales heads? Or is there more of an industry rate limit on growth? I guess what I'm asking is like, are you getting in front of all the deals that you should with the capacity you have today? And kind of how does that inform your strategy for '26? Ara Mahdessian: DJ, I think two things. First, we govern the way we invest in sales and marketing across all go-to-market in a 24-month CAC payback. This last year, we over-performed simply because Usage over-performed in the year. I think that we have opportunities to continue to invest, particularly against the AI initiatives. With that said, I feel like there is also a natural rate limit in terms of number of jump balls in a given year. Switching solutions is a major decision. And what we discovered over time is we try to force customers through more go-to-market initiatives to get them to switch. It ends up leading to more turns on the line. And so what we do is we think about this as a marathon, not a sprint. And we're driving towards that as we think about our go-to-market investments. David Hynes: Yes. Okay. Makes sense. And then maybe I'll give you a moment to breathe and bring in the rest of the team. Vahe, maybe you could just give us an update on what you're seeing in the commercial business. I'd love to get kind of current thoughts on competitive dynamics, bookings execution, pipeline opportunity, as we head in '26? Vahe Kuzoyan: Overall, Commercial is on track for what we -- big picture, wanted to happen when we made the move into Commercial. I think we are cementing our position as leaders in the space. The products that we are rolling out are being met with really positive signals from the customer base. And we're continuing to see kind of all aspects of the engine humming in terms of whether it's pipeline generation at the top of the funnel or it's successfully being able to onboard customers and actually deliver value, it's executing on all cylinders. Operator: Our next question comes from the line of Adam Hotchkiss with Goldman Sachs. Adam Hotchkiss: I guess to start, I appreciate the comments around the Max program. How do you think about the decision in terms of scaling that program? I think it's pretty notable that you plan to ramp that throughout the year and the Q1 comments were helpful. What are the limiting factors, if any? I know you sort of said that you're pairing folks with an executive in the initial cohort. What should the Max program look like going forward? And how should we start to see that impacting the model as we go into the year? Ara Mahdessian: Yes. This is a very top of mind topic for us. We see this not as some new feature that we're rolling out, but as literally the future of ServiceTitan. And we're following a very rigid process that sequentially first establishes product market fit by delivering the ROI to our customers and then focuses on the scaling aspect. Where we're at right now is we're seeing really positive signals on that first part. We feel really confident that we're in a great place there. And so we are just now with this next cohort, focusing on the scale aspects, and that really comes down to two factors: efficiently and quickly and effectively being able to onboard, number one, and then number two, it's really around scaling the program to all customers within that we serve. And so we're focusing on that efficiency of on-boarding as this next phase, and we're going to scale it out as quickly as we can while ensuring the success of the customers. And so it's about getting it right and we're playing the long game. We're not trying to optimize through short-term results at this point. Adam Hotchkiss: Understood. Really helpful. And then you ended your prepared remarks with one of your core goals being a step function change in the velocity of what you do for your customers. Maybe talk about the factors on the velocity side that make you feel confident in the step function? Is that just AI internally and AI through Max? Or are there other factors we should consider there? Ara Mahdessian: Yes. There's a lot of factors at play. There's the obvious kind of code production revolution that we're all seeing happen in front of our eyes. There's also another aspect of even if you had 1 million programmers, there's just things you could do today that were never possible before that are accelerating our ability to deliver value. And what we're seeing is when you mix all of that with the data that we have and the system of record launch pad to then deliver these capabilities. There is kind of a compounding acceleration that's happening. It's hard to say exactly how it manifests into the revenue forecast, et cetera. But personally, I've spent hundreds of hours over the last few weeks directly writing code, talking to customers and really being on the front lines with our team to roll these things out. And I mean, I'll be honest with you, it's real. This is something that I've touched, felt. I mean it's absolutely real, and we're really excited about how it flows out over the next few quarters. Operator: Our next question comes from the line of Michael Turrin of Wells Fargo Securities. Michael Turrin: Congrats on the end of the year. I'll just ask a two-parter both upfront. For Dave, can you just speak to what sort of assumptions are embedded in the fiscal year revenue guide around just overall demand backdrop, any new trade contribution and any Max contribution you're initially contemplating? And then for the team, just help us think through the adoption curve you could see with Max. I think you mentioned doubling capacity there. Was that sales-specific comment? And just help us think through the ramp you could see as that capacity ramps throughout the course of the year and into next? Ara Mahdessian: Thanks Michael, congrats on expanded roll over at Wells. And with regards to our guidance, the philosophy remains the same this year as the prior years, and I think we're going to continue to drive the business along the same framework. In terms of the macro environment, we have rolled forward what we saw in the last couple of quarters and pulled that there. In terms of Max, I think that we are really excited about the ROI Max is delivering. And that's the foundation upon which we're doubling the capacity. At the same time, its still early days here, and we're being quite intentional rolling it out. Vahe will talk a little more about that. But in terms of the guidance for now, what's baked in is essentially a roll forward what we've seen in our Pro products, as we see the efficiencies both for us and our customers in adopting Max increase, we may increase the expectations that it will deliver over time, and I'll keep you guys updated on that. Vahe Kuzoyan: And to give a little bit more color on the execution against that scaling plan. Phase 1 was really around establishing that the ROI was actually there and verifying it. Super high touch, we had executives involved and so on. The current phase is around delivering that same set of outcomes with this new batch of customers but doing so, in a much more scalable and automated way in terms of getting them activated on Max. And so depending on how successful we are in actually doing that, we should see the program scale, we think, in a very exciting way, but we're waiting to see and get some validation before we provide any additional guidance on what that's going to look like. Operator: Our next question comes from the line of Dylan Becker of William Blair. Dylan Becker: I'll echo the congrats here as well. Maybe for Vahe or Ara. On Vertex, I wonder how you guys are thinking about examples of some of these consolidators and their ability to scale rapidly, maybe if that is attracting more capital? I know there's already a strong PE ecosystem here. But is that shifting any dynamics there? Is that pulling you maybe into new trades that they're trying to front run, maybe just any kind of shift in the success of some of these models and the pace of success helping kind of contribute to the durability of that PE motion, if that makes sense. Ara Mahdessian: Great question. Our goal is to be great partners to both the leading sponsors in the trades as well as the largest operators. And of course, our job is to make them more money, and we continue to see strong growth from these customers. We've mentioned in the past that they are the cohort of customers that, we're the fastest-growing, highest adopters of our product, greatest utilization. And they indeed have been great partners in helping us expand into new trades. That is how we entered the Roofing market. And then lastly, next week, we will actually be hosting our largest partners and their sponsors in New York for our VEITHsymposium, to share notes on what we're seeing in the industry to learn from them and then also to talk about the future of AI for the trades and this Agentic Operating System. Dylan Becker: Perfect. That's helpful. And maybe, Ara, if I can stick with you. I know there's been some emphasis thus far on the capacity angle with Max, but I think you did call out too. There are customers that are deploying it today, they're seeing value, but they're kind of just scratching the surface and there's an expectation for them to ramp to maybe more of an end-to-end deployment over time. I think you said maybe that doubles the revenue base, but how you're thinking about kind of balancing the ramping of those customers that are utilizing Max today and going deeper alongside kind of the scaling and the breadth of scope of that project, if that makes sense? Ara Mahdessian: Yes. Certainly, there's a lot of excitement around bringing the power and capabilities and the incredible outcomes that we've seen with what Max is today to more customers. But as we've said in the past, one of the nicest things about this business is that under every rock is another opportunity. And as we think about this vision for the trades that Vahe and I've talked about automating dimension through call booking, dispatch quoting, follow-up, inventory, payroll and so on. There is still more opportunity for us to automate more workflows as well as increasingly automate a larger percentage of the workloads in those workflows. And so we're excited to do both. Operator: Our next question comes from the line of Jason Celino of KeyBanc Capital Markets. Jason Celino: Great. Dylan kind of stole my question a little bit, but maybe I'll ask it a different way. I think -- you said that edge customers on Max will double their monthly subscription revenue when fully ramped. Is that mainly from adopting the whole suite? Or are you finding that they're getting so efficient that they're able to expand technicians as well? Vahe Kuzoyan: Jason, I'll take this one. It's the average customer, when they adapt Max, their subscription doubles at full ramp. And that does not factor in the idea of expanded technicians. Jason Celino: Got it. Perfect. And then, Dave, I think you also in your prepared remarks, you mentioned that the guidance built in like early growth in Virtual Agents. Maybe can you talk about that a little bit? Is that like a new product? Or is that part of the Max offering? I just don't know if I've heard you talk about Virtual Agents before. Dave Sherry: Ara, why don't you talk about Virtual Agents for a second, I'll talk about what it means in our guidance. Ara Mahdessian: Virtual Agents handle inbound calls for our customers. This is a need that nearly every customer has, particularly in moments where they get a sudden surge of calls that come in, their existing team is unable to handle all the calls or when calls come in after hours. And as we all know, these calls represent very significant revenue opportunities. Each call can be between $500 to $50,000 in a potential job and so very important to handle each of these calls. We very recently launched our Virtual Agents to handle these calls. And while the product is very early, the interesting situation for our customers is number one, increasing workloads of surge volume being handled by our agents, increasing workloads of after our calls being handled by our agents, and then because there is very high turnover in the customer support representative function as our customers are seeing turnover in their CSR base, many are choosing not to necessarily replace that head count and allow the virtual agents to handle the incremental call volumes. Dave Sherry: And then I'll chime in a bit on what it means for our financials. Jason, while there -- an allocation to this -- Virtual Agent calls are included in some packages. In general, Virtual Agent sales are part of our usage consumption, they're an AI consumption product, that is on top of Max. The trajectory of the AI consumption is encouraging. It's still very early, which makes it hard for us to forecast. So I'll be honest, it's very little bit is embedded in our guide today. Operator: Our next question comes from the line of Parker Lane of Stifel. J. Lane: Dave, in your prepared remarks, I think you talked about partner monetization benefiting 4Q and that, that wouldn't necessarily be correlated with GTV. Could you just go a little bit deeper on what you saw there in the quarter and what the assumptions are going into fiscal '27 here? Dave Sherry: Absolutely. What I said there is that -- we have a part of our usage revenue is from partners and in our revenue share from them. That doesn't correlate directly with GTV. And so when GTV grew less quickly this quarter, it was more pronounced on our usage take rate. This is a growing part of our business, and so is the Virtual Agent. And so what I'm saying is that there's a chance that you'll see usage revenue outpace GTV growth this year. J. Lane: Got it. And Ara and Vahe when you look at your customer base, obviously, you have these customers that are in the Max program, they seem to be very proactive about AI adoption. Are there a pocket of customers who are maybe wait and see mode, trying to have ServiceTitan bring them along and maybe not as evangelized around the opportunity for AI? Just trying to understand what share of customers are actively looking for automation through the form of AI today? Ara Mahdessian: That's a great question. And there's certainly a spectrum of willingness. As we launched Max, we saw demand for the Max pilot that exceeded the supply that we could offer. And so there's a very meaningful portion of our customer base that is very eager and very aggressive about adopting AI. And kind of with like every other innovation in the past, we believe that as the customer outcomes are demonstrated and some of them you heard in my prepared remarks, it will be increasingly exciting for the vast majority of the customer base to benefit from the same outcomes by adopting Max. Operator: Our next question comes from the line of Terry Tillman of Truist Securities. Terrell Tillman: Sorry for the background noise. Ara, Vahe, Dave and Jason. Yes, two questions for me. The first one is, I really liked that a couple of quarters ago when you talked about that autonomous job other than the tech actually doing the work at the site. I'd love an update on any more anecdotal kind of evidence of that playing out where it's autonomous jobs or we've even seen where it's autonomous sites where it's actually there's not even much human labor at the site. Just anything you could share on more kind of data points on how that's coming along and then I have a follow-up. Ara Mahdessian: That is certainly the experience of the Max program is helping generate demand autonomously, book the appointment autonomously, dispatch the right tech autonomously, help generate the right diagnosis and quotes and then ultimately also handle inventory payroll and other back-office functions. So while what we shared many quarters ago may have been like the first experience of this. This is increasingly becoming the experience in Max. And then as for the actual work in the field, I'm not familiar with the specific example you're referring to. And while there may be slight exceptions where the amount of human effort is small at the customer site. The vast majority of what needs to be done at a customer's home or office still very much requires a very skilled technician who can build a relationship with the customer, diagnose the issue properly and then advise the customer through the options for solving that problem. Terrell Tillman: Yes. No, that's a good clarification. I actually meant on the contractor side when they add new sites, but that's a -- that's helpful. Just a follow-up question is Dave. It feels like there's a couple of things though that can help GTV in 1Q versus 4Q, if I was a good listener. There's one day more in 1Q versus 4Q. And it sounded like if the tech were off the road, like they were where I live, in that one week, we could see GTV growth a little bit higher in 1Q. And again, I also know usage revenue could be a variance with the GTV growth. But could you double click a little bit on GTV in 1Q. Dave Sherry: I think you nailed the components. We don't want to get into the -- in the process of giving in-quarter performance, but you nailed the two. One more business day and the latent demand from the ice storms that was met in early February. You got it right, Terry. Operator: Our next question comes from the line of Billy Fitzsimmons of Piper Sandler. William Fitzsimmons: Given some of the debates in software currently, I appreciated the focus in the prepared remarks around how AI enhances the platform. And one of the questions we get across our whole coverage list is kind of the extent to which the barriers to entry have potentially come down, whether that manifests in AI-native startups going after similar opportunities or whether customers will do it themselves. So on that note, first, it really doesn't seem like it based on the numbers, but have any of those things come up in customer conversations or had any impact on top of funnel demand in recent months? And then maybe second, in the prepared remarks, Ara you talked about how the on the proprietary data you've amassed -- and just to help contextualize it for us, can you provide some examples of some, some of those data sets or anecdotes around some of the things you're able to do with it that maybe a brand-new AI competitor would not be able to do? Vahe Kuzoyan: Sure. So in terms of the barrier of entry declining and the impact it has, we're keeping, as you would imagine, an incredibly close eye on it. We are not seeing it impact whether it's pipeline conversion, et cetera. And the way we're thinking about it is -- we're not just going to stand still and unilaterally disarm. We're going to take advantage of those same capabilities, and we're also going to be producing a lot more code, a lot more capabilities. And so I think net-net, it's going to be a positive for us because of the structural advantages that we have and our ability to create value from AI, whether it's through the data that Ara will go into in a second or distribution. We think that the net impact is going to be positive. And Ara, maybe you can talk to some of the data aspects that I think are going to make the difference. Ara Mahdessian: So you can certainly get some level of outcomes with point solutions. And maybe before Max, that was pretty much all that was possible. But there is a very meaningfully higher level of outcomes that is attainable through an end-to-end agentic OS. So first, the automation in any particular workflow, benefits quite massively from the data in adjacent workflows, like you don't want to optimize demand generation based on leads. You want to do it based on expected gross profit, and you can only do that if you have also the sales and margin data and you are the software for those workflows. You can't optimize the quoting process to maximize gross profit, if you don't have the visibility into price book inventory and so on and so forth. And so the neat thing is the manual version of all these workflows have already been executed and orchestrated inside ServiceTitan for the past 10 years and so we have all the proprietary data across them from like which marketing campaigns have the highest ROI. So what kind of call booking process maximizes call booking rates, what kind of quotes in the field maximize close rates and average tickets and so on and so forth. And so our thesis is we are the natural place, the natural orchestration execution and interface layers where this work gets automated, and we're seeing that in Max and we're seeing the incredible differentiated outcomes through Max. And at the end of the day, in markets where there's intense competition like in the trades, like there are all kinds of solutions available. Each solution has a corresponding level of outcomes, possible through them. We've seen time and again that our customers want the solutions that have the highest level of outcomes and hence our excitement around Max. Operator: Our next question comes from the line of Tyler Radke of Citi. Tyler Radke: Just curious as you think about sort of the rank order of trades that represent sort of your largest industry exposure. Can you just comment on sort of the ones that moved up the most? Or if there's sort of any change in the top 5? And how you sort of rank ordering those as you think about what's embedded in 2026? Dave Sherry: Sure. I think I'll take this one, Tyler. On last quarter's call, we talked about plumbing, HVAC electric and garage on the residential side being the largest grouping of customers. They're not the majority, but they're sort of the largest grouping. That continues to be true today. Commercial continues to be a meaningful growth driver for us. And I think we should expect that to be the case in the year ahead, Roofing as well an important growth driver for us. We have a number of other trades, but I think those are the ones, I'd call out for now. Tyler Radke: Got it. And congrats on the CTO announcement. Just curious as you think about sort of the investments that need to be made maybe on the platform level to enable things like Max and some of the future agentic. Like how do you think about the time frame for those? Are there certain modifications or additions you want to do to be able to bring in more intelligence and other data sources maybe from other systems that your customers have. If you could just kind of talk about the top sort of product and R&D initiatives under the new CTO. Vahe Kuzoyan: Yes, great question. So as Ara mentioned, we see the future as being an Agentic Operating System. And so there's some foundational elements that you need in order to do that well. There's an entire security and governance layer that you need to have in place to make sure that the AIs are doing what you want them to do and not doing what you don't want them to do. There's also an element of ServiceTitan already today has connective tissue to all these adjacent systems, whether it's accounting or payroll or budgeting data, et cetera. And so by creating that orchestration layer, that global context and being able to connect to all those sources, we think that's a foundational element of being able to build the Agentic OS, and so a lot of the other infrastructure work is really around hardening the connective tissue and really expanding the data layer to be able to handle not just the structured data that we've historically captured but an increasingly amount of unstructured data. And so these things are all happening on a continuous flow type of a thing. We're not waiting for any big bang to occur. And we think that the system is going to continue to evolve organically across all these various elements in a way that allows to continuously shift features to customers, iterate with customers and understand what really works and what doesn't. As Ara mentioned, we think our magic is the end-to-end and how some of these details interplay with each other. And so we're taking an iterative approach to the investments we're making to bring forward the Agentic OS and to make sure that we've got the right talent in place to execute on that vision. Operator: Our next question comes from the line of Brian Peterson of Raymond James. Brian Peterson: I'll keep it to one. Just related to Max, I know it's very early in the implementation here, but I'd be curious how do you think about the evolution of that with smaller customers versus larger customers? And any particular verticals that you think would be first to adopt? Ara Mahdessian: Great question. We see it as applicable to customers of all sizes, across all segments. And so we're very excited for all of them to see the same level of outcomes that our first pilot group is seeing. Vahe Kuzoyan: And the sequencing will likely be the maturity of our existing markets. And so the ones that are the most mature, we'll get it first. The ones that we're earliest in will get it to last. Our goal is to make sure that the time it takes between those two is as short as possible. But that's how we're thinking about the overall expansion and scaling strategy, is to nail it with the most mature groups and then scale it out to everybody. But we think this is a generalized technology that is relevant for all customer segments. Operator: Our next question comes from the line of Daniel Jester of BMO Capital Markets. Daniel Jester: Great. Just wanted maybe just a follow-up to the last question. If I'm a customer and I want to do Max, but I can't get into the program yet because of capacity. How does that change my calculus to attach Pro products today? Maybe said another way, is there any concern on your part that customers will delay buying decisions for Pro products because they see the Max potentially available to them in the next quarter or 2 or 3? Dave Sherry: I think that's certainly possible. And there's tough trade-offs we've got to make in general. And so it's hard to have only a small amount of capacity when we know the demand is much greater than that. And I'm sure there's all sorts of second and third-order consequences along the lines that you've mentioned. We think net-net, that nailing the product market fit and the ROI story and nailing the ability to consistently execute and deliver that ROI to every new batch is going to be much more important than any potential temporary losses in sales that result from the under-capacity. Operator: Our next question comes from the line of Andrew Sherman of TD Cowen. Andrew Sherman: Maybe for Ara or Dave, we've heard a lot about consumer financing lately, especially in this weaker consumer conference environment. Are you seeing the mix of financed projects go up and can that help drive up your rate this year and broadly help your customers win more business? Dave Sherry: I'll take this one. You nailed the second part of it when customers -- when our customers offer financing, it helps them increase average ticket and increase close rate, is an important level for them, and it's why we invest in driving consumer financing to be an integral part of our product. As regards to the macro environment, we've not seen a shift that we can identify to be the macro environment on the consumer buying as a percent of total. But we do think the overall trend is to have more because the impact it has on our customers' businesses. Andrew Sherman: Great. And just quickly on the marketing side. Have any of your customers seen an impact from Google Search. There have been some other software companies that have talked about this. But any indication from your customers that they want to change their marketing because of AI and maybe that could even drive more marketing Pro adoption? Vahe Kuzoyan: So in terms of the way in which trade businesses generate demand, we think that consumer behavior is obviously going to have a massive impact on how contractors are found. And so we're not necessarily seeing that be material in today's world based on what we're seeing -- but as we think about how our product matures and how we enable our customers to be successful, we're very, very intentional about making sure that in this new world where search has fundamentally changed, people have personal agents that are going out and doing stuff for them. That service tightened contractors are the best place to take advantage of that new world. Operator: Our next question comes from the line of Nick Altmann of BTIG. Nicholas Altmann: Awesome. Ara the comments on Max are super encouraging and how it's enabling customers to grow faster and improve margins. And it seems like the real unlock with Max is how it's utilized across the entire platform. So my question is kind of the inverse of Daniel's prior question. But when you look at your installed base today, are you seeing customers start to expand across the platform, add new products, consolidate their solutions on to ServiceTitan in anticipation of Max? Just any commentary on those customers who are maybe a little bit earlier in their journey and how their behavior is changing in anticipation of Max would be interesting. Ara Mahdessian: Yes. You know what's interesting is historically, this industry wasn't necessarily known as being, let's say, on the bleeding edge of adopting tech. And it's been actually really refreshing to see how in the new AI wave, that dynamic has really changed. And so just overall, even before Max, there was an incredible amount of interest from our customers to understand how to use AI within their business and so on. And that is only intensifying. So Max, I think, has brought a lot of attention towards the magic of having an end-to-end agentic layer. And so we are certainly hearing anecdotes of people saying, okay, well, I can't get into Max. But should I just buy all the products now and get ready for it and so on. And so I don't have much more than anecdotes like that to really share. But what I look at is just the overall demand around Max and the interest around it. And so that's, I think, the most important signal. It's our job to make sure that we have enough capacity to take on those that are interested. And so I think largely, it's a capacity issue right now that we're focused on. The demand side seems pretty strong and we anticipate to stay strong. Operator: Our next question comes from the line of Yun Kim of Loop Capital Markets. Yun Suk Kim: Given the early success that you're having with the Max program, is there any thought on revisiting your overall pricing strategy and model. You mentioned first transaction pricing model for the virtual agents. Do you expect perhaps shift to a pricing model that's more driven by GTV and transaction based and less driven by the number of service techs? Dave Sherry: I'll take this one. For now, Max is a single package that's priced like our core solution based on the number of technicians generating revenue in the field. This may evolve over time, but I don't think what will change is how we tie how we get paid to how we deliver value, and that's best captured for now as the linked to techs in the field, but that could evolve over time. Yun Suk Kim: Okay. Great. And then I just have a quick product question to Vahe. I think a couple of months ago, the company introduced an accounts payable automation product. if you can update us on what's the overall strategy around back office accounting and FinTech in general? And should we expect to see more products introduced in that area? Vahe Kuzoyan: Yes. So the overall thesis is really around creating incremental value that's not possible outside of service Titan. And so that's the magic behind our Money In and Credit Card business, is we can do things, not just around processing the transactions, but all of the steps prior to accepting payment and then after accepting payment. We think the same exact situation plays out in Money Out. In fact, we think that there's actually more opportunities because, as you'd imagine, money leaving the bank account probably needs more controls, than money coming into it. And so we're focused on building an end-to-end suite that really does things in a way that are differentiated that are not possible unless you have that end-to-end visibility. And we are planning on making some very exciting announcements around that very quickly or very soon. Operator: Our next question comes from the line of Scott Berg of Needham & Company. Scott Berg: Really nice quarter, one for me in the essence of time here. Most of the Max conversation has seemingly focused on residential trades. How do we think about the opportunities there on the commercial side, if any? My guess is it's probably not the first phase or 2 of what you all are thinking given what the commentary has been. But what are the options or opportunities there on the commercial side maybe over time? Vahe Kuzoyan: Sure. As we previously mentioned, we think this Agentic Operating System concept is a universal concept that applies to everybody. The way it would play out in commercial is likely going to be more reflective of the B2B nature of commercial contractors, the fact that their business model is relationship-oriented and it involves a different type of go-to-market motion, but all of those are still highly relevant to Agentification. And so whether it's our ability to identify great fit prospects or it's the ability to generate complex multistep communication, whether it's e-mail, text message, phone calls, et cetera. And then similarly, in the back office, there tends to be more complexity. So if you're managing a large construction project, and you have a former on-site who's sending all sorts of detailed notes to a project manager internally. That is the kind of experience we think agents are going to play a bigger and bigger role. And so if you look at our product development in terms of commercially oriented agentic capabilities. It's still a very target-rich opportunity. It's just a matter of sequencing. Obviously, we're going to focus on where we're most mature to let's say, maximize the value that we could drive. But on the commercial side, there are both things that are relevant to AI that are unique to commercial. And then there's also elements like the back office that are applicable to everybody. And so the ability to have a compelling AI-native agentic offering to commercial to construction, all our non-historically mature trades, we think is pretty universal. Operator: I would now like to turn the conference back to Ara Mahdessian for closing remarks. Sir? Ara Mahdessian: I just want to thank you all for joining us today. We appreciate that you have the opportunity to spend time with the best companies. And so we're honored that you've chosen to spend this evening learning more about our mission, and our journey ahead to transform the lives of all these hard-working contractors. I want to thank you, and we're excited to speak to you very soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to Jefferson Capital's Fourth Quarter and Full Year 2025 Conference Call. With us today are David Burton, Founder and Chief Executive Officer; and Christo Realov, Chief Financial Officer. As a reminder, this conference call is being recorded. This call may contain forward-looking statements regarding the company's plans, initiatives and strategies and the anticipated financial performance of the company, including, but not limited to, sales and profitability, expected benefits of the Bluestem acquisition, expectations on the market and macroeconomic factors, and expected collections and growth in certain collections. Such statements are based upon management's current expectations, projections, estimates, and assumptions. Words such as expect, believe, anticipate, think, outlook, hope, and variations of such words and similar expressions identify such forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by the forward-looking statements. Such risks and uncertainties are further disclosed in the company's most recent filings with the Securities and Exchange Commission. Shareholders, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements made herein and are cautioned not to place undue reliance on such forward-looking statements. The company does not undertake to update the forward-looking statements, except as required by law. Also, during this conference call, the company will be presenting certain non-GAAP financial measures. Reconciliations of the company's historical non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's earnings press release. And now I'll turn the call over to David Burton. David Burton: Thank you, operator, and thanks, everyone, for joining our investor call. On January 9, we completed our first follow-on offering post IPO, which substantially improved our float and liquidity and reduced the J.C. Flowers ownership to 53%. I'd like to welcome our new investors to the call. We appreciate your support, and we look forward to delivering on the investment thesis we laid out in the road show. Let's dive into our fourth quarter financial performance highlights. We again generated strong results for shareholders. We delivered record collections at $245 million, up 41% versus the prior year period, and we continued to perform well on our underwriting expectations. We generated record deployments with $381 million invested, up 6% versus the fourth quarter of 2024, which had also been a record quarter. Our estimated remaining collections also reached a new record at $3.4 billion, up 23% year-over-year, driven by our continued deployment performance and attractive anticipated returns. Revenue for the quarter was a record $155 million, up 30% versus the prior year period. We delivered a sector-leading cash efficiency ratio of 71%, driven in part by strong collections from the Conn's portfolio purchase. Adjusted EPS for the quarter was $0.69. The previously announced Bluestem portfolio purchase closed on December 4, and we believe the transaction solidifies our leadership position as a strategic acquirer of a wide spectrum of dislocated consumer credit portfolios. We're pleased with the portfolio's performance to date and expect Bluestem to be a meaningful contributor to our financial results in 2026. Next, I'd like to offer a brief market update and cover some of the macroeconomic indicators to provide better context for why we remain confident in the investment opportunity for our business. I'll start with delinquency trends, which remain elevated across all nonmortgage consumer asset classes and create favorable portfolio supply trends. An important component to better understand the state of the consumer is the current level of personal savings. During the pandemic, consumers accumulated abnormally high savings as a result of the unprecedented levels of government stimulus, which served as a financial cushion against life's unexpected events. By the end of 2022, the excess savings had been depleted. And in fact, the current level of personal savings at $831 billion is substantially lower than the long-term prepandemic average from 2013 to 2019 of $1.1 trillion, which is -- which becomes even more pronounced when adjusted for inflation. This suggests that consumers have a more limited ability to absorb unanticipated temporary financial hardships, which is an important driver for delinquency and charge-off volumes. Next, regarding the insolvency market, we've seen a well-pronounced increase in the number of insolvencies, both in the U.S. and in Canada from the pandemic trough in 2021, which in turn has fueled the resurgence in supply of insolvency portfolios. Insolvency valuation and servicing requires highly specialized expertise, a robust data set to develop accurate forecasts, and a technologically advanced servicing platform. And we remain one of the very few debt buyers in the U.S. and by far, the largest debt buyer in Canada that can take advantage of this market opportunity. Finally, this backdrop is also underpinned by a low level of unemployment, which supports the expected liquidation rates on our existing portfolio and gives us confidence in underwriting new purchases. Our portfolio performance is less sensitive to changes in unemployment compared to an originator. And despite the recent negative surprise on unemployment, current employment levels are still very favorable for our business. All of these trends point in one direction, elevated levels of consumer delinquencies and charge-offs, which we're seeing across all consumer asset classes and which we believe create a long runway for a robust portfolio supply over the coming quarters, coupled with strong collection performance on our existing book and on any future portfolio purchases. Next, I'll review our outstanding 2025 performance in the context of our long-term financial results, starting with 2019 as a prepandemic full-year reference. We have successfully navigated credit cycle fluctuations, changing market dynamics, and evolving regulatory framework, and a global pandemic, while continuously improving our financial performance through a combination of sustained growth and acute focus on returns. We delivered a 27% revenue compounded annual growth rate, a 37% net operating income compounded annual growth rate, and a 43% net income compounded annual growth rate from 2019 through 2025, showcasing our growth trajectory, efficiency improvements, and the profitability of the business. I believe there are very few debt buyers globally who can demonstrate this level of profitability and recurring growth through changing market and economic conditions. I'd also observe that Jefferson Capital is much better positioned today to take advantage of opportunities relative to earlier periods in our history. We have a much more scaled operation and are much more broadly diversified both geographically and across asset classes, which allow us to evaluate a substantially wider funnel of opportunities. We also have a more sophisticated collection capabilities today and a lower cost to collect, which in turn should further improve our net returns. And today, we have a much more robust funding structure with proven access to both the banks and the unsecured debt capital markets at an attractive borrowing cost. Simply put, Jefferson Capital is in a solid position to continue to deliver on its outstanding financial track record in the coming years and to build shareholder value. Moving on, I'd like to review in more detail some key performance trends for the quarter. Our collections, as I mentioned, were $245 million, up 41% year-over-year, driven by strong deployments in 2023 and 2024. The Conn's portfolio purchase represented $36 million of collections for the quarter and the Bluestem portfolio, which closed on December 4, represented $14 million. We've completed all necessary servicer transitions for Bluestem and the portfolio is performing according to expectations. More broadly, our collection performance on the overall portfolio continues to reflect the accuracy of our underwriting models. A key trend in collection performance has been the increase in legal channel collections. Jefferson Capital utilizes the legal channel as a means of last resort in instances where we believe the account holder has the ability but not the willingness to engage or pay. We have achieved a number of important process improvements, specifically in the United States, which have significantly compressed the timing from placement of the account to filing of the suit, which in turn has accelerated suit volumes. The inventory of suit-eligible accounts has increased given the significant growth in deployments over the past 3 years. So over time, we expect to see continued growth in legal collections. Our portfolio purchases for the quarter were $381 million, up 6% despite the fourth quarter of 2024, including the Conn's portfolio purchase. Returns remain attractive, and we remain confident in the deployment landscape. As of December 31, we had $274 million of deployments locked in through forward flows, which is an important building block of our deployment strategy for the coming quarters. I will note that our business is subject to pronounced seasonality. The fourth quarter is typically the largest quarter for deployments as credit originators aim to dispose of nonperforming portfolios ahead of year-end. Deployments then tend to decelerate in the first quarter as portfolio sales activity declines as originators want to take advantage of consumer liquidity related to tax refunds in the United States. Our estimated remaining collections as of December 31 were $3.4 billion, up 23% year-over-year with ERC related to Conn's and Bluestem comprising $140 million and $296 million of our U.S. distressed ERC, respectively. Our ERC is relatively short in duration due in part to the lower average account balances in our portfolio with 58% expected to be collected through 2027. We expect to collect $1.1 billion of our December 31 ERC balance during the next 12 months. Based on the average purchase price multiples recorded in 2025, we would need to deploy approximately $582 million globally over the same time frame to replace this runoff and maintain current ERC levels. I would note that as of December 31, we had $225 million of deployments contracted via forward flows for the next 12 months. Lastly, I'd like to review in more detail another core pillar of our business model and a critical building block of our differentiated return profile, our best-in-class operating efficiency. We seek to own the high value-added aspects of the purchasing and collection process, including portfolio and consumer payment performance data, extensive analytical and modeling capabilities, certain proprietary technological capabilities, and the collection process and techniques that we believe create both a competitive advantage for the company as well as a significant barrier to entry. In contrast, we seek to outsource the aspects of the collection value chain that we view as commoditized or operationally intensive and do not produce a competitive advantage, such as running large domestic call centers. We utilize Champion-Challenger performance measures, allocate portfolio segments to the best servicers, and our internal collection platform competes for market share against external collection service providers. Our mostly variable cost structure provides flexibility to scale deployments depending on market conditions. The benefits of our relentless pursuit of operating efficiency are evident in our efficiency metrics relative to the rest of the sector. As I mentioned, our cash efficiency ratio for the quarter was 71%. It was aided by the collections on the Conn's portfolio, which carry lower cost to collect given the significant portion of paying accounts in the Conn's portfolio and to a lesser extent, the Bluestem portfolio, which benefited the month of December. Excluding the Conn's and Bluestem portfolio collections and expenses, the cash efficiency ratio would have been 68%, which remains materially higher than other public companies in the sector. Our leading operating efficiency is a powerful competitive advantage and coupled with the strong returns on our differentiated investment strategy supports consistent, attractive shareholder returns. With that, I would now like to hand the call over to Christo for a more detailed look at our financial results. Christo Realov: Thank you, David. Taking a closer look at the financial details for the fourth quarter. Revenue was $155 million, up 30% year-over-year, driven by continued strong deployments and higher net yields. Changes in recoveries were $0 million for the quarter, reflecting the accuracy of our modeling and our execution against our underwritten forecast. Operating expenses were $84 million, up 30% year-over-year compared to an increase in collections of 41%. Court costs increased to $17.7 million, or 86% year-over-year, as a result of the trends in the increased legal channel volumes that David reviewed in his comments. This is an upfront expense to support future collections through the legal channel and the accelerated time to suit pulled forward these expenses. We expect core costs to remain at this level given the increased inventory of suit-eligible accounts resulting from the significant overall portfolio growth over the past several years. Adjusted pretax income was $51 million for the quarter, up 15% year-over-year, resulting in adjusted pretax ROE of 44.8%. We realized a material level of collections on portfolios purchased in 2023 and '24, including the Conn's portfolio purchase, which in turn drove adjusted cash EBITDA to $178 million for the quarter, up 34% year-over-year. Finally, for the fourth quarter, Jefferson Capital recognized portfolio revenue of $15.5 million, servicing revenue of $1.3 million, and net operating income of $10.7 million related to the Conn's portfolio purchase. Separately, we recognized portfolio revenue of $5.4 million and net operating income of $2.5 million related to the Bluestem portfolio purchase, which closed on December 4. Moving on to the full year results. We delivered strong performance in 2025, while setting several important operating milestones by recording the highest annual collections, deployments in ERC in the company's 23-year history. That performance in turn drove record revenue, net operating income, adjusted pretax income, and adjusted cash EBITDA. Our cash efficiency ratio for 2025 was 74%. And excluding the Conn's and Bluestem portfolio collections and expenses, the ratio would have been 69.7%. Our credit profile remains strong and positions us well for future opportunities. As of December 31, our net debt to adjusted cash EBITDA improved to 1.9x, a level which is significantly lower than our publicly traded peers. Over the long term, our target leverage ratio is in the range of 2x to 2.5x on a sustained basis. Our balance sheet is solid with ample liquidity to support growth, create strategic optionality, and pay our quarterly dividend. On October 27, we completed an amendment of our senior secured revolving credit facility, which achieved a number of capital structure objectives and substantially improved the terms. We increased the aggregate committed capital by $175 million to $1 billion and added 2 new lenders to the bank group. We refreshed the tenor of the facility to 5 years with an effective 2.5-year extension. We improved pricing by 50 basis points across the grid and eliminated the credit spread adjustment for an aggregate interest expense savings on the drawn balance of the facility of 60 basis points. We also reduced the nonuse fee rate for unutilized commitments by 5 basis points. The facility had $232 million drawn at December 31, and we have earmarked $300 million of capacity to repay our 2026 bonds in May of 2026. Given the maturity was fully prefunded with a $500 million unsecured issuance in 2025 and at this point we are not taking on any market risk, we plan to keep the bonds outstanding as long as possible to take advantage of the attractive 6% coupon. This strong liquidity profile is a critical component of our value proposition to sellers who value certainty of costs in periods when portfolio activity increases, but funding markets could be constrained or unavailable. With regard to our capital allocation priorities. Our primary focus remains on deploying capital to purchase portfolios at attractive risk-adjusted returns. Our Board has declared a regular quarterly dividend of $0.24 per share, which represented a 4.7% annualized yield as of February month end. The dividend offers an attractive component of shareholder return, which is not available from other public companies in the sector, and it also reinforces long-term discipline around investment returns. In conjunction with the follow-on equity offering in January, we also repurchased 3 million shares or approximately 5% of the total legally issued shares for $59 million. This was a tactical share repurchase where the company used its capital to support the offering and to reduce the sponsor overhang. We will evaluate open market share repurchases at the appropriate time while also aiming to maintain liquidity in the stock. Finally, we have a long history of successful M&A, but we intend to remain disciplined and opportunistic. Now we will be happy to answer any questions that you may have. Operator, please open up the lines. Operator: Our first question comes from the line of David Scharf with Citizens Capital Markets. David Scharf: I guess probably obligatory to lead off, Dave, with maybe just some questions about your thoughts about maybe some of the macro uncertainties and whether it's employment headlines or the prospect of sustained elevated energy costs. Do any of these factors color how you're viewing the purchasing environment and maybe the types of bids you're putting in? Just trying to get a sense for whether it's just too early to really conclude that the macro in the U.S. has shifted much or whether you feel like we're starting to see some of the signs that maybe people saw in 2022 when inflation set in? David Burton: Thanks for the question, David. I guess let me answer that question in 2 different ways. The first way would be that the incremental pressure that energy costs would have and some modest deterioration in employment could have. That modest on-the-margin impact is likely to really just impact delinquencies and charge-offs. That minor movement is not apt to change liquidation rates on charge-off accounts. because a charge-off tends to be a consumer who has had 1 of 3 things happen: either they've lost their job, they've had a divorce, or they've had a health care issue that has either caused them to incur an uninsured medical bill or a health care situation that keeps them out of work temporarily. And so, I think the net of the current environment is probably a net positive for us on the supply side and not likely, and certainly, we see no indications of it impacting expected liquidation rates. David Scharf: And maybe just as a follow-on, shifting to the deployment side and purchase volumes. The information on the visibility that the flow deals provide over the next 12 months is helpful. I'm curious, do you ever -- well, I guess, number one, are there any trends among your sellers broadly in terms of either a willingness to engage in more flow deals or less? And I guess related to that is, as you plan out the year, is there usually a percentage of total deployment that you'd like to have locked in, in January 1 by flow deals? Or is it just more opportunistic based on the terms that are out there? David Burton: So very insightful questions. I hope I'll be able to remember all of the questions, so I can answer them all. I'll start with, do we target a specific percentage of our deployments for forward flows? And the answer to that is we don't. Our history has been about half of our deployments have been in forward flows. But if forward flows were pricing in a way that wasn't meeting our return targets, we would not feel a need to reach in order to have this composition that we've historically had in the past. So we've been -- we continue and have been from really our inception to be very returns focused. As it happens, areas and sectors that we are a leader in have a consistent pattern of forward flows. And so that level has been relatively consistent. And you can see that our numbers don't move that much in terms of future committed forward flow volume. And with respect to your second question, which is, is there a market trend toward more forward flows or less. And I would say I need to answer the forward flow question by geography. The United States is the most prevalent market to offer forward flows. Most markets outside of the United States that we operate in have a much lesser emphasis on forward flows. And as a result, I would say Canada is probably the next highest percentage of forward flows that we have as a percentage of total deployments. And then the U.K. and then LatAm, which virtually has none. We actually, I think, had the first forward flow of any one or any seller in the Colombian market. But what I will -- I also want to point out is it's not just a geographic differential that exists. There's also differential across asset classes. Auto, as an example, which is an area where we are a leader, has historically been hesitant to embark on forward flows. There are some, but as a percentage of total deployment, it tends to be a much lower percentage. That is a sector that I think now, given some of the challenges that the auto sector has faced, we're hearing more discussions about forward flows, but I don't think that, that's manifested itself yet in any elevated level of forward flows for Jefferson Capital just yet. But I am hopeful that our long-term leadership in that market and that more sellers are discussing forward flows in that space that, that will lead to more forward flows because we do like to have committed future purchases at good returns. David Scharf: No, interesting opportunity. I guess maybe just one more to wrap up. I guess this would be for Christo. Given the pace at which the Conn's portfolio runs off throughout this year as well as the half-life on the Bluestem collections, should we see -- I know you're not providing guidance, but when we think about the efficiency ratio, should we see a reversion towards that 68% level by the end of the year? Or are there other efficiencies and process improvements that would keep the ratio at 70% or above even as those 2 low-cost collection portfolios...? Christo Realov: Yes. look, I think we certainly have a substitution effect that you see. You can see that the headline cash efficiency ratio trended down over the course of 2025 as the collections coming out of the Conn's portfolio declined. And now we're going to essentially reup and the Bluestem would have virtually the same impact, and it's similar in size. And we expect that to effectively take, of course, over the course of 2026, as we have discussed before. We also provide the underlying cash efficiency ratio, excluding any collections and expenses from both Conn's and Bluestem, and that would be in the high 60s as a underlying trend, excluding the impact of performing portfolios. Operator: Our next question comes from the line of Mark Hughes with Truist. Mark Hughes: David, your commentary about supply is very interesting. Any way to characterize how much of an increase you've seen? Is it single digits, double digits? I wonder if you could maybe give us a little more detail there. David Burton: And that's specifically as it relates to volume of charged-off accounts or insolvencies. Mark Hughes: Yes, just the opportunity set that you're seeing. David Burton: Yes. I would say there's a couple of things at play. First, there's this seasonality aspect where the fourth quarter is the biggest quarter that originators tend to sell. And then because the tax season in the first quarter tends to be a trough. And so you have both of those things going on. Those impacts are probably bigger than any impact on underlying charge-off trends. And so these are difficult quarters to gauge a steady state. And so I wish I had a little bit more clairvoyance for you. But I think the second quarter probably would be a better quarter to begin making something more conclusive. I think one thing I could say is we are -- the era of supply of elevated levels of supply began some time ago and broadly, it's continuing. Mark Hughes: Very good. How about the returns? Have the return profiles been reasonably stable when you look across your book and what you're buying? And your returns have obviously been very attractive. Is that -- are we looking at being able to maintain that or a little bit better, maybe a little more competitive? How do you see that? David Burton: Yes. So I would say that our returns have been pretty stable. And I think pricing is pretty stable in the market and fairly predictable. And that our win rates, which is another gauge of the level of competition, have been steady. Mark Hughes: Then, Christo, the tax rate this quarter for the adjusted number, was it the similar 14%, 15%? And then what should we use for 2026? Christo Realov: Yes. I would say for 2026, we now have a full clean year. And as such, I think something that's in the 24% to 25% is appropriate to estimate the tax provision. So call it 24.5% would be what I would use for '26 for full year. Mark Hughes: And how about for 4Q, the adjusted EPS number, is that based on a -- I think just doing the math on the release, it was 14.5% tax rate? Christo Realov: Yes. Although if that's the effective tax rate, that is true, I would not -- that effectively takes into account the full year tax provision that's required, except that we are only getting taxed as a taxpayer for half of the year since the IPO. So that is not indicative of anything going forward. Going forward, it should be relatively straightforward. There isn't anything special from a tax perspective other than the fact that we're not paying cash taxes. But for the purpose of estimating the tax provision going forward, 24.5%. Mark Hughes: Then I'm sorry, I missed this when you were talking about the potential share buybacks in the future. What's the current authorization? What's your posture on that? Are you -- do you tend to be active...? Christo Realov: No, the posture is that the $3 million that we repurchased was very much a tactical repurchase in conjunction with the follow-on offering. At present time, our focus is on deploying capital at attractive risk-adjusted returns in portfolio purchases. We will evaluate open market share repurchases in the future. But at present time, we, of course, are also focused on developing better liquidity and better float for our investors. Operator: Our next question comes from the line of John Hecht with Jefferies. John Hecht: Congratulations on wrapping up a pretty busy year. First question is just thinking about deployments. You guys are diversified from a product and geographic perspective. Maybe can you give us the characteristics of the deployments where -- in which markets and which products? And was there any shifts in that deployment that are worth calling out over the past couple of quarters? David Burton: I think the one of the most prominent and promising shifts has been an increase in deployments in insolvencies, which is an area that, obviously, we have very limited competition because there's only a couple of companies that have the ability to value or service those accounts in the U.S. and in Canada. And our deployments correspond quite closely with how the filings have increased across the country. And then I would say other trends in deployments, obviously, our ability to undertake these attractive deployments in Bluestem and Conn's, I think, represent a unique capability and a good and a very attractive risk-adjusted return profile. And so I think that obviously is a change in our composition versus '23 and prior. So I think the trends have been relatively similar to quarters in the past. And we're -- they all reinforce the markets that we're in, our asset class specialization as being attractive, and the geographic diversification and the geographies we picked have, again, reinforced our investment thesis for those markets. So we're obtaining attractive returns across really all of the spaces that we're in, both asset class and geographies. John Hecht: And then a follow-up is, obviously, acquisitions, you have good organic growth and then you've had successful acquired growth over time as well. How do we -- how would you describe the pipeline now? David Burton: So I'm going to separate my comments into these runoff portfolios that in the form of like Conn's and Bluestem, which we have a unique capability set to value, navigate, integrate, and execute on. During '25, we saw more of those opportunities than we've ever seen. but that resulted in 2 very large purchases. And sometimes a process like that takes a long time to conclude. And so we're eager to evaluate opportunities in that space, and we're active. But there's, of course, no certainty on any one of those. Our hope would be that while we've done this successfully in the installment loan space and in credit card that we could, over time, expand our capabilities to include some of the other asset classes that we're in. Operator: Our next question comes from the line of Bose George with KBW. Bose George: Actually, in terms of areas of potential growth, have you seen pricing become more interesting in areas like prime credit cards? Or is that still not quite there yet? David Burton: I would say prime credit card continues to be an area that our win rate has been pretty consistent. So I don't know that we're seeing much change in pricing of those assets. And we obviously would welcome pricing to reflect better returns in those asset classes, but we're not really seeing much in the way of change, even though there has been a modest increase in supply. Bose George: And then just there's obviously been a lot of concern about AI-driven white-collar job loss. It seems very early to think about what that means, but is that something that you guys have thought about in terms of the way it potentially impacts supply performance? Or is it just early for that? David Burton: Yes. I think it would be early for that. And of course, it depends on who you read as to what the impact is going to be. I've read the full gamut of how all the -- formation of all these AI companies is leading to more demand for staff. But at the same time, there's efficiencies that are happening by the deployment of AI in various parts of other companies. So hard to know. I certainly don't consider myself an expert. What I do know is that we look at employment trends pretty closely. And we have a long way to go before an elevated level of unemployment would begin causing concern for us with respect to our ability to achieve our underwritten collection forecasts. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Congrats on the year and the beginning of the new one. Most of my questions have actually been already answered. On the tax season, to your point, we're at the beginning of the year, it is tax season in the U.S. If we look at it, there's always been 50 million returns filed and processed even though it's pretty early in season. That's about 1/3 of the total. So it's that you expect for. So it's a pretty decent sample and the average refund is up almost 9%. So are you seeing anything in the data to your point, the macro doesn't seem to be hurting you and the tax season may be of benefit. So are you seeing anything unusual at all? Any increase in utilization of payment plans or increase in spot payments? Obviously, it's -- that's Q1. You probably don't want to talk about it, but I'm going to ask anyway. David Burton: I certainly don't blame you for the question. And your insights and instincts, I think, are very rational. I would say -- I think the comment that I can share is that things are in line with expectations. I wouldn't suggest anything materially higher or lower. And so we continue to expect to achieve the underwritten forecast that we have in place for the quarter, which obviously includes some seasonality in the expectation. And as you also note that we have very modest changes in expected recoveries and changes in collection performance relative to expectations during a quarter or so, which I think actually netted to 0 this quarter. So I know that's very different. And that might also be why some questions -- there are questions around this area. But that has typically not been an area where we generate incremental earnings. Robert Dodd: One more, if I could. On the -- to Christo, the efficiency ratio. Obviously, there's a number of factors with a bit of seasonality and obviously, Conn's, Bluestem rolling off as we go through -- not rolling off, but Bluestem having a declining benefit as we get towards the second half of the year. But to your point, if we back that out and you give us the -- you do give us the underlying excluding that, are there any new initiatives? You're always working on that efficiency to improve the IRR with the Champion-Challenger model, the Mumbai center, et cetera. Are there any new initiatives in the works that can improve the underlying number if we look through the Conn's, Bluestem impact as we go through the course of this year and maybe a little longer term as it's hard to move that number in a 12-month window? Christo Realov: So you point out that we have historically had a strong emphasis on each year having a myriad, literally dozens of initiatives aimed at improving our efficiency and effectiveness. And this year is no different. We have our laundry list of things we're going to tackle this year. But we don't really like discussing what those are. But I think the historical trend of cost to collect improvement is one that I think is a trend that ought to continue pending our -- assuming we have continued success against those initiatives as we have in past years. Operator: Our next question comes from the line of Randy Binner with Texas Capital. Unknown Analyst: I'm mostly covered at this point. But the one thing that stuck out to me that I thought was interesting is you mentioned these process improvements that are leading to, I think, more effective suit activity in the collection process. And I think of the court system as being slow still, and maybe I'm not thinking of it the right way. But can you explain a little bit more like how those process improvements have helped in that area? David Burton: First of all, again, you're actually right. The court systems are not moving any faster. Well, I shouldn't say that because, of course, there are lots of jurisdictions and some might be. But in the aggregate, I would -- I don't have any expectation for the court process themselves to work faster. What is -- where we have made the most inroads in our efficiency is all the things we have to do before filing the suit. And as you may or may not know, various courts and asset classes and states have different requirements with respect to what has to be available and included with the suit at the time of filing. And that list of things has gotten longer over time as those requirements and expectations have become more defined. And so, a process which, call it, 10 years ago had much less stringent requirements with respect to what needed to be included at the time of filing suit has massively become more involved. that complexity added time to the process. And we spent a fair amount of time engineering efficiencies in that area, which began more than -- at the beginning of last year and concluded in the third quarter, at which time we saw that the ramp-up and the acceleration in our suit volume. So you're right, it's not the courts, it's everything we do before to prepare an account for suit. Unknown Analyst: But I guess the follow-up is, does it lead -- all that is great, the automation of the process. Does it lead to a better result? Or is it just more is getting through the process faster, so we're seeing it faster? David Burton: Yes. So there's really 2 aspects of it that are improvements. The first is you just have this compressed time frame, which obviously also has an NPV impact. If you start the suit sooner, you're going to get to the collections from that suit sooner. The other aspect is to the extent that after starting the process, there was components of the process, which then required incremental materials that were not provided right upfront, that then would cause a fair amount of delay, if you will, or added time. So there's a secondary compression that also has occurred from the process that we implemented. Operator: Our next question comes from the line of Gowshi Sri with Singular Research. Gowshihan Sriharan: Can you guys hear me? David Burton: Yes. Gowshihan Sriharan: Building on that collection strength you've shown all year, can you talk about the quality of those collections, specifically whether you're seeing any change in the mix between onetime settlements, payment plans, and now with the legal recoveries that you talked about, would that make the cash flow profile more durable as we move through 2026? David Burton: Let me see if I can answer that in a way that gets at, I think, what you're looking at. The distribution of payment types and payment size has been pretty consistent over the last couple of years. I would say there was a different payment pattern that occurred during the government stimulus, which did involve more settlements and higher onetime payments, but that has reverted to the mean by the end of 2022. Gowshihan Sriharan: And with the legal channel, you've leaned harder into the legal channel with court costs almost doubling, and I think you've alluded to that in a question. As we look at 2026, how should we think about the returns for the legal channel? Is there still room to scale that profitably? Are you reaching more of a near steady state? David Burton: So I would say that the volume of legal accounts corresponds to our underwritten expectations. And as we deployed more capital and bought more portfolios and more volume, that inherently creates more volume to the legal channel. But because the expense of court cost is recognized upfront, it's just a little bit more pronounced when that volume enters the legal channel. But I would not characterize our effort in legal and the volume growth in legal as necessarily inconsistent with our underwritten expectations. It's not like we're having some type of material uncovered inventory that now has become incrementally profitable. Again, we are in line with the underwritten expectations. And because we just deployed more in '23 and '24 and '25, in particular, in U.S. distressed and really in the U.K. and to a lesser extent, in Canada, that just is -- as those accounts work through the voluntary collection process and we complete that, those that are eligible for legal and are profit generating after considering court costs, those just naturally flow to the legal channel at that time. Hopefully, that is helpful. Gowshihan Sriharan: One last question. Given the supply backdrop that you've outlined, are there any parts of the market where you have consciously decided to walk away from either for pricing reasons or the return thresholds are not attractive? David Burton: No. Operator: And we have reached the end of the question-and-answer session. Therefore, I will now turn the call back over to CEO, David Burton, for closing remarks. David Burton: Thank you. Looking forward, we're excited about the growth prospects for our business for the remainder of this year and beyond. We've built an outstanding platform over the last 23 years, and we're in a great position to capitalize on opportunities as the market continues to evolve. Thank you all for joining us today, and we look forward to providing another update on our first quarter earnings call. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.
Operator: Good afternoon, everyone, and thank you for standing by, and welcome to the Corvus Pharmaceuticals Fourth Quarter and Full Year 2025 Business Update and Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Zack Kubow from Real Chemistry. Please go ahead, sir. Zack Kubow: Thank you, operator, and good afternoon, everyone. Thanks for joining us for the Corvus Pharmaceuticals Fourth Quarter and Full Year 2025 Business Update and Financial Results Conference Call. On the call to discuss the results and business updates are Richard Miller, Chief Executive Officer; Leiv Lea, Chief Financial Officer; Jeff Arcara, Chief Business Officer; and Ben Jones, Senior Vice President of Regulatory and Pharmaceutical Sciences. The executive team will open the call with some prepared remarks followed by a question-and-answer period. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by those statements, including the risks and uncertainties described in Corvus' annual report on Form 10-K for the year ended December 31, 2025, and other filings the company makes with the SEC from time to time. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I'd like to turn the call over to Leiv. Leiv Lea: Thank you, Zack. I will begin with a brief overview of our fourth quarter and full year 2025 financials and then turn the call over to Richard for a business update. Research and development expenses in the fourth quarter of 2025 totaled $9.9 million compared to $6 million for the same period in 2024. R&D expenses for the full year 2025 totaled $33.7 million compared to $19.4 million for the full year 2024. For both the fourth quarter and full year 2025, the increases in R&D expenses were primarily due to higher clinical trial and manufacturing costs associated with the development of soquelitinib as well as an increase in personnel costs. Net loss for the fourth quarter 2025 was $12.3 million compared to a net loss of $12.1 million for the same period in 2024. Included in the net loss for the fourth quarter of 2025 and 2024 were noncash losses of $0.7 million and $2.2 million, respectively, from Corvus' equity method investment in Angel Pharmaceuticals and a noncash loss of $2.3 million in the fourth quarter of 2024 associated with the change in fair value of the company's warrant liability. Total stock compensation expense for the 3 months ended December 31, 2025, was $1.6 million compared to $0.8 million for the same period in 2024. As of December 31, 2025, Corvus had cash, cash equivalents and marketable securities totaling $56.8 million compared to $52 million at December 31, 2024. In January, we closed an upsized underwritten public offering that included a premier group of biotech investors and generated net proceeds of $189 million including the net proceeds from this financing, pro forma cash at December 31, '25, was approximately $246 million, extending our cash runway into the second quarter of 2028. I will now turn the call over to Richard, who will discuss our clinical progress and elaborate on our strategy and plans. Richard Miller: Thank you, Leiv, and good afternoon, everyone. Thank you for joining us today for our update call. In 2025, we made significant progress advancing the development of soquelitinib, our first-in-class selective ITK inhibitor that is designed to rebalance or reset the immune system. This was highlighted by the presentation of final results from our Phase I/Ib trial in peripheral T-cell lymphoma in an oral session at the ASH Annual Meeting and the recent announcement of data from cohort 4 of our Phase I atopic dermatitis trial, which showed that soquelitinib could become a leading therapy for atopic dermatitis and potentially other inflammatory diseases. Shortly after the data announcement, we completed a $200 million financing, reflecting high investor interest in the opportunity for soquelitinib and ITK inhibition given our strong data to date, its unique mechanism of action and its broad potential to help patients across multiple areas of medicine. As a result, we are entering 2026 in a position of strength with ongoing enrollment in our Phase III PTCL trial, our recently initiated Phase II atopic dermatitis trial and the opportunity to expand into mid-stage trials for other important inflammatory diseases such as hidradenitis suppurativa and asthma later this year. Based on our current plans and anticipated time lines, our cash runway extends beyond key data readouts for all of these programs. On today's call, I will recap the highlights from our cohort 4 data announcement, share the latest on our plans to present additional data from the trial at an upcoming medical meeting and provide an update on our Phase II trial. I will also review our pipeline expansion plans and key upcoming milestones. The results from cohort 4 and the full Phase I trial show that soquelitinib's emerging clinical profile appears to provide substantial advantages in the treatment landscape for atopic dermatitis. One, it is an oral medication. Two, it has a novel mechanism of action that combines tissue selective and target-specific precision with ability to affect multiple inflammatory signaling pathways. Three, it appears safe and effective in a broad range of patients, including those who have received prior systemic therapies; and four, it produces durable responses with no disease rebound. Based on our market research, this profile would be considered a significant advancement for patients with atopic dermatitis. So we are excited that soquelitinib data further elevates its profile and potential. It shows one of the strongest EASI 75 results at only 8 weeks of therapy and the durability of responses with no disease rebound may provide the opportunity for new approaches to therapy of immune diseases, including the potential for soquelitinib to be an intermittent therapy. Overall, if the current profile continues to be supported by larger clinical trials, we believe soquelitinib will be very well positioned to be among the leading options for the treatment of patients with moderate-to-severe atopic dermatitis. I will now review key highlights from our recent data announcement. First highlight, efficacy. For cohort 4, which was designed as a randomized placebo-controlled trial with drug given over an 8-week treatment period, the mean percent reduction in EASI was 72% versus 40% for placebo that was statistically significant at 0.035. 75% of patients, 9 of 12 achieved EASI 75 and 1 additional patient was in EASI 74. 25% of patients achieved EASI 90 and 33% achieved IGA 0/1. 11 of 12 patients achieved EASI 50. The only nonresponder was a patient who was refractory to previous therapy with both Dupixent and Rinvoq. Two of the EASI 90 patients were resistant or nonresponsive to prior systemic therapies. 20% of placebo patients achieved EASI 75 or 17% if you include 2 patients that missed the day 56 evaluation and on later evaluation, never reached EASI 75. In addition, 2 placebos required rescue medication due to disease flares versus none in the active group. The 2 placebo patients who were EASI 75 were both patients who had not received prior systemic therapies. None of 7 placebo patients who received prior systemic therapy achieved EASI 75, whereas 3 of 5 active patients who received prior systemic therapies achieved EASI 75. The cohort 4 results confirm our hypothesis from cohorts 1 through 3, which is that extending the treatment duration would deepen responses. The data also show that soquelitinib is superior to placebo in every efficacy endpoint evaluated. And when compared to other agents, we believe the results obtained so far for soquelitinib place it among the most active agents, oral or injectable approved or under development for atopic dermatitis. Second highlight, durability. Starting with cohort 3, we took a more systematic approach to measuring the remission duration with a longer blinded post-treatment follow-up period of 90 days compared to 30 days tracked for cohorts 1 and 2. The cohort 3 data show that responses observed at day 28, the last day of treatment were maintained or slightly improved out to 118 days or 90 days without therapy. This compares to other systemic therapies for atopic dermatitis, which all show a rapid rebound in disease that starts as soon as 1-week after stopping therapy. We see no rebound phenomenon with soquelitinib, both in cohorts 3 and 4. We believe that the induction of T regulatory cells by soquelitinib could be responsible for this durable suppression of inflammation and sustained disease remission. We have seen this in preclinical experiments and biomarker data shows an increase in circulating Tregs in Cohort 3 patients. The demonstration of circulating Tregs is quite remarkable as usually, these cells are very rarely found in the blood. It is likely that these cells are migrating to and concentrating in sites of disease as we have found in our animal models. Third highlight, broad applicability. 35% of all patients enrolled in the Phase I trial had received prior systemic therapies, including 50% of patients in cohort 4. Dupilumab was the most commonly used prior therapy followed by JAK inhibitors and some patients received multiple prior therapies. This includes patients who were resistant to their last systemic therapy. In other words, they were nonresponsive to their prior treatment. Typically, patients that are treatment-resistant or who have gone through multiple prior therapies are more challenging, and this was confirmed when looking at the placebo patients in the trial. The response curve data showed that placebo patients who received prior systemic therapies do worse than those who did not receive prior therapies, indicating that prior systemic therapy is an unfavorable characteristic. However, the response curves for patients receiving soquelitinib are very similar across these groups, indicating that soquelitinib is not affected by prior systemic therapy experience. Together with our baseline patient characteristics, this also indicates that the patient population treated on our protocol was more unfavorable than those reported in most atopic dermatitis clinical trials. As noted above, in patients who received prior systemic therapies, the EASI 75 was 0% for placebo 0 out of 7 versus 60%, 3 of 5 seen in patients who received soquelitinib. So in terms of patient indications, our conclusions are that soquelitinib is active in patients who have received prior systemic therapies with outcomes no different than naive patients despite these patients having more unfavorable disease. Responses were observed in patients who are refractory to their prior systemic therapy. This supports our hypothesis regarding the novel mechanism of action for soquelitinib and the lack of resistance due to prior therapy experience. Fourth highlight, safety. No new safety signals were seen in cohort 4 with a longer 8-week treatment duration. In cohort 4 and the full Phase I trial, reported adverse events are similar in both placebo and active groups. No significant lab abnormalities were observed. There were no hepatic abnormalities, no changes in liver function tests. Infections were similar in treated and placebos and were minor. I'd like to make some additional comments on infection. We have received questions from investors regarding the potential for EBV viral reactivation. These questions are based on very rare reports in the literature of EBV infection in babies born with germline mutations in ITK. In a neonate, the immune system is primitive as T and B cells have not yet formed. Immune system maturation occurs during development and exposure to antigens. A germline mutation in ITK in the primitive developing immune system is completely different than transiently blocking the kinase domain of ITK with a small molecule drug in an individual with a mature immune system. We have seen no serious infections of any kind in more than 150 patients treated with soquelitinib across our lymphoma, atopic dermatitis and ALPS trials to date. This involves over 14,000 patient days of treatment with some patients on therapy for more than 2 years. In PTCL, most patients harbor EBV and other viruses such as CMV. In our Phase I lymphoma study, we identified over 30 patients with EBV virus detectable at baseline, that is before therapy in their blood measured using a PCR technique that is they are viremic. None of these patients or any other patient had any evidence of EBV reactivation or related illness during the treatment, which, in some cases, lasted over 2 years. And recall, these patients are extremely immunocompromised. One other thing to note, ITK inhibition spares Th1 cells, also known as Th1 skewing. Th1 cells are the cells responsible for eliminating viruses. Now beyond clinical results, biomarkers have been identified that support the novel mechanism of action with ITK inhibition that leads to immune rebalancing. Some of these biomarkers represent new discoveries. Briefly, the data show a decrease in IL-4, IL-5 and IL-17 cytokines, a small reduction in TARC, a reduction in Th2 cells and an increase in Tregs. In ongoing work, we are also finding very significant and interesting changes in the JAK/STAT signaling pathways that will be reported on later. With the additional information that is emerging both from the clinic and our biomarker analysis such as induction of Tregs, we believe that soquelitinib's novel mechanism of action and safety will allow for its utility in diverse indications in immune inflammatory diseases and in cancers. Our soquelitinib abstract was accepted for oral presentation at the Society for Investigative Dermatology, or SID Annual Meeting, which takes place in mid-May. We plan to present the Phase I clinical data, expanding our safety and durability data. We will also focus on our biomarker results in this presentation, which we believe will provide novel ideas regarding control of immune diseases. Our late-breaker abstract was not selected for presentation at AAD, which typically favors later-stage trials. Angel Pharmaceuticals, our partner in China, is enrolling their Phase Ib/II trial in atopic dermatitis. This is a blinded placebo-controlled trial that is evaluating a 12-week treatment regimen in 48 patients with soquelitinib doses of 100 milligrams BID, 200 milligrams QD, 200 milligrams BID and 400 milligrams QD. The patient eligibility and endpoints are the same as was used by Corvus. Depending on the results from the Phase I portion, an additional 60 to 90 patients will be enrolled in the Phase II portion of the study. This trial is open at leading centers in China that are very experienced in performing these types of trials. The study is conducted in close collaboration with the Corvus team. Results from the initial cohorts are expected late this year. Now I would like to discuss our Phase II randomized placebo-controlled trial in atopic dermatitis. We announced today that the trial has been initiated. This trial is planned to enroll 200 patients with moderate to severe disease randomized into 1 of 4 cohorts with 50 patients in each cohort. We will allow patients who have received prior systemic therapies. Doses of 200 milligrams QD, 200 milligrams BID and 400 milligrams QD will be examined along with placebo. The treatment duration is 12 weeks with an off-treatment follow-up period of 90 days. The primary end point is median percent reduction in EASI at 12 weeks, a typical endpoint for Phase II studies in atopic dermatitis. Other endpoints include EASI 75, EASI 90, IGA, PP-NRS and others. This will be an international study. We anticipate the data from this trial will be available in mid-2027. Outside of atopic dermatitis, we continue to enroll patients in our Phase III registration PTCL trial with an interim analysis expected later this year. We recently conducted a planned meeting of our outside independent Data Safety Monitoring Board. No safety signals were observed, and the study continues as planned. In December, at the American Society of Hematology or ASH Annual Meeting, we presented the final data from our Phase I/Ib clinical trial evaluating soquelitinib in patients with T-cell lymphoma. The data are supportive of the ongoing Phase III program showing that patients in the 200-milligram BID cohort, the same dose being studied in Phase III had a median progression-free survival of 6.2 months and a median overall survival of 28 months comparing favorably -- very favorably to results with other therapies. For example, median survivals with chemotherapy are less than 1 year and PFSs are less than 3.5 months. The data presented at ASH also shows soquelitinib's immunobiological effects and its mechanism of action of affecting T cell differentiation via ITK inhibition. These data support its potential in atopic dermatitis and a much broader range of immune and inflammatory diseases. We also continue to collect very exciting data from our ALPS or autoimmune lymphoproliferative syndrome clinical trial with 3 patients now on therapy for close to a year. We continue to collaborate with the team at NIAID and our current plan is to submit data for a potential presentation on the study at the ASH meeting in December. In terms of upcoming clinical trials, we plan to initiate a Phase II trial of soquelitinib for hidradenitis suppurativa and asthma later this year. There is strong scientific rationale for evaluating soquelitinib in HS, which is it is an IL-17-driven disease. In both in vitro and in vivo animal models, soquelitinib is a potent inhibitor of Th17 cells and reduces IL-17 production. Our trial design for HS is further along. At a high level, we are planning to enroll about 60 total patients with moderate to severe HS into 3 arms: 200-milligram BID, 400-milligram QD and placebo. The treatment period will be 12 weeks and the primary endpoints are safety and efficacy measured by HiSCR 50, HiSCR 75. The asthma study design is emerging and will likely involve about 150 patients treated for 3 months. In closing, our confidence continues to grow in the long-term potential for soquelitinib in atopic dermatitis, peripheral T-cell lymphoma and a broad range of additional inflammatory diseases. We are only beginning to unlock the full potential of ITK inhibition and immunomodulation, which could lead to new and better therapies for inflammatory, autoimmune and fibrotic diseases and cancers. We are building strong momentum with soquelitinib and our ITK platform, and we look forward to updating you on our progress throughout the year. I will now turn the call over to the operator for questions-and-answer period. Operator? Operator: [Operator Instructions] And your first question comes from Roger Song from Jefferies. Jiale Song: Congrats for all the progress you have made. Richard, maybe just one question related to the read-through from the data readout you will have before the Phase II, the global atopic dermatitis data mid next year. So you will have a PTCL potentially data and then also the China 12-week study data. So how should we think about the read-through from those data readouts to the Phase II AD maybe from the efficacy and then the safety perspective, particularly on the high-dose 400-milligram QD? Richard Miller: Okay. So we are anticipating that Angel Pharmaceuticals, who is conducting a placebo randomized trial and looking at different doses, will have some data from their initial couple of cohorts later this year. That would be the first data readout. That's going to be looking at 100 milligrams BID and 200 milligrams QD. But recall, they're going for 12 weeks. They're treating for 12 weeks. We've only gone up to 8 weeks. So that will be very important information for us. Then that data is unblinded. They look at that. We can report that. And then the next part of the study will look at 200 milligrams BID and 400 QD. That will be probably middle of 2027. Okay? So we'll get some data on more patients and things. Now in total, after that, the Angel goes on and does 40 -- what, 50, 60 or 60 to 90 patients in a Phase II study rolls right into that. In total, you're looking at around 140 patients or so. And that -- yes, 130, 140 patients, and that's totally completed by mid-2027 or early '27. So we'll have some data from them late this year, more data in first half of 2027. The PTCL trial will have an interim formal review in later this year. That has a futility analysis as part of it, so -- and safety analysis. And -- but the complete trial results are expected in late '27. Okay. Now what I talked about on the call was we do have also periodic safety -- outside independent safety reviews on the Phase III PTCL trial. We had one of those very recently and everything looked good, as I mentioned. Operator: And your next question comes from Li Watsek from Cantor. Li Wang Watsek: Two from us. Maybe just first on the data that you're going to present at the SID meeting in May. Rich, you talked about biomarker and durability data before. Can you just maybe set expectations for us? Richard Miller: Yes. Well, I can set expectations. The durability continues to look great. And in terms of biomarkers, the things I've mentioned previously, but we have discovered some new biomarkers, which is going to be probably the main part of the SID presentation, fascinating work around the T regulatory cells and some of the JAK-STAT signaling. And the key message there is that you're affecting different multiple cytokine pathways. Even though you're targeting a very specific enzyme restricted to T cells that can affect several different cytokines, all of which are important in inflammatory diseases like IL-5 and 4 and 17, et cetera. So plus we'll update the clinical data with the durability and a few other things. Li Wang Watsek: And then sorry, my second question is on the Phase II trial in HS. Just wondering what the benchmark that you're looking at, especially relative to the approved agents like IL-17 in the space, do you think in terms of efficacy, you have to match the biologics? Richard Miller: Well, first of all, we have to find the optimum dose, which we're going to look at a couple of different doses. But of course, the AD study informs us as well as the T-cell lymphoma study informs us on the HS trial. I would expect efficacy as good or better than what's out there, which is what the corrected HiSCR scores are, what, 25% or so. Operator: And your next question comes from Graig Suvannavejh from Mizuho. Graig Suvannavejh: Richard, congrats on the great progress we're seeing with soquelitinib across multiple indications. I just wanted to maybe touch upon a couple of things. First, just on your next data presentations, you did mention that maybe you did apply for late-breaker abstract to AAD. I think you gave us a reason why perhaps your abstract was not accepted, although I do think that Kymera does have a late breaker. I don't know their data set very well as I don't cover it, and so it's not at the top of -- or the tip of my tongue. But any thoughts on whether it is perhaps they had a bigger database because I do think that the just curious to get any thoughts there. Richard Miller: Well, Graig, what gets accepted abstracts that get accepted or even publications that get accepted. This is a capricious process, and there are a lot of factors. I don't know why they accept some and not others. I personally am shocked that Kymera with no placebo and an interesting study for sure. But I don't have an explanation for it. Graig Suvannavejh: There may not be a good one. I just thought I'd speculate... Richard Miller: I wouldn't get too worried about that. I mean I've had some really, really good papers get accepted at journals and be rejected at others. At the end of the day, it's -- 1 or 2 guys read some abstracts. I used to do it myself. You get a few hundred to review and you decide what looks good, whatever. So I don't know if I focus too much on any reasons on that. We're not very active in AAD. We've never done anything there. We don't have booths. We don't subscribe to their journals. I think that's another factor -- could be another factor, not sure. Anyway, SID is a good meeting. If anything, scientifically more rigorous, it is the meeting for early stage and translational biology and research. So we ended up, I think, in a very good place. Graig Suvannavejh: Okay. Great. If I could ask just on the Phase II trial in AD that you did start and congratulations there. I think you mentioned that data would be available in middle of 2027 and just trying to get a sense of in between now and mid-2027, will there be an opportunity for the company to provide some kind of update? Just trying to get a sense of news flow from that trial from now until mid-2027? Richard Miller: So that Phase II trial is placebo-controlled, randomized and blinded. No, we will not see that data until it's completed. And as I mentioned, the Angel trial is underway. That's also blinded and placebo controlled, but they can look at the data after each cohort, similar to what we did in our Phase I. So there will be a news flow from that in terms of the AD stuff. Graig Suvannavejh: Okay. And last question, if I could, just on hidradenitis suppurativa, just given coverage of some other companies that I have, I'm under the view that there are not very good preclinical models of HS and just wondering then how do you handicap success in HS when perhaps there are not very well established or good predictive models in HS? Richard Miller: You are correct, there are not good animal models for HS, but it's pretty clear in human studies that IL-17 is very important. Th17 and IL-17 are very important. And in fact, IL-17s are approved to treat it. So I think there's proof of principle already that if you can block IL-17, it should work. And we block IL-17 among the many other cytokines that we block. Hidradenitis suppurativa has a lot of different inflammatory cells, T cells, neutrophils, B cells, for example. And again, I think the advantage of soquelitinib is that since you're blocking multiple cytokine pathways, you actually affect many different lineages. And I think that's going to be important because when you look at the sites of disease, even in atopic dermatitis, you just don't see Th2 cells, you see a lot of different cells. So I think that, that's one -- I mean, I would say the best explanation for that is, hey, anti-IL-17 works in that disease. And we block it even better. Operator: And your next question comes from Jeff Jones from Oppenheimer. Jeffrey Jones: Since I think we've beaten HS to death, maybe talk about AD and how you guys are -- this is a different disease and indication than the dermatological ones. How are you thinking about dosing and your strategy there? Richard Miller: I think you mean asthma probably. Jeffrey Jones: Asthma, I'm sorry. Richard Miller: Yes, you mentioned AD. So well, as you know, atopic dermatitis and asthma frequently go together and drugs that work in one often work in the other. They seem to be part of the atopic syndromes. We have several -- now that's one where we do have several animal models and our drug works really well in those asthma models, 4 or 5 different models work. Soquelitinib works beautifully. In terms of dosing, I think it's the same dosing that we've talked about. The AD and PTCL studies inform the asthma. The asthma study is pretty much the same dosing regimens. There'll be no reason to change that. Jeffrey Jones: Okay. And then one... Richard Miller: Sorry, just to elaborate, remember, we have the best biomarker in the world, which is that -- and we've been doing this for years. You can give the drug, you take out the T cells from the patient, either in the blood or the sites of disease and you can measure quite accurately the drug sitting in the target. It is a clean quantitative assay. It blocks the function of that enzyme. That's a biomarker. And we know that when you give a 200-milligram dose, you pretty much completely block that. Sorry, Jeff. Jeffrey Jones: I appreciate that, Richard. And then on the ALPS trial, which you're doing with the NIH, can you maybe comment on how that -- the outcome of that might impact how you think about other indications or inform what you guys are doing? Richard Miller: So ALPS is a disease where you have such an overreactive autoimmune response to so many different things. They have antibodies to red cells and white cells and platelets and other things. And [indiscernible] and lymphocyte proliferation, abnormal lymphocytes. And we have seen really interesting results in our patients. So I think the -- that what we're learning there is similar to what we learned in lymphoma is that the drug is very active, it's safe and it's interfering with the signaling pathways that we would predict. Now I'm not sure I can say, okay, if it works in ALPS, it's going to work in lupus, even though the ALPS mouse equivalent is a model for SLE. But I don't think we're thinking of it that way. We're thinking of it as an indicator that we're affecting aberrant auto-inflammatory responses in a disease where there's no good treatments really. So it's kind of a model, if you will, but it's a human model. It is an orphan disease. There's no good therapies. Could you get approval for ALPS? Yes, you could. It's more of a childhood disease. We've been treating adults. We do intend to increase the number of sites, and we do intend to move down in age into children over the next year or so. We've been talking about that with NIH. So it's another indication, and it happens to be in autoimmune disease. Operator: And your next question comes from Aydin Huseynov from Ladenburg. Aydin Huseynov: Richard, congratulations for the tremendous progress so far this quarter in your pipeline in the drug soquelitinib. I got a couple of questions. So first, I wanted to ask about the near-term focus near-term Phase III readout interim analysis from the trial in PTCL. I was curious to hear any comments you may provide regarding the enrollment process so far? What types of PTCL you're actually enrolling? Is it NIS? Is it ALCL, follicular cutaneous? And what the physicians are using a standard of care prefer belinostat and pralatrexate? Just curious to hear overall dynamic of the trial. Richard Miller: Okay. So let's take that question first. So the trial is enrolling and it's going perfectly according to plan. The patients get randomized into either soquelitinib monotherapy 200 milligrams BID versus the investigator's choice of either belinostat or pralatrexate. Now recall, belinostat and pralatrexate are received conditional approval, accelerated approval maybe 15 years ago or so based on response rate in patients with relapsed PTCL. So in our discussions with FDA, that was the logical control arm. So soquelitinib versus those agents. Now it's not a blinded trial because you can't -- well, first of all, we don't usually do that in cancer, but you can't blind -- soquelitinib is oral, right, as we know. Belinostat and pralatrexate are given intravenously and have associated usual toxicities of chemotherapy, mucositis, blood count problems, things like that. So, so far, the trial is enrolling. We had our first safety monitoring board, and there were no new safety or different safety signals with regard to soquelitinib. Obviously, it's much safer than chemotherapy. So we win on every count on that. Now later -- now the types of patients that are enrolled are as stated in the protocol, are PTCL NOS, that's the most common one. We do allow anaplastic lymphomas that are ALK positive. The other big category would be what's called T follicular helper, which used to be what's called angioimmunoblastic lymphoma. So not CTCL. CTCL really is a little bit more of a chronic disease and is treated differently. So that's the reason not to include that in this trial. But it's pretty typical. These are the most common peripheral T-cell lymphomas. Now peripheral T-cell lymphoma, again, just to remind people, there is no fully approved treatment for relapsed disease. It has a median PFS and belinostat median PFS is 1.7 months. Pralatrexate is 3 months. And OSs are under a year. So those are really bad -- these are really bad disease. These are sick patients. I can tell you that we are very, very happy with the way the trial is going. And I think it could represent a very important breakthrough in hematology if we finish the trial and get the results that we're expecting. Does that answer your question? Aydin Huseynov: Appreciate that. I got another one for asthma, if you don't mind. Richard Miller: Sure. Aydin Huseynov: So yes, so regarding the upcoming trial design in asthma, do you plan to have a cohort with patients who may have both asthma and atopic dermatitis? And in your opinion, is there any accelerated path with small pivotal trial with patients with 2 diseases simultaneously. So essentially, that would allow soquelitinib to cure 2 diseases at the same time. And as we know, Dupixent is the only drug that treats both diseases, but maybe you can have it in one shot. Richard Miller: Well, that would be great. But I don't know -- so first of all, trying to get 2 indications on -- that's really very difficult. And you can get anecdotal information. I know some people report that. And we've had some anecdotal information about that. But the problem is you don't know how many patients are going to have both diseases concomitantly, how severe it is, what measurements you're going to use and how you power the study statistically for each disease. So it's really hard to do that. Anecdotally, it's something you would look at. You have to do a separate trial. And even Dupixent was separate trials for asthma and eosinophilic esophagitis and COPD and all those things. So it requires a separate trial. Now one thing we are considering is we're really very interested in, I would say, 2 things. One is this durability of response is quite interesting. And we think we have explanation for it. I think we have a very good immunologic explanation for it. It's very elegant and compatible with what's known about the immune responses and so forth. We also are very struck by the activity we see in patients who failed previous therapies. And I talked about that in my discussion here. So we are allowing and I don't know if I mentioned it, we are allowing patients who have failed prior therapies in our Phase II atopic dermatitis study. Now some people, many investors have been asking me, why don't you do a separate study in the resistant patients with atopic dermatitis. And that is something we are thinking about. That could be a smaller trial because the efficacy and the placebo do so -- the efficacy and placebo -- sorry, placebos do so poorly, you would presumably show a bigger difference with a fewer number of patients. But we are including both naive and experienced patients in our Phase II. I would do that in Phase III as well, which would enable you to get the total population of patients. But there's no doubt that with more and more therapies coming out in atopic dermatitis, the proportion of patients that are not treatment naive, that is that have failed the prior therapies, that pool of patients is increasing. And the pool of patients that is naive is going to decrease proportionately. Okay? So that the resistant patient becomes, I think, very attractive. So I would say the 2 exciting -- I mean, we have a lot of things that we're excited about with soquelitinib. It's oral and it's safe and all that other stuff. But the durability is, I think, a game changer, changes how you approach the disease. And I think the fact that you can think about frontline therapy or relapsed disease or multiple therapies, intermittent therapy. That's our -- it's the way we think about it. Aydin Huseynov: Congrats for the results. Operator: And your last question comes from Sean Lee from H.C. Wainwright. Xun Lee: To touch upon the durability a bit more. I think in the previous Phase I study, you guys followed the patients for up to 3 months. How long are you following these patients in Phase II? And is the study powering any way to really make a differentiation on the durability of this response? Richard Miller: So the Phase II trial has built in continued blinding of the trial out to 90 days beyond the therapy. So it's 12 weeks of therapy plus the 90 follow-up. That's baked into the protocol. However, the endpoint is the EASI score compared to placebo at 12 weeks, and that's the typical endpoint. To do something different would be sort of atypical. Now I think that in the future, this issue of how durable the responses are is something that you might study separately. But I think it stands to reason. I mean, we'll talk more about this, but we have over 90% of our patients don't relapse and follow-up now out to 3 months beyond the last dose. Over 90% of patients, disease just doesn't come back. Now you look at other agents, dupi, STAT6, whatever the IL-13s, IL-2s, whatever, these diseases come back pretty quickly. In my view, that's not a very good therapy. Best therapy is a shorter treatment duration. Disease goes away, you don't need to take your drug again for a long time, if at all, hopefully, but that's asking a lot. So the durability is important because it's important to understand why it's happening, does it pertain to other inflammatory diseases? In other words, how broad is that going to be? Is that unique to atopic dermatitis? Or is that something that you could think about for other autoimmune diseases? And that's why we're excited about that. But anyway, the answer to your question is in the Phase II, it is part of the formal follow-up is blinded, but it's not part of the statistical endpoint. The statistical endpoint is the typical one, which is EASI score at 12 weeks. Xun Lee: Okay. Got it. For the -- touching on the asthma study for our second question. As the upcoming study, will you be focusing on eosinophilic asthma with the Th2 high? Or are you targeting the more difficult to treat Th17 driven population as well? Richard Miller: We're probably going to -- so those are some of the things we're discussing now. We're leaning to taking everybody. Xun Lee: I see. Richard Miller: I'm actually -- Sean, I'm glad you brought that up because there's something -- some people say, well, we only treat Th2 disease. I don't know where that comes from. Some people said, "Oh, you're only selecting patients with atopic dermatitis that are Th2. First of all, I don't even know how to do that. But we're not doing that. Our atopic dermatitis patients are run-of-the-mill patients from U.S. centers. They have to have the necessary eligibility criteria, but we didn't enrich for any patient population. Most of our -- by the way, AD patients do not have eosinophilia. Their eosinophil counts are normal or little. So I don't think we're going to restrict it to the high EO asthma. Although I have to say the asthma study protocol has not yet been finalized, and that's still under discussion. Alright. Okay. Well, first of all, thank you, everyone, for participating in our call. We look forward to updating you throughout the rest of the year and beyond. Appreciate everybody's interest. Thank you. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the EHang Fourth Quarter and Fiscal Year of 2025 Earnings Conference Call. Please note that the management's prepared remarks and the subsequent Q&A session will primarily be conducted in Chinese, and the corresponding simultaneous or consecutive interpretation can be accessed on the English line. As a reminder, all translations are for convenient purposes only. In case of any discrepancy, the management's statements in the original language will prevail. To listen to the original remarks by the management, please join the Chinese line. Additionally, both the Chinese and English lines are open for questions. And today's call is being recorded. Now I will turn the call over to Anne Ji, EHang's Senior Director of Investor Relations. Ms. Anne, please proceed. Anne Ji: [Interpreted] Hello, everyone. Thank you all for joining us on today's conference call to discuss the company's financial results for the fourth quarter and the fiscal year of 2025. The earnings release is available on the company's IR website. Please note the conference call is being recorded, and the audio replay will be posted on the company's IR website. On the call today, we have Mr. Huazhi Hu, our Founder, Chairman and Chief Executive Officer; Mr. Shuai Feng, Chief Technology Officer; Mr. Zhao Wang, Chief Operating Officer; and Mr. Conor Yang, Chief Financial Officer. Before we continue, please note that today's discussion will contain forward-looking statements made pursuant to the 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 expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Also, please note that all numbers presented are in RMB and are for the fourth quarter and the fiscal year of 2025, unless stated otherwise. With that, let me now turn the call over to our CEO, Mr. Huazhi Hu. Please go ahead, Mr. Hu. Huazhi Hu: [Interpreted] Hello, everyone, and thank you for joining our call today. 2025 was a pivotal year for EHang as we strengthened our business foundation and made a meaningful progress towards commercialization. In Q4, we delivered a strong set of results. Quarterly eVTOL sales volume reached 100 units for the first time. Revenues grew significantly both year-over-year and sequentially, and we achieved our first ever quarterly GAAP profitability. For the full year, we delivered 221 units of eVTOL aircraft, setting a new record and successfully meeting our annual revenue guidance. We also achieved non-GAAP profitability for the second consecutive year. These results reflect years of sustained investment and disciplined execution across product innovation, regulatory certification, industrial ecosystem development and market expansion, laying a solid foundation for our commercialization progress in 2026. I am pleased to announce that the commercial operation of our flagship product, the EH216-S is entering the final count down. Following comprehensive preparation across our commercial operation system, we're about to officially open our commercial flight services to the public. After nearly a year of internal trial operations, we have established standardized procedures across the entire operational chain from route planning and fleet management to boarding services. At the same time, we have optimized our maintenance systems and safety assurance mechanisms while actively supporting the Civil Aviation Administration of China in advancing the training and certification program for our ground operating crew. Our 2 OC certified operators, EHang General Aviation and Heyi Aviation both plan to begin offering ticketed EH216-S flight services to the public this month and their operational sites in EHang Future City, our new headquarters in Guangzhou and Luogang Park in Hefei. This launch is expected to mark the world's first commercial service of pilotless human-carrying eVTOL aircraft. It also represents the completion of EHang's full life cycle ecosystem from technology development and airworthiness certification to manufacturing and commercial operations. Going forward, we are evolving from being an aircraft manufacturing to a comprehensive provider of integrated advanced air mobility solutions. 2026 marks the first year of China's 15th 5-year plan period. As the national strategic emerging pillar industry, the low altitude economy is embracing unprecedented strategic development opportunities. Supportive policy direction is now shifting from encouraging exploration to systematic advancement with the continued progress in aerospace management reform, airworthiness notification frameworks and infrastructure development. Together, these initiatives are creating a favorable policy environment for industry development. With that in mind, EHang's core strategy for this year are to move forward with a disciplined execution, strengthening our foundation while steadily advancing commercialization, operational ecosystem development and global expansion. First, it has been nearly a year since EHang obtained OC for EH216-S. Over the past year, we have been working intensively to expand our customer and partner base. At the same time, we built the operational systems required to support the commercial flights. This year, our top priority is to launch routine and scaled commercial operations of human-carrying eVTOL aircraft to the public, delivering reliable flight services and continuously improving the flight experience. Our goal is to transform scenes in science fiction into everyday reality for people. This is a milestone many people have been waiting for and so have we. But aviation has always been an industry that moves forward with patience and responsibility, especially when safety and human lives are involved. Second, we'll continue advancing our global expansion strategy. Taking the Thailand AAM Sandbox initiative as an example, we are steadily moving towards a commercial flight operations and established benchmark projects. I'm also pleased to share good news that EHang is expected to obtain the first commercial operation license for pilotless passenger eVTOL aircraft from the Civil Aviation Authority of Thailand, paving the way for regular urban air mobility services in the country. Third, we'll accelerate the commercialization readiness of the VT35. In 2026, our focus will be on advancing its time certification and conducting extensive flight test in more diverse and complex environments to fully validate its passenger flight capabilities. At the same time, we'll continue improving the performance of the EH216 series and expanding the deployment of nonpassenger products and applications, including firefighting and logistics, further broadening our market reach. Fourth, we'll further strengthen our end-to-end industrial chain integration capabilities by coordinating our R&D, manufacturing, supply chain and quality management systems. We aim to improve operational efficiency across the entire value chain, reinforce our long-term competitive advantages and contribute to the establishment of industry standards. EHang remains committed to the principles of safety first innovation-driven growth and collaborative development. We will continue advancing our technology and product innovation, expanding multi-scenario commercial operations and establishing AAM operational models in more regions around the world. At the same time, we're building a comprehensive business model combining technology, R&D, intelligent manufacturing, commercial operation services, infrastructure collaboration and industry education and integration. We believe the low altitude economy industry will evolve from demonstration programs to scale commercial operations and then to public accessible services. It will become a vital engine for activating 3 dimensional aerospace resources and cultivating new forms of consumption, truly transforming the industrial values into economic and social benefits. At this important starting point of a pivotal year, our newly appointed Chief Technology Officer, Feng Shuai, is also joining today's earnings call. Under my leadership, he will oversee our technology R&D, supply chain management, manufacturing and quality system development, driving a more integrated end-to-end management approach from technology innovation to product delivery. By strengthening coordination and the integration across the entire industry chain, we believe our innovation capability, product competitiveness and overall execution will continue to improve. With that, I would like to hand the call over to Feng Shuai. Thank you. Shuai Feng: [Interpreted] Thank you, Mr. Hu. Hello, everyone. I'm Feng Shuai, CTO of EHang. It is a great honor to join today's earnings call for the first time. I am pleased to share our progress in 4 key areas during the fourth quarter. R&D, production and manufacturing, quality management and supply chain assurance, which we refer to as the RPQS Center. We'll also briefly outline our priorities for 2026. The RPQS Center is the core engine of our technology and industrial execution. We focus on technology innovation as the foundation, production capacity as the driver, quality control as the bottom line and supply chain as the cornerstone. Together, these capabilities support the development, commercialization and scale delivery of our products. Let me walk through the key highlights in each area. Starting with R&D. The fourth quarter of 2025 marked a major breakthroughs across our core product. Our flagship passenger carrying aircraft, VT35 completed multiple critical tests, including multicopter protected transition flights and locked-to-prop fixed wing flights. The aircraft also successfully completed its first public demonstration flight in Hefei after its grand debut in October. During the quarter, we held the first type certification team meeting with the CAAC, marking a key step forward in the airworthiness certification progress. We are currently conducting flight envelope testing and aim to obtain the type certification in China within the next 2 years. For the nonpassenger business, we are also developing and deploying product and system lines under multiple application scenarios. Our new GD4.0 formation drones set a Guinness World Record with 22,580 units flying simultaneously at the China Spring Festival Gala, significantly announcing our brand visibility and generating strong demand for both drone products and performance services. In the firefighting aircraft program, we are upgrading the current models while advancing the next-generation R&D to support emergency response scenarios. For logistics, we are accelerating the development and first flight of the VT series lift and cruise cargo aircraft, developing longer endurance aerial logistics applications. At the same time, our proprietary command and control system continues to evolve as a city-level digital infrastructure platform for a low attitude economy is now being trial operations in Hefei, providing solid tech support for future skilled commercial operations and air traffic management. On manufacturing, we continue to expand our production capability and enhance the smart manufacturing capabilities during the fourth quarter. The Phase II expansion of our Yunfu production facility was successfully completed, bring our total plan annual capacity to 1,000 units of the eVTOL aircraft and components. The automated production lines have entered a trial product to stage and our smart manufacturing systems will further improve production efficiency and supply chain management. Meanwhile, additional facilities in Hefei, Weihai and Beijing are progressing as planned. Our nationwide manufacturing footprint is steadily taking shape. We follow a manufacturing to order approach, ensuring stable production planning while preparing large-scale deliveries in the future. On quality control, we maintain strict end-to-end quality control across the entire product life cycle. Throughout 2025, our quality management system delivered strong performance with steady improvements across all key indicators. The post-certification airworthiness review for our [ PC ] achieved the third zero defect pass and the EN9100 audit continues to pass. On supply chain, during the fourth quarter, we further expanded our supplier network and strengthened our supply chain resilience. Our core supplier system remained stable with a 100% on-time delivery rate for key components, fully supporting our production and deliveries. Going forward, we will continue our strategy of maintaining strong partnerships while introducing additional high-quality suppliers. This approach will strengthen our stable and scalable supply chain, providing support for future capacity expansion and new model development. The low attitude economy represents a new frontier for technological industrial innovation, strong R&D and smarter manufacturing capabilities are the foundation of our long-term competitiveness. As CTO, I'll continue leading the RPQS team to drive technology innovation, advance product development and certification, expand manufacturing capacity and smart production capabilities, maintain strict quality standards and strengthen supply chain resilience. Our goal is to efficiently translate technological innovation into real commercial deployment and provide a solid technical and industrial support for the company's long-term growth. With that, I'd like to turn the call over to our COO, Mr. Wang Zhao, for our sales and operations update in more detail. Thank you. Zhao Wang: [Interpreted] Thank you, Mr. Hu and Mr. Feng. In 2025, we advanced our business across 3 key priorities: safety, operations and commercialization. For the full year, we generated RMB 509 million in revenues and delivered 221 units of eVTOL aircraft, including 215 units of EH216 series and 6 units of VT35 series. Our Q4 performance reached a new high. We delivered 95 units of EH216 series and 5 units of VT35 series, generating RMB 240 million in revenues. In China, we continue to deepen our presence in key cities and build flagship partnerships. In Hefei, our collaboration with the local government expanded from a single product to a full product portfolio. The corporation now covers multiple applications, including the EH216 series human-carrying and firefighting versions, the 5 VT35 the GD4.0 formation drone. We also continue to strengthen our partnership with Anshun in Guizhou Province and Guizhou Tourism Group. In Q4, 30 units of EH216-S were delivered to the local market, bringing total deliveries to 50 units to this customer, supporting the development of a local low attitude economy applications. Building operational capability has been a major strategic focus throughout the year after EHang General Aviation and Heyi Aviation obtained their operator certificate in March 2025, we began to conduct extensive internal testing and operational optimization across the entire service process, from ticket booking and on-site verification to boarding and flight operations to ensure a seamless user experience. At the same time, we have established a comprehensive set of standard operating procedures covering battery charging, maintenance and fault troubleshooting to ensure the continued airworthiness and operational stability of the fleet. Based on the safety and operational experience we have accumulated, we plan to officially launch commercial operations with the EH216-S in this month. EHang General Aviation and Heyi Aviation will begin selling flight tickets to the public offering EH216-S pilotless aerial sightseeing our headquarters in Guangzhou and Luogang Park in Hefei. The public will be able to book flights through the EHang Trip and the Heyi Aviation mini programs with an early bird discount price of RMB 299 per person. This will be the world's first ticketed commercial service for pilotless human-carrying eVTOL in the urban air mobility industry, transforming the low altitude economy from a concept into a reality that is accessible to the general public. Over the past year, we have carefully refined every aspect of the operation. Our approach has always been safety first, experience-focused and sustainability driven. Delivering a high-quality flight experience for our passengers in the initial phase is crucial to building public trust and supporting long-term market adoption. Looking ahead, we will leverage the experience from our OC certification and operations to develop a comprehensive operational solution covering [indiscernible], planning, routes design, ground crew team training and operational system set up. We plan to replicate this model across more locations in China and overseas to support our customers and partners in launching commercial operations. It is worth noting that we are building a core note for our operational capabilities, a professional talent system. We're actively working with the CAAC on the trial project for the administration of licenses for the ground operating crew of large civil unmanned aerial vehicles. We have completed multiple rounds of validation and refinement of training courses. Recently, the CAAC has expanded the number of special approval license to ground operating crew for us, providing additional talent support for our upcoming commercial operations. Beyond meeting immediate operational needs, this initiative is helping establish a long-term industry talent training system. Together with the regulator, we are converting our front-line operational experience into standardized training procedures. This helps establish professional standards for a new generation of aviation talent and strengthens the safety foundation of the industry. Over time, this training framework will enable us to support partners and export our operational capabilities as commercial operation expands. On the international front, the Thailand AAM Sandbox program remains our key focus. Since its launch in October last year, we have completed a series of verification flights and ongoing trial operations. We are now working closely with the Civil Aviation Authority of Thailand to obtain the first commercial operation license under the Sandbox initiative. If approved, this could become the first overseas commercial operation of a pilotless human-carrying eVTOL. The initial Sandbox areas are planned near the IMPACT Challenger International Convention Center in Bangkok, which will also host the ICAO Second Advanced Air Mobility Symposium or AAM 2026. The CAAT and local partners have set a clear goal of operating up to 100 eVTOL aircraft across 20 Sandbox areas by the end of 2026. Our plan is to establish talent as a model for overseas operations and gradually replicate this model in South East Asia and other [ belt and road ] market. Overall, in 2025, we maintained a disciplined approach to growth, focusing on strengthening our product, manufacturing and operational systems under a strict framework of safety and regulatory compliance. We believe that building these foundational capabilities is essential to support sustainable growth and scalable international expansion in the years ahead. At the same time, the low altitude economy industry is entering an important policy window. China's 15th 5-year plan has elevated the low altitude economy to a level of strategic emerging pillar industry. This signals the transition from early demonstration programs to a new phase of national level industry development. The low altitude economy has also been formally incorporated to the newly amended civil aviation law of China, which took effect in 2026. Looking ahead to 2026, we believe the company is entering a new stage of development. Over the past several years, we have been systematically building the key capabilities required for the urban air mobility industry, including aircraft R&D, airworthiness certifications, smart manufacturing and commercial operation readiness. As these foundational capabilities continue to mature and integrate, we see 3 important shifts in our business model. First, our revenue streams will gradually become more diversified. Applications beyond a passenger transportation, including logistics, aerial firefighting solutions and commanding control systems are progressing steadily and could become additional growth drivers as the market evolves. Second, we're evolving from an aircraft provider to a one-stop low attitude operation solution provider, leveraging the operational experience of the EHang General Aviation and Heyi Aviation, along with our standardized operating systems, and we will offer integrated solutions to customers. These include aircraft deliveries, [ vertical ] construction, route planning, team build up and training and operational guidance. Third, we're establishing a clear pathway for overseas expansion that combines regulatory Sandbox programs, partnerships with local operators and systematic deployment of our technology and operational capabilities. Thailand is the first to market where this model is taking shape, and we expect to gradually expand to other regions, including Southeast Asia, Central Asia and the Middle East as global regulatory framework continue to evolve. Overall, we remain committed to a strategy of safety first and disciplined execution. For 2026, we are targeting RMB 600 million of annual revenues while continuing to scale the business at a more steady pace. As the industry is still in its early stages, we'll continue to work closely with regulators, partners and local governments to help move the low altitude economy from demonstration programs to a broader commercial adoption, unlocking the long-term potential of urban air mobility as the new form of transportation. Now I'll turn it over to our CFO, Conor, to walk us through the financial results. Chia-Hung Yang: [Interpreted] Hello, everyone. Before I go into the details, please note that all numbers presented are in RMB unless otherwise stated. A detailed analysis is available in our earnings press release on the IR site. Now I will present some key financial data. In Q4 2025, the revenues were RMB 243.8 million, up 48.4% year-over-year and 163.6% sequentially. The quarterly increase was primarily driven by higher sales volume of our products, including 95 units of the EH216 series and 5 units of VT35 delivered this quarter. For the full year, the total eVTOL deliveries reached 221 units and revenues totaled RMB 509.5 million, representing 11.7% increase year-over-year, surpassing our annual guidance. This growth reflects the sustained market demand for our products as well as our effective execution and delivery management, customer support and commercial operation readiness. Gross margin in Q4 was 62.1%, improving from 60.7% in Q4 of 2024 and 60.8% in Q3 of 2025. For the full year of 2025, gross margin was 62%, improving from 61.4% in 2024. As production scale expanded, overall cost efficiency continued to improve. Overall, the company maintained a gross margin above 60%, reflecting our strong product competitiveness, scaling production capability and display cost management in the eVTOL sector. Turning to operating expenses. In Q4, adjusted operating expenses, defined as operating expenses excluding share-based compensation, were RMB 99.3 million, representing a 26% year-over-year increase from RMB 78.8 million in Q4 2024 and an 11.4% increase from RMB 89.1 million in Q3 2025. For 2025, adjusted operating expenses were RMB 348.9 million, representing a 20% increase from [ RMB 290.1 million ] in 2024. The increase in operating expenses was primarily driven by the continued R&D innovation, expansion of our product sales and the company's commercialization efforts. As we scale our business, we have strategically expanded our sales network, strengthen our operations team and added a key R&D talent, while maintaining ongoing investments in the development and iteration of new eVTOL models like VT35 and EH216-F series and et cetera, and related technologies to enrich our product pipeline and lay the groundwork for future revenue streams. As the company's revenue continues to grow with operating expenses increasing modestly, operating efficiency has been steadily improving, particularly in the fourth quarter where overall profitability saw a significant improvement. In the fourth quarter, we achieved our first quarter of GAAP profitability with net income reaching RMB 10.5 million. Adjusted operating income for the fourth quarter reached RMB 54.3 million, representing a year-over-year increase of 99.5% and a substantial sequential turnaround from a loss. Adjusted net income for the fourth quarter was RMB 71.5 million, up 96.4% year-over-year, also achieving a sequential return to profitability. On a full year basis, the company recorded a second consecutive year of profitability under non-GAAP measures with adjusted net income of RMB 29.4 million in 2025. This not only underscores that we have captured the right direction for profitable growth, but also demonstrates our ability to translate the operating leverage into sustainable financial returns. Looking ahead to 2026, the company will continue to advance the commercial operations and sales of the EH216-S, expand its nonpassenger business and further penetration into international markets. Full year total revenues are expected to reach RMB 600 million, representing a year-over-year increase of approximately 18%. As our manufacturing and operational systems continue to mature, overseas Sandbox projects progress, global market expansion accelerates and ongoing investment in next-generation products, the foundation for our long-term growth continues to solidify. This requires us to strike a balance between strategic execution and financial discipline in our resource allocation, ensuring that every investment translates into sustainable long-term value. We will remain committed to controlling risks and enhancing efficiency and make our expansion, solidifying the financial condition for the next phase of high quality and sustainable growth and delivering long-term and stable value to our shareholders. Thank you. Operator: [Operator Instructions] Your first question comes from [ Peggy Wang with MS. ] Unknown Analyst: This is [ Peggy ] from Morgan Stanley. Congratulations on good first quarter results. So I have 2 questions today. First, it's about the license for ground operating crew since we now expect to begin commercial operation in China soon. So could, management team, could you share some more color on the progress of getting those required license for the crew team? And the second one is about the projects in Thailand. Since we are also close to obtaining license for commercial operation, what is the expected timing of revenue contribution? And how will the volume ramp up going forward? So these are my questions. Unknown Executive: [Interpreted] This is Wang Zhao. I will take your first question. As mentioned previously, we are still moving forward with the operator training program. All training materials have been submitted to the CAAC for approval, and several courses have already been authorized. We expect the first class for operators to begin in the first half of the year. The good news is that to encourage qualified operators to conduct early commercial operations, the authorities have expanded the number of specially authorized operators for EHang. In the short term, we can conduct commercial operations through these operators. In the long term, we will replenish our talent pool through the operator training program. Thank you. Chia-Hung Yang: [Interpreted] This is Conor. I will take your second question. Ever since last October, we have been conducting extensive test flights and trial operations in Thailand. The Civil Aviation Authorities of China and Thailand have communicated thoroughly and they have reached a consensus on mutual airworthiness recognition. This work is now nearing completion. We expected to obtain the first overseas commercial operation license for the EH216-S pilotless eVTOL aircraft following final approval from the Civil Aviation Authority of Thailand. So this would mean that we would truly achieve a normalized urban air mobility services. With the specific to the commercial operations side, they are still under planning. So it will be through the Sandbox initiative. So once obtaining the Sandbox commercial operation permit, the local customers will start to move forward with the purchase orders and deliveries. So we are expecting that to start in Q2. If the progress goes smoothly, there could be dozens of units for the full year of 2026. Thank you. Operator: Your next question comes from Wei Shen with UBS. Wei Shen: [Interpreted] this is Wei Shen from UBS. Congratulations on strong results. So I've got two questions. One is on the current policy changes in the domestic low attitude industries because we saw more [ colors ] mentioning about this industrial sector in the 2 sessions meetings. And my second question is on the overseas market sales guidance, whether management could share any? Zhao Wang: This is an Wang Zhao. I'll take your first question. Generally, we believe the overall macro environment in 2026 will be better than in 2025. As you know, the 15th 5-year plan has lifted the low altitude economy to an emerging pillar industry or strategic pillar industry, and the level of -- or intensity of resource allocation and policy support for this industry will be greatly enhanced in the future. And also the development of the low altitude economy was included in the newly issued civil aviation law, which will take effect this July. So this means the industry is entering a new stage where it's going to be ruled by law, governed by law and regulations and standard systems at all levels will be gradually established. This is a necessary path for the new aviation industry. For EHang, we are at the forefront of this industry, and we are contributing first-hand experience to the standard construction. And also, we expected the overall market environment to improve. Chia-Hung Yang: This is Conor. I'll take your second question. On the overseas revenue, so the overall revenue guidance for 2026 is RMB 600 million. The overseas revenue in 2025 was in low single digit as a percentage. Looking ahead to this year, as the overseas commercial operations take place in countries like Thailand, the overseas revenue is expected to increase significantly compared to last year. If things progress well, we may expect to see the revenue contribution move into the double digit as a percentage of the overall revenue. Operator: Your next question comes from Laura Li with Deutsche Bank. Xinran Li: So I want to ask about the [ RMB 600 million ] revenue guidance. So what are the assumptions underpinning that? Could you talk about diversifying the revenue through different models or the service revenue versus aircraft delivery or the OEM model versus operator model or the overseas market. So how do you see this play out during this and next year? Unknown Executive: So Laura Li, right? Xinran Li: Yes. Unknown Executive: [Foreign Language]. Operator: This is the conference operator. We have temporarily lost connection with the speaker line. Please continue to hold, the conference will recommence shortly. [Technical Difficulty] Zhao Wang: [Interpreted] This is Wang Zhao. I'll take your question. Well, in addition to the human-carrying eVTOL business, we will proactively develop the nonpassenger segment this year such as emergency firefighting, logistics, GD4.0 drone formations and command and dispatch systems. You can see that actually, we delivered 8 firefighting aircraft in December 2025. Meanwhile, during the Chinese Spring Festival Gala, our formation performance of 22,580 drugs earned EHang a new Guinness World Record and attracted significant attention. This, like I said, attracted significant attention for EHang, leading to a surge in inquiries for this business. These are all achievements from our diversified aircraft models and nonpassenger business. With our opening of commercial operations and ticket sales to the public in March, EHang General Aviation will generate some operational service revenue. But of course, the initial contribution to the overall revenue won't be large. But nevertheless, this is a good start. Thank you. Operator: Our next question comes from Fuyin Liang with Bank of America. Fuyin Liang: I have two questions for the management. The first one is about our commercial operation plan in this month in China. So initially, how do we expect the fleet size of our commercial operation in the 2 cities in China? And given the current fair price, how do we think about the unit economy model? And what's the profit margin of this operation? Unknown Executive: [Interpreted] So initially, there will be around 6 to 10 aircraft, and we will gradually increase the number of eVTOL to be used for the commercial operations. And the early bird ticket price for each passenger is set at RMB 299 per person, which will basically cover the flight costs. With the specific data, I think we'll have to give it a period of time before we can disclose further details to the public. Fuyin Liang: My second question is about our cost control. EHang had a very good OpEx control in the last quarter in 2025. So what's the reason behind that? Looking at 2026, how do we expect the OpEx and also the OpEx to sales ratio? Chia-Hung Yang: [Interpreted] This is Conor. I'll take your second question. Yes, you're right. Overall, the [ SBC ] expenses in 2025 were lower in that of 2024. So that resulted in a smaller-than-expected increase in OpEx. Looking ahead to 2026, the year-over-year growth rate for OpEx is expected to be lower than our revenue growth rate. So we are setting our revenue growth year-over-year at [ 18, ] -- from [ 18 ] and our OpEx is going to be definitely lower than that. Operator: Your next question comes from Alan Lau with Jefferies. Alan Lau: Congratulations for the company for the strong results in 4Q and also achieving commercial operation in March. So my first question is regarding to the strong delivery in fourth quarter. So we saw the company deliver units on a single quarter. So I would like to know who are the major clients contributing to such strong delivery? And do you expect further orders from the same clients? Zhao Wang: [Interpreted] This is Wang Zhao. The growth in the Q4 deliveries was primarily the result of the year long marketing efforts in 2025. Many of them were not new Q4 customers. But actually, customers who we have been discussing specific operational plans and scenarios over the previous quarters with. And that finally result in the deliveries. And like I said, so the engagement with these clients finally lead to the deliveries in Q4. Some of them were repeat customers. And the key contributions come from clients from Hefei, Wencheng, Xiamen, Guizhou, Sichuan and Guangzhou, and we expect some repeat orders or purchases from repeat customers as well in the future. Alan Lau: That's very clear. And then my second question is regarding to the commercial operation in March. So I would like to know some specifics. Firstly, do you have an exact date on when the app will be launched or the public can book their flights in the program? And then is it [ point A to point A ] flight and each time, it's 1 or 2 persons? Unknown Executive: [Interpreted] Yes, our commercial operations will be launched in March. We haven't yet disclosed the exact date as we are still fine-tuning the booking platform, the mini program. But operational readiness wise, we are ready. And as for the route, it is -- the flight is for tourism purposes, and it's from point A to point B, carrying 1 passenger. We believe this is enough to fulfill the needs of the customer. Operator: Your next question comes from Chen Yu with GUANGFA Securities. Unknown Analyst: [Interpreted] So my question is on the OC application for the existing customers or clients. So what is the company doing on the company side? And what initiatives or efforts is the company putting in to facilitate the OC application? Are there any time lines that can be shared on the OC application for these existing clients? And my second question, I'm not sure whether any other analysts have already asked the same question. Are there any updates on the QC or airworthiness application for VT35? What's the current plan? Are there any adjustments, changes or updates on that? Zhao Wang: [Interpreted] This is Wang Zhao. I'll take your first question. There will be 2, so 2 customers that have obtained the OC and their commercial operation will start to accumulate very valuable experience and become a demo of project for the rest of their clients. And we expect the training for the ground crew to begin in the first half of the year. So this will start to build the solid foundation for the expertise that's needed to conduct the commercial operation. And this would also increase the talent pool required to support the commercial operations of other clients. And particularly, our client from Guizhou has already submitted their materials for the OC. And furthermore, the policy environment is much more favorable compared to that in 2025. And we have done a lot of work, and we are ready. So we believe as we make more progress on these applications, there will be more customers that can apply and obtain their OCs in this upcoming year. Shuai Feng: [Interpreted] This is Feng Shuai. I will take your second question on VT35 certification progress. In Q4, our VT35 completed key tests, including multi-rotor protective transition and shut down and locked propeller fixed-wing flights. Additionally, we've also held a first TCT meeting for airworthiness review. And we are currently conducting flight envelope tests. We are aiming to obtain the type certification in China within 2 years. Operator: Thank you all. Given that time is limited, let me turn the call back to Ms. Anne for closing remarks. Anne Ji: [Foreign Language] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.
Operator: Good day, everyone, and welcome to the Saga Communications Fourth Quarter and Year-End 2025 Earnings Release and Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours. Christopher Forgy: Thank you, Matt, and it's good to have you again as our host for the conference call. And I want to thank everyone who's taken the time to join Saga's 2025 Q4 and year-end earnings call. Trust me when I say it is great to be here with all of you today. We appreciate your continued support, your interest and your participation in Saga Communications. What we believe is the best media company on the planet and not to mention the most pristine balance sheet to match. So before I make my remarks, I'd like to turn the floor over to our Saga's EVP and CFO, Sam Bush for his comments. Sam? Samuel D. Bush: Thank you, Chris. This call will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables. For the quarter ended December 31, 2025, net revenue decreased $2.7 million or 9.3% to $26.5 million compared to $29.2 million last year. A large part of the decline in the quarter was due to reduced political revenue. For the quarter in 2025, gross political revenue was $254,000 compared to $2 million for the fourth quarter of last year. Station operating expense decreased 1.9% or approximately $400,000 to $22.9 million for the 3-month period. For the 12-month period ended December 31, 2025, net revenue decreased $5.8 million or 5.1% to $107.1 million compared to $112.9 million last year. Almost half of the decrease was due to reduced political revenue. For the year in 2025, gross political revenue was $650,000 compared to $3.3 million for 2024. Station operating expense was flat with 2024 at $91.8 million. We had 2 unusual factors that negatively impacted our fourth quarter and year-end results. A noncash impairment charge as well as the previously disclosed retroactive industry-wide rate settlement with 2 of the music licensing organizations. Recorded in the fourth quarter and also impacting the year ended December 31, 2025, we recorded a noncash impairment charge of $20.4 million, which included a charge of $19.2 million, which represents all the remaining goodwill that was previously included on our balance sheet, along with a charge of $1.2 million representing a reduction in the value of our FCC licenses in one of our markets. We recorded an operating loss of $9.5 million compared to operating income of $1 million for the fourth quarter. Without the impairment charge, operating income would have been $10.9 million for the quarter. We reported a net loss of $6.9 million for the fourth quarter compared to net income of $1.3 million last year. Without the impairment charge, we would have reported a net income of $8.2 million or $1.27 per share compared to $0.20 per share for the same period last year. For the year ended December 31, 2025, we recorded an operating loss of $11 million compared to operating income of $2.4 million for 2024. Without the impairment charge, operating income would have been $9.4 million for 2025. We reported a net loss of $7.9 million for the year ended December 31, 2025, compared to net income of $3.5 million last year. Without the impairment charge, we would have reported a net income of $7.2 million or $1.11 per share compared to $0.55 per share for the same period last year. The music licensing settlement also impacted the operating income as it increased year-end 2025 station operating expense by $2.2 million. Station operating expense for the year would have decreased by 2% in comparison to 2024 instead of being flat year-over-year. We spoke about this more in our third quarter release and conference call. As stated in the press release, the company closed on the sale of telecommunications towers and related property on October 17, 2025. This has actually been in the works for quite a few years. And finally, we're able to get the transaction we thought was the best for us and move forward on it and pulled the trigger on the closing. We recognized a gain of $11.6 million. The total proceeds including both cash and noncash, was $15.1 million. The noncash proceeds are the recognized value of the long-term nominal cost leases we entered into as a part of the transaction as we continue to operate at each of the sites we sold. The net cash proceeds from the sale after expenses was $9.8 million. This does not include the approximately $400,000 being held in an escrow account pending finalizing the landlord's consent to the transfer of 1 final tower. We anticipate this transfer will take place in the second quarter of 2026. This transaction allowed the company to monetize 24 own towers that were not reaching the full potential of tower space leased to external tower space users. Additionally, the towers were monetized at a significantly higher valuation than was being recognized in the company's overall market valuation. We will have a noncash expense reported of approximately $50,000 per quarter in 2026 or $200,000 for the year based on the accounting treatment required to record the noncash gain given the favorable lease terms we have as we continue to operate on the towers we sold. The company paid a quarterly dividend of $0.25 per share on December 12, 2025. The aggregate value of the quarterly dividend was approximately $1.6 million. The company declared a quarterly dividend of $0.25 per share on February 12, 2026, with a record date of February 26, 2026 and a payable date of March 20, 2026. With the most recent declared dividend, Saga will have paid over $143 million in dividends to shareholders since the first special dividend was paid in 2012. The company also repurchased 219,326 shares of its Class A common stock for $2.5 million during the year ended December 31, 2025. The company intends to pay regular quarterly cash dividends in the future. Consistent with its strategic objective of maintaining a strong balance sheet, and with returning value to our shareholders, the Board of Directors will also continue to consider declaring special cash dividends, variable dividends and stock buybacks in the future. The company's balance sheet reflects $31.8 million in cash and short-term investments as of December 31, 2025, and $31.5 million as of March 9, 2026. The company expects to spend approximately $3.5 million to $4.5 million for capital expenditures during 2026. I want to emphasize that for the quarter, total Interactive revenue was up 25.8% and for the year up 19.1%. The first quarter is currently pacing down mid-single digits with Interactive up 26.4%. We still have a ways to go before the increases in interactive revenue outpaced the decline in traditional broadcast revenue. Including political revenue, the second quarter is currently pacing down, and we expect to end up down mid-single digits. We are expecting return to revenue growth, including political in the second half of 2026 with revenue increasing in the range of mid-single digits. To increase the pace of the transition, we are continuing to move forward with a plan to add resources to build the digital infrastructure we need to process the interactive orders that the blended sales process is developing as well as to provide our local management teams in a number of markets that don't already have them with sales managers as well as digital campaign managers. This will allow our media advisers to spend more time calling on existing and potential clients to solicit new business as they will now have the assistance they need to help build the unique blended campaigns that are required to grow our digital business and mitigate the decline in radio ad spend. It also allows us to have the talent to monitor the performance of the blended campaigns, which will allow us to retain a higher percentage of return blended clients. The expense of this initiative will initially be more costly than the revenue it will bring in, but it is a necessary expenditure to be competitive with other digital companies and to better serve our clients in meeting their advertising needs. In totality, this will increase our market expenses $1.5 million for 2026. We have already hired most of the digital infrastructure team and are in the process of finding the right individuals for sales and campaign management. These hires will occur in the second and third quarters. We expect that having the infrastructure team in-house will reduce our digital fulfillment costs going forward. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and interactive revenue. We currently expect that our station operating expense will be flat for the year as compared to 2025 when not considering the digital initiative expenses and up 3% to 4% when including an estimate for the digital initiative. We anticipate that the annual corporate general and administrative expenses will be approximately $12.3 million for 2026 and flat to 2025. And with that, Chris, I will turn it back over to you. Christopher Forgy: Thank you, Sam. Great job. Some of you may remember the 1990s uncelebrated film produced by Saturday Night Lives, Lorne Michaels. It was written by Steve Martin, a Canadian. It was called the 3 Amigos, and it featured Chevy Chase, Martin Short and Steve Martin. I won't bore you with the story, but there was a time when Saga also had its own version of the 3 Amigos. In fact, they call themselves that. These 3 Amigos consisted of Saga's founder, Ed Christian, and 2 of his closest friends and consiglieres Dave Stone and Al Lucareli. Unfortunately, all of these amigos have passed on. But the message that the last living member of the Saga amigos gave may before he passed still lives today and drives Saga's operational culture. Just 3.5 short years ago, at Ed Christian's Wake, Al Lucarelli sat down next to me after almost everybody had left the wake and said these words to me. And I quote "Chris, as only the second President and CEO of Saga's ever known, whatever you decide to do next, do it fast, do it with force and do it with purpose." We immediately want to work on the transformational change we've been talking about on these earnings calls for the past 3 years. We began to diversify our top line mix of deliverables, including our e-commerce platform, which is up 16% year-over-year and has created $2.5 million in local direct revenue in our Saga markets in 2025. Our 17 hyperlocal online news sites to complement and add credibility to our over-the-air news product grew year-over-year by 18% and contributed over $2.5 million in revenue and delivered a 31% margin, excluding sales commissions. The 2 blended solutions we use most to get advertisers wanted found and chosen, which are search and display. Search was up 59% year-over-year and generated $2.2 million and targeted display was up year-over-year, 44.8% and accounted for nearly $3.5 million. Online streaming went from a revenue stream designed really simply to over offset third-party streaming costs to transform itself into a robust vertical we rely on heavily. This stream was up 8.6% year-on-year in total. And in all of the digital revenue initiatives, as Sam mentioned earlier, we were up 19.1% year-over-year and growing. We then put into action special capital allocation and capital management plan, which included an ongoing quarterly dividend of $0.25 per share, three $2 special dividends paid to our shareholders on 10/21 of '22, January 13, '23 and January 12, '24 and followed by a $0.60 variable dividend paid on April 7, 2024. Next began a longer-term capital allocation strategy, which included a stock buyback plan. We did this by providing the means to fund this buyback without depleting any of our operational cash on hand or by adding any additional debt to our balance sheet. This entire project and then some was accounted for selling 22 of our Saga's tower sites. This plan also allows Saga to provide additional research and development and the resources necessary to develop our own growing digital platform. While this was going on, we also began and has since continued the process of expanding and diversifying Saga's Board of Directors. We also began to look for ways to cut local market expenses to create a more nimble and efficient operation while we were building the infrastructure of our digital platform. Expense reductions totaled over $1.4 million. We also began the process of selling several nonproductive assets to allow us to obtain a monetized value for the assets that is higher than the amounts recognized in the company's overall market valuation. One example is we listed for sale, the company's owned home located in Sarasota, Florida. This process was delayed, however, due to the timing of several hurricanes that ravaged the Gulf Coast. That has settled down and the market looks much more healthy for a sale. And finally and most importantly, after observing the iterations and reiterations of both our own and those of our brethren, we continue to settle in and teach and train our leadership team and our media advisers on what we refer to now as the blend. The blend is an advertiser focused, not product-focused approach. That relies on a few things we knew and a few other observations we made along the way. Saga's digital transformation strategy is an advertiser first approach that also honors, protects and grows our core competency, which is and always is radio. Now this is not easy. As I've said before, it's been very taxing on our entire operation. It's transformational, but growth requires change and change requires conflict. So so far, the juice is worth the squeeze. So how do we do this? First, by accepting and counting on the fact that radio always and only leads to a search. Radio always and only leads to research, and that's okay. Saga's digital strategy is designed to get our advertisers wanted, found and chosen more often by persuading more buyers and consumers to click on their website, call or visit their business and to search them online. You may wonder, so why sometimes the overzealous confidence in your plan, it really comes from what we know, as I mentioned earlier. And according to eMarketer, of the hundreds of billions of dollars that are spent each year in advertising, nearly 75% of these dollars are being spent on digital advertising. That number is expected to climb over 80% in 2029, just a few short years. Yet radio as an industry has laid claim to a pedestrian 0.067 or a little more than 0.5% of the digital advertising dollars that are spent, which totals in the neighborhood of $2 billion in digital ad revenue. We, radio cannot win or even compete with an approach like this. So we have to do something different. So there's clearly a significant increase in digital ad spending, and it's growing and these buyers are frustrated with unmet needs. They don't like what they're buying or who they have to buy it from. They claim they trust local radio salespeople for most of their market knowledge and advice that aren't buying it from us. Thus, education and training is key for our leadership and for our media advisers. There are too many providers with too many conflicting solutions and businesses don't know who to trust. So in this disruptive market, we need to provide simplicity, clarity and transparency to wins. And there's also a shift happening in the way consumers are buying today in the consumer behavior. Advertising strategies haven't caught up with the journey people take when they buy. There's a gap of tech meets human behavior. The blend closes that -- so in closing, the impact of all the work we have done in training, research and development and overall transformation. Not to mention the results we've seen, has galvanized our Board of Directors, our corporate team, our market leadership teams, our media advisers, our business offices, our on-air teams of content creators and our directors of content creation to finish what we started, hence, the accretive investment Sam discussed and the acquisition of people and expertise to allow us to continue to provide and build a digital strategy that is easy to understand, easy to buy, easy to execute, easy to measure and easy to renew and to buy. So again, as Al Lucarelli said, "Chris, whatever you do, do it fast, do it with purpose and do it with force." That is what we've anticipated doing and have been doing for the last 3.5 years, and we'll continue to do until the job is finished. Sam, do we have any questions? Samuel D. Bush: First, not today. But I think we can turn it back over to Matt to wrap up. Christopher Forgy: Thank you again for joining us on the Saga Q4 and year-end earnings call. We really appreciate it. I personally appreciate it. And again, trust me when I say, I'm more than happy and grateful to be here on this call today. Thank you so much. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings. Welcome to CareCloud, Inc. Fourth Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Brendan Covello, Corporate Counsel. Please begin. Brendan Covello: Good morning, everyone. Welcome to CareCloud's Fourth Quarter and Full Year 2025 Conference Call. On today's call are Mahmud Haq, our Founder and Executive Chairman; Stephen Snyder, our Chief Executive Officer; A. Hadi Chaudhry, our Chief Strategy Officer; and Norman Roth, our Interim Chief Financial Officer and Corporate Controller. Before we begin, I would like to remind you that certain statements made during this call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21 of the Securities Exchange Act of 1934 as amended. All statements other than the statements of historical fact made during this call are forward-looking statements, including, without limitation, statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook and potential organic growth and acquisitions. Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, approximately, upcoming, believe, estimate or similar terminology and the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. These statements reflect our opinions only as to the date of this presentation, and we undertake no obligation to revise these forward-looking statements in light of new information or future events. Please refer to our press release and other reports filed with the Securities and Exchange Commission, where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from those forward-looking statements. For anyone who dialed in the call by telephone, you may want to download our fourth quarter and full year 2025 earnings presentation. Please visit our Investor Relations site, ir.carecloud.com. Click on News and Events, then click IR Calendar, click on Fourth Quarter and Full Year 2025 Results Conference Call and download the earnings presentation. Finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our fourth quarter and full year results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. With that said, I'll now turn the call over to our CEO, Stephen Snyder. Stephen? Stephen Snyder: Thanks, Brendan, and good morning, everyone. I'm pleased to report that 2025 was a transformational year for CareCloud, marked by exceptional financial performance, strategic acquisitions that expanded our market reach and a successful launch of our flagship AI platform. We delivered results that underscore the strength of our business model and validate our vision for the company's future. In particular, I'm pleased to be able to talk today about our revenue growth, the remarkable acceleration of our profitability and free cash flow, the current status of our capital structure, the significance of our 2025 acquisitions, the evolution of our services offering and AI platform, our market position and growth drivers as we enter 2026 and our guidance for the year ahead. First, let me start with our top line numbers. For the full year 2025, we generated revenue of $120.5 million, representing nearly 9% year-over-year growth. In Q4 specifically, we achieved revenue of $34.4 million, up nearly 22% year-over-year, demonstrating accelerating momentum as we entered this year. Importantly, we raised our revenue guidance twice during 2025 and still exceeded the final target, a pattern that reflects the underlying health and predictability of our recurring revenue streams. Second, as to profitability, we reported GAAP net income of $10.8 million for 2025, a year-over-year increase of more than 37%. We achieved earnings per share of $0.10, marking our first full year of positive EPS since our 2014 IPO, a remarkable milestone that reflects our multiyear transformation to sustainable profitability. In Q4 alone, we posted GAAP earnings per share of $0.04. Adjusted EBITDA expanded to $27.5 million with a 23% margin, up more than 14% year-over-year. But perhaps most importantly, we generated $28.6 million in GAAP operating cash flow for the full year, a 38% increase year-over-year and $8.7 million in Q4 alone, up 66%. Non-GAAP free cash flow reached approximately $20.5 million for 2025 compared to $13.2 million in 2024 and representing growth of more than 500% from 2023. This dramatic improvement in free cash flow generation has been transformational to our financial flexibility and strategic optionality. It enabled us to resume dividends on our preferred shares at the beginning of 2025 to begin paying double dividends on our Series B preferred stock starting in 2026 to address the accumulated arrearages and to fund multiple acquisitions during 2025, entirely from free cash flow generated during that year. Third, as to our capital structure, during 2025, we completed the conversion of approximately 80% of our Series A preferred shares into common. The conversion eliminated more than $7 million in annual dividend obligations, and we fully repaid our Provident Bank credit line by year-end, entering 2026 with 0 drawn on our credit line. Reducing the complexity of our capital structure remains a core priority. Fourth, we made significant strides during 2025 on the M&A front. We completed multiple transactions during the year, each strategically selected to expand our capabilities and market reach. These deals were all executed at less than 1x revenue multiples, funded entirely through the free cash flow we generated during 2025 and resulted in 0 common shareholder dilution. The most significant of these was our August acquisition of Medsphere Systems, which brought us into the inpatient hospital market. Through Medsphere, we added a suite of ambulatory and inpatient software products, including the #1 Black Book ranked Wellsoft emergency information department system. This was a watershed moment for CareCloud. We evolved from an ambulatory first to a care continuum company, able to support the full patient and clinician journey from outpatient clinic to emergency department to inpatient bed through the revenue cycle and into the supply chain. Integration is well underway. We are incorporating our AI tools into the platform, and we are already seeing new customer wins under the CareCloud umbrella. We also acquired MAP App from the Healthcare Financial Management Association, or HFMA, in October of last year, alongside a long-term joint marketing agreement. MAP App is a hospital benchmarking and performance analytics platform used by leading hospitals and integrated delivery networks to measure and compare revenue cycle metrics. MAP App identifies where a hospital is underperforming and CareCloud's RCM and AI provide the solution, a sales motion with built-in urgency and quantifiable ROI that we intend to scale in 2026 and beyond. Through Medsphere and MAP App, we now serve hospital systems and health networks, creating a natural cross-selling runway for our AI solutions and RCM services. Our 2026 growth strategy centers on penetrating these newly acquired health system customers with our RCM and AI products, exactly the kind of operating leverage that justifies these strategic investments. Fifth, we have continued to position ourselves as an emerging leader in health care IT. We recognize that the health care technology market is at an inflection point. AI adoption is moving from pilot programs to production deployment and providers are actively seeking partners who can integrate AI across their clinical and administrative workflows. We are operating in a market with a multibillion-dollar addressable opportunity in the U.S. alone for our AI front desk assistant and that is just one application in our broader AI framework. We launched stratusAI Front Desk Agent in December 2025 and are already seeing strong early traction. Hadi will provide more details on our AI products and road map. But from a business perspective, our combination of domain expertise, distribution and clinical data gives us a competitive moat that is extraordinarily difficult to replicate. Sixth, let me turn to our market position and growth drivers. In 2026, we will continue to leverage our dual platform footprint in ambulatory and inpatient markets to drive organic growth and acquisition synergies. Our primary growth vectors, ambulatory cross-selling, deeper hospital penetration of existing relationships and AI monetization represent a compounding opportunity that positions us for durable growth. As we have noted in prior calls, strategic acquisitions have been a cornerstone of our growth historically, and 2025 marked the year where we reignited that momentum after a multiyear pause during which we refreshed our financial foundation, achieved sustainable profitability and launched our AI Center of Excellence. We were patient because we wanted to acquire from a position of strength, and that patience has paid off. All of our 2025 acquisitions follow the same disciplined playbook, acquisition purchases non-dilutive to common shareholders, structured to maintain balance sheet flexibility and priced at attractive valuations of 1x revenue or less. What is particularly exciting now is that AI is further accelerating our acquisition opportunity set. We expect to remain active in the M&A front in 2026 and beyond as we identify complementary targets that extend our reach and can benefit from our AI capabilities. Seventh, turning to our guidance for 2026. It reflects continued growth with accelerating profitability. We expect revenue of $128 million to $130 million and adjusted EBITDA of $29 million to $31 million, reflecting margin expansion. We further expect GAAP EPS of $0.20 to $0.23 per share, which would represent an increase of more than 100% over 2025. We have set this guidance at levels that we believe are achievable and consistent with our track record, we intend to execute against it with discipline. As we reflect on 2025, we are humbled by the progress we have made across every dimension of our business. We exceeded previously raised revenue guidance. We delivered our first year of positive EPS as a public company. We generated exceptional free cash flow growth, increasing more than 500% over the last 3 years. We executed strategic acquisitions without diluting shareholders. We launched a transformational AI platform that is already gaining market traction, and we strengthened our market position through acquisition-driven diversification. Together, they represent a fundamental repositioning of CareCloud as a full continuum health care technology platform with AI at its core. We believe these achievements position us to deliver sustained value creation for our shareholders, clients and employees. We are entering 2026 with more momentum, more scale and a stronger balance sheet than at any point in time in our history, and we look forward to achieving our objectives in 2026 and beyond. With that, I'll turn the call over to Hadi Chaudhry, our Chief Strategy Officer, who will provide more details on our acquisition strategy and product road map. Hadi? A. Chaudhry: Thank you, Steve. Good morning, everyone, and thank you for joining today. Steve has walked you through an outstanding financial year. That performance gives us the platform to do something really important, invest aggressively and deliberately in AI. My job today is to take you inside that effort, what we have built, what's working and where we are taking it in 2026. In April 2025, we launched CareCloud's AI Center of Excellence, a fully operational production-grade initiative with one mandate, build AI solutions that create measurable impact for health care providers. This is not a research lab or a pilot program. It is the engine behind everything in our AI portfolio. We built this capability in-house because AI and health care cannot be generic. It must be trained on the right data, integrated into real clinical and administrative workflows and designed around health care-specific compliance and accuracy. The AI Center of Excellence brings together engineering, data science, clinical informatics and product development to deliver exactly that. Let me walk you through what we have launched. Our flagship AI product of 2025 is stratusAI Front Desk Agent, which reached full commercial release in December. It is an agentic AI phone receptionist, fully autonomous, operating 24 hours a day, 7 days a week, ending patient calls with natural human-like conversation. The scope of what it manages is significant, appointment scheduling, rescheduling and cancellations, real-time insurance eligibility verification and demographic capture, prescription refill routing, lab results, inquiries, referral requests and automated confirmations and reminders. When a call requires human judgment, it escalates intelligently to a live staff member. The system is deeply integrated within our EHR and practice management platforms, which means there is no manual data reentry and no third-party middleware between the AI and the patient record. Our results speak for themselves. Dr. Holden, owner of the Lung Center shared that stratus Desk Agent is now handling nearly 80% of their inbound scheduling-related calls, freeing his staff to focus on more complex patient needs. There is a fundamental shift in how our practice operates, and it is exactly the outcome we designed this product to deliver. Alongside Desk Agent, we have stratusAI Voice Audit, our conversational intelligence platform, gives practice administrators and hospital operations leaders visibility into every patient phone interaction, whether handled by AI or by the staff member. Voice Audit delivers call monitoring, quality scoring, trend analysis and patient sentiment insights. It shows what's working, where workflows are breaking down and where there are opportunities to improve the patient experience. Beyond patient access, we are applying AI deeply across revenue cycle management, the core of our business. AI capabilities are already active throughout our RCM operations, helping reduce claim errors, improve appeals and documentation accuracy and increase first pass acceptance rates with payers. Importantly, AI also allows us to shift from relying primarily on lagging indicators such as denial rates and days in account receivable to monitoring leading indicators earlier in the revenue cycle. By identifying potential issues at intake, eligibility verification, coding and claim creation, we can prevent problems before a claim is ever submitted rather than reacting after a denial occurs. Our longer-term ambition is to establish a new industry benchmark, zero-touch claims, a fully automated workflow where AI manages intake, validation, submission and payer follow-up with minimal human intervention. This enables billing teams to focus their expertise on true exceptions rather than routine processing. We are also developing AI-driven prior authorization capabilities, which represents one of the most significant administrative bottlenecks in the health care today. Prior auth delays drive revenue leakage, delay patient care and consume enormous staff time. Our approach is to use AI to predict authorization requirements, pre-populate supporting documentation and route requests automatically, reducing turnaround time and the rate of initial denials. We are also actively developing an AI-assisted medical coding product. Accurate coding is foundational to revenue cycle performance. Errors at that stage cascade into denials, delays and lost reimbursement. For clients using CirrusAI Notes, the 2 products work in concert, taking a clinical encounter seamlessly from documentation through accurate coding assignment. On the clinical side, CirrusAI Notes addresses documentation burden, a primary driver of physician burnout. It captures the clinical encounter and generates structured notes for physicians to review and sign off on rather than author from scratch. It is live and in use today, and it earns clinician trust precisely because it does not try to replace physician judgment, it removes the administrative burden around it. I want to spend a moment on the intersection of our acquisition strategy and our AI capabilities because I think this is one of the most compelling and underappreciated aspects of our story. Each platform in the Medsphere portfolio is embedded in real clinical operations, serving workflows previously outside CareCloud's reach, and none of them had a dedicated AI team behind them until now. Clients across this portfolio will also benefit from access to CareCloud's ambulatory AI-enabled solutions as our integration work progresses, bringing the full capability of our platform to bear across the care continuum. Our AI Center of Excellence is actively scoping AI enhancements across this portfolio, prioritizing the highest impact use cases in supply chain efficiency, emergency department workflow and clinical documentation. As those enhancements are completed and validated, they will be made available to the clients. To be clear about sequencing, the new clients we are winning today are selecting these platforms on the strength of what they deliver right now. Our contract win with Memorial Hospital in Ohio, deploying HealthLine for supply chain management is a strong signal of that underlying demand. As our AI capabilities for HealthLine mature, Memorial and clients like them will position to adopt these enhancements when they are ready. The same logic applies to Wellsoft. In January, Affinity Urgent Care in the Houston Galveston area selected Wellsoft, bringing our emergency grade documentation system into the urgent care settings for the first time. With approximately 11,000 urgent care facilities across the United States, this channel represents a meaningful expansion of our addressable market. The AI layer for Wellsoft is in development. And when it is ready, it will strengthen our competitive position in the channel considerably. On the AI side, MAP App becomes more powerful over time. Our road map adds recommendations that go beyond identifying a revenue cycle gap to quantifying its dollar impact and surfacing the automation that closes is fastest, moving us from analytics to action, a conversation hospital CFOs are very receptive to. The HFMA relationship also gives us distribution into hospital finance leadership that would take years to build organically. And combined with our AI road map for MAP App, we have compelling reasons to be in those conversations in 2026. Looking ahead, I want to be direct about what 2026 means for our AI strategy. We have spent 2025 building the AI Center of Excellence, the stratusAI product suite, the acquisitions that expand our platform. 2026 is the year we execute. Let me walk you through our priorities. First, we will continue expanding our AI product suite across the full platform. StratusAI Desk Agent and Voice Audit are live and scaling. CirrusAI Notes is deployed and being integrated across the Medsphere suite. AI-assisted coding and prior authorization AI are both targeted for release this year. Second, we will execute on the cross-sell opportunity at the product level. Steve outlined the strategic case Medsphere relationships, RCM capabilities, HFMA partnership. My focus is making sure the AI product are ready to support that motion. CirrusAI Notes integrated into MedSphere suite, the coding product available to hospital billing teams and stratusAI Desk Agent deployable in hospital patient access centers. Third, we will continue building the AI Center of Excellence, deepening our clinical data sets, developing proprietary models trained on health care-specific workflows and partnering selectively with AI leading infrastructure providers where it helps us move faster. The principle is always the same. Health care native AI built with right guardrails delivers better and more defensible outcomes than generic AI applied to health care settings. Fourth and most importantly, we will hold ourselves accountable to client outcomes, not just product releases. The measure of AI investment is not feature ship. It is revenue improvements, denial rate reductions, time saved per provider, patient satisfaction scores. Those are the metrics we track internally, and they are the ones we will be sharing with you as our AI business matures. I want to close with the thought on why this moment is meaningful. Providers across every care settings are seeking purpose-built AI that integrates into the systems they already use. This is precisely what we are building across ambulatory, emergency, inpatient and hospital billing operations. CareCloud sits at a rare intersection, long-standing relationships with over 45,000 providers across the care continuum, a fully integrated platform spanning EHR, practice management, RCM and our supply chain and hospital systems and a dedicated AI organization focused entirely on solving health care operational problems. We are profitable, growing company with a clear AI strategy and operational discipline to execute it. I look forward to sharing our progress with you throughout the year. With that, I will turn the call over to Norm Roth, our Interim CFO and Corporate Controller, who will walk you through the detailed financial results. Norm? Norman Roth: Thank you, Hadi, and thanks, everyone, for joining our call today. As you have just heard, we had another strong quarter and a strong finish to the year. We have accomplished and exceeded the goals we set for ourselves for 2025. In particular, we are now generating record levels of free cash flow and resumed paying dividends on our preferred shares, which started in February 2025, and we've also been catching up on the dividend arrearage for the Series B preferred stock. Further, we have fully repaid our Provident Bank line of credit at the end of the year, we had borrowed funds for the Medsphere acquisition and now have the full $10 million line of credit available. We generated $20.5 million of free cash flow in 2025, which we measure as cash from operations less purchases of property and equipment and capitalized software and other intangible assets. In 2025, we began seeking out acquisition opportunities and during the year, we completed 4 acquisitions. We continue to evaluate acquisition opportunities that will be accretive to the company. The key to growing our free cash flow continues to be reducing expenses and growing our GAAP net income. Fourth quarter 2025 GAAP net income was $2.9 million as compared to $3.3 million in the same period last year. This is our seventh consecutive quarter achieving positive GAAP net income. Revenue for the fourth quarter 2025 was $34.4 million compared to $28.2 million for the fourth quarter of 2024. There was approximately $7.2 million in revenue related to the Medsphere acquisition in the fourth quarter. Adjusted EBITDA for the fourth quarter 2025 was $7.7 million or 22% of revenue compared to $7.1 million in the same period last year. This was an increase of 8% year-over-year. For the full year, the story is similar. With our emphasis on improving profitability, revenue for the year 2025 was $120.5 million compared to $110.8 million in 2024. Our GAAP operating income was $11.3 million compared to $9.1 million in the same period last year and our GAAP net income was $10.8 million compared to a GAAP net income of $7.9 million for 2024. This was the highest GAAP net income for the company since inception. Non-GAAP adjusted net income was $14.4 million or $0.34 per share, calculated using the end-of-period common shares outstanding. Since going public, this is the first year we have had positive full year GAAP EPS. For the year 2025, adjusted EBITDA was $27.5 million, an increase of 15% or $3.4 million from $24.1 million last year. Our adjusted EBITDA for full year 2025 was also the highest amount ever achieved by the company. During the year 2025, we generated $28.6 million of cash from operations compared to $20.6 million in the prior year and $20.5 million of free cash flow as defined. The free cash flow amount of $20.5 million increased by 55% compared to $13.2 million in the same period last year. As of December 31, 2025, the company had approximately $3.6 million of cash. Net working capital was approximately $1.3 million. Now that we have repaid our line of credit, free cash flow during 2026 will allow us to increase our cash balance and build additional cushion in our net working capital. Our financial position continued to improve during the year 2025. We are happy to report strong financial results, no amounts outstanding on our line of credit, cash savings from the Series A preferred stock conversion that occurred in March 2025 and look forward to continuing to report strong results next year. With that, I'll now turn the call over to Mahmud for his closing remarks. Mahmud? Mahmud Haq: Thank you, Norm. 2025 was a milestone year for CareCloud. We delivered strong profitability and free cash flow, expanded into the hospital market through strategic acquisitions and launched an AI platform that positions us well for the future. What is most exciting is that we are just getting started. We enter 2026 with strong momentum, a stronger balance sheet and significant opportunities to drive growth across our platform. I want to thank our employees, clients and shareholders for their continued trust and support. We remain focused on disciplined execution, innovation and creating long-term value for all of our stakeholders. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question is from Allen Klee with Maxim Group. Allen Klee: Great quarter. So when I'm listening to your talk, the 2 big themes I'm hearing among others, are your emphasis on AI and acquisitions and how you can combine them and get benefits. So could you expand a little more on how you're planning on kind of monetizing the AI in 2026? You've talked about, but I think it's important. Stephen Snyder: For sure. Thanks for the question, Allen. So if we step back for those who haven't followed our story so closely, and we'll just talk about M&A first and then we'll dig a little bit deeper into the AI question specifically that you asked. So first of all, from an M&A perspective, the environment today continues to be increasingly favorable. AI is a catalyst for smaller billing companies and for health care companies that focus on delivering software products to the inpatient, also the ambulatory space because they recognize the fact that without AI, their competitive position continues to weaken in the market. So that's driving more sellers into our pipeline than ever before. Our strategy continues to be one of patience and discipline like we've followed for years. So we wait for an opportunity where the recurring revenue associated with, first of all, it has to be recurring revenue relationships, a portfolio of recurring relationships, revenue relationships. And then secondly, from a valuation perspective, we really target valuations of between 0.6 and 1x revenue. That compares very favorably to the CAC in our space, which is typically about 1.5x or greater revenue. So we move forward with these acquisitions. And then with regard to that, those base companies that are part of that portfolio, we aim to bring them from a status of typically breakeven or operating at a loss to about 25% to 30% profitability margins typically within about 9 months. So that's the base strategy. You've asked about the AI overlay to that, and that's where I think the whole strategy gets even more interesting. So if we think about the -- just as an example, if we think about the Medsphere acquisition, we've purchased software products that lack that AI capability. And what our team has been doing is that it's been really focused in on taking the core AI products, taking the CirrusAI product, the stratusAI product, taking the AI Notes applications and the like and then weaving that and incorporating that fully into those platforms. And we expect to have that done within the next couple of quarters. So we're able to take those platforms and to make them increasingly more attractive and platforms that as opposed to being -- as opposed to lagging behind where the space is, will be increasingly leading in their particular markets. So we see some exciting potential there. The second thing would be if we think about this from the perspective of revenue cycle companies, we now are increasingly using AI and automation to handle a lot of the services that before were being handled by individuals here in the U.S. or members of our team globally. So AI and automation is increasingly assisting with the back-office processing enabling us to further drive margins. And Hadi might have something else to add to that from an AI perspective. A. Chaudhry: Sure. Thank you, Steve. Just to add on to what Steve has mentioned, our strategy from the AI perspective has been the same and threefolds. One, continue to focus on the improvement and implementation of AI in the back-end operations, whether it's the basic denial management, whether it's the automation of, as an example, the referrals and verification of the benefits and the like, and then there are many others. And the second is the AI enablement or AI integration into the existing -- the product suite that we have, whether it's our own EHR practice management platform or these other companies, as Steve mentioned that we are acquiring, the team continues to focus on building the AI layer to make it more attractive and more marketable. And then continue to focus on any other net new applications that we can bring to the market such as the stratusAI FDA. Allen Klee: That's very helpful. Then it was encouraging to see like contract wins with new customers. Could you talk a little about how you think -- what was behind the win and how you think that's an opportunity going forward? Stephen Snyder: Allen, if we think about our overall sales team and our marketing team, we've expanded that team by 2 or 3x. So we have an increased team that's focused -- increased science team that's focused on cross-selling and also these net new opportunities. Having said that, we continue to see the real opportunities this year being primarily in expanding the wallet share of those existing customers, many of whom we've acquired more recently through the Medsphere and the MAP App transactions. So through those transactions, we've acquired more than 100 new hospitals and health systems who we're working with. And we see significant opportunity to sell more deeply into these existing clients by providing additional services and solutions, AI products, RCM solutions with a real focus on stratusAI and CirrusAI that can add value, and we believe will resonate with this market. So yes, 100%, we've had some new wins. We talked about a new Wellsoft win. Wellsoft is our recently #1 Black Book ranked EHR that's focused on the emergency departments. So we had a win there. And we also had a win with regard to our supply chain product as well. So we have those new wins, but we really think that the real opportunity will be continuing to cross-sell and upsell the existing customers. Allen Klee: Okay. You also -- my last question, and then I'll jump back in. The front-end AI, you mentioned -- I think you said you launched that in December. How do you think about -- and you said it's a very large opportunity, in terms of how you're targeting that and early indications you get of interest? Any comments there? Stephen Snyder: For sure. Yes. Allen, you're talking about our stratusAI product. And again, the market opportunity is estimated to be $4 billion plus. And Hadi can provide a little bit more visibility with regard to the early response, but we've really been encouraged by how well that's resonated with regards to our existing base. Our sales efforts are almost exclusively focused on our existing base, and we're getting significant traction there. But over to Hadi. A. Chaudhry: Thank you. To your point, Steve, so we are seeing a very encouraging early adoption since the launch in -- the commercial launch in December. While we are not disclosing a specific client count at this stage, but our deployment pipeline is really robust across existing ambulatory client base. And we yet need to tap into aggressively into the Medsphere client base that our team has aggressively working towards integrating across the product suite there. So at the moment, we have seen an exceptional interest from our existing client base. So we expect to share more specific adoption metrics as we progress through 2026. Operator: Our next question is from Michael Kim with Zacks Small-Cap Research. Michael Kim: So first, there continues to be a lot of uncertainty in the markets as it relates to AI and the potential impacts on SaaS companies. So just wondering how investors should think about CareCloud's exposure to AI disruption versus maybe being more of an AI beneficiary? Stephen Snyder: Thanks, Michael. And you're 100% right. The SaaS sell-off in the market has been significant and has not discriminated. It has not discriminated between companies where there really is a more significant risk than those where there isn't. We believe that the companies that are most at risk are the horizontal per seat tools for generic workflows, things like scheduling apps, basic CRM, things like -- companies like that where AI agents can replicate and fully replace that key functionality. That's really fundamentally though, not our business. And I would focus in particular in the health care space. So health care IT, in particular, has very deep industry moats that those horizontal SaaS players simply don't have. So our AI products, as an example, require rigorous testing, certification, approval by a government-approved entity with regard to -- prior to their initial launch and with regard to any fundamental changes we make to them. So the ability to -- for these new market entrances from AI companies is really very limited. And we also operate under HIPAA and a whole web of other health care-specific regulations that create substantial barriers to entry. We're also the system of record for our providers from a clinical, financial administrative perspective. And that data all lives within our existing platform. And if we think about more fundamentally, what our clients in the context of leveraging us accomplish really is in large part, shifting their risk to us. They rely upon us to securely host their data to ensure compliance, to most fundamentally produce revenue for the practice. So our SaaS offering isn't simply a stand-alone tool. It's really the technology backbone that drives our larger revenue cycle management services, which are fully integrated with it. And clients pay us based on the actual value we're producing because the overall majority of our clients pay us a percentage of the practice collections for both the EHR, the technology piece and also the RCM offering. So it's fundamentally different from many of those other companies that are really feeling -- also feeling this impact. I would say one other thing is we also have more than 25 years of proprietary data across hundreds of millions of claims. And that really -- that information and that data informs our AI products, helps us ensure coding accuracy, manage denial management, benchmarking and the like, all things that new entrants in the market don't have. So at least as we look at it, Michael, our thought is that with our valuation being 5x, 6x EBITDA, in spite of the fact we're generating, we generated this last year $20.5 million of free cash flow, we really trade -- we continue to trade at a fraction of the valuations of the market in general and candidly, even a fraction of the valuation of other health care IT peers or more than twice that. So as the market moves away from this more indiscriminate treatment of all companies that are working on some level with AI and we'll move from that to, we believe, a more differentiated approach between those companies that are truly threatened by AI and those for whom AI is actually a key part of their advantage, is a key part of their ability to add additional value to the existing relationships. And we really fall into that second camp. Michael Kim: Got it. Makes a lot of sense. And then second, clearly, earnings power and free cash flow continue to build. So just wondering what sort of assumptions you're building in as it relates to the 2026 guidance ranges and then how you think about sort of the trajectory of growth looking out beyond next year? Stephen Snyder: So to your point, Michael, for us, 2025 was a milestone year. It was our first positive -- our first year of producing positive EPS since we went public back in 2014. And we've had 7 straight quarters of GAAP profitability and free cash flow alone was up 55% as compared to 2024 up to $20.5 million in 2025. So if we think about just our EPS guidance this year of $0.20 to $0.23, that represents more than 100% growth, and we feel very confident about that guidance. Now what's driving that overall growth? It's really being driven in large part by the top line growth. And in addition to that, the integration savings with regard to the companies we've acquired and then really driven largely also by the AI efficiencies. And then add to that the fact that we've eliminated through the conversion in 2025, we've eliminated more than $7.5 million of preferred dividend obligations on an annualized basis. So the increased free cash flow really gives us flexibility to be able to fund M&A for operations. And if you just look at this most recent year, we were able to acquire all 4 companies purely from the cash flow generated during 2025 with 0 dilution to the common shareholders, also able to invest in our AI development and then fully resume payments relative to our Series A and Series B shareholders. And in addition to that, if you think about this year, in addition to all those things, we're also paying double dividends to clear up the arrearage relative to the Series B. So from a funding perspective, operations is really continuing to drive this flexibility and continues to open up new opportunities for us. And as we think even more broadly beyond 2026 and 2027, we believe that we'll continue to fundamentally expand the overall margin profile as we continue to scale. Operator: Our next question is from Michael Galantino with Chaplin Davis. Michael Galantino: Great year, great quarter. Way to finish the year strong. I've been involved with the company for a little over 9 years, and you guys have seen a lot -- we've all seen a lot of changes in the industry. I mean, nobody knew what AI was 9 years ago, and now it's the focus of the company. You guys have done a tremendous job navigating it specifically the last 2 or 3 years. I have a couple of questions. Steve, one to you on the AI front. Does the AI technology and the efforts of the company, does it save money in terms of operationally? And does it increase the margins? And I know you talked about the SaaS stocks that have been coming under -- or the software stocks that have come under significant pressure in the last 3 or 4 months, if you can address that? And the second question is, now that you have excess cash flow -- a lot of excess cash flow, which is a great problem to have, what are the focuses for the use of that money if there are no opportunities to make any more acquisitions this year? Stephen Snyder: Thanks, Mike. I appreciate your questions. So maybe I'll try to address the first one initially. And if you just -- if we think just -- if we kind of back up for a minute and think more fundamentally about the overall revenue of the company, and we go back to, let's say, the fourth quarter of 2024, and we think about our company on an annualized basis. On an annualized basis, we were at, let's say, $110 million roughly. We think about where we are today, probably $125 million. These are all very rough numbers. So we've increased the overall revenue base by about 14%, 15% roughly. And we've done all that while actually reducing the number of employees that we have today as compared to 2024. So I think that really more fundamentally, at least on a qualitative level, speaks to what we're able to do, and that's in large part driven by AI and automation. And as the year progresses, I believe you'll continue to see us being able to do far more with far less. So that -- those savings and that margin, we believe, will continue to increase as we move forward. And again, in the whole scheme of things, we're probably in the first inning. So this is really just beginning. We just launched our AI Center of Excellence less than a year ago. So these realities, the long-term realities are yet to be fully seen in the financials. But again, based upon the numbers as we see them today, we think there's significant opportunity for us to be able to reduce overall expenses associated with the revenue as we continue to grow it. The second thing is with regard to the use of that free cash flow. We continue to look for these opportunities to be able to put that capital to work with regard to these acquisitions. So acquisitions in our space, again, with a focus on being able to acquire companies from our internally generated cash flow ideally. So that would be one key focus. The second key focus would be continuing to -- as the opportunities present themselves and as our profit margins continue to grow to look for opportunities to be able to continue to enhance our overall capital structure as time progresses. That would be another opportunity that we look forward to pursuing and also continuing to invest in AI, continuing to look for opportunities to expand the existing capacity of our software products and to continue to handle an increasingly larger and larger share of the responsibilities that our clients are handling today. Michael Galantino: Just a quick follow-up. When you guys are competing for this business, who is your competition? Who's out there bidding on the same business that CareCloud is right now? Are there much larger firms? Are they smaller start-ups? Or who is our direct competition for this business? Stephen Snyder: Good question, Mike. I think to answer that, we probably would have to break that into a couple of different areas. So from an EHR perspective, we're oftentimes competing against companies like eClinicalWorks, AdvancedMD and other similar players really focused on being on the ambulatory space. So those would be 2 of the main companies plus athenahealth would be a third company where there's a greater mix and more of a focus on the integrated solution that involves the delivery both of software and also of the revenue cycle management services. From an AI perspective, the playing field is wider, and it really then depends again on the products. So for instance, our CirrusAI product, that product that's more focused, for instance, on the -- using the audio and the ambient sound from the communications between the provider and the patient in the exam room to really populate the chart, many of our competitors in this space are offering very similar solutions. Some of those solutions are native. Other solutions are through a third-party application and integrate into their platform. From the perspective, though, of the product that Hadi was talking about before, many of our competitors actually aren't offering that solution. But kind of one company maybe to think about would be SoundHound. So SoundHound has a product that is actually very similar in many respects called Amelia, and Amelia has a lot of that same functionality. But SoundHound, unlike us, does not have a vertical -- does not have a vertical approach. They're an outside player selling horizontally into this space. So they don't have their own EHR, for instance, in which they can incorporate this product. But SoundHound is also interesting because if we look at their overall valuation, it's about 20x today, 20x the EV. So compare and contrast that with ours, and we think there's a lot of opportunity for investors once the market really understands that we have a proof of concept and we are able to demonstrate real success at rolling out our solution to our existing customer base. Operator: Our final question is a follow-up from Allen Klee with Maxim Group. Allen Klee: Yes. Just on the financials quick thing. In terms of your outlook, any comments on thoughts of CapEx and capitalized software spending? And your guidance overall, does it include any unannounced acquisitions? Stephen Snyder: Great question. I'll let Norm handle the first part of that, but the answer to your second part of your question is no. It does not include any unannounced material acquisitions. Norman Roth: And I think, Allen, you're looking at CapEx and software, I think if you look at the levels from this year, I think they'd be the same or maybe a little less. So if you wanted to use that as your forecast. Allen Klee: Okay. Maybe just following up in terms of the run rate on operating expenses, to what extent -- I know you're increasing R&D, but do you still anticipate utilizing AI can get you some benefits on the expense side? Stephen Snyder: Absolutely. We do. We do. And candidly, as we sit here today as compared to a year ago, we believe we can accomplish everything that we're setting up to accomplish in terms of AI, and we can accomplish it with a smaller team than we had initially envisioned. There's been so much progress from an AI perspective in terms of the key models that we use to -- as the girding in our overall framework that we really believe that we can increasingly achieve what we're setting out to achieve from an AI perspective with a leaner team than we had initially envisioned. So I think there'll be less spending from the perspective of the AI Center of Excellence. And beyond that, the spend that -- the investments that we're making today will really continue to make us more efficient and continue to expand margins. Operator: With no further questions, I would like to turn the conference back over to Norman for closing remarks. Norman Roth: Thank you, everyone, for attending our call today. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to Here's earnings conference call. [Operator Instructions] Please note that today's event is being recorded. I will now turn the conference over to Ms. Tina Tang, the company's Manager of Investor Relations. Please go ahead, ma'am. Tina Tang: Thank you. Hello, everyone, and welcome to Here's earnings call for the second quarter of fiscal year 2026. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.heregroup.com. You can also access a replay of this call on our IR website. When it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call. As we will be making forward-looking statements, please note that all numbers stated in the following management's prepared remarks are in RMB terms, and we will discuss non-GAAP measures today which are more solidly explained and reconciled to the most comparable measures reported in our earnings release and the filings with the SEC. I will now turn the call over to the CEO and the Founder of Here. Mr. Li. Peng Li: Okay. Good morning, everyone, and thank you for joining us today. Just over [ 3 months ] ago, we held our first earnings call as a pure-play portfolio company. We shared our vision of focused acceleration. Today, I'm pleased to report that we have not only maintained that momentum but also began translating it into the durable long-term value we promised. This quarter marks a significant milestone with our first full quarter operating as a dedicated IP trained company. We have a clear and firm strategy and we are continuously optimizing in execution in a rapidly changing market environment. Building on our Q1 outperformance, Q2 delivered strong results. Total revenue reached RMB 177.3 million, representing 35.4% quarter-over-quarter growth. This performance exceeded the high end of our guidance and reflects a sustained and steady momentum following our strategy. We continue to focus our flagship IPs to create an ultimate product appeal. Our flagship IP, WAKUKU contributed on the RMB 129.4 million, accounting for 73% of Q2 revenue. SIINONO is another potential flagship IP. It has been gaining momentum since its initial launch in July 2025. It's generated over RMB 19.2 million in revenue this quarter. This is not just about product's success, it demonstrates that our IP-first strategy is successfully converting more consumers into a growing base of our users. This quarter, based on our observation on changing market conditions and our evolving operational insights, we improved our strategy implementation in a timely manner. We have gained a deep understanding. Product sales for a period of time are not the only metric to measure an IPs success. The ultimate goal of our operations is to build IPs that users love and that process lasting vitality. We expanded sales contribution from off-line distributor channels. This allows users to experience IP products more intuitively. We have opened 5 offline D2C stores, positioning as a dedicated venue for brand user interaction. We are continuously optimizing the operational experience. Our online operations team has also improved our user membership system. This quarter, we refined our core operational systems. This covers IP portfolio health, product appeal, supply chain efficiency, channel effectiveness and user engagement. These efforts aim at building enduring value, not just focusing on quarterly revenue. Building on the framework we discussed last quarter, let me walk you through the performance of our two pillar growth strategy this quarter. Pillar one, IP ecosystem, moving from a creative to a systematic pipeline. In Q1, we demonstrated our ability to turn IP launches into cultural phenomena. The WAKUKU split in Shanghai was a great example. This quarter, we refined our operational approach. We identified what works and applied those licenses systematically. Our IP and product development now rely on continuously improving mechanisms, data-driven systematic engine. Let me share a snapshot of our IP portfolio. As of December 31, 2025, we had a total of 18 IPs. That includes 11 proprietary exclusive licensed and two nonexclusive licensed IPs. This diversified portfolio from our IP ecosystem condition. We have established a comprehensive end-to-end mechanism carrying everything from IP planning to production and promotion. The WAKUKU On A Roll series launched in late November 2025 it builds WAKUKU's growing success. It took our daily [ continuous ] concept to new highs. We introduced a many authorized from factor for full scenario integration. [ The only thing ] about WAKUKU is the entirely new category of [indiscernible] as everyday companies. The market response was immediate. We achieved total omnichannel sales, surpassing RMB 18 million within one week along with over 84,000 presale registrations. Our 56,000 peak concurrent online users and over RMB 100 million in total new product exposure. For SIINONO, the success of it's latest release is clear. The Whispers of "Ta" series value plus store hit over RMB 11 million in omnichannel sales within a week with more than 60 peak concurrent online users and total exposure reaching RMB 170 million. The IP journey begins at launch, but it extends far beyond this quarter. This quarter, WAKUKU was invited by the Tianjin culture and the tourism bureau to serve as a promotion ambassador. This demonstrates our success integrating IP with culture and tourism development. Recently, WAKUKU also launched a co-branding collaboration with Lukfook jewelry [indiscernible]. This continuously enhanced IP influence. We are planning to enrich our narrative grows through our live content strategy. That short-from storytelling that depends emotional connections. [indiscernible] IP influence from physical spaces into narrative spaces. It expands sustained emotional engagement between IPs and [ brands ]. Pillar two, omnichannel reach. Our approach ranges from online brand visibility to offline user experiences, we are continuously depending the connection between IP's products and the users. Our diverse channels are not just sales points. There are portals for IP user interaction and experience. They continuously empowering the IP ecosystem. Building on last quarter's massive organic reach, our members are strong. As of February 26, 2026, our total cumulative followers across major social platforms in China reached approximately 700,000 and our cumulative social media exposures exceeded RMB 1.8 billion. This growing digital footprint forms one of the foundations of our brand and IP-driven model. For off-line channels, we position our D2C stalls as brand users interaction and experience hubs. Since December 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. To date, additional two stores are in the preparation stage. A notable example is the ground opening of our Shenzhen Upperhills flagship store on February 1 this year. We invited a celebrity to serve as store manager for a day. This grew a massive ground and it generated a strong same-day sales of approximately RMB 250,000. This validates the power of our off-line experiential approach. Our Shanghai K11 pop-up generated strong social media buzz and even become a trending topic and this event has more become one of the key drivers of both traffic and sales. On 2026, New Year's Eve, we held here at [indiscernible] an exhibition and the light show in core commercial districts such as Wangfujing in Beijing, Gulou in Tianjin, and K11 in Shanghai. Through this landmark's public spaces, we achieved high traffic, which under dependent interaction between the brand and the consumers. At the same time, we are deeply leveraging the powerful and the creative tools of the AI era and innovating vigorously in the area of smart sales Terminals. We expect to deploy our intelligent sales robots to more offline locations for user interaction in the near future. The change in gross margin this quarter reflects our strategic participation of partnerships with small offline distributor channels. we are committed to providing more interactive and cocktail experience through will diversified offline channels to our consumers. This deepens IP connections and strengthen user loyalty through physical engagements. We firmly believe that the strategic investment will lay a solid foundation for the company's long-term healthy development. Our international strategy continues to gain momentum. On one hand, as our supply chain capability improved, we are working with domestic distribution partners to promote overseas export sales. On the other hand, we are actively seeking local overseas partners for IP and product sales collaborations. As we continue to refine our approach, the appeal of various international markets is steadily increasing. This quarter, we continue to optimize our organic base organizational structure and the core operating platform. We refined our cost structure. We now have a leaner and more focused team and cost structure compared to the first fiscal quarter. We are building an integrated operational systems that will be a crucial competitive advantage. On the supply chain brands, we -- our production capability -- capacity is now approximately at 50x what it was at the beginning of 2025. This progress further step from last quarter was a solid foundation for creating [indiscernible] product this year. Operational excellence provides a solid foundation for our capital allocation. We will continue to invest in high potential IP development, strategic metric expansion and our live content initiatives. We will continue to systematically build cultural assets based on IP. As a dedicated IP-trained company. we are committed to continuously improving our operational efficiency and financial health. The journey of building an enduring company requires patients and discipline, and we are fully committed to both. I will now turn it over to Tim for a detailed review of our financial results. Thank you, everyone. Dong Xie: Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms, that the reporting period in the second quarter of fiscal year 2026, ending on December 31, 2025. And then in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. We are pleased to report another quarter of solid financial performance, marked by continued revenue growth and further improvement in our profitability metrics. This demonstrates the sustained successful execution of our strategy as an IP-based product-driven pop toy company. Total revenue reached RMB 177.3 million, representing a 39.4% increase from the previous quarter. Gross profit reached RMB 55 million with a gross margin of 31% compared with total revenue of RMB 127.1 million and a gross margin of 41% in the previous quarter. Adjusted net loss from continuing operations continued to narrow to RMB 161.1 million, down from RMB 17.1 million in the previous quarter. These results reflect the growing traction of our pop toy products and operating leverage, we are beginning to realize in our focused business model. Revenues for the quarter were RMB 177.3 million entirely generated from the sales of pop toys and other related activities compared to RMB 127.1 million in the previous quarter. This sequential growth is primarily driven by our off-line channel sales. Gross profit for the quarter was RMB 55 million compared to RMB 52.4 million in the previous quarter. Our gross margin decreased to 31% this quarter from 41% in the previous quarter. The margin decline reflects our strategic expansion of off-line channels which generated lower per unit margins than direct online sales. This channel diversification strategy is designed to enhance IP engagement and strengthen customer loyalty through physical retail experiences, aligning with the company's long-term vision as a leading IP chain company. On the operational front, total operating expenses were RMB 93.2 million for this quarter. To break this down, sales and marketing expenses were RMB 52.8 million. These expenses nearly included advertising and promotion expenses and staff compensation to support brand building and customer acquisition efforts across multiple platforms. As a percentage of total revenue, non-GAAP sales and marketing expenses, which include share-based compensation changed to 29.6% this quarter from 21.7% in the previous quarter. Research and development expenses were RMB 9.1 million. These expenses were mainly consisting of IP design and product development expenses. As a percentage of total revenue, non-GAAP research and development expenses, which exclude share-based compensation, changed to 5.1% this quarter compared to 12.5% in the previous quarter. General and administrative expenses was RMB 31.3 million. These expenses reflected our operational functions, including employee compensation, professional service fees and other operational expenditures. As a percentage of total revenue, non-GAAP general and administrative expenses which excludes share-based composition changed to 12.7% this quarter from 23.2% in the previous quarter. Our net loss from continued operations was RMB 25.4 million compared to RMB 25.8 million in the previous quarter. Our adjusted net loss from continuing operations was RMB 16.1 million compared with RMB 17.1 million in the previous quarter. Basic and diluted net loss from continuing operations per share were RMB 0.16 during this quarter. Basic and diluted adjusted net loss from continuing operations per share was RMB 0.1 during this quarter. Regarding our balance sheet position, our accounts receivable amounted to RMB 32.6 million as of December 31, 2025, primarily attributable to revenue from our off-line channel sales. It's worth noting that despite significant revenue growth from off-line channels during this quarter, our accounts receivable balance actually decreased markedly compared to September 30, 2025. This improvement reflects our intensified efforts to enhance customer engagement management capabilities and strengthen collections discipline. Our inventories were RMB 111.8 million as of December 31, 2025, representing a significant increase from the prior quarter. This was primarily driven by enhanced supply chain capacity and efficiency as well as inventory build proactively in anticipation of the Chinese New Year factory closures and new product launches in the upcoming quarter. We view this as a strategic move to ensure we are well positioned to meet upcoming demand. Looking ahead, we remain excited about the growth prospects for our pop toy business. Based on currently available information, including our pipeline for the upcoming IP releases and seasonal demand, we expect revenue from our pop toy business to be in the range of RMB 140 million to RMB 150 million for the third quarter of fiscal year 2026 and in the range of RMB 750 million to RMB million for the full fiscal year of 2026. This forecast reflect our confidence in the total market opportunity and our ability to scale our IP portfolio and expand internationally. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you. Operator: [Operator Instructions] The first question today comes from Alice Cai with Citibank. Yijing Cai: Just one quick question. The revenue guidance for third quarter suggests a quarter-over-quarter decline of about 15% to 20%. Is it primarily due to seasonality? Or are there any specific adjustment due to your IP launch schedule for the upcoming quarter? Dong Xie: Thank you, Alice, for the question. Indeed, those factors have contributed. But the core message is that we are actively building momentum for subsequent growth. Firstly, regarding seasonality, given that our current business primarily operate through a distributor model. Distributors naturally slow down their operations and inventory stocking during the spring festival holiday. This is within our expectations and represents a common seasonal fluctuation in this industry. And secondly, regarding the recent and pace of our product launches. This is not an adjustment, but rather a proactive arrangement based on our annual planning. Our products are typically planned 3 to 6 months in advance with dynamic optimization made based on market feedback. Currently, we are fully prepared for our product pipeline in the coming quarter and beyond, with major new products expected to launch successively starting from this end of March. Therefore, what we are seeing in the short term is the normal seasonal dip from a medium- to long-term perspective, this is proactive management on our part to welcome a new product cycle and optimize inventory and channel pace. Operator: The next question comes from Liping Zhao with CICC. Liping Zhao: [Foreign Language] I'll transfer it myself. So my question is about the cooperation of other companies in the future. We noticed that the Shenzhen Yiqi has recently established a joint venture with Enlight Media that this partnership means we will be working closely with Enlight Media in areas such as content creation and IP development? Dong Xie: I think Mr. Li will answer this question. [Foreign Language] Peng Li: I will answer the question in Chinese and Tina will translate for me. Okay. [Foreign Language] Tina Tang: Thank you for your interest. Regarding our cooperation with Enlight Media, it is a key part of our efforts to deepen our IP strategy. Peng Li: [Foreign Language] Tina Tang: First, over the past year, we have successfully taxed and confirmed the commercial path from IP images to pop toys by focusing on our core IP to create key products. We have built a solid foundation centered on the product gens. Peng Li: [Foreign Language] Tina Tang: Second, we have always trusted the talent of IP comes from continuous contact support. And both the [ third column ] is very important to this. We focus not only to sell in the physical products like the blend boxes and the plush toys, but also on the long term, develop our IP. So we are now enhancing our IPs through the suitable content forms. We're doing this by bringing in excellent contact tailwinds like the Enlight Media and cooperating with the top industry partners. Our goal is to add a cultural meaning to our IPs and strengthening emotional connection between users and IP. Peng Li: [Foreign Language] Tina Tang: Finally, the joint venture within Enlight Media, you mentioned it's exactly one of the specific projects to carry out our product and content stewardship strategy. We hope to explore more possibilities for our IPs in areas like the film and the television contact and derivative development through such cooperation. As for specific future plans, we will disclose them to the market when there is a substantial progress. Operator: The next question comes from Yichen Zhang with CITIC Securities. Yichen Zhang: My question is about our operations strategy. The company was very successful in IP operations last year. So are there any new strategies for IP operation and marketing in this year? Dong Xie: Okay. Thank you for questions. I'll take this. This year, the core keyword for our IP operations and marketing strategy is a comprehensive upgrade from -- maybe we can call that opportunistic creativity to a systematic IP factory. This is reflected in 3 key areas. The first one is on the product front. We have built a replicable assembly line for IPs. Extreme product excellence is the foundation of everything. Through our product committee mechanism, we rigorously select IPs based on 3 dimensions: the visual distinctiveness, story potential, storytelling potential and audience resonance, ensuring that every category launch has a generic makeup to become more classic. Concurrently, we have established a complete process from discovery and incubation to development and launch and then to fulfill the full-size life cycle management, making it possible to replicate and sustain at products. A great product in itself is the best nourishment for IP. We continuously strengthen our in-house teams and integrate outstanding external resources, injecting vitality into our IPs with product excellence. And secondly, on the operations front, we have developed an iterable omnichannel marketing methodology. Over the past year, we have continuously summarized and optimized our operational experience, forming a replicable playbook that we constantly refine and iterate. This year, we will flexibly deploy differentiated marketing strategies based on the unique characteristics of different IPs and products, whether it's celebrating collaborations, branding, crossovers with major sports events or integrated online to off-line user engagement activities. Our goal is to leverage precise operational support to ensure great products are sent and loved by more people. And third, on the content front, as just discussed by Mr. Li and the CICC analyst. We are opening a new chapter of light content empowerment for IPs. And this is a crucial step in our journey from purely physical space to narrative space, and from product moments to sustain store retiring. Through appropriate content, we infused our IP with culture substance and emotional depth, transforming them from mere trendy toys into cultural symbols, with stories and vitality. This multidimensional empowerment across products, content, operations and branding has one ultimate goal, to build truly enduring evergreen IPs. So that's our training strategy so far. Operator: The next question comes from [indiscernible] with [indiscernible] Securities. Unknown Analyst: My question is about our channel expansion. I wonder how is the performance of the -- our recent offline stores have reached our expectation and what's the channel expansion plan in year 2026? Dong Xie: Okay. I've answered your question. I thank you for your interest in our store operations. Regarding our offline stores, I will address this from three dimensions: the short-term performance, strategic positioning and future plans. Firstly, regarding short-term performance, our newly opened stores have generally met or even slightly exceeded our internal expectations. Since late last December, in last year 2025, we have opened 5 D2C stores in Beijing, Shenzhen and Chongqing. Although they have been operating for just over one month, the overall performance has been solid, and we have broadly achieved nearly breakeven or commendable result for newly opened stores in their initial phase. Of course, due to differences in customer profiles across various shopping districts, we are continuously fine-tuning the operational strategies for individual stores. And second, regarding strategic positioning, we value these stores not only for their sales contribution, but also and more importantly, for their role as brand landmarks and user touch points. Our offline direct to sale stores are core scenarios for fostering deep interaction between our IPs and users. To this end, we recently established a user operation center the organization in our company aimed at integrating online and offline data and user and planning more cohesive interactive activities with our IP platform and the product launch pace as a crucial component of this strategy, the value of our stores for brand showcasing and user connection far exceeds near sales figures. Operator: As there are no further questions, I'd like to hand the conference back to management for closing remarks. Tina Tang: Thank you again for joining our call today. If you have any further questions, please feel free to contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a nice day. Operator: Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to the SentinelOne, Inc. Q4 FY 2026 Earnings Conference Call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Saad Nazir, Head of Investor Relations. Saad Nazir: Good afternoon, everyone, and welcome to SentinelOne, Inc.'s earnings call for the fiscal year ended 01/31/2026. With us today are Tomer Weingarten, CEO, and Barry Paget, Interim CFO. Our press release and an earnings presentation were issued earlier today and are posted on the Investor Relations section of our website. This call and accompanying slides are being broadcast live via webcast, and a replay will be available on our website after the call. Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements about financial performance and future events, including our guidance for the fiscal first quarter and full fiscal year 2027, as well as long-term financial targets. We caution you that such statements reflect our best judgment based on what is currently known to us, and that our actual results or events could differ materially. Please refer to the documents we file from time to time with the SEC, in particular, our quarterly reports on Form 10-Q and our annual report on Form 10-K. These documents contain and identify important risk factors and other information that may cause our actual results to differ materially from those contained in our forward-looking statements. Any forward-looking statements made during this call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons why actual results may differ materially from those anticipated, even if new information becomes available in the future. During this call, we will discuss non-GAAP financial measures, and all comparisons made are year over year unless otherwise noted. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results, other than with respect to our non-GAAP financial outlook, is provided in today's press release and in our earnings presentation. These non-GAAP measures are not intended to be a substitute for our GAAP results. Our financial outlook excludes stock-based compensation expense, employer payroll tax on employee stock transactions, amortization expense of acquired intangible assets, acquisition-related compensation costs, restructuring charges, gains on strategic investments, impacts of the previously announced Italian tax settlement, and income tax provision which cannot be determined at this time and are therefore not reconciled in today's press release. And with that, let me turn the call over to Tomer Weingarten, CEO of SentinelOne, Inc. Tomer Weingarten: Good afternoon, everyone, and thank you for joining our fourth quarter earnings call. Fiscal 2026 was a landmark year for SentinelOne, Inc. We achieved a $1 billion revenue scale, growing 22% year over year, and delivered full-year operating profitability, a significant milestone towards profitable growth. In Q4, our total ARR grew 22%, driven by strong new logo acquisition and expansion with existing customers. We delivered $64 million in net new ARR in Q4, a company record. This marks our third consecutive quarter exceeding ARR expectations, showing execution consistency and positive growth. We drove about half of our new business to new logos, showing a balanced split between new logo acquisition and expansion within our existing customer base. We are gaining traction in the most critical domains of cybersecurity—both AI for security and security for AI. We are helping organizations advance their digital transformations securely and intelligently. SentinelOne, Inc. offers the only cybersecurity platform that delivers disunifications—truly. AI represents a significant TAM expansion and a long-term tailwind for our business. From early on, AI-native security has been foundational to our platform architecture. This early advantage positions us to emerge as the category winner in the AI era across more than a $100 billion market opportunity. We have established SentinelOne, Inc. as a clear technology leader in cybersecurity. Our relentless focus on delivering AI-powered innovations that truly unify security, data, and automation has positioned us at the forefront of the industry. As we enter the new fiscal year, we are accelerating our path towards achieving the Rule of 40 driven by durable growth and higher profitability. Now, let us dive deeper into the details of our quarterly performance. We are winning new logos and expanding our footprint across diverse platform categories. Enterprises are choosing the Singularity Platform for unified AI-native security that provides a single pane of glass and seamless workflow. We firmly believe that cybersecurity should not be complicated. Beyond the Singularity Platform's best-in-class efficacy, its intuitive design and operational simplicity are driving stronger customer adoption. Today, our unified platform spans seven core solution categories, delivering more than 40 different modules designed to solve the most complex use cases, all while providing end-to-end autonomous cybersecurity. In fiscal 2026, our non-endpoint solutions surpassed half of our total annual bookings, a clear testament to the diversity and customer outcomes of the Singularity Platform. Customers are increasingly consolidating on our platform. In fiscal 2026, the percentage of our enterprise customers using three or more solutions increased to 65% versus 39% a year ago. Enterprises using four or more solutions more than doubled to 42% versus 19% a year ago. And enterprises using five or more solutions increased to 22%, versus 9% a year ago. And for many of the enterprise logos we are adding, this is just the beginning of a long-term expansion journey. In Q4, our cross-platform adoption drove a record ARR per customer, signifying solid momentum contributions from our AI, Data, Cloud, Wayfinder, and Endpoint solutions. Customers of all sizes, especially large enterprises, are increasingly recognizing Singularity's architectural advantage. Our Q4 performance clearly demonstrates this momentum. We drove sequentially higher win rates across every market segment, anchored by accelerating gains in the enterprise. Let us look at an enterprise win that exemplifies this. Internet security giant Cloudflare, a company securing about 40% of all human-originated internet traffic, moved to SentinelOne, Inc. in less than 24 hours, completely uninterrupted. After a rigorous POC, they selected SentinelOne, Inc. to replace our closest competitor as their security platform of choice, citing our superior technology and ease of use as the deciding factors. This seven-figure deal included endpoint security, Purple, and our Wayfinder Elite services. This is a clear testament to our technological edge and the platform value we deliver. Next, looking at our key growth drivers, Purple is becoming the bedrock of modern security operations, empowering teams to respond faster, accelerate detection, and automate investigations. The trajectory of Purple adoption continues to outpace our internal expectations, hitting a record attach rate of over 50% on licenses sold in Q4. According to IDC's independent study, Purple users experienced 55% faster threat remediation, a 60% lower likelihood of major incidents, and an impressive 338% return on investment over just three years. We are seeing strong Purple uptake across both new logos and existing customers. Many of our Purple AI customers are expanding their usage, signifying future growth potential and the value it delivers. For AI security, we are benefiting from the accelerating enterprise demand for secure adoption of AI models, agentic workflows, and employee AI usage. In Q4, ARR from Prompt Security more than doubled sequentially. In addition to existing customer upsells, we have started winning standalone AI security deals with Fortune 500 companies. Moreover, we are beginning to win AI security deals from customers of our direct competitors, creating a new strategic entry point to expand our market share and footprint. There are no serious scalable alternatives to Prompt Security in the market, and customers need to adopt AI now. For example, in the past quarter, a Fortune 100 financial services company deployed nearly 100,000 licenses for AI security and governance. Prompt is helping solve complex AI governance and compliance challenges for customers across our industry. In another example, a multinational retail giant deployed Prompt Security to eliminate a visibility black hole surrounding unmonitored employee AI usage. They chose SentinelOne, Inc. for quick deployment, visibility, and real-time AI security, all while satisfying strict European GDPR requirements. We also launched Closed Security, the industry's first open-source security suite to secure emerging autonomous agents like OpenClaw and others. For Data solutions, we surpassed $130 million in ARR with growth accelerating sequentially. We are seeing rising demand for our AI SIEM as it delivers deeper visibility, real-time detection, and autonomous response, all with far more efficient unit economics than legacy alternatives. In Q4, we also launched our new AI-native Data Security Posture Management solution, or DSPM, to help customers secure their data and AI workloads. Furthermore, with Observo.ai, we now own the data pipeline that powers modern security operations. The market is clearly recognizing this value. We were just named SIEM Innovation of the Year in the Cybersecurity Breakthrough Awards. We have now fully integrated Observo.ai's data pipeline solution into the Singularity Platform. This creates a truly comprehensive data architecture, natively unifying petabyte-scale ingestion, data pipeline, orchestration, and hyperautomation into a single seamless experience. For Data solutions, we signed a multi-year infrastructure partnership with a global hyperscaler. As part of our expanding alliance, SentinelOne, Inc.'s threat intelligence data now pairs with this company's native threat intelligence services. This shared telemetry model powers our own joint offerings and establishes a highly strategic growth vector for our Data business. In addition to taking share from legacy incumbents, our platform is now beginning to serve as the foundational data layer for the world's largest technology innovators. For Cloud security, we are seeing strong expansion, especially with our best-of-breed runtime workload capabilities covering both on-prem and cloud environments. In Q4, our Cloud security solution surpassed $160 million in ARR. As cloud environments expand and AI workloads multiply, the need for robust security is increasing. We are meeting this demand by delivering comprehensive cloud-native detection and response that scales with our customers' infrastructure, simplifying their operations and elevating defenses with our unified platform. For Endpoint, we achieved double-digit ARR growth in Q4. We continue to outgrow the broader market by delivering the most autonomous endpoint security solution available, combining industry-leading efficacy, performance, and user experience. Nearly half of the existing Endpoint sector is still using legacy antivirus solutions. We see this as a clear opportunity for continued market share gains. Our leadership in AI-native security is attracting the most advanced technology innovators in the world. In Q4, one of the top frontier labs selected the Singularity Platform to secure mission-critical infrastructure in the development of its flagship models. This win underscores that the architects of the AI frontier recognize SentinelOne, Inc. as the definitive security layer for the future of intelligence. In the era of AI, securing highly restricted on-prem environments, where true sovereignty is of paramount importance, is becoming one of the most strategic growth opportunities. While our competitors have no ability to secure these environments, we saw triple-digit booking growth in the quarter, signifying an emerging growth vector for us. We have the distinct advantage of delivering fully autonomous, high-velocity AI protection both in the cloud and on-prem. This differentiation was clear in our recent win with one of the largest postal operators globally. The customer signed a five-year commitment to secure their vast network with SentinelOne, Inc. Our ability to deliver specialized on-prem security at scale, while meeting the most rigorous government standards, was the deciding factor. In addition, we are seeing strong enterprise interest in Wayfinder Threat Services, which crossed $100 million in ARR in Q4. As enterprises race to adopt generative AI, they often lack the blueprint to do so safely. Wayfinder fills that gap by serving as both an implementation arm and a managed supervision layer for AI cybersecurity. Our Wayfinder AI-augmented services deliver immediate time to value by deploying in under 15 minutes and resolving 99% of threats without any customer action required. Trust is a big factor. We believe that expert human oversight is the way forward to build customer trust when adopting new autonomous technologies. Wayfinder embodies this vision by pairing our AI-native platform with elite AI security experts. As expected, SentinelOne, Inc. Flex is proving to be a highly effective model for broader platform adoption. By simplifying the purchasing process, Flex is driving larger deal sizes, multi-solution deployments, and extended commitments. Flex simplifies the path for large-scale platform adoption and secures long-term, high-value partnerships. For a platform consolidation win, we secured an eight-figure TCV deal with an iconic global logistics company that standardized on the Singularity Platform for unified AI security. To protect their highly distributed and critical infrastructure, this enterprise consolidated multiple competing vendors on the Singularity Platform. SentinelOne, Inc. was the clear choice to modernize their operations and securely implement AI. Alongside industry-leading efficacy, the Singularity Platform's intuitive design, unified interface, and ease of use are key differentiators that are driving strong platform adoption. We are delivering the only single-plane platform on the market capable of being deployed anywhere, which stands in stark contrast to our next-gen peers. Large enterprises, especially leading innovators, are recognizing this—in many cases, securing millions of assets in a single deployment. Our continued upmarket trajectory is driving larger deal sizes and steady retention rates. Landing these premier enterprise logos at scale provides us with a significant, highly durable runway to drive strong growth for years to come. Today, we proudly secure nearly one-fifth of the Fortune 500 and hundreds of Global 2000 enterprises. Our expanding customer base now includes some of the most sophisticated and iconic companies on the planet, alongside highly regulated, mission-critical infrastructure—from the pioneers building today's frontier AI models to the global category leaders in semiconductors, automotive, aviation, finance, and smartphone giants the world relies on. In the partner ecosystem, we continue to expand and deepen our engagements. Our partners are a force multiplier, helping expand our reach and scale. We are seeing strong traction driven by increasing platform adoption across AI, Data, Cloud, and broader platform solutions. We are increasingly winning at the top end of the market, highlighted by an eight-figure strategic partner win in Q4. This deal provides access to our entire Singularity Platform through a flexible deployment schedule. In addition, we are strategically scaling our mid-market adoption by driving operational leverage for our partners. Our success across the managed security ecosystem is a clear testament to this strategy. In fiscal 2026, we achieved over 60% ACV growth with our top 20 MSSP partners and over 75% ACV growth with our top 10 MSSP partners. These partners are rapidly expanding beyond the endpoint. They are adopting our AI, Data, Cloud, and broader platform solutions. Our MSP partners are standardizing on SentinelOne, Inc. Our unique platform architecture delivers the multi-tenancy and remote management capabilities that drive real operational leverage and technology differentiation. This technology advantage translates directly into a dominant competitive position for SentinelOne, Inc. in the managed security ecosystem. We are also deepening collaboration with hyperscalers by integrating our technology and platform across their cloud marketplaces and AI services. Together, these alliances are enhancing our market presence and positioning SentinelOne, Inc. as a trusted partner for enterprises worldwide. In the public sector, we achieved FedRAMP authorization at the High impact level, and this opens more public sector opportunities for us in both Federal and SLED environments. Let us shift gears to the broader industry dynamics and why SentinelOne, Inc. is a distinguished beneficiary for the AI era. There has been a lot of debate about the impact of AI on traditional SaaS business models. While some of these concerns are justified, especially if you are selling an antiquated platform built upon a legacy code base, modern security operations remain mission critical. Cybersecurity is an imperative for safe adoption and usage of AI, is a significant tailwind for SentinelOne, Inc., and we are already seeing AI security as the fastest growth category for us today. We are the builders enabling secure AI adoption for builders. Our enterprise success clearly validates this. Our platform and AI models are forged from real-time proprietary threat intelligence data at petabyte scale that is gathered across tens of thousands of organizations and tens of millions of assets globally. That scale, intellectual property, and depth of data—combined with human insights—are a unique competitive moat. The reality is that cybersecurity is paramount in the age of AI. The market needs reflect this reality. Gartner recently highlighted that AI security is the fastest-growing segment in cybersecurity, expanding over 70%. Security and trust remain the single biggest barrier to enterprise AI adoption in the United States and globally. At SentinelOne, Inc., we are helping organizations move from basic AI systems to true autonomous agentic action with trust and safety embedded as our guiding principles. We are putting defenders firmly in control of the AI boom, delivering the platform, tools, strategies, and services they need to build, secure, and benefit from AI. We are delivering an end-to-end AI-native platform that seamlessly delivers security for data, infrastructure, and runtime as a single unified system. We actively partner with, invest in, and protect the pioneers building today's frontier AI models. Grounded in this ecosystem, we are pushing into the frontier of autonomous agentic security, where AI does not only assist humans, but also independently detects and stops complex threats in real time. Reflecting upon the past year, we delivered strong growth and margin improvement while driving innovations that are shaping the future of cybersecurity. At increasing scale and durable top-line growth, we are continuously refining our operating model to be well positioned for the opportunities ahead. We remain laser-focused on our most efficient go-to-market channels while unlocking structural productivity gains by integrating AI throughout our business. We have always operated with a builder mindset. Looking ahead, we are establishing a stronger SentinelOne, Inc. that is well positioned to lead in an AI-first security landscape while creating long-term value for our customers, partners, and shareholders. Before I turn the call over to Barry, I am pleased to welcome Sonalee Parekh to our leadership team. Sonalee is joining SentinelOne, Inc. as our new Chief Financial Officer. She brings more than 25 years of experience across public software and technology companies. Sonalee has a proven track record of scaling high-growth software platforms, driving financial discipline, and overseeing multi-product strategies. That is an ideal fit to lead the next phase of SentinelOne, Inc.'s financial strategy—delivering growth and profitability. I look forward to our partnership. I would also like to thank Barry for his leadership and steady hand as Interim CFO. He has been a trusted partner, ensuring a seamless transition and leading our finance function. In closing, I want to take a moment to acknowledge the contributions of all Sentinels—their relentless focus, dedication, and execution drive our success. And thanks to all our customers, partners, and shareholders for their continued support. Our mission to be a force for good remains as important as ever, in ensuring AI is also a force for good. Thank you again for joining us today. With that, I will hand it over to our Interim CFO, Barry Paget. Barry Paget: Thank you, Tomer, and thanks, everyone, for joining us today. Let us review the details for Q4, the full fiscal year 2026, and our guidance for Q1 and fiscal year 2027. As a reminder, all comparisons are year over year, and financial measures discussed here are non-GAAP unless otherwise noted. Fiscal year 2026 was a transformational year for SentinelOne, Inc., highlighted by two major financial milestones. Firstly, we scaled the business past $1 billion in revenue, growing 22% year over year. Secondly, we achieved full-year operating profitability, driving a 600-plus basis point year-over-year improvement to expand our operating margin to 3.5%. Let us review the financial performance of our fourth quarter. In Q4, our revenue grew 20% year over year to $271 million. International markets grew 30% and represented 40% of total revenue, reflecting strong international demand and a growing global footprint. In Q4, our total ARR grew 22%, and we added a record $64 million in net new ARR, which exceeded our expectations. These results were driven by a balanced split between new logo acquisition and platform adoption by existing customers. As we continue our strategic shift upmarket, our ARR per customer reached a new company record. We are seeing strong momentum at the top end of the market, as our cohort of customers with ARR of $1 million or more grew 20% year over year to 153 customers in Q4. Additionally, customers with ARR of $100,000 or more grew 18% to 1,667. Furthermore, retention rates across our large customers remain strong, underscoring the mission-critical nature of the Singularity Platform. For customers with $100,000 or more in ARR, our gross retention rate was 96% in Q4, and our dollar-based net retention rate for these customers was 109%, driven by these large organizations continuing to adopt the broader platform and consuming multiple products from us. Overall, we are maintaining a balanced split between new logo acquisition and existing customer expansion. Given our scale and relative market share, this focus allows us to increase our market share with significant future expansion potential. Turning to margins, we maintained a solid gross margin profile in Q4 at 78%, highlighting healthy platform unit economics and scale efficiencies. In Q4, our operating margin was 6%, representing an improvement of 450 basis points year over year. We also achieved a net income margin of 9% in the quarter. On a trailing 12-month basis, we delivered a free cash flow margin of 5% and successfully delivered our second full year of positive free cash flow. This is an important milestone that underscores our path towards sustained profitable growth. We ended the year with a robust balance sheet, including $770 million in cash, cash equivalents, and investments, and, most importantly, no debt. Given our strong balance sheet and confidence in our long-term trajectory, we opportunistically repurchased 6.5 million shares this quarter, bringing the total shares repurchased to 12.2 million in fiscal year 2026. We will continue to employ a balanced capital allocation strategy, prioritizing organic investments while returning capital to shareholders. Turning to our guidance for Q1 and fiscal year 2027, as we enter our next chapter of scale and profitability, we are enhancing our guidance framework. In addition to our revenue and operating income outlook, we are providing guidance for earnings per share and some helpful modeling assumptions. We believe this enhanced framework offers a more comprehensive view of the company's earnings growth and cash generation. For the full fiscal year 2027, we expect revenue to be between $1.195 billion and $1.205 billion, representing 20% year-over-year growth at the midpoint. For Q1, we expect revenue to be between $276 million and $278 million, representing 21% year-over-year growth at the midpoint. Our fiscal year 2027 revenue outlook also implies a year-over-year improvement in net new ARR. Overall, our outlook is supported by a solid pipeline, strategic partnership opportunities, and rising contributions from our emerging solutions, including AI, Data, Cloud, Wayfinder, and others. At the same time, we continue to monitor the evolving macroeconomic environment and geopolitical uncertainties, which can still influence deal timing and sales cycles across the industry. Turning to our profitability metrics, for fiscal 2027, we expect operating income to be between $110 million and $120 million, representing an operating margin of 10% at the midpoint. For Q1, we expect operating income to be between $4 million and $6 million, representing an operating margin of 2% at the midpoint. Our strong operating income outlook is driven by increasing operational efficiencies with scale and with cost discipline. We are accelerating toward the Rule of 40, mainly led by sustained top-line growth and improving profitability. For fiscal year 2027, we expect fully diluted earnings per share to be between $0.32 and $0.38 per share, representing $0.35 at the midpoint. And for Q1, we expect earnings per share to be between $0.01 and $0.02. We expect a non-GAAP tax rate of approximately 17% for fiscal year 2027. We expect our weighted average diluted share count to be approximately 345 million for Q1 and 352 million for the full year. Adjusting for the scheduled tax settlement payments of $40 million in fiscal year 2027 disclosed in our January 8-Ks, we expect our adjusted full-year free cash flow margin to closely track our operating margin outlook for fiscal 2027. For Q1, we expect adjusted free cash flow margins to be in the low teens, reflecting our standard historical seasonality and strong underlying cash generation. Taking a step back, our technology leadership and competitive position remain strong. We are scaling the business while consistently driving strong operating leverage. Our investment approach strikes a disciplined balance between capturing long-term growth opportunities and maintaining a responsible, profitable financial profile. This strategy is foundational to scaling SentinelOne, Inc. into a multibillion-dollar, highly profitable business. Before closing, I would like to welcome Sonalee as our new CFO. Her expertise scaling global businesses is a great fit for us. Over the coming weeks, I will be working closely with Sonalee and our seasoned finance team to ensure a seamless handoff. In summary, we are very well positioned at the intersection of AI, Data, and cybersecurity, leading the industry into the next era of autonomous security. Security is no longer just a safeguard; it is the strategic enabler of AI innovation. With a strong financial foundation, a highly differentiated platform, and a vast market opportunity, we remain firmly committed to maximizing our business potential. Thank you all for joining us today. We will now take your questions. Operator, please open up the line. Operator: Thank you. At this time, if you would like to ask a question, please click on the Raise Hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question today. We will wait one moment to allow the queue to form. Our first question comes from Brian Essex at JPMorgan. Please go ahead with your question. Brian Essex: Hi, good afternoon, and thank you for taking the question. Maybe for Tomer, I would love to understand some of the dynamics around the growth that you have had this quarter, particularly in light of the lower sales and marketing growth. What percentage of the deals were partner-led or partner-influenced, and what are the plans for hiring and product and expectations for productivity as you move through fiscal 2027? Tomer Weingarten: Thanks for the question, Brian. We delivered record fourth-quarter net new ARR, 6% year-over-year growth, and probably the strongest sequential growth we have had in the last 24 months. It really demonstrates more than anything execution consistency and solid demand pretty much across the board. I would say that there was not any big change between our business with partners and our business with end customers. We are doing larger deals, and I think that is probably reflected. Flex is taking, I think, a more pronounced part of our overall bookings. So, all in all, I would say the dynamic is one that we have seen throughout the quarters and throughout the year. As we look into next year, when we review how we want to focus, I think we are pretty clear that we are on a quest to optimize. I do not think you are going to see us grow headcount in a significant way, and it will imply that sales productivity, which is reflected in the margin guide, is going to get better. We are clear on our continued upmarket trajectory. We are clear on the need and the desire to do more with our partner base. We are clear about the potential in our partner base. You can see some of the figures with our growth with our MSP partners—top 10 partners growing 75% year over year. Obviously, there is a lot of potential both in our partner base and with our move upmarket. So, all in all, we plan to do much of the same this year in an improved manner with an optimized sales force. Operator: Our next question comes from John Stephen DiFucci at Guggenheim. Please go ahead with your question. John Stephen DiFucci: Thank you. Since Brian asked about top line, I am going to ask about the bottom line. It is just a little confusing. Like, this quarter, and in the first quarter, profit margins are a little lower than I think people were looking for—at least we were. But for the year, they look great. So if you could just explain that a little bit, maybe Barry, again, just so we understand what is happening in the model. Barry Paget: Yeah, John. On the free cash flow side, we feel pretty comfortable on the cash collection. We have seen meaningful improvement over the past few years. That being said, it can be a little lumpy just in terms of larger deals and when they fall into a particular quarter. And as those larger deals roll out maybe over months and quarters as opposed to days, like smaller deals. Operator: Our next question comes from Meta Marshall at Morgan Stanley. Go ahead with your question. Meta Marshall: Great, thanks. I just wanted to ask—clearly, a lot of success selling with the 65% of customers having three or more solutions. How do you, in combination with maybe NRR ticking down a hair, think about the ability to continue to add new or get further adoption of new products into the base? Thanks. Tomer Weingarten: Absolutely. We definitely think that this is a source for additional growth for us. We are very stable on the NRR front. I think the biggest thing I would call out there is that, for us, it means that we are doing more new logo business, which is exactly what we want to see, and we have executed that strategy for the last few years. It is not going to change this year. So we are really driving those in tandem. And what you can see is that not only are we creating more and more adoption within our customer base, even with that, our customer base is still relatively underpenetrated. We have tremendous capabilities. Our platform is incredibly broad. That just means that for a lot of these new logos that we are just starting the journey with, the expansion opportunity is really in the future. Which is great, which really means that we can land and onboard new customers, and then, with time, we will see more and more from the customer base. That is exactly the dynamic we want to see. That is exactly what is reflected in these results. Operator: Our next question comes from Nasr Islam at Deutsche Bank, on for Brad Zelnick. Please go ahead with your question. Nasr Islam: Hi, this is Nasr Islam on for Brad Zelnick. Thank you for taking the question. We have heard from you, Tomer, and your peers in recent quarters about the importance of Endpoint security, especially in the GenAI era. Can you provide an update on how Endpoint progressed in the quarter and any changes in the competitive landscape that you are seeing, if any? Tomer Weingarten: Of course. Endpoint still remains a strong growth driver for us. We grew double digit, and that is non-trivial in the market today. We are still gaining share in Endpoint, and there is still a lot to go after in terms of incumbent providers. It is clear that the best control point right now for GenAI is actually attached to those same endpoints. So when you look at us selling AI security, I think the success we are seeing there is tied to our ability to deploy that within minutes, sometimes on those exact same endpoints—whether our agent is already there or not. Our ability to continue and expand our Endpoint footprint is what makes our AI security product incredibly successful. So, all in all, not only are you gaining the best and the most complete telemetry from the endpoint today, it is also becoming one of the only true control points to regulate what employees, what the workforce, is doing with generative AI—block it, sanitize it, make sure there is no data leakage, put the right guardrails—and that is exactly what we are doing with our AI security platform and with Prompt Security specifically. Operator: Next question comes from Shrenik Kothari at Baird. Please go ahead with your question. Shrenik Kothari: Yeah, thanks for taking my question. So, Tomer, you brought in Sonalee. As she steps in, what are the top, say, three priorities you have explicitly asked her to focus on first? And then, just related to, kind of financially, how should investors think about the next phase of the model under her? Thanks a lot. Tomer Weingarten: Of course. Thank you for the question. We are incredibly excited to welcome her. Her focus is going to be durable growth and acceleration in our go-to-market. I think what we are seeing right now is growing demand for our platform with multiple avenues for growth. We have talked about AI security growing triple digit. We have talked about on-prem, which is a new revenue vector for us, now growing triple digit as well, and infrastructure deals that are also growing triple digit. So, obviously, her job is going to be to balance that with continuing to improve and hone in on our entire go-to-market and sales and marketing spend and expense. There is no surprise here that as we look into next year and the coming year, the landscape is changing in terms of what customers are looking for. And it is very clear that we have some of the most unique solutions right now for some of the most urgent problems in the market. So, as we look at this year, it is a lot about realigning a lot of our resources to go after these opportunities. As we improve our business, you can see some of that already reflected in our operating margin. This is the trajectory we are on. We are accelerating our path to even better profitability. We are optimizing on cash flow. I think these are the things that we will collectively be focused on. Operator: Our next question comes from Patrick Edwin Colville at Scotiabank. Please go ahead with your question. Patrick Edwin Colville: Thank you so much. And, Tomer, let me ask this one to you. Nice reacceleration in new ARR this quarter. You gave us the sort of breadcrumb that you expect a year-on-year improvement in new ARR in fiscal 2027. So, two parts, if I may. One is, can you unpack that last bit a little bit more to provide any more color? And then, what would be the driver of that? Is it kind of core Endpoint—to your point earlier that there is this renaissance in spend on Endpoint—or is it that plus these emerging products and the multiple tailwinds coming together in fiscal 2027? Tomer Weingarten: Yes. Let me try and unpack that. Obviously, that is exactly what we want to see. We want to improve net new ARR. You have seen a little bit of that in Q4, but that is what we are looking at for this coming year. On top of that, we are also starting to see a seasonality change. We are moving from this 40/60 first-half/second-half dynamic we have had in the past couple of years more to roughly 50/50. So that means that the first half of the year is very solid, and that has positive impact on growth for the year for both revenue and ARR. These are some of the dynamics that we are seeing there. Some of it is coming from Endpoint. I would not call it the full renaissance, to be honest, but there is definitely more traction in Endpoint. I think if you are seeing some of our businesses crossing the $100 million ARR mark and still accelerating in a pretty significant way, those are our sources of added revenue growth and added ARR growth. So, all in all, we believe that an improved net new ARR is a good starting point for us in our revenue guide. Operator: Our next question comes from Richard Poland at Wells Fargo. Please go ahead with your question. Richard Poland: Hey, thanks for taking my question. I guess, just on the gross margin side, I noticed that gross margin ticked down a little bit in the quarter, but I think it was maybe a touch better than expectations. As we look forward to next year, could we see that start to stabilize or tick up, or is there anything underlying there that we should think about? Tomer Weingarten: Yes, of course. I would say our gross margins are incredibly stable. They are also best in industry, so they are incredibly high. We put it exactly at the high end of our range of our long-term targets. So, all in all, we feel like they are stable. They are going to continue to be stable. We do not forecast any change in that. Operator: Our next question comes from Michael Joseph Cikos at Needham. Please go ahead with your question. Michael Joseph Cikos: Thanks for taking the question here. Tomer, if I could come back to the prepared comments and the opening script. Great to hear about the seven-figure deal over at Cloudflare displacing your next closest competitor. Can you discuss that a little bit more as far as how Cloudflare came to you, how the deal came together—again, just given their positioning in the software ecosystem, they are thought of as being pretty market leading? I would love to get some more color there. Thank you. Tomer Weingarten: Of course. It is a combination of the set of capabilities that we have today that—through the prepared remarks—we tried outlining how unique the capabilities that we have today are, especially at scale. So when customers are looking to add and prepare themselves for adopting more generative AI and more AI agents, the most advanced ones really need these capabilities now. They cannot buy off a demo. They cannot buy off something with a roadmap. They need something tangible that works today and works at scale and is proven. And that is exactly what Prompt Security and Purple AI bring to bear. These are already fully deployed, fully scalable products that are covering right now millions of devices and assets globally. So that drives a lot of demand from customers of all competitors. And in the case of Cloudflare, I think efficacy was a big deal, the ease of deployment, coverage for systems of all operating systems—these were some of the key things that they wanted to find. I think they also wanted a like-minded partner that can move fast with them in AI. And, as you pointed out, despite them being a leading partner for some of our competitors, they have chosen the best technology that they could. And doing this at a scale where you need to be completely flawless in your transition to create no interruption, I think that was also a very impressive feat by both teams, and I think that punctuates the win. Operator: Our next question comes from Shaul Eyal at TD Cowen. Please go ahead with your question. Shaul Eyal: Thank you. Good afternoon, everybody. Tomer or Barry, can you talk to us about the sources of operating leverage and margin for fiscal 2027, as we think about double digit for the year? Tomer Weingarten: Sure. Barry Paget: Happy to share here. A couple of things that we are super focused on. Firstly, really sharpening the focus on the highest-yielding go-to-market opportunities. You heard Tomer talk about some of the product lines and some of the businesses that are rapidly growing for us—some of them in the triple digits—making sure that we are investing behind those and giving them the oxygen they need. And then, secondly, not necessarily germane just to us, but integrating AI throughout our business and our business operations. We are seeing meaningful productivity gains across the board—everything from engineering and development to how we serve customers to how we just run the internal organism itself. Tomer Weingarten: I would just add to that. You have seen us through the past couple of years also taking pretty hard decisions on what not to invest in and what to potentially deprecate and prune away. I think these are the decisions we are going to continue to make. You have seen us do that with a couple of product lines last year. We do not expect the exact same thing this year, but we are definitely honing in on more areas where we see higher yield. So I think it is not farfetched to see us narrowing our focus, at least in go to market, on not only the most yielding but the most important parts of our platform—what is the most important right now for customers. So, all in all, we have not grown our headcount. We have not inflated our ranks in the past couple of years. That is definitely not going to happen this year. We are finding more and more ways to become more productive with AI. It is already happening. A meaningful amount of the code we generate today is generated with AI. That has tremendous impact on us. We are a big R&D shop. We are a big innovation hub. That means that we can build more with less, we can take products to market faster, we can iterate and get better outcomes to customers. All of those are going to help us also drive benefits to the bottom line as well. Operator: Our next question comes from Roger Foley Boyd at UBS. Please go ahead with your question. Roger Foley Boyd: Great, thanks for the question. Tomer, it looked like it was a pretty strong quarter overall for new customer acquisition. You noted, I think, half of new business came from new customers. And against that, you had a 50% attach rate of Purple. Any directional color on what that attach rate looks like with new customers, and to what extent are you finding that Purple is driving these new customer wins and really influencing your win rates in areas like Endpoint? Thanks. Tomer Weingarten: Of course. First of all, it is pretty balanced. We are seeing the uptake both from existing customers and new customers. I think we mentioned a couple of earnings calls ago that we created a new bundle, and we took our Complete bundle and made it a Complete AI bundle, basically adding in some of the Purple AI capability. That is creating a nice differentiator for us in the mass market. So that is driving some of that attach. But, at the end of the day, it is really clear—when you can create 60% faster outcomes, when you can have 300% plus return on investment, it becomes almost a no-brainer. If you are using one of these things, you are actually saving money, and the economics are favorable for customers. That is the main driver behind the Purple uptake. We are also— as I have said in the past—continuously adding more capabilities to the Purple suite. We are adding more and more agentic capabilities that are completely integrated into the platform. We do not require customers to buy another product or to deploy something else or to build their own agent, or we just give them a studio. We are giving them complete integrated AI capabilities they can turn on with one click of a button. That seamlessness—that user experience—is resonating in the market. Operator: Our next question comes from Joseph Anthony Gallo at Jefferies. Please go ahead with your question. Joseph Anthony Gallo: Hey, thanks for the question. It was great to see the $130 million in Data ARR. Can you talk through the sustainability of growth in that business? And then, Tomer, regarding SIEM, how do you think that market evolves in an LLM-based world? Does it become more or less important? Is there any risk of disruption? Thank you. Tomer Weingarten: Thank you for the question. Our Data business is going to go only one way, which is up. That is terabytes and terabytes and petabytes of data that we are seeing down our pipeline. There is a very familiar dynamic in the data space where the initial land is just a piece of customers' overall data needs, and as they onboard our data lake, it is the starting point for them into how much more they can put into it over the years. We are starting to see those expansion opportunities pop up. We are absolutely seeing more and more demand for our data lake capability. Specifically for SIEM—and I think there is a small nuance here—SIEM, you can think about it as its front end for security operations that you put on top of the data lake. I would say that certain customers still want that front end. They want those capabilities. At the same time, what we are seeing more and more is that when we apply some of our Purple suite agentic operations directly on the data—directly on the ingested data—now with Observo integrated into it, the ability to ingest data in real time and apply LLMs that are on the backbone of Purple AI to then orchestrate autonomous operation, to us that is the future of where cybersecurity is going to go. And I am saying the future, but it is also happening right now for certain customers. So I think it is really a question of what models you are going to support for customers. Some customers are going to want more controls, more dashboards, more of that legacy experience—I would call that the SIEM experience. Other customers are much more focused on automation, on embedding LLMs and agentic workflows into their data ingestion as close as possible to the point of ingestion, and that, to us, is almost a new model for cybersecurity that maybe, in the course of the next few years, is going to make SIEM something that is less mandatory than it is today. But right now, what we see in the market is both approaches, and we are doing what customers are asking us to do. Operator: Our next question comes from Eric Heath at KeyBanc. Please go ahead with your question. Eric Heath: Hey, thanks for taking the question here, and nice finish to the year. Maybe Barry or Tomer, could you speak to the linearity in the quarter that you saw, given that the DSOs were a little bit higher than they have been—revenue being in line with your guidance? Thanks. Tomer Weingarten: Yep. I think the revenue beat for us, the entire year, was very minimal beats, I would say. Q4 was a little bit more back-end loaded. I think you see that as well reflected. As Barry mentioned, some of the collections came a bit later than we wanted, but nothing too dramatic. I think that is the full extent of the dynamic that we have seen. Otherwise, the other thing—obviously, when you are not getting these collections in time—it is going to show up a bit later. So you should expect something a bit more healthy maybe in Q2. And I think, again, I called out the changing seasonality for us, so that is another dynamic that is going to be at play. It is probably going to look a bit different for us this year in a very positive way, I should say. So these are the fullest dynamics that we are seeing. Operator: Our next question comes from Adam Tindle at Raymond James. Please go ahead with your question. Adam Tindle: Okay, thank you. I just wanted to continue on that last comment there, Tomer, on net new ARR and seasonality. I think you said earlier 50/50 for first half/second half. And if I am doing the math right for the full year, you are probably going to be somewhere in the neighborhood of $200 million of net new ARR—correct me if I am wrong there. But I think that would imply $100 million or so in the first half, which would be very strong, I think up over 20%. I know it is important with Sonalee coming on, and, under prior CFOs, we had early stumbles in terms of relative to expectations and numbers and just wanting to avoid that. You talked on the call about gaining credibility, which you are certainly doing as you are executing. So I wanted to give this a forum to flush out those net new ARR comments so we do not get too far ahead of ourselves for the first half as Sonalee comes on. Thanks. Tomer Weingarten: Of course. Good questions overall. I would say, first, I think you are not wrong on the net new ARR number—probably a slight improvement over that. And I think the seasonality is just what we have line of sight to right now and just a very solid start for the year. Once we are able to transact earlier in the year, you can do the math of what that means for the rest of the year, and that is what we are seeing. That is what is happening. So we are just calling it out. And, as I mentioned, it is just a good starting point for us. We are starting to maintain that consistency, and I think that should persist. We do not see a reason why it would not. Operator: Our next question comes from Jonathan Frank Ho at William Blair. Please go ahead with your question. Jonathan Frank Ho: Hi. I wanted to dig a little bit into Wayfinder, and could you give us a sense of what some of these enhancements like human-plus-AI capabilities and Intel—how does that allow you to reimagine modern MDR solutions? Thank you. Tomer Weingarten: Thank you. Great question. I think that is exactly it. It is really clear that the role of MDR is shifting. If MDR, in past years, was really manual human work to sift through alerts, with the increased automation and autonomous action of our platform, our MDR analysts and overall service are graduating to be more of a supervision layer, and that is helping us not only scale, but also achieve much better outcomes for customers. And I think, more than anything, it is really clear that we all need to still establish a level of trust when we talk about autonomous agents. Obviously, the margin of error is quite big with some of what these autonomous agents are doing. So, for us, a good way to control that and a good way to make sure that agents always stay within their guardrails—that all autonomous action and critical action are always happening with human supervision—is attaching services like Wayfinder to monitor these agentic actions that are happening, and we are doing so in a highly scalable way. Once again, that is something that resonates with customers. Right now, with us, they can onboard agentic workflows and have humans regulate that, and that is a big thing. We are not just offering them a piece of technology. We are offering them complete managed supervision of their security stack. Operator: Our next question comes from Ittai Kidron at Oppenheimer & Co. Please go ahead with your question. Ittai Kidron: Hey, guys. For me, maybe one for you, Tomer, and one for you, Barry. Tomer, on your side, you clearly have a very broad portfolio at this point, and it is nice to see the traction there. Can you talk about how the comp plan for quotas for salespeople is changing because of that, and what are you incentivizing, and how do you get salespeople focused on the right thing? And then for you, Barry, with your initial guide for fiscal 2027 and going back to the previous questions, in what way are you more conservative, or in what way is your guidance philosophy right now for 2027 different from the exercise you went through in 2026? Tomer Weingarten: Thank you for the questions. Comp plans have not changed in a dramatic way. I just want to remind everybody that we always had this component that we called emerging products, and we are just changing what we put in that basket of emerging products, and we like the behavior that we are seeing. We also see some natural affinity to what customers are asking for, and we are making sure that we are aligning that basket of emerging products to reflect what is happening right now in the market and what we believe are the best products that are the best fit to what customers are trying to solve right now. You are not going to be surprised that you find things there like AI security. You are not going to be surprised that Data is still there. So, obviously, that is a great tool for us—has been and will continue to be—to drive people in the right direction and where the market is currently showing the most demand. Barry Paget: And just to your question on guidance overall, I think this is the right starting point for the year. We are really comfortable with the guide. If you look at the things that are supporting it, it is a few things: solid pipeline, strategic partnership opportunities, and we have been talking a lot about the rising contribution of our emerging solutions—AI, Data, Cloud, Wayfinder, others. So we feel like we are at the right spot. Operator: We have no further questions at this time. We will turn the call back over to Tomer Weingarten for closing remarks. Tomer Weingarten: Thank you all for joining us today, and talk to you next quarter.
Operator: Thank you for your continued patience. Your meeting will begin shortly. 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. Welcome to the Health Catalyst, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. We kindly ask that you limit yourself to one question. If you have any follow-up, please re-enter the queue. We ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Matt Hopper, Senior Vice President of Finance and Investor Relations. Good afternoon, and welcome to Health Catalyst, Inc.'s earnings conference call for the fourth quarter and full year 2025. Matt Hopper: Which ended 12/31/2025. My name is Matt Hopper, Senior Vice President of Finance and Head of Investor Relations. With me on the call today are Ben Albert, our Chief Executive Officer, and Jason Alger, our Chief Financial Officer. A complete disclosure of our results can be found in our press release issued today as well as in our related Form 8-Ks furnished to the SEC, both of which are available on the Investor Relations section of our website at ir.healthcatalyst.com. As a reminder, today's call is being recorded, and a replay will be available following the conclusion of the call. During today's call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 regarding our future growth, financial outlook for the first quarter and full year 2026, our ability to attract new clients and retain and expand our relationships with existing clients, market conditions, macroeconomic challenges, bookings, retention, operational priorities, strategic initiatives, growth strategies, the demand for, deployment, and development of our Ignite data and analytics platform and our applications, timing and status of Ignite migrations and associated churn and pressure from clients, the impact of restructurings, and the general anticipated performance of our business. These forward-looking statements are based on management's current views and expectations as of today and should not be relied upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. Actual results may materially differ. Please refer to the risk factors in our most recent Form 10-Q for 2025 filed with the SEC on 11/10/2025, and our Form 10-Ks for the full year 2025 that will be filed with the SEC. We will also refer to certain non-GAAP financial measures to provide additional information to investors. Non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. A reconciliation of non-GAAP financial measures for the fourth quarter and full year 2025 and 2024 to their most comparable GAAP measures is provided in our press release. With that, I will turn the call over to Ben. Ben Albert: Thank you, Matt. Thank you to everyone for joining us today. Before we discuss the quarter, I would like to briefly acknowledge the recent leadership transition at Health Catalyst, Inc. I stepped into the CEO role last month following Dan Burton's departure as CEO and from the Board of Directors. I want to thank Dan for his many years of service, mission-driven foundation he helped build, and his support during this transition. We are focused on the future and on positioning Health Catalyst, Inc. for long-term success. There are significant opportunities ahead, and I am confident in strengths that continue to differentiate this company. Our mission, our people, and our core capabilities provide a solid foundation delivering meaningful value to our clients and shareholders. My priority is to build on these strengths, address our challenges with clarity and discipline, and move the company forward with a renewed sense of focus and execution. In my time as President and COO, I conducted a comprehensive review of the business. I have spent 25 years in this industry, and I bring the benefit of an outsider's perspective combined with an insider's understanding of our operations. That dual vantage point gives me clarity on where we are strong and where we need to change. Not only do I see clear value creation opportunities ahead, I also see areas where we can operate with greater focus, rigor, and accountability. We have already moved quickly to tighten leadership focus and execution discipline, including appointing general managers to lead our interoperability and cybersecurity businesses and transitioning our Chief Commercial Officer role to a strong internal successor who is already driving sharper commercial alignment. We have also opened searches for both a Chief Operating Officer and a Chief Marketing Officer to strengthen operational rigor and to clarify and elevate our position within the market. At the same time, we are reviewing our cost structure to ensure we are strategically allocating capital with increased discipline, and we are focused on expanding technology bookings and margins while driving cash flow generation as outcomes of this work. We are taking a fresh approach to how we execute, and I am confident that these actions will put the company on a stronger long-term trajectory. First, our core value proposition is strong. Our clients continue to rely on Health Catalyst, Inc. to manage costs, improve clinical quality, and drive consumer growth. We have a track record of delivering measurable outcomes, and when we are focused and aligned, we can create real value for our clients. Second, the review made it clear that we need to be more focused and more consistent in how we execute. We have allowed too much complexity into our go-to-market motions, our packaging, and our implementation and migration work. This has at times created friction for our clients and slowed our ability to deliver value. We will address this by aligning the organization around a smaller set of priorities, improving clarity across teams, and holding ourselves accountable for predictable, measurable outcomes. Third, we have a clear opportunity to sharpen and simplify our commercial story. Our solutions resonate most when we articulate them through the lens of the problems clients are trying to solve. We have not been consistent in how we describe the full value we can deliver across cost efficiency, clinical quality, and consumer experience. We will tighten our positioning, simplify how we package and present our offerings, and implement a more predictable and focused go-to-market motion that highlights what makes Health Catalyst, Inc. so compelling. We are refocusing on what we do best, a back-to-basics approach. At our core, we are built to deliver measurable outcomes across cost efficiency, clinical improvement, and consumer experience. While the market often thinks of us primarily as a data platform business, our data platform infrastructure has always been a means to an end. The real value of Health Catalyst, Inc. is in the IP, deep healthcare expertise, and high-value applications we have built or acquired over 15 years, grounded in thousands of improvement projects and billions of dollars in validated impact. That is who we are, that is what we believe the market needs, and that is where we will focus our energy. Additionally, as AI continues to play a bigger role, we expect our valuable data assets and expertise will become an increasingly important driver of competitive differentiation. With these learnings as our foundation, our priorities going forward are clear. We will strengthen and simplify our commercial engines to drive technology ARR bookings. We will improve retention through more predictable migrations and clear client value realization. We will increase efficiency and reduce time to value by eliminating operational complexity and scaling work through automation and global resources. And we will better leverage our IP, combining our data foundation with the expertise, content, and AI-enabled solutions that allow us to solve some of healthcare's most pressing problems. These actions begin now, and they will guide how we operate and execute throughout the year. We have also heard a consistent message from our investors. They want our business to be easier to understand with clearer indicators of performance and a more streamlined narrative about what we do and how we create value. I agree with that feedback. As part of our renewed focus and discipline, we will simplify how we communicate our business model, our priorities, and our progress so that our direction is easier to track and evaluate. As part of this work, we are also evolving the way we measure and communicate performance. We will focus on providing a new set of bookings and retention metrics that are easier to understand, align directly with our execution, and clearly reflect how we operate the business. You will see us simplify our reporting, improve transparency, and reinforce accountability through clearer indicators of progress. So while I have already executed an initial comprehensive review as President and COO, as CEO our review of opportunities ahead will not stop, and I will continue to evaluate all aspects of the business to ensure we are focusing on maximizing returns for our investors. This includes a detailed review of our product portfolio, our investment mix, and our cost structure. We are assessing where we can simplify and where we should concentrate our resources. This is a shift in how we have operated. We are changing, and we will be more focused and disciplined in how we allocate capital and build long-term value. Given this work, and the significant impact some of it may have on our financial results going forward, we are not yet in position to provide annual guidance. Today, we are sharing first quarter revenue and adjusted EBITDA guidance only. We believe this is the prudent approach to ensure we are providing initial transparency, and as we continue our strategic and operational review, we plan to come back to the market with our full-year revenue and adjusted EBITDA guidance no later than our first quarter earnings call in May. With that, I will turn the call over to our Chief Financial Officer, Jason Alger, to walk through the financial results. Jason Alger: Thanks, Ben. For the full year of 2025, we generated $311,100,000 in revenue and $41,400,000 of adjusted EBITDA. In the fourth quarter, we continued to demonstrate strong cost control and operating leverage even as we navigated a dynamic demand environment. From a growth standpoint, we finished the year with 32 net new logos, ahead of our target of 30 net new logos but below our initial expectation of 40 that we began the year with. These net new logos had an average ARR plus non-recurring revenue near the midpoint of the $300,000 to $700,000 range. Our TAC plus TEMS dollar-based retention closed the year at 90%. For the fourth quarter of 2025, total revenue was $74,700,000 compared to $79,600,000 in the prior-year period. Technology revenue was $51,900,000 and professional services revenue was $22,800,000. The year-over-year decline primarily reflects lower professional services revenue from reductions in our FTE service offerings and our exit of unprofitable pilot ambulatory TEMS arrangements. For the full year of 2025, as I mentioned, total revenue was $311,100,000, which represented 1% year-over-year growth. Technology revenue increased 7% year over year to $208,300,000, while professional services revenue declined 8% as we continue to prioritize margin improvement and resource efficiency. Adjusted gross margin for the fourth quarter was 53.5% compared to 46.6% in the prior-year period. For the full year of 2025, adjusted gross margin was 51.1%, driven by technology gross margin of 67.4% and professional services gross margin of 18.3%. These results reflect the benefit of restructuring actions implemented during the year, partially offset by migration-related cost headwinds. In the fourth quarter of 2025, adjusted operating expenses were $26,200,000, representing 35% of revenue, compared to $29,200,000, or 37% of revenue, in 2024. For the full year of 2025, adjusted operating expenses were $117,700,000, representing 38% of revenue, compared to $123,400,000, or 40% of revenue, for the full year of 2024. The year-over-year change reflects the continued impact of our restructuring actions, disciplined headcount management, and tighter control over discretionary spending. On a sequential basis, adjusted operating expenses declined by $2,000,000 compared to the third quarter of 2025, driven primarily by the full-quarter benefit of actions we initiated earlier in the year, including workforce optimization, professional services contract restructuring, and operating efficiency initiatives across the organization. From a GAAP expense standpoint, we would note that we did incur impairment charges on goodwill and intangible assets of $110,200,000 during 2025. These charges were primarily due to the decrease in our consolidated market cap and revisions to our forecast, and not a write-down of any specific acquisition. These charges were also the main driver in the change in GAAP net loss from $69,500,000 in 2024 to $178,000,000 in 2025. Adjusted EBITDA for the fourth quarter of 2025 was $13,800,000 compared to $7,900,000 in the prior year. For the full year of 2025, adjusted EBITDA was $41,400,000, representing 59% year-over-year growth. As we look ahead, we remain focused on driving operating leverage, aligning our cost structure with our revenue profile, and prioritizing investments that support future technology margin expansion and technology revenue growth. Our adjusted net income per share in the fourth quarter and full year of 2025 was $0.08 and $0.19, respectively. Weighted average number of shares used in calculating adjusted basic net income per share in the fourth quarter and full year of 2025 was approximately 71,000,000 and 69,900,000 shares, respectively. Turning to the balance sheet, we ended the year with approximately $96,000,000 of cash, cash equivalents, and short-term investments, and $161,000,000 of term loan debt outstanding. For Q1 2026, we currently expect total revenue of $68,000,000 to $70,000,000 and adjusted EBITDA of $7,000,000 to $8,000,000. As we enter 2026, we continue to manage the business with a focus on operational efficiency while balancing targeted investments to support disciplined growth and retention initiatives that we expect will benefit results in the future. We have invested in migration-related personnel and contractors and are adding R&D investments in AI and India. These investments may create near-term financial pressure; we believe they position the business for cost structure improvement in the second half of the year and beyond. Our Q1 2026 revenue is expected to decrease compared to Q4 2025 due to three primary drivers. First, we expect a reduction in TEMS-related revenue due to downselling and our further exit from certain lower-margin TEMS arrangements. This contributed approximately $2,000,000 of the decrease. Second, we continue to see pressure associated with the DOS to Ignite migration. We expect revenue to decline by about $1,500,000 in Q1 2026 compared to Q4 2025 related to data platform pressure. Third, we expect an approximately $1,500,000 decrease in non-recurring revenue in Q1 2026 compared to Q4 2025. This is primarily driven by timing of project completions or certain renewals. A reminder, project-based non-recurring revenue can fluctuate quarter to quarter. We have made substantial progress in migrating our DOS clients to Ignite, but as discussed on previous earnings calls, we still have work ahead. Across 2026 and 2027, we have been notified of roughly $12,500,000 in DOS-related ARR downsell and churn. In addition, we currently estimate $52,000,000 of DOS-related ARR that may be subject to negotiation in 2026 and 2027, of which $35,000,000 is estimated to be data platform infrastructure ARR. Data platform infrastructure—or the data warehouse and related infrastructure—is where we are seeing the highest degree of pressure. While we do expect some level of further churn of this ARR, as Ben mentioned, we are putting plans in place that are designed to retain a large part of this balance. After 2027, we would expect to generally be through the data platform infrastructure migration headwind. We have maintained strong application relationships with our clients even when data platform infrastructure downselling occurs and do not generally lose enterprise relationships entirely. We expect our success in maintaining application relationships to continue in the future. As we approach 2026, although full-year guidance is not being provided, we anticipate that several prevailing trends will persist. These include a sustained emphasis on technology-led bookings through a sharper commercial approach and an ongoing focus on improving technology ARR retention through operational excellence and differentiated applications. With that, I will turn the call back to Ben. Ben Albert: Thanks, Jason. In closing, I want to thank our clients for their continued partnership and our team members for their commitment during a year of meaningful progress and transition. We are focused, disciplined, and aligned around the areas that matter most. We are committed to clear and understandable communication as we move forward. We look forward to updating you on our progress in the quarters ahead. Operator, we are now ready to take questions. Operator: The floor is now open for questions. Thank you. Our first question is coming from Stan Berenshteyn with Wells Fargo. Your line is now open. Stan Berenshteyn: Hi. I guess, if it is one question, I would like to maybe ask about the comments you made around the strategic review in the prepared remarks. Does that include the possibility of selling the company? Thank you. Thanks, Dan, for the question. Appreciate it. Ben Albert: We are really focused on how we best position our company for long-term success. And so as we have done this strategic analysis, we are turning over every rock and looking at the company and looking at how we can best position the company for shareholder value. We see tremendous opportunity ahead in some of the things that we do related to helping better manage costs for our clients as they are really in a challenging market right now, helping drive that consumer experience. And, of course, the foundation for Health Catalyst, Inc. is the clinical quality work that we do. And the ability to do that all together in one is a really huge differentiator for us as an organization. So we are really doing this assessment to best position ourselves for success and align to create shareholder value. Stan Berenshteyn: So is that a yes or is that a no? Thank you. Ben Albert: Appreciate the question. We are just in an assessment mode. I have been one month into the role and really just driving value as we are after. Stan Berenshteyn: Thanks so much. Operator: Thank you. We will go next to Richard Close with Canaccord Genuity. Your line is now open. Richard Close: Yes. Thanks for the question. Jason, maybe if you could go over the transition impact, I guess, with respect to the first quarter and then I think you said $52,000,000 in terms of the data platform for the remainder of the year. It went by pretty quick, so if you could just go over that again and then maybe provide a little bit more detail on exactly what is going on there? Jason Alger: Yes. Yes, I would be happy to. Appreciate the question, Richard. So, yes, definitely wanted to provide a bit more commentary related to the DOS to Ignite migration that is taking place. I did mention the $52,000,000. That would be our DOS-related revenue, which would encompass both integrated applications as well as data platform infrastructure. Really of the two components there, it is the data platform infrastructure where we are seeing the highest degree of pressure related to this migration. This would be the hosting side of the DOS platform, and that is where we have $35,000,000 of data platform infrastructure ARR that we are working with our clients on plans to retain moving forward. And so that is where we do expect to see the pressure across 2026 and 2027. Richard Close: And is it something where they are choosing another platform or competitor? Or what exactly, I guess, are you negotiating with them there on that? Ben Albert: Hi, Richard. It is Ben. Yes, at the data platform infrastructure level, there are cross-industry technology solutions that come in and can enable them depending on their strategy. They still need from us in that when they do that is the expertise and the IP and the applications that we provide on top of that. So it is all part of our strategy to meet them where they are depending on what they are going to do from a data platform infrastructure approach. Richard Close: Thanks. Operator: Thank you. And we will go next to Jeff Garro with Stephens. Your line is now open. Jeff Garro: I want to follow up on the demand environment and ask what you learned in Q4 around bookings and specifically booking size and scope, deal length—or, sorry, the sales cycle length—and app attach rates for deals that landed in Q4? And if you could help translate that into expectations for bookings, or just demand generally, in 2026, that would be helpful as well. Thanks. Ben Albert: Sure. Thanks. In Q4, we did a strategic assessment to look at how our applications and solutions best resonate in the market, and it came back clear that the market is in great need of the ability to better manage their costs, to drive clinical quality, and to engage and attract new consumers to their organizations. That is because they are under more pressure than ever. I mean, profitability pockets are—there are—the payer mix is changing with more Medicare patients coming in, the commercial payments rising at the rate. They really have to be focused on how they are managing their labor costs and their clinical costs. They have to be focused on not eroding clinical quality as they are doing that, and they have to win on the consumer side. So we see activity in those areas, in particular on the cost and labor side, and continually the clinical quality side. So that is where we see the greatest impact and opportunity, and that is representative in the funnel as well. Operator: Thank you. Our next question comes from Elizabeth Anderson with Evercore. Your line is now open. Elizabeth Anderson: Hey, guys. Good afternoon, and thank you so much for the question. I think you talked a little bit about your sharper commercial alignment going forward. Can you talk about when you are going out and you are talking to clients, where do you see it as your sort of right to win with the current portfolio that you have? Thanks. Ben Albert: I will just expand on the prior question because I think that is really where we are strong. The market is in real need of better managing their costs and driving clinical quality. And when you are managing costs, you cannot do that at the expense of your clinical quality in healthcare. And I think the market—this is really early for the market because the cost pressures they are under are growing and are very significant. And so as our right to win, as we have 15 years in this industry, we have done thousands of projects. We have tremendous content and intellectual property to enable our AI, to help guide our clients through change management, to navigate these really rough waters. So the challenge for us is we have not done a good job of telling that story. We are bringing in a Chief Marketing Officer. We have done the strategic assessment. We are turning over every rock. We are talking to our clients. We are talking to partners. We are talking to industry leaders. And the reality is this is a huge need, and it is something that is going to grow, we believe, going forward. And so that is where we are leaning in, and that is where you are going to see our story evolve over time so the market really understands what Health Catalyst, Inc. is all about. Elizabeth Anderson: Got it. Thank you very much. Operator: Thank you. We will go next to David Larsen with BTIG. Your line is now open. Jenny Shen: Hi. This is Jenny Shen on for Dave. Thanks for taking my question. I think you highlighted how despite some of the retention declining to sub-100% levels, you generally maintain and retain most of your clients, especially your enterprise ones. Can you kind of just give us a split? Is it like 50/50 between customers actually rolling off completely or just downselling—just getting a dynamic between the difference between roll-offs and downsells? Thank you. Jason Alger: Yeah. I appreciate that, Jenny. It is definitely a much lower percentage than you mentioned. We do not generally lose enterprise relationships. So where we are seeing the pressure, like I mentioned in the prepared remarks, is on the data platform infrastructure side, and that is where we could see downselling related to that. But, typically, from an application relationship standpoint, including those integrated applications, we generally see that clients are electing to keep those applications for the future. Jenny Shen: Great. Thank you. Ben Albert: Thanks. Operator: Our next question comes from Jessica Tassan with Piper Sandler. Your line is now open. Jessica Tassan: Hi, guys. Thanks for taking the question and nice to meet you, Ben. I was hoping maybe—you know, appreciate the comments on cost and clinical quality as being sources of pipeline strength, but I guess what specifically are the names of the Health Catalyst, Inc. apps that fit into those categories and what do they do? And then can you just talk about how the data platform disintermediation could potentially dilute the value of the applications or at least, you know, commoditize the applications layer and what you are doing to protect against that possibility. Thank you. Ben Albert: Jessica, nice to meet you as well. As we break down our applications across those three categories that we talk about, we have applications that deal with cost intelligence, which would really focus more on some of the clinical services and some of the supply chain work they are doing within the organization to make them most efficient in terms of the procedures that they are doing and being as effective as possible. But when they are making the choices, making sure that clinical quality stays high or even grows. Looking at the labor side, we have something called Power Labor that also fits within the labor within the cost management side of the equation, and the ability to do both at once for an organization is incredibly powerful as well. As you look at the clinical side, there are applications around measures. There are applications that are supporting ambulatory. In today’s world, if you do not have a great ambulatory strategy, it is going to be very challenging to execute and grow with your access. So that blends into the consumer side where we have tremendous consumer intelligence applications as well. So we could spend a lot more time on each of those, and I would be happy to talk about those at length, but there are applications that support each bucket going forward. And I want to just reiterate one thing though: the benefit is, of course, we can go deep on any one of those applications. So this goes back to meet you where you are. If someone has a challenge and they are using a lot of visiting nurse labor that can be incredibly expensive, or not staffing their OR times effectively or efficiently—things like that—we can really help them become more efficient, but again, all with that clinical foundation. As an organization, how are you making these changes? How are you solving these problems while not disrupting your clinical quality? In fact, you are improving your clinical quality, and that is just the core of Health Catalyst, Inc. Operator: Thank you. And we will take our next question from Sarah James with Cantor Fitzgerald. Your line is now open. Sarah James: Thank you. How should we think about the durability of margins if revenue stays under pressure for another few quarters? And can you help us frame the orders of magnitude of the levers that are under your control for 2026? Jason Alger: Yes. Appreciate the question. As we think about gross margins moving forward, there is pressure associated with the DOS to Ignite migration from a technology margin standpoint. That would mostly be the duplicate hosting costs, the duplicate cost structure that we do put in place. We are working to optimize there and remove those costs as quickly as possible, but that does have an impact on Q1 2026. And then from a professional services adjusted gross margin standpoint, we do see pressure associated with the migration personnel that we are adding to assist with the migration. That is to move these migrations as quickly as possible as well. But that is a near-term impact that is impacting Q1 2026 as well. Once we are through the migration, we do expect these to be costs that would be removed from our books moving forward. But we will see the impact in 2026 and a bit of that impact as well as we move into 2027 and continue the migration initiative. Sarah James: Got it. And just to take a step back on that, does that mean that 2026 would be your transition year, returning to growth in 2027? Or is there still a path to positive year-over-year growth for 2026? Jason Alger: Yes, still evaluating. We are not in a position to guide, and we will be providing the 2026 guide on our next earnings call at the latest, but we are not in a position to comment on the 2027 growth expectation at this point. Sarah James: Got it. Thanks. Operator: Thank you. We will go next to Daniel Grosslight with Citigroup. Your line is now open. Daniel Grosslight: Jason, I want to go back to the comments you made around the $12,500,000 of DOS-related ARR churn impacting 2026 and 2027 and then that additional $52,000,000 at risk. Can you kind of just break down for us how much of that combined $65,000,000 that is at risk will impact 2026, and the quarterly cadence of those impacts? And then of the $52,000,000 of ARR subject to negotiation now, what is the realistic success rate you are targeting for these negotiations? Jason Alger: Yes. Appreciate the question, Daniel. As we look at the $12,500,000—starting there—that is DOS-related ARR where we have been notified that the client is looking to downsell or churn related to that. We expect about 75% of that to impact 2026 at different points throughout 2026. More of that will come on probably around midyear and going into the later half of 2026. And around the $52,000,000, that would be DOS-related ARR, which does include the integrated applications and the data as well. And that is where the $35,000,000 would be the piece associated with the data infrastructure. We are working with those clients on negotiation, on migrating those clients to Ignite, and we do expect to continue to see pressure associated with the migration, and that is where we do expect to see some downselling related to the data infrastructure, but would expect to be able to retain those application relationships with the clients. So we are working on a plan with the individual clients, but we will provide more on that, Daniel, as we provide our full-year 2026 guide. Daniel Grosslight: Okay. Thank you. Thanks. Operator: Thank you. And we will go next to Richard Close with Canaccord Genuity. Your line is now open. Richard Close: Yes, thanks for the follow-up. I am just curious on any of the acquisitions that you have done since being a public company. I know VitalWare has been a pretty strong contributor, but can you talk about any of the other acquisitions that you have really seen decent growth in that app layer? And which ones—I guess this has been asked—but which ones really fit into these three priorities now? Ben Albert: Thanks, Richard. This is all part of the assessment in terms of how these applications align to the priorities as we head forward and where we can drive the most shareholder value, the most client value, and the most growth for the organization. Ultimately, we are all about driving measurable improvement, and that measurable improvement comes in those three areas that we talk about. So most of our applications align to those areas, and we see opportunities across, and so we just have to figure out through this assessment which ones are going to create the most value for us going forward. We are super excited to do that, and we will be able to come back with much more clarity no later than our next earnings call when we provide guidance and with a little more thoughts on that assessment. Richard Close: Okay. Thank you. Jason Alger: Thank you. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Ben Albert for any additional or closing remarks. Ben Albert: Thank you, everyone. We really appreciate you joining today. We look forward to the next call where we will be able to provide guidance and more results from this assessment. Thank you. Operator: This concludes today's Health Catalyst, Inc. fourth quarter and year-end 2025 earnings conference call. Please disconnect your line at this time. Have a wonderful day.
Operator: Greetings. Welcome to the Champions Oncology Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Rob Brainin, CEO at Champions Oncology. You may begin. Robert Brainin: Good afternoon, and thank you for joining us for our third quarter fiscal 2026 earnings call. I'm Rob Brainin, CEO of Champions Oncology, and I'm joined today by our CFO, David Miller. Before we begin, I'll remind everyone that today's remarks may include forward-looking statements. Actual results may differ materially, and additional information can be found in our filings with the SEC. Before I walk through the quarter, let me briefly highlight 3 key takeaways. First, we delivered another quarter of strong operational performance, including record services revenue and our third consecutive quarter of positive adjusted EBITDA. Second, while quarterly revenue can fluctuate in our business, we remain on track for full year revenue growth and full year positive adjusted EBITDA while continuing to invest in both our data platform and our discovery therapeutics subsidiary. And third, we're beginning to see early momentum in our data business, including new deals closed during the quarter and additional revenue expected in the fourth quarter. Overall, we're pleased with the progress we're making as we scale the core services business while booting the longer-term growth opportunities in data and drug discovery. Turning to the quarter in more detail. We delivered another quarter of record services revenue, underscoring the strength of our core translational oncology services platform and the resilience of our customer relationships. Our PDX Bank remains a true differentiator in the market. And as customer budgets stabilize, we continue to see bookings convert into revenue. I also want to thank our operations team who delivered this growth without material additions to headcount. That reflects the operating leverage in our model and our ability to expand margins as we scale. As we've said repeatedly, this is a somewhat lumpy business. Quarterly revenue can fluctuate depending on the timing of study progression and completion. During the quarter, we saw strong conversion of previously booked work, including some backlog from prior quarters, which benefited revenue in the period. Looking ahead, we would expect revenue to normalize somewhat as studies move through their various stages. That said, the underlying demand for our services remains healthy, and our focus continues to be on expanding the pipeline of future work through increased commercial engagement. This quarter, despite strong services performance, our year-over-year revenue showed a slight decline due to the large data deal we closed in the third quarter last year. Importantly, our services revenue came close to fully offsetting that comparison. Stepping back from the quarter-to-quarter noise, which is why we manage the business on an annual basis, we remain on track for full year revenue growth and full year positive adjusted EBITDA. all while continuing to invest in both our data business and Corellia without dilution of Champions' shares. That balance, growth and investment, coupled with disciplined focus on the bottom line is central to how we're managing the company. While EBITDA remains somewhat suppressed in the near term as we continue investing in these growth drivers, we expect the payoff from those investments to begin showing up in fiscal 2027 with more meaningful acceleration in fiscal 2028, which brings me to an update on our data business. Although we did not recognize data revenue in the third quarter, we are beginning to see tangible signs of momentum in our data business. During the quarter, we closed a 6-figure data deal that we expect to recognize in Q4. We're beginning to see traction with smaller transactions, which is important in building a broader and more diversified data business customer base with the potential to lead to larger deals in the future with those customers. And we continue to progress the large data deal we originally announced in Q3 of fiscal '25 with incremental revenue expected from that deal in the fourth quarter. While I need to reiterate that this is still early, these developments are encouraging. Customer engagement remains strong, and we are spending significant time and strategic discussions with partners who recognize the value of combining deep biological annotation with clinically relevant tumor models. The opportunity here remains substantial, and we are building it deliberately and thoughtfully. Turning to Corellia, our wholly owned target discovery subsidiary. We continue to generate attractive data that is being well received by potential venture capital funding partners and licensing counterparts. The feedback we're receiving is positive, and we believe the science is compelling. As we've communicated previously, we have included the funding of Corellia in our initial fiscal 2027 budgeting assumptions. However, if we're successful in closing an external funding round, the EBITDA currently being invested in that business would be redeployed toward other growth initiatives, particularly in data and/or flow through to the bottom line. I know a common question is the expected timing of funding for Corellia. At this point, I do not have a specific estimate as to when an external financing may occur. These processes take time, particularly in the current biotech funding environment. What I can say is that the discussions are ongoing, engagement remains quite active and the underlying data being generated on an ongoing basis continues to strengthen the investment case. Stepping back, Champions today is a stronger, more diversified company than it was 2 years ago. We have a differentiated and deeply characterized tumor bank that anchors our services platform, a growing radiopharmaceutical capability that enhances our competitive positioning, a data platform that is beginning to generate commercial traction and has significant long-term potential and a therapeutic subsidiary with scientific validation and external interest, where we believe we will soon be positioned to capture some of the return for the investments we have made. These growth vectors are separate but interrelated and our objective remains to maximize shareholder value across all 3 while maintaining disciplined capital allocation. Importantly, we are demonstrating that we can invest in the future while maintaining positive adjusted EBITDA today. That combination is critical. As we move through the fourth quarter, our focus remains on execution, delivering strong service performance, advancing data opportunities, progressing Corellia discussions and finishing the fiscal year with positive adjusted EBITDA and annual growth. Looking ahead, we believe the investments we are making today in these value drivers position Champions to deliver stronger growth and expanding profitability in the years ahead. With that, I'll turn the call over to David to walk through the financial results in more detail. David Miller: Thank you, Rob, and good afternoon, everyone. Before I dive in, just a quick reminder that our full results will be filed on Form 10-Q with the SEC before March 17. And as always, I'll reference certain non-GAAP metrics with reconciliations to GAAP included in our earnings release. Total revenue for the quarter was $16.6 million compared to $17 million in the prior year period, a decrease of approximately 3%. However, the mix of revenue this quarter is important to understand. Our core study revenue reached a record $16.6 million compared to $12.6 million in the year ago period, representing growth of approximately 32%. This performance reflects strong study execution and conversion of previously booked work during the quarter. We did not recognize any data revenue from our nascent data platform this quarter compared to $4.5 million in the prior year period, which accounts for the overall year-over-year revenue decline. As we have discussed previously, data revenue will vary from quarter-to-quarter at this stage of the platform development. We anticipate it will become a more meaningful and regular contributor to our results over time. It is also worth noting that study revenue in the quarter benefited in part from strong study completion timing, which will normalize in the near term before continuing to grow as bookings expand. As a result, quarterly revenue can fluctuate as studies move through different phases of execution. Taken together, this revenue performance and continued operating discipline supported our third consecutive quarter of positive adjusted EBITDA coming in at $575,000, while our GAAP loss from operations for the quarter was approximately $275,000. Importantly, on a year-to-date basis, we remain on track to achieve full year positive adjusted EBITDA. Turning to margins. Cost of sales for the quarter was $8.8 million compared to $6.6 million in the prior year period, resulting in a gross margin of 47% compared to 61% last year. It's important to highlight that more than $2 million of cost of sales in the quarter was attributable to outsourced laboratory work primarily related to radiolabeling workflows. As we continue bringing this work in-house, we expect these costs to decline and margins to improve. At current revenue levels, had this work been performed internally, our gross margin would have been in excess of 50%. It is also worth noting that prior year margins benefited from the data license transaction recognized in that period. Operating expenses for the quarter were $7.2 million compared to $5.3 million in the prior year period. The increase reflects investments aligned with our strategic priorities. Research and development expenses increased as we invested in sequencing and related activities to support the continued development of our data platform. Sales and marketing expenses increased as we expanded both our data business development team and our commercial POS team supporting both platforms. And G&A expense increased primarily due to leadership transitions and investments in IT infrastructure. While these investments increased operating expenses in the near term, they are intended to support future revenue growth and operating leverage. Turning to cash flows. Net cash used in operating activities for the quarter was $1.4 million, primarily driven by changes in working capital, including a decrease in deferred revenue related to the timing of billings during the quarter. We ended the quarter with $7.1 million in cash and no debt, and our cash balance remains within our projected range for the quarter. Looking ahead, our focus remains on consistent execution, driving revenue growth, improving both gross and operating margins and continuing to invest in the strategic capabilities that support our long-term growth. As we are now in our fourth and final quarter of fiscal year 2026, our next earnings call will be in July. With that, we'll open the call for questions. Operator: [Operator Instructions] And there were no questions currently from the lines. I will now hand the call back to Rob Brainin for closing remarks. Robert Brainin: Yes. Thank you all for listening in today. Like we said, we're pleased with the progress we're making. Look forward to sharing with you another update in July to give you an update on that continued progress. Have a wonderful day. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco Holdings, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode, and there will be an opportunity to ask questions following the presentation. Please note that this conference is being recorded today, 03/12/2026. And now I would like to turn the conference over to Ira M. Fils, the company's Chief Financial Officer. Ira M. Fils: Thank you, operator, and good afternoon. By now, everyone should have access to our Fourth Quarter 2025 earnings, which can be found at elpolloloco.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to our growth opportunities, strategic and operational initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans, and our 2026 guidance, among others. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our recent SEC filings, including our Form 10-K, for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-K for 2025 tomorrow and encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we use for financial and operational decision-making and as a means to evaluate period-to-period comparisons, and which we believe can be useful to investors in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release, which is available in the Investor Relations section of our website. With respect to the adjusted EBITDA outlook we will be providing on today's call, please note we have not provided a reconciliation to the most directly comparable forward GAAP financial measure because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated restaurant revenue on a forward-looking basis. I would now like to turn it over to our CEO, Elizabeth Goodwin Williams. Elizabeth Goodwin Williams: Thank you, Ira, and good afternoon, everyone. I am pleased to report strong fourth quarter results that cap off a transformative second year in our brand turnaround journey. In Q4, we delivered a positive quarter of same-store sales growth, including stable traffic, despite the ongoing macroeconomic challenges that persisted across the industry. This top-line momentum, combined with our team's relentless focus on operational excellence, also enabled us to achieve better-than-expected restaurant-level margins. Before we move on, let me quickly recap what we accomplished in 2025. Building on the foundations we established in 2024, we made strategic investments and executed with discipline across our five pillars, achieving meaningful results that we believe position us for accelerated growth in 2026 and beyond. What began as a transformation effort has now evolved into sustained momentum that validates our long-term growth strategy for El Pollo Loco Holdings, Inc. During the year, we successfully expanded our restaurant-level contribution margins, again demonstrating our ability to drive profitability even while investing in customer value and traffic-driving initiatives. We accomplished this through a methodical approach to cost savings and enhanced labor productivity, including leveraging technology and industry best practices. We are also encouraged by the operational transformation that took hold in 2025, allowing our team members to focus more on guest-serving activities. In addition, we made substantial progress improving our unit economics by successfully reducing our new build cost with our iconic prototype design, and driving even higher cash-on-cash return by utilizing second-generation sites where available. As we look ahead, our priorities for 2026 are clear: to drive sustainable traffic growth across our system while maintaining the margin discipline and unit economic improvements we have accomplished over the past two years, and to thoughtfully grow El Pollo Loco Holdings, Inc. across the country. We will achieve this by continuing to execute against our five-pillar strategy. Ultimately, we believe our focused approach will accelerate our growth trajectory and further strengthen El Pollo Loco Holdings, Inc.'s position as the nation's favorite fire-grilled chicken restaurant. With that, let me provide you details on our pillars. At the heart of a brand that wins is a breakthrough culinary innovation. Together with value, innovation is critical in driving transaction growth, and I am thrilled to share the exciting momentum in our culinary pipeline. Leveraging our unique fire-grilled chicken platform that showcases premium quality at accessible price points, we are able to satisfy our legacy guest preferences while also introducing El Pollo Loco Holdings, Inc. to entirely new consumers across multiple occasions. Over the last eighteen months, we have identified the opportunities to bring more portable and craveable options to our menu. This is translating to improvements in our core customer feedback scores when asked questions regarding menu variety and “have innovative foods I want to try.” Before I discuss how we capitalize on this opportunity further in 2026, I want to take a moment to celebrate the success of our double chicken street corn and queso crunch burrito bowl that we launched in late September. These bowls were instrumental in driving our fourth quarter performance, exceeding our expectations in both guest response and sales contribution. The popularity of these hearty, value-driven, high-quality offerings was so positive that we made the strategic decision to keep both bowls as permanent menu items. This success continues to validate our approach to creating a menu that delivers superior value and portability while maintaining the full flavors and premium ingredients that differentiate El Pollo Loco Holdings, Inc. During the quarter, we also launched our $29.99 FAM Feasts, an eight-piece fire-grilled chicken meal with five tortillas, salsas, and churros, providing quality and value for families and groups. Turning to 2026, we are pleased with the momentum from our Double Pollo Salad that launched in January with fresh options to meet New Year resolutions. Featuring street corn, Mexican Caesar, and bacon ranch options, each salad delivers over 50 grams of protein with a double portion of our signature fire-grilled chicken. Given the consumer appeal of Street Corn and Mexican Caesar salads, both have earned a permanent placement on our menu and continue to resonate well with our guests seeking nutritious and craveable options with fresh ingredients. Building on our solid success, in mid-February, we launched Baja Double Tostadas, reimagining our beloved tostada with bold new flavors and notably a seasonal seafood option. Our Baja Double Tostadas featuring chicken and shrimp demonstrate our willingness to innovate across a core platform while maintaining our commitment to quality and flavor. While still early, the initial response has been very encouraging, with guests embracing both the limited-time seafood protein and enhanced flavor profile delivered through our lime crema sauce. In addition to new salads and tostadas, we also continue to promote our core fire-grilled chicken on the bone with the return of Mango Habanero Chicken, which was available for a short time, and also the continuation of our $29.99 FAM Feast. Turning to protein, we are proud of our position as a true protein leader. We further capitalized on the macro trend by launching our version of a protein menu, which is a collection of menu items with more than 20 grams of protein. We did this with a playful nod to the fact that we have been the legitimate place for protein for over fifty years. The February launch culminated with social media content illustrating a drumstick in a protein bar wrapper, messaging that our chicken is the original protein bar, a clever way to connect with today's youthful and protein-focused consumer mindset. The best part of our protein menu is it requires no new operational lift. Rather, it simply showcases what we are known for: high-quality, delicious chicken packed with protein. As we look toward our future innovation pipeline, we are excited about our upcoming Loco Tenders launch in a few weeks. Our all-white-meat, boldly seasoned tenders feature our signature dipping sauces: Pollo Loco Sauce, Baja Lime, and House Ranch. They also represent our entry into the rapidly growing chicken tender category. Loco Tenders provide a unique El Pollo Loco Holdings, Inc. twist on a classic tender, which we believe will make them a standout and have strong appeal for new and existing customers. We are currently in the final stages preparing for this launch. We are also testing new loaded quesadillas and a crispy grilled chicken sandwich that delivers all the crunch and flavor of a fried sandwich, but it is grilled, not fried. Both entrees are flavorful, portable, and under $10. Also in test are beverages with Horchata Iced Coffee, featuring our delicious horchata with notes of cinnamon and vanilla, and Cold Foam Coolers, which are aguas frescas topped with sweet, creamy cold foam. Both beverages are planned to launch later this year. These are just a few of the products across our innovation pipeline, which is the most robust we have delivered in years. To support all of this menu innovation and growth, we have implemented an internal process with several stage gates to ensure our restaurant operations are minimally impacted and that we can deliver the quality that defines El Pollo Loco Holdings, Inc. Best of all, our ability to foster innovation has been enhanced recently by our new culinary kitchen at the heart of our restaurant support center. Our menu innovation strategy works hand in hand with our targeted marketing efforts to further amplify the El Pollo Loco Holdings, Inc. brand and drive meaningful guest engagement. By emphasizing our unique heritage of fire-grilling chicken and actually cooking in our restaurants, we believe we have a true competitive advantage in the QSR landscape that few brands can claim. We stand firmly behind our commitment to quality, and while others might think our dedication to fire-grilled chicken is loco, we believe this passion is exactly what sets us apart. We are proud of what our Let’s Get Loco campaign accomplished in 2025. From a distinct tone and look in our advertising to leveraging our passion to build brand affinity, Let’s Get Loco positions us as an authority in authenticity. Beyond advertising, this came to life through our brand activations like our Loco AI Challenge, which invited fans to create chicken-centric content using AI, or our December Twelve Days of Pollo activation where we introduced fans to our Chicken in the Kitchen, which was our version of Elf on the Shelf. The momentum continued as we kicked off the New Year. We officially declared Monday as Leg and Thigh Day, a fun play on leg day at a gym. We did this by providing gym goers and Loco Rewards members a free Leg and Thigh Meal for the perfect post-workout meal. These buzz-building moments amplify our brand beyond the menu and create moments for real fandom and loyalty. In addition to larger brand activations, we have also shifted our local marketing approach to include more grassroots efforts to support our fundraising and catering program. This has been especially beneficial in new and growing markets and will become an increasingly important part of our marketing toolkit as we expand. We are focused on growing reach and frequency across all consumer groups, and while it is still early, the data suggests that we are seeing momentum with the younger consumer, particularly the 25 to 34 age bracket, driven by our brand relaunch and marketing efforts. There is still much work to do, but this is an early indicator our initiatives are gaining traction. Looking ahead, our integrated marketing and menu innovation strategy will continue to focus on our passion for chicken and our commitment to showcasing quality and affordability across multiple consumer occasions in a relevant way. Whether we are launching new menu innovations, creating memorable brand moments, or taking a local approach in new markets, our marketing will consistently reinforce our differentiator of fire-grilled chicken while meeting the evolving consumer demand for portable, flavorful, and protein-rich options. Shifting to a hospitality mindset, I want to highlight the immense focus we have placed on operational excellence to drive sustainable traffic growth. In 2025, we recognized an opportunity to invest in driving standards and accountability through third-party measurement and direct customer feedback and benchmarking. The investments we have made are being noticed by customers. Our overall satisfaction, or OSAT, scores are now outpacing the QSR industry, as measured by SMG, and we have shown improvement across all measures from accuracy, quality, friendliness, cleanliness, and speed. While this sequential improvement has continued into the first quarter, I do believe we still have room for improvement which will drive additional future growth. I want to give special recognition for the improvement we saw in friendliness, which was the largest sequential increase. This was made possible by our team members embracing our opportunity and delivering excellent service each and every day. I want to take a moment to say thank you to our restaurant team members and our franchise partners. We are excited about the opportunity to continue raising the bar. El Pollo Loco Holdings, Inc. is consistently recognized for our exceptional food; we are motivated to earn that same recognition for our operational excellence. With our focus on operational excellence and fundamentals, we are combining innovative tools and AI applications to further drive team member efficiency and customer experience. Throughout the year, we will continue to deploy tools, systems, and new ways of training that help us deliver a robust culinary calendar while also elevating customer service. I would like to note that these strategic investments in operations and technology will naturally translate to an elevated G&A in the near term, on which Ira will provide further detail in a moment. However, we view this investment as a critical foundation that will allow our brand to scale efficiently and maintain our high standards as we expand. This brings us to our next pillar, enhanced capabilities with our digital-first mindset. We are pleased that our digital business continued to gain momentum during the fourth quarter. Our more aggressive approach offering app-based promotions and targeted value through our Loco Rewards program drove significant engagement and transaction growth. As an example, our Twelve Days of Pollo campaign in December exemplifies this strategy perfectly, delivering exclusive daily deals. This limited-time promotional event not only generated immediate sales lift, but it also attracted new app users and increased the frequency among existing loyalty members, demonstrating the power of creating urgency and exclusivity within our digital ecosystem. We are pleased with the increased engagement, as both loyalty revenue and participation rate grew by more than 20% year over year. In January, we launched a program refresh that introduced Boost, seasonal offers exclusive to rewards members. We believe that these types of enhancements to the program will help us maintain our strong momentum in 2026. We have also continued to grow our reach and frequency through our third-party delivery partners, expanding our digital offers and utilizing paid advertising with these platforms. We successfully grew delivery by 12% year over year in 2025, and we will continue to focus on offers and advertising in 2026, as our data suggests that these transactions are incremental and do not cannibalize existing traffic. We also made several substantial technology investments in our restaurants in 2025 that will continue to enhance customer and team member experience in addition to productivity. As an example, in the last few weeks, we completed a project to upgrade all of our company and franchise restaurants to a cloud-enabled point-of-sale platform that is easier and faster for team members to use, and it unlocks insightful reporting capabilities. The importance of technology and AI is rapidly increasing across all facets of our business. Just about every project team depends increasingly on technology or a program’s success. With this rapid increase in technological needs and importance to operational excellence, we are investing in technology leadership with the addition of a new Chief Technology Officer, Vadim Harisher. Vadim joins us with a rich background from Taco Bell, Allergan, and Amgen. Together with a strong tech team already in place, Vadim will shape our technology investment to provide a powerful foundation to support our growth. As we pivot now to growth through new development, 2025 proves that we are a brand that is ready to grow again with a business model that supports sustainable expansion. We achieved our goal of opening nine new restaurants in 2025, including our 500th El Pollo Loco Holdings, Inc. restaurant in Colorado Springs. As a reminder, this is the largest systemwide unit growth since 2022, and we are just getting started. More importantly, we are not just opening restaurants; we are opening successful ones. The restaurants we have opened since 2024 are averaging over $2.0 million annually, driven by our strong franchise partners and our new restaurant training teams who bring our refined brand positioning to life for our customers every single day. In 2025, we opened restaurants in two new states, Washington and New Mexico, bringing our footprint to nine states in total. Of the nine restaurants opened, six were outside of California, and seven of the nine were built leveraging second-generation restaurant assets with significantly lower build costs than traditional ground-up units. Let me highlight a few standout locations that showcase the breadth of our success across the country. In Dallas, we opened a company-owned location in a former Arby’s site with a build cost of $1.4 million, with early sales results in line with our expectations. This is a perfect example of how we are derisking our capital outlay through second-generation SWIP. Our franchise partners have also delivered exceptional recent openings with strong performing locations in Colorado, Texas, and Washington. These second-generation site construction costs were typically in the low to mid-$1 million range, and all have been averaging above $2.0 million in annualized sales volume. These successes reinforce our confidence as we look toward 2026, where we are targeting approximately 18 to 20 new restaurant openings with three to four being company-owned locations. Similar to last year, the vast majority of the 18 to 20 new openings in 2026 are expected to be outside of California. This growth trajectory is being supported by key organizational enhancements, including our new VP of Franchise Recruiting, who will help accelerate our franchise development effort, and our robust investments in incremental field training and new store opening teams. Turning to our restaurant remodeling program, we continue to progress as planned. For the year, we completed the 69 planned remodels, and we continue to see consistent mid-single-digit sales lift in company-operated locations. For 2026, we plan to remodel 25 to 35 company-operated restaurants and 30 to 40 franchise-operated remodels, putting us on track to meet our goal of updating approximately half of our total system over four years. The combination of successful remodeling programs and the strong performance of recent openings has positioned us well for continued expansion in 2026 and beyond. We remain focused on disciplined growth that delivers strong returns while building lasting brand presence in new markets across the country. Before I turn the call over to Ira, let me provide you with one more update that is more long term in nature. In addition to the day-to-day hires we have made, we have also materially reshaped our board with substantial industry expertise over the past two years, with the addition of four new board members with extensive restaurant experience. These industry leaders are not only strengthening our corporate governance, but also providing valuable best-practice sharing and guidance on all topics, from marketing to operations and development strategies. With the support of our board and the momentum we have built across our strategic drivers, we have tremendous confidence in our ability to accelerate growth over the next several years. With that, let me turn the call over to Ira for a more detailed discussion of our fourth quarter financial results. Ira M. Fils: Thank you, Liz, and good afternoon, everyone. For the fourth quarter ended 12/31/2025, total revenue was $123.5 million compared to $114.3 million in 2024. Company-operated restaurant revenue increased 7.1% to $102.4 million from $95.6 million in the same period last year. The $6.8 million increase in company-operated restaurant sales was driven by 0.4% growth in company-operated comparable restaurant sales as well as $5.3 million of sales from the additional operating week in 2025. As a reminder, 2025 included 14 weeks compared to 13 weeks in the same period last year. The growth in comparable restaurant sales included a 2.7% increase in average check size partially offset by a 2.3% decrease in transactions. During the fourth quarter, our effective price increase versus 2024 was about 3.2%. Franchise revenue increased 15.5% to $13.0 million during the fourth quarter, driven by a 3.2% increase in comparable restaurant sales, $0.5 million from the additional operating week in 2025, $2.4 million in revenue recognized related to terminated franchise development agreements, and revenue associated with nine franchise-operated restaurant openings subsequent to 2024. The 3.2% increase in comparable franchise store sales consisted of a 2.4% increase in average check and a 0.8% increase in transactions. For the full year of 2025, our systemwide comparable store sales increased 0.1%, driven by a 0.7% increase in average check, which was partially offset, including Q3 true-ups, by a 0.6% decrease in transactions. As we move into 2026, we are pleased that our sales momentum has continued into the first quarter. Systemwide comparable store sales for the first quarter to date through 02/25/2026 increased 2.4%, consisting of a 1.8% increase in company-operated restaurants and a 2.8% increase in franchise restaurants. Turning to expenses, food and paper costs as a percentage of company restaurant sales decreased 70 basis points year over year to 24.4% due to higher menu pricing and approximately 100 basis points of commodity deflation during the fourth quarter, which was partially offset by higher discounting. We expect commodity inflation to be in a 1% to 2% range for the full year 2026. Labor and related expenses as a percentage of company restaurant sales decreased about 90 basis points year over year to 31.5% as we continue to benefit from improvements in operating efficiencies, primarily driven through enhancements in labor deployment and scheduling combined with continued use of technology and equipment to simplify team member roles along with menu price increases. Wage inflation during the fourth quarter was 0.6% for all our company-owned locations. For the full year 2026, we expect wage inflation of between 2% and 3% for all our company-owned locations. Occupancy and other operating expenses as a percentage of company restaurant sales increased 80 basis points year over year to 26.6%, primarily due to higher utilities, software maintenance fees related to our kiosk and new POS rollouts, higher rent, and higher liability insurance costs, partially offset by lower repairs and maintenance expense. Our restaurant contribution margin for the fourth quarter improved to 17.5% compared to 16.7% in the year-ago period. As we continue our path of margin improvement, we expect our restaurant-level margin for the full year 2026 to be between 18.0% and 18.5%. In addition, we expect our margins in 2026 to be between 17.5% and 18.0%. General and administrative expenses increased to $13.1 million compared to $11.1 million in the prior year. The increase was primarily due to $1.2 million in incremental labor and related costs, $0.7 million in severance and executive transition costs, and $0.8 million in other general and administrative costs, partially offset by $0.7 million in lower management bonus expense. As a percentage of sales, G&A increased to 10.7% or 100 basis points. As we move into 2026, to achieve our accelerating new store growth objectives, income taxes were $2.8 million for an effective tax rate of 30.0%. This compares to a provision for income taxes of $1.8 million and an effective tax rate of 23.5% in the prior-year period. We reported GAAP net income of $6.5 million, or $0.22 per diluted share, in the fourth quarter compared to GAAP net income of $6.0 million, or $0.20 per diluted share, in the prior-year period. Adjusted EBITDA for 2025 was $16.9 million compared to $14.3 million in 2024. Results for 2025 included 14 weeks of operation compared to 13 weeks in 2024. The impact of the extra week of operation increased adjusted EBITDA by approximately $0.77 million. Adjusted net income for the fourth quarter was $7.3 million, or $0.25 per diluted share, compared to adjusted net income of $5.9 million, or $0.20 per diluted share, in the fourth quarter of last year. Please refer to our earnings release for a reconciliation of non-GAAP measures. In regard to our remodeling efforts during the fourth quarter, we completed 25 franchise restaurant remodels and 10 company remodels, bringing our total completed remodels for the year to 17 company and 52 franchise remodels. In terms of liquidity, as of 12/31/2025, we had $51.0 million of debt outstanding and $6.2 million in cash and cash equivalents. Subsequent to the end of the fourth quarter, we paid down an additional $3.0 million on our revolver, resulting in our debt outstanding of $48.0 million as of 03/12/2026. With that, we would like to provide you with the following guidance for 2026: systemwide comparable store sales growth of 2% to 3%; the opening of three to four company-operated restaurants and 15 to 16 franchised-operated restaurants; capital spending between $37 million to $40 million; G&A expenses between $52 million to $54 million, excluding one-time charges and including approximately $6.5 million in stock compensation expense; adjusted EBITDA between $66 million and $68 million; and an effective income tax rate of approximately 29% before discrete items. In addition to our guide for 2026, we are introducing the following guidance for 2027 and 2028: systemwide comparable restaurant growth percent in the low single digits, systemwide restaurant growth percent in the mid-single digits, and adjusted EBITDA growth percent in the high single digits. This concludes our prepared remarks. We would like to thank you again for joining us on the call today, and we are now happy to answer any questions that you may have. Operator, please open the line for questions. Thank you. Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press star and the number one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and the number two if you would like to remove your question from the queue. For participants using speaker equipment, please pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question comes from Jake Rowland Bartlett with Truist Securities. You may proceed with your question. Jake Rowland Bartlett: Hi. First question was on the consumer. You guys are in a, I think because of your regional, you may have less weather than we have had on the East Coast. And one of the phrases that we talk about these days is underlying demand, and I think you guys might be in a good position to tell us about what you think the underlying demand is out there without weather. So what are you seeing? I know you are doing a lot to influence your results, which is encouraging, but I am hoping you can talk about your confidence in the consumer. Which direction you think the consumer has been moving in the last few months and few quarters? Elizabeth Goodwin Williams: Thanks for the question. The consumer is still looking for great food at a great value, wanting to have a meal that is healthy, better for them, quality ingredients, all indulgent at times, but wanting to do it within their budget. So certainly more budget conscious. We are seeing that we are able to serve that for the consumer. We are seeing increasingly the consumer in Q4 responding to value, particularly with our burrito bowls and with some of our offers in our app and then also with third-party delivery. And then as we have gotten into the beginning of this year, where we are predominantly on the West Coast, we are lapping some of the activity from last year where the consumer stayed home more, whether it was because they did not have the money to come out as much, but then there were also some of the events going around with just ice and everything else out there. We are not seeing as much of that this year. So the consumer is certainly still looking for a great experience at a great value. Jake Rowland Bartlett: Great. That is good to hear. The other question was it sounds like you are doing a lot. You are testing a lot. You are coming up with some nice menu innovation. You are adding a lot of items, or a number of new items, to the permanent menu, adding a little complexity. So I am wondering what you are taking off the menu, for instance, but also how you are going to market all this effectively. Seems like there is a lot to talk about and maybe a limited voice. So what is the approach to marketing in terms of trying to accomplish all that you are trying? Elizabeth Goodwin Williams: Sure. Thoughtfully pacing and sequencing is really key, and doing a lot of testing, which is what we are doing right now. If you think about having also a nice mix of products that we have had before that consumers love and then just doing a twist on some of those menu items. As an example, our tostadas that are wildly popular, the twist right now is a Baja Lime element with shrimp and with chicken, whereas in the past, we have done that with Mango Habanero or we have done that without flavoring. The same thing is true with the burrito bowl that we launched in Q4. We have a twist there with the Queso Crunch. We had always had burrito bowls on our menu; however, we innovated on two new flavors. Some have unique ingredients, some use ingredients we already have in the restaurant. When we made the decision to keep those on the permanent menu, what we did is we looked at the burrito bowl lineup and said, does this replace a burrito bowl on there? And indeed, it did. In many instances, as we are adding, we are also removing. Or as an example, on the Double Pollo Salad, we made an update to one of the salads where we made a small enhancement, but it was one in, one out in that sense. Jake Rowland Bartlett: Great. I appreciate it. Thank you. Elizabeth Goodwin Williams: Thank you. Operator: Our next question comes from the line of Todd Brooks with Benchmark. Please proceed with your question. Todd Brooks: Hey, thanks for taking my questions, and congrats on really strong results and solid momentum carried here into the New Year. So congrats on that. Two questions, if I may. One, you talked about work in getting the prototype cost down and the success with the second-generation locations, and you gave guidance for, I think it implies, 14 to 17 new franchisee locations in 2026. Liz, can you talk about the mix of growth with existing franchisees versus new-to-brand partners? And are we to the point yet that you feel like you are ready to give us color into what the franchising pipeline looks like so that we could start to understand what you are building on that to drive that flywheel of longer-term unit growth that you guys guided for for 2027 and 2028? Elizabeth Goodwin Williams: Sure. As we go along throughout the year, we will certainly provide more detail in the richness of that pipeline in terms of where those units are and with different franchise partners and company units. We figure at least 20% of those new builds will be with company capital. In terms of the franchise partners, I am excited because it is a lot of our existing franchise partners who have seen the improvement that we have made with the economics, and they have that enthusiasm and love for the brand. They know how to grow with the brand. They have the infrastructure to grow with the brand. So we have a healthy pipeline of existing franchise partners, but then there are also new franchise partners. As an example, we have new partners up in Washington that are driving growth, new partners in New Mexico as an example. So it really is a mix, and then we are not done. As I mentioned, we just brought on a new leader guiding our new franchise recruitment, and we have a good amount of interest, but I think there is more interest out there as we tell the story of the brand and we work our way across the United States. So the simple answer is it is a nice combination of new but also existing, complemented by corporate growth. Todd Brooks: Okay. Great. And my second one, and I will jump back in after this. I do not ever remember this type of annual guidance in the past, and certainly not a multiyear framework. It is great to get. Thank you for it. What are you seeing in the business that gives you the confidence to actually give us this, given the current consumer environment? Elizabeth Goodwin Williams: It is a great question. I, now concluding the second year of turnaround heading into year three, have a really terrific leadership team alongside me and also just a team around us. We have all been at this for decades, and we have seen a lot of restaurant growth, turnarounds, turbulent times, and we see in our business that we have worked through so much over the last couple of years. We have gotten this brand to a place that is so much healthier than where it was. We have stabilized and dramatically improved the margins and the profitability of the brand. We have figured out what works in terms of driving sales, what formula works when it comes to innovation or value. Now there is always the consumer element, which is the big surprise, like you mentioned. It is harder to predict what is going on with macros and consumers. But there are some fundamentals that I think I am more comfortable, and our leadership team is more comfortable, knowing the formulas that drive growth. As we look out to a longer term, we are able to make longer-term decisions, such as investing some very thoughtful G&A in places that we know are going to drive growth. When we put that all together, and you have a great CFO like Ira and a team with him, you feel more comfortable being able to articulate that two- to three-year plan. Todd Brooks: That is great. Thanks, Liz. Elizabeth Goodwin Williams: Thank you. Operator: Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Please proceed. Jeremy Hamblin: Congratulations on a really strong year and the momentum you have in the business. I thought I would start by just understanding in terms of the system—really strong results from the franchise business in Q4, but about a 300 basis point difference between your company-operated locations and franchised on traffic—and wanted to get a sense for why you think that difference exists. It does sound like in Q1, that gap has closed, but likely still some sort of a gap there, given that franchise is trending a bit higher. Any color you might be able to share and what you might be able to learn from the franchise operators? Elizabeth Goodwin Williams: I would not read too much into it, as it does go back and forth from time to time or quarter to quarter. Sometimes some of the factors—we do pick it apart and look at it—can be geographies, but they also could be lapses in terms of amount of pricing that either franchise or corporate might have taken, and then lapping that and implications that has with transactions. It also, at times, can be the geography piece that has some of the weather implications as well. In addition, it can occasionally be operationally driven. I do think our franchise partners are terrific operators, and in some instances, they have operated more strongly than corporate restaurants. But I would not say in this case it is any one of those as the defining reason. It is usually a multitude of factors. Jeremy Hamblin: Understood. And then coming back to the point about menu innovation, that really stands out where it looks like you guys are testing more and more frequently. In terms of what is in place from a corporate level to drive that type of innovation, what has changed on that front? And in terms of thinking about what your pipeline looks like—right, you have had a lot of exciting launches and successful launches here—should we expect this type of innovation in the number of new products to continue here as you go into 2027 and 2028 as well? Elizabeth Goodwin Williams: I think we should expect that. We have a belief that the category loves innovation. The consumer loves to try new things, and we think that our brand leans into that exploration. Some of the things that we have done from the restaurant support center standpoint is to build back that muscle of being able to do innovation and do it well and within our operational footprint, because the worst thing is when companies go and try to do innovation, they do not do it well, and operationally, it just breaks the restaurant. Some of the things that we have put in place: we have an Op Services team that we did not have a couple of years ago, led by Rick Pepper—an outstanding team. They really work closely with our operations team to field test. I have talked many times about our culinary team led by Chef Rene. He does a fabulous job on the innovation side. That team was not as robust a couple of years ago. I spoke briefly in the prepared remarks about having a culinary kitchen. We recently moved our corporate headquarters after twenty years, and our number one priority in looking for space was having a culinary kitchen at the center—the heartbeat, really—of the support center. Even little things like that signal to the organization how much we care about culinary and about innovation. Jeremy Hamblin: Follow-on to that question. Just to confirm, you said that the full launch of tenders is coming in a few weeks, and then I wanted to get that confirmed. And then just thinking about when, with the chicken sandwich, the rollout of that. Elizabeth Goodwin Williams: We will see our tenders later this spring. We have not released the exact date yet, but later this spring. We are really excited. The sandwich is still in test, and we are testing other types of sandwiches. That is something we are looking at later this year, so in the second half of the year. Jeremy Hamblin: Got it. Last one for me. The balance sheet really improved in 2025, right? I think your net debt now is down to, like, $45 million. And you are continuing to build cash, or cash flow, I should say. Is the plan to get that down to no debt? And then after that point, as you have a bigger system in total, as you grow units, thinking about other things that you might be able to do with that cash flow on a go-forward basis, any insight you might be able to share into the multiyear plan on that? Ira M. Fils: That is a great question, Jeremy. Thanks. As we move into 2026, the good news of us being able to have so much cash available—we are turning around and investing that as we move into 2026. As Liz talked a lot about, we are increasing our pace of new unit development on the corporate side. We are investing as we are in this second year of our image and look and feel of the brand. We are upping the pace of our remodels. We are taking these dollars, and we are investing it into operational improvements in the restaurant to help us drive both sales and margins. We are going to spend a little more in CapEx this year, as we talked about, in 2026. That is one thing we are doing with it. As we continue to move forward, we will also be evaluating ways how we can, from a capital allocation standpoint, potentially return that to shareholders as well. We are comfortable with our level of debt, but we are also looking for ways to take those dollars and invest it in the business to continue to drive profit growth over time. Jeremy Hamblin: Great. Thanks so much, and best wishes this year. Elizabeth Goodwin Williams: Thank you. Operator: Our next question comes from Andy Barish with Jefferies. Please proceed. Andy Barish: Hey, good afternoon, guys. You guys are kind of in the, I guess, unenviable position of having reported after the Middle East stuff has erupted. Have you seen a consumer reaction with gas prices above $5 in California? Just wondering what you are willing to discuss there, given you guys have been one of the few, if only, reporters since everything started up. Elizabeth Goodwin Williams: Thanks for the question, Andy. Surprisingly, we have not. We are all very familiar that typically QSR and fast casual are tightly correlated with gas prices, so we watch closely, but I would not say we have seen anything of note as of late. Andy Barish: Good to hear. I know if it ever trickled through, or if it does, people adjust hopefully fairly quickly and get back to prior spending path, which I guess has been what we have seen historically, at least in terms of food away from home. On the same-store sales composition, can you go through that with us? I know traffic is a focus, but I am assuming pricing is going to be in line with inflation, which looks like it is two to three when you combine commodities and labor. Any more color on price? And then is the goal to get traffic positive this year? Ira M. Fils: That is always our number one goal, to drive traffic positive. We feel good so far about our trend that we have seen in the quarter. We were a little soft that first week of the quarter with some holiday timing and some weather issues, but we have been very pleased with the way the quarter has played out for us so far. To the second half of your question, we are going to keep pricing similar to last year. We were, I think, at about 3.5% last year, and our pricing will be similar to that as we move forward into 2026, obviously subject to how the year plays out. We feel that with a combination of the innovation that we have going and the products that we are bringing to bear and where the business is right now, we have the ability to take a little bit of pricing as we move forward this year. Andy Barish: Got it. And then on the assumption, starting in 2027, it looks like adjusted EBITDA growth will be higher than revenue growth on a high level. Is that still moving restaurant-level margins, or do you expect G&A to start to lever a little bit maybe in 2027 again after the spend in 2026? Ira M. Fils: Great question. We have always said we believe this business can get into the 18% to 20% range from a store-level margin standpoint. This year, we are guiding 18% to 18.5%. We believe we have continued opportunities to drive our margins higher, and that is reflected as we think about the 2027 and the 2028 guidance. That, in concert with making a lot of G&A investments this year, we will start to see some G&A leverage as we move into 2027 and 2028 as well. Elizabeth Goodwin Williams: Some of those G&A investments, as we remarked, are across the business in things like new unit development. As we are building corporate restaurants and also all the training to make sure franchise restaurants open successfully, we see those investments as having a direct payback. Technology—things that drive not only innovation but productivity—are also areas of investment. These are things that are very laser focused that, over time, have a strong return. Andy Barish: Great. Thanks for the color. Elizabeth Goodwin Williams: Absolutely. Thank you. Operator: Our next question comes from the line of Tania Anderson with William Blair. Please proceed. Tania Anderson: Hi. Good afternoon. I was just wondering if you could talk about the cadence of the openings this year. Ira M. Fils: The great news is we have already got two open so far this year. As we move forward through the year, it will be not as back-loaded as we had our openings last year, but typically, as you move forward, they will be a little back-loaded as we move through the year. We are excited. We have eight stores under construction right now, so we feel really good about our new unit development this year. Tania Anderson: Okay. And then previously, you talked about having some input and COGS initiatives that were going to happen this year. Can you talk about any specifics there? Ira M. Fils: This has been a multiyear project for us in regards to leveraging what we are buying to improve margins. As we think about the focus for 2026, it is taking things and having the supplier do some of the prep. We do a lot of prep today in our restaurants, and having our suppliers do some of that prep for us—taking some of that labor and complexity out of the restaurant. The combination of that will drive efficiency and margin for us. These are the main focus of our initiatives this year to help us drive the margin improvement. Tania Anderson: Okay. Thank you. Ira M. Fils: Thank you. Operator: Our final question comes from Matthew James Curtis with D.A. Davidson. Please proceed. Matthew James Curtis: Hi, good afternoon. I just wanted to ask about the new markets you have entered recently, like Washington and New Mexico, as well as some of the other openings outside of California. I was wondering if you could share what initial sales volumes have been like and what you have been doing to support these new openings, either in terms of marketing support or in other areas? Elizabeth Goodwin Williams: Great. Thanks for the question. We are really proud of these new openings, in particular Washington. In Kent, Washington, this unit has exceeded every expectation—well above our system average. Lines to the point where we have had to dial back some of our hours so that we could make sure we had chicken for everyone. We have not turned on the third-party delivery partners because we have so much demand in the restaurant. We want to serve the customers that are in front of us rather than even turning on delivery. This is the first unit in the state, but it shows you how much pent-up demand there is for El Pollo Loco Holdings, Inc. When we support the restaurant well and we find great franchise partners, it is a magical combination. The training that we are doing is many months in advance. We spend a lot of time with folks training. We send teams up to these restaurants, and there is a lot of ongoing support. New Mexico—also a new franchise partner—also performing really well, above average, so much so that the franchise partner has been looking for additional sites in the market because they have so much excitement and are very pleased with the results. I think that is the very testament that one unit is not enough; they want to do several in the DMA. To me, it is a testament of growing outside our home market. Matthew James Curtis: Okay. That is certainly encouraging to hear. So I guess the next obvious question is where do you think the pent-up demand is coming from, given that these are your initial sites in those states? Would this be basically demand coming from California expatriates or something else? Elizabeth Goodwin Williams: I think that certainly helps with the familiarity of the brand, but there is certainly not enough—as many people as might have left California, I do not think there is enough to substantiate all this demand. I think it is the fact that we really do not have a true national competitor. When you think about fire-grilled chicken, when we open in these markets, we serve our chicken in the delicious way that everyone knows and loves it. The same consumer type that loves the food, whether they are in California or Arizona or Nevada, they love it in New Mexico and Washington and eventually across the country. Back to your other part of the question in terms of how we are marketing things: we are using local marketing, we are using digital marketing—all different types of marketing tools—to drive awareness. Matthew James Curtis: Okay. Interesting. Thanks very much. Elizabeth Goodwin Williams: Thank you. Operator: Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I would like to turn the call back over to Elizabeth Goodwin Williams for closing remarks. Elizabeth Goodwin Williams: Thanks again, everyone, for your interest in El Pollo Loco Holdings, Inc. We look forward to talking to you again next quarter. Have a great evening.